Local development and innovation—two concepts that are at the heart of UNCDF's operational concerns.

Since its creation, UNCDF has been dedicated to searching for the right tools to assist local authorities to increase their efficiency and find sustainable solutions to face their challenges— decentralization, local development, services provision to their local populations and the strengthening of local democratic life.

The issues relating to managing, operating, and financing local authorities, the delivery of local services, and the development of local economies are difficult. They are complex issues that involve a great many actors: citizens, locally elected authorities and governments as well as development partners.

In the past, the world of development aid has worked with experts whose advicemay no longer be relevant.This puts us in the position of having to show that we can meet expectations by proposing practical answers and developing simple yet rigorous approaches and tools in keeping with the concerns of the citizens and decision-makers, so that each can adapt them accordingly.

This is precisely what this book endeavours to do. It shows that local authorities, the governments and partners must work towards great efficiency and effectiveness of local structures in order to ensure sustainable and lasting development of local operations and local public services—a development that fulfills the expectations of local capacities.To achieve this, it is necessary to be able tomake an objective diagnostic on the deficiencies and potential within the local authority.

Le système d’analyse financière et institutionnelle des collectivités (SAFIC, Local Authorities Financial and Institutional Analysis System [LAFIAS]) is an exact response to this need. This tool allows for a diagnostic on the operations of the authorities at the organizational and institutional level as well as the financial and economic level. It thus provides decision-makers and local populations with information that they need to make informed decisions. It is therefore an extremely valuable decision- making tool when planning development within the context of decentralization.

I am convinced that this book is an essential contribution to the search for increasingly useful tools for responding to the expectations and challenges of decentralization.

Richard Weingarten
Executive Secretary
United Nations Capital Development Fund

Due to the wave of democratization that has swept almost all West African countries one after the other, decentralization is becoming the key reform for improving ways of governing, freeing local energies and promoting a more equitable development. This is possible due to the emergence of new public actors who are closer to the legitimate concerns and expectations of local populations.

After approximately a decade and a half of decentralization in West Africa, however, it is clear that many challenges still remain in most of the countries. The local authorities, particularly rural ones, do not have the means to fully play their roles as efficient intermediaries in the combat against poverty and as main facilitators of local development.

The rural communes encounter many difficulties in their efforts to support satisfying responses to the legitimate expectations of underprivileged communities for basic public services. Some of the fundamental difficulties are issues of local finances, communal management and local economic development. In spite of all the support provided to the local governments in the region, and all the studies, interventions and experiments undertaken within the framework of mobilizing resources for local communities, one has to recognize that there has been a lack of any real impact on the ground.

The context of decentralization and taxation inWest Africa is indeed characterized by a great majority of rural territorial authorities (more than 87 per cent in Guinea, 85 per cent in Mali, 84 per cent in Burkina Faso and 82 per cent in Senegal) exercising their responsibilities very poorly due to lack of adequate human and financial resources. The authorities' own resources are extremely limited due to weaknesses of the tax base and the tax yield, on the one hand, and irregularity of transferred resources, on the other.

Within this situation, and in order to strengthen self-management capacities of the rural communes and improve the economic and social situation of local populations concerned, the United Nations Capital Development Fund (UNCDF) has developed a pilot scheme, Système d'Analyse Financière et Institutionnelle des Collectivités Locales (SAFIC, the Local Authorities Financial and Institutional Analysis System) in three countries, Guinea, Mali and Benin.

LAFIAS is a concerted approach that aims, through analytical tools, to grasp the problems linked to local management and governance and, in particular, the organizational operations of the authorities, their financing and the economic dimension of their development. It relies on diagnostics (organizational, financial and economic), public consultations and action plans created with input from all concerned stakeholders.

Its piloting in threeWest Africa countries (Guinea, Benin and Mali) enabled UNCDF to test these analysis and diagnostic tools as well as the local public consultation approaches on technical issues.

