Financing of New Roads and Maintenance in the SADC

TABLE OF CONTENTS

DECLARATION

ABSTRACT

DEDICATION

ACKNOWLEDGEMENT

LIST OF TABLES

LIST OF TEXT BOXES

LIST OF FIGURES

ABBREVIATIONS AND ACRONYMS

EXECUTIVE SUMMARY

1. INTRODUCTION
1.1 Introduction
1.2 Problem statement
1.3 Aims and objectives
1.4 Scope of the study
1.5 Significance of the study

2 REVIEW OF LITERATURE
2.1 Introduction
2.2 General overview on the SADC
2.3 An Overview of Regional Strategies and Trends in Road Financing
2.3.1 General
2.3.2 Botswana
2.3.3 South Africa
2.3.4 Zambia
2.3.5 Namibia
2.3.6 Malawi
2.3.7 Mozambique
2.3.8 Democratic Republic of Congo
2.3.9 Tanzania
2.3.10 Angola
2.3.11 Madagascar
2.3.12 Lesotho
2.3.13 Swaziland
2.3.14 Zimbabwe
2.3.15 Mauritius
2.3.16 Seychelles
2.4 Financing of Road Projects in selected countries
2.4.1 General
2.4.2 Typical strategies in selected countries
2.5 Concepts and elements
2.5.1 General
2.5.2 Grants from Governments
2.5.3 Road user charges
2.5.4 Distance based charging
2.5.5 Weight based charging
2.5.6 Tolling
2.5.7 Public-Private Partnerships
2.5.8 Road Funds
2.6 Summary

3 METHODOLOGY
3.1 Introduction
3.2 Data collection
3.2.1 General
3.2.2 Criteria for data collection
3.3 Data analysis
3.4 Data validation
3.5 Summary

4 RESULTS AND ANALYSIS
4.1 Introduction
4.2 Road networks
4.3 Administrative issues and road financing

5 CONCLUSION
5.1 Introduction
5.2 Main Conclusions
5.3 Summary

6 RECOMMENDATIONS
6.1 Introduction
6.2 Recommendations
6.3 Suggestions for future work

7 REFERENCES

8 APPENDICES

LIST OF TABLES

Table 2-1: Private Sector Infrastructure Funding in Emerging Markets

Table 3-1: SADC Member Countries included in the study

Table 4-1: Summary of SADC Road Network (2009)

Table 4-2: Summary of SADC Road Network Densities

Table 4-3: RMI Key Performance Indicators – Road Agencies and Network Conditions

Table 4-4: Trends in Overall Road Network condition - Zambia

Table 4-5: Paved and Unpaved Road Network Condition - Zambia

Table 4-6: Road Network Condition - Malawi

Table 4-7: Tanzania Trunk & Regional Road Condition

Table 4-8: Road Fund Matrix - Transport Policy and Investment Program

Table 4-9: Road Fund Matrix - Road Funds

Table 4-10: Road Fund Matrix - Allocations and Audits

Table 4-11: Road Fund Key Performance Indicators Chart

Table 4-12: Road Maintenance by Source in Lesotho

Table 4-13: Maintenance Budget and Fuel Levy Trends in Malawi

Table 4-14: Revenue Collected Per Financial Year - Tanzania

Table 4-15: Maintenance Gap for the Road Sector in Tanzania

Table 4-16: Funding Requirements for Non-toll Network – SANRAL

Table 4-17: Trends in Road Fund and Maintenance Gap in Zambia

Table 4-18: SADC Countries on the World Corruption Index Ranking

Table 8-1: Summary of the SADC Member States.

Table 8-2: Botswana’s Road Network

Table 8-3: South Africa’s Road Network

Table 8-4: Zambia’s Road Network

Table 8-5: Namibia’s Road Network

Table 8-6: Malawi’s Road Network

Table 8-7: Mozambique’s Road Network

Table 8-8: Congo DR’s Road Network

Table 8-9: Tanzania’s Road network

Table 8-10: Angola’s Road Network

Table 8-11: Madagascar’s Road Network

Table 8-12: Lesotho’s Road Network

Table 8-13: Swaziland’s Road Network

Table 8-14: Zimbabwe’s Road Network

Table 8-15: Mauritius’ Road Network

Table 8-16: Seychelles’ Road Network

LIST OF TEXT BOXES

Text Box 1: Toll Road Concession in Mozambique

Text Box 2: Case Review of Japan

Text Box 3: Case Review of Canada

Text Box 4: Case Review of the United States of America

Text Box 5: Case Review of Ghana

Text Box 6: Case Review of Brazil

Text Box 7: Case Review of the United Kingdom

Text Box 8: Case Review of Austria

Text Box 9: Case Review of Finland

Text Box 10: Special Case Review of Europe

Text Box 11: General Guidelines for Road Maintenance Initiative

LIST OF FIGURES

Figure 4-1: Proportional distribution of the regional road network

Figure 4-2: Plot of Trends in Overall Road Network Condition - Zambia

Figure 4-3: Road Network Condition – Mozambique

Figure 4-4: Total Funding for Maintenance in Lesotho

Figure 4-5: Malawi Road Development Financing

Figure 4-6: Evolution of Total Funding Resources in Madagascar

Figure 4-7: Investment Commitments to Transport Projects with private participation in Developing Countries (1990-2007)

Figure 8-1: SADC Trans-frontier Trade Routes

Figure 8-2: Sub-Saharan Africa’s Highways

ABBREVIATIONS AND ACRONYMS

illustration not visible in this excerpt

DECLARATION

I declare that this project entitled “Financing of New Roads and Maintenance in the SADC – How effective have new strategies been? ” is the work of my own research except as cited in the references. The project report has not been accepted for any degree and is not concurrently submitted in candidature of other degree.

Signature :

Name : Yohane Tembo

Date : 23 June 2010

ABSTRACT

Insufficient budgetary allocations to road maintenance normally result in road deterioration that significantly reduces the utility of the roads. The problem makes it expensive and more difficult to move products and services from producers to consumers or inputs to industrial centres. Construction of new roads is deterred due to lack of funds, which entails that many areas which have the potential to trigger economic growth would remain unnecessarily inaccessible for far too long.

Over the years, the Southern Africa Development Community (SADC) sub-region has initiated reforms, many times with the support of international financial institutions, materially aimed at improving financing of new roads and maintenance. In spite of the August 1996 SADC Protocol on Transport, Communication and Meteorology, initiation and establishment of structures for utilisation of new funding strategies have been taken by member states on an individual basis. The implication of this is that such strategies may be viewed as case-specific solutions. In this project, the author analyses the employment of new strategies in order to determine how effective they have been, with the view to broadening the existing knowledge base on financing of road transport systems in the SADC sub- region.

DEDICATION

This treatise is dedicated to all those individuals who have spent a substantial amount of their effort towards the improvement of the road transport system in the Southern Africa Development Community, in their pursuit of sustainable and guaranteed economic growth of the sub-region in general, and the well-being of its citizens in particular.

ACKNOWLEDGEMENT

First and foremost, I would like to thank and express my appreciation for the support that I received throughout my studies from my Supervisor, Professor C. J. Bester, under whom I enjoyed doing my Master of Engineering at Stellenbosch University, and Professor Kim Jenkins, whose pavement engineering courses helped in consolidating my knowledge in the field of Highway Engineering.

I had a great and rare opportunity of meeting great personalities that offered support in the delivery of course material. Of those, I wish to thank Professor A.A. Molenar from Delft and Gerrie Van Zyl of P.D. Naidoo. I further extend my gratitude to the support staff that relentlessly sent reminders and invitation for course attendance, and ensured that the course materials were delivered efficiently and effectively. Of those, I wish to acknowledge Janine Myburgh and Amanda De Wert.

I wish to thank the Road Development Agency, Zambia for its support rendered to me throughout the programme. Particularly, I thank Mr. Erasmus Chilundika, Mr. Daniel Mulonga and Mr. Stephen Malubila.

But most importantly, my dear wife Joyce, and my two daughters, Jessica and Audrey, for their endurance, love and care.

EXECUTIVE SUMMARY

In spite of the rapid growth of road transport since the end of the Second World War, and their important role towards economic growth, road infrastructure in Southern Africa Development Community have been poorly managed and maintained. The Road Maintenance Initiative for Africa was launched in early 1990s by the World Bank and the Economic Commission for Africa to identify the root cause of poor road maintenance and develop models aimed at enhancing efficiency and effectiveness in road maintenance and improving the quality of our roads.

Almost two decades on, the author looks at the performance of new strategies implemented in the sub-region with the view to determining how effective they have been. To do so, a comprehensive review of literature was undertaken primarily focused on the sub-region and selected model countries from around the world. It was established that funding for new roads and maintenance was generally a teething problem all over the world.

A detailed study was then undertaken on nine regional countries currently implementing new strategies, employing assessment criteria based on the Road Maintenance Initiative matrix and prescribed key performance indicators. This was supplemented by analyses of budgetary allocations and Road Fund revenues. It was concluded that Southern Africa Development Community countries covered by the study have been effective in setting up institutional frameworks aimed at enhancing efficiency in road management and financing although current funding levels for maintenance continue to be way below the maintenance needs. The larger proportion of our sub-regional road networks in poor condition was testimony to lack of adequate investment to road maintenance projects. The proportion of other road user charges that trickle in to the Road Funds was in many instances found to be marginal, attributable mainly to vehicle under population in most sub-regional countries and pilferage by collection staff to some extent. The magnitude of its contribution to the maintenance budget is further depressed due to high operational costs associated with its collection.

The study concluded that alternative road financing strategies have not been as effective as was perhaps initially envisaged, and that there was plenty room for improvement if the sub-regional goals of an efficient road transport system for sustainable economic growth must be realised. In-house maintenance, representing about 20% of annual roads budgets, was seen as a good way of supplementing contracting and making maintenance more effective, while construction of roads must be undertaken for roads which are financially and economically feasible to attract private investment and let the users pay for its use. Governments have, however, been cautioned to make future reforms with the full awareness of equity consequences and the environment in which our countries lie.

1. INTRODUCTION

1.1 Introduction

An efficient road transport system 1 is important for economic development, as transport costs are a significant part of the cost structure of the goods that a country produces or imports. If transport costs are unnecessarily high, then the country’s products will not be competitive with goods from other countries. In Southern Africa Development Community (SADC) countries, the relative importance of road transport has increased over decades, especially commencing the late 1970s following the deregulation of railway as a form of long distance freight transport in South Africa. The flexibility and versatility of a road transport system is well understood by many transport experts. Point-to-point distribution of freight and people can more easily be achieved where a well-developed road network exists.

However, there is a cost that always comes with any road transport system. Road transport costs include not only the cost of constructing and maintaining the road network, but also vehicle operating costs, which increase as roads deteriorate due to increased vehicle maintenance costs, and the costs associated with increased time in transit 1. Costing and cost recovery of road infrastructure has been a subject of many debates world over and a host of solutions and models have been developed. Interestingly, not one financing model could with absolute certainty be described as a panacea. This has made it even more imperative for transport experts in the sub-region to carefully look at the current fallacies versus constructive approaches in their quest to adopt suitable models for the sub-region.

A well known fact among transportation experts is that a significant portion of the road network in the sub-region is in poor condition or only in fair condition. Experience has shown that timely maintenance is much less expensive than delayed maintenance. If roads can receive maintenance at the appropriate time, then the overall cost of maintaining the roads is less than if roads deteriorate to the point that requires reconstruction rather than less expensive treatments such as surface dressings or overlays, thereby freeing up more resources for new construction. However, many countries world-wide have experienced diminishing funding for road maintenance and construction. The severity varies from country to country in terms of budget cutbacks. The diminishing funding envelope for road maintenance has imposed additional restrictions on the ability by many governments in the sub-region to construct new roads.

Inalienably, the World Bank categorisation places the SADC sub-region in to the category of the Least Developed Countries (LDCs). World Bank statistical world records (2007) reveal that Sub-Saharan Africa is lagging behind the rest of the world in virtually all aspects of development. Beset by a multitude of socio-economic problems, and multiple competing needs, the sub-region is immediately faced with the daunting task of having to mobilise additional resources required for road construction and maintenance – a vital tool for regional integration and keeping open of all the trade corridors.

To avert the impending crisis, major institutional changes in the road sector, mostly in line with comprehensive reform packages formulated as part of the World Bank supported programme, have taken effect in a number of member countries since the mid 1990s. Namibia, Zambia, Malawi, Mozambique, Zimbabwe, Lesotho and Madagascar have so far created second generation Road Funds operating on similar lines. While Botswana is currently contemplating formation of a Road Fund and Road Authority, Democratic Republic of Congo has managed to pass the legislation for creation of a Road Fund. South Africa, on the other hand, formed the South African National Roads Agency Limited, a not-for-profit company whose shareholding is held by the government, to take care of national and main roads.

The trends in terms of mobilisation of resources for financing new roads and maintenance in the context of our sub-region, therefore, require continuous studies to measure their effectiveness in meeting sub-regional needs. It is in this vein that the author undertook a study aimed at reporting the effectiveness of new strategies in financing roads in order to add to the body of available knowledge.

1.2 Problem statement

Pinard 2 observed that the road network was one of the region’s largest public sector assets with replacement costs estimated at approximately US$50 billion. He further noted that despite the substantial investments that had been made in the past, inefficient management coupled by inadequate funding had led to deteriorated road conditions, leading to increased transport costs. His conclusion was that traditional approaches of financing roads through budget allocations had generally not worked, prompting him to recommend urgent need for a radical change in approach, which should recognize that roads in the sub-region were big business which must be managed and financed along more business-like principles.

In a quest to attract more investment in to the road sector, the sub-region has, in recent years, seen a rapid paradigm shift towards the creation of Road Funds and the use of new strategies of managing and financing their aging road networks, which require increased investments in maintenance and rehabilitation treatments to maintain or restore the condition to acceptable levels.

The International Road Federation 3 pointed out that many developing countries operate on tight budgets in which roads were considered low in priority. The African continent is known to invest about US$5 billion annually to build and maintain roads, which although substantial, falls way below the minimum requirement of US$20 billion per year to provide adequate road infrastructure.

Many roads experts believe that new funding strategies, which require dedicated user-related road financing arrangements, commercially viable road agencies, and private sector contracting, were more effective. Has this been the case for the SADC sub- region ?

1.3 Aims and objectives

By analysing the current practices and trends in financing of new roads and maintenance, and making comparisons with key performance indicators, the author aimed to assess the effectiveness of new strategies being employed in the sub-region. To do so required the broad based analysis of concepts and methods that have been employed to finance roads in what is generally reported to be model countries and document their achievements.

