Decentralization and Reform in Africa

Decentralization and Reform in Africa

Sylvain H. Boko Wake Forest University

SPRINGER SCIENCE+BUSINESS MEDIA, LLC

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Library of Congress Cataloging-in-Publication Data

A C.I.P. Catalogue record for this book is available from the Library of Congress. ISBN 978-1-4613-5399-7 ISBN 978-1-4615-1111-3 (eBook) DOI 10.1007/978-1-4615-1111-3

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Printed on acid-free paper.

To Tandeka, Kikelola, Semassa, and Olufemi. Thank you for your love and your patience in the course of this project.

And to

The memory of my father, Basile Boko, who died before enjoying the fruits of the seed he sowed. Que fa terre te soit fegere papa.

Table of Contents

List of Tables and Figures Xl

Preface xv Acknowledgements xix

Chapter 1. Decentralization: definitions, theories and debate 1

1. Introduction 2. Types of Decentralization

2.1 Administrative Decentralization 2.2 Political Decentralization 3.3 Fiscal Decentralization 2.4. Economic or Market Decentralization

3. The Theoretical Debate on Decentralization 4. Can Decentralization Destabilize Economic Reform?

Chapter 2. The General Structure of Decentralization in

1 3 4 5 6 8

Mali and Ghana 11

1. Overview 11 2. MALI 12

2.1 The Country at a Glance 12 2.2 The Political Environment 12 2.3 Economic Development 13 2.4 Constitutional Reforms and the

Structure of Decentralization 14 2.5 Structure of Local Representation 14 2.6 Powers and Responsibilities of the

Various Levels of Government 15 2.6.1 The Powers of Community Councils 15 2.6.2 The Power of the Circle Councils 18 2.6.3 The Power of the Regional Assemblies 19 2.6.4 Of the Relationship Between the Central Government

and subnational governments 19 2.6.5 On the Particular Status of Bamako 20

3. GHANA 23 3.1 The Country at a Glance 23 3.2 The Political Context 23 3.3 The Economic Context 24 3.4 The Current Macroeconomic Situation 24

viii

3.5 The Background to the Current Decentralization Process

3.6 Constitutional Refonns and Decentralization 3.7 The Configuration of Local Government and

Governance 3.8 On Local District Finances and the Creation

of a Common Fund 3.9 Of the Influence of Central Government on

Local Affairs

Chapter 3. The General Structure of Decentralization

Contents

25 28

28

29

29

in Burkina Faso and Benin 35

1. BURKINA F ASO 35 1.1 The Country at a Glance 36 1.2 Political Environment and Economic Context 36 1.3 Constitutional Refonn and Decentralization in Burkina

Faso 39 1.4 The Structure of Decentralization in Burkina Faso 39 1.5 Configuration of Local Leadership 40

1.5.1 At the provincial level 40 1.5.2 At the commune level 40 1.5.3 Of the relationship between the

State and local communities 40 1.5.4 On the new responsibilities devolved to

the local level 1.5.5 On cities with particular status

2. BENIN 2.1 A Brief Historical Background 2.2 Current Economic Conditions 2.3 Constitutional Requirements and Decentralization

in Benin 2.4 Decentralization, Deconcentration and

Intergovernmental Relations 2.5 The Configuration of the Decentralized

Sub-national Governments 2.6 On the Particular Status of the Three Largest Cities

Chapter 4. The General Structure of Fiscal Decentralization in Four African Countries

I. General Considerations

41 41 49 49 49

50

50

51 51

57

57

Contents ix

2. Designing a Fiscal Decentralization Program 58 3. The Role and Impact of International Development Aid 60 4. The Structure of Fiscal Decentralization in Mali 64

4.1 Intergovernmental and International Transfers and Decentralization in Mali. 63

5. The Structure of Fiscal Decentralization in Ghana 5.1 Grants-in-aid 66 5.2 Recurrent Expenditure Transfers

(or Personnel Emoluments) 66 5.3 Ceded Revenue 67 5.4 District Assemblies' Common Fund 67

5.4.1 The Common Fund Sharing Formula (as Submitted to Parliament for year 2001-2002) 69

5.4.2 The Estimated Impact of the Common Fund in the Local Districts of Ghana 70

5.4.3 The Common Fund as a Political Instruments for Members of Parliament 71

5.5 On the Fiscal Decentralization Project (Ministry of Finance) in Ghana 72

6. The Structure of Fiscal Decentralization in Burkina Faso 73 6.1 Intergovernmental and International Transfers

and Decentralization in Burkina Faso 75 7 The Structure of Fiscal Decentralization in Benin 75

