? N - \~ f· \{ - 5" s q

PURLIC-PRIVATE PARTNERSHIPIN AFRICAIJ URBAN DEVELOPMENT

by

f.1aureen A~ Lewisled R~ Mill er

January 24, 1986

PUBLIC-PRIVATE PARTNERSHIPIN AFRICAN URBAN DEVELOPMENT

by

Maureen A. LewisTed R. Miller

January 24, 1986

Prepared for

U.S. Agency for International DevelopmentRegional Housing and Urban Development Office

East and Southern Africa

The views and interpretations expressed in this report are th~se

of the authors and should not be interpreted as the officialposition of the A~ency for International Development. Theauthors thank Fred Hansen and the other USAID staff andconsultants who provided much of the detail on countryexperiments in Africa. We alone, however, are responsible forthe accuracy of the information as presented here.

TABLE OF CONTENTS

INTRODUCTION ••••••••••••••••••••••••••••••••••••••••••••••••••

Page

SUMMARy ••••••• ................................................ 1

3 ~•

WATER AND WASTEWATER. . ~ .......................................URBAN INFRASTRUCTURE SERVICES ••••••• • • • • • • • • • • • • • • • • • • • • • • • • • • 4

7

•PUBLI C TRANS IT ••••••••••••••••••• ................. ~ ........... 13

PROMOTION OF SERVICE DELIVERY PARTNERSHIPS •••••I

SOLI9 WASTE REMOVAL: GARBAGE ••••••••••• / •••••• •••••••••••••••

...............21

23

PROMOTION OF PRIVATE ENTERPRISE DEVELOPMENT ••••••••••••••••••• 25

CONCLUSION •••••••••••••••••••••••••••••••••••••••• "••••••••••• 32

/ I ./SUMMARY

Public Service Provision

Experi~nce in Africa and throu~hout the world shows thatinvolving the private sector in provision of urban water,sewerage, public transit, and refuse disposal services can reducesubsidies and increase coverage. Private sector involvement inpublic service provision through operation and maintenancecontracts with government can improve service quality andquantity in the four public service areas. Smaller scalecontracts for specific subactivities can be equally helpful.

Outright responsibility for public services by private firmsis rare even in the developed world, but examples exist inAfrica. Indeed some of the most successful African waterauthorities (Ivory Coast) are privately run under governmentoversight, and private contracts to operate and maintain publicfountains in Kenya and the Ivory Coast have proven successful.Similarly, some of the most reliable and convenient transitsystems are largely privately operated and pUblicly regulated(Liberia). Elsewhere, many of those at the lower end of theincome scale often buy water and transit services at premiumprices from illegal private providers.

Government responsibility for public service prOV1S1on, and~ private sector efficiency and flexibility in operation and

maintenance provide an ideal basis for a pUblic-privatepartnership in water and transit. Lack of demand for sewerageand refuse disposal limits the ability of private providers inthis sector, although contracting with private donkey-cart ownersto collect garbage has been shown to cut costs (Sudan).

Private Enterprise Development

Economic growth is not easy in sub-Saharan Africa under thebest of circumstances. Profitable opportunities often onlydevelop through patient pUblic and private nurturing. Governmentcan stimulate and increase the success of. private investment ineconomic growth by improving the development climate, increasingthe availability or reducing the cost of necessary inputs, andproviding subsidies.

Activities that sometimes are appropriute include: reformof national macroeconomic policies, establishment of a singlelocal location where busines~es can apply for all necessaryapprovals and licenses: business visitation programs and needssurveys: support of private capital markets and assistance tosmall firms in accessing capital, banking of industrial land: and

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development of public buildings, often with some shared equipmentor services, to house markets or new enterprises.

Issues Facing This Conference

The key issues for this Conference to discuss--basad on theexperiences of the countries present as well as ideas that havebeen evolving--about public-private partnerships in urbandevelopment include:

• How to create successful public-privatepartnerships in urban services.

W:at are the constraints in Africancountries that inhibit a partnershipbetween government and the privatesector? What are the legal, cultural,bureaucratic, or other impediments? Arethese amenable to change, and, if so,how?

What private sector roles are appropriatein the delivery of water, sewerage,public transit, and refuse removalservices?

Given national context and theconstraints, what kind~ ofexperimentation might assist governmentsto detet~ine the viability andadvantages/disadvantages ofprivate-public partnerships? Can thesebe attempted on a small scale to providepolicy guidance to decisionmakers?

• How to improve the climate for promotingprivate enterprise development in Africancities.

What are the roles that publicinstitutions should play in privatedevelopment?

How can subsidies be minimized whilemaintaining government promotion ofprivate investment? What types ofsubsidy can assist private investors,place a minimal burden on government, andprovide incentives thc.c promote efficientsubsidy use for the agreed purposes?

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How can the effectiveness of goverrmentsubsidies be traced and evaluated? Dothey result in workable ventures? Howcan success be assured?

What steps are needed to achieve betterallocation and use of capital?

INTRODUCTION

Throughout the world, people are learning that neithergovernment nor the private sector has enough money and skill togo it alone in urban dev~lopment. The public and private sectorcan achieve much more as partners. The best partnershipsintimately involve all those interested in urbandevelopment--central gov~rnment, local governments, financialinstitutions, large corporations, small busine~ses, and localresidents.

Public-private partnerships offer strong advantages over alargely public approach to both service delivery and e~onomic

growth. By committing their capital and management resources toa common goal, the public and private sectors can more easilyassemble the critical mass of resources needed for success.Conversely, when the two sectors work at cross-purposes, theywaste scarce resources.

The majority of this paper discusses urban infrastructureservice delivery. When public services are unable to keep upwith rapid population growth, the private sector often steps into fill the gap. This has occurred in much of Africa and much ofthe developing world despite concerted efforts by centralgovernments. When private service enterprises are illegal, itmakes them risker, but it rarely stops the informal sector fromoperating. Informal operations, of necessity, charge higherprices to cover their higher risks and are less readily held toaccount for low quality than formal enterprises are. To theextent that informal providers ca:l be formalized and heldaccountable, the public, and especially the urban poor, willbenefit. One of the key areas for discussion at this conferenceis how to achieve more formal private involvement ininfrastructure service delivery given the many vested interests,both public and private, in the current systems.

Private sector activity is the central component of urbandevelopment and economic growth, yet many governments do notcreate a fertile environment for business growth and jobgeneration. They impose costly regulations, cause unnecessarydelays for private developments, and reserve some activities forparastatals. Hostile development climates are a problem forcities in the developed countries at least as much as they are in

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Africa. Developed and developing countries also share confusionabout how a city with limited resources can best encourageprivate enterprise development without jeopardizing publicobjectives. A second key area for discussion at this conferenceis how to improve the climate for and promote private economicdevelopment in African cities.

URBAN INPRASTRUC'l'URE SERVICES

African cities are growing very quickly, often three to fivetimes as fast as rural areas. Urban population in sub-SaharanAfrica is expected to increase from 89 million to 262 millionbetween 1980 and 2000. This rapid growth often will overwhelmlocal capacity to expand infrastructure service delivery.

Why a Public-Private Partnership

Soaring demand for infrastructure services is forcingAfrican governments to make some hard choices, especially inthose countries where the public sector traditionally has handledall service delivery. The key problem is that capacity expansionrequires major investments of capital and skilled personnel, butthese resources already are stretched thin in the pUblicsector. The private sector potentially can help fill the gap.The limited experience to date with formal pUblic-privatepartnerships for infrast~ueture service delivery in Africasuggests that the private sector is willing and ab~e to help meetinfrastructure service demands. Several recent evaluations ofservice provision in Africa support this conclusion (Cow3n, 1984;Hanke, 1984; Marceau, 1985; and Roth! 1985). .

The public and private sector both have drawbacks as serviceproviders, and neither is likely to be an ideal provider on itsown. Only public sector providers generally will consider equityor address needs that benefit the community without contributingto profitability. They also will not overcharge for serviceswhere there is no competition. On the other hand, privateservice providers are not restricted by civil service regulationsand bureaucratic administrative structures. Private providers,especially in systems with competition, also have the greatestincentives to be efficient and keep down costs. In the UnitedStates, for example, private operating costs to supply water are25 percent below public costs because of higher laborproductivity and more efficient utilization of capital (Crain andZardkoohi, 1978; Morgan, 1977). In Africa, the commitment ofmany governments to keeping rates stable, even if costs andsubsidies are rising, further discourages cost control.

Involving the private sector in infrastructure serviceprovision, thus, can increase efficiency and population coverage

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while reducing unit costs (Hanke, 1984). Particularly promlslngpossibilities are the use of the private sector to coverexpanding service areas, and contracting out of activitiesrequiring specialized skills.

Parastatal organizations often can improve the efficiency oftheir operation by adopting market principles and competing withprivate firms. This implies linking expenditures to revenues andestablishing production incentives for management andtechnicians. Such reforms can improve the financial health ofthese governmental institutions and reduce their reliance onsubsidies.

Legalizing activity of private indivi~uals and firms is afirst step in "privatization" of public services. The publicsector then can set standards and oversee activity and possiblypricing. The combination provides the best of both worlds: theincentives for high value from the privatp sector and the equityand access demanded from government. However, this approachrequires dropping restrictions on the private sector andregulating it effectively.

