State's bid to reserve tenders below Sh3b for local firms

Local businesses will be able to benefit from government tenders up to Sh3 billion even as the State is keen not accumulate further debts owed to enterprises.

Cabinet Secretary for Investments, Trade and Industry Lee Kinyanjui said that while the appeal for businesses during a previous meeting with President William Ruto was to increase the figure to Sh5 billion, this request cannot be met.

“We think that could be a bit too high. We are likely to settle at Sh3 billion,” said the CS while addressing players in the private sector from several industries, among them agriculture, finance, manufacturing, real estate and mining.

A proposal in the Public Procurement and Asset Disposal (Amendment), Bill, 2024, currently in second reading stage before the National Assembly, has placed a reservation of Sh1 billion for local firms.

The amendment seeks to introduce new clauses on Section 53 (6) of the Act stating that any procurement of up to Sh1 billion shall be awarded to a local firm.

Additionally, a foreign firm shall be eligible for the procurement of contracts of more than Sh1 billion but through a joint venture with a local partner. This local firm will be eligible to not less than 30 per cent of the value of the procurement.

“All procurement and asset disposal planning shall reserve a minimum of 30 per cent of the budgetary allocations for enterprises owned by women, youth, persons with disabilities and other disadvantaged groups,” reads Section 53 (6) of the current Public Procurement and Disposal Act.

The above clause seems to have been disadvantageous to businesses that, for a long time, lamented that international firms were getting a piece of their cake as the law was not explicit.

While this is being seen as a move to protect local businesses, Oraro & Company Advocates says the move might slow down foreign direct investments.

“The restrictions may, however, deter foreign investment, reduce competition and inflate procurement costs, while the joint venture requirement could encourage nominal partnerships that fail to achieve substantive capacity building,” reads the analysis of the proposed amendment provided by the law firm.

"We recommend the creation of a clear implementation framework to balance local content objectives with market competitiveness and prevent regulatory circumvention.”

However, CS Kinyanjui said the Sh3 billion threshold will offer adequate competition among local firms and in extension protect jobs.

He pointed out that it had reached a stage where even in the Sh1 billion, non-indigenous (outsiders) would tender. “But again, the question we will be asking is: do we say we are reserving those jobs for the Sh3 billion, and finally, when they are tendered, there are no bidders?” he posed.

“We need to also find a way of building capacity even as we up the ceiling, then our people are able to plug in and benefit from some of these opportunities.”

But the reluctance of the government to increase this figure to Sh5 billion as requested is being seen as a balancing act as the State treads carefully, owing to the piling of pending bills at both levels of government owed to businesses.

While announcing the decision to settle on Sh3 billion, the CS said the government is concerned about pending bills, as he insisted on the need for entities to procure only what they need.

He said at the Cabinet level, this issue is being addressed. “When Sh200 billion is removed from the economy, from small and big companies, eventually it affects all of us. And sometimes you have already paid value added tax (VAT) on the very same amount you have not been paid for a year or two,” said CS Kinyanjui.

He said in the upcoming budget, 2025/2026, payment of pending bills has been factored. “We are going to push that we pay quickly,” he said.

The value of verified pending bills so far by the Pending Bills Verification Committee under the National Treasury stands at Sh229 billion. Of this amount, Sh80 billion is owed to the road sector, which Treasury Principal Secretary Dr Chris Kiptoo earlier revealed that payment was ongoing.

Dr Kiptoo said the rest of the Sh149 billion has been factored into the budget. “Once Parliament approves, we will be able to settle the first amounts of pending bills from July,” he said after a meeting with Kenya Private Sector Alliance (Kepsa) in early May.

The Pending Bills Verification Committee was approved by the Cabinet in June 2023. It is chaired by former Auditor General Edward Ouko.

The committee draws its membership from the office of the Attorney General, the State Department for Roads, the State Department of Public Works, the State Department for Housing and Urban Development and the Public Procurement Regulatory Authority.

Others are the Law Society of Kenya, the Ethics and Anti-Corruption Commission, the Institute of Engineers of Kenya and the Institute of Certified Public Accountants of Kenya.

The Committee was tasked to audit pending bills accumulated between 2005 and 2022. Then, national government bills between June 2005 and June 2022 stood at Sh481 billion while counties owed Sh159.9 billion.

This brings the total bills, as at June 2023, to Sh640.9 billion. A year into office, in May 2024, the committee had received a total of 94,996 claims valued at Sh571.6 billion. These are bills owed up to June 2022.

Sh117.2 billion was the amount owed for goods delivered, Sh147.6 billion for services rendered, Sh202.3 billion for works done and Sh104.5 billion for labour.

The actual amounts owed to businesses however are said to be more than Sh600 billion which means a number of businesses whose debts with the government are not verified by the committee would get into losses.