Report... · 2018-08-14 · Web DIRECTORS Michael Sutcliffe [email protected] Tel: +27 82 440 5203 Sue Bannister [email protected] Tel: +27 82 854 6845 REVIEW OF THE

CITY OF TSHWANE: REVIEW OF ENTITIES

FOR:

THE CITY OF TSHWANE,

OFFICE OF THE EXECUTIVE MAYOR

Contact Details

Web www.cityinsight.co.za

DIRECTORS

Michael Sutcliffe [email protected]

Tel: +27 82 440 5203

Sue Bannister [email protected]

Tel: +27 82 854 6845

REVIEW OF THE CITY OF TSHWANE’S

MUNICIPAL OWNED ENTITIES

503

http://www.cityinsight.co.za/

MarieB1

Typewritten Text

ANNEXURE A

Draft: Review of Entities for City of Tshwane

2 January 2017

Table of Contents

EXECUTIVE SUMMARY ................................................................................................ 4

1 CHAPTER 1: INTRODUCTION AND LEGISLATIVE FRAMEWORK .......................... 14

2 CHAPTER 2: MUNICIPAL ENTITIES IN SOUTH AFRICA ......................................... 16

3 CHAPTER 3: ENTITIES IN TSHWANE ..................................................................... 23

4 CHAPTER 4: TEDA ............................................................................................... 27

5 CHAPTER 5: HOUSING COMPANY TSHWANE .................................................... 52

6 CHAPTER 6: SANDSPRUIT WORKS ASSOCIATION AND METSWEDING

ECONOMIC DEVELOPMENT AGENCY ..................................................................... 83

7 CHAPTER 7: TSHWANE FRESH PRODUCE MARKET ............................................. 88

8 CHAPTER 8: GENERAL OBSERVATIONS ............................................................ 104

9 OPTIONS AND RECOMMENDATIONS .............................................................. 114

10 ANNEXURE: MUNICIPAL ENTITIES IN SA’s MAJOR METROPOLITAN AREAS .. 121

11 ANNEXURE: Tshwane Economic Development Agency - Budget Summary

126

12 ANNEXURE Housing Company Tshwane- Budget Summary ...................... 127

13 ANNEXURE: TEDA - Budgeted Financial Performance (revenue and

expenditure) .......................................................................................................... 128

14 ANNEXURE: Housing Company Tshwane - Budgeted Financial

Performance (revenue and expenditure)........................................................... 129

15 ANNEXURE: Budgeted Financial Position Entity Summary .......................... 130

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List of tables

Table 1: Municipal entity audit results ..................................................................... 18 Table 2: Municipal entities in metropolitan municipalities ................................... 19 Table 3: Audit outcomes by entity type .................................................................. 20 Table 4: CoT MEs audit results ................................................................................... 21 Table 5: Audit outcomes by metro ......................................................................... 22 Table 6: TEDA obligations (2013).............................................................................. 30 Table 7: Reappointment period and proposed new board ............................... 34 Table 8: TEDA Board members and payments ...................................................... 35 Table 9: TEDA turnaround strategy .......................................................................... 36 Table 10: Packages of senior management in TEDA ........................................... 49 Table 11: Residential complexes managed by the HCT ...................................... 54 Table 12: 2013 agreement – projects for implementation................................... 55 Table 13: Units to be transferred .............................................................................. 55 Table 14: Current and proposed board ................................................................. 57 Table 15: HCT Board members ................................................................................ 58 Table 16: 2009 HCT schemes .................................................................................... 59 Table 17: HCT 2013 SWOT analysis ........................................................................... 60 Table 18: CoT and HCT strategic objectives .......................................................... 62 Table 19: HCT assessment ......................................................................................... 63 Table 20: HCT business plan ..................................................................................... 64 Table 21: HCT funding ............................................................................................... 65 Table 22: HCT projects 2013/14 – 2016/17 .............................................................. 70 Table 23: HCT new projects ...................................................................................... 70 Table 24: HCT audit opinions .................................................................................... 72 Table 25: HCT units managed .................................................................................. 75 Table 26: HCT risk assessment ................................................................................... 76 Table 27: CoT housing plans ..................................................................................... 78 Table 28: SWA Board ................................................................................................. 83 Table 29: Service delivery mechanisms for markets ............................................. 89 Table 30: Rands per ton turnover ............................................................................ 93 Table 31: % share ....................................................................................................... 94 Table 32: Surpluses generated by Tshwane market ............................................. 97 Table 33: % share ....................................................................................................... 98

List of figures

Figure 1: Legal basis of municipal entities ............................................................... 17 Figure 2: Municipal entities by focus area ............................................................. 18 Figure 3: Municipal audit outcome per entity type .............................................. 18 Figure 4: Audit outcomes by entity type ................................................................. 20 Figure 5: HCT sustainability pathway ...................................................................... 61 Figure 6: Forecast of units under HCT management ............................................ 70 Figure 7: Comparison of markets ............................................................................ 92 Figure 8: Changes in % market share ..................................................................... 94 Figure 9: Changes in % market share ..................................................................... 98

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EXECUTIVE SUMMARY

The framework for the provision of services or aspects of services in a

municipality is broad, allowing for a number of ways in which services may be

provided through both internal and external mechanisms. A municipal entity is

an external mechanism used by a municipality to deliver services to its

community. Each municipal entity is an ―organ of state‖ and must comply

with the legislative framework, particularly the Municipal Finance

Management Act and the Municipal Systems Act.

A legislative framework relating to municipal entities came into effect through

amendments to the Municipal Systems Act (MSA) and the enactment of the

Municipal Finance Management Act (MFMA).

In some cases, additional guidelines exist to assist municipalities in the

establishment of specific municipal entities. For example, in 2008, DPLG drew

up a set of guidelines governing how a municipality would go about

establishing a local economic development agency.

Of the 62 municipal entities across South Africa in 2014, 32 are Private

Companies, 18 are Section 21 Companies; seven are Service Utilities and five

are Trusts. If one looks at the most recently reported financial year (2014/15),

one finds that there were some 52 Municipal Entities across South Africa. The

vast majority of entities are Economic Development Agencies (54%), followed

by Housing (12%) and Water (12%), then Events (10%), Roads/Transport (3%),

Electricity (4%) and Markets (2%) and Solid Waste (2%) having one entity each.

The eight metros together have 24 entities. Johannesburg has by far the

greatest number of entities – 11 – followed by Ekurhuleni with four, Tshwane

having three and the remainder relatively evenly split across the rest of the

metros.

The City of Tshwane (CoT) presently has four municipal entities (MEs):

Tshwane Economic Development Agency (TEDA);

Metsweding Economic Development Agency (MEDA);

Sandspruit Works Association (SWA); and

Housing Company Tshwane (HCT).

The review covers:

A Review of MEs in South Africa

The CoT MEs in Comparative Context

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Tshwane Economic Development Association: The review presented below

assesses performance to date and examines the pros and cons of either

continuing with the entities or disestablishing it;

Housing Company Tshwane: Here, the review presented assesses

performance to date and examines the pros and cons of either continuing

with the entities or disestablishing it;

Sandspruit Works Association: The CoT has already decided to disestablish

this Association and this review identifies issues to be covered in the

disestablishment process;

Tshwane Market: A report was presented to Council of the CoT reviewing

the possibility of the Market becoming a Municipal Entity. This report is also

reviewed below.

MEDA: The Metsweding Economic Development Agency remains in the

process of disestablishment and for purposes of completeness the current

status of the former Entity is dealt with below.

In conducting this review, we are also mindful that Section 78(a) of the MSA

suggests that such a review should take into account:

1. The direct and indirect costs and benefits associated with the project if

the service is provided by the municipality through an internal

mechanism, including the expected effect on the environment and on

human health, well-being and safety;

2. The municipality's capacity and potential future capacity to furnish the

skills, expertise and resources necessary for the provision of the service

through an internal mechanism mentioned in section 76 (a);

3. The extent to which the re-organisation of its administration and the

development of the human resource capacity within that

administration, as provided for in sections 51 (deals with organization of

administration) and 68 (capacity building), respectively, could be utilised

to provide a service through an internal mechanism mentioned in

section 76 (a);

4. The likely impact on development, job creation and employment

patterns in the municipality, and

5. The views of organised labour.

If the MEs of Tshwane are compared against their counterparts in other metros,

one finds the following:

Whilst TEDA has received an Unqualified Audit with Findings, two-thirds of

the economic development agencies in the metros have Unqualified

Audits with No findings (i.e. Clean Audits);

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Whilst HCT has received an Unqualified Audit with Findings, the other two

municipal entities focused on Housing have received Clean Audits; and

In the case of SWA the other Water entities have also received Unqualified

Audits with Findings.

The CoT manages its entities through a Shareholder Unit, which has an

establishment of eight persons with only two posts filled. The Unit was

established after the Mayoral Committee in May 2012 established a process for

reporting and monitoring municipal entities in the CoT.

A special Council meeting was held on 31 August 2016 to extend

appointments of Board members for a period of three months from 1

September 2016 until 30 November 2016. A further extension of the terms of

office of Board members until 30 June 2017 was made through a Council

resolution on 24 November 2017.

In addition, more recently, steps have been taken to improve governance of

the entities through the following:

Ensuring that all relevant senior management meet the prescribed financial

and other competency levels;

Streamlining communication processes in quarterly reporting, monthly

financial and preparing for mSCOA and Audits.

On 26 November 2016 a Council meeting was held to present the outcome of

the review of the macro organisational structure of Tshwane. The macro

structure aims to make the organogram less top heavy, improve clustering and

streamline, with a reduction of duplication and better division of

responsibilities.

A brief overview of the review completed for each of the entities is detailed

below.

Tshwane Economic Development Agency (TEDA)

TEDA was established with the main aim of being a catalyst for accelerated

economic growth and job creation within Tshwane. The Tshwane Economic

Development Agency (TEDA) was approved by Council on 2 November 2006

and is wholly owned by the city. On 23 June 2006 it was established as a

private company, however, by 2011 TEDA was still not operational, no board

was in place and no SDA agreed upon by the CoT Council.

Also in 2011, with the amalgamation of MDM, the CoT was spurred to action

and decided to de-register the Metsweding Economic Development Agency

(MEDA) and fast track the appointment of a Board and CEO and approval of

a Service Delivery Agreement. A revised mandate was developed in 2012

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that was more complex, with 16 key focus areas, all of which are quite

significant and potentially far-reaching. Whilst this revised mandate was

adopted by Council on 20 November 2012, only on 13 June 2013 did the

Board of Directors resolve that the SDA between the City and TEDA be

approved.

It should be noted that these key focus areas do not appear to have emerged

from an analysis done into what CoT needed to perform and from that an

argument as to why these 17 functions should be undertaken by TEDA. It

would appear that TEDA operates almost in competition with the Economic

Development Department and/or it duplicates what is being done in that and

other Units of the CoT. Some of its mandates are found in other Departments

too.

More recently, TEDA‘s mandate has been seen, particularly by TEDA, as being

a project implementation agency of the City. The 16 mandate items have

been consolidated into nine logical projects.

A turnaround strategy workshop was held in July 2014, and this identified some

of the gaps that needed to be addressed. On 23 October 2014, TEDA outlined

points to make it more financially sustainable, including the full implementation

of the SDA between the City and TEDA and the transfer of a number of

functions (e.g. property and outdoor advertising management etc). This was

despite TEDA‘s own studies showing a lack of developmental competency

and capacity to fulfil such responsibilities.

On 26/27 February 2016, a strategic planning session was held where

performance was reported against TEDA‘s two key performance areas:

investment promotion and attraction and implementation of major economic

development projects. The highlight of the report back was the successful

investment attraction of R500 million in partnership with the private sector.

The more detailed report of the strategic session concludes by noting that

there ―appears to be ambiguity of intent and It is not abundantly clear that

the CoT is clearly committed to the success of TEDA.‖ In addition, nowhere is

any attention given to researching local business, to develop retention and

expansion strategies with local business, as is common in most Economic

Development Agencies. Rather, significant attention is placed on trade

missions, events and the like.

The Housing Company Tshwane (HCT)

The Housing Company Tshwane (HCT) was established as a Section 21

company by the City of Tshwane (COT) to implement the CoT‘s

institutional/social housing programme as per the Housing Act, No 107 of 1997.

The SDA was approved by Council on 31 March 2010 and signed by all parties

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on 9 April 2010. In terms of the SDA it then expired on 8 April 2013 and the

updated SDA has not been signed since then. The SDA spells out the roles

and responsibilities of both the HCT and the CoT, the land development

process (including future social housing projects to be developed and

managed by HCT). It also governs the deliverables and performance

milestones expected from HCT as the City‘s social housing delivery agent, and

stipulates the financial and other support to be given to HCT by the City of

Tshwane.

In addition to the overarching SDA, a number of specific SLAs have also been

signed. These have generally been to transfer land and/or buildings. In

addition, the HCT has also obtained Departmental approvals for the services

to be provided in the development programmes, such as that of Townlands1.

In this review, there appears to not have been a proper engagement around

what role the CoT should play in the delivery of social housing. With the

exception of one project, the rental stock now managed by HCT has not

achieved the occupancy rate levels as required in the SDA.

In the 2013/14 financial year, a Turnaround Plan was developed. A situational

analysis was undertaken in 2013 as part of a Turnaround Strategy project and

this plan noted that HCT had not developed any new social housing stock

beyond the 95 units it owns and manages.

Another strategic workshop was held on 13 January 2017. Here, it noted the

timeline of HCT to date has been2:

Started in 2001 by CoT as Municipal Entity to provide Rental Units In City of

Tshwane

2004 to 2010 – Financially insolvent, high level of outstanding Rental

Income, unable to manage hijacked buildings

2010 to 2013 – 1 x Building, 5 Employees. Small Operation, No growth in

Rental Stock Units in 5 years, High Cash Reserves

2013 to 2017 – Increase of units from 94 to 376 units. 30 Employees

2017 to 2019 – Strategic Plan to Increase of units to 2600 units, with strategic

goals of 95% rental occupation and rental collection

Whilst many of the targets for the management of HCT were not been met in

2014/15, there were successes in other areas. In addition, conditional

Accreditation by the Social Housing Regulatory Authority (SHRA) has been

retained through the period, with submissions of interest for Social Housing

Funding submitted during the year.

1 See MPAC report of 6 January 2017 dealing with the state of development of the SDAs between HCT and

the affected departments. 2 Housing company Tshwane. (2017), Strategic review

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9 January 2017

With the start of construction on the Townlands scheme, the City will begin to

add to the existing housing stock. There is also evidence that internal controls

have improved. However, it is necessary to understand the CoT‘s overall

housing plan, within which the social housing plan would be located. The

Council approved Human Settlement strategy only makes high level reference

to affordable rental housing, lacking the necessary detail required to provide

strategic direction on development and delivery of social housing, particularly

affordable rental housing.

The Sandspruit Works Association (SWA)

The SWA is a Non Profit Company (NPC), which undertakes the provision of

water and sanitation services function in the northern region of Tshwane. It

functions as a Water Services Provider (WSP) in terms of the Water Services Act

(Act 108 of 1997), supplying areas including Ga-Rankuwa; Mabopane and

Winterveldt. Its principal activity is to install, provide and maintain water and

sanitation services and related services to these areas.

SWA management and the Board developed a turnaround strategy for the

entity, which is in a draft format and thus awaiting finalisation. In the interim a

short term action plan was developed and has yielded an increase in revenue

from R 7.2 million in May 2015 to R 9.8 million in June 2015.

The existing Service Delivery Agreement came to an end in March 2016 and

whilst the process of reviewing the SDA then began, the Council resolution to

disestablish the Entity put a stop to that process.

The Metsweding Economic Development Agency (MEDA)

MDM had established the Metsweding Economic Development Agency

(MEDA) to promote, facilitate and implement the economic priorities of MDM3.

On 25 August 2011, the Council resolved that MEDA should be disestablished

and TEDA operationalised to serve the whole of the amalgamated

municipality. However, MEDA is not yet disestablished as there are

outstanding SARS matters (CHECK).

Tshwane Market

Fresh Produce Markets are an integral, although diminishing part, of the price-

making, distribution and marketing of fresh produce in South Africa. There are

19 fresh produce markets in South Africa. The Tshwane Fresh Produce Market

is the second largest market of its kind in South Africa, with an estimated 21%

3 CoT Council report, Office of the Executive Mayor: Progress report on the status of municipal entities of the

CoT, 25 August 2011

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market share of the total turnover of the fresh produce markets currently

operational in South Africa.

Recent important initiatives to improve the functioning of the Tshwane Market

include the mayoral project to ―Enhance the Sustainability of the Fresh

Produce Market‖, which was approved by Mayco on 21 November 2014.

Broad aims include preparing for growth, which could reach 830000 tons by

2031 from a base of 550000 tons in 2010.

It is currently a municipal department, however discussions have been

underway since 2012, to convert it to a municipal entity. Through the review

undertaken, there is no significant evidence that indicates that the internal

delivery mechanism (either a Department or a Business Unit) would perform

worse than either a municipal entity or the private sector. While it appears to

have been faced with a number of challenges impacting on its business, from

slow SCM processes to poor responsiveness to its business needs, these could

be dealt with through creating a dedicated ring-fenced Business Unit to ensure

that some of its concerns around funding expansions, selecting competent

staff, fast-tracking SCM processes and the like are urgently addressed.

Summary

The information above suggests that there does not appear to be any existing

strategy in the CoT as to why municipal entities are needed to perform service

delivery obligations. Two of the entities – SWA and MEDA—were simply

inherited from previous municipalities. The other two – HCT and TEDA – appear

not to have been established as a result of a strongly motivated analysis as to

why an external mechanisms was required to deliver on the two mandates –

that of economic development and the management/provision of rental

housing.

However, the entities in the CoT have put forward a number of advantages in

using a municipal entity as a delivery mechanism for local government. These

arguments though, are equally applicable to the municipality as a whole, as

the statutes are essentially the same for both entities and the municipalities.

There are also a great number of problems and disadvantages associated

with the structure and operation of municipal entities.

In drawing conclusions around the performance of the two main MEs in CoT

under review, the following is noted:

Issues around the entity establishment and mandate

o Information collected highlights the importance of a clearly defined

role for a municipal entity that adds significant value to what a

municipality is already doing. Entities should not be established to

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avoid an internal operational or managerial problem that the

municipality is facing.

o In establishing an entity a pre-feasibility study must be undertaken

which must include a gap analysis, an economic model,

stakeholder consultation and definition of roles and services.

o In the cases of TEDA and HCT, a significant time elapsed between

when Council resolved that they should be established, and when

they actually started functioning.

o HCT‘s establishment to develop and manage social housing within

the municipality is not backed up by a solid strategy in this regard.

o In their major areas of performance, neither TEDA nor HCT is filling a

gap not covered by other departments within CoT.

o The motivation for the creation of an entity to manage Tshwane‘s

markets – motivated on the basis of improving effectiveness—does

not show what will improve effectiveness if markets become an

entity.

o Housing development requires the involvement of many of the

service delivery units of a municipality, few of which could be

replicated in an ME.

o The establishment of Boards is often a difficult process. For instance,

in the case of TEDA, adverts had been placed for Board members in

2006, again in 2008 and finally in 2011.

Entity performance and service delivery

o Both TEDA and HCT seem to have undertaken significantly more

strategic workshops, turnaround strategies and the like as compared

with any municipal departments. This is reflective of the fact that

their mandates were poorly understood and implemented, from

both the CoT and ME sides.

o Presently, some of the Tshwane entities do not have a Service

Delivery Agreement in place, making it difficult to manage the

performance of the entities and direct their focus of attention.

o The existing unsigned SDAs too, have significant problems attached

to them, such as the scale of the mandates and responsibilities, the

commitment of particularly CoT, etc.

o Overall, it is very difficult to assess what impact the MEs may have

made in the CoT compared with the municipality as a whole. The

impact on development, job creation and employment patterns, as

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well as value for money audits should be regularly conducted to

measure overall impact.

Governance

o As organs of state, ME‘s must, like municipalities, comply with the

legislative framework, particularly the Municipal Finance

Management Act and the Municipal Systems Act, which aim to

ensure accountability, transparency and consultative processes.

o From the CoT point of view, it is important that there is good

governance from the start, with clear policies in place, and with

Board members having the requisite skills and competences.

Unfortunately, often organisational policies are slow in the making

such as with TEDA only developing and approving organisational

policies in 2014.

o Generally speaking, CoT MEs audits are reasonable, with no Clean

Audits, but recently having had Unqualified Audits with Findings for

five years.

Responsiveness to stakeholder, target-group and broader community

needs

Financial aspects, costs and value for money

o Financial issues are continually of concern to the MEs, with the CoT

also frequently raising the question of overall sustainability. This

would not be an issue if there was a clear mandate and clear roles

and responsibilities, but in the absence of these, it creates instability

and uncertainty.

o MEs cannot always be expected to be self-sustaining, yet entities

see that reliance on CoT for funding is a challenge.

o Board remuneration costs are quite significant, although it is difficult

to measure the degree to which the Boards contributions have

improved delivery.

Oversight, monitoring and performance

o Oversight, monitoring and performance is undertaken by the

Shareholder Unit, which has only two posts filled out of a possible

eight positions, even though it was established in 2012.

o Given that they operate at arms-length, MEs do pose risks for

municipalities. Not only are their debts, liabilities and decisions

made on behalf of the municipality, but issues such as corruption,

weak Boards, inflated costs and the like are more difficult to

manage in MEs.

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Options and Recommendations

Key recommendations include the following:

Addressing broader issues that impact on city development

o Procurement

o Staff attraction and retention

o Expert input

o Funding

o Focus and insulation

o Policy certainty and focus

Termination Process

o If the Council decides to disestablish the MEs, it should be noted

that the SDAs of the Tshwane entities have a termination/ clause,

indicating, for example:

That termination requires a six months written notice;

That if either of the parties fails to fulfil its responsibilities, the

other party can, after 30 days notice, cancels the SDA.

Process plan for disestablishment

Key areas of risk such as board members unwilling to resign, entities

entering into costly financial and legal obligations etc. These can be

addressed through, for example, placing a moratorium on all new

commitments made and involving the City‘s legal team in terminations.

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1 CHAPTER 1: INTRODUCTION AND LEGISLATIVE

FRAMEWORK

The Municipal Systems Act (MSA)4 provides the legislative framework within

which the administrative organisation of service delivery within municipalities

occurs. The framework for the provision of services or aspects of services in a

municipality is broad allowing for a number of ways in which services may be

provided through both internal and external mechanisms. Importantly for this

investigation, Section 76(b)(i) of the MSA allows for service delivery through a

municipal entity, as long as there is in place a service delivery agreement

governing that process. Chapter 8 of the MSA then provides for the provision

of services and Chapter 8A for the establishment, operations and

disestablishment of municipal entities.

The City of Tshwane (CoT) presently has four municipal entities (MEs):

Tshwane Economic Development Agency (TEDA);

Metsweding Economic Development Agency (MEDA);

Sandspruit Works Association (SWA); and

Housing Company Tshwane (HCT).

However, none of these entities currently has a signed Service Delivery

Agreement (SDA) in place, as required by the MSA.

The CoT has appointed City Insight (Pty) Ltd to conduct a review of the four

Municipal Entities (MEs) with a view to providing a recommendation on

whether or not the MEs should continue in their present form, or be

disestablished.

Initially, City Insight (Pty) Ltd was appointed to undertake a full review of TEDA,

HCT and SWA, but in October 2016 the CoT Council decided to disestablish

SWA. A full review of SWA is therefore not provided below. At the same time,

a report had also been provided to Council recommending that CoT Market

follow the route of an external service delivery agency for the CoT and

become an ME. City Insight (Pty) Ltd was then asked to review that Section 78

process in regard to Market. Finally, whilst MEDA was not part of the brief for

review it has been included for completeness as it remains as a ME on the

books of the CoT.

The review, therefore, covers the following:

A Review of MEs in South Africa

4 Local Government: Municipal Systems Act No. 32 of 2000, as amended by Institution of Legal Proceedings

against certain Organs of State Act 40 of 2002, Local Government Laws Amendment Act 51 of 2002, Local

Government: Municipal Systems Amendment Act 44 of 2003, Local Government: Municipal Property Rates

Act 6 of 2004, Municipal Fiscal Powers and Functions Act 12 of 2007, Local Government Laws Amendment Act

19 of 2008

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The CoT MEs in Comparative Context

Tshwane Economic Development Association: The review presented below

assesses performance to date and examines the pros and cons of either

continuing with the entities or disestablishing it;

Housing Company Tshwane: Here, the review presented assesses

performance to date and examines the pros and cons of either continuing

with the entities or disestablishing it;

Sandspruit Works Association: The CoT has already decided to disestablish

this Association and this review identifies issues to be covered in the

disestablishment process;

Tshwane Market: A report was presented to Council of the CoT reviewing

the possibility of the Market becoming a Municipal Entity. This report is also

reviewed below.

MEDA: The Metsweding Economic Development Agency remains in the

process of disestablishment and for purposes of completeness the current

status of the former Entity is dealt with below.

The reviews of particularly TEDA and HCT below are based primarily on

documentation and interviews providing insight into:

Their mandates,

The context of the Service Delivery Agreements they have had with the

CoT,

Governance matters,

Strategies adopted,

Business Plans,

Service delivery performance,

Performance assessments undertaken of these entities,

Financial performance and

Human resources.

The last two chapters cover both a General Analysis of the findings of this study

into MEs in the CoT and some recommendations for the CoT to consider.

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2 CHAPTER 2: MUNICIPAL ENTITIES IN SOUTH AFRICA

2.1 INTRODUCTION TO MUNICIPAL ENTITIES

A municipal entity is an external mechanism used by a municipality to deliver

services to its community. Each municipal entity is an ―organ of state‖ and

must comply with the legislative framework, particularly the Municipal Finance

Management Act and the Municipal Systems Act, which aim to ensure

accountability, transparency and consultative processes. These are similar to

the requirements that apply to a municipality in its own right.

Municipal entities are accountable to the municipality or municipalities (e.g. a

multi- jurisdictional entity) that established the entity, and must perform

according to set service delivery agreements and performance objectives. As

their debts, liabilities and decisions are made on behalf of the municipality,

entities may be disestablished if they fail to have a Service Delivery Agreement

(SDA) in place, do not perform satisfactorily or if they experience serious or

persistent financial problems.

National government has set in place a set of governance procedures

regulating the roles of State-Owned Entities in general and Municipal Owned

Entities in particular5.

2.2 LEGISLATIVE FRAMEWORK

A legislative framework relating to municipal entities came into effect through

amendments to the Municipal Systems Act (MSA) and the enactment of the

Municipal Finance Management Act (MFMA). The provisions of the MSA,

including Chapter 8A, came into effect on 1 August 2004. The bulk of the

provisions of the MFMA took effect on 1 July 2004 with some transitional

provisions based on municipal capacity6.

In some cases, additional guidelines exist to assist municipalities in the

establishment of specific municipal entities, such as those for Economic

Development Agencies, as discussed below.

Similar processes were encouraged, and indeed are legislated in establishing

all MEs. As indicated below though, no evidence exists that, prior to the

establishment of the MEs under consideration, such analyses were in fact done

and processes followed.

5 Governance Oversight Role over State-Owned Entities (SOEs) 6 Section 103

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2.3 REPORTING REQUIREMENTS

In terms of Section 74 and 178 of the MFMA, municipalities are required to

report to the National Treasury (NT) on all municipal entities, including those

structures in existence prior to the MFMA and MSA framework taking effect.

The latest NT report deals with these municipal reports as at 30 June 2014 and

indicates7:

There were 91 municipal entities as at 30 June 2006,

This number was reduced to 63 in June 2010, and

There was a total of 62 municipal entities as at 30 June 2014. (As noted

below, the 2014/15 Auditor General report notes that this number was

further reduced to 52 municipal entities).

It should be noted that there are generally more MEs than simply the number

audited by the Auditor-General. This is because some are in the process of

being de-registered (such as MEDA), are not functional and they have not

been included in the audits.

The amendment to the MSA and enactment of the MFMA in 2005 has resulted

in a number of entities being reviewed and disestablished. Between 2010 and

2014, for example, 20 municipal entities were disestablished (six in Gauteng,

four in Western Cape, three in Eastern Cape, two in Mpumalanga, one each in

Free State, Limpopo, and Northern Cape).

2.4 TYPES OF MUNICIPAL ENTITIES

Of the 62 municipal entities in

2014, 32 are Private Companies,

18 are Section 21 Companies;

seven are Service Utilities and 5

are Trusts. The adjacent figure

shows the different types of

entities:

Figure 1: Legal basis of municipal

entities

The following sections provide

updated information on Municipal Entities based on the most recent reports of

the Auditor-General of South Africa.

7 National Treasury, Updated Municipal Entities Report, 30 June 2014

519


18 January 2017

2.5 MUNICIPAL ENTITIES IN SOUTH AFRICA

If one looks at the most recently reported financial year (2014/15) one finds

that there were some 52 Municipal Entities across South Africa. The table

below indicates how these 52 Municipal Entities are broken down across major

areas of activity and audit results for the 2014/15 financial year. The vast

majority of entities are Economic Development Agencies (54%), followed by

Housing (12%) and Water (12%), then Events (10%), Roads/Transport (3%),

Electricity (4%) and Markets (2%) and Solid Waste (2%) having one entity each.

