The inquiry into the compliance with localisation and local public procurement policy for bus procurement continued for a second day - with presentations by bus building companies. The Chairperson explained that the inquiry was all about asking everyone to be patriotic and to work together. It was not about who had done wrong. Where companies were experiencing challenges, the Committee was going to try to sort those challenges out, with their help.
Marcopolo South Africa had the capability to build good quality buses while meeting the local procurement requirements. REA VAYA 1B buses comprised over 90% local content in the body. Marcopolo had a local supplier development plan, including financial assistance to the BBBEE suppliers, experts to perform training in-house and prioritised local SME’s to ensure that suppliers met local content requirements. Supplier development initiatives included empowering local companies from scratch with finance, raw material, training, quality supervision and management assistance. The company also established long-term contracts with local suppliers to ensure the feasibility of new start-up companies. Challenges included the lack of regular volume to justify local investment in some bus parts, forcing the company to buy from overseas.
Members asked how the company classified localisation and measured the local content of specific parts. Did a company check whether the part had been made in South Africa and not just imported to a South African company and then supplied to the manufacturer? The Marcopolo representatives were asked to walk the Committee through the process for measuring local content. How many people were permanently employed by Marcopolo? Members were interested in how the company financed suppliers and how Marcopolo had empowered them to manufacture materials that the company needed. How had that worked out for Marcopolo?
The Chief Executive Officer of Busmark owned 75% of Busmark, with the remaining 25% being owned by management and staff. Busmark had gone way beyond the 80% local content requirement in building bus bodies. Busmark audited their suppliers right up to the point of original material sources. The South African Bureau of Standards had charged R1 million to verify local content, but it had been no more than a box-ticking exercise. The Department of Trade and Industry had not provided a budget for the Bureau to do that work. Busmark was concerned that there was no recognition for first-tier Original Equipment Manufacturers and they were disqualified from the body building incentive schemes. The procurement cycle of rapid transport buses by local governments had resulted in value chain fraud with no coordinated planning and had resulted in taxi operators funding buses. The resulting infrastructure and IT delays had impacted strongly on manufacturers. Busmark was particularly proud of the Integrated Bus and the iBox, which was the ‘black box’ of a bus and was a local development. iBus was a framework made of South African stainless steel and contained a management tool that gave intelligent information. The body work was 96% local content. Chassis for buses were often built out of steel that came from Atlantis which meant that only the drive chain and axel, engine and drive core had to be imported.
One Member suggested that it all sounded too good to be true. Did the CEO really own 75% of the company? Was he not perhaps fronting? What did the CEO understand by ‘fronting’ or ‘silent partner’? How many shares did he own in the company? How many downstream local suppliers did the company have? What supplier development programs did the company have in place? Who should pay for verification of the local content? Some Members were happy to see a black industrialist and were impressed with the exciting presentation as well as the presenter’s enthusiasm.
IVECO was a new, but growing, manufacturer on the block. The company imported chassis into South Africa to produce medium, heavy and extra heavy vehicles. IVECO met local content requirements, achieving more than the required 80% threshold. Software systems were used to monitor the local content. Bus body building was highly labour intensive and therefore important for job creation. The low rate of payment per kilometre for school buses meant that the operators were not in the market for new buses but bought old second-hand buses which were inefficient and sometimes unsafe. It was a concern that those buses were used to transport children. The industry ought to localise items such as air conditioners. It was pointed out that buses were generally semi-knockdowns. Hang-on items such as batteries and tyres should be localised as that would increase job creation. The main problem was that the bus market was static. In 2012, the market share in South Africa was 1 134 buses while in 2017, the market share stood at 1 131 buses, showing no growth whatsoever. There was no stimulation or growth and yet it was a labour-intensive industry.
Members asked for further details on the old and dangerous buses used by scholar transport operators. What was the lifespan of a bus? How many downstream local suppliers did the company have? The Committee enquired as to what opportunities the company saw for expansion in local content in ways that the Department of Trade and Industry could assist.
Volvo South Africa was a Level 4 BBBEE company. Ownership was a difficult issue for Volvo, but the company had sold its real estate to a black women-owned real estate company and was leasing its premises from that real estate company. Vehicles were built from complete knockdown kits imported from Sweden. Volvo was heavily involved in future electrification and was concerned about emission rates in South Africa. Volvo South Africa’s core bus business was producing semi-luxury, long haul buses because there had been no local government contracts for buses for some time. Because the purchasers were private companies, the chassis for those buses were fully built-up and came from Sweden. The body work came from Brazil.
The Chairperson informed Volvo South Africa that the Committee wanted a break-down of ownership, the employee profile and the BBBEE certificate. Could the Committee also have the profile of all the supplier companies? Members were interested what opportunities were there to expand local content of chassis as well as Volvo’s plans for developing local suppliers. What was the involvement of the black owners in the operations of the company? What was the percentage of South African citizens in middle and senior management?
MAN, Automotive South Africa produced buses in which 75% of the chassis was imported to the MAN factory in Pinetown while 25% of the chassis was local content. The chassis accounted for about 60% of costs and the body accounted for 40% of costs. Bus body assembly was in Olifantsfontein and was incredibly labour intensive as there were 1 400 components in a bus. Price competitiveness of local suppliers was, however, poor. A fuel supply part in South Africa cost R200 and in Europe it cost R70. Europe had the market and it was a volume game so a bus building company that increased local content often increased price at the same time. MAN had increased local content to 90% and believed that should be the minimum requirement in the policy. The CFO of MAN suggested that the government should define a national approach for content requirements. Trade agreements, especially with neighbouring countries, were really important to bus manufacturers.
