State starts shopping locally
It is also part of te preferential procurement regulations.
The regulations include state-owned enterprises such as Eskom, Transnet and Armscor, whose procurement expenditure in 2010-2011 amounted to R212.7-billion. In 2009-2010, the government spent R196.9-billion on goods and services. The state agencies do not have to comply with the procurement regulations until December this year to give them time to adjust to the new regimen.
Some industries have been designated, to varying degrees, for domestic sourcing.
On the list are bus bodies, textiles and clothing, canned or processed vegetables, steel pylons and rail rolling stock. The pharmaceutical sector was recently designated and a R2.55-billion, two-year tender for solid oral medication stipulated that 70% had to be procured locally. Aspen Pharmacare reported in August that it had won R634-million of the contract and Adcock Ingram landed R270-million.
According to Cathrine Matidza, director of fleet procurement in the department of trade and industry, the department considered the areas in which the government spent large amounts as well as the local capacity to provide the goods when deciding which industries to designate. In terms of manufacturing, the aim of the Act was to source goods locally as early as possible in the process.
Dalene du Preez, executive marketing manager of Proudly South African, said that in terms of buying local products "this is the first positive response we have had from the government".
Du Preez said domestic manufacturing was in a dire state. "The clothing and textile industries are on their knees. South Africa will become an enormous warehouse [for imported goods] and we need to avoid this."
Professor Geo Quinot, of the African public procurement regulation research unit at Stellenbosch University, said that in the past "there was a marginal possibility of public procurement favouring local industry. It was not viewed as the paradigm."
Although procurement policy historically put price ahead of everything else and promoted free competition as far as possible, this had given way to the protection of local industry, he said. "We have joined the international club."
Because of the global recession, the United States and Europe had introduced similar policies to keep money flowing internally and stimulate local industry, he said.
South African manufacturers have welcomed the move. Business, government, labour and community organisations signed the new growth path local procurement accord in November last year in a bid to decelerate the loss of industries and jobs.
Hennie de Clercq, executive director of the Southern African Institute of Steel and Construction, said that without a consistent government demand since 1994, domestic industry had lost the capacity it acquired during apartheid South Africa's years of international isolation.
Skills and capacity
"We've been clamouring on that [local procurement] for a long time," he said. "If you don't assist local industry you might lose it."
De Clercq said the outlook for recovery was bleak because many factories had already closed down.
"In the absence of real commitment from the government or whoever is your client, it is very difficult to sustain operations."
He said that, because of the loss of skills and capacity, imports became more of a necessity than a choice.
Du Preez added that protecting the domestic industry required manoeuvring around World Trade Organisation agreements, which encourage open global trade. "You cannot force companies to buy locally. So public procurement was one way to bring in local manufacturers."
But there is concern that protection will not develop strong and competitive local industries.
"International studies are ambivalent about the impact of public procurement on local industry," said Quinot. "The big question is the type of support. Do you really end up with a strong local industry if you're talking about local procurement?"
But Coenraad Bezuidenhout, executive director of the Manufacturing Circle, a policy lobby group, said South African manufacturers did not compete on a level global playing field.
"Foreign producers enjoy much lower tariff and non-tariff barriers in exporting to South Africa because of numerous domestic incentives that South African manufacturers neither enjoy nor are protected against.
"They often do not adhere to the same quality and durability standards and, in many instances, do not maintain the significant labour and environmental responsibilities South African manufacturers must comply with. This is so for everything from clothing items to medicines and electricity generators."
Another concern raised is that the government will have to pay higher prices for goods because South African manufacturers are less cost efficient.
But De Clercq said the benefits would be felt elsewhere, such as in taxes: "We did a study which found that if you buy South African products, some 37% of it lands up with the government in the form of tax."
The spectre of corruption also looms large over protected public procurement. "The threat of corruption is increasingly significant," said Quinot. "When there is real competition, suppliers tend to monitor tendering processes."
He said he was unaware of any special mechanisms that had been put in place to prevent large-scale corruption with the implementation of the Act.
The tangible effects of the new regulations have still to be realised. "Implementation has been disappointingly slow," said Brian Brink, executive director of the Textile Federation. "Thirteen months later, little impact has been felt."
He welcomed preferential public procurement as one in a basket of methods to revitalise local industry. "It will take some time to reverse the decline."