If municipalities work, then SA Inc will work

If we were to use the analogy of the human body to describe the function of metropolitan municipalities and secondary cities to national growth and socioeconomic development, it would be to call the latter the inner organs — the heart, brain, liver, lungs of the body. The nervous system is akin to the country’s logistic networks. The movement of people, goods and services are mimicked by how blood moves around our bodies. These organs and systems that connect them must operate optimally in their own right and then work in synergy with all other organs to ensure the body’s overall health and wellbeing.

The November 2021 local government elections and narratives accompanying its run-up painted a gloomy picture of organs in utter distress. Various publications, including the auditor general’s annual municipal outcomes report, Good Governance Africa’s (GGA) Governance Performance Index (2021) and the treasury’s State of Local Government Finances and Financial Management report (2021) highlight significant challenges in the local sphere of government.

The first set of issues broadly relates to leadership and governance failures and the unintended constraints inflicted by a plethora of legislation. The other relates to financial governance, which includes structural issues relating to how local government is financed, how revenue is levied and collected, and the efficacy of our procurement and financial management systems.

These challenges are an albatross of sorts for President Cyril Ramaphosa as his bold programmes announced in his State of the Nation address (Sona) seeks to gain traction. In particular, how we attend to the leadership and structural deficits in local government, such that the sum of its health contributes to the country’s growth, transformation, and socioeconomic development agenda.

The leadership question is a much more complex phenomenon and cannot be done justice in a few paragraphs. Suffice it is to say that the internal political party systems of democracy, the training and development that shapes the pathology of membership and leadership, and the electoral system (for national, provincial, and local government) all collaborate to shape the form and content of our body politic. Coupled with these, the systematic cogs that help foster and sustain an ethical and high-performance culture in the public sector require interrogation and treatment to resolve the leadership question and restore public confidence in government.

The financial issues are not devoid of influence from the leadership. So much so that anecdotally, it would be safe to assume that resolving the leadership questions would resolve upwards of 50% of the financial management issues in local government.

Unlike the provincial government, local government has extensive constitutionally embedded revenue-raising authority through property rates and service charges for near-monopolistic services, including water, sanitation, refuse collection and electricity.

In theory, this should make local government intrinsically financially self-sufficient. But the effect of poor leadership, stunted growth, weak system, unemployment and poverty have acted in concert to see the municipal revenue base shrink in real terms. Add to this poor revenue collection systems in local government, and a toxic combination that deepens the structural financial challenges in the sector is emboldened.

The result is a chicken-and-egg dilemma. Local government needs to sustain service delivery and make the necessary investments in infrastructure to support growth. But to do this, it needs to raise revenue, both its own (from rates and service charges) and alternative revenue (borrowings) over the long term to afford the investments required in new infrastructure and the maintenance of existing stock. As things stand now, municipalities cannot afford the levels of investment necessary to support growth, yet they can equally not afford not to make these investments.

Treating these challenges sustainably requires a collaborative rethink among social partners to modernise the intergovernmental fiscal systems and develop unorthodox and innovative financing options. This includes blended, fit-for-purpose and risk-appropriate funding structures that allow for a period of mega-investments in productive municipal infrastructure, including addressing the burgeoning deferred maintenance of existing infrastructure in municipalities.

The procurement system (for infrastructure) needs to accommodate longer-term life-cycle funded project financing that allows for the government’s regulatory and transformative objectives to be robustly enforced while creating space for more significant private sector involvement in the design, construction, operation and financing of major infrastructure.

This level of investment will additionally act as a catalyst to support the government’s short-, medium- and long-term job creation efforts, open significant opportunities for socioeconomic maximisation in communities, support growth and development, urban reconfiguration towards sustainable cities, and drive the country’s overall effort to climate adaptation strategies.

Importantly, by growing the revenue base and collecting revenue owed by people who can pay for these services, municipalities will be in a position to fund non-revenue generating social services directly without relying on the current grant system and expensive loans to fund these. 

Beyond Sona’s critical big-ticket narratives, we need a national conversation and social compact about these leadership and structural issues. The resultant accord must help us urgently drive regulatory and sector-based initiatives to transform municipalities as the epicentres of broad-based growth and development expressed by a broader wellness index, rather than the narrow GDP configuration, as the hallmark of Municipalities 2.0.