A critical structural defect of the South African economy was its reliance on the extractive industries, which urgently needed to be redressed through the expansion of local manufacturing capabilities, Public Enterprises Minister Malusi Gigaba said at the Department of Public Enterprises’ recent Supplier Development Summit.

A reduction in domestic import dependence would, he claimed, tackle the deterioration of the State’s balance of payment account – currently languishing at a negative 6.2%.

Addressing delegates, Gigaba said there was growing consensus that sustained current account imbalances resulted in significant and prolonged economic downturns.

“The development of our capital goods manufacturing sector to reduce the imported content of our State-owned company (SOC) investment programmes, as well as an increase in exports, is critical in preventing this,” he said.

Gigaba acknowledged that the demand created by SOCs through their investment programmes and operational spend played a pivotal role in either promoting or inhibiting investment in their supply chain.

He warned, however, that the onus remained on the supplier to become and remain globally competitive, and called for a clear compact which would see national industry committing to constantly improving capabilities and efficiencies in exchange for the opportunities provided by SOCs.

“If national suppliers are seen to be seeking rents, becoming complacent or abusing a monopoly position in the market, we will have no alternative but to import,” he cautioned.

In addition, he noted that national industrial capabilities were “fragile”.

A benchmarking exercise of a sample of SOC capital goods suppliers undertaken by the department suggested that only 7% operated at a globally competitive standard, while 50% were pursuing development strategies to attain an international level.

“However, the remainder of our supplier base are performing below their potential or are vulnerable to collapse,” he commented.

He added that, in analysing the existing local content in SOC supply chains, South African manufacturers were overwhelmingly producing components that required relatively simple industrial capabilities, while the bulk of those components requiring intermediate and advanced capabilities were imported.

“We need to break down traditional silos in our economy that are holding back our move into more technologically sophisticated SOC supply chains, and have the confidence in ourselves that we can master the technologically advanced terrains and large investments in plant, technology and skills,” he said.

A shift from short-term transactional relationships between the State and its suppliers to long-term, strategic and collaborative relationships was further required for the localisation of advanced manufacturing and design capabilities, Gigaba said.

He discouraged black-owned companies from taking a short-term profiteering outlook on business by rather adopting one focused on longer-term investment to build a sustainable black industrial class.

Economic Development Minister Ebrahim Patel reiterated that this required the abandonment of the philosophy of short-termism that sought to maximise return over a year or two.

“Sustainable profit flow requires investment in people, machinery, production systems and research and development, and is a vital component of a balanced, high-performance economy,” he said.