Figure 2: Municipal entities by focus area

Table 1: Municipal entity audit results

Municipal Entity

Area

Unqualified

Audit with

No Findings

Unqualified

Audit with

Findings

Qualified

Audit with

Findings

Disclaimer

Audits

Grand Total

Economic

Development

7 16 3 2 28

Housing 4 2 6

Water 6 6

Events 4 1 5

Roads and

Transport

2 1 3

Electricity 2 2

Markets 1 1

Solid Waste 1 1

Grand Total 18 29 3 2 52

Interestingly, some 29 (56%) of the MEs received unqualified audits with

findings, with 18 (35%) receiving Unqualified audits with no findings and the

remaining five either having qualified audits or disclaimers.

Figure 3: Municipal audit outcome per entity type

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19 January 2017

2.6 MUNICIPAL ENTITIES IN METROPOLITAN AREAS

In order to compare like with like,

entities found in Metropolitan

areas were extracted from the

total across the country. The eight

metros together have, for

example, 24 entities. Brief

descriptions are provided in

Annexure 1.

The following table indicates that

Johannesburg has by far the

greatest number of entities – 11 –

followed by Ekurhuleni with four, Tshwane having three and the remainder

relatively evenly split across the rest of the metros.

Table 2: Municipal entities in metropolitan municipalities

Category A

Municipality

#

Entities

%

Buffalo City 1 4%

Cape Town 1 4%

Ekurhuleni 4 17%

eThekwini 2 8%

Johannesburg 11 46%

Mangaung 1 4%

NMB 1 4%

Tshwane 3 13%

Grand Total 24

0 5 10 15 20 25 30

Economic Development

Housing

Water

Events

Roads and Transport

Electricity

Markets

Solid Waste

Municipal Audit outcome per entity type

Unqualified Audit with No Findings Unqualified Audit with Findings

Qualified Audit with Findings Disclaimer Audits

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20 January 2017

Examining financial performance in these 24 entities, we find that it has

generally improved over the past five years. For example, the table below lists

the audit results from the 2010/11 year to the 2014/15 year, breaking it down

across each of the major sectors in which there are MEs. In the earlier years,

three municipalities had either qualifications or disclaimers, but for the past two

financial years for which audits area available, there have only been

unqualified audits.

In addition, the number of entities with Unqualified audits without findings has

grown from two (2010/11) to four (2011/12) to five (2012/13) to 11 (2013/14 and

in the past financial year to some 13 entities having Unqualified Audits without

findings (also referred to as Clean Audits):

Figure 4: Audit outcomes by entity type

Table 3: Audit outcomes by entity type

Year and Audit

result

Ec

on

De

v

Ele

c

Eve

nt

Ho

usi

ng

Ma

rke

t

Ro

ad

s /

Tra

nsp

ort

So

lid

Wa

ste

Wa

ter

Tota

l

2014/15

Unequal No Find 4 4 2 2 1 13

Unqual With Find 2 2 1 1 1 1 3 11

2013/14

Unqual No Find 2 4 2 1 2 11


2012/13

Unqual No Find 1 2 1 1 5


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21 January 2017

Year and Audit

result

Ec

on

De

v

Ele

c

Eve

nt

Ho

usi

ng

Ma

rke

t

Ro

ad

s /

Tra

nsp

ort

So

lid

Wa

ste

Wa

ter

Tota

l

Qual With Find 1 1

2011/12

Unqual No Find 2 1 1 4

Unqual With Find 6 3 2 3 1 2 17

Qual With Find 1 1 2

Disclaimers 1 1

2010/11

Unqual No Find 1 1 2


Qual With Find 1 1 2

Disclaimers 1 1

6 2 5 3 1 3 1 3 24

The City of Tshwane‘s three entities did not have any clean audits, but for the

past five years have had Unqualified Audits with Findings.

Table 4: CoT MEs audit results

Entity Area 2010/11 2011/12 2012-13 2013/14 2014/15

Tshwane

Economic

Development

Agency

Econ

Dev

Unqualified

with

Findings

Unqualified

with

Findings

Unqualified

with

Findings

Unqualified

with

Findings

Unqualified

with

Findings

Housing

Company

Tshwane

Housing Unqualified

with

Findings

Unqualified

with

Findings

Unqualified

with

Findings

Unqualified

with

Findings

Unqualified

with

Findings

Sandspruit

Works

Association

Water Unqualified

with

Findings

Unqualified

with

Findings

Unqualified

with

Findings

Unqualified

with

Findings

Unqualified

with

Findings

If one compares the City of Tshwane municipal entities against the aggregates

of the other metropolitan areas, whilst Tshwane‘s results have remained

unchanged (a situation also found in Buffalo City) in all other metros the

financial audit results have improved:

Cape Town

Ekurhuleni

eThekwini

Johannesburg

Mangaung

Nelson Mandela Bay

Given the size and importance of Tshwane, this is, in general terms, most

concerning given that the CoT has greater resources and capabilities. In

523


22 January 2017

addition, as we shall see below, none of the CoT‘s entities are involved in

service delivery at a great scale which would usually impact on audit results.

Table 5: Audit outcomes by metro

Year BC CPT EKU ETH JHB MAN NMB TSH Grand Total

2014/15 Unqual No Find 1 3 2 6 1 13

Unqual With Find 1 1 5 1 3 11

2013/14 Unqual No Find 1 3 2 4 1 11


2012/13 Unqual No Find 1 1 2 1 5


Qual With Find 1 1

2011/12 Unqual No Find 2 2 4

Unqual With Find 1 1 4 7 1 3 17

Qual With Find 2 2

Disclaimers 1 1

2010/11 Unqual No Find 2 2


Qual With Find 2 2

Disclaimers 1 1

Total 1 1 4 2 11 1 1 3 24

If the three MEs of Tshwane are compared against their counterparts in other

metros one finds the following:

Whilst TEDA has received an Unqualified Audit with Findings, two-thirds of

the economic development agencies in the metros have Unqualified

Audits with No findings (i.e. Clean Audits);

Whilst HCT has received an Unqualified Audit with Findings, the other two

municipal entities focused on Housing have received Clean Audits; and

In the case of SWA the other Water entities have also received Unqualified

Audits with Findings.

Overall, then, there is some evidence that when compared with the other

metros, the financial performance of MEs of Tshwane have not performed as

well as their counterparts.

The following chapters examine each of these entities in turn with the final

chapter evaluating this information.

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23 January 2017

3 CHAPTER 3: ENTITIES IN TSHWANE

Presently there are four MEs in the City of Tshwane.

3.1 Sandspruit Works Association (SWA)

Sandspruit Works Association (SWA) is mandated to provide water and

sanitation services in the northern region of the CoT, in areas such as Ga-

Rankuwa, Mabopane and Winterveld. It functions as a Water Services

Provider (WSP) in terms of the Water Services Act. The services rendered by

SWA include the provision of potable water, management of waste water

treatment and revenue collection. The Council approved the SDA of SWA on

27 May 2010 and it was then signed by SWA on 15 February 2011 and the CoT

on 10 March 20118.

In December 2014 the CEO was suspended and to date the entity does not

have a CEO, although a senior manager from the COT was transferred to act

in that capacity9.

3.2 Tshwane Economic Development Agency (TEDA)

The Tshwane Economic Development Agency (TEDA) was approved by

Council on 2 November 2006 and is wholly owned by the city. On 23 June

2006 it was established as a private company. However, by 2011 TEDA was still

not operational, no board was in place and no SDA agreed upon by Council

of the CoT10. Adverts had been placed for Board members in 2006, again in

2008 and finally in 201111. The appointment of the Board was then delayed

because of the local elections to be held that year. This was in spite of the

fact that the Auditor-General had raised audit findings against the

municipality for a number of years for it not having a Board in place.

TEDA had been established with the main aim of being a catalyst for the

accelerated economic growth and job creation within Tshwane. The mandate

8 CoT Council report, Office of the Executive Mayor: Progress report on the status of municipal entities of the

CoT, 25 August 2011 9 CoT Council report, City Strategies and Performance Management Department: City of Tshwane Annual

Report for 2014/15 Financial Year, 24 March 2016 and CoT Council report, Office of the Executive Mayor:

Mid-year budget and performance assessment in term of Section 88 of the Municipal Finance Management

Act, 2003, for municipal owned entities (July to December 2014), 29 January 2015 10 CoT Council report, Office of the Executive Mayor: Progress report on the status of municipal entities of

the CoT, 25 August 2011 11 CoT Council report, Office of the Executive Mayor: Progress report on the status of municipal entities of

the CoT, 25 August 2011

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24 January 2017

provided to the organisation was substantial, yet a report in 2015 indicated

TEDA was top heavy and not aligned to the business model of the entity.12

3.3 Housing Company Tshwane (HCT)

The Housing Company Tshwane (HCT) is a municipal entity under sole control

of the CoT, with a mandate to provide social (rental) housing within the

Tshwane area. The SDA was approved by Council on 31 March 2010 and

signed by all parties on 9 April 2010. In terms of the SDA it then expired on 8

April 2013 and the updated SDA has not been signed since then (CHECK)13.

Whilst the greenfields projects of Townlands and Timberland have been on the

agenda for some time, work has not yet begun. With the exception of one

project, the rental stock now managed by HCT has not achieved the

occupancy rate levels as required in the SDA. HCT has a CEO in place but

does not have a CFO which could raise an Audit finding14.

3.4 Metsweding Economic Development Agency (MEDA)

The Metsweding Economic Development Agency (MEDA) was established by

the Metsweding District Municipality (MDM) (consisting of Kungwini Local

Municipality (KLM) and Nokeng Tsa Taemane Local Municipality (NLM) on 23

October 2008 and was operating in that District Municipality. With the

incorporation of MDM and its local municipalities into the CoT, following the

2011 elections, there was a need to amalgamate MEs responsible for

economic development in the respective municipal areas. MDM had

established the Metsweding Economic Development Agency (MEDA) to

promote, facilitate and implement the economic priorities of MDM15. On 25

August 2011, the Council resolved that MEDA should be disestablished and

TEDA operationalised to serve the whole of the amalgamated municipality16.

The Council resolved 17 that a due diligence into the assets, liabilities and

expenditure of MEDA/MEDC (its forerunner) be conducted. MEDA is not yet

disestablished as there are outstanding SARS matters (CHECK).

12 CoT Council report, Office of the Executive Mayor: Mid-year budget and performance assessment in term

of Section 88 of the Municipal Finance Management Act, 2003, for municipal owned entities (July to

December 2014), 29 January 2015 13 CoT Council report, Office of the Executive Mayor: Progress report on the status of municipal entities of

the CoT, 25 August 2011 14 CoT Office of the Executive Mayor Shareholders Operation Unit Memorandum, 20 September 2016 15 CoT Council report, Office of the Executive Mayor: Progress report on the status of municipal entities of




526


25 January 2017

3.5 Tshwane Entity Management

The CoT manages its entities through a Shareholder Unit which has an

establishment of eight persons with only two posts filled 18 . The Unit was

established after the Mayoral Committee in May 2012 established a process for

reporting and monitoring municipal entities in the CoT. The approach required

interdepartmental cooperation to cover the various financial, legal and other

performance-related matters19.

As indicated above, the appointment of Board members was often not done

even after adverts were placed inviting nominations. Council did, however,

on 30 July 2015 consider and approve a report on the revised policy on the

appointment of Directors for municipal entities20. More recently, steps have

been taken to improve governance of the entities through the following:

Ensuring that all relevant senior management meet the prescribed financial

and other competency levels21;

Streamlining communication processes in quarterly reporting, monthly

financial and preparing for mSCOA and Audits.22

Recently also, in 2016, Given that Directorial appointments to the ME Boards

had expired, a special Council meeting was held on 31 August 2016 to extend

appointments of Board members for a period of three months from 1

September 2016 until 30 November 201623 and on 24 November 2016 were

extended to the 30 June 2017.

A Council meeting was held on 26 November 2016 to present the outcome of

the review of the macro organisational structure of Tshwane24. The macro

structure aims to make the organogram less top heavy, improve clustering and

streamline, with a reduction of duplication and better division of

responsibilities. Provision is made for all MEs, if they exist, to be more centrally

managed.

3.6 CONCLUDING COMMENTS

Unfortunately, this review has been unable to identify whether or not

investigations were held which informed the decisions of the CoT to establish

MEs such as TEDA, HCT and SWA. There does not appear also to be any clear

18 SHU: Management and Organizational Structure 19 CoT Mayoral Committee report, Office of the Executive Mayor: Reporting framework and monitoring of

municipal entities of the CoT, 2 May 2012 20 CoT Council report, Office of the Executive Mayor: Review of the Policy (Process) for the Appointment of

Directors for Municipal Entities, 30 July 2015 21 Municipal Finance Management Act, Act 56 of 2003, Section 81 (Role of the Chief Financial Officer) 22 CoT Office of the Executive Mayor Shareholders Operation Unit Memorandum, 20 September 2016 23 CoT Special Council report, Office of the Executive Mayor: Request for the Extension of the Term of

Municipal Entity Board Members for a period of three months (1 Sept 2016 – Nov 2016), 31 August 2016 24 CoT Council report, Office of the Executive Mayor: Report on the Review of the Macro Organisational

Structure of the City of Tshwane, 24 November 2016

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26 January 2017

existing strategy in the CoT as to why municipal entities are needed to perform

service delivery obligations.

Two of the entities – SWA and MEDA—were simply inherited from previous

municipalities. The other two – HCT and TEDA – appear not to have been

established as a result of a strongly motivated analysis as to why an external

mechanisms was required to deliver on the two mandates – that of economic

development and the management/provision of rental housing.

The next set of chapters explore in more detail the performance of each of

these MEs.

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27 January 2017

4 CHAPTER 4: TEDA

4.1 INTRODUCTION

As indicated in the previous chapter,

the establishment of TEDA has taken

a significantly long time25.

After a period of discussions about the creation of TEDA, in March 2005 Council

requested a report and funding options for the first three years of TEDA. On 25

August that year, Council then approved the establishment of TEDA26, the

company was registered in June 2006 and in November 2006, Council

confirmed that TEDA be established as a 100% municipal owned entity.

However, it then simply remained as a shell company for the remainder of the

term of office of the 2006-2011 Council. In 2011, with the amalgamation of

Metsweding District Municipality (MDM), the CoT was spurred to action and

decided to de-register MEDA and fast track the appointment of a Board and

CEO and approval of a Service Delivery Agreement.

This chapter reviews the mandate and service delivery performance of TEDA.

4.2 MANDATE

When established in 2006, the CoT saw the main functions of TEDA being to

facilitate, initiate, manage, implement, monitor and fund interventions in the

following areas27:

Business development

SMME development

Implementation of economic development projects

Pursuing marketing, trade and investment opportunities.

However, by the time that Council met on 20 November 2012, a revised

mandate for TEDA28 had by then been developed and was adopted. This

revised mandate was more complex and suggested that TEDA should focus

on:

Trade and investment promotion, facilitation and aftercare

25 20061102: CoT Council report, Economic Development Department: Report on the establishment of the

Tshwane Economic Development Agency, 2 November 2006 26 20121120: CoT Council report, Economic Development Department: Approval of the revised mandate for

the Tshwane Economic Development Agency, 29 November 2012 27 20061102: CoT Council report, Economic Development Department: Report on the establishment of the

Tshwane Economic Development Agency, 2 November 2006 28 20121120: CoT Council report, Economic Development Department: Approval of the revised mandate for

the Tshwane Economic Development Agency, 29 November 2012

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28 January 2017

Development facilitation in relation to trade and investment

Promotion of export-ready companies

Trade, investment and tourism marketing services

Being an infrastructure investment vehicle

Social infrastructure investment facilitation

EPWP programme management in relation to investment projects

Sectorial and skills development programmes linked to trade and

investment projects

First port of call for investors and international traders (one-stop centre)

International outbound and inbound missions in line with the market

analysis done by the Economic Intelligence Unit

Strategic trade and investment events

Tourism management

Management of strategic land and buildings portfolio of the City linked to

the investment pipeline

Stakeholder liaison/strategic partnerships

Implementation of programmes identified in Sister-City Agreements

Implementing ―Game-Changer‖ programmes where and when assigned

by the City

There appear not to be any documents providing motivations for these sixteen

mandates, all of which are quite significant and potentially far reaching. In

addition, the motivation provided to Council in 2006, also did not make the

case for why the performance of such functions needed to be located in an

external mechanism.

4.3 SERVICE DELIVERY AGREEMENT

Whilst the revised mandate was adopted by the Council on 20 November

2012, only on 13 June 2013 did the Board of Directors resolve that the SDA

between the City and TEDA be approved29. Eventually on 27 June 2013 the

Council approved the SDA for signature30.

Some of the responsibilities of the CoT in terms of the TEDA SDA include31:

Develop, facilitate and provide strategic land and buildings;

29 20130613: TEDA, Extract from the minutes of the meeting of the board of directors: Service Delivery

Agreement between TEDA and the City, 13 June 2013 30 20130627: CoT Economic Development Department: Approval of the service delivery agreement as per

the revised mandate approved by Council on 29 November 2012 for the Tshwane Economic Development

Agency, 27 June 2013 31 2013?: CoT and Tshwane Economic Development Agency, Service Delivery Agreement, undated

530


29 January 2017

Identify vacant land parcels throughout the CoT;

Identify land and buildings owned by CoT which can be transferred to

TEDA for socio-economic upliftment;

Plan programmes and/or projects which will be handed over to TEDA for

implementation; and

Conceptualise projects prior to handing over to TEDA on the basis of SDFs

and UDFs

TEDA’s obligations on the other hand included32:

Implementing detailed economic development plans;

Undertaking social and economic development programmes and projects;

The development and implementation of programmes in trade and

investment promotion, facilitation and aftercare;

Promotion of companies which are ready for export;

Development of trade, investment and tourism marketing services;

Design and promote catalytic and strategic projects that form part of the

investment pipeline of CoT with regards to the facilitation of development;

The establishment and maintenance of an infrastructure investment

vehicle;

The management of a strategic land and building portfolio;

Establishment and facilitation of a social infrastructure investment

programme;

The implementation of EPWP programmes in relation to investment

projects;

The implementation and management of international investment

outbound and inbound missions aligned to the market analysis conducted

in the city;

The establishment and management of strategic trade and investment

events and activities, including TITIIC;

The establishment and management of a one-stop investment and export

centre;

The development and implementation of tourism marketing programmes;

Setting up and implementing stakeholder liaison and/or strategic

partnerships;

The implementation of programmes identified in sister city agreements; and

The implementation of ―game changer‖ programmes assigned by the City.

32 2013?: CoT and Tshwane Economic Development Agency, Service Delivery Agreement, undated

531


30 January 2017

Again as noted above, these 17 key mandates for TEDA do not appear to

have emerged from an analysis done into what CoT needed to perform and

from that an argument as to why these 17 functions should be undertaken by

TEDA.

It would appear that TEDA operates almost in competition with the Economic

Development Department and/or it duplicates what is being done in that and

other Units of the CoT. Sme of the mandates are found in other Departments

too.

In discussions with the CEO of TEDA, a request was made to indicate for each

mandate what TEDA has done particularly over the past five years.

His summary is indicated in the following table:

Table 6: TEDA obligations (2013)

TEDA’S OBLIGATIONS 2013 SDA SPECIFIC INFORMATION (INCLUDING YEAR) ON THESE

Implementing detailed economic

development plans

This section is broad and covers all areas of work undertaken

by TEDA as depicted in the points below.

Undertaking social and economic

development programmes and

projects

Erection of informal stalls in Hammanskraal in 2014

responding to the lack of trading stalls for local vendors in

the area

Completion of the Mamelodi Rondevals in 2014 (joint project

with Economic Development Department)

National Tooling Initiative Programme in 2014 (joint project

with DED)

Tshwane Agro-processing Hub project

Prefeasibility study completed 2015

detailed market feasibility study completed 2015

Tshwane Agro-processing Hub project initial business plans

completed 2016

Tshwane Agro-processing Hub project infrastructure

feasibility study to be completed in March 2017

Tshwane freight terminal and logistics hub project initiated

2015

Tshwane freight terminal and logistics hub project tripartite

agreement signed with Private party (MRT), Transnet and

TEDA in 2015

Co-funding in 2014 and Steering Committee participation in

the Tshwane Automotive City development framework

The development and

implementation of programmes in

trade and investment promotion,

facilitation and aftercare

Trade and Investment Promotion Strategy 2014-2019

Export Technical Capacity Training Programme 2014

Export Awareness Seminar 2015

Tshwane-Massmart Exhibition 2015

Audit of public and private industrial and commercial

estates 2015

Tshwane Investment outlook report and Investors database

2015

Study on township operated companies with export

potential

Technical export training programme with the German

Chamber 2016

Export Market Plan training programme 2016

Benchmarking and information gathering with Wesgro and

TIKZN and Singapore and Ireland trade and investment

agencies 2016

Subscription to Decision Support Model from the University of

the North West to assist Tshwane companies to develop

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31 January 2017


export markets

Shannon Economic Development Consultants report on

client Aftercare and New Sector Development 2016

Currently working on the export portal 2016-2017

TEDA continuously conducts After-care programme by

means of the company visitation programme. During these

visits, records are kept and follow up made on issues

requiring further attention

Promotion of companies which are

ready for export

Tshwane Inaugural Exporters Awards 2015

SAITEX exhibition 2015

TEDA partnership with SABS 2015 for standardization of local

products

TEDA part of the establishment of the Commercial Aviation

Manufacturing Association of South Africa (CAMASA) for the

aerospace and aviation sector 2016

Development of trade, investment

and tourism marketing services

Increase City‘s competitiveness

Packaging of TEDA programmes through brochures and

website and continuous update thereof.

Launch campaigns and activities that build a strong

corporate and destination brand.

Digital Marketing campaign 2014/15 #thumamina

Matchdeck digital platform for match-making, trade

promotion and investment attraction

Implementation of internal and external communications

processes, systems and management

Electronic Newsletter for TEDA stakeholders( TEDA Business

Review)

Placement of investment related articles in publications and

brochure development.

Tshwane Story digital booklet

The tourism marketing service is mainly provided by the

Tshwane Business and Visitors Bureau and Communication,

Marketing and Events in the CoT

Design and promote catalytic and

strategic projects that form part of the

investment pipeline of CoT with

regards to the facilitation of

development

Tshwane Agro-processing hub project packaged in 2016

Tshwane Freight Terminal and Logistics hub project

packaged in 2016

Tshwane Automotive City hub Project in collaboration with

DED investment packaging to be finalized in 2017

The establishment and maintenance

of an infrastructure investment vehicle

This is part of the Financial Sustainability model review

currently underway in light of the changes in mandates and

legal framework applicable to entities and parent

municipalities in this regard.

The management of a strategic land

and building portfolio

This mandate is with the newly established Group Property

Management Department

Establishment and facilitation of a

social infrastructure investment

programme

Related to 7 above

The implementation of EPWP

programmes in relation to investment

projects

Minor refurbishment of a City facility within the Groenkloof

nature Reserve in 2016 employing about 34 people within

the context of EPWP.

The implementation and

management of international

investment outbound and inbound

missions aligned to the market analysis

conducted in the city

Trade mission to Democratic Republic of Congo 2015

Trade mission on cosmetic sector to Nigeria 2015

Inward trade mission from USA 2015

Inward trade mission from Germany 2015

Inward trade mission Vietnam 2016

Inward trade mission from China 2016

Trade mission on food and hotel Seoul to South Korea 2016

Trade mission on aerospace sector to Spain, Morocco and

Germany 2016

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32 January 2017


Planned multi sector trade mission to Cameroon 2017

The establishment and management

of strategic trade and investment

events and activities, including TITIIC

Participation and promotion of Tshwane investment sectors

in strategic trade exhibitions:

China International Fair for Investment and Trade (CIFIT)

2013

Mining Indaba 2014

SMME Support and Entrepreneurship Development

SMME Funding Fair 2015 and 2016

Youth Entrepreneurship drive 2016

TITIIC 2016

Thought leadership programme on investment promotion

and business environment 2016

Properly facilitated and hosted local, regional and global

events and activities.

Africa Private Public Partnership Conference 2013.

Mining Indaba 2014 to promote TITIIC and Catalytic projects

of Tshwane

The establishment and management

of a one-stop investment and export

centre

Currently in discussion with Singapore Cooperation Enterprise

(SCE), an Agency of the Government of Singapore to assist

TEDA with the implementation of a One stop shop to reduce

red tape. Dti part of these discussions against the backdrop

on the new Invest SA initiative

The development and

implementation of tourism marketing

programmes

This function is performed by the Tshwane Business and

Visitors Bureau and Communication, Marketing and Events in

the CoT, as mentioned under 5.

Setting up and implementing

stakeholder liaison and/or strategic

partnerships.

Partnered with various stakeholders for the Youth

Entrepreneur Drive and SMME Fair. Namely NYDA, SEFA,

SEDA, Egoli Bio, Gauteng Enterprise Propeller, Bataung

Group, Enterprises at UP, Tshwane Youth Business Council,

Dimension Data, Innovation Hub, TIA, ABSA, Royal Fields

Finance.

SLAs and MOUs signed with key stakeholders

The implementation of programmes

identified in sister city agreements

This is the function of the CoT‘s International Relations Desk.

The implementation of ―game

changer‖ programmes as assigned by

the city

No projects were assigned by the City to TEDA for

implementation

The Board of Directors also reviewed the 2012-2016 achievements of TEDA

against the approved mandate. The board noted with concern that some of

the CoT‘s responsibilities that have only been partially fulfilled are33:

• Developing and putting in place applicable policies, strategies and

processes within the framework of the Municipality‘s Integrated

Development Programme and in line with the mandate approved by

Council that will enable TEDA to implement this mandate.

• Providing sufficient resources in line with legislative budget processes, on

the principle of affordability, which will enable TEDA to implement their

mandate.

33 Tshwane Economic Development Agency, TEDA close out report for the Board of Directors.

534


33 January 2017

• Planning programmes and/or projects, which will be handed over for

implementation by TEDA.

• Conceptualising projects prior to hand over to TEDA.

The City of Tshwane‘s responsibilities that have not been fulfilled are:

• Developing, facilitating and providing strategic land and buildings.

• Identification of vacant land parcels throughout the City of Tshwane.

• Identify land and buildings owned by the City of Tshwane to be

transferred to TEDA for socio economic upliftment purposes.

On the other hand, TEDA‘s responsibilities that have been partially fulfilled are:

• Implementing detailed economic development plans within the

framework of the municipality‘s IDP as per the council approved

mandate.

• The collection of services for its own account from users of services in

accordance with the municipal council‘s tariff policy.

• Development of trade, investment and tourism marketing services.

The City of Tshwane‘s responsibilities that have not been fulfilled are stated

below as follows:

• Designing and promoting catalytic and strategic projects that form part

of the investment pipeline for the City of Tshwane.

• Establishment and maintenance of an infrastructure investment vehicle.

• Management of strategic land and building portfolio.

• Implementation of EPWP programmes in relation to investment projects.

• The establishment and management of a one-stop investment and

export centre.

• The development and implementation of tourism marketing

programmes.

In addition to the above the TEDA Board believed that the CoT has not fulfilled

its responsibility to activate the Contract Management Committee, this

committee is critical as it would have met regularly to ensure that issues do not

fall through the cracks to ensure that all parties fulfil their responsibilities.

Concerns have been expressed by TEDA that ―Over an extended period of

time the debate in TEDA has revolved around the old adage ―We cannot do

the same thing and expect a different result‖‖34.

34 TEDA, MW Yates, 2016, DISCUSSION MEMORANDUM: LEKGOTLA : 29 and 30 JANUARY 2016 (LAST UPDATE :

24/02/2016)

535


34 January 2017

This has led, in part, and certainly recently, to TEDA‘s mandate being seen,

particularly by TEDA, as being a project implementation agency of the City35.

The 16 Mandate items have been consolidated into nine logical projects:

Draw up and implement (through programme management) a three

year rolling Plan of Action covering:

Draw up and implement (through programme management) a three-

year rolling Plan of Action for the facilitation of investment in social

infrastructure.


year rolling Plan of Action to manage in all investment projects:


year rolling Plan of Action to implement programmes identified in sister-

city Agreements

Programme manage marketing services in the City of Tshwane

regarding:

Design, implement and manage an Infrastructure Investment Vehicle

Design and operate a One-stop Centre for investors and international

traders

Manage a portfolio of strategic City land and buildings linked to the

Investment Pipeline

Implement a ―Game changer‖ programme where and when assigned

by the City.

The question, though, is whether or not the existing structure of TEDA, fashioned

around the original mandate, can easily be transformed to take on this new

mandate.

