NIPP Nov 2007 11

PORTFOLIO COMMITTEE: 31 October 2007 National Industrial Participation Programme

(NIPP)

Division :EIDD

NIPP Nov 2007 2

CONTENTS

• Introduction and Background

• Performance of NIPP

• Industry Impact of NIPP

• Key Projects for 2006-2007

• Summary of EIA

• IS NIPP Working?

• Challenges

• Recent Developments

• Way forward

• Questions

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NIPP Nov 2007 3

INTRODUCTION & BACKGROUND

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• To leverage economic benefits and support the development of South African industry by effectively utilizing the instruments of Government Procurement

• NIPP became obligatory in September 1996.

• Applicable on all Government and State Owned Enterprises

• Obligation value: 30% of the imported content – equate to economic activity

• Principles: Additionality, Causality, No Increase in price, Sustainability

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PERFORMANCE OF NIPP(US$)

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•Encompasses Invest, local sales, exports, tech transfer, SMME, BEE, R&D, training with NIP multipliers

OBLIGATIONS OBLIGATION

VALUE NIP CREDITS AWARDED

OUTSTANDING OBLIGATION

DEFENCE $13,765,167,611 $7,721,945,577 $6,043,222,034

NON DEFENCE $2,267,148,037 $1,271,723,191 $1,321,464,288

TOTAL NIP $16,032,315,648 $8,993,668,768 $7,364,686,322

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INDUSTRY SECTOR SPREAD OF

THE 173 NIPP Projects

Industry Sector Spread NIP Projects

2334

67

131314141415

2639

0 10 20 30 40

Tourism

Recycling

Energy (solar & nuclear)

Jewellery manufacture

Computer (IT)

Wood & wood products

Electrical

Engineering, training and consulting

Radio, Telecomm, Medical Equip

Agro Processing, textiles, leather

Other (health, R&D, financial

Chemicals, Plastics and Rubber Prodts

Metals, Mining & Capital Equip

Transport Sector

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GEOGRAPHIC SPREAD

Geographic Spread of NIPP Projects

172

262

243 4

100

Eastern Cape

Free State

KZN

Gauteng

Limpopo

Western Cape

North West

Mpumalanga

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INDUSTRY SECTORS OF NIPP

• Manufacturing Sector accounts for 90% of NIPP projects. Aligned with Integrated Manufacturing Strategy & National Industrial Policy Framework.

• Key sectors: Basic metal manufacturing, manufacturing of transport equipment and chemicals. (In line with global offset trends)

• High tech sectors: Energy, telecommunication, medical equipment

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HIGHLIGHTS 2007

• Rock Bolt – wire and wire products BEE JV• Mechatronics – integrated mechanical and IT skills

development - 400 students/year• Novara – plastic recycling• ALC: Global supply of leather seats -250 jobs• Flextech – localisation and global supply of

automotive cables -155 jobs• Offshore Oil and Gas Fabrication Centre – 700 jobs• Avalloy – Niche super alloys for aeronautical

industry. Accredited RR supplier• Denel SAAB – Design and production

aerostructure components

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ECONOMIC IMPACT ASSESSMENT (EIA)OF NIPP- BACKGROUND

• An EIA was commissioned in March 2007• Input - output model used (SAM) using multipliers• Input provided by the dti was on key NIPP objectives: FDI,

exports and local sales & jobs created

Result: Key macroeconomic indicators: GDP, Employment, BOP, Fiscal and capital effectiveness of NIPP projectsEconomic Effectiveness Criteria: whether NIPP waseffectively utilising capital as a scarce resource?

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SUMMARY OF EIA

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• Positive Impact on GDP: Direct average annual value added contribution to GDP is R3billion

• Positive impact on Balance of Payments (Exports > Imports – on average for NIPP projects)

• Government to receive an additional R3.9 billion in taxes due to sales generated by NIP projects

• 15689 direct jobs created and/or sustained50308 direct and indirect jobs (66% semi skilled and skilled whilst 34% is for unskilled jobs)

• Medium to high tech and skilled to semi skilled focus of NIP projects

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CONCLUSION OF EIA:

Average of R16 billion of capital required on an annual basis to sustain all NIPP projects. (Covers - initial investment + capital costs required by other

sectors across economy to sustain increased levels of economic activity on account of NIPP)

Hence Effective use of Capital:NIPP is effective in utilising capital (investment) as a scarce resource as NIPP projects contribute a greater portion to GDP as compared to other capital projects of a similar nature.

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GOVT SPEND VS BENEFITS DERIVED FROM NIPP

1. IMPORTED CONTENT OF PURCHASESTotal: Approx: US$11.3bn Defence: US$3.8 bnNon Defence: US$7.5 bn

2. Actual FDI’s, EXPORTS AND LOCAL SALES: FDI: US$ 424m from obligorsExports: US$ 2.9 bn -market accessLocalisation: Local investment and import

replacement

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CHALLENGES/ LESSONS LEARNT

• Project failure due to lack of competitiveness and ability to sustain projects locally

• Project failure due to market dynamics

• Project failure due to mismanagement of funds by local supplier

• Milestone deadlines are in most cases over optimistic – challenges within the operating business environment

• Limited support for development of BEE’s and WEE’s

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RECENT DEVELOPMENTS

DIRECT NIP:• Use tool of NIPP to extend beyond its current scope and also

allow for offsets directly associated with the procurement and its associated industry.

• Contribute towards building local capacity and local content through Government procurement

OTHER:• Alignment with key Government initiatives such as B-BBEE,

SMME’s and Skills Development

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WAY FORWARD

• Incorporate Direct NIP into existing NIPP Guidelines

• Communication of Direct NIP to applicable Purchasing Entities – workshops, bilaterals

• Increased focus on labour intensive projects(e.g. Magwa Tea), skills development and other key strategic sectors

• Alignment between NIPP and the Competitive Supplier Development Programme (CSDP), B-BBBEE, Customer sector Programme initiatives.

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Thank you????