Municipalities have made inroads in delivering key services, increasing their institutional capacity and revenues, and were beginning to post improved audit outcomes, but they still face significant challenges. This is according to Finance Minister Pravin Gordhan, who was speaking at the release of the third 2011 Local Government Budgets and Expenditure Review.

The review, which tracks spending and budgets for all 283 municipalities for the period 2006/2007 to 2012/2013, revealed that between 2008 and 2009, 7% more households had access to basic water, 7.6% more had access to basic sanitation, and 6.2% more had access to free basic electricity.

In 2009, compared with 2008, 1.7 million more households received refuse removal services.

“Clearly, what this report shows is that overall we are making progress and that the institutions of local government are beginning to settle... Increasingly, institutional capacity is growing, although we have to admit that in smaller, particularly rural municipalities, there are still significant
challenges,” Gordhan said.

He continued to explain that although the government had increased service delivery, it had not yet reached the 100% mark and that is why there are still sporadic protests against service delivery.

The report revealed that challenges included demographic ones such as HIV and Aids, as well as rapid urbanisation (which led to skilled people leaving municipal areas), revenue challenges, and that there is decreasing trust by communities in local governments.

Municipalities spent too little on repairs and maintenance and were often under-pricing services, as they were not following the Municipal Systems Act principles for tariff setting.

Other challenges included municipalities not focusing enough on economic development, spending too much on non-essential services or goods, poor management of revenue, badly managed procurement processes, poor management of assets, and continued underspending on capital budgets.

The minister of finance said municipal leaders needed to focus more on getting the basics right, such as planning, budgeting, better links to communities and streamlined bureaucracy, if services to communities are to improve.

He said the report further revealed that there was a low level of trust between officials in local government and communities, and pointed out that councillors and mayors needed to work harder to explain what they do and be more present in communities.

Municipalities needed to focus on delivering quality services – not simply a quantity service, he added.

“What this means is that municipalities need to focus on delivering services, building their capacity, building economic infrastructure, and investing the right amount in capital expenditure – both in maintaining infrastructure and in developing new infrastructure – and (they need to) forget the frills, whether those frills are brand-new Mercedes-Benz’s or something else like that.

“That will make a significant contribution to enabling municipalities themselves to enable the national fiscus to cope with some of the stresses and strains of a very uncertain economic environment, which is what we are living in at this point in time.”

National government continues to provide municipalities with significant support, including financial support – largely through conditional grants and the fiscus – and R3 billion in capacity building by seconding officials from 2007 to 2010 through the Siyenza Manje hands-on support.

Gordhan suggested that a shared service approach needed to be adopted so that smaller municipalities could access better services from other municipalities in their respective districts.

He said better procurement processes were needed to ensure money was not wasted and that municipalities needed to take more advantage of the public works programmes available to them.

Municipalities’ own contribution to financing their capital expenditure had slipped below 50% of their total capital spending.

However, Gordhan said many municipalities do have the capability to borrow, but perhaps are not borrowing enough on a sustainable basis.

On top of this, the 2008–2009 recession had impacted negatively on municipalities. In December last year, municipalities were owed R62.3bn – a 10.8% debt increase for the same month in 2009.

Much of this debt was 90 or more days outstanding and the National Treasury would be working with the South African Local Government Association (Salga) to see if it can be more assertive with debt collection while writing off older debt.

The minister said more consumers were refusing to pay rates, and that this was “totally unacceptable”.

The National Treasury wanted to engage with Salga and the Department of Co-operative Governance and Traditional Affairs over the issue.

Underspending, and inflated wage bill a concern

Underspending on infrastructure and an increase in public servants’ wages remained key concerns for the government last year, with R3.8bn in unspent balances in the last financial year expected to be rolled over and an additional R4.4bn made available to cover higher-than-expected salary adjustments, Gordhan stated.

Presenting the 2011 Medium-Term Budget Policy Statement (MTBPS) in Parliament in October, he said the R3.8bn to be rolled over includes over R1bn which had not been spent on infrastructure projects, R200 million that was not spent on improving healthcare facilities, and R105m not spent on the 17th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP17) in Durban.

Gordhan said that underspending of capital budgets by departments remained a core concern for the government. With underspending by municipalities having risen from 14% in 2008/9 to 25% in the last financial year, underspending by provinces had increased from 8.3% to 16% over the same period.

He pointed out that the government is helping municipalities to beef up their capacity to plan and manage infrastructure better, while a third phase of the infrastructure delivery improvement programme will be rolled out in provinces.

The minister said that of the R4.4bn to be made available to cover the costs of higher-than-expected salary adjustments for public servants in departments, R3.2bn to provinces and the remainder to national departments.

A further R49.3m would be allocated to further education and training colleges to cover the cost of wage agreements.

Gordhan said the public-sector wage bill had been a major driver of spending growth and that ways of managing this needed to be explored.

He said increases in public-service remuneration and increases in employment have raised the wage bill to about 42% of government revenue — up from 31% four years ago.

