Decentralisation and Regional Development: Experiences and Lessons From Four Continents Over Three Decades

Springer Geography
Eva Dick
Karin Gaesing
Daniel Inkoom
Teodoro Kausel Editors
Decentralisation
and Regional
Development
Experiences and Lessons from Four
Continents over Three Decades
Springer Geography
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Eva Dick Karin Gaesing
•
Daniel Inkoom Teodoro Kausel

•
Editors
Decentralisation
and Regional Development
Experiences and Lessons from Four
Continents over Three Decades
123
Editors
Eva Dick Daniel Inkoom
Faculty of Spatial Planning Department of Planning
TU Dortmund University Kwame Nkrumah University of Science
Dortmund and Technology
Germany Kumasi
Ghana
Karin Gaesing
Faculty of Spatial Planning Teodoro Kausel
TU Dortmund University Department of Economics, Administration
Dortmund Universidad Austral de Chile
Germany Valdivia
Chile
ISSN 2194-315X ISSN 2194-3168 (electronic)

Springer Geography
ISBN 978-3-319-29365-3 ISBN 978-3-319-29367-7 (eBook)
DOI 10.1007/978-3-319-29367-7
Library of Congress Control Number: 2016938651
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Foreword
Einhard Schmidt-Kallert: A Life in Search of Understanding
We have reached a point in the evolution of our Western Civilisation, in which we

know a lot, but understand very little. Our evolutionary voyage has been conducted
by reason which leads to the conquest of knowledge. In that process we have been
overwhelmingly successful. Never in the history of humanity have we accumulated
more knowledge than during the last 120 years. We are celebrating the apotheosis
of reason, but in the midst of such a celebration we are suddenly feeling that
something is missing. We realise that despite so many spectacular achievements,
our quality of life has deteriorated and life in general is facing the possibility of
extinction if we continue with more of the same. So, what has been the benefit of so
much knowledge?
As I have pointed out elsewhere,1 we can achieve knowledge about almost
everything we want. We can, for instance, guided by our beloved scientific method,
study everything there is about a human phenomenon called love. The result will be
that we will know everything that can be known about love. But once we achieve
that complete knowledge, we will sooner or later discover that we will never
understand love unless we fall in love. We will realise that knowledge is not the
road that leads to understanding. We will then be aware that we can attempt to
understand only that of which we become a part. That understanding is the result of
integration, while knowledge has been the result of detachment. That understanding
is holistic, while knowledge is fragmented.
The world in which we are is the world of incomplete human beings. If we want
to improve the catastrophic situation in which we are living today, we don’t need to
know more, but to understand more. We should remember Goethe who proposed
that “science is as much an inner path of spiritual development as it is a discipline
aimed at accumulating knowledge of the physical world. It involves not only a
rigorous training of our faculties of observation and thinking, but also of other
Smith and Max-Neef “Economics Unmasked” Chapter 1. Green books, U.K. 2011.
1
v
vi Foreword
human faculties which can attune us to the spiritual dimension that underlies and
interpenetrates the physical: faculties such as feeling, imagination and intuition”.
We should realise that knowledge without understanding is hollow, and under-
standing without knowledge is incomplete. Our greatest challenge is, therefore, to
become complete beings capable of understanding the completeness of life.
Feeling, intuition and spirituality are absent from the world of science, Albert
Einstein notwithstanding, who said that “the intuitive mind is a sacred gift and the
rational mind is a faithful servant. We have created a society that honours the
servant and has forgotten the gift”.
It seems to me that if change is to occur, the greatest responsibility lies in the
university; and this is something that Einhard Schmidt-Kallert understands, and has
fought for all his academic life. Of course it has cost him painful problems,
unjustified criticisms and hostilities, as it always happens to those who cease to trust
the mainstream.
A programme like SPRING is a unique conception, difficult to find in other
places outside Dortmund. The fact that students from all over the world can come
for 1 year to Germany to study theory with the greatest rigour (and in passing
learning German), and then go during the second year to another country (not their
own) to find some often remote areas where to collect evidences, experiences and
knowledge of people of a totally different culture from their own, in order to write
their thesis (and in passing learning another new language) is a very rare case
among the innumerable Master Programmes that exist. I can personally vouch for
the fact that the students that arrive are no longer the same when they leave. They
go away with a new personality that will allow them to integrate themselves as
innovative members of their society, in the sense that they have not only acquired
more knowledge but have developed the capacity to understand.
I will never forget the case of one of our SPRING courses in Valdivia. It was a
total of eight students with seven religions plus one atheist. It was almost magic to
see the synergy that they developed and the camaraderie with which they acted and
behaved. It was a small but an important example that convinced us that peace and
understanding are possible if human stupidity could be minimised. No one a priori
wants to hate anybody else. This was, of course, something that the students
themselves understood.
All this has been possible because of a man that managed, in spite of all the
difficulties, to become and remain coherent with himself. We are proud of him!!
Einhard Schmidt-Kallert, VIVAT, CRESCAT, FLOREAT ET GAUDEAT!!!
Manfred Max-Neef
Editorial
It is with great pleasure to write this editorial in honour of a mentor, friend and
colleague Prof. Dr. Einhard Schmidt-Kallert on the occasion of his retirement from
TU Dortmund University, Germany. We also wish to recognise his contribution to
the conceptualisation, establishment and continuous advancement of the SPRING
(Spatial Planning for Regions in Growing Economies) Master Programme with
which he has been associated since its inception in 1984. From its initial design as a
co-operation between the TU Dortmund and the Kwame Nkrumah University of
Science and Technology in Kumasi, Ghana, SPRING has now grown to a current
status of a network of five universities jointly offering a Master course in Regional
Planning and Management in developing countries. Apart from Dortmund and
Kumasi, the network includes the School of Urban and Regional Planning,
University of the Philippines, Ardhi University in Dar es Salaam in Tanzania and
Universidad Austral de Chile in Valdivia, Chile.
Decentralisation and regional development, the subject of this book, is, in our
view an appropriate subject, as Schmidt-Kallert committed a lot of his time and
effort contributing to the decentralisation process in countries where he lived
and worked, especially in Ghana, where he was a DAAD Guest Lecturer on the
SPRING Programme in the late 1980s.
Currently, governments all over the world are encouraged to enhance popular
participation in decision-making and issue-informed policies that are based on and
respond to the needs of local communities. This has led to a paradigm shift from
centralised governance to decentralised, local governance systems (European
Commission 2007). The latter is promoted in contemporary literature as a means of
contributing to efficient public sector management, local level empowerment,
equitable resource distribution, political stability and effective public service
delivery (Harriet 2008; Bornwell 2010; Rodríguez-Pose 2008), all of them leading
to poverty reduction.
The benefits of decentralisation across the world are thus many and well
documented. It was shown that decentralisation, when practiced effectively, can
provide the impetus for pro-poor growth and remove disparities among regions by
vii
viii Editorial
way of a balanced national development. For instance, in sub-Saharan Africa

decentralised states have made more progress in reducing poverty and achieving the
Millennium Development Goals as compared to states with a lower decentralisation
score (Beerfeltz 2013). The phenomenal industrial growth in China in the last two
decades in the non-state private sector for example has been attributed to the
framework of decentralisation. India introduced far-reaching constitutional reforms
in favour of decentralisation around the same time it launched a major programme
of economic reform in the early 1990s (Bardhan 2002). For many countries both
from the global South and North, decentralisation has been the mechanism through
which effective governance, availability of financial resources, and the provision of
basic public services have been delivered.
From a spatial point of view, the link between decentralisation and regional and
district development is particularly interesting. Regions—territorial units between
municipalities and nation states—are defined as socially or historically constituted
‘soft spaces’ and a result of dense interactions between space-based stakeholders
from public and private sectors, and civil society (Benz et al. 1999). In economic
geography the important role of regional value chains in the light of globalised
competition has been stressed (Amin and Thrift 1994). Both in the North and in the
South, regional or district development is attributed a distinct potential for
advancing social and economic development, even more so in decentralised policy
settings. Space-based networks on regional or district levels, e.g. between urban
centres and their rural hinterlands are considered instrumental for strengthening
rural–urban linkages and responding to locally specific challenges, e.g. in eco-
nomically lagging areas (Douglass 1998).
Despite the orientation of decentralisation and regional development which
promotes grassroots participation and collectivism, their ultimate form and extent of
implementation continues to breed much concern among researchers and policy
makers. Thus, the trending debate on best practices in decentralisation and regional
development in relation to promoting effective and efficient resource allocation and
socio-economic development continues to linger. The debate is highly entrenched
in developing countries most of which are still trying to find their way to stable
economic and political governance.
In an attempt to analyse the complexities of decentralisation and regional
development, the European Commission (2007) suggested that the effectiveness
and extent of decentralisation is affected by internal (national and local) and
external factors (international and global). These include the institutional arrange-
ments to support decentralisation as well as the willingness of political authorities to
undertake extensive administrative, fiscal and political decentralisation (devolution)
(Bornwell 2010; Yeboah and Obeng-Odoom 2010). These core factors are further
affected by the overall status of democratisation at local and national levels and the
concrete strategies adopted in formulating, harmonising and implementing national
and local level strategies. These factors partly explain the disparities in the devel-
opment between developing and developed economies due to stronger institutions
and extensively devolved authority and responsibility in the latter.
Editorial ix
Thus, the practice of decentralisation and regional development in Europe and

North America for example is characterised by extensive administrative, fiscal and
political autonomy. Meanwhile, in Africa and Asia (Bornwell 2010) one observes a
continuous control over the sub-national bodies by the central government
authorities (Kiwanuka 2010; European Commission 2007). This is opposed to the
aim of decentralisation and regional development—to devolve decision-making and
service delivery to local level thereby enabling grassroots communities to take
charge over their own development while streamlining the process of development
at national, regional and local levels (Harriet 2008).
Informed decision-making and the political will to decentralise also hinge on
issue-based education and capacity building of the responsible actors. The inter-
national Master programme “Spatial Planning for Regions in Growing Economies”
(SPRING) has an almost 30 years track record in studying decentralisation and
regional development. As a centre of learning and debate and international aca-
demic network, SPRING has effectively contributed to scientific and policy debate
in these areas and the implementation of regional or district planning reforms in
different countries and world regions.
The present volume offers insight into this expertise and at the same time
contributes to cross-continental comparison. It analyses decentralisation and
regional development paths and success factors in different policy sectors in each
of the five SPRING partner countries and looks at overarching aspects of relevance.
It takes account of particular historical, socio-economic and political contexts
within which decentralisation reforms have been implemented. It analyses success
stories as well as challenges and provides hints for improving the overall process
for the benefit of citizens. Each country is represented with two articles referring to
distinct fields of relevance in the respective national context.
The article of Imoro Braimah and Daniel Inkoom starts off with exploring
Ghana’s District Development Facility as a means of financing decentralised
development in Ghana. They argue that even though this funding allows
Metropolitan, Municipal and District Assemblies (MMDA) to finance critical
development projects, the sustainability of such funding is questionable till today a
large part of the funds being derived from Ghana’s international development
partners. They point to the fact that the country should earmark some of its
resources from recent economic developments (e.g. the production of oil and gas) to
bridge some of the funding gaps identified at the MMDA level.
Also with respect to Ghana, Eric Oduro-Ofori examines the contribution of
Ghana’s decentralisation process to local economic development (LED) promotion.
The roles played by local governments through municipal development planning
and implementation, provision of infrastructure, land use planning and physical
development are examined. Challenges such as weak institutional set-up and
inadequate capacity for LED promotion within the local government set-up are
identified. Notably, the absence of a national and local level policy framework to
guide LED promotion has compromised its effectiveness.
In Germany, post-war decentralisation policies have resulted in relatively equal
standards of living between regions as well as urban and rural areas, by both
x Editorial
international and European standards. The article of Volker Kreibich points to the
central place system as the underlying planning paradigm and discusses the chal-
lenges German re-unification has posed to developing similar service and infras-
tructure provision levels in the eastern and western parts of the country. In spite
of the experienced problems, the German case provides insight into spatial devel-
opment pathways and instruments balancing economic requirements and social
objectives.
In the German context, notably innovative planning concepts and tools beyond
statutory regulations have proved key ingredients of successful decentralisation and
regional development. In their paper titled “Decentralisation in the German context:
An assessment of governance actors and approaches ‘from below’” Katrin Bäumer
and Günter Kroës analyse such emerging governance approaches of decentralisa-
tion. They show how more informal and temporary approaches are articulated with
existing bureaucratic power structures for a more effective regional development.
This is illustrated by way of the initiative ‘Land-Zukunft’ (future of the rural region)
which seeks to strengthen entrepreneurial linkages in self-defined functional regions
spanning rural–urban and administrative boundaries.
The next paper in the volume is from Tanzania and is written by Wilbard Kombe
and Ally Namangaya. It deals with decentralisation and urban governance in
Tanzania and particularly analyses the implementation of the Development-
by-Devolution programme in eight urban centres. The authors argue that despite the
political will and commendable achievements, e.g. in stakeholder participation in
service delivery in solid and liquid waste management, there are still many chal-
lenges to overcome. Most of all, it appears that the local government authorities are
assigned functions and responsibilities to implement the programme, but they are
not given the mandate and resources to perform the roles or deliver the services
expected from them.
The second paper from Tanzania touches on decentralisation of municipal ser-
vices in Tanzania, with a particular emphasis on the opportunities and challenges.
Authored by Alphonce Kyessi and John Lupala, the paper traces the history of
decentralisation of service delivery from the first decade of independence from
1961 to 1971 and uses two cases of decentralised water supply and solid waste
management to demonstrate that there are still challenges mainly due to the culture
of hoarding power, and the unwillingness of central authorities to devolve power to
lower units.
For the Philippines, the article of Mario Delos Reyes and Nicasio B. Espina Jr.
analyses decentralisation and its implications on land use and local environmental
planning and management, using Marikina city as a case study. The authors
examine the operational effectiveness of the Local Government Code (LGC) and
the autonomy of Local Government Units (LGUs). They come to the conclusion
that like other good legislations, the conditions and implementing rules and regu-
lations have to be continuously reviewed and modified to address new problems of
local and regional significance. The study demonstrates that almost 23 years after
the enactment of the code, critical issues such as regional land use, zoning and local
environmental planning and management are yet to be adequately addressed.
Editorial xi
This among other constraints as manpower and funding is cited as reasons why the
code has not seen its full benefits in the implementation of the decentralised
process.
The Philippines is among the countries worldwide most confronted by and
vulnerable to natural disasters. The second Philippine article, written by Kristine
Follosco-Aspiras and Arlene D.R. Santiago, thus assesses the effectiveness of
decentralisation policies on Disaster Risk Reduction Management (DRRM) using
the case of Hagonoy in Bulacan. The key objective of the paper is to see how the
salient features of DRR are strengthened by decentralisation. The paper draws
several lessons including the following: through decentralisation, people have been
empowered to use their skills and knowledge to strengthen DRR Management
efforts at local level and that leadership at national level is still necessary for
effective decentralisation to occur. The paper, however, stresses that both vertical
integration and complementary policies are needed if decentralisation is to play its
full role in DRRM.
The last paper in the volume authored by Felix Fuders is on smarter money for
smarter cities. Fuders asks how regional currencies can help promote a decen-
tralised and sustainable regional development. Pointing to the subprime and Euro
crisis that hit financial markets and relating to various cases in the Chilean and
Latin-American context, he argues that local or regional money does not only
strengthen the local economy and support decentralised and prosperous regional
development, but that it can also be a true alternative to the fractional reserve
financial system.
The volume provides a good overview of decentralisation and regional devel-
opment across continents, and a fitting piece for one of the ardent advocates.
The editors would like to take this occasion to extend special thanks to
Ms. Helen Labuschagne, who diligently polished the English language of all
contributions. In addition, we are very grateful to Ms. Hanna Wülk, who assisted us
with the editing and the layout of the contributions.
Eva Dick
Karin Gaesing
Daniel Inkoom
Teodoro Kausel
References
Journals and Articles

Bardhan, P. (2002). Decentralization of governance and development. Journal of Economic
Perspectives, 16(4), 185–205.
Beerfeltz, H.-J. (2013). A lever for reducing poverty. Development and Cooperation (D+C) (3),
104–106.
Bornwell, C. (2010). Democratic local governance in the Southern African development
community region. Commonwealth Journal of Local Governance, (5), 145–157.
xii Editorial
Douglass, M. (1998). A regional network strategy for reciprocal rural-urban linkages: An agenda
for policy research with reference to Indonesia. Third World Planning Review, 20(1), 1–33.
Harriet, C. (2008). Communities in control? The challenges of neighbourhood governance with
reference to local government reform in England. Commonwealth Journal of Local
Governance (1), 49–69.
Kiwanuka, M. (2010). Decentralisation and good governance in Africa: Institutional challenges to
Uganda’s local governments. Journal of African and Asian Local Government Studies, 44–59.
Yeboah, E., & Obeng-Odoom, F. (2010). ‘We are not the only ones to blame’: District
Assemblies’ perspectives on the state of planning of planning in Ghana. Commonwealth
Journal of Local Governance (7), 78–98.
Books and Chapters

Amin, A., & Thrift, N. (1994). Living in the global. In A. Amin & N. Thrift (Eds.), Globalisation,
institutions and regional development in Europe. Oxford: Oxford University Press.
Benz, A., Fürst, D., Kilper, H., & Rehfeld, D. (1999). Regionalisierung. Theorie – Praxis –
Perspektiven. Wiesbaden: VS Verlag für Sozialwissenschaften.
European Commission. (2007). Supporting decentralisation and local governance in third
countries. Luxembourg: European Commission.
Rodríguez-Pose, A. (2008). Decentralisation and local and regional development. Caracas,
Venezuela: CAF.
Contents
Theoretical Reflections on Ghana’s Decentralisation: Increasing

Discretional Funding Through the District Development Facility . . . . . . 1
Imoro Braimah and Daniel Inkoom
Decentralisation and Local Economic Development
Promotion at the District Level in Ghana. . . . . . . . . . . . . . . . . . . . . . . 15
Eric Oduro-Ofori
Levelling the Gradients—Planning for Equivalent
Standards of Living, The German Experience . . . . . . . . . . . . . . . . . . . 37
Volker Kreibich
Decentralisation in the German Context: An Assessment
of Governance Actors and Approaches ‘from Below’ . . . . . . . . . . . . . . 57
Katrin Bäumer and Günter Kroës
Decentralisation and Urban Governance: Trends and Lessons
from Cities in Tanzania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Wilbard Kombe and Ally Namangaya
Decentralisation of Municipal Servicing in Tanzania:
Opportunities and Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Alphonce G. Kyessi and John Lupala
Analysis and Lessons from Decentralisation and Its Implications
to Local Environmental Planning and Management
in the Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Mario R. Delos Reyes and Nicasio B. Espina, Jr.
xiii
xiv Contents
Assessing the Effectiveness of the Decentralisation Policy

on Disaster Risk Reduction and Management: The Case of Hagonoy,
Bulacan, Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Kristine Follosco-Aspiras and Arlene D.R. Santiago
Smarter Money for Smarter Cities: How Regional Currencies
Can Help to Promote a Decentralised and Sustainable Regional
Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Felix Fuders
Editors and Contributors
About the Editors
Dr. Eva Dick has an MA in Urban Sociology, Hispanic Literature and Latin
American Studies from the University of Hamburg and a Ph.D. from the Faculty of
Spatial Planning of TU Dortmund University where she has been working as a
Research Fellow and Lecturer since October 2005. Her research focus is about
rural–urban linkages and migration, as well as urban and regional governance in the
Global South, particularly Africa and Latin America. She has conducted empirical
research on these topics in different countries and published the results of her
studies in contributions to several books and journals. In addition to her academic
work she has worked as an urban and community development consultant in
sub-Saharan Africa, Latin America and Southeastern Europe.
Dr. Karin Gaesing holds a Diplom (equivalent to M.Sc.) in Geography and
Cultural Anthropology from the University of Bonn. She obtained her Ph.D.
(Dr. rer. pol.) at the Faculty of Spatial Planning of TU Dortmund University. She
has been working at the Faculty of Spatial Planning, Department of Planning in
Developing Countries, as Senior Researcher and Lecturer since 2004. Her fields of
expertise include participatory planning, gender issues, regional rural development
and land use planning. Apart from her academic career, she has worked as an
expatriate in GTZ projects in Côte d’Ivoire and Ethiopia and conducted numerous
consultancy assignments in Africa and India.
Daniel Inkoom is Senior Lecturer at the Department of Planning of the Kwame
Nkrumah University of Science and Technology (KNUST) in Kumasi (Ghana),
where he obtained his undergraduate degree. He obtained Post Graduate Certificates
in Forest Policy Analysis and Organisation and Systems Development from the
European Forest Institute in Joensuu, Finland and the Gestalt Institute of Cleveland
(USA), respectively, and a doctoral degree from the Technical University of
Dortmund (Germany). He is a member of the Ghana Institute of Planners (GIP), and
a certified Organisation Development Professional with consulting experience in
xv
xvi Editors and Contributors
Ghana and abroad. His research interests include urban governance, resource and
environmental management on which he has published in several international
peer-reviewed journals.
Contributors
Dr. Katrin Bäumer Spatial Planner (Dipl. Eng.), Ph.D. in Economics and Social
Sciences studied Spatial Planning at the TU Dortmund University and the
University of Newcastle (GB). Dr. Bäumer has been working as Lecturer and
Researcher at TU Dortmund University (Germany) and is associate professor at the
German Jordanian University (Jordan).
During the past 10 years, she has focused her work on analysing the outcome
and efficiency of regional development funds and the formulation of respective
recommendations for future national policies in Germany. Besides her German
experience, Dr. Bäumer has been involved and has coordinated several evaluation,
research and consulting projects in the field of integrated regional development,
decentralisation and good governance in East Africa and the Middle East. The focus
of her teaching and training competences is on regional economic development,
financial questions in spatial planning and problems of plan implementation.
Prof. Imoro Braimah is currently the Provost of the College of Humanities and
Social Sciences in the Kwame Nkrumah University of Science and Technology
(KNUST). He is Associate Professor of Planning. He received his Bachelor of
Science (Honours) degree in Development Planning from the KNUST, Master of
Science in Development Planning and Management from the TU Dortmund
University (Germany) and KNUST, and a Ph.D. from the University of Kassel
(Germany). He has considerable research, teaching and consultancy experience in
strategic planning, demography and social infrastructure planning including edu-
cation, water and sanitation and energy, information and communication policy
analysis, decentralisation and urban planning and management.
Dr. Mario R. Delos Reyes is presently the Dean of the University of the
Philippines—School of Urban and Regional Planning (UP-SURP), Diliman,
Quezon City, Philippines. Dr. Delos Reyes finished his Ph.D. degree in Natural
Science at the University of Hamburg (Germany) and his Postgraduate Diploma in
Higher Education and International Development at the University of Kassel
(Germany). He received Master of Science in Fisheries/Coastal Management and
Bachelor of Science in Zoology both at the University of the Philippines in Diliman
and Los Banos, respectively. His fields of interests and experiences include urban
and regional planning, environmental planning and policy, climate change adap-
tation and disaster risk management, public–private partnerships for the urban
environment and coastal planning and management.
Editors and Contributors xvii
Nicasio B. Espina Jr. is a registered and licensed architect in the Philippines.

He has a BS in Architecture and a Diploma in Urban and Regional Planning from
the University of the Philippines, School of Urban and Regional Planning
(UP-SURP). He is currently completing his Master’s degree in the same university
with a specialisation in Environmental Management and Natural Resources
Planning. Mr. Espina is working with local government units, national government
agencies, national and international academic institutions, NGOs and private
companies as a design architect, training and project coordinator, research and
planning assistant, spatial development planner, project manager and as a technical
consultant. He is currently working as a training coordinator for the Training and
Extension Services division of UP-SURP.
Assistant Prof. Kristine Follosco-Aspiras environmental planner by profession,
is currently the Director for Training and Extension Services Division of the School
of Urban and Regional Planning in the University of the Philippines, School of
Urban and Regional Planning (UP-SURP). She obtained her Master’s degree in
Urban and Regional Planning from SURP in 2009 and graduated batch valedic-
torian. Lastly, she finished Bachelor of Arts in Public Administration, graduating
cum laude at the University of the Philippines National College of Public
Administration and Governance. She has been teaching planning process, planning
analysis and techniques, special problems in urban and regional planning at the
UP SURP for 3 years now.
Dr. Felix Fuders studied economics and holds an MA in International Business
Administration and a Ph.D. in Economics and Social Sciences (both University of
Erlangen-Nuremberg, Germany). He works as Professor and Researcher at the
Universidad Austral de Chile, Economics Institute, serves as Director of SPRING
Latin America and has been Visiting Professor at the University of
Erlangen-Nuremberg and the University of Applied Sciences, Munster (Germany).
He is author and co-author of several publications concerning regional economic
integration (EU and MERCOSUR) as well as ecological economics and sustainable
development. His current research interest includes the subject of regional cur-
rencies as a solution to the global (financial) crisis and sustainable development.
Prof. Dr. Volker Kreibich is a geographer by training and a planner by profes-
sion. Before his retirement in 2005, he held the Chair of Spatial Planning in
Developing Countries at the Faculty of Spatial Planning, TU Dortmund University.
Informal urbanisation, his prime research interest, since 1990 (with funding by the
German Research Foundation and the Volkswagen Foundation) has been the focus
of continuous interdisciplinary, collaborative and international research and Ph.D.
supervision first in Rome and Madrid, then in Dar es Salaam, Tanzania and in
Dhaka, Bangladesh. Rural regional development, another research field, was the
subject of field work and Ph.D. supervision in Kenya and Northern Iraq.
xviii Editors and Contributors
Prof. Dr. Günter Kroës held the Chair of Economics, Financing and Budgeting at
the Faculty of Spatial Planning at the TU Dortmund University between 1976 and
2005. His main research activities and fields of expertise are integrated rural
development in Europe and developing countries. Since 1967 Günter Kroës has
been involved in the design (consultant for LEADER I and the Ora Programme
of the EU, co-author of the strategies for the development of rural areas of
ECOVAST) and the review of various strategies for rural regional development
(e.g. effects of consolidation of farming and settlement). At the same time he
attended to the methodical questions and the practical implementation of evalua-
tions, monitoring and impact analysis.
Prof. Dr. Alphonce G. Kyessi is an urban planner with more than 30 years of
professional experience in urban planning, urban development and urban man-
agement. He has been an academic and research staff at the Institute of Human
Settlements Studies since 1993. From 1980 to 1992 he worked for the Dar es
Salaam City Council. Apart from research and consultancy services, Prof. Dr.
Kyessi gives lectures and dissertations/theses supervision at Ardhi University,
University of Dar es Salaam and the Open University of Tanzania. His current
research interests and consultancy services at national and international levels focus
on climate change, housing finance, informal settlements including security of land
tenure, land regularisation, infrastructure planning and development, community
participation, urban agriculture, land use planning, geographical information tech-
nology (GIT) and local development financing.
Dr. John Lupala is Senior Lecturer in the School of Urban and Regional Planning
at Ardhi University (ARU) in Tanzania. He obtained a Ph.D. in Built Environment
Analysis from the Royal Institute of Technology (KTH) of Stockholm in 2002.
At ARU, he has served as Manager to the Programme Management, Head of
Architecture Department, Dean of the School of Urban and Regional Planning and
in June 2013, was appointed Director of the Institute of Housing and Human
Settlements Studies (IHSS). Apart from teaching courses such as settlement plan-
ning, urban design, housing and disaster risks settlement planning, he has partici-
pated in research projects on public transport in Dar es Salaam, slum upgrading,
climate change and land use planning as well as privatisation and decentralisation
of services in Tanzania.
Dr. Ally Namangaya has been trained as an urban and regional planner. He
obtained his Ph.D. from TU Dortmund University. He is Lecturer and Head of the
Regional Development Planning Department at the School of Urban and Regional
Planning, Ardhi University (Tanzania). His specialties are natural resources’ con-
flict management and applied remote sensing, geographical information systems,
land use planning and socio-economic studies. Recently he has been undertaking
researches and consultancies on linkages between urban spatial development and
governance, economy and climate change resilience; linking rural communities in
tourism value chains; development of spatial databases for revenue enhancement in
urban areas and land tenure mapping for peripheral communities.
Editors and Contributors xix
Arlene D.R. Santiago serves as University Extension Specialist at the University

of the Philippines, School of Urban and Regional Planning (UP-SURP) Training
and Extension Services Division. She earned her Bachelor’s degree in Public
Administration from the University of the Philippines and was involved in research
and development work at the U.P. National College of Public Administration and
Governance (U.P.-NCPAG) through its Center for Leadership, Citizenship and
Democracy for 9 years. Currently she is towards completing her Master of Arts in
Asian Studies at UP, concentrating on Northeast Asian region, specialising on
Japan studies. Her research interest is on valuing volunteering in disaster risk
reduction and climate change adaptation.
Abbreviations
BayLplG Bavarian State Planning Act, Bayerisches Landesplanungsgesetz

BMVBS Bundesministerium für Verkehr, Bau und Stadtentwicklung
(Federal Ministry of Transport, Building and Urban Development)
BPDRRMO Bulacan Provincial DRRM Office
BROP Federal Regional Planning Programme,
Bundesraumordnungsprogramm
CEMO City Environmental Management Office
CLUP Comprehensive Land Use Plan
DACF District Assembly Common Fund
DAWASA Dar es Salaam Water Supply Authority
DAWASCO Dar es Salaam Water and Sewerage Corporation
D-by-D Decentralisation-by-Devolution
DDF District Development Facility
DRR Disaster Risk Reduction
DRRM Disaster Risk Reduction and Management
DRRMC Disaster Risk Reduction and Management Council
DRRMO Disaster Risk Reduction and Management Office
DRVA Disaster Risk and Vulnerability Assessment
ECB European Central Bank
EMB Environmental Management Bureau
EU European Union
FOAT Functional Organisational Assessment Tool
GG Grundgesetz für die Bundesrepublik Deutschland (Basic Law for
the Federal Republic of Germany)
IMF International Monetary Fund
LED Local Economic Development
LGA Local Government Authority
LGC Local Government Code
LGRP Local Government Reform Policy
LGU Local Government Unit
LLDA Laguna Lake Development Authority
MC Minimum Condition
xxi
xxii Abbreviations
MDRRMO Municipal Disaster Risk Reduction and Management Office

MKRO Ministerkonferenz der Raumordnung (Conference of Ministers on
Spatial Planning)
MMDA Metropolitan, Municipal and District Assemblies
NEDA National Economic and Development Authority
NGA National Government Agency
NGO Non-Government Organisation
OCD Office of the Civil Defense
PAGASA Philippine Atmospheric Geophysical and Astronomical Services
Administration
PAYE Pay-As-You-Earn Tax
PDRRMC Provincial Disaster Risk Reduction and Management Council
PPP Public–Private Partnership
RA Republic Act
ROG Raumordnungsgesetz
UF Unidad de Fomento
UNDP United Nations Development Programme
VAT Value-Added Tax
List of Figures
Theoretical Reflections on Ghana’s Decentralisation: Increasing

Discretional Funding Through the District Development Facility
Figure 1 Institutional framework for decentralised planning.

*Regional Coordinating Council (RCC)/Regional Planning
Coordinating Unit (RPCU). Source Author’s construct
based on MLGRD, community-based rural development
project, draft report on analysis of institutional framework
and clarification of roles, functions, and responsibilities
of MDAs, RCCs and DAs to support decentralization
and efficient delivery of infrastructure services
(Accra: Undated) (Unpublished). . . . . . . . . . . . . . . . . . . . . 3
Figure 2 The overall framework for the management of the FOAT
and DDF. MLGRD-Ministry of Local Government
and Rural Development, DDF-District Development Fund,
LGS-Local Government Service, CAGD-Controller
and Accountant General’s Department. Source Author’s
construct based on MLGRD (2009) . . . . . . . . . . . . . . . . . . 11
Decentralisation and Local Economic Development Promotion

at the District Level in Ghana
Figure 1 Ghana’s government structure. Source Author’s

own construct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 20
Figure 2 Ghana’s district assembly structure. Source Government
of Ghana (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 22
Figure 3 Planning process. Source Author’s own construct
with inputs from National Development Planning
Guidelines to district assemblies . . . . . . . . . . . . . . . . . ... 27
Figure 4 Proposed LED institutional structure and framework
at the district level. Source Oduro-Ofori (2011: 217) . . . ... 32
xxiii
xxiv List of Figures
Levelling the Gradients—Planning for Equivalent Standards

of Living, The German Experience
Figure 1 Ensuring services of public interest.

Source MKRO (2013: 15). . . . . . . . . . . . . . . . . . . . . . . . . 48
Decentralisation in the German Context: An Assessment

of Governance Actors and Approaches ‘from Below’
Figure 1 Levels and components of the German planning system.

Source Pahl-Weber and Henckel (2008: 39) . . . . . . . . . . . . 63
Figure 2 Selected pilot regions. Source Federal Ministry of Food
and Agriculture (2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

from Cities in Tanzania
Figure 1 Average percentage of grants (budgetary independence)

from the central government among cities (2008–2011).
Source Income and expenditure records from treasurers
of the respective urban authority . . . . . . . . . . . . . . . . . . .. 76
Figure 2 Level of municipal service provision in eight urban
centres (2010/2011). Source Compiled from records
from the eight urban centres . . . . . . . . . . . . . . . . . . . . . .. 78
Figure 3 Funding sources by project thematic area. Source Records
from planning officers in the eight urban centres . . . . . . . .. 80
Figure 4 Cities’ performance in political efficacy and participation
issues in percentage of the policy requirements.
Source Records from the case study urban council . . . . . . .. 82

to Local Environmental Planning and Management in the Philippines
Figure 1 Existing Marikina City land use plan. Source Marikina

City Development Authority—Planning Office . . . . . . . . . . 113
Figure 2 Flood risk assessment of Marikina City. Source Department
of Science and Technology—Project NOAH 2009 . . . . . . . . 116
Figure 3 Marikina valley fault line system. Source Marikina City
Development Authority—Planning Office . . . . . . . . . . . . . . 117
Assessing the Effectiveness of the Decentralisation Policy

on Disaster Risk Reduction and Management: The Case of Hagonoy,
Bulacan, Philippines
Figure 1 Relationship between decentralisation and DRRM

(Philippine context). Source Own construct . . . . . . . . . . . . . 134
List of Figures xxv
Figure 2 Location of the Province of Bulacan in the Philippines.

Source Bulacan Philippines (2015). . . . . . . . . . . . . . . . . . . 135
Figure 3 Administrative map of Hagonoy, Bulacan.
Source Municipality of Hagonoy 2015 . . . . . . . . . . . . . . . . 136
Figure 4 National disaster risk reduction and management
council strategies. Source Authors’ construct
based on RA 10121 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Smarter Money for Smarter Cities: How Regional Currencies

Can Help to Promote a Decentralised and Sustainable
Regional Development
Figure 1 USD money supply M3 estimated (Billions USD).

Source Own construction based on data provided
by Federal Reserve Bank of St. Louis . . . . . . . . . . . . . . . . 161
Figure 2 US Federal Debt (Millions USD). Source Own construction
based on data provided by Federal Reserve Bank
of St. Louis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Figure 3 Kondratieff waves. Source own construction . . . . . . . . . . . . 165
Figure 4 Wealth gap. Source Own construction . . . . . . . . . . . . . . . . 166
Figure 5 Free money bill “Lutzetaler” in Köthen, Germany
(backside with best-before-date). Source
Own photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
Figure 6 Free money bill in Wörgl, Austria 1932.
Source Wikimedia Commons . . . . . . . . . . . . . . . . . . . . . . 173
List of Tables
Theoretical Reflections on Ghana’s Decentralisation: Increasing

Discretional Funding Through the District Development Facility
Table 1 Total DDF funding: indicative timetable for disbursements

(in USD million). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Decentralisation and Local Economic Development Promotion

at the District Level in Ghana
Table 1 DACF releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

from Cities in Tanzania
Table 1 Amount of land rent remitted by Central Governments

to selected LGAs July 2013–May 2014 . . . . . . . . . . . . . . . . . . 77
Table 2 Percentage of projects conceived and implemented
at ward level 2007/08–2011/12 . . . . . . . . . . . . . . . . . . . . . . . . 80
Table 3 Response rate in voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Decentralisation of Municipal Servicing in Tanzania:

Opportunities and Challenges
Table 1 Results of decentralised water services management

in DAWASCO . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 100
Table 2 Waste production and collection before privatisation
(tons per day) . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 101
Table 3 Waste production and collection after privatisation
(tons per day) . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 102
Table 4 Service level before privatisation. . . . . . . . . . . . . . ......... 102
Table 5 Service level after privatisation . . . . . . . . . . . . . . . ......... 103
xxvii
xxviii List of Tables

to Local Environmental Planning and Management in the Philippines
Table 1 Local environmental ordinances of Marikina City . . . . . . . . . . . 114
Assessing the Effectiveness of the Decentralisation Policy on Disaster

Risk Reduction and Management: The Case of Hagonoy,
Bulacan, Philippines
Table 1 Hagonoy’s existing land distribution (2004) . . . . . . . . . . . . . . . 137

Table 2 Stakeholder participation at each level of governance. . . . . . . . . 143
Theoretical Reflections on Ghana’s
Decentralisation: Increasing Discretional
Funding Through the District
Development Facility
Imoro Braimah and Daniel Inkoom
Abstract One of the most convincing arguments given for decentralisation is that
it makes governments more accountable and responsive to the governed. Apart
from creating opportunities for greater participation of local people, it is also said to
enhance the management of local resources. Successful decentralisation therefore is
closely related to how well finances are mobilised and made available to support
decentralised functions. Ghana’s decentralisation received a boost with the intro-
duction of the District Development Facility to support Metropolitan, Municipal
and District Assemblies. Using the Functional Organisation Assessment Tool,
financing is made available to support specific needs of the Assemblies. This paper
reflects on the prospects of this facility to improve the financial position of the
Assemblies, and poses questions as to whether this is a sustainable approach to
resolving the financial need at the local level.
Introduction
In recent times, decentralisation has been touted as the process that will allow many
developing countries to put in place systems and processes to ensure sustainable
development. Decentralisation has thus become an essential tool of democracy and
development. Akudugu (2013) emphasises that decentralisation has been widely
promoted all over the world as a means of promoting governance, participation and
local development. Ghana embarked on a comprehensive programme of decen-
tralisation policy reforms in 1988 and was subsequently incorporated into the 1992
Fourth Republican Constitution which marked Ghana’s transition to multi-party
democracy.
I. Braimah (&) D. Inkoom

Department of Planning, Kwame Nkrumah University of Science and Technology,
Kumasi, Ghana
e-mail: ibraimah2002@yahoo.com
D. Inkoom
e-mail: dinkoom@gmail.com
© Springer International Publishing Switzerland 2016 1

E. Dick et al. (eds.), Decentralisation and Regional Development,
Springer Geography, DOI 10.1007/978-3-319-29367-7_1
2 I. Braimah and D. Inkoom
The arguments for decentralisation are not far-fetched: Decentralisation is

thought to bring government closer to the people, enabling them to take decisions
that respond to their needs much more effectively than would have been the case if
the centre had taken those decisions on their behalf. The existence of local political
structures, as argued by Hardenius (2003), makes it easier for ordinary citizens to
participate and exert influence. By this means, it is thought that the political process
becomes much more visible and transparent and allows more people to become
involved. Other reasons that have been advanced for decentralisation are economic
ones, exemplified in three main areas, namely allocative efficiency, willingness of
local people to pay for local services and improving the “competitiveness” of
governments. These reasons, economists argue, help central governments to act in
ways that satisfy the demands of citizens. Decentralisation has also been seen as a
very potent instrument to counteract the monopolisation of power by the elite in
society, as a result of centralised power and administrative structures, many of
which are colonial vestiges.
The Framework for Decentralisation in Ghana
Ghana’s decentralisation is largely devolution, which is considered to be the most

effective form of decentralisation. It involves the transfer of functions or
decision-making authority to legally incorporated local governments, referred to as
Metropolitan, Municipal and District Assemblies (MMDA). Some resources are
transferred from the centre to these local government authorities to enable them
carry out their functions. Ghana’s decentralisation process took off in 1988, with the
enactment of the Local Government Act 1993 (Act 462), which set out its main
principles. After this, several other laws giving meaning to the decentralisation
process have been enacted. These include, but are not limited to the 1994 National
Planning Act 480; 1994 Local Government (Urban, Zonal, Town Councils and Unit
Committees Establishment Instrument (LI 1589); 2003 Local Government Service
Act 656; 2003 District Assemblies Common Fund (DACF) Act 455; Audit Service
Act 658; 2003 Procurement Act 633, 2004 Financial Administration Regulations
(LI 1802); Local Government District Tender Board Regulations (LI 1606); and
2008 Education Act (LI 778) (Inkoom 2011).
To implement the decentralisation process, the 1992 Constitution of the
Republic of Ghana and the Local Government Act (Act 462) mandated the
President to form Metropolitan, Municipal and District Assemblies (MMDAs) to
exercise powers of the central government at local levels. As in 2014, there are 216
MMDAs in Ghana, comprising 6 Metropolitan, 49 Municipal, and 161 District
Assemblies. MMDAs are required to prepare development plans in relation to the
National Development Planning Commission (NDPC) guidelines to meet local
needs and aspirations as well as build upon their administrative capacities in service
delivery to the people. The Planning System therefore focuses on territorial and
integral approaches towards development rather than development along sectoral
Theoretical Reflections on Ghana’s Decentralisation: Increasing … 3
President Parliament
National Policy/
Approved National
Development Plans Development Plans
and Strategies
Regionally
Coordinated District
National Development Plans
Ministry of Finance Development

Development
Policy Framework
RCC/ RPCU *
& Planning
Annual Guidelines Planning Development Policy
Development Framework & Planning
Budget Guidelines
National Sectoral Plans
Commission
Sectoral Ministries & Agencies
Development
(MDAs) Development Policy Data &
Framework & District
Policy Development
Framework & Planning
Regional Sectoral Plans Guidelines Plans
Planning
Guidelines
Regional Departments of MDAs

(Ministries, Departments and Agencies)
District Assembly
District Sectoral Plans
Plan inputs
Social Services Sub-committee
Finance and Administration Sub-committee Executive Committee
Development Planning Sub-committee

Plan inputs
Sector Departments District Planning Coordinating Unit (DPCU)

-
Plan inputs
Plan Input
Policy Framework, Data & Information Area & Town Councils
Fig. 1 Institutional framework for decentralised planning. *Regional Coordinating Council

(RCC)/Regional Planning Coordinating Unit (RPCU). Source Author’s construct based on
MLGRD, community-based rural development project, draft report on analysis of institutional
framework and clarification of roles, functions, and responsibilities of MDAs, RCCs and DAs to
support decentralization and efficient delivery of infrastructure services (Accra: Undated)
(Unpublished)
lines. The local government system, comprising ten Regional Councils and the
MMDAs and their Urban/Town/Zonal Councils as well as the Unit Committees
function together with the national level system, in an institutional framework, for
decentralised planning in Ghana. The relationships between all the institutions, the
data and information flow, as well as planned outputs of the framework, are
depicted in Fig. 1.
According to Inkoom (2011), the major objectives of the new decentralised

development planning system in Ghana are to:
• Create an institutional framework for public and community participation in
national development to ensure optimal use of resource mobilisation, allocation
and utilisation for development;
• Provide opportunities for greater participation of local people in development
planning and efficient management of resources and;
• Establish effective channels of communication between the national government
and the local communities and increase administrative effectiveness at all levels.
Decentralisation undoubtedly has had some positive effects in Ghana, but many
challenges still remain. Inkoom (2011) categorises these challenges as legal,
institutional, administrative, and fiscal. In response to these challenges, several
efforts have been made by central government in collaboration with key stake-
holders to tackle the constraints inhibiting the process. These efforts include a
comprehensive review of the decentralisation process carried out in 2007 by the
Ministry of Local Government and Rural Development which resulted in a Draft
Comprehensive Decentralisation Policy Framework, and the strengthening of the
Local Government Service. It also included the transfer of civil servants from the
Office of the Head of Civil Service to the MMDAs in 2011, and new forms of
financing local development supported by the country’s development partners. This
is carried out using the Functional Organisational Assessment Tool (FOAT), as a
yardstick for the distribution of benefits.
This paper reflects on one of the key areas of Ghana’s decentralisation process:
the need to ensure that adequate financing is available to support the decentrali-
sation process. The focus is on the District Development Facility and the Functional
Organisational Assessment Tool (FOAT) as a measure aimed at resolving the
financial difficulties associated with implementing the decentralisation programme
in Ghana.
The District Development Facility (DDF)
The DDF aims to enhance the districts’ capacity to finance their investment and
maintenance projects in the economic, social and environmental sectors. The DDF
just like other revenues of MMDAs operates within the current public financial
accountability arrangements, namely accounting, reporting and auditing derived
from the 1992 Constitution. It is also specifically covered under the Financial
Administration Act (FAA), Act 654 of 2003; and the Financial Administration
Regulations (FAR), L.I. 1802 of 2004. Others include the Financial Memorandum
for Municipal and Urban Councils of 1961 and updated in 2004; the Local
Government Act, 1993 (Act 462); the Audit Service Act 584 of 2000 and the
Internal Audit Agency Act 658 of 2003.
The facility seeks to coordinate and harmonise the fragmented Ghanaian

government and donor initiatives and focuses on local government financing and
capacity building.
The specific objectives of the DDF based on FOAT are to:
• Enhance the role of the MMDAs in achieving the millennium development
goals through the provision of additional investment fund;
• Introduce a performance incentive structure in the MMDAs system; and
• Harmonise implementation modalities and administrative requirements currently
associated with project capacity building and capital support for MMDAs into
one coherent system, fully anchored in Government of Ghana’s legal and reg-
ulatory framework.
The DDF, instituted in 2009, is a transition in the field of decentralisation from a
project-based approach to a programme based approach using existing national
institutions and procedures. Funded by the Agence Française de Development
(AFD) and other Development Partners, namely the Canadian Development
Agency (CIDA), Danish Development Agency (DANIDA) and the German
Development Bank (KfW), and supported by the Government of Ghana, the idea is
to create a fund for a wide range of investments at the District level. The current
funding is expected to end in 2014. The total DDF funding and indicative timetable
for disbursement is shown in Table 1.
Allocations are determined by performance after annual assessment of each
MMDA conducted through the use of the Functional and Organisational
Assessment Tool (FOAT). This assessment is based on agreed criteria relating to
efficiency, accountability, transparency and delivery of basic community service.
Performance is measured on the administrative, organisational and financial man-
agement quality indicators of the MMDAs.
The disbursement of the DDF is based on the MMDAs’ ability to meet
Minimum Conditions and/or the Performance Measure of FOAT. The FOAT, and
how it functions, is explained in the subsequent sections of the paper. MMDAs are
required to fulfil all the basic prerequisites of the Minimum Conditions so as to
receive the Basic Grant, which constitutes 40 % of the overall pool of the DDF. The
Basic Grant consists of the Equity Share (40 %) to meet all the Minimum
Table 1 Total DDF funding: indicative timetable for disbursements (in USD million)
Year of disbursement/financing partner 2009 2010 2011 2012 Total
AFD 3.10 6.25 6.25 3.15 18.75
CIDA (Canada) 6.50 13.00 15.00 17.50 52.00
DANIDA (Denmark) 5.30 7.90 11.40 13.20 37.80
KfW (Germany) 9.30 9.30 8.75 8.75 36.10
Government of Ghana 10.00 16.00 20.00 20.00 66.00
Total 34.20 52.45 61.40 62.60 210.65
Rate EUR = 1.25 USD
Source Author’s construct based on Ministry of Local Government and Rural Development
Conditions (MCs), the Population Share (50 %) also based on the proportion of a
district’s population to the total population of MMDAs that fulfilled all the
Minimum Conditions and Land Area which also constitutes 10 % of the total Basic
Grant. The scores of the Performance Measures of MMDAs meeting all the MCs
will determine the disbursement of the Performance Grant (40 % of DDF). The
amount allocated to each district is the ratio of a district’s score to the total score of
districts that meet the Minimum Conditions as a product of the total performance
allocation. The remaining 20 % of the DDF constitutes the Capacity Building
Grant. This is used to support capacity building in the areas of addressing insti-
tutional weaknesses, logistics needs and skills inadequacies in their operations in a
regularised and well-coordinated manner.
The DDF, unlike other revenues, is mainly for implementing the development
priorities of the Medium Term Development Plans and the Annual Plans which
should be strictly based on the medium term expenditure framework of the MMDA.
The expenditure budget of the facility covers maintenance (furniture and fixtures;
plant and machinery; and general equipment) for the assembly’s residential or office
use, capacity building and the construction works (construction of new projects;
rehabilitation expenses on buildings and plant and machinery; and others are pur-
chases relating to plant and equipment; furniture, motor bikes, and bicycle) of the
MMDAs. The facility can however not cover expenditure such as investments
outside the Medium Term Development Plans (MTDPs) and Annual Plans; pur-
chase of cars; purchase of plants and equipment; furniture; motor bikes; computers
and accessories; other capital expenditure, unless these are otherwise justified by
the FOAT exercise; and construction and furnishing of District Administration
offices and residential accommodation.
The Functional Organisational Assessment Tool (Foat)
According to CIDA (2006: 4), organisational assessment involves “the process of

obtaining the systematic information about the performance of an organization and
the factors that affect its performance in order to diagnose areas of possible
investment for change and/or to demonstrate competence”. This therefore implies
that organisational assessment is done to ensure that performance meets the targets
set and where there is a shortfall, appropriate and effective measures are put in place
to ensure that such organisation(s) function(s) well to achieve its intended objec-
tives. The use of the tool is therefore conceptualised as having the potential to
motivate change in the various MMDAs. Again, FOAT is said to be a dynamic tool
as a result of its yearly changes and the ability test that checks whether the
capacities of MMDAs are being improved progressively. FOAT provides incentives
for MMDAs to function according to set national laws, to build administrative
capacities and to create public accountability in the operations of the various
MMDAs. The Functional Organisational Assessment Tool (FOAT) was instituted
to achieve several objectives.
The following three are the most relevant: First of all FOAT provides incentives
to MMDAs to comply with the legal and regulatory framework. For example, under
the Public Procurement Act of 2003 (Act 663), all MMDAs are required to follow
due process stipulated by the Act in procuring goods and services. The FOAT
assessment therefore provides a reason for which MMDAs would adhere to this and
other frameworks. This requirement therefore means that MMDAs are likely to put
in place adequate measures and follow established rules and regulations to prevent
financial loss and to ensure value for money. Second, the FOAT assessment seeks
to identify performance capacity gaps of the MMDAs. The assessment tends to
identify weak performance from MMDAs and why such MMDAs are not able to
perform up to the set standards. This enables weak performance to be responded to
by providing tailor-made capacity building support to the required MMDAs. The
third objective of the assessment is to establish a link between performance
assessments and capacity building support.
The FOAT Principles and Key Conditions
The guiding principles required for the assessment include:

• Strict assessment of MMDAs against their legal obligations and issues that fall
within their direct span of control; consequently, all indicators are anchored in
existing legal, regulatory and policy frameworks. This principle is aimed at
ensuring that the MMDAs conform to the existing legal, regulatory and policy
frameworks within which they operate. Conformity to these frameworks is
necessary to provide checks on how MMDAs carry out their executive, leg-
islative and deliberative functions. These indicators acknowledge the specific
legal, political, administrative and fiscal environment in which MMDAs operate.
• The indicators also capture both the administrators and the elected representa-
tives in the MMDA structure. The administrators consist of the technical staff of
the MMDAs while the elected representatives comprise of the members elected
from each of the Electoral Areas of the MMDA plus the not exceeding 30 % of
the members appointed by the central government. It is intended that the
administrators and the elected representatives work hand-in-hand to achieve the
basic aims of the MMDAs.
• Another important principle is ensuring that the indicators are objectively ver-
ifiable and simple to assess. This is done in order to minimise discretion in the
assessment process. This principle requires the assessment to be done based on
targets set and the progress made as far as the set targets are concerned. This
makes it easier to track weak performing areas so as to provide the needed
interventions.
• Finally, the assessment process is expected to facilitate a clear translation of
identified capacity building needs into corresponding institutional strengthening
requirements. This will help ensure that capacity building is fully integrated into
the budgeting cycle of the MMDAs, and also ensure that training and skills
acquired are translated into improved outputs at the district level.
These guiding principles of FOAT are required to be applied to the actual
assessment. The FOAT process is broken down into two components, namely the
so-called Minimum Conditions (MCs) and the Performance Measures (PMs). The
MCs are those conditions that an MMDA needs to fulfil in order to qualify to access
the Basic Grant component of the DDF. The MCs are formulated under the five
sub-themes namely;
(i) proper district development planning;
(ii) effective financial management and accounting;
(iii) strict adherence to the public procurement;
(iv) implementation capacity; and
(v) functioning of the general assembly.
Based on these thematic areas, certain conditions are required to be fulfilled.
These include:
• Functional District Planning Coordinating Unit (DPCU). This calls for not just
the establishment of DPCU by the various MMDAs but also proper functioning
of the DPCU;
• Annual Action Plan (AAP) formulated;
• Annual Statement of Accounts prepared. Based on the Regulation LI
1802/Financial Administration Act, 654, annual statement of accounts should be
prepared and submitted to the required financial administration;
• Procurement plan should be prepared and adhered to based on the Public
Procurement Act of 2003 (Act 663);
• Minimum number of General Assembly meetings should be held annually.
Normally, it is required for General Assembly meetings to be held four times per
annum (once in every quarter of the year) and minutes of such meetings doc-
umented; and
• Progress reports on implementation of AAP should be submitted to the Regional
Coordinating Council. This should be done on quarterly and annual basis.
Having satisfied all the Minimum Conditions (MCs), the Performance Measures
(PMs) will then be used to determine how the DDF should be allocated to the
deserving MMDAs. The indicators of the Performance Measures operate within
nine sub-themes namely management and organisation; transparency; openness and
accountability; planning system; human resource management; relationship with
sub-district structures; financial management and auditing; fiscal capacity; pro-
curement; and environmental sanitation management. Each of these sub-themes has
a maximum score that will be assigned based on the performance of each of the
MMDAs.
The Assessment Process
FOAT assessment encompasses three stages namely the pre-assessment activities,

the actual assessment activities and the post-assessment activities.
The Pre-assessment Activities
The pre-assessment activities involve preliminary activities to be completed by the

DDF Secretariat before the MMDAs are assessed. With this, the consultants to be
engaged in the assessment are procured as prescribed by the Procurement Act of
2003 (Act 663). These consultants are then oriented on the indicators, scoring
procedure and the reporting format to be used for the assessment. The consultants
procured are then allotted regions of operation for the particular year. Consultants
have to apply every year for inclusion, and for consultants who win the bid year
after year, the region of operation is changed annually. The MMDAs are also
oriented and the timing, required documents and the indicators for the assessment
are then communicated to them. This together with obtaining the documents
required by the assessment team is done a month before the assessment. Due to the
importance of the FOAT exercise and the financial implications to the MMDAs,
some are thought to carry out mock FOAT exercises as a way of ensuring that they
go through the exercise successfully.
The Actual Assessment Activities
The actual assessment is carried out for three days in each of the assigned MMDAs
based on the established indicators on the thematic areas. The agenda and time for
the assessment is scheduled through a meeting (opening conference) with the key
officers (made up of at least the Metropolitan, Municipal, and District Chief
Executive, the Coordinating Director and the Presiding Member) of the concerned
MMDA. Identification of the capacity need of the concerned MMDA is a critical
component of the assessment activities. This is done in a way to ensure that
MMDAs meet the required Minimum Conditions and Performance Measure. It is
also to ensure that the capacity needs of MMDAs are catered for in a
demand-driven way. After the assessment, there is a closing conference where the
results of the assessment are shared with the key offices of the District. A report is
then prepared and submitted to the DDF secretariat by the consultants. Such reports
should be endorsed by the Team Leader of the consultants, the Chief Executive and
the Coordinating Director irrespective of the outcome of the assessment. In case an
Assembly is not satisfied with the outcome of the assessment, there is a process
through which complaints can be made to the Ministry of Local Government and
Rural Development for redress.
Post-assessment Activities
The post-assessment exercises consist of activities ranging from verification of the

assessment report submitted by the consultants to the dissemination of the
assessment results and the corresponding DDF. In between these activities,
MMDAs are notified with the scores of the assessment and are also allowed to file a
complaint if they are not satisfied with the outcome of the assessment. The outcome
of the complaint after a Steering Committee sitting will be either to correct possible
errors, do a re-assessment in case of laxity by the assessment team or reject the
complaint filed.
Having resolved all complaints associated with the assessment, a consolidation
of FOAT results and capacity needs of the MMDAs are made by the Local
Government Service Secretariat leading to a preparation of a mandatory capacity
building plan and budget. The consolidated FOAT report and copies of individual
assessment reports of all MMDAs are then submitted by the DDF Secretariat for the
consideration of the Technical Working Group and subsequently for the Steering
Committee’s approval.
The final report for each of the MMDAs is sent to them after which the approved
results of the assessment and the corresponding DDF are published in the national
dailies.
Management and Administration of FOAT and DDF
The FOAT and the DDF are managed and administered by a Steering Committee
chaired by the Minister of Local Government and Rural Development, the DDF
Secretariat and the Local Government Service Secretariat. The Steering Committee
is responsible for the overall management of both the DDF and the FOAT.
The DDF Secretariat is responsible for the procurement, orientation and monitoring
work of the Consultants in the field to conduct quality assurance. The Secretariat
also provides orientations and necessary information to MMDAs to enhance the
assessment process. The Local Government Service Secretariat performs the
function of collating and consolidating the capacity building needs from the FOAT
assessment data, identifying generic training needs of MMDAs based on the FOAT
assessment and preparing a work plan and budget proposal. The framework for the
management and administration of both the FOAT and the DDF is depicted in
Fig. 2.
STEERING COMMITTEE
Chair: Minister
MLGRD
Coordination
(MLGRD-DDF Secretariat)
Fund Management FOAT Management CB Management

(Office of the CAGD) (MLGRD) LGS Secretariat
Directions/Guidance
Reporting
Fig. 2 The overall framework for the management of the FOAT and DDF. MLGRD-Ministry of
Local Government and Rural Development, DDF-District Development Fund, LGS-Local
Government Service, CAGD-Controller and Accountant General’s Department. Source Author’s
construct based on MLGRD (2009)
Reflections on FOAT and DDF
The introduction of the DDF as an additional funding mechanism to support

development at the MMDAs, as part of the funding arrangements between Ghana
and some of her key development partners, is a laudable one. There are indications
that recipient District Assemblies have been able to put the funds into supporting
key development projects. Moreover, linking access to the funds on performance
leads to an element of competition among districts and spurs efforts on the part of
the Assemblies in order to qualify for the funds. There are indications from the
Regional administrations that the Regional Coordinating Councils have been
encouraging the Assemblies within their respective areas to ensure that they pass
the assessments and therefore qualify for funds for development.
The idea of using local consultants to carry out the assessments also builds
capacity for decentralisation in Ghana. The competition that accompanies the call
for proposals also ensures that consultants deliver quality services to the Ministry.
The Ministry of Local Government and Rural Development, responsible for the
administration of the assessments, reports that the number and composition of the
consultants engaged in the assessment exercise has been changing over the years.
This is in part due to the fact that any consultant whose performance is found not to
measure up to the standard is removed from the list and not maintained. There is
also regular rotation of the consultants that qualify to do the assessments over the
ten regions to ensure that consultants do not become overly familiar with officials of
the Assemblies.
However, in spite of the fact that the District Development Facility further
strengthens the bonds between Ghana and her development partners, there are
fundamental problems associated with the fund. There is general concern among
development practitioners that this can deepen the culture of dependence on
external partners to continue to fund Ghana’s development. In the long term, this
does not appear to be a viable option. As the effects of the recent credit crunch that
led to a reduction in overall inflows to developing countries show, it may not be a
long-term, sustainable way of financing decentralisation in Ghana.
Experience from the districts indicate that some District Assemblies have
internalised the lessons from FOAT and are using the lessons to improve efficiency
in running the Assembly machinery, making development more participatory, and
delivering services to the community. Assemblies, for example appear to be paying
particular attention to processes that strengthen decentralisation, including consul-
tation at grassroots, making the offices of the central administration more accessible
to the public, and holding regular meetings as required by law.
However, it has not been established whether the institution of FOAT has
brought about improvement in the Assemblies carrying out their functions, and a
detailed study is yet to be conducted that tries to establish the correlation between
the FOAT exercise and the performance of the MMDAs. Such a study can establish
a baseline with which to measure the improvement or otherwise in the performance
of the MMDAs over the period of time during which the exercise has been
implemented across the country.
There have also been complaints about the process through which consultants
have been procured for the exercise. Calls have been made to strengthen the
selection process, by making the process more transparent and allowing new firms
to have a fair chance of being selected to participate in the assessment. Moreover
there is the need to improve the orientation process to ensure that selected con-
sultants are well oriented to undertake the exercise, and that the work of the con-
sultants is carefully monitored by the Ministry to ensure performance.
It is believed that continued dependence on development partners may even turn
out to be a disincentive for the prudent management of our own resources for
development. With the coming on stream of oil revenues, it is believed that Ghana
should be able to sufficiently fund the development needs of the country.
Conclusions
The shortage of financial resources has been cited as one of the greatest challenges
facing the decentralisation process in Ghana. The paper has sought to present how
far Ghana has gone with its decentralisation with particular emphasis on fiscal
decentralisation and the efforts put in place to ensure that financial resources are
made available to the MMDAs to finance critical projects in their areas of
jurisdiction. The paper has reflected on the objectives for Ghana’s decentralisation
and affirmed that one of the critical elements needed to make the process fully
functional is improving and deepening fiscal decentralisation, and putting in place
the necessary structures that support the generation of own revenue by the
MMDAs. Though it appears that the DDF has provided financial resources to the
MMDAs to finance critical development projects, the idea that the bulk of these
funds are provided by Ghana’s development partners is an issue of concern. It is not
clear whether MMDAs can finance critical infrastructure when the funding ceases.
It is recommended that the key focus should be reducing dependence of Central
government on external sources of funding, and of MMDAs on Central govern-
ment. Perhaps, what is most important is for the country is to begin to focus more
attention on the prudent use of its own financial resources, and a shift away from
overdependence on “donor” funding to finance development projects. No matter
how supportive development partners are, continued dependence on their sources of
funding is neither a preferred nor sustainable option for nations to develop. Over
half a century after Ghana’s independence and the declaration of middle income
country status, there appears to be the need for refocusing attention on how to break
the financial dependence on external sources of funding.
With revenue from the oil sector now on stream, there is the need to learn
lessons and explore ways of making financial resources available to implement the
provisions of the decentralisation process in Ghana. In the future, it will be
important to give emphasis to widening the revenue sources of the MMDAs to
reduce the dependence on Central Government transfers. The on-going Street
Naming and Property Address System, for example would facilitate the develop-
ment of a reliable database which will enhance revenue mobilisation. The MMDAs
should also be encouraged to explore opportunities for viable public-private ven-
tures, to generate revenues to finance development and provide opportunities for
local economic development.
References
Journals and articles
Akudugu, A. J. (2013). Inducing local government performance in Ghana: The case of the district
development facility. International Journal of Asian Social Science, 3(6), 1402–1417.
Inkoom, D. K. B. (2011). Ghana’s decentralization: Two decades and still crawling? Development,
54(3), 393–399. Palgrave Macmillan.
Books and chapters
Hardenius, A. (Ed.). (2003). Decentralization and democratic governance: Experiences from

India, Bolivia, and South Africa. Stockholm: Elanders Gotab.
Online Publications
Canadian International Development Agency (CIDA). (2006). Organization assessment guide.

Evaluation division performance and knowledge management. http://www.acdi-cida.gc.ca/
INET/IMAGES.NSF/vLUImages/Performancereview6/$file/OA%20Guide-E.pdf. Accessed
February 11, 2015.
Policy Papers
MLGRD. (2009). Operational manual for the implementation and administration of the district
development facility. Accra: Ghana.
Decentralisation and Local Economic
Development Promotion at the District
Level in Ghana
Eric Oduro-Ofori
Abstract The paper seeks to examine the contribution of Ghana’s decentralisation

process to local economic development (LED) promotion by assessing the roles
played by local governments in the LED process. It came to light that local gov-
ernments support LED through municipal development planning and implemen-
tation, provision of infrastructure, land use planning and physical development
permitting, provision of extension services, training programmes and skills provi-
sion. It was also revealed that there exist challenges such as weak institutional
set-up and inadequate capacity for LED promotion within the local governments.
Moreover, the LED interventions as applied by the local governments are limited in
scope and there is little integration of the LED process into the local level planning
process. Finally, the absence of a national and local level policy framework to guide
LED promotion affects the focus of the local governments in LED promotion.
Introduction
Over the past decades, many developing countries including Ghana have embarked
on decentralisation to promote democratic governance and participatory approaches
in development. There has been a wide range of merits for adopting some of these
decentralisation and participatory approaches. For instance Crook (1994) sees
decentralisation as a key strategy in promoting good governance. This is interpreted
to lead to greater pluralism, accountability, transparency, citizen participation and
development.
Decentralisation allows the devolution of power to lower levels of government
and this gives them the possibility to get actively involved in development activ-
ities. Furthermore, the decongestion and distribution of workload between the
centre and lower arms of government and other local entities enhance efficiency
E. Oduro-Ofori (&)
Department of Planning, Kwame Nkrumah University of Science and Technology,
Kumasi, Ghana
e-mail: odurooforieric@yahoo.com

16 E. Oduro-Ofori
(Edoun and Jahed 2009). It also enhances the application of local know-how and
resources in the development process.
Ghana as a country has had various experiences in decentralisation. These can be
traced from the colonial period till now. This article seeks to assess the contribution
of Ghana’s current decentralisation process to the specific area of local economic
development. In the following sections it will therefore:
• Assess the bearing of Ghana’s current decentralisation policy on local economic
development promotion.
• Examine the roles of local governments in LED promotion.
• Identify the challenges to effective LED promotion at the local level, and
• Propose measures to make decentralisation work for LED at the local level.
Research Approach
The approach involved a desk study where secondary sources of data were used.
These included published and unpublished materials such as journal articles, books,
reports, archival sources and students’ supervised thesis and research work, par-
ticularly summaries of parts of a PhD thesis by the author.
An Overview of the Concepts of Local Economic

Development and Local Government
LED has been defined in various ways by various authors and institutions. The
World Bank (2003: 1) defines it as the process by which partners from public,
business and non-governmental sectors work collectively to create better conditions
for economic growth and employment generation. Blakely (1994: 49) also sees the
concept as a process by which local governments along with local corporate firms
join forces and resources to enter into new partnership arrangements in order to
create new jobs and stimulate economic activities in a well-defined economic zone.
In all these, LED is viewed as a process whereby stakeholders engage themselves,
and with each other, to encourage and stimulate activities that have a bearing on
economic outcomes through the utilisation, though not exclusively, of potentials and
resources available locally. The principal goal of LED is to develop local employ-
ment opportunities by utilising the existing human, natural and institutional
resources to build a self-sustaining economic system (Varol 2010: 98). It emphasises
endogenous development policies that include the use of local resources and
capacities to create new employment opportunities and stimulate new locally based
economic activities (Blakely 1994). It seeks to build the economic capacity of a local
area to improve the economic future and quality of life for all (Trousdale 2005).
Decentralisation and Local Economic Development … 17
LED has passed through three major stages (World Bank 2004). From the
1960s to the early 1980s, it was directly concerned with the attraction of mobile
manufacturing investments (World Bank 2004; Varol 2010: 98). The second wave
from the 1980s to the mid-1990s emphasised the retention and growth of existing
businesses and inward investment. From the 1990s to date, the concept has focused
on soft infrastructure investments, public private partnerships, networking and
highly targeted inward investments attraction (World Bank 2004). The general
approaches of LED include business development, human resource development,
development of localities and community-based economic and employment
development (Blakely 1994: 137–139).
Gravingholt et al. (2006: 31–32), also argue that the approaches to LED pro-
motion should include encouraging business growth and the development of new
enterprises, the promotion of inward investment, sector and business cluster
development and the investment in hard and soft infrastructure. Therefore should
any stakeholder be involved in the process of LED, then it should give due con-
sideration to the development of hard and soft infrastructure and organisational
developments to sustain the process.
Though the promotion of LED involves various stakeholders, this paper places
its focus on the local government. Despite the fact that the local government dis-
course has been in the limelight for a long time, it has defied a common definition.
The term can refer to a lot of units including a county, municipality, district, town, a
school district, township, a local public authority and regional or interstate gov-
ernment entities. Though it makes reference to all the above units, local government
in this paper centres on local public authorities that are mandated for the overall
development of a specific geographic unit and its population. The United Nations
(UN) define local government as “a political sub-division of a nation … which is
constituted by law and has substantial control of local affairs including the powers
to impose taxes or to extract labour for prescribed purposes. The governing body of
such an entity is elected or otherwise locally” (Sady 1962 in Khan 2006: 58). Also,
local government is viewed as a territorial unit with defined boundaries, a legal
identity, an institutional structure, powers and duties laid down in general and
special statutes and a degree of financial and other autonomy (Hill 1974). A local
government has legal personality, specified powers to perform a range of functions,
effective citizen participation and a substantial budgeting and staffing autonomy
subject to limited central control (Olowu 1988: 12).
In this paper therefore, local government is seen as a sub-national unit of gov-
ernment below the central government that has legal personality, specified powers
to perform certain specified functions, involves effective citizen participation, and
has a substantial budgeting and staffing autonomy in the promotion of the devel-
opment of its area of jurisdiction. Historically, local government institutions have
played a critical role in the transformation of countries the world over and continue
to play important roles in the economic development of both developed and
developing countries. They have the potential to raise agricultural and industrial
production in developing countries in the collective action of managing scarce
resources and other local institutions as well as in the informal sector to organise
18 E. Oduro-Ofori
themselves for effective economic activities. They play an important role in meeting
the needs of the informal and private sectors by creating an enabling environment
for them to operate in and to create jobs for the local people with the intention of
reducing poverty. Some local governments also directly provide services that create
jobs and income for the local people (Olowu 1988: 22–23).
The question of whether local governments should be involved in economic
development has been a major issue of discussion for many years. It is argued, from
the point of view of neo-classical theorists (Todaro and Smith 2006: 121), that
governments and their units can do nothing right. In this view, the market should
take charge of economic development. However, a market friendly approach
(Todaro and Smith 2006: 121) to economic development also emphasises some of
the failures of the market and therefore acknowledges that governments have a role
to play by adopting non-selective interventions. This implies that governments
should consider implementing programmes that generally will enhance economic
development and not consider only certain aspects. Also modern theories on
endogenous development suggest an active role for public policy in promoting
economic development through direct and indirect investments in human capital
formation and the encouragement of private investments in an area. In this respect,
governments have a role to play in economic development and, for that matter, local
governments in local economic development. Also, local governments have a key
role to play in meeting the social, economic and material needs of their commu-
nities and the areas under their jurisdiction, by structuring and managing their
administration, budgeting and integrating their development process to give priority
to basic needs and the promotion of social and economic development of their
areas. They also play a critical role in supporting other stakeholders to promote
economic development by building partnerships between local authorities, com-
munities, businesses and other stakeholders which are key to the success of local
economic development. Finally, they are permanent structures that can assure
stability over time considering that local economic development is a long term and
on-going process rather than a once-off project.
Nevertheless, LED is not a new activity area to local governments, but has been
a defined aspect of local government administration in the developed North for over
a century (Nel 2001: 1005). But to their counterparts in sub-Saharan Africa, where a
decentralised government system is only now taking root, it is a recent experience.
Many writers have elaborated on the roles to be played by local governments in
local economic development promotion. Goetz and Clarke (1993) cited in Kokor
(2001: 27) propose four major roles to be considered. These are participation,
facilitation, regulation and adjustment. The participatory role of local governments
includes the ownership of productive assets, participation in equity positions and
partnership arrangements which make purposeful use of local public resources
directly available to the local economy. The facilitator role allows local govern-
ments to use instruments such as subsidies and other forms of incentives to
encourage economic activities including the delivery of local public services. The
local government’s regulatory role involves the usage of its rating systems and
by-laws to monitor the local private market. The adjustive role is a social one. It
involves the provision of local public services that mitigate the negative effects of
the market especially for disadvantaged groups, thereby reducing the effects of
market forces on the population (Kokor 2001: 27).
The Evolution of Decentralisation in Ghana
The British introduced indirect rule during their colonial rule of the country from
1878 until 1957 (Ayee 2000: 48) which involved the de-concentration of central
administrative structure. This helped the colonial government to consolidate its
power and control over the entire colony. According to Nkrumah (2000), the
colonial government ruled through local chiefs and gave them the power to
establish treasuries and appoint staff and to perform local government functions.
There was however no devolution of power and involvement of local units in the
decision making process in this era. The immediate post-independence period from
1957 to the 1980s witnessed centralisation of government thereby weakening local
governments. Decisions were taken at central government level and implemented
locally. The ability of local units to encourage development from within was
weakened thereby ensuring a form of dependency syndrome. Attempts at decen-
tralisation reforms were introduced at different times, for instance in 1974 and this
was generally characterised by de-concentration, and aimed at strengthening central
government control at local level (Nkrumah 2000: 58 in Oduro-Ofori 2011).
The current decentralisation policy of the country can be traced to the late 1980s
when the Provisional National Defence Council government, led by Flight
Lieutenant Jerry John Rawlings, took bold steps towards decentralisation in order to
promote participatory democracy. He did this through local level institutions,
devolving administration, development planning and implementation to local
government units, promoting transparency and accountability and incorporating
economic, social and environmental issues into the development planning process
in an integrated and comprehensive manner. By implementing this policy, local
governments, called district assemblies, were established to give power to the local
people. These assemblies were given substantial control over the development of
areas under their control.
Legal Framework and Structure of the Local

Government System in Ghana
The Local Government Act, Act 462 (formerly the PNDC Law 207) set the tone for
the current decentralisation process in the country in 1988. It clearly stated the roles
and functions of the various local government units. Currently, the 1992 consti-
tution of the republic of Ghana and the Local Government Act, Act 462 of 1993
20 E. Oduro-Ofori
serve as the main legal frameworks of the local government system in the country.
The country’s 1992 constitution emphatically brings to the fore under article 240
(1, 2 and 3) the need to create local governments in the country. It states that:
Ghana shall have a system of local government and administration which shall, as far as
practicable, be decentralized and the system of decentralized local government shall have
the following features- Parliament shall enact appropriate laws to ensure that functions,
powers, responsibilities and resources are at all times transferred from the Central
Government to local government units in a coordinated manner; and shall by law provide
for the taking of such measures as are necessary to enhance the capacity of local gov-
ernment authorities to plan, initiate, co-ordinate, manage and execute policies in respect of
all matters affecting the people within their areas, with a view to ultimately achieving
localization of those activities.
These local governments can either be a District, Municipal or Metropolitan

Assembly depending on the size of their population. Article 241 section 3 of the
constitution stipulates that the District Assembly shall be the highest political
authority at local level, and shall have deliberative, legislative and executive
powers. Ghana has a three-tier structure of sub-national government. This com-
prises the Regional Co-ordinating Councils, District Assemblies and structures
below the district. The District Assembly remains the key focus of this study as it is
the main local government institution. Ghana’s government structure is shown in
Fig. 1.
The Regional Coordinating Councils
There are ten regional coordinating councils, one for each of the ten political
regions in the country. The regional coordinating councils are administrative and
coordinating bodies. The councils monitor, coordinate and evaluate the perfor-
mance of the District Assemblies in their various political regions. They again
monitor the use of all monies allocated to the District Assemblies by the central
government and review and coordinate public services in the region. They are
mandated to perform such other functions as may be assigned to it by or under any
enactment. A Regional Coordinating Council is headed by a Regional Minister,
which is appointed by the President of the republic.
Fig. 1 Ghana’s government Central Government (Ghana)

structure. Source Author’s
own construct Regional Coordinating Council
District Assemblies Local Government system
District Sub-structures
The District Assemblies
The local governments in Ghana are either metropolitan (with a population over
250,000), municipal (one town assemblies with populations over 95,000) or district
(population 75,000 and over). A metropolitan/municipal/district assembly is created
as the pivot of administrative and developmental decision-making in the district and
is the basic unit of government administration. The Assembly is headed by a Chief
Executive, appointed by the President and approved by at least two thirds of the
membership of the general assembly.
District Assemblies are accorded wide-ranging powers by the 1992 Constitution
and the Local Government Act of 1993 within their designated geographical areas.
They act as the highest development, political, administrative, planning, budgeting
as well as rating authority in their areas. The powers and functions of District
Assemblies, as set out in the 1992 Constitution, and the Local Government Act (Act
462) of 1993, are thus extensive. The 1992 Constitution and section 10(3) of the
Local Government Act of 1993 delineate the following functions of the district
assemblies. They are to be responsible for the following:
• To ensure the overall development of the district. This comprises the preparation
and submission through the Regional Coordinating Council for approval of the
development plan and budgets by the National Development Planning
Commission of Ghana and the minister of Finance respectively for the district.
• To formulate and execute plans, programmes and strategies for the effective
mobilisation of the resources necessary for the overall development of the
district.
• To promote and support productive activity and social development in the
district and remove any obstacles to initiative and development and initiate
programmes for the development of basic infrastructure and provide municipal
works and services in the district.
• To develop, improve and manage human settlements and the environment in the
district in cooperation with appropriate national and local security agencies, and
to maintain security and public safety in the district.
• To ensure ready access to the courts and public tribunals in the district for the
promotion of justice. Related to this they shall initiate, sponsor or carry out such
studies as may be necessary for the discharge of any of the functions conferred
by this Law or any other enactment and perform such other functions as may be
provided under any other enactment.
Sub-district Political/Administrative Structures
These sub-district structures are subordinate bodies of the District Assemblies. They
include the sub-metropolitan assemblies, urban/town/zonal/area councils, and unit
22 E. Oduro-Ofori
committees. The sub-metropolitan district council structures are immediately below

the metropolitan assemblies. This arrangement has been dictated by the complex
and peculiar socio-economic, urbanisation and management problems which con-
front the metropolitan areas. The urban councils are peculiar to settlements of
“ordinary” districts. They are created for settlements with populations above 15,000
and which are cosmopolitan in character, with urbanisation and management
problems, though not of the scale associated with the metropolitan areas of the
country. The zonal councils are in the “one-town” municipal assemblies for which
the establishment of town/area councils will raise problems of parallel adminis-
trative structures. They are based on the following criteria: commonality of interest,
population of 3000 and identifiable streets and other land marks as boundaries. The
town councils are found in the metropolitan and district assemblies. In the District
assemblies, town councils are established for settlements with populations between
5000 and 15,000. Area councils exist for a number of settlements/villages which are
grouped together but whose individual settlements have populations of less than
5000 in the districts. These cover areas with predominantly rural populations and in
some cases can be identified with spheres of influence of a particular traditional
authority. They are essentially rallying points of local enthusiasm in support of a
new local government system. A unit is normally a settlement or a group of set-
tlements with a population of between 500 and 1000 in the rural areas, and a higher
population (1500) in the urban areas. Unit committees being in close touch with the
people play the important roles of education, organisation of communal labour,
revenue-raising and ensuring environmental cleanliness, registration of births and
deaths, implementation and monitoring of self-help projects, among others (Fig. 2).
Metropolitan Assemblies Municipal Assemblies District Assemblies
Sub-Metropolitan
District Councils
Urban/Town/Area
Town Councils Zonal Councils
Councils
Unit Committees
Fig. 2 Ghana’s district assembly structure. Source Government of Ghana (1996)

Local Government and Local Economic Development

Promotion in Ghana
Local governments were not extensively involved in local economic development

right after Ghana’s independence in 1957 as issues of economic development,
unemployment and job creation were seen to be the activities and functions of the
central government. The current local government system introduced in 1987
therefore gave local governments the mandate to promote the development of their
areas of jurisdiction. The Act (Act 462) establishing the system clearly states their
functions as discussed in the previous section and also encourages their support and
promotion of local economic development activities.
Legal Context of Local Government Involvement in LED
The fourth republican constitution of Ghana puts local governments in charge of the
development of their local areas. Section 240 of the constitution outlines measures
affecting local governments. Section 245 also states that the functions of District
Assemblies shall include the formulation and execution of plans, programmes and
strategies for the effective mobilisation of the resources necessary for the overall
development of the district. This puts the local governments in a position to pro-
mote the development of all sectors in their areas including economic development.
The Local Government Act, Act 462 states that they are to promote and support
productive activities and social development in their districts and take steps to
remove any obstacles to initiative and development. This function therefore puts
them in a position to ensure that the economic and social development of their areas
are really supported and promoted through diverse ways and means.
Though the legal frameworks support the local governments in local economic
development promotion, they fail to specifically stipulate what these are supposed
to do and how. They also fail to provide sanctions to local governments which do
not actively get involved in local economic development. The consequence is that
local governments do whatever they think is appropriate in this respect.
LED Approaches and Strategies
Based on the mandate given to local governments by the constitution of the republic
of Ghana and the Local Government Act (Act 462), to promote economic devel-
opment, local governments may promote the local economic development of their
areas through various interventions. But, it must be emphasised that the majority of
the local governments do not have a specific policy on LED promotion. The local
governments promote LED based on the endowments of their local areas. They
24 E. Oduro-Ofori
promote agricultural development through sponsoring farmers, provision of agri-

culture infrastructure and logistics and seeds. Agriculture extension agents of the
local governments also help provide the necessary guidance to farmers in farming
areas of the respective local government areas. A study conducted in the
Ejisu-Juaben Municipality revealed that agricultural promotional programmes by
the local government have been targeted towards increasing the productivity of
major crops, reducing post-harvest losses, improving farmers’ access to markets
and credit and the training and re-orientation of farmers and extension agents to
facilitate effective transfer of agricultural technology to farmers. In recent times, the
Municipal Agricultural Development Unit has assisted farmers to obtain viable
seeds, seedlings and breeds of livestock from its stock and other reputable sources
within and outside the municipality. It has provided bags of fertiliser to farmers to
boost production as a government directive. In some municipalities, it has also
carried out massive cocoa spraying to boost cocoa production.
The local governments also support basic industrial and business development in
their areas of jurisdiction. A study conducted by Mensah et al. (2013) in the
Atebubu-Amanten District of Ghana has revealed that the local government sup-
ports small-scale agro-processing activities, particularly those that support women’s
activities. In the Kumasi Metropolitan Area, the Metropolitan Assembly supported
the development of micro, small and medium enterprises by providing them with
training and business development services and also enhancing their access to
affordable credit (KMA 2010).
Infrastructure provision is another key area that is supported by all local gov-
ernments towards LED promotion. This includes the construction of feeder roads to
link production centres, construction of market centres and storage facilities, and
the extension of electricity to communities to enhance industrial activities. Also
local governments with tourism potentials put emphasis on this sector.
In sum, it can be concluded that the local governments in the country adopt the
following strategies in their activities to promote LED and thereby open up the
economies of their local areas:
• municipal development planning and implementation;
• provision of infrastructure;
• land use planning and physical development permitting;
• provision of extension services and training programmes;
• support and implementation of government, ministry, department and agency
development programmes and projects, and
• skills provision, training programmes and the provision of credit facilities.
However, local governments need to find new and innovative ways of promoting
LED due to its, up until now, minor impact. This is due to a variety of reasons: It is
an undeniable fact that the major focus of the local governments is on the ‘hard-
ware’ aspects of local economic development promotion rather than the ‘software’
aspects. The former include the provision of infrastructure while the latter comprise
training programmes, access to credit and other intangible strategies that promote
local economic development. The strategies generally applied are not strong enough
to help utilise effectively existing potentials for local economic development. The
scale of operation of the various roles is again limited in terms of scope and time.
Institutional Structures for LED Promotion
Local economic development as a process oriented activity depends on existing

institutions, the creation of new ones and their ability to manage the process. These
institutional set-ups reflect decisions about the organisational channels and rela-
tionships that exist or are established for economic development oriented activities.
Local governments in the country have different departments and committees that
promote and implement economic activities. These include the Business Advisory
Centre; Agriculture Development Unit and the Office for National Culture. Others
include the Departments of Town and Country Planning, Cooperatives, Works and
Community Development. They are responsible for promoting economic activities
in the various fields of economic development pursued by the local governments.
The sub-committees that are directly involved in local economic development are
Development Planning, Culture and Tourism and Agricultural.
Consultative and cooperative relationships exist between the local governments
through their administrative bodies and the sub-committees and also the various
departments. The local governments consult and collaborate with these departments
and sub-committees when implementing any activity on local economic develop-
ment. Consultation, collaboration and cooperation between the sub-committees and
the departments also exist. The consultation process involves the provision of
information, discussion of issues concerning each other and initiating decisions that
affect both parties. As part of the cooperative and collaborative process, they work
together to achieve common purposes for the development of the local areas and the
local government. However, within this frame, no institution exists that serves as a
coordinating body within and between these departments, sub-committees and the
general administration of the local governments.
Local Economic Development Planning
The current decentralisation system being practiced has given the various local
governments the mandate and responsibility of preparing a periodic medium term
development plan to guide their development activities. The plans are prepared
every four years by all the local governments. These locally prepared plans are then
sent for the approval of the Regional Coordinating Council (RCC) and the National
Development Planning Commission (NDPC) of Ghana. In this planning process,
the local governments are supposed to include issues touching on local economic
development.
26 E. Oduro-Ofori
The guidelines concerning the preparation of the plans are issued periodically to
the local governments by the NDPC. These guidelines are derived from prevailing
development policy frameworks of the country at any point in time. In this respect,
the development focus and themes of the country serve as the guide to local level
development planning. Local governments do not have the absolute right to go
outside these guidelines. Since 1996, the commission has issued five guidelines to
this effect. These are the 1996–2000, 2001–2005, 2006–2009, 2010–2013 and
2014–2017 guidelines. These also correspond to the planning periods. These
guidelines provide the procedures and processes that should be followed by all the
local governments in their development planning activities.
The content of the guidelines determines what the local governments shall
include in their plans. Should there be no consideration on local economic devel-
opment, main LED issues will be left out. A review found that the first three
guidelines did not make mention of the concept of local economic development.
However issues covering the subject were captured under thematic areas such as
“production and gainful employment” and “skills and entrepreneurial development”
in the 2002–2004 guidelines and “priorities for private sector competitiveness” in
the 2006–2009 guidelines. The 2002–2004 guidelines enjoined the local govern-
ment to analyse their resources to generate gainful employment. In this respect, they
were to analyse their production systems and levels of technology, support given to
the improvement of storage facilities to minimise post-harvest losses and streamline
distributions. In the 2006–2009 guidelines, local governments were to formulate
goals, objectives, programmes and projects that bordered on modernising agricul-
ture, support services, the development of additional sectors to support growth,
employment generation and improvement and expansion of safety nets at the local
level. The guidelines from 2010–2013 and the 2014–2017 make actual mention of
local economic development and what should be included in the medium term
development plan. Though the content is spelt out, LED is still a small aspect of the
planning activities in the local governments.
From the above, it is clear that though planning at the local level is supposed to
be a bottom-up process, the issuing of the guidelines indicates a top-down approach
which may not help the local governments exercise a comprehensive LED planning
and also address pertinent LED issues in their very specific context. Also, the
four-year duration of the current planning system by local governments negatively
affects their ability to contemplate a long-term strategic LED vision for their
locality.
In terms of the planning process, the local governments follow a comprehensive
process in the preparation of their medium term development plans. The process
captures most of the issues concerning a locality’s development. It covers issues on
economic, social, cultural, spatial and most aspects deemed to be of importance to
the development of the municipality. It links all the sectors together in the process
and indicates that no sector stands on its own or is of greater importance than the
other. Also, the process includes most of the stages and steps as identified in the
local economic development process (World Bank 2003). It includes the identifi-
cation of stakeholders and their involvement in the process. It also hinges on
Performance
Communication review and
of strategy situational
analysis
7
1
Monitoring Setting
and development
evaluation priorities
6 2
Preparation and Development

implementation of of goals,
annual action objectivesand
plans strategies
5 Formulation 3
of
development
programmes
4
Fig. 3 Planning process. Source Author’s own construct with inputs from National Development
Planning Guidelines to district assemblies
participatory planning where the necessary stakeholders in the process are supposed
to take part in analysing and visioning for that particular spatial entity and also in
the formulation of goals, objectives, strategies and action plans and their imple-
mentation and management. The process again links its outputs to the national
policy framework and the goals and objectives of the country prevailing at the time.
The stages of the medium term planning process are captured in Fig. 3.
The planning processes followed by the local governments, though very broad,
integrative and all inclusive, may have the following negative effects on LED
Planning:
• It may pay little attention to and therefore overlook basic aspects of local
economic development.
• Also, the consultation of all stakeholders in the process is not thorough enough
to capture most of their needs and aspirations. The reason is that the process
covers many stakeholders spread across various sectors and areas of the locality
over a short period of time.
• Instead of focusing on the needs of the locality, the process is attached to the
particular development policies of the country at the time of the plan prepara-
tion. It is the focus of this policy document which determines the content of the
28 E. Oduro-Ofori
plan including the goals, objectives, programmes and projects to be imple-

mented during the period.
Other major issues concerning LED planning is the calibre of human resource
available within each local government for planning purposes and their compe-
tencies. Planning at local government level is carried out by the District/Municipal/
Metropolitan Planning and Coordinating Unit (DPCU). This unit is made up of
professionals heading the various departments in the local government. The unit
normally has the Development Planning Officer as a member. Though these
planning officers are competent in comprehensive planning, they need to be taken
through strategic LED planning to plan effectively for the sub-sector. Also, many
local governments in the country do not have trained planners and this affects the
kind of planning that is done and the inclusion and implementation of LED pro-
grammes and activities.
From the discussions on LED planning, it can be deduced that local governments
in the country do not have a clear and long term LED strategy to follow. They
rather identify programmes, projects and initiatives that are pro-LED for the short
term. This was confirmed by studies carried out by Oduro-Ofori (2011) in the
Ejisu-Juaben Municipality and Mensah et al. (2013) in the Atebubu-Amanten
District of Ghana. For effective local economic development, a strategic local
economic development process meeting the needs of the local governments should
be followed and this should be captured in the LED promotion policy of the
country.
The Role of Policy in LED Promotion
A development policy can be defined as a broad or open statement of intent con-

taining a set of principles, strategies and instruments regarded as the general
guidelines to direct and promote a government, an institution, an organisation, and
an individual towards the attainment or achievement of stated goal(s) and objec-
tives. Therefore the implementation of any special development concept needs an
appropriate policy to guide it. A local economic development policy framework
usually contains the principles and long term goals that form the basis of making
rules and guidelines and to give overall direction to planning, development and
implementation of local economic development. This framework aims to support
the development of sustainable local economies through integrated government
action. This has the ability of stimulating the heart of local economies to the benefit
of the national economy. In some countries in the developing world including the
Republic of South Africa, there is at least legislation guiding LED promotion
(Patterson 2008). This has compelled local governments to promote LED in their
areas of jurisdiction.
The same cannot be said of LED promotion in Ghana. There is no compre-
hensive national policy framework to guide local governments in local economic
development promotion at a local level. The absence of this could be attributed to

the assumption by past governments of the country that the creation of an enabling
local environment within which local economic activities were conducted,
resources mobilised and revenue generated, was not a major responsibility of the
local government. This is because issues on economic development were viewed as
the obligation of the central government. But, the absence of this framework makes
it unclear for local governments on what to do, how to do it and the specific areas to
support in the promotion of local economic development. Though the Local
Government Act, Act 462, directs local governments to support social and pro-
ductive activities and although there exists a brief section of the 2010 National
Development Planning Commission (NDPC) planning guidelines, there is the need
for a national policy framework to be developed to guide the activities of these local
governments and to compel them to actually get involved in the process.
Funding of Development Activities
The decentralisation process has also empowered local governments with some
basic funds to promote the development of areas under their control. The central
government supports them with grants including the District Assembly Common
Fund (DACF) and the District Development Fund (DDF). Additionally, the local
governments have the legal mandate to mobilise revenue locally from their area. In
Ghana, this is called the Internally Generated Funds (IGF). The DACF is a statutory
payment by Central government to the local governments from the national budget.
Under DACF, government is mandated to transfer 7.5 % of national tax revenue to
a fund. The DACF is disbursed to the local governments on a quarterly basis per a
formula approved by the parliament of Ghana annually. Since its introduction in
1993, this has proven to be the most reliable form of transfer from central gov-
ernment to the local governments. Many development projects in the area of LED
have been carried out country-wide.
Table 1 indicates the amount of funds released into the fund from 2008 to 2011.
Though the DACF is the most available source of funds to the local govern-
ments, it is, for at least two reasons, inadequate to meet all their development needs.
Table 1 DACF releases

Year Total national revenue Allocation to DACF DACF percentage of total
(Ghana Cedis) (Ghana Cedis) national revenue
2008 201,561,054.17 36,265,080.70 38.5
2009 247,290,422.13 51,798,921.21 43.33
2010 469,296,584.84 86,146,309.35 31.97
2011 354,012,976.94 65,401,988.91 27.83
Source Shirazu (2013: 4)
30 E. Oduro-Ofori
First, it is not released on time. Second, before the fund is released, the central
government makes a lot of deductions. According to Shirazu (2013), 61.18, 44.25,
31.62 and 46.08 % of the funds were deducted before release to the local gov-
ernments by the central government in 2008, 2009, 2010 and 2011 respectively.
From these submissions, it can be observed that about 40 % of the DACF is
normally earmarked for other programmes for the local governments which nega-
tively affect the implementation of their development programmes.
The District Development Fund (DDF) is a performance-based fund. It is given to
local governments based on performance following the implementation of their
proposed development activities. An annual assessment of Metropolitan, Municipal
and District Assemblies (MMDAs) performance is carried out using the Functional
Organisational Assessment Tool (FOAT, also view article of Braimah/Inkoom in
this book). Local governments that pass the assessment are provided with additional
funds. A greater portion of the facility comes from Ghana’s foreign development
partners.
Concerning the mobilisation of internal funds, local governments face a lot of
challenges. These include inadequate data on existing rateable and all economic
entities and a list of properties and their owners that could be taxed. Property
owners also default in paying property rates approved by the local government due
to their non-involvement in the fee-fixing process. Due to the absence of an advance
(automated) system of revenue collection, revenue collectors are able to take
advantage of the loop holes in the revenue collection process to dupe the local
government by under-reporting what is actually collected. Again, the revenue
collectors are not well equipped in terms of skills and logistics to be able to collect
revenue effectively.
The local governments are also restricted in terms of borrowing for their
activities. The Act (Act 462 1993: section 88) establishing the local government
system in the country states that “a district assembly (local governments) may raise
loans or obtain overdrafts within Ghana of such amounts, from such sources, in
such manner, for such purposes and upon such conditions as the Minister [of Local
Government and Rural Development] in consultation with the Minister responsible
for Finance, may approve; except that no approval is required where loans or
overdrafts to be raised do not exceed Two Thousand Ghana cedis” (GHS 2000,
current about 600 US Dollars). Based on this section of the act, local governments
cannot borrow funds from outside the country or enter into any financial agreements
with any entity from outside the country for any purpose and also carry out bor-
rowing in the country without the prior approval of the Ministers concerned. The
procedure for approval of sums above the threshold entails all the bureaucracy of
the corridors of governance and power in the country and the subsequent delays
involved. It is therefore not attractive to most local governments in the country to
borrow additional financial resources for their development activities. From the
above analysis, though decentralisation has improved the funding of local gov-
ernments, the funds made available are inadequate to support totally the develop-
ment activities of the local governments.
Perspectives Towards Making Decentralisation

