Originally posted in The Business Standard on 25 January 2022
Economic and social infrastructure is one of the key foundations that drive the development of any country. Broadly speaking, infrastructure embraces all basic systems and structures and facilities and services which are required for smooth functioning of an economy at various levels. It will not be an exaggeration to state that an economy’s growth and sustainability hinge critically on the state of its infrastructure and the quality of services it delivers. Indeed, infrastructure systems that include basic facilities such as transportation facilities, energy and power, telecommunications networks, water supplies and logistics, and social services including health and education, is the fulcrum and supporting framework on which the development structure of an economy is built. However, as is well known, infrastructure building involves a significant amount of resources for planning, implementation, monitoring and maintenance. In view of this, issues of good governance and ensuring good value for money in infrastructure-related investment are of critical importance for any country, and more particularly, for resource-constrained developing countries such as Bangladesh.
One of the distinctive features as regards investment in infrastructure is that there is a high possibility of market failure. A large number of infrastructures is of public goods type in nature. The pay-off period for many infrastructure projects tends to be rather long, and also the returns from investment can be uncertain and risky. Private sector may not necessarily come forward to invest in those i.e., investment in infrastructure will be lower than the optimal level if it is left to market forces alone, particularly in the developing country contexts where, for understandable reasons, private sector’s willingness and ability to invest in large infrastructure projects remain limited. This often necessitates governments to come forward to invest in infrastructure, either singly or in partnership with the private sector. Thus, in varying degrees, in almost all countries, the public sector is significantly involved in investing in infrastructure projects. Accordingly, ensuring good governance in implementation of public investment projects (PIPs) has assumed heightened importance in developing country contexts.
It should be noted that good quality infrastructure not only leads to higher economic growth, but also promotes the cause of inclusive growth when implemented with transparency, accountability and good governance. In its turn, inclusive growth creates opportunities for marginalised citizens leading to higher pace of poverty alleviation and further reduction in income inequality. Many studies have found a strong causal relationship between transport, communication and social infrastructure and poverty alleviation. The criticality of investment in infrastructure for the development of developing countries is also reflected in the fact of significant involvement of multilateral and bilateral development partners in the infrastructure sector of many low and lower middle income countries such as Bangladesh.
As may be recalled, Bangladesh’s development vision over the medium term has been articulated in its Perspective Plan (2021-2041), the Vision 2041 document. The perspective plan considers infrastructure as a key driver of the country’s sustainable growth and underpins the need for building the required communication and transport infrastructure to achieve high rates of GDP growth and poverty reduction and attain the development targets set out in the plan.
Not surprisingly, infrastructure also lies at the core of efforts to attain the SDGs. Indeed, infrastructure has direct and indirect implications for attainment of all the SDGs, starting from poverty alleviation and reducing inequality to education and health services for all to affordable access to clean water, sanitation, and energy. As is known, there is a dedicated Goal that focuses particularly on infrastructure, SDG 9, which identifies resilient infrastructure as one of the key global aspirations. As one study points out, infrastructure is related, in varying degrees, to 72% of all the 169 SDG targets.
However, financing of infrastructure remains a major challenge for the developing countries. Indeed, infrastructure financing gap in these countries continues to remain quite significant. According to the World Bank estimates, developing economies need to invest about 4.5% of their GDP to achieve the SDGs associated with infrastructure, a significant resource involvement by any measure.
According to the Global Infrastructure Outlook, by the year 2025, Bangladesh will need about $25.0 billion worth of investment in infrastructure including investment in building the required infrastructure to meet the SDGs. According to some estimates, there is a gap of $10 billion in Bangladesh between the demand for resources and resource availability. According to the study titled “SDGs Financing Strategy: Bangladesh Perspective” of the GED, between FY2017 and FY2030, Bangladesh will be needing an additional $928.48 billion to implement all the SDGs; $798.69 billion will be required between FY2021 and FY2030. Highest amount of resources would be required for implementation of SDG 7, 8 and 9, the last involving infrastructure. An additional amount of $535.64 billion was estimated to be needed to implement the aforesaid three SDGs during the FY2017-FY2030 period. According to the GED report, Bangladesh will need an additional $250.2 billion between FY2017 and FY2030 to implement SDG 9; this is about 26.9% of the overall additional funds required to implement all the SDGs.
