local government reforms: what’s happening and who is in charge?

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CDE Round Table is an occasionalpublication reflecting discussions heldon key contemporary topics

In mid-2000 the Centre for Developmentand Enterprise hosted a round tablediscussion on local government, municipaldemarcation, the new legislative frameworkfor local government, and other changes inthis sphere. This initiative brought togetherlocal and central government officials,academic and other experts, parliamen-tarians and business people.

The discussion was designed to stimulatedebate and encourage a frank exchangeof views. Senior government officialsspoke on three major elements of localgovernment reform: the demarcationprocess; who is in charge of reforming localgovernment; and local governmentfinances. Respondents commented on the

financial viability of local governments, andprovided local government perspectives anda view from business. Subsequentdiscussions revolved around problems andissues arising out of the demarcationprocess; the coherence and sequencing ofreforms; the overall priorities driving thereform process; the question of leadership;and the potential impact of the hugechanges in this sphere of government oneconomic growth and the country’s citiesand towns. Outstanding policy challengesand critical issues are highlighted in theconcluding remarks.

This is an edited version of the day’sdiscussion. Key points from the round tableare summarised overleaf.

Local government reforms:What’s happening and

who is in charge?

Without strong and realistic leadership of this ambitious

process, the country could be heading for a scenario

of confusion and setbacks, with negative

consequences for growth and delivery

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L O C A L G O V E R N M E N T R E F O R M


Local governmenttransformation

• Local government transformation isan attempt to restructure South Africa’ssocio-economic landscape, ensuringthat the development potential of thewhole country is realised. Local govern-ment elections are only one dimensionof this ambitious programme of trans-formation. The country will have anentirely new municipal system with newmunicipal structures and boundaries,enhanced responsibilities for some ofthese structures, and significantchanges in the allocation of powers andfunctions to different types of munici-palities.• However, despite governmentplanners’ efforts , there are signs thatthey have failed to resolve fundamentalgrowth and development issues con-fronting the entire country, but particu-larly its towns and cities.

The demarcation process

• The number of councils has been re-duced from 843 to 284. Many boundaryanomalies that have survived a decade oflocal government reforms have been elimi-nated.• The process has raised some new issuesand problems that will have to be addressed:– Cross-boundary municipalities. TheMunicipal Demarcation Board (MDB) hasrecommended the formation of 17 localmunicipalities that will cross provincialboundaries. By not tackling the question ofredrawing provincial boundaries, severegovernance issues may arise in these munici-palities. Obtaining private sector investmentunder such conditions will be difficult.– Traditional leaders. The MDB was notgiven clear policy guidelines on the partici-pation of traditional leaders. As a result,important issues remain, including theseleader’s representation on district councils,and the distribution of powers and functions

Summary ofkey points

made byparticipants

Elroy Africa, director, municipal planning &policy development, Department ofProvincial and Local Government

Ann Bernstein, executive director, CDE

Mohammed Bhabha, chair, local government& administration committee, NationalCouncil of Provinces

Bossie Boswel, city engineer, Brits TransitionalLocal Council

Div Botha, executive manager: operations,DBSA

Yunus Carim, chair, provincial & local govern-ment portfolio committee, Parliament

Cas Coovadia, general manager, transforma-tion committee, The Banking Council ofSouth Africa

Dr Tim Clynick, senior manager, CDE

Katherine Cox, planner, Central JohannesburgPartnership

Participants in the round table

Views expressed by theparticipants are not

necessarily those of CDE.

Marius de Jager, chief executive officer, JohannesburgChamber of Commerce and Industry

Issy Dinat, chief executive officer, Krugersdorp LocalCouncil

Mare-Lise Fourie, treasurer of Pretoria City Council

Dana Gampel, political and labour analyst, ESKOM

Rob Haswell, chief executive officer, Pietermaritzburg/Msunduzi Transitional Local Council

Chris Heymans, associate, Macintosh Xaba andAssociates

Richard Humphries, programme manager, democracy& governance group, Human SciencesResearch Council

Roland Hunter, chief financial officer, Greater Johan-nesburg Metropolitan Council

Prof Douglas Irvine, senior associate, CDE

Milly Joseph, secretary, provincial & local governmentportfolio committee, Parliament

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between the new local governmentstructures and traditional leaders.– The viability of new municipalities.The MDB has not been able to make everynew municipality ‘immediately viable’.Many will therefore continue to struggleto make themselves sustainable whilehaving to provide services to significantlylarger populations.– Redistribution. The MDB has arguedthat urban municipalities have ‘profits’ to‘plough back’ into underserviced ruralmunicipalities. This assumption under-pins the feasibility of the model of redis-tribution the MDB has applied to demarca-tion. Many participants questioned thisassumption, and argued for furtherdiscussion before the demarcations werefinalised.– District councils. District councils willhave executive and legislative authorityover local municipalities in their areas.Besides large and small towns, SouthAfrica’s secondary cities will also fall

under their jurisdiction. The districtcouncils will disburse the revenues andrates collected in their areas, and thereare concerns that this will impact nega-tively on services and the economicgrowth prospects of urban municipalities.In particular, the future of South Africa’ssecondary cities seems uncertain.

Who is in charge of localgovernment reforms?

• The ambitious programme of legisla-tive reforms introduced by the Depart-ment of Provincial and Local Govern-ment (DPLG) improves the present systemin many respects. However, shortcomingsin terms of strategy, timing and manage-ment include:– The timing of reform. The demarca-tion process has been conducted simulta-neously with continuing financial andadministrative reforms, thereby under-mining current efforts to stabilise themunicipal system.

Roy Kerr, manager, Project Viability, Argil Ltd

Bill Lacey, chief economist, South AfricanChamber of Business

Lincoln Mali, general manager, The BankingCouncil of South Africa

Geoffrey Matjiu, social investment manager,SAPPI South Africa Ltd

Prof Jeff McCarthy, research professor, Gradu-ate School of Business, University ofDurban-Westville

Tim Middleton, director, Intaprop

Ismail Momoniat, chief director: intergovern-mental relations, National Treasury

Dr Pierre Morgenrood, senior manager: publicsector strategic positioning, ABSA

Mike Muller, director-general, Department ofWater Affairs & Forestry

Oosie Oosthuizen, acting chief executive officer,Pretoria City Council

Dr Udesh Pillay, director: delimitation,Independent Electoral Commission

Robin Plumbridge, board member, CDE

Clr Francis Ratlaga, deputy mayor, Brits TLC

Glen Robbins, acting director, EconomicDevelopment, Durban MetropolitanCouncil

Prof Charles Simkins, head, department ofeconomics, University of theWitwatersrand

Dr Michael Sutcliffe, chair, MunicipalDemarcation Board

Peter Vaz, international research manager,Department of Provincial and LocalGovernment

Herdi Vermeulen, director: local governmentfinance, Western Cape provincialgovernment

Prof Madoda Zibi, national treasurer,CONTRALESA



– Leadership of reform. This is the mostambitious programme of local govern-ment reform ever attempted in SouthAfrica. According to key participants, theDPLG has failed to take a firm lead andmake it clear that it is the department incharge of the process.– Framework for reform. There is nocommon strategic framework for imple-menting local government reforms or fordealing with problems arising out of theprocess. As a result, government depart-ments have become embroiled in ‘turfbattles’ with one another. The roles of thedifferent spheres of government are alsounclear, while major players do not knowwhat they must do or what their roles andresponsibilities are.– Champion of reform. There is nochampion of local government reform,and few opportunities for local govern-ment officials and councillors and privatesector and community representatives toget together and talk about commonproblems and issues.– Timetable and clear outcomes. TheDPLG is not providing enough practicalassistance to local government. It is failingto make proposals and set time frameswithin which solutions must be found tocritical problems.– Local democracy. Critical to thesuccess of reforms is how representativeand democratic the system of localgovernment will be. Participants ques-tioned whether the demarcation processrespected and reflected the diversity oflocal views, particularly when combiningmiddle-class areas with others in establish-ing new municipalities. Effective andparticipatory local government dependson the participation of all local citizens ina credible system of local representation.– Accommodation of diversity. Theframework is in danger of applying a ‘one-size-fits-all’ solution to all municipalities.

In reality many can only afford a certainlevel of services, as well as remunerationof municipal officials. Vast differences inmunicipal capacity and prospects requirevery different approaches to governance,regulation, and other systems of support.