A source of reluctance in opening up public serviceprovision to private firms is concern oqer pricing policies.Governments have been sensitive to the needs of low incomehouseholds and have priced services accordingly. If services goprivate, how will it affect lower income families? First, given

~ evidence detailed below in water and pUblic transit, low incomehouseholds are willing and able to pay for services they deemnecessary, and will pay a premium to obtain them. especially inwater and transportation, black markets and informal serviceproviders thrive in low income areas in Africa because cheaperpublic service~ are unavailable or involve unacceptable time andwaiting costs. Furthermore, "free" services in any society arepaid for by taxpayers: if only the upper classes are receivingwater and sanitation services, the poor subsidize theirconsumption. The inherent inequities in most public servicescall for alternatives that will lower costs and extendcoverage. A public-private partnership will foster thatobjective.

Roles of Public and Private Sectors in Orban Development

The private sector usually allocates resources efficientlyand produces at the lowest cost where markets exist andcompetition is flourishing. Where "market failure" occurs,government often can fix the problem. For example, where anatural monopoly exists, that is where costs will be higher ifmore than one firm lis involved, government can regulate activityin the sector to keep prices down and maintain qualitystandards. A good example is that it is inefficient for two

I

=

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firms to put redundant water pipes in a single area. Generallyservices like telecommunications, water and wastewater pipenetworks, and electrical lines also can benefit from economies ofscale--it is cheaper to expand a network than to build a small,independent network--so that dividing up the market is determinedby both efficiency and cost.

Private firms usually can provide services to privateindividuals more efficiently than the public sector, largelybecause their survival depends on meeting the needs ofconsumers. Flexibility, cost savings, and jUdicious pricing areessential to survival since competitive forces drive out firmsthat are sloppy, unresponsive to demand, or greedy. Thus, acompetitive environment creates strong efficiency incentives.

Where government has suppressed competition through legalaction and the public system is not serving some residents, ablack market often flourishes. Examples in pUblic transit(Kenya, Sudan, etc.) and water supply (Senegal, Kenya, Benin,etc.) point to the high demand and inadequate public suppliesthat support an informal sector response. Best documented is thevast underground economy in Peru that has emerged as governmentregUlation and control have strangled activity through formalchannels (Roth, 1984).

Where the public sector will not or cannot meet publicserv~ce needs, or where cost considerations require alternativedelivery, public oversight can ensure that government objectivesof fair pricing and equal coverage are met. Government can meetits objectives of equity through parallel efforts in taxation,subsidies from the better off to the less well off, andrequirements imposed on design and delivery of services. Forexample, government can subsidize the water sold to distributorsserving lower income populations, and subsequently regulateprices, as is done in a number of Latin American countries.Similarly, surcharges on piped water that only serves middle andupper income households can finance the subsidized water.

Thus, a number of alternatives involve the private sectorwhile still meeting public objectives. These imply apublic-private partnership. How a partnership should bestructured is a function of the public service area andconditions in country, although the nature of the serviceprovided and the commonality of conditions that exist rn varioussectors of developing countries do provide some guidelines.

The following sections detail the current structure ofpublic service provision in water and sanitation, public transit,and refuse collection. In each, the apparent strengths andproblems are detailed, followed by discussions of the extent of

'"1'0

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private sector activity, constraints thereon, and ways apublic-private partnership could be implemented to reduce theproblems.

WATER AND WASTEWATER

The private sector's role in water and sanitation occursthrough direct government endorsement of private activity,through contract and leasing arrangements with governments, andby default where public authorities have been unable to supplywater to some residents. The public sector currently supplieswater to urban residents in developing countries, but often isunable to cover many lower .income households. In response theprivate providers, operating outside the law, supply many ofthese households. This section argues that public-privatepartnerships in water supply will benefit society, lower costs,and raise the quality of water supplies.

Background

Developing Countries. In the developing countries, publicauthorities have committed themselves to providing water to urbandwellers. Sanitation, although a necessary complement to watersupply, has been neglected due to low demand by residents and thehigh costs of installing a permanent pipe network and associatedtreatment facilities.

Table 1 shows how much of Africa's water sup~'ly needs thepublic sector has met. Between 1970 and 1980, the proportion ofthe population covered by water supply services in most Africancountries rose considerably. Especially notable are places likeLesotho and Senegal where the percentage covered doubled ortripled even though the population grew rapidly. Overall,coverage in Africa rose from under 20 percent to almost 29percent of the population.

Data from 1980 suggest that public water pr~V1Slon in Africais almost exclusively urban. Urban coverage ranges from 35percent in Cameroon to 90 percent or more in Uganda andBurundi. In Africa, access is most likely to be in the form of awater standpipe. In contrast, in the entire developing world,almost twice as many people have household hookups as have accessto standpipes. Africa as a whole also lags behind the rest ofthe developing world in water supply coverage. Only 60 percentof its urban population have access to "safe" water.

Although Table 1 provides information on the estimatedproportion of the urban population served by water services,these figures can be misleading. Existence of a water pumpwithin a given radius of a dwelling neglects the common

TABLE 1l'DCRRT 01' SUB-SAHARAN POP1JLATIOR'

VIm ~CCJ!SS TO SAlE VArIm IB UKJWf AJlEAS

Percent of Urban Pop~lation

% of Total %of TotalPopulation Population

- With Safe With Safe With House With Total-Water Water Connection Stand- With Safe

(1970) (1980) (1980) p~sts Water

Chad 27.0 26.6 43Ethiopia 6.0 14.7 58Somalia 15.0 31.4 58Mali 9.8 20 17 37Burundi 21.4 22 68 90Rwanda 54.7 30 18 48Burkina Faso 31.6 16 11 37Zaire 17.9 11.0 43Malawi 41.0 53 24 77MozambiqueSierra Leone 12.6 12.0 20 30 SOTanzania 42.2 13.0 88Guinea 14.5 16 52 68Central African Rep. 19.4 40Uganda 22.0 35.4 100

...... Benin 20.2 10 42 52Niger 20.0 32.8 28 12 38Madagascar 11.0 20.1 19 61 80Sudan 46.0 49'rogo 38.8 14 56 70Ghana· 47.0 26 46 72Kenya 15.0 24.8 S9 26 85Lesotho 3.0 14.1 24 13 37Mauritania 61.0 83.9 20 60 80Senegal 12.0 38.0 33 44 77Angola 25.8 30 5S 85Liberia 25.1 64Zambia 37.0 46.1 86ZimbabweCameroon 26.6 3SCongo, People""s

Republic 27.0 18.0 40Ivory Coast 23.0 50

Africa Averagetoe Average

19.636.7

28.552.2

25.822.9

37.470.3

61.244.9

Source: Inder K. Sud (1984).

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occurrence of broken or otherwise inaccessible service.Similarly, household connections do not guarantee service orwater quality since insufficient water pressure, water shortages,system leakages through illegal taps, and deterioratinginfrastructure severely affect the operation of the system forany individual household; and such breakdowns are frequent inmost toes.

Public water supply is reasonably efficient in parts ofAfrica. Most notably, Botswana's parastatal Water UtilitiesCorporation is in a league with the best water authorities in thedeveloping world, including those in Tunisia and Singapore. Thiscorporation operates with minimal political intervention. It hasefficient, decentralized management and tariffs that are adjustedas necessary to maintain full cost recovery (Hewitt, 1985:Raphaeli et al., 1984)

In some countries, central government policies have led ~o

large-scale hirings of workers without appropriate skills (see,for example, USAID/Cairo, 1985). Without a strong trainingprogram, this approach risks creating a staff that cannoteffectively operate or maintain the system. Indeed, staffquality in pUblic water supply and sanitation authorities is amajor concern of both tocs and the donor community (Gonima, 1985;USAIO/Cairo, 1985; Rosenzweig, 1985~ Hewitt, 1985).

Problems also arise when the central government must approvefurther tariff increases. Although government policy is one offull cost recovery in African countries like Somalia and Zambia,political pressure rather than financial needs have determinedgovernment action in the past (Hewitt, 1985). Because raisingthe cost of water can be politically damaging, governments haveinstead shifted the burden to taxpayers by subsidizing the watersupply system. Moreover, although identifying and sanctioningnonpayers is critical to cost recovery objectives, thetransgressors often are government ministries which cannot bepenalized. Thus, water authorities are impeded from both settingrealistic charges and collecting those that are imposed.

Sanitation coverage in tocs lags well behind water supplycoverage. Piped wastewater is not a readily affordableservice. Although the health hazards associated with accumulatedstagnant water, used water runoff, and fecal accumulation mayjustify government-subsidized activi.ty, interest in investing inthis service is minimal. Private sector involvement insanitation :Ln LOCs is concentrated in on-site methods such as pitlatrines, s~~tic tanks, and cesspools.

Developed Countries. The developed countries are generallydominated by publicly owned and operated water and sanitationfacilities. In the U.S., although 60 percent of community waterfacilities are investor-owned, they represent only about a

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quarter of total water supplied. All water authorities in theu.s. are regulated t' but thef ar,~ usua.lly managed al~d operated bya private fi~~. In the wastewater sector, some municipal waterauthorities do an undocumented but modest amount of contractingwith private firms (Bendick and Hatry, 1982: Hanke, 1984).

In contrast, private firms are responsible for about 55percent of all water consumed in France. Historically, Frenchmunicipalities hired firms to construct, manage, and operatewater supply systems under long-term contracts or built thesystem thems~lves and contracted out the operations andmaintenance. The latter method is being used increasingly due tothe availability of concessionary financing for municipal capitalinvestment. The private sector also provides sewerage servicesand water treatment under contract to munjcipalities.