Work for LED Promotion
The analysis indicates that the introduction of decentralisation and the establish-
ment of local governments in Ghana have enhanced the promotion of the local
economies at the local level in various ways. It has led to the speeding up of
infrastructure provision necessary for economic development, training and provi-
sion of credit to entrepreneurs and the other supports for business development. In
all this it has however come to light that there exist challenges such as a weak
institutional set-up for LED promotion, inadequate capacity for LED promotion,
limited scope of LED interventions, less integration of the LED process into the
local level planning and an absence of a national and local level policy framework
to guide LED promotion at the local level. These drawbacks need to be addressed to
achieve a high positive effect of decentralisation on LED promotion at the local
level.
The following measures are thus recommended.
Improving Institutional Structure for LED Promotion
In addressing the weak institutional structure for LED, local governments should be
encouraged to establish a special centre to be in-charge and responsible for its local
economic development activities. This unit should help plan, facilitate and coor-
dinate all local economic development activities of local governments, their
departments, units and sub-committees and that of local economic entities in their
areas of jurisdiction. This centre or unit should also see to the creation of sub-units
or centres for local economic development in the local governments’ areas. The unit
should convene a LED forum of the local governments. The structure should have
the mandate of re-orienting the various departments, especially the Business
Advisory Centres, on their roles in promoting business and other economic activ-
ities. The centre ought to include representatives from all the key departments,
sub-committees, and technical staff of the local governments, representatives from
major business associations and economic entities and local leaders in the local
governments’ areas of operation. A proposed LED institutional structure and
framework is presented in Fig. 4.
Integrating a Detailed LED Planning Process into Local

Governments’ Medium Term Planning Process
The strategic local economic development process, which involves a participatory

process of formulating and implementing a local economic development plan, is
32 E. Oduro-Ofori
General Assembly
Authority flow
Executive
Committee
General
Administration
Sub-committees,
departments, agencies, units
LED Centre and technical staff
Economic entities, Business

Associations and
Line of reporting organisations
Community leadership
Community based
LED Forum
organisations
Key
Line of authority and reporting
Line of membership and consultation
Line of consultation
Fig. 4 Proposed LED institutional structure and framework at the district level. Source
Oduro-Ofori (2011: 217)
both a vehicle to devise and implement programmes, projects and activities and an
instrument to concretise the economic sector plan of the local government. Though
this plan should serve as an integral part to the larger development agenda of the
local governments, it should clearly spell out the local governments’ vision, goals,
objectives, programmes and projects for local economic development and their
implementation processes. It is advocated that the local economic development
process should be expanded by the local governments after their medium term
development plan preparation period. At this point, the various stages of the local
economic development process including: organising the LED efforts; doing the
local economy and competitive assessment; formulating, implementing and moni-
toring the LED strategy could be followed in detail. This should be done by the
local economic development unit of the various local governments through the
stakeholder forum in the local economic development process.
Formulating a National and Local Level Policy

Framework to Guide LED Promotion
The absence of an integrated national institutional and policy framework for

enhancing the involvement of local governments in local economic development
will have an adverse effect on effective local economic development in the country.
There is therefore the need for the ministry responsible for local governments and
the National Development Planning Commission to create a national framework to
guide local governments in local economic development promotion in the country.
This framework will be a means of enhancing the policy environment and putting in
place institutional arrangements at the national level to guide local governments in
effectively promoting local economic development at the local level. This frame-
work should help develop a local economic development centred understanding of
the national economy, its sub-national and local dimensions, prevailing sectors and
value chains. This framework should also assist in documenting, analysing the
impact of and eventually harmonising and enhancing local economic development
related macro policies and strengthening their responsiveness to local economic
development promotion requirements. Again, it should document and assess the
coherence of the mandates and functional assignments of the relevant ministries and
national agencies, quasi-governmental and non-governmental organisation and
private sector institutions. This will enhance the gradual refinement of such man-
dates and improve the horizontal and vertical coordination and harmonisation of
assigned functions. Finally the framework should accurately define the functional
assignments of local governments related to LED. It should also position them in
relationship to other local economic development promoters operating within their
areas of jurisdiction. The framework should make it mandatory for the local gov-
ernments to document, analyse and coordinate local economic development
activities relevant to national strategies.
Improving Upon the Capacity of the Local Government

for Local Economic Development
In view of the findings that the local governments have inadequate capacity in terms
of funds, technical know-how, logistics and other forms, there is the need to address
these issues. They should enter into partnerships with other stakeholders in the
process where the financial burden on it can be shared. This will also allow them to
perform other roles and functions aside from financial provision in the
partnership. They can again encourage the setting up of cooperative credit unions
and associations across the length and breadth of their local areas and put in
measures to strengthen existing ones. This will help micro-level economic entities
and entrepreneurs to have access to financial capital for the development of their
economic entities in the long run. Also the proposed local economic development
34 E. Oduro-Ofori
unit of the local government should be tasked to put in the necessary efforts to
source for additional funds for local economic development activities of the local
governments.
Moreover, central government could also compel the local government to
allocate special funds from their budget for the promotion of local economic
development each financial planning period. In the long term, the central govern-
ment should speed up its fiscal decentralisation process to give local governments
full control over grants received and give them financial autonomy in the use of
their financial resources. Aside from the improvement in the financial capacity of
the local governments, they should re-orient their staff, whose activities are likely to
have a bearing on local economic development, on the ideals and principles of the
concept. This should provide opportunities for well-established and more practi-
cally focused training in local economic development, its planning, implementation,
financing and management as it will improve upon their capacity and ensure the
effectiveness of the local governments in this direction.
In conclusion, it is important for one to note that decentralisation is an effective
process to promote good governance and participatory development and that the
relationship between decentralisation and local economic development cannot be
over emphasised. Local economic development as a general strategy to promote
economic opportunities and growth at the local level can be enhanced through an
effective decentralisation process. Decentralisation in Ghana has led to the creation
of a local government system called the District Assembly concept and thereby
contributed to the reduction in disparities existing among localities. It has assisted
districts to reduce economic development gaps in many areas. It is in this light that
the gains made by the decentralisation process in the light of LED should be
enhanced and the challenges impeding the processes contribution to LED should be
addressed to help achieve the best of results.
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Levelling the Gradients—Planning
for Equivalent Standards of Living,
The German Experience
Volker Kreibich
Abstract Germany enjoys relatively even standards of living throughout most of

its territory; yet levelling the existing gradients between the federal states and
between urban and rural areas is a key issue in national development and regional
planning even codified in the German Basic Law. In the post-war period, the
postulate was primarily applied to the development of rural areas. With the
intensification of the German division the focus was extended to the area adjacent to
the Soviet Zone, which suffered from de-industrialisation and out-migration. After
re-unification regional inequalities between the western and eastern states and
within Eastern Germany became a key issue of national concern. Today demo-
graphic change, especially ageing, and outmigration from rural regions of Eastern
Germany and gradually also from the more remote parts in the West, is increasingly
considered a very serious challenge to the principle of safeguarding regional
equality and providing equivalent standards in the provision of public services.
Three national financial policy schemes are in place to reduce regional inequalities
between the federal states. The Federal Financial Equalisation Scheme was
designed as a constituent part of the federal system to provide each state with
adequate financial resources. The Solidarity Surcharge has been levied since 1991
in order to reduce inequalities between the western and eastern federal states. The
Solidarity Pact was instituted in 1993 and re-launched in 2005 to fund recon-
struction in the eastern states directly. In Germany spatial planning for equivalent
standards of living is backed by a well-developed system of central places which is
supported by all state planning acts. Especially in rural areas it is being comple-
mented by non-statutory planning approaches which support private participation
(e.g. neighbourhood or communal shops), inter-municipal regional cooperation
(e.g. based on target agreements), and flexibilisation (e.g. multiple use of service
facilities). The federal government is supporting these non-statutory planning
approaches for the provision of essential public services within its urban devel-
opment promotion programme with the aim of mobilising regional potentials.
V. Kreibich (&)
International Planning Studies, Technical University of Dortmund,
Dortmund, Germany
e-mail: volker.kreibich@tu-dortmund.de

38 V. Kreibich
Introduction
Before unification, the Federal Republic of Germany was often praised for its
relatively equal regional standards of living with low gradients of relevant indi-
cators (e.g. income, access to social infrastructure, commuter distance) between the
federal states, even between urban and rural areas. There was almost ubiquitous
accessibility of all essential infrastructural services in reasonable time.
Modernisation of agricultural production did not result in heavy rural-urban
migration as in many other European countries.
A major explanation can be found in the deliberate policy to establish equivalent
standards of living all over Germany as spelled out in the German Basic Law. The
specific German decentralised planning setup with strong regional and local
authorities provided a supportive framework for the implementation of this political
goal through improved access to social services and widespread extension of
technical infrastructure. More or less strict adherence to the concept of central place
hierarchies helped to overcome political and administrative friction losses and
support scale economies.
After re-unification, with a high level of goal achievement established in the ‘old
states’, the aspirations to repeat the process in the ‘new states’ of the former German
Democratic Republic with its socialist legacy had soon to be given up. Although it is
widely acknowledged that in only 20 years the huge investments into technical
infrastructure have raised service levels to Western German standards, this did not
result in equivalent living conditions all over Eastern Germany. As a response to
de-industrialisation and concomitant loss of work places, east-west migration which
was extreme after re-unification is only now subsiding. It left many villages and
urban districts with vacant dwellings and under-utilised utilities and services.
With the need to extend the spatial range of the initial objective of equal stan-
dards of living to cover the challenges raised after re-unification, its scope had to be
narrowed down to equivalence. At the same time additional schemes have been
introduced to mobilise extra funds and to set up a suitable planning framework.
The paper first provides an overview of the genesis of the postulate of equivalent
standards of living, of the respective legal framework and of the concomitant
professional discourses. The second section deals with financial policies and
planning approaches for its implementation.
The German Policy of Regional Equalisation
Regional decentralisation has to face the challenge of levelling the gradients

resulting from regional disparities when it implies the devolution of political
authority and hence an adequate level of financial autonomy to the lower echelons
Levelling the Gradients—Planning for Equivalent … 39
of the political and administrative system. In Germany, the objective of equal and
later on equivalent standards of living, spelled out in the Basic Law for the Federal
Republic of Germany, is a cornerstone of the regional planning system.
Equivalent Standards of Living
In a special survey taken by the Socio-economic Panel of 2003 about two out of
three panellists agreed more or less with the statement that “social equality” implies
“that all citizens enjoy equal living conditions” thus revealing a preference for
(more) equality (Berger 2005: 7). There was an outcry when the then Federal
President Horst Köhler, an economist by training and former acting director of the
International Monetary Fund (IMF), in 2004 questioned this “broad social con-
sensus” (Barlösius 2006) with the suggestion: “We ought to move away from the
subventionist state” (Krumrey and Markwort 2004: 23).
In 2013 a large majority of the citizens of the federal state of Bavaria decided in
a referendum to amend the Bavarian Constitution adding an additional principle
(Art. 3.2): “The federal state supports and protects equivalent standards of living
and employment in all of Bavaria, in urban as well as rural areas” (Verkündung
Bayern 2013). The amendment of Art. 3, enacted on Jan. 1st, 2014 in a federal state,
which is enjoying relatively minor disparities, can be read as a proof of the con-
tinuing acceptance if not popularity of the spatial equivalence postulate. At the
same time, however, its meaning and its political and practical implications are
already much disputed.
In the post-war period, the postulate of equal (not yet equivalent) standards of
living was primarily applied to the development of rural areas with the aim to
achieve living conditions or levels of infrastructural services equal to urban places.
Parallels to the concurrent paradigm of Territorial Planning in the German
Democratic Republic are quite obvious (cf. Strubelt 2006: 307).
With the intensification of the German division the focus was extended to the
area adjacent to the Soviet Zone (Zonenrandgebiet) which suffered from
de-industrialisation and out-migration after the demarcation line had cut off large
parts from their former hinterland or catchment areas on the eastern side.
Substantial promotion of these areas seemed to be a political necessity.
With the Federal Regional Planning Programme (Bundesraumordnungsprogramm,
BROP) of 1975 the range of the concept was widened to cover the entire federal
territory. The continued focus on rural areas was adjusted in order to reflect their
increasing differentiation into areas with peripheral location and low density versus
others with proximity to urban centres or areas specialising into tourism and senior
homes (cf. ibid.). In 1989 the act was revised and the equality of public services
(Daseinsvorsorge) added as one of the four general principles (Leitbilder) of spatial
planning.
During the same period the focus of the postulate was once more extended to
address the rising gradient between the growing post-industrial service centres in
40 V. Kreibich
the South (e.g. Munich) and the increasingly de-industrialising mining, steel pro-
duction and manufacturing agglomerations in the North (esp. the Ruhr district).
With re-unification the challenge of regional inequality experienced a new
quality and a revived momentum. De-industrialisation caused the loss of jobs and
massive migration from East to West, leaving large parts of the ‘New Länder’, both
in urban and rural areas, with heavy deficits in public services, both in absolute
terms and in comparison to the old Federal Republic. The “flourishing landscapes”
promised by then Chancellor Helmut Kohl in a TV address at the introduction of
the monetary, economic and social union between the German Democratic
Republic and the Federal Republic of Germany on 1 July 1990, became almost
proverbial and a yardstick for urban and rural development in the New Länder.
Demographic change and outmigration from rural regions of Eastern Germany,
but gradually also from the more remote parts in the West, are increasingly con-
sidered very serious challenges to the principle of safeguarding regional equality
and providing equivalent standards in the provision of public services. Regions with
rapidly ageing populations coupled with shrinking population densities require a
complex set of planning approaches.
Challenges and Disputes
Following a recommendation of the Common Constitutional Commission which

was installed after reunification, the term ‘uniformity’ of living conditions was
replaced by the term ‘equivalence’ through an amendment of the Basic Law for the
Federal Republic of Germany [Grundgesetz für die Bundesrepublik Deutschland
(GG)] in 1994. The meaning of the term is explained by the Akademie für
Raumforschung und Landesplanung (Academy for Spatial Research and Planning)
thus: “The aim is to create and maintain standards of living throughout the country
which, in keeping with the local context, are equivalent in value. Equivalent does
not mean identical, which is neither practicable nor reasonable” (ARL 2015). This
first formal softening of the postulate triggered off a broad discussion about the
meaning of equivalence, its possible constituents, its practical implications and its
acceptance by the people affected.
In preparing the amendment the responsible Planning Ministry had published a
guideline on how the new term was to be understood: “Equivalence must not be
mistaken for all-inclusive uniformity, the right to claim undifferentiated promotion
and leveling, or state obligation for compensation” (BRBS 1993: 21).
Three directions of the ensuing debate can be identified. The first one departs
from the purpose of Article 72 Basic Law which clarifies the tasks of the federal and
the Länder levels under concurrent legislative powers:
(1) On matters within the concurrent legislative power, the Länder shall have power to
legislate so long as and to the extent that the Federation has not exercised its legislative
power by enacting a law.
(2) The Federation shall have the right to legislate on matters falling within clauses […], if
and to the extent that the establishment of equivalent living conditions throughout the
federal territory or the maintenance of legal or economic unity renders federal regulation
necessary in the national interest. (Bundesministerium der Justiz und für Verbraucherschutz
2014)
The two clauses restrict any direct intervention of the federal legislator into the
territorial fabric to very exceptional cases: “According to recent jurisdiction of the
Federal Constitutional Court, intervention of the federal legislator to establish
equivalent living conditions according to Art. 72 (1) GG is only admissible in
extreme emergency situations of the federal state. […] Equality of living conditions
can only then be considered endangered […] when the living conditions in the
federal states have diverged seriously affecting the social fabric of the federal state
or such a development is threatening” (Einig 2014: 30–31). So far the federal
government has not yet taken such a move because the federal Länder considered
the principle in their respective planning legislation.
The second line of discourse is based on the concept of territorial cohesion as it
is applied by the European Commission. While the German postulate of equivalent
standards of living “is basically a spatial translation of social policy” (ARL 2014a,
b, c: 21), the European paradigm of territorial cohesion has been mainly coined to
strengthen the economic competitiveness of regions (cf. Kunzmann 2014: 7–10).1
The Green Paper on Territorial Cohesion (cf. Commission of the European
Communities 2008) lists three objectives for the achievement of a more balanced
and harmonious development, thus turning territorial diversity into strength:
– concentration: overcoming differences in density
– connecting territories: overcoming distance
– cooperation: overcoming division
Indeed, there are strong communalities between the two concepts. While the
German concept is clearly based more on harmonisation than on competition,
mutual insemination will be productive in the future.
Sustainability is the third paradigm which is increasingly intervening with the
postulate of equivalent living conditions. The change is manifested in the 1997
revision of the Federal Spatial Planning Act which in section (1) ‘Task and Overall
Concept of Regional Planning’ lists sustainable regional development as the
overriding concept:
(1) The principles of regional planning shall be applied in the sense of the overall concept
of sustainable regional development in accordance with section 1, subsection 2.
(2) The overall concept of the task laid down in subsection 1 is that of sustainable regional
development which will bring the social and economic demands made on an area into line
with its ecological functions and result in a stable order which will be well-balanced on a
large scale. (Iuscomp 2015)
1
On recent debates on cohesion and spatial planning see Kunzmann (2014).
42 V. Kreibich
The postulate of equal standards of living was moved down from rank four to
rank six and reframed as ‘similar standards of living’. In addition the objective of
‘achieving cohesion within the European Community’ was amended:
In so doing […]
5. the characteristic diversity of individual regions shall be enhanced;
6. similar standards of living shall be established in all regions,
7. the regional and structural imbalances between the territories which had been separated
prior to German unification shall be eliminated,
8. the regional prerequisites for achieving cohesion within the European Community and on
a wider European scale shall be established. (ibid.)
The social dimension, which can also be perceived as the perspective of the
individual citizen, his or her interest or exposure, is indeed a constitutive compo-
nent of sustainable development. In the context at stake it may suffice to point out
the continuing importance of equal standards of living in the German legal and
normative spatial planning framework as documented by the amendment.
More critical seems the discourse about the essence of equivalence. Even its
partial replacement by similarity does not by itself provide a valid answer on how
“the right to self-fulfillment within the community” (ROG, section (2) § 1) could be
guaranteed. It can probably only be found through reference to concepts of social
justice. Equal statistical distribution of all relevant goods and services over a rel-
evant territory, e.g. in a country or state, is hard to imagine and most likely
impossible to achieve in practical terms
The concept of complementarity or substitution is also of limited value. Clean air
cannot directly substitute for missing access to qualified jobs in a rural area. On the
aggregate level, however, environmental quality based on clean air and an intact
nature can help to develop tourism or attract clinics, even companies, and thus
create new jobs. Objective 5 of the ROG, “the characteristic diversity of individual
regions shall be enhanced”, is preparing the ground for enhancing endogenous
potentials and opening the equivalence postulate to increasing competitiveness.
Despite contested issues there seems to prevail unanimity in the discourses about
the interpretation of the terms equivalence or similarity and their translation into
planning policy that at least minimum standards of living have to be secured or
established in order to promote spatial justice. But for which sectors should min-
imum standards be defined and which reference could be used?
The sectors which should be covered by public services seem to be more or less
undisputed: the health sector (general practitioners and emergency services),
security (police and fire service), primary education, local supply and local trans-
port, mail and communication services, internet access, and outpatient care (cf.
Danielzyk 2014: 16).
Expert opinions and planning regulations on minimum standards deviate,
however, significantly. So far, the statistical average for the whole Federation is
mostly used in studies or white papers on spatial development in Germany.
Normative definitions of minimum standards would require consensus about the
selection and demarcation of appropriate reference areas and, first of all, about
suitable indicators. Danielzyk rightly points out that the subjective perception of
equal service levels is likely to differ and comparisons with former times or across
borders may aggravate the problem (cf. ibid.).
Approaches to Equivalent Regional Development
In principle, spatial disparities can be approached through financial policies

designed to increase the monetary capacity of governments on the disaggregate
level, or with planning measures aimed at improving the standards of living. In
practice, as in the case of Germany, both approaches will often be combined,
whereby the financial autonomy of the recipient state or regional governments is a
critical issue.
Financial Policies
In Germany, three financial ‘macro-schemes’ for the purpose of reducing regional

inequalities on the federal state (Länder) level are in place which are partially
connected.
Federal Financial Equalisation Scheme
The first one is the Financial Equalisation Scheme (Länderfinanzausgleich). In line

with the principle of maintaining or promoting equivalent standards of living all
over the territory of the federation the Basic Law provides for a financial equali-
sation scheme which serves the purpose to “ensure a reasonable equalisation of the
disparate financial capacities of the Länder” (Basic Law for the Federal Republic of
Germany, Article 107, section 2; Bundesministerium der Justiz und für
Verbraucherschutz 2014).
The Ministry of Finance explains the Federal Financial Equalisation System as
such: “In order for the Länder, as independent constituent states, to fulfil the tasks
allotted to them under the Constitution […], they need adequate financial resources.
The Länder must also have free and independent control over these resources.
Aligning the revenue of the Länder is intended to create and maintain equal living
conditions for the entire population in all of Germany” (Bundesministerium der
Finanzen 2015).
The entire tax revenue is divided between the federation and the Länder in four
phases (cf. ibid.):
44 V. Kreibich
1. Vertical distribution: The entire tax revenue is distributed to the two levels of
government—namely the Federation and all the Länder—and the municipalities
receive a supplementary grant of revenue.
2. Horizontal distribution: The total Länder portion of tax revenue is assigned
among the various Länder.
3. Financial equalisation among the Länder: equalisation between poor Länder and
rich Länder.
4. Supplementary federal grants: In addition, poor Länder receive funds from the
Federation.
The overall justification given for the system, which is in detail rather compli-
cated,2 spells out clearly the social policy foundation of spatial equalisation: “In
principle, the system of financial equalisation among the Länder assumes that the
financial requirement per inhabitant is the same in all the Länder” (ibid.: 3). There
are, however, two exceptions: The three city-states, which are simultaneously
municipalities and Länder in their own right, and the three most sparsely populated
Länder in Eastern Germany receive a higher share based on the assumption that
they have a higher financial requirement per inhabitant.3
The system is quite effective: “Take the example of a fiscally weak Land with a
financial capacity per capita that is 70 or 90 % of the average before financial
equalisation. Once the financial equalisation system has been applied, this increases
to 91 or 96 % of the average. On the other hand, a fiscally strong Land with 110 or
2
“The Constitution jointly allocates several particularly important taxes to the Federation, Länder
and, to a degree, the municipalities. According to the Constitution, either the Federation, the
Länder or the municipalities are entitled to the remaining types of tax in full. Income tax, cor-
poration tax and VAT are divided between the Federation and the Länder as a whole. The
municipalities are entitled to a share of the income tax and VAT. These taxes are therefore referred
to as joint taxes. The Federation receives 42.5 % of the income tax, 50 % of the corporation tax
and 2014 around 53 % of VAT. The revenue accruing to the Länder is 42.5 % of the income tax,
50 % of the corporation tax and 2014 around 45 % of VAT. 15 % of the income tax and, in 2014,
around 2 % of VAT go to the municipalities. Of all the types of tax, income tax and VAT generate
by far the most revenue. The Federation receives all of the revenue from the federal taxes. The
majority of the excise duties (such as energy duty and tobacco duty) as well as the insurance tax
are federal taxes. The Länder are entitled to receive all of the revenue from Länder taxes. These
include the inheritance tax, most types of transactions taxes (in particular, the real property transfer
tax) as well as some other types of taxes that generate small amounts of revenue. The munici-
palities receive the revenue from the trade tax, the real property tax as well as the local excise
taxes. The Federation and the Länder receive a share of the trade tax receipts through an appor-
tionment” (ibid.: 2).
3
“This assumption is not appropriate in the case of the Länder of Berlin, Bremen and Hamburg,
which are city-states. The city-states are simultaneously both municipalities and Länder in their
own right. They have a much higher financial requirement per inhabitant than the normal Länder.
Therefore, for the purposes of the equalisation system, their populations are notionally increased
by 35 %. The three sparsely populated Länder of Brandenburg, Mecklenburg-Western Pomerania
and Saxony-Anhalt also have a slightly higher financial requirement per inhabitant. Their popu-
lations are therefore slightly notionally increased for the purposes of the financial equalisation”
(ibid.: 4).
120 % of the average financial capacity per inhabitant before equalisation, has
between 104 and 106½ % (sic!) per cent afterwards” (ibid.: 5).
This scheme, logical as it may look, is highly disputed in the political arena. While
the basic proposition that financial disparities between the Länder should be reduced
seems to enjoy broad acceptance, it is the modalities which are under critique.
The direction of financial flows under the Federal Financial Equalisation
Scheme has reversed itself with time. Initially, the majority of transfers flowed from
North to South with North Rhine-Westphalia being the major contributor and
Bavaria the main recipient federal state. Following de-industrialisation of the Ruhr
area and the boom of service industries in the South, North Rhine-Westphalia is
now the third-largest recipient and Bavaria the major contributor. In 2013 the
eleven recipient Länder received between 9 and 99 million Euro with the exception
of the capital Berlin, which was funded with 3.3 billion Euro. In relation to
inhabitants the eastern Länder are by far the major recipients. The three contributor
states transferred between 1.7 and 3.4 billion Euro. In 2014 Bavaria’s share will
have risen to 5 billion, which amounts to about 10 % of its total tax revenue (cf.
Zeit online 2014).
As a consequence, in 2013 the contributor states of Bavaria and Hessia requested
from the Federal Constitutional Court a judicial review of the act according to its
constitutionality (Normenkontrollklage). The decision is still pending.
Another major point of criticism alleges that the system tends to stabilise the
present financial capacity gradient between the rich and the poor Länder because it
could act as a disincentive, keeping the poor federal states from improving their
economic structure. As a precautionary measure the regulations of the Federal
Financial Equalisation Scheme have been designed to ensure that the sequence of
the Länder, in terms of financial capacity per inhabitant, does not change as a result
of the financial equalisation among the Länder.4
Solidarity Surcharge
The second ‘macro-scheme’ to increase the tax revenue of the Federation and thus
enable it to reduce regional inequalities between the western and eastern Länder is
the Solidarity Surcharge (Solidaritätszuschlag). To finance the reunification of
Germany as well as other tasks like the Gulf War and Euopean integration a
surcharge was introduced in 1991 and has since been levied from all taxpayers both
in Western and Eastern Germany on their pay-as-you-earn tax (PAYE), i.e. income,
withholding and corporation tax. The assessment basis is the income tax or cor-
poration tax. The solidarity surcharge is currently 5.5 % of the relevant assessment
basis (cf. Bundeszentralamt für Steuern 2015).5 In 2014 the revenue from this
4
Source: footnote 21: 4.
Example: Income tax 5000 €. Solidarity surcharge 275 € (5.5 % of 5000 €) (cf. ibid.).
5
46 V. Kreibich
surcharge amounted to about 18 billion Euro. The federal government is free to

spend this additional revenue; a large share is being used for the Solidarity Pact.
Solidarity Pact
As a consequence of the unexpected huge financial demand for the programme

Reconstruction East (Aufbau Ost) the federation and the Länder agreed in 1993 to
establish a Solidarity Pact to fund the eastern Länder directly. Until 2005, this
Solidarity Pact I transferred about 95 billion Euro to Berlin and the eastern Länder.
In 2005 the Solidarity Pact II was launched with the intention of providing an
additional 156.5 billion Euro until 2019. The transfer of these funds from the
federation to Eastern Germany is independent of the continuously disputed
Solidarity Surcharge. The funds are being administered in two so-called baskets:
1. Basket I (105.3 billion Euro) contains funds generated through the Financial
Equalisation Scheme. They are earmarked for improvements of infrastructure,
mainly roads and rails, and to compensate for financial deficits of municipalities.
2. Basket II (51.1 billion Euro) comprises additional federal grants for economic
development.
The recipient Länder have to document the legitimate use of these funds in
annual Progress Reports on the Reconstruction East programme.6 The regulations
are complicated and the temptation to spend them for other urgent tasks is often
enticing.
The legal provisions for the Federal Financial Equalisation Scheme, the
Solidarity Surcharge and the Solidarity Pact will expire on 31 Dec. 2019. Before
this date the legal framework will have to be renegotiated between the Federation
and the Länder and also among the Länder. While the principles of financial soli-
darity and partial equalisation of disparities will probably not be questioned, the
modalities will be highly contested. One proposal which is already on the table is
the integration of the schemes into the income tax. Its likely increase is, however,
extremely unpopular and not yet on the agenda of the ruling political parties.
There is already a general understanding that any follow-up legal framework
providing funds to reduce spatial disparities should no longer focus on the eastern
Länder, but cover the federal territory at large. The number of western munici-
palities and regions which claim that their standards of living especially in terms of
technical infrastructure are lagging behind that of Eastern Germany is increasing
rapidly.
6
This programme (Aufbau Ost) encompasses all activities undertaken to rebuild the economy in
East Germany. The volume of financial transfers is estimated to about 100 billion Euros per year
(cf. Heilemann and Rappen 2015).
Planning Approaches
The Conference of Ministers on Spatial Planning (MKRO)7 agreed in 2013 on

Principles and Strategies for Spatial Planning in Germany (cf. MKRO 2013).
According to this paper sustainable spatial development has to depart from three
strategic principles (Leitbilder). The first one, “strengthen competitiveness”, refers
to aspects of territorial cohesion with explicit reference to the respective European
agenda; the third one “direct the use of space” concerns the core task of spatial
planning with special reference to the avoidance and moderation of land use
conflicts.
The second principle “safeguard public services” (Daseinsvorsorge sichern)8
calls for the provision of equivalent standards of living in all subspaces by main-
taining the supply with public services and infrastructure. All population groups
shall have access to and be able to reach the required services and facilities by
means of a settlement structure which supports efficient and economic supply of
goods and services. The prerequisite carrying capacities are, however, increasingly
at stake in areas with a shrinking population (cf. MKRO 2013: 11; see Fig. 1).
The MKRO thus recommends five major strategies to safeguard public services
(cf. ibid.):
1. apply the central place system consequently
2. extend cooperation
3. secure service provision in thinly populated areas
4. maintain accessibility and reachability
5. assure local supply
Out of these measures application of the central place system is by far the one
with the longest tradition and the only one backed by special statutory regulation.
The others are more recent and in general ‘softer’ planning approaches.
7
The Federal Spatial Planning Act places a duty on the federal state governments to consult on
fundamental issues relating to federal and state spatial planning. The Conference of Ministers for
Spatial Planning, which brings together the competent federal and state ministers was set up in
1967 specifically for this purpose. Although the decisions taken by the conference have no binding
effect, they have nonetheless made a major contribution to establishing consensus on the aims and
purposes of spatial planning in Germany (cf. ARL 2014b).
8
The term “Daseinsvorsorge” refers to “governmental provision of essential social, cultural, and
economic goods and services for the population. This includes public infrastructural facilities for
the general public—traffic and transport facilities, gas, water and electricity supply, refuse col-
lection, sewage disposal, educational and cultural institutions, hospitals, cemeteries, etc. Public
service provision in this sense is among the most important functions local authorities perform on
their own responsibility” (cf. ARL 2014c).
48 V. Kreibich
Fig. 1 Ensuring services of public interest. Source MKRO (2013: 15)
Central Place System
There is probably no other country where the central place system enjoys a similar
acceptance and exerts a comparable impact on spatial planning than in Germany.
The reasons can be partly found in its history—the paradigm was invented there (cf.
Christaller 1933)—but even more so in its close connection with the planning
principle of equivalent standards of living.
The Bavarian State Planning Act (Bayerisches Landesplanungsgesetz (BayLplG);
Bayerische Staatsregierung 1998) provides a typical case of the high significance of
the central place paradigm in the German spatial planning system. In Article 6
“Principles of Spatial Planning” the Act postulates concerning spatial structures:
“Municipalities suitable to function as centers of public services (Daseinsvorsorge) for a
usually regional zone of interlinkages can be assigned as central places in the Spatial
Development Plans. The central places shall be distributed over the whole territory of the
state in such a way as to guarantee for all citizens the supply with goods, services and
infrastructural facilities in reasonable distance; this applies also in thinly populated
sub-areas. The settlement activity ought to be spatially concentrated and directed onto
settlements with sufficient infrastructure, foremost to central places.” (ibid., translation by
author)
Similar provisions can be found in the spatial planning acts of the other federal
states in Germany.
Postal services provide a good case in point to illustrate the fundamental conflict
between the postulate of area-wide reachability of central places especially in rural
areas with a rapidly ageing population and their economic carrying capacity. It was
substantiated in detail in a documentary published by the Federal Ministry of
Transport, Building and Urban Development (BMVBS)9 (cf. BMVBS 2010: 34 ff.).
Concerning equal access to postal services the Basic Law for the Federal
Republic of Germany postulates: “[…] the Federation shall ensure the availability
of adequate and appropriate postal and telecommunications services throughout
the federal territory”. (Basic Law 87) A special act provides for the services being
provided after privatisation of the German Federal Mail; their compliance is being
controlled by the Federal Network Agency.10
The Deutsche Post AG maintains stationary post offices or post agencies in all
settlements with at least 2000 inhabitants or in smaller places when they are des-
ignated as central places. In contiguously built-up areas a stationary postal service
has to be accessible by every potential customer within a maximum distance of
2000 m. These provisions ensure that more or less all basic centres and their
catchment areas are in general supplied with postal services. A customer survey
revealed in 2004 no remarkable deficits in places with less than 5000 inhabitants
(cf. ibid.: 35).
Competitors to the Deutsche Post AG on the parcel and letter sectors maintain a
similar number of shops albeit concentrated in urban centres with a sufficiently
large catchment population and carrying capacity. This would also be the preferred
locational strategy of the Deutsche Post AG which would like to relocate shops
from settlement cores to large shopping centres based on the assumption that there
they would be closer to customers. This argument probably holds true for vehicular
shopping trips, but it neglects the needs of a rapidly ageing population and the trend
towards non-motorised modes of transport. It would also contradict the spatial
planning principle of bundling infrastructure supply of several sectors in central
places.
Despite these counter-tendencies the central place paradigm is still the leading
locational strategy in private service supply. Especially the health sector which
depends much on complementary benefits generated by bundled infrastructure and
on public transport needs central locations. In Germany, there are virtually no
health services being offered in shopping centres located outside of city centres.
Retail experts also recognise the advantages of the central place system and plead
for its continued planning support.
Especially in rural areas the central place paradigm alone will, however, not
suffice to secure the planning principle of equivalent living conditions based on
9
The text of this section is largely based on this source.
10
The Post Bank is exempted from these regulations under the assumption that the banking sector
is subjected to functioning competition (ibid.: 34).
50 V. Kreibich
adequate access to public goods and services. In practice it is increasingly being

supported and complemented by non-statutory planning approaches.
Non-statutory Planning Approaches
In the forty years between 1966 and 2005 the number of retail outlets in Germany
decreased from 150,000 to 55,000 due to concentration in the retail sector, with-
drawal from area-wide coverage, and reduced purchasing power in rural areas (cf.
Bundestag 2015: 1). The same phenomenon can be observed in other European
countries.11 Although intervening variables like increased motorisation and pro-
found changes in consumption habits play a significant role, the thinning out of
shopping opportunities and access to public services does mean a deterioration of
standards of living especially to people with limited mobility in rural and even
peri-urban areas. The phenomenon is taken very seriously by national, regional and
municipal governments as documented in many statements, conferences, and
publications.12
In Germany, the national federal government in 2010 launched the Initiative
Rural Infrastructure with the explicit objective to “create a perspective for the future
for the inhabitants of rural regions by securing the provision of essential public
goods and services” (BMUB 2015a, b). As is typical for planning approaches which
aim at highly diverse local circumstances the programme attempts to bundle dif-
ferent measures under one roof with the objective of strengthening rural areas in
accordance with the central place paradigm. The strategies proposed in this paper
published by the responsible federal ministry and similarly in other recent gov-
ernmental publications (cf. MKRO 2013; BBSR 2012) focus, however, on
non-statutory planning concepts like participation, cooperation and flexibilisation.
Participation
In the retail sector, the concept of enabling citizens, usually villagers, to open up a
jointly operated village, neighbourhood or communal shop in order to fill the gap
which the closure of a former retail facility has left, is already widely accepted and
applied. The shops are small (between 100 and 400 m2) and located mostly in
villages, some in former suburban centres, with a catchment population of up to
1000 inhabitants in walking or cycling distance.
The predominant organisational concept is the registered cooperative or regis-
tered association. The members buy shares, some volunteer their time, e.g. in
11
For an overview on Finland, Great Britain, France, The Netherlands, Austria and Switzerland see
BMVBS 2013.
12
cf. BMVBS 2013.
delivery or accountancy. Regular staff is usually paid on a contractual base. The

business concept is provision of retail services for periodic demand at prices which
are competitive considering mobility expenditures, and not profit maximisation.
Village shops normally contain a post agency and can provide premises for other
activities like assembly halls and consultancy rooms for medical services provided
by a general practitioner at a fixed weekly schedule. With a bus or railway stop
nearby they can constitute a lower order centre in the central place hierarchy.
Citizen participation is also facilitating new forms of public transport. In large
areas of eastern, but increasingly also in rural areas of western Germany, con-
ventional modes of public transport are no longer financially feasible, overstraining
the budgets of public authorities. Carpooling (shared use of cars) is an already
long-standing practice both in rural and peri-urban areas to access more distant job
locations and to reduce expenditures for work trips. In rural areas it is additionally
becoming an accepted practice for shopping and leisure trips.
Relatively new to Germany is the employment of volunteers for school buses
which can also be used by adult persons for trips to central places. Hailed shared
taxis, often operated by volunteers, are nowadays a common service in rural,
peri-urban and even suburban locations. They provide public transport from the
front door to bus or railway stations, hospitals or churches, and to local centres.
Cooperation
Through inter-communal regional cooperation municipalities can improve the

utilisation of public service facilities thus reducing expenditures for their mainte-
nance and unit costs (cf. MKRO 2013: 12). Prerequisites would be a regional
spatial development concept which provides for the bundling of services at suitable
urban centres and, if necessary, compensations for municipalities which fear losing
out. In Germany, where municipalities enjoy planning autonomy, this can indeed be
a difficult task. The ‘sword of Damocles’ of clearly predictable demographic change
is, however, often helpful in overcoming even deeply rooted attitudes. In the federal
model programme “Action Program Regional Provision of Essential Public
Services [Daseinsvorsorge]” a discursive component proved to be extremely
helpful in developing cooperative approaches with the aim to attenuate intercom-
munal competition and to work out adjustment measures—even at the cost of
violating against accustomed standards of capacity utilisation (cf. Einig 2014: 32).
A promising tool to improve inter-communal cooperation in an environment
which is traditionally dominated by competition, are target agreements between the
supervisory level, in Germany usually the federal state, and the municipalities
entering into a cooperative venture. Financial subsidies linked to achieving the
targets can again be helpful and are common practice.
Even simple exchange of information and experience between municipalities
with common interests or challenges has proven to be instrumental. If successful,
networking can replace competition. In the “Initiative Rural Infrastructure” the
52 V. Kreibich
responsible federal ministry is presently funding over 400 inter-municipal coop-

eration projects (cf. BMUB 2015a, b).
Flexibilisation
Multiple use of service facilities like schools seems to be a straightforward measure

to improve utilisation and reduce expenditures, but in reality it is often impeded by
administrative regulations preventing flexible opening hours or accounting and by
security precautions. Exchange of experience and information about practicable
solutions through networking and expert advice in model programmes or by
engaged supervisory authorities is indeed necessary.
In the private sector, multifunctional shops offering food and commodities
together with postal and insurance services can at least partially fill the gap after
withdrawal of specialised businesses. Especially in remote rural areas mobile shops
are taking over the supply with periodic goods, especially fresh food and groceries.
Regional Potentials
In its last Urban Development Report of 2011 the federal government summarised
these largely non-statutory approaches for the provision of essential public services
[Daseinsvorsorge] with reference to regional potentials: “Successful strategies and
approaches to safeguard essential public services rely on specific regional poten-
tials. They can be accessed with modernised and flexible supply infrastructures,
with integrated planning and multiple functionality, with user participation, and
with inter-municipal cooperation. […] The municipalities ought to work out
agreements on the joint use of public services within a regional strategic concept.
Central place functions should be based on the division of labour in municipal
networks.” (Bundestag 2012: 39, translation by author).
The report assumes that “the decentral polycentric structure of the German urban
system provides a robust fundament, including adaption to demographic change.”
(ibid.) Small and medium towns are core elements of this favourable spatial
structure, even “anchor points for safeguarding public services [Daseinsvorsorge”]
(ibid.). An example for a clearly focused programme to translate this objective into
planning practice is the urban development promotion programme “Small cities and
communes—interurban cooperation and networks” which was launched in 2010
within the federal “Initiative rural infrastructure”. It is based on the premise that
“Urban and rural areas have to be developed equally well and at the best. Cities
depend on functioning rural areas and well-functioning rural areas need well
developed urban centres […]. The functionality of small and medium towns has to
be safeguarded and strengthened” (BMUB 2015a, b).
The programme, which is co-funded by the federation, the Länder and the
participating municipalities, aims at bundling the potentials and resources of the
municipalities in the programme. They are encouraged to agree on joint
development objectives and to cooperate in providing public utilities and services.

