ANNUAL REPORT 20102011 MUNICIPAL DEMARCATION BOARD PRESENTATION TO

ANNUAL REPORT 2010/2011 MUNICIPAL DEMARCATION BOARD PRESENTATION TO THE PORTFOLIO COMMITTEE ON COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS 18 October 2011 REPRESENTATION TEAM Mr LJ Mahlangu Chairperson: Municipal Demarcation Board Ms N Gwayi Deputy Chairperson: Municipal Demarcation Board Mr SM Radebe Chairperson: Audit & Risk Committee Mr RH Monare CEO: Municipal Demarcation Board Ms MI Mathatho Chief Financial Officer Ms MP Leburu Senior Finance Officer 1

OUTLINE Last Briefing: 24 May 2011 l Outputs and Developments 2010/11 l Strategic Direction l Progress to date on current strategy l Financial Results 2010/11 l Receipts for the year ending 31 March 2011 l Expenditure for the year ending 31 March 2011 l Report of the Auditor General l Medium term expenditure framework (MTEF 2011 – 2014) l Conclusion Additional Slides: l Research Study on Criteria for Determining Municipal Boundaries and Categorisation of Metropolitan Boundaries l Research Study on Sizes of Municipalities in South Africa l 2

LAST BRIEFING: 24 MAY 2011 l l Briefed the Portfolio Committee on: MDB Performance in 2010/11 (Unaudited at the time); Strategic Plan 2011/12 – 2014/15; Proposed Developments going forward; Financial Results 2010/11 (Unaudited at the time); Medium Term Expenditure Framework 2011/12 – 2013/14 We advised the Portfolio Committee that: The ward delimitation process was successfully completed for the 18 May 2011 local elections, despite having started well after schedule by four months. The Board was now set to commence with a process of reconfiguring and aligning outer municipal boundaries. Bids had been called for a service provider to develop a new model on the assessment of the capacity of Municipalities. 3

LAST BRIEFING: 24 MAY 2011 - - The Board adopted to a new way of carrying out its mandate, in a number of core areas of the Board’s work. Research has been done on key subjects: Ø Review of the Capacity Assessment Model; Ø Sizes of Municipalities Ø Criteria for Demarcation of Municipal Boundaries. Current system and processes for ward delimitation is time consuming and costly, and needs to be reviewed. 4

OUTPUTS AND DEVELOPMENTS 2010/11 l During the period under review, a number of key outputs and developments were realised: a. Facilitate accountable local government and contribute to free and fair local elections and promote democracy: l During this period focus was on the delimitation of electoral wards within local and metropolitan municipalities, in preparation for the 2011 local government elections; l The process on 15 July 2009 when the National Minister of Co. GTA published the formula for the number of councillors, based on the 2009 national common voters roll as divided into municipal segments. l To improve on past ward delimitation processes, especially with respect to consultation with stakeholders: - Time was set aside to allow municipalities to consult widely with communities in their areas; - A very localised process called for by the Board; 5

OUTPUTS AND DEVELOPMENTS 2010/11 The primary aim of allowing time for wide consultation, was to facilitate a process whereby the final wards would be a product of community consensus. Provision was also made for cases where consensus could not be reached in a municipality, during the consultation process; Provincial Departments of Local Government, as well as SALGA and CDWs, were requested to assist communities in their preparation of submissions to the Board; The Board also made its own human resources available to all communities for assistance; Some 50% of municipalities were able to reach consensus with communities and other stakeholders, while others could not reach consensus, or submitted alternative ward configurations which did not comply with legislative provisions; - § § 6

OUTPUTS AND DEVELOPMENTS 2010/11 § § § Ward delimitation process was finalised in August 2010, and the final wards were officially handed over to the IEC on 1 September 2011. Preparations for the next round of municipal boundary redeterminations began soon after the handover. The Board faced a number of court challenges during the period under review. 7

OUTPUTS AND DEVELOPMENTS 2010/11 b. Assessment of Municipal Capacity c. Assessment of Municipal Capacity did not take place in 2010/11 (as well as in 2009/10). l The existing model of capacity assessment that had been used since 2001 was still being reviewed. l The Board resolved to devote time and resources to the ward delimitation process. Ensuring that the Board is supported by an effective and efficient organisational structure l Building and enhancing capacity of the Board’s internal machinery was a major priority during the period under review. l The Board appointed an Organisational Design (OD) specialist to carry out an investigation into the Board’s organisational structure, as well as significant restructuring of the organisation’s establishment. l 8