He cautioned that over the next three years, salary increases for government employees needed to be moderated, while pointing out that a similar moderation in executive and financial sector remuneration needed to happen.

Remuneration, Gordhan said, should grow at a sustainable pace so that it supported job creation.

He added that the balance between administration and service-delivery staff should be corrected and that the number of supernumeracy staff should be reduced.

The minister announced an additional R266.3m would be provided as a once-off gratuity for non-returning councillors following this year’s municipal elections.

In a media briefing in Parliament before his speech on the 2011 MTBPS, he stressed that the 5% year-on-year increase over the next three years was at present only a proposal and had not yet been agreed on.

“If all of us want to grow this economy, if all of us understand that in this difficult time this growth has to be through an investment-led process, then we must find the resources to invest: in infrastructure, and in maintenance at a national, at a provincial and at a local government level.”

He continued that R208m would be allocated for the management of acid mine drainage in the Witwatersrand area, while R185.8m would be provided for natural disasters and the outbreak of animal diseases, while R116.8m would go to cover contractual penalties of the costs incurred by Denel related to the Airbus A400M aircraft contract.

Added to this, R81.4m would be set aside to cover joint piracy operations in the Mozambican Channel and R40.6m to cover a portion of the costs incurred by the Independent Electoral Commission to extend the casting of special votes in this year’s municipal elections.

A further R21.2m would go to help the National Nuclear Regulator meet its commitments under the Integrated
Resource Plan and to retain experts, while R838.1m would be refunded to departments for monies paid directly to the National Revenue Fund from department-specific activities.

Provinces would get an extra R752m as part of various provincial conditional grants including those for the repair of infrastructure damaged by floods in December last year and in January.

In order to cover their direct water services operating subsidy grant, local governments would get an additional R28.5m, while R3.2m in unused funds would be rolled over.

An additional R11m declared as savings from the local government financial management grant would also be allocated to municipalities.

Underspending on Expanded Public Works Programmes ‘not acceptable’

In November last year, Public Works Minister Thembelani Nxesi warned that underspending on Expanded Public Works Programmes (EPWP) would not be tolerated.

Addressing municipal representatives from all the provinces at the Expanded Public Works Programme Summit held in Midrand, Nxesi said the department could not afford to underspend on EPWP when there were millions of unemployed people in the country.

“Think of all the unemployed people, young people, rural people, those from the most disadvantaged communities -- all those people who won’t have work opportunities, and the remuneration that comes with that all because we did not spend the funds to create those jobs,” he said, adding that the underspending on EPWP programmes was an embarrassment and moreover that is was “criminal”.

Nxesi further said communities should be roped in to give them the opportunity to be meaningful participants and beneficiaries of the job creation process. “We have to be creative here. I am talking about creating jobs as an end itself.”

He called on municipalities to take ownership of the EPWP, create job opportunities and be part of the achievements.

According to the department, the budget for the entire EPWP is over R1bn.

The Department of Public Works intends to work with the private sector in ensuring the successful implementation of the programme, emphasising community involvement.

The summit is an opportunity for key stakeholders in municipalities to engage on the implementation of the second phase of the EPWP.

Key stakeholders attending the summit are the Salga, Department of Co-operative Governance and Traditional Affairs and all municipalities from across South Africa.

The EPWP Phase 2, which covers the period 2009/10–2014/15, was approved by Cabinet and aims to create 4.5 million work opportunities for poor and unemployed people. It thereby aims to contribute to halving unemployment by 2014.

Gordhan meets Limpopo Premier

In January this year, Minister Gordhan met with Limpopo Premier Cassel Mathale to discuss matters relating to the implementation of the section 100 intervention in the province.

Cabinet decided to place Limpopo under a section 100 (1) (b) intervention of the Constitution in December last year, following a cash crisis that saw the province deplete its R757.3m overdraft facility with the Corporation for Public Deposits (CPD), which facilitates banking arrangements for national and provincial governments and state-owned entities with the Reserve Bank.

In their meeting, Gordhan and Mathale agreed that the most pressing issue was to present a credible budget in the province within the legal time frame, ensure the payment of service providers with legitimate claims, and stabilise the finances of the province, Gordhan said in a statement on 10 January.

“(The) meeting demonstrates the urgency and the common understanding of stabilising the provincial administration in the interest of protecting the integrity of government’s finances, and the importance to deal decisively with key weaknesses that compromise service delivery in the province,” he said.

The minister continued by elucidating that they recognised the importance of key service delivery programmes in departments such as education and health, and that the authenticity of contracts and payments of these essential services would be prioritised; furthermore, that legitimate service providers would be paid.

“However, it is important to emphasise that the province begins to pay for goods and services based on the available cash it has in the bank, and that it has to categorise and prioritise their suppliers in order to manage the available cash,” the minister added.

Cabinet had asked Gordhan to intervene after the Limpopo province had requested its overdraft facility be increased by R1bn (to R1.7bn) from the National Treasury for the province to pay salaries and wages on 23 November 2011.

This request was declined, but alternative arrangements were made for an early transfer (two days before the actual date of transfer) so that the province could pay salaries.

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