Mobilising internally generated funds to finance development projects in Ghana’s Northern Region

This paper assesses the effectiveness of Metropolitan, Municipal and District Assemblies (MMDAs) in Ghana’s Northern Region in mobilising internally generated funds (IGF) to finance development projects. The study gathered both primary and secondary data from three MMDAs: Tamale Metropolitan Assembly, Yendi Municipal Assembly and Saboba District Assembly. It employed a multi-stage sampling technique of questionnaires, interviews, focus groups and key informant interviews to collect data from respondents and obtain a snapshot of their situation in the 2013 fiscal year. It established that fines, property rates, licences, annual rates, investment income, permits, sales of tender documents, and business taxes were potential sources of revenue for the assemblies. Also, the study identified a range of strategies employed by assemblies to raise revenue: engagement of revenue collectors, use of a mobile revenue taskforce, registration of businesses, visits to markets and business centres, commission payments for revenue collectors, security checkpoints, incentivisation of revenue collectors, establishment of revenue collection points, and rotation of revenue collectors. Nevertheless, the study found that the MMDAs studied could not meet their IGF revenue targets for the 2013 fiscal year, with all three falling below 50%. This poor performance was attributed to: inadequate logistics to support effective IGF mobilisation; under-declaring of revenues; not enough revenue collectors; poor supervision and monitoring; poor compliance by ratepayers; corruption; political interference; inadequate knowledge and skills among revenue collectors; poor service delivery by the assemblies; ineffective collaboration; and lack of revenue data. Felix Puopiel Institute of Local Government Studies Northern Region Ghana Musah Chimsi Saboba District Assembly Northern Region Ghana Puopiel & Chimsi Internally generated funds in Northern Ghana CJLG December 2015 148 Introduction The local government system in Ghana is premised on the assumptions that development must respond to people’s problems and represent objectives and priorities; and that responsibility for development is shared by central government, local governments, parastatals, non-governmental organisations (NGOs) and the people as the ultimate beneficiaries of development. District assembly financing resources are thus essential to enable local governments to translate their powers and competences into development activities. The financial provisions for Ghana’s local government system are contained in Section 27, Parts IV and VIII of the Local Government Law 1988; in the Provisional National Defence Council (PNDC) Law 207; and in Articles 245 and 252 of the 1992 Constitution of the Republic of Ghana (Government of Ghana 1988, 1992, 1993 and 2003). In this regard, revenues for decentralised government agencies (ie Metropolitan, Municipal and District Assemblies (MMDAs) are broadly classified as internally generated funds (IGF), District Development Facility (DDF) grants and central government transfers (grants-in-aid and ceded revenue). The introduction of the District Assemblies Common Fund (DACF), under which 7.5% of the national budget is allocated to districts, has further strengthened the framework of local government in Ghana. To strengthen the financing base of MMDAs, the Local Government Act 1993 (No. 462) allows MMDAs to raise revenue locally for the purpose of undertaking independent development projects without needing to rely on central government support or other external sources of funding. However, research has shown that over the years MMDAs have not been able to do this effectively. Empirical studies have shown that more than 60% of revenues for MMDAs have come from central government and partner sources. Osei-Akoto et al. (2007) found that between 1994 and 2004 IGF constituted an average of just 31.8% of MMDA revenue, whereas nearly 60% came from other sources (eg grants from development partners, the DACF and the DDF). Furthermore, in 2006 Ghana’s Ministry of Local Government, Rural Development and Environment indicated that IGF for MMDAs stood at 18% of revenues, compared to central government grants at 82% (cited in Appiah-Agyekum et al. 2013). This implies a wide gap between revenues generated internally and those coming from external sources. MMDAs’ inability to generate substantial internal revenues for development projects is a national problem, but it appears to be particularly acute in the Northern Region. IGF statistics for the past five years in the Region show consistent budget deficits due to inadequate generation of IGF by MMDAs. The average revenue performance of the Northern Region on IGF stood at 74% of budgeted performance in 2008, dropping to 62% in the 2009 fiscal year, then rising to 83% in 2010 and Puopiel & Chimsi Internally generated funds in Northern Ghana CJLG December 2015 149 maintaining