MSMEs seek bigger share of $470 billion procurement bill

Jamaica’s Government spends about US$3 billion (J$470 billion) per year to procure goods and services from the private sector, with only about one per cent going to micro, small, and medium sized companies (MSMEs).

A thrust is now on to allocate a larger share of government procurement to smaller businesses even though similar promises have been made in the past.

Small Business Association of Jamaica (SBAJ) vice-president Dennise Williams is optimistic that with the commitment of the two ministries and other powerful state agencies, the complex nature of applying for government contracts will be addressed and more MSMEs will be doing business with the Government.

“With only one per cent of government contracts being awarded to MSMEs, I don’t think there is any confusion that the system is not working and that there is a problem that must be solved,” Williams told the F inancial Gleaner.

“The SBAJ team has made representation to the Government that literally what they are asking of a huge conglomerate like a GraceKennedy, which has an entire compliance department, you are asking of a caterer, a mason, or a man who installs solar lights on his own,” she said.

Williams said the government entities have committed to going through the procurement process “with a magnifying glass” to identify the challenges, especially for the microenterprises.

It follows a recent partnership between the Public Procurement Commission, the SBAJ, the Ministry of Finance and the Public Service, the Ministry of Industry, Investment and Commerce, and the Development Bank of Jamaica to implement the 2019 Public Procurement Set Asides Order.

The order mandates that 20 per cent of public-procurement contracts be reserved for qualifying Jamaican suppliers, including MSMEs. The order defines a medium enterprise as having an annual turnover of between J$75 million and J$425 million, a micro enterprise as having a turnover of less than J$15 million, and small enterprises between J$15 million and J$75 million.

Williams, a media practitioner who also operates the firm Financially Focused Consulting, says it is not feasible for small entrepreneurs to pay up to J$450,000 per quarter for audited financial statements to remain compliant in the government-procurement system.

She has suggested that micro entrepreneurs’ income tax returns or a Tax Compliance Certificate (TCC) could be used to substitute for audited financials.

While the size of the Government’s procurement budget has been stated as “billions of dollars”, it may be estimated at approximately 13 per cent of the country’s GDP or about US$3 billion (J$480 billion) annually. From this amount, MSMEs would be earning about J$4.3 billion.

This is because according to the International Monetary Fund, Jamaica’s nominal GDP was projected to be US$23.14 billion.

According to the World Bank, public procurement — the process by which governments purchase goods, services, and works from the private sector — amounted to US$11 trillion out of global GDP of nearly US$90 trillion in 2018. In other words, 12 per cent of global GDP is spent following procurement regulation.

The size of public procurement as a share of GDP is nearly identical across low-income, middle-income, and high- income countries. Among the 190 countries studied, low- income economies procure on average 13 per cent of GDP in goods, services, and works. Middle-income countries procure 13.2 per cent of GDP and high-income countries procure 14 per cent of GDP.

Meanwhile, President of the MSME Alliance Antoinette Hamilton is calling for greater transparency in the procurement process. She says the request for the bid guarantee within five working days makes it prohibitive for small businesses to win government contracts.

“The Set Aside order has been in the pipeline for quite some time, and we are hopeful that this time around, we will make a dent into ensuring that MSMEs benefit from public procurement … The process as it is now is very tedious to understand the terminologies, and an ambitious entrepreneur who may not be digitally savvy will find it very difficult to navigate,” she said.

luke.douglas@gleanerjm.com