When Ketso Gordhan stepped into the Joburg municipal manager’s office in 1999, he was met with a shock. “When I asked who’s responsible for water and sanitation in Joburg, 24 managers put their hands up,” he says. “You couldn’t run a business like that.”
For Gordhan, it was indicative of the fragmentation that permeated service delivery in the city — unsurprising, considering that Joburg at the time consisted of four local municipalities loosely bonded under a largely powerless and financially parlous central administration.
It was this he was tasked with fixing: the finances, as well as the structure of the city. It was an endeavour doomed to fail, with political decisions trumping administrative ones. It’s a cautionary tale as the city prepares for the election next week — an opportunity to choose the right leadership to make the right decisions.
Back in 1999, Joburg was “technically bankrupt”, Gordhan tells the FM. “It wasn’t in a position to borrow money; we had a lot of debt with high interest rates.”
It struggled to pay for bulk services such as electricity and, the DA’s Mike Moriarty told Princeton researchers, was three months away from not being able to pay salaries.
Service delivery — though more functional than today — was hamstrung by capital constraints. And fragmentation meant separate teams were accountable for every function, including revenue and expenditure.
The solution, in part, came in the form of corporatised units, each with a board and CEO, separate from the political function of the city. So Joburg Water, City Power, Pikitup and other municipal entities were born.
“We took the view that policy must lie with city politicians, regulation must be a standalone authority outside of the entity and the entity must run operations,” Gordhan says.
The plan was to ring-fence the entities’ income, “so all the money made in water and sanitation should be trapped in that entity and be spent for maintenance and capex, and it would borrow against its balance sheet rather than against the city balance sheet”.
For a time, it worked. Gordhan says that when he left the city two years later, it had R800m in capital. Within three years, Joburg was able to go back to the market and borrow R2bn; within five years, there was improved revenue and less unaccounted-for water.
By 2002, the city had generated a R23.8m surplus and all the signs were good: credit ratings were up; City Power had exceeded its billing targets; and unaccounted-for water was down five percentage points.
But it wasn’t to last. In Gordhan’s view, things took a turn in the late 2000s and early 2010s when the guardrails around ring-fencing were dismantled, setting the city on a downward fiscal spiral.
“The city would sweep all of the revenue [out of entities’ accounts], no matter what was made in water or electricity or elsewhere,” he says. “When you look at the current situation, water is making a couple of billion rand in profit; electricity is making a couple of billion rand in losses. You simply fix the problem by taking from the one and giving to the other.”
This is wrong, he says, since it undermines growth in water and sanitation infrastructure, while presenting a flawed picture of how healthy City Power is.
Gordhan is scathing about this “power grab” over control of the finances. “The simple reason [for the shift] was that [the city authorities] wanted more control over the cash flows at a central level outside of the entities so that you could cross-subsidise [and] spend in a less disciplined way.”
This, he says, was absolutely a political decision — no properly managed organisation would follow that approach.
Decades on, “Joburg fails across every dimension of its mandate”, the Centre for Development Enterprise (CDE) says in a report on the city.
The city entities are incapable of maintaining and providing infrastructure, unable to overcome a backlog of R220bn; service delivery is parlous; and finances are dire. Joburg is basically bankrupt and sinking deeper into debt every day.
Earlier this year, finance minister Enoch Godongwana wrote to the city to point out that it had “illegally” signed a R10.3bn wage deal with unions, especially because the city owed creditors R25.2bn and had only R3.9bn in cash and equivalents to cover its debts.
This is no small matter, given how vital Joburg is to South Africa’s economy.
As the CDE points out, Joburg is home to 70% of South Africa’s corporate headquarters, hosts the deepest capital market in the developing world, has a substantial informal economy estimated at R1-trillion and is responsible for 22% of personal income taxes and 11% of South Africa’s jobs.
The city, home to almost one in 10 South Africans, contributes about 16% to the country’s GDP.
As CDE head Ann Bernstein puts it: “If we can’t get Joburg working properly, you really have to ask: can we fix South Africa?”
Fixing the skills crisis
If Joburg’s slide was years in the making, fixing the city will be as arduous a task. And it starts with the vote on November 4.
“How Joburg votes really, really matters,” Bernstein tells the FM. “If we don’t get a very different majority party or an effective coalition with an agreed programme of reform after the elections, you can’t fix Joburg.”
Bernstein says ideally, you want a government committed to reform and integrity, with, in the case of a coalition, a public plan of action and a commitment to dealing with corruption.
