South African Local Government Association 2013 Annual Report

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Cooperative Governance and Traditional Affairs

17 September 2013
Chairperson: Ms D Nhlengethwa (ANC)
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Meeting Summary

The South African Local Government Association (SALGA) said it was pleasing to note that all municipalities had submitted their annual financial statements, which had been a problem in the past.  Also, for the first time, SALGA had concluded the three-term wage negotiations without strike action taking place – something that had been bedevilling the sector over the years.  This was an indication that there were men and women who were dedicated to making sure that the country worked.  With stability came quality service.  There had been a steady improvement in the provision of services.  Even though the local government environment was difficult and highly politicised, SALGA had tried to instil a sense of urgency in its members, and to lead by example.  It was not easy to change a mindset in a short period of time, and despite violent protests in some areas, SALGA was doing its best to improve performance levels.  The main challenges it faced revolved around the provision of infrastructure, particularly sanitation and the supply of clean, piped water.  The provision of electricity was going well, and was on track. 

SALGA’s three top priorities over the next five years were to review the legislative and policy framework impacting negatively on local government, to review the local government fiscal and financial management framework, and to improve municipal capacity. SALGA still faced challenges of governance and financial management at the municipal level, which was a cause for concern.  For the 2012/13 financial year, the organisation had achieved an audited 84% performance level, of which it was proud.

In the interests of effective, responsive and accountable governance, SALGA’s provincial offices had adopted 25 municipalities and had provided support in areas such as political oversight, compliance with laws and regulations, adherence to established procedures and controls, improving reporting and monitoring, financial management and the functioning of Municipal Public Accounts Committees (MPACs) and audit committees.  It was also working with another 75 municipalities who were in the “red zone”, as identified by the Auditor General.   A research team had been appointed to work with SALGA in order to evaluate the feasibility of establishing a “Centre for Leadership and Governance.”   This was intended to consolidate SALGA’s various training initiatives, and was borne out of recognition that real transformation in the sector would be realised only if efficient, accountable and capable leadership could be built. 

SALGA had engaged with the Competition Commission in regard to the impact of collusive behaviour on the cost of constructing World Cup stadiums, and its effect on municipalities, and was in a position to protect the rights of the municipalities involved over the issue of civil remedies.

One of the positive measures being introduced was National Treasury’s competency regulations regarding the minimum competency level for officials.  It was a much welcomed intervention, but SALGA was concerned it might have unintended consequences through its insistence on the Certificate in Financial Management being compulsory.  This could be detrimental to officials with impeccable records and higher qualifications, so greater flexibility was desirable.  SALGA was engaging with the relevant authorities to resolve the situation.

Members drew attention to the lack of emphasis on dealing with corruption at the municipal level, and stressed the need to fast-track the eradication of fresh water and sanitation backlogs.  One Member said that based on his own observations, he could not accept that there had been “steady progress” in municipalities’ performance.  Concern was expressed over the possible consequences of National Treasury’s proposed competency regulations, as well as issues surrounding the planned establishment of a school of governance to provide training for municipal officials.   The Committee was told that the problem of consultants being employed in municipalities, and not transferring skills, was often due to the fact that municipalities were employing people who were not capable of receiving these skills.  Other issues raised concerned the number of councillors trained – and those still needing training – the new municipal officials’ handbook, and funding models for municipalities lacking revenue sources.
 

Meeting report

Opening Remarks by Chairperson
The Chairperson welcomed the South African Local Government Association (SALGA) delegation, and extended the Committee’s congratulations on the entity’s achievement of receiving a clean audit.  It was a good example to those municipalities who received support and training from SALGA.  She recorded apologies on behalf of Mr J Steenhuizen (DA), and Ms M Segale-Diswai, Ms W Nelson and Mr Z Mandela (all ANC).

Opening Remarks by SALGA
Mr Thabo Manyoni, National Chairperson of SALGA, explained that the presentation would highlight the interventions the organisation was carrying out to assist the 25 municipalities that had been identified as performing poorly.  It was pleasing to note that all municipalities had submitted their annual financial statements, which had been a problem in the past.  Local government was not an easy task, but SALGA was committed to ensure there was a steady improvement.  For the first time in South Africa, SALGA had concluded the three-term wage negotiations without strike action taking place – something that had been bedevilling the sector over the years.  This was an indication that there were men and women who were dedicated to making sure that the country worked.  With stability came quality service.  There had been a steady improvement in the provision of services.