4.4 GOVERNANCE

The board of TEDA currently consists of ten non-Executive Directors and one

Executive Director (that is, the CEO). The term of office for Board members has

been extended for the following persons (see last column)36:

Table 7: Reappointment period and proposed new board

CURRENT BOARD

(10 MEMBERS + CEO)

REAPPOINTMENT PERIOD

PROPOSED BOARD

(10 MEMBERS + CEO)

Prof D. Mosoma 6 months Prof David Mosoma

35 TEDA, MW Yates, 2016, DISCUSSION MEMORANDUM: LEKGOTLA : 29 and 30 JANUARY 2016 (LAST UPDATE :

24/02/2016) 36 CoT Council report, Office of the Executive Mayor: Request for the approval of an extension of the term of

municipal entity board members for a period of six months (1 December 2016 – 30 May 2017)

536


35 January 2017

CURRENT BOARD

(10 MEMBERS + CEO)

REAPPOINTMENT PERIOD

PROPOSED BOARD

(10 MEMBERS + CEO)

(Chairperson of the Board) (Chairperson of the Board)

Ms. N. Singh 6 months Ms. N. Singh

Ms. S. Bahula- Ermias 6 months Ms. S. Bahula- Ermias

Mr. F.K. Sibanda 6 months Mr. F.K. Sibanda

Mr. H. Gouvelis 6 months Mr. H. Gouvelis

Mr. C.R. Mpyane 6 months Mr. C.R. Mpyane

Adv. J.L. Thubakgale 6 months Adv. J.L. Thubakgale

Mr. M.W. Yates 6 months Mr. M.W. Yates

Ms. S.P. Msizi 6 months Ms. S.P. Msizi

Ms. Z.G. Mpungose 6 months Ms. Z.G. Mpungose

S. Mogaladi

(Executive Director)

5-year Contract S. Mogaladi

(Executive Director)

TEDA has had a Board in place since 2011 and Board members and their

payments indicated in the annual financial statements for the years ending

2015 and 2016 are as follows37:

Table 8: TEDA Board members and payments

NAME 2015 2016

Prof LD Mosoma R41 136 R222 628

Ms. RS Bahula-Ermias R211 085 R144 854

Mr H Gouvelis R173 378 R106 165

Ms ZG Mpungose R37 708 R202 097

Mr CP Mpyane R233 368 R188 325

Mr SP Mzizi R30 852 R146 512

Mr FK Sibanda R116 552 R148 225

Ms N Singh R118 255 R187 340

Adv JL Thubakgale R187 090 R153 184

Mr. L Vutula38 R225 052 R86 040

Mr MW Yates R201 112 R201 112

Mr. LD Haskins39 R37 264

Mr. J Matsho40 R94 270

Ms NM Ntsinde41 R11 998

TOTAL R1 725 670 R1 786 483

It was recommended that the board members of TEDA, HCT and SWA be

extended for a period of six months i.e. from 01 December 2016 to 30 May

2017 as indicated above.

4.5 BROAD STRATEGY

In 2014/15 TEDA‘s 17 areas of the mandate were then summarised in a set of

strategic objectives42:

37 20161130: City of Tshwane Audit and Performance Committee for CoT and Entities, 30 November 2016 38 Resigned January 2016 39 Resigned August 2014 40 Resigned March 2015 41 Resigned August 2014

537


36 January 2017

To develop, facilitate and promote viable foreign and local investments

into City of Tshwane;

To establish and maintain an economic Infrastructure Investment Vehicle;

To identify, design, develop and manage projects with strategic economic

and social benefits for the greater Tshwane community;

To develop and maintain a strategic immovable and property asset

portfolio for maximum return on investment;

To facilitate the implementation of agreements signed between CoT and

key stakeholders.;

To promote Tshwane as a viable investment destination through the

implementation of an integrated Marketing and Communication

programme; and

To establish and build TEDA as a strong and effective organisation in the

context of good governance best practice.

However, a turnaround strategy workshop was held in July 2014, and this

identified some of the gaps that needed to be addressed, including the

following43:

Table 9: TEDA turnaround strategy

Challenge What's being done / has been done Still to be done

Reliance on CoT

funding

External assistance procured to

develop Financial Sustainability

Model (FSM)

Establishing partnerships with

stakeholders e.g. EIDC, GGDA,

DTI

Establishment of Investment

Fund

Implementation of the FSM

Young organisational

and administrative

systems and processes

Organisational policies

developed and approved in

2014

Application for Systems and

Process appraisal by SABS

Policy reviews

Development of Standard

Operating Procedures (SOPs)

Application for ISO 9001

accreditation

TEDA unknown to

stakeholders, the

investment community

and the public

Implementation of company

visitation programme

Stakeholder Engagement

Strategy has been developed

and approved

Updating of TEDA website

Stakeholder surveys for

improvement and risk

management

Broad Mandate Advocacy for mandate review None

The strategy workshop then noted that TEDA should focus on areas such as44:

42 20151218: Tshwane Economic Development Agency, Annual Report 2014/15 43 20140724: Mogaladi, S (Acting CEO: TEDA), TEDA Presentation: Turnaround plan and programme of action,

24 July 2014

538


37 January 2017

Project and programme management capability towards assisting the City

in implementing its flagship projects (catalytic projects);

Bulk Infrastructure funding especially bulk water provision where

opportunities exist for private sector investment; and

TEDA must position itself as a programme implementation agency for

Departments.

In addition, Council on 27 November 2014 approved a framework for

institutionalizing Catalytic and Strategic Investment projects, which included

the setting up of a Strategic Investments Committee and a Project

Implementation Team45 . TEDA‘s role here would be to act as a Special

Purposes Vehicle to facilitate investment, appoint Transactional Advisors for

catalytic investments, manage and implement tender processes, package

proposals and take on tasks as assigned.

This contributed to what TEDA‘s Board saw as its new (2015) strategic agenda

suggested was as follows46:

1. Dedicated focus on high impact priority projects (game-changers),

including

a. Caledonian Precinct – First phase of the Inner City Revitalisation

Programme and

b. Business Process Outsourcing (BPO) Project – Hammanskraal (Also

a construction project next to Jubilee Mall)

2. Financial Stability and Growth (multiple revenue streams)

a. Terms of Reference for development of compelling Business

Proposition on the asset management function within TEDA

b. Equity Acquisition Agreements in TEDA facilitated private sector –

led projects (FTLH)

c. Mobilisation of revenue from use of TEDA resources such as the

Business Lounge

d. Sponsorship mobilisation for selected TEDA events (Exporters

Awards)

e. Implementation of Cost Containment Measures

44 20150727: Mogaladi, S (CEO), Resolutions from the strategy workshop, progress and way forward, 27 July

2015 45 City of Tshwane (2014) Council resolution based on report from Economic Development which provided a

―Situation Analysis and Global Benchmarking of the City of Tshwane‘s Investment Attraction, Facilitation and

Aftercare of Catalytic and Strategic Investment projects and to Approve a Framework for Institutionalising

Catalytic and Strategic Investment Projects within the CoT‖. 46 20150727: Mogaladi, S (CEO), Resolutions from the strategy workshop, progress and way forward, 27 July

2015

539


38 January 2017

f. Ongoing discussions towards TEDA Capitalisation through the

establishment of an Investment Fund.

3. High – performance organisation (credible partner, competitive, and

results driven)

a. TEDA has conducted the skills gaps through the OD project and

identified skills sets and competencies required in line with the

organisations mandate and structure

b. TEDA has developed initial Standard Operating Procedures for its

core business units

c. Implementation of the Performance Management System

d. Institutionalisation of OPCA in TEDA (recent).

4. Aligning the organisation with Shareholder‘s expectations

a. Finalisation of the Shareholders‘ Compact with TEDA to manage

performance expectations and boundaries between TEDA and

City Departments

b. Development of TEDA‘s Strategic Approach to Project

Implementation, Asset Management and Investment Promotion

in line with City‘s departmental strategies.

5. Trade / Investment promotion and funding (decreasing the City‘s

burden of funding bulk-infrastructure and promoting the ―ease of doing

business‖)

a. Appointment of service provider to develop a compelling

Business Proposition for TEDA‘s Asset Management function

b. Recruitment of key personnel thereafter (Head and Admin)

Unfortunately, since then, both the Strategic Investment Committee and

Project Implementation team appear not to have gained much traction in

terms of delivering on actual programmes and projects.

4.6 BUSINESS PLANS

Whilst annually business plans are provided outlining the work to be

conducted by TEDA, two things have dominated discussions around these

proposals. The first is a focus on trying to identify what the best mandate is for

TEDA to follow. Here, discussions have suggested that TEDA should play a

major role facilitating, or even doing, development. In addition, given the

relative lack of achievement of the mandate set in the SDA, discussions have

revolved around making TEDA more financially sustainable.

540


39 January 2017

As early as 23 October 2014, for example, TEDA presented the results of a study

to make it more financially sustainable47. For TEDA to realise the ability or the

capability to generate its own revenue and ultimately achieve the financial

sustainability aimed at, some of the initiatives that are a necessity are:

The full implementation of the SDA between the City and TEDA;

The transfer of the following functions by the City to be managed by TEDA:

o Property management;

o Outdoor advertising management;

o Commercial and inner city developments and rejuvenation projects;

and

Committing to support TEDA during its transition into financial sustainability,

which will take a number of years.

In order to ensure future that TEDA is self-sustainable in the future years, then, a

financial sustainability model was developed and according to TEDA was

being implemented48. One of the key sources of income proposed was a

commission/management fee linked to a particular project49.

The model proposed seemed quite unrealistic and something of a chicken

and egg problem. On the one hand, it was suggesting relatively major

functions of the CoT should be ring-fenced for TEDA, yet their own studies

showed their lack of developmental competency and capacity to fulfil such

responsibilities.

The most recent business plan submitted to Council focused TEDA‘s attentions

to a narrower set of outputs including50:

Trade and investment intelligence acquired

Export development and promotion services provided

Development facilitation of Tshwane intermodal freight terminal and

logistics hub

Development of commercialization model for Tshwane inner city

revitalisation

Ensuring city‘s increased competitiveness.

At the same time TEDA was arguing this, in February 2016 at the Budget

Steering Committee the CoT noted areas of concern with the operations of

TEDA:

47 20141023: Tshwane Economic Development Agency, Financial Sustainability Model: Framework, 23

October 2014 48 20151218: Tshwane Economic Development Agency, Annual Report 2014/15 49 TEDA, MW Yates, 2016, DISCUSSION MEMORANDUM: LEKGOTLA : 29 and 30 JANUARY 2016 (LAST UPDATE :

24/02/2016) 50 20161027: CoT Special Council, Office of the Executive Mayor: Quarter 1 2016/17 municipal-owned entity

assessment report for the Tshwane Economic Development Agency, 27 October 2016

541


40 January 2017

that its work should be aligned with the work of the Trade and

Investment Unit in the Economic Development Department

That TEDA‘s projects cannot always be at the conceptualisation stage;

That too much money was being spent on employee related costs and

general expenditure and not enough on TEDA‘s mandate;

That TEDA should be identifying projects that would radically change

the economic structure of the city.

Given the need, though, to ensure TEDA becomes more financially

sustainable, Council on 27 October 2016 required of TEDA a financial

sustainability model, focused also on the developmental impact of TEDA51.

The Mayoral Committee was also to provide guidance on the expired SDA,

but this did not happen.

4.7 SERVICE DELIVERY PERFORMANCE

TEDA also took over organising the Tshwane International Trade, Infrastructure

and Investment Conference (TITIIC) which had been established in the 2007/8

financial year. The TITIIC attendance grew from 532 participants in 2007/8 to

1280 participants in 200952. Traceable deals in 2009 were 14 successful deals

for R22.6 million and 26 possible deals for R15.6 million53. The 2009 budget was

R8.338 million.

The approved budget for the 2010 TITIIC was R8.4 million54. Having spent

around R8 million per annum for a few years, without significant success in

deals struck, the Council meeting of 25 March 2010 approved that with effect

from 2011 the total cost of TITIIC would be funded through external sources55.

4.7.1 2013/14 Projects:

The TEDA 2014 Annual Financial Statements recorded their major projects

undertaken as56:

51 20161027: CoT Special Council, Office of the Executive Mayor: Quarter 1 2016/17 municipal-owned entity

assessment report for the Tshwane Economic Development Agency, 27 October 2016 52 20100325: CoT Council report, City Planning and Economic Development Department: Tshwane

International Trade, Infrastructure and Investment Conference (TITIC) 2009 cost-benefit analysis and 2010 to

2013 business plan, 25 March 2010 53 20100113: CoT Mayoral Committee, City Planning and Economic Development Department: Tshwane

International Trade, Infrastructure and Investment Conference (TITIC) 2009 cost-benefit impact assessment

report and TITIC plan of action from 24 to 26 May 2010 54 20100113: CoT Mayoral Committee, City Planning and Economic Development Department: Tshwane

International Trade, Infrastructure and Investment Conference (TITIC) 2009 cost-benefit impact assessment

report and TITIC plan of action from 24 to 26 May 2010 55 20100325: CoT Council report, City Planning and Economic Development Department: Tshwane

International Trade, Infrastructure and Investment Conference (TITIC) 2009 cost-benefit analysis and 2010 to

2013 business plan, 25 March 2010 56 TSHWANE ECONOMIC DEVELOPMENT AGENCY (Pty) Ltd Annual Financial Statements for the year ended

30 June 2014 Director‘s Report

542


41 January 2017

National Tooling Institute Programme (NTIP) – the tooling academy has

absorbed 79 learners in the 2013/14 financial year. These learners are in a

programme that will ensure that they are employed within the

manufacturing industry;

Hammanskraal Stalls - Some of these stalls are complete whilst others are

still under construction with completion anticipated in early 2014/15

financial year.

Automotive Industry Development Centre (AIDC) – TEDA‘s contribution was

towards funding of the setting up of the Project Management Office

(PMO).

Refurbishment of the Mamelodi rondavels within the proposed cultural

precinct.

The Tshwane International Trade and Investment Conference (TITIIC) aimed

at promoting the City as an investment destination. This project is

scheduled for launch in May 2015.

4.7.2 2014/15 Projects5758:

The TEDA AFS for year ending 2015 suggested that significant events that have

taken place during the year including:

TEDA led an outward mission to the DRC in order to expose companies

which participated in the Tshwane

Inaugural Exporters Awards to international markets. There will be

continuous support given to these companies in order to maintain their

relevance in the export market.

TEDA hosted a multi-sectoral Tshwane Inaugural Exporters Awards to

acknowledge and recognise the role of the Tshwane Exporting business

community in growing the regional economy and creating employment

opportunities.

The Tshwane SMME fair was hosted by the entity with the aim of providing

exposure to the SMME‘s in the City on the programmes available to build

their capacity to contribute to the economy of the City.

TEDA underwent an organisational development process to match the skills

set of the employees with those needed by the entity.

A pre-feasibility study on the Tshwane Agro processing hub project has

been completed.

57 Sandspruit Works Association. (2016), Unaudited Financial Statements. 58 20150630: Tshwane Economic Development Agency, Annual Financial Statements for the period ended 30

June 2015

543


42 January 2017

4.7.3 2015/16 Year:

In TEDA‘s financial ending 30 June 2016, the significant events that have taken

place during the year include:59 60

TEDA undertook a trade mission consisting of 14 companies to the Dental &

Beauty Africa Exhibition in Nigeria from 07 to 09 October 2015. TEDA

successfully applied for financial assistance from DTI to the tune of

R1.3 million on behalf of the companies.

The second outbound mission was in the DRC.

In March 2016 TEDA hosted an Export Planning Workshop in partnership

with the DTI in order to empower SMMEs to export their products globally.

In the second quarter eight new investment leads were received and

appraised. Of the eight leads received, four leads hold significant

investment and job creation potential and are currently being facilitated.

TEDA hosted two incoming business delegations; Germany and Hungary,

resulting in a potential project in the automotive sector currently being

investigated by the Hungarians.

TEDA also participated at the hosting of the Beijing Investment Forum with

Brand South Africa and the City of Tshwane.

TEDA, in conjunction with GGDA, is currently engaged in a joint investor

aftercare programme. Four Multinational companies have already been

visited as a result of this programme and the rest will be covered as part of

the Premier‘s ―Firm-to-Firm Campaign.

TEDA hosted TITIIC on 19-21 May 2016 on behalf of the City.

TEDA intends to implement major economic development projects geared

towards changing the economic landscape of the City

Agro-processing hub

BPO

Caledonian Inner city Park

Tshwane‘s freight and Logistics Hub

Inner city regeneration – Groenkloof Nature reserve

4.7.4 2016/17 Projects:

In addition, more recently, activities hosted or in which TEDA participated

include61:

59 Tshwane Economic Development Agency. (2016), Audited Annual Financial Statements.

60 201602: TEDA, TEDA‘s performance: current and future plans, February 2016

544


43 January 2017

• Participation in the International Enterprise Africa-Singapore Forum in

August 2016;

• Co-hosting an Export capacity workshop with DTI in September 2016

• International benchmarking meetings in Ireland

• Attended Matchmaking Africa conference in Tshwane

• Attended Africa Aerospace and Defence Show in Tshwane

4.7.5 Concerns and Impact:

TEDA‘s performance overall is difficult to measure given that most of the SDA

mandate is not really addressed, for whatever reason. Performance reports

often focus on delivery such as: ―In 2014/15 TEDA led an outward mission to

DRC62‖. Whilst these may be very minor achievements, they are, together with

attendance at conferences, often listed as significant performance

achievements, with no real cost-benefit and clear outcomes being recorded.

CoT Departments raised concerns about what this meant for Tshwane:

Leads made and followed up,

Intelligence gathered

Actual benefits to particularly SMMEs

Overall impact

Sustainability model of the Agency.

In addition, requests were made on what transpired after the 2015/16 TITIIC,

particularly around investment impact.

The 2014/15 annual financial statements also identified a number of important

policy decisions and strategic issues facing the entity63:

How to deal with the City assigning major projects to TEDA to manage on

its behalf?

How to build capacity and partnerships with organisations promoting

SMMEs?

Creating an effective income-earning strategy.

By the end of the 2014/15 TEDA had achieved 24 Key Performance Indicators

(KPI) out of a total of 28 KPI, but did not do well on ―income earning

opportunities.‖64


assessment report for the Tshwane Economic Development Agency, 27 October 2016 62 20151218: Tshwane Economic Development Agency, Annual Report 2014/15 63 20150630: Tshwane Economic Development Agency, Annual Financial Statements for the period ended 30

June 2015

545


44 January 2017

Overall, one has to question whether or not value for money is being achieved

in such undertakings. What is not reported on, but which may exist, is work

done by TEDA to retain existing business in Tshwane, to grow existing businesses

and to create new opportunities.

On 26/27 February 2016, a strategic planning session was held where

performance was reported against TEDA‘s two key performance areas,

namely, Investment promotion and attraction and Implementation of major

economic development projects. 65 The highlight of the report back was the

successful investment attraction of R500 million in partnership with the private

sector. In terms of economic development projects with which TEDA was

involved, one finds the following:

Tshwane Agro-Processing Hub: Detailed market feasibility completed and

detailed technical and financial feasibility underway;

Business Outsourcing Processing (BPO): The project is at procurement stage,

CoT DED must conclude SLA with TEDA

Caledonian Inner City Park: Need to finalise SLA based on resolution of EAC

(mid Feb 2016)

Tshwane Freight and Logistics Hub - Tripartite Agreement with Transnet and

Mzansi Rail Technologies signed

GroenKloof Nature Reserve: Construction on project to commence in

March 2016

TEDA argued that the advantages of TEDA in playing a role in programme and

project management on behalf of the CoT have been noted to include66:

TEDA has faster SCM processes

Existence of certified project managers

TEDA is a project implementation agency for the City; and

TEDA has a mandate to attend to a list of specified matters or issues67.

However, there is no indication of why the SCM process in TEDA is faster than in

CoT, why TEDA has a comparative advantage over CoT in terms of project

management, why TEDA should be the vehicle for project implementation

and what specific competencies exist in TEDA to carry out the specified

matters. Importantly, very little consideration has been given to whether these

advantages could not be recreated within the municipality itself.

64 20150630: Tshwane Economic Development Agency, Annual Financial Statements for the period ended 30

June 2015 65 TEDA‘s performance: Current and Future Plans – Presentation of the CEO, Blades Conference Centre, 26

February 2016 66 20161104: TEDA and its role in Programme and Project Management on behalf of the City: Towards

redefining TEDA‘s Mandate and the need to derive focus, 4 November 2016 67 Council resolution of 27 November 2014

546


45 January 2017

The more detailed report of the strategic session concludes by noting that

there ―appears to be ambiguity of intent and It is not abundantly clear that

the CoT is clearly committed to the success of TEDA‖68 This does appear to lie

at the heart of the problem and the history of TEDA – taking over six years to

be properly operational after being established, and then having an

overwhelming set of mandates, very few of which have actually been

performed.

The presentation delivered by the CEO of TEDA at the Budget Steering

Committee meeting in February 2016 and dealing with the 2016-2021 period

indicated that TEDA‘s mandate was clustered into the following areas69:

• Investment Facilitation, Attraction and Aftercare;

• Project Portfolio Management.

The following 3-year targets of TEDA were set:

Attracting R4,5 billion investment

1050 income earning opportunities facilitated by TEDA.

When one looks at the annual scorecard for 2016/17, some of the real

achievements towards these goals are not provided on a quarterly basis, but

simply that the following will be achieved by Quarter 4: that it will attract R1

billion investment, that R5 million income will be generated by TEDA towards

making it sustainable, that 300 income-earning opportunities will be facilitated

by TEDA.

Strangely, some R500 000 is allocated towards attracting R1 billion investment,

yet R600 000 is allocated towards three trade and investment missions.

Nothing is allocated towards attracting 300 income earning opportunities, yet

R1.2 million is allocated for events hosted by TEDA to promote the City‘s

competitiveness.

Nowhere is any attention given to researching local business, to develop

retention and expansion strategies with local business, as is common in most

Economic Development Agencies. Rather, significant attention is placed on

trade missions, events and the like.

The indicative budget suggested for 2016/2017 is R64.631 million with an

argument that TEDA will receive back R9.3 million from project management

and facilitation programmes. The Budget Steering Committee at the March

Mayoral Lekgotla did note though that TEDA should be developing an

Investment Promotion strategy which takes cognisance of the Sustainable

68 20160226: TEDA Strategic Planning Session Report, 26 and 27 February 2016 69 Budget Steering Committee. (2016), 2016/21 IDP and MTREF.

547


46 January 2017

Inclusive Growth Strategy of the CoT and the National Economic Development

frameworks70.

4.8 PERFORMANCE ASSESSMENTS

In many of the quarterly assessment reports, other than the usual compliance

features, performance has generally not been very good and has often not

clearly indicated that any substantial amount of work is being performed. For

example,

In the third quarter of 2014/15 only nine out of 16 KPIs were achieved71.

Amongst others, it did not achieve targets for income opportunities and

seven business plan targets, whilst also having a relatively high expenditure

on remuneration of staff. A high number of 19 Board meetings in nine

months had also been held.

In the fourth quarter of 2014/15 concerns were noted that the KPIs were not

focused on the CoT‘s SDBIP targets72. Concerns noted in Council also led to

the report being referred to MPAC.

The first quarter of 2015/16 indicated that only six of nine targets were

achieved73. Again the report was referred to MPAC

The Council meeting of 28 January 2016 noted the report which indicated

that only eight of the 19 annual targets were being met and the report was

again referred to MPAC. 74

The third quarter assessment of 2015/16 indicated that 10 out of 14 targets

were met and it was referred to MPAC by Council75

The fourth quarter assessment report again indicated concerns and only

eight out of 11 quarterly KPIs were met76.

Collectively, these all indicate ongoing weaknesses, particularly when coupled

with the fact that targets set appear not to be too onerous and do not

necessarily cover all aspects of the mandate.

70 City of Tshwane. (2016), 2016/17 Mayoral Budget Lekgotla. 71 20150423: CoT Council report, Office of the Executive Mayor: 3rd quarter assessment report: Tshwane

Economic Development Agency, 23 April 2015 72 20150730: CoT Council report, Office of the Executive Mayor: 4th quarter assessment report: Tshwane

Economic Development Agency (TEDA) for the 2014/15 financial year, 30 July 2015 73 20151020: CoT Council report, Office of the Executive Mayor: 1st quarter assessment report: Tshwane

Economic Development Agency, 29 October 2015 74 20160128: CoT Council report, Office of the Executive Mayor: Mid-year budget and performance

assessment report in terms of Section 88 of the Municipal Finance Management Act, 2003, Tshwane

Economic Development Agency (July to December 2015), 28 January 2016 75 20160420: CoT Council report, Office of the Executive Mayor: 3rd quarter assessment report, Tshwane

Economic Development Agency, 28 April 2016 76 20160726: CoT Council report, Office of the Executive Mayor: 4th quarter assessment report: Tshwane

Economic Development Agency, 21 July 2016

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47 January 2017

The first quarter assessment report of the 2016/17 financial year shows similar

weaknesses77. Whilst all five KPIs for the quarter were achieved, one would

question what actually was achieved in terms of the overall SDA mandate.

Conference participation and benchmarking seemed to be the major aspects

of delivery, but one does not get a sense of real engagement on the

promotion and delivery of economic development as set out in the SDA.

Concrete information and data on the impact of TEDA on its mandated areas

is lacking. Very little appears to have been done in taking forward the

previous recommendations about growing its financial sustainability.

4.9 FINANCIAL PERFORMANCE

TEDA had, over a period of time since 2011, made requests to establish its own

Audit, Risk and Performance Committee, however, the shareholder refused this

as detailed in a letter from the Municipal Manager to the Chair of TEDA in

201378. It was made clear that financial oversight of TEDA should vest in the

municipality as a whole and not be decentralised to TEDA alone.

The AG report 2014/15 year noted that TEDA had material misstatements of

expenditure and disclosure items, even though after correction TEDA received

an unqualified audit opinion 79 . In addition, compliance with laws and

regulations were not adequately monitored and reviewed80. Internal audit of

trade investment promotion and facilitation undertaken in August 2016, again

indicated that major improvement in internal controls is required81.

Other findings included:

The AFS ending June 2016 shows that office space rental consumes over

half the General expenses budget, some R7.1 million out of R13.1 million82.

Financially, resolved 36 out of 37 findings from 2014/15 before the start of

the 2015/16 financial audit83.

Internal Audit of Corporate Governance, undertaken in August 2016,

indicated that whilst overall TEDA complies with relevant municipal


assessment report for the Tshwane Economic Development Agency, 27 October 2016 78 City of Tshwane (2013) letter from the Municipal Manager on the ―Decision Of The City As Shareholder To

Confirm The Status Quo That All Municipal Entities Are To Be Serviced Through One Audit, Risk And

Performance Committee And The Closure Of TEDA Financial And Risk Committee‖

79 Tshwane Economic Development Agency. (2014), Annual Financial Statements.

80 20150630:Auditor General of South Africa, Auditor‘s report: Tshwane Economic Development Agency, 30

June 2015 81 201608: CoT Internal Audit Services final report, Tshwane Economic Development Agency: Trade and

investment promotion, facilitation, After care management audit, 2015/16 82 20161130: City of Tshwane Audit and Performance Committee for CoT and Entities, 30 November 2016 83 20161027: CoT Special Council, Office of the Executive Mayor: Quarter 1 2016/17 municipal-owned entity

assessment report for the Tshwane Economic Development Agency, 27 October 2016

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48 January 2017

legislation, the Social and Ethics Committee lags in its implementation of

Terms of Reference of the Committee84.

Four reports by Internal Audit demonstrate that TEDA has reasonably good

systems, processes and internal controls in place. For example, Internal audit

undertook a review of the financial sustainability model of TEDA in June 201685.

Its review focused on whether TEDA had the requisite internal controls in place

to address the proposed financial sustainability approach. In this regard,

Internal Audit were satisfied, but the issue begs the question on whether CoT

actually accepts the model proposed which would largely fund the

operations of TEDA out of real estate and property management.

At the same time, a review of TEDA‘s implementation of its organisational

design strategy was also undertaken86. This study indicated that the design of

the organisation was ―successfully translated into objectives within the

organization‖. In part this confirmed that TEDA needed to address its

weaknesses particularly around competencies and through a restructuring

process ensure TEDA could properly execute its functions.

Internal Audit undertook a budget review of TEDA and the report indicated

that ―existing internal control systems over the processes audited are

adequate, appropriate, and effective to provide reasonable assurance that

management’s objectives will be achieved‖87

Finally, Internal Audit examined the implementation of communication,

marketing and events strategy of TEDA88. This report highlighted that some

improvements were required in order to ensure management‘s objectives are

met.

Overall, these reports do indicate that TEDA‘s general operations are

reasonably good, but the question remains about the outputs and outcomes

that are actually being achieved. It is relatively easy to achieve Clean Audits

where budgets are not complex and there is not much service delivery, but

these have not been achieved. That is probably the crucial issue to be

answered as clearly the mandate provided to TEDA has not been realised.

