Challenges of Municipal Finance in Africa

8/14/2019 Challenges of Municipal Finance in Africa

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CHALLENGESOF MUNICIPAL

With Special Reference toGaborone City, Botswana

FINANCE IN AFRICA


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United Nations Human Settlements Programme

Nairobi 2010

CHALLENGES OFMUNICIPAL FINANCEIN AFRICAWith Special Reference to Gaborone City, Botswana


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The Human Settlements Finance Systems Series:Challenges of Municipal Finance in Africa

First published in Nairobi in 2010 by UN-HABIA.Copyright United Nations Human Settlements Programme 2009

All rights reservedUnited Nations Human Settlements Programme (UN-HABIA)P. O. Box 30030, 00100 Nairobi GPO KENYAel: 254-020-7623120 (Central Office)

www.unhabitat.org

HS/1233/09EISBN:978-92-1-132198-2 (Volume)

ISBN:978-92-1-132027-5 (Series)

Disclaimer

Te designations employed and the presentation of the material in this publication donot imply the expression of any opinion whatsoever on the part of the Secretariat ofthe United Nations concerning the legal status of any country, territory, city or areaor of its authorities, or concerning the delimitation of its frontiers of boundaries.

Views expressed in this publication do not necessarily reflect those of the UnitedNations Human Settlements Programme, the United Nations, or its Member States.

Excerpts may be reproduced without authorization, on condition that the source is indicated.

Acknowledgements:

Director: Oyebanji Oyeyinka

Principal Editor and Manager: Xing Quan ZhangPrincipal Author: Alosyus MoshaContributors: Don Okpala, Ananda WeliwetaEnglish Editor: Eric OrinaDesign and Layout: Andrew Ondoo


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At the dawn of thisnew urban era,UN-HABIAresearch showsthat by 2030,two-thirds ofhumanity will beliving in townsand cities. Wethus live at a timeof unprecedented,

rapid, irreversible urbanisation. Te citiesgrowing fastest are those of the developing

world. And the fastest growing neighbourhoodsare the slums. Indeed, the global number ofslum dwellers is now at or close to the 1 billionmark. Excessive levels of urbanization inrelation to the economic growth have resultedin high levels of urban poverty and rapidexpansion of unplanned urban settlementsand slums, which are characterized by a lack of

basic infrastructure and services, overcrowdingand substandard housing conditions.

Yet housing and the services that should beprovided with it are one of the most basichuman needs. It is enshrined in variousinternational instruments, including theHabitat Agenda. And reducing the number ofslum dwellers around the world is a cornerstoneof the Millennium Development Goals set tofight poverty around the world. So if we fail toachieve the Goals in towns and cities, we willsimply fail to achieve them at all.

It was with this crisis in mind that the UnitedNations General Assembly decided in itsresolution of 26 February 2002 to transformUnited Nations Commission on HumanSettlements into a fully pledged programme.Te General Assembly in its resolution called onUN-HABIA to take urgent steps to ensure

a better mobilization of financial resources atall levels, to enhance the implementation of

the Habitat Agenda, particularly in developingcountries. It also stressed the commitmentsof member states to promote broad access toappropriate housing financing, increasing thesupply of affordable housing and creatingan enabling environment for sustainabledevelopment that will attract investment.

Te Habitat Agenda recognizes that housingfinance systems do not always respondadequately to the different needs of largesegments of the population, particularly the

vulnerable and disadvantaged groups living inpoverty and low income people. It calls UN-HABIA to assist member states to improvethe effectiveness, efficiency and accessibility ofthe existing housing finance systems and tocreate and devise innovative housing financemechanisms and instruments and to promoteequal and affordable access to housing financefor all people.

In our quest to reach as many people aspossible, a cornerstone of our agencys newMedium-term Strategic and Institutional Planis partnerships. We have no choice but tocatalyze new partnerships between governmentand the private sector. Tis is the only wayto finance housing and infrastructure at therequired scale the scale needed to stabilizethe rate of slum formation, and subsequentlyreduce and ultimately reverse the number

of people living in life-threatening slumconditions.

It is clear that in the coming 20 years,conventional sources of funds will simply beunavailable for investment at the scale requiredto meet the projected demand for housing andurban infrastructure. Many countries aroundthe world continue to face deficits in publicbudgets and weak financial sectors. Local

governments have started to seek finance innational and global markets, but this is onlyin its initial phase.

FOREWORD


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New mortgage providers have emerged,including commercial financial institutionsand mortgage companies. But only middleand upper income households have accessto such finance, while the poor are generally

excluded. Although social housing is becomingless important in Europe and in countries witheconomies in transition, the need to provideshelter that is affordable to low incomehouseholds still exists, including in developingcountries.

Tis is why the exchange of information andknowledge on human settlements financesystems is so important. It is why it receives

increased recognition in facilitating thedevelopment of human settlements financesystems and in turning knowledge into actionfor developing practical human settlementsfinance methods and systems for these pressingproblems.

Our Human Settlements Finance Systemsseries documents the state, evolution andtrends of human settlements finance in

member states, and examines the factors andforces which drive the development of humansettlements finance systems and the roles ofdifferent institutions and actors in shapingthe systems and trends, and reviews humansettlements finance systems. It presents aninteresting review of policies, instruments,processes and practices. It examines thestrengths and weakness of these systems andpractices, their relations to the housing sector

and the broad economic and social sectors,and lessons learned from practices.

Indeed, the country review studies we presentare a valuable resource for member Statesbecause it is a body of work that also showshow human settlements finance systems andmodels can be applied to local use and thus

provide a wider range of options for humansettlements finance. Te series also serves asguidebooks for policy makers, practitionersand researchers who have to grapple daily withhuman settlements finance systems, policiesand strategies.

Anna Tibaijuka,

Under-Secretary-General, United NationsExecutive Director, UN-HABIA


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CONTENTS

FOREWORD iii

Contents v

Abbreviations and Acronyms vi

01. Introduction 1

02. The Sources of Municipal Finance in Africa 3

03. Challenges of Municipal Finance in Africa 9

04. Municipal Finance: The Case of Gaborone City in Botswana 17

05. The Way Forward for Municipal Finance in Africa 35

References 39


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ABBREVIATIONS AND ACRONYMS

ANC -African National Congress

BCGIIR Building Control Regulations Grade II Regulations

BCR Building Control Regulations

BOOT-Build Own Operate Transfer

BOT - Build Own Transfer

COR - Certificate of Rights

CSO- Central Statistical Office

FPSG -Fixed Period State Grant

GCC - Gaborone City Council

GoB - Government of Botswana

LA - Local Authority

LADC Local Authority Development Committee

LAIT- Local Authority

LAPAC- Local Authority Public Accounts Committee

LGA - Local Government Authority

MLGLH - Ministry of Local Government Lands and Housing

NDDC -National District Development Committee

NDP - National Development Plan

NGO- Non Governmental Organization

NHP- National Housing Policy

P = Pula (Botswana Currency); 6.5Pula = 1US$

PAYE - Pay as You Earn

RSA- Republic of South Africa

RSG-Revenue Support Grants

SHHA -Self Help Housing AgencySOS Save Our Soul

UDP Urban Development Plan

UN-HABITAT - United Nations Human Settlements Programme

VIP -Ventilated Pit Latrine


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SOCIAL INVESTMENT FUNDSA TOOL FOR POVERTY REDUCTION AND AFFORDABLE HOUSING


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01. INTRODUCTION

01. INTRODUCTION

Urbanization in the last 20 years has becomeone of the most important trends in humansettlement development and the prospects ofall developing countries continue to be deeplyaffected by rapid urban population growth.

While Africa was 80% rural in the 1950s and1960s, its rate of urbanization now standson average at 50% and the trend is expected

to continue over the coming years (UN-HABIA, 1996). In West Africa for example,50 million people are expected to migrate tocities over the next twenty years and it willtake 80,000 hectares of land to accommodatethem. It is projected that by 2020, 63% of thepeople will be living in cities. In Eastern Africathe figure will be 55 % (UN-HABIA,1998).

A case of concern is the manner in which theurbanization process is taking place in thecontinent. Tere are a number of integratedforces in operation. Firstly the urban populationand those moving to live in urban areas consistlargely of unskilled labor. Secondly, municipalauthorities, which were originally instituted ascolonial administrative institutions, have notbeen structured to cope with the fast growingurban population (Beall, 2000). Tirdly the

existing revenue collection administration isgenerally inefficient and what is collected has,in some cases, been inappropriately managed.Finally, as municipalities are in general,financially weak, they must rely on financialassistance from the central government, whichonly increases the leverage of the latter overthem (Slater, 1997).

