Research shows procurement policies are a game changer for Indigenous workers

One of Australia’s most pressing issues is economic inclusion of Indigenous Australians. And business has a role to play in shifting the dial.

One of Australia’s most pressing issues is economic inclusion of Indigenous Australians. And business has a role to play in shifting the dial

Economic empowerment is key to improved socio-economic outcomes for Indigenous Australians. To this end, over the past decade, governments and corporations have been adopting targets for the procurement of goods and services from Indigenous-owned businesses, known as Indigenous Preferential Procurement Programs (IPPPs).

They were said to be a “game changer” and it has proved to be the case: the programs have been remarkably successful.

It is clear that the Commonwealth’s Indigenous Procurement Policy (IPP) has the potential to close the gap in employment and social wellbeing for Indigenous Australians. The substantially greater social disadvantages of Indigenous Australians when compared with the broader community are difficult to change, as the miserable record of the Closing the Gap reports show. These multiple disadvantages are correlated. For example, an Indigenous Australian who is not in the labour force is also more likely to have lower educational standards, poorer health status and less adequate accommodation than an Indigenous Australian who is in the labour force.

The logic of government procurement policies is straightforward: an increase in the level of economic activity undertaken by Indigenous-owned enterprises will likely lead to an increase in the number of Indigenous Australians in the labour force and a reduction in their social disadvantage. An increase in government purchasing of goods and services from Indigenous-owned enterprises will lead to an increase in the level of economic activity undertaken by these firms and thus an increase in the number of Indigenous Australians in the labour force.

When Indigenous preferential procurements where first introduced into the Commonwealth Procurement Rules in 2011 as the Indigenous Business Enterprise, the outcomes were negligible. It was only when the mandated procurements targets and other measures which are a feature of the IPP were introduced in 2015 that any significant beneficial results were shown.

The results have been overwhelmingly impressive: the IPP has, according to figures provided by the National Indigenous Australia Agency (NIAA), led to 19,527 contracts being awarded to 1935 Indigenous firms with an economic value of $2.7bn. Notably, because this was procurement expenditure the government would have undertaken whether or not the IPP existed, the economic benefits which flow to Indigenous Australians from this expenditure has occurred at no cost to the government. And whilst all this is excellent news, an evaluation of value and of impact beyond the metrics of how many contracts and how much financial value was spent with Indigenous enterprises has not been realised.

In 2019, economic modelling by PwC’s Indigenous Consulting and PwC of the potential of the IPP showed its extraordinary role as a driver of Indigenous business growth. Activities in which Indigenous businesses possess a competitive advantage include the emerging domestic and export markets for bush foods and bush medicines, agriculture, land and water management, tourism and cultural products such as arts and recreation.

Using the Commonwealth’s definition of an Indigenous business “as one that is at least 50 per cent owned by an Indigenous person or people”, they found up to 11,900 Indigenous businesses across Australia which together contributed between $2.2bn and $6.6bn to Australia’s economy in 2016. These include an estimated 7200 self-employed individuals contributing $309m, an estimated 1000-4300 Indigenous enterprises with employees contributing $1.5bn-$5.9bn and an estimated 400 trusts, contributing $406m.

We note that statistics to describe the Indigenous business sector are still in their infancy, and in order to understand the sector, it’s breath, diversity and impact, we will require more engaged research with Indigenous business sector stakeholders.

The IPP is not just about encouraging Indigenous economic activity in order to, for example, reduce unemployment or improve health. It has a potentially more fundamental purpose. It aims to create opportunities for businesses to grow and to encourage an improvement in Indigenous employment outcomes, stimulating the development of an entrepreneurial Indigenous middle class.

Along with the introduction of mandatory targets, the key factor that led to early success was the preparedness of procuring agencies to develop Indigenous suppliers through a deliberate program of repeatedly giving a supplier contracts of increasing value. This allowed the supplier to develop the business and had the effect of achieving the government’s program objectives. The same research also suggested, though, that this approach could raise the prospect of reputational risk in the perception of procuring agencies who were concerned about the perception of favouritism.

The move to incorporate both contractual number and contractual value in the calculation of targets has mitigated this factor somewhat. However, the distinction between contract number targets for agencies (3 per cent) and contract value targets (1 per cent) still suggests that the key to the IPP is a large number of small contracts. While this approach may encourage early business development and economic participation, it operates against the ability of Indigenous firms to achieve optimal enterprise size.

With the remarkable success of this policy in achieving at least two of these aims, we urge the commonwealth to support the investigation of the remaining challenges so it can reach more equally into regional and remote communities. Are jobs being created in remote communities? Do employment outcomes correlate with a reduction in a range of other social wellbeing indices. Are joint ventures effective in developing Indigenous businesses? What is the effect on Indigenous employment levels of non-Indigenous JV partners or participation in a JV? What do Indigenous entrepreneurs say is the impact on their businesses of the procurement policy compared with other programs?

Longitudinal studies are needed to answer these questions. There is virtually no research into these matters and policymakers are not equipped with evidence to make a good program even better. Our research shows these issues need to be interrogated with more evidence and data. In our submission to the House Standing Committee inquiry into opportunities for employment and economic development for Indigenous Australians, we urged the commonwealth to identify mechanisms to help these policies make a real improvement to Indigenous Australians’ economic position and thus improve their physical, social and cultural wellbeing.

The immediate previous federal government policy, the Indigenous Opportunities Policy developed under the National Partnership Agreement on Indigenous Economic Participation, resulted in four contracts, with a total value of $10.3m over a four-year period.

The IPP has changed procurement behaviour and seen a reported $2bn through corporates and more than $3bn through government procurement flow into Indigenous businesses over the past five years. But the impacts on Indigenous businesses and communities are unclear, as is the importance of program design features in shaping outcomes. Measures of the benefits to business are limited to estimates of the numbers of Indigenous businesses accessing IPPP, which have increased from 493 in 2015-16 to 918 in 2019-20.

The closest link to possible business outcomes is made by Shirodkar, Hunter and Foley in 2018 who observe 30 per cent growth in self-employed Indigenous businesses between 2011 and 2016 in census data. However, growth in business numbers coinciding with the introduction of IPPP targets cannot be interpreted as evidence of its success: it may be due to other changes that have occurred at the same time, such as more accepting attitudes to Indigenous business. These statistics also do not tell us how widespread the benefits are, which businesses are missing out or the role of program design in shaping outcomes.

If Australia is to make headway in closing the gap, we must develop better evidence on what does and does not work. This requires commitment to evaluate the causal impacts of programs. There are many challenges, and improving access to linked federal administrative data for research of the kind we advocate is key. We are trying to estimate the impacts of these programs by measuring the growth in Indigenous businesses.However, to do this requires access to contract and procurement data from all state and federal agencies and the corporate sector. This is a very challenging co-ordination problem. There is a pressing need to develop monitoring and evaluation frameworks for IPPP and a greater commitment to the collection, curation and analysis of data on the Indigenous business sector.

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Dr Michelle Evans is associate professor of leadership, department of management and marketing, Faculty of Business and Economics, University of Melbourne where Professor Marcia Langton is associate provost and foundation chair in Australian Indigenous Studies