Youth, women to miss out on Sh200 billion procurement deal as State tightens spending

By James Anyanzwa and Macharia kamau

The Jubilee Administration may have struggled to deliver on many of its election pledges, but to some extent, it has delivered on its promise to get the youth in on a share of lucrative Government contracts.

The transition was by no means smooth, given the complexities of Government tendering and the budding entrepreneurs’ lack of capacity.

However, credit is due to the Jubilee duo of President Uhuru Kenyatta and his deputy, Mr William Ruto, for delivering on what pundits may have dismissed as a populist declaration during campaigns to woo the populous voting block that is the youth.

The directive that all Government agencies give youth, women and disabled people’s preferential treatment in awarding contracts came into effect last June, after Treasury Cabinet Secretary Henry Rotich gazetted the Public Procurement and Disposal (Preference and Reservations - Amendment) Regulations, 2013.

The Government is estimated to spend over Sh600 billion annually in procuring products and services.

Going by the 30 per cent rule, this translates to Sh200 billion available to youth, women and disabled persons.

It has, however, been argued that these special groups may not be in a position to exhaust the entire amount due to capital and technical capacity constraints, especially in undertaking mega infrastructure projects.

Capacity constraints

But while the procurement procedures that need to be followed to win Government contracts have proved difficult for several small businesses, those that have powered through have bagged a number of contracts. This has set them on the path to becoming medium sized.   

Black Zero Creative Studio is one such enterprise. A year ago, the company was virtually a one-man show.

But in the past year, it has moved to an upmarket physical address and attracted equity and technical partners who are expected to partly finance the company’s growth and improve its expertise for better delivery of services.

Changed fortunes

Black Zero Creative Studios, a design company that crafts communication messages and credits its growth spurt to the tenders it has won from ministries and other Government agencies. The firm does sign some contracts with the private sector, but the bulk of its work is from the Government.

“I have more jobs than I can handle. I’m bringing illustrators on board. There are instances where I have to hire writers and editors on contract to assist with content generation,” said Kevin, the company’s proprietor.

“I have also got two partners coming on board, and we are in the process of converting the company from a sole proprietorship to a limited company.”

But barely a year after changing the fortunes of companies like Black Zero, the Jubilee Administration is pulling the rug out from under the feet of entrepreneurs relying on Government contracts.

This will be happen through a planned cut on spending that might see a substantial reduction in the budget for many of the products and service supplied by the special groups.

The recently announced austerity measures have been brought on by the high operation costs within Government, and will mainly affect soft targets. These targets, such as consultancy services, are what these special groups tender for.

Mr Rotich, in an interview with Business Beat, admitted that the youth, women and disabled persons would be hurt by the measures.

He was, however, quick to add that the cost-cutting measures are not targeted at the special groups, and would cut across all sectors.

Kevin believes Black Zero has positioned itself to offer essential services that help Government agencies communicate with people at the grassroots level, and it is therefore unlikely to suffer from the budget cuts.

But not many SMEs that have found a lifeline doing business with the Government have the same level of confidence.

Non-essential services

Many other youth and women-led businesses may have to rethink their strategies and diversify their client portfolio to include more private sector players.

Despite Government agencies and ministries mainly reserving what can be referred to as non-essential services for the special groups, the volume of business has brought in welcome cash.

These non-essential services include supply of office stationery, flowers, drinking water, maintenance of flower gardens, grass cutting, and so on. Rarely do procuring entities reserve major works for special groups.

According to the Public Procurement Oversight Authority (PPOA), there are 9,300 businesses run by youth, women and disabled persons that are officially recognised and do business with Government.

The new budget cuts are poised to spoil the party for these firms. However, the measures are expected to save the country between Sh10 billion and Sh13 billion in the current financial year (2013/2014).

“These austerity measures cut across all Government spending. They will affect all expenditure, including on those items reserved for the special groups. Obviously, they will get their share of 30 per cent, but it will be reduced,” said Rotich.

The National Treasury plans to contain wasteful spending by limiting the frequency of domestic and foreign travel by State officials, regulating the use of the executive business class by public officers, reducing the number of vehicles hired during domestic travel and centralising Government advertising costs, among other measures.

Other key areas of focus include restricted refurbishment of buildings, controlled procurement of consultancy services, and leasing of vehicles across ministries except when purchases are required, in which case this must be done in bulk to lower costs.

“We believe there are many opportunities to cut or minimise costs. As such, we will take a number of initiatives that will apply to State officers in both national and county governments, as well as other public servants in State entities and State-owned enterprises,” Rotich said.

“We must do these things so that we earn the trust of our fellow Kenyans who would like to contribute, but are sometimes not sure their money will go where it should.”

Despite the setback that might come about with the austerity measures, Government agencies propping up SMEs say there have major gains made in the past year.

Bidding process

“There is a significant increase in the number of youth-led businesses. This has been boosted by the Government’s directive on 30 per cent Access to Government Procurement Opportunities (AGPO) to youth, women and persons with disabilities.

“This is a great opportunity for youth because both startups and already existing registered companies can participate,” said Ms Catherine Namuye, the acting chief executive of the Youth Enterprise Development Fund (YEDF).

She added that the fund has given more than 81 per cent of its contracts to youth-led companies in the last year.

“The only challenge is on capacity building, which is currently being handled through the PPOA and AGPO offices. Capacity building is focusing on tender procedures, handling of the bidding exercise and documents, as well tackling issues around registration of companies and businesses through the State Law Office.”

PPOA noted that public procuring entities have also set aside a proportion of their tenders for the special groups.

“The complexity of the bidding process is, however, a turn off for many enterprises, and they risk missing out on opportunities as a result,” Mr Maurice Juma, PPOA’s director general, said.

“There are instances where SMEs might buy the bid documents but are unable to fill them, fail to include basic things or fill the documents wrongly and end up being disqualified.”

SMEs are considered a key driving force in the socio-economic development of a country, and governments worldwide design procurement instruments that create preferential bias for this category of business.

bizbeat@standardmedia.co.ke