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Contents

List of Figures

List of Boxes

Graphs

List of Tables

List of Contributors

Preface

Acronyms

Chapter 1 Infrastructure Mandates for Reconstruction MESHACK KHOSA

Chapter 2 Transformation in Infrastructure Policy from Apartheid to Democracy: Mandates for Change, Continuities in Ideology, Fractions in Delivery Patrick Bond, George Dor and Greg Ruiters

Chapter 3 Gender, Development and Infrastructure Debbie Budlender

Chapter 4 The Role of the Construction Industry in the Delivery of Infrastructure in South Africa Andrew Merrifield

Chapter 5 Financing of Public Infrastructure Investment in South Africa Andrew Merrifield

Chapter 6 Municipal Infrastructure Services: A Planning and Pricing Model for Capital Investment Geoffrey du Mhango

Chapter 7 Restructuring the Health Services of South Africa: The District Health System David McCoy

Chapter 8 Basic Port Infrastructure in a Changing South Africa Henriette van Niekerk

Chapter 9 SMME Infrastructure and Policy in South Africa Christian Rogerson

Chapter 10 Economic Restructuring and Local Economic Development in South Africa Etienne Nel

Chapter 11 Social Impact Assessment of Development Projects MESHACK KHOSA

Chapter 12 Re-thinking Infrastructure Policies in the 21st Century MESHACK KHOSA

Index

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List of Figures

Chapter 7

Figure 1: The two columns of health system development in post-apartheid South Africa: The primary health care approach and the district health system

Figure 2: The relationship between the different healthstructures within a DHS

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List of Boxes

Chapter 1

Box 1 RDPMandates for Housing Delivery

Box 2 RDP Mandates for Housing Finance Delivery

Box 3 RDPMandates for Water Delivery

Box 4 RDPMandates for Electricity Delivery

Box 5 RDPMandates for Transport Delivery

Box 6 RDPMandates for Health Delivery

Box 7 Gender and Youth Equity in Public Works Delivery

Chapter 7

Box 1 Health service fragmentation inherited from the apartheid health system

Box 2 Different types of health district

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Graphs

Chapter 4

Graph 1 Proportion of firms by firm size (in turnover categories

Graph 2 Building cost escalation

Graph 3 Productivity in construction

Chapter 5

Graph 1 GDFI (1990 prices) between 1960 and 1997 for the private sector, public authorities and public corporations (SARB, 1994, B 53-57, 1998, S113)

Graph 2 Infrastructure spending by public authorities from 1946 to 1997 (1990 prices, SARB, 1994, B80-85, 1998, S113)

Graph 3 Infrastructure spending by public corporations from 1946 to 1997 (1990 prices, SARB, 1994, B80-85 1998, S113)

Graph 4 Public sector economic and social infrastructure investment as a proportion of GDFI (SARB, 1994, B53-57, 1998, S113)

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List of Tables

Chapter 7

Table 1 Health inequalities in South Africa by race

Table 2 The pattern of health expenditure reflected an inappropriate bias towards tertiary/academic, hospicentric medical care

Chapter 11

Table 1 Project cycle of the World Bank

Table 2 DFIs and focus areas

Table 3 Categories of infrastructure according to the DBSA

Table 4 Percentage of projects that met the named variables

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2 Transformation in Infrastructure Policy from Apartheid to Democracy: Mandates for Change, Continuities in Ideology, Frictions in Delivery

PATRICK BOND, GEORGE DOR and GREG RUITERS

Introduction

Policy associated with basic infrastructure investment � water and sanitation systems, new electricity Lines, roads, stormwater drainage, and other services provided at municipal level � has been one of the most troubling aspects of the first five years of African National Congress rule. Enormous challenges were offered by the infrastructural backlog and ecological inheritance. However, notwithstanding rhetoric (and Constitutional provisions) to the contrary, government quickly retreated from its original electoral mandate. Following a section that provides brief historical context, this chapter offers a reminder of infrastructure policy directives in the Reconstruction and Development Programme, continuities in ideology represented in the government's main housing/infrastructure policy documents (especially those finalized during 1996-98), and fractions associated with the delivery process, particularly in the growing reliance upon municipal services privatization, The chapter identifies key moments in the policy-making process, and argues that it is only with a different ideological approach (drawing upon sound technical analysis) on the part of key politicians and officials � as well as a more liberatory perspective and political will in South Africa's civil society movements � that transformation of policy and hence delivery will one day be possible.

Infrastructure Policy Needs Fixing

There are far more continuities than change, between the ungenerous housing and household infrastructure policies of the late-apartheid regime and those of the ANC government. The most telling principles now widely followed across government are that the user must pay the marginal cost of services, that standards be minimal for those who cannot afford marginal cost, and that commercialization and indeed privatization of infrastructure-related services be pursued. The contrast between these central infrastructure principles and what ANC constituents have traditionally demanded (and what was promised in the 1994 Reconstruction and Development Programme) is the core subject of this chapter.

The disjuncture between what is required and what is on offer is not an accident, though neither is it a necessary outcome. It reflects quite similar influences in the form of policy advice that flowed, during the 1980s-90s, from the World Bank and its main South African surrogates (the Urban Foundation and the Development Bank of Southern Africa). The key apartheid-era statements that introduced the site-and-service approach to housing and narrow cost-recovery municipal services practices included the Independent Development Trust housing grant (1991), the De Loor Report (1992), and the National Housing Forum accord (1994).

The main post-apartheid infrastructure policies through which we can trace the influence of neo-liberal advice are the Housing White Paper of November 1994 (Department of Housing), the Water Supply and Sanitation White Paper of November 1994 (Department of Water Affairs and Forestry), the Urban Infrastructure Investment Framework of March 1995 (RDP Ministry), the Urban and Rural Development Strategies of October 1995 (RDP Ministry), the Urban and Rural Development Frameworks of May 1997 (Departments of Housing and Land Affairs), the Municipal Infrastructure Investment Framework of July 1997 (Department of Constitutional Development), the Local Government White Paper

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of February 1998 (Department of Constitutional Development), the April 1998 Policy Paper on Intergovernmental Finance (Department of Finance), and the August 1998 Draft Regulatory Framework for Municipal Service Partnerships. Other papers from the Departments of Water Affairs and Forestry, and Energy and Minerals, are similar in tone and content. A variety of laws and regulations have codified these policies, even if implementation has been uneven. (Notably, many of these can be read as entailing a profound conflict with the South African constitution, which, amongst other socio-economic rights, confers 'the right to have access to ... sufficient ... water') (RSA, 1996, s. 27.1).

Taken together, these core policy statements of infrastructure and municipal services policy represent the main barriers to provision of basic water, sanitation, electricity and other household and community infrastructure investments, and to the cross-subsidization necessary to pay for the recurrent costs associated with minimally decent standards of consumption. This chapter shows the ebb and flow of the policy argument, invoking aspects of the reasoning promoted by the two main opposing camps in the debate: neo-liberals and progressives. To borrow Tomlinson's (1993) typology of the main competing 'urban visions', a third group which had earlier dominated policy-making � apartheid-era statists � had waned decisively by the early 1990s.

Since the neo-liberal camp consistently won the debates and wrote policy accordingly (not necessarily because their arguments were more convincing, but rather reflecting the balance of forces in society as a whole), it is important to show that an alternative, progressive policy framework � providing infrastructure for all, on the basis of 'intermediate' level standards and a free 'lifeline' bloc of water and electricity consumption � was (and is) feasible and affordable. Thus one of the objectives of this chapter into argue that South African government policy-makers � and if not politicians and officials, surely the leading civil society organizers � should return to their roots, drawing on insights gained through decades of social struggles by mass democratic organizations in townships and villages. What this would mean in practice would be providing higher-standard but lower-priced infrastructure and services to South Africans than is presently being practiced and contemplated. The chapter suggests ways to do that rely on domestic (South African) financing, not that of the World Bank or other international lenders, through partnerships between the first democratic state (at central, provincial and municipal levels) and local communities.

