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Small Enterprise Support

Central government is particularly ill-equipped for planning and certainly executing small-scale road works. Sites are often remote while skills tend to concentrate in the capital. Meagre travel allowances ensure that they remain there. Being small in scale, limited in time and spatially dispersed, rural road works cannot provide full-time employment. In any case, should the rural road network ever get all the attention it needs, there would not be enough government employees to go around.

It has become an article of faith that private enterprise does things better and more cheaply than the public sector. This must be taken with a grain of salt. It depends, like most issues in capitalist society, on which side has the balance of power. A strong construction sector will take government to the cleaners, sometimes facilitated by the supervising consultants, when it is allowedto do so, while crippling cost overruns do not mean bankruptcy for the minister. Over-achieving civil servants are rarely proportionally rewarded and may even invite criticism. Firms and their employees on the other hand are subject to well-tried Darwinian principles.

It remains that there are good reasons for maintaining a strong public sector to plan, program, and manage contractors in developing countries so as to resist their constant tugging of the blanket to their side. Competent construction firms are still rare, since governments up to now have monopolised skills and the opportunities to apply them. In fact, the public service could be an ideal incubator for future entrepreneurs. However, the dominance of the public sector is ending. Public funds are no longer available for construction and supervision and the private sector must construct, supervise and maintain roads from now on.

Decentralisation and local private-sector contracting have become essential. The basic questions must be posed locally by those best placed to get the right answers. Central government should put in place the conditions that ensure that those infrastructural investments which contribute most to improving local accessibility, once agreed upon, can be packaged and contracted out.

Firms suitable for small road works lie on an informal-formal continuum. They range from labour-only contractors for routine maintenance, with a modest investment in hand tools and simple means of transport, to firms with a formally qualified hierarchy of supervisory staff and significant investment in light equipment, capable of contracting for major rehabilitation works. Between the two, many variations exist, for example, semi-informal groupings of artisans to build or repair drainage structures or to sub-contract on high labour-content activities within large projects.

The problem is that such firms are rare in rural areas and this is the rock on which many rural roads projects have foundered. It is a relatively straightforward matter to improve a rural roads network but it will not be sustainable unless it is taken in hand locally. This in turn is not possible without a lot of preparatory work in training and strengthening the structures within which the training can be used. Moreover, all this work will be useless if the conditions are not in place to ensure that the knowledge transferred can continue to be applied elsewhere. Training may range from a matter of a few days for those towards the informal end of the continuum to many months of classroom and on-the-job training at the other end. Since training in itself is not enough to help contractors emerge and survive, ancillary programmes must also target demand-side problems that prevent them from doing so.

Construction demand is volatile and firms need credit to get them through slack times. Governments are slow payers, and again access to credit becomes necessary. However, support to local lending institutions should be tempered by prudence. Mitigating measures that reduce the need to borrow should have priority. Firms should be discouraged from over-investing, for example, by promoting labour-based construction and helping them to buy or lease light equipment packages. Speedy and transparent contracting and disbursement procedures should be put in place, especially for informal sector enterprises, whose workers will rapidly melt away if they are not paid, taking their training with them. Payment delays, as well as forcing good firms out of business, can have the perverse effect of forcing contractors who can afford it to use old equipment, expensive to run but cheap to buy, rather than hiring labour, since it makes no fuss over not being paid.

Demand is also generally weak in rural areas where incomes are low, and contractors should be encouraged to be polyvalent so as to take on any construction work available. At the same time, road projects should not be implemented in isolation, but rather integrated within a concerted effort to improve and maintain a coherent road network. This will ensure that training is not wasted and future demand will be sufficient to provide a steady flow of work.

It goes without saying that the bidding process should be designed so that contractors, large and small, machine- and labour-based, can compete on equal terms. Local sub-contracting should be encouraged on large projects. Finally, government must eliminate the many fiscal and legislative anomalies that distort the market and make legitimate businesses vulnerable, particularly informal sector ones.