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Contributions from
the Column
Focus
No representation without taxation
VAT triumph
The meaningful goal of fairness: sub-Saharan tax regimes
Funding municipal budgets in Benin and Rwanda
Selfreliance revisited: enabling governments to do their job
“It is extremely difficult to negotiate PPP contracts”
02/2007
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Funding local government
In developing countries, devolution of powers should expand the authority of municipal administrations and boost their financial autonomy. Benin and Rwanda are tackling these tasks under very different conditions. Ironically, the fact that Rwandan municipalities are vested with more power stems from that country’s authoritarian government having more success in imposing its will.
[ By Valens Mulindabigwi and Uwe Singer ]
The decentralisation process in Benin and Rwanda began in the 1990s. New laws concerning local government have been in place in Benin since 2002 and in Rwanda since 2001. In both cases, the reform process is primarily funded by the donor community in pursuit of more efficient public-service delivery in sectors such as water supply, education or transport, and better performance for over-bearing objectives like gender equity or sustainable resource management.
The financial and legal environments of local government are quite different in the two countries. Last year, Rwanda completed the transfer of responsibilities in the areas mentioned above from central-government agencies to the municipalities’ technical services. The latter command sufficient funds and competent personnel. In Benin, however, while municipalities may have gained the right to set up such services, they have not done so. The reasons are shortage of funds as well as the central government’s surviving dominance.
In Rwanda, every municipality is authorised to assign any kind of public tasks to contractors on their territory. In contrast, local governments in Benin often need the approval of the respective national line ministries. Ironically, another factor to hinder municipalities in Benin is the community-development approach, which the donor community has been practising since the 1990s. Ever since, development programmes and projects have involved local committees, which, for example, are put in charge of mobilising user-fees for local infrastructures and related services. As intended, this approach resulted in a sense of ownership among the local communities and their representatives in respect to local service-provision. Neither the communities nor the donors desire more involvement of municipal governments. That is even the case in places where service-provision remains poor.
The different stages of devolution are reflected in the municipal budgets. In Rwanda, all public funds for the above-mentioned public-service sectors have been devolved. In Benin, it is still predominantly the central-government agencies to implement programmes and projects. The municipalities, which should ideally do the crucial planning, have hardly any money at their disposal for implementation.
The difference can be easily illustrated using the examples of two local administrations. Tchaourou in Benin has a population of around 100,000. In 2003, the first year after administrative reform, the municipal budget amounted to the equivalent of almost ¤ 85,000. In contrast, the Rwandan city Nyamagabe, with approximately 300,000 people, administered ¤ 2.1 million in the first year after fiscal devolution. Per capita, Nyamababe thus had approximately eight times more money at its disposal.
In Rwanda, the mayors must sign so-called performance contracts (“imihigo”), in which they promise the president they will implement the measures outlined in the annual plans. Disbursement of central-state funds depends on these contracts, and performance is evaluated annually. If actual implementation deviates from planned targets without reason, mayors are at risk of being dismissed. Imihigo is a monitoring instrument, designed to force Rwanda’s local authorities to plan and act realistically. While they do indeed operate independently, they remain subject to strict central-government management and monitoring.
Benin has nothing of that sort. Therefore, its local governments initially made their plans without much concern for budget matters. Unsurprisingly, the plans drawn up for Tchaourou for 2004 to 2008 exceeded the budget of 2003, the year the plans were drafted, by more than 20 times per year. One reason why the local decision-makers were out of touch with reality was that they did not have any reliable figures regarding how much money the central government would allocate to their jurisdiction for projects and programmes funded by the donor community.
In Benin, the central government does not have enforcement instruments to make local bodies do their job. As a result, local development plans are little more than wish lists. Since it is obvious that their realisation is improbable, the reputation of local government suffers. The public does not really consider this tier of government important.
Raising funds locally
In both countries, attempts were made to strengthen the financial autonomy of municipalities. Instruments to achieve this include local taxes and municipal business activities.
In Tchaourou in 2003, locally generated revenue contributed almost half of the annual budget. However, this high share was also due to the budget’s small total volume. Tchaourou only generated local funds to the tune of ¤ 0.40 per capita. In Nyamagabe, only nine percent of the budget stems from its own revenue, but the comparative figure is ¤ 0.63. In both cases, taxes that were already in place before the devolution programme set in play an important role. These include sales taxes (on the operation of market stalls, for example) and property taxes. Moreover, both municipalities charge fees for licensing procedures.
