Ethiopia: Corruption in the construction sector

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!

Professor Alemayehu G. Mariam teaches political science at California State University, San Bernardino and is a practicing defense lawyer.