The chapter therefore has a dual function of offering constructive criticisms about existing policies and, in its conclusion, posing an alternative. Along the way, we dissect crucial aspects of late-apartheid policy and socio ecological conditions associated with infrastructure, before considering the ANC government's mandate to deliver infrastructure and services to all South Africans, revisiting the debate over municipal services provision, and explaining the failure of existing options under consideration to adequately meet the infrastructure mandate.

Government's Inheritance

When in 1994 the first democratic government was elected on a platform known as the Reconstruction and Development Programme (RDP), there was a high expectation that politicians and officials would immediately deliver improved basic services to the mass constituency of the victorious African National Congress (see Bond, 1999a and 1999b, Chapter 4 for details). Late-apartheid household infrastructure practices were sufficiently egregious that numerous 1980s social struggles arose, achieved defensive successes (such as preventing repossessions of houses and cut-offs of services), and.codified a more humane approach

grounded in a rights-based discourse. No new, overarching policy could be generated given the late-apartheid regime's lack of credibility, and hence the infrastructure 'policy' inherited by the democratic government in 1994 was in fact merely an amalgamation of a variety of project-based, highly fragmented

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approaches to housing and local government.

The context for the policy vacuum is important. After the 1980s rent boycotts became debilitating for Black Local Authorities, causing virtually all to fall into formal bankruptcy, the apartheid government's national housing funds were redirected to covering municipal operating expenses. Attempts to evict non-payers and to cut off vital municipal services were successfully resisted by residents' mass action, and only a very few Conservative Party-ruled white municipalities were able to, even temporarily, punish black residents for non-payment (a few incidents of cholera generated by services cuts during the early 1990s were so widely condemned that the practice of disconnection halted). Meanwhile, virtually no new houses for 'African' people were built by the state during the late 1980s. Instead, deregulation of racial restrictions on property ownership and the failure of banks' white client base to grow adequately led to a dramatic increase in private housing construction in the townships (once the mid-1980s civic association protests had been snuffed by state repression) (Mayekiso, 1996), fuelled by bank credit on (initially easy) terms.

What this left by the end of the 1980s was a series of recent township housing projects � usually poorly-located, however, on cheaper land in distant locations � with relatively good levels of service (full electricity and fully-reticulated water and sewerage) for approximately 200 000 households (still leaving an estimated three million households without adequate shelter); a slow household electrification programme run by Eskom in the main existing urban townships (though unevenly, and bedeviled by delays in implementation caused by local authority turf problems); and, in the interstices, a dramatic increase in shack settlements without even rudimentary services. The first main component of the de facto late-apartheid housing policy � privately-owned, bank-bonded housing - slowed to a virtual standstill from 1990-95 once interest rates an housing bonds had increased from their low of 12,5% in 1986 to 20,75% by 1989, leading to approximately 40% of all borrowers defaulting or falling into deep arrears (the interest rate increase also generated the country's longest-ever depression, which cost many hundreds of thousands of jobs, including many held by township residents with bonds). The second component, electrification, picked up slowly and then peaked at close to 400 000 new connections per year (including rural areas) in the mid-1990s, as Eskom reacted to political pressure by increasing its (high-priced but low-profit) retail supply, The third component, upgrading of shack settlements and the formalization of site-and-service programmes and projects, became the basis for 1990s infrastructure policy.

The first key statement of the late-apartheid government's intent to establish household infrastructure at inadequate levels for slightly-better formalized shack settlements was the 1991 Independent Development Trust (IDT) housing grant. Inspired by World Bank 'site-and-service' projects and policies, the R7 500 IDT capital subsidy for servicing sites was designed and largely implemented by officials associated with the Urban Foundation, the large corporate-funded think-tank and developer founded by Harry Oppenheimer and Anton Rupert in the wake of the 1976 Soweto uprising. The IDT projects were quickly labeled 'I Do Toilets', because they financed the construction of merely a toilet (with no building materials or electricity hook-up provided). This 'beacon of hope' � as IDT director (and former Urban Foundation director) Jan Steyn put it � was soon followed by more government 'toilets in the veld' projects, such as those in very poorly-located settings supported by the Department of Development Aid (whose mandate was to fund 'self governing' homelands).

Recognizing that this new approach could help dampen the fiscal requirements associated with rapid urbanization, in 1992 Department of Housing politicians and bureaucrats drafted the Report of the Task Group on National Housing Policy and Strategy, which endorsed a World Bank critique of the IDT subsidy for being 'unrealistically high' (see Bond, 1992, for a critique). In terms of guiding

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principles, as the De Loor Report put it, 'Deregulation, commercialization and the employment of sound policies which strengthen market forces and provide access to opportunities are all strategies which need strong promotion and high priority.' As Tomlinson (1993) shows, an entirely different approach was adopted by civic associations and their technical colleagues in the 'urban service organizations' (largely research NGOs in each of the main cities).

A degree of criticism of the late-apartheid government's approach emerged in the National Housing Forum. But the Forum's domination by Urban Foundation personnel and big business lobbyists (and ineffective ANC and civic movement participation) assured that the critique would only scratch the surface and that in early 1994, in a controversial deal with Louis Shill following months of severe conflict (Bond, 1993), a modified site-and-service policy (with a R12 500 maximum subsidy) would lay the basis for post-1994 policy. The key actor in the adoption of the Forum compromise as the basis for post-apartheid housing policy was the ANC representative to the Forum, and subsequently Department of Housing Director-General, Billy Cobbett. According to Swilling (1999, p. 10),

[i]t was largely up to Cobbett as to who from the democratic movement participated in the policy process. When questioned as to why he largely kept the urban service organizations out of the national housing policy formulation process, he said that there was an emphasis from his political bosses on direct representation of political and civic leaders rather than involvement of 'experts' from the urban service organisations. This contrasted markedly from the strategy of organised business � in particular the banking institutions � who seconded large numbers of experts into the process and in so doing directly influenced the policy agenda in a way that would be impossible today, or even during the apartheid era. The democratic movement's overcommitted political and civic leaders were not equipped to deal with this army of technical expertise that were trusted with broad negotiating mandates by their principals. The consequences of this strategic (mis)calculation will be felt for many years.

At the same time in mid-late 1994, a new definition of service delivery was proposed in the White Paper on Water and Sanitation, namely that the 'lifeline' price of water to retail consumers should be at least equal to the operating and maintenance expenses; all previous use of the term lifeline was 'free'. This was a fundamental statement that a neo-liberal pricing policy would prevail in the crucial water sector.

The socio-ecological inheritance associated with maldistribution of infrastructure resources must also be considered. Water management offers South African government and society possibly the most serious contemporary challenges. Amongst the main problems for environmental management are water scarcity; the maldistribution of water; pollution of water sources; other forms of structural damage to water ecosystems; and substandard or nonexistent sanitation. South Africans have access each year to, on average only 1,200 kl per person of available water, of which half is already dammed. Ineffective and destructive uses of water are prevalent. Water scarcity is exacerbated by South Africa's erratic rainfall patterns, and the effect of periodic draughts on low-income people is particularly devastating (whereas wealthy white farmers have traditionally gained access to state compensation during droughts). There exists a worrying potential for both domestic and regional geopolitical conflict over access to water, with South Africa already draining Lesotho's water and with controversial plans underway to tap other regional sources, as well as border rivers (such as the Orange River bordering Namibia, via the Lesotho Highlands Water Project).

The distribution of South Africa's water across the population is even more unequal, measured in class, race and gender terms, than the distribution of income. More than half of the country's raw water is used for white dominated

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commercial agriculture, of which half is considered to be wasted due to poor irrigation techniques and inappropriate crop choice. Another quarter is used in mining and industry. Around 12% of South Africa's water is consumed by households, but of that amount, more than half goes into (white people's) gardens and swimming pools, and less than a tenth is consumed by all black South African households. Minimal water access is one reason for black South Africans suffering by far the highest infant mortality and water-related disease rates in all of Africa in relation to per capita GDP. Access by the majority is improving only marginally, notwithstanding massive cross-watershed pumping of water, for example, from Lesotho, done inexplicably (as shown below) in the name of development. In rural areas, the Departments of Agriculture and of Water Affairs and Forestry are making only minimal efforts to improve water access to black farmers, and indeed due to impending water shortages the government will only expand existing water supply systems (which irrigate white farmland) � the Lesotho Highlands, the Tugela, Mkzomazi and Mzimvubu basins, the Orange River and Western Cape sources � with only a tiny fraction of resources spent on new irrigation schemes for emergent farmers.

