Business Unity SA (Busa) has cautioned the government about taking a blanket approach to localisation, saying a study has found that conditions in most industries are not yet right and input costs could be pushed up by 20%.
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 non-petroleum imports for local replacement within five years. Busa on Monday published a study by consulting firm Intellidex, which was commissioned to establish how fast firms could localise and whether the 20% was realistic.
The study included a 125-firm survey that found “localisation targets could well be achievable over the medium term but that the right conditions do not exist in most sectors. It will take time and investment to achieve the levels of onshore capacity, quality and appropriate price points — a timeline that cannot be forced through central dictate,” says the report.
A big underlying factor was continued uncertainty over government policy, which made it difficult for firms to estimate demand pipelines and make investment decisions. There was much scepticism and pessimism about existing localisation policies. Companies surveyed highlighted the price risk on pushing on with localisation without capacity — prices could rise by about 20% if such a move is undertaken too fast.
Two biggest constraints on firms of reaching the target were the price of onshore inputs vs offshore ones (57% of respondents) and the capacity of local manufacturing to produce the inputs they require (54%). When looking at their supply chains, 54% said they believed government regulations were the biggest constraint and price of local inputs the second biggest at 49%.
Busa CEO Cas Coovadia said that in talks in the National Economic Development and Labour Council on the economic recovery plan, business wanted to put a process in place that a localisation policy was not “one size fits all” that made imports artificially higher in price so local inputs were more attractive.
“The report seems to say with the appropriate environment in place, and if we manufacture local goods competitively, we can over a period of time increase local production reasonably effectively,” he said.
However, “different product ranges and different sectors would have different dynamics for localisation. That is why we have identified 35 different champions who are CEOs working in these sectors and we want to get those sectors to interact with government and with labour to look at localisation in those project ranges. Some could be done sooner, some could take longer. Some might have necessary factors in place and others might not, and we would have to look at how to create those factors,” said Coovadia.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.