The Covid-19 pandemic continues to wreak havoc in the South African economy with several industries feeling the negative impact which it has brought with it.  One such negative impact is the economic decline threats which have the potential to create panic for job losses throughout the economy, especially vulnerable areas of the country. This in turn may lead to significant contributors to the South African market considering an exit from the market.

With this in mind, the Competition Commission (“Commission”) published draft guidelines (“Draft Guideline”) on the collaboration between competitors on localisation initiatives. The objectives of the Draft Guideline is to, amongst other things, promote and grow localisation initiatives amongst local competitors without such entities being in contravention of the Competition Commission Act No. 89 of 1998 (“Competition Act”).

Together with the Draft Guidelines, the South African government has developed the Economic Reconstruction and Recovery Plan (“ERRP”), which allows for interventions intended to promote inclusive growth and employment within the domestic economy.

This article will briefly examine the Draft Guidelines and the ERRP in order to assess the benefit it may bring to the South African economy.

What does the ERRP mean for South Africa’s economy?

The ERRP intends to increase the investment of total procurement of a recognized list of local suppliers whilst minimizing the investment in procurement of imports.  This will be beneficial in restoring South African economic growth, as well as increasing growth for local producers, create local investments and in due course assist local producers to be competitive in export markets. It is envisaged that these initiatives will be launched either by government or the relevant industry players.

The Draft Guideline provides a framework for collaboration on identification and implementation of localisation initiatives which includes the below elements:

1. Identifying opportunities for localisation initiatives which will largely be based by industry players. In some instances it may be done simultaneously with government or by government itself. Once an alliance has been reached by firms and collaboration is required, they need to appoint a facilitator to determine the combined level of localisation across the industry and establish grounds for growth.
2. Process of setting industry local procurement targets – the independent facilitator or government entity will lead discussions between the firms in this regard. The facilitator must establish the final industry targets and may require confidential information from each firm which may not be shared and this discussion must not be in contravention of section 4(1) of the Competition Act.
3. Process to set individual firm local procurement targets – this must be done with both facilitator and firm confidentially. The facilitator may not share confidential information with market participants and this must not be in contravention of section 4(1) of the Competition Act.
4. Mandate for a forecast to be collated and this must provide for industry commitments to stipulate demand forecasting guidance from firms to avoid negative impact of supply. The demand forecasting guidance must not contain a competitors individual procurement plans and information.

The Commission must be informed of discussions on localisation initiatives between industry players, competitors and/or firms and these discussions must be minuted. Additionally, these initiatives must, where practically possible, be inclusive of firms in affected industry and specifically for Small, Medium and Micro Enterprises (“SMMEs”) and firms owned by historically disadvantaged persons.

Concluding remarks:

The Draft Guideline makes provision for initiatives where practically possible to include affected industry firms and more specifically, SMMEs and firms owned by historically disadvantaged persons.

The Commission is certainly headed in the right path by supporting localisation initiatives to assist in economic recovery. However, the Draft Guideline is not entirely clear on the details of what can and cannot be done to promote localisation. The Draft Guideline is therefore to be welcomed and when localisation initiatives begin it should be of paramount importance that there be a detailed mandate of the complete process which includes the pre-requisites for the facilitator, complete transparency and should not result in a saturated anti-competitive market.

VDMA’s team of experts are available to assist you and your business with competition law matters or queries on the Draft Guidlines.

Published 08 October 2021