Localisation for Africa
Is South African business taking advantage of State Owned Companies’ localisation opportunities?
In his speech introducing the Department of Public Enterprises( DPE) budget to parliament for 2013 / 14, Minister Malusi Gigaba emphasised that one of the key objectives for government’ s one trillion rand infrastructure programme would be the industrialisation of the South African economy. In order to meet this objective, State Owned Companies such as Eskom, Transnet and PRASA, are to leverage their procurement spend to ensure that the maximum economic benefits are gained. These gains would be realised through the increase of local content, job creation and the development of the South African skills base, with the end goal of increasing manufacturing contribution to GDP, as well as the number of quality jobs in the manufacturing sector.
Government has committed over a trillion rand from its infrastructure programme, which presents a massive opportunity to the South African manufacturing base. Whilst a lack of infrastructure investment over the past 20 years and the 2008 financial crisis has gutted the SA manufacturing sector, the new infrastructure programme provides SA companies with an opportunity to rebuild their manufacturing capabilities and their capacity through programmes which have large portions of the work“ set aside” for South African suppliers. Designation and other localisation requirements in the latest set of tenders from Transnet, PRASA and other SOCs, in effect, protect SA suppliers from offshore competition. The scale of these contracts should allow SA companies to develop their capabilities and capacity under the certainty that these large orders provide. The end result should be more globally competitive SA manufacturers, an increase in exports, which in turn will increase their capital, spend on new equipment and facilities and thus accelerating the training of their work forces.
However, while it seems that foreign Original Equipment Manufacturers( OEMs) have accepted governments’ localisation initiatives and have competed to meet and exceed government requirements, the response from the local manufacturing sector can at best be described as patchy. While working on a number of large SOC procurements in the last year, I have been struck by the lack of interest displayed by South African companies. It seems the many years of uneven orders from the SOCs has led to a climate of uncertainty where SA suppliers are afraid to commit to any capital or other expenditure. Information requests for job creation numbers, local content percentages and other data requirements were ignored even after multiple requests. It appears that SA suppliers often assume that they have no role to play in the supplier development / localisation portion of the bid and that the onus is on the OEM to meet all the obligations and simply hand work packages over to their SA suppliers. For example, on a recent rolling stock tender with extensive skills development obligations, a SA manufacturer, who was in the pipeline to obtain well over R5 billion of orders, committed to spending less than R10 million on skills development and the training of only a five people. This was simply unacceptable to the OEM. In very few cases did we have SA suppliers actively talking up their contribution to transformation, skills development, job creation etc.
New infrastructure programme provides SA companies with an opportunity to rebuild their manufacturing capabilities and their capacity through programmes which have large portions of the work“ set aside” for South African suppliers.
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