Local content or capital formation? Linking budget proposals

22Apr 2018
Guardian On Sunday
Local content or capital formation? Linking budget proposals
  • Local content or capital formation? Linking budget proposals and industry vision

A NEW consensus appears to be building among local researchers on what ought to be done in the next Budget as an aspect of aspirations for industrialisation, where a key thread is increasing or ensuring local content generation and localisation of supplies.

This ought to be the case in major construction works for instance and by extension in the use of materials that service providers require, for instance sourcing of foodstuffs that are used in hotels, where there is a dearth of applicable standards and conditions for reliable contracting for local sourcing.

The question is how pivotal is local sourcing, and how effective it can be. Part of the discussion has focused on the fact that the next Budget and development plans continue from the previous, while there still awaits the major input from one year to another, on changed tax strategies intended to boost some areas while unavoidably undercutting others, to enhance revenues.

This aspect used to be pivotal in the Budget session by first delivering the big plan, enabling discussion in other areas to make sense, for the general public at least. Now the National Assembly discusses ministerial plans, as it were, in a vacuum, and by the time the public gets to know the Budget, there is no more discussion existing.

The issue about local content is being raised in a resurgent manner, nearly as a new issue whereas it ought to have been there from the beginning, and would by implication have an impact on the way in which firms conduct business in the country.

What is usually targeted in local content demands are big projects whose procurement base is wide and of sizeable quantities of materials, whether it is in construction, mining or processing industry of one kind or another, and in hotels. In the latter sphere there are always problems of the variety, quality and assurance of procurement materials; many hotels end up buying from South Africa.

Issues of local procurement of materials for big projects touch on sore areas, for instance a hoopla about manufacturing ARVs locally that are considered below accepted quality, an issue that has tended to die down after a while.

By contrast, some of the more controversial figures in that regard soon turned out to be stakeholders with wide representation function when President John Magufuli was recently inviting those with funds to put up medical drugs industries to avoid importing such needs or supplies. It was unclear if such investment would have to be protected in terms of hospital procurement and prices, viz, a game spoiler.

When researchers emphasize on local content aspects in the Budget, it is more or less a demand that this should be made explicit in law or in procurement regulations, and presumably a lot of that would be existing at present but they wish that it is strengthened.

Looking at the nature of procurement in various projects, it is clear that purchase of materials relates to the quality of what is being put up, and thus what materials are fit for that purpose, in which case the demand for local content would interfere with quality construction and thus impair competition. The demand would also seek enhanced tariffs for imports, to substitute with local.

At the same time it is evident that this demand would undo plenty of what the government has been trying to do in the past year, that is, cultivating positive economic ties with a number of emerging economies, for instance Turkey, Morocco, India and several others.

Looking at the profiles of products that these countries market, it is evident that they aren't just local products but tied up with joint ventures and localization of products of major foreign companies operating in those countries.

For instance South Africa is a key local industrial zone for products of French construction giant, Saint Gobain, targeting up-end markets, chiefly.

It is hard to see the point in welcoming foreign visitors of high profile like King Mohamed VI, Turkish President Recep Tayep Erdogan, Indian Prime Minister Narendra Modi, and earlier Chinese President Xi Jinping and even ex-US President Barack Obama, if we don't wish to play by the rules of the game.

Foreign companies investing in the country as well as local importing firms can only have a level playing field if the rules of trade as underlined in accords we have signed are respected. These include the customs union and even common market principles of EAC, SADC protocols e.g. on sugar, and world trade accords generally.

We constantly ask diplomats posted abroad to exercise all useful connections and persuasive capacities to bring investors from those countries to Tanzania, and it is these reference points which they use to seek out possible project take up or valorisation of investment opportunities.

In that context, seeking to 'change gear in mid air,' changing the rules after investors come into the country by a different set of rules is a non-starter as it quickly leads to a country not being taken seriously, that it doesn't keep its word. In that sense content components ought to be left to the market on the basis of existing rules, not favoritism as it obliterates trade.

One major aspect of respect of content rules is noticed in major construction projects, indeed all multi-story buildings without their having to reach ten floors or above, so long their demands in terms of technical input is such that it becomes a market issue.

A signboard is posted showing key participants or contracted parties in putting up that project, easing inspectors to figure out if proper procedures were followed, not to find out if all inputs were procured from local firms. In addition, even if there was explicit disposition for local firms, competition would still have to apply; the faulty criterion would be sharpened to relate to indigenous firms.

This demand for direct favoritism of local firms and especially of a particular blend in the cultural mix of the country is due to faulty economics that sees prospects of progress among industrial firms as tied to active or proactive policy of privileging them.

On the contrary the only reliable basis for progress of local industrial firms is offloading loss making state entities into the market, opening up whole sectors for competition, thus developing a 'cambrian revolution' in terms of procurement needs as hundreds of new firms arise out of such situation.

Most of them would be local, building ordinary quality units that don't need high end materials, in which case just by pricing and proximity they would be picked by purchasers, eschewing protective cover.