Economists distinguish between growth, by which they mean more of the same – more goods and services; and development, growth with structural and technological change.
An important feature of the development is seen when goods and services enter into markets. For example, when people have meals away from home and pay for restaurant services, the restaurant sector grows up which enters into what is measured as the Gross Domestic Product (GDP).
GDP is the total market value of a country’s output of goods and services that are exchanged for money or traded in a market system over a certain period (usually a year), regardless of who owns the productive assets. GDP measures the value of all economic activity within a country’s borders. For example, the output of Indian-owned companies based in Sri Lanka is considered part of Sri Lanka’s GDP, not that of India.
GDP is equal to private consumption, plus investment, plus government expenditure, plus some other factors such as changes in stocks, plus exports minus imports. These are known as the components of GDP.
Economic Growth Rate is the rate at which gross domestic product (GDP) is increasing (positive growth) or decreasing (negative growth). If GDP grows at a higher rate than the population, then living standards are said to be rising. If the population is growing at a higher rate than GDP, living standards are said to be falling.
As explained in the above paragraph, government expenditure is a major component of GDP. Also, it is a positive component, which means an increase in government expenditure results in an increase in GDP. That in turn results in an increase in the economic growth of a country, provided that other factors are unchanged.
The government is the largest service provider in the country. So the increase in government expenditure should increase the quality of services that government provides, such as health, transport, utilities, etc. The question is whether this is happening.
In theory, if the government spends more than the previous year, it will increase the GDP of the country this year. That means there is positive economic growth in the country. The public should feel that there is economic growth because they get quality service than previously. There should be a reduction in unemployment because the government has created more job opportunities with what they have procured this year. There should be lower prices in commodities, i.e. lower inflation rate with the increase in production. There should be lesser and lesser poor people in the country. But if it is to happen, the government should wisely plan and spent with the aim of ultimate improvement of their services.
It is true some of this government expenditure is used for paying salaries and also used for other similar recurrent expenditures. But the major portion of government expenditure is used for the procurement of works, goods, and services by public institutions. That is almost all capital expenditure, which is used for procurements in government institutions. These can be for low-value items such as pens and paper to new works such as super highways or complex items such as high-tech computer systems. Each year these procurements absorb massive amounts of public funds (approximately 20 % of GDP). And the most important thing is each year the amount is increasing rapidly.
To avoid ad-hoc, unplanned procurement and malpractices in procurement to happen, there should be proper planning from the beginning and better control up to the end.
We should begin from the start. The most important thing is a country should have a vision. That should be a long-term vision, showing the position of the country to be after another 20-25 years. In other words, it is very similar to captaining a ship in the middle of the sea. The captain of the ship should exactly know the next port of call, and using any kind of method he should direct the ship along that way. Otherwise, he can endlessly float in the sea, going here and there, not reaching the target; the most important thing is without sinking.
From this vision, short-term missions should be developed. That should be for a period of at least up to 5 years. With this mission in hand, each ministry or department can develop its mission targeting country objectives. Strategy can be formulated only after the objectives of each ministry or department to be accomplished have been determined. Thus, national objectives are the irreducible elements of national strategy. The objectives and targets of each ministry or department should be well fit into the overall national objectives.
To achieve the targets of each ministry or department, they should acquire resources. The most important is the human resources. Other resources such as buildings, machinery, and other goods should be acquired through procurement.
So if we know our ultimate targets, we can prepare a strategic plan which includes the targets in quantifiable form and dates on which we should achieve these targets. With that in mind, we have to prepare a resource allocation plan which is needed for fulfilling the above targets.
After the preparation of the resource allocation plan, we now have a clear idea about what we should have to reach as our final target. With that in mind, now we can prepare a Master Procurement Plan – MPP – and Procurement Time Schedule – PTS. According to the quantities and complexity of items to be procured, we can select a suitable method to be adopted for procurement. But these methods should be transparent and possibly promote domestic industry and employment.
Works, goods, or services procured to fit with MPP will be in the right quantity because in advance we know the exact requirement to be procured. It will be at the right price and time. Because we do not have to unnecessarily do procurement at the last minute to avoid funds going back to the treasury. It will be at the right place because each procurement has to be fitted into the macro level requirement of the country fulfilling the social needs of citizens. There will not be any room for unnecessary procurement which leads to an increase in government expenditure causing an increase in the GDP and then in Economic Growth but without any real outcome. The works, goods, and services procured following proper guidelines in turn help to increase Economic Growth which will have a real feeling to the ordinary citizens.
There is another side also about the relationship between procurement and economic growth. With proper procurement in government, the production capacity will be increased, due to new infrastructure facilities so acquired. If a country produces more and more, the possibility for export will be more, and possible imports will be less. This also helps to increase the GDP, and then the economic growth.
Therefore public procurement system and process of a country have real implications for the economic growth and development of a country if it is well fitted with the country’s national vision, mission, and objectives.