CURRENT STATE OF LOCAL GOVT

1. CURRENT STATE OF LOCAL GOVT ADDRESS BY: CHRIS NAGOOROO IMFO CONFERENCE SEPT 2011 CAPE TOWN

2. INTRODUCTION • Compliance has been described as a “have to” whilst sustainability is a • “want to” • However, embracing sustainability often starts out with compliance. • We are now 17 years into our democracy and whilst municipalities • have played a valuable role in our democracy, it is time to move from • compliance to sustainability. • Commitment to sustainability begins with awareness of our impact and • a sense that making a difference is possible • It really means moving away from just doing what is expected to • setting higher expectations, and embracing new roles and processes • There are several sustainability issues that we need to address “The quality of a person’s life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavour” – Vincent Lombardi

3. KEY ISSUES – SERVICE DELIVERY • Whilst local government has contributed to the achievement of a • number of significant social & economic development advances and • the majority of our people have increased access to a wide range of • basic services and more opportunities have been created for their • participation in the economy, the local government systems are still • showing signs of distress. • The turnaround strategy for Local Government promised to address • many of the issues, but more needs to be done • Persisting apartheid spatial segregation patterns require large public • subsidies and poor households face disproportionate costs to access • opportunities. • The current pace of urban population growth is outstripping economic • growth. • Cities are increasingly becoming home to large populations, living in • poverty and conditions of extreme deprivation. • Backlogs to secure housing and services are rising.

4. KEY ISSUES – SERVICE DELIVERY • Rapid growth in informal settlements • Urban economic growth rate has failed to deliver required jobs. • Public transport, land and housing delivery systems are failing. • Existing infrastructure and equipment for public transport, community • roads, water, sanitation, power, etc. is both inadequate and worn out. • Effects of climate change will affect urban poor more than anyone else • – flooding of low lying informal settlements, lack of jobs and food • security concerns. • Priority projects of government is the speeding up the provision of • community infrastructure and to accelerate access to water, sanitation • and electricity by 2014. Should have decent human settlements and • access to these services by all households. • The scale of reinvestment required to address these issues is beyond • the capacity of the national fiscus alone. • Well performing cities are intrinsically linked to successful rural • economies – i.e. funding the roll-out of social programmes to towns • and rural areas.

5. MAJOR SERVICE DELIVERY PROTESTS • Since 2004 an unprecedented wave of popular and violent protests • has flowed across the country • These protests have not only been about the provision of services • particularly housing, water and ablution facilities, but many of the • protests were about the failure of municipalities to engage ordinary • people in political processes • Protesters explain that they took to the streets because there was no • way for them to get to speak to government, let alone to get • government to listen: • - Service delivery protests increased from 10 in 2004 to 111 in 2010 and to 56 up to August 2011 • - Socio-economic conditions – poverty, living conditions, • attitudes of councillors, corruption, unrealistic expectations and lack of confidence and trust in the system have contributed to these protests • - Public participation poor - ward committees not established or functioning, non-attendance by ward councillors, lack of • resources

6. MAJOR SERVICE DELIVERY PROTESTS

7. BACKLOGS • The State of Local Government in South Africa Report, 2009 admits that “the national government may have created expectations that local government cannot fulfill, or place a burden on municipalities that perhaps only the strongest amongst them can carry”. • Whilst sufficient steps were taken to address backlogs further improvement is required due to population and economic growth pressures • Majority of municipalities face economic and human resource capacity challenges • 2 main obstacles to accelerating basic services – lack of critical infrastructure (rural) and increasing informal settlements (urban) • Factors contributing to delays in service delivery rollout: • - inherited backlogs • - insufficient capacity • - funding restraints

8. BACKLOGS • Factors contributing to delays in service delivery rollout (cont): • - economic migrants • - poor credit control and debt collection • - unrealistic promises • Backlogs statistics from data sources often vary e.g. households • receiving below a basic level of service for water services: 10.3% • (DWEA) and 19.3% (Municipal source) • Backlogs statistics per COGTA Overview Report: National State of Local Government Assessment (2009) are disclosed hereunder: • Water • 1 069 152 out of 12 996 300 households receive below a basic level of • service • 213 830 households need to be served per annum to eradicate • backlogs by 2014. Does not take into account growth, new households • and infrastructure failures.

