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South African communities are buckling under the weight of municipal mismanagement and broken promises. What role could – and should – developers play in digging local municipalities out of the mess?
Potemkin Villages
In 2015 and 2016, the eThekwini Municipality handed over 344 RDP homes to beneficiaries in Oakford Valley outside Verulam, north of Durban. It was half the intended total of 696 planned houses, but even then the supposedly completed houses had no toilets (families have to share chemical toilets), no water (households rely on Jojo tanks) and no electricity.
There are power lines in Oakford Valley, but – in a bitter irony of Potemkin Village proportions – the houses aren’t actually connected to the grid. Instead, they make do with illegal connections.
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Leadership setting the tone
The Oakford Valley story is horrifying (<LINK TO EL PIECE>), but it’s consistent with a national trend of municipal ineptitude, of promises broken, and money wasted. In June 2019, Auditor General Kimi Makwetu called on municipal leaders – the managers, mayors and councils – to take an active role in the financial behaviour of municipalities.
‘The leadership sets the tone at the top of any organisation,’ the AG said. ‘The leaders in local government should therefore steer their municipalities to success. They should take responsibility for the deteriorating accountability in municipalities, and it is their duty to turn the situation around.’ Another year on, that call had obviously gone unheeded.
Makwetu’s Municipal Report for the year was titled, ruefully, ‘Not Much To Go Around, Yet Not The Right Hands At The Till’. The report suggested that 60% of revenue reflected on the books of South African municipalities will never be paid. Only 8% of the nation’s 257 municipalities received clean audits for the 2017/18 financial year, while irregular expenditure came to R32 billion.
Spending money they don’t have
Believe it or not, it gets worse. A research report released in October 2019 by the Public Affairs Research Institute (Pari) noted that nearly half of South Africa’s municipalities got their political councils to approve unfunded budgets in the 2019 financial year. In other words, their fiscal strategy is to spend money they don’t have, and know they won’t get.
The report didn’t get much attention, but in just 150 words – which bear repeating here – it sums up the extent of the problem. Highlighting more than 30 municipalities that have received either a disclaimer or adverse audit outcome, or have failed to submit their financial statements on time, or both, for the past two years, it said:
‘This group represents a complete breakdown in good governance and municipal management and, in many cases, the misappropriation of considerable amounts of public money. Most importantly, they indicate a deep-rooted and long-term serious problem that no one seems able (or willing) to address. These are places where the municipality struggles to deliver even the most basic services, a significant percentage of municipal infrastructure has disintegrated alarmingly (due mostly to a lack of maintenance), and the municipality can barely be considered a going concern. Often the causes of these problems can be traced to maladministration, corruption and theft of public assets. In many examples, the municipality has become the central site of local political battles, so that employment and contracts are traded as part of a wider jostling for political influence. There is little regard for even the most basic principles of good governance or the needs of the wider community.’
What next for developers?
As municipalities fail – dismally, in some cases – to fulfil their role as service providers, is this an opportunity for developers to step up? They may not have a choice, as the Municipal Fiscal Powers Amendment Bill – which closed for public comment in March – makes its way to becoming law.
The Amendment Bill provides – among other issues – that a municipality can withhold any approval or clearance (including a rates clearance certificate) if a development charge has not yet been paid, or if the landowner has failed to install external engineering services in accordance with the conditions of approval or an engineering services agreement.
(It’s worth noting that revenue collection has been a massive challenge for municipalities, with more than R130 billion owed around the country for water, electricity and other services. It’s also worth noting that there’s no guarantee that moneys paid will not be ill-spent.)
In the meantime, developers will – by choice or by force – increasingly find themselves building or fixing infrastructure that municipalities can’t or won’t, because without it, they will not be able to complete construction of their developments. As the Pari report pointed out: ‘Infrastructure that has fallen into disrepair (particularly infrastructure that is necessary for municipal revenue generation, such as water and electricity meters) cannot be replaced or repaired, since there simply isn’t any money available.’
That’s good news for people who benefit from the work of those developers. It doesn’t, unfortunately, help communities like Oakford Valley, who continue to feel the sharp end of South Africa’s growing inequality and deepening municipal incompetence.
