Speed up delivery and slow corruption
When the Covid pandemic hit, the world needed to urgently buy protective gear, oxygen and ventilators. The countries that moved fastest and made the best spending decisions had electronic procurement systems. These help in a crisis and are crucial in reducing corruption and saving governments billions.
Many of us seldom consider how governments spend money, which amounts to a fortune. They are the largest buyers of works, goods and services from the private sector. Public procurement amounted to $11-trillion (about R203-trillion) in 2019. That’s about 12% of global GDP. In countries where the poorer half of the world’s population lives, procurement makes up an astounding half of government expenditure.
Electronic procurement, or “eprocurement”, speeds up this spending, and speed is crucial in crises such as
Covid-19. In South Korea the introduction of eprocurement meant the processing of bids was cut from an average of 30 hours to just two, while in Argentina the public procurement process fell by more than 11 days.
However, e-procurement does far more than allow governments to move more quickly. It reduces corruption in state spending and makes it more effective. This is crucial because annually corruption is a trillion-dollar problem globally, with few answers. The world is doing just as poorly now regarding corruption as it was a decade ago, according to Transparency International.
My think-tank, the Copenhagen Consensus Center, has identified e-procurement as a crucial policy for the four-in-10 low-income governments that haven’t implemented it. This research is part of a multiyear project involving dozens of leading economists to identify global-best policies to speed up achievement of the Sustainable Development Goals (SDG). These run until 2030, having started in 2016, so we are halfway through the process, yet failing on nearly every one. And on the SDG target of eliminating corruption, we are making zero progress.
Public procurement, because of its size, is one of the biggest sources of corruption for every country, so introducing e-procurement can be incredibly effective in tackling it. Moreover, it can enrich countries by billions.
Our research shows that in the first 12 years of designing, building and maintaining an eprocurement system, costs will average
$16.7m , irrespective of a country’s size —a relatively trivial sum compared with most government budgets. E-procurement not only speeds up the ability of governments to act, but it increases the number of bidders. India’s Karnataka state found the number of suppliers increased from 130 to 4,800 in the first three years of e-procurement, while South Korea’s bidders doubled from 70,000 to 147,000 in the same period.
Having transparent, widely accessible systems means governments can spend less on advertising for bids. Andhra Pradesh state, also in India, found it could save $500,000 annually on advertising, while the Philippines saved $9m a year on newspaper advertisements.
There is also evidence that digitising procurement means better oversight and improved service delivery. A good example is India, where there was a 12% increase in road quality after it shifted to e-procurement. Reforms in Paraguay reduced contracting processes that needed amending from 19% in 2013 to 3% in 2016.
The most obvious, immediate and welldocumented consequence is that eprocurement saves governments money. Our research shows the average cost-cutting across all procurement is 6.75%.
For the average low-income country, this means benefits in the first 12 years amount to more than $600m. For each dollar spent, the country will realise savings of $38. For lowermiddle-income countries, the average benefits are more than $5bn in the first 12 years, meaning each dollar spent creates more than $300 in social benefits. This makes eprocurement an effective policy.
It is not just in pandemics that such a system can show its worth. Having eprocurement helped Ukraine’s government to continue to function when it was invaded by Russia. Transparency International reported last year that “the procurement system and all platforms continue to operate” every day, even as much of the country was under attack.
As many countries face new threats that may require large-scale spending in a short time, e-procurement allows governments to do so more quickly and efficiently, and with far less corruption. An e-procurement system cuts waste and graft in public spending, builds resilience, and allows governments to be better prepared for upcoming challenges. Every country should pursue such a policy.