PPPFA alone cannot revive SA industries

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stewart  jennings.JPGSouth Africa’s revised Preferential Procurement Policy Framework Act (PPPFA) will need to be tied to a number of other strategies, as it will be inadequate on its own to ensure South Africa’s re-industrialisation, Manufacturing Circle chairperson Stewart Jennings said earlier this week in media reports.

While Government argues that its procurement power has the potential to reverse industrial decline, members of South Africa’s business sector say the rules are only a step in the right direction in the country’s efforts to revive its flagging manufacturing sector.

A significant stumbling block is that South Africa does not have the capacity needed to manufacture certain products, argues Azar Jammine, Econometrix director and chief economist.

Either industries have disappeared or the country does not have the skills to manufacture the products that are demanded by government and the private sector, said Jammine.

“To this extent, I think it is dangerous to exaggerate the potential benefit that might come through the Act. One needs to see it more as a case of ‘at the margin there will be some instances of encouraging businesses to buy locally rather than from abroad’, but I would not see it has having a significant impact.”

He warns that one cannot look at the Act as the panacea for all problems. “One must bear in mind that there is a danger that the legislation will breed inefficiencies in our economy, which, in the end, could even be counterproductive. If it enables local business to sit back and be lazy in the knowledge that they will just get the business, it will not help.”

However, Economic Development Minister Ebrahim Patel has argued that the designations seek to strengthen competitive pricing, eliminate collusive and unethical practices and extend value chains to other sectors. The National Treasury issued a guideline and led workshops for all public institutions on the clauses of the new regulations, and a two-stage process to evaluate the bids for designated sectors would apply.

The revised regulations came into effect on December 7, 2011, and enable the Department of Trade and Industry to designate sectors and products for local procurement. The first designations made in December included power pylons, rolling stock, buses, canned vegetables, clothing, textiles, footwear, leather products and set-top boxes.

“The designation instrument serves to strengthen public procurement in support of the multipliers derived from reducing the trade deficit, strengthening and diversifying South Africa’s industrial base, and to build up competitive value-adding exports to the rest of the continent, high-growth developing economies and traditional export markets,” the Trade and Industry and Economic Development departments said in a statement last year.

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