July 21, 2013
In my fifth commentary on corruption in Ethiopia this year, I focus on the construction sector. The other commentaries are available at my blogsite.
The cancer of corruption in the construction sector the World Bank (WB) documented in its “Diagnosing Corruption in Ethiopia” is just as malignant and metastatic as in the land, education and telecommunications sectors. According to the WB report:
In the construction sector, Ethiopia exhibits most of the classic warning signs of corruption
risk, including instances of poor-quality construction, inflated unit
output costs, and delays in implementation. In turn, these factors
appear in some cases to be driven by unequal or unclear contractual
relationships, poor enforcement of professional standards, high
multipliers between public sector and private sector salaries,
wide-ranging discretionary powers exercised by government, a lack of
transparency, and a widespread perception of hidden barriers to market
entry.
Ethiopia’s “construction sector” falls into four
categories: roads, water supply and irrigation, power, and other public
works including construction of universities, schools, hospitals and
markets. Annual spending on roads alone is estimated to be US$1.2
billion. The “government” totally dominates the construction sector.
“Ethiopia is unusual compared with most other African countries, which
have already fully privatized the design and construction of public
works.”
There are multiple and “interrelated drivers of corruption
in Ethiopia’s construction sector.” These drivers are “related to
deficiencies in accountability (transparency based on clear performance
criteria), capacity (availability of sufficient material and human
resources and proper procedures), and trust (confidence in the market
that allows businesses to invest in increasing their own capacity). In
Ethiopia, “A lack of capacity makes corruption possible, a lack of
accountability makes corruption happen, and a lack of trust allows
corruption to take root.”
The WB report highlights corruption in
Ethiopia’s construction sector along six dimensions. The policymaking
and regulatory processes are at high-risk area of corruption. Such
corruption “has a major effect on sector governance.”
Policies and regulations could “encourage, or help hide, corrupt
practices” and unless corrected perpetuate corruption by groups or
individuals. The Ethiopian “government” “controls the price of
construction materials, access to finance, and access to equipment. It
controls professional and company registrations. It maintains high-level, bilateral infrastructure deals with China and
lacks independent performance audits.” According to the WB report,
“Many stakeholders are concerned about the possibility of a connection
between the dominant role of Chinese contractors in the road sector and
high-level links between the Ethiopian and Chinese governments” and the
“lack of effective competition, with Chinese contractors dominating the
international market and a limited set of domestic contractors
dominating the national market.” These problems are compounded by other
factors such as poor quality control, weak enforcement of professional
standards and overall lack of transparency. Professionals in the
construction sector are reluctant to complain “for fear of being
victimized” and believing there is no truly independent body to which
they can appeal.” Since the “government is a major client”, “there is a
reluctance to express dissent.”
The planning and budgeting
(P&B) process is the second area of high corruption in Ethiopia’s
construction sector. When planning and budgeting “deviates from the use
of a rational, objective basis for prioritizing the allocation of
limited resources on the basis of need, anticipated rates of return, or
other objective criteria,” it opens the floodgates of corruption. In
Ethiopia, the P&B process is characterized by “lack of separation
between policy making, budget allocation, and implementation functions”
and “top-down planning by decree.” There are instances in which
“projects that are not responding to a prioritized need and (when
combined with weak procurement regulations) can sometimes be negotiated
directly between a corrupt official and a specific construction
company.” Corruption also occurs in the form of “adoption of
inappropriately high construction standards to enhance contract values,
construction of new infrastructure while neglecting to maintain existing
facilities, conflicts of interest for officials with a stake in the
construction sector” and aiding “construction companies with party
political allegiances.”
The third area of corruption is found in
management and performance monitoring . According to the WB report,
management weaknesses can lead to corruption in three main ways: “(a)
Without basic good management controls, individuals (whether working for
the client, the consultant, or the contractor) can find themselves free
to take shortcuts that may cross the line into corruption. (b) Without
good data management and reporting systems, the management information
needed to identify and address corruption does not exist. (c) If the
management is so incompetent that it gives rise to administrative or
technical obstacles that are otherwise impossible to address, corrupt
activities may be seen as the only realistic way for otherwise
professionally minded individuals to deliver results.” In Ethiopia such
corruption occurs for a number of reasons including “low remuneration of
some managers and procurement staff”, “shortlisting of poorly
performing companies and companies without capacity for new work”,
“difficulty of obtaining public information about contracts,” and “lack
of independent professional bodies and weak enforcement of professional
standards”, among others.
The fourth area of corruption is
manifest in the tendering and procurement (T&P) process. Among the
commonly encountered corruption risks in the T&P process include
sale of inside bidding information by corrupt officials to prospective
bidders to enhance the prospects for submitting a successful bid. It
could also involve “collusion between contractors in the form of price
fixing and intimidation of aspiring new entrants, unofficial quota
system for the award of contracts on the basis of political affiliation
of the companies involved and bribery.” In Ethiopia, the list of corrupt
practices in the T&P process is mindboggling. In addition to the
“general lack of transparency in procurement processes,” the
“government” “shortlists companies known to be poor performers or
lacking requisite experience or capability,” excludes “capable
companies”, inconsistently applies procurement standards, imposes unfair
selective restriction of access to advance information about bidding
opportunities and distorts the bidding process to benefit favored
bidders, among others.
