Benfield: Treasury's procurement overhaul — More rules won't fix what's broken

Brian Benfield argues Treasury's draft Procurement Act regulations repeat SA's oldest policy mistake: treating capacity failures as a regulation problem. With the state spending now over R1 trillion annually (15% of GDP), he cites global research showing procurement outcomes hinge on institutional capability, not rulebook complexity — and warns that added compliance burdens hit small firms and new entrants hardest while entrenching incumbents. Genuine transformation, he contends, comes from competitive success, not regulatory shelter. The real fix isn't more paperwork — it's rebuilding state capability, professionalising procurement, and restoring administrative competence..By Dr Brian Benfield*.Treasury’s proposed Procurement Act overhaul repeats our country’s most expensive policy mistakes, proposing one of the largest economic experiments of the democratic era.Every year the state purchases around R1 trillion worth of goods, services and infrastructure - roughly 15% of GDP. Few government functions exert greater influence over economic growth, investment, entrepreneurship, infrastructure, job creation and public service performance.This is why the Public Procurement Act and the draft regulations recently published by the Finance Minister deserve far greater public scrutiny.The objectives are difficult to dispute. Greater transparency, stronger accountability, reduced corruption and accelerated economic transformation are all legitimate and necessary goals. Yet good intentions do not guarantee good policy.The fundamental assumption underlying the proposed framework appears to be that procurement failures can be remedied through more detailed regulation. We should be cautious before embracing that proposition.The draft regulations create an extraordinarily complex procurement architecture. Lower-value contracts may be reserved for firms owned by designated groups. Larger contracts are subject to increasingly intricate ownership thresholds, subcontracting requirements, verification obligations and compliance reporting. These measures are layered upon an already dense web of procurement targets, certifications, audit requirements and administrative controls.The result is a system that places ever-greater emphasis on procedural compliance. That approach reflects an unfortunate broader trend in South African governance.For more than a decade, the state's response to institutional failure has frequently been regulatory expansion. When corruption is exposed, new rules are introduced. When administration weakens, additional procedures are imposed. When implementation fails, policymakers conclude that the problem is insufficient regulation, rather than insufficient capability.As with FICA, the consequence is an increasing focus on demonstrating compliance, rather than delivering tangible results.Procurement may now become the clearest manifestation of this ill-judged tendency.Indeed, all international evidence points in a different direction.A landmark 2022 study published in the American Economic Review by Enrico Bosio, Simeon Djankov, Edward Glaeser, Andrei Shleifer and co-authors examined procurement systems across 187 countries. Their conclusion was striking. Procurement performance depends far more on institutional capability than on the complexity of procurement legislation.Countries with capable administrations generally achieve good procurement outcomes regardless of how detailed their legal frameworks may be. Countries with weak institutions tend to perform poorly even under highly elaborate regulatory systems.The researchers found that rules matter principally through their effect on administrative behaviour. Once institutional capability is taken into account, the direct effect of regulatory complexity on outcomes becomes surprisingly limited.In truth, excessive regulation tends eventually to become counterproductive.In low-capacity environments, additional controls can reduce abuse and improve accountability. Beyond a certain point however, more rules begin to substitute procedure for judgement, constrain flexibility and impede effective decision-making.That finding should resonate very strongly in our country.The country's procurement crisis is not primarily a shortage of regulations - it is a shortage of administrative capability.Many municipalities and government departments struggle with basic procurement functions: Filling technical vacancies, managing contracts, supervising projects and maintaining infrastructure. Delays and failures are rarely caused by insufficient legal prescription. More frequently they result from inadequate implementation capacity.Every new verification requirement, reporting obligation and approval process consumes scarce administrative resources. Time spent satisfying procedural demands is time not spent planning projects, managing contractors, overseeing infrastructure or solving operational problems.These are not abstract trade-offs.When procurement slows, infrastructure projects are delayed. When infrastructure investment stalls, economic growth suffers. When growth weakens, employment opportunities decline and fiscal pressures intensify.South Africa's serious procurement challenge is not