Fighting corruption through digitalisation

When the COVID-19 pandemic hit, all of the world needed to urgently buy protective gear, oxygen and ventilators. 

The countries that moved fastest and made the best spending decisions had electronic procurement systems in place.

These systems not only help in crisis but are crucial for reducing corruption and saving governments billions of dollars.

How governments spend money is something most of us seldom consider.

Yet this money adds up to a fortune.

Governments are by far the largest buyers of works, goods and services from the private sector.

Public procurement amounted to $11 trillion in 2019.

That’s around 12 per cent of global GDP.

 In the countries where the poorer half of the world’s population lives, procurement makes up an astounding half of all government expenditure.

E-procurement

Electronic procurement or ‘e-procurement’ speeds up this important spending, and speed is crucial in crises like COVID-19.

In South Korea, introducing e-procurement meant the duration of the processing of bids was cut from an average of 30 hours to just two hours, whereas in Argentina the duration of the public procurement process fell by more than eleven days.

But e-procurement does far more than just let governments move more quickly.

 It makes government spending less corrupt and more effective.

This is crucial because corruption is a trillion-dollar problem globally each year, with very few answers.

The world is doing just as poorly now on corruption as it was a decade ago, according to Transparency International.

Crucial policy

My think tank, the Copenhagen Consensus Centre, has identified e-procurement as a crucial policy for the four in ten low-income governments that still haven’t implemented it.

This research is part of our multi-year project working with dozens of the world’s leading economists to identify the best global policies to speed up the achievement of the Sustainable Development Goals (SDGs).

These goals run from 2016 to 2030, so this year we are at halftime—yet we are failing on nearly every single one.

And on the SDG target of eliminating corruption, we are making zero progress at 

Public procurement

Public procurement, because of its size, is one of the biggest corruption sources for every country, so introducing e-procurement can be an incredibly effective way to tackle corruption.

 Moreover, it can also end up making countries billions richer.

Our research shows that over the first 12 years of designing, building and maintaining an e-procurement system, costs will average $16.7 million, irrespective of a country’s size—a relatively trivial sum compared to most government budgets.

There are many benefits, as was shown during the COVID-19 pandemic. E-procurement not only speeds the ability of governments to act; it also increases the number of bidders.

India’s Karnataka State found the number of suppliers increased from 130 to 4,800 in the first three years of e-procurement, while South Korea saw the number of bidders double from 70,000 to 147,000 in the same period.

And having transparent, widely accessible systems means governments can spend less advertising for bids.

The Indian state of Andhra Pradesh found it could save half a million dollars annually on advertising, while the Philippine government saved $9 million annually on newspaper advertisements.

Digitising

There is also evidence that digitising procurement means better oversight and improved service delivery.

A good example is India, where there was a 12 per cent increase in road quality grade after shifting to an e-procurement system. 

Reforms in Paraguay reduced the percentage of contracting processes that needed amending from 19 per cent in 2013 to just three per cent in 2016.

The most obvious, immediate, and well-documented consequence is that e-procurement simply saves the government money.

Our research shows that the average cost-cutting across all procurements is 6.75 per cent.

For the average low-income country, this means the benefits across the first 12 years amount to more than $600 million.

For each dollar spent, the low-income country will realize savings worth $38. 

For lower-middle-income countries, the average benefits are more than $5 billion over the first 12 years, meaning each dollar spent creates more than $300 of social benefits.

This makes e-procurement an exceptionally effective policy.

And it is not just in times of a pandemic like COVID-19 that an e-procurement system can show its worth.

Having an e-procurement system helped Ukraine’s government to continue to function when it was invaded by Russia.

Transparency International reported in March 2022 that “the procurement system and all platforms continue to operate” every single day, even as much of the country was under attack.

As many countries face new threats in the future that may require large-scale spending in short periods, e-procurement can allow governments to do so more quickly and efficiently, with far less corruption.

Introducing an e-procurement system is not only a proven way to cut waste and graft in public spending but also to build resilience and be much better prepared for the challenges ahead.

It’s a phenomenal policy that every country should pursue.

The writer is President, Copenhagen Consensus & Visiting Fellow at Stanford University's Hoover Institution.