The Fiscal Administration of a City: The Case of Addis Ababa with Intra-Continental Insights

As the Addis Ababa City Administration transitions with the integrated corridor development project reshaping the capital, a draft report on the financial performance of three African cities provided a rare glimpse into the City’s coffers.

Employing six key parameters to evaluate financial performance, the United Nations Economic Commission for Africa (UNECA), through implementing partners UN-Habitat and UNCDF, unveiled a snapshot of fiscal performance from Addis Ababa, Lusaka, and Nairobi last week.

While the Report is set to cover three more cities (Kigali, Yaoundé, and Dareselam), illuminating figures were revealed during the two-day validation workshop held at Bishoftu, Oromia Regional State.

Eshetayehu Kinfu (PhD), head of strategic programs at the City administration, stated that the 33 billion birr invested last year for the corridor development, a figure that could double in the current year, was fully financed by the City administration.

“100% financed by the City administration,” Eshetayehu underscored.

He also indicated that around 30,000 housing units had been built to accommodate citizens being resettled from the development.

Eshetayehu says conducting the fiscal assessment internally based on UNECA’s parameters allowed knowledge transfer, planning capacities, and thorough self-evaluation.

He attributed the City administration's ability to meet its financial needs to emerging from prudent management of resources.

“Resources are no longer subject to thievery at administrative levels,” Eshetayehu told Shega.

He expects the Report to bring about much-needed transparency as it is published on an international level.

Addis Ababa demonstrated significant fiscal autonomy compared to the other cities as it generates above 90% of budgetary needs with no allocations from the federal government. Total expenditures of the City administration grew by 166% across the five years to reach 100 billion birr by 2022/23.

While wages more than doubled to reach 26.6 billion birr, they showed a marginal increase of 0.4% when adjusted for inflation. Furthermore, the share of wages in total expenditure dipped by 10 points to 22%.

As tax revenue grew multiple folds to reach 146 billion birr in the last fiscal year, levies on wages and salaries continue to contribute a bulk of the amount. The City administration has increased its crackdown on informal sectors as it looks to meet higher revenue targets.

Binyam Mikru, Head of the City’s Revenues Bureau, cleared up the recent controversy that the Bureau placed minimum wages as it set a floor for salaries presented in a tax document. He says the Bureau conducted a study that revealed that most businesses underreport their salary expense to evade the ensuing tax.

“We don’t have the mandate to set minimum wages,” Binyam told Shega.

The official revealed that from the around 400,000 taxpayers in the City, the bottom third, or low-income taxpayers, of around 300,000 proved to be the most compliant.

Acknowledging problems of ethics in the Bureau, particularly around auditors, Binyam expects the establishment of an audit quality assurance team to minimize room for subjective assessments.

“Subjectivity sets up the conditions for corruption,” he said.”We are making progress, but there is room for growth.”

The Bureau has conducted a revenue enhancement study to identify sources of tax revenue from sectors historically untaxed.

Binyam says multistakeholder engagements with institutions like the Information Network Security Agency (INSA) will be needed to tap into revenue from online businesses such as social media-based e-commerce and influencer marketing. He foresees automation, comprehensive databases, and transparency to help broaden the tax base.

The Bureau Head revealed that in addition to issues of under-invoicing by importers, some foreign-owned local manufacturers were engaging in the practice.

“We have created a manual and established a committee with federal authorities trying to tackle the issue,” he told Shega.

UNECA’s financial performance draft report indicated that the City administration was investing more than 60% of its expenditures on capital projects like the Corridor project.

Addis Ababa outperforms the other cities included in the Report in most of the parameters while lagging in asset turnover. In terms of liquidity and solvency, Addis managed to increase current assets by 14.6% to reach 38.4 billion birr while liabilities grew by a marginal 5.8 billion birr. With an average debt-to-income ratio of around 12.6%, well below the 35% threshold, and a current asset-liability ratio of 277%, the City administration appears to be able to meet most of its short-term obligations.

Assets include everything from furniture and vehicles to buildings, while liabilities encompass long-term payables, loans, and employee pensions.

While Ethiopia’s capital averaged a 60% annual increase in total assets to reach 365.8 billion birr in 2022/23, there is a significant lack of registration.

Mebratu Gebre, a Finance Bureau official and a presenter during the Workshop, revealed that some government institutions failed to provide their asset registry despite the establishment of an Authority to handle it. He indicated that for four years, assets were registered manually while lacking systematic asset management capabilities.

“Assistance from the federal government may be required,” he stated.

Benjamin Kimolo (PhD), Nairobi’s county director of research & policy development, acknowledged that Addis led across most parameters while expecting Kigali’s performance to provide interesting comparisons. He pointed to the collection of employment taxes by Addis Ababa as a powerful instrument in establishing its fiscal autonomy.

“There are important differences,” Benjamin told Shega.

UNECA began formulating the report in May and expects to publish the full data from the six cities early next year.

Atkeyelsh Persson, Economic Affairs Officer at the Macroeconomics and Governance Division at ECA, pointed out that the report was part of a Development Account (DA) project that looks to facilitate the implementation of expanded and resilient urban fiscal space for an inclusive and resilient COVID-19 recovery in Africa.

Several senior officials, including Wondimu Seta, deputy mayor of Addis, and Yetemgeta Asrat, state minister of urban & infrastructure, attended the validation workshop.