Global Policy Forum

Buying Cheap Isn’t Always Best for Development

Public procurement is often portrayed as a technical, accounting issue instead of as a source of revenue for local industries and government. It can also be a tool for development, says lecturer Michael Jennings. In numerous cases, donors have pressured African countries into making public tenders open to international competition. Donors, argues Jennings, have either self-interested reasons, such as the protection of their own national “strategic” industries, or humanitarian ones, insisting, for instance, that cheaper foreign mosquito nets are preferable over more expensive locally produced mosquito nets because they can save more lives. In both cases, however, the key roles that monetary value and markets play in donor approaches to procurement obscure the further roles it can play. According to Jennings, humanitarian ends should certainly prevail, but approaches to procurement must not obscure the goal of supporting African solutions for African problems.

By Michael Jennings

November 18, 2011

In 2007 Ghana's government commissioned manufacturers to produce a specially designed cloth as part of its celebration of 50 years of independence. Despite the country's rich and ancient heritage in textile production, the winning bid was from a Chinese company. Under pressure from donors, Ghana had recently enacted a public procurement act that ensured all tenders were open to international competition.

In 1977 there were 25,000 people involved in the textile industry in Ghana. By 2005 there were less than 3,000. Giving the bid to China was another nail in the coffin of Ghana's once-proud textile industry.

Public procurement is generally seen as a technical, accounting issue, not a development one. This view is profoundly wrong. State and donor-funded purchasing is a significant part of overall GDP in developing countries, around 20% (and substantially more in some countries). Where that money is spent, and whether governments are able to make decisions on how to use their public resources, matters considerably for development.

Donors and international organisations still see public procurement as a mechanism for obtaining goods and services as cheaply as possible. They also see the opportunity for corruption where procurement processes are not transparent. As a result, developing countries have faced pressure from donors to adopt policies and laws that open government tenders to international competition. The adoption of the new law in Ghana, for example, was linked to continued flows of aid and debt-relief.

Getting value for money is important, of course. Spend less per individual drug, for example, and you get more drugs for the overall money spent. But "value" should not only reflect monetary considerations. Used in the right way, procurement could be an important development tool: helping create jobs, boosting skills, supporting emerging industrial sectors, helping national economies wean themselves gradually off aid.

If governments were not so restricted in their choices (by, it should be noted, donors who are often only too willing to use their own procurement processes to protect their national "strategic" industries), they could use their purchase of goods and services to help reinforce poverty reduction measures.

Is this a real issue, impacting on lives and livelihoods in a meaningful way? Yes, it is. Take the example of insecticide-treated bed nets, a vital tool in the armoury against malarial infections. The main donors funding the provision of bed nets across the developing world, the Global Fund, Population Services International and Unicef, all have policies that commit organisations and governments to buy at the lowest possible price, arguing that more nets can be bought and thus more lives saved.

But looking at broader development considerations, the logic becomes questionable. For the past eight years, the Tanzanian company A-Z Textiles has been manufacturing Sumitomo Chemical's Olyset insecticide-treated bed net. This joint venture, lauded by international health and development bodies, is the only substantial net production operation in Africa. In 2010 its 7,000 employees produced around 30m nets, and their salaries supported 25,000 people. It has generated new businesses and livelihoods in the region and generates tax revenue for the government.

However, because A-Z cannot compete on price with cheaper competitors in south-east Asia, these jobs and wider economic benefits are under threat from donor policies restricting African governments from choosing to support an African venture.

If the concept of value in public procurement was widened from its cost focus, it could become a powerful development tool. But this requires donors to see how programmes designed with one objective in mind might contribute to broader development goals. In the case of A-Z, allowing governments to pay slightly more per net would see gains that would contribute, albeit indirectly, to the aims of the roll back malaria campaign. In helping to build an industrial sector, it generates employment and increases skill; and it helps to tackle poverty, both a cause and consequence of ill-health (including malaria).

Sadly, donors have yet to pick up on this message. Over the past year or so, at least 1,500 jobs have been lost at A-Z. African solutions for African problems remains a laudable goal, but not one that is supported in deed by donors that maintain a narrow commitment to low-cost, free-market approaches in their purchasing decisions.

Michael Jennings is senior lecturer in international development at the School of Oriental and African Studies (Soas) in London. He also blogs on African development and politics.


FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.