THE ECONOMIC-DEMOCRACY DICHOTOMY IN THE DECENTRALIZATION OF POWER TO LOWER TIERS OF GOVERNMENT IN SOUTH AFRICA

By

Alexius Amtaika

University of the Free State South Africa

Abstract

Democracy and economics are central to the functioning of a state. In some states these dynamics complement each other, and in some they erode each other. This corrosiveness and these contradictions are evident in the microeconomic policies of states which often divide communities into classes, and in the precepts of democracy, which demand inclusiveness of individuals in decision-making processes. The decision-making processes of economic policies of government are naturally undemocratic, unilateral and are characterized by a top-down approach. Democracy, on the other hand, is inclusive and is often characterized by a bottom-up approach. In this paper, I reason that states are often democratic in the political sense when they embrace and implement the following four principles: (i) devolution of power to lower tiers of government for self-determination and equitable distribution of power and resources; (ii) accountability and responsiveness of the representatives to the electorate; (iii) participation of the citizenry in the election of their government;  and (iv) participation of the citizenry in the decision-making processes. These precepts are however, often corroded by economic policies and financial management, which are often hierarchical and elitist, and result in the parallel operations of democracy and economic policies in the structures of the government. The structures of states which formulate and implement economic policies are fundamentally undemocratic and largely unaccountable to the citizenry, because of: (i) their structural characteristics; (ii) their hierarchical organization; and (iii) their roles in the economy. Traditionally, the economic policies of states are formulated and adopted by government technocrats without consultation with, or the inputs of, ordinary people. They are often dictated by external forces and factors. Political leaders and bureaucrats decide on which policies to adopt and implement on behalf of the people, but without consulting their citizens. This is because, organizationally, states are naturally hierarchical, in that those at the top are often unaccountable to those at the bottom, resulting in unintended consequences, in which choices of economic policies are often biased towards serving the long-term interests of the ruling class, in so doing impacting on: (i) how services are delivered; (ii) how we understand financial management and mismanagement of government/state resources; and (iii) how we understand the roots of corruption. I examine this question in the context of the South African democracy and the devolution of power to lower tiers of government and cooperative governance, on the one hand, and the implication of fiscal decentralization, economic policies and the financial costs in service rendering and equitable distribution of resources at the lower tiers of government, on the other. In short, the paper assesses how democratic institutions of government are corroded by the financial mismanagement of government resources within the different spheres of government. 

Abstract

Democracy and economics are central to the functioning of a state. In some states these dynamics complement each other, and in some they erode each other. This corrosiveness and these contradictions are evident in the microeconomic policies of states which often divide communities into classes, and in the precepts of democracy, which demand inclusiveness of individuals in decision-making processes. The decision-making processes of economic policies of government are naturally undemocratic, unilateral and are characterized by a top-down approach. Democracy, on the other hand, is inclusive and is often characterized by a bottom-up approach. In this paper, I reason that states are often democratic in the political sense when they embrace and implement the following four principles: (i) devolution of power to lower tiers of government for self-determination and equitable distribution of power and resources; (ii) accountability and responsiveness of the representatives to the electorate; (iii) participation of the citizenry in the election of their government;  and (iv) participation of the citizenry in the decision-making processes. These precepts are however, often corroded by economic policies and financial management, which are often hierarchical and elitist, and result in the parallel operations of democracy and economic policies in the structures of the government. The structures of states which formulate and implement economic policies are fundamentally undemocratic and largely unaccountable to the citizenry, because of: (i) their structural characteristics; (ii) their hierarchical organization; and (iii) their roles in the economy. Traditionally, the economic policies of states are formulated and adopted by government technocrats without consultation with, or the inputs of, ordinary people. They are often dictated by external forces and factors. Political leaders and bureaucrats decide on which policies to adopt and implement on behalf of the people, but without consulting their citizens. This is because, organizationally, states are naturally hierarchical, in that those at the top are often unaccountable to those at the bottom, resulting in unintended consequences, in which choices of economic policies are often biased towards serving the long-term interests of the ruling class, in so doing impacting on: (i) how services are delivered; (ii) how we understand financial management and mismanagement of government/state resources; and (iii) how we understand the roots of corruption. I examine this question in the context of the South African democracy and the devolution of power to lower tiers of government and cooperative governance, on the one hand, and the implication of fiscal decentralization, economic policies and the financial costs in service rendering and equitable distribution of resources at the lower tiers of government, on the other. In short, the paper assesses how democratic institutions of government are corroded by the financial mismanagement of government resources within the different spheres of government. 

Introduction

Fiscal decentralization and the devolution of powers to the lowers tiers of government in South Africa can be understood in the context of the 1996 Constitution of the Republic of South Africa. This Constitution divides the country into three spheres of government, namely (i) the national government; (ii) the nine provincial governments; and (iii) the 284 local governments/municipalities (SA Constitution, 1996).While these spheres are “distinctive, interdependent, and interrelated” in terms of section 40(1) of the Constitution, they operate through a bifurcated structure of government, establishing direct relations and responsibilities between national government and provinces, on the one hand, and between the national government and the local governments on the other (ibid). This resulted in the creation of two separate spheres of sub-national governments in South Africa, namely provincial and local government.

The national government consists of all national government departments and other parastatals bodies, forming what is commonly known as consolidated national government. Its central priority is to provide basic services to all South Africans, within the constraint of available resources, as set out in Chapter 2 of the Constitution’s Bill of Rights. These rights include: freedom of movement; a protected environment that is not harmful to health and well-being; housing; health care; food; water and sanitation; social security, and education. These responsibilities are shared among spheres of government in terms of the principles of devolution and decentralization. This means that, while the national government has overall powers in the management of national affairs, provincial and local governments are responsible for the provision of basic services.

Provincial governments consist of general departments responsible for delivering most of the range of social services in the areas of education, welfare, and health. Local government is responsible for provision of local infrastructure and basic services such as sanitation and water reticulation. Local government is tasked to play developmental roles and is responsible for improving the standard of living and quality of life of the people. Such roles require strong leadership with clear vision, and qualified, experienced and skilled municipal officials who discharge their responsibilities efficiently, responsively, transparently, and accountably. This is the core of good governance, which demands: (i) the existence of efficient and accountable institutions and systems; (ii) entrenched rules that promote development and ensure that people are free to participate in decision-making processes, and be heard on issues of national interest; and (iii) decisions and implementation thereof that directly affect the lives of the people.

The linkages between development, service delivery and local citizen participation revolve around the effort to increase control over resources and regulative institutions by groups and movements excluded from such control. This is central for building democracy in local government. It is in this context that the 1998 White Paper on Local Government mandates and empowers municipalities to develop strategies and mechanisms to continuously engage with citizens in their capacities as: (i) voters to ensure democratic accountability; (ii) citizens who, through a variety of stakeholder organizations, can contribute to policy processes; (iii) consumers and end users who expert value for their money and affordable services; and (vi) organized partners engaged in resource mobilization for development objectives (White Paper, 1998). This is crucial and necessary in four ways: (i) to provide information to citizens; (ii) to get information from the citizens; (iii) to improve public decisions, programs, projects, and services; and (iv) to protect individual and minority group rights and interests.