that level in 2011. However, average IGF performances in the Region then dropped to 76.15% and 67.01% of budgeted revenue during the 2012 and 2013 fiscal years (Northern Region Coordinating Council 2008/13). The question thus remains how adequate the revenues mobilised are to finance development projects? Thus, most MMDAs in the Region rely heavily on central government transfers (notably the DACF) and other external sources to finance their development projects. But this reliance typically delays the implementation of their Medium Term Development Plans (MTDPs). Funding often fails to meet budgeted requirements, which means that development projects are not completed on schedule or often left uncompleted. It is thus crucial for MMDAs to mobilise locally generated funds, in order to implement development plans without needing to rely on central government and development partners. In this light, this study seeks to explore why MMDAs in the Northern Region have difficulty in meeting IGF targets. Objectives The paper has four main objectives: i) to assess the sources of IGF for MMDAs; ii) to document the strategies employed by assemblies in generating revenue locally; iii) to analyse the effectiveness of these strategies; and iv) to examine the challenges encountered by the assemblies in mobilising the funds they need. Literature review This section discusses relevant literature on IGF mobilisation, including conceptual and empirical frameworks. Conceptual framework The concept of IGF is defined variously by authors. According to Kazentet (2011) an internally generated fund (IGF) consists of funds collected exclusively by or for sub-national governments. Operationally, IGF is revenue that is directly generated by district assemblies (DAs) within their areas of jurisdiction, and as such is the only revenue over which DAs have absolute control (how and where it is spent). The sources of IGF as spelt out by Lutaya and West (2009) and Adu-Gyamfi (2014) are illustrated in Table 1. Puopiel & Chimsi Internally generated funds in Northern Ghana CJLG December 2015 150 Table 1: Sources of IGF Source of IGF 1 Fees 2 Fines 3 Property rates 4 Licences 5 Rents 6 Annual rates 7 Investment income 8 Possession tax (A tax levied on movable property, for example cattle ranch, motor bicycle, tractors, commercial vehicles, etc.) Source: Lutaya and West 2009; Adu-Gyamfi 2014 Figure 1 below presents a conceptual view of effective mobilisation of IGF by MMDAs. The diagram shows that the effectiveness of mobilisation depends on which strategies are adopted and how efficient they are, which itself depends on the quality and capacity of MMDA staff, ie: the skills, knowledge and experience of permanent, casual, or volunteer staff engaged in IG collection and administration. However, there are also other factors that affect effective mobilisation of IGF, such as: the extent to which the general public is aware of the need to pay and co-operate in paying fees, taxes, or rates, and the extent of corruption associated with IGF structures and mobilisation. Figure 1: Key variables in MMDA IGF mobilisation Source: Authors 2014 Puopiel & Chimsi Internally generated funds in Northern Ghana CJLG December 2015 151 Empirical framework Various studies have been conducted on the success of local authorities in Ghana (ie MMDAs) in mobilising IGF to undertake development projects. One such study is that of Abura-AsebuKwamankese District Assembly in the 2011/12 fiscal year by Dick-Sagoe (2012). He established that the assembly did not meet its revenue targets partly due to a lack of the required staffing and skills, and partly due to a lack of innovation on the part of the assembly. This situation was not unique to Abura-Asebu-Kwamankese District Assembly, but was also found in Kumasi Metropolitan Assembly, which had been expected to do well in terms of IGF generation because they have a large revenue pool (Dick-Sagoe 2012). In another study, Alupungu et al. (2012) found that IGF for the Kumasi Metropolitan Assembly in the 2011/12 fiscal year constituted just 12% of total revenue, implying an even wider gap between IGF and external sources for all MMDAs. This abysmal performance was attributed to citizens’ lack of awareness of the need to pay taxes to the assembly, as well as to inadequate logistics and lack of motivation by revenue collectors. Agyapong (2012), in a study of Kumasi Metropolitan Assembly, further found that revenues mobilised could not finance the infrastructure needed, finding that the shortfall of revenue was mainly due to corruption amongst revenue collectors, officers and assemblymen in the various Sub-Metro Districts. The study concluded that Kumasi was not harnessing fiscal decentralisation enough to empower itself under the Local Government Act 1993, with the result that the assembly had not developed new and sustainable strategies to improve its performance in revenue mobilisation. The assembly, like many local authorities in Ghana, was over-reliant on the DACF to meet its