Policies towards urbanization appear to be

changing, from a desire to control the growthof cities by curbing rural-to-urban migration,towards the acceptance of urbanization as

an inevitable and even desirable process.Cities are now seen as the engines of nationaldevelopment, offering job opportunities anda higher quality of life to new urban dwellers.

A few countries in Africa, including Uganda,have begun to encourage faster urbanization asa way of inducing faster national development.Tis means that they have to be managed

properly and funds provided to run themadequately otherwise chaos will reign.

Te last few years have also witnessedacceptance of the concept of sustainabledevelopment, which was adopted in Rio de

Janeiro in May 1992 at the UN Conference onEnvironment and Development. As indicatedin An Urbanizing World: Global Report onHuman Settlements 1996 (p421), sustainable

development brings together two majorconcerns: meeting the needs of the presentwithout compromising the ability of futuregenerations to meet their own needs. Te firstconcern is about socio-economic development,

while the second is about global ecological lifesupporting systems. Within the urban contextthe needs of the present include: firstly, accessto an adequate livelihood or productive assets,as well as economic security for the vulnerable;

secondly, access to healthy and affordableshelter and related services, including water,sanitation and domestic energy, as well as accessto adequate health care and to education; andthirdly, freedom to participate in national andlocal decision-making processes.

As a result of rapid urbanization, pressureon urban services and facilities (the presentneeds as defined in sustainable development)

has become a serious problem in manyurban centres and job opportunities offeredby cities are too few for the large numbers


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CHALLENGES OF MUNICIPAL FINANCE IN AFRICAWith Special Reference to Gaborone City, Botswana

of new urban dwellers. Consequently, thenumbers of poor people within urban areasare rapidly increasing. In many parts of

Africa, a physical manifestation of this isthe growing slums and squatter settlements,

sometimes accommodating more than 50%of the urban population. At the same time,rapid urbanization is also leading to seriousenvironmental degradation, particularly withinand around large cities. Tis is exacerbated byinappropriate consumption patterns, as well asinadequate management of natural resources.

Due to this fast urbanization, many Africancities are thus now faced with a governance

crisis at all levels which is a result of theprogressive weakening of public sectorcapacity brought about by a combination ofstate over extension, ineffectual adjustmentof external economic effects, natural eventsand poor management. Most countries havechronic budget deficits and cannot providecity services. It is the composite effect of thesefailures, which has necessitated significantemphasis on issues surrounding capability

and capacity of local government (McCluskey,ibid. 4).

In this report we explore how one countryin Africa, Botswana, has fared in financing

urban development and see what lessons othercountries can learn from it. However, to putthe report in perspective, we start off firstby looking at what other African countrieshave done in financing sustainable municipal

development. In this report we first, examinethe main sources of municipal finance; thenlook at the experience of sustainable serviceprovision; financial management andinnovative financial practices. Te reportthen will look at the case study of Gaborone,Botswana. It will conclude by putting forwardsuggestions on the way forward as far asmunicipal financing in the African continentis concerned.


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02. THE SOURCES OF MUNICIPALFINANCE IN AFRICA

INTRODUCTION

Te fundamental problem of municipalfinance in Africa is simply stated as the gapbetween financial resources and municipalexpenditure needs coupled with inadequatefinancial systems. Tis fiscal gap is wideningas urban populations expand, increasing the

demand for infrastructure and urban services.Te fact that the growth of municipal revenuedoes not match the increase in urban economicactivity is technically referred to as the lack of(municipal) income elasticity.

Experience shows that in many countries, thetaxing powers of local authorities are simplynot wide enough and the yield from existingsources is often far inadequate to meet theirexpenditures. Many cities in Africa are largelydependent upon income derived from propertytaxation and other service charges, while otherand more lucrative sources, such as income tax,sales tax and business tax are monopolized bycentral governments. Tus, many cities haveto depend on central government allocations,

which are themselves generally inadequate andoften erratic in terms of timing.

For example, in South AFrica, Pieterse, et.

al.(1999) indicate that local government derivesits revenue from rates on property(19.89%)and trading services such as electricity(41.4%),

water (11.8%) and sewage and refuse removal(8.22%) In addition, municipalities receiveintergovernmental transfers in the form ofagency payments, transfers to fund operationalcosts and capital transfers (averaging only10%). While municipalities continue toreceive income from these sources, nationalfigures point to a crisis in municipal finance.Project Viability, a national cash-flow

monitoring system indicates that one third ofmunicipalities are financially unsound. OverR9 billion is tied up in outstanding debt tomunicipalities, and municipalities ability topay major creditors is decreasing. However,

while there is a serious question as to whetherlocal government is adequately funded, manyurban municipalities have substantive income

and are in a position to redirect expenditure topoverty-targeted programmes.

Most value added taxes are exclusively reservedto central governments and few municipalitieslevy an income tax, or a surcharge on incomerelated taxes that would capture a proportionof the economic growth for public purposes.Because local taxes lack buoyancy, revenuesfall behind the growth of the local tax base.

In property taxation, often a main source ofmunicipal revenue, a rise in property valuesmay not be captured immediately with atax increase because properties are usuallyrevalued every few years rather than on anannual basis.

Another reason for the municipal finance gapis that most municipalities lack the autonomyto establish their tax base, rate structure,

and enforcement procedures, and therefore,cannot raise revenues commensurate withtheir expenditure requirements.

Finally, poor financial management iscontributing to municipal finance shortages.Tere are shortfalls in the capacity andtechnical expertise of local government tohandle expenditure responsibilities and togenerate revenue. An example often cited isinadequate administration of local propertytaxation. Studies in many cities have shownthat urban administrators are often unable to


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update property valuation for tax purposes,mainly because of a lack of qualified staffand insufficient, poorly maintained records.One may add to this various corrupt financialmanagement practices intentional under-

valuation and over-allocation-leading to theinequitable generation and distribution ofpublic revenue and to gaps where there shouldbe none.

Local governments may get much of theirannual operating cash from land-basedrevenues, usually local real estate taxes, andnon-land based revenues such as taxes onvehicles, license fees for various businesses and

occupations and utility charges. A commonsource of revenue in most countries is inter-governmental transfers. Cities in the developed

world may also obtain revenue for large capitalprojects through borrowing against projectincome streams (revenue bonds) and generaltax flows (obligation bonds). Tis, however,is not common in developing countries like

Africa because of the higher levels of riskperceived by investors.

Te extent of control over municipal incomevaries. Only a few sources of revenue somefees and user charges-are completely under thecontrol of local authorities.

Financial transfers from higher governmentauthorities sometimes lack transparency andpredictability. At times, central governmentsfail to notify local governments of grants until

well into the fiscal year, or central governmentsmay effect sudden reductions. Regularformula-based transfers (like in Botswana)

would be preferable to ad hoc grants for betterlong-term capital planning and budgeting bylocal governments.

A number of countries have set up specialisedpublic finance institutions, which lend tolocal authorities for infrastructure investment.Most local governments are not independent

enough to borrow long-term funding fromcapital markets for urban development. Tat

is, they do not have authority to use theirtaxation powers to guarantee payback. Still,private capital markets appear to be developingrapidly (as in South Africa) and, as conditionschange, local governments in the future may

tap these.

Where local authorities are able to deriverevenues from property taxes and servicecharges, meaningful tariff increases aresometimes refused or delayed by centralgovernments for fear of eroding politicalsupport among the urban populace. Inshort, many governments continue to refuseto pay the political and financial costs of

decentralization, that is, granting of morefinancial and decision-making powers to localauthorities. o resolve these problems requiresreconfiguration of central-local governmentrelations, either towards more decentralizedsystems or more effective revenue sharing, andthis can only be done if there is enough political

will on the part of central governments.

A different set of reasons for the failure of

urban local authorities to cope with increasingdemands is to do with the characteristics oftheir existing sources of revenue and theinadequacy of the financial regulations andprocedures employed. In addition to theirinadequacy, many of the key sources of localrevenues are generally inelastic, i.e. they do nothave the capacity to yield additional revenuein proportional response to inflation, growthof personal incomes and population growth.

Tis, for a variety of reasons, is often the casewith urban property taxes, the cornerstone ofthe urban finances of many developing countrycities, particularly those, which inherited theirsystems from the British. A second reason,

which affects the acceptability of some urbantaxes and their long-term suitability, is that theyare often regressive, thus failing to be effectiveinstruments for redistribution and attainmentof equity. Te third reason is that many

cities are lacking in administrative capacityand cannot, therefore, fully benefit from theexisting sources of revenue. Tis is quite often


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02. THE SOURCES OF MUNICIPAL FINANCE IN AFRICA

the case with regards to property taxes, largelyas a result of the absence of proper financialcadastres???? and the inability to carry outaccurate real estate valuation and the necessaryperiodic revaluations. Collection of charges for

urban services rendered may also be inefficientand many cities are owed large amountsof money by consumers, including centralgovernment and parastatal consumers. Finally,some urban taxes are politically sensitive, thusaffecting the willingness of local authorities toassess and collect such taxes effectively and toenforce sanctions on defaulters.