Committee Members wanted to know what contributed to the lack of price competition amongst South African suppliers. MAN was requested to provide the names and an equity profile of staff and management at MAN. A list of suppliers was requested. What were the solutions regarding the import issue versus local content? The idea of paying incentives or giving discounts to buyers who wanted additional local components was a good one.
The Chairperson noted that the Department of Trade and Industry would be taking up concerns about tenders. Under the World Trade Organisation rules, government could impose local content requirements on public procurement, but not on the private sector. Details about the ownership of companies, the profile of the entire workforce in respect of race and gender, and the BBBEE certificate were requested from all the companies that had presented.
The Chairperson asked that everyone be patriotic and work together. That was what the inquiry was all about. It was not about who had done wrong but whether the presenters were experiencing challenges because together the Committee was going to try and sort it out. If a company or other entity had gone in the wrong direction, then it had to come back on track. Be patriotic. If there were challenges, the companies needed to come with ideas and recommendations
Mr A Williams (ANC) proposed the adoption of agenda. The proposal was seconded by Mr D MacPherson (DA).
The Department of Trade and Industry was in attendance. The Chairperson recognised Dr Teboho Makube, Chief Director for Industrial Procurements at DTI and Mr Mkhululi Mlota, Chief Director IDD Automotives, Mr Gerald Mfongeh, Industrial Development Specialist and Dr Nimrod Zalk, Industrial Development Advisor. Officials from the DTI were mentioned first because in the end they would be the implementers of policy.
Briefing by Marcopolo South Africa
Michel Ecenarro, General Manager, South Africa and Tendai Mapondera, Supply Chain Manager, represented Marcopolo South Africa and made a presentation on the compliance of the company to the localisation and local procurement policy.
Mr Ecenarro informed the Committee that Marcopolo South Africa was owned by Marcopolo SA (Brazil) and had been present in South Africa since 1996 and established its own manufacturing and assembling facility in 1999. Marcopolo had infrastructure to produce over 1600 units per year and the company held 30% market share in South Africa.
Marcopolo South Africa had the capability to build good quality buses while meeting the local procurement requirements. REA VAYA 1B buses comprised over 90% local content in the body. Those buses were the buses audited for local supply. Marcopolo had a local supplier development plan, including financial assistance to the BBBEE suppliers, experts to perform training in-house and prioritised local SME’s to ensure suppliers met local content requirements. Supplier development initiatives included empowering local companies from scratch with finance, raw material, training, quality supervision and management assistance. The company also established long-term contracts with local suppliers to ensure the feasibility of new start-up companies. Marcopolo required voluntary disclosure contracts before awarding contracts to supply components.
Challenges included the lack of regular volume to justify local investment in some bus parts, forcing the company to buy from overseas. There was a lack of competitiveness in some links of the supply chain which made local costs much higher than imports. Many suppliers were not interested in being BBBEE compliant due to the difficulties in managing the certification in comparison to the market volume. On more than one occasion, a tender had been awarded, with official purchase orders, resulting in the company hiring people, buying material engineering designs and putting investments in place, only for the contract to be suspended or changed to a different body builder in the middle of the game. The company was looking for accountability from the Municipalities involved in tenders.
Upgrading localisation of bus body building was best met by increasing the demand. For example, Brazil had Bus Rapid Transport and feeders in all main cities, compulsory worker transportation within private and public companies and special-purpose programmes to take children to school. Marcopolo was fully committed to the development of localisation.
Mr MacPherson wanted to hone in on the understanding of manufacturers of local content from suppliers, particularly when it related to bus parts and the claim that those parts were local. Did companies classify localisation in terms of a supplier being in South Africa or how did they measure the local content of specific parts? Did they check whether the part had been made in South Africa and not just imported to a South African company and then supplied to the manufacturer? What was the process to measure local content? In certain industries, it could be almost impossible to say that a particular part had X components of local content because there so many processes in putting a part together. Could the General Manager walk the Committee through the process?
Ms P Mantashe (ANC) welcomed the presentation but noted that the company only had temporary employees. How many people were permanently employed? It was unacceptable to employ temporary staff forever. Was the company experiencing a lack of competitiveness in the supply chain? What reasons had Marcopolo been given for the tender that had been cancelled? How many local suppliers downstream did the company use?
Adv A Alberts (FF+) asked the presenter to expand on how the company financed other companies and how it empowered them to manufacture materials that Marcopolo needed. How had that worked out for its company?
Mr J Esterhuizen (IFP) noted that Marcopolo had a proper local supplier development plan, but contractors should not be allowed to subcontract so that local content was reduced. He noted further that the company performed different audits on suppliers to guarantee that the requirements were met. DTI also had the right, as and when necessary, to request auditors to confirm the declarations made in respect of local content. After awarding a bid, what were the greatest challenges that Marcopolo and the sub-contractors faced in meeting the requirements? Lack of regular volume forced Marcopolo to order some parts from overseas, but he would not think that injection moulding, air-conditioners and carpets could not be locally supplied. He could understand engines and transmissions being imported but that had to be in complete knockdown form and assembly had to be localised.
Mr S Mbuyane (ANC) asked what a voluntary disclosure contract meant. How many companies did Marcopolo empower and what was their profile and status in terms of BBBEE? Who verified the local content compliance? What was the company’s plan for localisation going forward?
The Chairperson stated that, in her own experience of business, one started a business not to be a charity but to take a risk and to get out there and make it. Most people going into business tested the market and did everything that they could to increase their market share. She knew, because she had done consultancy in that field. Market share was the key. It could be an overcrowded market but if one’s company could get its market share, that would enable one’s product to grow. She was going to ask DTI if it was possible for the external, overseas and foreign investor companies like Marcopolo to sell to other entities in South Africa. She did not know if that was prohibited.