The 1996 Constitution divides local authorities into three categories, namely: category A metropolitan municipalities totaling eight; (ii) category B local municipalities totaling 226, and (iii) category C district municipalities totaling 44 (SA Constitution, 1996). Altogether there are 278 municipalities in South Africa. Metropolitan municipalities cover large urban areas and complexes with populations over one million and have executive and legislative authority. They account for 56% of all municipal expenditure in the country (National Treasury, 2011).Local municipalities cover smaller and medium-size jurisdictions, located primarily in urban areas containing secondary cities. Section 152 of the Constitution empowers these municipalities to: (i) provide democratic and accountable government for local communities; (ii) ensure the provision of services to communities in a sustainable manner; (iii) promote social and economic development; (iv) promote a safe and healthy environment; and (v) encourage the involvement of communities and community organizations in matters of local government (SA Constitution, 1996).To undertake these duties, category B local governments require large budgets. In some areas of the country these municipalities share executive and legislative authority with the district municipality within whose area they fall. This is because district municipalities cover several local or category B municipalities and have executive and legislative authority in areas that include more than one municipality. The Constitution mandates district municipalities to coordinate integrated development planning for the entire district and provide services on behalf of weak, category B municipalities situated within the district boundaries, especially in the rural areas. In brief, Section 153 of the Constitution empowers and mandates local government to structure and manage their administration and budgeting and planning processes in order: (i) to give priority to the basic needs of the community; (ii) to promote the social and economic development of the community, and (iii) to participate in national and provincial development programs (ibid). The key service delivery municipal functions include: (i) water and sanitation services (potable water supply systems, domestic waste-water and sewage disposal); (ii) refuse removal; (iii) electricity; (iv) roads; and (v) storm water management (ibid).

For local government to provide these services efficiently, it requires resources. In recognition of this, Section 214 of the Constitution entitles local government to an equitable share of national revenues to assist in providing basic services to poor households (ibid). In terms of sections 40-41 and 154 of the Constitution, which guide the principles of cooperative government and intergovernmental relations, the national and provincial governments are required by law to support and strengthen the capacity of municipalities to manage their own affairs, exercise their powers, and perform their functions (ibid). The Constitution also grants national and provincial governments oversight and control powers over municipalities.

The assignment of powers and expenditure functions of municipalities vary considerably within and across categories of municipalities. Metropolitan municipalities in large urban areas with greater ability and capacity provide an extensive range of services, whereas some category B and C municipalities render few basic services. Section 229 of the Constitution gives powers to municipalities to raise their own revenues through rates on property, licenses, traffic fines and surcharges on fees for services provided by, or on behalf of, the municipality (ibid). Municipalities are allowed by law to collect taxes authorized by national legislation. Such taxes exclude income tax, value added tax, general sales tax, and customs duties (ibid).This means that, while the national government provides funds to municipalities, municipalities also have powers to raise their own revenue.

In terms of the principles of cooperative governance, Sections 156 and 229 of the Constitution, and Sections 83 and 84 of the 1998 Local Government Municipal Structures Act, stipulate that powers and functions may be divided by the national legislation and provinces, and between the district and local municipalities within the area of the district municipality. This legislation makes it difficult to distinguish between the functional competencies of the district and local municipalities. This led to the setting up of the Financial and Fiscal Commission  of 2000, which clarified that district municipalities are authorized to provide only water and sanitation services, while metropolitan and local municipalities are authorized to provide all four basic services, water, sanitation, electricity, and refuse removal (The Financial and Fiscal Commission, 2000).

Two conclusions can be drawn from the above. The first is that the fundamental goal of a democratic system is citizen satisfaction. The second is that the effectiveness of good local governance can be judged by the capacity of local government structures to provide an integrated development approach to social and economic development issues and to supply essential services congruent with the needs and desires of the local communities. The primary roles of municipalities can thus be cited as: (i) identifying and prioritizing local needs; (ii) determining adequate levels of services; and (iii) allocating necessary resources to the public. In short, the primary objective of South Africa’s intergovernmental fiscal arrangements is to ensure that these inter-governmental responsibilities are carried out in the spirit of cooperation, equity, and efficiency, for the well-being of all citizens.

The empowering of municipalities by the Constitution to raise their own revenues boils down to the principle of fiscal decentralization. Before we begin examining how fiscal decentralization advantages and disadvantages government, an exploration of its conceptual exposition is essential. 

Conceptual Underpinnings of Fiscal Decentralization

The traditional economic liberal theory of fiscal decentralization holds that devolution of expenditure responsibilities and revenue powers from higher spheres of government to lower spheres of government should aim to improve accountability, responsiveness, and good governance of local governments. This is especially true when fiscal decentralization is accompanied by political and administrative decentralization, since service delivery and allocation of resources in this structural setting take into account: (i) the wishes of the citizens; and (ii) economies of scale and jurisdictional spillovers. This forms two types of fiscal decentralization, known as ‘expenditure decentralization’ and ‘revenue decentralization’. Expenditure decentralization refers to the degree to which expenditure responsibilities are devolved to the lower spheres of government (Smoke, 2001). Revenue decentralization refers to: (i) the degree to which revenue sources are devolved to the lower spheres of government; (ii) the degree to which tax revenue sources are devolved to the lower spheres of government; (iii) the degree to which local governments have control over the fiscal resources at their disposal; and (iv) the degree to which the lower spheres of governments rely on national government revenues to support their expenditure (ibid). Fiscal decentralization thus reinforces the efficiency of government in service delivery in three ways: (i) through central government oversight; (ii) through citizen participation in decision-making processes; and (iii) through the monitoring and evaluation of civil society organizations. These measures, in turn, allow citizens: (i) to articulate their needs and their preferences to local government officials who are closer to the people and have a comparative advantage through knowledge of local circumstances; and (ii) to demand accountability in terms of service delivery through tax compliance (Financial and Fiscal Commission, 2011). Fiscal decentralization thus allows citizen participation in planning and service delivery for the flourishing of democracy and good governance. In this way citizens become an integral part of the institution and the political dialogue.

Traditionally, fiscal decentralization of revenues from the higher spheres of government to sub-national levels of government revolves around four fundamental pillars, namely (i) the assignment of functions and expenditure responsibilities; (ii) the assignment of revenue sources to lower tiers of governments; (iii) the allocation of intergovernmental fiscal transfers; and (iv) rules on lower spheres of government’s borrowing. These pillars are summed up in the three core assumptions of fiscal decentralization, namely: (i) the subsidiarity principle of fiscal decentralization - which assumes that services provided at the lowest level of government should always be compatible with the ‘benefit area’ of the service (Martinez-Vazquez, 2011); (ii) the decentralization theorem - which stipulates that public services provided by the jurisdiction having control over the minimum geographic area should internalize benefits and costs of such provision, and for which there are no production economies of scale (Smoke, 2001); and (iii) the correspondence principle -  which stipulates that a jurisdiction of any sub-national government be assigned to taxes that are related to its assigned expenditure responsibilities (Bird, 2001).

