Download Integrating Developing Countries into the Global Public

Integrating Developing Countries into the Global Public
Procurement Market. A Case of Uganda.
Francis Ssennoga MBA, MPhil
Promotor: Professor J. Telgen
A Research Proposal submitted to the University of Twente as a
Requirement for Undertaking a Degree of Doctor of Philosophy
Abstract
This study will deal with integrating developing countries into the global procurement market.
Integration of developing countries into the global economy can be a powerful force for
economic growth and poverty reduction and indeed empirical studies indicate that countries,
which have integrated into the global economy, have enjoyed increased growth and their per
capita income has improved.
Inspite the perceived growth, developing countries have continued to vehemently oppose a
multilateral framework on procurement. Their argument is that the advocacy of global market
integration that has become so ardently pursued by major industrialised countries is
misguided. It undermines the multilateral principle of reciprocity and gives insufficient
attention to the immense diversity among countries in political, economic and social
conditions.
Developing countries therefore need to reassess their development prospects as they become
more and more integrated into a multilateral procurement regime. The interaction with global
economy may benefit a developing country significantly however the terms of interaction are
crucial if the potential benefits are to be realised and if the cost and damage is to be avoided.
This research intends to develop a model that integrates developing countries into a
multilateral procurement framework while carefully paying attention to peculiarities that are
prevalent in various countries. It is hoped that the model developed will be invaluable to
developing countries in need of striking a balance between promoting free trade and the
protection of a country’s legitimate domestic non-procurement related objectives.
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Table of Contents
1.0
Chapter One.................................................................................................................. 4
Introduction .............................................................................................. 4
1.1
Introduction ............................................................................................................ 4
1.2
Background to the Study ........................................................................................ 4
1.3
Arguments for Improved Market Access ............................................................... 5
1.4
Global Effort towards Opening up Public Procurement Markets .......................... 6
1.5
Opposition to expanding domestic procurement markets to foreign suppliers...... 8
1.6
Statement of the Problem ..................................................................................... 10
1.7
Study Objectives .................................................................................................. 12
1.9
Research Process .................................................................................................. 15
1.10 Significance of the problem and the justification for investigating it .................. 16
Justification. ......................................................................................................... 16
Feasibility of doing the proposed study ............................................................... 16
2.0
Chapter Two ............................................................................................................... 17
Methodology ........................................................................................... 17
2.1
Introduction .......................................................................................................... 17
2.2
Research Design ................................................................................................... 17
2.3
Sampling Design and Procedure .......................................................................... 24
2.3.1 Population................................................................................................. 24
2.3.2 Sampling size and Method ....................................................................... 24
2.4
Data Collection Methods and Procedures ............................................................ 25
2.4.1 Pilot Study ................................................................................................... 25
2.4.2 Data Collection Procedures ...................................................................... 26
2.5
Data Analysis ....................................................................................................... 26
2.6
Test of Validity..................................................................................................... 27
2.7
Detailed Description of the research Plan ............................................................ 28
Reference………………………………………………………………………………… …29
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1.0 Chapter One
Introduction
1.1
Introduction
This study will deal with integrating developing countries into the global procurement market
or as we might say increasing developing countries access to public procurement markets or
simply increasing market openness. It will investigate, analyse and establish by use of a
model, how developing countries can join and benefit from a multilateral agreement on public
procurement while at the same time protecting their economic and social interests. Practically
this research will offer basic decision support to developing countries considering joining the
global procurement framework but fearing the repercussions this might entail.
This research will combine procurement, international economics and international marketing
knowledge to create an integrative approach.
1.2
Background to the Study
In all countries, governments are significant buyers of goods and services. The value of the
contestable government procurement the world over was estimated at $2000 billion in 1998
(OECD Report 2001). This is equivalent to 7% of the world GDP and 30% of the world
merchandise1. In East Africa, as the table below indicates, even though the public
procurement market of Kenya and Tanzania reflect a situation in line with the international
average, Uganda’s central government purchasing figure is 30% of GDP! The stakes are
therefore very high for the optimal utilisation of public funds in Uganda and indeed the rest of
the world.
.
Source: Odhiambo W. and Kamau P., Public Procurement: Lessons from Kenya, Tanzania and Uganda
OECD Development Centre, Working Paper No 208. March 2003, DEV/DOC (2003) 06
1
Odhiambo W. and Kamau P., Public Procurement: Lessons from Kenya, Tanzania and Uganda OECD
Development Centre, Working Paper No 208. March 2003, DEV/DOC(2003)06
4
With such heavy expenditure, there is no doubt that all possible measures should be put in
place to ensure that best value for money is obtained. Indeed many countries over the world,
have prescribed procedures that the procuring entities have to follow.
While recognising the importance of a clear procurement process, guided by public tendering,
publication of winning bidder and mechanism for appeal for aggrieved parties, various
countries insert in their laws provisions that are intended to protect their national
‘sovereignty.’ Such provisions usually take into account the country’s industrial policy (e.g.
protection of the country’s local industries), social policy (e.g. protecting the role of women
or the physically disabled) or protection of a country’s strategic economic objectives such as
regional integration. These provisions although deemed desirable, especially for developing
countries, have serious connotations in as far as promoting free trade is concerned. They
constitute a subtle protectionism to trade (Arrowsmith et al 2000).
In order to fight this form of protectionism, there has been a development of international
agreements that are aimed at opening up procurement markets to competition. These
agreements have generally prohibited discrimination based on local interests in public
procurement.
Discrimination refers to a government’s tendency to favour its own domestic industry’s
supplies and disregard foreign firm supplies. If a government cares for local firms’ profits but
not foreign firms, it will discriminate them when competing for government procurement
contracts (Vagstad 1995). Regional blocs aimed at promoting free trade have been set up
across the globe. These include; North American Free Trade Agreement (NAFTA), AsianPacific Economic Co-operation Forum (APEC), European Union plus a number of bilateral
agreements. The underlying issue in all these regional and bilateral agreements, as mentioned
above, is establishing rules and discipline aimed at ensuring the principle of national
treatment and non-discrimination
1.3
Arguments for Improved Market Access
Arguing for a single market within the European Commission, Cecchini (1988)2 points out
that government protectionism in procurement markets is a shoot in the foot. He indicates that
in 1986, the total purchases controlled by the public sector (Central and local governments,
their agencies and enterprise within monopoly-type concessions) was Ecu 530 billion,
amounting to 15% of the community GDP. By rejecting intra-EC competition, the public
sector paid more than it should, for goods it needs and in so doing, supported sub-optimal
enterprises within the community. A working paper by the Directorate of Trade in the OECD
(2003) agrees with Cecchini. Estimating each country’s government expenditure of being
between 14%-20%, the report indicates that open access to procurement markets is an issue of
increasing importance in international economic relations due to the commercial significance
as well as the implications of procurement policies on government’s attitude towards the
economy.
Criticising the rejection of intra EC trade, despite the spirit and conduct of government
leaders within the EC, Cecchini highlights three major areas of cost saving;
• The Static effect- meaning that public authorities are able to buy from the cheapest
(foreign) suppliers.