The Chairperson added that it sounded as if Marcopolo was totally confined to servicing a tender and could not take on any other work. Mr Ecenarro had said that it was impossible to grow the market. He had said there was a very small market, and yet everyone knew how many buses there were in South Africa, and Africa. There was a huge number and so she was a bit concerned. She hoped that he had not come from some public or government sector that did not have to make a profit. The other issue that worried her was the issue around local content. He had said that his company worked with “voluntary disclosure” and everyone knew how creative people could be when making a voluntary disclosure. Knowing that, what were they doing? She knew that Marcopolo had a very good product and she saw the buses in Johannesburg all the time, so she could not understand why Marcopolo buses were not selling.
She knew that one of the Members had asked whether the company had been given reasons for the tender being suspended, and if that was the case and a tender had been suspended, could Mr Ecenarro please tell her whether that was unique to South Africa. If it was unique, the Committee should speak to DTI about it. Or was it just another risk of business?
Mr Mapondera responded to the question about classification and measurement of local content. Marcopolo was the first company to be audited for local content by DTI. Actual audits were done by the South African Bureau of Standards (SABS). The first certificate in local content was given to Marcopolo and he had personally appeared in the photograph shown to the Committee the previous day, depicting the first verification certificate. In determining local content, the company counted the actual components in the bus. For example, in the smaller buses there were 1400 components at the physical, tangible level, although the company went much deeper in defining local content of components. On a software system, the company had a list of all the components that went into the bus. That list of components drilled down to the deepest level of the composition and development of a component. The detail went down got to the raw material, e.g. the sheets of metal. So, the company went as far back as the construction of those sheets of metals. The tubes of metal came in different sizes, such as 9 m or 12 m, and sheets of metal came in kilograms. The company divided the material into sizes and each was given a part number. The part number was allocated to the system from raw material up to where one could actually touch the part. Once the list of each item had been established, the data could be captured as each component was brought into the process. When DTI and SABS came to do the first audit, the list of components was presented to them, department by department. DTI and SABS went into the factory and had a look at the parts. If there were, for example, 500 parts in a department, they would sample say 100. Each and every item was identified and documented in the local content system. SABS checked that the components corresponded to the drawings etc. Further down the line, DTI and SABS checked that those components had been used in the bus.
To further establish the accountability of Marcopolo and the suppliers, DTI and SABS requested the invoice from the identified supplier, and to ensure that the invoice was not creative, DTI had to see both the buyer and the supplier’s bank accounts, which would show that the funds had been transferred. The first tier was Marcopolo and the supplier was then confirmed. The next level was to find out how the supplier had acquired the product, e.g. was it constructed by the supplier or had the supplier bought it from somewhere else. That was where the voluntary disclosure came into the process. Unfortunately, Marcopolo could not force suppliers to provide information regarding the origins of a product, but DTI was able to go and check. The company had had two cases where the suppliers had not wanted to disclose the information because if they revealed that, it was possible that Marcopolo would go and do it themselves. DTI and SABS had requested the information from the supplier who had revealed it directly to DTI. Marcopolo followed the trail until they found where all the mineral had been mined, or until the trail reached import documents. The end, the last level was the source of mining, or the import certificate. Sometimes there were eight levels of suppliers. That was the process used for the REA VAYA buses. Marcopolo had worked hand-in-hand with DTI to develop the process. In respect of voluntary information, suppliers were informed that their documents would be used in disclosure to DTI.
Mr Ecenarro apologised for the misunderstanding about the status of workers. He explained that 98% of workers were permanent. There were over 300 people working permanently in Germiston. Temporary staff were added when there were temporary projects. The company had a stable base of workforce, but the slide had been intended to show the impact of temporary projects.
Mr Mapondera stated that he had in excess of 350 suppliers on his database. The majority were Level 1 or Level 2 BBBEE suppliers. The company insisted on Level 1 or Level 2 BBBEE status but sometimes there were only one or two suppliers and so there was no option and the company could not select them according to their BBBEE status. In terms of local suppliers, cost had been an issue. Some of the items would be sold in South Africa for R100 but could be imported, with duty, for R40. The cost was passed on to those paying for the buses, and in South Africa, that was the taxpayers, and the country. Sometimes the factors of cost and quality, especially of specialised equipment, meant that parts had to be imported, especially in the light of the small volume required. In the previous year Marcopolo had not had a government tender, but they had sold 354 buses. Consolidating the numbers as a result of standardised specification would make it viable to invest in equipment in South Africa as the volume would be raised. Two tenders had been cancelled. Tshwane Metro had cancelled one contract. Volvo was the main contractor and Marcopolo had been a subcontractor. The contract had been for 140 buses, but Marcopolo had manufactured only 30 buses when the tender was given to another company. It was not given reasons. The previous year, a contract for 150 chassis and body components had been contracted by a municipality in Limpopo but the components were still sitting at the factory. No one was taking any responsibility for those components following the cancellation of the tender.
After the company had been awarded a bid, major challenges would relate to specific electronics. Specifications often included items that the municipalities knew were not available in South Africa, such as a passenger counter. For 150 buses which would be completed in six months, it was too great a cost to invest in such specific components. The municipalities did not consider which components were available in South Africa when giving specifications and seemed to prefer items from abroad.
