Government policy on the localisation of public procurement is good in terms of its intentions but sadly falls short in many respects in practice.
Public procurement has been estimated to amount to as much as R1-trillion per year — it has huge potential to stimulate local industries if implemented correctly. This could be an important antidote to the progressive deindustrialisation of the South African economy over several decades.
The importance of localisation is highlighted in a number of industry master plans formulated by the department of trade, industry & competition in collaboration with the private sector as well as being provided for in the new Public Procurement Act, which awaits the promulgation of regulations to be operationalised.
The act provides that the minister of trade, industry & competition may designate specific sectors, sub-sectors and products that require mandatory local production and content.
There are also numerous tariff and import restrictions aimed at protecting local industry from foreign competition.
It was thus disturbing to read the results of a report last week on the extent to which government procurement of clothing, textiles, footwear and leather (CTFL) products is dominated by non-local suppliers. A host of such products are needed by different government departments and entities, including bedlinen and patient clothing in hospitals, and uniforms for the defence and police forces and correctional services, to name but a few.
The report compiled on behalf of the Localisation Support Fund (LSF) estimated government expenditure on CTFL products in 2025 at R7.5bn, only 32% of which was sourced locally. This falls far short of the CTFL Masterplan’s 65% local content target for government procurement by 2030 and represents a significant loss of revenue (estimated at R5bn annually) for the local industry, not to mention the number of jobs, wages, tax revenue and contribution to GDP foregone. The report suggests there is “systematic non-compliance” with localisation requirements across multiple departments and provinces.
Among the deficiencies identified were weak local content specifications and false declarations of local content, which were not verified. The report recommends an exclusionary local content threshold in all tenders.
The local pharmaceutical industry has also complained that the health department has over the past decade awarded a steadily growing share of key medicine contracts to foreign drug makers rather than supporting domestic players. It says this has caused job losses, though the department of health contests that its procurement policies are the cause.
The South African National Roads Agency Ltd (Sanral) provoked controversy a few years ago when it awarded the lion’s share of four roads contracts worth a total of R17.4bn to Chinese firms.
One can understand the dilemma faced by government departments that have to work within tight budgets in a constrained fiscal environment. They probably do not have the same commitment to localisation as the department of trade, industry & competition and readily opt for the cheaper alternative.
Localisation can often imply higher costs, and it can legitimately be debated whether the government should pay this premium or not, but it seems the benefits in terms of industrialisation, job creation and economic growth, not to mention black economic empowerment, outweigh these strictly budgetary concerns. Numerous countries around the world have used localisation policies to kickstart economic growth.
Government needs to make a concerted effort across departments to ensure its localisation commitment becomes a reality. What is needed is verification of local content claims and consistent monitoring of compliance.
Business Day
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