The call for public hearings by the Select Committee of Finance in order to review application and consequent outcomes of the Preferential Procurement Policy Framework Act (No.5 of 2000), hereafter referred to as ‘the Act’, provides Parliament, government and key stakeholders with the valuable opportunities. It is hoped that this review process will help determine the outcomes of the application of the Act, its inherent shortcomings, and synergy with recently policies and legislation, such as the broad-based Black Economic Empowerment (BEE) Bill, the supply chain management framework, Public Finance Management Act and related legislation.

The review should also draw attention to developments during the period 2000-2003 that impacted and continues to influence the practice of preferential procurement as a tool to effect socio-economic development, create sustainable employment that meets labour standards, and promotes the inclusion of marginalized communities and individuals in economic development.

COSATU therefore welcomes the opportunity to provide comments and suggestions on the review of the Act. Our view on the significance of Preferential Procurement Policy is underpinned by the belief that preferential procurement policy remains one of the central pieces of legislation and policy that can ensure the realisation of economic emancipation and empowerment, as was expressed in our submission when the Act was still a Bill. We remain concerned however about the problematic timeframe within which these hearings were made possible planned.

As far back as 1999, COSATU made a submission to the Joint Committee on the Preferential Procurement Policy Bill. As part of the Labour Submission, we made a submission on the Preferential Procurement Policy Draft Regulations, in mid-2000.

In previous submissions and engagements with Parliament, NEDLAC and government departments, we have consistently highlighted the shortcomings of the Act. These include an unsatisfactory process leading to the Act, largely through foot-dragging by the Department of Finance, resulting in the absence of a White Paper process, which could have resulted in better public participation.

Similar concerns were expressed at NEDLAC, in particular our serious reservations around the processing of the Act. The undermining of the consultation process has predictably led to the limitations of the Act not being corrected.

Whilst some progress is finally being made towards uniformity in the procurement process amongst different organs of state, the various distortions brought about by different systems since the promulgation of the Act has had a range of negative consequences, some of which will be demonstrated in this submission.

Our original concerns have therefore been justified and we propose that shortcomings of the Act be remedied as soon as possible. With the finalisation of legislation around BEE, which also deals with issues of preferential procurement, there is the increasing tendency to interchangeably speak of preferential procurement and this aspect of BEE. COSATU reiterates that the primary objectives that need to inform procurement policy include:

• employment creation;

• economic empowerment of previously disadvantaged persons or categories of persons;
• the quality and cost efficiency of goods procured;

• the promotion of domestic (as opposed to foreign) manufacturers/service providers; and
• the promotion of best practice labour standards and worker rights.

Given the problematic implementation and interpretation of this Act by several government departments, parastatals, municipalities and public sector entities, a review of the application of the Act is long overdue. Several important developments and changes to the environment within which the Act is to be applied have transpired. This is briefly outlined in this submission. We remain unclear about the process subsequent to these hearings and request Parliament and government to provide a coherent explanation in this regard. A commitment was made by government in NEDLAC that any changes to procurement policy, legislation or regulations would be taken to NEDLAC for engagement and we support such a course of action.

COSATU has consistently dealt with issues of procurement at various levels, that is at NEDLAC, Parliament, various sector summits, and direct engagement of several affiliates in their sector as well as close involvement in detailed research around procurement. Specifically the procurement study for the Fund for Research into Industrial Development, Growth and Equity (FRIDGE), completed in June 2003, provides valuable insights.

The FRIDGE procurement study came about as a result of an agreement by NEDLAC constituencies to ‘assess the current context of South African procurement and develop strategic recommendations to enable further consideration of local content, quality, labour and environment in procurement’. Several of the study’s outcomes are therefore key to evaluating the efficacy, application and outcomes of the Act.

Our submission briefly highlights various developments within various sectors influenced by the Act and having to deal with the outcomes of the regulations emanating from the Act. Whilst the submission provides a selective and broad overview, we hope that it can contribute significantly to the review of the Act and its associated implications.

Subsequent to the review, COSATU hopes to be closely involved in any process that follows thereafter. We commend the Select Committee on Finance’s initiative in calling for the review. It could also lay to rest COSATU’s on-going concerns about:

• the very problematic process in which this important piece of legislation was introduced and processed in Parliament, which we hope this review would correct in the long-term by recommending definitive corrective action;
• the concerns regarding mechanisms to encourage compliance with the Act from all organs of state, including local government, parastatals, and statutory commissions;

• The realisation and promotion of local content, best practice labour standards and worker rights, which to date, has not happened; and
• The need for employment creation to be refocused as one of the central aspects the objects of the Act.