OUTPUTS AND DEVELOPMENTS 2010/11 c. Ensuring that the Board is supported by an effective and efficient organisational structure (Cont. ) l l l The service provider’s brief was to investigate and to write a report with recommendations, on ways of improving the effectiveness of the Municipal Demarcation Board and its members, particularly staff members, by means of systematically planned interventions. The service provider has since delivered on the brief, and the Board has resolved to bring about far-reaching changes in levels of some positions in the Board’s organisational structure. Also to significantly restructure of the organisation’s establishment – this in order to have things done differently, in a number of core areas of the Board’s work. 9

OUTPUTS AND DEVELOPMENTS 2010 d. e. Ensuring Good Governance l Continued to endeavour to ensure that good governance arrangements are in place throughout the organization. l The Audit and Risk Committee was fully operation during the period under review, to oversee and ensure the effectiveness of the systems of controls. l There was also an effective internal audit function in place. The function is outsourced. l At the end of the period under review, the Board was monitoring action by management to attend to issues of concern raised in the IT Governance Audit, including a complete revamp of the Board’s website. Ensuring Sound Financial Management l During the period under review we were able to maintain: Effective management of working capital Preparation of short and long term budgets Effective internal audits 10 Consistent cost control.

OUTPUTS AND DEVELOPMENTS 2010 f. Improving and Enhancing Stakeholder Relations l l l As a constitutional institution, it is important for the Board to reinforce the need to engage with all stakeholders in a structured manner, to realise specific organisational goals as well as to meet broader social, environmental and economic challenges. The need for engaging stakeholders in a structured manner, also reinforced by the fact that stakeholder relations is one of the core functions of all Board, in terms of the corporate governance principles as outlined in the King III report, to which the Municipal Demarcation Board subscribes. At the end of the period under review, the process to develop a Stakeholder Management and Governance Framework, Stakeholder Engagement Plan, as well as the Stakeholder Communication Strategy was underway. 11

STRATEGIC DIRECTION The Municipal Demarcation Board has for the current Strategic Plan identified strategic themes to focus and guide the organisation over the next few financial years (2011/2012, 2012/2013, 2013/14 and 2014/15) Theme 1 Determination and re-determination of municipal boundaries and categorisation and re-categorisation of municipalities Theme 2 Assessment of the capacity of metropolitan, district and local municipalities Theme 3 Ensuring that the Board is supported by effective and efficient organisational processes, systems and practices Theme 4 Ensuring good governance Theme 5 Ensuring sound financial management Theme 6 Improving and enhancing stakeholder relations 12

STRATEGIC DIRECTION Strategic Objective Boundary Theme 1 determinations Capacity Theme 2 assessments Organisation Theme 3 and Administration Good Corporate Theme 4 governance Theme 5 Financial management Stakeholder Theme 6 management TOTAL: 2010/2011/2012/2013/2014 6, 787, 118 6, 566, 881 6, 967, 250 6, 738, 727 5, 000 5, 180, 000 5, 569, 000 5, 566, 000 17, 440, 766 19, 175, 483 20, 536, 690 22, 306, 858 3, 035, 556 4, 242, 420 3, 345, 693 3, 646, 420 2, 696, 474 2, 974, 216 3, 116, 367 3, 413, 195 2, 652, 086 1, 200, 000 1, 320, 000 1, 386, 800 37, 612, 000 39, 339, 000 40, 855, 000 43, 058, 000 13

PROGRESS TO DATE ON CURRENT STRATEGY a. Determination and re-determination of municipal boundaries and categorisation and re-categorisation of municipalities l Circular 1 of 2011 was issued to all municipalities and other key stakeholders, to communicate the programme for the re-determination of municipal boundaries, and to also to provide especially new municipal councillors with some background information on the MDB and its mandate. l Launch and Media announcement l Consultations meetings have been held with the following key stakeholders: - All MECs for local government; - All municipalities in every District Municipality in the country; - Min. MEC; - The Chairperson of the NHTL; - National and Provincial structures of SALGA and the IEC; - Political and Civic Structures across the country. 14

PROGRESS TO DATE ON CURRENT STRATEGY a. Determination and re-determination of municipal boundaries and categorisation and re-categorisation of municipalities (Cont) l Meetings with provincial houses of Traditional Leaders are still being arranged in cooperation with the Chairperson of NHTL. The purpose of the initial consultation meetings with was: To give MECs and other stakeholders an opportunity to raise demarcations issues with the MDB; To inform MECs and other stakeholders of demarcations cases that are on record for consideration by the MDB; Clarify the process and timeframes for changes to municipal boundaries as per Circular 1/2011; Seek MECs’ and other stakeholders’ support for the process; l 15

