Sunday, June 11, 2023

Driving citizen economic empowerment through preferential gov’t procurement

I have been involved with advocacy for citizen economic empowerment for years now. I am glad to see that things are starting to move in the right direction, these include the beneficiation and aggregation of diamonds in Botswana, competition law, tourism law, the establishment of support institution such as CEDA, LEA to mention a few. This to me indicates a marked shift in focus towards citizen economic empowerment by Government. It is also pleasing to notice from the Parliamentary floor that Honourable members subject bills to some measure of citizen empowerment. It is important that this continues to be the character of deliberations in Parliament. We have also seen this renewed focus on citizen economic empowerment extended to legislation, for example the review of the PPAD Act and promulgation of the Local Government Procurement Act in 2008. The review of the PPAD Act provided Government with an opportunity to leverage on its spending as a tool for citizen empowerment and SMME development. Providing for prescription of preferences, in my view, was a major breakthrough as it allows for Government to signal to the market its direction in so far as preferential procurement is concerned. I therefore would like to urge Government to continually review these Acts to enable citizen companies and small businesses to benefit more from Government procurement as a way forward.

In 2004, Government issued a Presidential directive on “The Use of Locally Manufactured Goods and Services” which directs Central Government, Local Authorities and Parastatal organizations to purchase all their products from locally based manufactures and service providers. The programme is a response to the outcry from local industry that government, as well as the private sector do not deliberately buy local goods and services. This, if effectively implemented will go a long way in promoting citizen enterprises. The recent pronouncement by His Excellency, the President, during the State of the Nations Address that local procurement preference will be one of the tools used for employment creation and that public institutions would be directed to procure from local companies to promote citizen empowerment through local sourcing is a welcome departure from the tacit support of the past. To me the leadership of Government in this matter is important to signal to the private sector of the shift towards citizen empowerment and this unwavering message on local procurement should act as a catalyst to a change in procurement systems of private companies (often foreign) who are the major beneficiary of government procurement. The renewed call on Government Agencies to procure 100% of goods and services from local companies is welcome; however, the benefits can only be derived from effective implementation and monitoring as well as support from the private sector. His Excellency, the President, has also put in place a number of initiatives such as “Support of small caterers and vendors in public buildings and offices”, “Decorations, Landscaping, Arts and Crafts in Public Offices” and “Procurement of crockery and related products”. These initiatives are welcome and meant to encourage support for small and micro businesses by both Government and the private sector. It is my observations that large companies in Botswana source all products, spares, etc from parent foreign companies and do not generally support local SMMEs to supply products manufactured locally or on agency basis. Even retailers and chain stores of groceries/horticulture prefer to source from South Africa. Most of these large companies are foreign owned, so they prefer sourcing from own countries. For instance, mining companies resource all the heavy equipment as well as the everyday spares from outside the country. It is disheartening that very little effort has hitherto been made to establish or encourage local operators to produce and supply mining companies, e.g. food supplies, engineering services, explosives, conveyor belts and other consumables, protective clothes, shoes, etc. There is hardly local participation in the majority of enterprises and therefore no room for citizen entrepreneurs. How do we overcome all this and ensure that Botswana does not continue to be a market for foreign finished goods?

Evidently more needs to be done. Most of the South African owned companies have empowerment programmes in that country that are designed to assist small businesses to participate in their procurement; such programmes could be extended to locally based citizen companies relying on the experience from South Africa. It is still disturbing that little has been done in this regard. In other words, it is not enough for Government, although it is a start, to compel only its institutions to procure locally, it is important that the private sector too must demonstrate the good will that is extended. I know that those who apologise on behalf of these private sector companies argue that these entities will relocate to other markets. This is a falsehood that must not be made to pass. Financial institutions/banks in Botswana are also foreign owned and therefore interested in short term retailing and collection of cash and repatriation of the profits. In fact commercial banks in Botswana have a reputation of being the most profitable in Africa. The commitment is far less than if the major shareholders of these banks were Batswana and therefore the profits being reinvested in the country. I am not suggesting that we should not have foreign banks, but I strongly believe that this country should have citizen banks in commercial/retail banking; it will make sense for these banks to build assets /build customers for the future. I do not feel foreign owned banks have similar commitment. It is not surprising that the commercial banks in this country are reluctant to establish branches in the rural centers. Besides, with the connivance of Bank of Botswana, commercial banks have in recent months made doing business in Botswana difficult ÔÇô it takes 4 or more days to clear a cheque. Why!! Indeed, commercial banks in this country encourage savings so that they can keep the savings in BOBCs or in Government bonds to amass large profits rather than provide credit facilities to citizen businesses. Savings are meant to provide banks with liquidity so as to finance investors. As at the end of June 2009, according to the Bank of Botswana, commercial banks’ holdings of BOBCs amounted to P16.8 billion whilst loans and advances amounted to P17.4 billion. This supports the long held view that interest from BOBCs contributes significantly to profitability of commercial banks. It is my view therefore that Government should deliberately re-commit NDB to its original development mandate to bridge the gap. Moreover there is a tendency for Batswana in positions of responsibility in the public service and financial institutions to not have faith/trust on other Batswana entrepreneurs in this field. As a result of this lack of trust there has not been licensed citizen owned commercial banks that would support other Batswana in business. Allow me to return to the role that Government is expected to play in order to promote enterprise development. This, I would like to state upfront, is not about financing, although funding is important, but about translating some of the catch phrases like diversification, privatisation and others that reflect the commitment to a private sector driven economy. It is my view that Government needs to review its policy on how it encourages innovation and entrepreneurship in the economy. It is fundamentally important to ensure that Government regulations do not cancel out pro business policies in other areas of the economy.