A comparison of governance structures and institutional frameworks were warranted in order to asses the variability in the operating environments.

1.4 Scope of the study

Based on results of the preliminary literature review, the author was well aware about the width and breadth of the subject matter. It became evident early on that the research had to be limited in order to make meaningful gains from results of the detailed literature review. In that respect, the study was inclined to sub-region countries. This was supplemented by a study on selected countries from around the world. Targeted countries included in the research were Ghana, Japan, Brazil, United States of America, Canada, United Kingdom and Finland. This was further augmented by a review of relevant international financial institutions, conference publications and some appropriate research institutions.

Results of literature review have been presented in Chapter 2. The data collected was analysed and findings presented in Chapter 4. The conclusions have been presented in Chapter 5, while the recommendations have been presented in Chapter 6.

1.5 Significance of the study

Heggie 4 presented a comprehensive proposal for improving management and financing of roads in Sub-Saharan Africa. According to his proposal, the key managerial challenge included the fundamental reforms regarding organization, management, and financing.

More autonomous road organizations, even with general budget financing, tend to be more flexible and business oriented, leaning heavily toward contracting out and willing to develop user charges, a road fund based on user tariff. Road funding, be it earmarking a user tariff or developing toll roads or a combination of the two, is an integral element of road agency reform, as Heggie rightly pointed out. At the same time it is heavily contested by the macroeconomists 84 who, on theoretical grounds, see no relation between cost recovery and user charges, and see autonomous road agencies limiting the maneuvering room of the Ministry of Finance.

Wetteland and Lundebye 5 observed that an increasing number of countries in Africa were recognizing transport to be an economic and not a social service, and were adopting commercialization as the basic concept for managing and financing of the sector. This would ultimately impose additional stress on the citizenry if user-pays principles were fully adopted, something which requires seasoned analysis especially in a region with the highest poverty levels and enormous needs.

Zietlow 6 observed that “experiences clearly reveal that in nearly all developing and most developed countries as well, it is impossible to secure an adequate and stable flow of funds for road maintenance through general government budget financing procedures, especially if their allocation depends on the annual political budget debate”.

To qualify his statement, he stated that road maintenance is politically unattractive; new road construction, road rehabilitation, social or education programs are more “visible” and produce more political prestige, adding that lack of maintenance culture and little understanding of the economic consequences of poor maintenance even by those in charge of roads made it even more difficult to raise sufficient maintenance funds. He further noted that only very few countries in the world, such as Japan and some European countries had proven to be able to assign sufficient resources to road maintenance on a sustained basis.

Fleshman 7 noted that even donor finance was believed to be far more important for countries struggling to rebuild after conflicts and natural disasters, and governments in those countries usually lacked the resources to pay for reconstruction, and political instability and damaged economies made it even harder to attract private investors.

Evidently, it is far more significant for the SADC sub-region to maintain the momentum in its quest for optimal strategies that are both effective and efficient in increasing investment for the road sector.

2 REVIEW OF LITERATURE

2.1 Introduction

The literature review starts with an analysis of the road transport funding in the Southern Africa Development Community countries (SADC). Then the trends in road financing strategies prevailing in the region are introduced and discussed along with a brief review of network management strategies. Current road financing approaches in targeted countries are introduced and discussed, as are general concepts of road financing and objectives of road sector reforms. Finally, a summary of literature review is given.

2.2 General overview on the SADC

The SADC is headquartered in Gaborone, Botswana, and comprises 15 member states, including the now suspended Madagascar. Originally formed on 1st April 1980 as Southern African Development Coordination Conference (SADCC), it was transformed into the SADC on 17th August 1992. It covers an approximated 8,663,249 km2 with a population projection of 269,562,000 by the end of 2009. The founding member states were Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe 8.

Maharaj 9 noted that the plight of roads in the sub-region was not independent of the general economic situation in which the region had been experiencing negative economic growth, declining agricultural production and a heavy burden of external debt, adding that the region encompassed some of the poorest developing countries in the world which lacked resources and were heavily dependent on foreign aid for their development projects. He further observed that the down-turn in regional economic growth had resulted in severe reduction in budgets for road maintenance, which in itself did not serve the intended purpose of releasing resources for higher priority sectors such as education and health services.

The existing transport systems in the majority of member countries were still far from adequate and continued to constitute major constraints to the overall economic integration and development of the region. Consequently, reduced budgets and increased deterioration of roads had led to increased demands for economic efficiency in the use of scarce public funds, a process which was constrained by rising costs, reduced resources and increased utilisation of the road network, making the task of road maintenance even more difficult than had been in the past.

Member states 10 agreed to develop and implement cohesive and definitive road funding policies with a view to identifying adequate, sustainable and appropriate sources of road funding which included general revenue, road user charges and funds generated jointly by the public and private sectors, among others, and to ensuring that the use of roads was priced so as to improve economic efficiency in road transport.

In order to promote harmonised national road user charging systems, it was their common understanding in respect of the types of road user charging and the levels of such charges and introduce in their respective territories on the basis of regular exchange of information:

- fuel levies (designated as road charges);
- vehicle licence fees;
- road tolls;
- abnormal and awkward load charges;
- weight distance type charges;
- cross border road user charges;
- entry fees payable by foreign registered vehicles; and
- parking and traffic congestion costs.

In giving his perspective of Sub-Saharan Africa in general, Addo-Abedi et al. 11 observed that roads can be used as a powerful political tool and the decision of which roads to maintain, rehabilitate or upgrade could become an emotive one, adding that politicians see themselves as the ones accountable to the people and should be the ones to ultimately make decisions.

He noted that the pursuit of reforms was justified and beneficial, and to realize the full benefits, autonomy should be given to Road Agencies and Road Funds for improved efficiency and effectiveness. He advocated that revenue inflows to Road Funds should be made directly rather than through treasuries, and that the revenue base of Road Funds should be widened by introducing new user charges with low cost of collection in order to avoid over-reliance on fuel levy.

2.3 An Overview of Regional Strategies and Trends in Road Financing

2.3.1 General

Pinard 2 estimated that the Southern African Development Community (SADC) road network lay in the order of 932,000km, excluding the Democratic Republic of Congo and the Seychelles, describing it as the Community’s largest public sector asset with replacement costs estimated at US$50 billion.

Mabombo 12 reported that road transport was becoming a dominant mode of transport in the sub-region and that the demand for good quality service was increasing although the change for the better in terms of service quality was far behind demand. He noted, further, that the member states, with assistance of the World Bank, had decided to implement some institutional reforms in the road sector under the Road Management Initiative (RMI), aimed at creation of Road Funds and autonomous Road Authorities.

It has been generally reported 13 that in Sub-Saharan Africa (SSA), roads carry about 90% of the passenger and freight traffic, with road maintenance absorption of 5 to 10% of central government recurrent budgets. Although major capital investments were made in the 1980s on SSA’s roads the investment had been eroded due to the lack of maintenance. In the early 1990s, it was estimated that the replacement cost of main roads in SSA was nearly US$80 billion and required annual expenditures on routine and periodic maintenance of over US$800 million to keep these roads in a stable long term condition.

To resound the importance of the road network in the SADC sub-region, an Association of Southern African National Road Agencies (ASANRA) was established at the Maputo meeting held on 19 March 2001, with the main aim of sustaining the progress made in implementing the SADC Protocols on Transport 14. Africon 15 conducted a comprehensive study of the regional road network. The primary focus was on Regional Trunk Road Network (RTRN), which the study concluded was estimated at 62,568km in 2009 against 30,132km in 1990.

The SADC Transport Investment Forum 16 observed that the region had tremendously rich and diverse resource base which had remained significantly underdeveloped, and concluded that a key aspect of unlocking this abundant resource base was the development of an integrated, seamless and efficient transport system. Another observation was that the region had moved from a situation where road policies were characterised by state provision of roads; insufficient dialogue with end users; supply-led rather than demand-driven provision; and generally inadequate policies to providing a framework for the commercial management of roads incorporating public and private sector stakeholders; and ensuring adequate and stable supply of funds to the road sector.

The Sub-Saharan African Transport Policy (SSATP) 13 reported that all countries under its membership had established a fuel levy as the main Road Funds revenues for whom two-thirds, 80% or more of user charges was in the form of fuel levy. Fuel levy was described as the principal means of raising revenues but not all countries had been successful in adjusting the level to reflect maintenance needs.

It is further reported 13, 17 that Road Funds (RFs) had generally secured a more stable and predictable flow of funds for road maintenance. Accordingly, the results of the survey on RFs performance indicators had shown that on average, RFs had an amount of two months equivalent of road maintenance works as a minimum amount of cash available in their bank accounts. This, it was clarified, did not imply that they had raised enough revenues to meet maintenance needs. The results of financial audits indicated that in general, funding arrangements were more transparent than had been in the past and an increasing number of RFs had gained considerable financial autonomy; raising most of their revenues from road user charges and most of the proceeds were being channelled directly to their bank account. RFs were reported to be allocating on average about 18% of their revenues to rural roads and 15% to urban roads.

The time period for paying the undisputed contractors’ bills was found to vary from 5 to 90 days with an average time of 32 days. This was compared with Burkina Faso, which had not yet established a road fund where delays for paying contractors bills had reached one year.

Inadequate finance was identified as one of the main challenges faced by SSATP members. In few countries where second generation RFs were well established, their effectiveness was impeded by the inefficiency with which the available resources were used by the Road Authority. Governments were reluctant to give up power and responsibilities to the new Road Authorities and their effectiveness and implementing capacity had developed least rapidly. This situation, it was feared, might lead to a lack of credibility and support to the RF Initiative. It was concluded that unless a consistent effort was made to improve, the other three pillars of the Road Maintenance Initiative: management, responsibility and ownership, the RFs initiative in SSA would be at risk.

The International Road Federation (IRF) 3 insisted that one solution to the problem of road financing was public-private partnerships (PPPs) and road tolling, arguing that PPPs had been used successfully in many countries around the world including China, India, Russia, Chile and many European countries, yet the main challenge to PPPs was reported to be attracting the private firms, which often must invest huge sums of money with no real guarantee of a return. It has been cited that in Africa, it is difficult to see the demand for large toll roads, a factor that drives many investors away. The IRF argued that such a view was very short-sighted and untrue as roads created the demand and the market, without them there would be no market, and no demand. It concluded that tolling was a common practice around the world and not a new method of collecting road user charges, which had been used by many developed countries to finance road construction for around two centuries.

2.3.2 Botswana

Botswana 18 has a total road network of about 24,455km of which primary and secondary roads account for 8,916km. Of the latter, 6,116km are paved, 1,501km are gravelled, and the remaining 1,299km are dirt or sand roads. 50% of the road network, mainly highways, is overseen by the central government through Roads Department, and the rest by Districts and Urban Authorities. The paved road network has dramatically grown substantially from 10km at independence.

It was observed 19 that funding for maintenance in Botswana had become insufficient; giving rise to a maintenance backlog of 1,792km; with some of the deterioration reaching a critical state. In view of the constraints on resources, the new strategy of the Ministry of Works and Transport emphasised PPPs as a way of raising additional finance for road construction and improving efficiency.

The Public Enterprise Evaluation and Privatisation Agency is reported to have been developing operational guidelines and procedures for use in implementing PPP projects. Currently, all of the Central Government’s road building and regular maintenance, and 55% of routine maintenance projects, were outsourced to the private sector. In addition, alternative methods for financing the construction and maintenance of roads, such as tolls, were planned to be pursued under National Development Plan 9 (NDP9). An example given was the decision taken to set up toll gates along the A1 (Ramokgwebana-Ramatlabama) and A2 (Trans-Kalahari) highways in 2006/07. Other toll gates were targeted to be established on other roads during the rest of the (NDP9) cycle.

Donors funded much of the investments in roads in Botswana in which, historically, the share of donor funds in road investment was 90% although this had dramatically reduced to 50% by 2006.

During a Danish government-funded tour of Botswana roads in August 2009, the author heard from some top officials in the Ministry of Works and Transport that the Government was considering the establishment of a Road Authority and Road Fund Agency as a way of improving road investment climate and efficiency in service delivery.

2.3.3 South Africa

Du Toit 20 estimated the total road network of South Africa to be 754,600km, of which about 73,506km of national, provincial and urban roads is paved.

In order to consolidate and expand the national roads network, the government of South Africa 21 , 22, under the South African National Roads Agency Ltd (SANRAL) and National Roads Act 7 of 1998 established a not-for-profit independent company. The mission entrusted to SANRAL was to provide and manage a world-class, sustain­able national road network as cost-effectively and as efficiently as possible, in order to stimulate economic growth and improve the quality of life of all the people of South Africa. Since its inception, it has been responsible for the entire national road network of about 16,000 km comprising both the toll and non-toll roads.

The South African Road Federation (SARF) 23 in February 2008 expressed concern at the increasing maintenance backlog on the country’s road network, especially at the poor condition of provincial and municipal road network. The previous year, the South African Institute of Civil Engineering (SAICE) had warned that 72% of the national road network was nearing the end of its design life, placing the health of the entire road network at risk, a situation which was confirmed by SANRAL CEO, Nazir Alli when he told the Parliamentary Portfolio Committee on Transport that 12,000km of the 16,000km paved national roads were older than 20 years.

The ICA meeting 21 noted that roads in South Africa were historically financed through the use of fuel levies and that in April 1987, fuel levies were incorporated into the Central Revenue Fund in line with the then government’s policy of consolidating its revenues where all revenues put into a general budget had to be assigned from there according to priority. The implication was that income raised from the fuel levies could not be directly appropriated to SANRAL but instead became a general revenue source for the government. While the intention was to finance road construction through the use of these levies, only a small portion of the money raised in that manner was actually reinvested in road maintenance.

It was further noted that road expenditure in South Africa was below the optimum level since the priorities of poverty reduction in the country had made the diversion of more funds to road maintenance and construction a lower priority for roads. Consequently, the government began to increasingly turn to the use of tolling as a means of financing road construction and maintenance.

In order to facilitate the use of private sector investment through the use of toll roads, SANRAL, in May 1999, developed an Unsolicited Proposal Policy in which the private sector was able to submit unsolicited proposals for the private development, maintenance, and operation of sections of the national roads with funding from toll collections. As a result, SANRAL 24 had two sources of funding: government grants for non-toll roads and borrowings from the capital markets for toll roads through the use of PPP toll road concessions. Reflecting on its first decade in office, SANRAL noted a steady increase in the allocation for roads from the fiscus although that increase had not kept pace with the increase in prices of the various elements that made up a road. This, in part, tended to explain the deteriorating road network condition.

SANRAL’s belief was that PPP projects had provided an opportunity for it to partner with the private sector making it possible for it to negotiate investments in the improvement and preservation of national roads for time-periods way beyond the government’s three year expenditure-planning horizon 22 . The following schemes for raising funds for toll roads have been documented:

- Toll revenue, which uses “user pay” principle implemented through private funding on commercial grounds, not only for construction of roads but for their ongoing maintenance and expansion as well,
- Capital market loans, normally used for the initial construction of national toll roads and for their ongoing maintenance and construction, and
- Private sector investment in which PPPs are used to finance the maintenance, upgrading and expansion of the national road network under the Build Operate and Transfer (BOT) model.

South Africa is currently running three Concession Contracts on the BOT basis, each of which comprises approximately 400km. At the end of the 30 year period, the roads would be returned to SANRAL in a specified condition without charge. The concessionaires are:

- Trans Africa Concessionairs (TRAC) who manage a section of the N4 travelling east between Pretoria and Maputo in Mozambique, known as the Maputo Development Corridor.
- N3 Toll Concessions (N3TC) who manage the N3 between Heidelberg in Gauteng and Cedara near Pietermaritzburg.
- Bakwena Toll Concessionaires manage the section of the N1 north of Pretoria up to the Warmbaths interchange, and the N4 travelling west towards the Botswana border, known as the Platinum Highway.

Three more projects, to be concessioned have been reported to be in the development phase, i.e. the N2 Wild Coast Toll Highway, the N1/N2 Winelands Toll Highway and the R300 Cape Town Ring Road.

Shaw 25 noted that the National Transport Commission introduced a toll road strategy in the 1980’s to fund a limit of 15% of the national road network. Loan financing, redeemed by toll charges levied on road users was used to enhance funding for national roads with a criterion introduced that each toll road should have viable alternative route and that this alternative route should be clearly marked to motorists. The toll roads administered by SANRAL were reported to fall into two categories; state-owned and concessioned.

Further, Shaw pointed out that it was important to realise that there is a limit to which roads may be financed through tolling. He observed that physical restrictions on some parts of the network made tolling difficult, and that in urban area, such restrictions coupled with unwanted external impacts on other parts of congested urban networks, make such solutions difficult to implement. Furthermore, in other areas where traffic volumes were low, the financial case for toll roads become more difficult, and that it is generally accepted for the South African model that volumes of less than 4,000 vpd cannot be commercially warranted for toll road development. He concluded that the majority of the strategic road network would consequently remain funded through direct government budgetary processes unless other forms of user-pay approaches could be developed.

2.3.4 Zambia

Zambia’s classified road network is reported 26 to be around 67,671km of which about 20% is paved, while the total length of the road network has been estimated to be between 74,671 and 77,671km. Under the second phase of Road Sector Investment Programme II (2007 – 2013) 27, a Core Road Network of 40,113km was identified as a bare minimum road network that Zambia required to maintain continuously and on a sustainable basis so as to unleash the potential in the country and its people to promote self development as the only approach to poverty alleviation for economic growth. The mandate to plan and manage the entire road network was given to the Road Development Agency (RDA) established under the Ministry of Works and Supply by the Public Roads Act Cap No. 12 of 2002, whose functions were to plan, manage and coordinate the entire public road network in the country.

Although Zambia has been reported 28 to have had one of the best highway networks in the 1970s in Sub-Saharan Africa, the National Road Fund Agency (NRFA) estimated that by 1991, 80% of the road network had deteriorated and out of the total road assets valued at US$2.3 billion, US$400 million had been lost due to neglected maintenance. These concerns were also raised by Gananadha 29 who noted that in 1987 only about 40% of the primary road network in Zambia was in good condition. He expressed concern that Zambia had during the preceding 30 years been living off its assets of road infrastructure, and concluded that an approximated US$38 million would be required annually to avoid further loss. This was attributed 27 to the country’s emphasis on opening new areas of communication and economic development through construction of new roads in both government and donor-funded road projects. As a result, little attention was paid to establishing a mechanism of ensuring sustainable maintenance of newly constructed roads or indeed, of the established road network.

In view of the reforms undertaken to finance maintenance of roads through road user fees, through the then National Roads Board, donor support had been on the upswing, resulting in improvement of paved road network in good condition from 20% in 1995 to 35% in 1999, and the paved roads in poor condition declining from 51% in 1995 to 29% in 1999. Notwithstanding the improvements, Heggie 30 observed that Zambia had a weak governance structure.

The NFRA, a second generation Road Fund (RF) was established under the Ministry of Finance and National Planning by the Road Fund Act No. 11 of 2002. Its mandate was to manage roads funds which included the proceeds of the fuel levy, donor funds and other funds that might be appropriated by government through the National Treasury into the Road Fund.

In spite of the reforms, Price Waterhouse Coopers 31 highlighted some notable delays and irregularities in fund allocation based on past experience with the RF in Zambia, suggesting that while maintenance funding had improved, the flow of funds continued to be impacted by budget allocations by the government. The existing procedure for crediting revenues from fuel levy proceeds into the RF account created delays and irregularities. This was in an apparent reference to the fuel levy flow proceeds from the Zambia Revenue Authority, through the Ministry of Finance and National Planning and the Bank of Zambia which in turn credits the “budgeted” amount to RF. It was further observed that often the budgeted amount was much less than the proceeds from the fuel levy, creating arrears due to the RF and undermining the fundamental principle of the fuel levy as a user fee.

African Road Maintenance Funds Association (ARMFA) 32 noted that since their last meeting, Zambia had done a mid-term review of its 2003 – 2013 Road Sector Investment Plan which showed that the country might not achieve its targets in 2013, despite amendments to the Act allowing RDA fees and fines to flow directly to the RF.

In 2009 the government passed the PPP Act No.14 of 2009 in to law. This enabled the PPP – Unit operating under the Ministry of Finance and National Planning to commence the invitation for pre-qualification application of firms to undertake BOT projects on several roads ranging from 100km to 550km stretches. The advertisements first appeared in the media in November 2009 targeting over 3,000km to be launched in 2010.

Zambia has in recent years experienced extreme difficulties in the maintenance funds for local authority roads. In 2008, the government procured road construction equipment through a loan amounting to US$39 million from the Chinese Eximbank in order to supplement NRFA efforts. A special unit called Rural Road Unit (RRU) was established under the Buildings Department of the Ministry of Works and Supply. The equipment was distributed to all provinces in the country. Irrespective of its name, the RRU has, using In-house maintenance, done commendable works on both urban and rural roads, and has to some extent been used by RDA and NRFA to carry out routine maintenance and periodic maintenance works on district, main and trunk roads.

Findings of the Auditor General’s forensic audit, published 17 May 2010, of the Road Sector performance from 2006 – 2009 showed that the RDA had exceeded the provisional ZMK685 billion provided for by parliament on local resources in the 2008 budget by committing government to contracts in the sum of ZMK 1,643 trillion, resulting in an over-commitment/over-procurement of ZMK1,015 trillion. It was also observed that five (5) road contracts in amounts totalling ZMK182,455,297,524 were procured outside of the 2008 work plan and authority to procure these projects was not available for audit. These alarming revelations have led to the suspension of donor support to the road sector until corrective actions have been taken. some remedial actions taken include dissolution of the RDA Board.

2.3.5 Namibia

Kiggundu 33 reported Namibia to have a total of 46,000km of trunk, main and district roads of which 5,500km was bitumen surfaced, and in which the network as a whole was serving beyond the typically used design life of 20 years. He observed that funding levels prior to the reforms had resulted in the accumulation of backlog maintenance, which would require major capital injection before a stable regime of road user charges could be attained.

Runji 34, reported a proclaimed road network of about 65,000km including roads under the jurisdiction of local authorities, adding that in the 1990’s the Department of Transport of the Ministry of Works, Transport and Communication (MWTC) was responsible for development and maintenance of all roads except the farm roads, a scenario which he concluded had posed serious road management challenges until the Road Authority, a state agency with considerable autonomy under the MWTC, was established in accordance with the Act No 17 of 1999. The Road Authority took responsibility for about 45,000km of the proclaimed road network.

Bruzelius et al 35 reported that the Namibian Road Fund Administration (RFA) commenced operations on 1 April 2000 (following establishment Act of Parliament Act 18 of 1999), as an outcome of a comprehensive process of policy review in the transport and communications sectors, which had commenced shortly after independence on 21 March 1990.

The RFA was tasked with management of the road user charging system and administration of the roads funds with a view to achieving a safe and economically efficient road sector. The Act defined the "road user charging system" as being an independent system to regulate road funding to be based on the principles of economic efficiency and full cost recovery. The system further comprised the determination, in sequential order, of (i) the amount of funding, (ii) the manner of allocation of funds, and (iii) the rates of road user charges.

The RFA approves requests for expenditure on roads, both for maintenance and investment applying economic efficiency criteria when deciding on the justified expenditure amounts for individual road maintenance programmes and investment projects. In that regard, Heggie 30 reported that Namibia was so far the only country which had set up its road fund administration as a public enterprise. Under this arrangement, the board had delegated powers to set its own road tariff, subject only to a Ministerial "no objection." This meant there was no earmarking, since road fund revenues were no longer collected under the government's tax-making powers. The Namibian government 36, as stated in Heggie’s report, described its roads funding system to have been different from Road Funds in other countries, highlighting the following characteristics:

- no requirement that revenues have to balance expenditure on a year-by-year basis; the balancing requirement applies in a longer perspective,
- the RFA may borrow to meet short and medium term needs if this would be compatible with its overall objective, i.e. economic efficiency,
- the RFA may also establish a reserve fund to ensure liquidity and promote stability in the rates of road user charges, and
- the road user charges must, on the other hand, cover the expenditures to be incurred when undertaking justified new investments in the road network

Runji 34 reported that in the year immediately preceding restructuring, government allocation for road works amounted to 82% of the optimal requirement. He noted further that prior to restructuring, the average all-inclusive allocation for road construction, rehabilitation and maintenance averaged about US$50 million whereas the funds availed by the RFA for the Roads Authority’s first year’s budget (2000/2001) for the same activities was US$57 million, reflecting an increase.

The Namibian Economist (17 April 2009) reported that the Road Authority was facing the challenge of shortage of roads funds on a number of ongoing roads projects. On one of its projects, the Road Authority was said to have managed to source N$530 million from the RFA out of the total project requirement of N$1.4 billion for the 2009/2010 financial year. Minister of Works and Transport, Helmut Angula was quoted as saying that the desire to build and maintain more roads was always there, but the lack of funds was acute, adding that the Tsumeb-Katwitwi road link, which had been inaugurated by President Hifikepunye Pohamba needed N$900 million to complete, while the road between Rundu and Elundu would cost N$1.3 billion to upgrade.

2.3.6 Malawi

Andreski 37 reported Malawi’s total road network to be about 15,451km of which 3,774km was paved. He suggested that there could be another 5,000km or more local roads added to the total road network if a classification study were completed. He classified about 70% of the paved road network to be in good condition while 47% of the unpaved road network was in poor condition and another 40% in fair condition.

Kumar 38 noted that in order to improve the management and financing of the road sector, an Act of Parliament was passed in 1997 creating the National Roads Authority (NRA), adding that the NRA plays a pivotal role in planning and resource allocation mechanism. He reported further that the Road Fund (RF) in Malawi was established in April 1998 with the objective to develop a dedicated and sustainable funding source for road maintenance, financed by incremental user fees and managed by users and stakeholders. At the time, the primary resource base was the fuel levy which was initially set at MK1/liter for petrol and MK0.99/liter for diesel.

His review made two conclusions. The first was that although funding available for maintenance had improved, the funds so far had mainly been utilized for rehabilitation of city roads, to the detriment of maintenance needs for the rest of the road network. The second was that there was insufficiency of roads funds to cover full maintenance needs, including holding maintenance. On that basis, Kumar concluded that setting up a dedicated Road Fund was necessary but not sufficient condition to ensure that a sustainable and stable basis of road maintenance was established, translating to improved service delivery.

Andreski 37 however, observed that revenues to the RF in Malawi had shown a general increase between 2000 and 2005. The report further showed that Malawi development expenditure relied heavily on donor contributions. The amount of this spending was reported to be between 150% and twice that for maintenance.

In his budget speech Hon. E. Gondwe, Minister of Finance 39, revealed that the total expenditure overrun of the development budget was MK5.3 billion of which MK4.2 billion were escalations in the cost of domestically funded programmes. He noted that the expenditure not programmed was particularly evident in the road sector. He noted that for 2008/09 fiscal year, he had budgeted MK15.0 billion for road construction, rehabilitation and maintenance of which MK4.0 billion was earmarked for maintenance.

The National Road Authority 40 reported that the country needed US$200 million to clear the backlog, US$7.5 million for maintenance, while only US$16.4 million was available in the budget to June 2006. The report further noted that National Road Authority and Road Fund Acts passed in April 2006 repealed the 1997 National Road Authority Act and recommended a clear split of the National Road Authority in to two bodies where collected revenues would be remitted to the Road Fund bank account. The absence of an independent Road Fund in the years up to 2006, it was observed, had seriously affected service delivery. The gloomy perspective was that the road tolls were not viable in Malawi in which the average daily traffic was about 1,500 vpd against the minimum threshold of 10,000 – 15,000 vpd.

A public expenditure report 41 brought out a number of findings, two of which were:

- funding for road maintenance had been inadequate, in favour of construction of new roads for the three previous years,
- the country needed a system for planning and prioritisation in road maintenance & construction activities.

Two of the main recommendations were that:

- fuel levy should be adjusted upwards in order to increase funding for the road sector in accordance with the RF Act of 2006
- the RF must ensure that funding for the routine maintenance is adequate and consistent, and prioritising funding to cover backlog and periodic maintenance before reconstruction.

The ARMFA 32 learnt that the RF manages roads funds and also funds for road construction. The fuel levy has been raised to US$0.16/litre and US$0.20/litre for diesel and petrol respectively. The funds were being allocated to the Road Authority as an implementing agency, and would soon be doing it directly to Road Agencies as well. The RF was reported to be making efforts to broaden the revenue base by lobbying for increases of the fuel levy, mechanisms for automatic adjustment, lobbying for parliamentary allocations and channeling of other road user charges to the roads funds.

