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Has SA lost R700bn to corruption?


IOL

01 October 2015 at 2:20pm

Sintha Chiumia and Anim van Wyk

Has SA lost R700 billion to corruption since ’94? Africa Check’s Sintha Chiumia and Anim van Wyk explain why the calculation is wrong.

Durban – It’s been stated as fact that South Africa has lost R700 billion in public money to corruption since the advent of democracy in 1994. But how does one measure the cost of hidden crime?

One of the Unite Against Corruption march organisers and former general secretary of trade union Cosatu, Zwelinzima Vavi, used the R700 billion figure widely. To talk radio show host, Tim Modise, Vavi said: “R700bn could have been used to address the principal challenge of South Africa.”

Vavi also reportedly cited the number to urge Nissan assembly plant workers and a gathering of National Union of Metalworkers of South Africa members to join the march.

When he tweeted the R700bn figure, a Twitter user replied: “No ways. Lucky guess?”

Is it a guess or the result of thorough research? Africa Check got out the calculators.

On social media, Unite Against Corruption attributed the claim to the Institute of Internal Auditors. This likely refers to the January launch of the Anti-Intimidation and Ethical Practices Forum, an association of different organisations fighting corruption.

At the event, the forum’s chair and head of the Institute of Internal Auditors South Africa, Claudelle von Eck, reportedly said: “The cost of corruption in the last 20 years… we have lost R700bn.”

Von Eck confirmed to Africa Check she had made the claim, but said she was quoting the Institute for Accountability in Southern Africa. The institute’s head, Paul Hoffman, was quoted using the R700bn figure last year. (Updated from R675bn he cited the year before and in 2012.)

But Hoffman passed the buck to Tendersure, a web-based tendering tool, owned by a company called Sentigol.

“(Tendersure) worked that out as a percentage of the DP… 20% of the GDP over the last 20 years works out to that,” Hoffman told Africa Check.

An October 2011 article in Engineering News quoted the head of Sentigol, Werner Coetzee, as saying research by international anti-corruption bodies showed Africa to lose “about 25%” of its gross domestic product (GDP) to corruption.

Coetzee then explained that 25% of South Africa’s GDP of R2 700bn (likely 2010s) came to R675bn and that this figure was potentially lost to corruption.

But he told Africa Check he was misquoted: “I don’t know how anyone would arrive at that number.” The businessman said he once attempted to calculate the cost of corruption in the past 20 years, but gave up because it would “ignore the corruption during apartheid”.

Coetzee didn’t pluck the corruption formula out of thin air, but he got the wrong end of the stick.

Global civil society organisation Transparency International published a handbook called Curbing Corruption in Public Procurement in 2006. The very first paragraph states “damages from corruption” are usually estimated at “between 10% and 25%, and in some cases as high as 40 to 50%” of a country’s public procurement contracts – not its GDP.

Yet the bibliography does not contain any reference to studies showing how this share was arrived at. Africa Check contacted the organisation’s public sector integrity programme head, José María Marín, who said he’d look into it, but we haven’t yet received a response.

Since then the statement has become a tumbleweed claim: rolling along year after year, from one report to another, without source or context, supposedly holding true wherever it goes.

So how did do we end up with “R700bn lost to corruption in South Africa in the last 20 years”? Here is Africa Check’s theory, give or take R5bn:

1. The formula from Transparency International, or the various other organisations that quoted its information, made its way to South African treasury official, Sonwabo Tshoko, who stated in a 2010 presentation: “It has been estimated that R30bn per year, which is 20% of the overall government procurement budget of R150bn, is being lost or is disappearing into a black hole of fraud and corruption.”

(Tshoko has since left and Africa Check could not get hold of him or more information on the calculation via Treasury spokeswoman Phumza Macanda.)

2. South Africa’s then head of the Special Investigating Unit, Willie Hofmeyr, used this information when asked to estimate the cost of corruption in Parliament in October 2011.

According to the minutes, “Hofmeyr responded that it was difficult to do so, but one suggestion by National Treasury was that it might amount to about 20% of the annual procurement budget, or about R25bn a year.”

