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The reality of doing business with Kenya government

FINANCIAL STANDARD
By By JACKSON OKOTH | October 22nd 2013

By JACKSON OKOTH

If you own a business, and are a woman, aged below 35 or are living with a disability, then you know by now that the government wants to do business with you. But what does this really mean?

Well, the government is the country’s largest single buyer of goods, works and services. It spends approximately 70 per cent of the Budget on procuring these items. This is in fulfilment of its mandate to meet the needs of its citizens.

The government is currently in the process of registering and pre-qualifying these enterprises under the Access to Government Procurement Opportunities (AGPO) programme. 

And with this year’s Sh1.6 trillion Budget, public procurement will take up more than Sh1 trillion. Special interest groups, therefore, stand to benefit from over Sh300 billion.

According to the Public Procurement and Disposal Preference and Reservations Amendment Regulations, 2013, a procuring entity shall allocate at least 30 per cent of its procurement spend for the purposes of procuring goods, works and services from micro and small enterprises owned by youth, women and persons with disability.

All public enterprises are required to implement this requirement in their budgets, procurement plans, tender notices and contract awards. A report is to be sent out quarterly to the Public Procurement Oversight Authority to show compliance.

The contracts

Some of the contracts up for award are the supply and delivery of flowers, provision of cleaning services, photocopy and videography, and supply and delivery of mobile airtime. However, at a women and youth expo last week, Uhuru told state departments not to be selective with what tenders are awarded.

But there are a host of challenges to overcome.

First, the primary source of information for these groups on what is to be awarded is the tender notices placed in the newspapers.

But given the financial constraints faced by some of the procuring entities, these notices are generally posted only once. As a result, many enterprises are unaware of what they are eligible to bid for.

“What we need now is to have all tenders and contracts uploaded online on government websites or sent out through mobile phone SMS alerts,” said Kithinji Kiragu, a public sector management specialist.

Further, many state corporation do not post tender notices outside their offices. Those that have them pinned tend to have information that is months old.

Corruption

The second problem is that procuring entities tend not to publish the results of tenders, which enhances the opportunity for corrupt practices.

“While preserving a portion of public procurement contracts for the youth and women is a plausible idea, the greatest challenge faced by this plan is corruption within the public sector,” said Kiragu.

There is a growing fear that well-connected public officers will use their positions to award contracts to their relatives and close associates, or those with the financial muscle to grease palms.

“What governors should be doing is listing all the youth and women groups registered in their area and what they can supply. This database should then be matched with what supplies the government needs to help these groups access the opportunities.

“Information on what is to be supplied and by whom should also be put on a website to cut down on corruption,” said Kariithi Murimi, a fellow at the Institute of Certified Public Accountants of Kenya (ICPAK).

Third, it will be an uphill task for youth and women groups to play in the big-ticket leagues as they may not have the financial wherewithal.

Fortunately, there are a host of financial instruments being offered by various institutions, including local purchase order (LPO) financing and invoice discounting. There is also the Uwezo Fund and the youth and women enterprise funds. Further, JamiiBora last week advertised that it would offer training on how to bid for government contracts.

The trouble with supplying the government is that, because the quantities required are often very large, the capital requirement can be high. Yet processing an invoice can take months.

“The best thing about getting a government contract is that you will get paid. The downside is it could take a while. We are sometimes forced to halt operations when we get a government contract to repair a road or dig a dam because we spend so much money upfront, but get paid much later,” said a civil engineer who spoke on condition of anonymity to protect his employer.

“What we’ve opted to do now is mix smaller government jobs with larger private sector ones to remain liquid.”

Documentation

The final hurdle is the documentation required.

To qualify for government tenders, enterprises run by the youth, people with disabilities or women will need a business registration certificate or certificate of incorporation, a PIN certificate, tax compliance certificate, partnership deed for partnership business, memorandum/articles of association and a CR12, which is received after filing statutory returns.

Few micro and small enterprises are run with such strict adherence to the law.

However, the government has waived several requirements to encourage special interest groups to participate in procurement, including scrapping capital minimums and tender fees.

But there are still significant challenges that need to be addressed if these groups are to exploit the opportunities that come with doing business with the government.

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