Founder : Len Abrams
Water Policy International
Private-Public Partnership Page
PRIVATISATION, PARTICIPATION AND PROTEST IN THE RESTRUCTURING OF MUNICIPAL SERVICES:
Grounds for Opposing World Bank Promotion of "Public-Private Partnerships"
Graduate School of Public and Development Management
University of the Witwatersrand
Document published with the permision of the author and
with acknowledgements to the Urban Forum
THE WORLD BANK AND SOUTH AFRICAN MUNICIPAL SERVICES
The several dozen trade unionists gathered in Port Elizabeth city hall one sleepy, humid Saturday in February 1998, at a workshop on participation in "PPPs" (public-private partnerships), were stunned from the outset. A Department of Constitutional Development (DCD) deputy director-general began by blaming union opposition to privatisation for the "failure of the RDP." Following up, the PE city treasurer revealed in a slide-show that, unbeknownst to these leaders of the Eastern Cape region of the Congress of South African Trade Unions (Cosatu), World Bank staff had visited PE roughly eighteen months earlier (September 1996) to offer counsel on expanding the city's water system.
The treasurer, inherited from the previous government, had joined the Bank in a week-long model-building exercise that focused entirely on one option: increasing capital expenditure by privatising the city's water works. Various claims about likely efficiency enhancements were made, some of which -- such as the feasible reduction of staff from 6,5 to 3,5 per 1 000 water consumers, and a 1,2 percent interest rate advantage on capital-related borrowing for a private firm in contrast to the PE municipality -- were based on highly dubious assumptions. A lose-win bargain stared the trade unionists in the face: if the DCD official, Bank staff and treasurer were right, only the loss of many hundreds of union jobs, the opportunity for huge rates of private profit, and the more thorough commodification of services would allow the city to expand water-related infrastructure to tens of thousands of residents of unserved townships and shack settlements.
Over the next day of deliberations, critical reactions began to gel. Representatives of the SA Municipal Workers Union (Samwu) recalled their own national slogan -- "No to privatisation! 50 litres of water per person per day free of charge!" -- as a means of disentangling the false division between producers and consumers. Outsiders offered advice. A Johannesburg lawyer from Rand Water -- the country's largest intermediate buyer of water -- suggested a "public-public" partnership based on a water utility model instead. The Eastern Cape Socio-Economic Consultative Council's Bisho-based specialist on Local Economic Development argued for an approach that combined public ownership, expanded services, much greater cross-subsidisation and more explicit economic linkages. A representative of the International Labour Research and Information Group in Cape Town presented options for public sector reform as a means of improving services. Cosatu leadership then made the decision to throw down the gauntlet, vowing that PE would replace Nelspruit as South Africa's most vibrant site of struggle over infrastructure privatisation.
All of this was reactive, however. Already a year earlier, the PE Municipality's (1997:6) Director for Administration conceded, there had been "pressure for Port Elizabeth to carry the [privatisation] investigations further... from banks and commercial concerns" -- Banque Paribas, Rand Merchant Bank, Colechurch International, Development Bank of Southern Africa, Generale des Eaux, Metsi a Sechaba Holdings, Sauer Interantional and Lyonnaise Water had all met with PE officials -- as well as from DCD, which allocated R2 million from a R50 million US Agency for International Development grant to fund PE's PPP business plan development. (In spite of repeated promises, DCD staff repeatedly refused Samwu's request for financial support to look into alternative business plan options centred around public sector reform.) The workshop participants found themselves, in a sense, at the end of a chain that began with international capital and that was welded together by international development agencies and national and local states.
In this paper, I argue that to the extent we can trace the involvement of the World Bank -- in this instance working closely with senior local authority personnel, more generally with high-ranking DCD officials and local consultants -- the subsequent pressure upon politicians to privatise municipal services will be based on incorrect formulations of the problem, an inability or lack of desire by Bank staff to explore options drawn from South Africa's Democratic Movement, and a potential conflict of interest between Bank institutional investment interests and its policy advice. What this boils down to, as reflected in PE and many other settings in the near future, is a decisive failure by privatisation advocates -- particularly analysts from the Bank and its private sector investment subsidiary, the International Finance Corporation (IFC) -- to both respect the core political and developmental aspirations of the local citizenry, and demonstrate that privatisation assists in meeting such aspirations.
The question that must also be asked, is whether a public participation process -- now often seen as a significant ameliorating exercise -- would make any difference in all of this. Too often, participation is a euphemism for clever marketing of top-down, market-oriented policies which have to be sold, to enhance public "ownership," because they are essentially unpopular and harmful to either the interests of specific interest groups and/or the people as a whole. This paper concludes that much of the advocacy work done by the Bank and IFC in South Africa is very much in this spirit, and hence the more participation, the more informed opposition there will be. This helps explain the secretive nature of the Bank's work in PE. Indeed I argue that the problem lies in the broader attempt to privatise in a context in which democratic design of social and economic policy is demanded (and denied). So long as the Bank's work in South Africa follows the patterns outlined next, privatisation itself will be hotly contested.
THE SERVICES BACKLOG AND THE POLITICIZATION OF PRIVATISATION
It has been long recognised in South Africa's democratic movement that basic human needs related to infrastructure -- especially basic access to water, sanitation, energy, housing, a clean environment, transport and communications -- are vital to many aspects of everyday life: to women's status (at home and in society), to children's welfare, to personal and public health, to the natural environment, and to a better balanced local and national and indeed international economy. Moreover, it is also axiomatic that there are modes of appropriate technology available in South Africa that do not require the kinds of "megaprojects" (like Lesotho dams) often associated with infrastructure but that nevertheless would meet universal coverage of basic needs -- if affordable approaches that entail sufficient subsidies and cross-subsidies could be developed. This possibility is growing increasingly remote, however, in a South African environment characterised by growing poverty (and its "feminisation"), unequal distribution of resources, intensifying fiscal discipline and budget cuts, high interest rates, heightened competition between cities and towns, and -- in many cases -- a lack of respect by the World Bank and even the African National Congress government itself for mass social movements, community-based organisations and non-governmental organisations.
South African social movements and allied technical resource personnel have long campaigned for infrastructure and services for all. This was reflected in extremely generous promises made to the populace in the Reconstruction and Development Programme (RDP), the African National Congress campaign platform, in early 1994. But by late 1994, as shown below, World Bank staff and conservative local consultants were actively involved in undermining those promises by developing initial arguments for the South African government about household affordability and funding options related to infrastructure and services. The technical advice was based on faulty information and was explicitly biased towards privatisation and high user fees for at least three reasons. First, the Bank's South Africa staff ignored not only the RDP but also the Constitutional guarantee of basic services and housing to all citizens. Second, the Bank failed to correctly analyse and incorporate information about relative affordability and the indirect benefits of basic services (e.g., public health, environment, geographical integration, women's time and micro-/macro-economic multipliers). Third, in their review of funding options Bank staff did not consider utilising a simple mode of redistribution of resources from national to local level that the ANC had explicitly promised during the 1994 election campaign and that even the World Bank's own World Development Report 1994 endorsed -- namely, cross-subsidisation through a progressive block tariff that ensures "lifeline" access to basic services for all. There are other technical and political problems associated with the Bank's South Africa advice and the later decision by the Bank to invest in privatised infrastructure, as discussed below.
Within a few years of the Bank's initial arguments about privatisation and funding mechanisms for municipal infrastructure, and just as these arguments were being codified as official policy, progressive resistance emerged. In April 1997, Samwu initiated a national campaign against the privatisation of essential municipal services, which were emerging from minor Eastern Cape pilot towns to the battlefield represented by a small city, Nelspruit. The union later filed (unsuccessful) requests to the DCD to develop alternative local solutions that retained infrastructure-related jobs in municipal government and met the needs of unserved residents. Samwu's campaign against the high-profile privatisation of Nelspruit water services was temporarily successful, as the ANC Youth League, Communist Party and Cosatu leaders managed to delay the sale well into 1998. (Of interest, reflecting the increasingly corporatist reorientation of the SA National Civic Organisation, Sanco Investment Holdings opted instead to support water privatisation, by becoming a junior joint venture partner in the ultimately successful bid by the British firm Biwater, although the local Sanco affiliate was persuaded to oppose the privatisation.)
Just as Samwu, NGOs and social movements began turning their attention to the forthcoming infrastructure policy, the World Bank and South African government were finalising many of the central details. In May 1997, the South African Cabinet approved in principle two contradictory policies, one (from the Water Minister) stating the aim of supplying a free lifeline water service to all households and the other (from the Minister of Constitutional Development) promoting cost-recovery policies for household water supplies; the contradiction was still not resolved in September, when the Municipal Infrastructure Investment Framework was released to the public.
Moreover, in May 1997, the International Finance Corporation announced a $25 million investment in the Standard Bank "South Africa Infrastructure Fund" with the aim of providing the foreign currency component required for privatisation. That fund, as shown below, anticipates gaining a return on investment of more than 30 percent in 90 percent of its projects. Notably, the IFC makes no explicit effort to invest in a manner that directly broadens ownership to the black majority, but rather promotes an investment fund run by the country's largest bank.
