4 th East African Public Procurement Forum: Improving the Efficiency of the Public Procurement in the East African Com

1. 4th East African Public Procurement Forum: Improving the Efficiency of the Public Procurement in the East African Community for Economic Growth PRIVATE SECTOR VIEWS ON PUBLIC PROCUREMENT PRACTICES Eng. Pascal Ncheye Chairperson – Tanzania Civil Engineering Contractors Association (TACECA)

2. 1. Introduction 1.1 Objective of the Paper 1.2 The Public is the major employer of the Private sector 1.3 The construction industry has an important role in the national economy of Tanzania. Statistics • During 2002 – 2006 industry’s contribution to GDP averaged 7.7%, rising to 8.1% in 2008 and is projected at 8.7% in 2011 • The industry accounts for 50% of Gross Fixed Capital Formation • It contributes 9% of formal employment • > 70% of the government dev budget is incurred by constr. • Annual turnover is about $ 1,800 – 2,000 million

3. 1. Introduction 1.4 Justification of utilizing such public funds coupled with realization of value for money is implementing well the pp practices 1.5 In Tanzania, the pp, focusing on procurement of works, is guided through such policies and legislations, namely: • The Construction Industry Policy, 2003 (CIP), the National Economic Empowerment Policy, 2004 (NEEP) and the Small and Medium Enterprises Development Policy, 2003 (SMDP) • The Public Procurement Act, 2004 and the Public Procurement Regulations, 2005.

4. 2. Policy, Legal and Regulatory Framework 2.1 Policies • These policies derive from the Tanzania Development Vision 2025, whose goal is to move the country from a least developed agricultural economy to a semi-industrialized middle economy by the year 2025, and with a high level of human development. • It focuses on eradicating poverty through empowering and investing in people, enhancing productive sectors, promoting private sector development as well as infrastructure improvement. • Thus competent and well resourced local contractors must be present in order to achieve the above

5. 2. Policy, Legal and Regulatory Framework 2.1.1 Policy interventions: Let us pick CIP, 2003 to elucidate the realization of Vision 2025 via the construction sector • The policy aims at creating an enabling environment for the development of a vibrant, efficient and sustainable local construction industry in which local players are able to meet the demand for all construction services in the country and to export such services to other countries. Specific policy directions to support the above said are: Capacity and performance improvement of local construction enterprises • The government shall ensure both local and donor procurement policies provide a comprehensive framework for fostering the local construction industry in Tanzania

6. 2. Policy, Legal and Regulatory Framework • The government shall ensure that public funded works carried out within the country involve the partnership with local players Improvement of public sector delivery • The government shall develop the capacity of its staff in project management and contract administration • The government in collaboration with the private sector shall formulate standard guidelines for procurement and project delivery arrangements.

7. 2. Policy, Legal and Regulatory Framework Compliance with international trade agreements • Local participation requirement shall be mandatory in all construction projects • Create awareness on WTO protocals and those of sub-regional arrangements particularly EAC and SADC • Ensure that in negotiating for development support funds from bilateral and multilateral funding institutions, support for the development of capacity of the local construction industry is embodied

8. 2. Policy, Legal and Regulatory Framework 2.2 Legal and Regulatory Framewok •  The afore named policies are implemented through an elaborate framework of a regulatory and monitoring public institution, namely PPRA, which was established in 2004. The PPAct was enacted in 2004 and has generally addressed the policy directions. • However, there are few, but crucial, areas which are inadequately addressed, e.g two such areas are: • The government shall ensure that public funded works carried out within the countryinvolve the partnership with local players: The Act and its Regulations are silent/not elaborate when the stipulated threshold value is exceeded. Furthermore, there must be a way of having mandatory meaningfull participation of local contractors in projects whose value exceed the stipulated threshold, in the event that foreign contractors are involved.

9. 2. Policy, Legal and Regulatory Framework • Local participation requirement shall be mandatory in all construction projects: The Act and its Regulations are silent/not elaborate enough on the matter. For foreign/donor funded projects there must be some form of partnership between foreign contractor and local contractor(s). This shall be made possible through prior negotions between our government and bilateral or multilateral funding institutions if our stipulation conflicts with theirs.

10. 3. CHALLENGES AND PROSPECTS • In terms of procurement of works, there are two major kinds of challenges facing the local construction industry which negatively affect its performance and competitiveness. The first one is associated with the business environment, whereas the second one is related to capacity and competence of individual firms.

11. 3. CHALLENGES AND PROSPECTS 3.1 Bussiness Environment 3.1.1 Globalization • The socio-economic development worldwide is currently being driven by the globalization phenomenon and rapid scientific and technological advancement. This trend has exposed local contractors to immense international competition. • In this economic globalization, the already well established players in the global market are the winners.They have access to finances and can make substantial investments in modern technology. On the contrary, local players are ill prepared to meaningfully participate in the global market and hence are the loosers. The local contractors can hardly access finances apart from the fact that they lack the track record.

12. 3. CHALLENGES AND PROSPECTS • To mitigate this situation, bold steps must be taken by both the government and the private sector such that: • Stringent qualification criteria for local contractors to participate in such procurement proceedings should be revisited for them to enhance their possibilities of equally qualifying to tender for meaningful projects. • Local contractors should strive to enhance their capacities and competences through such modalities as mobilizing and combining together their resources, acquisition of knew knowledge and technology as well as partnerships with foreign contractors.

13. 3. CHALLENGES AND PROSPECTS 3.1.2 Marginalization • Marginalization of local contractors manifests itself in various forms: • Inequitable projects packaging: This is more evident where government and donor funded projects are involved whereby large contracts are prefered, thus excluding small and medium contractors • Lack of confidence: Some procuring entities, in most cases potential ones, harbour the notion that works executed by local contractors will always be of low/unacceptable standards of quality. • Imperfect competition: In some of the donor funded projects, procuremet is restricted to domestic goods and services originating from the donor country.