All of these problems affect cities in Africa,

in varying combinations and to differentextents. Yet, there are also some cities, whichhave made some progress in improving theirfinancing systems, in terms of their revenuesources, collection systems, yield and financialmanagement. A number of cities and townshave in recent years embarked on wide-rangingreforms of their governance systems, includingthe enhancement of financial mobilizationand management capacity, from which useful

lessons could be learnt. In Dar es Salaam,for example, the City Commission quicklyrealized that it had inherited from the electedCity Council massive debts accumulated overmany years due to poor collection levels andgeneral financial mismanagement. o assistin raising the level of revenue collection,the Commission engaged the services ofconsultants to review the whole city financingsystem, assess the yield potential of existing

sources of revenue and rationally determinenew levels of rates, charges and fees (ibid).

SOURCES OF MUNICIPALREVENUE

Municipal governments derive their revenuesmostly from both internal and externalsources. Of the internal sources, some are

land based in the form of property taxes andland fees and the others are non land-based,like taxes on households and license fees of

all sorts; whereas external sources are mostlyrevenue from intergovernmental transfers,grants, money from borrowing etc. In thissection we examine these sources, highlightingon their value and adequacy to meet the ever

rising municipal needs of social and lineinfrastructure.

INTERNAL SOURCES OF REVENUE

(a) Land-based Sources of Revenue.

Te property or real estate tax is one of themost common taxes levied at local level,

but its potential is seldom exploited to thefullest extent. In most cases valuation rolls areincomplete and out of date as in the case ofKenya, Uganda, anzania and Zambia; in mostcountries, central governments, which ownmany properties and use the services withinthe jurisdiction of urban local authorities, aresupposed to either pay rates in full or, moreoften provide grants to local authorities inlieu of rates, however, most do not pay, thus

depriving the municipal governments ofsubstantial revenue and lastly, a potentiallyserious problem in most cities in Africa is thegrowing feeling, among city residents, thatthe money paid for rates and other local taxesis being poured into a bottomless pit, as itseems to have no impact at all in improvingthe quality of physical infrastructure andservices. For example, in parts of Nairobi or

Johannesburg, there have been suggestions

that residents should suspend payment of ratesand the service charge until such time as roads,

water and sanitation begin to improve. It islikely that, increasingly, residents will demandto see results from the rates that they pay. Tistrend is likely to be encouraged by the politicalopenness and democratic governance, which isincreasingly characterizing African countries.

Property taxes are levied because the benefits

of infrastructure and services provided bymunicipalities accrue foremost to the ownersof property or their tenants. o raise more


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02. THE SOURCES OF MUNICIPAL FINANCE IN AFRICA

system provides for more efficient municipalservices and infrastructure and enables rates tobe set and adjusted at levels, which reflect realcapital costs, finance charges and inflation.

Where independent institutions, such as

independent public or private water, sewerageand electricity utilities, establish fee levelsand handle revenues, financial self-sufficiencycan be achieved, as has been shown, in somecountries. Cost sharing has been introduced inservices provided by municipal governmentssuch as education, health etc. However,experience shows that the charges are too lowand inadequate for the effective provision ofsuch services.

A general problem affecting a number ofservices provided by local authorities in mostcountries is under charging. Further, chargerates are infrequently revised, renderingcharging services, as a source of local income,inelastic. Inefficient billing in some cities, forexample, Nairobi, where water billing is oftenbehind, exacerbates this.

Te successful application of user feesrequires a convenient way to measureindividual consumption. Increasing user feesto economically efficient levels should be thefirst priority of an infrastructure strategy. Caremust also be taken to avoid excluding the poorfrom services because of their inability to pay.Cross-subsidies (as used in Botswana) are oftenused in several countries in the continent tocreate a more progressive schedule of fees.

Tax on Provision of Goods and Services(license fees)

ax on provision of goods and services, whichis generally in the form of trade licenses andfees, is an important source in most countries.However, in some instances, increasinglicense fees has proved to be very difficultand politically sensitive. Collection and

follow up of defaulters has also proved to beproblematic.

Income-Generating Enterprises

Income generating enterprises is not asignificant source of local government revenuesin Africa and appears to be getting less andless popular with the increasing preference

for privatisation. It is practiced in anzania,Kenya, South Africa, Zimbabwe and Nigeriaamong others.

EXTERNAL SOURCES

Central Allocations or Inter-governmental Transfers

Several systems exist for transferring fundsto local authorities. In Botswana, forexample, urban authorities get 100% of thedevelopment budget and between 40-60%formulas based on their recurrent budgetfrom the central government (Mosha 2001).In other countries the situation is as follows:In Kenya, there are also formula based blocktransfers to local authorities; in Malawi, thereare general purpose, block transfers or specific

purpose formula based transfers; in Nigeria,federal transfers are formula based whereastransfer programmes to the LGAs have beenhistorically highly unpredictable, in Malawi,the situation is not clear and lastly in Ugandathe 1995 constitution certifies unconditional,conditional and equalization grants(New YorkUniversity, 2000).

A major problem in some countries is the

uncertainty characterizing central governmentallocations. Local authorities are never certainabout when they are going to receive theirallocations from central government, or abouthow much they are going to get. Anotherproblem is the central governments distrust ofthe competence of local authorities. Tey dothis to cling to the financial muscle.

Intergovernmental Tax SharingMost African local authorities includingmunicipalities get revenue from tax money


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collected by central government. In Kenya,20% of the tax levies on road fees and 5%of the annual income is normally shared; inUganda, according to the Local Government

Act of 1997, 35% of the total collections have

to be transferred to districts. A formula basedrevenue sharing scheme is also available in theLocal Government Act for the distribution todivision councils for revenue collected by themunicipalities and cities; in Nigeria there isgeneral revenue sharing of national revenuesin the Federal Account and in countries likeRwanda the system is not clear and lastly, inMalawi, there is no inter-governmental taxsharing system in operation (NY University,

2001).

Sub-National Borrowing

In some countries in the African region sub-national governments can borrow to financetheir development programmes. A fewexamples where this is practiced are in countriessuch as Zimbabwe, South Africa and Uganda.In Zimbabwe this has been a great success.

In the case of Uganda, local authorities areallowed to borrow from the banking system

within the constraints imposed by the LocalGovernment Act of 1977, although there hasbeen little borrowing thus far. In Kenya andBotswana, there is virtually no borrowingdue to past heavy debts and problems withrepayments.


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03. CHALLENGES OF MUNICIPALFINANCE IN AFRICA

Problems of Revenue Collection at theLocal Level

Municipal governments ability to generaterevenue through taxation is severely limitedbecause central governments insist on theprerogative of imposing taxes and determiningtax rates. Te only substantial revenue source,

which is almost universally at the disposal of

local authorities, is property taxation. Althoughthis is the most important single source ofhuman settlements financing accessible to localauthorities, it has shortcomings in its potentialto increase revenues. Since the tax base -theamount of land - does not grow automatically

with real income growth or inflation, theremust be periodic reassessments to updateproperty values. Tis is an administrativeproblem, because local governments fallbehind in carrying out reassessments owingto lack of suitably qualified staff. Tus, oldproperty values remain on the tax rolls, andrevenue losses are substantial (UN-HABIA1986).

Another problem is the notoriously low rateof tax collection. Evidence on this is notreadily available, since local governmentrecords on revenue-collection performance

are not reliable, and the specific reasons forpoor revenue-collection performance differamong local authorities. However, commonelements can be found, the most importantbeing the absence of effectively enforcedpenalty measures for non-payment or undulydelayed payment. Collection problems maystem from inadequacy of staff as well as fromthe structure of the tax. Wide variations in theequity of property tax assessments (i.e. in the

ratio of the assessed value to the market value)are a typical obstacle in this respect.

Another frequently cited problem is that manytax delinquents simply do not have the capacityto pay. Some governments in the continenthave begun to deal with these problems with avariety of reform measures. Te most effectiveone, however, appears to be strict enforcement,including prompt identification of delinquentpayers, rapid legal procedures, and automatic

tax liens on delinquent property.

