Localization of public procurement: does the law work (research results)

Improving the mechanism of maintaining the register of localized goods producers will not only reduce the level of fraudulent schemes in the register, but also increase investors' interest in the development of Ukrainian business.

This was stated by Andriy Shabelnikov, Chairman of the UNBA Committee on Investment Activity and Privatization, commenting on the results of the hearings in the Verkhovna Rada Committee on Economic Policy on «Post-legislative control in the field of compliance with the requirements for the local component (localization) in public procurement».

During the event, MPs, representatives of the Ministry of Economy, the State Audit Service, the Antimonopoly Committee, specialized associations and manufacturers analyzed the effectiveness of the implementation of the Law of 16.12.2021 No. 1977-IX «On Amendments to the Law of Ukraine «On Public Procurement» on Creating Preconditions for Sustainable Development and Modernization of the Domestic Industry».

Earlier, the parliamentary committee interviewed business entities involved in the procurement of localized goods, as well as regulatory authorities. The respondents shared their thoughts on whether the law has worked in practice, what are the achievements and problems in its implementation, and how to resolve the difficulties that have arisen.

As a reminder, the law introduced the degree of localization of production - an indicator of the local component in the share of the cost of raw materials, components, assemblies, parts, components and components of products, works, services and other components of domestic production in the cost of the goods that are the subject of procurement.

By 2032, the law established specifics for the procurement of goods that require the customer to comply with the degree of localization of production, which must be equal to or greater than 10% in 2022 and 40% after 2028. The degree of localization of production must be determined by the manufacturer of the goods in accordance with the formula established by law.

During the event, the participants were presented with the generalized results of the survey by the main groups: suppliers of goods, customers of goods, state control and supervision authorities.

In particular, 61.9% of suppliers of goods noted that the introduction of localization had not affected their business at all. This is due to several factors: products not falling under the law, a low localization threshold at the initial stages, and the lack of necessary regulations and explanations from government agencies.

To increase the level of localization, some companies plan to develop their own production of components and equipment (33.3%), while others intend to cooperate with Ukrainian manufacturers (23.8%). However, there are also those who do not intend to take any measures (14.3%). At the same time, more than half of the respondents expressed confidence that by 2028 the level of localization of their products will be at least 40%, while almost a quarter still doubts that they will be able to reach this figure. The full results of the survey can be found here.

The participants of the committee hearings were also presented with the results of monitoring procurement with localization through the Prozoro system, told about the improvement of the mechanism for maintaining the register of localized goods producers, the fight against fraud in the register, measures to monitor compliance with the law, and discussed proposals for possible changes to the legislation on localization.