The financing of city services in Southern Africa. 27 March 2012

Transcription

1 The financing of city services in Southern Africa 27 March 2012

2 The financing of city services in Southern Africa Background Purpose and objectives Participating cities Approaches & methods Roles Expenditure responsibilities Revenue powers Staff numbers Financials Revenues (own, operating grants, capital grants) Expenditures (personnel, capital, other) Operating surpluses Year-end cash balances Issues Functions & powers Revenue effort Human resource capacity

3 Background Project objectives To promote sustainable city government finances for infrastructure development in Southern Africa; To promote more effective planning and management of financial activities, including better credit ratings and the ability to access finance for investment purposes from banks or capital markets; To provide credit assessment and credit enhancement services to city governments; To provide capacity building targeted at improving city government financial management and creditworthiness. Project outputs Shadow credit assessments of city governments in Southern Africa; Capacity building programme to improve financial management and credit worthiness at one city government; `Knowledge product on the financial position of Southern African cities; Knowledge-sharing workshop; `Knowledge product and update report on the state of South African city finances City selection criteria Criteria included scale; SADC coverage; and potential for creditworthiness and borrowing. Subject to budget, logistical and time constraints

4 + Luanda Windhoek + + Kinshasa Cape Town + Cities in Southern Africa Kigali + Bujumbara + Lumbumbashi + Kitwe + Ndola + Lilongwe + Lusaka + Blantyre + Harare + Bulawayo + Gaborone + Tshwane Mbabane + Johannesburg + Ekurhuleni + + Maputo Manzini Mangaung + + Msunduzi + + ethekwini Maseru + Buffalo City + Nelson Mandela Bay + Nairobi Arusha + + Mombasa + Dar es Salaam + Nampula + Beira + Antananarivo Port Louis +

5 Participating cities Arusha + + Dar es Salaam Ndola + Lilongwe + Lusaka + Blantyre + Windhoek + Gaborone + + Maputo Port Louis +

6 Approach and methodology Approach to collection of information Reliance upon financial data provided by the city governments; Actual financial results - preferably audited - not budget information; City visits to interview City Manager, Head of Finance, Head of Engineering; Structured questionnaire to systematically collect information across ten categories; Captured data into IFRS format and credit assessment tool; Generated assessments & prepared reports. Assessment categories Financial & credit management Management quality & capacity Operational performance Strategic planning & internal transformation Human resources & private contracting Customer relations Support from government Autonomy & accountability External risks Economic base.

7 International comparative city finance City finances are dependent upon the national constitutional and legal framework; Assigned expenditure responsibilities (mandates) (functions) Assigned revenue sources (powers) City revenue administration (performance) (effort) Government grants operational and capital (sufficiency & timeliness) City operational (expenditure) efficiency, effectiveness & economy City finance decision-making and approval processes (tariffs; valuation rolls; staff appointments; etc) Analytical framework City government functions & powers What are the city governments expected to do, and how are they expected to finance these activities? Expenditure scale and composition Spending per person Staff costs Other operating costs Capital spending Revenue scale and composition Own revenues Government operating grants Government capital grants Operational surpluses Because this must finance capital investment and any expansion of services Year-end cash position

8 Data considerations City financial data Actual domestic currency values (no budget data; sourced directly from cities; rigorous accounting analysis) Time series data presented in domestic currency values. Comparative currency calculations done using exchange rate applicable at the end of the last month of applicable financial year. Monthly exchange rate data from oanda.com Economic and demographic data GDP estimates are for 2008, expressed in 2005 US$ (PPP basis); Population data is for 2008 as far as possible Source data is from World Bank s Africa Development Indicators (ADI) online database data.worldbank.org Detailed estimates (eg 40-sector) of the size of city economies do not appear to exist, so these are rough project estimates and subject to correction.

9 90 City populations (Vertical 80 position = size of city economies US$b) Cape Town Johannesburg ethekwini 50 Tshwane Ekurhuleni Port Louis Windhoek Nelson Mandela Bay Mangaung Buffalo City Lusaka Msunduzi Dar es Salaam 0-10 Gaborone Arusha Ndola Lilongwe Blantrye Maputo

10 Populations of Southern African cities 11.0 (Vertical position = size of city economies US$b) Dar es Salaam Port Louis Gaborone Windhoek Arusha Ndola Lilongwe Blantrye Lusaka Maputo

11 11.0 Populations of Southern African cities (Vertical position = size of city economies US$b) 10.0 Dar es Salaam Port Louis Gaborone Windhoek Arusha Ndola Lilongwe Blantrye Lusaka Maputo

12 City population & city GDP Dar es Salaam Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola City GDP (US$ m) Population (m)

13 The financing of city services in Southern Africa Background Purpose and objectives Participating cities Approaches & methods Roles Expenditure responsibilities Revenue powers Staff numbers Financials Revenues (own, operating grants, capital grants) Expenditures (personnel, capital, other) Operating surpluses Year-end cash balances Issues Functions & powers Revenue effort Human resource capacity

