Private
finance
Debt
Tax
justice
Aid
Financial
architecture

World Bank must decide if it stands for development or business as usual.

Added 31 Jan 2013

World Bank must decide if it stands for development or business as usual.

The first round of consultations for the World Banks review of its procurement policy has been completed and an analysis of the inputs provided has been posted. The consultation featured a wide array of stakeholders including civil society. Clear areas of contention between donor countries, developing countries, and their private sector have arisen in the process on issues of domestic preferences and the use of developing countries’ procurement systems. The Bank has to decide whether it stands on the side of development and developing countries, or whether it stands for market orthodoxy and “business as usual.”

Domestic preferences or market liberalisation?

As Eurodad has pointed out through its public engagements and through its ongoing research and analysis, procurement is of critical importance in determining both the quality of aid and its potential development impact. Eurodad, and others, have argued that developing countries need the space to use procurement as a strategic tool in implementing development strategies and industrial policy, as well as boosting the local economy through the double dividend offered by smart procurement.

Trade Unions, developing countries and their firms have for the most part echoed this argument throughout the consultation, calling for “more support for the local industry, including domestic preferences.” Key areas of concern for them were the ability of small and medium sized enterprises (SMEs) to effectively compete for contracts which often were not even written in the local language, and the inability to compete for large scale infrastructure projects where the capacity did not yet exist.  Building and Woodworkers International (BWI) noted:

“The Bank is an agent of market orthodoxy and trade liberalisation, and there are some who regard domestic preferencing as pernicious. It is the view of the BWI that it is a legitimate policy of governments to help local industry and to boost employment. Provided these are declared policy goals of government, and there is transparency on the percentage weighting in favour of local firms/ SMEs when adjudicating contracts, then domestic preferencing is a good mechanism.”

This call ran counter to that of donors and multinational corporations which argued for an end to domestic preferences, for continued liberalisation of government procurement and international competitive bidding.  

Using country or donor systems?

Use of country procurement systems has proven to be one of the more contentious items discussed during the consultation. For the most part developing countries and their domestic private sector encouraged the use of country procurement systems as the default option. They argued that managing multiple donor procurement systems with already limited capacity could be overwhelming. They further argued that “The insistence to use Bank procurement procedures hinders growth of country systems.” CSOs pointed out that use of country systems as the default is in line with international commitments on aid effectiveness and should be reflected in World Bank procurement policy.

On the other side of the discussion were donors and the private sector representatives from donor countries who argued that increased use of country systems exposed the World Bank to greater risk from fraud and corruption. Multinational companies also argued that dealing with fewer systems was easier than going through each countries procurement systems. These concerns were also echoed by a small group of participants from partner countries.  

What both camps could agree on is that if use of country systems is to be mainstreamed within World Bank procurement policy it should be accompanied with sufficient support to ensure that these country systems are accountable, functional, and effective for development.

Expectations from the World Bank’s management

Management’s response should attempt to reconcile these key areas of contention and must explicitly determine whether the World Bank represents the interests of donors and multinational companies, or of developing countries and their domestic private sector.

As noted by Civil Society, if the Bank wishes to demonstrate its commitment to development management should:

  • Support the use of domestic preferences.
  • Live up to the Banks international commitments and use country procurement systems as the default option.
  • Support developing countries in building transparent end effective country procurement systems.
  • Not undermine the policy space that developing countries need to implement their development strategies and industrial policies.
  • Support calls from civil society organisations to initiate an independent review assessing barriers and how to effectively support SMEs.