How were suppliers empowered? Mr Mapondera gave an example of a team of black engineers who had worked for someone else but when their work was finished, they had approached Marcopolo. They were keen to set up, but they had required equipment. Marcopolo had a tender and so gave them help in setting up equipment and paid for the raw materials so that they could become suppliers to Marcopolo for the contract. They had ultimately become primary suppliers, Level 1 BBBEE, and were 51% women owned. Marcopolo could give the Committee the details in writing. Marcopolo had also asked cleaners to form a company and instead of earning a bare minimum, they subsequently earned the contract amount and divided the money among the women who owned the company. Five years down the line, the companies were still operating, and they were doing work for other companies as well. The biggest challenge was that some people would not disclose local content.
Mr Ecenarro said that the market share was important, but they also exported from South Africa. The company was fighting for the export market but faced challenges as countries in Africa bought buses from low cost countries. Marcopolo wanted to retain a good standard and quality for their products which made their costs higher. The total cost of ownership of a bus was the investment over the number of years that it was in service. One problem was that after sales parts were being imported from low cost countries, even though Marcopolo had Intellectual Property rights in South Africa. Municipalities sourced parts from the original source but private bus companies went for the cheapest import. Low-cost imports meant that it was cheaper to keep old buses running and that impacted again on volume.
He agreed that tenders being cancelled was not an occurrence unique to South Africa, but the impact was enormous because of the small volumes being produced in the country. For example, the impact of cancelling a contract for 140 buses when the annual number produced was 350 was far greater than it would be in a country where the company was producing thousands of buses.
Mr G Cachalia (DA) wanted to pick their brains to assist the Committee. Marcopolo was a world class producer and, as a consumer and in terms of localisation, the products were wanted in South Africa. Mr Ecenarro had already spoken about specifications. What would be desirable to expand the business in South Africa and what were the impediments to expanding in terms of policies, market size, labour laws, access to free trade areas, BBBEE level 1 and Level 2 suppliers? Having shown a willingness to get involved, how would the company take localisation forward? That would help Committee to understand better.
The Chairperson raised the issue around the suspended tenders. Marcopolo needed to do intensive market research as the other bus companies were selling in neighbouring countries and had a huge market share. They seemed to be having no problems at all.
Mr MacPherson thanked Marcopolo for the detailed breakdown of the verification process. One of his interests and one of the reasons for the inquiry was the massive Transnet tender that was awarded for locomotives. The Committee had had Transnet jumping through hoops trying to tell the Committee that they could not do exactly what Marcopolo did. He requested Marcopolo to put the process down in writing so that the Committee could address the locomotive issue in the light of that information.
Mr Mbuyane asked about the plans going forward and requested a list of suppliers plus a list of the items that Marcopolo imported.
The Chairperson noted that SABS had done the audit. Who had paid SABS?
Mr Ecenarro explained that Brazil acted as a hub for South America. Many years ago, there had been a huge localisation policy in Brazil. The country had acted as a hub for South America. There were strategies in place in South Africa, so why not suggest South Africa as the industrial hub in the area? South Africa was the leader in bus building. It would be a good idea to organise a cluster for both South Africa and markets abroad. Trying to position South Africa as an industrial hub would pay off in the long-term.
Marcopolo had a plan for developing local content and would go further. One of their difficulties had been getting professionals who were trained. The company subsequently partnered with Technical colleges and trained students in different aspects of work such as painting which could be valuable to the bus building industry, but they were not being training in a single industry.
The Chairperson was interested in the fact that Marcopolo offered incentives to suppliers. She saw that they offered loans to suppliers. Were the loans interest-free? She asked Mr Ecenarro to respond positively or negatively and to put the details and the other responses in writing.
Mr Ecenarro agreed, but responded to a couple of quick points. Was loan to partners interest-free? Yes. The companies paid back as soon as they could afford to do so but his company benefitted from the loan immediately as they got their material back as soon as the supplier began producing.
The Chairperson found that to be quite unique. It was something that DTI should take on board to encourage other players in the industry to consider. She admonished Mr Ecenarro to get his act straight on the market share. She appreciated the presentation and had found it quite exciting.
Briefing by Busmark
Mr Pataxolo Nodada, Chief Executive Officer, Busmark, said he was born in Transkei and now owns 75% of Busmark, 11% was owned by management and the rest by staff. Mr Nodada was accompanied by Charles Collins, Director at Busmark. Mr Nodada had to work hard on his status as a black owner of a bus building business.
Busmark had gone way beyond the 80% local content in the body. Busmark audited its suppliers up to material sources. SABS charged R1 million for verification, but it was just a box ticking exercise. DTI had not provided a budget for SABS to do that work. Busmark was concerned that there was no recognition as first-tier Original Equipment Manufacturers and they were disqualified on any bus building incentive schemes. The procurement cycle of Rapid Bus Transport buses by local governments had resulted in a value chain fraud with no coordinated planning which had resulted in taxi operators funding buses, but infrastructure was delayed by local government and that impacted strongly on manufacturers. Most delays were as a result of a lack of infrastructure and IT. A black-owned business could not afford to store 200 buses for two years because a municipality could not get its act together.
Busmark was particularly proud of the Integrated Bus and the iBox. The iBox was the ‘black box’ of a bus and was a local development. The body work of the Integrated Bus was 96% local content and the company kept components for 20 years in the factory to maintain buses which could be refurbished after five years. Chassis for buses were often built out of steel that came from Atlantis.
The Chairperson interjected, asking why Mr Nodada said so often “Because of DTI” in his presentation. But she would get to that later.
