SA’s municipal challenges and their impact on local economic development

An aerial view of Johannesburg.

With the local municipal elections less than a month away, one of South Africa’s biggest developmental constraints is being placed under the spotlight.

Effective and efficient local governments are crucial for local economic development: municipalities must provide the infrastructure and basic services that allow households a decent standard of living, attract investment and create jobs. Unfortunately, many municipalities are failing in this regard.

In a recent research note, the Bureau for Economic Research (BER), explores why so many of South Africa’s municipalities fail to deliver on their mandates.

Firstly, progress in providing more households with access to basic services is slow, and in many instances, access is characterised by supply interruptions or poor quality. Household perceptions about the quality of service they receive are substantially lower in local municipalities than in metros. A trend of out-migration towards metros exacerbates the problem by reducing the tax base of rural municipalities.

It is important to remember that not all municipalities are alike in the challenges that they face and the sources of revenue that they can access. For instance, the BER notes that service delivery in metropolitan municipalities create a very different challenge to service delivery in sparsely populated rural areas. This also impacts on how much in-house revenue a municipality can generate.

Despite these differences, there are numerous cost-cutting problems that inhibit basic service delivery. The supply chain management (SCM) process, designed to curb fraud and corruption, debilitates fast and effective service delivery. Inefficiencies in the procurement process were already highlighted as problematic by the National Development Plan in 2012 and remain a concern. This is aggravated by the fact that decision-making power throughout the municipal SCM process often lies with managers and employees who do not have the technical insight and competencies to ensure the right outcomes.

In addition, the auditing environment focuses more strongly on audit outcomes than on municipal performance says the BER. There is no denying the need for municipalities to be audited, but the focus on audit compliance and the risk of expenditure being classified as fruitless and wasteful creates a disincentive for managers to undertake projects that require working across different spheres of government or within the private sector.

High vacancy rates and a history of cadre development have resulted in a dearth of skills that further worsen the problem. The consequences of these dynamics are seen in overspending of operational budgets and low levels of capital spending, insufficient spending on repairs and maintenance by excessive spending on contracted services, high levels of fruitless, wasteful, and irregular expenditure, among others.

The BER’s research note provides more detail around the nuances associated with these issues.

Local economic development and better municipal service delivery are vital if South Africa wants to broaden economic participation and reverse its unemployment trend. To achieve these objectives, it is necessary to strengthen municipal finances and investment, with merit-based appointments and good municipal governance as a prerequisite.

Download the full research note here: