South African businesses sign procurement accord to boost local manufacturing

South African businesses sign procurement accord to boost local manufacturing

FMCG SUPPLIER NEWS

ProcurementLeaders.com - Nov 3rd 2011, 09:54

South African businesses have signed an accord with government, unions and civil society, aimed to help the struggling manufacturing sector. 

The agreement, designed to help towards the government target of creating five million jobs by 2020, stipulates that at least 75% of all goods and services procured in the country be of local origin. 84 of SA's biggest businesses formed part of the accord.

Though the target was greeted as a positive move by local organisations, some were sceptical of its practicality particularly in some of the ailing areas of the manufacturing sector.

"One wonders how you can procure 75% if you cannot address the basic fundamentals of high input costs such as labour and energy," Industrial Development chief economist Lumkile Mondi said, according to local publication The Citizen.

Oupa Bodibe, chief director and sector specialist at the Department of Economic Development, defended the initiative. "On the one hand you need to create demand in the local market and on the other increase efficiencies … We don't just want to protect local producers from imports. We want to give them an opportunity but they also have to become more competitive," he said.

He added that government's new procurement regulations, which come into effect on 7 December, as well as the big business buy-in, will lead the local procurement drive.

"The market reality is a constructed reality that we want to change. We are saying there is a market for your business because the state and big business will procure from you."

Recently, retail giant Walmart nearly walked away from a deal to acquire South African firm Massmart over demands to set local sourcing targets, though ultimately it acceded to create a supplier development fund to help local businesses.