14. 3. CHALLENGES AND PROSPECTS • The problem of marginalization can be solved/alleviated through: • Procuring entities packaging large projects in such a way that they are economical and affordable by local contractors. In addition, all foreign contractors tendering for construction works must associate with local contractors. These aspects must be well stipulated in our legislations.  • Local contractors themselves, individually and through their Associations, must develop marketing strategies which will enable them lobby and access potential procuring entities for projects.

15. 3. CHALLENGES AND PROSPECTS 3.1.3 Corruption • Corruption is a big problem which manifests itself at all stages of the procurement process. It is one of the responsible factors for enourmous economic losses to the nation through: • Inflating costs of projects due to the fact that costs of paying bribes are always embeded in the project value. • Reduction of competitiveness by distorting an otherwise level playing ground, shielding corrupt firms from competition, sustaining inefficient corrupt players and thus killing competent clean players. • Creation of projects which are white elephants. Conservative figures indicate that about 20 to 30 percent of expenditure on public projects is lost through corruption and improper use of project funds.

16. 3. CHALLENGES AND PROSPECTS 3.2 Capacity and Competence • Local contractors must have adequate capacity and competence for them to be adequately competitive and meet the market demands for construction projects. • Inherent inadequacies can be attributed to: • Limited resources and skills within individual local firms which inhibit them to undertake large and/or complex contracts • Under utilization of available capacity, because of lack of potential demand as well as presence of marginalization and corruption • The construction sector being populated by many small firms which lack bargaining power with clients. Also they lack a modern corporate culture

17. 3. CHALLENGES AND PROSPECTS • The above challenges can be well addressed by contractors themselves in collaboration with the government: • Utilization of partnerships for capacity building with experienced foreign contractors is encouraged and facilitated. This will make possible the sharing of experience, technology, managerial techniques and new markets • Training and continuos upgrading of skills of personnel with a focus on core expertise and business development. • Formation of Joint Ventures (JVs) among local contractors whereby resources are pooled together. • Strenthening contractors associations and use them effectively for lobbying the government and the donor community.

18. 4. CONCLUSIONS AND RECOMMENDATIONS 4.1 Conclusions • It is evident that the construction contracting sector potentially contributes to the country’s economy, whereas the Public is the major employer of the Private sector which is the key implementor of the construction projects. However, there is a clear lack of the trickle down effect in terms of enhancement of the local players’ capacity and competence as well as the nation’s economy as a whole. Regarding the public procurement practices in Tanzania, the following salient facts are revealed: • Existence of conducive policy interventions coupled with a sound legal and regulatory framework which guide the development of the industry. However, the monitoring aspect and contractors empowerment have received little attention.

19. 4. CONCLUSIONS AND RECOMMENDATIONS • Presence of many small local contractors poses the greatest weakness of the construction contracting sector in Tanzania. On the other hand, this situation attracts and reinforces the dominance by a few foreign contractors in the construction business market for both large and medium size projects. This in-turn marginalizes local contractors and renders them unable to grow and compete globally. • Generally, local contractors face challenges emanating from globalization and marginalization in the construction business market. In addition they are faced with a lot of capacity and competence related challenges. • Corruption, being one of the major challenges, must be addressed and curbed the soonest, otherwise it is likely going to kill the local construction contracting sector

20. 4. CONCLUSIONS AND RECOMMENDATIONS 4.2 Recommendations • Joint but sincere action and collaboration between the public and private sector in addressing the above named salient facts must be exercised in order to ensure sustainable development of the construction contracting sector and the nation’s economic growth thereof. The paper recommends the following strategies: Enhancement of Local Capacities • Deliberately optimally utilizing the available capacities and resources inherent in individual local firms by such strategies as: • Making it mandatory for foreign contractors to partner with local contractors when tendering for and executing construction projects in Tanzania.

21. 4. CONCLUSIONS AND RECOMMENDATIONS • Equitable packaging of construction projects in such a way that small and medium size local contractors are able to participate and thus capture a sizable share of the construction business market. • Deligation of relevant regulatory functions undertaken by PPRA to the private sector, namely the Associations. PPRA works alongside a number of trade and professional associations of key stakeholders, these include TACECA, CATA, AAT, ACET & TIQS. These organisations are highly endowed with a large pool of professionals in various fields of engineering, business practice and management who are spread all over the country. Further to that, they themselves know one another well. • Joint Ventures (JVs) among local contractors must be encouraged and facilitated which in turn will enable them execute large and profitable projects.

22. 4. CONCLUSIONS AND RECOMMENDATIONS Alleviation of Corruption • Concerted efforts to alleviate corruption and mismanagement of public projects must be given the rightful impetus such as: • Keenly abiding by the legislations designed to curb corruption in the public procurement proceedings. For instance, the highly comprehensive piece of legislation that lays out the procedures for tendering and awarding of contracts for public projects must be thoroughly monitored by the PPRA. • Improving contractors’ compliance with anti-corruption requirements by establishing mechanism for private sector monitoring of corruption within construction contracting procurement. One way of achieving this is through instituting and practicing code of ethics formulated and monitored by the contractors’ associations.

23. 4th East African Public Procurement Forum: Improving the Efficiency of the Public Procurement in the East African Community for Economic Growth PRIVATE SECTOR VIEWS ON PUBLIC PROCUREMENT PRACTICES: Individually, each EAC member country must deliberately improve her procurement practices So that Collectively, we enhance economic growth of our Region. THANK YOU FOR YOUR ATTENTION