The new Preferential Procurement Policy Framework Act (PPFA) regulations, which will take effect on April 1, have the potential to provide a significant stimulus to small business development in South Africa.
The updated rules explicitly allow for a “set-aside” in tenders for firms with a certain status, be they small or medium-sized enterprises, cooperatives or companies with a specific designation, such as being black, women, youth, or disabled owned.
Besides implementing compulsory subcontracting of at least 30% for tenders above R30-million, the regulations raise the threshold (from R1-million to R50-million) for bids evaluated in terms of the current 80:20 preference-point system. They also allow public entities to negotiate prices with preferred service providers, support procurement of locally manufactured goods and cater for the allocation of preference points in line with a firm’s broad-based black economic-empowerment status.
Small Business Development Minister Lindiwe Zulu has acknowledged that the value of the opportunity opened up could be as high as R150-billion a year, with the PPFA regulations applying to all organs of State, including national and provincial government departments, municipalities, Parliament, provincial legislatures and various State-owned companies.
The Minister revealed the figure during an Economic Sectors, Employment and Infrastructure Development Cluster briefing in Cape Town, at which she also made conciliatory overtures towards Finance Minister Pravin Gordhan, after being conspicuous in not participating in the standing ovation given to Gordhan during his February 22 Budget speech. While lamenting the “haircut” given to her department, she acknowledged the fiscal constraints within which the National Treasury was currently operating.
Zulu said her department planned to “chase” the opportunity created by the set-asides and indicated that it would be leaning on other departments to assist with implementation. She saw specific near-term opportunity in the construction sector, as well as in tapping programmes associated with Operation Phakisa.
“Obviously, it’s not going to be an easy thing, because the small and medium-sized enterprises and cooperatives themselves have to be ready for this, [although] I know that many are ready . . . they have been waiting for this for a very long time.”
It is indeed no easy task in South Africa to close the gap between policies on paper and real-world implementation. To be sure, many a well-intention intervention has been lost in that cavity.
However, administration of the policy is but one of the risks posed by the changes to public procurement policy. The other obvious threats lie in the potential for fronting and corruption.
Given the size of the opportunity, there is a strong possibility that companies and individuals will attempt to game the system through the creation of entities that are not all they appear. In addition, the introduction of higher levels of discretion at the level of officialdom could create new touch points for dishonest dealings.
However, the programme should be supported and be given every chance to flourish, because, if it does, it could go a long way to improving prospects for small-business success. That said, it should be closely watched for any sign of impropriety.