Services typically contracted out under medium- or long-termcontracts in the developed world include ~eak detection,operation of a water treatment plant, meter reading, customerbilling, or data processing (Bendick and Hatry, 1982).

A rec~nt study in the u.s. noted two reasons of relevance toLOCs for involving the private sector: public sector difficultyin keeping operating costs down for complex facilities, andshortages of qualified operators and managers given restrictivemunicipal salary levels (Lorenz, 1982). Private firms canattract and retain skilled personnel better, and competition

~. among firms for government contracts keeps costs down. Thegreater complexity of technologies in the o.s. may increase thesedifficulties, but the sparse evidence available in the LDCssuggests similar improvements with the involvement of privatefirms. .

Public-Private Partnerships in Water Supply andSanitation: Approaches fro. Africa and Other LDCs.

Public-private partnershipgoverned by the pUblic sector'sthe publicly controlled system.activity, however, is not boundgreat extent, and private waterLoes.

in the formal sector is largelypolicies, and the efficiency of

Informal private sectorby government policies to anyvendors operate illegally in many

Numerous legal arrangements have demonstrated the advantagesof public-private partnerships in the provision of watersupplies, and the best example is in Africa. The most private ofLoe water authorities is that of the Ivory Coast where SOOECI(Societe de distribution d'eau de la Cote d'Ivoire), a privatecorporation based on the French model, operates and maintains

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Abidjan's water supply. Just over half of SODECI stock iscontrolled by a combination of the government (3.25%) and Ivoriannationals (47.6i).

SOOECI pipes water to 91,000 purchasers directly andsupplies far more through sales at 40 public fountains. Thefountains include coin-operated pumps that SOOECI'monitors toprevent vandalism and ensure proper and timely maintenance.Although impressive, this sys';em has not kept pace with Abidjan'srapid growth to 2 million inhabitants (Dei, 1985). In response,private water vendors have proliferated. They obtain water atpublic fountains, from private connections to the SOOECI syste.n,or from illegal taps into the system that circumvent payment,then sell it at very high profits. In response, SODECI plans toinstall additional fountains to capture more of this profitablesegment of the water market. The competition among water vendorsis leading to service improvements and a higher quality ofservice that would not have occurred with a government monopoly.

The characteristics of the Ivory Coast's water andsanitation system differ sharply from the rest of Africa and mostof the developing world. Although like almost every othersystem, the entire population is not covered, SODECI operates ata profit (including capital costs) and has impeccable operationsand maintenance records, minimal water loss, and full costrecovery (Dei 1985; Golladay, 1983; Bendick and Hatry, 1982). Asa regulated monopoly, SODECI is able to~rovide a reliable, highquality water and sanitation system.

Another successful public-private water system is developingin Kenya. There, private marketing of water at government kiosksis ensuring continued operation and maintenance. This system haseffectively met the needs of low income households. It providessubsidized water, while at the same time creating incentives forcontinued pump operation.

In most cities in the developing world, water vendors fill a.gap in supplementing the government's urban service, whether ornot they are endorsed by the government. Where urban dwellershave no access to publicly provided water supplies (let alonesafe supplies), private purveyors of water using trucks orsmaller receptacles haul water for distribution at either centrallocations or to individual dwellings. These activities have beendocumented in Africa in Benin, Senegal, Somalia, Kenya, Nigeria,Ivory Coast, and Niger (Dei, 1985: Hewitt, 1985: Roth, 1985:Winter, 1983). The cost of trucked water is much higher thanthat of piped water. Table 2 shows the cost of vended water forthe African countries for which there are data. In the Kenya andSenegal samples, 90 percent relied on water vendors for theirwater supplies, and in Kenya households spent over 30 percent oftheir cash income on water. Purchasing water from private

~AlLI 2aJIISUMDS PURCHASING nOlI VATBI 9BIIDOas*

Volu.eTotal voluae Percent purchased fro. ~ercent

Average consu.ed dally households vendor dally Prlce/Utre HouseholdStudy household per capita served by· per capita vended water IIOnthly

Malle population size Sources (1) vendors (1) (US $) Incoae

Dlourbel. Senegal 100 10 Open weil, piped 2 90 1 0.008 J.,stea. vending

All Katan. (refugee 16.000 5 River. piped 4 10 1 0.150 )]0caap) SowaU. syste•• vending

Handera. Kenya 11.000 6 River. Irrigation 1 90 1 0.040 )]0canal. rainwatercollection. piped.yatea. vending

Ganklda. NigerIa 10.000 16 River. open well. n.a.·· 15 n.a. 0.020 n•••rainwater collection.vending

Ibl. Nigeria 5.000 6 Protected veil. open 8 40 5 0.040 )]0well. rainwatercollection. vending

lIoundlaU. 15.000 10 Open well. rainwater 11 50 6 0.005 ]

Ivory Coast collection. pipedsyste•• vending

Culdan RouondJI. 3,500 9 Open well, river, 9 40 8 0.001 26Kiger rainwater collection,

vendIns

.* Data were collected through questionnaire distribution to Peace Corps and voluntary organizations In 'each co-munlty.

.* Not available.

Source: Zaroff and Okun. 1984.

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vendors, although costly, is unavoidable where natural or publicalternatives do not exist.

In addition to the water vendors, other means of workingwith the private sector have been attempted. Table 3 summarizesthe kinds of experiments undertaken in Africa and elsewhere inthe developing world, and shows the role of public authoritiesand the costs to customers of each delivery method. Few of theseexperiments have been evaluated to any great extent, although inevery case where private firms have been brought in to eithersupplement public water provision or undertake some aspect ofmanagement and operation, efficiency has increased, bringing moreoutput for less money. Experiments in Bolivia (Roth, 1985), theDomiaicon Republic (Roth, 1985), and India (Golladay, 1983) allshowed sharp improvements in the quality of water service.Interestingly, private sector involvement in Chile and theDominican Republic has improved quality and speed of serviceexclusively since prices are fixed (Roth, 1985).

Options for Public-Private Partnership

Some of the most promising efforts to provide more water forlow income households are Kenya's water kiosks and the IvoryCoast's coin-operated water standposts, both of which areprivately operated and maintained. Another promising model, usedin Chile and the Dominican Republic, is to contract out water

~ delivery for portions of a city sized so that they can be handledeasily by more than one competing private firm. This system isparticularly applicable in those African countries where thegovernment has accepted that it cannot cover the rapidly growingurban population. Contracting out for specific activities thatare most difficult for public entities to accomplish, such asmeter reading and billing and collections also is worthconsidering. Where such experiments have been undertaken, theyhave improved operations and produced solvent systems. Theeffect of greater reliance on private firms on coverage for lowerincome individuals is unclear; however, the poorest householdsnow generally are buying water from the informal sector at ahigher cost than better off families pay for public water, sothere is little to be lost by experimenting in this area.

Constraints to Private Sector Activity

The only acceptable form of private water marketing that ispossible without specific government concurrence is truckedwater. Any other form requires rights of way and other approvalsfrom government agencies since it entails building or tapping apipe network. Thus, the private sector has few options withoutpublic endorsement.

i

'I'PBU: 3Altemat.lw IbJels of ~l~ivatePartnerships in l'l'cWlsion of lIat.et' !q)ply in IJ)QJ

Form of water PraYisionConcession systEm \lIlhere publicauthority contracts with apcivate cotlPiUly for: 30 yearsoc so for construction,operation and maintenance ofdrinkirg water. QJupany is aregulated monopoly, and IRUStrecover capital and operatil'¥}costs. (Demick and Hatry,1982: Roth, 1985)

The Affermage system entailsmmicipal oonstruetion of thewater systeM and a long-temoontract with a private fimto operate and uintain it.'l1le o::aapanY a&S\nE!S all therisks of operatiat. (Bendickand Hatry, 1982)

Territorial concessim forJo-yearsor: no:-e foe waterpipe netWOl:k in larger cities.CbtIpany, procures, purifies,d istrlhutes, lleters anddlarges for water. (Roth,1985)

nx.tractlnrj out for specificactivities such as Ileterread iDJ, CXlftlP.ri:er services ,and billiB) and collectim.

<bmtriesEstablished in senegal, Olngo,Guinea, Madagascar, 'lbgo,Ivory Coast in Africa. Afterindependence, only Ivory Coastretained the system, whichcawerted to ilffermage systemin 1973.

Morocco·Ivory <bast (as of 19131

OlileQlatetU1a

O1i1ePeruSri Lanka

(bvemment's RoleIn the Iwry <bast, (jOVernnentcontracts with saJtX:I,** forspecific source, quality amlevel of water SUWlyservices. G:Jvernnent receivesaround SO, of revenues am hasa 4t ownership in the firm.

Q)vernnent contracts forspecific set of services toSOOtX:I in Ivory coast.

Tariffs are ilRJroVed by theMinistry of llUbUc W:xJcs andqual ity ClOIltrol oversight isvested in three publ ieagencies (OdIe); qualityoontrol provided by Ministryof Health (GJatemala).

tbt available.