From a practical point of view, fiscal decentralization in the South African context of cooperative governance exudes many characteristics of the assumptions outlined above. The 1996 Constitution of South Africa, for instance, assigns expenditure responsibilities to the nine provincial governments, but at the same time distinguishes between exclusive functions performed by the provinces, on the one hand, and the concurrent functions that are shared between different spheres of government, on the other. This provision was made in Schedule 5 of the Constitution, which conferred a wide range of exclusive functions to provinces, such as provincial roads, ambulance services, provincial planning, and provincial recreation and amenities (SA Constitution, 1996). Schedule 4 of the Constitution went on to assign a variety of concurrent functions (functions are shared between national and provincial governments) to provinces, such as elementary and secondary education, health services, social welfare services, housing, public transport, tourism and agriculture (ibid). The Constitution not only provides for division of responsibilities; it also provides for equitable sharing of revenues. Sections 214 and 227 of the Constitution, for instance, stipulate that provincial governments are entitled to an equitable share of national revenue provided for by an Act of Parliament (ibid). This means that each provincial government in South Africa is entitled to an annual share in the national revenue, as calculated by a formula determined and updated in a special Division of Revenue Bill of Parliament. The Division of Revenue Act was passed by parliament to provide for: (i) the equitable division of revenue raised nationally among the national, provincial, and local spheres of government for each financial year; (ii) an explanation of the formula and criteria for the division of the provincial and local government equitable shares of revenue; and (iii) the term’s conditional grants to provinces and municipalities (Financial and Fiscal Commission, 2011). In terms of the provisions of Section 227 of the Constitution, local government and each province are entitled to an equitable share of revenue raised nationally to enable them to provide basic services and perform the functions allocated to them and may receive other allocations from national government revenue, either conditionally or unconditionally (SA Constitution, 1996). It cautions that “additional revenue raised by provinces or municipalities may not be deducted from their share of revenue raised nationally, or from other allocations made to them out of national government revenue”(ibid).

From the cooperative governance point of view, the Constitution approaches the requirement for equity in a particular manner and requires the mechanisms of ‘equitable allocations’ to play an important role in financing the equity that is to be achieved through provincial and municipal programs. At a minimum, the equitable allocation of the resources: (i) include an entitlement to enable the provision of basic services by provinces and local governments; and (ii) must be adequate and distributed appropriately, to ensure that all citizens have access to those basic services for which provinces and municipalities are responsible, subject to the constraint of available resources.

While the national government is obliged by the Constitution to provide revenues to sub-national government, it is required by law to balance its various commitments and obligations with the macroeconomic constraints under which it has to manage public finances and the economy in general. This is in terms of the provisions of Section 24 of Constitution on financial and budgetary issues as stipulated in clauses (d),( e),( f),( g),( h), and( i). These clauses are specifically pertinent for local government’s ability to: (i) provide services and perform its functions; (ii) develop its fiscal capacity and be economically efficient; (iii) be developmental in its policy objectives; (iv) take into account social economic disparities within its jurisdictions; (v) recognize its obligations in terms of national legislation; and (vi) receive stable and predictable allocations of revenue shares (ibid). These requirements cover a wide spectrum of national requirements, from the macroeconomic to the microeconomic, and constitute important considerations for national government in determining the equitable division of national revenue allocations through a formula-driven process.

Although municipalities are better placed to focus on infrastructure project priorities and plans informed by the needs of their communities, the above requirements are beyond the scope of local government’s competency and are extremely onerous for municipalities to consider when preparing applications for financing infrastructure projects. However, in the spirit of cooperative governance, the national government uses its fiscal capacity and economic efficiency assessments as key indicators for compensating municipalities for any shortfalls in infrastructure project finance. This means that municipalities are generally concerned about microeconomic impacts of public infrastructure and maximizing equity and efficiency within their own jurisdictions rather than about national macroeconomic growth and development strategies. The problem is that these so-called development strategies often leave the present inequalities of income distribution unchanged, and in some case even make them worse, since efficiency and equity cannot usually be maximized simultaneously. There is thus usually a trade-off of efficiency and equality, and deciding where the balance lies is perhaps one of the hardest tasks facing development planners (Hansen, 1978: 19).

Not only do the lower spheres of government receive funds from the central government, but they are also given powers to raise their own revenues. Section 228 of the Constitution authorizes provinces to levy a flat-rate surcharge on any tax other than corporate income tax, value-added tax, and rates on property or custom duties (SA Constitution, 1996). This restriction suggests that provincial governments’ revenues constitute a relatively small portion of total revenue, since they have limited taxing powers and are dependent upon the national government for funding of the exclusive and concurrent powers and functions allocated to them.  As a result of this, provincial governments’ revenues come from: (i) tax receipts from casino taxes, horse racing taxes, liquor licenses and motor vehicle licenses; (ii) non-tax receipts; (iii) transfers received; (iv) sales of capital assets; and (v) other own-revenue sources.

Local government raises its revenue mainly from rates and grants from central government, in the form of the Municipal Infrastructure Grant (MIG). The MIG allocations fall within the long-term vision of the inter-governmental system in South Africa. They are the catalyst for the building of public infrastructure necessary for local governments to provide key public services to which communities, households, and individuals are entitled (Department of Provincial and Local Government, 2005). These services are fundamental rights, as stipulated in the Bill of Rights (Chapter 2) of the Constitution, to which everyone is entitled. They include: (i) access to adequate housing and health care services; (ii) sufficient food and water; (iii) social security; and (iv) basic and further education (ibid). In terms of fiscal decentralization, these basic services are provided within reason and subject to availability of resources.

One important issue that emerged in the above discussion as a central core of fiscal decentralization is the ability of the spheres of government to balance the sources of their revenue and the ability to manage and monitor their expenditure. This balance is summed up in two terms, namely vertical fiscal balance and horizontal fiscal balance. Vertical fiscal balance occurs, or is achieved, when the expenditure responsibilities assigned to each level of government and its revenue-raising powers, or the fiscal resources available to them to finance these responsibilities, are commensurate or correspond. It entails the matching of the revenue sources assigned to each level of government with its expenditure responsibility (Boex, Jamie, Jorge Martinez-Vazquez, and Timofeev, 2004). Horizontal fiscal imbalance occurs between lower tiers of government within the same tier structure due to variations in their ability to mobilize revenues and variations in their expenditure needs and costs (Kelly, 1998).

The difference between vertical fiscal balance and horizontal fiscal balance can be illustrated by the expenditure of the three tiers of government in South Africa. For instance, between the 2000 and 2011 financial years, the expenditure of the national government in South Africa was at 70 percent and the share of local government expenditure in total government expenditure was averaged at 30 percent, for the same period (National Treasury, 2011). This suggests that there is a clear trend toward expenditure decentralization in the country, with provinces and municipalities having considerable autonomy to make decisions on expenditure. In terms of the revenue shares, the share of lower tiers of government’s tax revenues in total government revenues was averaged between three and four percent for the period 2000-2011, with a figure of four percent in 2011 (ibid). The local government tax revenue share during the same period was four percent on average, affirming that provincial governments raise very little revenue on their own and rely heavily on intergovernmental transfers (ibid). But, more importantly, this four percent share of sub-national government tax revenue is well below the expenditure level of 70 percent of overall national government, pointing to the limited revenue powers and significant expenditure responsibilities assigned to sub-national government in South Africa (ibid). This point is reinforced by a substantial vertical imbalance, averaging 72 percent during the period 2000-2011.

The Impact of Economic Policy on Service Rendering at the Lower Tiers of Government

The economic policies of the South African government have direct impact on service rendering at the lower tiers of government, in general, and local government, in particular. The decision-making processes of these microeconomic policies are naturally a ‘top-down affair’, contrary to the precepts of democracy, which by nature are a ‘bottom-up affair’. It goes without saying that decision-making processes of the microeconomic policies are undemocratic and elitist and are often engineered and steered by unelected personnel or officials. The cases in point here are the two major microeconomic policies of the African National Congress (ANC) government since 1994, namely the Reconstruction and Development Program (RDP) (1994), and the Growth, Employment and Redistribution (GEAR) (1996) program.

