Localisation push hits headwinds

Johannesburg - The government has been prescribing percentages of local content, over and above black economic empowerment (BEE) quotas, for companies bidding for tenders from it and parastatals.

But it has had challenges with local manufacturers struggling to provide the required goods at prices cheaper than their foreign rivals, resulting in projects becoming more expensive than they would if the goods were sourced abroad.

Localisation or local content may soon become one of the requirements for companies seeking funding from state-owned financier the Industrial Development Corporation (IDC).

This comes amid government deployment of various measures to force companies to source from local suppliers, which have been struggling in recent years due to rising imports, especially from Asian countries.

One of the measures the IDC is considering is to introduce incentives, such as reduced repayment rates, for its loanees who commit to source their products from local firms.

The organisation believes this will boost local small businesses, which it says hardly benefit from the multibillion projects it funds. 

"Very often it's easy for companies to import goods. We need to incorporate localisation into our project planning and make it one of the requirements for funding," said IDC chief financial officer Gert Gouws.

"We see this as a development imperative. We need to broaden our manufacturing base and to ensure that specific opportunities are being created for SMEs (samall and medium enterprises) and that South African jobs are being created, not foreign jobs."

In the unfolding renewable energy programme, government has set local content targets for certain technologies as high as 60%, which industry players say is quite daunting.

The IDC is funding some of these projects, having already approved R7.5bn worth of funding, according to Gouws. It has allocated R25bn worth of funding for the development of the green energy industry.

Though acknowledging that some of these targets are too ambitious, Gouws says SA can't miss opportunity to develop its own manufacturers.

"We need to make this work – otherwise we'll only get 20% of local content." 

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