Supply chain management logistics
It is widely known that public procurement is a large share of a country’s GDP, but exactly how large remains a subject of speculation. Several datasets have been developed by international institutions to estimate the scope of public procurement, using either a top-down approach that takes public expenditure from national accounts, or a bottom-up approach, which collects data from national authorities on the number and size of procurement projects. The estimates from these two distinct methodologies may differ widely. For example, public procurement in Turkey has been estimated to be anywhere from 6.0% (Open Contracting Partnership) to 11.97% (Organisation for Economic Co-operation and Development) of GDP. In China, estimates range from 4.0% (World Bank) to 34.72% (OCP) of GDP. No globally consistent and regularly updated dataset exists that collects this information for a large number of countries, is broken down by central vs. local government, types of expenditure and actual vs. budgeted outlays, and has comparable methodology.
There is clearly need for finding a reliable estimate of this important metric. We propose to construct a dataset showing the share of public procurement of a country’s output that builds from both the bottom-up and the top-down approach and converges on a single accurate number.
The most widely-used existing database is produced by the OECD, though the World Bank, the International Monetary Fund, the World Trade Organization, the Open Contracting Partnerships (OCP), and the European Union (TED, SEDIA, Data Europe) have also contributed to these data. The OECD estimates the size of public procurement in the 38 OECD member countries using data from the International Monetary Fund, the United Nations, and the OECD National Accounts Statistics database, based on the System of National Accounts. The report applies a consistent methodology and collects data at the subnational level, but excludes state-owned enterprises and is geographically limited in scope as it contains only data for OECD-member countries. Estimates produced by the World Bank are the most global and report the most recent national level number from official government sources (annual reports, audit reports, etc.), but the sources seldom provide a sectoral breakdown of the estimate (Bosio et al., 2020).
In making estimates of public procurement, how to capture all instances of it accurately is a pervasive challenge. The IMF’s PEFA assessments try to address this challenge with field work, but their geographic scope is limited. Others, like OCP, rely on openly published public contracts, but these are only available for 2.8% of the total spent. For the rest, OCP uses OECD and World Bank numbers, thus carrying some of their limitations, or estimates based on macro data. Sectoral breakdowns are also seldom available in these datasets. The OECD and EU databases contain some of this type of data, but are inconclusive on military spending and state-owned enterprises, which have a potentially large impact on the estimate. According to OECD data, for example, in 2008, state-owned utilities in Austria, the Czech Republic and the Slovak Republic spent between 8% and 13% of GDP through public procurement (OECD, 2013).
To tackle some of these limitations, the new proposed methodology uses two sets of estimates, one from government expenditure data and one from survey-based micro data on the number and size of projects procured under the applicable procurement regulation. This approach is expected to improve on existing methodologies because estimates based solely on government expenditures represent an overestimation of public procurement size, as some expenditures are not subject to procurement regulation. Together, the estimates from these two complementary approaches can be expected to provide a more accurate range of measures of the size of public procurement in each country. With a periodic update, this database would allow governments and researchers to track public procurement spending over time, understand government spending patterns during shocks and crises, minimize the impact of one-time spikes in the data due to large government projects, and determine the share of public vs. private investment over time.
Getting an accurate measure of public procurement will have four immediate benefits. First, it will enable calculation of what share of government spending is carried out outside the scope of the public procurement process, and would thus offer greater transparency and accountability about public spending. Second, it would also allow an understanding of the share of public procurement spending lost to corruption in each country, using existing literature that estimates losses from this to equal 10% to 25% of procurement budgets. Third, it may help to calculate the share of national procurement markets that are potentially open to international competition. Lastly, it would help governments assess their sustainability impact when public procurement is used as a policy tool toward sustainable purchasing.
The public sector is the biggest buyer of goods, services and works from the private sector in many national markets. Public procurement has been increasingly used to support public policy objectives such as the promotion of small and medium enterprises (SMEs), employment creation, innovation and environmental protection. As governments plan their paths to economic recovery in the aftermath of the COVID-19 pandemic, they are likely to look to public procurement as a way to guarantee the most efficient allocation of public funds, the most effective delivery of public service, and the strongest protection against mismanagement and waste, while improving public service delivery. To do so, an accurate picture of the size of public procurement matters.
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