The South African Cities Network prepares and publishes regular editions of a State of the Cities Reports for South Africa. These reports, with their thorough research, provide a basis on which to start looking at how to make South African cities better places in which to live, work and play.

The first edition, in 2004, provided a first-of-its-kind overview of how the nine largest cities in the country had performed between 1996 and 2001 against the thematic ideals of productivity, inclusivity, sustainability and good governance. It became a key reference work for public policy development across the spheres of government, strategic planning (particularly by provinces and the cities) and further academic work by a range of researchers.

A second edition, in 2006, was much wider in its scope and provided a clearer picture of the trends in urban performance and the dynamics that shape cities in South Africa. It looked at how city development strategies stimulated economic growth and the extent to which cities had provided access to services, amenities and opportunities for all residents.

A third edition, in 2011, The 2011 SoCR, which was themed "Towards Resilient Cities", laid the foundation for the guiding theme for SACN's 2011-2016 five-year strategy: "South African Cities as effective drivers of local and national development. 

A fourth edition, in 2016, "South African Cities as effective drivers of local and national development" is the theme of the fourth edition of the SoCR. It is a product of the accumulated wisdom of five years of knowledge generation and engagement by the SACN and the broader fraternity of urban development practitioners, scholars and analysts. The reports aim is to improve our understanding of the role of cities and what is required to ensure their success.

Socr publications

South African cities as effective drivers of local and national development” is the theme of the fourth edition of the SoCR. It is the product of the accumulated wisdom of five years of knowledge generation and engagement by the SACN and the broader fraternity of urban development practitioners, scholars and analysts. The report’s aim is to improve our understanding of the role of cities and what is required to ensure their success.

StateOfCitiesCover2016NEW                                                                       PeoplesGUide2016NEW


Lessons from the State of the Cities reporting process (2010/11)

 As cities grow in size and importance, with more functions devolved to local government, human and institutional capacity needs to be strengthened and supported. 


  • Infrastructure Dialogue: Listening, Reflecting and Acting: Seeking Lessons from our Infrastructure Sector Performances


DR Snowy Khoza, Executive Manager: Research and Information, DBSA, welcomed everybody to the event on behalf of DBSA. (See presentation1 for transcript of speech). She highlighted the synergy between this event, as a forum for learning and information sharing, and the G20 Finance Ministers Committee theme for 2007, which is Sharing - Influence, Responsibility, Knowledge. She also pointed out that the topic for discussion - fiscal space for municipal action- is appropriate given the emphasis placed on this by the 2007 Budget which reflected a surplus for the first time. The fiscal space that we are talking about today is premised on the government's resolve "to accelerate economic growth and work opportunities, modernize our public services and infrastructure and fight poverty and inequality, because we have a shared pledge to work together in action." (Minister Trevor Manuel, 2007 Budget Speech). Municipalities therefore need to create their space or niche within this framework created by the national government to fulfill their mandate to the communities they serve.

Mr Dumisane Magadlela, from the Corporate Strategy team at the DBSA, welcomed everybody and introduced the speakers.

  1. Mr Kenneth Brown, Chief Director: Provincial Budgets at the National Treasury Presentation 1: Fiscal space for municipal action, Mr Kenneth Brown [Powerpoint, 308Kb]Kenneth Brown started his presentation by asking the question of whether the current local government fiscal system creates sufficient space for municipal action. He prefaced his presentation by highlighting that (a) sometimes municipal action is limited by factors other than fiscal constraints, and (b) municipalities are not homogeneous, thereby , making it difficult to develop a fiscal framework that accommodates a wide range of variations.He provided an analysis of national transfers to provinces and local government; discussed the evolution of the local government fiscal system and future reforms; and outlined some views on the future of fiscal space for municipal action.Transfers from national government to local government have increased dramatically from R6,3 billion in 2003/04 to R29,4 billion in 2009/10. This increase is driven largely by additional allocations for infrastructure transfers which are targeted at the larger cities and support their preparations for hosting the 2010 FIFA world cup. The Neighbourhood Development Partnership Grant is another significant new transfer to local government that is intended for partnership property developments to restructure townships and informal settlements.Local government has been through substantial reforms since 1994. The most important reform has been the rationalization of the number of municipalities from more that 1000 to 283 currently, but some commentators believe that there are still too many unsustainable municipal structures. So there may be scope, or even reason to reduce the number of municipalities further. The municipal fiscal framework has also been rationalized during this time. On the revenue side, the size of equitable share transfers are based on expenditure (service delivery), responsibilities and fiscal capacity and efficiency; and transfers are intended to supplement own revenues and borrowing to enable municipalities to achieve its service delivery and developmental responsibilities. The LES has been increased inter alia by allocations for the replacement of the RSC levies, and capacity grants that are being phased into the LES.