Busmark had been awarded the Advanced Public Transport Management System (APTMS) contract in Cape Town. The company had to go to the United Kingdom to find the design requirements. Busmark had invested in a factory in Cape Town and intended to export certain parts to the United Kingdom for the buses that they had used as examples to design the Cape Town buses. Taxi operators were often the bus owners. However, taxi owners did not have much business know-how so Busmark trained the taxi owners so that they were able to maintain their asset.
iBus was a framework made of South African stainless steel. That meant that only the drive chain and axel, engine and drive core had to be imported. That increased the local content in a bus. iBus gave intelligent information such as weight limitations, etc. It was a management tool. The market was developing, and engines ranged from diesel engines, diesel hybrid and electric or gas. The iBus could accommodate any type of engine. Busmark did development work with the CSIR. They had designed local shatterproof glass that met the requirements of the iBus.
Busmark had built large factories in Cape Town and in Randfontein. The company was consolidating factories alongside each other in Randfontein to work on economies of scale and to create a SMART factory. Busmark had also established adjoining industrial parks for component suppliers.
The Chairperson had to hurry Mr Nodada through his presentation and there was no time for his video clip. However, she promised Mr Nodada that the Committee would call him back as one of the black industrialists to tell them more about what he was doing. She noted that the presentations were very exciting.
Ms Mantashe said that it all sounded too good to be true. Did he own 75% of the company? She asked whether Mr Nodada was fronting.
Mr MacPherson objected on a point of order. The Chairperson indicated that she had spoken to the Member. Mr McPherson requested that the Chairperson should rule the statement out of order.
The Chairperson responded that she had not heard anything out of order but that she had heard a lot of noise. She asked him to refrain from trying to chair.
Ms Mantashe asked what processes Busmark had in place to ensure that suppliers met the local content requirement. Were there any penalties if a local supplier was found to have misrepresented local content?
Ms van Schalkwyk appreciated the presentation. She wanted to how many downstream local suppliers the company had. What supplier development programs did the company have in place?
Mr Mbuyane noted that the company had been in existence for 40 years, but democracy was only 23 years old. That meant that there 17 years to be accounted for. Who should pay for verification of the local content? For interest sake, he wanted to know how Mr Nodada understood fronting or silent partner. How many shares did he own in the company?
Mr MacPherson said it was unfortunate at best and disgusting at worst that Mr Nodada, a successful black person, was suspected of being a front. Mr Nodada should not have been subjected to that. Mr MacPherson apologised as the insinuations were truly reprehensible. He noted that in his problem statement, Mr Nodada had said that there had been no incentives for OEM level one producers. What would he have used the funding for if he had been given funding? When had he made the applications, what were the engagements with DTI and what were the responses?
Ms Theko was happy to see a black industrialist. How many companies and youth had the Busmark empowered? How many buses had the company delivered to date?
Mr Cachalia appreciated the presentation. The purpose of the Committee sitting was to provide oversight of localisation and his presentation spoke precisely to that. It was a sterling example of specific localisation and the emergence of indigenous entrepreneurs. He was covered by the comments of his colleague, Mr MacPherson but he was astounded by the comments of other Members. The Committee was looking for people like him; there was no room for gratuitous innuendo.
The Chairperson noted that Mr Nodada had said that the engine blocks were made in Atlantis, South Africa and were sent to Germany and then on to countries such as Brazil, ending up in SA. Why could SA not produce chassis? She had raised the issue of chassis over and over and over again! It was easier to produce a chassis than to produce an engine block. The steel components were in the engine block. The composition was there. She was putting that to all the manufacturers, including Trade and Industry: why were chassis not being produced in South Africa? She wanted to know, in writing.
Everyone was impressed with the presentation. It was exciting. The Chairperson had already raised her concern that Mr Nodada was not getting the benefit of any incentive. However, the Committee had an obligation to ask if there was fronting but the Members should have asked the question of all companies and not just the one owned by a black businessman. Fronting was, and remained, a serious issue with regard to BBBEE. She noted that the black industrialist had not started in business three years ago but had been in business for many years.
The Chairperson welcomed the visitors from the Ben Gurion and University in Israel sitting in the public gallery. The group consisted of Israeli and Arab students who had come to South Africa to learn about what was being done in the country.
Mr Nodada confirmed that he was a 75% owner of Busmark. Originally, he had owned 49%. He had then bought 100% of the business, but he had given 11% to management and the rest to staff. He was fully involved in the business. When he had bought the 49% share, the original owner had moved to Cape Town. He was originally an accountant, but he was actively involved in the business. He had been inspired by the industries owned by the Taiwanese and other foreigners in Butterworth. The factories inspired him, but he wanted to own the factories, so he had first become an accountant and had since gone back to his dream of owning factories.
A bill of materials for a bus consisted of 1800 parts and each of those parts were in the company database. He could even tell the source of the material, the supplier, etc for any one of those components. The auditors would tell management if any of the suppliers were misrepresenting what they were using in their components and, if a supplier did misrepresent local content, the supplier would be disqualified and removed from the database because his company could not afford to have misrepresentation. He would not use them again. He believed that was a criminal offence to misrepresent local content and he was not prepared to go to jail.
The company had established Busmark Academy where the focus was on training and development of artisans. Busmark was an accredited trainer of MERSETA and the company trained in skills that were core to the business. He was not looking at short term solutions but wanted to empower the youth with the skills that were core for the future of the business. As the company grew, it was necessary to grow the suppliers. Currently there were about 50 black-owned suppliers. He dedicated his first Thursday of each month to something that he called Entrepreneur Talks where he spoke directly to young entrepreneurs. He was building up a base when young entrepreneurs. He empowered them in management and leadership skills. There was no cost to the entrepreneurs and he also invited other speakers to address them.
