“Made in Nigeria” Public Procurement Policy Will Simply Lead To More Corruption

Unfortunately for the many fine people from that country, Nigeria has become a watch-word for fraud and corruption. That ranges through email scammers offering untold riches "if you can just share your bank details with me" to current accusation of defence budgets being siphoned off, leaving the military unable to counter terrorist threats.

Unfortunately again, the Nigerian government is now proposing a change to public procurement rules that is designed to help the economy - but in practice is likely to increase corruption without achieving its stated aims.

It comes down to one little word. In current public procurement legislation, buyers are told they "may" consider local options; now they "shall" do that. We do need to see the exact wording and guidance around that, but this is how it was reported by Bamikole Omishore on the Vanguard website.

"The amendment of the Public Procurement Act of 2007, as stated by Dr. Bukola Saraki, will make it obligatory for Ministries, Departments and Agencies of the Federal Government to first consider and patronize Nigerian products before their foreign alternatives. The passage of the revised Law which will change the key word from “may” to “shall” will make it mandatory for government agencies to patronize Made in Nigeria products when available".

So what happens now if there is a local alternative but it is vastly inferior - or perhaps vastly more expensive - than the non-Nigerian alternative? Does the buyer still have to choose the local option? How much extra should the organisation be prepared to pay for that option - will that be defined? Is it OK to pay 5% more or 50% more?

In terms of corruption, this sort of policy provides the perfect cover for both parties in a typical corrupt procurement transaction. Even where a local firm is winning business fair and square, there might now be a temptation to increase prices (no need to compete in an honest way) and share the gains with the buyer. And where currently the supplier is not good enough to win honestly, now there is the perfect excuse (with a brown envelope to help the decision) for the corrupt buyer or budget holder to give them the business anyway.

That is all before we come onto the economic effects of this move. It is of course a form of economic protectionism, which has been shown over many years and many examples not to work. Nigeria needs firms that can compete globally and genuinely, not inefficient, corrupt businesses that rely on  internal government business to keep themselves afloat.

And there is a cost to this which may not be visible but is nonetheless real. Every time a government buyer chooses to pay more than they need to in order to buy local, that is a cost to the taxpayer. Or the loss to the citizen might be expressed in a lower quantity or quality of goods or services compared to what could have bee provided by the best supplier for that cost. In some areas, that could be positively dangerous if sub-standard goods or services are procured in areas such as construction, healthcare or defence. In any case, there way, there is a hit (cost, less resource and / or quality) to the citizen.

The article on the Vanguard website draws parallels with the US Buy American Act of 1933, without saying that Act was generally considered a failure, was widely ignored, gradually watered down and eventually as the US signed up to free trade agreements, largely forgotten. Not a good role model for Nigeria, we would suggest.

What do the procurement institutes in the country think of this by the way - both CIPS and the local organisation? Last year's CIPS President Babs Omotowa is Nigerian and works in the country of course, but I guess this might be too controversial an issue for a senior industrial leader who needs to keep on the right side of the government!

We've been very negative here, in the main because we really do think this is a lousy idea. But in part two we will look at alternative ways in which the government could use public procurement and approach the problem of encouraging local industry in a more constructive manner.

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