2
Arrowsmith S, Linarelli J. and Wallace D. (2000) Regulating Public Procurement. National and International
Perspectives. Kluwer Law international The Hague Netherlands. ISBN 9041106367
5
•
•
The competition effect- leading to downward pressure on prices charged by domestic
firms in previously closed sectors as they strive to compete with foreign companies
entering the market.
The restructuring effect or the long run effect of economies of scale as the industry reorganises under pressure of new competitive conditions.
It is because of the volume and value that public sector procurement represents a vital
segment of the economy (Maza and Camblor 1999). They further indicate that due to
governments’ informal and legislative policies of ‘buy national’ governments have generally
tended to give large contracts to national firms, awarding those contracts not only on the basis
of price and quality but on the grounds of nationality as well. This has resulted into inefficient
and ineffectiveness in the procurement process, patterns of abuse and failure of the public
purchase to obtain adequate value in return for the expenditure for public funds.
Calling it “economic incest,” Cecchini criticises a symbiotic relationship that builds between
government purchasers on one hand and suppliers on the other. This incest breeds ground for
commercial deformities and deviant competitive behaviour. It tolerates widely differing
national and exclusive use of standards, government subsidies, research and development
duplication, dispersed and sub-optimal enterprises and maintenance of companies with little
incentive to invest in new technologies.
Maza and Camblor are unrelenting in their quest for opening up procurement markets. They
argue that continual favouritism of domestic suppliers constitute non-tariff barriers to
international trade, Elimination of these barriers will lead to a more efficient allocation of
resources through increased competition, higher quality procurement and budgetary savings
to government. In addition efforts in this direction translate into reduced opportunities for
trade conflicts and better commercial relations among countries.
Less obvious but critical issue of open procurement markets is that fair, non-discriminatory
and transparent procurement procedures, render perpetrators of fraud and corruption more
difficult.
1.4
Global Effort towards Opening up Public Procurement Markets
Global effort towards opening up public procurement markets is not a new phenomenon. The
GATT negotiations of 1947 rejected subjecting government procurement to GATT
guidelines. The arguments were mainly based on ‘nationalistic’ tendencies. The Tokyo Round
of 1979 was not successful either. Only a Code on government Procurement was achieved
with only few countries agreeing to be bound.
After several years of discussion the Uruguay Round, which gave birth to the Agreement on
Government Procurement (GPA), is so far the most successful as far as efforts towards
opening up government procurement markets are concerned. Assented to by various parties in
1996, the GPA is a plurilateral agreement, requiring its member states to abide by the
obligations set out in its framework. The obligations set out in GPA have two dimensions;
substantial and procedural. Under the substantial obligations, member countries are required
to impress upon the covered purchasing agencies not to give price and other preferences to
domestic producers and also not to discriminate against foreign suppliers. That is, transactions
that are based on other criteria rather than best value for money should be avoided. Under the
procedural obligations member countries are required to put in place a procurement system
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that is transparent and encourages open competition. The current membership of GPA is 283
most of them developed countries and none from Africa.
Alongside free trade initiatives taken in the context of multilateral trade negotiations, different
global blocs developed regional integration Agreements. The European Economic
Community (EEC) introduced specific directives on procurement, enacting a series of
procedures to ensure transparency and non-discriminatory access to government contracts
without replacing national procedures and practices. The North American Free Trade
Agreement (NAFTA) introduced rules similar to those adopted inside the European
Community on government procurement.
Procurement practices also evolved in the context of international financial institutions. The
World Bank, the Inter-American Development Bank and other regional development banks
have played an important role in shaping generally accepted principles for public
procurement. These Banks have established detailed policies and procedures for procurement
in connection with the projects funded by them, with due attention to considerations of
economy and efficiency and without regard to political or other non-economic influences or
considerations (Arrowsmith et al 2000)
With the encouragement of leading international financing institutions, and with the interests
of developing countries in mind, the United Nations Commission on International Trade Law
(UNCITRAL) decided in 1986 to undertake work in the area of procurement. The work
resulted in the adoption by the Commission of a Model Law on Procurement of Goods,
Construction and Services. The decision taken by UNCITRAL to formulate model legislation
on procurement was taken in response to the fact that in a number of countries, the existing
legislation was inadequate or outdated. The Model Law has the dual purpose of assisting
countries in the need for improved public procurement legislation and for the overall purpose
of helping remove unnecessary obstacles to international trade.
Even though most of the regional agreements and GPA are market access agreements because
they are aimed at improving opportunities for foreign supplies to enter the global markets in
case of GPA or markets of their co-signatories in case of regional and bilateral agreements, a
major theme in all of them is the issue of transparency at all stages of the procurement process
(Evennett and Hoekman 2000). GPA provides a framework of common procedures,
transparency at all stages of the procurement process and opportunities for aggrieved private
bidders to challenge procurement decisions and obtain redress in a timely fashion in the event
of inconsistencies with the rules of the agreement (Directorate of OECD 2003). The paper
therefore argues that to give meaning to the provisions on market access it is necessary to
ensure that procurement systems are transparent, fair, objective and accountable.
.
The WTO Singapore Ministerial Conference held in December 19996, agreed to set up a
Working Group on Transparency in Government Procurement (WGTGP). The mandate of
this Group is to conduct a study on transparency in government procurement practices, taking
into account national policies and based on this study to develop elements for inclusion in an
appropriate agreement.
Evernett (2003) while discussing the road from Singapore to Cancun on transparency, points
out that Working Group discussions was focused on improved transparency and not
expanding market access, indicating reluctance of certain WTO members-including many
3
Zanamwe G (2003) Tralac Trade Briefs no. 7/2003. Trade Law Centre of Southern Africa
7
developing countries to take further steps to open up procurement markets to foreign
competition. The question that arises from this observation is; why are some countries so
much opposed to opening up procurement markets to foreign suppliers?
1.5
Opposition to expanding domestic procurement markets to foreign
suppliers.
Through various legislations such as Competition Act (1984), National Space policy Directive
(1990), The Airport and Airway Safety, Capacity, Noise Improvement inter-Modal Transport
Act (1993), the Federal Water Pollution Control Act etc, The United Stated governments
attempts to give preferential treatment to its local products in a campaign sometimes code
named “Buy America”. Many other countries also have the same policies like America
although they may not set them out clearly in legislation, the way, United States does! This
form of preferential treatment is referred to as tacit discrimination. Formal respect of the
tendering procedure is not guarantee of fair treatment of foreign firms (Trionfetti 2001).
Discrimination provisions in the law are always fraught. This might be caused by deliberate
effort by government like the case of United States and Japan or failure to monitor the
practice by governments like in the case of European Union as the extract below indicates 4
There are three kinds of business practices that government may wish to pursue through
procurement policies according to Davies (1998):
• Collusion which occurs where suppliers take turns to bid the lowest price for repeat
contracts to seek to artificially raise the cost of goods and services or to tacitly agree to
respect each others market hence blunting the edge of competition between suppliers.
