A Narrative: Developing and Improving Infrastructure Regulation in Fragile and Conflict-Affected States

1. Introduction

Economic regulation of infrastructure services is an important element of governance for improving performance. Such regulation might include oversight of pricing, service quality, and investment, and may also include mechanisms for encouraging investment by diminishing political opportunism, for example. The overarching purpose of regulation is generally to improve sector performance, but situations exist where regulation is misused to benefit powerful stakeholders, including the service providers themselves. To address this possibility, regulatory systems should be carefully designed to empower less powerful stakeholders who are in need of the infrastructure services.

As is described in more detail in the next section, fragile and conflict-affected states (FCSs) possess unique characteristics that make regulation nonstandard. The populations tend to be quite poor, and both the population and the infrastructure are damaged by conflict. More than one-third of the people who live on $1.25 a day or less live in fragile states. Only about one-third of fragile states are able to increase the proportion of the population using improved drinking water, compared with almost two-thirds for the rest of the world.[1] State legitimacy may be weak or nascent in FCSs, in part because there may be a fragile compromise for peace among previously warring factions. This tension implies low trust and may require that the strategy for deployment of infrastructure services—the infrastructure for which may have been largely destroyed during the conflict—follow a pattern that maintains this peace. The window of opportunity for developing infrastructure could be small as delays or appearance of favoritism could lead to a renewed outbreak of violence.

The purpose of this narrative is to examine how regulation can develop and evolve in FCSs. In many contexts, infrastructure regulation is synonymous with the presence of a government agency that operates at arm’s length from political, operator, and other interests, and that is charged specifically with performing regulatory functions. This identity between function and institution may be an aspiration for a fragile state, but may not be immediately feasible or even desirable. Instead, such a country may find it better to adopt regulatory instruments that address its most critical needs in a way that forms a path toward the eventual development of formalized institutions, such as an independent agency.[2]

A major theme of this narrative is that regulation in FCSs is nonstandard. The specific goals, instruments, and institutional arrangements are different for FCSs than for more developed countries. Furthermore, given the diversity of needs and situations in FCSs, there is no standard model that can be assigned to such countries, except that the following appear to be consistent across nations: basic principles of how institutions and businesses function, motivations for regulation, common threads for successful engagements, and basic strategies for change.[3]

Some of the mechanisms, tactics, and strategies discussed in this narrative might be useful for low-income countries that are not FCSs. Although not a specific focus of this narrative and this special section of the Body of Knowledge on Infrastructure Regulation, it is hoped that any country that finds that it could improve its infrastructure services with a stronger regulatory system will also find useful the ideas and approaches outlined herein.

This narrative is organized as follows. It begins with an examination of motivations for regulatory oversight in FCSs. It then reviews possible sector regulations and the institutional arrangements that can be used to achieve them. Next it describes the characteristics of FCSs and identifies common threads that appear to reoccur in successful regulatory systems. It concludes by examining strategies for guiding the evolution of regulation in a country.

2. Characteristics of FCSs

Each country is “fragile” in its own way; however, most analysts include low income, lack of inclusive political processes, failure of authority, and recent conflicts as elements distinguishing FCSs from others:

  • Per capita gross national income for FCSs was $1,532 and for Least Developed Countries (LDCs) was $915 in 2014.
  • This figure for FCSs was on par with Sub-Saharan Africa ($1,699) and South Asia ($1,502), which tend to be the poorest regions of the world, but considerably less than the worldwide average of $10,779.

FCSs may also suffer from lack of macroeconomic stability, security, and basic systems for health care and education.

Some infrastructure for FCSs and LDCs is low relative to income by world standards:

  • Internet users per 100 people was 11.5 for FCSs and 8.6 for LDCs in 2014, far below the 19.2 for Sub-Saharan Africa and 16.6 for South Asia
  • However, rates of access to electricity, improved water sources, and improved sanitation facilities was comparable for FCSs, LDCs, and Sub-Saharan Africa, although lower than for South Asia and world averages.[4]

The challenge of FCSs is not limited to low-income countries. The World Bank estimates that nearly 60 million people will be displaced by conflict by 2030, making it increasingly hard for economies to develop and people to overcome poverty. Furthermore according to the World Bank, “The last few years have seen a spike in conflicts with an increase in casualties, and almost 60 million people are displaced globally—the highest level since the end of World War II. Violent extremism is a growing concern, and urban violence is on the rise, connected to inequality. Homicide rates are four times higher in countries with a Gini index greater than 0.45 than in more equal societies.”[5]

The World Bank defines countries as fragile based on adding metrics to create a total score based on its annual Country Policy and Institutional Assessment (CPIA). The indicators comprising the score cover topics for economic management, structural policies, policies for social inclusion and equity, and public sector management and institutions.[6] In general countries categorized as FCSs have the following characteristics:

  1. State legitimacy is weak or nascent.
    FCASs rank low in Transparency International’s Corruption Perception Index. Of the 175 countries scored in 2014, more than 80 percent of the bottom 10 percent were FCASs. Seventeen of the 24 FCASs scored ranked in the bottom 25 percent.[7] In the World Bank’s CPIA scorings, the lowest scores for FCASs were in the financial sector rating; transparency, accountability, and corruption in the public sector rating; and property rights and rule-based governance rating.[8]
  2. The end of conflict has come from a compromise (e.g., a peace-building compact) between conflicting groups or suppression of one group, and therefore, a sensitive balance has been achieved. This usually underlines the weak state legitimacy and also usually means that a lack of trust at many levels (including at time, at the social level) exists.This means that any type of intervention needs to be sensitive to what the effects are in relation to unwittingly upsetting the balance. For example, Yemen faced the situation of managing a delicate political transition while rebuilding its economy. Poverty had increased by one-third during the yearlong conflict that ended in 2011. The strategy for addressing the situation included local communities choosing their own priorities and guiding the work. By 2015 more than 245,000 people more had access to improved water and more than 1 million people gained access to paved roads and streets despite recurring conflicts.[9]
  3. Infrastructure has been destroyed.
    Internet, electricity, water, and roads are often severely damaged or destroyed during conflict. For example, the 12 years of conflict in Burundi, ending in 2014, resulted in electricity connections being halved even though the country’s population doubled. Urban water access rates dropped from 70 percent to 60 percent.[10] There is significant need with often acutely narrow financial and institutional capabilities. In the World Bank’s CPIA scorings, financial sector rating was the third lowest indicator for FCASs.[11]

  4. The window of opportunity is small.
    Most FCASs can spiral back into conflict very quickly, so it is important to build up capacity and gain credibility quickly. Incremental steps should be made whenever possible if conflict reoccurs.

The discussion thus far points to the problems with how the powers of government are used. One of the concerns in fragile states appears to be patronage and exercise of power in partial way that creates or reinforces inequalities and provides personal political or financial gain. In the utility and transportation sectors this may translate into inequality in access to services, in both physical access and the quality of services. However, providing utility employment can also be an important act of patronage and can provide benefits for supporters of the political elite. These can adversely affect both the performance of the utility and the prospects for reform. In Timor Leste, while Manitoba Hydro was appointed to operate the electric utility, the company’s staffing decisions were constrained by the government.

Infrastructure improvement and development of credible regulatory institutions are only elements of an overall strategy for addressing the challenges of FCS; however, they are nonetheless important and should play critical roles in improving inclusivity and countries’ financial credibility, transparency, accountability, property rights, and rule-based governance and lowering corruption.

