2 November 2015

Ethiopia: Complete Overhaul to Public Procurement System Essential

opinion

There has never been a time in the history of the modern Ethiopian state that corruption has been the major headache of the establishment like now. The issue has become an integral part of the political economy and the ruling elite continually harps on the growing risk of what they call "rent seeking" and "opportunism".

In a 2012 speech to business people, the late Prime Minister Meles Zenawi, architect of Revolutionary Democracy, both as a theoretical guidance and practical governance system, noted that the state "is fighting with rent seeking, while its hands are tied".

The speech, largely an honest reflection of the level of spoilage within the state, identified land administration, customs and public procurement as the three pillars of the rent seeking political economy, an arch enemy of the developmental political economy the ruling EPRDF wishes to establish.

Three years since that bold speech by Meles, the state, under the complete control of the Revolutionary Democrats, continues to struggle with the bleeding impacts of corruption in the three areas.

Even by the admission of the government, the size, complexity and cost of corruption in the system is growing. It all looks like a rat race. Of the three areas, as Meles proclaimed in his speech, public procurement remains one of the most complex. Not only are the actors more advanced in their operation, but the way they do their "business" is also difficult to trace.

It is this very advancement that Ali Suliman, commissioner of the Federal Ethics & Anti-Corruption Commission (FEAC), last week reiterated in his exclusive interview with the Ethiopian Broadcasting Corporation (EBC). The good thing is that the problem is appreciated.

As the saying goes, "identification of the problem is half way to the solution". The job, now, is to create systemic instruments to weed out the malpractices hosted within the well-established forest of public procurement. In an economy where the state commands a disproportional amount of the economic transactions, public procurement plays a determinant role in the way taxpayer money is spent.

This, of course, is notwithstanding its impact on macroeconomic stability, aggregate price, market efficiency, income distribution and economic growth. An integrated public procurement system, with functional regulatory instruments, will lead to stable economy and prosperity.

This is even truer in the case of low income countries, such as Ethiopia. As developing countries spend hard earned resources on public procurement, unattended parochialism often has a higher multiplier effect than the case in developed countries.

For instance, the costs of malpractices in the former are expressed in terms of worsened poverty, poor service provision, costly debt burden, social unrest and political instability. It needs no genius to realise the role that disappointment in corrupt public procurement systems played in the Arab Spring, a web of revolutions that unseated long-standing authoritarian regimes in the Middle East and North Africa.

As the Ethiopian public procurement system remains a hotbed of "rent seeking" and "opportunism", synonyms for corruption in the parlance of the ruling elite, the end point faced by the Revolutionary Democrats is no different. This is why overhauling the public procurement system will be essential and timely.

Good news in these terms, is the fact that the Council of Ministers, the highest executive body, has recently received a draft amendment to the procurement law. If used properly, this could be a chance to close the loopholes and dismantle the threads of corruption in the practice of procurement. By and large, the whole issue boils down to the procurement law and its implementation. For one, the existing law gives ample space for malpractice.

According to the law, there are multiple forms of procurement, other than open and competitive bidding, that public bodies can use. These include restricted bidding, direct procurement, request for quotation and twostage procurement. In each of these, subjective judgment of "circumstance", "reason" and "justification", leading to procurement, are left to the officials of public bodies.

In only one case, restricted bidding, an objective indicator - size of procurement - is an important deciding factor. In all other cases, subjective interpretation of market factors guides the whole process. Thanks to the legal loopholes, regardless of the good intentions appointed officials might have, the probability that decisions will decline to malpractice is huge.

If the goal is to close the doors of corruption, then, actions ought to start from correcting the law. A wholesome change in the procurement law of the nation is what the time demands. This entails not only reducing the window of procurement to competitive and open bidding, but also clarifying the role of technical evaluations in the bidding process and abolishing the threshold of participation.

It is only through such deliberate measures that an effective public procurement system can be created. Reducing the window of procurement to competitive bidding involves closing all the other windows of procurement that leave leverage in the hands of appointed officials.

Since much of the corrupt practices relate to the tiers of procurement other than competitive bidding, it would be impossible to correct the system while these remain in place. Of course, this may create some inconvenience for public agencies, especially while trying to procure specialised services and goods.

But even then, letting market forces determine the procurement process can be effective. In cases where the service or good is supply constrained, then, the market itself will respond by way of limited suppliers. In case of non-tradables or security related procurements, the highest executive body, the Council of Ministers and the Public Finance Standing Committee of the federal parliament, can have final say on the procurement. Else, extending excuses (and worse, having them enshrined in law) to sideline competitive bidding, will be a recipe for an unpleasant economic and political end point.

Another juncture that needs reform is the roleof technical evaluation in the bidding process. As the practice stands, technical evaluation constitutes a large proportion of the value. For goods and services, such as technology, the value even reaches to 70pc of the total. Much as technical evaluations embrace considerable subjectivity and preferences, not least understanding, their dominance has transferred the power of decision to faceless technical people.

The fact that they will define the final result mean that they have become the key fish the corruption net tries to trap. What can be seen from the prosecuted corruption cases is that the net seems to have become effective in getting these technical people entangled, albeit with a hefty price tag. No doubt, then, that procurement reform cannot not be effective without strictly drawing the line for technical evaluations, reducing their dominance in the overall valuation, putting in place effective checks and balances, and enforcing the law to its fullest extent. All boils down, however, to the level of competitiveness allowed by the law and the landscape.

Defined thresholds for participating in local and international bidding mean the landscape is lopsided, from the outset. This has created, in the words of Meles, nothing better than "oligopoly, multiple tiers of corruption and a flexible rent seeking political economy". Therefore, it is here that the ruling elite should invest their time and resources.

The long established walls of thresholds and preferential treatment should end, allowing market factors to be the only guiding forces in the public procurement process. As the second Growth & Transformation Plan (GTP II) comes into effect, success will depend on the government's commitment to clearing the forest of corruption, known as public procurement, from loopholes. There seems to be no alternative but complete overhaul, as reforming the public procurement system has grown to be an existential issue.

Ethiopia

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