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Friday, 11 July 2014

Fiscal Decentralisation in Zambia

Editor's note: the article below is from  the recent Parliamentary Committee on Estimates report (July 2014) which covers wide range of areas. We have extracted the article on fiscal decentralisation for ease of access. Some minor edits have been made for ease of reading. 
The revised Decentralisation Policy was launched by His Excellency the President, Mr Michael Chilufya Sata on 16th June, 2013. Fiscal Decentralisation is part of the broader framework of the revised Decentralisation Policy. It entails the devolution of some budgetary powers to the local authorities.

The quick research by the Committee revealed that the Governments of Kenya and South Africa have been implementing fiscal decentralisation. The achievements made as a result of the implementation of the policy in the two countries and indeed various literature, point to the fact that fiscal decentralisation enhanced the knowledge of local needs and preferences,which were specific to a locality, thereby, providing effective targeting of public services. Inaddition, it enhanced political and financial accountability as a result of greater citizens’ participation, ownership and influence.

In light of this, the Committee resolved to study the implementation of fiscal decentralisation in Zambia. The objectives of the study were to:

a) establish the status of the implementation of fiscal decentralisation;
b) ascertain the capacity of local authorities to fully implement fiscal decentralisation;
c) establish the challenges of the implementation of fiscal decentralisation; and
d) make recommendations on the way forward.

In order to appreciate this subject fully, the Committee interacted with the Permanent Secretaries from the Ministries of Finance; Local Government and Housing; Health; Education, Science, Vocational Training and Early Education; and Youth and Sport. Others were the Permanent Secretaries from Eastern; and North Western Provinces including the Chief Executive of the Zambia Institute for Policy Analysis and Research (ZIPAR). In addition, your Committee interacted with civil society organisations, namely: the Civil Society for Poverty Reduction (CSPR); Caritas Zambia; Jesuit Centre for Theological Reflection (JCTR); and the Economics Association of Zambia (EAZ).  The findings of the Committee are summarised hereunder.

Status of Fiscal Decentralisation in Zambia

The Committee learnt that over the last three decades, local authorities in Zambia had undergone significant erosion of financial capacity, such that today their revenue sources were inadequate to enable effective delivery of their mandated services. This decline in the councils’ revenue generation capacity was mainly attributed to past central government’s decisions or actions. 

During the period 1991 to 2001, various central government policies and pieces of legislation were passed that either reduced the revenue base or imposed additional expenditure on the councils without corresponding measures to compensate for the revenue loss. These actions included the following:

a) the complete withdrawal of the Government grants to councils announced in the 1992 National Budget speech;
b) the 1993 transfer of motor vehicle licensing functions from councils to the Road Traffic Commission (RTC) while the responsibility to maintain the roads remained with thecouncils;
c) the presidential directive for sale of council and parastatal housing units to sitting tenants in 1996 at below market prices;
d) the enactment of the Rating Act No. 12 of 1997 which increased the categories of properties exempt from paying rates. Although this decision was reversed in 1999, councils had already lost substantial income;
e) the transfer of water supply and sanitation undertakings from councils to commercial utilities through the application of the Statutory Instrument No. 55 of 2000, without transfer of related liabilities; and
f) the granting of back-dated 50 per cent salary increments to unionized council employees before the 2001 elections without providing the required financial resources to cover for the increments.

In order to ameliorate the challenge of the reduced revenue sources, the Committee was informed that the Government’s focus in the medium-term was to empower all local authorities with adequate financial resources to facilitate the effective execution of their existing functions and those earmarked for devolution.

Challenges facing the effective implementation of fiscal decentralisation in Zambia

The Committee was informed that there were several challenges affecting the effective implementation of fiscal decentralisation in Zambia. Some of these are highlighted include:

a) Inadequate financial resources for delivery of public services at the local level.
b) Limited human resource capacities among council staff.
c) Breakdown of structural and operational systems in local authorities.
d) Inadequate budgetary allocations by the Central Government.
e) Lack of political will to effectively implement decentralization.
f) Conflicting and duplicated administrative structures at the district level: the locally elected councils headed by Mayors; sector ministries’ district officials such as health and agriculture headed by the District Commissioners.
g) Removal of critical sources of revenue such as rates, crop levy, selling of council housing stock and vehicle licensing that crippled their capacity to provide public services in their respective jurisdictions.
h) The implementation of the Local Government Service Commission (LGSC) which has led to recruitment of staff in the councils with inadequate skills.

