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Monday, 14 March 2011

Constitution of Zambia (Amendment) Bill 2010 : Part IX

Funds for District Council 

Part IX, Article 173 states:
(1) There shall be established a Local Government Equalisation Fund.
(2) Parliament shall, annually, appropriate a percentage of the total annual revenues of the Republic, as may be determined by the Minister responsible for finance, to the Local Government Equalisation Fund for the sustenance, development and administration of the communities in a district.
(3) The revenue referred to in clause (2) shall be in addition to revenues raised by a district council and retained by it.
(4) The Government may provide additional funds and grants beyond what is provided under clause (2) to a district council, conditionally or unconditionally.
This provision seeks to fiscally decentralise revenues with some central government money going into a pot for local councils. The idea is to guarantee a certain proportion of funding. I will leave aside the relevant question on whether this should be in the constitution and accept that is bound to be there. The question therefore is whether it raises more problems than it solves. A few problems are easily discerned. 

It has no specific clarity on what it is intended to do. There's no specific purpose for why we should have the fund other than that it is intended for local councils in addition to their revenues. This may sound like splitting hairs, but actually it becomes crucial once we recognise that the idea of an "equalisation fund" is borrowed from the Kenya constitution, where it was intended as a pot of funds for "equalising" differences between marginal or lagging areas with thriving areas. Now it might be that our intended pot does the same, but it would be good if it was made clear. 

It is missing appropriate specificity. It is right that Parliament  ultimately determine the proportion of funding that goes to local areas, but it would be good if a minimum floor was set. This is particularly important because it is feasible that the Executive may choose to have a percentage of funds closer to zero. Here again we see that the Kenyan experience is useful. In the draft Kenya Constitution atleast 15% of revenues go to county areas. The Kenyan Equilisation Fund (which targets marginal areas) has a guarantee of around 0.5%.   The general point therefore is that the current Zambian draft is too broad to mean anything. 

It is unclear how it relates to Constituency Development Funds (CDFs). The idea behind the CDF is to empower local communities by providing a pot of funding for health, education and other initiatives. Although some great projects have actually been accomplished through it, in practice, it is more of a politcal tool at election time. Earlier this year, government set the CDF at 720m for the year 2011. Local Government and Housing Minister Brian Chituwo said at the time "this is because the fund has been appreciated by people at constituency level". This in spite of huge international criticism of the flaws of CDFs. If we are going to have Local Government Equilisation Fund, we should atleast ensure that there's no multiplicity in the types of resources going to the districts. Multiple sources makes it difficult to audit local spending and hold leaders accountable. The CDF in fact is a good example of how local resources are wasted through corruption and other bane. What is to say this new fund wont suffer the same fate?

It ignores wider evidence on what makes fiscal decentralisation work. And here there's a lot we can say. A key tenet of effective fiscal decentralisation is that it must realign local incentives. It should ensure that resources are spent efficiently to improve local performance.  Empirical evidence appear to show that the road from fiscal decentralisation to superior economic performance is actually not straightforward. In particular fiscal decentralisation which simply transfers revenues (as proposed) does not deliver growth unless it also comes with some "local tax" raising powers - or rather if the district councils raise what they spend. In other words what is important is not so much giving councils additional money, but ensure that they spend all the money they tax - and indeed are given local taxing powers.

The problem with that solution, is that is it leaves the local system open to exploitation by "local elites", or other corrupt entities, unless fiscal decentralisation is accompanied with changes to local "power structures" that fosters accountability. But how do we ensure local councils and local citizens hold each other mutually accountable in delivering development? What we all want are councils that do much more than welcoming political leaders to their areas and bask in election glories. We want district councils like those in Rio, London, and New York, which deliver effective policing, transportation and increased local economic growth. But how do we ensure they are pursuing these objectives? 

The key is having a leadership that is accountable to the people. You can devolve all the revenue to the local areas and ensure that they should spend what they raise, but that will not a make a difference with poor and unresponsive local leadership. In order to bring about local accountability it is vital that we have a new institutional realignment that incentivises better and more credible local leaders to emerge and puts people at the heart of decision making. There three important areas that could form part of a key institutional architecture.

First, we need to institutionalise the system of local government that diminishes the role of local leaders as rent seekers. Currently many of our local leaders govern purely to enlarge their pockets. Until we introduce processes that prevents them from doing so we wont see meaningful local development.

Secondly, we need to strive to develop local systems that are able to kick out incompetent and shallow leaders. This calls for contestable local electoral arrangements. Present local leaders are just the same recycled politicians who change ship whenever the political wind changes course. Yet our people have not been able to kick them out. Until the electoral system is more contestable and leaders can be hired and fired easily, corruption and malpractice will continue unabated. The proposed mixed representation system may help in this regard.

Finally, direct people engagement is vital. World wide we have seen that local authorities which have truly allowed participation from local citizens beyond simple voting of councillors, tend to generate greater and more locally focused development. They tend to meet the immediate needs of the local people in an extraordinary way. Real responsibility entails the local citizens truly being involved in important decision making beyond simple local elections of councillors or mayors. A good model is one adopted in much of Brazil and is now being promoted by UN Habitat, called "Participatory Budgeting". To quote Ubitratan de Souza, the man responsible for the invention, Participatory budgeting is "a process of direct, voluntary and universal democracy, where people can debate and decide on public budgets and policy". In short local citizens' participation is not limited to the act of voting to elect local councillors, but citizens also decides on spending priorities and management of the local councils.

The beauty of such a mechanism is that it improves the transparency of local administration and efficiency in local expenditures. It demands increased accountability of local leaders and managers, through the encouragement of local people to participate in decision making and oversight the use of public funds. In short it makes the local council accountable in a new and innovative way, and as a byproduct, it creates a democratic culture within the community and strengths the social fabric.

We have seen that in Latin America, participatory budgeting has helped re-order social priorities and promote social justice. Local citizens go from being simple observers to protagonists in public administration. They become full, active, critical and demanding participants. The same thing can happen in Zambia, Participatory Budgeting can give local citizens in the poorest parts of our country better opportunities for access to works and services like sanitation, street paving, transportation improvements, and health and educational centres. By participating in the budgeting process, the local people would define their priorities, and in doing so have the chance to significantly improve their quality of life, in a relative short time frame. In addition, they have the possibility to control and monitor the execution of the budget.

Participatory Budgeting goes beyond simple consultation, it would give local Zambians real power to decide how much to spend in their local areas. It would move the idea of development from the centre of government to rural areas. The constitution should focus on how to shift the power to local citizens in a real and vivid way, by giving them a greater say on how money is spent. Give them a seats on the tables of our councils down the land. That of course is fraught with political and cultural challenges, not to mention informational ones. It also needs efficient local legal systems for holding such leaders accountable should they steal. Which is a huge problem at the moment.  But all of this points to the deficiency of simply creating a local equalisation fund without much broader debate on what sort of local leadership and budgetary mechanism we need for development. 

Zambian Economist is currently reviewing the Constitution of Zambia (Amendment) Bill 2010. All posts in this ongoing review can be found at the Constitution of Zambia page.


  1. Cho,

    Excellent analysis, and something we have talked about for a long is turning up in the new Constitution, which is the best thing I have heard about it so far.

    The problem has always been that no matter how many delegates there were at the NCC, the heavy hand of Rupiah Banda/George Kunda was always present.

    We all know how reluctant central government (in this case) is to give up real power.

  2. Beware the District Councils with pots of money lying amidst the customary commons. No. Think again.

  3. Chosanganga,

    Please explain.


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