• Subsdisation of firms where firms in receipt of subsidies of some kind may be able to
sell goods at levels which do not reflect any competitive advantage they have over
firms producing similar goods
• Dumping where firms export at prices below those charged on the domestic market or
even below cost price
Arrowsmith et al (2000) argue that public procurement is often a tool for promoting the
government’s economic, social or environmental objectives. The industrial, social and
environmental objectives are sometimes referred to; as secondary or collateral objectives as
4
Source: Vagstad S(1994) Promoting fair competition in Public procurement. Journal of Public Economics 58 (1995) pg 284
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opposed to the primary concerns of procuring goods and services on the best possible terms.
Arrowsmith therefore points out the need to relate these secondary concerns with other
objectives of the procurement process like value for money and the procedure for attaining
them.
Some preferential procurement policies are sometimes directed at promoting the development
of certain groups of people like the women and physically handicapped within the economy.
The basis for this discrimination is to empower these groups of peoples so as to improve their
income. Subjecting them to foreign competition is damaging to their effort. United States
sometimes sets aside some contracts to be given to those firms that operate in “labour surplus
areas”.
Although the UNICTRAL model law is to promote competition and encourages states to
remove any form of discrimination, it also has provisions for countries that might want to use
it as an instrument for industrial development. This would probably be instrumental in
underscoring the need for discrimination if it is aimed at protecting the industries that are less
competitive.
For developing countries the issue is mainly of reciprocity. Even though many agreements
provide for special and differential treatment, exceptions and exclusions, many developing
countries are reluctant to accede to them. Their argument is mainly based on the feeling that
this would be opening up developing country’s markets to developed nations, without them
(developing nations) getting anything in return. This, they argue is because they lack the
capacity to compete in those developed country’s markets. This probably might be the main
reason why most developing countries have not yet discussed possibilities of joining the GPA.
Many of them have opted to have bilateral or regional agreement with member states that are
almost at the same level of development.
In East Africa, a treaty was signed in 2000, establishing the East Africa Community.
Although this treaty does not specifically address the issue of public procurement, the three
East African states have committed themselves to the harmonisation of their macroeconomic
framework. It is hoped this would create stronger cooperation in the area of public
procurement. Additionally the three East African countries are members of a bigger body, the
Common market for Eastern and Southern Africa (COMESA) which is committed to the
harmonisation of regulation regarding public procurement for increased competition within
the region. Stressing COMESA’s, efforts towards building a regional competition policy,
Karingizi (2003) says,
As the region gets more integrated and trade more liberalised, the need to ensure fair and open trade
will be greater. In order to enhance competition and transparency in both private and public
procurement arrangements, it is essential that regulations and procurement procedures be harmonised
across the Free Trade Area and this is the aim of the regional approach to public procurement under
COMESA. One of the most important principles to regional integration is to maintain an outward
oriented approach recognising that most of the Member States of COMESA also belong to the World
Trade Organisation5
Two issues arise out of this statement. One, that the region is committed to improved
competition and transparency in public procurement within the region and hence member
countries should harmonise regulations towards achieving this goal. Two, that as regulations
5
Karangizi S.(2003)Progress Report: COMESA Public Procurement Reform Project Initiative Forum on Public
Procurement Reform Dar es Salaam 14-17 January, 2003
9
are being developed, they should not be retrogressive but tailored within the framework of
World Trade Organisation (WTO). However much as the statement emphasises outwards
looking, COMESA is still convinced that public procurement reforms can be addressed
through regional approaches rather than the international fora hence giving a blow to
multilateral agreements at least for the moment.
1.6
Statement of the Problem
This study deals with integrating developing countries into the global public procurement
markets or we may say increasing developing countries access to public procurement markets
or simply increasing market openness. Market openness refers to the ability of foreign
suppliers to compete in national markets without encountering discrimination, excessive
burdensome or restrictive conditions (OECD Report 2002). Since the creation of GATT in
1947, government procurement has been left out of multilateral rules and discipline towards
market access commitment. An absence of a general trade discipline on public purchasing
practices is a major “hole” in the WTO edifice (Evernett and Hoekman 2002).
Integration into the global economy can be a powerful force for economic growth and poverty
reduction. During the 1990s, developing countries that successfully integrated into the global
economy enjoyed a per capita income increase averaging 5% annually. Countries that limited
their participation in the global economy saw their economies decline (USAID Strategy
2003). However, the unfettered advocacy of global market integration that has become so
ardently pursued by major industrialised countries may be misguided. Through its policy
aims, market integration undermines the multilateral principle of reciprocity and gives
insufficient attention to the immense diversity among countries in political, economic and
social conditions (Brown and Stern 2004). Developing countries are frequently characterised
by large procurement markets such that in agreeing to a multilateral agreement on
procurement, they would be generally liberalizing larger than an industrialised country would
(Davies 1998). In order to guard against the negative outcomes of integration, countries have
been involved in various forms of discrimination both open and tacit. Open forms of
discrimination are imbedded in the law like in the case of “Buy America” and tacit forms are
usually not easy to detect but a critical impediment to free trade.
McCrdden (2004) examined two models of integration one of which has been adopted by
NAFTA with not so impressive outcomes. Neo-liberal economists prefer a Minimalist Social
Welfare model. According to McCrdden, such a model is more economic centred. It looks at
procurement reforms as the prime objective and social policy is seen as exogenous. An
appropriate balance between the two is not seen as a normal activity that takes place within
the system itself. The minimalist social welfare model rhymes well with a cosmopolitan view
of the global economy, which advocates for an increasingly integrated world market governed
by common rules that regulates transactions in this single market. However not all countries
are willing to surrender to this view. Each country has deep roots in its individual social
norms and want to decide how it wants to adjust its domestic laws and practices in order to
accommodate its trading partners and to gain a comparative adjustment from them (Brown
and Stern 2004). There is empirical evidence that excessive import liberalisation, has caused
dislocation of local industries in several developing countries at the same time there has not
been an increase in export opportunities or performance to offset these adverse developments
(Khor 2003). In international trade relations, the countries of the world have always had to
search for some balance between their propensity to exchange commercial preferences with
their political or economic allies and the simultaneous desire to safeguard the commercial
transaction from arbitrary political interruptions by other governments.
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The second model, currently advocated by the EU, considers an integrated and holistic
approach towards linking up public procurement and social obligations of a country. Under
this model social policy and procurement are both incorporated as prime objectives of the
system. Appropriate balance between the two is seen as a normal activity that takes place
within the system itself. Social policy is seen as endogenous. Trade among nonequals/producers in developing vis a vis developed countries can lead to such adverse
outcomes such as the decimination of entire industries in some developing countries.
Similarly simply expanding the realms of free trade has, in many cases, resulted in an actual
increase in poverty and environmental degradation and in adverse impact of women and food
security across developing world (McCullocle et al in Mendoza and Bahadur 2002). It is this
model that favours some form of positive discrimination. However as noted earlier, in trying
to embed social objectives in their policy framework on procurement, such countries would
be encouraging protectionism and giving a blow to free trade. An emerging paradigm stresses
the need to tailor the rate of import liberalisation to the need to increase the supply side
capacity of local firms in order to realise the country’s export potential. Failure to address
these factors leads to serious problems of domestic dislocation and worsening trade
imbalances should a country liberalise is imports (Khor 2003).
