This has to be approached with a certain amount of caution. Other than the fact that the NEF itself instills very little confidence in me, this information we get to read is sketchy, and for an investment of R5m you'd want a lot more information.
The first issue is their "blackness", they claim in the prospectus that they are a BEE facilitator. I can't comment what they are - but I suspect they are correct. BEE facilitators are considered in paragraph 3 of code 100
the Minister may by notice in the gazette, designate certain Public Entities as BEE Facilitators. In calculatingtheir Ownership score, Measured Enterprises must treat BEE Facilitators as having rights of Ownership held:
- 100% by Black People;
- 40% by Black Women;
- 10% by black designated groups:
- without any acquisition debts; and
- without any third-party rights.
In other words they can claim the full 20 points for ownership. I was not aware that this same status could now be used to claim themselves as black for enterprise development purposes. They however do think this is possible
NEF has been designated as a BEE Facilitator in terms of the Codes.........Since NEF is deemed to be 100% owned by black people, the NEF qualifies as a beneficiary for Enterprise Development. In addition, in terms of Code 600, payments made by Measured Entities to third parties to perform Enterprise Development on behalf of the Measured Entities, qualify as Enterprise Development contributions. NEF is therefore suitably qualified to act as a recipient of Enterprise Development contributions and to carrying out Enterprise Development activities.
They've hedged their bets a bit here - claiming that they are also allowed to perform ED facilities on behalf of measured etcs. Even though the bets are hedged they are either calling themselves category A or B beneficiaries - I can't find a BEE scorecard that confirms either status (it's based on turnover or contributor level if turnover is more than R35m).
Rule number 1 - GET A BEE CERTIFICATE FROM THE NEF BEFORE YOU DO ANYTHING
The minimum investment amount is R5m and for this you will get a section 18(A) certificate. Even though they qualify this in a disclaimer remember no more than 10% of your income can be donated for tax deductability purposes.
It also seems that each contribution will last for five years; viz
The NEF ED Fund will have a 5 year term for each Contributor
I read this as saying that you can contribute R5m upfront and you will accrue ED points for five years for the contribution, subject to the rules. Effectively a company would have to project five years into the future to get to a cumulative NPAT of R5m. I'll do the basic maths here:
- Assume that R5m target is evened out over five years.
- This would mean that for 15 points a company would need to contribute R1m per year (this is 3% of NPAT).
- Therefore 1% would be R333,333 per year
- Which amounts to a total NPAT figure of R33,333,333.
- The complexity comes in determining turnover. However the fine people at BEE-Matrix tell me that the industry average profit margin is 6.17%.
- The turnover would therefore be R540,248, 514.32 - that's just over half a billion rand - and this is smallest company that can make a contribution.
I don't know how many companies there are that turnover this amount of money - but there are at least 10 that the NEF wants to contribute to them on an annual basis (that's 10 x 5 years - 50 companies).
The business case here is flimsy - it'll be a lot cheaper and I think more beneficial for you to hire a decent ED facilitator who might be able to sweat this money more effectively for you. Someone who understands your business and looks for greater business opportunities in your ED project.
Just as I have done with EMEX - the NEF is free to post a stronger justification in the comments, in the absence of this my advice is to steer clear of it for two reasons
- there are two many holes in the concept
- they are a government organisation, and I don't believe that they can do anything for enterprise development that the private sector can't do better.