Exploring Public Procurement: Market Size, Top Sectors, and Trends
General overlook of the public procurement process
What is government procurement, and who are its users? When government agencies, including federal, state or local governments, purchase goods, services or work from outside suppliers or contractors, they must do so fairly and efficiently because they are spending taxpayer money. To do this, there is a formal process called public procurement.
Public procurement is a critical economic activity vital in achieving core government objectives, such as infrastructure development and providing essential services to citizens. In OECD* countries, public procurement constitutes approximately 12–13% of the GDP [1].
* — OECD (The Organization for Economic Cooperation and Development) is a group of 37 member countries that discuss and develop economic and social policy. OECD members are typically democratic countries that support free-market economies. [2]
However, in 2020, the share of public procurement expenditure as a portion of total government expenditure experienced a decrease of 1–2 percentage points across all responding OECD countries compared to the previous year. This decline can be attributed to non-procurement government spending growing faster than procurement expenditure in response to the COVID pandemic [1].
Public Procurement on a Global Scale
The global market size of public procurement reached an estimated value of $12–13 trillion in 2022. Health expenditure represents the largest share of public procurement spending, accounting for an average of 29.3% across OECD countries in 2019. Specifically, in Italy, Japan, and the Slovak Republic, nearly 45% of public expenditure for procurement was allocated to the health sector. However, this trend has notable exceptions, such as Lithuania and the United States, where economic affairs represent the most significant portion of government spending, and Switzerland, where general public services and social protection comprise the largest share.
Based on OECD country data, the top five sectors in terms of public procurement spending are as follows:
- Health — 29.3%
- Economic affairs — 16.7%
- Education — 11.6%
- Defence — 10.5%
- Social protection — 10.5%
Public Procurement in the EU
To delve deeper into the structure of public procurement, we can examine the data collected by Opentender since 2009, focusing on the European example [3]. It is important to note that the data presented here represents the total procurement spending by market area rather than the proportion of this segment within overall government procurement expenditure.
In terms of volume and number of tenders in 2022, the dominant sectors were as follows:
- Construction work: this sector accounted for €184.7 billion in procurement costs across 282,431 tenders.
- Healthcare industry: the procurement costs in this sector amounted to €60.3 billion, involving 244,146 tenders.
Furthermore, several sectors made a significant presence in terms of procurement activities:
- Sewage, refuse and environmental services (€38.5);
- Energy: petroleum, fuel, electricity (€37.9B);
- IT services (€33.2B);
- Architectural and construction services (€31.2B);
- Transport equipment and auxiliary products to transportation (€27.2B);
- Business services (€26.4B);
- Repair and maintenance services (€23.0B).
Analysing aggregated data for 13 years, we observe a similar pattern in the distribution of purchases by sector.
Possible Future Trends
The COVID-19 pandemic notably impacted public procurement, increasing relative to GDP in 2020. Among the 22 OECD-EU countries for which data is available, public procurement rose from 13.7% of GDP in 2019 to 14.9% in 2020. Several countries experienced significant increases, including Norway (15.8% to 17.1%) and the United Kingdom (13.2% to 16.1%). These increases can be attributed to governments purchasing goods and services to support their COVID-19 responses and the decrease in GDP due to the crisis [1].
Currently, the global market is in a phase of recovery from the impacts of COVID-19, with an expected growth aligned with an increase in GDP. Considering a projected world GDP of $135 trillion in the next five years, the procurement market is anticipated to expand to approximately $16–19 trillion.
Conclusion
Public procurement is a critical economic activity vital in achieving government objectives and providing essential services to citizens. While the share of public procurement expenditure experienced a slight decrease in 2020 due to the COVID-19 pandemic, it remains a substantial portion of government spending in OECD countries.
The global market size of public procurement reached an estimated value of $12–13 trillion in 2022, with the health sector accounting for the largest share of spending. In the EU, construction work and the healthcare industry were the dominant sectors in procurement costs and a number of tenders.
As the world recovers from the impacts of the pandemic, the procurement market is poised to expand in tandem with global GDP, estimated to reach around $16–19 trillion within the next five years. However, this growth also brings an elevated risk of corruption and bribery. To ensure transparency and efficiency in procurement, it is essential to enhance the existing processes with cutting-edge solutions such as eTrusty.
Learn more about how eTrusty is revolutionizing procurement in our article.
References:
- OECD (2021), Government at a Glance 2021, OECD Publishing, Paris, https://doi.org/10.1787/1c258f55-en.
- OECD. “Who We Are.” Accessed May. 1, 2023.
- Opentender. Market Analysis. https://opentender.eu/all/dashboards/market-analysis Accessed May. 1, 2023.
- International Monetary Fund. GDP, current prices. https://www.imf.org/external/datamapper/NGDPD@WEO/OEMDC/ADVEC/WEOWORLD Accessed May. 1, 2023.
