Paradoxically, in a time when global wealth is reaching record levels, municipal and national authorities encounter ever more obstacles in their search for financial resources to meet social needs and improve the living conditions of their citizens. And although the administrative power of many cities is growing as a result of the decentralisation policy implemented in many countries, the transfer of responsibilities is not always accompanied by an adequate transfer of resources from central to local authorities. In this context, municipalities have to find new strategies to increase their revenues in general, and to raise funds for the fight against poverty in particular.

The purpose of this workshop was to give participants a better understanding of existing sources that can be tapped to finance the reduction of urban poverty, and to assist them in acquiring new sources of funding. It focused on the characteristics of local economy and finance - particularly the crucial issue of local taxation - in developing countries, the development of a productive relationship between municipalities and financial institutions, the scope for joint action of municipalities and NGOs against poverty, ways for private corporations to assume social responsibility, and the building of broad partnerships for financing anti-poverty projects. The analysis of innovative experiences centred on direct extra-budgetary financing for poverty-reducing initiatives, and on possibilities for restructuring municipal budgets by transferring the burden of certain municipal responsibilities to private or mixed financing in order to free part of the budget for social investment.

3.2.1 Local Economy and Finance in Developing Countries - Western Africa

Mr. François Yatta, Regional Councillor for Local Finance and Economy at the Municipal Development Programme (MDP) in Cotonou (Benin), began his presentation with a description of the context of urban poverty in developing countries. He pointed out that there are two main reasons that urbanisation in these countries is commonly associated with poverty. The first reason is structural, as spectacularly fast urbanisation has taken place without any corresponding progress on the economic level. The second reason originates in the passive political approach that was taken for so long to urbanisation and its consequences. Instead of preventive action to control urban development, only some of the most dire aspects of urban poverty were addressed within the framework of emergency response. In order to change this picture, the programme Mr. Yatta presented at the Forum aims at promoting local economic and financial development, as the only means to sustainably tackle urban poverty in African cities.

In Western Africa, extremely rapid urbanisation has been accompanied recently by a move towards decentralisation, the nature and extent of which varies greatly among the different Western African countries. However, in this process local communities face many serious obstacles: low standards of living of large sectors of the population, lack of the most basic infrastructure and planning, lack of experience within municipal institutions and insufficient management skills among local government officials, very limited financial resources and strong dependence on state budgets, and the population inherited lack of confidence in government, originating in the incapability of many Western African states to meet even citizens' most basic demands. In particular, decentralisation cannot become deeply rooted in society as long as it does not address the question of local economic development.

In order to assist local communities in facing these challenges, the MDP has conducted two closely interdependent studies on local economy and local finance, that are to serve as a basis for future local economy development activities, taking into account regional integration policies. The resulting action programme was called ECOFILOC which stands for `Local Economies and Finance in Western African Economic and Monetary Union (WAEMU) countries'.

· Local economy - The first study had as its subject the evaluation of local economies in the countries of the WAEMU. It addressed questions about territorial and demographic aspects of local economy; its weight and position within the national and regional economy; the principal components of local economy; the strategies of its actors; the role played by different types of revenues; and the general structure of financial flows in the local economy. Answers to these questions were at the best intuitive before the study was carried out. Now, the results of the study provide a tool for decision-making and effectively directing action towards needs.

· Local finance - Once information on local economy is gathered, a local finance development project has to be elaborated and implemented. In this context, the second study produced answers to action oriented questions about direct, induced, and fiscal effects of public investment in a given sector of local economy; about strengths and limitations of different local economy sectors; about interests and propositions of financing partners; about long-term stakes; about needs in infrastructure and perspectives of infrastructure investments to be profitable; about induced effects of local infrastructure investments on local, regional, and national economy, as well as fiscal revenues; and about the relationship between local economic activities and imports.