(Hofmeyr confirmed to Africa Check he got the information from Treasury, but couldn’t remember the exact source.)

3. The head of the Institute for Accountability, Paul Hoffman, attributed the figure of R30bn per year to Hofmeyr in a 2012 conference report. However, it seems that when the time came to present the report, he used R675bn as a total figure lost to corruption since 1994.

A news report said: “Hoffman based the figure of R675bn on government’s admission that the economy loses R30bn a year to corrupt activities. The disclosure elicited visible shock among conference goers.” (A quick calculation shows that R30bn times 18 years is R540bn, not considering inflation.)

So how much has SA really lost to corruption?

The frustrating – and logical – answer is we just can’t say for sure.

Macanda said South Africa’s Treasury does not attempt to calculate the cost of corruption. “Our observation is that people speculate and also tend to use the word corruption when what they are talking about is irregular, unauthorised or wasteful expenditure,” she said.

Africa Check spoke to Hennie van Vuuren, research associate at the Institute for Justice and Reconciliation (IJR) and writer of a 2005 Transparency International country study report on South Africa.

He said the idea that corruption costs 20% (or 10% or 25%) of public procurement came from the assumption that middlemen involved in corruption demanded 8 to 10% of a contract’s value.

“But this differs from transaction to transaction and industry to industry,” he said.

Ways to gauge trends in corruption included perception surveys and tallying detected cases.

Van Vuuren said one could even include illicit outflows – where private companies moved money to tax havens abroad – in the broader ambit of corruption, which was estimated to be in the region of R300bn in 2012 alone.

“Our need to define corruption in monetary terms ignores the much more fundamental costs of corruption – carried by individuals in weakened forms of government,” he said.

The head of governance, crime and justice division at the Institute for Security Studies, Gareth Newham, told Africa Check “we simply don’t know what the actual amount is because corruption is a crime in which both parties benefit and will seek to hide”.

However, Newham said he thought a “considerable” amount had been lost to corruption “given the large scale of the problem and the high level involvement of our political elite in corruption”.

It’s “impossible to know” how much money South Africa has lost to corruption, the executive director of non-profit organisation Corruption Watch, David Lewis, told Africa Check.

“Various people, various institutions have come up with estimates. I don’t know how they arrive at these figures,” he said.

“I am comfortable to say there is a high level of corruption in SA but you can’t rely on those estimates.”

Conclusion: the figure of R700bn is a thumbsuck.

Although a firm figure helps spur citizens to action – in a country where experts agree that it’s a big problem – this specific estimate is not reliable.

The amount probably stems from a claim that about 20% of a country’s public procurement budgets disappears into back pockets, attributable to Transparency International as far as we could tell, but not backed up by research studies. Since then it’s been mangled beyond recognition in South Africa.

* This article first appeared on Africa Check (http://www.africacheck.org), a non-profit organisation run from the Journalism Department at the University of the Witwatersrand, which promotes accuracy in public debate, testing claims made by public figures around the continent

** The views expressed here are not necessarily those of Independent Media.

Daily News

Policy Coherence To Boost East Africa Pharmaceutical Industry


Intellectual Property Watch

02/10/2015 BY  FOR INTELLECTUAL PROPERTY WATCH

KAMPALA, UGANDA – The pharmaceutical industry in the East African Community is approaching a higher level of production quality and manufacturing practices. To benefit the industry and increase access to medicines, stakeholders are working towards a united regulatory policy framework aimed at harmonising industrial, health and regulatory policies. 

“The main objective of the industrial policy is to develop a viable local industry which is competitive, reliable, innovative, productive and responsible,” said Ermias Biadgleng, legal affairs officer, United Nations Conference on Trade and Development (UNCTAD). “While the main aim of the health policy is to promote health for all through universal health coverage in terms of prevention, treatment and rehabilitation.”

Biadleng was moderating a panel of experts attending a regional pharmaceutical workshop on policy coherence for local production of pharmaceutical products and other means to improve access to medicine and medical products in the East African Community, held in Kampala, Uganda from 21-23 September. The workshop was organised by UNCTAD, Deutsche Gesellschaftfür Internationale Zusammenarbeit (GIZ) and the East African Community (EAC) Secretariat.