Public Hearings

In line with its terms of reference, tge Committee resolved to undertake public hearings in Chipata, Mongu and Solwezi on Zambia’s implementation of fiscal decentralisation. The objectives of the public hearings were for the Committee to:

a. appreciate the views of the people in the districts concerning the implementation of fiscal decentralisation;
b. appreciate whether councils were ready for the full implementation of fiscal decentralisation; and
c. appreciate the challenges facing local authorities in implementing fiscal decentralisation.

i. Scope of the study

The sample size of councils was small covering only three districts, namely; Chipata, Mongu and Solwezi. The total number of people who attended the hearing in Chipata was 103, while Mongu had 101 and Solwezi 53. Nonetheless, the Committee took advantage of the presence and goodwill of community radio stations in Chipata to announce and arrange for radio programmes in which people from other districts in the province were able to make contributions by phoning in. As result, the  Committee received meaningful contributions from neighbouring districts which were within the catchment area such as Sinda, Petauke, Katete and Lundazi districts. Regrettably, your Committee was not able to make similar arrangements in Solwezi and Mongu because of logistical and other challenges.

ii. Findings of the Committee arising from the Public hearing

The following were findings arising from the public hearings:

a) participants in all the districts studied generally demonstrated a fairly good understanding of the meaning of fiscal decentralisation as the ceding of some budgetary (fiscal) power from central government to local authorities. However, a few participants confused fiscal decentralisation with the broader framework of decentralisation;

b) whereas some participants in Mongu and Chipata were of the view that there is adequate human resource capacity in the districts needed to undertake fiscal decentralisation, participants in Solwezi had a contrary view;

c) participants in Solwezi submitted that while the District has huge mineral deposits and high tourism potential creating potential for local taxes, the Council was not ready for fiscal decentralisation;

d) submissions from all the Districts highlighted the fact that there were adequate natural resources in these areas which had the potential of broadening the revenue base;

e) participants in Chipata submitted that the District had a favourable weather pattern and good soils suitable for growing crops such as maize, tobacco and groundnuts creating potential for local taxes. In addition, the increasing business activities in the District were potential sources of high revenue collection;

f) submissions in Mongu revealed that the District had fertile plains which were suitable for growing rice. The area was also conducive for activities such as production of timber, mangoes and cashew creating potential for local taxes. In addition, the area had potential for tourism activities. These and more activities were potential sources of revenue for the local authorities;

g) participants submitted that fiscal decentralisation would require maintaining a balance between the existing roles of traditional leaders and that of the councils;

h) the presence of huge mineral deposits had potential of making Solwezi one of the richest districts in Zambia if properly managed;

i) most of the participants were concerned that the Local Government Service Commission was not performing to the people’s expectations in the recruitment and placement of personnel as most of the newly recruited staff were either not qualified or did not have the right skills and experience;

j) all submissions confirmed the existence of budgetary consultative structures of the Provincial Development Coordinating Committee (PDCC); District Development Coordinating Committees (DDCC) and Area Development Committees (ADC) in the districts. However, they bemoaned the absence of a legal framework to formalise these structures; and

k) there was high political interference in operations of the Councils. Some of the Councils lamented that progressive decisions and strategies, such as the imposition of crop levy, meant to broaden the revenue base, were reversed by the political leadership. 

Committee’s Observations and Recommendations

After carefully studying the submissions from various stakeholders and conducting public hearings in the selected Districts, the Committee notes that considerable progress has been made towards the implementation of fiscal decentralisation in Zambia. However, it is of the view that more needs to be done for the Country to get the full benefits of the implementation of fiscal decentralisation. In light of the above, your Committee makes the following  observations and recommendations:

i. Limited revenue base

The Committee observes that one of the major challenges facing councils is limited revenue bases. This is despite most of the councils being endowed with many natural resources which have the potential for local taxation. The low revenue base can, in part, be attributed to lack of progressive strategies to tap in the apparent potential such as the exclusion from paying rates of properties, particularly the newly constructed structures. 

The Committee notes that one of the reasons for the failure by the councils to capitalise on the booming construction industry centers around challenges associated with the implementation of the Ratings Act.

In light of the above, the Committee urges the Government, through the Ministry of Local Government and Housing to, ensure that councils become proactive in coming up with progressive strategies for broadening the revenue bases.  In addition, the Committee urges the Government to present the Ratings Act to Parliament for amendment in order to facilitate regular property valuation.

ii. Political interference

The Committee observes that in some situations where councils have devised progressive strategies to broaden the revenue base, such decisions have been overruled by the political leadership. This observation is derived from submissions by the local authorities the Committee interacted with. These actions undermine the spirit of fiscal decentralisation and adversely affect the revenue of councils.