4.10 HUMAN RESOURCES CAPACITY

84 201608: CoT Internal Audit Services final report, Tshwane Economic Development Agency: Corporate

Governance Audit, 2015/16 85 201606: CoT Internal Audit Services final report, Tshwane Economic Development Agency: Implementation

and review of financial sustainability model audit, 2015/16 86 201606: CoT Internal Audit Services final report, Tshwane Economic Development Agency: Implementation

of organizational design strategy, 2015/16 87 201606: CoT Internal Audit Services final report, Tshwane Economic Development Agency: Budget review,

2015/16 88 201606: CoT Internal Audit Services final report, Tshwane Economic Development Agency: Implementation

of communication, marketing and events strategy audit, 2015/16

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49 January 2017

In the early years of its operations a number of areas of conflict in the

operations of TEDA emerged. On 4 March 2014, for example, an urgent

meeting was held at TEDA‘s office around a set of concerns89:

Lack of management cohesion;

Lack of shared vision/ goals;

The sheer laziness of some;

Lack of commitment and passion in relation to the objectives of TEDA;

Lack of concern for non-performance in relation to KPIs;

Lack of urgency;

Lack of accountability.

Written representations were then called for in this regard.

In 2014/15 TEDA had 35 permanent employees90. In March 2015, an Integrated

Management Report provided an assessment of TEDA‘s competency levels

against the approved framework91. Whilst the results are confidential, they

indicate a number of serious weaknesses in the various levels of staffing in

terms of having core competencies.

Overall, the packages of senior management in the 2016 AFS are as follows92:

Table 10: Packages of senior management in TEDA

Position 2014/15

AFS

2015/16 AFS

CEO R588 111 R1 857 803

CFO R1 446 108 R1 479 499

EM Corporate Services R1 453 236 R1 526 128

EM Marketing and Communications R1 450 928 R1 526 630

EM Strategy and Performance

Monitoring

R378 815

EM Projects Portfolio Management R1 225 743 R1 218 672

Company Secretary R1 204 195 R1 275 331

EM Trade and Investment R1 449 087 R1 526 199

EM Investment promotion and funding R97 594

TOTAL R10 886 651

4.11 RISK ASSESSMENTS

A Risk register is in place covering the seven strategic areas93. The larger risk,

though, is the fact that in its first few years of operation TEDA has not been

89 City of Tshwane (4 March 2013) letter from City Manager requesting written submissions. 90 20150630: Tshwane Economic Development Agency, Annual Financial Statements for the period ended 30

June 2015 91 201503: Work Dynamics, Integrated Management Report: Tshwane Economic Development Agency,

March 2015 92 20161130: City of Tshwane Audit and Performance Committee for CoT and Entities, 30 November 2016 93 20160915: TEDA, Strategic risk register for 2016/17 financial year

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50 January 2017

provided with authority for much of the mandated areas of work to perform

and against which it could be judged.

4.12 SUMMARY

This Chapter has provided an overview of the work of TEDA and it shows that in

general terms TEDA has not achieved a great deal since its formation. Costing

the municipality some R50 million per annum, we believe much more should

have been achieved, particularly when one considers that the entire

programme budget of the Economic Development Department is only R31

million (if one excludes EPWP, Vat Alles and salaries from the Economic

Development budget.

This is particularly the case if one uses the 2008 Department of Provincial and

Local Government guidelines governing how a municipality should go about

establishing a local economic development agency94 (LEDA). They indicated

that a LEDA must:

1. Be a partnership of the three spheres of government, a business

community, statutory bodies and communities in managing the local

economy. They should provide a vehicle for collective vision, community

action, and collaboration, and for broader stakeholders to input in the

direction for the LEDA.

2. Have a clearly defined role that does not duplicate other organisations

and adds significant value to what a municipality is already doing,

including ensuring effective LED components in IDPs.

3. Address market failures and exploit market opportunities to make a

significant impact on the local economy.

4. Promote social cohesion as way of addressing the gap between the first

and second economy.

5. Promote integrated approaches to planning and implementation.

6. Build skills in the area and de-segment the local labour market.

7. Promote an entrepreneurial management culture.

8. Ensure that interventions have sustainable and multiplier benefits for the

local economy. However, the LEDA itself may only be sustainable with

ongoing support from government.

9. Seek to promote a virtuous circle of improving revenue in the local

economy, with improved services leading to improved production, leading

to improved revenue.

94 Section 84

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51 January 2017

10. Have political accountability and yet a degree of separation from short-

term political currents (accountability without interference).

11. The process to be followed in such an establishment involved conducting a

pre-feasibility study, then ensuring clear economic vision, stakeholder

consultation, understanding roles and services and doing a gap analysis.

In all of these areas, TEDA has only partially performed, or not performed these

functions. Whether or not this is due to the CoT not transferring responsibilities

to it or not, the fact remains that the actual achievements have been quite

limited.

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52 January 2017

5 CHAPTER 5: HOUSING COMPANY TSHWANE

5.1 INTRODUCTION

The Housing Company Tshwane (HCT) was established in 2001 by the City of

Tshwane (COT) to implement the CoT‘s institutional/social housing programme

as per the Housing Act, No 107 of 199795.

“Social Housing is one of the housing programmes designed by the

National Department of Human Settlements to offer quality, affordable

and easily accessible housing opportunities within the Inner city. In the

CoT, social housing is seen as a vehicle to bring the less affluent people

closer to the city centre. The CoT is conscious of the fact that the

independent management of social and rental housing stock by HCT

would relieve the pressure on municipal finances by dedicating the

collection or rentals to an entity without “municipal baggage”, and

that the non-payment culture and trends exhibited in municipal rental

stock would be reversed.”

HCT was registered as an Association Incorporated under Section 2196 This was

well before the Social Housing Act of 2008 97 was promulgated, which

subsequently indicated that social housing institutions should be financially

distinctive institutions from ‗parent bodies‘ like municipalities98. This is covered

in Section 13(4) of the Act which stipulates that a municipality wishing to carry

on the business of Social Housing and access Social Housing funds for

development needs to establish an institution which can then apply for

accreditation. However, this is not necessary if the municipality is simply

managing existing rental housing stock.

Within the Tshwane municipal areas there is only one accredited social

housing institution, Yeast Housing, with the Tshwane Housing Company being

conditionally accredited99.

5.2 MANDATE

The mandate100 of the Housing Company Tshwane is to:

Develop, own and manage affordable rental housing opportunities close

to employment nodes, transport nodes, social amenities and related public

services for households earning between R 3 500 and R7 500 (as revised by

the National Department of Human Settlements from time to time);

95 2016: Housing Company Tshwane, 2016/17 Draft Business Plan 96 Registration number 2001/029821/08 97 2008: Social Housing Act, Number 16 of 2008 98 2008: Social Housing Act, Number 16 of 2008 99 ND: SHRA, Accreditation Process, undated; 2016: Register of accredited SHIs, November 2016 100 201516: Housing Company Tshwane, Annual Report 2015/16

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53 January 2017

Provide rental housing accommodation for people who do not qualify for

the subsidy and are unable to participate in the formal, non-subsidised

housing market;

Provide property management and turnaround services for low to medium

density social or rental accommodation; and

Manage all rental stock owned by the Council of the City of Tshwane.

5.3 SERVICE DELIVERY AGREEMENT (SDA)

The HCT was established in 2001. The most recent signed SDA, though, is dated

31 March 2010, and it had as its commencement clause that the date of

signature would be the date of commencement of the SDA for a period of

three years101. All parties then signed on 9 April 2010 which meant that it

expired on 8 April 2013.

The SDA indicated that the HCT was intended:

―To be a sustainable and integrated development comprising an intended

approximately of 5 000 (five thousand) social housing units, complemented

with such other ancillary and complementary land use opportunities being

provided to the community;

To provide and fund the provision of the required bulk, link and internal

services to Land, together with such other complementary land use

requirements associated with a development of a similar nature and kind;

To provide a variance of housing typologies and types and to

accommodate a wide spectrum and range of affordability levels of the

community;

To coordinate the integration of the existing development programme in

respect of municipal infrastructure in the restructuring Zones as approved

by Council.

To identify financing methods for the implementation of the installation of

the required municipal infrastructure as contemplated above.‖

This Service Delivery Agreement required that a business plan was to be

submitted to council before the August 2010 Council meeting. The

implementation of the Service Delivery Agreement (SDA) was initiated during

2010/11, where the Council of 25 March 2010 met to consider the Service

Delivery Agreement between HCT and CoT. This however was then deferred

to a special Council meeting of 31 March 2010102.

The CoT‘s responsibility in terms of the SDA was as follows:

101 20100331: CoT and Housing Company Tshwane, Service Delivery Agreement, 16 March 2010 31/3/2010

SDA 102 20100325: CoT Council report, Housing and Sustainable Development: Service delivery agreement

between Housing Company Tshwane and the City of Tshwane, 25 March 2010

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54 January 2017

To make land or buildings available through Land Availability Agreements

To provide financial assistance;

To transfer all rental stock under CoT‘s control to HCT through SLAs

The SDA outlined that the following residential complexes should be managed

by the HCT:

Table 11: Residential complexes managed by the HCT

Unit Name # Units

Riverside Heights 184

Blesbok 70

Bosbok 84

Ou Stalshoogte 106

Mamelodi rental houses 13 Rondavels

Three years later, on 5 November 2013, Council approved the next SDA

between HCT and the CoT103. This SDA changed the housing units to be

transferred as a result of the fact that many of the tenants were classified as

indigents who only paid some 25% of their income as rental, resulting in a loss

of some R70 000 per month.

The SDA laid out responsibilities of CoT in providing support to HCT to fulfil its

mandate, to make land available, to transfer resources where needed104. On

the other hand, HCT was to provide an annual business plan for adoption by

Council, to motivate for funding timeously, to implement the projects

identified.

It saw the following functions as central to HCT‘s mandate execution:

Provide rental housing accommodation for people who do not qualify for

government‘s subsidy programmes and are unable to participate in the

formal, non-subsidised housing market;

Provide property management and turnaround services for low to medium

density social or rental accommodation;

Manage selected Council owned rental stock as directed by the City of

Tshwane‘s Housing and Human Settlements Department‘s service delivery

programme.

Council approved the SDA, however it was never signed.

The November 2013 agreement set the following projects for

implementation105:

103 Housing and human settlements department. (2013), Approval of the service delivery agreement

between Housing company Tshwane and the city of Tshwane and 2013/14 business plan 104 20131105: CoT Council report, Housing and Human Settlements Department: Approval of the service

delivery agreement between Housing Company Tshwane the City of Tshwane and the 2013/14 business

plan, 5 November 2013 105 201606: Housing Company Tshwane, Annual Financial Statements for the year ended June 30, 2016, and

also 201506: Housing Company Tshwane, Annual Financial Statements for the year ended June 30, 2015

556


55 January 2017

Table 12: 2013 agreement – projects for implementation

Projects Baseline 13/14 14/15 15/16 Total

Eloff 95 95 95

Blesbok 70 70

Bosbok 84 84

Ou Stadshoogte 114 114

Nuwe Stadshoogte 106 106

Die Heuwel 104 104

Groenveld 30 30

Clarina 159 432 591

Townlands 750 750

Timberlands 328 328

JJ Bosmanshuis 57 57

Subtotal 95 408 411 1510 23232929

The second SDA, meant to be finalised in 2013 remains unsigned in 2016106. It

requires of HCT that it implement projects within five years from the date of

signature and SDA spells out the relationship between HCT and the CoT with

respect to the discharging of the social housing delivery mandate.

The CEO of HCT wrote to City Manager on 10 May 2016 indicating that

―Despite the Council resolution (dated 05 -11- 2013) herein attached as

Annexure B for ease of reference, approving the Service Delivery Agreement

(SDA) and authorising the City Manager to sign the SDA on behalf of the City.

It recently came to the attention of the current HCT management that the

actual SDA between HCT and the City was never concluded i.e. signed by the

former CEO and the City Manager.107‖

The SDA also spells out the roles and responsibilities of both the HCT and the

CoT, the land development process (including future social housing projects to

be developed and managed by HCT). It also governs among other things the

deliverables and performance milestones expected from HCT as the City‘s

social housing delivery agent, and stipulates the financial and other support to

be given to HCT by the City of Tshwane.

In 2016, because some of Units needing refurbishment contained indigents

who only paid a portion of their income and not the full rentals, the Mayoral

Committee of 15 July 2016108 considered a report indicating that units would

be transferred on an incremental basis as follows:

Table 13: Units to be transferred

Already

transferred

16/17 17/18 18/19

Eloff 95 Ou Stadshoogte 114 Blesbok 70 Claremont 50

Clarina 159 Nuwe Stadshoogte 106 Bosbok 84 Danville Double 57

106 201605: CoT and Housing Company Tshwane, Service Delivery Agreement, undated; Unsigned 2016 SDA.

20160727: CoT and Housing Company Tshwane, Service Delivery Agreement, undated 107 Modish M. (personal communication 10 January 2017),Engagement with organised labour 108 20160715: CoT Mayoral Committee report, Housing and Human Settlements Department: Transfer of the

rental stock (highrise and self-sufficient elderly buildings) from the City of Tshwane to the Housing Company

Tshwane, 15 July 2016

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56 January 2017

Eloffsdal D 70 Capital Park D 42 Danville Single 30

Eloffsdal S 30 Capital Park S 27 Danville Flats Single 18

Osmoot 60 Die Heuwel

104

Groenveld 30

Interestingly, other documents had mentioned the transfer of JJ Bosmanshuis

(57 units) which now seemed excluded, whilst other documents referring to this

SDA also do not include Danville and Capital Park. This is symptomatic of the

fact that it is sometimes difficult to understand what the legal status of such

matters are, which projects have actually been authorized or not.

5.4 SERVICE LEVEL AGREEMENTS

In addition to the overarching SDA, a number of specific SLAs have also been

signed. These have generally been to transfer land and/or buildings.

On 2 October 2008 Council resolved to transfer a Portion of the Remainder of

Portion 6 of the farm Pretoria Town and Townlands 351 JR (Pretoria Extension

14) subject to the land being developed for institutional housing within five

years109 ,110 . It was noted that Gauteng Province (GPG) had provisionally

agreed that 767 institutional housing subsidies would be made available to

HCT for execution of this project. Some R1.7 billion was provided in advance

by GPG in support of this project and then good progress appeared to be

made in 2004 with a presentation to the Inner City Unit. Whilst no further

progress on this is documented in this report, the report itself indicated that by

2010 some 767 rental housing units should have been completed111.

It was then resolved that approval be granted for the transfer of land for

Townlands and HCT would develop the land within 5 years, failing which the

land would revert back to the CoT.

This followed the establishment of a principle for long-term leases, given that

Tshwane had, in 2008, decided to enter into a 30-year long term lease of Erf

3020 with the non-profit housing company, Yeast, for the development of the

Thembilihle social housing project112.

In June 2014, an SLA allowed for the management and maintenance of

Clarina residential complex and another eight (8) rental properties, Only

Clarina and Silverkroons have been transferred so far in terms of this SLA.

109 20101008: CoT Housing and Sustainable Development Department, Transfer of Erven 3525 and 3526

situated Pretoria Extension 14 to Housing Company Tshwane via donation agreement, 8 October 2010

8/10/2010 Transfer 110 20081002: CoT Council report, Housing and Sustainable Development: Transfer of a portion of the

remainder of Portion 6 of the farm, Pretoria town and Townlands 351 JR (Pretoria Extension 14) to Housing

Company Tshwane for the development of institutional housing: 2010 social housing project, 2 October 2008 111 20100325: CoT Council report, Housing and Sustainable Development: Service delivery agreement

between Housing Company Tshwane and the City of Tshwane, 25 March 2010 112 2013: CoT and Yeast City Housing, Notarial Deed of Lease, 2013; 20080228: CoT and Yeast City Housing,

Notarial Deed of Lease, 28 February 2012

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57 January 2017

The CoT then decided in 2013/14 to structure the process of releasing further

rental stock to HCT113. The idea was to achieve a target of 2 000 units, which is

seen as a minimum level for Social Housing Institutions. Presently, HCT had:

2013/14: 95 units

2014/15: 249 units

Mayco resolved on 20 January 2016 that buildings will only be transferred to

HCT in the 2016/17 financial year once HR issues had been resolved114.

On the 26 May 2016 Council deliberated on the status of land transfers made

to the HCT115. It noted that whilst a Land Availability Agreement had been

signed between the CoT and HCT, development had to occur within five-years

and as this had not happened, there was a need to extend the period for 30

years. It was noted that funds had been ring-fenced by the Social Housing

Regulatory Authority. In addition, the Gauteng Partnership Fund had also

committed funds to assist with the first 100 units in Townlands.

An additional request was made to transfer land, also for a period of 30 years,

to Timberlands as similar planning and design work had been undertaken.

Finally, two parcels of land, already Gazetted 116 as Restructuring Zones

(Chantelle Ext 39 and Sunnyside (Erf 708 and 709) had also been submitted to

SHRA for purposes of a Restructuring Capital Grant for the development of

approximately 1343 social housing units.

It should be noted that this SLA regarding the transfer of the rental stock has

not yet been signed because the Council Resolution that approved the

transfer has to be rectified to list the correct buildings. This report has been in

circulation for comments and response has been very slow from commenting

Departments.

A further unsigned agreement dealing with granted HCT development

rights117.

5.5 GOVERNANCE

The board of HCT currently consists of eight non-executive directors and one

executive director (that is, the CEO) and recently it was proposed that

extensions be granted as follows (see last column)118:

Table 14: Current and proposed board

113 201616: Housing Company Tshwane, 2015/16 Mid-year report (July – December 2015) 114 201606: Housing Company Tshwane, Annual Financial Statements for the year ended June 30, 2016 115 20160526: CoT Council report, Housing and Human Settlement Department: Extension of development

rights for townlands, approval of development rights for the development of social housing projects by the

Housing Company Tshwane for Timberlands, Chantelle E 116 Government Gazette number 857 of 2013 117 20160727: CoT and Housing Company Tshwane, Agreement, undated 118 CoT Council report, Office of the Executive Mayor: Request for the approval of an extension of the term

of municipal entity board members for a period of six months (1 December 2016 – 30 May 2017)

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58 January 2017

The number of HCT Board members has ranged from seven to eight and

includes two Executive members. Remuneration for the past three years is

indicated in the table below119

Table 15: HCT Board members

Name of Board

Member

2013/14 2014/15 2015/16120

Mr T.S Phetla R228,042 R159,496 R309,320

Ms D Masilela R169,034 R158,287 R166,984

Adv M.E Mphahlele R191,379 R245,187 R316,426

Ms M Lehlokoa121 R237,305 R92,505

Dr W Rowland R163,014 R165,246 R171,852

Dr T.J Mokgoro122 R183,656 R10,490

Dr A.J Singh R186,237 R132,217 R183,101

Adv S Kholong R185,510 R165,217 R277,500

M Matlou123 R166,068

N Mbiza124

Total R1,544,177 R1,128,645 R1,591,251

It was recommended that the board members of TEDA, HCT and SWA be

extended for a period of six months i.e., from 01 December 2016 to 30 May

2017 as noted above.

119 See 201516: Housing Company Tshwane, Annual Report 2015/16 120 201606: Housing Company Tshwane, Annual Financial Statements for the year ended June 30, 2016 121 201415: Housing Company Tshwane, Annual Report 2014/15 Resigned April 1 2015 122 201415: Housing Company Tshwane, Annual Report 2014/15 Resigned 30 November 2014 123 201415: Housing Company Tshwane, Annual Report 2014/15 Appointed 29 April 2015 124 201415: Housing Company Tshwane, Annual Report 2014/15 Appointed 29 April 2015

CURRENT BOARD

(7 MEMBERS +

CEO)

SKILLS FIELD REAPPOINTMENT

PERIOD

PROPOSED BOARD

(8 MEMBERS +

CEO)

Mr T. Phetl

(Chairperson of

the Board)

Public

Administration

Public

Administration

6 months Mr T. Phetla

(Chairperson of

the Board)

Dr M. Matlo

Public

Administration/

Policy

Development,

Education

Education/

Public

Administration

6 months Dr M. Matlou

Dr W. Rowland Education Education 6 months Dr W. Rowland

Dr A. Singh Legal/ Civil

Engineering

Legal/Civil

Engineering

6 months Dr A. Singh

Adv. S.T. Kholong Legal Legal 6 months Adv. S.T. Kholong

Adv. E.M.

Mphahlele

Legal Legal 6 months Adv. E.M.

Mphahlele

Ms D. Masilela Social Housing Finance/ Housing 6 months Ms D. Masilela

Mr A. Ngcezula CEO

(Executive

Director)

MBA 5-year contract Mr. A. Ngcezula

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59 January 2017

5.6 BROAD STRATEGY

The 2009 Business Plan indicated that HCT‘s overall strategy was to:

Address the need for the widening of tenure options through the provision

of rental housing to complement the delivery of low-cost housing in the

city;

Secure rental housing opportunities for people who qualify for lower subsidy

amounts and are unable to participate in the formal, non-subsidised

housing market;

Create affordable housing opportunities close to employment nodes,

social amenities and related public services; and

Contribute to the gentrification and/or urban renewal efforts of the CoT.

At that stage, HCT managed the following schemes:

Table 16: 2009 HCT schemes

Scheme Units Ave rent pm Defaults rate Current status

Eloff 91 R1200 5% Good

Kruger Park 319 R850 95% Building condemned, vacant

since 22/7/2008

Schubart Park 823 R900 60-75% Overcrowded, illegally let,

1005 non-payment, hijacked

by residents committee

The report dealt in detail with the state of structural disrepair of both high rise

blocks – Schubart Park and Kruger Park. The two blocks together were costing

the city around R804 000 per month. The shortfall in the case of Eloff was only

around R62 000 per month.

The Business Plan focused also on what it saw as HCT‘s core functional

strategies, being:

Procuring sufficient stock to meet critical mass – long-term seeing it

developing and managing 2500 units; and

Managing procured stock efficiently and effectively.

In the 2013/14 financial year, a Turnaround Plan was developed 125 . A

situational analysis was undertaken in 2013 as part of a Turnaround Strategy

project by The Growth Circle126.

This plan noted that HCT had not developed any new social housing stock

beyond the 95 units it owns and manages. The limited HCT social housing stock

poses the following problems:

125 2013: Housing Company Tshwane, 2013/14 Turnaround Plan 126 Housing company Tshwane. (2013), Situational analysis report

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60 January 2017

The expansion of the shareholder‘s social housing programme in the City of

Tshwane has been hampered due to HCT‘s inability to increase rental

stock.

HCT cannot sustain itself financially through rental income/revenue, thus

leading to a dependency relationship whereby the company relies on

shareholder grants to continue its operations.

HCT‘s failure to receive full accreditation from the Social Housing

Regulatory Authority (SHRA) in 2013 means that it cannot participate in

SHRA‘s investment programme (i.e. HCT cannot access funding for the

development of social housing).

It should be noted that the turnaround strategy of 2013 seemed not to have

found political support and the strategy was considered ―inadequate.‖127 128

The SWOT table below is from the 2013/14 Turnaround Plan. Whilst the strengths

listed are limited, the weaknesses and threats are significant. The security of

revenue is listed as a threat, but should also be considered an internal

weakness, in that the inability of HCT to collect rentals undermines its own

financial security.

Table 17: HCT 2013 SWOT analysis

Strengths Weaknesses

Appropriate institutional form, a non-

profit company (NPC)

Project funding readily available

Reviewed organization capacity

Weak management structure and

capacity (few key personnel)

Tarnished reputation

High staff turnover and vacancies

Limited or no succession planning

Work inefficiencies (blurred lines

between strategic & operational roles

due to a misaligned organisational

structure and vacancies)

Opportunities Threats

Political support from shareholder

Reviewed stakeholder compact (Service

Delivery Agreement with shareholder)

Project funding opportunities (external)

Approved Tshwane spatial development

framework (and associated

Lack of scale (rental stock)

Security of revenue from operations

Legislative restrictions (e.g. PIE Act)

Competition for tenants

Negative economic outlook

127 Housing and human settlements department, Route form 2013 Housing company Tshwane service

delivery agreement final-Board approved 128 Housing company Tshwane. (2017), Strategic review.

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61 January 2017

development programmes)

Demand for student accommodation

Full SHRA accreditation will lead to social

housing project funding

Tax exemption status leads to positive

effect on cash-flows

Product demand (identified in Tshwane

Integrated Development Plan; detailed

HCT social housing demand survey

planned)

Political risk

Inconsistent working relationship with

shareholder

Protracted eviction process

High rent default rates

Non-accreditation by social housing

regulator

On the basis of this analysis, HCT developed a sustainability pathway for the

next five years129 as follows:

Operating as a Social Housing Regulatory Authority;

Systematically building capacity through insourcing, outsourcing,

appointments and structured partnerships;

Committed programme of rental stock transfers from CoT;

Current and future social housing for CoT to be done by HCT;

Targeting opportunities for partnerships.

This was to be achieved in four phases as shown in the diagram below:

Phase 1: property management to achieve at least 2 000 units

Phase 2: Development of new stock

Phase 3: Property development and management

Phase 4: more intensive focus on sustaining and extending growth of HCT

Figure 5: HCT sustainability pathway

129 201616: Housing Company Tshwane, 2015/16 Mid-year report (July – December 2015)

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62 January 2017

The most recent revised strategic objectives are as follows:

Table 18: CoT and HCT strategic objectives

City of Tshwane Strategic

Objective

HCT Strategic Objective Key Performance area(s)

Sustainable Services

Infrastructure and Human

Settlements

1. Provide new Social Housing units on

a sustainable basis

-Increase in number of new social

housing units built

Sustainable Services

Infrastructure and Human

Settlements

2. Promote effective and efficient

management of HCT and Social

Housing portfolio (manage social

housing stock in accordance with

industry norms, and standards as

defined by the social housing

regulator from time to time)

-Full compliance with legislative and

risk management frameworks and

policies

-Effective housing stock

management

Improved Financial

Sustainability

3. Strive for financial sustainability by

2017 (conduct business in a manner

which maximises revenue collection

from a growing social housing stock)

-Prudent credit control and revenue

management (rentals)

-Effective financial management

Promote good

governance and

active citizenry

4. Promote sound governance

-Full compliance with legislative and

risk management frameworks

-Good corporate governance

-Tenant involvement and

participation in social housing

planning, implementation,

management and monitoring

(sound client management

services)

The May 2016 Property Management plan130 details the processes under which

HCT manages buildings, from maintenance and repairs, through the

maintenance of fire, life, health and building standards. It also covers its

approach to relationship management.

130 20160526: Housing Company Tshwane, Property Management Plan, 26 May 2016

564


63 January 2017

Another strategic workshop was held on 13 January 2017131. Here, it noted the

timeline of HCT to date has been132:

Started in 2001 by CoT as Municipal Entity to provide Rental Units In City of

Tshwane

2004 to 2010 – Financially insolvent, high level of outstanding Rental

Income, unable to manage hijacked buildings

2010 to 2013 – 1 x Building, 5 Employees. Small Operation, No growth in

Rental Stock Units in 5 years, High Cash Reserves

2013 to 2017 – Increase of units from 94 to 376 units. 30 Employees

2017 to 2019 – Strategic Plan to Increase of units to 2600 units., with

strategic goals of 95% rental occupation and rental collection

The current CEO of HCT has provided his own assessment of HCT and the

future as follows133:

Table 19: HCT assessment

2013 2017 2021

Owned 1 building,

managed 2 buildings

1229 units

Owned 1 building, manage two

buildings

375 units

Own 2 buildings and 12

brownfields

2093 Units

Kruger Park and Schubart

Park hijacked, tenants

owed R27 million

Kruger Park and Schubart Park

taken back by CoT

5 Employees vs 95 Units

(Ratio of 19 units to 1

head office staff) – way

lower than SHRA KPI of 40

units to 1

33 Employees vs 375 Units (Ratio

of 11 units to 1 HCT staff) – way

lower than SHRA KPI of 45 units

to 1

50 Employees vs 2093 Units

(Ratio of 42 units to 1 HCT staff) –

complying with SHRA KPI of

between 40 and 45 units per

staff member

A lack of competent

senior management

There is some lack of discipline,

lack of competence in critical

areas and change

management

A fit-for-purpose middle / senior

management and executive

team

No individual

performance

management system

Resistance to performance

management

HCT not SHRA accredited HCT is conditionally accredited HCT Fully Accredited With SHRA

No outside funding, only

operational grant from

CoT

HCT received its first outside

funding: R93 Million from SHRA

for 767 units and R11,094,700

from GP Dept of Human

Settlement for 100 units in

2016/17

Projected Rental Income of

about R4 Million per month

HCT fully financially viable and

sustainable

Diversification eg Students

Accommodation

Legal Issue Legal Issue – Settled out of court

131 Housing company Tshwane. (2017), Strategic review 132 Housing company Tshwane. (2017), Strategic review 133 Ngcezula AT. (2017), Context of the planning session; Ngcezula AT. (2017), Where are we from, where are

we and where are we going?

565


64 January 2017

5.7 BUSINESS PLANS

A number of business plans have been developed over the years134. The latest

business plan sets some rather ambitious outcomes given the performance of

HCT to date. The business plan is based on the resolution in May 2016 by

MAYCO135 which approved a SLA between CoT and HCT which governed the

transfer of a number of High-rise buildings to HCT136.

