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JPF Briefing on the Africa Programme
Prepared by : Africa Project Team, Department of Public Enterprise11th June 2008
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Agenda
• The Africa Project Concept Paper
• The Regional Supplier Development Programme
• The Regional Benchmarking Programme and DPE’s Partnership with UNIDO
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1. Government is committed to the realisation of the socio-economic development goals articulated in Nepad and MDG – Hence action and rhetoric must be linked
2. Government is committed to support fellow African states in the realisation of their socio-economic goals through
a. Promoting and developing key regional integration projects and initiatives
b. Lending key managerial and technical assistance
c. Promoting good governance and effective state intervention and regulation in the economy
3. South Africa is well placed to play an enabling role in converting increased investor interest in Africa to direct FDI which is critical to boost lagging economic growth on the continent
4. Leverage investment opportunities for SA Inc (i.e, Private Sector and SOE’s) across the continent for the benefit of the South African economy
South Africa is committed to playing a lead role in promoting economic and social development across Africa
Why should South Africa get Involved?
Involvement on the continent will contribute to the integration and industrialisation of African economies and countries and will benefit South
Africa’s economy and build her image as a good continental and global citizen
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Engaging with Africa will not only assist South Africa in achieving its own growth aspirations but will also provide a basis for sustainable growth and competitiveness beyond 2014
How can South Africa Get Involved?
Africa’s Opportunities
• Opportunity to import from Africa due to lack of capacity to meet demand from current build programmes
• Opportunities for South African firms to collaborate with African Countries with under utilised capacity and hence minimise capacity expansion costs
• Countries with similar infrastructure build programmes (especially in energy) face the same problems of been crowded out by China and India’s orders from global suppliers.
• African countries are potentially more competitive than local suppliers for certain spend categories, hence sourcing from these countries will reduce costs in the long run
• African countries offer a host of investment opportunities which will become more viable as their economies continue to grow
South African Strengths
• The leading SOE’s have relatively large operational and capital project procurement spend i.e.,
– Creates the opportunity to build industries on the back of stable, repetitive, high value and high volume demand
• Relatively large SOE dominated industries with a relative advanced supplier base
• Government has high levels of respect and credibility amongst fellow African States
• Development finance institutions with funds earmarked for investing on the continent
• High private sector interest and involvement on the continent
• Significant technical and managerial expertise have been built up due to size and sophistication of industry and economy
South Africa has the economic strength, industrial capability and the inter-governmental respect to assist fellow African States to unlock key growth opportunities on the continent
Preliminary Hypothesis
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Achieving sustained and shared growth in the long run will be critical for reducing and maintaining low poverty rates on the continent Key African Growth and Poverty Level Statistics
Accelerating economic growth rates is key to reducing poverty levels on the continent. Indeed, growth rates of up to 7% are needed to realise the UN Millennium Development Goals
Growth between 1960 to date has been slow… Whilst poverty has increased
• Africa is home to 10% of the world’s population but home to 30% of the world’s poor
• Extreme poverty reduced by two thirds globally but increased by up to 40% in Africa between 1970 and 2000
• 1 in 2 Africans are poor, spending less than $1 per day. This is twice the world average and twice as high as the 1970 figure.
• African income grew at about 20% of the average for all developing countries (i.e., 0.5% p.a. vs. 2.5% p.a)
• Despite income parity in 1960, per capita income in Africa is now 20% of the per capita income in East Asia
• Factoring purchasing power parity, African income used to be 67% of East Asian income and are now less than 25% of East Asian Income
Eventually the tortoise out runs the hare, hence sustained growth should be the ultimate goal
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Thus the Rest of Africa Project has a vision to contribute to the shared and sustained economic growth through increased trade, investment and industrial upgrading Vision, Goals and Focus Areas for the Rest of Africa Project
Key Development Initiatives
Trade Related initiatives
Investment Related Initiatives
Industry Building Initiatives
Key Success Indicators
Increased Investment
Increase Trade
Industry Capability Upliftment
Overarching Vision
Sustained and Shared Economic Growth
Proposal
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The project is envisaged to manage a number of initiatives falling within three broad categories
Nature of InitiativesObjectives
Trade Related
Increasing trade between participating countries e.g.,
• Identification of goods and services that can be sourced from each country and matchmaking relevant suppliers and customers with a special emphasis on SOE’s and their supplier base
• Infrastructure and process related initiatives targeted at reducing costs and slowness of trade between two countries with an emphasis on projects involving SOE’s from participating countries and/or where state exerts significant regulatory control
Investment Related
Facilitating the implementation of key infrastructure investment projects which will promote regional integration and/or remove obstacles to accelerated economic growth and development e.g.,