3. Motivations for Regulation

Several motives for regulating infrastructure services can be identified in FCSs. One is the traditional purpose of limiting service providers’ exercise of market power. In N’Djamena, Chad, for example, water carters organized and behaved as a cartel, increasing the price of water.[12] Factions with political power or those powerful in the military may also control infrastructure and limit competition, using the resulting market power to gain wealth and privilege. But in some FCS situations, service providers lack market power. In Liberia, for example, a fledgling water utility struggles to compete with water tankers, container water distributors, and wells. Even in situations where market power does exist, controlling it may be of secondary importance compared with other needs. Higher priorities may include expanding access, improving management performance, or restraining political opportunism, which is explained next. This is not to say that market power should be ignored because it may be a factor contributing to poor sector performance.

A second motivation for regulation is limiting of political opportunism.[13] This may be seen as more about having regulatory institutions that limit political actions than about the oversight of the sector itself. A properly functioning regulatory system serves to protect investment by establishing barriers to political interference in infrastructure. Empirical studies consistently find that strong, independent regulatory institutions improve utility service availability and performance in low- and middle-income countries.[14] For example, electric power service in Thailand and the Philippines fared better than in Malaysia and Indonesia following the shock of the 1997 East Asian financial crisis because the institutional systems in Thailand and the Philippines provided for greater support for private property rights than in the other two countries: Investors in Thailand and the Philippines benefited from contractual safeguards with credible enforcement, whereas investors in Malaysia and Indonesia were vulnerable to politically controlled government institutions with effectively no checks and balances.[15]

Limiting political interference in infrastructure is important because of an inherent friction between political processes and effective utility service provisioning. Most political systems incentivize politicians and political bodies to maintain power by focusing on visible actions, distributing benefits to powerful stakeholders and providing rhetoric that maintains a critical mass of public support and allies. Because a significant drop in such backing can result in a fairly quick loss of political power and position, politicians are under pressure to focus on short-term gains.

In contrast, effective infrastructure provisioning requires a long-term planning horizon. On the investment side, facilities are long lived and each investment is an element of a system that is hard to significantly modify in even a few years’ time. Water and electricity facilities last many years and generally require a several years of positive cash flows to recover the investment, and even longer to compensate for the investment risk. On the management side, contractors that provide management services make investments in the transformation of management and cultural practices in the hope that the early expenditures will provide positive returns in later years. For example, Eskom Uganda manages and maintains two Ugandan government electricity-generating plants based on 20-year concession agreements.

This long-term nature of investments and other features of infrastructure service make service particularly vulnerable to political opportunism, whether from intentional breaking of commitments or policy changes motivated by other factors. One of these other features is infrastructure’s value to political actors. Infrastructure services affect almost everyone; that is, everyone uses water, power, communications and transportation in some form and aspires to receive service from a high-quality service provider at a low price. The ability to direct investment and determine what customers will pay for services allows political actors to demonstrate direct benefit to constituents. For example, one politician in discussing the potential formation of a regulatory agency for his island nation said he would support such an institution only if there was a guarantee that the prices his constituents paid for electricity went down. Sometimes even a credible yet ultimately broken promise of service can garner political support if the lack of follow through can be blamed on others. This is often the case, because the complex linkages in network industries requires coordination at several stages of production. For example, for the East Africa Power Pool to be efficient operators of transmission, generation and distribution networks must build adequate capacity and manage the power loads. Infrastructure is vulnerable to political opportunism because an efficient system requires sunk investments, the number of service providers in an efficient system is generally small relative to the number of other important stakeholders, and infrastructure improvements may involve foreign investors.

Because of the incentives that the political system provides and because infrastructure investment is valuable and vulnerable, political actors sometimes behave opportunistically and seize value from investors and other funders. The political players may do this by, for example, failing to keep promises regarding tariff increases,[16] withholding or diverting funding, or adding demands on operators.

This risk of opportunistic behavior leads those funding infrastructure to limit their exposure.[17] In some instances operators have limited their scale, resulting in higher average costs because the service providers do not achieve economies of scale. In other instances operators choose technologies with lower sunk costs even though the overall costs are higher. For example, in some countries water suppliers use tankers rather than pipes to transport water in part because the tankers are easier to move out of the country should the government decide not to allow commercially viable prices for water.

These first two motivations for regulation revolve around improving sector performance. Improving sector performance is important because doing so frees resources for other productive pursuits, and it reduces barriers to economic growth. Improved water systems and expanded access to power, for example, mean that citizens and institutions in the economy can devote fewer of their resources to self-supply of these essential needs, thus freeing those resources to be used for other pursuits, such as education, health care, and manufacturing. Thus improved infrastructure removes a barrier to economic growth.[18]

A third motivation for regulation in FCSs is to design institutions that can play a catalytic role in improving governance in general by, for example, demonstrating the value of and creating systems for transparency, rule of law, protecting private property, and serving the poor.[19] For example, in Côte d’Ivoire in 2014 the successful completion and operation of an important toll bridge by private investors signaled to other investors that the government would keep its commitments despite civic unrest. This demonstrates that infrastructure regulatory systems can play leading roles in institutional development, in part because of support networks of peer institutions around the world. As a well-formed regulatory institution develops in a country, it provides a template for others to follow, develops investor confidence, improves trust by stabilizing institutions,[20] and demonstrates leadership for the adaptive challenges inherent in forming what are typically called independent institutions, meaning that they operate under the law and at arm’s length from political and other stakeholder interests. “Arm’s length” implies several things, but essentially it means that the institution is accountable under the law and not under day-to-day political control.

South Sudan provides an example of how regulatory institutions can improve governance in other areas. In general citizens in the country have had few mechanisms for engaging with power holders, and politicians have rarely gone back to visit the constituents who elected them. Infrastructure reforms have included community dialogues that have served to create spaces for communities to engage with politicians, leading to a building of trust and accountability.

There are also motivations for not having regulation. For example, political elites may find that regulation results in a redistribution of power or wealth that is contrary to the interests of the elites. This means that the emergence of a regulatory system represents a loss for these powerful persons or groups, and any politically aware approach to regulatory development must consider how to keep the losses to a sufficiently low level so that progress can be made. The Frequently Asked Questions on working with stakeholders examine how to manage loss.

4. Infrastructure Policies and Regulations

Developing regulations in FCSs serves to address immediate needs and to lay a foundation for more effective regulation in the future. Immediate needs will be situation specific. In the Liberian case, for example, water suppliers lacked market power, so restricting prices served little purpose, but water quality was a concern because customers did not know when untested water was hazardous absent someone consuming it and becoming ill. However in Chad water carters achieved market power through collusion.

One priority in designing regulatory instruments in FCSs is to ensure that they can endure conflict cycles, perhaps by embedding them in community institutions that are not part of the political conflict or in institutions outside the country. The section on institutional arrangements expands on this. Another priority is to form them in a way that makes it easy to transfer the functions to a regulatory agency if and when the country is ready to form such an institution. This adaptability might be accomplished by concentrating the functions into a part of government that eventually becomes the regulatory agency, by concentrating functions in groups of personnel that could be transferred to the regulatory agency, or some other means. Possible policy challenges include the following.

Service Quality. Where customers are unable to observe quality and quality has important value implications, professional regulation can establish quality standards, testing procedures, and enforcement methods, as well as provide the enforcement and inform customers. This is the case in Albania, where the water regulator worked over several years with operators to develop quality standards and a reporting system that is now used to inform the public and politicians regarding the sector’s performance. If such regulation is done without favoritism, the resulting reliable quality has the benefit of increasing the value customers perceive for the service, which increases demand and makes it more financially viable to expand service. Data availability is a frequent challenge in FCSs.[21]

Infrastructure Deployment, Universal Access, and Service to the Poor. Infrastructure deployment is often a priority in FCSs. Conflict may have destroyed power systems, water systems, or roads. Limiting access to the internet may be used as an instrument of suppression. Where health and food are priorities, improved sanitation and transportation may be effective elements of the solutions. Deployment is enhanced and made more effective by improvements in stakeholder engagement and financial sustainability of infrastructure services. These are addressed below. 

