Since recently, all institutions, organizations, and enterprises in Prozorro must report on the country of origin of the goods they purchased.
Such an obligation in public procurement was introduced by the Verkhovna Rada in draft law 5852. Now, this is already the law that has entered into force. The provision on the country of origin of goods appeared in the document before the second reading, even though in general it concerned individual procurement transactions of the National Bank of Ukraine.
It appears that this innovation is designed to answer the question lingering within the Ministry of Economy — how much budget funds Ukraine pays to producers from other countries in public procurement.
Because so far, Prozorro can analyze general data only on the residence of suppliers (in which country they are registered), and imported goods can also be sold by Ukrainian companies.
The procuring entities themselves must enter information about the country of origin in the system, which places them under considerable strain, after all, the data on about 1.4 mln products needs to be filled in every year.
If we assume that determining and recording the country of origin of one product will take 30 seconds, the innovation of MPs will cost Ukraine about 1,461 working days a year.
This is surely quite a significant waste of time. It could be justified if it was really possible to build high-quality analytics based on the data obtained. However, there are some obstacles that will still prevent people from getting an answer to the question about the countries of origin of goods in Prozorro.
First of all, information about the country of origin will be indicated only in procurement transactions of goods. Currently, the distribution of procurement by its cost is as follows:
- 65% accounts for works and services. There is no need to report on them in terms of country. However, contractors also use goods to provide them. Construction materials and tools during repairs, food for catering services, and so on.
- 11% accounts for oil, electricity, and gas. For the most part, their suppliers themselves will not be able to accurately name the country of energy production that they sell to a specific buyer.
Traders buy gas on the stock exchange or from aggregators and often do not know who produced it. For example, Ukraine imported the most gas in 2020 from Switzerland, which has no gas deposits of its own at all.
- 24% accounts for goods. However, even here, 5% accounts for those procurement transactions where it is not necessary to report on the country because the new provision does not apply to pre-threshold procurement. So, in the end, we are left with 19%.
Accordingly, after this change, we could potentially estimate how a maximum of 19% of public procurement funds are distributed among countries. It doesn’t seem to be so critical — after all, this is more than UAH 163 bln. However, there are still some challenges in the real world of procurement and data.
The human factor
First of all, procuring entities will enter information about the country of origin in Prozorro based on the information on the product itself or, where it is not available, according to their supplier. For businesses, this is an additional strain, and entrepreneurs may not be interested in determining the countries of origin of their goods as reliably and conscientiously as possible. So, they may provide incorrect information.
Government and municipal procuring entities may also enter incorrect or irrelevant data.
For example, there are cases when, while announcing a procurement transaction, the procuring entity indicates one product, and in the tender documentation spells out the need for dozens of items — as in the case of spare parts for trams. If they are delivered from different countries, there will be the need to choose one of them during the reporting process.
In addition, procuring entities may not ask suppliers about the supplying country, but simply select the first country from the drop-down list in Prozorro. A similar situation has now arisen with the mandatory field of the international nonproprietary name (INN) for medicines.
Abacavir, a highly specialized HIV-fighting drug, often appears in procurement. The reason for its popularity is banal — it is the first one alphabetically in the drop-down list. It was indicated even in procurement of test systems for detecting COVID-19.
Data that has less impact on procuring efficiency can be handled even more carelessly. So, in direct procurement transactions in 47.9% of cases, contracts are terminated precisely because of technical errors.
Additionally, the accuracy of data is also affected by the deadline for reporting on completed contracts. Most contracts are concluded for a year: in 2020, 57% of all agreements ended in November-December.
Therefore, a significant part of the strain on procuring entities will drop in the last two months. Moreover, this is the time when the budget year ends. Therefore, institutions try to spend their remaining funds as much as possible.
This time accounts for about a third of annual reports. In addition, procuring entities are starting to prepare procurement for the next year. Therefore, either the quality of procurement or the quality of data in Prozorro will suffer.
It is also worth mentioning that approximately 28% of procurement transactions, where procuring entities should have reported on the contract implementation, remain without this report. Therefore, there will be no information about the country of origin at all.
The origin is in fact difficult to determine
In addition, we live in an era of globalization, when neither the country of registration of the brand nor the country of production will give an answer to what proportion of components in this product are produced in Ukraine.
Things that were assembled from Chinese parts may actually be less “Ukrainian” than goods that were made abroad, but from our wood or steel.
Moreover, sometimes the same product is produced in several countries. Laptops of the same brand and model can be produced simultaneously in Taiwan and China, and apples of the same varieties grow in both Ukraine and Poland.
The supplier can bring the same goods from different countries, and this will not affect the quality of the purchased product in any way. Therefore, it will be extremely problematic to correctly indicate the country of origin.
Countless resources, but not relevant data
To enter information in the new field, procuring entities will spend approximately 1,500 working days a year. At best, this would allow us to learn more about which producers from which countries receive 19% of public procurement funds.
However, due to the inability to determine the share of “Ukrainian” goods and other problems, about a third of the new data will be incorrect.
And the worst part is that it is impossible to identify where the information is true and where it is not. We will spend many resources on data that we would not be able to trust. This is illogical and irrational.
Open data, analytics, and automation can indeed improve procurement and make budget spending more efficient — but to achieve this, they need to be implemented reasonably.
There is no point in collecting data just like that — you need it to solve a problem or improve something. Therefore, both the Ministry of Economy and MPs should clearly define what they want to do with information about the country of origin and
then start choosing a solution. To assess whether the idea will work, both officials and MPs can always use an open analytics module. Just like we did.