ROB DAVIES: State’s relationship with social partners is critical to building culture of buying local

 

www.businesslive.co.za- 22 May 2019

ROB DAVIES: State’s relationship with social partners is critical to building culture of buying local

The localisation programme has strengthened SA’s skills base, with thousands of jobs having been created and billions in private-sector investment unlocked

22 MAY 2019 – 12:06 ROB DAVIES

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Models carry banners and flags during the Proudly South African Buy Local Summit and Expo Grand Finale Fashion Show at the Sandton Convention Centre. Picture: Masi Losi

In December 2011, as a key component of industrial policy, the government amended the preferential procurement regulations to strengthen the use of procurement to promote localisation. The regulations empower government to designate products and sectors with minimum local content thresholds in the public sector’s procurement system

The Treasury estimates that the SA government has an annual procurement spend of R800bn. Through decisions to explicitly require defined percentages of procurement spend to be sourced from locally based producers, this creates significant potential to stimulate economic and industrial development, create jobs and increase the participation of black industrialists in productive sectors.

SA has the policy space to deploy this tool by deliberately declining to accede to the World Trade Organisation protocol on public procurement. To date, 23 sectors and products have been designated for local content and production under the preferential procurement regulations. Some of the sectors include rail rolling stock, transformers, power pylons, bus bodies, vessels, certain pharmaceutical products, furniture products, as well as the textile, clothing, leather and footwear sectors.

Through the designations, significant domestic and foreign direct investment has been attracted, new capacity and capabilities have been created, collaborative platforms with global original equipment manufacturers (OEMs) through inter alia technology and skills transfer programmes have been realised. Through the localisation programme, we have demonstrably created thousands of jobs and unlocked billions in private-sector investment. Some examples include:

  • After SA Shipyards’ successful tugboat contracts it won the R1.7bn contract to build a world-class hydrographic vessel for the SA Navy and will also be manufacturing a cutting-edge LNG barge that will strengthen SA’s position in servicing the offshore oil and gas markets.
  • Similarly, Damen Shipyards in Cape Town has been awarded the R2.4bn contract to manufacture three in-shore patrol vessels. These vessels will be the first Damen Sea Axe vessels to be manufactured and operated in SA. The Sea Axe is a revolutionary hull design that offers exceptional seakeeping behaviour and significantly reduced fuel consumption and emissions.
  • The designation of buses led to Mercedes-Benz SA manufacturing buses locally for the Rea Vaya rapid bus system. In Cape Town, Volvo was awarded the tender to provide 40 SA-built buses for the extended MyCiti rapid bus routes at an estimated cost of R180m. The Tshwane municipality awarded MAN Automotive a tender to supply 120 Lion’s City buses with 80% local content.
  • In 2016, Tshwane metropolitan municipality procured 84 buses for the second phase of A Re Yeng bus rapid transport system. These buses complied with the local content requirements for the manufacturing of bus bodies and assembly of chassis and engines. The Mercedes-Benz CNG chassis were assembled in East London, while Busmark manufactured the bodies locally. About 40 of these buses are running on compressed gas (CNG). A Re Yeng is the first bus service in sub-Saharan Africa to run fully on CNG.
  • The Gibela/Alstom factory in Nigel was opened by the president in October 2018. This state-of-the-art factory represents a R1bn vote of confidence in the SA economy with 1,500 new jobs created. A further 700 jobs will be created in the adjacent supplier park. At the peak of construction about 1,900 temporary construction jobs were created. The Gibela factory is producing commuter trains and the first locally-made train was handed to government in December 2018.
  • Bombardier Transportation invested about R50m in a facility for manufacture and assembly with Propulsion and Controls Production in Elandsfontein. In partnership with the local supply chain this created over 500 jobs, 300 working directly for Bombardier Transportation SA.
  • On the back of our designation of valves, AVK Holdings, a Danish company, launched a R200m state-of-the-art valve manufacturing facility in Alberton, Gauteng in partnership with Premier Valves.

The localisation programme has also deepened and strengthened SA’s skills base. AVK Holdings has established a training academy that provides skills development programmes to more than 1,000 workers — to the benefit of the entire industry. General Electric has trained 1,300 candidates in lean and engineering disciplines, with about 15 person years of technology transfer thus far.

The R150m investment by Yangtze Optics Africa Cable at the Dube Trade-Port introduced one of the biggest fibre-optic cable manufacturing plants in SA. In addition to the 120 new jobs created, skills transfer also took place at the company’s head office in China.

Localisation has also benefited companies outside of the main economic centres. Our clothing and textiles localisation led to Da Gama Textiles investing over R100m to increase their weaving, dyeing and printing capacity so as to serve the needs of the SA Police Service, Correctional Services, the army and hospitals. This investment has saved 727 jobs in King Williams Town in the Eastern Cape.

Other localisation programmes outside the mainstream public sector’s procurement include, among others, the automotive masterplan and extension of automotive production and development programme, and one of its key pillars is to increase local content in the supply chain to 60%. The government has also used the renewable energy independent power producer programme to drive localisation through the manufacture of components used to generate, store, transmit and distribute energy.

While the localisation programme has achieved significant successes we are also aware of instances of noncompliance compounded by state capture and corruption. These led to a weakening of the programme with a resultant negative impact on economic development, industrialisation, job losses and transformation. A case in point is the 1,064 locomotive procurement programme, now the subject of investigation.

As we move ahead we shall do so on the two main platforms: first we will extend the list of products subject to localisation designations. Second, we will improve surveillance monitoring and enhance consequence management for those public entities not complying.

At the presidential jobs summit we agreed with our social partners on a number of measures to improve compliance with localisation requirements. These include labour unions playing a much more active role, whereby their members are able to report tenders that are awarded without compliance, and workshops with procurement officials to raise the level of understanding of designation requirements. In addition, government and the auditor-general have agreed that in concluding audits of government agencies and departments these entities’ adherence to localisation prescripts will be specifically audited.

In the 2019 state of the nation address, President Cyril Ramaphosa said that “alongside a focus on exports, the government will pursue measures to increase local demand through, among other things, increasing the proportion of local goods and services procured both by government and the private sector. Increasing local demand and reducing the consumption of imports is important because it increases the opportunities for producers within SA to serve a growing market. Through this, the government will intensify the ‘Buy SA’ programme”.

In line with the president’s message we will continue to assess additional areas for designation, sharpen the implementation instruments as well as strengthen the compliance and enforcement to the designation prescripts. Our partnership with social partners and consumers remains critical in building the culture of buying local, which is necessary to raise aggregate demand, build industrial capabilities, attract further investments and improve our export effort.

  • Davies is trade and industry minister.