The need for these regulations was identified as a crisis measure to help SA manufacturing weather the global economic crisis as far back as 2009. But even though they are two years late, the measures could have a significant impact.
In terms of the regulations the department of trade & industry must designate by 7 December 2011 the sectors, subsectors and industries that will be the beneficiaries of government's local procurement drive.
Most of the technical work has been done and the department will be ready to announce five to seven designations by the deadline, says DTI deputy director-general Nimrod Zalk.
The products and sectors initially under consideration include rail locomotives and buses, parts of Eskom's power-generation and power stationbuilding programme, pharmaceuticals, and clothing and textiles. The DTI plans to add to the list and refine its designations over time.
Of key importance is whether the designation of a sector will contribute to the creation and retention of decent jobs, says Zalk. The DTI must also establish whether a sector will be able to meet expected demand and at what level of local content it can do so. How competitive a sector is will also be critical.
"For the past six months, we've detailed the production capacity of certain sectors to make sure the level of local content we specify doesn't exceed what we can produce fairly competitively as a country," says Zalk. "Our initial approach is to err on the side of caution by not specifying too high a percentage of local content, though we aim to increase that over time."
While welcoming the boost this will give domestic manufacturing, commentators are worried it will push up the cost structure of the public sector.
Government is prepared to pay some price premium for buying locally, as long as this doesn't exceed the net economic benefit to society as a whole, says Zalk. "We have to consider the broader economic benefit that will result to the country from preventing further deindustrialisation."
It's not possible to specify a precise premium that will be acceptable to government across the board, but Zalk says it would not, for example, be prepared to pay twice as much for a local product as a Chinese one would cost.
The DTI is drawing up guidelines to ensure public entities don't pay an excessive premium for buying locally. The exercise has unearthed inefficiencies in the way public procurement is being carried out. In many cases, Zalk says, government is paying a lot more for imported goods and services.
"The idea is to build up a competitive local supply base, not one dependent on unrealistic prices," he explains. To help ensure this, the designation of sectors will come with conditions attached. Affected firms could have to undertake productivity improvements, for example.
On its own, a "Buy SA" strategy isn't the silver bullet that will save SA manufacturing, but the DTI is hopeful that over time the regulations will help to grow and stabilise the designated sectors.
Columbus Stainless CEO Dave Martin believes the regulations will sensitise both manufacturers and purchasers to local opportunities. "I don't see it doubling or trebling demand for our product. But I do expect that we will gain extra business from this exercise."
Source: Financial Mail
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