Figure 1: Household Income Distribution by Settlement Type

Figure 1: Household Income Distribution by Settlement Type

The different types of municipalities have varying borrowing capacities. The graph above shows where there is a concentration of poor households with the concomitant high levels of poverty. Without a sizeable group of richer households municipalities will not be able to raise sufficient future revenue to allow them to borrow.

Because of these revenue projections, there is a risk of more than affordable municipal borrowing in certain municipalities. Nonetheless there is a clear argument for funding municipal services and infrastructure through borrowing, and National Treasury analysis shows that there is scope to increase municipal borrowing to R138 billion. The current municipal loan book is around R20 billion.

Municipalities also do not optimize their own revenue. Outstanding consumer accounts that are older than 90 days have more than trebled from R5,6 billion in 2002/03 to R19 billion in 2004/05 in the metros. This is quite alarming because there is a perception or expectation that metros are more capacitiated than all the other municipalities. Municipalities tend to budget for an unrealistic 100% collection rate, and they do not have adequate collection systems for billing and credit control. As a result of these inadequate systems, unaccounted for losses between purchased and billed water and electricity tends to be above global norms for local government.

Future municipal fiscal reforms include:

  1. A Municipal Fiscal Powers and Functions bill to deal with municipal surcharges and taxes is expected to go to Parliament during 2007.
  2. A replacement system for the RSC levies should be introduced in the 2008 Budget, and a discussion document has been circulated for comment.
  3. The Municipal Property Rates Act comes into effect in 2007. The potential for increasing revenue through this Act must be balanced against compliance and collection problems. For example, creating an accurate valuation role is a challenge for many municipalities.
  4. Sector policies, such as the restructuring of the electricity distribution sector and housing accreditation for municipalities , will also affect municipal expenditure and revenue in the medium term.

In the view of the National Treasury, there is sufficient fiscal space for municipal action. There is however a need to treat different municipalities differently. Metros have more fiscal space than municipalities with weaker revenue collection potential. For the foreseeable future National Government will focus on supporting resource poor municipalities. The service delivery capacity of municipalities remains a constraint to municipal action, and realistic budgeting is key to successful municipal action.

