It has been over four years since the late Prime Minister Meles Zenawi made his famous speech on the synergy between what he referred as ‘government thieves’ and ‘private thieves’. The symbiotic relationship between the two groups is so flexible, according to Meles, that it is able to withstand the frequent changes in the regulatory regime.
Meles’ speech identified three major areas where administrative malpractice, rent seeking and corruption are rampant, including public procurement. Land administration and customs were mentioned as the other two.
Since the first mention by Meles, this argument has been common within the circles of the ruling Revolutionary Democrats. Prime Minister Hailemariam Desalegn, Meles’ handpicked successor, has also been heard using this same line in many of his parliamentary appearances and gatherings involving businesspeople.
There is little controversial about the analysis. After all, the line marks a rare admission by the EPRDFites that their very bureaucracy is tainted with opportunism. What is controversial is the commitment of the government to take concrete action to solve the problem.
Public procurement, a process that involves the way a government purchases goods and services from the market, entails a very complex set of procedures. It is the sum of processes such as consolidating demand, evaluating demand viability, tendering, evaluation, awarding, payment settlement, delivery and quality assurance.
By nature, this process engages various stakeholders. Government organs at the different tiers would have to communicate and act together to effect a given procurement under this system.
This process is not typical to the Ethiopian public sector. After all, there is no public sector that would not buy goods and services. If at all, it is the size and operations of the government that makes the Ethiopian case unique.
Tracing back in history, one could find out that the Ethiopian state has always been the major consumer of goods and services. Under both the series of monarchical rules and the socialist dictatorship that overthrew the last monarchy, the public sector has been the major consumer in the economy. According to various researches, the average share of public sector consumption in the economy in this era was not less than 70pc.
Over the past 23 years, this ratio has increased by 15pc. Latest reports show that the share of public sector consumption, out of the aggregate consumption in the economy, stands at 85pc. This is furthered by a public sector investment that is considered, according to the World Bank, amongst the top ten in the world.
If one has to be honest about it all, there is enough evidence showing that the EPRDFites have a rightful understanding of the problem. Meles’ speech came after the Federal Ethics & Anti-Corruption Commission (FEACC) undertook a thorough study on the public procurement system. Although the study was not made public, it can be guessed that it would indicate the numerous malpractices in the sector.
Yet another indication to their rightful perception of the problem is the fact that they have implemented series reforms in the sector. The latest reform involves replacing the decentralised procurement system with one that is centralised. In doing so, the intention was to tap all the possible economies of scale that centralised procurement could bring.
The economic fundamentals show that there is a huge distortion within the system created by a deliberate policy bias. This, in other words, means that the increase in size of public procurement is a result of the structural bias in the economy.
Of course, it is important not to miss the contribution of politics. In preferring the Developmental State Theory, a relatively young political hypothesis, the Revolutionary Democrats have strengthened the role of the state in the economy. In a way, public procurement is set to be an important economic activity.
An expansionary fiscal space, which sees an average annual growth in budgetary allocation of over above 15pc, means that the state is spending so much in procurement. Adding off-budget allocations, this spending involves billions of dollars. Indeed, there is huge stake in there.
At the other end of the spectrum, however, the markets providing goods and services to this growing state system are not developed. They are, in the words of Meles, marred with resourceful oligopolistic forces. It is so opaque that even the finest regulatory measures bring little impact in the form of transparency.
Few traders control much of the nation’s merchandise trading sector. They have grown so powerful over time that their distortionary impact has become huge. Economically speaking, therefore, there is little competition in the sector.
Therein lays the problem that Meles was referring. It all seems to have resulted from the unfortunate coexistence of a big state and uncompetitive markets. There is every economic incentive in such a system for opportunism and rent seeking to prevail.
Neither the studies nor the centralisation of the procurement system made the space competitive, however. In a way, the forces that Meles has mentioned in his popular speech managed to grow taller than the efforts made by authorities. Not even the latest changes in the public procurement system manage to control them as they remain flexible.
The whole problem boils down to lack a competitive, transparent and effective public procurement system. As it stands, the public procurement system involves considerable structural biases that continue to hinder competition.
Bringing competition to the system involves creating transparent procurement laws and developing strong institutions. The existing laws need revision so that they could give competitive access to small, medium and large companies. The era of defining capacity by use of capital only should end. A further regressive set of indicators, including ability to create partnership, should be developed to define competitive capacity.
The set of indicators should also be differentiated for firm size. The whole goal has to be giving small firms access to grow. And the central systemic objective has to be streamlining competition.
The capacity of procurement agencies, both federal and regional, has to also be developed in a way that they could drain opportunism. Their ability to trace, control and avoid trade malpractices has to be strengthened. Collaborations with competition authorities and ant-corruption agencies need to also be strengthened.
What is more important than the regulatory and institutional measures, however, the ability of the EPRDFites to win over the opportunism within themselves. This could only happen through political commitment. No flexibility of opportunists could be mightier than strong political commitment.
It is high time for the EPRDFites to display political commitment to win over what Meles noted as a resourceful club of ‘thieves’. Failing to do so will expose the nation’s political economy to huge direct and indirect costs that no one, including the EPRDFites, would like to see happening.
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