23

A N5T.7 LOOK  AT THE  RAPING  OF  LOCAL GOTSEWaNT  IN GHANA

Joseph  R.A•  Ayee*

Introduction

There  are  several  problems  facing  local  government  in  Ghana*

They  include  finance?  apathy  on  the  p a rt  of  the  local  .people,  exces-

sive  control  from  the  centre?  p o l i t i c al  interference  and  lack  of

personnel*  Of  these  problems?  I  consider  finance  as  the  major  one;

adequate  financing  is  crucial  to  the  development  of  l o c al  government*

For  l o c al  a u t h o r i t i es  cannot  adequately  discharge  t h e ir  r e s p o n s i b i l i-

t i es  if  t h e ir  revenue  is  meagre; 

and  they  cannot  plan  for  the  future

if  t he  revenue  y i e ld  is  unstable  and  unpredictable"  And y et  l o c al

government  finance  in  Ghan&  in  general  has  been  bedevilled  by  inade-

quate  revenue  collection;  by  disproportionate  amounts  of  the  revenue

t h at  are  spent  on  payment  of  staff  salaries? 

by  the  focus  of 

i ts

expenditure  on  social  services  to  t he  v i r t u al  neglect  of  investment

projects?  •• and  by  inadequate  administrative  control  over  the  money

col lee ted •

This  paper  attempts  to  direct  the  search  l i g ht 

t o,  and  thus  focus

public  attention  on,  the  inadequate  financial  resources  of  the  local

Lecturer,  Department  of  P o l i t i c al  Science,  University  of  Ghana,  Legon.

24

government  units  and  recommends  sn  effective  means  of  overcoming  this

deficiency  sc  thai;  the  difficulties  experienced  by  individual  local

government  units  may  not  only  be  minimised}  if  not  totally  done axvay

with  but  also  that  they  (i«e-  local  government  bodies)  may become,

capable  of  playing  effectively  their  legitimate  role  in  the  task,  of

socio-economic  development"

Sources  of  Revenue

It  is  a  significant  fact  that  while  local  government  services

keep  on  expandings  the  sources  of  revenue  for  local  government  bodies

remain  inelastic  and  unreliable*  The  main  sources  of  finance  are

local  taxation  " and  government  grants*  Four  alternative  systems  of

local  taxation  were  permitted  by  law-  These  were  -  and  s t i ll  are  -

the  Basic  Rate?  the  Graduated  Rate5  Property  Rate  and  Rate  on  assessed

possessions'  Of  these?  the  most  popular  are  the  Basic  Rate,  payable

by  all  able-bodied  adults  and  adolescents  of  18 years  and  above?  and

the  Property  Rate?  payable  by  owners  of  premises  in  the  local  council

area.  Although  these  alternatives  have  obvious  limitations  in  terms

of  reliability  in  yield  and  equity,  there  is  no  way  of  getting  away

from  them  in  the  short  term°

o

The  other  source  of  revenue  for  local  government  units  is 

•

central  government  grant s-in-aid •  The  following  table  indicates

central  government  grants-in-aid  over  a number  of  fiscal  years  for

three  selected  regions:

§
CD

—J

d
'0
Jrh
C+-
CO

3

CD

8

c+

1*

..

• H3

CD

c+
na>

H
CD

B-

CD
o
c?

s
e
n
o

o
hi
o
13

sp.

CD
w
o
CD

o
4
o
CD

hrj

S'

p
O

CD
O
c+
H-
O
B

H-
CO
C+-

O

1—i

Q
o

CDs
a
S
c+

b

CD 

a

M 
CD 

O
* "d

OO

o

O
O

o

Co
ro

OO
o

UJ

ro

Ipt

CD

'O

o

o
o
o
o

U

ro

CO

o
o

-pa.

