Public sector yet to fully embrace new local-content rules

19th May 2014 By: Terence Creamer - Creamer Media Editor

Public sector yet to fully embrace new local-content rules

DTI deputy director-general Garth Strachan
Photo by: Duane Daws

A senior Department of Trade and Industry (DTI) official has acknowledged that many government departments are flouting procurement rules on local content, despite specific regulations having been introduced compelling all spheres of government and State companies to source ‘designated’ products from domestic producers.

In 2011, the National Treasury, guided by the DTI, amended the regulations to the Preferential Procurement Policy Framework Act to enable the designation of products, which range from railways equipment and power pylons through to canned food and uniforms.

Speaking at the inaugural Manufacturing Indaba in Ekurhuleni on Monday, deputy director-general Garth Strachan revealed that, eight months after clothing, textiles, leather and footwear products were designated for local procurement, the DTI discovered 160 government tenders in breach of the rules.

It had also discovered that certain municipalities were still favouring imported products and solutions procured through black-empowered intermediaries over local products – even products produced by local labour at companies operating within the municipality’s own boundaries.

“So passing the law is one thing, getting the requisite capacity for strategic sourcing and supplier development across government institutions may be another altogether.”

But Strachan also called for a change in the “mind-set” of the private sector, which had also increasingly turned to imported products, which had served to compound South Africa’s current account and trade deficits.

Government would be reviewing the procurement and empowerment regimes to place a greater emphasis on aligning transformation with localisation, possibly through the introduction of set asides for black firms and the inclusion of local-procurement targets for companies requiring a licence to operate, such as mining companies. “We have to have a mind-set change across all spheres of government, but it’s also about leveraging private sector procurement,” Strachan argued.

Economist Dr Iraj Abedian noted that the majority of the 54 respondents to the Manufacturing Circle’s latest survey, which was complied by Abedian’s Pan-African Investment and Research Services, concurred that local procurement was important to the growth of manufacturing. However, the survey also found that most of the respondents did not benefit directly.

The companies, which include small-, medium-sized and large manufacturers were equally concerned about delays to the public infrastructure programme as well as reduced demand from the mining sector, partly owing to a protracted strike in the platinum sector.

For this reason the first-quarter bulletin revealed that conditions were generally perceived to be “fragile” for the short term, despite export resilience, which had been supported by a weakening in the exchange rate and continued strong growth in the rest of Africa.

However, the rising cost of doing business emerged as a major threat to further competitiveness, with the bulk of the inflation attributed to administered price increases.

“It’s not business that increases the cost of doing business . . . and jobs are being put at risk,” Abedian warned, adding that greater management effort was required by State companies, departments and municipalities to deliver services in ways that did not add further upward pressure to rates, as well as power, water and transport prices.