Situations also arise where some citizens have been left out of public services and are unable to pay compensatory prices for service. This may be exacerbated by population migrations that occur during times of violent conflict. Service to these customers may be important for maintaining political equilibrium or simply because of a public view that the poor should be served. Professionally implemented regulation can address these situations, perhaps through stakeholder engagement or by lowering costs of providing service (e.g., by benchmarking or decreasing barriers to doing business), effecting well-targeted subsidies, or reducing waste. Transparency and evidence-based decision making are important for such policies because of the danger of powerful stakeholders using universal access systems for their private benefit.

Too often policies touted as promoting universal service or access benefited the well-to-do and service providers more than they benefited the poor. This wastes resources and suppresses service expansion. For example, the poorest 40 percent of the population in Cape Verde received only 11 percent of the benefits from an electricity tariff design intended to help the poor. Similarly in Guatemala, only 8 percent of the benefits from a tariff discount intended for the poor actually reached the poor. In part to address this problem, the International Telecommunications Union developed a framework for properly targeting universal service/access policies. The framework, which is being implemented for telecommunications in developing countries such as Trinidad and Tobago, begins with an analysis of reasons why service is not provided in an area. Reasons could include the following: (1) the service is commercially viable, but not yet served; (2) service providers are unaware of the business opportunity; (3) service is not commercially viable because of high fixed costs; and (4) service is not commercially viable because of high ongoing costs. The first reason can be addressed through community engagement and the second through similar public discussions. The last two reasons will need financial support either through investment assistance or operational assistance, depending on the situation.[22]

Using this framework in a transparent manner with effective stakeholder input helps address a bias problem that sometimes plagues FCSs, namely, favoritism shown to particular ethnic groups or geographic areas that are privileged by political decision makers. Such groups are sometimes singled out for service expansion, new investments, and/or special prices. An objective analysis done in a public manner with broad input can help remedy such prejudices and add legitimacy to the regulatory process.

As described further in the subsection on financial sustainability, it is important to manage universal service/access funding in a transparent and credible manner. Many countries have specific sources of funding, such as license fees, and the money is managed in a ring-fenced financial arrangement separate from government funds.

Stakeholder Engagement and Priority Setting. Stakeholder engagement is generally needed to understand the population being served, to build political support, to gather data on system performance, and to build legitimacy and consumer confidence. Stakeholders can be categorized along two dimensions: (1) their power, that is, ability to effectively influence policy and regulation, and (2) their interest, that is, the degree to which the stakeholder sees him- or herself as meaningfully affected by infrastructure regulation. Interest should be further subdivided into supportive and oppositional.

The stakeholder strategies should align with these categories. Stakeholders that are powerful and interested should be engaged by those implementing the regulatory system. If such stakeholders are supporters of the reform, they should be engaged to help build support for infrastructure development and perhaps included in the guiding coalition discussed in the section on strategy. If such stakeholders are oppositional, the reasons for their opposition should be explored to determine whether and how the negative effects they perceive can be resolved or at least diminished. Stakeholders that are powerful, but uninterested, should be engaged to determine if ways can be found to turn them into supporters without compromising the integrity of the reforms, and to explore the risk of them becoming oppositional.

Weak stakeholders who are interested should be engaged to assess their needs. It is often the case that serving this portion of the population is a key motivation of the infrastructure reforms, so success should be measured in part by understanding their needs and the progress made in meeting those needs.

Stakeholder engagement should inform policy and regulation. It is tempting for policy makers, donor groups, and others with experience in infrastructure to believe they know the needs of a population and how best to serve them. But especially in FCSs where situations can be diverse and nontraditional, listening to the population can inform those serving as leaders, reveal community resources that can be brought to bear on the infrastructure challenge, and lay a foundation for stakeholder engagement by future regulatory institutions. In Manila, for example, managers engaged community leaders to use public meetings or other community gatherings to identify solutions for nonrevenue water, theft, and vandalism. In Yemen communities took responsibility for maintaining water systems.

Addressing Market Power. In some situations operators could have market power because they are natural monopolies, meaning that alternative service arrangements are much more costly, or because barriers to entry inhibit rivals. For example, an electricity distribution company is a natural monopoly, and service through it is generally much more cost efficient than customers having individual generators, burning kerosene, etc. However, governments sometimes grant exclusive licenses or limit numbers of licenses in ways that protect service providers from competition even if the providers are not natural monopolies.[23] Telecommunications providers are sometimes protected from competition by over-the-top service providers such as Skype, for example. In some countries the political elite control markets for diesel generators and divert donated solar panels from the intended recipients to protect markets.

Although controlling market power is a traditional motivation for regulation, it may not be a high priority in countries where resources are limited and should be devoted to strengthening institutions, rule of law, and regulatory credibility to attract investment. Expanding access may also be a higher priority than controlling market power. This is not to say that market power should be promoted through the government granting exclusive privileges to operators that are not natural monopolies because such privileges almost always benefit the operator and not the customers.

In situations where controlling market power is a priority, one approach to addressing market power of natural monopolies is to regulate prices, but this may not be productive in all situations. For example, in some FCSs the market for energy is in a transitional state; that is, customers are migrating from self-supply by customer-owned generators to utility-style service. Customers may also readily substitute other sources of power, such as kerosene or solar panels, for utility-based power. Traditional regulatory restrictions on the utility’s prices could slow the transition to a more efficient system by limiting cash flow and potential profits, and by creating a mechanism for political opportunism, which would at least increase risk.

In the cases where there are entry barriers, regulation can address market power by removing or at least diminish the barriers. For example, Guatemala removed all government restrictions on entry into telecommunications markets after its civil war ended, resulting in rapid entry and growth even in high-cost rural areas. Even if the service is a natural monopoly, ensuring that there are low entry barriers to alternatives, such as solar power, could be an effective alternative to direct price controls for a period of time.

Developing Information Systems.  Data availability and quality are generally significant barriers to effective management, planning, and regulation. If decision makers lack good information, they generally treat what information or beliefs that they do have as facts and act accordingly. This can lead to poor or even disastrous outcomes if, for example, the reality is that costs are high and service availability is low, but policy makers facing political pressures attempt to impose low price constraints. Although it is often tempting to treat data gathering as important, but not urgent, this attitude is self-defeating because by time it is urgent to have data, it is too late to gather it. As a result, an initial step in creating a regulatory system in FCSs should be to empower an institution to begin gathering the information that is already being generated, organizing it and making it available to decision makers, and developing systems to address future data needs before they become critical.[24] Albania and Kosovo are developing information systems with financial support from Germany and the United Kingdom.

Gathering the relevant information can be difficult because operators and other authorities do not seem to like sharing cost and other information. The regulator in Côte d’Ivoire has addressed this challenge by engaging in a dialogue with operators that focuses on building trust and providing transparency on how data will be used.

Financial Sustainability and Capital Attraction. Financing infrastructure is frequently a challenge. According to a 2010 World Bank study, even though more than half of Africa’s recent improved economic growth was a result of infrastructure improvement, the continent faces a funding gap of over $31 billion per year, mainly in power.[25]

Table 1 shows four basic sources of capital for financing infrastructure and factors that affect them. External sources are those outside the operator itself, such as government, donors, and private. Government can be national or local. Donors include aid organizations, such as USAID, and charities. Private sources include both equity investors and creditors. Internal funding is primarily cash flow from operations, but may also include assets sales in some situations.

