 | Private Sector Development in Low-Income Countries - Development in Practice (WB, 1996, 188 p.) |
 |  | Chapter 2-Establishing an attractive business environment agile firms, agile institutions |
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Efficient infrastructure
The quality and adequacy of infrastructure services are important determinants of how successful firms are in delivering products and services of high quality, at low prices, and in the shortest possible time. Poor public infrastructure increases private costs and is a drag on market efficiency—by increasing investment and transactions costs, increasing barriers to entry, reducing competitiveness, and restricting access to domestic and international markets. Small and informal enterprises, particularly in rural areas, are hurt most by the failure of public infrastructure. Unlike bigger firms, they cannot afford private investments needed to compensate for public failure.
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BOX 2.16 THE AGETIP MODEL, WORKING WELL Under the Agences d'Execution des Travaux d'lnteret Public (AGETIP) model of contract management—first used in a Bank-sponsored project in Senegal-subprojects on large public works are carried out by small, dynamic firms in the private sector, rather than by (largely) inefficient public agencies. An added benefit is liberating project managers from much red tape. AGETIP is a private, not-for-profit company that does general contracting for municipalities, ministries, and other public entities. It hires consultants to prepare designs and bidding documents and supervise works. It issues calls for bids, evaluates them, and signs the contracts. It also evaluates a project's progress, promptly pays contractors, and oversees the final reception of the works, adhering throughout to a set manual of procedures. In its first year of operation in Senegal, AGETIP executed $8 million of works through 119 subprojects, used 78 (mainly small or medium-size) contractors, and created almost 2,000 person-years of employment. AGETIP owes its success first and foremost to its efficient private sector management team. This team takes pride in paying contractors in ten days rather than the 30 allowed or the months taken by 'public entities. AGETIP is also able to hold its overhead low by contracting for engineering consultants and others only as needed. Moreover, its legal status as a private company exempts it from the many and cumbersome bureaucratic procedures imposed on the public sector. Because AGETIP hires local contractors, it has stimulated the development of local consulting industries. On its roster are 680 local contractors and 160 local consultants. Its success has spurred other agencies to improve their performance. In the public sector, the Senegalese minister of public works is considering setting up an AGETIP within his ministry, and the mayor of Dakar has contracted with AGETIP to execute projects financed from his own budget. AGETIP's success in Senegal has led to the creation of similar agencies under World Bank projects in ten countries, including Benin, Burkina Faso, Mali, Niger, and Mauritania. The Mauritanian project proposes to disseminate information to local communities in order to increase their sense of responsibility toward project works and improve communication between the grassroots and local authorities. Before projects are presented for funding, affected communities will be consulted, particularly when projects concern such issues as garbage collection or sewer cleaning, where grassroots participation can make a large difference. As documented extensively in the World Bank's World Development Report 1994, low-income countries have improved the coverage of their infrastructure. But they are slipping behind middle-income countries and need to do much more—and quickly—if their firms are to compete in international markets (table 2.3). Unmet infrastructure needs are still considerable. Electric power has yet to reach most people. Demand for telecommunications to modernize production and integrate into global markets is far outstripping supply. And in rural areas, transport, water, sanitation, and education facilities are still poor-specially for women and children. Often past investments in infrastructure have not had the expected development impact because of inefficient and inappropriate investments by the public sector. Surveys of private firms consistently highlight infrastructure as a critical constraint to investment and profitability—and as an important variable in the investment decisions of foreign firms. In Africa, the poor state of infrastructure continues to retard growth of the private sector and impose high transaction costs. Telecommunications coverage in Sub-Saharan Africa is among the lowest in the world—averaging 0.4 lines per 100 inhabitants compared with 4 in Asia and 6 in Latin America. And government-owned telephone companies lack the resources to deliver the massive increases in telephone lines needed to accelerate growth and expand exports. Besides capacity constraints, poor service reliability imposes a burden on firms and results in lost opportunities. In Kenya, it has been estimated that unreliable telephone and telex services reduce foreign exchange earnings by 1-2 percent. Performance in the power sector is also mixed. Some countries—such as Ghana, Malawi, and Togo—have managed to rapidly increase output. But others—such as Tanzania and Guinea—have had their power output stagnate. |
TABLE 2.3 INFRASTRUCTURE COVERAGE IN LOW AND MIDDLE-INCOME COUNTRIES, 1975 AND 1990
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Low- income countries |
Middle - income countries | ||
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Sector |
1975 |
1990 |
1975 |
1990 |
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Power-generating capacity |
41 |
53 |
175 |
373 |
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Telecommunications |
3 |
6 |
33 |
81 |
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Paved roads |
308 |
396 |
1,150 |
1,335 |
Source: World Bank 1994e.
The share of households with electricity in Sub-Saharan Africa—only 5 percent of all households—remains among the lowest in the world.
Failures to achieve high generating efficiency and control system losses have combined with budget constraints to reduce access to electricity. It has been estimated that by spending $1 million to reduce line losses, many countries could save $12 million in generating capacity. For private firms, the cost of unreliable power and chronic shortages has been considerable. In Nigeria, because of poor reliability of publicly supplied power, most private firms have to invest in electricity generators—adding 1025 percent to their machinery and equipment budgets.
National transportation systems also often fail to deliver the logistical support necessary for private firms to reach new markets. In Zambia, it has been estimated that poorly maintained roads add 17 percent to freight costs. As a result of poor operating efficiency of the rail system, freight rates in Africa are on average twice as high as those in Asia, and one and a half times those in Latin America. Despite high returns on road maintenance investments, neglect of maintenance in Sub-Saharan Africa has eroded almost $13 billion worth of roads—one-third of those built in the past 20 years. The high cost of sea and air freight services undermines the competitiveness of exports from Sub-Saharan Africa. For example, a container costs $200 to pass through Abidjan's port, compared with $120 in Antwerp, and much less in East Asia. The cost of air transportation in Africa is also much higher than in East Asia—often four times as much. The performance of national airlines has been dismal. With the exception of such carriers as Ethiopian Airlines and Air Zimbabwe, national carriers (Zambia Airways, Cameroon Air, Kenya Airways, and Nigeria Airways) continue to rack up large deficits.
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