Local Public Procurement Colloquium: day 2

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Trade and Industry

18 August 2016
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee met to continue the colloquium on local public procurement, at which it was receiving and considering presentations from industry stakeholders.

The Manufacturing Circle (MC) said it had observed that the objectives of the DTI and public procurement entities were not always aligned, as the decision-making body in the procurement entities were not aligned with the objectives of the DTI from a commercial point of view, such as pricing, for example. That was evidenced in some cases of the pharmacare industry.

The Southern African Institute of Steel Construction (SAISC) said it had been looking into the scenario where a designated product had been part of a larger piece of equipment. In the case of imported Exo components, as part of rolling stock, SAISC had been doing a lot of work with the South African Revenue Service (SARS) customs in terms of education, and to the practical level of establishing relationships with customs officials. This assisted when a customs official was unsure whether an item was designated or not, or whether it needed to have a tariff or not. The official could then take a picture with a cell phone and send it to SAISC for confirmation.

The SA Labour Research Institute (SALRI) and SA Clothing and Textile Workers' Union (SACTWU) said that the clothing, textiles, footwear and leather (CTFL) sector had been shedding around 165 000 jobs over the last decade. The ‘Jobs Campaign’ was a set of about 40 tasks or projects the Union ran, with the direct intention of stabilising jobs and growing the CTFL industry. SACTWU had been collecting tenders from tender bulletins and sending them to local manufacturers on a weekly basis long before the policy on localisation, and after six months of trolling annual reports of state institutions, budgets, awarded tenders and analyzing all that information, SACTWU had found significant flaws within some of the local content policies.

Traders and intermediaries had became problematic, due to their lack of awareness of local content policies, or when they were deliberately undermining the system by importing goods through signing the local content declaration when filling in a tender; which happened often. Economies of scale were being wasted at the municipal level, where various classifications of workers wore differentiated clothing. The Union’s proposals were to centralise procurement so that tenders could be aggregated into one space to facilitate collective buying, and to make the market transparent, as it was the opaqueness of the market that led to the dysfunction in local content. If manufacturers and the State could not and did not know how to find each other, and if manufacturers could not watch intermediaries and traders, and whistle blow when there were problems, then there was a problem market.

The RailRoad Association (RRA) said it was an Association consisting of operators, original equipment manufacturers (OEMs) and suppliers, and therefore found itself in awkward position, as it had to juggle between the needs of the suppliers and the OEMs. It had believed that with the introduction of local content policies, the OEMs would tell the RRA why they were unable to use SA suppliers, because that would have facilitated a different debate on how the RRA could intervene in making the SA rail industry competitive. It felt very strongly that industry clusters were where capacity could be built for the rail sector, and intended to link the clusters with Development Finance Institutes (DFIs), as it was aware that its member companies could have the technical capacities but could fail in projects due to financing.

The Association lamented that if the SA rail industry struggled with verification, how much more difficult would it be to agree on engineering design which spoke to specifications which would determine who was supposed to be doing the work, because in most cases the supplier membership of RRA was thrown out in terms of the pricing. Therefore the RRA asked to be included in the development of standards and engineering design so that it could be in a position to control the supply chain. Its submission was for a closer working relationship with the DTI and SABS.

The Committee asked whether the DTI was aware of the loopholes that the MC had identified, and how helpful had it been in addressing them. Why was it that NT wanted to designate and not the DTI, even though its core function was not trade and industry? When SACTWU brought tenders which did not prescribe local procurement to the DTIs attention, were those queries resolved quickly and efficiently, and was the Union satisfied with how the DTI was assisting in that regard?

Members commented that they had expected the RRA to provide possible solutions to the challenges the Association had identified in the rail sector. Moreover, it seemed to be shifting all responsibilities to the state. Could the RRA elaborate better and more clearly on possible solutions to support the objectives of local content procurement? Did the RRA want the State to build the capacity and capability of the industry, or was the RRA putting itself at the service of the nation to build that capacity for its own members?

