A newly released study suggests that public institutions such as Mount Allison University and the Town of Sackville could generate greater wealth in Atlantic Canadian communities if they bought more of their goods and services locally.
“It’s money that stays in the economy and works in the economy,” says Robert Cervelli, executive director of the Nova Scotia-based Centre for Local Prosperity.
“It helps regenerate the economy by keeping that money circulating.”
The study, called Assessing the Potential for Local Procurement as an Economic Engine, says that every dollar a public institution spends buying goods and services from a locally owned business creates a multiplier effect of two to four times more jobs and other economic benefits than a dollar spent in a similar, non-locally owned business.
“Even a 10% shift [in procurement spending] can have a significant effect particularly when you look at the multiplier effect,” Cervelli says.
Colleges and universities
The study, financed by the Atlantic Canada Opportunities Agency, assessed procurement spending by two medium-sized, post-secondary educational institutions with average student enrolments of 6,486. (The educational institutions are not identified in the study.)
The post-secondary institutions, from two different provinces, each spent an average of $27.8 million in 2019-20 procuring goods and services with 59% of that money going outside their provinces and 22% outside Atlantic Canada.
The study says that a 10% shift to local procurement would generate an additional $2.8 million invested in their local economies and a total economic stimulus of $3.5 to $4.8 million when the multiplier effect is added.[efn_note]The study uses what it calls a “conservative range” of 1.25 to 1.70x when calculating the multiplier effect.[/efn_note]
An analysis of procurement spending by two unidentified municipalities in different provinces with populations in the 17,000 to 23,000 range showed similar results.
Each spent an average of $18 million buying from their top suppliers with 25% of that money going out of their provinces and 21% outside Atlantic Canada.
The study says a 10% shift to local procurement would generate an additional $1.8 million in local economies with an overall economic benefit of $2.2 to $3.1 million when the multiplier effect is taken into account.
The study points out that in the past several decades, public institutions’ procurement policies have shifted to an emphasis on achieving cost savings through centralized buying from fewer and larger suppliers. International trade agreements have reinforced this trend to non-local procurement.
“There’s an impression by a number of procurement professionals that you really can’t legitimately purchase locally,” Cervelli says. “But when you take apart things, particularly the trade agreements, you’ll see that there’s a lot of flexibility in there.”
Cervelli adds, for example, that public institutions can add criteria in their tendering processes to include local economic benefits.
“It doesn’t matter where a supplier is located, they could be in the U.S. or anywhere else, as long as they can demonstrate providing some degree of local benefit, then they could be awarded the contract.”
Cervelli says that public institutions such as municipalities have been concerned about getting the best value for taxpayers when they buy goods and services.
“It tended to be defined just as the lowest cost, [so] you’re getting the most widgets, for example, at the lowest cost.”
But he adds that the concept of value is starting to be defined more broadly.
“Taxpayer value comes down to how well are you keeping wealth in the economy and building local wealth,” he says. “So, lowest cost does not always translate into best value.”
The study mentions the provincial government’s New Brunswick First Procurement Strategy as an example of public institutions working toward building local wealth.
“They realized that the more procurement that they can do within the province of New Brunswick, the better off it will be for the New Brunswick economy,” Cervelli says.
The Centre for Local Prosperity’s study on local procurement grew out of an earlier one that showed Atlantic Canada imported $11 billion more in goods and services in 2012 than it exported to other places.
That 2018 study said that money “leaks” out of communities when they buy imports and that if there were a 10% shift in spending to local goods and services, the four Atlantic provinces could gain 43,000 jobs, $2.6 billion in wages and $219 million in new tax revenue.
“So, then the question became, as a follow-up to that study, how do you start plugging the leaks?” Cervelli says.
“It became quickly obvious that the most gains can be had by working with the bigger spenders which are the public-sector institutions because they’re each spending tens or hundreds of millions of dollars every year and the question becomes where does that money go?” he adds.
“So, that’s why we looked at localizing procurement in public institutions.”