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Gauteng Premier Panyaza Lesufi address the media to give the update on the latest developments in Gauteng Government of Provincial Unity (GPU) negotiations with DA at the ANC head office Luthuli House in Johannesburg. Picture: FREDDY MAVUNDA
Gauteng Premier Panyaza Lesufi address the media to give the update on the latest developments in Gauteng Government of Provincial Unity (GPU) negotiations with DA at the ANC head office Luthuli House in Johannesburg. Picture: FREDDY MAVUNDA

SA has just completed a remarkable political transition. None of us should take the outcome for granted. Rather than seeking political domination, our national leaders have embraced a form of power-sharing that requires maturity and vision. 

The Gauteng government is an exception here. It is too early to know the reasons for this or its consequences, but the province will be poorer for it. Gauteng is desperately in need of committed, honest and skilled leaders who will tackle epic levels of corruption, crime and degradation.

And now for the cities. Local government elections are two years away. Voters will let their local governments know exactly how they feel about the appalling decline of service delivery in the cities and towns of our country. The results may deliver even more of a bombshell than the 2024 national and provincial elections.

SA political parties have often paid scant regard to local government, and even to the governance of the large cities that are crucial to economic development. They do so at their peril, and ours.

What can be done at the national level to turn our cities around? The new co-operative governance minister, Velinkosi Hlabisa, has a rural background, as do his two deputies, Dickson Masemola and Zolile Burns-Ncamashe. Hlabisa and Masemola have both served as mayors in local governments in rural settings, while Burns-Ncamashe has expertise in traditional leadership. Hlabisa has played a key role in establishing the government of national unity and all three have extensive skills and experience. But none has a background in running cities.

It is clear that many of our cities require intervention. At present the Treasury plays a role through the City Support Programme, which is run by a skilled team and has made some important interventions. But much more is needed. There has been talk of Operation Vulindlela taking up the challenge following its extraordinary successes in other areas. What could be done by national structures? There are two key areas that require focus.

The system of grants to local and metropolitan governments must be reformed. The State of the Cities report of 2022 showed some astonishing fiscal patterns. Over 2017 to 2021 the revenues of SA’s nine largest cities increased substantially above inflation. This is true for rates and taxes (which increased at an annual average nominal rate of 9.7%) as well as fiscal transfers from national government.

Yet service delivery declined. This is largely because the cities spent the additional funds primarily on employee-related costs, which grew at an annual average of 10.3%. Capital expenditure declined by 2.8% annually. Over the 10 years to 2021, average capital spending by metros was just 11% of total spending.

One of the potential solutions lies with the Treasury. Most of the fiscal transfers from national government are unconditional and can be spent as city governments desire. These transfers should become more conditional, and more focused on capital expenditure. Limits should be set on employee costs.

The housing subsidy system should be fundamentally overhauled. Each year we spend more and more producing less and less. In 2023 we produced fewer subsidised houses that we did in 1995, despite large (real) increases in spending. Most of these subsidised houses are built on the periphery of cities, causing long-term problems.

The supply-led system of free houses has become dysfunctional. We need to shift to a demand-side subsidy that operates within the limits of our fiscal constraints. The current social housing programme is similarly dysfunctional. The Finance Linked Individual Subsidy Programme (now known as First Home Finance) shows that demand-led subsidisation can work, but this programme also needs to be restructured. We spend over R20bn every year on subsidised housing. We should get a great deal more from this spending.

The governing party got a klap in the 2024 national and provincial elections, and if it fails to take local government seriously it is likely to be donnered in the local elections of 2026.

Bethlehem is an economic development specialist and partner at Genesis Analytics.

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