ATC161017 : Report of the Portfolio Committee on Trade and Industry on the colloquium on local public procurement and its linkages to the industrialisation drive, dated 13 October 2016

Trade, Industry and Competition

Report of the Portfolio Committee on Trade and Industry on the colloquium on local public procurement and its linkages to the industrialisation drive, dated 13 October 2016
 

The Portfolio Committee on Trade and Industry, having engaged with several stakeholders on the local public procurement and its linkages to the industrialisation drive, reports as follows:

 

1.     Introduction

 

The Portfolio Committee on Trade and Industry (the Committee) held a two-day colloquium on local public procurement from 17-18 August 2016. The Committee engaged with several stakeholders on the level of compliance with local public procurement, the impact of non-compliance (where there is non-compliance); the impact of local public procurement on industrialisation as well as challenges with implementing local public procurement.

 

In line with its oversight responsibility, the Committee had received regular updates on the implementation of the Industrial Policy Action Plan (IPAP) since August 2009. Each year, the Committee focussed on different IPAP-related issues. One of the critical interventions of IPAP is local public procurement.

 

In 2012 and 2013, the Committee focussed on the constraints imposed by high and rising electricity and port tariffs and other administered prices on the manufacturing sector. The outcomes of those engagements culminated in the “Report of the Portfolio Committee on Trade and Industry on the implementation of the Industrial Policy Action Plan with specific reference to the state of the manufacturing sector, dated 24 May 2013”. This report concluded that all factors that may have an impact on the manufacturing sector should be investigated to stem the decline of the sector. 

 

Thus in 2014, the Committee agreed to schedule a colloquium on beneficiation to engage with specialists, practitioners and other relevant stakeholders to discuss the concept of higher value-addition/beneficiation of South Africa’s mineral and natural resources and how import parity pricing and other factors limit opportunities for beneficiation in this sector. The outcome of that engagement was the “Report of the Portfolio Committee on Trade and Industry on the colloquium on beneficiation/value-addition, dated 4 November 2014”. One of the conclusions of the Committee as articulated in this report was that the Department of Trade and Industry (DTI) working with other departments should encourage local public procurement in efforts to intensify localisation.

 

In 2015, the Committee invited a number of experts and institutions to engage on the impact of transfer pricing practices on the South Africa economy, particularly in relation to industrialisation and black economic transformation or empowerment. The outcome was the “Report of the Portfolio Committee on Trade and Industry on the colloquium on the relationship and impact of transfer pricing on beneficiation or value addition as set out in the Industrial Policy Action Plan and on broadening participation as outlined in the Broad-Based Black Economic Empowerment Act, dated 20 May 2015”. This report noted that the Committee concluded that a successful implementation of relevant policies, legislation and regulations in support of the industrialisation drive should be pursued.

 

Through the Industrial Policy Action Plan (IPAP), the DTI has expressed the imperative to shift from the consumption-driven sectors of the economy to the productive sectors. It has argued that this shift is fundamental to ensuring sustainable economic growth and job creation in the country. One of the mechanisms identified to achieve this is the leveraging of local public procurement, in particular public infrastructure investment. In this regard, the DTI and the National Treasury have embarked on a process of designating sectors or products that should meet a minimum local content threshold to be procured by government. The designation is then incorporated as part of the Preferential Public Procurement Framework Act (No. 5 of 2000), administered by the National Treasury and implemented by government departments and entities.

 

Public procurement has long been recognized as a sharp instrument to promote industrialization and localisation as it links the public and private sectors in the process. To ensure success of localisation (the local procurement by government departments and entities) verification by the South African Bureau of Standards (SABS), as the verification agency, and monitoring by the National Treasury is critical. There is therefore a need for these various stakeholders to collaborate to ensure the implementation of the Preferential Public Procurement Framework Act and adherence to local procurement in the designated sectors/products. This is why the colloquium was designed to bring together all the stakeholders under one roof. This included government departments and entities as well as the private sector, particularly companies which were recently awarded local procurement contracts. The four rail transport companies that attended the colloquium in 2014 were jointly awarded a R50 billion contract to build 1 064 locomotives. 