Meeting report

National Treasury (NT) said that the Department of Trade and Industry (DTI) was almost three-quarters of the way through evaluating the useful input from the captains of Industry, government and other interest groups. The Minister of Finance’s engagement on the Preferential Procurement Policy Framework Act (PPPFA) would hopefully make promulgation possible in October. The DTI hoped to include many of the practical proposals submitted to it so that they could be incorporated into the revised PPPFA regulations.

There was a big opportunity for localisation when looking at so-called ‘recurring procurement’. Because of medicine consumption, the country would continue buying these products to the tune of R30 billion annually. The evidence put before the committee on the industrialisation programme had been fantastic however. There were one-off investments that would be sustained by the quality of marketing campaigns to either export or to make technologies such as locomotives available in other markets.

Mr Garth Strachan, Deputy Director General (DDG), Industrial Development: Policy Development Division (IDPDD), DTI, said South Africa had lost about half its foundries, as the country used to have about 400 and now had below 200. He had been informed the principal reason for that loss was the double digit increases in electricity tariffs year-on-year. Access to scrap metal had been an additional reason, which was why there had been International Trade Administration Commission of South Africa (ITAC) measures in place to curb the unencumbered export of scrap metal. This had also been the reason the DTI had asked for an export tax on scrap metal in 2010. To the best of DTI’s knowledge, the ITAC measures on scrap metal were having very limited, if any, impact. This was why the DTI maintained that a tax on scrap metal would be of enormous benefit to the industry, though it was mindful that National Treasury (NT) was responsible for taxation.

He said that import substitution referred to a theoretical construct in development economics and therefore it was not a programme set out in either the National Industrial Policy Framework (NIPF) or the Industrial Policy Action Plan (IPAP). However; import substitution lay at the heart of what the DTI did. SA was an economy that had financialised, as the financial sector had been growing at twice the rate of the production sectors. The economy had become import-intensive and credit-fuelled in its growth, and that was a very dangerous combination. Unless the SA economy deployed measures which included strategic tariff deployment support for the manufacturing sector through incentives, industrial financing and procurement, the country would not have import substitution. Instead, the economy would continue on the trajectory it had been on in the last decade, which was import intensity.

Recurring procurement in agro-processing and the health sector was extremely important, but one could not build industrial capabilities in agro-processing and pharmaceuticals, which would not be labour intensive alone. Industrial capabilities had to be built in areas such as rail, and the DTI agreed completely that the procurement instrument had to be used with the supplier development instrument to rebuild SA’s capabilities in rail. It also had to ensure that both Original Equipment Manufacturers (OEMs) and supplier development companies had the capability to export and to enter into global supply chains. In that regard, the African market represented an important opportunity for both export and regional industrial integration in rail and associated infrastructure.

Mr Strachan said that whether or not the bidder or the State paid for verification, the State would bear the cost because the bidder would have included the price of the verification in the bid. The state was the procuring entity, which was why the verification would accrue to it. He agreed that the regulatory burden should not be given to the private sector, because in some countries one had to procure locally. When that did not happen, the procurer sometimes faced very prejudicial compliance measures, such as contained in the Buy America Act. SA had to have some compliance measures, and he thought that the South African Verifications Services (SAVS) was critical and that the matter had to be sorted out. From the DTI perspective, it believed it had to be enshrined in the legislation and regulations, as it was not enshrined as such to date. There had to be other measures that needed discussion, which included declarations, audits, consequences if one made a false declaration, and others measures which would ensure that compliance was achieved without setting a high regulatory burden on the private sector and also not add another big cost to the fiscus in enforcing compliance.

The DTI believed that the bigger question was to say that in circumstances where there was only 4.5% verification, the State had to move with speed in ensuring that there were measures in place with minimal regulation and cost to itself which would support localisation and supplier development.