Local government finances

• Local government finances are in aparlous state. Participants noted theabsence of business principles in runningmany local councils, which impact nega-tively on their ability to provide and fundservices, stimulate local economic develop-ment, and attract new investments.• There are outstanding questions thathave been well documented and forcefullyargued in many existing reports, including:– Governance issues. Clarity is apparentlystill lacking within municipalities overwhat councillors and officials can andcannot do. This makes some totally ineffec-tive.– Oversight and monitoring. Bothnational and provincial governments arefailing to monitor local governmentfinances. All the role players need to agreeon common financial performance indica-tors that will enable municipal budgets tobe effectively monitored.– Budgets. Municipal budgets are notcredible, for a number of reasons: they useone-year, line-item budgets that do notprovide management or analytical informa-tion; budgeted items are not financiallymonitored throughout the year; and thebudget process is not transparent andconsultative. The result is a technicallydriven, ‘bean-counting’ process that worksagainst managerial accountability andgood financial management.– Creditworthiness. Poor financialmonitoring and financial reporting, andthe absence of credible budgets based onactual spending outcomes, means that theprivate sector does not lend to the vast

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majority of municipalities. This patternwill not change until there is more confi-dence in local government as a profitableand stable sphere of investment.– Balance sheets. Some municipalitiesborrow in the short term from capitalmarkets, when funding ought to be over amuch longer period, creating higher debtservicing costs. Increased demand for thedelivery of basic services places furtherpressure on income streams.– Credit controls and disposal of non-core assets. Councillors often fail tosupport the introduction of improvedcontrols, debt collection, and the sale ofnon-core assets.• The demarcation process has createdpotential new financial challenges formunicipalities which may compromisetheir viability. Issues include:– the excision of rates-rich suburbs fromsome of South Africa’s largest urbancentres, particularly secondary cities;– the fiscal powers of district councils inrelation to their local municipalities;– the effects of new legislation, such asthe Property Rates Bill, on revenues;– the cost implications for municipalitiesof transferring responsibility for basicservices to district councils; and– municipal cross-boundary arrange-ments, particularly affecting metros.

Concluding remarks

The discussion raised a number of issues:• Will municipalities across provincialborders meet preconditions essential forgrowth and delivery? Will the inevitablycomplicated institutional arrangementsattract or deter investors? Why has theMDB avoided the issue of redrawingprovincial boundaries?• Will the new system make it possiblefor local residents to choose what theywant from local government, and the levelof services they can afford, when key

regulatory and policy decisions (such asdetermining salaries) are taken bynational and provincial government?• Will central government encourageand then support the hard decisions thatneed to be taken if we are to buildcompetitive and viable cities and towns —for example, on privatisation, affordableservice delivery, and retrenchments?• Given the evidence presented bysenior officials, the MDB’s approach toredistribution needs to be urgentlydiscussed. What are the facts? Is theremoney available from urban municipali-ties to ‘top up’ rural municipalities – anassumption of the demarcation recom-mendations? The critical policy questionis how opportunities and services can beexpanded in a sustainable manner,without undermining institutions thatcan deliver in the process.• Economic development in SouthAfrica requires far greater attention tothe fundamentals of growth, and how toprovide the infrastructure needed forcompanies to survive and compete. If wedo not face up to these realities we willstruggle to maintain the jobs we have,never mind create new opportunities.• Can local government be successfullytransformed without someone being incharge of co-ordinating, integrating andleading the process? The president andthe cabinet need to ensure that strongleadership is provided from now on, toguide and monitor a complex process.Challenges and setbacks must be antici-pated where possible and resolvedspeedily.• The period after the localgovernment elections will requireintensive, highly focused work to ensurethat the country emerges from thistransformation with a better system oflocal government. At this stage, this isnot guaranteed.



Acronyms and abbreviations

CDE : Centre for Development and Enterprise

CODESA : Convention for a Democratic South Africa

CONTRALESA : Congress of Traditional Leaders of South Africa

NT : National Treasury (formerly the Department of Finance)

DBSA : Development Bank of Southern Africa

DPLG : Department of Provincial and Local Government

DWAF : Department of Water Affairs and Forestry

ESKOM : Electricity Supply Commission

GJMC : Greater Johannesburg Metropolitan Council

KZN : KwaZulu-Natal

MEC : Member of the Provincial Executive Council

MDB : Municipal Demarcation Board

SALGA : South African Local Government Association

TLC : Transitional Local Council

The test of all these reforms will be whether our

cities and towns will actually deliver for all the

people who live in them. That is the criterion

against which we – as citizens, lawmakers or

officials – have to assess whether we are

making progress or not

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try, and this will have a significant impact onhow local government functions. Themanagement of South Africa’s cities, wherethe country’s economic drivers are over-whelmingly located, will also change funda-mentally. These, among other factors, havecontributed to the CDE’s decision to hold thisround table, to give senior governmentofficials a chance to explain what they aretrying to achieve, and parliamentarians,municipal officials, business leaders andother stakeholders in local government achance to respond and raise critical issues.

Introducing the day’s discussion, AnnBernstein, the CDE’s executive director, said:

The face of local government in South Africais set to change significantly. The depart-ment of provincial and local government(DPLG) has set in motion a comprehensiveand complex programme of restructuring,starting with an ambitious white paper1

followed by the tabling of numerous piecesof legislation. The Municipal DemarcationBoard (MDB) has redrawn the boundaries ofalmost every local government in the coun-

Introduction

1 See CDE, Response to the white paper on local government, June 1998.

The demarcation process

Michael Sutcliffe, chair of the MDB, welcomedthe round table as an opportunity to discussdemarcation and describe the many chal-lenges that had emerged in the process:

The MDB has demarcated six metropolitanareas (category A municipalities), two ofwhich will cross provincial boundaries. Therewill also be 231 local (category B) municipali-ties, and 47 district (category C) municipali-ties, hereafter referred to as district councils.Some 17 of these are cross-boundary munici-palities, ie municipalities stretching acrossprovincial boundaries. The district munici-palities include 26 district management areas.

Cross-boundary municipalities are a majorissue. They create complex service deliveryissues that cannot be resolved without de-tailed agreements between the provincesinvolved. Without such agreements, they willnot be developed in an integrated manner.Fortunately, most provincial premiers haveagreed to co-operate on local governmentmatters across provincial boundaries rather

than delegating their own provincialfunctions to other provinces. KwaZulu-Natal is an exception. As a result, the MDB

has withdrawn its recommendation for across-boundary district municipality in theKokstad/Underberg/Mount Fletcher areabetween KZN and the Eastern Cape, recom-mending instead that it be replaced by twoseparate district councils – one in eachprovince.

Restructuring capacity within the muni-cipal system in favour of district councilswithout destroying capacity in the country’scities and towns is a key challenge. Evenafter assessing the administrative andfinancial capacity of every municipality, theMDB was unable to make every new munici-pal structure – particularly the districtcouncils – immediately viable. Thesemunicipalities should be able to draw onthe existing capacity of other viable munici-palities in the region, and quite a lot of thatresides in South Africa’s cities. The govern-ment faces a key procedural challenge in



dividing powers and functions within thenew municipal system, particularly amonglocal municipalities and district councils(category B and C municipalities). TheMunicipal Structures Act (1999) does notstate clearly which functions are exclusive,and which are to be shared. The implica-

tion is that every municipality in thecountry will test its own powers andfunctions, which will be an enormouslycostly and wasteful exercise. The govern-ment needs to prevent this from happen-ing. The DPLG, the national treasury (NT),and the provinces will have to agree verysoon on every power and function beforethe minister of provincial and localgovernment implements the new system.3

Another problem related to establish-ing new municipalities is the assignmentof fiscal powers. For example, metropoli-tan areas will be allowed to keep theirlevies, but district councils will receivelevy revenue from their constituentmunicipalities and then share them outonce again. Thus municipalities such asPietermaritzburg or East London willgenerate most of the levies in theirdistrict council area, but this revenue willbe spent by the district council.

Municipalities also face functionalchallenges. Firstly, the private bankingsector does not lend heavily to municipali-ties. This will not change until the bankshave more confidence in local govern-ment as a profitable sphere of investment.The banks will only lend more widelywithin the municipal system when out-standing issues have been resolved. Theseinclude the looming ‘powers and func-tions’ battle within the municipal system;poor municipal financial management andfinancial reporting; the lack of municipalcorporate governance and accountability;and the insufficient flow and exchange ofinformation among local governmentstakeholders. Despite all the studies thathave been undertaken, the country’sknowledge base is very small. It is time

The significance of demarcationfor South Africa’s cities and towns2

The Municipal Structures Act (1998) provides for three categoriesof municipality:

Category A municipalities are governed by single councils withexclusive executive and legislative authority. They will be establishedin metropolitan areas. There are six category A municipalities:Johannesburg, Cape Town, Durban, Pretoria, the East Rand, andPort Elizabeth.

Category B municipalities share executive and legislative author-ity with a category C municipality within whose area they fall.South Africa’s secondary cities and large and small towns are allexamples of category B municipalities; among them are East Lon-don, Pietermaritzburg, Nelspruit and Brits.

Category C municipalities, also called district municipalities ordistrict councils, have overall executive and legislative authorityover districts consisting of rural areas as well as some localmunicipalities. These councils will have power over all municipalitiesin the district and, theoretically, their resources and liabilities. Thisis a new concept in local government, aimed at ensuring ‘equitableand sustainable municipal services’ for all citizens in rural andurban areas within a district.4 The new Vaal Triangle District Councilno 17 is an example of a category C municipality. It has executiveand legislative authority over three category B municipalities:Vanderbijlpark, Vereeniging, and Heidelberg. Greater Pieter-maritzburg District Council no 22 is another new category Cmunicipality, with authority over seven category B municipalities.These include the secondary city of Pietermaritzburg (includingthe old magisterial district of Vulindlela), and several other towns(eg New Hanover and Hilton), as well as some rural areas (egRichmond district).

