Procurement and Localisation / Designation of Sectors
Presentation to the SMME Summit
10 October 2013
Tebogo Makube (Ph.D)
Purpose
•
•
•
•
Economic challenges facing South Africa and the role of the Industrial
Policy Action Plan
Rationale for the Designation of Sectors, Industries and Products
Calculation of Local Content and Procurement Process
Industrial Finance, Incentives and Special Economic Zones
2
RSA: Manufacturing challenges &
the need for designation
Manufacturing contribution to GDP (%)
In recent years, South Africa South Africa has been posting trade deficits primarily due to
deterioration in commodities exports, high imports of fuel and high value added goods.
The trade deficit amounted to R19.05bn in August 2013.
Source: DTI, SARS, SARB Databases
3
Value and Supply Chain
Linkages
4
Background
• The NGP and IPAP identify the need to leverage public
procurement
• Many sectors targeted in IPAP will depend on leveraging
public expenditure for industrial development
• Public procurement is a strategic instrument widely
deployed by developed and developing countries to:
– Enhance and smooth out certainty of demand over the years
– Promote competitive
industrial capabilities with high
employment and growth multipliers
– Diversify the economy towards more employment-intensive
and value-adding activities
– Ensure value for money for the fiscus and society
5
Arguments in favour of
designation
• Leveraging public expenditure
• Supporting economic growth and creation of job opportunities
in the country
• Attracting new investments (in particular, foreign direct
investments)
• Reducing South Africa's trade deficit
• Overall savings due to lower impact of currency fluctuation
(owing to high local content) and faster response time to
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varying demand.
The importance of local
production and content
•
•
Goods and services bought from abroad – represents an outflow of funds from South
Africa (reduces AD & local AS) – import spending is recorded as negative
Goods and services sold abroad – represents a flow of funds into the South African
economy (raises AD & local AS)
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Reform of the PPPFA
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•
•
•
•
Preferential Procurement Policy Framework Act (PPPFA) was enacted in
2000, and its Regulations promulgated in 2001
The Regulations were amended in 2011 and new regulations came into
effect on 7 December 2011.
Section 9: Local Production and Content
Paragraph 9 (1) of the Regulations empowers the dti to designate specific
industries where tenders should prescribe that only locally manufactured
products with a prescribed minimum threshold for local production and
content will be considered
Regulation 9 (3) prescribes that “…where there is no designated
sector, an organ of state may include, as a specific tendering
condition, that only locally produced services, works or goods or
locally manufactured goods with a stipulated minimum threshold for local
production and content, will be considered, on condition that such
prescript and threshold(s) are in accordance with the specific
directives issued for this purpose by the National Treasury in
consultation with the dti”.
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Reform of the PPPFA
• Amended PPPFA Regulations and Instruction Notes for Designated
Industries/Sectors are applicable to all:
– National and Provincial Departments;
– Constitutional Institutions;
– Public Entities listed in schedules 2 and 3 of the PFMA; and
– Municipalities and Municipal Entities to which the MFMA applies.
• Bids i.r.o. designated sectors must contain a specific bidding condition that
only locally produced or locally manufactured goods, works and services with a
stipulated minimum threshold for local production and content will be
considered.
• Bids in respect of Textiles, Clothing, Leather and Footwear (TCLF) must
contain a specific bidding condition that only locally produced or locally
manufactured (TCLF) from local raw material or input will be considered.
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Industry/sector/sub-sector
Buses (bus body)
Minimum threshold for local content
80%
Designated sectors
Textile, clothing, leather and footwear
100%
Power pylons
100%
Canned / processed vegetables
80%
Rolling stock
65%
Pharmaceutical products
73%
(oral solid dosage tender)
Set-top boxes for TV digital migration
30%
Furniture
•
•
•
Office Furniture
School Furniture
Base and Mattress
Power and telecom cables
•
•
•
85%
100%
90%
90%
Solar Water Heaters (collectors and storage
tanks/geysers)
70%
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Local Content Calculation
Formula
“Local Content” means that portion of the tender price which is not included in the imported
content, provided that local manufacturing does take place within the borders of South Africa
(SABS approved technical specification SATS 1286:2011)
• Prices referred to in the determination of X must be converted into Rands
(ZAR) by using the exchange rate published by the SARB at 12:00 on the date
of advertisement of the bid
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Invitation of Bids
 AOs/AAs must clearly stipulate in the bid documentation all the relevant
documents
o Standard/Municipal Bidding Documents (SBD/MBD 6.2)
o Annex C: Local Content Declaration (Summary Schedule)
 If the bid is for more than one item, local content percentages for each
product contained in Declaration C must be declared and used
o Annex D: Imported Content Declaration (Supporting Schedule to Annex C)
o
o
o
o
Annex E: Local Content Declaration (Supporting Schedule to Annex C)
SABS approved technical specification - SATS 1286:2011
DTI’s Guidance Document for the Calculation of Local Content
Bid evaluation and award
 Two stage evaluation process
- First stage: Local content and functionality (if applicable)
