Leading verification agency criticises proposed B-BBEE amendments

Empowerdex, a highly respected Broad-Based Black Economic Empowerment (B-BBEE) verification agency, has shared a hard-hitting review of proposed amendments related to the establishment of the Transformation Fund. 

This forms part of broader industry feedback via formal consultation window opened by the Department of Trade, Industry and Competition (DTIC) around proposed amendment to the Enterprise and Supplier Development (ESD) and Preferential Procurements on the B-BBEE scorecard.

We have previously provided some analysis of this in the following articles:

• We reported back on a recent event hosted by the British Chamber of Business in South Africa 
• Nadia Rawjee from Uzenzele Holdings shared some of her insights around where she sees opportunities for multinationals to reimagine their investments. 

For multinationals operating in South Africa, these amendments will be incredibly important as it will have a material impact on their B-BBEE ratings and their ability to do business.

Here are some of the key takeaways from the Empowerdex report: 

“The amendments to the B-BBEE Codes- particularly those dealing with equity equivalents, the Enterprise and Supplier Development (ESD) pillar, and the introduction of the Transformation Fund as a compliance mechanism – are similarly critiqued for creating compulsory financial obligations that may constitute unlawful taxes or levies, and for introducing participation agreements that strip contributors of accountability rights over their irrevocable contributions.”

The report raises the following core propositions:

• The Transformation Fund cannot legally exist as a mere SPV without an Act of Parliament establishing it as a juristic person.

• Contributions directed to the Fund may, depending on its legal form, be absorbed into the National Revenue Fund in terms of Section 213 of the Constitution, frustrating the Fund’s intended purpose.

• The B-BBEE Codes of Good Practice are subsidiary legislation and do not empower the Minister to create new entities or impose new taxes or levies.

• The governance structure proposed for the Fund — involving a ministerially appointed Oversight Committee overseeing an SPV board — is irregular and does not conform to the PFMA, the Public Service Act, or the Companies Act.

• The irrevocability and unconditionality of contributions under the proposed Participation Agreement creates a high risk of misappropriation without legal recourse for contributors.

Key findings from the report: 

“The inescapable conclusion is that the establishment of the Transformation Fund as solely an SPV, not located within a recognised legal entity and without enabling legislation enacted by Parliament would be ultra vires and illegal. Any contributions made to such a Fund, and any BBBEE recognition arising therefrom, would be on legally unstable ground” 

“The law is unequivocal: the Transformation Fund cannot be established as a government component without satisfying the requirements of the Public Service Act, including the approval of Parliament. There is no shortcut through subsidiary legislation.” 

“The B-BBEE Codes of Good Practice, as subsidiary legislation, cannot impose a new tax or compulsory contribution flowing to an organ of state. There is no precedent in South African legislative history for subsidiary legislation imposing a new financial obligation of this nature on the private sector without a primary Act of Parliament establishing the basis for such obligation and providing for its administration and collection.” 

The report also looks at the push from the DTIC to utilise Equity Equivalent Investment Programme contributions 

The Empowerdex team notes the following which will be relevant to multinationals operating in South Africa: 

The January 2026 amendments seek to channel equity equivalent contributions through the Transformation Fund. However, channelling EE contributions through a legally undefined SPV raises fundamental concerns:

• The equivalent value attributed to EE contributions in the B-BBEE scorecard is premised on the integrity and verifiability of the programme. If the SPV has no defined legal form, auditors will be unable to verify that contributions have been properly applied, creating a risk of irregular scorecard credits.

• The irrevocability of Participation Agreement contributions means that companies making EE contributions through the Fund have no mechanism to verify or enforce the application of their contributions — a significant departure from the accountability expectations of B-BBEE verification practice.

• The amendments create a potential disincentive for companies to pursue EE programmes with direct, verifiable impact, by funnelling EE contributions into a pooled vehicle with no ringfencing per contributor.

Continued uncertainty will worry multinationals

Multinational businesses operating in South Africa have invested significant time and resources into their B-BBEE compliance with many going beyond both their mandated ESD and Socio-Economic Development (SED) contributions. 

This continued uncertainty – particularly as this still needs to be reviewed against sector specific codes – represents a real challenge for organisations looking to deploy their budgets in 2026 and 2027. 

With the consultation period now closing, the industry holds its breath to see how feedback is received.