The State of Finances of South Africa’s Metropolitan Municipalities

“..the 3rd Edition S.O.C.F Report : 2013..”

Presentation to 6th Session of Municipal Managers Forum 23rd August 2013, eThekwini , Moses Mabhida Stadium

About the SA Cities Network • The South African Cities Network Board of Governors is Chaired by the Mayor

of Johannesburg, Councillor Parks Tau and jointly owned by South Africa's largest municipalities, comprised of the following Metropolitan Municipalities:

– Buffalo City Metropolitan Municipality, – City Of Cape Town, – Ekurhuleni Metropolitan Municipality, – City of eThekwini(Durban), – City of Johannesburg, – Mangaung Municipality, – Msunduzi Municipality (Pietermaritzburg), – Nelson Mandela Bay Metropolitan Municipality and – the City Of Tshwane (Pretoria).

• National government Ministries that sit on the Board by invitation, and are

comprised of the Deputy Ministers from the Departments of Cooperative Government (COGTA), Department of Transport (DOT), and the Department of Human Settlement (DHS). The South African Local Government Association (SALGA) has been a member of the Board since inception.

Objectives of SACN Program

• The South African Cities Network (SACN) was established in October 2002 as a joint knowledge sharing program of action of the South African Local Government Association (SALGA), in conjunction with the national & provincial spheres of governments, and nine of South Africa’s largest municipalities, on issues of urban governance. The objectives of the SACN is, to:

1. Promote good governance and management in South

African cities; 2. Analyse strategic challenges facing South African

cities; 3. Collect, collate, analyse, assess, disseminate and

apply the experience of large city government in a South African context; and

4. Promote shared learning partnerships between the different spheres of government to support the management of South African cities

Some Key Research Agenda Issues for Local Government Sector in the next decade (2010-2020)

WORSTREAM I: Acting with a Better Understanding 1. Adopt urban development policy regime that seeks to strengthen productive and

sustainable urban spaces 2. Provide local government indicators that allows better governance & interpretation at

varied scales (e.g. ward, region, municipal, city region)

WORKSTREAM II: Changing Built Environment Function 3. Addressing issues of land and land-use management 4. Increasing city efficiencies by improving Public Transport 5. Using Human Settlements to create social cohesion

WORKSTREAM III: Unhesitant in Dealing with Vulnerability 6. Understanding better and improving local government financing model 7. Managing better and impacting positively on a vulnerable natural resource base 8. Better understanding of and enhancing rural/urban inter-dependence & interface 9. Building and dedicated & focused human capacity for local government 10. Promoting socio-political stability

Broad Challenge facing urban governance and the local government sector

1. Transforming the apartheid spatial legacy in such a

manner that cities facilitate citizen mobility, exercise proper land use management and provide sustainable human settlement

2. Responding to vulnerabilities and externalities, especially the impact of climate change, socio-political instability and inadequate financing of the local government system

3. Despite over-stretching its institutional capacity, there exists a persistent negative image about the performance of the local government sector

City government roles: expenditure responsibilities (SADC)

Social services

– Civil administration (registration of births, deaths and marriages)

– Health care services (primary/ clinics/ vaccinations etc)

– Educational services (pre-school) – Educational services (primary school) – Educational services (secondary school) – Housing rental – Social welfare (centres for orphans etc) – Business registration and licensing

Built environment services

– Town planning and building control – Municipal policing (by-law enforcement) – Supply of water – Sanitation (sewerage) – Roads and storm-water drainage – Traffic lights and street lights – Refuse collection and disposal; street

sweeping – Environmental health services – Emergency services (ambulances, fire) – Supply of electricity and gas – Cemeteries, parks and sports facilities – Bus and taxi ranks; markets – Public transport services

Social services

Minimal Moderate Full

Maputo Windhoek

Lusaka Ndola

Lilongwe Blantyre

Gaborone Port Louis

Dar es Salaam Arusha

Built environment services

Minimal

Lusaka Ndola Dar es Salaam Arusha

Moderate

Maputo Lilongwe Blantyre Gaborone Port Louis

Full Windhoek

State of City Finances 2013

• Part of SACNs constant tracking of financial health of our 9 metros since 2007

• Critical as city finances are key to municipal sustainability

10 www.sacities.net

Key Message Emanating from State of City Finances Report 2013

1 There’s a need to acknowledge the

fact that local government

sphere is grossly under funded

2. Therefore, we need to create an alternative

basket of sources of revenue

3. And thus,

strengthen the resolve to

achieve the developmental

objectives stipulated in the

National Development

Plan

GROSS UNDERFUNDING EXAMPLE 1

Local government is faced by a problem of affordability of the services it provides, both to households and business

this will pose challenges with regard to levels of household debt and the accompanying problem of service payment

Example: affordability of services Increase in cost of various service

packages in Cities 2009-2012 • Cost of services

increasing rapidly, faster than incomes as 35-50% in 3 years

• Cities are subsidsing lower income earners

• Affect city collection rates

13 8/23/2013

GROSS UNDERFUNDING EXAMPLE 2

Local government and cities is where the paradigm shift towards the GREEN ECONOMY will be won or lost

However, there’s a cost associated with shifting towards the green economy; this necessitates additional financial resources/plan for achieving a less carbon intensive means of production

Demand side management measures with regard to consumption of services also attract cost; all these policy instruments result in local government bearing (unfunded) costs/mandates

Another Example: accreditation of housing function

• Important in terms of – obtaining guarantees in terms of national transfers – control over built environment issues – Operationally, big questions around the costs

associated with it.

