UNIVERSITY OF GHANA THE IMPACT OF FISCAL DECENTRALISATION ON LOCAL ECONOMIC DEVELOPMENT IN GHANA: A CASE STUDY OF KETU SOUTH MUNICIPAL ASSEMBLY (KSMA) BY EMMANUEL JEFFERSON KWADJO ZUMEGAH (10443139) THIS THESIS IS SUBMITTED TO THE UNIVERSITY OF GHANA, LEGON IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF MPHIL PUBLIC ADMINISTRATION DEGREE JULY, 2015 University of Ghana http://ugspace.ug.edu.gh i DECLARATION I EMMANUEL JEFFERSON KWADJO ZUMEGAH hereby declare that this thesis is my own academic research work towards the award of a master of philosophy degree in Public Administration and that no part of this work has been presented or published. All references used in this work has been fully acknowledged. I therefore take full responsibility for any omissions and commissions herein. ……………………………………….. …………………………….. EMMANUEL JEFFERSON KWADJO ZUMEGAH DATE (10443139) University of Ghana http://ugspace.ug.edu.gh ii CERTIFICATION I hereby certify that this thesis was supervised in accordance with procedures laid down by the academic board of the University of Ghana, Legon. …………………………………….. ………………………………… DR. KWAME ASAMOAH DATE (SUPERVISOR) University of Ghana http://ugspace.ug.edu.gh iii DEDICATION. To my wife-Mrs. Evelyn Dzifa Melody Zumegah, my kids and to God Almighty University of Ghana http://ugspace.ug.edu.gh iv ACKNOWLEDGMENT The highest form of academic dishonesty I could reach is to assume that the entire work of this thesis is as a result of my individual strength. This thesis has been a solid team work between me and my affable supervisor. I express my sincerest gratitude to Dr. Kwame Asamoah for his direction, encouragement, tutorship and supervision. You have helped in incorporating new ideas and sharing experiences with me. I have in you a role model for life and am so grateful, Sir. I would also like to acknowledge all officers of the Ketu South Municipal Assembly (KSMA) especially the Municipal Chief Executive (MCE), the Municipal Co-ordinating Director (MCD), Municipal Budget Officer (MBO) and Municipal Finance Officer (MFO), and all other respondents who assisted me in data collection for this work. A special mention of Mr. Antwi and the staff of the Fiscal Decentralisation Unit of the Ministry of Finance, Accra is apt here. In addition, I am thankful for the insightful suggestions provided by Dr. Justice Nyigmah Bawole, Dr. Thomas Buabeng, Messrs Evans Sedzome, Elvis Jones Addo, Emma Tenakwah Snr., Miss Grace Mabena Obuah and Miss Afua Adjei all of the University of Ghana, Legon. I could not have shaped this study without the support and encouragement of all my colleagues in the 2015 MPhil group of Public Administration and Health Services Management of the University of Ghana Business School. Exceptional thanks also go to, all Economics students of Abor Senior High School, my fellow teachers, my family and friends particularly Mr. & Mrs. Agbenorwu who supported me from day one, Messrs. Lucas Dzramedo, Emmanuel Mensaklo, Henry Bannerman, Kobla Ehiekpor Miss Thelma Atsu, Miss Sedinam Katcher, and Constable Bashasha Dauda. My deepest love, gratitude and indebtedness to my Mom-Madam Josephine Agbekpornu, who prays day in and day out to God Almighty for my health and accomplishment. University of Ghana http://ugspace.ug.edu.gh v TABLE OF CONTENTS DECLARATION ............................................................................................................................. i CERTIFICATION .......................................................................................................................... ii DEDICATION. .............................................................................................................................. iii ACKNOWLEDGMENT................................................................................................................ iv TABLE OF CONTENTS ................................................................................................................ v LIST OF ABBREVIATIONS ........................................................................................................ ix LIST OF TABLES ........................................................................................................................ xii LIST OF FIGURES ..................................................................................................................... xiii ABSTRACT ................................................................................................................................. xiv CHAPTER ONE ............................................................................................................................. 1 1.0 GENERAL INTRODUCTION ................................................................................................. 1 1.1 Introduction ............................................................................................................................... 1 1.2 Background of the Study .......................................................................................................... 1 1.3 Problem Statement .................................................................................................................... 4 1.4 Research Purpose ...................................................................................................................... 6 1.5 Research Objectives .................................................................................................................. 7 1.6 Research Questions ................................................................................................................... 7 1.7 Significance of the Study .......................................................................................................... 7 1.8 Structure and Organization of the Study. .................................................................................. 8 1.9 Conclusion ................................................................................................................................ 8 CHAPTER TWO .......................................................................................................................... 10 2.0 THEORETICAL AND EMPIRICAL LITERATURE REVIEW........................................... 10 2.1 Introduction ............................................................................................................................. 10 2.2 THE CONCEPT OF DECENTRALISATION AND FISCAL DECENTRALISATION. .... 10 2.2.1 Political Decentralisation. .................................................................................................... 13 2.2.2 Administrative Decentralisation. ......................................................................................... 14 2.2.3 Fiscal Decentralisation ......................................................................................................... 16 2.2.4 Sub-district Structures .......................................................................................................... 20 2.2.4.1 The Metropolitan Assembly ............................................................................................. 20 University of Ghana http://ugspace.ug.edu.gh vi 2.2.4.2 Municipal Assembly ......................................................................................................... 21 2.2.4.3 District Assembly.............................................................................................................. 21 2.3 THE CONCEPT OF ECONOMIC GROWTH AND LOCAL ECONOMIC DEVELOPMENT ......................................................................................................................... 22 2.4 THE RELATIONSHIP BETWEEN FISCAL DECENTRALISATION AND LOCAL ECONOMIC DEVELOPMENT. .................................................................................................. 24 2.5 THEORY AND CONCEPTUAL FRAMEWORK. ............................................................... 28 2.5.1 Introduction .......................................................................................................................... 28 2.5.2 Public Value Theory ............................................................................................................ 29 2.5.3 Conceptual Framework ........................................................................................................ 30 2.6 HISTORICAL UNDERPINNINGS OF FISCAL DECENTRALISATION IN GHAN ........ 32 2.7 THE POLITICS OF FISCAL DECENTRALISATION IN GHANA. ................................... 36 2.8 SOURCES OF LOCAL GOVERNMENTS FUNDINGS IN GHANA. ................................ 38 2.8.1 Internally Generated Funds (IGF) to MMDAs in Ghana..................................................... 38 2.8.2 External Sources .................................................................................................................. 39 2.8.3 The District Assembly Common Fund (DACF). ................................................................. 39 2.9 Conclusion .............................................................................................................................. 40 CHAPTER THREE ...................................................................................................................... 41 3.0 RESEARCH METHODOLOGY............................................................................................ 41 3.1 Introduction ............................................................................................................................. 41 3.2 Research Paradigms ................................................................................................................ 41 3.3 Research Approaches .............................................................................................................. 42 3.4 Specific Design ....................................................................................................................... 42 3.5 Target Population .................................................................................................................... 43 3.6 Sources of Data ....................................................................................................................... 44 3.6.1 Primary Data ........................................................................................................................ 45 3.6.2 Secondary Data .................................................................................................................... 45 3.7 Sampling Techniques .............................................................................................................. 46 3.8 Data Collection Instruments and Procedure ........................................................................... 46 3.9 Data Analysis and Presentation .............................................................................................. 48 3.10 Ethical Consideration ............................................................................................................ 49 University of Ghana http://ugspace.ug.edu.gh vii 3.11 Validity and Reliability of Data of the Work........................................................................ 50 3.12 Brief Profile of Ketu South Municipal Assembly (KSMA) ................................................. 50 3.13 Problems Encountered During Data Collection on the Field................................................ 53 3.14 FUNCTIONS OF KETU SOUTH MUNICIPAL ASSEMBLY .......................................... 53 3.15 ORGANOGRAM OF THE KETU SOUTH MUNICIPAL ASSEMBLY ........................... 54 3.16 Conclusion ............................................................................................................................ 