National Industrial Participation: A Strategic Lever for South Africa’s Industrial Growth

In brief

• South Africa’s National Industrial Participation Programme (NIP) leverages public procurement to drive industrial growth, skills development, and economic transformation. 

• The dual approach of NIP and DIP addresses both defence and non-defence sectors but faces challenges in governance and implementation.

• Strategic alignment, robust oversight, and stakeholder engagement are critical for NIP’s success and public trust. 

The Global Industrial Cooperation Association (GICA) convened its October 2025 Conference in Cape Town under the theme “Bridging Borders: Building Defence and Industrial Capacity through Strategic Collaboration.” The event brought together senior government officials, policy makers, and industry leaders from across the globe to deliberate on the role of Industrial Participation as a strategic policy instrument for economic development. The Conference highlighted Industrial Participation as a key policy instrument that can effectively contribute to South Africa's mix of policies aimed at addressing a declining manufacturing sector that is shedding jobs. 

Industrial Participation: Beyond Countertrade

Industrial Participation, commonly referred to as offsets is a form of countertrade typically found in defence, aerospace, and infrastructure industries around the globe. Industrial participation is used by governments to leverage large-scale public procurement contracts, to secure investment commitments from suppliers of foreign goods and services into domestic markets. These commitments typically include investments in the procuring country’s local manufacturing capabilities, technology transfer, skills development and training, support for small and medium enterprises (SMEs), export promotion and market access.

As Industrial Participation is rooted in countertrade; a practice where goods or services are exchanged rather than paid for in cash, Industrial Participation is sometimes viewed with scepticism. Critics argue that Industrial Participation has the potential of distorting trade by favouring local industries, complicating procurement processes, and restricting market access. Whilst Industrial Participation originated as a mechanism for balancing trade in goods with high imported content value, it has evolved into a strategic tool for industrial policy and national development. Globally, governments and industry leaders are increasingly recognising Industrial Participation as a lever for leveraging large-scale procurement to achieve broader economic objectives.

South Korea presents a compelling case study for the successful implementation of Industrial Participation. Through its Defense Offset Policy which has been in effect since the early 1980s, South Korea promotes the indigenisation of defense technology and strengthening of local industrial capabilities. South Korea has developed a globally competitive defence and manufacturing sector, and its experience demonstrates that, when governed transparently and strategically, Industrial Participation can serve as a catalyst for industrial transformation rather than a mere transactional requirement.

South Africa’s Unique Approach: DIP and NIP

For countries like South Africa, Industrial Participation offers a unique opportunity for building industrial capacity and reducing reliance on the supply of foreign goods and services. South Africa stands out for its dual approach to Industrial Participation, implementing both the Defence Industrial Participation Programme (DIP) and the National Industrial Participation Programme (NIP). DIP which is managed by Armscor on behalf of the Department of Defence focuses on leveraging defence procurement to sustain and grow the local defence industry. NIP on the other hand is managed by the Department of Trade, Industry and Competition (dtic) and applies to non-defence public procurement with the aim of stimulating broader industrial development. This dual approach reflects South Africa’s ambition to use public procurement as a catalyst for sector specific and economy wide industrial growth.

Although South Africa’s DIP programme has yielded notable outcomes; contributing to the preservation and enhancement of South Africa’s defence industrial base and facilitating job creation, it is essential to acknowledge the historical context of the Arms Deal and associated offsets which was marred by allegations of corruption and political fallout. The legacy of corruption associated with South Africa’s controversial Arms Deal has significantly eroded public confidence in Industrial Participation, leading industry to view such programmes with suspicion and raising concerns about transparency, accountability, and the potential for policy capture by vested interests. This public distrust poses a substantial challenge to the credibility and effective implementation of both the Defence Industrial Participation Programme (DIP) and the National Industrial Participation Programme (NIP), underscoring the need for robust oversight and governance reforms to rebuild trust and ensure that these initiatives deliver on their intended economic and developmental objectives.

Unlike DIP which has enjoyed more success from an enforcement perspective, NIP has encountered significant implementation challenges. Its broader scope and diverse stakeholder environment have complicated monitoring, enforcement, and alignment with national priorities. Furthermore, many non-defence sectors lack the requisite scale and readiness to fully capitalise on NIP commitments. These limitations underscore the importance of a coherent policy framework, institutional capacity, and active stakeholder engagement.

Despite these challenges, the principle of Industrial Participation remains sound and international examples, such as South Korea, illustrate that with robust governance and institutional integrity, Industrial Participation can be a transformative force. 

Strategic Imperatives for Industrial Participation

As global competition intensifies and supply chains become increasingly localised, Industrial Participation is emerging as a strategic imperative for governments seeking to build resilient, competitive, and inclusive economies. The GICA Conference highlighted several key imperatives for South Africa:

1. Policy Alignment and Institutional Capacity
   Governments must ensure that Industrial Participation programs are aligned with national industrial strategies and supported by capable institutions that can monitor, enforce, and evaluate offset agreements.
   
   

2. Structured Government–Industry Dialogue
   There must be conversation between government and local industry to identify areas where government procurement with high imported content value can be used to create joint ventures with local industries, transfer technologies, upgrade skills and promote exports.
    

3. Regional and Global Collaboration
   Cross-border partnerships and regional cooperation can amplify the impact of Industrial Participation and foster shared industrial development.
    

4. Legal and Institutional Reform
   South Africa’s current legal framework governing Industrial Participation is inadequate. Strengthening the legislative and institutional architecture is essential to safeguard the integrity of Industrial Participation programmes and maximise their developmental impact.
    

5. Transparency and Accountability
   Measurable outcomes and public reporting are critical to ensuring that IP commitments translate into tangible economic benefits.

South Africa possesses a robust industrial base and ambitious development objectives. A well-executed Industrial Participation strategy that is anchored in transparency, strategic alignment, and institutional reform can play a pivotal role in advancing national goals such as economic transformation, skills development, and industrial diversification. The insights from the GICA Conference reaffirm the importance of Industrial Participation as a strategic lever for inclusive and sustainable industrial development.

In Summary:

South Africa’s National Industrial Participation Programme (NIP) aims to boost local industry and skills by leveraging public procurement for economic growth. While the dual approach with DIP has shown promise, challenges in governance and public trust remain. International examples highlight that with strong oversight and alignment, industrial participation can drive sustainable development and transformation.