34950 Africa Transport Technical Note Sub-Saharan Transport Policy Program Note 38 March 2005 Construction Industry Development and the Road Sector Effectiveness of National Construction Councils by Stephen Brushett and Subhash Seth ABSTRACT The note reviews the objectives, programs, impact and lessons learned from the operations of the three National Construction Councils (NCCs) established to date ­ in Tanzania, Malawi and Zambia. The Councils share the common feature of being an instrument of public-private The purpose of this series is partnership in the construction industry backed by legislation providing a governance struc- to share information on is- ture and certain statutory powers and responsibilities. Whilst the business of the NCCs covers sues raised by the studies all aspects of the industry, there has been a strong focus on the road construction and mainte- and work of the SSATP. The nance given its importance for employment growth and new business development. With this opinions expressed in the in mind and focusing primarily on the role that NCCs have sought to play in the road sector, notes are those of the authors the note seeks to provide answers to three specific questions: (a) How effective have these and do not necessarily reflect particular structures been in achieving their goals? (b) Does experience suggest that this the views of the World Bank model might have wider applicability or not? and (c) Would these developments have likely or any of its affiliated or- occurred anyhow in the absence of a NCC? ganizations. THE CONTEXT FOR THIS REVIEW Stephen Brushett is a Lead Transport Specialist and Programs to support the development of a strong local construction industry have always Subhash Seth a Highway been seen as an important element of the road sector restructuring supported by the SSATP Engineer at the World Bank. since the late 1980s. Notably, under the Road Management Initiative (RMI), a series of pa- pers were produced setting out an analysis and a series of recommendations for how countries For information on these implementing road management and financing reforms could encourage the development of notes, contact the SSATP small-scale local contractors for road maintenance.1 At that time, restructuring of road ad- in the Africa Region of the ministrations was starting to open up new business opportunities for the private sector and to World Bank. create an environment for efficiency gains in road management. Since then contracting out of maintenance works, dismantling or downsizing of force account and the commercialization or ssatp@worldbank.org even outright sale of plant and equipment pools has accelerated and the new model has been adopted nearly universally in reforming countries. For SSATP, it appears to be timely to pay renewed attention to the construction industry, with particular emphasis on the impact that the aforementioned reforms ­ as well as subsequent actions ­ have had on the road sector. There are two particular motivating factors here. 1Lantran, Jean-Marie: Contracting Out Series Volume 1 Developing Domestic Contractors for Road Maintenance in Africa (De- cember 1990); Volume 2 Contracts for Road Maintenance Works (March 1991); Volume 3 Setting up a Plant Pool (December 1991); Volume 4 Managing Small Contracts: Practical Guide on how to Streamline and Manage Small Contracts for Public Works (April 1993); Volume 5 Road Maintenance and the Environment (August 1994). The European Commission, the World Bank and the UNECA 2 Firstly, there is the increasing realization of role that SCACII ­ A NEW APPROACH employment generation through contracting in the road sector can play in poverty reduction strategies in Sub- The aforementioned suggests that serious gaps still exist in the ena- Sahara African countries. Secondly, there is the percep- bling environment for construction industry development. Much tion in many countries that progress in the direction of attention has thus been given to the creation of an appropriate sup- local contractor development has lagged behind other porting framework, with an emphasis on the needs of local stake- elements of the reform program ­ and that the business holders. The emergence of one solution to this problem ­ the na- opportunities created by the higher volume and value of tional construction council (NCC) ­ owes much to the 1993 South- road maintenance and construction contracts created by ern African Construction Industry Initiative (SACII), attended by the reform process are being captured disproportionately Ministers from seven SADC member countries: Lesotho, Malawi, by foreign firms. Mozambique, Namibia, Swaziland, Zambia, and Zimbabwe. Tanza- nia had already created a similar structure in 1979. This meeting gave rise to a broad consensus on the need for the following at re- THE CONSTRUCTION INDUSTRY ­ STRUCTURE AND gional and national level: (a) providing a clear focal point for im- CONSTRAINTS plementing national construction policy; (b) expanding the role of domestic contractors and consultants through building public- The structure of road construction industry in Sub- private partnerships; (c) identifying constraints through carrying out Saharan African countries is typically dominated by comprehensive studies of the local road construction industry, and large foreign-based firms, some of which operate in (d) developing specific programs and measures to address industry joint venture or association with local firms. There are constraints. In February 1996, the Southern African Regional Con- often a few medium size firms, some of which may be struction Industry Council (SARCIC) was set up, but relatively with purely local firms, and others may be based in neighbor- little follow-up at regional level. Country level initiatives have ing countries (such as South Africa, Zimbabwe and proven to be more robust ­ Malawi creating an NCC in 1996, Zam- Kenya in the case of Southern