R200 billion localisation plan under attack
South Africa is embarking on a massive R200 billion localisation drive that will be watched closely by policymakers and our trading partners in Africa and the world.
Localisation to stimulate local production and create local jobs has long been policy for the African National Congress (ANC) government. However, it’s now being implemented with vigour by the Department of Trade, Industry and Competition (DTIC).
For DTIC Minister Ebrahim Patel, it’s all about jobs and industrial growth and he set this out in policy statements and a speech to parliament in May 2021. This includes industry master plans, the sixth of which – for the steel industry – was signed last month.
As Patel explained, South Africa imports a lot of goods that could and should be made locally. The localisation policy aims to make that happen, including through tariff protection for infant or ailing industries.
He told parliament in May that the localisation drive had the support of major corporate entities, including 30 “CEO champions” and it aimed at localising up to R200 billion of additional production over the next five years.
The debate has developed since then, and the policy now has fierce critics, one of the most vocal being former editor Peter Bruce. He has powerful platforms through weekly columns in Business Day, the Financial Mail and the Sunday Times, and has used them to deride both localisation and Minister Patel.
In Bruce’s view, localisation is “a piece of ideology from 1960s Britain” that is “a manifesto for losers.” Donald McKay, a trade advisor who has supported chicken importers opposing import tariffs, describes provisions as “nonsense”. In addition, there have recently been warnings that import substitution could anger trading partners and breach international trade obligations.
It’s clearly going to be a bumpy road, despite support from SA’s business leaders. Patel is putting a lot of energy – and his reputation – into making localisation a success. R200 billion of new local production is a massive target, and a large number of South African jobs depend on the outcome.
List of localisation products
Minister Patel told parliament that the government had identified an “initial list of 42 products” where production could be localised.
However, there seem to have been no widespread publication of this list, and if it’s on the DTIC website, FairPlay has been unable to find it. Peter Bruce, in the Business Day column cited above, lists them as follows:
Agro-processing: poultry, sugar, oils, grains, juice concentrates and dairy products used in the food and grocery industries;
Health care: pharmaceuticals, personal protective equipment and medical equipment (for example, ventilators) used in public and private health-care facilities;
Basic consumer goods: clothing & footwear, home textiles, consumer electronic products & appliances (including televisions, mobile phones and white goods like fridges, stoves and washing machines), household hardware products, packaging material, furniture;
Capital goods: equipment and industrial inputs particularly used in infrastructure projects, mining, agriculture, the green economy and digital infrastructure;
Construction-driven products such as cement, steel, piping (plastic and steel), engineered products and earth-moving equipment;
Transport rolling stock: automobile and rail assembly and component production.
Benefits for the poultry industry
FairPlay is delighted to see the poultry industry on that list. The industry is already benefiting from the implementation of the poultry sector master plan which aims to do exactly what Patel has set out: reduce imports, expand local production and increase local jobs.
However one master plan provision that has been inexplicably delayed is a requirement for government departments and state-owned enterprises to use local chicken in their catering.
This objective has been there since the master plan was signed in November 2019. What’s the holdup, Minister Patel?
Tariffs are caused by importers, not local producers
Another of Patel’s critics is David Wolpert, former head of the local meat importers and exporters association.
In a recent letter Wolpert enthusiastically backed Mackay, criticised Patel and master plans (“mostly useless”) and then rounded on the poultry industry for launching nine tariff applications in the past 10 years.
In response, FairPlay pointed out that these applications were caused not by chicken producers, but by the dumped and predatory imports brought into the country by Wolpert and his successors.
Stop dumping, and tariff applications won’t be necessary.