World Bank watchdog says Bank could be better at promoting local industries in partner countries

Added 16 Dec 2013

The Independent Evaluation Group (IEG), the World Bank’s arm’s length internal watchdog, recently produced a comprehensive (300 page) evaluation of the bank’s procurement policy: crucial because, according to the IEG, procurement accounts for up to 20% of GDP in developing countries, and the bank plays a critical role in influencing procurement systems across the globe. Many of the findings echo concerns and recommendations illustrated in Eurodad and partners’ joint submission to the World Bank’s review of its procurement policies. Issues include a clear need to target domestic enterprises within developing countries, and how to align World Bank policy with implementing commitments to use country systems.

Purpose of review

The evaluation was framed around two questions regarding the bank’s activities:

  1. “How effectively has the World Bank helped build well-functioning public procurement systems in client countries?” 
  2. “How well have Bank procurement policies and procedures for its investment lending supported the development effectiveness of Bank lending?”

The evaluation assessed a wide range of activities including programme implementation, diagnostic tools, country systems, public private partnerships and capacity building. Overall the report noted that the World Bank is performing better than other donors regarding commitments to using country procurement systems (CPS) but also outlined some tensions between achieving this commitment and expectations from the private sector.

Importance of procurement

The evaluation confirms why public procurement continues to be a eurodad priority policy area noting that it consists of 5-20% of GDP and you cannot have effective public expenditure without effective procurement systems. A finding of the report further elaborates on the latter point:  “self-reporting by staff through Implementation Status Reports (ISRs) suggests that procurement performance is closely associated with project success. In projects with unresolved procurement problems at closing (that is, with procurement performance ratings of Moderately Unsatisfactory or worse in the last ISR), the likelihood of unsatisfactory outcomes is more than three times as high as for projects with satisfactory performance at completion.”

The evaluation demonstrates that the World Bank continues to be an influential player in determining how countries develop their procurement policies, citing specifically the example of Mexico which “has a standardized set of bidding documents that are closely modelled on those of the World Bank and IDB, with minor adjustments to suit local conditions, such as language.” Furthermore the evaluation finds that the World Bank is more advanced than bilateral donors and other multilateral development banks in implementing aid effectiveness commitments to using country systems – though it is only half way there (see graph below). Reflecting upon this general failure to use country systems, the report notes, “interestingly, however, the OECD has noted that there is no clear relationship between the use of country systems and the quality of national procurement systems, suggesting that the greatest hurdle to greater use of country systems may be political instead of technical.”

Domestic Preference

The evaluation identifies several shortcomings in Bank policy that could be improved, such as better diagnostic tools, scaling up CPS and assessing how to target the domestic private sector in partner countries. The strategic usage of preferences in procurement tenders for small and medium sized enterprises and nationally based firms is one area that could benefit from more exploration. Bank staff and clients located in partner countries note that the current policy concerning domestic preferences is largely ineffective and could be broadened. The IEG is careful, however, not to push for protectionist policies arguing “a broader review of the issue of encouraging domestic suppliers would have merit, not limited to the scope of the current and narrowly defined domestic preference policy. It would appear that there could be scope for more broad-based support to local suppliers, while taking account of competition and open markets.” UNCTAD and BMZ have recently done work on how targeted public policy could help local businesses.

Difficulties with Public Private Partnerships

Another challenge identified by the evaluation is how to adapt World Bank procurement policy to promoting and effectively implementing public private partnerships (PPPs). PPPs are currently a hot topic amongst donor agencies and international financial institutions (IFIs) and, as Eurodad has previously pointed out, come with their own set of problems. The IEG also notes the challenges in promoting PPPs as “the private sector typically uses commercial market practices to enter into deals that are financially attractive and bankable. It is also risk averse—it is not only the expected profit but also the certainty of the profit that ensures a total return.” These considerations require a different set of tools and competencies than traditional public procurement. There also appears to be a bit of a double standard as the stringent guidelines required for use of CPS are less prescriptive and rigid for PPPs.

Moving Forward

The IEG evaluation touches on many of the core recommendations put forward by Eurodad and partners in how the Bank should restructure its procurement policies. There is a clear need to focus on public procurement’s developmental effects over financial considerations if it is to demonstrate true “value for money.” Exploring new ways to ensure that people in partner countries are the main beneficiaries of public

tags: World Bank, Aid,