LEARNING SESSION THREE: INCREASING MUNICIPAL REVENUE STREAMS: OPPORTUNITIES & INNOVATIONS

Transcription

1 LEARNING SESSION THREE: INCREASING MUNICIPAL REVENUE STREAMS: OPPORTUNITIES & INNOVATIONS

2 LEARNING SESSION THREE 3.1. Understanding the state of African Cities: Short Inputs from selected cities: East Africa (Kenya and Tanzania) West Africa (Ghana) North Africa (Egypt) Southern Africa (SACN presentation: Michael Kihato)

3 Learning Outcomes To share where African cities are currently in terms of city revenue generation To understand what needs to be done / what the key levers are in order to increase revenue generating opportunities

4 The financing of city services in Southern Africa 25 th May 2011

5 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

6 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

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

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

9 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.

10 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; 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

11 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.

12 90 City populations (Vertical 80 position = size of city economies US$b) 70 Cape Town Johannesburg 60 ethekwini 50 Tshwane Ekurhuleni Port Louis Windhoek Nelson Mandela Bay Lusaka Mangaung Buffalo City Msunduzi Dar es Salaam 0-10 Gaborone Arusha Ndola Lilongwe Blantrye Maputo

13 11.0 Populations of Southern African 10.0 cities (Vertical position = size of city economies 9.0 US$b) Port Louis Windhoek 4.4 Gaborone Arusha Ndola Lilongwe Blantrye Dar es Salaam Lusaka Maputo

14 11.0 Populations of Southern African 10.0 cities (Vertical position = size of city economies 9.0 US$b) Dar es Salaam Port Louis Gaborone Windhoek Arusha Ndola Lilongwe Blantrye Lusaka Maputo

15 City population & city GDP Dar es Salaam Port Louis Windho Gaboro Lusaka ek ne Maputo Arusha Lilongw e Blantyr e Ndola City GDP (US$ m) Population (m)

16 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

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

18 Nature & scale of city government roles Social services Minimal Moderate Full Minimal Lusaka Ndola Dar es Salaam Arusha Built environ ment services Moderat e Maputo Lilongwe Blantyre Gaborone Port Louis Full Windhoek

19 City expenditure mandates 11.0 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 Blantrye moderate S moderate BE Minimal S, moderate BE -1.0

20 City government staff and spending Dar es Salaam Port Louis Lusaka Windho ek Gaboro Maputo Arusha Lilong ne we Blantyr e Ndola Total city spending (US$ m) Total city staff City staff/ people City spending per person (US$ m)

21 1 800 City staff (vertical position = staff/ ) moderate S moderate BE Port Louis moderate S moderate BE Gaborone Ndola Windhoek minimal S full BE moderate S, minimal BE Lusaka Lilongwe moderate S moderate BE Blantyre Minimal S, moderate BE Maputo Arusha full S, minimal BE full S, minimal BE Dar es Salaam

22 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

23 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

24 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 WindhoekGaborone Maputo Arusha Lilongwe Blantrye Ndola

25 City spending & billing as % of city GDP 13.0% 12.0% 11.0% City spending % City billing % 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

26 City spending & billing as % of city GDP 13.0% 12.0% 11.0% City spending % City billing % 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Dar es Salaam Port Louis Lusaka WindhoekGaborone Maputo Arusha Lilongwe Blantrye Ndola

27 City comparisons Dar es Salaam Port Louis Lusaka Windh oek Gaboro Maputo Arusha Lilong ne we Blantyr e 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%

28 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

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

30 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

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

32 City revenues 2009 (US$ m) (excluding Dar es Salaam & Windhoek) 30 Capital grants Port Louis Lusaka Gaborone Maputo Arusha Lilongwe Blantyre Ndola

33 Own revenues as % of total revenues Capital grants Operating grants Own revenues Own revenues % 120% 100% 80% 80 60% % 20% 0 0%

34 Own revenues as % of total revenues Capital grants Operating grants Own revenues Own revenues % 120% 100% 80% 80 60% % 20% 0 0%

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

36 Operating surpluses (deficits) Dar es Salaam Port Louis Lusaka % 10% 0% -10% -20% -30% -40% -50% % 4% 3% 3% 2% 2% 1% 1% 0% -1% -1% % 10% 8% 6% 4% 2% 0% -2% -4% -6% Windhoek Gaborone 4 2% - 0% 2-0% % -10% % -4% % -20% -25% % -8-30% -35% -12-8% %

37 Operating surpluses (deficits) Arusha Lilongwe Blantyre % 10% 5% 0% -5% -10% -15% % 70% 60% 50% 40% 30% 20% 10% 0% % 30% 25% 20% 15% 10% 5% 0% Maputo Ndola % 20% 15% 10% 5% 0% % 50% 40% 30% 20% 10% 0% -10% -20% -30%

38 Debtors days

39 Year-end cash balances months of expenditure

40 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

41 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

42 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

43 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?

44 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;

45 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.

46 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

47 The financing of city services in Southern Africa 25 th May 2011

48 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

49 Roland Hunter LEARNING SESSION THREE 3.2. Increasing Revenue Streams in African Cities: Lead Presentation and Discussion

50 Sogen Moodley LEARNING SESSION THREE 3.3 Short Facilitated Session: Ensuring that our Master Class meets our Needs and Expectations