State-owned freight logistics group Transnet indicated on Tuesday that it would be imposing penalties on those suppliers that had failed to deliver on their localisation commitments.

Responding to a question on the effectiveness of the group’s monitoring and evaluation system for local content and supplier development at an Industrial Development Corporation (IDC) conference, acting chief supply chain officer Edward Thomas said capacity had been developed to assess the performance of suppliers against their contractual obligations.

He admitted that this internal auditing capacity still needed to be enhanced further, but stressed that Transnet was “very serious about the issue”.

“We negotiate penalties into our supplier-development contracts and, through this monitoring and evaluation process, we will be starting to impose some of these penalties where we find that suppliers are not meeting their supply-development and localisation requirements.”

Thomas did not elaborate as to which supplier or suppliers were in breach, but it is understood that certain locomotive original-equipment manufacturers had not met their 60%-plus local-content commitments.

Localisation is a central pillar of government’s Industrial Policy Action Plan, with Department of Trade and Industry deputy director-general Garth Strachan, who also addressed the IDC conference, saying that it would like to raise the target to 75% across government and State-owned companies.

“We’ve got a long way to go,” Strachan admitted, arguing that securing compliance was a major challenge. “Although it is now an audit function,” he added.

Economic Development Minister Ebrahim Patel added that, despite pressure on some infrastructure programmes, including Transnet’s, owing to the weak economic performance and outlook for commodities, government was still committed to investing in core economic infrastructure and leveraging that spend in support of industrialisation.

Patel said localisation was key to extracting greater value for “each billion-rand that we spend”. But he admitted that, while Cabinet was “enormously sympathetic” to the needs of small business and emerging black industrialists, gaps had emerged between the intention behind certain policies and the efficacy of the policy design.

“Sometimes the bureaucracy gets the design brilliantly right, sometimes they get the design badly wrong. We need a better system to find out where our design doesn’t meet the policy objective.”