•3

a
o

i-xj

o

Co

CO
ro

CO

o
CO

00
O

0^

UJ
00

o

H

O
O
O

O

co

co
ro

o
o
o
CD
O

o
CO

Co

-pi.
ro
ro
O
O

Co

-pi 
-J- 
UJ 
o
o

co
o

on

Oop
o
o

o
o
o
o
o

ro
o
o

CO

ro

o
o

o
co

o

ro

o
o

O

B

CQ

O

O

c4-

O

ro

Erom itre  table  it  is  obvious  that  :tbe  grants-in-aid  from  the

central  government  fluctuate  •  The tmc ert ainty  and  irregularity

characteristic  of  grant s-in-aid  and  the.: adverse  impact  it  has  on  a

local  government  -unit's  operations?  especially  on  i ts  development

plans  :further1  emphasises  the  undesirability  of  local,  government's

overwhelming  reliance  on  central  finances  for  i ts  developmental

activities* 

It  should  be  noted  that  the  1981/82  and  1982/83  grant s-

in-aid; to  local  government  councils  were: only  given  to  them  during

the  1984  and  1985 fiscal  years- 

\ 

•

The  central.' government1 s  inability  to  meet  the  developmental

needs  Of  the  people  at  the  local  level  makes  it  imperative  for  the

local  government  councils  to  find  financial  resources  other  than  the

central  government  subvention  and  traditional  taxes  and  rates-  This

suggestion  as  'due  to  the  inability  of  most  councils*  if  not  all?  to

meet  their  revenue  targets  for  almost  every  year.  The  tables  below

in die at |e this  vividly. 

:

:

...  Tat)!e  J

1979/80

Name  of  Council

Estimated....

.  . Actual

Surplus.

Shortfall

Sekon di/T ako r adi
Aowin/Amenfi
Kzema
Sefwi/Bibiani
7/assaw/Fiase/Mpohor

•/29.O92,119-00
456,780.00
1,172,620.00
671,640.00
8 58,527.00

j?r,  504,072-45  •

351*103-16
332,147.37
372,447.70

595*793-39

i

Sekon di/T ako r adi
Nzema
Sefwi/Bibani
Wassaw/Fiase/Mpohor

31,416,705.00
457,230.00
3,726,420.00

4,  287,590°0°

- 1 9 8 0 / 81 

•  •-•••

20,856,418.02
262,022.79
530,110.25
3,081,614.66

1981/82

Hz em a

2,6 31,260.00

421,784.00

Sekondi/Takoradi

36s996,Oi8.OO

33,075,120.00

••/<TT,588,046.55
105,676.84
•840,472.63
299,190.30
262,333«6i

1O5 560,236* 98
195,207.21
3.196,309^75
1,205,97 5*34

-  —

2,209,475.72

3.920,897.00

-

-
-
-
-

—

-

Source;  Report  of  the  Auditor-General  on  the  Public  Accounts

of  Ghana.  For  the  Period"  llfaded'  30th  June  1981  Second
Supplement.

28

Table  2

3

ACCRA  CITY  00U1I0TL

F i s c al  Year

!ii  0  v  -L.

pi at ed  Revenue

-a Actual  Revenue  Collect

1979/80

198O/8i

1981/82 
1,98 2/8 3 
1:983/84 

;
:
!

M,5O7yO28.5O
15,672,642-00
6,212,110.00
32,927,893.00
40,932,510.00

i 

/ 2 7S
30,
20,
42*
75*

387si67«OO
261,08 2- 00
877,06 4.24
027,400.00
171,602.00

Table  3'T

KPAHDU  DISTRICT  COUNCIL

Fiscal  Year

Estimated  R

evenue

1979/80
1980/81  i
i98i/82  :
1982/83
1983/84

/ is1 1 1 , 6 5 O.
3,096,500.

i'.  956,410.
• 3s9-5656.3O.
'  5?952,78O.

CO
00

00 

00... 

.. 

00

-- 
• 

;

•

Actual
M.
2,

1,
3.
4,

Revenue

Collected

196,383.
088,533.
272,688.
471,919.
657,589.

23
79
66
18
12

The  figures  on  Table  1  reveal  t he  poor  performance  of  t he  Nzema

D i s t r i ct  and  t he  Sekondi/Takoradi  City  Councils  during  t he  1981 / 82

f i s c al  year  in  revenue  collection  and  also  the  huge  s h o r t f a ll 

that

occurred  for  a ll 

the  Councils  during  the  two  preceding  years*

29

In  the  case-of  the ..figures  on  tables  2 and  3 "basic  rates  alone

constituted  about  45^ of  estimated  revenue.  Again,  from  the  3  tables

it  is  very  clear  that  something  positive  has  to  be  done  about  the

revenue  generating  capacity  of  the  Oouncils  before  the  situation

deteriorates*

The  Issue  of  Revenue  -  Sharing

Because  of  the  financial  difficulties  facing  local  government

councils  in  Ghana  some  scholars  have  advocated  systems  of  revenue

sharing  between  the  central  government  and  the  local  government

councils:  Nkrumah,  for  example?  has  stated?