Special attention was paid to the taxation schemes to be implemented to guarantee optimal and well-balanced fiscal revenues with a minimum negative impact on local economy. Indeed, this is a crucial point for the development of financial autonomy of local communities. So far most of the local economy sectors are not subject to tax because of the lack of simple and effective tools for tax collection, and the lack of information on local economic activities, which closes the circle back to the first study described above.

As mentioned, the results of these two studies served as a basis for the ECOFILOC programme. The implementation of the programme is monitored by a steering committee on the international level and national committees for local economy and finance in each WAEMU country. On both levels, these committees include local leaders, concerned senior officials of national governments, and providers of funding. The overall aim of ECOFILOC is to support decentralisation policies, to strengthen local communities' capacities, and to foster regional integration.

On the economic side of the programme, this means:

· Contributing to a better knowledge of the local economy in response to the increasing demand for such information from local leaders and development partners
· Establishing favourable conditions for effective boosting of local economy, taking into account local peculiarities that determine the economic processes, and allowing for anticipatory management through the elaboration of local economic development plans
· Launching policies for mobilising local fiscal resources
· Developing an African expertise in the field of local economic development through the establishment of scientific exchanges and technical internships abroad

On the financial side of the programme, specific aims include:

· Creating tools to gain better insight into local finances and the state of financial decentralisation in the WAEMU countries, i.e., answering questions regarding the importance of local financial resources relative to national budgets or GDPs
· Improving mechanisms for mobilising local fiscal resources and for local spending
· Harmonising tools and frameworks of finance management and accountability in, and among, WAEMU countries
· Preparing the ground for the urgently needed access of local communities to finance markets. Loans allow local communities to spread the load of the tremendous amount of necessary investments ahead over a long period of time, without putting at risk through exaggerated fiscal efforts the present economic activities.

A number of important lessons can be drawn from the implementation of the ECOFILOC programme.

First, it was confirmed that cities are important centres for the creation of wealth. The concentration of economic activities in urban centres follows a rational scheme, as such centers offer two important advantages. These are economies of scale, along with the corresponding gains in efficiency, and the direct advantages of the urban environment, such as low transport costs, an extensive labour market, access to economic networks, and proximity of demand. While these advantages were acknowledged a long time ago in urban centres of industrialised countries, they have been denied to cities in developing countries. Yet the ECOFILOC proves the universality of this aspect of urbanisation.

Second, compared with the crucial role cities play in the overall economic development of WAEMU countries, local budgets are paradoxically low. Whereas local budgets in France make up 10% of the GDP and 40% of the state budget, the corresponding percentages in the WAEMU countries range from 0.15% to 1% and from 1.5% to 6.1% respectively. Of course grassroots economic development requires local initiatives, but above all local resources for local projects are needed. As the situation is now, local communities cannot respond to this need. In fact, they find themselves compelled to spend over 80% of their budgets just to guarantee basic administrative functioning, turning public investment into a privilege reserved for a very few large cities.

Third, it is indeed possible to compile the necessary information to obtain an overview of local economic activities. In fact, most of this information exists already and putting it together requires a relatively modest effort. Moreover, the local experts that were in charge of compiling the information gained valuable insight into many aspects of local economy and finance through this activity.

Fourth, there is much scope for increasing local financial resources in communities. If local economic growth is to reach 4% to 5% over the coming two decades, local authorities must invest at least 6% of the Gross Local Product annually. A substantial proportion of these resources could be mobilised through adequate taxation. Currently, however, many sectors of the economy are not subject to taxation, because of the lack of simple tools for tax collection, as well as a lack of confidence in authorities. In this context there is need for dialogue, which can be triggered by the results of the studies carried out by MDP. Moreover a land ownership tax reform must lead to the taxation of real estate property in cities.

Fifth, the development of local economy and finance is a long-term issue, which goes well beyond the typical five-year terms of office of mayors. To well understand the corresponding processes and evolutions it is necessary to observe changes over an extended period of time. Local communities must assist players in the local economy to provide themselves with a realistic project with good chances to succeed in the long term. Also, duties and responsibilities must be well divided between public and private actors by limiting public intervention to those sectors where it is needed.