PROGRESS TO DATE ON CURRENT STRATEGY a. Determination and re-determination of municipal boundaries and categorisation and re-categorisation of municipalities (Cont) - Request MECs and other stakeholders to assist in communicating contents of Circular 1/2011 to provincial stakeholders; Request MECs and other stakeholders to encourage participation; Request MECs and other stakeholders to assist in ensuring that municipalities comply with timeframes; Request MECs that their Departments assist stakeholders wanting to make representations for changes to municipal boundaries. 16

Broad process and timeframes within current legal framework: 2011 - 2016 Prepare for local elections Delimit wards Re-determine municipal boundaries 2011 2012 2013 2014 2015 Consultation and legal process June 2011 to Oct 2013 Nov 2013 - June 2015 2016 IEC process July 2015 - April 2016

Key periods for public participation MDB provides information Meetings per district area Deadline for new requests Aug/Sept 2011 15 Dec 2011 Further visits Jan-Mar 2012 Section 26 Submissions Public meetings Apr-May 2012 Sept-Oct 2012 Municipalities consult affected communities, and encourage participation More information: MDB Circular 1/2011: www. demarcation. org. za Section 21 objections Aug 12 -Jan 13

PROGRESS TO DATE ON CURRENT STRATEGY a. Determination and re-determination of municipal boundaries and categorisation and re-categorisation of municipalities (Cont) l A framework has been developed, based on the research study on criteria for demarcation of municipal boundaries. The framework provides information and guidelines that will empower stakeholders to submit requests to the Municipal Demarcation Board for the re-determination of municipal boundaries. The framework puts together in one concise document, key relevant information and guidelines, for stakeholders to motivate a boundary change request. l l 19

PROGRESS TO DATE ON CURRENT STRATEGY b. Assessment of the capacity of metropolitan, district and local municipalities l A service provider was appointed for the implementation of the revised capacity assessment model, building on the history of capacity assessment data obtained in previous years. l The review of the capacity assessment model has elicited a number of weaknesses pertaining to the old model. l Two-tier local government is neither effective nor efficient - Lack of clarity on powers and functions l MEC adjustments have exacerbated the problem - Adjustments may undermine service delivery l Framework for adjustments is insufficient - Narrow conceptualisation of capacity 20

PROGRESS TO DATE ON CURRENT STRATEGY l l l Capacity assessments not useful for boundary adjustments - Need to understand environmental & institutional capacity Capacity assessment model inadequate - Heavy reliance on subjective indicators of capacity The review has subsequently come up with some recommendations: Ø Advocacy recommendations - Single-tier local government - Legislation to assign powers and functions Ø Capacity Assessment Model recommendations - Suspend recommendations on adjustments - Position Capacity Assessment as a strategic resource 21

PROGRESS TO DATE ON CURRENT STRATEGY Revised model - Financial data is critical - Include measures of performance - Identify norms and standards for benchmarking - Include information on scarce skills - Introduce qualitative assessment of Powers & Functions Quantitative process has limitations and should be used as a trigger for a qualitative review of powers and functions within a particular district triggered by one of the following: One or more municipalities performing a function less than adequately One or more municipalities performing a function with less than minimum capacity Request by MEC for qualitative review Programmatic qualitative investigations of all districts over a five year period i. e. 10 districts qualitatively evaluated a year. Ø l 22

PROGRESS TO DATE ON CURRENT STRATEGY l l l Methodology Improve integration with other data collection processes Ø National Treasury, Stats. Sa, National Sector Departments Web-based collection methodology with support Ø Simplify and shorten questionnaire Include metros Outputs One strategic and analytical report supported by Ø Automated municipal reports Ø District report Ø Provincially aggregated district report Accessible, interactive database with reporting This year will pilot this methodology. Nine districts (roughly 20% of all municipalities) 23

PROGRESS TO DATE ON CURRENT STRATEGY c. Ensuring that the Board is supported by effective and efficient organisational processes, systems and practices l The following reports on the organisation design were submitted by the service provider and approved by the Board: The Blueprint Report with findings and recommendations, on the restructuring of the organisation’s establishment, as well as improvements. The Board has also adopted a particular option in the report as the best organisation design to enable the MDB to meet its mandate more effectively. The Implementation Report, which provides the MDB with an implementation road map. Job evaluation, which is the process of determining the worth of one job in relation to that of other jobs in an organisation so that a fair and equitable wage and salary system can be established. 24