Key observations

LAFIAS was tested in the rural communes in the UNCDF project areas in these three countries and selected on the basis of differentiated criteria so that the sample included communes where economic and tax potential varied from good to weak.

These are the results from the observations made:

Mobilization of resources

• Total revenue of rural authorities is quite low with respect to the issues and challenges of decentralization, varying from one country to another: Outside the standard communes in Mali where average total revenue per person per year exceeds US$2 (1 176 CFAF),[1] the average total revenue of communes in Benin and Guinea are generally below this level (US$1 in Benin and US$0.25 in Guinea). This situation is explained by a sustainable financial support mechanism in Mali, in contrast to Guinea and Benin, which allows communes to benefit from significant financial transfers for the realization of investments. These transfers vary from 66 per cent to 93 per cent of total revenue of Malian communes studied.
• The shortfall in local source revenue is the result of low yield from local taxation in the three countries, even if the sample authorities in Benin have a higher resource mobilization performance than the others; the local revenue/total revenue ratio is on average 289 FCFA (US$0.56) in Benin, compared to 269 CFAF (US$0.52) in Mali and 105 CFAF (US$0.20) in Guinea.

An extremely low local taxation can be observed in Guinea; the local revenue per person per year ratio is an average of 105 CFAF, or US$0.20 with a variation ranging from 52 CFAF (US$10) per person, the lowest ratio, to 170 CFAF (US$0.33) per person, the highest level.

In Mali, the financial contribution of the National Investment Agency of Territorial Communities (ANICT) must not hide the reality, that is, local revenues are very low. In fact, the revenue per person per year ratio is on average 269 CFAF or US$0.52 per person per year with a variation from 78 CFAF (or US$0.15), the lowest level, to 408 CFAF per person (US$0.79), at the highest. The considerable financial support to communes to build infrastructure services has not contributed to improving local revenue; on the contrary, most of the comunes of the Malian sample experienced a drop of their local revenue even though they made investments with state financial support. The analysis showed that the communes concerned did not take advantage of this opportunity to organize a large resource mobilization system and merely limited themselves to financial transfers. By contrast, the Pel Maoudé commune has shown constant growth in revenue in the period due to measures that it took in revamping its taxation, which led its citizens to contribute more easily by the fact that they observed concrete service provided by the municipal office.

• The poor yield of taxes and levies generated by the deconcentrated state services also explain the low revenue of the local authorities. The revenue generated by the services concerned are more than 2 per cent of local revenue of the Rural Development Authorities (RDAs) in Guinea[2] and negligible in Mali. This weakness is related to the inadequate coordination between the commune and the deconcentrated financial services, which explains the nontransfer of the share of the collected taxes due to the commune and the lack of regularity in the fiscal census and of follow-up to collection, among others.

Budget implementation

• In contrast to standard communes of Mali and Guinea, the communes in Benin provide a poor level of services to citizens; the services expenditures/ total expenditures ratio is 8 per cent in 2003 against 33 per cent in Guinea and 35 per cent in Mali. This situation is explained partly by a larger size of communes in Benin (on average 81,000 inhabitants, compared with 20,000 in Mali and 18,000 in Guinea), which have more organized communal services and therefore higher operating expenditures. On the other hand, it is also due to the fact that these communes were all at the start-up phase and not yet benefiting from financial support [3].

The table below shows the situation of the communes in the three countries in respect to the main management performance indicators.

