PLANNING AND MANAGING CAPITAL PROJECTS IN AFRICA: SIERRA LEONE EXPERIENCE WITH THE PEOPLE’S REPUBLIC OF CHINA AND THE AFRICAN DEVELOPMENT BANK BY JAH Tasima and CONTEH Abdul-Rahman
Contents • Relationships with multilateral and bilateral partners • Types of development supports to Sierra Leone • Overview of the People’s Republic of China’s support (modality, disbursement and management) to Sierra Leone and analysis • Requirement on the part of the Government of Sierra Leone • Planning and budgeting implications for Chinese support for infrastructural projects • Overview and analysis of the African Development Bank’s (AfDB) support to Sierra Leone • Management and disbursement of AfDB’s supports • Requirement on the part of Government of Sierra Leone • Planning and Budgeting Implications for AfDB support for infrastructural projects • Conclusion and the way forward
Post war strategies and relationships with development partners • At the aftermath of the war, the Government prepared various Policy Papers such as: - The Interim Poverty Strategy Paper (IPRSP) in 2002 - Full Poverty Reduction Strategy Paper (PRSP) in 2005 • The pillars of these paper centered around good governance, Social Amenities, Agriculture and Youths Empowerments. • To tackle these challenges resulted into heavy dependency on various development partners (bilateral and multilateral partners). • Examples of the bilateral partners are: the Peoples Republic of China, United Kingdom, Nigeria, United States of America among others • Examples of the multilateral partners include: the World Bank, African Development Bank, Islamic Development Bank to name but few.
Types of development partners support • Sierra Leone receives support from her development partners as follows: Direct budget support: finance activities within the national budget and they are channeled through the consolidated fund. Programme/Project Supports: finance specific programmes or projects either within the budget or outside the budget. Technical Assistance: Provide human capacities such as doctors, educationists, lawyers and other professionals to assist in dvelopming the capacity in various sectors. • Also, development partners’ support to Sierra Leone are either tied or untied.
Overview and Analysis of the People’s Republic of China’s Support to Sierra Leone • Sierra Leone and the People’s Republic of China established formal diplomatic relations in 1971 followed by the signing of a broad based Economic and Technical Co-operation Agreement (ETCA). • Within the ETCA framework, China gives to Sierra Leone grants, interest free and concessional loans for economic, social and infrastructural development programmes and projects. Most of these supports were more of grants with little interest free and concessional loans of late. • The two governments, through their relevant Ministries/Department identify development projects which are considered by the appropriate authorities. • When the programmes or projects are approved by the two Governments, the Chinese government in concert with its annual foreign aid budget policy provides the funding in the form of a grant (gratuitous assistance) or a concessional and interest free loans.
Overview and Analysis of the People’s Republic of China’s Support to Sierra Leone (Cont.) • China’s support has been mainly focused on infrastructural developments particularly construction of buildings and supply of Agricultural inputs. • Prior to the war, China embarked upon construction of National Stadium and Hotel, Multi-Purpose Office Building (Youyi Building) and development of Agricultural Demonstration Fields; short and long term trainings. • Some of the post-war projects agreed with China are: • Feasibility study on the shortage of Power Supply in Freetown and making a medium and long-term Electric Power Development Plan. • Design for the expansion of Parliament building • Survey on the Two Small Hydro Power Stations
Analysis of the Peoples Republic of China’s Support to Sierra Leone (Cont.)
Analysis of the Peoples Republic of China’s Support to Sierra Leone (Cont.)
Disbursement and Management of China’s Supports • The Chinese supports be it a grant or loan are calculated in the local Chinese currency, which is non-convertible. • Funds for the various projects once agreed upon by the two countries are provided under the Economic and Technical Cooperation Agreement (ETCA) signed grants (gratuitous assistance) or a concessional/interst free loans). • The funds are disbursed into a pool-like account managed by Chinese Authorities in China, the Chinese Embassy in Sierra Leone and the component Sierra Leonean Authorities. • All grants or loans are made available through the pool-like account and payments for all projects are effected upon request for the buying of goods and services for a particular project through this one account. • The costs or values for goods and services are computed in RMB Yuan, the only currency payments are done and charged against the particular project’s loan or grant. • It is significant to emphasise that only Chinese companies are qualified to compete for all intentional bidding and such biddings are solely done by the Chinese Government.
