Challenges to Finance Urban Roads in Ethiopia

Abstract

A country’s road network should be efficient in order to maximize economic and social benefits. Roads play a significant role in achieving national development and contributing to the overall performance and social functioning of the community. It is acknowledged that roads enhance mobility, taking people out of isolation and poverty. For any economy to develop, transport must start off first which will later stimulate other sectors to develop in an orderly fashion. In Ethiopia; however, there was virtually no formidable study on challenges to finance about this sector. The increasing of knowledge and understanding on challenges to finance, for the area in which this research was undertaken by benchmarking of the same research undertaken in other country, were taken as the major initiators of this study and were the rationale to the research. The major objectives of the study were to assess the challenges to finance urban roads in Ethiopia and to provide possible recommendations. The study also bench marked cases in relation with the study subject of combined road and real estate development, Avenue2 Maastricht Netherlands and urban toll road of Attica toll way, Athens Greece.The most important lesson learned from these cases is the need to use innovative source of finance such as value capturing and PPP. The major cause considered as hindrance for constructing full fledged urban roads in Ethiopia are lack of government governance, lack of political stability, corruption at large, government interference on price setting and low level of PPPs. Currently, Ethiopia has been working phase four road construction which is mainly finance by the government of Ethiopia and borrowing. Financing using public sector, however, may not be adequate to kindle a paradigm shift. Therefore, it is inevitable to mobilize private sector investments, to fill funding gaps of road projects. The study also recommends to solve the challenges of finance by adopting innovative financial instruments such as public private partnerships (PPPs); tax increment financing; development charges (impact fees), value capture; loans, bonds and carbon finance.