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NIPP Frequently Asked Questions  

The National Industrial Participation (NIP) places a statutory obligation on the suppliers of goods and services to Government, that have an imported content of $10 million and above, to participate in domestic economic activity, by supporting the productive sectors of the economy through any or a combination of investment; export sales, research and development, technology transfer and transformation of the domestic economy, with special emphasis on the manufacturing sector. The NIP obligation is calculated as an equivalent of 30% of the imported portion of the purchase contract. This 30% NIP obligation is fulfilled through local economic activities that have the potential to impact positively on the objectives of NIP. NIP forms part of the four-tier system of public procurement levers approved by cabinet in December 2012, i.e. designations in terms of the amended regulations of the PPPFA; the Competitive Supplier Development Programme; Direct NIP and Indirect NIP. Together with these public procurement levers, NIP is designed to support the production sectors of the economy, with special emphasis on the value-adding, tradable manufacturing sectors.

Question Answer
Are these agreements available in pre-formatted standard forms, or are the templates merely indicatory, i.e. are they merely intended to provide assistance and or a starting point for negotiations between the parties or must a given agreement be concluded strictly to a standard format? The standard format of these agreements is normally accepted by most sellers; however, there are instances where parts of the agreement are negotiated.
At what point and by whom must an Industrial Participation Proposal be submitted? The supplier or potential NIP obligor should submit an NIP business concept/proposal prior to awarding of the tender/contract.
At what point does an NIP obligation arise? i.e. does it arise when a supplier/seller is short listed, awarded a tender, or when an agreement for the supply/sale of goods/services is concluded? The NIP obligation arises when the tender is awarded. However, the NIP process or negotiations can commence prior to the awarding of a tender.
Briefly, how does NIP work? Contact the IP Secretariat (IPS) at +27 394 1389 for details, or obtain a copy of the NIP guidelines.
Can NIP decisions regarding the imposition of penalties, or the determination, calculation or allocation of credits be appealed? The submission of a performance guarantee is compulsory. Imposition of a penalty is normally discussed with the obligor prior to invoking the performance guarantee. Obligors are encouraged to contact the IPS regarding queries on the calculation and allocations of NIP credits.
Does NIP apply to local companies? All companies supplying goods and services to government and state-owned companies (SOC), where the imported content of the purchase, lease contract or purchase order equals to, or exceeds US$ 10 million, would incur an NIP Obligation. NIP is also applicable to multiple contracts for the same products awarded to one seller over a two-year period, which in total exceeds US$10 million. The seller of such goods and services is obliged to submit and implement business projects that generate NIP credits equalling or exceeding the value of the obligation.
Does sales to SADC qualify for exports credits? Sales to SADC and SACU are regarded as local sales.
Does the SBD 5 Form apply to me, as a bidder, and what am I required to do? In response to government tenders, all bidders are required to complete the SBD 5 form and submit it as part of the tender documents. Failure to submit the SBD 5 form, duly completed and signed, may invalidate the bid.
How and by who is the performance of an NIP obligation monitored, evaluated, confirmed, and enforced? The project managers within the IPS monitor the NIP obligation; however, they do depend on the purchaser and seller for confirmation of the obligation values. Compliance to NIP is enforced through a cabinet directive.
How are penalties calculated/applied and by whom? The penalties are calculated upon signature of the purchase agreement and are derived from the obligation and thus the imported content value as per the purchase contract signed between the purchaser and the seller/contractor. It is usually calculated by the seller/contractor, based upon a written confirmation from the purchaser or calculated from amounts reflected in the final purchase agreement.
How do you define an SMME? SMME is defined in the Small Business Act 102 of 1996 as a business entity employing a maximum of 100 employees. In the case of enterprises in the mining, electricity and manufacturing sectors, the threshold is 200 employees. Amendments to this Act will accordingly affect the applicable definition of SMME.
Is it correct to state that there are only two main types of NIP Agreements, namely Obligation Agreement and Strategic Partnership Agreement? There are two contractual agreements in NIP, the Obligation Agreement and the Strategic Partnership Agreement (SPA).
  1. Obligation Agreement
    The obligation agreement is conditional upon the ward of the tender, and it is linked to a single tender. This agreement is always supplemented by a performance guarantee to the value of 5% of the NIP obligation. A bank guarantee is always preferred over any other form of guarantee.

  2. Strategic Partnership Agreement (SPA)
    The SPA is a proactive agreement allowing potential obligors to initiate NIP projects and save accruing NIP credits for use in discharging future obligations. These are long-term agreements between government and suppliers and are not linked to any tender - can accommodate multiple tenders. NIP obligations discharged through SPAs are subject to the provision that accrued NIP credits in the SPA equal or exceed the obligation.