Developing countries therefore need to reassess their development prospects as they become
more and more integrated into a multilateral trade regime. There seems to be inadequate
attention given to whether and to what extent the trade regimes have overall coherence and
consistence with the development goals of the countries it is intended to benefit, despite
repeated policy statements by all countries of WTO to construct a regime that promotes
development (Mendoza and Bahadur 2002). Even though developed nations have the capacity
to compete for and be awarded contracts in developing countries, the reverse may not be true.
Potential suppliers in developing countries lack the capacity to compete favourably in
international procurement markets due mainly to high costs of production arising out of poor
production and lack of expertise. This leads to products coming from developing countries to
become uncompetitive in terms of quality and price compared to those from developed
nations.
There is therefore justification for players to become equal. There is need to enable
developing countries to enhance their producers ability to compete in the world market. This
is compelling when one considers that even primary exports from developing countries still
face numerous barriers in developed markets (Mendoza and Bahadur 2002). There is need for
developing countries to take a pragmatic approach so as to develop a procurement strategy
that is selective in choosing how, when and in which sectors and to what extent to integrate
their domestic economies with the global economy. The interaction with global economy can
benefit a developing country significantly however the terms of interaction are crucial if the
potential benefits are to be realised and if the cost and damage is to be avoided. The approach
of selective integration done carefully and appropriately suited to the conditions of a country
is therefore of utmost importance. It should replace the still dominant approach of “big bang”
carried out inappropriately in a one-size fits all manner (Khor 2003)
Given the still difficult task of interfacing the domestic policies of developing countries with
the world economy, this research will come up with critical issues that could guide
developing countries in need of striking a balance between promoting free trade and the
protection of a country’s legitimate domestic non-procurement related objectives paying
particular attention to sectoral and regional development. How far do the developing countries
have to go in trying to increase access to their public procurement markets and at the same
time cater for their industrial and social obligations?
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Secondly would a multilateral agreement on increased market access to public procurement
markets benefit developing nations given their inadequate capacity to compete
internationally? In view of these pertinent issues this research will be guided by the following
objectives.
1.7
Study Objectives
The objectives are to:
• Explore and analyse various forms of discrimination and how they impact on
government spending and market access.
• Investigate, analyse and establish by use of various models how developing countries
can join and benefit from increased openness of global public procurement markets
while at the same time protecting their economic and social interests.
• Practically offer basic decision support to developing countries in need of joining a
multilateral framework for public procurement but fearing the repercussions that
might emanate from such a decision as result of world trade imbalances.
To achieve these objectives this research will undertake analytical and empirical studies
intertwined in the following three major phases:
• Exploring the various forms of discrimination in public procurement and their impact
on government spending and market access.
• Critical assessment of reasons for or against increased market access to public
procurement markets.
• Establishment of the critical success factors for the integration of developing countries
into a global public procurement framework
These will be further developed into research questions discussed below:
Phase A:
Assessing the impact of discrimination in public procurement on
government spending and market access.
Various laws for different countries, although stressing the need for non-discrimination, have
instances where local suppliers may be preferred for a certain contract. Secondly, even
without such provisions, countries usually have biases that are not formal. Formal respect of
the tendering procedures is no guarantee of fair treatment to foreign firms, as the
discrimination behaviour is usually tacit (Trionfetti 2001). In the European Community, less
than 2% of government contracts are awarded to non-national bidders. This is inspite a law
that does not allow favouritism towards domestic suppliers against other firms from other
member countries (Vagastad1995). This research will assess the degree of discriminations
against foreign suppliers that exists in Uganda and the underlying reasons for this practice.
Phase A of this research will be guided by the following research questions
What is the impact of discriminatory procurement practices on government spending and
market access?
a) What traceable forms of discrimination exist in public procurement in Uganda?
b) What is the impact of discriminatory procurement practices on government
spending?
c) How many of the Ugandan suppliers bid for and win contracts regionally and
globally
d) What is the impact of opening up of public procurement markets to foreign
competition on domestic industries?
• Would there be a downward drop in domestic prices of goods and
services as a consequence of competition with foreign goods?
12
Would local firms restructure and improve their production processes
as a result of increased competition from foreign suppliers?
e) What is the impact of discriminatory procurement practices on global market
access
f) How can discrimination in public procurement be reduced?
Phase B: Establishment of the need for and reasons against increased access to public
procurement markets by developing countries.
According to Piana (2004) there are basically four reasons for which a country may decide to
import a certain good or service. These are:
• That the product does not exist domestically
• The product does not exist at a specified level of quality
• It is cheap abroad
• It is in insufficient supply.
Many other authors have sighted various reasons as to why there is need to open up
procurement markets. This research will investigate these reasons with a view of finding out
the most critical factors. It will also measure the size of the Ugandan public procurement
market and assess the adequacy of domestic suppliers to meet the public procurement demand
in terms of quantity (availability of goods and in sufficient supply) and quality of goods
supplied.
•
Several reasons have been advanced as the cause of developing countries’ refusal to agree on
a multilateral agreement on public procurement markets.(Arrowsmith et al 2000, Evennett
2000) These reasons include:
• Economic arguments
• Social arguments
• Environment arguments
• Reciprocity arguments
Arguments against opening up public procurement markets give the infant industry
argument as the basis for their refusal. They argue that because such industries are not yet
competitive, they should be allowed to have government contracts so as to boost their
income without subjecting them to undue competition from foreign suppliers. Secondly,
another argument that has been forwarded is the issue of social welfare i.e. support of
marginalized groups like the women and the physically handicapped and the impact on
employment as industries cut down on costs to meet the challenges of foreign
competition.
Thirdly, the major concern for developing countries is the fact that well as developed
countries can sell their products to the developing nations, the reverse is usually not easy.
According to Piana (2004) the "global market" is not a homogenous aggregate in which
every country tries to keep and increase its share. It's a complicated structure in which
certain countries are dominant and exert a disproportionate influence over others, with
many degrees and qualifications.
This research will establish whether these factors are critical reasons for failure by
developing countries to open up their public procurement markets and how they would be
addressed. This Part will be guided by the following research questions:
Why should developing countries open up their public procurement markets to foreign
competition?
a) What factors could influence a country in opening up its public procurement market?
b) Why are developing countries vehemently opposed to opening up their public
procurement markets to foreign competition?
13
Phase C:
Establishment of the critical success factors for the integration of
developing countries into a global public procurement framework.
Integration into the global economy can be a powerful force for economic growth. Trade is
one of the principal mechanisms through which global market forces, competition, human
resource development, technological innovation generate growth in developed and developing
countries. (USAID Strategy 2003). Perhaps the most important although difficult set of
policies that a developing country has to decide on lies in the interface between domestic
policies and the world economy. In the international discussion, there is no consensus rather a
debate and controversies exist on the definition, nature and consequences of globalisation
(Khor 2003). Using Uganda as a case study this research will explore the case-by-case
scenario, which developing countries can use as a reference point for their effort towards
joining a multilateral framework on public procurement.
