Article

Commercializing Africa’s Roads

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 1995
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Road transport is the dominant form of transport in sub-Saharan Africa. It accounts for 80 to 90 percent of the region’s passenger and freight movements and provides the only access to most rural communities. By the end of the 1980s, Africa had nearly 2 million kilometers of roads, after a surge of construction during the 1960s and 1970s by African governments and foreign donors seeking to meet the region’s enormous need. Little was done to maintain these roads during the 1980s and early 1990s, however, and years of neglect have left them badly damaged.

This situation is not peculiar to roads. Buildings, ports, dams, and irrigation schemes have all suffered from the same kind of neglect; the importance of maintenance has been overlooked in budgets in favor of other political priorities. In 1988, in an attempt to reverse the damage to road networks, which constitute one of Africa’s largest assets, the World Bank and the donor community launched the Road Maintenance Initiative (RMI) (Box 1).

Because the neglect of roads and other physical infrastructure has such deep roots, the RMI has taken a fundamental, long-term approach: procedures cannot be changed until attitudes have changed. The task of changing attitudes begins with two steps. First, the costs of inadequate maintenance must be established; second, the group with the power to decide how much should be spent on roads needs to be enlarged to include the people who actually use the roads.

The cost of neglect

There have been many studies to identify the costs bad roads impose on an economy. In Africa, where congestion is rarely a problem, even in cities, these costs are more likely to be related to the damage suffered by vehicles and delays resulting from the need to drive slowly because of potholes and other road-related problems. A study carried out by road haulers in Zambia in 1992 estimated that potholed roads boosted vehicle operating costs by at least 17 percent a year. Neglect is also expensive at an aggregate level. In 1993, the RMI estimated that Kenya’s $40 million shortfall in road maintenance expenditure increased vehicle operating costs by about $120 million per year. The lesson: when roads are poorly maintained, a $1 increase in road maintenance reduces road transport costs by up to $3.

Poor road maintenance also results in increased long-term costs of maintaining the road network. Over a 15-year period, these costs are about one third higher when roads are rehabilitated infrequently than they would be with regular road maintenance.

In many African countries, responsibility for roads is divided among half a dozen ministries and a number of local government agencies. Roads are managed like a social service instead of as part of a market economy. There is no clear price for using them; road expenditures are financed from general tax revenues; and the agencies that manage roads are not subjected to rigorous market discipline. Management objectives are vague. Managers have few incentives to cut costs and are rarely penalized for poor performance.

Rupert Pennant-Reaa UK national, is a consultant. He was Editor of the Economist, 1986-93. and Deputy Governor of the Bank of England. 1993-95.

Ian G. Heggiea UK national is Principal Infrastructure Economist and Task Manager for the Road Maintenance Initiative in the World Bank’s Africa Technical Department. He was Special Adviser to the UK Transport Minister in 1979-80.

Funds allocated for maintenance are well below what is needed. In most countries, they are less than half of estimated requirements—and, in some, less than a third. There are two main reasons. First, road users pay very little for use of the road network. Second, funds are allocated as part of the annual budget process—maintenance is at a disadvantage here, since it can always be postponed.

The people who know most about the costs of neglect are not government officials, but road users, who have to cope every day with the deteriorating condition of Africa’s roads. By creating road-management boards to involve road users in the decision-making process, the RMI introduced an important commercial element that had been strikingly absent: the customers’ point of view. It turned out that customers were keen that more should be spent on maintaining the road network. And this was not idle talk—they were prepared to pay more themselves. They had only one proviso: whatever form their extra payment took, it should be earmarked for maintenance. And users also wanted to be involved in choosing the means to this end, helping to decide how much to pay and overseeing how the road agencies and road funds spent their budgets.

The theme that permeates every aspect of the RMI program is that of a more commercial approach—the language of customers, markets, tariffs, procurement practices, and value for money being applied to the maintenance and management of roads. Many of the benefits of the marketplace can be replicated within the RMI framework, even though the RMI is not a privatization initiative (it does not envisage transferring the ownership of roads from the state to private companies). Instead, what the RMI is promoting is a public-private partnership.

