South Africa needs to develop an appetite for industrialisation. This was the message of Minister Ebrahim Patel at the Proudly South African Summit held in Gauteng today.
Addressing about 500 delegates from companies and unions, Minister Patel spoke of the successes of the Local Procurement Accord signed by social partners in October 2011.
“We need to develop an appetite for manufacturing, for making things and not simply buying them, for transforming metals and agricultural raw materials into goods that consumers buy. Therein lies sustainable wealth creation and the development of sophisticated logistics networks, finance, legal and business services. Indeed, increasingly we see local procurement as a centrepiece of industrial policy and of our counter-cyclical macro-economic policies,” he said.
He referred to examples of local taxi production, commissioning of a condenser for the Kusile power station and the Walmart Fund.
“Every day, millions of people across South Africa board a minibus taxi – to get to work, to go to school, to go shopping or to visit friends and family. Yet since 2007, not one of these vehicles has been manufactured in South Africa. All 23,000 of the new taxis bought every year have been imported,” he said.
“Working closely with my colleague, Minister Davies, who is responsible for the auto industry incentive scheme, we created a framework for the localisation of taxis. Based on this success, this year, a new taxi assembly plant opened and early next year a second one will open, providing local assembly capacity that will meet up to two-thirds of the annual demand for taxis,” he said.
As a result of these efforts, In April 2012, Toyota SA started to assemble Quantum taxis at its plant in Durban. It expects to produce up to 10,000 taxis a year here by 2014, meeting over a third of the anticipated annual demand.
Two weeks ago, another taxi assembly plant opened, this time in Springs in Gauteng, under the Beijing Auto Works, or BAW. This plant was made possible by a partnership with the IDC. It will employ 470 people to assemble a new 16-seater minibus taxi from January next year.
“This story illustrates what we can achieve if we take the requirement for local procurement to heart. It shows how local procurement can support employment creation, add to our country’s technological capacity, improve our balance of payments and underpin industrialisation,” Minister Patel said.
Government has through the Presidential Infrastructure Coordinating Commission (PICC) developed the National Infrastructure Plan which will help to catalyse local procurement.
This plan identifies 18 Strategic Integrated Projects (SIPs) over a 20 year pipeline, aimed at addressing service delivery and supporting economic development.
The SIPs will be leveraged to drive job creation and industrialisation through amending existing shareholder compacts to require SOEs and public entities involved to give effect to these goals; setting out appropriate localisation terms in tender specifications and projects for the private sector; and aligning government incentives and industrial support programmes to ensure local producers can tender for key projects.
Critical inputs to the infrastructure projects such as steel, cement and timber, as well as machinery and equipment, open up opportunities for additional local production and investment.
Small component manufacturers will also be targeted for investment and local manufacturing. These include the mass roll-out of solar water heaters to meet our green economy goals and set-top boxes as part of our national digital migration programme.
The Port Regulator developed a new tariff system that incentives the export of value-added goods rather than simply raw materials. Some R1 billion was made available for this initiative.
“But localisation requires that we do not simply rely on the state to give local companies benefits and preferences. We must also build cost and quality competitive local industries, able to use the public procurement process to expand production and build a base for exports to the rest of the continent and other parts of the world, Minister Patel said.
To ensure that successful bidders are price competitive, the PICC is working on policy frameworks to combat corruption and to contain costs in the national infrastructure build programme.
He announced the setting up of a permanent Localisation Project Office by the IDC to assist state entities and the private sector to identify local procurement opportunities, undertake market analysis and develop financing options.
“The IDC recently provided a R66 million funding package to assist a local company in gearing-up its workshops and to fund its working capital requirements to execute a contract for the supply, fabrication and erection of a condenser system for Eskom’s Kusile Power Station. The contract value is estimated at R2.4 billion and is expected to consume 53 000 tons of steel and create at least 750 new jobs,” Minister Patel said.
Our trade policy also plays a role in supporting the government’s localisation efforts in its infrastructure programme.
Minister Patel pointed to successful examples of private sector initiatives.
In one example of this that is sustaining 800 jobs and could see up to 300 new jobs being created, fashion retailer Foschini Group acquired a local clothing manufacturer, Prestige Clothing, in March 2012.
Prestige is a manufacturer of women’s outerwear and some styles of children’s clothing. It has two factories, one in Cape Town and the other in Caledon, and employs 800 workers. Foschini is in the process of negotiating to take on a further 300 workers in Caledon.
This transaction will not only create new jobs, it will give Foschini a competitive advantage, in speed-to-market.
In the mining sector, AngloGold Ashanti is spending R700 million to assist its South African based suppliers to export their goods to AngloGold operations in the region. Through its procurement spend, AngloGold is assisting South African companies with export opportunities, technology development and business skills.
Examples of the direct impact of AngloGold Ashanti’s initiatives has on its local supply base include the 80 additional jobs at a manufacturer of backfill bags, 40 additional jobs at a producer of work suits and 66 new jobs at a locomotive producer.
The Local procurement Accord refers to the work of the South African Supplier Diversity Council (SASDC), which is now involved in initiatives to assist its corporate members to procure locally.
SASDC’s 22 members, who have a combined estimated turnover of R900 billion, include corporates such as ABSA, Afrox, Barloworld, BP, Firstrand, Foskor, IBM, Pfizer, SAB, Sasol, Shell, Coca-Cola and Unilever.
Business Leadership South Africa commissioned a study on local procurement. It established what efforts companies were starting to introduce. Of interest is the areas it identifies where there can be investment to support domestic supply chains. Some examples include: chicory, barley, milk, milk solids, and certain components of capital equipment.
‘It is clear that more needs to be done by corporate South Africa to drive localisation in their supply chains and that the large supermarkets and other retail chains must work closely with local suppliers to improve local procurement,” Minister Patel said.
The recent Walmart Competition Appeal Court judgement placed the spotlight on local procurement at retail level. The court mandated the company to set up a Supplier Development Fund with a financial injection of up to R240 million to support local suppliers. We will be working with Walmart and organised labour to pursue the goal that the level of local procurement must rise, rather than fall, as a result of its entry into our market.
For more information, please contact:
Ms Ayanda Shezi, Media Liaison Officer
Cell: 079 880 2059
E-mail: ashezi@economic.gov.za
Mr Saleem Mowzer, Special Advisor to the Minister
Cell: 082 808 8135
E-mail: smowzer@economic.gov.za
