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close this bookFinancing Cities for Sustainable Development - with Specific Reference to East Africa (HABITAT, 1998, 98 p.)
View the document(introduction...)
View the documentAbbreviations
View the documentForeword
View the document1. Introduction
View the document2. Main Sources of Municipal Revenue
View the document3. Property Tax
View the document4. Income Tax
View the document5. Charging for Urban Services
View the document6. Tax on Provision of Goods and Services (Business Licences and Fees)
View the document7. Income-Generating Enterprises
View the document8. Borrowing
View the document9. Central Government Allocations
View the document10. Summary of Main Findings, Conclusions and Recommendations
View the documentReferences

7. Income-Generating Enterprises

Kenya

Local authorities in Kenya do undertake commercial activities to generate revenue. These include running of quarries, ranches and game reserves or even managing facilities from which they receive royalties. In addition, they do invest their surplus money in various finance houses to earn interest. This includes the Local Government Loans Authority, which is expected to be independent of local authorities' operations and to be run on a commercial basis. They also invest in other profit-earning enterprises, such as hotels and in transport in conjunction with private or parastatal investors.

Mombasa has invested in commercial buildings, shopping centres, as well as a rest-house. In addition, it had, until recently, invested in the Kenya Bus Company Limited, which is involved in public transport in Mombasa.

Property development

The most significant property developments in Mombasa have been shopping centres and the Tudor Rest House. These are located in the Central Business District and in the estates. Rents for these facilities, with the exception of the rest house, are also quite low compared to those that are commercially built and rented. Some shops are rented for under Ksh. 1000 monthly, while the supermarket and restaurants and shops in the Island are charged a rental of around Ksh. 6000.00 monthly or less.

Other types of enterprises

The investment in Kenya Bus Company Ltd., as in the case of Nairobi City Council, represented the only investment in a public utility. The investment was made several decades ago and the council earned dividends from the profits until 1995, when it sold its share holding during the restructuring of the company.

Assessment

The municipality earns a surplus from running of the shopping centres, the rest house and rented houses. Data for 1995/96 indicates that its current revenue total is nearly Ksh.30 million (including water recoveries) annually. This also includes some substantial income from owner builder schemes, particularly the Changamwe scheme. Other revenue is generated in refuse removal and collection and sewerage, on a commercial basis.

The generation of income by commercial buildings and other commercial properties are significant in the case of Mombasa Municipal authority due to their location and also number. They could be improved without compromising revenue generation, if commercial rental levels were to be introduced.

The management of commercial properties does not present an administrative problem, as long as it is limited to collection of rents. Maintenance, however, requires a more elaborate structure.

Adjustment of rents is socially and politically difficult and sensitive both at council and national level. Commercial properties could, however, be charged commercial rents, as much of it can be passed to consumers by traders renting the facilities.

The United Republic of Tanzania

In order to diversify their revenue sources, urban authorities like the Dar es Salaam City Council have ventured into various economic activities. In the case of Dar es Salaam these have included:

· shares in an enterprise brewing local beer (Kibuku);

· a Development Corporation running a music band and 4 social Halls (Magomeni Kondoa, Kariakoo, Keko and Mlimani) which sell drinks and are used for social purposes;

· horticultural gardening (Karimjee and Bunju);

· an eye frames manufacturing project; and,

· equity share in the Dar es Salaam City Public Transportation Company (UDA).

None of the two authorities is engaged in property development to a significant degree and Mwanza is not engaged in any income generating enterprises.

Increasingly, privatisation is being resorted to, partly to increase efficiency and partly to generate revenue for these urban authorities. In Dar es Salaam, privatisation has been embarked upon with respect to solid waste collection and motor vehicle parking. In Mwanza, privatisation has been adopted for the running of the Central and Mwaloni Markets, the two largest markets in the municipality (see study on Privatization).

Between 1990-95, the total financial contribution to the DCC finances from the various economic projects amounted to Tshs. 64.2 million (Table 21), though these figures are unreliable. They show a windfall in 1992 and a recurrent figure for a number of years. However they show that the expected magnitude of revenue from this source have been very small. In this connection, it was found that the recurrent figure of Tshs. 2.9 million originated from one investment, that is the Kibuku brewery. All other projects did not yield any revenue. City authorities hinted that with time, they are tending to have little to do with these enterprises, which are generally run as private fiefdoms.

The revenue obtained from these economic enterprises is inadequate and insignificant. In most cases the DCC runs its enterprises at a loss.

All evidence shows that these enterprises are financially unviable. All of them suffer from poor administration, high overhead costs and stiff competition. The DCC does not have the administrative and managerial capacity to run them as economic ventures.

Table 21. DCC's revenue from economic projects, 1990-95

Years

1990

1991

1992

1993

1994

1995

Amount of Revenue (Million Tshs)

9.9

2.9

42.7

2.9

2.9

2.9

Source: ESRF (1997)

There are perhaps no major political or social conditions preventing the running of economic enterprises at a profit, but the inherited past where public enterprises were run as social services and where labour productivity was low still haunt the DCC. Politically, it is also a problem when it comes to raising fares for the public transport company, but the role of this company in the public transportation sector is getting very insignificant and the level of fares is increasingly being determined by the market.

Thus, on the whole, the performance of income generating enterprises in Dar Es Salaam has been disappointing. Privatisation is seen as the only viable way out of the present situation.