This phase will be guided by the following research questions
Would a multilateral agreement on increased market access to public procurement markets
benefit developing nations given their inadequate capacity to compete internationally?
How would a country cater for both its economic and social interests and at the same time
open up its public procurement market?
14
1.9
Research Process
Non-Discriminatory
Procurement (Supply side)
Domestic Public
Procurement
Market
Determine
arguments for
and against
Discriminatory
Procurement
Assess Uganda’s involvement in
regional and global procurement
(Demand side)
Explore traces of
Discrimination
Measure of beneficial
effects of nondiscrimination on
government spending
Measure of impact of
discriminatory procurement on
domestic industries
Measure of Impact of
discriminatory public
procurement on Market access
Discriminatory
Procurement
Determine
critical balance
between
government
concerns and
liberalised
procurement
market
Model for the
integration of
developing countries
into global
procurement market
Advice to the government on
integrating the economy into the
global public procurement
framework
15
Design Strategy for
elimination of
Discrimination
Implications
to other
developing
countries
1.10 Significance of the problem and the justification for
investigating it
Justification.
There has been effort world over, by different countries and regional blocs to set up a
framework in public procurement. International negotiations aimed at liberalisation of
public procurement began in the late 1960s without much success. The current
plurilateral Agreement in Government Procurement (GPA) was signed in Marrakech
on 15th April 1994 and entered into force in January 1996. To date 28 members are
signatories to the GPA with none from Africa. Even though the GPA made provisions
for special and differential treatment, exceptions and exclusions, many developing
countries are reluctant to accede to it. Various reasons have been sighted for the
reluctance by developing countries to join the GPA.
One issue that is raised is that discriminatory procurement practices are desirable by
developing countries for purposes of economic and social objectives such as
stimulating infant industries within their economy, fostering underdeveloped regions
and creating employment. Secondly developing countries are not sure whether
accenting to an agreement on openness in public procurement, is not a ploy by
developing countries to make them open up their markets but they (developing
countries) get nothing in return.
On the other hand increased openness of global procurement markets has been
justified as a practice that enhances competitiveness, reduces cost of procurement by
government leading to efficient public resources utilisation. With governments
spending up to 7% of their GDP on average on non-contestable government
procurement, it is hoped that, by setting up a multilateral agreement on public
procurement governments concerned will be able to reduce on their spending leading
to proper utilisation of resources which in turn increases the social welfare among
these countries.
This research will discuss the apparent deadlock plus any other reasons for and
against developing countries reluctance to joining a multilateral agreement on public
procurement. It will attempt to develop a model for successfully integrating
developing countries into a global procurement market their fear not withstanding.
Feasibility of doing the proposed study
Uganda has already set up regulations guiding public procurement and more
specifically has exceptions on preference of domestic suppliers. Thus, using it as a
case study for developing countries is appropriate as far as, it will enable the research
to determine the critical balance between free trade goals and national sovereignty
objectives.
Lastly the researcher, being from Uganda, will enable him to collect the required data
without having to incurring a lot of expenses given that the amount of resources
provided for this research is limited.
2.0 Chapter Two
Methodology
2.1
Introduction
This research is intended to assess factors that are critical to the integration of
developing countries into the global framework of public procurement. It will begin
with a critical assessment of discriminatory practices in public procurement and how
it impacts on increased government spending and market access. Discriminatory
public procurement is a policy practiced by all governments with varying degrees of
intensity and candour. Because of its magnitude, discrimination was recognised by
GATT and EC as constituting an impediment to international trade and economic
integration (McLanchlan 1985). By ending national preference and assisting in the
removal of artificial barriers, it was argued, public expenditure within the European
Union would be reduced through the use of lower-priced suppliers and the European
industry would become more competitive as more efficient EU suppliers were
allowed to oust inefficient but protected local competitors (Cox and Furlong 1997).
How then can the continued existence of discriminatory practices in public
procurement be explained?
Protectionism is often justified by certain interest groups or by the infant industry
argument (Naegelen and Mougeot 1997). Within developing countries the issue is
whether by opening up their (developing countries) economies they will get
significant benefits given their inability to compete globally due to world trade
imbalances. This research will explore these arguments in particularly developing
countries, with a view of ascertaining its relevance and coming up with a model
where developing countries could benefit from a multilateral framework on public
procurement, their fears not withstanding.
In this chapter we describe the research design and methodology to be used to answer
the research questions identified in the previous chapter
Research Design
2.2
In this study, the overall research design consists of two strategies. A cross sectional
survey of various procurement entities both from the demand side (public sector) and
the supply side (private sector) together with qualitative case study research. This
research design, combining survey methodology and qualitative case study is to be
used due to the argument that multi-method approach enables triangulation to take
place. Further, since each method has different effects and it maybe impossible to
ascertain the nature of that effect, use of different methods cancels out the ‘methods
effect’ and will lead to greater confidence being placed on the conclusion (Saunders et
al 2003) So, the survey and case study methods are to be used in this research as
complementally methodology to improve on the quality of the research output.
This research design is arranged in three parts. The first part is intended to measure
the beneficial impact of discrimination on both the demand side (government sector
procurement entities) and the supply side (Private sector suppliers). The methodology
to be used here is mainly survey of the various public procurement entities and private
sector firms. The second part is intended to build literature on the need for and
reasons against opening up of procurement market in developing countries. This part
17
of the research will mainly be qualitative case study research. The last part combines
the measurement and analysis of section one and the literature developed in section
two to develop a model that can provide a critical balance between developing
countries economic and social goals with the need to open up procurement markets. It
then intends to give advice about what the developing countries need to do in order to
join beneficially into a global framework in procurement.
2.2.1 Assessing the impact of discrimination in public procurement on
government spending and market access.
2.2.1.1
What is the impact of discriminatory procurement practices on government
spending and market access?
2.2.1.1.1What traceable forms of discrimination exist in public procurement in
Uganda?
This research begins with an exploratory study of discriminatory practices in public
procurement. This research will set out to assess the degree of discriminations against
foreign suppliers that exists in Uganda. Except when it is institutionalised, the home
bias is not directly observable for it is usually the result of tacit discriminatory
behaviour not codified in rules (Trionfetti 2000). In Uganda, The PPDA Act (2003)
sec (44) has a provision for non-discrimination. A bidder shall not be excluded from
participating in public procurement and disposal on the basis of nationality, race,
religion, gender or any other criterion not related to qualification except to the extent
provided for in the Act. However as earlier said, nothing may be further from the
truth.
While measuring market openness within the European Union, Martin et al (1999) use
contract award notes published in the OJEC to examine the extent to which contracts
are being awarded to domestic, EU and non-EU states. In Uganda although there is a
requirement that contract awards be published, the requirement is that it should be
done on the procuring entity’s notice board and PPDA website. The extent of
compliance to this requirement is also doubtable, although it will be investigated.
However given the lack of a central place where all advertisements for contract award
are published this researcher intends to acquire this information directly from the
procuring entities. This research will therefore measure the level of discrimination by
how many tenders government awarded to local suppliers as a percentage of the total
public sector tender. According to European Union Report (2004) cross-border
procurement can be both direct and indirect. Direct cross border activities occur when
firms operating from foreign markets bid and win contracts in the market without
having any subsidiaries in those countries while indirect cross- border occurs when
the bidding firms have subsidiaries.
