A recent study has found that although procurement is globally recognised as playing an essential role in local and regional-wide industrialisation, current purchasing and supplier selection practices do little to support SMME growth on the continent.
The study found that while over 55% of African-government expenditure went towards purchasing and procurement of goods and services, less than 10% of that expenditure was directed towards local suppliers.
In addition, over 80% of the government organisations participating in the study were unaware of the true origin of the goods and services that they were spending their money on, which indicates a clear lack of focus on long-term SMME and enterprise development thinking, writes Professor Douglas Boateng, Chair of the Advisory Board of the Chartered Institute of Procurement and Supply-Africa, in this month’s SmartProcurement.
The study was conducted by PanAvest International and Partners. It examined the procurement attitudes and activities of various public and private organisations.
Statistics from the private sector were no more promising: locally and internationally owned businesses also indicated a limited focus on SMME development and local supplier support.
As much as 92% of the locally owned organisations and corporations involved in the study admitted to not having any medium- to long-term SMME strategies and implementation plans, and 90% indicated that they did not currently have any internal supplier diversity and SMME policies in place.
This is largely a result of the overwhelming majority of participants (82%) viewing SMME development and support initiatives as the responsibility of national governments or large global organisations operating in their regions.
Similarly, international participants indicated a significant lack of medium- to long-term internal supplier development and SMME policies, and the majority of participants (84%) viewed local supplier development as an aspect of corporate social responsibility, rather than an integral part of business practice.
In particular, international participants saw local supplier development and SMME support as the responsibility of government, and not necessarily the private sector.
Public and private sectors need to commit to supporting SMME development initiatives
If African countries are to realise their inherent potential and experience long-term local and regional socio-economic success, it is imperative that governments and businesses begin taking bold steps to support enterprise development and SMME growth on the continent.
In relation to the findings of the study, it is evident that support for local African SMME and enterprise development initiatives is currently lacking in both the public and private sectors. This needs to change before the power of procurement can be effectively harnessed for long-term SMME growth and related job creation in Africa.
In order to realise this change, governments and the private sector need to work together to co-ordinate local supplier diversity, enterprise development and SMME growth. They need to be bold and aggressive in their approach to SMME development and commit themselves to long-term strategic thinking instead of focusing on short-term economic gains.
When it comes to public sector input, African governments need to provide clearly defined national and regional procurement and supply chain management strategies related to SMME development. Such strategies should focus on increasing regional wide intra-African SMME trade through strategic consumer and industrial sourcing.
In this regard, sectors which have significant long-term growth potential, such as agriculture, tourism and ICT, should be important areas of focus, and governments should consider committing at least $70-million of their annual tax revenues (approximately R1.1-billion) directly toward SMME and related local supplier diversity initiatives over the next 10 years.
In addition, governments need to offer attractive incentives and rebates to local and international businesses with long-term interests in SMME and supplier development.
The private sector can also contribute to SMME growth and development in various ways. They need to be open to working with governments in their initiatives to improve SMME growth and enterprise development on the continent.
Business must accept that procurement is more than just a cost-saving function, and that SMME growth and supplier diversity needs to be viewed as a medium- to long-term business imperative, rather than a simple short-term ‘social responsibility’ requirement. As such, organisations may need to consider collaborating on joint region-wide procurement strategies that will contribute towards organisational performance and industrialisation.
Finally, businesses in the private sector can begin to have a significant effect on SMME development and job creation by contributing 0.5 – 5% of their gross annual profits to SMME and supplier development initiatives.
Africans do not want handouts, Africans want jobs. In a time of intense market competition and widespread unemployment, businesses and governments alike need to look for innovative and effective ways to create jobs and promote socio-economic stability in the region. Africa’s current over-reliance on government and ‘big-business’ jobs needs to come to an end and small, medium and micro-sized enterprises (SMMEs) need to be supported in their job creation capabilities on the continent.
Global examples have illustrated the benefits that long-term SMME growth and enterprise development can have for industry improvements at both a national and regional level. The role of procurement, as a sub-process of supply chain management, in facilitating SMME growth and development must be considered as an important avenue for socio-economic development in Africa.
Prof. Douglas Boateng is an International Professional Chartered Director and an adjunct academic. Independently recognised as one of the global strategic thinkers on procurement, governance, logistics and industrial engineering in the context of supply and value chain management, he plays leading academic and industrial roles in supply chain strategy development and implementation in Africa and around the world.