In July-September 1997, as the SA government insisted on using harsh tactics to enforce a cost-recovery approach to infrastructure and services, a series of township protests broke out in Gauteng, Mpumalanga and Eastern Cape provinces. Grassroots demands included lower service charges, an end to pre-paid (and more expensive) electricity meters, and cut-offs of basic services. The protests turned violent in some areas (KwaThema, Tembisa, Butterworth), and included clashes with the police and municipal councilors (ANC councilors' houses were even burned down in rage) (Barchiesi, 1998; Phadu, 1998). In addition to organised civic groups, a variety of other community-based organisations became active on the issue.
In the fourth quarter of 1997, nearly all municipalities began widespread cut-offs of basic services to non-payers. In even central Johannesburg, where public health hazards loomed, this entailed shutting off access to water to tenants who had paid though their landlords had not paid the city council. DCD's "Project Viability" was expected to declare more than half of all South Africa's municipalities illiquid, which would intensify the now massive pressure to cut services, including water, to those who could not pay the unsubsidised bills (and for whom, generally, little or no safety net existed). In the Eastern Cape town of Stutterheim, for example, of nearly 5 000 households in Mlungisi township, 10 percent suffered water cuts during the last quarter of 1997, and of these, only 35 found sufficient resources to pay their bills and restore their service.
In short, local democracy had been judged too expensive for South Africa, and the 400 or more municipalities expected to fail would be amalgamated into large district councils. Yet behind this lay no large-scale, formal "rent boycott" (the only one of any significance was by white businesses and residents in Sandton). Instead, the growing municipal fiscal crisis emanated from the Department of Finance, which in real terms cut the crucial "Intergovernmental Grants" (which pay for municipal service subsidies) by 85 percent between 1991 and 1997, according to the Financial and Fiscal Commission (1997:18), lending new meaning to the idea of a "culture of non-payment."
In January 1998, a coalition of community, environmental, consumer, labour and non-governmental advocacy organisations from Gauteng province, Lesotho and other countries joined forces to begin challenging World Bank funding for continued construction of the Lesotho Highlands Water Project, partly because of its negative implications for water conservation and lifeline service provision in Gauteng, and partly because of the dam project's extraordinary ecological and social implications. With vast Lesotho water costs about to be assumed by Rand Water, to be passed on to Gauteng municipalities which were already seriously cash-strapped, the pressure on those municipalities to privatise basic services was sure to increase dramatically. In March 1998, as this article was drafted, a formal request was made to the Bank's Inspection Panel by two Gauteng civic associations -- which simultaneously split away from Sanco -- to investigate a myriad of allegedly flawed procedures, decisions and analysis by Bank staff in relation to the retail implications of tripling the raw cost of water so as to pay for the Lesotho dams (Mayekiso and Menu, 1998).
There are many issues that deserve exploration here. To keep matters brief and to understand the role played by the World Bank in the run-up to privatisation of municipal services, requires first considering its back-door route to privatisation through the IFC loan, and then the specific debates that distinguished the Bank's South Africa staff not only from local popular movements -- on privatisation and a variety of related issues -- but also from Bank headquarters (as seen in conflicting policy advice offered from the two Bank sources).
THE IFC'S BACK-DOOR ROUTE TO PRIVATISATION
The financial logic behind the IFC's $25 million investment in privatised infrastructure -- through the Standard Bank South Africa Infrastructure Fund (SAIF) -- is worth examining at the outset, for here is where World Bank conflicts of interest visibly emerge, where the exploitative character of privatisation becomes obvious, and where the broader alliance of international and domestic financial capital, with international managerial capital, is unveiled. According to the IFC,
The principle objective of SAIF is to invest in infrastructure projects in order to achieve long-term capital appreciation for investors. The Fund will focus on equity investments in the environmental (water, waste, sanitation and sewerage), energy, telecommunications and transport sectors. Although [the Fund] has achieved some success in developing its deal flow, it is constrained by domestic regulation from bidding for privatisations that require foreign funds. The additional financing will satisfy the Fund's need for foreign exchange and help diversify its portfolio. IFC's presence on the board of [the Fund] will help transfer expertise from IFC to the Fund... This is an environmental review category FI project. The Fund will only invest in projects which meet World Bank environmental policies and host country standards (IFC announcement, May 1997).
Privatised South African infrastructure is potentially highly profitable, with Internal Rates of Return (IRR) approaching 30 percent. According to an African Development Bank study (1997:13, Annex 6), SAIF projection for before-tax IRRs of 26-27 percent "during SAIF's 15-year life in constant US dollar terms" assumes that "10 percent of all investments will fail; 50 percent of all investments will generate an IRR of 30 percent; and 40 percent of all investments will generate an IRR of 35 percent." To earn such high rates of return on infrastructure investments that are often long-term in nature (often forty years before full social and economic returns on investment are realised), and on top of that to compress the high earnings into the early stages of investment (on average 7.5 years, given that the SAIF will shut down after 15 years), and to do so using a wide range of social infrastructure investments, implies an extremely high cost-recovery burden for direct infrastructure recipients, or dramatic cost reductions at the level of the enterprise. Amongst SAIF "potential project pipeline" investments are the hotly-debated Nelspruit water treatment, Eskom electricity transmission lines, Empangeni water management and Telkom's partial privatisation, all of which entail infrastructure aimed at bringing low-income people into the economy (ADB, 1997:Annex 1).
As it stands, the DCD recognises the need for a regulatory framework to prevent undesirable practices such as monopoly pricing or "cherry-picking" (limiting access for low-income people) by private firms (unconscionable profiteering is apparently not considered a matter requiring regulation, however). But by 1998 it had still not yet formally established such a framework even though large documents had been generated by Washington-based consultants and though such investments were being made regularly. As a result, low-income people may face a large hurdle: covering both relatively non-subsidised recurrent (operating and maintenance) costs, and paying sufficiently high service charges so as to reward investors with a 32 percent rate of return. As the rand declines against the dollar (inexplicably, something not explicitly foreseen by the African Development Bank in its report), the IRR target will have to be raised much higher, so as to remain competitive with other international investments.
Several questions emerge through this example. How appropriate is it that infrastructure investment for low-income people becomes the basis for this high a rate of return, with relatively short-term private financial commitment in relation to the entire project? Where are the cost-savings anticipated by the private firms in which local and international financial investors will invest? If such cost savings come through large-scale rationalisation of public sector workers, what are the implications?
The IFC -- a low-profile institution in South Africa -- has not publicly addressed these questions, and this author knows of no internal or public IFC document that does. To get a sense of how cost-recovery may be achieved from widespread privatisation of municipal services, at a time of extreme politicization of services and payment levels, requires considering the World Bank's broader policy work on municipal infrastructure and services, the "Urban Infrastructure Investment Framework" in which the Bank played a decisive role in late 1994 and early 1995. As a precursor, though, it is useful to glance through the document that should have given Bank staff ideas on what kinds of policies to design, the RDP.
GOVERNMENT'S MANDATE ON MUNICIPAL SERVICES
The contrasts between -- on the one hand -- infrastructure investments being undertaken at present by the IFC and infrastructure policy design carried out by World Bank staff in South Africa in late 1994 and early 1995, and -- on the other hand -- that recommended in the RDP in early 1994, and later by the Bank's World Development Report: Infrastructure for Development (WDR) in mid 1994, are striking. To begin with the RDP, it is worth recording the status attributed to the document by President Nelson Mandela, in his victory celebration speech on 2 May 1994:
We have emerged as the majority party on the basis of the programme which is contained in the Reconstruction and Development book. That is going to be the cornerstone, the foundation, upon which the Government of National Unity is going to be based. I appeal to all leaders who are going to serve in this government to honor this programme (Business Day, 5/3/94).
The RDP book is ambitious about meeting basic needs: "With a per capita gross national product (GNP) of more than R8 500 South Africa is classified as an upper middle income country. Given its resources, South Africa can afford to feed, house, educate and provide health care for all its citizens" (section 2.1.3). The RDP proceeds to list a number of specific areas (many related to the International Covenant on Economic, Cultural and Social Rights) in which South Africans can consider themselves entitled to an adequate consumption level of goods and services. These were codified in the 1996 Constitution, which commits to the citizens of South Africa that the state will ensure second-generation socio-economic rights (such as water, housing, health care and other services), along with a general commitment to equality of state service provision.
The RDP's approach is to ensure that essential service needs are met through vast increases in government subsidies and redistributive tariff systems when a cost-recovery approach fails to deliver services to those who need them. For example, the RDP suggests the characteristics of a decent residential existence: "As a minimum, all housing must provide protection from weather, a durable structure, and reasonable living space and privacy. A house must include sanitary facilities, storm-water drainage, a household energy supply (whether linked to grid electricity supply or derived from other sources, such as solar energy), and convenient access to clean water" (section 2.5.7). The budgetary goal for housing expenditure in the RDP is 5 percent of the entire national budget; this goal was repeated in the Housing White Paper, and if delivery capacity improves there is no reason not to anticipate meeting this target at some stage soon in the course of budget reprioritisation.