PROGRESS TO DATE ON CURRENT STRATEGY Salary benchmarking, which is a process where an organisation tests its own pay practices against that of other outside organisations. - A new Remuneration Policy. - Migration Policy, to regulate the movement of employees from one post or position in the current Organization Structure to another in the new Organization Design. New structure envisaged to be operational at the beginning of the 2012/13 financial year. - l 25

PROGRESS TO DATE ON CURRENT STRATEGY d. e. Ensuring good governance l Draft unaudited annual report for the year ended 31 March 2011 considered by the Audit and Risk Committee. Duly submitted to the Auditor-General on 31 May 2011. l The Auditor-General has given an unqualified audit opinion, but with emphasis of matter. Improving and enhancing stakeholder relations l Service providers were appointed for a three month contract for support on media relations and media engagement. l Other service providers were appointed to prepare a stakeholder and communication strategy for the Board. l The stakeholder management function has been adequately provided for in the organisational design blueprint report that was approved by the Board. l The boundary redetermination process was kick-started with an extensive programme of initial consultations with key stakeholders 26 across the country.

FINANCIAL RESULTS 2010/11 l l SUMMARY OF FINANCIAL RESULTS RECEIPTS FOR THE YEAR FINANCIAL PERFORMANCE FOR THE YEAR ENDED MARCH 2011 BREAKDOWN OF EXPENDITURE 27

SUMMARY OF FINANCIAL RESULTS l l l l Total income for the period R 37. 9 million Expenditure during the period R 36. 0 million Resulting in a surplus of R 1, 9 million Expenditure Variance of R 1, 6 million Projections – Board has spend within budget Current ratio = 6: 1 Accumulated Surplus of R 16, 9 million Commitments of R 11, 0 million 28

RECEIPTS FOR THE YEAR ENDING 31 MARCH 2011 Original MTEF allocation Other income TOTAL INCOME AT OUR DISPOSAL 2010/11 R 37, 187, 000 R 746, 000 R 37, 933, 000 29

EXPENDITURE FOR THE YEAR ENDING 31 MARCH 2011 Description Government Grants Other Income Total income Total expenditure Loss on disposal of Assets SURPLUS YTD Actual 37, 187 746 37, 933 35, 992 39 1, 902 YTD Budget Variance 37, 187 0 425 (321) 37, 612 1, 619 (39) 1, 902 30

BREAKDOWN OF EXPENDITURE FOR THE YEAR ENDING 31 MARCH 2011 Expenditure Item Percentage of Total Income Amount Administrative expenses 13, 840 38% Employee benefits 11, 322 31% 923 3% Project expenses 3, 580 10% Other operating expenses 5, 525 15% 802 2% 35, 992 95% Audit fees Depreciation and amortisation TOTAL EXPENDITURE Loss on Sale of Assets Surplus for the period 39 1, 902 0 5% 31

REPORT OF THE AUDITOR GENERAL l l Unqualified report with emphasis of matter Irregular Expenditure of R 726, 012 Contravention of PPPFA HDI Points scoring was not documented 32

MEDIUM TERM EXPENDITURE FRAMEWORK (MTEF 2011 -2014) l l 2011 MTEF amounts to R 121. 4 million Allocation for 2011/12 increased by R 1. 3 million Representing a 3% increase In 2012/13 and 2013/14 grants increased by 5% in respective years. Grants 2011/12 2012/13 2013/14 Amount 38, 482 40, 362 42, 578 33

MEDIUM TERM EXPENDITURE FRAMEWORK (MTEF 2011 - 2014) Income Grants Sundry income Interest income Expenses Capacity Assessment Publications Boundary determination Rental expense Salaries Depreciation Members allowances Audit expenses Staff Training Other expenses Net surplus 2011/2012 39 339 000 38 482 000 857 000 39 339 000 5 180 000 0 4 804 795 2 310 848 13 013 685 710 517 1 713 155 2 056 000 195 205 9 354 795 0 2012/2013 40 855 000 40 362 000 493 000 40 855 000 5 569 000 0 5 078 668 2 310 848 14 167 091 710 517 1 725 265 2 210 332 212 506 8 870 773 0 2013/2014 43 058 000 42 578 000 480 000 43 058 000 5 566 000 0 4 587 000 2 310 848 15 847 500 710 517 2 067 935 2 431 364 237 712 9 299 124 0 34

