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PORTFOLIO COMMITTEE: 31 October 2007 National Industrial Participation Programme (NIPP)

Division :EIDD. PORTFOLIO COMMITTEE: 31 October 2007 National Industrial Participation Programme (NIPP). 1. CONTENTS. Introduction and Background Performance of NIPP Industry Impact of NIPP Key Projects for 2006-2007 Summary of EIA IS NIPP Working? Challenges Recent Developments

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PORTFOLIO COMMITTEE: 31 October 2007 National Industrial Participation Programme (NIPP)

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  1. Division :EIDD PORTFOLIO COMMITTEE: 31 October 2007 National Industrial Participation Programme (NIPP) NIPP Nov 2007 1

  2. CONTENTS • Introduction and Background • Performance of NIPP • Industry Impact of NIPP • Key Projects for 2006-2007 • Summary of EIA • IS NIPP Working? • Challenges • Recent Developments • Way forward • Questions NIPP Nov 2007 2

  3. INTRODUCTION & BACKGROUND • To leverage economic benefits and support the development of South African industry by effectively utilizing the instruments of Government Procurement • NIPP became obligatory in September 1996. • Applicable on all Government and State Owned Enterprises • Obligation value: 30% of the imported content – equate to economic activity • Principles: Additionality, Causality, No Increase in price, Sustainability NIPP Nov 2007 3

  4. PERFORMANCE OF NIPP(US$) Encompasses Invest, local sales, exports, tech transfer, SMME, BEE, R&D, training with NIP multipliers NIPP Nov 2007 4

  5. INDUSTRY SECTOR SPREAD OFTHE 173 NIPP Projects NIPP Nov 2007

  6. GEOGRAPHIC SPREAD NIPP Nov 2007

  7. INDUSTRY SECTORS OF NIPP • Manufacturing Sector accounts for 90% of NIPP projects. Aligned with Integrated Manufacturing Strategy & National Industrial Policy Framework. • Key sectors: Basic metal manufacturing, manufacturing of transport equipment and chemicals. (In line with global offset trends) • High tech sectors: Energy, telecommunication, medical equipment NIPP Nov 2007

  8. HIGHLIGHTS 2007 • Rock Bolt – wire and wire products BEE JV • Mechatronics – integrated mechanical and IT skills development - 400 students/year • Novara – plastic recycling • ALC: Global supply of leather seats -250 jobs • Flextech – localisation and global supply of automotive cables -155 jobs • Offshore Oil and Gas Fabrication Centre – 700 jobs • Avalloy – Niche super alloys for aeronautical industry. Accredited RR supplier • Denel SAAB – Design and production aerostructure components NIPP Nov 2007

  9. ECONOMIC IMPACT ASSESSMENT (EIA)OF NIPP- BACKGROUND • An EIA was commissioned in March 2007 • Input - output model used (SAM) using multipliers • Input provided by the dti was on key NIPP objectives: FDI, exports and local sales & jobs created Result: Key macroeconomic indicators: GDP, Employment, BOP, Fiscal and capital effectiveness of NIPP projects Economic Effectiveness Criteria: whether NIPP was effectively utilising capital as a scarce resource? NIPP Nov 2007

  10. SUMMARY OF EIA • Positive Impact on GDP: Direct average annual value added contribution to GDP is R3billion • Positive impact on Balance of Payments (Exports > Imports – on average for NIPP projects) • Government to receive an additional R3.9 billion in taxes due to sales generated by NIP projects • 15689 direct jobs created and/or sustained 50308 direct and indirect jobs (66% semi skilled and skilled whilst 34% is for unskilled jobs) • Medium to high tech and skilled to semi skilled focus of NIP projects NIPP Nov 2007 10

  11. CONCLUSION OF EIA: Average of R16 billion of capital required on an annual basis to sustain all NIPP projects. (Covers - initial investment + capital costs required by other sectors across economy to sustain increased levels of economic activity on account of NIPP) Hence Effective use of Capital: NIPP is effective in utilising capital (investment) as a scarce resource as NIPP projects contribute a greater portion to GDP as compared to other capital projects of a similar nature. NIPP Nov 2007

  12. GOVT SPEND VS BENEFITS DERIVED FROM NIPP • IMPORTED CONTENT OF PURCHASES Total: Approx: US$11.3bn Defence: US$3.8 bn Non Defence: US$7.5 bn 2. Actual FDI’s, EXPORTS AND LOCAL SALES: FDI: US$ 424m from obligors Exports: US$ 2.9 bn -market access Localisation: Local investment and import replacement NIPP Nov 2007

  13. CHALLENGES/ LESSONS LEARNT • Project failure due to lack of competitiveness and ability to sustain projects locally • Project failure due to market dynamics • Project failure due to mismanagement of funds by local supplier • Milestone deadlines are in most cases over optimistic – challenges within the operating business environment • Limited support for development of BEE’s and WEE’s NIPP Nov 2007

  14. RECENT DEVELOPMENTS DIRECT NIP: • Use tool of NIPP to extend beyond its current scope and also allow for offsets directly associated with the procurement and its associated industry. • Contribute towards building local capacity and local content through Government procurement OTHER: • Alignment with key Government initiatives such as B-BBEE, SMME’s and Skills Development NIPP Nov 2007 14

  15. WAY FORWARD • Incorporate Direct NIP into existing NIPP Guidelines • Communication of Direct NIP to applicable Purchasing Entities – workshops, bilaterals • Increased focus on labour intensive projects(e.g. Magwa Tea), skills development and other key strategic sectors • Alignment between NIPP and the Competitive Supplier Development Programme (CSDP), B-BBBEE, Customer sector Programme initiatives. NIPP Nov 2007

  16. Thank you???? NIPP Nov 2007 16

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