Both  the  central  government  and  local  government
councils  could  derive  revenue  concurrently  from
the  same  sourceo  The  fruitful  sources  of  revenue
such  as  excise  duties  on  beer?  cigarettes  and
textiles  and  personnel  and  company  taxes  would
lend  themselves  as  to  this  double  taxing*  This
could  be  done  by  raising  the  rate  of  taxation*5

But  successive  govemmmts  in  Ghana have  been  unwilling  to  share

revenue  with  both  regional  and local  councils  because  of  their  "desire

to  avoid  multiple  tax  arrangements  that  could  lead  to  confusion  and

also  the  scantiness  of  personnel  in  the  area  of  tax  administration11,

though  the  central  government1 s  tax  net  is  wide  and  indeed  covers  all

the  lucrative  areas*  Yet  a  revenue-sharing  formula  must  be  fully

considered  and  adopted  by  the  government 

because  the  bulk  of  the

30

Ghanaian  population  is  in  the  areas  of  jurisdiction  of  local  govern-

ment  councils  which  provide  services  directly  for  the  people  in  the

rural  areas  who  are  not  less  than  If/  of  the  total  population"  We

contend  that  the  potential  utility  of  our  local  government  system  is

undermined  by  inadequacy  of  funds-  This  situation  may  be  rectified

if  the  central  government  should  withdraw  from  certain  tax  fields*

7

which  would  be  taken  over  by  our  local  government  councils-

Local  Credit  Institution

One other  effective  means  of  assisting  in  the  provision  of  the

necessary  capital  finance  is  the  establishment  of  a  specialised  Local

Q

Credit  Institution 

to  mobilize  local  resources  for  the  development

of  our  local  communities-  The  establishment  of  such  an  institution

is  of  supreme  importance  to  local  governments  throughout  the  world  and

especially  to  those  developing  countries  such  as  Ghana-  Such  a  cen-

tral  financial  institution  would  be  responsible  for  collating  funds

from  various  sources  and  for  lending  money  to  local  government  councils

to  help  finance  their  capital  development  projects-

If  such  an  arrangement  were  successfully  introduced?  it  would

enable  our  local  government  units  to  play  .an  effective  role  in  the

provision  of  social  services  to  our  rural  communities"  Assigning

greater  responsibilities  to  local  government  councils  is  realistic

only  with  the  establishment  of  a local  credit  institution,  if  their

ability  to  meet  the  day-to-day  expenses  arising  from  the  provision  of

essential  social  services  Is  not  to  be  overtaxed.. 

In  trying  to  fulfil

new  and  increasing  obligations?  local  governments  in  developing  coun-

t r i es  generally  experience  capital  shortages° 

In  Ghana  while  the  cen-

t r al  government  enjoys  flexibility  in  i ts  revenue-raising  ways?  local

government  bodies  are  greatly  restricted  in  their  access  to  resources

because  thqy  need  the  approval  of  the  central  government  to  both  taxa-

tion  and  borrowing'

9

'He strongly  feel  that  specialized  credit  institutions  for  our

local  authorities  v/ouId  assist-  iff"obtaining  a "more"" satTsFactorjT  supply

of  funds  to  finance  both  developmental  and  welfare  projects.  To go

to  the  open  market  may be  useful  in  some  cases  but  in  most  cases  the

charges  for  the  loans  are  tec  high* 

It  would  bo  more-  desirable  there-

fore  if  'special  local  credit  institutions  are  formed  on  regional  base

as  a  means  of  providing  financial  and  technical  services  to  local

governmait  councils  in  each  region ••  This  is  the  operative  idea  behind

the  British  Local  Government  Act  of  195^  which  empowers County  and

County1 Borough  -Councils?  and  in  certain  cases  other  councils*  to  set

up  the'Local  ^Consolidated  Loans  Funds"•

1°

To  help  the  smaller  local  government  units  overcome  the  diffi-

culties  they  experienced  in  securing  capital  in  the  open  market,  the

British  Government  set  up  a body  known  as  the  Public  Torks  Loan  Board

(PWLB)  which  to  all  intents  and  purposes  is  a  credit  institution. 

It

can,  ands  in  fact,  does?  borrow money  in  the  open  market  on  the  same

terms  as  the  Central  Governmento 

It  then  lends  funds  from  i ts  own-

re sources  to  local  government  councils'  at  a  slightly  higher  rate  than

it  (the  PWLB) borrows  itself°  Although  the  rate  of  interest  it  charges

is'  slightly  higher  than  that  which  it  borrowed  from  the  open  market,

the  fact  remains  -  and  t h is  is  crucially  important  -  that  the  rate

of  interest  is  s t i ll  considerably  lower  than  the  rate  of  interest  the

smaller  local  authorities  would  succeed  in  getting  for  money  borrowed

on  the  open  market. 

