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Enhancing the financial position of cities : Evidence from Dakar

Case study 3
Financing Sustainable Urban Development
University of Oxford

9 mai 2023

The city of Dakar is one of the only cities in Africa to come close to taking a municipal bond to market. The US$40 million bond, set to launch in 2014, was designed to fund a new market hall for informal traders in the city. The market would relocate more than 4,000 street vendors, with the aim of moving them from side streets into a safe and central place to sell their goods, with access to credit agencies and other market services. Development partners, including the Bill and Melinda Gates Foundation, the World Bank’s Public-Private Infrastructure Advisory Facility (PPIAF), Cities Alliance, and USAID, played a crucial role in making the bond terms viable both in shouldering the financial burden of developing internal creditworthiness, and in providing expertise and guarantees to reduce the risk.

Although the bond’s launch was ultimately stopped by national government decree, the process of preparing for the bond has greatly improved the financial management capabilities and creditworthiness of the city. As a result, Dakar’s bond journey is still paying dividends to the city today, with a number of successful concessional and commercial loans. The process also deepened the city’s connection with its residents with small bond denominations, informal traders were one of the key investors.

The motivation for the bond was in part due to the city’s lack of control over its financial resources. While the most recent decentralisation law amendment, Acte III de la Décentralisation of 2013, has seen many responsibilities devolved to the local level, finances to deliver on this new mandate have not followed. In fact, all revenue and expenditure for local governments in Senegal are processed at the national level, leaving little room or incentive for financial reform. Surprisingly, despite this, the law gives local governments relative independence in taking on debt. This meant that when Mayor Sall came into office with a vision for change, the only viable financing opportunity within the city of Dakar’s control was via the latter. This legislated independence is also the reason why the halting of the bond was so heavily contested.

The city of Dakar provides an example of the importance of the political landscape in effecting any innovative reforms, as well as the need for the national government to buy-in to the fact that successful cities are in their interest as well. This is particularly critical in Dakar’s case, given the city’s finances are managed at the national level. Fortuitously, the national government is now beginning to focus on improving local revenues, primarily through property taxes, as well as better coordination amongst different stakeholders through a dedicated department and the ‘Local Fiscality Commissions’ described below.

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