14 City government roles: expenditure responsibilities Built environment services Minimal Social services Lusaka Ndola Dar es Salaam Civil administration (registration of Arusha births, deaths and marriages) Health care services (primary/ clinics/ vaccinations Moderate etc) Maputo Educational services (pre-school) Lilongwe Educational services (primary Blantyre school) Educational services (secondary Gaborone school) Housing rental Port Louis Social welfare (centres for orphans etc) Business registration and licensing Windhoek Full Built environment services Social services Town planning and building control Minimal Moderate Full Municipal policing (by-law enforcement) Maputo Supply of waterlusaka Dar es Salaam Windhoek Sanitation (sewerage) Ndola Arusha Roads and storm-water Lilongwe drainage Traffic lights and Blantyre street lights Refuse collection Gaborone and disposal; street sweeping Port Louis Environmental health services Emergency services (ambulances, fire) Supply of electricity and gas Cemeteries, parks and sports facilities Bus and taxi ranks; markets Public transport services

15 Nature & scale of city government roles Social services Minimal Moderate Full Minimal Lusaka Ndola Dar es Salaam Arusha Built environment services Moderate Maputo Lilongwe Blantyre Gaborone Port Louis Full Windhoek

16 City expenditure mandates Social services - built environment Dar es Salaam full S, minimal BE Port Louis moderate S, moderate BE Gaborone moderate S, moderate BE Windhoek minimal S full BE Lusaka Maputo moderate S, minimal BE Arusha full S minimal BE Ndola moderate S minimal BE Lilongwe moderate S moderate BE Blantrye Minimal S, moderate BE -1.0

17 City government staff and spending Dar es Salaam Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola Total city spending (US$ m) Total city staff City staff/ people City spending per person (US$ m)

18 Total Spending City Per Capita (SACN) (Rand)

19 - 1,800 City staff (vertical position = staff/ ) 1,600 moderate S moderate BE Port Louis 1,712 2,500 1,400 1,200 moderate S moderate BE Gaborone 1,266 3,000 1, Ndola Windhoek 532 1,755 minimal S full BE Lusaka 129 1,882 moderate S, minimal BE Lilongwe 271 1,900 moderate S moderate BE Blantyre 250 2,000 Maputo 187 2,325 Minimal S, moderate BE Arusha 750 3,000 full S, minimal BE full S, minimal BE Dar es Salaam ,419

20 Sources of operating revenues Property taxes - universal Business taxes, licences & fees universal Government operating grants universal except Windhoek Fees for use of bus stations, markets & other social amenities; outdoor advertising widespread Personal levies Lusaka, Ndola, Maputo Commercial undertakings Windhoek, Lilongwe, Blantyre Services charges only significant for cities with significant services - Windhoek

21 Sources of capital finance Reserves and annual operating surpluses universal for small capex seldom geared by borrowing (except Windhoek) Government capital grants - universal (except Windhoek) International donors Lilongwe, Blantyre, Maputo Township development only Windhoek

22 City spending & billing as % of city GDP 3.0% 2.5% City spending % City billing % 2.0% 1.5% 1.0% 0.5% 0.0% Dar es Salaam Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantrye Ndola

23 City spending & billing as % of city GDP 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Johannesburg Cape Town ethekwini Tshwane Ekurhuleni Nelson Mandela Msunduzi Buffalo City Mangaung City spending % City billing %

24 City comparisons Dar es Salaam Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola City GDP (US$ m) Population (m) Total city spending (US$ m) Total city staff City staff/ people City spending per person (US$ m) City billing (US$ m) City billing as share of city GDP (%) 0.2% 0.1% 0.3% 2.5% 0.2% 0.5% 0.2% 0.7% 0.9% 1.7%

25 The financing of city services in Southern Africa Background Purpose and objectives Participating cities Approaches & methods Roles Expenditure responsibilities Revenue powers Staff numbers Financials Expenditures (personnel, other opex, capital) Revenues (own, operating grants, capital grants) Operating surpluses/deficits Year-end cash balances Issues Functions & powers Revenue effort Human resource capacity

26 City spending in 2009 (US$ m) Capex Other opex Staff costs Dar es Salam Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola

27 City spending in 2009 (US$ m) (excluding Dar es Salaam & Windhoek) Capex Other opex Staff costs Port Louis Lusaka Gaborone Maputo Arusha Lilongwe Blantyre Ndola

28 City spending in 2010 (Rand m) 9 SACN Cities

29 The problem of infrastructure spend AfDB Africa requires additional US$ 31 billion a year in infrastructure and major efficiency gains Cost of MDGs requires investment greater 7% GDP per year in some, difficult to achieve Shortage housing specific infrastructure has constrained housing supply South Africa Human Settlements Minister Fundamental problems in providing bulk infrastructure, such as water, sanitation, and electricity, are slowing down government's housing delivery programmes Almost all African countries this applies

30 City revenues 2009 (US$ m) Capital grants Operating grants Own revenues Dar es Salam Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola

