Learning Session Three: Increasing Municipal Revenue Streams: Opportunities & Innovations Learning Session Three 3.1

LEARNING SESSION THREE: INCREASING MUNICIPAL REVENUE STREAMS: OPPORTUNITIES & INNOVATIONS 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) 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 The financing of city services in Southern Africa

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

• Background • Financials – Purpose and objectives – Revenues (own, operating – Participating cities grants, capital grants) – Approaches & methods – Expenditures (personnel, capital, other) – Operating surpluses • Roles – Year-end cash balances – Expenditure responsibilities – Revenue powers – Staff numbers • Issues – Functions & powers – Revenue effort – Human resource capacity Background

Project objectives Project outputs • To promote sustainable city • Shadow credit assessments of city government finances for infrastructure governments in Southern Africa; development in Southern Africa; • Capacity building programme to • To promote more effective planning improve financial management and and management of financial credit worthiness at one city activities, including better credit government; ratings and the ability to access • `Knowledge product’ on the financial finance for investment purposes from position of Southern African cities; banks or capital markets; • Knowledge-sharing workshop; • To provide credit assessment and • `Knowledge product’ and update credit enhancement services to city report on the state of South African governments; city finances • To provide capacity building targeted City selection criteria at improving city government financial • Criteria included scale; SADC management and creditworthiness. coverage; and potential for creditworthiness and borrowing. • Subject to budget , logistical and time constraints Cities in Southern Africa Kigali + + Nairobi Bujumbara + Arusha + + Kinshasa + Mombasa + Dar es Salaam + Luanda Lumbumbashi + Kitwe + Ndola + Lilongwe + + Nampula Lusaka + Blantyre + Harare + Bulawayo + + Beira + Antananarivo Port Louis + Windhoek + Gaborone + TshwaneMbabane ++ Ekurhuleni + + Maputo Johannesburg + + Manzini Mangaung + + Msunduzi + + eThekwini Maseru + Buffalo City Cape Town + + Nelson Mandela Bay Participating cities

Arusha +

+ Dar es Salaam

Ndola + Lilongwe + Lusaka + Blantyre +

Port Louis + Windhoek + Gaborone + + Maputo Approach and methodology

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

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

City financial data Economic and demographic data • Actual domestic currency values • GDP estimates are for 2008, (no budget data; sourced directly expressed in 2005 US$ (PPP from cities; rigorous accounting basis); analysis) • Population data is for 2008 as far • Time series data – presented in as possible domestic currency values. • Source data is from World Bank’s • Comparative currency calculations Africa Development Indicators – done using exchange rate (ADI) online database applicable at the end of the last data.worldbank.org month of applicable financial year. • Detailed estimates (eg 40-sector) • Monthly exchange rate data from of the size of city economies do oanda.com not appear to exist, so these are rough project estimates and subject to correction. 90 City populations Johannesburg (Vertical80 position = size of city economies US$b)

70 Cape Town

60 eThekwini

50 Tshwane

Ekurhuleni 30

Nelson Mandela Bay Dar es Salaam 20 Lusaka Mangaung Buffalo City Port Louis Msunduzi 10 Windhoek

0 Gaborone Arusha Ndola Lilongwe Blantrye Maputo -10 11.0 Populations of Southern African Dar es Salaam 9.1 10.0cities 3.0 (Vertical position = size of city economies 9.0 US$b) 8.0 Port Louis 6.1 7.0 0.2 Lusaka 5.6 Windhoek 6.0 1.5 4.4 0.3 5.0 Gaborone 3.6 0.2 4.0 Maputo 2.0 1.2 3.0 Arusha Lilongwe Blantrye 1.0 0.9 0.8 Ndola 2.0 0.4 0.7 0.8 0.3 0.5 1.0

-1.0 11.0 Populations of Southern African Dar es Salaam 9.1 10.0cities 3.0 (Vertical position = size of city economies 9.0 US$b) 8.0 Port Louis 6.1 7.0 0.2 Lusaka 5.6 6.0 Windhoek 1.5 4.4 0.3 5.0 Gaborone 3.6 0.2 4.0 Maputo 2.0 1.2 3.0 Arusha Lilongwe Blantrye 1.0 0.9 0.8 2.0 0.4 Ndola 0.7 0.8 0.3 0.5 1.0

-1.0 City population & city GDP

Dar es Port Windho Gaboro Lilongw Blantyr Lusaka Maputo Arusha Ndola Salaam Louis ek ne e e

11 City GDP (US$ m) 7 793 7 072 5 598 4 557 2 480 1 242 1 101 964 435 591

Population (m) 3.0 0.2 1.5 0.3 0.2 1.2 0.4 0.7 0.8 0.5 The financing of city services in Southern Africa

