SA’s major cities are running out of cash because they have become employment agencies instead of hives for the delivery of services.
Spending on personnel increased by a staggering 84% between 2010 and 2024, the Operation Vulindlela team has found, after President Cyril Ramaphosa’s reform team turned their attention to local government last month.
The statistics are startling. Revenue from property rates increased by 91% and service charges by 101% from 2010 to 2024. It’s a depressing paradox: while the cities are strapped for cash, their revenues have been rising faster than inflation.
There were above-inflation increases in the cost of bulk water and power, but this was coupled with the unsustainable rise in personnel costs. During the same period, spending on infrastructure declined and stagnated.
Investment in water, sanitation and electricity infrastructure not only declined, but was inefficiently spent, leading to the near collapse of those utilities.
Operation Vulindlela turned its attention to local government a month ago. Project manager Rudi Dicks has shed light on some of the findings and on what needs to be done to turn around the dire state of the metros.
He confirmed the rise in staff costs, saying “the problem is not staff costs per se” but also an “inability to ensure performance and basic service delivery”.
Considering the reason for the existence of local government is service delivery, it does appear to be a severe weakness in the system.
In her latest report on municipal finances, auditor-general Tsakane Maluleke noted the significance of the metros in the functioning of the country and the economy.
“They are strategically located across the country’s economic hubs and serve a vast number of people. In 2023/24, metros were responsible for 8.9-million households (46% of SA households) and managed 57% of the estimated local government expenditure,” Maluleke’s report said.
Evidence of the problem with rising staff costs was presented in Maluleke’s report in the City of Mangaung. Placed under national government intervention in 2019, Mangaung in the latest audit spent 81% of the total cash it received from customers on staff costs, “leaving it little to spend on actual service delivery”, the report said.
Ring-fencing revenue
At the heart of the problem the cities are facing is a failure to ring-fence revenue from services such as electricity, water and sanitation and then plough that money back into building and maintaining existing infrastructure to expand on and keep providing those services.
Take the City of Johannesburg. The political fight between former city manager Ketso Gordhan, former head of city transformation Kenny Fihla and former executive mayor Parks Tau went to the heart of the issue.
Gordhan had set up crucial entities overseeing utilities for the city. When he left, Joburg Water had a surplus of about R800m, but now its finances are in the red. Back then, the utilities were largely self-sustaining.
That is until politicians trained their attention on them, at the prompting of labour, the SA Municipal Workers’ Union in particular, which accused the city of “privatising” services.
The result was that under Tau, ring-fencing of revenue from utilities was scrapped and utility companies became glorified desks in the broader City administration.
Revenue crucial to infrastructure maintenance was channelled back into the city, where it disappeared into the ether of personnel costs.
As infrastructure declined, service delivery levels declined and the ANC began to shed votes, ushering in the coalition era at local government level in 2016.
Unstable coalitions
However, with unstable coalitions, motions of no confidence and a shift in party leadership over the cities growing rapidly, staff costs took another dramatic knock. With each new administration, staff hired under a previous one remained behind, building layers of employees with inexplicable roles.
The damage runs deep and is at the heart of the move by the National Treasury to offer a R54bn, six-year performance-based grant to metros as a carrot for them to ring-fence revenues generated from utilities.
In exchange for the grant, metros have to adopt a far-reaching reform plan, meet eight minimum requirements and undergo independent performance verification.
Seven of the country’s eight metros have hopped on board to participate in the reform of their electricity and water utilities or departments, and all eight have expressed interest in the solid waste management reform opportunity.
Nelson Mandela Bay, Ekurhuleni and Mangaung have been excluded from the first year of the plan due to late submission of their applications, but are on board from year two, said Dicks.
He added that there are no “quick fixes” but the Treasury plan is rolling.
“The reform programme is intended to ensure that immediate priorities such as reducing losses and investing the returns in further performance improvements, will be able to achieve rapid results,” he says.
Another complication arises as the country heads to local government elections at the end of 2026 or early 2027, where there is likely to be new leadership and potentially more messy coalitions.
It is crucial that the work of the Treasury and Operation Vulindlela is entrenched before the election, if there is a hope of turning around the dire state of the country’s largest economic nodes.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.