Chile’s state procurement agency ChileCompra has launched a new data portal which will help entrepreneurs as well as taxpayers to see how much, who and what type of products and services are traded by the state.
Launched this week, the agency says the portal (Datos Abiertos ChileCompra) makes use of the internationally recognised Open Contracting Data Standard.
César Hidalgo (pictured above), professor of the Collective Learning Group of the Massachusetts Institute of Technology (MIT) who helped put together the DataChile site, described the portal as “more advanced than in many countries of the world".
Using pictograms and easy-to-read tables to display data, the portal (see screenshot below) displays such things as the six biggest contracts or purchase orders per sector won in each month of a particular year (data goes back to 2007).
One is also able to navigate to see what contracts in recent years, each state entity, department of municipality has given out, the details and value of the contract, how many bids were posted for it and who the bid winner was.
Likewise you can view a list of the suppliers of winning bids and such data as the value of contracts that went to what size firm in each region.
Routed in open data
The portal is routed in an open data policy that the agency began 10 years ago, with the aim of providing a source of valuable information for public procurement decisions in the development of public policies.
ChileCompra director Trinidad Inostroza says the new site is based on the latest available technologies and the best practices in user-centered design, according to the needs of the buyers and suppliers of the State.
Contracts to SMEs grow
E-procurement has helped the Chilean government to not only save millions of dollars in cutting unnecessary red tape, but has also made tenders more accessible to small firms.
In 2016 in all 60.2% of the amount in contracts facilitated by the portal went to SMEs (45.1% of all procurement went to micro and small firms), show statistics on the agency’s website.
This, while ChileCompra has grown from servicing 33,000 suppliers in 2003, to 123,000 in 2016 facilitating $10 million in transactions.
A report by ChileCompra last year revealed that the percentage of procurement channelled to small and micro enterprises has increased over the years - having grown from 33% of the value of contracts in 2007, to 45% in 2016.
In 2007 small and micro firms made up 89.6% of the over 59,000 contractors winning bids. This too has grown – to 92.4% of the 77,000 contractors winning bids.
The size of a company generally dictates how successful it is at winning a contract. Big firms win just over a third of their bids, against about one in five bids for small busineses.
Yet, interestingly while big firms have upped their success rate between 2007 and 2016 -- from 33.5% of bids to 37.1%, micro firms are out performing small businesses.
Small businesses had their success rate grow from 20.9% to 22.3% of contracts. Micro firms however now win 24.3% of the bids they go for, against 20.2% back in 2007. Researchers don't say why micro firms have become more successful than small businesses.
But an e-procurement portal alone isn't enough if citizens (including those running small businesses) are unable to determine who is getting what contracts. Publishing accessible and easy to view data such as ChileCompra has done will do much to fight graft.
Other emerging market countries - in particular those battling corruption such as Brazil, South Africa, Malaysia and India - could do well to look to the example of ChileCompra.
*The Chilean government is not stopping there. In a news report on 22 January 2018 the state said it would seek to promote more use of electronic procurement, as one of 11 measures to boost investment in the country.
Timm is a South African who writes on small business and has visited Chile various times. Follow Small Business Insight on Twitter at @Smallbinsight.
Small Business Development Minister Lindiwe Zulu estimates that over R70 billion ($5.5bn) was spent by national and provincial departments between April and November on procuring goods and services from small businesses.
With the total government procurement this year expected to be about R700bn ($55bn) and considering that the level for these eight months is similar to that of the four months following November, this translates to a projected R105bn ($8.2bn) for the 2017/18 financial year - or a mere 15% of procurement going to small businesses.
This is far off the government's aim to set aside 30% of government procurement for small businesses, under new rules which came into effect on April 1 under the Preferential Procurement Policy Framework Act (see this post). So are the rules really working?
In a media briefing on December 12. Zulu (pictured above) said between April 1 and November 30, 81 of the 184 national and provincial departments procured between 60% and 100% of their goods and services from small businesses.
Only 22 departments (both national and provincial) have not yet reached the 30% target. she said. She added that it would take time to implement the regulations as processes had to be followed.
The department did not appear to provide any figures on what the level of procurement was before the set-aside came into effect on April 1 this year. This makes it difficult to tell whether the policy has really had any success so far or not.
Experience elsewhere suggests it takes time for such procurement targets to be met.
A set-aside mandatory in India since April 1, 2015 mandates all central government agencies and departments to ensure that 20% of their procurement is sourced from small, micro and medium-sized enterprises.
Yet as of February this year just 61 of the about 300 public agencies under the central government had met the 20% target, according to SME news site KNN.
In Brazil, a 2006 law prioritises small businesses on all purchases below 80,000 reals (about R300,000). In 2014 72% of these state contracts went to small businesses.
The same law mandates the federal government to put in place a 30% set-aside for small business. Since the law took effect in 2008, small and micro-enterprises have seen their share of state procurement grow from 23% to touch 30% in 2013 (see this post).
