Policy Statements, 2007

Competitive Supplier Development Policy

State owned enterprises (SOE) particularly Eskom and Transnet, are increasing capital and associated operational expenditures over the next ten to twenty years. The success of this investment programme is intrinsically bound to the responsiveness and competitiveness of local supplier industries. Due to relatively low expenditures over the past thirty years, supplier industries in South Africa have been significantly compromised. This expenditure is taking place in a context in which there is global growth in the demand for infrastructure-related capital goods, particularly in South and East Asia. Given this global demand, the cost of importing infrastructure related capital goods is increasing.

DPE have therefore produced a supplier development policy, which has been approved by Cabinet. The policy is aimed at leveraging SOE expenditures to optimise the development of national supplier industries and, where possible, build export capabilities. The policy focuses on enhancing the competitiveness of national industry rather than providing price premiums for local content, which would result in an increase in the cost of investment and would probably necessitate an increase in the prices charged to customers. This would have the effect of crowding out investment in the SOE customer industries and thus dampening growth.

SOE have a choice of utilising this policy or the National Industrial Participation Policy (NIPP), and SOE wishing to utilize the new policy must give their shareholder Minister formal notice of a commitment to draw up a Supplier Development Plan, and then submit the plan within one year.

In essence, the supplier development plans should identify opportunities for improving the capacity and competitiveness of the local SOE supply base, and must be produced in consultation with suppliers. The plans will contain a capital and operational expenditure projection and analysis; an analysis of the strengths and weaknesses of the supplier industries as experienced by the SOE; a list of interventions to enhance the supplier industry; and key performance indicators which include skills development and which reflect a balance between developing local industry and obtaining maximum value. The Supplier Development Plans will inform the procurement strategies of the SOE. The plans will be updated periodically, and SOE will be required to report on progress with implementation of the plans in terms of their normal reporting to their shareholder Ministers.

The policy has the potential to result in a reduction of the import content of the capital and associated operational expenditures of the SOE by 10%, which would result in an additional R6 billion of planned expenditure gong to local companies over the next five years. In addition, there will be substantial long-term economic benefits from increasing the competitiveness of local industries supplying SOE.