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    Humanitarian and Development Procurement - A Vast and Growing Market

     

     
     
    © International Trade Centre, International Trade Forum - Issue 4/2001

    Throughout the world, international aid agencies implement development or relief assistance programmes aimed at fighting disease, reducing poverty, fostering economic and social development, promoting respect for human rights and protecting the environment. In doing so, they procure an estimated US$50 billion worth of goods and services from companies worldwide. Today, changing procurement trends by these agencies are opening up more opportunities for developing country enterprises.

    Several important trends are shaping the way international aid agencies operate procurement. Firstly, the World Disasters Report of the International Federation of Red Cross and Red Crescent Societies cites an overall decline in Official Development Assistance (ODA). This is forcing aid agencies to devise strategies to make shrinking budgets meet growing demands. Secondly, the development community's emphasis is increasingly on supporting local "participatory" initiatives in order to bring about sustainable development. Finally, due to calls from non-governmental organizations (NGOs) and institutions such as the Organisation of Economic Co-operation and Development (OECD) to end the policy of "aid tying", donor government are reconsidering the practice.

    The OECD defines "aid tying" as when "the procurement of the goods or services involved in ODA is limited to the donor country or to a group of countries". The OECD says that "untying [aid] in a multilateral context will align the aid business with the free trade principles of the World Trade Organization Agreement on Government Procurement. As such, it will constitute an important step towards creating a level playing field for procurement."

    These three factors are pushing aid agencies to devise strategies that support broad-based cost-effective development objectives. An increasingly popular option is to procure goods and services locally in the regions where programmes are implemented, rather than importing them. In addition to reducing costs, buying locally in developing countries has development benefits: it strengthens the private sector, increases the skills and expertise of people and encourages regional trade.

    Aid procurement: two different markets

    The market represented by procurement operations of international aid agencies can be divided into two segments: procurement for short-term relief or humanitarian operations and procurement for medium to long-term development assistance programmes. The segments share some common characteristics, but also have fundamental differences that suppliers should note.

    In humanitarian relief operations, the primary emphasis in procurement is on speed and access. In order to save lives, this means delivering the goods to affected areas as quickly as possible. However, these areas are often difficult to reach and/or have security issues. A key concern for international aid agencies is supplying goods to remote areas while ensuring the security of both aid workers and beneficiaries. This issue is crucial in their procurement decisions.

    Although subject to competitive bidding, items procured for relief operations tend to be more expensive since quick delivery is the main concern. The goods most commonly procured are relatively simple in design. The generic specifications of such items have been identified by an inter-agency technical committee and are described in a compendium called "Emergency Relief Items" issued by the United Nations Development Programme (UNDP) and its Inter-Agency Procurement Services Office (IAPSO).

    The other market segment is development assistance programmes aimed at sustainable social and economic development. Working in more than 100 developing economies, the World Bank Group is the world's largest source of development assistance. Its primary focus is helping the poorest people and the poorest countries in projects focused on basic health and education, social development, good governance, environmental protection and private business development. All projects are geared to creating a stable macroeconomic environment conducive to investment and long-term planning. According to the World Bank, 1.2 billion of the world's six billion people live on less than US$ 1 per day. All development agencies have set goals to reduce and, where possible, to eradicate these inequities.

    Goods and services for development tend to be of a more sophisticated nature and can be delivered following normal lead times. This allows adequate time for bidding, tendering and evaluation.

    Who are the buyers?

    There are many players in the aid market; bilateral donors and regional banks are the most important. Other important buyers are international aid agencies, United Nations specialized agencies and international NGOs. In 2000, the UN system spent over US$3.7 billion on aid procurement, 75% of which was procured by ten agencies which have procurement offices in various countries.

    The volume of goods and services procured by the UN system is regularly increasing. For example, between 1996 and 2000, goods and services procured by the UN increased by an estimated 40%. Interestingly, the annual share of goods versus services procured remained stable, with goods procurement representing between 55% to 60% of all procurement expenditures during the period.