Other forms of taxation, for instance on theuse of cars, although well suited to urban areas,have been little used by African countries. Carownership has increased significantly in mostdeveloping countries and is largely concentratedamong high-income groups, but taxes on carsdo not cover costs of road networks, parkingspace, and traffic regulation, let alone generate

surplus revenues for the development of urbanservices. Car taxation has the advantage ofbeing made progressive and used to promotepublic transport, an investment of particularbenefit to the poor.

Central governments should encourage localauthority efforts to generate income - especiallysince such actions can enhance equitableincome distribution at the local level - and

to strengthen local management capabilities.Appropriate methods would include inter alia,incentives to improve local authorities revenuegeneration through performance-linkedgrant systems, and assistance in organizingborrowing from financial institutions. Suchsupport could help secure the capital requiredfor investments in fixed infrastructure as wellas reduce the demand for grant and loan fundsfrom central government.

Tis approach transforms the traditional systemof transfers from central to local government


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from one of annual handouts covering deficitsand centrally planned and funded investmentsinto one of reliably sourced finance forlocally planned and managed services andinfrastructure.

Sub-national Government Autonomy

For local authorities to succeed, they needautonomy and this means that centralgovernments have to decentralize theiractivities to municipalities. However, thereseems to be limited autonomy in sub-nationalgovernments. In Kenya, for example, there issome autonomy, but ministerial approval is

required for most of the decisions made bycouncils. In Malawi, Botswana and Rwandaautonomy has historically been weak dueto capacity constraints. On the other handautonomy has been strong in Nigeria, Ugandaand anzania.

Fiscal Decentralization and MunicipalFinance: Slow Decentralization

Fiscal decentralization, which can helpmunicipalities finance their social and physicalinfrastructure programmes is relatively slow inthe African sub-continent and this has posed achallenge to most authorities.

Te concept of Municipal Finance inmost developing countries is predicatedon the practice of decentralization andfiscal decentralization in particular as local

governments are almost wholly dependent onthe centre for a great part of their recurrentand capital budgets. Te last decade has

witnessed an extraordinary proliferationof local government reforms around the

world, including in Africa. Rapid political,economic and technological changes havefuelled the trend to rely more heavily on lowerlevels of government. Fiscal decentralizationhas not accompanied the decentralization

of responsibilities. Although the localauthorities are increasingly being charged

with service and infrastructure provision

responsibilities, they still have to revert to thecentral government for funding. Tey are stillsubjected to the tendering and asset disposalprocedures practiced at central government.Tis inevitably does not give local authorities

the latitude to deal with their finances andrevenue generating practices as they see fit.

Fiscal decentralization may appear to be theeasiest aspect of decentralization becauseit is not difficult to assign additional powersand revenues to sub national governments,like municipalities. Te reality, however, isfar more complex. Even if a formal decisionis made to decentralize, reluctant central

agencies may slow the progress. In addition,giving additional resources to sub-nationalgovernments politically, managerially andtechnically unprepared to use them responsiblycan create enormous problems. Finally, thedegree to which fiscal decentralization shouldbe pursued is unclear. Empirical evidence to

justify or discredit fiscal decentralization isscant and mixed. None of the claims on eitherextreme-that fiscal decentralization retards

economic development and has undesirablemacroeconomic effects; or that it improves localservice delivery and enhances local governmentaccountability has been adequately tested.(. er-Minassian, ed. (1979).

Fiscal decentralization may be more effectiveif it is approached in an experimental, phasedversion rather than adopted in one fell swoop.Namibia and Mozambique are starting with

the cities while Uganda started with the fiscalcomponent of its decentralization programmein 13 districts. anzania did the same in theearly 1980s. Nigeria started in 1976 andGhana in 1991.

In a study by Smoke (2001) of four countries inthe Eastern Africa sub-region (Ethiopia, Kenya,South Africa and Uganda) an insight into localgovernment finance and decentralization wasexposed. Some key differences are summarizedin table 2. Public expenditure-to-GDP ratiosfor Ethiopia, Kenya, South Africa and Uganda


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03. CHALLENGES OF MUNICIPAL FINANCE IN AFRICA

are respectively, 29 % (2000), 30.5% (1996),25.3% (2000) and 21.9% (2000). Teirrespective deficits in these years were 22.4%,-7.5%, 2.4% and 10.1%. Tus, the overall size of the public sector is moderate in all

cases. All run deficits, with Ethiopia havingthe largest and South Africa smallest.

Te relative importance and fiscalindependence of decentralized governmentsvaries considerably across the four countries.Ethiopias decentralized governments(primarily the states) accounted for 31.2% oftotal public expenditures (2000) and raised18.9% of total expenditure revenues, while

Kenyan local governments accounted for only4.2% of expenditures and 5.6% of revenues(1996). In Uganda, local governmentsaccounted for 28% of expenditures (2000),but they raised less than 8% of revenues.South Africa has two sub-national levels ofimportance. Provincial governments accountedfor 46% of total expenditures (2000), but theyraised an average of only 4% of their revenues,

while local governments accounted for 25% of

public expenditures, but they raised on average92% of their revenues (more in larger urban,less in small rural).

Functional responsibilities are quite differentin the four cases. In the Ethiopia andSouth Africa cases, decentralized levels ofgovernment (primarily state/provincial) havedominant responsibility for social services(health, education and in South Africa,

welfare). In contrast, only a few large colonialera municipalities are involved in health andeducation in Kenya social service expendituresare almost entirely funded and provided by thecentral government and NGOs. In Uganda,local governments legally have significantresponsibilities for health and education,but many have not been able to deliver theseservices adequately since decentralisation dueto capacity constraints.

Te four countries also have dissimilar localrevenue structures. Ethiopian states rely on

shared percentages of central taxes (personalincome, business, excise, sales) and have onlya few modest independence sources, especiallyenterprise profits and various charges and fees.Kenyan local governments have relied heavily

since independence on a property tax, andsince the late 1980s on local authority servicecharge, a combination payroll and businesstax. Te LADC was abolished in 2000 andreplaced by a transfer system. South Africanprovincial government main sources of revenueare motor vehicle fees, gambling revenue andhospital user charges. Local governmentsrely very heavily on surpluses from tradingservices (mainly electricity and water), with

urban areas also using property rates and largemetropolitan councils and districts using theRegional Service Council levy, a productivebut problematic combination payroll levy andturnover tax. In Uganda, the most importantsource of local revenue is the graduatedpersonal tax, an unusual and complex hybridof PAYE income tax, a presumptive income tax,a wealth tax and poll tax. Local governmentshave access to the property tax, but in practice

few use it, and it is significant only in the largecities. Sub-national governments in all of thecountries use various types of fees, licenses andother minor revenues.

Finally, the three countries have significantlyvaried approaches to intergovernmentaltransfers, both in terms of relative importanceand structure. In Ethiopia there is a singleblock transfer program based on a complex

formula that accounts for more than 400% ofthe national budget (2000). Kenya for manyyears had no transfers except for teacherssalary grants to a few municipalities thatprovide primary education and a very smallgrant to needy councils. A transfer system todistribute 5% of central income tax revenuesto local governments was adopted in fiscal year2000. South Africa provides to provinces andmunicipalities an equitable share of national

resources for recurrent expenditures. Tistransfer funds more than 95% of provincial


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expenditures, but less than 10% of municipalexpenditures on average. Tey also have accessto a variety of conditional transfers primarilyfor capital expenditures, some of which are offbudget. Ugandas transfer system is designed

to provide three types of grants, block,equalization and conditional.

From the above it can be seen that the level ofautonomy, responsibility and power dependson the political set up of the sub-nationalgovernments. It shows that local governmentsdo get financed in different forms depending

on the level and scale of fiscal decentralization.Intergovernmental transfers come in differentforms and amounts. Efforts to raise their ownfunds vary and depend on various factors.

TABLE 2: LOCAL GOVERNMENT FINANCE: SELECTED COUNTRIES

South Africa Ethiopia Kenya Uganda

Structure ofsub-nationalGovernment

-Provincial-Municipal(Type A, B, C)

- State- Administrative

tiers of state

- Municipal

- Local (Municipal,Town, Urban,County)

- Local (Districtsand four levelsbelow)

Size of sub-nationalgovernment

Provincial andMunicipal>60% expenditures


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Sub-nationalAutonomy

Relatively stronglegally and inpractice

Strong legally butweak in practice

Relatively strong butsome control

Strong legally, butweaker in practice

Sub-NationalGovernmentCapacity

Mixed(strongermetropolitan)

Weak, but somebetter than others

Mixed across urbanand rural

Mixed, generallybetter in urban

Source: Smoke (2001:7).

