Justin Yifu Lin and Trevor ManuelThere is a greater need for public sector tenders to be more strictly awarded according to government’s guidelines. The outcome of tender awards influenced by government officials with stakes in corporate companies, bribery and financial mismanagement is not just that incompetent people receive a contract, but also the waste of government’s steadily shrinking pockets.

Professor Justin YIfu Lin with Minister in The Presidency: National Planning Commission, Trevor Manuel.

The economic downturn has put greater onus on South Africa’s need for improved efficiency in public expenditure, says the World Bank.

Justin Yifu Lin.JPGAfrica’s economic leader has a low level of domestic savings, which will limit its fiscal capacity to finance significant countercyclical spending on programmes that create jobs, ensure delivery of core services and provide safety nets to households and businesses, Professor Justin Yifu Lin, Chief Economist and Senior Vice President of the World Bank, told SmartProcurement during a recent address at the University of South Africa.

Therefore, South Africa can little afford to waste government coffers, which have already shrunk by R70-billion compared to the previous year, on tenders irregularly awarded to unqualified or profiteering applicants,  as will be discussed at the Public Sector Supply Chain Summit later this month.

The financial crisis

While the crisis can be seen as an opportunity to tackle critical growth and productivity bottlenecks, South Africa is not in a position to leverage its fiscal space, much like other countries in the developing world which will suffer even more than developed nations, where the financial crisis that gave rise to the crisis in the real sector found its origins, said Lin.

Like the rest of the world, South African households diverted increasing shares of their income to consumption during the financial boon that preceded the bust, explained Lin. However, we have never been a nation particularly keen on saving, and our portion of income devoted to consumption was already elevated prior to its boon increase.

Lin described the problem afflicting markets around the world as excess capacity. The real sector responded to the financial boon’s easy credit and grew to meet consumption. When the financial bubble burst and a sudden loss of wealth became tangible, households reduced their consumption, which has manifested itself in the real sector as excess production, or excess capacity. South Africa’s consumption habits have not spared its real sector from the same situation.

“Once excess capacity appears, the economy becomes trapped in a vicious cycle. With a reduction in aggregate consumption and investment demand, excess capacity becomes even larger and financial sector problems deepen”, explained Lin.

Lin advised that the ability of governments to cope with the fallout of the downturn will be determined by their ability to finance growth programmes with their own fiscal capacity. However, only one-third of the exposed countries have the ability to expand fiscal deficits, and South Africa is not one of them owing to its limited domestic savings.

So it stands to reason that the money government expects to earn this year, about R834-billion, should be used wisely and not be wasted on contracts awarded through criminally mismanaged government tenders.

Government tenders will be a key discussion area at the SmartProcurement Public Sector Supply Chain Summit.