Defence enterprise development fund moves forward


The defence industry Enterprise and Supplier Development (ESD) fund has been established as an initiative of the Defence Sector Charter Council (DSCC) to improve the state of black-owned defence companies.

The DSCC on 12 April announced that the ESD Fund had been established, with the aim of enabling and supporting the economic transformation of the South African defence industry (SADI).

“The aim of this initiative is to transform and revitalise the defence industry by enabling effective and sustainable economic participation of Black people in the SADI value chain [and] to encourage innovation, manufacturing, development and growth of SMMEs [small, medium and macro-sized enterprises] in the defence industry, to enable a sustainable defence industry and ensure active involvement of ‘Black Designated Groups’ (Unemployed, Youth, Persons with disabilities, Military Veterans, people living in underdeveloped areas and Women),” the DSCC stated.

The registered ESD Fund (officially Defence ESD Fund NPC) will engage in enterprise financing, encouraging entrepreneurship, capability and capacity development of diversified SMME businesses with specific focus on designated groups.

“All Measured Entities as defined under the Defence Sector Code are required to contribute to the ESD Fund 1% of their net profit after tax (NPAT) per annum. A ‘Measured Entity’ is an entity, enterprise, state organ or public entity that is subject to measurement under the Defence Sector Code,” the DSCC stated.

In November 2018 the Defence Sector Code, in terms of the Broad-Based Black Economic Empowerment Amendment Act, was gazetted, and officially launched in April 2019. This stipulates that companies doing business with the state must procure at least 60% of defence materials produced locally, as well as locally produced technologies. Private sector entities in the defence industry must sub-contract no less than 30% of any contract exceeding R30 million to companies owned by black designated groups. Furthermore, the black ownership target has been increased to 30%, which is higher than the 25% benchmark of the generic BEE codes. Foreign companies are obligated to place 75% of their contractual obligations under the defence industrial participation programme with Broad-Based Black Economic Empowerment (BBBEE)-compliant suppliers.

The DSCC said it has appointed Cede Capital Pty Ltd to manage the ESD Fund on its behalf. The fully black-owned company describes itself as providing credit facilities to small and medium enterprises (SMEs) across various sectors.

As the ESD Fund is now established and operative, the DSCC said all ‘Measured Entities’ are required to make their contribution to the ESD Fund and deposit it in the Defence ESD Fund NPC bank account.

The fund, made public in Armscor’s tender information portal last year, has an estimated value of R350 million.

The ESD Fund will fund “black-owned entities in SADI”, engage in manufacturing promotion initiatives for SADI; fund “innovative black-owned technology entities” either in or related to SADI; “promote development of intellectual property and exploitation in SADI by and in collaboration with black people” as well as support the growth of black business in the local defence industry.

The ESD Fund will oversee the receipt of funds from contributors and disburse funds as directed by the DSCC, which has a primary aim of expediting the transformation and revitalisation of the local defence industry.