Only vested interests win

Trade, industry & competition minister Ebrahim Patel’s contention that the “government’s preferential procurement policies, which favour local, historically disadvantaged manufacturers in securing state contracts to redress apartheid-era inequalities, have contributed to stemming deindustrialisation”, misses the fact that these same policies favour political influence, stifle competition and steadily decrease industries’ global competitiveness (“Minister defends preferential procurement amid declining industrial capacity”, January 3).

The country’s manufacturing, mining and construction sectors’ contributions to the economy — and job creation — have steadily declined over the years. Preferential procurement policies tend to skew towards benefiting those with the necessary political connections and influence.

The effects of such policies on the vast majority of the country’s state-owned entities have been clearly documented. Such policies do not work, either in theory or practice, to capacitate meaningful economic growth and substantive job creation.

Inevitably, vested interests win out; only they have the connections and inside track to influence governmental decisions around spending, contracts, subsidies and agreements.

Once in the room, the barriers to market entry behind them are raised ever higher, ensuring they are protected both from market forces and the consequences of their own bad decisions.

Businesses that would flounder and even fail in a competitive market are protected, at the overall cost of building truly competitive industries. Down the line, consumers are saddled with costlier materials, components, goods and services.

In the South African context preferential procurement does nothing to address the supply-side drivers of higher business operating costs, such as inconsistent electricity supply, failing logistics infrastructure, high crime rates and corruption.

All the subsidies in the world cannot compensate for all the costs that are imposed on businesses in this country; costs caused by the government’s ideological and policy choices over many years.

Preferential procurement tinkers at the margins, presents a veneer of transformation and leaves the underlying drivers of low economic growth and high unemployment unaddressed.

It is one thing to believe a government is the most appropriate agent of growth, with politicians and bureaucrats endowed with the knowledge necessary to choose winners and losers, to know which companies and products should be protected and which should be left by the wayside.

It is another issue entirely to look at SA’s growth and employment record over the last 20 years and not critically question the policies that have thus far been implemented.

Chris Hattingh

Centre for Risk Analysis