KEVIN ALLAN: Residents and businesses flee failing municipalities

Local government countrywide is in crisis and many municipalities have either failed or are on the brink of failure.

The National Treasury laments that two-thirds of municipalities have clear financial problems. In his last speech before leaving last month former Treasury director-general Dondo Mogajane warned that 28% of municipalities are in such a terrible state that he doubted they could continue operating.

Just last week finance minister Enoch Godongwana said more than half of the country’s 257 municipalities are bankrupt or insolvent and unable to pay creditors or even service workers’ pensions.

Municipal IQ runs a simple population growth monitor, which shows a clear link between poor performance or failure and contracting municipal populations. This makes sense — no-one wants to live in a municipality where roads are impassable, sewage runs down the streets and there is no electricity or running water.

The trends indicated by this monitor are worrying. The population of almost every municipality in the Free State is contracting, as is almost all of the Eastern Cape except Nelson Mandela Bay. The trend is the same for much of the North West and KwaZulu-Natal.

The question is, where do all the people leaving these failed and poorly run municipalities go? They go mainly to SA’s metros and those municipalities (some quite small) that are well run and — not unrelated — have successful local economies. More generally, they are moving to the more successful and wealthier provinces, especially Gauteng and the Western Cape.

To some extent urbanisation is inevitable. It happens across the developing world as rural residents seek better lives in burgeoning urban centres. But in SA the movement of people is undoubtedly spurred on, if not driven, largely by exceptionally poor performance or failure in most municipalities.

And it’s not only residents who are fleeing failing municipalities. Those businesses that can move their operations out of these areas continue to do so. Astral Foods in Lekwa and Clover in Ditsobotla have been among the bigger ones. But scores of smaller businesses have left unnoticed.

No business can operate properly in a locality without basic services, especially a lack of water and electricity, which in some municipalities are cut off for weeks. The loss of businesses from these municipalities has dire consequences for the local economy, including the loss of spending by the departing businesses and by newly unemployed residents.

The municipality also forgoes income from rates and utilities, not only by the business but also former employees who leave with it, while unemployed residents can no longer afford to pay rates or for the services they consume.

A key driver of residents’ and businesses’ decisions to leave failing municipalities is SA’s electricity supply debacle. At a local level failing municipalities simply refuse to pay Eskom for bulk electricity supplies. Bulk electricity is supplied by Eskom and sold on by municipalities at a premium to consumers, who either pay for it or in the case of the poor who cannot afford to pay the municipality is compensated through the equitable share grant — a grant designed specifically for this purpose.

One has to ask where the revenue from consumption is going, if not to pay Eskom. It is not clear. In many poorly run municipalities the equitable share grant and other conditional grants are used to pay often inflated salaries, and service providers — including Eskom — are simply not paid. In such places the money is also not going to service delivery, which has long since ground to a halt.

In the past such behaviour by a municipality would have been considered shocking and unacceptable, with provincial and national government scrambling to intervene and find out what was going on. But now councillors and officials responsible for these municipalities shrug off criticism with indifference. There are seldom any consequences for a municipality that refuses  to carry out this most basic of functions or the officials responsible for decision-making.

Mitigate load-shedding

But the consequences for residents and businesses are real. Eskom either cuts off or rations electricity, and residents and businesses, including those that pay their rates and services bills religiously, sit without electricity for days and sometimes weeks.

Load-shedding also affects residents and businesses in non-metro areas worse than their counterparts in metros (and soon a selection of well-run smaller municipalities). This is because metros are now able to mitigate load-shedding by purchasing from non-Eskom sources. Since regulations recently changed to allow for the entry of independent power producers in the supply of electricity, there has been a scramble by metros and some other municipalities to secure alternative sources of electricity.

Within a few years such municipalities will have a proportion of their electricity supply coming from non-Eskom sources and will be able to reduce load-shedding, probably by a third or more. Where would you rather live or own a business, in a municipality with unpredictable and periodic electricity or a metro with a third less load-shedding than the rest of the country?

The upshot is that apart from destroying the economy and driving everyone mad, Eskom’s load-shedding is likely to become a key driver of population migration in SA in coming years. At a national level the beginning of a hollowing out of non-urban areas and the uncontrolled and unsustainable growth of successful metros is already evident.

The population growth of metros is largely driven by the arrival of poor and unskilled people as well as the expansion of informal settlements. Metros must expend already strained resources to provide free basic services to these new residents, many of whom settle illegally in inhospitable and sometimes dangerous places such as wetlands and river flood plains. A continued increase in their populations will eventually destabilise these metros financially, if it is not already doing so.

Deep trouble

The worst-case scenario is that, left unchecked, the outcome of this situation will be an increasing concentration of wealth and people in medieval-like metro city states, surrounded by a dystopian wasteland of failed municipalities containing only those who are unable to move — the old and desperately poor — interspaced with occasional mining operations and belts of farming with their own sources of water and electricity.

Something has to be done, and soon. Failure in municipalities and the negative impact on the country is already occurring. According to the Treasury, more than a quarter of municipalities have already collapsed, while many more are in deep trouble. The key problem is the incompetence and often corruption of municipal officials and councillors. Yet the national and most provincial governments have mostly refused to intervene in anything but token ways.

Elected representatives have largely chosen instead to protect incompetent and corrupt but politically connected officials and councillors, who swan around failed municipalities in large cars and expensive suits, obviously far wealthier than almost all other residents and seemingly oblivious to the illustrations of their failure, complaining about inadequate salaries and allowances with the arrogance of the untouchable.

• Allan, a former special adviser to a previous minister of local government, is MD of data and intelligence consultancy Municipal IQ.