2.3.7 Mozambique

Department for International Development (DFID) 42 reported Mozambique to have 30,000km of classified road network, of which 5,600km was paved. The unclassified road network, yet to be mapped, was estimated to be 20,000km. The report added that Mozambique still had one of the least developed road networks in the sub-region. According to the National Road Administration (ANE) 43, the classified road network of about 17,805km fell under its administration, acknowledging that in 1992, when the peace agreement was signed, less than 10% of the network was in good condition and more than one-third of roads, particularly the rural roads, were in poor condition and not passable on a regular basis. The semi-autonomous ANE has the responsibility to manage the main road network and a Road Fund responsible for funding road maintenance activities, while management of tertiary, urban and unclassified regional roads was decentralised to the provincial authorities.

AfDB/OECD 19 detected some drastic contrasts between Mozambique’s well-established east-west corridors linking the country to its neighbours, and the north-south transport which was virtually non-existent. It concluded that the lack of the north-south transport limited the development of national markets, reduced mobility of people and goods, raised transport costs and exacerbated the food crisis. Citing the World Bank Value Chain analysis, the report noted that moving a product from Pemba to Maputo by road required crossing into Malawi, Zambia and Zimbabwe to travel southward, and then re-entering Mozambique. The cost of trucking a 22-24 tonne container from Maputo to Pemba was estimated at $7,000, which was nearly 2.5 times the cost of shipping the same container from Dubai or Guangzhou, China to Maputo.

Historically 44, the functions of funding, oversight, and implementation in the road sector were located in a single organization, under an executive board which was made up of representatives from both the public and private sectors, with nominations made by the Minister of Public Works and Housing (MPWH) . Accordingly, MPWH had the overall responsibility for the roads sub-sector, superintending over two agencies – the Road Fund and National Road Administration. Objectives of the Road Fund included guaranteeing financing for implementation of the government’s policies on maintenance and development of public roads, and promoting increased participation of road users in the provision of funds. It also holds the responsibility for collecting funds, from government and external sources, approving spending plans and disbursing funds for work completed according to pre-approved budgets and programs. While it remains an integral part of National Road Administration, the Road Fund was earmarked to be transformed into a separate institution in the future.

Funding of the road sector activities is divided into two main areas:

- Construction of new roads, rehabilitation and periodic maintenance which are activities basically financed by different donor supported programmes and the investment budget of the government.
- The Road Fund collecting road user charges, mainly from levies on petrol and diesel, for routine and periodic maintenance of the road network. The government policy is to progressively adjust the fuel levies from time to time.

In spite of a host of donor countries and multilateral financiers involved in the road sector in Mozambique, AfDB/OECD 19 reported that government resources allocated to road maintenance remained limited as the fuel levy, which constituted the chief source of financing of the RF, was often diverted to other priority areas. As a result, payments to contractors and consultants were often overdue, resulting in late payment fees, interest and lawsuits. Because of such disputes, work on all N1 road contracts financed by the World Bank had been suspended in 2005. Heggie 30 had already classified Mozambique under countries with weak governance.

The ARMFA 32 learnt that the revenue sources of the Road Fund in Mozambique are fuel levy, and border fees, where fuel levy was at US$0.14/litre for petrol and US$0.10/litre for diesel.

Text Box 1: Toll Road Concession in Mozambique

Mozambique – lessons learnt from toll road concession

A number of lessons have been drawn from the South Africa - Mozambique Toll Road Concession, signed in 1996 by the governments of Mozambique and South Africa at a cost of R3 billion for 30-years . A private consortium, Trans-African Concessions (TRAC) used a BOT project concept for the N4 toll road from Witbank to Maputo. Traffic was reported to have been increasing at a rate of about 6% a year since the road was completed in 2000, averaging about 60,000 vpd.

Success

The success of the project, it is argued, stemmed also from its financing, with commercial risk being shared by a wide range of investors. The toll road was financed with 20% equity and 80% debt. Three construction companies contributed R331 million worth of equity with the rest of the capital provided by many investors.

Challenge

The main problem for the concession-holder has been reported to be damage to the road as the concession agreement did not specify regulations on truck loads. At the beginning of 2004, TRAC began axle load control measures which led to a drop in overloaded vehicles from 23% in 2001 to 9% by 2004.

Source: (AfDB/OECD 2006: Africa Economic Outlook)

2.3.8 Democratic Republic of Congo

Ground transport in the Democratic Republic of Congo (DRC) 45 is said to have always been difficult due to the terrain and climate of the Congo Basin which presents serious barriers to road and rail construction involving enormous distances across the width and breadth of this vast country. Chronic economic mismanagement and internal conflicts did not provide relief to the serious underinvestment over many years. The two recent conflicts (the First and Second Congo Wars), which began in 1996, had dramatically reduced national output and government revenue, increased external debt, and resulted in deaths of more than five million people from war, and associated famine and disease. Conditions are believed to have improved in late 2002 with the withdrawal of a large portion of the invading foreign troops, prompting a number of International Monetary Fund and World Bank missions to begin meeting with the government to help it develop a coherent economic recovery plan.

AfDB/OECD 19, reported transport infrastructure in DRC to be either dilapidated or inexistent, adding that in the ten years after independence, practically no maintenance had been carried out and the entire network which was created for colonial exploitation had collapsed. In the 1970s, steps were taken to rehabilitate the road network in collaboration with some donors, but these were rapidly abandoned because of political instability and war. Lack of maintenance and destruction is believed to have left an infrastructure system which exists only on maps; and that of the immense about 145,000km road network, 58,000km were categorized and only 2,800 km were surfaced.

A 2006 United Nations Joint Logistics Centre (UNJLC) report 46, based on 2005 estimates, gave an enhanced road network of 171,250km of which 2,250km was reported to be paved.

As observed by the AfDB/OECD 19, the establishment of an efficient transport system was a long-term objective for the Congolese government which was going to cost billions of dollars but was only hampered both by DRC’s limited investment absorption capacities and the availability of resources. The financial needs of the minimum programme projected to 2010 came to $919 million, of which $374 million was in the first year. A further observation was that in the medium term, the government was working on new solutions such as setting up a Road Maintenance Fund to stop road deterioration and attract more funds from donors. Regrettably, the low traffic levels meant that it was impossible to set up toll stations to recover investment funds, with the result that private sector involvement in infrastructure financing was limited. To overcome this, a system of operating concessions for quarries and mines, which would be linked to road and rail infrastructure rehabilitation, was earmarked to be set up. The general absence of framework legislation for public-private partnerships in itself represented an obstacle to national and international private sector involvement in implementation of transport policy.

Head of the Roads Section in the Congolese Ministry in charge of Infrastructure and representative of the Infrastructure Department, Victor Rutalira Cizungu (2008), told ARMFA newsletter 47 that the National Assembly of the DRC had voted on Friday, 13 June 2008, the law relating to the protection and financing the maintenance of roads by creating the National Road Maintenance Fund. In a subsequent newsletter 48 for 2009 ARMFA reported that it was giving support to Road Fund creation in the DRC, where a Director General, his assistant and members of the board had been appointed on 2 August 2009.

The Department for International Development 49 reported that the United Kingdom (UK) was committed to doubling its funding for road-building in DRC in order to improve access to some of the world’s most remote regions. The announcement was made by UK Minister for Trade and Development, Gareth Thomas, during his visit to the Congo in September 2009 that the UK would increase funding from £38 million to £76 million.

2.3.9 Tanzania

Andreski 37 reported Tanzania’s total road network to be about 74,151km of which 4,741.22km was paved. Tanzania National Roads Agency (TanRoads) was set up under The Executive TanRoads Agencies Act 1997 and The Establishment Order became operational in 2000. TanRoads is reported to be responsible for trunk and regional roads which were estimated at 18,629.94km while the rest of the road network fell under the President’s Office for Local Government and the Regions. Andreski further noted that by 1995, Tanzania had one of the worst road networks in southern and eastern Africa, with many of the city roads in Dar es Salaam heavily potholed and long sections of the main paved arterial route to Zambia from Dar es Salaam, the TANZAM highway, with long stretches of broken up tarmac. The report noted that by 2005, Dar es Salaam’s main city roads and the TANZAM highway were in good condition.

The 2009 Ministry of Infrastructure Development (MoID) Report 50 estimated the total road network length to be 85,517km including trunk and regional roads with a total of 28,892km which are managed by TanRoads under MoID, while the rest with a total of 56,625km were under Local Government Authorities.

In 2002, Kumar 51 noted that Tanzania was one of the first countries to adopt the Road Maintenance Initiative principles in developing maintenance management and financing policies in 1987. The initial attempts were not very successful as the roads funds were only established in the early 1990s as part of an administrative procedure and the declarations had no legal force or liability for compliance. In an attempt to give the Fund some legal force and secure stable financing for road maintenance, the Parliament enacted the Roads Tolls Act in December 1998, establishing the Road Fund, whose main source of funding was to be the fuel levy.

Kumar further noted that the government had established a Road Fund without providing the necessary revenue base and apart from topping up of the development budget, refrained from providing additional maintenance expenditure from the national budget. He recommended that it was not ultimately important whether road sector funding was allocated through the Road Fund or from the national budget, only that the source of funding was adequate and stable. His conclusion was that inability of the Road Fund budget to fully address road maintenance needs was in response to the “maintenance backlog” resulting from little funding provided for maintenance over the previous decade.

SSATP 13 noted the Road Fund Board’s report showed a significant improvement in conditions of the trunk and regional road networks over the period 2001-2005, although this could not be attributed to the funds generated by the Road Fund alone. Similarly, according to the Road Fund Board 52, the reversal of long-term decline in road quality required a comprehensive road transport strategy which was seen as the result of a combination of three factors, two of which included:

- the increase in the institutional capacity of the road sector through the establishment of a Road Fund and a Road Authority in 2000, and
- the increase in the financial and management capacity

The Board further noted that immediately after the establishment of the Road Fund and Road Authority, many donor and government road development programmes were implemented, making a major revelation that whereas the Road Fund budget for the TanRoads was about $50 million, the total value of works executed amounted to more than three times as much.

In his 2007 welcome address to delegates at road financing and investment seminar in Arusha, Minister for Infrastructure Development, Andrew J. Chenge 53 reported that the roads budget in Tanzania had met about 40% of the requirement, which if spent on maintenance was not even sufficient, hence the need to come up with innovative approaches of funding for road maintenance. He said that the government was working on regulatory framework to facilitate the use of PPP’s for increased funding to the road sector in an environment where traditional sources were failing.

2.3.10 Angola

Prior to the end of the civil war following the death of Jonas Savimbi in 2002, most of Angola's infrastructure was reported 54 to have been destroyed due to the extensive warfare between 1975 and 2002. It was estimated that Angola’s paved highway road network stood at 19,156km. Millions of land mines were reported to have been laid during the civil war, and efforts to remove them were so far making little progress. Not only did these vast numbers of mines hamper the building of an infrastructure of extensive road networks, but they continued to maim and kill civilians. More than 60% of the paved road network was reported to be in need of repair, and the estimation of the Angolan government was that it would take 10-15 years to restore the road network to the status prior to the war. In 2009, Angola’s total road network was estimated 55 at 73,900km of which 51% (37,689km) including urban roads was paved. The paved road network included 19,156km of the highway system.

By repealing the Decree 28/90 of 17 November 1990, decree 92/2003 approved the establishment of National Institute of Roads of Angola (INEA), which was anticipated to be responsible for management of the national road network 56.

In 2005, the World Bank 57 reported that INEA had been willing to implement private ownership of roads and bridges. A contrary observation was that toll funded improvements depended on sufficient traffic volumes to provide sufficient revenues. It was suggested that alternatively, maintenance and rehabilitation contracts could be based on shadow tolls which were seen as a potential way of dramatically attracting financing and improving the state of public road maintenance. However, the lack of clear legal framework covering private sector involvement in roads was seen as a major setback. Further, it was noted that a Road Fund Administration was not in place, and financing for road development, therefore, was mainly dependent on state budget which was facing pressing needs from other sectors.

In 2006, AfDB/OECD 19 noted that with the exception of a toll bridge over the Kwanza River, authorities had been reluctant to introduce cost recovery mechanisms for two main reasons. First, transport infrastructure was seen as a crucial instrument for post-war nation building, with large and positive net economic and social externalities that the government was willing to subsidise. Second, in order for providers to charge for improved roads, users must be provided with free-of-charge alternatives, the cost of which would far exceed current budget allocations.

2.3.11 Madagascar

The 2003 World Bank report 58 estimated Madagascar’s road network to be about 31,612km of which 4,074km was paved. It was further noted that 81% of the total road network was in bad condition and some were only seasonally practicable, while others not at all, inducing very high costs on users, interrupting economic exchanges, and isolating towns and villages for up to eight months of the year. This prompted the government to embark on a six-year paving, rehabilitation and maintenance programme (2003 – 2008) with the intention of bringing the proportion of good roads to 60% and the proportion of paved roads to 23%. As part of the road sector reforms, the government resolved to form an autonomous Road Authority to be responsible for the management of all roads in the country. The Road Authority became fully operational in 2006.

In 2008, Robinson 59 reported that the total road network of Madagascar was approximately 38,000km of which 5,700km was paved. He reported that 12% of the road network was in good condition, 14% in medium condition, and 74% in poor condition, mainly dictated by difficult climatic and topographic conditions, limited financial capacity and insufficient follow-up maintenance of the network. Further, he reported that a Road Fund was created in 1997 by law No. 97 – 035, adding that it became established in 1998 and commenced implementation in 1999. Birth of second generation Road Fund was in 2003 by decree 2003-411. He concluded that while the transition from traditional Road Fund to second generation Road Fund was essential, the increase and diversification of the Road Fund’s resources was essential for ensuring road maintenance financing sustainability.

SSATP 13 noted that the Road Fund revenues were raised solely from a fuel levy, which was up to 2006 only US$0.40/litre, one of the lowest levels of fuel levy in SSA which had not been revised since its initial level set at the creation of the Road Fund in 1998. In October 2006, the government passed a complementary legislation which indexed the fuel levy to the pump price, leading to a 50% increase of the Road Fund revenues.

The 2006 World Bank report 60 identified the promotion of public-private partnerships in investment and management of primary transport facilities and users/beneficiaries in operations and maintenance as one of the key objectives of the Transport Sector Reform and Rehabilitation Project in Madagascar. The Road Fund was found to be able to effectively mobilize resources allocated to road maintenance, but its budget allocation was seen to be rather erratic and unpredictable mainly due to absence of criteria for allocation of some resources especially oil taxes and budget from the Ministry. Four main sources of revenue were identified to be:

- oil taxes, collected and transferred by the Ministry of Finance to the Road Fund budget,
- road user’s levy, collected by the oil companies and repaid to the Road Fund,
- contribution from the local communities, and
- allocated resources financed by the government from its budget.

