One key component of the South African government’s current economic policy relates to encouraging economic growth and fostering job creation through promoting the procurement of locally produced goods and services. But supporters of the policy believe a shift in the South African mindset is still urgently required if the country is to fully benefit from the ‘buy local’ thrust.

Some of the building blocks are in place, with the Preferential Procurement Policy Framework Act (PPPFA) having been revised in 2011 to accommodate higher levels of local procurement in the public sector and with the private sector exploring ways of supporting small and medium-sized enterprises (SMEs).

However, Proudly South Africa (SA) CEO Lesley Sedibe believes a key psychological element is still needed to encourage higher levels of buying local.

“Buying South African-manufactured goods is about discovering the country’s uniqueness and consciously challenging the norm, conventional wisdom and striving for world-class products,” he said during the fourth Proudly SA Summit and Expo, held at the Sandton Convention Centre, in Johannesburg recently.

Sedibe said that, as part of government’s mandate to promote locally manufactured goods, Proudly SA had initiated campaigns, such as Buy Back SA, to encourage citizens and create awareness of local brands.

He pointed out that this was part of a democratic project that was premised on economic development. As a result, the expo served to encourage local procurement to bolster SMEs by inviting different SMEs to showcase their businesses at the event.

“The idea behind Proudly SA allowing SMEs to showcase their businesses at the expo is to provide these businesses with an opportunity to possibly establish partnerships with other bigger enterprises and to create awareness of the goods and services they provide,” he explained.

LOYALTY CARDS
Moreover, he indicated that Proudly SA was set to launch loyalty cards later in the year for big retailers and manufacturers that work with SMEs to incentivise buying local.

Applauding Proudly SA’s efforts to incorporate SMEs as a significant industry to promote South African goods, the Department of Small Business Development (DSBD) confirmed that it aimed to use the instruments at its disposal to increase the SME sector’s contribution to gross domestic product (GDP) from the current 35% to between 60% and 80% over the next 10 to 15 years.

“We recognise the importance of SMEs to deal with the challenges of job creation, economic growth and equity in South Africa,” said DSBD acting director-general Phumla Ncapayi.

Consumer Goods Council of South Africa (CGCSA) CEO Gwarega Mangozhe noted that the SME sector had a pivotal role to play in the sustainability of the country, adding that an estimated 5.8-million SMEs were currently operating in South Africa, with about 74% of them operating in the retail sector.

“Based on last year’s statistics, the retail sector contributes about 18.5% to GDP and accounts for one in four formal jobs. The sector exports about 10% of its goods a year and contributes about 40% towards corporate tax,” Mangozhe pointed out.

Five South African retail operations featured in professional services firm Deloitte Global’s Top 250 retailers list in 2014, which indicated the international competitiveness of South Africa-based retailers.

According to Deloitte, South African retail companies Shoprite, Steinhoff, Pick n Pay, Spar Group and Woolworths contributed $4.3-trillion in total global revenue generated by the 250 largest retailers globally from June 2012 to June 2014.

Mangozhe urged South Africans not to take the sector lightly and indicated that SMEs could be provided with access to the retail market through CGCSA. However, he warned that SMEs must realise the importance of producing quality products, as the market required this.
“The South African Bureau of Standards (SABS) is emphasising quality through SMEs, which is an initiative CGCSA supports. As a result, the council provides barcodes for goods – after the approval by SABS has been granted – to enable suppliers to trade in retail stores,” Mangozhe said.

“Moreover, there is an emerging trend in the retail sector where large private enterprises are willing to support SMEs and encourage South African goods. Large enterprises are no longer supporting SMEs as a cooperate initiative, but regard this as being imperative in creating a sustainable value chain in the industry,” stressed Mangozhe.

PRIVATE SECTOR SUPPORT
Encouraging sustainable value chains, multinational food and beverage company Nestlé SA CEO Ian Donald stated during the summit that there was a need to create businesses which can serve local needs first and compete globally.

For example, Nestlé SA sources milk for its products from farmers in the Western Cape and the Free State. Nestlé SA believes that this is a mutually beneficial relationship that supports local dairy producers, while maintaining high-quality standards and contributing towards a sustainable future for the business and the farmers.

“This has changed the way emerging dairy farmers operate and contributed to an increase in their milk production and supply. Also, it has provided an enhanced quality of life for their families,” said Donald.

Moreover, through South Africa’s Automotive Production and Development Programme (APDP) – an incentive programme introduced by the Department of Trade and Industry (DTI) from 2012 to 2022 – Ford Motor Company of Southern Africa’s (FMCSA’s) manufacturing competitiveness has been boosted.

