Financial distress in local governments in Uganda

Abstract

The study examined financial distress in Local Governments (LGs) in Uganda, which, like most countries in Sub-Saharan Africa struggles to deliver services to its citizens. Therefore, there was need to contribute to the contemporary frameworks intended to establish the risk factors of financial distress and how they can be addressed so as to attain good financial health in LGs. The lack of access to basic essential services in an economy can cause untold suffering among the people. The LG’s dysfunctional local governance, the abuse of entrusted power for private gains by the LG officials and the inability for LG officials to establish networks with the down town resource-rich actors may be related to financial distress. The researcher studied corruption, local governance, revenue concentration and LG delivery system as important though often overlooked factors hypothesized to be related to financial distress in the context of LGs. To achieve the purpose of the study, a cross-sectional and mixed sequential explanatory research design was used to guide the research process where both quantitative and qualitative data was collected. The study used a sample of 109 LGs in Uganda with 327 respondents for quantitative data. The quantitative data analysis involved descriptive statistics, zero order correlations and structural equation modeling using SmartPLS-3. For the qualitative data approach, a saturation point was reached after interviewing 19 KIs. The data collected was analyzed using content analysis technique with Gioias model and Miles and Huberman’s 1994 approach using a four-step coding methodology. The findings were reported verbatim to explain the emerging themes. The study findings indicate that LG delivery system and local governance singly have positive and significant relationship with financial distress but the combined effect is better. Secondly, corruption is positively and significantly related to financial distress. Thirdly, corruption has no significant effect on the LG delivery system. Fourthly, local governance is associated with LG delivery system and financial distress. Fifthly, revenue concentration does not have a significant effect on financial distress. Lastly, LG delivery system is a partial mediator of the relationship between local governance and financial distress. In conclusion, for LGs to overcome financial distress, the ills of local governance, LG delivery system and corruption should be addressed so as to have an improved LG financial health. The findings support the theoretical framework adopted for the study. The policy makers for example the office of the office of the Inspector General should strengthen the implementation of the leaders’ code of conduct so as to control the misuse of entrusted power for private gain and attain parsimony in LG resource use. Similarly, the Ministry of Education should institute policies that strengthen its skills development programs so as to produce manpower with the required skills to be employed in the service of LGs. The managerial implication is that LG managers should employ personnel with the required knowledge and skills in the service of LGs so as to minimize on the cost of capacity development. Similarly, cost effective methodologies of community participation should be employed so as to strengthen the delivery system. Behaviour change methodologies through training and mentorship should be adopted so as to eliminate the ills of corruption and local governance. The study being cross-sectional was faced with the limitation of changes in perceptions over time. This therefore calls for a longitudinal study in the future. The study also considered only corruption, local governance, LG delivery system and revenue concentration, yet there are other concepts that could be explored. So, future researchers should explore other factors that may cause financial distress in LGs and also unearth other mediation variables.