The department of trade, industry and competition says the government’s localisation drive will not necessarily lead to a sharp rise in input costs, and competition authorities are ready to pounce on companies that inflate prices.
Under SA’s preferential procurement policy framework, which has been in the making from as far back as 2007, the government can designate sectors for localisation, meaning that their products will be prioritised for purchasing by the state.
But various players in big business have warned that a blanket approach to localisation will kill the competitiveness of key sectors — and is likely to have a knock-on effect on the rest of economy.
In May, Business Unity SA (Busa) cautioned that localisation could push input costs up by 20%.
The department’s director-general, Malebo Mabitje-Thompson, said competition authorities and stakeholders would closely monitor pricing in the market in a bid to curb the potential abuse of the government’s localisation plans.
“We are mindful of those things [input cost] that may potentially arise,” Mabitje-Thompson told Business Day in an interview.
“Where we are told that these prices are not what they should be; that there is collusion; and market behaviours that are undermining the bigger policy objectives we have … the Competition Commission will have to come in quite strongly on any of those. We did it now with PPE [personal protective equipment] even under difficult circumstances where we had to fine people for such behaviour,” Mabitje-Thompson said.
Broadly, localisation emphasises on the use of locally made inputs in manufacturing as part of a drive to revive distressed sectors, such as poultry, sugar and steel. The policy, which is viewed by critics as a form of protectionism, calls on business to target 20% of nonpetroleum imports for local replacement within five years. In a recent circular issued by the Treasury, the state banned the use of imported cement for state-awarded contracts after local cement producers argued that cheap imports are hurting their businesses and job-creation efforts.
Mabitje-Thompson said localisation is not unique to SA and many other countries, including those in the Group of 20 (G20) have similar policies that have boosted local industries.
She noted, however, that all policies may have unintended consequences, “the issue is how do we manage those effects”.
“We have to work with industry and National Treasury to ensure that where unintended consequences arise, those are managed. For us it’s a question of the 7-million unemployed and the potential input cost increases and we are saying it is better to manage the possible cost increases than to ignore the unemployed,” Mabitje-Thompson said.
She also emphasised that localisation was not a “blanket approach”.
“There is no blanket policy that says everything will be localised, because that does not make sense. We will be targeting specific products and to get to that there is a negotiation, an engagement with the different players in order to gauge whether the costs that comes with that action [localisation], is a cost that we as an economy will be able to bear. We generally wouldn’t move forward with designation if the costs are too much for the economy.”
Stephen Hanival, chief economist in the department, said the decision to designate a product for localisation was taken on the basis of substantial research within the department and tested with stakeholders.
“We are not going to designate [for local procurement] semiconductor chips, for example, because SA does not produce computer chips. We would love to produce computer chips but we don’t at the moment, so we are very pragmatic about what can be designated for localisation,” said Hanival.
“We speak to companies involved in the sector and ask them about how much excess capacity they have. It is only once we have all of that information together that we would then say ‘here’s a sector that we think we should be designated’ … so it’s a whole of government and stakeholder-driven process.”
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.