These facts show that the weakness of financial resources of the local authorities and the mediocre quality of services provided to citizens largely result from organizational dysfunctions, which prevent them from fully playing their roles in managing their finances and promoting local economies, in particular:

• an organization poorly adapted to the missions of the decentralized authorities and characterized by very poorly organized communal services (extreme weakness of human and material means) and a mediocre level of operating. This situation explains a large number of dysfunctions identified;
• poor budget formulation and monitoring of its implementation: weak methods of forecasting revenue and costs; the lack of collaboration linked to the lack of a budgetary planning process involving all the stakeholders (communal service chiefs, heads of deconcentrated services, civil society); the communes' poor monitoring budget implementation; lack of relations between them and the deconcentrated services operating in their financial life (tax services, the Treasury, etc.); weak budgetary control of the elected bodies (communal council, budgetary committee); and insufficient rigour of the supervisory services in exercising required controls on budget approval. This situation explains the adoption of poorly adapted budgets within terms the real economic context of the local authorities;
• shortcomings in the local taxation mechanism itself linked to drawbacks in the tax-sharing system, granting to local authorities of narrow tax base resources that are hard to mobilize. The example of the financial system of local authorities is promising in this regard since there are numerous local taxes and levies that the authorities are not able to mobilize.

LAFIAS has shown that, in reality, there is some resource potential, although modest, in the communes concerned. This potential is linked to physical assets in agriculture, exploited natural resources (mines, forests, etc.) and commercial infrastructure (markets, terminals) serving as a point of attraction. However, for various reasons, they are poorly exploited and especially badly managed.

A summary assessment of the pools of local resources resulting from the economic potential identified in the local authorities allowed to assess, on the one hand, resource potential, and on the other hand, the gaps between different categories of local authorities.

The analysis of current tax yield with regard to theoretical, simulated tax potential and to revenue potential of leading taxes and levies collected for the communes revealed the importance of the discrepancy between the currently mobilized resources and the potential revenue in regard to the legal framework in place. Indeed, most of the local authorities studied mobilize their tax potential very poorly; the currently mobilized revenue is far from reaching 20 per cent of the resource potential, even in the most realistic fiscal tax base scenario. In the standard communes from Guinea, the current revenue is on average less than 5 per cent of the simulated resource potential against 20 percent on average for the standard communes of Mali.

Apart from the reasons cited above which explain the weak local taxation revenue, it is also necessary to point out the narrowness of the tax base in some local authorities, which is linked both to unequal division of economic potential but also to constraints to economic development in areas concerned, the most important of which are generally:

• the lack of exploitation or underexploitation of often considerable agricultural potential. The lack of water management (flooding in the wintering period and scarcity during the dry season) is experienced by local populations as a major constraint to agricultural development, the main sector of economic activity in the locations concerned;
• the lack of management and sometimes non-appropriation by the authorities of the weekly markets—places concentrating the essential economic activities in rural areas, being the polarizing centres where there are opportunities for the local populations to earn income (marketing of agricultural products) and an important channel of revenue for the communes (rental payments, various duties). In Guinea, in particular, most of these markets are difficult to access and often isolated in the rainy seasons, and their management is generally overlooked by the RDA;
• The weak integration of activities of production, processing and marketing, and the lack of a network of markets integrating important production areas into the trading areas.

This situation is essentially due to the lack of a coherent policy to promote activities that are apt to become revenue opportunities for the local populations and a basis of resources for the local authorities.

Conclusions and lessons learned fromLAFIAS experiences

In light of all these observations, analyses and lessons learned, the LAFIAS experience has produced the following main conclusions, which to some extent offer the necessary conditions to improve finances andmanagement of the local authorities:

1. A minimum organization of local authorities (own services and personnel) is essential for an efficient management and local development. The example from Guinea, where the rural authorities have neither their own services nor technical personnel, has shown the limits of support programmes to developing these authorities.
2. A minimum information base on which the management of local authorities could rely, because "to manage means first of all to know and assess for successful planning." Sure progress towards managing local resources is through the organization and the managing of information bases on the resources of their territorial jurisdiction by the local authorities themselves. In this way they may have the means to control the collection services and to play a more important role in mobilizing their resources.
3. Despite the efforts accomplished, the local taxation system is not yet adequately adapted to realities of the local authorities, particularly the rural ones. This unsuitability of taxation explains in part the low level of local revenue collected in Mali, particularly in the Socoura commune that has, however, a significant urban core. Indeed, the tax system of the local authorities— as emerges from legislation in Mali, for instance—includes many rural taxes that are difficult to mobilize and that yield low revenue in the urban context, while the largest share of the tax resources is concentrated in urban property, which is quite dense in most of the regions of Mali. In addition, a simplification and flat-rate taxation—as much as possible— of local taxation with the aim of larger tax decentralization will allow the authorities to play a more important role in mobilizing resources and conducting a collection strategy adapted to their means.
4. The great variety of resource channels is not sufficient to improve the rural authorities' local revenue. It would still be necessary nonetheless that these levies/taxes have an acceptable revenue and not be too numerous and dispersed at the risk of leading to disproportionate costs to manage their incomes. Despite the numerous taxes and levies for the benefit of local Malian authorities, their revenue is still low.
5. The resource potential of rural authorities is essentially in market activities and facilities (markets, terminals, slaughterhouses and other income-generating infrastructures) that concentrate the basics of the economic activities. A proper management of these facilities will allow the authorities to diversify and considerably improve their resources.
6. The rural authorities are not all poor. Many of them have some measure of economic potential, which is under-utilized for various reasons. There is a clear correlation between the population, tax potential and collected revenue. The existence of economic infrastructures is a determining factor in resource potential and consequently, revenue of local authorities. This is the case with the Socoura commune, which has the largest population size in the standard communes in Mali, but has a relatively modest potential, with the lowest level of local revenue. Also, the local populations are attracted to the more dynamic local authorities because they are located in an area of agricultural production, employment or marketing. This is the case of the authorities in the sample from Guinea where the RDA is located in the mining areas that are generally more populated than others that face with the exodus of the most able agricultural workers.
7. The implementation of a true local economic development must go beyond the rural spaces that make up the rural communities given the socio-economic dynamics in the territories of the authorities studied and the weakness of their human and financial resources.

In regard to the constraints and the scope of challenges that concern several authorities at once and that need significant means and efforts, in Guinea, the LAFIAS analyses showed the limitations of a true economic development within the rural spaces that make up the rural development authorities. Also, the approach on promoting local economic development consisted in creating an inter-community cooperation dynamic (inter-RDA) based on "development hubs" or "inter-RDA cooperation territories" or even still, "clusters of growth" that best take advantage of the socio-cultural, geographical, historical and economic opportunities that two or several RDAs share together. This exercise identified seven "development hubs" within the framework of a participative approach and led to the implementation of a strategy on sustainable actions for local economic development by creating action plans for local economic development. This led UNCDF to adjust and remodel its approach, its investment tools and, in particular, the Local Development Fund (LDF) that was made available to finance intercommunity economic development actions.

8. Finally, investment per se cannot stimulate improvement in local finances; it must be supplemented by taxation support measures, but also communal management and local governance.

In sum, there are considerable margins to improving available local resources, however minimal they may be, for organization, procedures and follow-up. The resource potential of rural authorities is essentially in markets,which concentrate the base of economic activities.

The State bears considerable responsibility for the inadequacy of the resources of the rural authorities studied. It is possible for the State, with a minimum of political will, to provide the local authorities with an acceptable level of transfer resources so that they could play the roles devolved to them within the context of decentralization.

One of LAFIAS's institutional aims is to assist governments to better understand communal management, local finances and local economic development with simple tools adapted to the local context. This consists of relevant and convincing elements to encourage a true dialogue:

• on the one hand, between citizens and local decision-makers concerning the level of the services to provide and the acceptable taxes;
• on the other hand, between the local authorities and the State concerning the definition of financial means to provide them so that they may be able to fully assume their devolved missions within the framework of decentralization policy, including, in particular, the provision of services to local populations.

As such, LAFIAS is perceived as a negotiation process in the hands of the local authorities. The State in turn aims at influencing the discussions on national policy on the resources to grant the local authorities.