Introduction
The local government system in Ghana is premised on the assumptions that development must respond to people's problems and represent objectives and priorities; and that responsibility for development is shared by central government, local governments, parastatals, non-governmental organisations (NGOs) and the people as the ultimate beneficiaries of development.District assembly financing resources are thus essential to enable local governments to translate their powers and competences into development activities.
The financial provisions for Ghana's local government system are contained in Section 27, Parts IV and VIII of the Local Government Law 1988;in the Provisional National Defence Council (PNDC) Law 207; and in Articles 245 and 252 of the 1992 Constitution of the Republic of Ghana (Government of Ghana 1988, 1992, 1993and 2003).In this regard, revenues for decentralised government agencies (ie Metropolitan, Municipal and District Assemblies (MMDAs) are broadly classified as internally generated funds (IGF), District Development Facility (DDF) grants and central government transfers (grants-in-aid and ceded revenue).The introduction of the District Assemblies Common Fund (DACF), under which 7.5% of the national budget is allocated to districts, has further strengthened the framework of local government in Ghana.
To strengthen the financing base of MMDAs, the Local Government Act 1993 (No. 462) allows MMDAs to raise revenue locally for the purpose of undertaking independent development projects without needing to rely on central government support or other external sources of funding.However, research has shown that over the years MMDAs have not been able to do this effectively.Empirical studies have shown that more than 60% of revenues for MMDAs have come from central government and partner sources.Osei-Akoto et al. (2007) found that between 1994 and 2004 IGF constituted an average of just 31.8% of MMDA revenue, whereas nearly 60% came from other sources (eg grants from development partners, the DACF and the DDF).Furthermore, in 2006 Ghana's Ministry of Local Government, Rural Development and Environment indicated that IGF for MMDAs stood at 18% of revenues, compared to central government grants at 82% (cited in Appiah-Agyekum et al. 2013).This implies a wide gap between revenues generated internally and those coming from external sources.
MMDAs' inability to generate substantial internal revenues for development projects is a national problem, but it appears to be particularly acute in the Northern Region.IGF statistics for the past five years in the Region show consistent budget deficits due to inadequate generation of IGF by MMDAs.
The average revenue performance of the Northern Region on IGF stood at 74% of budgeted

Objectives
The paper has four main objectives: i) to assess the sources of IGF for MMDAs; ii) to document the strategies employed by assemblies in generating revenue locally; iii) to analyse the effectiveness of these strategies; and iv) to examine the challenges encountered by the assemblies in mobilising the funds they need.

Literature review
This section discusses relevant literature on IGF mobilisation, including conceptual and empirical frameworks.

Conceptual framework
The concept of IGF is defined variously by authors.According to Kazentet (2011) an internally generated fund (IGF) consists of funds collected exclusively by or for sub-national governments.
Operationally, IGF is revenue that is directly generated by district assemblies (DAs) within their areas of jurisdiction, and as such is the only revenue over which DAs have absolute control (how and where it is spent).The sources of IGF as spelt out by Lutaya and West (2009) and Adu-Gyamfi (2014) are illustrated in Table 1.

