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JPF Briefing on the Africa Programme

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  1. JPFBriefing on the Africa Programme Prepared by : Africa Project Team, Department of Public Enterprise 11th June 2008

  2. Agenda The Africa Project Concept Paper The Regional Supplier Development Programme The Regional Benchmarking Programme and DPE’s Partnership with UNIDO

  3. South Africa is committed to playing a lead role in promoting economic and social development across AfricaWhy 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 SOE’s) 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 Africa’s economy and build her image as a good continental and global citizen

  4. 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 South African Strengths Africa’s Opportunities • 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 • 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 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

  5. Achieving sustained and shared growth in the long run will be critical for reducing and maintaining low poverty rates on the continentKey African Growth and Poverty Level Statistics Growth between 1960 to date has been slow… Whilst poverty has increased • 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 • 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. 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

  6. Overarching Vision Sustained and Shared Economic Growth Increased Investment Increase Trade Industry Capability Upliftment Key Success Indicators Thus the Rest of Africa Project has a vision to contribute to the shared and sustained economic growth through increased trade, investment and industrial upgradingVision, Goals and Focus Areas for the Rest of Africa Project Proposal Trade Related initiatives Investment Related Initiatives Industry Building Initiatives Key Development Initiatives

  7. 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 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

  8. 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

  9. Interpretation in terms of Regional Integration and Development Interpretation in terms of industrial development 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

  10. 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) 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 project will be executed in collaboration with key government and non-governmental stakeholdersRole of Various Stakeholder Groups Proposal Stakeholder Possible Role The principle of SA Inc “Hunting in Packs” will be key

  11. Agenda The Africa Project Concept Paper The Regional Supplier Development Programme The Regional Benchmarking Programme and DPE’s Partnership with UNIDO

  12. Resource Extraction Primary Manufacture Secondary Manufacture Fabrication Design, Assembly E.g. Mining, Agriculture E.g. Smelting (steel and metal production) E.g. Forgings, castings, specialised alloys E.g. Structures, Components, Sub-systems E.g. clothes, capital equipment, aerospace To effectively address its high poverty levels, Africa needs to build its industrial base Africa’s 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

  13. Investment opportunity in resource or infrastructure sector Establishment of a local enterprise which develops a local supplier base Establishment of a local enterprise which imports all its requirements Creation of new investment opportunities outside of the resource and infrastructure sector Establishing of local industries to support new investment Investment opportunity in resource or infrastructure sector Limited industrial development, wealth and job creation Acquisition of new skills and technologies to support new industries 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…… …its anchor investments are not used to create investment opportunities in the manufacturing sector

  14. 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 buyer–seller 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

  15. Potential Areas of Collaboration Benefits of Collaboration • Joint supplier development initiatives • Standardisation of plant and equipment designs • Joint skills development initiatives • 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. . However, supplier development on the continent requires collaboration between countries and the public and private sector

  16. The Regional Supplier Development Programme Type of Interventions Supply Side Demand Side Local Programme • Standardisation strategy • Integrated procurement training • Supplier industry development plans • Skills development programmes • Supplier benchmarking programme Proposed African Programme Regional benchmarking programme being co-developed with UNIDO Procurement Training developed by CIPS and IPSA – DPE will play a supporting role 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 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

  17. 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 South Africa include... Benefits to the Rest of 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 • 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

  18. We are here High Level Implementation Path for RSDP Conduct Preliminary Assessment of Targetted Countries or Private Sector Buyer Organisation Confirm and define Priority Interventions Per Country / Buyer Organisations Mobilise support and funding for priority interventions Implement specific interventions • 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 • Raising of funds for the priority interventions • Confirmation of appropriate interventions per country with key stakeholders in each country • Develop detailed project documents outlining implementation plans, costs etc. for • As per detail country level agreements Objectives • Country / Buyer Organisation fact base to inform detailed project document • Formal sign off of co-operation agreements including commitment of funds • Detailed project document to serve as basis of co-operation agreements • As per detail country level agreements Deliverables DPE is in the process of identifying potential areas for collaboration with targeted countries

  19. Appendix 1: Overview of the Regional Supplier Benchmarking Programme

  20. The regional supplier benchmarking programme is a regional component of South Africa’s Competitive Supplier Development Programme The Regional Supplier Development Programme Type of Interventions Supply Side Demand Side Local Programme • Skills development programmes • Supplier benchmarking programme • Supplier industry development plans • Standardisation strategy • Integrated procurement training Proposed African Programme Regional supplier benchmarking programme being co-developed with UNIDO Procurement Training developed by CIPS and IPSA – DPE will only play a supporting role The programme is a part of broader set of initiatives supported by the DPE to promote regional collaboration in supplier development

  21. The benchmarking programme is being implemented in the framework of UNIDO’s Africa Programme to promote synergies with ongoing initiatives 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 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., 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 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.

  22. S(B)PX Other database Local companies BUYERS Facilitated self-assessment Database Oil Companies Shell BHP Billiton Anglo Mining Companies Benchmarking Supplier mapping Power Companies Gap analysis Eskom Need analysis Transport Companies COMFAR Transnet Financing Unilever Nestle Agriculture Companies ITPOs Others Upgrading plans Investment projects 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

  23. Improved Investment Climate Engaged private sector Policy Strategy Services National institutions Investment promotion Analysis of trends Assessment of impact Measurement of responses Comparison of sites Sectoral analysis Country specific information Civil society Transparency Investment projects MONITORING PLATFORM O n l i n e t o o l s MONITORING PLATFORM Perception, performance, impact data Case studies Private sector Other datasources Trend analyses Identification of inv. opp. Self Assessment TA Prog’s Monitor projects Identify Development gaps Monitor TA Programmes and progress in diversification Inv. Opportunities Financial institutions Development organizations …. And the strengthening of local investment promotion and supplier development capabilities… Key Programme Benefits 2/2

  24. Benin Burkina Faso Cameroon Central African Rep. Congo (Republic of) Congo (Dem. Rep. of) Cote d’Ivoire Gabon Gambia Ghana Guinea Madagascar Mali Namibia Niger Nigeria Senegal Sudan Togo Uganda 20 countries The collaboration with UNIDO creates the potential to cover up to 33 countries on the continent 9th EDF DFID/DPE Austria&UNIDO Angola Kenya Lesotho Malawi Zambia Mozambique Swaziland 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

  25. 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

  26. Questions and Answers