Phumla Hlati & Michelle Rufaro Maziwisa | Sep 28, 2020

Local government response to the economic impact of COVID-19

The full impact of the nationwide lockdown under COVID-19 restrictions to the South African economy is yet to be fully understood. However, Statistics South Africa estimates that in the second quarter of 2020, the economy contracted by 51 percent. In anticipation of the socio-economic impact, national government announced a R500 billion stimulus package that included various support measures to Small and Medium Enterprises, the informal sector and to municipalities. But what has been the local government economic response to COVID-19?

Globally, it is acknowledged that sub-national governments are the frontline respondents to the COVID-19 pandemic. Not only are they central in the implementation of nation-wide COVID-19 measures, they are also considered laboratories for bottom-up and innovative recovery strategies. In South Africa, whereas local government has been at the forefront, providing the much-needed basic services such as water, distributing personal protective clothing as well as food parcels and/or vouchers, the economic response is not as apparent. This article reviews some interventions of South African metropolitan municipalities (metros), as a direct response to the impact of COVID-19 on their respective local economies. 

Sections 152(c) and 153(a) of the South African Constitution mandate local government to promote social and economic development. This duty is elaborated in the White Paper on Local Government. In this regard, local government is responsible for taking active steps to ensure that the overall economic and social conditions of the locality are conducive to the creation of employment opportunities. However, local government is not directly responsible for creating jobs, as set out in the White Paper. Instead, municipalities can provide ‘special economic services’ by facilitating and coordinating local economic development (LED). In terms of the state of the LED function of municipalities in South Africa, various reviews have revealed that this role is not fully understood. For instance, the 2015 State of Local Government Report found the function to be erratic and inconsistent.

Inclusive development: Informal sector and SMME facilitation and support

In terms of responding to the impact of COVID-19 on local economies in metros, the first emerging theme is the promotion of economic inclusivity, supporting redistribution and growing economic participation. Lockdown regulations in the country recognised wholesale produce markets and informal traders (trading perishables food stuffs) as providers of essential services. Accordingly, under lockdown level five, metros such as the City of Johannesburg and the City of Tshwane implemented measures such as issuing temporary permits for informal traders, including spaza shops. The City of Tshwane’s Economic Recovery Response Plan further includes measures to cancel historical debts of informal street traders as well as a 50  percent reduction, for three months, on licences and permits for informal street traders, which can go a long way in helping informal businesses to continue their operations.

Some local governments have gone a step further by introducing separate local government relief funds to local SMMEs and the informal sector. The City of eThekwini, is a case in point. In a survey of businesses affected by COVID-19 lockdown regulations, conducted by the City during lockdown, it was found that 93 percent of businesses experienced decreased revenue; 72 percent had to shut down completely and 22 percent indicated they urgently required a cash injection for increased debt for overhead costs. Accordingly, through the City’s economic recovery plan, the eThekwini Economic Recovery Fund has been made available through identified savings across departments and clusters in the Metro. The fund aims to prevent job losses and to help local small businesses that are at risk of shutting down. Similar to eThekwini, the City of Tshwane has also made proposals to establish a Township Enterprise Development Fund.

Buying local and expanding access to local procurement

Various cities across the country have optimised opportunities to support local businesses, through procuring personal protective equipment locally. In the City of Tshwane, preferential procurement from SMMEs, Cooperatives and Township (mainly black women-owned) businesses was implemented.    

Business development support and improving the regulatory environment

In Cape Town, the Metro has allowed the reclassification of guest houses to residential properties, thereby reducing property rates significantly for guest house owners. The City has also allowed interest-free payment plans for businesses in distress over a six-month period, and rental remission for businesses, provided these businesses were closed during the lockdown. Realising that many small businesses would struggle to access COVID-19 safety materials, the City facilitated an ‘SMME COVID-19 Safety Toolkit, and provides guidance and practical assistance to help SMMEs stay in business. Collectively, these interventions are what the White Paper on Local Government considers ‘reviewing existing policies and procedures to enhance employment and investment’ and ‘provision of special economic services’, or simply put, strengthening economic governance.

 In terms of business development support, the City of Cape Town supported Business Processing and Outsourcing (BPO) companies as well as companies in the hospitality sector to operate from empty hotel rooms and conferencing venues during the lockdown; thereby enhancing business retention efforts and reducing the cost of doing business. In Buffalo City, as part of improving the regulatory environment, the Metro is playing a crucial role by processing land and building applications and working closely with stakeholders such as the East London Industrial Development Zone regarding road infrastructure. The Metro is also working on reducing the incidence of load shedding. Similarly, the City of Tshwane is implementing the automation of building applications and fast-tracking of business permits and clearance certificates. 

Information and communications technology (ICT)

The lockdown period has highlighted challenges on the digital divide in societies across the globe, and access to ICT has become important for business survival. An example of city efforts in this regard is the City of Cape Town, which facilitated linkages with the data providers in the Metro to enable broadband connectivity so the BPO sector could function from home.  

Skills development and public works employment schemes

As COVID-19 restrictions are gradually relaxed, the City of Tshwane’s economic recovery plan prioritises the facilitation of employment opportunities through the implementation of capital projects, and through intensifying expanded public works employment. In terms of skills development, the city has partnered with companies or institutions that offer online, free platforms to match job seekers with employment opportunities, and to further provide virtual “reskilling” technical programmes in partnership with industry (automotive, aerospace, mining, agro-processing, tourism, BPO) and TVET colleges.

Private sector partnerships, investment facilitation and infrastructure development

Facilitating new investments and expanding existing ones can create positive outcomes for local economies. Although their mandate is not to create jobs, local governments can certainly create an enabling environment for businesses, which would facilitate job creation as well as trickle down benefits such as increased spending power of local communities, and increased capacity to pay for municipal services. This has been the case in Buffalo City, where Mercedes-Benz South Africa’s (MBSA’s) expansion plan for 2021 to 2027 includes an investment of more than R10 billion which will increase production capacity, create jobs, and incorporate 30 local suppliers into the production or supply chain. Buffalo City is also avoiding de-industrialisation in the Wilsonia Industrial Park by providing rates and electricity subsidies to businesses, (e.g. Defy). In another example, Toyota South Africa is also investing R2.5 billion into the City of eThekwini towards the first petrol-electric car which will help with job creation. There are also several infrastructure investment projects underway in metros, whose implementation is being fast-tracked.

Conclusion

The emerging picture in South African metros, in terms of their responses to the economic impact of COVID-19 on local economies is a mixed bag of pro-poor, poverty alleviation-oriented interventions, as well as pro-growth, market-oriented approaches. National Treasury’s City Support Programme has been instrumental in convening metros, coordinating and supporting their efforts. However, for the rest of local government, the picture is not so clear given that most municipalities are grappling with the basic responsibility of providing basic services, some are faced with ongoing governance challenges, and some, with financial management challenges. 

 

by Phumla Hlati (Doctoral Researcher) & Michelle Rufaro Maziwisa (Post-doctoral Researcher)

 

The publication of the Bulletin is made possible with the support provided by the Hanns Seidel Foundation and the Bavarian State Chancellery.

                                                                          

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