CbstIn 1982 Ivory <bast systemcharged 221 CFIVcubic meter.Prices set at a oost pluspercentage proUt basis.

set of rules which guidesettil¥J of price; surchat:\]e onwater fees paid to themunicipalit.y to repayoonstruetion mats.

u.s. $30/Jlalth for l-indlpipe. u.s. $65 for: Wrinchpipe plus u.s. $.86/cu. meter(Olile), u.s. $.20/cu. meterfor an initial supply and u.s.$.45/cu. meter for anyexcess. (Guatemala)

Nlt available.

Fona of Water PrOllision Couttries

.'INJlB ] iQJnt inued)

Olvernnent '8 Ible Qlst

LaDje-scale truckiBJ ofwater. Private veR:brs mtainwater fran private sources,plrify and package the waterfor sale. (lbth, 1985;Winter, 1981)

Water o.JOPeratives tolhere thecooperative usually builds amalways owns the pipe networkam is respJrlSible forOlVering capital, operations,am maintenance mstswittnutany smsidy. (lbth, 1985)

Water vendors at a meteredstandpipe (kiosks) sells waterby oontainers. Hater is soldto a licensed verd>r at asmsidized rate. (lbth, 1985)

Cbin operated llleters at waterstandposts. StJI:plied ammaintained by SX:S:ISWoontract to a pdvate<napany. ~rator guards andmaintains each unit. (lbth,1985)

Water vendors sell waterdoor-t.o-dJoc. (Zaroff-<kun,1984)

lbainican Republic. SimUarsystems CDlihOil in Jordan,Ecuacbr and EI Salvador

Santa Cruz, Bolivia (othersespecially in Latin Americaand the Middle East)

-...

Kenya

Iwry OJast

Il:lctnented for Senegal,Saaalia, Kenya, Nigeria, IvoryCbast, Benin and Niger inAfrica

In the Ikminican Republic,goverment regulates the 10fiDmS active in water salesan) inspects product weekly.

GoITernnent approves tariffs.

tbt available.

Private water supplyJmplementln:j cxmpany undergovernnent oontract (SClECI)operates system (see Affermagesystem above).

tb governnent lnvolvement oroversight.

In the Ikminican RepJblic,price varies by ~ity ofwater but all charge themaximun allowed by govemnent.

u.s. $.035/cu. meter (1983) inSa:]uapac cooperative outsideSanta Cruz.

tilt available.

u.s. $.02/25 litres.

u.s. $.OO~.S. $.lSO litre,or frail 8' to over lOt ofblusehold .lncxme.

• Mxocro's current affert!lalJe oontract nov only involves supplyin] water to the Casablanca and TClf¥Jiers water authorities.

.. SCDfX:I stands for Societe des Eaux du Cbte O'ivoire.

Source: 'l1le Urban Institute.

Government oversight also can pose difficulties if politicalends are to be met. Shifts in government leaders can modify therole and scope of private activity in the sector. Wherepermanent infrastructure is put in place, there is always a riskthat government will nationalize or otherwise jeopardize thp.investment. Similarly, a private water supplier must be free toset economically sound rates and take action against all who failto pay promptly. From the private sector's viewpoint, theprimary drawback to involvement in water supply provision is theunpredictability of government policy and actions.

Summary

The material reviewed here ~}d the experience of LOe watersystems in general supports several conclusions:

~'later vending is COlLmlOn in developingcountries, which suggests that chargingfor water is not alien or culturallyunacceptable. Demand for wastewaterservices is law, and it is doubtful thathouseholds are willing to pay for theseservices. Surcharges can be imposed onwater usage to cover these costs.

Incentives are critical to soundmanagement of wat~r supply and sanitationservices. They are typically part af thestructure of private firms, but are rarein publicly run systems.

The private sector's role in theprovision of water supply and sanitationcan be extensive and caninclude: undertaking construction,management, administration, or operationsand maintenance, or components of any ofthese. Oversight of private activity andquality control of operations by publicauthorities is essential to maintaincompetition and ensure proper and fairoperation. Such arrangements can beundertaken through long-term contracts orleases.

Public efforts to supply water can besupplemented by a government-regulated,parallel system to increase the amount ofwater available and to introduce anelement of competition into thissystem. Normally these systems involve

'....

,

I -

trucked water, but private sales outletswith pipe infrastructure should beencouraged where feasible, since they areefficient, easily monitored means ofincreasing the supply of water.

Even where the public sector decides tocontrol and operate the water supply andsanitation system, some partnership withthe private sector is possible throughcontracting out specific tasks such asbilling, metering, maintenance of variouscomponents, or tracking water losses.

Water supply is an ideal activity for a pUblic-privatepartnership. Both entities have comparative advantages that arebest applied in conjunction with the other.

PUBLIC TRANSIT

Privately operated public transit systems exist in virtuallyevery ccuntry, whether legal or not. Where the public sector hasdecided to become the sole source of ~ublic transport withincities, private companies frequently are prohibited, and thegovernment buys up existing operators. Because public transitservice and routing rarely have matched demand, an informalprivate sector generally has established an alternative serviceand captured a significant part of the market. This suggeststhat the private sector can play an important partnership rolewith government. This section discusses the quality and breadthof private, public, and public-private transit operations inAfrican cities, and concludes that the private sector is acritical component of transport in cities, even where governmenthas established a public monopoly.

Background

Developing Countries. since the shift toward governmentdominance in urban public transport was well underway in thedeveloped countries in the 1940s and 1950s when transit was putin place in much of Africa, most countries elected to establishpublicly operated systems. With few exceptions, over the courseof the next few decades the private sector, either legally orillegally, established its own parallel system to compensate forthe flaws and drawbacks of the pUblic system. Thesecomplementary efforts provide much needed services to areas ofAfrican cities that are not served or are poorly served by publicsector services. Simultaneously, the public bus networks haverelied increasingly on central government subsidies. In everyAfrican country, government is involved in urban transit, either

I

- 14 -

as direct provider or as regulator and overseer of privateactivity.

Developed Countries. In the early part of this century,urban transit in most cities of the developed world was placed inthe hands of private bus and streetcar companies under monopolyfranchises. The "jitney" services operated by privateindividuals in small vehicles commonly found in developingcountries were prevented from competing along fixed routes withthe franchised companies. As the growth in private automobileuse after World War II eroded the profitability of the privatetransit monopolies, they were gradually brought under publicownership and operation. Public policies aimed at maintainingextensive service coverage and keeping fares down led to steadygrowth in public subsidy requirements, to the point. whererevenues now typically cover less than half of the capital andoperating costs of urban transit.

Research studies on these pUblic transit systems haveconcluded that public ownership and operation have not broughtthe scale economies and management efficiencies that wereoriginally expected. To the contrary, transit costs haveincreased steadily in real terms, productivity has declined, andservices .have failed to respond to shifts·in demand away fromtraditional radial routes. Numerous demonstration projects haveshown that returning transit services to the private sector couldreduce costs and produce more responsive services. This will notoccur, however, if the entire system is contracted out to asingle large provider, where no other provider is large enough tocompete for contract renewal, or if pieces of the system arecontracted out using a 15- or 20-year contract term.

Major initiatives are underway in the United States andGreat Britain to replace the current reliance on the publicsector for urban transit with creative public-privatepartnerships that include competition for and along routes.These efforts often have been vigorously opposed by publicemployee unions trying to protect jobs, wage levels, andbenefits.

Characteristics and Problems of Public Tran~it

Almost everywhere in the world that government owns andoperates the transit system, deficits, inefficiency, and poorservice quality are the norm. The almost universal practice ofgovernment fare setting has c~eated high deficits, artificiallylow prices, limited operating revenues, and limited supplies,which together guarantee rising government subsidies.

Private systems obviously do not operate with subsidies andcannot rely on government bail-outs if they fail to meet their

- 15 -

costs. Furthermore, since the capital costs of entry are small,private transit must meet the needs of consumers or competitorseasily can replace them. Indeed, where government controls theprice of private transit, as is true in Liberia, Zimbabwe, andthe Ivory Coast, the private companies compete with the publicsystem on the basis of quality, speed, and convenience. Despitecriticism of the informal sector regarding their high accidentrates, questionable operating practices, and unsafe vehicles,private providers flourish. This pattern, for example, isevident for the Matatus in Kenya, the Gbakas in the Ivory Coast,and the Bakassi in Sudan--the jitneys operating in the respectivecapitals.

The relative efficiency of public and private transitoperations has been exam1ned in a number of countries. Thefactors used in the comparison include labor productivity, costof service, revenue generation, and total vehicle miles.Application of these criteria to the public and private bussystems in Abidjan, Puerto Rico, Bangkok, Buenos Aires, Cairo,and Calcutta reveal clear advantages for private systems (Roth,1985; Hanke, 1985).

The quality of public transport in Africa rarely has beenevaluated, although where it has, it is characterized by longwaits and overcrowded vehicles (Sudan), and inappropriate bussize (Zimbabwe). An indepth assessment of pUblic and privatetransit systems in Kuala Lumpur, Malaysia by Walters (1979)

~ measured the quality of public transit, and found the benefits ofpublic transit were limited severely by long waits for busservice. The heavily subsidized public transit systems oftenonly cover major routes of the city, partly due to the generallylarge size of the buses. This means that the subsidized servicesare more likely to serve middle income residents than the poorwho live in harder-to-reach areas where smaller vehicles are moremanageable. Hence, the needs of the lower income residentsgenerally are met through private entrepreneurs and companiesoperating at unsubsidized prices comparable to or above ratescharged by public providers.