Table 20: HCT business plan

On 26 May 2016, Council considered the 2016/17 Business plan for HCT137. It

was recognised by the Department of Human Settlements that the plan was

aligned to the Department‘s strategic objectives, although the CoT needed to

provide funds for bulk infrastructure upgrades for HCT‘s greenfields projects. It

highlights the problem of vacancies in HCT with only 13 of the 22 positions in

HCT being filled.

134 2015: Housing Company Tshwane, 2015/16 Business Plan 135 2016: Housing Company Tshwane, 2016/17 Draft Business Plan 136 ND: CoT and Housing Company Tshwane, Service Delivery Agreement (High rise buildings), undated 137 20160526: CoT Council report, Office of the Executive Mayor: Tabling of 2016/17 Business Plan and Budget:

Housing Company Tshwane, 26 May 2016

2011/16 IDP Strategic

Objective

Projects 2016/17

Performance

Target

2017/18

Performance

Target

2018/19

Performance

Target

Provide sustainable

services infrastructure

and human

settlement

management

Construction of

900 Social Housing

units in Townlands.

100 complete

social housing

units.

267 complete

social housing

units.

267 complete

social housing

units.

Construction of

320 Social Housing

units in

Timberlands.

Installation of

bulk services

160 complete

social housing

units

160 complete

social housing

units

Construction of

260 Social Housing

units in Sunnyside.

130 complete

social housing

units.

130 complete

social housing

units

Construction of

1,125 Social

Housing units in

Chantelle

Extension 39

Installation of

bulk services

225 complete

social housing

units

225 complete

social housing

units

Transfer of rental

units from Cot to

HCT

High Rise / Flats

Blesbok – 70

units

Bosbok – 84

units

Self-Sufficient

Elderly

Ellofsdal D – 70

units

Oosmoot – 60

units

High Rise / Flats

Ou

Stalshoogte –

70 units

Nuwe

Stalshoogte –

84 units

Self-Sufficient

Elderly

Capital Park D

– 42 units

Capital Park S

– 27 units

Ellofsdal S – 30

units

High Rise / Flats

Die Heuwell –

104 units

Self-Sufficient

Elderly

Claremont – 50

units

Danville D – 57

units

Danville S – 30

units

566


65 January 2017

In terms of planned activities, the business plan notes that HCT aims to:

Begin construction on the Townlands project with the first 100 units in

2016/17;

Complete planning designs and engineering services for Timberlands with

160 Units completed in 2017/18;

Complete the transfer of Chantelle ext 39 and Sunnyside Erf 708 and Erf 709

which should ultimately yield 1125 and 260 housing units, and in 2016/17 the

upgrading of bulk infrastructure should start with the construction of 130

units in Sunnyside; and

Transfer of high rise flats such as Blesbok (70 units), Bosbok (84 units),

Eliotsdal D (70 units) and Oosmooi (60 units) in 2016/17.

The funding for these projects is outlined as follows138:

Table 21: HCT funding

Project Output Budget

Source

2015/16

R

2016/17

R

2017/18

R

Total for the

MTREF

Townlands -

Construction

of 900 Social

Housing

units

Complete

social

housing

units

HCT R18,898,340 R0 R0 R18,898,340

SHRA R0 R12,516,500 R33,419,055 R45,935,555

GPF R0 R11,094,700 R29,370,000 R40,370,000

CoT R21,483,500 R57,360,954 R78,844,454

Total R12,600,000 R45,000,000 R120,150,009 R177,750,009

Timberlands

-320 units

The

planning

phase

completed

and 320

units

delivered

for social

housing.

HCT R4,200,000 R4,200,000 R0 R4,200,000

SHRA R0 R0 R20,026,400 R20,026,400

GPF R0 R0 R17,600,000 R17,600,000

CoT R0 R6,000,000 R34,373,600 R34,373,600

Total R4,200,000 R4,200,000 R72,000,000 R80,400,000

Sunnyside -

Construction

of 260 Social

Housing

units

Complete

social

housing

units

HCT R0 R0 R0 R0

SHRA R0 R16,271,450 R16,271,450 R32,542,900

GPF R0 R14,423,110 R14,423,110 R28,846,220

CoT R0 R32,928,550 R27,928,550 R55,857,100

Total R0 R58,623,110 R58,623,110 R117,246,220

Chantelle

Extension 39

-1,125 units

The

planning

phase

completed

and 1,125

units

delivered

for social

housing

HCT R0 R0139 R0 R0

SHRA R0 R12,516,500 R28,162,125 R28,162,125

GPF R0 R11,094,700 R24,963,075 R24,963,075

CoT R0 R70,000,000 R48,337,875 R48,337,875

Total R0 R0 R101,463,075 R101,463,075

R16,800,000 R107,823,110 R352,236,194 R476,859,304

138 2016: Housing Company Tshwane, 2016/17 Draft Business Plan

2016/17 draft business plan 139 Check with Nonto that she has budgeted R15m in the USDG next year for bulk infrastructure, Once the

Housing Development Fund is cashed back, we will be able to make available the rest of the estimated

R44m required for bulk infrastructure in Chantelle X39

567


66 January 2017

5.8 SERVICE DELIVERY PERFORMANCE

In the early years of HCT it managed the Eloff building and two others –

Schubart Park and Kruger Park – both of which were in a serious state of

disrepair and had serious tenant-related problems. In 2008, after a fire which

killed six people140, it was decided that Kruger Park high rise block should be

decommissioned and, given that the Schubart building had a 100% rent

boycott, HCT was left with only one block to manage, that of Eloff141.

It is important to indicate that the problems of Schubart Park have not

necessarily gone away even though people had been evacuated. Indeed,

an unsigned report to MAYCO on 7 December 2016 from the SED Housing and

Human Settlements addresses the implementation of the Constitutional Court

judgement in relation to evacuation of residents from Schubart Park in September

2011142. By way of background Schubart Park includes four multi-storey buildings

of some 804 units. Whilst formally owned by the CoT with effect from 1 July 1999,

the complex‘s infrastructure remained in a state of disrepair with one of the four

blocks completely inhabitable. In 2006 it was established that the building did not

comply with the National Building Regulations and was inhabitable. At the time,

HCT had been tasked to administer and manage the building, although they were

unsuccessful in putting in place property and maintenance management systems

and controls given the lawlessness. In December 2008 all commercial and

residential tenants received notices to vacate the complex by 31 May 2009. This

notice was disregarded by the tenants.

On 21 September 2011 residents started a fire in the building which led to the

immediate evacuation of the building143. Residents then took the CoT to court

on 22 September 2011 and an order was granted that they should be

evacuated until it was safe to return to their homes. Some residents accepted

alternative accommodation, but residents pursued the matter in the

Constitutional Court who set aside the previous orders arguing that there

should be meaningful engagement with residents and the CoT 144 . An

agreement between CoT and the residents was then reached145 . A Joint

Operation Committee was then established and some 697 households were

registered as former Schubart Park residents. A number of challenges are

being encountered in the short-term process of housing all of these residents.

140 http://mg.co.za/article/2008-07-22-five-dead-in-pretoria-highrise-blaze 141 20100325: CoT Council report, Housing and Sustainable Development: Service delivery agreement

between Housing Company Tshwane and the City of Tshwane, 25 March 2010 142 Mayoral committee. (2016), Housing and human settlements department status report on the

implementation of the constitutional court order in relation to Schubart park case and request for the

mayoral committee to provide principle approval of the long term proposal See also Incident register-

Schubart park emergency evacuation 143 See structural report Nguko construction (Pty) Ltd. (2011), Structural and other consideration for the

redevelopment of the Kruger and Schubart park complexes 144 Schubart residents association and others v City of Tshwane metropolitan municipality and Another

(CCT23/12) [2012] ZACC 26 145 Joint report on agreement reached and disagreements between the parties in respect of the

implementation of the constitutional court order, signed 2014

568


67 January 2017

The expenditure to date on alternative accommodation since September

2011 to June 2016 is over R110 million.

In the longer-term, Schubart Park was envisaged as part of the CoT‘s West

Capital project which is supposed to be privately funded. A process is

underway to find alternative opportunities for identified residents of Schubart

Park.

A major challenge arising out of this process is the unsustainability of the

process given that 90% of the Schubart residents are not paying overhead

levies and/or adhering to lease agreements. Clearly there needs to be a

more aggressive approach to both evict transgressors and collect payments

due.

Whilst no longer part of the HCT portfolio, Schubart Park and Kruger Park

indicate clearly the challenges that need to be addressed in the social

housing terrain.

The current portfolio of HCT is summarised below.

5.8.1 Developing additional rental housing stock

Whilst progress has been slow and targets generally not met in 2014/2015, the

following is progress made towards new, additional housing stock coming on

stream. 146

Townlands: This is due to provide 900 units over three years, detailed designs

have been done and construction is due to begin in January 2017, finishing

in 2018; 767 units.147 This does contrast with the six month SLAs signed with

both MIH and Metroprojects to conduct pre-feasibility studies on Townlands

and Timberlands to deliver 1200 and 320 social housing units respectively

for the HCT by the end of 2020/21 financial year, with Townlands now

producing only 767 Units.148

Timberland (Arcadia): 320 Units over next two financial years, detailed

designs done. Due to start in January 2017, finishing in 2019; 320 units149

Fort west, Lotus Gardens, Zandfontein, Chantelle Extension 39 and

Sunnyside: some 1300 units are being planned and the rental units in these

mixed-use developments will be managed by HCT.

5.8.2 Units Under HCT Management150

Whilst many of the targets for the management of HCT were not been met in

2014/15, there were successes in other areas, where, for example vacancies

146 See 201516: Housing Company Tshwane, Annual Report 2015/16 147 201616: Housing Company Tshwane, 2015/16 Mid-year report (July – December 2015) 148 201606: Housing Company Tshwane, Annual Financial Statements for the year ended June 30, 2016 149 201616: Housing Company Tshwane, 2015/16 Mid-year report (July – December 2015) 150 See 201516: Housing Company Tshwane, Annual Report 2015/16

569


68 January 2017

were as low as 3%, there was a 95% compliance in addressing complaints, 74%

collection rates, regular tenant meetings and tenant newsletter. The Housing

and Human Settlements Department outlined the overall rental housing stock

situation as follows:

Eloff (95 units), 95% occupancy, under HCT management

Clarina Estate (160 units) under HCT management

Silverkroon151 (130 units) under HCT management;

Nuwe/ On Staalshoogte152 (154 units)

Bosmanshuis153 (57 units)

The following are self-sufficient elderly (SSE) rental units:

1. Claremont 54- (54) units- To be transferred to the occupiers

2. Hercules 12 (12) units- To be transferred to the occupiers

3. Danville Flats Singles – units - To be transferred to HCT154

The remaining houses in the housing stock will be dealt with as follows:

1. Elandspoort – 286 houses, are in the process of being transferred to the

occupiers

2. Hermanstad- 38 houses, are in the process of being transferred to the

occupiers

3. Lotus Garden- 8 houses, recommend that the houses be transferred to

HCT.

4. Nelmapius-13 houses, recommend that the houses be transferred to

HCT.

5.8.3 Capacity Building155

The HCT has developed a Client Service Department to deal with: marketing

of units, take-on of clients, rental collection, management of client relationship

and termination of lease. In addition, the Tshwane OHS regulations are now

being compiled with as HCT appointed a safety officer.

151 From 1 July 2016 152 From 1 July 2016 153 From 1 July 2016 154 20150730: CoT Council report, Office of the Executive Mayor: 4th Quarter assessment report Housing

Company Tshwane for the 2014/15 financial year, 30 July 2015 155 See 201516: Housing Company Tshwane, Annual Report 2015/16

570


69 January 2017

5.8.4 Conditional Accreditation156:

Conditional Accreditation by the Social Housing Regulatory Authority (SHRA)

has been retained through the period, with submissions of interest for Social

Housing Funding submitted during the year.

The presentation delivered by the CEO of HCT at the Budget Steering

Committee meeting in February 2016 dealing with the 2016-2021 period

indicated that HCT‘s key challenges were157:

Lack of additional funding to implement flagship and COT catalitic (sic)

projects (Townlands & Timberlands). SHRA & GDHS fund portion of

development costs but where there is a shortfall the entity must source loan

funding from financial institutions or get additional funding from COT

(JOSHCO Model).

Limited rental stock under management by HCT, an entity like HCT needs to

at least have +-2000 units to be self-sustainable.

The overall targets for 2016/21 include:

That 1220 rental housing units will be built: on average some R75 million p.a.

for the next 3 years;

That an additional 931 rental units will be transferred from the CoT to HCT.

For the MTEF, the CAPEX required by HCT for these is some R225 million over that

period.

5.9 PERFORMANCE ASSESSMENTS

The HCT did not meet its performance targets during 2011/12 as reported in

the audit report for 2011/12 by the Auditor General (AG). The failure to meet

targets was primarily attributed to the company not receiving and managing

additional rental stock/buildings from the City of Tshwane (as per the March

2010 Council approved Business Plan and SDA), as well as the failure to

develop new projects. Quarterly reports also indicate clearly these

performance inadequacies158.

To address these issues, in the 2013/14 year a Turnaround strategy was then

developed159:

Property development and management plan

156 See 201516: Housing Company Tshwane, Annual Report 2015/16 157 Budget Steering Committee. (2016), 2016/17 MTREF and IDP, Ngcezula A (Presentation) 158 20160704: Housing Company Tshwane, 4th Quarter Report (April 2016 – June 2016), 4 July 2016; 20160302:

Housing Company Tshwane, 3rd Quarter report (January 2016 – March 2016), 2 March 2016; 20161003:

Housing Company Tshwane, 1st Quarter report (July 2016 – September 2016), 3 October 2016; 159 2013: Housing Company Tshwane, 2013/14 Turnaround Plan

571


70 January 2017

Starting from the 2013/14 financial year, the company agreed on the property

development and management plan shown below. By 2016 there should

have been 1251 units under HCT‘s management.

Figure 6: Forecast of units under HCT management

Table 22: HCT projects 2013/14 – 2016/17

Project Baseline 2013/14 2014/15 2015/16 2016/17 Total

Forecast

Eloff 95 95

Blesbok New

acquisition

70 Baseline

unchanged

Baseline

unchanged

Baseline

unchanged

70

Ou

Stalshoogte

New

acquisition

- 114 Baseline

unchanged

Baseline

unchanged

114

Nuwe

Stalshoogte

New

acquisition

- 106 Baseline

unchanged

Baseline

unchanged

106

Bosbok New

acquisition

84 Baseline

unchanged

Baseline

unchanged

Baseline

unchanged

84

Die Heuwel New

acquisition

- 104 Baseline

unchanged

Baseline

unchanged

104

Groeneveld New

acquisition

- 30 Baseline

unchanged

Baseline

unchanged

30

JJ

Bolmashuis

New

acquisition

- 57 Baseline

unchanged

Baseline

unchanged

57

Clarina New

acquisition

159

(phase 1)

- 432 (phase

2)

0 591

408 411 432 0 1251

The following new projects were also proposed as part of the company‘s plan

to increase its social housing portfolio:

Table 23: HCT new projects

No Programme Project Base 2013/14 2014/15 2015/16 2016/17 Total

Forecast

0

200

400

600

800

1000

1200

1400

2013/14 2014/15 2015/16 2016/17

Eloff Blesbok Ou Stalshoogte Nuwe Stalshoogte Bosbok

Die Heuwel Groeneveld JJ Bolmashuis Clarina

572


71 January 2017

No Programme Project Base 2013/14 2014/15 2015/16 2016/17 Total

Forecast

1 Greenfields

(new social

housing

developments

usually on

empty or

cleared land)

Townlands New

project

feasibility

& other

studies

done

350 550 - 900

2 Timberland new

project

feasibility

& other

studies

done

320 - - 320

Total Planning

phase 670 550 - 1220

However, concerns on occupancy rates and rental collections have on a

number of occasions been raised at Council. For example, in the 3rd quarter

assessment report for the 2015/16 financial year it was noted that the

occupancy rate was only 57% compared with the performance plan of 95%

occupancy160

Notwithstanding these turnaround and other strategic plans, some of the most

recent quarterly performance reviews includes the following challenges and

weaknesses:

The first quarter performance assessment report of 2015/16 year was

considered by Council on 29 October 2015161. It noted that two out of 11

KPIs were not achieved, these being procurement of the service providers

tor engineering service design of Townlands and procurement and

appointment of service providers for Timberlands. The report was noted

and referred to MPAC for consideration.

The Council meeting on 28 January 2016 considered HCT‘s mid-year

budget and performance assessment162. It noted that three out of 11 KPIs

had not been met, these being levies collection, occupancy level in units

under management and the internal governance structures and

processes. Council noted the report and also referred it to MPAC.

160 20150423: CoT Council report, Office of the Executive Mayor: 3rd Quarter assessment report: Housing

Company Tshwane, 23 April 2015 161 20151025: CoT Council report, Office of the Executive Mayor: 1st Quarter assessment report: Housing

Company Tshwane, 29 October 2015 162 20160128: CoT Council report, Office of the Executive Mayor: Mid-year budget and performance

assessment report in terms of Section 88 of the Municipal Finance Management Act, 2003, for Housing

Company Tshwane, 28 January 2016

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72 January 2017

In October 2016 it was noted that only seven targets were reached

(unaudited results) out of 14163; The following are targets which were not

achieved:

o Procurement of main contractor and commencement of bulk

infrastructure (Townlands);

o Procurement of main contractor for bulk and construction units

(Sunnyside);

o Procurement of the main contractor for bulk infrastructure upgrade

and construction of units (Chantelle X39);

o Transfer of 280 rental units finalised;

o Levies collection of 4% above baseline of 46%;

o % of total expenditure to be spent on procurement from BEE and

SMMEs; and

o Budget management and implementation.

It was recognised that some of the difficulties associated with rental housing

transfers were beyond the control of HCT in that tenants refused to accept

such transfers.

The Mayoral committee of 19 October 2016 then resolved to recommend to

council that:

This performance assessment be noted;

That no vacancies be filled unless advised by the CoT;

That the Mayoral Committee make a decision on the SDA and the way

forward;

That SLAs between HCT and affected CoT departments be developed to

ensure the requisite levels of accountability of each stakeholder towards

the enhancement of service delivery; and

That the performance assessment be referred to MPAC

5.10 FINANCIAL PERFORMANCE

Whilst in the first few years of the HCT the audit opinions received were

disclaimers164, over the past few years unqualified audits have been received.

Table 24: HCT audit opinions

163 20161027: CoT Special Council report, Office of the Executive Mayor: Quarter 1 2016/17 Municipal-owned

entity assessment report for the Housing Company Tshwane, 27 October 2016. See also 20151002: Housing

Company Tshwane, 1st Quarter report (July 2015 – September 2015), 2 October 2015

164 20100325: CoT Council report, Housing and Sustainable Development: Service delivery agreement

between Housing Company Tshwane and the City of Tshwane, 25 March 2010

574


73 January 2017

2012/13 2013/14165 2014/15

Audit Opinion Unqualified Unqualified Unqualified

Amongst others the 2014/15 Audited Financial Statements raised a number of

matters166:

Material misstatements on the provision of new social housing units,

however these were subsequently corrected.

Reasonable steps were not taken to prevent irregular expenditure and

fruitless and wasteful expenditure, as required by Section 95(d) of the

Municipal Finance Act.

Goods and services of a transactions value above R200 000 were procured

without inviting competitive bids, as required by SCM regulations 19(a).

A number of significant internal control deficiencies that resulted in the

findings on the annual performance report and the findings on compliance

with legislation included in this report.

There is a lack of adequate and proper oversight from management

regarding the presentation and the annual financial statements and the

annual performance report and internal controls.

The annual financial statements and annual performance report was

subject to material misstatements identified during the audit due to

inadequate review of the annual financial statements and annual

performance report.

There is a lack of review and monitoring of compliance with laws and

regulations as instances of non-compliance were identified.

An August 2015 Internal Audit report dealing with Property Administration

suggests systems are inadequate and ineffective to achieve the CoT and HCT

objectives167. Noted in this report was that the SLAs on the transfer of High Rise

Buildings was supposed to have been implemented, but had not been. The

report noted that the SDA had not been properly implemented, there was

inadequate maintenance of the Eloff building and that the maintenance plan

had not been implemented. Internal Audit also noted that maintenance

schedules had also not been finalised and so could not be audited.

165 201415: Housing Company Tshwane, Annual Report 2014/15 166 Housing Company Tshwane. (2015), Annual Financial Statements. See also Housing Company Tshwane.

(2014), Annual Financial Statements; Housing company Tshwane. (2016), Housing company Tshwane annual

report, Pretoria.

167 20150903:CoT Internal Audit, Property Administration Final report, August 2015 August 2015 Property

Administration Internal Audit report

575


74 January 2017

Further reports by Internal Audit also indicate concerns around systems and

implementation processes168. Internal controls for finance and HR were also

deemed to be inadequate.

The most recent Internal Audit report examining HCT‘s Finance and

Governance continues in this vein, concluding that the systems of internal

controls for Finance and HR are inadequate and ineffective to ensure that HCT

objectives are achieved169. The report continues that ―Based on the results of

the audit work performed, Internal Audit is of the opinion that existing internal

control systems over the processes Finance and Human Resource within the

Housing Company Tshwane Needs Major Improvement in order to provide

reasonable assurance that management‘s related strategic objectives will be

achieved as desired‖.

Given that the updated SDA has not been signed, audits still rely on the signed

SDA of 2013 which contains a different set of buildings and dates for transfer170.

On 25 August 2016 a forensic report was provided which indicated that it was

alleged that the former acting CEO extended the contacts of service

providers without following proper supply chain management policy171 in the

2014/15 financial year. The findings were that:

All monies paid to the service provider which resulted in the irregular

expenditure be recovered from the acting CEO.

HCT to develop systems and procedures to ensure compliance SCM

regulations.

In terms of financial viability, work has been done on the capital and

operational costs of managing the additional units. This was done using SHRA‘s

Quickscan C. It was envisaged that funding would be sourced as follows:

Capex through grants from SHRA, Province and CoT and Opex from an

operational grant from CoT.

The most recent Budget Steering Committee meeting raised a number of

concerns with the way in which rental housing stock was being dealt with by

the Department of Housing and Human Settlement. These included172:

That occupants of CoT flats need to pay rent or face eviction, and those

defined as indigent should not be staying in the flats;

That an independent investigation should be done of which people are

staying in the city residential properties.

168 20150926: CoT Internal Audit Services, Housing Company Tshwane Human Resource and Finance

Processes Final report, February 2015; 20150421: CoT Internal Audit Services, Housing Company Tshwane

Human Resource and Finance Processes Final report, February 2015 169 20160729: CoT Internal Audit, Housing Company Tshwane Human Resource Finance processes and

Corporate Governance Final report, June 2016 170 Housing Company Tshwane, Annual Financial Statement for the year ended 30 June 2016 171 Group audit and risk department. (2016), Draft forensic investigation report 25 August 2016, Pretoria 172 City of Tshwane. (2015), Mayoral Lekgotla

576


75 January 2017

The HCT also needed to improve aspects of its governance.

5.11 HUMAN RESOURCES CAPACITY

Presently, the HCT draws on the following human resources (2015/16173) in each

of the three Departments:

Chief Executive Officer (three positions out of three filled)

Chief Financial Officer (three out of five positions filled)

Chief Operations Officer (27 out of 32 positions filled)

Whilst provision was made in HCT for 14 posts, by 2009/2010 it had only three

filled posts.

In total 33 out of 40 positions are filled. This compares with 2014/15 where there

were 14 positions filled and eight vacancies. In 2013/14 there were 12 positions

and four vacancies174

Remuneration of senior management at the end of the 2015/16 years was as

follows175:

A Ngcezula: R1,335,252

L. Makibinyane: R833,873

A Magubane: R363,828

W. Ramotshela: R621,494

C. Winston: R748,267

J. Mokadikwa: R301,893

J. Mkhonto: R83194

TOTAL: R4,287,801

As part of the programme to boost capacity, in December 2016, staff were

seconded from CoT to assist with the management of some of the rental stock

for which HCT was now responsible, including176

Table 25: HCT units managed

Year Units managed Staff to be transferred

2016/2017 311 7

2017/2018 283 6

173 201616: Housing Company Tshwane, 2015/16 Mid-year report (July – December 2015) 174 201415: Housing Company Tshwane, Annual Report 2014/15 175 201606: Housing Company Tshwane, Annual Financial Statements for the year ended June 30, 2016 176 20161227: CoT Housing and Human Settlements Department, Housing Officers and general workers to be

seconded to HCT, 27 December 2016

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76 January 2017

Year Units managed Staff to be transferred

2018/2019 271 4

On 23 August 2016, a meeting of the workplace and services restructuring

committee was held at which Organised Labour indicated that they required

a further six months to consider the request to redeploy staff from CoT to

HCT177. The CoT tried to get the support of IMATU and SAMWU members to be

seconded to HCT. These initiatives were generally unsuccessful178.

5.12 RISK ASSESSMENT

The following table indicates some of the existing risks that were identified as

needing to be addressed by HCT179:

Table 26: HCT risk assessment

Risk High/

Medium/Low

impact

Current Controls to

mitigate risk

Actions to improve

management of risk

Loss of

accreditation

with SHRA

Low Conditional

accreditation on level

2 have been granted

by SHRA

1. Constant liaison with SHRA to

progress to full accreditation

Low collection of

revenue

Low 1. Tenant Vetting

process prior to

occupation of tenants

2. Legal interventions

for defaulting tenants

3. Access Control to

rental stock/buildings

(Biometric)

1. Communication with Energy

and Electricity Department to

restrict prepaid electricity

purchases for non-paying

tenants

2. Legal process of handing over

non-paying tenants

Inability to attract

and retain critical

skills

Low 1. Quarterly staff

appraisals

2. Succession Planning

policy

3. Approved

organisation structure

which takes into

account growth

1. Conduct salary

benchmarking with industry

2. To advocate the migration

from contracts to permanent

employment

3. Implementation of Retention

policy

Fraud and

corruption

Low 1. Signed Code of

Conduct by all

employees

2. Declaration of

interest

3. Fraud and

corruption Policy and

Procedures

1. Implementation of the Fraud

and Corruption Policy

177 City of Tshwane. (2016), Workplace and service restructuring committee, Pretoria 178 Madisha M. (personal communication 10 January 2017),Engagement with organised labour 179 2016: Housing Company Tshwane, 2016/17 Draft Business Plan

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77 January 2017

Whilst the above issues are all identified as low risk, many are critical to the

functioning of HCT and should have been considered as higher order risks. For

instance, accreditation and revenue collection are both important elements

of the ongoing sustainability of the organisation and these risks should have

been prioritised for attention.

HCT financials are also a cause for concern adding to the risks with the most

recent financials reflecting almost R500 000 in fruitless and wasteful

expenditure and some R22.1 million in irregular expenditure180.

5.13 CONCLUDING COMMENTS

This chapter has provided a background and review of the HCT. Whilst for a

number of years very little progress had been made, with the start of

construction on the Townlands scheme, the City will begin to add to the

existing housing stock. Certainly, too, over the past year with the appointment

of a CEO, internal controls have improved.

There are two key issues which need to be addressed by CoT in finalising its

approach towards HCT.

5.13.1 Determining clearly HCT’s role

Whilst there are many internal issues around the functioning of HCT, it is clear

that fundamentally, the CoT needs to develop a clear overall funded housing

plan within which the social housing plan would be located. The delivery of

housing is a very costly undertaking, not just in terms of capital costs but in

ongoing refurbishment, maintenance and subsidies. Whilst there is some

reference to social housing in the IDP and Vision 2055, there does not appear

to be any overall housing plan.

The Council approved Human Settlement strategy only makes high level reference

to affordable rental housing181. It lacks the necessary detail required to provide

strategic direction on development and delivery of social housing, particularly

affordable rental housing. The intention has been to develop a 5-year

comprehensive affordable rental strategy which looks not only at supply and

demand, but also locates it within the restructuring zones, where land is available,

and which takes into account the city‘s long-term vision and plans.

Presently, the Housing Administration division of CoT deals with the following182:

Rental Housing Policy and Standards Monitoring – facilitation of social and

other affordable rental housing, rental tribunal services, policy

180 Housing Company Tshwane. (2016), Annual Financial Statements. 181 Memela N. (personal communication 12 January 2017), RE: Information for HCT review 182 City of Tshwane. (2016), presentation on housing administration division plan and progress, Pretoria.

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78 January 2017

development, setting of norms and standards, coordination of allocation of

community residential units.

Beneficiary Administration, Conveyancing, Policy and Standards Monitoring

– Beneficiary administration, sales and transfers, facilitation and

implementation of special projects (Eersterust upgrades, cross-border

projects, transfer of pre-1994 stock houses, etc.), policy development and

setting of norms and standards.

Existing intentions, rather than clear plans of the CoT are outlined in the

following tables, with related funding requests:

Table 27: CoT housing plans

Type Purpose Beneficiary

Income

Owner/manger

of the stock

Specific

Features

Subsidy

application

High Rise

Buildings

Provide affordable

rental

accommodation

with the inner city

Must not earn

more than

R7500

(household

income)

Public stock

owned by the

Municipality

High Rise

Buildings within

the

restructuring

zones

N/A

Self

Sufficient

Elderly

To provide

affordable rental

accommodation

for people over 60

years of age

Must not earn

more than

R7500

(household

income)

Public stock

owned by the

Municipality

N/A

Community

Residential

units (CRU)

Accommodate

lower income

people.