Each source has challenges, some of which can be addressed by effective regulatory institutions. These are represented in the five columns. “Commercially Viable Prices” means that the tariffs are sufficient to attract capital at the appropriate service quality. This means the cash flows cover investment, operating expenses, and financing. “Quality Management” means that management is empowered and incentivized to operate efficiently, including managing nonrevenue water and technical and commercial losses in energy. “Diversion Risk” refers to the possibility of funds intended for investment being captured through corruption and put to other uses. “Government Budget Priorities” are the decisions made by politicians and ministry officials regarding the fiscal use of public funds. “External Priorities” are the priorities held by donors and others outside the country.

Table 1. Factors Affecting Sources of Funding for Infrastructure

Factors Affecting Funding Incentives
Sources of Funding Commercially Viable Prices Quality Management Diversion Risk Government Budget Priorities External Priorities
Government X
Donors ? ? X X
Private X X X
Operator Revenue X X X

Private investors are concerned about risk, and, given that infrastructure investments are sunk and expropriation of their value can be politically valuable, private investors are generally hesitant to provide capital absent regulatory protection against political opportunism. Donor agencies have different motivations than private investors but are also hesitant to commit capital to infrastructure if there is substantial risk that the funding is unprotected from being diverted to other purposes. Finally, government as an investor is often unreliable because government budgetary needs vary from year to year, making commitment and planning difficult, and maintenance costs are often deferred, which causes facilities and service to deteriorate. For example, government resources may be minimal in some FCSs because of ongoing conflict or security concerns, making it impossible to provide government funds for electricity investment on a regular basis, and causing infrastructure to deteriorate and service to be limited.

Government funding depends mostly upon governmental budgeting priorities. Public officials are affected by the need to deliver services that garner current political support. Donor organizations are driven by their own priorities for the country and the risk that funds might be diverted for other purposes. For example, donors have been reluctant to provide financing if substantial risk was seen that the resources could be diverted for personal gain of corrupt officials, for military funding, or for suppressing political opposition. Their funding decisions might be affected by the commercial viability and the professional management of the infrastructure enterprise. Private capital is affected by whether the enterprise is commercially viable, the quality of the management to deliver financial results, and the risk of value being expropriated. Also, postconflict a major concern might be the policy changes, changes in market demand, or security breakdown.

Regulations can make a positive impact on financial sustainability and integrity by establishing accounting standards, permitting commercially viable prices, setting standards that make services viable for the poor, benchmarking utility performance when data are available, reviewing utility operations, ring fencing utility finances, and engaging with communities and other stakeholders.

In general, the challenge for political risk is to develop systems for credible commitments by the government. Given the sovereignty of governments, the options are limited. One category of options is to subject political actors to the rule of law. This is one element of the framework used for independent regulatory agencies. However, rule of law relies in part on checks and balances, and politicians may show willingness to forgo subverting the checks and balances, by, for example, declaring martial law, arresting political opponents, or using international agreements to bypass domestic laws. The other category of options is to use powers outside of the country to make it in the best interest of political actors to keep commitments. These options include involving multilateral organizations and other nations to enforce contracts. Specific institutional arrangements are discussed in the next section.

5. Institutional Arrangements for Regulation

As explained above, in many contexts infrastructure regulation is synonymous with the presence of an independent agency that operates at arm’s length from political, operator, and other interests, and that is charged specifically with performing regulatory functions, such as overseeing prices, markets, investment, losses, and service quality. This may not be entirely appropriate in an FCS context. For example, for the first few years of the Peruvian regulator OSIPTEL’s existence, the telecom operator sat on the governing board. This raised a conflict of interest and reduced OSIPTEL’s independence, but the arrangement was politically necessary for forming the regulator and helped the regulatory system establish credibility with investors.

Although a fragile state may aspire to locating the functions of economic regulation in a single institution, the arrangement may not be immediately feasible or even desirable. As the 2002 World Bank Development Report observed, “in the absence of effective checks and balances in the political process, independent regulatory agencies will be independent in name only. When state capacity is weak, simpler and less discretionary regulation is less likely to be undermined by corruption.”[26] Instead such a country may find it optimal to adopt regulatory instruments that address its most critical needs in a way that forms a path toward the eventual development of an independent agency.

In choosing regulatory instruments and the institutional design, it is important to account explicitly for the factors that make the country in question different from other countries in terms of strength of institutions along dimensions of technical and fiscal capacity, commitment, and accountability. For example, a wealthy province will have different abilities than a poor province. For some countries, considering political, ethnic, and social fragmentation may be important. Countries emerging from ethnic violence, such as Rwanda and Burundi, or oppression, such as South Africa, have needs that are different from those where the conflicts were largely political.

Regulation can take the form of a largely fixed agreement such as a contract between the government and the service provider, or of a more general set of rights and obligations established in law and overseen by a form of regulator that has discretion in interpreting the law.

Regulation by Contract. Regulation by contract, which may also be called a concession, can be effective when the service provided is well understood and unlikely to change, the services contracted are only a portion of the overall infrastructure service (such as management of a water system), institutions that could oversee a system with greater discretion are too weak, or some combination of the three. The contract should specify the risk allocation, obligations of the service provider, the means for financial compensation, the institutional arrangement for monitoring and enforcing the contract, and the mechanism for resolving disputes. The governmental entity responsible for overseeing the contract should be as free of political interference as is practical. The less independent the contract administrator, the greater the need for the dispute resolution process to be fast, efficient, and free of political interference. The transitional consideration for regulation by contract should be that the personnel enforcing the contract should be ring-fenced as much as practical so that they can become part of the regulatory agency at some point in the future.

Peru provides an example of regulation by contract. In establishing telecommunications services in previously unserved areas in the mid-1990s, the regulator OSIPTEL provided subsidies based on operators having built the required networks. Tariffs were established by contract, which was enforced by the regulator.[27]

Regulation by License. Regulation by license can be a hybrid of regulation by contract and regulation by statute. In this situation the operator has a license that specifies its rights and obligations. A regulatory entity, such as a contract administrator, oversees the operator but cannot modify the license. As with a contract, the license should specify the rights and obligations of the licensee, the financial arrangements, the means for monitoring and enforcing the license, and the mechanisms for modifying the license and resolving disputes. As in the case of contracts, the governmental entity responsible for overseeing the contract should be as free of political interference as is practical. The less independent the license administrator, the greater the need for the dispute resolution process to be fast, efficient, and free of political interference. The transitional consideration for regulation by license should be that the personnel enforcing it should be ring-fenced as much as practical so that they can become part of the regulatory agency at some point in the future.

Regulation by Law or Statute. Regulation by law or statute is useful when institutions exist that are sufficiently independent to enforce the laws, and the situations for service providers are sufficiently common that the regulatory institutions can adopt rules that address individual circumstances.

In addition to addressing whether regulation should be done by contract, license, or law or statute, a need is seen to specify the institutions that will perform the regulatory functions. Such institutional arrangements for regulations, other than having an independent agency, include self-regulation, local governments, national ministries, task forces, and contracted regulators.

Self-Regulation. Self-regulation occurs when the service providers agree upon norms and enforce them. Reasons for using self-regulation rather than regulation by the state include the following: (1) industry practitioners may have more expertise and technical knowledge than government officials; (2) in some situations operators may be highly motivated to develop practical rules and settle problems informally; (3) regulatory costs can be internalized by the operators; and (4) in some situations where regulation increases service value, the industry is motivated to adopt and enforce regulations even though an incentive exists to cheat because the benefits of regulatory compliance are a public good. Examples of self-regulation include service quality, safety, customer service, and billing. As long as self-regulation is effective there is no need to migrate the system into an independent regulatory agency once one is developed, although sometimes the regulatory personnel become observers of the industry committee that administers the self-regulation.

