Under the leadership of the Municipal Council of Dakar, the Dakar Municipal Finance Program (DMFP) has been developed to enable the City of Dakar to gain access to capital markets for its investment needs.
With rapid growth in its urban population, a large portion of Dakar's population works in the informal sector. There was a pressing need for a central market place to accommodate its street vendors so as to improve their social and economic situation and to provide more convenient conditions for consumers.
To finance the project, Dakar decided to access capital markets. Not only is it the first city to do so in sub-Saharan Africa (outside South Africa), it is also one of the few cities in a developing country to do so without the benefit of full guarantees from central government. It enlisted financial and technical support from a wide range of organizations including the Bill and Melinda Gates Foundation, the World Bank, the United States Agency for International Development and Cities Alliance. A total of $4 million was raised for the project. Equally important, the city has now access to a new financing mechanism to achieve its development goals.
With this breakthrough, there is a precedent for other cities across Africa to benefit from lower transaction costs and lower credit terms as well as less skepticism from investors as they seek mainstream sources of finance for their respective capital projects.
Facing rapidly increasing urbanization (more than 3% per year), a growing deficit in infrastructure and urban facilities, and a limited annual budget (of approximately USD 75 million annually), the City of Dakar’s leadership was seeking an alternative financing tool to meet its long-term development goals.
At the onset of the Dakar Municipal Finance Program (DMFP), the Municipal Council passed a resolution empowering the DMFP to explore the most cost-effective option to deliver funds for capital investment projects to improve the quality of life for the urban poor. Following a comprehensive scoping assessment, and with the full input of the Mayor and his legal advisors, the DMFP recommended the issuance of a municipal bond, a pioneering tool in sub-Saharan Africa. Through alternative financing tools, the goal of the DMFP is to enable the City of Dakar to repeatedly access capital markets for investment needs. Although the initial bond issuance took approximately three years before execution, future issuances are anticipated to occur far more swiftly.
Through the launch of a bond to build a strategically-located marketplace for relocated street vendors, Dakar Municipal Finance Program’s central project has a direct impact on the lives of 6,000 households (around 35,000 people).
Although there is a global tradition of bond issuance to fund capital-intensive projects, the DMFP is the first case of a bond issue for a city in sub-Saharan Africa (outside of South Africa) that is implemented without the full guarantee of the central government.
This involved innovations on several fronts, such as:
- complying with the strict accountability and transparency demands of the bond market;
- experimenting with a new fund-raising tool;
- planning and building a new central market with guaranteed access by poor street vendors in a strategic location;
- building the capacity within city hall to become creditworthy through good governance, sound financial management and public participation.
The City of Dakar, as lead agency and umbrella for the Dakar Municipal Finance Program (DMFP), engaged other parties, both private and public, to assist at various points. These include private-sector players, such as:
- the Bill & Melinda Gates Foundation: the primary underwriters of the DMFP,
- the Development Innovations Group: the city's monitoring and evaluation expert,
- Moody's Ratings and Bloomfield Ratings: the city's external ratings agencies,
- CGF Bourse: the financial intermediaries to the local market regulators.
Institutionally, parties included:
- Cities Alliance to provide key technical expertise and knowledge and the task manager for the Foundation Bill et Melinda Gates,
- the World Bank/PPIAF to assist in scoping of the city's financial strengths and weaknesses as well the optimization of the city's taxes,
- the French Development Agency to analyse the city's financial abilities and act as the city's first lender,
- the United States Agency for International Development to act as the bond's guarantor and as a donor, subsidizing the transaction costs associated with the bond issuance by USD 1,000,000, and
- the CREPMF: the local market regulatory body.
With the engagement of other private and public parties, especially the financial assistance of the Bill and Melinda Gates Foundation (USD 5.5 million over four years) and the United States Agency for International Development (USD 1 million), the DMFP was able to mobilise USD 40 million on the financial markets to fund this project with substantial benefits for informal sector vendors and the citizens of Dakar.
Because of the novelty of the bond issuance process, the DMFP has enabled the leadership of City of Dakar to enhance its strengths in the following ways:
- amplifying the voice of the urban poor through the institutionalization of the public participation process;
- developing a long term strategic plan;
- developing a comprehensive communications campaign to disseminate the city’s strategic plan and to encourage investment in the future of the city through the purchases, on a retail basis, of bonds at primary issuance;
- building capacity through intensive training in financial management, transparency and good governance;
- purchasing technology for enhanced financial tracking and budget forecasting
The DMFP is conducting annual surveys of marketplace vendors using key social indicators, starting from the initial year (2014) as the baseline and progressing over a minimum of five years. These surveys will be conducted through a statistical sample of 10 vendors through a selection of the city's 16 different vendors' associations, and with the help of the city's monitoring and evaluation consultant. On a more general level, the city additionally plans to internally measure the cost-effectiveness of bond issuance relative to other available financing tools on a regular basis.
This initiative represents the first usage of bonds for a city in sub-Saharan Africa (outside of South Africa) that is executed without the full guarantee of the central government. Amongst its many risks, the DMFP faced initial risks, as for example selecting an appropriate project balancing investor and developmental expectations and attracting a sufficient number of investors through demonstrating creditworthiness. An ongoing operational risk for the DMFP is meeting its debt service obligations to avoid default. The leadership of the City of Dakar has been extremely supportive of the DMFP, and has been instrumental in encouraging its success.
As part of the initial scoping, the DMFP conducted study tours to the City of Johannesburg and the City of Douala to learn about their experiences in the capital markets. In addition, members of the DMFP management team have professional experience in bond issuance in more developed markets and have exchanged with other development finance experts at international conferences and forums (including the World Urban Forum, Metropolis, AfriCities, etc.).
Through its partnership with the Cities Alliance, the DMFP will disseminate its experiences to other cities across sub-Saharan Africa and will develop replication tools to share with other cities. Because of the success of the DMFP, other cities across the continent will face lower barriers to entry (including lower transaction costs, less skepticism from investors and central governments, etc.) and will be able to pursue bond finance as a means for funding capital-intensive projects.
- Dakar, Senegal: Municipal Finance Program, Guangzhou Award for Urban Innovation
http://www.guangzhouaward.org/815/content_2190.html (accessed 19 January 2016)
- Dakar Municipal Finance Program: Accessing the Power of Capital Markets to Improve the Quality of Life for the Urban Poor, Urban innovation database
External links / documents
Want to know more about this project?
Related case studies
The aim of the programme is to provide access to social housing and public services to the local population to improve social inclusion
The strategy aims at defining priorities and giving institutions for the development of Cotonou’s urban agglomeration.