Road sector reform : a tale of two countries - Part II Burkina Faso : deliberate evolution

___ ___ ___22579 --Af rica: Transport ''- Technical Nates Sub-Saharan Africa Transport Policy Program (SSATP) Road Management Initiative (RMI) UNECA and The World Bank Note No. 7 April 1997 Road Sector Reform: A Tale of Two Countries (Part 2) Burkina Faso: Deliberate Evolution U tnlike Ghana, Burkina Faso's institutional reforms are relatively recent. By the end of the 1980s, about 80 percent of Burkina's road network of 12,,500 kilometers wvas in poor condition. In 1990, the Government. together with donors, began to look into wvavs of redress- ing this situation. A feasibility study completed in 1991 was followed by sensitization workshops designed to create awareness among all stakehold- This note, Part 2 of 3, is ers of the situation and proposed remedies. This deliberate inclusion of based on a dissemination stakeholders in designing the evolving reform was an obvious contrast to report prepared by Sam Mwamburi Mwale for a reforms in other countries. In 1992, the government entered into an study tour undertaken by a agreement w ith IDA under the Transportation Sector Adjustment Program Kenyan delegation to (PASEC-T). The most important components of the Program were new Burkina Faso and Ghana in June 1996. Mr. Mwale is a construction and maintenance, w ith the weight of sector reforms falling policy analyst with the under the maintenance component. Policy Research Group in Nairobi. Road Maintenance This series is intended to The maintenance program is designed to maintain and rehabilitate 9.047 share information about kilometers of roads. Most of the routine maintenance ill be carried out issues raised in various b- private contractors. The government has deliberately chosen to have SSATP reports. The ~~~~~~5 ~~~~~~~~~~views expressed in the most of this vork carried out by small- and medium-sized enterprises paper, and in this note, (petites et movennes entreprises. or PMEs). To facilitate the development are those of the author, of small- and medium-sized enterprise-based routine maintenance, the and do not necessarily reflect the opinions of the government relinquished control of its equipment pool in 1988 to an World Bank autonomous corporation, the Societe de Location du Materiel (SLM). Group,UNECA, or any of the RMI stakeholders. The restructured Public WNorks Department now has responsibility For more information for planning and scheduling annual maintenance operations, and adminis- about these notes, please tering and supervising works carried out by small- and medium-sized contact Leita Jones in the enterprises. As a complement to its other reforms, the government has WorldBARnIteG instituted external technical and financial auditing of road maintenance work, and initiated measures that simplifv the procurement and disburse- ment procedures. These reforms are expected to enhance an enabling environment for the evolution of an efficient road maintenance system.  2 Africa Transport The equipment the government and plant pool private sector lease Although the SLM is equipment from SLM still owned by the SLM is a commercial enterprise in at commercial rates government, its all respects, except for its contract and conditions. SLM incorporation, regis- may purchase equip- tered under the to maintain government holdings... ment and spare parts Companies' Act, was Both the government and private from either govern- the first step tonards sector lease equipment from SLM at ment inventories or privatization of the s private firms. Its equipment sector. The commercial rates and conditions... operational and Cabinet has decided to Its operational and capital costs are capital costs are sell 75 percent of its covered by revenues stock to bidders, while covered by revenues from leasing from leasing out its retaining 25 percent. out its own equipment. own equipment. To Most of SLM's clients, ensure wider national particularly the small- reach, it has two field and medium-sized branches, with each enterprises, want to purchase stakes in the firm. branch fully equipped and capable of all but the Should this happen, the SLM will be an enterprise most extensive repair works. largely owned by its most important stakeholders, the small- and medium-sized enterprises. Although one-third of the staff are former eivil servants, thev are not seconded, but rather. The SLM's formation was catalyzed by two hired like the rest of the staff on five-year con- factors, the apparent inability of the Public Works tracts, with only their seniority and benefits Equipment Service to fulfill its mandate, and the transferred from the civil service. Former civil proposed privatization of road maintenance servants receive a 20 percent increase in their pay arising from policy and institutional reforms upon joining