Their collaboration in regional networks is considered essential. (cf. ibid.: 40).
In line with the principal objective of establishing equivalent standards of living
in rural areas, these are equally being addressed by the Federal Urban Development
Promotion Programme. More than one third of its subsidies have been handed out
to rural areas in the past 20 years. Compared with their population proportion they
profit excessively from the programme. Especially the small and medium towns in
eastern Germany receive a disproportionately high share. This focus on small and
medium towns in primarily rural areas is indeed a smart policy as it is turning their
structural weakness resulting in outmigration into a development potential.
Some Conclusions
It is noteworthy that a national development objective of levelling regional dis-

parities and establishing equivalent standards of living is being pursued in
Germany, a country with a spatial structure which “distinguishes itself by a rela-
tively balanced, decentralized concentration of the population, workplaces and
infrastructure in cities, city regions and agglomeration areas as well as by large and
coherent rural areas” (Federal Office for Building and Regional Planning 2001: 7).
A manifestation of relatively equal levels of access to public utilities and services in
the old Länder before re-unification can be seen in the absence of heavy rural-urban
migration which in other European countries caused depletion of villages and even
entire rural districts. In Germany, it was experienced only after re-unification in the
new Länder when the young generation set out to the West.
The federal structure of Germany which provides municipalities autonomy in
planning affairs has given strong political support to the postulate of regional
equivalence and provided a suitable administrative framework for its implemen-
tation. Continuance of the Financial Equalisation Scheme which was introduced to
overcome disparities during post-war reconstruction and after partition, the avail-
ability of the central place system as a spatial framework for the development of a
settlement structure which balances economic requirements and social objectives,
and the openness of planning authorities together with political bodies to design and
implement new innovative planning concepts and tools beyond statutory regula-
tions can be identified as decisive additional factors.
The German experience manifests the range of approaches which can be fol-
lowed to implement decentralisation in an environment of regional disparities. Most
of them seem to be essential: a financial scheme to transfer funds from better
endowed to poorer regions, the focus of regional development on central places to
generate scale economies, and design and sensible implementation of supportive
non-statutory measures to mobilise regional potentials of self-help and
participation.
54 V. Kreibich
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Decentralisation in the German Context:
An Assessment of Governance Actors
and Approaches ‘from Below’
Katrin Bäumer and Günter Kroës
Abstract This article highlights the concept of decentralisation in the German

context. Besides some more general thoughts on the main determinants of suc-
cessful decentralisation, the introduction links the discussion on decentralisation to
considerations on existing bureaucratic power structures and emerging governance
approaches. Based on that, the authors compare formal, established aspects of
decentralisation by discussing administrative structures and the bureaucratic role
and function of the county (Kreis) level to more informal, temporary, innovative
concepts of decentralisation in order to better meet citizens’ expectations and needs.
The last-mentioned aspects are illustrated by some German examples of recent
regional development approaches, which the authors have been involved in as
researchers and advisors. The comparison illustrates that established federal
structures that so far guarantee a well-balanced allocation of resources and tasks can
ideally be complemented by additional bottom-up initiatives. The combination of
both empowers regions and unveils new potentials for power sharing between
higher and subordinate planning and administration levels.
Introduction
Decentralisation as a response to the problems of centralised systems is by far not a

new approach. Nevertheless, the concept of decentralisation is still significant and
will continue to help in shaping development processes. “The rhetoric and theory of
decentralisation promise better governance and deeper democracy as public officials
are held more directly accountable for their actions and as citizens become more
engaged in local affairs.” (Grindle 2009: 2).
K. Bäumer (&)
SPRINT scientific policy consulting, Hamburg, Germany
e-mail: katrin.baeumer@tu-dortmund.de
G. Kroës
SPRINT scientific policy consulting, Münster, Germany
e-mail: G.Kroes@t-online.de

58 K. Bäumer and G. Kroës
In the past, concepts of decentralisation have often been seen as a prescription to

solve problems like government inability to fund services, general economic
decline and growing regional disparities, the demands of citizens for a greater
influence in local governance, the weakening legitimacy of the public sector and
global and international pressure on countries with undemocratic, inefficient, overly
centralised systems (cf. Daun 2007: 28). As the principle of subsidiarity is inherent
to the concept of decentralisation, participation in decision-making, democracy,
self-organisation and equality can be seen as key components of decentralisation.
Decentralisation brings decision-making (back) to the sub-national levels which
may be considered as a counterbalance to the overall trend of globalisation. The
complex changes stimulated by the multitude and diversity of decentralisation
processes impact not only on the functionality and structure of spatial units but also
on the dynamic of political processes and forms of governance. New concepts of
governance (‘good governance’) and decentralisation have advanced to comple-
mentary, if not synonymous development strategies. (cf. Heinrichs 2005: 1).
Worldwide Discussion1
A specific balance between centralisation and decentralised power is necessary in

each country. However, the degree of centralisation versus decentralised structures
in each country or government differs as what “may be important in one country
might not be desired in others.” (Fuhr 1999: 43) Establishing a decentralised
governmental system is always a long lasting and very complex process, depending
greatly on the existing political system. This is more difficult to realise in a strict
top-down system or even dictatorship than in a country with already existing
administrative sub-structures and established administrative competences. Thus, the
specific historic roots determine the present governmental system. Germany for
example has had more or less independent principalities in its history with already
more or less political decision-making power. After the totalitarian dictatorship of
the Third Reich the new constitution of the Federal Republic of Germany picked up
this old historical system of decentralising governmental power and ever since, the
German national government and the “Länder” share political power again. Despite
this rather deep-seated federalism, the discussion on the best and fairest distribution
of competences and the related public resources is still ongoing.
In comparison, the starting point is very different for the decentralisation process
in many countries that are undergoing a political and structural transformation in
recent history or right now. In many parts of the world, formerly highly independent
tribes became part of new countries (e.g. in Africa where the tribes were forced to
form a new country determined by the area controlled by their colonial masters).
The recent decentralisation efforts seek to subdivide these countries into new
1
Based on discussions with leading politicians and local people.
Decentralisation in the German Context … 59
administrative units, not necessarily considering functional or deep-rooted cultural

linkages. What is often lacking is the self-conception of being a self-contained unit
within the context of a nation state. In both examples the decentralisation might
be supported by historical experiences but might also be hindered if these
power-centres only want to regain their former political power.
The following examples illustrate that many factors such as the historic and the
existing political system or existing parallel governmental systems (e.g. chieftaincy)
are influential for the mode of decentralisation.
• In a dictatorship, the dictator and his “cabinet” of course want to control all
citizens to stabilise absolute power. Any real democratic participation of the
citizens has to be avoided. But often such regimes nevertheless install
regional/district and local parliaments mostly from two reasons (1) to establish it
as a top-down strict controlling system over the citizens in all parts of the country
and (2) a newly created state/government or a country changing to a democratic
structure need first to stabilise its central governmental system before starting
slowly with decentralisation. It takes time and well trained public servants for all
decentralised levels of government to implement decentralisation.
An example of the complexity of factors influencing the design of a decen-
tralisation scheme could be Iraqi Kurdistan as a semi-autonomous region of
North Iraq. 1991 it was declared as a no-fly-zone to protect the Kurds against
attacks by dictator Saddam Hussein. Establishing some kind of informal inde-
pendence the first democratic elections were organised in 1992. After the two
dominant winning parties of the elections (Patriotic Union of Kurdistan and
Kurdistan Democratic Party) had settled their conflicts, the establishment of a
joint government started. Today the region acts rather autonomously.
With the first constitution elected by a parliament of the Kurdish Region in
North Iraq a decentralised governmental system was established. But it still
takes a long time to get it functioning well. The traditional tribal system, the
dominance of the two main parties dominating in the eastern respectively
western area might have influenced the shaping of regional sub-structures. Other
factors such as the lack of qualified staff for the sub-structures or old paradigms
of the staff, trained to follow top-down orders or even commands instead of their
new responsibility to serve the citizens in their district in order to improve their
livelihoods, pose challenges for successful decentralisation.
Therefore, often it is not enough to design a good system but it needs intensive
training of the administrative staff that was accustomed to a bureaucratic
top-down system to improve their skills and adjust their function as advocates of
the citizens.
The example of Ghana shows the necessity and provides a good example of how
to integrate a traditional chieftaincy system into a modern democratic and
decentralised system. Several attempts to establish a democratic system in
Ghana have failed, followed by many years of a “soft” dictatorship under
Rawlings. But finally, he himself promoted a free election of the national par-
liament and the newly created district parliaments.
To integrate the traditional chiefs an advisory board of all Paramount Chiefs in

Ghana (the House of Chiefs) was established on a national level. On a district
level, the District parliament was composed of freely elected citizens from each
district. They represent 2/3 of the members, while the remaining 1/3 are selected
chiefs from the district. Appointed and elected members have the same rights.
Additionally there is an agreement between the traditional chiefs and the elected
citizens that the chiefs on both levels are not allowed to become a member of
any political party unless they first step down from their chieftaincy.
After the establishment of all district parliaments and the related district
administrations, the EU supported and financed a training programme for all
newly elected members of the district parliaments. Within this all district officers
and elected members of the district assembly learnt about their rights and duties
and how to exercise them and were given full professional training programmes.
• Based on several discussions it seems that some countries intend to match the
expectations of foreign donors to decentralise as a precondition to get additional
development funds and credits. Under time pressure new concepts are designed
which are far beyond the political and administrative capacity of the country.
This often creates the impression that they are well aware of the problems but
hope that the urgently needed additional credits are granted soon. But the
implementation of decentralisation is a long-term process.
From these very few examples we can learn that:
• A long period is needed to establish decentralised structures before it works well.
• There is a high risk of failure as expectations are high and success is dependent
on good central coordination, stringent process management and continuous
political willingness to implement the reform.
• A specific balance of rights and decision-making power between central and
decentralised governmental units is necessary as not every decision can nor
should be taken at local level.
• Each development programme needs cross-sectoral as well as a cross spatial
integration to be successful. A good example is the “Oman National Spatial
Strategy” that has currently been developed to establish a well-balanced
long-term strategy, which harmonises regional and national potentials and
demands as a well synchronised cross-sectoral planning. That means decen-
tralisation efforts often need to be linked to other reform programmes making
the task even more complex.
Unfortunately, “capacity, resource and administrative constraints, which exist at
the central level more often than not carry over to the local level” (UNDP 2000: 9).
So, most importantly, we can conclude that there is no perfect system or standard
recipe for decentralisation. Therefore, a tailor-made system has always to be
designed related to the specific political, economic, and social situation in each
country to find a specific administrative solution that meets needs best within given
political, legal, social, economic, and financial limitations. To avoid extraordinary
time and money consuming failures by too fast implementation, the process
of implementation should be carefully planned, implemented and permanently

controlled. Quality instead of speed is more important for a good result of
decentralisation that really meets citizens’ needs best.
Main Determinants for Successful Decentralisation
As illustrated above, decentralisation is a long-term, non-linear process, its success

being dependent on many different aspects. Research confirms that outcomes of the
process cannot be duplicated but some common variables co-determine whether the
process leads to good governance and improved democracy.
“Decentralization can be put into effect in different ways—through devolution,
delegation, or deconcentration. While distinctions among forms of decentralization
are important in defining the relationship of the centres to the periphery and for the
management of particular programs and functions, most local governments expe-
rience all three types of decentralization at the same time.” (Grindle 2009: 4) The
different types of decentralisation and their hybrids result in a complexity of new
institutional settings, new linkages between public bodies and totally changed
political arenas. Consequently, local governments and their officials have to get
accustomed to new mandate and related responsibilities to live up to citizens’
growing expectations. Interactions between citizens and the state gain importance.
This requires not only considerable change of mind-set in political leaders and local
officials but also in society at large as new rules of the game are put into place by
decentralising power.
Framework
The national government and its political leaders have to provide the overall setting
for decentralisation. The strategic choice and downstream reform agenda, including
public sector modernisation, promotion of leadership skills, implementation
schedule and budget allocation must be enforced despite any political opposition.
As decentralising means a shift in existing power relations, adjustments will most
certainly lead to conflicting interests, refusal or at least a long and resource
intensive period of transition.
Competences and Willingness
Literature provides us with many arguments that once citizens have the chance to
actively participate, they become more concerned and thus more responsive to the
actions of public officials. By punishing or rewarding political decision makers they
incentivise better performance and decision making that is as close to the citizen as
possible. In such a setting, decision makers could react directly to peoples’ demands
and promptly counter negative effects which will lead to better quality in service
delivery and higher satisfaction of the recipients of those services. But on the one
hand this requires very effective communication between the public sector and civil
society representatives and, on the other hand, respective competences of the
political leaders plus an adequate level of knowledge concerning the citizens. At the
same time, there must be mutual understanding that without the willingness of both
parties to shape this dialogue there won’t be any fruitful cooperation. Certainly, a
decentralised setting can provide for this but not without preparation.
Financial Management Capacity
Experience with decades of decentralisation shows that often decentralisation

processes are put into motion without the necessary fiscal decentralisation. If this is
not organised as a parallel process, shifting tasks and responsibilities to the local
level will leave local governments with increasing financial obligations that rather
lead to local budget deficits than to a stable local tax revenue base. Local budget
authority is therefore an essential precondition for any successful decentralisation—
otherwise sub-national governments will remain highly dependent on national
budget allocation decisions, constantly demanding financial support instead of
being able to establish a functioning revenue and expenditure management. Again,
this must be in line with the respective competencies within the local unit. Having
trained budget officers and administration officials is essential to fulfil this task.
Decentralisation in Germany
The present existing system of sharing political, economic and financial power
between the different levels of government in the Federal Republic of Germany is
based on a long history. Even within the former kingdoms preceding today’s
Germany there had nearly always been principalities as governmental sub-structures
—more or less comparable with regions—which had some political and adminis-
trative power over their realm. Whether this sharing of power between the kingdom
and the principalities had been to the benefit of their citizens has to be questioned.
But in any case there is a long history of existing governmental sub-structures with
more or less decentralised power.
After World War II, following a fully centralised dictatorship under Hitler, the
four allied powers more or less forced the Federal Republic of Germany to
re-establish a system of states to decentralise political power and prevent the new
central government from again becoming too powerful.
These examples of Germany’s governmental history show that there are long
standing experiences with decentralised political sub-structures.
Established Forms of Decentralisation
Germany is a highly decentralised country based on democratic values. Today, the

political power in the Federal Republic of Germany is shared between four levels:
the federal government, sixteen federal states, about 300 counties or Kreise (legally
determined regions with fixed administrative boundaries) and more than 2000 local
governments (towns and villages). This federal structure determines the political as
well as the spatial planning system in Germany. The latter is rooted in the principle
of subsidiarity, allowing considerable local planning authority as well as budgeting
authority and incorporating citizen participation. The distribution of competences
and functions between the levels of government produces a multi-tier system (see
Fig. 1). While the governmental and administrative levels are legally, organisa-
tionally, and substantively defined and clearly differentiated, they are interlinked by
the mutual feedback principle as well as complex requirements of notification,
participation, coordination and compliance. (cf. Turowski 2005: 895 f.)
At the local government level, it must be differentiated between territorial
authorities and other local bodies. Territorial authorities are bodies governed by
public law with jurisdiction over their territory. Territorial authorities include
municipalities forming part of county and county-free cities. In contrast, counties,
districts, and other local authorities discharge functions assigned to them either by
statute or bye-law. Municipalities, as corporate local self-governing bodies, are
independent in their decision-making and have the right to manage all the affairs of
the local community on their own responsibility (self-government tasks). Only the
limits set by law and agreements to perform certain functions on behalf of the
federal and state governments (delegated functions, refinanced by the ordering
institution) limit their self-determined action (cf. Pahl-Weber and Henckel 2008).
Nevertheless, the local level is limited in its action by fiscal restraints, frame setting
policies or specified administrative settings.
The main aim behind the sharing of governmental power is serving the citizens
and meeting their needs in the best possible way. Assuming that citizens themselves
Fig. 1 Levels and

components of the German federal spatial planning
planning system. Source
Pahl-Weber and Henckel Conference of Ministers of Spatial Planning
(2008: 39)
MUTUAL FEEDBACK
sectoral planning
state spatial planning

public agencies
ADJUSTMENT
regional planning
local planning
Bäumer basedon ARL, 2015

know their (local) needs best, bottom-up planning is seen to be desirable to improve
their livelihood.
But on the other hand, it is obvious that there are a lot of activities e.g. large
investments which are far beyond the planning, financial and management capacity
of local governments or serve a larger area or even the whole country. Even the
relevance of transnational investments is growing. This challenging task to best
serve citizens needs on the one hand and to provide infrastructure and services that
reach far beyond a single municipality, on the other, asks for specific solutions to
minimise these conflicts. The following examples illustrate this challenge:
• Issuing passports is certainly a national task, but should and can be handled by
local authorities. In Germany therefore passports are issued by the local gov-
ernments on behalf of and refinanced by the central government.
• While technically, municipalities and smaller towns (villages) possess equal
responsibilities to provide local infrastructure and services for their citizens,
their capacities greatly differ. Therefore, the counties in this context can be seen
as cooperatives of all smaller towns and villages of more than 5000 inhabitants
handling tasks on their behalf. For example, land use plans, housing plans etc.
are prepared by the county on behalf of its municipalities. Also, larger invest-
ments like hospitals and secondary schools are collectively provided by the
counties.
• However, to insure that the counties really serve the local needs of the smaller
towns in their jurisdiction, their parliaments are legitimised by all local
parliaments.
These examples also illustrate the conflict between efficient public administra-
tion on the one hand and the necessary contact to the citizens to really capture the
needs of the local citizens on the other.
New Decentralisation Concepts and Approaches
Within the context of this formal set-up as described in the previous section, new
development approaches are coming up in Germany. More and more temporary, less
formal, innovative forms of decentralisation play an important role for local and
regional development. These pilot projects start from a bottom-up philosophy. Local
citizens’ initiatives were supported to pick up their local needs and to self-organise
tailor-made solutions. If a lump sum budget is provided by higher governmental
levels (here states, the Federal Government and/or EU) it allows self-determination
of their own priority-list of investments, etc. and therefore to handle best the most
pressing needs of their citizens. Traditional top-down programmes from higher
governmental levels granted for specific investments often tempt local parliaments to
change their internal priority-lists or even to invest into not really needed projects
only because these are greatly subsidised. Thus, top-down programmes stimulate
waste of public money as no centrally determined support programme can meet the
heterogeneous and not standardised needs of all local units. By such standardised
programmes it can be estimated that about 20–50 % of these subsidies do not meet
the most pressing needs of the targeted municipalities. Therefore, a growing number
of pilot programmes are launched to test new ways that allow meeting the targeted
needs of the local citizens better than through conventional standardised
programmes.
These new concepts do not replace the old structures but complement them.
Examples of New Approaches
In recent years several pilot projects (e.g. Regionen Aktiv, Regionen der Zukunft,
Region schafft Zukunft, Modellvorhaben der Raumordnung)2 funded by different
federal ministries have been implemented to test the ability of rural, rural-urban or
metropolitan regions to organise regional development processes in a self-
dependent way. Already in the 1970s, Friedmann and Weaver stated that the
“role of the state is to empower stakeholders and facilitate cooperation among
them” (Friedmann and Weaver 1979: 2). By initiating these model projects, gov-
ernment tries to set top-down impulses for downstream planning units. These
planning units are then on their part called on to produce and implement devel-
opment concepts in a bottom-up manner. This concept is not new in Germany but
its specification has now been adapted to recent framework conditions.
To illustrate how this is organised currently and which impacts derive from that
for decentralised spatial development, the German model project “LandZukunft”
will be sketched in the following.
LandZukunft3—Organising Bottom-up Decentralised Development

Activities
LandZukunft has been initiated by the Federal Ministry of Food and Agriculture.
Between April 2012 and December 2014 four pilot regions received funds (1.8
million Euro per region, for a three year funding period) to initialise and strengthen
regional development approaches. Birkenfeld, Dithmarschen, Holzminden and
Uckermark have been selected as model regions (see Fig. 2). In the preparation
phase (starting in September 2011) the Ministry launched the programme as a
nationwide competition inviting regions to participate with tailor-made regional
proposals for funding. Applications were then assessed by an independent jury.
2
“Active Regions”, “Regions of the Future”, “Region creates Future”, “Demonstration Projects of
Spatial Planning”.
3
“Future of the Rural Region”.
Fig. 2 Selected pilot regions. Source Federal Ministry of Food and Agriculture (2014)
The regions had to fulfil only a few but nevertheless challenging requirements
such as developing a consistent set of objectives, identifying the regional demar-
cation and bringing relevant regional stakeholders together. The guiding parameters
for any successful application were mainly good ideas on how to implement the
three main aims of LandZukunft (1) management by objectives, (2) strengthening

regional entrepreneurship, (3) testing alternative regional financial instruments
within the regional set-up. Despite this, the regions were very flexible in shaping
their applications:
Concerning spatial demarcation, the regions had the chance to define the
appropriate regional unit—functional interrelations being more important than
purely administrative boundaries. The applicants decided in favour of regional
boundaries that would allow the implementation of the self-set tasks. Some regions
had worked in these spatial contexts before; some identified themselves as a new
(temporary) unit.
In terms of structure, the regions were asked to implement a regional man-
agement structure to ensure smooth implementation for the duration of
LandZukunft. This should consist of three components: a steering committee as a
decision-making body, a regional network composed of entrepreneurs, political
decision makers and other key stakeholders from NGOs, administration, civil
society, etc., and a formal administrative body for financial management during the
implementation phase. The specific organisation was left to the regions.
Most of the new funding approaches such as LandZukunft, Regionen Aktiv or
Regionen der Zukunft aim at activating citizen participation and close cooperation
between public and private stakeholders as an experiment for good governance
principles. A characteristic of LandZukunft was to set a special focus on the
involvement of entrepreneurs, regional companies and individuals with business
ideas. By doing so, the activation of new entrepreneurial potential was expected.
Some regions could draw on existing structures and networks; while others initiated
completely new structures, inviting new stakeholders to the process and starting a
fresh form of dialogue between public, semi-public and private actors. Although the
set-up of these governance structures was conceived of as a temporary construct,
the permanent adoption of good governance and continuation of participatory
structures proof are wanted. Thus, capacity building in the regions is an attempted
side-effect of the model project.
With regard to content, the regions were requested to produce a tailor-made
catalogue of development objectives instead of a long development concept. This
catalogue of operational and strategic objectives (including specific indicators)
shaped the core element of a contract between the funding authority and the can-
didate region. Beyond this, the paper had to name the contracting parties, sketch
process organisation and management and list first project ideas. This catalogue was
not only the main requirement for application but also, in case of success, the basis
for implementation and monitoring of development projects throughout the funding
phase. Thus, the funding agency used management by objectives as one of the
main strategic principles of the funding approach. It turned out to be a suitable
instrument for shifting responsibility to the regional level, empowering regional
stakeholders to be innovative in their conceptualising, as well as professional and
efficient in their performance: By discussing and formulating objectives for the
short and medium development of the region, the involved stakeholders were
forced to look into the subject in a new and focused way. They had to anticipate
potential outputs and outcomes and had to agree on priorities. In line with that, they
had to deal with the question of which projects would suit the identified objectives
best. Moreover, the regional steering committee used the indicators formulated in
line with the objectives to evaluate the project performance.
By placing the funds at the disposal of the regional steering committee in the
form of a regional budget, even more taking over of responsibility for the suc-
cessful process and strong commitment by local stakeholders was intended. This
was another important strategic principle of the funding approach: Within generally
applicable funding regulations, the regions had full spending competence of the
funds (600,000 Euro per year). Based on decisions by the steering committee, funds
were allocated to a multitude of selected projects (and accordingly to the respective
project executing individual or organisation). In combination with the management
by objectives, it was the allocation of funds on the regional level that provided
strong incentives for bottom-up development. The LandZukunft-funds were used as
seed-money, activating own funds, and matching and multiplying the positive
impacts of the public investment. For example in 2013 the LandZukunft regions
received ca. 6.7 million Euro, matching them with ca. 3.7 million own funds
(including investment of regional entrepreneurs) and another ca. 1.7 million Euro
for other external funds out of other national or European funding programmes.
That means in practice that each region defines itself as an area of activity for a
limited period of time, sets up a goal system (including indicators), mobilises public
and private key stakeholders, gets funds and spends them on those projects that
promise the biggest contribution to goal achievement.
Lessons Learnt
LandZukunft is a good example for a decentralised spatial development initiative

that promotes integrated, bottom-up, stakeholder driven, tailor-made, sustainable
and self-dependent development. In comparison to previous, similar model projects
the management by objectives in combination with the regional budget and the
consequent involvement of local entrepreneurs can be considered innovative and
successful. The Federal Ministry as the initiating and funding agency set-up the
framework and initiated the first impulse, but full responsibility for the regional
development process was shifted to the regional level and its stakeholders.
As Patsy Healey wrote in 2004, approaches like this are designed to activate a
“dynamic, relational conceptualisation of spatiality, linked together by means of
cooperative exchange relationships around common projects”. Within the frame-
work of the model project LandZukunft the administrative bodies in the regions
have proved their ability to master the financial and administrative complexity of
implementation and to activate additional financial potential at the local level. The
only precondition is that they get good support and have the opportunity to link up
with and learn from their peers. In regions where the new, temporary decision
making structures are linked to existing administrative units and where political
decision makers see the model project as contribution rather than as risk, new
incentives can be gained.
At the same time, local entrepreneurs have shown impressively that they do have
creative and entrepreneurial potential and that they are willing to contribute to a
focused regional development process, provided they are supported and encouraged
by a local development unit. First evaluation of results of LandZukunft underline
that entrepreneurs are especially motivated to join in if they see a particular benefit
for their undertaking. For example, many small and medium enterprises in the rural
areas are struggling to find qualified staff; if measures to overcome shortage of skills
are part of the regional priority list, entrepreneurial stakeholders are willing to get
involved in the process. The highly flexible participatory approach provided
stakeholders with the chance to have a say in the regional decision making pro-
cesses, to get advisory services with business ideas and to get funding (seed money)
for the implementation of projects.
Thus, regional development turns into an experimentation field for new gover-
nance approaches that might also have a long-term effect.
Conclusion and Outlook
From international experiences as well as the German example it can be concluded

that it is impossible to generalise the lessons-learned. Nevertheless, we see some
common understanding of decentralisation as a political as well as a technical
process including, but not limited to, administrative structures. Form, pace and
implementation approaches vary but based on a broader policy dialogue new,
country-specific forms of decentralisation and good governance take shape.
Although decentralisation does not only provide the gains advocated by
decentralisation supporters (cf. e.g. Cheema and Rondinelli 1983) and does not
automatically lead to development progress, efficient decentralised government and
administrative structures are key elements of good governance (cf. Richter et al.
2008). Good governance “is not simply a function of the structure of intergov-
ernmental relationships. It is, rather, the consequence of new opportunities and
resources, the impact of leadership motivation and choices, the influence of civic
history, and the effect of institutions that constrain and facilitate innovation.”
(Grindle 2009: 3) In Germany, traditional planning approaches and the
well-established multi-level planning and administrative system live on while new
approaches complement them. LandZukunft is a very good example for a decen-
tralised spatial development initiative that promotes integrated, bottom-up, stake-
holder driven, tailor-made, sustainable and self-dependent development. As such, it
underlines the ongoing trend in Germany towards regionalisation, parallel to the
formal county level, as a form of spatial decentralisation. These new concepts
empower rural regions (with increasing focus on metropolitan regions) and unveil
new potentials for power sharing between higher and lower levels. In line with that,
the emergence of good governance concepts and a new understanding of citizen

participation are omnipresent so that in approaches such as LandZukunft the
principle of subsidiarity receives new attention and can reveal its full potential.
References
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decentralization and better local governance help? WeltTrends, 25(4), 21–51.
Healey, P. (2004). The treatment of space and place in the new strategic spatial planning in
Europe. International Journal of Urban and Regional Research, 28(1), 45–67.
Books and Chapters
Cheema, G. S., & Rondinelli, D. A. (Eds.) (1983). Decentralization and development. Policy
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Daun, H. (2007). School decentralization in the context of globalizing governance: International
comparison of grassroots responses. Berlin: Springer.
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Berkeley, Los Angeles: University of California Press.
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governance. Princeton, Woodstock: Princeton University Press.
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Germany. A glossary. Hannover: ARL.
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Handwörterbuch der Raumordnung (pp. 895–898). Hannover: ARL.
Online Publications
Federal Ministry of Food and Agriculture (Ed.) (2014). Modellvorhaben LandZukunft.

Abschlussbroschüre. Bundesministerium für Ernährung und Landwirtschaft. http://www.
land-zukunft.de/fileadmin/SITE_MASTER/content/Dokumente/Downloads/
Abschlussbroschuere__barrierefrei.pdf. Accessed 21 November, 2014.
Richter, D., Löber, K., & Hollederer, G. (Eds.) (2008). Decentralisation and local self-
government: Decentralisation in German development cooperation. Federal Ministry for
Economic Cooperation and Development. http://www.bmz.de/en/publications/topics/good_
governance/Decentralisation.pdf. Accessed 21 November, 2014.
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decentralization_final_Report.PDF. Accessed November 21, 2014.
Decentralisation and Urban Governance:
Trends and Lessons from Cities
in Tanzania
Wilbard Kombe and Ally Namangaya
Abstract In an endeavour to enhance good governance, over the last two decades,
the Government of Tanzania has been implementing a programme aimed at
reforming local government through decentralisation by devolution (D-by-D). At
the centre of the D-by-D lies the need to build the capacity of the local (urban)
governments to discharge their service delivery functions more effectively and
efficiently. Other critical features of the programme, which also match the cardinal
principles of good governance, include enhanced stakeholders’ participation,
improved partnership with non-state actors and enabling the lower level adminis-
trative units of the local government to implement locally conceived and prioritised
projects. Based on empirical data and information drawn from eight urban centres
in Tanzania, this paper discusses how the D-by-D has been operationalised by the
authorities with respect to the three aforementioned good governance attributes. It is
argued that there has been a notable achievement in terms of stakeholders’ par-
ticipation; implementation of priority projects evolved by grassroots units and
enhanced partnership in the delivery of basic services such as solid and liquid waste
management and street cleaning. However, overdependence by local governments
on central government grants and ineptitude among the local and central govern-
ment staff in discharging their responsibilities, coupled with other institutional
deficits, are real threats to meaningful implementation of D-by-D and improvement
of urban governance in Tanzania.
W. Kombe (&) A. Namangaya

School of Urban and Regional Planning, Regional Development Planning Department,
Ardhi University, Dar es Salaam, Tanzania
e-mail: kombewilbard@yahoo.com
A. Namangaya
e-mail: namangaya@yahoo.com

72 W. Kombe and A. Namangaya
Introduction
Matters that concern the relationship between central governments and its lower
level units or agencies including local governments have historically been at the
centre stage of policy experiments in many countries in Africa, Asia and Latin
America. For instance, in the 1950s and 1960s, the British colonial administration,
in an attempt to prepare colonies for independence, took initiatives to devolve
responsibility over certain functions and programmes to local authorities (Massoi
and Norman 2009; URT 2004). For decades, the World Bank has embraced
decentralisation as one of the major governance reform areas (World Bank 2001
cited in UNDP 2004; Forje 2006). Motivations for decentralisation have, however,
varied across countries and even among continents. For instance, in many Latin
American countries, decentralisation has been an integral part of democratisation
and replacement process of discredited autocratic regimes by elected governments.
In Africa, political pluralism has invigorated and enhanced demand for decentral-
isation and a more pronounced citizen voice in the decision-making processes. On
the other hand, among the transition economies of Eastern Europe, massive
decentralisation followed the collapse of the former centralised states (ibid.).
Failures of the centralised and bureaucratised states across continents have also
accentuated calls for governments to adopt more responsive, efficient and decen-
tralised service delivery regimes. Faguet (2011) citing IFAD (2004) and USAID
(2009) adds that both Tanzania and India adopted decentralisation essentially as a
means to enhance the low quality of their public services. From an economic
perspective, free market economists have championed decentralisation as a measure
of reducing the power of over-extended or predatory states and reducing transaction
costs (Bardhan 2002). In other words, decentralisation seems to have been adopted
as a critical policy direction in order to enhance accountability, transparency and
citizen voice as well as reduce abuse of power (ibid).
Conceptual Premises
The debates on the merits and demerits of decentralisation remain inconclusive

despite a plethora of literature that has favourably supported it. Advocates of
decentralisation have argued that it enhances political participation, transparency,
accountability of governments to the governed, administrative and fiscal efficiency
(Massoi and Norman 2009; Diamond 2004; Smith 1985). On the other hand, critics
have observed that decentralisation gives rise to budget constraints, macro-economic
instability, clientelism and expansion of bureaucracies and higher perceived
corruption especially petty corruption (Triesman 2000 and Rodden 2006 cited in
Faguet 2011).
Owing to varying country-specific contexts, decentralisation types and forms,
which have been adopted, differ remarkably. The variation is also because
Decentralisation and Urban Governance … 73
decentralisation is a multi-faceted concept, which is loaded with many other ideas or

notions such as devolution, deconcentration and delegation. Devolution is conceived
as the highest level of decentralisation as it encompasses three key features, namely:
political decentralisation, fiscal decentralisation and administrative decentralisation
(Massoi and Norman 2009). It relates also to a transfer of political power on
decision-making from the central government to semi-autonomous sub-national
entities, such as Local Government Authorities (LGAs), city, municipal or town
councils. Moreover, under devolution, administrative powers are also given to make
decisions and financial resources transferred from central governments to lower level
government entities and agencies so as to effectively and efficiently discharge their
service delivery and other administrative responsibilities (Faquet 2001; Olsen 2007;
Fisher 2008 cited in Massoi and Norman 2009; Mills et al. 1990 cited in OECD
2004). Decentralisation by devolution has been particularly adopted as a strategy to
enhance participation and partnership with lower level public and private actors and
agencies. Decentralisation may be effected without necessarily granting power to the
lower organs to take critical decision (Fisher 2007 cited in Massoi and Norman
2009). However, meaningful decentralisation implies that those to whom mandates
and responsibilities are devolved or assigned are also allowed and empowered to
raise revenues, to deliver services and above all, to define and set own service
delivery objectives, targets and priorities (Massoi and Norman 2009; Olsen 2007;
Mulumba 2004 cited in Faguet 2011; Bavir 2011).
Deconcentration entails a narrower form of decentralisation that focuses on
redistribution of decision-making authority, finance, and management responsibil-
ities from central government to lower level institutions such as regions, districts,
cities, municipalities or towns; but this is done under the control and supervision of
central government ministries. Delegation is more or less the same as deconcen-
tration, but aligned to specific responsibilities. Therefore, under delegation, even if
the lower level entities and/or agencies comprise elected local political represen-
tatives such as councillors or mayors, the decision-making processes on the matters
delegated do not tend to be controlled from below (Smith 1985).
Despite opposing views and varying contexts, proponents of devolution have
argued for this form of decentralisation because it has been associated with response
by governments to reform towards governance. Therefore, proponents have tended
to emphasise it as mechanisms through which the lower ties of the public sector
actors are empowered and enabled to improve service delivery by engaging the
non-public part including citizens and their organised groups to articulate their
needs, mediate conflicting interests and exercise rights to set development priorities
and ensure their implementation. In order to enhance inclusiveness, participation
and accountability to the governed, partnerships and equity in resource allocation,
decentralisation can, if properly conceived and implemented, constitute an impor-
tant vehicle for good urban governance (UNDP 2004) and enhancing democracy in
decision making (Manor 1999). Needless to add that whether or not decentralisation
can make a difference in service delivery also depends on the nature of the insti-
tutional framework, power relations and effectiveness of communication between
various actors and levels which play an important role (UNDP/BMZ 2000).
Policy Benchmark on Decentralisation in Tanzania
In 1998, the government of Tanzania initiated the Local Government Reform

Policy (LGRP) as a vehicle for implementing decentralisation by devolution. The
D-by-D implemented in Tanzania, inter alia, aimed at bringing government close to
the people, and making it more accountable and responsive to local needs, through
direct and indirect involvement of local people (Massoi and Norman 2009;
PMO-RAL6 2009). The programme was conceived as a major strategy for more
effective performance of government functions and responsibilities, especially in
terms of improved delivery of public services. The overall objective was to make
local governments more accountable, legitimate, transparent, participatory and
largely autonomous in managing and discharging their social, cultural, economic
and environmental functions. The key objectives of LGRP included facilitation of
the participation of people to make decisions on matters affecting their lives;
planning and executing development programmes; enhancing cost-effective and
efficient delivery of services; fostering development and accountability to the
people. It also embodied implementing financial decentralisation to allow the local
government authorities to prepare and approve own budgets, reflecting their own
priorities and expenditures as required by legislation and national standards. Also
decentralisation by devolution strategy was designed thinking that its operational-
isation would be based on the principle of subsidiarity (URT 1998, 2009).
State of Decentralisation in Selected Urban Centres
This section examines the level of decentralisation using eight cases of urban
councils.
Study Context and Sources of Data
Empirical data used in this paper were generated during the fieldwork studies for
the preparation on the State of the Tanzanian Cities 2014 report. The study was
undertaken in the cities of Arusha, Mbeya, Mwanza, and Tanga, and the munici-
palities of Kinondoni, Temeke, Ilala and Zanzibar. The report was prepared under
coordination of the Tanzanian Cities Network (TACINE); an autonomous
non-governmental organisation established by the respective cities and municipal
councils. Data collection was organised in a way that each city established task
forces or teams composed of municipal staff, local leaders, civil society represen-
tatives, staff of parastatal organisations and police force as well as representatives of
the respective private sector associations. The teams were responsible for data
collection, under the coordination of council directors and technical support from
the School of Urban Planning of Ardhi University, Dar es Salaam. Interviews were
held with key informants, essentially stakeholders from the public, private and
popular sector who have a mandate or interest in either urban governance or urban
development management.
One of the observations made during data collection was the inadequate and
disorganised data management system at council level. Despite a consensus among
city stakeholders on the indictors (about 120) to be used at the design stage, during
actual data collection we managed to collect data for only half of the indicators. The
time used for data collection spanned from the planned three months to two years.
Lack of institutional memories and poor documentation was apparent in all
departments in all studied urban centres. The key attributes used across the urban
centres were: fiscal decentralisation; partnerships with non-state actors; imple-
mentation of projects evolved by grassroots institutions and political efficacy.
Fiscal Decentralisation
Section 4.1.10 and Appendix 5 of the Human Settlements Development Policy

(URT 1995) provide that settlements that are categorised as municipal or city
entities have to mobilise from own-source revenues amounting to at least 70 % of
their total budget. In other words, they are required to depict a significant progress
and capacity towards self-reliance in terms of collection of revenues to implement
mandates and responsibilities assigned to them. However, empirical findings from
all eight urban centres revealed that they are highly dependent on central govern-
ment grants. For instance, over the past five years, the dependency of the centres on
the grants from central government on average was 70 %. There is, however, a
variation between the cities and municipalities; for instance, Arusha City received
51 % of its budget/from the central government; while Kinondoni municipality
displays as much as 87 % dependence on central government grants (Fig. 1).
Discussions with city officials in the urban centres studied (particularly mayors and
directors) about why local governments were so greatly dependent on the central
government subvention, revealed that the current revenue collection and fiscal
distribution between central and local governments was deliberately designed to
make local governments dependant on central governments. They pointed out that
most of the revenue sources that are easy to collect (such as levies on hotels and
large firms and business establishments such as shopping malls) are collected by the
central government through its deconcentrated agent, the Tanzania Revenue
Authority (TRA); whilst those which are generally cumbersome to collect and
therefore often yield relatively little in terms of revenues, such as business licences
and property taxes, are assigned to local government authorities. The latter two
sources of revenue are difficult to collect because of the lack of an up to date and
reliable database. Another problem concerns inequality in sharing the revenue
collected between local and central government. For instance, from the total col-
lection of land rents, the local government (city, municipal or towns councils)
-73.13 Councilsaverage
-76.00 Temeke
-51.00 Arusha
-87.00 Kinondoni
-83.00 Tanga
-84.00 Mbeya
-76.00 Mwanza
-55.00 Zanzibar
-73.00 Ilala
-100.00 -80.00 -60.00 -40.00 -20.00 0.00
Fig. 1 Average percentage of grants (budgetary independence) from the central government
among cities (2008–2011). Source Income and expenditure records from treasurers of the
respective urban authority
receive only 30 % whilst the central government retains the lion’s share, that is,
70 % of the total rents collected. Further, the actual amount remitted to local
governments often falls far below the approved budget figures.
Upon further probing as to why local governments get proportionally so little
compared with the amount central government retains, central government officials
argued that this formula was deliberately adopted in an attempt to enhance fiscal
equalisation. That is, so as to ensure equality among cities, by facilitating transfer of
resources from endowed LGAs to those with limited opportunities or resources. It is
also noteworthy that the allocation of funds by central government to urban
authorities was based on population size criteria and not on the capacity of an
authority to collect revenues. This implies that LGAs are not really motivated to
aggressively pursue, mobilise and collect revenues because what is allocated to
them does not take into account the efforts expended to collect them or the actual
amount collected.
In the same spirit of fiscal decentralisation, the policy target has been that 20 %
of total municipal revenues ought to be disbursed to the lower administrative units,
that is, Wards to implement priority development projects evolved and agreed upon
at the lower levels. However, overall, most LGAs have failed to disburse funds to
their grassroots structures. Over the five years (2006/07–2011/12) period, on
average, most of the eight cities disbursed less than 1 % of the total revenue to the
lower levels. The exception was Mwanza, which remitted 37.48 %, that is, almost
twice the figure stipulated in the policy; and Mbeya, which disbursed just below the
target, that is, 17.77 %. Two aspects offer explanations on this trend. Out of the
three main funding schemes from the central government; namely, the blocked
(sector specific) grant; the capital development grant and the general-purpose grant;
only funds from the latter can be apportioned to the ward level unit. This means that
Table 1 Amount of land rent remitted by Central Governments to selected LGAs July 2013–May
2014
Urban Total 30 % Actual Remarks
centre collection remittance remitted (% remitted out of the
’000 ’000 ’000 expected amount)
Tanga 1,335,342 400,602 41,561 10.3
Mbeya 1,761,735 466,819 130,972 28.0
Njombe 132,901 39,879 30,053 75.3
Mbarali 231,050 64,680 30,149 46.6
Makambako 189,671 56,901 20,129 35.3
Source Prime Ministers’ Office, Ministry of Regional Administration and Local Government,
Dept. of Urban Development
technically, LGAs are restrained from transferring funds from the other two sources
to support development activities at the ward level. In this regard, often LGAs have
to choose among many competing demands under the general-purpose grant before
allocating financial resources to the wards. On the other hand, the general-purpose
grant is normally the basket with the least amount of cash because it is entirely
dependent on government allocation, while others have a contribution from
development partners and specific project budgets. One should also note that in
recent years the disbursement to local authorities from central government of annual
budgets approved by parliament averages only 65 %. The balance is usually spent
by central government often on activities other than those prioritised by the local
authorities. Table 1 further illustrates poor financial flow to LGAs.
According to the law, 30 % of the land rent revenues that are collected by LGAs
have to be remitted back to the respective LGAs to inter alia facilitate servicing of
land and other land management activities. However, as noted in Table 1, the
Ministry of Lands, Housing and Human Settlements Development hardly honours
according to the agreements. This suggests that even in cases where LGAs have
effectively discharged their role of collecting revenues, the Central Government
Ministries do not always remit according to statutory agreements.
Apart from diversion of funds to other commitments and dishonour of remittance
agreements, incidences where revenue collection falls below the estimates or targets
are not unusual. In such situations, funding of basic services delivered by LGAs and
other key public institutions is grossly affected. For example, owing to inadequate
revenue collection, during the 2013/14 fiscal year, the actual disbursement from the
treasury to most central government ministries and public institutions was less than
50 % of the approved budget. LGAs do not receive the amount approved by
Parliament; in turn, LGAs are unable to remit the 20 % to the wards. According to
interviews with the LGA officials, another reason for low disbursement to wards is
related to the poor capacity of ward institutions to manage financial resources
granted. Interviewed officials revealed that often there are unresolved accounting
queries that concern funds disbursed to the ward levels that have not been properly
accounted for. For instance, in 2012/13, they noted that only three out of over 135
local government authorities had clean audit reports. Respondents from LGAs
observed that the reasons for not getting clean certificates are, inter alia, related to
poor accounting of funds granted to ward institutions. For this reason, it was argued
that LGAs were not very comfortable remitting much cash to these grassroots
institutions. Ward level respondents, however, denied the allegation. On their part,
they noted that the failure by LGAs to disburse funds to wards was a deliberate
move to discredit ward leaders and exercise control over funds and decision-making
at ward level.
Partnership with Non-State Actors in Service Provision
Another important subcomponent of decentralisation by devolution that was

examined in the eight urban centres is the level of public-private partnership in
service delivery. Owing to serious underperformance in service provisions (Fig. 2),
it is expected and logical that the eight councils would fully embrace Public-Private
Partnership (PPP) and the Public Community Partnership (PCP) arrangements that
promote partnership with the non-state actors to improve the delivery of services. In
fact, the formulation of PPP policy (2009) and subsequent enactment, the PPP Act
Temeke
Arusha
Kinondoni
Tanga
Mbeya
Mwanza
Zanzibar
Ilala
0 20 40 60 80 100 120
Solid waste recycled vs generated Liquid waste managed vs generated
Solid waste managed vs generated House water connection
Fig. 2 Level of municipal service provision in eight urban centres (2010/2011). Source Compiled
from records from the eight urban centres
of 2012 were made on the understanding that the state actors on their own cannot
meet the service delivery requirements of the local communities. Interestingly, the
empirical findings across the eight urban centres indicate wide variations in terms of
the level of the involvement of the private sector and Civil Society Organisations
(CSOs) among the councils. For example, in Arusha 198 cases of PPP between the
council and private or popular actors in municipal service delivery were registered
during the five year period. Mbeya had the lowest with only five partnerships over
the same period. The other cities and municipalities had the following pattern: Ilala
(39), Zanzibar (20), Mwanza (13), Tanga (9), Kinondoni (41) and Temeke (17).
The explanations for those wide variations among urban authorities were not
convincing. However, in a discussion with one of the municipal directors, he noted
that the current PPP policy and the Act are not quite clear on the procedures for
collaborating with non-state actors. At the same time, some of the municipal offi-
cials worry that if they opt for many PPP contracts, they are likely to send a wrong
message to the public that the officials have personal interests in the contracts. He
added that partnerships are problematic because PPP contracting procedures have to
suit CSOs capacities and mandates. Most of the latter have limited legal knowledge
or capacity to engage in legal contracting processes. Respondents also added that
most of the legal officers are often hesitant to engage in para-legal contracts in
service delivery because such contracts may be associated with corruption.
Another challenge that PPP operationalisation has been facing in the eight
authorities is related to the deconcentration system in the country. This, in partic-
ular, refers to the administrative setting where the provision of water, sanitation and
electricity services are under the central government agencies or parastatal organ-
isations operating in cities, such as the Dar es Salaam Water and Sanitation
Authority (DAWASA), the Tanzania Electric Supply Company (TANESCO) which
are under the Ministry of Water and Irrigation and the Ministry of Minerals and
Energy respectively. In this respect, LGAs have little influence on the decongested
public utility agencies because these are not accountable to LGAs but to their
boards and parent ministries. Therefore, LGAs can generally only apply partnership
in limited areas such as solid waste management, cleaning and gardening activities.
Implementation of Projects Evolved by Grassroots

Institutions
The Local Government Performance Monitoring Database, among other things,

requires each local government to implement at least two projects per year that are
conceived and prioritised at Ward or at Sub-ward levels (URT 2009: 7). The
implementation has to be undertaken through the Opportunities and Obstacles to
Development approach. Communities at ward and sub-ward levels are expected to
prepare projects that address critical concerns or problems in their localities.
However, such projects have to be approved by their respective LGAs before they
are implemented. In general, cities have performed well in this regard; on average,
Table 2 Percentage of projects conceived and implemented at ward level 2007/08–2011/12

S. No. City or Percentage of projects Remarks
Municipality conceived and
implemented at ward
level
1. Mbeya 89 Most of the projects covered social
2. Ilala 88 services (classrooms, teachers’
houses, health facilities). In
3. Kinondoni 85
peri-urban areas, the projects are
4. Zanzibar 82 mostly on infrastructure
5. Temeke 79 services-roads and water supply
6. Tanga 78
7. Arusha 73
8. Mwanza 67
Source Records from economic and planning office of LGAs
80 % of the projects implemented over the five-year period were initiated and
proposed at wards and sub-wards levels (Table 2).
The high level of funding of projects implemented at grassroots level can generally
be explained by the nature of the funding sources and the conditions that are attached
to the grants. For instance, out of the three funding sources for such projects, which are
own-revenues, general-purpose grant and capital development grants, donor funding
was dominant in the 89 randomly selected projects implemented over the last five
years in the eight urban centres (Fig. 3). In this respect, donor funds, which often are
assigned for specific use and commitments, could have contributed towards the
decision by most LGAs to implement projects proposed by grassroots institutions at
ward and sub-ward levels. This is more so because normally LGAs officials do not
change or diverge the use of donor funds without their approval.
Governance / Institutional reform / Capacity Productivity / Economy Safety and security

building
Local authority Central government Donor Others Local authority Central government Donor Others Local authority Central government Donor Others
Sustainability / Environment management Inclusivity / Servicing
Local authority Central government Donor Others Local authority Central government Donor Others
Fig. 3 Funding sources by project thematic area. Source Records from planning officers in the
eight urban centres
Political Efficacy and Citizen Participation
Other important attributes to assess the level of decentralisation, are political effi-
cacy and citizen participation. They relate to matters that concern accountability and
transparency in government decision making and in the execution of development
projects and activities. Regarding transparency, the focus was on how regularly
LGAs convened statutory meetings of their participatory organs including various
committees of the councils. On the other hand, transparency aspects focussed on the
availability of and accessibility to important data and information to the general
public especially on activities and plans of the council. The assessment of the study
cities revealed polarised performances with regard to the meetings held at council
and sub ward levels. Regarding participatory meetings held at council level, there
was an average of 114 % of the number of required meetings conducted vis-à-vis.
Some councils exceeded the number of required meetings whilst others conducted
fewer. For example, while Ilala Municipality conducted 200 % of the statutory
council meetings, Mwanza City Council conducted only 63 % of the statutory
meetings. Other councils such as Zanzibar, Mbeya, Tanga and Temeke have 75,
100, 65 and 80 % respectively (Fig. 4). At sub-ward level, sessions of the partic-
ipatory organs in the eight urban centres show an average level of 92 %. However,
there are wide variations across cities and municipalities with the highest per-
centage of 145 % in Arusha followed by Ilala, which registered 120 %. The lowest
was Tanga, with only 40 % of the required meetings.
These variations in the number of meetings of participatory organs conducted at
grassroots level, lead to multiple interpretations. It was observed that LGAs, which
conducted more meetings, do not necessarily mean that there was higher level of
information dissemination to or participation in decision-making processes by the
respective communities. In other words, the significance of these criteria (number of
meetings of the participatory organs) in assessing political efficacy, especially in
terms of substantive participation and involvement of local communities, seems
doubtful. The question to raise here therefore is not how many meetings of com-
mittees x and y were held but rather who had what agenda or interest; and how the
agenda of the meeting focused on pertinent issues that were drawn from the local
communities. Most importantly, the question is how the issues from the community
shaped or influenced decision-making as well as how or whether representations of
local communities gave the community feedback in an appropriate form or manner.
Many people, including politicians, especially councillors, assume that as long as
the committees have met as per the standing policy provisions and regulations all is
fine. In all cities, interviews revealed that on average only 47 % of residents were
aware of the development projects being undertaken in their localities (sub-ward
and ward levels). This suggests that despite numerous meetings held, there was
poor communication and or inadequate involvement of the community members in
Councils' average
Temeke
Arusha mtaa level meetings

conducted vs required
Kinondoni Registered voters vs those

voted
Tanga Council meetings

conducted vs required
Mbeya
number of CSOs
subcontracted in 2011
Mwanza
5 year trend in Percentage
of Projects concieved at
ward level implemented
Zanzibar
Ilala
0 50 100 150 200 250
Fig. 4 Cities’ performance in political efficacy and participation issues in percentage of the policy
requirements. Source Records from the case study urban council
decision-making processes. This may raise the criticisms that the intention of the
meetings could be more associated with a tendency to fulfil routines and/or get
personal benefits, e.g. allowances) rather than engaging with the stakeholders to
enhance ownership and legitimacy of the decisions made in the meetings.
Interviews further revealed that there is a weak link between central and local
government institutions and participants. For instance, often central government
officials are accused of not giving information and guidelines to the LGAs at the
right time. Interviews with most of the officials in the eight urban authorities
revealed that whilst every financial year the central government issues the budget
guidelines and ceilings, many a time this is only done weeks before the budget
session starts. This implies that, LGAs and their participatory organs may not have
sufficient time to widely consult with local communities and take their priorities and
contributions into account. On the other hand, there were complaints from ward and
mtaa leaders interviewed that LGAs were also withholding important information,
for example, regarding budgeting and procurement of service providers. Another

example is that the Urban Planning Act (2007) requires planning authorities
(LGAs) to prepare and publicise general and detailed planning schemes for their
areas, so that local community members can have open access and give their views.
The interviews conducted in the eight urban centres revealed that only one of the
eight urban centres had a general planning scheme (master plan). This plan was not
available in public areas such as municipal notice boards or mtaa/ward level offices.
Subsequently, there is little or no information about spatial planning for the local
community members. Discussion with the heads of urban planning departments in
the eight urban centres revealed that they normally do not make issues pertaining to
land use development transparent, even though this is a legal requirement. This,
they argued, was done deliberately ostensibly because making public information
on issues such as land-use plan would fuel land speculation. This argument,
however, is flawed and difficult to defend, primarily because speculation can and
does happen even without a general or detailed planning scheme (Kombe and
Kreibich 2006). Trends in most unplanned peri-urban areas of the rapidly growing
urban centres show increasing land grabbing primarily because of speculation
(ibid.).
Another important gauge that is being used for political efficacy is the partici-
pation of residents in political processes, such as general elections. Based on the
percentage of registered voters compared with those who actually voted during the
2010 General Election, the findings from the eight study urban centres reveal that
on average 51 % of the registered persons voted in the urban centres. The voting
rate was highest in Zanzibar Municipality where 99 % of the registered voters
participated. This was followed by the cities of Arusha and Mbeya, which
registered 73 and 65 % of registered persons voting respectively. The remaining
urban centres registered less that 40 % (Table 3). Ironically, following these
elections, opposition parties are governing in the cities that had a voters’ turn-out of
over 50 %.
Table 3 Response rate in voting