In many respects, the Rwandan municipality is in a better position. In the East-African country, the municipalities get a share of all state revenues from tourism and commodity exports (such as coffee and tea). In Benin, local authorities do not benefit from the export of cotton, that country’s most important internationally traded product.
Despite diverse opportunities, Benin’s local governments are not engaged in much entrepreneurial activity. In contrast, many Rwandan municipalities are coming up with interesting ideas. Nyamagabe, for example, is planning to build a hotel and lease it to a contractor. The authorities also want to start processing passion fruit.
However, the most significant reason for the Rwandan municipality’s better financial position is the central government’s strong ability to assert itself. Nyamagabe benefits from the fact that existing taxes are not only designed to contribute to funding municipalities, but are actually collected. For instance, owners of two-wheel vehicles pay a “bicycle tax” throughout the country. Similar taxes are officially levied in Benin on the licensing of sewing machines or firearms. However, the collection of these taxes is largely avoided and, if at all, only done in major towns. Many local-government officials are often not even familiar with the respective legislation.
Furthermore, Benin is known for a host of local fees and funding schemes, some of which were created in the context of community development. As an example, local communities bear some 80 % of day-to-day school costs. Accordingly, it is quite difficult for municipalities to impose additional school charges, even though the devolution programme has empowered them to do so.
In principle, the exploitation of natural resources is a promising area for raising more funds locally. Options include taxing the extraction of building materials such as sand and gravel, the production of charcoal or fishing. In Benin, an important industry is the felling of high quality timber, which, however, is for the most part illegal. If Tchaourou could levy taxes wherever trees are cut down on its extended terrain, the corresponding revenue would probably top the list of budget items, even ahead of central-government transfers. Of course, the gap between official law and social practice stands in the way of tapping this potential source of finance.
No doubt, local taxes are a promising opportunity for boosting municipal funds. However, resistance is to be expected. Since those in positions of responsibility in Benin are afraid of upsetting voters, they hardly ever start collecting existing taxes systematically, not to mention levying new ones. Moreover, the introduction of new taxes levied on the people in general would arouse memories of the hated poll tax, which had been levied since colonial times and was only abolished in the mid 1990s. If higher tax revenues are to be achieved in both countries without putting an additional burden on the local communities, which would not be acceptable given rampant poverty in both cases, production in agriculture, manufactures and services will have to increase.
Conclusion
Even though it may seem ironic, decentralisation in Rwanda has been a centre-driven process. In Benin, on the other hand, similar reforms have ground to a halt because of a laissez-faire attitude of both government and donors. Since neither funds nor responsibilities were devolved to the municipalities, their ability to drive the development process remains below potential.
All summed up, the prevailing political culture in Benin is more democratic than in Rwanda, as became evident in local elections recently, when candidates from marginalised groups were elected in several constituencies. If constitutional powers were re-arranged in favour of the municipalities, their legitimacy could prove to be a far more important long-term success factor than the decentralisation process in Rwanda, which, in the end, is based on the directives of President Paul Kagame. There is a danger that Rwanda’s current devolution successes will prove to be just as fragile once his authoritarian rule ends, as were the developmental successes of Juvénal Habyarimanaa’s similarly authoritarian government. Until the late 1980s, donors considered them exemplary.
Dr. Uwe Singer
is a geographer and works in the InWEnt Centre for Economics, Population and Social Statistics. He was previously employed at IMPETUS.
uwe.singer@inwent.org
Dr. Valens Mulindabigwi
is an agricultural scientist at the University of Cologne in the integrative management project for an efficient and sustainable use of fresh water in West-Africa (IMPETUS). His areas of research include farming systems, land management and capacity building. Previously, he worked in these fields in Rwanda.
vmulinda@uni-koeln.de
http://www.impetus.uni-koeln.de/
References:
Bako-Arifari, N.; Doevenspeck, M. & Singer, U. , 2004:
Politique locale et stratégies de mobilisation de ressources financières à l'échelle communale au Bénin. In: Baltissen, G.; Hilhorst, T. (Ed.): Financer la décentralisation rurale: Taxes et impôts à l'échelle locale au Bénin, Burkina Faso et Mali. Bulletin 357. Royal Tropical Institute (KIT). Amsterdam. Pp 16 - 44.
Centre pour l’Environnement et le Développement en Afrique, 2005 :
Les premiers pas des communes au Bénin : Enseignements du processus de la décentralisation. Bulletin 371. Royal Tropical Institute (KIT). Amsterdam.
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