Editorial | What’s in it for local firms?

Perhaps Nigel Clarke needs to walk Jamaican businesses, particularly smaller ones, through the minutiae accessing the carve-outs they were promised in the Government’s annual multibillion-dollar purchase of goods and services.

Metry Seaga, the new president of the Private Sector Organisation of Jamaica, says the promise has not been kept, and this newspaper has not, so far, discerned any law or regulation that would amount to a legal obligation to honour the undertaking. If indeed such legislation exists, it is possibly too opaque to be readily recognisable – which, of course, would be our fault.

Exactly how much the Government spends each year buying the goods and services to keep the State functioning is not a readily available statistic. However, the value of the contracts monitored by the Integrity Commission is probably a reasonable proxy for this, notwithstanding that certain categories of contracts outside the remit of normal procurement rules may not be captured in the data.

According to the commission, over $188.7 billion worth of government contracts were recorded in the 2021-22 fiscal year. Approximately 73 per cent of this, or around $138 billion, went to the purchase of goods. Sixteen per cent was allocated to the acquisition of services, and 11 per cent for the provision of infrastructure/works.

COMPLAINED

For decades, Jamaican firms have complained that they do not get a big enough share of the procurement expenditure. That cry, however, has been loudest among medium, small and micro enterprises (MSMEs), which in Jamaica are defined, according to the Government’s information website, as businesses having up to 50 employees and sales of between $15 million and $425 million. This represents the vast majority of businesses in the island, which, combined, are the biggest employer of labour.

Mr Seaga, a long-standing businessman and a former president of the Jamaica Manufacturers and Exporters Association, says he spent a dozen years trying to have written into the Government’s procurement rules a stipulation that set aside at least 15 per cent of the annual spend for domestic businesses.

“I have never seen a procurement document that has it in,” he recently told this newspaper.

That, on the face of it, would be counter to what has been promised by at least two successive administrations over the past seven years, especially with respect to MSMEs. But the discussion has been alive for far longer than that.

In 2015, when a new procurement law, aimed at bringing greater accountability to the process, was under review, the then People’s National Party (PNP) administration was clear in its commitment that at least six and two-third cents of every dollar Jamaica’s taxpayers spent on purchasing goods and services would be with MSMEs.

With the bill before a joint select committee of Parliament, Anthony Hylton, the PNP’s minister for trade and commerce, who was chaperoning the legislation, said: “I am keeping a keen eye on developments to ensure that the 15 per cent procurement set-aside is part of the bill that ultimately becomes law in Jamaica.”

Mr Hylton’s party lost power months later. The law that was eventually passed in 2018 did not have the promised provision. Not in any specific way.

However, the following year, months before the legislation’s accompanying regulations were tabled, Dr Clarke, who, as the finance minister, has responsibility for procurement, promised “set-asides” for small businesses. A pilot procurement scheme would allow for government officials to work out the kinks in having differential treatment for this category of suppliers.

“This is revolutionary,” Dr Clarke said. “This is giving a leg up to our MSMEs, who are vitally important for our growth and prosperity.”

The tabled regulations list various categories of supplier entities, based on their capital and turnover, the sizes of the projects they have completed over specific periods and the expertise they possess, to help determine goods or services on which they can bid.

NOT CLEAR

It is not clear how these regulations have translated to ‘set-asides’, or whether there are other arrangements that specifically benefit Jamaican companies, including MSMEs.

Mr Seaga does not believe they have, lamenting that “I have had no success” over a long period in moving the needle on the issue.

“There are a host of things that are imported, which could be manufactured locally,” he said. “But it’s gonna take the will of each government agency and procurement officers to say that he or she is going to turn every stone to support local industry.”

Or, it can be simpler. The provision can be clearly written into the law.

Put it this way, $28.3 billion – which is approximately what 15 per cent of the contracts awarded in the last fiscal year would amount to – is a lot of money to help shore up domestic business and keep jobs at home. It would probably still be a significant chunk of change even after some of that is shaved off to take into account what domestic small businesses already earn from government procurement.

Moreover, this carve-out would breach no international trade rules. And properly structured and managed, it need not cause distortions in the economy.

In fact, providing a leg up for domestic businesses is precisely what the Biden administration is now doing for American companies, via indirect subsidies, under the so-called Inflation Reduction Act, passed by the US Congress during summer.