Sixth, the access of local communities to loans is no longer questionable, but must be provided. Local communities must make up for time lost cumulatively during decades of under-investment, while at the same time they have to follow urbanisation `in real time'. Obviously, no local community can finance this large-scale rural-urban transition by relying entirely on its own funds. A lasting solution to this problem can be provided by establishing conditions that give local communities access to private capital. To facilitate this, the Observation Post of Local Finance created within the ECOFILOC programme collects economic and financial indicators from local communities which facilitate their capacity to manage and pay back loans. The long-term perspective is that the Observation Post will progressively be transformed into a `rating agency' for local communities.

Mr. Yatta concluded his presentation by pointing out that the overall success of the decentralisation process in Africa will eventually be measured by the extent to which local economic development can satisfy the needs of urban populations.

3.2.2 Local Finances in Industrialised and Developing Countries

Mr. Hocine Tandjaoui, in charge of international solidarity at the French `Caisse des dépôts et consignations' (an organisation for the management of private funds for economic and social development), stressed some points which are essential for understanding the financial situation in which local communities find themselves. He dedicated the first part of his presentation to three topics related to improving the financing of urban poverty reduction.

Mr. Tandjaoui first pointed out that nothing could be more erroneous than believing that local communities' relationship with the economic world is the same in industrialised countries as it is in developing countries. In France, for instance, banks fight over the clientèle of local communities. These communities have found ways to manage their finances, and in their administration they usually have personnel who are capable of negotiating with banks. Moreover, investing money into projects of local communities in France is a safe bet, since the investment is backed by the public, whether the project is profitable or not. So in France local communities find themselves in an excess-supply situation as far as their financing is concerned. Also, some local communities have taken up direct issue-related financing, without relying any longer on financial institutions. Local communities in developing countries find themselves in the opposite situation: they usually lack access to the services provided by financial institutions.

A second point stressed by Mr. Tandjaoui was the fact that the development of partnerships between local communities and financial institutions is a lengthy process. In France, for instance, local communities needed some 70 years of learning, supported by taxes, and assisted by specialised financial institutions. Notably, the public banks of local communities have played a decisive role in their economic and financial evolution. At the same time as the commercial finance sector learned its lessons, the cities learned how to lead their dialogue with the financial institutions. So if today one tells local communities of the South to solve their financial problems simply by addressing themselves to the banks and by mobilising the private sector, he forgets that the cities of the North required of decades to acquire knowledge and experience in that discipline, and that during this time they benefited from substantial public investment. The relationship between local communities and financial institutions in France cannot be understood merely in terms of access or technical skills, but in terms of the deeper relationships of partnership development.

The third point was illustrated by the case of Haiti. In that country there is such an imbalance between local resources and international financial assistance that local communities have very little control over the use of funds. As a consequence, there is hardly any scope for them to participate in the defining of priorities and in decisions concerning the allocation of resources.

In the second part of his presentation, Mr. Tandjaoui made some general remarks on the characteristics of the commercial banking sector and alternative financing mechanisms with respect to the funding for local communities.

In the commercial banking sector, financing is usually subject to two criteria: the capacity of the borrower to pay back the loan, and the level of the borrower's technical skills that will be applied to the project which is to be financed. If a financial institution cannot assess the risk of a loan along these two lines, usually no deal is made.

As for the financial institutions of certain developing countries, Mr. Tandjaoui pointed to the damage caused in terms of loss of credibility by the failure of development banks in the 1970s and 1980s. It is now commonly agreed that an alternative can be, in this case, the creation of financial tools linked to defined sectors of activity.

Moreover, Mr. Tandjaoui underlined the gap between new responsibilities conferred on local communities in many developing countries and their limited access to sources of funding. In that context, Mr. Tandjaoui suggested that defining an obligation for a minimum banking service for local communities to accompany decentralisation processes could be helpful.

