Three Reasons Procurement is Essential for Development

Public procurement is not among the most popular topics in development circles. However, consider just these three ways in which procurement is probably one of the most indispensable elements that make up a truly capable state:

First, without effective procurement, hospitals wait for drugs, teachers for textbooks, and cities for roads. Whenever a news item surfaces about drugs shortages in hospitals, schools without textbooks or failing road networks, the reader may be looking at a procurement problem. Without efficient procurement, money gets wasted on a very large scale. Many developing countries channel significant proportions of their budgets through the procurement system – even marginal savings can add up very fast. Third, public procurement is a part of the government that citizens see every day. Lack of transparency and corruption in procurement directly affects citizens, and the losses to corruption are estimated in the billions of dollars every year. Corruption in procurement is a big problem that affects rich countries as well.   

In the Middle East and North Africa (MENA) region, all these factors come into play very strongly. Public procurement accounts for 15-20% of GDP. Corruption, lack of opportunities and outright state capture all precipitated the Arab Spring. The case for procurement reform in the region is strong, but its implementation is not. Why are reforms happening so unevenly or not at all? To find out, a team from the World Bank and the Overseas Development Institute (ODI) joined efforts and started to work with the governments of Morocco and Jordan to investigate this question.

Our approach to this work follows a broader trend that tries to transcend applying best-practice models by focusing on problems which stakeholders think are important. Therefore, we broke down the reform agenda into discrete reform building blocks and then investigated which stakeholders were for or against, and why. This is based on the assumption that governments have procurement systems because they serve a function, and not just because the formal institution of “procurement” looks good on the organizational chart. In other words, this is an effort to understand the “why” of reform. Three lessons have already emerged that could be widely relevant and applicable for other countries:

1. Nobody quite knows how procurement systems are doing . Procurement indicator in the widely-used Public Expenditure and Financial Accountability (PEFA) framework and the OECD Methodology for Assessing Procurement Systems (MAPS) indicator set are mostly measuring process, structure, and resemblance to international best practice models, not procurement outputs, outcomes or systemic performance. This means policymakers are likely not to have access to such data or indicators that are integral to reform.


2. Procurement reform has a collective action problem.  Any improvement to the procurement system will benefit a very large population of beneficiaries a little bit. However, most citizens, like the next person in the street, will never know nor care about procurement. On the other hand, civil servants or those who operate and directly interact with the system, care a great deal about it and are often very heavily invested in the status quo, at the risk of affecting their jobs or careers.


3. Procurement reform isn’t (just) about procurement.  Different stakeholders have different, complex interests and incentives related to procurement reform: Influential stakeholders outside the procurement system could well care enough about specific changes that deliver better outputs for them. Senior officials in the education sector, for instance, would be interested in goods reaching them more quickly and cheaply, but their first instinct is not necessarily to engage with procurement officials about their needs. Stringing together a minimal coalition of reformers would be easier if policymakers have the data on performance and outcomes, and if the owners of the procurement system could be reassured about potential losses.
   
   The approach outlined here has its limitations. It is deliberately focused on the public sector and assumes that some civil servants care enough about improving the system in their attempt to do things differently. Even in the most fragile contexts, small changes can be possible and worthwhile. More frequently, however, stakeholders’ biggest concerns may simply lie elsewhere – if procurement is not a serious problem, but cash management is, then the time may simply not be right. Knowing actors and incentives very well is not a silver bullet. Rather, sometimes avoiding bad ideas is the best that can be achieved.