We hope that further debate will be stimulated in Parliament as a result of this review including, among other, Committees to deal with this issue.

1. Defining preferential treatment

A uniform understanding of the term preferential procurement is important if uniformity of interpretation, application, monitoring and evaluation at all spheres of government, and within parastatals and all entities funded with public money, are to be effected.

COSATU’s understanding of preferential procurement is entrenched in its use as an instrument to bring about socio-economic change, one of the central strategies in the Reconstruction and Development Programme (RDP). As per the Act, we believe that the concept of preferential procurement is amplified in the Constitution of the Republic of South Africa (Act No. 108 of 1996). Section 217(2) of the Constitution provides for preferencing policies in the allocation of contracts, while Section 217(3) requires that national legislation must prescribe a framework within which procurement policy must be implemented.

Essentially, the Constitution guarantees that when an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must be effected within a fair, equitable, transparent system.

To give effect to this section of the Constitution, the Preferential Procurement Policy Framework Act (Act No. 5 of 2000) [PPPFA] was passed in February 2000, as a tool to effect targetted procurement. Regulations to the PPPFA were issued in August 2001 to establish norms and standards for the application of the framework provided for in the Act.

COSATU therefore broadly agrees with the ‘Implementation Manual on the Use of Targeted Procurement [TP] to Implement an Affirmative Procurement Policy’ that defines TP (hence preferential procurement) as:

"a system of procurement which provides employment and business opportunities for marginalized individuals and communities, enables procurement to be used as an instrument of social policy in a fair, equitable, competitive, transparent and cost-effective manner and permits social objectives to be quantified, measured, verified and audited". (emphasis ours)

The above definition provides possibilities to address the skewed employment and business opportunities for marginalized individuals and communities (target groups) brought about by apartheid and which GEAR has failed to address.

With regards to the competitive aspect contained within the above definition, we have our reservations with regards to its interpretation, in that it could lead to exclusion of potential contractors and has led to the shedding of jobs. However, it is important to note that the provision of employment is a primary objective. As will be shown in this submission, the implementation of the preferential procurement policy did not meet this basic requirement, the reasons for which are many. We will comment on some elements of this fundamental shortcoming in this submission.

It is also regrettable that preferential procurement was linked to the realization of public-private partnerships that have been implemented by various organs of the state, particularly those involved in infrastructure delivery. This is also a problematic and narrow interpretation.

Clearly the definition of preferential procurement therefore shapes understanding and interpretation of outcomes and influences recommendations to correct these serious shortcomings.

2. Rationale for preferential procurement

As per our submission on the Preferential Procurement Policy Framework Bill in December of 1999 , we maintain that the use of procurement policy should remain a tool of development and transformation. There should be renewed energy to ensure that the Act, applied within an appropriate, uniform and progressive framework, be used to advance worker rights and promote job creation, despite current outcomes to the contrary.

Several strategic policy documents emphasise the importance of procurement policy as a tool of transformation. Briefly, the RDP states that tenders "must be utilised to encourage stakeholder participation in the RDP [now RDP-based service delivery objectives] and promote worker rights, human resource development and job creation" (at 4.8.11).

Furthermore, the ANC National Policy Conference in October 2002 highlighted the centrality of the Act in the development agenda. Among other, preferential procurement policies were to ensure an increase in demand for quality local products, enhance the effective use of government's instruments such as licensing, procurement, state asset restructuring and provision of finance, to target BEE.

Resolutions at the Policy Conference also drew attention to the fact that the mandates of state owned (assets and) enterprises should be ‘revisited, evaluated and monitored more closely to ensure that their social and economic mandates (including such issues as procurement, equity and transformation) remain aligned to our development agenda’.

Important too was a decision that government ‘establish an Inter-Ministerial Committee on infrastructure development’ in order to establish a ‘monitoring and evaluation framework for infrastructure development, including the standardisation and harmonisation of procurement policies and procedures’.

