Governance & Health Procurement

1. Governance & Health Procurement Dr Michael Jennings Dept. of Development Studies SOAS mj10@soas.ac.uk

2. Why should we think about procurement ? • Public procurement is a major part of the economy, esp. in developing countries: • 2000: low-income countries spent avg. 20% GDP on procurement ($216 billion) • Procurement accounts for around 70% of Tanzanian & 60% of Kenyan govt expenditure • This creates considerable potential for development • Health-sector spending makes up considerable share of this: • Increase in health sector spending from 9% of total oda in 1992-96, to 16% in 2002-06 (up to 20% in sub-Saharan Africa) • Proliferation of international organisations, funds & programmes engaged in health (around 43% of total number)

3. How is procurement linked to governance ? • Akech (2005): “The bulk of corrupt practices in Kenya have occurred in public procurement. … Public procurement constitutes the principal instrument for exercising political patronage… Public resources are therefore a means through which these governments can ‘purchase’ legitimacy and remain in power.” • Corruption is common practice in procurement processes • Informal payments of est. 3.5% of value of contract paid in SSA by companies • Anti-Corruption Coalition in Uganda est. 1.5% of GDP is lost as result of corruption in public procurement • Kenyan system (prior to reform) enabled corrupt practices: • Junior officials in charge of process (unable to resist senor officials) • Civil servants able to engage in private enterprise alongside state role • Lack of transparency • Appeals process lay with administrative bodies, not judicial system • Transparency International: 1997-2004 Kenya lost Sh. 475 billion to poor or suspect procurement deals

4. Good governance & procurement • Effective procurement is seen as an essential component of broader good governance reforms • Linked to debates over untying aid: donors demand more rigorous procurement systems in return for addressing aid conditionality • Features of a good procurement system: UN Commission for International Trade Law (1995): • Ensure efficient procurement to maximise economy • Help promote international trade • Promote competition between bidders • Equitable & non-discriminatory treatment for all bidders • Integrity, fairness & public confidence in the system through transparency

5. Governance or a narrow economic concern ? • Efficiency: Key to ‘good’ procurement system But defined as acquiring goods / services for lowest cost • Competition: The means through which efficiency is achieved • WTO: Government Procurement Agreement demands systems be ‘open, transparent and non-discriminatory’ • World Bank: “Open competition is the basis for efficient public procurement.… In most cases, therefore, the Bank requires its Borrowers to obtain goods, works and services through [international competitive bidding] open to eligible suppliers and contractors” • i.e. procurement is seen purely as a mechanism for minimising cost. This is a very narrow understanding of ‘governance’ • Does this matter? Are there other ways of thinking about procurement?

6. Procurement as a development tool Christian Aid (2008): “A broader definition of efficiency that considers development gains alongside cost and quality would ensure that procurement plays more of a role for poverty reduction” Sahle (2002): “If properly planned and executed, procurement could be used to address and meet long-term development goals and contribute towards poverty reduction.” Watermayer (2002): “Procurement provides business and employment opportunities, and, depending upon how it is structured and conducted, can be used as an instrument of government policy to facilitate social and economic development.”

7. A pro-development procurement system could: • Help est. and support domestic manufacturing • Help with skills & technology transfer • Generate employment & therefore help alleviate poverty • Multiplier effects spin benefits out to wider economy, creating new businesses • Address social issues, e.g. unemployment, HIV, empowerment, gender issues, etc • South Africa’s Targeted Procurement system: • Tender criteria consist of both cost AND ability to meet stated development goals • Bids are given points for both elements & tender is won on basis of combining points • 2002 assessment of TP suggested it was effective in supporting & expanding South African contractors & generating employment

8. So why isn’t procurement being used as a development tool ? • Donors put pressure on governments to adopt reforms that prioritise open, international competition • Ghana: reforms of procurement linked to aid & debt relief • Sierra Leone’s budget support agreement tied to its acceptance of open, international competition for tenders • Rise of large international funding organisations, who undertake their own procurement processes, remove scope for national governments to use it for wider aims • Especially the case in health sector with large multi-lateral funding organisations retaining control over purchases: ARVs, vaccines, health goods such as bed nets, etc • Clinton Foundation, e.g., sees free-market approaches as most efficient way to secure large increases in ARVs

9. Malaria, Bed Nets & A-Z Textiles • Malaria & poverty are linked: • Poor are more likely to die from the disease • Poor are less likely to have access to treatment & to take preventive measures • Effective malaria control involves specific interventions targeting the disease & the mosquito, BUT ALSO addressing wider poverty • Employment is a key tool for addressing poverty. ILO: “Work is central to people’s well-being. In addition to providing income, work can pave the way for broader social and economic advancement, strengthening individuals, their families and communities.”

10. A-Z Textiles & the Olyset Net A-Z Textiles est. in 1966, manufacturing clothes 1980s: very badly hit by competition from factories in S. & SE Asia, & influx of cheap used clothes from Europe & North America Late 1990s began to manufacture bed nets 2005: jt-partnership with Olyset to manufacture insecticide-treated nets • Generating large employment: • 2000: employed 1,000 people • 2010: employed 7,000 • Capacity has expanded rapidly • 2004: made 300,000 Olyset nets • 2008: opened new factory outside Arusha • 2009: made 30 millionOlyset nets

11. Economic impact of A-Z & Olyset Impact for employees Employment for large numbers, esp. young women Provides regular salary, plus other benefits (incl. training, access to health care, housing) 75% of employees surveyed able to save regularly 71% supporting children through school 7,000 employees supporting an est. 25,000 people with their salary Wider economic impact Presence of factory is generating new businesses Most businesses around the factory were est. after the factory was built Most rely entirely or significantly on employee business Factory sources food from local farmers Business owners also support wider families with their income

12. Foundations of Sand Global Fund: ‘[T]he Principal Recipient is required to conduct competitive and transparent purchasing in order to obtain quality assured, effective products at the lowest possible price in a timely manner.’ RBM Partnership: Procurement policy stresses need to avoid distorting market (i.e. open competition, and non-discriminatory) PSI: • Leading purchaser of bed nets • Agent for GF Pooled Procurement Mechanism • Follows GF guidelines UNICEF: • Key objectives in procurement policy: • ‘fairness, integrity & transparency through competition’ • ‘economy & effectiveness’ • ‘Best value for money’ • Follows general UN guidelines on procurement: ‘equal opportunity to participate [is] given to potential suppliers from all member countries’

13. Relying on donor money is ‘killing your own business’ Director of A to Z Textiles “Donors are looking at the price. If the price is going to be cheap they are going to get the nets. The goal is, this is what we want. This is the programme, how many nets have been delivered, how much money has been given, have we reached our target? But this is an African company, an African manufactured net. The problem is here in Africa … I think the priority should be given here.” Director of A to Z Textiles