The RDP was adopted in 1994 as an integrated, coherent, socio-economic policy framework aimed at meeting basic needs, developing human resources, democratizing the state and implementing development programs (RDP, 1994: 6).  The policy was seen as the election manifesto of the ANC. It maintained the elements of the Congress Alliance’s 1955 Freedom Charter, which aimed at ending social and economic inequalities generated by segregationist and apartheid regimes in South Africa. The RDP election manifesto was put into effect in 1994, with the adoption of the 1994 the Reconstruction and Development Program White Paper (RDPWP). It embraced a set of ‘Keynesian’ macroeconomic measures, which empowered the state to take a lead in service rendering of sanitation, water reticulation, electrification, housing, and infrastructure to the majority of poor South Africans.

The implementation of the RDP was fraught with serious challenges, as government at all levels lacked proper implementation skills. This was compounded by extensive backlogs in providing access to basic services. The failure of government to create jobs and deliver basic services led to dissatisfaction amongst ordinary people. It is estimated that only R5 billions of R15 billion allocated to reconstruction and development was spent between 1994 and 1996 (Marais, 2001: 35). During the same period the government achieved an economic growth rate of a mere 2.5%, instead of the projected 4.6% (ibid). Such indifferent growth meant that the government failed to mobilize sufficient funds to meet the objectives of the RDP without redirecting allocations from the mainstream government departments. This resulted in intense competition among cabinet ministers, fearing the prospects of their budgets being appropriated by the RDP programs. This, unsurprisingly, led in 1996 to the first major financial crisis in South Africa; resulting in the plummeting of the local currency, the rand, which depreciated by more than 25% (Biggs, 1997).

The government reacted by abandoning the RDP and adopted and embraced a conservative macroeconomic strategy, commonly known as GEAR, to enhance the credibility of the state. GEAR was based on four socio-economic principles: (i) a competitive, fast-growing economy which creates sufficient jobs for all job-seekers; (ii) a redistribution of income and opportunities in favor of the poor; (iii) a society in which sound health, education, and other services are available to all; and (iv) an environment in which homes are secure and places of work are productive (GEAR, 1996). GEAR differed considerably from the RDP in two ways: (i) it was based on neo-liberal principles, whereas the RDP was premised on the imperative of people-driven development; and (ii) the RDP was formulated along the principles of a developmental state and an expansionary government, whereas GEAR advocated for a minimalist state and a reduction in government spending.

Contrary to the perception of the RDP as a state driven-policy, evidence shows that the RDP election manifesto contained some neo-liberal elements, alongside Keynesianism. This was evident in the Reconstruction and Development Programs White Paper (RDPWP), which stipulated the need for and the terms of, establishing a partnership between the government and the private sector in rendering service (RDPWP, 1994). Such provisions suggest that the ANC did not merely step into a neo-liberal state overnight and take its programs on board in the form of GEAR. Rather, it actively endorsed and adopted neo-liberal frameworks after winning the first non-racial democratic elections in 1994.

The adoption of GEAR firmly consolidated the ANC’s neoliberal orientation approach to the state and the free market economy in three ways: (i) promotion of privatization of ‘non-strategic’ state assets and services; (ii) liberalization of trade; and (iii) promotion of a flexible labor market (Biggs, 1997). This marked an important shift from the Keynesian policies of the Freedom Charter of 1955. Critics of GEAR reason that neo-liberal policies of the ANC represented a weakening of the South African state. This is not true.  Neo-liberalism does not change or dilute the state’s roles in the economy and development. It merely designates its different roles to focus on: (i) maintaining law; (ii) protecting private property; (iii) creating a suitable environment for the functioning of the market; and (iv) providing of infrastructure for the benefit of business (Narsiah, 2003). Thus neo-liberalism undermines the role of the state in intervening directly in the markets, but does not undermine the state itself.

It came as no surprise, therefore, that at the core of GEAR was the principle of privatization, which refers to the state selling off public enterprises to capitalists. It bases its assumptions on three premises: (i) that privatization of public assets improves service delivery, efficiency and cost effectiveness; (ii) that unfettered competition in the free market will deliver the greatest good to the greatest number of people; and (iii) that state intervention into markets, namely owning and operating enterprises which the state itself subsidizes, leads to un-competitiveness (higher prices for consumers) and inefficiency in service delivery (see Biggs, 1997; Narsiah, 2003). GEAR therefore promoted privatization as a means of attaining efficient and far-reaching service delivery through a more efficient private sector.  

In practice, GEAR was implemented through the privatization of electricity provision to the private sector and the installation of prepaid electricity meters in township homes. Ironically, the installation of the pre-paid meters ensured that the price of electricity shot up dramatically, up to 40 per cent in some cases. This hurt poor households in the rural areas and townships. The government reasoned that the privatization of electricity was necessary to make the delivery of services more efficient and to help municipalities, in particular, to save money so that they could provide better services (Marais, 2001). The reasoning behind privatization was that not only would the selling off of non-strategic assets allow the state to commit less capital and administrative capacity, but would also allow it  to raise capital for other projects from the proceeds of selling the asset to a private sector buyer. In other words, the government’s contention was that GEAR was the means by which the goals of the RDP could be achieved. In reality, GEAR marked the beginning of the consolidation of the ANC’s neo-liberal policies, which paved the way for the flourishing of the private sector and the abandonment of Keynesian policies, which were biased towards the poor. The ANC justified the imposition of neo-liberal restructuring by appropriating some of the Keynesian and developmental language and rhetoric from aspects of the RDP.

Such mutations of microeconomic policies had serious implications on the implementation of the precepts of democracy and certain aspects of human rights. An analysis of this contradiction is essential.

Contradictions between Democracy and Economic Policies 

I reasoned in the introduction that the formulation of economic policies do not usually follow democratic principles, mainly because of the hierarchical structural characteristics of the state that are common to all states. In terms of economic decision-making processes, all states are fundamentally undemocratic and largely unaccountable to the citizenry. Those at the top of the decision-making ladder are usually unaccountable to those at the bottom. Consequently, most microeconomic policy decisions have a bias in favor of serving the long-term interests of the ruling classes. These characteristics are evident in the nature of the South African state at all levels of government, and have implications in service rendering and in the mismanagement of state funds and resources.

I pointed out that the installation of democracy in South Africa in 1994 was accompanied by the adoption of the new economic policies to mobilize the state’s resources in order to eradicate apartheid and build a new democratic, non-racial, and non-sexist society. In this endeavor the government adopted the RDP to address the basic needs of the people,  such as  job creation, land and agrarian reform, housing, water and sanitation, energy supply, transport, nutrition, health care, the environment, social welfare, and security (RDP, 1994:7-8). The provision of these basic needs was in line with the Constitution’s Bill of Rights, which stipulated that all citizens are entitled to social security. Thus the RDP was premised upon progressive and developmental principles of economic growth and development. Its strategies were integrated and mainstreamed in all spheres of government, namely national, provincial, and local government programs. It recognized that nation-building required to be linked with reconstruction and development. It broke away from the traditional thinking which views growth and development, or growth and redistribution, as contradictory. Traditionally, growth, which is a measurable increase in the output of modern industrial economy, is usually seen as the priority that precedes development (RDP, 1994); and development is portrayed as a marginal effort of redistribution to areas of urban and rural poverty.  From this vantage point, development is not seen as an integral part of growth, but as a by-product of growth (ibid).