2.3.12 Lesotho

In 2006, the Central Bank of Lesotho 61 estimated the country’s road network at 7,438km of which paved 1,217km was paved. The road network management was reported to fall under four institutions; Roads Branch, Department of Rural Roads, Maseru City Council and the Ministry of Local Government. In the same year, the World Bank 62 further noted that the difficult topography of the country had strongly influenced the evolution of the road network and most of the improved roads were concentrated in the western lowlands and adjacent foothills, except to give access to the Lesotho Highlands Water Project. On the performance of Road Rehabilitation and Maintenance Programme in Lesotho, the World Bank reported some of the following key lessons:

- Privatized road maintenance could yield significant benefits for the road sector in low-income developing countries, adding that the project had demonstrated the difficulties and the steps necessary to implement such a transition in these environments;
- Effective Road Funds needed adequate revenue, independence and an effective governance structure. Because income from user fees was often insufficient to cover maintenance needs, an additional government contribution might be necessary.

The report concluded that funding for road maintenance in Lesotho had been diverging drastically from the needs ever since 2000.

The ARMFA database of 2009 shows that the Lesotho Road Fund was established by Legal Notice No. 179 dated 7 December 1995 and that its operations were being regulated by Legal Notice No. 16 of 15 February 1996, with fuel levy as its main source of funds. According to the Lesotho Road Fund report 63, the primary objective for the establishment was to ensure that fiscal burden for the maintenance and rehabilitation of the road network was gradually shifted from the government to the beneficiaries, with the long-term objective that the roads would be fully commercialised and managed like a business. It was earmarked that the main sources for the Road Fund would be:

- Road Maintenance Levy on petrol and diesel;
- Road Toll Gate Fees; and
- Vehicle License Fees.

The main concern highlighted was that although the road maintenance requirements were estimated at US$14 million, the Road Fund was reported to only raise about US$5.5 million.

Although collection of toll fees was enacted in 1976, toll gates were present at 9 of the 12 border posts designed in such a way that payments were made when entering Lesotho, whereas plans were under way to introduce payments for both entering and exiting traffic. Currently, the Road Fund collects tolls on all mechanised border posts while the Department of Treasury collects tolls at manually operated border posts. The report 63 observed that at the introduction of the mechanized toll collection system in 2001, the Road Fund realized significant improvement on the toll gate fee income reported at the end of that financial year, but subsequent years saw a decline in the reported income due to what was analyzed to be pilferage by personnel. Presently, toll fees are reported to make about 24% of the Road Fund revenue per annum. The report concluded that although toll-gate fees may seem a good source of revenue for financing road maintenance, it would never be the best source for Lesotho because administrative costs consumed a significant portion of the generated revenue, which defeated the purpose for establishing that revenue stream.

The 2006 Central Bank of Lesotho Economic Review 61 showed that the management of road infrastructure had been delegated to the Lesotho Road Fund, which was intended to ensure that road users bore the burden of maintenance and rehabilitation of roads in the country. The largest source of revenue for the Road Fund was the road maintenance levy which was included in the price of petrol and diesel.

During the month of June 2006, the Lesotho Petroleum Fund Board announced 3.50% and 5.02% increases in the prices of petrol and diesel, respectively. The main reason for the increase was the review of the road maintenance levy, which was doubled from 15 lisente/ litre to 30 lisente/ litre for petrol, and from 20 lisente/litre to 40 lisente/ litre for diesel. This was the first adjustment since 1998, when the levy was introduced in Lesotho. This increment, it was argued, would significantly augment resources available as fuel levy contributed about 80% to the total Road Fund budget. It was concluded that the adjustment was important to let road users incur the cost of road maintenance and rehabilitation in the country, a situation which would enable the government to reallocate resources to other and more pressing sectors such as education and health.

In 2009, ARMFA 32 reported that the Road Fund in Lesotho was considering moving the toll collection function to the Lesotho Revenue Authority to reduce its running costs and maintain a lean structure. Due to beauracratic delays, the Road Fund did not have a Board in place between August 2008 and April 2009. Since the last focal group meeting, the Lesotho Road Fund had moved closer to a second-generation Road Fund but it was not there yet because of two major issues. These were:

- Lack of regular technical audits
- Bloated and not a lean structure

2.3.13 Swaziland

Lombard et al 64 noted that the public roads sector in the sub-region had shown constraints in delivering its services due to rising costs, inadequate resources and budget constraints, a phenomenon that had not spared even Swaziland. This, he argued, had necessitated reforms in the road sector. He reported a total road network in Swaziland of 4,876km of which about 23% was paved.

The government, through its Second Economic and Social Reform Agenda (ESRA II) was reported to have committed itself to the participation of private sector enterprises in road management, both at institutional and operational level. This included the goal to completing the privatisation of routine maintenance of the road network in the near future. The formation of a Road Authority and dedicated Road Fund was reported to be critical to the Road Reform Programme which was then at Cabinet approval stage. After reviewing the Restructuring Policy Guidelines of Swaziland, Lombard noted that there was need to quickly reform the road sector through the formation of the Road Authority and a Road Fund, the latter to be within the Ministry of Finance, adding that it was important to refine the systems to ensure full collection of revenue from road users through the various road user charging instruments in order to meet the diminishing funding for road maintenance and rehabilitation. This was anticipated to help meet the needs of sustainable and stable financing for roads.

Bawinile et al 65 similarly reported that Swaziland was conducting road sector reforms which would culminate in the creation of an autonomous Road Authority, adding it was no exception to the need of a paradigm shift taking place in the rest of the SADC sub-region. It was observed that there was a move towards commercial approaches of managing and financing roads with increased involvement of road users in decision making and the private sector in delivery. Management and financing of the road network was reported to be shared between the Roads Department and Local Authorities. The paper concluded by stressing the need for road reforms which would make extensive use of the private sector in managing and maintaining road infrastructure and ensure accountability and transparency of huge sums borrowed from foreign funding to finance the country’s road infrastructure, as these loans were ultimately paid back using taxpayers’ money. He pointed out that alternative measures for financing road building would be required to alleviate the limited general budget. He arrived at the similar conclusions and recommendations as Lombard, with the exception of Performance-based Contracts which he introduced.

Mnisi 66 made similar observations as Lombard and Bawinile, save for his estimates of the classified road network of about 3800km, a third of which he said was paved, adding that about 60% of the paved road network was in good condition and 20% in fair condition. On trade corridors, he concluded that Swaziland, as a country, believed Maputo was the way to go.

In his March 2005 budget speech to Parliament, then Minister of Public Works and Transport Hon. Sithole 67 reported that the government could not afford not to invest in roads, adding that means were under way to continue improving the situation. This was in his apparent reference to government increased funding to the road sector with the assistance of donor funds. Further, the Minister stressed that users of the roads should be made to pay for them and that foreign registered trucks were to pay for the tear and ware at the weigh stations to be established at the border posts. However, some sceptics were reported to doubt the Minister as he had failed to turn the national highway road network in to toll roads, another proposal he was reported to have raised periodically.

In 2009, the government 68 through the Ministry of Public Works and Transport reported that it intended to refocus its primary role to that of policy and strategy formulation and regulation of the transport sector with a reduced direct involvement in operations and the provision of services. It was noted that infrastructure should be run on a commercial basis if the intention were to establish sustainable sources of finance, and that the principle of user charging would be used either from direct or indirect sources. Most importantly, the policy was attempting to address issues of providing an enabling environment to the private sector, attracting private sector finance and investment, encouraging partnerships with the private sector and participation of stakeholders in the operations of the transport sector.

2.3.14 Zimbabwe

The 2000 World Bank Report 69 estimated the public road network of Zimbabwe to have been 76,000km of which about 20% was paved. An estimated 18,000km of main or state roads were reported to be under the jurisdiction of the Ministry of Transport and Energy Department of Roads, 52,000km of local rural roads under the Rural District Councils, and about 5,000km of urban roads and streets administered by Urban Councils. It was felt that although the main roads appeared to be in good condition, about half of them had pavements that were 30 years or older and were showing increasing signs of deterioration.

Although new roads continued to be built, the report stated that there appeared to have been a growing backlog of maintenance in which much of the network was in need of periodic maintenance, rehabilitation and upgrading. As a result, the Zimbabwe National Roads Authority (ZiNaRa) was established following the re-writing of the Roads Act 2001 to, among other reasons, improve road sector management through commercialisation and make available adequate and sustainable funding of road infrastructure maintenance and operations through dedicated road user fees. This was also noted by Kodero 70, who observed further that the Road Fund, administered by ZiNaRa, was financed through fuel levy dedicated to maintenance and rehabilitation works of formal roads, and did not have a provision for financing that part of the transport network below tertiary roads.

Odero and Njenga 71 reported that as of September 2003, the road network of Zimbabwe had a replacement value of Z$10 trillion. To reverse the network deterioration, fuel levies, transit fees, heavy vehicle surcharges and axle load fees were earmarked to provide revenue for the Road Fund whose revenue commenced flowing into its account from April 2001. As at September 2003, about Z$8.2 billion had accumulated into the Fund. The funds were anticipated to extend to new road construction projects once there was enough capital built up.

Zimbabwe’s capabilities to generate adequate finances required to maintain roads, among other pressing sectors, were set aback when in 2000 the World Bank 72 suspended lending to Zimbabwe when the country went into arrears. World Bank assistance to Zimbabwe had totalled US$1.6 billion between 1980 and 2000, with arrears estimated at US$600 million at end-June 2008. The arrears to the International Monetary Fund stood at US$144 million at end-June and Africa Development Bank at US$429 million at end-April 2008 .

Prior to pulling out, the World Bank 69 noted that allocations for road maintenance of around US$30 million were only about one-third of estimated requirements. Despite a tradition of good road maintenance, persistent under-funding was said to be causing a steady increase in the need for backlog maintenance and rehabilitation. The estimates of backlog maintenance and rehabilitation requirements indicated that about US$300 million should be spent on paved roads alone.

On 26 August 2009, The Herald 73 reported that Zimbabwe had introduced new tolls with charges ranging from US$1 to US$5 per vehicle, payable at several points across the country. The customs and excise agents, working from roadside tents, were controlling the collection of money from drivers who were being stopped at roadblocks set up by the police. A week earlier, in its editorial, The Herald had hoped that the toll fees to be collected would be channelled directly into maintaining current road infrastructure, before any expansion and extension works. It argued further that while the toll fees would come in handy, given the capital-intensive nature of road construction; it was incumbent upon the government to embark on public-private partnerships by inviting investors to finance the building and maintenance of new roads from which they could collect tolls to recoup their investment.

On 30 November 2009, the Sunday News 74 , following their interview with the Director of Roads in the Ministry of Transport, Communications and Infrastructural Development, Engineer Nelson Kudenga, reported that US$4,483,764.73 had been collected from toll gates set up on the regional trunk road network. He was quoted as saying that the amount of money collected by the ZiNARA would be below US$20 million in 2009 and would be used mainly for routine road maintenance before upgrading any existing roads in order to preserve the huge investment that had been put into the roads and bridges over the years.

In 2009, ARMFA 32 learnt that current revenue sources in Zimbabwe were:

- Fuel levy at US$0.01/litre for diesel, and US$0.04/litre for petrol.
- Toll Fees – The toll fees were being collected by the Zimbabwe Revenue Authority and 90% remitted to Road Fund while 10% retained as collection fees. The challenge was that the Road Fund could not verify with Zimbabwe Revenue Authority if figures were correct.

It was also learnt that there was huge backlog maintenance at the moment and that the government was inviting investors into road maintenance.

2.3.15 Mauritius

AfDB/OECD 19 reported Mauritius’ road network to be about 2,020km adding that the road network had been quite mature and that since 2001 only 20km of road had been added. In 2009, the Africa Development Bank 75 reported that 95% of the road network was paved and over 60% well maintained, although degradation of island roads attributed to heavy trucks not respecting load limits of 13 tons/axle was taking a heavy toll on transportation infrastructure, thereby reducing economic competitiveness.

A Road Development Authority 76 , under the Ministry of Public Infrastructure, Land Transport and Shipping operates in Mauritius in which it is responsible for construction and maintenance of the national road network. In 2008, the government identified the need to construct the Harbour Bridge and Ring Road in Port Luis to ease the north-south congestion; and through the Road Development Authority, invited the Request for Proposals for a suitable consultant to undertake a comprehensive public-private partnership feasibility study in terms of the PPP Act 2004 77. The PPP legislation was proclaimed in March 2005 under the Ministry of Finance and Economic Empowerment, and it underwent some amendment in July 2008 78.

In terms of institutional capacity and the current staff strengths, the Africa Development Bank 75 adjudged the capacity of the PPP Unit to be weak and inadequate to carry out effectively its mandate, adding there were plans underway to strengthen capacity through a grant of US$0.2 million and credit of US$0.5 million from the World Bank aimed at sensitizing both public and private officers in PPPs.

BDO De Chazal Du Mée 79, in a review of budget brief for 2008/09, welcomed the emphasis made by the Minister of Finance and Economic Empowerment on the development of infrastructure, such as the roads, and on the acknowledgment that financing should be through public and private partnership. Their only hope was that such projects would not be unduly delayed, as had too often happened in the past.

2.3.16 Seychelles

The total road network for the Seychelles, based on August 1994 statistics, is said to be 302km, of which 202km were hard surfaced 80. Based on 2006 statistics, Africa Development Bank 81 estimated a total road network of 502km of which 482km was surfaced. The government is said to have made continuous road improvements in recent years, but the scope for building new roads was limited since vehicle imports were regulated by an annual quota system.

It has further been noted that as an archipelago of islands harbouring such a significantly small road network, the Seychelles is heavily dependent on air and water transport for movement of goods and people. Although the Transport Policy Vision 21 is said to have been in place since 2004, no significant road sector reforms have been reported.

2.4 Financing of Road Projects in selected countries

2.4.1 General

A broad overview was undertaken in order to understand how certain countries around the world were financing maintenance, rehabilitation and road construction projects. The results of literature review are presented in the next section. Targeted countries included in the project were Japan, Canada, USA, Ghana, Brazil, UK, Austria and Finland.

2.4.2 Typical strategies in selected countries

Text Box 2: Case Review of Japan

Japan – Case Review

The Japanese road financing system comprises two main revenue streams. These are earmarked tax revenue system (since 1953) and toll road system (since 1952).

