Minister defends preferential procurement amid declining industrial capacity

The government’s preferential procurement policies, which favour local, historically disadvantaged manufacturers in securing state contracts to redress apartheid-era inequalities, have contributed to stemming deindustrialisation, trade, industry and competition minister Ebrahim Patel says. 

“Preferential procurement policies have included support for procurement from local manufacturers, which have helped to lean against deindustrialisation pressures,” Patel said in a written reply to a parliamentary question by Dean Macpherson, the DA’s spokesperson on trade and industry.

Macpherson wanted to know whether the policy and cadre deployment were responsible for the economy’s declining industrial capacity, unemployment, inequality and corruption. 

According to data from the World Bank, manufacturing’s contribution to SA’s GDP declined to 12.27% in 2022 from 21% in 1994.

A recent study by the Harvard Growth Lab under the leadership of economist Ricardo Hausman, found that the collapse of state capacity was an important factor in the country’s poor economic performance, with the policies of cadre deployment and preferential procurement highlighted as contributors.

Patel said the reasons for SA’s deindustrialisation could be traced back to premature and sharp reductions in support for the industry before 1999 by the then ruling National Party government as part of concessions during global trade talks at the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), the predecessor to the World Trade Organisation.

“This was compounded by limited supply-side measures to assist firms to strengthen their competitiveness, which is normally applied to assist with a transition from high trade protection, at about the time when China and other Asian exporters expanded their manufacturing output,” Patel said. “A number of structural factors have also served to constrain manufacturing growth.”

Patel said his department’s “focus on sector-specific growth strategies as contained in master plans, access to large export markets, support for local firms and other elements of the reimagined industrial strategy, are aimed at reversing these trends [towards deindustrialisation]”. 

Appointments at the department of trade, industry & and competition and entities under its supervision were based on the suitability of candidates, Patel added. The department had acted against instances of corrupt and/or inappropriate financial behaviour, as evidenced by steps taken in respect of the National Lotteries Commission, he said.

In reply to DA MP Darren Bergman regarding the number of local companies that had closed as a result of the ban on scrap metal, including copper cable products, Patel said the restrictions were implemented on November 30 2022 after research on measures to curb widespread theft and at the request of law enforcement and other entities. 

“Concerns have been raised by companies in the blast-furnace value chain and by scrap metal exporters. Support has been expressed by companies in the arc-furnace value chain,” Patel said.

“The export restriction is not an industrial policy measure but is specifically focused on addressing the demand for scrap metal, which has been found to be a factor in incentivising theft of cable and metal from public infrastructure. The impact of the measures is being considered,” he said.

In reply to a question by DA MP Mathew Cuthbert about the Industrial Development Corporation’s (IDC’s) investments, Patel said the R98.9bn portfolio comprised R65.7bn (66%) in debt and R33.2bn (34%) in equity. The mining sector accounted for the biggest share at 38%, followed by chemicals (17%) and energy (12%). The IDC’s investment in other sectors of the economy are all below 10%.

ensorl@businesslive.co.za