Sub-national Government Capacity

One of the major problems that face localgovernments is lack of capacity to run projectsand programmes in their areas of jurisdiction.Te UN-HABIA explains the concept ofcapacity as comprising a combination ofknowledge, skills and aptitudes that individualsneed to carry out what they consider to be theirmission in their particular circumstances.Capacity, therefore, is the quality of doingand acting as a function of expected aims,proposals and results. Capacity building alsomeans strengthening all the agencies thattake part in the implementation of plans andprogrammes, including legal instruments.Capacity building is a generic concept thatis used interchangeably with terms such asinstitutional strengthening; institutionaldevelopment and organizational development.Capacity development is preferred by UN-HABIA as capacity building implies thatthere is no capacity at all, which is hardly everthe case.

Most municipalities do not have the rightcaliber of both managerial and technical staffto plan and implement projects successfully.

Professionals like engineers, architects, andquantity surveyors are hard to come by. Even

where countries do have such cadres, themunicipal councils cannot employ them assalaries offered are not attractive enough.

In Kenya, the level of capacity is mixedthough the Kenya Local Government ReformProgramme proposed developing capacityto deliver services, plan and implement

projects using community-based participatoryplanning. In Uganda, most decentralization

projects that have been undertaken haveincluded capacity building components. InNigeria the situation is highly variable. InMalawi, Botswana and Rwanda the system hasbeen weak due to historical central governmentcontrol.

Mismanagement and Corruption

In most municipalities in Africa, the problemof finance has been due to mismanagement ofthe resources allocated for development andfrom corrupt practices. Many projects eitherdo not get started at all or those that are startedget stalled due to funds having been siphonedoff by corrupt officials acting alone or incollusion with people in the private sector. In

other instances projects are poorly manageddue to lack of managerial skills among counciladministrative officials.

Rising Poverty Levels

In all African countries, urban poverty aswell as rural poverty is growing as a result ofdeclining economic performance, politicalinstability and growing marginalization of

the region in the global economy. Until thebeginning of the 1980s, poverty was largelyrural, but now it has moved to urban areas athigh speed, forcing municipal governments totackle the problem head on.

Virtually all local governments have beeninvolved in one way or another in dealing

with poverty, through Poverty ReductionStrategies. Such strategies have been prepared

in anzania, Uganda, Botswana, Kenya,Rwanda, South Africa and many othercountries. However, due to lack of resources,


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success has been eluding the majority of them.More direct action is needed if this problem isto be stemmed or at least reduced.

Privatization and Partnership AttemptsPrivatisation of the provision of municipalservices is one avenue of saving money but thegeneral public resists this approach.

Inefficient and economically unfeasibleprovision of services is where the privatisationdebate, sometimes heavily loaded with ideology,comes in. Te financial and service deliveryrecords of state-owned enterprises around the

world are not particularly impressive and thetransfer of such services to private ownershipis usually an integral part of any structuraladjustment programme. Political interference,transferring income to the general fund andpacking the staffing rolls with unneeded

workers can lead to poor performance andproductivity. Tis reflects the fact that publicorganizations are often free of the discipline offinancing their own operations or responding

to market demand. One immediate falloutfrom privatisation is usually the layoff ofredundant workers with all the social welfareimplications that it entails.

An important aspect of privatisation is the factthat investment in infrastructure developmentcan be taken over by the private sector. Urbangrowth requires large capital investment ininfrastructure such as transport, water supply,sanitation and other network systems attractiveto private companies.

wo types of privatisation of urban servicesof urban services have emerged over the lastdecade. Te first type is what might be calledspontaneous privatisation. Tis has arisenin an attempt to fill-in the increasing gapsleft by local governments. Because of thedeterioration of existing services and the lackof expansion to cater for increasing urban

populations, private providers of services haveemerged without any initial prompting from

either central or local governments. Tis hasbeen particularly so in the case of water supply,mainly in the form of private water kiosksin many low-income areas or the runningof the entire service like in anzania. Tis

has also extended to solid waste removal inhigh-income and even in low income areas asadopted in anzania, Botswana, Kenya etc. Asecond type of privatisation of urban servicesis more formal and organised in most cities inthe continent.

Some serious misgivings about privatisation ofsocial services are emerging. Tere is evidencesuggesting that many urban poor people are

unable to pay even the minimum chargesrequired for basic education and healthservices.

A crucial privatisation issue is ensuring thataccess to essential urban services is open toeverybody and that low-income groups are notdiscriminated against. Terefore there is nodoubt that the public sector should retain animportant role in controlling and supervising

the provision of infrastructure and services byprivate enterprises. Private sector managementof operations with close control by localgovernments, including mandatory cross-subsidization, is a widely accepted solution.

CONCLUSIONS

From the foregoing and as amply demonstratedby various studies, urban local government

revenues in many African states are generallynot enough to develop and provide adequateurban services to the regions fast growingurban populations. Tis is reflected in the poorphysical state and operational inefficienciescharacterising many of the services, especially

water and sanitation, waste management,roads and education, as well as in the lowlevels of access to these basic services. Mostcities have chronic budget deficits.

It is also apparent that, while there is a needfor greater sharing of revenue sources between


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central and local government, the yieldpotential of sources currently available to localauthorities is far from being fully exploited.Tus, significant results could be achievedthrough improvements in collection from

currently available revenue sources, especiallyproperty rates, business licenses and servicecharges. An imperative towards the attainmentof this is the improvement of data on revenuesources and payers, especially with respect tothe ubiquitous informal sector.

It is worth noting that some positive andinteresting developments have been noted inthe African region, including privatisation

of revenue collection (anzania, Uganda,South Africa, and Zimbabwe etc). Anotherinteresting development is the sharing ofnational taxes (anzania, Kenya, South Africa,and Uganda etc).

Tis leads us now to the second part of thereport, which examines the situation inBotswana to see how the country has faredin financing municipal infrastructure and

services. Lessons learnt from this experiencecould be shared with other countries.


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04. MUNICIPAL FINANCE: THE CASE OFGABORONE CITY IN BOTSWANA

INTROUCTION

The National Context of Botswana Prosperity and Good Governance

Botswana, with a population of 1.7 millionin 2001 can and should feel proud of itsachievements over the last 37 years. Since its

independence in 1966, the country has had arecord of successful economic development,a fairly well articulated programme and ademocratic regime a recipe for what onecould call a proper state. Te country doeshave a high level of crucial indicators showinga steady move to a middle-income country

with reasonable per capita GDP amountingin US$2,700 in 1997 (GoB, 1997).

Te country has had steady economic growthover the years. Following 7.7% growth inreal GDP during the year 1999/2000, theeconomy grew to 9% during 2000/2001 duemainly to income from mining. Te totalforeign exchange reserves stood at US$6.8billion (Pula 33.9 billion) at the end of2000, representing an increase of 17% overthe December 1999 figure. At this level,the foreign exchange reserves are sufficient

to finance about 36 months of imports andservices (GoB 2001).

Te machinery of local government inBotswana has been designed to facilitate peoplesparticipation in development. It reflects along tradition of democratic consultation anddevolved decision-making. Local authoritiesare responsible for constructing and managinga large percentage of the countrys social

infrastructure at the local level (e.g. clinics,primary schools etc) and for providing a widerange of services. Local authorities also play

a crucial role in the development process inboth urban and rural areas.

Government has decentralised responsibilitiesto Local Authorities and communities followedrecently by comprehensive Local Authorityreforms, largely based on the recommendationsof the Second Local Government Structure

Commission (2002) and the PerformanceManagement System. However, effectivedecentralisation requires that the transferof responsibilities be accompanied by acommensurate transfer of resources, as well asimproved revenue generating capacity. It alsorequires the development of an appropriateenabling legal framework for the generationand management of these resources.

Gaborone: Administrative Set Up andStatutory Responsibilities

Gaborone, the capital of Botswana, has apopulation that has grown from 133,500 in1991 to 224,000 in 2001 (GoB 2002). As anadministrative, commercial and industrial hubof the country, the city is growing very fast,doubling every ten years. Tis unprecedentedeconomic and population growth has been

accompanied by constraints such as the needfor land, housing and increased demand forsocial and infrastructural services in the city.Tis has put a severe strain on the resourcesavailable to the Gaborone City Council(GCC) to cope with service demands whichhave quadrupled over the years. Resources havebecome insufficient to meet the demands amidvarious competing needs and it has becomeimperative for the GCC to forge partnerships

with the private sector in the delivery of someservices.


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04. MUNICIPAL FINANCE: THE CASE OF GABORONE CITY IN BOTSWANA

are raised to carry out capital works, such asroads, water and sewerage expansion, housing,street lighting etc.