The fifth area of corruption is manifest
in the operations phase. Generally, contractors who have paid bribes to
secure contracts “try to recoup his outlay during the construction
phase. This is most commonly achieved through various forms of fraud
involving client’s staff or the supervising consultant’s staff,
including supply of inferior materials, falsification of quantities,
inflated claims, and concealment of defects.” In Ethiopia, “contracts
are rarely completed on budget”. Significant delays in contract
completion are common. There is “often a problem with poor-quality
construction” and “some contractors knowingly underbid then recoup costs
through variations.” Contractors “conceal construction defects or
improperly influence client or consultant to accept substandard
materials”. In other cases, a “consultant or contractor submits
falsified documentation” and “receives exaggerated payments as result of
falsified utilization records.”
The sixth area of corruption in
the construction sector involves payment and settlement of certificates.
A client “can fabricate a justification for refusing or withholding
payment as “a means of punishing companies that have refused to honor
understandings.” In the absence of effective complaints adjudication or
appeals process, this could result in corruption “related to legal
advisers, including in dispute resolution. Such advisers may be
implicated in the submission of incorrect claims, concealment of
documents, the supply of false witness statements, bribery or blackmail
of witnesses, or excess billing, all of which contribute to overall
levels of corruption in the project.” In Ethiopia, it is “commonly
reported that facilitation payments may be required to speed up
settlement of certificates.” Alternatively, “contractors sometimes
curtail progress because cash flow problems arise as a result of late
payments.”
EthioConstruction Corruption, Inc.
The
Ethiopian “government” is not only the single dominant construction
client but also the singular policy maker and regulator of the
construction sector. The “government” is in effect EthioConstruction
Corruption, Inc. Though the WB report is timid in stating the facts as
they are and frames the truth in the buttery language of bureaucratese,
it is clear that the type of corruption in the Ethiopian construction
sector covers the whole gamut including the policy making and budgetary
process, project selection, tender specifications, procurement outcomes,
contract negotiations and renegotiations and payments. It is manifest
from the report that the bidding process is generally rigged and
projects are often granted to companies that have more political ties to
the ruling regime than qualifications. It is obvious that newcomers and
those disfavored by the regime have little chance of securing public
works project contracts. It is also manifest from the totality of the
evidence in the report that public project money is ingenuously finds
its way to the pockets of top regime officials.
The “tofu” road to Kombolcha
In June 2013, the “Ethiopian Roads Authority” signed
another agreement with two Chinese companies to upgrade the 133 Km-long
Kombolcha-Bati-Mille road to asphalt-concrete level. The Chinese
companies will snag a whopping 2.8 billion Br. in the deal. Why aren’t
Ethiopian construction companies getting these contracts? In other
words, why are Chinese companies eating the lunches of Ethiopian
companies? Why is there not an Ethiopia construction consortium
organized (with the aid of the “government”) to bid for such
construction jobs? Will there ever be Ethiopian construction companies
with the capacity for large-scale infrastructure projects? How could the
“government” talk about development when the “infrastructure
development” is left entirely to foreign contractors? How can the
“government” justify use of international bank loans to bankroll foreign
companies squeezing out homegrown ones? How is Chinese economic
penetration and exploitation of Ethiopia different from the exploitation
of the evil neoliberal, imperialist, neocolonial, globalist…
exploitation?
There is one question that needs to be answered: Is
Ethiopia getting its money’s worth by handing out contracts to Chinese
companies? In 2011, the Economist reported, “The
Chinese-built road from Lusaka, Zambia’s capital, to Chirundu, 130km
(81 miles) to the south-east, was quickly swept away by rains”. Will the 133 Km-long Kombolcha-Bati-Mille road also be “quickly swept away by rains”?
It
is common knowledge that many state-owned Chinese construction
companies engage in shoddy workmanship not only in Africa but also in
China. After Chinese Premier Zhu Rongji saw the shoddy workmanship of
flood dykes on the Yangtze River in 1998 which resulted in major loss of
life and property, he described the work of these companies as “tofu”
construction. There is much documented about corruption and shoddy
workmanship in the Chinese construction sector. “All across China, everything from sidewalks to apartment buildings to mega dams are compromised corruption.”
Chinese construction companies in Ethiopia and the rest of Africa will
underbid any other local or international competitors because they are
not interested in short-term profits but sector monopoly. They maintain
low profits to increase market share (monopolize) at the expense of
local companies while driving out of international competitors. That’s
how they do business. The blame for Chinese monopoly of the public works
sector in Ethiopia should be placed squarely on the shoulders of the
ruling regime in Ethiopia which manifestly lacks the technical capacity
and competence and political will to do what needs to be done to ensure a
reasonably corruption-free and high quality construction sector.
