CHAPTER THREE: THE FAILURE OF DEVELOPMENT PROJECTS
3.4 OTHER EXTERNAL ENVIRONMENTAL FACTORS LEADING TO PROJECT FAILURES
3.4.1 Introduction
The environment is different from one country to another, from one continent to another. What opportunities an environment offers a project, and what threats it poses, depends on where the project is implemented. For instance, as Hough et al. (2003) state, in developed countries such as the United States, the United Kingdom, Germany, France and Japan, incomes are generally high because of political stability, a highly educated and literate population, and high standards of living. High levels of industrialization, entrepreneurial activity, information technology, and active involvement in international business contribute to the increase of incomes. Well- developed infrastructures such as financial institutions and monetary networks, transportation, communication and social systems such as education and healthcare also are critical factors contributing to high incomes in these countries. Although the environment may pose its own threats, it offers many opportunities for business and projects. Therefore, Merwe (2002) suggests modern business has to match its activities to its organizational environment.
3.4.2 Project management environment in developing countries
As Keeling (2000:61) maintained, in developing countries projects fail or are abandoned because of external circumstances that are beyond control of the project management. For instance, projects implemented in politically unstable areas are particularly exposed to changes in government policy and even to physical insecurity, which negatively affects the success chances of a business or project. Other critical factors pointing to success or failure include culture, foreign direct investments (FDI) and globalization.
3.4.2.1 Culture and business competitive advantage
As Muriithi and Crawford (2003) indicate, social-cultural factors such shared values and norms, beliefs and attitudes towards organizations and work, employees and managers are significant factors influencing the success rate of a project or business. The findings from a study conducted by Dadfar and Gustavsson (1993) quoted in Zeffane and Rugimbana (1995) indicates that culture can have a significant impact on a project from the early stages of its design and planning. Keeling (2000: 59-60) observes that most overseas projects get into difficulty because project contractors and expatriate managers do not understand local attitudes towards time management and local attitudes in general. The cultural element is one of the leading factors that can complicate the project implementation if it is not given particular attention in management processes throughout the project’s life-cycle.
Mazui (1980) quoted in Mriithi and Crawford (2003) found that if people in the workplace and their families are satisfied, and have a positive attitude towards their managers, they can be expected to increase their productivity. Gender also was estimated to be a significant factor in creating more successful businesses, especially in the sectors of farming and small business.
However, their role and active participation are not recognized and appreciated by a number of managers. Zeffane and Rugimbana (1995) observe that the concept of kinship in business is neglected in developing countries, while some successful businesses are family-based. In the Republic of Korea, family-based businesses account for 46.2% of businesses. The developing countries are confronted with increasing global competition and with the computerization phenomenon. However, they lack a strategy of human resource development, which consists of establishing management training institutions and adequate employee training to fit in with the real needs of social and economic development.
Furthermore, the findings of a study carried out in Nigeria by Dlakwa (1990) and quoted in Zeffane and Rugimbana (1995) reveal that many developing countries are still characterized by a high level of bureaucracy, one of the main reasons of budget overspending and delays in construction projects. Corruption still occurs, for instance in the tax collection process, offers of foreign exchange and employment contracts are made. Such cases violate the principles of human rights, justice and trust, and hinder the economic development in the countries concerned.
Besides problems of bureaucracy and ethics, Zeffane and Rugimbana (1995) concluded that the culture has contributed to an increase in the number of multinational companies that have
established businesses in Africa. According to Hough et al. (2003), the cultural values, beliefs and norms in a country have an important impact on business performance in the areas of costs, risks and profits. The firm that manages costs and risks resulting from cultural differences better than its rivals, has a stronger position in the competitive global economy. Countries with sound educational systems, an adequate workforce, absence of disruptive labour practices, an ethic of hard work, and free market orientation are most likely to be preferred destinations for international business.
The element of culture helps in enhancing human relations in local organizations (Jackson, 2003 quoted in Baldwin, 2006) and improves partnership relationships in and with local and international business communities. Victor, et al. (2004) state that, because of a lack of joint ownership with local investors, foreign investors run great risks such as assets expropriation, macroeconomic changes like exchange rate fluctuations, and currency devaluation. But the welcoming attitude of domestic governments towards foreign investors is regarded as a great leverage, in that they are able to find project niches not yet covered, for instance, electricity generation, transmission lines and distributions networks.