Until recently, the GCC, like all other

municipal authorities, used to be fundedthrough four mechanisms, namely OwnRevenue sources; Revenue Support Grants(sometimes known as Deficit Grants); loansfrom the Public Debt Service Fund; andDevelopment Grants. However, loans havebeen frozen for now. Te deficit grant is thedifference between the Authorities agreedestimates of expenditure and anticipatedrevenue from local sources and government

subsidies. Tis grant is subject to a high degreeof control from the centre.

A breakdown of GCCs actual revenue sourcesin Percentage form in the 1998/99 and1999/2000 financial years shows that the mainown and Revenue Support Grants sources ofrevenue were as follows: -

TABLE 3: DETAILED SOURCES OF

MUNICIPAL FINANCE - PERCENTAGESOURCE 1998/99 1999/2000

1 Rates - whichaccounted for

23.6% 27.3%

2 Interest 5% 2.05%

3 Service levy 1.2% 0.95%

4 Rentals 1% 0.9%

5 Other sources 3.6% 6.1%

6 RevenueSupport Grant

65.6% 62.7%

TOTAL 100% 100%

Source: GCC, 2001

EXTERNAL REVENUE SOURCES

(1) Revenue support grant from centralgovernment

Te Revenue Support Grants or deficit grant

is the difference between the local authoritysagreed estimates of expenditure and anticipated

revenue from local sources and governmentsubsidies. Tis grant is subject to a high degreeof control from the centre. Te grant has beenrising over the years due to increased demandto operate and maintain the huge infrastructure

that had been put up under this fund. Tewhole city is a huge construction camp. Itwas also due to the increase in the number ofsocial security and welfare programmes suchas orphan care, destitution and also to militateagainst disasters such as drought relief, HIV/

AIDS, floods etc.

Further, the city has in the past 17 yearsgrown physically to incorporate the suburbs

of Phakalane, Gaborone North and Kgalehillwithin its borders. Tis fact has caused theresources of the city council to be spreadmore thinly in both human and financialterms. Gaborone City Council receivesapproximately 60% of its recurrent budget inthe form of government grants. Te revenuesupport grant has been rising over the years,e.g. from P18, 194,630 (US$3.6 mil) in1994/95 to P78,456,250 (US$16 mil) in

2001/02. Percentage-wise, actual figures showthat in 1998/99 financial years these grants

were 65.6% and these fell slightly to 62% inthe year 1999/2000 (Department of LocalGovernment and Development, Ministryof Local Government). Tis situation is nothealthy for political accountability to theelectorate. Te role of central governmentfinance is also significant in that it finances thebulk of the Councils expenditure on capital

account. Tis is partly due to the fact that theCouncil is not permitted to borrow on theopen market.

(2) General Fund

Like most local authorities, the GCC has overthe years accumulated substantial unspent orsurplus balances which have accumulated inits General Fund Account. For example, at the

cut off date of 31st. 03 2000 for the 1999/2000Financial Year, the GCC had accumulated thesum of US$5.2 mil (Pula 20,960,157.05).


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Tis unspent balance is made up of budgetedexpenditure that was not spent due to thelack of implementation capacity or inflexiblefinancial rules imposed by the ministry. Someof it had accrued from the high vacancy rates

in the GCC establishment.

It is understood that local authorities arerequired to seek authority from the Ministerto spend any amount exceeding 10% of thebalance in their General Fund. Te GCC andalso other local authorities argue that this affectsits capacity to initiate and influence decisionsrelating to the spending of the money in theGeneral Fund to improve service delivery.

It has also been learnt that there is a lack ofguidelines on the use of the General Fundbalances, which has led to the accumulationof funds. While the GCC may be enjoyinginterest income from monies kept in depositaccounts or Bank of Botswana certificates, itis felt that the funds could be better used forthe provision of services, where the need iscritical.

OWN MUNICIPAL REVENUE SOURCES

Property Tax and Rates

Tese are composed of land rents on propertyowned by individuals, companies or thegovernment, including parastatals and rateson buildings (i.e. developed property). Otherproperty taxes levied by the municipality also

include a levy on transfer of property andsome betterment taxes.

Rates are a property tax and all those whoown property or plots in the city area, whetherdeveloped or undeveloped, have to pay. Rateson undeveloped plots, are levied at four timesof the rates for developed plots. Higher ratesare charged due to the government policyof discouraging speculation in land and

encouraging plot owners to develop them asquickly as possible.

Te revenue from rates and property taxaccounted for around 23 -27% of the revenueof the Council in 1998-2001. Unfortunately,the source is inelastic as sometimes thevaluation rolls are incomplete, hence depriving

the municipality a major source of income.Further, central government and parastatalorganisations are supposed to pay rates to themunicipality, but they do not do so hencedenying the city substantial sums of money.

Tere has also been the problem of ratepayersnot receiving their bills, as the Departmentof Lands had not updated their records. Itis gratifying to see that the department had

engaged consultants to update propertyrecords.

Rates Debtors/ Defaulters

Rates debtors owe the Council vast sums ofmoney. Te sums involved have been rising yearby year. For example, in the year 1998/99 ratesdebtors owed US$2.4 mil(P12.96 million) andthe sum rose to US$6.4 mil (P32.48 million)

plus a further US$0.7 mil(P3.13 million),Interest Debtors in the following year. Tisis not a good picture. (GCC, Annual Report2001).

Te procedure for collection and recoveryof late payment/arrears is generally poor.Enforcement is both time consuming andcumbersome, as follow up measures are notclearly defined. However, efforts are beingmade to recover rates arrears. Written noticeshave been sent to all defaulting ratepayers.Reminders are issued to all plot owners whohave not paid their full rates within theallowed period of four months from the dateof the invoice, reminding them that they willbe liable to pay interest. After issue of anotherreminder, a Demand Notice is then sent.If rates still remain unpaid, then the case isreferred to Debt Collector/Attorney for further

legal action of collection of rates. In such anevent the defaulter has to pay legal costs inaddition to the rates. For long outstanding


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refuse removal charges, education fees andcost sharing charges in health. Tere are alsosome charges in housing development (suchas site and service schemes and plot sales forSelf Help Housing Areas recipients), which

are more of betterment tax charges. Tey aread hoc in nature and they are only levied atspecific stages during the implementation ofprojects. (Maendeleo, 1992).

Building Plan Perusal Fees

Some of the fees currently charged by theCouncil are ridiculously low, examples includebuilding plan perusal fees which range from

US$0.05-13(Pula 2 P64); sub-divisionplan fees of US$2(P10) and plan applicationperusal fee which ranges from US$2-7(P8 P32). Even then, these fees once collectedare passed onto the government through theSecretary of the own and Country PlanningBoard.

Service Levy and Housing Loans

Te service levy is one of the several sourcesof funds for the municipality. Currently theincome from this source is a mere 1.2-3% oftotal revenue. Tis is quite low compared toother cities in the sub-region.

However, nearly half of the plot holders are inarrears of payment for the service levy in SelfHelp Housing Areas and the default rates arerising every year. Default rates are highest in

upgrading areas where people are often poorerand standard of services is lower.

As of July 2002 the total arrears for servicelevy stood at US$500,000(P2410554.79)and for Building Material Loan, given to lowincome persons for housing construction, it

was US$ 83,000 (P 418618.35). For both, theCouncil managed to collect only US$ 18750(P93558.87)

Specific efforts were however made in the year2000-2001 with the assistance of Councillors

to collect the arrears of Service Levy andBuilding Materials Loans. (GCC, 2002 pp3).Te measures have been embarked uponto improve on the collection rate of 3% permonth on average, house-to-house collections

and stop order/direct deductions. Tesemeasures seem to be bearing fruits because inthe month of December 2000 the collectionrate was 10%.

Efforts to collect arrears take a great deal oftime of Self Help Housing Areas staff. Teseare often frustrated by the cumbersome systemof prosecuting defaulters and because the staffis often opposed by Councilors who seem

to be more concerned with their popularityamong the constituents than enforcement ofcouncil byelaws.

Although the GCC has mounted periodiccampaigns to collect arrears, it has only beenable to recover a modest proportion of thearrears, have taken an inordinate amountof staff time and have not prevented theproblem from recurring subsequently. An

alternative for those in regular employmentmight be to deduct the service levy at sourceof income as was done for Local Governmenttax. Tis would offer prospects of a modestimprovement in collection rates.

At the root of the problem of high paymentdefault rates is the Councils lack of effectiveenforcement capacity. An attempt to prosecutea defaulter involves a tortuous sequence ofprocedures, which can be derailed by councilors

who are more concerned about ensuring theirprospects for re-election than enforcing theirown byelaws and policies, and are reluctantto support the eviction of their constituents.In practice, few such cases are brought to thecourts and few defaulters are prosecuted orevicted. Self Help Housing Areas staff thatare blocked by councilors in prosecutingdefaulters feel powerless and as a result becomereluctant to initiate prosecution procedures.Tere is consequently no effective deterrentto discourage defaulters and the threat of


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eviction is generally not taken seriously. Tis israther different to the situation regarding ratesdefaulters, who can be prosecuted more easilyand, possibly as a result, are more inclined topay their rates on time.