The earmarked tax revenue system is used to secure the road development budget by fuel tax and therefore not transferred to the general budget. It is paid into the road improvement special account. The development of the road network in Japan requires stable large-scale funding which should respond not to the influence of economic conditions, but to road traffic demand, thereby justifying the user pay system.

The toll pooling system has been a common practice, whereby several toll roads are “networked” on a nationwide or regional basis to create a single project for calculating revenue and redemption of expenditures, since tolls have been preferred not to exceed the benefit of the user. In 1971, a special law setting the motor vehicle tonnage tax (damage by user) was passed.

At the national level, the tax revenues earmarked are as follows:

a. All the revenue from the gasoline tax is transferred to the road improvement special account.
b. Half the motor vehicle LPG tax is paid into the special account. The remainder is transferred to local government as motor vehicle LPG transfer tax.
c. 75% of the motor vehicle tonnage tax is paid into the special account. The remainder is transferred to local government as motor vehicle tonnage transfer tax.

At the local government level, additional revenues are collected from two further taxes:

a. A diesel fuel tax which is collected at the local level only; and
b. A motor vehicle purchase tax, also collected at the local level (5% of purchase price for private motor vehicles).

Sources:

- History of Road Development, Finance and Investment in Japan. Takaaki Nambu, Hanshin Expressway Co., Ltd. Japan – November 2008
- Himachal Pradesh Road Sector Finance Study, Final Road Fund Report, Price Waterhouse Coopers, March 2007

Text Box 3: Case Review of Canada

Canada – Case Review

Based on research that has been conducted for the Canadian government to examine alternative road financing arrangements such as tolls, urban transportation agencies and road funds, it has been noted that traditional road financing arrangements relied on consolidated tax funds at provincial and territorial level, and on property tax and grants from senior levels of government at the local level. No conclusions have been drawn about whether toll roads, urban transportation agencies or road funds were a better way to pay for roads than traditional methods.

It has been noted that Road Funds, acting as repository for dedicated user taxes and as a source of money for road maintenance or construction were really not new to Canada. Actually, such a fund in Canada had existed in British Columbia where a crown corporation had been established that both owned the provincial roads and financed capital expenditures from, among other things, dedicated fuel tax revenues.

It was also observed that the provincial and territorial roads were financed mainly from consolidated funds (general budget), and that toll financing never caught on as was supposed to after WWII. In the face of already high fuel taxation levels, introduction of toll facilities on only parts of the system was seen to have the potential of raising the issues of double taxation and regional inequity. Further, it has been highlighted that PPPs and tolls were not necessarily the same thing in the Canadian context. When British Columbia in 1988 decided to privatize road maintenance, the responsibility was passed on from the government agencies to a number of privately owned companies and no tolls were involved in the method used to pay for the work. Secondly, it has been noted that the use of tolls to finance road construction did not necessarily involve the private sector. An example has been given of Coquihala which was built by the government using ordinary procurement policies and was later operated as a part of the provincial road network, without a private operator being involved.

Source: Alternative Road Financing Arrangements: Research conducted for the Canada Transportation Act Review, Report prepared by Fred Nix. March 2001

Based on the analysis of Quebec road financing system, it has been noted that sources of future income generation would focus on the current contributions of road users and expenses on the road network.

Focusing attention on earmarked special taxes and gasoline levy on the one hand, and the non-earmarked gasoline taxes on the other, emphasis has been placed on:

- user tariff,
- optimizing resource management, such as asset management,
- diversification of financing sources such as the use of PPP for large projects, and
- alternative road tariff models such as tolls during addition of road capacity, and generalized tariff according to the travel distance, moment and place.

Source: Road infrastructure investments and financing under the responsibility of the Ministry of Transport of Quebec, Presentation in Burkina Faso by Alain Charlebois. December 2008

Text Box 4: Case Review of the United States of America

USA – Case Review

In 2009, Louisiana lawmakers held a meeting to consider road funding options. They considered that the most suitable solution to boost revenue for road and bridge maintenance might be an increase in the state’s fuel tax. Other options the study group were to consider included toll roads and partnering with private groups. The state’s tax on diesel and gas was reported not to have increased in 25 years. Of the US$0.20 tax, US$0.16 was earmarked for the state’s general highway construction and maintenance programs with the rest paying for a special highway and bridge construction program.

Source: Land Line Magazine, August 31, 2009

In 2009, it was reported that in Dulles, there were plans to increase the main toll plaza by US$0.25 each year for three consecutive years, resulting in a total increase of US$0.75 cents by 2012, which would also increase the on- and off-ramp tolls from US$0.50 to US$0.75 beginning Jan. 1, 2010.

Source : The Observer, August 28, 2009, Leslie Perales

In 2009, a gloomier picture was painted about Minnesota where, despite approval of US$6.6 billion road financing plan from the federal and state funding sources in 2008, the state was expected to be US$50 billion short in the next 20 years. As a consequence, MnDOT cautioned residents to be ready for toll roads owned by investors, and new taxes on how many miles one drove versus tax by the gallon, adding that they were paying more due to the long-term neglect of adequate funding.

Source: Albert Lea Tribune, August, 31, 2009

In 2009, it was reported that Mississippi had doubled the fuel tax to US$0.18 per-gallon to build the roads. The legislature was advised to consider the highway advocacy groups to use private-public agreements through an Independent Transportation Bank to finance construction, something that might require re-routing where the revenue stream goes in part.

Source: The Northeast Mississippi Daily Journal, Sunday, Sep. 06, 2009

It is noteworthy that the US Federal Highway Trust Fund (established in 1956) operates on similar lines to Road Funds and finances selected federal roads. The user pay concept is now well established in the US. This is despite the fact that toll roads are believed to have a long history in the US going back to the late 1700s, and that private roads were widespread in the 1800s, although they rarely made money and disappeared as canals and railroads came to dominate long-distance traffic.

Source: Klein and Fielding (1992): Klein, D. B. and Fielding, G. J. (1992) “Private Toll Roads: Learning from the Nineteenth Century”, Transportation Quarterly 46(3), pp. 321-341

Text Box 5: Case Review of Ghana

Ghana – Case Review

Andreski (2005) reported that Ghana was one of the first countries in Africa to establish a Road Fund (RF) in 1985. In spite of that, it was observed that road maintenance continued to face difficulties such as irregular and insufficient releases, inadequate financial management system. In 1997 a second generation RF came into place through a Road Fund Act, focusing primarily on routine maintenance, periodic maintenance and rehabilitation of public roads.

Further, he noted that the fuel levy provided about 90% of RF revenues with tolls, transit and license fees providing the rest. Between 1996 and 2003 the fuel levy varied between US$0.37 and US$0.65 equivalent US cents per litre. Over the years, expenditures matched revenues although in 2004 there was a surge in expenditure. This coincided with election year. Ghana’s RF disbursements run about 3 months in arrears. Early in 2005 the fuel levy was increased from equivalent US$0.40 to US$0.60 per litre.

It has been shown that in recent years, the RF contributes 25%, development partners 44% and government consolidated fund the remaining third, and that an approximate estimate of the replacement or asset value of the road network was just over $4.6 billion.

Andreski’s observation was that the existence of the RF in Ghana had ensured that road maintenance financing had been kept to reasonable levels although increases in the levels of finance tended to be jumps rather than steady increases, and that levels of funding were still below that required.

The allocation of funds to the various agencies, in his view, appeared to be variable and subject to negotiation between the Ministry, the Board and the agencies themselves. How decisions were made was not clear to him. The proportions to each agency varied considerably from year to year and the trend had been an increase in the urban road allocation relative to the feeder roads.

He concluded that funding for construction projects in the road sector was still about three times that for maintenance from the road fund. The condition and extent of the network had yet to stabilise with many roads remaining in poor condition, while new ones were being added.

On 12 January 2010, Myjoyonline.com/Ghana carried a story titled “Road contractors blame Kufuor over delayed payments”. This followed a complaint by contractors that funds released by the Ministry of Finance were not enough to cover the debt owed. The contractors blamed their predicament on the Kufuor administration which they say awarded too many contracts it couldn’t pay for, in apparent reference to pre-election campaign. It has been reported that the Road Fund received GH¢87.5 million in the preceding year but the road contractors accused government of awarding contracts to the tune of GH¢6 trillion. The election was later won by an opposition candidate – John Atta Mills.

Text Box 6: Case Review of Brazil

Brazil – Case Review

Price Waterhouse Coopers (2007) reported that four states in Brazil were known to have created autonomous Road Funds (RF). These were Mato Grosso (June 1999), Mato Grosso do Sul (March 2000), Paraná (December 2000) and Goiás (January 2001). The RFs in Mato Grosso and Mato Grosso do Sul had similar characteristics in which both states had boards with a majority of members coming from the public sector and financed the fund through a levy on motor vehicle fuels and agricultural goods. The boards were seen to be responsible for construction, rehabilitation and maintenance of roads. Since both states were predominantly agricultural and needed to expand their road networks, it was deemed necessary to include road construction and rehabilitation as well. In order to meet the additional financial requirements for road construction and rehabilitation, the financial base of the road fund had to be broadened through levies on agricultural goods.

The RF in Paraná was reported to be a more traditional road maintenance fund whereby funding was provided exclusively by a levy on motor vehicle fuels. In Goiás, the RF was financed through vehicle licensing fees.

Several other states in Brazil have been reported to be in the process of creating similar RF’s. At the federal level, the parliament amended the constitution in December 2001 to permit the dedication of some of the fuel taxes for transport purposes. The corresponding law was passed at the same time but had not taken effect by 2005. The major portion of the approximately US$3 billion in dedicated fuel taxes was earmarked to go to the road sector. As a preliminary measure, US$120 million was assigned to the federal states for road maintenance in January 2004. Since then, the amount assigned by the government to the federal states has reportedly increased substantially.

Sources:

- Himachal Pradesh Road Sector Finance Study, Final Road Fund Report, Price Water House Coopers, March 2007
- Transport and Communications Bulletin for Asia and the Pacific No. 75, 2005

Text Box 7: Case Review of the United Kingdom

United Kingdom – Case Review

Tom Foulkes (2009), director general of the Institute of Civil Engineers, observed that with an estimated £1bn road maintenance backlog in the UK, there were too many roads that have been in need of proper repair for a long time and were deteriorating further by the day. He explained that funding for maintenance tended to focus on quick-fix reactive work which rarely tackled the underlying cause of damage and failed to prolong the life of the road. He argued further that the government’s focus should be on planned, preventative maintenance programmes. Furthermore, he recommended that growing public dissatisfaction with roads and highways could be resolved only by setting up a government-run bank for infrastructure projects, which should be initially funded by the government.

Heggie (1999) observed with dismay that the U.K., the country which virtually "invented" the idea of commercializing and privatizing government service delivery, had a blind spot about the road sector. It was only in 1994 that the Highways Agency was set up and only in 1996 that local governments were required to apply the competitive tendering process to most construction related services, including roads. On the financing side, he noted that there had been little real progress, adding that Design Build Finance and Operate projects (DBFOs) were in no way a financing mechanism, which he advised were simply a better way of procuring long term road services.

Text Box 8: Case Review of Austria

Austria – Case Review

Schierhackl (2006) noted that until 1964, Austrian primary road network had been financed exclusively from funds of the federal road budget, which was also fed to a very large extent by receipts from the mineral oil tax, then earmarked for federal roads.

In early 1960s, the country witnessed declining funding from the federal road budget, which had the potential of elongating project implementation periods; subsequently, leading to application of tolling in 1968 on road sections. Consequently, construction, maintenance and operation of these sections were transferred to separate stock corporations owned by the federal government and the federal provinces concerned, although the federal government was liable for the loans initially taken up by the companies themselves. Inadvertently, losses which could not be covered from toll income were posted as accounts receivable due from the federal government to be settled from the road budget.

By 1982, ASFINAG, a financing company established and fully owned by the federal government of Austria, was performing all loan operations. Receipts from tolls that were also collected by the construction companies formally went to the federal government. Then on, construction of motorway and expressway sections not subject to tolling after their completion was funded by loans guaranteed by the federal government. Once opened to traffic, the task of maintaining and operating the roads was taken over by respective federal road management. However, most of the completed network was still funded by the federal road budget which had much less room for alternative financing.

With Austria’s accession to the EU, the government’s guarantee was allocated to the national debt with the aim of shifting that debt to the private sector, laid down by law in 1997. To the contrary, this was not done by way of concessions, but by allocating to ASFINAG, which was already there but in charge of handling credit operations only, an additional and new scope of tasks. ASFINAG then assumed full responsibility of planning, construction, maintenance, operation, financing for all motorways and expressways in Austria.

ASFINAG at the same time is reported to have concluded a contract with the federal government to obtain the right to collect toll or road user charges in its own name. This right was compensated for by taking over the liabilities of the federal government. In 2006, following a competitive bidding process, ASFINAG awarded a 32-year concession to the Bonaventura consortium for the construction, operation and maintenance of 51km motorway section northern side of Vienna. The consortium is composed of Hochtief, Alpine Mayreder and Egis.

Schierhackl noted the following important mile stones:

- 1968: Start of operation on the first toll motorway, A13 Brennerautobahn Distance-related toll / Special toll sections
- 1987: Earmarking abandoned
- 1996: First legal act concerning toll for all vehicles on the entire motorway network
- 1997: Introduction of the Vignette for vehicles < 12t (existed already a road charge for trucks with 12 or more t), Time-related toll for vehicles > 3.5t / Vignette
- 2004: Introduction of toll for vehicles above 3.5t (by replacing the charge for trucks and the < vignette over 3.5t), Distance related electronic toll for vehicles > 3.5t

Source: Tolling as the most efficient road financing instrument: An Austrian Reflection. Klaus Schierhackl, 2006

Text Box 9: Case Review of Finland

Finland – Case Review

Finland utilises two main instruments of financing roads, i.e. shadow toll concession mechanisms of Design Build Finance and Operate projects (DBFO) similar to the UK, and budgetary resources.

Sources:

- Analysis of the Interface between Road Financing and Road Management - Observation of Current Trends in Europe, Franck Bousquet Alain Fayard. French Highway Directorate, 1999.
- Road Infrastructure Concession Practice In Europe, Franck Bousquet Alain Fayard, September 2001.

Text Box 10: Special Case Review of Europe

Europe – a special overview on road funds

For EU countries, there is an obligation to allocate all road user charges to investments in transport. The policy objective is to set the same standards of governance required for second generation road funds, but to an entire government budget. Existing Road Funds (RFs) are in Poland, Moldova, Bulgaria and Croatia, while recently closed RFs were in Kyrgyz Republic, Romania and Latvia.

