South African cities are the national economy’s engine room and account for 58.7 percent of South Africa’s gross value added (GVA), which is a measure of economic activity at the city or regional level.
Of this, Gauteng contributes the most, at 34 percent, with KwaZulu-Natal following with 16 percent and the Western Cape at 14 percent. Investing in our cities’ development is thus essential for the overall health of our economy and sustainability.
Why then, during the recent Medium-term Budget Speech (MTBPS) was only R20 billion allocated to assist municipalities with recovery from the impact of Covid-19? This defies all logic, especially when we consider that R10bn was given to bailing out SAA, a state-owned entity that does little to lift us out of the economic malaise we find ourselves in. Tshwane alone has lost 36 percent of annual revenue as an expense of Covid-19 and that amounts to hundreds of millions of rands.
The sustainable financing of cities remains critical, and has been highlighted by the Covid-19 pandemic. Cities need to be innovative and develop new ways of addressing the challenges that face municipalities, including the need to increase municipal revenues and improve the delivery of basic services.
Alternative energy supply
Enabling municipalities to choose electricity from alternative sources to fossil fuel goes some way to achieve this. Electricity is a major energy source, fuelling city economies and generating revenues for city service delivery. Electricity sales contribute on average over a quarter (26.8 percent) of municipal revenue, while the surplus generated from these sales is the third-largest contributor to city budgets after property rates and grants from national government. Surcharges on the sale of electricity to certain commercial, industrial and high-use residential customers cross-subsidise the free basic electricity that is provided to low-income households.
Allowing cities to purchase supply from independent power producers will reduce their dependence on electricity from Eskom, which is likely to remain unreliable for a number of years yet. In addition electricity from these producers will be cheaper than electricity purchased from Eskom, so this will be beneficial for cities.
Investment in infrastructure
This is an important level to foster growth. Any increase in the stock of urban infrastructure, as well as the maintenance and upkeep of existing infrastructure, that increases the ability of residents and businesses in urban areas to be productive is welcome. Further, if a municipality is not strong in what we call the Big 5 – water, sanitation, roads infrastructure, human settlement and housing and electricity – they cannot green their city and positively impact on the sustainability agenda. Similarly they cannot collect waste as this depends on infrastructure.
But a historical capital funding gap exists: Recent research from the South African Cities Network (SCAN) highlights the metros’ capital funding gap of R18bn. This is projected to grow to R83bn by 2026, which is a total of R569bn over the next 10 years. The R139.9bn allocated to local government to fast track infrastructure and general socioeconomic development is not enough.
Righting irregular spending
Of course irregular spending by municipalities needs to be addressed. Local government is the most regulated, if not over-regulated sphere of government our country has, and even if you have to buy a pen there is something written on how to do it. This is an unintended consequence. Further, all 285 municipalities cannot be painted with the same brush. Our laws do not differentiate between Cape Town and Kokstad but do require different regimes. Without undermining the noble intention of these pieces of regulation to safeguard against corruption, we have instead stifled any creativity and innovation on the part of the practitioners. If anything we need to shift the focus from compliance to achieving developmental outcomes.
Bridging the funding gap
Since 2011 the SACN has reported every two years on the state of municipal finances. In these publications, we have advocated for changes in the municipal finance model, by analysing the misalignment of policy, budgets and planning, and illustrating the contradictions between the municipal revenue and funding model and local government’s mandate to promote spatial transformation and achieve desired developmental objectives.
The financial function should enable cities to realise spatial transformation, meaning that municipal budgets should be aligned with policy, and urban planning should reflect that orientation. Cities need to find a way to bridge the capital funding gap that prevents them from meeting the infrastructure requirements of a steadily increasing urban population, one that accounts for 66 percent of our more than 60 million people.
Urbanisation is an essential part of our nation’s development towards a strong and more stable economy which is why we believe that we need to change our collective thinking and consider that instead of our cities depending on the sovereign, it is rather that the sovereign depends on our cities.
Sithole Mbanga is the chief executive of The South African Cities Network (SACN)