White Paper on Local Government: hearings

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Cooperative Governance and Traditional Affairs

20 April 1998
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

20 April 1998

This was the first of four hearings on the White Paper on Local Government. As the Chairperson, Mr Y Carrim, pointed out, these hearings were not taking place to enable the participants to change particular statements and details in the White Paper, but that the White Paper was the background for the debate that would be encouraged at these hearings. This White Paper was the result of an eighteen-month long process, that started out with the Discussion Paper on Local Government. This process had included extensive research, public hearings and debates. The White Paper set out broad policies, and it did not delve into details the way legislation would need to do so. There would however be an opportunity for the public to participate in hearings that would deal with the legislation and specific bills flowing from the White Paper.

Day's programme:
Local Government as an Expression of Democracy, Growth, Development, and Co-operative Governance
Input from facilitators: Pravin Gordhan and Steven Friedman
SACOB (Appendix 1)
Gender Advocacy Programme (Appendix 2)
South African Institute of Civil Engineers (Appendix 3)
Engineering Department, Durban Metro
South African Local Government Association

Maximising Finance
Input from facilitators: Jackie Manchie and Phil Sinnet
Institute of Municipal Finance Managers (Appendix 4)
The Development Bank of Southern Africa (DBSA) (Appendix 5)
Development and Public Finance Forum (Appendix 6)
Infrastructure Finance Corporation Limited (INCA) (Appendix 7)
South African Local Government Association

Local Government as an Expression of Democracy, Growth, Development, and Co-operative Governance
The Minister, Valli Moosa, was present for the first part of this hearing. He stated that the process of consultation that had taken part in shaping the White Paper on Local Government, was not set up to create an image of participation and democracy. The reason was rather that the department needed input to gain knowledge on a theme that is very complex and has more questions than answers.

Moosa dismissed criticism that the White Paper encourages centralisation rather than decentralisation of powers and functions to the local level of government. The White Paper sets out to establish autonomy in the local sphere. He argued that the White Paper is a logical paper, and does not represent any party ideology. He rejected statements that the ANC wants metropolitan governments because it will strengthen the hold of the party. The Minister encouraged the different municipalities, and specially from metropolitan areas, to come forward and share their experiences regarding the transformation that they are currently involved in. The metropolitan governments are having modelling exercises that will be too soon to evaluate at this point in time, but will be presented for the Portfolio Committee in due time. The Minister stated that based on this process, the best option will be selected for Metropolitan governance. But, that there need to a realisation that one size does not necessarily fit all. The Minister spoke of a "village mentality" that causes problems in this country. This means that there is a notion of communities wanting to do things their own way irrespective of what has been decided upon by the government.

The Minister also spoke about the local elections due in November 1999. The demarcation process has been divorced from the rest of the local government issues because the department is committed to meeting the requirements of the Constitution regarding the timeframe of the elections. The Minister also wanted to encourage debate about when the elections should be held, considering the limited timeframe available for the demarcation process that should in principle be finalised before the elections. (This debate occurred at the Friday hearing.)

Pravin Gordhan, the Chairperson of the White Paper Political Committee, thereafter spoke of local government as an expression of democracy in South Africa. He defined democracy as something broader than it being simply a political concept. He included the social and economic spheres in his definition. He stated that the White Paper stresses the necessity for democratic participation in local government, and it identifies recommendations for how participation can take place. Mr. Gordhan stressed that local government is no longer to be passive, and it is to have a strong developmental role in South Africa. He also made input on municipalities working together, and, at the same time, competing with each other. Local governments are to "explore and exploit economic possibilities." He stated that the concepts of growth and development are not contrary to each other as many would argue. Co-operative governments provide a powerful framework for a system that will overcome the fragmentation that exists in South Africa. Mr. Gordhan urged discussion on how to structure the relation between national and local government, and also between provincial and local government.

Dr. Steven Friedman from the Centre for Policy Studies was the next to comment on the White Paper. He criticised the White Paper for being vague and ambiguous. Later in the discussion, it turned out that he found this a positive trait of the White Paper since it seems to give leeway for local government to have more of an opportunity to choice.

A fundamental problem that Dr Friedman argues is not given enough focus, is the difficulty in enhancing democracy and development side by side. He argues these two ideals are difficult to combine, and that the White Paper should focus mostly on enhancing the democracy ideal in local government.

Dr. Friedman argues that it is a problem that the White Paper attempts to spell out measures to dictate outcomes in the different municipalities. He argues for a position where the different local governments have more of an opportunity to choose their own outcomes. Local governments should be permitted and encouraged rather than mandated in their actions. If this is not to be the approach from the national level, he would then question the nature of local democracy.

Dr. Friedman spoke about the lack of voter confidence. He argued that there is a need for a social contract between citizens and local government. Citizens need to develop trust towards their local government.

The South African Chamber of Business (SACOB) presentation stressed their desire to be recognised as a major stakeholder in local government. They spoke of a need for local government structures and processes to be more formalised. This in order for SACOB to have more than an indication of where they stand and what their role could be in local government. SACOB’s written submission states more clearly what steps municipalities should take regarding the position of business in local government. In their presentation at this hearing they stressed the need for municipalities to realise that they exist in a competitive world, and that competition is a good thing. SACOB encourages private-public partnerships, and argues for a facilitation of this type of co-operation.

The Gender Advocacy Programme (GAP) has been involved in researching gender issues for this White Paper. What they presented at this hearing was based on their input in the White Paper. GAP stressed the centrality of the issue of gender awareness when transforming local government. They argued that the national and provincial levels are important in this process, and that these two levels should set out comprehensive analytical gender frameworks to be implemented at a local level. The White Paper lacks such a plan, but reflects an understanding of gender issues. GAP’s presentation stressed the need to facilitate and take into consideration the practicalities that may hinder women from participating in local governments. They also spoke of quota arrangements that can be implemented in order to increase the number of women in the administration and in the political sphere. GAP argued for guidelines set by the national government in these issues.

The South African Institute of Civil Engineers in their presentation claimed that civil engineers have several skills that enable them to make considerable input and improvements in making local government more cost effective in their service delivery. Effective service delivery is affected by systems of governance. The organisation argued that a one-tier metropolitan system will result in more effective service delivery, due to economies of scale. A "local system" would be preferred for delivery of some services, because this will quicken the response time.

The Engineering Department, Durban Metro, spoke of a need for absolute certainty in allocation of powers and functions. When it comes to service provision, services need to be affordable even in the poorest areas.

The South African Local Government Association (SALGA) in their presentation were pleased that the White Paper sets out a clear vision for local government. But they argued that the need for integrated development planning is not strongly enough stressed. This is the most powerful tool of the government , and it incorporates citizens in a participatory process. There is a need to build capacity at a local level in order for local governments to reach their goals.

COSATU gave a brief presentation in which they stressed the need to look upon growth and development as intertwined. The RDP provides a program for development, and it has to guide development in local government. They argued also that development and democracy are not mutually exclusive, but they can rather be combined and strengthen each other.

In the debate surrounding these issues, the question was raised if any research had been done or if there was evidence of a link between growth and certain types of municipality that are presented in the White Paper. Dr. Crispian Olver from the department stated it would be difficult to measure what type of municipality would enhance growth the most.

It was raised that the White Paper seemed to focus almost exclusively on larger urban or metropolitan areas. Dr. Olver stated that a lot of attention is paid to small urban areas and rural areas. In fact it is in these areas the greatest transformation will take place.

Dr. Friedman was asked to reply to a question as to how to combine development and democracy. He argued that there is a need to secure what citizens want and need, and that all is secondary to this. This needs to be flexible enough to secure and enhance local democracy.

Peter Smith (IFP) questioned the suggestion made by GAP about a quota system. He wanted the suggestion to be looked at by legal advisors, because there is uncertainty about it being constitutionally acceptable. GAP responded that a Gender committee is to deal with this issue.

Mr. Gordhan questioned the validity of Dr. Friedman’s suggestion of a social contract. Mr. Gordhan argued for a more holistic view, that will address day to day needs of its citizens.

There were questions about growth and how to measure this. Dr. Olver stated that there is a need for measures to assess performance in local government. He discarded a UK model, but suggested a New Zealand model with 15-20 indicators that reflect overall national performance.

Municipal Finance: Maximising Resources
Jackie Manchie gave a presentation based on the question "How are we going to access revenue within the framework the Constitution provides regarding local government finances". There is a need to find solutions to make municipalities more financially viable and self-sustaining with predictable IGT (inter-governmental transfer) systems, improved access to capital finance and efficient administrations. The key areas of reform are: the equitable share (between municipalities) which needs to be implemented and to redefine the new system of IGTs, local tax legislation that affects property tax, reform administration of RSC/7SB, and finding new sources of revenues. Other key areas are: municipal borrowing, accounting and financial reporting and municipal budgeting.

Phil Sinnet in his presentation said what needs to be looked at immediately: is operating budget, capital program, and credit control. In six months what needs to be looked at is: organisational review, the budget process, credit control, information systems, and private sector partnerships. In credit control, there is a need to separate between those who cannot pay, and those who do not want to pay. Issues for concerns as seen in Johannesburg are: a "culture of abundance", a lack of accountability for performance, internal focus, and a lack of reality in structures and in budgets. He claimed that there appears to be enough resources, but that these are not used properly and well enough. To make progress in the budget process. one must start with income tax. What level of taxes are the citizens willing to pay. There is a need for clear priorities. This must not come about incrementally, and thus based on old ways. There is a need for municipalities to borrow, and there is nothing wrong in doing so as long as new loans are not taken up to pay back old loans. Mr. Sinnet stressed that there is a need to realise that different municipalities have different structures. The White Paper seems to make out that municipalities are homogeneous.