Perhaps most importantly for municipal services, the RDP commented in some detail on how to finance infrastructure and the recurrent costs of services. The RDP specifies the need for tariff restructuring, cross-subsidies and lifeline services to the poor, with respect to both water (including sanitation) and electricity:
To ensure that every person has an adequate water supply, the national tariff structure must include the following:
a lifeline tariff to ensure that all South Africans are able to afford water services sufficient for health and hygiene requirements;
in urban areas, a progressive block tariff to ensure that the long-term costs of supplying large-volume users are met and that there is a cross-subsidy to promote affordability for the poor, and
in rural areas, a tariff that covers operating and maintenance costs of services, and recovery of capital costs from users on the basis of a cross-subsidy from urban areas in cases of limited rural affordability (section 2.6.10).
The electrification programme will cost around R12 billion with annual investments peaking at R2 billion. This must be financed from within the industry as far as possible via cross-subsidies from other electricity consumers. Where necessary the democratic government will provide concessionary finance for the electrification of poor households in remote rural areas. A national Electrification Fund, underwritten by a government guarantee, must be created to raise bulk finance from lenders and investors for electrification. Such a fund could potentially be linked to a Reconstruction Fund to be utilised for other related infrastructural financing needs. A national domestic tariff structure with low connection fees must be established to promote affordability (section 2.7.8).
With national tariff reform emphasising cross-subsidies (using national and provincial resources, not just local) and lifeline tariffs for low-income consumers, and with a more appropriate use of housing subsidies to finance deeper levels of capital infrastructure -- neither of which should ultimately cost central government anything extra beyond even the (original) urban housing and rural land reform targets -- promises of humane standards of infrastructure and services for all South Africans can be kept, and additional public health, environmental and economic benefits to all of society (particularly women and children) can be gained.
It is possible to translate these broad mandates into a concrete policy directive: a marginal increase in the price of water and electricity should be applied to large corporations and farms (which consume more than 75 percent of water and energy resources, and in a wasteful manner), to pay for a lifeline service to households (the majority of black households together consume less than 2 percent of these resources). It was precisely this funding mechanism that would have obviated the need for privatisation of municipal services; it was precisely this mechanism that was ignored by Bank staff in their detailed study of municipal services, even though the same mechanism was endorsed in the 1994 WDR.
CONTRADICTORY BANK POLICY ADVICE:
THE 1994 WDR AND THE SA STAFF REPORTS
Bank policy advice, which was decisive in shifting the terrain of debate over infrastructure investment away from government's RDP mandate, began with several Urban Reconnaisance Missions to South Africa during the early 1990s (for a critique, see Bond and Swilling, 1992). It included repeated conservative interpretations, profoundly flawed, of how generous the state should be with respect to housing, concluding in 1994 that subsidy levels should be lower and reliance upon bankers heavier than those envisaged by most South African commentators (Bond, 1995); the resulting Housing White Paper was applauded by the Bank's deputy resident representative -- who also coordinated the PE privatisation research -- at a mid-1997 Johannesburg meeting with NGOs (personal communication with SA NGO Coalition leaders; Bond and Tait, 1997). For our purposes here, it will be sufficient to analyse the more direct policy advice offered once the ANC government had taken office, particularly two drafts of the Urban Infrastructure Investment Framework (UIIF), dating from November 1994 and March 1995. The irony implicit in the UIIF derives not only from its rejection of the RDP's core arguments on financing, service standards and redistribution, but from the Bank South African staff's rejection of the WDR: Infrastructure for Development report issued just a few months earlier. The WDR recommended a relatively interventionist approach to policy, programme and project design, for several reasons:
to internalize developmental externalities associated with infrastructure and recognise the public character of infrastructure goods, instead of leaving these to the market;
to amplify the effect of infrastructure on the reduction of poverty;
to incorporate economic multipliers as integral to infrastructure investment;
to incorporate infrastructure's environmental effects;
to incorporate infrastructure's public health effects;
to incorporate locational externalities;
to incorporate infrastructure's role in reducing gender inequality;
to establish an appropriate tariff pricing system that will accomplish the social as well as economic objectives associated with municipal infrastructure; and
to learn lessons of infrastructure project failure so they are not repeated.
Yet World Bank staff in South Africa (and government consultants engaged in parallel work) failed to take such lessons seriously. In many cases, the WDR guidelines regarding such issues were ignored entirely. As a result, the case for state intervention is much weaker in the UIIF, the net economic benefits of infrastructure are suppressed, and recommendations for infrastructure standards are extremely low. The inadequate analysis, failure to engage with the RDP, and lack of participation with its advocates led the Bank to adopt a pro-privatisation position regarding municipal services.
In the series of brief comments below, in each case starting with the WDR, it is clear that the precise language of the Infrastructure for Development report was ignored or distorted by the Bank's South African staff and allied local consultants in the UIIF documents that were generated in late 1994 and early 1995 (leading to similar problems in the final Municipal Infrastructure Investment Framework [MIIF] in drafts from 1995-97, including a short version publicly released in September 1997). In turn, this generally led to lower standards and smaller subsidies for low-income residents than should have been the case.
IDENTIFYING PUBLIC AND PRIVATE INFRASTRUCTURAL GOODS
One of the key issues under debate in the controversy over privatisation is whether infrastructural goods are public or private, and if the latter whether public management is necessary to internalize externalities. While World Bank staff in South Africa have strongly advocated privatisation of municipal services, in part or full, a more measured position appears in the WDR,
Because many infrastructure facilities are locationally fixed and their products are non-tradable, users cannot readily obtain substitute services that better suit their needs. Moreover, it is often difficult for users to obtain information about service alternatives or characteristics. They cannot, therefore, "shop around" for the best source of supply and are vulnerable to any abuse of monopoly power... Roads are not private goods... Water outside of piped networks is often -- in practice and in principle a "common property" resource... Although most infrastructure goods are private, they produce spillovers or external effects -- many of which affect the environment. Ignoring the important negative externality of emissions from fossil fuel power generation could lead to excess power being produced with the wrong mix of fuels. By contrast, some cities have neglected to develop a well-designed public transport system, even though such a system can have positive environmental effects and also promote social equity. To ensure that society obtains positive benefits -- such as public health benefits from water and sanitation -- the private goods must also be delivered effectively. Thus, although infrastructure services differ from other goods, they also differ among themselves. The characteristics of various infrastructure activities have important implications for how services should be provided. To the extent that specific infrastructure activities entail natural monopoly or depend on a network characterized by natural monopoly, they will not be provided efficiently by an unfettered market (Bank, 1994:23-24).
A number of problems arise for which markets cannot guarantee solutions. Many infrastructure services, especially those that resemble public goods, will be undersupplied if markets alone are left to determine their provision. Market outcomes may allocate fewer infrastructure services to the poor than society desires (1994:73).
Because markets often fail to reflect these externalities, their management usually falls to government (1994:82).
The clear message, in short, is that even for those infrastructural services that are private (not public and hence extremely difficult to price) there is compelling evidence to retain state control. For to effectively internalize the developmental externalities associated with infrastructure will generally require the state -- which has the capacity to address the social costs and reap the social benefits -- to make calculations about the broader economic cost/benefit analysis associated with infrastructure (whereas private sector suppliers tend to rely upon only narrow financial cost/benefit analysis), and to implement infrastructure and services provision in a manner that captures the benefits and minimizes the costs. This is particularly obvious with respect to the need for universal access and cross-subsidisation from large to small consumers, which are the opposite incentives of what private sector providers react to, as profit-maximizing actors in a market setting.
Thus far in South Africa, there has been very little case material -- no conclusive evaluations of public-private partnerships in the handful of locales -- to draw upon to contradict such findings, except to add the importance of community-based participation in infrastructure investment and services delivery, a matter taken up in the conclusion of this paper. The most exhaustive review of the international literature and application to South Africa -- by David Hemson (1997) -- lists the following likely problems:
corruption in the tendering and drawing up of contracts, particularly in the US; monopoly in the privatised service; higher user charges; inflated director's fees, share options, and management salaries; widescale retrenchments; and anti-union policies.
Nevertheless, the UIIF and MIIF are firmly in favour of privatisation, although the latter acknowledges the need for a regulatory framework. By and large, the issues discussed above were not taken into consideration in the policy advice offered, and this is one of the reasons why it will be exceedingly difficult to gain a consensus on privatisation of basic services.
INCORPORATING ECONOMIC MULTIPLIERS
A key problem was that economic multipliers associated with infrastructure were not adequately conceptualized by the Bank's South Africa staff and were not factored into either financial or socio-economic calculations of the affordability of infrastructure investment.
According to the WDR:
Infrastructure represents, if not the engine, then the "wheels" of economic activity... Users demand infrastructure services not only for direct consumption but also for raising their productivity by, for instance, reducing the time and effort needed to secure safe water, to bring crops to market, or to commute to work. Much research in recent years has been devoted to estimating the productivity of infrastructure investments. Many studies attempting to link aggregate infrastructure spending to growth of GDP show very high returns in a time-series analysis... What is evident is that a strong association exists between the availability of certain infrastructure -- telecommunications (in particular), power, paved roads and access to safe water -- and per capita GDP. An analysis of the value of infrastructure stocks indicates that their composition changes significantly as incomes rise (1994:14-15).