MEDIUM TERM EXPENDITURE FRAMEWORK (MTEF 2011 - 2014) Other expenses 2011/2012/2013/2014 * 168 000 170 000 172 000 35 000 37 625 41 388 Legal fees 165 000 181 500 199 650 Printing and publication 361 000 397 000 437 000 Venues and facilities 1 531 632 809 950 890 945 Travel and subsistence 1 104 629 1 187 352 1 406 087 36 000 102 000 166 000 119 115 131 026 144 129 1 573 800 1 728 680 1 901 548 Computer expenses 270 984 302 082 335 290 Other: insurance 332 750 366 025 402 628 Other: fleet expenses 29 709 32 679 35 947 Repairs and maintenance 49 500 54 450 59 895 159 500 175 450 192 995 Stakeholder management 1 200 000 1 320 000 1 452 000 Other: Admin and operations 2 218 177 2 641 919 2 408 485 Total 9 354 795 8 870 773 9 299 124 Advertising Bank charges Entertainment Office expenses Consulting fees other Utilities 35

MEDIUM TERM EXPENDITURE FRAMEWORK (MTEF 2011 - 2014) 2011/12 Distribution 3 381 385 5 234 340 5 404 261 7 630 655 12 577 779 Finance 5 110 581 GIS Research Admin and HR Manager Board 36

Questions and Comments 37

RESEARCH STUDY ON CRITERIA FOR DETERMINING MUNICIPAL BOUNDARIES AND CATEGORISATION OF METROPOLITAN BOUNDARIES l The brief for the research study on demarcation criteria was to: Expand on and precisely define the criteria implied, for an area to be regarded as a Category A (metropolitan) area, as outlined in Section 2 of the Local Government: Municipal Structures Act, 1998, including developing quantifiable indicators, benchmarks and thresholds for each criterion; Expand on and precisely define the criteria implied for municipal boundary demarcation and, more specifically, the objectives of demarcation and factors to be taken into account by the Board when it determines a municipal boundary, as outlined in Sections 24 and 25 of the Local Government: Municipal Demarcation Act, 1998. The study was to develop quantifiable indicators, benchmarks and thresholds for each or clusters of factors/criterions as outlined in section 25 Local Government: Municipal Demarcation Act, 1998. ; Institutionalisation and precise application of the section 2 criteria as well as the sections 24 and 25 demarcation objectives and factors. 38

RESEARCH STUDY ON CRITERIA FOR DETERMINING MUNICIPAL BOUNDARIES AND CATEGORISATION OF METROPOLITAN BOUNDARIES The study was to develop quantifiable indicators, benchmarks and thresholds for each of the cluster factors/criteria as outlined in section 25 Local Government: Municipal Demarcation Act, 1998, including recommendations/advice on data requirements, skills sets and other resource requirements; Recommendations as to which provisions in Section 2 of the Structures Act, 1998, and Sections 24 & 25 of the Demarcation Act, 1998, would be reviewed. The methodology for the study involved: International Survey of municipal boundary reform Development of Data Base of Demarcation Indicators Conducted desktop analysis of relevant South African documentation Conducted Interviews with relevant experts - l 39

RESEARCH STUDY ON CRITERIA FOR DETERMINING MUNICIPAL BOUNDARIES AND CATEGORISATION OF METROPOLITAN BOUNDARIES l The study developed a database of indicators, by: Collating data from Census, Community Census, MDB and IEC. Used the MIIF Classification as an illustrative tool: Ø A-Metros Ø B 1 -Secondary Cities Ø B 2 -Large Towns Ø B 3 -Small Towns Ø B 4 –Rural Areas Ø C 1 -Districts who are Not Water Service Providers Ø C 2 -Districts who are Water Service Providers 40

RESEARCH STUDY ON CRITERIA FOR DETERMINING MUNICIPAL BOUNDARIES AND CATEGORISATION OF METROPOLITAN BOUNDARIES l l l The study has developed indicators for each of the criteria in section 24 and 25 of the Demarcation Act. Also suggests a useful organisation of the criteria used for the demarcation of municipal boundaries, into a collection of categories and/or subcategories. This may enable greater flexibility were the emphasis with regard to a particular case may be geared toward a particular set of criteria. However, there a number of caveats: Many of the criteria/indicators are interdependent (i. e. , one criterion may influence the another criterion and vice versa); Given the interdependence of many of the criteria, it is difficult to assert a hierarchy to the criteria (i. e. , that some criteria are more important than others or that some are a perquisite for other application of other criteria); 41