Bangladesh’s 8th Five Year Plan (8FYP) sets the target to raise the overall investment rate to 37% of the GDP in FY2025 in view of the projected annual GDP growth rate of 9%. To achieve this, public investment will have to play a defining role. The 8FYP objectives, in alignment with Vision 2041, puts emphasis on building the 3R (Rail, Road and River) inter-modal connectivity to link Bangladesh’s hinterland with the country’s ports, and for construction of sea ports to connect with international maritime transport corridors. The plan intends to put in place robust inter-district connectivity and deepen inter-regional connectivity to establish transport linkages with neighbouring countries and the broader Asian region. The plan also mentions about improving the quality of transport infrastructure.
As may be recalled, the Bangladesh government has allocated Tk225,324 crore for the ADP in the national budget for FY2022; of this a large share is earmarked for implementing infrastructure projects including the ten megaprojects which have been prioritised by the government.
Need for good governance in PIP implementation
In view of the significant public resources being deployed to build the public infrastructure projects, good governance in PIP implementation has emerged as a key concern in Bangladesh. As is well-understood, while good governance has many direct and positive externalities in the form of significant economic and social benefits, lack of it has equally high cost to the economy and the people. Absence of good governance in PIP implementation undermines the efficacy of infrastructure and impacts negatively on potential results and returns on investment. Concerns in this regard include selection and design of the PIPs, cost and time overrun, corruption, lack of proper management, procurement anomalies, questionable tendering and contracting process, absence of independent monitoring, lack of proper oversight by concerned authorities, absence of involvement of potential beneficiaries, and weak transparency and accountability in PIP implementation.
As is known, the Implementation Monitoring and Evaluation Division (IMED) of the Bangladesh Planning Commission is mandated to monitor the implementation and progress, and assess quality of implementation of the PIPs. In its various reports, the IMED has identified a number of challenges facing PIP implementation which speak of the widely prevalent poor state of management and implementation of many of the PIPs in Bangladesh. The reports point out the lack of good governance in the various stages of PIP implementation in the country which is having adverse impact on the quality and timeliness of project implementation and undermining resource efficiency, delivery of services and project outcomes and impacts.
Some of the key challenges and deficits mentioned in successive IMED reports are the followings:
In Project preparation and approval phase: (a) Not taking into account stakeholders’ choice and priorities in project selection; (b) Absence of comprehensive work plan in case of project implementation; (c) Weak quality of feasibility study; (d) Not taking primary approval for land acquisition from concerned District administration before selecting a project; (e) Lack of adherence to the financial ceiling mentioned in the medium-terms budgetary framework (MTBF) while selecting projects; (f) Not storing baseline data in connection with the concerned project; (g) Not preparing the exit plan of the project in a proper manner.
In Project implementation phase: (a) Not implementing the project according to the work and procurement plan mentioned in the DPP; (b) Coordination failure involving project implementation agencies at the field level; (c) Absence of transparency and accountability in project implementation; (d) Lack of regularity in holding PIC and Steering committee meetings; (e) Awarding contracts to contracting agencies beyond implementation capacity which leads to time overrun of projects; (f) Frequent appeal on the part of concerned contracting agencies to extend timeline of completion of packages; (g) Frequent change of Project Directors; (h) PDs being vested with the responsibility of overseeing multiple projects
In Post-implementation phase of the project: (a) Not submitting Project Completion Report (PCR) to the IMED within the stipulated three months of project completion; (b) Lack of adequate budgetary allocation for maintenance of project after the project has been completed; (c) Lack of proper preservation and supervision of infrastructures and equipments used in a project; (d) Absence of homegrown skilled human resources which results in signing long term service agreements with foreign contractors.
