Urban Settlement Development Grant, Rural Household Infrastructure Grant and accreditation for cities: briefing by National Treasury

Meeting report

The Chairperson said National Treasury (NT) had been requested to explain some aspect of the budget. There was a new grant that had been allocated to the Department of Human Settlements, known as the Urban Settlement Grant. There was also the issue of accreditation of municipalities as well as the Division of Revenue (DOR) Bill. It was the Committee’s function to perform oversight over the Department of Human Settlements, and it needed to inform and empower itself in order to do this adequately.

Often when the Auditor-General’s report came out, it listed National Treasury Regulations with which the Department had not complied. In 2010 National Treasury had assisted the Committee to do its Strategic Planning. National Treasury was present for a specific purpose, not to be lobbied for more money. There were forums to do that.

Ms Malijeng Ngqaleni, Chief Director: Urban Development and Infrastructure, National Treasury, said that the presentation attempted to respond to the request for more understanding on the Urban Settlement Development Grant and the Rural Household Infrastructure Grant. It would touch on the budget but not give an in-depth explanation. The Department was present to explain the finer details.

She would map out the evolution of the thinking, in her view, that resulted in the Urban Settlement Grant and the Rural Household Infrastructure Grant. Ms Rwida would speak on municipal accreditation.

Sometimes there was a perception that the developmental focus was concentrated on the cities to the detriment of the rural areas. She did not view it in this “city versus rural” way. To her understanding, one had to understand the challenges in the city, of how to develop living areas that were fully integrated and responded to the needs of the poor in cities, and that knowledge would feed into finding solutions for the rural areas as well. Sustainable human settlements were about more than providing a house. It was about access to infrastructure and access to economic opportunities. She would talk about the budget as it stood now, followed by the Urban Human Settlement Grant. Then she would get to how the Rural Household Infrastructure Grant responded to the rural challenge after which she would speak about municipal accreditation.

Urban Human Settlement Grant
Over the four years that she had been involved, Government had made progress in providing infrastructure as well as housing in urban areas, but still more needed to be done. Currently the housing backlog in urban areas was about three million units.

The question was then, what needed to be done, and how, in order for Government to create the ‘better life for all’ that it promised. Although Government had provided houses and infrastructure, it had very little impact in alleviating the plight of the poor. Although Government had delivered two million houses, the housing backlog was continually increasing. Currently it stood at 3 million. How would that be tackled effectively?

For cities the question was: How does one move away from the spatial settlement patterns created by apartheid, so the poor could be settled closer to economic hubs and be integrated into the life of the city? Where did Government need to focus to tackle the lack of resources, escalating energy costs and climate change?

On a graph showing the South African Household Income Profile, it showed that 54% of South African earned less that R3 500 per month. Those were the poorest that were targeted by the housing subsidy. But those in the income bracket between R3 500 and R12 000 per month could pay rent or contribute to the cost of their housing, but some of them would benefit from the housing subsidy as well. Most backyard dwellers fell within this category, because they were paying rent to live in the backyards of others.

According to Statistics SA General Household Survey, the real problem lay with the informal settlements. The percentage of households living in informal settlements were increasing. There was a continual trend of urbanisation as depicted by the next graph that showed that in 1996, 60% of the population lived in the urban areas and 40% in the rural areas. That had changed to 65% urban and 35% rural in 2005.The upcoming census would show that this trend continued through the six years since the last one.

The next graph showed that in the metropolitan areas, housing had the biggest backlog, while in the 27 major cities and other municipalities, basic services were lagging behind. In the rural areas and smaller towns, the service with the biggest backlog was basic sanitation. The question was, after Government had spent billions on housing and services over the last sixteen years, why were there still such major backlogs?

In a survey done by Statistics SA in 2007, it showed that 41% of households lived in eight metropolitan municipalities. 57% of households in informal settlements lived in eight metropolitan municipalities and 58% of households in backyard shacks lived in eight metropolitan municipalities. Current funding was not responding to the challenge that the cities and metros were facing.

The way the housing subsidy was did not allow for these cities to begin addressing the problem. It had a lot to do with the metro’s ability to deliver on infrastructure. The next graph showed that although the money spent on housing had been steadily increasing yearly since 2005/06, delivery had declined since 2006/07.