The Development Bank of Southern Africa (DBSA) supported Mr. Sinnet by saying that borrowing is essential for development. There are several important elements in enhancing the situation in municipalities: demarcation, institutional structures, intergovernmental relations, user charges and tariffs, concessional finances, and capacity building priorities.

The Development and Public Finance Forum in their presentation argued that municipalities lack information on how to measure the risks that exist when participating in the market place. A point was also made that it is important that the demarcation process happens in conjunction with financial issues.

The Institute for Municipal Financial Managers, Infrastructure Finance Corporation Limited (INCA), and SALGA also gave presentations.

In the debate the issue about amalgamation of municipalities was raised, and according to the presentation by the Development and Public Finance Forum this can create financial problems. The reply was that this is merely a concern and not so much a threat. But in demarcating boundaries, this issue should be taken into consideration. The representative from the Forum also suggested that it is possible to increase revenue tax on businesses, because research shows that as much as 27% of businesses do not pay tax.

Appendix 1: SACOB


15 April 1998



1.1 SACOB through its 90 autonomous Chambers and 40 Trade Associations represents some 40 000 businesses throughout South Africa. In view of the fact that the activities of local government impact upon business both in terms of the extent and quality of the services provided to, and in terms of the revenues which are raised from, business it is appropriate for organised business to submit comment on the White Paper (W.P.). It is for noting that SACOB has already made a submission to the Department on the Green Paper (December 1997) and it is assumed that those views will be taken into account as and when legislation is drawn up.

1.2 SACOB recognises that local government has been and continues to be, the domain of politicians. Clearly it would be inappropriate for SACOB to adopt anything but an apolitical stance. Sound and competent municipal government is indispensable to a strong democracy and for the efficiency of local economies. Regrettably there continues to be an underlying discontent in the business community that despite being an important stakeholder in local government activities; and despite contributing some two-thirds of municipal revenues it has no formal vote nor has any say in how local government revenues are deployed. Business maintains that it deserves some structured mechanism for its views to be aired. Consider that in practically all municipal authorities, business is the major contributor to productive employment; it is an important customer for municipal services; it is the main supplier of goods and services to local government; it is the main source of municipal revenue, it is an important source of skills and expertise, above all it has demonstrated in practical terms that it has the capability of managing human and financial resources in a productive manner to supply goods and services. In similar fashion it is evident that the influence of politics in a municipal authority has a considerable bearing on the conduct of business in that locality. It is with these realities in mind that comment on the W.P. is offered.

1.3 The W.P. comprises seven sections that make proposals and offer 'concluding comments' on issues that will essentially affect the role, structure and financing of local government. The composition of this commentary addresses these three distinct aspects of local government.


2.1 The W.P. gives emphasis to the developmental and the democratisation roles to be taken on by local government. The outcome sought from the development role (page 22) is the provision of household infrastructure and services, achieving the spatial integration of urban and rural areas (overcoming the distortions created by apartheid), local economic development (providing cost effective services and reviewing past policies which have impacted upon business activity), and community empowerment and redistribution.

2.2 In the pursuit of these quasi-social goals, recognition must be retained of the clear and undisputed role which local authorities have in service provision and land usage assignment. Certainly the W.P. recognises that importance by classifying core municipal services (page 100) as lying outside any ownership transfer option (privatisation). Whilst not necessarily agreeing with that assertion, business is only too conscious of the importance of core municipal services. They certainly feature in the decision-making process for determining where to locate.

2.3 The relative ease by which business is able to relocate, places a responsibility on local authorities to act and perform at a level of competence that will encourage new business investment and development. Afterall it is such investment and development that creates employment and provides the local authority with the bulk of its revenue with which it can fulfill its social goals. Municipalities must recognise that they exist increasingly in competitive arenas and their focus must of necessity be to promote the attractiveness of their city/town as an investment location. In that endeavour they must show that they are able to provide the necessary infrastructure and services at a competitive cost, as well as create the environment that will attract those business facilities and skills that investors demand such as banking and finance; legal, medical, accountancy and secretarial services; building contractors, etc.

2.4 The democratisation role of local government can only be a long term undertaking and will very much depend upon improvements in society's educational status, its wealth (which will give people more time to give proper consideration to issues), and its capacity to be more informed (newspapers, electronic media). Underlying all this is uncertainty over how far the idea of government from the grass roots can be taken. People power has proved an effective way of getting rid of the old order, but using it to run local government will be much harder. In theory, democratisation should lead to a narrowing of that gap between the constituents and those they elect to take the important decisions which affect their daily lives. More specifically the constituents should be in a position to examine what their representatives are doing, call them to account for their shortcomings and if and when necessary reject them at the subsequent elections.

2.5 The W.P. (pages 18,35,82) sees a need for municipalities to work with business in promoting economic development. As advocated earlier, such interaction could be extended to a more structured relationship which could be beneficial to both parties. For those who would regard such a structured relationship between business and local government as an insidious lobbying opportunity, let it be said that in principle there is nothing wrong with lobbying. The people in local government (as in the other tiers of government) who take decisions should be subjected to as much argument and persuasion as possible. In that regard business can and should play a role. Of course democratic institutions can be and are vulnerable to lobbying activities. As has been seen his occurs when special interests use their money,

designated-group status, and political muscle to cross the divide between persuading politicians and buying them. It is in this grey area that there exists justifiable concern for those policy proposals which seek to forego straightforward principles of value and quality for money, in favour of securing more obscure socio-empowerment objectives.

2.6 SACOB welcomes those proposals (page 98) which encourage municipalities to explore and develop partnership arrangements for the delivery of services. The implication is that whilst the local authority should decide what is needed and oversee the results, the market mechanism rather than the local authority's employees should be tested to see who could do the work in the most cost effective manner. In advancing this concept municipalities would be acting as "enablers" and "regulators" of services that are provided by others rather than striving to provide the services themselves. Where practical such services would be charged out at user or near-market terms. SACOB is not insensitive to the concern of municipal workers to such outsourcing of services. (SAMWU Letter to Bus. Day April 6). The issue has to be settled in terms of the National Framework Agreement to which Labour and Government are party. Although business was not a party to that agreement, it believes that the interests of service clients cannot be entirely sacrificed in reaching a settlement.

2.7 The W.P. gives much argument and emphasis to the redistributive role of local government. Whilst the provision of basic services is accepted as a constitutional right the manner in which it is to be attained and regulated is very confusing. The W.P. (page 23) indicates that the delivery of basic services is to be achieved by way of:

- capital grants from the Consolidated Municipal Infrastructure Programme

- local cross-subsidisation

- mobilisation of private investment

Service cross-subsidisation, like RSC and JSB levies, has for long been a burden on business. The questions that arise are by what criteria is cross-subsidisation to be determined, what is to be regarded as an affordable tariff, how do subsidised tariffs equate with the stated government view that a user charge principle is to apply in service utilisation.

2.8 The principles to guide municipal tariff policy is set out in page 117 but other than stating that 'local tariffs must not be unduly burdensome on local business' there is no mechanism for giving meaning (i.e. price capping) to the plea. This merely reinforces the proposal that business be formally included in a consultative structure in local government. Mention of service subsidy mechanisms is given in page 21 of the W.P., and a proposal is made for a 'development levy' to be imposed in fast-growing areas to be used to subsidise services for the poor. Business must register its concern for such a proposal. The concept is vague, takes no account of business differences and merely provides justification for business to serve as the milch cow of third tier government.


3.1 In sketching the history of local government the Paper notes (page 4) that the Local Government Transition Act (LGTA) only provided for a transition process which has resulted in a very diverse pattern of local government. Although local government has been effectively deracialised in this transition, its failure to deliver is attributed to the fact that it has had to operate under the existing institutional framework. The absence of structured support processes for managing change, the LGTA'S urban bias, the skewed nature of representation, and the budget approval process itself are seen as contributory factors to the inadequacies of the current municipal system. Recognising the interim nature of the transition phase the W.P. stresses that 'real transformation has yet to occur'. Whilst this may be a justifiable interpretation of the ostensible breakdown in many local government services (traffic lights, street lighting, road and verge maintenance, town planning, rates collection, etc) it suggests that insufficient thought was given to discarding/dismantling the old structures before it was established that suitable mechanisms and personnel were in place to ensure a smooth transitionary process. As it is, it appears that the enlargement of bureaucratic and council personnel may well have secured the goals of those seeking greater representativity and democratic credibility but has brought little in the form of tangible benefits to those who expect service delivery from local government.

3.2 The W.P. proposes two types of metropolitan government (page 64). One model is a metropolitan council with ward committees in which all power rests with the council and in which the ward committee will have powers and functions delegated from the council. Such ward committees are seen as being close to constituents and will serve as an advisory/consultative body. The second model is a metropolitan council with metropolitan substructures. Again powers and functions will devolve downwards from the council, and again the substructures will have advisory/supervisory/decision-making powers. Both models possess the so called mega-city basis, the weakness of which is the wide gap that is created between the decision-making (policy, spending) councillors at the upper tier and their constituents. Given the political state of local government, the likelihood of local policy and overall spending being determined by political apparatchiks is strong. SACOB has consistently argued in favour of bringing local government decision-making as closely as possible to the constituents. It is essential to establish structures that make decision-makers accountable to their constituents and just as importantly making voters realise and as well as bear the weight of their council's spending decisions. As presently proposed under the mega-city it appears that those who advocate and vote for high spending activities do so with the knowledge that they would escape, or be far removed, from the direct criticism of those who pay for their profligacy.

