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South African Minister for Public Enterprises Malusi Gigaba launched the Industrialisation Supplier Development Association (ISDA) in Sandton on Thursday.
The Japanese ambassador to South Africa, His Excellency Yutaka Yoshizawa, and the President of GE South Africa, Tim Schweikert, were also part of the panel.
The ISDA aims to promote industrialisation by localising manufacturing for the South African government’s infrastructure and procurement programmes. By ensuring equitable access to local markets so that manufacturers have a base load, this will enhance existing and develop new manufacturing capabilities, promote exports, raise productivity and create jobs.
South Africa’s Department of Public Enterprises (DPE) is responsible for looking after state-owned entities (SOE) such as logistics company, Transnet, and electricity utility, Eskom. Their combined spending over the next few years will exceed R800 billion as the government invests in bringing the railway rolling stock and electricity generation into the twenty-first century. The last major investment drive for these SOEs was in the early 1980s, when South Africa’s gross fixed capital formation to gross domestic product ratio exceeded 25 per cent. In 2013 this ratio was 19.3 per cent after bottoming at 14.7 per cent in 2002.
“The ISDA is being launched with two main aims. The first is to promote industrialisation so that we reduce the economy’s reliance on minerals. The second is to boost exports so that the current account deficit can be narrowed,” Gigaba said on Thursday.
Manufacturing had a small 11.5 per cent share in 1950, but this grew to 17.8 per cent in 1970 and then 20.2 per cent in 1990 before slipping to 11.5 per cent in 2013. In 1950, farming and mining, which together constitute the primary sector as their production is based on natural resources, accounted for 5.1 per cent and 21.2 per cent of total value added respectively. By 1970, farming’s share had slipped to the 3 per cent level at which level it has remained in subsequent years. Mining’s share was still a massive 20.7 per cent in 1970 when gold production peaked, but this almost halved to 10.5 per cent in 1990. It was still 9.2 per cent in 2013.
In response to a question from The BRICS Post on whether the SOEs would access finance from the proposed BRICS Development Bank, Gigaba said that this was an option that would be looked at, but the rates charged would have to be competitive with that available to the SOEs in international capital markets.
“Transnet and Eskom have access to the international capital markets, so that sets the bar for what the BRICS Development Bank needs to compete with,” he said.
The BRICS Development Bank was approved at the 2013 BRICS Summit in Durban, South Africa. The next BRICS summit is to be held in Brazil in July 2014, but a firm date has not yet been finalised.
South Africa has been enhancing its trade and investment ties with other BRICS member countries and trade with these countries account for a fifth of South Africa’s total foreign trade.
Transnet recently awarded a R50 billion order for more than 1000 locomotives of which the major beneficiaries were Chinese companies. Eskom’s new power stations, Medupi and Kusile, are being built with Japanese technology as Hitachi is a major supplier.
Ambassador Yoshizawa noted that Japanese government agencies such as the Japan International Cooperation Agency (JICA) and Japan External Trade Organisation (JETRO) were deeply involved in promoting the localisation of Japanese manufactured goods.
“JETRO for instance recently brought a trade delegation of Japanese companies to look at investment in the automotive component sector in South Africa, while there are more than 100 Japanese engineers helping small South African firms raise their productivity so that they are internationally competitive,” he said.
Schweikert pointed out that 70 per cent of GE’s production was outsourced. It was a fallacy to say that large manufacturers such as GE were vertically integrated given this large percentage of procurement.
“Smart companies realise that a core competency is promoting localisation, as that provides a competitive advantage, so we do not just tick the boxes,” he said.
The ISDA has launched a website at which companies can become members. It will shortly undertake roadshows to all nine provinces in South Africa, so that companies from Alexander Bay to Zeerust have access to ISDA offices.
Gigaba said that government procurement would be centralised so that the scourges of corruption and nepotism would be eliminated.
“Winning a tender will therefore not depend on who you know, but rather on how competitive your service or product is,” he said.
The ISDA board would have members focusing on needs of women, youth and people with disabilities.
“Government procurement must have clear goals in terms of promoting female-owned companies. Tender rules must be clearly stipulated to give small businesses a chance, so that they can win tenders and build their businesses to enable them to export,” Gigaba concluded.
Helmo Preuss for The BRICS Post in Sandton