By Eustace Mashimbye, Chief Executive Officer of Proudly South African
The landmark ruling by the Constitutional Court that declared the country’s procurement regulations, specifically the Preferential Procurement Regulations 2017, to be invalid and inconsistent with the Preferential Procurement Policy Framework Act (PPPFA), has inadvertently dealt a severe blow to efforts aimed at leveraging the state’s massive procurement war chest to drive local procurement and accelerate industrialisation in the designated economic sectors already earmarked for preferential procurement.
While admittedly this momentous verdict was precipitated by the inclusion of pre-qualification criteria as outlined in the Broad-based Black Economic Empowerment Act, we hope that the inclusion of local procurement in any request for quotations (RFQ) would provide impetus to the scaling up of local industries down the value chain and accelerate the inclusion of home-grown companies in the state’s supply chain.
This is borne by the fact that the Department of Trade, Industry & Competition (dtic) has designated certain industries, sectors, and sub-sectors for local production with minimum local content thresholds. These sectors are identified to have a certain percentage of local content, meaning that goods from these sectors must be manufactured locally or a certain percentage of these goods must be manufactured locally, when considered for procurement by any organ of the state.
We are of the view that the colossal procurement expenditure that the public sector has at its disposal can be deployed to turbo-charge industrialisation in the designated sectors of the economy, where substantial investment has already been ploughed in anticipation of a windfall of procurement opportunities. By giving a bias to sectors and sub-sectors that have local content, the public sector will be putting these enterprises on an exponential growth trajectory, which in turn will stimulate industrialisation and generate much-needed job opportunities across the respective value and supply chains.
The state has a golden opportunity to enforce localised procurement across all spheres of government, at national, provincial, and local levels, including within state-owned entities. Currently, we are missing out on opportunities to harness the state’s substantial procurement expenditure to spur economic growth and create much-needed jobs.
South Africa has embarked on expansive procurement undertakings in the past, including most notably the world’s biggest anti-retroviral drugs rollout to curb the HIV-AIDS pandemic. Despite proven local capacity and capabilities, local producers were not considered for substantial allocation of this lucrative contract. In hindsight, there was an opportunity to segment that contract to at least four leading local pharmaceutical companies, and the impact of this decision on production and job creation would have been enormous.
Despite these legal setbacks, we believe that all is not lost.
We are mindful of the Constitutional Court ruling on the validity of the Preferential Procurement Act, however we are greatly encouraged by the enactment of the Public Procurement Act of 2024, which mandates the Minister of Finance to prescribe sector-specific local content thresholds and compel any state-owned enterprise, government department, or municipality to procure designated products and services with a minimum percentage of South African input.
As alluded to earlier, several forward-thinking entrepreneurs have already invested substantial capital expenditure to beef up their capacity in the designated sectors on the back of expectations of increased state-led local procurement, dating as far back as 2011 when the initial list of designated sectors was announced. These local entrepreneurs are now facing financial ruin and cannot recoup their investment due to the Constitutional Court ruling, which has resulted in many state entities not buying local anymore, despite the opportunity to do so being possible through introducing procurement policies that have these local content requirements at entity levels but opting against doing so. These investments had materially plugged the gap in local capacity.
At Proudly South African, we believe that the public sector can support the efforts of the 2018 Presidential Jobs Summit by increasing levels of local content in our production processes and that the public sector and state-owned entities can absorb increased levels of localisation in the procurement of all goods and services.
Many of our industries are buckling under the strain of an unprecedented influx of cheap imports, dumping and unfair trade practices. By leveraging their procurement spend to support local manufacturers, the public sector can play an enabling role in economic growth through expanding the tax base and generating more revenue for the fiscus to fund service delivery and social development initiatives. By aggregating its demand in the previously designated sectors, the public sector will create enormous demand to meet both local and export demand and place the economy on a meteoric growth trajectory. It is now up to the National Treasury to ensure that when introducing the regulations aimed at giving effect to the enacted Public Procurement Act, this local procurement imperative is given the prominence it deserves as a catalyst to creating jobs in labour-intensive sectors of our economy, through the reintroduction of designated sectors for local content as envisaged in the Act.
