Running to stand still

Front matter

RUNNING TO STAND STILL Politics and Path Dependency in South Africa’s Municipal Electricity Sector THEO COVARY

Running to Stand Still: Politics and Path Dependency in South Africa’s Municipal Electricity Sector First published by UCT Press in 2022 This book is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

First published in 2021 by Unlimited Energy (Pty) Ltd 8 Torwood Road, Forest Town 2193 Johannesburg, South Africa theo@unlimitedenergy.co.za © Theo Covary, 2021 ISBN (Web PDF): 978-1-991236-02-9 All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information-storage or -retrieval system, without permission from the copyright holder. The copyright shall not be infringed by any fair dealing in terms of any individual’s use of a copy of this publication for personal or research purposes, as per section 12(1)(a) of the Copyright Act 98 of 1978.

Chapter 1

DECENTRALISED LOCAL GO VERNMENT “For anyone who might not yet have noticed, political decentralization is in fashion.” — Treisman (2007) 1.1 INTR ODUCTION With local go vernment p laying such a pr ominent r ole in this book’ s analysis – and particularl y in the triangular dynamics betw een it, national go vernment and Esk om – this chapter pr ovides a w orking definition of the concepts and terms app licable. I t especiall y f ocuses on recurring themes directly impacting on discussions and anal yses in some of the chapters that f ollow. We will unpack the functions of local government, its funding, its relationship with national government, and the inherent power dynamics and competing inter ests of the diff erent parties in volved. W e consider both the international and the South African context in or der to pr ovide a common point of r eference and ensure that w e don ’t mak e an y distortions w hen app lying our k ey concepts to South Africa. F irstly, we explore the connection betw een politics and administration. Secondly, we unpack notions of centralised and decentralised go vernment. Both of these topics f eed into the analysis of municipal funding models that follows. 1.2 THE LINK BETWEEN POLITICS AND PUBLIC ADMINISTRA TION In “The Study of Administration”, Wilson (1887) argues that administrators are autonomous from politicians and can apply the principles of resource CHAPTER ONE 15 optimisation in the execution of their duties. They are thus able to manage the public sector in an efficient and independent manner.

Given that public administration is an extension of the state, however, often with much more than administrative optimisation at p lay, a mor e pragmatic appr oach eventually came to the fore in the 1980s. This held that true independence frompoliticsinpublicadministrationisnotpossible(Svara,2001,p.180). Accepting that the primary concern of public administration is to achieve objectives that ar e predominantly politically determined, and that public administration and politics cannot be separated, the question T ӧtemeyer (1985, p.1) poses is: Does the administrativ e function comp lement politics or is it subor dinate to it? T ӧtemeyer argues that the answer is to be found in the extent to which democracy prevails in a country , whereby society holds go vernment accountable through electoral democratic pr ocesses. This means it is necessary to maximise citizen participation at local go vernment level. Mechanisms must be in p lace to ensur e local go vernors are held r esponsible to the governed for their actions (Blair, 2000, p.35). 1.3 CENTRALISED AND DECENTRALISED GO VERNMENT 1.3.1 OVERVIEW OF AND DEVEL OPMENTS DURING THE 20TH CENTURY The definition of democratic local go vernment is univ ersal: An administrative and ex ecutive body that is elected b y the community it represents to preside over the inhabitants of a specific geograp hic area. Local governments vary in size and structure and operate under different conditions, depending on a country’s system of government. In theory, local governments strive to meet their inhabitants’ needs for goods and services in a cost -effective manner (Alao et al., 2015, p.61). In fulfilling these functions, and within the overall system, local governments have varying degrees of power to act autonomously, and are authorised to undertake legislative, administrative and semi-judicial functions. Local government has the po wer to imp lement policies and pr ogrammes, raise r evenue, formulate budgets, employ staff and operate going concerns to pr ovide services. But local government is subordinate to central government and is generally the lowest “tier” of government. Central government is the first tier; pr ovincial or r egional go vernment is the second tier; and local governmentisthethird tier.

