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South Africa’s government has announced plans to tighten legislation to ensure government procurement favours local suppliers.
Cathrine Matidza, director of fleet procurement at the Department of Trade, Industry and Competition, told a webinar that current legislation – which makes local content requirements optional for state organs – was temporary and would soon be replaced.
She said the government was working on legislation to ensure mandatory procurement of locally-produced and manufactured products in some sectors of the economy.
A constitutional court decision last year overturned South Africa’s 2017 preferential procurement regulations and scrapped mandatory local content requirements for organs of state.
Matidza said current regulations – which specify that procuring organs of state should determine their own preferential procurement policies – would only be in place for a limited time.
“Local content is going to be mandatory again. The objective of localisation, the intention is to reduce import leakage in government spending. We want to leverage public expenditure to support local manufacturing or products,” she said.
“Government spends over R500 billion [a year] on procurement of goods, services and works so we want to leverage that expenditure to assist us in mitigating some of the socio economic challenges we are faced with.”
Matidza said the government was finalising the Public Procurement Bill, which would make local content requirements once again obligatory – though she did not specify when it would come into force.
Under the law products would have a specific designation specifying the amount of local content required. Some would be designated at 100% where no imports are allowed at all.
Others will be designated at below 100%, meaning manufacturers will be able to source some of the components elsewhere but production must occur locally.
However there has been resistance to the 2017 mandatory content requirements, amid claims they increase costs for taxpayers.
Business association Sakeliga, formerly Afribusiness, successfully launched legal action to have the old regulations, which ensured that a percentage of public contracts went to black-owned businesses, overturned.
The organisation won its case in February 2022, rendering the old rules invalid – but the decision ushered in a period of legal confusion until the government clarified its position in November last year.
Sakeliga said about the laws: “Preferential procurement, in particular BEE and local content, are harmful policies resulting in misallocation of funds away from maximum value-for-money for the public.”
A report by McKinsey in December 2022, identified country-specific local-content policies as a constraint on African procurement. It said these could narrow options for sourcing products or services from more competitive markets.
“More than 25% of African countries also have local-content policies to boost sectors such as oil, gas, and mining; these could narrow options for sourcing products or services from more competitive markets,” said the report.
In 2017 a report on Local content requirements in the South African renewable energy sector by Nelson Mandela Metropolitan University in Port Elizabeth found economies needed pre-existing conditions to benefit from local content policies.
When it came to the renewable energy they said South Africa lacked some of these conditions leading to higher prices, the report found.
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