{"id":353859,"date":"2019-11-14T07:22:34","date_gmt":"2019-11-14T05:22:34","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=353859"},"modified":"2019-11-14T07:22:34","modified_gmt":"2019-11-14T05:22:34","slug":"failing-cities-thwart-south-african-bid-to-revive-growth","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/353859\/failing-cities-thwart-south-african-bid-to-revive-growth\/","title":{"rendered":"Failing cities thwart South African bid to revive growth"},"content":{"rendered":"

South African municipalities\u2019 inability to provide consistent power is exacerbating supply disruptions by the debt-stricken state electricity utility, hobbling efforts to revive the nation\u2019s economy.<\/p>\n

While state-owned Eskom Holdings SOC Ltd has subjected the country to controlled, timed blackouts intermittently over the past decade to prevent a total collapse of the country\u2019s power grid, municipalities cut supply more regularly and often without notice – hurting sales, production, business confidence, jobs and economic growth.<\/p>\n

Local governments – which buy electricity from Eskom and sell it at a higher price to their customers – heavily rely on sales of power to fund their maintenance budgets. With companies seeking more regular supply, many are defecting from municipal systems or producing electricity privately using generators or solar panels.<\/p>\n

This results in even less revenue for municipalities to repair dilapidated roads, leaking water pipes and broken pavements, and replace stolen communication and power cables.<\/p>\n

\u201cWe\u2019ve got billions of rand of maintenance backlogs across local government – the downtown areas of small towns are literally falling apart,\u201d said Tracy Ledger, the head of research at the Public Affairs Research Institute in Johannesburg.<\/p>\n

\u201cA lot of unscheduled power cuts take place because the infrastructure isn\u2019t being maintained.\u201d<\/p>\n

Financial Distress<\/strong><\/p>\n

The country has made strides in extending services to many communities excluded during white-minority rule, but municipalities have faced more than 1,400 protests against poor delivery since 2012. Only 18 of the country\u2019s 257 audited local governments got clean outcomes in 2018 and 128 were in financial distress in 2017, according to the National Treasury.<\/p>\n

One of the big casualties of the lack of consistent power is manufacturing, whose contribution to gross domestic product has declined by a third in the past 25 years. This adds to the drag on an economy that\u2019s heading for nine years of sub-2% growth.<\/p>\n

\u201cOne of the most adverse factors for economic growth in this country, is dysfunctional municipalities,\u201d Reserve Bank Deputy Governor Rashad Cassim said last month.
\nGrowth Slump<\/p>\n

Since 2009, investment in the metals and engineering sector has dropped 36%, in part because of a sixfold increase in electricity costs and erratic power supply that renders the industry unattractive to investors, according to Michael Ade, the chief economist at the Steel and Engineering Industries Federation of South Africa.<\/p>\n

Seifsa has 1,300 member companies – down from a peak of about 2,000 – that employ close to 200,000 workers, and most of the firms are concentrated in the provincial economic hub of Gauteng.<\/p>\n

Ekurhuleni, in the east of Gauteng, is home to the country\u2019s biggest international airport. It once represented the largest single territorial concentration of manufacturing in the nation and was known as Africa\u2019s workshop, according to the Centre for Development and Enterprise. Manufacturing\u2019s share of the area\u2019s gross value added has fell to 23% in 2015 from 30% in 2000, it said in its development plan.<\/p>\n

\u201cA lot of businesses have moved away or closed,\u201d said Carol Ova, an executive member of the Ekurhuleni Aerotropolis Chamber of Commerce and Industry.<\/p>\n

\u201cThe power cuts, cable theft and lack of maintenance of water infrastructure all have a negative impact on production and communication. The municipality doesn\u2019t advise when the cuts will happen. And while people try to make do with generators, this isn\u2019t an option for many businesses because of the prohibitive cost.\u201d<\/p>\n

Ballooning Debt<\/strong><\/p>\n

\"\"<\/a><\/p>\n

The municipality didn\u2019t response to emailed questions. It has developed a plan to revitalize the manufacturing sector, saying it has facilitated 7 billion rand of foreign direct investment each year since mid-2013.<\/p>\n

Macsteel Service Centres SA is one of the biggest rate payers in Ekurhuleni, with 12 sites across the area. \u201cThe amount of disruption… we\u2019re just living with it — it\u2019s part and parcel of living in South Africa,\u201d said Mike Benfield, its chief executive officer. Six years ago, the company had almost double the 3,000 workers it employs now and produced as much as 25% more.<\/p>\n

Financial support isn\u2019t the issue. After state staff costs, goods, debt-service expenses and household grants, municipalities are the largest recipients of government transfers.<\/p>\n

Revenue Management<\/strong><\/p>\n

\u201cProblems in revenue management are the largest contributor to financial distress in local government,\u201d the Treasury said. In 2017-18, almost half of all municipalities collected less than 80% of their billed revenue, it said.<\/p>\n

South Africa\u2019s fiscal framework for municipalities – set up in the 1998 white paper on local government – assumed they will be able to fund maintenance out of their own revenue, Ledger said.<\/p>\n

\u201cThis is a huge challenge in smaller municipalities, given that many people can\u2019t pay their accounts and so their own revenue is under enormous pressure,\u201d she said.<\/p>\n

Local government receives support for new infrastructure development through conditional capital grants, such as municipal infrastructure grants, but can\u2019t use this money for upkeep of what\u2019s already there, said Ledger. The Treasury is looking to reform the system, allowing for grants to be used to renew infrastructure.<\/p>\n

When nationwide power outages started in 2008, Macsteel invested in generators. \u201cDiesel usage can amount to a few million rand annually,\u201d Benfield said.<\/p>\n

\u201cNew entrants wouldn\u2019t survive. Many major industrial concerns are looking at ways to bypass Eskom and the municipalities. Business is working on alternative power sources all the time. The problem is it takes five to 10 years to pay.\u201d<\/p>\n

\n

Read: How Eskom\u2019s government guarantee works<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

South African municipalities\u2019 inability to provide consistent power is exacerbating supply disruptions by the debt-stricken state electricity utility, hobbling efforts to revive the nation\u2019s economy.<\/p>\n","protected":false},"author":59,"featured_media":289108,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9872],"tags":[1164,26],"class_list":["post-353859","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-eskom","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/353859","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=353859"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/353859\/revisions"}],"predecessor-version":[{"id":353863,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/353859\/revisions\/353863"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/289108"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=353859"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=353859"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=353859"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}