Regarding verification, he was of the view that it could not be independent if he was paying for it. Verification had to be carried out by SABS and DTI. They did not have the funds or the capacity to do it, so they needed to be capacitated.
On the issue of fronting, he was not working for anyone else. He was working for his kids. His son was studying Engineering and Visualisation in Poland because he was building the business for his son to grow the business further. He wanted to see many young people coming up.
He was not an OEM, an original equipment manufacturer as the company did not manufacture buses. He only built bodies. As far as empowering local companies and black people was concerned, he could refer the Committee to the developer of Lula who was a 24-year old from UCT. He called Lula the Uber of public transport.
The Chairperson asked Mr Nodada to give the Committee a list of people he had empowered. He also needed to provide details of his 75% ownership of the company. He had to respond to the balance of questions and to respond to the Mybuya bus tender in writing. She could go on and on but, unfortunately, the Committee staff had only allocated 45 minutes to the engagement. He had three minutes left.
Mr Nodada explained that Atlas Ford used to be part of Mercedes but had been sold to a German company. It used aluminium, steel and foundries and was selling to the export markets. There were selling locally at important parity prices, but he believed that there should be a better price for local manufacturers. Something should be done about it..
The Chairperson asked Dr Makube to respond after the tea break. She thanked Mr Nodada for a riveting presentation.
Briefing by IVECO
Carmelo Impelluso, Managing Director, and Ray Karjhagen, Head of Bus, at IVECO South Africa made the presentation. Mr Impelluso began by introducing the company.
IVECO imports chassis into South Africa. The company produces heavy and extra heavy vehicles, and also imports of vehicles which they convert to ambulances etc. IVECO was a growing new manufacturer on the block.
IVECO met local content requirements and achieved more than the 80% threshold. Software systems were used to monitor the local content. The labour force working in the Roslyn factory came from local areas such as Soshanguwe and Ga Rankuwa as bus body building was highly labour intensive. It was noted that local content was only required for government tenders and very few tenders were put out. For example, eThekwini had not ordered buses in eight years. Cities simply did not have funds. The bus rapid transport system was not managing the planned volumes.
Mr Karjhagen explained that the tender process was a very lengthy process and then there was a very short lead-in time to produce the buses. The worst case was the importing of 600 buses in 2010 because the municipalities could not decide what buses they wanted until three or four months before they were needed. He believed that anyone who received a subsidy of any form from the government should have to comply with local content requirements. The Department of Education’s payment per kilometre for school buses was too low to enable bus operators to replace old buses. Even when an operator did replace a bus, the operator bought an old second-hand bus because he could not afford repayments on a new bus with the payment that he received per kilometre. That meant that old, inefficient and sometimes unsafe buses were used to transport children.
The industry should localise items such as air conditioners. He was of the opinion that there was no CKD of buses; they were all seemingly downs (SKDs). Items such as batteries, tyres etc should be localised which would increase job creation.
The bus market was static. In 2012, 1 134 buses were sold and in 2017, 1 131 buses were sold. There was no stimulation or growth and yet it was a labour-intensive industry.
The Chairperson asked for a copy of the updated slide show. The Committee was invited to engage.
Mr Mbuyane asked for a brief explanation of the Mybuya bus services versus the school bus transport. Could he explain about the old and dangerous buses? How many downstream local suppliers did the company have? What opportunities were there for expansion in local content in ways that DTI could assist with?
Ms van Schalkwyk noted the comment about the very old buses in use and asked what the actual lifespan of a bus should be. What was definition of CKD chassis unclear?
The Chairperson asked about the number of employees and the profile of the company in terms of race and gender. Who owned the company and how was the shareholding made up? Mr Karjhagen had stated that SA should import CKDs and it was not necessary to import SKDs. Could he explain?
Mr Karjhagen explained that the scholar transport rate per km was too low for operators to be able to afford new buses. The operators bought second-hand buses at R500 000 instead of R1.5 million plus VAT for a new bus, but those buses were very old and unreliable, and he was concerned about safety.
He would provide the supplier base in writing. He explained to Ms van Schalkwyk that where one had the traditional ladder chassis based on the chassis of a truck, the chassis was easily identified but local content requirements should be imposed on chassis assembly and supply. A local content requirement should be imposed on the chassis for buses. The tender for a government contract indicated an18-year lifespan for a bus. That was usually 12 years plus another six years after refurbishment. However, the old buses were expensive to run, and technology changed significantly in that period of time. It did not make sense to run the old buses. The emission was very high, and it was time that the country made up its mind about the emission standards required. Euro 2 levels of emission was all that was required in the country, but local cities were putting out buses at Euro six and Euro seven. That made more sense.
The roll-over safety requirements had been introduced 20 years ago and so buses older than 20 years were more dangerous. There had been some very bad accidents where buses did not have the rollover safety requirements. Imported products from China also seemed questionable, especially in respect of roll-over safety compliance. However, he noted that there were authorities responsible for standards and it was not his area of expertise.
CKD was easily defined in respect of the ladder chassis, but the low entry, low floor buses were partially built, and one could not have separate components for those. Those buses were in fact an SKD (semi knockdown) operation and the question was whether they should qualify under the local content requirements or was there a loophole with low floor buses.
Ms van Schalkwyk asked whether the presenter thought that imported buses from China should be investigated. She requested that he motivated in writing why those imported buses should be investigated.
The Chairperson indicated that other Members could also give questions to Mr Madima, the Committee Secretary, and they would be forwarded to the presenters for responses.
Briefing by Volvo
Mr Torbjorn Christiansson, President, Volvo Group South Africa and Mr Marius Botha, General Manager Bus, Volvo South Africa, made the presentation. The Director: Legal and Risk, Ms Alida Liebenberg, accompanied them.