Requirement on the part of Government of Sierra Leone Chinese aid like many other bilateral supports to Sierra Leone, requires some Government’s inputs or responsibilities: • Provision of land with accesses to water, electricity and telecommunication connections. • Relocation of all residents from the proposed project site. • Provision of duty waiver for all customs charge, taxes, tariff and duties that will be required by law. • Assist Technical team by dispatching its representatives on site in the execution of the project • Provide funds in purchasing local materials such as cement, blocks, tiles, sand, wood, stone etc needed for the project • Provide technical support in processing all customs clearance, loading and unloading, transportation from quay to site and storage of materials, imported personal belongings and security for staff of the project • Responsible for all the entry and exit formalities of Chinese experts among others
Planning and budgeting Implications for Chinese Support for Infrastructural Projects Some the national planning and budgeting problems for Sierra Leone resulting from Chinese support include: • Lack of adequate information to include into the formulation of budget estimates due to sectoral negotiations with little or no involvemnt of the Ministry of Finance and Economic Development • Off budgetary operations resulting from the fact that grants & loans are channelled and managed outside the consolidated revenue funds (CRF) by the Chinese Government and Chinese Embassy • Extra-budgetary requests at the time of project implemenation resulting from not monitizing the GOSL requirements at the time of conceptualizing the project or signig the agreement • Domestic Revenue Loss through 100% customs and other tax waivers. Also, the employment of 100% technical experts from China through the hiring of Chinese Company and provision of work permits, income tax concessions result into domestic revenue loss for the budget execution. • Also, capital flight resulting from the transfer of larg proportion of the Chinese salaries directly to China • The payment for various projects from one pool-like account causes a lot of problems in reporting on project executions as some projects that are executed at a high speed will utilize a large proportion of the total funds leaving the others not implemented. • Relocation costs of residents in the proposed project sites causes lots of pressure on the budget especially when compensation requests are done at the time the budget is facing revenues constraints or not factored in the but but due to political reasons the particular project site ought is required.
Overview and Analysis of the African Development Bank’s (AfDB) Support to Sierra Leone • The African development Bank (AfDB) commenced its lending operations with Sierra Leone in 1969. • The Bank’s total commitments to Sierra Leone as of February 2007 stood at UA 268.25m for forty three (43) operations. • As a post war country, it gains support from the AfDB on the basis of Country Strategy Paper (CSP) that is prepared by the Bank after a wider consultation with Officials of Sierra Leone and other national policy papers like the PRSP to provide national policy guidance. • The most recent CSP for Sierra Leone was approved in July 2005 to cover the period 2005 to 2009 aming at assisting the country transit from a nation focused primarily on post conflict emergency needs to a nation poised for long-term sustainable growth and development operationalized through two of the PRSP pillars – promotion of economic growth by improving governance and Human resources development. • As at this date, the portfolio contained fifteen (15) ongoing interventions, with total commitments amounting to UA 118.56m, of which UA 67.84m remained un-disbursed. The portfolio is diverse in terms of sectoral allocation and lending instruments with current lending activities concentrated mainly in the social sector, agricultural the multi-sector 11.2%, and the finance/governance sector as shown in Table 5.
