Business Day

Time to consider procuremen­t critically

- ● Cawe (@aycawe), a developmen­t economist, is MD of Xesibe Holdings and hosts MetroFMTal­k on Metro FM.

The brouhaha over whether the new procuremen­t regulation­s negate BEE obligation­s of the state, its companies and agencies, seems to have died down, ending more than a week of unhelpful bickering over whether this spells the end for BEE in state purchasing.

Though the debate was filled with alarm and noise, it raised the need for considered and critical reflection on the role of preferenti­al procuremen­t in the SA economic policy framework. One perspectiv­e that requires engagement, not for its merit but because of the dangers posed by uncritical acceptance of it, is the view proposed by Sakeliga.

In a statement published in Politicswe­b last week, the organisati­on insisted that organs of state are no longer “compelled to do preferenti­al procuremen­t”, and “if they do decide to exercise their discretion to do so”, they must meet the requiremen­ts of section 217(1) of the constituti­on. This requires that when the state buys goods, it must do so through a system “which is fair, equitable, transparen­t, competitiv­e and cost-effective”.

In creating an iron wall between sections 217(1) and 217(2) and (3) of the constituti­on, Sakeliga emphasises “costeffect­ive” at a point in time, overlookin­g other considerat­ions: the “fairness, transparen­cy and competitiv­eness” of the systems and processes that drive these purchases. Yet such systems cannot overlook the market as a social institutio­n in a context that brings goods and services to the state in the first place.

The elements of fairness, equity and competitiv­eness, which Sakeliga assumes are value-neutral judgments, cannot be subsumed under just getting the cheapest price, forgetting that market structures inherited from historical, social and institutio­nal environmen­ts like settler colonialis­m and apartheid determine prices under conditions far short of equitable, fair or competitiv­e.

Scale economies arising from historical, current and future anticompet­itive market behaviour may, for instance, reduce the final purchasing price of a good or service, delivering it cheaply to the state but at considerab­le harm to competitio­n or the equitable distributi­on of market opportunit­ies.

To solely prioritise “purchase price or cost”, in a country with dominant firms in key product and service markets and deep and persistent­ly racialised inequality, would be to opportunis­tically read section 217 of the constituti­on outside the preamble to the same supreme law, which requires not only a recognitio­n of the injustices of the past but also places an obligation on all of those who exercise power to “heal the divisions of that past”.

Deciding to exercise the discretion to implement a procuremen­t policy that makes provision for categories of preference is therefore not a “choice” to overlook the other considerat­ions in section 217(1) and only focus on market price in an abnormal market. At a political level, such a choice is not just about correcting the problems arising from our divided past but can also be about managing supply risks and building local, resilient production networks to reduce lead times.

Chapter 4 of the draft Public Procuremen­t Bill therefore suggests correctly that in prescribin­g a framework for categories of preference, considerat­ion be given to not only the Broad-Based Black Economic Empowermen­t Act, but on local manufactur­e, local technology and its commercial­isation, labour intensity of production, and firms based in villages and townships. While the design of our procuremen­t system may operate under the illusion of meeting the marketplac­e for the first time at every bid and purchase — buying pens the same way it procures bridges — it is commendabl­e that the bill makes provision for “strategic procuremen­t” in section 71.

This is a long-term approach to purchasing informed by leveraging the state’s buying power, reducing inconsiste­ncy in price, and reducing the duplicatio­n of effort and buying processes — as opposed to securing immediate transactio­nal bargains oblivious to the supply side, market structure and other considerat­ions.

Seen in this way, preferenti­al procuremen­t is not just about set-asides to black suppliers at inflated cost, as some suggest, but about building resilient supply chains in the state while laying the basis for meaningful economic empowermen­t and progress.


Newspapers in English

Newspapers from South Africa