Getting the basics right in preparation for 4IR disruption in SA’s technical value chain

In this concluding article in a five-part series, under the theme digitalisation of the domestic technical value chain (TVC), Garth Strachan and Max Smeiman’s key observations and proposals, set out across the series are synthesised.

The first and second articles in this five-part series focusing on digitalisation of the domestic technical TVC identified and demonstrated the necessity of the adoption of key standards, processes and proven value chain methodologies and set out the principles, technical terminology and building blocks, including the classification and catalogues, necessary for the digitalisation of the TVC.

The third and fourth articles in the series highlighted the necessity of a common technical ‘language’ to ensure optimal demand planning, sourcing, manufacturing and delivery in procurement and supplier development in an increasingly ‘Fourth Industrial Revolution (4IR) redefined’ competitive landscape.

The following observations bring together the key conclusions of the series:

The Fourth (or Digital) Industrial Revolution: much of the commentary on the 4IR in South Africa can be described as ‘techno-wow-wow’ or ‘mouth-open’ amazement at quantum leaps in technology and digital capabilities. Alternatively, proposals are advanced for South Africa to undertake mega-project constructions such as smart cities or bullet trains (even if the latter are fully imported), in order to make a quantum leap into a future technological era. But this might all be star gazing – the less palatable reality is that South Africa needs to get the basics right in preparation for the disruptive technologies that the digital revolution has and will increasingly bring to bear. Digitalisation of value chains has occurred in certain domestic value chains, including for example, in the automotive sector, where global original equipment manufacturers (OEMs) located in South Africa are deeply integrated in global value chains. But other sectors, especially the domestic TVC, lag far behind and an applied and collaborative effort to urgently transform the status quo to secure digitalisation is required.

Planning, Productivity and Competitiveness: the absence of a digitalised value chain means that supply chain management and strategic sourcing engenders ongoing inefficiencies, a lack of competitiveness, low productivity growth, increased import penetration and the risk that South African products can be excluded from export markets. The adoption of the identification, classification, standards and catalogues required for digitalisation is a necessary precondition to secure much stronger outcomes. A collaborative, cost-effective effort to secure digitalisation is a pragmatic step towards embracing the opportunities and mitigating the risks of the 4IR.

Accurate planning is a key principle amongst globally competitive firms with performance against plan, a critical measurement. Research has demonstrated that protocols within the domestic TVC are bypassed at will and replaced with reactive crises buying, symptomatic of poor materials planning, mainly due to deficient master data, which limits the ability to measure and report real performance.

Rent-seeking and corruption: ‘cosy’ procurement practices; rent-seeking and outright corruption are prevalent to varying degrees in the private and public sectors. Revelations of massive, widespread State-owned enterprises (SOEs) and public sector corruption in South Africa over the last few years has set back the economic and industrial effort immeasurably. Just one instance – corruption in the rail procurement programme – probably constitutes the biggest lost industrial opportunity in the history of South Africa. The digitalisation of the TVC (and other value chains) can immeasurably curtail and prevent corruption. Real-time sight of supplier companies and what they produce, to what standard and in which catalogues, at what competitive price and to which delivery requirement – all this and more is readily achievable. In the case of public sector procurement, real-time procurement data can also include information on company status (the Companies and Intellectual Property Commission); tax and import rebate information (the South Africa Revenue Service and the International Trade Administration Commission of South Africa); Standards and Compulsory Standards (South African Bureau of Standards and the National Regulator for Compulsory Specifications); broad-based black economic empowerment status (BB-BEE Commission) and more real-time data provision and access – as and where appropriate.

The Technical Value Chain and State-owned enterprise (SOE’s): The TVC encompasses the mining sector, inclusive of upstream value-added mining equipment and yellow metals sub-sectors where SA retains significant capacity and capabilities. In addition, it encompasses the steel, rail, energy and chemicals sectors, with significant manufacturing and technology ‘spill-overs’ into agricultural equipment; construction; oil and gas and so forth. The SOEs – Eskom and Transnet in particular – are significant players across the entire TVC – responsible as they are for massive procurement spend with enormous localisation potential with reciprocal conditionalities on price, technology application and transformation.

Localisation: The private and public sectors (and SOEs) have all made commitments to localisation in South Africa in the recent past. In reality, minimal outcomes have been achieved, with very significant import penetration and alarming ongoing deindustrialisation and job losses in key sectors. Existing localisation regulation is an expensive, regulatory hurdle requiring post-procurement, audit verification. For one, South Africa’s procurement legislation needs to be revisited. For example, procurement policy and legislation does not even reference standards or compulsory standards. Localisation in many instances is wilfully ignored or formulated as a blunt instrument – for example, the 60% ‘one-size-fits-all’ localisation requirement in the Mining Charter 3. Improper black economic empowerment preference application has been used to trump locally produced value-added products, strengthening deleterious import penetration in key industrial sectors.

The digitalisation of the technical and other value chains can ensure that far less costly, real-time (as opposed to post-purchase) verification enables strategic procurement to secure value for money competitive pricing; localisation and ‘deep’ transformation in the real economy as well as support for competitiveness raising and exports. Linked to other demand and supply-side public-sector instruments, Digitilisation can enable reciprocal price and technology conditionalities.

The National Industrial Policy Framework was tabled more than a decade ago. Many of the policy instruments sets out on its pages are admirable, but implementation has been bedevilled by corruption; a lack of policy coherence and programme implementation across government and a sub-optimal, mutually supportive collaborative effort between the public and private sectors. The digitalisation of the TVC will not be a magic wand, but it does constitute one necessary, pragmatic and important process which SA Inc ignores at its peril.