South African growth and employment levels can be boosted significantly through a successful local industrial programme, Trade, Industry and Competition Minister Ebrahim Patel said at the Black Business Council Annual Summit on June 2.

He pointed to successful examples of localisation in the past year, covering products ranging from medical supplies required to address the Covid-19 pandemic, to poultry, kitchen cookware and sugar products.

“Local industrialists expanded output of key products needed to fight the Covid-19 pandemic, often from scratch. They created an industry that is worth well over R10-billion in output through the production of masks, ventilators, sanitisers and vaccines,” he said.

“The Covid-19 pandemic has shown the vulnerabilities of national economies in a globalised world, with the disruption of global supply chains and measures to monopolise access to scarce goods like ventilators and vaccines.

“The lesson for South Africa is to build greater economic resilience – at firm and economy level – and pursue what has been described as ‘strategic autonomy’ goals, which in the South African context means greater levels of industrialisation and innovation,” Patel added. 

He noted that South Africa and India have co-sponsored a proposal to the World Trade Organisation to have a temporary waiver of certain intellectual property rights, on vaccine, diagnostic and therapeutic products, to enable greater local production across the world, particularly in Africa.

More than 100 countries have now come out in support of the proposal to address the shortage of vaccines.

Patel pointed to the need for a stronger and fairer economy and the connection between the two.

“Strengthening the economy in a society with significant legacy challenges and deep levels of inequality, requires extraordinary measures. Growth requires deeper inclusion so that our base of enterprise is widened.

“If we are to develop the national consensus on growth that we urgently need, and the sense that we are in this together, it needs to be based on communities, the unemployed, workers, black entrepreneurs, women, young people and the rural poor seeing a path to jobs and prosperity,” he said.

He set out progress made with transformation through measures in the Competition Act, which can assist.

“The Competition Act has been amended to place transformation at the centre of competition policy, including through measures to address price discrimination against smaller businesses and firms owned by black South Africans, new curbs on abuse of power by dominant firms and new powers to the regulators to deal with economic concentration that results in the exclusion of black South Africans in the economy.

The recent actions against exclusive lease agreements in shopping malls and the opening up of car repair and panel beating markets to township players, illustrate what is needed,” Patel said.

He indicated that the mandate on Black Industrialists given to the Department of Trade, Industry and Competition (DTIC) institutions, has resulted in R32-billion in loans and support over a five-year period for 800 black industrialists.

“We have compiled a register of current worker ownership arrangements within firms in the economy, to quantify the extent of the impact of broad based black economic empowerment (BBBEE).

“The information in the register, which is constantly being updated, shows that roughly 50 firms who have worker ownership through shares in their companies cover approximately a quarter-million workers,” Patel highlighted.

He did, however, mention a number of challenges with BBBEE implementation.

“The use of fronting arrangements and gaming of the BBBEE rules by firms seeks either to evade the BBBEE requirements or artificially inflate the true extent of transformation.

“Where data and claims by firms are not adequately quality-controlled, or the rules are imprecisely formulated to enable the system to be ‘played’, different to the spirit of transformation, they result in legitimate public scepticism on the real impact of BBBEE,” he said.

Patel also noted that the funding mechanisms, particularly the use of certain vendor funding structures in many cases, limits the real benefit in BBBEE transactions.

“Many of these deals have been structured using what one can only call “heroic” assumptions about asset price growth. Many of these deals are now “underwater” – meaning the beneficiaries have not been able to realise the value they were promised, leaving the established firms with the BBBEE scorecard benefits without providing apparent beneficiaries with any real gain. It requires review,” he explained.

“Deep concern among communities and workers that the benefits of BBBEE are in many cases too narrowly captured by a few individuals, that workers and their collective vehicles are left out of gains in such instances.

“Where worker ownership schemes are in place, they, in many cases, do not provide for one of the key elements of ownership, namely the right to nominate and appoint board members,” Patel noted.  

He announced that a panel would be established to consider the challenges and identify measures to ensure the policy benefits a wide number of South Africans.