Western Cape benefits from businesses sourcing R200 million in products from local suppliers
Fund connects buyers with provincial suppliers, shortening supply chains and creating new industrial capacity from Cape Town to Gqeberha.
By Larry Claasen
THE Localisation Support Fund (LSF) has managed to get local companies to source R200 million worth of previously imported products from businesses based in South Africa.
The LSF was established as a direct response to the gap between South Africa’s localisation policy talk and real investment, said CEO Irshaad Kathrad. It was born from President Cyril Ramaphosa’s Economic Reconstruction and Development Plan (ERRP) tabled in October 2020, which identified strategic localisation as a priority after COVID-driven global supply chain disruption. The idea was to get more local suppliers so as not to be vulnerable to similar disruptions in future.
“One of the key things that was part of that was strategic localisation, recognising that because there was this dislocation in supply chains globally, we needed to focus on building our capability,” said Kathrad.
The LSF’s efforts to develop a more robust supply chain comes as the latest crisis in the Middle East is leading South African businesses to source more of their products locally.
Speaking at an S&P Global event earlier this month, Valterra Platinum treasury head, Chris Daniels said it was trying to diversify its supply chain by “leveraging local manufacturing and suppliers.”
By bringing in local companies, the mining company not only made its supply chain more resistant, it also boosted the economy.
“We will continue to look for ways to develop going businesses, local developments and opportunities from a supply chain perspective,” Daniels said.
A long time coming
Though there has always been a lot of talk about getting businesses to source more of their products locally, until the creation of the LSF, which was established in 2021 as a non-profit company (NPC) and public benefit organisation (PBO) funded by the private sector, there has been no implementing agent.
“The core purpose is to turn policy intention into tangible outputs where investment is flowing and, you know, widgets are coming out of factories in South Africa,” said Kathrad.
The LSF’s efforts are paying off. “So far we have been able to bring about R200 million worth of production back to South Africa. These were goods that were previously being imported, that are now being produced in factories in the Western Cape, Eastern Cape, Gauteng, and KwaZulu-Natal,” he said.
Raising awareness
One of the main reasons companies are not looking to local suppliers is that they are not aware of the domestic alternatives. This is why the LSF puts a lot of effort into putting business decision-makers in the same supply chain in contact with each other. This sees it trying to connect manufacturers, raw material suppliers, and buyers to unlock “stuck investments.”
“We get involved in what I like to call facilitation work, which is, how do we put the right people in the room so that we can get a productive conversation going,” Kathrad said.
To get the right people in the room, the LSF does extensive research into who the correct role players are that need to come to the table, and what the commercial incentives to localise are.
When it comes to commercial incentives, its research has found that there are a variety of issues that would lead companies to localise, like eliminating currency volatility and shortening their supply chains.
Effective research
The LSF also compiles research reports that support evidence-based decision-making and highlight opportunities to strengthen local manufacturing. It, for example, released reports on developing the sorghum biofuel value chain, reindustrialising the wool sector, and the commercialisation of the industrial hemp sector.
Aside from its research work, it also deployed industrial, chemical, and process engineers into factories around the country to localise production.
“We have done this in the clothing industry. We supported Cape Union Mart in helping them to localise some of their production for their Poetry run. We have worked with the likes of Unilever in helping them to localise some of their supply chains.”
Building capacity in this way has also helped local businesses adapt quickly to changes in the market.
The clothing industry is back
Kathrad noted that clothing retailers especially liked using local manufacturers. It gave them an edge against foreign competitors, in that they can send garments back to the factory for alteration if they are not selling and can also do smaller batch runs.
In February, it released a feasibility study that assessed the potential for expanding local garment manufacturing. It found that retailers indicated a willingness to source up to 81 million additional garments per year locally by 2030, representing approximately R8 billion in annual manufacturing output. If realised, this could increase local sourcing by around 20% and support up to 34,000 additional jobs in formal manufacturing, with further upstream and community-level multiplier effects.
