Proudly South African: Driving Economic Resilience Through Localisation

By Eustace Mashimbye: Chief Executive Officer: Proudly South African

When tabling the national budget before parliament, Finance Minister Enoch Godongwana’s acknowledgement of the economy’s lacklustre performance over the past 10 years lends credence to the increasing calls to funnel public and private procurement expenditure to local procurement in order to turbo charge sluggish economic growth.

The minister conceded that a bigger, faster growing economy, and the larger fiscal resources that comes with it would give the National Treasury the fiscal leeway to meet the country’s developmental goals.

“The truth is that our economy has stagnated for over a decade. In that time, GDP growth has averaged less than 2%, far below the level required to meet our expanding list of needs. In 2024, the economy grew by only 0.6%. Over the medium term, GDP growth is projected to average 1.8%. To meet our goals of redistribution, redress and structural transformation, the economy needs to grow much faster and in an inclusive manner. This is the central objective of the current administration,” Finance Minister told parliament.

While Proudly South African heartily welcomes the enormous capital expenditure of over R1 trillion that the Minister will allocate for public infrastructure over the next three years, it is peculiar that a more robust and localised public and private sector procurement directive is conspicuous by its absence from the four growth pillars that the accelerated economic growth strategy will be based on, namely maintaining macroeconomic stability, implementing structural reforms, improving state capability, and accelerating infrastructure investment.

This anomaly of an over-reliance on imports as opposed to local procurement was noted by the World Bank, which noted that according to its data, South Africa imports a larger percentage of goods and services compared to what it produces domestically, with the "imports of goods and services as a percentage of GDP sitting at 31.47%, while exports of goods and services as a percentage of GDP is at 33.44%, indicating a higher reliance on imported goods and services than locally procured ones”.

South Africans from across the political divide are unanimous in their diagnosis that the current economic growth trajectory of below 2% falls way short of making a noticeable impact on unemployment and poverty alleviation. Drastic interventions are required to revitalise the economy and enable it to make a meaningful difference in reducing unemployment, alleviating poverty, and bridging the widening income disparities.

Localisation of the economy is critical to job creation and building resilience

At Proudly South African, we have been consistent in our view that localisation of procurement by the public and the private sector, as well as the buying of locally made products and services by ordinary consumers, will go a long way towards accelerating the industrialisation of our country, taming down spiralling unemployment, and capacitating fledgling entrepreneurs into future conglomerates.

There are compelling arguments that can be made in favour of improved local procurement. Data from Statista on South Africa’s trade balance of goods from 2013 to 2023 shows that the country’s trade deficit in 2023 amounted to around $19.89 billion, or a staggering R370 billion! Trade balance is the value of exported goods minus the value of imported goods, while a trade deficit occurs when a country's imports exceed its exports.

A positive trade balance signifies a trade surplus, while a negative value signifies a trade deficit. By leveraging our collective spending, we believe that we have an opportunity to drastically change this picture and give the ailing economy a new lease on life.

The knock-on effects of local procurements will manifest themselves in a trade surplus, which means a substantial increase in the level of output from a country's factories and industrial facilities and a greater number of people who are being employed to keep these factories in operation when there are more exports.

Increased localisation also translates to an inflow of funds that spurs consumer spending, which in turn stimulates economic growth and creates robust consumer demand for local enterprises.

At Proudly South African, we are unwavering in our conviction of the causal link between enhanced local procurement and economic growth and job creation. It is for this reason that we hosted the Buy Local Summit and Expo on 17 and 18 March at the Sandton Convention Centre in Johannesburg.

This event gives expression to our belief that supporting local enterprises and adopting biased procurement practises that favour local sourcing and purchasing of goods and services made in South Africa will go a long way towards stimulating economic growth and creating much-needed jobs in line with this year’s theme: Building a Resilient Economy Through Localisation.

Shifting global development makes a compelling case for localisation

The recent global geopolitical developments have rendered the localisation message even more relevant. Some pundits have hinted at South Africa possibly facing ejection from the African Growth and Opportunity Act (AGOA) when the free trade agreement comes under review in September this year. AGOA gives sub-Saharan countries - including South Africa – duty-free access to the expansive US market for a specified basket of products.

Moreover, South Africa has a long-standing trading relationship with the United States. According to the trade and investment figures released by the Embassy of South Africa to the United States, the United States ranked as the second largest destination for South Africa’s exports after China and the United Kingdom. Bilateral trade between South Africa and the United States increased to US$21.4 billion in 2021, from US$15.9 billion in 2020 and US$13.3 billion in 2019, while United States imports from South Africa increased to US$15.9 billion in 2021, from US$11.5 billion in 2020 and US$7.9 billion in 2019.