Subnational Governments. Local governments serve as effective transitional or even permanent regulatory institutions when they are institutionally stronger than other levels of government, when customer engagement is a major feature in the regulatory system, and when service needs vary greatly with local conditions. Water utilities are the most common service providers regulated at a local level. Nigeria is an example of a country using a state and local strategy for water regulation. In Sierra Leone, the African Development Bank recommended that rural feeder roads should be a national strategy to unify the country, but power infrastructure should be developed on a regional basis to be more inclusive.[28] Depending on their resources, institutional strength, and level of expertise, local governments can be particularly effective at service quality regulation (especially water safety), local universal service/access arrangements, and stakeholder engagement. Local government as a regulator may be particularly weak when standards need to be developed and implemented at the national level for sake of uniformity, critical information and resources lie outside the local government’s jurisdiction, local institutions are corrupt, expropriation at a national level is a risk, and uniform financial systems are important.

National Ministries. National ministries sometimes provide regulatory functions. They have the advantage of being close to national policy makers, have broader jurisdiction than local governments, and may have greater resources than local governments. In some situations they may be institutionally weak, but in all situations they are heavily influenced by national politics. National ministries may be effective at setting service quality standards and national universal access/service policies, and in engagement with nationally powerful stakeholders and developing national information systems. They are likely to be weak at ensuring financial sustainability because of their proximity to national politics. Similarly they may be weak at removing barriers to competition, countering favoritism, and managing funds for universal access/service.

Task Forces. Intergovernmental task forces can be used to coordinate regulatory functions provided by industry committees, local governments, and federal ministries. The mission of the task force would depend upon the situation and is likely to evolve over time. For example, the guiding coalition (discussed in the section on Strategy Formation and Execution) might serve as the initial task force, but then hand off the interagency communication and coordinating role once regulatory functions are established and active, leaving the coalition resources to be dedicated to strategic development. The task force could be designed with the intention that its members eventually make up the regulatory agency. Such a strategic intent can diminish turf battles over formation of the agency.

Contracts for Regulation. Some countries contract regulatory functions to address needs for specialized expertise, or perhaps to remove the day-to-day regulatory activities from politically motivated bodies. Such contracted activities have included monitoring, tariff setting, and dispute resolution. A 20-year water and electricity concession contract in Gabon specifies the use of external experts to monitor performance in achieving coverage targets. In Bucharest water and sanitation services concessioned in 1998 included the use of expert panels to set tariffs. In Chile arbitration panels of independent experts have been used to settle disputes between private water and sanitation operators and the regulator. Sometimes to contracts are to regulators in other jurisdictions.

6. Traits and Practices That Affect Reforms

Achieving infrastructure reforms, including the development of regulatory systems, requires the development of mechanisms to eliminate, or at least work around, a number of constraints. These may include the following:

  • Lack of Interest: Public perception of continued weak performance, lack of access, and favored treatment of the powerful, leaving the public feeling powerless and perhaps fearful of voicing concern. Regulation could address by improving transparency, advancing access through service obligations and universal service policies, and hosting forums where citizens can be heard and their needs addressed.
  • Unreliable Service: Poor service quality for customers with access to the network, leading to low demand and low collections. Regulation could address by setting and enforcing service standards.
  • Data Limitations: Lack of authenticated data on key performance indicators. Regulation could address by establishing Uniform Systems of Accounts and enforcing data collection and reporting procedures, using the data to inform the public and policy makers.
  • Knowledge Gaps: Limited professional capacity for operations and for providing government oversight. Regulators could address by organizing training, speaking at public meetings and via media, and hosting education events.
  • Politicization of Infrastructure: Excessive political interference in both the management and regulation of infrastructure firms. Regulation could address by formalizing transparent processes for how policy is implemented through the regulatory process.
  • Lack of Accountability: Responsibility for performance limited at all levels of government. Regulation could address by formalizing expectations for operators and incentives for meeting expectations.
  • Extreme Poverty: Widespread citizen inability to pay for basic infrastructure services. Regulation could address by working with operators to develop pro-poor service plans and tariff designs.
  • Weak Financial Sustainability, Including Corruption: Investment funds for renewing and expanding infrastructure are available erratically, limiting the ability of managers to develop business plans. Regulation can address by improving transparency for decision making and for information.

Combinations of these constraints would limit the success of new initiatives in any country. However, fragile, conflict-affected, low-income nations face a large number of these constraints, with each element further compounding the challenges facing those who are committed to improving performance in the ICT, energy, water, and transportation sectors.

The challenges are significant for those attempting to improve infrastructure performance, because some elements listed below are present in nations viewed as fragile or progressing.

  1. Inclusive Politics
  • Political Settlement (significant conflict, breach of agreements, political/social/economic oppression, breakdown in capital/regional relations, power based on force, traditional systems of governance have broken down or are the only systems)
  • Political process and Institutions (little public understanding of political processes, majority do not feel free to participate in political processes, mobility based on allegiance to important figures rather than merit, very weak institutions, governance neither inclusive nor participatory, no checks and balances on exercise of power)
  • Societal Relationships (major political divisions and conflict among communities, widespread mistrust and fear, absence of law and order, no press freedom)
  • Impact of Regulation (properly functioning regulatory systems can serve as a model and as a motivation for improved political engagement with groups that may otherwise be excluded, such as women, the poor, and ethnic minorities)
  1. Security
  • Security Conditions (ongoing conflicts, large-scale human rights violations, food insecurity, porous borders, prevalence of illegal activity)
  • Capacity of Security Institutions (excessive size and proportionality of the security sector, no civilian oversight of security sector),
  • Performance of Security Institutions (lack of public confidence in security institutions, human rights abuses, endemic corruption)
  • Impact of Regulation (regulation can improve security concerns by providing citizens with a mechanism for protecting their human rights, or simply by improving access to services; for example, improved electricity access in Timor Leste improved security by restoring street lighting)
  1. Justice
  • Justice Conditions (only at national level, selective and preferential justice, lack of access to courts, high levels of corruption within the justice system)
  • Capacity of Justice Institutions (low capacity, inadequate resourcing, skills, and systems, no record keeping, corruption is rife)
  • Performance of Justice Institutions (law based on decree rather than due process, few cases where high-profile persons are brought to justice, traditional authorities and customary justice system used are unsupervised, abuse of power by judges)
  • Impact of Regulation (properly functioning regulatory systems can serve as a model and can provide capacity building for courts and other bodies responsible for protecting human rights)
  1. Economic Foundations
  • Economic Conditions (roads and power supplies limited; very little formal economic activity, even at the central level)
  • Employment, Livelihoods, and Development of Private Sectors (most formal employment provided through humanitarian NGOs, high reliance on expatriate labor, low agricultural productivity, little investment due to insecurity)
  • Exploitation of Natural Resources (illegal or informal exploitation of natural resources, weak enforcement for managing resources)
  • Impact of Regulation (properly functioning regulatory systems can serve as a model for protecting property rights, a legal framework for markets, and a legitimate method for addressing environmental concerns)
  1. Revenue and Services
  • Revenue Generation (government revenues are low, customs processes interrupted and nonfunctional, absence of public institutions for collection of taxes and duties)
  • Public Administration (weak public procurement systems, limited skilled personnel, guidelines not enforced, lack of transparency and accountability, “personalization” of government and its services)
  • Service Delivery (state does not play a strong role in provision of public services, widespread lack of access, high inequalities exist, erosion of state institutions due to rent seeking, no proper regulatory frameworks for service delivery in place, policies neither monitored nor enforced, most basic services are concentrated in the capital city, services largely delivered through patronage networks)
  • Impact of Regulation (properly functioning regulatory systems can promote commercially viable tariffs, provide capacity building for civil servants, and protect operators from improper political interference)