The original Bank contribution to the UIIF included no attempt to incorporate the economic multipliers -- either micro or macro -- associated with varying infrastructure levels; hence extremely low standards were recommended. (A calculation for employment benefits was made but not incorporated in the economic calculation [UIIF, 16/11/94:54]; later suggestions for incorporating economic multipliers in another draft of the UIIF [23/3/95, v.II:25] included only employment but no other multipliers, but the economic appraisal failed to show how incorporation of employment multipliers would affect standards of construction and/or consumption.)
As a result of failing to adequately calculate or incorporate economic multipliers, the case for a strong role for municipalities and state intervention more generally was diluted, as was the importance of providing relatively high levels of standards along with generous cross-subsidies to enhance affordability.
CONSIDERING THE ENVIRONMENTAL IMPLICATIONS
According to the WDR:
Infrastructure provision results from the efforts of individuals and communities to modify their physical surroundings or habitat in order to improve their comfort, productivity, and protection from the elements and to conquer distance... Environment-friendly infrastructure services are essential for improving living standards and offering public health protection. With sufficient care, providing the infrastructure necessary for growth and poverty reduction can be consistent with concern for natural resources and the global environment (the "green" agenda). At the same time, well-designed and -managed infrastructure can promote the environmental sustainability of human settlements (the "brown" agenda)... The relationship between each infrastructure sector and the environment is complex. The most positive impacts of infrastructure on the environment concern the removal and disposal of liquid and solid wastes. But much depends on how disposal facilities are planned and executed. Underinvestment in municipal sewerage relative to water supply in densely populated cities such as Jakarta has been found to lead to harmful contamination of water reserves, to exacerbate flooding, and to reduce the health benefits from water investments. Provision of sewerage without wastewater treatment can lead to severe downstream pollution and public health problems where receiving waters are used for drinking-water supply or for recreation, irrigation and fisheries, as suggested by the cholera outbreaks in Peru and neighboring countries in recent years. Poor management of solid waste complicates urban street drainage and has been linked with the proliferation of disease-bearing mosquitos in standing water. The growing problem of hazardous and toxic wastes as countries industrialize poses particular concerns about safe disposal... Power plant and vehicle emissions are important contributors to air pollution, so their air quality impacts deserve careful analysis when facilities are expanded... A 20 percent improvement in air quality in Bangkok, as a result of a reduction in pollutants related to vehicle or power plant emissions, would produce annual health benefits valued at between $100 and $400 per capita for Bangkok's 6 million residents... Beyond urban areas, overuse of water for irrigation (which accounts for about 90 percent of water withdrawals in most low-income countries) damages soils and severely restricts water availability for industry and households, which often have a higher willingness to pay for the quantities of water they use. The inefficient burning of biomass fuel (plant and animal waste) for household energy contributes to deforestation and thus to erosion and loss of soil nutrients, as well as to indoor air pollution (1994:20-22).
Infrastructure often has widespread indirect impacts -- frequently, on the environment -- which can be beneficial or harmful. Irrigation infrastructure can reduce pressure on land resources by permitting greater intensity of cultivation on existing plots, but it can also promote excessive water usage, resulting in groundwater salinization and land subsidence... Environmental sustainability involves innovation in technology and organization, as well as improved efficiency in the use of infrastructure services through pricing and regulation (1994:82).
Environmental regulation and promotion of the efficient use of infrastructure help reduce adverse consequences from existing infrastructure, issues that have been explored in more detail by World Development Report 1992. More options are available with new projects, although investment decisions can be consistent with environmental objectives only if environmental impacts are identified and assessed (1994:87).
Initially, the UIIF apparently failed to incorporate all these (and other) environmental factors in infrastructure costing and hence design. Although an "environmental impact" was acknowledged, the benefits were not estimated, and potential costs (associated with potential expanded water and electricity use) ignored in the statement "There are no major environmental problems anticipated for this project" (UIIF, 16/11/94:54). Indeed, the UIIF (and the final MIIF) underplayed the environmental impact of infrastructure, and failed to provide quantitative estimates of costs and benefits that would otherwise justify higher infrastructure standards.
It must be acknowledged that the environmental impact of increased infrastructure and services is complex, for both benefits and costs are associated with higher levels of services and consumption. It is generally accepted that large-scale bulk infrastructure projects (such as major dams or roads through ecologically sensitive areas) are to be avoided. But incorporating the benefits of infrastructure remains crucial.
In comparing pit latrines to water-borne sewage, for example, it is clear from South African research that if installed properly, the latter is potentially a far more environmentally-friendly approach (particularly in the many areas affected by inopportune geological conditions). However, alternative systems for treating effluent should also be considered due to risks associated with leakage from centralized treatment systems.
Similarly, there is likely to be environmental damage that may arise from increased utilisation of water by those who presently do not have access. But it should be clear that the additional requirement to meet the RDP's consumption targets -- 1,5 percent of present capacity, according to one estimate -- will not be overwhelming in comparison to other benefits. In addition, there is no doubt that water conservation should be improved, and, as argued below, a progressive block tariff structure is a well-recognised approach to this end.
South African experience with stormwater drainage issues demonstrates that 1) drainage systems must be viewed in a holistic manner, given the wide ranging consequences of inappropriate drainage systems; 2) the approach recommended in the UIIF and MIIF tends to be narrow, component-based, and does not include innovative stormwater management, and instead provides drainage solely based on community income while ignoring regional environmental costs and benefits; and 3) innovative, holistic systems could be both more cost effective and equitable.
Any consideration of water quality must account for both surface water and groundwater, and emphasizes the case for higher standards of infrastructure and maintenance. In general, environmental costs and benefits related to water are difficult to measure. But in just one water treatment pricing exercise, substantial net benefits -- in excess of R100 million per year -- arise from higher standards (water-borne sanitation instead of pit latrines).
Finally, there are also environmental effects of higher electricity service levels include the benefits, amongst others, of reduced air pollution from coal and wood. On the other hand, increased electricity use will cause additional environmental costs through the generation of electricity by South Africa's coal power stations, although these additional costs are more than offset by the environmental gains occurring in newly-electrified households.
PROMOTING PUBLIC HEALTH
The WDR makes a strong stand in favour of raised infrastructure standards so as to achieve higher levels of public health:
Worldwide, roughly 1 billion people lack access to clean water and more than 1.7 billion do not have adequate sanitation. Diarrheal disease, often caused by contaminated water, represents one-sixth of the world's burden of disease. The most widespread contaminant of water is disease-bearing human wastes. The environmental benefits of water supply depend not only on delivering safe water for drinking but also on providing enough water to permit good human hygiene... [In Kathmandu] based on estimates using narrowly defined project appraisal techniques, [net] benefits from the city's new $150 million water distribution system... [equalled] $5.2 million. Using the more detailed service-level approach to project appraisal, however, it was determined that in some cases health benefits from a reduction in coliform contamination of the water approached $1,000 per unit serviced. An education program that improved water use led to further reductions in health and transport costs. After these indirect benefits were factored in, the project showed a positive net benefit of about $275 million (1994:82).
The original UIIF mentioned but failed to calculate the health benefits of infrastructure (and in the final MIIF, such benefits were also mentioned but not calculated). Again, this resulted in a recommendation of lower standards of infrastructure than should otherwise be the case.
Participation with South African public health researchers would have allowed Bank staff the opportunity to learn in local conditions what the WDR was able to generalize. The public health arguments for improving the proposed levels of service provision beyond those recommended in the UIIF are numerous.
Both the international and the South African literature (as summarized in Bond, 1997; see also Bond, 1998) shows that incremental improvements in sanitation result in incremental improvements in health, but that health benefits from improved water supplies only appear when improved sanitation is present and only when water is provided on the premises or inside the house. Communal water facilities, as were recommended for large proportions of even urban populations in the UIIF, have been shown to have no or little health impact or in some cases worsen the situation. Water provision without adequate wastewater disposal provision (such as that provided by water-borne sanitation) may be a health hazard in itself, for the quantity of water is almost as important as water quality. For this reason the provision of private household or yard taps is crucial, as distance to the water source is the most important factor affecting the quantity of water used by households. Improvements in both water and sanitation produce larger impacts than either alone. For better health impact, improved water and sanitation and better hygiene behavior are required. The reduction in morbidity due to energy related diseases is a function of the relationship between electrification and developmental attributes such as housing, safe water, sanitation, education and health care.
The direct health sector cost saving that would stem from upgrading the proposed urban infrastructural investment with regard to water and sanitation is at least R570 million over a decade, and almost R450 million with regard to electrification (assuming 80 percent access by 2012). This saving is the direct result of investment in urban infrastructure, and should have been included in financial evaluations of urban infrastructure investment. In addition, indirect health benefits would also result in substantial savings due to the release of time, particularly women's time, which can be used for child care and productive activities; improved worker productivity; and opportunities for education, as discussed below.
