An Overview of Preferential Procurement in South Africa: Government Initiatives and Private Sector Responses

by VAN DER HEIJDEN, T., 2008
Research Report. Centre for Poverty Employment and Growth, Human Sciences Research Council

Fostering the development and growth of small and medium-sized enterprises (SMEs) is a key issue in increasing employment opportunities and raising personal incomes. In addition, supporting the growth of SMEs owned by previously disadvantaged groups, black women and young people is important for achieving a more equitable economy. However, given the structure of the formal economy in South Africa, which is dominated by large and well-established companies, barriers to entry for new SMEs owned by these target beneficiaries are significant. One important way in which SMEs can enter the market is as suppliers to larger companies. A conscious focus by large private and public sector companies on procuring goods and services from smaller companies with a certain demographic profile – preferential procurement – can be a significant tool in increasing the number of sustainable small businesses. Closely aligned with the concept of preferential procurement is that of enterprise development. A successful enterprise development strategy can create sustainable PDI-owned businesses that may otherwise never have survived. The formation of sustainable PDI-owned companies is often viewed as the most important tool in improving equity and income. Van der Heijden examines how preferential procurement is being implemented in corporate South Africa. Three companies are examined in three very different sectors, with different customer profiles and different management approaches, to see how they have addressed the issue.