This is a central issue. The horse-trading around coalitions is the cause of the city’s churning leadership. The result, Bernstein says, is poorly equipped boards for the entities: Joburg Water has no engineers on its board; Joburg Property Company has no property experts; and City Power has one lone engineer (and not an electrical engineer).
This informs Bernstein’s first recommendation: ensure that 20 to 30 “mission critical” jobs — the boards, the CEOs, CFOs and city manager — are staffed by the best people. “The very first step of effective reform starts with the mission critical jobs,” she says.
Of course, attracting talent is tricky. Gordhan believes management has declined in the city because if, say, you’re a talented engineer, your choices are to start your own business and use BEE rules to win contracts, work in a large corporate or work for the city.
“The city is a lot less attractive because of all the politics that goes on there. I think the people that end up taking those jobs, probably the other two options don’t exist for them,” he says.
There are ways to fix this. As Gordhan tells it, he wasn’t sure at the outset that he had an experienced enough team to run water and sanitation when the entities were created. So, a UK-based company had a contract to provide senior management to run the water and sanitation entity for the first five years, while a shadow team learnt those skills.
He sees a similar solution now. “Advertise a management contract for a five- to 10-year period and bring in competent management,” he says. And incentivise them.
“Unaccounted water in Joburg is around 40%, so 40% of what you buy from Rand Water you don’t sell to anyone. You could incentivise a new management team by saying, OK, if you get the 40% down to 30%, it’s measurable, then you get a bonus.”
Even if you save 10% of unaccounted water, he says, you’re talking about a R1.5bn saving. “If we advertised a management contract for water and electricity in Joburg, you’d get quality teams. I wouldn’t rely on recruiting a star CEO; I would rather recruit a star team,” he says.
Bernstein sees room for the private sector to second expertise to the city while it finds the right people — small private sector teams made up of, say, former Eskom engineers or finance experts to fix the urgent basics while the city is “peopling up”.
Of course, leadership churn is not the domain just of the administration.
As Julia Fish, executive director of civil society organisation JoburgCAN, tells the FM, with every mayoral change, there’s a change in the members of the mayoral council (MMCs), who are responsible for oversight and policy.
The solution, she says, lies outside of coalition politics: MMCs should not come from coalitions; they should represent the structure of the council — including members of the opposition.
“Unless we start actually looking at a nonpolitical solution to executives within the council, we’re constantly going to see this interloping role, where we allow politicians to direct the administration of the city rather than hold it accountable,” she says.
There are other ways to insulate administrators from political influence.
Vuyo Guma is a research associate of the Bureau for Economic Research and the former co-head of government reform programme Operation Vulindlela. She believes it’s a matter of getting more people into the interview process: making CVs and interviews public and inviting more parties to be part of the process so that whoever is appointed has a wider spread of credibility.
By being transparent, Guma says, you generate greater buy-in from the public.
“It has to do with the maturity of the political system,” she adds. “People [need to] understand that being part of a coalition and horse-trading in the way that we’ve seen in Joburg is incredibly short-sighted and hurts them in the long run too.”
Guma says one of the missing ingredients for the recipe to fix the city is an active and engaged citizenry — “co-governance”, which harnesses the civic capacity of residents for quick turnaround and investment.
Fish says it’s about leaning on community associations to do some of the work to maintain assets, be it libraries or swimming pools, while pushing the administration to deal with systemic problems.
If that sounds like passing the buck, Guma says it’s more of a pragmatic response. “If the alternative is that citizens wait for the turnaround of the city entities to finally get good services, then you could be waiting a very long time and the quality of urban life could degenerate quite significantly,” she says.
Wooing the private sector
Similarly, Fish says getting private business involved is all about enlightened self-interest.
“Businesses face real and serious risk in the City of Joburg,” she says. For a start, they’re looking at stranded assets — buildings and infrastructure they’ve invested in that are losing value. “They can’t just move their headquarters to Cape Town.”
There’s also the cost of doing business in Joburg — the “resilience methods” like backup power and water. “All those things are taking away from the profit line.”
And there’s the threat of loss of capacity as staff move out of the city.
Fish says business can help fix the city in several critical ways. She cites the example of a development in Midrand where ground could not be broken due to a lack of water infrastructure. To kick-start the project, a developer donated land and started building a reservoir.
“The City of Joburg then came to the table and is building an additional reservoir on the same site. So there’s a 20Ml Joburg Water project and a 10Ml private project … that allows the development companies to move forward with their investment. This is a zero-cost structure to the city,” she says.