RESEARCH STUDY ON CRITERIA FOR DETERMINING MUNICIPAL BOUNDARIES AND CATEGORISATION OF METROPOLITAN BOUNDARIES Criteria should be given varying weight and importance depending on the unique circumstances of an area. The following are suggested as criteria for small municipalities: the need for cohesive, integrated and compact areas Political boundaries, including areas of traditional rural communities, ward committees and local communities Boundaries that enable the delivery of main municipal services, particularly irrigation, water works, electricity and sewerage The ability to generate a certain amount of revenue locally topographical, environmental and physical characteristics of the area including watersheds boundaries sensitive to economic conditions of each small municipality l 42

RESEARCH STUDY ON CRITERIA FOR DETERMINING MUNICIPAL BOUNDARIES AND CATEGORISATION OF METROPOLITAN BOUNDARIES l The following are suggested as criteria for District Municipalities: within the framework of national redistribution there is a need to share and distribute financial and administrative resources; existing land use and transport planning. the promotion of integrated social and economic development planning the need for co-ordinated local, provincial and national programmes and services. 43

RESEARCH STUDY ON CRITERIA FOR DETERMINING MUNICIPAL BOUNDARIES AND CATEGORISATION OF METROPOLITAN BOUNDARIES l Four main categories of municipal demarcation criteria are put forward in the study: Planning and Development Criteria: Many boundary adjustments particularly in the form of municipal amalgamations are premised on the need to provide better planning and economic development over an extended area. This includes the socio-economic interdependence of a given city-region. Section 25 (A, H, and J) Criteria and Indicators Municipal Functioning Criteria: These include the collection of indicators that measure the delivery of municipal services and the administration of areas of municipal responsibility. Section 25 (D, G and I) Criteria and Indicators Municipal Financial Criteria: These include the impact of demarcation on a municipality’s revenue and expenditures. Section ( 25 D, K) Criteria and Indicators Municipal Governance Criteria: Referring to indicators that measure the decision making ability of a municipal government as well as questions of good governance over the city-region. Section (25 B, E, F, and L) Criteria and Indicators 44

RESEARCH STUDY ON CRITERIA FOR DETERMINING MUNICIPAL BOUNDARIES AND CATEGORISATION OF METROPOLITAN BOUNDARIES l l l Public participation, in particular, is raised as being an important component of boundary reform. International overview has pointed out that South Africa excels at good boundary criteria but lags behind other nations on the processes of reform. It is suggested that the Board should be more transparent in releasing the substantial deliberations of its decisions. It should provide local government stakeholders with a written account of how it has applied the Section 24 and 25 criteria. The option to hold public meetings is highlighted. Another way to improve public participation is by making meetings compulsory for all boundary investigations. The study suggests that the Board should always hold public meetings before it makes boundary decisions. 45

RESEARCH STUDY ON CRITERIA FOR DETERMINING MUNICIPAL BOUNDARIES AND CATEGORISATION OF METROPOLITAN BOUNDARIES l l l The study also suggests a need for provision to be made in legislation, for annexation or technical redeterminations/corrections. Annexation/technical redetermination often involves the incorporation of a small piece of territory such as a farm. The Municipal Demarcation Act is conspicuously silent on how to deal with this issue of annexation. The suggestion is that this process must be dealt with in legislation along the following lines: Accommodation of growth by all municipalities must be accomplished without encumbering the initiating municipality and the responding municipality’s ability to achieve rational growth directions, cost effective utilisation of resources and fiscal accountability; An annexation must be supported by growth projections, availability of lands within current boundaries, consideration of reasonable development densities, accommodation of a variety of land uses and reasonable growth options within each municipality (initiating and responding municipality); 46

RESEARCH STUDY ON CRITERIA FOR DETERMINING MUNICIPAL BOUNDARIES AND CATEGORISATION OF METROPOLITAN BOUNDARIES - - An annexation must achieve a logical extension of growth patterns, transportation and infrastructure servicing for the affected municipalities; Each annexation must illustrate a cost effective, efficient and coordinated approach to the administration of services; Annexations must demonstrate sensitivity and respect for key environmental and natural features; Coordination and cost effective use of resources will be demonstrated when annexations are aligned with and supported by integrated development planning, economic development plans, transportation and utility servicing plans and other related infrastructure plans; Annexation proposals must fully consider the financial impact on the initiating and responding municipality; Inter-agency consultation, coordination and cooperation is demonstrated when annexations proposals fully consider the impacts on other institutions providing services to the area; 47