2 Examples provided telephonically by Anneliese Ahrens, geography and information officer at the MunicipalDemarcation Board, 19 September 2000. We have used popular names to describe the areas rather than their official,alphanumeric designations. The official names are available at www.demarcation.org.za , the MDB’s website.3 Following the round table, Dr Sutcliffe indicated to CDE that an amendment to the Municipal Structures Act had beendrafted to bring ‘greater legal certainty’ to defining and dividing ‘powers and functions’ between district and localmunicipalities.4 DPLG, Discussion document 2: Functions and powers for municipalities, draft document found at www.local.gov.za, 31May 2000.

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everybody stopped protecting their ‘turf’and began to create quality informationthat will be useful to government and thecountry as a whole.

A second major functional challenge is toensure the financial viability of the muni-cipal system, and particularly to find a wayof funding those areas outside ‘formal’municipal government where South Africa’s‘social economy’ is situated. The real costsof transformation are not those of Johan-nesburg, Durban and Cape Town, but arethose incurred in the ‘social economies’located in the former homeland areas,which lack the most basic resources. SouthAfrica cannot rely forever on the majormetropolitan areas.

The process of amalgamation should notbe viewed narrowly in terms of puttingtogether viable and non-viable local authori-ties. Anyone who speaks in those terms isstill wedded to an outdated conception.People should rather see it as creating anew system of municipalities. The realquestions are: What is going to make themwork? What should we do to make themwork better? What resources do we require?Local government transformation is anattempt to restructure the entire socio-economic landscape, aimed at ensuring thatthe development potential of the wholecountry is realised.

The MDB’s goal is to integrate four kindsof spaces in South Africa’s landscape: itsmajor metropolitan areas (plus aspirantmetros); small cities and large towns; smalltowns (often surrounded by large ruralcommunities); and a fourth set of spaces inthe former homelands and other remoterural areas. In these latter spaces peoplerely almost entirely on government welfare,education, and health services. The incomestream needed to sustain development inthese areas has to come from local eco-nomic development and economic diversifi-cation. Local government transformation isbased on the logic of creating ‘wall-to-wall’,functioning, municipalities in these four

spaces so that integrated developmentplanning can take place across thecountry. Local government transforma-tion that completely marginalises thepoor and rural areas will come home tohaunt us. Therefore the discussioncannot only be about the viability ofcities.

The MDB regards the electricity sectoras hopelessly inequitable, and looks to itsrestructuring to improve the financialviability of municipal structures in therural areas. For example, the resale anddistribution by municipalities of ESKOM

bulk electricity supplies generate morethan half of municipal revenue. This is aR30 billion industry. Many municipali-ties fund up to 24 per cent of theirgeneral services from electricity sales.The MDB wants these profits to beploughed back into underserviced ruralmunicipalities instead of being used to‘top up’ services to urban consumers, asthey have been until now.

There are also serious outstandingdifficulties regarding the role, status,functions and powers of traditionalauthorities in the new municipal system.

Traditional leaders want their areas tobecome district management areas, muchlike the old regional council system inKZN. There are enormous difficulties withthis. At a practical level it is difficult todefine which areas are controlled bytraditional leaders. Policy-makers still donot know where every traditional author-ity area is, nor can they be accuratelymapped. Secondly, many communitieshave divided loyalties, and this has led tocontinuing conflict and deaths in manyareas. A whole set of land claims issuesare still unresolved. Finally, districtcouncils have powers over district man-agement areas and will now take deci-sions on all matters of local governance.For these reasons, traditional authoritiesshould not be the basis for rural govern-ment in the new municipal system.

National government

grants such as

housing subsidies

are gifts most

municipalities cannot

really afford. They

come with other

development costs –

such as providing

proper roads to

housing projects –

which the

municipalities

have to bear



The question is,

where will the

municipality get

the revenue to

perform its

duties?

Respondents

Rob Haswell, chief executive officer of thePietermaritzburg/Msunduzi TransitionalLocal Council, stated that the variousmunicipal categories created profoundproblems for local government officials:

Like other secondary cities such as EastLondon, Vaal and Bloemfontein, Pieter-maritzburg has been classified as a categoryB municipality, thus becoming one of sevenlocal municipalities in a district councilarea. In common with all the other second-ary cities, Pietermaritzburg faces severalmajor problems as a result.

Although the Municipal Structures Actstates that Pietermaritzburg shares execu-tive and legislative authority with thedistrict council, this seems to be a way ofsaying that certain of the city’s powers andfunctions have been transferred to thedistrict council.

Precisely which powers and functionsare to be shared by different municipalstructures has not been made clear to theaffected local municipalities by either theMDB or the DPLG. How the various municipalservices are to be provided and paid forwhile the matter is being settled alsoremain unresolved.

In the past, district councils spent theirconsiderable funds almost entirely oncapital projects, leaving the central govern-ment to pick up the tab for operational orrunning costs. They played ‘Father Christ-mas’ and were not in the business ofdelivering services; their operating budgetswere quite small. The question is whetherthese councils will now get into the ‘opera-tional business’, or whether ratepayers insecondary cities such as Pietermaritzburgwill have to pay up. Already Pietermaritz-burg has received legal opinion advising itthat, from the day after the local govern-ment elections, the financial onus for suchfunctions as firefighting and health willpass to district councils. It is questionable

whether the district councils will becapable of discharging their new responsi-bilities.

The MDB appears to have applied anarrow and local concept of redistributionin making its determinations. It haseffectively cut the former Pietermaritzburgmetropolitan area in half, excising apromontory consisting of two formerlywhite, wealthy suburbs with considerablerates income and attaching it to a neigh-bouring authority. This practice of excisingwell-to-do suburbs from an existing metro-politan area and attaching them to rates-poor municipalities was not intended inthe legislation, and threatens municipalfinancial viability wherever it has occurred.

Bossie Boswel, city engineer of the BritsTransitional Local Council, emphasisedthe tremendous challenges facing smalllocal municipalities such as Brits followingthe demarcation process:

The old Brits Transitional Local Councilarea comprised about 28 square kilome-tres: the new council area will comprise 3600 square kilometres, housing half amillion people instead of the previous 125000. This will require additional expenses,including the establishment of new satel-lite stations, each with its own administra-tion, for delivering municipal services.

The question is, where will the munici-pality get the revenue from to perform itsduties? At present about 95 per cent of thecouncil accounts sent out are paid. On aschool report 95 per cent is excellent, butwhen it comes to the payment of accountsthis is just not good enough. Everyone ismaking a culprit of small consumers fromthe new areas who do not pay accounts.However, there is another dimension,especially important for economicallystagnant towns: one industry provides asmuch income as 1 000 households. If oneindustry goes under, it is as bad as 1 000households not paying.

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With a local employment rate of only 65per cent, the prospects of the Brits councilincreasing its collection rate are also dimin-ishing rather than increasing. The council’sability to extract further revenue fromproperty rates is more promising. However, anew property roll will have to be compiledfor the new and old areas of Brits, which willbe very expensive and time-consuming.

Therefore, besides their traditionalactivities of delivering services, small coun-cils need to concentrate on stimulating localeconomic development in order to providemore jobs and generate economic activity.Councils provide water, sanitation, electricityand road services to residents; however, onlythe first three services generate any revenue.This means that road maintenance has to besubsidised by these other services. Councilsderive much of their income from supplyingelectricity to private households and indus-tries but not from mines or farms in theirarea, since ESKOM supplies them directly.

National government grants, such asthose from the Housing Board, are giftsmost municipalities cannot really afford,because they come with other developmentcosts — such as providing proper roads tohousing projects — which the municipalitieshave to bear.

Prof Madoda Zibi, national treasurer of theCongress of Traditional Leaders of SouthAfrica (CONTRALESA), noted that people werebeginning to accept that traditional leadershad a role to play; however, the demarcationprocess had once again demonstrated thatmany key stakeholders still misunderstoodthis institution:

This may have been the result of a failure onthe part of traditional leaders to invitediscussion or to expose the institution toserious critical research. It is neverthelessevident that many people in government stillsee no need for the institution of traditionalleadership in a modern democratic dispensa-tion.

The MDB has hardly mentioned orinvolved traditional leaders in discussionsand planning in the lead-up to demarca-tion. This has led to uncertainty, confu-sion, and a suspicion that the governmentis about to phase out the institution,particularly since many elected councillorsare also very negative towards traditionalleaders. As a result, traditional leaders areconcerned that their areas will be incorpo-rated into urban areas without consulta-tion.