One of the systems that had been put in place in municipalities was Section 79 committees – the old local municipal oversight committees.  This was still a work in progress, requiring legislation regarding their powers and functions, and was proving a learning curve involving the training of chairpersons and committees.  National Treasury had reported that spending of the municipal infrastructure grant (MIG) had averaged 79%, while spending of the Urban Settlements Development Grant was standing at 90%.  Both figures represented a steady improvement over previous years.  With collections, municipalities were averaging a 95% achievement rate.

Even though the local government environment was difficult and highly politicised, SALGA had tried to instil a sense of urgency in its members, and to lead by example.  It was not easy to change a mindset in a short period of time, and despite violent protests in some areas, SALGA was doing its best to improve performance levels.  The main challenges it faced revolved around the provision of infrastructure, particularly sanitation and the supply of clean, piped water. The provision of electricity was going well, and was on track. 

However, with elections looming, it would be proper to send a message to all political parties that local government was an important sphere of government, and people who were capable of running municipalities must be allowed to do so, and not be deployed to the provincial and national level.  With the right leadership, SALGA would be able to overcome the challenges at local government level.

SALGA Annual Report
Mr Xolile George, Chief Executive Officer of SALGA, said the report reflected the steady progress that was being made with service delivery.  The poor performance of the past had been reversed, and the organisation was now close to reaching its optimum performance level.  Its three top priorities over the next five years were to review the legislative and policy framework impacting negatively on local government, to review the local government fiscal and financial management framework, and to improve municipal capacity. SALGA still faced challenges of governance and financial management at the municipal level, which was a cause for concern.   For 2012-13, the organisation had achieved an audited 84% performance level.

SALGA’s financial management had been stabilised, with consecutive unqualified audits over the past three years. The financial resilience of the organisation had strengthened considerably in 2012-13, compared to the previous financial year, in areas such as profitability, liquidity, solvency and activity ratios.  It had positive net assets of R46m, and total assets significantly exceeded total liabilities.  It had achieved an operating surplus of R35.8m, and had cash reserves of R55.7m at the year-end.  However, SALGA’s funding model was a challenge, as the growing mandate of the organisation demanded appropriate funding, and this was not being received from the national fiscus.  He appealed to the Committee to lend its support in this regard.

Mr George covered some of the issues which were having an impact on the local government sector.   The first of these concerned the Transport Laws and Related Matters Amendment Bill, which was silent on local government issues, as it was meant purely for e-toll operators.  However, because alternative routes would be municipal roads, organised local government proposed that socio-economic and traffic impact assessment studies should be performed before a road was declared a toll road, and those issues had subsequently been added as part of the Bill.  SALGA had also been active in promoting environmental awareness, and had advocated coherent local planning and economic development through its inputs on the Spatial Planning and Land Use Management (SPLUM) Bill.  It had partnered with the National Council of Provinces to host the first ever Local Government Week, which had provided Parliament with a week-long opportunity to focus on local government.  Among the outcomes arising from this Week had been the issue of outstanding government debt at municipalities, the development of proper billing and payment systems, and the resolution of unfunded mandates.

In the interests of effective, responsive and accountable governance, SALGA’s provincial offices had adopted 25 municipalities and provided support in areas such as political oversight, compliance with laws and regulations, adherence to established procedures and controls, improving reporting and monitoring, financial management and the functioning of Municipal Public Accounts Committees (MPACs) and audit committees.  It was also working with another 75 municipalities who were in the “red zone”, as identified by the Auditor General.  Councillors were receiving increased support through reimbursement for official travel costs, increased cell phone allowances, and risk benefits to cover their houses and cars against material damage in the event of riots, public protests or civil unrest.  Recognition of chairpersons of Section 79 committees had been accompanied by new pay scales.  With regard to the once-off gratuity payment secured for councillors who did not return after the 2011 municipal elections, much progress had been made, and the majority of those who had applied, had been paid.

In order to improve capacity at local government level, a research team had been appointed to work with SALGA in order to evaluate the feasibility of establishing a “Centre for Leadership and Governance.”   This was intended to consolidate SALGA’s various training initiatives, and was borne out of recognition that real transformation in the sector would be realised only if efficient, accountable and capable leadership could be built.  There was now a new equitable share formula, in terms of which municipalities with the highest numbers of poor residents received the highest allocations.  Working with other structures, SALGA had successfully lobbied for a reduction in Eskom’s looming 16% price increase to municipalities, to an average of 7.44%, which would help to stabilise the local governments’ future budgets.