• Participation of SA based entities on key investment projects on the continent. Participation will range from technical assistance, through to commitments to purchase and/or actual provision of capital
• Collaboration between procurement entities in two countries involved in similar infrastructure projects to build critical mass to negotiate prices with world suppliers and/or leverage demand to build an African based supplier pool
Industry Building
Developing a competitive African supplier based through targeted supplier and cross border cluster development initiatives e.g.,
• Development of the capability of African suppliers to provide goods and services currently sourced outside of the continent . Long term aspiration will be to achieve self reliance for key components by developing globally competitive suppliers who export on the continent as well as to global markets
Project is seeking win-win ventures rather than nuisance/charitable ventures
Proposal
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The project will be deemed a success if it contributes to increased Intra-Africa trade, investment and industry co-operation within SOE dominated industries and to firms within the economy at large Overarching Project Goals
1. Increase Intra-Africa trade and investment flows between entities within SOE dominated industries with a particular emphasis on the energy, transport and ICT sectors
2. Build globally competitive suppliers to service lead firms within SOE dominated industries i.e.,
a) African suppliers are suppliers of choice for their local or continental entities
b) African suppliers leverage the capability and networks of South African manufacturers to access South African and global markets
c) African suppliers can access global markets directly or through the production networks of global leaders
3. Increase co-operation between entities in SOE dominated industries to optimise operational and capital expenditure and increase value to users through reducing transaction costs and minimising barriers to Intra-Africa trade, investment and industry co-operation e.g.,
a) Pooling of resources during the project conceptualisation and feasibility stage
b) Creation of critical mass to lobby for more competitive prices and better service from global capital goods suppliers
c) Sharing of technical expertise on a case by case basis to improve the effectiveness and efficiency of expenditure
d) Standardisation and streamlining of processes, documentation, technologies and standards used by users to facilitate and complete cross border transactions
Proposal
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Implicit in the design of the programme is the view that South Africa as the strong regional economy needs to consciously put the region on a mutually beneficial growth path
Overview of Flying Geese Development Model
Interpretation in terms of
Regional Integration
and Development
Interpretation in terms of industrial
development
• At a national level the lead country
– identifies “sunrise” industries to “import” from advanced economies and invests heavily to build up their global competitiveness whilst…
– it withdraws its support from “sunset” industries where it is losing comparative advantage and exports them to less developed countries
– In some cases these sunset industries are supply industries to sunrise industries but the products are becoming increasing commoditised
• The strong regional economy assumes leadership for leading development in the region
– The lead country and its followers, exploit access to a huge export market which the lead country has opened access.
– The lead country co-currently exports to the less developed countries (i.e., tier I) to develop their domestic markets, then invests in local manufacturing to strengthen their production networks and exploit shifting comparative advantages
– The Tier I countries in turn do the same and export to the lesser developed countries (i.e., Tier II) and strengthen the regional production network.
• Hence the countries fly in formation.
South Africa can exploit its links to global value chains to upgrade its industrial base and maintaining its competitiveness by developing its regional markets and production
networks
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The project will be executed in collaboration with key government and non-governmental stakeholders
Role of Various Stakeholder Groups
Possible Role
DTI
•Assist with generic trade and investment facilitation roles (i.e., Lead generation and match making)
•Play a broader industry development role (i.e., aligning South Africa’s industry strategy with joint economic development plans)
Stakeholder
SOEs and SOE supplier
base
•Participate in trade related initiatives as buyers or sellers
•Participate in investment related initiatives either to lend technical assistance, commit as a potential customers or investor
DFI’s
•Ultimately act as project financiers but will also assist in lead generation and assessments of country risks
•Provide technical assistance as and when required
Other e.g., DFID,
UNIDO etc.
•Provide assistance in capability building initiatives as well in lead generation activities
• Involvement of organisation will vary on a case by case basis
The principle of SA Inc “Hunting in Packs” will be key
Proposal
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Agenda
• The Africa Project Concept Paper
• The Regional Supplier Development Programme
• The Regional Benchmarking Programme and DPE’s Partnership with UNIDO
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To effectively address its high poverty levels, Africa needs to build its industrial base
“Real long term poverty reduction requires private wealth creation based on robust economic transformation and rapid economic growth driven by manufacturing,
production diversification and trade” UNIDO, Director General
Design, Assembly
E.g. clothes, capital equipment, aerospace
Fabrication
E.g. Structures, Components, Sub-systems
Secondary Manufacture
E.g. Forgings, castings, specialised alloys
Primary Manufacture
E.g. Smelting (steel and metal production)
Resource Extraction
E.g. Mining, Agriculture
How do we convert our comparative advantage?