S. No. City or Municipality Percentage of voters Remarks
1. Zanzibar 99 Opposition
2. Arusha 73 Opposition
3. Mbeya 65 Opposition
4. Tanga 40 Ruling party
5. Mwanza 35 Ruling party
6. Kinondoni 34 Ruling party
7. Temeke 31 Ruling party
8. Ilala 31 Ruling party
Source National electoral commission and field work-studies
Discussion
Despite having a clear policy framework on decentralisation, the urban centres and
cities in this case study are far from achieving the D-by-D target. One of the main
challenges seems to be the apprehension to change and reluctance to adopt D-by-D
by those holding power. Discussions with most LGA officials revealed that gen-
erally bureaucrats in the central government advocate decentralisation by devolu-
tion, but they are not ready to practise it. That is, they seem unwilling to bring
government closer to the people, to give LGAs the power to make decisions or to
allocate the resources available appropriately. Besides, they do not appear to
recognise the indispensable position and critical role LGAs have to play in pro-
moting efficient service delivery and overall governance.
In principle, local government authorities exist and are recognised by the 1977
Constitution of the United Republic of Tanzania. At the heart of their establishment
lies the noble agenda to promote socio-economic development including enhancing
equitable delivery of services as well as instituting an effective administrative
system of government at local level. Therefore, LGAs are not only important, but
they shoulder critical responsibilities, which require and presuppose that they will
have the necessary mandate, power (political and administrative) and most
importantly, financial resources. Planning and implementing activities that aim to
deliver basic services to local communities also presume that central government
will not exercise direct control on LGAs or will not create fiscal transfer systems,
which suffocate and make local urban authorities over-dependant on central gov-
ernment grants, as the case is currently across the eight urban centres examined.
Judged by the restrained decision-making autonomy that LGAs face on matters
such as local revenue mobilisation and use; the overwhelming dependency on
central government grants or transfers of over 70 % among most LGAs; the poor
information flow from central government to local government, particularly on
pertinent matters such as budgeting, and continued bureaucratic or elite resistance to
devolve powers and resources to grassroots institutions, one can confidently argue
that despite almost two decades of implementing a programme that aims to insti-
tutionalise D-by-D in Tanzania, to date, there has been a lack of political will and
commitment towards the programme. Political will is sine qua non for effective
decentralisation and especially the kind of decentralisation that aims to devolve
functions, transfer authority over decision-making, finance and management of local
development and service delivery matters to quasi-autonomous corporate units of
local government (Olsen 2007). Needless to say that while LGAs are collecting
revenues from their localities and remitting the same to the central government, only
a small fraction of this was remitted back. Central government institutions, therefore,
spend the bulk of the collected revenue. In this regard, the centralised fiscal
decision-making processes are also part of the problem. It appears that LGAs are
assigned functions and responsibilities but they are not given mandates, and most
importantly resources to perform or deliver. One may also add that the fact that
central government is responsible for hiring and firing chief executives of local
(urban) authorities further complicates the question of accountability in service

delivery. This is primarily because accountability and loyalty of such officials are
often not to their respective constituents or communities, but to their appointees
(Kombe and Kreibich 2006). In short, the restricted mandate and autonomy of LGAs
on decision-making, coupled with the dependency on central government grants, are
real factors that seem to run counter to the objectives of D-by-D in Tanzania.
It is also important to reiterate that decentralisation by devolution cannot flourish
in situations where LGAs hoard resources that ought to be sent to lower level
administrative units at Mtaa (Sub-ward) and Ward levels. The policy provisions are
explicit that 20 % of the revenue collected from these entities ought to be remitted
to them to implement projects at this level. Most of the LGAs studied, however, are
not complying with this requirement; most of them remitted less than 1 %. While
the disbursement from central government to LGAs was intermittent and often far
below the approved annual budgets, the transfer from LGAs was generally char-
acterised by a diminishing amount. Residents in most of the wards and sub-wards in
the case study had little or no awareness about projects funded and implemented by
LGAs. The proclamation of policy and enactment of Act in 2009 to facilitate
partnership between public, private and community actors on service delivery, do
not seem to have achieved the intended objectives, that is, to enhance partnership to
improve service delivery. This is inter alia due to the lukewarm response by the
councils. The misconceptions and general ill-feelings associated with subcon-
tracting services delivery to private sector actors is a challenge that cannot be fought
by shying away from PPPs in service delivery. In fact, if communities do not get
better services, the suspicion and accusations associated with corruption and
embezzlement of public resources among LGA officials are likely to increase
despite abandoning PPPs. Bringing government officials and, most importantly the
decision-making processes about PPP, closer to the attention of citizens or local
communities is one of the lesser options to dismiss challenges associated with
misappropriation or corruption. When government and decision-making processes
are brought closer to the people, people are more likely to be better informed and
understand why LGAs alone cannot improve service delivery, and thus appreciate
the need for PPPs.
The need to efficiently and adequately deliver services such as water, solid waste
management, roads, storm water drainage systems which LGAs are required to
provide, are escalating with rapid population growth. On the other hand, the per-
formance of LGAs has generally been poor. It is, therefore, likely that pressure on
LGAs to deliver better and adequate services will intensify in future. The severe
deficit in basic services and the poor condition of most of the existing public
services and facilities is increasing. This requires action by various stakeholders,
especially the private sector, to provide or at least try to fill the gap. These inter-
ventions are welcome, but they may not augur very well with the spirit of good
governance; primarily because the motivation of the private sector for profit
maximisation often over-shadows issues of equity and equality in service delivery.
This is particularly so in a situation such as in Tanzania where the capacity of the
public sector to regulate the private sector is generally weak. If services are not
improved, sooner or later, this will affect the willingness by local communities to
pay taxes and levies. Already many local communities are questioning the rationale
for paying taxes in a situation where LGAs do not deliver and are not accountable
for their poor performance. One of the important observations which emerged from
the discussion and data collected in the eight urban centres, concerns the poor
institutional memory. For instance, because of poor data and record keeping, the
plan by the Tanzanian Cities Network (TACINE) project to complete data collec-
tion within three months failed. Instead, it took two years. This implies that many
LGAs may not be in position to make informed plans and decisions on various
issues including service delivery. This could also lead to undue delays in imple-
menting projects. In addition, the weak arguments given by LGAs officials as to
why adopting PPP is so slow, or why officials are reluctant to enhance transparency,
i.e. share information with local communities, to a large extent suggests ineptitude
on the part of the LGA officials.
Conclusion
Despite the fact that decentralisation is not a magic bullet that can address all
challenges being faced by cities in developing countries like Tanzania, the move
towards a transfer of responsibility and power (including resources) to local entities
is critical. Indeed, without fiscal decentralisation LGAs can neither function nor
deliver. What also seems clear is that as communities, civil societies and elected
local leaders become more enlightened, aware of their obligations to pay taxes and
their rights to hold those responsible for service delivery more accountable, elites
resisting transfer of power and resources to local entities will be under increasing
pressure. Broadened multiparty democracy will also enhance participatory
democracy in local governance.
Over the last four decades, the call for more democracy as a key attribute of good
governance has intensified all over the world. Decentralisation is also increasingly
being demanded by grassroots and other participants primarily because of the
potential to deepen and legitimise democracy (Demand 2004). If the political sta-
bility and steady economic growth the country has achieved are to be consolidated
increased demand for more decentralisation and above all for better services can
hardly be ignored. Power, including resources and information sharing is a complex
process that requires not only political commitment, but also a change of mindset
especially among those who benefit from power concentration. This means that
political decisions have to be taken deliberately to, inter alia, check elite capture
(bureaucratic resistance), empower LGAs by devolving decision making powers
and instituting mechanisms for enhanced autonomy in resources mobilisation and
use, as well as build human capacities and enhance partnerships with private and
community sector actors. These actions lie at the heart of D-by-D. Unless they are
undertaken, significant improvement of service delivery and poverty reduction
cannot be expected.
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Decentralisation of Municipal Servicing
in Tanzania: Opportunities
and Challenges
Alphonce G. Kyessi and John Lupala
Abstract In recent decades, Tanzania has undergone enormous political, social

and economic reforms. It has moved from centrally planned economy governed by
one political party to a multiparty and more liberalised economy. Decentralised and
liberalised service provision has been one among the areas where such reforms have
manifested. These include for example decentralised water supply and sanitation,
education and health services and privatised or sub-contracted waste management.
In all these reforms, private sector involvement has been actively promoted and as a
result the sector today contributes more than was the case in the 1970s and 1980s.
Results from a study on decentralised water supply in Dar es Salam show that there
was a significant improvement in terms of service delivery, customer care and
revenue collection to the Authority. Other achievements include increased enthu-
siasm and team work spirit among staff, improved capacity of the Area Offices to
deal with issues at lower unit levels. These achievements are however, associated
with a number of challenges such as exclusion of the poor who cannot afford
privatised services, inadequate policy provisions and frameworks in some sectors,
poor coordination among actors and limited capacity in terms of resources to
optimise available opportunities.
A.G. Kyessi (&)

Institute of Human Settlements Studies, Ardhi University,
Dar es Salaam, Tanzania
e-mail: akyessi@gmail.com
J. Lupala
Department of Urban and Rural Planning, Ministry of Lands,
Housing and Human Settlements Development, Dar es Salaam, Tanzania
e-mail: lupalajohn@yahoo.com

90 A.G. Kyessi and J. Lupala
Introduction
The Tanzanian government pursued the policy of socialism and self-reliance from
the independence period in 1961 to the 1980s. During these decades, economic
policies were characterised by controlled investment and centralised factors of
production by the government. The state was the sole provider of services and
goods. Planned macro-economic policies with full control of production and prices
of all economic and service goods characterised the economic growth frameworks
of the country. The main economic impetus was on investment for rapid mod-
ernisation and equitable social development under the social welfare paradigm. The
policy advocated collective action and restrictions over the private sector were
largely limited. Decentralisation in the form of privatisation was not allowed during
this period. Although the government attempted to decentralise functions under the
socialistic principles to local governments in the 1970s, the implementation of this
policy was marred by the paternalistic ideals that were cohesively embraced by the
central government.
Starting from the mid 1980s, the country initiated a policy shift from a controlled
and planned economy to a market oriented one. During this period liberal policies
in economic planning and investment were also introduced and the Structural
Adjustment Programme (SAP) was implemented. This period was characterised by
changes in the pricing system, reduction on controls for imported goods,
retrenchment and freezing of public employment and participation of the private
sector in the economy (Ngware et al. 2003). A further policy shift and reform were
implemented from 1995 to 2005. During this period, policy reforms focused on
sustaining macro-economic stability, restoring fiscal disciplines and creating an
institutional base to support market economy and greater participation of the private
sector. These policy changes contributed significantly to establishing a platform for
the implementation of decentralised economic ventures and services provision in
many parts of the country. Many of the attempts in terms of decentralised pro-
grammes and projects were implemented from the 1990s to date. This chapter
therefore, provides a review of these attempts featuring a case of water supply and
solid waste collection in Dar es Salaam City.
What Is Decentralisation?
Many authors have defined decentralisation from varying perspectives. While some
have discussed it from a political perspective, others have discussed the same
emphasising fiscal, administrative or generally the delegation of responsibilities in a
hierarchical order. Arguing from a delegation of power point of view, decentrali-
sation refers to diffusion of authority. It is a process by which specific responsibility
is assigned to subordinates (GIZ 2010; UN Habitat 2002; ILO 2001; Ahmad et al.
2005; Masanyiwa et al. 2013). Such a responsibility, when assigned to subordinates,
Decentralisation of Municipal Servicing in Tanzania … 91
is always followed by sufficient authority also given to the executive and other
subordinates at lower levels. Decentralisation, therefore, refers to assigning of
responsibility and delegation of authority to various executives and other subordi-
nates at lower levels in an effort to make the lower levels more responsible and
accountable to the job entrusted to them. In other words the underlying assumption is
that everything that goes to increase the importance of the subordinate’s role
amounts to decentralisation. Although some scholars have pointed to the link
between decentralisation and increased public spending, such initiatives had also
been linked to increased equity, efficiency, competition and performance especially
in public infrastructure (UNCHS 2000).
Rationale for Decentralisation of Municipal Services
The reasons for decentralised municipal services vary from one context to another.
While in Eastern Europe and the former Soviet Union decentralised service pro-
vision was part of the political and economic transformation, in Latin America
decentralisation aimed at reinforcing the transition to democracy (World Bank
2005). In countries such as South Africa, Sri Lanka and Indonesia, decentralisation
was a response to ethnic or regional conflicts and in Chile, Uganda and Cote
d’Ivoire decentralisation of municipal services was a response to improve basic
services delivery (ibid.). Filmer and Pritchett (1999a, b) in World Bank (2005)
further argue that the need for decentralised service delivery emanates from gov-
ernments’ failure to ensure adequate health, education, water and sanitation to their
people. Public spending on health has no significant association with reductions in
child or infant mortality; and public spending on education has an extremely weak
relationship with primary school completion rates (ibid.). Decentralised service
provision has made it easier for local entities, including NGOs and private opera-
tors, to participate in service delivery. These entities are now better equipped to
respond to community needs and priorities in accordance with prevailing tech-
nology and service standards. Under such circumstances, the link between costs and
benefits has been harmonised (Serageldin et al. 2000).
Conceptual Underpinnings of Privatisation as a Variable

of Decentralisation
Kaare (2002) has discussed the concept of privatisation as a transfer of statutory

responsibilities of the public sector to the private sector and civil society organi-
sations. According to Kaare (2002), the transfer can take various forms including
contracting out, concession and outright sale or divestiture.
Contracting Out
Contracting out entails a public institution paying a private sector or civil society
institution to carry out functions or provide services on its behalf (Kaare 2002).
Under this arrangement, the public institution that buys a service from private
institutions becomes a purchaser (principal) and the private institutions the provider
(agent). Although the model imposes rights and obligations on the purchaser and
the provider, it has no provision to service recipients who are intended to benefit
from the purchaser-provider relationship. The exclusion of recipients in the
purchaser-service provider relationship draws its justification from the representa-
tive systems of governance. The major strength of contracting out relates to low-
ering transaction costs. It also ensures efficient working practices through
competition, lowers service costs thus making the service accessible to the poor and
introduces sustainable and cost effective forms of control by enforcing compliance
and performance (Kaare 2002). The major weakness of contracting out includes: the
requisite demands for the purchaser to have relatively good financial and organi-
sational capacity to meet the contractual obligations and that the service benefi-
ciaries need to have a sense of duty and responsibility to pay relevant service
charges. The model may, however, be difficult to pursue in developing countries
where governments are weak in terms of revenue collection and also where the
sense of paying tax and service charges on the part of citizens is low (JICA 1998).
Important questions worth raising are: to what extent contracting out has been
adopted in service decentralisation initiatives in Dar es Salaam? What have been the
challenges and opportunities?
Concession
Unlike in contracting out models where the public institution purchases or pays the
agent (service provider), under a concession model it is the service recipient who
pays the agent directly (Kaare 2002). Concession involves a public institution
authorising a private sector or civil society institution to provide services on its
behalf (ibid.). Under a concession agreement, the service provider is given sole
rights to render service as well as collect service charges from service users of
designated concession area(s). The public institution assumes the responsibility in
determining the terms and conditions under which the concessionaire will deliver
the service and the purchaser will pay for the service. In the context of Tanzania the
transfer of refuse collection and disposal services in Dar es Salaam adopted a
concession model. According to Kaare (2002), the Dar es Salaam City Council
(DCC) authorised the concessionaire to provide solid waste collection and to collect
requisite fees from designated communities. The author further reports that the
DCC roles were to identify and giving concessions, defining terms and conditions
of service including areas of service, period of time of concession, the billing
system and the quality of service. The DCC was also responsible to provide an
enabling framework for the service provider to work including credit, equip-
ments, legislation, monitoring and law enforcement (JICA 1998 in Kaare 2002).
Concession contract has a weakness of denying the beneficiary who is the purchaser
to determine the terms and conditions of service. The lack of self-regulation gen-
erates irrational behaviour on the part of the urban poor consequently increasing
service provision costs to the provider (agent). Linked to this discussion, important
questions that can be raised are: to what extent did service recipients respond
especially in paying service charges? What challenges and opportunities have been
posed under concession agreements?
Outright Sale
Outright sale refers to the process whereby a public institution sells its assets
(movable and immovable) to a private sector or civil society institution. The public
sector retains its role as enabler, regulator and arbiter of other actors including the
government, private sector and civil society organisations involved in the process
(Kaare 2002).
Forms of Decentralisation in Service Provision
The importance of decentralisation for effective public service delivery has been
widely acknowledged in many countries. Although decentralisation is not a panacea
to challenges in the service provision sector, many examples where such an
approach has been effectively tested, have proved to be useful in terms of efficiency
and reaching the majority of the target beneficiaries. Various decentralisation forms
have been adopted in service provision. One form is deconcentration whereby the
central government transfers its authority and responsibility from one level to
another while maintaining the same hierarchical level of accountability from the
local units to the central government ministry or agency which has been decen-
tralised. Deconcentration has been viewed as the first step in newly decentralising
governments to improve service delivery. In countries such as Tanzania, this has
been practised by establishing government agencies that take over the role of the
government with a high level of autonomy in terms of operations and responsi-
bilities. In the water sector, the government established many agencies in the name
of Water Supply and Sanitation Authorities (WSSAs) at regional, district and urban
centre levels.
The second form of decentralisation is divestment or market decentralisation:
This form is usually done in favour of non-public entities where planning and
administrative responsibility or other public functions are transferred from gov-
ernment to voluntary, private or nongovernmental institutions with clear benefits to
and involvement of the public (ILO 2001). This often involves contracting out
partial service provision or administration functions and deregulation or full pri-
vatisation. In the Tanzanian context, this was introduced in the 1990s following the
adoption of market-led policies in service provision. This approach departed from
the socialism polices in which the government was considered to be the sole
provider of services and goods in urban and rural areas. Typical examples have
been the privatisation of solid waste management in urban areas whereby the
responsibility of collecting and disposing solid waste was delegated to private
companies, non-governmental and community based organisations.
Decentralisation of Service Delivery in Tanzania:

A Historic Perspective
Decentralisation of service delivery in Tanzania can be traced as far back as the first
decade of independence (1961–1971). During that period, the government inherited
the British colonial system of local governance that was based on a combination of
chiefdoms and locally elected representatives. The independent government
amended this system into a more inclusive form of representative local authorities.
However, local governments did not meet the expectations of many stakeholders
due to limited financial and human resources. Local governments were also
wrongly perceived as implementing agencies of the central government rather than
representative bodies answering to local needs.
In 1972, local governments were abolished and replaced by a system of
de-concentration or simply under the administration of regional authorities. This
system continued for a period of about ten years until 1982 when local governments
were reinstated. This was facilitated by the enactment of the Local Government
Authorities Acts Numbers 7 and 8 of 1982. The revived authorities were charged
with substantial responsibilities over roads, health, primary education and water
services. Their performance was, however, marred by the tendency to centralise and
concentrate powers in central government agencies (World Bank 1999; Shivji and
Peter 2003; URT 2009; Kessy and McCourt 2010; Venugopal and Yilmaz 2010).
As a result of this centralised mode of governance, delivery of social services to
the majority of the population remained limited. Coupled with the economic crisis
of the late 1970s and early 1980s almost all social services deteriorated sharply
some of which being beyond repair. According to a World Bank (1999) review, the
health sector experienced critical shortages of basic pharmaceutical and other
medical supplies, inadequate and dissatisfied workers, and decreased supervision to
district and sub-district health facilities (Masanyiwa et al. 2013). In the water sector,
implementation of the regional water master plans failed because of the centralised
nature of funding and monitoring of the water projects.
It was not until the 1990s when the government decentralised the water supply
sector to the Water Supply and Sanitation Authorities that some signs of improved
water supply to communities started to emerge. On the basis of these developments

and many other examples in other sectors, the Local Government Reform Program
(LGRP) and the Local Government Reform Agenda were established in 1996 (URT
1996). These were followed by the Policy Paper on Local Government Reform
(URT 1998). The LGRP was viewed as a vehicle through which government would
promote and drive the decentralisation process through the principle of subsidiarity.
Service provision would be brought closer to the users. The Local Government
Authorities Acts Number 7 and 8 of 1982 were amended through the Local
Government Services (Miscellaneous Amendments) Act No. 6 of 1999 (Masanyiwa
et al. 2013) to facilitate implementation of these reforms.
The on-going reforms and decentralisation processes in Tanzania focus on five
main areas namely; political decentralisation: involving the strengthening of the
local democratic institutions, enhancing public participation; and bringing control
over many important aspects of people’s daily lives nearer to the people themselves.
Fiscal decentralisation: involving decentralisation of local government finances by
introducing equitable and transparent revenue and capital development grants from
central government to local government authorities; it also involves giving local
government authorities financial powers and powers to raise appropriate local
revenues. Administrative decentralisation: a decentralisation of personnel, inte-
grating them into Local Government Authorities (LGA) administration and away
from ministry subordination; and restructuring of local government organisations.
Service function decentralisation: Involving a decentralisation of public services to
bring service management and provision of services closer to the end user and to
increase the quality and quantity of these services; and Changed central-local
relations: involving the changing of the role of central government vis a vis local
government authorities, with the central government having the over-riding powers
within the framework of the Constitution and the legal framework; and with the
local government having devolved powers and responsibilities in law. Central and
line ministries will change their roles and functions to become: Policy making
bodies; supportive and capacity building bodies; Monitoring and quality assurance
bodies; and control bodies (legal controls and audits) (Mmari 2005).
Decentralised Water Supply and Sanitation in Tanzania;

Institutional Perspective
Before 1993, provision of water and sewerage services was managed by

Departments in the Regional Administrative Authorities. During that time the
government was the sole investor, implementer and manager of water supply
projects. In the Water Sector Review study that was carried out in 1993, it was
recommended that the government should play the role of coordination, policy
guidance and regulation (GIZ 2010). The Study also recommended that one of the
most effective ways of improving service delivery in the water sector was to
transform the then water departments under the Regional Administration into
autonomous Urban Water Supply and Sewerage Authorities (UWSSAs). Although
UWSSAs were supposed to operate commercially, they were equally required to
take into consideration the poor and the vulnerable who may not be able to afford to
pay for the commercialised service charges. The rationale behind this shift was to
transform the water supply sector from typical service oriented to both service and
commercial orientation for ensuring sustainability.
The Water Works, Act Number 8 of 1997 provided for the establishment of
Urban Water Supply and Sanitation Authorities (WSSAs) with full autonomy under
the Ministry of Water. Following this Act, the first 18 UWSSAs were officially
declared by the Minister for Water in 1998. The 1991 Water Policy was also
reviewed leading to the 2002 National Water Policy. The latter, among other issues,
clarifies and emphasises the principle of good governance for instance, subsidiarity.
To implement the 2002 Policy the Water Works Act Number 8 of 1997 was also
repealed by the Water Supply and Sanitation Act Number 12 of 2009. For the case of
Dar es Salaam, the Dar es Salaam Water Supply Authority (DAWASA) operates
under the DAWASA Act, Cap 273 and is the owner of the assets within its area of
operation. Some functions of DAWASA have been decentralised to the Dar es
Salaam Water and Sewerage Corporation (DAWASCO) under a lease contract.
DAWASCO has been contracted to operate the water supply and sewerage services
in the DAWASA’s area of operation that include the greater Dar es Salaam and the
townships of Kibaha and Bagamoyo. In terms of area coverage DAWASCO is
serving a threshold population that is too big to effectively reach its customers.
Further decentralisation of DAWASCO’s function has been calling for improved
service delivery in a wide geographical coverage. This will however, be discussed in
detail under the case of decentralised water supply to business units in DAWASCO.
The Case of Decentralised Water Supply Services

in Dar es Salaam City
The privatisation of Water Sector in Tanzania, Dar es Salaam in particular followed

legal amendments to the DAWASA Act of 2001 allowing for a private sector
participation in the operations of Dar es Salaam water supply facilities. Initially, the
operations of water and sewerage services for the City of Dar es Salaam were
transferred to a private operator: City Water Services Limited. This was a joint
venture of three companies; two International companies, Biwater of United
Kingdom, HP Gauff of Germany and a local company, Super Doll Trailer
Manufacturers Company Limited. Before privatisation, the operations were under
the management of Dar es Salaam Water and Sewerage Authority (DAWASA). Just
after privatisation the roles of DAWASA were transformed to assets holding and
performance monitoring. The lease contract of City Water Service Limited was
terminated by DAWASA in May 2005 within two years of the operation of City
Water Service Limited. The termination was due to unsatisfactory performance and
gross breach of lease conditions (GIZ 2010). The responsibilities of City Water
Services Company Limited were transferred to DAWASCO. DAWASCO is a
public Corporation which was established under the Public Corporation Act of
1992 through Government Notice Number 139 of May 2005. DAWASCO signed a
similar lease contract with DAWASA for a period of ten years.
When DAWASCO took over the operations of Water Supply and Sanitation
from City Water Services Limited in 2005, its functions were highly centralised
amidst an expanding customer base. It was also serving an expansive geographical
area covering three administrative regions. Under this system, activities such as new
connections, reconnections, meters installations, repairs and maintenance of net-
work, billing and revenue collection were organised and performed from the centre
that is the Headquarters. The role of Area Offices during that period was to only act
as agents of collecting customers’ complaints and forwarding them to the
Headquarters for action. The centralised system resulted in poor performance in
terms of revenue collection, delayed responses to customer requirements and
queries and poor performance in extension of network connections. Observing this
situation DAWASCO decided to decentralise its functions to its Area Offices.
The Thrust of Decentralisation in DAWASCO
The thrust behind decentralisation of the water supply and sanitation services in Dar
es Salaam stemmed from the centralised commercial and technical operations of
DAWASCO especially in the period between 2005 and 2007. Under technical
operations, activities such as new connections, reconnections, meter installations,
repairs and maintenance of network, billing and revenue collection were organised
and performed from the centre that is the Headquarters (GIZ 2010). Under com-
mercial operations, if a customer wanted to get connected, one had to fill in a form
and bring it to the Headquarters regardless of whether the customer stayed in
Kibaha or Bagamoyo. In practice it took more than 45 days for a customer to get
connected to the water supply. This situation also prevailed in monthly meter
reading exercises that had to be organised from the Headquarters. All the monthly
readings were submitted to Headquarters to be recorded in the billing system.
Verification of readings was also organised and managed from the Headquarters.
Bills processing and printing was also centralised. In general terms, these practices
caused a lot of work pressure and overload due to the fact that readings of the entire
Corporation had to be captured by only 5 staff members and only at the
DAWASCO Headquarters. As a result of this centralisation of activities, more
human errors in capturing readings were encountered. This culminated in billing
errors in which case incorrect bills were issued to customers. Customers’ bills had
to be frequently adjusted so that they could pay the correct bills.
Centralised water service delivery was practiced in a rapidly growing customer
base from 52,223 active connections in year 2007 to 107,580 in the year 2010. This
rapid increase in customers caused a lot of pressure in terms of customer service

and follow up of revenue collection. Also issues of performance improvements so
as to meet and surpass the targets highlighted in the lease contract between
DAWASA and DAWASCO were jeopardised. The idea of decentralising some of
the duties and responsibilities from the Headquarters to ‘Business Units’ was
brought about by management with a view to delivering better service to customers,
increasing performance and providing an opportunity for management to concen-
trate on more strategic issues.
Decentralisation: From the Headquarters to Area Offices

(Business Units)
The decentralisation of water supply from the Headquarters to lower level

administration units was effected by DAWASCO following a rapid assessment of
DAWASCO’s performance by external consultants. The assessment report rec-
ommended decentralised functions to Area Offices; herein referred to as ‘Business
Units’. The commercial and technical operations of DAWASCO are presently
managed under the eleven Area Offices (Business Units) of Kawe, Kinondoni, City
Centre, Magomeni, Kimara, Kibaha, Mlandizi, Ilala, Temeke, Tabata and
Bagamoyo. It was decided that the process of delegation of powers and responsi-
bilities would be effected in phases; phase one in the four Area Offices of Kawe,
Boko, City Centre and Kinondoni, then later the remaining Area Offices. This
process started effectively in July 2008.
Technical operations that were decentralised to Area Offices included: operation,
maintenance and repair of all network assets including all water mains up to DN
200 mm (two hundred millimetres) and their associated plant, equipment and
accessories. The Area Offices were also mandated to carry out monitoring, iden-
tifying, recording and repairing leakages on water mains up to and including DN
200 mm (two hundred millimetres) within their respective areas of operation. They
were further charged with the responsibility of carrying out customer survey and
eventually doing the actual connections for customers who had applied for new
connections. Installations maintenance and repair of customers’ meters was another
activity which was delegated to Area Offices.
Commercial operations that were delegated to Area Offices include: meter
readings, capturing the readings in the billing system, bills printing, and bills
delivery, accounts adjustments up to the area threshold of TZS 999,000 (US$ 624).
Area Offices were also responsible for the management of customers’ accounts
including, applications, and creation of new accounts, installations of new con-
nections, disconnections, reconnections and updating of the database. The Area
Offices were also responsible for carrying out routine customer surveys for the
purpose of establishing properties which consume water and were not billed,
determine illegal connections, raise and collect penalties according to an agreed

code of practices.
In terms of finance and administration, Area Offices were mandated to carry out
management and operations of a bank account for their day to day activities, to
institute budgetary control, and classify and record all financial transactions in the
Cash book. Other items included the management of the Stores at the Area Offices,
carrying out procurement of goods, works and service, management and mainte-
nance of Area Offices’ fleets and also to ensure effective management of all staff in
their areas.
Results in Performance After Decentralisation
After decentralisation performance improvement was recorded in all indicators

for all Area Offices. Average revenue collection per month increased from TZS
1.6 billion (US$ 1.0 million) in year 2007/2008 to TZS 2.06 billion (US$
1.29 million) a year in 2008/2009 after decentralisation. This increase represented
27 % of monthly revenue collection. In absolute figures, DAWASCO was collecting
TZS 443,000,000 (US$ 276,875) more per month after decentralisation. The time
taken to connect a new customer was reduced from 45 to 14 days after payment. The
executive burden of managing the Corporation was distributed and shared among
other bodies at lower levels. Decentralised operations created an opportunity for top
management to concentrate on other important strategic issues which called for their
attention. A spirit of team work, and speedy decision making created a cordial
working relationship among staffs of DAWASCO. Decentralisation facilitated time
savings in accomplishments of different tasks which were assigned to various levels
of authority. For example, customer connections were accomplished at the Area
Offices without the requirement of an approval from the Headquarters. Subordinates
of the decentralised Area Offices assumed more management responsibilities with
sufficient authority than they had had before decentralisation. This cultivated
enthusiasm among them and they always approached their work or assignments with
extra zeal and energy. Localised decisions and team work spirit was witnessed in
Boko and Kawe Area Offices where the Area Management and Staffs agreed that
they would open their offices on Sundays and public holidays so as to allow cus-
tomers to make payments of their bills. Staffs at Area Offices were fully involved in
identifying issues which hindered their performance and they even proposed their
own solutions. The sense of being elevated and satisfied was normally directed
towards achievements of their work targets but ultimately resulted in performance
improvement for the whole Corporation (Table 1).
Decentralisation of responsibilities from the Headquarters to small business units
under DAWASCO was the correct decision taking into consideration the business
environment, technical and commercial operations of water and sewerage services
in the City of Dar es Salaam. DAWASCO Customers are now better serviced than
Table 1 Results of decentralised water services management in DAWASCO

S.N. Situation before Situation after Recorded change(s)
decentralisation decentralisation
1 Monthly average revenue Monthly average revenue This represented an
collection was TZS collection stood at TZS increase of 27 % of
1,618,979,065 (US$ 1.0 2,062,003,518 (US$ 1.29 annual revenue within a
million) million) period of one year
2 Numbers of paying Increased in numbers of This represented an
customers was relatively paying customers, monthly increase of 22 % within a
low, average paid average paid customers one period of one year
customers just before year after decentralisation
decentralisation was was 25,939
21,195
3 Customers had to travel to Brought a big improvement Increased customer
DAWASCO head quarters in customer service, service satisfaction
to get even minor services brought close to customers
4 Team work spirit was not Team work spirit increased Improved team working
good among staffs as are involved spirit
in several issues regarding
management of their areas
5 Decision making was It increased capacity and Reduced bureaucracy and
centralised creating timely decisions from area timely decision making
bureaucracy and delayed managers
decisions
6 Bureaucratic controls Strong monitoring and Increased autonomy at
existed at headquarters evaluation is critical for area offices
decentralisation to be
successful
Source Author’s construct based on GIZ (2010)
previously. This remains true because of the improved customer care services
brought about by the decentralisation process whereby customers are now able to
get many services from a DAWASCO Area Office located close to their residences
instead of being forced to go to Headquarters.
The Case of Decentralised Solid Waste Management in Dar

es Salaam City
In the city consultation workshop that was held in 1992, solid waste management
was ranked number one out of nine issues that had been identified in prioritising
issues that needed special attention by the City Council. Under the Sustainable
Cities Programme (SCP), it was decided that participation of the private sector and
communities was crucial if the issue of waste was to be addressed adequately.
Decentralisation of solid waste collection services in Dar es Salaam took the form
Table 2 Waste production and collection before privatisation (tons per day)
Year Waste generated Waste collected Percentage collected
1994 1500 185 12
1995 1620 230 14
1996 1772 260 15
1997 1850 300 16
1998 1980 380 19
Source Author’s construct based on Kassim (2009)
of concession. Under this arrangement, the private solid waste collectors were
assigned responsibility of providing the requisite services by the Dar es Salaam City
Council as a contractor. Thus the service provider assumed the role of an agent and
the Dar es Salaam City Council became the principal. The role of the principal
under concession privatisation was to provide an enabling framework including the
passing of by-laws that compel service users to pay refuse collection charges.1 The
role include enforcing by-laws through monitoring performance of service provi-
ders and the strategy as a whole as well as to provide incentives necessary for
agents to fulfil their contractual obligations. The service users had the responsibility
of paying refuse collection fees that were established and reviewed from time to
time.
Although processes for decentralisation or privatisation of waste management in
Dar es Salaam started way back in 1992, actual private operations started in 1999
(Bakker et al. 2000). Before then, waste collection was being done by the City
Council under the Health Department. Privatisation was called for because of the
overwhelming problem of waste accumulation in the city of Dar es Salaam and the
diminishing capacity of the City to collect wastes. For example, by 1994, the
amount of waste that was being generated was 1500 tons. The amount that was
being collected was only 185 tons per day. This collection rate represented only
12 % of the waste generated. This low trend in waste collection continued until
1998 when the collection rate increased to 19 % of the waste generated (Table 2).
This situation created a health risk to the residents of the city and threatened the
economic survival of the city.
If the ratio of wastes collected versus wastes generated is assumed to be a good
measure of the effectiveness in solid waste management, then significant improve-
ment was made after privatising waste collection. The rate of collection increased
from 490 tons to 1700 tons per day representing an increase from 23 to 50 %
between 1999 and 2008 (Table 3).
Important to note from these statistics is the increase in the capacity of waste
collection. Yet, this does not rule out the fact that with increased wastes production
1
Waste management and refuse collection fees were set per use category of buildings or premises.
These ranged from Tanzanian Shillings 500 (USD 0.4) per household per month for residential
houses to Tanzanian Shillings 200,000 (USD 153.9) per month for Hotels with more than 100
rooms.
Table 3 Waste production and collection after privatisation (tons per day)
Year Waste generated Waste collected Percentage collected
1999 2144 490 23
2000 2200 700 32
2001 2300 750 33
2002 2400 800 33
2004 2800 930 33
2005 2800 1035 37
2006 3000 1040 35
2008 34,000 1700 50
Source Author’s construct based on Kassim (2009)
and only 50 % of the wastes being collected raises concerns regarding the envi-
ronmental situation in the City. These results show that more than 50 % of the
waste generated is not collected. Although recent studies (Babyebonela 2013) show
that there are some initiatives in waste recycling and re-use, the contribution of this
approach in reducing waste accumulated is still not significant. Babyebonela (2013)
shows that only 3.2 % of the waste generated were being recycled in Dar es Salaam
city.
Service Levels and Customer Satisfaction
Another concern on the impact of improved waste collection could be viewed from
the level of service as confirmed by the recipient of the services. This could also be
reflected in the degree of willingness to pay for the service. Although data on the
level of satisfaction on the level of waste collection were not available from a single
source, studies carried out in various parts of Dar es Salaam indicate some pattern
of increased satisfaction among recipients of services. For example a study by
Kaseva (1997) indicated that generally, the degree of satisfaction had been rela-
tively low before service privatisation as compared to the situation after privati-
sation. For example, while response for reasonable satisfaction was reported to be
10.6 % in 1994, this situation was 36.5 % for the settlement of Kawe, 36.4 % in
Sinza and 37.6 in Hanna Nassif respectively (Tables 4 and 5).
Table 4 Service level before Degree of satisfaction Response Percentage

privatisation
Very satisfying 2 1.6
Reasonably satisfying 13 10.6
Needs improvement 28 22.8
Don’t know 1 0.8
No service received 79 64.2
Total 123 100.0
Source Author’s construct based on Kaseva (1997)
Table 5 Service level after privatisation

Degree of satisfaction Areas of study in Kinondoni municipality
of the areas covered Kawe Sinza (N = 410) Hanna Nassif Kinondoni
(N = 186) (N = 112) municipality
Number % Number % Number % %
Very satisfying 10 5.2 25 6.1 8 7.3 1.1
Reasonably satisfying 66 35.5 149 36.4 42 37.6 10.4
Needs improvement 45 24 102 24.9 23 20.1 22.9
Don’t know 4 1.9 10 2.4 4 3.6 0.4
No service received 62 33.4 124 30.2 35 31.4 65.2
Total 186 100 410 100 112 100 100
Source Author’s construct based on Babyebonela (2013)
Key Challenges
Although decentralised water supply and solid waste management performance

seems to have improved, several challenges still confront both service providers and
users. In DAWASCO for example, the act of delegating powers to business units
was faced with some resistance from some officers with concerns that Area
Managers might abuse powers delegated to them. Similarly, increased demand on
resources and harmonisation of policies and procedures was necessary so as to
embrace the new mode of operation. Decentralisation also brought great pressure on
resources, working tools and other resources. Another challenge was on the little
knowledge dissemination especially for lower cadre staff to take effective ownership
of the strategy. Regarding waste collection, the challenges have included the limited
awareness of the service recipients having to pay for the user fees. Quite often waste
collectors complained about limited response of beneficiaries paying charges as set
forth by the city authorities. Another challenge was the limited support from the city
authorities to enforce the by-laws. Despite the fact that many recipients benefited
from the waste collection by the private operators, not all were paying their dues as
stipulated in the By-Laws. This negligence was not taken up by the authorities to
enforce and make sure that all who benefitted from the services pay accordingly. It is
also true that not all residents are aware of the contractors who operate in their
premises and the responsibilities of each actor in regard to the provided services.
This is reflected in the responses provided by service recipients in Tables 2 and 3 in
Chapter “Decentralisation and Urban Governance: Trends and Lessons from Cities
in Tanzania Wilbard Kombe and Ally Namangaya”. The issue of creating awareness
among stakeholders is a crucial component that must be addressed if benefits of
decentralisation are to be realised by all actors. In both the cases of water sector and
solid waste management, awareness among actors regarding changes, roles and
responsibilities seems to be one of the major limiting factors that needs to be
redressed to achieve effective and successful decentralisation.
Opportunities
Water services in Tanzania still remain one of the key challenges in urban areas.
Although much of the efforts have been directed towards technical solutions such as
expansion of the water reticulation network, not much has been attempted in terms
of restructuring the functioning of the organisations. The DAWASCO case provides
a good example through decentralisation. The existence and support from central
and local governments is among the factors that have supported their initiatives.
The willingness of the DAWASCO Management to decentralise their functions to
Area Offices has contributed largely to whatever success has been recorded so far.
This situation can be found in many organisations and it is a great opportunity that
can be deployed to increase efficiency in performance in many sectors of service
provision. The supportive policy environment of public and private partnership is
another opportunity which has yet to be fully exploited to improve efficiency in
service provision.
Conclusion and Way Forward
It is apparent from this chapter that decentralisation initiatives in Tanzania and more
so privatisation of service delivery is still a new practice that emerged prominently
in the 1990s. The limited and belated adoption of decentralisation in the form of
privatisation was largely attributed to the macroeconomic policies Tanzania
adopted to pursue after independence. However, the wave of change forced the
country to review its stance in the 1980s and actual implementation only started in
the 1990s. The two cases of decentralised water supply and solid waste manage-
ment in Dar es Salaam indicate that improved services can be realised if decen-
tralisation measures are initiated and implemented by concerned and relevant
authorities. However, a number of challenges are being faced including the limited
awareness on the part of recipient communities about their roles and responsibili-
ties. To a larger extent, the root cause of this unawareness emanates from the
euphoria of socialism where the government used to be the sole provider of free
services and goods. Decentralisation initiatives have also been challenged by
concerns from the main organs from which authorities and power are to be drawn.
This again is entrenched in the culture of hoarding power and fearing the erosion of
power from higher organs to the lower units. Despite these challenges, the
opportunities ahead of these initiatives have been shown to include an increasing
trend and willingness among organisations to devolve power to lower units for
increased efficiency in service delivery. This has been further facilitated by the shift
of the country’s macroeconomic policies and acceptance of the private sector to
effectively participate in service provision. It has been further augmented by the
promulgation of the public private partnership policy in 2009.
Acknowledgement This chapter has been drafted using documentary data from the research
project by GIZ (2010) for the water supply case and unpublished students research project (Ph.D.)
on solid waste. The authors extend their acknowledgement to these two and other sources as cited
in the text.
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Analysis and Lessons
from Decentralisation and Its Implications
to Local Environmental Planning
and Management in the Philippines
Mario R. Delos Reyes and Nicasio B. Espina, Jr.
Abstract The process of dispersing and distributing functions, powers, and various
environment and natural resources from a central location or authority has many
implications to a set of procedures in an organised system. This paper presents a
case study in the Philippines, specifically in Marikina City in Metro Manila,
detailing the systematic examination and analysis of the elements or structure of its
decentralisation system as bases for discussion and interpretation of several issues
and implications on land use and local environmental planning and management.
A site visit was arranged to Marikina City where first hand data and information
were obtained from relevant stakeholders in the city. Further, a textual review of
Marikina’s current land use and development plan was undertaken. The existing
city land use and risk maps were also collected and validated through a windshield
survey. Key informant interviews from the heads of city government offices were
undertaken to gather in-depth understanding on the implications of decentralisation
of their offices. The study found out that there were issues, challenges and
opportunities arising from the decentralisation of environmental planning and
management in the City of Marikina, Philippines. Although Marikina City has been
exhibiting and showcasing good local environmental planning and governance
these past several years, some improvements are necessary for the betterment of the
City. These warrant policies and actions to solve the problems and to address policy
gaps in RA 7160 (The Local Government Code of the Philippines of 1991) in the
context of environmental planning and management. The study attempts to enu-
merate lessons that could be learned on the implications of decentralisation to local
environmental planning and management.
M.R. Delos Reyes (&) N.B. Espina, Jr.

