South Africa’s controversial Transformation Fund could end up doing something that critics of black economic empowerment (BEE) have long demanded: ending it.

This is according to Efficient Group chief economist Dawie Roodt, who said that businesses should support the fund, but only on the condition that it ultimately replaces South Africa’s existing complex and burdensome BEE requirements. He was speaking at a BizNews conference earlier this month.

The Transformation Fund has been floated by the Minister of Trade and Industry, Parks Tau, as an alternative to BEE. Under the proposals, companies will make contributions to the Fund to earn BEE points, rather than directing their enterprise and supplier development spending towards individual businesses themselves. Supplier development would hold greater weight in the calculation of overall BEE rating.

The Fund would then distribute capital to black-owned businesses. The implication of this is that the government has better insights into market opportunities and potential than actual firms operating in actual value chains.

Roodt contended that this was potentially the beginning of the end of BEE. If companies could buy their BEE status, the elaborate compliance regime could be dispensed with.

“I think this is an opportunity to end BEE,” Roodt said, arguing that the Transformation Fund should be supported if all other BEE requirements will eventually be scrapped.

BEE has been a barrier to investment and growth from the outset: both because it imposes an effective tax on capital, and because it has imposed enormous administrative costs and uncertainties on businesses. It has become a prime vehicle for corruption and patronage, providing a veneer of respectability for non-value-adding demands on businesses.

Roodt argues that allowing companies to buy their points through the fund could expose these weaknesses.

“If you want BEE points, then you must pay for them,” Roodt commented. “You put the money in the fund, and once we do that, then it will be exposed for what it really is. The fund will be exposed as a means to enrich a few well-connected black individuals, and then the fund will be shut down when this is exposed.”

As this unfolds, the premise of BEE would begin to unravel, and public pressure could lead to the fund itself being shut down – and with it the entire BEE system.

BEE has been named by foreign businesspeople as a key hindrance to doing business in South Africa, while similar sentiments are heard from South African firms, though typically keeping this criticism to private interactions. At times, government and political representatives have conceded problems with BEE, though ideological commitment and the importance of BEE to patronage networks have meant that the policy has been remarkably resilient.