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Business News of Monday, 19 September 2016

Source: B&FT

Electing DCEs could draw them to municipal bonds

South Africa does it; and Nigeria does it too, but the idea of local government authorities issuing bonds to fund infrastructure development has been snubbed in Ghana, and investment banker, Kojo Addae-Mensah, believes when CEOs of local government authorities are elected, they will be forced to look at that opening.

According to the limitations in the guidelines on Investment of Pension Scheme Funds, as issued by the Nation Pensions Regulatory Authority, a maximum of 30percent of pension fund assets may be invested in local government securities.

Kojo Addae-Mensah, who is CEO of Databank, said this is an avenue for Metropolitan, Municipal and District Assemblies to access cheaper and long term capital to develop their communities, instead of relying on central government almost entirely.

“I agree the system is centralised by appointment but should the debate about electing MMDCEs gather enough steam and it happens, and they get elected, they will be forced to deliver. Then we can see MMDCEs issuing municipal bonds to develop their communities,” he said.

“But because we have the District Assemblies Common Fund, MPs Development Fund and other sources of income, they are not challenged enough to generate funds for themselves to develop their own cities and towns. Everybody is looking at the central government.”

The lack of a law to govern the issuance of municipal bonds has also been identified as a stumbling block, although a Municipal Finance Bill in that regard has been drafted but is yet to go before law makers.

“The Municipal Finance Bill is yet to go to Parliament. Until the bill is passed into law, we cannot say municipal bonds are going to be issued,” Director General of the Securities and Exchange Commission, Dr. Adu Anane Antwi, said last month.

One issue is yet to be resolved though –whether a municipal authority should be established to do the borrowing on behalf of the municipalities or they should do it on their own behalf.

Mr. Addae-Mensah, whose outfit is the second largest pensions fund manager with more than GH¢300million in assets, explained that this is how development happens in America and many other countries in the West.

“When you get elected you are looking at how you can bring about development so that you can get re-elected. But if you have been appointed and all that is required to stay on as a DCE is for your president to get re-elected, there will be no motivation,” he said.

Municipal bonds are seen as cheaper sources of funds from the capital market to meet the increasing infrastructure responsibilities of Metropolitan, Municipal and District Assemblies and to also mitigate falling tax revenues, budget deficit and fiscal squeeze at the local level.

Earlier this year, reports from South Africa said that country’s municipal bond market was poised for a resurgence as central-government budget constraints forced cities to raise debt for infrastructure projects ranging from roads to water provision.

Cape Town announced it may sell as much as US$143 million of bonds this year, while Johannesburg says it also plans to issue up to US$140million. That’s already more than five times the amount of debt issued in 2015, when only one municipality - Ekurhuleni, east of Johannesburg - sold securities.

Nigeria’s total local or state debt has risen to US$9.9billion as at December, 2015, according to the Debt Management Office, which include municipal bonds issued by some states including a US$650million bond issue by Rivers State in Nigeria's oil-producing Niger Delta in 2011.

In Ghana, MMDCEs are nominated by the president pursuant to Article 243(1) of the 1992 Constitution and Section 20(1) of the Local Government Act 1993, Act 462. They are also mandated per the law to be approved by majority of members of the assembly.

But the debate about the changing of laws to allow MMDCEs to be elected to deepen Ghana’s democracy has been going for some years now, with civil society organisations leading the campaign.

President John Mahama has promised to make the position elective, during his recent presentation of the ruling National Democratic Congress’ (NDC) 2016 manifesto highlights.

The flagbearers of the New Patriotic Party (NPP) and Progressive People’s Party (PPP), Nana Akufo-Addo and Dr. Paa Kwesi Nduom, have all argued for the election of MMDCEs.

But there is a school of thought that believes electing CEOs of local authorities could make them sabotage policies of a ruling party, when the elected official comes from an opposition camp.

Local government expert and senior member of the ruling NDC, Prof. Kwamena Ahwoi, argues that electing DCEs it will further deepen disunity at the grassroots.

Speaking at a forum on assessing the effectiveness of the district assembly concept in August last year, he said: “DCEs would like to unseat the government for their party to come to power, [and] it will be difficult for any partisan government to implement its programmes through hostile DCEs.”

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