• Background • Financials – Purpose and objectives – Revenues (own, operating – Participating cities grants, capital grants) – Approaches & methods – Expenditures (personnel, capital, other) – Operating surpluses • Roles – Year-end cash balances – Expenditure responsibilities – Revenue powers • Issues – Staff numbers – Functions & powers – Revenue effort – Human resource capacity City government roles: expenditure responsibilities

Built SocialMinim servicesLusaka Built environment services Social services environ al Ndola ment– Civil administration (registrationDar es of – Town planning and building control births, deaths and marriages)Salaam Minimal– Municipal policingModerate (by-law Full services– Health care services (primary/Arusha clinics/ enforcement) vaccinations etc) Maputo– Supply of waterLusaka Dar es – EducationalModer services (preMaputo-school) Windhoek– Sanitation (sewerage)Ndola Salaam – Educational services (primaryLilongwe school) – Roads and storm-water drainage – Educationalate services (secondary – Traffic lightsLilongwe and street lights Arusha school) Blantyre – Refuse collectionBlantyre and disposal; street – Housing rental Gaborone sweeping Gaborone – Social welfare (centres Portfor orphans Louis – EnvironmentalPort health Louis services etc) – Emergency services (ambulances, – Business registration and licensing fire) Windhoek – Supply of electricity and gas Full – Cemeteries, parks and sports facilities – Bus and taxi ranks; markets – Public transport services Nature & scale of city government roles

Social services

Minimal Moderate Full

Lusaka Dar es Salaam Minimal Ndola Arusha

Built Lilongwe environ Moderat Blantyre Maputo ment e Gaborone services Port Louis

Full Windhoek 11.0City expenditure mandates Social services - built environment Dar es Salaam 10.0 full S, minimal BE 9.0

8.0

7.0 Port Louis moderate S, moderate BE Lusaka 6.0 moderate S, minimal BE Windhoek 5.0 minimal S Gaborone full BE 4.0 moderate S, moderate BE Maputo 3.0

Minimal S, 2.0 Lilongwe moderate Arusha Blantrye BE full S Ndola moderate S minimal BE 1.0 moderate BE moderate S minimal BE -

-1.0 City government staff and spending

Dar es Port Windho Gaboro Lilong Blantyr Lusaka Maputo Arusha Ndola Salaam Louis ek ne we e

Total city spending (US$ 147 20 18 160 35 27 13 9 11 m) 9 15 Total city staff 2 500 1 882 1 755 3 000 2 325 3 000 1 900 2 000 670 419

City staff/100 000 people 514 1 667 129 532 1 266 187 750 271 250 135

City spending per 49 136 12 484 148 21 33 12 11 21 person (US$ m) 1 800 City staff moderate S Port Louis moderate BE 1 712 (vertical position = staff/ 100 000) 2 500 1 600

1 400 Gaborone moderate S 1 266 moderate BE 3 000 1 200

1 000

800 Arusha Windhoek full S, 750 Dar es Salaam 532 minimal BE 3 000 514 1 755 15 419 600 minimal S Lilongwe full S, full BE Blantyre minimal BE 271 250 1 900 400 2 000 Ndola Lusaka Maputo 129 moderate S 187 135 moderate BE 670 1 882 2 325 200 Minimal S, moderate S, minimal moderate BE BE - 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 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 City spending & billing as % of city GDP

3.0% City spending % City billing % 2.5%

2.0%

1.5%

1.0%

0.5%

0.0% Dar es Port Lusaka WindhoekGaborone Maputo Arusha Lilongwe Blantrye Ndola Salaam Louis City spending & billing as % of city GDP

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

13.0% City spending % 12.0% City billing % 11.0%

10.0%

9.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0% Dar es Port Lusaka WindhoekGaborone Maputo Arusha Lilongwe Blantrye Ndola Salaam Louis City comparisons

Dar es Port Windh Gaboro Lilong Blantyr Lusaka Maputo Arusha Ndola Salaam Louis oek ne we e

11 City GDP (US$ m) 7 793 7 072 5 598 4 557 2 480 1 242 1 101 964 435 591

Population (m) 3.0 0.2 1.5 0.3 0.2 1.2 0.4 0.7 0.8 0.5

Total city spending (US$ 147 20 18 160 35 27 13 9 9 11 m) 15 1 Total city staff 2 500 1 882 1 755 3 000 2 325 3 000 2 000 670 419 900

City staff/100 000 people 514 1 667 129 532 1 266 187 750 271 250 135

City spending per person 49 136 12 484 148 21 33 12 11 21 (US$ m)

City billing (US$ m) 22 8 18 139 8 11 3 8 9 7

City billing as share of 0.2% 0.1% 0.3% 2.5% 0.2% 0.5% 0.2% 0.7% 0.9% 1.7% city GDP (%) The financing of city services in Southern Africa

