Each year, more than $13 trillion in public procurement contracts are awarded worldwide. In low-income countries, these contracts make up a substantial portion of the economy. But research suggests domestic companies in some countries are reticent or unable to participate, which can make bidding less competitive and hamper the growth of the national economy and domestic businesses.
Chicago Booth’s Emanuele Colonnelli, Francesco Loiacono of the European Bank for Reconstruction and Development, Edwin Muhumuza of the Open Contracting Partnership, and Northwestern’s Edoardo Teso find that in Uganda, many companies had trouble keeping track of the available public procurement opportunities, and even when they knew of them, they often refrained from bidding because of skepticism about the integrity of the procurement system. The researchers uncovered remedies for both problems.
Colonnelli, Loiacono, Muhumuza, and Teso partnered with Uganda’s Public Procurement and Disposal of Public Assets Authority (PPDA) to study the motivations and behavior of companies through two large-scale randomized control trials. During the time period in which the study was conducted, October 2019 through July 2021, Uganda’s public procurement processes were unsystematic. There was no centralized e-procurement portal—public procurement tenders were published in a variety of newspapers and websites. Companies with more resources to devote to monitoring these sources had an edge.
The PPDA’s contract-level data showed a lack of competition: large, well-resourced companies put in most bids and got most contracts. Many of these companies were based in India or China, while smaller domestic companies often lacked the resources to monitor the media effectively.
“It was messy. Data was not consistent, and companies had to buy many different newspapers,” says Loiacono.
For the first trial, a team of field research associates collected all daily tender notices across Uganda and aggregated them into a single newsletter. This was provided to a random sample of 3,045 Ugandan companies that had expressed interest in doing business with the government. The companies actively consulted the newsletter, and by the end of the study period, they reported less concern about a lack of information than at the beginning. However, despite having full and timely information, they did not actually bid for more contracts.
“The companies thought it might be interesting to do business with the government, but also believed that only the most connected companies are awarded contracts, so saw no point in even trying,” says Loiacono. “There was a widespread perception that the system is corrupt. In a sense, this was always looming over companies.”
Companies that didn’t bid on government tenders in Uganda cited their perception that Uganda’s public procurement system is corrupt and a lack of connections with government officials as two of the most important reasons.
The second trial zeroed in on companies’ perceptions of the integrity of the organizations that award contracts. A different random sample of 524 companies was provided with two integrity reports about government agencies in their sector. One was a market perceptions report that drew from survey data of more than 2,000 companies that had worked with the agencies. The other was an audit score—an evaluation conducted by the PPDA of the efficiency and corruption of a public agency.
The study finds that companies were often overly pessimistic about integrity, and their views were more negative than the information in the report. But when companies were presented with structured information about a government agency’s integrity, they bid more often on contracts. The companies that received the reports put in more than twice as many bids as the control group, and were awarded nearly three times as many contracts.
“Just by giving them these reports, the companies started to bid more and win more contracts. It shifted their beliefs regarding how good or bad public entities were,” says Loiacono. “If I am a construction company, and I think the Ministry of Construction is not an efficient entity, I won’t bid. But after seeing this report that they are not so bad, I’ll start to be more conscious of that.”
The study holds lessons for other developing countries. Uganda is creating a centralized procurement system and striving toward middle-income status. It is generally able to build solid infrastructure. But for other countries, a lack of bids from their own private sector will hold back development over the long run.
“If you are in a low-income country with a history of inefficiencies, you need to give the private sector proof that the system is not so bad—and make reforms if you need them,” says Loiacono. “Big companies from abroad have a role to play, but you cannot rely only on them. The participation of domestic companies is important to developing the private sector and creating jobs. It makes the country develop.”
Emanuele Colonnelli, Francesco Loiacono, Edwin Muhumuza, and Edoardo Teso, “Do Information Frictions and Corruption Perceptions Kill Competition? A Field Experiment on Public Procurement in Uganda,” Working paper, February 2024.
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