Top economist calls for ‘total platform change’ to stop further meltdown of underperforming metros
Q&A with Dr Iraj Abedian, one of the analysts at this week’s S&P Global Ratings annual conference in Johannesburg. He says some municipalities are so severely dysfunctional that system change is the only option
Cape Chamber: The S&P conference put a spotlight on the issue of municipal Eskom debt, which no doubt is largely the result of non-payment of electricity accounts. This in turn results Nersa tariff increases. Would you say non-indebted municipalities can feel justifiably aggrieved that they must suffer the consequences of other municipalities not settling their accounts?
Dr Iraj Abedian: It is not only the non-payment of electricity accounts that has led to the mounting municipal debt. The root cause of the problem is incompetence and corruption. This has been in public discourses for over a decade.
The reality is that managing a city is a blend of politics and pure technical capabilities. Cities have been managed since the Roman Empire; there is very little that we have to reinvent.
There are hardly any technical capabilities for logistical and infrastructural planning, maintenance, etc in some of the metro and cities. Most of our mayors have near zero business experience, almost no understanding of business and financial management.
Modern cities, and metros in particular, are complex business entities at the cross section of politics and infrastructure management, short-term and long-term planning, and compounded by a rapidly growing technological disruption.
A further complicating factor has been the municipal demarcations that have bundled together unviable segments/communities/etc. And, the separation of powers across the spheres of governance (National, Provincial and Local Governments) has further caused real complications.
Cape Chamber: What in your opinion can or SHOULD Treasury do to try and resolve this situation? One commentator suggests Treasury set a more realistic free electricity subsidy, and make it conditional on actual service delivery. Do you have a view on this?
Dr Iraj Abedian: The severity of the Municipal management failure has reached a level that no longer such small interventions are going to be helpful. In my view, the entire local government sphere needs a total fundamental platform change such as :
You cannot be a councillor without a minimum 5 years of relevant experience in business, in law, in engineering, etc, etc..
No mayor can be considered for the job without a full background check over and above the above requirements.
Any mayor/councillor caught implicated in fraud and corruption should be barred from public service for a number of years; ie: 10 years or longer
National Treasury should withhold the municipal grant transfer unless the city has secured an unqualified external audit report.
All nationally set standards (such as free electricity, free water, etc) should be fully funded by the National Treasury and monitored quarterly.
Cape Chamber: The feeling among analysts at the S&P conference is that Eskom's indebtedness is a big drag on economic growth. This too is hugely frustrating for those regions where there is substantial investment in trying to promote economic growth, as well as private sector initiatives aimed at improving competitiveness etc. Could you conceive of a situation where Province's put defaulting municipalities under administration if they cannot pay their Eskom bill? Also, the WCape has an energy resilience programme; could this model be used elsewhere in the country?
Dr Iraj Abedian: It is beyond any doubt that the state of our municipalities has been and remains a major drag on the country’s GDP growth.
By way of illustration, the value of properties in JHB has fallen in real terms, many thousands of families, especially those who have acquired property over the past decade has lost much of their wealth. Pension funds who hold such properties in their portfolios likewise lose massive amounts. I submit, if these fund management portfolios report on such losses, we will see the extent of damage to the country’s wealth, to the families’ investments and to the nation’s pension savings. Technically, all properties in JHB Metro and in some other Metros should be revalued by a massive % down!! Imagine the impact on some of the property funds and even on some listed entities and their shares.
Cities define the lived reality of the residents and the nation- by and large. When the lived reality is more safe, more prosperous, and more convenient, then we experience development. Therefore, to the extent that the municipalities have been mismanaged to make the lived reality of the residents less safe(building standards falling, infrastructure decaying, etc), less convenient ( roads full of potholes, poor infrastructure, inadequate water, electricity, etc),and unfavourable for doing business (municipal rates rising well above inflation, admin services poor, management unresponsive to the residents’ needs and queries,etc) then the cities become a huge obstacles to development.
Provinces need to take timely action, no good to wait until the municipality is run into the ground and bankrupt and then make it a political football.
On energy resilience matter, all cities should have not only energy resilience programme, but also water resilience programme, safety resilience programme, etc.. All SA provinces can and should have energy resilience programme, but such programmes should reduce the residence’s dependency on Eskom or on any single source of energy.