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‘Financing levers’ aim to bolster black industry

Azina Munshi | Fri, 24 Jan 2014, 06:12 [bdlive.co.za] – THE government plans to use both private and public sector funds to support black economic empowerment in recognition of the need to put “financing levers” in place to support the desired creation of black industrialists.

The state, frustrated with what it sees as the lack of transformation in South Africa’s industry, has identified a need for “credible financing” for black businesses to participate in the state’s planned R827bn infrastructure spend over the next three years.

Mr Gigaba said “financing levers” would be put in place to support the development of black industrialists and the transfer of wealth to black people, speaking at a meeting on Thursday of the Black Management Forum (BMF) in Mangaung.

“We will use financing consortia or ‘special purpose vehicles’, deliberately, effectively, in order to compensate for the shortage of finance in black communities.”

When pressed on what these special purpose vehicles would look like and when they may be created, a Department of Public Enterprises spokesman declined to comment on the record.

However, it is understood that development finance institutions such as the Industrial Development Corporation and the Development Bank of Southern Africa (DBSA) are being viewed as the “low-hanging fruit”.

But there was also no indication of how funding from commercial banks or pension funds and asset managers would be used. Conversations within the government have not firmed up these details.

Mr Gigaba briefed the forum about business opportunities arising from the development of the Durban-Free State-Gauteng logistics and industrial corridor, which is the second strategic integrated project (SIP) of the national infrastructure plan. It is the most important economic corridor in the country.

He said changes to legislation, including a review of the Preferential Procurement Policy Framework Act, were vital to hastening the expansion of a black industrial class in South Africa.

The act has drawn sharp criticism from black business groups and even state agencies which believe the government’s overwhelming bias towards price in evaluating tenders restricts the potential to develop new industries and supply chains.

Programmes of sufficient scale, they said, were worth paying a premium for, because of the benefits they could bring to long-term economic development.

“We are persisting in our effort, working with other government departments, to seek a review of the act in order to be able to achieve the goal of faster and more radical empowerment,” Mr Gigaba said.

His comments were welcomed by the Black Business Council (BBC), which has said it is impossible for black-owned companies to compete with large firms when it comes to doing business with the state.

Funding was a key concern, BBC CEO Xolani Qubeka said. The act in its current form was “antitransformation”. His criticism is based primarily on the 90:10 (price to socioeconomic ratio) gauge used for the adjudication of tenders.

Mr Qubeka believes the act should be replaced by “set-asides” of 40% of the work for black firms. A normal tender process would determine a winner, and would ensure that high standards are adhered to.

A more likely option, however, is for the creation of a policy that would allow the state to sidestep the restrictive limits on how it uses its spending power. State-owned enterprises, for example, could be exempt from the 90:10 split, if a spending programme had a long-term horizon and the potential to create new supply chains.

In doing so, the state would be able to create skilled jobs and manufacturing capacity in programmes such as locomotive manufacturing.

A 2012 revision of the procurement rules watered down the focus on price, giving socioeconomic imperatives such as skills development more importance.

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