Instead, CONTRALESA proposes thattraditional authorities be recognised as aparticular form of local government, andthat heads of traditional authoritiesshould be members of district councils,performing the same functions as othercouncillors. Tribal authorities or tradi-tional authorities are capable of effectivelycarrying out functions of local govern-ment, as they do in some parts of NorthWest, for example. These positive in-stances of effective traditional localgovernment have been ignored in thelegislation. Instead, the Municipal Struc-tures Act entrenches urban municipalstructures, such as mayors and council-lors, without talking at all about a tradi-tional system of government. As part of itsprocess of drafting a white paper ontraditional authorities, the DPLG has askedCONTRALESA to make concrete proposals onthe powers and functions of traditionalauthorities. If these are accepted, localgovernment legislation will have to beamended. In the meantime, the demarca-tion process has been completed and thedate for local government elections hasbeen set for early December 2000. Itseems as if the process is being rushed.

Points raised in discussion

• The issue of cross-boundary municipali-ties is fraught with potential dangers. TheMDB is creating new governance problemsby pre-empting the debate on provincialboundaries. If these boundaries are

The MDB has largely

concerned itself with

grouping ‘haves’ with

‘have-nots’ in a very

narrow, localised

process that threatens

the viability of many

municipalities and

potentially under-

mines their capacity

to sustain economic

development



indeed a problem, this should be addressedhead-on and they should be changed. It isinappropriate to try to deal with the issueof provincial boundaries by changingmunicipal demarcations. This will createmany problems, as the respective provinces

Cross-boundary municipalities5

The 17 cross-border municipalities proposed by the Municipal Demarcation Board are:

Transitional local councils Provinces involved Municipality involved

Deben, Kathu, Kuruman Northern Cape/North West CBDC1

Hammanskraal Local Area Gauteng/Mpumalanga CBDC2 Council, Roodeplaat Local Area Council, Cullinan/Rayton, Bronkhorstspruit

Marblehall, Groblersdal, Mpumalanga/Northern Province CBDC3 Steelpoort, Burgersfort, Ohrigstad

Phalaborwa, Bushbuckridge Mpumalanga/Northern Province CBDC4

Maluti, Mount Fletcher, Kokstad, Eastern Cape/KwaZulu-Natal CBDC5 Underberg, Himeville, Creighton, Umzimkulu6

Magaliesburg Local Area Council, Gauteng/North West CBDC8 Krugersdorp, Randfontein, Westonaria, Fochville, Carletonville

Kuruman Northern Cape/North West CBLC1

Bronkhorstspruit Gauteng/Mpumalanga CBLC2

Marblehall Mpumalanga/Northern Province CBLC3

Groblersdal Mpumalanga/Northern Province CBLC4

Steelpoort, Burgersfort, Ohrigstad Mpumalanga/Northern Province CBLC5

Hazyview Mpumalanga/Northern Province CBLC6

Hartswater, Jan Kempdorp Northern Cape/North West CBLC7

Carletonville, Fochville Gauteng/North West CBLC8

Alberton, Germiston, Boksburg, Gauteng (East Rand Metro)/ East Rand Brakpan, Benoni, Springs, Nigel Mpumalanga

Ga-Rankuwa, Winterveld, Gauteng (Pretoria Metro)/ Pretoria Mabopane, Temba North West

Hartswater, Jan Kempdorp, Northern Cape/North West CBDC9 Warrenton, Windsorton, Kimberley, Delportshoop, Barkly West, Ritchie

5 Source: MDB website, www.demarcation.org.za; telephone conversation with Mulalo Nemavhando, consultant to the MDB(5 September 2000), confirmed by Dr Michael Sutcliffe, chair, MDB, 6 September 2000. Information on the TLCs involvedprovided telephonically by Anneliese Ahrens of the MDB, 19 September 2000.6 In the case of this proposed cross-boundary municipality, between KwaZulu-Natal and the Eastern Cape, no agreementwas forthcoming. Two separate district councils, one in each province, has been proposed.

and municipalities will have to workthrough various issues around jurisdiction.• The MDB has largely concerned itselfwith grouping ‘haves’ with ‘have-nots’ in avery narrow, localised process that threat-ens the viability of many municipalities

R O U N D T A B L E


and potentially undermines their capacity tosustain economic development. Much moredebate is needed on the definition ofredistribution, and how – and at whichlevels of government – it can be achieved ina broad-based and sustainable manner.• Cross-boundary delimitations will have amajor impact on a number of large munici-palities. Large populations with significantservice backlogs will be incorporated in twoof the country’s major metropolitan areas:Pretoria and the East Rand. In fact, no lessthan one third of North West’s populationwill be absorbed into Pretoria. What willthis mean for the country’s fourth biggestmetro? What will it mean for the province?Can cross-boundary municipalities work inpractice? Has the MDB investigated thisthoroughly enough?• How various powers and functions are tobe distributed among local municipalities

and district councils has not been madeclear. Many issues remain unresolved,including such important aspects as whereservice capacity resides within the municipalsystem, or whether district councils have theresources to perform various functions. Thegovernment does not appear to have a planto ensure that the process goes aheadsmoothly and coherently.• There are no clear guidelines on the role,functions and powers of traditional leaders.The government is only now proceedingwith a white paper on traditional leadership.Although, given its time and resourceconstraints, the MDB has done a reasonable␣ job of consulting traditional leaders, somecritical issues remain, including the repre-sentation of traditional authorities ondistrict councils, their powers over theallocation of land, and other governanceissues. These could derail the whole process.

Reforming local government

Elroy Africa, director of municipalplanning and policy development in theDPLG, said:

The country does not have a commonconsensual framework within which thestrategic challenges that confront localgovernment can be addressed, and variousactors can understand and manage thisperiod of transition. Its absence meansthat the activities of the various actors inthe local government sphere have not beenproperly co-ordinated. Putting this strate-gic framework in place to manage thecurrent transition period is the key policychallenge.

Some feel that the department’sexisting framework of developmentaloutcomes-based local government isadequate. Others suggest that the DPLG

needs a more refined approach to address-

ing the various strategic priorities emerg-ing during this transitional period.

The DPLG is looking to the MunicipalSystems Act to help generate such aframework, but exactly how it will lookstill has to be decided. The act gives thedepartment greater powers to regulate thecore activities of local government. It alsoredefines what a municipality is throughthe inclusion of residents together withcouncillors and council officials as essen-tial components of local government. Itputs in place a robust system of planning,so that resource allocation and deploy-ment is clear and stable across all spheresof government. A performance manage-ment system is also central to the newsystem.

Transforming the institutional make-up of local government will be possiblenow that the DPLG can regulate its core

How various powers

and functions are to

be distributed among

local municipalities

and district councils

has not been

made clear



activities, which it has not been able to dountil now.

The demarcation process has thrown upmany day-to-day implementation challengesfor the DPLG, including:• managing the transition from 843 formermunicipalities to the envisaged 284;• streamlining and introducing consistencyin local government legislation;• overcoming municipal financial difficul-ties;

• improving poor intergovernmentalrelations and weak co-operative govern-ance;• defining municipal powers and func-tions;• ensuring capacity for municipal plan-ning;• reducing service delivery backlogs; and• integrating fragmented service deliveryinitiatives.

Among many other initiatives, theDPLG is focusing on supporting districtcouncils, since they have emerged ascritical nodal points in the local govern-ment process and can be expected to havemaximum effect on service delivery.However, given present resource andcapacity constraints within the districtcouncils, the question of how this is goingto happen remains a big challenge.

Respondents

Roy Kerr, manager of Project Viability, agovernment support programme formunicipalities with financial problems,felt the present process of demarcationwas undermining some of the good workthat had already been done in helping tostabilise local authorities financially:

The reasons why some local authoritiesare in financial difficulty are simple andrequire very basic, pragmatic remedies.

Some are as basic as getting thegovernment to pay its bills – for example,the department of correctional services isoften in arrears with its electricity pay-ments. Others include provincial depart-ments of education which budget morefor teachers’ salaries than the entireeducation budget, with nothing left overto pay local authorities for servicesrendered.

Loss of potential revenue is anotherproblem. Johannesburg, for example, is

A decade of changes to municipalboundaries and local governments7

• In 1991 the Interim Measures for Local Government Act pro-vided for the establishment of the Local Government Negotiat-ing Forum.

• At the forum, parliamentary and extra-parliamentary groupsnegotiated the Local Government Transition Act of 1993, andrecommended a three-phase process to achieve unified non-racial local government.

• Transitional local councils became the most basic level of localgovernment and managed local areas until the 1994 local gov-ernment elections.

• After these elections, a two-tier system consisting of transitionalmetropolitan councils and metropolitan substructures wasestablished in larger urban areas. Rural areas also had a two-tier system, with district councils replacing regional servicecouncils and joint service boards, and transitional rural orrepresentative councils being developed as primary or base-level rural local government institutions.

• Provincial local government MECs determined boundaries onthe advice of provincial demarcation boards. In February 1999these nine boards were replaced by the Municipal Demarca-tion Board.

• In 1995, in terms of the Local Government Transition Act of1993, about 1 260 local government bodies were amalga-mated into 843 municipalities.

• In 1998 the demarcation process was revisited. The MDB, es-tablished in terms of the new Municipal Demarcation Act of1998, reduced the number of municipalities to 284.

