Capital expenditure in metros sorely lacking

Despite clear indications that infrastructure in the country’s eight metropolitan municipalities is crumbling, their recently approved budgets show little commitment to improving and extending existing infrastructure.

The underspending on capital projects, says Ratings Afrika analyst Leon Claassen, does not bode well for future service delivery.

In cash-strapped City of Tshwane, where the Rooiwal wastewater treatment plant has been dysfunctional for years and residents of Hammanskraal literally feel the impact on their health, the council budget reflects only 5c for every rand budgeted for operational expenses.

In Ekurhuleni, home of OR Tambo International Airport and an important industrial hub, it is a mere 4.8c – and in the City of Joburg, where interruptions in water and electricity supply is an everyday occurrence, it is 9.4c.

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In contrast, the City of Cape Town has allocated 15.7c to the capital budget for every rand budgeted for operations, eThekwini 13.5c and Mangaung 12.1c.

Operational expenses benchmark

Operational expenses include bulk purchases of water and electricity as well as staff cost.

According to Claassen the benchmark set by National Treasury is for the capital budget to be between 10% and 20% of the total budget, but only four of the eight metros achieve that in their budgets for FY2024. These budgets take effect on July 1.

Metro budgets 2024

In the current circumstances an even larger allocation for capital projects is warranted, says Claassen.

“In most of the metros, except perhaps Cape Town, the deterioration of the infrastructure due to underspending in previous years is clearly visible,” says Claassen.

“It has led to a drop in the quality of service delivery due to interruptions in the most important service delivery functions. The size of the capital budgets for these metros must therefore rather be close to the upper limit of the benchmark, namely 20%, to be able to deal with the backlogs.”

In a recent report, construction data service Industry Insight shows that over the decade ended 2022 the City of Tshwane on average spent less that 10% of its budget on construction-related projects.

The spending of the other metros at least reached the lower limit of National Treasury’s benchmark, with Buffalo City the best achiever.

Capital % of total expenditure

Claassen points out that the situation in the metros has a significant impact on the country’s national economy.

“When one looks at the budgets of the metros for FY2024 it is clear that they are in fact large businesses comparable with listed companies. The total budgets (operating and capital) of for example, Johannesburg and Cape Town, amount to R80 billion and R70 billion respectively.

“Geographically speaking the metros are considered the power houses of the country.”

He notes that the whole capital budget is not necessarily spent on infrastructure. It may include expenditure on matters such as security and other items necessary for the functioning of the municipality – and that portion of spending does not result in an improvement of infrastructure.

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“The spending on infrastructure that includes trading services [electricity, water, sanitation, and refuse removal] and roads is largely aimed at improving infrastructure and improving service delivery. That is especially important for the rapidly growing populations of metros,” says Claassen.

“Buffalo City and Johannesburg are clearly focusing elsewhere, because their infrastructure spending is only 45% and 51% of their capital budgets respectively.”

It should be at least 60%, he says.

Capital spending on infrastructure

Industry Insight further points out that the fact that there is money in the budget, does not mean it will be spent.

In 2021/22 the metros spent only 73% of the amounts in their capital budgets allocated to construction work.

In the first three quarters of the current financial year Tshwane was at a mere 17% with Cape Town once again in the lead at 62%.

The rate of spending in 12 secondary cities with a cumulative capital budget of R7.8 billion – for housing, health, planning and development, public safety, road transport, waste management, water management and waste water management – is slower at 42% after the first three quarters of FY2023, according to Industry Insight