There is also evidence from Brazil is that public procurement can provide small businesses with a boost.
A paper released in February by three authors which used data from Brazil found that winning at least one government contract in a given quarter increases firm growth by 2.2 percentage points over that quarter, with 93% of the new hires coming from either the unemployed or the informal sector.
'Taking its right place'
Zulu said there are indications are that the small business sector is “beginning to take its rightful place as the engine” of the economy. She pointed out that the SA Revenue Service (Sars) has reported that 18,000 new small firms had for the first time submitted tax returns.
In reality the number is minute, even going by the department's own data which suggests that there were about 2.175 million privately owned businesses in South Africa, 2.15-million of which were small, medium or micro firms.
Of these, 1.5-million were not registered for VAT or corporate income tax and could, therefore, be classified as informal. About 150,000 were medium-sized businesses; 450,000 small businesses; and 1.3-million micro-enterprises.
The department estimates that the contribution of SMEs to GDP was currently estimated to be between 42% and 47% but could be increased significantly.
What the department needs is accurate figures. These, together with raw data need to be made available to researchers and small business organisations.
A study must also be undertaken to assess the economic effects such as job creation, growth of small firms under the set-aside policy - and the additional price cost that comes from often procuring from small firms (see this post). Careful works needs to be done.
Timm is a South African who writes on small business. Follow Small Business Insight on Twitter at @Smallbinsight.
Start-ups could get access to millions of rands to finance government contracts, following an announcement this week by Finance Minister Malusi Gigaba (pictured here) of a new plan to get the economy going again.
The plan which was revealed today (July 13), includes a number of measures such as the partial privatisation of state-owned enterprises.
Among the measures Gigaba announced that the National Treasury would finalise a public procurement bill by March next year, while the Minister of Small Business Development Lindiwe Zulu will by February finalise a "complementary government fund" aimed at financing start-ups.
Start-ups need access to finance to undertake government contracts, all the more so with a 30% set-aside of state procurement for small businesses, which came into effect in April (see this story and this post).
The new regulations allow government departments, municipalities and state entities “if feasible” to ensure that those that win bids of R30 million ($2.2m) or higher subcontract at least 30% of the bid’s value to small businesses.
With the state spending about R500 billion on goods and services, small businesses are set to win big. Yet if winning bidders cannot secure funding to pay for equipment and staff, the measure could fail.
Late payments hindrance
In addition the government continues to pay late, despite regulations in effect since 2005 which instruct national and provincial departments to pay suppliers within 30 days on receipt of an invoice.
The problem is so acute that both the Department of Performance Monitoring and Evaluation and The National Treasury have units to track late payments and intervene on behalf of suppliers to get departments to pay late invoices.
In May in the budget vote for the Department of Performance Monitoring and Evaluation Minister Jeff Radebe said since the unit was set up in early 2015 the department had intervened in 207 cases of non-payment of valid invoices, and R327m had been paid to service providers, as at end of March.
According to a news report the National Treasury’s Office of the Chief Procurement Officer said last month that it had received over 5,000 queries about invoices unpaid by government departments, amounting to R620m, between July last year and the end of March. Just under half had so far been resolved.
There's perhaps no need to set up a new fund. Zulu's department could use the Small Enterprise Finance Agency (Sefa) to drive lending to start-ups. The agency lent out R1.1bn to over 43,000 small businesses in the 2016/17 year.
But the rapidly increasing rate of impairments, most linked to loans lent directly to small businesses (the agency also lends via intermediaries), is making it unsustainable to do so.
Impairments were at a massive 47% of total loans as of the end of March, Sefa chief executive Thakalani Makhuvha told MPs last month. This is up from 38% in of its loans book in 2015 and 25% in 2014 (see this earlier post).
Makhuvha in April last year said a number of business owners who took out bridging finance to bankroll tenders failed to honour payments. Some defaulted after not performing on contracts.
He said the agency often opens joint bank accounts with clients as a form of security, but that this has not stopped some from later changing to another account.
One way to resolve this would be for borrowers to cede contracts to the agency. But under current treasury rules this is prohibited. Makhuvha says the agency is in talks with national treasury to permit cessions.
It will be crucial to resolve this if the 30% set-aside is to have any substantial impact
Another way would be to increase the use of credit guarantees In the 2015/16 year Sefa issued just R40.5m to financial institutions (including banks and non-banking institutions) down from R50.7m the year before.
Banks have largely abandoned the scheme in recent years saying they have run up too many bad debts and that the claims procedures are too lengthy (see this post and here).
Sefa has now linked up with non-banking financial institutions, including micro-enterprise funding companies and private corporates to offer credit guarantees to groups of small businesses.
In its 2015/16 annual report Sefa said it had enhanced business processes and IT systems and added that it was in discussion with banks to formulate new portfolio guarantees with new terms and conditions, the most attractive change being the scrapping of co-vetting of transactions with the banks.