EAC has so far adopted the Regional Pharmaceutical Manufacturing Plan of Action, 2012-2016, the Regional Intellectual Property Policy on the Utilisation of Public Health-Related WTO-TRIPS Flexibilities and the Approximation of National Intellectual Property Legislation, 2013. TRIPS is the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights, which contains flexibilities for developing countries in enforcing the agreement.

“The East African Community Regional Pharmaceutical Manufacturing Plan of Action, 2012-2016, (RPMPOA) is a regional roadmap to guide the East African Community towards evolving an efficient regional pharmaceutical manufacturing industry that can supply national, regional and international markets with safe, efficacious and quality medicines,” said Jennifer Gache, Senior Industrial Engineer, EAC Secretariat.

The RPMPOA is divided into six strategic intervention pillars, which if effectively implemented are expected to lead to a strong local pharmaceutical industry. Implementation of RPMPOA is part of the EAC Industrialization Policy and Strategy, which has prioritized the development of regional pharmaceutical industry among regional industries through collective efforts of the EAC partner states.

According to Thomas Walter, “The implementation of RPMPOA has been much more successful than anticipated. It will be revised next year for the next five years. The next action plan will have a bigger scope, focusing on those areas which have been a bit neglected in the ongoing plan.”

Walter is the senior adviser Industrialization, TRIPS and Pharmaceutical Sector Promotion, EAC-GIZ Programme on Regional Integration.

“We have not had any significant utilization of the TRIPS flexibilities neither by companies nor by governments in the EAC,” said Thomas. “The reasons are complex. One of the main reason companies are not utilizing TRIPS is because all the pharmaceutical products produced locally are generics, and production of generic medicines do not require utilization of TRIPS flexibilities. This situation may change in future as we are moving to new treatment regimes.”

Utilization of TRIPS flexibilities towards improved local production of pharmaceuticals is pillar 5 of the RPMPOA.

World Health Organisation describes a generic drug as “a pharmaceutical product, usually intended to be interchangeable with an innovator product that is manufactured without a licence from the innovator company and marketed after the expiry date of the patent or other exclusive rights.”

In a presentation from the private sector perspective titled, The State Of EAC Internal Market And ECT: Implications For Drug Policy (pdf), Pierre Claver Niyonizigiye from Siphar Pharmaceutical Manufacturers, in Burundi, revealed that according to 2014 RPMPOA estimations, the market share of locally produced pharmaceutical drugs per country is: Kenya 30% of the estimated 558 USD million market, Tanzania 31% of the estimated 350 million USD market, Uganda 5% of the 270 million USD market, Rwanda 0.00% of the 75 million USD market, and Burundi 3% of the 75 million USD market.

The region has about 65 pharmaceutical companies, with Kenya having 42 of the companies.

With the enactment of the EAC Common Markets Protocol, the pharmaceutical industry now has a regional market of over 143.5 million people. Trade between EAC partner states in pharmaceutical products in 2011 was estimated at USD 264 million. This situation presents both opportunities and challenges to the pharmaceutical sector in the region given that only 30 percent of the medicines demand is met through local production.

According to Thomas, “the main cause for this is lack of access to a competitive market. Once the manufacturers have access to a bigger market, not only the national public procurement but also the international procurement agency, the utilized capacity will shoot up.”

Article 35, of the Common Market Protocol calls on partner states not to discriminate against suppliers, products or services originating from other partner states, for purposes of achieving the benefits of free competition in the field of public procurement.

“Many of the procurement laws of the partner states have not adapted to the regulation of the common market protocol even though the heads of state have committed to this protocol,” Thomas said. “It’s up to the heads of government to enforce the required approximation of the legal framework in order to actually create this market. National procurement laws and regional common market still have elements of incoherence which need to be eliminated.”

