By: Anna Majavu
New research has found that the government must set up incentives to attract private businesses to begin promoting local procurement. Localisation or local industrial development is key to job creation, especially for SMMEs that can manufacture many of the goods which are currently imported. But a study into “Localisation in South Africa: Analysis of key emerging issues” by Elvis Avenyo, Teboho Bosiu, and Julius Nyamwena at the Centre for Competition, Regulation, and Economic Development at the University of Johannesburg, has found that localisation is currently “quite limited”.
This is partly because the Preferential Procurement Policy Framework Act (PPPFA) only regulates how the government makes purchases, and not how business procures. The government set up a Local Procurement Accord in 2011 to get labour, business and communities to work in partnership to achieve 75% localisation in the procurement of goods and services, but it is not legally binding. Because the government cannot legally oblige big businesses to procure most of the goods they buy locally, it will have to develop “creative tools” to incentivise a big businesses to support local procurement, especially from SMMEs, according to the researchers.
“National retailers are the major route to market for a majority of fast-moving consumer goods (FMCG). These can be leveraged to facilitate access to retail shelf space for locally produced products, especially those produced by SMMEs,” said Avenyo, Bosiu and Nyamwena. “The majority of local SMEs continue to face challenges accessing shelf space of national retailers or other routes to market.” Another way the government can increase localisation, is by setting up offtake agreements between producers and buyers. These agreements will legally bind a buyer to purchase a set amount of future goods from the producers.
The government should also “incentivise businesses to reinvest their surplus profits in local manufacturing activities”. The study says that when it comes to procuring for the state, the government should not only buy what is on offer from local businesses. It needs to conduct a detailed analysis of what products all local companies have the capacity to make in the future and implement plans to support the development of new local production opportunities.
It says that government support should also be directed at SMMEs which manufacture the 48 products most often purchased by spaza shops. “Given the size of the market that is serviced by township/rural and informal/micro businesses, if well-coordinated, these enterprises can serve as critical routes to market for locally produced products,” the research found.