President Cyril Ramaphosa delivered his sixth State of the Nation Address (SONA) on February 10. This annual address is being unpacked in Parliament this week where further policy detail will be debated and signals about what will land in the upcoming Budget 2022 will be looked for.
Craig Kesson, PwC partner: government and public sector, and Lullu Krugel, partner PwC Strategy& Economics, give their take on the implications for local government.
The SONA provides South Africans an opportunity to understand the policy direction of the national government and a synthesis of its strategic approach over the next year. This ranges across all areas of the state with special focus on those matters regarded as most pressing for the year ahead for the country.
In a year where municipalities are establishing the next cycle of their five-year plans, the insights offered by the SONA into the local government sector have a particular resonance: municipalities and metros are responsible for 10% of consolidated (national, provincial and local) government expenditure and are the front-line providers of services to the citizenry.
While a number of areas discussed by the president in his address last week are applicable to the municipal sector, there are five key areas that are especially relevant for the success of local government in the coming years. These five will require implementation plans in order to effect the necessary pace of delivery.
The five key areas that PwC have identified are:
- Elaboration on the just transition for energy and the role that municipalities are to play in resolving the energy crisis and addressing climate change. A just transition ensures the livelihoods of communities in the transition to a low-carbon economy. At the same time, resolving the energy crisis and expanding renewable energy is important to prevent further job losses from continued load shedding. The focus on international funding is crucial especially in light of its ability to reform the energy sector. However, the need to understand the downstream implications of this transition on municipalities, which are at the frontlines of energy distribution, is necessary for the just transition to make local government part of the transformation process and not a point of failure.
- Commitment to the delivery of infrastructure at all levels of the state. Municipal infrastructure provision is one of the most direct ways that people feel the impact of the state in their daily lives. After public corporations, municipalities are the most important source of public capital spending yet their capital spending has consistently declined over the years from R64-billion in 2016 to R41.2 billion in 2020. Infrastructure provision at this level has a variety of delivery challenges not always related to financing. There are many municipalities that are unable to spend their budgets and so fall short on delivering their developmental objectives. In 2020, where municipalities spent only 60% of the adjusted budget allocated for capital spending that year, underspending was partly due to restrictions on activity that prevented construction and maintenance work. Yet in other years, municipalities’ inability to spend their budgets and deliver on their development objectives has been a result of lack of capacity and skills within the metros to plan, programme, and implement. carry out capital projects. There are many municipalities that are unable to spend their budgets and so fall short on delivering their developmental objectives. The reasons for these shortcomings need to be fully considered at the level of governance arrangement, administrative capacity, and regulatory provisions.
- Commitment for greater permissions for broadband in municipalities. The need to bridge digital divides in society is large in terms of social equity and access to opportunity. At present, only 1,5-million households make use of fixed-line broadband internet, with the digital divide entrenching the overall inequality gap in the country. Broadband is the lifeblood of both consumers and businesses and it became even more clear during the Covid-19 pandemic tha being connected is a non-negotiable necessity. Broadband infrastructure is critical for providing the backbone of digital transformation, including the digital transformation that extends to better government services. The policy intersection of permissions, infrastructure investment, technology authorities, and licensing will require dedicated attention.
- Commitment to reviewing water boards to ensure better water quality for municipalities, including attention to monitoring standards. This will be done under the District Development Model (DDM). South Africa is already one of the 30 driest countries in the world, and with the changes brought on by climate change, a focus on water quality as a resource is absolutely vital. This will require a level of formalisation of the structural and governance elements of the DDM to ensure that the attainment of standards and the provision of relevant infrastructure for water provision takes place with more efficient mechanisms and without any confusion or additional bureaucracy. Clarity at the level of implementation for the DDM will be key as will the potential for using Public Private Partnerships.
- The DDM was also a large component of the SONA regarding local economic recovery and growth. As we move into the third year of the pandemic, the urgency to ensure that economic activity revives and thrives – creating opportunity, employment, and fiscal revenues – has been acute. The DDM will need to demonstrate its potential to act as a value-adding delivery vehicle without some of the encumbrances or misfires of previous attempts to coordinate delivery among different roleplayers in the state. This includes the full role and operation of metros in the model given the fact that cities are key drivers of economic growth for national recovery.
The issues faced by local government have a particular immediacy to them as failures in this sector have a real and direct impact on lives immediately. The longer the failures continue, the more difficult it is to address them. The macro-challenges identified in this year’s SONA require a focus at the level of policy and implementation concurrently to ensure a level of change and impact in the country’s municipalities.