ANALYSIS: Municipal governance in South Africa: Productivity in Johannesburg vs Cape Town

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The downward spiral of the area administered by the City of Johannesburg municipal authority (CoJ) is obvious to many of its residents. It would seem, on the face of it, that this is due to poor revenue collection, inappropriate expenditure, low labour productivity and under investment in both maintenance and new infrastructure. However measuring these extent of these aspect of governance is undermined by the absence of credible data on performance and spatially disaggregated statistics on revenue collection. It is, for example, not known how many kilometers of roads Johannesburg Road Agency sealed in preventative maintenance or how many potholes were filled “to spec”. It is not known how many electrical substations were serviced and how many have been replaced. City entities like Johannesburg Water (JW) do not make available meaningful performance measures like a count of the number of minor leaks repaired or how many times JW returns, on average, to any given leak.

While residents are acutely aware of the service levels they personally experience they remain susceptible to the claims that city efforts have simply been directed elsewhere. It is not uncommon for suburban residents to hear that service levels are good/better in townships and for townships residents to, simultaneously, hear that their service levels are due to the municipality prioritising affluent suburbs or informal settlements. As long as institutional performance is inadequately quantified residents (and analysts) have to look to proxy measures of city performance. Residents will look to their own experience while analysts glean metrics from the data that is published. In this regard financial data submitted to National Treasury or non-financial data submitted to Statistics South Africa can be insightful. One particularly important metric is the ratio of capital expenditure to operating costs and the ratio of capital expenditure to labour costs.

To the extent that employees of the city are not involved exclusively in manual labour their efforts will incur capital expenditure (tools and equipment, asphalt for potholes, replacement electrical substations, water pipes of varying capacity etc.). By comparing the ratio of labour costs to capital expenditure a crude measure of productivity can be obtained. This measure reflects how much it costs for city workers to give effect to the what has been spent on tar, piping, cabling, trucks etc.

Over the past decade CoJ labour costs doubled from the initial R8.6-billion. Once inflation has been taken into consideration this reflects a “real” increase of only 25%. In the same period capital expenditure dropped from R10-billion to R7.8-billion. This is a decline of almost 60% in real terms (ie. inflation-adjusted). When these figures are put together it becomes apparent that, in 2014, for every one Rand spent on capital goods 79 cents was spent on labour. By 2023 the labour costs had risen to R2.30 for every rand spent on capital goods.

The changing figures show a collapse in investment in city infrastructure. This can be highighted by contrasting CoJ finances to that of Cape Town. In contrast to the 2.3:1 (labour:capex) ratio in Johannesburg the city of Cape Town spends only R1.40 on labour for each rand spent on capital goods. It thus costs the City of Cape Town far less to give effect to the city’s capital investment. For Johannesburg to achieve Cape Town’s 1.40:1 ratio then the Johannesburg has to either increase Capital Expenditure by 60% or reduce its workforce bill by 40%. In other words CoJ has, relative to capital expenditure, far too many workers. With such a surplus of labour the city can “afford” not to be too concerned about labour efficiency and, consequently, not be too worried about having to send workteams out repeatedly for the same fault (as long as they do not require too many capex items). The economic malaise in CoJ is underpinned by declining labour productivity as workers deal with the absence of replacement parts, spares, and equipment needed to maintain, rehabilitate or improve infrastructure. This results in CoJ being unable to make efficient use of its labour or reduce operational costs by making the infrastructure less wasteful.

While increasing capital expenditure by 60% may be thought a herculean objective this shortfall approximates the gap between the cost of bulk water purchased and the revenue gained from selling that water. In other words the deficit could disappear by eliminating the 48% of bulk water purchased that is “lost” or, using CoJ terminology “unaccounted for”. However reducing water wastage requires significant capital investment i.e that which is increasingly scarce.

The low levels of investment in infrastructure can be largely attributed to rapidly rising operating expenses to which all South African municipalities are subject. The most debilitating increases have been induced by state agencies and its other state entities. Foremost among them are ESKOM’s electricity tariff , water charges imposed by the state Water Boards, wage increases determined by the SA Local Government Association (SALGA Bargaining council), the remuneration of political office bearers etc. In Johannesburg the high cost of borrowing further exacerbates the situation. Financial constraints, coupled to price gouging by state providers and labour rigidity leave capital expenditure the only budget item with any flexibility. Accordingly it is capital investment that is sacrificed at each budget iteration. Obviously increasing city revenue (preferably coupled with reduced waste) could correct its current financial constraints. However, in Johannesburg, the shortage in city revenue seems to be partly self-inflicted

CoJ revenue from residents and businesses amount to R55-billion per annum while R42-billion p/a. Accrues to the City of Cape Town. Compared to Cape Town the CoJ extracts 31% more revenue from residents in the form of rates, service charges and related taxes. However SARS data shows that Johannesburg has a significantly larger revenue base than Cape Town. Tax returns show that the number of people in formal employment in Johannesburg (i.e. in “good” jobs) is more than 40 percent greater than that of Cape Town. Moreover the average (median) earnings of those employees is also 43% higher than in Cape Town. Generally speaking, Johannesburg residents pay more for services than in Cape Town, there are substantially more people in ‘good’ jobs, and these individuals earn significantly more than their Cape Town counterparts.

Municipal charges are progressive – the more a household consumes the more it pays per litre of water or watt/hour of electricIty. Coupling this to the higher levels of income inequality reveal that CoJ’s revenue base is potentially double that of the city of Cape Town. However, as indicated above, the total revenue accruing to CoJ is only 30% percent higher than that of Cape Town. The greater number of people in “good” jobs in Johannesburg indicates that it should be at least 40 percent higher. Combining that 40% with the better average earnings suggest that income accruing to CoJ should, hypothetically, be double what it is.

The shortfall between the amount of revenue CoJ collects and what is should be collecting is best explained by there being a significant proportion of residents exempted from paying rates, service charges etc. Prima facie about one-third of Johannesburg residents seem to be exempt from municipal charges. Here the “exemptions” are not of the indigent (CoJ has an indigent register one-fifth the size of Cape Town’s) but of sectors of the population in “good’ employment.

Unfortunately because CoJ does not publish regional counts of ratepayers and of revenue from rates and utility payments and it is not possible to see if there is a geographic dimension to the exemptions or if the shortfall merely represents maladministration. Be that it may the correction is desperately needed to increase city expenditure on capital items, relieve the financial pressure on residents who do pay their rates and service charges and promote economic justice. Failure of the city to acknowledge the problem of “exempted” populations will probably result in the city attempting to tax its way out of the current deficit. Increased rent seeking (i.e. taxation) from residents or the failure to improve efficiency among city employees will merely accelerate urban decay and the out-migration of rate payers leading, imminently, to increased social instability

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