Likewise, water-borne sanitation is available to only around one third of black South Africans, and excessive amounts of water (typically 13 litres per flush) are used in virtually all middle- and upper-class areas. Although a solid-waste sanitation system is desirable, so too would universal installation of low-flush and dual-flush toilets (as well as low-flow showerheads) save water and cut sewage treatment costs, while sanitation services could be extended to all households (although this would contradict current policy on household affordability grounds, regardless of the social and ecological consequences). Dumping of untreated sewage into the sea remains an issue. Mass pit latrines in urban and peri-urban areas remain factors in the spread of faecal bacteria.

More general pollution of water ultimately destined for human consumption arises from largely unregulated discharges from industry, from waste dump runoff, and from agricultural chemicals and mine tailings/slimes dams. Faecal pollution is a problem in many urban areas due to most low-income households' inadequate sanitation. Acid rain is considered extremely prevalent in coal-burning regions of the country. All these features of pollution increase water treatment costs and raise public health risks to many low-income households dependent upon direct access to unpurified water. Water ecosystems suffer enormous soil loss and siltation through commercial agriculture, erosion caused by overcrowded rural areas, polluted aquifers from mining waste, the exhaustion of aquifers from excessive irrigation, and drainage of wetlands and regions with high levels of forestry (especially invasive-alien eucalyptus and pine plantations). There are also problems in declining natural flow-rates of rivers due to cross-watershed pumping (resulting, too, in increased urbanization pressure), siltation of dam storage capacity (costing up to $30 million per year), and salination and waterlogging of land due to intensive irrigation.

Similar features of South Africa's energy inheritance deserve comment: a reliance on (and oversupply of) coal-generated electricity; lack of equitable access amongst households along class/race lines (with particularly severe gender implications); and related inefficiency in use associated with apartheid geographical segregation and urban sprawl. The strength of the coal mining industry fostered a reliance on electricity, with per capita consumption as high as in England (notwithstanding the fact that until recently only a quarter of South Africans had access to domestic sources) and per capita emissions of greenhouse gasses twice as high per capita as the rest of the world. In turn this reflects the importance of what has been termed the 'Minerals-Energy-Complex' � South Africa's economic core, effectively run by a handful of mining-based conglomerates and friendly parastatal agencies � which has traditionally accounted for ¼ to 1/3 of South Africa's GDP (and which even in the 1980s and 1990s, as the gold price declined, was the most important

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and dynamic sector). As one example of the power still invested in these large firms, the parastatal electricity company justifies ignoring its own anti-pollution policies (for example, refusing to install scrubbers at coal-fired stations, earning the wrath of even its own accountants) by the need to generate cheap electricity for export-led minerals and metals growth. As a result, electricity generation has been associated with high levels of greenhouse gasses, very high levels of acid rain, enormous surface water pollution, badly regulated nuclear supplies (near Cape Town), and ineffectual safety/health standards in coal mines. Poor planning two decades ago led to massive supply overcapacity (at peak in the early 1990s, 50% more than demanded), yet very little of the capacity has been used to provide low-income people with sufficiently cheap energy.

Indeed, the meager electricity consumed by low-income households (about 3% of the total) comes at a high price (in 1996, R0,20/kWh) in relation to the very low-cost supply of power to large corporate consumers, particularly the mines and minerals smelters (in 1996, less than R0,06/kWh). Hence even after more than a million households were added to the electricity grid during the 1990s, many could not afford to maintain consumption at levels sufficiently profitable for the state electricity company, relying instead for lighting, cooking and heating an paraffin (with its burn-related health risks), coal with high levels of domestic and township-wide air pollution) and wood (with consequences for deforestation). Women are far more adversely affected by the unaffordability of electric power sources, as well as in expending time and energy to obtain alternative energy sources. Reacting to these formidable infrastructure-related problems, government turned to neo-liberal principles, particularly lower standards, higher cost-recovery, and creeping privatization � notwithstanding a much more expansive mandate from its supporters.

Government's Mandate

Given that many Democratic Movement leaders saw transitional bargaining fora like the National Housing Forum as merely stepping stones to power and policy making, it was not obvious initially haw much Cobbett's early 1994 acceptance of site-and-service principles would shape future developments, The RDP was meant to change matters radically. As ANC leader Nelson Mandela remarked at the victory party on May 2:

We have emerged as the majority party on the basis of the programme which is contained in the Reconstruction and Development book. That is going to be the cornerstone, the foundation, upon which the Government of National Unity is going to be based. I appeal to all leaders who are going to serve in this government to honour this programme

The RDP's chapter on 'Meeting Basic Needs' began with an ambitious statement (ANC, 1994, section 2.1.3):

With a per capita gross national product (GNP) of more than R8 500 South Africa is classified as an upper middle income country. Given its resources, South Africa can afford to feed, house, educate and provide health care for all its citizens.

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The document proceeded to list a number of specific areas (many related to the International Covenant on Economic, Cultural and Social Rights) in which South Africans can consider themselves entitled to an adequate consumption level of goods and services. The RDP's approach, in short, was to ensure that essential service needs were met through vast increases in government subsidies when the market failed, and by mobilising additional resources through partnerships, more forcefully tapping capital markets, and via off-budget methods. This was government's overarching mandate in the area of infrastructure and services, and concrete suggestions with regard to housing, land reform and services were made to direct policy makers in detail.

Thus, for example, the RDP offered hope for a decent residential existence far beyond what was on offer in existing site-and-service schemes (ANC, 1994, section 2.5.7):

As a minimum, all housing must provide protection from weather, a durable structure, and reasonable living space and privacy. A house must include sanitary facilities, storm-water drainage, a household energy supply (whether linked to grid electricity supply or derived from other sources, such as solar energy), and convenient access to clean water.

The budgetary goal for housing expenditure in the RDP is 5% of the entire national budget; this goal was repeated in the Housing White Paper. The failure of the first democratic government's housing policy to ensure such standards - due to its focus on 'incremental' building techniques, a maximum subsidy only half of that required to build housing (R15 000 instead of R30 000), and bank-centred financing � is not the subject of this chapter (Bond, 1999a and 1999b, Chapter Four). But it is noteworthy that the World Bank (1994) intervened in the housing policy debate shortly after the 1994 election and recommended that proposed subsidy levels be decreased and more use made of commercial banks. Within three months, the outlines of the new policy, which conflicted dramatically with the RDP, were adopted.

Likewise, as specified in the RDP (ANC, 1994, sections 2.4.12, 2.4.14) the rural land reform 'programme must include the provision of services to beneficiaries of land reform so that they can use their land as productively as possible' and 'must aim to redistribute 30 per cent of agricultural land within the first five years of the programme'. But as in the case of housing, a World Bank land reform team made market-oriented policy suggestions (e.g., a willing-seller, willing-buyer 'kulak' model based on small grants and unsubsidized interest rates) in 1993 which were ultimately adopted by the new government (see Williams, 1996, for details and a critique). And as in the case of housing, the maximum Land reform subsidy is R15 000, and provision of rural infrastructure and services were not considered as integral to provision of services to land reform recipients. Instead of redistributing 30% of agricultural land within five years, it is more likely that the Department of Land Affairs will redistribute less than 1%.

How, according to the RDP, were infrastructure and services to be paid for? The RDP(ANC, 1994, sections 2.6.10, 2.7.8) specifies the need for tariff restructuring, cross-subsidies and lifeline services to the poor, with respect to both water (including sanitation) and electricity:

To ensure that every person has an adequate water supply, the national tariff structure must include the following:

• a lifeline tariff to ensure that all South Africans are able to afford water services sufficient for health and hygiene requirements;

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• in urban areas, a progressive block tariff to ensure that the long-term costs of supplying large-volume users are met and that there is a crass-subsidy to promote affordability for the poor, and

• in rural areas, a tariff that covers operating and maintenance costs of services, and recovery of capital costs from users on the basis of a cross-subsidy from urban areas in cases of limited rural affordability.