The programme aims to increase the total number of vehicles produced in South Africa from 525 000 cars and light commercial vehicles manufactured in 2013 to 1.2-million vehicles a year by 2020.

FMCSA president and CEO Jeff Nemeth said South Africa’s attempts to provide lucrative incentives made the country an attractive investment destination for the automotive industry.

“In line with this, South Africa has become an important base for FMCSA, as it provides the company with a competitive advantage against rival vehicle manufacturers in Thailand and Brazil,” he mentioned.

Through the APDP, FMCSA has, thus far, maxi- mised its production capacity and has exported two-thirds of its South African-produced vehicles to about 140 countries. This has allowed the company to develop a significant export base.

POLICY INFLUENCE
Although some organs of State departments, such as the DTI, have identified ways in which they can use the PPPFA to promote localisation through programmes like the APDP, law firm Webber Wentzel partner Achmat Toefy says that there still is a need for the PPPFA and its regulations to be amended as some clauses limit the way in which organs of State roll out procurement to encourage buying local.

The PPPFA was enacted in 2000 as a result of Section 217 of the Constitution. The PPPFA stipulates that when government assesses contracts, it must take into account a preference point system, which prescribes functionality, price and transformative considerations like Reconstruction and Development Programme (RDP) goals.

For contracts below R1-million, 80 points will be allocated for price and functionality and the remaining 20 points for human development index (HDI) and RDP goals. For contracts above R1-million, 90 points will be allocated for price and functionality and 10 points for HDI and RDP goals.

In December 2006, when the broad-based black economic-empowerment (BBBEE) Codes of Good Practice were approved for gazetting, Cabinet directed the DTI and the National Treasury to amend the PPPFA so as to advance the objectives of the BBBEE Act and its related strategy, as these two pieces of legislation were not appropriately aligned.

This then led to the amendment of the Preferential Procurement Regulations as interim measures to align them to the BBBEE Codes of Good Practice.

Although the black economic-empowerment (BEE) Act does not place a legal onus on the private sector to comply with its provisions, it does, however, place a legal onus on organs of State to contribute to BEE, including, among other aspects, when developing and implementing a preferential procurement policy.

In addition to achieving the 20 points allocated to the preferential procurement element of the Codes of Good Practice, government entities must award contracts to companies with the better BEE status where they score highest on the 80/20 points system.

This has a trickle-down effect, which applies pressure on all suppliers and service providers to improve their BEE status since it increases their chances of winning government contracts. The impact that this cascading implementation has on procurement in general, is the increase in market access for black companies.

The PPPFA regulations were revised in 2011 to no longer allow organs of State to allocate the 10 points to RDP or specific goals were now limited to awarding the 10 or 20 points to the commensurate rating of the bidder’s BBBEE certificate. In terms of the regulations – the better one’s BBBEE rating, the more one scores.

Owing to this, Toefy notes that the new regu- lations removed the organs of State’s ability to be more targeted in what factors they take into account when awarding tenders.

“The old regulations allowed for organs of State to break down the 10 points set aside for RDP goals into other factors which can be taken into account, such as looking at local labour, SMEs, local labour and South African-owned enterprises within the 10 points,” he explains.

Toefy adds that this allowed the organs of State to be more targeted in terms of the leveraging off procurement as it made it easier for them to support and promote specific goals.

However, with the revised regulations, he mentions that the 10 points look at whether a company has a BEE certificate and what the rating in reference to its BEE status is.

“Through these regulations, the organs of State can no longer set different targets that will further encourage local procurement as the BEE certificate has taken preference. This is as a result of government believing that within the certificate, all the other factors pertaining to local procurement have been taken into consideration.”

Although there is a mechanism in the revised Act to deal with this challenge, Toefy says it is too regulated and limits other organs of State.

“This mechanism in the revised Act notes that the DTI must issue a determination in respect of a particular industry that sets a threshold for local content. It is then only after the determination has been made that other organs of State can insert tender rules requiring a percentage of the contract to be local content,” he explains.

Toefy adds that the Act needs to be amended – by including mechanisms such as supplier development requirements, targeting black-owned entities, women-owned entities and SMEs – in order to allow different organs of State the freedom to support the local procurement initiative. This will lessen the limitations, allowing it to be more effective.

By so doing, he concludes that local procurement will serve its mandate and effectively fulfil the policy targets and trigger economic development.