Strategies for improving infrastructure should focus on answering the following questions:

  • Why is change required and what are the objectives of the initiatives that would drive change?[29] Key performance indicators and targets cannot be established without attention to key performance objectives. The weight given different objectives will depend on current performance and on the importance given those objectives by citizens (as articulated by political leaders).
  • Who can serve as reform champions? The key individuals need to be part of the Guiding Coalition that brings together key stakeholders and prioritizes steps that can be taken to improve sector performance.
  • How can the performance improvement process be managed? Section 7 on Strategy Formation and Execution provides an architecture for effecting improvements. As that section explains in more detail, the process should give attention to the following:
  1. Key stakeholders (existing state structures and special interests affected by changes in current institutions, information systems, personnel, and incentives—recognizing the links among political, social, economic, and security objectives for these groups)
  2. Conflict sensitivity (preferences may be needed for certain groups that have experienced suppression or oppression, leading to conflict)
  3. Communication avenues (for citizen education and engagement—creating a track record for meeting societal objectives, fostering transparency, and demonstrating expertise and integrity)
  4. Capacity-building programs (for affected groups, so all parties affected by reform have a common set of facts regarding sector performance and are aware of the different priorities placed on social, political, and economic objectives by different stakeholders)
  5. Pro-poor initiatives (signaling the inclusion of those who are most in need of infrastructure services—supporting community-based initiatives)
  6. Conflict-resolution mechanisms (where sector regulators and operators jointly identify financially and environmentally sustainable business plans and promote reconciliation among those with different viewpoints or political agendas regarding preferred trade-offs)

None of these elements can be achieved quickly, but if they are not present, evidence suggests the failure of new initiatives for cost containment, network expansion, or service quality improvements.

7. Strategy Formation and Execution

Whatever the sector targeted for reform and whatever the regulatory objectives, instruments, and institutional arrangements chosen, success will depend upon a properly formed and executed strategy for change. The strategy should include plans for engaging people and for aligning systems. Elements of this strategy follow work by John Kotter, former professor at the Harvard Business School.

Engaging People

  1. Establish a Sense of Urgency: People need to believe that the change is important to their own and to the country’s success. This many appear easy in an FCS, but the perceptions should not be taken lightly because they could affect sustainability of the peace and of the infrastructure initiative. An essential element of establishing credible urgency is to understand the demand for infrastructure and knowing priorities. Although formal studies may be useful, the most essential steps are likely to be engaging with marginalized and underserved groups, as well as the groups that will be represented in the Guiding Coalition (see item 2 below), to learn their priorities and to gather information on stakeholder objectives.Urgency should be established visually, aspirationally, and substantively. The visual aspect helps people to see the future and allows leaders to communicate visually about the goals and processes. The aspirational aspect should touch people’s deepest desires, such as improving the lives of their neighbors, their children, and the nation’s most vulnerable populations. The substantive element ensures that effort is concrete and practical. It should describe the need, the outcome, and the cost of failure in quantitative terms.Sometimes the urgency may emerge from a political crisis. The government of Ghana rushed to form the Public Utilities Regulatory Commission (PURC) in 1997 when the Electricity Company of Ghana and Volta River Authority announced a 300 percent increase in electricity prices. Consumers protested and refused to pay. PURC was established to develop credible utility prices.[30] PURC’s systematic approach to establishing prices was critical in 2002 when the government challenged a large price increase that PURC believed was needed to ensure commercially viable tariffs.[31] Although the political urgency led to the development of a successful regulatory system, it would be preferable to use more careful planning in the establishment of new sector regulators.Strategy: The strategy should specify (1) the target audiences for the messages; (2) the vision, aspirations, and arguments; and (3) how they will be communicated. The substantive explanation of the initiatives should include an assessment of the status of infrastructure and the need for performance improvements, the specific institutional strengths that will be leveraged and weaknesses that will be targeted for improvement, and the gap between aspirations and the current realities.
  1. Create a Guiding Coalition: It is commonly understood that 75 percent of people in authority need to “buy into” a change for it to be successful. Furthermore any significant change needs a critical mass of supporters who formulate and guide the strategy from beginning to end. The core of the guiding coalition should be small enough to engage in substantive debates and decision making, but large enough to keep all powerful stakeholders on board. If the number needs to be large, it could be subdivided into smaller working groups that are held together by an executive team.Formation of the Guiding Coalition should draw upon lessons from the UK’s Overseas Development Institute’s politically smart, locally led development strategy, which emphasizes ensuring that initiatives are based in an understanding of each country’s political context, sensitive to political needs, and owned and led by local stakeholders.[32]In Zimbabwe, for example, a council was formed to guide water reforms. It embarked on a private participation process in which labor unions, residents, and businesses treated as full partners in helping solve problems and evaluating operator proposals. The council was effective in engaging stakeholders, but fell short in that capacity building for negotiation skills, public speaking, business confidence, and working with the poor. In Kenya water reforms included a national consortium of key policy and decision makers. In Brazil, power sector concessions include a special committee of representatives of subnational government and different types of customers, including slum dwellers and farmers.[33]A 1992 law in Peru created a fund for subsidizing telecommunications in unserved areas, but a lack of political support at the national level, ministry turnover, and other problems delayed implementation. The new regulator, OSIPTEL, was able to organize momentum from supporters—beneficiaries, local authorities, and private operators—following privatization in 1994. The regulators’ active work in transparently identifying targeted populations, determining procedures, conducting technical studies, and launching the system led to successful implementation of a subsidy system that has been copied around the world.[34]Strategy: Formation of the Guiding Coalition should begin with a stakeholder analysis. Stakeholders should be categorized along two dimensions: (1) their power, that is, ability to effectively influence policy and regulation, and (2) their interest, that is, the degree to which the stakeholder sees his- or herself as meaningfully affected by infrastructure regulation.The Guiding Coalition should consist of persons who are both powerful and supportive. Members of the Coalition should actively engage with those who are powerful and oppose the reform, with an objective of first turning the opponent into a supporter, or, failing in that, turning the opponent into someone who is less oppositional and less able to hinder progress. Persons who are weak, yet supportive, can also be included if they bring value to the coalition by, for example, providing unique insights, legitimacy, or information or motivate political support because of policy priorities.

    The Guiding Coalition should know who the dissenters are and listen frequently to their objections. This helps the opposition to feel respected and provides crucial information for efforts to diminish the losses they feel they will experience if the reform is successful.

    This work includes identifying obstacles and diagnosing the binding constraints, identifying who has the power to effectively delay or support the work, identifying potential losses and gains for stakeholders, identifying adaptive challenges, and identifying stakeholders that lack power, but whose welfare is important.

  1. Develop a Vision and Strategy: A shared vision that is consistently communicated helps people understand and buy into the change. Both vision and strategy are described above, but they are included here to emphasize that the Guiding Coalition, once it is formed, should be instrumental in refining the vision and strategy so that the members take ownership and improve upon the initial design.Strategy: Initial meetings of the Guiding Coalition should be devoted to revising the vision, aspirations, and substantive arguments and to identifying the regulatory challenges to be addressed, the instruments of regulation to be used, and the institutional settings for regulatory activity, all with an eye toward the progress that will take the country into a mature infrastructure and regulatory system. Human capacity for regulation should also be addressed.[35]
  1. Communicate the Reform Vision: The vision, aspirations, and substance must be communicated frequently and powerfully, largely by the Guiding Coalition, but also by others of influence. These should be part of an ongoing conversation in the country about the nation’s future. In Kenya water reforms were communicated via “Report Card Roadshows” that created awareness, built consensus, and sustained momentum.Regulators in Jamaica reach out through local churches and “talk-back” radio shows. Regulators in Bolivia hold town hall meetings. Regulators in Peru use radio commercials.[36]Strategy: The Guiding Coalition should formulate a communication strategy that includes (1) the messages, their target audiences, and the triggers that help make the messages resonate and get repeated and (2) the communications channels. The substantive defense should visualize the status quo, cost of failure, and value of success. The Guiding Coalition should over communicate[37] the reform vision so that it is well known and accepted.

