Kgomotso Zimase

While the National Empowerment Fund (NEF) has registered significant achievements in its mandate, it believes that the urgent quest for an inclusive, growing and employment-generating economy requires that enterprise development receives more focused and systematic attention, in order to highlight its importance.

Enterprise development is a key element of the government’s codes of good practice for broad-based black economic empowerment (BEE).

“ED is integral to the mandate of the NEF,” says Andrew Wright, the fund’s chief financial officer, “which is to grow black economic participation”.

The NEF has identified an opportunity to partner with and provide a mechanism to the private sector for delivery of sustainable broad-based BEE solutions to black enterprises at an accelerated pace.

The opportunity entails private sector enterprises making their enterprise development contributions to the NEF’s Enterprise Development (ED) Fund, and the NEF using these contributions to co-finance its investments in these beneficiaries, in order to facilitate business development, financial and operational independence.

“Our key rationale is that we need to put some kind of lever into enterprise development. In this context, it makes sense to partner with private sector business. It’s very much a two-way partnership.

“While enterprise development is not a unique concept, it is an intricate and complicated task which requires a core range of specialised skills that typically fall outside the competencies of corporates. Managing a fund is a highly specialised function, and the competencies of the NEF are well-suited to the task.”

The fund will fall under the administrative and management authority of the NEF and the fund will benefit from its institutional fund-management infrastructure, support and investment expertise, which have contributed to the success of black entrepreneurs in the past. The application of this expertise will ensure that investments are appropriately targeted, have a high rate of success, and that the investments assist in the development and growth of sustainable black-empowered small and medium enterprises.

The NEF will leverage its existing product offering when making these fund investments.

Through the fund, private sector contributors – referred to as “measured entities” in the Broad-Based BEE Act – will receive enterprise development credits while still retaining focus on their core business.

They will also be able to develop sector value chains in partnership with the NEF through the ED Fund, while the beneficiaries have access to an additional source of funding. Most importantly, the fund will be able to make more investments designed to enable meaningful participation of black business in the economy.

“There are also significant tax advantages for measured entities contributing to the fund,” says Wright. “These include contributions being exempt from donations tax, as well as being income tax-deductible. The NEF is the only gazetted BEE facilitator fund.”

It was awarded this status by the Department of Trade and Industry under the codes of good practice on BEE. This means that the equity investments held by the NEF in any company are automatically regarded as 100 percent black-owned, including 40 percent owned by women and 10 percent by designated groups.

Any equity stakes would be regarded as unencumbered, resulting in the company receiving a perfect ownership score for the equity stakes held by the NEF. In turn, any contributions to the NEF’s ED Fund are defined as eligible enterprise development funding activity, allowing upfront recognition of the contribution by the measured entity, says Wright.

The first fund will launch on July 6. It aims to raise R50 million in private sector contributions, to which the NEF will add R75m. After it closes, a second fund will be launched.

Kgomotso Zimase of Global Interface Consulting handled this article as media liaison for the National Empowerment Fund.