CARTELS

Ensure proposed public e-procurement platform weeds out cartels

In Summary

• Government expenditure on goods and services is mainly financed through taxpayer money.

• Hence the need to devise innovative ways of minimizing loss or leakage of funds through inefficiency and corruption.

The KRA headquarters at the Times Towers.
The KRA headquarters at the Times Towers.
Image: FILE

Public procurement is a vital process in any country since it facilitates government service delivery to citizens while also providing business opportunities for large and small enterprises. It must however be conducted in a transparent and accountable manner to protect public funds.  

The Organisation for Economic Cooperation and Development (OECD) defines public procurement as purchase by government and State-Owned Enterprises of goods, services and works. Government is the biggest consumer and spender in any economy.

Globally, public procurement accounted for $11 trillion out of the $90 trillion global GDP in 2018, according to the World Bank. Available data shows that in 2020, the Government of Kenya purchased goods and services valued at Ksh 2.6 trillion, equivalent to slightly over a quarter of national GDP.

Government expenditure on goods and services is mainly financed through taxpayer money. Hence the need to devise innovative ways of minimizing loss or leakage of funds through inefficiency and corruption. Countries around the world are increasingly adopting e-procurement in an attempt to improve transparency and efficiency in the process.

E-procurement is basically the use of digital technologies to plan, manage, monitor and standardize purchase of goods and purchases. Online procurement systems also help curb fraud while maximizing value for money. From a public procurement perspective, inefficient practices undermine economic growth, fuel corruption and stall development.   

Fortunately, Kenya has an orderly, regulated public procurement system governed by the Public Procurement and Disposal Act. The Act seeks to promote competition, integrity, transparency and accountability. The Public Procurement Regulatory Authority is tasked with monitoring, assessing and reviewing the public procurement system.

However, Kenya’s procurement system is highly vulnerable to corruption and fraud, given the huge sums of money involved, sometimes running into billions of shillings for a single mega-infrastructure project like a dam, road or railway. Cut-throat competition for State tenders also incentivizes cartels to manipulate the system through bribery, fraud and other malpractices.

A 2015 report by the Ethics and Anti-Corruption Commission (EACC), for instance, puts bribery in public procurement in Kenya at 10-20 per cent of contract costs. The report also indicates that 71 percent of firms had to part with gifts to officials in order to secure government contracts.

A similar report by the World Bank in 2012 put total kickbacks on State contracts at Ksh 69 billion per year. This speaks to the urgent need to make the entire government supply chain competitive, transparent and efficient, for example, through digitization. The recent move by the National Treasury to float a tender for the supply of an Electronic Government Procurement (E-GP) system is therefore timely.  

Other than instilling transparency, the new system should be geared to eliminating cartels that thrive in that space, while also expediting payments to suppliers. One of the challenges facing existing systems like the Integrated Financial Management Information System (IFMIS) is delay in paying suppliers, resulting in a huge backlog of pending bills. This is killing many local businesses by starving them of much-needed cash flows.  

Whereas the Kenya Revenue Authority has done a good job of consistently enhancing revenue collection, this should be matched with efficiency and transparency in government expenditure especially procurement. While I am not conversant with the finer technical details of how the proposed E-GP system will work, I would want to imagine it will be designed to make it simpler and less costly for local firms to access and benefit from public procurement contracts.

The proposed system ought to be seamless and insulated from interference from rent-seekers who would want to ensure it fails. Also, the new system should be synchronized with Huduma Kenya, E-Citizen, BRS, IFNS, Ardhisasa and other government databases.   

The E-GP should also create a transparent environment where all government tenders are visible to all interested parties and the public at large thus lifting the shroud of secrecy surrounding the process. The system should also make it easier to flag cartel-like behavior and ensure competition in tender awards.

This is the only way we can create a sustainable public procurement system that delivers value to taxpayers and saves the country billions of shillings lost annually through a flawed, opaque process.

Murumba is CEO, Impulso Kenya Limited.  Email: [email protected]