Tere is a need for more automatic access toprosecute defaulters through the courts andmore political support for the payment ofservice levy and the Building Material Loan.Housing is a basic need, as is the provision ofservices such as refuse collection and sanitation.Te provision and maintenance of theseservices cost money. Politicians at whateverlevel and of whatever political persuasion have

a responsibility, once consultation has takenplace and decisions have been reached by fullcouncil, to ensure that residents understandthe basis for periodic service charges and theneed for these to be paid. Unfortunately, atpresent this is often not the case.

Water

In Gaborone, access to potable water is 100%,

with 43.5% having water piped indoors/yardand 56.5% to standpipes in low-income areas.In the past, low-income areas were served by afree communal water service: 1 standpipe per20 plots with no plot more than 200 metres

walk from a standpipe. From 1992 to-date,however, water has to be reticulated to everyplot and this also helps the waterborne seweragesystem. Te Water Utilities Corporationundertakes installations, billing and collection

charges in the city. Te GCC was until recently,only responsible for standpipes in Self HelpHousing Areas areas where it was providingfree water to low-income residents in the SelfHelp Housing Areas areas. Te uprooting ofstandpipes in Self Help Housing Areas areashas caused untold problems, as most cannotafford the on-plot connection. But this is theprice of income sharing. On the other hand theCouncil has saved a lot of money it was paying

to the Water Utilities for the free water.

Electricity Supply

All electricity power is supplied and billed bythe Botswana Power Corporation. Councilonly pays for street lighting. Althoughelectricity is abundant in the city, the majority

of the poor households still use other sourcesof power for cooking, lighting and heating,due to high unit costs.

Sanitation

Gaborone is served by a combination ofsanitation systems. Of the total households,33.4% have private flush toilets, 60% privatepit latrines (VIPs) and the rest a combination

of communal and movable systems (CSO,1991). Since the beginning of Self HelpHousing Areas and squatter upgrading till1992, the means of sanitation in low-incomehousing areas was pit latrines. However, timeand again there have been several criticismslevelled against them. As a consequence, theGovernment has now opted for a water-bornesanitation system for all low-income areas. TeGCC is busy implementing the programme

now at a cost of over US$20 mil in the currentfinancial year.

In order to try and recover more money forsanitation, recently sewer connection rateshave gone up steeply and the city hopes to getmore money from this source. New sewageconnection fees have now gone up from thecurrent US$3.7(P18) flat rate to US$1,000(P5,000) for industrial, hotel and hospital plots.

Low income Self Help Housing Areas plotswill now be charged US$20(P100), mediumsize plots up to 700 m2 US$60(P300) andresidential plots above 700m2 the charge willbe US$200(P1, 000). Civic and communityplots as well as commercial plots will becharged US$500(P2, 500).

Solid Waste collection

Te city of Gaborone enjoys a 98% regularsolid waste collection, two times a week forhigh income areas; once a week for low income


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areas and daily for commercial areas. Te solidwaste generated per person is 10m3 or 0.1tonnes per annum or 85 tons a day. Wastegeneration is estimated to increase at a rate of7% per year (Khupe, AMBIO, 1996).

Te Council employs litter pickers, streetsweepers and refuse collectors, most of whomare the low income. Refuse bins and skipsare provided in all areas including the low-income areas and waste collection is done atleast once a week. However, a person whoarranges with the Council for the collectionof waste other than household waste has topay a prescribed fee. o-date the Council does

have arrangements with the private sector forwaste management in almost half of the cityand the progress is encouraging. Eventually,the entire citys waste will be collected by theprivate sector.

Individuals who carry their waste individuallyto the GCC landfill site are required to paylandfill user charges only when their wasteexceeds 1 ton. Waste over 1 ton is charged

US$10(P50). Te system was introduced as acost recovery measure to augment landfill coststhat amount to over half a million Pula a year.GCC charges are three times lower than thoseof the private sector in the provision of servicessuch as rubble/demolition waste and gardenrefuse removal, which are charged US7 (P36)/load, and US$2(P10)/load respectively.

Public Health and Primary Health Care

Improving the access of the poor to healthservices is important for increasing the poorsincome-to the extent that illness reduces thepeoples capacity to work- and for raisingliving standards even if income remains atpoverty levels (WB, 1993). In the city a lotof progress has been made in the provisionof health care and this has led to the declineof mortality particularly infant and child

mortality. Gaborone has an estimated totalof 3373 hospital beds, which gives an averageof 20 persons per bed. Te child mortality is

relatively low - 40 deaths per 1000 children.Life expectancy at birth is currently estimatedat 67.7 years (CSO 1991), which may beattributed to governments expenditure onsocial services - estimated at US$127.51 per

person in 1994.

Te GCC is responsible for health clinics,cleaning of streets abattoirs and public markets.Te city is served with 11 Council clinics plusan extra 20 private clinics; a Governmentreferral hospital with 426 beds and a privatereferral hospital opened in 1991. In both theCouncil clinics and the government referralhospital service is virtually free to everybody

as payments per visit is less than one USdollar(Pula2) and thus even the poor do getadequate medical attention.

Right now, two brand new clinics, one inBlock 6 and the other in Block 8 have neveroperated since completion due to lack ofnurses and doctors. Further, due to a shortageof staff the GCC is unable to provide 24 hoursservice in other facilities except in Extension

2 clinics.

HIV & AIDS

Te AIDS scourge in the city as in the rest ofthe country has reached pandemic proportionsand it is still rising. Statistics show that one infive of the citys expectant mothers and thosediagnosed of SD are HIV positive. Estimatesshow that in Gaborone 22,917 people wereHIV positive in 1994 as compared to acountry total of 125,644. In 2004 the numberis estimated to have risen to over 55,000.

With such a high incidence, the Councilhas to spend money on this group of people.Single parents, orphans and home-based carefor the sick will bring tremendous pressure onthe family. Already, the GCCs departmentof Social Welfare is spending a lot of energyand time counselling and taking care of HIV/

AIDS patients in the city. For governmentand the GCC some of the heavy investmentundertaken in human development will be lost


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through AIDS, thus jeopardising SustainableEconomic Diversification. Providing for thecare of the sick and orphans, and maintaininga fair balance in resource allocation betweencurative and preventive health care, will

become major development challenges thathave to be addressed in future plans.

Council and Self Help Housing AreasHousing

Te council derives rents from the housesoccupied by its employees. Unfortunately thefigures are not market related, so the incomeis not that high. Some of those who default

in rent payment were handed by the GCC toInterest Research Bureau to trace and demandpayment. In some cases rent arrears have beendeducted from their salaries.

Self-Help Housing

Te GCC also runs a squatter upgradingand low-income housing programme, whichaccounts for 53% of the total housing stock

in the city, and gets service levies from theowners. Te qualifying income category hasbeen raised from US$1,000 to 7,000 (P4, 400to P36, 400) per annum (NHP, Paper no. 2,2000).

o enable the poor to build their shelter, abuilding materials loan is given. Te BuildingMaterial Loan has been increased over theyears from US$80(P400) in the late 1980s

to US$4,000(P20, 000) in terms of the newNational Housing Policy. Te loan can nowbe used to purchase building materials andpayment of labour costs. Te loan is deemedadequate for the construction of a basic core-housing unit of 25 sq metres comprising tworooms and a wet area. Te GCC also providestechnical assistance in the form of the provisionof standard plans and supervision during theconstruction process.

At first all Self Help Housing Areas plots werefree, but following a policy of cost recovery in

1992, beneficiaries had to pay for them but atsubsidized prices. Current prices range fromUS$2,000-5,000(P10, 000-25,000). Tisis possible through a policy of cross subsidy

whereby the rich pay market prices, the average

people pay cost recovery rates and the poorpay subsidized rates. Tis is a noble attempt attargeting a subsidy to ensure that the poor get

what they need.

Efforts are being made to strengthen theGCCs administrative capacity in runningthe Self Help Housing Areas programme e.g.by computerizing of accounts and records,training and recruitment of personnel with

building skills. Due to the lack of capacity bythe Council to collect arrears, the governmentis now considering hiving off the managementof the loans to either financial institutionsor private companies. A pilot experiment isalready underway.

