Localisation has to become lekker

THE recent wage settlement agreement in the metals and engineering sector between employers and the National Union of Metalworkers of South Africa provides a sobering backdrop to the most recent call by President Jacob Zuma for companies to buy local.

Localisation supports the government's vision to build a strong local manufacturing base to power industrialisation objectives and it promotes economic growth, job creation and the development of critical skills that are vital to growth.

The 2011 local procurement accord signed by industry, government and labour laid the groundwork for a commitment to localisation. But this has not materialised owing to a disconnect between the government, state-owned enterprises, labour and business.

This is illustrated by the latest Numsa wage agreement, won only after a fractious stand-off between labour and industry. The sector, especially smaller manufacturers, can hardly afford to absorb the higher wages without some structural changes.

The announcement by Amplats to divest itself of labour-intensive mines following the platinum miners' strike is evidence of the moves manufacturers may consider. What is clear is that the impasse over measures needed to kick-start the economy requires urgent attention.

The government's reaction in the past months has been to strengthen the call for greater cooperation, with trade and industry minister Rob Davies saying the approach may have to be "presented as an instruction rather than in the form of an appeal". Transforming the carrot into a stick is likely to be met with greater opposition from the private sector, which is already grappling with a constrained economy, increasing wage bills, declining output and delays in government infrastructure spend.

Regulating the procurement of goods and services is likely to raise hackles, given the prevailing challenges of global competitiveness.

Manufacturing has been in decline for some years in the face of imports that make short-term sense but do little to stimulate local industries.

Stipulating the local procurement of goods and services through regulations when it is cheaper to buy from global suppliers does not make economic sense at face value - not unless the quality and price offered locally is on par with international benchmarks.

But we may have to take the pain in the short to medium term by way of slightly higher input prices to achieve the goal of localisation.

Convincing the private sector to make such a leap is going to require a show of faith from the government and its agencies - particularly the state-owned enterprises that have already been earmarked as beneficiaries of the government's infrastructure development plans.

A considerable portion of the announced R847-billion spend on infrastructure over the next few years can, and should, be directed at local enterprises with the capabilities to build this infrastructure.

The big players will be the most prominent beneficiaries of such contracts. It is incumbent on them to return this show of faith by heeding the call for localisation by supporting and developing smaller local players in the supply chain.

Although price is important, other factors need to be taken into account when adjudicating contracts, the most important being the long-term impact on and benefits to SA Inc.

As an investor in local manufacturing and infrastructure supply, I have seen first-hand the benefits that support from large companies and state-owned enterprises bring to these companies. Take Pandrol, for example, a supplier of fasteners for Transnet's rail systems. Because of the parastatal's commitment to local procurement, Pandrol has grown to become a global contender that is today able to compete in terms of quality and price against companies from our traditional trading partners. In the process, Pandrol has been able to create jobs in South Africa and earn valuable foreign currency when it wins competitive bids in the rest of Africa and elsewhere.

Besides quality and price, local knowledge and insight is vital in developing solutions that have a discernible impact on South Africa.

Another company in our portfolio supplies world-class software solutions that have transformed many of its clients' operations and retained valuable software engineering skills in South Africa. A foreign provider would have been less likely to understand the issues and apply a solution that made sense for the client and, importantly, for the country.

There is no better solution than for all parties to commit to working towards a common goal - to rescue a lagging economy. Entrenched positions are going to have to be forsaken for the benefit of all. This is going to require mutual trust between government, industry and labour to develop a common view on how to achieve accelerated growth.

Kgaboesele is the CEO of Sphere Holdings