Overall macroeconomic difficulties have added to theproblems of public transit operations. Spare parts, an essentialcompone~t of an operating transit system, are hard to come bywhere foreign exchange is in short supply. Local production ofsuch items is difficult, if not impossible. Private companiesoften manage to obtain needed parts through the black market. InSudan, for example, over half of the public bus fleet is dormantwaiting for parts, but the "parts shortage" has made little dentin the supply of private vehicles. The poor maintenance ofinformal sector vehicles where government does not inspect carsor buses, however, has contributed to accidents and breakdownswhich impede traffic. Complaints of this sort in Kenya and the

- .:) -

Sudan have produced a negative image of the informal providersbut have not affected their utilization.

Long-term planning to accommodate urban growth has lagged inpUblic systems, and meeting current demand has remained aproblem. Bus capacity is either too great, so the buses canserve only main roadways, or too small so that most trips areless efficient than they could be. Routes also do not alwaysmeet the needs of the population (although Zimbabwe, for one, hasattempted to design routes according to residence and employmentpatterns): and service is in chronically short supply, whichfurther reduces the effectiveness of public bus systems. Theemergence of informal transit networks attests to the inadequacyof the Qublic system, and has filled an important gap.

J

Public-Private Partnerships in Transit in Africa

The public transit arrangements in a' number of Africancountries are detailed in Table 4. As these descriptionsindicate, the range of public, private, and public-privatesystems is quite large. Arrangements include regulated privateproviders (Liberia), private franchises or operating agreementswith the government (Zimbabwe, Kenya, Ivory Coast), parastataloperations ( Malawi, Zambia, Senegal), pUblicly controlled andprivately operated systems (Sudan), and purely private systemswhere we were unable to learn of the government's role(Mauritius, Botswana, Somalia).

A clear pattern from the African experiments emerges here:only private transit systems are solvent: private companies areconsistently efficient: and private providers tailor theiroperation to the needs of the population much more than thepublic sector does. Competition from private entrepreneurs hasmet with lobbying from pubJ~c transit authorities to ban theseinterlopers. However, lack of adequate transportation servicesoften has forced governments to allow the operation of someinformal transit. Kenya and Sudan have capped the number oflicenses issued in an attempt to control the growth of theinformal sector without eliminating it.

The best-documented private sector effort is in Liberia.This effort provides a classic example of a regulated,competitive private transit network with minimal governmentinterference and minimal public competition. It is reportedlyhighly efficient and profitable even though its rates are set bythe government.

There are cases too of transit syst, ~s that have moved froma competitive private activity to a subsidized single-provideractivity, either public or private. For example, in the IvoryCoast, Abidjan was originally served by a conglomeration of

fO

'1NUB 4<bIIpBrimns of tkban Transit SyBtenIs in St.b-5aharan Africa

Botswana

Ivory Coast

Kenya

Liberia

structure ofUrban Transit System

Bus, mini-bus, am taxisare privately owned.Informal car shar in] is\..UlllaJll •

somA, Abidjan's bussystem, with majoritygoyernment ownership asof 1974. Illegal CXIlmOIlcarriers (<.bakas).

Franchised publIc bussystem in Nairobi with25' governnentownership. Matatus, aninformal but legalprivate transit systemusiO] light pick-~

vehicles, minibuses,lattje pick-ups ammidi-buses reachesriders in SlIaller ampoorer areas.

Privately-ownm taxicabs (12,146 cabs,approximately 2,000 inftJnrovia) hired out todrivers/operators at$30/day plus gasoline.Vehicle owner maintainsvehicles. Amual fixedfee tax and a road taxlevied on eachvehicle. '1tIe public bussystem, MJnrovia TransitAutrority operates 75large buses.

smsidy Status/()Jal lty of services

tb1e

S01'RA has been indeficit since 1975, amcannot serve IOOre out ofthe way areas.

P\bl ic bus <XJ11pany issolvent. Matatusreportedly veryprofitable despite thecost of frequentbribes. ()Ja1ityofvehicles and Hatatudrivers a concern.

Private bus and taxiservices rece ive msmsidy and are veryefficient amprofitable. Bus systemis swsidized am alwaysoperates at a deficit.

Ridership

tl:>t ava Hable.

In 1983, the public<Xlllpany carried 160,000people/day, <.bakas200,000 per day on t"-Oroutes.

....atatus serve about halfNaircbi's ridership. In1979, 1,550 Matatuscarried 66,000passengers daily.

Public buses serve 20%of pa5Sel'¥)ers intt>nrovia. 'lbe pdvatesystem covers 80% oftt:>nrovfa and the rest ofthe comtry.

(hst

tbt available.

(hsts are simUar inpublic and privatesystems, but the privategroup carrles Rnrepassengers am is IOOreproductive.

tbt available.

Taxi fares are fixed byzone with U.3. $.40 theminfmtl1l chartje. Busesoperate on fixed routesand chartje accordin.J todestination; u.S. $.25the minimll1\ fare.

Malawi

Mauritius

Senegal (Berg, 1981JMarceau, 1985)

SaMlia

Sooan (lbth,1985)

Structure ofUrt>an Transit System

Bus services are ownedand operated by thethited Transport Ltd.(Ul14) in wich theCjOVernnent is ashareholder. SnaIlprivate minibusescanpete with IJIM.

Bus service pew ided byseveral privately ownedcxmpanies. tb infotmalsystem exIsts.

Perfatmance (XJfJtractbetween the CjOVerrmentam the transportationparastatal. GJyernnentfixes its remurcea>ntr!but Ion. (}:)vern­ment has reduced thefleet of the coopera­tive, Car Rapides ofDikar, a privately ownedam operated systan.

All transit systems arepdvately owned.

Nlilcly-owned busccmpany, CapitalTcanspol:t (bnpany,suffers ftaft chronicspare parts shortages(less than hal f the 140bus fleet is inoperation at any onetime). LicensedBakassi, informal butlegal carriers who causetraffic disruptions butare a critical elementof «harroun's tnnsitnetwork.

.........

'IMIB 4 ("tinued)

Slilsidy Status/()Ja1 ity af 5ervices

tbt available.

Solvent and veryefficient

tbt available.

lble, reportedlyefficient system.

HeavUy Slt>si-lizedbuses. Cro\dedcon:Utions am 101'J]waits reduces «Jjal ity ofservice. Bakassi sufferftaft p::lOr maintenance,questionable driv iB.Jpractices and highaccident rate.

Ridership

tbt available.

100' of pml1ctransport.

tbt "available.

100' of publictransport.

tbt available.

..

<hat

<bvernnent has a say inrnt4 fare settil'J].

Cover full cost ofservice.

tbt available.

tbt available.

tilt available.

Structure ofUrban Transit System

Zamia'lbe Ulited Bus CanpanyLtd., a 100\ Slbsidiaryof the. parastatal ZIHCOdaninates pml ietransport. Pr ivatemin i-buses licensed andregulated by thegovernnent supplementthe publ ic sectorservice.

Z!nt>abwe'Ihe Harare Ulitedann ihus canpany (uu:x:)prov ides bus servicethrOll]h a 21-yearfranchise with the Cityof. Harare. Many of thefranch ioo agreements arenot adhered to and fewstipulations regardingqual ity are iOO ieated inthe agreement. '1beinfoa:mal sector includesmetered tax is, sharedrides, aRJ "pt'ivatetax is,· arrl canpetes onthe basis of speed andoonvenience •

Source: 'lbe Urban Institute.

j"

'!Mil: 4 (Q]ntinued}

SUlsidy Status/()Ja1ityof service

Publ ic bus ccmpany isheavily smsidized.Quality of pt'ivatevehicle service appearsto be quite good.

5erv ice was profitablean:) ccmpany financed itsown expansion lUltil <DZdec!ded to have theCabinet awrove fareadjustments. 'lbe systemoperates with 3.3employees per bus,possibly the lowest inAfrica.

Ridership

tbt available.

moc prov ides 41' of alltrips.

I ,

(bat

Infoa:mal vehicles charge100% of costfi, ampublic buses areswsidized.

Fares are distancerelated with shortdistances stDsidizil¥]10B]er rides.

'.....

private entrepreneurs. In 1960 a French firm was awarded aIS-year contract to provide urban transport services for thecity. The resulting regulated monopoly, SOTRA (Societe desTransports ~~idjanais), has relied on an assortment of vehiclesizes and developed a wide network of routes. Despite SOTRA'sefficiency and technical monopoly, the Gbakas, 100 kg trucksoperated by the informal sector, are a growing service thatcurrently carries about half of all rush hour passengers inpopulous outlying neighborhoods like Yopougon and Abobo. TheGbakas are more flexible, have longer operating hours, andpenetrate more deeply into the lower income neighborhoods whereroad conditions are poor. They effectively complement SOTRA'sservice (Dei, 1985).

In 1974, its last profitable year, SOTRA convinced thelJoverrunent to ban the Gbakas because of "unfair competition."Since then, transit subsidies have grown continuously as has theoperation of the now illegal Gbakas (Roth, 1985). In the future,~he government may consider legalizing and regulating the Gbakasrather than renewing SOTRA's contract.

A monopoly similar to SOTRA was created in Senegal where theparastatal franchise succeeded in convincing the government tooutlaw the private cooperative, Car Rapides of Dakar. The onlydifference in Dakar is that the government sets its subsidy levelto the parastatal in advance of actual service delivery, whichpromotes greater levels of efficiency and service.