Africa has a comparative advantage
Africa’s Development Challenge
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This can be achieved by leveraging the investment and procurement expenditure of SOE’s and MNC’s in Africa’s infrastructure and resource sectors to build local supplier industries
Africa’s industrial development will stall if……
Establishment of a local enterprise which
imports all its requirements
Limited industrial development, wealth
and job creation
Investment opportunity in resource or
infrastructure sector
Creation of new investment
opportunities outside of the resource and infrastructure sector
Establishment of a local enterprise
which develops a local supplier base
Establishing of local industries to support
new investment
Acquisition of new skills and
technologies to support new
industries
Investment opportunity in resource or
infrastructure sector
…its anchor investments are not used to create investment opportunities in the manufacturing sector
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Developing local supplier industries will be beneficial to firms and national economies
• XxFirm, National and Regional Benefits of Strong Local Supplier Industries
1. An increase in the quality and number of local suppliers leads to;• Increased local content• Reduced imports• Public license to operate• Increased responsiveness of suppliers leading to shorter order lead times, more cost
savings, high availability and plant utilisation etc.
2. Increased efficiencies and sophistication throughout the local economy• Generate spill over effects for the broader economy as new skills, technologies and
management practices are absorbed into non-resource or infrastructure related industries through other buyer–seller relationships, industry clusters and staff turnover.
3. Maintain the cost competitiveness of goods manufactured in the region by encouraging the formation of regional production networks, exploiting each countries comparative advantages.
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However, supplier development on the continent requires collaboration between countries and the public and private sector
Potential Areas of Collaboration Benefits of Collaboration
•Consolidation of demand, creating a critical mass to attract new investors
•Pooling of resources to focus on generic supplier development activities which buyers are not geared to do
•Enables the build of regional production networks, exploiting the comparative advantages of each country. .
•Joint supplier development initiatives
•Standardisation of plant and equipment designs
•Joint skills development initiatives
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DPE would like to share the tools and methodologies developed for South Africa’s competitive supplier development programme with countries/firms looking to build their local supplier base
The Regional Supplier Development Programme
Type of Interventions
Local Programme
Proposed African
Programme
Demand SideSupply Side
1. Standardisation strategy
2. Integrated procurement training1. Supplier industry development plans
2. Skills development programmes
3. Supplier benchmarking programme
• Procurement Training developed by CIPS and IPSA – DPE will play a supporting role
• Regional benchmarking programme being co-developed with UNIDO
To roll out these programmes across the continent, DPE would like to enter into a partnership with fellow African governments as well as private and public sector
institutions with an interest in regional supplier development
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It is seeking to create value for its SOE’s and other South African firms as well as assist countries to develop their industrial base.
Benefits to the Rest of Africa include…
•Leverage tools and methodologies developed for South Africa’s own competitive supplier development programme to
•Develop their own local supplier base by learning gaps between their own performance and key buyer requirements
• Integrate into the supply chains of South African and global buyers
•Showcase potential investment opportunities to financiers
Benefits to South Africa include...
• Import goods to
– Minimise impact of domestic capacity shortages due to build programmes
– Reduce costs of build programme if suppliers are more cost competitive
•Strengthen production networks of South African based firms by increasing collaboration between South African and regional firms
•Position South African firms for future investment opportunities as African economies continue to grow
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DPE is in the process of identifying potential areas for collaboration with targeted countries
Ob
jec
tiv
es
We are here High Level Implementation Path for RSDP
Conduct Preliminary Assessment of Targetted Countries or Private Sector Buyer Organisation
Mobilise support and funding for priority interventions
Implement specific interventions
Confirm and define Priority Interventions Per Country / Buyer Organisations
• Identify key project backers in targeted countries/buyer organisations
• Identify priority products and supplier industries to develop
• Assess non-firm level constraints to supplier development in each country
• Confirmation of appropriate interventions per country with key stakeholders in each country
• Develop detailed project documents outlining implementation plans, costs etc. for
• Raising of funds for the priority interventions
• As per detail country level agreements
De
liv
era
ble
s • Country / Buyer Organisation fact base to inform detailed project document
• Detailed project document to serve as basis of co-operation agreements
• Formal sign off of co-operation agreements including commitment of funds
• As per detail country level agreements
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Appendix 1: Overview of the Regional Supplier Benchmarking Programme
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The Regional Supplier Development Programme
Type of Interventions
Local Programme
Proposed African
Programme
Demand SideSupply Side
1. Supplier industry development plans
2. Standardisation strategy
3. Integrated procurement training
1. Skills development programmes
2. Supplier benchmarking programme
• Procurement Training developed by CIPS and IPSA – DPE will only play a supporting role
• Regional supplier benchmarking programme being co-developed with UNIDO
The programme is a part of broader set of initiatives supported by the DPE to promote regional collaboration in supplier development
The regional supplier benchmarking programme is a regional component of South Africa’s Competitive Supplier Development Programme
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Key Components of Proposed Programme
Component 1:
The local and domestic investor survey to provide IPA’s and their
intermediaries key facts and figures on investor’s needs and behaviours
enabling the formulation of appropriate investor targeting strategies
Component 1b:
The development of an investment monitoring platform offering interactive, web-based reporting system, based on the datasets of domestic and foreign
investor survey
Component 3:
The capacity building of national and regional institutions involved in supplier development and investment promotion.