Aligning Systems

  1. Empower Action/Remove Obstacles: People must be empowered to act on the new initiative. The Guiding Coalition should authorize action, provide incentives, and effect accountability. Spontaneous actions by persons not in the formal effort should be encouraged and given guidance to ensure alignment with the Coalition’s strategy.The Uttar Pradesh Swajal project in India provides an example of the importance of local actions. The project established full cost recovery for the operation and maintenance of rural water supply and sanitation systems as well as partial cost recovery for capital costs, which was a major improvement over past practices. Under this project, water supply and sanitation projects and community empowerment activities were implemented by a partnership of village committees, NGOs, and a project management unit housed in the Department of Rural Development. Investment resources were transferred to rural communities, enabling them to operate by themselves.Strategy: The Guiding Coalition should identify current systems that hinder the reforms, develop plans for new systems, and empower institutional entrepreneurs to accomplish reforms, design new processes and identify proper rewards for exceptional performance, provide training where necessary, and monitor progress.
  1. Generate Short-Term Wins: Short-term wins should be created by breaking the change into smaller steps and helping people see progress and benefits. Short-term wins are critical for momentum and for ensuring that alternative, less effective reforms do not emerge and take root. In parts of India, power reforms were sustained through short-term wins. Integrated Energy Centers that offered electricity services to consumers who did not have their own connections were established. The centers were designed to be scalable to accommodate growth.In Rwanda, for example, unrealistic goals for increasing electricity access from 15 percent of the population to 50 percent, and to increase power generation from 108 to 1,000 megawatts by 2017, were destined to provide visible reform failures. More realistic goals, such as targeting 563 megawatts of generating capacity, improved the government’s ability to work with the private sector energy companies.Strategy: The Guiding Coalition should identify and plan for early successes that will be publicized and offered as case studies. Examples could include neighborhoods receiving services and new jobs in providing infrastructure. This work includes designing early changes that are relatively simple to implement, determining the sequencing and timing of initiatives, identifying early beneficiaries of change, developing plans for visible wins to occur on regular basis, and creating and over communicating the wins.
  1. Build on Change: Use the short-term wins to assess progress and begin consolidating the new processes.For example, the Phnom Penh Water Supply Authority (PPWSA) underwent a major turnaround between 1997 and 2004, going through several phases. First, in a short crisis management phase, a new management team was recruited and their remuneration was based in part on financial performance, collection rates, and reduction of nonrevenue water. In the second stage the utility conducted customer surveys and replaced corrupt bill collectors with an automated billing and collection system. In the third stage the utility installed an automated accounting and management information system. A new tariff structure emphasized cost recovery.Strategy: The Guiding Coalition should establish formal learning process for gaining feedback from stakeholders, operators, those responsible for regulations, and international experts. Improvements would be announced and progress tracked as milestones for success. The Guiding Coalition should ensure that adjustments are made to address changed circumstances and learning without losing momentum. This work includes promoting dialogues across stakeholder groups and ensuring that two-way communication is a priority.
  1. Anchor New Approaches into Institutions: Make the reforms part of the core of the country’s institutions. Successes and new practices should be collected, normalized, and reinforced. Authority should be clarified and institutionalized, along with systems of accountability and communication.In Burundi, for example, the World Bank and the African Development Bank invested in training for the power and water providers to embed the necessary skills, and conducted stakeholder surveys to ensure that citizens perceived benefits from the postconflict power and water projects.[38]Strategy: The Guiding Coalition should track successes and systems for achieving them, publicize the new arrangements, and hold organizations accountable for institutionalizing the change. This work includes consolidating the gains, over communicating the gains and new practices, building new practices into institutions, and reinvigorating the process to empower further steps.

8. Conclusion

This narrative explains economic regulation as an element of governance that establishes and enforces rules on such issues as pricing, service quality, and investment that are intended to accomplish government policy objectives for the sectors. The overarching purpose of regulation is generally stated as improving sector performance, but in weak institutional settings the mechanisms of regulation can be hijacked for private gain.

Regulation in FCSs is nonstandard, because motivations, specific goals and instruments, and institutional arrangements must be peculiar to the unique circumstances of each FCS. No standard model exists for FCSs, but clearly laid-out principles of how institutions and businesses function, stakeholder engagements, and basic strategies appear to consistently improve outcomes.

[1] OECD, “Fragile States 2014: Domestic Revenue Mobilisation in Fragile States” (OECD, 2014), http://www.oecd.org/dac/governance-peace/conflictandfragility/docs/FSR-2014.pdf, accessed November 6, 2015.

[2] For an overview of the empirical literature on the traits and effects of independent regulatory agencies, see Araceli Castaneda, Mark A. Jamison, and Michelle Phillips, “Considerations for the Design and Transformation of Regulatory Systems,” University of Florida, Department of Economics, PURC Working Paper, 2014, http://warrington.ufl.edu/centers/purc/purcdocs/papers/1413_Jamison_Considerations%20for%20the%20Design%20and%20Transformation%20of%20Regulatory%20Systems.pdf, accessed November 6, 2015.

[3] Ines Afonso Roque Ferreira, “Defining and Measuring State Fragility: A New Proposal,” presentation at the 2015 Annual Bank Conference on Africa: Confronting Conflict and Fragility in Africa, Berkeley, California.

[4] World Bank, http://data.worldbank.org/topic/economy-and-growth, http://data.worldbank.org/region/LDC?display=map, and http://data.worldbank.org/region/FCS?display=map, accessed November 7, 2015.

[5] World Bank, http://www.worldbank.org/en/topic/fragilityconflictviolence/overview#1, accessed November 7, 2015.

[6] Each indicator is valued on a scale from 1 being very low to 6 being very high. Countries scoring less than 3.2 are considered FCASs. See World Bank, http://data.worldbank.org/data-catalog/CPIA, accessed November 7, 2015.

[7] Author’s calculations based on http://www.transparency.org/cpi2014/results and http://pubdocs.worldbank.org/pubdocs/publicdoc/2015/7/700521437416355449/FCSlist-FY16-Final-712015.pdf, accessed November 7, 2015.

[8] Author’s calculations based on http://data.worldbank.org/data-catalog/CPIA, accessed November 7, 2015.

[9] World Bank http://www.worldbank.org/en/news/feature/2014/08/11/public-works-project-addresses-urgent-needs-in-yemen, accessed November 7, 2015.

[10] World Bank, “Implementation Completion and Results Report (IDA-H3700) on a Grant in the Amount of SDR 30.4 Million (US$50 Million Equivalent) to the Government of Burundi for a Multi-sector Water and Electricity Infrastructure Project,” Report No. ICR00002985 (Washington, DC: World Bank, 2014), http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/02/10/000442464_20140210102254/Rendered/PDF/ICR29850P097970IC0disclosed02060140.pdf, accessed February 7, 2016.

[11] Author’s calculations based on http://data.worldbank.org/data-catalog/CPIA, accessed November 7, 2015.