Given the historical disparities between race groups in South Africa, it is not appropriate to provide inferior services to the disadvantaged populations. Countries with the largest gaps in the quality of infrastructure between the wealthy and the poor, have the worst overall health status. In addition to the ethical and moral arguments, there are sound public health arguments for improving infrastructure in the poorer areas. Many of the diseases related to poor infrastructure are contagious, and as such, have the potential to threaten the health of higher socio-economic groups in the vicinity, e.g. cholera, malaria, dengue, filariasis, yellow fever and tuberculosis. It was shortsighted of the Bank staff to advocate a lower level of infrastructure given the longer term potential for environmental degradation. In addition, problems of non-payment for services are likely to be perpetuated unless good quality services, associated in the minds of the poorer with the wealthy (mainly white) population, are provided. There is evidence to show that people are much more likely to maintain services which are their own than those which are shared.
In short, health is primarily produced at the level of the household and is directly related to the living environment, which includes municipal service provision. There is much evidence, international and local, to demonstrate the significant public health advantages of improved infrastructure, beyond the standards and consumption levels envisaged in the UIIF.
ACCOUNTING FOR BENEFITS TO WOMEN
It is conventional wisdom now that infrastructure and services can benefit women disproportionately. According to the WDR:
The poor -- women in particular -- must commit large shares of their income or time to obtaining water and fuelwood, as well as to carrying crops to market. This time could otherwise be devoted to high-priority domestic duties, such as childcare, or to income-earning activities. Such gender-specific effects need to be considered in the evaluation of proposed projects (1994:20).
For the poor, easier access to water can free up time that can be used to pursue income-earning activities. In rural Pakistan, women with access to improved water supply spend nearly 1.5 fewer hours a day fetching water than do women without this access (1994:49).
The beneficial impacts of infrastructure on women can be profound, often extending beyond the commonly cited impacts of water and sanitation infrastructure on household health or women's time allocation. But ensuring such outcomes requires foresight and attention to detail during project planning... Predicting the impact of infrastructure on women can be difficult and requires a close understanding of the details of their activities, opportunities, and constraints (1994:85).
The initial UIIF infrastructure recommendations mentioned but failed to quantify and incorporate these issues, even though they are widely recognised in South Africa. As elsewhere in the developing world, women are the primary care-givers and homemakers, and hence the benefits of infrastructure and service delivery are disproportionately felt by women, and likewise the burden of inadequate standards of infrastructure also fall upon women.
There are several aspects to women's utilisation of time that can be enhanced by infrastructure investments and service delivery, relating to time spent in water queues, time spent gathering fuelwood and making fires, time spent walking from place to place because road conditions are not amenable for public or private transport, and time spent on other tasks that could otherwise be directed elsewhere if proper infrastructure was in place. To take one example, time savings due to the nearness and availability of an improved water source has been reported to lead to more time for child care, including breastfeeding and better food preparation. Time saved could be used for agricultural or income generation activities which could result in better family health. In addition, women's savings in energy expenditure from bringing water closer to households results in reduced incidence of low birth weight babies born as well as a corresponding reduction in energy intake which could be transferred to children. Similarly, time savings due to the use of electricity for cooking and heating could be utilised in ways more beneficial to health. The time spent by rural households in South Africa (usually women) collecting wood for fires fall within the range of 5.2 to 18.6 hours per week (average 11.9). In aggregate each year, 1,2 million hours of travel time could be saved (nearly entirely by women), along with 12 million tonnes of firewood (Bond, 1997).
Because these benefits were not quantified and incorporated into the UIIF, Bank staff recommended far lower levels of infrastructure than were appropriate. By recommending the provision of only communal taps for low-income people, neglecting to promote sufficient energy supplies and failing to calculate an appropriate subsidy system that would allow infrastructural services to be utilised, Bank staff effectively dismissed the actual importance of these services to women, by designing a system that will deny infrastructure to women in practice.
DESIGNING APPROPRIATE SUBSIDIES AND TARIFF REFORM
The importance of assuring universal access to basic infrastructural services through "lifeline" and rising block tariffs is well recognised, in part because this is a more efficient way of directing subsidies to those who need infrastructural services most. According to the WDR:
Certain characteristics of infrastructure also create challenges in financing. Where a minimum level of consumption of a particular service (such as water, heating, or power) can be identified as a "lifeline" for some users, society may judge that they should not be excluded if they cannot afford to pay. Financing strategies also have to be designed to take account of the risk that arises because many infrastructure investments are large and long-lived, while the revenue stream is often slow to develop (1994:24).
Adjustments in the general pricing formula can be used to avoid an operational deficit and minimize the tradeoffs imposed by the need to jointly address equity, efficiency, and financial goals. In general, if financial autonomy is a requirement, the public price has to be revised to cover the cost of providing the service plus a markup, often resulting in multipart tariffs and possible cross-subsidies. Two common options to minimize the distortions (to efficiency and equity) of achieving financial autonomy are increasing-block tariffs and time-of-use rate structures. Under an increasing-block tariff, consumption of services (usually water or power) is priced at a low initial rate up to a specified volume or use (block) and at a higher rate per block thereafter. The number of blocks varies from three to as many as ten (1994:48).
Subsidized provision of infrastructure is often proposed as a means of redistributing resources from higher-income households to the poor. Yet its effectiveness depends on whether subsidies actually reach the poor, on the administrative costs associated with such targeting, and on the scope for allocating budgetary resources to this purpose without sacrificing other socially beneficial public expenditures. Price subsidies to infrastructure almost always benefit the nonpoor disproportionately... There are, however, ways in which infrastructure subsidies can be structured to improve their effectiveness in reaching the poor. For example, for water, increasing-block tariffs can be used -- charging a particularly low "lifeline" rate for the first part of consumption (for example, 25 to 50 liters per person per day) and higher rates for additional "blocks" of water. This block tariff links price to volume, and it is more efficient at reaching the poor than a general subsidy because it limits subsidized consumption. Increasing-block tariffs also encourage water conservation and efficient use by increasing charges at higher use. These tariffs are most effective when access is universal. When the poor lack access, as is frequently the case, they do not receive the lifeline rate and typically end up paying much higher prices for infrastructure services or their substitutes (1994:80-81).
As noted above, this position was also adopted in the RDP. However, in its discussion of funding for infrastructure, the first draft of the UIIF notes "various sources including a) the existing fiscal instruments available to local government and the RSCs/JSBs, b) the existing transfer mechanisms between the centre/provincial and local tiers, c) additional transfer payments and d) the reallocation of expenditure priorities combined with efficiency improvements. The extra dimension to all of these options is the role of the RDP funds in financing a share of the investment programme and/or the annual recurrent costs... Additional options, to be evaluated in the forthcoming months, include a) the impact of incorporating governmental transfers (including alternative assumptions about the running costs of black residential areas), b) revenue sharing of the provincial governments' fuel levy and c) the piggy-backing of a local income tax" (UIIF, 16/11/94:42,43) This was repeated in the final UIIF draft (23/3/95:62).
It would have been extremely easy to establish a national tariff reform that included block tariffs, for Eskom sets national redistributive tariffs for electricity already (low-income households pay 23 cents per kilowatt hour, while large corporations pay less than 6 cents due to the economies of scale in consumption and their greater bargaining power); this redistribution could have been altered to benefit low-income people, who consume less than 3 percent of all electricity (in contrast to industry, including mining, which consumes more than 50 percent, or to high-income consumers, who consume 12 percent). In the case of water (and hence sanitation), redistributive lifeline supplies and block tariffs were also feasible in view of the decision by the Minister of Water Affairs and Forestry to assume responsibility for ownership of all South African water resources (hence negating riparian rights). This will allow the minister to establish a national tariff framework that will eventually permit redistribution of water; at present, more than 50 percent of water is consumed by (white) commercial farmers, with domestic consumption only 12 percent and low-income domestic consumption less than 2 percent (Bond 1997).
In spite of these well-known circumstances and the specific mandates in both the RDP and WDR, no provision was made by Bank staff for national-level cross-subsidies with progressive block tariffs with a lifeline supply. Once again this had the effect of leading to recommendations of lower standards of infrastructure than should otherwise have been the case.