always that government buys things too quickly or too expensively. It is that too many parts of the state struggle to procure effectively at all.The danger is that the new framework institutionalises what might be called paralysis through process. The consequences extend well beyond government.Successful procurement systems maximise competition, reward innovation and minimise unnecessary barriers to entry. Firms should ideally compete on price, quality, reliability and technical competence.The draft regulations increasingly place ownership classifications, subcontracting mandates and compliance requirements alongside, and sometimes even ahead of, performance considerations. Collectively they increase the cost and complexity of participation.Large incumbents with extensive legal and compliance departments can usually absorb these burdens relatively easily; smaller firms and new entrants mostly cannot.The irony is that systems designed to broaden participation may inadvertently protect established players and raise further barriers to entry. That matters profoundly for our country’s reparative agenda.The constitutional imperative to address historical disadvantage is beyond dispute. Section 217 explicitly permits procurement policies aimed at advancing disadvantaged persons. The question is how this can be achieved more effectively, efficiently and fairly.Public debate has often treated “transformation” and competitiveness as separate objectives. In reality, sustainable transformation depends upon competitive success.A business that survives primarily because of regulatory preference remains dependent upon state support. A business that succeeds in open and competitive markets develops productivity, resilience and the capacity to expand beyond government contracts.The latter represents genuine economic empowerment and growth; the former risks institutionalising dependency.International evidence increasingly supports this distinction. Research across developing economies suggests that procurement preferences can weaken incentives for innovation and productivity growth when firms become insulated from competitive pressures.Complexity creates additional risks.The more intricate procurement systems become, the greater the scope for uncertainty, inconsistent interpretation and administrative discretion. These conditions frequently create opportunities for governance failures or outright duplicity.South Africa's state-capture experience to date provides a sobering reminder. The problem was never a shortage of procurement rules. The country has long possessed extensive procurement legislation. The problem has been weak enforcement, compromised institutions and hapless accountability.Complexity will therefore likely reduce transparency rather than enhance it, making systems harder to understand, monitor and challenge.Recent research highlights another concern. A 2026 American Economic Review study by Carlos Carril, Sergio Gonzalez-Lira and Reed Walker found that procurement rules produce very different outcomes depending on what government is purchasing. Increased competition improved pricing for standardised goods. In complex projects characterised by uncertainty and technical sophistication however, rigid procurement processes frequently produced poorer outcomes, cost overruns and implementation failures.Buying office furniture is not the same as procuring a power station, rail signalling system or wastewater treatment plant. Complex infrastructure requires expertise, judgement and adaptive management. Excessively prescriptive systems often struggle to accommodate those realities.Our most damaging procurement failures have occurred precisely in these complex sectors: Electricity, logistics, water and large-scale infrastructure. Yet the draft regulations largely apply a uniform compliance philosophy across vastly different procurement categories. That reflects a deeper policy wager.Treasury appears to be betting that more regulation can compensate for state incapacity, but the evidence suggests otherwise.International literature increasingly converges on a simple conclusion: Institutional quality matters more than regulatory density. Competent officials, professional procurement systems, effective contract management and strong oversight institutions produce better outcomes than ever more elaborate rulebooks.South Africa therefore faces a choice that extends far beyond procurement policy.It can continue attempting to compensate for trenchant incapacity through increasing procedural complexity, or it can undertake the more difficult but ultimately more rewarding task of rebuilding state capability, professionalising procurement, strengthening contract management and restoring state administrative competence.Only one of those paths is likely to deliver the infrastructure and economic growth our country so urgently needs..*Dr Brian Benfield, retired professor, Department of Economics, University of the Witwatersrand, is a Senior Associate and Board member of the Free Market Foundation..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. 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Benfield: Treasury's procurement overhaul — More rules won't fix what's broken

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