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«Social Funds and Reaching Proceedings from an international workshop organized by the Poor The World Bank and Experiences and AFRICATIP La Red Social de ...»

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1. The functions and responsibilities of social funds should be transferred with their respective resources to those local governments that have the potential to promote economic growth, as well as the potential to increase their own resources. Where necessary and possible, municipalities should be given the training to assume this responsibility.

2. To formalize coordination at the local level, agreements defining roles and responsibilities of the various actors should be prepared and approved by all organizations involved.

3. The representation of the community that will benefit from the project should be formally structured before, during, and after the conclusion of the work to ensure its sustainability.

4. Priorities for investments should be established by local governments and their people.

5. Municipal governments and communities should manage contracts and resources for project implementation.

6. It is necessary and important for social funds to strengthen municipal governments and local institutions.

7. Municipalities should establish a fund with their own resources to undertake social investments.

Step 1 To facilitate the transfer of responsibilities from social funds to municipalities, the following

elements are important:

• The transition should be gradual and commensurate with the capacity of municipalities to assume new functions and responsibilities.

182 Original Workshop Papers

• Such a transition cannot be achieved without the political will to empower the transfer of responsibility.

• Municipalities must be ready to facilitate the execution of works efficiently and at the lowest cost.

• Municipalities should identify mechanisms in place that will enable community participation within existing legal frameworks.

• Use of resources by municipalities and communities should be transparent and open to public scrutiny.

• In countries where decentralization has not advanced and where central government institutions continue to be responsible for local infrastructure, central agencies must agree to maintain infrastructure.

• Civil society and nongovernmental organizations must participate in areas of local development where they have competence and interest.

Step 2 Specific agreements that define roles and responsibilities for the various actors in the development process must have the following elements and must be endorsed by the National Association of Municipalities and the social fund.

• In these agreements, municipalities should be classified in three categories according to the index of poverty. This classification should become the basis for counterpart funding for projects, for general commitments on the part of both entities to guarantee the execution of projects, and for adopting processes that strengthen local governments.

• The communities should be clearly identified.

• A memorandum of understanding between the social fund, the municipal government, and the respective line ministry should establish the contribution and responsibilities of each actor, including the formula for counterpart financing based on the classification of municipalities according to a poverty index.

• The roles, responsibilities, and resource allocations for operation of the works under construction must be specified.

• Administrative and technical capacity-building activities that will enable municipalities to prioritize investments and develop municipal investment plans must be defined and supported.

• Municipalities and social funds must be in agreement over each project to be executed in the municipality; these projects must be developed through a process of consensus building with the citizens.

• The specific agreement should include the following:

- The investment amount

- Definitions of the modes of financing cost overruns

- A commitment from the municipal government to prepare the preinvestment studies, as well as a commitment from the social fund to transfer the resources necessary

- Cost-recovery mechanisms, tax rates, and collection responsibilities and a commitment from the municipality to inform users about them

- The creation of a support committee elected from beneficiaries of projects during their participation in project processes that will ensure adequate operation and maintenance after project completion, as well as ensure payment for services

- A formal agreement from the municipality to maintain a management structure with adequate personnel to operate and maintain the services in coordination with the support committee Social Investment Funds, Local Governments, and Communities in Central America 183

- A pledge on the part of the municipality to pay the social fund promptly in accordance with predefined schedules.

Step 3 The list of community and municipal representatives who compose the support committee must be finalized before the start of work and should continue after completion to ensure sustainability of the financed projects. This committee should be structured through the same mechanism that generates community participation. It should identify beneficiaries as well as local labor for the project. It should audit the construction and supervision of projects. And it should coordinate the collection of user charges and fees and follow-up activities to ensure adequate operation and maintenance of infrastructure works.

Step 4 Priorities for investments should be established by local governments and their people through participatory processes that facilitate the definition of investment plans to help municipalities develop a long-term vision. Where no municipal investment plans exist, municipalities must work within the legal framework to define projects in consultation with the community through mechanisms such as public councils or audiences. They must explain the projects and proceed only after the community gives approval.

Step 5 Communities and municipalities should manage resources and contracts for projects. To strengthen these entities, only approved projects should include an elaboration of preinvestment studies. Social funds should facilitate necessary training and support these studies. Training of municipalities and communities should include not just administrative and technical training, but training in the transparent management of resources as well. Social funds and municipalities should have a program for the exchange of personnel to facilitate transfer of skills. Mayors and councils should take over resource and contract management of projects only if the community is not willing to do so. Generating employment for the community and stimulating and strengthening the private sector should be guiding factors in choices about project design and implementation. Operation and maintenance should be the responsibility of the department of public works in conjunction with the support committee.

Step 6 Social funds must strengthen municipal governments and local institutions. This should be an important focus in technical assistance and training for local governments, because they will be operating, managing, and sustaining works to be realized with social funds. Social funds could reduce their administrative structure and lower the costs of projects by transferring technical assistance and training functions to local organizations with the necessary capacity. Alternatively, social funds could facilitate training to be given by different institutions of the central government that have local offices, such as the various institutes of municipal development present in Central America, whose roles are currently being reevaluated. Other institutes that could train municipalities are the councils of development in Guatemala, departmental councils of mayors in El Salvador, and district councils in Costa Rica. These institutes should also be considered for the assumption of some functions that weak municipalities may be unable to fulfill.

184 Original Workshop Papers Step 7 Municipalities should establish a fund with their own resources to undertake social investments. Such a fund would be useful to sustain projects or to execute other works financed by social funds. Management of this fund should be transparent. The resources should come from the municipality’s current savings account, from government transfers, and from any other contribution that the municipality receives. Resources can be supplemented by the community through beneficiaries’ contributions, neighborhood organizations, and other groups that benefit directly. While the capacity to contribute will clearly be a guide for determining the size of donations, beneficiaries appear to be able to contribute at least one-third of the fund’s total amount.