57 CHAPTER FOUR ......................................................................................................................... 58 4.0 DATA PRESENTATION AND ANALYSIS ........................................................................ 58 4.1 Introduction ............................................................................................................................. 58 4.2 Demographic Characteristics of Respondents ........................................................................ 58 4.3 Respondents Demographic Data ............................................................................................. 60 4.3.1 Gender of Data Respondents ............................................................................................... 61 4.3.2 Age Distribution of Participants .......................................................................................... 62 4.3.3 Educational Background of Data Respondents .................................................................... 63 4.3.4 Total Estimated Income Level per Month ........................................................................... 64 4.4 THE CURRENT STATE AND STRUCTURE OF FISCAL DECENTRALISATION ........ 65 4.4.1 Sources of Revenues to Ketu South Municipal Assembly .................................................. 67 4.4.1.1 Internally Generated Fund (IGF). ..................................................................................... 68 4.4.1.2 The District Assembly Common Fund (DACF) ............................................................... 75 4.4.1.3 District Development Fund (DDF) ................................................................................... 79 4.4.1.4 Donor and Voluntary Funds............................................................................................ 81 4.4.2 Financing Zonal Council of Ketu South Assembly ............................................................. 86 4.4.3 Financing Unit Committees of Ketu South Assembly ......................................................... 87 4.5 FACTORS IMPEDING EFFECTIVE FISCAL DECENTRALISATION IN KSMA. ......... 89 4.5.1 Unreliable Data on Revenue Points. .................................................................................... 90 4.5.2 Unclear Portions of the Local Government Laws and Bye-Laws of the KSMA ................. 91 4.5.3 Delay in Release of Statutory Funds .................................................................................... 93 4.5.4 Inadequate Trained and Experienced Personnel Capacity ................................................... 94 4.5.5 Vibrancy of the Local Economy and the Political Structure ............................................... 95 4.6 IMPACT OF FISCAL DECENTRALISATION ON LOCAL ECONOMIC DEVELOPMENT IN GHANA .................................................................................................... 97 University of Ghana http://ugspace.ug.edu.gh viii 4.6.1 Impact of Fiscal Decentralisation to Education on Local Economic Development ............ 97 4.6.2 Impacts of Building Hospitals and Health Facilities to Local Economic Development in KSMA ........................................................................................................................................... 99 4.6.3 Impact of the availability of Social Infrastructure on Local Economic Development ...... 100 4.6.4 Impact of Markets and Small Scale Business on Local Economic Development ............. 102 4.6.5 Impact of growing Agriculture and Industry on Local Economic Development .............. 104 4.6.6 Impact of Effective Community Participation on Local Economic Development ............ 106 4.6.7 Relationship between Fiscal Decentralisation and Local Economic Development........... 107 4.7 Conclusion ............................................................................................................................ 109 CHAPTER FIVE ........................................................................................................................ 111 5.0 FINDINGS, RECOMMENDATIONS AND CONCLUSIONS........................................... 111 5.1 Introduction ........................................................................................................................... 111 5.2 Summary of Key Findings .................................................................................................... 111 5.2.1 Current Structure of Fiscal Decentralisation...................................................................... 111 5.2.2 Challenges to Effective Fiscal Decentralisation ................................................................ 114 5.2.3 How Fiscal Decentralisation impact Local Economic Development ................................ 115 5.3 Recommendations ................................................................................................................. 117 5.4 Limitation and Future Studies ...................................................................................... 120 5.5 Conclusion. ........................................................................................................................... 120 REFERENCES ........................................................................................................................... 122 APPENDICES ............................................................................................................................ 137 APPENDIX A: INTERVIEW GUIDE ....................................................................................... 137 APPENDIX B: PHOTOGRAPHS .............................................................................................. 143 University of Ghana http://ugspace.ug.edu.gh ix LIST OF ABBREVIATIONS AAP Annual Action Plan AAPAM African Association for Public Administration and Management AGD Auditor Generals Department AMA Accra Metropolitan Assembly CAGD Controller and Accountant Generals Department CBOs Community-based Organizations CBRPD Community Based Rural Development Project CIDA Canadian International Development Agency CSOs Civil Society Organizations DA District Assembly DACF District Assemblies Common Fund DACFS District Assemblies Common Funds Secretariat DANIDA Danish International Development Agency DBC District Budget Committee MBO Municipal Budget Officer MDF Municipal Development Fund MFO Municipal Finance Officer DFID Development Finance Institutions Department DMTDP District Assembly Medium Term Development Plan DPCU District Planning and Coordinating Unit MPO Municipal Planning Officer EU European Union University of Ghana http://ugspace.ug.edu.gh x FA Finance and Administration FD Fiscal Decentralisation FOAT Functional and Organizational Assessment Tool GDP Gross Domestic Product GETFUND Ghana Education Trust Fund GoG Government of Ghana GPRS Ghana Poverty Reduction Strategy GTZ Deutsche Gesellschaft für Technische Zusammenarbeit GSGDA Ghana Shared Growth Development Agenda HIPC Highly Indebted Poor Country IAA Internal Audit Agency IGF Internally Generated Fund ILGS Institute of Local Government Studies IRS Indirect Rule System JICA Japan International Cooperation Agency JRPEFM Joint Review of Public Expenditure and Financial Management KOICA Korea International Cooperation Agency KSMA Ketu South Municipal Assembly LGSS Local Government Service Secretariat LED Local Economic Development LI Legislative Instrument MDAs Ministries, Departments and Agencies MLGRD Ministry of Local Government and Rural Development University of Ghana http://ugspace.ug.edu.gh xi MMDAs Metropolitan Municipal and District Assemblies MMYE Ministry of Manpower, Youth and Employment MOFEP Ministry of Finance and Economic Planning MTDP Medium Term Development Plan MTEF Medium Term Expenditure Framework NDPC National Development Planning Commission NGO Non-Governmental Organizations PM Presiding Member NBSSI National Board on Small Scale Industries PARDIC Public Administration Restructuring and Decentralisation Implementation Committee. PM Presiding Member PMME Performance Management, Monitoring and Evaluation PNDC Provisional National Defense Council PWD Public Work Department RCC Regional Coordinating Councils RPCU Regional Planning and Coordinating Unit SDSs Sub-district Structures UCLGA United Cities and Local Governments of Africa UN United Nations USAID United Sates Agency for International Development University of Ghana http://ugspace.ug.edu.gh http://www.fairwages.gov.gh/index.php/Performance-Management-Monitoring-and-Evaluation/performance-management-monitoring-and-evaluation.html xii LIST OF TABLES Table 4.1: List and Rank of Respondents ……………………………………….………… 59 Table 4.2: Respondents Demographic Data ………………………………………………..60 Table 4.3: Major components of IGF for Ketu South Municipal assembly……………….. 70 Table 4.4: Details of Budgeted and Actual Internally Generated Fund (IGF) Revenue to the KSMA………………………………………………………….. 73 Table 4.5: Details of Budgeted and Actual District Assembly Common Fund (DACF) Revenue to the KSMA………………………………………………………….. 77 Table 4. 6: Details of Budgeted and Actual DDF Revenue to the KSMA………………… 80 Table 4. 7. Table showing Donor funds of the Assembly from 2010 – 2013……………… 83 Table 4.8. Actuals DACF, IGF DDF and Donor Funds from 2010 to 2014 for KSMA …. 84 University of Ghana http://ugspace.ug.edu.gh xiii LIST OF FIGURES Figure 2.1: Conceptual Framework ……………………………………………………….. 31 Figure 3.1: Organogram of Ketu South Municipal Assembly …………………………….. 52 Figure 4.1: Gender of Data Respondents …………………………………………………. 61 Figure 4.2: Age Distribution of Data Participants ………………………………………… 62 Figure 4.3: Educational Background of Data Respondents……………………………….. 63 Figure 4.4: Total Estimated Income Level per month……………………………………... 64 Figure 4.5: Structure of Local Government and Fiscal Decentralization ………………… 66 Figure 4.6: Graph Showing Major Revenue Heads Ketu South Municipal Assembly …… 72 Figure 4.7: Internally Generated Fund Projections and Actual of Ketu South Assembly … 74 Figure 4.8: Budgeted and Actual DACF Revenue to the KSMA…………………………. 