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 2

Economic Challenges – Declining Manufacturing Exports 3 Source: Quantec database

Economic Challenges – Declining MVA 4 Source: Quantec database

Economic Challenges – Trade Deficit 5 Source: 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 6

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 7

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 9

Location of Local Content Documents 10 SABS Technical specification (SATS 1286:2011) on the measurement and verification of local content DTI Guidelines on measurement and verification of local content Templates and annexures on the calculation of local content NT Standard Bidding Documents Instruction notes for each designated sector

11 Designated sectors

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 Antiretroviral Tender has been issued and preference will be given to local manufacturers Progress on Designated Sectors and the CSDP 12

Bus Bodies o 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 Migration o 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 footwear o This sector has been designated 100% for local production since All transversal contracts managed by the National Treasury comply with this requirement Local Content Verification Agency o 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 13

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’ 14

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. 15

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 16

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 17 Sectors planned for further designation

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