The Commission for Broad-Based Black Economic Empowerment (BBBEE Commission) has released an enterprise and supplier development (ESD) research report into how ESD funds can be effectively implemented for the purposes of promoting the development and growth of black-owned businesses.

The research, which benchmarks South Africa with international experience, asserts that, if ESD is implemented more strategically, it can make an effective contribution to the sustainability of black-owned enterprises in particular, and to their skills and innovation capacity and create decent jobs.

The study contains findings on the performance of measured entities on ESD spending, and recommends improvements which the commission will discuss further with the Department of Trade, Industry and Competition and other stakeholders in government and the economy.

The research validated government’s policy of promoting small and medium-sized enterprises through targeted support, as well as ESD as a tool for this purpose, against international experience.

“The issues highlighted by the study include the need of many measured entities for assistance to comply with BBBEE legislation and correctly implement the ESD element.

“Further, there is misalignment between preferences for one form of contribution to ESD, such as mainly financial support, such as grants, early payment to suppliers, and the requirements of beneficiary enterprises for support with, among others, operational effectiveness, market penetration and sustainability.

“Also, the research highlights that sometimes beneficiaries are unready to scale up their businesses owing to lack of strong financial management structures, sound business plans and governance structures, which indicates the need for ESD strategies to provide additional support so that smaller companies can operate competitively, productively and sustainably," the commission says.

Further, the study reveals that the quantum of resources available for ESD is significant, with reported budget categories ranging from R101 000 to R999 999; R1-million to R5-million; and R21-million or more.

The bulk was in the R1-million to R5-million range, and the overall total for 2021 being in the region of R26-billion.

However, the study also found that, in 2021, only 61% of the funds allocated to ESD were implemented, which is a continuing trend over the past five years, with 44% in 2017, 60% in 2018, 51% in 2019 and 61% in 2020.

“The study puts the spotlight on critical issues that require attention in the ongoing implementation of BBBEE, and which should be on the policy agenda of government and on the compliance agenda of private and public sector entities,” says commissioner Tshediso Matona.

“For example, the survey results show that only 62% of participating entities confirmed 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,” he notes.

Further, 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 BBBEE and the implementation of ESD.

The study also highlights the need for collaboration between measured entities and the BBBEE Commission towards the empowerment of exempted microenterprises and qualifying small enterprises through improved implementation of ESD funds.

The research study assessed the abilities of measured entities to implement the portion of funds allocated for ESD, as required by the BBBEE Codes of Good Practice, which sets the targeted ESD spend at 3% of net profit after tax for ESD, as well as challenges and opportunities in this regard.