7.1 Intergovernmental and International Transfers and Decentralization in Benin 76

Chapter 5. Empirical Evidence on Fiscal Decentralization in Four African Countries 79

1. Understanding the Data 79 2. Quality Indicators of Fiscal Decentralization 80 3. The Quantitative Indicators 81

3.1 The Municipal Development Program Methodology 82

3.2 Sub-National Tax Recovery 82 3.3 Sub-National Tax Autonomy 85 3.4 Sources of Local Communities' Revenue 88

3.4.1 A Case Study of Benin 90 3.4.2 A Case Study of Burkina Faso 91 3.4.3 A Case Study of Mali 93 3.4.4 A Case Study of Ghana 93

x

3.5 Local Communities Expenditures 3.5.1 Structure of Local Communities Expenditures

Chapter 6. The Macroeconomic Impacts of Fiscal Decentralization

1. General Considerations 2. Statistical Evidence on Intergovernmental

Coordination Failures 3. Analyzing the Data

3.1 Graphical Analysis 3.2 Regression Analysis

Chapter 7. Conclusions and Recommendations

On the Fiscal Strength of Local Communities 2 Some Suggestions on Improving

Intergovernmental Fiscal Coordination 3 On Local Government Borrowing Capabilities 4. The importance of Associating Local Governments to Central Government Decision-making Process 5. Final Remarks

List of Abbreviations References Index

Contents

94 95

99

99

102 104 104 105

111

III

112 114

115 116

119 121 131

Tables and Figures

2.1 Mali: Key Economic Indicators

2.2 The Structure of the Economy in Mali

2.3 GRana: Key Economic Indicators

2.4 The Structure of the Economy in Ghana

3.1 Burkina Faso: Key Economic Indicators

3.2 The Structure of the Economy in Burkina Faso

3.3 Benin: Key Economic Indicators

3.4 The Structure of the Economy in Benin

5.1 Selected Qualitative Indicators of Fiscal Decentralization

5.2 Fiscal Imbalance in Benin by Community Stratum

6.1 Descriptive Statistics

6.2 Correlations Table

6.3 Impact of Local Government Finance on Central Government Fiscal Positions

Figures

5.1 Average Tax Recovery per Community Stratum in Benin, Mali, and Burkina Faso (1994-1998)

5.2 Comparative Ratios of Subnational Tax Autonomy for Medium Communities in Benin, Burkina Faso, and Mali

5.3 Comparative Ratios of Subnational Tax Autonomy for Medium/Large Communities in Benin, Burkina Faso, and Mali

5.4 Comparative Ratios of Subnational Tax Autonomy for Large Communities in Benin, Burkina Faso, and Mali

xii Tables and Figures

5.5 Comparative Ratios of Subnational Tax Autonomy for Capital Cities in Benin, Burkina Faso, and Mali

5.6 Average Tax Autonomy per Community Stratum in Mali, Burkina Faso, and Benin

5.7 Ghana: Subnational Tax Autonomy per Region

5.8 Ratio of Intergovernmental Transfers to Total Revenue (Sub-national Fiscal Dependence) per Region in Ghana

5.9 Benin Sub-national Revenue Sources in % of Total: 1994-98

5.10 Burkina Faso Sub-national Revenue Sources in % of Total: 1994-98

5.11 Mali Sub-national Revenue Sources in % of Total: 1995-98

5.12 Ghana Sub-national Revenue Sources in % of Total: 1995-99

5.13 Subnational Revenue to Expenditures Rations for Benin, Burkina Faso and Mali: Average 1994-98

5.14 Sub-national Revenue to Expenditures Ratios for Ghana: Average 1995-99

5.15 The Structure of Local Communities Expenditures in Benin, Burkina Faso, and Mali: Average 1994-98

5.16 The Structure of Local Communities Expenditures in Ghana: Average 1995-99

6.1/ 6.2 Scatter Plots (with Regression Lines) of the Relations Between

Central Government Balance, Subnational Spending Share and Subnational Size

6.3/ 6.4 Scatter Plots (with Regression Lines) of the Relations Between

Central Government Balance, Subnational Tax Autonomy and Subnational Fiscal Dependence

Tables and Figures

6.5/ 6.6 Scatter Plots (with Regression Lines) of the Relations Between

Central Government Size, Subnational Spending Share and Subnational Fiscal Size

6.7/ 6.8 Scatter Plots (with Regression Lines) of the Relations Between

Central Government Size, Subnational Tax Autonomy and Subnational Fiscal Dependence

xiii

PREFACE

I woke up at 3:30 on a steamy December morning at my hotel at McCarthy Hill, Accra, to prepare to take the early morning Vanef-STC bus operating on the Accra-Kumasi line. At 4am, the front desk called to inform me that I had requested a 3:45am wake-up time the night before. I figured a IS-minute tardiness is still within acceptable limits in Africa.