 

This colloquium is another milestone on the journey on which the Committee has embarked to identify constraints and impediments to industrialisation and the instruments advancing industrialization. These include localization, designations, procurement, investment and trade. Industrialization is the government’s plan for radically transforming the South African economy into an inclusive economy. This is in response to the country’s need to grow the economy, eliminate poverty and unemployment, reduce inequality and create sustainable livelihoods.

1.1.  Purpose of the hearings

The main objectives of the follow-up colloquium was to engage with relevant stakeholders to discuss three issues:

 

• the level of compliance with existing designations in the transport sector and the clothing and textiles sector;

• mechanisms to assist companies to meet local content requirements, and

• how to ensure that local content requirements are met.

 

This discussion was intended to identify constraints and solicit solutions from stakeholders, and recommendations, such as the realignment of policies or the implementation of these to facilitate local procurement, to address them. Furthermore, the colloquium was intended to ensure that government departments provide clarity on the procurement policy and how it should be implemented. 

1.2.  Process followed

The programme included presentations from public agencies, business, and labour affected by local public procurement processes. The presentations covered both technical matters as well as the transport and clothing and textile sector issues. Representation was as follows:

 

Transport sector

• Transnet

• Passenger Rail Agency of South Africa (PRASA)

• Transnet Rail Engineering

• Rail Road Association

• China South Rail

                                  China Railway Rolling Stock Corporation (CRRC)    

• China North Rail

• Bombardier Transport South Africa

• General Electric (GE)

 

Clothing and Textile Sector

• Southern African Clothing and Textile Workers' Union (SACTWU)

 

Technical matters

• Council of Scientific and Industrial Research (CSIR)

• South African Bureau of Standards (SABS)

• Manufacturing Circle

 

•  

• Department of Public Enterprises

• Department of Trade and Industry

• Department of Transport

• Department of Science and Technology

• National Treasury

 

In addition, the Office of the Auditor-General, which was not available at the time of the colloquium, made a presentation to the Committee on 30 August 2016. This input also forms part of this report.

1.3.  Layout of the report

The report is structured as follows:

 

• Section 1 provides the introductory remarks.

• Section 2 provides an overview of the public procurement instruments.

• Section 3 lists the Committee’s key findings, in particular issues that emerged from the colloquium.

• Section 4 outlines proposals for dealing with the critical issues around local public procurement.

• Section 5 covers the Committee’s conclusions.

• Section 6 acknowledges the various stakeholders contributing to the Committee’s deliberations and report.

• Section 7 contains the Committee’s recommendations to the National Assembly.

 

2.     Public Procurement

 

2.1.       Policy on Public Procurement

 

Public procurement is internationally recognised as a powerful industrial policy instrument for promoting economic growth, industrial development and innovation. South Africa is not a signatory to the WTO Procurement Protocols[1], however, government cannot prescribe that the private sector procures its goods and services in line with localisation requirements. Hence the policy and legislation refer to local procurement only by the public sector.

 

Section 217 (1) of the Constitution of the Republic of South Africa states that “when an organ of state in the national, provincial or local sphere of government, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective”. Furthermore, Section 217 (2) stipulates the need to implement a procurement policy that will provide for categories or preference in the allocation of contracts; and the protection or advancement of persons, or categories of persons disadvantaged by unfair discrimination.[2] It is from this premise that legislation to govern local public procurement was enacted, namely, the Preferential Procurement Policy Framework Act (PPPFA) (No. 5 of 2000). Companies (both local and foreign) that supply government (and state-owned companies) with designated products have to meet the set minimum local content threshold for goods they supply.

 

The policy is meant to capitalise on the huge buying power of government and state-owned entities and use it to stimulate economic growth. Spending this money on locally produced goods will increase demand and expand local suppliers leading to economic growth. The Act has a number of instruments used to implement the local public procurement process, namely:

 

• Designation of products/ sectors: Department of Trade and Industry;

• Verification of local content: South African Bureau of Standards, entity of the Department of Trade and Industry;

• National Industrial Participation Programme (NIPP): Department of Trade and Industry; and

• Competitive Supplier Development Programme (CSDP): Department of Public Enterprises

• Renewable Energy Independent Power Producers Programme (REIPP): Independent Power Producer Office of the National Treasury and the Department of Energy.

 

2.2.                               Designations

 

The leveraging of local public procurement, in particular public infrastructure investment, starts with the designation of sectors or products that should meet a minimum local content threshold[3]. This is the function of the DTI. The designation is then incorporated as part of the PPPFA and its regulations promulgated in 2001 (regulations amended in 2011). This process is administered by the National Treasury and implemented by government departments and entities.

