Monthly blog by Merel

Procurement Knowledge as a form of Aid

Merel van Engelshoven, Knowledge Manager within YPP will be writing Blogs for our website on a regular basis. Please find below her first blog and let us know what you think of it!

You have a saying: “give a man a fish, he eats for a day, teach a man how to fish, he eats for a lifetime”. This statement also applies to public procurement practices in developing countries. Large gains can be made in developing countries with regards to improving public procurement practices, however, considerable hurdles need to be overcome and sufficient support needs to be provided.

An estimate 9-13% of the gross domestic product of developing countries is public procurement (Wayne Wittig, WTO). Public procurement performance of a country determines whether political leaders meet their promises on economic and social improvement. It also determines if funds provided are enough to meet the needs of people (e.g. 1 million vaccines vs 2 million vaccines, 20 million textbooks vs 30 million textbooks).

Good public procurement practices and effective public spending directly impacts the development of the private sector. Procurement behavior and the way commercial relations are managed within the business community has a profound influence on whether acceptable business practices will develop (OECD, 2005). Effective procurement systems promote competition, which in turn improve the ability of local businesses to survive in international markets. Inefficient procurement systems increases corruption and inefficiencies by awarding contracts based on personal relations. According to the OECD, “a country’s procurement system has a significant impact on national investment rates, as well as long-term growth.”

In general, many African countries struggle in maximally utilizing their available funds to meet the needs of their country. But the funds provided tends to be wasted or underutilized due their lack of procurement capacity, qualified procurement officers and procurement processes (Joseph Ampomah Adu, Ghanaweb, 2011). There are also still cases present with wrong specifications or projects of dubious value. A lot of time legislation governing public procurement is in many developing countries obsolete or nonexistent (John Brooks, Canadian Government, 2012).

Many organizations, such as the WTO, other multilateral financial institutions and bilateral donors are playing an important role in developing the public procurement capacities of developing countries. In general, the benefits of these programs have been seen. However, procurement reforms are notoriously difficult due to the large hurdles.

Over the years public procurement in developing countries has received a negative reputation in the eyes of local and international firms. It has gone so far that many suppliers (local and international) do not participate in public procurement. This is attributed to governments paying late, are difficult customers, opaque tendering procedures, poor governance and “corruption” (Wayne Wittig, WTO). However, some of these “corruption” activities could be attributed to lack of understand of public procurement practices. This leads to contracting offers from a small group of “insider” firms, which undoubtedly leads to higher contracted prices, lower quality, delays and cost over-runs (Simon Eventt, WTI).

Another obstacle within public procurement is attracting, developing, equipping and retaining competent government employees (John Brooks, Canadian Government, 2012). Currently in most developing countries, jobs in the public sector are less attractive than those in the private sector due to compensation packages and other benefits. In addition, most developing countries still have too few graduates to have an attractive pool to choose from. The impact of the AIDS/HIV virus is also still noticed within the workforce. Also, procurement is not seen (yet) as a profession, thus not yet considered as a serious career path.

The World Bank has realized that “sound public procurement policies and practices are essential to good governance” (The World Bank, 2011). According to Wayne Wittig (WTO) the following corrections need to be made to public procurement systems in order to correct current weaknesses:

  1. Comprehensive legal frameworks
  2. Standard terms and conditions of contracts
  3. Improved transparency and availability of rules governing procurement processes
  4. Effective tracking and auditing procedures and organizations to ensure compliance with regulations
  5. Improved capacity for developing and retaining people with professional skills in procurement
    These steps are of high importance to increasing the supplier base of developing countries.

It does need to be noted that in those countries where public procurement reform have stalled there is no consistent political commitment and support at the highest levels within the government (Hunja, 2003). Support is required at those levels to overcome and progress in the face of all the obstacles. In addition procurement also needs to be seen as a core function of the government and a strategic activity (OECD, 2005).

Overall, the improvement of transparency and setting up the right processes procurement practices can have a positive impact on the further development of a developing country. Governments need to see the importance and support the development of public procurement processes. Also, suppliers need to realize that they set an example for the rest of the economy, which directly impacts potential further development.