SLM, followving a rigorous and under PASEC-T. The SLM was capitalized wvith a competitive interviewving process. The organiza- total of US$ 1,465,000 comprising an initial tion is lean, with only eleven officers (the Direc- equipment loan (in-kind) of US$ 835,000, and tor General, Technical Director and nine other working capital of US$ 630,000. It is expected to staff) in administration, sales and marketing. The repay this loan over a period of ten years begin- rest of the staff are drivers and technicians. SLM ning in 1997. SLM pays a 45 percent corporate has a free hand in hiring and firing on competi- tax like any other private firm. The onlv conces- tive terms wNith little government interference. sion made to the SLM is that the government will The entire organization in its make up, presenta- not charge interest on the loan assumed for its tion and operations is geared to operate like a capitalization. Turnover has been growing from private firm, so as to not appear as merely an US$ 1,012,000 in 1993 to US$ 1,534,000 in extension of a government department. 1995, and their net profits, US$ 42,000 in 1993, increased to US$ 124,000 in 1995. In spite of, or perhaps because of this, SLM has not cornered the entire market. In fact, Creating a convincing corporate character it faces competition from government equipment SLM is a commercial enterprise in all respects, pools that exist in other government agencies, except for its contract to maintain government and from the armv. These pools also have heavy holdings. SLM's directors are all government equipment suitable for civil works. SLM's great- appointees from the ministries of public works, est obstacle is the age of its equipment, which finance, industry and trade, and transport. Both ranges between five to fifteen years old.  Technical Notes 3 To ensure that client downtime on its program, there were virtually no small- and leased equipment is minimized, SLM has insti- medium-sized enterprises in Burkina Faso. The tuted field service teams. Its plans for the re- establishment of the SLM is largely responsible placement of this equipment are constrained by for their emergence in the road and other heawy financial resources. Nevertheless, SLM has found construction and maintenance works sector. innovative ways to purchase equipment within Between the SLM and the small- and medium- these constraints, as it did when it purchased two sized enterprises, a considerable proportion of used bulldozers from the government at the the former public works establishment has been conclusion of a Canadian-funded agricultural deployed by the private sector. Anecdotal evi- project. In the coming years, the SLM intends to dence suggests that many owners of the small- buy new equipment from its own resources to and medium-sized enterprises have employed replace its aging stock. foremen and general labor who, as former civil servants, have strong links within the newly As part of the PASEC-T reforms, the created equipment and works sector. In some contracting procedures of the government have ways, the impressive growth in small- and me- been streamlined for greater effectiveness. As dium-sized enterprises has softened the strain of the main equipment lease supplier to the govern- layoffs in the face of restructuring following ment, the SLM is a direct beneficiary of these institutional reforms. reforms. Once works contracts are awarded by the government, the regional directors hire the Because most small- and medium-sized necessary equipment from SLM or other equip- enterprises are characterized by under-capitaliza- ment hire firms. The SLM's equipment is pro- tion and under-staffing, most lease equipment vided with an operator and fuel. Upon completion and operators from the SLM. This relationship of the tasks specified in the contract, the bill provides a window of opportunity for the SLM to from the regional office, together with the assist in capacity-building among these enter- necessary paperwork, are sent to the accountant prises. WVith some modification, the current at the directorate's headquarters, who then pays manned-equipment lease scheme could provide SLM the amount due. According to SLM's man- informal but cost-effective on-the-job training for agement, public service clients have been as private sector drivers and technicians as they reliable in making payments as have private learn by doing. sector clients. SLM could also dispose of older, but still useful, equipment by entering into lease-purchase Assistance to small- and medium-sized agreements with interested small- and medium- enterprises development sized enterprises. The government and donors The SLM's lease agreements with small- and might fund the implementation of an equipment medium-sized enterprises require three signato- purchasing scheme to these enterprises