Empirical framework
Various studies have been conducted on the success of local authorities in Ghana (ie MMDAs) in mobilising IGF to undertake development projects.One such study is that of Abura-Asebu-Kwamankese District Assembly in the 2011/12 fiscal year by Dick-Sagoe (2012).He established that the assembly did not meet its revenue targets partly due to a lack of the required staffing and skills, and partly due to a lack of innovation on the part of the assembly.This situation was not unique to Abura-Asebu-Kwamankese District Assembly, but was also found in Kumasi Metropolitan Assembly, which had been expected to do well in terms of IGF generation because they have a large revenue pool (Dick-Sagoe 2012).
In another study, Alupungu et al. (2012) found that IGF for the Kumasi Metropolitan Assembly in the 2011/12 fiscal year constituted just 12% of total revenue, implying an even wider gap between IGF and external sources for all MMDAs.This abysmal performance was attributed to citizens' lack of awareness of the need to pay taxes to the assembly, as well as to inadequate logistics and lack of motivation by revenue collectors.Agyapong (2012), in a study of Kumasi Metropolitan Assembly, further found that revenues mobilised could not finance the infrastructure needed, finding that the shortfall of revenue was mainly due to corruption amongst revenue collectors, officers and assemblymen in the various Sub-Metro Districts.The study concluded that Kumasi was not harnessing fiscal decentralisation enough to empower itself under the Local Government Act 1993, with the result that the assembly had not developed new and sustainable strategies to improve its performance in revenue mobilisation.The assembly, like many local authorities in Ghana, was over-reliant on the DACF to meet its capital expenditure, while much of its IGF went on administrative costs.
The difficulty local authorities face in raising local revenue to undertake development projects is not peculiar to Ghana.Buettner and Wildasin (2006) found that in the United States an increase in external grants to local governments led to reduced own-revenue generation.
In Nigeria, a study by Chukwuma in 2010 noted that the most crucial challenge to local authorities in Nigeria in mobilising IGF was their inability to raise, retain and manage revenues.This was attributed to instability within the political system, the absence of structured institutions for raising IGF, and the unsustainability of identified sources of IGF.Nevertheless, there have been a few successes in Nigeria.Adesoji and Chike (2013)

Study area and methodology
This section briefly describes the study area and the methodology employed in collecting data.

The study area
The Northern Region is an administrative region of Ghana, with Tamale as its capital.It is the largest Region in Ghana in terms of land area, at about 70,384 km 2 (29% of the country's total land area).

Research design
As this paper aims to assess the effectiveness of IGF mobilisation by MMDAs, a research design was adopted that is both descriptive and cross-sectional, using qualitative and quantitative data to yield verbal and numerical pictures, and uncover information which can stimulate new explanations to contradict or support prior beliefs about a subject (Neuman, 1997;Sarantakos, 2005).The combination of descriptive and cross-sectional elements aimed to expose any differences of views and dynamics between the various study populations.Collection of both primary and secondary data enabled the researchers to identify and describe the effectiveness of IGF mobilisation by MMDAs in Tamale Metropolis, Yendi Municipality and Saboba District, giving a snapshot of the situation as it existed when the study was conducted.

Sources of data
Primary data was gathered from administrative staff, IGF collectors and tax or ratepayers within the selected MMDAs.Secondary data was sourced from MMDA reports, mainly annual reports on IGF targets and mobilisation activities.The secondary sources helped to identify relevant information on the conceptual issues, and to identify research gaps to guide the primary data needed.

Study population and sample size
The study captured three categories of respondents, all of whom had day-to-day roles in IGF mobilisation within the selected MMDAs (Table 2).The total sample size for the study was 279, with the breakdown of respondents in Table 3. without replacementie each time a number was selected it was not put back into the bag.All numbers selected were then matched to their corresponding IGF collector name on the list.
A 'convenience' sampling technique was used to select respondents with obligations to pay IGF, since no detailed list of this category of respondents was available.Finally, a purposive sampling technique was used to select assembly administrative staff for inclusion.

Results and discussion
This section analyses and discusses the field data collected, according to the thematic areas addressed in the paper.These are: sources of IGF, collection strategies and their effectiveness, and collection challenges confronting the district assemblies under study.

Sources of IGF
The sources of IGF identified by the field data were similar to those spelt out in the Local Government Act 1993 and those found by earlier researchers (Lutaya and West 2009;Kazentet 2011;Agyapong 2012;Alupungu et al. 2012; and Adu-Gyamfi 2014) (see Table 1).This suggests a potentially wide revenue pool for MMDAs in the region, since they are entitled to collect revenue from multiple sources.

