19 September 2016
By: Marco da Silva, Divisional Managing Director at Jasco Power
The Local Procurement Accord was established in 2011 by government with the intention of putting policy in place to develop local suppliers and better utilise local resources in order to achieve the goals of socio-economic development through job creation. Five years on, procurement of locally-produced goods is still low which compromises economic growth and job creation. Locals are still importing the skills, materials and tools needed to complete their products or provide their services. This is because South Africans face tough competition from labour-intensive countries producing goods and services cheaply as well as capital-intensive countries producing advanced products of high quality.
Despite slow uptake, it’s still too soon to assess the success or failure of the Local Procurement Accord. Even though government and state-owned entities have a critical role to play in advancing local procurement, it is the commitment of the private sector to buy local goods and services that has the final say when it comes to the success of this effort. This means it is critical for businesses in general to examine, from a private sector perspective, the importance of bolstering and enforcing the Local Procurement Accord by looking at the key benefits of local procurement. This will also help to identify strategies that can increase acceptance of the Accord, across all sectors of the economy.
Challenging, but important
While there is a lot of positive talk about the importance of buying locally, it seems to be just that. Talk. At the end of the day, price is always king and it is difficult for local manufacturers to compete with overseas suppliers. This means that South African organisations will often choose the cheaper internationally-produced solution that meets the spec, rather than a locally-manufactured product that meets the spec while being slightly higher in price.
It is also interesting (and somewhat frustrating) that we are a country with massive natural resources that get sent all over the world for manufacturing. These products are then sent back to us, and we pay a premium on products made using our own resources. This highlights a strong need for stringent control policies that would make it possible for South Africans to get preferential pricing so that they can manufacture competitively and stand against larger OEMS (Original Equipment Manufacturers) all over the world.
The benefits of local procurement
Through the LPA, government intends to pursue a path of industrial expansion. This will make it possible to achieve greater value from our natural resources and stimulate export, which will create jobs and increase economic growth. We are pursuing a path of industrial expansion so that we may extract greater value from our natural resources, so that we may export more, so that we may create more jobs and sustain higher levels of economic growth.
A minimum requirement from the LPA is that imports must at least have a local company which is trained up to design, engineer, deploy and support the product 100% by only local South Africans. This at least enhances local skills and knowledge of outsourced technologies and allows local business to generate income in this way.
In short, success depends on being able to produce goods and services that are internationally competitive. This will mean that the private sector will be required to put effort into reducing the cost of production, boosting productivity and expanding our workforce skills set. To ensure that our economy is capable of producing affordable quality goods for local consumption and export, it is necessary to drive home the Local Procurement Accord. If we do not drive home the LPA and if we continue to outsource every single item, we’re going to lose the ability and skill to be an OEM ourselves, regardless of sector. We will lose our domestic know-how if we keep outsourcing and integrating solutions, which is a major risk. Once we’ve lost those skills and abilities, it becomes exceptionally difficult to get them back, and we will become reliant on other countries for our needs. That compromises our economic position severely.
Moving forward together
In order to increase acceptance by the private sector, there is a need for the state to give structured incentives to do so. This could take the form of stricter policies for customs and controls, which would effectively shield local businesses from cheap imports. Duties need to be imposed on products that are made using our resources and sold back to us. Without this strategic guidance from government, we will become a country reliant on exports.
By focusing on local procurement, it will be possible to manufacture electronic components cost-effectively. Those components can then be used to manufacture into PC board-level, and from there into final-product level and ultimately deployment. South African businesses, regardless of industry or size, need to recognise the importance of the overall goal and give proper attention to local procurement. If it is not possible to procure from a local company or manufacturer, at the very least procurement should occur from a local company that can guarantee local deployment and support. As the private sector, we need to hold ourselves to the same standard we expect from the public sector. We need to commit to the LPA voluntarily, if we’re to have any hope of economic growth and prosperity.