Goods that are produced locally using locally sourced materials are likely to have higher production costs. This has a bearing on taxation and, if goods are to be sourced locally, there needs to be some type of concession to support the local industry, rather than the world market, said South African Revenue Service deputy Commissioner Dr Johnstone Makhubu.

Sourcing decisions are increasingly changing the economies of sovereign States and cannot be taken for granted, he said at the Chartered Institute of Procurement and Supply Africa 2025 conference, on August 6.

The challenge in South Africa, however, is that all the regulatory and supplier development instruments are in place for local sourcing and supplier diversity.

“The regulatory environment is not insufficient, so something is missing to boost local sourcing and supplier diversification. South Africa and Africa's primary sectors are robust, but the country and the continent never sufficiently deepened the secondary sector,” he said.

An analysis of intra-Africa trade highlights this lack, and South Africa trades more with the rest of the world than with other African countries, he noted.

“While each import represents an opportunity to add value, and the purchasing and supply management profession are well poised to help Africa to address its challenges, it is important to identify which problems we are empowered to resolve.

“Africa's and South Africa's primary and services sectors are performing well. We are unable to add value to our natural resources because our manufacturing is too shallow. When a fundamental sourcing decision is deficient, the consequences can be severe. It is important to depart from this point,” said Makhubu.

The heart of the issue is the manufacturing industry that drives localisation. To enhance local sourcing, the risks and challenges facing local industries need to be identified and actively and transparently addressed, similar to what the Asian Tiger economies have achieved.

“To support local sourcing, we need partnerships. For example, even the tax administration can give concessions that take into account products that have been locally sourced.

“We need such partnerships, if we want to pursue an export-led or import-substitution-led industrial growth strategy.

"The Asian Tiger economies did not drive their industrialisation policies from an emotional or regulatory perspective, but educated their companies about the policies and worked with them to develop the competitive industries they had.”

Additionally, the policy approach to concessions must focus on ensuring that local sourcing primarily benefits the ecosystem, which can be done by focusing on understanding and then mitigating risks, he said.

“We must promote strategic partnerships to support local producers. To diversify suppliers in a sustainable manner, we must deliver targeted supplier development programmes that identify and unbundle the procurement opportunities, and which also allow new entrants to come through,” he recommended.