Mr Christiansson presented an overview of the company. Turnover was R571 billion per annum. Headquarters were in Jet Park in Johannesburg and the factory was in Roslyn. The company had been in South Africa for 56 years and was a hub for 13 countries. The previous month the company had invested R125 million in a new dealership in Durban. Volvo had full Swedish ownership but had divested. Volvo was a Level 4 BBBEE company. Ownership was a difficult one, but the company had sold its real estate to a black-owned real estate company. The company now leased its premises from the real estate company. Vehicles were built from CKD kits imported from Sweden. Volvo manufactured ten trucks per day.
The emission levels in South Africa were amongst the highest in the world which made it a big job to incentivise new products. If emissions legislation was enacted, Volvo could manufacture and sell cleaner emission trucks.
Mr Botha informed the Committee that Volvo did not own any body builders. He presented a visual presentation of the process of building a chassis from CKD. He noted that if the bodybuilder was able to include any hang-on parts on the chassis, Volvo would build them in and that would count in terms of the local content policy. The last buses produced had been built on the CKD basis for the City of Cape Town and Tshwane. No further tenders had been awarded. Volvo was heavily involved in future electrification and the core bus business had become producing semi-luxury, long haul buses. However, the chassis were fully built-up, and the chassis came from Sweden while body work came from Brazil.
Volvo was a long-term partner to South Africa but could not respond to all the questions set by the Committee as the company was not a body builder.
The Chairperson informed the presenters that the Committee wanted a break-down of ownership, the employee profile and the BBBEE certificate.
The Chairperson welcomed the International Ballet Competition judges from many countries to the public gallery. They were in Cape Town to judge the South African International Ballet Competition.
Mr Mbuyane referred to the BBBEE certificate. It talked of 16.99 % black ownership. He asked the President to elaborate. Could the Committee also have the profile of all the supplier companies? What opportunities were there to expand local content of chassis and what were the plans for developing local suppliers?
Ms Mantashe referred to the lack of incentives to purchase bus parts locally and asked if there were incentives for importing parts. Ms Mantashe found that she was referring to the wrong presentation, nevertheless, she did not understand why it was cheaper to import bus components. What made the difference? What was more beneficial in importing parts?
Ms van Schalkwyk noted that there was 16.95 % black ownership and black women ownership was 8.5%. What was the involvement of the black owners in the operations of the company? What was the percentage of South African citizens in middle and senior management?
The Chairperson had heard Mr Christiansson say that South Africa was not really interested in environment-friendly vehicles. Could he please clarify the point for her? She did not understand the decline in bus building in the company. She understood that tenders had been issued but that Volvo had not won the bids. She could not understand the declining market share because she would have thought that the company would grow their market share outside of the country. At one stage, every second car in the country was a Volvo.
Mr Christiansson explained that the company was 100% Swedish owned in all the countries where they operated. The BBBEE certificate showed 16% divested interest i.e. Volvo had sold property to a black South African company and rented the facilities back from the real estate company, which had a lot of black women ownership. That was called asset equivalence.
Concerning local content, Volvo tried to buy local where possible, but a lot of the components were not made locally. He had to say that there was not a single truck tyre manufacturer in South Africa. Each vehicle had different seats and so on and there was no standardisation. Producing components such as batteries, tyres etc locally was only economically feasible if there were standardised specifications to ensure volume. As a matter of company policy, all the Volvo Intellectual Property parts, such as engines etc. were produced in one plant in the world to ensure economies of scale. Those parts could, therefore, not be produced in South Africa.
The Volvo SA Board consisted of himself plus the Volvo President in Sweden and two local black Board members. The company had a lot of young people that the company was supporting and either giving them bursaries or internships. They were developing young people because otherwise they would not be able to get staff for their company.
South Africa and the Middle East had old emission rules. All vehicle manufacturers were able to reach the European standard, but clean fuel supply was not available in the country. Volvo was heavily investing in electrification, but, nevertheless, diesel was there to stay. He encouraged the government to review the emission rates – Euro 5 or 6 should be a minimum, but clean fuel was a pre-requisite to such emission rates.
Mr Botha had been involved in tender submissions with their partners. If they did not get tenders, they focused on privately owned buses. 80% of the buses in SA were front engine buses. Volvo did not have a front-end engine, but it was looking into getting back into front-end buses.
Volvo was not involved in the cars as that part of the business had been sold to Geely, a Chinese company. Volvo was very happy with its market share especially on the truck side.
The Chairperson thanked the presenters from Volvo.
Dr Teboho Makube from DTI responded to the comment by Mr Nodada about the lack of incentives. His colleague explained that Busmark had gone through a major Capex expansion only in 2011/2012, but the incentive scheme for bus and truck only came into effect in 2014. They had asked him to join the Black Industrialist Programme as there was scope there going forward. However, Mr Nodada was not ready to launch an application at that stage. DTI would take the matter forward.
The Chairperson appreciated his response but indicated that she would like a full response in writing and that she was particularly interested in why he had not received an incentive after 2012.
Briefing by MAN Automotive South Africa
Mr Arshad Hassim, Finance Director, Mr Claudio Fernandes, Purchasing Manager, Production Material, Mr Puso Molefe, Senior HR Business Partner and represented MAN Automotive South Africa. Mr Hassim apologised for the absence of the Managing Director who was still in Germany. Mr Hassim presented an overview of the company.
Mr Arshad Hassim explained that 75% of chassis was imported to the MAN factory in Pinetown. 25% of the chassis was local content. The chassis accounted for about 60% and body was 40% of the cost of a bus. Bus body assembly was in Olifantsfontein and was incredibly labour intensive as there were 1 400 components in a bus.