78 Figure 4.9: Budgeted and Actual DDF Revenue to the KSMA…………………………… 81 Figure 4.10: Actuals DACF, IGF DDF and Donor Funds from 2010 to 2014 for KSMA.. 85 University of Ghana http://ugspace.ug.edu.gh xiv ABSTRACT The relationship between fiscal decentralisation and local economic development has been a subject of particular interest to most scholars of public administration and development economists. Improving public good and service delivery is one of the predominant challenges facing governments worldwide, especially how it impacts on the general economic development of the poor and the vulnerable in society. Fiscal decentralisation is largely accepted as a tool for poverty reduction and rural development leading to local economic development. However, fiscal decentralisation is not an end in itself but a means to an end. Local economic development on the other hand is the approach to development that allows local resources, natural, financial and or human resource to be harnessed in a way that delivers sustainable growth to improving the standard and quality of lives of the local people. This thesis examined the impact of fiscal decentralisation on local economic development in Ghana, evidence from the Ketu South Municipal Assembly (KSMA). The case study research design was used and the qualitative research method was adopted to collect and analyze data from twenty-five (25) respondents. Primary data was collected from respondents including the Fiscal Decentralisation Unit (FDU) of the Ministry of Finance (MoF). Data was analyzed using Miles and Huberman (1984) method of qualitative data analysis. The study identified that the current structure and practice of fiscal decentralisation in KSMA is slightly different from what the Local Government Act 462 advocates and the major factors impeding the effective fiscal decentralisation are inadequate reliable database on the revenue points within the assembly, logistics for IGF mobilization, challenges with human resources, and attitudinal problem on the part of local residents towards payment of taxes. The result further showed that all things being equal, an effective fiscal decentralisation would lead to an improved local economic development. This research therefore confirmed the consensus in the literature that fiscal decentralisation impacts local economic development. This impact could either be positive or negative depending on how it is influenced by structures such as effective community participation, availability of local resources, and local capacity to maximize these resources. It was recommended that government release the DACF is released on time to help KSMA to effectively improve the local economic development of the citizenry. This would enable the districts to as part of its development drive, focus on sustainable livelihood creating opportunities in the form of capacity building and jobs for the local residents rather than just focusing on the building of physical structures only. University of Ghana http://ugspace.ug.edu.gh 1 CHAPTER ONE 1.0 GENERAL INTRODUCTION 1.1 Introduction This chapter gives the general background and introduction to the study. This chapter has been arranged under some major headings including background to the study, problem statement, and objectives to the study. Additional issues discussed are significance of the study, the scope of the study and the limitations and delimitations of the study. The study seeks to examine the impact of fiscal decentralization on economic development within the Ghanaian context, specifically, using evidence from the Ketu South Municipal Assembly. 1.2 Background of the Study In recent times, the relationship between fiscal decentralization and local economic development has been a subject of a particular interest to most scholars of public administration and development economists. Improving public good and service delivery is one of the predominant challenges facing governments worldwide especially how it impacts on the general economic development. The quality and effectiveness of service delivery is influenced by how the operations of central governments is decentralized (Lavigne, 2010) and the ability of these sub-national bodies to be able to generate and mobilize resources in order to bring about the much needed local economic development (Goldstein, 1979). This study seeks to focus attention on how fiscal decentralization could be used to improve the local economic development within the Ketu South Municipal Assembly. University of Ghana http://ugspace.ug.edu.gh 2 Fiscal decentralisation is the transfer of the power to tax, mobilize revenue and allow the subnational organization autonomy to spend into areas of local preference. Fiscal decentralisation is often presented as a sine qua non of rural development but according to Oates, (1985); Craig (2001); Rodrigues-Pose & Kroijer (2009), there is little evidence to prove that fiscal decentralization reduces poverty in rural areas and indeed there is evidence that it is counter- productive. These scholars, argued that, fiscal decentralisation may more likely lead to development disparities across regions and increasing inequality within regions. This is because the problem of capacity and effective participation is more acute in rural districts than in urban districts. This is further compounded by the unwillingness of urban areas to subsidize lagging areas because the elite do not want the quality of their lives to be affected at the expense of improving the welfare of the poor people. Therefore, in examining the impact of fiscal decentralisation on local economic development in the Ketu South Municipal Assembly, the composition of the population within the area is critical. The local preference of the people in terms of development is essential and must go beyond any other preference whether from central government or from local government officials. For fiscal decentralisation to achieve its intended purpose, inputs and incomes must be monitored to ensure that the intended targets and goals of the projects are achieved (Rodriguez-Pose & Ezcurral, 2010). Research has shown that implementation of plans and effective monitoring and supervision of resource allocation and accountability is a problem in Ghana (Ofei-Aboagye, 2011). Fiscal decentralisation has the potential to ensure a more equitable distribution of resources due to local competitiveness and attention on critical local preferences (Oates, 1995; Rodriguez-Pose and Ezcurra, 2010). Oates in his earlier studies on the impact of fiscal decentralisation and economic University of Ghana http://ugspace.ug.edu.gh 3 growth has found no relationship between fiscal decentralisation and rural development (Oates, 1985) but in his later researches, have found a positive relationship between fiscal decentralisation and development. This means that by extension, holding all factors constant, more resources available to a local authority should result in a more development and the creation of job opportunities. Fiscal decentralisation, nevertheless, is not only a question of reassigning resources to the different levels of local government. The allocation and transfer of resources are as important as being accountable for its use judiciously. Therefore, the use and management of devolved financial resources, provision of local services, ability to raise the level of local taxes and revenues sources and the effectiveness of intergovernmental transfers all affect local economic development. Apart from these revenue sources, sub-national bodies must have the power to borrow in order to finance revenue shortfalls such that they can be able to deliver essential goods and services to the local people (Osae, 2009). In the 21st century, the economic performance of Ghana has been largely influenced by what happens in the world’s market place. According to Stansel (2005), local economic development is the ability of a local area to mobilize the available resources in order to stimulate growth necessary to create jobs that would lead to the improvement in the quality of lives of the people. Best practices of fiscal decentralisation in countries such as Norway, USA, and France among other developed nations have a very efficient approach to financing local authorities in their country (Shah, 2006). Local authorities must therefore be well-resourced capacity wise to be able to mobilise and better spend these resources to the benefit of all and sundry. Wibowo (2011) in a University of Ghana http://ugspace.ug.edu.gh 4 study conducted in Indonesia has empirically confirmed that fiscal decentralization has contributed immensely to the growing middle class in that country. He continued to intimate that for an improved delivery of public goods and services, the issues of funding cannot be overemphasized. This shows the importance of the role of both internal and intergovernmental sources of funding in creating a vibrant local economy in a particular area. However, it seems unclear as to whether fiscal decentralisation automatically improves the quality of socio- economic welfare of the individuals or other underlying factors such as level of autonomy, corruption, strong institutions and strategic leadership contributes in ensuring that. Nevertheless, it is easier for the local authorities and institutions that are closer to the local areas to identify relevant areas and priorities for competitiveness and effective service delivery (Charbit, 2011) that has the potential to improve their living standards. According to Akhmouch (2011), there must also be mutual interdependence for effective and efficient service delivery between the central government and local government institutions. It is therefore imperative to examine the current structure of financing local governments in Ghana and to establish the relationship between fiscal decentralization and local economic development whiles scrutinizing factors inhibiting the effective practice of fiscal decentralization in Ghana. 1.3 Problem Statement Funding activities of both central governments and local governments have been a global challenge and fiscal decentralisation is very critical to a successful delivery and implementation of government policies and programs globally especially at the local level (World Bank, 2012; IMF, 2009; Ocran, 2011; OECD, 2011b). Internally generated funds and the intergovernmental transfers University of Ghana http://ugspace.ug.edu.gh 5 are the most important sources of funding local governments’ activities (Ahmad, et al., 2005; Ahwoi, 2010; Ahwoi, 2011; Alam, 2011b; Asante, 2011) but this however has made local authorities to be less aggressive and over relying on the national governments for funding especially in the developing countries. Local economic development is about mobilising local resources to stimulate and sustain growth that could result in the improvement in the quality of lives of the local residents. The quality and effectiveness of service delivery of local economic development is dependent on the size, free and timely flow of funds which could be both mandatory and or arbitrary based on particular jurisdictions (Boachie-Danquah, 2011a; Bodman & Hodge, 2010). Empowering local authorities to raise more funds locally can aid tremendous development (Rondinelli, 1983; Shah, 2006; Davey, 2011; Yuliani, 2013). Whiles Oates (1972; 1985), Rodriguez-Pose & Kroijer, (2009) have proven empirically that there is in fact a negative correlation between fiscal decentralization and economic development, Oates (1995); Akai & Sakata (2002); Cobbah, 2011; Davoodi & Zou, 1998; Samimi, et al., (2010) recognize that there is a positive correlation between fiscal decentralization and economic development. Oates, Davoodi & Zou and Rodriguez-Pose are key researchers into fiscal decentralisation that have found both negative and positive relationship and indeed sometimes no link between fiscal decentralisation and economic developments in various studies. Whiles there has been some research work on the general impact of fiscal decentralization on economic growth (Stansel, 2005; Akai and Sakata, 2002; Davoodi and Zou, 1998; Feld, Zimmermann and Doring, 2004; Ocran, 2011; Rodriguez-Pose & Kroijer, 2009; Xie, Zou and University of Ghana http://ugspace.ug.edu.gh 6 Davoodi, 1999), little has been done on the impact of fiscal decentralization on local economic development. Even those research works that study local economic development were mostly done in the western world (Blakely1989; Blakely and Bradshaw, 2002; Davis and Rylance, 2004; Goldstein, 1979) and those done on the developing world were either in Latin America or South Africa (Gomez and Hemsing, 2008; Rogersona, 2006a; Recker and Trah, 2007) leaving the vast area in Sub-Saharan Africa for research. Therefore it is refreshing to note that this research work was carried out within the context of Sub-Saharan Africa, specifically Ghana. Ketu South is predominantly, a rural community with few urban areas. It is therefore important to examine how the practice of fiscal decentralisation is aiding the assembly to improve service delivery and local economic development. It also looked at how local governments are promoting the development of the local economy to encourage job creation and improvement in the quality of lives. It is therefore relevant to measure, access and examine the impact fiscal decentralisation is having on local economic development using data from one district within the bigger context of the national economy and using a qualitative method to understand in details the various dimensions to this phenomena. 