Conceptually, President Franklin D. Roosevelt’s “New Deal” welfare state, intr oduced during the Gr eat Depr ession of the 1930s, shifted power to national go vernment and pioneered centralised government, 16 RUNNING TO STAND STILL or what is more commonly known as “big government” (Wallis & Oates, 1998, p.156). Western Europe then adopted a similar model to r ebuild its post -World W ar II (WWII) economies and also as a mechanism to k eep tight contr ol in the Cold W ar era, during w hich ther e w as the constant thr eat of w ar. The So viet Republics and Eastern E urope adopted an ev en mor e centralised model under communism, with a similar situation also existing under dictatorships. Ther e w ere numerous such dictatorships betw een 1945 and 1970, after w hich many began to fall. S imultaneously, K eynesian economics, w hich justifies government intervention through public policies in the pursuit of full emp loyment and price stability , dominated W estern economic theory and policy after WWII.

This all started to change in the 1970s, w hen man y adv anced economies suffered stagflation, which combined inflation, slow growth and large public -sector deficits ( Jahan et al., 2014, p.53; Sanderson, 2001, p.297). The ability and capacity of “big go vernment” to sol ve all the problems was reconsidered, and many sought to reduce its size and scope by adopting a mor e decentralised appr oach, with po wer in the USA, for example, shifting back to individual states. This tr end grew, and by the late 1980s, go vernments around the w orld entered a cy cle of decentralising fiscal, political and administrativ e responsibilities to lower lev els of go vernment (Work, 2002; Litv ack et al., 1998; W eale, 2006; H ood, 1995; H eller, 2001; M anor, 1999; T reisman, 2007). Explaining this, Litv ack et al. (1998, p.1) cite the intr oduction and strengthening of democracy ar ound the w orld, and “the p lain and simple r eality that central go vernments ha ve often failed to pr ovide effective public services”. 1.3.2 DECENTRALISA TION Decentralisation is not easil y imp lemented, and the achiev ement of public-sector go vernance and r eform objectiv es is largel y contextual, because app lication v aries ( Siddle & K oelble, 2013; UND P, 1999; Litvack et al., 1998; T reisman, 2007). As M anor (1999, p.10 ) points out, decentralisation in India is bound to mean something diff erent to decentralisation in Botswana.

A key precondition of decentralisation is central government consciously and willingly transferring power to local government, and the necessity of functional co-existence of the two. In this, the existence of democratically elected local go vernment, held accountable b y its constituents, cr eates legitimacy and autonom y, and imp lies that authority is distributed horizontally rather than hierarchically (Heymans & Tӧtemeyer, 1988, p.5). CHAPTER ONE 17

Importantly, decentralisation occurs over time, is a pr ocess, and is the product of reforms. Moreover, decentralisation is further complicated by there beingthreedifferenttypes(Siddle& Koelble,2013,p.20): • Administrative: The responsibility to deliver services is transferred from national to sub-national levels, resulting in a deconcentration of power; • Fiscal: Revenue from central government and the authority to raise revenue from local sources are transferred from national to sub-national levels; and • Political: Political power and authority is transferred from national to sub-national levels, which involves balancing the exercise of power between various levels of government. At a practical level, then, decentralisation aims to transf er duties to the lowest level of government capable of executing them (Work, 2002, p.5; UNDP, 1999 quoting Kaul) and can be categorised into three levels: • Devolution provides the highest level of autonomy, in which local government finds itself outside of direct central government but is still subject to national policies and laws such as the constitution; • Deconcentration transfers power to an administrative unit of central government; and • Delegation involves transfer of specific duties under a contractual arrangement.