9. BACKLOGS • Sanitation • 3 002 152 out of 12 996 300 households receive below a basic level of • service • 600 452 households need to be served with sanitation facilities to • eradicate backlogs by 2014. Does not take into account growth, new • households and infrastructure failures. • Electricity • Limited availability of energy is a serious challenge • ESKOM does not have generation capacity to meet rising demand. • 9 010 056 (72.8%) of households are connected to the electricity grid. • 3 365 644 (27.2%) of households are below a basic level of service • (using wood, coal, gas, paraffin). • Refuse Removal • 7 478 334 (60%) of households have adequate services

10. BACKLOGS • 4 988 787 (40%) receive below a basic level of service (use communal • or own refuse dump and no rubbish facility) • There are still numerous landfill sites that are not registered or don’t • comply with permit conditions • Housing • Many municipalities have made significant progress in addressing • historical backlogs in basic infrastructure. • However, shifting patterns of demand and migration to urban areas is • outstripping investment capacity of municipalities and posing serious • problems. • While housing is a provincial function some Metro’s have undertaken • this function on their behalf. • Long delays can be experienced when plans are submitted to Province • for approval and funding, resulting in delays in project implementation. • Political instability at some municipalities delayed housing projects. • Some of the unfinished houses are vandalized.

11. BACKLOGS • Housing (contd) • Fast growing informal settlements - added pressure on municipalities • Over 2 700 informal settlements were identified during 2008. • Roads and Public Transport • Whilst a number of metro’s invest their own funding on road • infrastructure, a number of the 283 municipalities rely on conditional • grants e.g. PTIS, EPWP and USDG • FFC researched the impact of under-investment on road management • and maintenance, and identified these concerns: • - State of roads has an impact on economic development of the • municipal area. Untarred roads lead to where the majority of the • population is located. • - Lack of maintenance on gravel roads and high cost to maintain the • roads • - Non maintenance of access roads impacts negatively on the • provision of services • - Roads constructed in the 1970’s and 1980’s without storm water • drainage system required urgent upgrading

12. FINANCIAL STATE OF LOCAL GOVT • MFMA requires municipalities to “take reasonable steps to ensure that • the resources of the municipality are used effectively, efficiently and • economically”. • Corruption, financial mismanagement and non-compliance with • financial legislation are common in many municipalities. Consequently, • this results in poor performance and delivery of services is • compromised • In his 2003/04 report for Local Government financing published in • March 2004 the Auditor-General of South Africa noted that: • - “the basis of income generation might not provide sufficient funds for • delivering the services expected of municipalities. This means that • sustainability of service provision by local government has to be called • into question” • The financial viability of the impoverished municipalities needs some • consideration. These municipalities cannot perform their functions due • to fiscal distress. These municipalities don’t have extensive powers to • raise their own revenues through property and business taxes and to • impose fees for services.

13. FINANCIAL STATE OF LOCAL GOVT • Municipalities with weak revenue bases cannot survive on the current • municipal infrastructure grant and equitable share funding allocations • to fulfill their mandate. • Such allocations are insufficient to ensure universal access to • adequate services and will not enable poor and small municipalities to • eradicate backlogs. • Municipalities with financial limitations cannot translate their IDP’s to • workable socio-economic programmes. • Many municipalities find it difficult to leverage funds for even moderate • municipal functions. • Strategies to address backlogs causing significant cost pressures • Compliance with financial management system and processes as per • MFMA is a constant challenge • Poor audit reports for over half the municipalities