Disbursement and Management of AfDB’s Supports • After the CSP, the AfDB looks at the sectors of intervention and prepares various sector projects papers/proposals within the available funds be it grants or loans. • Once the various projects proposals are technically accepted by the two parties, they are submitted to the board for approval. • Loan or Grant Agreements are prepared by the Bank’s Legal Department and sent to Sierra Leone for Government’s consent. • GOSL Law Officers Departement will also review it and advise Cabinet and Partliament for concurrence through the Minister of Finance and Economic Develoment • The Agreement is then signed by the Hon. Minister of Finance and Economic Development and a Bank’s representative. • The funds for either grants or loans projects are disbursed into two separate project accounts (the AfDB Account & GOSL Counterpart Account) which are managed by the project management team on a consultancy term but with involvement of Sierra Leonean Authorities. • All biddings for goods, services and works are done by the project management team within the procurement rules and regulations of the Bank and the national public procurement law. And contracts are awarded after receiving the Bank’s no objection to the procurement process and selection. • International contracts are limitted to companies operating in AfDB member states. • Payments for contracts be it international or local are initiated by the management unit/ministry through the Ministry of Finance and Economic Planning by preparing withdrawer forms and authorized by the Financial Secretary and the Accountant General before any payment is effected.
Requirements on the part of Government of Sierra Leone • International contracts are paid by the Bank directly to the Contractor after deliverying services in accordance with the Contract. • The currency of the Bank is convertible to internationally accepted currency but in most cases international biddings are done in United States dollars. Some of the GOSL requirements for AfDB’s infrastructural projects are: • Provision of project counterpart funds of certain percentage of the total project costs funded by the Bank (1% and 15%) • Parliamentary approval of the agreements • Establishment of the Project Implementation Units (PIUs) • Recruitment of the PUI or Project Management Staff • Opening of projects’ accounts and submission of signatories to the Bank.
Planning and budgeting implications for AfDB’s support for infrastructure projects Some the national planning and budgeting problems for Sierra Leone resulting from AfDB support include: • Provision of Counterpart Funds: The national budget is 40% donor supported and statutory payments (Salaries, interest payments etc) account for over 65% of domestic revenue which result into high constraints of trade off providing for recurrent services and development counterpart funds • Delay in effectiveness of the projects adversely affect the planning and budgeting especially when some projects take over a year. Funds provided for their first year usually lapsed. • Exchange Rate Variation: Since the UA is convertible and transactions are paid in other currencies, exchange rate variation resulting from either appreciation or depreciation usually distort planning and budgeting for long term infrastructural projects. • Extension of Projects resulting from the fact that implementations were delayed or project suspended by the Bank for some administrative lapses affect the planning and budgeting as new projects could not be accomodated within the limitted available resources. e.g. Bumbuna Hydro Project started since 1970s.
Planning and budgeting implications for AfDB’s support for infrastructure projects (Cont.) • The issue of Multi-Sectoral Projects results into various sectors requesting for a counterprt funds for a particular project simply besause some compents are implemented by them. Hence exerting unnecessary presuure on the planning and budgeting. • Extra-budgetary requests at the time of project implemenation resulting from not monitizing the GOSL requirements at the time of conceptualizing the project or signig the agreement • Domestic revenue loss through the hire of international consultants to provide sevices within the PIU result into domestic revenue loss due to tax exemptions and will also encourage capital flight resulting from the transfer of large proportion of their salaries directly to their home countries. Domestic Revenue Loss also result from the omition of tax liabilities and custom duties which are usually argued that they are not part of the project aggreements. • Sub-contracting of the procurement mangement to non-governmantal Institutions (e.g. UN Agencies) also result into high project administrative costs and loss of revenue since procurement under UN Agencies are tax exempted.
Conclusion and the Way Forward • At this juncture, it is evident from the above analysis that the identification of projects by multilateral donors are more policy based approach. • Whilst that of bilateral seem to be politically driven, multilateral institutions focus more on issues that will affect the poor. • Multilaterial supports are easier to manage than bilaterial supports • Furthermore, the supports of multilateral agencies are easily captured as part of the overall national budget since these funds are disbursed in consultation with the Ministry of Finance and Economic Development. • From the two case studies, China’s priorities within the period under review were social sector closely followed by governance and agriculture and finally energy. • On the other hand, AfDB’s priorities under review were social sector, followed by agriculture and energy and governance. • The only way is for GOSL to review the terms and conditions under which all infrastructural projects agreements are signed with particular reference to all the planning and budgetary implications highlighted.