1.4 Research Purpose The purpose of this study is to examine the impact of fiscal decentralisation on local economic development in Ghana. This would scrutinize how the resources available to the local people is used effectively and efficiently to improve their quality of their life. The study uses KSMA as a case duty. University of Ghana http://ugspace.ug.edu.gh 7 1.5 Research Objectives The overall objective of this study is to investigate the impact of fiscal decentralisation on economic development. To achieve this, the specific objectives. 1. To examine the current structure of fiscal decentralisation in Ghana; 2. To study the underlying factors militating against effective fiscal decentralisation in Ghana 3. Examine the impact of fiscal decentralisation on local economic development in Ghana. 1.6 Research Questions The Study will be underpinned by the following research questions 1. What is the current structure of fiscal decentralisation in Ghana? 2. What are the underlying factors and militating against fiscal decentralisation in Ghana? 3. What is the impact of fiscal decentralisation on local economic development in Ghana? 1.7 Significance of the Study The significance of this research work can be viewed along three components: research, practice and policy. In terms of research, this research contributes to literature to fill the existing gaps on how an effective decentralisation could affect local economic development. This is relevant as it gives insight and extends the literature on the impact of fiscal decentralisation on local economic development especially in the area of local job creation and welfare. University of Ghana http://ugspace.ug.edu.gh 8 Again, with reference to practice, the study made available information to policy makers, government and the citizenry especially in the benefits of improving fiscal decentralisation and its desirable impacts on economic developments. The quality of the daily lives of the people is affected more at the community level than on the national level. It is therefore, possible that fiscal decentralisation could be very effective without being efficient especially in the developing countries due to political patronage (Ahwoi, 2011). Finally, the significance of fiscal decentralisation to policy would enable the study to offer valuable information that would guide future policy direction for consensus building and to empower local authorities to improve fiscal decentralisation so as to enhance economic development in the country. 1.8 Structure and Organization of the Study. The study is divided into five chapters. The first chapter comprised the general introduction, background, statements and objectives of the study while the second chapter critically reviews literature regarding fiscal decentralisation, theories, conceptual framework and conceptualization of terms used in this thesis. Chapter Three focused on research methodology and data analysis used in the study. Chapter Four presented data and examined the analysis of results and discussions. Chapter Five consist of the summary of findings, recommendations, and conclusions. It also included limitations of the study and suggestions for further research. 1.9 Conclusion Fiscal decentralisation is very critical to the growth and development of rural communities especially in the developing countries and its practice cannot be overemphasized. Local economic University of Ghana http://ugspace.ug.edu.gh 9 development is a relatively new area and it is imperative to ensure that a study of this nature is conducted to confirm or contradict the assertion in the literature that fiscal decentralisation leads to economic development. This would also make available to government, critical non- governmental organizations and donor agencies about emerging challenges to the practice and attainment of fiscal decentralisation and how to overcome them especially in the developing world. University of Ghana http://ugspace.ug.edu.gh 10 CHAPTER TWO 2.0 THEORETICAL AND EMPIRICAL LITERATURE REVIEW 2.1 Introduction In this chapter, the relevant literature on the impact of fiscal decentralisation on economic development in Ghana would be critically reviewed. The major sub-themes are the concept of local government and fiscal decentralisation, economic growth and economic development, and relationship between fiscal decentralisation and local economy development. The theory and conceptual framework that were used to analyze data collected for this thesis would be well- discussed in this chapter. It would further summarize the functions of the local district authorities with regard to local economic development. The purpose of the review is to use the literature to frame the research work and also critique the available literature on the topic and show the existing gaps in literature that need further research. 2.2 THE CONCEPT OF DECENTRALISATION AND FISCAL DECENTRALISATION. Improving public goods and service delivery is one of the predominant challenges facing governments worldwide. The quality and effectiveness of the service delivery is influenced by how the operations of central government is decentralized and the ability of these sub-national bodies to be able to generate and to mobilize resources in order to deliver the needed services (Ayee, 2012). The attention is on the decentralisation of funds, functions and representations that will make governance closer to the rural people and to engage them actively in decision-making (Ahwoi, 2010). Decentralisation is a very broad concept, and its feasibility in terms of process, University of Ghana http://ugspace.ug.edu.gh 11 operation, practice and success must not be carried on a single case basis and one fit all (Alam, 2011a) but rather on a case specific basis bearing in mind environmental and institutional factors in order to aid local economic development with the long-term impact in mind (Rodriguez-Pose and Tijmstra, (2007)) Decentralisation in the context of local governance is defined as ‘the transfer of responsibility for planning, management, and the raising and allocation of resources from the central government and its agencies to field units of government agencies, subordinate units or levels of government, semi-autonomous public authorities or corporations, area-wide, regional or functional authorities, or non- governmental private or voluntary organizations’ Rondinelli (1983: pp.1). Decentralisation must be carefully analyzed before determining if projects or programs should support reorganization of financial, administrative, or service delivery systems. Decentralisation is the assignment of fiscal, political, and administrative responsibilities to lower levels of government (Ahwoi, 2010) in a prevalent but controversial institutional reform. According to Smith (1997), it refers to delegation or devolution of central state powers of policy making and decision taking to lower units of government. This involves the transfer of authority and responsibility for public functions from the central government to subordinate or quasi- independent government organizations and or the private sector. This is because for decentralisation to be effective in order to achieve its intended purpose of poverty reduction and rural developments there should be a significant devolution of power and responsibility to sub-government units. Ahmed (2013) submitted that, the situation where functions and responsibility is devolved without corresponding legal frameworks and capacity in terms of personnel and finance to carry out these functions, then is not decentralisation at all. University of Ghana http://ugspace.ug.edu.gh 12 Allocation and results must be monitored to ensure that the intended target and purposes of the projects are achieved (Oates, 1995). Decentralisation tends to focus primarily especially in developing countries on the political aspects which seek to stimulate the emergence of good governance, constrain sub-national ethnic conflict, promote democratic practices, facilitate the growth of civil societies, and increase the privatization of public sector tasks (Cunningham, and Meyer-Stamer, 2005). The concentration has since shifted to fiscal decentralisation which is the critically necessary stimulant of rural poverty reduction and improving local economic development (Ahwoi, 2011). Local economic development is the most recent concern for fiscal decentralisation and a critical aspect of this is the role of local authorities in its achievement. Local economic developments is a process by which public, business and non-governmental sector partners work collectively to create better conditions for economic growth and employment generation (World Bank, 2003). Local development aims to stimulate the local economies to grow and create more jobs, by making better use of locally available resources (Helmsing, 2005). The rising importance of local economic development across sub-Saharan Africa is signaled by the activities of the United Cities and Local Governments of Africa (UCLGA) (Swinburn et al., 2007). Local economic development itself advances decentralisation and invariably fiscal decentralisation. Even though the practice started in cities of the Northern Europe and America during the late 1960s and early 1970s, its current adoption and practice is more relevant to the third world, especially in Africa because it is a tool to improve production and reduce the adverse effect of poverty on not only the citizenry but also the environment (Rodriguez-Pose, 2009). An active adoption and practice of local economic development make local institutions more transparent and accountable. For improvement in the University of Ghana http://ugspace.ug.edu.gh http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0120 http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0036 http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0075 13 welfare and quality of lives of the people, governments and indeed sub-district structures should be more interested in project financing rather than funding. Fiscal decentralisation allows resources to be allocated together with responsibilities. Fiscal decentralisation has both external and internal sources of funding as components. The formula and specific sources of generation and methods of revenue mobilisation differ from country to country depending on their history and tradition (Ayee, 2004). For example, there are special-purpose local government bodies and school districts and or school boards in the United States that are required to “deliver the deals” (Shah, 2006). Let us examine the three types of decentralisation, that is, fiscal decentralisation, political decentralisation and administrative decentralisation. While some researchers include devolution, decentralisation and delegations as types (Hossain, 2014), some other researchers classify them as forms of decentralisation (Ahwoi, 2010). The classification of decentralisation into the various categories allows us to examine the strengths and weaknesses of its practice in ensuring an effective service delivery to the local citizens. It also opens the argument to attempt to determine a more favorable form to deliver the much needed local economic development in the form of poverty reduction and growth. 