Report No. 46988 Public Disclosure Authorized &,7,(62)+23(" GOVERNANCE, ECONOMIC AND HUMAN CHALLENGES OF KENYA’S FIVE LARGEST CITIES Public Disclosure Authorized December 2008 Water and Urban Unit 1 Africa Region Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank __________________________ This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without written authorization from the World Bank. ii PREFACE The objective of this sector work is to fill existing gaps in the knowledge of Kenya’s five largest cities, to provide data and analysis that will help inform the evolving urban agenda in Kenya, and to provide inputs into the preparation of the Kenya Municipal Program (KMP). This overview report is first report among a set of six reports comprising of the overview report and five city-specific reports for Nairobi, Mombasa, Kisumu, Nakuru and Eldoret. The study was undertaken by a team comprising of Balakrishnan Menon Parameswaran (Team Leader, World Bank); James Mutero (Consultant Team Leader), Simon Macharia, Margaret Ng’ayu, Makheti Barasa and Susan Kagondu (Consultants). Matthew Glasser, Sumila Gulyani, James Karuiru, Carolyn Winter, Zara Inga Sarzin and Judy Baker (World Bank) provided support and feedback during the entire course of work. The work was undertaken collaboratively with UN Habitat, represented by David Kithkaye and Kerstin Sommers in Nairobi. The team worked under the guidance of Colin Bruce (Country Director, Kenya) and Jamie Biderman (Sector Manager, AFTU1). The team also wishes to thank Abha Joshi-Ghani (Sector Manager, FEU-Urban), Junaid Kamal Ahmad (Sector Manager, SASDU), Mila Freire (Sr. Advisor, FEU), and William John Cobbett (Manager, Cities Alliance) for the valuable feedback as the peer reviewers. CURRENCY AND EQUIVALENTS UNITS (Fiscal Year: July 1, 2008 – June 30, 2009) Currency = Kenyan Shillings US $1.00 = 79.70 Ksh Vice President: Obiageli Katryn Ezekwesili Country Director: Michel Wormser Sector Manager: Jaime M. Biderman ii Task Team Leader: Balakrishna Menon Parameswaran iii Abbreviations and Acronyms ACEG African Center for Economic Growth AFD Agence Française de Dévéloppement (French Development Agency) CBD Central Business District CBO Community Based Organization CCNSF City Council of Nairobi Stakeholder Forum CDF Constituency Development Fund CKRC Constitution of Kenya Review Commission DHS Demographic and Health Survey ELDOWAS Eldoret Water and Sanitation Company ERS-WEC Economic Recovery Strategy for Wealth and Employment Creation FBO Faith-Based Organization FGD Focus Group Discussion GDP Gross Domestic Product GIS Geographic Information System GOK Government of Kenya GPT Graduated Personal Tax JB Jamii Bora KACC Kenya Anti-Corruption Commission KARA Kenya Association of Residents Organization KIHBS Kenya Integrated and Household Budget Survey KNAO Kenya National Audit Office KEPSA Kenya Private Sector Alliance KENSUP Kenya Slum Upgrading Program KCBDA Kisumu Central Business District Association KIPPRA Kenya Institute of Public Policy Research and Analysis KIWASCO Kisumu Water and Sanitation Company KLGRP Kenya Local Government Reform Program Ksh Kenya Shilling LA Local Authority LAIFOMS Local Authority Integrated Financial Operations Management System LASC Local Authority Service Charge LASDAP Local authority Service Delivery Action Plan LATF Local Authority Transfer fund LGA Local government Act LED Local Economic Development MMC Mombasa Municipal Council MP Member of Parliament NACHU National Cooperative Housing Union NCBDA Nairobi Central Business District Association NESC National Economic and Social Council NGO Non-Governmental Organization ODPM and MoLG Office of the Deputy Prime Minister and Ministry of Local Government PBM Performance-Based Management PC Performance Contract PLGO Provincial Local Government Officer PPA Public Procurement Act PPP Public-Private Partnership PSRP Public Service Reform Programme RA Residents Association RMLF Roads Maintenance Levy Fund RUSPS Rapid Urban Sector Profiling for Sustainability SACCO Savings and Credit Cooperative SBP Single Business Permit SC Service Charter SFC Schedule of Fees and Charges TI Transparency International Ufw Unaccounted for Water USD United States Dollar WMS Welfare and Monitoring Survey WSB Water Service Board WSRB Water Services Regulatory Board ii Contents Executive Summary i 1. Introduction 1 1.1 Background 1 1.2 Methodology and structure of the study 2 1.3 Economic and Political Setting 4 1.3.1 Macroeconomic Context 4 1.3.2 Recent gains 5 1.3.3 The 2007 elections and aftermath 6 1.3.4 The Institutional Challenge 7 1.3.5 Politics of patronage and rents 8 1.3.6 Progressive institutional decline 9 2. Role of Cities and Urban Economies in Kenya’s Development 11 2.1 Background to urban development in Kenya 11 2.2 An increasingly urban future for Kenya 11 2.2.1 Urban-centered economic and social development 11 2.2.2 Importance of urban centers in the Kenyan economy 12 2.2.3 Urban poverty 13 3.2.3 Urban governance and economic development. 