Surprisingly, my bus left on time. Though it was filled to capacity (I could only find a seat in the middle row), the ride on "state transport" as it is called, was as smooth as it could be, given the dismal conditions of portions of the Accra-Kumasi road and the very loud local music emanating from the bus' speakers.

As we drove through the lush forests of the Eastern Region, many thoughts crossed my mind regarding the effects of the current economic and democratic reforms (including decentralization) under way in the country, on the average person in Ghana. The bus company that I was patronizing, Vanef-STC, was itself a product of government divestiture from and privatization - an economic decentralization - of the previous State Transport Cooperation. I was informed that the perception by the users of "state transport" is that ever since the take-over by Vanef-STC, the quality of service has declined. This in tum was due to prolonged litigation by workers who felt that they had been wronged in the process of state divestiture.

This book is about understanding decentralization, particularly fiscal decentralization, in a sample of four West African countries. Before delving into the issue of decentralization itself though, it might be helpful to set the stage by explaining the context in which the process began in Africa.

The confluence of three different factors - the legacy of colonialism, the post-independence internal political in-fighting, and the international economic turmoil of the late 1970's and the 1980's - have left most of the African economies in a disarray, and internationally marginalized. The end of the Cold War, and the fall of the Berlin Wall, only served to exacerbate, in some ways, the precarious situation of African economies. For countries that had once held a strategic importance to either side of the Cold War, have lost this supposed advantage that they had hitherto enjoyed. In some countries the pressure of the aforementioned factors, combined with the repressive nature of the civilian or military dictatorial regimes that had taken over power, led to civil wars, and in some cases, the complete disintegration of the fabrics and fibres of society. Such were the cases, for example, of Liberia, Somalia, Sierra Leone, the Democratic Republic of Congo (former Zaire), and, with the added dangerous potency of long-standing ethnic conflicts, Rwanda and Burundi.

xvi Preface

But the end of the Cold War also presented an opportunity for the internal (and sometimes external) forces of change in Africa to begin to affect political reforms across the continent. In Ethiopia, where ethnic conflict, Cold War politics, severe droughts, and a repressive regime drove the country into civil war, and the economy on the brink of collapse, the 1994 constitution strives to reunify the country by accommodating the identity of the ethnic groups through the process of decentralization. Sub­national boundaries and mechanisms for intergovernmental fiscal relations were set up on the basis of ethnicity, language identity and the consent of the people (The World Bank, 2000).

In South Africa, where a long internal struggle, and external pressure, forced the end of the repressive apartheid regime in the early 1990s, a new constitution now recognizes equal rights for all citizens, and a decentralized system has been established, with racially mixed and democratically elected sub-national governments. Also, in 1990, Benin became the first country in Africa to hold a National Conference of the various political factions, and of the representatives of all constituents of the country, paving the way for a democratic and progressively decentralized process to take hold in the country.

Similarly for Mali, Ghana, Senegal, Cote d'Ivoire, Burkina Faso and Uganda, decentralization and reform have become integral parts of the general liberalization process underway in each country. The devolution to local sub-national authorities, of the power to determine how best to use local and regional resources, was seen as a way to respond to the needs and aspirations for self-determination and self-governance of the local populations.

African countries are still, relatively speaking, at the early stages of decentralization. In France for example, it can be argued that the decentralization process began with the 1789 revolution, yet the final reform elements were not put into place until the 1980's. But Africa cannot afford to wait that long to experience the gains of reform. There is an urgent need for a more effective reorganization of the economic structures (set within the context of reformed and democratized political systems) of African countries. The need for a more efficient utilization of the continent's resources in order to foster faster economic growth, provide employment for the millions of unemployed or underemployed populations, and to raise their standards of living is pressing. Therefore, a rigorous examination of the reform process in each country is called for, as this will contribute to an effective implementation. It is also imperative, as countries embark on the path of liberalization and decentralization, that they charter a course that will likely lead to a more effective blend of macroeconomic stabilization and microeconomic reform policies.

