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THE NATIONAL INDUSTRIAL PARTICIPATION PROGRAMME

THE NATIONAL INDUSTRIAL PARTICIPATION PROGRAMME. PRESENTATION TO PORTFOLIO COMMITTTEE ON TRADE AND INDUSTRY November 2004. History of Industrial Participation. Practiced internationally for over 30 years “Counter trade”; “Offset” In most countries, applies only to defence related purchases

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THE NATIONAL INDUSTRIAL PARTICIPATION PROGRAMME

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  1. THE NATIONAL INDUSTRIALPARTICIPATION PROGRAMME PRESENTATION TO PORTFOLIO COMMITTTEE ON TRADE AND INDUSTRY November 2004

  2. History of Industrial Participation • Practiced internationally for over 30 years • “Counter trade”; “Offset” • In most countries, applies only to defence related purchases • Commenced in SA in 1996 mainly focusing on telecoms, transport and information technology purchases. • Major increase in 2000 as a result of the aerospace and defence related purchases 2

  3. Main purpose • To raise investment levels • and to increase international market access for South African value-added goods and services • by leveraging off government procurement. 3

  4. The NIIP obligation [cont.] • Seven years to fulfill the obligation • Credits system used for each of the objectives • Performance guarantee required • Responsibility lies solely with seller • Purchasing decision independent of NIPP • NIPP is a precondition but not a factor in the adjudication process 4

  5. Current Obligations • Total Obligations approx US$14bn • US$13 bn arising out of Strategic Defence Procurement • US$800m arising out of purchases by SAA • The rest from purchases by: • Telkom • Other government departments • Spoornet • Eskom • Other SOE’s 5

  6. Current Obligations • Obligors have seven years to fulfill obligation • BAE/SAAB has 11 due to size (US$7.2bn) • Defence obligors have specific milestones that must be met • First milestones due in April 2004 and July 2004 • Next milestones due in 2007 for BAE/SAAB and in 2005 for others • New contracts for non-defence obligors have milestones evaluated in years 3 and 5 6

  7. Milestones for Defence Obligors 7

  8. Performance of Obligors • Since inception over 125 projects approved and implemented • Projects cover sectors as outlined in the dti’s IMS • These projects have generated • Investment Credits in excess of US$677m • Sales Credits in excess of US$1bn • Local Sales in excess of US$457m • Includes technology transfer, BEE and SME promotion • 7 000 direct jobs 8

  9. Performance per first milestones • BAE/SAAB in aggregate exceeded their first milestone target • Achieved more than 100% investment target • 95% sales target • Agusta exceeded its first milestone targets • Achieved more than 100% of its investment and sales milestone • Thales • Achieved 85% of its overall targets(current figures indicate 93% achievement) • Ferrostaal • First milestone July 2004- assessment of final claims will be completed Dec 2004 • Thyssen • Achieved more than 100% of sales targets, investment milestone due April 2005 9

  10. BAE Projects • BAE/SAAB carries almost 50 percent of the total SDP obligations. • Engaged in over 36 investment and export promotion projects. These projects are forecast to generate investments of USD 300 million and exports of USD 2 000 million by 2004. All DIP targets have been met. • Projects undertaken included facilitating investments in Global Forest Products, Swedish Match, Ecoplug, Elgin Brown and Hammer and Kolbenco Pistons. 10

  11. BAE Projects • Exports of mining tools, automotive, power generation equipment with credits of over USD 130 million. • Investments have also been facilitated in the automotive and jewellery industries - a gold beneficiation and two jewellery manufacturing operation has been established in Virginia. • The plants commenced full production in the first half of 2002. The construction of the plants has been completed and machinery has already been installed in one of the plants. 11

  12. Thyssen Projects • Engaged in 7 projects which are forecast to generate exports and investment of USD 1, 6 billion over period of contract. • Has already facilitated the signing of an off-take agreement to purchase five years of production of a new ferrochrome plant. Exports of USD 5OO million to be generated. • A greenfield project (manufacture of aluminium tubes for the automotive industry) commenced operations in KZN in December 2001. Over 50 % of production will be for exports. 12

  13. Thales Projects • All four projects submitted by Thales have commenced operations. • The company needs to attain an investment/export target of US$ 270 million by 2004. • The export of solar panels and silicon metal have commenced. • Evertrade Medical – a waste facility and bin manufacturing plant commenced operations in January 2002. Off-take agreements for exports have been signed with Steri Cycle, a Nasdaq listed company. 13

  14. Ferrostaal Projects • Ferrostaal engaged in 2 Stainless Steel Beneficiation Projects ( stainless steel conveying pipes and tank containers) • A Fund valued at Euro 30 million has been established to finance new projects and assist BEE and SMME groups. • Export of engineering services • Invested in Atlantis Training Centre 14

  15. DEFENCE INDUSTRIAL PARTICIPATION (DIP) STRATEGIC DEFENCE PACKAGES - STATUS AS AT 31 MARCH 2004 US DOLLARS (MILLION)

  16. Performance of Non-Defence Obligors • Non defence contracts signed before 2002 do not have specific milestones • Boeing has fulfilled its obligations three years ahead of schedule • Airbus still in the early stages of implementation • Siemens, Ericsson and Alcatel all have credits above current obligations • Other small obligors performing satisfactory 16

  17. Boeing Projects • Aerospace Industry Standards require suppliers and sub-suppliers to be qualified annually • Provides annual qualifications for both Denel Aviation and Aerosud • Provided Aerosud with technology transfer for manufacture of aircraft components • Export orders for aircraft interior components • Provides lean manufacturing processes • Transferred state-of-the-art equipment to Denel Aviation to carry out manufacturing work on aircraft components • Export orders for components • Provides lean manufacturing processes 17

  18. Airbus Projects • Provides Aerosud for annual process approvals aircraft components • Aerosud qualified as for design and manufacture of galleys for A319 and A320 aircraft • Supplies electrical racks to Labinal (Airbus tier 1 supplier) for A319 and A320. • Has established a Non-Destructive Testing Centre for Aerospace, Oil and Gas industries • Partnered with NDT Expert and Bureau Veritas • Initial contract for A400M structural design could result in Denel participating in one of the largest aerospace programmes in the world 18

  19. Other Obligors • Siemens Telecoms develops and upgrades fixed and mobile switching software for Siemens AG international customers • Ericsson SA subcontracts to local subsidiary R&D work, construction and maintenance of fixed and mobile networks. • Subcontracting by Alcatel in France to a local subsidiary. • Substantial Involvement in GSM roll-out in Africa 19

  20. Other Obligors (Cont.) • Marpless Consortium involved in exporting telecoms equipment and related services • Aventis Pasteur established a local company for Clinical Trials and has invested in SA Vaccine Manufacturing company 20

  21. S I Y A B O N G A ! 21

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