14 3.3 Introducing the five largest cities of Kenya 15 3. Governance and Management of Kenyan Cities 19 3.1 Urban management and service delivery in the five cities 19 3.2 Political economy of local governance in Kenya 20 3.2.1 Introduction 20 3.2.2 Centralization of the Kenyan state 22 3.2.3 Clamour for change 24 3.2.4 Competing funding channels at local level 26 3.2.5 Real reforms for devolution has been delayed 27 4. Governance and Management Challenges in Five Cities 30 4.1 Analytic frameworks for analyzing accountability in Kenya’s cities 30 4.2 Local governance and local governments in Kenya 31 4.2.1 Structural problems in local governance 31 4.2.2 The tenuous link between local authorities and the citizenry 31 4.2.3 Accountability of elected local officials is fragmented 36 4.2.4 Human resource management is an area of concern 36 4.2.5 Women’s influence in politics is limited 38 4.2.6 Corruption is a major issue 38 4.2.7 Citizens’ attitudes towards local authorities are complex and generally unfavorable 40 4.2.8 Performance contracts are expected to improve enforceability 40 4.3 Financing of Kenyan local governments 42 4.3.1 Municipal revenue sources and management 42 4.3.2 Tariffs and fees for services are outdated 44 4.3.3 Problems in revenue collection are numerous 45 4.3.4 Transfers from central government 48 iii 4.3.5 Municipal Expenditures 49 4.3.6 Municipal budgeting 50 4.3.7 Managing municipal debt 51 4.3.8 Financial accountability within cities 52 5. Economic and Human Challenges of the Five Cities 54 5.1 Local Economic Development 54 5.1.1 Centralization has undermined locally-owned strategies for LED 54 5.1.2 There is a marked differentiation in the economic roles of the five cities 55 5.1.3 There is no regulatory framework to promote LED 55 5.1.4 The informal sector is large and growing... and there is no policy towards it 56 5.1.5 Access to credit has improved, encouraging outcomes in local growth 59 5.1.6 However, insecurity and crime are continuing concerns for businesses 59 5.2 Delivery of basic urban services 60 5.3 Water supply 61 5.3.1 Recent institutional reforms have brought notable success 61 5.3.2 Despite recent successes, all cities, except Eldoret, face severe deficits in water supply 63 5.3.3 Water shortages have discouraged industrial investments 65 5.3.4 Tariffs and cost recovery remain problematic 66 5.4 Sanitation 66 5.4.1 Coverage in general is very low, and abysmally so for the poor 66 5.4.2 The poor have limited information on water and sanitation 68 5.4.3 Utilities face many problems 68 5.5 Solid Waste Management 69 5.5.1 Waste collection capacity is limited 69 5.5.2 Waste collection in slum areas is a major challenge 70 5.5.3 Institutional responsibilities for SWM are similar across the cities 70 5.5.4 Cost recovery is problematic 71 5.5.5 Private sector is involved in SWM operations, albeit without a guiding framework 71 5.6 Electricity 72 5.7 Public Transport 73 5.7.1 Walking is the most common mode but matatus also play a critical role 73 5.7.2 Policy and coordination issues stand out 74 5.7.3 Characterizing public transport in three cities in Eastern Africa 76 5.8 Shelter and slums 77 5.8.1 A substantial proportion of urban residents live in slums 77 5.8.2 Unlike other cities the vast majority of slum dwellers in Nairobi are tenants 77 5.8.3 Local authorities have failed to cope with slums 80 5.8.4 Slums have their patrons in the formal sector 80 5.8.5 Central leadership of slum upgrading should combine with local ownership and capacity 81 5.8.6 International experience offers useful lessons but strategies must respect local context 82 5.8.7 Microfinance offers new opportunities 83 6. Cities of Hope: The Way Forward 85 6.1 Introduction 85 6.2 Reversing the marginalization of local governments 85 6.2.1 Reforming intergovernmental systems 86 6.2.2 Building an accountable local state 89 6.2.3 Building a capable local state 90 6.2.4 Approach to reform 91 6.3 Addressing critical backlogs in infrastructure and improving basic services 92 iv 7.3.1 Preparing and implementing a capital development plan for large cities 92 6.3.2 Public- private partnerships and alternate service delivery arrangements 93 6.4 Arresting slum proliferation and improving existing slum settlements 93 6.4.1 Improving information on slums and their residents 94 6.4.2 Engaging stakeholders and building support 94 6.4.3