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The announcement last week by South Africa’s Minister of Finance Nhlanha Nene in his budget speech that the National Treasury would launch an electronic tender portal next month is welcome news for small-to medium-sized enterprises (SMEs).
The portal will make it easier, more affordable and transparent for small firms to do work with government.
National and provincial departments must, from 1 April, publish all tenders greater than R500 000 on the portal. Municipalities will join the system on 1 July, and must place all tenders of over R200 000 online.
Nene said in his budget speech that suppliers will only be required to register once on the National Treasury’s database — when they do business with the state. Tender documents will be available for free on the portal and tender advertisements in newspapers and the government gazette will be phased out.
The database will interface with the SA Revenue Service, the Companies and Intellectual Property Commission and the payroll system, says The National Treasury in its 2015 Budget Review.
The system would also be able to verify a supplier’s tax and Black Economic Empowerment (BEE) status, necessary for the allocation of preference points.
In addition the e-procurement portal will also allow the National Treasury to identify public sector officials doing business with the state, a practice which the government is seeking to outlaw.
‘Two-year phase in’
The government will start off slowly and develop the site to its full potential in two years, the National Treasury’s chief procurement officer Kenneth Brown told Fin24 last month.
Brown said the new system was long overdue, following the disbandment of the national tender board in 2004, which saw procurement being devolved to a fragmented system of over 600 government entities
In the 2013/14 fiscal year the government spent R500-billion on goods and services and on construction services, and the establishment of an e-procurement portal forms part of the National Treasury’s aim to make the government’s procurement process more fair and effective.
Along with the e-portal a national price-referencing system developed by the National Treasury’s new Chief Procurement Officer will help government to improve the quality of spending by providing state institutions with data on the ranges within which the price of commonly used goods and services should fall. The new system will also be rolled out on 1 April.
Welcome to the club
Governments in several emerging economies use e-procurement portals and because of their obvious benefits for small businesses, Small Business Insight has long argued that South Africa needs one too.
In South Korea the share in contracts that go to SMEs through the country’s e-procurement portal increased from 55% of the value of all contracts in 2003, a year after the portal was launched, to 75% in 2010, reveals a 2012 report.
This while Chile’s e-procurement portal Chile Compra lifted the share of contracts (by value) that go to small and micro enterprises to 44% in the first half of 2013, up from 24% after the portal’s first year in 2003, reveals a report last year by the agency (see also this post for more on the impact that the portal has had on small firms in Chile)
Besides the odd glitch here and there, possibly the biggest challenges that the National Treasury is likely to face once the e-procurement portal is up and running is ensuring that sufficient small firms benefit.
South Africa’s high internet costs, slow download speeds and more access to broadband outside main economic centres (such as in poorer parts of cities or in rural area) could hamper efforts to get small firms to benefit (see this recent post on the country’s internet challenges).
Should this go well, it will bode well for the adoption of e-procurement by small firms. The National Treasury must however work with the Small Enterprise Development Agency (Seda) to ensure that small enterprises receive sufficient support in outlying areas to access the new portal.
In Chile despite apprehensions the digital divide did not prove a barrier to small firms, and today 91% of the 116,000 suppliers to the portal are micro and small businesses.
Running training workshops could help. Chile Compra offers free training and advice on using and registering on the e-procurement portal at 16 centres throughout the country. This, while it provides small firms access to a six-months mentoring programme. Sector and regional meetings involving state buyers and suppliers to promote best practices in procurement are also held.
No doubt Chile’s focus on creating a professional core specialised in procurement has also helped. Chile Compra runs regular distance learning courses for buyers to prepare them to sit a test where they are can gain accreditation as competent state buyers. At present about 14 000 officials have accreditation.
Officials that undertake procurement are often inexperienced noted a review of the procurement system published last month by the National Treasury. A high turnover of supply-chain officials is another problem. South Africa therefore must focus on training officials too.
So are set-asides then necessary?
The introduction of an e-procurement portal and its obvious benefits to small businesses puts into question whether the announcement by President Jacob Zuma in his State of the Nation Address last month decision to set aside 30% of certain state procurement for small businesses is a wise one.
While several countries have set-asides in place (including Brazil, South Korea and the US), some like Chile have steered away from them, arguing that they risk creating market distortions and risked driving up procurement costs.
More important will be to construct a system that is fair and which gives all small businesses the chance to sell to the state. An e-procurement portal does this. But it will be difficult to shed the lure that set-asides have for many politicians, which the National Treasury remains understandably weary of.
This article originally appeared on Small Business Insight, a Burn Media publishing partner. Stephen Timm writes on small business and is presently in Cape Town, South Africa. Click here to sign up to his monthly newsletter. Follow him on Twitter at @Smallbinsight and on Facebook.
Image by Flazingo Photos via Flickr