The conclusion to draw from the information was that the investment over the years in basic housing and services had been highly inefficient. The graph compared the geographical space on the ground that Gauteng (8.7 million people) occupied with megacities like London (7 million people), Jakarta (16 million people), and Paris (8 million people). It showed that the densities were created outside of the city centres and that they were dispersed all over. Economic hubs were also scattered all over, meaning that jobs were scattered all over. This meant that people had to travel long distances to their places of work and they had to spend significant portions of their income on fares. People had to live at least within one hour of their place of work and they had to spend a maximum of 8% of their income on travelling expenses. In South Africa many people spent up to 50% of their income on fares. Housing investment and development happened on the peripheries of cities, because that was where land was available and cheaper, but it was too far from the city centres. It did not help the cities to densify and address the problem of using space efficiently, or bringing the people closer to the job opportunities. This meant that the spatial development trends of apartheid were perpetuated and not addressed.

Densification was key to addressing energy challenges, because it would mean that people did not have to travel long distances. It also meant that more people would be able to use public transport, which was better for the environment. People would be closer together creating the space for more inclusive cultural development. This had not happened so far.

The cities were the key areas where integration would happen, not at the national or provincial level. It meant however that the functions had to be properly assigned and the fiscal instruments had to be properly aligned. Currently each department had its own grants and it had its own rules on how to apply those grants. Those grants funded some of the projects that formed part of the built environment where the municipalities had to integrate and align the transport system, housing, land use, driving the investment from the private sector, etc. When the funding came with different rules from the Departments of Transport, Sports, Treasury and Human Settlements, the municipalities were in the position where they had to make sure they complied to the rules of the different departments, instead of looking at the practical situation and design the system in a manner that would bring about densification and an environment that impacted positively on the lives of ordinary people.

The lack of transparency of housing flows, contributed to the lack of efficiency. The cities never knew how much money they were going to receive, and often the money was transferred at the end of the financial year. Thus they could not plan ahead. This all contributed to the reasons for the poor performance.

The spending was also not focused. Some housing projects were run from the provincial level, some from the local government level. This meant that nobody was accountable for the poor results, because there was no clear assignment of functions.

Land use management was a problem within cities. In some cases, cities did not have the muscle to demarcate land for certain uses. Land on the peripheries of cities was cheaper and easier to access. That was why housing developments happened there, but infrastructure was more expensive, for example transport. The subsidies that were available were not flexible enough in order to mobilise the private sector to target the gap market, with the end result that everybody in the lower income group was looking for a free house. The challenge was to mobilise individuals in the private sector in order to find a solution. That solution could be found if government was prepared to do the right thing in this situation.

The government needed to resolve the crisis of human settlements in the metros for economic reasons firstly. South Africa’s economic hubs generated almost 80% of the gross value add (GVA) in the large cities. These areas were the generators of national wealth. The largest and most tax contributors were urban as were the creators of job opportunities. The process of urbanisation was continuing and the needs for housing and services were continually growing. A third of the poor were living in urban areas.

The overview of the budget showed that the budget had grown by 11.4% over the Medium Term Expenditure Framework (MTEF). This growth could be attributed to the new grants that Treasury allocated to the Department for Human Settlements, namely the Urban Settlements Development Grant (USDG), and the Rural Household Infrastructure Grant (RHIG).

These USDGs were meant to create flexibility in the way cities could plan in order to restructure the city space. Cities would then be able to create spaces that were more inclusive and would bring the poor closer to job opportunities in the inner cities.

Historically, there was a decision within housing that said that the housing grant could only fund the top structure. That created a gap in the funding, because municipalities were not given any additional funding to make up for it. It was also applied inconsistently.

With the new approach and the new grants, the Department made it clear to the local authorities that they needed to address the informal settlement challenge that had largely been ignored up until now.

There was a need to attach the development of services to the development of the housing project. The USDG was a step in the direction of making it possible for municipalities to plan in a more logical, inclusive way, in order to move away from the spatial utilisation patterns laid down by apartheid. Growth would be more achievable and transport systems could be planned to be more efficient than it was currently. Government could improve efficiency and the coordination of investment in the built environment. Sustainable human settlements would emerge out of this new approach.