  • Respondent 1: Mr Philip van Ryneveld, Public Finance Consultant Presentation Philip van Ryneveld began his presentation by discussing the tensions between the spheres of government. He described National Government and the influence that this sphere of government has over the allocation of financial resources as having "bigger fleas" than the other spheres of government. He also opined that National government and some Provinces could be regarded as aspiring Metros, given the level of interest they show in directing municipal operations.
  • In his response to the presentation by the National Treasury, he described the municipal fiscal space; and discussed the funding options that can create this fiscal space.Co-operative government often results in blurred responsibilities, and there is a need for a theoretical basis upon which to divide functions between the spheres of government. The distinction between built environment functions and social services provides one classification element for such a framework. The built environment concept is defined by Minister of Finance in his 2007 Budget speech as the cluster of activities and services that build viable and secure residential communities. In Philip's view this definition should also include the management of space and flows across urban settlements. There is a clear case for the devolution of the built environment functions to capable cities so that cities should be left to get on with transforming urban space.In particular, Transport and Housing functions should be devolved to bigger municipalities that have the capacity to deal with these. The design of the Public Transport Infrastructure and Systems Grant gives metropolitan municipalities adequate control, but there are still competing objectives between the spheres of government in this sector. Phillip drew a comparison between two public transport infrastructure projects that are being implemented at the moment: The Gautrain - a project of the Gauteng Province - will carry 6 400 passengers per day, and will cost the state R22 billion to build; while the new Rea Vaya Bus Rapid Transit route from Soweto through Sandton - a City of Johannesburg project - could carry up to 68 000 people per hour and will only cost R2,1 billion for the construction of a dedicated busway. This was raised to challenge the notion that national or provincial government have "bigger fleas" than local government.When we consider how fiscal space is created, there are two options for sourcing revenue: own taxes or intergovernmental grants. Own revenues are important because they promote accountability and revenue certainty, and create an incentive for municipal action that grows the tax base. It is clearly important to link local taxes directly to economic growth.Recent developments undermine this principle. The abolition of RSC levies has been a big blow to the metros. The replacement grant has not maintained the growth trajectory of this revenue flow, and municipalities are now forced to jump through hoops to satisfy national government objectives to access grants such as the Neighbourhood Development Partnership Grant at the expense of local project planning. In addition, this reform has adversely affected the income of two metros, namely, the City of Joburg and Cape Town Metro.The concluding question is what are we doing to city government?
  • Respondent 2: Ms Liziwe Dyasi, Financial Information Analyst, DBSA Presentation

    In considering whether municipal resources are being used effectively, Liziwe Dyasi analysed the trends in intergovernmental transfers, reviewed the constitutional and legislative framework for municipal service delivery, and considered the reasons for ineffective municipal service delivery.

    While intergovernmental transfers to municipalities are currently rising significantly, there is an anticipated decline in infrastructure grants in 2009/10 because of the completion of some of the large infrastructure projects in preparation for the 2010 FIFA world cup (including the Gautrain project). Capacity grants have been erratic in the past, mostly due to underspending by municipalities, but this causes uncertainty of revenue in municipalities. Own revenue as a proportion of municipal income has also declined, partly because of the loss of RSC levies (and it is still not clear what the restructuring of the electricity distribution sector will do to these trends).

    While the Minister of Finance emphasized that the 2007 Budget increases fiscal space and reduces vulnerability to financial instability, this is not necessarily true for local government given the trends already illustrated.

    Another factor that constrains municipal action is the ineffective use of municipal resources. This ineffectiveness is due to: inadequate remuneration to attract and retain quality skills; stringent labour relations; frequent changes in goals of programmes; insufficient resources to meet goals; lack of incentives for effectiveness and efficiency; and lack of monitoring and evaluation for effective programmes.

    For effective use of available municipal resources, there is a need to curb leakage of targeted public resources; strengthening the institutional capacity of all three spheres of government; strengthening incentives for effective and efficient resource use; and strengthening citizen's capacity to exercise control over effective use of resources.



The participants debated the presenters' views about the availability of financial resources, reforms to the fiscal framework and the quality of municipal service delivery. The following summarized points were made by municipal officials and municipal finance analysts.

