Local Public Enteprises in Developing Countries : Issues and Practices

Local governments in less developed countries (LDCs) are generally faced with the problem of inadequate fiscal resources, with much more severity than their counterparts in the more developed countries. There are a number of reasons for this state of affairs. In a country where there is widespread rural poverty and where the rural economy is predominantly agricultural, the tax bases are understandably quite limited. In addition, since the Central Governments of developing countries have, in many cases, preempted the major tax instruments, then local governments can only make claim on a minor potion of the already limited tax bases available to LDC governments. Furthermore, tax administration in developing countries is generally lacking because of the shortage of skilled administrators and manpower, and this shortcoming is more serious for LDC local governments Since the demand for the local public services are more likely to increase rather than decrease in the years ahead, this problem of inadequate fiscal resources and the difficulties of raising through taxation, suggests the need to develop other means of mobilizing resources for public purposes. One such alternative is the use of local public enterprises. The purpose of this paper is twofold: (a) to clarify the issues related to the potential use of local public enterprises for public sector resource mobilization; and (b) to draw together some of the fragmentary evidences we were able to assemble on the actual use of local public enterprises in some LDC local governments. Organizationally, the next section addresses the issue of the tenable range of local public enterprises in developing countries, with revenue mobilization as the explicit objective. The next section, Section III, discusses the state of the practice of public enterprises in some LDC local governments, with particular emphasis on the assignment of responsibility, financial performance, pricing policy, and disposition of surplus. Section IV concludes the paper.