Dr Tebogo Makube, Chief Director: Industrial Procurement, DTI, said that as a contextualisation of the numbers from the Bureau of Philippine Standards, particularly the 4.5% verification, the challenge encountered there was that successful bidders were refusing to pay for the verification, saying there was no requirement for them to pay for the verification. The DTI had been grappling with that, which was why it had been requesting an amendment to the bidding documents so that it could make the cost of verification an upfront condition. When DTI received bidding documents and the Business Process Services (BPS) could not come up with its own cost, a bidder would then have to pay what would be reflected in the bidding document.

Dr Makube agreed with DDG Strachan that the debate had to move on as to who would bear the cost, because eventually it became the fiscus that covered that cost. Additionally, in developing the methodology, the bigger picture should not focus on the financial impact in monetary terms, but rather in terms of what the Department of Science and Technology (DST) had presented, which showed that it was a feedback loop, which was ring-fencing itself if one looked at what was coming back through tax. This also had an impact in terms of the revenue base of the country. The net effect of that would be a decrease in the social wage in the long term, as people would be getting to be employed in the long term, and that was the bigger picture. Therefore the verification process had to be such that it had a positive net effect and spillovers within the economy through local production, and that was the reason the DTI was supporting local procurement.

Ms Thandi Phele, Chief Director (CD): Metal Fabrication, Capital and Rail Transport Equipment, DTI, added that the foundry industry was under tremendous pressure from a cost perspective. Most of that industry was also still doing jobbing or one-off production as and when there was an order book. SA still needed to look at the issue of economies of scale and how it could increase the market access for its custom products, thus the importance of the conversation on localisation, especially looking at what the DTI had already done. The DTI had indicated in the rolling stock instruction note that all castings and forging products that went into any type of rolling stock had to be procured locally in order to sustain the country’s foundry industry. Similarly with products that were casting intensive, like valves, the DTI had also included a clause in its instruction note, that in discharging of local content requirements, one had to ensure that the castings were procured locally. Whilst looking at opportunities for localisation, the DTI was also looking at areas where it could increase the local production of castings. It was also looking into the designation of pumps, which was also castings-intensive.

From an industry perspective, there were issues around quality, innovation and product development. However, from the DTI’s perspective, working together with the Technology Localisation Unit, it had a programme with the Council for Scientific and Industrial Research (CSIR) called the National Foundry Technology Network (NFTN), to deal with some of the quality, innovation and product development issues the foundry industry was grappling with. If the country could deal with the issues around retention of scrap as a key input in the foundry industry and the exorbitant increases in electricity tariffs, then the DTI could make an impact in improving the competitiveness of the foundry industry in SA.

Mr A Williams (ANC) said that the DTI, NT and SAVS were telling the Committee different things about who paid for verification. He wanted to know what the Committee could do to assist in the finalisation of who was responsible for paying for verification.

Mr B Mkongi (ANC) agreed with Mr Williams’s sentiments, and noted that he did not recall Parliament discussing the PPPFA with NT. The Committee had had input on the Mineral and Petroleum Resources Development Amendment Act, 2008 (MPRDA), so all departments -- and even the Committee -- had to realise that whatever law went through Parliament would have an effect on other departments, apart from the department promulgating the particular law. He said local content spoke to the quality of a product to reflect what SA had as a country, so why was localisation being separated from the process of quality procuring? It was important that the Committee initiated that debate with the Committee on Finance, to clarify and reverse some of the issues regarding local content procurement. The concern was that people were accusing politicians of a lack of political will, and the impact of those accusations did not reach administrators if the matter was a lack of administrative will to implement policies.