Africa). In recent years, bia establishing an NCC in 1995 to implement the newly approved there has been a large increase in the number of newly national construction industry policy (formal enactment followed trained small-scale contractors, some of which are es- only in 2003). South Africa has however, the strongest program in sentially the result of the recycling of staff from down- the region, as construction industry development has become a sized force account units. This process has resulted in critical element of the government's strategy for majority economic setting up a large number of small domestic firms. In empowerment. few countries have effective supporting programs been put in place to assure a relatively constant level of work for these firms. Lesotho however provides a good ex- ample of what can be done in this regard. Thus, there 2 Box 1 ­ NCC Objectives: The example of Malawi tend otherwise to be very high birth and death rates for ... provides for the establishment of a National Construction this type of firm. Only a few small contractors have Industry Council, for the promotion and development of the con- been able to make the transition to medium scale, al- struction industry in Malawi, for the registration of persons en- though that is a specific national objective in some gaged in the construction industry, for the coordination of train- countries, such as Malawi. ing of persons engaged in the construction industry ... Market access for small contractors is not guaranteed. The difficulties are partly due to the contracting process ­ frequency, size, conditions imposed by road agencies. These difficulties tend to be exacerbated by a range of NCC ­ (A) TYPICAL OBJECTIVES AND GOVERNANCE STRUCTURES issues faced by domestic firms ­ particularly by all small and/or newly created entrepreneurs. These in- In a general sense, the goal of NCCs is to foster the development of clude: (a) limited access to construction equipment; (b) the domestic construction industry. There are however some differ- limited access to capital and credit facilities; and (c) ences in how this is translated into specific objectives in the three lack of business training and shortage of technical and cases of Tanzania, Malawi and Zambia. In the case of Malawi Act management skills. Failure to resolve these issues often No. 19 of 1996 creating the National Construction Industry Council means that firms cannot meet the requirements for the (NCIC), specific reference is made to contractor registration and to tenders issued for public sector work. training (see Box 1). In the case of Zambia Act No. 13 of 2003 cre- ating the National Council for Construction, the statement of objec- tives covers much the same ground as for Malawi ­ but notably 2 Seth, Subhash: Training of Small Scale Contractors for adds to provide for the regulation of the construction industry... Rural Road Maintenance in Lesotho, Technical Note and to provide for the establishment of a construction school... In No. 36 (March 2004). the case of Tanzania Act No. 20 of 1979 creating the National Con- struction Council, there is no specific mention of objectives al- 3 though these can be implied from the functions listed in try standards, etc.) or to clients (access to finance, business the Act. A key feature of all NCCs is that they are effec- management). tively public-private partnerships, creating a forum in (4) Dissemination of information through conferences, newsletters which industry problems can be raised and addressed. and through research. This is reflected in the governance structures of the NCICs generally elaborated in some detail in the Acts. The mandate of the NCC is a very demanding one with the chal- In Malawi, For example, the NCIC is composed of 20 lenge of not only meeting the needs of a variety of clients through a persons, all appointed by the minister but of whom 15 broad range of interventions, but also having to negotiate some po- are drawn from the private sector. Nine private sector tential conflicts between the functions. Can the same body be ex- members are appointed as representatives of constituent pected to handle the formal responsibility of contractor registration professional associations. The Zambian council consists (and discipline) and at the same time promote the local industry? of 15 persons of whom eight are from the private sector Can it carry out objective research into, say, the use of local materi- ­ whereas in Tanzania 12 out of 18 members are repre- als in road construction when interested parties are represented on sentatives of the public sector. the council? Unsurprisingly, the NCCs have not generally been able to mount NCC ­ (B) TYPICAL FUNCTIONS AND PROGRAMS programs to equally address all the stated functions. This is partly The functions of the NCCs fall broadly into the catego- due to capacity constraints, as all councils are supported by rela- ries given below. Box 2 gives more details on the many tively modest secretariats. These are also expected to be self- functions provided for in the three acts cited above. financing, although there has been significant donor and govern- ment budget support in the start up Box 2 ­ NCC Functions as cited in Legislation (non-exhaustive) phase. The focus has thus tended to be on programs likely to generate most quickly and surely revenues to support Promote and develop the construction industry operations, and respond most clearly to Facilitate access of local firms to resources the expressed needs of client organiza- Promote research, development and local materials tions. One issue to be addressed is the Promote safety standards extent to which a council should di- Prescribe and vary the categories for contractor registration rectly undertake programs or work Recommend conditions under which foreign firms can register through other parties or agencies. Conduct training, and coordinate training done by others Somewhat against