The submissions made by various industries to parliament’s finance committee on the Public Procurement Bill have pushed for priority to be given to localisation in preferential public procurement, in line with the department of trade, industry & competition’s stated policy.
And why wouldn’t they? Localisation — called import substitution when it was integral to the apartheid government’s efforts to counter the effects of international sanctions — clearly favours vested interests. Any industry association that objected to its members being given preferential treatment over foreign competitors would soon experience a change of executive personnel.
But is localisation in SA’s best interests? The department maintains that it is a good way to tackle SA’s horrific level of unemployment and encourage the development of home-grown skills and technologies, and there is no doubt that promoting locally produced goods can do both. But at what cost? Buying local, rather than best or cheapest, invariably stokes inflation and makes domestic producers less competitive and less innovative in the long run.
It is broadly accepted that global trade is a win-win, but it is also a two-way street. If SA puts obstacles in the way of imports, what is stopping other countries from blocking our exports? That is a zero-sum game that puts global prosperity at risk, as the IMF has warned.
The Centre for Development & Enterprise’s report, “The seven sins of localisation: can SA afford this costly policy?”, lays out the risks posed by localisation in detail. The government would be well advised to read it carefully before finalising the Public Procurement Bill and locking the country into a spiral of inefficient production, high costs, low economic growth and current account deficits.
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