SA’s localisation policies are not consistent with the constitution, lack clarity and do not give interested or affected parties an opportunity to comment or raise concerns, international trade advisers say.
“Localisation initiatives have to be transparent ... at present, localisation and designation initiatives do not align with PAJA [the Promotion of Administrative Justice Act],” Donald MacKay, the founder and director at XA International Trade Advisors, said during a webinar on localisation policies on Thursday.
MacKay said the government did not consult with industry stakeholders or provide clear reasons before designating a specific product for local procurement, which is inconsistent with the requirements of the Promotion of Administrative Justice Act.
The only reason that there have not been many legal challenges is that the localisation and designation initiatives have simply not been properly implemented, MacKay said. “But when we start to see significant losers, we are going to see more court challenges, and when that occurs we will have a problem. Much of what we are doing is not aligned with either the constitution or [the Promotion of Administrative Justice Act],” he said.
The government has highlighted localisation — the use of locally made inputs into manufacturing processes — as a main policy objective for economic recovery and has asked business to target 20% of nonpetroleum imports for local replacement within five years.
In May, Business Unity SA (Busa) cautioned the government about taking a blanket approach to localisation, saying a study had found that conditions in most industries are not yet right and input costs could be pushed up 20%.
Critics of the localisation drive say it will kill the competitiveness of local industry. Furthermore, it is inconsistent with trade agreements that SA has signed, including the new African Continental Free Trade Agreement (AfCFTA) that is meant to create a liberalised market for goods and services across the continent.
“We have to remember that we are part of the world,” MacKay said. “The idea that we can shut our borders and continue to export to the rest of the world is simply naive. This has never happened anywhere. We are a tiny part of the global economy.
“If we were to disappear, for most products the world will not miss us. For the global markets to disappear for us, it would have a profound impact on our economy,” he said.
Clive Vinti, an associate with XA, said the policy of localisation, which includes designation, was not complaint with said for various reasons.
“Firstly, it does not comply with the requirements of procedural fairness as required by the Promotion of Administrative Justice Act. So we do not receive public notices that there is an investigation about designation being conducted ... there is no investigative report on designation which is provided. This raises questions about the lawfulness of the decision. It also raises issues of rationality; what information is available to the person who decides which products to designate for local procurement?”
“What we do know is that we are told that this product has been designated. How that decision was made we do not know, so clearly we can see that there is a problem between designation and the Promotion of Administrative Justice Act,” Vinti said.
MacKay said the more SA localises, the more import competition is removed from the market. “That is the stated objective of localisation — to reduce imports. As you reduce imports, your sector becomes less competitive. As competitiveness drops, export performance is harder to achieve because you do not benefit from the duty that you may have in your domestic market. And so without the benefit of that protection other markets can become increasingly difficult to access.
“If that product cannot flow to other markets, then you have to sell more of it locally, which means more and more protection is required,” McKay said, adding that localisation and export competitiveness cannot naturally coexist.
This week, trade, industry & competition minister Ebrahim Patel dismissed concerns about the government’s localisation policies, saying they are consistent with SA’s international trade obligations and necessary to build the country’s industrial capacity.
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