Contrary to this belief, the RDP, as the economic policy of the ANC, integrated growth, development, and redistribution into one program. It constituted an infrastructural program which aimed at providing access to modern and effective services such as electricity, water, telecommunications, transport, health, education and training for all the people. It was also aimed at meeting basic needs, as well as opening up previously suppressed economic and human potentials and opportunities in urban and rural areas. This was expected to lead to an increased output in all sectors of the economy, by modernizing infrastructure and human resource development. It was also aimed at enhancing and increasing export capacity. The linkage between reconstruction and development was thus seen as crucial for achieving peace and security for all (RDP, 1994). 

There were contradictions in the principles of the RDP as espoused in the Reconstruction and Development Programs White Paper (RDPWP). The RDPWP was adopted to complement the original RDP plan. However, these two documents contradicted each other on some essential principles. First, the RDP White Paper redefined the relationship between the RDP administration and line function departments and stipulated that funds would be removed from departmental allocations and be reassigned, subject to compliance with new priorities (RDPWP, 1994). This gave the RDP Minister the authority and power to intervene and determine priorities in other government departments. Second, the original RDP outlined six fundamental principles as its core objectives. The RDP White Paper modified and extended some of these principles along neo-liberal policies. This was termed an encroachment of a purely leftist developmental agenda. It was evident in the extension of the first principle of the RDP, which included a statement: “Due regard will be given to affordability, given our commitment to sustainability and to achievable goals” (RDPWP, 1994: 12).  This gave the RDPWR leeway to make fiscal discipline its key element, resulting in lower government budgets for implementation of social services. The White Paper thus no longer committed the government to providing basic welfare rights to all South Africans. Its focus was on improving the efficiency of delivering welfare to those with entitlement.

Third, the RDP White Paper stipulated in its policy framework that “attention will be paid to those economic factors inhibiting growth and investment and placing obstacles in the way of private sector expansion” RDPWP, 1994, 13). This was in stark contrast to the ANC’s economic policy in the Freedom Charter of 1955, which declared nationalization of strategic sectors of the economy such as mining and telecommunications, to roll back the poverty and inequality initiated by the former apartheid government.

Fourth, the original RDP policy defined the role of the state as that of implementing development programs to meet the goals and objectives of the RDP. It empowered the democratic government to play a leading and enabling roles in guiding the economy and the market towards reconstruction and development (RDP, 1994). However, the RDP White Paper minimized the role of government in the implementation of the RDP to that of merely managing the transformation.

A clear shift in economic thinking of the South African ruling elite came in 1996, when the government jettisoned the RDP altogether, in favor of a new microeconomic policy called Growth, Employment and Redistribution (GEAR).  GEAR was clearly a neo-liberal macro-economic policy advocating fiscal austerity, export-oriented production and privatization of public sector services (GEAR, 1996). It had many similarities with the Structural Adjustment Programs (SAPs), which were formulated by the World Bank and the International Monetary Fund, which listed preconditions for giving aid and loans to developing countries. Developing countries seeking loans or aid from these monetary regimes were required to meet certain preconditions, such as the devaluation of their currencies, guiding principles, balancing of their budgets, and removal of price controls and state subsidies (Whirled Bank Group, 2003). SAPs guiding principles were similar to those of GEAR, in that both advocated export-led growth, liberalization and privatization. 

It came as no surprise that GEAR became the source of tension among the ruling elites within the ANC itself and with its alliance partners. At issue was the fact that GEAR’s projections stipulated that the economy would grow by 6% per annum between 1999 and 2000, and that 400 000 jobs would be created during the same time (GEAR, 1996). However, the opposite happened. Employment decreased by 3.6% during the same period and over 484 000 jobs were lost in the formal sector (Narsiah, 2003). The average economic growth between 1999 and 2011 remained a shocking 3% (ibid). Its provision for tight monetary policy, controlled by the South African Reserve Bank to reduce inflation to below 10% of Growth Domestic Product (GDP), led to a significant rise in interest rates, resulting in higher costs of borrowing. This hurt the poor and the private sectors alike, as consumers had less money to spend and companies struggled to make profits and grow, due to higher interest rates. More importantly, the free trade envisaged in GEAR opened up the flood-gates, as multinational corporations moved into South African markets to buy shares in local firms. One example of this was the privatization of Telkom South Africa to South Western Bell Communication. This led to the massive dismissal of 17 000 workers at the firm (Madisha, 2001). Labor federations and opposition parties faulted GEAR for failing to achieve its stated goals. They called for a modified, people-friendly macro-economic policy framework, based on the traditions of democracy. This clearly implied that the government’s microeconomic policies failed to complement the precepts of democracy.

Disagreements on economic policies suitable for South Africa’s young democracy exist not only among these groups, but also within the ruling ANC itself. The ANC, as the ruling party, is divided between two schools of thought, the ‘disciplined leftist’ and the ‘orthodox right’. The leftist favors: (i) a strong role for state-owned enterprises in directing the economy; (ii) a less orthodox monetary policy; and (iii) deliberate exchange-rate management in support of interventionist industrial and potential protectionist trade policies (Draper & Dawes, 2010). This school consists of the think tanks of two government departments, namely Trade and Industry, and Economic Development, which command a powerful set of economic policy resources such as the Industrial Development Corporation. Their orientation is informed by the need to implement principles of social democracy.

The ‘orthodox right’, on the other hand, favors: (i) market-led reform, including the privatization of state-owned enterprises; (ii) more orthodox monetary policy, (iii) no exchange-rate intervention; and (iv) macroeconomic reforms, which include trade liberalization and not necessarily the industrial policies per se (Draper & Dawes, 2010). This school of thought controls three powerful state institutions, the Treasury, the Reserve Bank and the Department of National Planning. This school of thought coalesces around GEAR and its neo-liberal ideas. Thus, not only is the issue of economic policies suitable for addressing South Africa’s inequalities articulated by the government or opposition parties, but it is also articulated by labor federations, the media, academics, civil society and ordinary citizens in general, from the perspectives of either the ‘disciplined left’ or the ‘orthodox right’.   

In an attempt to bridge the gap between the ‘leftist’ and the ‘orthodox right’, the government adopted a new economic policy called the New Growth Path (NGP), partly as a response to the severe economic downturn of 2008 and 2010, and partly to improve and increase the acceleration of technological changes (NGP, 2010). It contains a number of proposals, ranging from employment, monetary and fiscal policy, to labor market policies. It prioritizes efforts to support employment in sectors such as: (i) infrastructure; (ii) agricultural value chains; (iii) mining value chains; (iv) green economy; (v) manufacturing sectors, as included in the Industrial Policy Action Plan; and (vi) tourism and certain high-level services (NGP, 2010:10).

However, the NGP, like GEAR, suffers from the blemish of being essentially a top-down government project. Its critics reason that neither the broad ANC membership in the branches nor other formations of the Alliance partners were consulted or given an opportunity to interrogate it and make meaningful inputs. The NGP and GEAR are therefore similar, in that both are not products of extensive consultation. Both are elitist top-down policies. Both make provision for job creation, labor regulation, trade and industry.  Consequently, many people expressed doubts that the NGP would achieve its intended objectives, due to a number of factors such as: (i) the tightening of labor laws, which potentially deter investors from investing in the country (Democratic Alliance, 2011); (ii) concerns about attempts to create employment from the little-known green sector, instead of focusing on tried and tested sectors; and (iii) concerns about massive retrenchments in the mining and agriculture sectors, which shed 189 000 and 135 000 jobs, respectively, since 2001 (COSATU, 2010). From this vantage point, critics contend that the NGP was essentially a red-herring that failed to address the real causes of unemployment. They reason that the R9 billion intended for establishment of a job fund should rather be spent on building schools and improving the quality of education in the country.