Strategies for mobilising IGF
The field data showed that all the district assemblies had strategies for mobilising revenue (Table 4).As the table shows, interestingly, the strategies appear to be similar across the three assemblies except for a few which are peculiar to Tamale Metropolis.These could be attributed to its urban character, which offers relatively greater revenue potential than exists in other districts.The IGF mobilisation strategies used by the assemblies corroborate findings by Adesoji and Chike (2013), who identified enforcement by tax personnel, increasing contributions, and awareness-raising among the general public as strategies adopted in Nigeria for effective IGF mobilisation by Federal States.
However, further enquiry and analysis indicated that the strategies employed by the assemblies did not enable them to mobilise enough revenue to undertake development projects.In this regard, the majority (63%) of respondents rated the strategies employed by the assemblies as insufficient, citing as reasons assemblies' lack of an effective revenue management system and lack of staff capacity.
Responses indicated a view that the available sources of IGF were quite extensive, but were inadequately exploited by the assemblies.

Effectiveness of strategies for IGF mobilisation
Respondents were asked to assess the effectiveness of strategies used by MMDAs in mobilising revenue for the 2013 fiscal year.As an introductory question, respondents, mainly assembly staff and revenue collectors, were asked whether their assembly set revenue targets or not.Source: Field data 2014 As Table 5 indicates, the majority (76%) of respondents (mostly assembly staff and revenue collectors) said that their assembly sets annual revenue targets.Thus, it would appear that the assemblies do set targets, with planned strategies to achieve the targets, but these are imperfectly communicated to tax payers, as about 24% of respondents had no knowledge of the taxation process.
This indicates that many people, particularly revenue-payers, still do not know much about the collection processes for IGF, although this may include an element of tax dodging.
Table 6 outlines the revenue targets of the three assemblies.(approximately US$ 1.5 million at current rates), followed by Tamale Metropolis, and finally Saboba District with the lowest target (GH¢84,614.50).Yendi's revenue target of about 80% of the total revenue of the three MMDAs may be due to their 2012 IGF performance.The IGF targets were to be achieved using strategies identified by the assemblies.This study sought to establish whether the revenue targets were achieved, with the results shown in Table 7. Source: Field data 2014 In spite of the numerous sources of revenue available to the selected assemblies, their fiscal performances were below expectation.Table 7 shows that none of them achieved their revenue targets; rather they were in deficit.This could be attributable mainly to dishonest behaviour by revenue collectors and/or unwillingness of those liable for taxes or rates to pay them, resulting in Metropolitan Assembly also used revenue thresholds, and used a special tax force to collect the revenue.

Challenges of mobilising IGF
Earlier researchers such as Kelly (1995), Boachie-Danquah (1996), King et al. (2003), Nicol (2005) and Agyapong (2012) established a number of challenges confronting MMDAs in effectively mobilising IGF.These included lack of adequate IGF databases, weak monitoring, under-declaration by revenue collectors, corruption, and lack of trained personnel.These challenges are similar to those established by this study (Table 8).

Summary
The paper established that there are various sources from which the studied MMDAs could raise IGF (Table 1).The paper also revealed that the MMDAs under consideration employed various strategies to do this (shown in Table 4).Despite these strategies, however, the assemblies could not meet their revenue targets for the 2013 fiscal year, which suggests that the strategies were not robust or effective.
Furthermore, the study found that the general public was not well informed about the rationale for paying rates and charges, which fuelled a perception among respondents that IGF mobilisation by the assemblies had no impact on local-level development.In this light, about 71% of tax and rate payers strongly indicated that they did not feel the benefits of any taxes they paid to the assembly and that was why they did not feel any responsibility to pay such taxes.The study nevertheless revealed that a majority (66%) of respondents acknowledged that the behaviour of those with charge-paying obligations was very poor, suggesting that the problem was deliberate avoidance, rather than ignorance of the need to pay rates or taxes, partly due to their sense that IGF revenues do not translate into local development.
The study also documented a strong perception among the public that there exists corruption in revenue collection processes.This was attributed to poor supervision by the assembly authorities.
Finally, the study documented various challenges confronting the assemblies in their efforts to effectively raise revenues (Table 8).
performance in 2008, dropping to 62% in the 2009 fiscal year, then rising to 83% in 2010 and maintaining that level in 2011.However, average IGF performances in the Region then dropped to 76.15% and 67.01% of budgeted revenue during the 2012 and 2013 fiscal years (Northern Region Coordinating Council 2008/13).The question thus remains how adequate the revenues mobilised are to finance development projects?Thus, most MMDAs in the Region rely heavily on central government transfers (notably the DACF) and other external sources to finance their development projects.But this reliance typically delays the implementation of their Medium Term Development Plans (MTDPs).Funding often fails to meet budgeted requirements, which means that development projects are not completed on schedule or often left uncompleted.It is thus crucial for MMDAs to mobilise locally generated funds, in order to implement development plans without needing to rely on central government and development partners.In this light, this study seeks to explore why MMDAs in the Northern Region have difficulty in meeting IGF targets.

