Cost Allocations
Akhil D -
Hey everyone! Today, I am going to talk about the cost allocation issues that come with DFI investment. Cost allocations and cost management is one the biggest sources of tension between DFIs and the governments they are helping. DFIs typically come into an investment with hopes of helping expand existing infrastructure. Rather, discussions with governments and other negotiations leads the money to be used for maintenance rather than expansion.
The primary reason for maintance cost allocations over expansionary allocations are because governments control where the DFI-funded money goes. When looking at the case studies, 33% of funding comes from governments while 67% comes from DFIs.
Governments prefer spending on maintenance over expansion for a couple of reasons.
- Safety & reliability: Maintenance ensures that existing infrastructure remains and reliable for public use.
- Maximizing existing assets: Governments have already invested resources in building infrastructure. By maintaining existing assets, they can maximize the lifespan and utility of those investments, getting the most value out of taxpayer money.
- Political considerations: Maintenance projects tend to have less controversy and opposition compared to expansion projects, which can face resistance from local communities, environmental groups, and other stakeholders.
Along with maintance expenditures, there is an increasing trend with money going “unallocated”. Much of these funds are tied to government corruption, as they directly go to government officials.
Ultimately, the combination of maintance spending and “unallocated” spending created divisions between governments and DFIs. These divisions can make projects operate with less efficiency as there are conflicting goals with the primary actors and even the cancellation of projects which puts all the money spent to waste.