Fuel levies are closely related to variable road maintenance costs1

Source: Ian G. Heggie, Management and Financing of Roads: an Agenda for Reform, World Bank Africa Technical Series, No. 275 (Washington, 1995).

Note: Diesel fuel levy at $0.09/liter.

1 Based on data from a selection of developing countries that do not have any extremes of climate.

The Road Maintenance Initiative

The RMI was launched by the United Nations Economic Commission for Africa (UNECA) and the World Bank in 1988, under the auspices of the Sub-Saharan Africa Transport Policy Program, in an effort to identify the underlying causes of poor road maintenance policies and develop an agenda for reforming them. The program is administered by the World Bank’s Africa Technical Department and is financed by the Governments of Denmark, Finland, France, Germany, Japan, the Netherlands, Sweden, Switzerland, and the European Union. Finland, France, Japan, and Norway provide senior staff members to work on the program.

Cameroon, Kenya, Madagascar, Tanzania, Uganda, Zambia, and Zimbabwe joined the RMI in 1990-91. Other countries that are also currently receiving assistance from the program include Benin, Ghana, Lesotho, Malawi, Mozambique, and Togo.

Four building blocks

The RMI framework is comprehensive, so it cannot be easily or quickly put in place. The key concept is commercialization: bring roads into the marketplace, put them on a fee-for- service basis, and manage them like any other business enterprise. However, since most roads will remain in government hands for some time to come, commercialization requires changes in four important areas:

  • involving road users in the management of roads;

  • securing enough money for road maintenance, year after year;

  • ensuring that all parties know what they are responsible for; and

  • establishing a system for managing road programs, with clear accountability.

The four are interconnected. The financing problem cannot be solved without the strong support of road users. But this support cannot be won without steps to ensure that resources are used efficiently. And resources will not be used more efficiently until ways are found to control monopoly power and constrain road spending to what is affordable, and managerial accountability is increased. Furthermore, managers cannot be held accountable unless they have clearly defined responsibilities. These building blocks have far-reaching implications and could be applied to other sectors in Africa.

Economic, fiscal perspectives

Does the concept of commercialization make sense from an economy-wide viewpoint?

It is impossible to dispute the economic case for spending more on maintaining Africa’s roads. Road maintenance and rehabilitation projects typically produce economic rates of return well over 35 percent. The harder question is how the money should be raised.

As a general fiscal rule, earmarking of tax revenues is undesirable. It can lead to a serious misallocation of resources, with certain types of spending being boosted merely because they have a supporting base of earmarked taxes while others languish because they have no convenient sponsor and are denied access to the earmarked revenues.

To avoid the earmarking trap, road programs must be financed as much as possible by user fees rather than by taxes. This distinction is not purely semantic. User fees link what is available for spending to what is being demanded and can be calibrated so that individual customers pay only for what they consume. The cost of a road is not just the price of its initial construction. Maintaining it through a long life is just as important and needs to be properly costed into any calculation. If users pay according to how much of the road they “consume,” the financing arrangements are qualitatively different from a conventional budgetary model in which governments raise general revenues and spend them on a chosen menu of programs.

On a spectrum of financing options, with user fees at one end and taxes at the other, roads can fortunately be pushed far toward the user-fee end. License fees can be higher for heavy vehicles than for cars. Fuel levies are closely related to variable road maintenance costs (see chart). And tolls are even more precisely linked to use, though they are harder to administer. Revenues earned from these three financing mechanisms, which together would constitute a road tariff, could be funneled directly into a road fund for spending on maintenance as well as on new construction. This type of financing makes it possible to impose the valuable discipline of a hard budget constraint on road agencies. Road-management boards, which set the road tariffs, ensure that road agencies can spend only what road users are willing to pay and, hence, what road funds can supply. Agencies will thus be forced to be responsive to the needs of road users and will be unable to overspend.

