Expansion and improvement of public services is essential to improving quality of life and productivity in developing countries. Some African countries have been diligent in expanding the infrastructure necessary to provide public services, but unfortunately, most have not done a very good job of paying for them. Imposition of user charges to fund public services would go far toward eliminating the financial problems faced by many African countries in providing services and would raise additional revenues that could be used to pay for other government expenditures. In addition to the financial benefits of user charges, there are many other benefits from their imposition. User charges have the potential to greatly improve the public sector's efficiency, to impart a more equitable distribution of the financing burden of public services, to provide better information regarding infrastructure needs, and to improve the quality of existing services.
This paper is organized as follows. Section 2 discusses the general nature of user charges: what they are, the services upon which they should be imposed, and evidence of the willingness to pay them. Section 3 discusses the extent to which user charges have been imposed in Africa in the past. Section 4 articulates the theory behind the efficient pricing of public services, resulting in a guide for setting appropriate user charges - in general as well as under special but common circumstances. Section 5 addresses the revenue implications of user charge financing, including the tendency of efficient prices to raise adequate revenues, ways to recover costs when efficient prices lead to deficits, and the attractiveness of user charges for taxation. Section 6 examines equity considerations of user charges. Finally, the analysis is brought together in section 7 by means of a case study of water supply services in Egypt. Throughout the paper, special attention is paid to the practical issues of levying user charges in Africa, issues which are too often overlooked in the literature. Concluding comments are provided in Section 8.
Working Paper Number 00-04.