SOEs must buy local

The Department of Trade and Industry (dti) wants state-owned entities (SOEs) to procure 70 percent of their products locally to boost growth and create jobs. Director-general Lionel October told MPs last week that if this could be done, localisation would be a game-changer in South Africa, adding that localisation was at the heart of reigniting growth in the economy. He said the dti had already seen this with the Bus Rapid Transit (BRT) system in the major cities where local manufacturers were building these buses. Municipalities running BRT projects were procuring 80 percent of the buses locally. October also said the same principle was applied in the US through legislation. The Buy America Act forces all entities in the US to buy local products. The legislation was passed by Congress in 1933 and forces the US government and its entities to buy local products.

October said there was nothing that could stop South Africa from adopting a similar legislation to boost growth. The government had contracts worth R500 billion a year and these tenders must go to local suppliers, he said, noting that the biggest problem with the controversial arms deal struck in the late 1990s was that 90 percent of the products were imported. There was no benefit if the products were imported, he said, adding there should be strong local content in the government’s procurement programmes. If the government could get its SOEs to adopt this principle local content would bring competition and grow the economy. October said if the government was to procure locally it could solve the problem of sluggish growth and jobs. “This could be done across sectors of the economy. The question of localisation was not only unique to South Africa. Many countries have grown their economies through local content,” he said.

Localisation could be the game changer in the country, October said. The dti has designated certain industries for local content with a minimum threshold. The other sectors that still need the approval of the Treasury for designation for local content include building and construction materials, yellow metals, two-way radios, solar photovoltaic components and rail signalling systems. The Treasury has in the past approved minimum thresholds for rail rolling stock (65 percent), bus bodies (80 percent), canned/processed vegetables (80 percent), textile, clothing, leather and footwear (100 percent), solar water heaters (70 percent), set-top boxes (30 percent), certain pharmaceutical products (per tender) and furniture (85 percent). Other products are electrical and telecom cables (90 percent), valves products and actuators (70 percent) and transformers (10 percent to 100 percent).