The B-BBEE Commission has released a research report on how Enterprise and Supplier Development (ESD) funds can be implemented effectively for purposes of promoting the development and growth of black-owned businesses. The research study assessed the abilities of measured entities to implement the portion of funds allocated for ESD, as required by B-BBEE Codes of Good Practice which sets the targeted ESD spend of 3% Net Profit After Tax (NPAT) for ESD, as well as challenges and opportunities in this regard. The study contains findings on the performance of measured entities on ESD spending, and recommends improvements which the B-BBEE Commission will take forward with the Department of Trade, Industry and Competition (the dtic) and other stakeholders in government and the economy.
The research bench-marks South Africa with international experience, and on this basis validates government’s policy of promoting Small and Medium-sized Enterprises through targeted support, as well as ESD as a tool for this purpose. It asserts that if ESD is more strategically implemented it can make an effective contribution to the sustainability of black-owned enterprises in particular, and to their skills and innovation capacity and creation of decent jobs.
The study reveals that the quantum of resources available for ESD is quite significant, with reported budget categories ranging from R101 000 – R999 999, R1 million – R5 million and R21 million or more, the bulk being in the R1 million to R5 million range, and the overall total for 2021 being in the region of R26 billion.
However, it found that in 2021 only 61% of the funds allocated to ESD were implemented, which is a continuing trend over the past five years (2017: 44%; 2018: 60%; 2019: 51%; 2020: 61%).
“The study puts the spotlight on critical issues that require attention in the ongoing implementation of B-BBEE, and which should be on the policy agenda of government and on the compliance agenda of private and public sector entities. For example, the survey results show that only 62% of participating entities confirmed to having ESD strategies, most of which operate in the property, construction and financial services sectors. This suggests the prevalence of ad-hoc approaches to implementing ESD, which reduces the intended impact of ESD as B-BBEE lever”, said Mr. Tshediso Matona, the Commissioner for B-BBEE.
The issues highlighted by the study, range from the need of many measured entities for assistance to comply with B-BBEE legislation and to correctly implement the ESD element, to misalignment between their preference for one form of contribution to ESD, such as mainly financial support, e.g. grants, early payment to suppliers, on one hand; and the requirements of beneficiary enterprises for support with e.g. operational effectiveness, market penetration and sustainability, on the other hand. Also, it highlights that sometimes beneficiaries are unready to scale up their businesses due to lack of strong financial management structures, sound business plans and governance structures, indicating the need for ESD strategies to provide additional support so that smaller companies can operate competitively, productively and sustainably.
In addition to recommending that measured entities should develop a long-term approach to ESD and for senior managers to commit to its realisation, the study also recommends the reinforcement of government’s commitment to B-BBEE and the implementation of ESD, as well as the need for collaboration between measured entities and the B-BBEE Commission towards the empowerment of Exempted Micro-Enterprises (EMEs) and Qualifying Small Enterprises (QSEs) through improved implementation of ESD funds.
Issued by The Department of Trade, Industry and Competition