Regulatory Revamp of Construction Sector Essential to Sustainability

There is a strong association between the political economy the Revolutionary Democrats are trying to establish in Ethiopia, and investment in the construction sector. Their model is one where the state plays a crucial role in the economy, by direct investment and by correction of market failures. Rents collected in various forms will be investment in key structural economic backbones.

Hence, investment in infrastructure marks the pillar of the Revolutionary Democrats statist approach to development. Their allocation of huge capital investment to infrastructure is visible in the list of projected infrastructural development embraced within their annual budgetary and extra-budgetary expenditure. Latest figures show that the construction industry accounts for 8.5pc of the national gross domestic product (GDP). In absolute terms, this means the sector is worth 56.9 billion Br. Of the total annual loan disbursement by banks, both private and public, close to 8.9pc goes to housing and construction.

Mega projects in hydropower, irrigation, cross-country roads, public housing schemes, telecommunications, health care and education sectors are being undertaken. There seems to be no sector that gets an easier ‘go-ahead’ from the ruling EPRDFites than construction. Yet, the sector is not free of problems.

At the centre of the problem matrix resides the quality issue. Low construction quality, exposing the economy to huge costs, remains a major problem of the sector. Be it in hydropower, road or housing, subpar quality is imposing huge burden on the economy. The recent collapse of a five-story building in Addis Abeba, for instance, showcases the state of affairs in the nation’s construction sector. Not that the building was either built or owned by the state, but the case depicts a general trend in a sector that is ingesting huge resources.

Clogged drainage systems, flooded asphalt roads, sinking public house buildings, silted dams, inundated light rail transit (LRT) system and collapsing health stations are all emblematic of the sector. And they are a common sight from Addis Abeba to Tigray, from Amhara to Benshangul Gumuz. It looks like the nation under the ruling Revolutionary Democrats could not care less about value for money.

The fact that the EPRDFites have changed the face of the nation by way of putting infrastructure development as the fulcrum of their development policy is indubitable. Under their custodianship, a nation that largely was inaccessible has morphed into one with relatively higher connectivity, even at the regional level. Today’s Ethiopia has cities, towns, urban centres and rural areas well connected with each other to an extent that each plays its part in the whole system. Those days when accessibility was considered a luxury are gone.

New infrastructure interventions, such as the massive public housing scheme in major cities, not to mention Addis Abeba, have transformed lifestyles and livelihoods across the country of 91 million. Huge urban redevelopment efforts have changed the slums of cities to new flourishing neighbourhoods. High-rise buildings have become the new norm of cities. Big hydropower projects, such as the Great Ethiopian Renaissance Dam (GERD), a 6,000Mw project being built on the Blue Nile, construction of public higher education institutions and erection of farmer training institutes have all consolidated economic growth. This has occurred to the extent that new towns emerge alongside project sites.

Time and again, the ruling EPRDFite have been praised for putting so much resources into a sector that is so definitive to sustainable economic growth. The admiration has been coming from international donors, multilateral financial institutions, researchers, analysts, regional organisations and political activists. And with the associated flow comes the economic benefits, that embolden the ruling elite to invest even more in the sector.

None of these achievements, however, has managed to bridge the quality gap. The country’s economy continues to host a considerable stock of liability due to poor construction quality. Project costs overruns, rising insurance claims, increasing opportunity costs, ever-growing public safety costs, skyrocketing maintenance costs and untenable forgone benefits underpin the realities of Ethiopia’s construction sector.

Meanwhile, the Revolutionary Democrats seem to take comfort in churning out new laws, directives, manuals and standards. There is almost no other sector that has seen issuance of so many regulatory instruments over the past 10 years as the construction sector. Crafting instruments has become the rule of the game in the sector.

But the status quo of the sector remains despite institutional changes in its regulation. The latest change is the split of what used to be the Ministry of Urban Development, Housing & Construction (MoUDHC) into the Ministry of Housing & Urban Development (MoHUD) and the Ministry of Construction (MoC). The changes, however, have brought almost no shift in the way the sector operates.

What is happening is that the Revolutionary Democrats are falling prey to their own success. Instead of complementing their aggressive public investment in the construction sector with an effective quality standard regulation system, they just let things go their way. And the resultant outcome of the regulatory laxity has been an economy burdened with construction of questionable quality. Even in cases where the impact on the economy is not imminent, as in the case of the collapsed building, it will eventually redound.

Allowing regulatory laxity in the construction sector to prevail will certainly impose huge risks on the economy. After all, a sustainable economy can be built only if the investment made today is justified through viable future returns. The case is even more pressing in infrastructure development, as the payback period for it is longer. By putting huge public money into such endeavours, therefore, the government should make sure that the economic fundamentals are working.

As it stands, the future for the nation’s infrastructure stock is bleak. Poor quality will certainly fasten its depreciation, posing considerable future liability on the economy. This also impacts the present.

So long as the quest is about sustaining economic development, the nation’s infrastructure sector ought to see effective regulation. In a practical day-to-day sense, this means effectively enforcing building laws, standards, directives and manuals. Regardless of their source and dimensions, excuses for not implementing the existing instruments ought to be avoided.

But this cannot happen without enhancing the capacity of regulators and their institutions of sectoral bureaucracy. People involved in the regulation process have to be skilled enough to understand global changes in the theory and practice of construction. They also have to be empowered with the technology that enables them effectively enforce their regulations. Otherwise, they will be holding back both the sector and the nation.

As it stands, construction regulation is marred with nepotism, opportunism and corruption. From professional licensing to project implementation, the value chain has become a playground for excessive “rent seeking”. Opacity is the norm, while transparency is a rare gem. Checks and balances are rare. Much is left to the discretion of individuals. If Amazon is the epitome of global forest resources, then, Ethiopia’s construction sector is the Amazon of corruption.

In this sense, then, effective regulation of the construction sector is hugely political. It cannot happen without the ruling elite taking decisive action. In light of myriad concerns, it is vividly clear that the development in the sector is not sustainable. Hence, a lasting solution has to come. And this means political commitment from the ruling elite to effectively enforce existing laws and standards, making the processes transparent and punishing “rent seeking”.

It is only through this kind of commitment from the core that all the ills of Ethiopia’s construction sector, that endanger human lives and squander public resources, can be corrected. And that is what the ruling EPRDFites have to live for.

Published on May 10,2016 [ Vol 17 ,No 836]



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