Equally important are the following initiating documents:

  • SBD 5 Form (Commitment to participate in NIP). This NIP initiating document is included in all tenders issued by government procuring entities and other institutions where it is estimated that the contract value would equal/exceed R10 million.
  • MoU (Confidentiality Agreement) This document is signed by potential obligors, thus undertaking to respect the confidentiality of the discussions and negotiations that transpires between all parties to the agreement.
Please explain what is meant by the following paragraph: "Industrial Participation Project must result directly from the purchase contract. The Industrial Participation Proposal would not have been initiated had it not been a condition of the purchase contract and a possible component in the adjudication process. The exception is the Strategic Partnership Agreement (SPA)" The statement reaffirms the principles of causality, and additionality. It also means that the resulting NIP obligation arising directly from a purchase contract. NIP obligations and resulting NIP projects should emanate from the seller's involvement in SA purchase contracts. The exception to this rule being the strategic partnership agreements (SPA), which allow potential obligors to initiate NIP projects proactively, so as to bank accrued NIP credits for use in offsetting future NIP obligations
Please outline the correct process to be followed by potential suppliers of foreign goods/services to the government of RSA or SOC in response to a public tender, and the necessary steps relative to the National Industrial Participation Project: The procedure can be summarised as follows:
  • Liaison between IPS and purchaser regarding NIP and the Request for Proposals (RFP);
  • Tender invitation to include NIP guidelines;
  • Conclusion of Memorandum of Understanding (MoU)/Confidentiality Agreement;
  • Seller submits Business Concepts to NIP Secretariat (IPS);
  • Discussions with IPS regarding business concepts;
  • Evaluation of Business Concepts by NIP Project Evaluation Committee (ICC);
  • IPS recommendation to IP Control Committee (IPCC);
  • Decision by IPCC (further discussions if IPCC disapproves business plan proposals);
  • Notification to the purchaser that the prospective seller has complied with its NIP Obligation. Purchaser would now be in a position to award the contract;
  • Tender awarded to obligor by purchaser;
  • NIP obligation becomes effective when the purchase contract is awarded;
  • NIP contract including milestones is negotiated and concluded;
  • Receipt of 5% performance guarantee from obligor;
  • Obligor submits business plans to NIP secretariat, within three months;
  • Discussions with NIP secretariat regarding business plans;
  • Evaluation of business plans by IP project evaluation committee;
  • Endorsement of decision by IP control committee;
  • Bi-annual progress reports are required from the seller;
  • Six-monthly review meeting will be held with the seller;
  • The fulfilment period will be discussed with the seller;
  • Department of Trade and Industry will initiate audits if and when required;
  • Independent audit reports are required from the seller annually;
  • NIP credits will be allocated upon performance;
  • The decision regarding NIP credits will be communicated to the seller together with a report on the status of the seller's NIP obligation; and
  • Upon fulfilment of the NIP obligation, the seller will be notified in writing and in so doing, be discharged of the obligation.
Under what Act did NIP originate? The NIP programme emanate from a cabinet decision. There is not any legislation or act of parliament regulating the programme other than the cabinet directive issued in 1997.
What do we define an investment to be? The NIP Programme or brochure defines investment in terms of capital outlay/injection in the form of plant and machinery, motor vehicles, land and buildings, set up costs, equipment.
What do we define as a SOC? An SOC is an entity that is partly or wholly owned by Government.
What does causality mean? Causality means that the NIP proposals must result directly from the purchase contract. The NIP proposal would not have been initiated had it not been a condition of the purchase contract and a possible component in the adjudication process. The exception is the Strategic Partnership Agreement (SPA). Furthermore, causality means that each NIP project submitted was caused by the obligator as a result of an NIP obligation or the seller's direct involvement therein; or that the involvement of the seller in the NIP project had influenced such project to eventuate within a shorter time period than would have been the case.
What exchange rate is used to determine the NIP obligation value in USD? The exchange rate used for the projected NIP obligation at contract signature is as at the date of signature of main purchase agreement. The exchange rate used for the actual obligation is as and when the obligor receives payment over the duration of the main purchase contract.
What is envisaged by the statement: A NIP project must be economically and operationally sustainable, even after the discharge period? This emanates from the principle of the project being mutually beneficial and making business sense for the obligator as well as benefit to the SA economy. It, therefore, implies that the proposal would be profitable and beneficial to the obligor and would, therefore, have a lifespan beyond the seven-year fulfilment period. It is, therefore, imperative that the initial proposal should make business sense to the obligor.
What is regarded as an acceptable performance guarantee? i.e does the dti or the secretariat have standard wording which it uses? If so, must the standard wording be used? If not, must proposed wording be submitted by a foreign supplier/seller for approval or negotiation? A standard format for the performance guarantee is available from the IPS. The obligor is entitled to submit a proposed response or wording to this guarantee, for approval or discussion with the IPS.
What is the definition of imported content? Imported Content refers to that portion of the tender price as determined in the purchase agreement, represented by the cost of goods and services, components, parts or materials which have been or are still to be imported (whether by the seller/contractor or its suppliers or subcontractors) based on a free-on Board (FOB) calculation, plus any other foreign direct importation costs, including any cost relating to royalty or licensing fees.
What is the difference between (a) Business Concept, (b) Business Plan, (c) Business Proposal and the (d)Industrial Participation Proposal? Business concept/proposal and NIP proposal are identical. However, the business plan is a detailed plan of action outlining the business concept/proposal or NIP proposal submitted and approved by the dti. Business concept/proposal must provide:
  • Demonstration of causality and additionality;
  • Brief description of products or services and its local content value;
  • Broad marketing strategy;
  • Broad financial projections: sales, cost of sales, profit;
  • Brief description of the technology/process;
  • Geographic location;
  • NIP credit schedule with projections related to the specific type of arrangement; and
  • Details of partners (BEE etc.)