 

Public procurement in South Africa is focussed on key industrial sectors such as rail rolling stock, bus fleets, transport infrastructure, automotive, clothing, textiles, leather and footwear. Furthermore, local public procurement can play a critical role in promoting strategic sectors such as advanced manufacturing, aerospace, defence and information and communication technology. Local public procurement focuses on goods that the government procures the most for its service delivery. The DTI, as the custodian of the country’s industrial policy, was empowered through regulations to designate specific industries/goods. The consequence is that tenders should prescribe that only locally manufactured products with a prescribed minimum threshold for local production and content will be considered.

 

Designated sectors	Minimum local content thresholds	Date designated
Rail rolling stock	65%	16 July 2012
Bus bodies	80%	16 July 2012
Canned/processed vegetables	80%	16 July 2012
Textile, Clothing, Leather and Footwear Sector	100%	16 July 2012
Solar Water Heaters (collectors and storage tanks/geysers)	70%	19 July 2012
Set-top Boxes	30%	26 Sept 2012
Certain pharmaceutical Products	Per tender	7 Nov 2012
Furniture Products	85%	15 Nov 2012
Electrical and Telecom cables	90%	8 May 2013
Valves Products and Actuators	70%	6 Feb 2014
Working Vessels	10-100%	1 Aug2014
Residential Electricity Meters	50-70%	1 Aug 2014
Steel Conveyance Pipes	80-100%	28 Sept 2015
Powerline Hardware and Structures	100%	28 Sept 2015
Transformers	10-100%	28 Sept 2015
Two Way Radios	60%	30 June 2016
Solar PV Components	60%	30 June 2016
Rail Signalling System	65%	30 June 2016
Wheelie Bins	100%	18 Aug 2016
Working Vessels (Boats)	60%	18 Aug2016
Steel Power Pylons	100%	30 June 2016
Valve Products and Actuators	70%	12 July 2016

Source: Department of Trade and Industry (2016a) & National Treasury (2016)

 

The local procurement of non-designated products is also possible. Regulation 9 (3) prescribes that “…where there is no designated sector, an organ of state may include, as a specific tendering condition, that only locally produced services, works or goods or locally manufactured goods with stipulated minimum threshold for local production and content, will be considered, on condition that such prescript and threshold (s) are in accordance with the specific directives, issued for this purposes by the National Treasury in consultation with the Department of Trade and Industry’’[4]. This further empowers the government to encourage local production of the products procured by the state sector. 

2.3.  Verification of local content

Amended regulations to the PPPFA were passed in 2011 give effect to local content verification. In this regard, suppliers are required to submit both a ‘declaration of local content’ and proof of verification (certificate/report from an accredited verification authority)[5]. The South African Bureau of Standards (SABS), as the country’s standards body, has the responsibility to verify local content.

 

• 2013: SABS established a local content verification office and capacitated the office.

• 2013: a communication was sent out to CEOs of all State owned entities to inform them of the verification office

• 2014: SABS issued its first verification certification

• 2015: National Treasury released an Instruction Note to re-confirm that Local Content Verification is to be conducted by SABS.  

 

2.4.                               National Industrial Participation Programme (NIPP)[6]

 

The NIPP is a programme which is aimed at enhancing local manufacturing, value-addition and related services in sectors designated for local public procurement. NIPP focuses on sectors which have the potential for growth. The objectives of the NIPP are expanded in the Industrial Policy Action Plan.

 

The eight objectives of the NIPP are to:

 

• Ensure sustainable economic growth, with particular emphasis on the value-adding, labour-intensive and strategic manufacturing sectors of the economy;

• Facilitate access to new markets and/or establish new trading partners;

• Encourage Foreign Direct Investment (FDI) into South Africa, particularly in strategic productive sectors of the economy;

• Ensure there is technology transfer to South Africa;

• Encourage Research and Development (R&D) collaboration and the commercialisation of such new technology in South Africa;

• Enable and support South African manufacturers to enter global supply value chains (GVCs) of major Original Equipment Manufacturers (OEMs);

• Contribute to sustainable job creation and/or retention; and

• Support broad-based black economic empowerment and contribute to regional economic decentralisation where possible and appropriate.[7]

 

2.5.                               Competitive Supplier Development Programme (CSDP)

 

The CSDP is a programme aimed at improving national supplier industry competitiveness. It is mainly for leveraging opportunities which result from expenditures of a government entity, particularly State Owned Enterprises such as Transnet and PRASA. The objective of the programme is also to build export capabilities. This is based on the premise that affording opportunity and preference to local suppliers with a potential for growth and who have a potential to export will lead to increased local production, job creation, exports and economic growth.