Zulu's department should learn from more successful credit guarantee schemes in India (see this post), Chile (see here) and Malaysia (see here)
Use Financial Sector Code
A third way is to compel banks – many of which are already involved in contract finance programmes with the state – to have bridging finance products for start-ups.
For example Nedbank has partnered with the Enterprise Public Works Programme and reported in March last year that it had lent R40m in contract finance to 180 start-up entrepreneurs, said spokesperson is Tracy Afonso, Head of Professionals and Small Business Banking at Nedbank.
The government can use the Financial Sector Code (an industry charter under the Black Economic Empowerment policy) to compel banks to lend contract finance to start-ups.
The Financial Sector Code compels banks to invest a collective R48bn between 2012 and the end of 2017 in various targeted investments, including black farmers, black SMEs, transformational infrastructure and affordable housing.
Banks have far exceeded this. Between 2012 and 2015 banks lent out over R209.3bn, the Banking Association of SA (Basa) said in March. Of this, R41bn went to black SMEs.
The new draft code has yet to be gazetted by the Minister of Trade and Industry Rob Davies.
Black business however is not satisfied. While the targets for the new code have not yet been finalised, Black Business Council secretary general George Sebulela wants banks to ring-fence at least R50bn for black SMEs, which could be geared four or five times.
Some of this money could be used to fund black start-ups seeking funding to undertake state contracts.
Perhaps the department need not go to the trouble of setting up a whole new dedicated fund. The government is already struggling to find revenue to fund other pressing needs.
Using a mix of credit guarantees, direct finance through Sefa which is backed by cessions and concessions from banks through the Financial Sector Code to fund black start-ups - the department could help make it easier for start-ups to contract with the state,
Timm is a South African who writes on small business. Click here to sign up for the monthly Small Business Insight newsletter.
More business support, loans and set-asides will be directed at ethnic Malays, with the launch this week by Malaysian Prime Minister Najib Razak (pictured above) of the second Bumiputera Economic Transformation Roadmap.
The five-year roadmap aims to more than double the average income of ethnic Malays (or bumiputeras as they are commonly known) who make up over two thirds of the population. The plan has among its five pillars the aim of strengthening entrepreneurship.
Released by Teraju, Malaysia’s state agency set up in 2011 to assist bumiputeras, the new roadmap plans to prioritise SME-friendly policies through among other things procurement policies which favour the unbundling of large turnkey contracts.
'Biased procurement criteria'
“At best, the smaller but capable bumiputera firms – especially in professional services (engineering, quantity surveyor), have to bid to become subcontractors, which put them at the mercy of the procurement practices of the turnkey contractor,” says the roadmap.
In addition it says procurement criteria are often biased towards more established companies, adding that greater consideration therefore needs to be paid to companies that demonstrate a strong line up of experienced bumiputera professionals.
Under the first roadmap, which ran from 2011 to 2016, 10.6 billion ringgits ($2.4bn) - or 50% of the total value of selected turnkey projects - were set aside for 372 bumiputera firms.
The set-aside requires turnkey contractors to carve out part of a project to be put out to tender to bumiputera firms.
In addition a number of other bumiputera companies were assisted, these include:
Too many micro firms
Bumiputera companies make up 38% or 247,000 of registered Malaysian SMEs.
However the roadmap notes that the bumiputera entrepreneurs still tend to run mainly micro-enterprises (making up 88% of SMEs), concentrated in highly competitive sectors like retail, restaurant and consumer services which cater to the domestic markets.
To help develop bumiputera firms Teraju has started a sector-by-sector baselining exercise to adopt a value chain driven approach in bumiputera entrepreneurship development.
“There shall also be greater emphasis on encouraging mid-career professionals who have extensive sector experience to venture into businesses aligned to their area of expertise,” the roadmap says.
It says to encourage innovation intensive business activities, the government will also promote small-firm friendly policies.
“The role of tertiary institutions in influencing entrepreneurship should be emphasised by encouraging these institutions to inculcate an entrepreneurial mindset and skills among bumiputera at an early stage,” it added.
The plan also hopes to get entrepreneur development organisations to play a bigger role in encouraging bumiputera companies to scale up.
In addition Teraju will further develop Terajuxchange, a central database of bumiputera entrepreneurs to assist the government in making a comprehensive impact assessment of the support provided, while avoiding overlap in financial assistance.
Razak said this week that the support for Malays would not be at the expense of Chinese and Indian Malaysians. Yet it comes at a time when the prime minister is struggling with a corruption allegations and growing opposition to his rule.
A bigger problem is that few adults start up new firms in Malaysia (see this earlier post). Getting this right will be harder than simply dolling out more ethnically-aligned support.
Timm is a South African who writes on small business. Follow Small Business Insight on Twitter at @Smallbinsight.
Stephen Timm is a