The Chairperson said that the PPPFA had been enacted before localisation, so there would certainly have been a slip in the alignment. NT had acknowledged that it was in the process of amending aspects of the PPPFA so as to account for the anomalies experienced to date. Additionally, politicians and administrators were aware of the bureaucracy, where every law before Parliament had to be very clear on what the financial implications would be before passing it. Therefore, when localisation legislation had come up, it would have gone to Cabinet and been a collective decision by all the Ministers. The issue now was that there was a crisis about who had to pay for the policy on localisation. The reality was that someone had to pay, and the committees had to stop arguing about that and deal with the legislation. The Chairperson acknowledged that the policy was indeed complex, but the policy had not been tabled only in 2016. The DTI and NT would have had some time to grapple with the complexities of the localisation policy, and every law before parliament was complex anyway, considering the copyright. Were the stakeholders then going to say it was too complex to deal with the legislation?

The Chairperson said that the Committee would write to NT to underline the need for acceleration of the localisation policy, and it would appeal to the Minister of the DTI for a closer engagement with NT and the DST.

Manufacturing Circle presentation

Ms Phillippa Rodseth, Executive Director: Manufacturing Circle (MC), said that the organisation served to represent its members in terms of different cross-cutting interests that benefited the manufacturing industry as a whole.

The objectives of the DTI and public procurement entities were not always aligned, as the decision-making body in the procurement entities were not aligned in terms of the objectives of the DTI from a commercial point of view, for example, in terms of pricing. That was evidenced in some cases of the pharmacare industry for example.

The Southern African Institute of Steel Construction (SAISC) had also been looking into the scenario where a designated product had been part of a larger piece of equipment. In the case of imported Exo components as part of rolling stock, SAISC had been doing a lot of work with South African Revenue Service (SARS) customs in terms of education, and to the practical level of having connections with customs officials. This assisted when a customs official was unsure whether an item was designated or not, and whether it needed to have a tariff or not, as the official could take a picture with a cell phone and send it to SAISC for confirmation.

CTFL Sector presentation

Mr Simon Eppel, ‎Researcher at the SA Labour Research Institute/SA Clothing & Textile Workers' Union (‎SALRI/SACTWU) said that SACTWU had members predominantly in clothing and textiles manufacturing, especially in leather. He said that the clothing, textiles, footwear and leather (CTFL) sector had been shedding jobs over the last decade, which amounted to around 165 000 jobs lost.

He said that the ‘Jobs Campaign’ was a set of about 40, if not more, tasks or projects the union ran, mainly with the direct intention of stabilizing jobs and growing the CTFL industry. SACTWU had been collecting tenders from tender bulletins and sending them to local manufacturers long before the policy on localisation, on a weekly basis. After six months of trolling through annual reports of state institutions, budgets, awarded tenders and analyzing all that information, SACTWU had found significant flaws within some of the local content policies.

Mr Eppel said that by law, each of the 800+ public procurement entities had been empowered to procure independently of each other. The complex spider web of passing legislation in Parliament, and then the policies passed and enacted by the state to effect the legislation, all had to find compliance from hundreds of public institutions and thousands of individuals responsible for making the purchasing decisions. That was complicated by the tens of thousands of financial transactions occurring annually, and therefore the scope for failure was very large.

He said that decentralisation caused problems. Traders and intermediaries became problematic due to their lack of awareness of local content policies, or when they were deliberately undermining the system by importing goods by signing a local content declaration when filling in a tender; which happened often. Traders would say they were supplying 100% local content to the state, and state supply chain officials would accept that tender document as authentic bidding. Meanwhile, a fraudulent transaction would be taking place, which was a complex process altogether.

Mr Eppel said economies of scale were wasted, giving as an example that in a municipality there were many functions and classifications of employees, who could be wearing differentiated clothing. There would be employees in the rates, the transport sector, the safety and security component, water and waste water management, and each of those groups of workers would be calculated and categorised differently. Therefore across the 300-odd municipalities in SA, one could have possibly 180 000 employees. Because of decentralisation, one would essentially take aggregate demand and break it up into smaller chunks, so for example the waste water management team at Saldanha Bay Municipality would comprise eight individuals which the municipality would clothe separately and independently. In Newcastle local municipality there could be 24 people in rates and transport that required uniforms, and they would buy for 24. However, the aggregate numbers in the 10 000’s of units, and that was wastage of state resources as the economies of scale were being destroyed.

