Olajide Olutuyi, Co-Founder/ CEO, Top-Olax Energy Limited

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Subjects of Interest

  • Frontier and Emerging Markets
  • Private Sector Development
  • Sustainable Development

Nigeria’s public procurement needs to support broad-based prosperity 20 Oct 2020

One of the hindrances to Nigeria’s economic development and prosperity is the country’s inefficient, ineffective and corruption-ridden public procurement system. Public procurement refers to the process by which government departments and institutions purchase goods and services from private sector entities. It is an instrument for public service delivery and development. But having corrupted the system in Nigeria, one of the outcomes is poor delivery of many public services.

Over the years, I have heard people advise young entrepreneurs and business owners to stay off public sector procurement and contracting. During the years I worked with my late dad, he gave people the same advice. There has always been the perception (and most times the reality) that businesses and contractors won’t get paid, or that government procurement involves racketeering, bribery and corruption.

Many small to medium sized enterprises (SMEs) either avoid participating in public procurement because they don’t want to be tainted by the corruption or they are sidelined entirely from the process. Without mincing words, public procurement is the most inefficient instrument of governance in Nigeria today.

I have come to realise that government is the largest buyer of goods and services in developed and developing economies. I have also discovered that if a government does not ensure that the average business owner is confident and eligible to bid for government contracts in the areas of his/her activities, then that government is not affecting its people and local businesses.

According to the World Bank, “Public procurement is a fundamental, crucial component of democratic governance, poverty reduction, and sustainable development. Governments around the world spend an estimated US$9.5 trillion in public contracts every year, which in many developing countries represents approximately 15-22 percent of GDP.” The International Trade Centre (ITC) asserts that public procurement remains a big part of the economy of developing countries, accounting for an estimated 9-13 per cent of their gross domestic product (GDP). In Organisation for Economic Co-operation and Development (OECD) countries, the size of public procurement spend represents approximately 12 per cent of GDP.

Nigerians have been inundated by so many public procurement corruption news headlines. For example, it was in the news in May of this year that Permanent Secretary at the Federal Ministry of Science and Technology, Muhammed Umar Bello, was queried by the presidency for allegedly buying an uncompleted building for N7 billion. Bello was said to have superintended the procurement of the building for the Federal Ministry of Agriculture and Rural Development (FMARD) while he was the Permanent Secretary there. Last month, the Provost of the Delta State College of Education in Warri, Mary Edema, was reportedly accused of building two toilets with N36 million. The provost allegedly concluded the transaction with some contractors before announcing the bidding process.

Aside from the inflation of contract amounts and the racketeering that goes on with the procurement process, the denial of access to SMES and local businesses from public procurement is detrimental to local economies. Contracting and procurement, especially when it engages SMES, is a framework that stimulates economic activity, including providing jobs for professionals and artisans, in local economies.   

In the United Kingdom, where government procurement spend is around £284 billion ($365 billion) annually, which is about a third of all public expenditure, the share of public contracts awarded to SMEs is about 25 per cent. In fact, in some countries, participation of SMEs in public procurement is backed by strong directives.

On the contrary, so many bureaucratic bottlenecks are firmly in place in Nigeria to exclude SMEs from public procurement. In some states, the registration requirements for a bidding company include tax clearance certificates for at least two directors of the company. The certificates are then categorised in relation to the contract sum. For instance, a contract sum of N20 million and above may require a tax clearance of about N500,000 for two directors.

How does a small business that wants to do business with the government or a business that is just in its first year meet such requirements for that category of contract? Other factors that hinder SMEs from participating in government contracting and procurement in Nigeria include inadequate knowledge of the tendering process, lack of access to influential public officials, and lack of capacity to challenge the tender results, especially when the outcomes have been predetermined.

There are so many ways that ineffective procurement affects the citizens. For example, where there is an ineffective and inefficient procurement system, hospitals will not get drugs on time, teachers and students will wait for good classrooms that may never be delivered, and communities will wait for roads they may never have. Poor procurement practices also have impact on the quality of the projects delivered.

Political officeholders in Nigeria should realise that effective governance and development are linked to having an efficient procurement system in place. Public procurement cannot just be a business process that a few government officials are profiting from. Moreover, the need for proper management of resources should underpin the reform of public procurement and contracting. Apart from creating opportunities for SMEs through procurement, governments across Nigeria must also realise that SMEs are important drivers of economic growth and development. They can participate in fostering economic objectives such as innovation, employment generation, poverty reduction and economic prosperity.

The federal and subnational governments need to understand that they can use procurement as a tool for optimal economic and fiscal policies. Ultimately, every public procurement should satisfy the public interest, meet the needs of the people and should save public funds.

Reforming the procurement system at all levels of government will lead to receiving great value for money, maximising budgetary allocations, ensuring accountability of public officials, and a more developed economy. And as I highlighted in my March 2017 column in this magazine, titled Muted Dividends of Procurement Reforms in Nigeria, “Responsible governments must insist on transparency, value for money, and the prosecution of vendors and contractors who fail to meet their obligations.”

An effective public procurement system must lower the entry barriers for small businesses. In this regard, three Nigerian states have improved their contractor registration systems, which are fully automated. They are Kaduna, Lagos and Ekiti. Registering as a contractor in these states is a fully automated process and registration certificates are issued either directly to your email or they can be printed from the states’ websites.

One can get bogged down in unnecessary and very lengthy questionnaires when trying to register your business on the website of the federal government’s Bureau of Public Procurement (BPP). Some of those details can deter a small business from completing the registration. Nevertheless, the online platform should be credited for being able to link to the online portals of Corporate Affairs Commission (CAC), Pension Commission (PenCom), Industrial Training Fund (ITF), and the National Social Insurance Trust Fund (NSITF). This linkage enables the automatic verification of company registration documents, among other documents.  

According to Robert Rothery, Principal Procurement Specialist at the Asian Development Bank (ADB), “Sound public procurement policies and practices are among the essential elements of good governance.” Sadly, public procurement reforms are hardly discussed on the campaign trail or in public debates in Nigeria. But this subject matter should be at the center of our public debates to keep it in the consciousness of key stakeholders.