The Upshot of Autonomy and Efficiency of Urban Water Service Providers inUganda and Tanzania

Abstract

The theoretical and empirical debate on the effect of managerial autonomy on the efficiency of urban utilities is still ongoing, yet limited research has been conducted in the water sector in developing countries. To address the gap, this paper gives empirical evidence on the effect of managerial autonomy on the efficiency of urban water service providers in Uganda and Tanzania. Using the managerial autonomy index and Data Envelopment Analysis (DEA), information from performance and management contracts, utility annual financial reports, partnership deed agreements, water policy statements, and results of 66 respondents was used to determine the level of managerial autonomy and efficiency in the 30 Decision Making Units (DMUs) of NWSC in Uganda and DAWASCO in Tanzania. The effect of managerial autonomy on efficiency was determined using Tobit regression analysis. The results show the mean managerial autonomy level of 47% implying that Head Office (HO) of water utilities has given limited autonomy to the different Decision Making Units (DMUs). Most of the DMUs have no or limited autonomy on procuring assets for their units, entering loan agreements, approving the annual report, and determining staff compensation. The fully efficient towns (1.00) are four and the mean efficiency level is 0.63. The Tobit regression model indicates that the adoption of managerial autonomy significantly (Prob>chi2 = 0.0006) contributes to efficiency. The findings indicate a high likelihood of managerial autonomy causing a change in the efficiency of urban water utilities. The position that an increase in managerial autonomy will cause the likelihood for technical efficiency to decrease, could be expected in the event that the principal (HO) who grants autonomy may not keenly and continuously supervise and monitor the activities of the agent (DMU). Urban water utility managers should put in place an appropriate structural framework to govern the relationship between the water utility HO and the DMU. Besides this, the utility head office should delegate decision making powers to the DMUs based on a clear framework.