By Jeroen Kwakkenbos and María José Romero
In March this year the World Bank launched a two-year review process of its operational procurement policy and procedures. This process will have significant consequences for developing countries as it entails the guidelines that the institution provides to borrowing countries when they use World Bank funds to purchase goods or contract services. This is the single largest review of World Bank procurement policy since the 80s and involves a multi-stakeholder consultative process around the world including governments, business associations and civil society.
The review is very timely, given that the OECD has identified that procurement is a major constraint for improving the development effectiveness of development grants and loans. DAC chair Brian Atwood said ahead of the fourth High Level Forum on Aid Effectiveness held in Busan in late 2011 that “procurement is the main issue to tackle on donor side (to make aid more effective).” More than 10 years after initial agreements to untie aid, the OECD DAC identified that two thirds of contracts awarded by bilateral donors still go to OECD businesses, and donors’ procurement practices are the reason for this.
Why procurement is important?
Public procurement is a keystone in development finance. It accounts for over 17% of world GDP and in developing countries can account for as much as 70% of public expenditure. Eurodad estimates that USD 69bn of aid money is spent on procuring goods and services annually either by donors or by recipient countries, more than 50% of total ODA. Pro-poor procurement practices are key to ensure that aid delivers the best development results. If well targeted, smart procurement can yield a “double dividend” where the development projects it supports also benefit the domestic private sector of developing countries through purchase of locally produced goods and services.
Why WB procurement guidelines matter?
The World Bank procurement guidelines currently consider international competitive bidding as best practice and make it compulsory for larger contracts that exceed certain thresholds. Domestic firms in developing countries usually cannot compete for international bids as they do not have access to the same resources as large multinationals. This approach essentially bars them from large scale development programs, which undermines the achievement of positive development outcomes. Eurodad research found that half of the contract value in World Bank funded projects in country case studies in Ghana, Namibia, Uganda, Bangladesh, Bolivia and Nicaragua went to foreign firms, and the share increases with the size of the contract.
Firms in industrialised and emerging economies are currently the main beneficiaries of the business opportunities offered by World Bank finance. In 2008, 67% of the value of World Bank-financed contracts went to firms from just ten countries: China, Germany, India, Italy, United Kingdom, Argentina, Russia, Turkey, Indonesia and France.
Furthermore, World Bank procurement guidelines are considered as blueprints for the design of national procurement system reform programmes. Therefore, they influence the institutional system of client countries by:
- attaching policy conditions to their aid and loans,
- providing donor-driven technical assistance, and
- conducting diagnostic reviews of procurement systems.
An independent evaluation commissioned by the OECD in 2010 found that opaque tendering, tendering in large lots, and restrictive eligibility criteria make it difficult for MSMEs from developing countries to compete for tenders. Eurodad research confirmed that in particular the latter two aspects feature in World Bank-funded procurement. Fragmentation and the use of donors’ procurement systems certainly lead to a complex supply chain, which has implications for sectoral policies, such as health, education and food.
This is why World Bank procurement guidelines should reflect the Bank’s development mandate, including for private sector development, as well as create policy space for developing countries to use procurement as a policy tool.
World Bank procurement guidelines need to be optimised, so that procurement:
- Becomes an economic policy tool, promotes domestic industry development, in particular SMEs.
- Becomes a developmental tool, considers social and environmental criteria, and creates incentives for private actors to behave in a socially productive fashion, through either preferences or dbarment. Tax evasion and human rights violations should be additional debarment criteria.
- Respects integrity and accountability, emphasising that accountability to citizens in partner countries matters most.
- Use country systems as the default approach, as committed in Paris (2005), Accra (2008) and Busan (2011).
This process presents an important opportunity for Eurodad, members and partners to expressour views regarding public procurement and explain the reasons why we think that alternative procurement models to the Bank’s current approach, such as smart procurement are badly needed to promote sustainable development.