The initial products to be “designated” by the Department of Trade and Industry (DTI) as ones that should be procured locally by all spheres of government and State-owned enterprises in line with the amended Preferential Procurement Policy Framework Act regulations would be products used in infrastructure programmes, as well as those regularly purchased by government departments, Trade and Industry Minister Dr Rob Davies revealed on Thursday.
Speaking to the business community in Cape Town about the second iteration of the Industrial Policy Action Plan (Ipap2) at an event hosted by Wesgro and Webber Wentzel, Davies stressed that the designation of products was part of a government plan to leverage procurement in order to raise domestic production and employment.
The main vehicle would be the new preferential procurement regulations, which become effective on December 7. These amended regulations allow the DTI to designate particular parts and products that will have to be procured locally by all organs of State and Davies intends that the effect will be felt immediately.
“The 7th of December is actually when the first group of designations takes effect, not the date that we start the work,” he said.
The idea behind the designation was also to stimulate South Africa’s struggling manufacturing sector, the economic importance of which should not be “underestimated” in a developing country such as South Africa. Manufacturing, Davies averred, should not be considered to be dispensable simply if other sectors in the economy are flourishing.
“The lessons of economic history tell us that there is no case anywhere in the world, at any time, of any country that has taken itself out of being an underdeveloped economy to become a developed economy without this being led by manufacturing,” said Davies.
Acknowledging the challenges present in the manufacturing sector as a result of factors such as the 2008/9 global economic crisis, the rand’s overvaluation (which was now rebalancing) and industrial action, Davies said that Ipap2 was attempting to address some of the structural issues around manufacturing, though in an economic climate that is itself not ideal.
One of the actions of Ipap2 will be to encourage the channelling of industrial financing to more labour-intensive and value adding sectors like manufacturing, which Davies believes has not been done in the past. “[The] problem is that we have been having private credit extension that has been growing and has not actually gone into supporting investment in the industrial sectors . . . many of you in business know the old adage that it’s easier to borrow money to buy a car than it is to invest in your business, and that is the reality of South Africa.”
In terms of financing, Davies also said that the Industrial Development Corporation has reviewed its business model and has identified R102-billion over the next five years for investment in New Growth Path and Ipap2 sectors at extremely competitive interest rates. He said this includes R10-billion in a job creation fund, R25-billion earmarked for green economy projects and R5-billion in an agroprocessing fund.
Key areas of focus of the Ipap2 are in metals fabrication, capital and transport equipment sectors, as well as in green and energy-saving industries. In his opinion, Davies said that Africa had lost out in the previous large industrial revolution of information and communication technology, having participated only as consumers. “What we have said is that this green energy and green industry is the next wave of industrial development and we are determined to make sure that Africa and South Africa in particular take part also as producers.”
Other sectors highlighted by the plan were the automotive and clothing and textiles sectors. In the automotive sector Davies said the investment incentive budget of R2.69-billion had already been instrumental in securing R14-billion of investment commitments from assemblers and component suppliers and it is estimated that around 12 000 new jobs will be created in the 2011 to 2013 period.
In the clothing and textiles sector, the roll-out of the Clothing Textile Competitiveness Programme and Production Incentive totalling R731-million should assist in supporting almost 50 000 jobs in 200 companies, in what is currently an embattled industry.