Olajide Olutuyi, Founding Partner, Greentouch Consulting Inc., Canada
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Subjects of Interest
- Frontier and Emerging Markets
- Private Sector Development
- Sustainable Development
Muted dividends of procurement reforms in Nigeria 28 Mar 2017
A Nigerian company I am acquainted with recently contacted an office of a state government to enquire about the process of doing business with the government. The company was directed to visit the Ministry of Works to collect a form. When the form was fetched, an executive of the company was shocked at what he found. It was a photocopied document with bid requirements printed on both sides of the paper. The text appeared faint and barely legible. The typography was unprofessional. But this sloppiness simply typifies the state of public procurement in the exalted offices of many sub-national government agencies in Nigeria.
Public procurement refers to the process by which government departments and institutions purchase goods or services from private sector entities. Such public-private engagements cover a wide range of funding activities given the varying needs of the government to provide services to its citizens. Public procurement is one of the most important governance activities. The procurement cycle involves identifying needs, vetting and selecting vendors, awarding contracts, implementing and managing contracts and making payments.
According to the World Bank, public procurement represents, on average, 10 to 25% of an economy’s GDP. The Peterson Institute for International Economics says, as a percentage of GDP, public procurement constitutes 19.3% in South Asia; and 14.9% in sub-Saharan Africa. These statistics prove why public procurement is important and any national and sub-national government that is serious about growing the economy and making positive impact in the lives of its citizen should institute reforms in its procurement system.
But despite being recognised as an important function of government – and notwithstanding that it accounts for a huge portion of tax payers’ money – public procurement remains an activity that is susceptible to waste, fraud and corruption. Where there are no efficient procurement policies, a lot of room is left for inefficiency and underhand dealings that often take place as a result of collusion between both government personnel and contractors.
Recent public procurement reform
The establishment of Nigeria’s Bureau of Public Procurement (BPP) was part of the outcome of the 1999 World Bank Country Procurement Assessment survey. The survey drew a link between poor public procurement procedures and poor infrastructural development as well as other dismal development indices.
The federal government of Nigeria created the BPP through the Public Procurement Act (PPA) 2007. The BPP was created as the regulatory authority with enormous powers to control and oversee public procurement. Some of its objectives include to ensure probity, accountability and transparency in the procurement process; establish pricing standards and benchmarks; and attain competitiveness, cost-effectiveness and professionalism in the public-sector procurement system.
The PPA empowers the BPP to perform procurement audit and submit reports to the National Assembly. The agency can also apply administrative sanctions and debar any contractor or service provider that contravenes the provisions of the Act. Last year, the agency introduced the Electronic Public Procurement (e-PP), arguing that the deployment of the e-PP will improve transparency, efficiency, competition and value for money in government expenditure.
However, the Bureau of Public Procurement remains sub-optimal given the lack of political will to constitute the National Council on Public Procurement (NCPP). The existence of a lot of abandoned projects in the country is partly because of a hamstrung BPP. The NCPP was created under the PPA – much like the BPP – to be able to certify federal procurement prior to the awards of contract, and supervise the implementation of established procurement policies. Without the NCPP, the reform of the procurement/ contracting processes in Nigeria will not be complete.
Last month, the Federal Executive Council (FEC) approved N126 billion for reconstruction of roads. This practice of awarding contracts by a body whose responsibility is policymaking is what the All Progressives Congress (APC) had impugned before it was elected into power.
But while the BPP is imperfect, due to poor implementation of the PPA and the non-existence of the NCPP, the agency is still work in progress. Some progress has also been made on other fronts at the federal level, particularly at the national oil company, Nigerian National Petroleum Corporation (NNPC).
Oil sector procurement reform
In the early 1990s when I started working with my dad in his oil and gas contracting business, we used to go from one client to the other, asking if there was any tender or request for quotation (RFQ) coming up. Occasionally, tenders or RFQs, which had been streamlined to certain known contractors, were couriered to us. The process for securing contracts then was archaic and, sometimes, the playground was not level. But things have improved since then.
In 2005, the Nigerian National Petroleum Corporation made changes to tendering in the oil and gas industry. NNPC created an online platform to streamline the contracting process. In 2010, the platform eventually transformed into the Nigerian Petroleum Exchange (NipeX). NipeX is a division under National Petroleum Investment and Management Services (NAPIMS), a subsidiary of NNPC. Industry watchers see NipeX as some sort of revolution in the tender process in the Nigerian oil and gas industry. As a virtual community that connects buyers and suppliers, NipeX supplanted the old system that bred inefficiency and fostered a longer contracting cycle. The platform levelled the playing-field and increased the participation of indigenous suppliers in the industry.
However, the extent to which underhand dealings and corruption in the industry have been removed is debatable. But the important development with NipeX is that it gives everyone a fair chance. All vendors and suppliers in the oil and gas industry are required to register on the platform to be eligible to participate in any tender process. The process also requires a team from NipeX to physically audit prospective registrants. When the audit is successful and all necessary documents have been physically seen, then the company is registered and ready to participate in tender processes.
This process is beneficial to both buyers and suppliers. Buyers benefit from the lowered administrative costs, better collaboration between buyers and suppliers, competitive pricing and many more advantages.
The NipeX portal is in compliance with the fundamental requirements of open tendering, which include a process that is open to all qualified and interested bidders; public advertisement; objective qualifications criteria; clear technical specifications; and objective evaluation criteria. In the oil and gas sector, public adverts direct contractors to the NipeX portal where they can register with the NipeX Joint Qualification System (NJQS). In addition to this, the new process helps contractors grow, and new firms can enter the market easily.
That NipeX has revolutionised the Nigerian oil and gas contracting process is not in doubt. While more improvements need to be done, this is a leap from where we were years ago.
Sub-national governments procurement reforms
The domestication of the national Public Procurement Law (PPL) by sub-national governments has been quite slow. Less than 30 states have passed PPLs since the enactment of the PPA at the federal level in 2007. Some of the earliest adopters of the principles for procurements in the PPA are Bauchi, Bayelsa, Jigawa, and Rivers States – these are states that passed their PPLs by 2009. As of 2014, there were only 24 states that had replicated the law and established procurement agencies. A few more states have domesticated the law since then. The law establishing the Lagos State Public Procurement Agency was passed in 2011, while the agency was established in the following year.
But implementation of procurement reforms is beyond the passage of laws. Responsible governments must insist on transparency, value for money, and the prosecution of vendors and contractors who fail to meet their obligations.
The negative impacts of corruption are well-established such that any government serious about delivering good governance to its people needs to enforce the established procurement laws and initiate reforms where necessary. Sub-national governments must understand that a reformed public procurement system plays a vital role in the delivery of democratic dividends in their respective states and local governments.
In 2011, then-Vice President World Bank for Africa Region, Obiageli Ezekwesili, attributed the poor development indices in Nigerian states to short-sighted procurement priorities. But while carrying out recommended reform, it is important not to over-legislate the procurement process. Recently the Minister of Power, Works and Housing, Babatunde Fashola, noted that over-legislation of the public procurement process is affecting the quick award of contracts and project delivery. Procurement acts should be without complexities, easy to understand, easy to implement and without ambiguities.
An optimal procurement process at the state and local government levels will ensure that the government’s needs are not falsified; there is adequate publicity for all state contracts; bidding documents are easily accessible; registration with the state’s procurement agencies are not cumbersome; contract awards are transparent; supervision is taken seriously and applicable sanctions are meted out to erring contractors; and finally, payment terms are strictly adhered to.