Projects designed and implemented in complex and multi-faceted environments benefit from the culture of collaboration between different stakeholders aimed at promoting success (Crawford et al., 2003 and Russell-Hodge, 1995). By means of a joint venture, client and contractor work together and share risks and benefits associated with projects (Burke, 2001:241). Grazia and Santangelo (2001), Nakamura (2005) and Moran (2000) observe that partnership is a great opportunity for technology transfer through Information and Communication Technology (ICT), which contributes to the enhancing of management and to an increase in the number of businesses at local and international levels.
Culture can have significant positive impacts on the state economy and on individual projects’
income and costs, depending on how it is valued and integrated in projects. Furthermore, the national and organizational culture evolves and changes over time and from one country to another. Therefore, because of constantly environmental changes, culture requires being continually assessed and integrated in the project management processes to meet new and real needs of the project stakeholders.
3.4.2.2 Constraints of foreign direct investments (FDI) in developing countries
Habib and Zurawicki (2001) assert that FDI helps developing countries to develop and improve the quality of business and that it contributes to the growth of international business. For instance, the flows of FDI into developing countries have been growing at the rate of over 20%
per annum. However, Javed (1998) found that there are obstacles with the failure of banks in developing countries, one of the major barriers for FDI. The failure of banks is associated with the fact that banks play an important role in financing projects in the public sector which get a large proportion of their funds, destined for development objectives (building social and economic infrastructure), from the banks. But state-owned enterprises are generally blamed for being inefficient and less productive than those in the private sector because of poor planning, management and leadership. This leads to a decrease in the economic and financial sustainability of the banking sector and other economic sectors, and to a weakening position of projects that need financial support from banks. Javed (1998) adds that this situation contributes to bad banking debt services, increase of receivable accounts of loans and ultimately to bad receivable accounts. The evidence of political manipulation in the banking sector affects bank liquidity and the recovery of losses. The phenomenon of globalization also adversely affects the efficiency of state and private enterprises.
Another crucial issue is the inadequacy of economic and social infrastructures (Brown, Beyeler and Barton, 2004) in relation to electric power, information and communication technology, transportation, water, fossil fuels, emergency services, agriculture, operational financial institutions, well maintained road networks (Victor, et al., 2004 and Brown, Beyeler and Barton, 2004), as well as in the fields of health and education, every one of which contributes to projects and business displaying increased efficiency and productivity, or a lack thereof (Chulanova, 2007). It has been demonstrated that, for example, maintaining roads in a good condition leads to an important increase in new jobs and incomes as good roads create new opportunities for development in rural zones by opening up markets and increasing diversified business and social activities, as well as promoting export production in that area (Asian Development Bank Institute, 2007). In Singapore, infrastructures such as housing, land, public service, social and political culture, and labour have increasingly been attracting mobile factors such as capital and information. This has dramatically contributed to a gradual increase of economic growth (Phang, 200b quoted in Phang, 2003). It is in these circumstances that the huge airport infrastructure was built, which has made Singapore popular with international airline companies (Phang, 2003).
In most developing countries, however, central and provincial governments, often regarded as inefficient and ineffective (Chulanova, 2007), are another form of barriers, hindering the flow of FDI and successful business. As an example, Biggs and Shah (2006) state that Small and Medium Enterprises (SMEs) in Sub-Saharan Africa are characterized by market failure (Kim, Knotts and Jones, 2008) and by a lack of formal institutions that protect their rights and contracts, while these enterprises are established faster than large enterprises (Jovanovic, 1982).
Habib and Zurawicki (2001) add that the FDI is facing the problem of corruption, which is the abuse of funds by powers in government and by government officials serving their own interests.
This is manifested as bribes, government inefficiency and bureaucracy, a lack of transparency, instability of economic policies, and a weakness in the upholding of property rights. Victor, et al.
(2004) confirm this situation, saying that host governments often fail to create a favourable investment climate with regard to the freedom of choosing appropriate technologies, joint investment (private local and foreign investment) and sound legal and regulatory structures that protect contracts against corruption of any kind. In these countries, the exercise of citizen rights is still affected by economic and socio-political unrest (Hough et al., 2003), poor management, insufficient material and human resources (Biggs and Shah, 2006) and poorer investor protections because of inadequate judicial systems, archaic laws and procedures, poor quality of law enforcement and the character of legal rules which generally make capital markets narrower and smaller (La Porta et al., 1997 and Hough et al., 2003).
