Division :EIDD PORTFOLIO COMMITTEE: 31 October 2007 National Industrial Participation Programme (NIPP) NIPP Nov 2007 1

CONTENTS Introduction and Background Performance of NIPP Industry Impact of NIPP Key Projects for 2006-2007 Summary of EIA IS NIPP Working? Challenges Recent Developments Way forward Questions NIPP Nov 2007 2

INTRODUCTION & BACKGROUND To leverage economic benefits and support the development of South African industry by effectively utilizing the instruments of Government Procurement NIPP became obligatory in September 1996. Applicable on all Government and State Owned Enterprises Obligation value: 30% of the imported content – equate to economic activity Principles: Additionality, Causality, No Increase in price, Sustainability NIPP Nov 2007 3

PERFORMANCE OF NIPP(US$) OBLIGATIONS  OBLIGATION VALUE NIP CREDITS AWARDED OUTSTANDING OBLIGATION DEFENCE $13,765,167,611 $7,721,945,577 $6,043,222,034 NON DEFENCE $2,267,148,037 $1,271,723,191 $1,321,464,288 TOTAL NIP $16,032,315,648 $8,993,668,768 $7,364,686,322 Encompasses Invest, local sales, exports, tech transfer, SMME, BEE, R&D, training with NIP multipliers NIPP Nov 2007 4

INDUSTRY SECTOR SPREAD OF THE 173 NIPP Projects NIPP Nov 2007

GEOGRAPHIC SPREAD NIPP Nov 2007

INDUSTRY SECTORS OF NIPP Manufacturing Sector accounts for 90% of NIPP projects. Aligned with Integrated Manufacturing Strategy & National Industrial Policy Framework. Key sectors: Basic metal manufacturing, manufacturing of transport equipment and chemicals. (In line with global offset trends) High tech sectors: Energy, telecommunication, medical equipment NIPP Nov 2007

HIGHLIGHTS 2007 Rock Bolt – wire and wire products BEE JV Mechatronics – integrated mechanical and IT skills development - 400 students/year Novara – plastic recycling ALC: Global supply of leather seats -250 jobs Flextech – localisation and global supply of automotive cables -155 jobs Offshore Oil and Gas Fabrication Centre – 700 jobs Avalloy – Niche super alloys for aeronautical industry. Accredited RR supplier Denel SAAB – Design and production aerostructure components NIPP Nov 2007

ECONOMIC IMPACT ASSESSMENT (EIA)OF NIPP- BACKGROUND An EIA was commissioned in March 2007 Input - output model used (SAM) using multipliers Input provided by the dti was on key NIPP objectives: FDI, exports and local sales & jobs created Result: Key macroeconomic indicators: GDP, Employment, BOP, Fiscal and capital effectiveness of NIPP projects Economic Effectiveness Criteria: whether NIPP was effectively utilising capital as a scarce resource? NIPP Nov 2007

SUMMARY OF EIA Positive Impact on GDP: Direct average annual value added contribution to GDP is R3billion Positive impact on Balance of Payments (Exports > Imports – on average for NIPP projects) Government to receive an additional R3.9 billion in taxes due to sales generated by NIP projects 15689 direct jobs created and/or sustained 50308 direct and indirect jobs (66% semi skilled and skilled whilst 34% is for unskilled jobs) Medium to high tech and skilled to semi skilled focus of NIP projects NIPP Nov 2007 10

CONCLUSION OF EIA: Average of R16 billion of capital required on an annual basis to sustain all NIPP projects. (Covers - initial investment + capital costs required by other sectors across economy to sustain increased levels of economic activity on account of NIPP) Hence Effective use of Capital: NIPP is effective in utilising capital (investment) as a scarce resource as NIPP projects contribute a greater portion to GDP as compared to other capital projects of a similar nature. NIPP Nov 2007

GOVT SPEND VS BENEFITS DERIVED FROM NIPP IMPORTED CONTENT OF PURCHASES Total: Approx: US$11.3bn Defence: US$3.8 bn Non Defence: US$7.5 bn 2. Actual FDI’s, EXPORTS AND LOCAL SALES: FDI: US$ 424m from obligors Exports: US$ 2.9 bn -market access Localisation: Local investment and import replacement NIPP Nov 2007

CHALLENGES/ LESSONS LEARNT Project failure due to lack of competitiveness and ability to sustain projects locally Project failure due to market dynamics Project failure due to mismanagement of funds by local supplier Milestone deadlines are in most cases over optimistic – challenges within the operating business environment Limited support for development of BEE’s and WEE’s NIPP Nov 2007

RECENT DEVELOPMENTS DIRECT NIP: Use tool of NIPP to extend beyond its current scope and also allow for offsets directly associated with the procurement and its associated industry. Contribute towards building local capacity and local content through Government procurement OTHER: Alignment with key Government initiatives such as B-BBEE, SMME’s and Skills Development NIPP Nov 2007 14

WAY FORWARD Incorporate Direct NIP into existing NIPP Guidelines Communication of Direct NIP to applicable Purchasing Entities – workshops, bilaterals Increased focus on labour intensive projects(e.g. Magwa Tea), skills development and other key strategic sectors Alignment between NIPP and the Competitive Supplier Development Programme (CSDP), B-BBBEE, Customer sector Programme initiatives. NIPP Nov 2007

Thank you ???? NIPP Nov 2007 16