It’s about augmenting the functions of the municipality and ensuring investment. By way of example, Fish refers to managed precincts such as Rosebank, Fourways and around Gandhi Square, where businesses take accountability for their surrounding areas. Those need to be expanded, with businesses investing in return for special rates.
Gordhan is all in on public-private partnerships: a waste treatment plant, for example, designed, built and operated by the private sector, where the government “pays them all the revenue that the utility earns, so you know that it’s going to be at a fixed price, the capex is going to be at a fixed price, the service is going to be at an agreed price, and you know the risk of managing it is their problem”.
Private operations also insulate projects from political interference.
“It’s quite difficult to protect public servants from politicians,” he says. “It’s easier to protect private operators with private capital.”
He points to the N4 toll road, where every decision made on the maintenance of that road was decided by a 30-year contract. “Long-term contracts that are very transparent, that have clear measurements, that have clear ratios and that determine what needs to happen are the way to go,” he says.
At the least, says Bernstein, you could have an emergency private team doing critical repair work while City Power is being fixed. However, any agreement with the private sector has to be transparent, with attention given to conflicts of interest — a crucial element given the corruption and criminality that has beset the city.
As the CDE points out, budgets, procurement, appointments and service delivery functions all make for opportunities for extraction. To avoid that, it recommends interventions such as a public procurement dashboard, insulating appointments from manipulation, strategic lifestyle audits, consequence management and protection for whistleblowers.
Plugging the hole
Still, you can’t fix Joburg without fixing its finances.
Guma says every rand the city brings in is largely allocated before it goes anywhere.
“There are bulk purchases to Eskom and Rand Water, then employee costs, and the third item is debt depreciation and finance charges. These make up two-thirds of the budget, so you have little wiggle room.”
Employee costs are a particular bugbear. Bernstein says staff costs in the decade from 2014/2015 to 2024/2025 grew from R9bn to R20bn a year — at the expense of infrastructure. For that reason, Guma believes employee costs must be on the agenda of an incoming administration, an idea that may be hugely unpopular with the unions.
In Bernstein’s view, you need to start reversing the massive drop in infrastructure investment. And then Joburg must ensure that money owed to suppliers is paid. The latest audited figures show that Joburg owed its suppliers R28.5bn, including, at the time, about R7.6bn to Eskom and possibly more than R3bn to Rand Water, she says.
But if you want private investment, you’ll need political stability and a clear intent to reform.
Finally, improving revenue collection is essential. That requires an efficient and effective billing system, which will lay the groundwork for a proper credit control mechanism.
All of these things are linked, though. “Finance problems start as governance problems, then eventually they find their way into the numbers,” Guma says. “Poor governance weakens financial performance and reduces service delivery, then people don’t even want to pay.”
Fish offers practical solutions. “There are incredible platforms that are used in the private sector, and we’ve offered [the city] experts from across the banking, insurance and telecom networks who operate systems like this, to come in and build something for Joburg free of charge. They haven’t necessarily taken us up on that,” she says.
As it is, there are some plans in place, like the National Treasury’s metro trading services reform programme. This offers incentives for metros that meet specific commitments — like ring-fencing revenue for water and electricity providers.
There are other ways to tweak spending to cut overheads. The city could, for instance, stop overspending on bulk services by finding alternatives to expensive Eskom power, or allow residents to feed solar into the grid (saving the city R2bn a year). Or it could build battery storage to buy power from Eskom cheaply and then sell it in peak hours at a more expensive rate.
There’s also the funding that the city is “leaving on the table”, says Fish.
This includes “basic stuff like charging for street parking or outdoor advertising, making money out of the Joburg Property Company’s thousands of properties, fines, traffic infringements, enforcing bylaws … All of this is money that really should be helping to hold the city up.”
Any new administration could quite easily rack up some quick wins. It could, say, improve its response time to faults, suggests Guma, keep the city clean and make commitments to transparency around recruitment and procurement.
“These kinds of things can signal a change in how the city has been doing things in a way that would boost confidence among residents and investors long before you actually see a turnaround start to take effect on the ground,” she says.
Between now and any turnaround lies November 4.
“This is the beginning of everything,” says Bernstein. “If we don’t get that right, and we continue with more of the same, Joburg will have an accelerated decline. If we get it right, I have every confidence that difficult choices can be made … and that we can fix the city.”