The electrification programme will cost around R12 billion with annual investments peaking at R2 billion. This must be financed from within the industry as far as possible via crass-subsidies from other electricity consumers. Where necessary the democratic government will provide concessionary finance for the electrification of poor households in remote rural areas. A national Electrification Fund, underwritten by a government guarantee, must be created to raise bulk finance from lenders and investors for electrification. Such a fund could potentially be linked to a Reconstruction Fund to be utilised for other related infrastructural financing needs. A national domestic tariff structure with low connection fees must be established to promote affordability.

With national tariff reform emphasizing cross-subsidies (using national and provincial resources, not just local) and lifeline tariffs for low-income consumers, and with a more appropriate use of housing subsidies to finance deeper levels of capital infrastructure � neither of which should ultimately cost central government anything extra beyond even the existing (planned) urban housing and rural land reform grants � promises of humane standards of infrastructure and services for all South Africans can be kept, and additional public health, environmental and economic benefits to all of society (particularly women and children) can be gained.

To clarify the difference between this mandate and the approach adopted to date, it is worth providing a critical assessment of the existing options government is now considering. We dispense with the conflict-ridden housing policy debate, for although it is crucial to understanding why so little state funding was made available in comparison to what was promised, why developers rather than the state and communities drove post-apartheid housing projects, and why so many other urban RDP promises were so explicitly violated (Bond, 1999a and 1999b), it is more important to communicate the details of declining infrastructure standards, below even that of 'toilets-in-the-veld' .

The Post-apartheid Municipal Services Debate

The Municipal Infrastructure Investment Framework (MIIF) describes the main infrastructure and services options planned by government. This framework, according to the Department of Constitutional Development's (DCD's) (1997, p. 2) 'User-Friendly Guide', used 'an economic modelling exercise to estimate services backlogs; assess the capital costs that are involved in removing these backlogs; and calculate the recurrent costs of operating and maintaining the services'.

In late 1994 and early 1995, based on Urban Infrastructure Investment Framework (UIIF) recommendations by a consultancy team dominated by World Bank staff, key officials in the Ministry for Reconstruction and Development agreed that government would provide only minimal infrastructure and services to low-income urban South Africans. The same ministry's draft Urban Development Strategy (UDS) � released in October 1995 � reflected government thinking on service provision from late 1994 through late 1996. The UDS summary demonstrates the inadequacy of standards then contemplated for urban 'municipal' areas (rural infrastructure plans had not been developed at that stage) (RSA,1995, pp. 24-25):

An average national distribution of 55:25:20 between full, intermediate and basic levels of services in municipal areas is considered a realistic target for the

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infrastructure investment strategy over the next ten years ... 'Basic services' means communal standpipes (water), on site sanitation, graded roads with gravel and open stormwater drains and streetlights (electricity). These services will be targeted at households with an income of less than R800 per month and charged for at between R35 and R50 per month. 'Intermediate services' entail water provision through yard taps on site, simple water-borne sanitation, narrow paved roads with no curbs and open drains and 30 amps electricity with prepaid meters for households. These should be affordable to households which earn between R800 and R1700 per month and will cost them between R100 and R130 per month. 'Full services mean house connected water supplies, full water-borne sanitation, paved roads with curbs and piped drains and 60 amps electricity provision. It is anticipated that households in the R1700-R3500 monthly income class could afford 'low consumption' costing them between R180 and R220 per month. Households with monthly incomes of above R3500 will be assumed able to pay for 'full services at high consumption' at charges between R270 and R350 per month.

Partly because MIIF was already controversial (see, e.g., Mail and Guardian, 22/11/19 and Bond, 1997), extensive technical persuasion and a degree of policy advocacy (mainly through the National Economic Development and Labour Council) had the effect of raising the infrastructure standards slightly higher than was initially proposed in the UIIF, draft UDS and early drafts of the MIIF. Instead of no electricity, there was the potential for urban households to receive an 8 Amp supply; and instead of paying R35-50 per month for these services, a subsidy of approximately R50 per low-income household was planned (whether this was enough to cover basic operating costs was questionable, and indeed whether the grant was sustainable given budget constraints remained to be seen, but as shown below, there were substantial doubts about this method of subsidy).

In short, there were several minor improvements over 'basic' standards of services. But there remained � as 'probably affordable to all in urban settlements' (DCD, 1997, p. 18) � many objectionable components of the basic MIIF package: pit latrines, communal (not house or yard) standpipes, a weak electricity supply, gravel roads, open storm-water drains, communal waste dumps (not kerbside removal), and other reflections of an extremely stingy infrastructure package. Under the 'law' growth scenario (most realistic in view of the failure of the Growth, Employment and Redistribution strategy to meet any but the inflation and budget deficit targets), nearly 30% of urban residents would be subject to these low standards even after the ten-year plan (1997-2006) for service provision was fully implemented.

Though we do not have the space in this chapter to fully explore the rural implications of MIIF, the standards under the low scenario were even lower, with 70% of the rural population anticipated to have the 'basic' ser vices discussed above after a decade, and 20% to have no services at all (DCD, 1997, p. 19). In both urban and rural settings, as noted below, the implementation progress was far slower than even the low target levels specified in MIIF.

Several other criticisms of MIIF must also be recorded. The service levels contemplated in MIIF were not merely emergency services (piped water or portable toilets in slum settlements that are without water or hygienic facilities at present), but represented, more fundamentally, permanent development policy. A crucial problem in the affordability calculations was the overoptimistic projection in MIIF that (in inflation-adjusted terms) only around 20% of urban households

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would still earn less than R800 per month within ten years. In addition, on technical grounds, there are six other important points to be made regarding the low levels in government's infrastructure and service provision policy.

First, a national tariff structure was not developed consistent with the cross-subsidization and lifeline tariff provisions mandated in the RDP. Second, public health benefits associated with increased access to services were not adequately factored in. Third, environmental problems associated with the proposed standards were not adequately addressed or factored in. Fourth, implications of the infrastructure policy for microeconomic linkages and for macroeconomic policy were not adequately addressed or factored in as a means of overcoming affordability constraints. Fifth, the implications of infrastructure standards for women were not adequately considered and factored in. Sixth, the spatial implications of class segregation implicit in the programme � with all the consequent economic inefficiencies � lent themselves to creation of new, past-apartheid racial ghettos where it will be physically impossible or excessively costly to upgrade from 'basic' to full services. While recognizing this problem, MIIF did nothing to counteract it; again the costs associated with neo-apartheid geography were neither calculated nor factored in (see Bond, 1999a for details of these problems).

The main investment implications are important to note at the outset, namely that the 'net economic return' on infrastructure investments should incorporate not only the immediate financial return � the amount of cost recovery as a ratio of the amount invested � but also other social benefits, costs, externalities and multipliers. Having failed to do so in the areas noted above, the MIIF provided far low standards of infrastructure on grounds that these standards were the most that low-income South Africans can afford to pay.

To illustrate the broader approach, even the World Bank's Washington DC headquarters has provided guidelines (and an example from Nepal) for interpreting the economic return and for using this as the basis for justifying projects, in a manner not accomplished nor even attempted by the World Bank staff who advised the South African government:

[In Kathmandu] based on estimates using narrowly defined project appraisal techniques, [net] benefits from the city's new $150 million water distribution system ... [equalled] $5.2 million. Using the more detailed service-level approach to project appraisal, however, it was determined that in some cases health benefits from a reduction in coliform contamination of the water approached $1,000 per unit serviced. An education program that improved water use led to further reductions in health and transport costs. After these indirect benefits were factored in, the project showed a positive net benefit of about $275 million (World Bank, 1994, p. 82).