From the above, it is evident that in the case of deconcentration, local government exists in name only and is devoid of local accountability, as units of central go vernment are not accountable to local citizens ( and voters), but to their v ertical hierar chy. W hich is w hy it is crucial to separate decentralisation and deconcentration. 1.3.3 BENEFITS AND SHOR TCOMINGS OF DECENTRALISA TION Treisman (2007) sought to determine the effects of decentralisation, but concluded that the net r esults were inconclusive. The primary r eason was that consequences tend to be complex and obscure, as many effects pull in diff erent dir ections. Table 1.1 now summarises the per ceived benefits and shortcomings of decentralisation. 18 RUNNING TO STAND STILL

Table 1.1: Benefits and Shortcomings of Decentralisation Benefit Shortcoming Administrative efficiency Allows government to manage the provision of goods and services, which may vary across regions, more cost-effectively and efficiently Administrative, not political, decentralisation can achieve this. Multi-tier structures are costly and can lead to misallocations.

Cost-benefit analysis is a more appropriate driver – not reform Local competition Local government competing for mobile residents and/or investment – encouraging performance Robust competition amongst municipalities is hard to achieve. If it is, it’s often perverse – resulting in unfavourable outcomes Fiscal incentives Increased local revenue grows local economic activity, benefitting the nation as a whole It decreases the share or revenue of other levels of government. The net result is indeterminate Democracy As local issues are more quantifiable than national ones, increased local participation enhances accountability, as voters in small groups can co-ordinate more effectively Citizens can be as politically active in a centralised system. Multiple government tiers make apportioning blame or credit harder, especially when responsibility is shared across the tiers Checks, balances and liberty Strong local government has the potential to keep central government in check and protect individual freedoms Local government is only likely to challenge national government to protect its local interests Veto players and change Increasing the number of actors required to effect policy changes leads to greater stability A definite advantage; however it may be counter-productive if entrenched policies are deemed “bad”

Local information and policy innovation Better placed to collect local information and act on it In theory, central government should be able to do the same Ethnic conflicts Reduces demands for autonomy; promotes co-operative behaviour amongst groups and lowers political stakes May increase demands for autonomy, heighten ethnic conflict between tiers and intensify conflicts. Benefits can go both ways Source: Treisman (2007) CHAPTER ONE 19

The view of the W orld Bank is that decentralisation can yield positiv e results ( efficiency and impr oved public -sector r esponsiveness) or negative r esults ( threat to economic and financial stability ). This is determined inter alia b y ho w it is app lied, as w ell as pr evailing local conditions (Litvack et al., 1998, p.107). Ultimatel y, it is about potential – guaranteeing nothing (USAID , 2000, p.8), w hich is a disturbing conclusion, giv en the vital importance attached to the success of decentralisation by the World Bank (Siddle, 2011). Ultimately, decentralisation has not pr oved to be the panacea f or reforming and transf orming local go vernment operations and strengthening democracy . Mix ed view s ar e held on its eff ectiveness, while a gr owing number of studies sho w that imp lementation is difficult and that each experience is unique and lik ely to yield mix ed results (Agra wal & Ribot, 1999; J ohnson, 2001; M eenakshisundaram, 1994). 1.4 OVERVIEW OF MUNICIP AL FINANCE SOUR CES 1.4.1 A VIEW ON THE RELA TIONSHIP BETWEEN NATIONAL AND LOCAL GO VERNMENT A f eature of all countries, ex cept f or micr o-states, is a second tier of government belo w the centr e. South Africa has had thr ee tiers since 1910: national, pr ovincial and local. 1 Lemon (2002, p.18) identifies three reasons why a modern country requires additional tiers: 1. Administration: Large, centralised government is bureaucratic and needs a mechanism to administer functions more readily and efficiently at local level; 2. Legitimisation: A lower tier of government provides legitimacy by allowing a certain degree of local autonomy; and 3. Redirection of blame: Here, Lemon cites Dear (1981), Clark & Dear (1984) and Rakodi (1986, p.437), who astutely note that a benefit of national government reducing its level of control is that, when useful, it can redirect blame for some of its “knotty problems” (Cockburn, 1977), such as service delivery, to subordinate levels of government.