Can be a stepping

stone to the other

types of SRH.

R800 – R3500 Public stock

owned by the

Municipality

Management

can be

outsourced

Follow-up of

hostel

redevelopment

programmes

Provincial

Government

Social

Housing

Besides providing

houses, this should

also increase the

social and

economic

integration of the

area by ensuring

economic and

social

amenities/activities

A min of 30%

of the units in

a project must

cater for hhs

earning less

than R3

501p/m;

70% of units

cater for hhs

earning

between R3

501 & R7 500

p/m

Management

by private

company or

SHI

Only

applicable in

Restructuring

Zones.

Provincial

Government

and SHRA

Low Cost

Rental

Housing

To accommodate

all the people that

do not qualify for

BMG/low cost

houses.

3500-7500 Owned by

provincial

housing and

managed by

HCT

N/A Capital Grant for

rental housing

High Rise

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79 January 2017

Housing Scheme No.

of

Units

Maintenance

Budget

2016/17

Projected

Income) (July

2016-Dec

2016)

Actual income

(July 2016-Dec

2016

Actual

in %

Registered

indigent

residents/

families

Blesbok 70 R163,236.76 R633,568.00 R304,125.30 48 15(21.42%)

Bosbok 84 R653,609.00 R362673.60 55.48 13 (10.9%)

Ou Stalshoogte 114 R136,080.68 R752,103.25 R371,400.55 49.38 20 (17.5%)

Nuwe

Stalshoogte

80 R41,308.16 R692,268.00 R273,943.60 39.57 5 (0.5%)

Die Heuwel 104 R88,938.72 R715,363.00 R193,826.00 27.09 25 (24%)

JJ Bosmanhuis 57 R14,384.04 R342,856.00 R139,222.00 40.60 6 (10.5%)

Groenveld 30 R34,685.92 R209,522.00 R69,933.00 33.37 8 (26.66%)

TOTAL 539 R478,634.28 R3,999,289.25 R1,715,124.05 42.88 92

Self-sufficient elderly units

Housing Scheme No.

of

Units

Maintenance

Budget

2016/17

Projected

Income (July

2016-Dec

2016)

Actual income

(July 2016-Dec

2016)

Actual

in %

Registered

indigent

residents

Oosmoot 60 R77,265.32 R319,946.90 R310,064.45 96.91 13 (21.7%)

Capital Park D 42 R52,496.36 R184,357.00 R169,783.00 92.09 11 (26.1%)

Capita Park S 27 94,398.00 86,275.50 91.9 22 (33.3%)

Claremont 50 R85,950.80 R249,236.00 R233,819.76 93.81 15 (30%)

Danville D 57 R460,94.48 R251,253.00 R244,688.00 97.38 19(33.33%)

Danville S 30 R12,529.24 R86,455.00 R84,426.00 97.65 0

Danville Flats 18 R22,546.52 R62,729.00 R61,633.00 98.25 7 (41.1%)

Hercules 12 12 R23,839.64 R56,613.00 R56,973.10 100.63 6 (50%)

Noorderpark 22 R16,096.32 R70,296.00 R44,331.00 63.06 12 (54.5%)

TOTAL 432 R447,432.20 R1,375,283.90 R1,291,995.81 93.94 134

Hostels

Housing Scheme No. of

Units

Maintenance

Budget

2016/17

Projected

Income (July

2016-Dec 2016)

Actual income

(July 2016-Dec

2016)

Actual in %

Soshanguve village 356 R220,752.00 R499,200.00 R22,346.00 4.46

Saulsville 718 R255,562.00 R2,420,080.00 R634,111.08 26.20

Kingsley 3120

(beds)

R1,113,557.00 R1,244,000.00 R37,786.60 3.03

Mamelodi West

(Phokanoka Family

Units)

98 R340,220.00 R206,264.20 60.62

Kungwini 7 R126,750.00 R200.00 0.15

Belle Ombre 103 R12,960.00 R1,875,568.20 R1,875,568.00 100

TOTAL R1,602,831.00 R6,505,818.20 R2,776,165.00 42.67

Loose standing houses

Number of houses in the following areas in the process of being transferred to

the owners:

Elandspoort (90 transferred, 226 not transferred yet.)

Wolmer (180 units none transferred yet)

Ou Wolmer (23 units none transferred yet)

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80 January 2017

Hermanstad (38 units none transferred yet)

Jan Niemand Park (23 none transferred yet)

Eersterust (268 none transferred yet): Province undertook to demolish and

redevelop.

Nellmapius (122 transferred, outstanding 40)

Nellmapius: 13 Houses built to accommodate the resident of the Mamelodi

Rondavels. The Rondavels were developed into a National Heritage Site

Lotus Gardens: 8 Houses built to accommodate house in Klipkruisfontein

where power lines was erected.

Claremont: 54 three bedroom houses in three groups in Claremont. Houses

in bad state and needs immediate attention

Bloed Street: 2 houses - property must be transferred to Corporate Services.

These are the intentions of the Housing and Human settlements Department,

and the role it sees for HCT in rental housing management. The difficulty

though is that it is unsure if these intentions will be realised. There does not

appear to be a long-term overall financial plan for housing. In addition, in the

case of HCT it is also clear that there are difficulties with tenants and municipal

staff accepting HCT‘s role. These matters would need to be finalised.

5.13.2 CoT’s role in social housing

More fundamentally, though, the CoT needs to define clearly what it sees as its

role in housing. Whilst housing is a concurrent national and provincial function,

there is clearly a role for municipalities to play. The latest State of the Social

Housing Sector Report (2014/15) produced by SHRA indicates that ―the growth

in demand for rental housing in South Africa has been remarkable. In the 10

years between the 2001 and 2011 censuses, the proportion of South Africans

who rented their homes increased from 19 percent to 25 percent, an absolute

growth of over 30% in the number of households who rent183.‖ The report

indicates too that in order to meet the Medium Term Expenditure Framework

(MTEF) 27 000 rental housing units need to be produced by 2019.

The report notes that the main roles of local government in respect of Social

Housing are as follows184:

To encourage the development of new social housing stock and the

upgrading of existing stock or the conversion of existing non-residential

stock;

183 Social housing regulatory authority, 2014/15 state of the social housing sector report 184 Social housing regulatory authority, 2014/15 state of the social housing sector report citing DPME (2016).

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81 January 2017

Provide access to municipal rental stock, land and buildings for social

housing development in designated restructuring zones and to municipal

infrastructure and services for approved projects, and

Initiate and motivate the identification of restructuring zones.

(In respect of Municipalities with Assigned powers, approve, allocate and

administer capital grants, in the manner contemplated in the social

housing investment plan, to approved projects).

The report continues that ―Municipalities can decide the extent to which they

wish to engage in the social housing sector and this will depend on the extent

of need within their area of jurisdiction for this type of housing. There are three

ways in which a municipality can fulfil its role in the delivery of social housing,

namely facilitation, support or direct engagement. Facilitation comprises the

municipality creating a suitable and productive environment for social housing

delivery. Support would indicate a higher level of involvement and would

include actively encouraging delivery, such as making land available for

development and assisting an SHI to undertake a project. Direct engagement

indicates a situation where the municipalities themselves establish their own

SHI185.‖ Unfortunately, there appears to not have been a proper engagement

around what role the CoT should play in the delivery of social housing.

The funding of social housing projects requires a combination of government

subsidies, equity from SHIs, and debt financing and the CoT needs to be clear

on what it aims to achieve. This has not happened to date and in part the

halting performance of HCT is symptomatic of this lack of clarity.

If, however, the CoT aims to continue to have an ME such as HCT, then it must

ensure that it addresses the major areas of weakness found by SHRA in

analysing the 61 accredited Social Housing Institutions in South Africa. These

were186:

Governance, such as risk development, policy development, Board

composition, Legal compliance

Financial sustainability, such as reporting inefficiencies and policy

development

Tenant Management, such as tenant training materials, complaints

management, policy development

Property Management, such as policy development.

The major challenges they noted, include187:

SHI capacity

Ability of the existing SHIs to deliver

185 Social housing regulatory authority, 2014/15 state of the social housing sector report 186 Social housing regulatory authority, 2014/15 state of the social housing sector report 187 Social housing regulatory authority, 2014/15 state of the social housing sector report

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82 January 2017

Access to loan finance for SHIs

Affordability for tenants

Impact on integration and the restructuring of cities

Matching the Restructuring Grant and the Institutional Subsidy.

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83 January 2017

6 CHAPTER 6: SANDSPRUIT WORKS ASSOCIATION AND

METSWEDING ECONOMIC DEVELOPMENT AGENCY

This chapter looks at entities being disestablished, including the Sandspruit

Works Association and the Metsweding Economic Development Agency.

6.1 SANDSPRUIT WORKS ASSOCIATION

Sandspruit Works Association is a Section 21 company, which undertakes

the provision of water and sanitation services function in the northern

region of Tshwane. It functions as a Water Services Provider (WSP) in terms of

the Water Services Act (Act 108 of 1997), supplying areas including Ga-

Rankuwa; Mabopane and Winterveldt. Its principal activity is to install,

provide and maintain water and sanitation services and related services

to these areas.

The board of SWA consists of five non-executive directors and one executive

director (that is, the CEO) and the extension is for the following persons (see

last column)188 from November 2016 until May 2017:

Table 28: SWA Board

CURRENT BOARD

(5 MEMBERS + CEO)

SKILLS

FIELD

REAPPOINTMENT

PERIOD

PROPOSED BOARD

(7 MEMBERS + CEO)

Ms Z. Kabini

(Chairperson of the

Board)

ICT governance, Business and

Management advisory

ICT, Audit, Risk

and

Governance

6 months

Ms Z. Kabini

(Chairperson of the

Board)

Mr L. Bokaba Business development, turnaround

strategies

Other

None

Mr L. Bokaba

Mr V. Maboka

Bulk water Supply, Infrastructure

and Plants, Consulted in

management and strategic

planning of the water allocation

resource.

SCM &

Accounting,

Water Expertise

None

Mr V. Maboka

Adv. B. Malatji

Legal advisory & development of

legal Strategies

Legal

6 months

Adv. B. Malatji

Mr Z. Ndlala

Human Resource Management

and Labour relations

Human

Resource

6 months

Mr Z. Ndlala

CEO post of SWA is currently vacant

SWA management and the Board developed a turnaround strategy for the

entity, which is in a draft formatand thus awaiting finalisation. In the interim a

188 CoT Council report, Office of the Executive Mayor: Request for the approval of an extension of the term

of municipal entity board members for a period of six months (1 December 2016 – 30 May 2017)

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84 January 2017

short term action plan was developed and has yielded an increase in revenue

from R 7.2 million in May 2015 to R 9.8 million in June 2015. 189 A medium term

action plan for the 2015/16 financial year was also developed to ensure that

SWA achieves the required financial sustainability in order to reduce increased

dependency on the City of Tshwane.

In reviewing some of the quarterly assessment reports of SWA one finds the

following:

Council meeting of 29 October 2015 considered the 1st quarter assessment

report of SWA. It noted that two out of 10 KPIs were not achieved, these

being achieving a reduction in the number of registered indigents who

consume in excess of the free basic water and that they did not achieve

an annual target of 20% non-revenue water190. Council noted the report,

referred it to MPAC but also requested that SWA provide the CoT with an

approved debt collection strategy.

Council meeting of 23 April 2015 considered the 3rd quarter assessment

report of SWA and found that they failed to meet two out of 10 KPIs which

were around using at least 40 SMMEs and increasing revenue by 2%191. In

noting the report, Council also requested: (i) a detailed report on their

financial sustainability, (ii) a strategy on the management of the debtors

book and improvement of collection levels, and (iii) that SWA provide cost

containment strategy so that expenditure is within the approved budget192.

On 30 July 2015 Council reviewed the 4th quarter Assessment report for SWA

and found that SWA was lagging in addressing the AG queries from the

previous financial year, and two out of 10 KPIs were not met, these being (i)

reduction of unaccounted water by 0,5% and (ii) increase revenue

collection by 2% 193 . The report was referred to MPAC and SWA also

needed to present a strategy to deal with its debtors book.

Council meeting of 20 July 2016 considered the 4th quarter assessment

report of SWA where they only achieved four out of 10 KPIs, Areas not

achieved include: (i) non-revenue water, (ii) SMME and cooperative

opportunities, (iii) reducing the number of indigents using in excess of the

free basic water allocation, (iv) identify and manage critical risks, (v)

achieve revenue collections of 75% annually, and (vi) to review the

organizational structure in line with SWA‘s business194.

189 SWA 2014/2015 ANNUAL REPORT 190 CoT Council report, Office of the Executive Mayor: 1st quarter assessment report: Sandspruit Works

Association, 29 October 2015 191 CoT Council report, Office of the Executive Mayor: 3rd quarter assessment report: Sandspruit Works

Association 192 CoT Council report, Office of the Executive Mayor: 3rd quarter assessment report: Sandspruit Works

Association 193 CoT Council report, Office of the Executive Mayor: 4th quarter assessment report: Sandspruit Works

Association (SWA) for the 2014/15 financial year, 30 July 2015 194 CoT Council report, Office of the Executive Mayor: 4th quarter assessment report: Sandspruit Works

Association, 21 July 2016

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85 January 2017

The Special Council meeting of 27 October 2016 considered the Quarter 1

assessment report of SWA and found that four out of 12 targets had not

been met, including (i) not achieving 19,5% annual non-revenue water

target, (ii) not achieving revenue collections of 75% annually, (iii) reducing

the number of indigents using in excess of the free basic water of 12 KL,

and (iv) not implementing the 30% of the reviewed approved

organisational structure. In noting the report Council also resolved that flow

limiters be implemented, that no vacancies be filled pending the review of

entities, that credit control measures be strictly applied, that systems be

aligned with CoT and that SLAs be finalised between SWA, the Water and

Sanitation Department and City‘s Region 1, to clearly define roles and

responsibilities195.

A selection of Internal Audit reports are generally slightly more positive

including:

An August 2015 Internal Audit report examined internal control systems of

SWA and concluded that some improvement was required in order to

ensure that management‘s objectives were achieved196.

A September 2015 Internal Audit Report examined assets management

and disposal and concluded that some improvements were required197.

An October 2015 Internal Audit report dealt with water demand and supply

management and concluded that some improvements in internal controls

were required198.

A September 2016 report on Waste Water Treatment concluded that some

improvements were required to internal controls199.

SWA‘s 2014/15 Target was to increase revenue collection by 2% from 68% to

70%. However in its 2014/15 Annual report it is noted that the organisation has

failed to reach this target. Reasons for this are noted as some indigent

consumers continuously consume in excess of the allocated 12kl per month.

On average, about 10 000 indigent consumers exceeded the consumption of

12kl during the year ended June 2015. During the year, about 600 Water

Management devices were installed to manage the indigent consumptions

following a test pilot project of 50 installations in the 2013/14 financial year.)

It was also noted that there is a lack of continuous follows up with the

consumers to make payment (i.e. through telephone, email, sms and house

195 CoT and Sandspruit Works Association, Service Delivery Agreement, 7 March 2011 196 CoT Internal Audit Services, Sandspruit Works Association: Governance, Final report, 2014/15 197 CoT Internal Audit Services, Sandspruit Works Association: Assets Management and Disposal Final report,

2014/15 198 CoT Internal Audit Services, Sandspruit Works Association Waster Demand and Supply Management,

Financial year 2014/15 199 CoT Group Audit and Risk, Sandspruit Works Association Waste Water Treatment Financial year 2015/16

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86 January 2017

visits), and a lack of regular disconnections for government and commercial

customers who are defaulting on payments200

The existing Service Delivery Agreement signed in 2011 between SWA and the City

of Tshwane came to an end in March 2016. The process of reviewing the SDA

commenced in the 2014/15 financial year and was almost at its finalisation

stages.201

The 2016/17 Mayoral Budget Lekgotla held on 9 March 2016 considered the

recommendation that SWA be absorbed into the Water and Sanitation

Department and a due diligence study be conducted on the dissolution of

SWA.

The above are just some of the issues that were of concern to the CoT when it

considered the future of SWA202 and on 27 October 2016, Council resolved:

1. That the unwinding of Sandspruit Works Association be approved effective

immediately but for administrative purposes, the date of the unwinding be

recorded as 31 October 2016.

2. That the functions currently performed by Sandspruit Works Association

including personnel, asset and other resources must be transferred to the

respective Departments within the City of Tshwane.

3. That the Services Delivery Agreement entered into between the City of

Tshwane and Sandspruit Works Association, in terms of Section 76(b) of the

Local Government: Municipal Systems Act 32 of 2000 as amended, for the

provision of water services in the Ga-Rankuwa, Mabopane and Winterveldt

area, be terminated immediately. This agreement has in fact expired in

March 2016 and was never renewed.

4. That the Shareholder Operations Department, together with the Regional

Operational Centre (Region 1), be the lead Department for the unfolding

of the necessary processes and the transfer of the function back to the

municipality.

5. That the maximum period of 8 months, i.e. up to the end of the 2016/17

financial, is provided/allowed for the transfer of personal and other

resources from Sandspruit Works Association to the City of Tshwane. This

period may be extended at the end of the financial year depending on

progress of the unwinding process.

6. That cognisance be taken that the current Board of Directors term of office

expires and/or ends on 30 November 2016.

200 SWA 2014/2015 ANNUAL REPORT 201 SWA 2014/2015 ANNUAL REPORT 202 See also Sandspruit Works Association. (2016), Audited Annual Financial Statements.

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87 January 2017

7. That approval be granted for the extension of 3 Board members‘ term of

office up to the end of the 2016/17 financial to allow the Board to function

during the unwinding process.

8. That a report on the extension of the 3 board members‘ term of office be

submitted to the Mayoral Committee meeting by the Executive Head:

Shareholder Operations.

6.2 METSWEDING ECONOMIC DEVELOPMENT AGENCY

The Metsweding Economic Development Agency is dormant and remains on

the books of Tshwane municipality. Outstanding SARS matters need to be

concluded to ensure the disestablishment is finally effected.

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88 January 2017

7 CHAPTER 7: TSHWANE FRESH PRODUCE MARKET

This chapter examines the proposal that the Tshwane Fresh Produce Market be

established as a municipal entity.

7.1 INTRODUCTION

Fresh Produce Markets are an integral, although diminishing part, of the price-

making, distribution and marketing of fresh produce in South Africa.203

There are 19 fresh produce markets in South Africa. The four biggest fresh

produce markets are in Durban,

Johannesburg, Cape Town and

Pretoria, with medium-sized

markets located in Bloemfontein,

East London, Pietermaritzburg,

and Port Elizabeth. There are also

smaller fresh produce markets in

Kimberly, Klerksdorp, Springs,

Uitenhage, Vereeniging, Welkom,

Witbank, Umtata, George,

Mpumalanga and Nelspruit.

The Tshwane Fresh Produce

Market is the second largest market of its kind in South Africa, with an

estimated 21% market share of the total turnover of the fresh produce markets

currently operational in South Africa.

The following three ownership and management models are currently in

operation in the South African fresh produce market context, namely:

Internal Departmental /Business Unit ownership and management model:

These markets operate as a function within the administration of a

municipality. This means that the municipality has executive authority over

it and has the right to administer it. The municipality manages the fresh

produce market business and owns the land and all developments

thereon.

The Municipal Entity ownership and management model is defined in terms

of ownership in the Municipal Systems Act. In this case, a corporatised

(municipal) entity (a private company) is created to manage the market.

While the municipality administers the function, the Municipal Entity

manages the business. The land and developments thereon can be owned

by either of the parties. Johannesburg Fresh Produce Market is an

example of a market that operates as an entity.

203 NDA: http://www.nda.agric.za/docs/AMCP/Section7investigNFPM.pdf

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89 January 2017

The private ownership and management model falls outside the confines of

the Municipal Systems Act. This is where the business of the fresh produce

market business is owned and managed by private operators, while the

land and developments thereon can be owned by either the municipality

or the private sector. The business owner may not necessarily be the land

owner. The municipality can elect to exercise certain rights over the fresh

produce market through its by-laws. Fresh produce markets that are private

markets include Cape Town, Nelspruit, Mpumalanga, George, Ugu, Noord-

einde, Butterworth and King Williams Town Markets.

The table below indicates the service delivery mechanisms used in different

fresh produce markets in the country.

Table 29: Service delivery mechanisms for markets

Status Name of Market

Internal Mangaung

Durban

Buffalo City

Sol Plaatje

Tlokwe

Msunduzi

Nelson Mandela Bay (Port Elizabeth)

Ekurhuleni (Springs)

Tshwane

Sedibeng

Nala

Emalahleni MP

Municipal Control, but externalized

(Company)

Johannesburg

Municipal Control, but externalized (S21)

Nelson Mandela Bay (Uitenhage)

Umtata

Private

Cape Town

George

Mpumalanga

Mbombela

Ugu

Noord Einde

Philippi

Butterworth

King Williams Town

The Tshwane Fresh Produce Market is currently a municipal department,

however discussions have been underway since 2012, to convert it to a

municipal entity.

The following section outlines the investigation that was undertaken in order to

convert the market into a municipal entity.

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7.2 JULY 2012 SECTION 78 INVESTIGATION

On 19 July 2012, the Mayoral Committee resolved to support a

recommendation to commence an investigation in terms of Section 8 of the

Municipal Systems Act into an alternative service delivery structure for the

Tshwane market. The major reason advanced for commencing that

investigation were that whilst markets in general were showing growth in

turnover, most markets were losing market share particularly to direct

marketing channels.

Interestingly, this is not only true of markets, but the same could be said of all

commerce where the divisions between wholesale and retail have become

blurred and the larger private sector companies involved in retail business

need often to control all aspects of the supply chain, from production to

wholesale to distribution and retail..

However, the reasoning provided in the report to Mayco was that the

declining market share was due to issues such as204:

A lack of investment in facilities resulting in serious maintenance problems,

a decline in standards of facilities offered and no new facilities or

technologies being provided;

Staff shortages at markets resulting in declining service standards

Lengthy administrative procedures that contribute to a lack of

maintenance and a decline in service standards;

Financial constraints that result in budget allocations that are insufficient to

provide adequate services, undertake regular maintenance, upgrade

facilities and provide new infrastructure and technology. Budgets are also

lumped with other divisions that have conflicting demands and

requirements resulting in the reduction of financial resources available for

the market;

Lack of compliance to food safety standards and in-house skills to

implement and maintain food safety standards;

Lack of stakeholder relations due to budgetary constraints stemming from

centralized budget allocation in the Department where the market is

attached.

The report does not recognise that the major reason for the decline in market

share for municipal markets is due to changes in how direct marketing takes

place. Notwithstanding this, this incorrect reasoning continued, with an

argument being made that Epping Market and Johannesburg Market had

restructured and did not lose any market share. In actual fact Epping Market

in Cape Town had become privatised in early 2000s and since then its market

204 CoT Mayoral Committee, Environmental Management Department: Approval to commence an

investigation in accordance with Chapter 8 of the Municipal Systems Act into an alternative service delivery

structure for the Tshwane Market, 19 July 2012

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91 January 2017

share has in fact declined. In the case of Johannesburg, market share has

increased, but so has that of Tshwane205.

It was also argued that the risk of not reviewing the service delivery

mechanism would mean the loss in market share would turn the market into a

loss-making operation, adding to the Council‘s burden206.

A Section 78 process was then embarked upon, with the first two sections

(78(1) and 78(2)) resulting in a conclusion that an external mechanism may

produce better outcomes than an internal service delivery mechanism. This

then led to a Section 78(3) process evaluating external mechanisms.

The following two sections review these processes and the final section makes

some concluding comments. In the sections which follow, key sections of the

Section 78 reports are presented and also analysed where the comparative

analysis is not convincing.

7.3 Section 78(1) and (2) Process

Akhile was appointed on 15 April 2013, to assist Tshwane through Business

Enterprises at University of Pretoria with the “Investigation in Accordance with

Chapter 8 of the Municipal Systems Act into an Alternative Service Delivery

Mechanism for the Tshwane Fresh Produce Market”207. They produced four

reports as part of the Section 78(1) process208.

The study included comparative international and national analysis, as well as

a review of the many aspects of the supply and logistics chains of the fresh

produce market system. Overall, the collation and description of processes

and the many aspects of the markets business as a whole and in Tshwane, is

very well documented.

However, it appears that the comparative analysis provided in the study fails

to distinguish between significant and material differences between having an

internal service delivery mechanism as opposed to an external delivery

mechanism.

Their study showed clearly that the general trend in the fresh produce market

industry is that since 1996, very little volume growth has occurred in national

205 CoT Mayoral Committee, Environmental Management Department: Approval to commence an


structure for the Tshwane Market, 19 July 2012 206 CoT Mayoral Committee, Environmental Management Department: Approval to commence an


structure for the Tshwane Market, 19 July 2012 207 See Business enterprise university of Pretoria (comp). (2013), Tshwane fresh produce Market status quo

and neds analysis part 1, Pretoria, University of Pretoria.; Business enterprise university of Pretoria (comp).

(2013), Tshwane fresh produce Market status quo and needs analysis part 2, Pretoria, University of Pretoria.;

Business enterprise university of Pretoria (comp). (2013), Tshwane fresh produce Market status quo and neds

analysis part 3, Pretoria, University of Pretoria.; Ngcezula AT. (2017), Where are we from, where are we and

where are we going? 208 Environmental management services department (Fresh produce market). (2014), Report: Investigation in

terms of section 78 of the Municipal systems Act

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92 January 2017

markets throughput, despite substantial growth in overall fresh produce

production. Markets are losing market share in the fresh produce sector as a

result of commercialisation and direct marketing.

Improved transportation, electronic communication systems and Broad-Based

Black Economic Empowerment efforts, resulted in easier market access to

more direct off-take agreements. Further, the changing nature of the value

chain of the sector has resulted in direct delivery of fresh produce to a growing

retail sector, resulting in relatively reduced procurement through Markets.

While most of the markets remain in the hands of the municipalities, there has

also been movement towards some form of corporatisation in order to allow

increased adaptability.

The argument for investigating alternative ownership and management

models for fresh produce markets is underpinned by a value proposition of the

following increased local economic benefits:

Improved financial positioning in the markets;

Improved BEE participation in the ownership of the business;

Immediate local economic development benefits;

Reduction of risk associated with the business;

Increased market competition by strategically placing fresh produce

markets in a stronger competitive position; and

Facilitation of health and food safety standards as these become central

to the operation of the market.

Unfortunately, however, the analysis did not explore each of these in more

detail to show how these would be improved by external service delivery

mechanisms.

Whilst the study focused on a comparison of markets primarily around 2011/12,

City Insight also examined earlier periods in order to evaluate trends and

provide a more complete comparative analysis. In the table below, for

example, it is evident that the Johannesburg Fresh Produce Market has always

returned the highest rand value per ton and in 2011/12 it was R3 742 with

Tshwane, Durban, East London and Bloemfontein Fresh Produce Markets at

approximately R3 400 per ton.

