Fiscal decentralization & local governance

Among the socio-economic changes that have featured on the continent over the past four decades, the accelerated pace of urbanization (with a growth rate of about 3.5%) due to exponential growth of the urban population is one of the most significant. This rapid urbanization offers both opportunities and challenges.  As a positive consequence of this accelerated urbanization, the urban areas are now playing a pivotal role in African economies, with an ever-growing contribution to the Gross Domestic Product (GDP) ranging between 50% and 80% in most countries. However, with this galloping urbanization, the scale and complexity of urban problems are intensifying and the high population density in large capital cities and semi-urban areas has led to an increasing number of Africans living in squalid and poverty stricken areas in many African cities.

Concomitant with this urban phenomenon, including its opportunities and challenges, decentralization has reemerged since the 1990s as a valued political and economic goal in most of African countries. Advocates of decentralization, including the AfDB, justify this focus on grounds of increased efficiency, more thoroughgoing equity, and/or greater participation and responsiveness of government to the demands of their citizens.  The decentralization process in most African countries has made it possible to establish municipalities with democratically elected organs, which brings public administration closer to the citizens and facilitates participation in the development of localities.  Decentralization has now become a governance strategy to facilitate the transfer of power and resources to those who are most affected by the exercise of power.

The Bank’s support of decentralization and urban governance will increase during the 2008-2011 period with the approval of its Governance Strategic Directions and Action Plan for 2008-2012 and the Urban Strategy Approach Paper. Both strategic documents tailor its financing instruments to the challenges and opportunities of African urban governance and development. 

In line with its core strategic orientations, the Bank Group will use governance improvement at central government and local levels to promote transparency and accountability in the management of public resources. In particular, the Bank will lay emphasis on the following:

• Supporting fiscal decentralization reform processes likely to result in fair distribution of resources to all levels of government and ensure municipal access to resources commensurate with newly transferred responsibilities;
• Providing assistance to municipalities facilitating the improvement of their revenue collection systems. Such assistance may, among other things, include the assessment of the tax asset and updating rosters of tax payers, so as to reduce the level of unpaid taxes;
• Promoting a culture of transparency and supporting central and local authorities in their efforts to establish anti-corruption strategies and systems;
• Providing support aimed at improving the municipal financial and administrative management systems; and
• Building the capacity of local authorities to manage public-private partnerships schemes, especially in the delivery of basic services. 

The Bank will adopt a long-term perspective on its urban governance and institution building interventions with a strong focus on the demand-side of greater government accountability to citizens. Improving urban governance and reducing urban corruption will require stronger collective action. The Bank will therefore work strategically with a variety of stakeholders.  Partnerships with academia, think-tanks, parliaments, NGOs/CSOs, the media and the private sector will generate strong demand for governance reforms and send consistent signals to governments of the Bank’s regional member countries on the importance of good urban government.