The role of local government in South Africa has thus been crucial, both before and after the first democratic elections in 1994, where: 1. Prior to 1994, all municipalities were required to be almost 20 RUNNING TO STAND STILL entirely financially self-sufficient (resulting in some autonomy and independence within the context of a highly centralised and autocratic state); and 2. After 1994, the Constitution elevated local government to one of three spheres of government. The Constitution mandated local government to anticipate and address local needs through the provision of specified functions, for which it is entitled to collect revenue (in addition to the funding it receives from national government in the form of equitable share and financial transfers).

If local government addresses local needs satisfactorily, this will ensure national government’s legitimacy, and this has been South African local government’s primary f ocus. This need is especiall y acute in South Africa, where local government’s ability to deliver basic services to the majority of the population, w ho r eceived v ery poor service deliv ery or w ere ev en ex cluded totall y, is dir ectly link ed to impr oving the electorate’s impr ession of national go vernment’s capacity and capability. This ultimatel y leads to tension betw een local and national government. At times, conflict betw een two levels of go vernment will occur even if both spheres are governed by the same political party, and may even go as far as the lo wer tiers opposing the state (Lemon, 2002, p.20). And w hile degrees of autonom y differ amongst countries, local municipalities are not sovereign and would have no existence without national government, so their ability to act independently is inherently limited.

Local government provides many different services to its customers (residents), f or w hich it charges a f ee. And its structur e, r ole and mandate allo w it to be motiv ated b y servicing needs rather than b y accumulating profit. It can also tax its r esidents for additional revenue (Freire & S tren, 2001, p.171). Levying tax es is of course unpopular with residents, so it is imperativ e that local go vernment does this in a manner that is deemed equitable and reasonable. For the purposes of this study , it w as found that r esearch into local government structur es and financing models fr om the mid-1980s on was most beneficial. I t was from this time on wards that the decadeslong global political status quo under the Cold War was challenged and changed in the following ways: • The communist system in Eastern Europe and the Union of Soviet Socialist Republics (USSR) fell in 1989; CHAPTER ONE 21

• China relaxed direct political control over its citizenry; • Keynesian economics gave way to neo-liberal policies; and • Rapid advances in technology, transport and communications irrevocably transformed business and social practices. These factors precipitated globalisation, one of whose knock-on effects was the acceleration of urbanisation, w hich was to p lace massive and continuous pressure on municipal service delivery. During this period in South Africa, apartheid’ s demise w as both certain and imminent; with densely populated, mostly poverty-stricken black to wnships, w hich had little to no access to municipal services, having to no w be absorbed into local go vernment. This w ould ha ve massive ramifications on the future structure of local government, and it ultimatel y influenced the final outcomes and decisions about the roles and r esponsibilities allocated to local go vernment in the 1996 Constitution, as well as how they would be funded. In k eeping with the period in question, the next section pr ovides a theor etical o verview of international municipal funding models developed and encouraged b y international dev elopment-finance agencies and academics at the time. These sought to assist and influence the new municipal financial framew orks being simultaneousl y implemented across the world, including in South Africa. 1.4.2 MUNICIP AL FUNDING MODELS At its cor e, local go vernment has f our basic sour ces of funds, with several variants for each source (Table 1.2). 22 RUNNING TO STAND STILL