The guiding principles have been where there is good governance and adequate budget planning capacity; encourage use of Medium Term Expenditure Plans with equitable budget allocation to all sectors, improve planning and budgeting for central funds, improve efficiency of utilization with transparent management.

Source: Road Funds in Europe and Central Asia. Henry Kerali, Lead Transport Specialist, ECA

2.5 Concepts and elements

2.5.1 General

Analysis of road financing concepts in the Southern Africa Development Community (SADC) makes one realise that only three systems are generally used to finance roads: budgets, Road Funds and concessions (and tolls). The following various elements applicable to road pricing and financing have emerged in the literature reviewed.

2.5.2 Grants from Governments

From literature cited in preceding sections and chapters, it is apparent that all SADC member states are still dependent on grants from central governments, budgeted through Ministries of Finance, and channelled either directly to Road Funds, Road Authorities or Ministries of Works. These grants are normally allocated from money raised by government out of general taxes, and funds obtained from international donor assistance.

2.5.3 Road user charges

It has been noted in preceding sections that road user charges in the SADC member states are based principally on fuel levy, which is set as percentage of petrol and diesel pump prices. Other charges include vehicle license fees, abnormal and overload charges.

2.5.4 Distance based charging

A survey of literature reviewed shows that distance based charging is not a principal means for raising road investment funds in the SADC sub-region. Distance related electronic toll for vehicles > 3.5t has been reported in Austria and in some parts of the United States of America. The requirement for more advanced tracking and toll collection systems entails SADC states may take longer to consider such a system.

2.5.5 Weight based charging

The European Union (EU) has a system for charging based on heavy goods vehicles either by means of existing tolls in member countries, the European road tax (Eurovignette) or distance based fees related more closely to costs.

2.5.6 Tolling

Toll systems are in widespread use in eight European countries 82. The following observations have been cited:

- Investments can be augmented (toll systems are increasingly recognised as the most efficient means of replacing taxpayer money with user money. Introduction of a toll system makes it possible to commission projects earlier than would have been possible with national funding),
- It serves as an application of the user-pay principle,
- A toll system also makes it possible to arbitrate between maintenance and investment. Percentages of toll resources can respectively be allocated to maintenance and operation, making it possible to fund road maintenance, a frequently neglected aspect when conventional funding arrangements are established,
- Apart from problems of acceptability, the introduction of a toll system generally results in reduced socio-economic return for the project (except when there is a congestion problem) since a certain proportion of users are dissuaded from continued utilisation of the infrastructure.

A shadow toll contract, or Design Build Finance and Operate contract enables the public authority to delegate the construction and funding of road infrastructure to a concession company whereby the concession company collects no toll from the users, for whom the road infrastructure is free. The public authority remunerates the concession company principally based on the degree of utilisation of the infrastructure.

In comparison with toll concession funding, a shadow toll system has the following advantages:

- there is no tendency to shift traffic onto other roads,
- no expenses associated with toll collection are incurred (European estimates show that between 10% and 15% of revenue are absorbed by toll collection costs, while approximately 10% of the initial cost of the infrastructure represents construction of the toll stations),
- spreading of financial charges over a period of time makes it possible to attenuate the constraints of annual programming.

It has, however been noted that a shadow toll system does not solve the funding problem, since the concession authority must, in any case, pay shadow toll remuneration to the concession company in due course. Therefore, a shadow toll contract does not generate new funding sources. By comparison with budgetary funding, the shadow toll method also highlights an apparent increase in financial expenses principally due to the required return on invested capital.

A review of literature in preceding sections and on the SADC member states shows that while standard toll and toll concession are practiced in some sectors of the sub-region, there is no member country that practices shadow tolls.

2.5.7 Public-Private Partnerships

In a road infrastructure concession, a public authority grants specific rights to a private or semi-public company to construct, overhaul, maintain, and operate infrastructure for a given period. By contract, the public authority charges that company with making the investments needed to create the service at its own cost, and to operate it at its own risk. The price paid to the company comes from the service's users, the public authority, or both 83. In 1999, out of roughly 51,000km of European motorways, about 17,000km (33%) were concessioned - 16,400km by toll, and 670km by shadow toll.

A picture of private sector investment in Sub-Saharan Africa infrastructure in comparison with the rest of the world as it stood in 2001 is shown in the table below. Since the statistics in the table include all types of projects, the proportion for road transport is small. This is insignificant when one looks at the proportion of the SADC sub-region.

Table 2-1: Private Sector Infrastructure Funding in Emerging Markets

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Source: Copley (2001)

Almost all road toll concession contracts reported in the SADC sub-region are based in South Africa, where only the N4 - Maputo concession contracts involves Mozambique.

2.5.8 Road Funds

Talvitie and Hirvelä 84 have made a comprehensive review and presentation on the advantages and disadvantages of Road Funds. They chronicled the most cited advantages of a dedicated Road Fund as:

- Provision of a stable road budget and avoidance of “political” diversion of road user charges,
- Promotion of efficient programming and contribution to lowering contracting costs,
- Making higher user charges more acceptable as their usage can be identified,
- Facilitating cost recovery and equity; beneficiaries and payers can be matched,
- A link between payments and benefits promotes more efficient management of funds and increase accountability as programs can be easily monitored and a clear system of performance indicators can be developed,
- It is essential for commercializing the Road Authority.

The most common disadvantages of a Road Fund identified by Talvitie and Hirvelä were:

- it entails a cost in terms of loss of budgetary freedom, especially in unforeseen fiscal difficulties,
- it could lead to distortions between different sectors of the economy and overspending in the road sector,
- it has not been successful in ensuring adequate monies for maintenance as there has been a tendency to use road fund monies for new construction.

2.6 Summary

A comprehensive review of literature was undertaken by the author, covering all essential elements of the project. Current and emerging concepts in terms of raising finances for construction and maintenance of roads in the Southern Africa Development Community (SADC) sub-region, and around the world, were encountered and appreciated.

It was observed that eight regional states were already into second generation Road Funds. These are Namibia, Zambia, Malawi, Zimbabwe, Mozambique, Tanzania, Madagascar and Lesotho. Democratic Republic of Congo became the latest country in June 2008 to pass legislation for the formation of a Road Fund, and a director was appointed in August 2009, while Angola, Swaziland, Mauritius, Botswana and Seychelles were still using central government systems to fund road construction and maintenance. South Africa is the only country which established a not-for-profit company owned by the state and mandated to oversee national roads.

In terms of road tolls, South Africa, Botswana and Lesotho were found to practice tolls while Zimbabwe reintroduced tolls in August 2009. It was found that toll concessions are in place in South Africa and Mozambique, while Zambia passed legislation in 2009 to commence concession PPP contracting with a number of roads projects in excess of 3,000km already earmarked.

There is unanimity in literature about diminishing funding levels for roads in the SADC sub-region, and around the world as well, and that more innovative road investment strategies must be put in place because an adequate flow of funds cannot be secured by the general budget procedures. Even more funds would be required to clear the ever increasing maintenance backlog. Unlike the developed world, literature has shown that vehicle under-population is a major hindrance to tolling of roads in many SADC countries, with the exception of South Africa.

It is apparent from literature that some of the more developed countries have a better perception although many of them, too, have struggled to implement innovative funding strategies. While others have yet to introduce systems similar to Road Funds, some countries in Europe have begun abolishing Road Funds. Whether systems that have been implemented in the Southern Africa Development Community have been effective enough to provide motivation for continued practice and attract other nations to adopt similar measures would be assessed and discussed in subsequent chapters.

Zietlow 85 summed up the first part of the debate when he noted that some people, especially in the donor community, seemed to be frustrated by the “slow” progress of the reform of the financing and management of roads in Sub-Saharan African (SSA) countries. He demanded for a fair judgement of such progress while drawing up a comparison with the pace of such difficult reforms in other countries of the developed world such as New Zealand or the Nordic countries, and insisted SSA countries were still on track. He looked at some of the established developed countries such as Germany and concluded one could get the impression that reforms in SSA were easy and quick. He recommended the need not to lose hope for the financing and management of roads in SSA to improve to a satisfactory level in the near future, adding that the donor community still could and should play a vital role in providing assistance to further support the reform efforts, even up to the point to intervene if politicians wanted to role back parts of the reform for their own benefit.

3 METHODOLOGY

3.1 Introduction

In this section, the author explains how the data was collected, analysed and validated. The author was well aware that the process of data collection forms the most important part of the research. In this research the author sought to gain a deeper and more holistic approach to understand the phenomenon concerning investments in road transportation.

3.2 Data collection

3.2.1 General

In the process of reviewing literature, it became apparent to the author that the topic on management and financing of roads had received wide coverage in terms of published research by a diversity of authors, international institutions and government agencies; and the SSA in its respect has been a subject of many well documented discussions.

Therefore, document analysis was the main form of data collection. Official documents, workshop and conference presentations, mass media (newspapers and magazines) were used as sources of data 86, 87.

A substantial amount of time was spent on reviewing the literature and ensuring that the available data was deciphered and only that which was most specific to the research topic was presented and analysed. Effort was made to collect all relevant data about each and every SADC country and, to the greatest extent possible, some countries to provide international experience. Specific institutions such as the World Bank, African Development Bank, Sub-Saharan African Transport Policy Program and the International Road Federation were especially targeted.

3.2.2 Criteria for data collection

The criterion for selection of Southern African Development Community (SADC) member states to be included in the detailed study of this project was based on the list of African Road Maintenance Funds Association (ARMFA) member countries. Only ARMFA member countries which fall within the SADC sub-region were included in detailed data collection and analysis. Although South Africa is not a member of ARMFA, it was included in the study due to its role as a regional super power, and role model in innovative road management and financing strategies in the SADC sub-region, especially as propelled by the SANRAL.

Below is the table of which countries within the sub-region were included in the detailed study.

Table 3-1: SADC Member Countries included in the study

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Source: ARMFA Data Base, Sanral

3.3 Data analysis

Data analysis is defined as the process of inspecting, cleaning, transforming, and modelling data with the goal of highlighting useful information, suggesting conclusions, and supporting decision making, whereas the measure of effectiveness quantifies the results and outcomes of an activity, defining what resulted from what was done. Put simply, effectiveness is ‘ doing the right thing ’ which in itself means conducting the right activities and applying the best strategies for competitive advantage.

Based on results of literature review, some case-specific indicators shown in Text Box 11 on the following page were used to assess the effectiveness of new and alternative strategies of financing road construction and maintenance in the SADC member countries. The criteria were modelled in accordance with the World Bank’s Road Maintenance Initiative (RMI) Index. A further step was taken to analyse country-specific budget requirements and available funding levels, wherever necessary, in order to reflect maintenance gaps.

3.4 Data validation

In order to ensure that the analysis is performed on clean, correct and useful data, exhibiting high integrity, the author placed much emphasis on use of data from traceable and valid sources. It was important to observe the data quality.

Text Box 11: General Guidelines for Road Maintenance Initiative

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3.5 Summary

The results and data analysis are presented in Chapter 4.

4 RESULTS AND ANALYSIS

4.1 Introduction

Funding strategies to the road sector need to be looked at in terms of maintenance and construction. Construction relates to new roads that require capital investments. On the other hand, maintenance incorporates three major activities. These are:

- Routine maintenance, which involves restoring drainage, filling potholes and cracks, and maintaining road edges, on an annual basis.
- Periodic maintenance, which involves resealing works about every 5 years, to rejuvenate the surface, and
- Rehabilitation, which includes overlaying about every 15 years to restore smoothness and durability.

Preventive maintenance is the best way to spend money. Regular maintenance of pavements must be done before a need has become apparent to non-experts. This normally conflicts with politicians who want to build new roads as a sure form of showing development to their constituencies.

The results and analysis are presented in two parts. Section 4.2 generally looks at matters relating to road network management, and Section 4.3 focuses on issues relating to road financing.

4.2 Road networks

It is seen from Table 4-1 below that the total road network for the Southern African Development Community has grown significantly over the years to 1,419,905km, but only a meagre 177,739km, representing about 12.5%, is paved of which about 41.3% is in South Africa. With the exception of Mauritius and Seychelles, which have significantly small land acreage, South Africa has the highest road density of about 0.618km/km2 as shown in Table 4-2, which in real terms also owns about 53.14% of the total regional road network as shown in Figure 4-1. The total regional road network densities are 4.0km/km2 and 0.098km/cap.

Table 4-3 shows that South Africa has the largest number of roads in good condition and the least number of roads in bad condition of about 95% and 5%, respectively, which by far varies significantly from the regional averages of about 35% and 36% of roads in good and bad conditions, respectively.

Other countries with road conditions above regional averages are Zimbabwe (50%), Mozambique (55%) and Zambia (57%). The rest of the countries show road network conditions which are below the regional averages. The least conditions are indicated for Namibia (13%) and Madagascar (23%).

Road Agencies are managing road networks in all the countries covered by the study with the exception of Lesotho, where efforts are continuing to create a Road Authority. As shown in Table 4-3, all the Road Agencies are run by a board with a private majority except in Zambia, Zimbabwe and Madagascar.

Use of comprehensive road management systems is not yet employed in Lesotho, Malawi, Mozambique, Zambia and Zimbabwe. This is in spite of many of these Road Agencies being older than five years. In any case, the youngest Road Agency to be born in 2006 in Madagascar is already employing some road management systems. Effective use of road management systems greatly assists in accurate assessment of road network conditions and in setting maintenance and rehabilitation budgets.

Table 4-1: Summary of SADC Road Network (2009)

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Table 4-2: Summary of SADC Road Network Densities

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Figure 4-1: Proportional distribution of the regional road network

Table 4-3: RMI Key Performance Indicators – Road Agencies and Network Conditions

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Sources: World Bank, Armfa, SSATP, Sanral

Note: In the case of South Africa, the scenario given in the table refers to Sanral managed road network

Table 4-4: Trends in Overall Road Network condition - Zambia

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Source: Highway Management System (2002 )

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Figure 4-2: Plot of Trends in Overall Road Network Condition - Zambia

Table 4-5: Paved and Unpaved Road Network Condition - Zambia

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Table 4-6: Road Network Condition - Malawi

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Source: DFID Mozambique Report (2007)

Figure 4-3: Road Network Condition – Mozambique

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Table 4-7: Tanzania Trunk & Regional Road Condition

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Source: Andreski (2005)

4.3 Administrative issues and road financing

Table 4-8 shows that all countries covered by the study have adopted a transport policy. Namibia was the first, after South Africa, to do so in 1995 while Lesotho became the latest country to adopt the transport policy in 2007. It must be stressed that South Africa was in fact the first country to draft and adopt various transport policies since 1930s. These policies have evolved with time due to various challenges encountered along the way, such as world inflation in the 1970s and the introduction of tolls in mid 1980s and the construction of freeways into the 1990s and beyond.

