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    Improving SME Access to Public Procurement


    © International Trade Centre, International Trade Forum - Issue 1/2001 

    Spending 9%-13% of the gross domestic product (GDP), government is the biggest buyer of goods and services for many developing countries. How can governments take advantage of this in order to internationalize small firms, create new regional trade opportunities and develop trade strategies to compete more effectively on world markets?
    This is the subject of a new ITC publication on improving SME access to public procurement.

    Countries with a system-wide management approach to public procurement will be better placed to develop negotiating positions and trade strategies - nationally, regionally and internationally. National public procurement reform can help local firms grow. When governments within a region reform public procurement practices, it can create new regional trade opportunities.

    Public procurement: Linked to international trade 

    In this era of globalization, local firms remain under pressure in world markets. After the concerns expressed in Seattle by many WTO members, there is growing recognition that local development measures will have to be considered in world trading arrangements. The public procurement marketplace will become an increasing focus of advocates for open market access and restrictions for local development. How well a country understands the issues in this area will help determine the effectiveness of their international trade strategy.

    What governments can do 

    There are four levels of public procurement policy that affect SME development.

    Remove barriers to participation 

    At the most basic and least controversial level, governments may correct biases against, or remove barriers to, small and medium-sized enterprises' (SMEs) participation in public procurement. Because SMEs have fewer resources, anything that makes the process easier and lowers the cost of involvement will have a greater relative result for them. Procurement reform can go a long way towards creating a business and policy environment where firms (small and large) can operate and compete openly. It can ensure that there are legal rules to enforce contract and property rights, and that information is more widely accessible. In essence, procurement reform allows firms to compete effectively for public procurements by reducing transaction costs.

    Procurement assistance for SMEs 

    Secondly, governments may target procurement-related assistance towards SMEs to enable their participation. This assistance may be neutral (not subsidized), in which case it should not give a particular advantage to SMEs, or it may be subsidized, in which case the policy will not only provide an advantage for SMEs but will also introduce a distortion into public procurement procedures.

    Preferences to SMEs 

    Thirdly, governments may provide preferences to SMEs, which are in essence a particular form of subsidy.

    Quotas for SMEs 

    Finally, and most controversially, agencies may mandate, target or set aside procurements specifically for SME involvement.

    ITC's role 

    Unlike most other international organizations, ITC concentrates its public procurement reform efforts on global changes affecting the legal, organizational and professional aspects of procurement operations. The SME guide helps to strengthen ITC's ability to build local capacity in developing and transition countries to establish transparent and workable programmes to balance the need for local support, and the desire for closer links under the world trading arrangements.

    ITC is working with a range of international and national organizations to encourage public procurement reform. ITC works jointly with local staff and consultants to provide assistance. The publication is part of a range of technical tools and documents that supports technical cooperation projects. Examples of ITC's projects under way include:

    Uganda: Finance Minister issues new regulations 

    The Minister of Finance has recently issued revised public procurement regulations. These were developed by ITC, in close cooperation with the Government of Uganda and the World Bank. The regulations restructure the Central Tender Board to provide more focused management of a coherent public procurement system. The procuring entities are now accountable for contracting decisions. The system also includes new standard contract documents, professional training, electronic procurement, improved management information systems and a more responsive means to hear complaints from suppliers. A process to encourage more subcontracting with local firms is also being implemented as part of the reforms.

    Guinea Bissau: Donor rules and national procurement rules under review 

    ITC is helping the government harmonize donor rules and national procurement rules to create a responsive and effective procurement system. New regulations are being formulated with national and international stakeholders. A new central procurement office will develop policies and training programmes; oversee selected contract award decisions; and install management information systems.

    Maghreb Conference: Towards subregional harmonization 

    Following the Conference on Public Procurement Reform (Abidjan, December 1998), several Maghreb countries asked for assistance to harmonize their procurement policies at a subregional level. In February 2000, ITC helped organize a meeting of the Maghreb countries (Morocco, Algeria, Tunisia, Mauritania and Libyan Arab Jamahiriya) and donor countries and insti-tutions. The countries agreed to develop a means to harmonize public procurement rules and financing procedures, update national systems where needed, and develop training programmes. A follow-up meeting of the participating countries is to be held in Algiers shortly in order to begin implementation.

    Wayne Wittig is the ITC Senior Adviser for Public Sector Procurement. He can be contacted at wittig@intracen.org for more information on the ITC programme on Public Procurement Reform.