31 City revenues 2009 (US$ m) (excluding Dar es Salaam & Windhoek) Capital grants Operating grants Own revenues Port Louis Lusaka Gaborone Maputo Arusha Lilongwe Blantyre Ndola

32 Own revenues as % of total revenues Capital grants Operating grants Own revenues Own revenues % Windhoek Ndola Lusaka Blantyre Lilongwe Port Louis Maputo Gaborone Arusha Dar es Salam 120% 100% 80% 60% 40% 20% 0%

33 Own revenues as % of total revenues Capital grants Operating grants Own revenues Own revenues % Windhoek Ndola Lusaka Blantyre Lilongwe Port Louis Maputo Gaborone Arusha Dar es Salam 120% 100% 80% 60% 40% 20% 0%

34 Spending per person and share of spending supported by own revenues 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Blantrye 102% 11 Lusaka 100% 12 Lilongwe 89% 12 Ndola 70% 21 Maputo 43% 21 Arusha 21% 33 Gaborone 23% 148 Dar es Salaam 15% 49 Windhoek 87% 484 Port Louis 40% 140

35 Operating surpluses (deficits) Dar es Salaam Port Louis Lusaka % 0.8 4% % % -20% -40% -60% % 2% 1% 0% -1% % 5% 0% -5% -10% Windhoek Gaborone 5 2% - 0% % -2% -4% -6% % -20% -30% -15-8% %

36 Operating surpluses (deficits) Arusha Lilongwe Blantyre % 15 80% % % 5% 0% -5% -10% -15% % 40% 20% 0% % 20% 10% 0% Maputo Ndola % 20% 15% 10% 5% 0% % 40% 20% 0% -20% -40%

37 Operating surpluses (deficits)

38 Debtors days Dar es Salam Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola

39 Debtors days(sacn cities)

40 Year-end cash balances months of expenditure Dar es Salam Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola

41 Year-end cash balances months of expenditure

42 Reasons for these patterns? Constitutional allocations of expenditure responsibilities and revenue powers Political economy of city revenue policy and administration Expenditure-side pressures National fiscal conditions and pressures International financial crisis Management and organisational capacity Other

43 The financing of city services in Southern Africa Background Purpose and objectives Participating cities Approaches & methods Roles Expenditure responsibilities Revenue powers Staff numbers Financials Revenues (own, operating grants, capital grants) Expenditures (personnel, capital, other) Operating surpluses Year-end cash balances Issues Functions & powers Revenue effort Human resource capacity

44 Issues in city government finances Under-empowered & under-resourced Trend has been to strip powers from city governments Decentralisation by name, centralisation in practise Limited built environment mandate City governments operate at a small scale and spend very little Limited decision-making authority Senior staff appointments are often lengthy national processes Tax and tariff increases; new valuation rolls; similarly Limited infrastructure financing If it happens on scale it is grant or donor funded

45 Issues in city government finances Under-performing revenue administration Despite the overwhelming shortage of resources Much of the tax base escapes being billed/invoiced Debtors balances outstanding are often high Weak revenue relationship with residents and businesses Significant human resource capacity constraints Skills shortage is universally acknowledged as serious/critical especially in key technical areas Long period `acting appointments are universal Yet little serious effort (possibility) to address the gap?

46 Concluding propositions (1) Cities require effective urban services to fulfil their role as critical sites/drivers of social and economic development; City governments should have clear and substantial built environment mandates; City governments should be able to finance much of their built environment services through appropriate local revenue resources, provided they have sufficient local revenue powers; City governments need to develop and maintain a social contract with city households and businesses;

47 Concluding propositions (2) City governments need an adequately funded capital investment plan, ideally from own-revenue sources Intergovernmental fiscal arrangements should provide strong incentives to maintain capital assets. Good financial management and creditworthiness can together improve access to capital infrastructure funding. City government administration and service delivery, together with an effective city social contract, should be able to create the correct environment and platform for social development and economic growth.

48 City financial strategies All cities can take steps to improve their financial performance, such as through a city financial strategy. City leadership with political stature and maturity Dedicated management team Internal reform programme Administrative and financial and revenue reforms Objectives and targets, `war room, accountability for performance, etc External reform programme Improve effectiveness of relationship with national government Address aspects of the inter-governmental fiscal relations Customised capacity building for senior management Targeted at programme objectives

49 Approach to capacity building Approach & methodology Change management intervention aimed at senior city management Specific operational as well as capacity-building objectives Programme of workshops, with substantial supporting work Management team takes responsibility for tasks between workshops Outcomes: operational objectives achieved Capacity of management team enhanced change momentum strengthened Seven-step programme 1. Introduction to financial management and creditworthiness 2. Shadow credit assessment 3. Medium- and long-term capital investment planning 4. Funding the capital investment plan 5. Launching the reform agenda 6. Preparing to approach the capital market 7. Finalising a loan agreement and managing the loan

50 Michael Kihato Well Governed Cities