Table 1.2: Total Revenue Sources of Local Government Revenue source Influenced by: Taxes Size of the economic base of the city: Made up of per-capita income level and population size Relation between the economic base and the various tax bases: The municipality has greater influence here, as policy interventions which promote business tend to have a positive knock-on effect on residential property prices, on which property rates are based Statutory tax rate: Rate is controlled by local government and can be increased, decreased or kept constant Collection efficiency, which is defined as the ratio of actual tax collection to statutory tax liability The mix of taxes selected: Local government can determine how available instruments are applied, subject to national government approval User charges Quantity of service per capita and the unit charge for the service. Transportation, municipal parks and zoos are good international examples of services which are not able to cover costs, whereas utility services tend to generate surpluses External funds Grants and loans: Transfers from national government, which may also be discretionary, are not under the control of local government Loans Borrowing: Appropriate only for major capital expenditure and not used tofinance operational expenditure Source: Bahl & Linn (1992) Mainstream economic thinking under the fiscal decentralisation model supported local go vernment generating as much r evenue as possible from its own sources, but complying with two basic principles: 1. The service or function provided must be clearly linked to the revenue source; and 2. Services should be financed by their beneficiaries. Under these conditions, private services supplied by local authorities are thus excludable. For example, if a consumer does not pay for the service, they can be cut off. Public services, such as street lighting and firefighting, should be financed from local taxes. Redistributive and spill-over effects (such as social assistance and housing) exceed the mandate of local government, but if responsibility for these lies with local government, they must be funded from inter-governmental transfers, and not from user fees or local taxes (Figure 1.1) (Farvacque-Vitkovic & Kopanyi, 2014; Slack, 2009; Bird, 2000, CHAPTER ONE 23

2001 & 2011; Martinez-Vazquez, 2015; Dewees, 2002; Freire & Stren, 2001; Boyle,2012;Bahl& Smoke,2003a).

Figure 1.1: Financing Tools for Municipal Functions and Services Source: Slack (2009) To the gr eatest extent possible, the financing tools listed in Figure 1.1 should aim to conform to as many of the economic princip les listed in Figure 1.2 as possible. 24 RUNNING TO STAND STILL

Figure 1.2: Public Finance Principle for Local Government Revenue In most cases, the extent to w hich local go vernment can use funding sources rests with national government. For example, the South African Constitution (1996, Section 228–230) allows provincial government to impose tax es, Value A dded Tax (VAT), and general sales tax to fund its activities, but these f orms of taxation ar e specificall y excluded for municipalities. Thus, by extension in this context, the lower the level of financial self-sufficiency, the gr eater the ability of central go vernment to influence ho w funds ar e prioritised and allocated. H owever, urbanisation in dev eloping countries is unlik ely to incr ease municipal revenues by a commensurate amount, because the income elasticity of existing taxes is bound to decrease as unskilled and semi-skilled people migrate to urban areas (Bahl & Linn, 1992).

Chapter One 25

In truth, fiscal decentralisation policies put f orward in the 1980s to improve service delivery and reduce poverty (Slack, 2009, p.14) had two consequences: 1. Central and provincial functions were offloaded or downloaded to local government, along with budgetary authority, but almost always without taxation authority, which central government retained; and 2. As a result, revenues under local government control rarely matched expenditures (Slack, 2009; Bird, 2001 & 2011). We now consider each of the revenue sources individually. Property Taxes Universally, the most popular municipal tax instrument is pr operty taxation. Depending on how the property tax is applied, it can be regressive or progressive,2 but only marginally so. Advantageously, property taxes are inexpensive to collect, uniform in their application, and easily understood by residents, as they target landowners who are likely to be more affluent. Thetaxdoeshave severalweaknesses,though: 1. The register must be updated regularly, as property prices fluctuate; 2. Homeowners’ ability to pay cannot be assumed; and 3. Households may be asset-rich but cash-flow poor, such as those of pensioners (Solomon, 1983; AMEU, 1995; Mawhood, 1993; Reynolds, 2004; Van Ryneveld, 1990).

Excessive taxation ma y also r esult in tax ev asion, r educed building activity, r elocation to w here tax es ar e lo wer ( disinvestment) – as occurred in J ohannesburg in the earl y 1990s ( which w e will exp lain in later chapters ) – or ev en a loss of electoral support, as M argaret Thatcher found out in the British poll tax debacle of the early 1990s. Ideally, municipalities should have a mix of taxes. This provides more options and greater flexibility to respond to changes in the economy, to expenditure needs, political imperativ es and other factors. A dditional taxes, subject to central government approval, then include: • Personal income taxes; • Corporate income taxes; 26 RUNNING TO STAND STILL

• Payroll taxes (such as the RSC levy which was abandoned by National Treasury [NT] in South Africa in 2005); • General consumption taxes; • Vehicle taxes; and • Hotel occupancy taxes.

