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City of Banjul
Friday, September 25, 2020

Municipal bonds as means of raising funds for development projects in The Gambia

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By Omar Jobe
Student, UTG

There are various ways by which our Area Councils in The Gambia can generate enough funds to finance their development projects. One such means of raising new forms of finance is through the issurance of municipal bonds, which are loans investors make to local governments, and are issued by cities, states, counties, or other local governments. These municipal bonds are generally used to finance public projects such as roads, schools, airports and seaports, and infrastructure-related repairs.

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Looking around, most if not all municipalities in The Gambia, including the Kanifing Municipality Council, one cannot fail to notice the dilapidated state of most of its infrastructure. This presents the opportunity for municipalities in The Gambia to raise huge amounts of money through the issuance of municipal bonds to fund projects such as the building of public libraries, public toilets, construction of roads and bridges, etc. Furthermore, in the case of the Kanifing Municipal Council (KMC), the Council can issue municipal bonds and the funds raised can then be used to rehabilitate the Bakoteh dump site. KMC will be able to recoup its investments in these infrastructure projects by charging user fees to the general public. Anyone who uses the facilities will pay a certain amount of money. The Council can also build public libraries with funds raised through municipal bonds, and anyone who uses these libraries will be required to pay a user fee, which could be D100 per month for example. In this instance, if for example three thousand people use the public library in the Kanifing Municipal Council (KMC), the Council will be able to generate D300, 000 in revenue per month, which amounts to D3, 600, 000 each year. This revenue, if properly managed can be used to repay the bondholders who lent money to the KMC.

The Area Ccouncils in The Gambia can obtain funding through issuing municipal bonds rather than borrowing from the banking sector, which generally charge exorbitant fees and interest rates. In March this year, Malaysia was able to raise roughly $1.8 billion to finance infrastructure projects.The coupon rate will be no more than 0.65 percent per annum.
In terms of rehabilitating or even building new roads, the Area Councils in The Gambia can issue municipal bonds and the funds generated can then be utilized to construct more roads especially the feeder roads that link the main roads. The Councils can then charge the drivers a minimal fee or tax and the revenue generated through these charges and taxes can then be used to pay back the investors who bought the municipal bonds. For example if the KMC constructs or rehabilitates roads in the municipality and charges drivers D5 per day and if 20,000 drivers use the roads, KMC will generate D100, 000 in revenue per day. In one year, KMC will generate revenue of D36600, 000. If KMC continues doing this for many years it will be able to repay the bond. This results in a win-win scenario: bond investors being able to realize reasonable returns from their investments and the KMC being to build and retain first class infrastructure, including roads. In a similar fashion, KMC can use this method to generate funds with which public schools and toilets can be built or rehabilitated.

In 2017, Kenya launched the world’s first mobile-only sovereign bond to finance infrastructure projects, including roads. This initiative enabled Kenyan citizens to purchase government bonds on their mobile phones. The Kenyan treasury hoped to raise 5 billion Kenyan shillings ($47.7 million) through such bond sales.
The bond, called M-Akiba, can be bought by phone users without any need for a bank account and pays an estimated interest of 10%. Similar use of the bond market to mobilize funds for public investments have also been done in other countries such as Senegal, Rwanda, etc. What is stopping Area Councils in the Gambia doing the same?
The role of the Government is to intensify the municipalities or area councils to issue bonds through taxes; anyone who uses the facilities will pay certain amount of money this will generate revenue for the councils to finance its development projects.

The Area Councils in The Gambia need technocrats who can create new ways of generating funds rather than depending on the taxes levied on businesses. The increment of taxes levied on businesses is not the only way of generating revenue. In fact the increment in taxes may discourage some businesses from expanding and if the businesses do not expand, municipal tax revenues might not increase.
The role of a finance director is not only limited to preparing financial statement for the councils at the end of each year or to prepare salaries at the end of each month but to think outside the box, and to devise other ways by which the councils can venture into in order to generate funds so that they can provide social amenities to their people. These municipal bonds can be bought by both domestic and foreign investors; however for that to happen, there must be a strong regulatory framework to protect these investors.
In conclusion, it is now high time for finance directors and others in the Municipalities to use their knowledge of finance to create new methods of generating revenue such as the issuing of municipal bonds to finance its development projects in their respective municipalities.

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