 

The illustration below depicts the objectives of the Competitive Supplier Development Programme

 

Aim	Increase competitiveness, capability and
	capacity of the local supply base
Outputs
	Growth in				Procurement savings
	local				Increased security of supply
	industry				Local cluster advantages
Outcomes	Employment creation						Improved SOE performance
	Poverty reduction

                                Source: Department of Public Enterprises (n.d)

 

The objective of the Competitive Supplier Development Programme (CSDP) is to increase competitiveness, capacity of local suppliers. Building local suppliers has long-term commercial benefits for State Owned Enterprises (SOEs), these include:

 

• Improving the competitiveness of the services being provided by SOEs (through savings resulting from more competitive suppliers);

• Increasing the security of local supply for SOEs;

• Providing the potential advantages of local supply versus imports, including: removal of exposure to foreign currency fluctuations in terms of pricing, ease of communication, shorter delivery times (since suppliers are local), and increased potential for collaborative partnerships and innovation for local conditions. [8]

 

2.6.                               Renewable Energy Independent Power Producers Programme (REIPP)

 

The Department of Energy (DoE), National Treasury (NT) and the Development Bank of Southern Africa (DBSA) launched the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) in 2011. The purpose was to implement the NIPP procurement objectives through a criteria-based competitive-bidding process. These criteria include the consideration of the creation of a local industry, job creation, Black Economic Empowerment (BEE) and technology transfer.

 

3.     Issues emerging from the colloquium

 

Throughout the engagements on local procurement the main issue of concern was local content verification. This encompasses a number of aspects including the verification process as well as the cost of verification. Non-compliance with local content verification will undermine local procurement and the objectives it seeks to achieve, therefore verification is critical.

 

The following issues were raised by stakeholders:

 

3.1.                               Verification Process

 

Verification is a two-stage process which includes a pre-award verification and a post-award verification. The pre-award verification it at the discretion of the bidder, therefore the bidder decides on an entity to perform that verification, this may include self-verification. The pre-award verification feeds into a declaration by the bidding company of the level of local content. After this, the bidder may be awarded the tender. The post-award verification is performed by the South African Bureau of Standards (SABS), on behalf of the state. The post-award verification aims both to verify the declaration made by companies and to ensure that those companies comply with their commitment to localisation/ local production commitments as per tender requirement.

 

Despite this clear process, the SABS noted that there has been slow progress. Very few companies that have been awarded tenders which have to comply with local content requirements have actually gone on to comply fully with post award verification.  Since starting its verification operations in July 2013, the SABS has performed only 4.5% verifications of the awarded tenders that need to comply with local content requirements.

 

Stakeholders, mainly the Original Equipment Manufacturers (OEMs) who were awarded the Transnet locomotives tender are aware that they need to undertake verification, recognise the importance of verification, and acknowledge that the SABS is the official verification agency for the state. Transnet, General Electric, and Bombardier Transport noted that they have started undergoing the verification process through the SABS. However, China South Rail and China North Rail had not undergone the process mainly because they had not yet started local production of locomotives. (Some of the locomotives are to be built in China while others will be built in the country). Despite not having undergone verification, they believe that the process is necessary and will comply when they start their local production. In addition, PRASA has also contracted SABS to do the audit and verification of all the commitments that have been made by Gibela, the consortium that won the tender to supply new train sets for passenger rail.  

 

Despite what seems to be a general understanding of the verification process and the agency that should perform verification, a number of other issues around this emerged.  From an administration point of view, the SABS noted the following challenges:

 

• Local content verification is an unfunded mandate – SABS has no budget allocated to this function;

• There is lack of clarity on who should be responsible for cost of verification of the specified minimum local content; and

• There is reluctance to undergo verification as this process is perceived as one that may expose corruption.

