The government’s proposed Transformation Fund is moving from policy concept to regulatory mechanism, with draft amendments to the Broad-Based Black Economic Empowerment (B-BBEE) Codes signalling how the Fund could reshape compliance strategies, procurement models, and enterprise development structures.
The draft amendments, published by Trade, Industry and Competition Minister Parks Tau at the end of January, are open for public comment before finalisation. They introduce references to the proposed R100-billion Fund across several code statements and scorecard elements, marking what one law firm describes as a major policy shift in how empowerment contributions may be structured.
From voluntary vehicle to scorecard lever
When Tau briefed the media in April 2025, he emphasised that the Fund would be voluntary and designed to “amplify what is already required under existing B-BBEE legislation”, rather than replace existing enterprise and supplier development (ESD) mechanisms. Companies would be able to channel their existing ESD allocations – typically 3% of net profit after tax (NPAT) – into the fund as an alternative.
Read: ‘No big stick’: Tau calls for collaboration on Transformation Fund
ENS director Witness Makhubele notes that the draft amendments now formally introduce the Fund into the scorecard framework, including a proposed weighting of 20 points linked to contributions equal to 3% of NPAT. The amendments span multiple code statements, including those governing general principles, equity equivalents, specialised enterprises, ESD measurement, and qualifying small enterprises.
The proposed framework also raises the potential points available to qualifying small enterprises for ESD-related contributions from 30 to 55, illustrating the scale of the shift in scoring incentives.
A structural policy pivot
According to Werksmans director Pieter Steyn, the draft changes signal more than technical adjustments. He says they “indicate government policy and have important potential implications for business in South Africa”, describing the Fund as part of a broader move “away from incentivising private sector-driven initiatives towards a state-driven process”.
Under the proposals, companies would effectively need to choose between continuing with their own enterprise and supplier development programmes or contributing to the centralised fund. They would not be able to do both.
That choice, Steyn warns, could carry legal and commercial consequences. Existing development beneficiaries could be affected if firms redirect funding, and the codes do not currently provide for any transition period to phase out existing arrangements.
Incentives – and uncertainties
The proposed scoring structure is likely to influence corporate decision-making. Werksmans notes that firms could score 20 points for contributing 3% of NPAT to the Fund, compared with the current 15 points combined for enterprise and supplier development spending. However, only five additional points may be gained overall, meaning each firm will need to assess whether the scoring benefit justifies participation.
The firm also highlights several unresolved issues, including uncertainty around:
- the content of the required participation agreement with the Fund;
- the practical mechanics of compliance reporting; and
- the extent of potential tax benefits, which the fund’s website suggests may include exemptions or deductions, but which require further clarity.
Procurement targets tightened
Legal analyses by ENS, Werkmans, and Webber Wentzel flag the proposed overhaul of preferential procurement measurement as one of the most significant changes.
Webber Wentzel explains that the draft amendments would shift incentives away from the current model, which rewards procurement from 51% black-owned suppliers most heavily. The proposed system introduces new categories focused on wholly black-owned suppliers and adjusts weightings accordingly.
Proposed targets include:
- 15% of total measured procurement spend with 100% black-owned Qualifying Small Enterprises;
- 15% with 100% black-owned Exempt Micro Enterprises;
- 25% with 100% black-owned suppliers; and
- 12% with 100% black women-owned suppliers.
At the same time, points for procurement from 51% black-owned suppliers would drop significantly.
Werksmans cautions that these thresholds may be difficult for companies to meet in practice and warns that failing to achieve at least 40% of the relevant scorecard targets would trigger an automatic downgrade of a firm’s B-BBEE rating level.
Compliance burden and reporting
The proposals also strengthen monitoring requirements. ENS notes that measured entities would need to submit needs analyses, performance metrics and annual monitoring and evaluation reports for ESD recognition.
Webber Wentzel adds that similar reporting may apply even where firms contribute to the fund instead of running their own programmes – although how this would work remains unclear if the Fund itself selects beneficiaries.
Sector codes unaffected – for now
Steyn points out that the current draft applies only to the “Generic” Codes of Good Practice. Sector-specific codes – including those governing industries such as finance, ICT, construction, and tourism – would remain unchanged unless amended separately. Companies governed by those sector codes would therefore not yet be able to score points for Fund contributions.
Governance questions remain
The amendments themselves contain limited detail on how the Fund will be governed. According to Webber Wentzel, additional information is available on the Fund’s website, which indicates it will be administered by a special-purpose vehicle with a board appointed by the minister and an oversight committee including public- and private-sector representatives.
Tau has previously said the structure would include private-sector systems, independent governance, and regular reporting to Parliament and the B-BBEE Commission to mitigate risks of misuse.
Not final – but consequential
All three firms emphasise that the proposals remain draft measures open for comment and could still change. Still, Steyn says their publication already signals direction: “Given the important implications of the proposed changes, business and the public should consider submitting comments.”
If adopted largely in their current form, the amendments would reshape how companies approach empowerment compliance – shifting decisions from purely operational considerations to strategic ones about whether to fund their own development ecosystems or participate in a centralised national vehicle.
Comments on the draft amendments must be submitted to the Department of Trade, Industry and Competition by 30 March, after which the minister will review the feedback and any additional revisions before deciding on and publishing the final version.
