The untapped goldmine in South Africa’s ESD landscape
What would it look like if 80% of your current enterprise and supplier development (ESD) budget were freed up for other projects, while your beneficiary still secured the full funding they needed?
What would it look like if 80% of your current enterprise and supplier development (ESD) budget were freed up for other projects, while your beneficiary still secured the full funding they needed? This was a question we posed to a team of ESD and procurement specialists at a recent engagement session, where we discussed some of the challenges in the current landscape.
The subject of the ESD landscape in South Africa has been placed front and centre with the Department of Trade, Industry and Competition’s (DTIC) proposal to introduce a centralised “Transformation Fund” – ostensibly to unlock more capital for small businesses in South Africa.
Currently, organisations are rewarded on their B-BBEE scorecards for spending between 1% and 5% of net profit after tax (NPAT) on Black-owned businesses and suppliers.This presents a significant investment when seen in the context of a low-growth economic environment that has been the hallmark of the domestic economy for over 10 years now.
While Minister Parks Tau has faced significant pushback around these proposals, it should be noted that there were already questions being asked about the effectiveness of ESD in South Africa.The Gordon Institute of Business Science (GIBS) had been conducting research into the sector. Some of the high-level findings of this research included the comment that the ESD ecosystem had garnered something of a bad reputation.Some of the core reasons for this included:
The subject of the ESD landscape in South Africa has been placed front and centre with the Department of Trade, Industry and Competition’s (DTIC) proposal to introduce a centralised “Transformation Fund” – ostensibly to unlock more capital for small businesses in South Africa.
The effectiveness of ESD
Currently, organisations are rewarded on their B-BBEE scorecards for spending between 1% and 5% of net profit after tax (NPAT) on Black-owned businesses and suppliers.This presents a significant investment when seen in the context of a low-growth economic environment that has been the hallmark of the domestic economy for over 10 years now.
While Minister Parks Tau has faced significant pushback around these proposals, it should be noted that there were already questions being asked about the effectiveness of ESD in South Africa.The Gordon Institute of Business Science (GIBS) had been conducting research into the sector. Some of the high-level findings of this research included the comment that the ESD ecosystem had garnered something of a bad reputation.Some of the core reasons for this included:
- Considerable leakage, with several intermediaries taking their cut along the way.
- Companies have a limited strategy to integrate ESD into their supply chains.
- Many of the programmes are short-term in nature – it is very difficult to just invest for the 12 months of a measurement period.
- Concerns that the R10m enterprise development (ED) and R50m beneficiary thresholds haven’t been reviewed since enterprise development and supplier development were introduced onto the scorecards in 2019.
- Many of the SMEs commented that sponsoring companies specifically want their ED beneficiaries to go on courses and offer business support (accounting, marketing, etc.), but provide very little in the way of direct financial support.
