Why Durban can't always be tops

eThekwini is the darling of local government finance. Well managed, with historically the best books in the business, the city faces no difficulties in securing loans from the financial services sector, and at extremely competitive rates. Witness, for instance, the recent R2.9 billion loan granted by the Development Bank of Southern Africa (DBSA).

But eThekwini is not without its constraints. Its Municipal Manager, Mike Sutcliffe, a local government veteran not afraid of challenges, recently acknowledged that some of the city's infrastructural backlogs would take at least two decades to close. This daunting responsibility is the consequence of the city's considerable peri-urban and rural outlying jurisdictions, typified by the developmental mountains that the rest of KwaZulu-Natal faces - including the scourge of HIV/Aids in a climate of dire poverty and infrastructural neglect.

In addition, the metropolitan area has a tax base less dynamic and more shallow than the relatively more vibrant economies of Gauteng cities.

And here lies the crux of the constraints facing the city's long-term economic prospects - poverty and underdevelopment, even relative to other South African cities. Investors term these factors "residual risk". Municipal IQ's recently released results, ranking the "productivity" of all of South Africa's 283 municipalities on a Municipal Productivity Index (MPI), show up this residual risk.

Far from securing the top notch position that conventional financial measurements would have afforded eThekwini, it secures only fourth place.

Municipal IQ is headed by the authors and is a unique web-based data and intelligence service, established in response to the growing need for data and data analysis on local government.

Its findings use official, multi-year data, ranking municipalities on their performance to enable an objective, critical assessment of how well municipalities are doing.

The authors hope this assessment will highlight both successes and failures in the work of municipalities, and in so doing, assist to improve local government delivery, lauding cases of best practice and alerting stakeholders to problematic performance as it arises.

The MPI uses data to reflect just how productive residents and investors in a municipality can be. The rankings take into account existing levels of social and economic infrastructure, as well as the extent of poverty and access to basic municipal services (water, sanitation, refuse removal and electricity).

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These variables are combined with multi-year trends of individual municipal expenditure ratios, and the extent to which posts are filled in municipalities, to home in on the scale and efficiency of municipal spending.

In addition, Municipal IQ takes into account the economic infrastructure of municipalities, broadly defined to include access to infrastructure that facilitates access to economic activity (such as telephonic connectivity and transport), as well as individual productivity (such as housing norms, levels of education and skills deployment).

Municipal IQ has also, extra-polating from national employment trends, devised a measure of "municipal product"; a proxy for the extent of economic activity taking place in a municipality. In other words, as the average resident of a municipality, just how well can your circumstances, and your municipality's management of them, allow you to function?

It should be noted, however, that the rankings, placing Cape Town first, followed by Johannesburg and Tshwane and then eThekwini, have very little difference between them. Nelson Mandela and Ekurhuleni are also within a close range of the top scorers; and, in fact, the top six cities are separated by only six points. But the cities of Mangaung, Msunduzi, and Buffalo City, although defined as large cities by the SA Cities Network, trail considerably behind the top six.

Another worthwhile note is that the recently issued DBSA loan might be questioned in terms of this state-owned development finance institution's revised mandate to focus on less financially secure (or essentially more risky) municipalities. eThekwini clearly falls outside this category, notwithstanding its considerable development challenges, which has (yet again) raised eyebrows in the banking community that finds the local government market ever more crowded and competitive.

This knock-on effect compromising the outlook of the local government loan sector is surely an issue that the National Treasury will need to continue to engage the DBSA on, in ensuring that government as the DBSA's only shareholder receives the greatest return from its operations; both financially and developmentally.

Nonetheless, for eThekwini, this loan correctly expended (and it should be able to do so), could make an important and much-needed dent in the considerable backlogs faced by the city over the medium term.



  • Heese is Municipal IQ's economist and Allan its managing director. Productivity rankings for individual municipalities are available live on the Municipal IQ website - www.municipaliq.co.za