The Union’s policy proposals were:

  • Centralise procurement (various options). Tenders could possibly be aggregated into one space to facilitate collective buying. Alternatively, centralisation could happen provincially instead of nationally. For example, it could be envisaged that NT would buy centrally for certain municipal functions. There certainly were multiple ways of strategically realising the objective of centralisation of buying, using economies of scale.

  • Make the market transparent. Mr Eppel said that the opaqueness of the market led to the dysfunction in local content. If manufacturers and the state could not, and did not, know how to find each other and if manufacturers could not watch intermediaries and traders, and whistle blow when there were problems, then there was a problem market.

The Chairperson thanked the presenters for proposing some solutions to the challenges they had identified in the market.

RailRoad Association of South Africa (RRA) presentation

Mr Bongani Mankewu, CEO, said RRA was an association consisting of operators, original equipment manufacturers (OEMs) and suppliers. The association therefore found itself in awkward position, as it had to juggle between the needs of the suppliers and the OEMs. From his perception of the presentations during the entire colloquium, he had noted that OEMs had spoken a lot about compliance, and the RRA was also submitting that compliance was important, as it wanted clarification as to why its supplier membership was not compliant enough to work with OEMs.

Being an export council, RRA advocated and strived to ensure that it generated work for the rail industry in SA, but unfortunately for that to be possible, it had to understand the capacity of the rail industry in the country. The RRA had believed that with the introduction of local content policies, the OEMs would tell the RRA why they were unable to use SA suppliers, because that would have facilitated a different debate on how the RRA could intervene in making the SA rail industry competitive.


 

The RRA had engaged the South African Bureau of Standards (SABS) and the DTI on how localisation could be deployed. It saw localisation as a market for SA companies that would allow RRA to start speaking about other policies that were supposed to be deployed in the rail industry, as it had never envisaged localisation to be so burdened with hurdles. In the Association’s engagements with the SABS in addressing the question on who would be paying for the implementation of localisation, the RRA had responded in the first instance that its supplier membership was badly affected by the lack of knowledge on localisation. As a result, the Association had therefore taken on the burden of paying for knowledge development about localisation, though it had no knowledge of where it would get the money. Knowing and verifying local content was critical towards industry development of the rail industry in the country.

Mr Mankewu said that the RRA was quite aware that when dealing with the value chain, most of the country’s rail projects across SA and into the continent were derived from technical requirements and a financing model. The Engineering, Procurement and Construction (EPC) companies which were at the initiation stages of projects were always linked to where the financing came from, and therefore as a result, when speaking to technical specifications in line with the value chain, one would find that OEMs had a nexus of connections with global suppliers in their value chain, and they were quite firm that they would prefer to use those suppliers, instead of local suppliers. If a developing country’s rail industry became as confused as South Africa’s was, the OEMs would run with that non-compliance, as they had no obligation to localise.

He said RRA felt very strongly that industry clusters were where capacity could be built for the rail sector. The Association intended to link the cluster concept with Development Finance Institutes (DFIs), as it was aware that its member companies could have the technical capacities, but could fail in projects due to lack of financing.

When speaking of compliance, the RRA was not only focusing on OEMs, but also on the feedback from those OEMs reporting on why they continued not wanting to work with SA suppliers.

Mineral deposits were scattered around the Southern African Development Community (SADC) region and it needed close collaboration with regional countries for these minerals to be transported, and there were possible rail networks that could be linked across the region.

Mr Mankewu lamented that if the SA rail industry struggled with verification, how much more difficult would it be to agree on engineering design which spoke to specifications which would determine who was supposed to be doing the work, because in most cases the supplier membership of RRA was thrown out in terms of the pricing. Therefore, the RRA would ask to be included in the development of standards and engineering design, so that it could be in a position to control the supply chain.