• Background • Financials – Purpose and objectives – Expenditures (personnel, – Participating cities other opex, capital) – Approaches & methods – Revenues (own, operating grants, capital grants) • Roles – Operating surpluses/deficits – Year-end cash balances – Expenditure responsibilities – Revenue powers – Staff numbers • Issues – Functions & powers – Revenue effort – Human resource capacity City spending in 2009 (US$ m)

180 Capex 160 Other opex Staff costs 140

120

100

- Dar es Port Louis Lusaka WindhoekGaborone Maputo Arusha Lilongwe Blantyre Ndola Salam City spending in 2009 (US$ m) (excluding Dar es Salaam & Windhoek)

40 Capex Other opex 35 Staff costs

- Port Louis Lusaka Gaborone Maputo Arusha Lilongwe Blantyre Ndola City revenues 2009 (US$ m)

160 Capital grants Operating grants 140 Own revenues

120

100

- Dar es Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola Salam City revenues 2009 (US$ m) (excluding Dar es Salaam & Windhoek)

30 Capital grants

- Port Louis Lusaka Gaborone Maputo Arusha Lilongwe Blantyre Ndola Own revenues as % of total revenues

160 120% Capital grants Operating grants 140 Own revenues 100% 120 Own revenues % 80% 100

80 60%

60 40% 40 20% 20

0 0% Own revenues as % of total revenues

160 120% Capital grants Operating grants 140 Own revenues 100% 120 Own revenues % 80% 100

80 60%

60 40% 40 20% 20

0 0% Spending per person and share of spending supported by own revenues

110% Blantrye Lusaka 100% 102% 100% Lilongwe 11 12 89% 90% 12 Windhoek 87% 484 80% Ndola 70% 70% 21 60% Port Louis 50% Maputo 40% 43% 140 40% 21 Gaborone 23% 30% Arusha 148 21% 20% 33

10% Dar es Salaam 15% 0% 49 Operating surpluses (deficits)

Dar es Salaam Port Louis Lusaka

1.0 20% 0.7 4% 1.5 12% 10% 0.6 4% 10% 0.5 3% 1.0 8% 0% 0.5 3% 6% - 0.4 2% 0.5 -10% 4% 0.3 2% 2007 2008 2009 2010 2% -0.5 -20% 0.2 1% - 1% 0% -30% 0.1 2005 2006 2007 2008 2009 0% -2% -1.0 - -0.5 -40% -1% -4% -0.1 -1% -1.5 -50% 2006 2007 2008 2009 -1.0 -6%

Windhoek Gaborone

4 2% - 0% 2 2006 2007 2008 2009 2010 -5% 0% -2 - -10% -2 2004 2005 2006 2007 2008 -2% -4 -15% -4 -20% -6 -4% -6 -25% -8 -30% -6% -8 -10 -35% -12 -8% -10 -40% Operating surpluses (deficits)

Arusha Lilongwe Blantyre

1.0 15% 16 80% 3.5 35% 0.8 14 70% 3.0 30% 10% 0.6 12 60% 2.5 25% 10 50% 0.4 5% 2.0 20% 0.2 8 40% 0% 1.5 15% - 6 30% 4 20% 1.0 10% -0.2 2006 2007 2008 2009 -5% 2 10% 0.5 5% -0.4 -10% - 0% - 0% -0.6 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 -0.8 -15%

Maputo Ndola

4.0 25% 6 60% 3.5 5 50% 20% 3.0 4 40% 2.5 15% 30% 3 2.0 20% 10% 2 1.5 10% 1.0 1 5% 0% 0.5 - -10% - 0% -1 2006 2007 2008 2009 -20% 2005 2006 2007 2008 2009 -2 -30% Debtors days

450

400

350

300

250

200

150

100

- Year-end cash balances – months of expenditure

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

-0.5 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 The financing of city services in Southern Africa

• 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 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? 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; 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. 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 The financing of city services in Southern Africa

25th May 2011 Approach to capacity building

Approach & methodology Seven-step programme • Change management intervention 1. Introduction to financial aimed at senior city management management and • Specific operational as well as creditworthiness capacity-building objectives 2. Shadow credit assessment • Programme of workshops , with 3. Medium- and long-term capital substantial supporting work investment planning • Management team takes 4. Funding the capital investment responsibility for tasks between plan workshops 5. Launching the reform agenda • Outcomes: 6. Preparing to approach the capital • operational objectives achieved market • Capacity of management team 7. Finalising a loan agreement and enhanced managing the loan • change momentum strengthened LEARNING SESSION THREE 3.2. Increasing Revenue Streams in African Cities: Lead Presentation and Discussion

Roland Hunter LEARNING SESSION THREE 3.3 Short Facilitated Session: Ensuring that our Master Class meets our Needs and Expectations…

Sogen Moodley