The reasons for this hostility to block tariffs in the South African case became clear in an October 1995 presentation to Minister of Water Affairs and Forestry Kader Asmal, by John Roome (1995:50-51), who was then the World Bank's task manager of the Lesotho Highlands Water Project. By ignoring the demand-side management and conservation issues associated with progressive block tariffs, Roome argued against sliding tariffs -- citing in particular the case of Johannesburg, which has a moderately progressive tariff structure -- for six reasons (overhead slide points by Roome are in quotes, and my rebuttals immediately follow in parentheses):
"poorly targeted -- rich and poor alike benefit from subsidy" (a code phrase for Roome's opposition to universal entitlement, which is the preferred system of distribution of goods so as to avoid the class fragmentation, stigmatisation and administrative difficulties associated with means testing) [and] "since measured per household, rich single adult pays only lifeline tariff, while poor large family of 15 or 20 and backyard shacks pays `luxury' tariff" (not true, since it is technically feasible to credit bills with lifeline entitlements according to the number of individuals in the household, whose i.d. numbers can only be claimed by payers once);
"financial strain of meeting subsidy rests with 3rd tier -- allocation of welfare better done over a large economy" (again not true, since it is possible through both Eskom and the new national water pricing system to establish a free lifeline "reserve" plus additional distribution costs, through cross-subsidisation at national-scale, allowing sufficient redistribution of resources such that even impoverished municipalities could offer retail lifeline services);
"source and meaning of subsidy is not transparent" (again not true, since it is perfectly feasible to engage in public education and transparent billing regarding the lifeline entitlement for the first block and rising charges for additional blocks);
"asking water boards and utilities to merge service provision and welfare is dangerous" (this critique is illogical since there is no "welfare" task in the case of a universal entitlement);
"incentive is not to expand services to areas where larger proportion of lifeline customers exist" (this incentive is true for all pricing system -- especially associated with privatised delivery -- in which low-income people face economic discrimination, and merely confirms the need to establish a working system for realisation of constitutional rights through, for example, penalties to those municipalities which are not extending services at a sufficient rate to meet all residents' basic needs); and
"may limit options with respect to tertiary providers -- in particular private concessions much harder to establish" (no rebuttal).
The last of Roome's critiques of progressive block tariffs is the most telling, and indeed is the only accurate one. For if the World Bank's goal is to privatise water, which it is, and if by encountering an obligation to consider redistribution (the lifeline water supply) when pricing water deters private bidders (since a firm's marginal cost curve will thus necessarily depart from a redistributive water pricing structure), then the Bank has no qualms about advising Minister Asmal to dispense with social-justice pricing. In a context in which, as noted, the majority of African consumers use less than 2 percent of all water, the Bank prioritises privatisation above universal-entitlement access to water.
LEARNING FROM PREVIOUS PROJECT FAILURE
The UIIF also suffered from the fact that earlier Bank lessons regarding infrastructure investment were not taken seriously. According to the WDR:
Another approach to assessing the economic returns from infrastructure investment is to examine the rates of return in a large sample of completed World Bank projects... Returns have been lowest (and declining) for irrigation and drainage, airports (for a very small sample), railways, power water supply, and sewerage. Why should this be so, given the expected benefits of such investments in developing countries? Some of the causes relate to implementation problems... and others to project identification and design. A common pattern discovered in project completion reviews of water, railway, and power projects is the tendency at the time of appraisal to overestimate the rate of growth in demand for new production capacity and, therefore, of revenues. For the power projects in the sample, demand was overestimated by 20 percent on average over a ten-year operating period. In water projects, overestimation of rates of new connections and per capita consumption also averaged about 20 percent... One important explanation for the misjudgments during appraisal is inadequate procedures for assessing demand (including the effects of tariff increases) (1994:17).
These issues were apparently not flagged by Bank staff in the original UIIF recommendations. The UIIF and the final MIIF also run the risk of overestimation, given two main factors: estimating annual GDP growth at 3 percent for the next ten years (which although half of what is projected by the Department of Finance in its "Growth, Employment and Redistribution" strategy is probably overoptimistic given flat growth over the previous eight years), and assuming a level of affordability which is not likely to be achieved (given ongoing "jobless growth," income polarisation and additional overoptimistic assumptions about the availability of intergovernmental subsidies from the central fiscus). Neither the UIIF and MIIF conducted analysis of the effects of the tariff increases envisaged (for those who have recently not been paying for services, or who have paid on a flat-rate basis) on household affordability and demand.
Regarding learning from past privatisation experience in more general terms, at least one senior Bank official -- none other than the chief economist, Joseph Stiglitz (1998:17-18) -- has conceded that
the conditions under which privatisation can achieve the public objectives of efficiency and equity are very limited, and are very similar to the conditions under which competitive markets attain Pareto-efficient outcomes. If, for instance, competition is lacking then creating a private, unregulated monopoly will likely result in even higher prices for consumers. And there is some evidence that, insulated from competition, private monopolies may suffer from several forms of inefficiency and may not be highly innovative... there are strong incentives not only for private rent seeking [i.e., corrupt patronage-related activity] on the part of [privatised firm] management, but for taking actions which increase the scope for such rent seeking.
Stiglitz (1998:18-19) cites the examples of China, which "managed to sustain double-digit growth by extending the scope of competition, without privatising state-owned enterprises," and Russia, which in contrast "privatised a large fraction of its economy without doing much so far to promote competition. The consequence of this and other factors has been a major economic collapse." The conclusion Stiglitz (1998:19) reaches is that "Privatising monopolies creates huge rents. It has proved difficult to administer privatisation without encouraging corruption and other problems. Entrepreneurs will have the incentive to try to secure privatised enterprises rather than invest in creating their own firms."
In South Africa, most municipal services -- water, electricity, roads -- represent public goods with monopoly status and large sunk infrastructure costs, and the lessons from past experiences that Stiglitz draws should have been high on the public agenda for debate. Yet it is precisely these services that are today being promoted as privatisation prospects (in the process generating private monopolies), most forcefully, by local Bank staff. To do so requires redefining the notion of public participation.
As expressed in the RDP (ANC, 1994, 2.5.21), "Beneficiary communities should be involved at all levels of decision-making and in the implementation of their projects... Key to such participation is capacity building, and funds for community-based organisations must be made available." It bears mention, as well, that in two WDRs, the World Bank itself has offered conflicting signals on the merits and modalities of participation.
Although the Bank made commitments to participation in the 1994 WDR, the 1997 WDR indicates a shift towards a more instrumentalist approach. According to Greenfield (in a review of the World Development Report 1997 on the role of the state), the Bank's conception of participation is now comparable to a national-scale Machiavellian application of workplace (shopfloor) "Total Quality Management" (TQM):
In the sections [of the World Development Report] dealing with NGOs, for example, the Bank includes particular types of NGOs and excludes the mass organisations and associations of farmers, workers and residents -- the people. NGOs act like company-based unions under Total Quality Management. Despite the absence of a genuine mandate, they can claim to represent the people and advocate their (narrowly defined) interests. More importantly, like company unions, NGOs can implement TQM at the grassroots more effectively than the state (management). This is where the World Bank arrives at a solution to the social unrest and instability that threatens economic growth and the wealth and power of the ruling classes. Just as pro-management unions can "manage" the workers and act as a mechanism for preventing workers' struggles and collective action, the World Bank has discovered that NGOs can act in a similar way. Not only will NGOs take on a lot of the functions and responsibilities of the state (like the delivery of social services, poverty alleviation, and retraining), but they can also redirect people's demands and grievances away from the state. Furthermore, the "participation" of NGOs (not mass-based organisations or social movements) in the workings of an effective state also acts as a substitute for democracy, not its realisation.
In South Africa it is not easy to find "company unions" in the form of popular social movements or NGOs willing to promote participation in privatisation. A framework for such participation will no doubt fail because it would contradict the basic premises of the democratic movements in both countries.
To illustrate, the World Bank's role in researching the infrastructural needs of urban South Africa was not uncontroversial (Bond and Swilling, 1992), and attempts to draw civic associations into a participatory research partnership came to naught. Consider this report by Mark Swilling and Tshepiso Mashinini (BankCheck, January 1994), which describes a 1992 meeting between a Bank urban mission and Civic Associations of Johannesburg.
Both delegations left the meeting thoroughly dissatisfied. There was a sense that something had gone wrong, but no-one was quite sure what. How to interpret the experience? What does it reveal about the different approaches of the civics and the traditional development experts?
The Bank's objective was to compile a "shopping list" of key infrastructural projects (water, sanitation, electricity, roads, waste and drainage). The only way that it can possibly go about this task is to gather data from the existing apartheid local authorities, which is where the bulk of information resides.
However, Bank experts are well aware of the fact that this information is not value-free, but instead is biased by the material interests and planning ideologies of the white local authorities. This poses a serious problem: there is a risk that the future of the city could be determined by projects that reflect what the old order thinks is required, instead of what the new order will actually need.
To avoid this, and to gain wider legitimacy for its own programme, the Bank correctly made strenuous efforts to consult with the civics. What happened?
The discussion began with the Bank asking the civics the same set of technical questions that were posed to white local government officials, but obviously in a simpler form: population, level and standard of services, what is expected and what are the priorities. The answers, however, were not forthcoming. Instead, every civic representative emphasised the need for capacity building.
The problem lay in the way Bank staff asked the questions. As technical experts who deal in hard quantitative data every day, they related to the leaders of social movements as if they were local government officials whose every-day activity is the manipulation of organised data captured through established research methods. This is not what civic leaders do every day.
No one with community organising experience would sit down at a first meeting with local leaders and ask: What are your needs? Instead, the questions would be: Comrades, what organizational structures do you have here? What struggles have you embarked upon? What were your demands when you went on the rent boycott? What were the demands in the petition you handed to the administration when you marched? What were your short-, medium- and long-term demands at the negotiations? What compromises did you accept, and why? What research are you doing to back up you demands?