Figure 7: Comparison of markets

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93 January 2017

Whilst Johannesburg dominated market share, it also dominated Rands

received per ton turnover as may be seen in the table below, although

importantly, Rands per ton in Tshwane and Durban as well as other major

centres were all quite close to that of Johannesburg:

Table 30: Rands per ton turnover

Name of Market %Highest97/98 %Highest05/06 %Highest11/12

Johannesburg 100,0 100,0 100,0

Tshwane 94,5 94,1 92,4

Durban 92,0 91,0 91,0

Cape Town 88,4 94,1 80,3

Mangaung 86,9 87,1 92,2

Buffalo City 86,7 88,6 91,2

Msunduzi 86,3 84,9 83,1

Ekurhuleni (Springs) 86,1 80,5 75,4

Mbombela 79,7 75,4 54,2

Tlokwe 79,6 75,9 82,7

Sol Plaatje 75,6 79,7 82,7

Polokwane 74,8 0,0 0,0

Nelson Mandela Bay (Port Elizabeth) 74,7 86,9 80,5

Nala 74,7 81,5 82,1

Emalahleni MP 72,7 75,4 79,4

Sedibeng 71,7 63,8 72,5

Nelson Mandela Bay (Uitenhage) 62,5 69,4 61,0

George 0,0 81,2 54,2

Mpumalanga 0,0 0,0 77,5

Umtata 0,0 81,9 65,1

0 500 1000 1500 2000 2500 3000 3500 4000

JOHANNESBURG

TSHWANE

MANGAUNG

BUFFALO CITY

DURBAN

MSUNDUZI

SOL PLAATJE

TLOKWE

NALA

PORT ELIZABETH

CAPE TOWN

EMALAHLENI MP

MPUMALANGA

SPRINGS

SEDIBENG

UMTATA

UITENHAGE

GEORGE

MBOMBELA

POLOKWANE

Value: Rand per ton per year

2011/2012 R per ton 2005/2006 per Ton 1997/98 R per Ton

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94 January 2017

Market share was also dominated by Johannesburg and for these periods one

sees that Johannesburg has come to dominate market share across all

municipalities209. More importantly for purposes of the review, though, is the

fact that Tshwane has in fact increased its market share over time when all

other municipalities except Johannesburg have lost market share to

Johannesburg:

Figure 8: Changes in % market share

Table 31: % share

Name of Market %

Share97/98

%

Share05/06

%Share

14/15

Change

Johannesburg 31,4 35,3 40,4 Increase

Tshwane 15,7 16,9 19,9 Increase

CPT 13,2 13,1 9,3 Decline

Durban 9,9 9,4 9,4 Stable

Ekurhuleni (Springs) 4,7 4,3 3,0 Decline

Buffalo City 3,7 2,9 2,5 Decline

Msunduzi 3,7 3,5 2,6 Decline

Tlokwe 3,4 2,9 2,5 Decline

Mangaung 3,3 3,1 2,6 Decline

Nelson Mandela Bay (Port Elizabeth) 3,3 2,8 2,3 Decline

Sedibeng 2,0 1,7 1,3 Decline

Nala 2,0 1,7 1,4 Decline

Mbombela and Mpumalanga 1,1 0,2 1,0 Stable

Sol Plaatje 1,0 0,9 0,5 Decline

Emalahleni MP 0,8 0,4 0,5 Decline

209 Department of Agriculture, forestry & fisheries. (2015), Fresh Produce Markets.

0

5

10

15

20

25

30

35

40

45% Share 97/98 % Share 05/06 %Share 14/15

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95 January 2017

Name of Market %

Share97/98

%

Share05/06

%Share

14/15

Change

Nelson Mandela Bay (Uitenhage) 0,5 0,5 0,3 Decline

George 0,0 0,2 0,2 Stable

Umtata 0,0 0,4 0,2 Decline

The diagram and table above show that Tshwane has also increased market

share over this period.

The Section 78(1) analysis then evaluated Tshwane‘s internal service delivery of

its market in terms of a number of criteria210:

Criterion 1 – costs and benefits: here, the analysis indicates that ―Should

the Market services continue to be provided through an internal

mechanism, no substantial effect is expected on the environment as the

assets and infrastructure have been in place for a long time. Plans for the

upgrade of market facilities and possible expansion of the premises will be

brought about irrespective whether the Market will continue to operate

under the Department or in a more independent configuration….The

(human health and well-being) function of the Market will most likely not be

impacted on whether the Market continues to exist under the

municipality…The Market has made provision for Food Safety and Quality

Control and this function is not up to standard‖. With regard to the latter, it

is purely a matter of management and really not an issue of the service

delivery mechanism.

Criterion 2 – Capacity: “The CoT developed a more service delivery

responsive organizational structure for the City itself and Tshwane Market.

The challenge that the CoT is facing is to find the funds to implement the

organizational structure to its full extent…The requirements of Tshwane

Market are unique and it is doubted whether the CoT will find the requisite

skills by means of its internal recruitment processes”. This is again not about

the mechanism of service delivery but about finding personnel, for which

both internal or external mechanisms may have challenges.

Criterion 3 – Re-organisation of the CoT administration and the

development of human resources: “The CoT underwent many restructuring

exercises, but has little positive effect on the position of the Tshwane Market

as it does not really address the industry specific matter that will render it to

deliver markedly improved performance. The Tshwane Market is still losing

market share”. No evidence for this statement is provided indicating what

aspects of the industry are not being catered for and it is simply incorrect to

argue that Tshwane is losing market share when in relative terms compared

with all national markets excluding Johannesburg, market share for

Tshwane has increased. The concern expressed about having Section 57

210 Business enterprise university of Pretoria (comp). (2013), Tshwane fresh produce Market status quo and

neds analysis part 4, Pretoria, University of Pretoria.

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96 January 2017

appointments is not a matter of the service delivery mechanism and the

law allows permanent appointments to be made.

Criterion 4 – Job creation and development impact: “Lengthy procurement

and human resource processes are not conducive to the planned

developments at the Market” Whilst no evidence for this is provided, again

it is not a service delivery mechanism issue but rather one of management

which can easily be resolved.

Criterion 5 – Labour views: “The views of organized labour are to be

obtained‖. It is likely though, that choosing an external mechanism could

create challenges without the support of organised labour.

Criterion 6 – Other trends: “The steady loss of market by Fresh Produce

Markets (including Tshwane Market) is ascribable to the rise of direct

relationships between the large buyers and the large producers, thereby

bypassing the fresh produce market system.‖ Whilst this is true, it has nothing

to do with internal versus external municipal service delivery systems, but

about the industry as a whole.

The report then concludes that: ―Based on the above shortcomings of internal

service delivery mechanisms as described herein… it will be strongly advisable for

the CoT to consider service delivery mechanisms as described in Section 76(b) for

the management component of the Tshwane Market. These external service

delivery mechanisms are to be assessed in terms of Section 78(3) of the Municipal

Systems Act.‖

Overall, however, the analysis provided in this report appears to be subjective

and provides no concrete evidence and analysis in support of the findings.

The criteria analysed provide no scientific data nor assessment, and in fact are

far more supportive of a conclusion that the internal service delivery

mechanism is working quite well, and simply needs some key challenges to be

addressed, presuming that these can be articulated.

In reviewing the reports, significant attention is placed on the fact that whilst

fruit and vegetable production had grown steadily over the past decades,

produce sold through Fresh Produce Markets has only experienced minimal

growth, thereby losing market share.

Importantly, the Section 78(1) reports (Parts 1-4) examining the existing internal

service delivery process in the CoT, do not appear to have been rigorously

engaged with by the CoT as the studies (Parts 1-4) yielded conclusions such as

these which appear not to be borne out by the facts.

For example, the report to Council introduces the fact that Cape Town has a

private market and Johannesburg a municipal entity as having increased

adaptability and as being ―solutions‖. The reasoning here is that both became

corporatised/privatised around 2000 and have themselves also been

subjected to the declining market share. In Johannesburg‘s case, too, the

financial challenges facing what was then termed eGoli were most severe

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97 January 2017

and that is why a municipal entity model was decided upon, well before the

MFMA came into existence.

In addition, if one looks at surpluses generated by the Tshwane Market for the

CoT, one finds that even when growth in volumes traded have been reduced,

surpluses continue to increase significantly. For example, if one looks at

turnover growth since 2011, one finds that211: that not only has turnover grown,

but the surpluses available for the CoT have also grown over time:

Table 32: Surpluses generated by Tshwane market

Target Actuals Surplus

2011/12 2% 8,5% R51,6 mil

2012/13 2% 15,4% R62,4 mil

2013/14 4% 13,2% R70,5 mil

2014/15 4% 1,9% R72,2 mil

Average 9,7%

This certainly does not suggest Tshwane Market is moving into a loss-making

situation.

No real evidence was provided to support the assertion that pursuing an

external mechanism to provide the Market would result in the proposed

economic and financial benefits.

Our considered view is that the CoT should have interrogated these issues

properly before embarking upon the Section 78(3) process to determine an

appropriate external mechanism.

However, at the Mayoral Committee meeting of 2 July 2014, Parts 1-4 of the

report were considered and MAYCO resolved to recommend to Council that

labour be consulted and that ―final reports be submitted to Council for a final

decision on the progression to Section 78(3) of the Municipal Systems Act‖. On

31 July 2014, Council then noted that efforts to consult Labour had been

unsuccessful and resolved to proceed with the Section 78(3) assessment.

7.4 Section 78(3) Process

On 27 May 2016 a report served before Council providing the results of an

investigation in terms of Section 78(3) of the Municipal Systems Act into an

alternative service delivery mechanism for the Tshwane Fresh Produce

Market212.

Part 5 of the reports examined the two external service delivery options and

compared them to the status quo213. It suggests that the best option is for a

211 Environmental management services department. (2016), Fresh produce market division report:

Investigation in terms of section 78(3) of the Municipal systems Act 212 Environmental management services department. (2016), Fresh produce market division report:

Investigation in terms of section 78(3) of the Municipal systems Act 213 Environmental management services department. (2016), Fresh produce market division report:

Investigation in terms of section 78(3) of the Municipal systems Act

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98 January 2017

municipal entity, however some key issues are noted. Firstly, the approach

assumes that the internal service delivery option performs poorly because it

has high operating costs, underinvestment, protracted decision-making,

municipal regulated environment and slow reaction to industry changes. The

municipal entity option, it is argued, has clear accountability and responsibility,

clear goals and objectives, more focused investment, slight reduction in

operating costs over time, quicker decision-making.

Again, the Johannesburg market is used to justify this argument, yet there is no

recognition that the legal framework governing municipal entities is the same

as that for the parent bodies, with both being governed by the MFMA. As for

the Johannesburg case study, it became a municipal entity in 2001 and that

cannot be the reason for an improvement in performance since 2008. The

reasons are more likely to be other factors. Indeed, if one looks at market

share, one finds that since 1997/08 Johannesburg has continued to grow its

market share, BUT NOT AT THE EXPENSE OF TSHWANE! The following table

suggests that what is probably happening is that because of the reduction of

transport costs nationally, what has emerged is a hub and spoke system where

Johannesburg has increasingly become the major hub in South Africa with the

smaller centres unable to compete. In the case of Tshwane, possibly because

it is close to Johannesburg it has been able to benefit from the spillover from

the Johannesburg Market.

Figure 9: Changes in % market share

Table 33: % share

Name of Market %

Share97/98

%

Share05/06

% Share

14/15

Change

Johannesburg 31,4 35,3 40,4 Increase

Tshwane 15,7 16,9 19,9 Increase

CPT 13,2 13,1 9,3 Decline

Durban 9,9 9,4 9,4 Stable

Ekurhuleni (Springs) 4,7 4,3 3,0 Decline

0

5

10

15

20

25

30

35

40

45% Share 97/98 % Share 05/06 %Share 14/15

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99 January 2017

Name of Market %

Share97/98

%

Share05/06

% Share

14/15

Change

Buffalo City 3,7 2,9 2,5 Decline

Msunduzi 3,7 3,5 2,6 Decline

Tlokwe 3,4 2,9 2,5 Decline

Mangaung 3,3 3,1 2,6 Decline

Nelson Mandela Bay (Port Elizabeth) 3,3 2,8 2,3 Decline

Sedibeng 2,0 1,7 1,3 Decline

Nala 2,0 1,7 1,4 Decline

Mbombela and Mpumalanga 1,1 0,2 1,0 Stable

Sol Plaatje 1,0 0,9 0,5 Decline

Emalahleni MP 0,8 0,4 0,5 Decline

Nelson Mandela Bay (Uitenhage) 0,5 0,5 0,3 Decline

George 0,0 0,2 0,2 Stable

Umtata 0,0 0,4 0,2 Decline

The claims that a Department or Business Unit internal to Tshwane are slow to

adjust to changed compliance and other standards is also controversial.

Compliance standards are audited by the same AGSA, whether or not

markets have an internal or external service delivery mechanism.

The claims too that health related testing of fresh produce markets are not as

stringent as compared to the private sector is again questionable. After all,

municipalities operate not to make profit but to ensure social benefits are met,

one of the most important being compliance with health standards. In fact

this analysis ignored the fact that it is municipalities that are responsible for

Municipal Health Services defined more properly as Environmental Health

Services, where municipalities ensure compliance with health standards across

the public and private sectors.

The claim that an internal service delivery mechanism is more cumbersome

than a municipal entity is again incorrect as both operate under broadly the

same rules. It is not true that municipal entities will outperform internal service

delivery mechanisms in attracting skills because the same competency

requirements and remuneration frameworks apply. Indeed, municipal entities

have to have remuneration packages approved by the parent municipalities.

There is also no difference between internal mechanisms and municipal

entities when it comes to issues such as the provision of CAPEX and OPEX,

performance management, SCM, Human resources and the like in that both

operate within the same guiding framework and both are audited in the same

way.

The claims made in terms of net present value differences are dependent on

subjective assumptions and not based on scientifically measured differences

holding key issues constant. The fact that the Tshwane Market continues to

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100 January 2017

generate significant surpluses should be applauded, and if there are

innovations or improvements to be made to increase surpluses they could

easily be introduced. No evidence is provided about legal constraints

applying to show that internal delivery mechanisms cannot improve

productivity using similar processes to those found in municipal entities and the

private sector.

Measures to support the poor and the informal sector are more easily able to

be implemented where there are internal mechanisms, given that excellent

conditions exist to create a logistics chain to support informal traders.

There are also risks attached to changing the service delivery mechanism

particularly in that the trades unions have generally indicated an unwillingness

to support such decisions. Leaving the status quo in place means there is no

impact on staff, assets and liabilities.

Methodologically, it should be noted that there is a serious problem with the

scoring system used in the S73 report. Pages 218 to 320 outline a scoring

system used on a number of factors where214:

0 – No difference

1 –Least advantageous

2 – Moderately advantageous

3 – Most advantageous

When something like the projected impact on the IDP is then scored, the

internal mechanism gets a score of 1 (Least Advantageous) because there is

no change to the IDP, whereas the Municipal Entity gets a score of 3 with the

comment being that ―the project will support the CoT goals and objectives as

indicated in the IDP‖. These scores are then added up to ―prove‖ that the

municipal entity is most favoured. This is a spurious methodology which has no

basis in science and the results cannot be used as the basis for any decision

making.

Importantly, in Parts 1 to 5 of the Section 78 studies, no significant evidence is

led that indicates that the internal delivery mechanism (either a Department

or a Business Unit) would perform worse on these propositions than either a

municipal entity or the private sector in achieving any of the following

outcomes:

Improved service delivery as quicker decision-making may be possible

especially in the light of implementing a Municipal Entity supply chain

management activity



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101 January 2017

Higher productivity due to an outcomes based service delivery agreement

and performance measurement mechanisms which will form an integral

part of the service delivery agreement;

Improvement in industry communication as the municipal entity will be

more externally focused;

Management discipline and a sense of accountability and responsibility in

terms of the management of the municipal entity as it will be a ring-fenced

entity and the leadership will be placed in charge of all the activities of the

business;

Improved financial performance for both Tshwane Market as municipal

entity and the City of Tshwane;

Effective resource management as its measurement mechanisms will be

outcomes based as indicated above;

That the current scarce skills to manage a fresh produce market is retained

by making use of a municipal entity as ‗service provider‘;

Improved oversight by the City of Tshwane; and

Improved compliance both from an accounting and operational

perspective of the Tshwane Market. 215.

7.5 OPPORTUNITIES Recent important initiatives to improve the functioning of the Tshwane Market

include the mayoral project to ―Enhance the Sustainability of the Fresh

Produce Market‖, which was approved by Mayco on 21 November 2014.

Broad aims include preparing for growth which could reach 830 000 tons by

2031 from a base of 550 000 tons in 2010. The overall strategy aims to:

Assess supply and demand analysis forecasts to determine growth

trends and market capacity required for such trends;

Sweat the asset by increasing the sales areas thereby creating

capacity to move additional tonnage through the market and meet

future demand;

Transform the market by allocating sales areas to new BBBEE market

agencies;

Upgrade market infrastructure; and

Value engineering to maximise operations, logistics, and traffic flow.



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102 January 2017

During February 2015, the City of Tshwane requested the Development Bank of

South Africa to be included in the Cities Project Preparation Facility and the

following scope of the bankable feasibility study included:

Establishing of infrastructure, food safety, legal and environmental

requirements;

Acquisition of land for expansion, creation of new facilities and

services and for the relocation of existing facilities and services;

Establishing a Stakeholder Management Plan;

Value Engineering by means of Workflow studies, Market Halls space

planning layouts, Zoning, Scenario generation and prioritisation and

traffic flow studies;

Supply and demand analysis, forecasts and interventions;

Acquisition of all relevant Sector approvals;

Developing a Financing Plan and a Project Implementation Plan;

Cost benefit analysis; and

Developing a Feasibility Report and separate final proposals for

each prospective funding institution.

The CAPEX required for such investments is some R603.3 million over three

years.

Our assessment of this is that it is a sound bankable with a good return on

investment, particularly when one considers the surpluses generated by the

Tshwane Market, and it will also have several other spin-offs from an economic

and social point of view.

We would support the project being funded either from loans (option 1) or

internal reserves (option 2). As indicated in the report option 2 will result in no

interest charges being incurred.

Option 3, creating a State Owned Company, would take some 2-3 years and if

it is the Council‘s resolution to follow this route, would have to run in parallel

with the capital expansion programme. There are, however, pros and cons to

this.

The risks to any CAPEX project of this scale are, however, valid and particularly

the high supply side risks posed by concentration of the SA fresh produce

industry and stagnation of market share need to be carefully analysed and

mitigated against.

Here, the fact that Johannesburg and Tshwane collectively have almost two-

thirds of all volumes in municipal markets is pertinent. There are a whole set of

challenges and opportunities arising out of this, particularly given that less than

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50% of the wholesale market (47% of vegetables and 37% of fruit) presently

goes through Municipal Markets. Opportunities, however, do exist for both

increasing the share of local markets (such as offtake agreements, identifying

new opportunities) and also examining the Southern African and export

possibilities. As indicated, though, care must be taken to.

There could also be some possibilities for off balance sheet opportunities

where the CoT sells or leases some of the land for expansion, and/or leases

some of the developed space to the private sector, to improve overall

revenue generation.

7.6 CONCLUDING COMMENTS This chapter has reviewed the Section 78 process undertaken for CoT and

which argued that the municipality should consider a Municipal Entity as the

best means of service delivery for the Tshwane Fresh Market. However, this

review has exposed weaknesses in the analysis provided.

Our own view therefore is that the Market appears to be functioning well in its

present position, although it appears to have been faced with a number of

challenges impacting on its business, from slow SCM processes to poor

responsiveness to its business needs. We believe these could be dealt with

through creating a dedicated ring-fenced Business Unit to ensure that some of

its concerns around funding expansions, selecting competent staff, fast-

tracking SCM processes and the like are urgently addressed.

Such processes could also see the introduction of similar accounting processes

to those which governed its early formation. For example, the CoT Market was

originally established in terms of Section 14(a) of the 1939 Transvaal

Ordinance216, which provided that a Council ―may establish, erect, maintain,

regulate and carry on markets and make provision in connection therewith …

and all revenue and expenditure directly related to the establishment,

erection, maintenance, regulation and carrying on of any such market and

the facilities and amenities in connection therewith, shall be kept in a separate

account and any net surplus in such account shall not, without the prior

consent of the Administrator, be used for any purpose which is not related to

such market.‖ Whilst the provisions in Ordinances dealing with issues of

Finance are no longer valid, having been replaced by the MFMA (such as

Section 17 dealing with budgets), Council could take a resolution to ring fence

the budgets of commercial entities such as the markets allowing, for example,

for surpluses to be used primarily for revenue generation programmes.

216 1939, Ordinance ―To consolidate and amend the law relating to Municipal Government in this province,

and to provide for matters incidental hereto‖, Transvaal Local Government Ordinance No. 17 of 1939

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8 CHAPTER 8: GENERAL OBSERVATIONS

The entities in the CoT have put forward a number of advantages in using a

municipal entity as a delivery mechanism for local government. For example,

it is said that an entity:

Can create the mechanism for formal partnerships with civil society or

businesses, creating a better working relationship and greater level of

interactions with these sectors.

Can bring in expertise and a new level of skills which the municipality may

not be able to attract through full time employment.

Can act as a vehicle for collective vision, collaboration, and for broader

stakeholders to input in the work undertaken by the municipality.

Offers a greater degree of separation from political influence, with the

entity being answerable to the board of directors, who in turn are

accountable to the municipality.

Has SCM processes which are faster, as they can undertake their own SCM

processes within the entity, rather than rely on a central municipal-wide

SCM system.

Allows them to focus their attention and energy on one particular area,

which can allow for more success in delivering results.

However, all of these arguments are equally applicable to the municipality as

a whole, as the statutes are essentially the same for both entities and the

municipalities.

There are also a great number of problems and disadvantages associated

with the structure and operation of municipal entities. These include:

Given that entities are separate structures, often located in separate

premises, it is more difficult for political and administrative oversight.

ME staff are answerable to their board and not to elected officials. Their

separation from the rest of the municipality also results in less integration

with other areas of work of the municipality.

As entities are established with a formal mandate, the municipal

stakeholder has less ability to shape the goals and objectives of the entity

once they are set. Whilst changing these is possible, it requires a formal

process and the agreement of the entity and board.

That an ME‘s dependence on the municipality for finances or other

resources is an external risk, which can mean that the entity is not always

able to carry out its work to the greatest extent.

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That sometimes just the timing of the release of land, financial, human or

other resources can have significant negative repercussions on the work of

the entity.

That municipal entities do not effectively manage their own internal risks.

That the proportion of support administrative staff is far higher in entities that

in the rest of the municipality.

Across South Africa, the number of MEs have been reduced indicating too

that they are not necessarily that successful in achieving the aims and

objectives for which they were established217.

In trying to draw conclusions around the performance of the two main MEs in

CoT under review, we evaluate each of them in the following areas:

Issues around the entity establishment and mandate;

Entity performance and service delivery;

Governance;

Responsiveness to stakeholder, target-group and broader community

needs; and

Financial aspects, costs and value for money.

8.1 ESTABLISHING AND MANDATING THE ENTITIES

8.1.1 Were the entities established with a clear sense of purpose?

Information collected in this review highlights the importance of a clearly

defined role for a municipal entity – in particular, MEs should not duplicate

other municipal organisations and must add significant value to what a

municipality is already doing. Entities should not be established to avoid an

internal operational or managerial problem that the municipality is facing.

In establishing an entity a pre-feasibility study must be undertaken which must

include a gap analysis, an economic model, stakeholder consultation and

definition of roles and services. Whilst these processes are outlined in

legislation, there is no clear evidence to show that these were conducted for

the entities established by, or inherited by Tshwane.

Indeed, in the cases of TEDA and HCT, a significant time elapsed between

when council resolved that they should be established, and when they

actually started functioning. In addition, no analyses were undertaken as

described above which informed what they were mandated to do.

217 National Treasury, Updated Municipal Entities Report, 30 June 2014

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In the case of TEDA, this explains why they were given a substantial set of

mandates to perform and in return the CoT was also mandated to undertake

functions in support of TEDA which it seemed they were unlikely to fulfill. TEDA

was established in 2006, was a shell company for over 5 years, and in 2012,

were given a revised and greatly expanded mandate. Yet in 2014 the TEDA

strategy workshop called for a lesser mandate and suggested the mandate

focus mainly on funding and project and programme management, including

asset management and bulk infrastructure funding - these are very different

from its initial mandate. Then, in 2016 a further revised mandate for TEDA

suggested its role was in the area of trade and investment intelligence, export

promotion and increasing the city‘s competitiveness.

In the case of HCT there were legislative environment changes between the

time of establishment and the initiation of its operations. Yet no study was

conducted to examine what the implications of these may have been.

Most importantly, the lack of a properly established mandate explains in part

why HCT and TEDA appear to be continually seeking out what their strategy

should be, at times resembling organisations in analysis paralysis.

8.1.2 Did the entities have unambiguous political and administrative support?

The long period of time taken to establish TEDA and appoint its board, suggests

that there might not have been the support for the entity even from its initial

establishment. A recent TEDA strategic session notes that there ―appears to

be ambiguity of intent and It is not abundantly clear that the CoT is clearly

committed to the success of TEDA‖218 This does appear to lie at the heart of

the problem and the history of TEDA – taking over six years to be properly

operational after being established, and then having an overwhelming set of

mandates.

HCT‘s establishment to develop and manage social housing within the

municipality is not backed up by a solid strategy in this regard. Whilst there is

some reference to social housing in Tshwane‘s IDP and Vision 2055, there does

not appear to be any overall housing plan and the Council approved Human

Settlement strategy only makes high level reference to affordable rental

housing219.

8.1.3 Are the entities filling a service provision gap?

What has become very clear in undertaking this analysis is that in their major

areas of performance, neither TEDA nor HCT is filling a gap not covered by

other departments within CoT. This is particularly noticeable in the case of

218 20160226: TEDA Strategic Planning Session Report, 26 and 27 February 2016 219 Memela N. (personal communication 12 January 2017), RE: Information for HCT review

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TEDA, where it almost appears as if TEDA and the parent department are at

best providing duplicate services or at worst are competing with each other.

Despite the fact that HCT‘s mandate is the development of social housing units

and obtaining funding from SHRA, for 15 years it has not done so. However its

major role has been managing rental units, something which the parent

department has done and continues to do on a larger scale than HCT itself.

Even if there was a gap in service provision, that does not automatically mean

that it should be undertaken by a separate municipal entity. In the case of

HCT, for example, housing is a national and provincial concurrent responsibility.

Yet, the subsidy formula expects the Social Housing Institution, in this case HCT,

to fund a considerable portion of the CAPEX, as well as OPEX. Given that

housing is highly politicised, any municipality (or ME) managing housing is likely

to find themselves in a very costly quandary. In the case of the CoT, for

example, one finds a fairly low rate of payment and occupancy in the rental

units as a whole and this is not an easy problem to overcome, as one can see

with the R110 million cost just to house people evacuated from the Schubart

Park flats.

Concerns on occupancy rates and rental collections in HCT have on a

number of occasions been raised at Council. For example, in the 3rd quarter

assessment report 2015/16 year it was noted that the occupancy rate was only

57% compared with the performance plan of 95% occupancy.

8.1.4 Could not another internal service delivery mechanism address the challenges?

There seems to have historically been an assumption - across many spheres of

government - that establishing an entity is the most effective way of ensuring

that something gets done. But simply creating Business Units as an internal

service delivery mechanism – and providing clear and specific goals for the

individuals in charge of them improves adaptability and competitiveness,

without the cumbersome additional legislative requirements (administrative

and financial) in establishing an entity.

Two of the entities – SWA and MEDA — were simply inherited from previous

municipalities. The other two – HCT and TEDA – appear not to have been

established as a result of a strongly motivated analysis as to why an external

mechanisms was required to deliver on the two mandates – that of economic

development and the management/provision of rental housing.

8.1.5 Entities created to hide poor management.

Many of the entities established were done on the basis of incorrect

assumptions and allowed the city to avoid addressing the internal factors

inhibiting progress. For example, in HCT‘s establishment the following

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motivation was provided: ―The CoT is conscious of the fact that the

independent management of social and rental housing stock by HCT would

relieve the pressure on municipal finances by dedicating the collection or

rentals to an entity without “municipal baggage”, and that the non-payment

culture and trends exhibited in municipal rental stock would be reversed.”

However it is simply poor management and not a service delivery mechanism

which allows the continuation of a ―non-payment‖ culture. Such management

problems are evidenced by the fact that the CoT has paid over R110 million

for alternative accommodation for Schubart Park evacuees between

September 2011 to June 2016.

The motivation for the creation of an entity to manage Tshwane‘s Market – on

the basis of improving effectiveness — does not show what will improve

effectiveness if markets become an entity. The argument for investigating

alternative ownership and management models for the Fresh Produce Markets

refers to benefits such as improved financial positioning, immediate local

economic development benefits, improved BEE participation and improved

health standards, yet all of these are managerial and policy issues and not a

factor of the service delivery mechanism.

In the case of the TEDA, there is no reason why a Business Unit in a department

should not be able to promote investment and economic growth. Good

economic agencies are usually simply brands that operate effectively and

efficiently, working within a business unit environment where their focus is on

mobilising and organising the private sector in retention and expansion

programmes, with the ‗new‘ investment being a much smaller focus. In this

regard, a department is much better placed to mobilise resources such as in

the case of new business needing information on available bulks, planning

processes, tariff models, etc.

Housing development too requires the involvement of many of the service

delivery units of a municipality, few of which could be replicated in an ME.

8.1.6 Establishing Boards for MEs

The establishment of Boards is often a difficult process. For instance, in the

case of TEDA, adverts had been placed for Board members in 2006, again in

2008 and finally in 2011220. The appointment of the Board was then delayed

because of the local elections to be held that year. This was in spite of the

fact that the Auditor-General had raised audit findings against the

municipality for a number of years for it not having a Board in place.

At the same time, political factors sometimes negatively impact a Board‘s

ability to be effective. For example, in the case of HCT non-payment has

220 CoT Council report, Office of the Executive Mayor: Progress report on the status of municipal entities of


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negatively affected the ability of HCT to collect. And HCT noted that the

turnaround strategy of 2013 seemed not to have found political support and

the strategy was considered ―inadequate.‖221

222

8.1.7 Spurious arguments

A range of spurious arguments are also often found in motivations for MEs. For

example, the Tshwane market motivation suggests that the loss of market

share is due to the fact that it is managed from within the municipality, yet the

loss of market share is a common issue across fresh produce markets in South

Africa. No real evidence was provided to support the assertion that pursuing

an external mechanism to provide the Market would result in the proposed

economic and financial benefits.

8.2 SERVICE DELIVERY OF ENTITIES

8.2.1 Continual revision of strategies

Both TEDA and HCT seem to have undertaken significantly more strategic

workshops, turnaround strategies and the like as compared with any municipal

departments. This is reflective of the fact that their mandates were poorly

understood and implemented, from both the CoT and ME sides.

