Case Study (video)
Roads Improvement and Management in Watogo
I. Background
1. Watogo is one of the biggest cities in the Republic of Suaheli. It has roughly 2m inhabitants –
many of them live in slums surrounding the inner city. Watoto has no comprehensive urban development
plan. Urban infrastructure cannot cope with the size of the population. Traffic jams and lack of public
transportation further exacerbate the already dismal situation. Successive city governments have tried to
improve the infrastructure situation through public investments. Results have been mixed – while there
has been some progress on roads infrastructure in the inner city, the slum areas have largely been ignored
by public investment activities. Independent observers have suggested that Watogo’s development has
been severely impeded by the failure of public institutions to resist capture by elite special interest groups.
2. Suaheli has a number of resources that can be harnessed to further growth and development at the
national and local levels. These include:
A highly skilled population. Past investments in education have produced high level talent in
government, business, and academia.
Diverse natural resources. Suaheli enjoys substantial mineral wealth. Petroleum, gas, and
geothermal potential are high.
Foundation for vibrant private sector growth. A strong export sector, extensive managerial and
entrepreneurial talent, and liberal domestic and foreign investment regimes have made rapid
private sector growth possible.
Active civil society. Suaheli benefits from an active network of NGOs, civic and religious
organizations, and free mass media.
3. Despite Suaheli’s great potential, it still faces the following obstacles:
Poor public sector governance. Weak institutions frequently fail to deliver goods and services
to the general public. Many public institutions are captured by special interest groups. As a
result, citizens have little trust in government.
Substantial macroeconomic vulnerability. Weak fiscal performance and debt accrual in the wake of
various financial crises has undermined the economy’s overall strength. Recent recovery has boosted
the economy but it remains vulnerable to external shocks.
II. Roads Sector in Suaheli and Watogo
4. The economy is recovering and has substantial resources, but faces challenges. For some years,
Suaheli’s per capita growth performance has lagged significantly behind other countries in the region, and
domestic and foreign investment flows have been well below the level reached by its neighbors. However
recently, there have been some positive signals on growth and investment levels in Suaheli, in particular
in the bigger cities such as Watogo. The country’s economy has the basis for a vibrant private sector,
liberal domestic and foreign investment regimes, and good entrepreneurial capacity of its human
resources. In addition, it has a very active civil society which is a potential agent for change. Yet, political
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and institutional hurdles have made a long term coherent reform agenda difficult to implement in the
country.
5. Inadequate infrastructure, especially roads, is perceived as a serious constraint to investment
and therefore to growth. Transport is critical for development, and is based largely on roads for freight
and passenger traffic. While some progress has been made in the past few years, the efficiency of the road
network in promoting growth and providing safe access has been limited by high levels of congestion,
widespread poor condition of roads and bridges, inadequate connectivity, and the lack of a sustainable
road safety strategy. For example, 44 percent of the National Road network is in poor or bad condition
and 24 percent is unpaved. In Watogo, the situation is even worse: only 25 percent of the existing roads
network is paved and in reasonable condition.
6. After a period of under-investment, investment in the road network is picking up. Capital
expenditures on the road networks were low during a period of fiscal constraint 2005-20. Historically,
private sector investment has also been low due to an uncertain investment climate, poor legal environment
and land acquisition problems. While funds allocated to road maintenance have risen since 2007, due to
rising revenues from road users in a Special Road Support Fund (SRSuF), these covered only one third of
the estimated needs in 2017 and cost recovery needs to rise further. With the recent resurgence in the
economy, the capital budget doubled in 2012 and is likely to rise by another 50% in 2018. These resources
could restore the sector if well prioritized, implemented and sustained.
7. Mixed progress on the road sector reform agenda. Road sector reform was initiated in 2007,
focusing on i) sustainable financing through road user cost recovery, and ii) commercialization of road
sector operations through establishment of a road management authority and increased private sector
participation. At the institutional level, the road fund and Road Board were established in 2011 and became
fully operational in 2012 and the road maintenance program was duly expanded. Although the core
network comprises about 18,000 km, a total of 29,000 km is classified as national road which dilutes the
available national funding. At the organizational level, the internal business processes in Department of
Public Works and Highways (DPWH) are being improved; however the organization is still large and
over-staffed (with 1.3 staff per km of network). The proposed establishment of a road management
authority did not receive political backing, despite extensive consultations and study of options.
Engineering districts have been further subdivided and aligned with congressional districts, increasing the
level of local political influence over road operations, and increasing the cost of rolling out new business
systems. Given the difficulty of mobilizing legislative support for a comprehensive institutional overhaul,
attention has now shifted to incremental reform and improving the efficiency of the current organizations.
A Rationalization Plan was prepared for DPWH in 2015 under a national program which would allow
substantial downsizing, but seems to have little prospect of being implemented.
8. Watogo has received some support from the national level but overall investments in road
rehabilitation and maintenance remain very low. In 2012, the city government set up a special
Infrastructure Improvement Fund (IIF) to complement funding from the national level. Resourcing of
the fund which primarily focuses on infrastructure investments in roads, water and energy remains
problematic: only about 5 percent of the estimated investment needs can be covered by the fund. Just
recently, Watogo has received an offer from a major foreign investor to contribute to the fund mechanism.