2.2.1 Political Decentralisation. Political decentralisation is basically the transfer of power and authority from the central government to sub-national institutions at the local levels (Hossain, 2014: Ayee and Dickovick, 2010; Ahwoi, 2010). It is the most common and widely practiced form of decentralisation in sub- Saharan Africa (Ayee, 1992, Ayee, 2004; Alam, 2011b; Osae, 2007; Ofei-Aboagye, 2011). Political decentralisation which is the foremost component of decentralisation seeks to equip and University of Ghana http://ugspace.ug.edu.gh 14 allocate to citizens or their elected representatives more power in public decision making and participation in policy formulation. The political representation of the national governments is replicated at the local level to ensure speedy and prompt redress of grievance at the local level. Ghana’s political decentralisation is recognized by Article 240 of the 1992 Constitution and the Local Government Act of 1993, Act 462. This has a direct and indirect tremendous effect on poverty reduction and local economic development. 2.2.2 Administrative Decentralisation. Political decentralisation often times leads to administrative decentralisation. Administrative decentralisation is the redistribution of authority, power, responsibility and financial resources to the sub-national agencies (World Bank, 2012). It transfers responsibility from the central government to the local authorities for the planning, financing and management of certain public functions. This means that, under administrative decentralisation, executive and governmental functions performed at the center are brought closer to the local people from the central government and its agencies to field units, subordinate units, semi-autonomous public authorities or corporations, or area-wide, regional or functional authorities which is also supported by Yuliani, (2013) and Devas, (2005). There are other forms of decentralisation or administrative decentralisation, they are de-concentration, delegation, and devolution (Ahwoi, 2010). These measure the magnitude or degree of transfer of the function from the administrative center to the local or unit area. Administrative decentralisation therefore examines the ways through which functions of the central government are brought closer to the local people so that workload is reduced from the center and at the same time, the local people also feel part of the decision making process. University of Ghana http://ugspace.ug.edu.gh 15 De-concentration is the transfer of power from the central office to a local office without any real transfer of authority. Mostly regarded as the weakest form of decentralisation and is used conveniently in non-federal nations (Hossain, 2014). It explains the redistribution of decision making where the national government shifts some administrative power to its own ministry offices at the local level. Power and authority still remained with the central office at the national headquarters. The Regional Ministries in Ghana are more or less a de-concentrated form of decentralisation. Delegation is a more elaborate form of decentralisation as compared to de-concentration. Here, power belonging to a national institution is given to sub-national institutions to perform same functions and on behalf of the mother organization (Devas, 2005). Responsibility for decision making and administrative functions are given to semi-autonomous organizations that are not wholly controlled by the central government, for which they are ultimately accountable to it (Charbit, 2011). Delegation deals with the transfer of power from the center to the district areas without any real transfer of authority but enough power to ensure that the delegated authority can act within the law and report back to the delegating authority. Devolution is the most radical form of decentralisation and often preferred and practiced in the first world countries (Ayee and Dickovick, 2010; Ahwoi, 2010). Devolution is defined as the transfer of authority for decision-making, finance and management to quasi-autonomous units of local government with corporate status (World Bank, 2003). It is the ultimate form of decentralisation and if carried out properly, it generates enviable results. Devolution is similarly the full transfer of the power of resource mobilization and allocation of responsibilities to a quasi- University of Ghana http://ugspace.ug.edu.gh 16 autonomous, sub-national public authority that are fully independent of the devolving authority (Su, Ming, Zhao and Quanho, 2013). It ordinarily culminates in the establishment and empowerment of local governments that is accountable to the local population using a legal and regulatory framework. In devolution, local government should have the full responsibility for hiring and firing of staff and assigning authority and responsibility for carrying out tasks (Adam, Delis, and Kammas, 2008; Ahmed, 2013; Akai, and Sakata, 2002; Ali Akhtar, 2011; Asante, 2011). Ghana’s local government and decentralisation system is seemingly a de-concentration and devolution. While some functions such as planning and development of the districts are devolved, there are a lot of departments within the districts that directly report to the ministries which are either de-concentration or delegation of functions. It is still not clear which specific form of decentralisation in practiced in Ghana except that we can see a bit of everything which is one of the challenges to effective fiscal decentralisation in Ghana. 2.2.3 Fiscal Decentralisation Financial decentralisation is core component and an engine of the purest form of decentralisation (Akai, and Sakata, 2002). Fiscal decentralisation basically transfers two things to local governments; power to perform functions and funds plus capacity to tax to deliver functions. Local government across the world generally have their funding’s from external (central government), and internally sources (fines, levies, market tolls etc.). Fiscal decentralisation can take many forms, including: self-financing or cost recovery through user charges, co-financing or co-production. Expansion of local revenues through property or sales taxes, or indirect charges; intergovernmental transfers that shift general revenues from taxes collected by the central University of Ghana http://ugspace.ug.edu.gh 17 government to local governments for general or specific uses improves the rate of development within the local area (OECD, 2011; World Bank, 2010). Fiscal decentralisation could help localities improve more economically and become competitive in spending into education, health, security, which invariably would increase residential property values, commercial property values, improve productivity, especially in developing countries. Effective fiscal decentralisation could help in transforming the local economy of Ketu South municipality. This means that funds from the internally generated sources and the intergovernmental transfers as well as donor funds could be made available to the district critical development options. Inter-governmental transfers are assured sources of revenue to the local assemblies because central government’s tax the most lucrative business making the tax base for the local authorities weak that the dependence on central government subventions is a better alternative for most local governments. This, however, is not automatic as the ability of central government to release funds to the local structure is amongst other things dependent on the priorities of government and the urgency of more pressing needs such as national security and defense. Fiscal decentralisation is also usually classified into economic or market decentralisation which comprises both privatization and deregulation. Privatization is where the performance of responsibilities and functions is shifted from the public sector to the private sector. This may have its own implication for rural areas because the focus of fiscal decentralisation is to first reduce poverty and then after improve upon growth and economic productivity (Rubinchick-Pessach, 2005). But privatization and deregulation favor the private sectors in terms of profit making and has the tendency compete with government agencies thereby encouraging improvement in the quality of service (Adam, Delis, and Kammas, 2008; Ahmed, 2013). Deregulation on the other University of Ghana http://ugspace.ug.edu.gh 18 hand reduces the legal constraints on private participation in service provision or allows competition among private suppliers for services that in the past had been provided by the government or by regulated monopolies. Since the district assemblies are sub-national agencies and the focus of this study is on the impact of fiscal decentralisation on local economic development, the research will focus on the performance of the functions of the local authorities as spelt out in Act 462. Fiscal decentralisation thus constitutes the public finance dimension to decentralisation in general, defining how and in what way expenditures and revenues are organized between and across different levels of government in the national polity. The precise nature of intergovernmental fiscal relations and fiscal decentralisation policy in any given country varies depending on how sub-national government and administration is organized. (Dick-Sagoe, 2012; Rubinchick-Pessach, 2005). In such a context, fiscal decentralisation is often more narrowly conceptualized as fiscal devolution (Malizia, and Feser, 1999). A major element of this is that local governments are given an important role and some discretionary authority in delivering services to their communities. Fiscal decentralisation, however, is not only a question of transferring resources to the different levels of local government. It is also about the extent to which local governments are empowered, about how much authority and control they exercise over the use and management of devolved financial resources, measured in terms of their control over the provision of local services for which they are mandated to perform; the level of local taxes and revenues; and the government’s willingness to finance other projects. Evidence has shown that effective fiscal decentralisation by itself may not be enough to practically empower local communities to achieve the needed development (Akai and Sakata, 2002). While local power to mobilize and spend resources is University of Ghana http://ugspace.ug.edu.gh 19 important, successful fiscal decentralization requires the full complimentary support of other aspects of decentralisation- political and administrative decentralisation to make it whole (Ahwoi, 2010; Samimi, et al., 2010; and Oates, 1995). In Ghana, districts rely heavily on the DACF for the management and running of their district and it seems that the quantum of IGF raised in relatively linked to how much resources and logistics were invested in the collection process. Most local governments seem not interested in the collection of IGF because of the nature and expensive cost of collection. If you are not careful, one could spend more in collection than what a district actually collects thus sometimes, district would rather wait on the DACF than to attempt to raise IGF. For an effective fiscal decentralization to be achieved, I think that first, unless local governments are politically empowered by and encouraged by the legal framework to be more devolved than they currently are. Second, unless MMDAs in Ghana have administrative control over the services they are supposed to deliver (for instance, by having effective control over the local government staff that deliver local services instead of a situation where the Civil service and other public department like the audit service and the accounting department hire, transfer and fire their staff. In addition, the creation of an enabling environment for MMDAs (of which fiscal decentralisation is a core element) will often need to be complemented by support for capacity development, for the strengthening of inclusive systems for local public expenditure management, and for robust accountability mechanisms. Finally, successful fiscal decentralization also requires a meaningful dialogue between local, regional and central governments, an appropriate set of legal and institutional arrangements for local government management, and a system of incentives to allow local governments to champion the development of the local economy in their specific area of jurisdiction. The focus is how the local University of Ghana http://ugspace.ug.edu.gh 20 area authorities could be supported to implement policies that inure to improving the welfare of the rural folks. 