Coordination in the implementation of regulations, in my view is important to ensure that we do not place unnecessary obstacles in the way of business growth. Government needs to reflect on the role it plays as a regulator and to ensure that the environment that businesses operate in positively enhance business potential and growth by reducing red tape and regulatory requirements for new and existing businesses, including reviewing the cost of complying with all the laws.

For example, reducing the number of Government agents that businesses are required to engage with a view to meet reporting demands, e.g. auditing of SMMEs, would go a long way. The audit requirement in this category of business is expensive and burdensome. A great example of innovation in supporting business development is Dubai, which has a two pronged approach to attracting investment. Dubai, just like Botswana, was under developed and lacked human skills. It started out as a fishing port and pearl diving centre until 1966 when oil was discovered.

Dubai has not allowed itself to rely solely on petro-dollars; diversification was its major strategy as Botswana. The difference is that Dubai has succeeded with its diversification drive, having surpassed most of their midterm targets. Oil now accounting for only 10% of state revenues and this trend is expected to continue declining as the city develops into a major trade hub. The Dubai Strategic Plan 2015 aims to achieve a GDP of US$108 billion and real per capita of $444,000. Dubai as part of its plan has come up with free zones concept and established 50 free zones primarily geared towards attracting foreign investments; these free zones are specialist clusters with specific facilities and infrastructure to support various sectors for which they have been established. The free zones allow for 100% foreign ownership, corporate and personal income and capital taxes are zero (only oil companies and foreign banks are subject to tax) and no restrictions on funds repatriations. Dubai, in turn, benefits from the secondary effects of these businesses as employees live in the city and spend on a cross section of requirements. However, international companies are not limited to setting up in free zones and can establish themselves outside free trade zones through limited liability companies where up to 51% local shareholding is required. They can also do it through 100% foreign owned branch or representative office where a local sponsor and licensee are required, or through commercial agency agreements or direct trade. With these initiatives the Dubai Chamber of Commerce indicates that Singapore has found it necessary to benchmark itself with Dubai given their strength in improving business standards and in their race for excellence. The Dubai Chamber of Commerce operates hand in hand with/or as agents for Government in matters of screening applications for visas, licences, etc. It is my belief that the current debt crisis which is a result of the global financial crisis will be managed to return Dubai to the pinnacle of an innovative nation. It is therefore my belief that as a country we have a lot to learn from Dubai despite its current challenges, do not throw the baby with the water. 16.
One of the challenges highlighted by businesses in Botswana is the high installation cost for utilities and no mechanism to spread capital costs of primary infrastructure among all eventual users. Clearly the demand for upfront payment by some parastatal organisations is responsible for discouraging private sector development, particularly where business is wholly debt financed. It is too costly for start up businesses to pay BPC for power connection, which include cabling, transformers, security deposits and then hand them to BPC for free, with no compensation. As a Township Developer myself, I am aware of many business projects which are abandoned because of the high initial costs of investment demanded by BPC and WUC. Phakalane Estates (Pty) Ltd. is still fighting with WUC for infrastructural services that it believes the Corporation is responsible for the cost. This is against the spirit of providing services on favourable terms to for business development as supposedly intended by Government. All these illustrate the challenge that businesses encounter.

This, I want to submit, has hindered rural development and rapid economic diversification. The net result of this is that efforts to achieve economic goals are made arduous by failure to provide infrastructure such as roads and water to citizen businesses especially those in the outskirts of parastatals and local authorities planning areas. As a result, financing has to include the cost of infrastructure development needed to promote citizen businesses, such as power, water and access roads.

Naturally it affects the agricultural sector mostly due to the nature of its location area and in some cases there are delays in the provision of services to these areas. Yet agriculture is the sector that the Government aims to grow in order to diversify the economy away from the mining sector especially diamonds, to achieve food self sufficiency for the country and enhance the sector’s contribution to GDP. I have a strong feeling that the Government ought to give regular direction to parastatals. Parastatals are development arms of Government.

They should play a greater role in the diversification policy. We have seen in the market financing of projects that rely on imports of primary inputs. This has presented a challenge to get these projects to appropriate levels of sustainability. Some projects/businesses were financed through schemes like CEDA, in reliance of Government contracts to supply, but these projects became unsustainable because contracts were short lived because a year later tenders were given to somebody else. Such system of democratising business allocation has been costly to the country; for who would like to risk large investment on capital import, in reliance on Government contracts for 1 or 2 years.

The other area is the leather processing plant. I have had the opportunity to operate such type of a project and had to abandon it due to high costs of infrastructure and denial of water supply because of lack of coordination in government to provide support mechanism to sustain the industry.
ÔÇó I am happy to note that the government of President Khama has started on a good level to dismantle the machinery of procurement through a series of specific directives. Whilst others may doubt the effectiveness of these, they however signal a very critical welcome policy departure which may provide the right tonic for citizen economic empowerment in this country.
*David N. Magang is a former Minister of State


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