Presentation to the SMME Summit 10 October 2013 Tebogo ...

1 procurement and Localisation / Designation of SectorsPresentation to the SMME Summit10 October 2013 Tebogo Makube ( ) EconomicchallengesfacingSouthAfricaandth erole oftheIndustrialPolicyActionPlan Rationalefor theDesignationofSectors, Industries andProducts CalculationofLocalContentand procurement Process Industrial Finance, Incentives and SpecialEconomic ZonesPurpose2 RSA: Manufacturing challenges & the need for designation3In recent years, South Africa South Africa has been posting trade deficits primarily due to deterioration in commodities exports, high imports of fuel and high value added goods.

2 The trade deficit amounted to in August 2013. Manufacturing contribution to GDP (%)Source: DTI, SARS, SARB Databases Value and Supply Chain Linkages4 Background5 TheNGPandIPAP identifythe needtoleverage publicprocurement Many sectors targetedinIPAP willdepend on leveragingpublic expenditure for industrial development Public procurementisastrategic instrumentwidelydeployed by developed and developing countriesto: Enhance and smooth outcertaintyofdemand overtheyears Promotecompetitiveindustrialcapabilities withhighemployment andgrowthmultipliers Diversify theeconomytowardsmoreemployment-intensiv eandvalue-addingactivities Ensurevalueformoneyfor thefiscusandsocietyArguments in favour of designation6 Leveragingpublic expenditure Supportingeconomic growth and creation of job opportunitiesin thecountry Attractingnew investments(in particular, foreign directinvestments)

3 Reducing SouthAfrica's trade deficit Overall savingsduetolower impact ofcurrencyfluctuation(owingtohigh localcontent) importance of local production and content7 Goods and services bought from abroad represents an outflow of funds from South Africa (reduces AD & local AS) import spending is recorded as negative Goods and services sold abroad represents a flow of funds into the South African economy (raises AD & local AS)Reform of the PPPFA preferential procurement PolicyFramework Act (PPPFA)wasenactedin2000,anditsRegulation s promulgatedin 2001 The Regulationswereamendedin2011 and new regulations came intoeffect on7 December 2011.

4 Section9:LocalProductionandContent Paragraph9 (1)of the regulations empowers the dtitodesignatespecificindustrieswhereten ders should prescribe that onlylocallymanufacturedproductswitha prescribedminimum threshold for local production andcontentwillbe considered Regulation9 (3)prescribes that ..wherethereisnodesignatedsector,an organ ofstatemayinclude,asaspecifictenderingco ndition,thatonlylocallyproducedservices, worksor goods orlocally manufactured goodswitha stipulated minimum threshold for localproduction and content,willbe considered, on condition thatsuchprescriptand threshold(s) areinaccordancewiththespecificdirectives issuedfor thispurpose bytheNational Treasuryinconsultationwiththe dti.

5 8 Reform of the PPPFA9 AmendedPPPFAR egulations and Instruction Notes for DesignatedIndustries/Sectors are applicable to all: National and Provincial Departments; Constitutional Institutions; Public Entities listed in schedules2 and3 of thePFMA; and Municipalities and Municipal Entities to which theMFMA applies. sectors must containa specific bidding condition thatonly locally produced or locally manufactured goods, worksandserviceswithastipulated minimum threshold for local production and content will beconsidered. Bids in respect ofTextiles,Clothing,Leather and Footwear(TCLF)mustcontainaspecific bidding condition that only locally produced or locallymanufactured (TCLF) fromlocal raw materialor input will be sectorsIndustry/sector/sub-sector Minimum threshold for local content Buses (bus body) 80% Textile, clothing, leather and footwear 100% Power pylons 100% Canned / processed vegetables 80% Rolling stock 65% Pharmaceutical products (oral solid dosage tender)

