Corruption increases RP gov't IT spending: study

By David Dizon,

Posted at Nov 12 2009 09:05 PM | Updated as of Nov 16 2009 09:16 PM

MANILA - Corruption and lack of transparency in the Philippine government's procurement process has led to unnecessary increases in public spending on information technology, IT market research firm Springboard Research revealed Thursday.

Springboard Research vice-president Michael Barnes said the lack of transparency discourages major IT vendors from bidding for government projects, which could lead to higher IT spending for government.

"The key challenge in the Philippine market is the lack of transparency and visibility. Lack of transparency enables corruption. That means not fully leveraging the spending because it is not going where it is supposed to go. That's stating it in the most euphemistic way possible. It's corruption, which happens in most growth markets not just the Philippines," Barnes said in a press briefing in Manila.

He also noted that for some foreign-funded projects, only IT vendors from the lending nation would be considered. "What happens is there is an issue of market access. If a foreign government or NGO is funding the project, the project bids may skew towards the companies or technology providers from that country. That is an area where transparency needs to improve so that access will improve," he said.

Barnes said implementing policies that encourage transparency in the government procurement process would mean fiercer competition among providers and more savings for government.

"The benefit of having more IT suppliers getting access to the Philippine market means improved efficiency in terms of the actual transactions. Better competition leads to lower prices. If the vendors don't have to pad their prices for these inefficiencies, that means that they get the same margins but charge less," he said.

Gerry Lim, Hewlett Packard public sector sales director for Asia Pacific and Japan (APJ), said clearer rules on government procurement would help IT vendors know which projects to focus on and prioritize. "We would be more efficient. We don't need to bid for a project that takes five years to bid...[if] you can bid for it in six months. It costs less for us compared to a project that takes three years to bid," he said.

Research conducted by Springboard on public sector IT opportunities in the Philippines said IT vendors who want to deal with the Philippine government face three major challenges, which are:

- continuing complexity and ambiguity in the procurement process;
- poor record in implementing scheduled projects; and,
- difficulty in winning large foreign-funded or NGO-funded projects

It also identified at least two Philippine government IT projects that were tainted by allegations of corruption. These are the $330 million broadband network contract between the Philippines and China's ZTE Corp, and the $28.8 million poll automation contract between the Commission on Elections and Mega Pacific Consortium.

The $330 million National Broadband Network project between the Philippine government and China's ZTE Corp. was financed through an Official Development Assistance (ODA) loan from the Chinese government. The project was initially awarded to ZTE Corp., which is China's largest listed telecommunications vendor. President Arroyo later scrapped the contract amid allegations that Comelec Chairman Benjamin Abalos and First Gentleman Jose Miguel Arroyo received kickbacks from ZTE.

On the other hand, the 2004 poll automation contract was nullified by the Supreme Court due to irregularities discovered in the bidding process. The Office of the Ombudsman, however, overturned the recommendations of its field investigators and cleared Abalos, the Comelec commissioners and Mega Pacific of criminal charges for lack of probable cause.

Public IT spending to hit $580-M

Research conducted by Springboard on public sector IT opportunities in the Philippines showed that the government spent about $349.2 million on IT initiatives in 2007, which is 21 percent of the estimated $1.6 billion Philippine IT market size for that year. More than half (52%) of the Philippine government's IT spending was on hardware, 27 percent was for IT services, and 21 percent was for software.

The study said IT spending by the Philippine government is estimated to have reached $390 million in 2008 and is further expected to reach $580 million by 2011. It said government IT spending  is heavily centralized at the national government level, with local governments controlling only an estimated 7 percent of spending.

Barnes said the Philippine government spent most of its IT budget in the past years on the education sector, followed by defense, healthcare, utilities, taxation, social services and transportation.

He also noted that the Philippines has a history of decentralized IT spending, usually initiated by government agencies and local government units.

"There's a history of agency-led IT initiatives that tend to be isolated or even not well-coordinated across agencies. Part of that is actually geographic. The Philippines is an archipelago with a lot of islands, so this disjointed IT spending is not cultural but geographical," he said.

He added, however, that there has been some improvement in centralizing IT initiatives and procurement in government.

Lim said some technology trends "actually need more centralization" so that the Philippines could spend less on IT.

"Because of the economies of scale, the government can actually leverage its size and share its infrastructure. One advantage of government is that it can centralize acquisition and then standardize the platforms, environment and strategies [among agencies]," he said.

Poh Chuan Tan, HP-APJ director of the Public Sector division, said discussions among Philippine government officials showed "a greater drive towards improved efficiency."

"What we are doing is taking our experience from other countries to the Philippines, how we manage our infrastructure, how we deal with green IT initiatives, we share these with government. HP is in a good position to do that," he said.

Foreign IT investments in RP to increase

Barnes said the Philippines is in a unique position to benefit from increased IT spending in the region due to the economic downturn in the United States. He added that the emergence of technology trends such as cloud computing allows local IT talent to service other markets.

"The beauty of cloud computing is that it effectively lowers the barriers to entering other geographic markets. There are loads of IT talent and software development talent here and one of the challenges in a growth market constrained by limited resources is how to actually sell or deliver those solutions. How do you get them out and expose them to the market where the demand is there?" he said.

Barnes said there is increasing recognition that government should deliver IT-related investments in key areas such as broadband access. "Broadband, in particular, is an area where investments will continue and will have to continue. It's a fundamental infrastructure layer that's needed not just in Metro Manila but in rural areas. Without that access to broadband, which should be consistent, reliable and affordable, the benefits of e-government or healthcare information or cloud computing will not be available," he said.