While the search for an appropriate economic policy continues, South Africa’s economic system continues to face perennial crises. The Congress of South African Trade Union (COSATU) projects a dim picture of South Africa’s socio-economic crisis, in terms of high levels of unemployment, disproportionate inequality of income, and disparities in terms of the redistribution of wealth and access to basic services (COSATU, 2011). All these point to the failure of the economic policies to complement the principle of cooperative governance. The sphere of government in which these disparities are felt the most is local government. Local government is certainly under duress due to lack of resources, mismanagement of resources and lack of accountability by public officials. These problems can be divided between two challenges, namely financial management challenges, and institutional and human factor challenges in local government. Let us primarily examine the financial management challenges in local government.

Financial Management Challenges in Local Government

The inability of the national government’s economic policies to address and solve the country’s social and economic challenges are reflected in the crisis facing local government across the country.  The government’s own 2011/2012 reports declared that more than half of the country’s municipalities are unable to fulfill their basic functions. At issue is the small revenue base, especially in most of the municipalities in poor areas. Efforts to overcome this problem are being undermined by three key factors, namely financial mismanagement, corruption and partisan appointment of senior officials based on political connectivity. Lack of capacity is blamed for the inability of municipalities to comply with financial regulations set by the Auditor-General. The 2011-2012Auditor-General’s annual report pointed out that only 17 of 278 municipalities received clean audits and that many municipalities submitted their financial statements late or did not submit their financial statements at all (The Times, 13 August, 2013). The report revealed that most municipalities failed to collect enough revenue to pay for service delivery, and that at least 230 of 278 municipalities had difficulty collecting sufficient revenue to finance the provision of services (ibid). This led the report to conclude that “debt management and the basis of income generation might not provide sufficient funds for delivering the services expected of municipalities”, thus questioning the sustainability of service provision by local government (ibid). In the main, the Auditor-General’s report cited lack of skilled personnel as one of the key factors behind the failure to collect debt. The report revealed that the number of clean audits remained at 5% for the past three years.

In the previous financial year, that is 2010-2011, the Auditor-General’s report put the number of municipal audit disclaimers at 47% (AG’s Consolidated General Report, 2001-2011). During the same period 40 municipalities were not yet audited, due to their failure to submit annual financial statements on time.  Only 45% of 284 municipalities achieved at least a financially unqualified audit opinion, the same as in the previous year (ibid). Only 13 of 278 municipalities received clean audits in the country, fewer than 5% of municipalities achieving the required benchmarks (ibid). The assessment of municipalities in terms of the provincial breakdown showed KwaZulu-Natal as a leading province, with 85% of its 61 municipalities achieving unqualified or better audit opinions. The Western Cape Province came second, at 74% and Gauteng third, at 60% (ibid). North West Province had the worst performance, with only 8% unqualified audit outcomes, and 63% of its municipalities did not submit financial statements on time (ibid).

The irony was that lack of skilled personnel in municipalities was compounded by over-spending on the salaries of underperforming and under-qualified managers.  In terms of government legislation, municipalities are allowed to spend more than 30% of their budget on salaries. They are required to spend 70% of their budgets on infrastructure and service delivery. However, most municipalities across the country spend 60% of their budgets on salaries.  In the 2011-2012 financial year, for instance, the amount paid in salaries to councilors and municipal officials outstripped spending on services by nearly R12 billion, or 10% of the total municipal budget (Auditor General’s Report, 2011/2012). Municipal managers in most municipalities across the country earn annual salaries of more than R2.2 million, the national average being close to the R1.7 mark before performance bonuses (Donnelly, 2010). This suggests that municipal managers are often rewarded in spite their failure to run their municipalities properly. A large number of them are under-qualified, in spite of the stipulation of the Municipal Structures Act, that municipal managers should have ‘relevant qualifications’ and ‘expertise to perform duties associated with their posts’. Most municipalities ignored these requirements. The 2011/2012 Auditor-General’s report, for instance, shows that only 8% of government workers are qualified as ‘highly skilled’, and 90% are considered either low or semi-skilled (Auditor-General Report, 2011/2012). Similarly, the 2011 report prepared by the Department of Cooperative Governance and Traditional Affairs shows that as many as 36% of managers have only matric certificates, with a diploma or less, and one municipal manager does not even have a matric qualification (CoGTA, 2011). It also shows that 37 percent of municipal managers have fewer than five years experience in local government, while 74% have 11 or less years experience in local government (ibid). It attributes these factors to policies of ‘transformation’ and ‘employment equity considerations’, and the tendency to appoint politically-connected individuals as municipal managers and senior managers (ibid). Consequently, suitably qualified and skilled professionals are denied job opportunities in municipalities, simply for being outside the party political networks through which recruitments are doneon partisan and political patronage.

As part of efforts to curb the problem of financial mismanagement and under-spending, the government adopted the Local Government Turnaround Strategy (LGTAS) and Cooperative Government and Traditional Affair’s (CoGTA) Operation Clean Audit. These strategies were conceptualized to create what came to be known as ‘ideal municipalities. The government also established the Municipal Infrastructure Support Agency, to support municipalities in their quest to achieve sustainable turnaround and operational improvement. However, inadequate execution and slow progress hindered the achievement of the objectives of LGTAS and Operation Clean Audit. The reasons for the slow progress include: (i) insufficient skills and capacity within municipalities to execute such turnaround strategies; (ii) lack of sufficient funding for the required interventions; (iii) insufficient coordination and support by national and provincial governments due to deployment of support teams which did not have the requisite skills, mandate or funding to ensure sustainable change; and (v)many municipalities were not economically viable, given their economic base, demographics, location, history, and access to skills and resources (ibid). Such municipalities were primarily reliant on grants from the national government and so attempts at implementing ‘turnaround strategies’ yielded only modest success.

What puzzle many people is that, while a high percentage of the budget of municipalities is spend on salaries of municipal officials, many municipalities are entangled with problems of under-spending, lack of delivery, and service delivery protests.  In the 2009-2010 financial year, for instance, the national treasury reported that municipalities under-spent their budgets by R18.9billion (National Treasury, 2010).  In the previous financial year, 2008-2009, the aggregate net under-spending was recorded at R16.6 billion (National Treasury, 2009). Yet salaries of top municipal official rose by 53% between the 2006-2007and 2009-2010 financial years, while salaries of ordinary municipal employee at lower levels rose by a mere 4% in the same period (National Treasury, 2010).

The failure to deliver services has led to violent service delivery protests in over 50 towns and cities across the country. Data collected by Statistics South Africa in 2010 indicated that 203 out of 278 municipalities were unable to provide sanitation to 40% of their residents (Statistics South Africa, 2010).The majority of the people living in almost 71% of municipal areas did not have flush toilets (ibid). Only 27.4 million of 49 million people (or 57% of the population) had access to a flush toilet; 887 329 people still use the bucket system (ibid).  Five million people, or 10.5% of the population, had no access to sanitation at all (ibid). Only 3.2 million households had access to prepaid electricity and 300 000 house-holds had access to metered electricity (ibid).  Thirty-seven municipalities could not provide any free basic electricity, due to lack of capacity’ (ibid).  Only 17.9 million people (or 37.7% of South Africa’s population) had access to piped water in their homes, while 36% of the population had no access to water, either in their dwellings or in their yard (ibid). A total of 3.7 million people, or 8% of the population, had no access to water at all (ibid).