E.g., IPA’s, government ministries, sectoral agencies, trade organisations and RECs
Component 2:
The expansion of UNIDO network of Subcontracting Partnerships
Exchanges, incorporating supplier development and benchmarking
functionality
The Integrated Programme for Investment Promotion
and Industrial Development In Africa
The benchmarking programme is being implemented in the framework of UNIDO’s Africa Programme to promote synergies with ongoing initiatives
• UNIIDO have partnered with the AU to implement the industralisation component of Nepad.
• The integrated programme was endorsed by the Conference of African Minister’s of Industry and the AU at the AU Heads of State meeting in January 2007.
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The programme benefits include promotion of local industrialisation and regional trade by providing a facility to benchmark suppliers and match buyers to potential suppliers ……
Oil Companies
Mining Companies
Power Companies
Transport Companies
Agriculture Companies
Others
Shell
BHP BillitonAnglo
Eskom
Transnet
UnileverNestle
Need analysis
Gap analysis
Facilitated self-assessment
Upgrading plans
Investment projects
Financing
ITPOs
COMFAR
BUYERS
S(B)PX
Database
Other database
Supplier mapping
Local companies
Benchmarking
Key Programme Benefits 1/2
• The benchmarking system is been developed as part of the CSDP
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…. And the strengthening of local investment promotion and supplier development capabilities…
Key Programme Benefits 2/2
MONITORINGPLATFORM
Nationalinstitutions Investment
promotion
PolicyStrategyServices
Analysis of trendsAssessment of impactMeasurement of responsesComparison of sitesSectoral analysis
Developmentorganizations
Improved Investment ClimateEngaged private sector
Country specific
information
Private sector
Investment projects
Monitor projectsIdentify Development
gaps Monitor TA Programmes and
progress in diversification
Trend analysesIdentification of inv. opp.Self Assessment
Civil
socie
ty
Financial institutions
MONITORINGPLATFORM
Other data sources
Transparency
Case studies
Inv. Opportun
ities
TA Prog’s
Perception, performance, impact data
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BeninBurkina FasoCameroonCentral African Rep.Congo (Republic of)Congo (Dem. Rep. of)Cote d’IvoireGabonGambiaGhanaGuineaMadagascarMaliNamibiaNigerNigeriaSenegalSudanTogoUganda20 countries
Countries covered in 2008 Survey (9th EDF)
9th EDF DFID/DPE
AngolaKenyaLesothoMalawiZambiaMozambiqueSwazilandTanzania (UR)RwandaBurundi10 countries
Countries covered in RSBP (DFID)
Austria&UNIDO
Cape VerdeEthiopiaMauritius3 countries
Countries covered in 2008 Survey (Austria and UNIDO)
Total: 33
The collaboration with UNIDO creates the potential to cover up to 33 countries on the continent
• Potential Countries to be covered through collaborating with UNIDO to extend the UNIDO SPX network
• Country selection still to be finalised
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DPE and UNIDO is in the process of finalising funding for key components of the programme and is still looking for donors to support the roll out of the enhanced SPX network
Country coverage
Italy/UNIDO (€ 0,6m)
South Africa (€ 3,2m)
France(€ 2m)
Survey Methodology
BenchmarkingMethodology
Monitoring Platform
Investor survey
Benchmarking and supply chain integration
Capacity building and investment generation
EU 10th EDF (€ 2,6m)
Backward linkages
Microsoft (€ 0,5m)
0 3320
EPAICF
DFID and
South Africa (DPE)(€ ??m)
Ng, Tz, Ke, Cam(€ 0,4m)
EU 9th EDF (€ 2,77m)
Austria/UNIDO
(€ 0,6m)
Secured Funding
Potential area for further donor participation
Negotiation with donor have started/are imminent but further specifications and project design still necessary
Funding is in principle possible and interest has been communicated by donor
Exp
ansi
on
of
enh
ance
d
SP
X n
etw
ork
Source of Programme Funds*
1
2
1
1
2
3
2
# Programme Component
*Contributions are estimates and will depend on outcomes of negotiations with Donors
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Questions and Answers