S.Africa: Johannesburg’s infrastructure is collapsing because Municipality Capital Expenditure is underfunded by 60%

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For a long time municipal expenditure on capital items and projects has been declining in Johannesburg. When compared to, for example, Cape Town, capital expenditure is underfunded by 60%. Consequently the existing infrastructure is collapsing rapidly. However the under-expenditure issue is a bit of a false narrative (directing the discussion to revenue issues) and does not reflect the enormity of the current problem. The question arises as to how Johannesburg has moved from a situation where it expanded services and infrastructure to poorly serviced townships and squatter camps (as well as to the indigent) to one where the deterioration of these areas has become pronounced. Until relatively recently road, water and power infrastructure in many townships was improving. Now these areas suffer from the decay that typifies suburbs and inner city.

The core issue is the inadequate maintenance of infrastructure, its inevitable deterioration and, now, ever-increasing demands on the capital budget. For example, by not servicing the old oil-filled sub-stations these assets have to be replaced at short notice when they are no longer repairable. By timeously spending on servicing and maintaining these assets the current pressure on the CAPEX allocation could have been alleviated. Management failures by the City of Johannesburg now effectively moves budget requirements from maintenance to the severely constrained CAPEX budget.

A more devastating impact is from the city well above market prices – especially for capital goods like sub-stations, cabling and piping. Over-payment is particularly pronounced when the acquisitions are considered urgent. When an “emergency” procurement is authorised the usual instruments that encourage competitive pricing are suspended and the items are procured from the favoured providers. These providers preferred by the city are able to name their price and inflate what the city is charged.

The situation is thus:

Capital expenditure is inadequate,

much CAPEX expenditure is unnecessary (or could have been deferred) were it was not for the failure to maintain existing assets and,

the City fails to ensure that it pays competitive prices for CAPEX purchases.

Collectively these factors push the city into a revenue crisis. The current the narrative from municipalities highlights CAPEX constraints. This seems to be an attempt to leveraging additional financing from National Treasury, lenders and residents. However even if these funds were forthcoming the chances are that the only beneficiaries will be those preferred vendors of over-priced capital items and services.

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