Industrial Procurement & Designation of Sectors

Presentation to the Portfolio Committee on Trade and Industry

9 November 2012

• Economic challenges• Rationale for the Designation of industries/ products for local production• Process of designation • Procurement process to be followed (for designated sectors/products)• Progress on designated sectors• Indication of sectors under review for the next round of designation

Purpose

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Economic Challenges – Declining

Manufacturing Exports

3Source: Quantec database

Economic Challenges – Declining MVA

4Source: Quantec database

Economic Challenges – Trade

Deficit

5Source: Quantec database

• The New Growth Path (NGP) and Industrial Policy Action Plan (IPAP) identify the need to leverage public procurement

• Many sectors targeted in IPAP will depend on leveraging public expenditure for industrial development. Public Procurement includes 3 policy instruments:

• Designations (DTI and National Treasury.)• Customised Sector Development Programme (CSDP)• New National Industrial Participation Programme (NIPP)

• 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 and strategic 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

Rationale for the Designation of Industries

for Local Production

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•Designation of sectors is informed by in-depth research analysis on both demand and supply side. Critical variables assessed:

– magnitude of public sector demand for the product reflected by government expenditure data

– Understanding of the local industry capacity and capabilities (current and future capabilities)

– Value chain analysis– Engagements with the key procuring entities to inter alia understand their procurement

plans and local content achieved on previous similar contracts– Engagements with the OEMs and local industry on firm co-commitments

•Supply Capacity & Local Content determination at product level remains a challenge as the public expenditure at product level is not well known

Designation of sectors in the Public Sector Procurement

System

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• Security of supply • Significance of the sector / sub-sector / industry• Government expenditure and the departments/entities involved in

procurement• Industry structure and the level of competition • Level of employment in the sector • Export/Import trends • Various modalities / proposals to limit price premiums, e.g.

– Price benchmarking– ‘Deeming’ of certain primary intermediate inputs as local e.g. steel– Procurement direct from manufacturers where possible 8

Methodology for designation

Bid invitations and conditions of contract• Specify local content requirements in the bid documents• Local content declaration certificate (SBD 6.2 / MBD 6.2) must form part of the bid

Bid evaluation and award• Two stage evaluation process

- First stage: Local content and functionality (if applicable)

- Second stage: BBBEE and price• Disqualification

- If local content declaration is not submitted or threshold not met

Verification and Record Keeping

- Random checks to be conducted

- Records of supporting documents to be kept for 5 years

Section 9.3 of the PPPFA Regulations provides for public entities to procure locally-manufactured products that are not Designated.

Procurement Process

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Location of Local Content Documents

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Designated sectors

Industry/sector/sub-sector Minimum threshold for local content

Buses (bus body) 80%

Textile, clothing, leather and footwear 100%

Power pylons 100%

Canned / processed vegetables 80%

Rolling stock 65%

Pharmaceutical products

(oral solid dosage tender)

73%

Set-top boxes for TV digital migration 30%

• PRASA: Fleet Renewal Programme• In March 2012, PRASA announced passenger coach renewal programme (7,224

coaches to be procured over the next 20 years, valued at more than R123-billion). • The RFP includes 65% local content requirement

• TRANSNET: Fleet Renewal Programme• On 15 July 2012 Transnet Freight Rail (TFR) advertised an RFP for the procurement of

1064 locomotives as part of the R300 billion capital investment programme over seven (7) years

• The RFP includes 65% local content requirement

• Pharmaceutical Products• 73% of the contract volume of the Oral Solid Dosage and Transdermal patches (OSD)

tender was awarded to the domestic manufacturers • The RFP for the 2012-2014 Antiretroviral Tender has been issued and preference will

be given to local manufacturers

Progress on Designated Sectors and the CSDP

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• Bus Bodieso The dti interacted with and assisted the Cities of Cape Town, Johannesburg and Tshwane with

putting together local content requirements for the procurement of busses for new phases of the rapid bus transit routes

• Set-top boxes for TV Digital Migrationo The RFP for digital set-boxes has been issued and the stipulated minimum threshold for local

production is 30%. This includes PC Board, Connecting Cables, Enclosures and Assembling which must be 100% locally manufactured and produced

• Textiles, leather and footwearo This sector has been designated 100% for local production since 2002. All transversal contracts

managed by the National Treasury comply with this requirement

• Local Content Verification Agencyo The South African Bureau of Standards has been officially appointed as the Verification Agency for

Local Content. A business plan has been draft and the cost will be financed through the budget appropriation over the MTEF

Progress on Designated Sectors

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Conditionalities

• Preferred bidders such as original equipment manufacturers (OEMs) should give medium to long-term contracts to the local suppliers

• Local industry must commit to make the necessary investments towards modern manufacturing techniques and industry upgrading

• Local industry should commit to (in the first phase) job retention and creation of new job opportunities

• OEM should commit to skills and technology transfer to the local manufacturers• Industry should be price competitive• Industry should commit and gear itself towards being internationally competitive• Government retains right to ‘undesignate’

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Other areas

• Procurement Accord – Government, business and labour commitments. Work led by Economic Development Department (EDD)

• Non-designated sectors and procurement falling outside of the CSDP. Provincial Government and Metro’s. Work led by EDD.

• ‘Revitalised’ National Buy Local Campaign to be launched shortly.

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Further work & way forward

• National co-ordination/governance of large infrastructure and strategic government expenditure

• Multi-departmental monitoring and evaluation of impact of procurement instruments – Designation/CSDP and ‘new’ NIPP

• Much greater coordination of strategic procurement and greater participation by departments in transversal contracts managed by the National Treasury

• Substantial improvement in depth of procurement data and analysis systems

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• Solar water heaters• Electrical and telecom cables Under consideration for designation • Schools and office furniture • Other opportunities

– Transformers– Valves – Pipes – Rail infrastructure, e.g. signaling – Green industries and components of the renewable energy generation build programme– Construction materials, e.g. housing and roads

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Sectors planned for further designation

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