14. FINANCIAL STATE OF LOCAL GOVT • Service charges still main source of revenue • Challenges experience withdebt collection, increased aged debtors, • high level of indigents and culture of non-payment • Further losses in respect of illegal connections for water and electricity • – municipalities unable to upgrade / maintain infrastructure • June 2009 – 56 local and 8 district municipalities were on National • Treasury financial distress list • Investment not optimised due to political tensions and instability • Municipalities with a weak revenue base cannot raise the required • funds for their proper functioning • Debt collection systems not updated and not reconcilable to financial • management systems • Inefficient expenditure management

15. FISCAL GAP • City governments face a significant fiscal gap between their • expenditure responsibilities and revenue resources • - the nature of the gap varies • - In the cities and some other municipalities much of the gap relates to the requirement to provide infrastructure and services for economic growth and development; and specifically public transport infrastructure and operations. • - for many other municipalities the gap still consists largely of a basic service standards backlog. • A detailed study of infrastructure needed for the eight metropolitan • areas suggests approximately R450 billion over the coming decade • together with substantial new operational demands. • With a further R310 billion required for other municipalities

16. FISCAL GAP • Approximately one third (33%) of this amount is required for • infrastructure refurbishment and a further 50% for growth and • development. • Detailed assessments of the fiscal and debt-carrying capacity of the • Metro governments suggest that they will at best be in a position to • finance 50% to 75% of the capital amounts required (depending on the • city concerned). • However, more seriously, the associated operational and maintenance • costs of the expanded services would not be sustainable. • Municipalities themselves are first of all responsible for closing this gap • by improving their performance through a variety of measures, • including expenditure efficiencies, billing completeness & accuracy, • collections efficiency, debtors minimisation and management, and real • tax and tariff increases for existing revenue sources.

17. FISCAL GAP • Nevertheless, even allowing for substantial (though realistic) • improvements on these aspects, a fiscal gap of the order of R200 • billion will remain on the capital side, together with substantial • operating costs. • This substantial amount implies an increasing inability of city • governments to provide the services required, with significantly • adverse effects on a Metro business environment generally, including • city efficiency, economic development and job creation. “We are in a race between cooperation and catastrophe, and the threat is outrunning our response” – Sam Nunn

18. KEY STRATEGIC ISSUES • Address the fiscal Gap: - Business Tax - Development Levies - Equitable Share increase - Accessing Job Creation Fund • Transport issues • Land issues • Housing accreditation • Densification • Unfunded mandates • Asset management • Energy and green issues “Do your little bit of good where you are; it’s those little bits of good put together that overwhelm the world” – Bishop Desmond Tutu

19. ROLE OF IMFO • Capacity building initiatives • Practical workshops on implementation of legislation / regulations • Professionalisation of local government practitioners • Advising financially stressed local authorities • Undertaking research on critical issues affecting local government • Providing a forum for CFO’s to debate strategic financial and operational issues • Cooperative governance – Close co-operation with SALGA, COGTA, National Treasury, ASB, SAICA “The children who sleep in the streets, reduced to begging to make a living, are testimony to an unfinished job” – Nelson Mandela

20. CONCLUSION • The current intergovernmental fiscal system and the equitable share • distribution of the national revenue should significantly consider the • differing challenges, among other things, the relation to rural and urban • environments, availability of human resource capacity, degree of • economic activity and overall institutional strength. • Rethinking fiscal allocations holds great promise for improving the • socio-economic conditions. • Building capacities of municipal officials becomes essential in order for • municipalities to fulfill and optimally achieve their obligations. • Skills development is critical as it lays the basis for more people- • oriented local government system, able to meet the demands of the • people for democracy, reconstruction and development. • Need for investment in capacity building initiatives of councillors and • officials

21. THE END “THE MOST PRACTICAL, BEAUTIFUL, WORKABLE PHILOSOPHY IN THE WORLD WON’T WORK – IF YOU DON’T” THANK YOU