Local content in government procurement, alternatively called localised procurement, is an effective tool for encouraging procuring entities to procure goods and services for government operations from local suppliers. Localised procurement aims to create opportunities for local suppliers in government procurement, which enhances their access to local markets. A 2021 World Bank study revealed that government procurement is a major market, accounting for about 12% of world GDP. Similarly, according to Action Aid, public procurement in Zambia accounts for approximately 15% of the country’s GDP as of 2021.
Increased local content uptake in government procurement can aid economic growth, job creation, cost reduction and foster local industry development. Several countries have implemented local procurement policies to promote local industry. For example, the Buy American provisions of the United States American Recovery and Reinvestment Act (ARRA) required that manufactured goods, such as steel and iron, used in the construction of public works projects funded by the Act be manufactured in the United States. These provisions, like many other local content initiatives, were designed to promote job creation in the United States, protect American industry from unfair overseas competition, and support the American economy.
Many other countries have launched local supplier development programs to boost domestic business competitiveness. Through the Supplier Development Programme (SDP), the United Kingdom is an excellent example of a country that has implemented supplier development policies and initiatives for public procurement. Since its inception in 2014, the program has provided local suppliers with advice, training, and support to help them grow and develop their businesses. According to a 2017 report from the Department for Business, Energy, and Industrial Strategy, the SDP has funded over 5,000 SMEs and created over 10,000 jobs. According to the report, the programme has also increased the competitiveness of UK suppliers, with the number of SMEs winning government contracts increasing by 20%.
Preferential procurement has also been used to promote national development and boost local industry. Preferential procurement entails giving preference to local vendors in government contracts or giving some preference to disadvantaged vendors. These preferences could take the form of a reservation scheme for local SMEs that allows them to obtain government contracts at a low threshold. In 2013, Chile implemented a low threshold for SMEs in public procurement to encourage their participation. Because of the low threshold, all public procurement contracts worth more than $2.5 million USD must consider SMEs. This is a significant decrease from the previously established threshold of $50 million USD. The new policy has given SMEs access to public procurement contracts, allowing them to increase revenue and create jobs.
Notably, preferential procurement incentives also work to create jobs in specific areas. Following an amendment to the Preferential Procurement Policy Framework Act (PPPFA), the South African Department of Trade and Industry is now mandated to designate specific industries where tenders must consider only locally manufactured products with a prescribed minimum threshold for local production and content. The minimum threshold is 30%, but in some industries, such as textiles, leather, and footwear, it can reach 100%. Finally, by encouraging the growth of small local businesses, the PPPFA has contributed to economic transformation and development.
Since its independence, Zambia has implemented a number of policy reforms to improve the efficiency and transparency of its procurement institutional framework. The Public Procurement Act No.8 of 2020 established the Zambia Public Procurement Authority (ZPPA) to facilitate connections between government procuring entities and local suppliers of various goods and services. Accordingly, in 2018, the Ministry of Commerce, Trade and Industry (MCTI) launched the Preferential Procurement Scheme for Zambian Manufacturers in a bid to promote local manufacturing and create jobs. Under this scheme, Zambian manufacturers who are registered with the Ministry are given preferential treatment when it comes to bidding for government tenders. This scheme has benefited the Zambian economy by creating jobs, increasing foreign investment, promoting local businesses and encouraging product development.
Moreover, it is critical to regularly monitor and adjust the progress of local content initiatives in public procurement. This system should include metrics like the number of jobs created, the number of businesses launched, and the economic value generated. In collaboration with business associations such as the Zambia Association of Manufacturing (ZAM), ZPPA can implement a system for screening bidders to increase transparency and ensure that they are Zambian.
Ultimately, increased local content uptake in government procurement has enormous potential to stimulate local economic growth, increase tax revenue, and build strong local communities.
