Public procurement and firm performance in Uganda
This policy brief examines the impact of public procurement on domestic firms in Uganda, conducting a survey of firms which have won procurement contracts to test different hypothesis for why firms fail to scale up production when they win a procurement contract.
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Hoekman-et-al-Policy-Brief-October-2024.pdf
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- Participation in public procurement by domestic firms in Uganda is associated with higher sales in the year they begin selling to the government. Firms realise an average increase in sales of UGX 145.9 million or USD 39,700 compared to a control group.
- Although total sales increase when firms begin selling to the government, there is a reallocation effect: on average, firms reduce sales to private sector buyers by UGX 153.6 million (USD 41,800).
- Firms that participate in public procurement do not register growth in value added per employee (a measure of labour productivity), in contrast to firms that succeed in beginning to sell products to the largest private companies in Uganda.
- The reduction in overall sales to private clients is accompanied by an increase in the number of non-government customers. Firms that enter into procurement tend to drop larger private companies, suggesting capacity constraints and the need to create slack to cater to the government.
- A survey of Ugandan firms selling to the government suggests that while a significant share of firms operate at full capacity, many invest to bolster production. Most respondents indicate their firm reallocated sales away from private sector customers because selling to public entities is more lucrative.
- These findings suggest that the government may not be realising value for money, a key goal of public procurement, nor promoting private sector development, as reflected in the absence of productivity improvements in firms accorded contracts. Higher prices for government contracts may be a consequence of a focus on seeking to increase local content, or reflect features of the procurement process, such as lengthy payment delays.