Specifically, in light of the failure to consider the broader economic returns to infrastructure investment, the main reason that 'basic' levels of service were being imposed upon the vast majority of the poor is the allegedly high recurrent costs of water and electricity. In the absence of subsidies, these costs prohibit low-income households from paying full cost-recovery rates for even a minimal monthly amount of these services. A subsidy should cover sufficient services � according to the RDP, for example, 'an on-site supply of 50-60 litres per capita per day of clean water' (section 2.6.7), and sufficient electricity to cover the energy requirements associated with essential lighting, heating and cooking for a typical family (approximately 100 kilowatt hours per average family per month) � such that all South Africans attain a minimally-decent standard of living regardless of their ability to pay. Instead, an approach emphasizing cost recovery and 'limited' local-level cross-subsidies was adopted. According to the UDS,

[s]ervices and infrastructure will be introduced in line with the affordability

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levels of communities affected. The principle that people should pay for the services to which they have access is central. This means that the level of services in each area should relate to what the consumers there can afford and are willing to pay for. Where government support is needed to ensure basic service delivery, it will be provided transparently. Deliberate steps will be taken to remove any disguised subsidies. Limited cross-subsidies to enhance household affordability and secure 'lifeline' consumption will be necessary (RSA, 1995, p. 22).

Two points should be made immediately. First, the UDS failed to mention that urban services in existing middle- and high-income areas were heavily subsidized for decades, from surpluses generated through business levies (ultimately based on transfers from black workers and consumers whose employers and retail outlets were historically, by law, located in white areas).

Second, South Africa's majority is so poor � especially in relation to the minority of luxury consumers who' have never had to worry about access to full services � that 'limited cross-subsidies' are insufficient and the exercise of recovering costs on collectively consumed services (a communal tap, for example) is often futile or too administratively expensive. Indeed, the reason that the phrase 'limited' is used in this context is because of government's explicit refusal to consider (even as a policy option exercise) restructuring national tariffs so that substantial cross-subsidies could be obtained. If such a proposal � consistent with the RDP� had been considered and adopted, it would have been relatively easy to cross-subsidize from national-scale industrial, service-sector, mining and agricultural bulk users of water and electricity, to low-income residential consumers. The vast difference in use patterns allows a small marginal increase in tariffs for the large users and a lifeline service at no cost to all other consumers as an entitlement. Such a progressive block tariff system would also penalize excessive usage, thereby contributing to conservation goals.

At this stage of the argument, prior to describing some of the related household water policies of the Department of Water Affairs and Forestry, early evidence of infrastructure delivery and the implications of the current policy, an alternative approach should be claimed. Most importantly, how large a subsidy can South Africa afford to provide users of basic-needs infrastructural services? Ironically, the UDS states, 'the government's aim is to increase housing's share of the budget to S per cent and housing delivery to a sustained 350 000 units per annum within five years' (RSA, 1995, p. 28), which repeats not only the RDP commitment (section 2.5.5) but the same goal stated in government's Housing White Paper. With that level of fiscal support � R10 billion in public investment per annum (in present value rands, given a 1998/9 national budget of R200 billion) � devoted to the capital costs of housing, and with the sorts of cross-subsidies and lifeline service provision anticipated in the RDP to offset households' ongoing expenses, there is no question that the supply of services at much higher levels is financially feasible for all South Africans.

In sum, options consistent with the RDP are required (and are feasible) to provide higher standards that better reflect the variety of costs and benefits associated with infrastructure and services. To do so would require not only spending roughly 10% more than is planned on capital investment in infrastructure, but also locating financing sources for recurrent costs within existing service suppliers through national-scale cross-subsidies such that a lifeline entitlement is provided to all South Africans and greater resource conservation is achieved. But the difficulties of winning support even from a minister (Kader Asmal) who in principle agreed with these sentiments is described next.

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Delivery Crisis: The Case of Water

The delivery crisis is virtually universal when it comes to meeting basic needs, and so it is useful to focus in detail upon the infrastructure-related service that has been considered perhaps the most successful example of the new government's commitment and capacity: water. By 1998, according to the Department of Water Affairs and Forestry (DWAF), 18 million South Africans were without basic water supply and 27 million had no basic sanitation (SA Institute of Race Relations, 1998, p. 327). And yet by year-end 1998, Minister of Water Affairs and Forestry Asmal was hailed for having served three million people, mainly in rural areas, with new water connections. (Figures are unreliable, and in a best-case account, according to a Pan African News Agency report on 6/2/99, Nelson Mandela told parliament that 'in 1994, when the ANC was elected, some 30 per cent of South Africans lacked access to safe supply of water near their homes. Today, after three million people have benefitted from the government's water supply programme, the percentage has been reduced to 20.')

Rarely mentioned is the notorious unsustainability of the water projects, which were said by DWAF insiders to have rendered as many as 90% of the new taps inoperative. Rarely mentioned is the extraordinary upsurge in water cut-offs, which included, as an example, 70 000 black township residents of Leandra, Mpumalanga, who suffered 70% water pressure cut-off for several months in late 1998 at the hands of Rand Water, due to a non-payment rate of nearly 70% (Sunday Independent Reconstruct, 20/12/98). But amongst those suffering cuts were households which had paid their bills.

The development of water and sanitation policy reflected and in some important respects preceded the overarching urban, rural and municipal infrastructure policy processes. A mere six months after the 1994 election, Minister Asmal's first white paper announced that 'where poor communities are not able to afford basic services, government may subsidize the cost of construction of basic minimum services but not the operating, maintenance or replacement costs' (DWAF, 1994, p. 19). The insistence on charging the full operating and maintenance costs (and thus the refusal to keep to the mandate in the RDP that all are entitled to access to sufficient lifeline water for their reasonable needs) was based on two assertions.

First, the Water and Sanitation White Paper (DWAF, 1994, p. 23) states that if government covers operating and maintenance costs, there will be a 'reduction in finances available for the development of basic services for those citizens who have nothing. It is therefore not equitable for any community to expect not to have to pay for the recurring costs of their services. It is not the Government who is paying for their free services but the unserved.' The White Paper thus argues for a 'some for all, not all for some' approach. But the false dichotomy between 'width' and 'depth' is presented as fact, without any reference to available sources of finance or to the potential of cross-subsidization, as recommended in the RDP, in generating the finances available to meet everyone's entitlement to water.

Second, the White Paper repeats the widely held but unsubstantiated assertion that payment for services is the single defining feature that determines whether people and communities behave responsibly:

The other reason why operating and maintenance costs should be borne by the communities is the principle of Community-Based Development. If the community expects some outside agency to be responsible for keeping their supplies going, they will have no control over the processes and lose leverage and ownership. Responsibility for keeping the service going is placed with a remote authority and accountability is lost. This will have an impact on the reliability of supplies (DWAF, 1994, p. 24).

The National Sanitation Policy White Paper, released in 1996, reiterated the 'same for all, not all for some' approach and included as a principle that the user pays:

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'Sanitation systems must be sustainable. This means they must be affordable to the service provider, and payment by the user is essential to ensure this' (DWAF, 1996, p. 4). Shortly thereafter, however, Asmal (1996a, p. 1) came out strongly against the misleading supply-side definition of lifeline. At the launch of the 1996 Annual Report of the Working for Water Programme, he said:

We feel that we should not employ workers who refuse to pay for their water � provided (and this is most important) that the local authority has in place a lifeline tariff for the first five kilolitres of water per month. And note that by 'lifeline' I mean a life-giving tariff, and not some engineering solution like the 'operating and maintenance casts'.

In a talk on water conservation in Cape Town the same year, Asmal (1996b, p. 2) put it even more strongly: 'I see that the term 'life-line' has been hijacked: it is being taken to refer to the operational and maintenance costs, as a reflection of engineering elegance rather than social needs.' Asmal thus repeatedly repudiated the central approach of his White Papers, yet still kept to the short-term aim of the RDP to provide between 20-30 litres of water per person per day, short of the medium-term aim of 50-60 litres.

