Success Story: Working with Municipalities to Strengthen their Capability

Sustainable Urban Economic Development Programme

Working with Municipalities to Strengthen their Capability to Implement their Mandated Functions

Figure 1: The Mandera County and Municipal team discussing various ways in which they can enhance their revenue and improve their municipal financial management during SUED’s supported Financial Management and Revenue Enhancement (FMRE) Training. .

Urban areas are the catalyst for economic growth in developing countries. In them lies the solution to responsive local economic development. In developing countries such as Kenya, new urban centers are emerging as a response to the growing population. Areas that were previously townships are under pressure to accommodate the increased urban growth rate. In Kenya, recent past urbanisation has mainly been driven by devolution that has increased the urban rural migration as a result of the annexation of major cities which birthed county headquarters that have driven the increase in infrastructure and resource spread. Urbanisation rates within the country have been much faster within particular localities signaling the need to shift the focus from the historically primary urban areas in the country to smaller emerging urban areas. This shift can only be necessitated by good governance that is based on the

capacity of the leaders to manage their urban centers in a way that is inclusive, transparent, and sustainable.

One of the most and important ways in which urban centres’ managers can fully realise the vision of decentralisation in Kenya is by having both human and financial resources, and fiscal autonomy.

Municipal financing remains the largest impediment to meeting the demands for infrastructure and services in urban areas in Kenya. While efforts have been made to build the capacity of emerging urban centers (secondary/intermediary cities or municipalities) managers at local level, the devolvement of powers and functions has been slow paced which has greatly limited their ability to operate locally and manage revenue generating procedures to fund their urban centers.

To promote local economic development that is driven towards sustained economic growth, which is owned by local stakeholders, the UK Government through its Sustainable Urban Economic Development Programme (SUED) has provided a multi-faceted training on Financial Management and Revenue Enhancement (FMRE) to over 200 county/municipal local leaders and staff members. These participants were drawn from SUED’s supported municipalities1.

In its implementation, SUED had worked closely with the municipalities to help them respond to their increased delegated roles that have limited local revenue. This has been through the development of a municipality specific Urban Economic Plan (UEP)2 that has helped define the economic visioning of the municipality. In doing so, the municipality and county leadership are aware of what they should prioritise with regards to financing as well as harnessing opportunities to draw in investment for value chain and climate-resilient infrastructure. By ensuring that the municipalities have in place a development-oriented vision SUED has helped them accurately identify the roles that they need transferred to be able to effectively manage their urban centers. Further, the UEP has helped them identify the opportunities that they can utilise to increase their own source revenue to self-fund their prioritised economic development projects as well as see how best to work with the private sector to advance the municipality economic vision.

“The process of developing the UEPs was quite elaborate and participatory, it helped us see what sectors need to be prioritised and how we could ensure that we were advancing economically. SUED’s training on financial management and revenue enhancement helped bring to life how we could do that practically.” Hassannoor Abdullahi Mandera Municipality.

The FMRE training helped the municipalities to strengthen their capability to effectively manage planning, budgeting, procurement, contract management and revenue enhancement processes. By providing an all-encompassing training that provided pragmatic knowledge on how they could work within the devolved system to address their fiscal pressures, the programme enhanced their knowledge on how to manage urban centers. Not only did the training provide theoretical knowledge, but it also complemented the sessions with relevant case studies gleaned globally and regionally to help showcase to the municipal and county leadership the practical ways in which they could implement similar approaches to bring to life their UEPs and show them how they could mobilise municipal resources to better their financial management. By having in place, a consolidated financial management approach, supported municipalities are able to now marry how they will use their financial resources to the respective urban economic plan enabling them to be resource efficient and effective in the way they conduct municipal business. Walking the municipal and county teams through what constituted a strong financial management pillar for them, entailed teaching in a demonstrable way how budgeting, accounting,

1

Lake Region Economic Bloc- Kisii and Bungoma, North Rift Economic Bloc – Eldoret and Iten, Frontier Counties Development Council- Mandera and Isiolo, Mt. Kenya and Aberdares Region Economic Bloc- Kerugoya/Kutus, South -Eastern Economic BlocKitui and Wote, Jumuiya Ya Kaunti Za Pwani- Malindi and Lamu 2 An urban economic plan is an advisory document that builds on existing work and priorities identified in the county and municipal planning documents. It helps provide an inclusive economic strategy that will guide future development aimed at prioritising economic activities and climate resilient infrastructure.

financial reporting, and auditing will play a key role in helping them make informed decision on the utilisation of funds.

“Prior to the training, there were questions among us on what project would we start with to unlock the municipality for investment. We had not thought through how we could start by costing a unit of work and seeing its correlation to the bigger picture as our first step. The training helped us to better understand how we could allocate costs to identified projects to catalyse investment.” Shared Raymond Omonei, Iten Municipal Manager.

The FMRE training highlighted various techniques that the municipal and county leadership could use to carry out high-level financial analysis to determine the ranking of the identified investment project using capital budgeting techniques. In doing so, the leadership was able to see how they could make informed investment decisions.

“I now better understood why we as a municipality needed to link our revenue sources to the services, we provided to ensure that our people were willing to pay the costs that we were asking them to.” said Jamil Shamji – Kisii Board Chair.

It was important during the training to ensure that the county and municipal leadership understood the need to distinguish between the sources of revenue that they had at their disposal and the factors that affected the level of those revenues. It was imperative to help them understand that they need to first understand their capacity to provide the public service and the quality they provided prior to demanding revenue from their population. While the drive to increase own-source revenue is high with the supported municipalities, their capability to adequately define the how and as well as the what needs consensus from both the national government and country structure. To help them understand this, SUED embedded within the training a deep dive session on the Public Finance Management Act 2012 and how it interlinked with the Urban Areas and Cities Act 2015 to help align with the national governments classification of municipal revenues ensuring that they were able to quickly identify how much money or streams of income they could proactively lobby the county government to manage. This knowledge was critical in helping them determine the potential of their own-source revenue and how they could manage it to improve their capacity to learn how various economic conditions affected their revenue collection and how they could mitigate against low revenue collection. During the training, it was noted that municipalities heavily depend on donor support and to a small extent funding from counties especially for recurrent expenditures. Municipalities were advised to explore raising revenue beyond the traditional revenue sourcing mechanisms espoused in the legislation. To achieve this, municipalities are required to develop policies and legislations necessary for expanding their resource envelope. As a result of the training, Kisii municipality has embarked on developing by-laws and regulations that will guide in enhancing local source revenues. The board has formed a subcommittee to pursue innovative funding mechanisms such as crowd financing.