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Construction Sector-the hotbed of corruption

Construction Sector – the hotbed of corruption

 Bereket Gebru 10-06-17

Good governance has currently come to the forefront of issues demanding special attention. The peace and security, the development endeavors and territorial integrity of Ethiopia have all been threatened recently by various acts that have their roots in the lack of good governance. Consequently, a national effort to stamp out the social menace has been operational for quite some time now.

Although there are numerous manifestations of the lack of good governance, corruption is one of the most widely known. While governance aims to build a healthy and a working relationship between government and the people, corruption uses that spot of connection as a ground to breed personal gains over public ones. Subsequently, the use of public office for private gain marginalizes the wider public in the provision of social services. The end result of high prevalence of corruption is a wall between government and the people effectively alienating the two bodies involved in governance.

The paradigm on corruption is that it happens where the private and public sectors meet. Within the public sector, though, there are various levels of corruption perception. That means some activities within the public sector are more vulnerable to corruption than others for various reasons.

Accordingly, one of the sectors perceived to be highly prone to corruption is construction. A research entitled “Diagnosing corruption in Ethiopia” states that the construction and public works sector is consistently ranked worldwide as one of the most corrupt sectors. The research clearly indicates that the sector is one of the three most corrupt of all sectors alongside defense and the extractive industries. It goes on to say: “globally, it has been estimated that corruption accounts for at least 10 percent of turnover in the construction sector, or well over US$1 billion per day. Both the problem and its effects are most acute in developing countries, where construction sector corruption can account for leakages of 20 percent or more.”

 

Wondyirad Seifu, Senior Corruption Prevention Expert at the Federal Ethics and Anti-Corruption Commission, concurs that the construction sector is among the most corrupt sectors in Ethiopia as well. In explaining why that is the case, he noted about four major factors. These are:

 

1.      The amount of money in the sector: the huge amount of money in the sector is a magnate drawing the corrupt close as they seek to benefit personally from huge public funds. Huge funds generally draw corrupt behavior.

 

2.      Its participatory nature: construction projects usually have numerous stakeholders each responsible for certain aspects of the whole task. The types of work and organizations carrying them out are usually numerous. Consultants, clients and contractors come together on a project with various roles. The bidding system also allows numerous organizations to participate. Gaps in their interests could create a chance for corruption to flourish in their urge to fill them.

 

3.      The compromised work cannot easily be traced: the fact that the construction process builds upon some compromised sub-standard works means that it is not clear for everyone to see the change. Using thinner iron rods in columns would, for instance, be extremely hard to trace once the column is covered with concrete. The same goes for a cut and fill job in road construction. The fact that only a few people know about the transgressions also makes it hard to trace and thus an easy venture for the corrupt.

 

4.      Lack of awareness of clients: the clients who own the construction do not usually know as much as they are required to about construction. That leaves enough room for consultants and contractors to venture into corrupt practices.

 

A research has identified common corrupt practices in Ghana, Nigeria and the UK. The list of corrupt practices include: bribery to get onto tender lists or to win contracts, submitting false information in documents, forming a cartel, submitting several bids from the same contractor under different names, front-loading the tender, putting in a low bid and then making claims or skimping on materials, not making good defects and foregoing retention.

 

According to the findings of the research entitled “diagnosing corruption in Ethiopia,” “the construction sector in Ethiopia appears to show most of the classic warning signs of the risk of corruption.” These signs are divided into direct and indirect warning signs. The direct signs include:

 

Poor-quality construction: although the research indicates that infrastructure is not necessarily of poor quality at handover, recent developments have shown that a few buildings have collapsed even before their commissioning. The suggestion that tight controls are not always in place is becoming more pronounced with time.

 

Inflated costs:the study pointed out that “Contracts are normally completed on budget.” However, a recent study by the Federal Ethics and Anti-Corruption Commission (FEACC) has indicated that time and cost overruns have become the rule. Among road projects in the country, the study has only found a single road project that has been completed as per the time and cost projections at the get go. That project was the Addis –Debre marcos road project carried out by Kagima using funds from the Japanese government.

 

Delays in implementation: the research finding was that “It is rare for construction contracts to experiencesignificant delays after approval for mobilization.” It then points out that this response suggestsweaknesses in the underlying procedures for short listing, awarding contractsto, monitoring the performance of, and paying contractors. However, as stated above, the FEACC has identified time overruns as chronic problems in construction. An expert at the commission singled out the sugar factories under construction as an instance.

 

Neglected maintenance: the study indicates that this is a cross-sectoral issue but stops short of stating the reasons. It also indicates that the road sector benefits from about US$100million per year of funding for maintenance through a dedicated road fund established under the RSDP.

 

Accordingly, the indirect warning signs the research entitled “Diagnosing Corruption in Ethiopia” put forward include:

 

Unequal relationships between parties to the contract: the research stated that for many private sector companies in Ethiopia’s construction sector, the government is their primary or only client. In the less-well-managed parts of the sector such as with RRAs, there are reports of this unequal relationship being abused through the imposition of unreasonable contractual provisions. In extreme cases, it has been made clear to contractors that, no matter what the contract says, they will not be allowed to submit claims regardless of the merits of any case that may arise.

 

Poor enforcement of professional standards: the research found out that high professional standards are not maintained in the sector. The research states:

 

“Though various industry associations define the professional standards to which they expect member companies to adhere, there are no professional institutions in Ethiopia to provide guidance and oversight to individuals. Unusually, the government retains control of the process of individual registration. Whether or not this process is ever abused, the arrangement itself serves to further reinforce the unequal relationship mentioned above.”

 

High multiplier between public sector and private sector salaries: the research states that private sector salaries in Ethiopia’s construction sector are about eight times higher than the equivalent salaries in the public sector. It further explains that sometimes other benefits associated with public service can offset this disparity, but the fundamental challenge remains one of retaining competent and committed staff within the various government client entities. “Some officials report that they have joined public service to gain the experience needed to move into the private sector. Others carry out their public duties in a committed manner while supplementing their income with private engineering services unrelated to their work. But so long as such a marked discrepancy in incomes persists, the widespread perception will remain that some public officials believe they have little choice but to engage incorrupt activities.”

 

Discretionary powers and barriers to market entry: the research states that a company wishing to operate in Ethiopia’s construction sector must overcome many barriers. To have the confidence to enter a new market, any business must be able to anticipate its likely future costs, its access to market opportunities, its access to capital and equipment, the margins to be made in those markets, and the related cash flows. In Ethiopia none of these can readily be predicted, and all are affected by discretionary powers assigned to government officials. Even if none of these powers are abused, many companies, when faced with so many risks over which they cannot with integrity exercise control, are likely either to increase their prices, withdraw from the market, or try to control those risks by engaging in corrupt activities.

 

On the other hand, the annual international report on doing business has over the years indicated that Ethiopia has progressively become a better place for doing business. The factors that the report considers to arrive at its rankings include: starting a business, dealing with permits, access to electric power, registering property, getting credit, protecting minority investors, paying taxes, trading across borders and enforcing contracts and resolving insolvency.

 

The factors weighed in determining the ease of doing business in a country have some similarity to those raised by the research which are: anticipating likely future costs, access to market opportunities, access to capital and equipment, the margins to be made in those markets, and the related cash flows. Ethiopia’s progressive rise up the ranks, therefore, indicates that the situation is rapidly improving. Moreover, the public sector reform in the country has helped tackle most of the problems pointed out by the research including the discretionary powers of government officials. Work procedures have increasingly become transparent and discretionary powers made less authoritarian as a result of the reform.


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