[12] A cartel may be better addressed through adopting and enforcing competition laws rather than through utility-style price controls.

[13] W. Henisz and B. A. Zelner, “The Institutional Environment for Telecommunications Investment,” Journal of Economics and Management Strategy 10, no. 1 (2001): 123–47.

[14] See, for example, Luis Andres, Jose Luis Guasch, and Sebastian Lopez Azumendi, “Regulatory Governance and Sector Performance for Electricity Distribution in Latin America,” World Bank Policy Research Working Paper, 2009; John Cubbin and Jon Stern, “The Impact of Regulatory Governance and Privatization on Electricity Industry Generation Capacity in Developing Economies.” World Bank Economic Review 20, no. 1 (2006): 115–41; Antonio Estache, Ana Goicoechea, and Lourdes Trujillo, “Utilities Reforms and Corruption in Developing Countries,” Utilities Policy 17, no. 2 (2009): 191–202; Luis H. Gutierrez, “The Effect of Endogenous Regulation on Telecommunications Expansion and Efficiency in Latin America,” Journal of Regulatory Economics 23, no. 3 (2003): 257–86; Luis Gutierrez and Sanford V. Berg, “Telecommunications Liberalization and Regulatory Governance: Lessons from Latin America,” Telecommunications Policy 24, no. 10–11 (2000): 865–84; Federica Maiorano and Jon Stern, “Institutions and Telecommunications Infrastructure in Low and Middle-Income Countries: The Case of Mobile Telephony,” Utilities Policy 15, no. 3 (2007): 165–81; and Agustin Ros, “The Impact of the Regulatory Process and Price Cap Regulation in Latin American Telecommunications Markets,” Review of Network Economics 2, no. 3 (2003): 270–86.

[15] Witold J. Henisz and Bennet A. Zelner, “The Political Economy of Private Electricity Provision in Southeast Asia,” Working Paper of the Reginald H. Jones Center, Wharton School, University of Pennsylvania, 2001.

[16] This is not to say that all tariff increases are warranted—there are instances of operator inefficiency or lack of performance—rather, it is to say that infrastructure is often not commercially viable because of political pressures to keep prices low.

[17] Henisz and Zelner, “The Institutional Environment for Telecommunications Investment.”

[18] A. Harrison, Y. J. Lin and L. C. Xu, “Explaining Africa’s (dis)advantage,” World Development 63 (2014): 59–77.

[19] This could be viewed as an element of a strategy of renewing the social contract in FCSs. This approach is one element of a four-part strategy by the World Bank in the Middle East and North Africa (MENA) region. This social contract work is intended to build greater citizen trust, protect the poor and vulnerable, improve inclusivity and accountability in service delivery, and strengthen the private sector. The other elements of the strategy are (1) regional cooperation, including water and energy development to foster greater trust and collaboration across MENA countries; (2) resilience by promoting supporting the growing number of refugees and internally displaced persons; and (3) reconstruction and recovery through bringing in external partners, leveraging large-scale financing, and moving beyond humanitarian response to longer-term development. See World Bank,  http://www.worldbank.org/en/region/mena/brief/our-new-strategy, accessed November 7, 2015.

[20] Dozie Okoye,  “Things Fall Apart: Missions, Institutions, and Trust,” presentation at the Annual Bank Conference on Africa: Confronting Conflict and Fragility in Africa, Berkeley, California, 2015.

[21] http://regulationbodyofknowledge.org/faq/low-income-fragile-and-low-capacity-countries/how-should-performance-targets-be-set-and-how-can-performance-be-monitored-when-there-is-limited-data-availability-andor-the-quality-of-the-data-is-uncertain/

[22] When feasible, operators providing the subsidized services in the third and fourth situations should be chosen through a transparent reverse auction process as pioneered in Chile and Peru for telecommunications.

[23] Governments often develop rationales for limiting entry, such as ensuring quality or financial viability. However, when the effect is to limit supply so that customers either do without service or must find inferior services, limiting entry is hard to justify.

[24] http://regulationbodyofknowledge.org/faq/low-income-fragile-and-low-capacity-countries/how-should-performance-targets-be-set-and-how-can-performance-be-monitored-when-there-is-limited-data-availability-andor-the-quality-of-the-data-is-uncertain/

[25] Vivien Foster and Cecilia Breceño-Garmendia, “Overview”, in Africa’s Infrastructure: A Time for Transition, Vivien Foster and Cecilia Breceño-Garmendia, eds. (Washington, D.C.: World Bank. 2010) pp. 1-27.

[26] World Bank, World Development Report 2002: Building Institutions for Markets (Washington, DC: World Bank, 2002), https://openknowledge.worldbank.org/handle/10986/5984, accessed February 6, 2016.

[27] Geoffrey Cannock, “Telecom Subsidies: Output-Based Contracts for Rural Services in Peru,” Public Policy for the Private Sector, Note no. 234 (Washington, DC: World Bank, 2001), http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/05/03/000333038_20120503035343/Rendered/PDF/248180VP0REPLA0ies0CANNOCK0Jun02001.pdf, accessed February 6, 2016.

[28] African Development Bank, “Infrastructure and Growth in Sierra Leone: A Summary Report” (Tunis Belvédaire, Tunisia: African Development Bank, 2011), http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/IIAP%20Short%20%28En%29%20Int%C3%A9rieur.pdf, accessed February 6, 2016. This view is supported by empirical research regarding transportation in the Democratic Republic of Congo. That study found that reduced transport costs improved welfare postconflict, but not necessarily during the conflict. See Rubaba Ali,  A. Federico Barra, Claudia N. Berg, Richard Damania, John D. Nash, and Jason Russ, “Infrastructure in Conflict Prone and Fragile Environments: Evidence from Democratic Republic of Congo,” presentation at the Annual Bank Conference on Africa: Confronting Conflict and Fragility in Africa, Berkeley, California, 2015.

[29] See, for example, the sections on regulatory objectives and the discussion of the Guiding Coalition in the Strategy Formation and Execution section.

[30] Ernest Aryeety, and Ama Asantewah Ahene, “Utilities Regulation in Ghana,” Institute of Statistical, Social and Economic Research, University of Ghana, 2005, http://ageconsearch.umn.edu/bitstream/30664/1/cr050111.pdf, accessed February 6, 2016.

[31] Philip D. Osei, “Regulation in a Flux: The Development of Regulatory Institutions for Public Utilities in Ghana and Jamaica,” University of West Indies, no date, http://www.caribank.org/uploads/publications-reports/research/conference-papers/development-strategy-forum/Regulation%20in%20a%20Flux.pdf, accessed February 6, 2016.

[32] David Booth and Sue Unsworth, Politically Smart, Locally Led Development (London: Overseas Development Institute, 2014).

[33] World Bank, World Development Report 2002.

[34] Cannock, “Telecom Subsidies: Output-Based Contracts for Rural Services in Peru.”

[35] Countries without a history of regulation are likely to lack persons trained in the area. This was a challenge in establishing regulation in Peru in the early 1990s, following a decade of economic turmoil and violent insurgency. The Peruvian regulators addressed this problem by offering training for young professionals who might want to work in the field. Smaller countries such as Costa Rica, Jamaica, and Panama responded to the scarcity of regulatory experts by creating multisectoral regulatory bodies, but with sector-specific regulatory rules.

[36] World Bank, World Development Report 2002.

[37] We use the term “over communicate” to emphasize that, from the perspective of the speaker, it generally appears that the message is repeated too often. However, listeners hear only a small percentage of what is said, and remember even less, so the message must be repeated more often than seems appropriate to the speaker.

[38] World Bank, “Implementation Completion and Results Report (IDA-H3700).”