Climate change has presented cities with new challenges and opportunities for improving their liveability. If well-managed, cities offer both adaptation and mitigation benefits, as well as sustainable development opportunities, that other forms of living cannot.

As the transition to a net zero global economy takes hold, there will be new opportunities for growth across a wide range of urban industries and services. City governments in sub-Saharan Africa and South Asia need to proactively plan how they will leverage this to deliver on local productivity and job creation objectives.

The City of Hargeisa, despite being in the very early stages of enhancing its financial position, has achieved significant reform in just a few years since its democratic establishment in 2002. The successes achieved are even more remarkable, considering the fragile context of Somaliland after 30 years of civil war within Somalia, which left widespread destruction and devastation in the city. This is compounded by Somaliland’s lack of recognition as a sovereign state by the international community. The case provides an illustrative example of leveraging urbanisation to raise municipal revenues for public service delivery, and in building local government legitimacy to better deliver to the populace. Given the context, the reforms are those that are easy to implement and effective, including the application of a simple digitised accounting and billing system, and a fit-for-purpose area-based property tax system. Where other cities have struggled to service more people with a stagnant revenue base, Hargeisa’s reforms have meant that population growth has resulted in increased revenues from property taxes and daily vendor collections. At the same time, private contributions of land on the peri-urban fringes offer an opportunity for in-kind land value capture and planned development in the future. Their successes are reinforced by the legitimacy built through participatory governance, which demonstrates what is achievable when communities, local government and the private sector work together. While Hargeisa has made progress on the basics of own-source revenue, much more is yet to be done to finance future development. Local government capital expenditure, for instance, is often far below what is budgeted. This is influenced by public demand for current and visible service delivery over and above less visible long-term investments. Furthermore, due to Somaliland’s internationally unrecognised status as an independent country, Hargeisa received limited development assistance when compared to other cities in similar contexts. However, a small coordinated effort through a coalition of UN agencies has fundamentally shaped some of the city’s reforms. As the country begins to formalise its financial sector, opening up to commercial banking and international investment, development support will be needed to ensure local governments and the private sector are able to capitalise on the opportunities this presents.

The case of Mzuzu illustrates how secondary cities, where revenues are often incredibly low and capacity is minimal, can innovate and lead the way on municipal finance reform. Mzuzu is Malawi’s third largest city. The focus of this case study is a simple and fit-for capacity property valuation system that increased realised revenues seven-fold between 2013 and 2018:1 The Revenue Mobilisation Programme (REMOP). Although the programme was initially seen to be a success, several serious misgivings continue to inhibit further progress. These centre on legal barriers in the current property valuation process in Malawi. More broadly, issues such as revenue pilferage, lack of capacity for financial anagement, land ownership disputes between spheres of government, and national rural bias continue to prevent Mzuzu from achieving a sustainable financial position. For development partners, the example of Mzuzu provides a stark reminder of the vital importance of widespread stakeholder engagement and caution for legal obstacles in order to achieve sustainable project success. It also illustrates the potential of using smaller cities, with more flexibility and somewhat strong incentives for reform, as a useful starting point to trial new revenue enhancement innovations. The Development Fund for Local Authorities (DFLA), a special entity set up for small and low-cost loans to local governments in Malawi, also presents an interesting model for further exploration. By helping local authorities through the process of lending, they are building local government creditworthiness and enabling them to develop systems for future debt finance. Malawi’s cities, being some of the poorest in the world and in a country with relatively low level of urbanisation, are still at the beginning of the development curve. This early stage brings numerous challenges that are yet to be faced as well as an enormous opportunity to learn from the mistakes and successes of other cities in similar contexts. The cities are still at the critical juncture where they can invest in the urban infrastructure essential for livability and productivity before mass settlement takes place.

The city of Dakar is one of the only cities in Africa to come close to taking a municipal bond to market. The US$40 million bond, set to launch in 2014, was designed to fund a new market hall for informal traders in the city. The market would relocate more than 4,000 street vendors, with the aim of moving them from side streets into a safe and central place to sell their goods, with access to credit agencies and other market services. Development partners, including the Bill and Melinda Gates Foundation, the World Bank’s Public-Private Infrastructure Advisory Facility (PPIAF), Cities Alliance, and USAID, played a crucial role in making the bond terms viable – both in shouldering the financial burden of developing internal creditworthiness, and in providing expertise and guarantees to reduce the risk. Although the bond’s launch was ultimately stopped by national government decree, the process of preparing for the bond has greatly improved the financial management capabilities and creditworthiness of the city. As a result, Dakar’s bond journey is still paying dividends to the city today, with a number of successful concessional and commercial loans. The process also deepened the city’s connection with its residents – with small bond denominations, informal traders were one of the key investors. The motivation for the bond was in part due to the city’s lack of control over its financial resources. While the most recent decentralisation law amendment, Acte III de la Décentralisation of 2013, has seen many responsibilities devolved to the local level, finances to deliver on this new mandate have not followed. In fact, all revenue and expenditure for local governments in Senegal are processed at the national level, leaving little room or incentive for financial reform. Surprisingly, despite this, the law gives local governments relative independence in taking on debt. This meant that when Mayor Sall came into office with a vision for change, the only viable financing opportunity within the city of Dakar’s control was via the latter. This legislated independence is also the reason why the halting of the bond was so heavily contested. The city of Dakar provides an example of the importance of the political landscape in effecting any innovative reforms, as well as the need for the national government to buy-in to the fact that successful cities are in their interest as well. This is particularly critical in Dakar’s case, given the city’s finances are managed at the national level. Fortuitously, the national government is now beginning to focus on improving local revenues, primarily through property taxes, as well as better coordination amongst different stakeholders through a dedicated department and the ‘Local Fiscality Commissions’ described below.