    Other non-UN international aid agencies and NGOs such as OXFAM, Cooperative for Assistance and Relief Everywhere (CARE), Médecins sans Frontières and the International Committee of the Red Cross (ICRC) are also major buyers in the aid market. ICRC's humanitarian mission is to protect the lives and dignity of victims of war and internal violence and to provide them with assistance. In 2000, to carry out its mission it procured approximately US$ 221.56 million worth of goods and services.

    What is being purchased?

    As aid programmes expand in scope and coverage, the portfolio of items traded in the aid market has become more diversified and today includes a vast array of goods and services.

    Goods and services commonly procured by international aid agencies range from food-related items including grains, cereals and agricultural equipment, water supply and sanitation, shelter and domestic items, medical and transport equipment. All of these are required worldwide, but above all in sub-Saharan Africa, the Middle East, Latin America and Asia.

    Some of these items are manufactured and available in developing countries. In 2000, the United Nations Children's Fund (UNICEF) procured one-third of its US$60million worth of goods and services from its regional procurement offices in South Africa and Kenya. From its regional logistics centre and various delegations in Africa, ICRC spent an estimated US$68million on procurement. More than half of the items were pharmaceuticals, tents, food and blankets.

    ITC has identified various product and service sectors with potential for developing country suppliers. They include domestic and shelter items; small electric generator equipment; water supply and sanitation items; agriculture products and food; and services.

    In some cases, the agencies are looking for large quantities of blankets, mosquito nets and impregnated bed nets, edible oils, grains, dried vegetables, canned goods and non-perishable food items, as well as plastic pipes, storage tanks and basic hand-pumps. Most of these items are available from developing country enterprises.

    Buyer concerns

    Procurement by international aid organizations is no different than procurement by private enterprises. All buyers want the best possible value at a reasonable price. Price considerations involve additional aspects that take into account the initial purchase price, maintenance, quality, deadlines and delivery conditions.

    Quality

    The quality of the goods acquired is of paramount importance to all agencies, each of them procuring items based on their own technical specifications to which suppliers must adhere.

    The international aid agencies have quality concerns similar to most buyers in the private sector. Particularly for sensitive items such as drugs, they follow strict quality assurance guidelines, to which suppliers must conform.

    Examples of some quality requirements include:

    • Suppliers must demonstrate a proven record of competence, knowledge and expertise in manufacturing and exporting the required goods.

    • Suppliers must conform to good manufacturing practices and to internationally recognized quality standards.

    • Inspection of samples and trial orders of small quantities might be used with suppliers for whom there is no previous purchasing record.

    • In some cases, both product packaging and labelling might have to be analysed by the agency's laboratories and quality assurance staff.

    • In some cases, agencies might ask to carry out audits at the supplier's premises.

    International aid agencies also base procurement decisions on ethical and environmental considerations. Contracts are not awarded to any company which uses child labour; is connected with weapons manufacturing; or is accused of environmental abuses.

    Logistical concerns

    Logistical issues are carefully considered when procuring goods and services. Agencies will investigate the processes involved in importing, clearing, transporting and despatching the goods. This is particularly important since these agencies often work in remote and unsafe areas. If the transport infrastructure is poor, agencies will be concerned about the time required to deliver the goods to the appropriate location. Generally, in emergency situations, they will be looking to procure from companies with an appropriate amount of stock, which is easily accessible in a very short period of time.

    Tendering procedures

    Unlike private businesses, most agencies are publicly funded and are required to provide equal opportunities to all firms interested in bidding and to follow a number of specific procedures guaranteeing competition, fairness, integrity and transparency.

    The normal tendering procedures followed by agencies depend on the total value of the purchase. Different levels of expenditure require a different set of procedures. The rules for the UN system are as follows, but with variations in amounts between agencies:

    1. In most cases, for procurement under US$ 30,000, the procurement officer selects three suppliers and awards the contract to the lowest bidder.