The EAC governments are the largest clients for the region’s local pharmaceutical products. The preferred method of procurement is international competitive bidding. Other methods used are restricted procurement, direct purchase and local tenders. The source of funds for this procurement comes from revolving funds, government funding from the central government and complementary financing, and grants from Global Fund for AIDS, Tuberculosis and Malaria and development partners.

To assist the manufacturers develop their capacity, EAC governments have provided a number of policy incentives. These include: tax and customs exemption, price control, preferential procurement and import classification.

In the EAC treaty, Chapter 21, Article 118 provides for developing a common regional medicines policy, which includes establishment of quality control capacities, good procurement practices and harmonisation of drug registration procedures.

Benchmarking

Regional economic communities can borrow from each other aspects of regulatory framework. The EAC is borrowing from the Ghana model, whose government has established a very supportive system to develop the local pharmaceutical industry over the last 20 years.

Kwabena Asante-Offie represented the Pharmaceutical Manufacturers Association of Ghana at the conference. “In East Africa,” he said in a panel discussion, “the industry sector is leading the development of the pharmaceutical sector. While in West Africa, it was the ministry of health that led the development of a robust pharmaceutical industry”. This is because the industry started more as a public health concern rather than an industrial development strategy.

Other Policies

Other key policy and regulatory initiatives of EAC are at the working stage. These include an EAC Anti-Counterfeit Bill (2013) which is being modelled into the Competition Act, the proposed African Community Medicines and Food Safety Commission Bill, the Medicines Registration Harmonization initiative, launched in 2012, and the procurement of essential medicines and health supplies.

300MW solar tender cancelled in Zimbabwe


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Lloyd Gumbo Harare Bureau
THE State Procurement Board has cancelled the 300 Megawatts solar projects indefinitely after one winning bidder increased its price, while Zimbabwe Power Company (ZPC) failed to agree with two other firms that had been considered for the other solar plants.
This effectively leaves the government’s quest to find a quick solution to power crisis in the country in disarray as it had hoped that 300MW would be fed to the national grid by next year.

The SPB awarded a tender for a 100MW solar plant in Gwanda to China Jiangxi Corporation, which was the lowest bidder to specification at about $184 million.

However, they then made a U-turn by approving a request by ZPC to engage two other losing bidders — Intratrek Zimbabwe and ZTE Corporation — despite the fact that they had charged $248 million and $358,3 million respectively at the initial tender for 100MW project each.

The ZPC claimed the two firms had agreed to match the $184 million charged by China Jiangxi Corporation.

But correspondences seen by our Harare Bureau indicate that the SPB then cancelled all the three tenders.

SPB principal officer, Cledwyn Nyanhete, on July 31, 2014, wrote to China Jiangxi Corporation managing director cancelling the tender award after the firm requested to increase the price from $184 million to $207 million.

The firm argued that the new price included duties and taxes, a position the SPB dismissed, arguing that the costs were already catered for.

Nyanhete said the reasons for increased costs were not justifiable and in contravention of Section 39 (1) (b) of the Procurement  Act.

“Accordingly, through PBR 0001J of July 17, 2014, the State Procurement Board resolved that; PBR 0001 of January 16, 2014 in favour of China Jiangxi Corporation Ltd for funding, engineering, procurement and construction of 1x100MW solar power project at Gwanda/Plumtree be and is hereby cancelled for failure by the winning bidder to maintain their original tender price of $183,708,238.51 (inclusive of duties and taxes),” said Nyanhete.

“China Jiangxi Corporation for International Economic and Technical Cooperation Ltd should within 14 days of notification pay $900.00 administration fees in line with S.I 159 of October 12, 2012 for violation of Section 39 (1) (b) of the Procurement Act by misrepresenting a material fact in a tender process.

“The board further resolved that you be warned against violation of procurement procedures in future as this may result in sanction in terms of Section 32 of the Procurement Regulations being preferred against you.”

Nyanhete also wrote to Intratrek Zimbabwe P/L managing director on July 28, 2014, advising them that varying the technical partner for Intratrek Zimbabwe from Greenfield Solar Europa GmbH of Germany to Chint Electrical Ltd of China after the tender award was not consistent with primary conditions of mandated negotiations.

