The Strategic Role of Professional Procurement in the Development of Africa

Speech at the National Theatre, Accra Ghana on May 21 2013 at the CIPS Pan African Conference

Good morning distinguished ladies and gentlemen.

It is a great pleasure to be here today and I appreciate the honor extended to me by the CIPS African Branch in inviting me to deliver this address today.

Being a Fellow of the Institute, I feel much at home and in the midst of friends, and I am excited by the atmosphere of this event and commend the organizers.

I applaud the efforts of the African Regional Executives for the progress since the establishment of the branch and I encourage them to continue to provide purposeful leadership to deepen the professionalism of members so that they can become key voices and players on relevant topical issues in moving Africa forward.

It is important for members to bring the value of their international training into helping to shape the future of Africa. It is a unique opportunity and will bring pride to members and also help attract new members, especially the younger ones. For example, contributions to discussions on national bills on procurement, good governance, anti-corruption, local content, private-public partnerships, etc, are examples of the value they can bring to Africa, and, it is important for the Branch to develop clear position papers on such themes to articulate the view that members can push for in their countries.

On tonight’s topic, let me start with a bit of reflection on the World at large and zero in on a few key themes in Africa.

Firstly on the global scene, no other issue has been as topical since 2008 as the recession – with the collapse of the global financial sector and institutions wiping out billions of dollars of investment and some large organizations actually going under. The recession has been longer and beyond any seen since the great depression of 1929. Many economies have seen financial, stock market, and mortgage institutions collapsing and requiring the intervention of government and many governments themselves are seeking bailouts (Greece, Cyprus, etc), and some countries are being downgraded (including USA and UK).

Secondly, the geo-political scene has seen some dramatic events, especially in the Middle East and Asia, with the mass revolutions in Egypt, Libya, Tunisia, etc as well as the ongoing challenges in Syria and North Korea. 

Coming home to Africa, has also been a period of significant changes in recent times, many of which have had profound effects and we are living in very peculiar times; please permit me to share a few:

1.    2 of the top 20 emerging countries/markets are in Africa, growing at an annual rate exceeding 6%. These countries include Nigeria and South Africa,

2.    Over 95% of African countries are now under democratic rule and we are now having 3^rd, 4^th, and 5^th generations of civilian Governments in many countries. However, a few countries still have gun-wielding coup plotters in Government.

3.    The explosion in Information Technology has been a phenomenon in Africa, especially in the area of Telecommunication. Over 300 million Africans have become connected within the last decade and the use of the Internet has redefined new frontiers in communication and commerce, and this has also started to bring transparency and the ability to question governments easily,

4.    The population of Africa has more than doubled to 1 billion creating a huge human capital resource as well as a huge market for goods and services. This has also partly led to a larger demand for energy, as well as issues such as flaring and CO₂ reduction,

5.    Transparency in businesses is being driven strongly, especially by Western countries like the USA, through Sox, FCPA, and the stringent UK anti-bribery laws. We have seen the prosecution of individuals and huge fines on companies from transactions in Africa including Halliburton, Siemens, and Panalpina,

6.    The visions of African integration which have existed  since 1963 with the formation of the African Union (formerly OAU), as well as regional groupings like Ecowas, SSANU, etc have not yielded much in terms of development of Africa, and at best had made some minor impact in regional security,

However, despite all these the GDP per capita of African countries has only been a paltry USD$3,025 and except for 6 number of countries with GDP per capita above $10,000, (Botswana, Equatorial Guinea, Gabon, Mauritania, Seychelles, and South Africa) about 90% of other countries are still living with a high level of poverty.

In addition, the continued limited infrastructures (power, transportation, pipelines, etc) have stunted the growth of several sectors including manufacturing, etc and thus the Continent has a high dependence on imports; with the imports of some 46 African countries reaching an astonishing US$610 billion in 2011 compared to US$586 billion exports (World bank). Raw materials are being exported out of Africa and processed and finished goods are being imported, which invariable means employment are being offshored.

You may find yourself asking; so what has all these got to do with the procurement professional? A lot I say.

So what is Procurement’s role!

Apart from spending on overheads (salaries, allowances, etc), the spending on goods and services is the highest budgetary item (either under recurrent or capital expenditure) of the budget of African countries.

As examples,

¨   Nigeria’s 2013 budget was N4.9 trillion (US$31billion) of which over 35% (N1.7trillion or US$10.7billion) is for goods and services.

¨   South Africa’s 2013/14 budget R1.15trillion (US$126 billion) of which about 38% (R49 billion or US$billion) is for goods and services.

¨     Egypt 2012/13 budget EGP534bllion (US$77billion) of which about 29% (EGP156 billion or US$23billion) is on goods and services.

