/ 24 January 2025

R100 billion transformation fund simply another avenue for corruption

Police Set To Probe M&g 'briber'
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Minister Parks Tau’s desire to create a R100 billion transformation fund in order to exclusively fund and benefit black-owned businesses is dripping with an ideological racialism that should long have been abandoned in a democratic society, while also creating yet another institution to be looted by corrupt cadres.

The fund has already faced scrutiny, notably by the Democratic Alliance (DA), which has criticised how Tau bypassed discussions with the Government of National Unity (GNU) to establish the fund.

Business has condemned uncertainty surrounding the policy, and there are concerns that further imposing of BEE policies and taxes to finance it will damage the economy further.

On a theoretical level, the transformation fund fails.

The racialist aspect of creating a fund to only benefit a single race group is discriminatory and unconstitutional. Further, levying additional taxes on an already overtaxed economy will stifle the growth of productive businesses and chase many offshore, while also reducing the ability for many businesses to grow their operations and create jobs.

The idea of heavily subsidising black-owned businesses is flawed because it completely misunderstands what makes a business successful.

Good businesses have sound fundamentals that appeal to investors and consumers. They succeed because of innovation, grit, hard work, and prudent finances – coupled with calculated risk and drive.

Subsidised businesses seldom do well. And when they do perform well, it is because the subsidies tended to be unneeded. This is because good businesses need to go through all the steps to starting a business. They need a sound business strategy and a good pitch to appeal to investors. Merely being of a certain race is not a sound business strategy.

There surely will be black-owned businesses that deserve investment. But if they deserve investment, they do not need state subsidies.

Rather, the government should be liberalising the economy to encourage private investors to put more money into any local business. While still arbitrarily racialist, a tax break on investment into black-owned businesses would be a far more prudent policy.

The Black Industrialist Programme (BIP) similarly funded black-owned businesses, kicking off in 2016.

R36.7 billion was given to 70 companies (according to the DTIC website) through grants and loans. That’s around R524 million per company. Some companies would have received more than others. And most of the money likely disappeared into a faceless bureaucracy. The success story on the website employs 123 people.

For only a million rand, a more effective business could have grown their operations to create even more jobs.

The BIP has been criticised as enabling mass corruption and political favouritism. The beneficiaries were not struggling or deserving businessmen, but friends and cronies of politicians. The BIP has since had negligible influence on employment or GDP.

The Land Reform Programme (LRP) sought to transfer 30% of agricultural land to black farmers. The focus on race and ideology saw the project neglect to train beneficiaries or to guarantee that beneficiaries could run a farm.

Corruption and mismanagement saw much of the redistributed farmland go to ill-deserving, well-connected cronies. Much of the land has since remained unproductive.

To top it all off, the policy of Broad-Based Black Economic Empowerment (B-BBEE) has proven to be an abject failure over the decades of its implementation.

Rather than uplifting impoverished and deserving black individuals to places of prominence in business, BEE has created a labyrinth of bureaucratic headaches.

This is all used by corrupt officials to hide that the true use of race-based policies is actually to enable cadres to force themselves into lucrative executive positions using the colour of their skin as leverage.

BEE and its adjacent legislation have enabled state capture, empowering already well-connected elites to continue extracting revenue from profitable businesses.

The fact of the matter is that in South Africa, any institution that enables access to public funds and graft will enable corruption.

An estimated R178 billion was siphoned from Eskom over several years, with Transnet seeing R41 billion lost in fraudulent procurement deals, inflated contracts and bribery. Tender fraud is enabled by BEE, which sees politicians hide behind racial equity to hire corrupt and inept firms.

During the COVID-19 pandemic, over R14 billion was lost to corruption, as tender fraud inflated the price of protective equipment. R150 million was given to a communications company linked to former health minister Zweli Mkhize. The money was meant to be used to make public health communications about COVID-19.

An estimated R1.5 trillion was lost to corruption over only five years, according to a 2021 study. This corruption was enabled by regulations and legislation that enable the extraction of wealth from productive businesses, race-based legislation that businesses have to repeatedly dance around, and allowing officials with a history of corruption access to exorbitantly funded public projects and institutions.

There are far too many tragic examples of corruption in this country.

The saddest fact of all is that corruption is a choice. We could deny the corrupt access to their loot if we stop enabling them. If the R100 billion transformation fund is implemented, the bulk of the money is all but guaranteed to be stolen. And that which is spent will go to further waste.

You cannot tax yourself into prosperity. Only sound policies that enable private sector growth will improve South Africa. Nothing else.

Nicholas Woode-Smith is a senior associate of the Free Market Foundation. He writes in his personal capacity.

4 Replies to “R100 billion transformation fund simply another avenue for corruption”

  1. Your blog is a beacon of light in the often murky waters of online content. Your thoughtful analysis and insightful commentary never fail to leave a lasting impression. Keep up the amazing work!

  2. I am an African in the USA and have academic knowledge of massive government subsidies in the USA, in France, in many Western countries, given to various industries, and firms/individuals – by the government – numerous times, for many generations!

    To see a privileged white man, in Africa, pontificate about “good business” and “what make a business successful” is just egregiously comical and ironic! Did King Leopold have a “good business” model in Congo? Did Ian Smith have a good business model in Zimbabwe? No white man in Africa can pontificate about “good business model” when their entire civilization of whites in Africa has been built by massive theft and appropriation via brutal means and maintained brutally to this day by the Armed Forces of western Powers and their draconian Financial Policies against those they infantilize!

  3. Oh someone is annoyed because black owned businesses will finally be getting an economic boost.

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