South African technology group Tellumat has called on government to provide more structured and vocal support for local businesses.
Rasheed Hargey, Tellumat’s CEO, qualifies his plea on behalf of industry: “It’s not a call for preferential treatment or bailouts, just for a levelling of the playing field. The issue is that even the most competitive local brands sometimes feel left out of government’s buying decision.”
Hargey says the first order of business should be to stem job losses in local companies (including foreign-owned companies using local resources and content).
“The US government has moved quickly to support American businesses during the economic crisis. President Obama rightly called for a team effort with industry, to stop the bleeding.”
In this spirit, some US companies moved to close down overseas production plants, a strategy that has had the effect of saving domestic US jobs, even if it meant temporarily shunning overseas goodwill.
For its part, the South African government has not responded to the recession with specific measures. “But it is to be welcomed that President Zuma is at least sounding amenable to supporting local industry,” says Hargey.
He says government could also play a bigger political role in encouraging cross-border trade. “The Department of Trade & Industry does a good job in terms of export incentives, trade missions and so forth – but often true political clout is needed,” Hargey says.
What he refers to is not government endorsement of business, but rather a natural outflow of harmonious, active government-to-government (G2G) relations. “It is being practised very successfully by the US government.”
Another effective strategy, Hargey says, is to allocate a statistically meaningful number of points for local credentials in government tenders.
He admits that there could be difficulties in implementing increasingly sophisticated procurement guidelines. “Government is a sprawling mass of entities operating across various levels. For it to take a cohesive view of important practices like procurement is a challenge.”
For example, while national government strictly enforces the empowerment Codes of Good Practice, local government still enforces the aged Public Finance Management Act, confusing and frustrating companies seeking to comply.
“In reality, government is at its most effective at local, grassroots level,” Hargey says. “That is where government’s responsibility lies to give unambiguous support for local business.”
Another problem with posing yet more requirements for winning government business is the ongoing issue of fronting. Hargey says a peer-policed system, such as the one supporting affirmative procurement, might effectively root the practice out.
Nevertheless, despite the challenges, government must set an example, he continues. “The public sector is the biggest spender on products and services and must align itself with local business in no uncertain terms. It could overtly state that it will support big businesses that support local businesses. Government’s influence is immense; it can make a very positive contribution.”
Hargey says many benefits of a stated preference for local content come to mind. “Saving jobs will have a benefit for tax collection, which could positively influence the current trade imbalance, which in turn would strengthen the currency. The money could be spent on better service delivery, more skills development or support of strategic industries.”
Citing the near-demise of the textile industry as a cautionary tale, Hargey says Tellumat has spent millions on research and development, enabling it to win important tenders, such as the one underpinning Neotel’s Wimax network. “If, despite one’s competitiveness, it is easier to import the goods than to develop it, local firms will stop investing, which will have negative effects on jobs and local spending.”