Regarding alternative financing mechanisms, Mr. Tandjaoui mentioned the interesting development of savings networks in Western Africa. They permit the amassing of savings and provide access to credits, thus allowing for available resources to be channelled as directly as possible towards existing needs. Another way of fostering local savings, which deserves to be enhanced, stems from the issue of municipal obligations. Finally, Mr. Tandjaoui pointed out the importance of establishing local coordination among providers of financing.

3.2.3 Municipality - NGO Partnerships for Financing Anti-Poverty Action

Linking the subject of this workshop, finance, and the subject of Workshop A, interaction of municipalities and civil society, Mr. Farid Yaker from ENDA Europe in Paris (France), discussed the important role of partnerships - in this case between NGOs and municipalities - for increasing the financial resources mobilised in the fight against urban poverty. At present, with the disruption of development concepts and stakes, there is a tendency to favour proximity-oriented action, enhancing the role of civil society. Within this new approach, acknowledgement and support of citizens' initiatives are considered essential for bringing about sustainable improvement of the living conditions of disadvantaged populations.

This new complementarity of roles and competencies of civil society and municipality extends to the field of finance, where the resources of the two players ideally should complete each other to facilitate the realisation of common aims in the fight against poverty. Of course reality rarely corresponds to this somewhat idealistic vision. There are examples both of NGOs using their financial power to encroach upon municipalities, and of municipalities using their administrative power to hamper the activities of NGOs or local associations. The main problem in such situations often lies in misperceptions about the role of each player.

NGOs should be catalysts of social change. They should make use of the confidence bestowed upon them by the population to facilitate such processes of participatory local development as building relationships, providing training, transferring know-how, strengthening capacities, and fostering the dialogue between civil society and government.

On the side of the municipalities also, certain conditions must be fulfilled if active cooperation is to be achieved with civil society players. First of all, municipalities must be ready to recognise and accept other local players rather than considering them as rivals. Second, they must be willing to invest adequate human and material resources into this cooperation. Thirdly, the level of local democracy and the legitimacy of decision-makers are absolutely crucial in this context. No dynamic local partnerships can be established without mutual trust between municipal institutions and the population. An important tool in this regard is the transparent and rational use of municipal funds.

If these conditions for partnership between municipality and NGOs are fulfilled, the elaboration of a local development plan is an excellent tool for aligning means and objectives. Such plans could form part of electoral programmes of candidates running for office and would coordinate the actions of the different players, including providers of funds. Resources available for NGOs could supplement municipal budgets. Moreover, such frameworks of cooperation could encourage the mobilisation of additional funding of private, bilateral, or multilateral origin through decentralised cooperation. Also the offer of a range of actions for financing would allow providers of funding to commit themselves according to their thematic or strategic priorities (priorities of training, infrastructure, social or economic issues, sanitation or health, etc.). Finally, resources would no longer be wasted as a consequence of lack of coordination, or even of concurrence, of development assistance. All this should make it clear for providers of funding, that priority must be awarded to financing action which is well embedded in a dynamism of participatory local planning.

Mr. Yaker proposed five ways to enhance the financing available for the fight against poverty:

· Rural-urban equilibrium - First, he suggested that - as the irreversibility of urbanisation is becoming commonly recognised - development funds should be more evenly distributed between rural and urban areas. This would permit provision of assistance to the poor in the place where they actually are.

· Complementarity - Second, available funds can be used much more effectively if mechanisms of complementarity between decentralised cooperation and classical bilateral cooperation are established, as had already been suggested by Mr. Diagne in section 2.1.

· Monitoring - Third, an effective monitoring system must be put into place to measure the real impact of development activities and to compare anti-poverty statements of providers of assistance with their actual commitments. To this end, ENDA proposes the establishment of an observation post for anti-poverty policies.

· Public-private partnerships - Fourth, Mr. Yaker pointed to contributions that can be made by the local and the international private sector in the fight against poverty. In fact, many multinational enterprises have more than a merely charitable interest in contributing to sustainable urban development. It remains to be specified, however, how to organise the assistance of this sector. In this context UNDP could play a major role, as it is already dedicating much attention to forms of public-private partnership in development assistance.

· Taxation - A fifth way of enhancing the financial resources available for the fight against poverty would be the taxation of speculative, short-term investments, for instance along the lines of the Tobin-tax scheme. This approach is even more justified, since the poor are usually the first ones to suffer from disruptions in finance flows and the global economy, as the recent events in South-East Asia and Russia demonstrated in a drastic manner. Furthermore, such a mechanism can significantly reduce the volatility of financial markets.

3.2.4 Private Corporations in Partnerships Against Poverty - Medical Production

Starting with the motto of France, `Liberté, Égalité, Fraternité', Mr. Cyril Segrestan, Chairman of the corporation `Medical Production', presented his vision of a partnership against poverty in which private corporations play a key role. Mr. Segrestan pointed out that much remains to be done in the area of solidarity, and that the private sector can make significant contributions to the efforts ahead.

The corporation `Medical Production' is active in the field of dentures, jaw-bone implants, and micro-surgery of the hand. In this context, Mr. Segrestan stressed that his company would be particularly interested in orienting anti-poverty action towards the areas of hygiene and nutrition by associating the name `Medical Production' to partners working in the farm-produce field. Mr. Segrestan suggested that Medical Production could dedicate a certain percentage of its turnover to this aim.

With this focus on corporations distributing their products through wholesale trade, Mr. Segrestan underlined the importance of carefully choosing partners, that are truly motivated to involve themselves in the project. Each partner corporation would act through marketing, communication, and distribution networks with the aim of raising funds for financing the action of UNDP. In exchange for their support, partner companies could add, for instance, on the wrapping of their products a logo confirming their commitment in favour of the global campaign against poverty.

To the partnership could be added local communities of the region which could support cultural events such as concerts, expositions, and performances related to the campaign to raise awareness among the population and mobilise additional funds. To involve young people in the campaign, regional commerce schools could be contacted with the aim of obtaining students' participation in the organisation of these events within the framework of internships. Finally, the partnership could include also dental surgeons. In exchange for their financial support, they would receive plaques to display in their office, confirming their commitment and giving their patients an image of modernity, efficiency, and generosity.

The legal framework of this project would be that of a non-profit association called AFPE: `Association for the Fight against Poverty and Exclusion'. The funds raised in this way should be dedicated to the support of concrete, assessable, verifiable projects elaborated by cities on the one hand, and put at UNDP's disposal on the other hand. In this context, however, it must be remembered that it will be much easier to obtain financial assistance from corporations, if at least part of it contributes to putting into practice concrete projects in their own regions.

Mr. Segrestan concluded his presentation with remarks on the motivation of a private corporation to make the fight against poverty a priority. Managers of corporations usually belong to a privileged class of society, he said, one that is not directly affected by poverty. Moreover, they cannot reckon on immediate financial gains from this type of activities. Yet, they are among the indirect beneficiaries of increased social cohesion and reduced poverty, as the destabilising effect of gaps within society negatively affects economic activities. A minimum of collective awareness is of course necessary among managers to win their support for anti-poverty action. Such awareness is usually facilitated by the fact that this type of civic involvement promotes the association of social responsibility with the image of the corporation and thus serves the long-term goals of the company. In that broad sense, corporations have much to gain from their active participation in the fight against poverty.

3.2.5 The Samu Social in Paris - An Example of a Broad Partnership Against Urban Poverty

As described by Mr. Tandjaoui in section 3.2.2, local communities in many industrialised countries have relatively easy access to loans. This does not mean, however, that it is always straightforward for them to find financial resources for the fight against poverty. Mr. Xavier Emmanuelli, President of the `SAMU Social' in Paris (France), presented an original way of financing social development action by creating new forms of partnerships.