;

Sources  of  Funds  for  the  Proposed  Credit  Institution

The  local  credit  institutions  should  rely  heavily  on  governmental

or  public  sources  for  funds  with  which  they  can  start  the  lending

operations  to  local,government'  councils*  Each  regional  administration

should  make  available  grants?  in  the  form  of  annual  appropriations?

of  about  2 per  cent  of  all  monies  accruing  to  it  every  year  to  the  '

credit  institution-  in  I ts  area  of  jurisdiction.  The  local  government

councils  in  the  region • concerned  should  make  their  contributions  in

the  foim  of  regular  deposits  of  surplus  funds»  and  of  proceeds  from

commercial  undertakings.  The  Central  Government  should  also  ..contribute

3 per  cent  of  all  monies  accruing  to  it  every  year.  There  can  al.so--.be

contributions  from  private  sources  as  well9  such  as  donations  from 

•••  -

33

wealthy  businessman  and  women,  while  other  possible  sources  include

loans  from  international  organizations  and  retention  of  profits

accruing  to  the  central  financial  institution  it self  •  "

1 ?.

Criteria  for  lending

The most  important  function  of  a  credit  institution  is  the

lending  of  funds  either  on  short,  medium  or  long  terms-  The  idea  is

to  ensure  that  there  is  a  steady  flow  of  revenue- 

In  determining

the  duration  of  the  loan  the  credit  institution•  will  consider  the

period  for  which  it  has  borrowed  from  other  lenders-  Thus  it  is

generally  unwise  and  clearly  unadvisable  to  borrow  on  short  term  and

lend  such  funds  on  long  term-  Thus  the  credit  institution,  in  leading

funds  to  local  government  councils?  will  have  to  consider  firstly,

whether  the  local  council  has  any  legal  authority  to  borrow  which  is

a  requirement  normally  imposed  on  local  governments  in  developing

countries,  who must  seek  a  loan  sanction  before  funds  are made

available  to-  them  by  any  1.ending  source-  Secondly,  the  credit  i n s t i-

tution  will  look  into- the  economic  and  technics.! viability  of  the

project  which-the  local  government  council  has  in  mind-  Thirdly,  it

will  have  to  consider  the  financial  position  and  the  capacity  of  the

local  government  council  to  repay  the  loan  with  interest- 

It  follows

that  the  lending  institution  will  have  to  make  exhaustive  study  of  the

credit-worthiness  of  the  client  as  a  pre-requisite  for  lending.

14

34

Some other criteria have to be taken into account in deciding the

amount of loan to be granted.  Those that readily come to mind are the

size of population ana availability of araole lane.  The first of these
15 •

criteria  is  in  line  vdth  the  Benthamite  ircilitax'ian  principle  of  the

greatest  good  of  the  greatest  number; 

tae  local  government.... council .with

the  largest  population  should  receive  the  largest  sh^re  of  the  fund.

The  other  criterion  is  of  special  significance  because  of  the  current

emphasis  on  agriculture  and  the  improvement  of  livestock  by  the  Provi-

sional  National  Defence  Council  (FNDC).  Thus,  the  greater  the  cultivable

and  productive  land  a  local  government  unit  has  the  greater  should  be  i ts

credit-worthiness.  These  criteria  should  be  considered  together  with

the  soundness  of  the  proposal  for  lending  in  terms  of  cost-benefit

analysis. 

It  should  be  noted  that  these  criteria  will  be  affected  by

the  Central  government's  fiscal  policy  as  well  as  the  prevalent  economic

conditions  in  the  country  as  a  whole. 

Unquestionably,  the  local  credit

institution  is  not  without  some  drawbacks.  For  example,  it  seems  only

the  big  local  government  units  of  the  urban  centres  will  really  benefit

from  the  scheme  as  they  are  the  ones  that  can  invest  the  funas  they

obtain  from  the  credit  institution  in  revenue  yielding  projects,  so  that

repayment  of  the  loan  will  not  pose  any  proolem.

