Tenders: Local firms only

Johannesburg - Local manufacturers have "mixed feelings" about the possibility that local companies alone will in future be permitted to bid for government tenders in certain industries, reports the business community.

The National Treasury's draft regulations on state procurement have done away with the preferential points system in terms of which local companies are given preference when government tenders are awarded.

The new clause indicates that tenders in specific industries - those critically important to the country - may be opened up only to local companies. These industries will be identified by the Department of Trade & Industry.

The expectation is that the department will name the key industries contained in its industrial policy, including motor manufacture and chemicals.

The draft regulations are intended to try to retain manufacturing capacity and jobs in South Africa. Government, for example, wants to ensure that the lion's share of its R787bn infrastructure expenditure over the next five years will go to local firms, instead of simply to the importation of equipment and raw materials.

"On the surface, this looks good, but we still need a lot of detail. These are the proverbial little foxes that can destroy the vineyard," says Stavros Nicolaou, chairman of the pharmaceutical manufacturing group Pharmisa.

Understanding what it means

The information required concerns which industries will be regarded as strategically important, and how the list of products that qualify within these industries will be determined. There must also be certainty as to whether the department or the Treasury will have the final say when tenders are issued with a "local companies only" requirement.

"Then we have to understand what exactly "local manufacturer" means. Must a product be manufactured here in its entirety, or to what extent will partial manufacture also qualify? "

Nicolaou reports that a similar system is being used with great success in South-East Asia and South America, as well as in other countries where a collection of products have been identified as strategic for the country. Stipulations might include the requirement that production be kept within the country to guarantee security of supply, or that it should play an important role in job creation.

"These requirements are part of what the Department of Trade & Industry will have to define," Nicolaou points out.

For the pharmaceutical industry local manufacturers could, for instance, greatly benefit from a "buy local" requirement for products like antiretrovirals (ARVs), contraceptive pills and medication for tuberculosis, instead of importing them from India.

Research by the Industrial Development Corporation (IDC) has found that the Department of Health could pay up to 35% more for ARVs from local suppliers, taking into account the advantages that this would hold for the economy as a whole.

- Sake24.com

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