- Second stage: Preference point system - BBBEE and price
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Rail Rolling Stock
Opportunities
Highlights of Public Sector
Infrastructure Projects
Energy
Road transport
Telecommunications
Water
• Medupi and Kusile:
delays in construction,
first units expected in
2014 and 2015
respectively
• 2 460MW of renewable
energy procured in the
first two bidding rounds
• SANRAL to spend R32.9
billion on roads
improvements and R2
billion on coal haulage
roads
• Public transport
networks to begin in
Tshwane, Rustenburg
and eThekwini
• Sentech’s
digitalization of
television terrestrial
network
• Layout of broadband
network
• Komati scheme to be
completed 2013
• Municipal allocations
of R44.5bn for water
infrastructure
• Dam completed on
Olifants river, reduced
scope on bulk
distribution
Education
Health
Human settlements
Liquid fuels
• R31.9bn allocated for
basic education
• R6.5bn allocated for
higher education
• Preparatory work on two
new universities funded
by fiscus
• Feasibility studies for
five major hospitals
• R29.5bn to be spent on
district hospitals
• R5bn to be spent on
primary health care
including R3.2 billion for
clinics
• R84.3 billion to be
spend on low-income
housing and
upgrading of informal
settlements
• R2.9 billion allocated
for special economic
zones
• Trunk line on new
multiproduct pipeline
complete, construction
of terminals to be
completed in 2013
• Ongoing oil and gas
exploration on west
coast
Source: PICC, Budget Reviews
• To improve service delivery, increase the capacity and efficiency of the economy, government will invest R827
billion in infrastructure over the MTEF
• Continued implementation of the national infrastructure development programme will lead to robust public
sector fixed capital formation, forecasted to grow at an average of 9% in the MTEF
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MP: Budgeted Payments for Goods,
Services, Machinery and Equipment
2009/10
Economic classification (Rm)
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
Goods and services
5 296 662
5 634 258
6 020 768
Revised
Medium-term estimates
estimate
6 556 724 6 572 347 6 950 049 7 365 921
Buildings and other fixed structures
1 776 901
1 615 493
1 990 378
2 336 762 2 408 640 2 374 961 2 033 321
234 897
265 549
361 350
301 860
264 729
243 081
299 493
10 401
13 374
931
28 648
1 233
19 425
24 007
7 318 861
7 528 674
8 373 427
Goods and services
6.4%
6.9%
5.1%
0.2%
5.7%
6.0%
Buildings and other fixed structures
-9.1%
23.2%
-1.7%
3.1%
-1.4%
-14.4%
Machinery and equipment
13.0%
36.1%
-1.2%
-12.3%
-8.2%
23.2%
Software and other intangible assets
28.6%
-93.0%
12.5%
-95.7%
1475.4%
23.6%
Total
2.9%
11.2%
3.1%
0.2%
3.7%
1.4%
Machinery and equipment
Software and other intangible assets
Total
Audited
9 223 994 9 246 949 9 587 516 9 722 742
Year-on-year growth (%)
Source: National Treasury Provincial Database
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Description
• The Local Procurement strategy
integrates the business case,
demand-side analysis and supplyside analysis to identify strategies
to increase sourcing from local
suppliers
• Local procurement targets and
action plans are specific
deliverables
Developing local procurement
strategy
LP Tactics Matrix
Reform of the PPPFA
Key policy objectives
Focus areas
Industrialisation
Leveraging procurement spend to foster
industrial and competitive capabilities in the
South African economy
Localisation
• Country
• Province/Municipal
• Site/Operation
Utilisation of procurement spend to develop
South African based suppliers (integrating BBBEE and Black Owned suppliers)
Skills development
Increasing the skill base (number and skill
level) of South African workers, especially in
areas where there is a national scarcity of
skills
Creation of new jobs directly and indirectly
by suppliers in the value chain
Employment and job creation
Enterprise and supplier development
programmes
Providing a platform for SA-based suppliers
to develop into national and international
suppliers, through Capability, Capacity &
Competitiveness development
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Incentive Schemes managed
by the dti
CLUSTER
INCENTIVE SCHEME
BROADENING
PARTICIPATION
• Black Business Supplier Development
Programme (BBSDP)
• Co-operative Incentive Scheme (CIS)
COMPETITIVENESS
INVESTMENT
• Sector Specific Assistance Scheme (SSAS)
• Export Marketing & Investment Assistance (EMIA)
MANUFACTURING
INVESTMENT
• Manufacturing Investment Programme (MIP)
• Capital Projects Feasibility Programme (CPFP)
• 12i Tax Incentive
• Automotive Incentive Scheme (AIS)
SERVICES
INVESTMENT
• Film & Television Production
• Business Process Services (BPS)
• Tourism Support Programme (TSP)
INFRASTRUCTURE
INVESTMENT
• Critical Infrastructure Programme (CIP)
• IDZs
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Industrial Financing
Manufacturing Competitiveness Enhancement Programme
(MCEP)
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Budget allocation of R5.8bn over the 2012/13 MTEF
•
Manufacturing support response to companies impacted by
structural and cyclical economic changes
•
Deployed towards upgrading competitiveness of labour
intensive and value-adding manufacturing sectors
•
Grant finance with clear rules-bound access criteria
•
Maximise employment and value-added potential in key
sectors
•
Exclusions: sectors with dedicated support programmes
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IPAP: 2012/13-2014/15
Strategic Priorities
Special Economic Zones (SEZ’s)
• Budget allocation of R2,3bn over MTEF for
SEZ’s
• Promote creation of a regionally diversified
industrial economy
• Establish broader range of industrial parks
and infrastructure for effective clustering
and hubs
• A dedicated and integrated legislative
framework to enable effective regulation
and management
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