Young people at a business workshop organised by the Youth Enterprise Fund in Nyeri in February 2012. A new legal notice issued by the Treasury secretary makes it easier for government departments to comply with a presidential directive requiring them to reserve 30 per cent of procurement spend for disadvantaged groups. Photo/FILE
What you need to know:
Treasury Secretary Henry Rotich has, through a legal notice, increased the value of tenders reserved for local companies to a maximum of Sh1 billion from Sh500 million — giving them a bigger slice of the procurement cake.
Mr Rotich has also expanded the range of goods in the affirmative action bracket to include construction materials such as cement, metal works, and electric cables.
The new law also demands that foreign firms bidding for big-ticket government contracts source at least 40 per cent of their supplies from Kenyan firms.
The Treasury has increased the value of government contracts reserved for local firms, opening a window for Kenyan women and youths to increase their share of business with the State.
Treasury Secretary Henry Rotich has, through a legal notice, increased the value of tenders reserved for local companies to a maximum of Sh1 billion from Sh500 million — giving them a bigger slice of the procurement cake.
The new law makes it easier for the government departments to comply with the presidential directive requiring them to reserve at least 30 per cent of their procurement spend for small businesses owned by youth, women and persons with disability.
Mr Rotich has also expanded the range of goods in the affirmative action bracket to include construction materials such as cement, metal works, and electric cables.
The new law also demands that foreign firms bidding for big-ticket government contracts source at least 40 per cent of their supplies from Kenyan firms, opening additional opportunity for small and micro-business down the chain to benefit from State tenders.
Mr Rotich’s action is in line President Uhuru Kenyatta’s policy of using government spending power to boost local manufacturing and enterprise to create jobs for the millions of young people entering the labour market every year.
The government is the single largest consumer of goods and services in Kenya and President Kenyatta has been keen on using that leverage to spur fresh demand for local enterprises.
Analysts described the changes in procurement law as a significant policy shift that could help Kenya deal with the time bomb of mass youth unemployment.
“Government can make a big difference in the growth of local companies,” said Gerrishon Ikiara, an economics lecturer at the University of Nairobi.
Mr Ikiara, however, warned that the policy needs to be implemented cautiously to ensure the government is not hit by purveyors of expensive goods or paralysed by delayed supplies and poor quality services in the name of boosting local enterprises.
Key beneficiaries of the affirmative action include local manufacturers who constitute one of Kenya’s most important economic sectors, alongside agriculture, in terms of job creation.
The manufacturing sector’s contribution to the national economy has stagnated at about 10 per cent in the past five years — partly due to consumers’ greater preference for relatively cheaper imports from low-cost producers in Asia, Egypt and South Africa.
Mr Rotich has responded to this situation by raising the duty on imported items like welding electrodes and tubes for packing toothpaste to 25 per cent from the current 10 per cent.
The seemingly protectionist taxes together with the new procurement rules are expected support demand for locally produced goods, create more jobs and generate tax revenues for the government.
The Treasury’s latest amendments also require all government-controlled entities to file quarterly reports with the Public Procurement and Oversight Authority (PPOA) showing their compliance with the 30 per cent rule.
State agencies are expected to help disadvantaged groups win public tenders by helping them secure financing and making prompt payments upon delivery of goods or services.
Procuring entities are, for instance, expected to help the special interest groups secure bid bonds by undertaking to channel payments to the successful bidders through accounts of banks issuing the guarantees.
Most small and medium-sized firms have in the past been locked out of government tenders for lack of financial backing and substandard technical capacity.
To boost the liquidity of the small businesses, the procuring entities are required to pay for services supplied by disadvantaged groups within 30 days of delivery.
Where delay is inevitable, government agencies will have to pay the contractors at least half of the money or arrange for them to access bank loans based on the outstanding payments.
To further assist the disadvantaged groups, government departments are required to break down their procurement into smaller contracts.
“For greater certainty, a procuring entity in unbundling procurements may be lot goods, works or services in quantities that are affordable to specific target groups participating in public procurement proceedings,” reads part of the amendments.
To qualify for the affirmative actions, the bidding firms must be registered by the procuring entities and must be managed purely by women, youth or the disabled.
Local manufacturers of cement, metal works, and electric cables have joined the list of winners after the new procurement rules added them to the category of producers to be given priority in public tenders.
Previously, manufacturers of the construction materials were left out of the list of beneficiaries that included assemblers of motor vehicles, furniture makers, and food processors.
The government is also keen to ensure that local firms benefit from large contracts that are typically won by foreign firms riding their big financial muscle, technical competence, and proven track record.
Such international tenderers must now commit to sourcing at least 40 per cent of their supplies from Kenyan firms when bidding for local contracts.
The requirement is seen as targeting multinational firms by stopping them from shipping in most of their equipment and other materials to the detriment of the local economy.