There is need to explicitly define a local and a foreign supplier. For purposes of this
research, a local supplier will be one incorporated in Uganda whether or not he deals
in goods produced in Uganda and a foreign supplier will be one not incorporated in
Uganda. Therefore direct cross-border procurement will be bids won by foreign
suppliers without having subsidiaries within the country while indirect cross-border
procurement will involve bids won through a subsidiary.
18
This part of the research will be conducted through 6 government ministries. Uganda
currently has 21 ministries. Choice of government ministries appears to be a good
representative of the various government procurement entities that are currently 112
because they are major buyers of government goods and services. The information
will be tabulated as follows,
Ministry No. of
advertised
bids in year
2005
1
2
3
No. of bids
awarded to
domestic
suppliers
Number of bids
awarded to
foreign suppliers
directly
Number of bids awarded
to foreign firms through
intermediaries
Results obtained above will be followed up with interviews with Chief Procurement
Officers to try to understand the criteria used to select one bidder from another.
Alternatively Minutes of Contracts Committee could be used in the various
procurement entities sampled.
2.2.1.1.2
What is the impact of discriminatory procurement practices on government
spending?
This research measures the economic benefits of non-discriminatory public
procurement practices, i.e. the impact of non-discrimination on government spending.
While measuring the economic implications of liberalising public procurement
markets in the European Community, Cecchini (1988) analysed savings made by
public sector through its procurement practices6. Using about 40 products most
purchased by government and public enterprises, he made a survey across EC
member countries of the actual prices charged by each country for the selected
products. On the basis of the average prices of these products, in each member
country the potential saving gains were estimated after subtracting extra costs
associated with intra community trade such as transport, marketing, insurance and
exchange risk cover. The estimated savings were thus the potential savings achievable
if the public purchasing body selected the most competitive supplier.
This research will adopt the methodology used by the Cecchini Report with some
modification. The use of the Cecchini report methodology is important due to it wide
acceptability and hence will give credence to this research and also allow for
comparison and generalisability. However the modification to his methodology is
important for one major reason that because of limited resources for this research it is
not possible to make a survey across countries. The survey will thus be made within
Uganda. This research will compare unit prices paid by the public sector with those
paid by the private sector organisations within Uganda. Just like Cecchini, the
products selected will be those most bought by the public sector. 20 products will be
used. Comparing public sector prices and private sector prices is based on the
assumption that private entities are driven by utility maximisation and a quest to
maximise profits such that they will as much as possible take the lowest bidder for
6
Cecchini (1988) uses data collected and analysed by Eurostat, Atkins (1984). It is the methodology
used by Atkins as quoted in the Cecchini report that is adopted in measurement of various parameters
in this research although with various modifications to fit into the circumstances pertaining to
developing countries and resources available for this research.
19
goods of the same specification and quality, hence they will not discriminate between
buyers. This method will also eliminate the need to subtract from the price differential
the cost of other costs since all commodities sampled are within the same country and
thus were subjected to similar non-price costs. The results got through this analysis
will constitute the static effect of non-discriminatory procurement practices, i.e. effect
arising from buying from the cheapest source as in the case of Cecchini.
2.2.1.1.3
What is the impact of opening up of public procurement markets to foreign
competition on domestic industries?
• Would there be a downward drop in domestic prices of goods and
services as a consequence of competition with foreign goods?
• Would local firms restructure and improve their production processes
as a result of increased competition from foreign suppliers?
Cecchini argues that the direct effect on price, as measured in the previous section, is
further amplified by indirect effects. These indirect effects are due to the
rationalisation of production structures that occur in industries where the public sector
is the dominant purchaser. He contends that in the short run, a competition effect due
to the lifting of barriers will predominate. The increased competition will induce an
alignment of domestic supplier to those of the most competitive foreign suppliers. The
competition effect assumes that the fall in prices is fully reflected in costs, for
instance by elimination of X-inefficiency. This estimation is carried out only in
sectors where public purchasing is so significant as to be liable to influence producer
behaviour. In the case of Uganda such an industry that could be tested for competitive
and restructuring effect is the road construction equipment industry particularly the
product to be considered are the curvets. This research therefore intends to look at this
industry for competitive and restructuring effects of non-discriminatory procurement
policies. While The Cecchini report monetised these effects, which he referred to as
the competitive, and restructuring effects, this research will not monetise them given
the inherent inability to precisely compare prices for domestic and foreign curvets
given that these are predominantly produced locally. Cecchini used plant and
machinery sector. These are fairly similar across borders. Uganda does not have a
plant and machinery industry that supplies predominantly to the government sector.
Nevertheless this research will measure the capacity utilisation in the curvet
producing industry. The rate of capacity utilisation will be measured as the ratio of
actual output to capacity output. Under utilisation may be attributed to over reliance
on government procurement and will signify that actually government is being
charged higher than the optimal price due to inefficiencies. With competitiveness
from foreign suppliers such inefficiencies would have to be eliminated if the domestic
suppliers are to remain in business. It will also indicate that domestic firms would be
forced to restructure in the face of increased competition and under capacity
utilisation.
2.2.1.1.4
How many of the Ugandan suppliers bid for and win contracts regionally
and globally?
This question intends to measure the number of domestic suppliers involved in
international contracts with a view of ascertaining whether the issue of reciprocity
currently raised by developing countries is a genuine concern. This is the supply side
of this research. It will also use definitions of local and foreign suppliers, as was the
20
case on the demand side. This research intends to move as follows; it will follow the
method used by European Union Report (2004) with a slight adjustment.
50 firms actively involved in procurement contracts will be asked about the domestic
and cross-border nature of their activities for a period spanning over a period of one
year. The 50 firms will be selected from 10 industries meaning that each industry will
have a representative sample of 5 firms. In order to cover the three categorisation of
PPDA i.e. supplies, services and works the 10 industries will subdivided into 5 for
supplies, 3 for services and 2 from works Firms will be asked if they only submitted
proposals to public institutions in Uganda where they are located or if they also put in
bids abroad both regionally and internationally i.e. they will be asked if they only
submitted proposals to other developing countries or to developed countries. Another
question will be if they made the bid directly without any sort of intermediary or
through a subsidiary.
Within the same period these firms would be asked how many of these bids were
successful. The research will also try to find out how many of the successful bids
were made directly or through an intermediary. This information will be tabulated as
follows:
Firms
No. of bids
per year
No. of bids
No. of bids to
domestically developing
countries
No. of bids to
developed
countries
Prepared
bids
Bid done
directly
Bid thru’
intermediary
Successful
bids
Bid done
directly
Bid thru’
intermediary
2.2.1.1.5
What is the impact of discriminatory procurement practices on global
market access?