The Committee, therefore, recommends that the Government through the political leadership should desist from interfering with the operations of councils.

iii. Capacity building

The Committee observes that there is a serious skills gap in most of the councils in Zambia. This is based on submissions by various stakeholders who appeared before the Committee which has adverse implications on the effective implementation of fiscal decentralisation. The Committee is particularly concerned about the shortage of key skills such as artisans and engineers needed in the implementation of fiscal decentralisation.

In this regard, the Committee recommends that the Government should come up with a robust programme of skills development and strengthen Chalimbana University in providing tailored training so as to narrow down the current skills gap in the councils.

iv. Political will

The Committee observes that the implementation of fiscal decentralisation in Zambia has taken longer than is necessary. This can be attributed, in part, to the lack of political will from decision makers and resistance from some sections of society.

The Committee, therefore, recommends that the Government should demonstrate political will by driving the process forward and increasing the allocation of resources to the process.

v. Increase resource allocation

The Committee observes that the implementation of fiscal decentralisation requires sufficient resources in order to move the decentralisation process forward. It, therefore, recommends that the Government should increase the resource allocation to the process of fiscal decentralisation for it to achieve the desired results.

vi. Indicators for Fiscal Decentralisation

The Committee bemoans the absence of indicators to monitor the progress of the operationalisation of fiscal decentralisation which should be at the centre of the core activities of the Decentralisation Secretariat. It is of the view that the lack of indicators impedes the effective monitoring and evaluation of the programme.

In light of the above, the Committee recommends that the Government should develop monitoring indicators for tracking progress of the decentralisation process in general, and fiscal decentralisation in particular.

vii. Review of the institutional framework

The Committee observes that locating the Decentralisation Secretariat in the Ministry of Local Government and Housing does not give it the clout necessary to move the process forward.

The Committee recommends that the Government should seriously review the institutional framework for the implementation of the decentralisation policy with a view to ensuring that the Secretariat is enabled to better support the drivers of the reform.

viii. Local Government Service Commission

The Committee is seriously concerned about the apparent poor recruitment of staff and placement of skills in local authorities by the Local Government Service Commission (LGSC). It notes that the performance of newly recruited staff through the LGSC has not been satisfactory because most of them have inappropriate skills or are not qualified at all.

This raises concern as to the credibility of the selection process and the role of the LGSC, generally. Furthermore, your Committee is concerned about the general laissez-faire attitude of these officers towards work.

The Committee urges the Government to seriously consider reviewing the role of the Local Government Commission in the process of employing local authority workers. 

ix. Dismantling of local authorities’ debt

The Committee observes that most of the councils are heavily indebted through non- remittance of statutory obligations to the Zambia Revenue Authority (ZRA), National Pensions Scheme Authority (NAPSA) and the Local Authority Superannuation Fund (LASF) including huge arrears owed to various utility companies and suppliers of goods and services. The debt has negative implications on the effective implementation of fiscal decentralisation.

In light of the above, the Committee recommends that the Government should make adequate budgetary provision towards the dismantling of arrears and settling of debts owed by the councils. The dismantling of debt will give enough fiscal space to the councils to implement key programmes of infrastructure development and provision of necessary services.

x. Streamline the role of traditional leaders

The Committee’s interaction with the members of the public during the public hearings revealed a potential conflict in the roles of traditional leaders and local authorities in the implementation of fiscal decentralisation. If not adequately addressed, this is a source of worry as in some districts, traditional authorities are involved in the running of and collection of levies from the markets.

Although this problem may not be generalised to all the districts, the Committee recommends that the Government should ensure that the policy addresses it by clearly stipulating the role of local authorities and that of traditional leaders in the decentralisation process.

xi. Harmonise the roles of the Office of District Commissioner (DC) and the Councillors

The Committee observes that fiscal decentralisation will empower local authorities by giving them more budgetary powers which have hitherto been functions of Central Government. It is of the view that the Office of the District Commissioner (DC) may not be relevant at District level with the implementation of fiscal decentralisation.

In this regard, the Committee recommends that activities which are currently being undertaken by the Office of the DC should progressively be transferred to local authorities as a way of preparing them for the full implementation of fiscal decentralisation.

1 comment:

  1. In my view the Local Government Service Commission has lived up to its expectation in terms of recruitment of appropriate staff in councils. Majority of staff recruited in councils are graduates and the recruitment process is transparent.We must give these young lads chance to adapt and experience will naturally creep in. Reverting to the old system where the councils recruit on their own will just encourage corruption.


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