Organization  and  Management  of  the  Credit  Institution

Although  the  mode of  operations  of  a  local  credit  institution

will  be  influenced  to  a  large  extent  by  the  size  of  i ts  capital?  we

would  advocate  the  setting  up  of  an  internal  governing  body  which

would  be  charged  with  the  responsibility  of  formulating  the  financial

and  administrative  policies  of  the  institution.  This  body  should  be

able  to  deal  with  matters  relating  to  the  lending  of  funds  as  stipulated

in  the  organization's  constitution,  the  approval  and  disapproval  of

proposed  local  development  projects  based  on  feasibility  stucfcr  reports

and  the  maintenance  of  the  financial  position  compatible  with  the- 

':

needs  of  the  borrowing  local  government  units*  T7e  suggest  that  members

of  the  governing  bocty"  should  be  appointed  on  full  time  basis  by  the

Regional  Secretary  and  drawn  from  Regional  and  local  government  council s»

The members  of  the  board  should  be  experts  in  the  fields  of  planning

and  financial  management?  since  they  would  be  responsible  both  for  day-

to-day  running  of  the  credit  institution  and  planning?  programming,

budgeting  and "assessing  the  feasibility  of  pro ject s«

it 

•

Qon clu sion

If  adequate  funds  are  to  be  ma.de  available  as  capital  for  local

development  and  if  .the  serious  difficulties  and  inconveniences

experienced  at  the  moment  by  local  government  bodies?  not  only  in

financing  their  capital  development  programmes?  but  also  in  providing

36

satisfactorily  essential  social  sery ices?  then, the  issues  of .the.

central  government  sharing  revenue  with  local  government  units  and

the  establishment  of  a  local  credit  institution  in  each  region  should

be  seriously  considered*  The  resolution  of  these  issues  is  necessary

if  our  local  ^pvernment  bodies  are  to  play  a meaningful  roTe  in  the

socio-economic  development  of  our  rural  areas*

1)  K*A»  Owusu-Ansah  "Ghana's  local  Government  in  the  Context  of

Development  itQministr.atipn)>Gceeahill  Journal  of  Administration
Vol.2>  No.2»  July  -  September  1975, p«35«

2) 

Ibid.,  p-36.

3).  p.  Mawuena Dotse,  "The PNDC Decentralization  Programme";  Paper
presented  at  the  6th  Annual  Delegates  Conference  of  the  National
Association  of  Local  Councils  at  the  Great  Hall,  University  of
Ghana,  Legon,  August  1985>  p«5»

4) 

5) 

6) 

7) 

I b i d .,  p.5*

J«K«  Nsarkoh,  wLocal  Government  Grants-in-aid  and the  Ghana
Local  Government  Grants  Commission",  School  of  Administration
Working  Paper  Series  No'«8,  i960,  p»5»;  Also  S*A. Nkrumah:
•Sources  of  Revenue  for  Regional  Councils  -  An "S^loratory  Notew,
School  of  Administration  Working Paper  3eries  No* 15,  1980;  pp.2-3°

S«A«  Nkrumah,  op>cit.,  p«3°

3»A«  Oladosu,  Kaduna  Essays-in  Local  Government,  Kaduna  (i98i)»
p. 146.

37

8)  By  Local  Credit  Institution  is  meant  mi  institution  which  is

primarily  responsible  for  a-dvpjicing  funds  to  local  governments
in  order  to  enable  them  to  finance  essential  communal  services
(especially  services  involving  huge  sums  of  money)  which  they
render  to  their  inhabitants* 
In  sane  countries  it  is  called  a
Municipal  Fund*

9) 

"UN; Decentralization•-:for  National  and Local  Development,  NQW Y ork
United  N a t i o ns  P u b l i c a t i o ns  $T/TAO/M/i9  Sales  No .62  11? K2  19^2>
p-162-

10) 

-UN;  Credit  I n s t i t u t i o n s ' f or  Local  A u t h o r i t i e s;  New York,  United
N a t i on s  Pub li cat ion s  5E/FXO/M/G  1  Sal e s  No . 13.7 2 ?  11° H«1» 1972
P • 36 •

11) 

"IMi'.,  p.38.

12) 

Ibid.Vp-39-

13) 

I b i d .,  p.39-

14) 

I b i d .,  p.41-

15)  Oladosu,  op. cit«,  p «88

16) 

I b i d .,  p.88.

17)  UN:  Credit  Institutions  for  Local  Authorities,  op »cit.,  p«44»

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1)  Nkrumah,  S«A. 

1980 

"Sources  of  Revenue  for  Regional
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2)  Nsarkoh,  J»K. 

1978  A Second  Look  at  Aspects  of  Local

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5)  Owu su-An  s a h,  K •> A. <

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