The case for supporting local

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 due to a renewed awareness of the role of local businesses and the impact 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. The study 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, which was established in 2001 following the 1998 Presidential Job Summit, aims to influence procurement in public and private sectors, boost local production, and encourage consumers to buy local. They also launched an import replacement drive that focuses on what can be made in South Africa rather than being imported.

In the private sector, large enterprises such as Mr Price, Pick n Pay, TFG, and Woolworths have committed to supporting the local textile manufacturing industry through procurement and partnerships. Pick n Pay, for instance, states that locally sourced goods represent 40% of total clothing sales, and local retailers aim to source 60% of all textile products locally over the next five years. This is expected to create around 121,000 new jobs in the textile industry by 2030.

The Most Loved Local Report findings, however, show that although consumers want to support local stores, almost two-thirds of respondents cite economic challenges as the biggest obstacle. Cheap Chinese imports are difficult to compete with, but people often don’t understand the economic effect of their purchasing decisions. By buying Chinese-made products, they are effectively helping create jobs in China, which has a much lower unemployment rate compared to South Africa’s 32.9%.

To address this issue, the South African Revenue Service (SARS) recently 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%, with zero VAT. Now, as of 1 September, all imports are subject to a 45% tax rate plus VAT, leveling the playing field for local producers and retailers.

Despite South Africa’s considerable agricultural potential and significant exports, there is often a gap between demand and local production for many food products, filled primarily by imports. Fortunately, a revitalized sense of protectionism is driving a trend toward 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 small and medium enterprises.

Likewise, the DTIC’s Poultry Sector Master Plan has led to an industry investment of R800 million to upgrade production, resulting in an additional one million chickens produced weekly. The Sugarcane-Based Value Chain Master Plan has seen commitments from large users of sugar to procure at least 80% of their sugar needs locally, leading to a rise in local production and a decline in imports last year.

There are compelling reasons for retailers to source locally, including greater control, increased resilience to global shocks, reduced carbon footprint, lower handling, storage, and logistics costs, and marketing opportunities, as consumers increasingly favor brands with a social conscience. Supporting local production also contributes directly to South Africa’s social and economic growth.

One major barrier to a stronger local supply chain is access to funding, but private sector funding is readily available through banks. As the PAIRS research indicates, increased funding for local procurement presents substantial benefits for producers, retailers, and the economy.

 

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