The White Paper on a National Water Policy for South Africa of 1997 reflected an uneasy compromise between the cost recovery and life-line approaches. It concedes the right of all to have access to basic water services and includes the following key proposals for incorporation into the Water Law:

• To promote the efficient use of water, the policy will be to charge users for the full financial costs of providing access to water, including infrastructure development and catchment management activities.

• To promote equitable access to water for basic needs, provision will also be made for some or all of these charges to be waived (DWAF, 1997, p. 4).

The document also defines a 'reserve' for basic human needs: �This will be provided free of charge in support of the current policy of Government which is to encourage the adoption of lifeline tariffs for water services to ensure that all South Africans can achieve access to basic services.' But the 1997 White Paper only deals with the first tier level, that of water in catchments under central government control, and excludes the second and third tier levels, namely water as distributed and delivered by agencies including water boards and local governments. In practice, the approach to basic needs thus amounts to an acceptance of the position that communities fetching water from natural sources do not need to pay for the first 25 litres per person per day. For communities that receive water from built water systems, the document does not go beyond the principle of access to basic water services and does not describe how this entitlement is to be achieved.

Despite the more ambiguous current policy position on entitlement and, in particular, the lifeline tariff, the Department of Water Affairs and Forestry is in practice instructing its staff and all agencies carrying out community water supply and sanitation activities on its behalf to implement the standards and tariffs as defined in the 1994 White Paper to the letter. Community water supply projects include communal standpipes at 200 metres and, despite the array of problems associated with collecting payment for water from communal standpipes, the principle of full payment for the operating, maintenance and replacement costs is insisted on. Once projects have been built, communities don't receive further support.

There are extremely serious problems in the community water supply projects; indeed within the Department it is acknowledged informally that the rate of failure is as high as 90%. Reasons invariably include very real affordability constraints and an unwillingness to pay for communal standpipes. Communal standpipes are

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often not seen as a significant improvement on existing sources of water. Other important reasons for failure include poor quality of construction, areas within communities without service and intermittent supply.

Community water supply systems have led to numerous instances of inequity. Adjacent communities pay different amounts depending on the systems installed. Rural households pay for water from standpipes, whereas households in Durban getting water on site get the first 6 kilolitres per month for free. (According to the Durban Metro, 6 kilolitres is the breakeven point between the cost of collecting payment and the amount collected.) Communities with new water systems must pay for the ongoing functioning of their systems whereas communities supplied by the former Bantustan governments get their water for free. These inequities have led to significant levels of community tension within and between villages. And, despite the claim to provide 'some to all', vast areas have not received water services to date.

The 1994 White Paper (DWAF, 1994, p. 19) considered the inequity between the new systems and those of the former Bantustans:

This will require a substantial revision of present policy since Government grants or 'subsidies' have been given in the water sector for many years. These have generally been targeted at specific sectors of the population to promote policy objectives such as agricultural production in the commercial sector and the stabilisation of 'separate development' structures.

The removal of the subsidies and replacement of inequity with equity at the lowest common denominator ― nonfunctioning water systems where they exist at all ― is now being implemented.

DWAF's response to the high level of project failure has been to move further from the entitlement to water as spelt out in the Constitution and from the mechanism of financing this entitlement as spelt out in the RDP, partly egged on by advisors from international agencies such as the World Bank (Maria et al., 1998). The insistence on communal standpipes is unchanged, but they are now being built with prepayment meters to ensure payment up front. Instead of moving towards the medium-term aim of the RDP and providing taps on site, the Department has proved willing to relax the 200 metre criterion and allow for standpipes further apart so as to limit the number and thereby cost of prepayment metres.

DWAF's response to a self-generated crisis of delivery, clearly based to an important extent on inadequate financing systems, was paralleled by a tendency across government infrastructure delivery agencies � led by DCD � to consider private sector management assistance, contracting out, concessions and outright privatization of infrastructure.

Municipal Services Partnership Policy

Partly as a corollary to government's retreat from its policy mandate and its failure to deliver infrastructure of even low standards, lead bureaucrats with-in DCD and DWAF also began pushing a privatization agenda beginning in 1995. Municipalities were encouraged to contract out infrastructure-related services to the private sector using what were initially called Public-Private Partnerships (PPPs), for which in 1997 the DCD issued guidelines and helped establish a Municipal Infrastructure Investment Unit (MIIU) based at the Development Bank of Southern Africa. This was followed by DCD's draft regulatory framework in August 1998, in which PPPs were rebaptized as Municipal Service Partnerships (MSPs) and characterized as 'a variety of risk-sharing structures within public-public, public-private and public-

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NGO/CBO partnerships' (DCD, August 1998, p. v). By December 1998, the SA Local Government Association and DCD had negotiated a Municipal Framework Agreement with unions.

As an aside, beginning in 1996 DWAF's Community Water Supply and Sanitation programme commissioned several dozen extremely small-scale, rural PPPs, known as Build-Operate-Train-and-Transfer contracts, involving NGOs and some private firms. But such serious problems soon emerged � unsustainability, lack of consumer affordability given cost-recovery pricing policy, poor technical design, poor community control functions, mismatched NGO/private-sector roles and expectations, systematic inconsistencies with neighbouring government-subsidized water schemes, and lack of training and transfer prospects � that by 1999, the concept was in many areas evaluated as a 'failure' with respect to implementation by DWAF and DCD � whereby according to Masia et al. (1998, p. 11), 'The gaps between practice and policy have to be addressed head on lest the policies be invalidated' � and by its favoured NGO implementing agency, the Mvula Trust (Bakker, 1998).

Thus within about four years of the advent of democracy, key political decision makers within the South African state � at national and local levels � had been won over to what effectively amounted to creeping privatization of core local services: rubbish removal, water works and even municipal electricity supply. The primary advocates of privatization were the World Bank and its private sector investment arm, the International Finance Corporation (which in 1997 announced a $25 million investment in Standard Bank's South Africa Infrastructure Fund, an explicit privatization financing vehicle) (African Development Bank, 1997), as well as local and international firms. Banque Paribas, Rand Merchant Bank, Colechurch International, the Development Bank of Southern Africa, Generate des Eaux, Metsi a Sechaba Holdings, Sauer International and Lyonnaise Water had all met with officials of Port Elizabeth, for example, by 1997, in the wake of a week-long 1996 World Bank study of the council's waterworks which suggested just one policy option: full privatization (Port Elizabeth Municipality, 1998; Bond, 1999a, Chapter Four).

But there was also resistance, and not only from usual suspects like the SA Municipal Workers Union (SAMWU) and the Congress of SA Trade Unions (COSATU), some of the more advanced civic groups and in places like Nelspruit, the SA Communist Party and ANC Youth League. So too was privatization contested by some municipal bureaucrats � interestingly, a large fraction of 'Old Guard' (pre-1994) officials � such as one from East London who argued:

PPPs are not always the best way to go. Costs creep up especially by the third year. So we don't accept that we will save money. By the time the contract expires, everything is ruined. We have lots of companies coming to do presentations, but we will not be caught. They take over your staff and you loose control over them. It is not sustainably cheaper (interview, December 1998).

As the 1998 Local Government White Paper was being drafted, these concerns were flagged by Hemson (1997) in an international literature review:

corruption in the tendering and drawing up of contracts, particularly in the US; monopoly in the privatized service; higher user charges; inflated director's fees, share options, and management salaries; widescale retrenchments; and anti-union policies... The effects of privatization bear most radically on the poorest in the community; there is widespread evidence of more cut-offs in service and generally a harsher attitude towards low-income 'customers'. Water in Britain is a case in point. Water and sewerage bills have increased by an average of 67 percent between 1989/90 and 1994/95, and during roughly the same period the rate of disconnections due to non-payment by 177 percent.