SALGA was in the process of developing a hands-on support programme for the improvement of financial management in the 75 “adopted” municipalities, focussing on supply chain management, asset management, governance, financial management and predetermined objectives.

SALGA was considered to be the most progressive and stable association of organised local government in the region.  It had provided technical support to its sister organisations in Swaziland and Botswana and had played a leading role in facilitating the reunification of the United Cities of Local Government in Africa (UCLGA), bringing back unity within the collective local government representative voice on the continent.  SALGA had also established partnerships with both public and private entities in order to deliver projects which would have an impact on municipalities.

Mr George said that most of the issues which had been raised during the organisation’s last engagement with the Portfolio Committee had been addressed.  These included the training of councillors, monitoring the establishment of MPACs in the Western Cape and Free State, and monitoring the hiring of staff in municipalities. 

Figures released by National Treasury in its fourth quarter Section 71 report, covering all 278 municipalities, had reinforced SALGA’s positive view regarding progress in local government.  Some of the highlights were the actual collection rate of 94.6%, compared to the 99.2% target; municipalities spending an average of 88.4% (R20.3bn) of their direct conditional grants (R22.9bn); and on aggregate, municipalities spending 87.8% (253.1bn) of the total adjusted budget.  This was a huge improvement over past performance, and meant there was a growing trend towards service delivery.  There were still stubborn areas around supply chain management and financial management, and compliance challenges existed in a number of municipalities. Vacancies in key positions were a problem.  Another concern was that cities were not reaching the 10% threshold for spending on repairs and maintenance of infrastructure.

There was a high level of movement from the provinces to the cities, which now accounted for 74% of the country’s population, and which meant that the state’s obligation to the poor was also shifting to these areas.  A recent report by Stats SA supported SALGA’s contention that there had been improvements in the provision of energy, sanitation and refuse removal, access to water, and environmental management. 

SALGA had engaged with the Competition Commission in regard to the impact of collusive behaviour on the cost of constructing World Cup stadiums, and its effect on municipalities, and was in a position to protect the rights of the municipalities involved over the issue of civil remedies.

One of the positive measures being introduced was National Treasury’s competency regulations regarding the minimum competency level for officials.  It was a much welcomed intervention, but SALGA was concerned it might have unintended consequences through its insistence on the Certificate in Financial Management being compulsory.  This could be detrimental to officials with impeccable records and higher qualifications, so greater flexibility was desirable.  SALGA was engaging with the relevant authorities to resolve the situation.
 
Discussion
The Chairperson thanked SALGA for discussing most of the performance issues raised at the previous meeting, but drew attention to the reported 84% overall audited performance level, and asked what the organisation would do about the 16% shortfall.

Mr T Bonhomme (ANC) complimented SALGA on its “outstanding” report, but was worried that no emphasis had been placed on how corruption would be dealt with.  He also asked whether the clean water and sanitation backlogs could be fast-tracked.

Mr G Boinamo (DA) said the picture painted in the report regarding municipalities’ spending capacity and service delivery was contrary to what he had experienced during visits to various municipalities.  What one saw, and what one heard the people saying, was that there were large amounts of money unaccounted for, that they did not have water or electricity, so it was a surprise to hear there had been “a steady improvement.”  He referred to specific municipalities in the North West Province, and said he had been told the situation in the Eastern Cape was even worse.  It was perhaps necessary to explain which specific municipalities had improved.  The Committee had been told that councillors were being trained to overcome the capacity challenges at municipalities, and now expenditures were improving.   The question was, how many councillors had been trained, in which municipalities, and how many remained to be trained?

The Chairperson interjected, and said Mr Boinamo’s assessment was not correct. SALGA needed to pay attention to financial management in certain North West municipalities, but governance and service delivery were in place.  Issues related to the bucket system in the province had been highlighted. Municipalities in the Eastern Cape were doing very well in terms of financial management and governance, but political conflict in a few municipalities was hampering service delivery.  A speedy intervention was needed to resolve these political issues.

Mr J Matshoba expressed concern about National Treasury’s proposed competency regulations, as it was obvious from municipalities’ inability to spend their grants that the required capacity was not there. He asked SALGA to provide the names of the 75 municipalities to which it was devoting special attention, so that the Committee could monitor progress in its oversight visits. SALGA should also pay attention to municipal funding models, as there were some municipalities, particularly in rural areas, who had no revenue at all and had to rely on grants.