In 1993 the Municipality of Paris set up an emergency service for the homeless called the `Samu Social' or SSP, which provides mobile assistance teams to assist people in distress on the streets. In the meantime, the service has been extended to include:

· An emergency 24-hour telephone number for the homeless through which, during the day, beds can be reserved for the night. At night, mobile assistance teams can be requested through this number by the homeless themselves or by others.

· Mobile assistance teams comprising a nurse, a social worker, and a driver locate homeless people who may be in extreme distress. They can offer accommodation to victims of social exclusion and diagnose their health and welfare needs.

· Depending on the severity of the nurse's and the social worker's diagnoses, the homeless person picked up by a mobile assistance team will be taken to one of the different types of accommodation centres which have a total capacity of around 500 beds. The range of centres includes ordinary accommodation, crisis accommodation with nursing care, and hospitals.

· To supplement the SSP's emergency interventions, several solidarity-reinsertion centres have been opened in 1996 to assist homeless people in reintegrating themselves into society. These centres offer reception and personal hygiene facilities, opportunities for restoring self-esteem, medical and paramedical assistance, welfare services, and employment information.

· Finally, a research arm was established to study the problems and issues associated with homelessness.

The success of this project is illustrated by the over 46,000 people who made use of the services offered by the SSP in 1996, compared to 35,000 in 1995. But its true originality lies in the fact that only the size and diversity of the partnerships involved have made it possible to implement these services on a large scale, as none of the participating organisations could have financed them alone. By extending the partnership it even became possible to reduce each partner's share of the total expenditures. The initial effort made by the municipality to trigger this action appears minute in relation to the subsequent expansion of activities, and from 1995 until 1998, the share of the municipality in the SSP's budget has dropped from 67% to around 20%.

The partnership between the municipality of Paris and private and public institutions, which is supporting the SSP, is a legally and financially independent association. A board of directors, composed of representatives of all the partners, decides on the actions to be implemented by the SSP. The partners provide staff, office space, equipment, contributions to the annual budget and other forms of support. Initially, the SSP comprised various levels of government, public welfare institutions, and private and semi-private organisations such as the Paris transport authority RATP and the water company `La Lyonnaise des Eaux'. Other companies have since joined the SSP, notably the national railway company SNCF and the national gas and electricity utilities.

Thus by stressing the sense of community inherent in its work, the SSP has attracted financial assistance from private corporations keen to burnish their image as good corporate citizens. To ensure long-term support, a corporate sponsorship committee has been established, whose charter binds sponsors to supporting and developing the SSP's current and future activities. Also the SSP has signed an agreement with the national health insurance organisation to contribute to the financing of medical care provided for the homeless. Furthermore, the SSP receives one-off donations of money or equipment from individual and corporate benefactors. Obviously this experience in combating social exclusion has developed and diversified thanks to the combined effort of numerous contributors.

3.2.6 Debate and Conclusions

During the debate, a number of key issues related to the financing of anti-poverty action were raised. The fundamentally different situations of local communities in industrialised and developing countries regarding their access to loans, as described by Mr. Tandjaoui, was underlined. In this context, the establishment of special credit systems favouring social investment, for instance in low cost housing or domestic attendance schemes, was proposed. In this respect there is also scope for action from the side of responsible businesses and corporations which are willing to promote projects that benefit poor communities.

Key issues also included the importance of transparent, participatory management of local finances. The influence of political priorities in pro-poor orientation of funds was pointed out. Great investment banks such as the World Bank and regional development banks, and pension funds were called upon to invest more in social areas.

Particular attention was given to innovative taxation schemes, which can contribute significantly to the sustainable improvement of the financial situation of local communities. At the same time, such schemes can be designed to have a regulative effect on speculative capital flows and to give value to socially productive investments.