The measure of capacity utilisation will be extended to determine the impact of
discriminatory procurement practices on market access. This question will be used to
explain the trends identified in the previous question. Capacity utilisations in the 50
selected firms, as per the previous question will be measured. Under capacity
utilisation without a significant dependency on the internal procurement market would
imply that this firm is capable of supplying across borders but because of
discriminatory procurement practices within these countries, it is unable to penetrate
their market and hence the continual under capacity utilisation. With such results this
research would be able to argue that discriminatory procurement practices
incapacitate the growth of firms and hence the need to open up. Just like Cecchini
who argued that the construction industry within the EC was characterised by SME
who might be unable to win large contracts across the globe, measurement of
individual firm’s capacity would enable this researcher to form an opinion whether
21
these firms would be able to benefit from mergers and re-organisation so as to become
competitive on the international procurement market. With various infrastructural
developments taking place across the globe mergers may be necessary or even
forming of consortia to bid for contracts may be necessary. However all these ideas
depend on the capacities of the individual firms and procurement policies across
countries.
2.2.1.1. 6
How can discrimination in public procurement be reduced?
Despite substantial effort to curb favouritism (Internationally through GATT and the
European Union who have the authority to restrict government procurement
processes) favouritism continues. One important reason is the asymmetric
information, which makes favouritism difficult to detect. For most procurement
contracts, the price is only one of several concerns, not all of which are observable (at
least to third parties) as price (Vagastad 1995)
A number of prescriptions have been given as a strategy to curb discrimination. One
of the most advocated for currently is the GPA. However as noted earlier, most
procurement discriminatory practices are tacit and requirement for open tendering
procedures and provision for litigation in case of an aggrieved party may not be an
effective solution. In view of this research will undertake a deeper analysis of how
discrimination is actually carried out. This research will review Request for Proposals
(RFQs) and contracts committee minutes that evaluated bids some of which involved
foreign bidders. For selected procurement entities, reasons for the rejection of foreign
bids will be noted and analysed to detect commonality of factors used for rejection of
foreign bids. Another strategy that will be used is to conduct interviews with
procurement officers in the selected procurement entities in order to come up with an
informed view of why they think domestic firms seemingly win public sector tenders
than foreign firms. Using both strategies would enable triangulation and assist in
possible generalisation to take place.
Using the acquired information and existing literature this research will be able to
identify forms of discrimination, categorise them and prescribe possible strategy to be
undertaken to reduce it for each category.
2.2.2
Establishment of the need for and reasons against increased access to
public procurement markets by developing countries.
2.2.2.1 Why should developing countries open up their public procurement markets
to foreign competition?
2.2.2.1.1
What factors could influence a country in opening up its public
procurement market?
2.2.2.1.2 Why are developing countries vehemently opposed to opening up their
public procurement markets to foreign competition
This research question will be carried out through policy analysis of Uganda’s
international trade and interviews conducted in 50 private sector firms within the
country. The policy document together with results from interview conducted in the
private firms will be benchmarked with existing literature on why countries should
open up their procurement markets. Public Procurement Entities will also be asked for
22
their view. This part of the research will be purely qualitative where interviews will
be conducted to develop literature on the need to open up procurement markets. It will
be backed up with research finding from the previous section and other literature
written in this area.
2.2.3
Establishment of the critical success factors for the integration of
developing countries into a global public procurement framework.
2.2.3.1 Would a multilateral agreement on increased market access to public
procurement markets benefit developing nations given their inadequate
capacity to compete internationally?
2.2.3.1.1
How would a country cater for both its economic and social interests and
at the same time open up its public procurement market?
According to Cecchini (1988) the European Community protected its procurement
market to support national and regional firms for typically 5 reasons:
• For strategic reasons e.g. defence, telecom and aerospace
• To support employment in declining industries
• To compensate local communities near environmentally damaging public
industries e.g. coal mining
• To support emerging high tech industries e.g. new telecom systems lasers
• For more general political reasons-highly visible goods e.g. cars, table wares
A closer analysis of these factors suggest that in designing a single market for the
European Union, special attention was paid to 5 factors: the various sectors within the
economy, social factors such as employment, regional factors, innovation and
political response.
Further, provided that it does not conflict with the principle of free movement of
goods across the European Union, the contracting authority within the EU is free to
define contractually what it considers as corresponding best to its social concerns in
the subject matter of the contract and it may also use variants. In so doing contracting
authority has a great scope for taking social consideration into account when choosing
a product or service (OJEC 2001).
Just as in the case of The EU, in trying to open up procurement markets developing
countries need to undertake a thorough analysis of their economy paying particular
attention to sectoral and regional economic and social concerns. In the area of trade
liberalisation, there is empirical evidence that excessive import liberalisation has
caused dislocation of local industries in several developing countries at the same time
there has not been an increase in export opportunities to offset these adverse
developments (Khor 2003). According to Khor, an emerging paradigm is to take a
cautious approach to liberalisation and to be selective and deliberate in choosing how
and when and in which sector and to what extent to integrate the domestic economy
with the global economy. The interaction with global economy can benefit a
developing country significantly however the terms of interaction are crucial if the
potential benefits are to be realised and if the cost and damage is to be avoided. The
approach of selective integration done carefully and appropriately suited to the
conditions of a country is therefore of utmost importance. It should replace the still
23
dominants approach of “big bang” carried out inappropriately in a one-size fits all
manner.
There is therefore a need for developing countries to develop a procurement strategy
that addresses sectoral dimensions and selectively chooses how, when and in which
sectors and to what extent to integrate their domestic economies with the global
economy. Developing countries should commit to meaningfully opening up their
markets to developing countries in sectors, products and services in which they can
benefit.
This research will undertake a deeper examination of the current PPDA law and the
country’s policy on social economic objects with a view of designing a model that is
fully cognisant of problems bedeviling developing countries and how opening up their
procurement markets can be a crucial factor in acting as a springboard for economic
and social development. One way this could be achieved is though the two-actor
model. This advocates for protecting the economic interests of countries through best
value for money and social consideration like subsidising local industries or
protection of a sector, product or service which is of strategic importance. For
example free trade can compliment and foster the levels of employment in a country.
Preferential hiring can exist whereby governments give preferences to firms hiring
local residents. Such a measure does not interfere with free trade given that bids are
open to all firms whether domestic or foreign that can bid for such a contract.
It is the hope of this research that the model developed will be adopted by PPDA in
its legal framework or embedded in Uganda’s policy framework on procurement
giving guidance on which criteria to use in opening up and which sectoral
categorisation could bring the most beneficial effects in an integrated market. The
model developed will be tested for validity.
2.3 Sampling Design and Procedure
2.3.1 Population
This research covers two sides; the demand side, comprising of the Public sector and
the supply side made up of private sector suppliers to government (supply side)
According to PPDA (September 2004) there are 112 Procurement and Disposal
Entities (PDEs) in Uganda. These will constitute the study population for this
research. It is this demand side that this research focuses on to determine
discriminatory procurement tendencies in the country, how it impacts on government
spending and how it can be eliminated. The second side is the private sector
constituting the supply side of the research. This research uses the supply side to
measure their operating capacity and their ability to penetrate the international
procurement market. The total number of potential and current suppliers to
government is not well established given the wide range of commodities supplied. It
is therefore impossible to establish the size of supply side of the research.