School of Urban and Regional Planning (UP-SURP), University of the Philippines,
E. Jacinto St., Diliman, Quezon City 1101, Philippines
e-mail: mrdelosreyes@up.edu.ph
N.B. Espina, Jr.
e-mail: nbespina@gmail.com

108 M.R. Delos Reyes and N.B. Espina, Jr.
Introduction
The Local Government Code of the Philippines, otherwise known as Republic Act
7160 (RA 7160), is considered by many social and economic scientists as the “Key
that unlocks vast opportunities in the countryside” (13th Congress-First Regular
Session 2004) because it provided operational meaning to decentralisation and
devolution. The code states that local territorial and political subdivisions shall
“enjoy genuine and meaningful local autonomy to enable them to attain their fullest
development as self-reliant communities and make them more effective partners in
the attainment of national development.” Section 455 (b) (3) (vi) of the Local
Government Code mandates local chief executives to “adopt adequate measures to
safeguard and conserve land, mineral, marine, forest, and other resources of the
city”. Likewise, under Section 458 (a) (1) (vi–xiii) mandates Local City Council to
“protect the environment and impose appropriate penalties for acts which endanger
the environment...”
Consequently, the same with other good legislations, the conditions and imple-
menting rules and regulations have to be reviewed and modified to address new needs
and recommend solutions to the emerging problems of local and regional significance.
More than two decades have passed since the enactment of the code, and issues on
regional land use, zoning and local environmental planning and management have
emerged rooted from political and institutional arrangements therein. It seems that the
chief executives and officers of Local Government Units (LGUs), especially the newly
elected, are not aware of their mandates and responsibilities regarding the Local
Government Code. Likewise, it appears that the national government agencies are not
willing to relinquish other provisions in the code. Among others, the issues and
concerns on manpower and funding sources are the major reasons for not fully
implementing the law. These impede major strides of development taking place in the
country’s cities and municipalities (Delos Reyes et al. 2013).
The devolution of power to the Philippine Local Government Units warrants a
holistic approach in planning that cuts across contiguous administrative areas.
Discussions about effective local environmental management, resource protection
and exploitation, along with disaster risk management, transcend local government
boundaries because resource management demands the marriage of strategic and
holistic approaches in developmental planning and co-management (Sigman 2007).
In this context, the paper seeks to answer what the implications of the current
decentralisation system to local environmental planning and management are.
This study is an attempt to analyse the implications of the underlying principles,
issues and challenges associated with the devolution of powers through the Local
Government Code of the Philippines (RA 7160) and its repercussions to Land Use
Planning and Zoning, focusing on the Local Environmental Planning and
Management. The issues and challenges gathered particularly from the environment
and land use local development offices are the highlights of this paper particularly the
City Environmental Management Office, Marikina City Development Authority—
Planning Office, Marikina Settlements Office, and Marikina City Disaster Risk
Analysis and Lessons from Decentralisation and Its Implications … 109
Reduction and Management Office. The rationale behind this is their strong inter-
connection with the decentralised environmental planning and management pro-
cesses. Lastly, lessons from decentralisation and implications to local environmental
planning and management were presented.
Approach and Methodology
This research is primarily based on qualitative methods of data collection and analysis.
Gaps and issues arising from RA 7160 concerning land use planning, zoning and local
environmental management were identified through key informant interviews. A case
study approach of Marikina City, which is seen as one of the most affected cities in the
Philippines from typhoons, flooding, and earthquake hazards, highlights the identified
issues and challenges of a decentralised system. The study also proposes interventions
to address these gaps through practices as well as information gathered from relevant
literatures, interviews and the use of Geographic Information System.
Incorporated in the research methodology are non-probability sampling techniques
like convenience interviews and dialogues with relevant stakeholders who have
demonstrable knowledge and experience in Land Use Planning and Zoning in the case
study area. One-on-one conversations and exchanges of emails and phone calls are
utilised to solicit answers for an array of research questions prepared by the
researchers to people with institutional knowledge on the subject of study. Field visits
are also made to validate the challenges and issues of the study area. From the data and
information, the researchers then process, analyse, identify, and recommend an array
of policies required to complement the current institutional arrangement, including a
discussion of local/city co-management approaches, mechanisms and framework for
local environmental planning and management.
Results and Discussions
Local Environmental Planning in the Philippines
In order to tackle local environmental problems in a more sustainable manner, the

Philippine government has sought ways to effectively decentralise environmental
management. Conversely, the decentralisation mechanism currently operating in the
country evokes both enthusiasm and apprehension from the local and city governments
(World Bank 2001). Devolution of power from the national level to LGUs offers the
opportunity to tackle local problems in a more sustainable manner, but the transition of
responsibilities, the policies and procedures of implementation have been complex,
uncertain, and fragmented. The national government that has operated with supervi-
sory and recommendatory powers through National Government Agencies (NGAs)
has found it difficult to support local-level democratisation. This process, according to a
World Bank study (2001) requires strong local government institutions, flexible
administrative instruments, effective participatory strategies, and empowered local
officials and communities.
But whether the direction towards decentralisation paves the way to more sus-
tainable resource utilisation or invites serious ecological degradation will depend
much on the extent of whether decentralisation goes forward with or without
adequate capacity building, environmental legislations, and willingness to enforce
them (Jeppesen et al. 2006). One grand opportunity created by the devolution
progression is the increased proximity of environmental and other decision-making
processes to the affected communities and the potential to improve local account-
ability and integrated planning (World Bank 2001). Yet, environmental issues often
cross not only sectors but also jurisdictional responsibilities (Gibson and Lehoucq
2003). Systems of higher level institutions, such as provincial/national treaties,
river-basin or watershed management agencies, inter-community and municipal
associations may be needed to adequately address environmental issues that LGUs
are not willing or able to tackle (Coppola 2011).
Land Use and Local Environmental Planning

and Management in Metro Manila
Metro Manila is a political entity created under Presidential Decree No. 824 with a
governing charter posing as a major national growth center in the country (MMDA
1999). Metro Manila is the Philippines’ National Capital Region comprising the
cities of Manila, Caloocan, Las Piñas, Makati, Malabon, Mandaluyong, Marikina,
Muntinlupa, Navotas, Parañaque, Pasay, Pasig, Quezon, San Juan, Taguig, and
Valenzuela together with the lone municipality of Pateros. The primate region of
agglomerated cities is characterised by economic, political, social, educational and
cultural attractions. Metro Manila has been experiencing rapid population growth
mainly brought about by in-migration from both the surrounding rural and urban
areas. Metro Manila’s population totaled 11,855,975 in 2010 (NSO 2010). It grows
at an annual rate of 2.12, which is higher than the growth rate of 1.873 % of the
Philippines in 2010. These numbers, however, do not completely reflect the extent
of contiguous urbanisation beyond and near the administrative boundaries of the
National Capital Region (NCR).
This population boom implies drastic land use changes that are traceable to the
dynamic influence of Metro Manila, particularly its demand for land for urban
expansion, as well as certain spatio-sectoral policies of the national government
(MMDA 2012). The creation of Metro Manila in 1975 through Presidential Decree
824 as a political entity with its own governing charter had signaled its status as the
major national growth center following the trend of centralisation that characterised
spatio-economic governance during the mid-20th century. This creation was also a
result of the world-wide trend towards metropolitanisation and metropolitan gov-
ernance which was designed to coordinate related activities in a large urban
agglomeration (Santiago 2012). Issued in 1973, a Presidential Memorandum

Circular prohibits the establishment of medium and heavy industries within a
50-km radius measured from the Rizal Monument at the heart of Manila City
(Serote 2013). Although not effectively implemented, this ban somehow con-
tributed to the location of industries outside the metropolis and towards the Laguna
Lake watershed, which the Marikina sub-watershed is part and parcel of. The
industrial dispersal policy of the government, provisions of the Urban Development
and Housing Act of 1992 regarding socialised housing, the establishment of the
Super Highways and the availability of level and low-elevation lands north and
south of Metro Manila have all contributed to the more pronounced urban devel-
opment and easy access within and outside the Metropolitan Region (Serote 2013).
The Area of Study: Case of Marikina City
Marikina City is a lush valley bounded by mountain ranges and sliced by a river.
On the east, Marikina is bounded by the Sierra Madre Mountains, on the west by
the hills of Quezon City, on the north by the town hills of San Mateo and Antipolo
City, and on the south by another hilly town of Cainta and Pasig City (Marikina
Socio-Economic Profile (SEP) 2010).
Marikina became a city when Republic Act 8223 was signed by Pres. Fidel V.
Ramos on December 6, 1996 and subsequently ratified by the people through a
plebiscite converting the same into a highly urbanised city. Presently, Marikina is a
multi-awarded urban city, often lauded for its vibrant commercial establishments,
skilled labour force, and a receptive local government.
Currently, subdivisions in Marikina are built on areas that used to be planted
with rice and mangroves. Out of approximately 11.23 km2 of marshland from 1947
to 1955, only 8 % was left by the year 1997 (ESSC 2014). Because of urbanisation,
keeping a balance between the four land use policy areas composed of Protected,
Settlement, Infrastructure and Production Areas in Marikina has been a challenge.
The environmental and land use policy direction from the national government to
decentralise local spatial development activities, specifically land use and local
urban environmental management, resulted in different issues, challenges, and
implications on the strategy and management of the city.
General Land Use Trends and Land Conversions in Marikina City
There are many lands in the Marikina Watershed Region that have been declared as
protected Comprehensive Agrarian Reform Program (CARP) lands; however, the
provisions of the Local Government Code (RA 7160) and the implementing rules
and regulations of the Comprehensive Agrarian Reform Law (CARL or RA 6657),
such as Department of Agrarian Reform Administrative Order Nos. 1, 2 and 12,
allow land conversions particularly if the existing use of the land is no longer
economically viable in the midst of urban development in its vicinity. And if the
land conversion procedure is deemed too tedious or difficult by developers, they
resort to illegal and uncontrolled conversions (Serote 2013).
There is also the problem of conversion of forest areas—those above 18 and 50 %
in slope based on Presidential Decree 705 or the Revised Forestry Code, should not be
converted and must be kept under production forest and protection forest zone (Delos
Reyes 2014). These lands, although ecologically fragile as watershed areas, are
attractive particularly to subdivision developers as they offer vista or beautiful scenery
to buyers. This malpractice is seen in the foothills of the Sierra Madre Mountains in
Rodriguez, San Mateo, Antipolo, Angono, and Binangonan. It is further encouraged
by Presidential Proclamation No. 1637 that created the Lungsod Silangan Townsite
Reservation Areas where urban development on steep slopes is still allowed since the
law is still in effect in contradiction to other pieces of legislation that protect the steep
slopes of the sub-watersheds. The forest denudation of the Sierra Madre foothills
brought about by settlement development as well as by mining, shifting cultivation
and illegal logging is a major cause of the perennial flooding experienced by Metro
Manila and in particular, the City of Marikina (Buenaventura 2013).
In the 1920s, land parcels near Marikina River were still devoid of informal
settlers and used as access areas by the fishermen (Marikina SEP 2010). Not long
thereafter, however, settlers slowly encroached on the riverbank areas and in the
process alarmed the government to the point that it had to issue a law that stopped
the titling of lands near the river. Although riverbanks as part of the public domain
cannot be titled by law, it is difficult to extricate informal settlers who think they
have a right to the use of strategically located land after a long occupancy period.
Land Use Allocations in Marikina City
Marikina has a total land area of 2150 ha or 21.50 km2 certified by the Land
Management Bureau, which constitutes about 3.42 % of the total land area of Metro
Manila. Based on land area, the four major land uses in Marikina City are resi-
dential, industrial, Area for Priority Development (APD), and mixed use zone
(MCPDO 2013). Figure 1 shows that residential areas comprise the single largest
land use in the city, accounting for 37.82 % of the total land area. Industrial, APD,
mixed use zone and commercial uses rank next at 13.05, 8.33, 7.22 and 6.17 %
respectively. Roads also occupy a significant 373.80 ha of the city’s land area. The
rest of the city is shared by socialised housing and institutional uses, open
spaces/parks/recreation, cemetery and cultural heritage areas.
The existing land use trends in Marikina reflect changes that basically rely on the
performance and activities of the services and industries in and out of the city
(Marikina CLUP 2010). Land values are increasing, and given the limited supply of
undeveloped land in Marikina, an increasing trend in land densification as well as
partnership with other nearby cities for land development and maximisation is seen.
Conversion from residential to multi-use is also a land use trend, in addition to a
Fig. 1 Existing Marikina City land use plan. Source Marikina City Development Authority—
Planning Office
decrease of open space areas and an increase in commercial and industrial uses
(Marikina CLUP 2010).
Urban Environmental Quality and Services in Marikina City
Currently, Marikina City’s main urban environmental focus is on waste manage-

ment. This has constantly been addressed by the city through practical strategies.
Proof of this are the numerous environmental awards conferred on the city and the
many local ordinances enacted. The following summarises the inventory of their
local environmental policy (Table 1).
Initiatives and projects on monitoring and evaluation of land, water quality and
air pollution have only been recently started (Marikina CEMO 2013). The overall
water quality of the Marikina River has deteriorated over the years. During the 70s,
the water quality of Marikina River was classified as Class A (appropriate for water
supply with complete treatment) but this dropped to Class C (good for fishery and
Table 1 Local environmental ordinances of Marikina City

City Series/year Description
ordinance enacted
Ordinance s. 1994 Prohibits the improper disposal of garbage
no. 135
Ordinance s. 2002 Also known as “Anti-littering Code of Marikina,” charges
no. 073 violators with a fine of Php500
Ordinance s. 2000 Prohibits the burning of garbage within Marikina City
no. 201
Ordinance s. 2004 Prohibits scavengers, with or without push carts to interfere in
no. 120 garbage collection or to follow garbage trucks for the purpose
of taking any item or material therefrom or taking any item or
materials from any household or commercial garbage vehicle
collected by the city garbage truck
Ordinance s. 1994 Requires all residential and commercial establishments in
no. 210 Marikina City to clean their surroundings
Ordinance s. 2002 Requires segregation at source of all garbage into wet or
no. 046 biodegradable and dry or non-biodegradable
Ordinance s. 2001 Impose charges for special garbage collection service or special
no. 233 trips within Marikina City
Ordinance s. 2001 Requires all business establishments in Marikina City to
no. 242 undergo an annual waste management seminar prior to issue of
a business license
Source Marikina CEMO (2013)
recreational purposes) during the 90s. Still, the overall water quality of Marikina
River is much better compared to all the other river systems in Metro Manila.
According to Marikina CEMO (2013), it is the only biologically alive river in the
whole of Metro Manila today.
No data on air quality measurements are available for Marikina City although
manufacturing industries may be initially attracted by a permissive attitude towards
air pollution control. Retrofitting dirty industry with control devices after com-
pletion is usually uneconomical compared to designing state-of-the-art pollution
control during initial construction. All industries that involve combustion are
sources of combustion-derived pollutants, such as soot, fly ash, carbon monoxide
and nitrogen oxides (LLDA 2010). The city has launched a programme “Dust-Free
Marikina—A Healthy City with Clean Air Program” which aims to support the
national government in pursuit of the Clean Air Act (Marikina SEP 2010).
Major Risks Vis-à-Vis Land Use and Local Environmental Planning

and Management in Marikina City
Flooding
The flooding and accompanying destruction brought about by the recent typhoons in
Marikina are indeed a wake-up call for local government and agencies concerned to
anticipate and prepare for similar hazardous events in the future (MCDRRMO 2013).
One significant undesirable effect of these flooding events was the displacement of
hundreds of households in the informal settlement areas in Marikina City. The
flood-displaced households were mostly on the riverbank areas which are the shallow
portions of the city. The land uses in these areas are predominantly agricultural,
followed by residential, industrial and commercial uses. The remaining portions are
marshes and swamps. The area is marked by a high susceptibility to flooding. Its
attractiveness to a myriad of uses seriously calls for a planning intervention.
There are of course a number of significant anthropogenic causes with regard to the
abnormal flooding that transpired around the riverbanks. These are the following:
1. the rampant denudation of the forest areas in the large Marikina watershed
particularly in adjacent cities and municipalities of Marikina City and in the
other sub-watersheds surrounding the lake;
2. siltation and dumping of solid waste into rivers, esteros (swamps), canals,
drainage pipes, and other waterways;
3. non-observance of open easements along rivers and other waterways;
4. poor maintenance and use of engineering flood control structures such as the
Napindan Hydraulic Control Structure and the Manggahan Floodway in the
catchment area, which crossover multiple cities and municipalities; and
5. unregulated subdivision and other real estate developments on steep slopes
within and on outlying sub-watersheds.
Figure 2 shows the flood risk assessment of Marikina City by the Department of
Science and Technology in 2009 through Project “Nationwide Operational
Assessment of Hazards” or Project (Project NOAH). It shows that approximately
80 % of the municipality is at medium-high risk to flooding. It further shows the
crossing of geographic and administrative boundaries of the flooding hazard.
Earthquakes
The Philippines sits on the “Ring of Fire” which is an area where a large number of
earthquakes and volcanic eruptions occur across the Pacific Ocean basin. Earthquakes
are frequently felt over most parts of the country because of the geologic and tectonic
conditions responsible for the present configuration of the archipelago.
One of the faultlines in the Philippines is the Marikina Valley Faultline System
as shown in Fig. 3. The faultline system consists of two northeast-trending struc-
tures that border the Marikina Valley. On the west is the West Marikina Valley
Fault and on the east, the East Marikina Valley Fault.
The East Marikina Valley Fault segment runs for 38 km across Marikina from
Rodriguez to Antipolo, but Landsat imagery suggests that it extends further to the
northeast (Marikina SEP 2010). On the other hand, the trace of West Marikina
Valley Fault segment is mapped at 23 km long. It stretches from Rodriguez town in
the north and runs through Quezon City down to Pasig City. Due to present day
housing and real estate development, geologists cannot fully define the continuity
of the said fault across Marikina City.
Fig. 2 Flood risk assessment of Marikina City. Source Department of Science and Technology—
Project NOAH 2009
Both faults have been reported to show activity after a record of no movement
for the last 200 years (Marikina SEP 2010). The system of faultlines is seen as one
of the identified major risks in the city that transcends political boundary.
Implications of Decentralisation on Environmental Planning

and Management in Marikina City
Talking about decentralisation in the context of Environmental Planning and

Management requires an in-depth understanding and analysis of the different offices
that have a direct mandate in relation to the environment. Those that are indirectly
related to it but play a big role in shaping the environmental processes must like-
wise be studied. In this research, devolution scenarios from Marikina City
Environmental Management Office, Marikina City Development Authority—
Planning Office, Marikina Settlements Office, and Marikina City Disaster Risk
Reduction and Management Office are examined.
Fig. 3 Marikina valley fault line system. Source Marikina City Development Authority—
Planning Office
Devolution of Environmental Planning and Management

in Marikina City
Marikina City Local Government is in the process of updating their Comprehensive

Development Plan (CDP) including their Comprehensive Land Use Plan (CLUP).
In this mandated plan, LGUs are required to include a chapter/sector on local
environmental management. During this updating process, the City coordinates
with national environmental agencies, namely the Department of Environment and
Natural Resource (DENR) particularly its line agencies, namely, the Laguna Lake
Development Authority (LLDA), and the Environmental Management Bureau
(EMB), to address technical capacity building, training and skills needed to update
the environmental management section of the CLUP as provided for by the law to
have a multi-stakeholder engagement.
Prior to Local Government Code of 1991, the City of Marikina has long prac-
ticed solid waste management as a basic service. With the passing of the Philippine
Clean Air Act of 1999 (RA 8749) and the Philippine Clean Water Act of 2004 (RA
9275) came the City’s realisation that environmental management did not pertain to
solid waste management alone. In relation to the need to include air quality and
water quality management plans, the City Environmental Management Office
recognises that technical capacity and skills training are needed to conduct research
on the state of local environmental management especially those that pertain to air
and water quality. The current practice however, involves regular consultation with
the National Government Agencies such as the DENR, LLDA, and EMB in order to
appropriate research and equipment that will help the City determine the state of its
environmental quality given the local government’s limited capacity.
According to the head of the City Environmental Management Office, the
decentralisation of power for the local government through the creation of the
Environment and Natural Resource Office (ENRO) has contributed to addressing
environmental concerns at the local level in a more structured way. The caveat to
this approach is that the devolution of power and responsibility to address envi-
ronmental concerns is beneficial only to those cities with existing institutional and
technical capacities in undertaking environmental management and planning.
To improve on the devolution of powers in environmental management, the
responsibilities of the LGUs should be clearly defined. There is a need to identify
and assess local issues and needs to direct plans, programmes and projects in
response thereto.
Ecological Solid Waste Management Act of 2000 (RA 9003) and City
Environmental Planning and Management Practices
Marikina City was able to submit their mandated Ecological Solid Waste
Management Plan in 2009. The City spent two to three years preparing the said plan
due to the lack of institutional and technical capacity. One of the pitfalls of RA
9003 is the fact that the people involved in passing the law did not have direct
involvement with its implementation. RA 9003 was focused on NGOs and advo-
cacy groups to proliferate practices on recycling as the frontrunner in solid waste
management. However, environmental management does not pertain to solid waste
management alone, and the absence of a holistic and integrated approach in
addressing environmental concerns, together with ineffective institutional capacities
and advancing technologies, calls for the law to be amended.
Marikina City recognises the need to coordinate plans and policies in environ-
mental management together with practices of neighbouring cities and provinces in
providing a holistic approach in addressing environmental concerns. The City
Environment Management Office is currently preparing its environmental protec-
tion code that is targeted for completion in the last quarter of 2014.
Issues and Concerns on Local Environmental Management
Several issues and concerns have surfaced from the devolution of environmental
planning and management. What follows are the key issues learned from the
Marikina City Environmental Management Office (CEMO):
Institutional Capacity and Linkages in Environmental Management
There is a need to standardise and capacitate local governments on the termi-
nologies of local environmental planning and management. The biggest challenge
of environmental offices in the Philippines is going beyond thinking that solid waste
management is equal to environmental management. There are also several
opportunities from international development and funding agencies for capacity
building and technical training in environmental management practices in the city,
however these invitations are not fully extended to those working in the local
environmental management praxis. Further, internationally funded technical train-
ing and capacity building have evolved into a “reward-system” in local government
sectors that often overlook the objective of the programme. Grants to these kinds of
programmes remain at the discretion of National Government Agencies (NGAs)
and higher ranked local officers. Moreover, several financing grants come in the
guise of capacity building and technical skills training. The caveat to these grants
involves purchasing technology that is attractive but impractical to local needs.
Executive and legislative supports are needed in the practice of environmental
management but the functions and the existence of the CEMO remain at the dis-
cretion of the City’s Executive branch. One issue with passing national environ-
mental laws is the gap from national law to local implementation. Marikina City
translates national laws to local ordinances as a means of tailoring the implemen-
tation and monitoring processes to fit needs and concerns at the city level. However,
this may not be applicable to cities with a low level technical capacity. There are
also duplications in the functions of NGAs in charge of the administration of water
bodies; e.g. the Pasig River which runs across several contiguous cities in the
Marikina catchment basin. These agencies include the Laguna Lake Development
Authority, Metro Manila Development Authority, and the Pasig River
Rehabilitation Commission (PRRC).
Cases where some projects and programmes of NGAs that have no defined ends
and concrete impacts are also seen. One example is the PRRC donation of six
densifier machines to Marikina City in May 2013. These machines are able to
transform plastic and styrofoam materials into pavement blocks, however, the
machines received were incomplete, and could thus not be used.
Further, policies requiring consistent reporting and compliance of mandated
plans with NGAs do not exist. At the local level, there are no legally binding
policies that require barangays, the smallest unit of government in the Philippines,
to report environmental concerns to the city. Likewise, these barangays are not
accountable to the CEMO in terms of environmental issues and sanctions.
Barangays are under the jurisdiction of another National Government Agency
which is the Department of Interior and Local Government.
One year after Tropical Storm Ketsana hit the Philippines in 2009, efforts to link
with local governments have been spearheaded by Marikina Mayor Del R. de
Guzman, through the initiation of the regional planning body called the “Alliance of
7”. The storm severely affected the seven cities and municipalities namely: the
Cities of Marikina, Pasig, Antipolo, and Quezon, and the Municipalities of Cainta,
Rodriguez and San Mateo. The alliance also partners with neighbouring provinces
to streamline efforts on environmental management and hazard prevention.
However, at present, there seems to be no coordination between the City
Environmental Management Office (CEMO) and the Alliance of 7.
Technical Capacity and Monitoring in Environmental Management
The need for technical capacity building for CEMO employees in terms of air,
water, and solid waste management and monitoring in the city is crucial. With the
right executive and legislative support, environmental programmes can be imple-
mented successfully in Marikina City. However, at present, the city still needs the
right equipment and technical knowledge to monitor air and water quality in
addressing pollution. The CEMO is actively monitoring establishments within the
city by coordinating with NGAs through the Environmental Management Bureau
(EMB) and Laguna Lake Development Authority (LLDA) of the Department of
Environment and Natural Resources (DENR), specifically in the issuance of
Environmental Compliance Certificates (ECCs). However, mediations on the dis-
crepancies in the locality are not solved at the local level. They are instead auto-
matically reported to the National Government Agency, the DENR-EMB for
necessary action. The inconsistency and time lag in communication with the
CEMO, EMB, and LLDA add to the challenge in monitoring and evaluation. The
response time for EMB is immediate, but for LLDA, the response period is an
average of 30 days.
Devolution of Land Use Planning and Management

in Marikina City
The Marikina City Development Authority, Planning Office functions to supervise

the secretariat of the Local Development Council (LDC) or the legislative, which is
comprised of the Sanggunian (Council), the Executive as the technical working
group, as well as Civil Society Organisations and accredited Non-Government
Organisations. Marikina City practices a bottom-up participatory planning approach
wherein sectoral studies are conducted in order to better understand and assess the
needs of each local development sector toward a Comprehensive Development Plan
(CDP). The Annual Investment Programming then gathers priority projects listed in
the CDP, under the prerogative of the Executive. The City Planning Office docu-
ments, consolidates, and integrates the plans and programmes presented by the
LDC.
Local Land Use Planning in Marikina City
Marikina has strict implementation and monitoring of zoning ordinances, the

implementing tool of the Comprehensive Land Use Plan. The Planning Office and
the City Engineering Office ensure that the zoning is followed within the city.
Having learned valuable experiences in incorporating land use policies and Disaster
Risk Reduction/Climate Change Adaptation practices from Typhoon Ketsana,
Marikina City is now more aware and equipped to identify vulnerable areas. The
use of Geographic Information Systems is instrumental in identifying flood prone
and other high-risk areas. Moreover, the Marikina has developed a system for early
warning signals and evacuation measures at the barangay level. These plans and
programmes function in coordination with National Government projects like the
Nationwide Operational Assessment of Hazards or Project NOAH, the Department
of Science and Technology’s response to the call of the executive branch for a more
accurate, integrated, and responsive disaster prevention and mitigation system in
high-risk areas throughout the Philippines.
Issues and Concerns on Land Use Planning
Decentralisation of LGUs focuses planning on administrative boundaries alone. It is
noted that policies of neighbouring cities and municipalities significantly affect
environmental management in Marikina City. Similarly, the City’s efforts to enact
laws and policies to safeguard the land from hazards are threatened by conflicting
land uses from adjacent areas. Since Marikina City does not have jurisdiction to
monitor conflicting land uses with neighbouring areas, solid waste for example,
from upland areas, flows down to the City, which is a catch basin. Flash floods are
also a problem in the catchment area, and flood waters from nearby cities would
devastate down to the city of Marikina.
Information from NGAs, like the Philippine Institute of Volcanology and

Seismology (PHIVOLCS) of the Department of Science and Technology, have data
on faultlines and related hazards, but they are not validated and identified on the
actual location of the faults on the ground due to lack of communication. In addition
to this, continued coordination among the cities and municipality that comprise
Metro Manila proves to be a challenge.
The devolution of responsibilities in the Planning Office has helped focus the
sectoral concerns of the City with other respective local agencies. The function of
the City Planning Office focuses more on assisting the Local Development Council
in documenting plans, programmes and projects of the City, however data sub-
missions from local divisions as input to the plans need improvement.
Devolution of Settlement Planning and Management

in Marikina City
The Marikina Settlements Office functions as an administrator in charge of opera-

tions related to census surveys, evacuation, demolition, and relocation (MSO 2013).
They also ensure that basic services like electricity, water and sanitation are provided
to its residents, in addition to land management, negotiations and preparation of
reports pertinent to the Community Mortgage Program (CMP) including the con-
version of Emergency Relocation Centers to Permanent Settlement Sites. These
functions indirectly play a role in the management of the city’s urban planning and
management.
The City of Marikina has several informal settlement areas and has currently 245
listed community organisations. The city government plans to relocate its informal
settlement families (ISFs) to either on-site or off-site locations giving priority to
people living in dangerous areas: those near river easements affected by local
government projects. On-site locations are carried out through CMP wherein ISFs
become legal settlers on-site, with LGU’s help in providing assistance and subsidy
for land acquisition and ownership.
Issues and Concerns on Informal Settlement Planning
Flooding is the city’s number one environmental concern on its informal settlement
sites located along major riverbanks. These are the first areas affected with a sudden
rise in water levels from the Marikina River during monsoon and typhoon seasons.
Other sites that are far from the river easement are still at moderate-high risk
because Marikina is a catchment basin and a natural flood plain. A national law, the
Water Code of the Philippines, mandates urban areas a clearance of 3-m easements
on water bodies such as rivers and lakes, but this was not fully implemented in the
city because of existing titled lands on river embankments. The titling of lands of
public easements is a political issue that has yet to be resolved between national and
local governments.
The city has a monitoring team in coordination with the Marikina Police that
travels from time to time in the locality to control the illegal construction over river
easements. However, land disputes arise because some community associations
build structures without approved plans from the city council. These associations
construct houses without due consideration of approved building codes and site
development plans specifically on the laying out of utilities, access, and road sys-
tems. Re-blocking proves to be a challenge for the city when formalising and
implementing correct measurements and designs of these settlements. Encroachment
among contiguous barangays is also a major concern for the local government.
Furthermore, the city lacks the necessary expertise in physically upgrading
communities which have lost their infrastructure division due to budget cuts.
Presently, it endorses infrastructure settlement concerns to the Engineering Division
which also has its own priority projects.
Devolution of Disaster Risk Reduction and Management

in Marikina City
The Disaster Risk Reduction and Management Office (DRRMO) is responsible for
setting the direction, development, implementation and coordination of disaster risk
reduction and management programmes within the City. The City is currently
updating their Comprehensive Land Use Plan (CLUP) to integrate Disaster Risk
Reduction and Climate Change Awareness (DRR/CCA). Apart from the Planning
Office, the DRRMO also has a Research and Planning Office which consolidates
papers and data for local and inter-LGU planning.
Recognising that effective DRR and CCA require inter-LGU cooperation, the
regional body “Alliance of 7” held a series of planning workshops to formulate an
A7-Wide DRR programme. This comprehensive programme aims to reduce risks
and manage existing vulnerabilities intrinsic to the seven cities and municipalities.
The Alliance of 7 (A7) was formed in 2010 after contiguous LGUs within the
Marikina watershed realised that a more coordinated and integrated response to
disasters was urgently needed for shared environmental hazards. The alliance aims
at sharing knowledge and imitating best practices of individual cities albeit not
having regular and mandated meetings. Marikina acts as the lead convener and the
NGO—La Liga Policy Institute acts as the secretariat. The NGO looks for possible
sources of funds for the alliance’s projects, while the DRRMO suggests which
projects are to be funded by local sources. If a certain project benefits the alliance,
the LGUs contribute from the existing DRRM funding to pool money.
In April 2013, the “League of DRRMO” for Metro Manila under the Department
of Interior and Local Government was established for more effective coordination
between NGAs and LGUs during disasters. The president of the League is the
Quezon City DRRM officer. One benefit of having a league of DRRMO is that
efforts to provide relief assistance to evacuees from adjacent and contiguous areas
within Metro Manila are supported. Evacuation centers in the case of Marikina,
now accept non-residents during disasters and coordinate with other DRRMOs for
transfer of supply and release of evacuees during and immediately after a disaster
phase.
Issues and Concerns on Disaster Risk Reduction and Management Planning
LGUs have always shared assistance on matters of management and planning for
the environment. However, they lacked coordination and consistency, which is why
the “Alliance of 7” for example in Metro Manila, was established to intensify areas
of engagement and legalise partnerships. In the case of Marikina, the problem of
waste coming from adjacent cities that block its storm drainages and creeks
exacerbates flooding disaster in the city. This issue can hopefully be addressed once
the rolling out and institutionalisation of A7 processes and duties takes place, hence
a more programmatic and integrated institutional system is immediately warranted.
Planning and management of projects on DRRM proved to be a challenge at the
onset because the DRRM Office was only recently established through RA 10121 in
2010. The A7 further necessitates a revision in its institutional framework to include
local DRRMO for their preparedness, mitigation, and adaptation activities. Unless
an A7 mandated policy to include the local office and regular meetings can take
place, improvement is hindered.
Before the institutionalisation of RA 10121, the Calamity Fund for the LGUs
could only be used if a state of emergency had been declared. Now, the classifi-
cation has been changed to Disaster Risk Reduction and Management Fund, where
LGUs have the option to utilise 70 % of the money at any time for prevention,
mitigation and preparedness undertakings, while 30 % of the fund remains
untouchable, unless the local government declares a state of calamity. If the LGU
needs more than 70 % for prevention, mitigation and preparedness projects, it can
tap its meager LGU general funds. The national government retains approximately
60 % of the internal revenue collection with 40 % allocations to LGUs. Most
responsibilities on matters of risk management and strategies have been devolved to
the local government, and having fully devolved functions without fully devolving
funding is very difficult especially in carrying out projects and programmes for
cities and municipalities on DRRM.
Key Issues, Challenges and Opportunities

on Decentralisation and Environmental Planning
Based on the earlier discussions and taking into consideration the implications of
decentralisation to land use and environmental planning and management, the
following are the key institutional challenges and opportunities observed:
Public-Private Sector Partnerships

Encouraging heightened private sector participation through enabling environments
from both the national and the local governments are much needed. In an ideal
decentralised system, the role for the private sector can be much enhanced. Private
sector could construct and manage their system, rather than public utility. The PPP
model for decentralised systems will likely involve a myriad of small and big
companies or utilities both local and international regulated by public authorities,
greater involvement of the 3 sectors of society, i.e. public and private sectors, as
well as CSOs in adopting new approaches, and leadership from investors and
companies. An example is the construction of the sanitary landfill for solid waste
management on a built and operate transfer (BOT) scheme in order to improve
basic local services delivery.
LGU Executives Knowledge of the Law
LGU executives (mayors, vice-mayors and councilors) especially the newly elected,
should know their mandates and responsibilities stated in RA 7160. Progressive chief
executives do not wait for the national government for programmes and projects in
their areas but are actively putting up infrastructures in their municipalities/cities.
Knowledge of the law especially on the environment is however tantamount to
implementing programmes and projects having a sense of a right direction and
guidance.
National Government Support
With autonomy by LGUs on the environment, NGAs should be willing to give up
their hold on the local programmes/projects. It is a known fact that low income
municipalities have diminished manpower and resources. This is an opportunity for
the National Government Agencies to support the LGUs. A sustainable environ-
ment infrastructure will be pushed through with the backing of and working
together between national government and LGUs.
Continuous Innovation
Ongoing improvement through science and technology developed both locally and
internationally for environmental protection, conservation and management in
LGUs can be adopted. This entails new technologies for application and is some-
times more expensive and challenging than the usual way of things.
People’s Empowerment
Improved programmes and projects of a successfully decentralised LGU will work
with an empowered workforce. People empowerment is one of the best ways to
involve, recognise, establish, and reward constituents for their commitment to an
inclusive and sustainable local governance—advocating for democratic represen-
tation of the poor, marginalised and vulnerable sector—without an elitist and
patronage-driven system and character.
Lessons Learnt from Decentralisation and Local

Environmental Planning and Management
Issues, challenges and opportunities arise from the devolution of Environmental

Planning and Management, Land Use Planning, Settlement Planning and Disaster
Risk Reduction and Management in the City of Marikina, Philippines. Although
Marikina City has been exhibiting and showcasing good environmental planning
and governance these past years, some improvements are necessary for the bet-
terment of the City. These warrant policies and actions to solve or at least minimize
the problems highlighted from the previous sections and to address policy gaps in
RA 7160 in the context of development planning. The study enumerates and sets
them out through the following specific lessons:
1. Revisit the integrated area development (IAD) approach in planning that takes
into account the merger of various sectors that include environmental/ecological
services, i.e. climate change, biodiversity conservation, cultural preservation,
DRRM, etc. This approach affords an opportunity to look at various issues
within the framework of sustainable development that deals with the complex
resource use conflicts that usually arise during planning and implementation
regimes.
2. The current practice of local planning paves the way for exclusion of other
stakeholders within the regional planning arena. Forest areas, watersheds, major
rivers and bodies of water and other ecosystem resources are often inhabited,
encroached upon or left unattended due to issues surrounding administrative/
political jurisdiction. It therefore becomes imperative to strengthen regional
and/ or ecosystems–based planning to address common issues pertaining to the
planning and management of such rich and diverse environmental resources
enhancing its services (provisioning, regulating, cultural and supporting).
3. Legislate regional development plans to guarantee continuity of plan imple-
mentation with specific provisions for mid-year review and evaluation.
4. Depoliticise the planning process by putting up a parallel structure independent
from the Office of the Local Chief Executive.
5. Rationalise the oversight function of national government agencies over the
local governments, particularly as regards development/environmental planning
and management. In the case of Marikina, several agencies have been found to
exercise oversight functions over the city given its strategic location at the
center of the metropolis. At least 5 national and regional government sections
require the same reports at varying frequency from the research study area.
Most local government units require on an average 30 local plans from the
various national government agencies as mandated by national policies, pro-
grammes and projects.
6. Implement a continuing national in-service training and capacity development
interventions for local planning officers and employees to respond to the
dynamic character and nature of purposive development planning.
7. Provide adequate financial resources to the knowledge development and

management by establishing databases at the local level and not merely depend
on national and regional averages.
8. Provide local government units certain degrees of flexibility to design and
implement financial instruments to raise significant resources to support their local
development through bond flotation and reduce dependence on national treasury.
9. Prioritise investments in national infrastructure and transport programmes with
due consideration to regional/local needs based on sustainable indigenous
knowledge, systems and practices.
10 Implement existing environmental laws to bring about developmental services
at the local level. This is a very important role for all stakeholders with the local
chief executive taking the lead role.
Acknowledgement We would like to thank the City Government of Marikina for its assistance
with this study. In particular, we extend our gratitude to Marikina Mayor Del De Guzman,
Marikina CEMO Officer Gloria Buenaventura, Marikina City Planners Rosalie Santiago and
Nerlisa Palomar, Marikina Public Services Foreman Philip Robredo and Marikina DRRMO Head
Kristin Roxas who shared with us their extensive knowledge on local decentralisation, land use and
environmental management practices, disaster preparedness, mitigation, and response, and on local
governance. Likewise, special thanks to Dr. Manuel R. Morga for the comments and suggestions for
the betterment of the manuscript. In addition, we extend our thanks to Ms. Maria Concepcion F.
Garcia and Mr. Jose Bernardo B. Gochoco III for documenting the survey in Marikina City; and to
the UP Planning and Development Research Foundation, Inc. for funding this research.
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Assessing the Effectiveness
of the Decentralisation Policy on Disaster
Risk Reduction and Management:
The Case of Hagonoy, Bulacan, Philippines
Kristine Follosco-Aspiras and Arlene D.R. Santiago
Abstract The Local Government Code of 1991 significantly manoeuvered the

structure of governance in the Philippine local governments through decentralisa-
tion. As disaster risks and its impacts are experienced locally, the proactive under-
takings of and inputs from the municipalities, cities and the barangays call for the
complementary integrative role of the regions and provinces, and the harmonisation
of efforts following the policy directions of the national government. This paper
presents a brief overview of the Philippines’ experience on decentralisation and
highlights some of the salient features of disaster risk reduction and management
(DRRM) vis-à-vis decentralisation thru a case study in the Municipality of Hagonoy
in the Province of Bulacan. It also cites the issues and challenges confronted by the
local government units (LGU) in planning for and managing of disasters. Lastly, it
recommends improvements in the planning and administrative systems in order to
attain an effective DRRM system/mechanism.
Problem Statement, Rationale and Research Objectives
More than two decades ago, the Philippines embarked on a massive decentralisation
undertaking through the enactment of the Local Government Code (LGC) of 1991
in response to the demand for genuine democracy through active and meaningful
participation in governance. It aimed at enabling the government to go down to its
clientele: the people themselves; and, by so doing becoming responsive to the
K. Follosco-Aspiras (&) A.D.R. Santiago

Training and Extension Services Division, School of Urban
and Regional Planning (UP-SURP), University of the Philippines,
Diliman, Quezon City, Philippines
e-mail: kristine_follosco@yahoo.com
A.D.R. Santiago
e-mail: adrsantiago@yahoo.com

132 K. Follosco-Aspiras and A.D.R. Santiago
actual and urgent needs of the citizenry. Today, decentralisation remains a mantra in
pursuing the effective implementation of development plans and programmes.
Amidst changing environmental conditions and its disastrous effects, this research
posits that a decentralised form of government has also proved valuable in the
confrontation of a newly perceived challenge: the country’s disaster risk reduction
and management (DRRM) efforts.
As defined by the United Nations International Strategy for Disaster Reduction
(UNISDR), disaster risk reduction (DRR) refers to “any action taken to reduce the
risk of disasters and the adverse impact of natural hazards, through systematic
efforts to analyse and manage the causes of disasters through avoidance of hazards,
reduced social and economic vulnerability to hazards, and improved preparedness
for adverse events” (2008). Likewise, Republic Act (RA) 10121, otherwise known
as the “Philippine Disaster Risk Reduction and Management Act of 2010”, offers
the following definition: “the systematic process of using administrative directives,
organizations, and operational skills and capacities to implement strategies, policies
and improved coping capacities in order to lessen the adverse impacts of hazards
and the possibility of disaster”.
Although there are opposing views in literature on how to go about DRRM, that
is, whether to adopt a top-down or bottom-up approach, there is consensus that
governments should lead in the design and implementation of comprehensive
DRRM systems (Scott and Tarazona 2011). Whichever way, the fact remains that
disaster risks and their impacts are experienced locally—individually, and as a
community. Hence, mitigation, preparedness, response and rehabilitation should
call for, principally, the proactive undertakings of and inputs from the municipal-
ities and cities as well as the barangays (smallest political-administrative unit). This
should be complemented by the integrative role of the regions and provinces, and
the harmonisation of efforts following the policy directions of the national
government.
In light of this, the following are the objectives of this paper:
1. To provide a brief overview of the country’s experience on decentralisation;
2. To assess the effectiveness of a decentralised framework of governance vis-à-vis
disaster risk reduction planning and management efforts of Hagonoy, Bulacan;
3. To cite the issues and challenges confronted by the local government unit
(LGU) in planning for and managing disasters; and
4. To recommend improvements in the planning and administrative systems in
order to attain an effective DRRM system or mechanism.
The paper is organised so as to fulfil its objectives. In assessing the effectiveness
of the decentralisation policy, vis-a-vis DRRM, this study first looks into some of
the salient features of DRRM. Secondly, it explains theoretically how these can be
realised or strengthened through the enabling elements of the decentralisation
policy of the country as stipulated in the Local Government Code of the
Philippines. Lastly, these theoretical assumptions are validated through the actual
experiences of the municipality of Hagonoy in the province of Bulacan.
Assessing the Effectiveness of the Decentralisation Policy … 133
Materials and Methods
Focus and Key Assumptions
A similar study on the relationship of decentralisation and disaster risk reduction

and management was conducted in 2011 by the United Nations Development
Programme (UNDP) as its contribution to the Global Assessment Report on
Disaster Risk Reduction. The “Study on Disaster Risk Reduction, Decentralization
and Political Economy” looked at how decentralisation can improve DRR by
looking into the following areas: capacity, funding, participation, accountability and
enforcement, location of decision, and communication and coordination (Scott and
Tarazona 2011). It conducted field research in four countries: Colombia, Indonesia,
Mozambique and South Africa (Scott and Tarazona 2011).
Moreover, the Asian Disaster Preparedness Center (ADPC) and the United
States Agency for International Development (USAID), in the “Primer on Disaster
Risk Management in Asia”, advocate multi-level, multi-hazard, multi-sector,
multi-phase and multi-stakeholder approaches to disaster risk reduction. The primer
states that DRR, from preparedness, mitigation, response and recovery, must
involve both the national and sub-national levels of government, non-government
organisations (NGOs), community groups and private sector. In addition, it should
cover all types of hazards like flood, cyclone, earthquake, landslide, fire and vol-
canic eruptions; and must consider all sectoral concerns (ADPC 2005).
Furthermore, the United Nations Office for Disaster Risk Reduction (UNISDR),
in “Words into Action: A Guide for Implementing the Hyogo Framework” laid
down a set of guiding principles for effective implementation of disaster risk
reduction. These include the following: the State at the forefront of DRR; inte-
gration of DRR into development activities; the necessity of a multi-hazard
approach; capacity development as a central strategy; decentralised responsibility;
community participation; and customised to particular setting (UNISDR 2007).
Lastly, the Philippine DRRM Law (RA 10121) adopts an approach that is
“holistic, comprehensive, integrated, and proactive in lessening the socioeconomic
and environmental impacts of disasters including climate change, and promote(s)
the involvement and participation of all sectors and all stakeholders concerned, at
all levels, especially the local community” (Section 2d).
Based on the foregoing, the present research focuses on three (3) salient features
of DRRM, namely:
(a) Participation of all stakeholders;
(b) Harmonisation of efforts; and
(c) Capacity building.
Figure 1 illustrates the relationship between decentralisation and DRRM. This
research will expound on how decentralisation strengthens these key features as
also reflected in the Philippine DRRM law. Furthermore, the study rests on the
following assumptions:
DRRM
- Participation
Decentralisation
- Harmonisation
- Capacity building
Fig. 1 Relationship between decentralisation and DRRM (Philippine context). Source Own
construct
• Decentralisation promotes participation.