Figure 1
Figure 1 below presents a conceptual view of effective mobilisation of IGF by MMDAs.The diagramshows that the effectiveness of mobilisation depends on which strategies are adopted and how efficient they are, which itself depends on the quality and capacity of MMDA staff, ie: the skills, knowledge and experience of permanent, casual, or volunteer staff engaged in IG collection and administration.However, there are also other factors that affect effective mobilisation of IGF, such as: the extent to which the general public is aware of the need to pay and co-operate in paying fees, taxes, or rates, and the extent of corruption associated with IGF structures and mobilisation.

Figure 2 :
Figure 2: Case study MMDAs Source: Authors 2014 The Northern Region lies completely in the savannah belt of Ghana, and shares borders with Togo to the east, Côte d'Ivoire to the west, Brong Ahafo and Volta Regions to the south and Upper East and Upper West Regions to the north (Yussif 2012).It has 24 MMDAs: one Metropolitan Assembly, two Municipalities and 21 districts.The case study MMDAs: Tamale Metropolitan Assembly, Yendi Municipal Assembly and Saboba District Assembly (Figure 2), were chosen as representing a diversity of MMDAs since the study targeted a metropolis, municipal and district.This also enabled the study to look at potential variations in IGF mobilisation (sources, strategies and challenges) between metropolitan, municipal and district assemblies.
inadequate mobilisation of IGF.This supports the findings ofOsei-Akoto et al. (2007) andAppiah- Agyekum et al. (2013) that MMDAs were unable to mobilise the needed revenue internally to finance development projects.Thus despite the abysmal performance of IGF collection by the three MMDAs, Yendi did better than the rest, and were able to mobilise almost twice the revenue of Tamale, possibly because revenue collectors were given bonuses if they met certain revenue targets in a month.Yendi

Table 1 :
Sources of IGF In conclusion, the literature suggests that IGF mobilisation is a problem for local authorities in developing countries generally, and Ghana is no exception.Most assemblies in Ghana are over-reliant on central government transfers (notably the DACF) and external sources to finance development projects.This study now turns to the question of why MMDAs are unable to mobilise the needed revenue.
established that IGF had contributed significantly to the infrastructure development in Lagos State.The main strategies employed in mobilising IGF by Lagos State were enforcement by penalising non-payers, training of tax personnel, and awareness-raising among the general publicthe potential taxpayersabout their responsibility to pay.

Table 3 :
Study population and sample size Table3shows that the sample size for IGF payers was 130; that of IGF collectors was 108; and that of administrative staff was 41.The total sample size for Tamale Metropolis was 145; for Yendi Municipality 83; and for Saboba District 51.

Table 4 :
Strategies for mobilising IGF

Table 5 :
Setting of revenue targets by MMDAs

Table 7 :
IGF mobilisation performance of assemblies in 2013 Fiscal Year

Table 8 .
Challenges faced by MMDAs in mobilising IGF Ineffective collaboration between MMDAs and relevant institutions such as the Town and Country Planning Department, Land Valuation Board and National Board for Small Scale Industries (NBSSI) 11.Inefficiency of revenue collectors 12. Lack of database of taxable properties Source: Field data 2014