He reiterated that the Association’s submission was to achieve a closer working relationship between the DTI, SABS and the RRA, which would also speak to consulting operators from time to time, and to not only focus on monitoring designation policies.

The Chairperson thanked Mr Mankewu for the RRA presentation, and said that as the RRA had come before the Committee for the first time, it would certainly keep in touch with the Association. She then allowed the Committee to interrogate the three presentations.

Discussion

Mr Williams asked whether the DTI was aware of the train wheel loophole and others that the MC had identified, and how helpful the Department had been in addressing the loopholes.

Why was it that NT wanted to designate, and not the DTI, even though its core function was not trade and industry?

When SACTWU brought tenders which did not prescribe local procurement to DTI’s attention, were those queries resolved quickly and efficiently, and was the Union satisfied with how the DTI was assisting in that regard?

Mr Mkongi was impressed with the presentation of the MC, but was concerned about the relationship between the DTI and MC, and whether the DTI was aware of what the MC was presenting to the Committee, as most of its proposals on intervention were groundbreaking from his perspective. For example, would be an additional burden for the DTI to designate, or had it already been a line function of the department? He was proposing that the Committee could take some of the MC proposals as part of the Committee’s proposals for future engagements

He said that SACTWU seemed to be silent on what it thought about the limitations of local procurement, especially as to whether it thought corruption affected local content procurement. His interest was on the role of intermediaries in misinforming the industry, and what impact that had.

He had expected the RRA to provide possible solutions to the challenges it had identified in the rail sector, but it seemed to be shifting all responsibilities on to the state. He asked the RRA to elaborate better and more clearly on possible solutions in supporting the objectives of local content procurement. Did it want the state to build capacity and capability of the industry, or was the RRA putting itself at the service of the nation to build that capacity for its own members?

Ms P Mantashe (ANC) shared Mr Mkongi’s sentiments regarding RRA’s apportioning of all responsibilities for capacity building in the rail industry to the state, so she also wanted clarity on what RRA’s role was in assisting the state in realising local content procurement. Had the leadership of RRA ensured that there was a membership pipeline that would continue the work as operators, OEMs and other membership? Had the association offered any bursaries to ensure that the RRA continued existing beyond its current leadership?

She wanted to know whether SACTWU had studied the amended PPPFA. She also appreciated the work of SACTWU concerning its assistance to DTI.

The Chairperson recalled that the MC was around six years old, and seemed to have grown in leaps and bounds. She appreciated the proposals both from the MC and SACTWU, though it could not be guaranteed that all proposals would be taken on board. The call to make markets more transparent was certainly not something opposed by any Member of the Committee, which linked to an earlier presentation about the need to try and to get some synchronisation so that data could come out.

The government was certainly intent on supporting public-private partnerships (PPPs), but also the private sector developing partnerships within itself and other sectors. However, as presenters were aware, policymakers could only lay down regulations on public procurement. It was important for the MC to remember that it was operating in SA and therefore, if given an enabling environment, it had to try and implement localisation as effectively as it could be done.

Mr Mankewu said the RRA did not see itself dependent on the state, but the nature of rail investment was generally the burden of a government. The confusion in SA’s rail industry was possibly that RRA did not have the data indicating that OEMs were incapable of using local suppliers from SA, to a point that RRA could develop real interventions. There was a back and forth movement on that debate, and it was in SA’s rail industry’s interests to find out exactly why OEMs were resistant to work with SA suppliers. In his explanation, he had been highlighting the disadvantage of the nature of SA rail, which was that the industrial risk in rail had always been a State risk, which in SA involved Transnet and the Passenger Rail Agency of South Africa (PRASA). In Zimbabwe, for example, there was the National Railways of Zimbabwe, and therefore the state was an entry point for members of the RRA. The Association was saying that the facilitation process required the state. The RRA always sought to be project proponents by taking SA rail to particular countries where there was investment, whether that was cargo or traffic.