2.3.2 Sampling size and Method
On the demand side the sampling unit will be the PDEs for government ministries.
The Sampling method for these will be purposive. Martin et al (1999) while reporting
the number of tenders issued by local authorities in the EU, discovered that there is a
high degree of correlation between each country’s total spending and the number of
tender invitations with a coefficient of 0.984.With this background the purposive
24
sampling of which ministry to include will be based on budgetary allocations. Uganda
has 21 ministries; this research intends to use a sample of 6 ministries with the highest
budgetary allocation. The assumption here, as Martin et al found out, is that they
should be having the highest advertised number of tenders and would thus provide a
representative sample. Use of government ministers as opposed to other PDEs is out
of the belief that there commodity requirements might attract more of the international
suppliers than smaller PDEs whose advertisements for tenders in most cases appears
in local dairies hence creating a possibility of disadvantaging foreign suppliers due to
lack of information. This will help to guard against the possibility that inability to
award tenders to foreign suppliers is more of a result of non bidding due to lack of
information rather than discrimination on part of the public sector. It also follows
from this analysis that if discrimination is noticed in these ministries then, the
possibility of generalisation for other procurement entities would be possible given
that their (other procurement entities) commodity requirements is more national in
character and monetary sums involved are in many cases slightly lower.
From the supply side-the private sector this research will adopt a proportionate
stratified sampling method. As mentioned earlier PPDA categorises its common user
items into three; supplies, services and works. This research intends to come up with
sample representations of suppliers. The sample size used from the private sector will
be 50 suppliers to government procurement entities. 5 firms will be selected from
each industry making a total of 10 industries to be used for this research. Within each
commodity category, the distribution will be 5 for supplies, 3 for services and 2 from
works to determine their operation and utilisation capacity. This will be helpful to the
researcher to determine their capacity to meet the domestic market requirements and
their possible current involvement in the global procurement trade. While measuring
estimated capacity utilisation Cecchini (1988) used strategic industries as a basis of
measuring the impact discriminatory procurement practices within the EU. Being a
developing country, Uganda may not have such strategic industries as suppliers of
government to use within this research, hence in order to determine which commodity
to choose and which firm, there might be a need to establish from the six PDEs
sampled from the demand side which of the commodities take a big chuck of their
budget and their suppliers for those commodities within the previous three years.
These firms will then be used for the sample.
2.4
Data Collection Methods and Procedures
2.4.1 Pilot Study
This research will begin with a pilot study of various government ministries for
acclimatisation and preliminary information gathering. This plot study will be useful
to test the practicability of the tools to be used and the research procedures to be
undertaken. The pilot study will particularly target the Ministry of Finance and
Economic Planning to get information on various ministries’ budgetary allocations
especially the non-recurrent expenditure for which this research is particularly
focused. A visit to the PPDA under the initial research planning is also crucial so as to
determine the adequacy of the information submitted by various PDES for advertised
and awarded contracts. Lastly the pilot study will cover the various Trade
Associations within the country. These Include the Uganda Chamber of Commerce,
Uganda Export Promotions Board and Uganda Manufacturers Association. The
purpose here is to build information for use in sampling of private sectors suppliers.
25
2.4.2 Data Collection Procedures
The two main tools for data collection for this research will semi structured interviews
and self-administered interviews. The self-administered questionnaires will be mainly
delivered by hand to each of the respondents (delivery and collection questionnaires).
The main advantage with a delivery and collection questionnaire is that it minimises
the rate of non-response and it allows for the researcher to make an appointment as to
when to pick it up after completion. For respondents outside Kampala, postal and mail
questionnaires will be used with its associated antecedent non-responses. However to
minimise the rate of non-response follow up calls will be made.
The research covers two sides; the demand side, which is composed of public sector
entities and the supply side, composed of the private sector. So, two different
questionnaires will be developed. One will cover the demand side intended to trace
forms of non-discrimination in public procurement and its impact on public spending
and the supply side questionnaires focused on assessing local firms involvement in
international public procurement and their views for or against increased openness of
procurement markets.
The semi-structured interviews will have mainly two objectives; to collaborate
information collected through the questionnaire method and to provide a deeper
analysis of various parameters within this research. From the demand side of the
research these interviews will mainly target Chief Procurement Officers of
government ministries sampled for a broader development of the required literature.
Interviews with officers of PPDA and Ministry of finance and Economic Planning
will be used.
Rather than the primary sources of data identified above this research will also use
secondary sources of data especially the Ministry of Finance and Economic Planning
policy documents, and minutes of contracts meeting to further complete the picture.
2.5
Data Analysis
This research combines both quantitative and qualitative data. The quantitative data is
used to measure mainly five areas:
• Traces of discrimination in Uganda.
• Ugandan firms’ involvement in regional and global procurement market
• The impact of discriminatory procurement on domestic firms
• Impact of discriminatory public procurement practices on market access.
• Beneficial effect of discriminatory procurement practices on government
spending.
This data will be analysed using tables and diagrams to establishing relationships
between various variables.
The qualitative part of this research will be used to achieve four main objectives;
•
•
•
Collaborate the quantitative data
Build further understanding why developing countries need to open up their
procurement market and reasons for the apparent opposition.
Determining how a country could open up its procurement market and at the
same time cater for its economic and social objective
26
Supplement quantitative data in designing a model of integrating developing
countries in the global public procurement market.
With these objectives in mind, the qualitative research will be less structured aimed at
comprehending the meaning of the data and enabling reflection and conceptualisation.
Data collected will be categorised and reorganised to gain insight and explanation for
the research questions and objectives of this research.
•
2.6
Test of Validity
Validity refers to the degree to which a study accurately reflects or assesses the
specific concept that the researcher is attempting to measure. Four tests have been
commonly used to establish the quality of any empirical social research. These
include; Construct validity Internal Validity, External Validity and Reliability
To ensure construct validity this research will use multiple sources of data i.e. the
demand side (public procurement entities), which in this case are represented by a
sample of 6 ministries, and the supply side consisting of 50 firms. Multiple sources of
data will ensure that there is agreement on various parameters measured (convergent
validity) or there is lack of a relationship (discriminate validity). The relationship
being tested is whether or not discriminatory procurement practices impact on local
industries, increases government spending and affects market access.
For internal validity, this research will follow up patterns that are emerging during
analysis to establish whether or not they impact on the parameters being studied. A
comprehensive explanation building will be undertaken for parameters being studied
together with a follow up of rival explanations.
This research intends to establish implications of integrating of developing countries
into the global procurement framework using Uganda as a case study. This calls for
generalisation. Establishing external validity. The results got from this research will
be reviewed in light of existing literature. Analysis of existing literature helps to give
an insight on the applicability of results collected in Uganda on the rest of the
developing countries.
The principle to be followed to increase the reliability of the information in a case
study is to maintain a chain of evidence (Yin 2003). There is need to move from one
part of the case study process to another with clear cross referencing to
methodological procedures and to the resulting evidence. This research intends to pay
attention to consistence between the study objectives, research questions and the data
collected and analysed to ensure reliability of results.
27
2.7
Detailed Description of the research Plan
28
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