2.2.4 Sub-district Structures Sub district structure includes those structures as established by the local government act of 1993, Act 462 to help support and facilitate the process of decentralisation and invariably fiscal decentralisation which has the tendency to lead to poverty reduction and rural development. These discusses metropolitan, municipal and district lower level units. 2.2.4.1 The Metropolitan Assembly There are six (6) Metropolitan Assemblies in Ghana. Metropolitan Assemblies have population over 250,000 people. Metropolitan Assemblies have more revenue sources in a form of IGF than municipal and district assemblies. It is a four-tier because it has four levels of sub-local agencies. These are the Metros, Sub-Metro, Urban and Unit Committees. All these level have their roles and function to play in the attainment of the local economic development as specified in the Local government act of Act 462. Sub Metropolitan District Assemblies Sub-Metropolitan District Councils are local authorities under metropolis in Ghana. Due to the vastness of the metropolitan area, sub-metro structures are necessary in order to bring development closer to the people and to encourage grassroots participation. This is because decentralisation and local governments encourage the local people to feel involved and to lead development in their area. This is to manage the peculiar socio-economic situation in a locality and to deal with development and urbanization of the local area. Urban Council University of Ghana http://ugspace.ug.edu.gh 21 Urban councils have not less than 25,000 people and not more than 30,000 people living within a demarcated geographical location. It is the further division of the sub-metro area so that every unban town or center is specially catered for in terms of water, waste management and sanitation and social infrastructure. 2.2.4.2 Municipal Assembly Municipal assemblies are lower than the metropolitan assemblies but are also higher than the district assemblies in terms of political status. It is normally a single compact settlement with a population of people between 250,000 and 95,000 people within the political jurisdiction of a municipality. There are fifty-six (56) municipal assemblies in Ghana. It has a three-tier local government system. These are the Municipal, Zonal and Units committees. Ketu South is on one of the five (5) municipal assemblies in the Volta region of Ghana. Zonal Councils Zonal Councils areas are very peculiar to the municipal assemblies. Every municipality is divided into various zones for easy governance and revenue mobilization. Most importantly, this is to allow the various clusters of people in the areas to have a common front. There are five zones in the Ketu south Municipality, these are Aflao Fugo, Aflao, Wego, Some Fugo, Some Wego and Klikor. These zones make the collection of revenue especially business operating licenses and property rates and permit very easy to access and assess. 2.2.4.3 District Assembly District Assemblies are the commonest local government structures in Ghana. When the first comprehensive decentralisation policy was launched in Ghana in the year 1988/1989, there were University of Ghana http://ugspace.ug.edu.gh 22 110 local government areas across the country. Today, there are 154 districts in Ghana. District assemblies are also three-tier local government with a population strength of at least 75,000 people. Town/Area Councils Town and or Area Councils are the further division of the district assemblies. These allow for mapping out revenue area in term of property rating and evaluation. It also helps in property rate collection. Unit Committees Unit Committee is one of the most critical sub-national agencies yet most unnoticed. Just as every assembly has an Assembly Man, every Electoral Area is supposed to have elected Unit Committee members that assist the assembly member in the management and day-to day decision making that concerns the affected electoral area. Unit Committees consist of not more than fifteen (15) members made up of ten (10) elected persons ordinarily resident in the unit and not more than five(5) other person resident in the unit nominated by the District Chief Executive acting on behalf of the president. 2.3 THE CONCEPT OF ECONOMIC GROWTH AND LOCAL ECONOMIC DEVELOPMENT There seems to be a growing concern about the right form of measurement of economic growth as against the economic development. Economic growth is a narrower concept than economic development or in other words, economic growth is only an aspect of economic development (Zhuravskaya, 2000). Economic growth is the increase in the nations real national output which can be caused by an increase in the quality of resources, increase in the quantity of resources and improvement in technology. It is the increase in the value of goods and services produced by every University of Ghana http://ugspace.ug.edu.gh 23 sector of the economy. Economic growth is normally measured by increase in Gross Domestic Product (GDP) or the per capita income and it is purely quantitative (Berkowitz and Li, 2000; Rodrik, 2000). However, economic development includes economic growth plus increase in living standards, improvements in self-esteem needs and freedom from oppression as well as greater choice (Trah, 2004). Economic development is the process whereby a nation’s real per capita output or its total income rises continuously over a long period which leads particularly to changes in the structure of economy as well as changes in critical aspects of the society. Notable among them are life expectancy, health and education, security and quality of lives of individuals (Blakely and Bradshaw, 2002). It seems the most generally accepted accurate method used for measuring economic development is the human development index (La Porta, Lopez-de-Silanes, Shleifer, and Vishny, 1998) which accounts for literacy rates and life expectancy which affects productivity. This leads to the creation of more opportunities in the sectors of the economy such as education, health, employment and conservation of the environment. Economic growth normally does not take into account the size of the informal sector. Economic growth is necessary but not a sufficient condition for economic development. Economic development is more relevant is measuring quality of development is developing nations (Valler and Wood, 2010; Empel, 2007b; Rodriguez- Pose, and Crescenzi, 2008). While economic growth is purely quantitative, economic development is both qualitative and quantitative and the focus of this research is on the qualitative aspect of economic development thus an impact of fiscal decentralization on the qualitative life of citizens within the study area. University of Ghana http://ugspace.ug.edu.gh 24 2.4 THE RELATIONSHIP BETWEEN FISCAL DECENTRALISATION AND LOCAL ECONOMIC DEVELOPMENT. Local economic development denotes the process in which local government or communities based organisations participate to stimulate or maintain business activity. The prime goal of local economic development is to stimulate local employment opportunities in sectors that improve the community using existing human, natural and institutions’ resources (Blakely and Bradshaw, 2002). Critical features are the development and recognition of the capabilities and resources of the local people through education and training, increasing life expectancy through high quality health care, stimulating employment through the empowerment of small scale enterprises in order to stimulate productivity (Blakely, 1989). Long-term economic viability and sustainability is essential for local economic development which is the participatory development process that encourages partnership arrangements between the main private and public stakeholders of a defined territory, enabling the joint design and implementation of a common development strategy, by making use of the local resources and competitive advantage in a global context. And with the ultimate objective of creating jobs, stimulating economic activity and drastically reducing poverty (ILO, 2006). This definition identifies the four cardinal ingredients of development as a result of fiscal decentralization which are sometimes referred to as the strategies of local economic development. These are the need for participation and social dialogue, the local emphasis, mobilization of local resources within the national perspective and building of competitive advantage, and local ownership and management (Bondzi-Simpson, 2014). It is therefore fair to say that as far as the local economy of most districts are concerned, the actions or inactions of central government affects them either directly or indirectly while those of the local government within their jurisdiction affect them directly (Rodriguez-Pose, and Tijmstra, 2007; Blakely, 1989). University of Ghana http://ugspace.ug.edu.gh http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0038 25 Some scholars observed that decentralisation does not seem to be a good way to boost efficiency (Treisman, 2000). However, there are many proponents of the view that central policies and development programs can be carried out more effectively and sustainably through strategies of administrative or fiscal forms of decentralisation (Smith, 1982; Rondinelli, 1983; Conyers, 1983; Davoodi and Zou, 1998; Thiessen, 2001; Oates, 2005; Devas, 2005; OECD, 2011; World Bank, 2010; Stoker, 2010; IMF, 2009). Fundamental aims of local economic development involves education, health care delivery, facilitating workforce development, providing a competitive local business environment, encouraging and supporting networking and collaboration between businesses and public/private and community partnerships, concentrating on investment that would boost growth and supporting the quality of life of the people (Ruecker & Trah, 2007). Local government therefore should make policies to attract the community incorporating the role of private sector, unions and community groups and the role of the other institutions in local economic development and employment activities. Moreover skill level of rural dwellers must be critically considered. Small towns and villages are pivotal sites of competitiveness in a new global economy (Valler & Wood, 2010), and such, globalization gives a bigger role to play in international development (Rodriguez-Pose, 2008a). Globalization has exposed even the most remote localities to competition and forces firms to the new economic conditions. It is obvious not all localities have the same capacity and tools to make the world an even playing field (Rodriguez- Pose & Crescenzi, 2008). It is expected that the effectiveness of fiscal decentralisation with regard to quality service provision will reduce further away from the urban areas due to low capacity and level of autonomy University of Ghana