 

The Committee cautioned that the verification process may create a regulatory burden for bidding companies. This may become a disincentive to tender for state business. However, the respondents stated that they have taken this concern into consideration and while verification is difficult to perform it is not meant to create an extra burden. The purpose is to safeguard the interests of the country in terms of local public procurement.  Furthermore, the Committee raised concerns with the time it takes to do the verification. It was stated that the length of time it takes depends on the industry/ production and the extent/type of verification required.   

 

3.2.                               Local Procurement Audit

The Auditor-General (AG) of South Africa monitors compliance with local public procurement from the side of the government (departments and public entities). This is part of its constitutional mandate of strengthening the country’s democracy by enabling oversight, accountability and governance in the public sector through auditing.[9] As noted earlier, non-compliance with local production commitments by companies undermines local procurement objectives. The same is true for organs of state should they fail to comply with local procurement requirement in procuring goods and services.

 

The following challenges were highlighted with regard to the compliance audits by the AG:

 

• The audit focused on individual procuring institutions

• The audit does not effectively assess the entire value chain to identify weakness

 

The AG therefore called for a collaborative approach that will address the following:

 

• Non-compliance by organs of state;

• Lack of consequences for non-compliance;

• Lack of effective monitoring of implementation;

• Availability of data to assess progress;

• Inadequate training and awareness; and

• Weaknesses in coordination of the programme

 

3.3.                               Cost of verification

 

The issue of who should pay the cost of verification dominated discussions during the colloquium. This arises from the fact that the verification agency, SABS is not funded to perform this mandate. Between the two parties (the company who has been awarded a tender and the government) one or both parties should pay for verification. The first option the state pays through the fiscus, therefore funding the verification mandate of the SABS. The second option, is where the bidder would pay the cost of verification. In this case then the cost of verification should be part of the bidding conditions and included in the bidding documents.

 

Currently the challenges around who should pay is a legislative issue. As the legislation and regulations are not explicit on who should pay for verification there is no legal requirement for either of the two parties to pay for the cost of verification.  While stakeholders confirmed that the requirement for local content verification is included in the contracts, in most contracts it is not stipulated who should pay the cost. However SABS confirmed that it has performed verification at both ends of the spectrum;

 

• Verification was performed in the textile and clothing sector. In this case, the respective State owned entity paid for the costs. 

• Verification was performed on electrical cables. The bidder paid for the costs. In this case, the bidding document clearly specified that the winning bidder would pay for the verification.

 

The Committee raised concerns on how the cost may impact on smaller companies and cooperatives.  The Committee recognised that the cost of verification may deter smaller players from bidding for government contracts, which is not desirable. In response, the National Treasury stated that the determination of who pays for verification is not a simple matter, it is not as easy as simply including it in the contract/bidding documents. This is mainly because the procurement process should be made more accessible (or simplified), through ensuring that there is no unnecessary administrative burden in completing the tender documents.

 

The National Treasury responded to this concern and noted that they are currently in the process of amending the PPPFA and its Regulations. Consultations between the various stakeholders are underway and the issues of the cost of verification will be clarified. This is in line with the National Treasury’s aims of creating a better capacitated national office for procurement to maximise efficiencies and minimise in-efficiencies, cost premiums and corruption in the existing highly devolved system.

 

However, stakeholders such as the Manufacturing Circle have already raised concerns with the draft amendment Bill. The Manufacturing Circle emphasised that the current process in terms of designations should not be amended, the role of designating sectors/ products should remain with the DTI. The draft Bill proposes that designations be done by the National Treasury after consultation with the DTI. This will effectively reduce the role of the DTI despite the fact that the Department has comprehensive understanding of the complex nature of designations. Furthermore, the Manufacturing Circle recommended the strengthening of the role of the DTI as the leader in fulfilling local procurement objectives.

 

The Committee concurred and indicated that as the state procures from a number of different businesses (varying in size), when the cost of verification of local content is included as a part of the contract this may have an adverse impact on smaller payers. Yet these are the very same entities that the government aims to develop through local procurement. Some of the stakeholders were of the view that the cost of verification could be capped for Small, Medium and Micro Enterprises (SMMEs).

Another concern was whether the state or the bidder is stipulated as the party that pays for the cost of verification. In essence the state pays either way.  Even in the case where bidders are stipulated as payers, bidders factor this cost into the price of the product that the state is procuring. Therefore, the state pays indirectly. 