• Decentralisation establishes safeguards to ensure harmonisation of policies.
• Decentralisation builds local capacities.
Methodology and Sources
Initially, literature on decentralisation and its development process in the

Philippines had been consulted in order to outline the country’s decentralisation
experience and its impact on development planning. Other related documents and
articles on governance, disaster management and community participation were
also reviewed to see the impact of decentralisation in the Philippine context.
A review of Republic Act 7160 (RA 7160) or the Local Government Code, as well
as RA 10121, or the Philippine Law on DRRM, had also been carried out in order
to establish how effective DRRM planning and management through the support of
a decentralised government framework could be effected.
In addition, a series of key informant interviews and focus group discussions
were conducted on the provincial, municipal and barangay levels to gather first
hand information from the local executives and officials involved in decision
making and implementation efforts in the study area. Also interviewed were
stakeholders and volunteers involved in the actual disaster response activity of the
LGU. A list of the interviewed stakeholders will be found in the References section.
During the field visits, the research team was able to retrieve copies of docu-
ments such as the Bulacan Provincial Disaster Risk Reduction Management Plan
(PDRRMP) and the Municipal Comprehensive Land Use Plan (CLUP) of Hagonoy.
The Bulacan PDRRM Office (PDRRMO) also provided the team with copies of the
Fund Utilization Schedule of the PDRRMO and Minutes of the Meeting of its
Technical Working Group (TWG).
Among those who participated in the focus group discussions were barangay
officials and volunteer-residents of Barangay San Agustin in Hagonoy, Bulacan
(Fig. 2).
Fig. 2 Location of the Province of Bulacan in the Philippines. Source Bulacan Philippines (2015)
Study Area
Hagonoy is classified as a first class municipality—with an average annual income

of fifty five million pesos or higher (Department of Finance 2008)—located at the
southwest corner of the province of Bulacan. It is approximately 54 km from Metro
Manila or about an hour and a half drive. It has a total land area of 103.10 km2 or
10,272.83 ha and is divided into 26 urban barangays (Fig. 3).
This urban municipality is populated by 125,689 inhabitants (National Statistics
Office 2010) who are primarily engaged in the fishing industry.
The existing land use distribution (2004) of Hagonoy, Bulacan is reflected in
Table 1.
Hagonoy is chosen as the case study area for the following reasons. First, it is a
low-lying area where flooding is a perennial problem. This is exacerbated by the
fact that the municipality is said to be “sinking” due to ground subsidence as
discovered in a study conducted by Bulacan Environment and Natural Resources
Office (BENRO). Another concern is the damage that Hagonoy may suffer in the
event of the Angat Dam collapsing. The said dam is under consideration for
rehabilitation given that it is almost 50 years old. Moreover, the provincial
Fig. 3 Administrative map of Hagonoy, Bulacan. Source Municipality of Hagonoy 2015
government and other concerned agencies in the province are aware of and con-
cerned about these conditions that it will ensure the effective operation of its
Community-Based Flood Mitigation and Management Program (CBFMMP) to
realise a ‘flood disaster-resilient and disaster prepared’ constituency of Bulacan.
Lastly, Hagonoy partners with community or local groups and/or organisations to
extend help and facilitate flood-resilient programmes and projects. It also involves a
system composed of monitoring stations and communication networks to respond
to flood-risks.
Table 1 Hagonoy’s existing land distribution (2004)

Land use (2004) Areas Percent distribution
(ha) (%)
Residential 668.59 6.51
Agricultural 1411.6 13.74
Commercial/industrial 12.24 0.12
Institutionala 5.68 0.06
Open space (cemeteries, parks, roads, rivers, creeks, 770.35 7.50
etc.)
Mangrove 137.30 13.4
Fishponds 7267.13 70.74
Total 10,272.83 100
Source Municipality of Hagonoy
a
Institutional zone is an area within a municipality principally for general types of institutional
establishments e.g. government offices, schools, hospitals, academic institutions, convention
centres, etc. (Housing and Land Use Regulatory Board, n.d.)
Discussion
On Decentralisation
Overview of the Philippines’ Experience on Decentralisation
Decentralisation in the Philippines was brought about by the clamour for good
governance soon after the country experienced the end of martial rule. As the
government tried to strengthen its democracy, the focus on participation had
become inevitable. In 1991, the Local Government Code (LGC, Republic Act
7160) was passed and put into effect the following year for all local government
units in the country to adhere to. The key focus of the LGC was to strengthen the
capacity of local government units to become more effective partners of the national
government in the attainment of set goals. Section 2(a) of the LGC stipulates that in
order to attain development to the fullest as self-reliant communities, it is necessary
for local governments to “enjoy genuine and meaningful local autonomy…through
a system of decentralization”. This clause provided the local government units with
more power, authority, responsibilities, and resources as a subdivision of the State.
As mandated in the Local Government Code, the LGUs take responsibility for
delivery of basic services to its constituents. In effect, while the provinces take on
the “development processes and effective governance”, the municipalities serve as
“the primary general-purpose units of government and delivery points for most
basic public services”, while the barangays act as “primary planning and imple-
menting units of government policies” (Azfar et al. 2004).
With the transfer of responsibilities to LGUs come increased expenditures. To
address this, the Code provided the ‘transfer back’ of revenues collected by the
national government to the LGU in the form of internal revenue allotments (IRAs).
While the hype of decentralisation processes could be observed in the 1990s, the
changing nature of governance and the natural occurrences that demanded State
action strongly enliven the need for more effective processes catered for by
decentralised government.
According to Brillantes (1999), the decentralisation model in the Philippines is
characterised by the following: deconcentration, devolution and debureaucratisa-
tion. The deconcentration of administrative activities can be traced back to early in
the Integrated Reorganisation Plan (IRP) practiced during the Marcos administra-
tion in 1972. Nonetheless, this decongestion of administrative matters for
decision-making leaves the final call with the central government on ‘substantive’
matters. Devolution, which is political in nature, is observable among LGUs given
that the local executive, including members of legislative body, are elected to a
position thus indicating devolution of power to ‘the people’. Debureaucratisation,
on the other hand, involves authorities vested to actors outside of the State. These
include civil society, NGOs, people’s organisations (PO), private entities, and the
third sector at large.
Decentralisation: Definition, Types/Forms
Decentralisation as a concept has been defined in various ways, giving emphasis on

elements and functions of governance. Planning, decision-making, and adminis-
trative authority (Rondinelli et al. 1983) are but some of the key elements that are
often included in the definition of decentralisation. The World Bank adds the
concept of “transfer of authority and responsibility” in its definition while the
United Nations define it with reference to geography and political devolution. In
addition, the United Nations Development Programme introduced the concept of
“decentralised governance” placing emphasis on the “interrelationship” or balanc-
ing of power and responsibilities among actors such as the central and local gov-
ernments, as well as non-governmental actors, i.e. civil society.
Brillantes and Cuachon (2002) identified four forms of decentralisation
according to classifications made in UNDP and World Bank articles. These are:
(1) political; (2) administrative; (3) fiscal; and (4) market decentralisation,
respectively.
Political decentralisation is best understood as the transfer of authority to a
subnational body or devolution. This includes authority on decision-making, fiscal
and managerial powers, and territorial/geographical considerations. It presents a
lateral spread of responsibilities across the levels of central government down to the
hierarchy. On the other hand, administrative decentralisation is viewed in two
accounts, ‘deconcentration’ and ‘delegation’. It highlights the transfer of respon-
sibilities to the above mentioned functions.
Fiscal and economic/market decentralisation types concern resources and
delivery of public goods. Fiscal decentralisation involves the transfer of funds and
revenue-generating power and authority to the LGU or private sector. Economic

decentralisation, on the other hand, passes functions originally performed by the
government to the private sector. This last form is largely observed in privatisation
and deregulation policies, it does however not represent the focus of this paper.
On Decentralisation and DRRM
Participation
Assumption: Decentralisation promotes participation

A shared assumption among scholars is that DRRM needs to be brought to the local
level. Community-based DRRM acknowledges people as both objects and subjects
of DRRM efforts. People in the community are ultimately—, the ones at risk or
affected by disasters; hence it is just reasonable that efforts, such as vulnerability
reduction and capability enhancement, are directed towards them. On the other
hand, of equal importance is the recognition that these same people possess the
knowledge and skills or the answers to come up with reduction strategies for
instance. Therefore, communities must be “actively engaged in the identification,
analysis, treatment, monitoring and evaluation of disaster risks in order to reduce
their vulnerabilities and enhance their capacities” (Asian Disaster Preparedness
Center 2005). Furthermore, the people should be at the “heart of decision-making
and implementation of DRRM activities” (Asian Disaster Preparedness Center
2005).
In the Philippines, participation of various stakeholders in the different stages of
the development processes such as DRRM took centre point through the country’s
decentralisation policy as codified in the Local Government Code of 1991 (LGC) or
RA 7160. Indeed, several sections in the LGC lay down various venues in which
the private sector as well as people’s and non-government organisations
(NGO) may participate in the development undertakings of local government units.
Legal context
In fact, the Philippine DRRM Law of 2010 is anchored in a decentralised form of
government. As such, the same need for participation reverberates in the said law. It
promotes the “involvement and participation of all sectors and all stakeholders
concerned, at all levels, especially the local community” (Section 2d, RA 10121).
Additionally, it “engage(s) the participation of civil society organizations (CSOs),
the private sector and volunteers in the government’s disaster risk reduction pro-
grams towards complementation of resources and effective delivery of services to
the citizenry” (Section 2m, RA 10121).
Consequently, favourable conditions exist for participatory DRRM since the
mechanisms are already in place:
(a) The different levels of local government units, from the provinces, cities and
municipalities, and barangays have already been created. Moreover, the LGUs
are mandated to become effective partners in national development
(Section 2a, RA 7160) or undertakings like that of DRRM; and to promote the
general welfare of its inhabitants, which includes promotion of health and
safety (Section 16, RA 7160).
(b) The existing disaster coordinating councils have just been replaced by
provincial, city and municipal disaster risk reduction and management councils
or DRRMCs (Section 11, RA 10121). The barangay disaster coordinating
council, on the other hand, was abolished. However, its powers and functions
were assumed by the existing Barangay Development Councils (BDCs), which
now serves as the local DRRMCs in every barangay (Section 11, RA 10121).
(c) In relation, noteworthy to ensuring community participation, is the fact that the
BDCs are also mandated to mobilise people’s participation in local develop-
ment efforts (Section 109, RA 7160), and that its members should include
representatives of NGOs operating in the barangay, “who shall constitute not
less than one-fourth of the members of the fully organized council”
(Section 107, RA 7160).
(d) Also constituted under the law are the local DRRM offices under the Office of
the local chief executives at various LGU levels. These are responsible for
setting the direction, development, implementation and coordination of dis-
aster risk management programmes within their territorial jurisdiction in
general. RA 10121 has enumerated so many functions (Section 12c) that
would not have been possible to implement without the inherent powers
brought about by local autonomy.
(e) Declaration of the state of calamity is not solely vested in the President of the
Philippines. Because the national state recognises and respects the autonomy
of LGUs (Section 15, RA 7160), local sanggunian (local council) may also
declare and boost this condition upon the recommendation of the Local
Disaster Risk Reduction and Management Council (LDRRMC), based on the
results of the damage assessment and needs analysis (Section 16, RA 10121).
They can do so since it is within their mandate to adopt measures to protect the
inhabitants of the locality from the harmful effects of man-made or natural
disasters and calamities (Sections 447 and 458, RA 7160).
Figure 4 represents the overall DRRM structure from the national to the bar-
angay levels of governance.
Local context and analysis
The Province of Bulacan benefits and harnesses meaningful participation from all
units of the government including the local community. From the national gov-
ernment agencies such as National Economic and Development Authority (NEDA),
Philippine Atmospheric Geophysical and Astronomical Services Administration
(PAGASA) and the Office of the Civil Defense (OCD), the provincial DRRMO
receives inputs that serve as basis on how to properly respond to flooding
Fig. 4 National disaster risk

reduction and management
council strategies. Source
Authors’ construct based on
RA 10121
conditions. NEDA promotes capacity building initiatives to the LGUs while

PAGASA provides the data and information relevant to planning and preparation in
the case of disaster. The OCD supports the LGUs at large with logistical require-
ments among others.
On the other hand, the regional DRRM office coordinates with each provincial
counterpart unit and facilitates actions that promote efficient and effective approach
to DRRM across the region. The Bulacan Provincial DRRM Office (BPDRRMO)
and other provincial DRRM offices in the region are regularly convened by the
regional DRRM office (Region III). The DRRM offices in Region III also meet with
the OCD and communicate with neighbouring DRRM Offices to share facts as basis
for action. One example of collaboration is the proposal for the net flows of the
Pampanga River. The caucus aims at creating a system to map the communication
flows in concerned areas under the supervision of the OCD. The regular meetings
and regional Olympics are factors that strengthen the camaraderie and strong
linkage in DRRM offices in Region III.
On the provincial level, the BPDRRMO expanded from a division to a
semi-department office and responds to 24 counterpart units in each municipality/
component city. The BPDRRMO functions as a rescue operations arm, a capacity
building and advocacy arm, a technical arm, and coordinating body to the LGUs
and external organisations. Under the BPDRRMO is the Bulacan Rescue Project
which was started in 2009. The unit has three emergency hotlines and tap the police
and fire fighters, among others. It also has a research, planning and evaluation
division. The unit is equipped with an ambulance, fire trucks, life boats, and a
jet ski.
The BPDRRMO technical working group is composed of one representative
from each sector: agriculture, health, veterinary, engineering, social welfare, police,
and the Department of the Interior and Local Government (DILG). An Australian
volunteer serves as a consultant to the team. In addition, the Technical Working
Group (TWG) receives participation from various concerned groups coming from
the BPDRRM Council, the Sangguniang Kabataan (Youth Council), the Liga ng
mga Barangay (League of Barangays), women’s group, media, NGOs (i.e., Rescue
117), and also from 15 to 20 volunteer groups from all over the province.
The Bulacan Rescue Office and the Pampanga River Basin Council provide
information/data on the expected water level/flooding in the area and thus guide the
affected residents of Hagonoy to prepare accordingly. The Rescue 117 and Rescue
247 under the BPDRRMO actively support the Municipal Disaster Risk Reduction
and Management Office (MDRRMO) of Hagonoy with information, manpower,
and equipment in times of calamity. The 3rd Infantry Battalion of the Army sta-
tioned in Hagonoy also gives assistance to the MDRRMO. There are also a number
of volunteers—organised groups and private individuals—from Hagonoy who help
in the municipality in its operation.
The MDRRMO of Hagonoy was initially a joint office with its Traffic
Management Unit (TMU). On 1 July 2013, the MDRRMO was formally separated
from the TMU and consisted of 11 personnel: one (1) Chair, one (1) Secretary, and
nine (9) personnel. The office operates 24/7—24 h a day, seven days a week—
whose manpower are trained rescuers who also conduct monitoring functions. The
unit is equipped with rescue equipment and supplies including three (3) life boats.
In Hagonoy, the MDRMMO facilitates and monitors the condition of its bar-
angays concerning disaster response and action. Employees of the municipal
government readily become volunteers in disaster operations while the elements of
the Army Unit stationed in the area also support the municipality. The barangay
provides necessary action to the locality through Purok (barangay zone) leaders and
mobilises volunteers to facilitate the work systematically. Volunteer organisations
also come into the picture—penetrating the grassroots level. There are 15–20 dif-
ferent organised NGOs that operate within Bulacan.
Volunteers in the MDRRMO unit are also composed of employees of the
municipality who serve outside of the Council. Given that flooding has become a
regular condition in Hagonoy, the people, particularly the volunteers, were able to
mobilise themselves in an organised assembly line to give assistance to the affected
residents (packing and distribution of relief goods, monitoring of condition in
affected areas, cooking for people in evacuation sites, etc.).
The MDRRM Officer coordinates with the barangay captains in times of dis-
aster. The MDRRM unit’s monitoring system is highly reliable and transfer of
information is not problematic through the strong coordination from information
sources such as PAGASA updates/bulletin, the Pampanga River Basin Council, the
BPDRRMO, and the constituent barangays. Through monitoring, the MDRRM
Officer is able to anticipate the schedule and volume of dam release in the area.
Among the neighbouring LGUs in Bulacan and Pampanga monitoring the water
movement are Mayapyap, San Isidro, Arayat, Candava, Sulipan, and Hagonoy.
Also part of the MDDRM Officer’s monitoring is following a high tide calendar
(Libao 2013).
Barangay San Agustin is one of the 26 barangays in Hagonoy. According to San

Agustin Barangay Captain Ruben Sumpongco, the barangay is strategically divided
into seven (7) Purok corresponding to the number of barangay councillors. Each
councillor heads/represents his/her respective Purok assignment and heads the
mobility of the area in times of calamity. Communication is achieved more easily
this way and residents can easily seek help from the Purok leader. There are also
volunteers that emerge in each Purok during calamities/flooding. Many of them are
women.
Sumpongco added that the barangay has organic “volunteer” members of about
30 people. These are composed of Mother leaders, Bantay-Bayan (peacekeepers),
and street sweepers—employed by the barangay. During calamities, the number of
individual volunteers grows to 60–90 from the community not including volunteer
organisations from outside the barangay. Based on the focus group discussion, the
residents engage in volunteer work because of the sense of compassion and will-
ingness to help their fellowmen. The respondents claim that what drives them to
volunteer is the sense of fulfilment and personal accomplishment brought about by
the joy of service (Table 2).
Table 2 Stakeholder participation at each level of governance

Levels Stakeholders
Province of Bulacan NEDA
PAGASA
Office of the civil defense
Region III—DRRM office
DILG
Sangguniang Kabataan (Youth Council)
Provincial DRRM office
Provincial planning and development office
Provincial environment and natural resources office
League of Barangays
Bulacan rescue office
Pampanga River Basin Council
Women’s group
Media
NGOs
Civil society groups
Municipality of Hagonoy Municipal DRRM council
Municipal planning and development office
Neighbouring LGUs
3rd Infantry Battalion of the Army
Volunteer groups
Barangay San Agustin Barangay council
Barangay social workers
Volunteer groups
International NGO
Residents
Source Authors’ construct 2015
Harmonisation of Policies
Assumption: Decentralisation establishes safeguards to ensure harmonisation of

policies
It is apparent that a clear, single policy direction can be derived from a centralised
form of government compared to the piecemeal and uncoordinated efforts most
likely to materialise from the various layers of local governments. However, as
previously mentioned, DRRM calls for the identification of appropriate and
cost-effective solutions, which is more probable when problems (hazards, exposure
and vulnerabilities) are identified and analysed by the same people who experience
them. In the same way, interventions and alternative solutions may be designed
based on local context and capabilities. Hence, what is needed is the harmonisation
of policies, be it in the form of legislations, programmes and projects, and services,
emanating from various sectors of society.
To this end, policies of the national and local governments, as well as inter-
ventions coming from civil society organisations (CSOs) and the private sector,
must maintain vertical and horizontal linkages. However, the presence of a strong
national entity exercising oversight and enforcement functions could not be dis-
counted as LGUs still look for national leadership and feel more accountable when
higher levels of government are involved (Scott and Tarazona 2011). Of equal
importance is the integration and mainstreaming of DRRM concerns into the
overall development processes, which start with public sector-led planning, and
move into everyday decisions and activities—practices which make it sustainable
(ADPC 2005).
Legal context
The Philippine DRRM Law mandates the adoption and implementation of “a
coherent, comprehensive, integrated, efficient and responsive disaster risk reduction
program incorporated into the development plan at various levels of government”
(Section 2f, RA 10121). Moreover, it stipulates that DRR and climate change
adaptation (CCA) must be mainstreamed into policy formulation and socioeco-
nomic development planning (Section 2g, RA 10121).
Decentralisation remains supportive of harmonisation of policies from formu-
lation to implementation through the following safeguards as reflected in the LGC
and planning guidelines to LGUs:
(a) The LGU, in its very nature as a body politic, exercises powers as a political
subdivision of the national state, and thereby manages its local territory on
behalf of the national State (Sections 3 and 15, RA 7160). To this effect, LGUs
must align their policies with those of the national government; and the
national government must also base their policies on local needs.
(b) In light of the foregoing, the Department of the Interior and Local
Government’s Rationalized Local Planning System, the planning guideline for
LGUs, states the need to observe the hierarchy and linkages of plans, i.e., from
the policy framework of national level plans down to site-specific programmes

and projects of municipal/city and barangay development plans.
(c) This is further reinforced by Joint Memorandum Circular or JMC (No. 1, series
of 2007) among four national government agencies (Department of the Interior
and Local Government, Department of Finance, Department of Budget and
Management, and NEDA) was issued in order to harmonise and synchronise:
i. local planning;
ii. investment programming;
iii. revenue administration; and
iv. budgeting and expenditure management.
(d) Moreover, JMC No. 1 is also meant to strengthen the interface between LGUs
and NGAs, and the complementation between provinces and their respective
component cities and municipalities.
(e) The second part of the duality of the nature of an LGU is its corporate char-
acter, which mandates it to promote the general welfare of its inhabitants
(Sections 15 and 16, RA 7160). To this end, LGUs are directed to prepare
comprehensive development plans (Section 106, RA 7160). Now, main-
streaming of DRRM concerns into the comprehensive development plan is
possible since both share the same multi-sectoral coverage, which are social,
economic, infrastructure, environment and institutional.
(f) Advancing the same, NEDA has issued the Guidelines on Mainstreaming
Disaster Risk Reduction in Subnational Development and Land Use/Physical
Planning, and is currently conducting training programmes for all provinces of
the country. Meanwhile, the Housing and Land Use Regulatory Board is also
in the process of updating the guidelines on comprehensive land use planning
incorporating DRRM into the process.

The harmonisation of policies in the case of Hagonoy is borne out of concerted
efforts from the top down and bottom up. In this case, the Provincial Government of
Bulacan played a key role in downscaling national policies to its political subdi-
visions, i.e., the LGUs. It provided the needed initiative and continuous leadership
in pursuing DRRM efforts. First, it updated its 2009 disaster management plan by
initially conducting a disaster risk and vulnerability assessment or DRVA (Muncal
2013) for the whole province. By the end of the year 2013, it had already finished
the draft Bulacan Provincial Disaster Risk Reduction and Management Plan
(PDRRMP) for 2013. The said Plan embodies the same agenda and strategies of RA
10121, the National DRRM Framework, the National DRRM Plan and the
Regional DRRM Plan, along with other planning guidance from the Office of Civil
Defense (Bulacan PDRRMP 2013). This same Plan would also serve as the main
reference document for its municipalities and component cities. In this way, vertical
integration of the plans is preserved. Second, the province led and sponsored
hazard-specific contingency planning for its municipalities and cities, which
includes Hagonoy. It provided a template that could guide in the contingency plan
preparation. It also conducts write-shops—in preparing contingency plans, etc.—by
batches that are attended by the Municipal technical staff. Aside from these, the
province also lends technical expertise for the generation of various maps.
For the part of the municipality of Hagonoy, it has maintained its linkage with
the province for practical reasons: to avoid duplication of efforts and to augment its
limited resources. First, it has followed the lead of the province in contingency
planning that is specific to flooding. Being the ones that always experience this type
of hazard, the people of Hagonoy are somehow accustomed to its perils and have
naturally developed their adaptive capacities for it. Be that as it may, the local
DRRMC knows the importance of putting on record what their people know and
experience, systematising these through the use of templates and flow charts, and
enhancing their indigenous knowledge with inputs from the outside. Hence, the
Municipal technical staff look forward to the Province’s call for another round of
write-shops for the finalisation of their contingency plan (Reyes 2013). Second, it
has availed itself of every type of assistance that may be provided, be it in the form
of personnel, training, reports and other information such as the high tide calendar
from PAGASA or the DRVA report from the province.
Moving down the LGU levels and closer to the people, Hagonoy in turn pro-
vides the “leadership (that) inspires people from the barangays” (Libao 2013). The
barangay captain and local officials of San Agustin attest to the strong support from
the municipality on matters of public safety especially during times of calamity.
Primary to the municipality’s contribution is providing reliable information to the
barangay to prepare accordingly for the situation and assisting people with quick
rescue response and back up (Antonio 2013; Arellano 2013; Huerta 2013;
Sumpongco 2013a, b in Focus group discussion in San Agustin).
Aside from vertical integration, another aspect of harmonisation of policies is
horizontal complementation through mainstreaming of DRRM concerns into
existing and mandated development plans. At the provincial level, although
Bulacan Province has a separate DRRM Plan, it also integrated DRRM components
into its Provincial Development and Physical Framework Plan (PDPFP) through
guidance from the NEDA. As a result, the province delayed the adoption of its
PDPFP in order to incorporate DRRM into the provincial development framework
and added hazard maps to aid further analysis. In effect, all comprehensive land use
plans (CLUP) of its municipalities and cities’ needs to be risk sensitive since these
must be aligned to the PDPFP as guaranteed by the Provincial Land Use Committee
(PLUC). In the same way, though Hagonoy has a contingency plan, it must also
prepare the mandated CLUP, which in its case has clearly pointed out climate
change adaptation and disaster risk reduction and management as one of its
development thrusts. Moreover, the CLUP identified natural ways of addressing
DRRM and climate change adaptation (CCA) concerns such as coastline and
riverbank protection, strict enforcement of buffer zones and easements, and pro-
motion of climate-resilient settlements through the use of climate-resilient materi-
als, design and site planning.
Capacity Building
Assumption: Decentralisation builds local capacities

The past years have seen a paradigm shift on how countries deal with disasters—
from post-disaster response, relief and rehabilitation efforts to disaster risk reduction
and management. Truly, DRRM is a relatively new field that is being threaded on
such that individuals, communities and even governments fall short on capacity
requirements. The DRR framework, listed as one of its five (5) action fields,
“knowledge development” through education, training, research and information
(UNISDR 2004). In fact, the following four are areas for which capacities must be
enhanced/developed (UNISDR 2004):
• Risk awareness and assessment (hazard analysis and vulnerability);
• Public commitment and institutional frameworks (organisational, policy, legis-
lation and community action);
• Application of measures (environmental management, land use and urban
planning, etc.); and
• Early warning systems (forecasting, dissemination, preparedness, etc.).
Legal context
Republic Act 10121 defined “capacity” as:
a combination of all strengths and resources available within a community, society or
organization that can reduce the level of risk, or effects of a disaster. Capacity may include
infrastructure and physical means, institutions, societal coping abilities, as well as human
knowledge, skills and collective attributes such as social relationships, leadership and
management. Capacity may also be described as capability.
The same law provides for the recognition and strengthening of “the capacities
of LGUs and communities in mitigating and preparing for, responding to, and
recovering from the impact of disasters” (Section 2l, RA 10121), as well as for the
development and strengthening of “the capacities of vulnerable and marginalized
groups to mitigate, prepare for, respond to, and recover from the effects of disas-
ters” (Section 2n, RA 10121).
Since even the national government may seem to be lacking in certain capacities,
decentralisation of DRR duties and responsibilities to local governments may result
in a wider capacity gap. While this may be the case, it can also be looked at as an
opportunity to build capacities from the ground up especially in terms of infor-
mation sharing, knowledge development towards a common understanding of risks
and raising public awareness.
Because organisational structures and delegation of powers and responsibilities
are already institutionalised under the current decentralised set-up, capacity-
building can be achieved layer by layer by governments:
(a) Capacity development may be initiated by the national government as man-

dated in the Local Government Code. It stipulates that national government
policies and programmes must be coordinated, and adequate technical and
material assistance be extended to less developed and deserving local gov-
ernment units (Section 3k, RA 7160). Furthermore, the LGC mandated the
national government to ensure that decentralisation contributes to the contin-
uing improvement of the performance of local government units and the
quality of community life (Section 3m, RA 7160). To this end, and as dis-
cussed before, NEDA is currently rolling-out a training programme on
mainstreaming DRRM into the local planning process to all provinces. It has
also conducted an “Orientation-Workshop for Provinces on Climate Change:
Sectoral Impact Assessment and Planning Applications” in 2011.
(b) From the training programmes provided by the national government, provinces
endorse these to their cluster of municipalities and component cities
(Section 459, RA 7160). In the same manner, municipalities and cities may
provide capacity development to their respective barangays.
(c) Capacity building in relation to the DRRM law follows the above hierarchy.
As such, the National Disaster Risk Reduction and Management Council was
given the responsibility to “formulate a national institutional capability
building program for disaster risk reduction and management to address the
specific weaknesses of various government agencies and LGUs” (Section 6l,
RA 10121) to be implemented by the Office of Civil Defense (Section 8, RA
10121). The province, through the Provincial DRRMC, serves as the entry
point of training at the local level as it is the one receiving capability
enhancements from the OCD. In turn, acting in its capacity as a local DRRMC,
the Provincial Disaster Risk Reduction and Management Council (PDRRMC)
“organize and conduct training, orientation, and knowledge management
activities on disaster risk reduction and management at the local level”
(Section 12c, RA 10121).
(d) The case of the barangay is unique as it can be both a receiver and source of
various capacities. As described in the Local Government Code, a barangay, as
the basic political unit, serves as “the primary planning and implementing unit
of government policies, plans, programs, projects, and activities in the com-
munity, and as a forum wherein the collective views of the people may be
expressed, crystallized and considered” (Section 384, RA 10121). It is at this
level that indigenous knowledge systems can be generated, analysed and uti-
lised to craft locally-sensitive or appropriate DRRM strategies. Public
awareness and commitment can also be engendered at a community level since
disaster is a very real shared experience for people.

Capability building in terms of risk awareness and assessment is a must in order to
build resilience. In this case, the province of Bulacan participated in the
“Orientation-Workshop for Provinces on Climate Change: Sectoral Impact
Assessment and Planning Applications” that NEDA conducted in 2011.

Furthermore, the Province is continuously receiving capacity enhancements from
NEDA through a training programme on mainstreaming DRRM into the local
planning process that it is currently being rolled-out to all provinces.
The Region III DRRM Office conducts regular meetings with its constituent
units/counterpart offices in the LGUs to assess existing conditions, discuss strate-
gies, and identify a course of action to address and properly manage disastrous
incidents. The OCD participates in these meetings.
Through various studies like the profiling and inventory of hazards, an initial
output of a United Nations Development Programme, and the Vulnerability and
Risk Assessment conducted by its very own Provincial Planning and Development
Office (PPDO), Bulacan was able to strengthen its knowledge base in terms of the
different types of hazards that it must contend with, and has a clear understanding of
its own vulnerabilities. Also noteworthy is the fact that the PPDO provides hazard
maps for its LGUs.
The Province shares this information and tools with its LGUs, which includes
Hagonoy. As stated earlier, Bulacan has also initiated and sponsored a series of
write-shops for the formulation of its municipal and city contingency plans. In
Hagonoy’s case, it has started drafting its flood-specific contingency plan in
February 2013, and is just waiting for another write-shop call from the Province to
finalise it. The Municipality also looks forward to training its 17 new barangay
captains in partnership with the Province (Libao 2013).
Early warning and having up-to-date information are keys to preparedness. In
light of this, Bulacan has subscribed to the Nationwide Operational Assessment of
Hazards (NOAH) of the Department of Science and Technology in order to keep
itself well-informed of both expected and latest situations on rain volume and
flooding for instance. Another way by which the province equips its 21 munici-
palities and three (3) component cities is through the establishment of a radio
telecommunication system that connects all of its LGUs. Aside from this, it also
“text blasts” (via cellular phones) the information in order to secure that early
warning reaches all those concerned.
Considered as the most physically vulnerable to flooding, Hagonoy keeps active
monitoring of water levels by closely coordinating with, via phone calls and bul-
letins, the Province, PAGASA, and the Pampanga River Basin Committee. In the
same manner, the constituent barangays in Hagonoy receive updates and notices
from the municipal office regarding flooding concerns. Immediate and timely
transfer of information is paramount among these actors.
In addition, the province actively participates in regional programmes such as
the Disaster Risk Reduction and Management Council (NDRRM) Region
III-Central Luzon’s Regional First Aid Olympics. The Olympics has been going for
ten years now. Among the categories are fire suppression, water component, and
first aid response. The goal is to capacitate the community to respond accordingly in
times of need.
Aside from the regional Olympics, Bulacan holds a similar programme which
draws participation of rescue teams from all the municipalities in the province. This
friendly competition enables each rescue team to showcase new strategies and
techniques in rescue operations. The winners receive supplies/equipment for the
team as reward. This programme started in 2011. The regular meetings and regional
Olympics are factors that strengthen the camaraderie and strong linkage in DRRM
offices in Region III.
The Bulacan PDRRMC Officer also provides training for the local DRRM
Officer in conducting rescue operations. The training thus flows from the munici-
pality down to the barangay units. The DRRM Officer noted that non-government
organisations help in the process of flowing training programmes.
Since 2011, Barangay San Agustin, with two other neighbouring barangays in
Hagonoy, had been engaged in capacity building efforts of an international NGO
based in Makati City. The NGO facilitated a year-long continuous training on
disaster preparedness for the three participating barangays. The training covers
community response to flooding, earthquake and fire.
Representatives from the trainee barangays are required to attend a series of
lectures and workshops facilitated by the NGO. Each barangay provides its own
data used during the workshops as the basis for action and analysis. There are sets
of ‘homework’ for the barangays that in effect require them to upgrade their
respective disaster response units. At one time, San Agustin was ‘forced’ to
eventually acquire additional life boats for their unit. The NGO also provided
simultaneous community information-seminars for the residents of each commu-
nity. This includes disaster response, first aid, and proper care for infants and
children. The local community in the three barangays are aware of the programmes
of the NGO and many participate actively in these activities.
One culminating activity to test the readiness of the participating barangays is
the Disaster Drill conducted by the NGO in 2013. The three barangays, with their
residents and disaster units, swarmed the streets and ‘moved to safety’ to identified
evacuation areas during the Drill. The fire trucks, ambulances, life boats and vol-
unteer groups in the area were also mobilised. Mock victims/casualties underwent
first aid response. The Drill was so successful that the other non-participating
barangays were alarmed that a disaster was actually taking place (Sumpongco
2013).
On Issues and Challenges
The officers in the local government units strongly emphasise the vital role of
reliable communication and strong coordination among institutions and individuals
in responding to calamities/disasters. The provincial unit officer highlighted,
however, that one particular challenge in DRRM is ‘non-active’ participation in the
programmes of some of the departments and national government agencies that the
LGU considers as key actors in improving disaster planning and management.
Among those agencies identified were the Department of Education, the
Department of the Interior and Local Government, Technical Education and Skills
Development Authority, etc.
Another identified challenge is the lack of communication equipment available

particularly in municipal and barangay levels. The communication medium is
usually passed through short message service (SMS) or text messaging which is
highly dependent on the strength of signal/frequency of the network provider in the
area thus, timeliness and reliability thereof may be compromised in times of
disaster.
Outside territory conditions with critical implications to flooding such as the
dredging of the mouth of Manila Bay and removal of illegal fishponds along the
Bay area are also some of the issues that concern Hagonoy and the province in
general. Inasmuch as the LGU advocates for measures to improve its programmes
to become disaster resilient, external factors are significant considerations to
complement the actions of the LGU.
Lastly, the rehabilitation of the Angat Dam is a major issue in the province of
Bulacan. Initial studies suggest that it will cost about 5.7 billion pesos to rehabil-
itate the dam. In case dam breakage occurs, it is believed that Hagonoy and
neighbouring towns such as Paombong and Malolos will be totally submerged in
water. Nevertheless, the provincial government has included preparedness in case
of dam break as part of its Emergency Action Plan.
Lessons
The following lessons can be derived from the case of Hagonoy, Bulacan in disaster
risk reduction and management:
• By providing an enabling environment for the community to participate in
governance, or in this case, in the DRRM undertakings, the people become not
just mere objects whose vulnerabilities need to be reduced or their resiliencies
enhanced. More importantly, they become active subjects whose knowledge and
skills may be harnessed to strengthen the DRRM efforts of the local government
units. Also by being able to actually do something to abate disasters like directly
reporting the condition of the area to the authorities in times of flooding, and/or
rescuing their fellow country men, people feel a sense of personal fulfilment and
empowerment.
• Both vertical integration and horizontal complementation of policies are needed
in order to effectively address the issues faced by a hazard-prone area like
Hagonoy. Serving as the catch-basin for all of Bulacan as well as its neigh-
bouring provinces, various projects like dredging of rivers, or technical support
from these areas have been extended to remedy the situation. However, other
stakeholders like national government agencies must also act on the proposed
dredging of the Manila Bay to free Hagonoy of some of its flood waters. Indeed,
though the worst effect of flooding is concentrated in just one area, interventions
must be inter-territorial.
• The responsibility and ability to build the capacities of LGUs is not the sole
domain of the national government nor of higher-level LGUs. In fact, capability
enhancement may proceed from the bottom-up as the information that gets
generated from the “network of observers” in the community becomes a valu-
able input in the decision making of the municipality or province. Moreover,
known as the third sector in governance, NGOs may also provide training
programmes or seminars on mitigation, preparedness, response and rehabilita-
tion. Further, even a single volunteer may offer his/her services or expertise, and
this can still be counted as a valuable contribution to capability-building.
• Regarding the above statement, however, the leadership of recognised higher
authorities like the national government in the case of LGUs, or the province in
the case of its component cities and municipalities, is still crucial in eliciting
participation, in harmonising policies and in building capacities. Leadership
inspires people to join in undertakings, to contribute and be part of a bigger
agenda because by so doing, they also develop a sense of self-empowerment.
References
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from the Philippines. In M. S. Kimenyi & P. Meagher (Eds.), Devolution and development:
Governance prospects in decentralizing states (pp. 197–240). Aldershot: Ashgate Publishing
Limited.
Brillantes, A. B., Jr. (1999). Decentralization, devolution and development in the Philippines.
Pathumthani: UMP Regional Office for Asia and the Pacific.
Brillantes, A. B., Jr. & Cuachon, N. G. (Ed.). (2002). Decentralization and power shift: An
imperative for good governance. Quezon City: Center for Local and Regional Governance.
Rondinelli, D. A., Nellis, J. R., & Cheema, G. S. (1983). Decentralization in developing countries:
A review of recent experience. World Bank Staff Working Papers Number 581: Management
and development Series Number 8. Washington D.C.
Online Publications
ADPC. (2005). A primer: Disaster risk management in Asia. Asian Disaster Preparedness Center.
http://www.adpc.net/udrm/primer/pdf/primer_volume1.pdf. Accessed December 03, 2014.
Cebu Philippines. (2015). http://www.cebu-philippines.net/philippines-travel.html. Accessed
March 01, 2015.
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http://www.nscb.gov.ph/activestats/psgc/articles/con_income.asp. Accessed January 05, 2015.
National Statistics Office. (2010). 2010 census of population and housing. http://web0.psa.gov.ph/
sites/default/files/attachments/hsd/pressrelease/Central%20Luzon.pdf. Accessed January 05,
2015.
Scott, Z., & Tarazona, M. (2011). Study on disaster risk reduction, decentralization, and
political economy. http://www.preventionweb.net/english/hyogo/gar/2011/en/bgdocs/Scott_&_
Tarazona_2011.pdf. Accessed December 03, 2014.
UNISDR. (2004). http://www.unisdr.org/. Accessed January 05, 2015.

UNISDR. (2007). Words into action. A guide for implementing the Hyogo framework for action.
Global platform for disaster risk reduction. http://www.preventionweb.net/globalplatform/
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05, 2015.
UNISDR. (2008). http://www.unisdr.org/. Accessed January 05, 2015.
Policy Papers and Laws
Bulacan Provincial Disaster Risk Reduction and Management Plan (2013–2018)

Hagonoy Comprehensive Land Use Plan (2011–2020)
Republic Act 10121: Philippine Disaster Risk Reduction and Management Act of 2010
Republic Act 7160: Local Government Code of the Philippines
Key Informant Interviews
Libao, E. Head, Hagonoy Municipal DRRM Council; and Chairman of Association of Barangay
Captains, Hagonoy, Bulacan. 4 November 2013.
Muncal, E. Head. Provincial Disaster Risk Reduction and Management Office. Provincial
Government of Bulacan, City of Malolos, Bulacan, September 12, 2013.
Reyes, M. Municipal Planning and Development Coordinator. Municipality of Hagonoy, Bulacan,
November 4, 2013.
Sumpongco, R. Barangay Captain. Barangay San Agustin, Hagonoy, Bulacan, October 13, 2013.
Focus Group Discussion Respondents
Antonio, A. (43). Bantay Bayan. Barangay San Agustin, Hagonoy, Bulacan, October 13, 2013.
Arellano, E. (32). Mother Leader. Barangay San Agustin, Hagonoy, Bulacan, October 13, 2013.
Huerta, B. (59). Barangay Secretary. Barangay San Agustin, Hagonoy, Bulacan, October 13, 2013.
Sumpongco, A. (48). Resident. Barangay San Agustin, Hagonoy, Bulacan, October 13, 2013.
Sumpongco, R. (46). Barangay Captain. Barangay San Agustin, Hagonoy, Bulacan, October 13,
2013.
Smarter Money for Smarter Cities: How
Regional Currencies Can Help to Promote
a Decentralised and Sustainable Regional
Development
Felix Fuders
Abstract This article describes how regional currencies can help improve
livelihoods in two key ways. Firstly, they can help promote decentralisation and
strengthen the local economy. Secondly, if based on Silvio Gesell’s concept of free
money, they can, in the long run, contribute to a more sustainable development.
This second aspect is more difficult to understand. Accordingly, the article explains
the problems inherent in our economic system—which based on a banking system
in which money supply and debt develop synchronously—problems that are not
well understood in economic science. Since regional currency initiatives do not
depend on the support of governmental institutions, the article aims to encourage
private individuals and businesses to implement regional money, and in this way
support a decentralised and sustainable development.
Introduction
While world financial markets are shaken by the subprime and Euro crisis, more
and more regions are adopting regional or local currencies based on Silvio Gesell’s
concept of free money, that is to say, money equipped with some sort of hoarding
fee (demurrage fee). Such local or regional money does not only strengthen the
local economy and support decentralised and prosperous regional development. It
can also, if based on Silvio Gesell’s concept of free money, be a true alternative to
the current financial system, a system which not only results in crisis each time, but
is also the main reason for the widening gap between rich and poor, and forces
economies to constantly grow. The three main concerns that move our societies at
This article was presented at the “International Conference on Smarter Cities”, held in Manila on
14–15 November 2013, organised by the University of Philippines (Faculty SURP).
F. Fuders (&)
Instituto de Economía, Director SPRING-Latin America, Universidad Austral de Chile,
Valdivia, Chile
e-mail: felix.fuders@uach.cl

156 F. Fuders
this time, i.e. inequality of wealth distribution, destruction of our environment and
the financial crisis, are all connected to this financial system, which is unfortunately
not well understood in economics. Local currencies appear not to generate these
disadvantages and may therefore allow for development on a more ‘human scale’.
The second chapter of this paper presents the example of Banco Palmas in
Brazil, a regional currency initiative that successfully pulled a poor Brazilian
suburb (favela) out of its former precarious situation. This case demonstrates the
positive effects that social money can have on urban development, and how it can
help to improve people’s livelihoods. The third chapter is dedicated to explaining
the problems inherent in our financial system and how these problems impact on the
real economy. Chapter four explains how regional currencies can help solve these
problems if they are equipped with some sort of demurrage fee, as proposed by
Silvio Gesell. Chapter five evaluates other forms of social money, such as “time
banks” and the idea of using inflation adjusted accounting units, such as the Chilean
Unidad de Fomento, as currency. Chapter six reflects on what position Ecological
Economics should take with regard to these discussions, and chapter seven provides
an outlook of a world whose regions use regional currencies.
Regional Money as a Tool to Promote Regional

Development and Decentralisation: An Introduction
The Palmas: Money that Does not Leak Out of the Region
With the help of a Dutch NGO, people in Palmeiras, an impoverished suburb of

Fortaleza in north-eastern Brazil, organised and set up a community bank, which has
been functioning since 1998 and has been issuing its own currency, called the Palma,
since 2001. The story of Banco Palmas in Brazil is a good example of how local
currencies can stimulate the local economy. It is estimated that up to 1800 jobs have
been created through the stimulus set off by this currency (Kennedy et al. 2012;
Lietaer 2014). This former most dangerous region of Brazil is now flourishing.
And this is how it works: the local currency only has value in the Palmeiras
suburb and cannot be spent elsewhere. It can be swapped with the national currency
for a 1 % fee. This fee is apparently high enough to encourage people to seek local
stores that accept Palmas first, instead of buying in nationwide supermarket chains
and malls in downtown Fortaleza. Also, the bank offers interest free credit in the
local currency (why this is a crucial characteristic of social money will be explained
in Chap. 3). Today, over a third of local stores accept the currency. People can also
pay part of their local taxes in local currency.
In 2008, Banco Palmas received the United Nations Millennium Development
Goals Award, one of a long list of national and international prizes. The Central
Bank started a dialogue and apologised for its early negative treatment of Banco
Palmas (p2pfoundation 2014). The success of Banco Palmas led other regions to
Smarter Money for Smarter Cities: How Regional Currencies … 157
copy the idea. Today 100 (USP 2013) community banks can be found throughout
Brazil, 52 of which have joined together in a Network of Community Banks (as of
March 2011, according to Kennedy et al. 2012).
The Theory Behind Banco Palmas
The theory behind Banco Palmas is that there is no such thing as an inherently
economically poor territory (be it a neighbourhood, region, or municipality).
Territories become poor after repeatedly losing their own savings (USP 2013;
Wikipedia 2014a). Any territory, impoverished as it may be, is capable of achieving
economic development. But this development must be autonomous, that is, from
within; otherwise it will not be sustainable. Since the Palma currency cannot be
spent elsewhere, and converting it back to the Real costs a 1 % fee (p2pfoundation
2014), wealth keeps circulating within the community (Kennedy et al. 2012;
Wikipedia 2014a).
One of the founders of the Banco Palmas, who is also the owner of a local
grocery store, said that he once marked a Palmas banknote in the corner with a
pencil. By the end of the day it had returned to him five times: that means it had
passed through five different hands in the community and circulated five times more
than the Real, which usually leaks straight out of the region as soon as it is spent
(Kennedy et al. 2012; p2pfoundation 2014).
Before the inauguration of the Palmas currency, the Conjunto Palmeira district
lacked basic infrastructure such as water, roads, and electricity thus leaving it
vulnerable to floods and other natural and economic stability problems (Wikipedia
2014a). The reason for this was that wealth did not stay in the community.
80 % of the inhabitants’ purchases were made outside the community. By 2011,
however, 93 % of the purchases were made within the suburb (Kennedy et al. 2012;
p2pfoundation 2014). This makes the region flourish (Banco Palmas 2014).
Creating Shared Value
As we have seen, some regions are less developed than others in many cases not
because they are originally poor, but rather because money leaks out of them,
flowing to regions that have achieved higher living standards. As a result, poorer
regions become even poorer while richer regions prosper even more. In this sense,
development attracts development. This trend seems to be a powerful force behind
the growing centralisation of economic activity in the capital regions of many
countries, including Chile. In Chile, the centralisation and concentration of business
activity and workforce in the Metropolitan Region of Santiago is enormous. The
Metropolitan Region is home to 40 % of the country’s total population and is
158 F. Fuders
responsible for 47 % of the Gross Domestic Product (OECD 2009), which means
that Chile is amongst the countries with the highest income inequalities in the
World (Aroca 2009). Decentralisation issues have been a persistent topic on the
political agenda for the last 50 years. Nevertheless, Aroca (2009) showed that the
concentration of income in the Metropolitan region is growing despite the fact that
production in other regions has grown on a larger scale.
Near the city of Valdivia, in southern Chile, there is a town called San José de la
Mariquina that serves as an example to study the effect of the leakage of money. In
that village, there is a huge pulp mill with the capacity to produce 685,000 tons of
pulp (representing 12 % of the world production of cellulose). Despite the enor-
mous resources that the plant generates, the village is quite poor. The reason is that
all of the plant’s employees who earn good wages live in Valdivia, the capital of the
region. In turn, they purchase goods from companies operating in Santiago, the
capital of Chile. In this way, San José gains no advantage whatsoever from the fact
that the plant is located in its territory. Instead, it is affected by significant envi-
ronmental damage: its rivers, wetlands and beaches are contaminated,1 which puts
in jeopardy the little income there is from tourism (Fuders and Max-Neef 2014a).
Now, let us assume that just 5 % of the wages paid by the plant were paid in a
local currency, one that is valid only in San José and can be changed into Chilean
pesos by paying a 1 % fee. Local shops and farmers would quickly accept the
currency; perhaps even municipal taxes could be paid in the currency (as is the case
in Conjunto Palmeiras in Brazil). This greater economic dynamism will generate
new businesses, which in turn make tax revenues increase, so that the city would
have more money to invest in infrastructure and other public goods. Within just a
short time, economic and social synergies would probably make the district
flourish. Attractive infrastructure and beautiful settings would then make people
earning good wages stay in the village for its tranquillity and beauty (invigorating
the local economy even more) instead of commuting the distance of 48 km to
Valdivia (Fuders and Max-Neef 2014a).
These positive effects would in turn be an advantage for the pulp mill, as they
would improve perceptions of the company in the region, which currently could not
be worse, attenuating social conflicts. In this sense a local currency might contribute
to what today is called Creating Shared Value (Porter and Kramer 2011), a
concept that goes beyond the idea of Corporate Social Responsibility and suggests
rethinking capitalism: a company should not only seek to maximise economic
benefit in the short term, but also to create value for society, taking into account the
needs and challenges of the people in its environment. Since paying salaries in local
currency does not increase costs but offers a possibility to improve the relationship
1
Especially in the first years after the start of the industrial activities of the plant in 2004 there were
recorded severe damages to the ecosystem and ecosystem services, especially a significant
decrease in the population of swans (Escaida et al. 2014).
with people and municipalities in the region, the CEO of the pulp mill should take
local money into consideration as a powerful strategy to create shared value (Fuders
and Max-Neef 2014a).
Problems Inherent in Our Financial System
Local currency (sometimes called regional, complementary or social money2) is not

just a powerful tool for strengthening local economies. When implemented
nationwide and based on Silvio Gesell’s concept of “free money”, it can also be a
true alternative to the current financial system, a system which not only results in
crisis every single time, but is also the main reason for the widening gap between
the rich and poor, and forces economies to constantly grow. To understand this
even more interesting aspect of local currencies, we have to take a look at how the
design of our current money system affects the economy and, more generally,
society.3
The Money Multiplier Effect
What many people do not know is that only a very small fraction of our money is
original Central Bank money, that is, money that is produced and put into circulation
by the Central Bank. Instead, most of our money is the counterpart of debt. We can
understand this intuitively by taking a look at how bank deposits grow through interest
and compound interest. If someone deposits, let us say, 100 €, and he does not
withdraw it, this amount will eventually double. With an annual money rate of interest
of 5 %, this would take about 15 years. That is, in 15 years the 100 € deposit will
amount to 200 €. 15 years later, our deposit would amount to 400 €, and 15 years
later to 800 €, then 1600 € and so on. This means that bank accounts grow following a
mathematical exponential curve (Kennedy 1990, 2011; Creutz 1993; Müller 2009).
Since banks have to grant loans to be able to pay the interest on deposits, the total
amount of debt of any economy grows at the same rhythm as deposits do. With the
exception of the original amount of central bank money, every unit of a currency that
one person holds (check account, short or long term deposits) has to be held by
someone else as debt, a fact stated on every US dollar bill: “This note is legal tender to
pay all debts, public and private.” Unfortunately, other currencies are not as eloquent.
2
These terms are often used synonymously (including in this article). However, some authors try to
distinguish between regional and complementary currencies (Kennedy et al. 2012) or divide
complementary currencies based on their nature and purpose in territorial, community and eco-
nomic currencies (Blanc 2011).
3
On the following analysis and presented solutions, see already Fuders (2009b, 2010b), Fuders and
Max-Neef (2012, 2014a, b), Fuders et al. (2013).
160 F. Fuders
This means that the total money supply necessarily equals the total debt of an econ-
omy. If money supply grows on the one hand, total debt has to grow on the other. In
financial economics, this fact is known as the “money multiplier” or “chequebook
money creation” (e.g. Galbraith 1983; Mankiw 1998; Larroulet and Mochón 2003).
Although textbooks explain the money multiplier effect, its implications are not well
understood, neither by experts nor practitioners.
Implications of the Money Multiplier Effect
Since deposits grow following an exponential curve, our financial system gets into
crisis quite regularly, every 50–80 years4 (Kennedy 1990; Creutz 1993; Müller
2009; Bichlmaier 2010; Fuders 2009a, b, 2010a, b; Fuders and Max-Neef 2012,
2014a, b; Fuders et al. 2013). Since infinite exponential growth does not exist in
nature, the human brain seems to have difficulties in comprehending what expo-
nential growth of deposits really means. To illustrate the effect of exponential
growth, we can use the example of the so-called “Joseph’s penny”. If Jesus had
inherited a single penny from Joseph, and if that penny had been deposited in a
bank with a 5 % annual money interest rate, the investment in 1990 would have
amounted to 2200 billion planets’ worth of pure fine gold (Kennedy 1990).5 We can
clearly recognise this fact by taking a look at the USD money supply (Fig. 1),
where we can identify the exponential curve. The money supply of any other
economy whose financial system runs long enough looks similar. The U.S. Federal
Reserve has not made the M36 money supply public since 2006 (Federal Reserve
2006). Is this because people could otherwise notice that the money supply is
growing at a considerably faster rate than the productivity of the U.S. or even world
economy (Hamer 2004; Hamer and Hamer 2005)?7
But who pays the interest on deposits? It is the debtors taking out loans who
generate the interest that banks must pay on the deposits they hold. Banks therefore
strive to lend out amortised loans again as soon as possible to new customers, in
order to maintain the volume of money that is lent out and thus the payment of
interest as well. Moreover, they must also steadily expand the volume that they lend
4
The last big financial crises began in: 1857, 1929, 2008.
5
The calculation presumes a fixed gold price. It is worth mentioning that Jesus most probably
would not have deposited money in a bank account that yields interest since the Bible, as well as
many other religions prohibits charging interest (cf. Holy Bible: Exodus 22, 25; Leviticus 25, 36–
37; Ezekiel 18, 13; Psalm 15, 5; Proverbs 28, 8; Luke 6, 35; also Quran: 2.275).
6
M1: Cash (bills and coins) and deposits in checking accounts; M2: M1 + all time-related
deposits, saving deposits, non-institutional money market funds; M3: M1 + M2 + large and
long-term deposits (2 years), institutional money market funds, repurchase agreements, along with
other larger liquid assets.
7
For the moderate evolution of the growth of world productivity, see IMF (2006, 2012), OECD
(2008).
20,000
18,000
16,000
14,000
12,000
10,000 Series1
8,000
6,000
4,000
2,000
0
1980-11-03 1985-11-03 1990-11-03 1995-11-03 2000-11-03 2005-11-03 2010-11-03
Fig. 1 USD money supply M3 estimated (Billions USD). Source Own construction based on data
provided by Federal Reserve Bank of St. Louis
out because, as was stated above, the interest-bearing deposits also grow.
Expanding the volume of loans gets more difficult the more indebted households,
businesses and the government become. Yet the pressure on bank clerks to sell
loans increases as the economy becomes more and more debt-saturated. Banks
often have no choice: they steadily increase the amount of loans granted or, in the
long run, they will not be able to yield the interest on deposits. Struggling to find
new debtors, banks begin to sell loans to clients with questionable solvency
(subprime) and to lower interest rates. This is not (only) because banks or their
employees are greedy, but because they face pressure to continue increasing the
amount they lend out. The system collapses when banks do not find enough solvent
debtors to be able to yield the interest they are obligated to pay on deposits or if
loans default on a larger scale. Both scenarios lead to bank bankruptcy. The last
time this happened on a major scale in the industrialised world was in 1929.
The interest paid on deposits on the one hand necessarily leads to debt on the
other hand, since there is no interest without debt. The interest-induced increase in
bank deposits therefore automatically leads to higher total indebtedness. Aristotle
already recognised that the macroeconomic interest revenue accurately reflects the
interest cost of debt (Van Suntum 2005). Here we find the reason why the national
debt of most countries follows the same exponential curve as the money supply
does (for the U.S. economy see Fig. 2).
162 F. Fuders
20,000,000
18,000,000
16,000,000
14,000,000
12,000,000
10,000,000
Series1
8,000,000
6,000,000
4,000,000
2,000,000
Fig. 2 US Federal Debt (Millions USD). Source Own construction based on data provided by
Federal Reserve Bank of St. Louis
Inflation, Price-Bubbles, Forced Growth and Destruction