http://ugspace.ug.edu.gh http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0101 http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0113 http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0072 http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0076 26 of sub-district structures. And local economic development reflects variability in the aspirations and concerns of actors about the pace and extent of local investment (LeHeron, 2009; Blakely, 1989). Although local economic development originally represents the local economy’s capacity to create wealth for local residents (Bartik, 2003). It is an aspect of decentralisation and local governance where the local authorities are not only making a better use of the locally available resources but are also able to stimulate economic growth, compete and create more jobs for the local population (Helmsing, 2005). Due to the current challenges in global financial crisis as well as budgetary support to the government of Ghana, local authorities are compelled to find new solutions to support local competitiveness and to create inclusive development (Gomez & Helmsing, 2008). Local economic development is widely considered to be a process through which partnerships between local governments, non-governmental organizations, community based groups and the private sector are established to manage existing resources, to create jobs and stimulate the economy of the local area to the benefit of the local people (Blakely, 1989; Harrison, Todes, and Watson, 2008). The focus of local economic development includes among other things, property development, place marketing for internal investment, small, medium and micro enterprise (SMME) development, investment facilitation, improving the local business investment climate, encouraging local business, institutional development, upgrading skills and training, investment in business sites and premises, and cluster upgrading (Rogerson, 2006). While it is critical for the central government to be engaged and involved in the provision of sensitive services, it is essentially important for the local government to be engaged in the University of Ghana http://ugspace.ug.edu.gh http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0045 http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0014 http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0005 http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0036 http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0025 27 provision of essential services that impact on the daily lives of people within their jurisdiction. Central government normally should focus on such services as defense, external affairs and foreign relations, currency and foreign exchange, institutes for research, nuclear energy, mineral oil and national gas among others. Often times, the enabling environment for implementing local economic strategies in Africa has faced many challenges such as inadequate government capacity, non-availability of usable data which contributes to inability to identify the strength and weakness of well-intended policies (Rodriguez-Pose & Tijmstra, 2007). The most critical constraints to local economic development remain funding and financing. Most projects are programs are more focused on funding instead of financing (Blakely and Bradshaw, 1938). Funding is getting money or loan to organization and project whiles financing is where the project is such that it can generate enough to refinance maintenance and interest on loans. The ability of subnational and district institutions to develop and implement prosperous strategies is most likely limited by skills and infrastructure, lack of funding and government capacity, and this is more pronounced in Sub-Saharan Africa (Rodriguez-Pose and Tijmstra, 2007). Local assembly provides goods and services such as water supply, drainage and sewage, market development, town and urban roads, educations, health, land development, financing social infrastructure in the area of roads, markets, car parks reduce cost of doing business, planning and zoning to facilitate informal economic activities, increase support through government poverty reduction program fund. These micro economic activities contribute in building the local economy of the Ketu South municipal assembly. The provision of these services could lead to development within the area. Notwithstanding the difficulty faced by governments in implementing local economic development plans and programs in Africa, the practice of fiscal decentralization is making it critical component in in Africa (Aggrey, 2005). Beyond IGF, DACF, DDF, international donors, University of Ghana http://ugspace.ug.edu.gh http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0079 http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0079 http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0002 28 non-governmental organizations, similarly, have assumed a critical role for promoting rural development and poverty reduction in parts of Africa (Hill et al., 2007). It is also observed that African countries especially Sub of the Sahara lag badly using the indicators of quality business environment for both formal and informal sector enterprises (Eifert et al., 2008). The practice of decentralisation and for that matter fiscal decentralisation has gained root in Ghana. It is therefore critical bearing in mind the relevance of using local resources in creating sustainable employment opportunities in Sub-Saharan Africa and to examine the influence of fiscal decentralisation on the local economic development. This offers opportunity to examine the usefulness of fiscal decentralization as part of our decentralisation and local government system and ways to position it in order for it to move from the traditional goals of poverty reduction into all-inclusive growth seeking policies likewise, creating an enabling local business environment. 2.5 THEORY AND CONCEPTUAL FRAMEWORK. 2.5.1 Introduction The theory and conceptual framework section details the conceptualization of the thesis and the theory that was used to support the research. The conceptual framework was developed from literature with regard to how the data was analyzed for this thesis. The conceptual definition of fiscal decentralisation and local economic development is increasing the roles of raising and spending and the ability to harness local resources to improve the living condition of the people. University of Ghana http://ugspace.ug.edu.gh http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0037 http://www.tandfonline.com/doi/full/10.1080/0376835X.2010.508577#CIT0021 29 2.5.2 Public Value Theory The theory of public value was adopted for this study. Theories are very critical in research works. It draws your attention to particular events or phenomena and sheds light on relationships that might otherwise go unnoticed or misunderstood (Bickman, 2008). Public value argues that public services are distinctive because they are characterized by claims of rights by citizens to public goods and services that have been authorized and funded through some democratic process (Benington, 2012). According to Williams and Shearer, (2011) public value basically, is the analogue of the desire to maximize shareholder value in the private sector. It is designed to get public managers thinking about what is most valuable in terms of local priorities and to consider how effective management can improve the standard of living that can enable the citizens to agree that they are getting value for money either locally generated, grants or transfers from the central government. The theory intimates that public services are different from those available in private competitive markets. Most importantly, perhaps, public services are characterized by claims of rights by citizens to services that have been authorized and funded through some democratic process (Grant, and Fisher, 2010). This means that public value theory is focused on citizenship, networking governance and the role of public agencies in the working with the citizens to co-create public value, generate democratic authority, legitimacy and trust. It also stress that, the domains within which public managers are working is a complex adaptive systems with characteristic which are qualitatively different from simple market forms, or private sector business principles. This means that how public managers can ensure that they maintain an organization’s legitimacy in the eyes of the public though efficient delivery of service and a more rounded accountability. University of Ghana http://ugspace.ug.edu.gh 30 2.5.3 Conceptual Framework The conceptual framework was developed to explain that a stable economic growth and development in a local area is possible in every district that has improved and enhanced IGF collection methods, consistent flow of DACF, quality leadership with strategic direction, accountability and good governance, conducive environment for business and grassroots participation. This was based on the critically reviewed literature on fiscal decentralisation and local economic development combining it with the theory of public value. Improving upon fiscal decentralisation would enhance the local economic development of the Ketu South Municipal Assembly. Consequently, the impact of fiscal decentralisation on the local economic development of KSMA necessitates a very comprehensive approach to the study of the current structure of fiscal decentralisation with regard resource allocation and how it impacts on harnessing local resources in improving the living condition of the people. Examining the current level of service provision enables one to determine and establish the existing factors promoting or inhibiting fiscal decentralisation. Factors promoting fiscal decentralisation are grassroots participation, training of future leaders, development of local economics and infrastructure development. However, unpredictable revenue, poor collection mechanism and leakages in systems and lack of political commitment are few of the reasons that are hindering the effective realization of the goals of fiscal decentralisation (Dick-Sagoe, 2012). Fiscal decentralisation helps to the development and improvement of the lives of individuals, and the local economy. Effective services delivery, especially when citizens feel a sense of right of access to these services, their maintenance becomes less problematic especially in the face of limited budgetary allocation. How can fiscal decentralisation impact on the provision of capacity, University of Ghana http://ugspace.ug.edu.gh 31 sustainable livelihoods and skill trainings in harnessing natural resources that could ultimately improve the living conditions of the natives? The conceptual framework for this research work is diagrammatically represented in a figure 2.1 below. Figure 2.1: Conceptual Framework Source: Authors’ Conceptual Framework, 2015. Figure 2.1 above shows the Conceptual Framework on the impact of fiscal decentralisation on local economic development. Fiscal decentralisation alone could lead to improved IGF collection, intergovernmental transfers, accountability and improved social infrastructure. But for the goals of Local Economic Development to be fully achieved, these should be accompanied with Local Economic Development Quality leadership & Strategic direction Accountability and Good Governance Intergovernmental transfers Improved and enhanced IGF collection methods Improved Roads and Social Infrastructure Creation of Employment Opportunities and Capacity Building CONCEPTUAL FRAMEWORK: IMPACT OF FISCAL DECENTRALISATION Active Community Participation Conducive Local Business Environment and Local Competiveness