South Africa's Localisation Policy: A Costly Endeavour or a Route to Economic Growth?

A recent report by the Centre for Development and Enterprise (CDE), titled “The Seven Sins of Localisation: Can SA afford this costly policy?”, has sparked a heated discussion about South Africa’s localisation policy. The report argues that localisation, which is the economic practice of using domestically produced goods over imports, may be hurting more than helping the country's economy.

According to the CDE's report, the current government’s commitment to a localisation policy could be one of the reasons for the slowdown in growth and investment, despite the urgent need for both. The report critically examines the localisation policy, outlining seven significant drawbacks to this approach, including a lack of transparently produced data, increased costs and inefficiencies, and the negative impact on investor confidence.

The research indicates that obligations such as local procurement can result in additional costs of between 10% and 30%. It's argued that these costs can curb competitiveness and reduce opportunities for foreign investment.

Moreover, the restrictions imposed by localisation can create various barriers and hurdles for businesses, thereby undermining the ambitions of industrial growth and further aggravating the nation's economic plight.

The insights from the report suggest that a more globally integrated approach might be a better route to stimulating faster growth and job creation. It argues that the government should focus more on creating a business environment that pulls investment through competitive pressures, rather than leaning towards local production at high cost.

Notably, the concluding remarks of the report were endorsed by David Kaplan, an economics professor at the University of Cape Town, who emphasized the need to answer whether: “Do we want our future to be inward-looking or do we want to be integrated with the global economy, learning from others, increasing our export footprint, growing our economy, and providing the jobs and inclusion we so desperately require?”