1 Malawi Public Expenditure Review: Road Sector 21 November 2007

2 What have been the key expenditure trends? Total road sector expenditure declined since 1999/00 as a % of GDP; but increased back since 2005/06 The share devoted to maintenance has decreased steadily over the period Expenditure on upgrading & construction of new roads has increased substantially, both as a share of roads expenditure and as a % of GDP

3 Main Findings

4 (1) Funding for road maintenance has been inadequate, in favour of construction of new roads Good practice in road sector in any country is to adequately maintain existing network, before spending new construction (don ’ t let existing network go bad) During last 3 years about 60% of road sector expenditures have gone to new construction Funds spent on maintenance have been inadequate to meet the maintenance needs of the network – Routine maintenance undertaken on around 50 percent of core network and 25 percent of total public roads network Full maintenance and rehabilitation cost of the network is around US$50 million/year, which is much higher than can be provided by Road Fund – The fuel levy is the major source of funding for Road Fund but its value has decreased in real terms by 40% since 2001

5 (2) Need system for planning and prioritization in road maintenance & construction activities Decisions on road maintenance and constructions have been made without any clear criteria or method of analysis Project selection and planning often subject to political interference Choice often limited by tied funding from donor sources Recently MoTPW has developed the ‘ Road Data Manager ’, but RDM is not yet used to guide decisions

6 (3) Less attention is paid to rural roads Road network is imbalanced – A small network of main roads mostly paved and in very good conditions – The rest of the network (74%) unpaved and mostly in poor conditions Access roads heavily favours the richest households – Rural communities are located on average 20km from a tarmac road – Roads in rural areas are often impassable for up to 4 months in the year

7 (4) There is lack of good road sector data for policy setting, monitoring, & evaluation Monitoring and analysis of sector expenditures are done irregularly and inconsistently Little monitoring and analytical capacity of the MOTPW, MOLGRD and RA in areas of planning, programming, and effective monitoring Little or no monitoring and evaluation of all maintenance, rehabilitation and construction projects Efforts to improve monitoring and evaluation has been made in recent years – a complete road inventory and condition survey has been completed in 2006 – a set of possible indicators have been recently identified, which need to be operationalized

8 (5) The capacity of domestic construction industry is too weak to meet demands National construction industry has a considerable number of local contractors and consultants registered but level of participation and performance is very limited

9 Recommendations

10 (1) Fuel levy should be adjusted upwards in order to increase funding for the road sector Gradually increase in fuel levy from current 7 US ¢ per liter up to 16.5 US ¢ per liter needed to cover (routine and periodic) maintenance of the full network. Government should carry out a poverty and social impact analysis of such a large increase in the fuel levy – Assess alternative options to raise the required funding for the maintenance of the road network Funds levied from the road users through the fuel levy should be utilized for the sole purpose of maintaining the roads Need to operationalize the annual formal review mechanisms of the fuel levy, in accordance with the 2006 Road Fund Act

11 (2) Ensure that funding for the routine maintenance is adequate and consistent Fully fund routine maintenance of at least the core network and carry out systematic periodic and backlog maintenance on the entire network Decide what size of network can realistically be managed based on available resources and the amount of rehabilitation to be undertaken. If internally generated funds for the sector are insufficient, prioritize any external funding towards covering backlog and periodic maintenance before reconstruction

12 (3) Ensure planning & prioritization in road maintenance and construction activities Adopt the Road Data Manager system (at RA) to assist in prioritization and allocation of funds more efficiently – by basing decisions on road maintenance and construction on thorough project analysis and appraisal Make the evaluation based on the Road Data Manager become a core part of the ‘ procedures agreement ’ envisaged in the 2006 Road Authority Act

13 (4) More attention needs to be paid to rural roads Establish a more equitable balance of finance between rural and main roads MOTPW and the RA need to work with MLGRD to identify an appropriate mechanism of sourcing and allocating funds for road maintenance at district level The formula used to channeling maintenance resources is biased in favor of the paved network, and needs to be revised

14 (5) Maintain a good data base for policy setting, monitoring, & evaluation MOTPW and NRA should establish a unified system for reporting sector expenditures; – data on outputs (e.g. kilometers of roads covered by the various activities) is also required to accurately calculate unit costs for maintenance, rehabilitation and construction Build on recent efforts to improve monitoring and evaluation of sector performance by operationalizing the indicators which have recently been identified Complete the recently carried out road reclassification study, by preparing the relevant legislation and submitting it to Parliament

15 (6) Increase the capacity of the domestic construction industry Level of participation needs improving through capacity building, training and access to financial resources for equipment purchase or hire Consider expansion of duration and coverage of the routine maintenance contracts (started in 2006) – to provide firms a more stable income stream which would allow increase in investments and capacity Maintain preferential treatment in public works tender for foreign companies that go into a joint venture with a local company, to facilitate know-how transfer