Diagnosing Corruption in Ethiopia - Ethiomedia

Figure 6.2 Trends in Unit Cost of DBST Roads in Ethiopia
cost per km, Br, millions
10
8
6
4
2
0
Construction Sector Corruption in Ethiopia 269
2003/04 2004/05 2005/06 2006/07 2007/08
fiscal year
ICB NCB
Source: Author’s analysis of Ethiopian Roads Authority data.
Note: DBST = double bitumen surface treatment. km = kilometer. ICB = International Competitive Bidding. NCB
= National Competitive Bidding.
Taken together, these results point to a possible lack of effective
competition in the domestic market. At the same time, there have been
marked increases in the unit costs associated with ICB contracts, the
market for which is dominated by Chinese contractors that, in the light
of widespread concerns in the sector, warrant special mention.
Role of Chinese Contractors in Ethiopia’s Road Sector
As in other countries, the initial impact on Ethiopia’s road sector of
China’s 2002 “Going Out” strategy coincided with a sharp reduction in
unit costs. 10 One large state-owned enterprise (SOE) in Ethiopia was
reported to have reduced its projected profit margins to as low as 3 percent
(Leggett 2005), and several were understood initially to have suffered
substantial losses as they struggled to adapt to the standards and quality
called for. Few of the new entrants were familiar with International
Federation of Consulting Engineers-style contracts, with the standard
methods of preparing bids, or with claims procedures. As a result, some
claims were not made to which the contractors would have been entitled
had they maintained the relevant records.
Over time, most such companies adapted their performance to match
the contract requirements. Several, including some now ranked as leading
international contractors, are actively seeking to ensure compliance
with international standards on corporate governance, health and safety,
labor, quality control, and environmental protection. Both ERA and the
World Bank report general improvement in the quality and speed of