DANIËL ELOFF: Reform local government by multiplying it, not merging it

Recently, co-operative governance & traditional affairs minister Velenkosini Hlabisa remarked that in light of the widespread dysfunction plaguing municipalities, the country should consider reforms that include merging some municipalities.

The rationale seems solid. Fewer municipalities will allegedly be easier to manage and cost savings will follow from scale. But this logic, however intuitively appealing, is deeply flawed. SA’s local government crisis stems not from too many municipalities but from too few, and a lack of accountability. If anything, we should be arguing for more municipalities that are smaller, closer to the people and have greater fiscal autonomy. 

We need a radical shift in the way we think about governance. The solution to weak local government is not centralisation through amalgamation, but decentralisation through proliferation. And this is not clinging to a libertarian pipe dream — the evidence around the world is there. 

The case for smaller, more numerous municipalities 

Let us start with a simple comparative analysis. SA has 257 municipalities for a population of about 60-million people and a land area of 1.22-million square kilometres. That is about one municipality per 233,000 people, and one per 4,750km². Compare that with: 

• Italy: 7,918 municipalities for 59-million people (one per 7,500 people, and one per 38km²);
• Argentina: 2,218 municipalities for 46-million people (one per 20,400, and one per 1,234km²); and
• Ukraine: 1,469 municipalities for 38-million people (one per 25,800, and one per 460km²). 

The countries closest to SA in geography (land area) and demography (population) have more local governments per capita and per square kilometre. 

Moreover, Japan has 1,718 municipalities (792 cities, 743 towns and 183 villages) and 23 special wards of Tokyo, all of which are the lowest level of government. Japan has twice the population of SA but has five times as many municipalities.

Public governance in Germany comprises three levels, the federation, the 16 federal states (Länder) and about 11,000 municipalities, which include cities, towns and other entities. So a country with one and a half times the population of SA has more than 40 times the number of municipalities. Italy has a municipality for nearly every village and town.

In these countries services are administered closer to the ground and accountability has a shorter feedback loop. Citizens there have a far more direct connection to their local representatives. 

In SA vast rural municipalities try to serve areas the size of small European countries. Residents in far-flung villages are in effect disenfranchised by geography. 

Bigger isn’t better

The theory behind amalgamation is that larger municipalities benefit from economies of scale. But empirical evidence shows otherwise. Studies from around the world indicate that large municipalities become bureaucratic, unresponsive and prone to administrative inefficiencies. The further the government moves from the governed the worse it performs. 

A consolidated municipality may look neater on a spreadsheet, but in practice it becomes less representative, less accountable, and less adaptable to local needs. Mergers do not eliminate dysfunction, they simply obscure it. 

Moreover, many of the amalgamated municipalities in SA were born out of apartheid-era consolidations or the rushed restructuring of the early 2000s. They were never sized for functionality, but with political or ideological motivations. And that design is now failing. 

Moreover, the lack of accountability isn’t the only issue in local government governance in SA. The conversation we should be having should not only be about the number of municipalities, but how they are empowered and funded as well.

SA’s local governments still rely on intergovernmental transfers from national government. Even though municipalities have their own revenue generation, it is largely limited to property rates and service charges, which are often unaffordable in poor areas and become increasingly more difficult as the economy grinds to a halt.

It is a doom loop that throttles municipal initiative and traps communities in perpetual dependency. Breakdowns in basic services erode residents’ willingness to pay, shrinking the rates base even further; shrinking revenues in turn force councils to cut maintenance and defer upgrades, which accelerates infrastructure decay and drives out businesses that might otherwise have widened the tax net. 

Enhancing autonomy

By contrast, countries such as Italy, and even Ukraine, grant fiscal powers to local governments. In Italy, municipalities receive a portion of personal income tax, local business taxes and property taxes. In Ukraine, decentralisation reforms allowed municipalities to retain about 60% of personal income tax collected locally, giving them a stake in economic activity.

In Germany, municipalities enjoy the constitutional right to self-government and can raise revenue through local business taxes (gewerbesteuer), shares of income tax and property taxes. The fiscal federalism in Germany ensures a portion of tax revenue remains at the local level, enhancing autonomy and incentivising economic development. 

In Switzerland, one of the most decentralised democracies in the world, municipalities raise a substantial portion of their own budgets through local income taxes, wealth taxes and service fees. Swiss municipalities also compete (often fiercely) for residents by setting their own tax rates, creating strong incentives for efficiency and responsiveness. 

In contrast, most SA municipalities are essentially delivery agents for the national government, not autonomous centres of governance. They are neither close enough to the people to respond effectively, nor fiscally equipped to act independently.

And while some municipalities are functional, they become victims of their own success. As they perform well amid failing local governments around them, people flock to them and in balancing their books and upgrading infrastructure the equitable-share formula “rewards” that competence by clawing back grants. This saddles them with unfunded national mandates and forces them to cross-subsidise and plug the holes left by the national government — without the funding from the government. 

Smaller municipalities would mean greater democratic intimacy. They also create more opportunities for leadership, greater competition and a better chance for innovation. They allow for community-level experimentation with policy, service delivery and revenue models, as is seen in the canton system of Switzerland, where even alpine villages set their own tax rates and tailor public services to the needs of a few thousand citizens.

The comparative evidence is unambiguous. Successful democracies and functioning states invest in numerous, empowered and localised governments, trusting that a dense lattice of accountable local authorities will outperform any lumbering, overcentralised behemoth. 

Opportunity to reimagine

The recent calls for reform in local government should be seized as an opportunity to reimagine local governance. That starts with an inversion of the present trend: rather than merge dysfunctional municipalities, we should break them up. Rather than centralise power, we should devolve it to towns, villages and suburbs. SA requires a principled reconfiguration, guided by a commitment to subsidiarity, the principle that decisions should be made at the lowest effective level. 

Yes, this reform would require careful legal, fiscal and administrative design. But so did our democratic constitution. And like the constitution, it would be an investment in accountability, resilience and long-term democratic health. 

Hlabisa is right about one thing: local government is in crisis, which is already a refreshing concession from the new minister of arguably one of the most important cabinet portfolios. But the remedy is not fewer municipalities. It is better ones. And better municipalities will not come from size, but from proximity, power and purpose. 

• Eloff, a writer and nonprofit executive, is a legal adviser to the mayor of Cape Town. He writes in his personal capacity.