OPINION: Strategic sourcing key in government procurement
One of the country’s biggest, if not the biggest, consumers of goods, services and products is the government. Now, we are calling for a more strategic approach to spending that will contribute to the developmental agenda of the country without compromising on service delivery.
According to Wikipedia, the definition of strategic sourcing and the key difference between that and procurement is “strategic sourcing is an institutional process that continuously improves and re-evaluates the purchasing activities of a company. Procurement operations support tactical day-to-day transactions, whereas strategic sourcing represents strategic planning, supplier development, contract negotiation, supply chain infrastructure, and outsourcing models”.
Through all its structures at national, provincial and local level, and through state-owned entities, it is estimated that government expenditure will reach R300trillion for the 2019/20 financial year, this according to Finance Minister Tito Mboweni during his recent maiden Budget speech.
Spent strategically using local procurement policies and regulations, this vast amount can help the government achieve its broad socio-economic goals.
The local content provisions contained in the public sector procurement regulations indicate that the government is alive to this reality and the 23 Department of Trade and Industry designating sectors, subsectors and products for local procurement go some way to directing the government spend.
Over and above these provisions, Section 9(3) of the Revised Preferential Procurement Act, states that any organ of state procuring a nondesignated item, may include a specific tendering condition with a stipulated minimum threshold for local production and content, that is, issue the tender as if the item being bought has been designated. We believe that taking decisions on a tender-by-tender basis can form part of the government’s strategic sourcing.
Implementation of, as well as continued compliance with, these public sector procurement regulations and related localisation requirements will go a long way to helping the government achieve its objective of economic growth, but we continue to see short-sighted decisions being made on price only.
With the largest ARV programme in the world, representing R500billion over the next three years, the government has nevertheless not designated ARVs for local procurement.
A recent tender, the largest in value and volume terms, awarded the bulk of the supply to imported ARVs from India.
The failure to invoke Section 9(3), mentioned here, has resulted in massive losses for the domestic pharmaceutical industry for which, ironically, the government has industrialisation plans.
Using strategic sourcing, the Department of Health, which issued the tender would have calculated the savings from cheaper imports on the one hand against loss of recoveries in domestic plants and potential job losses, as well as loss of earnings for the fiscus had the tender been awarded locally.
Going back to my opening where we assume that if we re-industrialise and increase the local supply of goods, we will also increase local demand, if our biggest procurer can’t even come to the party, then where is the incentive for a pharmaceutical company that has invested R5bn in the country, when they lose out on the lion’s share of a tender for something they manufacture locally to an importer who has invested nothing in our country.
It doesn’t make sense, as the benefit will go to an importer that employs five or even fewer people in this country, while we export jobs to theirs.
This outflow of jobs and of tax revenue will have serious consequences down the line for South Africa, if the government does not recognise the need to pay a premium in order to save jobs and tax income in the longer term.
My song for the week is from the legendary Phuzekhemisi (excuse the pun), Sinenkinga-Ndabezitha, because indeed we do have a major unemployment problem as a country. We can never reduce that unemployment figure when we cannot get the balance between departments right.
On the one hand, the economic cluster is implementing policies to re-industrialise the economy, but departments including Health remain focused on delivering without taking into account the socioeconomic challenges that could be resolved through strategic sourcing.
Eustace Mashimbye is chief executive of Proudly South African.