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9. Operational performance has been mixed. In major civil works, which have been outsourced to
the private sector for many years, some chronic contract performance problems have been overcome,
especially in avoidance of disputes and in prompt and policy-compliant land acquisition. However,
significant difficulties persist, including cost over-runs, slow contract administration and, in some
instances, weak quality and supervision. For road and bridge maintenance, funding has been rising but
needs to be more effectively programmed and efficiently utilized — budget allocations are fragmented to
District level, are not need-based, are drained by administration costs, and are exposed to risks when used
for employment-generation programs. Recently, progress has been made introducing a centrally-
programmed preventive maintenance program, and piloting long-term performance-based contracts which
provide comprehensive management of long sections of road.
10. Cost and Time Over-runs. In both the network upgrading and preventive maintenance, there were
significant internal delays in the procurement process and completion which resulted in frequent quantity,
time and cost increases. Contract administration improved over previous experience, but the application
of penalties was uneven. Payment processing improved but uneven release of funds resulted in payment
delays to some firms, and poor cash flow contributed to delays in execution of works. A lengthy approval
process for variation orders and supplemental agreements, which was intended to tighten control over cost
increases, instead contributed to the delays. New business processes supporting procurement and contract
administration, have been developed and are ready to be implemented.
11. Corruption has been a major threat to the efficiency and fairness of procurement process in the
Road Sector. There is a widely held perception that local, national and international competitive
procurement have often been affected by collusion and bid-rigging among contractors, with high payoff
margins (see Box 1). In national procurement reform, Government has tightened rules, improved
oversight, opened competition and reporting, and enforced bid ceilings. Similar reforms are still pending
at the local levels. Among the business process reforms in DPWH, computerization of the contractor
qualification process has been implemented to improve the efficiency and transparency of procurement,
but there are signs of tampering. Other electronic control systems are ready to be implemented. The
budgeting process at the local and national levels reflects a fragmented and distorted approach to budget
allocation which is susceptible to external influence, especially in the allocation for general maintenance
and project listing in capital budgets. Financial audit findings pointed to numerous internal control
weaknesses, including the opportunity for budget realignment and authorization which at times have been
instruments of cash diversion. Fighting corruption is a formidable challenge that crosses sectors and levels
of bureaucracy.
Box 1: Evidence of Collusion and Bid-rigging in Road Contracts
In 2013, the Government received information about bid-rigging in the procurement of large two roads contracts.
Two further rounds of bidding in 2014 and 2016 revealed similar signs. An independent investigation which
was concluded in 2017, found that a politically-connected individual, department officials and a cartel of
contractors had engaged in corrupt and collusive practices in all three rounds of bidding, undermining
competition in roads construction in Suaheli and inflating prices by up to 30%. These findings were disclosed
by the Government in November 2017 and are still awaiting possible follow-up actions under Suaheli law.
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Assignment
12. You are part of a Task Team reporting to the Mayor of Watogo to work on a major support program
for the roads sector in Watago. The plan is to solicit support for the Watogo roads sector in the range of
US$200m to improve the rehabilitation and maintenance of roads. The Mayor wants you to make sure
that the support program will be a success, in part because some of the projects in the country and the
region seem to be having serious issues with governance and implementation issues. He is willing to talk
to the foreign investor who is interested in supporting the Watogo Infrastructure Improvement Fund.
13. You know that the Watogo environment is reluctant to engage with you on governance issues.
People within the Watogo establishment claim that they are making slow but steady progress to improve
the governance situation in the sector and to tackle corruption more effectively. In a first round of
interaction with government officials you have also learned that third parties such as the private sector
and civil society organizations have not been associated to the discussions about the new program support.
14. Please summarize the governance and corruption issues and risks the Watogo program may be
facing. You should identify potential risks and vulnerabilities for the sector and the program—those key
decisions/value-added points where things could go wrong. You should also outline mitigation efforts for
the risks you have identified. Remember that good governance will contribute overall to the sustainability
of program – ultimately improving the quality and durability of the Watogo’s road network. Keep in mind
that the three key principles for improving governance and reducing corruption (TAP = transparency,
accountability, and participation) will bolster the program sustainability. Also note that the potential
impact of poor governance and/or corruption on down-stream sector outcomes. Finally, any mitigation
measures need government buy in and sufficient resources.
15. Some questions you may want to consider in your discussion:
• What reform elements and activities would you propose to promote transparency, accountability
and participation? Who should take the lead in what area?
• What types of activities should the City Government support to strengthen transparency,
participation and accountability?
• What should or could be done in the very short term and what instead could be done in the medium
and long term? Are there any potential win-wins you could think of?
• Is it useful for the city government to involve in the reform process local and international NGOs
and/or the private sector? Why/why not?
• How would you suggest to overcome potential resistance against governance and anti-corruption
measures within the city? What should be done in this respect with the private sector operators
(e.g. road construction companies)?
