By: Karen Keylock - National Retail Services Manager at Nedbank Commercial Banking

The world has been a global village for decades. Then came the Covid-19 pandemic, which highlighted the risks and threats arising from the heavy reliance many economies had placed on sourcing their goods internationally – often at the expense of local industry. In this article, Karen Keylock, National Retail Services Manager at Nedbank Commercial Banking, examines the case for supporting local procurement in South Africa.

According to Santam’s 'Most Loved Local Report' released in December 2023, 97% of South African consumers say that it’s important to support local. This is likely because of a renewed awareness of the role of local businesses and the effect of international supply chain disruptions experienced during the pandemic.

This aspiration is not limited to consumers and is not simply a ‘feel good’ goal. A study commissioned by Proudly South African, the country’s national Buy Local campaign, and conducted by Dr Iraj Abedian's Pan African Investment & Research Services (PAIRS), highlights the positive effects of domestic manufacturing investment on GDP, fiscal revenue, real wages, and consumer inflation, and concludes that the South African economy would benefit from an increase of just 10% in investment spending in the manufacturing sector.

To this end, the South African Government’s Retail, Clothing, Textile, Footwear and Leather Master Plan 2030 has the goal of increasing local procurement from 44% to 65% by 2030. Proudly South African was born out of the 1998 Presidential Job Summit and established in 2001 to influence procurement in public and private sectors, increase local production and encourage consumers to buy local. Proudly South African also initiated an import replacement drive which focuses on what can be made in SA rather than being shipped here from elsewhere.

In the private sector, large enterprises such as Mr Price, Pick n Pay, TFG and Woolworths have committed themselves to supporting the local textile manufacturing industry through procurement and partnerships. Pick n Pay, for example, says locally sourced goods represent 40% of total clothing sales and local retailers are hoping to source 60% of all textile products locally during the next 5 years, which is expected to create around 121 000 new jobs in the textile industry by 2030. 

Difficult to compete with cheap imports

The Most Loved Local Report’s findings, however, showed that although consumers may want to shop at stores that support local, close to two-thirds of respondents saw economic challenges as the biggest obstacle to supporting these businesses, as cheap Chinese imports are hard to beat.

But people don’t understand the economic effect of their purchasing decisions. By buying Chinese-made products, you are effectively assisting the Chinese to create jobs. China has 1.4 billion people with an unemployment rate of between 3 to 6% – a far cry from South Africa’s current unemployment rate of 32.9%. 

Recognising this conundrum, the South African Revenue Service (SARS) closed a tax loophole that previously allowed orders from e-retailers like Shein and Temu under R500 to be taxed at a flat rate of 20% and zero VAT. This meant that local producers and retailers could not compete on price, thus creating an unfair advantage for international online retailers. From 1 September, the tax rate on all imports, regardless of value, will increase to 45% plus VAT. 

Takealot.com owner, Naspers, and local textile and fashion players have welcomed the move, slating that Temu and Shein are threatening SA’s efforts to reindustrialise and localise manufacturing. Governments around the world, including the US and in the EU, are moving to do the same, recognising the harm these enterprises are doing to local economies and industries.

Things are looking up in the FMCG sector

Despite South Africa’s considerable agricultural potential and significant exports, there is a discrepancy between demand and local production for many food products. This gap is currently being filled by imports – the highest of which are wheat, corn, rice, meat, nuts, fresh vegetables, and even sugar. 

Fortunately, a revitalised sense of protectionism is driving a trend towards increased local food production. The Agriculture and Agro-processing Master Plan has identified agro-processing as a key driver for growing the economy, creating jobs, and promoting the growth of small and medium enterprises. Similarly, the implementation of the DTIC’s Poultry Sector Master Plan has seen the industry invest R800 million to upgrade production, resulting in the production of an additional 1 million chickens every week. The Sugarcane-Based Value Chain Master Plan has drawn commitment from large users of sugar to procure at least 80% of their sugar needs from local growers, resulting in a rise in local production and a decline in imported sugar last year.

There are also commitments from private FMCG retailers and manufacturers to support local procurement. For example, Pick n Pay is considering buying produce directly from farmers, which will also save on value chain costs, and SAB has committed to sourcing at least 95% of what they use to manufacture their products in SA. This includes sourcing locally grown barley and hops and using local manufacturers of glass bottles and labels. 

There are compelling reasons for retailers to source locally. These include greater control and increased business resilience as susceptibility to global shocks is significantly curtailed; reduced carbon footprint and lower handling, storage, and logistics costs; marketing opportunities driven by more consumers favouring brands with a social conscience; and, ultimately, the satisfaction of knowing you’re contributing directly to our country’s social upliftment and economic growth. 

One of the barriers to achieving a stronger, more competitive local supply chain is access to funding, but private sector funding is readily available through the banking sector. And, as the PAIRS research shows, it presents major benefits for producers, retailers, and the economy as a whole.