3.3 The W.P. proposes that either an executive mayor or an executive committee option be allowed for in the new local government structure. In the metropolitan areas, the business chambers have tended to favour the latter option with the appointment of a Chief Executive Officer rather than the Executive Mayor option. However it could be argued that the elected mayor option could narrow the gap between councils and their communities, whereas the chief executive officer option could create a situation whereby the individual would be increasingly drawn into the political arena. SACOB is not mandated to make a pronouncement in favour of one or the other option. Either way it is evident that local governments will remain politicised and in most respects will to all intents constitute no more than echo chambers for the politics of the central and/or provincial parliaments. This has led and will probably continue to lead in most instances to councillors being no more than party ciphers rather than independent-minded local citizens. Business can only make a plea for the local government system to be a sensitive instrument of democracy and not served as a conduit for political patronage.

3.4 As stated in the SACOB submission to the Green Paper there is general support from business for a Ward based system for the election of Councillors to local government. One or more candidates would be elected from each Ward on the basis of popular vote. Since the proportional system of representation detracts from the principle of accountability to the constituents, it is proposed that a limited number of members be nominated on the basis of proportional representation. The W.P. proposal that the present system (40 percent proportional representation to 60 percent directly elected) be retained. A curious argument is advanced whereby the proportional representation system will allow for greater gender representivity. Surely it favours greater political party representivity (whether male or female is not the issue). In short business believes that this proportion is weighted too heavily in favour of the non-directly elected representatives and will lessen accountability.

3.5 The W.P. argues a case for the adoption of a code of conduct (page 95) which would oblige management to act in the best interests of the community, consult relevant stakeholders (not the least being business), etc. It is submitted that the functions and responsibilities of Councillors need to be clearly defined. Furthermore consideration must be given to drawing up a Councillors Charter whereby it would be incumbent for them to declare their interests, assets and gifts in a public register. Public office-holders must be at the forefront of clean, accountable and transparent government.

3.6 Clause 212 of the constitution recognises and provides a role for Traditional Leaders in Local Government structures. As the W.P. points out (page 75) the relationship between this leadership and an elected rural local government is difficult to define. The cooperative model proposed in the W.P. has been studied and SACOB would not wish to offer comment. The paper notes that the precise application of the model will be left for the provincial governments to determine.


4.1 The W.P. points out (page 113) that national legislation must provide a framework within which local taxation policy must fit. Indeed the importance of municipal financing in terms of its substainability and effective utilisation is such that the whole issue is deserving of an in-depth inquiry. Certainly the W.P. gives no clarity on this score and it is doubtful if anything of consequence can emerge from the public hearings and the subsequent legislation on local government. The paper also warns that the taxation powers of municipalities enhances the need for accountability, particularly with regard to the "value-for-money" services they provide. SACOB fully concurs with these sentiments. Indeed it reinforces the argument in support of business participating in the decision-making not only on rate levels but also on the manner in which local government monies are utilised.

4.2 SACOB has already commented (Green Paper submission) on the revenue instruments and policies (page 113). It is necessary to restate a point made in its earlier submission namely that the devolution of functions down to the third tier of government cannot be assigned without the accompaniment of the necessary financial resources. Re-emphasis needs to be given to the points made in that earlier submission namely:

4.2.1 all areas should be incorporated into the property tax net.

4.2.2 property valuation must be a matter for local choice and the ideal of a frequent property revaluation mechanism must be sought.

4.2.3 a uniform property rating system must be applicable within a local authority but it would be inappropriate and impractical to apply such a uniform system throughout all towns and cities.

4.2.4 agricultural land taxes are an administratively impractical instrument. The yield from such taxes will be low and relative to collection costs will be of doubtful productivity.

4.2.5 SACOB agrees with the views arguing against RSC and JSB levies (page 115) and urges that an alternative revenue source be devised.

4.2.6 municipal fuel levies must be dedicated to road maintenance funding in the areas of collection.

4.2.7 the user charge principle (within the context of basic rights and affordability) must provide an incentive for people to economise in the use of a particular service.


This commentary examines the local government W.P. in the context of the role, structure and financing of local government. The commentary restates the position of SACOB as submitted in its input to the Green Paper. Successful and efficient local govern is an indispensable element in the consolidation of democracy in South Africa. Whilst agreeing that transformation is a desired goal, the transformation exercise must not destroy or impair the continued development of private sector activity upon which the sustainable welfare and development of South Africa's cities and towns depends.

Appendix 2: Gender Advocacy Programme

Democracy, Development & Co-operative Governance

Presentation to Constitutional Affairs Portfolio Committee on the Local Government White Paper

by the Gender Advocacy Programme (GAP)

Cape Town, 20 April 1998

GAP and its involvement in Local Government

The Gender Advocacy Programme (GAP) is a non-partisan organisation conducting research, training, advocacy and lobbying. GAP is involved in five programme areas: Domestic Violence, Reproductive Health, Women & Governance, Women & Social Policy and Local Government.

In July 1997, GAP was commissioned by the White Paper Political Committee and the White Paper Working Committee to conduct research on Local Government & Gender. The report containing the findings of the policy research and specific recommendations was presented to these committees in August 1997.1 Subsequently, and especially when it became clear that the Green Paper lacked a gender perspective, GAP has coordinated a concerted civil society effort to ensure that the White Paper on Local Government was informed by a gender perspective. In this context, a presentation was made to the Portfolio Committee on Constitutional Affairs during the Public Hearings in November 1997.

Parallel to its involvement in the policy research and advocacy process, GAP organised meetings between councillors and women in selected communities in the Western Cape. The purpose of these meetings was to establish channels of consultation and communication between councillors and women. GAP also hosted thematic meetings to further discuss concerns and strategies to address the under-representation of women in local government and to increase the participation of women in local governance.

In partnership with the Foundation for Contemporary Research (FCR), GAP conducted a survey among targeted municipalities in the Western Cape to assess their understanding of gender issues. The motivation for the research was to get accurate information about the potential and threats to include a gender perspective in the work and structure of municipalities, where the national policy framework (the White Paper) ultimately has to be implemented. The findings of this survey informed GAP's submission to the White Paper on Local Government.2

Local Government Transformation

Local government transformation is informed by a vision of democratic, accountable, effective and developmental local government. Gender equity is a key imperative in the process of transformation in South Africa. Local government cannot abdicate its responsibility to contribute to a society in which equality for women and men goes beyond paper rights and becomes a reality. This is one of the main challenges facing local government.

The transformation process presents us with an excellent opportunity to turn local government into a gender sensitive sphere and make a qualitative difference in the lives of women and men. To realise this potential, changes are required at the level of policies, legislation, practices and structures. This involves all three spheres of government: national, provincial and local.

At the local level, two interrelated processes of transformation need to occur before local government can realise its potential to contribute to gender equity. To become a gender sensitive institution, local government has to revisit its organisational culture, work practices and institutional structure. This is an internal process of transformation, which aims to remove the obstacles to the effective and equal participation of women in local government structures.

Local government also has to critically evaluate how it delivers services and how it relates to the community. In doing so, it must consider whether the needs and interest of women find their way onto local government agendas. This process of transformation can be referred to as external.

National and provincial governments have an important role to play in providing guidance and technical support to municipalities to ensure that the local government sphere becomes gender sensitive. The challenges for national and provincial governments are twofold. First, they have to give support to those municipalities which are willing and committed to gender issues, but do not have the capacity or resources to realise their potential to become agents of social change. Secondly, national and provincial governments have to encourage the transformation of those municipalities which are unwilling and unperceptive to gender issues. To fulfill these challenges, national and provincial governments have to:

a. develop enabling frameworks (policies and legislation) which specify the values, principles and guidelines local government should adhere to;

b. provide technical support to ensure the effective implementation of these frameworks;

c. develop effective monitoring and evaluation strategies.

Gender should not be regarded as merely one component of local government transformation. Rather, it should become part and parcel of local government planning, acting and structures. This submission does not claim to present a comprehensive picture or do justice to the complexity of establishing a gender sensitive sphere of local government. Rather, it will focus on some key concerns and challenges related to the White Paper on Local Government.3

The White Paper on Local Government

Minister Valli Moosa and the White Paper Committees must be commended for the numerous inclusions of references to gender and women in the White Paper. There are various statements in the White Paper which reflect an understanding of what the constitutional obligation of gender equity means for the sphere of local government. However, from a gender perspective, there are two overarching concerns with the White Paper. First, although there are various inclusions of gender/women's issues, the White Paper does not reflect a comprehensive analytical gender framework. Secondly, the White Paper is silent on how these policy statements can/should be implemented by municipalities, let alone what mechanisms need to be developed to ensure their implementation. Without clear implementation strategies, good policy is unlikely to get translated into good practice.

GAP believes that the following issues present key challenges to the transformation of local government. Unless they are adequately dealt with, the transformation process will be incomplete.

