Monday, 31 July 2017

South Africa’s local content policies: challenges and lessons to consider

  • Year: 2017
  • Author(s): Wendy Nyakabawo, TIPS Economist

South Africa through its Industrial Policy Action Plan (IPAP) identifies local content as a strategic industrial policy instrument, which can be used to leverage the power of public procurement; reduce the country’s trade deficit; address market failures; foster infant industries; and increase the governments tax base (the dti, 2016). Although local content is a commonly used industrial policy lever, and much has been done in South Africa to use this policy instrument, a number of constraints hamper its effective use, including the lack of a common definition, procurement processes, effective monitoring and information sharing. This policy brief paper draws on a recent research project undertaken by TIPS to model the economic multipliers of local content and the maximum price premium the state should consider paying in evaluating the benefits of buying local versus buying imported products. It assesses the key challenges and lessons of local content policies in South Africa. In particular, it analyses the economic rationale driving the argument for the use of local content policies. Furthermore, the brief highlights the reasons why local content policies are not resulting in the desired level of local procurement, and suggests possible measures that could be implemented.

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