He reiterated that RRA’s solution was a closer working relationship between the verification body, which happened to be SABS, the Association and the DTI, being the department responsible for designation policy, as the RRA was keen to share the knowledge it had of the rail industry in the country, as it would assist the overall process of verification. That would take the industry to a point where SA rail would be competitive. Once that was all in place, then the details of who was responsible for what could be thrashed out, because RRA knew its membership. It could list who built train bodies and who built traction motors in SA. Once that packaged arrangement was in place, the RRA and the rail industry would be in a better position. RRA was also aware that it was possible that most of the OEMs in SA complied and did in fact use its supplier membership, but that information had not been verified.

The RRA was a not a bursary disburser but as alluded to in its presentation, local content was a critical developmental instrument for the rail industry of SA. When a market could not be provided for an industry, it was difficult to enforce certain things. If localisation was to be implemented and Transnet and PRASA designated that for a particular rolling stock project there was a particular amount available, RRA could immediately take to its members that there was, for example, R10 billion to be spent on local content. That meant something had to be done about skills development. Black industrialisation had to be supported, and enterprise development and many other aspects had to be looked into.

RRA had not disbursed bursaries, though it was facilitating an exhibition in Gauteng for learners, as the Association had come to realise that people understood rail as a highly technical engineering sector. At that level, people could be shown that there was work as erectors, train drivers and other opportunities within rail.

RRA also worked very closely with the Rail Safety Regulator in trying to ensure that issues of standards, as alluded to above and in the presentation, would be inculcated up to the level within the industry where SA had a highly unacceptable rate of derailment, if one followed the trends closely. RRA membership certainly could give bursaries, but if there was no market, the RRA could not really dictate to its membership on whether to do that or not.

Ms Rodseth said questions to the MC centred on a point she had made in her presentation, which was that the objectives of the DTI and procuring entities were not always aligned. The DTI was the custodian of local procurement, as stipulated in the PPPFA, and the underlying objectives therein had to do with the long-term industrialisation and economic benefits to SA, in terms of what would take place by way of a multiplier effect, with down and upstream benefits. However, if one looked at the myriad procurement entities which were supposed to comply with the PPPFA, the primary objectives could be found to be different for logical reasons. For example, the Department of Health (DoH) was mandated to supply as much medication as it could at the cheapest price, whereas Eskom needed to deliver and transmit as much electricity as it could as well. At a basic level, the long-term and local procurement objectives could not necessarily be aligned in the short term with what needed to be delivered from a procuring entity perspective. That was where issues and loopholes occurred.

The DTI had done its work in terms of mandating what needed to be designated, so the solution perhaps would not be as quite as easy, but that spoke to the requirements for Public Private Institutions (PPIs) to work together as exemplified by the Southern African Institute of Steel Construction (SAISC), where a lot of work had been done by the DTI in designating structural steel. SAISC had also just informed her about a request for two large steel construction bridges in the Eastern Cape, where SAISC had been working closely with the procuring authority, the South African National Roads Agency (SANRAL), in making it very clear to local bidders and tenderers that there was a local content requirement.

Mr Eppel said that in terms of Mr Williams question, SACTWU had identified big notices or tenders where it appeared there had been a lack of reference to local content. These had then been referred to the DTI, but unfortunately the DTI did not have the power to rescind tenders or to force a procuring authority to rescind a tender. That was the really large spanner in the works. In SACTWU’s understanding, the DTI could only initiate a process of appeal and semi-sanctioning. The appeal was when the DTI asked a procuring authority to kindly withdraw a tender and to re-advertise it. The semi-sanctioning would be to inform the procuring authority that DTI’s recourse would be to go to the Auditor-General of South Africa (AGSA) if there were issues. That was also why SACTWU had developed the open conversations tool, because the more people the Union loaded into a public conversation with a tendering body, the more pressure it would feel to correct its actions. Certainly, if there was a way of enabling the DTI to rescind tenders or to get NT to quickly intervene, SACTWU would welcome that.

