Canadian entrepreneur pushes back against offshoring in South Africa

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In a country with a 28-per-cent jobless rate, Canadian entrepreneur Rob Briscoe has provided a rare glimmer of hope.

His Johannesburg factory, the first in Africa to make electric locomotive motors, has created 150 much-needed industrial jobs at a time when South Africa teetered on the brink of recession.

But the factory could have created twice as many jobs if other contractors had co-operated. And now a parliamentary inquiry wants to find out what happened.

The answers, while complex, reveal the challenges that face African countries as they try to use industrial policy to solve their economic woes. Job targets can be set, but there is little to prevent foreign companies from simply shipping the jobs abroad, leaving the country still mired in high unemployment.

Mr. Briscoe is president and chief executive of Montreal-based IEC Holden Inc., which landed a contract from Bombardier Inc. to produce traction motors for 240 locomotives for South Africa's state-owned freight company, Transnet.

Bombardier was one of four manufacturers to win a slice of a huge Transnet locomotive contract in 2014 – one of the biggest infrastructure projects in South African history. Bombardier's share of the contract was worth $1.2-billion (U.S.).

A total of 1,064 locomotives are being built by Bombardier, two Chinese companies, and U.S.-based GE Transportation. They pledged that the majority of the manufacturing would be done in South Africa, maximizing the jobs and technology here.

The subcontract from Bombardier allowed IEC Holden to invest about 300 million rand ($21-million) in a Johannesburg factory over the past three years. It trained 150 South Africans in the technical skills needed to build locomotive motors, while providing South African content for 77 per cent to 80 per cent of the subcontract's value.

"People said it couldn't be done," Mr. Briscoe told The Globe and Mail. "A lot of people were skeptical. But we've proven that South Africa can do it, and do it well."

The factory, however, would have provided twice as many jobs if GE had followed Bombardier's example in its subcontracts. Instead, after a test run, GE decided that the factory wasn't producing the motors fast enough. It gave the bulk of the motor subcontract to its North American plants instead.

IEC Holden was "unfortunately unable to achieve the necessary qualifications in the time frame required on this component," a spokeswoman for GE Africa told The Globe.

As a result, the Canadian-owned factory is building 1,440 motors for Bombardier and only 100 for GE. It still hopes to expand into other African work, but so far Bombardier is its main customer.

Bombardier and GE both say that they are meeting their promises of local content. Bombardier says it is obtaining 60 per cent of its locomotive components from South African suppliers, while GE says it is obtaining 55 per cent from local suppliers.

The Chinese companies, meanwhile, obtained permission to build the first 40 of their planned 591 locomotives in China and have invested little in South Africa so far, according to South African news reports and studies by local think-tanks.

After setting its targets for local content, South Africa seems to rely too much on the "good faith" of its suppliers, Mr. Briscoe said.

"There's something missing in the contracts or the enforcement," he said. "It's potentially a missed opportunity. The dream of reindustrialization is possible, but it takes a lot of will."

Leaked e-mails have disclosed that one of the Chinese locomotive manufacturers gave 20 per cent of its contract value in "fees" to a politically connected South African company. This "high-level corruption" has led to weaker investment and slower industrialization in South Africa, according to a report this year by a local research organization, Trade and Industrial Policy Strategies.

South Africa's parliamentary committee on trade and industry has now launched an investigation of Transnet's local procurement. The investigation will include public hearings, where Transnet and the main suppliers will be required to testify.

In a statement last month, the committee expressed its "continued concern" over the localization issue. Its chairperson, Joanmariae Fubbs, said the committee was not satisfied with Transnet's responses on the issue.

Dean Macpherson, a committee member and an MP in the opposition Democratic Alliance, said Transnet is in "severe violation" of its localization promises. There is no audited proof that its contractors are providing the local content that they promised, and there are no penalties if they violate their pledges, he told The Globe in an interview.