 

This is a policy issue and it was decided that the National Treasury in the current review of the regulations should fully clarify the issue of payment. This should be done in collaboration with the respective departments and the SABS. 

 

3.4.                               Localisation, Supplier Development and Job Creation

 

The CSDP is administered by the DPE. In support of this programme, the Council for Scientific and Industrial Research (CSIR) started the Technology Localisation Programme. The programme aims to:

• Improve the technological capability of local firms

• Increased competitiveness (quality, cost, customisation)

• Expanded capability (new products, services)

 

Localisation has also been achieved through the REIPPP.

 

In terms of progress made on the Transnet locomotives tender, it was indicated that there has been great success of localisation through this project. The procurement has resulted in significant localisation, supplier competitiveness, and skills development.   According to Transnet, approximately 55 percent local content in the production of these locomotives was achieved. The project is for the production of 359 electric locomotives (40 manufactured in China, 300 to be manufactured locally)

 

Four companies were awarded this tender. Through them the project has contributed significantly to localisation, skills development and job creation.

 

General Electric

 

• Skills development & training initiatives benefit 1 300 candidates in the engineering field.

• More than 100 parts and components sourced from 27 local suppliers

• $20 million supplier development fund for developing black industrialists, and

• a $50 million Customer Innovation Centre, for the development of engineering skills

 

CRR (Merger of China South Rail and China North Rail)

 

• R1.8 billion of the R3.4 billion budget for local procurement has been signed to more than 30 local suppliers and

• The company had contracted 42% of local content.

 

Bombardier Transport South Africa

 

• The first ever propulsion factory built in Africa was built in Ekurhuleni to manufacture cubicles and convertors

• Training and mentoring of more than 150 black-owned businesses;

• 800 jobs created; and

• Technical skills and ‘know-how’ transfer from European suppliers.

 

4.     Proposals for dealing with the critical issues around local public procurement

 

In addressing the challenges of local public procurement including non-compliance with verification, the need is for policy clarity on “who pays” for verification, and compliance from the side of the state. These proposals are captured below.

 

The DTI proposed the following solutions:

 

• Ensuring that compliance becomes an audit function within government departments and entities to deal with the lack of compliance to procurement regulations.

• Reviewing the current regulations to address the issue of who carries the cost of verification and the funding of the verification agency.

• Securing stronger localisation requirements in other programmes, including aligning localisation with Black Economic Empowerment (BEE) Codes.

 

PRASA recommended that:

 

• Localisation strategy should focus on:

• Providing long-term certainty in projects

• Global competitiveness for an industry

• Developing local supply chains, and

• Include transformation objectives

 

• Synergies are required within Government:

• Align projects within Government departments and entities (e.g., Transnet, PRASA and Gautrain for purchase of trains, rail equipment and locomotives)

 

• Assistance should focus on:

  • Increasing utilisation of incubation centres

  • Export incentives through international government partnerships and tax incentives

 

• Ensure strict monitoring and remedial process within contract

• Review definition of Local Content within Policy.

 

National Treasury made the following recommendations:

 

• A structure to deal with the process leading up to designations should be developed.

• A compliance working group should be established to monitor implementation of local procurement in the designated sectors.

• Find alternative instruments to stimulate local production and content in the designated sectors using additional, complementary instruments such as tax incentives; import tariffs, and others.

 

Office of the Auditor-General made the following recommendation:

 

• The performance audit and outcome should include audit on local content.

 

5.         Conclusions

 

Based on its deliberations and its findings from the colloquium, the Committee concluded that:

 

5.1. The National Treasury in amending the PPPFA and regulations should consider the following:

 

5.1.1. The strengthening of the designation process and implementation of the legislation.

 

5.1.2. Ensuring that the role of the DTI is enhanced and explicit with respect to localisation and the BEE Codes.

 

5.1.3. Strengthening the legislation to ensure that localisation is strengthened with respect to the Renewable Energy Independent Power Producers programme and the Competitive Supplier Development Programme.

 

1. The National Industrial Participation Programme (NIPP) should be strengthened in the legislation to ensure that localisation becomes a condition of tender specification, not just a post adjudication requirement which renders it a much weaker tool.

