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Friday, May 7, 2010

The paradox of preference

Safeguards needed as ‘buy local’ gains traction (South Africa)
Patel’s idea is to use government procurement to promote demand for locally produced goods and services, as well as to improve the quality of such goods and services.

Such an office could add yet further impetus to an increasingly serious attempt to build local industry (and to create decent jobs) around public procurement.

Now, in the context of a country where the yearly Budget stands at over R900-billion, and where there are a host of State-owned enterprises spending serious money on investment projects (over and above their yearly stay-in-business expenditure), this focus on procurement makes sense. That is also why it is, arguably, being perceived as the lowest-hanging fruit within the second industrial policy action plan, or Ipap2.

However, it also has to be acknowledged that ‘buy local’ campaigns have a tendency to be associated with some serious negative con- sequences, such as increasing levels of corruption; creating the conditions for fronting; and increased pricing as localisation crowds out economic principles.

In a context of the nationalist chauvinism hinted at recently by the likes of the Black Management Forum, which had the impudence to suggest a review of the Constitution owing to the fact that some “noble” provisions had “unintended consequences”, the potential for such negative outcomes is real and has to be recognised from the outset.

Recent international experiences of local-content drives, particularly out of Brazil, are also somewhat encouraging.

Nevertheless, we have to be alive to both the threats and opportunities of any big local content push and attempt to build in safeguards to ensure that these are contained.

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