1. Representation

The numerical representation of women in political positions is an important indicator of the social and political status of women. Currently, women form less than 20% of all local government councillors in South Africa. The White Paper acknowledges that women are under-represented in local government and proposes that political parties introduce a gender quota of 50% on their party lists. Whilst this is an important acknowledgement, various organisations are concerned that this proposal will not be sufficient in addressing the problem.4

First of all, the proposal concerns a voluntary gender quota and does not make it mandatory for political parties to ensure an increased representation of women as office bearers. Secondly, the proposed quota system is not embedded in processes to enhance the qualitative representation of women. This requires a comprehensive programme that includes capacity building opportunities, institutional transformation processes, and the establishment of gender structures, amongst others. Thirdly, the White Paper is silent on how the representation of women can be increased via the ward component of the electoral system. Ward committees can play an important role in providing women with exposure in the political arena. By ensuring that an adequate number of women are represented on ward committees, women are more likely to gain valuable experience and confidence which will enable them to stand as successful candidates in future elections. Lastly, the White Paper does not address the issue of the under-representation of women in decision-making structures or positions of power. Concerns and recommendations related to the electoral system and the representation of women in local government will be further discussed during the course of these public hearings.5

2. Developmental Local Government

The section on Developmental Local Government, one of the most powerful and inclusive sections in the White Paper, contains numerous references to gender issues and women. GAP is concerned that these positive references may be lost in the implementation phase, unless clear and detailed guidelines and implementation strategies are developed by national (and provincial) government.

Our experience has led us to believe that the responsibility of developing implementation strategies and mechanisms cannot rest with municipalities alone.6 Given the complexity of the transformation process, the scarce resources, limited capacity and the lack of institutional awareness of gender issues (and possibly political will to address them) at local level, most municipalities will be unable to deduce practical steps from the policy statements on gender in the White Paper. This is compounded by the fact that gender is a new governance imperative, which requires specialist expertise to be successfully applied at the policy, planning and implementation level.

GAP regards it as the responsibility of national government to play a leading role in driving this process and developing accessible and effective implementation mechanisms and guidelines. The development of a set of basic guidelines at national level does not pre-empt local initiative or interpretation. Undoubtedly, there is great benefit in municipalities themselves developing IDPs, KPIs, and other policies and strategies to better respond to local specificities. What is argued for here is that a set of basic guidelines and criteria related to gender is specified as part of the national framework. This will be critical as a means of support to municipalities and to monitor the effectiveness and redistributive nature of strategies adopted by municipalities.

The White Paper identifies four key developmental outcomes, which need to be seen within the context of national development and the principles and values of social justice, gender and racial equity, nation-building and the protection and regeneration of the environment:

² Provision of household infrastructure and services;

² Creation of liveable, integrated cities, towns and rural areas;

² Local economic development;

² Community empowerment and redistribution.

Three inter-related tools and approaches are suggested to realise the developmental outcomes:

² Integrated development planning (IDPs) & budgeting;

² Performance management (KPIs);

² Working together with local citizens and partners.

Applying gender analysis to the developmental outcomes and tools means as a minimum:

² Integrating gender planning methodologies in municipal planning;

² Developing a mechanism to ensure that indicators (KPIs) are disaggregated according to gender and race;7

² Specifying gender as a criteria for procurement procedures and the provision of special economic services;

² Identifying the barriers to the participation and empowerment of women and developing strategies to enhance their participation.

The national framework needs to outline the basic steps and criteria for municipalities to ensure that the policy statements on gender in the White Paper are translated into good practice at local level.

3. Organisational Transformation

The vision of developmental local government, which encompasses the imperative to contribute to gender equity, cannot be realised without the transformation of existing structures, organisational culture and work practices in municipalities. This may be one of the most difficult challenges facing local government. GAP's research in the Western Cape has shown that as yet the surveyed municipalities have not been able to transform themselves into gender sensitive institutions. In fact, in most instances there was a disturbing lack of understanding of the need to 'put on gender spectacles' to analyse the institution, its structures and culture and the underlying assumptions informing its operations.8

For local government institutions to become gender sensitive institutions, changes need to occur at quantitative and qualitative levels. With a national estimate of 15-20% women employees in local government administrations, it is clear that women are under-represented in these institutions. The majority of women are employed in clerical and administrative positions; management positions are male dominated. These figures point to barriers facing women in terms of access to and upward mobility within local government.

Increasing the amount of women in local government is imperative, but it is not sufficient to transform the organisational culture and work practices to become more inclusive and gender sensitive. Women are not necessarily more gender sensitive than men, nor should women be regarded as being solely responsible for social/institutional change or for addressing the needs and interests of other women. An important acknowledgement in the White Paper is the need for municipalities to develop codes of conduct which include a sexual harassment policy, with specified investigation, disciplinary and grievance procedures. Other important ingredients of a gender sensitive environment include, amongst others:

² The use of non-sexist language in all local government discourse and documentation;

² Change management processes through training (e.g. in Diversity Management, Conflict Resolution and Gender Sensitivity), written media, meetings/discussions, policies, etc.;

² Capacity building opportunities and funding for training to meet the training needs of women;

² The establishment of gender structures to develop strategies to promote gender equity and prepare the workplace for organisational transformation;

² The removal of obstacles in the physical environment, for women (e.g. breastfeeding facilities) and people with disabilities.

GAP has identified the following 9 steps towards transforming local government into gender sensitive institutions:

² Awareness of gender issues and gender relations;

² Political commitment to work towards a gender sensitive institution;

² Setting priorities in terms of which gender issues require most urgent attention;

² Allocating adequate resources (human and financial) to effectively address the prioritised gender issues;

² Setting up appropriate structures or assigning people with responsibility to ensure that gender issues become part and parcel of the institution;

² Building the capacity of those assigned with the responsibility to incorporate gender issues;

² Preparing the workplace through information, education and consultation;

² Preparing and involving the community through information, education and participation;

² Developing effective monitoring and review strategies.9

4. Traditional Leaders

On 26 March 1998, GAP and the CGE co-hosted a national seminar to analyse the White Paper on Local Government from a gender perspective. The participants, many of them working in rural areas, expressed grave concern about the fact that the White Paper refers the discussion about the role of traditional leaders at local level to the White Paper on Traditional Affairs, which is currently under construction. They urge the Portfolio Committee on Constitutional Affairs to ensure that this process is transparent and inclusive, to allow them and their various constituencies to participate in this process. Concerns and recommendations related to Traditional Leadership will be further discussed during the course of these public hearings.10


This submission does not claim to present a comprehensive picture of the complex interface between local government and gender. Rather, it attempts to bring to the fore some key concerns and challenges related to the White Paper on Local Government from a gender perspective, which require close examination by the Portfolio Committee on Constitutional Affairs. We trust that members of the Portfolio Committee share our commitment to the vision of a gender sensitive sphere of local government and will do everything in their power to ensure that this vision will be realised in the near future.

Appendix 3: South African Institute of Civil Engineers

Written comments to the Parliamentary Committee:

White Paper on Local Government

By the South African Institution of Civil Engineering


Civil engineering services such as water, sanitation and roads, form a very major part of the expenditure of local governments. The way in which the governments are structured, and their size and efficiency and so on, and also their jurisdictional boundaries, are of major significance for the delivery of these services to the users (i.e. to households, offices, factories). Thus the delivery of civil engineering services is of fundamental importance to the debate on local government ... [Ed. note illegible copy]

Much evidence is available on the technological issues pertinent to the debate. Some services are most effectively delivered by a metropolitan/district government. Other services, especially when there is a need to bring the service accountability closer to the users, are best delivered at the level of a substructure or (in some cases) even more local council. It is not difficult to identify into which category each civil engineering service generally (but not always) falls.

The body of these comments provides more information on the above.

Civil engineering delivers services

Civil engineering is a profession that delivers services to users (households, schools, offices, factories, and so on). The services that the civil engineer is responsible for include water, sanitation (that is, sewage disposal), roads, transport planning, stormwater (including protection against floods). geotechnical engineering (to do with soil and rock conditions), structural engineering (to do with the design of buildings and particularly their safety) and, in some cities and districts, solid waste (i.e. refuse) collection and disposal. Civil engineers are the key professionals involved in not only the operation and maintenance of these services, but also in their planning, design and construction, and their upgrading and/or eventual replacement.

Civil engineers are at the forefront of delivery of the Reconstruction and Development Programme (RDP). It is our profession that is the key to the promises of water to every household, of safe buildings for people to live in, and of transport routes 10 work Opportunities. Civil engineers are responsible for of the order of half of the R45-plus billion spent by local governments each year in South Africa. A large proportion of the revenue of local governments is raised to pay for civil engineering services. This is raised in the form of water tariffs, sanitation tariffs, and that proportion of the property assessment rates that is earmarked for roads -to name only three examples.

Civil engineering and local government organisation

These civil engineering services can only be delivered within organisational frameworks that have the required elements of a supporting structure - particularly means of making decisions, means of billing for services rendered and for collection of revenue, and means of staying in touch with and being accountable to users. Conversely, the efficiency of these services, and their effectiveness in meeting the real needs of the users, are fundamentally affected by the way in which they are organised and supplied with staff and other resources. Certainty is of great importance - knowledge that budgeted finances will be available is essential to for example the letting of contracts for the construction of new services, and for another example to commitments to provide agreed operating standards.

The delivery of civil engineering services is of fundamental importance to the debate on local government Systems. Efficiency in the delivery of civil engineering services, and the ability of the civil engineers to discover and address the real needs of their users, and to keep in touch with and be held accountable to these users, is a key element in the debate as to whether our urban and rural areas are to have metropolitan/district government only, or government only at a substructure level without the metropolitan or district level, or other combinations.