The Chairperson said the Committee wanted a schedule of the workshops for municipalities, so that it could interact. Concerns had previously been raised regarding the proposed school of local governance, mainly over the establishment of working relationships with other educational institutions, and these concerns needed to be addressed so that the Committee could lend its support.  Regarding training on legislation, the Committee had highlighted the need for SALGA to train councillors on basic issues such as conducting portfolio meetings, how to read agendas and how to interact.

The Chairperson said the Minister should go to those municipalities that were hiring incompetent staff members so that the situation could be rectified and prevent local government from being “taken backwards.” She asked for further details on the office bearers’ handbook.

Mr Manyoni said SALGA needed a briefing session with the political leadership in order to bring certain issues to their attention. If the fundamentals were not right, then issues such as competency, for example, involving staff appointments, would not be resolved.  If National Treasury became involved in human resources, this would create a problem for COGTA in providing direction, as it would be given different “sets of tools” to use at municipalities. It would be very difficult to bring stability to municipalities under these circumstances.

SALGA had faced criticism that it was employing more consultants, and that they did not transfer skills. The problem was that the municipalities were employing people who were not capable of receiving these skills.  Without properly qualified chief financial officers (CFOs), one had to rely on consultants until one had a suitable candidate, and must then be prepared to compensate that person commensurately.

Another issue was the State Information Technology Authority (SITA), which was used for information technology at municipal level.  A week previously, the system had crashed because there was only one centre to handle the system.   If SITA was unable to perform, SALGA wanted to come up with a body train municipalities – how would the two entities interact?  There should be meaningful engagement to sort this out.

Corruption was usually uncovered in municipalities where proper systems had been put in place, and corruption thrived where the systems were absent.  Cases had to be handed over to the police, which did not have a good understanding of municipal operations, and after an internal investigation lasting up to a year, an external investigation prolonged matters by another year.  The official implicated remained on suspension, with pay, during this period and if the police said there was not much proof of corruption, the case collapsed.   This situation was due to the nature of the institutions involved.  Some cases were still unresolved after five years.  This was the difficulty which SALGA faced.

Mr Manyoni said there were municipalities that were not performing as well as SALGA would wish, and the names would be forwarded to the Portfolio Committee for oversight purposes.

To address the sanitation backlogs, municipalities had to rely on the MIG and USDG funds. The cost of eradicating the bucket system ran into billions of Rands, and the government was not able to provide the finance to deal with the matter in a short period of time.  It was having to adopt an incremental approach to the resolving the problem.

Mr George gave an explanation for the 16% shortfall in performance against targets.  One province that had not been part of SALGA, had been reintegrated during the reporting period, and was being groomed to understand the performance management culture of the organisation.  However, its 65% achievement had dragged the overall average down.  Another factor was the complexity of the Inter-Governmental Relations (IGR) system, which had resulted in certain achievements not being picked up by the AG.  The loss of key staff often led to three-month delays in finding replacements, and this affected performance.

Expanding on the corruption issue, he said that SALGA had arranged for an anti-corruption summit to be held on 26 November in Cape Town, with local government driving the initiative.

The annual report (from page 95) provided details of which municipalities had been trained, and how many people had been trained per province.  SALGA would be focussing on the 75 municipalities in the North West Province, the Northern Cape, the Eastern Cape and Free State, and would be given direct hands-on support.

Mr Lance Joel, Chief of Operations, SALGA, said the municipal office bearers’ handbook would replace the previous mayoral handbook, and provided an overall guide to all councillors, including mayors.  It covered roles, relationships, and related benefits such as remuneration.  SALGA had been in discussions with National Treasury and COGTA to consider a handbook that covered all three levels of government.

Mr Bonhomme asked why the Western Cape was lagging so far behind other provinces in establishing MPACs in its municipalities.

Ms Lorette Tredoux, Executive Director,: Governance and IGR, SALGA, said a dedicated three-day training session had been held in July with the Western Cape provincial government, and although nine municipalities had indicated that they had extended the mandate of their audit committees, rather than form MPACs, it was expected that more municipalities would soon establish MPACs.

The Chairperson said that the 84% overall achievement level represented a good improvement by municipalities.  Before 1994, there had been only 10 000 RDP houses in the whole country.  Today, there were more than four million, and yet there were laymen with no understanding who said there had been no service delivery.  Instead of discussing issues in boardrooms, one should visit the many successful projects which had been completed, and judge the situation on the basis of what one could see.

The meeting was adjourned.
 

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