Education

In Botswana, basic education is considered a

right for all Botswana children. Great strideshave been made in the provision of basiceducation with close to a quarter of the nationalrecurrent budget being allocated to education.Te city runs all government primary schools.Currently, school enrolments are quite highamong both males and females. At primaryschool level, 83% of eligible boys and girls areattending school. At secondary level, 77% ofeligible males are attending schools compared

to 73% females. Te proportion of tertiarygraduates in the adult population in 1991 was12.8% and 9.5% among males and femalesrespectively.

Apart from the private run schools, whichcharge exorbitant fees, education in the cityfor all is free and the students also get freemeals up to university. For the poor children,the Council or NGOs even provide school

uniforms so affordability is not a major causeof school dropouts. However, the governmentis soon to introduce cost sharing for all schools


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as a sustainable means of providing education,but the poor communities in the city have notenthusiastically received this.

Income Generating EnterprisesIncome generating enterprises are not asignificant source of the GCC revenues, inspite of their attractiveness. Most incomecomes from sale and hire of shrubs and beerhalls and hiring of classrooms or halls. Ingeneral terms, managerial capacity appears tobe lacking. In some instances there have beencomplaints to the effect that such enterprisesare sometimes run as a social service and

very often the objective of making a profitis forgotten. Even where such enterprises areprofitable, as in the case of sale of shrubs, theenterprises tend to be run as fiefdoms, withlittle connection to the council. Tis impliesthat the real benefit from such enterprises isthe creation of employment, rather than theaugmentation of municipal revenues.

However, with privatisation this problem may

soon be over.In its efforts at helping the low income residentsto improve their quality of life, the GCC hashelped in developing micro entrepreneurialactivities in many parts of the city. Severalgroups engage in micro enterprises, whichbesides being survival strategies, contributeto economic development in a small way.

Among these groups are: craftsmen, hawkers,and daily labourers on building sites or inhouseholds, street children and food vendors.In 1994, it was estimated that 1901 persons

were employed, 8 out of 10 of which werewomen (oteng, 1995). Instead of chasingillegal traders, the municipality has decided tohelp them.

Borrowing

At times the GCC is forced to borrow moneyto meet its obligations. At the moment it canonly borrow from the central government

through the Capital Account, and not fromthe commercial banks. For example, at theend of 1998 the Gaborone City Council owedUS$9 mil (P43.68 mil) to government forvarious loans. Most of these loans were payable

over a period of 25 years at an interest rate of14.6%. However, by the end of the financialyear 1999/2000 the Council had decreasedthe loan amount to US$7 mil (P35.04 mil).(GCC, 2002 pp.2)

Overall Assessment

In general, the report has shown that thefinancial strength of the GCC is fairly sound,

compared to other councils in the region, inthat it nearly meets most of its needs eitherthrough its own resources or from the centralgovernment from where it gets most of itsrecurrent and capital funds. In some extremecases, there have been some instances wheremoney was returned to the reasury due tolack of capacity to spend the money. Tis isin contrast to a number of municipalities invarious parts of Africa, which are reeling under

heavy debt burdens.

However, while there is a need for greatersharing of revenue sources between central andlocal government, the yield potential of sourcescurrently available to the GCC is far frombeing fully exploited. Tus, significant resultscould be achieved through improvements incollection from currently available revenuesources, especially property rates, business

licences and service charges. Is it possible toprivatise revenue collection as has happenedin anzania, and Uganda; or sharing of taxesand privatisation of the provision of services?Tese are questions the GCC should ponderand come up with appropriate solutions if thecurrent impasse is to be broken.

In conclusion, it can be stated that in order forthe GCC to improve its own internal revenue,

it is not just enough to introduce some newtaxes, but that it is necessary to introducestructural changes to the current system of


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TABLE 4: A SUMMARY: GABORONE CITY COUNCIL: REVENUE AS AT END OF 2000 PULA (1 US$=5 PULA)

Source of Income Amount - 1999/2000 % of Income

Abattoir Fees 807,169.50

Advertising Signs 458,568.00Beer Halls/Garden Rent 22,555.10

Building Material Loan 235,435.54

Cemetery fees 5,458.18

Clinic Fees 253,015.01

Community and Civic Centres Fees 52,595.59

Day Care Centre Fees 45,938.00

Dog Licences 981.60

Fines- Bye-Laws 9,332.39

Hiring of Classrooms 5,952.90Home Economics 228.50

Interest on Investment 2,144,288.04

Interest on Rate Arrears 3,835.09

Market Rent 149,816.60

Miscellaneous Income 42,274.04

Plan Perusal Fees/Sale 76,464.72

Pound Fees 2,990.53

Rate Clearance Certificate 981.00

Road Reinstatements 360.00

Sale and Hire of Shrubs 71,869.85

Sale of Sundry Items -

Sales tax on Beer -

Sanitation Fees 120,633.57

School work Sales -

Sewerage Connection Fees 8,709.00

Sewerage Fees 20,787.50

Self Help Housing Areas Service Levies 1,001,802.47

Staff Housing Rents 975,382.90

Trade Licences 110,293.34

Total Revenue Income 10,439,734.96 10.0%

Rates 28,408,920.50 27.3%

REVENUE SUPPORT GRANT 65,509,417.15 62.7%

INCOME GRAND TOTAL 104,358,072.61 100%

Source: GCC Annual Report 1999/2000.


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raising internal revenue. However the councilshould be careful with any involvement incommercial business operations because of itslack of entrepreneurial experience.

MANAGEMENT OF FINANCIALRESOURCES BY GCC

Financial management of the Councilincludes:-

Te preparation of estimates

Te compliance with managementprocedures such as auditing and

tendering; and Te operation of bank accounts and bank

deposits.

Budgeting and Estimates Preparation

Te GCC has to prepare, on a yearly basis,budget estimates containing the requiredexpenditure, the expected income frominternal sources, and the required deficit

grants to cover the shortfall. In a number ofbudget lines, estimated revenues versus actualincomes were not congruent. In general, it canbe assumed that the GCC has the ability toput forward realistic estimates of income andexpenditure with the uncertainties of expectedsupport grants from the central government.

Various reviews of the Councils accountsshow that the Council follows procedures of

accountability and tendering quite well. AllGCC projects are tendered using open and fair/transparent government procedures. Botswanahas adopted a zero tolerance for corruptionand its reputation has earned it the top spot in

Africa for being the least corrupt. A number ofthe audit reports of the citys accounts auditorsdiscovered that (a) there were substantialarrears in rates, (b) there were very few casesof theft, fraud and misappropriation of funds

and resources; and (c) in a number of casesthe council had overspent its authorised votes.Tis is in contrast to some municipalities in

Africa where corruption and mismanagementof funds is endemic a cancer that never goesaway.

Although these official findings of financial

mismanagement in the city are probably notunique for local government authorities andare definitely a lot better than in other sub-Saharan African countries they neverthelessindicate the problems of councils in Botswana

with procedural financial regulations.

Another interesting observation is that interestearned on bank deposits has developed into alucrative source of internal income (between2-3%). Maybe these high earnings from bankdeposits are a reflection of the GCC beingunable (for different reasons) to use fundsallocated to it for development projects.

From the evidence available and discussionswith city authorities, it can be asserted thatthe GCC is able to manage deposits withcommercial banks and earn substantialamounts of money from these activities. Tisis a reflection of the ability and professionalism

of the City reasurers department.

Financial Controls

Official discussions revealed that the Cityreasurers Department always uses normalaccounting and financial control, plusrestrictions of votes. It was evident that inalmost all cases they always use the Guidelineson Financial Management as given by Ministry

of Local Government. Te Departmentalso applies external management controlsby central government that include amongothers; Accounting Instructions from centralgovernment e.g. cash inspections. Tey alsomake use of internal and external auditors.Finally, it has been observed that the GCChas had a clean audit report for some timenow, and this augurs well with good urbangovernance and financial management.


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Internal Auditing

Like most local authorities the GCC doesinternal auditing of its accounts. Recently theCouncil has created a post of Principal Internal

Auditor who reports directly to the City Clerk.

Te GCCs accounts are scrutinised by theLocal Authority Public Accounts Committee(LAPAC) of central government, and to-datethe city has fared well so far.

Quarterly Reports

All local authorities in Botswana are requiredto report upon the progress of projectsimplementation each quarter to Ministries.

It was nice to observe that this procedure wasregularly followed by the GCC. Te reportscover both financial and physical status. All inall, these reports cover seven sections:

General information

Physical status

Financial status

Project and programme implementationand follow up

Recommendations for improvementof implementation and removal ofconstraints and

Any other general remarks/observations/suggestions.

Such practices keep heads of departments ontheir toes to ensure that projects see the light

Documents

Challenges of Municipal Finance in Africa