The South African Institution of Civil Engineering is concerned that the viewpoint of service delivery is not being aired in the current local government debate. Of major significance to delivery of civil engineering services are the systems of government, and their size and efficiency etc., and also the demarcation of their jurisdictional boundaries.

In these comments, attention is confined to airing those arguments on local government alternatives that relate to the provision of civil engineering services.

A very substantial body of evidence has been built up over the years on the subject of which civil engineering services are best delivered by a metropolitan or (urban or rural) district level of government, or at the level of a substructure, or (in some cases) even lower level of government. Some of this evidence holds good from one city or rural area to the next and even from one country to the next, whereas other of the evidence is more place- and time-specific.

The delivery of certain engineering services is more efficiently achieved through a metropolitan or district approach. Typical is the need to control air or water pollution or to provide mass transport, highways and bulk water supply. The delivery of services at the metropolitan level, for example, is closely associated with considerations such as economies of scale (e.g. the cost of water treatment per megalitre per day generally reduces with increasing size of treatment works), and rationalisation of the use of sophisticated systems, technical equipment, skilled personnel and specialist facilities.

On the other hand, whereas the efficiency of many civil engineering services increases with the size of the delivery (which is invariably related to the size of the population served), in respect of many other civil engineering Services there are no statistically valid correlations between size, efficiency and cost. In semi-rural and rural districts, the distances between elements of some civil engineering services are generally so much greater than in urban areas, that some economies of scale may fall away altogether.

Further, cheapness of service is not the only valid criterion of efficiency. The following advantages are ascribed to a lower level of government -

- it provides a more accessible forum for participation;

- large organisations are often more bureaucratic, slower to respond 10 needs and less accountable to consumers.

It is essential that each civil engineering service is examined separately for each specific urban or rural area in order to discover whether it is more suited to be provided at a metropolitan/district level or at a more local level. To give only two examples, and summarising a vast mass of data gained from many studies of actual construction and operation -

- a small wastewater (sewage) treatment works is characterised by substantially higher costs of both construction (capital) and operation and maintenance per megalitre of sewage treated per day than that of a big works; whereas

- once a town grows to quite a moderate size, there is very little further economy of scale to be gained in the construction, operation and maintenance of local roads.

The above are generalisations, very much affected by local circumstances.

As important as is the size of the government responsible for the delivery of civil engineering services, so are the geographical boundaries. For example, physical and financial efficiency in the delivery of the sewerage service would be assisted if the catchment (drainage basin) of an outfall pipe fell within one local authority, and was not split up among two or more. Thus the delivery of civil engineering services is also of fundamental importance to local government boundary demarcation.

It must be noted that reorganisation will probably not help if the underlying problems are too great. For example, the huge backlog of civil engineering services is an issue that demands not necessarily reorganisation but -

- redistribution of resources from the better serviced areas to the low-income areas, and

- a revisiting of the levels of service that have been planned, of the staff and other resources that are being applied to catching up this backlog, and of various measures to assist technological progress.

These comments only scratch the surface of the available evidence on service delivery. For example, no mention has been made of agency agreements, whereby one government agrees to perform a service in an area on behalf of another which has the statutory responsibility of that service.


There are identifiable civil engineering services that are best delivered at a metropolitan/district level of government. There are other civil engineering services for which there is no evidence of technological or cost advantages in their being delivered by these upper levels.

The South African Institution of Civil Engineering appeals to those responsible for local government reform to make a decision and then to allow the organisation thus formed (or Thus retained) the opportunity to carry out its responsibilities. The process of change of policies, of demarcations, of personnel and of other resources is highly disruptive to service delivery. The costs of that disruption are borne not so much by those who already have the benefit of civil engineering services, but of those who have to wait even longer to receive services, because resources are diverted to reorganisation instead of to delivery.

Issued by the South African Institution of Civil Engineering:

Executive Director: Dawie Botha

Vice President (Divisions): Kevin Wall

Appendix 4: Institute of Municipal Finance Managers


Maximising Sources Of Revenue Towards To Implementation: Beyond The White Paper On Local Government

The sources of revenue which are currently at the disposal of Local Governments are the following: -

- Assessment rates

- Surpluses on user charges, like water, electricity, sanitation, refuse removal etc.

- Regional Services Council levies.

In addition to the above the White Paper proposes the fuel levy.

It is important that such sources of revenue be maximised as far as possible by fully exploiting the following;-

Assessment Rates

This is largely regarded as the major source of revenue yet only 23% of the Local Authorities income is derived from this source. The maximisation of this source could be achieved by the following:

- Uniform rating throughout the country which will rate both land and improvement at separate rates, with the improvement rated at a lower rate.

- Realistic rebate on domestic property, the maximum of which should be fixed at national level.

- Local Authorities to be at liberty to decide on lower rebates.

- The rates on the rand to be determined by the individual Local Authorities.

- Remissions and/or grants-in-aid to Sport Institutions and Welfare organisations to be granted on a sliding scale based on the income of such institutions/organisation but not to exceed 80% of the rated income due to Local Authorities.

2. Electricity

Although the White Paper is silent on this source of revenue, the surplus arising from the electricity sales is a very important major source to sustain the financial viability of Local Authorities. It supplements the 23% of income from rates and the feeling is that it should be retained by Local Authorities.

3. Water, Sanitation, Refuse Removal etc

It is proposed that these services at least be rendered at cost and in cases where the majority of residents are from the community which cannot even afford these at cost, the National Government be approached to assist to cover costs. The Local Authorities should also be required to render these services economically, effectively and efficiently. This can be achieved by requesting other sectors to quote for the rendering of these services.

4. Fuel Levy

The fuel levy as envisaged in the White Paper is welcomed. Although the intended use could be for local road infrastructure, it should not be a conditional source of revenue.

5. RSC Levies

The rates relating to this should be nationally determined. In order to improve collection efficiency, this source of revenue could be linked to the income tax returns and be collected by the National Department of Inland Revenue, but be distributed to the source Local Authorities on monthly basis. Should this source be discontinued, it must be replaced by an equivalent source.

6. Equitable Redistribution of Revenue Collected at National Level

It is often argued rightfully so that about 80% of Local Authorities' revenue is derived from own sources, and therefore their allocation should take this into account. The fact is that Local Authorities have inherited major backlogs and they need more financial assistance to address such backlogs. However, we are aware that the country's financial resources are limited.

7. Unfunded or Partially funded mandates

In order for Local Authorities to implement the credit control policies effectively, the problem of indigency should be addressed and we believe that this is the responsibility of the National Government.

Relating to Ambulances and any other devolved functions, it is felt that full cost of such services be refunded to Local Authorities.

8. Limitations on Loan Borrowing by Local Authorities

Local Authorities are finding it very difficult to enter the capital market. This problem could be solved by granting guarantees to Local Authorities but only for the loans they can afford to repay.

9. Partnerships

Local Authorities could maximise their sources of revenue by entering into partnerships with the Private Sector, other public Sectors, non-Governmental Organisations, Community Based organisations etc.

10. Credit Control

Compulsory (enshrined in legislation) for public servants (officials and politicians) in the three spheres of government to pay rates and service charges.

- local authorities to be allowed by legislation to black list non-payers of rates and service charges - removal from black list after up to date and full payment for 3 months.

- Selling of property without going through lengthy legal procedure after nonpayment of assessment rates for 6 months.

- Order of allocation of payment to be determined uniformly provincially with assessment rates first and metered services last.

- Owner to be responsible for rates and service charges - responsibility for recovery from tenants for service charges on owner.

11. Professionalism (IMFO)

In order for all the above points to be implemented efficiently the sufficiently qualified officials should be in place and that is where IMFO could play a role. The following points are therefore important:-

- Membership of IMFO compulsory for appointment to top financial posts.

- IMFO membership requires appropriate academic and practical education and training to manage all financial resources effectively and efficiently

- This includes proper control and safeguarding of income.

- IMFO members operating in terms of a code of conduct with the emphasis on ethical behaviour.




Appendix 5: The Development Bank of Southern Africa



1. Introduction

The Development Bank of Southern Africa has a marked interest in the future of local government. The Bank's loans to local government clients amount to some R4,46bn, which constitutes some 27% of its overall investment in development. In the light of this interest in municipalities, the DBSA welcomes the White Paper as a major milestone in the transformation of local government. Our comments aim to make a constructive contribution to this transformation towards a dynamic and sustainable sphere of government.

2. Demarcation

The DBSA supports the White Paper's proposal that the number of municipalities be reduced. This will be a vital step in the consolidation of the local sphere, to base it on viable institutions able to democratically represent and effectively service their residents.

However, while the new arrangements are designed to reduce the number of non-viable municipalities, they may impact negatively on the viability of those municipalities that were reasonably strong. New jurisdictions, coupled with uncertainties about the security and transfer of assets and liabilities could make municipalities less attractive to lending institutions.

While the White Paper and the draft Demarcation Bill underline several considerations for the demarcation of boundaries, two priorities warrant particular emphasis from a financing point of view:

The protection of assets and the transfer of assets and liabilities: We suggest that the Demarcation Bill be made very specific about what happens to assets and liabilities and that key stakeholders like the DBSA and the commercial banks be specifically engaged in the finalisation of that legislation. Steps must also be taken to put in place the effective monitoring of asset management and transfers during and after the demarcation process.