Bangladesh’s global ranking reflects rather poorly on the quality of infrastructure in the country and the widely prevalent lack of good governance in PIP implementation. As is known, the Global Competitiveness Index (GCI) reports include infrastructure as a key pillar of assessment as regards the state of competitiveness of a country. The infrastructure pillar takes into account the state of transport as also of utility infrastructure. According to the GCI 2019, Bangladesh ranks at the bottom even among the South Asian countries, with a score of 51.1 out of 100; it was ranked 114th out of 141 countries globally.
Quality of road infrastructure is one of the sub-indicators of the infrastructure indicator. According to GCR 2019, Bangladesh ranked 108th out of 141 countries globally according to this indicator, the lowest in South Asia barring Nepal. Indeed, Bangladesh’s score has been hovering around 3 (out of 7) over the last ten years which also speaks of lack of any visible improvement over the past years.
Infrastructure governance has the objective to ensure that right projects are implemented in a cost-efficient and timely manner, generate the expected outcomes and impacts, and are implemented in a way that is trusted by citizens, users and beneficiaries. It concerns accountability, transparency and efficiency of government agencies and involved institutions. According to an OECD study, at both national and sub-national levels, the quality of public governance is found to be highly correlated with quality of public investment and delivery. Managing public infrastructure efficiently, throughout its life cycle, is expected to generate substantial benefits to the economy, both upstream and downstream. Strengthening PIP implementation by taking advantage of human resources developed at well-equipped public investment management institutions is found to lead to higher productivity and better outcomes. Improvements in infrastructure implementation management generate substantial savings and significantly enhance infrastructure productivity. Investing in preparing government officials to undertake PIP implementation efficiently can thus generate high dividends to the economy.
As a report prepared by the Asian Infrastructure Investment Bank (AIIB) shows, per -kilometre cost of construction of four-lane urban arterial road (including traffic-controlled intersections) is the highest in Bangladesh when compared to some of the other developing countries: it is 4.4 times that of India, 3.7 times that of Turkey, 1.6 times that of China and 2.1 times that of Pakistan. The high cost of road construction in Bangladesh is also corroborated by research findings carried out by BUET. According to BUET estimates, per kilometre expenditure for a four-lane highway in Bangladesh should be between Tk12-15 crore ($1.41-1.76 million). However, the actual expenditure is way above this. Per kilometre cost of upgrading DHK-CTG highway to a four-lane turned out to be Tk21 crore ($2.47 million). Same was the case for Joydebpur-Mymensingh four-lane highway. Per kilometre cost of construction of Rangpur-Hatikumrul four-lane was Tk55 crore ($6.47 million). Per kilometre cost of the DHK-Sylhet highway, which is currently under construction, has been estimated to be Tk60 crore ($7.06 million). According to a newspaper report, the Dhaka MRT-6 cost would be about $234.0 million (if the proposed revised estimates are endorsed) which is about three times higher than that of the ongoing Jakarta N-S metro line.
One often hears that the cost of implementing transport infrastructure is high in Bangladesh because the cost of land acquisition is high, riverine conditions necessitate building of a large number of bridges and culverts, soil condition is not suitable etc. These are not to be denied. However, the important question to consider here is, even if these are factored into the cost estimates, are these high per kilometre costs justified. Problems with formulation of DPPs, time escalation, design faults, lack of coordination, bad quality of works, procurement and bidding anomalies, lack of professionalism, frequent maintenance work, enforcement of load-limits, frequent changes of projects directors, corruption – all these lead to high cost of infrastructure building in Bangladesh. Those identified problems remain to be addressed through concrete institutional measures towards good governance in PIP implementation. Indeed, many of the existing problems afflicting PIP implementation, and the required steps to mitigate those, have been pointed out in various IMED reports.
In recent times the government and the IMED have taken several steps to address some of the attendant concerns. These include revised and improved DPP formats, citizen portal, Right to Information Act 2009, whistleBlower Protection Act 2011, Competition Act 2012, Open Government Data Strategy, introduction of Annual Performance Agreement, introduction of e-procurement, digitisation, not changing PDs frequently, more frequent inspection, appointment of consultants and a number of others. It is also to be noted that the IMED is in the process of taking a number of other measures to address some of the gaps and deficits. This work should be pursued in all earnest as is demanded by the emergent scenario and more energetic steps should be taken to ensure that these are implemented without exception.
