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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