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The financing of city services in Southern Africa 25 th May 2011
The financing of city services in Southern Africa
25th May 2011
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
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 financesCity selection criteria• Criteria included scale; SADC coverage; and
potential for creditworthiness and borrowing.• Subject to budget , logistical and time
constraints
Cities in Southern Africa
Lusaka +
Windhoek +
Lilongwe + Blantyre +
+ Maseru
+ Maputo Mbabane + + Manzini
+ Nampula
+ Luanda
+ Kinshasa
Bulawayo +Harare +
Lumbumbashi +Kitwe +
+ Beira + Antananarivo
+ Nairobi
+ MombasaKigali +
Bujumbara +
Johannesburg +
+ eThekwini + Buffalo City + Nelson Mandela Bay Cape Town +
Mangaung + + Msunduzi
+ EkurhuleniTshwane +
Port Louis +
Gaborone +
Ndola +
+ Dar es Salaam
Arusha +
+ Maputo
Windhoek +
Blantyre + Lilongwe +
Lusaka +
Participating cities
Port Louis +
Gaborone +
Ndola +
+ Dar es Salaam
Arusha +
+ Maputo
Windhoek +
Blantyre + Lilongwe +
Lusaka +
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.
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
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.
-10
0
10
20
30
40
50
60
70
80
90
Series3
City populations(Vertical position = size of city economies US$b)
-1.0
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Series3 0.2
0.2
0.3
0.4 0.5
0.7 0.8
1.2
1.5
3.0 Populations of Southern African cities(Vertical position = size of city economies US$b)
-1.0
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Series3 0.2
0.2
0.3
0.4
0.5
0.7 0.8
1.2
1.5
3.0 Populations of Southern African cities(Vertical position = size of city economies US$b)
City population & city GDP
Dar es Salaam Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola
City GDP (US$ m) 11 591 7 793 7 072 5 598 4 557 2 480 1 242 1 101 964 435
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– 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
City government roles: expenditure responsibilities
Social services
– Civil administration (registration of births, deaths and marriages)
– Health care services (primary/ clinics/ vaccinations etc)
– Educational services (pre-school)– Educational services (primary school)– Educational services (secondary school)– Housing rental– Social welfare (centres for orphans etc)– Business registration and licensing
Built environment services
– Town planning and building control– Municipal policing (by-law enforcement)– Supply of water– Sanitation (sewerage)– Roads and storm-water drainage– Traffic lights and street lights– Refuse collection and disposal; street
sweeping– 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
Social services
Minimal Moderate Full
MaputoWindhoek
LusakaNdola
Lilongwe Blantyre
GaboronePort Louis
Dar es SalaamArusha
Built environment services
Minimal LusakaNdolaDar es SalaamArusha
Moderate MaputoLilongweBlantyreGaborone Port Louis
Full Windhoek
Nature & scale of city government roles
Social services
Minimal Moderate Full
Built environment
services
Minimal LusakaNdola
Dar es SalaamArusha
Moderate MaputoLilongweBlantyre
Gaborone Port Louis
Full Windhoek
-1.0
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Series3
moderate S,minimal BE
full S,minimal BE
full Sminimal BE
minimal Sfull BE
moderate Smoderate BE
moderate S, moderate BE
moderate Sminimal BE
Minimal S, moderate BE
moderate S, moderate BE
City expenditure mandatesSocial services - built environment
City government staff and spending
Dar es Salaam Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola
Total city spending (US$ m) 147 20 18 160 35 27 13 9 9 11
Total city staff 15 419 2 500 1 882 1 755 3 000 2 325 3 000 1 900 2 000 670
City staff/100 000 people 514 1 667 129 532 1 266 187 750 271 250 135
City spending per person (US$ m) 49 136 12 484 148 21 33 12 11 21
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Series3 670
1,755
1,882
1,900 2,000
2,325
2,500
3,000
3,000 15,419
City staff (vertical position = staff/ 100 000)
full S,minimal BE
full S,minimal BE
moderate Smoderate BE
moderate Smoderate BE
moderate Smoderate BE
Minimal S, moderate BEmoderate S, minimal BE
minimal Sfull 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
Dar es Salaam
Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantrye Ndola0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%City spending %City billing %
City spending & billing as % of city GDP
Johan-nesburg
Cape Town eThekwini Tshwane Ekurhuleni Nelson Mandela
Msunduzi Buffalo City Mangaung0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%City spending %City billing %
City spending & billing as % of city GDP
Dar es Salaam
Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantrye Ndola0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%City spending %City billing %
City comparisons
Dar es Salaam Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola
City GDP (US$ m) 11 591 7 793 7 072 5 598 4 557 2 480 1 242 1 101 964 435
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$ m) 147 20 18 160 35 27 13 9 9 11
Total city staff 15 419 2 500 1 882 1 755 3 000 2 325 3 000 1 900 2 000 670
City staff/100 000 people 514 1 667 129 532 1 266 187 750 271 250 135
City spending per person (US$ m) 49 136 12 484 148 21 33 12 11 21
City billing (US$ m) 22 8 18 139 8 11 3 8 9 7
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%
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
City spending in 2009 (US$ m)
Dar es Salam
Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola -
20
40
60
80
100
120
140
160
180 CapexOther opexStaff costs
City spending in 2009 (US$ m)(excluding Dar es Salaam & Windhoek)
Port Louis Lusaka Gaborone Maputo Arusha Lilongwe Blantyre Ndola -
5
10
15
20
25
30
35
40 CapexOther opexStaff costs
City revenues 2009 (US$ m)
Dar es Salam
Port Louis Lusaka Windhoek Gaborone Maputo Arusha Lilongwe Blantyre Ndola -
20
40
60
80
100
120
140
160 Capital grantsOperating grantsOwn revenues
City revenues 2009 (US$ m)(excluding Dar es Salaam & Windhoek)
Port Louis Lusaka Gaborone Maputo Arusha Lilongwe Blantyre Ndola -
5
10
15
20
25
30 Capital grantsOperating grantsOwn revenues
Windhoek Ndola Lusaka Blantyre Lilongwe Port Louis Maputo Gaborone Arusha Dar es Salam
0
20
40
60
80
100
120
140
160
0%
20%
40%
60%
80%
100%
120%Capital grantsOperating grantsOwn revenuesOwn revenues %
Own revenues as % of total revenues
Windhoek Ndola Lusaka Blantyre Lilongwe Port Louis Maputo Gaborone Arusha Dar es Salam
0
20
40
60
80
100
120
140
160
0%
20%
40%
60%
80%
100%
120%Capital grantsOperating grantsOwn revenuesOwn revenues %
Own revenues as % of total revenues
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%Series31100% 1200%
1200%
2100%
2100%
3300%
4900%
14800%
14000%
48400%
Spending per person and share of spending supported by own revenues
Operating surpluses (deficits)
Dar es Salaam
2007 2008 2009 2010
-1.5
-1.0
-0.5
-
0.5
1.0
-50%-40%-30%-20%-10%0%10%20%
Port Louis
Windhoek
Lusaka
Gaborone
2006 2007 2008 2009 -0.1 -
0.1 0.2 0.3 0.4 0.5 0.6 0.7
-2%
0%
2%
4%
2005 2006 2007 2008 2009
-1.0
-0.5
-
0.5
1.0
1.5
-6%-4%-2%0%2%4%6%8%10%12%
2006 2007 2008 2009 2010
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1
-
-40%-35%-30%-25%-20%-15%-10%-5%0%
2004 2005 2006 2007 2008
-12 -10
-8 -6 -4 -2
- 2 4
-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%
Operating surpluses (deficits)
Arusha Lilongwe
Ndola
Blantyre
2006 2007 2008 2009
-0.8 -0.6 -0.4 -0.2
- 0.2 0.4 0.6 0.8 1.0
-15%
-10%
-5%
0%
5%
10%
15%
2006 2007 2008 2009 -2 -1
- 1 2 3 4 5 6
-30%-20%-10%0%10%20%30%40%50%60%
2006 2007 2008 2009 2010 -
0.5 1.0 1.5 2.0 2.5 3.0 3.5
0%5%10%15%20%25%30%35%
2006 2007 2008 2009 2010 - 2 4 6 8
10 12 14 16
0%10%20%30%40%50%60%70%80%
2005 2006 2007 2008 2009 -
0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
0%
5%
10%
15%
20%
25%
Maputo
Debtors days
Dar es S
alam
Port Lo
uis
Lusaka
Windhoek
Gaborone
Maputo
Arusha
Lilongw
e
BlantyreNdola
-
50
100
150
200
250
300
350
400
450
Year-end cash balances – months of expenditure
-0.5
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
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
• 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
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
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• 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 programme1. Introduction to financial
management and creditworthiness2. Shadow credit assessment3. Medium- and long-term capital
investment planning4. Funding the capital investment plan 5. Launching the reform agenda6. Preparing to approach the capital
market7. Finalising a loan agreement and
managing the loan