He wrote another letter to Intratrek Zimbabwe managing director and ZTE Corporation Ltd managing director on July 31, 2014, saying ZPC had advised the SPB that negotiations with the two firms had failed.

A procurement expert said the SPB should have opened the tender to other bidders soon after ZPC indicated that it wanted variation of the projects from the initial 100MW to 300MW.

“What has happened is that while the SPB may claim to be justified in making this decision, it should have never got to this situation because the tender should have been opened the moment ZPC said they wanted 300MW instead of 100MW,” said the expert.

“This has obviously resulted in almost a year being lost on something that should have been done properly from the word go.

“What is left now is for the SPB to open the tender to other people with a varied requirement of 300MW than the initial 100MW. They cannot award it to any of the three firms without opening it to public tender.”

Energy and Power Development Minister Dzikamai Mavhaire has been pinning hope on solar projects as quick solutions to the power deficit in Zimbabwe.

Zimbabwe’s power plants produce about 1,300MW against a peak demand of more than 2,400MW.

Tanzanian minister calls time on procurement corruption


SupplyManagement

28 June 2013 | Adam Leach

The United Republic of Tanzania plans to review its procurement legislation to close loopholes that make it possible for corrupt officials to profit from the public purse.

Addressing parliament this week, minister of state Stephen Wassira, pledged to take action to ensure items could not be purchased at inflated prices under the law, which results in unreasonably high profit margins for suppliers. As well as helping to reduce corruption, he said the more robust rules would boost competitiveness among businesses looking to supply to government.

Announcing his intention, Wassira, said: “The time has come to review the law. You can hide under the law and steal according to the law. If we do not act now and [instead] let corruption thrive, everything we buy or make will be substandard. And if we continue like this we will erode development.”

Around 70 per cent of the country’s development budget will be channelled through public sector procurement. The minister used this to strengthen the case for ensuring regulations are tight and robust.

Namibia: Public Procurement Bleeds Namibia


AllAfrica.com

By EDGAR BRANDT, 2 MAY 2013

Windhoek — Despite a significant increase in public expenditure, public procurement has not brought about the desired outcomes, such as increased employment, improvement in the distribution of economic opportunities, enterprise development and economic growth and development, the Minister of Finance, Saara Kuugongelwa-Amadhila, told a Tender Board meeting held recently in Windhoek.

According to the finance minister the desired outcomes have not been reached for the most part because of leakages out of the economy. “Many tenders are awarded to foreign companies even where local companies have the capacity to perform these tenders. Goods and services procured under these contracts are sourced from outside, and too many expatriates perform work on the projects under these contracts even where locals have the skills to do so. So resources leak out of the Namibian economy as a result of this and opportunities for learning and enterprise development are forfeited,” said Kuugongelwa-Amadhila.

She added that setting tenders aside for local companies and special target groups such as women and youth for economic empowerment could address these challenges.

Additional tools recommended by Kuugongelwa-Amadhila to address these issues include a policy that some tenders should require mandatory sole contracting of Namibian companies and SME‘s, that there should be requirements for local participation in all companies to be awarded tenders and that there should be a mandatory requirement for sourcing of supplies and labour services from within Namibia.

With specific regard to procurement, the finance minister noted there is a significant increase in expectations from the public for the system to help the country overcome the challenges of unemployment and inequities and to support sustainable economic growth. With public expenditure having increased significantly in the recent past, the government’s role in the economy has grown much bigger. “We should also put in place monitoring and evaluation systems to ensure that compliance with bidding commitments are enforced and that the impact of the procurement programmes is evaluated. Companies that fail to honour their bidding commitments should be held to account,” said Kuugongelwa-Amadhila, adding that the current allegations of corruption and court challenges against the decisions of the board do not augur well for the public image of the board.

Also, she encouraged the Tender Board to look at ways to delegate the adjudication of some tenders to state-owned enterprises, local authorities and regional authorities.