Senegal's experience has ••• producedseveral useful lessons. First, effectiveuse of enterprise contracts requiresstrong support at the highest levels ofgovernment: individual ministers andsenior civil servants fear losing controlover public enterprises, inclUding thepower to make fairly routine decisions.Second, company contracts areenthusiastically endorsed by companymanagers, who see them as a means ofobtaining: (1) clear objectives on whichtheir performance can be judged; (2) aprecise definition of the role ofsubsidies and tariff increases' in companyoperations; and (3) a reduction in thediversity of company objectives. Third,the negotiation of company contractsshould be supervised by neutralgovernment staff who report to thecentral political authority_ Thus,conflicts between companies andgovernment authorities can be resolved bythe President or the Prime Minister.

- ~ I -

Moreover, once a company contract isnegotiated these neutral staff mustsupervise its implementation and exposefailures by any of the parties to fulfilltheir obligations under the contract.

The enterprise contract allowspolitical choices to be made in fullawareness of their costs: excessiveemploYment, or selling output below costswill be less likely to persist if theyare discussed in a forum of seniorgbvernment officials and management andif they are subject to codification in acontractual relationship (T}e World Bank,1981).

In Zambia the government licenses a~d oversees privateminibus service that functions along with the transportationparastatal, the United Bus Company Ltd.. The parallel systemappears to have provided Quality service, although the publiccompany is heavily sUbsidized. Nonetheless the regulation of acomplementary private sector improves overall transit quality andquantity. This model needs to be more thoroughly documented butappears to have promising elements.

Informal and smaller operators appear to better serve lowincome areas where people are clearly willing and able to pay fortransportation. Moreover, given road conditions, the smallerprivate companies are better equipped to accommodate specialroutes. Allowing these private operators greater scope couldreduce deficits, improve transit services, ensure bettertransportation access to the poor, and lower the cost of transitsince illegal black market services are provided at a premium.

Effectively, what a competitive pUblic-private partnershipencourages is a largely user-supported system, which should bethe long-term objective of transit systems. Government cannotafford to heavily subsidize transit indefinitely, nor can ridersbe constrained by public bus routes over the long-term. Sincecompetition has proven essential to successful transit systems,either a fully private or competitive public and private systemsare the most sensible approaches.

Constraints to Private Sector Activity

Constraints on private activity include three other majorareas in addition to the prohibition of private operators.First, the ingrained belief that transit services are a right tobe provided by government is a difficult constraint toovercome. It is the basis for the British government's

- 19 -

traditional dominance of transit. This impediment has beenovercome effectively in Sri Lanka where both a strong Britishlegacy and socialist leanings sustained a losing public systemfor years. The transit system in Colombo was revamped in thelate 1970s to permit a growing private sector, with firmgovernment regulation of safety, insurance, and vehicle­inspection. Transit subsidies have fallen and service hasimproved (Roth, 1985).

Second, the need to' service both profitable and unprofitableroutes traditionally has been used to justify a subsidized publicuetwork to cover areas that otherwise would not receiveservices. Given the evidence provided here regarding the role ofhigh-priced informal transit networks in poor areas, it is not atall clear that such a constraint exists. Moreover, governmentregulation often can ensure that all areas are served in exchangefor other privileges, or that profitable routes subsidize theless profitable sections of the city. Where they cannot, thebest policy may be to contract for service to unprofitableroutes, thus fixing subsidy levels up front.

Third, regulation of private providers is exceedinglydifficult in most developing countries, although it is key totraffic flows. Oversight of equipment safety, fares, and orderlyoperation is difficult for governments in developing countries,as is enforcement of traffic laws. Even in the Philippines wherepr'ivate "jeepneys" provide public transportation under government

~ regulation, the system was not working effectively because thegovernment's authority was limited in practice. Under a systempioneered in Olongapo City, a city of 220,000, route associationsfor particular areas have assumed much of the responsibiiity formonitoring carrier eligibility (based on possession of a driverslicense, a safe vehicle, and required insurance), preventingentry of uncertified vehicles, enforcing traffic laws governingtransit vehicles, and preventing fare gouging (Pak Poy andKneebone, 1984). Matatu associations also have proven effectiveat controlling entry, routes, stops and fares in Kenya, althoughthey have not been effective in improving safety or insurancecoverage. Ways to create incentives for self-regulation in thisregard, are a worthwhile topic for discussion at this conference.

Summary

The private sector has a role to play in urban transit andcan help to rectify the inefficiencies of single-providersystems. The more competitively oriented the transit system, themore efficient and the higher the quality the servicesprovided. All single-provider systems rely heavily onsubstantial subsidies to continue in operation and tend 1:0 faceillegal competition from private entrepreneurs.

l

- 20 -

Based on the discussion above some general conclusions canbe drawn about the urban transit sector:

Competition is a critical component of asolvent and efficient transit system.Promoting competition to public sectortransit service can improve theefficiency of pUblic sector operations.

Lower income neighborhoods are servedmost often by entrepreneurs in theinformal sector. Although problems withsafety, insurance, and traffic flowsoccur, such private services areessential to the poor. Where they areillegal, they also are quite expensive.Adjustments to improve governmentoversight can reduce the difficulties;however, disbanding small operatorsdamages the rosidents with the fewestoptions. The other implication of thisfinding is that subsidized public transitsystems disproportionately serve middleclass rather than low income households.

Various means can be found to accommodatesubsidy objectives for certain groups.User subsidies such as "transit coupons"similar to food stamps or per-ridersubsidies restricted to low-income routescan be used to subsidize the needy whilerequiring those able to pay to do so.

Key public oversight roles in competitiveurban transit systems include maintainingpublic safety through regulation andoversight of providers, setting fair anduniform charges, ensuring rights-of-way,and providing for services onunprofitable routes. Restricting publicaction to these tasks would allow greaterprivate sector scope and a more efficientand less costly transit system. Analternative model is to make privatesector provider associations responsiblefor provider oversight and regulation.

.....

- 21 -

SOLID WASTE REMOVAL: GARBAGE

In most developing countries, garbage disposal is a minorworry given shortages of essential goods and services. Moreover,the costs of proper disposal are often beyond what residents arewilling to pay either in financial or time costs. Garbageservices are a concern for government because they address thekey issue of environmental quality. Clean-up benefits thecommunity as a whole more than it does individual households.

Background

Relatively recent studies in tta u.s. by a number ofresearchers have produced remarkably consistent results in termsof the cost of garbage disposal services. The most expensiveform is private contractors who compete for clients without anygovernment involvement. The least .costly method is municipalcontracting with private firms to collect and dispose ofrefuse. Private firms have lower costs due to higherproductivity, more efficient trucks, and more effectivemanagement of employees (Ke~per and Ouigley, 1976; Savas,1977). More narrow studies on components of garbage collectionhave produced corroborating resul ts (Hanke '. 1984).

Characteristics and Problems of Publicly Provided Systems

In most African countries, garbage services are a municipalresponsibility. Services generally appear to be minimal,particularly in squatter settlements and other low incomeneighborhoods. In Zambia the district council removes refusewhen residents are willing to pay for this service. In Mauritiusand Sudan the municipality is responsible but services areerratic and unevenly distributed. In the Ivory Coast, trashremoval is contracted to a private firm but s2rvices areinadequate~ particularly in low income areas. Anecdotalevidence from other African countries echoes these experiences.

Private households, especially those outside upper-middleclass neighborhoods, tend to throw garbage into common areas andburn the refuse when it accumulates or becomes offensive.Alternatively goats and other scavengers are raised on garbage.

Public-Private Partnerships in Garbage Removal: Approaches from

Africa

One potentially promising approach to garbage removal hasbeen attempted recently. In a fresh and unorthodox experiment inthe Central Region of Eastern Sudan, the Regional Ministry of

- 22 -

Health launched a 2-year pilot project in 1983 for house-to-housecollection of dry retuse by sweepers with donkey-drawn carts.The experiment was an alternative to costly foreignexchange-intensive garbage trucks collecting periodically fromscattered village dust bins. Reliance on sweepers withdonkey-drawn carts provided adequate levels of cleanliness withone sweeper per fifteen villages, and at 10 percent of the costof truck service (Bekele, 1985a).

Subsequent experimentation in Wad Medani city, including theimposition of charges for house-to-house collection, demonstratedthe applicability and cost savings of the approach in an urban .setting. Cost recover", however, has hovered around 26 percentin Wad Medani, collected most consistently ~~'om better offresidential neighborhoods and established ~~&ops (Bekele, 1~85a).

In Cairo, the Zabbaleen system whereby private donkey-cartowners collect garbage from wealthy neighbo~'hoods, at no cost tousers or the government, supports large settlements. Materialsorted from the refuse is sold for scrap and recycled, and foodscraps are used to raise pigs. The Mayor of Cairo, however,recently banned donkeys in the city, and it is unclear if smalltrucks can cost-effectively replace them.

Constraints to Private Sector Activity

~ Constraints on improving refuse collection and establishinga partnership include the low priority ascribed to the service bycitizens, the budget crisis facing many municipalities in Africa,and the rising demands on those dwindling resources. Few legalbarriers discourage private sector activity: the market simplyis limited. Similarly, no restrictions on land use ortrespassing appear to hamper private activity in the sector.