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The inflexibility and hostility which often characterized public utilities attitude towards non-payment has, over the same period, been replaced by an emphasis on pre-payment meters and 'self-disconnection' as public goods have been commodified. Pre-payment metering is greatly advantageous to companies as the problem of poorer customers is avoided, there is a continuous revenue stream in advance of consumption, less of a 'political' problem in confronting disconnections, and better form of debt recovery. Self-disconnection is education of consumption below the level consistent with health, safety and participation in normal community life. Surprisingly high number of self-disconnections for various periods of 49 percent by those using pre-payment devices in a trial period. Self-disconnection is associated with the reduction of consumption below the level consistent with health, safety and participation in normal community life. Studies have shown a surprisingly high number of self disconnections of water supply for various periods by as much as 49 percent by those using pre-payment devices over a trial period. The most critical feature of privatisation, however, has been that cross-subsidies are rooted out after privatisation; those who need costly help have to pay for these services directly themselves... Rather than cross-subsidies there has been the introduction of 'cost-reflective' pricing (in which prices reflect the particular costs associated with a particular customer) will end with greater differences in regional charges, the poorer paying more, and better off people with cheque accounts paying less with direct debits.

The critiques were joined from a surprising source in early 1998, namely World Bank chief economist Joseph Stiglitz (1998, pp. 17-18), who conceded that the conditions under which privatisation can achieve the public objectives of efficiency and equity are very limited, and are very similar to the conditions under which competitive markets attain Pareto-efficient outcomes. If, for instance, competition is lacking then creating a private, unregulated monopoly will likely result in even higher prices for consumers. And there is some evidence that, insulated from competition, private monopolies may suffer from several forms of inefficiency and may not be highly innovative� there are song incentives not only for private rent seeking [i.e., corrupt patronage-related activity] on the part of [privatised firm] management, but for taking actions which increase the scope for such rent seeking.

Stiglitz (1998, pp. 18-19) cited the examples of China, which 'managed to sustain double-digit growth by extending the scope of competition, without privatising state-owned enterprises', and Russia, which in contrast 'privatised a large fraction of its economy without doing much so for to promote competition. The consequence of this and other factors has been a major economic collapse.' Stiglitz (1998, p.19) concluded that [p]rivatising monopolies creates huge rents. It has proved difficult to administer privatisation without encouraging corruption and other problems. Entrepreneurs will have the incentive to try to secure privatised enterprises rather than invest in creating their own firms.

Notwithstanding the criticisms, the White Paper endorsed privatization, while acknowledging risks of 'cherry-picking' (refusal to provide services to low-income areas), poor quality services and unfair labour practices. A virtually unstoppable momentum had built up by 1999, reflecting continuity, not change, from late apartheid. Many large municipalities had, after all, closed down their public housing and in some cases civil engineering departments during the 1980s, and by the early 1990s the (white-run) Eastern Cape was the site of several small (but long-term, thoroughly monopolized) water privatization pilot projects, including Queenstown (1992), Stutterheim (1994) and Fort Beaufort (1995). Water privatization in Nelspruit and the Dolphin Coast were temporarily stalled in 1998 by trade union-led resistance, and their 1999 resuscitations were mired in a controversy over whether DCD Minister Valli Moosa had bargained in bad faith with the SA Municipal Workers Union (SAMWU). Meanwhile other major exploratory

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projects were underway, facilitated by a R30 million US AlD grant to DCD for the development of PPP business plans in various towns. These included Cape Town, Port Elizabeth and Stellenbosh (where water and sanitation were reviewed by 1999), Benoni (fire and emergency services) and several towns where refuse removal would be privatized. (In Cape Town's Khayelitsha township, the Billy Hattingh private rubbish removal scheme was so unsuccessful that by 1999, municipal workers had to be redeployed to back up the company.)

These early PPPs suggest a penchant for long-term management con-tracts, entailing 'delegation' of defined municipal functions for a ten, twenty-five or thirty-year period. They include the operation, rehabilitation, maintenance, customer services and expansion of assets, which are, however, still owned by the municipalities. Contracts are flexible, allowing for the company to extend or upgrade facilities but with municipal or non-company finances. Unlike concession contracts, they involve less greenfield investment (such as extension of services to townships) and hence far lower risks for the successful bidder.

Companies like Water and Sanitation South Africa (WSSA, a Lyonnaise des Eaux/Group Five joint venture) promised to 'render an affordable, cost affective and optimised service, implement effective consumer management' and ensure that customers are 'willing and able to pay for services, while maximising revenue collection' (WSSA, 1995a, p. 1). Benefits also allegedly include 'a more dynamic business environment, increased productive investment, workplace democratisation, co-operation with small and micro enterprise, and more open and flexible management styles' (WSSA, 1995b, p. 1). Yet in practice, in the Stutterheim pilot, water services were instead characterized by WSSA's failure to serve any of the 80% of the region's township residents (classic cherry-picking), mass cut-offs of water by the municipalities of township residents who could not afford payments, and the cooption of the main civic leader into WSSA's employ, thus effectively rendering silent any community protest (Bond, 1999a, Chapter Five).

DCD considered some of the pilots too conservative, if anything, for failing to promote sufficient concessions to assure increased capital investments. DCD officials identified constraints in the forms of legal obstacles and uncertainties with respect to contractual issues, tendering procedures, contract monitoring requirements and dispute resolution procedures. Management contracts were, by 1997, said to be 'only advisable when more ambitious forms of private participation are considered undesirable' (DCD, 1997). The suspicion was, simply, that 'contractors with international link-ages might engage in management contracts in order to secure a privileged position in subsequent initiatives' rather than for the sake of providing optimum services, with the effect of 'sabotaging open competition' .

Having raised these concerns, DCD's Draft Guidelines for MSPs then proceeded to diminish the role of municipal workers by insisting that 'a municipality must consult, but is not obligated to negotiate and reach agreement regarding the labour aspects of the transfer with employees or unions as a condition for being authorised to proceed with the transfer' (DCD, 1998, p. 48). Yet the reality was that SAMWU has been so effective in generating public opposition to DCD's plan and to participation by the British firm Biwater (the lead company behind Nelspruit's water contract); that, as SAMWU described it:

In December 1998, Cosatu and SAMWU signed a framework agreement with the local government employer body, SA Local Government Association (Salga) around municipal service partnerships. The agreement was the product of months of negotiations, It concurs with national legislation that the public sector is the preferred deliverer of services and specifies that involvement of

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the private sector in service delivery should only be a very last resort � if there is no public sector provider willing or able to provide the service (Weekes, 1999, p. 1).

And here emerges the classical problem associated with 'natural monopoly', namely the ability of a state institution to pass along implementation responsibilities while still holding control over basic services policy (e.g., on coverage, quality, access, cost, labour conditions, etc., all of which the private sector would ordinarily skimp on to the public's detriment). The propensity of a private firm to, for example, provide cross-subsidies and lifeline tariffs, is extremely low, as the World Bank (Roome, 1995, pp. 50-1) explicitly warned Asmal in 1995 � since sliding-scale tariff's favouring low-volume users 'may limit options with respect to tertiary providers... in particular private concessions [would be] much harder to establish' � as part of a lobbying campaign to dissuade him from invoking cross-subsidies.

The extent to which a public monopoly is simply replaced by a private one gives rise to yet more concern. In late 1998, Lyonnaise des Eaux announced plans to establish multi-purpose utility monopolies covering water, sanitation, refuse, roads, cable TV and telephones, to be payable through a single bill, with Casablanca already witnessing the firm's pilot linkage of several privatized municipal services. Aware of this possibility, DCD (1998, p. 56) acknowledged that 'The Competition Bill [of mid-1998] could create opportunities for consumers of municipal services to challenge various aspects of an MSP including tariff structures, tariff setting mechanisms and grants of monopoly rights to a service provider in both administrative and judicial forums' � but reassures firms that 'the power of the Competition Tribunal to award costs to a respondent against whom a finding has been made may act to restrain consumers from initiating complaints.' has been made may act to restrain consumers from initiating complaints.'

In other countries (beginning with Paris in 1985), the privatization of water was at the very least done in a manner that deliberately distinguished retail provision from distribution, and also established geographical divides (the Left Bank going to Lyonnaise des Eaux and the Right Bank to General des Eaux), thus allowing 'for a compromise where there is still outside competition and larger markets beckon' (Lorrain, 1997, p. 117). Indeed, this raises the question of whether water and energy should be managed at a local or regional level (i.e., along politico-administrative boundaries) or indeed based on geological, watershed/basin, or functional divides. Moreover, if water supply is separated from sewerage and roads, there is bound to be con-fusion, dislocation and diminished accountability. By fragmenting responsibility for road works, refuse removal and sanitation, residents will have to visit different company offices to register complaints, increasing the bureaucratic hurdles for consumers.

