I have previously bemoaned in this column the disease of “inputitis” that burdens BEE policy in SA. The policy is overly focused on inputs — the amount that is spent, in effect — instead of outputs, the amount of transformation and black empowerment that is achieved. As a result, we waste resources and fail to keep our eyes on the prize.

The proposed Transformation Fund, a concept paper for which was published last week by the department of trade, industry & competition, is an exacerbation of the affliction. The main thing anyone knows about the fund is that it is planned to be worth R100bn. No-one seems to have thought through what outcomes that amount is supposed to get us, or how the money will deliver them.

The first problem is that R100bn, split into equal R20bn amounts over the next five years, is an impossibly large number that simply cannot deliver reasonable outcomes without huge wastage.

The concept document positions the fund as a mechanism to support businesses owned and managed by black entrepreneurs to propel their growth. That is all well and good, but the document makes no effort to analyse why this is hard to do and what it will do differently.

It has been tried before. The National Empowerment Fund (NEF) was created in 1998 specifically to drive transformation by investing in and mentoring black-owned businesses. The Small Enterprise Finance Agency also helps small businesses, and has a specific mandate to support black-owned enterprises.

In the private sector the SA SME Fund aims to back growing companies and is funded by large businesses and the Public Investment Corporation. Business Partners, in which government has a 22% stake via the Small Enterprise Finance Agency (Sefa), similarly funds and mentors small businesses.

The concept document makes no assessment of these efforts. In the initial discussions about the Transformation Fund there was a suggestion that the NEF would be responsible for administering it. Yet an analysis of the NEF suggests that would be difficult.

The NEF has a loan book of R2.4bn, against which it has R810m set aside for impairments. It disbursed about R600m in loans last year, but has R2.2bn cash on its balance sheet, suggesting that its lending activities are not constrained by a lack of cash (it also holds R1bn of MTN shares on its balance sheet).

The other entities all have balance sheets in the billions — Business Partners has a loan book of R2.9bn (provisions are R58.2m); Sefa has R3.5bn (with an astounding R2.4bn of provisions) while the SA SME Fund has an investment portfolio of about R560m.

If you dig a little deeper, those at the coalface of small business finance will tell you it is the nonfinancial support that is the biggest challenge. For example, last year the NEF hosted 299 training sessions for entrepreneurs. The binding constraint on those organisations growing and mentoring small businesses is the mentorship skills needed to provide this nonfinancial support.

The Transformation Fund concept paper acknowledges that nonfinancial support is important. But there is no analysis of the capacity it will require to provide it. Which brings me back to the numbers. The funders that specialise in small business finance and development manage to deploy lending in the hundreds of millions and seem to all have excess cash. So just how does the Transformation Fund imagine it will get R20bn invested per year?

The vast armies of mentors it will need to deploy; the physical infrastructure it will need in every urban and rural centre countrywide. No analysis of the risk management that will be required to ensure loan books are properly managed; no targets for loan or investment performance.

The concept simply has everything the wrong way around. First, it should analyse what change it intends to create in the world. It should set specific targets — for instance, the number of black-owned businesses it will take to sustainable scale with clear definitions; or the number it will help grow with specific revenue outcomes.

Second, it should assess what the current obstacles are to achieving these outcomes. It should analyse the performance of other initiatives, detailing the binding constraints to growth.

Third, it should develop a detailed model for how it will operate, showing — with evidence — how its model will overcome the constraints faced by others. That model should have clear capacity plans: the physical resources required; the skills required and where it will find them; and the evidence that this model will work better than others.

Fourth, it should have a clear asset management strategy — what instruments it will use to fund businesses (loans or equity investments), what targets it will have for these each year, and what the return objectives must be.

Finally, and only then, it should determine what financial resources it will need to implement the model. It should show how the model offers value for money — that it will be a smaller drain on public and private resources per unit of outcomes that it will achieve, than alternatives.

Its rollout plan should also be gradual, with pilot phases to test the assumptions underpinning its model, proving its effectiveness before more cash is directed to it. Only then would it be a concept worthy of support.

• Stuart Theobald is chair of research-led consultancy Krutham.

This article first appeared in Business Day.