Since consumers generally are unwilling to pay for theservice, however, it is not a promising business opportunityexcept in some wealthy areas, and the government needs to leadthe effort to clean up the community.

Summary

Garbage collection is essentially a governmentresponsibility, but a partnership with private firms throughmunicipAl contracts may lower costs and improve operation andcoverage. The available evidence suggests that a partnership isthe preferred manner of operation.

.......

- 23 -

PROMOTION OP SERVICE DBLIVERY PARTNERSHIPS

This paper has identified numerous legal, political, andcultural constraints that hamper formation of effectivepublic-private partnerships in service delivery. Although thissection provides some suggestions about how to overcome theseconstraints, the issue of how to create successful partnershipsis dealt with surprisingly little in the literature. It ought tobe a particular focus for discussion at this Conference.

Governments can take many a~tions to promote strongerservice delivery partnerships. These include:

• Compiling information on th~ financialhealth of government-provided publicservices. This would establish how muchof the service cost is subsidized and howmuch output is produced. it also wouldidentify the weaknesses of the existingservice delivery mechanism. Suchassessments would assist in the design ofmodifications and experiments in how tobetter organize and operate publicservice delivery. Moreover, informationon the impediments to private activitywould facilitate policy reform •

• Reducing subsidies and implementing otherpolicies to encourage pUblic firms torespond to market forces. Such shiftswould establish incentives for greaterefficiency and therefore lower costs.Moreover, they force service providers toshare the costs with users and therebyestablish a more stable financialoperating base.

• Testing various aspects of a public­private partnership on a small scale.For example, certain districts couldinitiate fees for water supply or hire aprivate firm to bill and collect thecharges: or particular areas within anurban area could be allowed to establishtheir own transit network withrestrictions on scope and perhaps onfares. Such experiments would providegovernment with hard evidence on theviability of particular reforms withintheir nation's context, and indicatewhether broader reforms might be

- 24 -

appropriate. They would demonstrate thatthe true impacts of public-privatepartnerships in service delivery areincreased efficiency and broader publicauthority. Partnerships will flourish asMinisters see that the contracting orlicensing and monitoring involved insharing service delivery responsibilityenhances Ministry prestige andresponsibility, while reducing costs andsubsidies.

• Establishing oversight and regUlatorycapabilities within the government topromote the transition from directprovider to regulator. This involvesdeveloping a broad set of skills to dealwith such requirements as biddingprocedures and implementation, contractnegotiation, and oversight of privateoperations.

• Reforming macroeconomic policies thatcover exchange rates and price controlsthat inhibit private sector investmentsand activity.

• Allowing private sector entry intorestricted activities. This would openup service delivery to competition,encourage private investment in publicservice, and provide the incentivesneeded to build a private sectorsupply. Promoting private sectoractivities requires reforms directed atproviding incentives, dismantlingimpediments, and relaxing some of themore cumbersome restrictions on privateinitiative.

• Providing upgraded services for whichfees can be imposed. Pledged freeservices need not interfere withprivatization efforts or compromisequality. Sudan, for example, hasrealized significant revenues in thehealth sector by establishing such dual

- 25 -

systems where standard care is free, butupgraded services and special tasks arepaid for by the patients (Bekele andLewis, 1986).

PROMOTION OF PRIVATE BNTERPRISE DEVELOPMENT

Economic growth requires large investments of scarce capitaland skilled personnel. When government creates a competitivebusiness climate with easy entry for new ventures, it encouragesvigorous local use of capital. Furthermore, parastatals oftenbecome more efficient when government permits the private sectorto grow and compete.

Economic growth is not easy in sub-Saharan Africa under thebest of circumstances. Profitable opportunities often onlydevelop through patient public and private nurturing. Thissection describes ways for government to stimulate and increasethe success of private investment in economic growth. Thestrategies suggested fall into three categories: improvement ofthe development climate, resource provision, and directassistance.

Improvement of the Development Climate

Government policy and regulation have a large effect on thecost and ease of doing business. They can make the differencebetween a profitable enterprise and a bankrupt one. Bothnational and local policies aru relevant.

The national policies that most frequently are mentioned asbarriers to successful private development include "overvaluedexchange rates and restricted access to foreign exchange1limitations on imports and unduly high taxes on exports: pricecontrols and profit ceilings1 government-created monopolies: andrestrictions on who may produce or sell in the marketplace"(B~emer et al., 1985). These policies and their negative impactshave been discussed extensively by the donor community, forexample in AID's Private Enterprise Development Policy Paper(1985). As this paper points out, many of the problematicpolicies and regulations are remnants of broad strategies thatdeveloping countries already have abandoned. Some also aresignificant government revenue sources. An important issue ishow to move reform of specific policies more formally onto thepublic agenda without further pressure from the donor community.

At the local level, the development climate is mostsensitive to the time and effort required to start or expand abusiness and to the restrictions placed on operating style andprofits. The longer it takes to get approval for an enterprise

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and the more potentially costly and burdensome approvals areneeded, the less likely it is to be worth starting. A methodthat has been used to expedite this process in some cities in theUnited States is a one-stop business service center. This centerhandles all permit, land use, and other applications required forenterprise start-up or expansion. The center takesresponsibility for assuring the prompt processing of the requiredapprovals. Because the private enterprise only has to deal withone person and this person is, in some sense, the enterprise'sadvocate, the cost, time delay, and aggravation involved inapproval is substantially reduced. A one-stop service centermight well be formed at a super-Ministerial level to increasecooperation. Importantly, the service center only will work ifthe key Ministers are committed to it and require the variousdepartments to cooperate with its priority requests.Alternatively, a top political aide may facilitate the approvalprocess for particularly attractive private developments (Knox,Miller et al., 1980).

Business surveys and ~isitation programs have been used inboth developed and developing countries to gain insight into thedevelopment climate and any pUblic help that individualbusinesses need. These surveys have been useful in places likeKorea and Colombia. They often reveal very minorissues--difficulty resolving minor regulatory and permittingneeds--as some of the most threatening to business success. Oncethese issues are identified, they often can be resolved quickly.

Restrictions on operating style and profit are stronginfluences on the development outlook and can present thornyproblems. Development that will cause serious environmentaldamage is not worth having, but how does one decide how muchdamage to allow. Overly ti~ht restrictions on profits willdiscourage private enterprise, but the public is entitled toclaim a share of profits in taxes. Again, the problem isachieving an appropriate balance between the pUblic and privateinterests. It can be quite informative to conduct a review ofthe current balance.

Resource Provision

Private enterprise development requires capital, land,structures, and supportive infrastructure. The pUblic sectoroften has a role to play in assuring the availability of each ofthese inputs.

Capital. Private financial markets are regulated bygovernment, and government often also loans capital at marketrates itself. Government regulations, most notably restrictionson interest rates, strongly affect the availability and cost ofprivate capital. Interest rate ceilings particularly restrict

- 27 -

availability since they reduce the maximum amount of risk thatlenders can afford to take. Clearly, a healthy private capitalmarket means a larger pool of investment capital and encourageseconomic growth.

Capital availability is especially low for small andinformal sector entrepreneurs in sub-Saharan Africa. Developme~t

banks generally have neglected the small and medium-sized firmsthat their charters emphasize and instead favored largebusinesses and parastatals that were better able to promote theirprojects. Furthermore, many of the development banks have becomedecapitalized because they made too many bad loans. It does makesense to re-establish development bank windows to makemarket-rate loans to small and informal enterprises. For largerfirms, cultivation of the commercial banking system seems abetter alternative than starting new development banks orinfusing further capital into existing ones. An importantconcern for Africa is how to promote private capital marketdevelopment and structure regulatory and tax systems that ~an

assure the market's health.

Recent evidence suggests that publicly funded training andtechnical assistance can help small business to access theprivate sector. Malawi Traders Trust (DEMATT), for example,provides loan packaging and complementary business trainingdesigned to assure the soundness of the loans. In the EasternRegion of Burkina Faso, small loans are used to simultaneouslyprovide capital and train clients in such credit-oriented skillsas planning, money management, marketing, and production. Thisprogram has made over 2,000 loans of U5$30 to $300 in four years,with a repaYment rate of over 90 percent. The program initiallyprovides entrepreneurs with a series of loans from one to,fourweeks. in duration and provides business counseling when bor~owers

come in for loan renewal. In some cases, groups of entrepreneursare formed to jointly receive and guarantee repayment of largerloans with longer terms. Two AID-funded non-profitorganizations, Partnership for Productivity and AccionInternationale, have been particularly successful at startingthese indigenous business advisory, credit~ and promotionagencies oriented to small entrepreneurs.

Land Banks and Land Allocation. Industry, in particular,generally is born in a small space and uses increasing amounts ofland as it grows. Perhaps the largest barrier to industrialgrowth in many urban areas is the scarcity of large enoughparcels of serviced land. Given the rapid growth projected forAfrican cities, they easily could experience similar problems.One way to avoid this is to set up land banks that reserve someof the extensive public landholdings for nonresidentialpurposes. When banked or other public land is linked to roads,water, power, and other essential services and converted toindustrial estates, experience in India and the United States

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provides an important caution. The e~istence of an estate doesnot create a market for industrial space. Rather, estates shouldbe located where market studies show private enterprisedevelopment is interested in locating and should be prepared foroccupancy incrementally as space is demanded.

