Getting Infrastructure Right the Ten Key Governance Challenges and Policy Options
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1 Getting Infrastructure Right The Ten Key Governance Challenges and Policy Options THE OECD FRAMEWORK FOR THE GOVERNANCE OF INFRASTRUCTURE 1 OECD. Getting Infrastructure Right: The 10 Key Governance Challenges and Policy Options Infrastructure is mainly a governance challenge... High-quality public infrastructure Uncertainty with regards to revenue flows and sources can erode confidence in a project’s affordability. supports growth, improves well-being Unstable regulatory frameworks can prevent long-term and generates jobs. Yet, infrastructure decisions. Regulators play a key role in ensuring that investment is complex, and getting from projects are attractive for investors, yet they play only a conception to construction and operation limited role in guiding policy formulation. is a long road fraught with obstacles A lack of systematic data collection on performance undermines evidence-based decision-making and and pitfalls. Poor governance is a major disclosure of key information. Central infrastructure reason why infrastructure projects often units tend to focus on delivering the asset, while fail to meet their timeframe, budget, and auditors are not usually tasked with following performance. Lack of disclosure of data on contracts service delivery objectives. Regardless and subsequent operation tends to reinforce concerns of how public infrastructure services are about fraud and lack of transparency. delivered, an OECD survey* of the state of infrastructure policymaking highlights a number of challenges that all countries face. Governance challenges are diverse and occur all through the policy cycle. Designing a strategic vision is crucial but difficult. Many countries have no integrated strategy but instead rely on sectoral plans. Infrastructure projects are vulnerable to corruption, capture and mismanagement throughout the infrastructure cycle; most countries have recognised this, yet integrity instruments often leave gaps. Political dynamics may undermine sound decision- making with regards to infrastructure when processes for identifying priority projects and choosing delivery modes are not sufficiently formalised. Without well-managed consultation good projects may falter. Consultation is common in the preparation phase but less common in setting an overall vision or prioritising investments or assessing needs. Coordination across levels of government is difficult despite the fact that a majority of public investment is made at the subnational level. This increases the risk of wasted resources and poor integration of services. *A survey of 25 OECD countries 2 periods, and requires predictability and sober analysis, Challenge 1. Develop a strategic but infrastructure is extremely sensitive to political and vision for infrastructure economic/business cycles that vary markedly over time. Establish a national long-term strategic vision that addresses • Good infrastructure planning requires identification infrastructure service needs. Ideally the strategy should of necessary complementarities across sectors. provide guidance on how the needs should be met, although For example, investments in housing need to be there has to be room for adjustment as more information is complemented by the right investment in transport gathered. The strategy should be politically sanctioned, co- networks (OECD, 2014). ordinated across levels of government, take stakeholder views into account and be based on clear assumptions. Key policy questions: • Is there a whole of government vision for infrastructure Why is this important? investment in the medium to long term? A necessary condition for a successful infrastructure • Is there an established process for generating, programme is appropriate strategic planning. This monitoring and adjusting a national strategic requires identifying which investments should be infrastructure vision? undertaken, determining the essential components, • Is there a dedicated unit or institution responsible needs and trade-offs, and how they should be prioritised. for monitoring, generating, assessing, costing and Conversely, weak or insufficient planning often impedes creating debate around infrastructure policy? their successful implementation and operation later in the project cycle. The reason why designing a clear and • Are there appropriate tools and processes that link coherent strategic vision is difficult stems essentially the allocation of public resources to the strategic from the complex nature of infrastructure investment. infrastructure vision? • The infrastructure issue cuts across different institutions, Benchmark indicators: jurisdictions, levels of government, policy areas and • Presence of a strategic infrastructure plan; professional disciplines, which makes it difficult to aggregate into a coherent view. Analysis tends to be done • Strategic frameworks for public investment in silos reflecting the various stakeholders. implementation; • Infrastructure development serves multiple objectives, • Budget allocation to projects in plan; with multiple policy goals such as growth, productivity, • Dedicated process/units; affordability, inclusive development and environmental • Presence of inter-departmental/ministerial objectives potentially being in opposition. committees/platforms to design infrastructure • Infrastructure has long-term impact and gestation strategies. Figure 1. What are the key drivers of current strategic plans of OECD countries? (Number of respondents) Transport bottlenecks 15 Regional development imbalances 12 Transition to a low carbon energy system 10 Fiscal pressure 10 Demography 10 Innovation policy 9 Depreciation of the countrys capital stock 7 Social Imbalances 7 Climate Change 6 Other 4 Total Respondents: 25 Source: OECD (2016), OECD Survey of Infrastructure Governance 3 OECD. Getting Infrastructure Right: The 10 Key Governance Challenges and Policy Options Figure 2. Nearly 60% of foreign bribery cases occurred in Challenge 2. Manage threats just four sectors to integrity Corruption entry points should be mapped at each stage of the public infrastructure project, and integrity and anti- 19% Extractive corruption mechanisms should be enhanced. A whole of government approach is essential to effectively address related integrity risks. Why is this important? Corruption allegations often surround government- 15% Construction led infrastructure projects. The extent of public officials’ discretion on the investment decision, the 59% scale and complexity of the projects, as well as the multiplicity of stages and stakeholders involved, make infrastructure projects highly vulnerable to corruption. 15% Transportation and storage The Construction Sector Transparency Initiative (CoST) estimates that 10-30% of the investment in a publicly funded construction project may be lost through mismanagement and corruption (CoST, 2012). Within the European Union, corruption costs are estimated to 10% Information and communication EUR 120 billion per year (European Commission, 2014). The OECD Foreign Bribery Report (2014) also suggests that nearly 60% of foreign bribery cases occurred in 4 sectors highly related to infrastructure: extractive (19%), 8% Manufacturing construction (15%), transport and storage (15%) and information and communication (10%). 8% Human health Fairness, fiscal prudence and cost-effectiveness may be undermined when politicians favour infrastructure that disproportionately benefits their donors or core electoral 6% Electricity and gas base to the detriment of the society as a whole. 5% Public administration and defence A whole of government approach is essential to effectively address related integrity risks. Corruption 4% Agriculture, forestry and shing can occur at every step of an infrastructure project, 4% Wholesale and retail trade including the selection, tendering and implementation phases; and it can involve elected and non-elected public 3% Water supply officials, lobbyists, civil society organisations, trade 1% Activities of extraterritorial organisations unions, regulators, contractors, engineers and suppliers. 1% Financial and insurance activities The OECD Integrity Framework for Public Investment (2016) 1% Other service activities proposes a set of specifically tailored measures seeking to safeguard integrity at each phase of infrastructure projects. Sectors are identified with reference to the United Nations International Standard Industrial Classification of All Economic Activities (UN ISIC), Rev.4 (http://unstats.un.org/unsd.cr.regis- try.regcst.asp?Cl=27&Lg=1). Source: OECD analysis of foreign bribery cases concluded between 15/02/2000 and 01/06/2014 4 Key policy questions Benchmark indicators Are there measures to: • Adequate conflict of interest policies for public officials (prohibitions of exercising certain activities or • Prevent public officials and private sector employees holding certain interests; post-employment measures; from accepting or demanding bribes? disclosure; advisory services); • Adequately identify and manage potential and • System of internal controls and financial reporting to apparent conflict-of-interest situations? monitor and identify irregularities; • Regulate and limit the use of confidential information • Measures in place to control the integrity of firms by public officials? wishing to contract with public bodies; • Prevent the selection of public investment from • Existence of mechanisms to report wrongdoing related favouring a particular interest group/individual over to infrastructure projects; the public interest?