MAN was a BBBEE level 7 company. As an international company, policy certainty was important to MAN. The company was about to launch an educational trust in 2016 but the policy had changed, and it had been decided not to launch until the company knew whether there would be credits available, etc. The company had a program of supporting learners in technical and administration fields. MAN had an accredited four-year dual programme of theory and practicals. 8.3% of all employees were learners. In addition, the company had donated engines and gearboxes to Ekurhuleni West College as that gave learners the opportunity to familiarise themselves with state-of-the-art technology both in practice and in theory.
Enterprise and supplier development initiatives were important to MAN in their endeavours to promote local business. In 2015, the company had invested R1.3 million in two laser cutters to supply steel components. In 2016 the company had invested R2.4 million in two trucks and two car carriers to provide bus chassis transport from their factory in Pinetown to the one in Olifantsfontein. In 2017, R2.6 million had been invested in two MAN trucks to provide FMCG distribution.
The capacity in Olifantsfontein was 1000 buses per annum. 90% of spend was on local content. 98% of steel was sourced from Middleburg. MAN was one of a very few OEMs that also had a bus building component.
Price competitiveness of local suppliers was poor. A fuel supply part in South Africa cost R200 and in Europe it cost R70. It was a volume game. Buses from Brazil were 10% to 20% cheaper than South African produced buses. MAN had a contract in Mozambique but was buying from Brazil as there was no incentivisation to body builders. There was a lot of dumping of vehicles in Africa and buses were imported from India and China because they were cheaper, albeit of lower quality. He pointed out that tender timeframes were too long, and that tenders were awarded on the lowest price, regardless of the percentage of local content. The saving grace for South Africa, at the moment, was the poor quality of buses coming from China and India. However, that would change, and that quality would improve, which would pose a real challenge to the local industry.
Regarding the way forward, it was essential to think of the bigger picture. The industry should be looking at production on a national, not a municipal, basis. MAN had increased local content to 90% and believed that 90% should be the minimum requirement in policy. He suggested that government should define a national approach for content requirements. He added that trade agreements were really important to bus manufacturers.
Mr Mbuyane asked what had contributed to the lack of price competition amongst South African suppliers. He asked if there were any penalties for misrepresentation of local content. He asked MAN to also provide the names and an equity profile of staff and management at MAN. A list of suppliers was requested. What were the solutions regarding the import issue versus local content?
The Chairperson appreciated the slides that showed very clearly where the staff were and where they were located, and what they were up to. When it came to the BBBEE scorecard, MAN had provided a very clear description of factors influencing the scorecard. However, she had noted in the presentation that the company found it particularly onerous to complete the BBBEE scorecard. She would have expected that they would have had templates with all the information available. Was it so complicated? How many weeks did they need?
Mr Hassim indicated that South Africa was essentially a small market. South Africa constituted 1% of the world wide vehicle market and it was a volumes game. For example, if he produced one pencil, the price would be significantly different from a production of 1 million pencils. More centrally located vehicle productions sites were closer to the main markets. They were based in China, India and the United States which was close to where the markets were.
One solution was to give manufacturers the rules. If government made it compulsory for everyone, it would be much easier to procure local content but, at the moment, if MAN bought more local content, the price would go up and the company would not get tenders. It needed to be a level playing field for everyone. Manufacturers and body builders needed trade agreements in Africa. The plant in Olifantsfontein currently produced 1 000 buses per year but that figure could very easily be ramped up which would mean that buses would become cheaper. It was again a numbers game.
The company had not issued any penalties to date. MAN relied on the integrity of the suppliers, but it could implement penalties should there be a need.
As far as standards were concerned, every municipality had unique requirements. That meant that there could be no economies of scale. In respect of tenders, his concern was the amount of documentation that went into a tender. Every municipality that sent out a tender had a completely different set of tender documents and different requirements. The company had to present several lever arch files of documents when making a bid. He himself needed a couple of hours simply to sign the necessary documentation. It was unnecessarily complex. Tenders should be standardised.
The Chairperson noted that the DTI would be taking up the point about the tenders. Under the World Trade Organisation rules, government could impose local content requirements on public procurement, but not on the private sector. The idea of paying incentives was a good one, but the manufacturers should also remember the old, old story that if one paid within 30 days one got a bit of a discount. In a similar way they could say to their buyers that if they put in local content, they could give the buyers a bit of a discount. There were many, many ways of doing it. They were business people and needed to think innovatively about how to capture their markets. The Committee had seen many very varying interpretations and loopholes that morning. She thanked MAN and expressed her pleasure with the breakdowns and responses to the questions posed.
The Chairperson wanted all presenters that day to respond in writing with details about the ownership, the profile of the entire workforce in respect of race and gender, and the BBBEE certificate.
The Chairperson thanked Members for their attention. There would be no meeting on 1 March 2018, although there was a sitting in the House. On Friday would be no meeting for Members so that they could regain their health. The trip to Mauritius had been declined by the Chair of Chairpersons as it was a conflict of interest. She suggested that the Committee visit the bus factories in Cape Town. When it came to visits to the other cities, it would require a lot more paperwork. She hoped that Mr Cachalia and Adv Alberts would join the Committee when they were on the oversight visit in Gauteng.
The copyright Sub-Committee was a sub-committee meeting. The Chairperson did not sit there as that would be a conflict of interest. Members were reminded of the meeting. Adv Alberts was not a formal Member of the Sub-Committee but would sit in and advise.
The meeting was adjourned.
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.