THE FINANCING OF CITY SERVICES IN SOUTHERN AFRICA Preface A follow-up of a previous report published by the SACN in 2008, this publication examines the challenge of financing infrastructure in the Southern African region. Infrastructure investment in Southern Africa and the rest of the continent is of particular significance, as it is increasingly recognised as pivotal to the goals of economic growth and tackling poverty. The geographical spread of the project included ten city municipalities across the countries of Botswana, Mozambique, Mauritius, Tanzania, Namibia, Zambia and Malawi. The research involved city visits, where interviews with key individuals were conducted, and an in-depth analysis of their financial statements, as well as plans and policies relating to infrastructure and services. This project had a number of key activities. One was to understand the financial health of these municipalities, which was linked to providing credit assessments for all the municipalities visited, allowing them to rate their ability to borrow in order to meet some of their infrastructure needs. This publication, with its detailed financial profiles and analysis of major issues relating to city finances, is a primary product of this aspect of the project. Another aspect of this project was to conduct financial capacity building in a selected number of these municipalities, providing senior managers with focused training on enhancing city creditworthiness. The project culminated in a knowledge dissemination event in Johannesburg South Africa on 25 May 2011, at which the publication was launched, broad findings of the project were discussed and city officials were invited to share financial management lessons learnt within their organisations. Acknowledgments This publication was written by Roland Hunter of Hunter van Ryneveld, based on his research work done in conjunction with Johan Kruger of AfCap Consulting. The project was managed by Michael Kihato of the South African Cities Network (SACN), joint sponsors of the project together with the Public Private Infrastructure Advisory Facility (PPIAF) and the World Bank. We would like to acknowledge the role of Ntombini Marrengane and David Savage, who served as external readers to the initial draft of the work. Special thanks to the city officials in Arusha, Dar es Salaam, Maputo, Windhoek, Lusaka, Ndola, Lilongwe, Blantyre, Gaborone and the Municipal Council of Port Louis for putting aside time to interact with the research team and for providing the information necessary for the creation of this publication. Editorial and design Editing: Write to the Point Design and layout: HotDog Designs 2 Foreword It has been slightly over two years since the SACN was last involved in a regional project of this nature, and the challenge of municipalities meeting their obligations in terms of delivering infrastructure and services still persists. According to the report Africa’s Infrastructure: A Time for Transformation, to meet Africa’s infrastructure needs will require an annual investment of US$93 billion, of which two-thirds will be spent on capital expenditure and the balance on operations and maintenance. Much of this expenditure needs to happen in cities, as cities are (and will increasingly be) the drivers of social and economic development. It is with this understanding that the SACN is producing this publication that seeks to contribute, in its own small way, to helping to understand and deal with the enormous challenges facing Southern Africa’s cities. SACN transferred to this phase of the project the lessons learned during previous work carried out in a number of Southern African municipalities. One important lesson is the critical need for capacity building around financial issues, if municipalities are to be capable of better financing their infrastructure and service needs. A municipality’s ability to collect its own revenues, operate in a financially efficient manner and be creditworthy is largely dependent on its internal capacity to manage its finances. In the long term, at the heart of financial health is the institutional strength of municipalities. In recognition of this, SACN made capacity building a primary output of this project. Through a series of interactive, capacity-building workshops with selected members, various areas of improvement to financial management were discussed and highlighted. It would be remiss not to mention a number of issues that emerged during the interaction with over ten municipalities in the Southern African region. We often forget that we belong to a diverse continent with varying histories, needs and experiences. In this respect, some useful lessons and experiences of innovation in financial management are supplied by the cities, as they deal with local challenges to provide for the needs of their citizens. For example, interesting practices around revenue collection and maintenance emerged. Then again, issues can also be remarkably similar. The worsening international economic conditions in the period since the previous work highlighted a common vulnerability among our diverse cities. We also all share the universal need to live in a financially well-managed city that provides services to all. To achieve this, many of the municipalities and their respective national governments need to tackle a number of common challenges. Municipalities need to be enabled with sufficient financial and decision-making autonomy to adequately deal with the growing urban demand for services. Greater effort also needs to be expended at revenue collection. It is hoped that with this work, SACN has contributed meaningfully to the body of research aimed at progressively dealing with challenges of financing infrastructure and services in the continent. Sithole Mbanga CEO South African Cities Network 3 Contents Preface .................................................................................................... 2 Acknowledgements ................................................................................. 2 Foreword ................................................................................................. 3 1. Introduction ....................................................................................... 5 2. Economic and demographic profiles .................................................. 8 3. City government responsibilities ......................................................22 4. Financial profile of the cities .............................................................31 5. City finances in Southern Africa .......................................................41 6. Conclusion ...................................................................................... 45 Annexure A: Summary tables and statistical considerations .................. 47 Annexure B: City annual financial statements ........................................49 Annexure C: Interviewees ..................................................................... 70 Annexure D: Reports and documents consulted ................................... 72 4 THE FINANCING OF CITY SERVICES IN SOUTHERN AFRICA 1. Introduction In 2010 the South African Cities Network (SACN), in conjunction with the World Bank Institute (WBI) and the Public Private Infrastructure Advisory Facility (PPIAF), implemented a project to support the emergence of a sustainable municipal finance market in Southern Africa. The aim of the project was to promote more effective city financial planning and management, better credit ratings and improved access to capital markets for infrastructure investment purposes. The project involved conducting a series of shadow credit assessments of city governments in Southern Africa and developing a customised, financial management capacity- building programme for senior city management teams. This report is one of the ‘knowledge products’ of the project and presents an overview of city government finance in ten cities in Southern Africa outside of South Africa (SA). It draws heavily on the research interviews conducted, documents obtained and credit assessment reports produced during the course of the project. The report is also a companion to The State of the City Finances 2011, which deals with the financial position and performance of the nine largest South African cities, all members of the SACN. That report is a comprehensive update of an earlier SACN publication, The State of the City Finances 2007, and other, briefer accounting and chapter-length financial updates produced during the intervening years. While the original intention was to produce a single report covering city financial issues across Southern Africa including SA, it was decided that on balance two separate volumes would be better, for two major reasons: 5 1. South African city governments are starkly different from their counterparts elsewhere in Southern Africa, especially in their legal mandates, intergovernmental financial and administrative systems, and almost every financial indicator. A single report would inevitably be dominated by this divide, which would tend to push other critical matters into the background. Furthermore, the financial and economic information available on South African cities is substantially more detailed and reliable than that on other Southern African cities, which would greatly complicate the task of using common information categories in a single report. 2. Two separate reports allow for a comprehensive update of the earlier SACN report on South African cities (State