A committee formed to study the amendment of the Public Procurement & Property Administration Agency (PPPAA) proclamation has sent its proposal and recommendations to the Ministry of Finance & Economic Cooperation (MoFEC).
The procurement process of all public enterprises should be managed by the Agency, and value addition for local companies needs to be lower at 20pc, according to the recommendations.
The proposal, which was under study for the past three years, was sent to the MoFEC three weeks ago.
Initiated by continuous claims from different parties on the proclamation, the study was made by a committee composed of the Agency, including higher officials and experts from the MoFEC.
The existing proclamation is highly criticised for blocking local manufacturers to participate in the procurement process, and the Agency is wasting an enormous amount of foreign currency from the national treasury to procure products from foreign companies. This mainly occurs due to the discouraging nature of the value addition rate for local manufacturers to get a margin of preference.
Two years ago, the Public Private Consultation Forum (PPCF) of the Ethiopian Chamber of Commerce and Sectoral Association (ECCSA) conducted research on the Agency. The significant finding of the study was the proclamation had to be amended as it is a major challenge for the local companies to participate in the procurement process.
“The procurement process has problems of excluding local businesses with standards and specifications that are difficult to attain by local firms,” Fekadu Petros, a senior consultant of the PPCF said during the meeting the Chamber held with the officials of the Agency.
Furthermore, the national think tank, the Ethiopian Policy Study & Research Center, headed by the veteran government official Bereket Simon, recently pointed out that the proclamation had many deficiencies and designed without considering the industrial sector of the country as it doesn’t give priority to local manufacturers. This finding was part of the Center’s research findings on factors that hinder the growth of the manufacturing sector.
According to the existing proclamation, any products with over 35pc of value addition shall be deemed as one produced in Ethiopia. Therefore, companies that add this value on the products they supply to the Agency, are incentivized and get a margin of preference.
“In a country whose industry sector is infant, local companies might not have the capacity to add such amount of values,” Amare Matebu (PhD) lead researcher at the Ethiopian Policy Study and Research Center told Fortune.
For local businesses that add value, the Agency offers a 25pc margin for pharmaceutical product manufacturers, 15pc for goods, and 7.5pc for contractors and consultants.
The new proposal demands the value addition rate be reduced to 20pc with the main aim of making companies participate in the Agency’s procurement process. This rate was also proposed by the national think tank to the prime minister’s office a month ago.
“The agency spends an enormous amount of foreign currency to purchase products while it can buy from local manufacturers,” Amare told Fortune.
Procurement accounts for 64pc of the federal government budget. During the nine months of the current fiscal year, the Agency has signed an agreement with various suppliers to procure items worth 4.5 billion Birr.
The proposal also highlighted that the value addition rate should not be a flat rate as the previous one. It also suggested that the proclamation should give authority to the MoFEC to lower the 20pc rate after considering the sectors which need to be incentivized, according to Nebiyu Kokeb director of Public Procurement Administration at the Agency.
Also, the existing proclamation gives the Agency the authority to administer all government procurements and property except purchases made by the state-owned enterprises, which are known for spending an enormous amount of money for procurement. The enterprises, according to the current proclamation, are empowered to administer the procurement by themselves, which creates irregularities and exposes them to bias.
Now with the aim of bringing a regular and transparent system in the enterprises, the committee proposed the Agency should administer the enterprises’ procurement process.
“If the proposal is accepted by the MoFEC, the Agency will be restructured again as its responsibilities and mandates will be broader than the current ones,” said Nebiyu.
Although the process for the amendment began three years ago, it has delayed because of many reasons, including the recent cabinet reshuffle which resulted in the removal of the former Ministers of the MoFEC, according to Nebiyu.
The issue is directly and closely handled by Abraham Tekeste (PhD), minister of MoFEC. He hasn’t managed to review the proposal yet because of his tight schedule, according to a source close to the case.
“The amendment might not be completed during the current fiscal year, as it has to go through various procedures,” said Nebiyu.
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