State’s local content procurement policy still faces hurdles
However, officials say the policy is slowly starting to bear fruit, with R76bn worth of public contracts awarded to local manufacturers to date
The government’s local content policy, which was introduced almost a decade ago to fast track industrialisation and BEE, continues to face several challenges including manipulation of tender documents and the illicit importation of products that are meant to be manufactured locally.
But despite these challenges, the department of trade & industry, however, said the policy was slowly beginning to bear fruit with R76bn worth of public contracts awarded to local manufacturers to date.
Various estimates suggest that the government spends up to 40% of public funds on procuring goods and services, making it a potential hotbed of corrupt practices. According to the budget tabled in parliament in February for 2020/2021, revenue is projected to be R1.58-trillion, or 29.2% of GDP. Expenditure is projected at R1.95-trillion, or 36% of GDP.
The procurement system has been embroiled in allegations of corruption amid increasing concerns that state-owned entities are not implementing the localisation policy effectively. Parliament has previously cited Transnet and the Passenger Rail Agency of SA as some of the culprits, with low levels of localisation. Three of the four contracts Transnet signed for the R54.5bn acquisition of 1,064 locomotives had no local content obligations whatsoever, constituting a huge loss of opportunity for local industrialisation and BEE.
In March 2014, when the Transnet contracts were signed with South China Rail, North China Rail, General Electric and Bombardier Transportation, they represented the second-largest rail acquisition programme in the world. The contracts were declared irregular and unlawful.
The department's chief director of industrial procurement, Tebogo Makube, told parliament this week that local content was one of the instruments used by the government to leverage public expenditure to support industrial development and economic growth in the country. He also emphasised that the local content policy should not be viewed in isolation from other instruments that are being used by the government to support industrial development.
Makube said the challenges encountered in the implementation of the local content policy were multifaceted and included the advertising of designated tenders without local content requirements, lack of proper evaluation of bids/tenders in line with the local content requirements by some organs of state, the manipulation of the bid price to meet local content requirements, and illicit importation of products that are supposed to be manufactured in SA in line with the local content policy.
Furthermore, the prolonged time it takes to adjudicate tenders and place orders, sometimes negatively affects the operation and profitability of local manufacturers, Makube said.
Makube said the department has made R20m available over the medium term to the SA Bureau of Standards to continue with the local content verification. The government is also looking at other options to strengthen the local content verification process.
The department is also working with the Proudly SA through the tender monitoring system to monitor tenders in line with the local content requirements. This includes working with the office of the auditor-general to ensure tenders that are designated for local content and production are audited and audit opinions issued by the latter.
Makube also said the gazetting of the draft Public Procurement Bill in February creates an opportunity to strengthen compliance on local content.
The draft bill proposes a single regulatory framework for procurement applicable to national, provincial and local government, as well as state-owned entities.
The Treasury said that once the bill becomes law, it will eliminate fragmentation in the laws that deal with public sector procurement.
“The bill creates a more flexible preferential procurement regime and enables the minister of finance, after consulting responsible ministers, to prescribe a framework for preferential procurement.
“To advance economic opportunities for previously disadvantaged people, specific provision is made for women, the youth and people with disabilities; small businesses; locally produced goods, including local technology and its commercialisation,” it said.
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