The grants would supplement the capital budgets of large cities, it would support the emergence of an efficient spatial city structure that integrated the poor into the growing city economies and it would subsidise the cost of providing basic services to the poor. One of the key outcomes of the new strategy was a shift towards area based development. There would be a densification around public transport nodes and economic growth corridors as well as increased availability of serviced land, suitable shelter and security of tenure.

There was evidence that people in informal settlements did not all need free houses. Some were looking for serviced land on which to build their own houses, some were looking for rental housing and so on. The solutions to their needs were a spectrum of different options.

The potential of cities to be self-sufficient needed to be unlocked so that government could withdraw its support in the longer run. The populations in cities needed to be densified. This would increase the revenue of the cities, which was sub-optimal, which would make it possible for cities to borrow more, which was currently also sub-optimal. The new grants would be a first step in that direction. This needed to happen while integrating the larger issues such as the need for environmentally friendly sustainable development.

Rural Household Infrastructure Grant (RHIG)
The rural areas were where there were high concentrations of abject poverty. Most households relied on social grants and depended on the basic services that were supposed to be delivered by the local authority. One of the big challenges there was capacity building. Government had spent millions on capacity building, but the problem remained. The strategy to address development in rural areas, had also been inappropriate and unsustainable.

Government used the one-size-fits-all approach in trying to address the developmental backlogs in the rural areas, ignoring unique rural challenges. This resulted in policy failure.

In rural towns, bulk infrastructure was being addressed through the Bulk Infrastructure Grant. Bulk infrastructure was network infrastructure such as sewage pipes and water supply pipes. Since in rural areas people often lived far from each other, that was not a practical solution. Other options needed to be explored like fresh water harvesting from the environment, or using underground water.

The Municipal infrastructure Grant (MIG) had mostly provided services in the rural towns, not in the rural villages; therefore the backlogs were still huge in those areas. The RHIG was established to see to infrastructure development in the areas outside of the small towns. This grant would encourage community involvement in this process, which would create jobs and ensure sustainability in the long run. It would also encourage investment.

Government needed to think out of the box in order to address rural challenges, because some practical solutions to some of these challenges were seen as politically incorrect, low level and unacceptable, such as on site solutions where a water supply and a toilet system was devised without a network. There was a need to sell some of these ideas to government as workable and sustainable in the long run.

Through the Department of Cooperative Government and Traditional Affairs (CoGTA), there existed an organisation called the Municipal Infrastructure Support Agency which would impact a lot on water and sanitation in the remote rural areas. It would be functional within the next year. The RHIG hoped to address the backlogs in water and sanitation services within the next three years. It allowed for the use of appropriate on site solutions. It would create community ownership, employment and sustainability.

The Grant, since it existence, had not been spent. This was largely due to the fact that this function of water and sewage provision had been shifted from the Department of Water Affairs, which had structures in place to do it, to the Department of Human Settlements, which had to create structures to do it. This created a technical hitch in the roll-out of this programme and it had been extended/postponed for another year.

Municipal Accreditation
Ms Rwida said that according to the Constitution, housing was a function that rested with the national and provincial governments. However, the Constitution made provision that, where local government was better placed to perform a function, the function could be entrusted to a local authority, but such an authority had to qualify to earn the right. It had to be accredited.

Section 156(4) of the Constitution recognised that local government was the centre of coordination. There were three level of accreditation with escalating responsibilities. The Department would still have to take leadership in ensuring the implementation of the legislation and compliance with the Division of Revenue Act (DoRA). Most metros at this stage had only level one accreditation and Ethekwini had none.

Ms Nqgaleni said in conclusion that national government acknowledged the need to change its approach to managing the built environment and treat cities differently in the flow of grants and the consolidation of grants. National funds needed to flow directly to large cities for plans and programmes approved collectively by relevant national departments, led by Human Settlements. This arrangement was not perfect, for example, the flow of money meant for transportation was still unclear. Cities had to be the premier decision makers about developments within their boundaries. They had to know how much funding they would receive and needed a constant flow of funding over an extended period of time, for example ten years, in order to effectively begin to address the legacy of apartheid spatial design. They had to plan ahead and work towards a situation where they would be self-sufficient, generating and running on their own revenue. When they reached that point they would be able to organise loans to fund their own development. Cities had to account for their performance in meeting developmental goals on their overall budgets. The technical difficulties in the way of addressing infrastructure needs in the rural areas had to be resolved, as well as capacity challenges.