These goods and services could be anything from office cleaning materials to consultancy services, to rail construction. These usually require contracting and procurement activities by trained or unprofessional personnel.

A significant proportion of government and private organizations spend is usually on goods and services and for which the Procurement function plays a key role in its acquisition and sourcing being responsible for supplier selection, tendering, award and expediting, and controls.

Therefore the role of procurement in any country or organization cannot be over-emphasized and as such the procurement function carries a burden to ensure that such a huge responsibility is well managed.

How can Procurement make a difference?

Let me start first by saying that Procurement is already making difference in several countries. For example, in the UK, the Procurement function was instrumental in the then Office of Government Commerce public spending reviews which enabled the government to save several billions of pounds. There are numerous examples abound.

Many African countries now have in the public sector, the central procurement bodies (Bureau for Procurement in Nigeria, Public procurement authority in Ghana, Chief Procurement Office in Ghana, Public Procurement & Asset Disposal Board in Botswana, etc) and for the private sector, the roles of Chief Procurement Managers, Supply Chain Managers, etc are now well established with many reporting to the president or CEO of their company, establishing agendas for organizational transformation to bring more spending under management and to increase both internal and external collaboration.

So there are several ways in which Procurement can make a difference in Africa, but let me just share 5 key ones here:

1. Ensuring value for money

Procurement must understand and drive value-based management, by ensuring that the value for money is achieved and goods are purchased at the lowest cost of ownership (not just price). This is both to ensure spend is optimized, but also to ensure schedule and value add are protected and delivered, and most importantly that procured inputs are aligned to the needs and cost profile of the business.

For African countries, this is especially very important as resources are scarce and the amounts of development required are large.

By carefully analyzing business requirements, market and cost structures, and the approach to the market, the procurement function can improve bottom-line performance and cash flow management. 

2. Enabling Innovations and Technology

Because of its natural involvement with contractors, many of who are working on innovations, but require launching platforms, Procurement can play a key role in bringing in ideas and enabling the development of innovation.

Innovations can redefine the environment e.g. Apple had such an experience with the iPod, which was an innovation of one of its contractors but is now marketed by Apple. The unprecedented success of the Apple iPod and Motorola Razr has shed light on how critical, supply chains have become in the success of companies.

Technology provides significant opportunities for countries and organizations and staying at the leading edge to drive forward is key.

 

3. Developing local Capacities

In many African countries, most goods and services are still imported from Western and Asian countries. What this means is that local manufacturing still remains at its infancy, and affirmative action by the procurement function is important to ensure that local capacities are developed, especially considering the several hundreds of millions of Africans who are still unemployed.

To achieve this, the development of local capacity must have a long-term view. Thus investment of funds, expertise, and time should be directed towards interventions that build capacity where there is sustainable demand, and that reduce import reliance, stems capital flight, and provides job opportunities.

4. Ethics and Transparency

Procurement must role-model transparency and high ethical behavior and as such be able to influence governments to be run on similar principles. It is not good enough to be unaware when ethics are being breached somewhere in the supply chain, procurement has a key role in tracking these down and getting them properly addressed and more importantly, ensuring that seamless systems and processes are developed to prevent future breaches.

4. Sustainability

Procurement must encourage sustainable practices, supporting environmental, social, and economic sustainability. Green goods and positive discrimination for disadvantaged groups (women, handicapped, etc) are areas that Procurement must focus on.  Procurement can be used as a technique for tackling social disadvantages and exclusions. Consumers / Buyers can then exercise some level of control over what is manufactured, and how it is manufactured. We should look beyond the traditional economic parameters and make decisions based on life-cycle costs, associated environmental and social risks and benefits as well as broader social and environmental implications.

There should be a balance between  economic/social  development, environmental protection, and  business needs.

So as individuals what do we need to do?

Permit me to leave you with a few things that as an individual, I would suggest that procurement professionals need to do to make a difference:

1.    Continuous learning – wider and deeper – not only about procurement but also about politics, science, arts, technology, etc

2.    Be a trusted partner and one with the highest integrity,

3.    Go beyond the profession and build alliances and networks,

4.    Focus on bigger issues, especially societal issues

5.    Look for regional linkages, and promote African trade relationships,

6.    Ensure delivery to schedule and quality,

7.    Improve continuously. 

8.    Be attuned to technology

The profession is uniquely positioned and I look forward to a time in Africa when a member of the CIPS Africa Branch will become a Minister or the President of a Country in Africa, and why not. It should happen in our lifetime!

Thank you.

Babs Omotowa

MD/CEO

Nigeria LNG Limited