PROGRESS UPDATE

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JPF Briefing on the Africa Programme Prepared
by Africa Project Team, Department of Public
Enterprise 11th June 2008
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Agenda

• The Africa Project Concept Paper
• The Regional Supplier Development Programme
• The Regional Benchmarking Programme and DPEs
  Partnership with UNIDO

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South Africa is committed to playing a lead role
in promoting economic and social development
across Africa Why should South Africa get
Involved?

• Government is committed to the realisation of the
  socio-economic development goals articulated in
  Nepad and MDG Hence action and rhetoric must be
  linked
• Government is committed to support fellow African
  states in the realisation of their socio-economic
  goals through
• Promoting and developing key regional integration
  projects and initiatives
• Lending key managerial and technical assistance
• Promoting good governance and effective state
  intervention and regulation in the economy
• 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
• Leverage investment opportunities for SA Inc
  (i.e, Private Sector and SOEs) across the
  continent for the benefit of the South African
  economy

Involvement on the continent will contribute to
the integration and industrialisation of African
economies and countries and will benefit South
Africas 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?
Preliminary Hypothesis
Africas Opportunities
South African Strengths

• 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 Indias
  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

• The leading SOEs 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
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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
Growth between 1960 to date has been slow
Whilst poverty has increased

• Africa is home to 10 of the worlds population
  but home to 30 of the worlds 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

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
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
Proposal
Trade Related initiatives Investment Related
Initiatives Industry Building Initiatives
Key Development Initiatives
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The project is envisaged to manage a number of
initiatives falling within three broad
categoriesNature of Initiatives
Proposal
Objectives
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 SOEs 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 SOEs 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
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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
Proposal

• Increase Intra-Africa trade and investment flows
  between entities within SOE dominated industries
  with a particular emphasis on the energy,
  transport and ICT sectors
• Build globally competitive suppliers to service
  lead firms within SOE dominated industries i.e.,
• African suppliers are suppliers of choice for
  their local or continental entities
• African suppliers leverage the capability and
  networks of South African manufacturers to access
  South African and global markets
• African suppliers can access global markets
  directly or through the production networks of
  global leaders
• 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.,
• Pooling of resources during the project
  conceptualisation and feasibility stage
• Creation of critical mass to lobby for more
  competitive prices and better service from global
  capital goods suppliers
• Sharing of technical expertise on a case by case
  basis to improve the effectiveness and efficiency
  of expenditure
• Standardisation and streamlining of processes,
  documentation, technologies and standards used by
  users to facilitate and complete cross border
  transactions

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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 pathOverview of
Flying Geese Development Model

• 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.

• 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

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
stakeholdersRole of Various Stakeholder Groups
Proposal
Possible Role
Stakeholder
The principle of SA Inc Hunting in Packs will
be key
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Agenda

• The Africa Project Concept Paper
• The Regional Supplier Development Programme
• The Regional Benchmarking Programme and DPEs
  Partnership with UNIDO

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To effectively address its high poverty levels,
Africa needs to build its industrial base
Africas Development Challenge
How do we convert our comparative advantage?
Africa has a comparative advantage
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
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This can be achieved by leveraging the investment
and procurement expenditure of SOEs and MNCs in
Africas infrastructure and resource sectors to
build local supplier industries
Africas industrial development will stall if
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

• Firm, National and Regional Benefits of Strong
  Local Supplier Industries
• 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.
• 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 buyerseller relationships,
  industry clusters and staff turnover.
• Maintain the cost competitiveness of goods
  manufactured in the region by encouraging the
  formation of regional production networks,
  exploiting each countries comparative advantages.

• Xx

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However, supplier development on the continent
requires collaboration between countries and the
public and private sector
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DPE would like to share the tools and
methodologies developed for South Africas
competitive supplier development programme with
countries/firms looking to build their local
supplier base
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 SOEs and
other South African firms as well as assist
countries to develop their industrial base.
Benefits to the Rest of Africa include
Benefits to South Africa include...

• Leverage tools and methodologies developed for
  South Africas 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

• 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
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Appendix 1 Overview of the Regional Supplier
Benchmarking Programme
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The regional supplier benchmarking programme is a
regional component of South Africas Competitive
Supplier Development Programme
The Regional Supplier Development Programme
Type of Interventions
Demand Side
Supply Side
Local Programme

1. Supplier industry development plans
2. Standardisation strategy
3. Integrated procurement training

1. Skills development programmes
2. Supplier benchmarking programme

Proposed African 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
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The benchmarking programme is being implemented
in the framework of UNIDOs Africa Programme to
promote synergies with ongoing initiatives
Key Components of Proposed Programme
Component 1 The local and domestic investor
survey to provide IPAs and their intermediaries
key facts and figures on investors 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
The Integrated Programme for Investment Promotion
and Industrial Development In Africa
Component 3 The capacity building of national
and regional institutions involved in supplier
development and investment promotion. E.g.,
IPAs, 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

• UNIIDO have partnered with the AU to implement
  the industralisation component of Nepad.
• The integrated programme was endorsed by the
  Conference of African Ministers 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
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
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The collaboration with UNIDO creates the
potential to cover up to 33 countries on the
continent
9th EDF
DFID/DPE
AustriaUNIDO

• Benin
• Burkina Faso
• Cameroon
• Central African Rep.
• Congo (Republic of)
• Congo (Dem. Rep. of)
• Cote dIvoire
• Gabon
• Gambia
• Ghana
• Guinea
• Madagascar
• Mali
• Namibia
• Niger
• Nigeria
• Senegal
• Sudan
• Togo

Angola Kenya Lesotho Malawi Zambia Mozambique Swaz
iland Tanzania (UR) Rwanda Burundi 10 countries
Cape Verde Ethiopia Mauritius 3 countries
Countries covered in 2008 Survey (9th EDF)

• Potential Countries to be covered through
  collaborating with UNIDO to extend the UNIDO SPX
  network
• Country selection still to be finalised

Countries covered in RSBP (DFID)
Countries covered in 2008 Survey (Austria and
UNIDO)
Total 33
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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

Programme Component
Source of Programme Funds
Country coverage
33
20
0
1
Survey Methodology
Italy/UNIDO ( 0,6m)
South Africa ( 3,2m)
Benchmarking Methodology
2
1
Monitoring Platform
Microsoft ( 0,5m)
EU 10th EDF
( 2,6m)
EU 9th EDF ( 2,77m)
1
Investor survey
DFID and South Africa (DPE) ( ??m)
Austria/UNIDO ( 0,6m)
2
Backward linkages
Expansion of enhanced SPX network
France ( 2m)
Ng, Tz, Ke, Cam ( 0,4m)
Benchmarking and supply chain integration
2
EPA
Capacity building and investment generation
ICF
3
Negotiation with donor have started/are
imminent but further specifications and project
design still necessary
Secured Funding
Funding is in principle possible and interest has
been communicated by donor
Potential area for further donor participation
Contributions are estimates and will depend on
outcomes of negotiations with Donors
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Questions and Answers