7 From C Heymans and D Mmakola, Local government in South Africa: a history, written for the 1998 white paper onlocal government, and Dr M Sutcliffe, Introduction to the Municipal Demarcation Board and the municipal demarcationprocess, Sunday Tribune, 10 June 1999.

R O U N D T A B L E


Who is in charge?

‘One of the difficulties is that we haven’t said that the department of provincial and local govern-ment is the department that leads on all matters of local government, and everyone else then mustco-ordinate their programmes through that department.’

– Michael Sutcliffe, chair, Municipal Demarcation Board

‘We need to put in place a strategic framework so that various actors can both understand andmanage the transition period that we are in. At the moment there is no such common strategicframework for local government reforms.’

– Elroy Africa, director, Department of Provincial and Local Lovernment

‘There is institutional bickering and turf fights inside government about whether a single depart-ment should provide an umbrella framework for other departments’ programmes or all support tolocal government goes through a single programme in one department. The approach takenshould be one that delivers the best results to people on the ground.’

– Mike Muller, director-general, Department of Forestry and Water Affairs

‘The present process of demarcation is undermining the good work that has already been done inassisting the stabilisation of local authorities in financial difficulty.’

– Roy Kerr, manager, Project Viability

losing more than 20 percent of itspotential revenue through theft anddecaying infrastructure. In many othercouncils this loss is as much as 30 to 40percent. Why is this so? When drivingaround some towns one can see illegalcables from ESKOM boxes running into thetownships. This is a political problem,since many councillors are not preparedto do anything about it, particularly withlocal government elections coming up.Non-payment of service bills also amountto 10–15 percent nationally.

Altogether, local authorities losenearly 40 percent of their potentialincome. This very basic neglect ofbusiness principles in running localgovernment is the basis of their financialdifficulties.

In many small towns where there isvery little economic activity there arehousing projects for the poor complete

with roads, electricity, and running water.Because services are not allocated on thebasis of household income, in nine out often cases households quickly run up a largebill for electricity, for example, and eventu-ally the municipality is forced to suspendtheir services. The outstanding bill is neverpaid, and very often there is no intention ofever paying the bill. Occupants then go toESKOM and get a pre-paid meter.

Municipal rates from the sale of waterand electricity are often the municipalities’main source of revenue. The governmentnow proposes to take electricity distributionaway from municipalities. This will have anegative impact on many of the country’scouncils. Duiwelskloof in Northern Prov-ince is a typical example. It generates 53percent of its income by distributingelectricity and water. Payment of theelectricity bill is a precondition for theprovision of other services by the munici-

Reducing the

number of

municipalities will

not necessarily

improve their

effectiveness or

capacity



pality. Taking electricity distributionaway from local councils is tantamountto turning off the lights in the town andclosing it up. It is clear that all theintegration elements required to reformlocal government have not been thoughtthrough.

Though suggestions have been putforward – such as asking for a standingcommittee between the department ofmineral and energy affairs and the DPLG

to co-ordinate changes affecting munici-pal rates bases – there is very littlereaction, and no discussion.


• Why are local government reform anddemarcation taking place simultane-ously? There is now a ‘fatal combination’of new people, new legislation, newstructures, and new jurisdictions.• Who is running this enormous processof transformation? Is anyone in charge?Two and a half years into the process theDPLG, the department at the centre of theprocess, says it does not have a frame-work for what it is doing. How can oneembark on a process of change withoutthis?• There is a need for greater strategiccohesion within government. Its absencecauses institutional bickering and turffights among departments and differentlevels of government, as well as wastageof resources and expertise, includingthose potentially available from theprivate sector.• Co-operative governance hindersrather than helps the finding of solu-tions, since each sphere of governmentpasses responsibility on to the next.Matters are at the point where they haveto be resolved in court.• Following the demarcation process,the DPLG is not giving local governmentsenough practical help. It must makeproposals and set time frames withinwhich solutions will be found to such

critical issues as restructuring localgovernment debt, issuing sound financialstatements, resolving the issue of whocan and can’t afford to pay for services,and helping municipalities to dispose ofnon-core assets.• Government service delivery is badlyco-ordinated. National governmentcapital grants provide water supplyinfrastructure in many formerlyunderserviced areas, while districtcouncils use provincial and nationalgrants intended to finance and operatesuch services to fund additional capitalprojects. The national department ofwater affairs and forestry (DWAF) currentlyprovides services to 6 million people inrural areas, at a cost of nearly R2 billiona year. How will district councils paythese operational costs following the localgovernment elections? What will theeffect be on local municipalities falling indistrict council areas?• Local government is the backbone ofthe county’s economy, since investorsincreasingly make investment decisionsbased on local infrastructure, the regula-tory regime promoted by local councils,and their approach to local economicdevelopment. If the process of localgovernment reform is not properlymanaged, and rapidly completed, eco-nomic development will stagnate and theprivate sector will not invest.• Are South Africans ready for demo-cratic local government? The governmenthas legislated extensively in an attempt todevelop a democratic culture withincommunities and rebuild administrationaround the notion of ‘developmentallocal government’. A number of ques-tions have subsequently arisen, such as:Is this enough to keep local councillors incheck? Will a combination of strongcommunity participation and ‘popular’politicians weaken the ability of theadministration to implement creditcontrols while pursuing greater equity in

Why are local

government reform

and demarcation

taking place

simultaneously?

There is now a ‘fatal

combination’ of new

people, new

legislation, new

structures, and new

jurisdictions

R O U N D T A B L E


If the process of

local government

reform is not

properly managed,

and rapidly

completed, economic

development will

stagnate and the

private sector will

not invest

services, for example? In Johannesburgthere are very strong community groups,predominantly in the ‘rich city’, who havebegun to manage their own affairs and takecontrol of their communities. Examplesinclude residents’ associations and localbusiness organisations. There is a crisislooming in their relationship with localcouncillors who perceive their activities as athreat rather than a helpful developmentthat could free up council resources forother, more needy areas.

Local government finances

Ismail Momoniat, chief director: inter-governmental relations in the NationalTreasury, focused on the budgeting andfinancial reforms of local government:

Municipalities still use antiquated budget-ing and financial systems inherited fromthe old order. These include one-year,line-item, ‘telephone directory’ budgetsthat provide no management or analyticalinformation. Municipalities also lackproper budgeting processes. The result isa technically driven, ‘bean-counting’approach in which councillors are notempowered to make meaningful contribu-tions. Other features of the currentsystem are:• poor accountability;• poor financial management;• a failure to financially monitor budgetitems throughout the year;• a continuing culture of non-paymentfor services; and• capital markets for municipalities havelargely dried up, and only the governmentand the Development Bank of SouthernAfrica (DBSA) lend to municipalities in thelong term. When other institutions lend,they do so in the short term.

Key challenges are to reform munici-palities’ budget processes, and improve

their financial accountability. This meansthat better budget formats and accountingsystems must be introduced, and creditcontrols put in place. The MunicipalFinance Management Bill (drafted in2000) aims to achieve this. The nationaltreasury has also implemented a series ofbudget and accounting systems reformsknown as GAMAP (Generally AcceptedMunicipal Accounting Procedures).

The biggest challenge that has facedthe demarcation process is to createfinancially sustainable municipalities. Thenational treasury supports the creation ofmetros and district councils, and thereduction of the number of municipalitiesto fewer than 300. There are too manysmall, non-viable municipalities with verylittle capacity. The larger secondary cities(‘aspirant metros’), and their relationshipswith their district councils will have to beclosely monitored. The national treasurymust ensure that the approach taken inthe demarcation process does not worsentheir financial status, and that theircreditworthiness is not reduced. Shouldwe fail, more municipalities will becomedependent on government grants, result-ing in less money being available for poorhouseholds. The ‘equitable share’ alloca-tions that fund some of the activities of

• Local government needs a champion toraise its profile. One possibility could be aCODESA-like process in which local govern-ment, the private sector and communityrepresentatives get together to talk aboutproblems and issues in the context ofdevelopmental local government. Theminister of provincial and local govern-ment must raise the profile of develop-mental local government, but that is nothappening. The minister should be seenas the champion of the whole process.



local government are well targeted topoor households. However, the problemis that statistics in this respect are notavailable by municipality.

The monitoring roles of national andprovincial government are also crucial.Contrary to the view that we have threeequal spheres of government, the consti-tution establishes a clear hierarchy ofthree spheres. National government isexpected to monitor the performance ofprovinces and to intervene if a provincefails to deliver on an executive obligation.The provinces have an obligation tomonitor local government, and to inter-vene when the latter fail to adhere tonational norms or standards.

The national treasury’s objective is toestablish a more effective system ofmonitoring. Under the current system itis expected to monitor all 843 municipalbudgets, but it cannot. The plan is todevelop key financial performanceindicators to be assessed by provincialauthorities. Most importantly, however,these indicators must be used by citymanagers to manage the municipality,and by councillors to hold city managersaccountable. In-year budget monitoringby the city manager will complement the

municipal quarterly reports on expendi-ture, to be provided to the nationaltreasury. This information from munici-pal finance officials will play a crucial rolein helping municipal managers to managetheir budgets.

