London - One of the three selected issues flagged by the International Monetary Fund (IMF) in its 2023 Article IV Consultation with South Africa released last week, which includes separate in-depth analysis, not surprisingly is “Issues and Reform Options in Public Procurement”.
The other two special issues for the government to grapple being “Social Grants and Employment” and “Carbon Pricing and Climate Mitigation Policy” – issues not priorities on the radar of most South Africans struggling to cope with the vagaries of surviving the pernicious cost-of-living crisis, especially food and fuel price inflation.
Public procurement can be the bane of economies during ordinary times.
Wastage, corruption through self-enrichment, fraud, patronage, cronyism, inadequate disclosure and transparency, lack of competition, ideology through rushed affirmative action policies, a race towards ill-thought-out socio-economic transformation policies – all ingredients of a dysfunctional, ineffective and corrupt public procurement ecosystem. South Africa is not unique.
Most Organisation for Economic Co-operation and Development (OECD) countries fall foul of serious public procurement deficiencies.
During extraordinary times such as the “once-in-a-century” Covid-19 pandemic, the supply chain disruptions caused by the Ukraine and other conflicts, and the resultant global economic shocks, the impact of a poor procurement architecture has merely exacerbated a fragile recovery towards pre-pandemic “normality”, undermining scarce resources and mitigation efforts in helping especially the vulnerable and disadvantaged sections of society.
Governments rushed towards targeted rescue packages, some of them justified, others unsustainable with the risk of inculcating a culture of dependency, which only stores up future problems.
The real economic impact like procurement fraud and profiteering, however, is global with no border, country and society spared, perhaps with the nauseating caveat that the inequality gap between the minority very rich cohort and the overwhelming rest of society including the middle classes, has an unstoppable multiplier effect.
South Africa is no exception. When Finance Minister Enoch Godongwana presented his Draft Public Procurement Bill on May 22, 2023, “to regulate public procurement” to ensure that the process “is fair, equitable, transparent, competitive and cost-effective”, he at a stroke raised expectations both at home and abroad, with a healthy dose of scepticism, that this could be the beginning of the end of unfettered procurement profiteering and self-enrichment bereft of the requisite oversights that has defined the country’s body politic since the end of Madiba’s stint.
If effectively implemented and monitored, this piece of legislation could potentially bear on the short-term fortunes of the ANC at the 2024 general elections with polls already predicting the party to lose its overall majority for the first time since the onset of democracy in 1994.
More importantly, it could see the transformation of the ANC into a modern professional party, which breaks the psychological umbilical cord between the ANC as a liberation movement and the ANC as the governing party of South Africa.
The ANC carries baggage as a relatively nascent ex-liberation movement turned governing party, which if not jettisoned could render the public procurement reforms stillborn.
Central to this must be the recognition that the ANC is not the South African state and that in the interests of the Constitution, democracy and the country, there must be a clear separation between party and state. The signs are that this is going to be an excruciatingly difficult task.
Take for instance the issue of cadre deployment. The Zondo Commission identified the ANC cadre deployment policy as illegal, unconstitutional, and a driver of state capture.
While the government proposed adopting a merit-based recruitment and selection system by approving the National Framework towards the Professionalisation of the Public Sector, proposals to revamp cadre deployment do not feature in Godongwana’s Draft Bill nor in any of President Cyril Ramaphosa’s numerous announcements.
It shows the fragile institutional structure of the ANC with its various factions and a misplaced culture of cadre loyalty which puts party above country beholden to the governing faction of the day.
This has regressively affected policy formation and delivery, whether in the running of the SOEs; on dealing with the debilitating energy crisis and its endless load shedding; another U-turn by Godongwana, this time not to grant Eskom a partial exemption from the 1999 Public Finance Management Act “from disclosing irregular, fruitless and wasteful expenditure and material losses from criminal conduct in its annual financial statements” – the list is endless.
The irony is that a Supply Chain Management Review (SCMR) was carried out by the Zuma regime in 2015.
Three years later under the new Ramaphosa regime, the Zondo Commission on State Capture found evidence of widespread fraud, money laundering, racketeering and other illegal activities during the Zuma presidency implicating ANC leaders, including ex and current government officials, who allegedly participated in, or encouraged, corruption at an estimated cost of R57 billion (2% of 2018 GDP) with 97% related to Transnet and Eskom.
The IMF has identified several shortcomings in South Africa’s public procurement, which accounted for 15% of GDP in FY21/22.
It is highly decentralised and fragmented where 80 different legal instruments govern public procurement across the public sector with their accompanying regulations.
The variety of procurement processes are accompanied by multiple IT systems and significant manual processing of transactions.
Capacity to carry out procurement efficiently varies across the public sector at local, provincial, SOE and national levels.
The objectives of public procurement also include preferential social inclusion under the provisions of the Constitution, favouring SMEs, historically disadvantaged groups, and local enterprise development including through local content requirements – as reiterated in the Draft Bill. This, says the IMF, is “costly and ineffective”.
Weak enforcement of existing procurement legislation and regulations result in repeated serious procurement violations, including bribery, conflict of interest, fraud and theft of resources, conflict of interest.
Procurement is carried out with limited strategic focus, resulting in high procurement costs. The progress of SCMR reform implementation has been limited and remains a “work in progress”.
A ray of hope is the collaboration between the National Treasury, World Bank and OECD in promoting sound procurement practices, which the IMF says are an important determinant of the growth impact of public spending and expenditure efficiency.
While the fund gives the thumbs-up to Godongwana’s Draft Bill, because of its “worthy objectives”, it identifies several areas for improvement – leveraging scarce procurement resources, standardisation of procurement processes, improving incentives to promote integrity in the system, ensuring adequate levels of competition, independence and impartiality of the Procurement Administrative Tribunal, and making preferential procurement more cost effective and goal oriented.
Getting public procurement processes right in itself is a huge incentive for Godongwana, especially in his efforts to make spending more efficient and achieving savings.
Both the SCMR and IMF research suggest that savings from improving procurement practices could be sizeable, up to 20% of the cost of goods and services procured (3% of GDP or US$12.7bn).
The cost, however, within the state capture paradigm and lost opportunity costs could be billions of dollars more.
Parker is an economist and writer based in London