RESEARCH STUDY ON CRITERIA FOR DETERMINING MUNICIPAL BOUNDARIES AND CATEGORISATION OF METROPOLITAN BOUNDARIES Annexation proposals that develop reasonable solutions to impacts on property owners and citizens with certainty and specific time horizons will be given careful consideration and weight; Annexation proposals must be based on effective public consultation both prior to and during any annexation hearing or proceedings. Finally, the study identifies implications for the Board’s skills sets. There are two main approaches in this regard. Firstly, the Board could use consultants to support them on boundary investigations. This is largely the existing approach of the MDB and also is the approach used by most of the international Demarcation Boards sampled in this report. The advantage of this approach is that enables the Board to draw on specialised expertise and independent insight when investigating boundaries. It is also a more cost-effective way of utilising resources given that consultants are only used when needed. The disadvantage is that the Board does not develop a critical mass of internal capacity. - l l l 48

RESEARCH STUDY ON CRITERIA FOR DETERMINING MUNICIPAL BOUNDARIES AND CATEGORISATION OF METROPOLITAN BOUNDARIES l l The second approach entails the Board developing its own internal expertise. If the MDB supports this approach it should employ empirical Social Scientists to help disaggregate census data and other relevant data bases (presuming that it does not have such people in its employ). The advantage of this approach is that enables the Board to develop its own in-house capacity. The disadvantage is that it will have highly paid professionals in its employ who may be underutilised in quiet periods. The MDB’s preference is for the second approach. 49

RESEARCH STUDY ON SIZES OF MUNICIPALITIES IN SOUTH AFRICA l l The brief for the research study on demarcation criteria was to explore: Challenges faced by the new local government system in South Africa towards realising the vision of developmental local government, particularly those challenges that come with large, inclusive municipalities; The relationship between municipal size and the efficiency of the delivery of municipal services. Is there an optimal size or range of sizes for a municipality in the South African context, from the standpoint of efficiency and to minimise duplication of resources and efforts? The methodology for the study involved: International Survey of Literature on Local Government Size Development of Data Base of Demarcation Indicators Conducted desktop analysis of relevant South African documentation Conducted Interviews with relevant experts 50

RESEARCH STUDY ON SIZES OF MUNICIPALITIES IN SOUTH AFRICA l l Conducted interviews with relevant stakeholders MDB, COGTA, Treasury, Provincial Governments SALGA, individual municipalities Consultants Semi-structured interviews. The study explored the issue of Economies of Scale and Size explored. Also looked at arguments from Public Choice Theory also looked at. Democracy and Municipal Size. How size is defined-by population, area, budget, employment or range of services? 51

RESEARCH STUDY ON SIZES OF MUNICIPALITIES IN SOUTH AFRICA l l l On Economies of Scale and Size: It is often argued that enlarging local government areas will enhance local government efficiency. Smaller municipalities lack resources and citizens. Larger jurisdictions lead to bigger thresholds in populations, tax bases and workloads. Public Choice Theory: Citizens have diverse preferences for local government Fragmented local government will operate more efficiently. Democracy and Municipal Size: Literature suggests that local government needs to be local enough for citizens to identify with. Larger local units risk being remote. 52

RESEARCH STUDY ON SIZES OF MUNICIPALITIES IN SOUTH AFRICA l l l l None of the criteria in Section 2 specifically require that the metropolitan area be of a particular size. The definition does give some pointers in this regard: A conurbation, meaning something large, Extensive development, implying that the metropolitan area is large, The notion of complexity which implies question of scale, With its strong emphasis on interdependency, a wider conceptualisation of metropolitan government that would encompass the economically interdependent suburbs, black townships, rural areas and informal settlements. Great Deal of Variation between metros in South Africa. Three big metros (Johannesburg, Cape Town, Ethekwini) Two reasonably big metros (Tshwane, Ekurhuleni) 53

RESEARCH STUDY ON SIZES OF MUNICIPALITIES IN SOUTH AFRICA l l Three small metros (Nelson Mandela Bay, Buffalo City, Mangaung). Do not meet OECD definition of 1, 5 million population. Limited data but no correlation of size with performance With respect to District Municipalities little guidance in legislation. MDB suggested four principles: Functional linkages showing a coherent social and economic base eg spending patterns, sectors of economic activity Districts should not be too large-radius of 50 -100 km While the population of Districts should not be too large, for economies of scale it was felt districts should have a base population of at least 100 000 persons; and that; Wherever possible, there should be some coherence to the economic and social base of districts. 54

