Why Modern, Fair and Open Public Procurement Systems Matter for the Private Sector in Developing Countries

Washington, 22 May 2018 - Governments around the world spend $9.5 trillion each year procuring goods and services. The construction of schools, purchasing of hospital supplies, renewing city bus fleets, building roads, or securing computer systems in public buildings are all examples of the wide range of sectors impacted by public procurement. With developing countries alone spending $820 billion per year on obtaining these goods and services from the private sector, the public procurement market is a huge business opportunity for firms around the world.

When fair, open, and well-functioning, public procurement systems can be a benefit to all stakeholders – governments, private enterprises, and citizens. Governments are an important source of business for the private sector, which, in turn, are an important source of jobs for citizens. 

Effective public procurement systems can help governments see better value for money, reduce pressure on public budgets, and leave agencies better prepared to invite private investments. “Public funds are scarce and governments must invest with intention. Improving public procurement systems contributes to a vibrant private sector, helps governments get the most out of its investments, and supports growth,” notes Catherine Masinde, Practice Manager of the Macroeconomics, Trade & Investment Global Practice at the World Bank Group. “With an active private sector and results from public investments, governments are better equipped to crowd in private investors in sectors such as infrastructure, transportation or energy. This is at the crux of the World Bank Group’s Maximizing Finance for Development approach.”

The Challenge

However, there are gaps and inconsistencies in public procurement markets. The systems in place do not always fall in line with best practices. When this happens, firms can miss important opportunities. A report from the World Bank Group, Benchmarking Public Procurement, assesses the procurement systems of 180 countries and identifies areas where countries can improve. According to Tania Ghossein, Senior Private Sector Specialist and main author of the report, challenges facing private firms, especially small-and medium-sized ones are particularly pronounced in three areas:

• Lack of e-Procurement: Economies in all regions are implementing reforms to conduct the procurement process online. However, a wide gap remains between economies that do not yet have an online portal dedicated to public procurement and other economies that have sophisticated e-procurement platforms offering a range of services. Twenty-six out of the 180 economies measured in Benchmarking Public Procurement still lack a dedicated online procurement portal.
  
  
• Payment Delays: Benchmarking Public Procurement found that delays in payments for goods or services are still common across all regions. In fact, payments are only timely in one-third of the economies measured. Suppliers in the Dominican Republic, Equatorial Guinea, Gabon, Guinea-Bissau, Iraq, Trinidad and Tobago, and Vanuatu typically wait more than six months to receive payment. For small- and medium-sized enterprises, who may struggle with cash flow, these significant delays hurt profits and make it difficult to participate in the public procurement process.
  
  
• Less than optimal Complaint mechanisms: Access to a fair, transparent and timely complaint mechanism can increase trust and confidence in the procurement process. But there are still disparities in how and when complaints are addressed. Benchmarking Public Procurement found that the time needed to resolve a complaint varies widely, from 2 to 450 days. Further, there are inconsistencies regarding when bidders are even allowed to file a complaint. In some countries, complaints cannot be submitted until after the contract is awarded, which limits the corrective measures a review body can take.

Construction works for the Panama Canal expansion project. Panama. Photo: Gerardo Pesantez / World Bank

In Action

The World Bank Group is actively working with client countries to help improve their public procurement systems. By collecting and publishing information about public procurement systems on a global level, The World Bank Group is filling a critical knowledge gap. Reports like Benchmarking Public Procurement are critical to building an evidence base for what works in procurement and where there is room for improvement. In addition, The World Bank Group advises governments and works alongside them to develop more transparent and efficient procurement systems. This support includes establishing electronic portals, reforming laws and regulations, and building the capacity of procurement officials.

For example, in Morocco, The World Bank Group provided technical support to the National Committee for Business Environment to improve transparency and predictability in payments. Prior to the project, suppliers could wait up to three years to receive payment for a public procurement contract. To remedy this, The World Bank Group recommended business environment reforms and trained stakeholders so that payments for public procurement projects would become much more predictable. Following the project, the time to issue payment orders decreased from an average of 90 days to 45 days. Project managers have 30 days to certify invoices, and 15 days to accept the quality of outputs from suppliers. Public entities who do not pay on time face interest penalties. These regulations combined to increase confidence in the public procurement process and help suppliers get paid faster.

“The project team worked side by side with public and private stakeholders to design actionable performance indicators which were based on the entrepreneur’s experience. These indicators greatly supported the Government of Morocco in implementing its new regulatory reforms, and monitoring the quality of public service delivery to businesses,” explained Younes El Bakirdi, Project Manager, National Committee for the Business Environment.

With help from The World Bank Group, governments around the world are taking steps to improve their public procurement systems and to create a level playing field for firms.