Data: The first step to improving finance in African cities

By Astrid R.N. Haas, Manager of Cities that Work, International Growth Centre


This blog is part of an ongoing series exploring the intersection between intermediary cities in developing countries and sustainable development


Somalia-Hargeisa
Hargeisa, Somalia. Photo: Shutterstock.com

Many African cities are urbanising rapidly. Yet, they are unable to adequately service their growing populations with the necessary infrastructure and amenities due to a lack of finance. Furthermore, retrofitting infrastructure on a city that has already grown is significantly more expensive. Improving local government finance is therefore very high on these cities’ agendas.

Cities can improve their finances in various ways. Perhaps one of the most underutilised yet high potential methods is property tax. Why? Rapid population growth is generally accompanied by a construction boom, increasing the number of properties. Furthermore, if demand for properties rises faster than supply, this will also increase property values. And such values will further benefit once public investments in infrastructure as well as improvements in service delivery are made. All these factors have a positive impact on property tax collection, and thus have the potential to unleash a virtuous cycle for local government revenue.

Many African cities, however, have not managed to unlock this virtuous cycle. A major reason for this is the lack of capacity and funds necessary to collect the data policy makers need. Insufficient data impedes setting up and administering a property tax system based on context-specific decisions, like who to tax, what to tax and at what taxation rates. Policy makers will be unable to administer a regime that captures any of the growing property values. Yet, at the same time, they face pressure to invest in infrastructure and services, as property values increase and accrue for private individuals. This data constraint is one of the key reasons many African cities are underperforming when it comes to local government finance generally and property tax specifically.

However, a particular lesson for intermediary cities, which often face even more resource constraints than primary ones, is that even in extremely low-resource environments practical solutions can be found to implement basic, but relatively functional, property tax systems.

Take for example policy makers in Hargeisa, located in the Woqooyi Galbeed region and capital city of self-declared Somaliland, who understand the urgency and necessity of collecting property tax. This is due to the highly decentralised nature of their political system, which means the city is responsible for delivering most services and infrastructure investments. Furthermore, although Somaliland has been a self-declared autonomous region since 1991, it is not internationally recognised as a country. This means that neither the country nor the city can benefit from substantial flows of financial aid. Thus, the city has had to rely on its own revenues.

Property-related taxes have been the highest-yielding sources of revenue for Hargeisa for a number of years. A database created between 2004-05 captures information from a geographic information system (GIS)-based survey of all the city’s property. The GIS coordinates are used to identify both properties and estimates of their areas. This is the basis for the current area-based system of valuation. During the first iteration of this exercise, the number of registered properties increased substantially from 15,850 to 59,000. This translated into more than a 250% increase in property tax revenue.

A re-valuation, using a similar GIS-based methodology, is currently being undertaken, which will increase the city’s revenue further. This is particularly important given that Hargeisa has expanded substantially from an estimated 850,000 in 2005 to about 1.5 million people to date (1). At just over USD 8 million in fiscal year 2016, the city’s revenue is still insufficient to meet growing needs. As the city continues to expand, it will be necessary to implement a system that updates records continuously to immediately capture any newly constructed properties. Following Hargeisa’s example, the port city of Berbera, the next biggest city in Somaliland, also undertook a similar GIS valuation of its properties.

In another example, the property valuation system in Kampala, Uganda is based on the reported annual rental value of properties. Like Hargeisa, the time lag has been significant between the last full property valuation in 2005 and current re-valuation efforts. To illustrate the difference time makes, consider the Central Division, one of five divisions in Kampala that completed the re-valuation exercise. Its number of properties valued more than doubled from approximately 7,000 to 15,000. The very outdated database failed to effectively capture the dynamism that comes with a rapidly growing city.

Coupled with the current re-valuation efforts, Kampala decided to collect additional information on properties, including those more permanent structures found in informal settlements. This forms the basis of an urban cadastre, a multifunctional database that includes a wide variety of information about properties and their surroundings. Captured information includes building materials, amenities, topology, neighbourhoods and other surrounding infrastructures. To do this, the Kampala Capital City Authority (KCCA) that manages the city used internal staff to create an electronic questionnaire with over 120 questions. The digital nature of this survey means that the information can immediately be uploaded and analysed from a central database. Furthermore, using the GIS coordinates they collect, interactive maps can visualise the urban cadastre.

As the KCCA looks to potentially enhance its property valuation techniques in the future, the information in the urban cadastre will be key. Through this database and its collection techniques, it will be much easier for the city not only to update property data in future years, but also to transition to other computer-based methodologies of valuation and analysis.

Furthermore, since the software was internally developed and is open source, the hope is to disseminate it to other cities in Uganda. For example, the city of Jinja has the same property valuation system as Kampala. However, as an intermediary city, it has less resources and capacity to carry out valuations. Adopting an in-house methodology that will allow Jinja to easily collect and update property data will benefit property tax collection. Indeed, an evolving urban cadastre benefits physical and land-use planning, administration, and possible revenue collection, all else remaining equal.

The examples of Hargeisa and Kampala show that when authorities improve the data and administration for municipal finance, revenues can greatly increase. In both cases, external funding – by UN Habitat in Hargeisa and by the World Bank in Kampala – further supported data collection efforts. And by supporting data collection that increases revenue, development partners may see the multiplier effect of their investments. Spillover effects are also possible from primary cities with slightly more capacity, developing data collection techniques that intermediary cities can learn from and adopt.

Ultimately, data is important to manage the continuous stream of daily decisions policy makers have to make, including about municipal finance. This can range from the types and quantities of services they need to provide to where and in what infrastructure to invest. Data is therefore key to help city leaders access the evidence they need to better allocate scarce resources in a timely and appropriate manner – for the benefit of those who call cities throughout Africa home.


(1) The city administration of Hargeisa provided this information.


More from this series:

Raising capital for intermediary cities by Jeremy Gorelick

 

One thought on “Data: The first step to improving finance in African cities

Comments are closed.