5 pillars - a procurement blueprint for accelerating inclusive growth

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Prof_MarcusAmbe.jpgSibongile_Shongwe.jpgThe ambition of creating a developmental state to transform the Apartheid economy has been hamstrung by an inability to implement transformation policies; it is a situation exacerbated by a lack of skills, competencies and capacity; and the patronage of corrupt procurement practices.

Prof. Marcus Ambe, from the University of South Africa's School of Public and Operations Management, in collaboration with Sibongile Shongwe, Director of MtileniMazi Enterprises, unpacks a procurement blueprint to accelerate inclusive growth and socio-economic development, in this month's SmartProcurement.

The South African government is under increasing pressure to deliver and demonstrate success in service delivery and organisational performance. Proposals to spur real and deep economic transformation are varied, and in many cases focus on the need to develop South Africa's industrial base. However, this focus ignores the significant role that failing to comply with appropriate procurement practices played in poor audit outcomes, irregular expenditure and the lack of basic monitoring and control systems.

How bad is the problem?

Despite the legislative and policy prescripts implemented by government to manage the risks of fraud and corruption in procurement processes, incidents of financial mismanagement remained prevalent, found the Public Service Commission in 2011 (1).

"Taxpayers were fleeced of R30-billion", reported Business Day in 2011 (2). Corruption, incompetence and negligence by public servants was to be blamed.

The South African government spent R26.4-billion in 2010 in ways that contravened laws and regulations (3). In municipalities for example, the Auditor General Reports for 2011, 2012 and 2013 (4) reported that only 5%, 5% and 9% of municipalities, respectively, managed to obtain clean audits.

What is the problem?

Several impediments to procurement transformation have been identified (3), including:
- A lack of organisational structures and systems
- A lack of accountability
- A lack of clarity of roles and responsibility
- A lack of skills, knowledge and capacity
- Policies and regulations that overlap; or are confusing and cumbersome
- A lack of supplier management relationships
- Strategic balance that is missing between major procurement objectives

How could we solve it?

In response to these impediments Shongwe and Ambe's procurement blueprint for accelerating inclusive growth includes a number of pillars.

1. Ethics and good governance in procurement

Good, ethical governance is a key driver for a capable developmental state, and generates sustainable development. In terms of section 217(1) of the Constitution of the Republic of South Africa (1996), government needs to procure in accordance with a system that is fair, equitable, transparent, competitive and cost-effective.

Complying with procurement legislation, policies, norms and standards is critical to ensure that the government's policy objectives are attained. To eradicate corruption and improve public sector performance, ethics, integrity, transparency and accountability need to be strengthened.

2. Implementation of economic transformation policies

One of Apartheid's legacies is an unequal society, which necessitated the urgent redress of past socio-economic imbalances. However, government was faced with the task of rectifying past injustices with a "sclerotic economy" (5).

Section 217 (2) of the Constitution stipulates that when implementing a procurement policy, categories of preference in the allocation of contracts; and the protection or advancement of persons or categories of persons disadvantaged by unfair discrimination must be considered. However, implementing the procurement policy as envisaged in section 217 and its effectiveness has remained a challenge.

Furthermore, balancing the objectives of Section 217(1) as detailed above and sub-section 2 has posed a significant challenge for procurement officials. This, coupled with the lack of adequate understanding of their role as procurement professionals, has magnified non-achievement of socio-economic objectives.

Douglas Boateng (6), observed that in the past five years supervisory institutions such as the World Bank and other forward-thinking development institutions driven by inclusive growth, have begun to consider the structural relationship between finance and procurement and the associated conflicts of interest that emerge. Therefore, it is imperative to enforce the use of procurement as a policy tool to achieve government's desired socio-economic and inclusive growth objectives.

3. Building procurement capacity and professionalisation

A shortage of skills remains one of the top constraints to effective procurement. It is imperative to note that procurement operates at low levels of professionalism, competencies and capabilities. Supply chain management (SCM) officials do not have the skills, knowledge and experience that they need; and competency assessments show significant gaps in SCM skill and knowledge (7).

Therefore, a well-performing procurement function is critical to achieve the strategic objectives and goals of the government. Hence, a mind-set shift is needed to transform and create value amongst government entities' through effective procurement practices.

Organisational change, capacity building and real-time operational support are critical to achieving this.

4. Strategic procurement

Procurement has important economic and political implications, and there is need to ensure that the process is economically viable, efficient and effective. Often, many public-sector decision makers do not view procurement as a strategic function. Traditionally, SCM has been misunderstood and undervalued. Its strategic importance has not been recognised and it has been under-capacitated (7).

The realities of trying to manage procurement as a mere tactical and administrative process under finance are worrying. Boateng (5) named and shamed these realities as: a lack of accountability and governance, slow growth and non-inclusive development, de-industrialisation, poor-quality service delivery, rampant buying as opposed to strategic sourcing, and joblessness. Therefore, there is a need to re-organise and re-align organisation structures to elevate procurement.

However, harnessing the potential of procurement requires a major psychological change. Procurement officials should focus on long-term supplier relationships, and local economic development that favours emerging local suppliers. The change and shift require a deep understanding of the economic power of procurement and the role purchasing decisions play in social-economic matters.

There is a need to improve procurement practices by removing obstacles while boosting the involvement of SMMEs at strategic levels. This will enhance inclusive growth and socio-economic transformation.

5. Information and communication technology

Electronic systems have great potential to increase the efficiency and effectiveness of government's spending. Procurement is supported by a diversity of systems that vary in functionality, scope and efficiency. The benefits of a well-integrated e-procurement system platform will eliminate duplication of effort and reduce the cost of doing business for suppliers and for government.

It will also enable the automation of verification and validation of compliance requirements (Tax certificates, CIPC information, BEE certificates to name but a few); enable supplier development for government supply chains and is an important step for automating procurement processes in government.

Using electronic systems will enable overall line of sight across the procurement value chain. It could also drive consolidation and leveraging of procurement spend to ensure strategic sourcing is achieved. However, monitoring and reporting, as a significant value to be derived from such systems, is lacking.

To continue the discussion, contact Prof. Marcus Ambe (ambeim@unisa.ac.za) and Sibongile Shongwe (shongwes90@gmail.com).

References:

(1) Public Service Commission. 2011. Report on Profiling and Analysis of the Most Common Manifestations of Corruption and its Related Risks in the Public Service. Pretoria, South Africa: Silowa Printers.

(2) Business Day. 2011. Irregular state expenditure jumps 62%. (accessed on 10 August 2017).

(3) Ambe, I.M. & Badenhorst-Weiss, J.A. 2012. Procurement challenges in the South African public sector. Journal of Transport and Supply Chain Management, 6(1): 242-261.

(4) Auditor General of South Africa. 2010-2015. Consolidated general report on the audit outcomes of Local Government (2010-2015). Pretoria: AGSA.

(5) Irene, B. 2017. The Macroeconomic Landscape of Post-Apartheid South Africa: A Critical Review of the Effect of the Broad-Based Black Economic Empowerment (BBBEE) Program on the Success of Female SMEs Operators. Journal of Educational and Social Research.

(6) Boateng, D. (2017). Procurement as a process within finance hampers Africa's long-term developmental goals. Smart Procurement Review, 32-33.

(7) National Treasury. 2015. 2015 Public Sector Supply Chain Management Review, National Treasury, Pretoria.

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