RESEARCH STUDY ON SIZES OF MUNICIPALITIES IN SOUTH AFRICA l l l An analysis of District Municipalities indicates that no clear relationship between size and population, operating and budgets, functions performed, years experience of managers and financial managers and audit rating With respect to local municipalities, the MDB decided on the following principles based on Sections 24 and 25 of the Demarcation Act: Capacity Assessment: Objective was to develop a critical mass of municipal capacity (staff, assets, finances). Resource Sharing. Manageable Size: Indicators of 3500 square kilometres and 80 000 people were suggested as norm Functionality: Alignment of transport routes and physical features 55

RESEARCH STUDY ON SIZES OF MUNICIPALITIES IN SOUTH AFRICA l An analysis of local municipalities indicates that: Density correlates with population size Weak link with capital budgets but no link with operating accounts There is no clear cut pattern when it comes to the percentage of functions performed, the size of municipalities, the years of experience of either municipal managers or financial managers and audit relationship The 50 000 -100 category has performed better than the 100 000 to 200 000 category in respect of capital and operating expenditure, staff, functions performed, the years of experience of municipal managers and financial managers and COGTA’s spatial classification system per population range. This may suggest that 50 000 to 100 000 is an optimal size for smaller municipalities but more research is needed to verify this. 56

RESEARCH STUDY ON SIZES OF MUNICIPALITIES IN SOUTH AFRICA l l With respect to Municipal Wards, an analysis indicates that: A number of problems were identified with the ward process: The unclear definition of what a community is; The provision that the number of registered voters in each ward, may not vary by more than fifteen per cent from the norm, leads to the creation of dysfunctional wards. The strict application of this formula prevents the creation of wards which promote local democracy and service delivery/development; The use of voting districts as the building blocks for wards is problematic. The following recommendations are made in respective of wards: Repeal, the provisions providing for the determination of a formula for the number of councillors by the Minister and the determination of the number of councillors by the MEC s responsible for local government; Provide for ward boundaries determined for the 2011 local government elections to remain in place for local elections in the foreseeable future; 57

RESEARCH STUDY ON SIZES OF MUNICIPALITIES IN SOUTH AFRICA Provide a continuous process to review ward boundaries with a view to enhance service delivery and development but also to promote local democracy. One needs to take into account population of ward, consultation with ward committees, municipal development and service delivery projects, and especially planning over a longer than the current 5 year period for the municipality as a whole. Allow deviations from the 15% norm where it can promote service delivery/ development and/or promote local democracy. To what extent size has been a variable affecting performance, post 2000? There a number of problems bedevilling local government. Many of these factors are not due to issues of size around local government e. g. politics/administrative relationships, clientelistic practices, local electoral system, the executive system. - l l 58

RESEARCH STUDY ON SIZES OF MUNICIPALITIES IN SOUTH AFRICA l l l There is no conclusive evidence linking service delivery problems to the size of municipalities. The metros’ widely-drawn boundaries seem to have facilitated service delivery. There are hints by the government that the large size of wards is a factor inhibiting the performance of ward committees but no evidence is produced to support this. There is also no conclusive evidence linking performance to the size of integrated development plans. Likewise the argument that councillors in rural communities have large constituencies and this makes it difficult to represent communities adequately is also untested. The international literature on size and performance on municipalities did not produce any ideal or optimal size for local government. 59

RESEARCH STUDY ON SIZES OF MUNICIPALITIES IN SOUTH AFRICA l l l The available empirical data and government and academic literature suggest that there is no conclusive evidence to show that the size of a municipality has been a major problem impeding the performance of local government. Changing the size of municipalities should be treated with circumspect. If socio-economic interdependence, most notably commuting, is the primarily basis for determining boundaries then the nature of settlement patterns rather than population size becomes the major determinant of boundaries. Problem of Reorganisation Fatigue. There may be opportunistic incentives for the creation of new councils by local politicians. 60

RESEARCH STUDY ON SIZES OF MUNICIPALITIES IN SOUTH AFRICA Future Research: l The Board should investigate the possibility of undertaking a more systematic analysis of the relationship between size and performance between and within municipalities. l It will entail inter alia looking extensively at customer surveys, auditor general’s reports and other performance evaluation data. In order to be scientific such a study will have to identify external constraints on councils that could explain at least part of any apparent performance variation – economic and social conditions, the needs and demands of local residents, previous council policies and the behaviour of other organisations. 61