Public Sector Spending Could Make or Break Progress on the SDGs: Here’s How
Photo Credit: Carlos Delgado
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Public sector procurement practices could make or break current progress on the SDGs, as indicated in SDG target 12.7.

This article sets out several ways for it to do so, and seven clear actions for government to take.

These include to set and uphold standards and requirements for partners, and to introduce 'Integrity Pacts'.

Talk on how to close the USD 2.5-3 trillion funding gap needed to achieve the 17 SDGs typically focuses on mobilizing private capital. Yet it is public sector procurement practices that could make or break current progress. This argument is not new. Indeed, SDG target 12.7 directly refers to the importance of public sector procurement: “promote public procurement practices that are sustainable in accordance with national policies and priorities.” In addition, streams of work by various institutions aim to assist in the implementation of these practices. 

A new report by The Economist Intelligence Unit and UN Office for Project Services (UNOPS) analyzes how less wasteful and more efficient government spending practices can help realize social, environmental and economic sustainability objectives. It argues that the way government procures goods and services is critical to achieving the SDGs. In every country, local and national governments procure goods and services from the private sector to operate all sectors of the economy. These services and goods include everything from medical equipment to bridges, buses and computers. The total annual public sector spending varies between countries. As a share of national GDP, public sector procurement stands between 12% and 16% in most OECD countries, and up to 30% in developing countries. Public sector spending typically accounts for 30% of total government expenditure representing a significant pool of capital that, if invested effectively, could catalyze progress toward the SDGs. 

To a greater extent than other investment decisions, public sector procurement undergoes high levels of public scrutiny given its source—the taxpayer. This scrutiny relates to choice of suppliers, the environmental, social and corporate governance (ESG) performance of procurement partners, and the sustainability impacts of projects. Expectations of transparency, value for money, long-termism, anti-corruption and accountability are high. This makes public sector procurement a significant opportunity to develop sustainable and accountable practices; not only should the public sector take a lead on the SDGs: it has to. Here are some ways that public sector procurement can advance progress on the SDGs.

Set an Example for the Rest of the Market

The way the public sector procures goods and services for its own operations can set an example for the rest of the market. For example, procuring energy from renewable sources, electrifying internal fleets and implementing internal policies relating to decent and fair work conditions all send clear signals to the market.

Generate Demand and Mini-Markets for Sustainable Products and Services

With 30% of government expenditure typically spent on procurement, the public sector’s purchasing power is huge. Its reliability consolidates its desirability as an investment partner for many private firms. This purchasing power can be used to steer companies towards developing services and products that assist sustainability and environmental goals. This is likely to have a positive spillover effect, catalyzing the growth of markets for these sustainable goods among the private sector. In Norway, for example, the public sector initiated demand for electric ferries, causing a strong market to develop that now exports around the world. 

Use Rules, Standards and Norms to Force Innovation on Sustainability

Implementing sustainability requirements and minimum performance thresholds for potential companies and products will force innovation across the market as companies adjust their operations to comply. An example of this is the stipulated requirement to show life-cycle costing in value-for-money assessments. Life-cycle costing forces potential suppliers to account for the externalities from their products and services with the result of leveling the playing field for products that may have higher upfront costs but greater efficiency and lower costs over the long term. Setting clear targets in line with SDG focus areas can also assist their progress. For example, the government of Ghana requires that 30% of procurement contracts be given to women, young people or persons with disabilities. This directly advances SDG 5 (gender equality) and 8 (decent work and economic growth).   

Think Long Term and Help Nascent Products Develop

By taking a longer-term view and investing in nascent products and services not yet ready for the market, the public sector can nurture innovation and help build commercial viability. For example, the government of the Republic of Korea supports research and development activities for small and medium-sized enterprises (SMEs) developing sustainable technologies and exempts them from patent fees. By adopting new technologies early for its own use, the public sector can help bring down costs for the wider economy and speed up dissemination. 

These are just a few of the direct and indirect mechanisms through which public procurement can become a strategic tool to support national and international sustainability objectives. Case studies of best practice are ample. Below are seven practical starting points for governments seeking to improve public procurement practices.

Seven Clear Actions for Government

  1. Mandate standards and introduce requirements for partners, and uphold them;
  2. Start small, choose a few SDGs, and begin with targeted activities and programs; 
  3. Directly address corruption by committing to transparency and investigating the ultimate recipients of funding, and introduce “Integrity Pacts” with partners on projects;
  4. Use different cities to test specific standards programs and policies relating to the target SDGs;
  5. Harmonize and communicate sustainable procurement strategies to ensure individuals, departments, agencies and authorities share an understanding of definitions, practices, standards and objectives;
  6. Embrace new technologies to increase efficiency and productivity over the long term; and
  7. Start conversations with suppliers and businesses early so they can prepare for and align with sustainable public sector procurement. 

This article was written by Rosie Riley, IISD. A version of this policy brief first appeared on IISD’s Sustainable Infrastructure Finance Portal on 28 January 2020.

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