An overview of preferential procurement in South Africa: Government initiatives and private sector responses

Research report, Centre for Poverty Employment and Growth, Human Sciences Research Council, Pretoria

Fostering the development and growth of small and medium-sized enterprises (SMEs) is critically important to expanding employment and promoting economic inclusion, especially for historically disadvantaged groups and youth. However, South Africa’s has a highly concentrated formal sector, dominated by large and well-established companies. This creates significant barriers to entry for new SME’s. Supplying goods and services to large companies is one important way that SMEs can enter the market. A conscious focus by large private and public sector companies on procuring goods and services from smaller companies with a certain demographic profile can be an important tool in increasing the number of sustainable small businesses. So, preferential procurement could support enterprise development. The South African government has intensified its focus on the promotion of preferential procurement. This paper reviews the emerging policy environment, with a shift from BEE to BBBEE, and the increased use of scorecards.