An association representing steel tube and pipe manufacturers in SA says more enforcement is required to ensure the government’s localisation policies benefit small companies.
“The localisation policy is working but requires more enforcement where we need to see a more concerted effort from organs of state who are the key procurement levers in this process,” said Keitumetse Moumakoe, CEO of the Steel Tube Export Association of SA.
The government has highlighted localisation — the use of locally made inputs in manufacturing — as a main policy objective for economic recovery and has asked business to target 20% of nonpetroleum imports for local replacement within five years.
Localisation, which is viewed by critics as a form of protectionism, is a key pillar of the government’s master plan to revive distressed local industries such as sugar, poultry and steel.
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.
Business Unity SA (Busa) has previously 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 by 20%.
In September, Donald MacKay, the founder and director at XA International Trade Advisors, said SA’s localisation policies are not consistent with the constitution and lack clarity. He said the only reason there has not been many legal challenges is that the localisation and designation initiatives have simply not been properly implemented.
Moumakoe told Business Day that enforcement will be crucial for localisation to be successful. It was indispensable in an economy like ours that seeks to create jobs, rebuild industries such as steel, and drive transformation.
“The South African steel industry needs to reassess its engagement in the global steel trade where a paradigm shift is necessary, from being a large importer of semi-finished and finished steel products that can and are being manufactured locally to being a competitive exporter of the very products with an emphasis on finished steel products,” Moumakoe said.
“Localisation of steel products, buoyed by the objectives of the recently signed steel master plan, could have the gravitas to influence supply chain competitiveness and economic policy by getting key stakeholders that own and manage key supply chain links to fully commit to the localisation drive,” he said.
Moumakoe said that localisation reduces the barriers of entry into the industry because steel resources would be locally and readily available for micro enterprises who supply public projects.
“An infrastructure-driven economy is also imperative to creating opportunities for small players and to assist in their sustainability.”
Representatives of the local poultry industry have also called for more enforcement to drive the localisation agenda.
“Localisation is practised by all successful countries in the world. Brazil, for instance, allows less than 1% chicken imports; the US less than 2% and the EU less than 7%,” said Izaak Breitenbach, GM of the SA Poultry Association.
“The caveat is that local industry has to be competitive. And the industry in SA has been proven repeatedly to be the sixth most efficient producer of chicken in the world, more efficient than any of the EU countries.”
Breitenbach said the illegal import trade is rife and is preventing growth of the grain value chain.
“Imported chicken doesn’t eat South African grain, and the knock-on effect is visible also in that key industry,” he said.
An opposing view is offered by the Free Market Foundation, a libertarian think-tank. It warned this week that localisation master plans will derail economic growth, drive away the investment required for more manufacturing capability, and will subject local and international businesses to more “arbitrary, unpredictable government edicts and interventions”.
The foundation said localisation master plans could deliver jobs in narrowly defined, government-approved areas. Those businesses that receive subsidies will be stable and possibly employ more people in the short term.
However, it said such policies could shield some businesses for now but eventually they would be vulnerable to unforeseen future events which will negatively affect overall investment and job growth in all interconnected parts of the economy.
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