A resolution was also taken to ‘develop an infrastructure investment framework to:

• secure private sector investment through social investment programmes;
• ensure investment by financial institutions in infrastructure;
• align public sector budgeting, procurement and funding on multi-year basis;
• direct government purchasing power and procurement systems to support SMME skills development and investment in infrastructure; and
• support technology innovation through private-public partnerships that ensures production of South African goods and services in line with the Proudly South African campaign.’

Whilst there are positive elements to these resolutions, they have perhaps also contributed to the blurring of the objectives of BEE, public-private partnerships and preferential procurements policy, in the absence of guidelines clearly outlining these differences. Significant by its absence is the creation of employment, one of the key objectives of targetted procurement, as defined earlier.

It remains COSATU's view, as per our 1999 submission that South Africa’s new procurement system should ‘not be driven by price alone’, but that ‘a range of other socio-economic factors should be taken into account.’ These include ‘historically excluded categories of individuals to be granted adequate opportunities in the allocation of government contracts, procurement to be used as an active instrument of socio-economic policy, such the promotion of employment creation.’ Section 217 of the Constitution should be interpreted ‘to mean inter alia that government identify categories of preference in the allocation of contracts that will give preference to those suppliers who adhere to and advance worker rights’. We reiterate that procurement policy is a key instrument of a developmental state.

Availing the procurement system to new sellers and through the terms its sets in its contracts of purchase, government is able to use its procurement power as a lever with which to bring new companies into the mainstream of the economy and promote ethical practices and labour standards. In so doing, the economy can be pushed onto an innovation led, high wage, standards-based growth path, rather than keeping it on its present job-shedding growth path and the perpetuation of a highly skewed wealth distribution. Preferential procurement could also help ensure that value chains are completed, which is a fundamental aim of the Integrated Manufacturing Strategy (IMS).

Part of the negative outcomes in the application of the Act, is that there were controversial trade-offs between these pillars of a transformed procurement system, which are demonstrated in the case studies listed in this submission.

As per the motivation for the FRIDGE study, the rationale of preferential procurement, in terms of the values of local content, quality, labour and environment, is that it could contribute significantly to South Africa’s socio-economic transformation. It could also ensure that economic growth is not achieved at the cost of the rights of workers or the environment, in accordance with the principles of sustainable development.

COSATU supports preferential procurement based on the belief that, if correctly administered and managed, it could:

• Generate employment multiplier effects;
• Increase productive investment;
• Contribute to broad-based black economic empowerment;
• Encourage integration of value matrices;
• Improve the effectiveness of public sector investment and spending; and
• Enhance local production in terms of producing world-class products in a labour-friendly environment.

1. Post-2000 developments relating to procurement

In attempting to produce a succinct presentation, several key developments relating to procurement would be missed, extensive as they are. However, a few of the key developments, subsequent to the promulgation of the Preferential Procurement Policy Framework Act 5 of 2000 are listed here. They include:

• The Preferential Procurement Regulations, 2001, as published by the Ministry of Finance, pertaining to the Preferential Procurement Policy Framework Act no.5 of 2000. These regulations include the 80/20 preference point system and the 90/10 preference point system for tenders below and above R500 000 respectively, and outlines, for any organ of state, the duty to plan; general conditions, principles, declarations, penalties, tax clearances and tender goals.

• The Proudly South African (PSA) Campaign was launched late in 2001 as an initiative of the National Economic Development and Labour Council (NEDLAC). It is supported by organized business, organized labour, government and the community. The (PSA) Campaign promotes South African companies, products and services in order to help create jobs and economic growth in South Africa. It is an initiative established late in 2001 and is supported by organized labour, organized business, government and community organizations. Central to the campaign is the Proudly South African logo, which can be used by companies that meet standards that include at least 50% of their production costs, including labour in South Africa. The PSA Campaign also promotes fair labour and employment practices, and is committed to sound environmental standards.

• The Policy Guidelines for the Issuance of a Supply Chain Management Framework in terms of Section 76(4)(c) of the Public Finance Management Act (PFMA) – produced by the National Treasury in 2002. ‘According to the National Treasury, supply chain management is an integral part of financial management, that intends to introduce international commercial best practice’. Ostensibly, it seeks to ‘breach the gap between traditional methods of procuring goods and services and the balance of the supply chain and at the same time addressing procurement related matters that are of strategic importance.’ Regulations around supply chain management will now require of accounting officers and accounting authorities to extract accurate commercial and other relevant information, in order to effectively measure the achievement of government’s procurement objectives. A database of Local Suppliers is also being developed in order to match future demand with current capacity. These policy guidelines also ‘draws in the PPPFA and its Regulations’.