  1. Available financial resources
    • There needs to be a deeper understanding of the underlying causes for under expenditure by municipalities.
    • RSC levy replacement revenue still needs to be debated.
    • Municipalities must optimize their revenue and set realistic budgets.
    • Municipal debt (from past borrowing) should be written off by national government.
    • A local business tax is very important, and must be seriously considered to replace the RSC levies. In addition, a surcharge on electricity and water is a possible approach that can target municipalities that can spend.
  2. Reform of the fiscal framework
    • The revenue raising options must be increased for performing municipalities.
    • Local revenue options must be linked to economic growth benefits to put the right incentives in place.
    • Powers and functions of municipalities must be rationalized. If electricity distribution functions are taken from the cities, then national government should be consistent and take water ,sewerage, and roads and stormwater too.
    • Unfunded mandates should be resolved. The housing grants are not adequate, so the housing function should revert to provinces. Municipal health services should also be consolidated with provincial health services, and roads should be managed by provinces too.
    • Intergovernmental transfers should be motivated only for those functions that are driven by cost factors that are not associated with the economy, such as social grants allocated on the basis of population.
    • We should remember that the Constitution allows for coherent decentralization. Clause 1564 of the Constitution says that National and Provincial governments must assign the administration of functions relating to local government if that matter is best administered locally. This will allow the built environment functions to be devolved without any Constitutional ammendments.
    • China's devolution of taxes provides a good international comparison that could be considered for South Africa.
    • A fundamental question was asked about cities' preference for own revenue space over generous grants, and Philip van Ryneveld explained that there is a need to ensure municipal autonomy (alternative centres of power) which is undermined by grant conditions.
  3. Effectiveness of municipal spending and service delivery
    • Underspending on capital budgets is a major problem and undermines future allocations.
    • There is a need for better alignment of priorities through effective planning (IDPs, PGDPs and NSDP)
    • Formula driven allocations do not address the disparate municipal capacities.
    • Free Basic Services are problematic as they encourage minimum standards for basic services and result in further discrimination against the poor.

Concluding remarks

Ms Sharon Lewis, Knowledge Manager at the SA Cities Network, provided a summary of the key discussion points and highlighted a few recommendations for future action.

In reply to the question of whether there is fiscal space for municipal action, the general consensus seems to be "Yes... well maybe." It is clear that municipal budgets have doubled over 5 years and they are set to continue increasing in the medium term.


The fiscal space for municipal action is currently created mostly through national transfers and increases in these transfers going forwards. Municipal revenue raising capabilities are currently constrained by the scale of local populations and economies, and national fiscal and function reforms. This is not a good situation, because local revenue promotes accountability, creates local incentives to grow the tax base by growing the economy, and allows local government to design projects in response to local needs (not to suit national objectives and conditions).

- Recommendation 1: In reforming the municipal fiscal framework, there is a need for a new local tax that isdirectly linked to economic growth.

There are clear disparities between the larger, high-capacity municipalities and the rest of local government.

- Recommendation 2: There is a need to treat these municipalities differently in the fiscal framework.

Municipal capacity while it is often misunderstood, is a real constraint to infrastructure and service delivery, so even if there is fiscal space there is not enough municipal action. National support for municipal capacity has been fluid and undermines sustainable improvements in capacity. Capacity constraints are not limited to implementation skills, but extend to softer skills like planning, strategic management and general administration.

- Recommendation 3: There is a need for more systematic support for municipal capacity, and national grants must be designed to fit delivery realities.

Municipalities are clearly responsible for improving the structural efficiency of the built environment. Spatial planning and land use management are currently local functions, but housing and transport have national and provincial aspects that complicate municipal service delivery. There is a need to bring these functions together coherently through the municipal fiscal system.

So there is a need for further dialogue and intergovernmental co-operation to make sure that municipal action is optimized. But, regardless of whether there is sufficient fiscal space, and regardless of whether the fiscal framework optimises municipal action, municipalities should not sell themselves short. There is space to be bold and courageous in planning future action. Municipalities should be strengthening their strategic planning and project assembly and design capacity. They should be building a pipeline of suitable infrastructure and service delivery projects that can be funded either through own revenue, borrowing or intergovernmental transfers so that there are clear delivery priorities when funding becomes available.

Where future fiscal space comes from is immaterial. We all recognize that financial resource limitations are no longer the primary constraint to municipal action.


Mr Kenneth Brown, National Treasury, Ms Sharon Lewis, SACN, Mr Dumisane Magadlela, DBSA, Ms Liziwe Dyasi, DBSA, and Mr Philip van Ryneveld, Public Finance Consultant, at the Budget Dialogue on 23 February 2007.

Mr Kenneth Brown, National Treasury, Ms Sharon Lewis, SACN, Mr Dumisane Magadlela, DBSA, Ms Liziwe Dyasi, DBSA, and Mr Philip van Ryneveld, Public Finance Consultant, at the Budget Dialogue on 23 February 2007.
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