The need for a firm tax-base: The future of local government is inextricably tied to the finances of municipalities. As the White Paper points out, many of the problems encountered now have been the result of poor financial management in the past and the lack of attention paid to the tax bases of the institutions negotiated in 1993-94. A firm tax base will not only better address the immediate financing requirements of municipalities, but it will also facilitate borrowing. More viable institutions will inevitably find the market more amenable to their borrowing needs. This demands a cautious approach to demarcation. Where municipalities are viable with a sound tax base, this should as far as possible be nurtured. It is important to remember that the purpose of demarcation is not demarcation itself, but the establishment of viable local governments.

3. Institutional structures

The DBSA welcomes the choices made available on the institutional systems for local authorities. We doubt whether national and provincial governments can afford the resources to become involved in a lengthy process to enforce any options. The challenge will be to set the policy frameworks and define the options in such a way that national priorities, especially those reflected in the RDP, are best promoted. This requires the support of all spheres of government and the deployment of resources in tune with capacities and realities in the various spheres.

It would be especially appropriate to set the criteria of redistribution, economic development, effectiveness, efficiency, responsiveness and democratic participation. Formulae and procedures must allow some form of local choice, even though the basic premise of, for instance, metropolitan government could be firmly determined. Locals must be given the opportunity to apply this according to their own needs and preferences.

4. Intergovernmental relations

The White Paper makes important statements about the need for systematic intergovernmental transfers, ways to strengthen local revenue raising capacities and the evolution of a borrowing culture in the local sphere. A few comments for further attention are however warranted:

The approach proposed for Inter-Governmental Transfers (IGTs) is consistent with government's objectives and those of the Constitution. However, if IGTs are intended to subsidise the poor, means must be found to ensure that the major part of the IGTs are indeed used to subsidise basic services for the very poor (see section 5 of this document). Unless subsidies from central government are carefully targeted, they easily end up providing a general subsidy for all - benefiting high-income consumers most. In countries where borrowing for service extension is encouraged, reliable IGTs have significantly enhanced access to credit. Therefore, in South Africa consideration should be given to reserving some of the IGT as a "pledgeable" security against future loans. Such pledges would need to be public information and reported to the Department of Finance. This component of the IGT would need to be guaranteed in some way, to ensure that the interests of local government are duly protected against ad hoc budgeting practices in the other spheres of government. The new draft Intergovernmental Fiscal Relations Bill provides, in our view, some useful institutional suggestions to shape the annual division of revenue raised nationally and spread it between the spheres. Bodies like the proposed Budget Council and Local Government Budget Forum will provide important formal procedures and frameworks for consultation between the three spheres of government.

The White Paper identifies a need to clarify rules and procedures around debt default. This is very important. Both lenders and government need to know that the right incentives are in place to ensure the accountability of those responsible for decisions on municipal borrowing. It should be very clear who carries legal responsibility for causing a municipality to get into financial difficulties. Those responsible should be aware of the consequences of such a situation.

Lenders also need to know how their interests would be cared for in the event of intervention by the provincial and national spheres. Only then can there be a consistent application of the "discipline of the market". Careful thought should be given to the kinds of intervention, and these should only come with strong conditions attached. Argentina, for example, has adopted a system of emergency financial support for provinces and municipalities, allowing for emergency loans to be converted into grants if the recipients make agreed-upon progress toward cutting costs, privatizing service delivery, and closing local operating deficits."1 This may go further than what we are prepared to accept in South Africa, but it does point towards an incentive-driven approach that promotes and rewards financial prudence.

5. User Charges and Tariff Policy

The White Paper's basic principles for User Charges and Tariff Policy are entirely sound. These principles enhance service provider accountability and "customer awareness". To this end we should deal carefully with support for the very poor. We suggest one or a combination of three mechanisms:

Limited cross-subsidies such as those proposed in the National Water Regulations (a stepped tariff: lifeline, regular, and high use tariffs);

A rebate system in which households receive an account showing the full amount due, but can apply, depending on income, for a rebate - funded by the utility, the municipality or through Inter-Governmental Transfers.

A subsidy direct to a consumer in the form of vouchers used to pay for certain quantities of consumption (say monthly).

The main principles are that consumers are aware of the costs incurred by their consumption, and know where the subsidy is coming from. It would also ensure that the service provider is not under-funded through pressure to provide subsidies through sub-economic tariffs. It will furthermore keep the service provider aware that every consumer is, in effect, a paying customer. Care must also be taken not to increase the tax burden of economically active persons to the extent that they move away from a locality because they find the tax regime unacceptable. At all times the affordability of particular levels of services to consumers should be a key consideration.

6. "Concessional" development finance

We note with interest that the White Paper has been markedly more nuanced in its discussion of what it calls "concessional loan finance" than the earlier Green Paper. We welcome in particular the perceptive account of the potential development role institutions such as ourselves could play in establishing viable systems of local government. The DBSA has in fact been refining its role in close consultation with government and the private sector to perform such a development role based on the financing of infrastructure. We are ready to engage further in the debate on how best we can use our considerable resources to support the RDP, build capacity and develop the market for private sector finance in support of municipal infrastructure investment.

7. Capacity building

The need for improved capacity in the local government sphere is widely acknowledged. The DCD seems to be planning to meet this need. Care should be taken however to avoid a supply-led exercise which limits choice for municipalities and fails to meet their actual needs and constraints.

There is a need to co-ordinate the wide range of existing initiatives and to find an appropriate "home" for such co-ordination, rather than centralising everything. The DBSA is keen to engage in public discussion and research on this issue and to support significant attempts to resolve the capacity building conundrum which has haunted local government for years.

In addition, the mandate of the DBSA enables it to step up specific capacity building as it relates to the development of municipal loans for infrastructure investment. This would be a focused support programme related to the DBSA's core concerns. This gives a tangible point of departure for the piloting of new approaches and the design of support according to very specific requirements.

While various initiatives to support capacity building in a number of areas (in this case infrastructure development) are welcome, we should warn against the use of yet more grant finance, outside of the established CMIP approach, lest it create further distraction from the over-riding need to create viable credit-worthy municipalities.

8. Conclusion

The DBSA regards the Local Government White Paper as an important milestone in the transformation of a sphere of government with the potential to fundamentally affect the reshaping of South African society. Effective local government will extend democracy and participation, secure service delivery and improve the plight of millions of South Africans. Our comments highlighted the importance of carefully managing the oversight of assets and liabilities during transformation and of introducing viable financial processes in the process of local governance. The Bank hopes to form an integral part of these processes to establish a dynamic, developmental and sustainable local sphere of government.

Appendix 6: Development and Public Finance Forum



15 APRIL 1998


The Development And Public Finance Forum is a representative body of various financial services institutions that make loans to local authorities. Its membership includes banks, life assurers and pension funds. Since its formation, late last year, the Development and Public Finance Forum has been integrally involved in the development of a new policy and legislative framework for local government. We have approached the policy development process in a constructive and solution seeking manner.

We fully support the general thrust of the White Paper and the proposed pieces of legislation that flows from it, for its noble aims of bringing about a viable, vigorous and delivery - orientated municipal sector that is run on sound business principles. Where the White Paper makes sound and sensible proposals, we have given our fullest support, on those areas where it comes short, we have made concrete proposals and on those areas where we feel our interests will be adversely affected, we have suggested viable alternatives.

We approach our relationship with the local government sector from the perspective of business relationships. It stands to reason therefore that our emphasis will be to attempt to positively influence the future local government dispensation - both on the statutory and operational level - to reflect and address our concerns and interests on the financial side of this sector. This does not constitute a denial of the relevance of broader social, socio-economic and even socio-political concerns, but our primary interest is to see a viable and sustainable local government system.


We believe that there a number of important, innovative and positive proposals in the 'White Paper' which may serve a firm foundation for a future local government dispensation. Notable among these is:

·A recognition that the underlying problems with the existing municipal finance system relates both to shortcomings in policy, and to poor implementation of the current system, such as inadequacies in financial -management and service delivery

·The white Paper's stance adopted that municipalities should balance their budgets, and that no bailout will be provided for municipalities that overspend their budgets or that fail to put in place proper financial management controls.

·An acknowledgement that, long term viability of any municipality largely depends on the municipality's efficient and effective collection of revenue for services rendered, hence the need for appropriate credit control mechanisms.

·A bold and unambiguous position adopted that municipalities must take strong measures against defaulters.

·The admission that there could be recourse to public-private partnerships in order to provide redress for the lack of capacity that local government institutions are currently experiencing and to create scope for private investment in municipal infrastructure and facilities; and

·A clear indication that when it comes to the procurement of finance, the role of public sector institutions should be aimed at supporting rather than contradicting1 the financial market system.

These positive aspects of the white Paper are overshadowed by the following shortcomings:

·The lack constructive and practical suggestions as to how the white Papers noble objectives are to be achieved.

·The absence of guidance on how municipalities can maintain a balance between their developmental mandate on the one hand and their service delivery mandate on the other.

·The lack of constructive and practical suggestions as to how the resources, experience and expertise at the disposal of our Local Authorities, though noble and commendable, do not match their commitment to development

·The failure to address the important issue of the quality of services delivered.

·The potential for disturbing the balance that exist in the local and national economy as a result to expand the revenue sources of local government institutions - with an additional effect of such efforts being a further increase of the overall tax burden;

·The absence of a standardised policy and methodology for poverty relief programs.


