Municipal Contracts as Aid Modality. VNG International Rolf Swart June 9, 2010

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2 Municipal Contracts as Aid Modality VNG International Rolf Swart June 9, 2010

3 Context of Municipal Contracts Challenges for Local Governments Rapid urbanization in developing countries and increasing demand for municipal investments in infrastructure and services Trends in decentralization Imbalances between responsibilities and available funds Poor financial situation and weak technical capacities at local level Efforts to increase local revenue base Trend towards Performance Based Approaches (PBA) Aid effectiveness debate Involve LG in national policy dialogue (micro-macro gaps) Apply Paris AE-principles at local level (ownership, alignment, harmonization, MfDR, mutual accountability)

4 Municipal contract A Municipal Contract is a performance based agreement between central government and individual municipalities. Origine in Europe; often focussing on regional development (e.g. Contrat Plan Etat Region) Since 1995 also applied in Sub Sahara Africa, mainly piloted and implemented by WB and AFD

5 Municipal Contracting approach defined A consensual and binding, results-based agreement between a municipality and the central government for a 4-5 year period, including: 1. Priority Investment Plan (PIP) Investments 2. Municipal Maintenance Plan (MMP) Maintenance 3. Municipal Adjustment Program (MAP) Org & Fin. Reform Donor funds (loans) are channeled to CG Funding to municipalities by CG on the basis of the MC MCs can be signed by LG on a voluntary basis but are conditional on acceptation of the reform component (MAP) and approval by municipal assemblies

6 Objectives of Municipal Contracts Increased investments in municipal infrastructure and services through improved municipal governance and (urban, financial and organizational) management A rational selection of priority investment projects through extensive urban, financial and organizational audits A stronger accountability relation between central government and local government and between the municipality and its citizens A greater responsibility of local governments in the prioritization, implementation and (self-)financing of projects by putting its role on a contractual footing

7 Municipal contract process Urban audit Financial audit Organisational Audit Diagnosis of the municipality Strategy of the municipality Urban Strategy Financial Strategy Organizational Strategy Municipal Contract CG LGs Priority Investments and Maintenance Municipal Adjustment Plan Reciprocal commitments Finance & Implementation

8 Municipal Contracts: Some facts and figures MC projects in 15 countries involving nearly 170 municipalities, investments worth USD 800 million (of which 90% physical investments) Main active donors: WB (IDA) and AFD (concessional loans), incidental KfW/GTZ, other bilateral donors (Cida, AfDB, Ndf) Reform component (through capacity building) important component of project costs (8-10%), VNG-I currently provides TA in Ghana and Cameroon

9 Municipal Contracts in Sub-Saharan Africa Country Donors Period Funding Municipalities Senegal (1) WB, AFD USD 110m 67 Senegal (2) WB, AFD USD 157 m 67 + Dakar Mali WB, AFD, Cida, KfW USD 154 m 9 Guinea (1) WB USD 19,5 6 Guinea (2) WB USD 16 m 8 Ghana AFD EUR 40 m 4 (excl. Accra) Niger WB, AFD, others USD 28 m 9 Burkina Faso WB USD 10,4 m 6 Benin WB USD Rwanda WB, NDF USD 27,3 6

10 Results Results with MC projects are mixed Positive: Senegal, Niger and Guinea Negative: Mali MCs have shown to be an effective and accepted instrument to improve the performance of local governments Financial capacity and investments in municipal infrastructure and services increased Increases in local resource mobilization (local tax reforms) More attention (and financial means) for maintenance Increased focus on urban economic development Impact on institutional reform and capacity building varies Effects on local accountability not clear MC provides a common platform for other donors to invest

11 Success factors (or failure), 1/2 Timing and political commitment Ownership (central and local level, e.g. through co-funding) Harmonization, coordination and mutual trust between donors Urban and local development policies (decentralization) (Performance based) incentive structures Quality of urban and local government policies and coordination of projects/donors at central and local level Alignment with national AND local legislation, policies and budgets Participatory process at local level (domestic accountability) Continuity and donor predictability Equity

12 Success factors (or failure), 2/2 Quality of the MC process itself (including TA) Understanding of the concept of MC among donors and beneficiaries Audits and project materials (manuals, training) Clear rules of the game (incl. the MC) Monitoring of the MC Capacity building of local governments for achieving sustainable results Urban planning, municipal financial management / local resource mobilization, organizational management

13 Conclusion MCs are an innovative, increasingly popular and relatively successful aid modality for strengthening of local governments but its success strongly depends on: Quality of the MC process (including capacity building) Context in which MCs are signed: in particular political and institutional environment, ownership (central and local governments), donor behavior in the areas of harmonization, coordination and alignment