This is in conformity with the recent findings from a study undertaken in Nigeria by Sonuga et al. (2002) into water and irrigation projects. The findings indicate that barriers were experienced in many different ways through the inappropriateness of contract conditions, insufficient funds, government policies and corruption. In fact, in some cases government policies have been arbitrarily changed, contractors have not paid adequate attention to specific aspects of the execution of works, and stakeholder participation was found to be inappropriate from the early steps of the project onwards. As a result of their corruptive tendencies, government officials frequently make unnecessary demands on projects and waste resources. These problems interfered with the smooth application of standard project management techniques, namely project planning, monitoring, risk management, cost management, and so forth. In each case, successful project completion became unachievable.
In this situation, Lu and Beamish (2006) found that the international joint venture as a strategic alliance is the only good way of allowing the flow of FDI and international expansion of SMEs, helping them to cope with global competition (Ozorhon et al, 2007). Contracting for project management becomes a basic principle for this form of international joint venture because few project clients have the essential in-house skills resources to manage a project of any realistic size. That is why Woodward (2004) holds that the guidance and services of external consultants is needed through the entire project cycle phases, that is, initiating, planning, implementation and commissioning.
It is true that partnership relations through joint venture can help solve some of abovementioned problems. However, a great number of people in developing countries are not sufficiently empowered to equally share in the joint venture benefits with their partners from developed countries. In fact, most of them are illiterate, lack management skills and are not able to use ICT facilities (computers and internet usage), which are the important channel of the flow of information and technology transfer, and powerful tools of resource management. Although the lack of infrastructures is a barrier to the flow of FDI, the political unrest that characterizes some of developing countries makes potential investors reluctant to invest because of the risk of investment loss. True partnership between countries, private and public sectors, academic and non-academic institutions, government and non-government organizations and civil society can help to mitigate this serious problem of security, which is a great obstacle to social and economic development.
3.4.2.3 The global economy in developing countries
According to Mostert (2003), besides the inadequate legal, financial, economic and social infrastructures that make developing countries unable to guide industrial development, the phenomenon of globalization also constitutes a major obstacle to development in developing countries. It is exercising strong economic pressure in these countries at both local and national levels leading to the removal of barriers judged unnecessary to international business activities.
The rationale of globalization consists of breaking down borders between countries, governments, communities and financial markets for the benefit of the free flow of capital and mobility of labour in an integrated world economy. UNRIS (1995) quoted in Muchie (2000), characterizes globalization as a transformative route associated with the spread of liberal democracy, the increased transnational linkages of the world economy, the extension of the
market, flexibility of production activities and market, the spread of technological change, the spread of consumerism and the communication revolution. Cleland and Gareis (1995) state that globalization is supposed to promote resource sharing, concentrate on competitive advantages and new levels of cooperation. In this way, from an expanding group of developing and developed countries, the significant interlinking of firms was regarded as a major factor of the global economy by the end of the 20th Century. Oxley (1999) asserts that the aim of globalization is to form and increase regional integration, joint ventures and international alliances, leverage for intellectual property and pooling resources.
However, Meyer-Stamer (2005) observes that small business enterprises become less competitive in global markets as they suffer from a lack of managerial capacity, lack of technology development, low employee skills, absence of joint research and development, lack of capital, and poor communication between government and private sector because of mutual mistrust. Ulrich (1998) argues that the global economy creates obstacles to exercising social, political and economic rights by means of limiting the free market and creating a threatening environment and victims of this tendency are mostly the less developed and developing countries.
Mostert (2003), highlights that the global market economy is still largely under the control of three blocks namely, America, Europe and Japan. For example, between 1980 and 1990, they accounted for 43% of the global capital and for 56% of all global transactions (Hak-Min, 1994 quoted in Mostert, 2003). Supporting this idea, Mostert (2003) writes that this new economic system has had negative impacts on unemployment, distribution of income, education, health, management systems and the sovereignty of developing countries including those in Africa. This situation is attributable to their low level of participation in all processes of the globalization system because it is basically the International Monetary Fund and World Trade Organisation that intervene to stabilize the world economy and to provide global rules for global trade. But the IMF (2000:8) quoting Mostert (2003) does not accept the negative impact of globalization on developing countries because its intervention is merely aimed to regulate the monetary and fiscal systems in those countries in order to make their domestic economies more efficient and competitive in the global economy arena.