advice and expecta- Make available information, advice and assistance tion, they have largely chosen to carry Publish technical and commercial information out training "in-house" and in the case Review the process of awarding contracts of Malawi to carry on equipment hire Monitor and evaluate the industry as a business (albeit at the express re- Exercise disciplinary control quest of government). Standardize quality control, contract documentation and procurement process Provide advisory services and technical assistance to the industry Advise government on matters pertaining to construction industry develop- NCC ­ (C) IMPACT TO DATE ment Monitor construction costs, participate in or make arrangements for confer- One indicator of success would be the ences and seminars number of local contractors registered. Assess the performance of contractors and maintain records Both in general and in the road sector, Provide data on the size and distribution of contractors the numbers have risen in all three Promote the construction of affordable low cost housing countries. This is perhaps to be ex- pected as those NCCs with a responsi- bility for contractor registration have an (1) Formal regulatory functions delegated by govern- incentive to perform. However, are the local contractors winning an ment, i.e. for the registration of contractors and col- increasing share of the market or not? Indicators here are mixed, lection of associated charges. though marginally positive. For this, availability of funding and the (2) Development activities mounted to promote the policies of road agencies are more significant explanatory factors interest of key clients in the industry, e.g. undertak- than the NCCs. In the road sector ­ if not elsewhere ­ the supply of ing of contractor training programs and equipment trained contractors and the number of places on training programs hire services. have certainly increased. Some of this achievement represents the impact of NCCs taking over programs started before. Therefore, (3) Advisory activities, which may be directed either to while not a fully incremental benefit, they may be now more sus- government (concerning public procurement, indus- tainable, especially where NCCs are able to charge participants for 4 all or part of the cost. On the matter of equipment hire, this process, it will also be necessary to address particular issues the experience is limited to Malawi. In this case, the that have emerged in the early experience of the NCCs, that is: NCIC has managed ­ and accounted for ­ a pool of graders in a way that is superior to what prevailed be- (i) Regulation vs. promotion. NCCs could continue to carry out fore in the government plant pool. The service should some functions related to contractor registration ­ this would however be contracted out to a private equipment lease not necessarily conflict with other functions. However, the fun- company in due course. The impact of advisory services damental emphasis should be on promotion of the industry's has been limited. In Malawi, for instance, an attempt needs. It is not evident that NCCs are the right place for regu- was made to develop new standard bidding documents lating the construction industry. for small-scale contracts, but these were not adopted. In Tanzania, the NCC has however been more effective in (ii) Doing vs. facilitating. NCCs should be primarily about ad- this regard. Concerning client services, there is no evi- dressing constraints and bottlenecks ­ and using the extensive dence that a NCC has yet developed an effective model networks of council members to get things done. NCCs should for addressing the underlying constraints in finance and only be directly involved in implementation as a last resort. business practices. Dissemination of information has (iii) Local vs. foreign. The primary focus is evidently on the local improved ­ with a particular good example in Zambia. industry. There have however been differences ­ at least in the This has probably helped increase the participation of cases of Malawi and Zambia ­ among NCCs, governments and local firms in public sector bids, but not necessarily donors have pushed for reserved procurement or mandatory lo- assured greater success in winning contracts. cal/foreign joint ventures as measures for opening up opportu- nities for local firms, especially for larger, foreign funded con- PRELIMINARY ASSESSMENT OF EFFECTIVENESS tracts. The preferred approach however would be to focus on road maintenance contracts and to better utilize the opportuni- What does this tell us about effectiveness of this ap- ties presented by slicing and packaging of works, domestic proach and its potential replicability? The concept of a preference margins and by reviewing qualification criteria. public-private partnership for the development of the construction industry is a good one. A number of other countries are reviewing whether it would be timely and CONCLUDING REMARKS appropriate to follow suit ­ this is notably the case for For the road sector, it is likely that sector policies as well as the Mozambique and Lesotho. However, the usefulness of reforms of road sector management and financing institutions will the council as a forum is impacted by the existence or be the primary drivers for increased opportunities for local contrac- not of a suitable policy framework (in existence to some tors, particularly in road maintenance. The NCCs do have the po- extent in the case of the three countries); and a clear tential to add value to this process. This is most likely to come from strategic vision and business plan for the NCC (largely sharply focused promotional activities to help directly address the lacking in all cases). It will thus become increasingly constraints that local firms face in bidding for and winning con- important for each NCC to establish performance tracts in this area. benchmarks and a clearer prioritization of activities. In