15

Local government deals with a considerable unfunded mandate

City Growth

City GVA Growth Rates 2006-2012

16

• City growth has improved from the 2008-2009 slump • Cities large recipients of population growth from latest

census

Audit Opinions

• Most of large cities are improving their audit findings progressively

• Big improvements Buffalo City and Msunduzi

• More needed Joburg, NMB and Mangaung

17

2008 2009 2010 2011 2012 Johannesburg MM

Qualified Unqualified Qualified Qualified Qualified

Cape Town MM Unqualified Unqualified Unqualified Unqualified Unqualified 1 Unqualified eThekwini MM Unqualified Unqualified Unqualified Unqualified Unqualified 2 Qualified Tshwane MM Qualified Unqualified Qualified Unqualified Unqualified 3 Adverse Ekurhuleni MM Unqualified Unqualified Unqualified Unqualified Unqualified 4 Disclaimed Nelson Mandela Bay MM

Unqualified Unqualified Unqualified Adverse Qualified 5 Outstanding

Mangaung MM Disclaimed Disclaimed Disclaimed Disclaimed Outstanding Buffalo City MM Qualified Disclaimed Qualified Adverse Qualified Msunduzi LM Unqualified Qualified Qualified Unqualified Unqualified

www.sacities.net

City OPEX spend

• Dramatic increase in bulk purchase

• Considerable increase in employee costs

• R & M not increasing as it should

8/23/2013 18

0

5

10

15

20

25

30

35

40

45

2005 2006 2007 2008 2009 2010 2011 2012City operational spending by category (2012 Rb)

www.sacities.net

City CAPEX spend • By June 2012

116.7 billion rand had been spent

• The World Cup peak is fairly obvious as we resume previous spending levels

8/23/2013 19

0

5

10

15

20

25

30

35

2005 2006 2007 2008 2009 2010 2011 2012

Other Assets

Community Assets

Other infrastructure

Sewerage

Electricity

Water

Roads

Land and Buildings

City capital spending by category (2012 Rb)

www.sacities.net

Overall city spend

• Slow down in

spend after 2009 World Cup

• Resumption in

2012 mostly related to bulk purchases

8/23/2013 20

Overall city spending 2005-2012 (2012 Rb)

www.sacities.net

Revenues

• Operating grants increased as a proportion after end RSC in 2006

• Own revenues are still significant proportion

8/23/2013 21

70%

75%

80%

85%

90%

95%

100%

0

25

50

75

100

125

150

2005 2006 2007 2008 2009 2010 2011 2012

Capital grants

Operatinggrants

Ownoperatingrevenue

Own revenue% ofoperatingrevenue

City revenues and own as % of operating (2012 Rb)

www.sacities.net

Revenue distribution

• Proportionally largest growth is service charges

• Biggest loser is

property and other taxes

8/23/2013 22

Property and other taxes

39%

Service charges

48%

Operating grants

4%

Capital grants 5%

Interest 3%

Other non operating revenue

1%

2005

Property and other taxes

25% Service charges

53%

Operating grants 11%

Capital grants 9%

Interest 2%

Other non operating revenue

0%

2012

www.sacities.net

Revenue distribution

• Sharp contrast rise in electricity revenues and others

• (since 2008 risen average 20% per year)

• Buoying city finances?

8/23/2013 23

City own revenues by category (2012 Rb)

www.sacities.net

Debtors

• Gross and net debtors days on improving trend

• City provision for bad debts still high: in 2012, 30.5 billion

24

0

30

60

90

120

150

180

210

240

270

2005 2006 2007 2008 2009 2010 2011 2012

Grossdebtorsdays

Netdebtorsdays

8/23/2013

Gross and net debtor days (2005-2012

www.sacities.net

Operating surplus

• After a collapse in 2008, this has gradually increased and sits at its highest levels since 2005

25 www.sacities.net

Operating surplus (R b %)

Some important conclusions to note

• South African Local Government sphere remains financially supported by less than 10% of national fiscal transfers

• City finances have improved in many ways – A lot however remains to be done –

• Key developmental challenges remain – Cities increasingly centers of population growth

and migration – Increasingly will be the core of state’s obligations

to the poor 26

Regional urbanization trends

Port Louis

Gaborone

Windhoek

Arusha Ndola

Mangaung

Lilongwe

Msunduzi

Blantrye

Buffalo City

Nelson Mandela Bay

Maputo

Lusaka

Tshwane

Ekurhuleni

Dar es Salaam

Cape Town

Johannesburg

eThekwini

-10

0

10

20

30

40

50

60

70

80

90

Background: City populations (Vertical position = size of city economies US$b)

* 8 Metros * 22 intermediary Cities”

In Conclusion…the SOCR 2013 suggests that…

Cities have stabilised, and yet…

Require a greater share of national revenue

Cities are increasingly the centers of population growth

and migration

…and with time… Cities will more and more be

the core of state’s obligations to the poor

Delegation of responsibility must be commensurate

with an equal shift of financial support