Another reform will be a draft budgetprocess begun three or four monthsbefore the tabling of the formal munici-pal budget, and aimed at improvingcommunity participation and consulta-tion. Working more closely with theSouth African Local Government Associa-tion (SALGA) will also deepen the budgetprocess. SALGA in turn has to build itscapacity to engage with budget andfinancial issues.

The aim is to introduce basic localgovernment financial reforms imple-mented elsewhere in countries such asAustralia and New Zealand, includingimproved municipal management capac-ity, creater financial accountability ofcouncillors, and modernised internalfinancial systems. Beginning with thecountry’s 20 big cities, the NationalTreasury plans to introduce best-practicefinancial reforms, monitoring theirspending and developing relationshipswith each in the spirit of co-operativegovernance. This approach will then beextended to other municipalities over thenext few years.

The Municipal Finance ManagementBill will also improve the borrowingcapacity of municipalities. Municipalitiesare obliged to practise greater financialand budgetary discipline, and should theydefault, the bill provides for a judicialmanagement process to kick in. It ishoped, however, that municipalities willimprove their financial management sofundamentally that the capital marketswill begin to lend them money. The bigquestion now is how to build up munici-pal financial capacity.

There has been too much ‘bean-counting’ in municipal finance, a type of

<10%

ELECTRICITY, WATER, REPAYMENT

%

100

90

80

70

60

50

40

30

20

10

010-30% 30-50% 50-80% >80%

Electricity revenue lost by local councilsduring the first quarter of 2000

Source: Project Viability

Water revenue lost by local councilsduring the first quarter of 2000

Percentage of consumer debtorspaying regularly

R O U N D T A B L E


Demarcation will

require local

authorities to

restructure their

balance sheets.

There is often a

total mismatch

between their

assets and

liabilities

culture embedded in the various munici-pal treasuries. South Africa’s municipali-ties need to move away from this to amore modern organisational culture.

Respondents

Div Botha, executive manager of opera-tions of the DBSA, said it was urgentlynecessary for local government to bemanaged in terms of business principles:

The creditworthiness of local authoritiesimpacts directly on their ability to raisefinance for infrastructure developmentand service delivery. The major chal-lenges are to foster more appropriatefinancial skills among local councillorsand council bureaucrats; a good systemof monitoring, particularly by provinces;improved corporate governance; anddeveloping a credible municipal budget-ing system.

Reducing the number of municipali-ties will not necessarily improve theireffectiveness or capacity. Councillors alsohave to develop the political will tosupport improved credit control, debtcollection, and the sale of non-coreassets. Local councils will need to takebold steps to ensure that people pay theirrates and taxes. If they fail to do so, localauthorities will face a bleak financialfuture.

Demarcation will also require localauthorities to restructure their balancesheets. There is often a total mismatchbetween their assets and liabilities. Somehave borrowed in the short term fromthe capital markets when funding shouldhave been obtained over ten to 20 years.This will create major cash flow dilem-mas for local authorities, faced withincreasing the delivery of sustainablebasic services, if it is not addressed now.

Local government has been maderesponsible for providing basic servicesto local communities, but can it fundthese new obligations from its share of

the intergovernmental grant? This issuewill have to be grappled with now, asmany municipalities will experience majorincome shortfalls that will have to befinanced somehow. The major nationalservice departments and the local authori-ties have not yet sat down together todecide how to phase in and phase outexisting subsidies. They will have to do sovery soon if a major collapse is to beaverted.

Creating a municipal bond market willonly be possible if the creditworthiness ofeach local authority is improved. Thisrequires a predictable regulatory environ-ment, backed by systematic capacity-building. National government must stepin more decisively, or otherwise involveprivate institutions. Without this, such amarket will not emerge.

Tim Middleton, a director of Intaprop,felt that the commercial interests of SouthAfrica’s towns and cities needed to bemanaged on the basis of business princi-ples, but this was not the case:

As an example, the dictum that time ismoney is not recognised. It took me aboutseven years to get a decision out of one ofJohannesburg’s five subcouncils to begin a

None

%

100

90

80

70

60

50

40

30

20

10

0<5% 5-10% 10-15% >20%

PUBLIC/PRIVATE PARTNERSHIPS

No of municipal service partnerships(public/private partnerships) enteredinto by end March 2000

Source: Project Viability



major property development in the cityinvolving an investment of R750 million.This type of project has significant localeconomic benefits such as job creationand the generation of rates revenue, but istreated more as a problem than an oppor-tunity.

It is essential for local councils to beginto grasp the role of business in enhancingthe value of their cities, and to tap intothis for the economic benefit of all.Decision-makers must understand thatwhere business makes its major invest-ments is where it will be prepared to takeon further responsibility. These develop-ments hold enormous potential benefitsfor cities. Besides increasing propertyvalues, helping to build infrastructure andadding to general urban management, thecommercial nodes are special areas wherethe running of the city can be partneredwith land owners and tenants via specialdistricts, business improvement districts,or residents’ associations. Local govern-ment must not miss the opportunity tomake it possible for the private sector tohelp run cities.

However, besides running a city as abusiness, it must also be managed as afamily. Its welfare function and theprovision of basic health and otherservices are equally important. It isnevertheless crucial to appreciate thesymbiosis between the business and familyfunctions.

In Johannesburg it appears as if thefamily function has overshadowed thebusiness side of things, and the councilhas forgotten that running the city as abusiness is actually what funds runningthe city as a family.

Running the city as a business appliesnot only to the city’s finances but all theactivities taking place in it, includingidentifying its profit centres, whichprovides its primary rates income. Johan-nesburg derives 30 percent of its ratesincome from its business nodes, which

occupy only 1 percent of its land area.Successfully managing change in-

volves good timing, and maintaining corecompetencies. Should local governmentreform be coupled with demarcations thatwill result in radical organisational andadministrative restructuring? The combi-nation of new people and new legislationis fatal in doing business with the city.

City councils also need carefully tomonitor the performance of core finan-cial functions. In Johannesburg theproperty roll has not been reassessedsince 1993, yet this is the basis for thecity’s rates revenue. Organisationalrestructuring should not stop the imple-mentation of core fiscal disciplines, suchas tracking changing property values andcollecting rates. Even in Sandton, Johan-nesburg’s most vibrant area economically,the valuation and treasury systems aresignificantly underresourced.


• Partnerships with the business com-munity are crucial, but they are nothappening. International experienceshows that business will not becomeinvolved where there is administrativeconfusion and competing governmentjurisdictions, such as those promised bycross-boundary municipalities. Similarly,private investors will not invest in newlocal authorities that clearly face insur-mountable financial and capacity con-straints – whether these are the result ofdemarcation or simply inadequate man-agement. The contagion effect on privateinvestors, particularly international ones,is substantial.• The role of cities in the growthprocess has been played down. Whilerural development is crucial, more than80 percent of South Africa’s GDP isgenerated in the country’s cities and largetowns. Without economic growth in theurban areas, rural areas cannot be devel-oped, and poverty cannot be eliminated.

It is essential for

local councils to

begin to grasp the

role of business in

enhancing the value

of their cities, and

to tap into this for

the economic

benefit of all

R O U N D T A B L E


How Johannesburg was bankrupted

In 1997 the Greater Johannesburg Metro-politan Council (GJMC), the largest metro inthe country, was technically bankrupt. Its chieffinancial officer, Roland Hunter, explainedJohannesburg’s financial straits in terms of‘a poorly managed transition’ between 1995and 1997.

Five ways to ruin your municipality

1. In its first two budgets all five of Johannes-burg’s sub–councils spent aggressively oncapital projects, and the city simply couldnot finance these. Underlying the largecapital budget was the belief thatJohannesburg was extraordinarilywealthy and could accommodate justabout any challenge thrown at it.

2. Year after year the city also overspent onits operating budget and continued toaccumulate deficits through poor budgetcontrols. The city was also failing to collectabout R400 million a year in revenues,and this shortfall was covered by short-term borrowing in the capital markets.This meant a massive cash flow problemwas building up because the city wasspending a lot more than it was going tocollect.

3. Johannesburg embraced a management-heavy organisational design to run its fivesubstructures, based on the assumptionthat the city employed 47 000 people. Atthe time, however, the city only employed32 000 people. Equivalent managerialstructures were established in each of thefive substructures, with an executive of-

ficer in charge of each local function, suchas local and economic development, fi-nance, and so on. There were too manymanagers, who failed to manage the staffthey actually had.

4. There was political interference in therunning of the five substructures: politiciansoften instructed officials to sort out par-ticular problems. As a result, the wholepolitical–administration interface was in a‘total shambles.’ No one knew who to takeinstructions from or to whom they wereaccountable. This effected credit controlsnegatively.

5. The city failed to make good new man-agement appointments. This resulted inextremely low productivity. Large numbersof council employees are in fact not work-ing a full or even a half-day. There is noperformance management system in placein the city.