In order to achieve its objectives, the White Paper identifies four critical areas that have to be restructured namely;

Local revenue instruments and policies.

National-local IGT's

Gearing in private investments.

Budgeting, accounting and financial reporting systems.

We will now address these issues in turn

3.1 Local revenue instruments and policies

It is important to use the Constitution as a starting point in assessing the need and or capacity of local authorities to introduce levies or taxes to enhance their revenue base. The White Paper correctly points out that the Constitution places a limitation on The municipal taxation powers. These powers are subject to national legislation and regulation; they are further limited by the provision that they cannot unreasonably prejudice national economic policies and economic activity.

The shortcoming of the white Paper in this regard is its failure to give practical effect to the provisions of the Constitution in relation to local government taxing powers The reality is that unless there is appropriate national legislation to guide local authorities on taxing policy, we foresee an over taxation of businesses and property owners, vastly differing rates of taxation from area to area and the an unfair burden of taxation to business entities. We believe that the county will be well served by a coherent and transparent tax system that will provide a framework for any local lax policy. Such a tax system would assist municipalities to assess the viability, necessity or desirability of various revenue -raising options available to them, be they in the form of taxes or levies. Failure to develop this legislative framework would frustrate national macroeconomic objectives, undermine economic activity and create conditions for business uncertainty and migration. In short, our call is for certainty and clarity through proper national guidelines.

3.1.1. Property Rates

With regard to property taxes, we have the following recommendations:

RECOMMENDATIONS: While we support the White Paper's commitment to bringing currently untaxed areas into the tax net- we are extremely disappointed that this matter has not been taken beyond a mere principled commitment. We urge the authorities to move beyond this to a plan of action with realistic time frames. We hope that appropriate legislation or policy will be considered to enable municipalities to receive much needed revenue for developmental purposes. It is important that this matter also be tackled within the context of the MASAKHANE CAMPAIGN, to encourage those communities, who had been out of the tax net, to pay, whilst avoiding the danger of contagion from those communities that are already part of the tax net.

3.1.2. User Charges

Whilst we generally support the White Paper principles to be considered for local tariff structuring1 we. however, have some reservations with regard to specific aspects of implementation and practicability. We are particularly concerned about the following:

·The political will to effectively combat the non-payment of tariffs

·The level of awareness of policy makers, at a local level, that high tariffs affect the sustainability and competitiveness of businesses and hence the local economy.

·The capacity of individual municipalities to successfully target earmarked subsidies to the poor households

·Where targeted poverty relief occurs, based for e.g. on a means test, we strongly believe that non-conforming policy and methodology may lead to grievances based on fairness.


Poverty relief should not be based an a means test, for reasons of capacity and uniformity but should rather be delivered through the mechanism of the tariff structure whereby a limited basic service is delivered free across the service area.

Government relief to the indigent could be worked into the tariff structure.

3.1.3. Additional revenue raisin powers for municipalities

The general thrust of the White Paper seems to suggest that there is scope for municipalities to acquire additional revenue powers. Due of lack of clarity on revenue raising and financial monitoring powers, between provincial government and local authorities. we believe that revenue-raising powers should be placed in context through supplementary legislation. We are also deeply concerned about the lack of research or investigation into the implications of granting municipalities additional revenue raising powers


We propose that a proper investigation be conducted before this matter is taken up through subsequent legislation. Such investigation would focus on;

·The implications of new taxes and other levies;

·The effect of such taxes or levies on economic viability;

·The ability of municipalities to administer or collect such resources;

·The fairness and or uniformity of such collections, and the relationship between such levies and other levies currently paid to either the national or provincial governments.

3.1.4 Credit Control

We fully support the view expressed in the white paper that, in order to ensure tong term financial viability, each municipality should collect revenue due to it for services rendered: and that appropriate audit control mechanisms must be established. The reality is that an increasing number of municipalities do not keep a proper record of debtors., take no appropriate action to recover debts and allow debts to accumulate over time.

What concerns us more is that the present law (as contained in section 89(1) of the Insolvency Act and a number of Provincial Ordinances) allows a Local Authority a preferent claim in respect of arrears rates and, in some jurisdictions, in respect of arrears municipal charges as well. We contend that this right of preference results in a Local Authority having little or no incentive to enforce proper credit control measures.

We strongly feel that this preferred creditor status is unfairly discriminatory in that the creditor of a defaulting rate payer, as opposed to other tax payers, is the person who should be compelled to pay the arrears due by the defaulting rate payer if and when that creditor seeks to recover a debt lawfully due to him by attaching the land of the defaulting rate payer.

Members of the Development and Public Finance Forum have innumerable examples which can be made available to the Portfolio committee, of cases where mortgage lenders have had to pay extraordinary amounts in arrears rates and municipal charges in order to preserve or realise their securities and where they have incurred enormous losses in the process. In none of these cases has there been any censure on the Local Authority for its failure to exercise proper credit control measures. This is clearly untenable and prejudicial to our members.


We strongly propose that all laws conferring preference on Local Authorities for rates and other municipal charges were repealed. By such repeal Local Authorities would be encouraged to introduce proper credit control measures and monitoring systems. Furthermore creditors alone would not have to bear the burden of having to subsidise defaulting ratepayers.

In the event that a total repeal of the Laws conferring rights of preference on Local Authorities is not accepted then, at the very least, we would encourage the introduction of the following system -

·The right of preference afforded to Local Authorities should be for a period not exceeding 2 years in conformity with Section 89(1) of the Insolvency Act. All the Provincial Ordinances should be bound by this,

·The right of preference should be confined only to municipal rates and should not extend to basic and/or service charges for sewerage, water, electricity etc, the latter charges being consumption taxes and more appropriately the liability of the consumer alone. In any event consumption charges can be, and usually are, secured by means of appropriate deposits taken from the consumers before the services are supplied.

·The various Provincial Ordinances are not consistent and, in some instances, in conflict with the provisions of Section 89(1) of the Insolvency Act. We recommend that for the sake of certainty is would be desirable for future legislation or regulations to introduce a uniform national system for the preference rights that may be conferred.

·These recommendations as aforesaid endorse similar recommendations that have been made previously by the Association of Mortgage Lenders. Similar recommendations have also been made by the South African Law Commission in its review of the Law of Insolvency (statutory provisions that benefit creditors) in its working paper 61, project 63.

3.1.5 Rural municipalities

Capacitating of the more rural areas, while desirable and clearly necessary, involves very high risks In looking at this matter due consideration must be given to the appropriateness of needs and the meeting or satisfying of such needs. Basically, it is an issue of whether any particular rural area will really have need of the capacities that are to be bestowed upon it.

The redistribution of financial resources could well not bring about the financial empowerment that is being envisaged. Some municipal structures might find themselves with funds flowing in and might be induced to route expenditures less effectively, while other structures might find themselves depleted.


We propose a resource and capacity audit to be done on all rural municipalities in order to determine real needs, which can then guide short, medium or long term capacity-building and resource allocation. Careful consideration should also be given to the form and role of third tier government in rural areas based on capacity.

3.2. Intergovernmental Transfers

We fully support the White paper's view that the existing system of transfers is inequitable, inconsistent, not based upon objective criteria and discourages financial rectitude. We further contend that municipalities need a stable and reliable source of income for effective planning, budgeting and borrowing. They need to know how much funding they wilt receive, when it will be received and what conditions will apply to the funding.

We support the need to overhaul the entire system, into one that is property targeted, integrated, consistent, predictable and clear. We believe that the system should be based fundamental public finance principles rather than on immediate, political and administrative imperatives.

The White Paper has, unfortunately, failed to put forward a cohesive and guiding approach on such an important aspect of local government financing.


We propose that the following be considered

3.2.1 National and provincial governments could set about defining a set of more appropriate guidelines with regard to intergovernmental fiscal relations'

3.2.2 We propose that IGTs should be used for development finance only, rather than for operational expenditure. If there is insufficient income from residents to support the operational activities of a Local Authority, then it is not desirable for lGTs to prop-up or mask, the non-viability of such a Local Authority.

3.2.3 Future policy and legislation must provide useful information about IGT's, such as-

the explicit purpose of IGT funding; the method of determining recipients of IGTs; the vehicle for dispensing of IGT funds;

3.2.4 It is a serious omission for the White Paper not to address the issue of unfunded mandates. We strongly advocate for proper guidelines as to how unfunded mandates will be dealt with in future. Such guidelines will offer certainty, clarity and hopefully, consistency across the country. We propose that, with each function duty or activity devolved to local government there should be a sustainable concomitant transfer of funds from the fiscus. Such a transfer should, for reasons of budgeting and long range planning, be reasonably stable, easy to calculate and sustainable. Irregular and indeterminable transfers will cause so many problems that it should be avoided at all costs. It is suggested: that intergovernmental transfers from the fiscus should accompany each devolved mandate; that such transfers be predetermined, committed and stable

3.3 Gearing in private investments to local government

3.3.1 Municipal Borrowing

Private sector investment is essential to local government viability and sustainability. In order to secure such investment, it is incumbent on local authorities to demonstrate consistent financial discipline and accountability. The aim of borrowing is to develop a sustainable market for municipal debt where the risk is properly priced. We want to make the following proposals, which we believe will enhance the borrowing ability of municipalities.

RECOMMENDATION: The creation of an environment conducive to responsible and profitable lending.

The government must create the appropriate and much needed regulations and institutional environment for municipal borrowing, credit enhancement and debt obligation.