The hiking of tariffs on some exports to the United States (including those from South Africa), is likely to have an adverse impact on South African producers. There is no doubt that the potential revocation of AGOA benefits from South Africa, coupled with the tariff hikes on South African exports to the United States, will have tectonic ripple effects on the local economy, which is already buckling under a myriad of challenges, including but not limited to ballooning government debt, low investment and growth, fiscal vulnerabilities, widening inequality, spiralling unemployment, and rising poverty levels.

The role that government can play to insulate the economy from external shocks

As the custodians of local procurement, we believed that the minister missed an opportunity to make policy pronouncements on the National Treasury’s increased support to departments and entities tasked with funding and supporting small and medium-sized businesses. We were also disappointed that the Minister did not take this opportunity to rally his colleagues in various departments to fast-track the implementation of policies that compel procurement processes that favour localisation.

Small and medium-sized businesses are still reeling and recovering from the far-reaching impact of the COVID-19 outbreak, the July 2021 unrest, the debilitating power outages experienced last year, and sluggish economic growth. The importance of small and medium-sized businesses to the economy cannot be exaggerated – the sector contributes approximately 40% to the country’s GDP and employs between 60 and 80% of the workforce.

We have ample opportunity to unlock the latent potential of small and medium-sized businesses in South Africa by supporting them through leveraging the immense procurement spend we have at our disposal.

To put this into perspective, it is estimated that the South African government spends almost a staggering R1 trillion per year through the public procurement system. While procurement spending for the private sector is yet to be compiled and quantified, the amounts must be astounding. We, therefore, call upon the National Treasury to lead by example and use its procurement policy powers as a war chest that can be repurposed to drive industrialisation, accelerate the growth of small and medium-sized businesses and adjacent local enterprises in the value chain, and thereby generate employment opportunities.

Public procurement is a complex development tool that cuts across all sectors of the economy. It creates many opportunities and challenges. These opportunities include supporting micro, small, and medium enterprises, driving innovation, enhancing trade and competitiveness, strengthening financial inclusion, especially for vulnerable and disadvantaged groups, improving transparency using new technologies, and reducing corruption.

While it remains without doubt that small and medium-sized businesses play a critical role in the economy, their contribution is yet to be fully realised. South Africa’s SMEs still play second fiddle to their counterparts in developing and developed countries.

According to the International Labour Organisation (ILO), SMEs contribute more than 50% of GDP in most OECD countries. Some global estimates put this figure as high as 70%. This contribution varies across sectors and is particularly high in the service industry, where SMEs account for 60% or more of GDP in nearly all OECD countries.

The localisation of the economy will undoubtedly help to fast-track the growth of local enterprises, help to incubate innovation, and grow new industries, and enable local enterprises to scale up and employ more people, thereby increasing the tax base and revenues to the fiscus which in turn can be reinvested back into local procurement and provision of a social net for the most vulnerable in our society.

The role of consumers and the private sector in driving the localisation agenda

The onus to drive industrialisation and localisation does not only lie with the public sector, consumers and the private sector also have a role to play. The latter can do so by increasing their levels of procurement in the procurement of goods and services required by their businesses. It is in the best interests of the private sector to augment their investment in South Africa, if not as a moral obligation, but because it makes commercial sense to do so.

By creating jobs and supporting qualifying but fledgling SMEs, the private sector will be creating a class of consumers that will in turn be able to purchase their goods and services., In addition, they will contribute to the expansion of the tax base and the reduction of citizens who are reliant on social grants.

Consumers have an important role to play in ensuring that we reinforce the economy against exogenous factors that are beyond our control. Consumers need to understand the economic impact of their purchasing decisions and that a simple gesture like swiping a card, or loading an item on a cart can mean the difference between a job created or an employment opportunity lost.

The decision to buy local is more than just a preference; it’s a strategic choice that can drive sustainable economic growth, create jobs, and strengthen communities. By supporting locally made products and services, consumers, organisations, and government can ensure that their spending has a positive and lasting impact on the local economy. This approach not only benefits the community today but also builds a foundation for future prosperity and resilience.

In an increasingly globalised world, the importance of localism cannot be overstated.

Whether it’s through policy initiatives, consumer choices, or corporate responsibility, embracing localism and localisation practices is key to creating a more equitable, sustainable, and vibrant economy.

Source: Briefly News