She also revealed that a dedicated procurement reform project office has been set up and recruitment of staff is in progress. “The office will help drive the reform process including assisting with the drafting of the regulations for the new (tender) law once passed, and operational guidelines, as well as the setting up of the procurement advisory office and the new secretariat. I encourage the board to ponder on all the challenges and ways and means of overcoming them,” concluded Kuugongelwa-Amadhila.

AfDB and EBRD to Launch Assessment of Tunisia’s Public Procurement System


AllAfrica

April 23, 2013

The African Development Bank (AfDB) and the European Bank for Reconstruction and Development (EBRD) are jointly organizing the North Africa and Southern Eastern Mediterranean (SEMED) Regional Public procurement Conference on Morocco on April 22-23 in Marrakesh, Morocco to launch a report on the assessment of the public procurement system of Tunisia.

The conference, which will provide Tunisia an action plan to improve its public procurement system will include discussions on public procurement initiatives, reforms and assessments in Egypt, Jordan, Mauritania and Morocco.

Key Speakers at the conference will include experts and representatives from the AfDB, EBRD, Organisation for Economic Cooperation and Development (OECD), United Nations Commission on International Trade Law (UNCITRAL), World Trade Organisation (WTO) and the European Union Delegation to Ukraine.

The AfDB collaborated with the World Bank, the European Union and the Tunisian Government to complete the assessment of Tunisia’s public procurement system in 2012, as part of the Bank’s efforts to promote sound and efficient business practices in Africa.

South Africa: now making, assembling 50% of taxis


SouthAfrica.Info

19 March 2013

South Africa has made significant progress in localizing the manufacture and assembly of minibus taxis, Economic Development Minister Ebrahim Patel said on the weekend.

“Some 12 months ago, none of the taxis on our roads were assembled in South Africa. Today about 50 percent of all taxis that are purchased are made or assembled here in South Africa, and we’re moving towards the target of localizing two-thirds of assembly in the taxi industry by 2015.”

The government is leading a campaign to promote the local procurement of supplies across all industries in order to boost the economy’s capacity to create jobs.

Patel said the Industrial Development Corporation (IDC) had been mandated to develop a national localization strategy to guide all spheres of government.

He said the labour-absorbing capacity of local manufacturing industries had to be boosted to stimulate job creation and economic growth, adding that a strong local manufacturing sector would have a positive impact on South Africa’s balance of payments.

“We are working in partnership with a major manufacturer, Toyota, who has expanded the factory in eThekwini, as well as a partnership with the IDC and a Chinese manufacturer called the Beijing Automotive Works that has started a factory in Gauteng.

These companies had already employed 220 people to assemble taxis locally, with the number set to increase significantly by 2015, Patel said.

In October 2011, the government, business, labour and community-based organisations signed a Local Procurement Accord committing the parties to work together to increase local procurement as part of South Africa’s plans to create five- million jobs over the next decade.

And in December, the government put the buying power of the state firmly behind local manufacturers, with new amendments to the the Preferential Procurement Policy Framework Act allowing the government to name sectors and products that require a minimum level of local content to qualify for state procurement.

Bus manufacturing was among the first batch of sectors designated for local procurement under the amended law, resulting in the local sourcing of 80 percent of all inputs and supplies in the manufacturing of bus bodies for the rapid public transport systems in Pretoria, Cape Town and Johannesburg.

Other products designated in the first batch included power pylons, rolling stock, TV set-top boxes, clothing, canned vegetables, footwear and leather products.

In January, the Department of Trade and Industry announced a second batch of designated products, namely electrical valves, manual and pneumatic actuators, electrical and telecommunication cables, and components of solar water heaters.

Uganda participates in East African procurement forum


The Independent

By Julius Businge

December 5, 2012

The Public Procurement and Disposal of Public Assets (PPDA) Executive Director, Cornelia Sabiiti is leading a team of 19 professionals to a regional procurement forum in Bujumbura, Burundi that runs from Dec. 5 to 7, the procurement body said in a press statement released on Dec. 5.

Over 200 delegates from public, private and civil organisations in the region are attending the 5th East African Procurement Forum being held in Bujumbura.