Both these notions are consistent with the broad principle of commercialization. But it is a principle that needs extending beyond the issue of macroeconomic probity, important though that is. Being commercial is usually associated with the most micro aspects of behavior, such as incentives given to individual staff members. Here, too, the RMI uncovered some serious weaknesses in the way road programs were being run. For example, it found that, in 1993, engineers in Zambia could earn eight times more in the private sector than in the public sector. Not surprisingly, the road agency had only 11 professional and technical staff members—and 85 vacancies. It is difficult for road agencies to correct these flaws, so long as they are seen as inflexible bureaucracies offering uncompetitive salaries. The problem of uncompetitive salaries is particularly troublesome in Anglophone Africa.

The RMI also uncovered flaws in the way road funds were set up and financed.

The Sub-Saharan Africa Road Information Network (SSARIN)

The RMI program found that sharing experience on best practices was one of the best ways of introducing new ideas and building consensus. Initially, RMI staff regularly visited participating countries and gave presentations on experience gained under the RMI program in other countries. This was supplemented by study tours, newsletters, and annual meetings between RMI staff, country coordinators (individuals in participating countries formally designated to head a local secretariat), and members of the donor community with an interest in roads.

The sharing of experience turned out to be so successful that the countries participating in the RMI program decided to formalize it by setting up a simple, fax- based information exchange network. Each country wishing to join the network must have two things: a working fax connection and a designated country coordinator.

SSARIN currently has more than ten members. I. Kimambo, the RMI country coordinator from Tanzania, is Secretary of the Network, which is managed by a small committee consisting of the Secretary and the country coordinators from Kenya and Uganda. SSARIN reports on progress every six months in the Sub- Saharan Africa Transport Policy Program newsletter published by the World Bank’s Africa Technical Department and is planning to start a newsletter of its own. Since fax connections in Africa are problematic, the management committee is exploring the feasibility of connecting SSARIN to the Internet.

Because the credibility of these funds depends on their being genuinely independent of day-to-day pressures on government finances, the RMI encourages African countries to set up special boards to manage road funds, with a majority of non-official members representing road users and the business community, an independent chairman, clear terms of reference, and independent outside audits. The goal is to avoid the fate of the Central African Republic’s fund, which was raided by the Government in 1993 to pay the salaries of civil servants and other unrelated expenses.

It is also possible for road funds to raise more money than should ideally be spent on roads. This is what happened in the 1980s in South Africa, whose road fund was receiving as much as one third of the pump price of fuel. The fund built up a big surplus. This led to concern that the roads department might go on a spending spree, which eventually led to the fund’s being abolished in 1989. Most African countries are still far from suffering problems of excess revenues, but South Africa’s example demonstrates the dangers of an inflexible system for raising revenues. To avoid this, all road funds set up under the RMI program have built-in mechanisms for regularly adjusting the road tariffs.

A road fund managed by a representative roads board offers many other advantages. Road users, accustomed to market discipline in the private sector, expect clear lines of responsibility and sound business practices. They are concerned by two questions, in particular: who is being paid for what, and are users getting value for money? At the heart of the RMI’s agenda is the creation of a surrogate form of market discipline to ensure that roads are managed like a business, not a bureaucracy.

Sharing experience

One of the strengths of the RMI program is the way it helps countries learn from each other. Disseminating the lessons learned in different countries was originally done by word of mouth and through study tours, but the process has now been formalized into an information exchange network (Box 2). Donors, too, are deeply involved in supporting the RMI program, and often have experiences to share. The world’s two biggest economies, the United States and Japan, have road funds financed by earmarked user fees. New Zealand also has a road fund and has gone further in commercializing its roads than any other country in the world. Finland, Japan, New Zealand, and the United Kingdom have road boards that participate in the management of roads. By pooling their knowledge, all countries involved in the RMI program can find cost-effective solutions more quickly than they could through conventional bilateral contacts.

This is the justification for the World Bank’s role in administering the RMI program. Although the Bank has long been associated with large investment projects, its future may now lie less in the construction of new roads than in providing technical assistance and facilitating sustainable maintenance policies. Under the RMI, the Bank is acting as an impresario, helping others to make things happen. That task may not make headlines, but it is important—and the RMI’s approach seems to be working.

This article is based on a more extensive study by Ian G. Heggic, Management and Financing of Roads: An Agenda for Reform. World Bank Technical Paper No. 275, Africa Technical Series, Washington, DC, World Bank, 1995.

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