Can public procurement bring socio-economic empowerment policies into implementation?

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The COVID-19 pandemic has impacted the lives and health of millions of people, and will have long-term economic and social effects globally. The latest World Bank global economy forecast shows that GDP projections have been revised downward and governments around the world are facing serious challenges in their efforts to reduce poverty and create jobs. The International Labor Organization estimates that the equivalent of 400 million full-time jobs were lost in the second quarter of 2020, with the World Bank projecting 71 million additional people falling into extreme poverty.

In the worst financial crises since the mid-nineteenth century, it took an average of eight years for per capita GDP to return to the pre-crisis level. Now that we are in a global crisis and subsequently a recession decade, one can understand the importance of public procurement as a public administration tool not only to purchase the needed goods and services, but also, and in a more broader angle, as a vehicle for poverty alleviation and jobs creation.  

Global government procurement amounts to US$ 11 trillion or 13 percent of global GDP. This figure reflects the impact that government procurement can have in advancing sustainability and achieving socio-economic benefits and development outcomes.

The use of public procurement for other socio-economic “horizontal” polices is not a new phenomenon. It can be tracked to the Great Depression where the Buy American Act of 1933 required Federal agencies to procure domestic materials and products to support local industries. Another example the is the 1953 Small Business Administration, which includes using public procurement to help Americans start, build and grow businesses. On an international scale, the United Nations 2030 Agenda for Sustainable Development and Sustainable Development Goals (SDGs) were developed to address global challenges and help achieve a better and more sustainable future for everyone. The SDGs have been one of the key drivers for promoting sustainable public procurement. In fact, two out of the 17 SDGs – SDGs 12.7 and 16.6 – specifically target public procurement.  

Many countries in Africa use procurement as a vehicle to implement other horizontal polices and go beyond simple domestic preferences. Those policies can vary from labor and equality, industrial development and economic growth, in addition to social concerns such as poverty alleviation and wealth distribution. However, there is a need to establish good monitoring systems to ensure the transparency and fairness of the application of these polices in reaching targeted beneficiaries.  

Specific examples on how public procurement integrated socio-economic empowerment policies can be seen in Kenya, where affirmative action has been implemented, through Article 227 (2) (a) and (b) of the constitution, to mainstream gender and youth in public procurement and champion the socio-economic empowerment of disadvantaged individuals. The country has identified youth, women, and individuals with disabilities as persons or groups who were previously disadvantaged. This was introduced through statute policy that requires all procuring entities to allocate 30 percent of their total procurement to be spent on these groups.

The Buy Uganda Build Uganda (BUBU) policy, approved by the Cabinet in 2014, which aims to foster economic development – public procurement contributed to the implementation of this policy. The Public Procurement and Disposal of Public Assets Authority (PPDA) in Uganda reviewed the existing legal framework (the PPDA Act, 2003). These guidelines were issued to strengthen the implementation of the Preference and Reservation schemes. For World Bank’s operation, the Procurement Guidelines require universal eligibility and thus such preferential treatment will not be applied until the Bank assess the adequacy and fairness of the proposed approach.  

ESKOM, the South African electricity public utility, created the Supplier Development, Localization, and Industrialization (SDL&I) department with a specific mandate to achieve sustainable development of local companies through public procurement. The SDL&I drives five overall priorities: i) localization, ii) industrialization, iii) skills development, iv) job creation, and v) supplier development.

Through the Zambia Road Development Agency (RDA), efforts are being under large contracts to sub-contract to small and medium contractors. RDA encourages firms and companies with contracts above K30 million (US$ 1.50 million) to sub-contract 20 percent of the work (by value) to small and medium scale citizen enterprises. With this policy, RDA hopes to: i) empower local companies and firms, ii) create jobs for Zambian citizens, and iii) build sustainable local contracting capacity. Typically, it is expected that for contracts below K30million, small and medium companies may compete favorably and win contracts because they have capacity to do so. 

Obtaining value for money might be the primary objective of a public procurement system, however procurement can play a critical role in implementing other socio-economic polices, which in the past have often been dismissed or ignored. The examples above show how through public procurement policy, governments can have a positive impact on millions of people. And, when governments around the world face budget constraints, especially during recession, one way to combat the corrosive economic effects of such constraints is to use public procurement strategically to target growth and job creation. 

Authors

Nazaneen Ismail Ali

Senior Procurement Specialist, Governance Global Practice, World Bank

Join the Conversation

Majed Elbayya
November 12, 2020

Excellent

Nagaraju Duthaluri
November 12, 2020

Socio-economic empowerment through public procurement is the future and hope this accelerates economic recovery

Nazaneen Ali
November 16, 2020

Many countries will use infrastructure program for recovery and procurement can play a key role in the success of such programs in alleviating poverty and bring jobs

Knut Leipold
November 12, 2020

Excellent blog including great examples!

Richard
November 12, 2020

Congratulations, Naz. This is a very informative blog

Tesfaye Ayele
November 12, 2020

Dear Naz,
This is excellent blog. Well done!
You are right that for World Bank’s operation, the Procurement Guidelines/regulations require universal eligibility and thus special preferential treatment provisions, or national statute policies may not be applied until the Bank assess the adequacy and fairness of the proposed approach. On the other hand, such assessments for adequacy and fairness may not, in some cases, reveal confirmatory results. One way of overcoming such policy constraints is to anchor the integrated socio-economic empowerment goals with the objectives of the project. The other quick win on policy flexibility, in these regards, could be considering application of the Borrower countries’ procurement policies for all open national market approach options. This action will not affect the international bidders as their participations in smaller value local contracts is generally very low while similarly the participation of the smaller local business is very low in tendering for high value ICB contracts. Therefore, such approach may be considered to balance both the objectives of transparency and fairness of the application of flexible polices in reaching targeted beneficiaries.

Nazaneen Ali
November 16, 2020

Thanks Tesfaye for brining good points on use of such socio economic empowerment goals under MDB's financed projects

Chitambala John Sikazwe
November 12, 2020

Congratulations for an interesting article Nazaneen. With the renewed focus on economic recovery, jobs and SMEs, we in the development world must shift the paradigm on public procurement!

Nazaneen Ali
November 16, 2020

Yes John… Many countries (developed or developing) are preparing recovery plans and procurement can play a key role in the coming “lost” decade in Africa

Ayalew Kebede
November 12, 2020

Thanks for this eye opening stocktaking of the reservation schemes by those Governments for socio-economic development. Future focus may be to evaluate the impact of those reservation schemes on fairness and value for money considerations. Furthermore, the presence of adequate registration, monitoring and evaluation, and graduation procedures for beneficiaries of the reservation schemes is paramount.

Nazaneen Ali
November 16, 2020

evaluation and monitoring such polices are essential to keep implementation on track

Walid Al-Najar
November 16, 2020

Very insightful and informative. Thanks Nazaneen.

Laurence Folliot Lalliot
November 16, 2020

Thank you Nazaneen! Very good point with useful examples that I am going to use in my class on sustainable public procurement. I look forward to learning about the results in the near future!

Nazaneen Ali
November 17, 2020

Thanks Laurence...Yes; we need to continue this as series and complete the story to implementation and results

Ismail.
November 16, 2020

Excellent blog.

Nazaneen Ali
November 17, 2020

Thanks a lot