Public Procurement In South Africa – “Affirmative Action” Policy Has Not Worked

First Robert Mugabe in Zimbabwe, now Jacob Zuma in South Africa. Two “strongmen”-type African leaders who have done incalculable damage to their countries have recently gone from their presidential roles.

With Cyril Ramaphosa taking over as President, South African journalist William Saunderson-Meyer has written a brilliant article here on the South African Independent Online about Zuma – here is a short extract, summing up the damage he has done to the nation.

“There are obvious signs of the destructiveness of the Zuma years: collapsing infrastructure, bankrupt state entities, economic decline and increasing unemployment, to name but a few. The biggest damage, though, is as yet largely invisible to the eye. 

Zuma gleefully sowed racial division and poisoned the moral wells of the nation. He considered himself to be above the law, a behaviour pattern widely imitated by everyone from minibus taxi drivers to the cronies that he allowed to loot state coffers”.

After reasonable growth for 20 years post the end of apartheid, the South African economy has stagnated in recent years, with very high unemployment and a credit rating reduced to “junk” status.  10% of the population, mainly white, still control more than 90% of the wealth. From the New York Times:

“Overall economic growth is slow. By the end of 2016, South Africa’s economy was still roughly the same size it was in 2009, according to the World Bank, which anticipates growth of about 1.1 percent this year. That makes the country one of the weakest economies on earth in a time of global expansion”.

Endemic corruption in government and civil life is seen as one of the key reasons for this poor economic performance, which takes us onto public procurement, and the way in which state funds and “procurement spend” has been a key element in that corrupt behaviour.

I’ve been told in recent years that there are in fact many talented and capable public procurement people in the country, and CIPS is strong in South Africa certainly. Just as the country has retained a pretty independent media and judiciary, positive signs for the future, one would hope that if the new leadership is less corrupt from the top, then those who implement policies in areas like public procurement are capable of operating in an efficient and honest manner. Let’s hope so anyway.

One very sensitive issue that should be considered now (but probably won’t be) is the procurement regulations that define how black-owned businesses get preference in public procurement competitions. Now this has been going on for some years now, and looking at the South African economy generally, one might conclude that this legislation simply has not worked. The scheme is very codified, with extra “points” in tender evaluations depending on the ownership of the firm and other factors.

But, while we totally understand the sentiment behind this, there is no evidence that this sort of approach delivers the desired results, and it does not seem to have worked in South Africa.

Why don’t these schemes tend to work? Well, firms that shouldn’t really win business do. You can be less efficient than others but still win work – so is there still an incentive to improve?  How will a firm win work outside South Africa if it can only win it internally because the playing field is not level? (See our fictional story here for more insight into these issues).

And, as soon as you introduce all of these factors that don’t really relate to the value the supplier can provide, it tends to encourage corruption. For example, if I can bid higher than the true economic price for the contract, then I can use the excess profit to bribe a few officials or politicians.

We do understand the desire to build indigenous and black-owned / managed business. But there are many steps that could be taken on the supply-side to promote this, and of course on the buy-side every country should make sure it removes any barriers in the way of smaller, local businesses. However, I have yet to see any hard evidence of a case where positive discrimination has helped an economy.

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