Discussion
The Chairperson noted that Ms Nqgaleni had raised the issue of funds. The people involved in sport infrastructure development claimed that the Municipal Infrastructure Grant (MIG) belonged to them. The Committee had to understand the reason for that claim because its interpretation was totally different.

Ms Nqgaleni replied that the MIG was formed out of the consolidation of many other grants that were flowing to municipalities. It was done in the acknowledgement that municipalities were at the centre of planning, prioritising and directing development. At the time, CoGTA controlled the whole grant. It then had to liaise with municipalities on how best to spend the grant, because sports facilities had to be developed where the people were. Around 70% of the USDG was the portion of MIG that used to go to the cities. The Department of Sports had to become part of the process of integrated development in cities. People had to be able to play, pray and access economic opportunities within their residential areas. Sports facilities had to be multipurpose, flexible and had to be erected where there were large concentrations of people. The cities were spending on sports, and maybe even more than with the grant in its older format. The government focus had moved away from who controlled the cash, to outcomes. If the process resulted in the desired outcome, the objective was achieved. The mindset had to change.

Secondly, outside the cities, the Education sector could become part of the solution. Schools needed sports facilities and with the scarcity of resources, there was no need to duplicate facilities. Sports facilities had to be built where it would be available for the use of schools as well as the communities that lived around those schools. The norms had to change so that as new schools were built, sports facilities were integrated into the school infrastructure. The Department of Sports had to look at the system, identify sources of money and influence the system in order to set norms and standards which would achieve the outcomes it wanted.

A comment was made by a committee member that when the MIG was under municipalities, more sports facilities were built. Now that MIG was under COGTA, no sports facilities were being built.

Ms M Borman (ANC) said, on the question of MIG, that it was bringing together diverse funds to make one fund. It took a step forward and would strengthen the work.

Mr Neville Chainee, Director: Intergovernmental Relations, DHS, replied about the MIG funding sports facilities. Many sport facilities were constructed at great cost by the DHS. On completion, they were handed over to the local authority. Then the local authority could not maintain the facility. Local authorities said that provinces did not consult with them to see whether they had the means to look after and maintain the facilities. There were many badly neglected facilities around the country. The challenge was to get the DHS, province and the local authority to agree on a maintenance and management plan beforehand. The DHS and the province ended up getting a bad name.

A committee member thanked Treasury for the report. It was an eye opener. There was a practice in departments of dumping of funds on municipalities when the funds were not utilised during the year - the practice of fiscal dumping. He asked what Treasury did about that.

Ms Rwida replied that there was no transparency in fiscal flows between provinces and municipalities. Treasury had tried, since 2006, to get provinces, in terms of DoRA, to state upfront how much money they intended to transfer to municipalities, by gazetting it. They would also have to agree on a payment schedule, so that Treasury would be able to track how funds flowed and fiscal dumping would be picked up.

Ms Ngqaleni added that Section 10(8) of the Division of Revenue Bill stipulated that provinces indicated upfront and gazette the money meant for the cities. It was an attempt to align housing with infrastructure development or force the planning between the provinces and the cities. This had to be monitored by both Treasury and DHS.

Mr A Steyn (DA) said that nothing that he heard was new, but it was summarised in a way that made it easy to point directly to problems. He wanted the NT to explain the statement that current funding did not respond to informal settlements. Ms Ngqaleni had pointed out that the grant in financial terms had increased, while the delivery had decreased. One of the reasons for non-delivery over the years was the fact that there was never any clear assignment of functions, with the result that nobody took responsibility for anything. In the conclusion, the statement was made that more funding was needed. He did not agree. He said that existing funding had to be spent more efficiently. The Committee was shocked by a presentation last week that indicated that 80% of houses delivered, were substandard. Some had to be demolished. This issue had to be addressed before going forward? What was Treasury’s view on this? Was it possible to ring fence money from the conditional grant for that?

Ms Rwida replied that she agreed with the Member who said that it was more about how the money was applied, than about more money. To effect quality control in housing delivery, the Norms and Standards needed to be applied. Contract management was important. Provinces had to do inspections before money was paid over. The Department had a Rectification Programme, which was another subsidy instrument in the Human Settlements Program. The National Home Builders Registration Council (NHBRC) had to play their role in making sure that projects were completed on time. Provinces were not supposed to pay contractors for shoddy work, yet they did. Perhaps it meant that Treasury had to tighten up the Rectification Policy in the Housing Code.