During the three day conference delegates from Burundi, Kenya, Rwanda, Tanzania, Uganda and South Sudan will deliberate on issues affecting public procurement in the region. The objective of the forum is to serve as a framework that helps participants learn and benchmark with each other on their respective public procurement systems including policies and enforcement measures.

The Ugandan team includes delegates from Civil Aviation Authority (CAA), Uganda Revenue Authority (URA), Uganda National Roads Authority (UNRA), Ministry of Education & Sports, Uganda Management Institute (UMI), Ministry of Health, Kampala Capital City Authority (KCCA), Ministry of Local Government, National Environment Management Authority (NEMA), Uganda Coffee Development Authority (UCDA), Institute of Procurement Professionals of Uganda (IPPU), AH Consulting and the Ministry of Defense.

Uganda will be presenting six papers including a paper on ethics and transparency in the management of public procurement; the contribution of civil society and the public sectors on ethics and transparency in public procurement. Another paper will look at the challenges of an independent regulatory authority.

The Burundi forum comes on the heels of the successful public procurement symposium PPDA held in September 2012 bringing together public and private sector professionals in Uganda.

Ethiopia: Is ECX at it again? ECX’s upcoming procurement bid


Nazret.com November 29, 2012


By Wondwossen Mezlekia, 

The Ethiopia Commodity Exchange (ECX) is currently conducting a high-ticket international procurement – the first of its kind since a multi-million dollar bid was busted in 2010 due to alleged fraud and corruption during the bidding process.

The bid for the supply, installation, and maintenance of a futures trading software that ECX floated back in 2010 was marred by dishonest maneuvering, seemingly to favor the Sri Lanka based company, Millennium IT, and World Bank withdrew ECX’s award proposal and cancelled the loan. The loan was part of what the government had borrowed from International Development Association (IDA) for the purposes of financing the Rural Capacity Building project. [1] Strangely, the said futures trading software was not needed to begin with and would have been running idle today had ECX purchased it in 2010, because the government is, as it has always been, decidedly against price speculations and hence would not allow Forwards and Futures trade operations that the software was supposed to support.

ECX is once again preparing to spend some of the money that the government has borrowed from the Investment Climate Facilities for Africa Trust (ICF) and other donors on an online trading platform at an estimated total cost of more than $10 million (exact amount and details are withheld). Arguably, much like the futures trading software, the merit of this investment is also questionable, especially in light of ECX’s and the government’s current priorities, the details of which is for another article. The purpose of this article is to equip concerned citizens with the information and resources they need to be on their guard against corruption, and to put on notice anyone who may be under temptation or illusion to fraudulently benefit from the upcoming bid. Although there is no evidence so far, it is better to prevent corruption than to prosecute it.

According to ECX’s budget proposal that was reviewed for this article, almost 76% of the budget for the online trading project will be covered by funds from the World Bank’s Rural Capacity Building Project. ICF has agreed to cover the financing gap of about 24% of the total estimated budget through a grant. The procurement is being conducted under the auspices of the outgoing officers, Dr. Eleni Gebre-Medhin, Solomon Edossa, and Ahadu Woubshet who only have an advisory role under a one-year contract, even though the new CEO, Anteneh Assefa and other officers have already assumed their positions.

The Invitation for Bid (IFD) for the procurement of a core system for online trading, including its risk management, surveillance, and clearing components (Procurement Reference Number ECX-ICF/G/002/2012) was advertised on November 1, 2012 on national papers and online, including on dgMarket. [2] Accordingly, the bid will be opened in two phases: the technical bid will be opened on November 30, 2012 at 10:30 am local time at ECX Media Room, and the opening date for the financial bid will be announced thereafter.[3] The bidding will be conducted in accordance with the open International Tendering Procedures contained in the public procurement guidelines of the Government of Ethiopia, the ICF Guidelines[4], and the International Competitive Bidding (ICB) procedures.

The past record of the government in detecting or prosecuting suspected fraud and corruption is dismal. On the other hand, donor’s guidelines have proved to be reliable sources of defense in past disputes involving international procurement bids. Among these, ICF’s guidelines appear to be by far clearer and strictly dictating how the borrower and bidders alike should behave during the bidding process. For example, ICF not only offers to provide assistance of audit services and monitoring (Article 1.6), but also explicitly states the steps that it takes to fight fraud and corruption (Article 1.7).