Better governance in PIP implementation will generate good dividends in the form of better quality of PIPs, high economic and financial returns on investment, and relatively low price of services provided for producers, enterprises, entrepreneurs and citizens. All these will raise consumer welfare and lead to higher competitiveness of the Bangladesh economy.
A framework for good governance
A comprehensive framework to improve governance of PIP implementation has thus emerged as a demand of the time as far as Bangladesh is concerned. In this connection it may be noted that, in view of the significant challenges that afflict PIP implementation, and keeping in the perspective the potential formidable benefits that could accrue from addressing and mitigating the attendant concerns, OECD has developed an Infrastructure Governance Framework towards better and cost-effective management of infrastructure implementation. The framework draws on the experience of implementing development projects in a wide range of cross-country settings. The OECD framework has ten pillars. The pillars focus on how governments should plan, interrogate, prioritise, budget, deliver, manage, and assess in connection with investing in infrastructure. The framework is an excellent tool which can be customised and adjusted to assess the quality of a country’s infrastructure governance. The framework also provides insights on how to improve the various measures in place to improve the state of governance in PIP implementation in concrete country settings. It could thus serve as an excellent reference point for assessing and ensuring good governance in PIP implementation in Bangladesh.
The ten pillars of the OECD framework are: (a) Develop a strategic vision for infrastructure; (b) Manage threats to integrity; (c) Choose how to deliver infrastructure; (d) Ensure good regulatory design; (e) Integrate a consultation process; (f) Coordinate infrastructure policy across levels of govt.; (g) Guard affordability and value for money; (h) Generate, analyse and disclose useful data; (i) Make sure the asset performs throughout its life; (j) Public infrastructure needs to be resilient.
Each of the ten pillars has three elements. These are: (i) why the pillar is important; (ii) what are the key policy questions; and (iii) what are indicators to assess the state of the pillar. Thus, the framework presents justification for the pillars, policy questions associated with the pillar and also indicators to assess quality of implementation and monitoring of progress in connection with the investment.
As was noted, the Bangladesh government is at present investing a significantly large sum of money to put in place the much-needed economic and social infrastructure. These are geared to providing better quality services to citizens, crowding-in private sector investment and attracting large amounts of FDI. Deepening of regional multi-modal connectivities through transport networks is expected to provide rich dividends in the form of helping develop regional value chains and production networks. Triangulation of transport-investment-trade connectivities is being seen as a critically important strategy for sustainable dual graduation of Bangladesh-middle income graduation and LDC graduation—and SDG implementation.
It is advisable to keep in mind that the significant resources being invested for PIP implementation are either tax payers’ money or borrowed money repayment of which will also need to be serviced through tax payers’ money. It is also to be noted that the cost of borrowings is going up because of Bangladesh’s middle income graduation. It is now a blend country with a mix of concessional and non-concessional loans. In near future, Bangladesh will be a non-blend country, with mostly non-concessional loans underwritten by high interest rate, stringent conditionalities and lower maturity and grace periods for loan repayment. The need for good governance in PIP implementation is thus becoming increasingly important from the perspective of avoiding debt-trap and not falling into the dreaded middle income trap. Ensuring transparency, accountability and good governance in PIP implementation will thus become even more important in going ahead.
Concluding remarks
There is no denying the fact that if the investment ensures the expected internal rate of return and financial and economic returns and generates socio-economic benefits in the form of higher GDP growth rate and better quality of service delivery, higher investment in PIPs is no doubt good value for taxpayers’ money. It is from this vantage point that a comprehensive framework for ensuring good governance in PIP implementation could generate high dividends for Bangladesh. The aforesaid OECD framework could serve as a useful reference point to draw necessary insights in this connection, with adjustments that will need to be made in view of the specificities that inform the particular context of PIP implementation in Bangladesh.
Professor Mustafizur Rahman is Distinguished Fellow at the Centre for Policy Dialogue (CPD), Dhaka, Bangladesh