Mr Steyn pointed out that that the day before in Parliament Ethekwini was congratulated on its status as an accredited municipality. On the departmental website, it said that Ethekwini was not accredited. What was the truth?

Ms M Borman (ANC) said that Ethekwini was accredited. She expressed appreciation for the presentation and said that it was helpful.

Ms Borman wanted to understand accreditation properly. There were different levels. There was a huge responsibility on the Committee for oversight. The Committee had to know what it wanted from the programme. Better quality, faster delivery, value for money. With the level two accreditation, the financial portion still rested with the Province. Where did the buck stop?

Mr Chainee said that there were different levels of accreditation. There were many concepts that the DHS would come back to explain at a later stage. However, he wanted to say about beneficiary administration, it had been a vexing question all along. Beneficiary administration was the responsibility of the developer. If it was the province and there was a contract, province was responsible.

Mr Thabane Zulu, Director General: DHS, said that Ethekwini was accredited and had been given a certificate. He was there when it was handed over. He understood the confusion. At the time that it was written on the website, it was true that Ethekwini did not have accreditation, but it had now.

Mr Steyn asked the DG how it was possible for Ethikwini metro to qualify for accreditation, while there were so many blatant shortcomings in terms of the whole process, based on what the Committee saw on its oversight visit as well as the Special Investigating Unit’s investigation.

Ms Borman referred to the backlogs in basic services, the presentation said 70% electricity, 65% water, 79% sanitation, housing 19% in rural areas. She needed a clearer understanding of the 79% backlog. Sanitation was appalling. Rural sanitation was bad. What did it mean? She needed a clear understanding.

Ms Rwida replied that in most areas rural sanitation was inadequate in terms of the Millennium Development Goals (MDG), so it was worse than a bucket toilet or a pit latrine or a VIP.

A committee member commented that people in the rural areas went into the bush or to the mountains to go to the toilet. There were no bucket systems.

The Chairperson said that there were no bucket systems in KZN and Gauteng where the Committee went on visits. The Department had to take responsibility. What did they mean by the bucket system?

Mr Zulu answered that the DHS would like to do a separate presentation on sanitation. It would be based on the DHS Programme, the challenges as well as the assessment the Committee had done on its oversight visit. The DHS had taken over this function from the Department of Water Affairs.

The Chairperson said that the Rural Household Infrastructure Grant (RHIG) had to include water as well. She wanted to understand if the DHS had the same understanding. The Department only built toilets. Nothing was mentioned about water.

Mr J Matshoba (ANC) asked the DHS to explain at a later stage, more about the RHIG.

Ms Borman agreed that current funding did not respond to informal settlements. There was a lot of money available. Not only the R22 billion. Together with all the rest, it added up to roughly R122 billion.

Ms Rwida replied that the way housing subsidies were structured, it did not allow municipalities to specifically target informal settlements. There was an informal settlement upgrade programme, but it enjoyed low priority, because provinces were chasing housing delivery statistics. For last year, provinces spent only 14% of the funds meant for the informal settlement upgrade programme. With the USDG, the focus would shift to how to develop areas with sports facilities, transport and services integrated and linking it with transport. If an informal settlement was part of an area under development, it would benefit from the comprehensive development programme, instead of being focused on as an informal settlement.

The Chairperson wanted to know what the DHS strategy was to get the metros accredited. Beneficiary management had to happen. The national register and database did not work. The province said one thing; the metro was not ashamed to say they were unable to manage the beneficiary lists. If the metro could not manage, what did one expect from the local municipality? She wanted the DHS to comment.

Mr Matshoba (ANC) said that there were cases where the developer managed the beneficiary list.

The Chairperson said that the Committee requested the DHS to define the developer in this instance. There was a need to develop a policy to clearly define meanings. The developer in this instance was the municipality, but DHS’s definition did not clarify that.

Ms Borman said that in an informal settlement there were a number of different people living there. Some people had lots of money. They did not need a RDP house, but they expected it because they lived there. Did the DHS have the capacity to sift, to do a means test, to see who qualified and who did not? Some needed rental accommodation. Manage it like that, instead of being swamped.