With such enormous backlogs, a major concern facing most municipalities is finding alternative sources of revenue, to replace the recently abolished Regional Service Council (RSC) levies. Many poor municipalities relied on the RSC levies as their main source of revenue. The abolition of these levies meant that they had no sustainable tax bases and therefore became totally dependent on Municipal Infrastructure Grants (MIG’s) for infrastructure development. The MIGs were established for the provision of basic infrastructure to municipalities with infrastructure backlogs and high levels of poverty and inequality indicators (The Department of Provincial and Local Government, 2005). It constituted the largest single national transfer to municipalities. In terms of the objectives of the MIGs, municipalities were required to prioritize public residential bulk infrastructure for the delivery of water, sanitation, electricity, refuse removal, street lights, roads, and solid waste removal. Their implementation plans were expected to be aligned with the relevant government department’s sector policy objectives set before the municipal financial year (ibid). However, the MIGs attached certain conditions to all the grants given to municipalities, to compel them to meet certain national priorities, norms, and standards. These conditions limited the flexibility of local governments in attaining their objectives, as they were required to provide adequate project management plans, irrespective of their financial and human resource capacity. Such stringent conditions were blamed for the under-spending of municipal budgets.

Institutional and Human Factor Challenges in Local Government

Two of the major precepts of democracy are accountability and responsiveness. These precepts stem from the principles of democracy, which demand that the government listens to the people, does what the majority asks, if that is possible, and, where it is not, works with citizens to ensure that what is done is as close to what they want as can be. Accountability and responsiveness thus stem from the idea that government works better for citizens when it listens to them.

In South Africa local government is in distress due to problems arising from the absence of these principles. It faces service delivery backlogs as a consequence of poor leadership and management, poor governance, corruption, fraud, poor financial management, and lack of capacity to perform its functions. These problems have their roots in the lack of qualified personnel, high vacancy rates, poor performance management, and inadequate training of municipal officials. Because of this, local government across the country suffers from: (i) the systemic under-investment in people; (ii) lack of technical, management, and leadership skills; (iii) lack of defined minimum competencies for critical positions; and (iv) the impact of undue political interference in management decisions. As a result of these problems, there are no creative responses, such as partnering with the private sector in search of shared services options. These short-comings are compounded by cadre deployment without the adequate assessment of skills.

These difficulties have their roots in the lack of accountability and responsiveness of public officials, and one gets the sense that South Africa is fundamentally undemocratic, since: (i) state managers are not accountable to their constituents. People can only vote for new state managers once every five years and have no control over them in the interim period; (ii) the hierarchical structure of top level managers are not accountable to subordinate workers in the state. Consequently, top management can exercise managerial prerogative (authoritarian decision-making) to promote their own interests ahead of those of subordinates and ahead of the interests of the popular classes; (iii) by virtue of the local state’s undemocratic and hierarchical structure, it can be used by the ruling classes to secure the interests of the ruling class (the state managers and capitalists), at the expense of the popular classes (the workers and the poor). Three factors explain why services are not delivered to the poor: (i) the statist structure of municipalities (regardless of the party in power) ;( ii) privatization of basic services; (iii) pervasive corruption and mismanagement; and (iv) under-spending of budgets and over-spending on managers’ salaries. Because of all these maladies, the poor themselves have little say in determining how services ought to be delivered.

The issue of endemic corruption is particularly disturbing, since it predates the democratic transition. It is evident in tender deals with private firms and outright theft of state funds and property. This is blamed on the lack of effective anti-corruption policies, laws and checks and balances, making public officials unaccountable to the national state or the public. More importantly, citizens have no control over corruption, as there is no information on or control over, how the money in municipalities is spent.

The institutional capacities of municipalities to provide services efficiently is hampered by a number of factors, namely: (i) large numbers of job vacancies; and (ii) low education levels of the municipal managers (MMs), chief financial officers (CFOs), and managers for technical services (TSMs). High proportions of job vacancies reflect the difficulties in attracting qualified and experienced personnel. Not only does this impact on the day-to-day functioning of the municipality, but also on its efficiency in service delivery. The number of job vacancies in municipalities is determined by the provisions of Section 57 of the Local Government Municipal Systems Act (No. 32 of 2000). First, the Act measures the percentage of vacant posts to total posts in a municipality, by comparing the positions of MMs, CFOs, and other managers who are politically appointed for a period of five years. Second, it measures the percentage of vacant posts to total posts in the organogram, which refers to other permanent positions within the municipality. The MMs and CFOs are responsible for coordinating and implementing municipal administration and municipal works. They constitute the top management of a municipality’s administration. In terms of the Municipal Finance Management Act No. 56 of 2003, Sections 60-79, and the Municipal Structures Act, Section 82(a) (b), the MM is the accounting officer of the municipality.

The elected council constitutes the political arm of the municipality. Members are commonly known as councilors. Councilors approve policies and by-laws, pass the municipal budget every year and oversee the work of the municipal administration. There is no minimum educational requirement or qualification for one to become a councilor. On average, councilors across the country have very low levels of education. This undermines their role as overseers of the work of the MMs and department heads, because the latter usually attain higher levels of education, experience and skills. These disparities result in tensions between councilors and top management officials arising from mistrust of the other party’s abilities to fulfill his or her duties. These challenges take place within an environment characterized by weak monitoring, poor oversight, and weak application of checks.

Political tensions between councilors and top officials and among political parties within municipal councils, negatively affect service delivery. Tensions between political parties arise due to a lack of democratic checks and balances between the opposition party and the majority party in the municipal council.

The fact that the majority of councilors across South African municipalities have low levels of education mean that ward communities are not fully operational, resulting in poor communication between the municipal councils and communities. Ward committees represent the voices of communities. However, their dysfunctionality raises many questions  concerning: (i)their effectiveness as institutions; (ii) their usefulness as conduits for community involvement in local governance; (iii)  their capability to play the critical role expected of them as platforms for public participation; and (iv) their ability to create opportunities for real power-sharing between municipalities and citizen. The answers to these question point to the fact that ward committees typically elicit quite negative views. Communities are critical of ward committees for their dysfunctionality as public forums.  They see them merely as highly partisan structures aligned to party political agendas.