This often resulted in one of two actions by the parent body being repeated:

either the CoT gives no direction, or it suggests a changed direction – but

without concretising such request. At the same time, the MEs do not appear

themselves to be repositories of information on the actual work they are

involved in.

In the case of TEDA, for example, one finds concerns being raised over what

they are actually doing to bring investments into, or mobilise additional

investment from existing business, in Tshwane. One does not have clear

documented evidence on an ongoing basis of leads made, intelligence

gathered and the benefit overall and to SMME‘s in particular.

8.2.2 Performance and service delivery

Presently, some of the Tshwane entities do not have a Service Delivery

Agreement (SDA) in place, making it difficult to manage the performance of

the entities and direct their focus of attention. The existing unsigned SDAs too,

have significant problems attached to them, such as the scale of the

mandates and responsibilities, the commitment of particularly CoT, etc.

221 Housing and human settlements department, Route form 2013 Housing company Tshwane service

delivery agreement final-Board approved 222 Housing company Tshwane. (2017), Strategic review

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Managing performance is difficult with unclear mandates, or where reporting

is not based directly on mandates For example, TEDA‘s performance reports

note a number of achievements, which are not always clearly related to their

mandate. Many of their noted achievements are operational issues and

cannot be classified as fulfilling their mandate - such as attending events or

conferences. This is a concern, particularly when coupled with the fact that

targets set appear not to be too onerous and do not necessarily cover all

aspects of the mandate.

Whilst the HCT was established in 2001, its first SDA was signed in March 2010.

HCT‘s performance has also been less than expected and has not developed

any new social housing stock, and has mainly managed the 95 units it owns

and manages. Its failure to meet audit targets was primarily attributed to it not

receiving and managing additional rental stock/buildings from the City of

Tshwane (as per the March 2010 Council approved Business Plan and SDA), as

well as its failure to develop new projects

SWA has also underperformed in areas such as a reduction in unaccounted

water, increased revenue collection, the identification and management of

critical risks and failure to implement the approved organisational structure.

Many of SWA‘s problems are operational failures such as the lack of follow-up

with consumers to collect debts and a lack of disconnection for defaulting

customers.

Overall, it is very difficult to assess what impact the MEs may have made in the

CoT compared with the municipality as a whole. The impact on development,

job creation and employment patterns, as well as value for money audits

should be regularly conducted to measure overall impact.

8.3 GOVERNANCE

As organs of state, ME‘s must, like municipalities, comply with the legislative

framework, particularly the Municipal Finance Management Act and the

Municipal Systems Act, which aim to ensure accountability, transparency and

consultative processes. Entities can however develop their own policies on

issues such as remuneration, supply chain, office logistics etc. These may result

in significant differences in the pay scale between entity staff and municipal

staff and differences in working conditions, which can give rise to unhappiness.

From the CoT point of view, it is important that there is good governance from

the start, with clear policies in place, and with Board members having the

requisite skills and competences. Unfortunately, often organisational policies

are slow in the making such as with TEDA only developing and approving

organisational policies in 2014.

Generally speaking, CoT MEs audits are reasonable, with no Clean Audits, but

recently having had Unqualified Audits with Findings for five years. At the

same time, if one compares Tshwane municipal entities against the

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aggregates of the other metropolitan areas, whilst Tshwane results have

remained unchanged (a situation also found in Buffalo City) in all the other

metros the financial audit results have improved: Overall, then, there is some

evidence that when compared with the other metros, the financial

performance of MEs of Tshwane have not performed as well as their

counterparts.

The Auditor-General has at times noted that TEDA‘s compliance with laws and

regulations were not adequately monitored and reviewed223

.

Whilst in the first few years of the HCT the audit opinions received were

disclaimers224

, over the past few years unqualified audits have been received.

A number of significant internal control deficiencies that resulted in the findings

on the annual performance report and the findings on compliance with

legislation included in this report.

In addition an August 2015 Internal Audit report dealing with Property

Administration suggests HCT systems are inadequate and ineffective to

achieve their objectives225. Noted in this report was that the SLAs and the SDA

had not been properly implemented.

The most recent Internal Audit reports ―Based on the results of the audit work

performed, Internal Audit is of the opinion that existing internal control systems

over the processes Finance and Human Resource within the Housing

Company Tshwane Needs Major Improvement in order to provide reasonable

assurance that management’s related strategic objectives will be achieved as

desired”.

8.4 OPERATIONS – FINANCE, SKILLS, EXPERTISE AND RESOURCES

NECESSARY FOR THE PROVISION OF THE SERVICE

Financial issues are continually of concern to the MEs, with the CoT also

frequently raising the question of overall sustainability. This would not be an

issue if there was a clear mandate and clear roles and responsibilities, but in

the absence of these, it creates instability and uncertainty. MEs cannot always

be expected to be self-sustaining, yet entities see that reliance on CoT for

funding is a challenge. TEDA in its 2015 strategic plan placed a lot of emphasis

on its financial stability and growth through multiple revenue streams.

SWA‘s medium term action plan for the 2015/16 financial year also reflects the

goal of financial sustainability in order to reduce increased dependency on

the City of Tshwane.

223 20150630:Auditor General of South Africa, Auditor‘s report: Tshwane Economic Development Agency, 30

June 2015 224 20100325: CoT Council report, Housing and Sustainable Development: Service delivery agreement

between Housing Company Tshwane and the City of Tshwane, 25 March 2010 225 20150903:CoT Internal Audit, Property Administration Final report, August 2015 August 2015 Property

Administration Internal Audit report

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On the other hand, operating as an entity may allow an ME access to other

funds – such as in the case of social housing grants. However, the catch in this

is that whilst subsidies are available, significant CoT funds are required to

properly access these.

Board remuneration costs are quite significant, although it is difficult to

measure the degree to which the Boards contributions have improved

delivery.

The CoT MEs have at various points in time faced criticism that they were either

top heavy or did not have the requisite skills. For example, even though TEDAs

mandate was substantial, a report in 2015 indicated TEDA was top heavy and

not aligned to the business model of the entity.226

But the business model also

changed, such as when a financial sustainability model was developed227

,

ending up with a model which seemed quite unrealistic and something of a

chicken and egg problem. On the one hand, it was suggesting relatively

major functions of the CoT should be ring-fenced for TEDA, yet their own

studies showed their lack of developmental competency and capacity to fulfil

such responsibilities.

In the case of HCT, it has a CEO in place but does not have a CFO which

could raise an Audit finding228

It does seem to be overstaffed right now but if it

gets more property to manage, the ratios may improve.

In the case of TEDA, for example, in March 2015, an Integrated Management

Report provided an assessment of TEDA‘s competency levels against the

approved framework229

. Whilst the results are confidential, they indicate a

number of serious weaknesses in the various levels of staffing in terms of having

core competencies.

8.5 OVERSIGHT, MONITORING AND PERFORMANCE

Oversight, monitoring and performance is undertaken by the Shareholder Unit,

which has only two posts filled out of a possible eight positions, even though it

was established in 2012.

Given that they operate at arms-length, MEs do pose risks for municipalities.

Not only are their debts, liabilities and decisions made on behalf of the

municipality, but issues such as corruption, weak Boards, inflated costs and the

like are more difficult to manage in MEs. For example, the TEDA annual

financial statements ending June 2016 shows that office space rental

226 CoT Council report, Office of the Executive Mayor: Mid-year budget and performance assessment in term

of Section 88 of the Municipal Finance Management Act, 2003, for municipal owned entities (July to

December 2014), 29 January 2015 227 20151218: Tshwane Economic Development Agency, Annual Report 2014/15 228 CoT Office of the Executive Mayor Shareholders Operation Unit Memorandum, 20 September 2016 229 201503: Work Dynamics, Integrated Management Report: Tshwane Economic Development Agency,

March 2015

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consumes over half the General expenses budget, some R7.1 million out of

R13.1 million 230 . The dismissal of the former CEO of TEDA and that the

contingent liability of the remaining contract value was some R9.1 million

including legal fees of R400 000 231 . In the next financial year, contingent

liabilities of some R2,9 million included possible: (i) SARS penalties and interest

(R980 812), (ii) former CEO‘s appeal which could result in a settlement

(R1 138 000) and (iii) postponed 2015 conference of TITIIC (R873 125).

8.6 SUMMARY

In summary, the sections above demonstrate that in general, the Tshwane

entities have been established without clear mandates, have had their

mandates changed over time and have often not had the full support of the

CoT, have been dual/duplicate providers of services also being done my

internal Departments, nor have they been given clear direction and support

by CoT.

The entities have all had a range of internal issues which have compromised

their function. These have included internal governance challenges,

operational deficiencies, unfilled posts and capacity challenges. As a result

the impact made by the entities in achieving the developmental goals of the

municipality have been limited.

230 20161130: City of Tshwane Audit and Performance Committee for CoT and Entities, 30 November 2016 231 Sandspruit Works Association. (2014), Unaudited Annual Financial Statements.

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9 OPTIONS AND RECOMMENDATIONS

The key issue, if the entities are brought back into the municipality, and the

Market is kept as a municipal department is to address the underlying issues

which led to the creation of the entities and in the case of the Market,

concerns around lack of responsiveness of the CoT to the Market‘s specific

needs. Bringing the entities back into the municipality must not mean that

service delivery is made worse, so any current benefits of MEs, such as faster

procurement, faster decision making, access to funding and so on, must be

urgently dealt with within the municipal system.

9.1 ADDRESSING BROADER ISSUES THAT IMPACT ON CITY

DEVELOPMENT

Action areas in this regard, must include the following:

Procurement – The procurement system is cumbersome and slow and the

system cannot accommodate rapid-response requirements. Research into

the current system including its bottlenecks is required to identify areas where

procurement is being delayed and potential organisational and policy

changes must be actioned. This must also look at how the procurement is

working for the benefit of local businesses, especially emerging businesses. In

the short term, if Council decides to disestablish the entities, the existing SCM

personnel could remain as a dedicated team serving the needs of all ring-

fenced business units.

Staff attraction and retention – there is a concern that whilst entities can attract

suitable staff, the municipality itself is unable to do so. This review did not find

specific cases where this was the case and in fact in general terms packages

in the entities seem generous and there should be a benchmarking process

across CoT and the existing MEs to also ensure scarce skills are properly

addressed. Urgent work here must include an evaluation of the differentiation

between Tshwane‘s entities and the municipality itself in terms of factors such

as salary differentiation, terms of employment and working conditions. This

can also compare Tshwane to other metropolitan municipalities in South

Africa. Issues such as conducive office conditions and staff morale must be

considered.

Expert input – Entity boards provide a mechanism for non-municipal experts to

provide advice and guidance in particular areas. Mechanisms to achieve this

benefit should be sought. It could be that some form of advisory committee

and relationship to enhance the municipal-business interface should be

developed.

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Funding – ability to attract or direct funding – such as social housing funding so

that it can be utilised for social housing purposes within the city. In this case

the focus must be on ensuring that social housing is developed and effectively

managed within the city, but not necessarily on channelling it through the

municipality. This issue must also cover the ring-fencing of funding for

particular purposes, for example the maintenance of the market.

Focus and Insulation – another benefit of entities is because of their focus on a

particular area and to have management dedicated to achieving clearly

defined goals. A dedicated team working on a particular goal, with clearly

defined outcomes is a feature that has allowed some municipal entities to

achieve excellent results.

Policy certainty and focus – Part of the problem that the Tshwane entities

faced was the confusing and changing focus and emphasis on areas such as

housing delivery, housing for the poor, including the provision of rental housing.

In Economic Development, the strategy of the municipality has been relatively

unclear and outcomes have not been clearly defined, with a focus sometimes

on institutionalisation and bureaucratisation rather than on outcomes and

outputs. In addition, assuming that economic development is the function of

a single unit or entity, means that there are a number of missed opportunities

from the work of other municipal departments.

On Economic Development – Whilst there is a lot of discussion on the role of

municipalities in building the local level economy, there are a variety of

approaches on the particular role that municipalities should play in this regard.

Much of the literature on economic development points to many misdirected

approaches by municipalities in this regard – for instance a focus on attracting

new businesses, rather than on retaining and supporting existing businesses.

Similarly, encouraging new business start-up‘s should not be emphasised over

supporting existing start-up‘s.

Authors also warn against municipalities trying to ―pick winners‖ through

encouraging high growth sectors – which in many instances are high risk. The

common practice of working to build clusters is one that often sets cities up in

competition to one another in a particular sector, often resulting in a zero-sum

game at a broader level.

So, whilst there can be several different strategies to building economic

activity, three key factors should underlie and take precedence in a

municipality‘s focus on building the local economy:

1. The provision and maintenance of economic infrastructure, such as

roads, electricity, water, sanitation and ICT.

2. Ensuring that there are clear policy frameworks, planning frameworks

(including land use planning), by-laws, enforcement systems and that

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licencing systems do not unduly hinder local business activities – and

especially ensuring that they do not discriminate against small

businesses, township businesses or emerging businesses.

3. Engagement and responsiveness to local businesses – this includes

regular communication with businesses in the city and being available

to assist with short term or long term problems they are facing. This

should also include providing information to businesses or entrepreneurs

on issues such as municipal tenders, funding opportunities, new

developments etc.

At a local level whilst there is a need for a LED framework and strategy,

economic development issues are not simply the work of one particular

department. Successful economic development will require the concerted

effort of all aspects of the municipality and effort must go into ensuring

economic development issues must also be a central component of strategic

long term and spatial plans. In this regard, whilst there is a need for an

economic development department, who can undertake research and

organise events, there is also a need for a business development and retention

unit which is able to take a cross cutting view of the work of the municipality

and look for areas where the work of the Tshwane municipality can be

improved to benefit the economy of the city. This unit should also be a

contact point for businesses or individuals to address particular problems they

are encountering.

Taking this approach one step further, our analysis suggests that clear grounds

exist to disestablish the MEs in Tshwane and bring their operations back to the

city. However, as indicated above, in such a process care must be taken to

also improve the CoT overall efficiency, effectiveness and economy and

changes to its functioning made particularly in areas in which the MEs operate.

One mechanism to utilise here is to adopt a strategy to create a small central

Unit which reports in directly to the Chief of Staff and Municipal Manager, and

which is responsive to the policy approach of the Executive Mayor. This Unit

(the Hub) would need to have direct lines of authority to all the units involved

in particularly business retention and development in order to decisively act on

all major issues enhancing the economic development of Tshwane.

9.2 TERMINATION PROCESS

If the Council decides to disestablish the MEs, it should be noted that the SDAs

of the Tshwane entities do have a termination/ clause, indicating, for

example:

That termination requires a six months written notice;

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That if either of the parties fails to fulfil its responsibilities, the other party can,

after 30 days notice, cancel the SDA.

In addition, Section 93(c) of the MSA provides that a parent municipality may

liquidate and disestablish the municipal entity:

Following an annual performance review, if the performance of the

municipal entity is unsatisfactory;

If the municipality does not impose a financial recovery plan in terms of the

MFMA and the municipal entity continues to experience serious or

persistent financial problems, or

If the municipality has terminated the service delivery agreement it had

with the municipal entity.

There is also a provision in Section 86(k) of the MSA that a by-law may be

passed disestablishing a service utility. Section 86k(2) requires that if a services

utility is disestablished, (a) all assets, liabilities, rights and obligations of the

service utility vest in the municipality; and (b) staff of the service utility must be

dealt with in accordance with applicable legislation. We do not feel this is

necessary.

9.3 TEDA

The termination clause between TEDA and CoT also requires ―reasonable‖

written notice to TEDA that pursuant to a Section 78 investigation of the

Municipal Systems Act that CoT no longer requires TEDA to provide economic

development services.

Upon termination of the Agreement, TEDA shall return all the assets required for

the performance of the economic development services and all information

pertaining to such services. All plans, manuals, databases, inventory, survey,

financial or other record becomes the property of the CoT.

Six months before the expiry of the SDA, TEDA should commence with the

drafting of a transfer plan and must submit that plan to the CoT for approval

not later than four months before the expiry of the agreement. Two weeks

after termination, the transfer plan must provide for the transfer of all powers,

rights, duties and obligations.

Recommendation is that it be disestablished. The operations, staff and the like

should be integrated into the Economic Development Department, but with a

clear relationship made to the central Hub described in the previous section.

9.4 HCT

Three months written notice is required for termination.

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The unsigned SDA of 2016 provides that the CoT may liquidate and

disestablish the HCT232:

Following an annual performance review, if the performance of HCT is

unsatisfactory;

If the HCT does not impose a financial recovery plan in terms of the MFMA

and HCT continues to experience serious or persistent financial problems;

If the CoT has terminated this agreement or other agreement it had with

HCT.

The recommendation is that HCT be disestablished. The operations, staff and

the like should be integrated into the Housing and Human Settlements

Departments. An overall Housing plan should be developed for the

municipality clearly indicated how human settlements will address the needs

for well located sites on which people can build their own housing, formalising

informal settlements, RDP housing, disposing of some of the rental units,

managing existing units and working in partnership with outside agencies to

respond to both social housing and general housing needs.

9.5 PROCESS PLAN FOR DISESTABLISHMENT

In the process of disestablishing Municipal Entities at least the following

workstreams would need to be established to deal with the disestablishment

process and then the integration of the function back into the municipality:

1. Board of Directors:

Need to give proper notice to members presuming that the

disestablishment will happen well before their term of office is up,

as well as exit interviews on experience of serving on such a

Board.

2. Financial and Legal Obligations:

Team to review all such obligations and ensure they are either

dealt with or carried through. Ensure that all new obligations

made by the entity in the intervening period are made under a

process and framework that is established by Tshwane.

3. Human Resources:

Contracts and other appointments to be properly dealt with in

terms of labour law and Tshwane‘s HR framework.

4. Assets Transfer

232 20160727: CoT and Housing Company Tshwane, Service Delivery Agreement, undated

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119 January 2017

Ensure all assets are identified and on the asset register, and

ensure maintenance is budgeted for and there is a seamless

transfer of assets.

5. Contractual Obligations

Assessment of all contractual obligations, assets, liabilities, such

as SARS, outstanding invoices, etc. as well as expenditure that

may be incurred.

Moratorium or other process to deal with new obligations in

intervening period.

6. Accounting Issues

Ensure alignment with Tshwane system, analysis of current and

contingent liabilities, process to deal with seamless payment of

debtors and creditors.

7. Bank Account(s)

Give timeous notice to banks, provide changed banking details

to debtors.

8. Company deregistration

Deregistration at Companies and Intellectual Properties

Commission (CIPC) and the liquidation process with the Master of

the Supreme Court.

9. Takeover of Functions

Identification of full range of functions being undertaken and

change-management process to transfer these over the next six

months.

The timeframe and actions required under each are shown in the

accompanying spreadsheet.

9.6 RISK

The following areas of potential risk must be anticipated and planned for:

9.6.1 Board of Directors

Here the risk is that board members will be unwilling to resign and a legal

process will be required to terminate their membership. This will require support

from the City‘s legal team.

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120 January 2017

9.6.2 Financial and Legal Obligations

There is a risk that the entities will enter into costly financial and legal

obligations which will place an unforeseen burden on the City. To mitigate this

risk a notice indicating that there is a moratorium on all new commitments

made, except under specific circumstances requiring the city‘s approval,

should be given to the entities as soon as possible.

9.6.3 Human Resources

Should the review find that the staff of the entities cannot or should not be

brought into the formal municipal staff, a mediating process will need to be

undertaken. Given that this could also result in conflict, Tshwane Metro Police

(TMP) should be on hand to assist in this regard.

Financially, depending on the conditions of service, additional costs may be

incurred in bringing the staff over onto the Tshwane payroll.

9.6.4 Assets Transfer

It is not clear as to the quality of the assets of the owned by the entities,

however should these be in poor condition, it will require additional financial

resources to upgrade or maintain them. In addition, there are provisions in the

Companies Act that restrict the transfer of assets of an NPC to a member.

9.6.5 Contractual obligations

If current contractual obligations of the entities could be fulfilled by municipal

services, it will result in termination of contracts. This could cause unhappiness

and potential security problems and TMP should be on hand to assist.

9.6.6 Accounting Issues

A careful analysis of the contingent liabilities of each of the entities must be

undertaken. These may involve costs which have not been included in the

City‘s budget.

9.6.7 Takeover of Functions

In the take-over of functions, communities and organisations currently

benefitting from the service provided by the entities may be encountered. This

will require discussions and interactions with those affected and may, if not

dealt with adequately in this manner, will require the assistance of TMP.

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121 January 2017

10 ANNEXURE: MUNICIPAL ENTITIES IN SA’s MAJOR

METROPOLITAN AREAS

Municip

ality

Municipal entity and

website link

Function

performed and

Mandate

No. of

staff

2014/15

operational

expenditure

2014/15 capital

expenditure

CEO salary No. of

board

members

Buffalo

City

Buffalo City

Development Agency

City of

Cape

Town

Cape Town

International

Convention Centre

(CTICC)

Events Venue

and Local

Tourism

Committee

Mandate.

161 428 000 000 2 459 000 000 1 874 976 14

Ekurhul

eni

Ekurhuleni

Development

Company

Two Primary

Priorities.

23 129 720

Ekurhul

eni

Brakpan Bus

Company

Ekurhul

eni

Germiston Phase II

Housing Company

Ekurhul

eni

East Rand Water Care

Company

EThekwi

ni

Durban ICC Events Venue

and Local

Tourism

9 664 491 13 091 005 456 239 11

EThekwi

ni

Durban Ushaka

Marine World

Family

Entertainment

world and Food

court

536 1 110 406 1 748 554 14

City of

Johann

esburg

City Power To be a world-

class electricity

distributor

1 791 12 887 000 4 540 000 000 2 356 000 21

City of

Johann

esburg

JHB Water Water Supplier

and Distribution

unit.

2 535 2 769 772 1 091 586 12

City of

Johann

esburg

Johannesburg

Development Agency

Purpose. 86 91 400 000 1 460 000 000 1 617 864 26

City of

Johann

esburg

Johannesburg Social

Housing Company

SOC

Purpose. 105 31 500 000 99 100 000 853 133 13

City of

Johann

esburg

City of Joburg

Property Company

SOC Ltd

Function 639 14 500 000 000 1 219 201 13

City of

Johann

esburg

Pikitup Collection and

disposing of

Domestic

waste.

450 135 233 000 2 286 426 15 (2

retired in

2015)

City of

Johann

esburg

Johannesburg

Metropolitan bus

services

Transport

services

892 483 159 000 1 416 620 7

City of

Johann

esburg

Metro Trading

Company (soc)

limited

Function 11

City of

Johann

esburg

Johannesburg Roads

Agency

Road

Construction

and

Maintenance

1622 201 637 000

City of

Johann

esburg

Johannesburg Market Function 283 43 000 000 1 894 195 22

City of Johannesburg Parks Maintenance 1 503 774 790 000 159 455 000 2 008 051 14

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122 January 2017

Municip

ality

Municipal entity and

website link

Function

performed and

Mandate

No. of

staff

2014/15

operational

expenditure

2014/15 capital

expenditure

CEO salary No. of

board

members

Johann

esburg

and Zoos. and

Conservation

of Parks and

Zoos.

Manga

ung

Centlec

Nelson

Mandel

a Bay

Mandela Bay

Development Agency

City of

Tshwan

e

Tshwane Economic

Development Agency

City of

Tshwan

e

Housing Company

Tshwane

City of

Tshwan

e

Sandspruit Works

Association

The City of Cape Town Metropolitan Municipality

The City of Cape Town has one municipal entity - the Cape Town International

Convention Centre. This is an events venue focused on local tourism. In

2014/15 the entity had an operational budget of R428 million, and a capital

budget of R2 billion. There are 14 board members and the CEO earned an

annual salary of approximately R1.8 million, in that financial year. Total staff for

the entity number 161 employees (151 permanent and 10 fixed term contact

staff).

Ekurhuleni Metropolitan Municipality

The City of Ekurhuleni has one municipal entity – the Ekurhuleni Development

Company. This is focused on social housing programme with two primary

objectives:

a) Firstly, to contribute to the national priority of restructuring South African

society to address structural, economic, social and spatial dysfunctionalities

thereby contributing to Government‘s vision of an economically empowered,

non-racial and integrated society living in sustainable human settlements.

b) Secondly, to improve and contribute to the overall functioning of the

housing sector and the rental sub-component thereof, especially insofar as

social housing can contribute to widening the range of housing options

available to the poor

In 2014/15 the entity had a capital expenditure of R129 million. Total staff for

the entity amounted to 23 employees.

eThekwini Metropolitan Municipality

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123 January 2017

The City of eThekwini has two municipal entities - the Inkosi Albert Luthuli

International Convention Centre (ICC) and uShaka Marine World. The ICC is

an event venue and plays a part in the local tourism of the city. uShaka

Marine World is a family aquatic entertainment Centre and food court, also

linked to local tourism.

In 2014/15 the ICC had an operational expenditure of R9 664 491, and a

capital expenditure of R13 091 005. There are 11 board members and the CEO

earned an annual salary of approximately R456 239, in that financial year.

In 2014/2015 the uShaka Marine World had an operational expenditure of R1

110 406. There are 14 board members and the CEO earned an annual salary

of approximately R1 748 554, in the financial year.

The City of Johannesburg Metropolitan Municipality

The City of Johannesburg has 12 municipal entities and these are their focus:

Johannesburg City Power - (To be a world-class electricity distributor)

Johannesburg Water - (Water Supplier and Distribution unit)

Johannesburg Development Agency - (Support development projects in

JHB)

Johannesburg Social Housing Company - (Manage social housing

development in JHB)

City of Joburg Property Company - (Provide property management and

Development)

Pikitup - (Collection and disposing of Domestic waste)

Johannesburg Metropolitan bus service - (Transport Services)

Metro Trading Company - (Manage Informal trading)

Johannesburg Roads Agency - (Road construction and maintenance)

Johannesburg Market - (Promote socio-economic transformation)

Johannesburg Parks and Zoos - (Maintenance and Conservation of Parks

and Zoos)

Johannesburg Theatres - (Local tourism)

In 2014/15, the board members and CEO salary were reflected as follows:

Board Members Number CEO Salary

Johannesburg City Power 21 (R2 356 000)

Johannesburg Water 12

Johannesburg Development Agency 26 (R1 617 864)

Johannesburg Social Housing Company 13 (R853 133)

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124 January 2017

City of Joburg Property Company 13 (R1 219 201)

Pikitup 15 (R2 286 426)

Johannesburg Metropolitan bus service 7 (R1 416 620)

Metro Trading Company 11

Johannesburg Roads Agency

Johannesburg Market 22 (R1 894 195)

Johannesburg Parks and Zoo 14 (R2 008 051.64)

Joburg Theatres

In 2014/15, the entities had the following employees:

Employees

Johannesburg City Power (1 791)

Johannesburg Water (2 535)

Johannesburg Development Agency City of Tshwane website,

www.tshwane.gov.za

Johannesburg Social Housing Company (105)

City of Joburg Property Company (639)

Pikitup (450)

Johannesburg Metropolitan bus service (892)

Metro Trading Company

Johannesburg Roads Agency (1662)

Johannesburg Market (283)

Johannesburg Parks and Zoos (1503)

Joburg Theatres

Mangaung Metropolitan Municipality

The City of Mangaung has one municipal entity - Centlec (SOC) Ltd. The core

function of this entity is to distribute electricity across the City of Mangaung.

In 2014/15 the entity had a capital budget of R248 319 018. There are eight

board members and the total staff for the entity numbers 506.

Nelson Mandela Bay Metropolitan Municipality

Nelson Mandela Bay has one municipal entity - Mandela Bay Development

Agency. This entity deals with urban and community Development.

In 2014/15 the entity had an operational budget of R99 129 787. There are 11

board members with a total staff for the entity numbering 31 employees.

City of Tshwane Metropolitan Municipality

The City of Tshwane has two municipal entities – the Housing Company

Tshwane and Tshwane Economic Development Agency. The Housing

626

http://www.tshwane.gov.za/


125 January 2017

Company Tshwane manages and maintains the rental households and the

Tshwane Economic Development Agency facilitates economic development

in the Tshwane area.

In 2014/15 the Housing Company Tshwane had 10 board members in that

financial year and the entity number of employees was 14.

In 2014/15 the Tshwane Economic Development Agency had an operational

expenditure of R54 454 546 and capital expenditure of R3 800 000. The CEO

salary amounted to R1 720 367 in that financial year. The board members

number was 12 and the number of employees was 37.

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126 January 2017

11 ANNEXURE: Tshwane Economic Development

Agency - Budget Summary

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127 January 2017

12 ANNEXURE Housing Company Tshwane- Budget

Summary

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128 January 2017

13 ANNEXURE: TEDA - Budgeted Financial

Performance (revenue and expenditure)

630


129 January 2017

14 ANNEXURE: Housing Company Tshwane - Budgeted

Financial Performance (revenue and expenditure)

631


130 January 2017

15 ANNEXURE: Budgeted Financial Position Entity

Summary233

233 City of Tshwane. (2016), Entity Summary.

632

Documents

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