The thing about corruption generally was that unless it was found, it was never proven concretely. Certainly, it could be inferred and there could be signs of it, but it was generally difficult to prove. It was public knowledge that there was corruption in the tendering space because the very fact that one could wield resources gave the wielder the opportunity of using them for other purposes.

There were two kinds of non-compliance with local content as far as SACTWU was concerned. The first would be non-deliberate, which would be borne either out of ignorance or honest mistakes. The second would be deliberate non-compliance with local content, and there had been instances that SACTWU had come across where question marks had been raised. There had been a tender in one of the provinces at some stage for a product that had been imported at a higher price than it could have been, had it been made locally.

In cases where SACTWU had found an intermediary who could have won a tender, and the Union engaged the intermediary, the individuals sometimes responded from their government address, which meant the intermediary was a public servant. Of course, the law required that individuals declare their interests before tendering. Interestingly, when SACTWU challenged these individuals as to whether they had disclosed, it always happened that they would have disclosed after being engaged by SACTWU.

Mr Eppel said that SACTWU had not included regulations in its presentations, because it believed the DTI had the expertise and the responsibility for manufacturing, and it wished for the actions of the DTI to grow in content, rather than be diminished. Therefore SACTWU would want the active responsibility of designation to remain with the DTI, and though NT had a lot of capacity, the best thing would be for the departments to work closely together.

Mr Strachan concurred that agency was quite important, and he welcomed the approach by SACTWU, which was very helpful. Hhe thought that the country could get the best verification and compliance measures that were available in the planet in the room, but eventually it was about a collaborative effort between government and the private sector, and this involved maximising communication around tenders, ensuring compliance and blowing the whistle on non-compliance.

Legislatively, procurement was a function of NT, accepting, respecting and appreciating that the DTI saw localisation as an element within its ambit. Certainly Minister Rob Davies had lamented the hypocrisy within the procurement space. For example, one only had to look at the Convention on the Organisation for Economic Co-operation and Development (OECD) countries, and the Buy America Act, where Americans used public procurement as a massively powerful industrialisation tool. A good example was South Korea.

He agreed with MC that it could not be that, if there was not more than one local company, localisation did not apply. The NT could simply use a reference pricing system to say that as long as a company was cost competitive, met the required standards and specifications, then it would be supported.

It was very important for the private sector to get into a collaborative arrangement with the public sector to maximise the use of the procurement instrument in order to support manufacturing and industrialisation. It was problematic, however, when large industrial companies -- some of which were members of MC -- were busy pushing government for localisation when they themselves, in their supply chain and procurement, were importers. Though the private sector had signed the procurement accord, there had been very little traction in that regard.

The RRA had made a presentation as if the DTI was not cooperating, when in fact it was. The DTI would entertain concrete proposals by the RRA concerning OEMs, Transnet and even SAVS. The export council responsibilities of RRA were certainly an element that DTI could assist with in terms of export promotion for the RRA membership.

Mr Mkongi said he had observed that the DTI was raising the matter of resuscitation of the export tax on scrap metal. Secondly, the presenters seemed to be skimming the peripheries of the impact of environmental laws on the efforts by DTI to industrialise foundries.

Ms Mantashe was concerned about the RRA’s exhibition in Gauteng, and whether it would be extended to other provinces.

The Chairperson said she had become aware that there had been a clear statement from NT concerning verification, and that the matter was going further. She cautioned China South and North Rail companies, as OEMs, that in SA a company could not simply give ultimatums as to what it would not do before government did something in return. She said that was not a good approach to the matter of verification. The DTI and all stakeholders that had presented were not declining to collaborate. She asked the Chinese rail companies to return to the Committee with similar proposals as those from MC, RRA and SACTWU on how collaborations could be formed to resolve the issues around local content and verification.

The meeting was adjourned. 

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