Review, Assistance, and Monitoring

1.6 ICF and auditors appointed by ICF shall review the Grant Recipient’s selection process for the selection of suppliers proposed by the Grant Recipient in the Procurement Plan to ensure compliance with the Grant Agreement and these Guidelines. The Grant Recipient shall retain all documentation with respect to each contract during project implementation and up to two [y]ears after the closing date of the Grant Agreement. This documentation would include, but not be limited to, the signed original of the contract, the analysis of the respective proposals, and recommendations for award the record of justification, the capabilities and experience of the suppliers, for examination by ICF, auditors appointed by ICF or by its suppliers.

Fraud and Corruption

1.7 It is ICF’s policy to require that Grant Recipients, as well as suppliers and their subcontractors under ICF-financed contracts, observe the highest standard of ethics during the selection and execution of such contracts. In pursuance of this policy, ICF will reject a proposal for award, cancel the portion of the Grant allocated to a contract; sanction a supplier if it at any time determines that the tender process was marred by corrupt, fraudulent, collusive, coercive, or obstructive practices. In addition, ICF will have the right to require that, in contracts financed by an ICF grant. a provision is included requiring suppliers to permit ICF to inspect their accounts and records and other documents relating to the submission of proposals and contract performance and to have them audited

Articles 2.1, 2.15, and 2.21 of ICF’s guidelines also require borrowers to conduct bidding by following a two-tiered approach and based on Quality and Cost Based Selection (QCBS), which uses a competitive process that takes into account the quality and the cost of the services in the selection of the winner. The guidelines prohibit evaluators of technical proposals from having access to the financial proposals until the technical evaluation is concluded.

The Selection Process

2.1 QCBS uses a competitive process among short-listed firms that takes into account the quality and the cost of the goods and supplies in the selection of the successful supplier. Cost as a factor of selection shall be used judiciously. The relative weight to be given to the quality and cost shall he determined for each case depending on the nature of the assignment.

Evaluation of Proposals: Consideration of Quality and Cost

2.15 The evaluation of the proposals shall be carried out in two stages: first the quality, and then the cost. Evaluators of technical proposals shall not have access to the financial proposals until the technical evaluation is concluded. Financial proposals shall be opened only thereafter. The evaluation shall be carried out in full conformity with the provisions of the RFP.

Articles 2.11 and 2.12 if IFC’s guidelines even go as far as to dictating the minimum time that grant recipients need to allow between the different stages of the procurement process. For example, the minimum time-limit for receipt of proposals should not be less than 40 days from the date of the advertisement, except in emergency situations.

While these and other Articles of ICF’s guidelines appear to provide reasonable controls around each segment of the procurement processes, any control is only as strong as the people applying them. It is thus imperative that concerned citizens and bidders get engaged and attentively monitor all international bidding processes conducted at ECX and other institutions in order to prevent misappropriations of foreign aid in Ethiopia.

Report suspected fraud and corruption to Investment Climate Facility for Africa at info@icfafrica.org or projects@icfafrica.org; the World Bank Group’s Integrity Vice Presidency at investigations_hotline@worldbank.org; or Transparency International at transparency@transparency-usa.org.

[1] http://poorfarmer.blogspot.com/2012/03/is-government-serious-about-fighting_19.html
[2] http://www.dgmarket.com/tenders/np-notice.do~8547811 (dgMarket is an international portal for tenders and procurement opportunities from governments and international organizations)
[3] The time elapsed between the date of advertisement and the bid opening date appears to be shorter than the minimum time limit set under Articles 2.11 and 2.12 of ICF’s Procurement Guidelines
[4] http://www.icfafrica.org/documents/ICF-Procurement-Guidelines-for-Goods–Suppliers.pdf

Read more about ECX at http://poorfarmer.blogspot.com/p/ecx-watch.html
Contact the writer at poorfarmer@gmail.com

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