In 1997, when the GJMC attempted to raise anoffshore loan it desperately needed, the thenDepartment of Finance stepped in and barredthe application. As a result, the council fell intodeep cash flow trouble with nothing in the bank.

The DBSA subsequently provided a lifeline,under certain conditions: the council had tocede a good portion of its regional servicescouncil levy income, and implement correctiveaction. In terms of a formal Gauteng provincialgovernment instruction, the GJMC establishedthe Committee of Ten (which became theCommittee of 15) to run the stabilisationprogramme called Igoli 2002.

Private investors

will not invest in

local authorities

that face

insurmountable

financial and

capacity

constraints



Pretoria’s finances:Contrasting styles, new challenges

Pretoria’s city treasurer, Mare-Lise Fourie,explained that the city’s experiences had beenvery different to those of Johannesburg:

Pretoria managed its initial transition to a post-apartheid city in 1995-6 reasonably smoothly.The new challenge, following the demarca-tion process, is that Pretoria will become sub-stantially bigger. New areas have to be inte-grated into the metropolitan area, and newprojects implemented to bring basic servicesto the people of Pretoria’s ‘lost suburbs’ ofWinterveld, Mabopane and Ga-Rankuwa.

Pretoria is in a relatively sound financialposition, because in the past it maintained areliable budgeting process and knew what itsincome and expenditure ratios were. It hashad an integrated development plan in placefor a number of years.

Pretoria is well placed to meet the new servicedelivery challenges, since it has successfullyretained experienced employees in alldepartments who are skilled enough to ensurethat service delivery will be maintained at areasonably high level.

Pretoria’s payment level over the past four tofive years was above 94 percent. This maysound good, but even a 6 percent non-payment level creates problems. Pretoria’srecent initiatives have increased the paymentlevel on a moving average to as high as 98percent. But the question is, can it be sus-tained?

Socio-economic environments obviously cre-ate the situation where payment for servicescannot always be supported. Pretoria has apolicy in place to provide subsidised services

to the indigent. About 6 000 of the poorestresidents are registered with the council. Theirbill currently stands at R70 million. Pretoriareceives about R8 million from the nationalequitable share grant – clearly, this does notgo very far in helping the city to provide basicservices to all its citizens.

Social ill-discipline is evident in illegalreconnections, for example. Pretoria loses 30percent of its water and 8 percent of itselectricity revenue through theft. These losseshave to be recovered elsewhere in the city.

The city has tried many approaches. Initiallyit took a hard line with debtors, which onlysucceeded in causing a crisis. Two subsequentcommunity summits involving representativesof all communities helped to identify moreeffective approaches. Some successes includethe reduction of arrears, reducing the illegalconsumption of electricity and water, andintroducing an amnesty period for consumers.The key to Pretoria’s success has been amassive communication campaign withresidents.

The major long-term challenge lies in re-creating a positive culture of payment. Thecity’s contribution to this new culture has to bethrough increased and better services toconsumers at affordable levels. However,putting in new infrastructure also increases thecost of services. The challenge is to find amatch between service levels and affordability.Services must obviously be standardised. If youopen a tap, there must be water. If you turnon a switch, there must be light. But the levelat which services are provided should beaffordable.

Organisational

restructuring of

local municipalities

should not stop the

implementation

of core fiscal

disciplines

R O U N D T A B L E


The question of the

provinces, their

roles, powers and

functions needs to

be addressed, as it

affects the powers

and functions

delegated to cities

and particularly

large metros

Ann Bernstein stressed that the CDE fullysupported the transformation of localgovernment:

The country still has a number of what areeffectively apartheid cities and towns, andCDE supports the amalgamation of poorercommunities and established municipalareas from which the former have beenexcluded solely for reasons of segregationand racial discrimination.8 CDE shares thegovernment’s lack of sympathy with thosecentres that have failed to come to gripswith poorer communities within their orbit.They will now be compelled to do so; thecritical issue is how this should be donemost effectively.9

A one-day workshop cannot becomprehensive, but it is important tounderscore the key issues raised in thediscussions.

Will cross-boundarymunicipalities work?

The chairman of the MDB has explained thecreation of 17 municipalities acrossprovincial boundaries. Most affectedprovinces have accepted a framework withinwhich services will be provided byagreement between different localmunicipalities. The chief director ofintergovernmental relations in the NT hasargued that this will not resolve matters, butpotentially complicate them. The questionmust be asked: why are we ducking theissue of redrawing provincial boundaries?The question of the provinces, their roles,powers and functions needs to beaddressed, as it affects the powers andfunctions delegated to cities and

particularly large metros. There areimportant interprovincial financial andservice equity issues to be thought through,besides institutional and service deliveryissues resulting from the differing provincialgovernment systems. The crucial questionraised in this discussion is whether thesenew arrangements will provide goodgovernance and the other preconditionsessential for growth and delivery. Willinvestors be attracted to these areas wheremunicipalities will be dealing simultaneouslywith the complexities of the newarrangement as well as the consequences ofdemarcation?

Is diversity sufficientlyaccommodated?

Until now, much of the discussion aboutlocal government has been extremelyundifferentiated – as though runningNylstroom and Pretoria were the same kindof operation. The Municipal Structures Actnow distinguishes between metros andintermediate cities, and the country has anew approach to district councils. The hugedifference in the capacity and prospects ofdifferent towns, cities and metros has beenvividly brought to our attention. Manyparticipants have expressed their concernthat the present framework is in danger ofapplying a ‘one-size-fits-all’ solution.

A good example is that of municipalsalaries and services. Many communities canonly afford a certain level of services, as wellas remuneration of municipal officials.However, both the levels of basic servicesand the salaries paid to municipal officialsare set nationally.

Addressing local affordability issues while

Concluding remarks

8 CDE’s views nevertheless differ from the government’s current approach in various ways, as our response to the 1998 whitepaper indicated. See CDE, Response to the white paper on local government, June 1998.9 See CDE Research no 9, South Africa’s discarded people: survival, adaptation, and current challenges, October 1998, inwhich we urged the amalgamation of Pretoria and Winterveld, an agency relationship between Pretoria and southernKwaNdebele, and a possible partnership agency relationship between Witbank/Middelburg and Siyabuswa.



at the same time finding ways tostrengthen the capacity and operationaleffectiveness of local municipalities lessable to pay the salaries necessary to attractmore skilled staff will require muchresearch and clear thinking. There isnevertheless a growing recognition thatvarious parts of the new municipal systemhave unique features and characteristicsthat require vastly different approaches togovernance, regulation, and other systemsof support. The present approach threatensto obscure these differences, withpotentially harmful effects on democraticrepresentation and growth.

Representative democracyunderplayed

The representative function of localgovernment has been underplayed in thecurrent approach to transformation. Someparticipants have argued that thedemarcation process has been driven bytechnical considerations, and that in theprocess the diversity of local views hasbeen lost or insufficiently accommodated –for example, in combining middle-classareas with others in establishing newmunicipalities. If the decisions were takensolely on the basis of the views of residents,the MDB might not have been able to do itswork at all. It is nonetheless evident thatmany middle-class residents feel alienatedfrom the process, and that this will impacton their future participation.

Effective representation of, andaccountability to, voters is a critical factorin local government, and should not beforgotten. Concerns have been expressedwhether all citizens will be able to choosewhat they get from local government. Howaccountable will their representative be?Will they have a say in choosing the level ofservices they can afford? Whether allcitizens will have their wishes and interestseffectively represented and debated at localgovernment level is a key outstandingchallenge facing our democracy.

Redistribution

We have heard the MDB chair argue thatmunicipalities use the ‘profits’ fromdistributing water and electricity to top uptheir services to urban consumers, and thatthe MDB wants these profits to be ploughedback into underserviced rural munici-palities. Other participants, includingBrits’s city engineer, Pietermaritzburg’schief executive officer, and the GreaterJohannesburg’s chief financial officer, havecontended that these ‘profits’ constitute therevenue needed to provide basic servicessuch as roads, emergency, and othergeneral services to residents. What are thefacts? Is there money available from urbanmunicipalities to ‘top up’ rural munici-palities, as the MDB is suggesting? Thisappears to be a question of fact surroundedby confusion and serious disagreement.However it is an important assumptionunderpinning the feasibility of the model ofredistribution the MDB has applied todemarcation. On the evidence presented tothe round table by senior officials, thisapproach to redistribution needs to beurgently discussed. The critical policyquestion is how we ensure the expansion ofopportunities and services in a sustainablemanner, without undermining institutionsthat can deliver in the process.

Economic growth in citiesand towns

A number of participants have expressedfears that the MDB may have damaged thegrowth prospects of certain cities and townsby grouping the ‘haves’ and the ‘have-nots’together without considering the economicimpact of this, and thus the impact on thesustainable delivery of services. What isrequired are cities and towns that areeconomically strengthened and madecompetitive as quickly as possible, so thatthose municipalities can address povertyand the inequality of services in a sus-tainable and effective manner.