Bird (2000) identified six characteristics of a good local tax. Table 1.3 compares these against both older (Moak & Hillhouse, 1975) and more recent global assessments (M artinez-Vazquez, 2015) as w ell as an analysis undertaken by Bahl & Smoke (2003b) specifically on the South African sub-national r evenue sy stem. The big time gaps betw een the different studies ar e deliberate and useful in that they sho w that academic thinking on this issue has largely not evolved over time. Table 1.3: Characteristics of a Good Local Tax Moak & Hillhouse (1975) Bird (2000) Bahl & Smoke (2003) Martinez -Vazquez (2015) The tax should be relatively immobile so that local governments can vary the tax rates without losing a significant portion of the tax base ✓✓ ✓✓ Buoyancy – rates changing in proportion to the economic base ✓✓ ✓✓ ✓✓ The tax yield should be adequate to meet local needs, increase over time as expenditures increase, and be relatively stable and predictable ✓✓ ✓✓ ✓✓ Implied The tax should not be one that is easy to export to non-residents ✓✓ ✓✓ ✓✓ The tax base should be visible to ensure accountability ✓✓ ✓✓ Taxpayers should perceive the tax to be reasonably fair (equitable) ✓✓ ✓✓ ✓✓ ✓✓ The tax should be relatively easy to administer ✓✓ ✓✓ ✓✓ ✓✓ The tax should be relatively efficient, causing low distortions in economic activity ✓✓ The tax should be politically acceptable ✓✓ ✓✓ ✓✓ The tax should not interfere with domestic or national commerce (it should be neutral) ✓✓ ✓✓ ✓✓ Source: Martinez-Vazquez, 2015; Bird, 2000; Bahl & Smoke, 2003b; Moak & Hillhouse, 1975 CHAPTER ONE 27

User Fees or Charges When looking at user fees as an income stream, a key consideration is that utilities are usually constructed and developed by central government, and notlocalgovernment.Thisisdueto,amongstotherthings: • The high levels of capital required; • Cost reduction through economies of scale; • Integrated planning of regional or national supply; and • The need to assure standardisation.

A significant additional benefit is central government’s ability to cross-subsidise urban-rural tariffs, with rural tariffs being considerabl y higher per r esident. W ithin this context, income fr om municipal distribution in dev eloping countries is categorised b y an imp licit system of cross-subsidies from high- to low-usage households through block rates, 3 while industrial and commer cial users (load pricing) 4 subsidise residential users (Bahl & Linn, 1992). The W orld Bank deemed this inefficient, as under -priced services encourage over-consumption and waste – economic efficiency and not revenue generation should be sought – and on this basis it pr omoted the priv atisation of public utilities (W orld Bank, 1988). S uch a transition had to be managed carefully, however, as the removal of free or subsidised services w ould at times misguidedl y be viewed as a pur e “revenue-grab”. Then, in the absence of priv atisation, municipalities needed to generate surp luses from electricity distribution, as it w as a practical and r eliable sour ce of r evenue, but they needed to comp ly with the abo vementioned tenets of economic efficiency . Con versely, More (1999) argues that w here ther e ar e high lev els of inequality , a user fee, regardless of the level it is set at, excludes those at the margin. Public goods and services are meant for all residents, and equity should be prioritised over efficiency, by adopting a functionalist approach. Looking back, K essides et al. (2009) assessed the impact of privatisation and mark et-liberalisation reforms, under the neo-liberal approach of cost-reflective tariffs, on the aff ordability of public-utility services f or lo w-income households in dev eloping countries. In analysing 20 y ears of the eff ects of priv atisation policies, the study found that the impact on the poor w as grossly underestimated. More than anything, it meant that taxpayers defaulted on higher taxes not so much because they w ere unwilling to pa y, but because they w ere not able to. The r eport concluded that an eff ective aff ordability anal ysis 28 RUNNING TO STAND STILL must be an integral part of every utility’s reform programme, especially during economic downturns.

