How can businesses assist in South Africa’s economic recovery when a growing number of the country’s municipalities are unable to perform their most basic functions?
President Cyril Ramaphosa’s administration has signalled on numerous occasions that it intends to encourage economic recovery through greater involvement by the private sector. For example, in the President’s 2022 State of the Nation Address (SONA), he announced that the state “must create an environment in which the private sector can invest and unleash the dynamism of our economy”. He later added that it is a key task of the government to create the conditions to enable the private sector.
However, government, especially local government, has failed dismally to create an environment that would improve business confidence and attract investment. According to the latest audit report by the Auditor General (AG), a mere 41 out of the country’s 257 municipalities had clean audits in 2020/2021. Although a clean audit is not always an indicator of good service delivery, municipalities with institutionalised controls and systems to plan, measure, monitor, and account for their finances and performance often also have a solid foundation for service delivery. Despite a slight increase in the number of clean audits, South Africa continues to have less than a fifth (16%) of its municipalities receiving clean audits.
The decline in service delivery across South Africa has had severe consequences for businesses. This is most apparent in two high profile cases of poor service delivery. The ongoing water crisis in the Lekwa Municipality (Standerton) in Mpumalanga has negatively affected poultry farming and increased production costs for the region’s biggest job creator, Astral Foods. Clover recently closed South Africa’s largest cheese factory in Lichtenburg, in North West, due to ongoing poor service delivery by the local municipality. Clover’s decision to relocate will have major implications for the small town. The company, according to official statements from the government, provided 380 permanent jobs and 40 temporary jobs. It also employed 20 general workers and 20 truck drivers and cleaners.
And municipalities in rural areas and small towns are worst off. A recent study by the Tshwane University of Technology confirms this. At the same time, the annual Quality of Life Index from the Centre for Risk Analysis (CRA) shows that more urbanised provinces consistently do better when it comes to the rollout of services, compared to more rural provinces. However, a severe lack of basic services is no longer confined to rural, small towns anymore.
Crumbling infrastructure, escalating corruption and incompetence have become characteristic of metropolitan cities as well. In 2021, Moody’s downgraded five metropolitan municipalities, including Cape Town, Johannesburg, Ekurhuleni, Nelson Mandela Bay and Tshwane.
It has recently been reported that for the next few months in eThekwini, residents, health and educational facilities, businesses and manufacturers in parts of the city will only have access to water during some parts of the day, in rotation. The city blames the extreme measures on the recent floods which, it says, laid waste to water infrastructure. However, some officials and residents have stated that Durban’s water infrastructure was already breaking down years before. The floods just made an already bad situation worse.
And in Ekurhuleni in Gauteng, businesses in Germiston’s CBD are struggling to keep their doors open, especially due to power outages. Many shop owners complain about illegal dumping close to their operations, with filth and bad smells deterring potential customers. In addition, Ekurhuleni is plagued by service delivery problems that are typical in small rural towns, such as broken pavements, broken streetlights, and uncut grass.
Decline in Jo’burg
Despite being the economic engine of South Africa, Johannesburg is also on the decline. A growing list of service delivery issues – including countless potholes, water and electricity issues – has contributed to an exodus of middle-class South Africans from the once shiny City of Gold to the Western Cape and overseas. According to Cy Jacobs, chief executive of asset manager 36One, services in Johannesburg are almost non-existent and there are potholes the size of small suburban dams across many Sandton roads. “It is very difficult to have a constant supply of electricity, which is obviously a national problem, and there have been ongoing water issues which have hit areas for days at a time.”
As service delivery failures continue, there are a number of risks that emerge. Public frustration is growing, and more people are inclined to express their anger through protest action. According to Municipal IQ data, service delivery protests have escalated since 2004. Between January and May of 2021, 53 service delivery protests took place. This is higher than the combined total number of protests for the years 2007 and 2008. On the other hand, businesses are increasingly having to intervene and incur additional costs in order to provide basic services. In a strained economy and with limited resources, businesses cannot really afford to step in and do the municipality’s job.
These risks make South African cities and towns increasingly unattractive places to do business. With poor service delivery and growing social instability, businesses are halting future investments, or simply closing up shop and moving abroad. As a result, municipal revenues are diminishing, while unemployment is skyrocketing. This all deals a severe blow to the government’s stated effort to revive the economy with private sector-led investment spending.
In order to improve business confidence and attract investment, government should forget about building smart cities or high-speed bullet trains that will cost billions of rands in taxpayer money. Instead, the government should do its best to get the basics right. Fix the taps and keep the lights on.
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