Social Funds and Development of the Private Sector:

The Case of Mali by Lamine Ben Barka, Director, AGETIPE, Mali An Underdeveloped Private Sector Anyone who knew about the status of the private sector a few years back in most of the countries that established agencies for execution of public interest works (in French, agences d’exécution des travaux d’intérêt public, or AGETIPs, often called agences TIP) would easily admit that this sector has experienced an in-depth transformation. Indeed, the private sector, which most people agreed needed to be promoted and developed, has notably changed since the advent of AGETIPs.

This may be explained primarily by the tremendous revival AGETIPs caused in the building construction and public works (or bâtiments et travaux publics—BTP in French) sectors. It is commonly agreed that increased construction activity shows improvement in people’s standard of living.

To show the remarkable impact AGETIPs have had on the development of the private sector in general and through the BTP sector in particular, the case of Mali is discussed, where the experience of AGETIPE-Mali seems, to a large extent, to reflect accurately that of all other countries in which projects were established to execute public interest works.

One of the dominant arguments before and during the establishment of AGETIPs concerned the need to develop the private sector. Efforts were made to translate the development into reality. Although the private sector in general needed support and revival, the BTP sector in Mali was in even greater need.

BTP Professions in Mali In 1991, shortly before the establishment of AGETIPE-Mali, a World Bank-sponsored study on

BTP indicated the following:

• There were about 80 construction enterprises (all categories combined).

• There were about 400 artisans, contractors, and entrepreneurs.

• There were about 20 BTP professionals officially registered, including architects, counseling engineers, and surveying engineers.

Most small-scale construction was carried out by local enterprises, but large-scale works, such as much-needed road construction, were contracted systematically to foreign enterprises for execution. Undoubtedly, many aspects of Mali’s situation could apply to other countries in the subregion during the same period.

186 Original Workshop Papers

One or two countries, Côte d’Ivoire and Senegal among francophone countries, had launched the BTP sector with relative success and had initiated bold infrastructure programs (Côte d’Ivoire, for example). Most of the other countries in the region experienced slow progress in BTP sector

development. The most important reasons for low involvement of local firms in the construction sector center around the following:

• Difficult access for enterprises, including engineering firms, to public contracts

• Difficult access to credit

• Slow procurement and payment procedures

• Lack of an effective policy to promote the sector.

The government administration was, and remains today, the primary contract provider.

Most local enterprises were denied access to public contracts. This was particularly true for bids that were designed to adhere to donor conditionalities and criteria, which dismissed de facto any local enterprise. These restrictive criteria were often related to the turnover in a given period, often required to be worth at least US$2 million, to a minimum number of years of experience, ten years, for example, or to experience in executing works similar to those being bid.

Slow progress in the development of the BTP sector also stemmed from difficulties with the following: gaining access to bank services; obtaining various types of guarantees required from the tenderers and successful bidders; and acquiring tender bonds, good performance guarantees, start-up advances, and retention money.

In addition, obtaining credit has been extremely difficult, although credit is vital to the execution of certain contracts for most enterprises because they lack significant financial assets.

This remains true for the BTP small-scale enterprises that need credit just to secure equipment.

There is still a dismal lack of a credit-for-equipment financing mechanism or a system for leasing equipment for small BTP enterprises.

The World Bank report also indicates that the time needed to approve a public contract might be as long as 8 to 12 months. According to the report, complex, bureaucratic procedures required no fewer than 12 steps, including signature by the enterprise and registration of the contract. Partial payment for contracts required the same amount of time. According to the same report, this amount of time was also needed to make payments in local currency. In Burkina Faso, the length of time needed to procure a contract could reach 231 days, or about 8 months.

In Senegal, the Director of the Urban Development Management Project is reported to have spent 528 days to procure a contract. Undoubtedly, such administrative redundancy and slowness effectively discourages existing enterprises from seeking these contracts and inhibits the establishment of new enterprises.

The development of any sector of activity depends on the willingness of decisionmakers to act. This is true for national production in general and for economic activities in particular. This is especially the case for the BTP subsector, which cannot go forward without an effective government policy for the execution of large infrastructure works. Well-planned, continuing programs that involve and benefit local, rather than solely foreign, enterprises are needed. It is no exaggeration, however, to state that until the recent establishment of AGETIPE-Mali, there was no such policy in Mali to promote private enterprises and alleviate difficulties related to access to bank services and credit.

The Advent of AGETIPs It is in this context that AGETIPs were established. Their origins are related to the effects of structural adjustment programs, which in turn resulted from the mismanagement of public finances.

Social Funds and Development of the Private Sector: The Case of Mali 187 Objective of AGETIPs One of the essential objectives of these agencies was to reduce urban unemployment through the execution of public interest works using labor-intensive techniques. Objectives of an agency

to execute public interest works included the following:

• To create temporary employment in urban areas and contribute to the creation of permanent employment

• To build the capacity of the private sector, more particularly small enterprises and engineering firms, so that they can execute a wide range of public works while improving the skills of individual workers involved in the project, allowing them to be competitive in the labor market after the project is completed

• To provide the government administration with the means to manage the demand for goods and services efficiently, as well as to manage the funds used for these purposes

• To demonstrate that it is possible for public contract procurement and management procedures to be less redundant and more transparent.

After problems were identified and objectives defined, it was essential to work in such a way that AGETIPs could efficiently meet expectations.

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