Finally, with both taxes and user fees available as funding options to local government, it is useful to r emember that albeit their similarity – in that pr oceeds are used to fund public -sector functions and services – they ar e diff erent. H ere, simp listic examp les, such as personal tax (to fund general public-sector activities) and a parking entrance f ee (to offset direct costs) are transparent, easy to understand, and ther efore easily accepted. Confusion and outrage arise w hen pr oceeds ar e indirect and opaque, such as an ex cise tax on p lastic packets to fund environmental programmes. As Duff (2004) summarises: “Benefit taxes and user f ees ar e just one additional mechanism f or go vernment to raise r evenue; and w hen used appr opriately can deliv er efficiency , accountability and fairness. They can however become regressive when used for pure public goods and redistributive transfers.” National Transfers If denied access to a wider range of r evenue instruments, local government is legitimatel y entitled to a portion of national r evenues through infrastructure grants and an equitable share arrangement. And the manner in which the share is calculated is often intended to address specific weaknesses and shortages; particularl y given that the bur den of pr oviding f or the poor w ho cannot aff ord services is unev enly distributed betw een municipalities. I t is f or that r eason that this approach w as adopted in South Africa, with the 1996 Constitution mandating local government to deliver specific services and functions, and then allocating an equitable shar e of national r evenue to it. The formula – designed to be objectiv e, transpar ent and bey ond manipulation – is purposefully skewed towards smaller municipalities, which ha ve a lo wer r evenue-collection potential ( as the poor cannot afford to pay for services, let alone tax es); and also to pr ovide the poor (not all of w hom are indigent) access to basic services ( see FFC, 2012; NT, 2017).

Of course, w hile centralising r evenue collection ma y ha ve the advantage of simplifying taxation for government and citizens, it more often than not compr omises local go vernment, as it cr eates a lev el of dependence thr ough national transf ers, w hich tends to serv e the priorities of national, not local government.

Direct Borrowing As cities gr ow, so does the need f or capital infrastructur e projects. It CHAPTER ONE 29 is ther efore necessary f or central go vernment to permit sub-national government to dev elop an eff ective borrowing mechanism, contr olled through clear rules (Martinez-Vazquez, 2015). 1.4.3 THE SOUTH AFRICAN MODEL Apartheid inhibited the mo vement of peop le, but after its fall, ther e were high urbanisation rates. This w as expected, as w as the pr essure it w ould p lace on municipal r evenue. I t w as less ob vious, ho wever, as to ho w the eff ects of this could be mitigated. South Africa, w hich received significant technical and advisory support fr om the W orld Bank and International Monetary Fund (IMF) from 1990 on (Seekings & N attrass, 2015, p.7), espoused a neo-liberal economic appr oach. I t adopted business-friendl y policies, w hich it w as believ ed w ould ultimately lead to competitiv e markets and efficiencies, and in turn to greater prosperity. At municipal level, the proposed approach entailed: • Privatising or outsourcing functions; • Forging private-public partnerships; • Focusing on cost recovery and value for money, and on customers rather than on citizens; and ultimately • Focusing on promoting competition – which if introduced for services (electricity being a prime candidate), would decrease prices and make them more accessible to the poor. Fiscal decentralisation also r equired maximising local r evenue collection, to provide a level of independence from central government, which in turn str engthened democratisation. I t would also aff ord the financial means f or local go vernment to ex ecute its mandated functions, as w ell as gr eater transpar ency that allo wed constituents to hold office bear ers to account. S imultaneously though, local government’s limited capacity to dir ectly raise r evenue, coupled with central government’s overarching objective to maximise municipal self-reliance, cr eated v ery particular tensions, man y of w hich w e will see playing out in the research that follows.