Although developed countries are viewed as threatening the chances of developing countries to benefit from globalization, developing countries are simply not competitive in the global market because their products are very expensive. The production costs in these countries are high because of expensive electricity used in manufacturing industries and the lack of updated technology (labor skills, raw material and production equipment). As a result, products or services are of poor quality and expensive. Furthermore, political and economic relations among developing countries are not good enough to build and maintain strong partnership relations among themselves and with their counterpart developed countries in the field of business.
The preceding sections show that external factors of the project environment constitute the main threats to projects and in many cases they indeed cause projects to fail, depending on how economic role players such as governments, financial institutions (World Bank, IMF and banks), investors and human resources behave in the economy and how culture, globalization, technology and partnership are used. But some projects have survived and were successful. The following section gives two examples of projects of which one failed and the other succeeded and explains the reasons for these outcomes.
3.4.3 Project management environment in Rwanda
In view of the economic and socio-political environment in which they operate, the success of projects implemented in developing countries, especially in Africa, should be evaluated on the bases of unexpected aspects of their environment (Diallo and Thuillier, 2004). Like other less developed and developing nations, Rwanda is challenged by an unfavourable environment, limiting the chances for success of business and projects, while besides the systems thinking approach is lacking in management processes.
3.4.3.1 Historical background of Rwanda
Rwanda is a hilly, small, mountainous and landlocked country with a rich diversity of natural resources in the form of many lakes, rivers, wetlands and a wide variety of flora and animal species. It is located in Central Africa. Rwanda is bordered on the west by the Democratic Republic of Congo, on the east by Tanzania, on the south by Burundi and on the north by Uganda. It is referred to as a country of a thousand hills because of its numerous hills. It covers a total surface area of 26, 338 km² of which 1,390 km² is water and 24,948 km² land. The
population is nearly 8.5 million and over 60% of the population lives below the poverty line (Ministry of Finance and Economic Planning, 2007).
In Rwanda, annual exports are estimated to be $18 per capita compared to an average of $145 in the countries of Sub-Saharan Africa (Coulibaly, Ezemenari and Duffy, 2008; Diop, Brenton and Asarkaya, 2005; World Bank, 2004). The low level of Rwandan exports can be explained by high transport costs because the country is landlocked. (The World Bank Group, 2007).
According to the Ministry of Finance and Economic Planning (2007), 90% of the Rwandan population lives in rural areas. Most households rely on farming which is labour intensive with the use of machetes and hoes to plant and harvest because animal traction is non-existent. On average, the plots of farm land amount to 0.89 hectares per household. In terms of food crop production, women’s labour is particularly important. Men’s labour is particularly evident in animal husbandry and cash crop production. The main food staples are bananas, potatoes, beans and sweet potatoes. The cash crops are essentially coffee and tea, but potatoes and bananas are also sold for cash. For many crops, the suitable growing conditions are situated between an altitude of 1500 and 1700 meters. It is in these areas that the highest population densities are found. On average, household income is made up of subsistence crop production (60%) and sales of beer, crops, off-farm activities, and livestock (40%). In the late 1980s, the economy of Rwanda declined due to poor soils, lack of land and livestock, low prices of coffee and tea, the problem of unsettled refugees, unfavourable weather conditions, growing corruption, population growth and crop decline. The Foreign Investment Advisory Service (2006) states, that some cases of corruption were reported particularly in the area of tax collection. Although Rwanda is judged to be less corrupt than other countries in the region of the Great Lakes and East Africa, corruption is one of the economy’s greatest enemies.
Southern Rwanda has been particularly affected by crop failure in 1989 and by an eruption of civil war in the northern region of Rwanda in October 1990 (Akresh et al., 2007; Diop et al., 2005). Poverty in the southern province has not changed significantly. It is still the poorest province (Ministry of Finance and Economic Planning, 2007). The poverty of the area is especially evident in the poor condition of health, shelter, education, roads and communication infrastructures.