Procurement is hardly the most exciting topic in international development – the realm of the beancounter, or the legal department, perhaps, rather than the development policy advisor. But procurement can act as a development tool, promoting the establishment of a manufacturing sector in areas where such industries are limited, helping generate employment and providing workers with skills and training.
As a 2008 report for Christian Aid noted (Buying Power: Aid, Governance and Public Procurement), the size of government spending as part of national GDP means its ‘use of purchasing can thus be a significant tool to achieve socio-economic objectives’ (p.3). The problem is that donor procurement policies are driven by a desire to secure the greatest possible impact for the lowest cost: in other words to get as much as possible, as cheaply as possible. This sounds fair enough, at first glance. Shouldn’t relatively scare donor funds be used as frugally and efficiently as possible in order to maximise impact for as many people as possible?
The reality is more complex. The inability of domestic companies in sub-Saharan Africa, for example, to compete on price with producers from outside the region – and the pressure on governments to hold fully open international tendering processes – means African governments cannot use procurement programmes to build up domestic manufacturing or service capacity.
Donors do recognise the use of local preferences as legitimate, and their use as a development tool. The World Bank, for example allows a margin of 7.5% of costs to be given to domestic contactors. In practice, however, it has put pressure on governments to ensure tendering processes are as open as possible.
A report* on an African manufacturer of long-lasting insecticide-treated bed-nets (LLINs), published today, shows the vulnerability of manufacturers who produce goods purchased largely, or almost entirely, through donor funding. A-Z Textiles has manufactured LLINs in Arusha, northern Tanzania, for around eight years. In 2009 alone, it manufactured around 30 million LLINs for distribution as part of the Global Malaria Action Plan. It employs 7,000 people at its two factories, creating a significant economic impact for its employees and on economic growth in the region and wider nation. Yet its reliance on donor funding for the purchase of its nets means its future rests upon foundations of sand.
The main donors engaged in the rolling out of LLINs in sub-Saharan Africa have procurement policies which focus primarily on efficiency (defined narrowly in terms of cost). The Global Fund, for example, requires purchasing processes to ‘obtain quality assured, effective products at the lowest possible price’. Population Services International follows Global Fund procurement guidelines (and acts as the procurement agent for the Fund’s Voluntary Pooled Procurement mechanism, which aims to purchase 60 million LLINs, which further reinforces the strength of this narrow definition of efficiency in procurement). UNICEF uses competitive bidding for all its procurement processes, and focuses on ‘best value for money’. Other donors are similarly limited in their approach to purchasing.
But A-Z is producing a highly effective LLIN in sub-Saharan Africa, for a disease that kills mostly sub-Saharan Africans. Its presence is providing employment, skills training, the reality of a regular income for thousands. Yet, as it cannot compete on manufacturing costs with competition, especially from East Asia, its future is far from certain. This study raises questions about the narrow focus of donors, and their tendency to compartmentalise programmes into discreet and distinct blocks, without thinking how they can work together. If the growth of domestic industries and employment can be encouraged through recognising domestic preference – accepting that a slightly higher cost might be appropriate for certain goods to be used in certain areas – isn’t this a valid use of precious donor funds?
Donors have a responsibility to ensure that maximum coverage with LLINs is achieved, and this inevitably means they have to focus on cost. But combating diseases such as malaria require more than just nets and pills. Vulnerability to malaria, as with other diseases, is affected by economic status. Economic growth – and more particularly, the ability to secure a regular income that allows individuals to save and plan for their futures – is a critical tool in improving the health of the poorest and most vulnerable. Donors need to understand the impact their narrow focus on efficiency, and their narrow focus on the immediate objectives of a specific project or programme, have on the ability of governments to meet wider development objectives. Procurement is not just a dry accounting issue, but a vital tool for development, for poverty reduction and for improving lives of individuals, communities and nations.
* Michael Jennings, ‘Economic Impact of Local Manufacturing of Bednets – an Economic Survey’ (2011).