 

1. Self-verification by private companies is acknowledged in their declaration of their local content, however, for post-award verification the SABS should be the preferred verification body for the government.  

 

1. The procurement process should be transparent to eliminate fraud and corruption within this process and the accountability measures should be strengthened.

 

1. The tender adjudication Committees should have appropriate understanding of the legislation that underpins the tender process to ensure a fair and equitable tender process and awarding of a tender.

 

1. Local public procurement policy requires collaboration across the respective government departments, public entities as well as provincial and local government for successful implementation. 

 

1. The challenges associated with the verification of local content of designated products are acknowledged. In this regard the relevant entities should ensure the verification requirements are explicit in all the contracts and are complied with.   

 

6.     Acknowledgements

 

The Committee would like to thank the Deputy Director-General of the Industrial Development Division, Mr Garth Strachan and the Liaison Officer Ms Saroj Naidoo, as well as representatives from the Department of Trade and Industry, Department of Public Enterprises, Department of Transport, department of Science and Technology, the National Treasury, all public entities, participants from the private sector for their valuable contribution during the colloquium. Furthermore, the Committee would like to thank all other participants for their valuable contributions. The Committee also wishes to thank its Committee support staff, the Committee secretaries, Mr Andre Hermans and Mr Tenda Madima, the researcher, Ms Zokwanda Madalane, the content adviser, Ms Margot Sheldon, the Chairperson’s executive secretary, Ms Tandiswa Macanda, and the Committee assistant, Mr Denver Woodington, for their professional support and conscientious commitment to their work.  The Chairperson thanks all Members of the Committee for their active participation during the process of engagement and deliberations and their constructive recommendations made in this report. The Committee appreciates the contribution and co-operation from the DTI during this process.

 

7.     Recommendations

 

The Committee recommended that:

 

1. The Auditor General should submit a report on measures taken to enhance the auditing process with respect to Supply Chain Management (SCM) and audit outcomes by the end of May 2017. 

 

1. The Minister of Trade and Industry should engage with the Minister of Finance on the status of the review and consequent amendments to the PPPFA and regulations so to ensure the participation of DTI in this process and to explicitly reflect who bears the cost of verification. Serious consequences should be imposed for non-compliance.

 

1. The Minister of Trade and Industry should consult the relevant Ministries on the verification process so as to ensure that all departments that procure designated products adhere to local procurement and verification requirements.

 

 

Report to be considered.

 

 

8.     References

 

Auditor General (2016). Audit of local procurement. Presentation to the Portfolio Committee on Trade and Industry. Cape Town: 30 August.

 

Department of Public Enterprises (n.d). Introduction to the Competitive Supplier Development Programme.

 

Department of Trade and Industry (2016).  Industrial Policy Action Plan 2016/17.

 

Department of Trade and Industry (2013). The National Industrial Participation (NIP) Revised Guidelines 2013. Available from http://www.dti.gov.za/industrial_development/docs/nipp/Nip_Guidelines2013.pdf [Accessed: 16 September 2016]

 

Department of Trade and Industry (2016a). Designation of Industries, Sectors & Products for Local Procurement in the Public Sector. Presentation to the Portfolio Committee on Trade and Industry. Cape Town: 2 March.

 

National Treasury (2016). National Treasury Instruction on: Invitation and evaluation of bids.   Available from http://www.treasury.gov.za/divisions/ocpo/sc/PracticeNotes/Instruction Rail Rolling Stock Sector.pdf [Accessed: 16 September 2016]

 

South African Bureau of Standards (2016). Local Content Verification. Presentation to the Portfolio Committee on Trade and Industry. Cape Town: 17 August.

 

 

 

 

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[1] The Agreement on Government Procurement (GPA) was signed in Marrakech on 15 April 1994. Signatories to the Agreement undertake to provide national treatment and non-discrimination to goods, services and suppliers of the other signatories, ensuring through detailed procedures, a real chance to compete for government contracts.

[2] Constitution of the Republic of South Africa, 1996

[3] Department of Trade and Industry (2016)

[4] Preferential Procurement Policy Framework Act (Act No. 5 of 2000)

[5] South African Bureau of Standards  (2016)

[6] Department of Trade and Industry (2013)

[7] Department of Trade and Industry (2013)

[8] Department of Public Enterprises (n.d)

[9] Auditor General (2016)