    2. For orders ranging from US$30,000 to US$100,000, a pre-selected shortlist of suppliers is invited to provide sealed bids. The shortlist consists of suppliers from developing countries, including the recipient country; under utilized donor countries and other donor countries.

    3. If the contract is worth more than US$100,000, international competitive bidding applies. An international call for tenders is published in the UN publication Development Business, in IAPSO's Business Opportunities (http://www.iapso.org) or by advertising in other trade publications.

    After the bids are received and assessed, contracts are awarded based on several criteria:

    • Respect for submission deadlines.

    • Compliance with the specifications in the call for tenders.

    • Price quoted.

    • Technical quality of the product proposed.

    • Acceptance of the delivery deadlines and commercial/financial terms and conditions.

    There are times when the agencies cannot use normal tendering procedures. These include special conditions such as natural disasters when providing assistance and goods in a timely manner is crucial. Additional details on UN organization procurement rules, ranging from sourcing activities to executing the procurement contract, can be found on the IAPSO web site under "Supplying the UN", "General Business Guide", "Additional Information" and "Common Guidelines for Procurement by Organi-zations in the UN system".

    Major NGOs providing aid and humanitarian assistance also generally follow competitive bidding procedures. They have set up their own purchasing conditions and have established various control systems for all their procurement operations.

    Who are the suppliers?

    Companies which sell to international agencies also tend to supply other markets such as the transport, medicine and food sectors. UN agency annual reports often list the names of suppliers awarded contracts over US$100,000. The lists show that these companies are predominantly multinational enterprises able to supply large quantities of the goods required. Some of them have offices in the countries where agencies operate.

    Names of enterprises which sell to international aid agencies can be found on the rosters of pre-qualified companies of individual agencies. Many agencies manage these rosters at headquarter and country levels, making it difficult for smaller firms to enter the aid business. To address this problem, 12 UN organizations created the Common Supplier Database (UNCSD) to act as a window for the business community to register with the UN system. There are now about 18,000 companies listed.

    Statistics show that the majority of international aid agencies buy items from developed countries. IAPSO reports that the total value of UN procurement from economies in transition and developing countries represented 36.3% in 2000, down from 44.8% in 1996.

    Encouraging procurement from developing country firms

    International aid agencies are aware of the decreasing share of goods and services procured from developing countries and are committed to addressing the issue. Some have introduced specific measures to encourage participation of developing country enterprises. For example, the Office of the UN High Commissioner for Refugees (UNHCR) and the World Bank allow for a 15% price preference for local suppliers. This preferential margin often turns the tender in favour of the local bidder.

    Most agencies are instituting other practical measures and systems to foster local procurement. The World Health Organization (WHO) requests its project teams to source locally; UNHCR trains local buyers to identify domestic sources and the World Food Programme (WFP) organizes workshops to build awareness on the importance of procurement and has appointed developing country nationals to work in procurement divisions at its headquarters in Rome.

    Conclusion

    Goods and services procured by humanitarian or development agencies represent exciting business opportunities for enterprises worldwide, including developing country enterprises. Products such as household items, agricultural products, small electric generator equipment and water supply and sanitation items offer good potential. However, developing country enterprises have to make serious efforts to capture part of that market. As described in the various articles of this magazine, when a company sets out to develop specific strategies for that purpose, it should be particularly cautious in understanding and addressing buyers' concerns and quantitative and qualitative requirements. Through its various activities, ITC is working on both assisting developing countries enterprises to better understand those issues, as well as on further exposing buyers in the aid market to the supply potential of developing countries.

    As part of its South-South trade promotion programme, ITC has launched an initiative which aims to strengthen Africa's private sector by increasing the market share of its enterprises in providing goods and services to international aid agencies. The initiative fosters links between international aid agencies which provide assistance to Africa and export-ready African enterprises which produce goods and services that could be procured by the agencies.

    For more information about this initiative, contact Catherine Taupiac, ITC Regional Trade Promotion Advisor at taupiac@intracen.org


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