Ms M Njobe (COPE) asked whether it was not time for a thorough study of informal settlements to find out who qualified and who not. There were people who had big beautiful houses in the Eastern Cape, who came to Cape Town and lived in an informal settlement. Some had jobs, but did not want to spend money paying rent. They went to live in an informal settlement. The DHS gave them land. Was it possible to have a moratorium on providing houses, in order to sit down and plan? (She knew it would not happen).

Mr Chainee replied that beneficiary administration was a complex issue within the South African context. For example, a stand was serviced in 2000. When the developer was ready to build in 2006, a different family lived there. The original family had to be deregistered, which would take a court case. The question to ask would be whether the rules, regulations and administrative processes to administer the poor were practical, affordable, and whether the DHS had the capacity to do it. A case like this, was it corruption, or maladministration?

Ms Borman said that Government had been talking about densification for many years, but there was very little real evidence of it. Why was there no densification?

Ms Njobe said the reason why South Africa had a problem with density was as a result of the settlement pattern of the apartheid system. Was the National Planning Commission lead by Trevor Manuel looking at this issue? Settlements in the RSA were a big problem. The ruling party liked to say it had delivered. Government had to ask where these houses had been delivered. Would the money not have been better spent on scholarships?

The Chairperson replied that the question raised by Ms Njobe was a good question, but it did not relate to National Treasury. It related to the Committee as policymakers defining the policies.

Mr Chainee said that densification was a confirmed policy. In South Africa the average unit cost a minimum of R 200 000, plus the land acquisition cost. The DHS had to deal with 37 programmes in the housing code. Through the performance contract process with the President, the management realised that it had to focus on the things that it could do well, instead of doing many different things badly.

Mr Zulu said that densification was an issue receiving attention. The Minister had taken a position on densification. He followed the development closely. The prescripts in the legislation on densification would also be made clearer. There was a new way of thinking regarding the delivery of low cost housing. He saw an example of high density low cost housing and realised that it was a matter of ensuring that the cost was well managed including the cost of ‘geo-techs’. It was do-able and the DHS will move towards it and start promoting it.

Mr Chainee said that within provinces, the focus was on house construction. It consumed a substantial amount of resources and left informal settlements behind. With urban migration, there was a gap. The reason for the gap was that there were three different phases in the human settlement housing construction. The years from 1994-1999 was spend on land release, servicing stands, and housing construction. 2000-2004 was spent creating serviced stands. Now, houses were constructed on those serviced stands, and the extension of basic services was not happening. As Ms Ngqaleni indicated, the mindset had to change. A substantial amount of success had been achieved regarding the changing of mindsets. It was also a policy issue of house construction versus the extension of basic services. DHS would have to come back to the Committee on this issue.

The Chairperson said that clustering was important. The Minister always reminded the Committee that housing looked at the social aspect, because housing was economic. When there was a human settlement, there had to be a shop, a school, etc. The Committee and related stakeholders needed informal situations to discuss these issues. A bosberaad was crucial for this cluster.

Mr Zulu agreed, because he had many issues that he wanted to bring to this forum. He wanted the forum to look at the new strategy for the DHS. He wanted the forum to look at how it had performed in the past, how it wanted to unpack the new mandates, and decide which policies to review in order to improve on DHS’s service delivery. The consultants on board were waiting for this proposed bosberaad.

Ms Ngqaleni said that the Committee and the DHA had to consult the cities on the plans they had to effect the integration. It was not something that could be done by National Government outside of the cities. Johannesburg had a plan. It was an issue of being aware of whether current developments were taking the city towards the ideal or whether they were perpetuating the spatial patterns of apartheid. Cities directed investments made by the private sector. The city directed development towards areas like Soweto and Orange Farm. They also look at transport corridors. Big multinational companies could also contribute towards bulk infrastructure, if the policies around these issues could be cleared up, and the cities could apply it.

Mr Zulu thanked the Committee and National Treasury for the comments made. He said that the DHS would come back with a presentation on sanitation as it related to Human Settlements as well as the process of accreditation.

The Chairperson thanked National Treasury for its contribution. He noted that the Office of the Auditor General had been represented at the meeting.

The meeting was adjourned