Poor procurement practices undermine economic growth

JOHANNESBURG – Last week we were in the Northern Cape for our last business and public sector forums of 2019. Nowhere have we seen more stark illustrations of the impact that local procurement can have than on the country’s largest and most sparsely populated province.

Given its topography, climate and vast distances between its towns and cities, the economically struggling province makes the lowest contribution to the country’s gross domestic product.

One in two families (54 percent) is poverty stricken, and unemployment runs higher than the national average (although to be fair it is only 4th in overall unemployment statistics by province).

According to a presentation given by the executive manager of integrated economic development services in the Northern Cape treasury, Daryll Christians, 61 percent of the province’s procurement budget, which incidentally is the highest in the country due to large infrastructure projects, is spent outside the province, with only 39 percent remaining in the local economy.

My initial response was to applaud the 39 percent figure, assuming that much of what is procured by the province is not available locally. While this is true, much more could and should be done to source what is available.

The first of our two days in the province was targeted at local businesses and in addition to a presentation to over 100 SMMEs by the same provincial executive manager, we took the SA Revenue Service, the Small Enterprise Development Agency (Seda), the Department of Small Business Development, the Department of Trade and Industry, the B-BBEE Commission and the Companies and Intellectual Property Commission to provide information and answer questions on the financial and non-financial support programmes they offer.

There was some confrontation between entrepreneurs and the province during the Q&A session, in a show of poor manners, which we called out.

However, during the second day’s proceedings with the public sector, Christians acknowledged that this was a manifestation of the frustration local businesses have with the province, as they are consistently disregarded for the fulfilment of tenders issued by the provincial departments.

In part, the problem of tenders overlooking local businesses goes to the topic about which we wrote two weeks ago, when terms of reference are drafted precluding local companies from bidding.

The example given by the Northern Cape was the procurement of stationery, which historically is done annually, in bulk. The sheer size of a single order means that many SMMEs in this space do not have the capacity to meet this single order.

If the province were to place its order evenly throughout the fiscal year, more companies would be able to bid, and this would support both small businesses and the province’s target of a 30 percent local SMME procurement threshold.

This is perhaps just an oversight by the province or an attempt to achieve economies of scale by bulk buying and not necessarily prioritising procurement in favour of SMMEs, but two other examples showed the deliberate exclusion of local businesses – to the detriment of the entire province.

In the first example, the installation of sanitary wear in a housing project, specifically for the mounting of wash basins, went to a Gauteng-based company.

Nowhere in the terms of reference was sourcing required materials locally in the Northern Cape either stipulated or encouraged.

Instead, the contractor arrived in this province with all the stock he required to fulfil the contract, except that he ran out of the brackets he needed before its completion.

He went to a local supplier for the balance of the brackets and quite rightly was met with the question of why he did not procure all of them locally in the first place.

In an even more grievous example, a R3 million desk contract was also awarded outside the province. This was despite a local supplier with the capacity to meet the order, presenting his sample to the relevant department. Instead of supporting their own, the department promptly sent the sample to Gauteng and asked a Joburg-based company to supply the identical item.

While these examples might not technically represent irregular expenditure (a different subject entirely), they do represent poor procurement practices that undermine the growth of the regional and provincial economies.

We acknowledge cross-provincial border trade and that not all provinces produce what they consume, but if supply chain and procurement managers did their jobs more diligently and with more thought for their own local economies, much more could be done to alleviate the rampant poverty and unemployment which directly or indirectly cost them millions of rand.

If this is the case in the Northern Cape, we can almost certainly assume the same applies to other provinces and municipalities’ budgets right across the country.

With this in mind, my song for the week is appropriately from a Northern Cape-born proverb: “My day will come”, and we hope that the day for the Northern Cape economy to rise and create much-needed jobs for its citizens will certainly come sooner, rather than later.

Eustace Mashimbye is the chief executive of Proudly SA.

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