Currently, only Zimbabwe remains without a long-term road investment program, understandably so in the light of grave economic hardships faced by a country whose international cooperating partners abandoned it ten years ago and forced it to experience a total collapse of the economic, social and political structures. Zimbabwe has for the past twenty years merely been living off its road infrastructure constructed in pre-independence era.

If the protracted political scenario in Madagascar remains volatile, it is anticipated that a total collapse of the economy would soon be experienced and this will adversely reverse the gains which the road transport industry has been able to attain. Currently, most of the projects have stalled due to lack of payments as Madagascar continues to be guided by the World Bank’s Policy 7.30 dealing with de facto governments coming into power by means not provided in the country’s constitution. Madagascar’s case is worsened by its suspension from the Southern African Development Community.

As shown in Table 4-9, all the countries under the study have established Road Funds by law or Decree, except for South Africa which formed a not-for-profit limited company. All the Road Funds have boards, some with private majority and almost all of them rely on a fuel levy as the primary source of revenues for maintenance, with the exception of the South African National Roads Limited which receives some decent revenues from the toll roads in addition to a small proportion of fuel levy from the treasury. South Africa has the highest charges of over US33 cents/litre while Zimbabwe has the lowest fuel levy of US4 cents/litre.

Table 4-10 shows that all the Road Funds have very lean staffing and have their resources directed mostly on maintenance of main and rural roads except for the South African National Roads Agency Limited which directs all its maintenance funds on national roads. All the Road Funds are audited financially and technically either annually or quarterly except in the case of Madagascar Road Fund which is audited bi-annually.

The time to honour the bills must be far worse for Zimbabwe and Madagascar than indicated in the table due to the enormous economic down turn in the two countries. The situation is similar in the case of Zambia, but for different reasons, which have been attributed to the over procurement by the Road Development Agency in the fiscal year 2008 to the tune of ZMK1.1trillion over the budget appropriated by Parliament on local resources. The ripple effect could be felt for many years to come following the suspension of funding by some donors following revelations which were made by the Auditor General’s Report.

Table 4-11 shows that contributions of other road user charges to the Road Fund are insignificant, although Namibia showed other road user charges to be about 50% of the Road Fund revenues. The table further shows that the funds are mostly dedicated to routine maintenance, period maintenance and to some extent rehabilitation. In some cases, the revenues are channelled directly to the Road Fund while in other cases; the revenues are routed through other channels such as ministries of finance.

Tables 4-12 through 4-17 basically show that all countries have been experiencing increasing maintenance needs which have not matched the available Road Fund revenues, thereby facing ever widening maintenance funding gaps. There is no indication in any member state that the revenues were converging to the needs.

Figure 4-6 shows that in the period 1990 to 2007, investment commitments to transport projects with private participation in Sub-Saharan African countries appeared briefly from 1997 to 2006 and disappeared in 2007. This contrasts sharply with the strong presence of such projects in Middle East, Latin America, East Asia and Pacific.

Table 4-18 on corruption perception ranking exposes some worrying governance issues where about the entire sub-region lies in the bottom half of the corruption perception index ranking. This should worry the regional leadership as it has high potential of discouraging investors from investing in the sub-regional projects in general, and the transport sub-sector in particular, which gobbles the greatest proportion of cash inflows into developmental projects. It also has an impact on the collected revenues in the case of other road user charges such as motor vehicle license fees, overload charges, transit fees, etc which are intended to supplement the fuel levy earmarked for the Road Funds. And if the international development partners should know that most of the project grants and loans would be embezzled instead of being well utilized for the intended purpose, this could lead to their refusal to participate in development programs of some member countries.

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Sources: World Bank, Armfa, SSATP, Sanral

Note: In the case of South Africa, the scenario given in table refers to Sanral managed road network

Table 4-8: Road Fund Matrix - Transport Policy and Investment Program

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Table 4-9: Road Fund Matrix - Road Funds

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Sources: World Bank, Armfa, SSATP, Sanral

Note: In the case of South Africa, the scenario given in table refers to Sanral managed road network, whereas the fuel levy applies to national treasury

Table 4-10: Road Fund Matrix - Allocations and Audits

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Sources: World Bank, Armfa, SSATP, Sanral

Note: In the case of South Africa, the scenario given in table refers to Sanral managed road network

Table 4-11: Road Fund Key Performance Indicators Chart

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Sources: World Bank, Armfa, SSATP, Sanral

Note: In the case of South Africa, the scenario given in table refers to Sanral managed road network, whereas the fuel levy applies to national treasury

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Figure 4-4: Total Funding for Maintenance in Lesotho

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Table 4-12: Road Maintenance by Source in Lesotho

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Sources: WB Report No. 35049 - LS. 25 Jan 2006, Government of Lesotho Budget Book for the various years, Roads Fund Audited Accounts

Table 4-13: Maintenance Budget and Fuel Levy Trends in Malawi

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Source: Andreski (2005)

Figure 4-5: Malawi Road Development Financing

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Table 4-14: Revenue Collected Per Financial Year - Tanzania

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Source: Tanzania Road Funds Board

Note: Revenue from the fuel levies accounts to more than 90% of total revenue.

Table 4-15: Maintenance Gap for the Road Sector in Tanzania

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Source: Addo-Abedi - Tanroads

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Figure 4-6: Evolution of Total Funding Resources in Madagascar

Table 4-16: Funding Requirements for Non-toll Network – SANRAL

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Source: Sanral Declaration of Intent 2005 - 2008

Table 4-17: Trends in Road Fund and Maintenance Gap in Zambia

Fiscal Year

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Road Fund Collections/targets (ZMK) billion

13.982

13.863

19.437

23.114

23.459

35.450

55.390

90.287

96.104

Exch Rate

873.30

1,207.34

1,314.68

1,862.23

2,388.02

3,110.85

3,612.41

3,612.41

3,612.41

US$ million

16.01

11.48

14.78

12.41

9.82

11.40

15.33

24.99

26.60

% of AWP

15.00

Maintenance Needs US$ million

Maintenance Gap US$ million

Main sources

National Road Fund Agency 2001, 2003 Annual Reports

Table 4-17: Trends in Road Fund and Maintenance Gap in Zambia (cont’d)

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Adapted from: World Bank and PPIAF, PPI Project Database.

Figure 4-7: Investment Commitments to Transport Projects with private participation in Developing Countries (1990-2007)

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Table 4-18: SADC Countries on the World Corruption Index Ranking

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Transparency International

5 CONCLUSION

5.1 Introduction

It has been observed that sub-regional governments, as well as governments around the world, have experimented with a number of alternatives for financing road transportation improvements, in which selection of alternatives have depended on some issues defined by individual governments, or as bilateral agreements between governments, or yet still as multilateral agreements between governments and international development partners.

Based on results of literature review covered under this study, data collected and analysed as discussed in this report, and the results shown above, the following conclusions can be made about the effectiveness of alternative road financing strategies for new roads and maintenance in the Southern African Development Community.

5.2 Main Conclusions

Road Funds have been set up in all the countries covered by this study, either by Decree or as an Act of Parliament. These are run by boards and are mandated to use their revenues to undertake maintenance works on preferred sections of the road networks. While the main source of their revenue is the fuel levy, other road user charges such as transit fees, overload fees, vehicle license fees do not make a substantial contribution to the Road Funds collections. This is mainly due to gross vehicle under population in all the countries covered by the study in which the weighted ADT is less than 1,000 vpd. South Africa is the only exception to this phenomenon. The vehicle under population clearly injures the prospects that poor countries can benefit from toll roads which depend on minimum thresholds of about 10,000 vpd in order to offset the capital and operational costs for toll-gate operation, and after breaking even, make meaningful contribution to the Road Fund.

Lesotho acknowledged pilferage of toll collections by its staff, and views the huge administration costs as defeating the whole purpose of establishing the revenue stream. The wrangles that erupted in Zimbabwe between the National Road Authority and the Revenue Authority about how to share the tolls collected from road-side make-shift toll booths are an example of challenges to be faced by countries hoping to introduce tolls without adequately thinking through the process. The US$4.0m collected for the half year (or US$8.0m projected annual) is clearly not adequate to reverse the deteriorating road conditions as it must also cover costs for toll collection and administration.

It is apparent that fuel levy revenues are highly volatile as they have to respond to fluctuations in the supply and demand. If the price of fuel goes up, motorists reduce their trips and fuel revenues drop. If there is fuel shortage, as is characteristic of many countries under this study, fuel revenues drop. This instability has led to widening maintenance gaps in all countries under the study. The sub-regional countries have resorted to borrowing from the international development partners to bridge the gap in maintenance requirements. In spite of such efforts, it has been extremely difficult to completely eliminate the maintenance backlog created by years of under investment into the road sector. This has made it even harder to mobilise additional resources which are required to build new roads which are essential to unlocking the economic potential lying in the hinterland of the Southern African Development Community.

Attempts to attract private investment into the road sector have not yielded the required benefits due to an absence of legislative provisions in some countries. By contrast, South Africa seems to have made significant benefits from concessioned road contracts completed in 2000 which shall revert to the government after thirty years. But South Africa has since been slow to roll out the next generation of concessioned road contracts despite having a number of targeted roads on hand. The truth is that just besides the complexity of planning such contracts, marshalling the huge investment costs is extremely difficult due to the risks associated with making reasonable predictions over a thirty year period. As these types of contracts are highly dependent on traffic volumes, it is quite evident why the rest of the sub-region remains unattractive to the private investor who, at the end of it all must make a profit.

The case reviews undertaken for selected countries around the world revealed that all countries covered under this study are currently experiencing increasing maintenance funding gaps, irrespective of whether they were using traditional or alternative road financing strategies. The debate for improving existing systems and introducing new ones lingers on. The Southern Africa Development Community is not alone in that respect.

5.3 Summary

Great effort has gone into resolving the road financing crisis faced by the sub-region over the past two decades and beyond. Everything right has been done in accordance with the provision of the Road Maintenance Initiative. The implementation process can be described to have been effective in as far as setting up administrative structures aimed at effectively managing alternative road financing strategies is concerned, but the results as seen in the light of ever increasing maintenance gaps and deteriorating road conditions seems to suggest that the journey may be far from over. This may be quite frustrating to many transport specialists and sub-regional government heads, but it is much more frustrating to the citizens who in many cases have been made to wait for the promised improvements in road infrastructure decade after decade. The situation is further worsened especially when such recipes are presented to a generation that has seen so many foreign prescribed models which in their view have failed to work effectively for the sub-region such as Structural Adjustment Program (SAP) or Highly Indebted Poor Country Program (HIPC).

Therefore, it is concluded that alternative road financing strategies have not been as effective as they were initially envisaged to be.

6 RECOMMENDATIONS

6.1 Introduction

The Southern Africa Development Community model countries have followed every step described in the Road Maintenance Initiative on how to run an effective Road Fund. These countries have moved from the first generation Road Funds which lacked proper specification, leading to misuse, to the more advanced second generation Road Funds with proper oversight. Still, adequate and sustainable road investment funds elude the sub-region.

The author, therefore, makes the following recommendations in order to try and make Road Funds in the Southern Africa Development Community more effective.

6.2 Recommendations

I. Reintroduction of in-house maintenance to cover at least 20% of the annual maintenance budgets, as opposed to 100% contracting which leaves the countries at the mess of market forces driven by their motives to maximise profits. The in-house maintenance units must be able to carry out limited resealing works as well.
II. Since the bulk of the sub-regional roads are low-volume roads, more innovative ways of constructing and maintaining these roads must be permitted in place of conventional approaches which are more appropriate for high traffic roads.
III. In the absence of adequate finances, Road Authorities must be encouraged to set realistic targets and reduce their core road network to align them with realistic road fund revenues capable of keeping the road network in a fairly maintainable condition. Raising fees and taxes that support transportation infrastructure development is unlikely to yield more revenues in a sub-region where the majority of its citizens live in abject poverty.
IV. All Road Authorities in the sub-region must use scientific methods, such highway management systems, for managing and monitoring their road networks, and determining the maintenance needs thereof.
V. Political will must be directed to preserving the existing road assets instead of using billions of borrowed money to construct new roads for political expedience, which normally coincides with election years.
VI. Construction of new roads must be adequately qualified by its economic and financial feasibility, in which case all effort must be made to attract private investment to such projects, and let the people who shall use that road pay for the service rendered.
VII. Governments must undertake all future reforms with full awareness of equity consequences and the environment in which our countries lie.

6.3 Suggestions for future work

The need for future work on this topic remains paramount in order to keep our sub-regional governments aware of developments in the road transportation sector and make them more adaptable to positive global changes, which more often than not happens with little or no notice at all.

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8 APPENDICES

Table 8-1: Summary of the SADC Member States.

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Source: http://www.sadc.int/index/pages 1- 58, accessed 15 January 2008

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Source: Angola National Private Investment Agency magazine

Figure 8-1: SADC Trans-frontier Trade Routes

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Table 8-2: Botswana’s Road Network

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Table 8-3: South Africa’s Road Network

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Table 8-4: Zambia’s Road Network

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*The length for TR included in D & PF roads. Unclassified roads estimated at 7-10,000 km are not included.

Table 8-5: Namibia’s Road Network

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Source: Sophia Belete – Tekie (2007)

Table 8-6: Malawi’s Road Network

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Source: Senior Executive Seminar 2005 – Birmingham University

Table 8-7: Mozambique’s Road Network

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Source: DFID Mozambique 2007 Report

Table 8-8: Congo DR’s Road Network

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Source: United Nations Joint Logistics Centre

Table 8-9: Tanzania’s Road network

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Source: Andreski (2005)

Table 8-10: Angola’s Road Network

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Table 8-11: Madagascar’s Road Network

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Source: Robinson (2008)

Table 8 - 12 : Lesotho’s Road Network

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Source: Africon, Central Bank of Lesotho (2006)

Table 8-13: Swaziland’s Road Network

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Source: Dlamini (2006)

Table 8-14: Zimbabwe’s Road Network

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Table 8-15: Mauritius’ Road Network

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Table 8-16: Seychelles’ Road Network

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Figure 8-2: Sub-Saharan Africa’s Highways