• Several NEDLAC Sector Summit Agreements, notably in the Clothing Sector and ICT Sector, involving our affiliates SACTWU and CWU respectively, having proven to be insightful, both in terms of agreements reached, and in terms of corrective measures to be taken to address the problematic implementation of the Act.

• The broad-based Black Economic Empowerment Bill tabled in Parliament in 2003 also includes issues of preferential procurement – how to link and priories specifically local production

The above are but a few of the developments post-2000 that impacts on the Act. There has been many other policy documents around procurement, notably ESKOM, Telkom, Transnet, the COEGA project, the Liquid Fuels industry, the City of Cape Town and the Department of Public Works.

These initiatives all indicate that organs of the state are fully aware of the need to realise the objects of the PPPFA of 2000. It becomes important to unpack why there are so many problems being experienced as highlighted in the selected case studies.

1. Selected case studies

The following select examples demonstrate the manner in which Act has been implemented, and the inherent problems associated with selective interpretation thereof. It draws attention to the need to have a uniform driver of the procurement process, in order to prevent the following problematic outcomes. There are many other examples from other sectors, but which cannot be included because of the limitations of this submission’s length.

Both Mustek and Pinnacle are South African IT companies that supplies computers. Mustek has a 20% market share and is the largest domestic producer followed by Pinnacle. However, neither company was able to tender for desktops and notebooks to government and specific parastatals as a result of technicalities permitting only foreign suppliers to participate.

An example of how a government tender excluded these companies is found in the government RT 222 tender. It is the largest of the government tenders for supplying ICT/electronic equipment. The tender stipulated that only first tier brands (according to a grading system from the Gartner Group) were permitted to tender for certain categories in the tender. These brands would include IBM, Hewlett Packard and Dell. In South Africa there is no grading system in the domestic industry.

The FRIDGE report concluded that: ‘according to the Gartner rating, South African suppliers were restricted to only tendering for two categories, whilst the high value components of the RT222 were being awarded exclusively to foreign suppliers. This resulted in the expatriation of capital and little or no capital reinvested into capacity development within the domestic ICT/Electronics industry.’ This discriminates against the South African suppliers:

An example of how South African suppliers are excluded from parastatal tenders is found in the case study of Transnet. The tender issued by Transnet in 2003 said that it would only consider ‘tier-one products’. Another technical specification is that the company must have at least a 2% world market share.

The South African products are of a very high standard. Both Mustek and Pinnacle’s computers are ISO compliant. Additionally, Mustek’s computers are also Windows Hardware Quality Labs (WHQL) approved, which is a Microsoft procedure for certifying that the hardware for peripherals and other components is compatible with Microsoft Windows operating systems.

After lobbying by Mustek and Pinnacle, Transnet stated that the tender should have been reworded to list the Tier-one products but stated that similar products are acceptable.

The most recent outcome of the lobbying by local suppliers has been the establishment of a procurement committee aimed at addressing the exclusion of local companies from government and parastatal tenders. Representatives from the IT industry, trade unions and Proudly South African sit on the body. The body will monitor and target all exclusionary tenders.

In addition, the Department of Trade [DTI] and Industry’s Minister Alec Erwin, has pledged to intervene in any government technology tenders that bar local companies from bidding . The DTI would evaluate the content of tenders to see if it was reasonable to specify if it could not be met locally. If the department concludes that a tender is unreasonable, it would attempt to facilitate changes where it can.

The above example demonstrates that some progress is being made with regards to challenging the exclusion of local companies from government and parastatal tenders, and that there is support from local business, labour and government in this regard. However, we contend that the fundamental flaw remains in the law itself, indicating a need to tighten it up.

The Limpopo Department of Education (formerly the Department of Education, Art, Sport and Culture) has, according to the FRIDGE report, been applying the principles of the Preferential Procurement Policy Framework to its procurement system for around a year. Decisions are therefore made on the basis of the 90:10 or 80:20 points system. They allocate the preference points for one or a combination of the following, depending on priorities determined by the purchasing office for that specific procurement item, viz:

• BEE
• Women equity
• disability
• a broad definition of historically disadvantaged individual [HDI]
• youth
• locality of enterprise

The Fridge report noted that any consideration of "local content" within this system (which may make up around 4 points where used) will be based on where the company is located (viz. within the province), and not on the product level. Products could thus be sourced from elsewhere – including other provinces in SA or countries outside of SA, but local preference was included as an advantage. Clearly, this example demonstrates creative initiative by a provincial government department to promote local economic development.

