Trade, Industry and Competition Minister Ebrahim Patel announced that an “accord” had been reached at the National Economic Development and Labour Council (Nedlac) to drive progressive localisation of up to R200-billion of additional production over a five-year period.

Delivering his virtual Budget Vote, Patel said the strategy had the support of major corporates and that 30 ‘CEO champions’ – including Mamongae Mahlare of Illovo, Mark Cutifani of Anglo American, Vikesh Ramsunder of Clicks, Fleetwood Grobler of Sasol and Fortune Majapelo of Bushveld – had been nominated from the private sector to support the localisation push.

“An initial list of 42 products have been identified for localisation and R240-million has been raised from the private sector to appoint technical experts to drive localisation, bringing together industrial engineers, supply-chain managers, experts in dealing with illegal imports, and project managers.”

The CEO champions would not only advocate for specific product categories for potential localisation, but would also highlight the current constraints to domestic production.

No 'one-size-fits-all' approach would be implemented and Patel revealed that the pact with business also recognised that not every product category was suitable for localisation.

A ‘Policy Statement on Localisation for Jobs’ had also been published to clarify government’s overall approach to the issue.

The policy statement addressed local product development, cracking down on illegal imports and under-invoicing and implementing localisation modalities through a joint effort with the private sector.

“This will be complemented by integrated efforts with other Ministries to drive local vaccines development and the use of local components in the national infrastructure plan.

“Tariff adjustments and rebates are an important policy instrument available to the State to lower or increase import duties, but in future will need to be accompanied more clearly by binding commitments by applicants to improve their competitiveness, create jobs and price restraint,” Patel added.

The so-called Nedlac accord had been premised on an analysis showing that South Africa’s import to gross domestic product (GDP) ratio was too high, with R1.1-trillion in non-oil imports yearly ahead of the Covid-19 pandemic.

“We import goods worth 25% of our GDP – our propensity to import is out of line with peer countries and developed economies and more can sensibly and sustainably be produced locally. Compare our 25% with China at 14%, India at 16%, Brazil 10%, the US at 12% and the EU at 14%,” the Minister said.

The accord was given further impetus by the progress made in developing local production capacity for personal protective equipment and medical products since the onset of the pandemic.

“In the past year, we built local production capacity – often from scratch – with more than R10-billion of local production of Covid-19 products, ranging from face-masks, hand sanitisers, ventilators and vaccines,” Patel said, reporting that R2-billion of that production was exported to other African countries.

UNDER THE RIGHT CONDITIONS

In response to Patel’s indication to Nedlac in December that government would be aiming to set an import-substitution target of 20% for non-petroleum imports, Business Unity South Africa (Busa) and Business Leadership South Africa (BLSA) commissioned Intellidex to research the practicality of meeting the target.

The research report, which was published the day before Patel’s Budget Vote, indicated that higher levels of localisation were possible “under the right conditions”, including policy certainty demand consistency.

It also warned that an overly aggressive import-substitution policy will have negative consequences for domestic prices, raising them by up to 20%, and could undermine the country’s economic recovery.

“Our quantitative study shows that under the right conditions, meeting localisation targets within the next five years is possi...