According to some estimates, public procurement is responsible for as much as 80% of world exports in merchandise and commercial services. Government procurement of goods and services, including construction services for projects from laying roads to building and equipping public universities, involves huge amounts of public money. In OECD countries, public procurement is estimated to account for 15% of GDP; in non-OECD countries, that percentage is even higher.
Public procurement can mean valuable, often long-term business opportunities for bidders and their suppiers-and that means it is particularly vulnerable to corruption. Tens of millions of dollars are lost to corruption every year. Development aid programmes are compromised, jobs are destroyed, lives are put at risk by substandard buildings, and democracy itself is threatened.
Corruption in public procurement is a worldwide phenomenon, and countries in the MENA region are not immune. However, over the past decade, MENA countries have begun to put in place legal structures to combat bribery of public officials. Sanctions can be pretty harsh in some countries-up to 25 years of imprisonment. On average, though, imprisonment sanctions range between two and 10 years throughout the region. Some countries have also made a point of cleaning up their public procurement practices. Transparency International praised Morocco's efforts to this end in its Global Corruption Report 2009. Late last year, for example, the country launched an Internet portal making public procurement rules, regulations and opportunities easily accessible to the general public. Meanwhile, earlier this year, the authorities in Yemen formed a new Central High Tender Board to ensure that the rules for public procurement are respected, and that remedies are applied if those rules were broken or ignored.
Still, corruption is a drain on governments and stifles investment in the region. A 2006 Foreign Investment Advisory Service study showed that corruption is the main obstacle to investment in Lebanon. Although it is a crime to give or accept a bribe, 60% of the Lebanese firms surveyed for that study reported that "they must give gifts or informal payments to public officials to get things done, and these gifts impose an annual tax equivalent to 5% of sales". In response to an OECD survey on enhancing public procurement, representatives of the private sector in Yemen said that they believe politicians regularly interfere in tenders and protect corrupt officials, and that the courts are afraid to rule against the government. And, despite Morocco's reform efforts, one of the country's leading economics magazines recently calculated that corruption in public procurement cost the country about 5% of each purchase.
For a country like Iraq, struggling to its feet after military intervention and years of pervasive violence, government procurement plays an even more important role. It not only underpins the reconstruction and rehabilitation of the national economy, but it must also provide the needed infrastructure for developing the private sector. All the more urgent, then, that regulations are in place to govern the award of public contracts, that those regulations are enforced, and that the award process is transparent.
Iraqi officials seem to understand this. Following an OECD workshop on Enhancing Transparency in Public Procurement Procedures in early 2008, the Iraqi government asked the OECD to examine its public procurement regulations and procedures and offer suggestions on how to improve them. The OECD just released its Benchmark Report on improving integrity in Iraq's public procurement system. The analysis is based on the OECD Principles for Integrity in Public Procurement-10 guiding principles for enhancing integrity throughout the entire procurement cycle, from needs assessment through tendering to contract management and payment. Analysts also measured the country's policies and practices against such international legal instruments and good practices as the United Nations Convention against Corruption, the Agreement on Government Procurement of the WTO, the Model Law of the United Nations Commission on International Trade Law and the European Commission Directives.
On the positive side, analysts found that Iraq's 2004 procurement law and supporting regulations span the entire procurement cycle, from pretender preparations, the tender and evaluation process, to post-award contract management. The law and regulations stress the importance of conducting a comprehensive feasibility study before launching a specific tender. Regulations also require that specific committees be created to receive and evaluate bids.
Iraqi law forbids government and public sector employees responsible for managing the procurement tender from participating as potential bidders in that tender either directly or indirectly. The regulations also prohibit disclosing information to persons not involved in the procurement process. Iraq's anti-corruption agency, the Commission on Integrity, employs officials specifically in charge of inspecting irregularities relating to public spending through procurement.
On the other hand, however, there is little co-ordination of procurement practices across government organisations, and open competitive tender is not required, even though it is internationally recognized as good practice. Co-ordination between Iraq's control institutions-the Inspector General, for internal audits, the Board of Supreme Audit, for external audits, and the Commission on Integrity-is limited, at best, and there is little information publicly available about the results of these institutions' investigations.
The report finds that the process of awarding public contracts in Iraq is not transparent-nor is it even completed in some instances. Some companies have been awarded public contracts again and again, even though they did not complete, or completed badly, previous contracts. Another problem highlighted in the report is subcontracting: the company awarded the tender regularly contracts out the execution of the tender to an Iraqi or a foreign company. That results in fuzzy accountability chains and a final output of poor quality. In a worst-case scenario, that could mean that when a public housing structure topples due to shoddy workmanship or greed, there would be no one to hold to account for the lives lost.
Some would argue that, in an economic crisis, there are more fundamental concerns to address than corruption in public procurement. But putting in place policies and regulations to promote transparency and integrity in public procurement could, even in the short term, help to keep more public money in government coffers.
MENA governments are coming around to that way of thinking. Morocco was the first country to work with the OECD in the Joint Learning Study project, launched in 2008 to improve transparency and prevent corruption in public sector procurement. The programme encourages participating governments to implement reforms in keeping with international standards, including the UN Convention on Corruption, which most MENA countries have ratified, and fosters policy dialogue among MENA and OECD countries. Jordan and Yemen are now involved in these peerreview processes, and several more countries in the region, including Algeria, Egypt, Lebanon, the Palestinian National Authority, Mauritania and Tunisia, have also expressed an interest in working with the OECD in this project.
At a MENA-OECD regional conference on public sector integrity, held in Istanbul in late October, governments in the region acknowledged that implementation of policies to improve integrity in government is spotty. They recognised that integrity in public procurement also depends on transparency in public finance, merit-based human resources policies, the rule of law and political stability. They also agreed on the need to involve all stakeholders, including NGOs, the private sector, trade unions and academics, in preventing corruption, and that applying measures to improve government integrity requires a mix of bottom-up and top-down approaches. While political support at the highest level is necessary to push forward reforms, involvement of the operational and middle-management strata is crucial if these reforms are to be successfully implemented.
The growing awareness of the enormous cost of corruption to national and regional economies is a welcome development, but it is only a first step. Countries in the MENA region and beyond need to formulate-and enforce-policies and legislation that would impose tough sanctions on individuals and firms that engage in corrupt practices at any point in the public procurement process. A positive step would be to commit to the OECD's Anti-Bribery Convention. MA
MENA-OECD Investment Programme, "Business ethics and anti-bribery policies in selected Middle East and North African countries", MENA task force on business integrity and combating bribery of public officials.
OECD, "Improving Transparency within Government Procurement Procedures in Iraq: OECD Benchmark Report", October 2009.
Transparency International, Global Corruption Report 2009, Cambridge, pp 191 and 196.
© OECD Observer, No. 275, November 2009