In the longer term given appropriate financial discipline private sector investment should become increasingly available to municipalities at a decreasing cost. A suitable regulatory framework could enhance the creditworthiness of municipalities. Collation or loan Profiles

Over the last few months we have been discussing with the Departments of Finance and Constitutional Development about the sharing of information that would assist private sector investment in the local government sector. The government has been reluctant to share such information with the financing institutions, ostensibly on the basis that sharing such information on defaults and actions taken against local authorities could lead to "systemic risks, in that it would provoke insolvency of a local authority which is in difficulty.

We strongly believe that the legislature, the administration and the executive should take the following matters into consideration:

There is a great deal of rumour circulating and it is almost impossible to contain rumour about defaults and financial difficulties in local authorities. It is vastly preferable for the financial institutions to be considering their position on the basis of fact and not rumour:

The sharing of information creates a platform on which government and financial institutions can rationally discuss sensible steps, which can be taken by them to bring about the rehabilitation of a local authority in difficulty. Rumour provokes independent reaction based on self interest;

It is highly desirable that local authorities are dealt with on the basis of merit and compliance with their financial obligations.

The sharing of information should very rapidly make it dear that local authorities that perform are going to be able to access and use private sector finance for their communities.

It should be equally clear to non-performing local authorities that they are going to be disadvantaged.

On the basis of the above, we strongly propose that there should be a collation of loan profiles at a central point1 similar to notification in the Govt. Gazette. This will provide an invaluable database for the financial services sector and the government as well.

3.3.2 Credit enhancement

While we support the view that national government should not guarantee municipal loans, we believe that there are a range of other mechanisms that can be considered to enhance the creditworthiness of municipalities

RECOMMENDATION The state of financial reporting by municipalities must be accurate, up to date and accessible. It must be in a format that would allow for realistic and accurate assessment of their financial position. Information that is useful for credit assessment must be easily accessible to financial institutions e.g. financial statements, budgets, internal reports to council, analysis of revenue by source, cash flow forecast, three year financial plans, IDP' and debtors & credit age analysis etc. There must be clear guidelines as to the sanctity and recoverability of loan investments. Important issues such as, what occurs when municipalities run into trouble and how their performance is determined and merited and what actions the higher levels of government should take to secure private sector investments, should be addressed. There must be regular and systematic monitoring and capacity building of local government by national and provincial departments. It is of great concern that in most provinces local government training has virtually ground to a halt. The Local Government Training Act of 1985 is generally perceived to be illegitimate. Thus far no replacement legislation has been put in place, and until that happens and adequate financial sources are made available, the training backlog will just increase. The envisaged training within the spirit of the National Qualification Framework and also, where practical, supplementing the envisaged Skills Development Act as set out in par 4 of Section F is therefore supported. On the intergovernmental level there could be efforts to develop or participate in the development of a system of ratings for municipal debt. This could be a first step towards the resurrection of the municipal bond market An insurance scheme could be developed on the intergovernmental level to accommodate defaulting municipalities. This could also assist with the resurrection of the municipal bond market. We would be pleased to see a longer range financial and development plan for local government. Long range budgeting and proven ability to meet budgets and development objectives will provide us, as financial institutions, a great deal of confidence in Local Authorities. This will enhance the opportunity for private capital flows. We would like have some kind of certainty that revenue that is collected and earmarked for servicing of debt should be used exclusively for that purpose. We also believe redemption funds should be put into place to service capital redemption. As far as assets are concerned there should be a transparent asset/liability matching process, which should be adhered to at all times. We would like to recommend that x% of Inter Governmental transfers should be paid into a separate Trust account. This money will be used to buy guaranteed products. These products offer the advantage of guaranteeing the capital in the trust as well as creating the possibility of sharing in any upside potential (capped of course) of favourable movements in the financial markets. These returns should then be ploughed back into the trust, and the trust should be used as reserve fund. The purpose with such a trust should be to lure investors into the municipal market by offering the necessary protection in case of default without creating an easy way out for local authorities

3.3.3. Regulating the role of public sector intermediaries

We fully endorse the view that public sector intermediaries are not intended to replace the existing commercial financial institutions but rather to complement them. The Development and Public Finance forum is prepared to play a complementary role to the existing public sector financial institutions. In this regard The Banking Council signed a Memorandum of Understanding with the Development Bank of South Africa. This agreement wilt now be extended to all the members of the Development and Public Finance Forum. The relationship created by this agreement will be sustained through regular interaction, joint progress reporting and information exchange.

We are in support of the white Paper that public sector financing by public sector financial institutions should:

>Be transparent;

>Support the development of a municipal debt market;

>Promote financial discipline and

>Streamlined in relation to the private sector's role in the municipal sector

3.4. Budgeting. accounting and financial reporting systems.

The White Paper correctly asserts the public's right to know about the use of public funds by municipalities. The reality is that because the internal and external reporting mechanisms have, historically been weak, inadequate and limited, incidents of corruption,nepotism and unrealistic budgeting have been difficult to detect. The recently promulgated regulations have failed dismally to address the situation due to their lack of appropriate sanction for non-compliance.


3.4.1 Budgeting system

We propose that measures be instituted that will ensure that the budgetary process is less cumbersome; budget accounts are presented in such a way that the statistics can be analysed on a more meaningful basis; and cash budgeting is introduced.

3.4.2. Accounting system

Whilst we generally support to move towards a more acceptable accounting regime we would, in addition, propose the following;

>More transparency in financial reporting;

>Financial statements should become available as soon as possible after the end of the financial year; and

>The possibility of issuing mid-year interim statements should be considered.

The above proposals with regard to budgeting and accounting should serve to encourage greater financial involvement on the part of the financial services industry.


We commit ourselves to playing a constructive, yet critical role, in partnership with other stakeholders, in the development of a financially viable local government sector. We are grateful to the Portfolio Committee for granting us an opportunity to further contribute to the development of practical and sensible policy that will guide the future growth and prosperity of the local government system in this country.



Appendix 7: Infrastructure Finance Corporation Limited (INCA)


20 April 1998

Inca's Submission To The Portfolio Committee On The Local Government White Paper


Infrastructure Finance Corporation Limited (INCA), is a 100% private sector infrastructure debt fund, established as a direct response to the government's call for increased private sector involvement in infrastructure financing. INCA, started its lending operations in March last year, has to date distributed just more than R800 million to mainly Local Governments in the form of long-term infrastructure loans. This new funding was made possible by way of mobilizing funds in the capital market that would not have flown towards Local Government infrastructure.

Given its commitment to become the major Private Sector source of funding for a Local Government sphere that is responsible for services and infrastructure to ensure the well being of people and to give effect to the meaning of democracy to the majority of people, INCA is not only in support of the main thrust of the White Paper, but we would like to congratulate Minister Valli Moosa and the team on this White Paper and especially the process building up to it.

With appreciation for the opportunity to address the Portfolio Committee, we would focus on a few key observations and practical aspects from the viewpoint of Private Sector funding practitioners.


2.1 Balance budgets leading to cutbacks and/or delay of infrastructure programs. This impact specifically on addressing infrastructure backlogs were a problem of a non-payment for services is experienced.

2.2 Rising levels of debt due to non-payment and the carry' over of these debt to the next year.

2.3 Improvements in debtors situation where credit control measures are implemented, but a near immediate worsening as soon as credit control measures are relaxed.

2.4 Real capacity constraint, especially in respect of financial management.

2.5 A lack of certainty, especially on a multi-year basis, of Local Government's own income resources, IGT's. District Councils'(RSC & JSB) contributions and CMIP funding, which make long-term infrastructure development funding very difficult.

These factors lead to uncertainty and if funders can not predict or assess risks, they will not maintain current levels of funding, let alone the much needed increase in Private Sector funding.


3.1 A new source of income for Local Government (e.g. fuel levy, other taxes):

We understand this in the context of an enlargement of the overall tax burden, and although this might be needed, it should only be addressed once we are sure that the optimal allocation to Local Government within the current fiscus has taken place.

3.2 Proposed Treasury Control Act:

The issue of responsibility, accountability/penalty and performance-based contracts are strongly supported. This should, however, also apply to Councilors, relating back to wards performance and service delivery.

3.3 Comporatisation & Effective Structures:

We strongly support the issue of corporatisation and the drive towards more effective political structures and the limits to size mentioned.

3.4 Grants-in-aid:

On the issue of subsidisation to ensure that the poor have access to basic services, the fact that municipalities should be able to recover the cost of service delivery and the aspect of rebates or grant-in-aid, the following:-

The question to what extent funding for these targeted rebates or grants-in-aid should be fined at local level need to be asked. We surely believe that this funding is a Central Government responsibility and that the role of Local Government is to assist in the identification of those that can not pay for services and to claim this from Central Government. Currently this portion of non-payment is just added to the debtors of Local Government. A specific issue to be addressed would also seem to be the increase in municipal taxes to those with a fixed income like pensioners, which does not have the ability to increase their income, targeted rebates should thus also flow to pensioners.

3.5 Lastly, an urgent need exist to take a holistic view of Local Governments' own income resources, contributions from District Councils, IGT's, CMIP funding and Private Sector funding regarding availability and how these resources can complement each other. Planning on the utilisation of these sources currently seems to take place in compartments. INCA is currently in discussion with the relevant Departments and other institutions regarding the possible gearing of these resources to enhance infrastructure delivery.

We thank you for the opportunity to share these few perspectives with you.

Attie van Zyl

Executive Director - INCA


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