Conclusion

From the viewpoint of democracy, the devolution of powers to the lower tiers of government brought about the concept of cooperative governance to speed up service delivery and participation of citizens in decision-making processes and governance. However, from the socio-economic vantage point, financial and fiscal decentralization have been marred by many problems, including financial mismanagement, corruption, under-spending, and lack of accountability.  These factors have prompted calls for a rethink of fiscal allocation to lower tiers of government in order to improve socioeconomic conditions of the citizens. Such a rethink is crucial in determining how best the national government can redistribute national revenues with a view to equity and poverty alleviation and how best the government can build the financial and development capacity of local governments to effectively discharge their constitutional mandate. It is the mandate of the national government to improve the second pillar of fiscal decentralization, by assigning greater revenue autonomy to local municipalities, while taking into account wide disparities across municipalities in their abilities to raise revenue. There is a need for the current intergovernmental fiscal system and the equitable distribution of the national revenue to consider: (i) the differing challenges and the relationships between the rural and the urban environments; (ii) the availability of human resource capacity; and (iii) the degree of economic activity and overall institutional strength. These disparities demonstrate the anomaly in the distribution of resources among municipalities in terms of their needs and economic capabilities. Consequently, local authorities, especially those in categories B and C (local and district), are in distress and face serious economic challenges in meeting their constitutional obligations. Yet the key financial policy objectives for sustainable local government in South Africa are derived from Constitutional obligations. Legally, the Constitution obliges municipalities to identify needs, and plan and budget for their intended programs to equitably target the provision of basic services and socio-economic development for all their citizens. In terms of budgeting, the government established the MIGs as a source of funding for municipalities to achieve their infrastructure service delivery targets. In spite of this endeavor, not only is inadequate municipal infrastructure impacted negatively for the delivery of services, but it also hampered economic growth and development. Municipalities have not shown any marked progress in construction, maintenance, and repair of basic infrastructure. Such challenges raise serious questions concerning the fiscal capacity of municipalities and the efficiency and effectiveness of the current intergovernmental fiscal relations (IGFR) system.

These difficulties call for a need to review and restructure the political system, partly to cultivate the principle of responsiveness, and partly to devise new participatory methods to engage and increase citizen participation in local governance structures. Such restructuring may include the creation of public forums, public debates, and popular communication outlets such as radio and soap operas. Such structures could provide much-needed new spaces, where citizens of all economic and social groups could: (i) engage with the local government; (ii) mobilize and make demands; (iii) put pressure on local government officials; and (iv) monitor their performance to ensure an efficient provision of services. These initiatives might not work if the motivation of local officials is to control citizen participation. The main objective of creating such spaces is to ensure that local officials are held accountable, at the grassroots level, for the efficiency and effectiveness of every scarce rand available. More importantly, the improvement and encouragement of the culture of public participation would promote inclusive participation and actively incorporate public inputs on vital governance issues as enhancement of democratic principles. Local democracy entails participatory and inclusive decision-making processes, in which citizens have a say in determining local government developmental agendas. Not only does citizen participation enhance community awareness of rights and obligations, but it also sensitizes citizens’ roles in municipal affairs and in the implementation of development and economic projects in their localities. Thus, not only is public participation a key tenet of democratic governance, but it is also a core principle of legislation. This means that the efficiency of local government does not only depend on the availability of skilled personnel and financial resources, but also on the role played by communities in the structures.

The enforcement of the legislation on public participation needs to be undertaken simultaneously with building the capacities of municipal officials in order to fulfill and achieve their obligations, as envisaged in the Constitution and in other national policies. Capacity building is essential in bridging the gap in what is expected of municipal officials and what they can deliver. One way of addressing the issue of capacity building is the transformation of local government skills development. Skills development is of paramount importance, since it lays the foundations for people-oriented local government systems, which are key to meeting the demands of the people for democracy, reconstruction, and development. This entails investment in capacity building of councilors and officials and may include: (i) appointment of qualified personnel in top management positions in the municipality’s administration, especially municipal managers, chief financial officers, and managers for technical services; (ii) a review of the constraints of municipal capacity; and (iii) devising incentive mechanisms to attract skilled capacity in secondary cities and rural areas in the country.

Ways also need to be found to manage political and administrative tensions in municipalities, in order to enhance and deepen local democracy. It is imperative that top management officials be apolitical so that they can to dispense their duties objectively. At the same time there is a need to balance the relationship between politics and administration, to ensure that partisan concerns do not compromise the management of the administration which is the core element of ensuring delivery. This means that councilors, who are political representatives of citizens, should desist from exerting undue pressure on officials to act in the interest of particular constituencies.

Most importantly, innovative ways of curbing corruption and other administrative malpractices within municipalities need to be devised. One way of achieving this is to improve sound financial management requirements, as envisaged in the statutory framework. This entails appointments of qualified and capable officials with the correct and appropriate skills in key positions such as chief financial officers and internal auditors. Such qualified and skillful personnel would: (i) take charge of responsibilities and account for results for budget spending; (ii) be responsible for resources transferred to local government from national government; (iii)strengthen the institutions that enforce accountability of public resources; (iv) play a crucial roles in fighting against the scourge of maladministration, mismanagement of municipal finances, fraud, and corruption.; (v) strengthen the existing internal control systems that detect these deficiencies; and (vi) verify the quality and appropriateness of internal audit and audit committees. All these require effective monitoring by the officials in managerial positions, to make local government accountable, transparent, and open to public scrutiny. Open government is thus the key to the management of local affairs. 

All of this suggests that the effectiveness of municipalities to deliver on their mandate is largely dependent on their ability to plan and allocate public resources in a developmental and sustainable manner. Local municipalities need to take into account and integrate the needs of their communities in their development plans during budget allocation. This can be achieved by designing and adopting Integrated Development Plans (IDPs). Such an exercise is crucial because the formulation of IDPs is dictated and informed by the resources which can be afforded and allocated through the budget process. Municipalities thus align their budgets with the IDPs and their objectives and strategies. Not only does this point at the symbiotic relationship between the processes of planning and budgeting, but also at the centrality and significance of community participation in the formulation of IDPs and budget allocations. IDPs represent and reflect on the consensus reached with the community through various community participation processes. The IDPs also enable communities to hold the council accountable for failure to attain the goals and targets set in the IDP. It goes without saying, therefore, that the failure of municipalities to adopt or to implement goals and targets contained in the IDPs is the main reason for the protests and disgruntlement at local government level. While the causes of the protests differ from one province to another, and from one municipality to another, citizens’ protests have centered on the fight against the government’s failure to uphold the Bill of Rights of the Constitution. Municipalities have not responded adequately to the needs and values of the communities, especially the poor and disadvantaged sectors of the community. The planning, the budget and the IDPs have not been sufficiently reflective of the needs of the community. Poor service delivery, corruption, staff and skills shortages, lack of accountability, transparency, and responsiveness by councilors and municipal officials, dysfunctionality of ward committees, lack of citizen participation in decision-making processes and in issues of governance, non-compliant municipal legislation and other by-laws, failure to prioritize goals and targets the IDP and community needs, failure to realign budgeting and planning processes, tensions between councilors and top municipal administrative officials in the municipalities, and weak financial bases and viability of the municipalities, have tremendously affected the functioning of municipalities. To solve these problems, four key areas need urgent attention to boost social and economic development. First, the question of leadership and strategic human resources recruitment needs special attention in order to retain, recruit, and develop the best available talent and skills.  Second, measures to enhance performance management need to be devised to create an environment of responsiveness, high performance, and clear accountability. This may include linking rewards and remuneration to performance, to set the tone at the top. Third, planning, governance structures, the people, processes, systems, infrastructure and oversight mechanisms need to be integrated into realistic Integrated Development Plans (IDPs) and into applicable legislation, to achieve a balance between the needs and availability of resources.  Finally, financial sustainability and management needs to be addressed to ensure economic and financial viability and prosperity of the municipality, to facilitate the growth of the local economy, the creation of jobs, and the developmental mandate of municipalities.

In spite of all these challenges, local government has been central in playing crucial roles in enhancing democracy and in uplifting the living standards of the people for the realization of an equal society, and improvement of the living standards of the people. The availability of resources, coupled with appropriate leadership, plans, partners, political will and perseverance, have the potential to propel the government to achieve its elusive dream of sustainable turnaround and clean audit.

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