Questions are asked in this way in order to tap organic knowledge about socio-economic conditions. Knowledge is inseparable from the rhythms of the daily struggle to transform local and regional conditions. However, civics do not have the resources to transform this practical and usable knowledge into quantitative data which really applies mainly to policy formulation. Even negotiation forums, where civics do have a use for hard data, are structured in a way that conventional quantitative information becomes a site of struggle.
Information answers certain questions about objective conditions, which in turn leads to certain views of how to change those conditions. The agency which generates information and controls it will be the agency that most effectively acts upon the conditions in a way that suits its particular interests.
Local authorities have huge banks of quantitative data generated from their records and from surveys of various kinds. Civics have an intimate experience-based knowledge of the inner workings of each community, in particular the structure of power, distribution of resources, leadership formations, and - most importantly - the key socio-economic "demands" that have risen up from below via a well-structured process of community organisation, grievance expression and mobilisation in each community.
To really address community needs, these two sets of knowledge must be married. But how? Will civics be intimidated by the dazzling technical competence of traditional data collection methods and start disregarding what they themselves know from first hand experience? Will the technical experts be intimidated by their complete ignorance of the community knowledge, and give up trying to use traditional research methods?
The point is to avoid reinforcing the knowledge base of technical experts who currently have such a huge influence over policy formulation, whether they are located in the World Bank, local authorities or progressive service organisations.
All this raises even more serious questions about the current Bank mission. By parachuting into complex regional negotiation processes and struggles and focusing mainly on one aspect of the development process - namely financing shopping list infrastructure - the Bank could unintentionally deflect attention away from the central development question: what resources are required to make sure that the development programmes of the future really reflect the needs and priorities of the communities?
If this question is not answered, the Bank - and every other agency involved in development - will end up supporting a development process that will blow up in their faces. If the Bank thinks that answering this question is outside its mandate, then its mandate must either be changed or the Bank should be asked to leave the country immediately.
Instead of being asked to leave immediately, however, the Bank was offered a deal by the civic associations: to jointly sign a protocol which would regulate the Bank's research work in transitional South Africa (recall that the Bank could not legitimately be seen to be working with the apartheid government, which only left power in May 1994). The components of the protocol were as follows (reprinted from BankCheck, January 1994).
Proposed `Protocol' between civic associations and the World Bank
One city - one tax base
Guaranteed minimum services accessible to all
Affordable housing for all
Economically viable city that promotes growth and employment
Empowerment of local communities to play a central role in transformation and reconstruction
Development of human resources through appropriate skills upgrading and training programmes
All central, regional and local government activities must promote development, empowerment and democratic participation
1. All information pertaining to potential or actual World Bank involvement in this region must be transparent and made available to community representatives on an on going basis.
2. There should be maximum utilization of internal resources in the public and private sectors for developmental purposes.
3. Finance for development must be controlled by local communities via democratically accountable community based institutions and democratic local governments.
4. All development initiatives must be undertaken in a way that promotes rather than undermines community-based organisations and institutions.
5. Any local government projects for which World Bank finance is provided should have full support of local communities.
6. The World Bank should not enter into discussions about finance for possible development projects with local authorities that refuse to participate in genuine negotiations to achieve a democratic non-racial local government system within a nationally accepted framework (i.e., excluding The Interim Measures Act of 1992).
7. Criteria to select projects for World Bank funding should be negotiated by the relevant stakeholders in this region within appropriate negotiation forum.
The protocol was rejected by the Bank mission (led by Jeff Racki) in July 1992. Nevertheless, it was not long before community participation in projects that affect people's immediate lives became a relatively uncontroversial component of development planning. As recognised in the 1994 WDR:
The importance of participation in effective delivery of local public goods is well recognized, and it is central to community provision of service... Without local participation, projects often either foundered at the implementation stage or were not maintained and failed to produce sustained benefits... There are risks of exploitation of the poor and of low labor productivity under the banner of self-help and voluntarism... Participatory processes take time and often require the skills of professional intermediaries who interact with formal sector agencies, explain technology options, and help resolve disputes... Special interests, local elites, or powerful minorities can capture the process to the exclusion of others (1994:76,78).
User groups and other interested parties need to be consulted by the public officials and technical specialists who usually lead the process, and mechanisms for conflict resolution are necessary (1994:84).
Turning to the UIIF, there was no community participation in the design of the key financial and institutional components of infrastructural policy in South Africa. This partly reflected the Bank's practice of parachuting in three-week missions whose team members consulted with government officials on overall design, but with community representatives (such as Sanco) only with respect to their participation in future infrastructural projects. The parameters of those projects were designed by technical experts with no sense of the political and social importance of infrastructure, no reference to the RDP, and hence no incentive to establish higher standards and more generous subsidy arrangements. (Likewise there was no participation whatsoever by the IFC when contemplating its $25 million investment in privatised infrastructure.)
Participation is not only about drawing all stakeholders in a policy, programme or project together to assure its appropriateness and assist in its implementation. Participation processes must address the differential costs and benefits of privatisation, and be prepared to host conflicts over differing interests that are at stake. It is easy to demonstrate that the primary risk associated with municipal infrastructure privatisation is that low-income people will receive substandard, unaffordable services. As Hemson (1997) has recently argued in a literature review,
The effects of privatisation bear most radically on the poorest in the community; there is widespread evidence of more cut-offs in service and generally a harsher attitude towards low-income "customers." Water in Britain is a case in point. Water and sewerage bills have increased by an average of 67 percent between 1989/90 and 1994/95, and during roughly the same period the rate of disconnections due to non-payment by 177 percent. The inflexibility and hostility which often characterised public utilities attitude towards non-payment has, over the same period, been replaced by an emphasis on pre-payment meters and "self-disconnection" as public goods have been commodified. Pre-payment metering is greatly advantageous to companies as the problem of poorer customers is avoided, there is a continuous revenue stream in advance of consumption, less of a "political" problem in confronting disconnections, and better form of debt recovery. Self-disconnection is education of consumption below the level consistent with health, safety and participation in normal community life. Surprisingly high number of self-disconnections for various periods of 49 percent by those using pre-payment devices in a trial period. Self-disconnection is associated with the reduction of consumption below the level consistent with health, safety and participation in normal community life. Studies have shown a surprisingly high number of self-disconnections of water supply for various periods by as much as 49 percent by those using pre-payment devices over a trial period. The most critical feature of privatisation, however, has been that cross-subsidies are rooted out after privatisation: those who need costly help have to pay for these services directly themselves... Rather than cross-subsidies there has been the introduction of "cost-reflective" pricing (in which prices reflect the particular costs associated with a particular customer) will end with greater differences in regional charges, the poorer paying more, and better off people with cheque accounts paying less with direct debits.
Where the UIIF did discuss community participation, it ignored the danger of self-exploitation and the need for capacity-building support (aside from training and "joint ventures with training institutions" in the case of upgrading but none noted in the case of greenfield developments), focusing instead largely on community "involvement" as "the basis for breaking the culture of non-payment" (UIIF, 23/3/95:5 and vII:27-29,33). The costs of staffing and capacitating the mobilisation work of community organisations were neglected. And where the UIIF addressed job creation, it assumed that the average cost of each job was R2 290, an exceedingly low amount per annum given prevailing construction wage rates and the RDP commitment that public works jobs would not undermine prevailing wages and standards (UIIF, 16/11/94:54).
In South Africa, the seminal recent statement on participation in development projects remains the 1994 document by the South African National Civic Organisation, Making People-Driven Development Work (Sanco, 1994). Representing mass community group constituencies (called "civics" in South Africa), Sanco reflected on participation-related lessons learned in development projects associated with the Independent Development Trust (IDT), a quango involved in implementing infrastructural development ("site&service") capital subsidies. (The loose use of the word "community" here does not mean that democratic systems of establishing community wishes were not conceptualized earlier in the document.)
A still to be completed study of the IDT site&service (capital subsidy) scheme will be a harsh indictment of top-down development. It notes the scheme stressed delivery and pipe in the ground. Site&service was "developer-driven"; consultation and participation were intentionally limited in order to get the job done quickly. But it was more than that. One member of the study said they "gained a consistent impression that IDT was wary of allowing community leadership too much say"; developers, professionals, and local government also resisted community involvement. Consultants' mistrust of civics and their attempts to bypass civics delayed some projects.
This has resulted in badly chosen sites which have not been occupied and the failure to organise maintenance leading to "a high risk" of collapse of roads, outlets and pipes.
The study notes that the single biggest complaint -- greater even than the vociferous objection to getting a toilet and not a house -- was about the lack of consultation and participation. One team member commented: "This is not just political rhetoric as some would assume. It is a genuine desire on the part of community organisations to be taken seriously and be given due responsibility for implementation."
The "few" instances in which communities were able to force IDT to give them an active role were the smoother-running projects.
Indeed, the only aspect that worked well was the one where communities were in charge -- site allocation. "Community structures proved themselves capable of ensuring that fair, transparent and widely supported mechanisms of allocation were put in place." IDT could not have done as well on its own, commented the researcher. "More than any other argument, this demonstrates that more could have been achieved in other aspects of the projects had the local organisations been trusted and trained to make critical decisions" (Sanco, 1994, Chapter 4).