6 73% Set-top boxes for TV digital migration 30% Furniture Office Furniture School Furniture Base and Mattress 85% 100% 90% Power and telecom cables 90% Solar Water Heaters (collectors and storage tanks/geysers) 70% 11 Local Content Calculation Formula LocalContent means that portionofthetenderpricewhich isnot includedintheimportedcontent, provided that localmanufacturingdoes take placewithintheborders ofSouthAfrica(SABS approved technical specificationSATS1286:2011) PricesreferredtointhedeterminationofX mustbeconvertedintoRands(ZAR)by using theexchange ratepublishedbytheSARBat12:00on thedateofadvertisementof the bidInvitation of Bids12 AOs/AAs mustclearly stipulate in the bid documentation all the relevantdocumentsoStandard/Municipal Bidding Documents(SBD/MBD )oAnnexC:Local Content Declaration(Summary Schedule) If thebidisformorethanoneitem,localcontentp ercentagesforeachproductcontainedinDecla rationC must bedeclared and usedoAnnexD:Imported Content Declaration(Supporting ScheduletoAnnexC)oAnnexE.

7 Local Content Declaration(Supporting ScheduletoAnnexC)oSABS approved technical specification- SATS1286:2011oDTI sGuidance Document for the Calculation of Local ContentoBidevaluation and award Twostage evaluation process-First stage:Localcontentandfunctionality(ifapp licable)-Secondstage:Preferencepointsyst em-BBBEE andpriceRail Rolling Stock OpportunitiesHighlights of Public Sector Infrastructure Projects14 EnergyRoad transportWater Sentech sdigitalization of television terrestrial network Layout of broadband network SANRAL to spend billion on roads improvements and R2 billion on coal haulage roads Public transport networks to begin in Tshwane, Rustenburg and eThekwini Komati scheme to be completed 2013 Municipal allocations of for water infrastructure Dam completed on Olifantsriver, reduced scope on bulk distributionEducation Medupi and Kusile.

8 Delays in construction, first units expected in 2014 and 2015 respectively 2 460MW of renewable energy procured in the first two bidding roundsHuman settlements allocated for basic education allocated for higher education Preparatory work on two new universities funded by fiscusHealth Feasibility studies for five major hospitals to be spent on district hospitals R5bn to be spent on primary health care including billion for clinics billion to be spend on low-income housing and upgrading of informal settlements billion allocated for special economic zonesTelecommunications Trunk

9 Line on new multiproduct pipeline complete, construction of terminals to be completed in 2013 Ongoing oil and gas exploration on west coastLiquid fuelsSource: PICC, Budget Reviews To improve service delivery, increase the capacity and efficiency of the economy, government will invest R827 billion in infrastructure over the MTEF Continued implementation of the national infrastructure development programme will lead to robust public sector fixed capital formation, forecasted to grow at an average of 9% in the MTEF 15MP: Budgeted Payments for Goods, Services, Machinery and Equipment2009/102010/112011/122012/13201 3/142014/152015/16 Revised estimateGoods and services 5 296 662 5 634 258 6 020 768 6 556 724 6 572 347 6 950 049 7 365 921 Buildings and other fixed structures1 776 901 1 615 493 1 990 378 2 336 762 2 408 640 2 374 961 2 033 321 Machinery and equipment234 897 265 549 361 350 301 860 264 729 243 081 299 493 Software and other intangible assets10 401 13 374 931 28 648

10 1 233 19 425 24 007 Tot al 7 318 861 7 528 674 8 373 427 9 223 994 9 246 949 9 587 516 9 722 742 Year-on-year growth (%)Goods and services and other fixed and and other intangible al : National Treasury Provincial DatabaseEconomic classification (Rm)AuditedMedium-term estimatesDescriptionLP Tactics Matrix The Local procurement strategy integrates the business case, demand-side analysis and supply-side analysis to identify strategies to increase sourcing from local suppliers Local procurement targets and action plans are specific deliverablesDeveloping local procurement strategyReform of the PPPFA17 Key policy objectivesFocus areasIndustrialisationLeveraging procurement spend to foster industrial and competitive capabilities in the South African economyLocalisation Country Province/Municipal Site/OperationUtilisation of procurement spend to develop South African based suppliers (integrating B-BBEE and Black Owned suppliers)