Assessing the Quality of Local Government in South Africa

Literature › Works

Barak D. Hoffman (2007). Assessing the Quality of Local Government in South Africa. Center on Democracy, Development, and the Rule of Law, Stanford University.

Type	working paper
Scope	Post-1994 South African economy
Method	econometric
Period studied	1994–2005
Regions	South Africa, Johannesburg, Soweto
Themes	transition post apartheid, inequality poverty unemployment, macro fiscal finance debt, politics ideology elections, origins segregation, comparative theory
Citation key	hoffman2007

Argument

The paper argues that the ANC's post-1994 promise of affordable services for all has been displaced by a policy of cost recovery, under which local governments sell services at market rates. Using a cross-section of 164 category B municipalities, Hoffman finds that per-capita service fees are the strongest and most consistent predictor of 2005 core-function performance. Political competition, civil-service quality and central transfers show no effect. He reads this as meaning that fiscal accountability is strong while democratic accountability at the local level is hollowed out. He explains the ANC's choice by its inherited constraints: decayed infrastructure, a financing bind with lenders and investors, and negotiated civil-service protection. A short historical section shows how apartheid spatial planning let economic integration coexist with social segregation and unequal services.

Evidence and method

Municipal Demarcation Board annual yes/no assessments of municipal functions (2002-2005); National Treasury data on service fees, taxes and transfers; 2001 census and 2001 local election data; MDB data on civil-service experience; RTI 2001 and SACN 2007 data on household service costs; IDASA and Makgetla 2006 for revenue and expenditure patterns; secondary literature on local government under apartheid.

Findings

• Local governments rely mainly on user fees and are largely fiscally autonomous from central transfers. (p. 9)

  only about fourteen percent of their revenue comes from central government transfers. Moreover, user fees constitute by far the largest source of revenue for local governments, comprising on average fifty two percent of revenue.

• Poor urban households pay a far larger share of income for the same bundle of services. (p. 13)

  poor urban households need to spend approximately thirty percent more of their income than wealthy ones to consume the same bundle of services (thirty seven percent versus three percent).

• Poor households consume far less electricity, suggesting they compensate for high costs by restricting use. (p. 14)

  wealthy families use close to ten times more kilowatt hours of electricity than poorer ones.

• Core-function performance is mediocre on average, and bottom-quartile municipalities are stuck at a low level. (p. 23)

  local governments in the bottom quartile only perform about forty percent of their functions successfully and they show no signs of improving.

• Political competition, civil-service quality and transfers do not affect local government quality. (p. 24)

  political competition, the quality of the civil service (average log years of experience of the top four civil servants), and central government transfers do not affect the quality of local governments.

• Service fees are the only consistent predictor apart from initial performance, and the result is robust to controls. (p. 25)

  other than initial performance, cost recovery is the only variable that has consistent and strong support.

• Taxes do not substitute for fees, which rules out a general taxation-leads-to-good-governance story. (p. 25)

  the coefficient on service fees remains positive and significant at the one percent level, while taxes are statistically significant but have a negative sign.

• Municipalities do not generally run profits on services and lose slightly on average, so they are not cross-subsidising access. (p. 26)

  The median local government sells services at about a two percent loss and the average one at about a six percent one.

• The effect of fees is economically large. (p. 27)

  Local governments at the 75th percentile of user fees are expected to perform thirty percent better than those at the 25th percentile.

• Hoffman identifies the apartheid-era origin of the local spatial and service divide. (p. 6)

  it also facilitated the government's capacity to provide high quality services to white communities and rudimentary services, if any, to black ones