Several examples demonstrate the impact the rising of imports in the engineering sector, which came as a result of undermining local content by providing tenders to foreign companies and side-step local industries.

The Telkom tender to a South Korean company is a clear example. A few years ago a company from South Korea won a tender with Telkom, resulting in it capturing 30% of the local market. The extension of this tender was provided to this company at the expense of Aberdare Company, which provided products to Telkom in the past. The consequence of this decision by Telkom resulted in the closure of Aberdare plant in Rosslyn, north of Pretoria.

Telkom’s decision also affected the ATC Company, which adjusted to the loss of the purchaser by retrenching approximately 500 workers. Government and parastatals’ failure to source their material locally is definitely undermining local production and also contributes to the loss of jobs. Table 1 clearly captures the rise of all wire and cables (i.e. optic fibre, copper wires, super tension cable, medium voltage cable, low voltage power cable, communications cable, co-axial cables and optical fibre cable) imports in the local market. This situation arose mainly because of government structures and parastatals procurement practices. Imports range between R 1-7 billion per annum over the period 1991 – 2001.

Sources: Customs and Duties, and AECMSA, 2001 Note: the imported figures, represented by the bar chart, have been increased by 33% to convert them to a local selling price.

Imports of radio, television and communication products, plastic products and the manufacture of radio transmitters and apparatus for line telephony and line telegraph reflect a similar pattern. There has been a significant rise of imported products in the value chain of the ICT sector, mainly caused by procurement practices of the government structures and parastatals. Since local manufacture in the ICT is limited to wire and cable, electronic components, transmission and line telephony equipment and radio receivers and some process equipment only, the drastic rise of imports is having a negative impact in terms of jobs and the growth of the sector.

The unicity of Tshwane issued a tender on electrical cabling, stipulating that criteria for qualifying to obtain the tender included local content, SABS compliance, and meeting the PPPFA requirements. Additionally, companies were also expected to meet the requirement of 51% black ownership.

Presently, South Africa only had 6 cable manufacturers meeting the core criteria. The only company able to meet the additional BEE criteria was Malisela Technology, which subsequently won the tender. The problem though was that whilst meeting the BEE criteria, it was allowed to supply only 50% of the required cables, whilst the other 50% was imported abroad. South Africa possesses enough capacity in the local industries to meet the other 50% of the imported cables at cheaper level and with product of highest of quality. The decision to allow 50% of the cables to be imported, undermines local content, job creation and the value chain which also includes the ‘after-market’, namely maintenance and replacement of cabling by local companies. This is a classical example of BEE being wrongly applied and undermining or subverting the local content and employment creation.

The JHB metro’s decision to purchase Marcopolo buses from Brazil led to the exclusion of Durabuild, a South African company that could manufacture high quality buses. The company used to employ 400 workers. Failure of this company to secure this tender led to its closure, with 400 workers losing their jobs. The loss of this deal also impacts on this sector of South Africa’s manufacturing industry, insofar that it also means that the value chain in terms of the benefits this would have created both upstream and downstream are lost as well. Jobs that could have been created were given to foreign companies using South Africa's tax payer’s money at the expense of South African labour. The whole deal also meant that the after-market supply of components to these buses would not allow the inclusion of local businesses.

The Marcopolo bus deal entailed supplying ‘semi-knocked down’ buses to be assembled by BUSAF Bower, a South African company. Whilst the deal involved a joint operation between Marcopolo Brazil and BUSAF Bower (SA), the problem is that BUSAF Bower’s role is not significant, since there is no local content that is added to these buses. All inputs into these buses remain foreign.

This procurement tender demonstrates the violation not only of local content criteria, but it does did not adhere to BEE requirements or the promotion of employment creation.

A socio-economic impact assessment should also be done by government on an annual basis to ensure that the intention behind preferential procurement is indeed being met.

