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Smart public procurement can stimulate development of local information technology sectors, UNCTAD says

Frankfurt, Germany, 22 April 2013

​Public procurement can play a major role in promoting information technology (IT) sector development in developing countries, a new joint study by UNCTAD and the German Federal Ministry for Economic Cooperation and Development (BMZ) reveals.

The report, titled Promoting Local IT Sector Development through Public Procurement, was released today at Africa Business Week in Frankfurt, Germany.

The study identifies public procurement of IT services as having untapped potential for stimulating domestic economic progress, and recommends seven strategies to take advantage of this. One suggested strategy is to ensure that “key enabling conditions” are in place, including coordinated IT and public procurement policies, a critical mass of public IT projects, and a good understanding of the capabilities of the local IT services sector.

A competitive local IT sector is essential for developing countries to reap full benefits from the world’s rapid evolution in information and communication technology (ICT), the report says. Local progress helps sustain and expand the use of ICT in both the private and public sectors. A thriving local IT sector also contributes to increased productivity, employment and innovation. But IT firms in developing nations often face limits to growth due to lack of domestic demand.

A boost in such demand can come from public procurement, the UNCTAD/BMZ study notes. In low-income economies, public sector procurement typically represents a major segment of local demand for such services, fuelled in part by the increased deployment of e-government services. However, as stressed in the preface by Christiane Bögemann-Hagedorn, BMZ’s Deputy Director-General of Civil Society, Economic Policy and the Private Sector: “Until now, relatively little attention has been paid to the link between public procurement and local IT-sector development.”

According to the study, the participation of local IT firms in public tenders is often hampered by a lack of trust and awareness, by the technical complexities of IT procurement, by inadequate procurement frameworks and capacities, and by an absence of relevant IT standards and interoperability frameworks.

Drawing on country reviews of Kenya, Senegal and Sri Lanka, and citing other evidence, the study suggests government steps that can promote local IT-sector development through public procurement.

Anne Miroux, Director of UNCTAD’s Division on Technology and Logistics, stated: “Leveraging public procurement for IT-sector development is a complex challenge, but can be a powerful policy tool when successfully applied.”

The report cites the case of Sri Lanka to illustrate how the process can take place. Sri Lanka’s national ICT agency has established a framework of transparent and competitive tender procedures and has used a range of strategies and tools to make it accessible to local firms. For example, it provides targeted preferential marks to local firms, encourages joint ventures between local and international enterprises, and promotes technological capacity development among local firms.
The study identifies seven specific strategies for governments to follow in order to promote local IT services sectors through public procurement:

• Ensuring “key enabling conditions” are in place, including coordinated IT and public procurement policies, a critical mass of public IT projects, and a good understanding of the capabilities of the local IT services sector.
• Establishing an institutional framework that allows for public-sector coordination and effective private–public dialogue that can identify barriers to local IT-sector participation. One option is to assign a lead agency to spearhead public procurement for local IT-sector development.
• Setting up clear, transparent and open tender procedures. As with any public procurement process, applying good procurement practices is essential for ensuring successful outcomes and for easing the participation of local small and medium-sized enterprises (SMEs).
• Providing additional points to bids from local firms, within open and competitive public procurement processes. Targeted preferential treatment can encourage the formation of joint ventures by local and foreign firms and can allow local and less-experienced firms to build the relevant skills.
• Increasing the options for smaller firms to submit bids, by providing reductions on bid and performance guarantee requirements. Governments may also consider using alternative quality controls in awarding contracts that do not require bidders to have a previous track record specifically linked to public procurement.
• Adopting best practice software design. For example, the use of the modular design of systems and architecture allows for the tendering of smaller projects and enables greater participation of local firms.
• Promoting awareness and capacity development among IT firms and within relevant public authorities to help local SMEs overcome barriers to their participation in public tenders.

According to the study, governments of countries with nascent IT sectors should at least consider implementing the most essential strategies. One or two carefully designed e-government projects involving domestic SMEs can showcase their potential and help to build trust between the public and private sectors.