Joint statement by the Ministers of Economic Development, Finance and Trade and Industry on designated sectors for local procurement

7 Dec 2011

1. The amended Regulations to the Preferential Procurement Policy Framework Act (PPPFA), promulgated in June 2011 by the Minister of Finance, Mr Pravin Gordhan, become effective today, Wednesday, 7 December 2011.

2. In terms of the new Regulations, the dti may designate sectors and products for local procurement.

3. The first designations mark an important milestone in government efforts to arrest and reverse industrial decline with and in support of the private sector. The designation instrument serves to strengthen public procurement in support of the multipliers derived from reducing the trade deficit, strengthening and diversifying SA's industrial base and to build up competitive value-adding exports onto the rest of the continent, high growth developing economies and traditional export markets. 

4. The ‘first wave' of designations which will become effective as from today are:  Power Pylons; Rolling Stock; Buses; Canned Vegetables; Clothing, Textiles, Footwear and Leather products and Set Top Boxes. Further designations will follow in 2012.

5. Each designation will stipulate a minimum level of local content for the relevant sector or set of products. Where relevant, the designations also set out specific recommendations for ensuring competition amongst domestic producers and value-for-money for the state. We wish to re-iterate that all procurement officers are under an obligation to secure the most competitive prices for products which fall in designated sectors.

6. The Designations take place against the background of:

• Extensive sector specific research including: the significance of public procurement in sectors to be considered for designation; domestic production and employment levels; levels of industry concentration and competition; imports; price considerations and availability and security of supply.
• Consultation with government departments responsible for and affected by procurement in designated sectors, either directly or as line function shareholders of relevant State Owned Enterprises (SOEs). 
• Extensive sector specific consultation has taken place, including with manufacturers, industry associations and trade unions. This engagement has included sector specific co-commitments from manufacturers, which have at their core, commitments to competitiveness upgrading, supplier development, investment and labour retention and expansion. 
• National Treasury has led workshops to make supply chain practitioners aware of the new regulations. Supply chain practitioners are crucial implementation agents of government's localisation programme given the quantum of capital expenditure budgets in the years ahead.

7. The Designation process will be supported by a South African Technical Specification (SATS 1286:2011) for the calculation and verification of local content which was published on 23 November 2011 by the South African Bureau of Standards. This SATS is a precursor to a South African National Standard (SANS) which will be developed after the SATS has been tested and been the subject of further consultation with companies and procurement authorities.

8. The Designations take place against the background of the adoption by Government, Business, Labour and Community social partners of a Procurement Accord. This forms one pillar of the social dialogue process under the New Growth Path, which is the responsibility of the Minister of Economic Development, Mr Ebrahim Patel. The Procurement Accord commits the social partners to work together to increase local procurement and gives effect to commitments by each party, as well as the enablement of a monitoring and evaluation mechanism to ensure that the goals of the Accord are met.

9. The first designations form part of an ongoing process to use the procurement lever, in combination with other industrial policy instruments set out in the Industrial Policy Action Plan (IPAP2), to support the manufacturing sector. Designations are not intended to take the place of but support all round efforts by government institutions, particularly SOE's to support local procurement and supplier development strategies. This includes, ongoing mobilisation within SOEs to introduce localisation and supplier development into the procurement process under the direction of Minister Malusi Gigaba, the Minister of Public Enterprises. SOEs have made significant progress with respect to introducing new policies, processes, systems and capacity building to embed procurement leverage and local supplier development more systematically.

10. The new Regulations enable all organs of state to include ‘as a specific tendering condition that only locally produced services, works or goods or locally manufactured goods with a stipulated threshold for local production and content be procured. 

11. The National Treasury, which has functional responsibility for state procurement has issued a Guideline to all public institutions with respect to those clauses of the new regulations which deal with Designations and procurement support for local production. A two stage evaluation process to evaluate the bids for designated sectors will apply. First stage evaluation is on the basis of functionality (if applicable) and local content and second stage evaluation is on the basis of B-BBEE and price in which price negotiations can be conducted with the preferred bidder.

12. Government retains the right to ‘undesignate' sectors, which it has designated, where there is no progress with respect to co-commitments by manufacturers and/or where any anti-competitive behaviour takes place.  This is fully in keeping with the general industrial policy approach of the dti, including with respect to ongoing efforts in sector specific and transversal incentive programmes, in which strong conditionalities are build into such programmes.

13. As has been set out in successive iterations of the IPAP2 there are a number of other policy instruments which government will deploy to support the evolution and strengthening of the procurement lever. These include proposals regarding the strategic evolution and strengthening of the National Industrial Participation Programme (NIPP) will go before Cabinet in the near future. These proposals will combine the NIPP and the Customised Sector Development Programme (CSDP), which governs the procurement of SOEs, to ensure that the ‘offset' requirements for procurements with large imports are considerably strengthened and become mandatory for all state institutions. An announcement providing details of this will follow in due course. In addition government has committed itself to a wider review of the public procurement system going forward. This commitment is captured under Clause 9 of the Procurement Accord, to scale up its efforts to use procurement policies in the public interest and as a lever to support economic growth and development.

14. It is expected that the collective efforts of the social partners to stem the decline of our industrial base by utilising the local procurement lever should be underpinned by  efforts to promote a national ‘culture' and sentiment to  ‘Buy South Africa'.  The various interventions by the respective parties to the Accord should be underpinned by a national campaign led by Proudly South Africa (PSA) in this regard.

15. In conclusion, the procurement policy lever is not a static instrument which should be used mechanically or in isolation from other policy instruments. In keeping with the other components of the IPAP2 its efficacy and impact, including with particular reference to Designations will be the subject of regular monitoring, evaluation and evolution.

Issued by the Ministers of Economic Development, Finance, and Trade and Industry, December 7 2011

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