The department of trade, industry & competition says it is confident all government entities are buying into the localisation drive despite differing views in parts of the state.
Localisation, viewed by critics as a form of protectionism, is a pillar of the government’s plan to revive distressed local industries such as sugar, poultry and steel. The policy — aggressively pushed by trade, industry & competition minister Ebrahim Patel — calls for the use of locally made inputs in manufacturing to boost economic recovery and requires business to target 20% of nonpetroleum imports for local replacement within five years. The government has also banned the use of imported cement on all government projects, boosting local firms such as PPC.
“The department is not aware of any state entities that are not willing to implement the localisation policy,” Stephen Hanival, the department’s chief economist, said at the weekend.
“Where state entities find it difficult to implement localisation in practice, the [department] readily meets the entity and tries to collaboratively develop ways to implement localisation, taking account of the unique circumstances that departments, provinces, local government entities and SOCs may face,” Hanival said.
He was responding to questions about the International Monetary Fund’s (IMF’s) observation that there is a lack of uniformity within the government in terms of localisation policies.
In its annual report on SA published earlier in February, the IMF suggested that government views on localisation are inconsistent, signalling possible policy misalignment and divisions.
The US-based lender of last resort noted that the government’s economic reconstruction and recovery plan published in October 2020, for instance, emphasises the importance of localisation based on business models that combine import substitution and regional trade.
“Officials of the department of trade, industry & competition argued that enhancing production capacity and trade within the continent through localisation would help business communities build resilience against disruptions to the global value chains in the post Covid-19 world. [Yet] other parts of the government see ambitious localisation targets as likely hitting capacity constraints and raising production costs,” the IMF said.
Late in 2021 Popo Molefe, the board chair of state-owned freight, rail and logistics group Transnet, raised concerns that of the local content rules are a threat to the company’s finances. However, Transnet later said these concerns don’t mean the company is not in support of localisation.
Hanival said the IMF report does note that there are different views on localisation in different parts of the government, but this is not surprising.
“This is not a surprising comment, it is normal for government officials to engage in these kinds of debates and discussions — indeed it is an essential part of modern, evidence-based policymaking to engage with a diversity of views. These views often guide how localisation is implemented, as the [department] is acutely aware of the need to set localisation targets that support domestic job creation, production and value-addition, while careful not to unduly raise costs for downstream consumers,” Hanival said.
He said these discussions assist the government to set localisation targets that are achievable and reasonable given SA’s industrial capacity and capabilities.
But critics of the localisation drive say it will kill the competitiveness of local industry. Furthermore, it is considered to be inconsistent with trade agreements that SA has signed, including the new African Continental Free Trade Agreement that is meant to create a liberalised market for goods and services across the continent.
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