Will the preferential procurement policy secure employment for Kenyan youths?

The youth form the fastest growing percentage of Kenya’s population. Their numbers, unlike any other time in the history of our country, have surpassed the working age population as well as available formal and informal jobs.

While the trend has implications on unemployment rates in the country, it creates an avenue for productive opportunities especially for the entrepreneurial youth.

As the government actualises the preferential procurement policy; which has reserved 30 per cent of public procurement for small enterprises owned by the youth, women and the disadvantaged, the question as to whether inclusion of the youth in the supply chain will secure them jobs remains pertinent to public debate as well as the policy discourse.

It is demoralising to be young, energetic, with an education or in possession of a set of skills yet be unemployed for years. Yet this is the current reality among many of the youth in Kenya today.

The government is alive to this fact hence the public procurement policy direction which targets to create income earning opportunities and employment for the youth by reserving a proportion of public procurement for small enterprises owned by this group.

The new law states that “a procuring entity shall allocate at least 30 per cent of its procurement spend for the purposes procuring goods, works and services from micro and small enterprises owned by youth, women and persons with disability.”

Accessibility to the multi-billion shilling public procurement market in Kenya has remained a mirage for small and typically informal enterprises. The enterprises are mostly owned by young Kenyans who, after finishing their formal schooling, are confronted with an arduous task of looking for ‘‘white-collar jobs’’ to no avail.

The SME segment is estimated to contribute over nine per cent of the Gross Domestic Product (GDP) in Kenya, with public organisations forming a huge component of the market.

Additionally, the objectives of the public tender awards have the potential to contribute towards creating the one million jobs envisaged by the government. However, the success or failure of this programme will not only depend on how quickly the government includes it in the development agenda but also largely on how the targeted group responds to this government policy which is now grounded in law.

Theories on public sector procurement as they relate to SMEs suggest a principal-agent dilemma. Transaction costs for both the public agent and the seller are much higher when the seller is small and largely informal.

Such transaction costs include the costs that entail registering in order to qualify as a government supplier, the costs of accessing procurement information, bid preparations, supplying the required guarantees and the costs related to complying with inspection at various stages of the process.

To these are added the costs of financing the goods and services supplied until the public agency pays its dues. While public agents are extremely slow payers, small enterprise capital- stock flow has a very short time span.

These enterprises too find it strenuous to enter into any litigation against public entities and would rather not engage in public procurement.

Arising from past misuse of public procurement, Kenya’s public procurement process tends to be skewed towards tendering methods that seek to make the process transparent and less fraud-prone.

The overall effect has been to make the process more complex, time consuming and expensive. Eventually these requirements have created perfect conditions for rent seeking. This way, most jua kali enterprises are discouraged from participating in the process.

Notwithstanding that the public procurement rules partially address some of these concerns, there are other quick gains for the government to ensure policy benefits to youth-owned enterprises.

Such gains include encouraging the enterprises to enter into consortia that are capable of registering group bids as well as act as avenues for sub-contracting. County trade offices can start Tender Advisory Services to build capacity on technical procurement to such consortia or associations and their membership.

Negotiating and signing

There are also opportunities for waiving some process requirements, especially at the pre-qualification stage, for the youth, women and other disadvantaged groups to enable their enterprises participate without compromising the integrity of process.

Currently all ministries, parastatals and public agencies are in the process of negotiating and signing their performance contracts.

Targets in the performance contracts that relate to the 30 per cent preferential public procurement policy need to be included such that the performance of public organisations is not only gauged but also recognized based on the proportion of awards tendered to the intended enterprises.

Whereas the current framework requires youth-women-disadvantaged-owned enterprises to register with Treasury, which would be a costly affair for the government, self-regulation through SME associations, would be more cost effective.

A single point registration, through an authorised national small enterprise umbrella body to undertake automatic registration with all public entities at national or county level would be effective. Similarly, the umbrella body can issue certificate of competence to enterprises after demonstratable experience.

This will shift some of the transaction costs of procurement borne by public entities to the industry associations. It will also build confidence and trust among public entities, eliminating some of the pre-qualification stages.

The authors are policy analysts at Kippra