THE NATIONAL INDUSTRIAL PARTICIPATION PROGRAMME

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THE NATIONAL INDUSTRIALPARTICIPATION PROGRAMME

• PRESENTATION TO PORTFOLIO COMMITTTEE ON TRADE AND
  INDUSTRY
• November 2004

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History of Industrial Participation

• Practiced internationally for over 30 years
• Counter trade Offset
• In most countries, applies only to defence
  related purchases
• Commenced in SA in 1996 mainly focusing on
  telecoms, transport and information technology
  purchases.
• Major increase in 2000 as a result of the
  aerospace and defence related purchases

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Main purpose

• To raise investment levels
• and to increase international market access for
  South African value-added goods and services
• by leveraging off government procurement.

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The NIIP obligation cont.

• Seven years to fulfill the obligation
• Credits system used for each of the objectives
• Performance guarantee required
• Responsibility lies solely with seller
• Purchasing decision independent of NIPP
• NIPP is a precondition but not a factor in the
  adjudication process

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Current Obligations

• Total Obligations approx US14bn
• US13 bn arising out of Strategic Defence
  Procurement
• US800m arising out of purchases by SAA
• The rest from purchases by
• Telkom
• Other government departments
• Spoornet
• Eskom
• Other SOEs

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Current Obligations

• Obligors have seven years to fulfill obligation
• BAE/SAAB has 11 due to size (US7.2bn)
• Defence obligors have specific milestones that
  must be met
• First milestones due in April 2004 and July 2004
• Next milestones due in 2007 for BAE/SAAB and in
  2005 for others
• New contracts for non-defence obligors have
  milestones evaluated in years 3 and 5

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Milestones for Defence Obligors
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Performance of Obligors

• Since inception over 125 projects approved and
  implemented
• Projects cover sectors as outlined in the dtis
  IMS
• These projects have generated
• Investment Credits in excess of US677m
• Sales Credits in excess of US1bn
• Local Sales in excess of US457m
• Includes technology transfer, BEE and SME
  promotion
• 7 000 direct jobs

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Performance per first milestones

• BAE/SAAB in aggregate exceeded their first
  milestone target
• Achieved more than 100 investment target
• 95 sales target
• Agusta exceeded its first milestone targets
• Achieved more than 100 of its investment and
  sales milestone
• Thales
• Achieved 85 of its overall targets(current
  figures indicate 93 achievement)
• Ferrostaal
• First milestone July 2004- assessment of final
  claims will be completed Dec 2004
• Thyssen
• Achieved more than 100 of sales targets,
  investment milestone due April 2005

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BAE Projects

• BAE/SAAB carries almost 50 percent of the total
  SDP obligations.
• Engaged in over 36 investment and export
  promotion projects. These projects are forecast
  to generate investments of USD 300 million and
  exports of USD 2 000 million by 2004. All DIP
  targets have been met.
• Projects undertaken included facilitating
  investments in Global Forest Products, Swedish
  Match, Ecoplug, Elgin Brown and Hammer and
  Kolbenco Pistons.

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BAE Projects

• Exports of mining tools, automotive, power
  generation equipment with credits of over USD
  130 million.
• Investments have also been facilitated in the
  automotive and jewellery industries - a gold
  beneficiation and two jewellery manufacturing
  operation has been established in Virginia.
• The plants commenced full production in the first
  half of 2002. The construction of the plants has
  been completed and machinery has already been
  installed in one of the plants.

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Thyssen Projects

• Engaged in 7 projects which are forecast to
  generate exports and investment of USD 1, 6
  billion over period of contract.
• Has already facilitated the signing of an
  off-take agreement to purchase five years of
  production of a new ferrochrome plant. Exports
  of USD 5OO million to be generated.
• A greenfield project (manufacture of aluminium
  tubes for the automotive industry) commenced
  operations in KZN in December 2001. Over 50 of
  production will be for exports.

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Thales Projects

• All four projects submitted by Thales have
  commenced operations.
• The company needs to attain an investment/export
  target of US 270 million by 2004.
• The export of solar panels and silicon metal have
  commenced.
• Evertrade Medical a waste facility and bin
  manufacturing plant commenced operations in
  January 2002. Off-take agreements for exports
  have been signed with Steri Cycle, a Nasdaq
  listed company.

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Ferrostaal Projects

• Ferrostaal engaged in 2 Stainless Steel
  Beneficiation Projects ( stainless steel
  conveying pipes and tank containers)
• A Fund valued at Euro 30 million has been
  established to finance new projects and assist
  BEE and SMME groups.
• Export of engineering services
• Invested in Atlantis Training Centre

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DEFENCE INDUSTRIAL PARTICIPATION (DIP) STRATEGIC
DEFENCE PACKAGES - STATUS AS AT 31 MARCH 2004 US
DOLLARS (MILLION)
PROJECT     COMMIT-MENT     ACTUAL PERFOR-MANCE   PERF vs COMM   PLANNED PERFOR- MANCE AS AT 31/03/2004 ACTUAL vs PLANNED  
CORVETTE 471 227.2 48.3 219 103.75
SUBMARINES 179 85.1 47.46 90 94.7
LIGHT UTILITY HEL. 191 70.1 36.72 112 62. 74
HAWK 680 333.6 49.03 304 109.63
GRIPEN 808 263.9 32.67 150 175.67
MARITIME HEL 88 3.2 3.59 0 0
TOTAL 2 417 983.2 40.68 875 112.37
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Performance of Non-Defence Obligors

• Non defence contracts signed before 2002 do not
  have specific milestones
• Boeing has fulfilled its obligations three years
  ahead of schedule
• Airbus still in the early stages of
  implementation
• Siemens, Ericsson and Alcatel all have credits
  above current obligations
• Other small obligors performing satisfactory

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Boeing Projects

• Aerospace Industry Standards require suppliers
  and sub-suppliers to be qualified annually
• Provides annual qualifications for both Denel
  Aviation and Aerosud
• Provided Aerosud with technology transfer for
  manufacture of aircraft components
• Export orders for aircraft interior components
• Provides lean manufacturing processes
• Transferred state-of-the-art equipment to Denel
  Aviation to carry out manufacturing work on
  aircraft components
• Export orders for components
• Provides lean manufacturing processes

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Airbus Projects

• Provides Aerosud for annual process approvals
  aircraft components
• Aerosud qualified as for design and manufacture
  of galleys for A319 and A320 aircraft
• Supplies electrical racks to Labinal (Airbus tier
  1 supplier) for A319 and A320.
• Has established a Non-Destructive Testing Centre
  for Aerospace, Oil and Gas industries
• Partnered with NDT Expert and Bureau Veritas
• Initial contract for A400M structural design
  could result in Denel participating in one of the
  largest aerospace programmes in the world

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Other Obligors

• Siemens Telecoms develops and upgrades fixed and
  mobile switching software for Siemens AG
  international customers
• Ericsson SA subcontracts to local subsidiary RD
  work, construction and maintenance of fixed and
  mobile networks.
• Subcontracting by Alcatel in France to a local
  subsidiary.
• Substantial Involvement in GSM roll-out in Africa

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Other Obligors (Cont.)

• Marpless Consortium involved in exporting
  telecoms equipment and related services
• Aventis Pasteur established a local company for
  Clinical Trials and has invested in SA Vaccine
  Manufacturing company

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S I Y A B O N G A !
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