of Environment
If the money supply grows faster than the production of goods, according to Irving
Fisher’s famous equation of exchange (Fisher 1922), inflation will occur, although
at first only partially, namely in the investment markets. The price bubbles might
therefore be considered as a form of “partial inflation” in the investment markets
(Fuders and Max-Neef 2012). Here we find the cause of the stock and real estate
bubbles, and of the resulting financial crisis of 2008 (lat. inflare = to blow up). We
can also now understand why politicians, following the expertise of economic
textbooks (Hankel 1972; Teichmann 1983; Lachmann 2003; Stalk and Orbegozo
2004; Fernández Díaz et al. 2006; Cuadrado Roura et al. 2006), strive for economic
growth (Kennedy 1990; Creutz 1993). Interests are costs. Production must increase
constantly to cope with the growing duty resulting from growing total indebtedness.
Private households as well as companies are more and more indebted, a fact that
can be proved by taking a look at the balance sheets of companies, where we can
find an ever greater share of foreign capital. And since the money rate of interest
that banks offer to pay on deposits is the benchmark for evaluating any productive
investment, even companies that are not indebted and consequently do not incur in
foreign capital costs are not free from the obligation to reach a return on investment
at least as high as the risk free interest rate. The opportunity costs would otherwise
make the investment appear senseless (similarly Suhr 1988). The economy there-
fore has to grow at the rhythm of interest and compound interest.8
In nature, everlasting exponential growth does not exist. In a finite planet with
finite natural resources, it is impossible to continuously expand the productive
output (Daly and Farly 2004; already Aristotle 1995). And why should we con-
tinuously increase Gross Domestic Product if we have already achieved decent
living standards? Extravagance, life-style products, predetermined breaking points
in products, disposable products, and “scrapping incentives” are all measures taken
to artificially increase consumption, and therefore production.9
Steady economic growth is necessarily accompanied by a destruction of our
environment (Kennedy 1990; Daly and Farley 2004). This is what we can deduce
from the 1st and 2nd laws of thermodynamics, which basically tell us that you
cannot produce something out of nothing (1st law) and that everything produced
will someday end up as waste (2nd law, also known as the law of entropy) (e.g.
Daly and Farley 2004). In addition, there is another environmentally damaging
effect. Naturally, there would only be as much produced as is actually consumed.
The perishability and technical obsolescence of products naturally keep surpluses in
check. As long as it is higher than inflation, interest makes job performance
retainable. If one were to put money into an account with no interest, it would
slowly lose value due to inflation, just as products lose value through deterioration
or technical obsolescence. But the fact that interest makes up for inflation makes it
possible to hoard the value produced, which gives an incentive to produce more
than is actually needed.
Are the ‘Kondratieff Waves’ Cycles of Our Financial System?
Are the subprime crisis of 2008 and the on-going European sovereign debt crisis
really two different crises? Superficially looked at, one might say yes. The first one
was originated by irresponsible and greedy bank employees who did not duly check
the solvency of mortgage loan clients so that they could grant more loans. The
second one was triggered by irresponsible governments of states that indebted their
nations in order to finance luxurious pension and social welfare systems. The truth
is that both crises are connected: the world financial system is close to its collapse
(Fuders et al. 2013; Fuders and Max-Neef 2012, 2014b).
8
This seems to be true not only for productive economies but also for any renewable natural
resource exploited by man. For this reason, it has been pointed out that in the long run any natural
resource that reproduces itself more slowly than the interest rate is a candidate for extinction (Daly
and Farley 2004).
9
Also—again, very up to date—even the invention of diseases (Leitner 2000; Blüchel 2003;
Coleman 2003; McTaggart 2005; Blech 2005; Engelbrecht and Köhnlein 2006; Lanka et al. 2006;
Widmer et al. 2006) can be seen as a means to increase production, in this case of medicines.
164 F. Fuders
As explained above, speculation and price bubbles are not the actual causes of
the financial crisis. The crisis is itself a symptom of the ever-increasing money
supply, which seeks forms of investments. Banks have to grant an ever-bigger
amount of loans if they want to be able to keep paying interest on deposits.
However, the all too easily acquired loans, casino-like gambling, and lack of bank
supervision are suggested in the media and literature as causes of the financial crisis
(Shiller 2008; Krugman 2009; Schäfer 2009; Steltzner 2009). This phenomenon is
not new. After the crises of 1857 and 1929, the banks and their practices were also
identified as the culprits.10 Then too, however, the actual cause of those disasters
was probably the money supply, which had previously expanded in an exorbitant
manner (Rothbard 2009). In the same way, it is not the governments of states that
are the culprits of the European debt crisis. Money in a our current banking system
is the counterpart of debt, as stated above, or to put it in the words of Nobel Prize
laureate Frederick Soddy, “Money is a credit-debt relation from which none can
effectually escape” (Soddy 1934). It must be pointed out that the fact that money is
the counterpart of debt is not a problem in itself. The problem is that deposits and
debt grow synchronously through interest and compound interest. At some point
this causes the bankruptcy of the entire economic system.11
Indeed, there is a certain pattern we can identify in financial crises (Fuders
et al. 2013). This pattern starts off with a continuously increasing money supply,
and the search for ways to invest it lucratively. Since nowadays in industrialised
nations it is hardly possible to spend even more money on consumer goods, sur-
pluses flow into real estate or stocks, and this is the reason why we find price
bubbles in these markets. The growing prices in these markets then provide a
pleasant scenario for banks, since they give clients a perfect pretext to demand
loans. Struggling to find new debtors, banks use the growing stock (crisis 1929) and
real estate prices (crisis 2008) to encourage clients to take out loans to buy these
assets. We can now comprehend why credit boom, speculation and financial crisis
seem to go hand in hand.
Following this idea, one might suggest that the long economic cycles first
described by Russian economist Kondratieff (1926) are not related to the invention
of key technologies but, instead, to the cycles of our financial system (Fuders et al.
2013; Fuders and Max-Neef 2014a). Kondratieff was one of the first researchers to
observe the existence of long economic waves that last about 40–60 years.
Schumpeter (1939) later suggested a correlation, which is widely accepted today,
between the invention of key innovations and what he considered to be a conse-
quent long-lasting economic recovery (theory of long waves). The idea is simple:
new key technologies attract investments, which in turn trigger an economic
10
Short positions and speculation were also the supposed causes in the old time (New York Times
1929a, b, c). As today, a transaction fee was proposed to defeat speculation and speculators were
denominated as “parasites” (New York Times 1929d).
11
Already Karl Marx (1911) had recognised that capitalism is self-destructive. It seems that Marx
did not, however, recognise that this is due to the (interest-based) financial system.
pretrochemicals automobiles
Steam engine cotton
railway steel electrical engineering chemistry information technology
1800 1825 1850 1875 1900 1925 1950 1975 2000 2025
Fig. 3 Kondratieff waves. Source own construction
recovery. Decades later, when the hype for this technology is over, it attracts less
money. Hence, an economic downturn starts (Fig. 3).12
But, if a key technology does not attract investments anymore, where does the
money formerly invested in this technology go? It is likely that investors would
either invest it in another productive technology or deposit the funds in a bank,
which in turn would lend this money out to be able to pay the interest on the
deposit. Either way, the money would keep on circulating in the economy. So, why
should this then provoke an economic downturn? In fact, the Kondratieff cycles
could rather be interpreted as cycles of our financial system. This idea can be
supported by an interesting observation. Each economic upturn, allegedly generated
by a key innovation, began just after the financial system had weathered a severe
crisis (in 1825: steam engine, 1875: railway, 1930: electronics and chemicals).
After the recovery of the financial system, these inventions had a chance to be
manufactured on a larger scale. This explains why we observe this correlation
between the production of key technologies and phases of economic boom. It is
also interesting that neither the light bulb nor the steam engine were originally
invented by Edison or Watt, as many would believe. Instead, both inventions were
previously made by engineers who are less well-known today. The design of the
first steam engine goes back to Thomas Newcomen in 1712 (Wikipedia 2014b), the
first light bulb was constructed by Heinrich Göbel in 1854 (Wikipedia 2014c). We
see, at the time those key technologies were invented the economy faced a financial
12
It should be pointed out that this is actually contrary to what Nikolai Kondratieff originally had
proposed. Kondratieff was convinced that the long economic waves are not triggered by tech-
nological innovations; instead, according to his interpretation innovations in science and tech-
nology were rather triggered by economic cycles (Kondratieff 1926).
166 F. Fuders
Fig. 4 Wealth gap. Source

Own construction
crisis. Hence, these technologies could not be produced until later, when the
financial system was re-established, so that money circulated again and willing
investors were found to finance the production of these inventions.13
Inequality in Wealth Distribution
Our financial system is also a main factor behind the growing inequality in income
distribution.14 Since, as described above, money is the counterpart of debt, if the
money supply grows on the one hand, total debt has to grow on the other. The gap
between those who receive interest and those who are indebted therefore expands
following an exponential function (Fig. 4). People within a form of capitalism that
is based on our current financial system can consequently be divided into those who
work productively and “rentiers”, i.e. those who live of that work (Gesell 1949).
From this perspective, someone living off social welfare is not taking advantage of
society any more than someone living off interest (Fuders 2009b). Although some
bank propaganda tries to attract clients with the slogan “let your money work for
you”, money does not actually work, nor does it have offspring (Aristotle 1995).
13
In this context, it is interesting to note that in Edinburgh there exists a renowned university
named after James Watt and his financier George Heriot: the Heriot-Watt University. Given the
order in which their names appear in the name of the university, we can suspect that the financier
of James Watt is deemed to be more important than Watt himself.
14
Not just between private people but also to some extend between countries (Kennedy 1990).
Some even assume that developing countries are intentionally driven into the debt trap (Perkins
2004).
Rather, it is the debtor who yields the interest that the creditor receives. As deposits
(and other financial products such as bonds, debt obligations etc.)—and therefore
the prosperity of those who hold the deposits—grow, so does indebtedness and
poverty.
This is probably the main cause of inequality15 in most countries. Other
problems, such as expensive education and the monopolisation of markets, worsen
the situation. This is the case in Chile, a country in which virtually all markets show
a strong degree of market concentration. The problem is not only that an “invisible
hand” seems to make inequality of wealth distribution grow continuously, but that
this growing inequality is not based on the work of those who receive the interest
but rather the work of those who take out loans and invest the money productively.
Unfortunately, this fact is inadequately discussed in economic science.
Unsustainability of Our Socioeconomic System
Sustainable development is development “that meets the needs of the present

without compromising the ability of future generations to meet their own needs”
(Brundtland Report 1987). Future generations will only be able to meet their own
needs if there are still enough natural resources to do so. In Riechmann’s words:
“… a socioeconomic system is sustainable when, in their transformations and
developments, it does not undermine the ecological foundations on which it rests
and can last over time” (Riechmann 2010). Expressed in the simplest way possible,
sustainability is the durability of a system (Azkarraga et al. 2011). But it is not only
the ecological aspects of sustainability that we have to take into account. Today,
many believe that a just distribution of wealth is a precondition for achieving
sustainability. This is intuitive if we remember that we have to limit economic
growth and the use of natural resources to ensure well-being in the future, but we
cannot require poor people to suffer deprivation to ensure that future generations
will not suffer. If the cake gets smaller, it necessarily has to be distributed in a
different way (Daly and Farley 2004). Thus, disparities in wealth distribution are
unsustainable (additional references from Azkarraga et al. 2011). Therefore, it
appears impossible to achieve sustainable development if we do not change the
design of our current financial system, which demands economic growth and at the
same time makes inequality increase automatically (following an exponential
function).
15
With regard to this point, it is particularly interesting to note that, according to a recently
published study by the Cologne Institute for Economic Research, as the interest on deposits
approaches the zero percent mark, inequality in Germany is growing at a slower pace (Handelsblatt
2015).
168 F. Fuders
Solutions
Some Preliminary Considerations
We have learned that money and credit are closely related (Soddy 1934). With the
exception of the money base originally created by the Central Bank, every money
unit that someone holds is held by someone else as debt. Consequently, if no one
were indebted, there would be (almost) no money.16 One might wonder why the
richest nations are at the same time also the most indebted ones (counted in absolute
figures): U.S., UK, Japan, France and Germany (CIA 2014).17 Is the entire
sophisticated infrastructure worth nothing, does it even have a negative value? The
answer is that wealth, measured in money units, is the counterpart of debt. The
economies with the biggest money supply consequently have to be those with the
highest amount of total debt too (Fuders et al. 2013). Moreover, inflating total debt
is a requisite for our economy to function, a fact that is not well understood in
economics. If no one demanded loans, the economy would stand still (Fuders et al.
2013).
It was already mentioned that the fact that money serves as the counterpart of
debt is not a problem in itself. Rather, the problem derives from the fact that
deposits and debt grow continuously (following an exponential function) through
interest and compound interest. To be able to understand the solutions presented in
the following chapter, we first have to understand why the money rate of interest
exists. The existence of interest derives from an unnatural property of money.
Money is supposed to be a medium of exchange to facilitate the exchange of goods
and services (already Aristotle 1995; Steiner 1979). But, because people tend to
have a preference for liquidity, to put it in Keynes (1936) words, people like to save
up money. That we like to save for future times is a natural behaviour. Animals also
show this behaviour (e.g. hamsters). Nevertheless, in nature it is only possible to
hoard goods in a very restrictive way, since real goods perish. Food spoils rapidly,
technical products lose value due to technical obsolescence, and services are not
possible to hoard at all. Any excessive hoarding would—in time—result in the loss
of the hoarded goods. This means that nature keeps our natural instinct to hoard in
check. But our money, as it is designed today, makes it possible to hoard any
16
In this vein one might argue that those who hold that money should actually be grateful to those
who are indebted, for money is created by debt.
17
If the governments really managed to save enough to pay off a large portion of their debts, then it
would necessarily be the people who are indebted. This phenomenon is found in those
(few) countries where the national debt is low, e.g. Chile. Thanks to its income from copper
mining, Chile managed to almost completely dissolve its net national debt (BCCh 2012b). Instead
of the State, now the majority of the population finds itself in or close to the debt trap. This is
because in our financial system someone has to be indebted. Therefore, in Chile banks are so
desperate to grant loans that they offer incentives to department stores for selling credit, which is
why rebates in Chile in most cases are only granted if the buyer pays with a credit card or signs a
loan contract (Fuders and Max-Neef 2012, 2014a; Fuders and Belloy 2013).
surplus without restriction. Our instinct-driven impulse to hoard is being perverted

by the fact that our money does not perish and has a monopolistic-like position
compared to any real and perishable good (Gesell 1949).
Hoarded money, however, cannot fulfil its main purpose of circulating in the
economy as a medium of exchange. If everyone hoards most of their gains under
the pillow, demand will collapse, prices will shrink and we will see deflation, which
gives the money holder an even stronger incentive not to spend his money today,
since tomorrow products will be even cheaper. Soon, no one will buy or sell
anything; production will stand still. This sorrowful scenario is called deflation.
Today we (still) do not see deflation because people do not save up money at home
but in a bank account. The bank then grants loans, and this is why money is
circulating and serving the economy as a medium to facilitate the exchange of
goods. A main reason why people deposit money in banks is because they have an
incentive to do so: interest. Accordingly, the money rate of interest is a reward for
not hoarding money at home; it is a reward for parting with liquidity as Keynes
(1936) accurately defined it.
Ultimately, the existence of interest derives both from the fact that money is
infinitely storable and from our instinctive urge to save. But if households can only
be prevented from hoarding money at home by offering a (positive) interest rate as
incentive to lend it (to a person or a bank), then this will lead to the described
adverse effects, namely the exponential increase of deposits and debt, inflation,
asset price bubbles, and the growth requirement of the (real) economy. People must
therefore be prevented from hoarding, but without requiring the money rate of
interest. This is what Silvio Gesell’s solution—discussed in the next chapter—tends
to achieve.
In the meantime, our money is easily storable; the only way to keep it circulating
and to prevent deflation is to pay interest. Interest makes money deposits and debt
grow in a likewise manner, since there is no interest without debt. That is to say, if
we do not expand the (credit) money supply we will see deflation. The only way to
prevent this deflation is to keep the system running. This is why rescue funds are
made up and why the ECB, Fed, Bank of England, and Central Bank of Japan
decided to keep the financial markets liquid by printing money (Steltzner 2009;
Frühauf 2009). The risk of even more price bubbles and inflation is apparently
estimated to be less damaging than a scenario containing deflation.18 But, of course,
keeping a sick system artificially alive is not a solution for the underlying problem.
18
This is probably based on the wildly accepted recommendation of Irving Fisher to reflate if the
risk of debt deflation occurs (Fisher 1933a). According to this theory, deflation is caused by
over-indebtedness. Irving Fisher’s debt-deflation theory is a good example of how the problem
inherent in our financial system is misunderstood. Debt is not the cause of deflation but rather a
symptom of our financial system, where money is created by debt. Deposits grow by interest
independently of the performance of real economy, which is why total debt also grows inde-
pendently of the performance of the real economy, since there is no interest payment without debt.
Money supply therefore inflates until the system collapses. If the financial system collapses people
start hoarding money at home (instead of bringing it to the bank, which would then loan it out), so
it does not serve as a medium to facilitate the exchange of goods anymore and deflation prevails. In
170 F. Fuders
Gesell’s Solution: Free Money
It is exactly 100 years ago that the first edition of Silvio Gesell’s work “The Natural
Economic Order” was published. In this masterpiece, German-Argentine merchant
Gesell diagnosed most of the problems described above. As a solution, he proposed
what he called “free money” (Freigeld). It is “free money” because it is supposed to
be free of interest and because it sets people free (Gesell 1949). In order to achieve
this, tax stamps have to be placed on the money bills at set intervals, e.g. every three
months. Otherwise the bill will have no value. The tax stamps are not supposed to
be very expensive; just 1 or 2 % of the value of each bill. This demurrage fee
(hoarding fee), although it is not high, provides a powerful incentive to either spend
the money, invest it productively or lend it out. But, unlike our current money, this
money will not be lent out against interest. Instead, the money owner can be
grateful to the borrower, since the borrower promises to pay back the bills with the
corresponding stamp put on (Gesell 1949). The money owner can no longer
“blackmail” the person in need of money and “press” interest (Gesell 1949), i.e.
“exploit the scarcity-value of capital” as John Maynard Keynes put it (Keynes
1936).
Although it might sound strange at first, Silvio Gesell’s idea is a powerful tool
for avoiding excessive money hoarding and the existence of the money rate of
interest. Again, the money rate of interest, which ancient philosopher Aristotle used
to qualify as unnatural (Aristotle 1995), is a symptom of the unnatural design of our
current financial system that makes money infinitely storable. In contrast, Silvio
Gesell’s free money is natural money, since it makes money perishable the way
real goods are. In other words, by freeing money from its special and unnatural
position compared to real goods, the likewise unnatural money rate of interest
would also disappear. It is noteworthy that although famous economists John
Maynard Keynes and Irving Fisher favourably discussed Gesell’s idea and found it
to be a solution to the Great Depression (Keynes 1936; Fisher 1932, 1933b), today
most economist and practitioners in the financial sector have not even heard of
Gesell. Keynes was swayed that “the future will learn more from the spirit of Gesell
than from that of Marx” (Keynes 1936).19 Irving Fisher even considered himself a
(Footnote 18 continued)
our financial system we see either inflation or deflation. Stable money does not exist (Fuders et al.
2013). The fact that inflation is not always seen as a problem and appears relatively moderate is
due to the fact that inflation is measured solely by the prices of consumer goods, while households
are likely to invest surpluses in stock or real estate markets, where we do see steadily rising prices.
This effect, which could be called the “inflation-deflation paradox”, is probably a major reason
why the underlying problems of our banking system have not been recognised by economists
(with further references Fuders 2011; Azkarraga et al. 2011; Fuders and Belloy 2013; Fuders et al.
2013; Fuders and Max-Neef 2014a).
19
At the Bretton Woods conference he proposed an international currency of this kind called
Bancor (Keynes 1980).
Fig. 5 Free money bill “Lutzetaler” in Köthen, Germany (backside with best-before-date). Source
Own photography
“modest apostle” of Gesell (Fisher 1947) and devoted a book of his own to the
concept of free money (Fisher 1933b).
Of course, nowadays we might think of more convenient ways to attach a
hoarding fee to money. For example, as an alternative to Gesell’s stamp-scrip-money
version, we could use electronic banknotes that devalue over time (Berger 2009).
Today, many existing regional currencies, designed according to Gesell’s idea,
expire (Fig. 5). Instead of pasting stamps to bills at set intervals, a bill must be
exchanged for a new one against payment of the hoarding fee.
Negative Central Bank interest rates have also been discussed as an alternative.
Negative prime rates are somewhat comparable to Silvio Gesell’s solution of
imposing a hoarding fee (Buiter and Panigirtzoglou 1999, 2003; Buiter 2005, 2009;
Mankiw 2009; Fuders 2010b). For the first time ever in the history of Central
Banks, the Swedish Central Bank introduced negative prime rates in June 2009
(Riksbank 2009). The European Central Bank (ECB) followed suit recently when it
lowered the Deposit Facility Rate to −0.20 % (ECB 2014). Benoît Cœuré, a
member of the ECB’s Executive Board, commented in a public speech at the annual
172 F. Fuders
dinner of the ECB’s Money Market Contact Group that the idea of negative interest
rates goes “back to the late nineteenth century, to Silvio Gesell” (Cœuré 2014). The
fact that a member of the EBC Executive Board alluded to Silvio Gesell might be
considered even more surprising than the fact that the ECB has imposed a negative
interest rate on deposits.
That the Deposit Facility Rate is negative means that commercial banks must
pay the Central Bank for their deposits instead of receiving interest. If only prime
rates were negative enough, loans in the private banking sector could be free of
interest too.20 That is to say, like in Silvio Gesell’s free money system, the pressure
that negative Central Bank interest rates exert on the money supply could lead
interest rates to fall to near zero (Fuders 2010b). Unfortunately, a −0.20 % fee on
the deposits that commercial banks hold at the European Central Bank will most
likely not exert enough pressure on the money supply to make the money rate of
interest fall to zero (Fuders and Löhr 2014). Although taxing a bank’s deposits is
comparable to Silvio Gesell’s idea, it is not exactly the same. Unlike Silvio Gesell’s
solution, cash hoarded at home accrues no hoarding tax. To compensate this fact,
the negative interest rate on bank deposits should be respectively high. The way the
ECB is practicing Silvio Gesell’s solution right now will probably not solve the
problems inherent in our world financial system (Fuders and Löhr 2014).
Free Money Was Successfully Tested During the 1930s
The concept of free money is not just a theoretical chimera. In the 1930s it was
actually implemented in cities in Germany, Austria, Liechtenstein, Switzerland,
France, Spain, and in a couple of cities in the U.S. The most successful imple-
mentation probably took place in the small Austrian town of Wörgl. Its mayor, Mr.
Unterguggenberger had read of Silvio Gesell’s idea and decided to give it a try.
Wörgl had been a prosperous village before getting trapped by the Great
Depression. But suddenly money flow stopped. The mine, the city’s main
employer, could not sell its products and consequently was not able to pay its
workers. The village’s economy got stuck. The implementation of free money in
Wörgl at that point was a great success: unemployment rapidly fell to its pre-crisis
level, the municipality recorded tax revenues again, and many citizens were able to
get rid of their debt. The success was of such magnitude that newspapers around the
world reported about the “miracle of Wörgl” (Fisher 1933b; Onken 1997).
Unfortunately, this success story was brought to an end when the Central Bank
argued that it had the note issuing authority, not the municipality of Wörgl (Fisher
1933b; Unger 2007) (Fig. 6).
20
Banks might, however, charge a commission fee.
Fig. 6 Free money bill in Wörgl, Austria 1932. Source Wikimedia Commons
Free Money Getting Famous Again
Today the notion of free money is becoming famous again. Countless local money
initiatives have been founded in many parts of the world (Kennedy et al. 2012).
This is not just the case in poor regions or those suffering from financial crisis,21 but
also in Germany, one of the world‘s leading countries in terms of the quantity of
local currencies to be found.22 This is particularly interesting since Germany is a
developed country and has so far not suffered from the financial crisis. The most
famous local currencies are the “Roland” in Bremen, the “Regio” in Munich, the
“Berliner” in Berlin, the “Havelblüte” in Potsdam, the “Engel” in Wittenberg, the
“Rheingold”, and above all the “Chiemgauer” in the region around the Lake
Chiemsee, which has existed since 2003. German media have reported several
times about the “Chiemgauer” (Seibel and Stocker 2009; Palmer and Collinson
2011; Klawitter 2007). One might ask, why does the Central Bank not intervene as
it did in Wörgl? The answer is that, indeed, there is a difference between the free
money in Wörgl and all the modern regional money initiatives. The Chiemgauer
and the Palma are excellent examples. Both have not been implemented by the
municipality—as was the case in Wörgl—but instead by a private group of people
who understood the problems inherent in the financial system and who are trying to
show that an alternative does exist. That is probably the reason why Palmas and
Chiemgauer are still not prohibited. In this context, it is noteworthy that in the case
21
It is estimated that in Spain right now there are 70 social money initiatives (Albor 2013).
22
As of 2006, up to 65 regional currency initiatives have been identified (Rösl 2005, 2006).
174 F. Fuders
of Banco Palmas, the Brazilian Central Bank initially sued Joaquim Melo, one of
the local organizers of Banco Palmas. In the eyes of the Brazilian Central Bank, he
had committed a kind of fraud, issuing this private “false” money (Kennedy et al.
2012). But Joaquim Melo won the lawsuit. The judges did not find a reason why
private people—enjoying the constitutionally-granted freedom of contract—should
not be allowed to use any kind of vouchers whatsoever to facilitate the exchange of
goods and services. Also, the judges said that access to finance was a constitu-
tionally guaranteed right; whereas the Central Bank was doing nothing for poor
areas, these are now benefiting from the local currency (Kennedy et al. 2012).
Other Forms of Social Money
Indexed Money
Some authors propose overcoming the problems of our monetary system with
money that is tied to real values (indexed currencies, see e.g. Reichmuth and
Reichmuth 2001). Every unit of such a currency represents a share of a basket of
real goods, which may contain energy resources, land, etc. Hence, the holder of the
money has the right, based on the amount of money he holds, to claim his share of
this basket of goods. Such a basket of goods is comparable to an investment fund
whose shares can be purchased at banks today. The investment fund invests in real
assets such as real estate, commodities, and precious metals. Shares in these funds
could theoretically be used as a medium of exchange. Defenders of this idea believe
that money that is tied to real goods will not devalue or suffer from financial crises
since it is backed by real values (Reichmuth and Reichmuth 2001). Such a currency
is comparable to a gold exchange standard. Money in a gold standard system is an
indexed currency; in this case the currency is tied to gold. Like the gold standard,
however, currencies that are tied to other values are no solution to the problems of
our financial system (Fuders 2014). It may be lucrative and recommendable to
invest in funds that invest in real assets. Nevertheless, a share of this type of fund
can only maintain (or even increase) its value over time when shares of the fund are
not themselves used as currency, and when their value is specified in a third
currency (that actually does experience inflation). For example, if a fund unit that
had a cost of 100 € some years ago today costs 150 €, then this value may cor-
respond approximately to the former purchasing power.
But the possibility of maintaining the original purchasing power by investing in
such funds only works if the value is measured in a third, virtual (Soddy 1933)
currency, e.g. Euros. If the shares of such an investment fund were used as currency
themselves—for example, if supermarkets put prices in this currency, bank
accounts worked in this currency and banks granted loans in this currency—it
would be subject to the same problem that faces our current monetary system, like
any other currency not equipped with a hoarding tax. Without a hoarding tax, a
(positive) money rate of interest would appear. Even just a low interest rate would
force banks to constantly grant more and more loans to be able to yield the interest
on deposits. The amount of currency units (i.e. of fund shares) would grow through
chequebook money creation, just as the supply of Euros or USD grows today. In the
long term, the promise to distribute the corresponding amount of real goods to the
money holders could not be maintained. Just as the gold standard must be repealed
sooner or later because there is not enough gold to keep up with the constantly
growing money supply backed by it (Galbraith 1983), binding a currency to real
values such as real estate, commodities or any other non-perishable goods cannot be
maintained in the long term because the money supply, as long as there is a positive
money rate of interest, will multiply exponentially. This is a mathematical law that
is true for every currency that can be borrowed against interest, whether it is bound
to real values or not. Money, in the long run, cannot simultaneously function as a
means of exchange and a means of storing value. This contradiction results in the
money rate of interest and thus the automatic increase of money supply over time,
which in turn brings inflation, financial crisis, speculative bubbles (partial inflation)
and the ever-growing total debt.
Time Banks
For the same reason, Time Banks or time-based-currency are not solutions to the
problems described if time units are easily storable. Time-based currency works as
follows: People work one hour, and thereby get one hour of working time credited
to their account at the Time Bank. This credit can be redeemed for one hour of work
done by another person. For example, if a workman repairs the sanitary facilities of
another person, and this service takes three hours, the craftsman will get these three
hours credited to his account. The person who has used the workman’s service will
have these hours deducted from his or her time account. One of the oldest and
largest time-based currency systems that is still operating is the Ithaca HOUR used
in Ithaca, New York (Kennedy et al. 2012; Wikipedia 2014d).
This system’s time vouchers represent the right to demand a time-equivalent
service in the future.23 It is a system that facilitates the barter of services, a system
that works independently of our existing monetary system and can be used in a
parallel way. Nevertheless, it is not a real alternative to our current financial system
as long as time units can be hoarded indefinitely. To understand this, let us suppose
that we pay with time units instead of dollars or Euros. All prices in supermarkets,
of services, etc. are priced in units of labour time (or fractions thereof). People hold
time bank accounts instead of conventional dollar or Euro accounts. To possess
23
Some time-based currencies value participants’ contributions equally: one hour equals one
service credit. In these systems, one person volunteers to work for an hour for another person; thus,
they are credited with one hour, which they can redeem for an hour of service from another
volunteer. Other systems, such as Ithaca Hours, let physicians and dentists charge more “hours”
per hour (Wikipedia 2014d).
176 F. Fuders
time units at the Time Bank would be equally as vital as it is today to possess
conventional monetary units. As long as this time-based money system does not
include a hoarding tax, some people will start hoarding time units, while others will
need them urgently. As is the case in the conventional monetary system, in a
time-based money system a person who has time units accumulated will have no
reason (apart from charity) to lend them out, unless interest is provided as an
incentive to do so. Therefore, a time based money system is affected by the same
problem as our conventional monetary system.
Inflation Adjusted Accounting Units like the Chilean UF
In some South American countries, it is common to express prices in an inflation

adjusted accounting unit, particularly in the financial sector. Chile was a pioneer
with regard to this practice, using the inflation adjusted Unidad de Fomento
(UF) since 1967. The UF is an accounting unit (unidad de cuenta), whose value is
determined on the basis of a hypothetical product basket, i.e. using the same method
through which the consumer price index is calculated. The UF was originally used
to ensure that the interest rates of mortgage loans were always higher than the
inflation rate. Today, the UF, whose value in Chilean pesos is calculated daily, is
principally used in the financial sector. All Chilean banks use UF to express interest
rates in loan contracts, and often bank fees as well. Since most people finance the
purchase of real estate through mortgage loans, real estate prices in Chile are
usually also expressed in UF. Prices expressed in UF have remained relatively
stable, recording almost no inflation. Expressed in Chilean pesos, however, prop-
erty prices have indeed risen with inflation, because the UF is becoming increas-
ingly expensive. In this way, the UF has served its purpose of giving banks a
reliable basis for calculating rates and ensuring that interest rates are always set
above the inflation rate. Employees whose employment contracts are expressed in
UF are protected against inflation. So, one might therefore ask, why not use the UF
instead of the Chilean peso as a general method of payment?24
The fact that the UF is relatively stable in value, and therefore not subject to
inflation, is probably due to the fact that it is not a currency, but rather an
accounting unit whose value is expressed in a third currency—the Chilean Peso—
that is subject to inflation (Fuders 2014). It is not the case that prices expressed in
UFs have not increased. In fact, real estate prices, for example, have risen sig-
nificantly. Consider, for instance, a property that cost 5000 UF 10 years ago and
has the same UF value today. 10 years ago, this value corresponded to 50 million
pesos, whereas today it corresponds to 125 million pesos, since the UF 10 years
ago was equivalent to about 10,000 pesos and today it is equivalent to 25,000
24
The owner of a Swiss private bank, Karl Reichmuth, asked me this question. He is co-author of
the book: “Der RealUnit” (Reichmuth and Reichmuth 2001).
pesos.25 If we were to use the UF not as an accounting unit for a third currency
but as money itself, the UF would probably also have recorded inflation. That is
to say, if all businesses established prices in UFs, and if bank accounts functioned
in UFs and loans were granted in UFs, then the amount of UFs in UF bank
accounts would grow through interest and banks would be forced to expand
lending in UF. The problem of an expanding money supply would then also
affect the UF, which is why there would also be UF-inflation (Fuders 2014).
Summary
Preserving the purchasing power of money over time is not possible in any monetary
system. Money should be a medium of exchange. It cannot be a means to store value
at the same time. Money that is hoarded cannot circulate in the economy and serve as
a medium of exchange. This is a contradiction from which the existence of interest as
a liquidity prime ultimately results, and thus it is the cause of the regularly occurring
financial crises, as well as speculation, inflation, unemployment, the obligation to
grow economically and the steadily widening gap between the rich and the poor. As
long as there is interest, a currency cannot be stable (Fuders et al. 2013). The money
that is best able to preserve value is therefore probably one with a demurrage fee
(hoarding fee, carrying cost) attached to it, although the demurrage fee itself means a
steady loss of value. This fee, however, is not likely to be higher than the inflation
rate, which in any case would likely not occur with money equipped with some sort
of carrying cost. In addition, it is easier to calculate the value of a currency that is
subject to a hoarding fee that always remains the same than it is for a currency that is
subject to inflation and financial crises that usually strike unpredictably. So, we have
to decide: either a monetary system includes some kind of incentive not to hoard or
there will be inflation and financial crises (Fuders 2014).
Post-growth Economics and Steady-State Economy?
Ecological Economics is an economic school of thought oriented toward a para-

digm for the future. One branch of Ecological Economics is the post-growth
debate and the steady-state-economy debate (Daly 1991; Daly and Farley 2004;
Paech 2009).26 There is no doubt that we cannot keep increasing the production of
25
The daily values of the UF since 1990 can be downloaded from the website of Chile’s tax
authority. See: http://www.sii.cl/pagina/valores/uf/uf2012.htm.
26
A steady-state economy is “an economy with constant stocks of people and artifacts, maintained
at some desired, sufficient levels by low rates of maintenance ‘throughput’, that is, by the lowest
feasible flows of matter and energy from the first stage of production (…) to the last stage of
consumption (…)” (Daly 1991).
178 F. Fuders
goods and services forever. Increasing Gross Domestic Product (GDP) means that
we are using more resources since, as mentioned above, it is not possible to produce
something out of nothing. This would even be true if GDP were composed only of
services, since services also need energy to be produced—in many cases even more
than tangible products. The more we produce, the more energy and resources we
will need and the more waste we will generate. Even if we managed to increase
efficiency and manufacture the same products with less energy and production
inputs, if we keep increasing the output produced in the long run we will need more
resources (Daly and Farley 2004). The only way to not destroy our planet is to stop
growing economically.
But is it possible not to grow economically without causing widespread poverty
and economic depression? The answer is: without reforming our money, it is
probably not possible. As explained above, the economy has to grow because the
interest burden of companies, households and usually also governments grows
continuously, following a mathematical logic (Soddy 1934). And this is where the
unemployment problem—a problem almost every government in the world is
struggling with—comes from. Businesses are constantly looking to reduce costs,
not (just) because they are greedy and wish to maximise their profits, but to
compensate for growing foreign capital costs. That is to say, businesses try to save
whatever costs possible to avoid losing the status quo, and this is why they make
use of technology, replacing the expensive human workforce with machines. Now
we can understand why recommendations derived from both neoclassical and from
Keynesian economic models aim to increase economic growth (Keynes 1936;
Fernández Díaz et al. 2006; Cuadrado Roura et al. 2006): the only way to prevent
unemployment from growing is to make production increase more quickly than
productivity, i.e. at a faster pace than the replacement of humans by machines. In
other words, if it is possible to produce the same amount of products with a smaller
human workforce, companies only maintain their employment levels if they can sell
respectively more goods or services.
If we do not want to be sucked into an economic depression with deflationary
tendencies and high rates of unemployment, this constraint of being obligated to
constantly grow can only be removed from our economy if we change our monetary
system. Our current financial system is probably the principal, but nevertheless least
recognised, reason for market failure.27 Therefore, Ecological Economics has to
take into consideration the problems inherent in our financial system if it really aims
to be a paradigm for the future.
27
Economists speak of “market failure” if markets do not lead to the positive outcomes for society
that economic theory attributes to free market competition.
Outlook
An Option for Every Region
We have seen that local currency is a powerful tool for strengthening local
economies and fostering decentralised regional development. Many underdevel-
oped regions are not inherently poor, but rather lose prosperity because money does
not stay in the region. Instead, it flows to regions that have already achieved a
higher living standard. The example of Banco Palmas demonstrates how a regional
currency initiative set up by private participants can be a powerful tool for pro-
moting regional development and prosperity by preventing money from leaking out
of the region. Likewise, private companies like the pulp plant in San José de la
Mariquina can contribute to regional development and prosperity by implementing
a local currency, and in this way creating shared value as part of their social
responsibility strategy and setting an example for other regions in Chile and Latin
America.
Confederation of Local Currencies
Let us imagine a world whose regions implement regional currencies. Thus, money
based on the concept of Silvio Gesell’s free money would be implemented in all
regions, i.e. in all regions of a given country and in this way throughout the national
territory. Such money would support the economy as a whole (Fuders and Max-Neef
2012). Moreover, this money would flow without the interest rate as liquidity prime
being necessary, and therefore the creation of an ever-growing amount of money and
debt would be avoided. This would, in turn, avoid most of the problems described that
occur in our current reserve banking system. There would probably be no inflation,
less asset price-bubbles, and no financial crises. Without the economic growth
imperative there would be less pollution and environmental overstraining. By losing
the interest burden, companies would either generate higher profits or lower their
prices, bringing profit to either the investor or the consumer. The interest revenues
pocketed by banks and money holders today would thus end up in the households.28
An Option for Greece
Currently, Greece is struggling with the International Monetary Fund (IMF), ECB
and EU Member States to receive new loans to avoid state bankruptcy. But does
28
This is no small sum. It was shown that prices compound 30–50 % due to interest (with further
references Kennedy 1990).
180 F. Fuders
Greece really need more loans? Will the money coming from outside help people in
Greece? The answer is: it will not. The Greek people will not see one pence of this
money. Instead, it will flow directly into the pockets of banks, which are waiting for
existing loans to be paid back and would otherwise have to write them off. In
addition, let us remember that money does not actually work. All of any country’s
prosperity always comes from the work of that country’s people (Fuders 2009c).
Money should be just a medium to facilitate barter, that is, to facilitate the exchange
of workforce, goods and services. Greece does not necessarily need money from any
outside institution. Regardless of whether or not Greece accepts new foreign loans, it
might take into consideration the option of issuing a complementary currency par-
allel to the Euro—hopefully based on the concept of Silvio Gesell’s free money so
that it has a chance to prevail on the long run. This would most likely make the Greek
economy flourish, without causing negative side effects. It would be worth a try.
Concluding Remarks
At the present time we are not just going through an economic-financial crisis, but a
crisis of humanity (Max-Neef 2010), and this crisis has led some to even lose
confidence in the free market economy. One of the aims of this article is to show
that it is not the principle of free markets that causes this crisis but, instead, that
markets are perverted by speculation and the productive economy’s obligation to
constantly grow, both of which directly result from our financial system. In the long
term, steady economic growth by necessity brings along the destruction and
overstraining of the natural environment and ecosystem services. Our banking
system, where money and debt develop synchronously, is also a main reason for the
over-indebtedness of households and governments and for the steadily widening
gap between the poor and the wealthy, following a mathematical logic. At present,
the three main concerns of our societies, i.e. inequality, destruction of our natural
environment, and the financial crisis, are all connected to the financial system,
which unfortunately is not well understood in economic science.
Without the obligation to grow economically, society can finally start developing
at a human scale. That is to say, the economy might help people satisfy fundamental
human needs instead of people serving the economy.29 Only if we are able to
abolish the obligation to grow economically might the economy finally serve
people and not vice versa. Therefore, if we want society to be able to develop at a
human scale, it is highly recommendable to first reform our money. Silvio Gesell’s
29
Human needs in the Human-Scale-Development-Concept are seen as ontological, i.e. stemming
from the condition of being human and can be characterised as few, finite, classifiable and do not
vary through all human cultures and across historical time periods in contrast to the notion of what
economics define as “wants”, which are infinite and insatiable. What do change over time and
between cultures are the strategies by which these needs are satisfied. On the concept of a Human
Scale Development see: Max-Neef et al. (1991).
solution, a currency that is equipped with some sort of carrying cost that makes it
impossible to hoard huge amounts of money, seems to be a working alternative.
Unfortunately, governments and economic science fail to understand the problems
inherent in our current financial system, which is why it cannot be expected that
change will come from above.
Fortunately, while world financial markets are shaken by the subprime and Euro
crisis, more and more regions are implementing regional or local currencies based
on Silvio Gesell’s concept of free money. Experience shows that the adoption of a
local currency strengthens the local economy, and also contributes to the reduction
of poverty and of the risk to households of falling into the debt trap. In this way, it
encourages positive development of urban as well as rural regions. However, there
is another reason to implement a local currency: a region that has its own parallel,
complementary currency will be less affected in the case of a worldwide panic and
chain of bank bankruptcies.
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Decentralisation and Regional Development: Experiences and Lessons From Four Continents Over Three Decades

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Springer Geography

More information about this series at http://www.springer.com/series/10180

Daniel Inkoom Teodoro Kausel

ISSN 2194-315X ISSN 2194-3168 (electronic)

Library of Congress Control Number: 2016938651

© Springer International Publishing Switzerland 2016

Printed on acid-free paper

This Springer imprint is published by Springer Nature

Einhard Schmidt-Kallert: A Life in Search of Understanding

We have reached a point in the evolution of our Western Civilisation, in which we

way of a balanced national development. For instance, in sub-Saharan Africa

Thus, the practice of decentralisation and regional development in Europe and

Journals and Articles

Books and Chapters

Theoretical Reﬂections on Ghana’s Decentralisation: Increasing

Assessing the Effectiveness of the Decentralisation Policy

About the Editors

Nicasio B. Espina Jr. is a registered and licensed architect in the Philippines.

Arlene D.R. Santiago serves as University Extension Specialist at the University

BayLplG Bavarian State Planning Act, Bayerisches Landesplanungsgesetz

MDRRMO Municipal Disaster Risk Reduction and Management Ofﬁce

Theoretical Reflections on Ghana’s Decentralisation: Increasing

Figure 1 Institutional framework for decentralised planning.

Decentralisation and Local Economic Development Promotion

Figure 1 Ghana’s government structure. Source Author’s

Levelling the Gradients—Planning for Equivalent Standards

Figure 1 Ensuring services of public interest.

Decentralisation in the German Context: An Assessment

Figure 1 Levels and components of the German planning system.

Decentralisation and Urban Governance: Trends and Lessons

Figure 1 Average percentage of grants (budgetary independence)

Analysis and Lessons from Decentralisation and Its Implications

Figure 1 Existing Marikina City land use plan. Source Marikina

Assessing the Effectiveness of the Decentralisation Policy

Figure 1 Relationship between decentralisation and DRRM

Figure 2 Location of the Province of Bulacan in the Philippines.

Smarter Money for Smarter Cities: How Regional Currencies

Figure 1 USD money supply M3 estimated (Billions USD).

Theoretical Reflections on Ghana’s Decentralisation: Increasing

Table 1 Total DDF funding: indicative timetable for disbursements

Decentralisation and Local Economic Development Promotion

Table 1 DACF releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Decentralisation and Urban Governance: Trends and Lessons

Table 1 Amount of land rent remitted by Central Governments

Decentralisation of Municipal Servicing in Tanzania:

Table 1 Results of decentralised water services management

Analysis and Lessons from Decentralisation and Its Implications

Table 1 Local environmental ordinances of Marikina City . . . . . . . . . . . 114

Assessing the Effectiveness of the Decentralisation Policy on Disaster

Table 1 Hagonoy’s existing land distribution (2004) . . . . . . . . . . . . . . . 137

Imoro Braimah and Daniel Inkoom

I. Braimah (&) D. Inkoom

© Springer International Publishing Switzerland 2016 1

The arguments for decentralisation are not far-fetched: Decentralisation is

The Framework for Decentralisation in Ghana

Ghana’s decentralisation is largely devolution, which is considered to be the most

Ministry of Finance Development

Regional Departments of MDAs

District Sectoral Plans

Finance and Administration Sub-committee Executive Committee

Development Planning Sub-committee

Sector Departments District Planning Coordinating Unit (DPCU)

Policy Framework, Data & Information Area & Town Councils