Business Plan must provide:

  • Executive Summary;
  • Description of business proposals:
    • legal structure;
    • ownership structure;
    • mission and objectives;
    • description of products and services to be produced (local content value);
    • description of industrial sector, markets and customers;
    • processes, systems, technologies and equipment;
    • detailed employment projections; local and foreign;
    • technology transfer;
    • training; and
    • exit mechanisms
    • marketing strategy; and
    • marketing plan.
    • Financial
    • Pro forma balance sheet, income statement, cash flow statement;
    • Financing details of project.
    • Detailed credit schedule with projections and milestones
What is the IP Control Committee? The IP Control Committee (IPCC) is an interdepartmental committee, which has expertise and activities relevant to the IP Programme. The IPCC was established to provide guidance in the implementation of the IP Programme
What is the monetary value of a credit? i.e. how much does a single credit count towards the discharge of an IP obligation given that the IP obligation is calculated in US dollars? Normally, one dollar equals one credit. However, where there are multipliers, NIP credits are determined by the applicable factor in the multiplier. The obligation is calculated in US dollars or the equivalent thereof. The obligation and performance would be monitored in the same currency
What is the monetary value of a penalty? The penalty is calculated as five per cent of the outstanding NIP obligation.
What is the purpose of concluding an MoU and SBD5 document what do they seek to regulate? The MoU and SBD5 documents are signed by potential obligors prior to tendering and awarding of contracts. These documents seek to secure a commitment from potential obligors that they will participate in NIP should they be awarded the contract. They also seek to confirm confidentiality in the discussions and negotiations taking place during and after the tendering processes.
What percentage of HDIs qualify for ownership credits? Any entity where the majority or the entire equity (or its equivalent) is beneficially owned by one or more Historically Disadvantaged Individuals (HDI).
What types of business projects, activities or undertaking qualify for NIP credits and how many credits do they qualify for? Would subcontracting a portion of the services or goods to be provided by a foreign supplier/seller to a local supplier qualify for a credit/s? If so, how would it compare with the credits achievable by other business activities, e.g. concluding a joint venture? NIP business proposals must reflect new/additional business and may include, but are not limited to, the following models/arrangements listed below:
  • Investments including but not limited to joint ventures, sub-contracting works and licensee production;
  • Export promotion of SA value added. Supply partnerships with SA industry to improve competitiveness and establish long-term relations; and
  • R&D Collaboration with SA partner.
When can/must a credit application form be lodged and with whom? Once every year, commencing from the date of approval of the business plan credit claims may be lodged with the IPS. The credit application must be submitted to a project manager within the IPS, who would be overseeing the NIP obligation.
Where can one find information on NIP? Information on NIP can be obtained from the IPS, or on the dti website
Who decides on type of NIP agreement to be signed? Although the seller has the option to decide as to the signing of the SPA, signing of the NIP obligation agreement is compulsory once the award of the tender has been made, and the dti and the seller, based on the purchase contract amounts and imported content of such contract has confirmed the existence of a NIP obligation.
Would a project approved under NIP qualify for incentives under the APDP? Each NIP project will be evaluated on its merit, taking into account the strategic nature and economic value of the business activity being propose. However, all projects that benefit from the Automotive investment Incentive Scheme will not qualify for NIP credits.
Would a project approved under the Equity Equivalent programme qualify for NIP credits? Each NIP project will be evaluated on its merit, taking into the account the strategic nature and economic value of the business activity being propose. However, all projects that contribute to the equity equivalent programme will not qualify for NIP credits.
In practice, what does "Local value addition" mean? For purposes of NIP, Local value addition refers to business activities that result in the variation of product shape, form and use. Some form of local business activity [product assembly or manufacturing] must take place to confirm value add. Use of local resources (materials and labour) contribute to value add. The total cost of local value adding activities must equal to, or exceed 40% of the total selling price of the product. Sales & Marketing related activities do not qualify for NIP credits.