A further land-related problem that has hampered developmentefforts in many African countries is the slow pace of landallocation and the failure to lease or sell public lands atprices reflecting their market value. A fair, efficient,predictable land allocation system greatly facilitates privateenterprise.

Public Sites and Services for Private Enterprise. Manycountries, among them Liberia and Malawi, have found thatpublicly developed markets are very helpEUl to the smallbusinesses that operate in them while at the same time increasingpUblic safety and convenience. In Monrovia, the parastatalLiberia Marketing Association charges a ~16 annual membership feeand $.05 per day for a market stall anywhere in the city. Inreturn, the Association provides sheltered market areas, protectsmarketers' trading rights, and acts as a lobbying organizationfor the marketers. In Lusaka, the Urban District Council sharesthe capital cost of market development with marketers. Mostfrequently, the Council provides access to the market area,erects a security wall around it, surfcces it, and erects atoilet block. Market space then is allocated to individuals bythe Councilor a marketers' cooperative. Each marketer erects astall, generally of timber and corrugated iron, at its ownexpense and pays the Council ~ daily space rental fee. Some ofthe stronger cooperatives successfully erected more permanentstructures, but proved unreliable when given the authority tocollect rentals for the Council and remit them monthly.

Some countries have successfully developed "incubatorbuildings" patterned on the public-private market model. In thiscase, a parastatal or a private developer erects a modernfacility that is shared by many small, generally new firms. Someincubators are oriented to office-based businesses. There, firmsshare receptionists, meeting rooms, copying, accounting andsecretarial services, and other equipment and facilities that arenot needed full-time but cut costs when they are available.Other buildings are oriented to industrial use and may provide ashared machine shop, laboratory, or other specialized services.Kenya Industrial Estates, for example, equips its subsidizedworkshop clusters with shared carpentry and metalworkingmachinery which firms use until they achieve enough business toneed and afford their own full-time equipment. Incubatorbuildings are useful when firms need part-time use of skilledlabor or costly equipment. Unresolved issues in this area

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include: how the concept should be applied further in Africa andhow to minimize the risk of building something no one wants torent.

Direct Assistance

Almost every government finds it worthwhile to give sometypes of direct assistance to selected private enterprises, butopinions vary widely about what kinds of aid are appropriate.Almost everyone agrees, for example, that government shouldprovide technical assistance and training that will increaseenterprise profitability and tax paYments, but the nature andintensity of the assistance is less clear. In Kenya, twoquasipublic on-lending institutions, Kenya Industrial Estates andthe National Construction Corporation, have substantialexperience as assistance providers. Over time, they have foundthat technical assistance on demand is cumbersome and expensiveto provide, takes the responsibility for success away from theentrepreneur, and often is requested after the problems becomecostly to solve. Consequently, these providers have shiftedincreasingly to one-week training sessions provided to theirborrowers at no charge.

Cash subsidies, whether delivered directly or through taxdeferments and interest rate reductions, are the most delicate ofpublic subsidies supportive of private enterprise development.

~. Generally, these subsidies are provided to encourage economicgrowth in areas and industries that otherwise would be too riskyfor private entrepreneurs. Issues involved in subsidy designinclude:

• How to hold private subsidy benefitsclose to the minimum necessary.' Ideally,subsidy only would be provided if aproject would not go forward withoutit. Private entrepreneurs, of course,often try to get more subsidy than theyneed, and there is no sound yet simpleway to set subsidy levels. Given theshortage of personnel with the technicalskills needed to set subsidy ~evels

analytically, the best approach probablyis to place a limit on the maximumpercentage sUbsidy.

• What types of subsidies to offer. Somesubsidies are particularly costly to thepUblic sector per dollar of benefit tothe project. This occurs when thesubsidy requires much pUblic paperwork orrequires a transaction broker who is paid

•

•

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part of the subsidy for handling it.Other subsidies tie up particularly largeamounts of public capital. Fraud andfunds misuse can be greatly reduced bydelivering in-kind subsidies or subsidiesadministered by private sector lenders.The most cost-effective sUbsidyinstruments for the public sector tooffer depend on the amount of privatecapital available. When they arefeasible, the best choices are guaranteesof repayment for private sector loans andmonetary or in-kind contributions to theproject itself. Direct contributions caninclude grants dispensed to privatelenders to allow tham to reduce loaninterest rates, writedown or contributionof necessary land and infrastructure,construction management when the privateenterprise lacks experience in this area,short-term reductions in taxes, orpartial exemption from site and buildingstandards or other public regulations.

How to assure that subsidies yieldworkable ventures. Such assurancesspring in part from the sUbsidy design •Kenya Industrial Estates, for example,requires company owners to raisa 30percent of the capital for a venturethemselves in order to assure that theyhave a substantial stake in success ofthe venture. Another progr,am only agreesto subsidize projects that have firmcommitments for the private portion oftheir financing. The chance of achievingworkable ventures is further enhanced byinsisting on a market study beforecommitting to projects involving largesubsidies.

Summary

A variety of pUblic actions can further urban privateenterprise development and economic growth. The most appropriateactions are very sensitive to economic conditions andadministrative capacity. Roles that it often is appropriate for

- 31 -

public institutions to play in private enterprise developmentinclude:

'.....

•

•

•

•

•

•

•

International trade coordination,including export trade and tourismpromotion, negotiation of tariffagreements, and attraction of foreigncapital investment.Development bank support. Developmentbanks or windows exist in almost everyAfrican country, and some of them havebeen successful enough to deservecontinued support. Successfuldevelopment banks serve as conduits foron-lending of government and donor funds,at subsidized or market rates; providesupportive training and technicalassistance; and develop and administerindustrial estates, incubator buildings,and land banks.Support of commercial banking and oforganizations that train smallentrepreneurs and link them to the creditsystem. Generally, the centralgovernment should emphasize strengtheningthe commercial banking system rather thanrelying on development banks.Subsidy p~ovision other than on-lendingat subsidized rates. This functiongenerally is served best locally or by aconsultative effort between the centraland local governments.Construction management and marketanalysis on a fee-for-service basis, whenthe local development bank (preferably)or local government has substantialrelevant experience and the privateentrepreneurs involved lack it and cannotreadily purchase it from a reliableprivate source.Permitting and regulation, which shouldbe handled at the local level, andtaxation.Infrastructure provision, with emphasison roads, water and possibly sewerservice, and possibly power andtelecommunications hook-ups. Costrecovery for infrastructure installationoften is appropriate.

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• Growth management, including steering growth whereinfrastructure can be provided cheaply, selectinglocations for sites and services projects,clustering housing to reduce street requirements,deciding whether traffic levels warrant restrictingmixing of work and residence locations, decidingwhether to open up satellite towns, and contollingthe location of noxious uses.

The public sector should be an active partner in urbanprivate enterprise development. To do so, it must removeexisting policy and regulatory barriers to private growth, helpto assure the availability of necessary resources, and providedirect subsidies to key ventures. These roles require it toestablish and maintain efficient, effective developmentinstitutions and a climate generally conducive to privateenterprise. The national economy will grow faster throughpUblic-private partnerships in urban development.

CONCLUSION

PUblic-private partnerships have important roles to serve inurban development in sub-Saharan Africa. In pUblic services,they can increase coverage and cut delivery costs. In support ofdevelopment, they can leverage new private investment in economicgrowth and increase the impact of existing investment.

The issues of relevance to public-private partnerships inurban development in Africa include:

• How to create successful public-privatepartnerships in urban service delivery.

What private sector roles make sense indifferent services and situations?When is it practical to use privatecontractors to operate public fountains?

To what extent can private providerassociations be used to regulate privatetransit?

What incentives are available, either in thepublic sector or through providerassociations, to encourage safe privatetransit operations and maintenance of adequateinsurance?

What experimentation 1S needed?

What strategies can encourage rapidimplementation of effective partnerships?

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What are the key constraints and how canthey be overcome?

What can the donor communityrealistically do to help?

• How ~o improve the climate for and promoteprivate enterprise development in Africancities.

What roles should public institutionsplay in private development?

How can reform of macroeconomic policiesbe moved more formally onto the publicagenda without further preisure from thedonor community?

Are one-stop business servfce centersworth experimenting with in Africancities?

How can access to capital be improved forsmall and informal sector··firms?

What steps are needed to assure thatcapita~ is properly priced and allocated?

When is urban land banking appropriate?

Are shared-service incubator buildingsappropriate for Africa?

How should public sUbsidy levels be keptclose to the minimum required?

What types o~ subsidy is it practical andcost-effective to offer?

How can we assure that subsidies yieldworkable ventures?

1

2

.......

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ENDNOTES

Time, waiting, and inconvenience also cause many consumers toavoid publicly provided services such as family planning (Lewis,1985) and health services (Bekele, 1985b).

SITAF (Societe Industrielle de Transports Automobiles), asubsidiary of a private French company, cleans Abidjan streetsand collects its garbage under a fixed contract with thegovernment. Performance is overseen by the Ministry of Interiorand inspected periodically by professionals from the NationalInstitute of Hygiene. Service is irregular: . many neighborhoodsreceive prompt service daily, but some slum areas receive noservice at all. Part of the difficulty is the inaccessibility ofneighborhoods where roads narrow and paving disappears. Trucksfind such terrain impassable. As an alternative, largecontainers have been placed at the exit points of theseneighborhoods. This method has not met with much success,because dumping is convenient immediately outside many dwellings(Dei, 1985) •

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