The FRIDGE study points to the difficulties in accessing detailed quantitative data on procurement. Figures from the National Treasury 2003 Budget review indicate the substantial extent of government spending. In 2002/2003 total expenditure was budgeted to be around R310.2 billion. An injection of such funds into the economy which a prioritisation on local content and production wherever possible, would stimulate demand and have numerous positive impacts (as identified in the previous section).

Much can be learnt from agreements reached in December 2002 at the ICT Sector Summit. The agreements demonstrate the ability and commitment of various stakeholders that are knowledgeable in their sector; to address the very problematic outcomes demonstrated in the various case studies highlighted earlier in this submission.

Agreements relating to procurement in the ICT sector warrants closer examination. Among other, the stakeholders agreed that appropriate procurement systems by government, parastatals and large private companies are critical for completing value chains, enhancing value added and developing new production capacity and skills.

The agreement reached at the ICT Sector Summit provides for, among other things:

• Develop a data base that would support local procurement;
• Only award tenders to companies that abide by the Code of Conduct and the requirements of Proudly South African;
• Ensure that government insists that international trade negotiations do not prevent the use of public-sector procurement to stimulate local production and employment.
• If a foreign tenderer is to be awarded a contract, South African companies which comply with all the other requirements should be afforded the opportunity to match the price and if they do so, to be awarded the tender.
• In awarding contracts to companies operating in South Africa, preference would be given to companies that are registered with the relevant SETA and pay their skills levy, maintain labour standards and respect labour rights, and have an employment equity plan in place.

Other agreements included:

• Universal Service and Universal Access - that aimed to have, among other, a telephone in every household/ institution, ensure that every person/ house/ institution has a physical address and an address in any other form, and that every person having multimedia services including broadcasting.

• Human Resource Development (HRD) - the parties agree to develop a Human Resource Development Strategy/Sector Skills Development Plan, which should be done in partnership with relevant SETAs. This included the implementation of learnerships, Internships, Recognition of prior learning for formal accreditation, Adult Basic Education and Training (ABET), increased levels of education and training, and transfer of ICT skills.

• Agreement on the Social Plan - to establish active labour market policies for the ICT sector, in order to minimise unemployment and enhance the use of skills and skill levels in the sector. The sector also agreed that, after a Fridge study, establish a representative ICT Development Agency/ Institute/ or any other mechanism that, amongst other things, will:

• Identify training and employment opportunities for redundant workers;
• Assist retrenched workers in developing resumes and assembling reference letters;
• Provide financial and personal counselling;
• Promote development in the sector; and
• Assist unemployed youth, women and the disabled to find jobs in the industry.

Agreement on Investment - It was agreed that Government should:

• Ensure that there is an appropriate supply side available for investment;
• Ensure that supply side measures are accessible and that all stakeholders should review and make recommendations on supply side measures
• Promote investment in specific areas including rolling out infrastructure particularly in the under-served groups/ areas; software production and development; investment in local hardware development and production; and labour absorbing activities.

Despite these hard-won agreements and commitments, there remains the frustration of ICT companies’ lack of co-operation. This is preventing implementation and remains an on-going challenge.

The current Act is too broad to effect a common understanding of its objectives. In terms of applicability, it does not give direction and allows arbitrary interpretation. There is also a lack of information about the Act generally.

• As per the examples highlighted in the case studies, there is a trend of decentralisation of procurement. This needs to be addressed, in order to drive development processes in a coherent fashion.

• The implementation of the Act and its regulations is not focussed on stimulating the economy, and creating quality jobs because it has, among other been too focussed on an aspect of procurement. The include the proportion of HDI’s as owners of the company and cost factors, rather than addressing the objectives of the Act with appropriate weighting. Another key shortcoming is that the Act was not linked to a development agenda or industrial policy. This has resulted in problematic developments, such as job losses, black owned companies winning contracts but importing 100% foreign materials.
• There has been the an over-simplified interpretation, based merely on costs and pricing, rather than on potential multiplier effects, which could work almost like a discount and promote upstream and downstream local economic development. Socio-economic objectives in the tender process have often been ignored, and in some cases lead to job losses and de-industrialisation. These are some of the consequences being experienced as a result of the over-simplified or biased interpretation of the Act.
• The lack of balance between exports and focus on local markets - Even more progressive companies are focusing on exports because they have to survive. Clearly we need more of a development focus that creates sustainable formal jobs that leads to development and increases the local market. There is also the need to include domestic value added aspects to procurement. The absence of this has led to South African companies tending to act more like a warehouse and export goods and services abroad.
• In some instances, government is lagging behind private sector initiatives on the PSA issues. An example is the deal between Southern Sun Hotels and the clothing and textile sector to only buy locally produced towels, robes, carpets etc.