Preface xvii

This book attempts to undertake such examination. It is the result of field research conducted in four countries: Benin, Burkina Faso, Ghana and Mali. The countries are selected on the basis of similarities and differences in their recent history, systems of reforms, colonial legacy, as well as their geographical proximity. All four countries are located in West Africa, and have been ruled by military dictatorial regimes in the post-colonial era, but have undertaken sustained democratic reforms, including multipartite elections, within the last decade. Local governance has been attempted several times in Anglophone Ghana since the Municipal Ordinance of 1859, but it is a relatively recent phenomenon in the remaining three countries, which had inherited the highly centralized French administrative style upon independence. There are differences in the manner in which decentralization is being implemented in each country also. For example, Ghana has drawn upon its past experiences in setting, within the constitution itself, clearly defined roles for each level of government and the mechanism regulating intergovernmental relations. In contrast, in each of the remaining countries, a few articles in the constitution are devoted to the principle of decentralization, and it is left up to the legislature to pass the laws needed to implement the various aspects of the reforms. Further, while Mali, Benin, and Ghana opted for a one-time countrywide implementation, Burkina Faso took a step-by-step approach, gradually devolving powers to a few selected regions at a time.

The specific aim of the book is to examine the relationship between fiscal decentralization and subnational resource capacity on the one hand, and between fiscal decentralization and macroeconomic stability on the other. The results of this study are expected to serve as a benchmark for more expanded studies on the topic in the future.

The book is aimed at professors and students of Development Economics, development practitioners and policy-makers, both in Western countries and in Africa, but should also be accessible to any interested reader. Its focus on the fiscal and economic consequences of policy reform at the community level in Africa is a refreshing addition to the literature.

The book's layout is as follows. Chapter one begins by explaining the various types of decentralization, and discusses the theoretical debate surrounding decentralization. Chapters two and three present an overview of the general structure of the reform in each of the four case studies. Chapter four focuses on the examination of the general structure of fiscal decentralization in each country, while chapter five focuses on the measuring issues in fiscal decentralization and presents empirical evidence for each case study. Chapter six addresses the issue of the relationship between decentralization and macroeconomic stabilization for the four case studies. Final remarks and recommendations are set forth in chapter seven.

ACKNOWLEDGEMENTS

This project was completed with financial support from the National Science Foundation, and Wake Forest University. I am indebted to both institutions. I specifically thank Dr. Greg Price of the NSF, and Drs. Paul Escott and Gordon Melson, respectively, Deans of the College, and of the Graduate School at Wake Forest University, for their support. I extend my appreciation to Drs. Edward Opoku-Dapaah, Jonathan Mandelbaum, and Allen Mandelbaum for their advice at various stages of this project, and to Dr. A.B. Assensoh for enthusiastically providing me with contacts in Ghana that were instrumental to my field research there. I am eternally grateful to Ann Akey and the Kosek family for giving me a chance so many years ago.

I am thankful and appreciative to all those who assisted me in my field research, specifically, Boubacar Diallo, Aristide De Ballamoro Sidibe, and Halima Cisse, in Mali; Mr. Kwabena Yamoah-Sefa (Ghanaian Ministry of Finance,) and Sam Assensoh, a University of Ghana student; Micah Boyer, and Fran~ois Pallo, in Burkina Faso; and Antonine Rose Bibi in Benin.

Thanks to the decentralization commissions and institutions in each country, including the Commission Nationale de la Decentralisation in Burkina Faso; the Direction Nationale des Collectivites Territoriales, Agence Nationale d'lnvestissement des Collectivites Territoriales, Association des Municipalites du Mali, and the National Treasury in Mali; the Mission de la Decentralisation, and Maison des Collectivites Locales in Benin; the Fiscal Decentralization Project Group (of the Ghanaian Ministries of Finance and of Local Governments.); and the Municipal Development Program staff in Benin. Mr. Idrissa Dicko of The Hunger Project facilitated my visit with the Association Manegre in the village of Zincko in Burkina Faso. I received extensive support from the Wake Forest Economics Department Administrative Assistant, Laura Covington, and my student, Rosita Najmi. Mrs. Dee McCullough proofread the manuscript (all remaining errors are mine.) Julie A. Robison, Eileen Reynolds, Becky S. Gadell (all of the Research Triangle Institute, North Carolina,) Pierre Palo, and Berthe Ilboudo, all provided me with excellent contacts in the field.

Of course this book is really about all the local communities that I was fortunate enough to encounter in each country. You have taught me a lot. Thank you.