similar to ries, including the government agenev the that which exists in Ghana. The SLM could be contractor (client) and SLM. The client pays the contracted to provide equipment maintenance to full cost of transporting the equipment to site. the small- and medium-sized enterprises, to- To reduce movement costs, the client is directed gether with staff training during a four-year to hire equipment from the nearest branch repayment period. office. Debt collection from small- and medium- sized enterprises has not been a problem, particu- Ensuring accountability larly since clients can be taken to a court of laNv All contracted work is extensively audited, from by the SLM if necessarv both a technical and financial standpoint. In Prior to the inauguration of the PASEC-T addition to the auditing carried out by the Office  4 Africa Transport of Contracts Administration and by internal Are the reforms delivering the results? auditors, external auditors are frequently re- The continued use of force account on periodic tained. Under the credit terms between Burkina maintenance and rehabilitation work is due Faso and IDA, all project accounts covering mainly to the lack of sufficient capacity among routine maintenance budgets are to be audited the small- and medium-sized enterprises. This twice each year, as of June 30 and December 31. view is supported by a survey, carried out by the government, that indicates that most respon- The financial audit consists of all tests dents have neither the capital, equipment, nor and checks considered necessarv by professional technical personnel to meet the basic pre-qualifi- auditors to express an cation for contract work. opinion of the soundness It will probably take of the project's financial . _ several years before the statements. It is carried larger and more compe- out by an external audit tent enterprises are able firm, which examines the The RMI was launched in 1988 by the United to meet this demand. accuracy and completeness Nations Economic Commission for Africa of the end of calendar vear (UNECA) and the World Bank, under the For the present, small- and financial statements. The auspices of the Sub-Saharan Africa Transport medium-sized enterprises findings and recommenda- Policy Program (SSATP). The countries taking findings and recommenda- part in the RMI are Cameroon, Kenya, Madagas- have proven their superior- tions from these audits are car, Rwanda, Tanzania, Uganda, Zambia, and ity in doing routine not only taken seriously by Zimbabwe. Others receiving assistance from the maintenance more effi- the government, but areprogram include Benin, Ethiopia, Ghana, the government, but are prLesotho, Malawi, Mozambique, and Togo. RMI is ciently than force account, often acted upon or administered by the World Bank's Africa Region, due to their flexibility in implemented. and is co-financed with the govemments of location, resources, and impleme ten. . Denmark, France, Germany, Japan, the Nether- mobilization. By ceding In addition to the lands, Sweden, Switzerland, and the European conventional financial Union. France, Japan and Norway provide senior routine maintenance to audits, there are twice- staff members to work on the Program. these enterprises, the yearly technical audits government is making a done by a local consulting wise resource allocation road engineer, with assis- decision. As they accumu- tance from an interna- late both experience and tional expert. The audit is done on a sample capital, the competent enterprises will probably basis, and on selected works. A typical audit will begin to bid in the demanding area of mainte- consist of samplings, field visits, testing results, nance and rehabilitation. additional documentary evidence, and other tests and checks necessary for arriving at a professional For both force account and contract mainte- opinion regarding the quality and quantity of nance, the procedural and payment reforms have works performed over the past six months. proved beneficial. The reforms have reduced the time between the call for bids and the time of With audits costing only about 2 percent of the contract award from three months to one month. total costs, the benefits far outweigh the costs. Similarly, payment certificates can be honored in The benefits of these audits arise from their effect less than a week for amounts less than CFAF 1 of ensuring that work is carried out to the pro- million, and one month for those exceeding that scribed quality and quantity intended, and that amount. The faster contract process and the funds are spent in an appropriate and accountable prompt payments are a significant boost to public manner. If permanently institutionalized, with and private sector road maintenance efficienev their costs built into the program, the auditing exercise will more than pay its owNn way.