On the evidence

presented to the

round table by

senior officials, the

MDB’s approach to

redistribution needs

to be urgently

discussed

R O U N D T A B L E


Much more attention

should be paid to

how the necessary

infrastructure for

economic growth

is to be provided

Officials from local municipalities fallingunder the proposed district councils haveexplained that, even under currentconditions, maintaining present servicelevels will be a challenge. Given that keyregulatory and other policy decisions (forexample, the setting of local governmentsalaries in the central bargaining council)are taken by national and provincialgovernment, will local communities be ableto pursue their own growth anddevelopment strategies? And will thenational government support local effortswhere, for example, building competitive,viable cities and towns involves harddecisions on retrenchments and thedisposal of assets that carry political costs?This issue is almost never discussed whenlocal government transformation is talkedabout. However Johannesburg hasdiscovered – as we have heard today – thatlocal government transformation isintimately tied up with these issues. Othercities and towns will no doubt have thesame experience.

In looking at the transformation of localgovernment, it is tempting to see theforthcoming elections as the end of aperiod of hard work by the government, theparliamentary portfolio committee, thedemarcation board, and others.Unfortunately, this is only the beginning ofa long road.

The test of all this work will be whetherour cities and towns will actually deliver forall the people who live in them. That is thecriterion against which we – as citizens,lawmakers or officials – have to assesswhether we are making progress or not.Many municipalities are struggling tobalance their books, keep the businessesthey have, and attract new investment.They have to deal simultaneously withexpanding populations and an increaseddemand for services. Their only chance ofbeginning to deal with poverty and thelegacy of racial discrimination is if they cangenerate increased economic growth. This

will not be enough on its own, but withoutgrowth very few people’s lives will improve,and things will actually get worse.

Economic development in the urbanareas requires far greater attention to thefundamentals of growth. Businessparticipants in this round table feel thatmuch more attention should be paid to thequestion of how the necessaryinfrastructure for economic developmentshould be provided. This involves training,education, and basic health, but also has todo with transport, telecommunications,appropriately serviced industrial andcommercial sites, and other infrastructurethat companies need to survive andcompete.

These realities raise some big andpolitically uncomfortable questions for thepeople involved in this process. We have tofocus on the right issues. That means, forexample, that unless telecommunicationsare restructured and deregulated toimprove efficiency and drive down prices,South African cities and (particularly) smalldistant towns will become increasinglyunattractive places in which to do business.If we do not do this, we will struggle tokeep the jobs we have, let alone create newopportunities.

Local economic development

Without economic growth and expandingemployment, local authorities will bedelivering services to people who willincreasingly be unable to pay for them. TheNT has clearly indicated that it will not bailout municipalities in financial difficultiesunless their financial regulation andmanagement systems have really improved.Even so, given the government’smacroeconomic commitments, money isscarce.

Brits’s city engineer has pointed outthat services payment levels of 95 percentare simply not good enough, even beforedemarcation has effectively doubled thismunicipality’s size and trebled its



population. Given the envisaged increaseddemand for services arising out of theincorporation of new areas, the Pretoriametro needs to sustain repayment levels ofclose to 98 per cent – a major challenge.According to Project Viability, localgovernment nationally loses up to 40percent of its potential revenue throughtheft, non-payment, and other inefficienciesresulting from decaying infrastructure. Theimplication is that unless repayment levelsimprove significantly, essential services inmost municipalities will decline, with littlerevenue left over for investment ininfrastructure to lure investors and growthe local economy.

The MDB chair, DPLG director, and nearlyevery representative of local governmenthave identified local economic developmentand improved infrastructure as central toaddressing poverty alleviation. Thequestion must be asked: how will thishappen under the new system? Risingunemployment, growing demand forservices, and a declining municipal revenuebase clearly restrict the ways in which localmunicipalities can facilitate local economicdevelopment. Municipalities often lack thefinancial and other resources to supportlocal economic development initiatives suchas tourism and local business advicecentres. Yet many local councils are notinvolved in partnerships with the privatesector, and do not run their towns or citiesaccording to business principles. Theseissues should be front and centre in thedebate, but they are not. This is cause forgrave concern.

Strategic leadership bynational government

The government needs to provideleadership to ensure that local governmentreforms are successfully implemented, andchallenges and setbacks anticipated andresolved. We have been told thatdemarcation was carried out without clearguidance on the place of traditional

authorities in the new municipal system,with potentially significant and negativeconsequences. We have heard seniorofficials call on government to resolvewhich department is in charge of theprocess, and to provide the necessaryleadership. Participants’ concerns thatthere has been too much change all at once,and in the wrong sequence, relate back to alack of leadership.

The country is now entering a verydemanding phase of change, with newmunicipal structures being establishednationwide. This is the most ambitiousprogramme of local governmenttransformation ever attempted in SouthAfrica. Several participants have remarkedon the government’s poor track record inimplementing good plans and frameworks.Can local government be successfullytransformed without someone co-ordinating, integrating, and leading theprocess? Participants from localmunicipalities and senior governmentofficials have indicated that they are allpulling in different directions, and that theservice delivery efforts of local, provincialand national governments are insufficientlyco-ordinated. CDE strongly agrees with theDPLG director that, as a matter of priority,agreement should be reached on thestrategic framework within which thesereforms are to be implemented, solutions tooutstanding issues found, and criticalservices co-ordinated, financed anddelivered.

The leadership problem ratherdramatically underlined in the day’sdiscussions must be resolved as quickly aspossible, so that this very demandingprocess of wholesale change in the localgovernment system is managed withconfidence and coherence. The phase afterthe demarcation changes and the localgovernment elections will require a longperiod of intensive work to ensure that thecountry emerges from this transformationwith a better system of local government.

Participants’

concerns that there

has been too much

change all at once,

and in the wrong

sequence, relate

back to a lack of

leadership. The

serious leadership

problem must be

resolved

R O U N D T A B L E


There are no guarantees of that at this stageof the process.

Clear guidelines need to be provided asquickly as possible for newly demarcatedlocal authority areas. Co-ordination andgreater integration of the approaches ofdifferent departments and levels ofgovernment affecting service deliveryrequire resolution and assertive leadership.

The success of the local governmenttransformation will be seen in the resultsthat emerge. Local authorities need toknow what is expected of them in the newdispensation. What strategies should befollowed to yield the kind of developmentwe desperately need? Without strong andrealistic leadership, the country could beheading for a scenario of confusion andsetbacks, with negative consequences forgrowth and delivery. This leadership andco-ordination must provide clear frame-works for practical action, but withoutimposing uniform regulations that make itimpossible for individual municipalities toprioritise steps and set standards that meet

their particular circumstances.Thinking about the administrative

challenges facing the country in terms oflocal government reform should not leadus to forget that citizens will measuresuccess in terms of the actual servicesdelivered, as well as their economicprospects. The title of the white paper onlocal government — Developmental localgovernment — was a good one (even if wedisagree with much of its contents). Giventhe country’s socio-economic disparities,the real debate is on how the country willachieve the economic growth andmanagement capacity necessary to deliverin a sustainable way. Local governmenttransformation and the process ofdemarcation are a large and ambitiousproject, with many desirable goals andobjectives. Unfortunately, it appears to befailing in many of the aspects of detail thatwill facilitate the implementation of itsobjectives, and lead to successful results.This round table discussion has raisedissues of considerable concern.

The real debate is

on how the country

will achieve the

economic growth

and management

capacity necessary

to deliver in a

sustainable way

This is the most ambitious programme of local government

transformation ever attempted in South Africa. The

discussion has raised issues of considerable concern,

and there is no guarantee of success at this stage

of the process

‘

’



T H E E N T R E F O R E V E L O P M E N T A N D N T E R P R I S ED

Published by the Centre for Development and EnterprisePilrig Place, 5 Eton Road, Parktown, Johannesburg 2193, South Africa

P O Box 1936, Johannesburg 2000, South AfricaTel 27-11-482 5140 Fax 27-11-482 5089

e-mail: [email protected]://www.cde.org.za

BOARD

E Bradley (chair), F Bam (deputy chair), S Ndukwana (deputy chair)A Bernstein (executive director), F Antonie, J Bezuidenhout , D Bucknall,

C Coovadia, O Dhlomo, W Esterhuyse, K Kalyan, M Keeton, L Lambert, A Lamprecht,J Latakgomo, R Lee, G Leissner, J Mabuza, J McCarthy, J McGregor, R Menell,

I Mkhabela, S Motau, K Mthembu, M Mthembu, W Nkuhlu, M O’Dowd, F Phaswana,R Plumbridge, D Ramaphosa, E Ratshikhopha, L Schlemmer, N Segal,

C Simkins, M Spicer, M Tisani, J van Wyk

This CDE Round Table was edited by Dr Tim Clynick.

Members of the media are free to use and report information contained in this publication onthe understanding that the Centre for Development and Enterprise is acknowledged and acopy of the publication in which any information is used is sent to the executive director.Otherwise no part of this publication may be reproduced, stored in a retrieval system ortransmitted in any form or by any means, electrical, mechanical photocopy, recording

or otherwise, without the prior permission of the publisher.

C E

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