Reducing corruption through CoST accountability
The Construction Sector Transparency Initiative (CoST) launched
by the British Department for International Development (DFID) and
taken over by the World Bank in 2012 “seeks to help (9 countries in a
pilot program including Ethiopia) participating countries improve the
value for money spent on the construction of public infrastructure.” The
program aims to create a “multi-stakeholder initiative designed to
promote transparency and accountability in publicly financed
construction.” At the core of the program “is the belief that the
processes involved in the construction of public infrastructure must be
made more transparent. The public must be armed with the information
they need to hold decision makers to account and to ensure better value
for money in the construction sector.” CoST aims to “establish a public
disclosure process for the construction sector that is viable and
appropriate to country conditions, that is sustainable in the medium and
long term as a government system, and that achieves a credible and
substantial level of compliance in the relevant sector entities.”
Ultimately, CoST seeks to “reduce waste in public budgets, enables
fairer competition in the private sector and increased opportunities for
investors.”
On November 17, 2012, a CoST consultancy agreement was “signed between Engineers Against Poverty (EAP) and Hagos Abdie (Individual Consultant); the consultant is selected as a preferred candidate among bidders invited through short listing.”
The aim of the consultancy agreement is to find ways of maximizing the
capacity of government agencies to gather, verify and disclose
information into the public realm. (It is unclear why Abdie was
“selected as a preferred candidate among bidders invited through short
listing” and how much he was paid for his consultancy services.) But the
selection of Abdie lends irrefutable proof that only those closely
allied to the ruling regime get plum contracts as the World Bank report
amply documented in its massive study.
Close examination of Abdie’s 38-page “Assessment of procuring entity capacity to disclose project information in Ethiopia”
shows that it is nothing more than a cut-and-paste of bureaucratic
documents from a variety of sources. The report stylistically “collates
and assembles information” on various projects, a task that could be
done efficiently by an adroit college intern. One is hard pressed to
show how the “collated and assembled” hodgepodge of information could
“arm” the public in “holding decision makers to account and to ensure
better value for money in the construction sector.” The recommendations
at the end of each section of the “assessment” appear to be unoriginal,
cut-and-paste boilerplate recommendations. There is no need to waste
time discussing Abdie’s “assessment report”, but one cannot escape the
irony of corruption even when corruption is being “assessed”.
Increasing transparency and accountability in Ethiopia’s construction sector
Corruption
is dyed in the very fabric of the ruling regime in Ethiopia. It cannot
be washed out with the detergent of make-believe anti-corruption
programs designed by self-serving, sanctimonious and self-congratulating
international poverty pimps. Neither could it be solved by corrupt
anti-corruption crusaders. The simplest and most direct approach to
dealing with corruption in Ethiopia requires massive involvement of
civil society watchdogs and rigorous independent audits. Those countries
that have been successful in controlling corruption in the construction
sector have implemented have had rigorous compliance audits and made
available to the public comprehensive and detailed information on bids,
winning bids for government contracts and reports of procurement audits
on a timely basis. Most of them disseminate up to date comprehensive
public works contract information on line. They also allow civil
society representatives to observe the tendering process.
Ethiopia
supposedly has a freedom of information law (Proclamation No. 590/2008 –
A Proclamation to Provide for Freedom of the Mass Media and Access to
Information.) Anyone who has carefully studied this proclamation will be
impressed by the lofty platitudes, truisms and boilerplate legal
clichés and verbiage cut and pasted from the laws of other nations.
Under the proclamation, citizens supposedly have a right of “access,
[to] receive and import information held by public bodies, subject to
justifiable limits based on overriding public and private interests.”
But the “justifiable limits” include non-disclosure of any Cabinet
documents or information (Art. 24), any information relating to the
“financial welfare of the nation or the ability of the government to
manage the economy of the country” (Art. 25), and any information on the
“operation of public bodies [including] an opinion, advice, report or
recommendation obtained or prepared or an account of a consultation,
discussion or deliberation… minutes of a meetings…” (Art. 26). Simply
stated, no information may be released on the activities of government
ministers and officials, banks or any other official financial
institutions and the internal proceedings or external reviews of public
institutions. To top it all off, any public body may refuse a request
for information if it determines for any reason the “harm to the
protected interest which would be caused by disclosure outweighs the
public interest in disclosure.” (Art. 28.)
Corruption, like
mushrooms, grows best in darkness. The benighted leaders of the ruling
regime in Ethiopia have so far provided splendid husbandry to
mushrooming corruption in all sectors of the Ethiopian political
economy. What the people of Ethiopia need now are “sunshine laws” for
their country of 13 months of sunshine!
To track corruption in Ethiopia, follow the money. It leads straight to the top!
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