• The yardstick of measuring whether the policy is working is biased towards the financial interpretation, rather than an overall interpretation, taking social development indicators into consideration. It would be essential to measure indicators such as Gini coefficients and other human development indicators to assess the efficacy of Act in bringing about local economic development and economic growth.

• The existing database of local suppliers being developed by government is very limited. Currently it only focuses on structural steel, through information gleaned from the Employers’ Industry Association. This should be rolled out to other sectors.

• There is more to economic development than the interpretation of the objectives of BEE. There is a tendency to measure it more my mere ownership and management. We contend that real broad-based BEE is about promoting job-creation, affordable service delivery, and the eradication of poverty, as measured by human development indicators.

1. Key recommendations for the implementation of the PPPFA

• In order to address the inherent problems associated with the Act, a proper impact of procurement practices on study needs to be conducted on employment, industrialisation, investment, working condition, broad-based BEE, local content, Proudly South Africa, addressing regional inequalities and completing value-chains/matrices.

• The lack of implementation of procurement agreements from sector summits should be addressed as a matter of urgency.

• Revisions of the Act and its regulations need to be made to provide uniformity of application.

• A key problem remains the need to create employment. We suggest that one way of doing this is to stimulate local demand for goods and services. A tool for doing this is preferential procurement. However, implementation shows that preferential procurement is also being used to achieve other objectives e.g. narrow BEE, with the result that employment problems are exacerbated. We propose that, as an initial measure, there should be a limit to decision makers’ scope on what to give preference to and to ensure that preference is given to employment enhancing activities. This can align with BEE but should not compete with BEE - but where it does the trade off that should take place should be in favour of employment.

• Ensuring a level playing field and ethical practices by, amongst other:

• Eliminating exclusionary technical specifications

• The Cancun WTO 5^th Ministerial meeting should not reduce positive discrimination enshrined in our Constitution. We strongly reassert our original proposal that Government resist attempts to be steam-rolled into the World Trade Organisation’s Agreement on Government Procurement. In particular, agreements which will require foreign investors to be treated the same way as local firms with regard to government procurement, should be strongly rejected, as it is vitally important that procurement policy be used to promote domestic industry.

• Ensuring the implementation of Sector Job Summit Agreements.
• Further case studies to be conducted. We propose that the study look at a mixture of Preferential Procurement in public, private, parastatals, and public entity sectors.

• Prevention and redress of procurement-related misrepresentation

• Effective implementation will require the cooperation of a variety of

role players including government at a national, provincial and local

level, parastatals, business (both organised and individual

businesses), labour, civil society and consumers.

• Current decentralisation of functions and powers to local levels of government is bound to cause further problems under the current framework of implementation (or the lack thereof). It remains worrisome exactly how the Municipal Finance Management Act, the equivalent of the Public Finance Management Act will provide for service delivery and preferential procurement as to be carried out by a public-private partnership agreement, a municipal entity or the municipality itself. We recommend that national government carefully monitor the awarding of tenders in this regard.

• We call for the simplification of all policies so that government officials and general public can understand them. We also call for the retraining of government officials and decision-makers, especially at the local government level.

• There is a need to analyse the impact of preferential procurement deals on an on going basis.

• COSATU calls for a ban on the dumping of goods through tenders, especially where there is an emphasis on price. Anti-dumping measures take time and by then the tender has been awarded – we call for an urgent intervention by government in this regard. Equally stringent measures need to applied to foreign companies as for local.

• The importing of ‘grey goods’, the smuggling of illegal goods, maintenance of labour and environmental standards and safety should have greater consideration in procurement.

• We are please that labour standards are now mentioned in the supply chain management framework, but deplore its absence in the Act. When this act is to be amended, we call for its inclusion.

• When the broad-based BEE Bill is to be revised in the future, we call for a redefinition of "productive empowerment" in order to link it to local content and value addition and employment. It would help to clarify the meaning of local content in this Bill and not just limit it to geographical location of enterprise, but also local content value addition.