Municipalities urged to be at the helm of economic growth

Thursday, June 14, 2018

Finance Minister Nhlahla Nene has urged municipalities to play their role and assist government in reforms that will enable economic growth at a faster pace.

“We are keenly aware of the constraints to growth. We are therefore redoubling our efforts to enact reforms that will raise the pace at which our economy can grow, increase its productivity and create more room for competition by lowering the cost of doing business,” said the Minister on Wednesday at the South African Local Government Association (SALGA) Municipal Innovative Infrastructure Financing Conference (MIIF).

One of the biggest challenges facing South Africa is that of youth unemployment. Nene said government remains committed to implement the structural reform agenda, which includes creating jobs through faster economic growth, improving the quality of education, skills development and innovation, among others.

“Assuming that the global environment remains supportive, National Treasury estimates that the effective implementation of reforms in areas such as agriculture, competition policy, telecoms, tourism and others could lift the rate of economic growth higher,” said Nene at the conference held in Ekurhuleni.

Nene told delegates that municipalities have a role to play in the reform agenda. The major contribution of municipalities to economic growth is on two fronts, namely the provision of urban infrastructure services such as water and sanitation, electricity as well as contributing directly to the cost of doing business.

“When municipalities carry out this regulatory and administrative function ineffectively and inefficiently, they retard economic growth. The building of new and the maintenance of infrastructure talks to these two contributions by municipalities to economic growth,” he said.

Government transfers more than R40 billion annually to municipalities to assist them to fund infrastructure investment.

Nene said the National Development Plan (NDP) recognises the role municipalities can play in creating an enabling environment for investment.

He urged municipalities to maximise resources to fund infrastructure, which include grants from national government, borrowing and internally generated funds.

“The focus of this gathering is on municipal borrowing. Government policy and legislation supports prudent and long-term borrowing by municipalities. This is an efficient and equitable mechanism for financing capital investment by local governments. We have a sound legal and regulatory framework for municipal borrowing.”

Nene said the national fiscus is constrained and that creditworthy municipalities must look to debt markets and other revenue sources to fund a greater proportion of capital investment.

“This will free up a greater proportion of the infrastructure grant to be used to fund municipalities that have less capacity for generating their own revenue. Government is also committed to supporting the turnaround of municipalities that are in financial distress,” said the Minister.

The Cooperative Governance and Traditional Affairs (Cogta) Minister recently announced that 87 municipalities were deemed dysfunctional.

“In collaboration with National Treasury, Cogta will support these municipalities to rebuild a foundation for sound financial management,” said Nene.

The conference will conclude on Friday. -