University of Ghana http://ugspace.ug.edu.gh 32 conducive environment for business, strategic leadership and direction, community participation and ultimately the creation of employment opportunities and capacity building that could take advantage of local resources and that would benefit the local people in raising their standard of living 2.6 HISTORICAL UNDERPINNINGS OF FISCAL DECENTRALISATION IN GHANA Local governments all over the world play a very significant role in the administration and development of the country at the local levels. This was based on the widely accepted notion that the capacity to solve the problems of low-income areas lies within these communities (Blakely, 1938). Local governments are therefore essential in the developing countries so as to help reduce poverty and improve rural development. The 1992 Constitution of the Republic of Ghana provides a broad framework for decentralisation and local government that creates a basis for citizens’ participation in decision-making and grassroots governance. The decentralisation legislative instrument of Ghana delegates and devolves authority, functions and responsibility as well as human and financial resources from the central government to the various local governments at the district levels (Alam, 2011b). The policy document also creates and establishes major areas of relationship between the local and central government (Act 462, 1993). This create a mutual relationship of interdependence for progress. The historical development of decentralisation in Ghana can be traced to pre-colonial days where chiefs with limited jurisdiction ruled settlements and kingdoms. These long established African traditional practices were used during the colonial era by the British Colonial Government where traditional authorities, helped to administer law and order (Ayee, 2012). This led to the University of Ghana http://ugspace.ug.edu.gh 33 development and practice of decentralisation in Ghana. The Municipal Ordinance of 1859 which established municipalities in the coastal towns of the country, such as Cape Coast and Accra through nomination of members was the first legal document on decentralisation in Ghana. Another Ordinance was passed in 1943 which established the setting up of elected town councils for Accra, Kumasi, Sekondi, Takoradi and Cape Coast only (Ayee, 2008b; Ahwoi, 2010). However, after becoming the first country to gain independence south of the Sub-Sahara Africa in 1957, Ghana led in depending local governance by passing the Local Government Act later in 1961, (Act 54). All the above mentioned legislations preserved the distinction between the central and local government (Ayee, 2012; Chireh, 2011). Following in the colonial arrangements, these ordinances gave power to the local authorities and institutions to deliver municipal amenities but it was unclear how these services would be delivered and how they were resourced. These localities consequently were unable to attract competent personnel to raise funds to meet both mandatory and permissive obligations (Ahwoi, 2010; Alam, 2011a). Fiscal decentralisation has therefore become very necessary to ensure that local governments are better resourced. Even before examining fiscal decentralisation, it is proper to understand decentralisation. Decentralisation is the process of making governance closer to the people. An advancement to the practice of decentralisation in Ghana was made in the Local Government Act 1971, (Act 359), which only became effective in 1974 known as the Local Administration (Amendment) Decree 1974, (NRCD 258) due to change of government in 1972. This Act created sixty-five (65) district councils as a monolithic structure which has abolished the separation between local and central University of Ghana http://ugspace.ug.edu.gh 34 governments. It transferred functions of the District Assemblies but at the same time, centralised all financial administration in Accra (Ofei-Aboagye, 2011). The most comprehensive decentralisation policy rolled out in Ghana, however, was in 1988, a time that many African countries were yet to adopt a decentralised system of government (Ayee, 2012). The focus then was on local planning, delivery of social services, and also to ensure broad participation and inclusive representation of the people (Aboagye, 1994), and PNDC Law, 207 was passed to support that preference (Alam, 2011b). Subsequently, Chapter 20 of the 1992 Constitution of the Republic of Ghana further expanded and institutionalised the theory and practice of decentralisation in Ghana. This gave credibility to the concept of local governance in Ghana. Scholars have argued that decentralisation thrives more in a democratic state than in military governments but in Ghana, the military governments were rather more sympathetic and interested in decentralisation processes and procedures than the democratically elected governments we have had before 1992 (Ahwoi, 2010). Following the promulgation of the 1992 constitution, it was necessary to formulate and pass into law specific legislation that could deal directly with the various aspects of local governance in Ghana. These legislations are the Local Governments Acts 1993 (Acts 462), which establishes the legal framework for four-tie metropolitan and three-tier District/Municipal Assemblies. The District Assemblies Common Funds (DACF) of 1993 (Act 455) focused on the financing the developmental projects of the assembly with support from centrally allocated funds and the National Development Planning Systems Act, 1994 (Act 480); was passed to have a comprehensive national development plan within which the districts are the target beneficiaries. Institute of Local Government Studies Act, 2003 (Act 647), was passed to allow for skill training and capacity building on the part of personnel University of Ghana http://ugspace.ug.edu.gh 35 that will work in the local assemblies and the Local Governments Service Act, 2003 (Act 656) deals directly with the conditions of service and conduct of the workers of the local government service in Ghana. All these legislation were in one way of the other reinforce the practice of local government in Ghana over the past two decades. But most importantly, all these legislation basically were concerned with the fact that if the country was to develop, it has to start from the local areas through local participation, allocation of funds to the local level to aid building of schools, hospitals, provision of social infrastructure, creating business, farming, roads, market among others. Decentralisation is a more effective way of delivering the needs of local people than central planning because decentralisation makes leaders and politicians more responsive, accountable and very answerable (Smith, 1985; World Bank, 2000). While there are many persuasive opinions for devolving significant portions of central government powers, functions, expenditure to lower-level governments, the financing is always the problem in most developing countries (Smith, 1990). However, there are concerns over equality, administrative complexity, economies of scale, transparency, macroeconomic stability and reliable revenue flows which tend to favor centralization of power and revenue mobilization over decentralization (Xuza, 2007). In order to provide an effective and efficient service delivery in the local economic development, mutual interdependence between the central government and local government institutions is essential (Akhmouch, 2011) to ensure efficiency and prudent use of scarce financial resources. Hence it is critical to examine all the factors that could lead to local economic development, the allocation of resources alone is not enough to achieve that. It is possible that availability of funds University of Ghana http://ugspace.ug.edu.gh 36 may not necessarily result into its effective use or development (Ayee, 2012; Ahwoi, 2010; Rodriguez-Pose, A and Ezcurra, 2009; ILO, 2008). Therefore, the main crust of this thesis is not only to examine how fiscal decentralisation impacts on the local economic development but what other factors are responsible to ensuring effective service delivery. For example, does the availability of finance necessarily result in local economic development? There could be other essential factors such as corruption, level of autonomy of local authority and effective community participation that could hinder or foster development. It is consequently imperative to conduct a study into the impact of fiscal decentralisation on the local economic development in Ghana. 2.7 THE POLITICS OF FISCAL DECENTRALISATION IN GHANA. Finance is a very critical aspect of governance. Its availability and distribution is heavily influenced by social connections and political power the world over (Skolow, and Spezia, 1990). The structure of local authorities (such as the metropolitan, district, assemblies, urban and zonal councils and Unit Committees) may not be as organised as the national itself, but whatever the form, the goal is the same, that is, to improve on the social well-being and the quality of lives of the local population (Goldstein, 1979; Hirschman, 1958). Though the operation of the district assemblies are supposed to be non-partisan, the district chief executive is directly the representative of the president and this is political enough to distort the non-partisan nature of the local government systems in the local area. The Local Government Act 462 of 1993 provides that 30% of legislative assembly members should be appointed by the president or his representative working on his behalf. The DACF allocation to the District Assemblies is mandatory and sanctioned by law but it is very clear that often times most of these disbursements are influenced by political authorities. Cabinet ministers and high ranking party officials especially those in the University of Ghana http://ugspace.ug.edu.gh 37 ruling government have been controlling and influencing the direction of funds and projects in and out of local areas (Koranteng, 2011d). Districts within the strong-hold of a governing political parties may have more development projects than districts within the stronghold of opposition parties (Kpessa, 2011). According to Send Ghana, (2014), about 37% of all local government projects that are DACF funded were abandoned due to changes government in Ghana. The research further confirmed that, four hundred and sixteen (416) major project across the country are been funded by DACF which indicate the relevance of the DACF funds to the development and poverty reduction especially at the district level (Send Ghana, 2014). Projects are abandoned by successive governments due to the fact these projects will only give credit to their predecessors. In Ghana, mostly, anything done by government in the area of development is largely meant to rake in some votes. Can something be done without political will? Politics has permeated every aspect of our lives as Ghanaians and in the face of scarce resources and the need for development, politics controls the direction of development (Kenya, 2011). While, the 1992 Constitution frowns on active political party politicking at the local level, politics has almost become as prevalent at the local level as it is at the national level with its attendant problems. Political will is indispensable to any development effort and citizens have a big role to play in generating the political will through demand creation, communication, campaign, advocacy and engagement (IMANI, 2014). Therefore the formulation and implementation of developmental goals at the local level has become problematic due to undue political influence. Development at the local level should be Universi