Recent commitments by the government, business and labour to localise production and procurement of goods triggered a multitude of naysayers.
Opponents of localisation include vocal pundits, researchers, free-market ideologues and self-appointed experts. But what you won’t find in their ranks are SA manufacturers, the people whose businesses and industries make the things that make local jobs.
This country’s manufacturers continue to shed jobs. In Q2 2021, we heard that job losses in that quarter meant the manufacturing sector fell below 10% of total employment for the first time on record — down to 1.4-million employees from 2.1-million employees in the heady days of 2008.
SA manufacturing is shrinking today at a rate and to an extent that should alarm everyone with an interest in the state of our nation; everyone who is distressed by our apparently bewildering inability to offer young people decent employment.
Something has to be done to get manufacturing going again. Most manufacturers don’t want handouts and they don’t expect to be protected from lawful competition, even when it is imported. They know they need to consistently produce quality goods at prices that are competitive and realistic. But they do need help. Manufacturers need help from those who formulate policy and monitor its implementation.
In fostering investment and economic and industrial activity, the state’s preferential procurement is admittedly a blunt instrument. Yet it’s a fact that the state (including its multiple entities in multiple guises, sizes and at multiple levels) is the largest buyer of goods and services from the private sector. The National Treasury is alive to the need to use the state’s procurement muscle to advance our national development goals, transformation and job creation, and so it has designated certain sectors and products in terms of local content and broad-based BEE status.
But the rules the Treasury traditionally applied across the whole range of public-sector procurement have been thrown into disarray by recent court pronouncements. So a new draft set of preferential procurement regulations has been published, and they are deeply troubling.
The draft Preferential Procurement Regulations 2022 omit any reference to local procurement — or to vendors’ broad-based BEE status as a specified goal. Instead, under the published new regulations, all organs of state may now make up their own minds on how they measure economic and industrial development when they issue tenders.
There are, of course, many state institutions that simply shouldn’t be trusted with such latitude as they lack the capacity to use it effectively and responsibly. There is no telling how many, if not most, state entities will act when freed from the strictures to which they were previously subject in terms of the Preferential Procurement Policy Framework Act.
What is almost certainly going to happen, however, is that local content will feature much less prominently in public-sector procurement. That will be a further body blow to a manufacturing sector that relies on local procurement to drive local demand and production economies of scale.
Preferential procurement and designation are blunt instruments but they are vital instruments, among the most potent at the disposal of a developmental state. As they are now framed, though, the Treasury’s draft Preferential Procurement Regulations will undermine and indeed fly in the face of the serious work the department of trade, industry & competition is doing with private sector partners to achieve meaningful, effective localisation. This work does not attract much attention but goes on daily under the radar and involves a great many individuals and organisations during a lot of hard, concerted work.
Localisation naysayers all decry blunt one-size-fits-all policies, regulations and other interventions. And they are right. Replacing imports with goods made by locals using local manufacturing capacity can never be achieved by sweeping diktat, not without seriously negative consequences. The work now being undertaken by the department of trade, industry & competition, Nedlac, organised labour, companies, Business Unity SA, the Manufacturing Circle and many others, is aimed at arriving at instruments that are anything but blunt. The envisaged outcomes will be about fostering investment and boosting our export competitiveness. They will be detailed, narrow but nuanced, and accountable and transparent.
The Manufacturing Circle has long advocated for leveraging public procurement to support economic and industrial development. Procuring locally produced goods or components drives local demand and facilitates economies of scale for local manufacturers. This in turn enhances competitiveness and opportunities for export, and supports efforts to retain existing jobs and create new ones.
Where we cannot produce components or products that are at least as good as their imported equivalents, or carry too much extra cost, we won’t attempt to localise them. Until conditions change such that it does make sense to localise.
Since late 2020, localisation has become a much stronger narrative, featuring as a prominent objective of the Economic Reconstruction and Recovery Plan announced by President Cyril Ramaphosa in October 2020. Today, dozens of working groups, individuals and organisations across business, government and labour are applying a great deal of time, effort and resources to develop realistic, robust strategies and implementation plans.
What is generally not appreciated is that under the localisation initiative, individual value chains are being personally championed by senior business figures, many of them CEOs of SA’s largest companies. Their ranks include the top bosses of mining, retail and telecom giants — all of them sufficiently intelligent, strategic and tactical to understand the benefits of supporting viable localisation opportunities by identifying aggregate sustainable demand opportunities to drive local manufacturing. No-one in this country can afford being forced to buy overpriced, shoddy products made by lazy manufacturers grown fat on the proceeds of protectionism.
• Rodseth is the executive director of the Manufacturing Circle, the voice of SA manufacturing.
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