Having the power to be in charge of a project is one matter. Sanco also insisted that participation could not occur effectively until communities were empowered, and this required financial support as an entitlement (not charity nor patronage):
One effect of apartheid has been that many people feel disempowered -- that they have no right and no ability to control their own lives and environment. It requires time, organisation and money for communities to gain confidence, experience and the capacity to organise. Even well organised communities will require finance to hire a local coordinator and for training in basic skills such as bookkeeping... Because of the legacy of apartheid, capacity building will not be cheap. For small grants in its drought relief development programme, IDT allocated 7,5 percent for capacity building and this was insufficient. Capacity building costs will probably be at least 5-10 percent of the cost of the actual physical works of large capital projects, and up to 25 percent of smaller projects.
Capacity building has become a popular part of the jargon of development agencies, but they tend to consider it to be visits by "facilitators" and a few weekend workshops. Capacity building does require this, but it also requires much more. It always requires hiring someone locally as a community organiser. It also means training in management, financial control and bookkeeping skills that cannot be passed on in a weekend; this typically requires one to three month courses. Capacity building demands support and training which continues after the construction is done to ensure that management and maintenance skills are learned. Capacity building support might include vouchers for special training courses, for example for bookkeeping or management.
Finally, capacity-building requires time -- for long meetings where people learn to take control, for the initial slowness in all processes as people gain experience, and for the local recognition of what skills are needed and what further training is required.
Capacity building is sometimes just a more sensible use of existing resources. IDT for its site&service scheme allowed 10 hours a month of consultant time for visits, at a cost of more than R2000 a month. For half that it would have been possible to hire a local person full time in most areas.
So far, capacity building finance has only been available as a donation from an NGO or IDT or DBSA. It was not communities who decided who should be funded, but donors who have their own political agendas. In future, capacity building finance must be seen as essential and as a right. We must curb the power of unelected gatekeepers. The challenge for the new government will be to develop mechanisms which are simple, quick, transparent and efficient, while preventing corruption and ensuring broad participation. In the following chapters, we put forward proposals.
But the key step is to see capacity building finance as an essential right, and not a form of charity (Sanco, 1994, Chapter 3).
Much the same could be said of trade unions facing privatisation. Yet such discussions of the material requirements for community organisations to make participation in infrastructure investment more than a token gesture are uniformly missing from Bank South African staff assessments of participation possibilities.
In sum, when it comes to municipal infrastructure privatisation, the South African people (and their organisations) most affected by municipal infrastructure and service delivery policy have been relatively excluded from the national policy debates (aside from through their political representatives in government and parliament, and some opportunity for comment on municipal tariffs through the National Economic Development and Labour Council). Protest resulted (e.g., Nelspruit, not to mention the 1997 East Rand demonstrations over infrastructure installation and services cuts), effectively stalling the privatisation process. Would participation have made a decisive difference, a cynic would rightly enquire. From evidence of the negative impact of privatisation upon the interests of the mass social movements, it may be just as easy to conclude that the more participation there is in highly-politicized societies such as South Africa, the less likely it is that privatisation will be met with consent -- the more likely it is to generate protest.
In the context of the highly politicised nature of municipal infrastructure privatisation and at a time South Africa faces enormous backlogs, the IFC made a large privatisation investment with questionable financial calculations. This paper's review of the RDP mandate and of the WDR, UIIF and MIIF, noted that notwithstanding sound policy directives in the first two documents, the Bank's South African staff and some of their local colleagues failed to construct an infrastructure investment framework that could internalise developmental externalities associated with infrastructure; decisively contribute to the reduction of poverty through infrastructure; incorporate economic multipliers in infrastructure investment calculations; incorporate infrastructure's environmental effects; incorporate infrastructure's public health effects; incorporate infrastructure's role in reducing gender inequality; establish an appropriate tariff pricing system that will accomplish the social as well as economic objectives associated with municipal infrastructure; and learn lessons of infrastructure project and privatisation failures so they are not repeated.
Not only has much of the policy design work on infrastructure been flawed. Central in the World Bank's and government's thinking has been the privatisation of services, even at the cost of local democracy. Hemson (1997) identifies the MIIF's underlying approach to privatisation.
In this document a fundamental distinction is made between service authority and service provider, between ensuring that services are delivered and actually delivering services (paras 16 and 155). This builds on the idea of local government as an "enabler" rather than a provider, setting the context for private sector intervention. The MIIF privileges the private sector as the most appropriate vehicle for delivery as it rests on the understanding that local authorities do not have the capacity to deliver. Rather than making a critique of the excessive hierarchies and bloated management systems associated traditionally with local government, the lack of local government capacity in rural areas, and arguing for the revitalisation of local government to secure the development of infrastructure and service delivery, it argues that "local governments will need to weigh up political concerns (such as relinquishing direct accountability in a new democracy) against efficient and cost effective service delivery." Here democracy is opposed to delivery and the private sector is given the strategic advantage of being able to deliver. More specifically the document spells out a range of alternative ways of delivering services from public ownership in the form of service departments to private ownership either through "demonopolisation" or new entry, or through the sale of public assets (para 186). In assessing the form of service which could be offered, the MIIF lists the need for local government to "deliver services in a competitive manner," to provide "an enabling environment for private action" although it also mentions as constraints to the development of PPP the private sector response and trade union attitudes. The various alternative delivery mechanisms put forward in the MIIF demonstrate the influence of the commercialisation and privatisation policy framework (see particularly para 186).
Yet notwithstanding the overall lack of information and the potential problems associated with privatised infrastructure, the Bank's closely-linked IFC staff in South Africa nevertheless invested in an ill-designed infrastructure privatisation fund through which they anticipate 90 percent of projects to achieve a rate of return of at least 30 percent. This is particularly short-sighted in a highly politicised country such as South Africa. Here there are many other reasons for additional state intervention (rather than privatisation) and for far higher infrastructure standards than Bank staff recommended:
Unique among modern states, South Africa's new Constitution provides for water and housing (along with health care and environment) as basic rights in the Bill of Rights.
The South African private sector is unusually concentrated and often exhibits anti-competitive pricing and product behavior, and hence in areas of natural monopoly (such as roads, rail transport, distribution of water and water-borne sanitation and energy distribution) the case is stronger for provision of goods and services by the state, not the private sector.
In addition, the fact that private sector production processes have been extremely capital-intensive in recent years, and that private sector growth has been associated with a loss of jobs (employment has risen in only the public sector and one or two industries such as finance and insurance), also justify a stronger role for state intervention.
In sum, the WDR arguments for intervention and for higher standards of infrastructure given many other indirect benefits, must be considered as only the minimal basis for a larger state and community role. Thus it is disturbing that even this minimal basis was largely ignored by Bank staff assigned to South Africa and allied local consultants when detailed recommendations were made to policy-makers beginning in late 1994.
Finally, hard-currency financing of infrastructure by the World Bank and IFC is not required, given a) the high cost of financing once rand depreciation is taken into account; b) the fact that a very small percentage of infrastructure investment requires imports (hence the danger of taking on excessive foreign debt not linked to vital foreign inputs); and c) the enormous liquidity in domestic South African financial markets.
The weight of these arguments leads this author to conclude that the South African government -- particularly DCD and local authorities -- run great risks by continuing to allow the World Bank such a central role in advice and investment choices surrounding municipal services. Alternative approaches have been set out (in the RDP) and are being refined (particularly by Samwu and some in the civic movement associated with the Development Research Institute). Given the somewhat unfavourable balance of forces faced by progressive organisations in South Africa at present, it may well be that a public participation process will best become a multipronged strategy for posing critical questions to privatisation advocates, pointing out the many internal inconsistencies apparent in Bank analysis, and synthesising the organic insights of community groups and organised labour in order to offer concrete alternatives.
Consider the offer made to those Port Elizabeth trade unionists on that February 1998 weekend: participation in a Bank-designed national infrastructure framework; in which extremely low capital standards and ungenerous recurrent subsidies are offered as a means of avoiding redistribution; as a precursor to considering a sole, highly-constrained privatisation option offered by the Bank in conjunction with the (old guard) city treasurer; so as to pave the way for a Bank investment that will require a 30 percent and higher rate of return. Precisely this offer is likely to be made to South African municipalities and their constituents in coming months and years. There Is No Alternative, Tina, say privatisation proponents.
"There Must Be an Alternative," Themba (hope), say many in the Democratic Movement: rejection of such a prospect, alongside the intensification of popular demands for local, provincial and national redistributive programmes grounded in the RDP, taking advantage of the entire range of socio-economic justifications for greater public investment in municipal infrastructure.
Acknowledgements are due to many colleagues with whom these arguments were developed during 1990-97, including George Dor, Becky Himlin, Mzwanele Mayekiso, Litha Mcwabeni, Greg Ruiters, Selby Shezi and Mark Swilling. A version of this paper (along with a case study of the IFC in Haiti) was originally presented to the World Bank/NGO Dialogue on Privatisation, sponsored by Friends of the Earth and the World Bank, Washington, DC, 21 October, 1997.
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