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Opinion - Lack of fair fiscal decentralisation needs review

2021-06-04  Staff Reporter

Opinion - Lack of fair fiscal decentralisation needs review
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Financial decentralisation is the model of allocating funds (or budgetary) decision-making powers and management responsibilities to the lower level of government. In other words, it is a process of allocating funds to different 57 local authorities, which covers 13 municipal councils, 26 town councils and 18 village councils.

With the number of municipal councils, town councils and village councils orderly arranged, one can only expect that the central government, via the ministry of finance and the ministry of urban and rural development, could reconsider the methodology of allocating funds to the local authorities, currently in use, to a fairer and transparent manner. Such can happen if the state adopts an established formula that speaks to the particular local authority’s needs. 

That formula must be known
to all stakeholders to avert an opinion of unfairness in allocation. The existing funds allocation method has no basis, and it is done on a thump-suck model, which is superficial. 

Local authorities would submit their budgetary needs to the central government via the ministry of urban and rural development, and the odds are always 99% that local authority’s financial requests are hardly met. 

If any local authority expenditure needs are not
properly balanced with the resources available to it, this could result in local authority deficits and incurrence debts. This happens given that local authorities are advised by the central government to have a balanced budget as if all funding for the particular local authority are secured and assured from the central government. 

Since this would have important outcomes for macroeconomic conditions and the ability of the central government to rely on fiscal policy as a tool to manage macro-economic conditions, central government often requires local authorities to balance their budgets. 

The latter approach from the central government is somehow imposing retrogressive budgetary approach to the local authority, given that local authority would be expected to have a saving. After their financial year-end, that saving would then translate into what would be known as funds in the reserve that would then be exclusively reserved for the capital infrastructures. The fundamental question would then be, how could local authorities be in the position to have reserves if their budgetary models are based on a balanced budget? 

As it stands, most of the local authorities that may perhaps have or realised excess funds after every year-end are those that have been and continue to benefit by the way the government created a space conditioned to have regions with one town, crowned as the regional capital.

It is evident that all regional capitals are the enablers of the activities, mostly boosted by the state ventures, and investors would again follow those ventures that, in return, benefit only regional capitals at the expenses of the other local authorities that are not crowned as regional capitals. When the government ministry or a state-owned enterprise or any private institution wishes to host an event of great magnitude, they first have to establish whether the proposed town has facilities that could accommodate the envisaged capacity. 

Again, such lack of facilities in towns that are not crowned as regional capitals are the result of the imbalance injection of capital investment that could in a way be snowballed to the private individuals, as investors are likely to have their funds locked in the financial institutions because it is not worth to invest in a town
that has less activities. At the same time, same investor(s) will be reluctant to invest the resources in towns (regional capitals) that are flooded with the same activities of their target market.

To be practical, let us use Otjozondjupa region as an example. The region has five local authorities – Okahandja, Okakarara, Otjiwarongo, Otavi and Grootfontein. Because of the ‘regional capital tag’ allotted to Otjiwarongo town, all the government regional head offices are built and will be built in Otjiwarongo. From the governor’s office, the ministry of education, ministry of health and social services, office of the anti-corruption commission, office of the Ombudsman, ministry of trade, and the ministry of land – just to mention a few – these offices are found in Otjiwarongo. 

Such a system creates an economic advantage over the other municipalities and towns that are found in Otjozondjupa region. This is simply because those governments’ offices are part of the large users of municipal services, and it is given that the state will pay for their municipal users. 

Not that the economical edge
is only created by the state ventures that are there but by and large, those offices have employees that own houses within that particular regional capital, and their contributions in the form of municipal services equally translates into a fraction of reserve funds for that particular municipal council.

The said state of affair is found all over the country, in 14 regions, that would then prompt the ordinary citizen to question as to why the likes of Outapi town has grown significantly in comparison to Okahao town. 

In the eyes of many who don’t understate this set of unfair arrangement, the municipalities, towns and village councils that do not enjoy regional capital tag are regarded as the laggards. These laggards became victims of circumstance due to the adopted system by the central government – the system that only builds
their regional offices in regional capitals.  To justify my storyline, mass housing project is another case in point. 

The building of mass houses
was only piloted in the regional capitals, which is Windhoek (Namibia capital city), Swakopmund (the capital of Erongo), Oshakati (the capital of Oshana), Rundu (the capital of Kavango East).

It is then correct to say that by adopting the fair fiscal allocation formula – and most importantly, by spreading the state ventures to different towns, would unlock the potential growth at the towns that are not enjoying the regional capital tags. 


2021-06-04  Staff Reporter

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