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SIMON BROWN: I’m chatting with Jameel Khan, he’s the co-founder of The Unconventional CA. Jameel, appreciate the time this morning. The Transformation Fund, talk us through what the idea behind this is before we get into some nuts and bolts around it. As I understand, broadly, it’s a way to essentially, to be blunt about it, buy some BEE (Black Economic Empowerment) levels.
JAMEEL KHAN: Yeah, 100%. Thanks for having me, Simon. The idea behind the Transformation Fund is to try and channel enterprise and supplier development (ESD) spend, which has traditionally been recognised through the transformation agenda under BEE. A lot of private companies are now spending this money to develop and grow black-owned small businesses.
What government is trying to do here is to pull this ESD funding and channel it into what’s going to be housed as the NEF (National Empowerment Fund), under the NEF, and try to channel this funding into this Transformation Fund. So it’s almost a way to try to pull private capital to now serve the agenda of whatever this Transformation Fund is.
SIMON BROWN: I get your point, because at the moment, as things stand, pre the Transformation Fund, stuff is happening, but it’s happening at individual capital level rather than a central fund level.
JAMEEL KHAN: Yes, correct. The main issue is that all this money is going to be funded into this Transformation Fund, which is going to be overseen by a minister-appointed committee, and that obviously already raises a few governance flags.
The companies that are spending ESD are typically spending it around their communities, around their suppliers, around their local businesses. Now, what’s going to happen with this funding now that it goes to the Transformation Fund? Who’s going to benefit from this? And that’s the question.
SIMON BROWN: I take your point, absolutely. You made a really great point in a note that you wrote recently, which is the diversity within the SME (small and medium enterprises) sector. When one says SMEs, we are talking around thousands, tens, hundreds of thousands of businesses of small sizes, with different needs, different scales, different parts of their growth journey. One fund is going to, frankly, struggle to manage that, surely?
JAMEEL KHAN: Yeah, 100%. If you look at the track record around public-led or state-owned initiatives, it’s not a great track record. If we’re going ahead with setting up this fund and we’re still not yet sure exactly how this funding is going to be dispersed – there’s already a draft bill that’s out for comment at the moment – they’re not really sure how they’re going to disperse this money or use this money. That’s a big cause for concern.
SIMON BROWN: That really is the crux of it, is around the dispersing – the idea of enabling some BEE fund, that works fine, pooling it is fine, concerns around maladministration, let’s park that aside for a second – it is going to be around the dispersing. That is going to be the absolute be all and end all. To your point, there is no real indication yet that anyone knows anything.
JAMEEL KHAN: Yeah, correct. There’s a website that’s gone live, but the website touches on the principles of how we develop and grow our economy. All of that is nice. But if we don’t know the actual how – who the money is going to go to, how it’s going to flow through.
Exactly what you’re saying, there are so many different SMEs in the market. They did list a few different sectors, but the exact beneficiaries, to what extent they’re going to get support, none of this has been articulated. How are we actually going to grow SMEs through this fund?
SIMON BROWN: That’s it. This fund almost seems like an idea that there’s a quick fix that we can do. The short answer is no, SME funding and growth and support is not a quick fix. This is actually a long, complicated journey.
JAMEEL KHAN: Yeah. Correct. The Minister of Small Business Development (Stella Ndabeni-Abrahams), or the Small Business Development Department, actually put out an article not so long ago talking around the need to support SMEs. They don’t have enough resources to support SMEs, angel investors should come into the conversation to try and support early-stage SMEs.
On the other side of it, when you look at the NEF, which is where this fund is housed, they support larger deals. It’s the National Empowerment Fund; it’s more your larger-type SMEs. They do have a few different brackets under there. But where’s this gap? What is this Transformation Fund going to focus on?
Is it going to focus on early-stage SMEs? Like you said, there are hundreds of thousands of these SMEs. Or is it going to support larger SMEs, which is currently what the NEF does? In between that, both these different types of SMEs need different support structures and mechanisms. So it’s going to be quite a complicated process to actually achieve the outcomes, if we really want to see the outcomes of SME growth and economic growth through the launch of this fund.
SIMON BROWN: Yeah, absolutely. To the earlier point, a lot of SMEs need small little things. It’s not always cash; it might be help with submitting your tax return or something like that. We’ll leave it there. Jameel Khan, co-founder, The Unconventional CA, appreciate the time.
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