Sub Saharan African (SSA) cities are facing huge challenges with rapid urbanization. To tackle this issue they need to increase and improve the provision of urban infrastructure services. The public sector alone does not have the necessary financial resources to provide basic services to all un-serviced areas. In addition, as many countries in SSA decentralize fiscal and administrative responsibilities to the local level, cities are playing an increasingly important role in the provision of public services such as access to water, solid waste and wastewater management, and electricity connection.
In order to meet the financing challenges posed by these needs, some African countries are attempting to accelerate the development of markets through long-term municipal bonds. Accessing capital markets for financing or partnering with the private sector to deliver services, requires that city governments improve their financial management and demonstrate good governance practices. Improved creditworthiness for municipalities and achieving full cost recovery for local utilities is critical to efforts aimed at improving and expanding urban services to all segments of the population.
Beyond sound financial management, municipal governments and local utilities should also improve their strategic planning to ensure that limited local resources contribute to the city's vision of a better future for its citizens.
PPIAF facilitating investment for the city of Dakar
The city of Dakar is a good example in this effort. In response to the growing demand of its population —1.1 million inhabitants with 21% of the urban population and 10% of total population—, the City of Dakar developed an investment program focused on the rehabilitation and development of basic infrastructure (e.g. transport, lighting) and social services (e.g. health, education).
In 2008, PPIAF funded a diagnostic review of the financial management system for the City of Dakar. The activity utilized the Public Expenditure and Financial Accountability (PEFA) assessment tool- a framework for measuring management performance of local public finance- to review the current state of the city’s financial management and to identify measures to improve the city’s creditworthiness. The PEFA report, "Ville de Dakar, Evaluation de la Gestion des Finances Publiques Municipales, Rapport PEFA sur les Performances" was published on January 30, 2009. The city implemented many of the report’s recommendations and was able to secure a €10 million ($15,827,400) loan from L'Agence Française de Développement (AFD) to support a public lighting program. Since then a series of loans have been obtained to fund specific infrastructure needs such as the Traffic Light System Rehabilitation, the Kermel market and a new central municipal bond market that will benefit the economically active but poor urban vendors. In addition the city of Dakar received its first public investment rating, BBB+, by Bloomfield Investment Corporation in September 2013.
Early in 2014, PPIAF funded a follow up activity to the PEFA study to support the City of Dakar in implementing a global strategy for fiscal revenue-improvement. The activity, supported through PPIAF’s Sub-National Technical Assistance Program (SNTA), analyzed the effectiveness of the current revenue collection process through:
- development of an improved revenue strategy for the management and monitoring of tax revenue from advertising fees and taxes
- an action plan to support the municipal taxation and the implementation of a plan to improve solvency
- an action plan to include performance indicators
- guidelines to improve the legal framework on revenue improvement
- and a workshop on public finance management for senior executives of financial administrations
City of Dakar creditworthiness and bond issuance support
The 2014 PPIAF-SNTA funded activity is taking place at a relevant time for the City of Dakar as it prepares to issue municipal bonds and borrow from the financial market to increase its investment capacities. This objective is aligned with Dakar's plans to issue its first municipal bonds in the relatively near future, with the support of the Gates Foundation. The issued bond will be the first sub-sovereign bond in Sub-Saharan African francophone countries. The bond is aimed to be a West African Economic and Monetary Union (UEMOA) bond (20 billion FCFA in the UEMOA market).
The success of this activity will send a positive signal to donors who promote local government borrowing. Indeed, an improved revenue management in Dakar will be an important condition to access the range of financial instruments offered by AFD (financial intermediation, direct loans to local governments to finance specific investments, and mechanisms to improve local government access to financial markets, among others). An integrated support from various sponsors is being provided to help the city of Dakar achieve it's goal of raising financing to improve municipal services. Technical and financial support is being provided by the AFD, the World Bank Group, Banque ouest-africaine de développement (BOAD), Banque Islamique du Senegal (BIS), ECOBANK, the Bill and Melinda Gates Foundation and the Rockefeller Foundation. There is also cooperation between the City of Marseille and City of Paris with the City of Dakar.
Summary of Results from PPIAF Funded Activities
2008 - Public Expenditure and Financial Accountability Review (PEFA)
The PEFA review was a critical precursor toward several sub-national concessional loans.
The effective implementation of the recommendations along with other donor efforts (AFD, Bill Gates & Rockefeller Foundations), helped the city achieve a good credit score in 2013.
- USD 10 million loan (AFD) for street lighting
- FCFA 1.2 billion (BOAD) for parking
- FCFA 3.6 billion (EcoBank) for a shopping center
- FCFA 2.65 billion from Banque Islamique du Senegal (BIS)
- Good credit rating (BBB+ (NS))
2014 - Revenue Enhancement Strategy
As part of a coordinated program of activities between the city and donors, PPIAF is working with the City of Dakar to develop a plan to improve revenues and build the capacity of local staff through training.
The revenue enhancement program is an integral part of the overall program of activities that will enable the city to access the best possible financing terms for the forthcoming FCFA 20 million bond issuance (December 2014).