The thorniest questions are those bound up in politics and corruption, and hence are least transparently considered in DCD and other official work. Many of the transnational services firms have dubious track records, and not just in the notorious kickbacks and bribes associated with privatization in Eastern Europe, Indonesia and the like. Even in France, the mayor of the city of Grenoble was imprisoned for taking bribes from Lyonnaise des Eaux and its local partner (Barsock, 1997, p. 16). Likewise in apartheid-era South Africa, WSSA (then called Aqua-gold) had a previous close association with repressive bantustan regimes beginning as early as 1987. This does not prove corruption in a commercial sense, but does show that unlike many other companies which disinvested, the French chose not only to stay but to accelerate their dealings with the most discredited

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elements of the apartheid regime. In several towns, WSSA signed agreements with unrepresentative white politicians and municipal administrations prior to democratic elections, and without going through a tender process (DCD, 1998).

In sum, if the 'basic rationale' for privatization is that 'MSP projects can save or avoid municipal expenditures' (DCD, 1998, p. 74), it should also be considered that a municipality has enormous burdens once a contract is signed: monitoring the concessionaire or contractor; undertaking expensive litigation in the event of disputes; establishing reliable, independent sources of information; and bearing the political and financial costs of failure. Typically, the municipality is prevented from taking direct action on complaints.

Conclusion: Post-Washington Consensus Infrastructure Policy

The struggle against apartheid was both a struggle against the politico-juridical system of racism and for improved quality of life. Improved residential infrastructure and service delivery are amongst the most crucial objectives of public policy, by all accounts. Many of the aspirations and concrete demands of South Africa's oppressed peoples are reflected in the 1994 RDPand the 1996 Constitution, in particular the entitlement to decent standards of services.

Despite this mandate to govern, there has been a clear continuity of policy between the late-apartheid era and democracy. Some key common features are an often untransformed bureaucracy, white consultants at the nerve centre of policy making, influence by the World Bank or its proxies, and the ascendance of a new breed of conservative bureaucrats (once termed 'econocrats'). Unlike the chaotic and unco-ordinated positions across most of government, there is a disturbing level of consensus in infrastructure-related departments and agencies that a) users pay, b) standards should be relatively Low, and c) privatization should be regularized.

Restating in any detail the numerous concrete problems associated with late-apartheid and post-apartheid infrastructure policies would belabour the obvious. In sum, the unsustainability of an approach to development modeled less on organic South African demands arising from social struggles, and more on the essentially neo-liberal perspective now known as the �Washington Consensus', is now recognized from even within the highest levels at the World Bank (Stiglitz, 1998).

Is an RDP-friendly alternative possible? One proposal advocated by social change activists from community organizations and associated NGOs, compatible with the Constitution and RDP, was a universal free lifeline to all South African consumers for the first block of water (50 litres of water per person each day) and electricity (approximately 1 kilowatt hour per day) with steeply-rising prices for subsequent consumption blacks. There would be no need, in this policy framework, for means-testing or a complex administrative apparatus, nor would complete service-cut-offs feature. Recurrent consumption expenses would be paid for entirely from within each sector, although an additional 10% expenditure would be needed, beyond what the MIIF budgeted, to finance the added capital costs (totalling R120 billion over 10 years, a reasonable investment in relation to late-1990s GDP of R600 billion and an annual state budget of R200 billion).

Where social change advocates have come up short, however, was in turning an extensive series of mid- and late-1990s riots over municipal services � which, tragically, included the assassination of an ANC mayor known for willingness to cut off power and water, as well as the burning of several ANC councillors' houses � into more sustained, constructive political pressure (this partly reflected the demobilization of the national 'civic association' movement during the late 1990s). In contrast to an alliance between DCD and the big business lobby within the National Economic Development and Labour Council (the stakeholder forum at which state policies were often debated), the progressive forces failed, especially in 1996-97, to successfully contest the intensification of services commodification.

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Notwithstanding firm opposition by SAMWU � which also campaigned for 50 free litres of water per day to consumers as a means of resisting DCD divide-and-conquer strategies � central government continued to advocate the privatization of municipal services.

Also at stake in all of this was, as ever, the degree to which a capitalist state in league with big business could construct a 'social wage' policy framework that had, as a central objective, maintaining relatively low upward pressure on the private-sector wage floor; in other words, by keeping monthly operating costs of services low through denying workers access to , flush toilets, hot plates and heating elements, the MIIF also reduced the pressures that workers would otherwise have to impose upon their employers for wages sufficient for the reproduction of labour power.

In very practical ways, the social and labour movements were too weak to successfully contest the broader neo-liberal trajectory, and not even the strongest rhetorical and technical critiques could have made up for lack of political clout. What looms ahead, as more than half of South Africa's 878 municipalities prepared to face formal bankruptcy at the turn of the 21st century � due to declining central-local grants and low levels of service payments by residents � is potentially a stark scenario in which sufficient unpopularity with ANC rule emerges, so as to generate conditions amenable to a more progressive backlash either within the Alliance or, around the time of the 2005 election, the emergence of a leftwing alternative to the ruling party. Until then, it will be up to activists in civil society organizations, probably led by SAMWU in key sites of privatization struggles and potentially joined by a nascent alternative civic movement in Gauteng, to remind society at large that the transition from late-apartheid to post-apartheid infrastructure policy remains unsatisfying, to put it mildly.

References

African Development Bank (1997), 'Investment Proposal: South Africa Infrastructure Investment Fund', ADB Private Sector Unit.

African National Congress (ANC) (1994), Reconstruction and Development Programme, ABC Printers, Cape Town.

Asmal, K. (1996a), Speech to the Launch of the 1995/6 Working for Water Programme Annual Report, Pretoria, 17 July.

Asmal, K. (1996b), Speech to Cape Town Conservation workshop.

Bakker, K. (1998), 'An Evaluation of Some Aspects of Mvula's Participation in Bott', Unpublished paper, Oxford University Department of Geography, Oxford, September.

Barsock, J.L. (1997), 'Elitism in Action', French Management.

Bond, P. (1992), 'De Loor Report is Off the Mark', Reconstruct, Work in Progress, August.

Bond, P. (1993), 'Housing Crisis Reveals Transitional Tension', Financial Gazette, 11 November.

Bond, P. (1997), 'Infrastructure Plan Still a Disappointment', South African Labour Bulletin, vol. 21, no. 2.

Bond, P. (1999a), Cities of Gold, Townships of Coal: South Africa's New Urban Crisis, Africa World Press, Trenton.

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Bond, P. (1999b), Elite Transition: From Apartheid to Neoliberalism in South Africa, Pluto Press, London.

Department of Constitutional Development (DCD) (1997), Municipal Infrastructure Investment Framework, Pretoria.

Department of Constitutional Development (DCD) (1998), Draft Regulatory Frame-work for Municipal Service Partnerships, Pretoria, August.

Department of Water Affairs and Forestry (DWAF) (1994), White Paper on Water and Sanitation, Pretoria.

Department of Water Affairs and Forestry (DWAF) (1996), National Sanitation Policy White Paper, Pretoria.

Department of Water Affairs and Forestry (DWAF) (1997), White Paper on a National Water Policy for South Africa, Pretoria.

Hemson, D. (1997), 'Privatisation, Public-Private Partnerships and Outsourcing; The Challenge to Local Governance', Paper presented to the Local Government White Paper Research Process, Johannesburg, August.

Lorrain, D. (1997), 'France; The silent change', in D. Lorrain and M. Stoker (eds), The Privatization of Urban Services in Europe:

Masia, S., Walker, J., Mkaza, N., Harmond, I., Walters, M., Gray, K. and Doyen, J. ( 1998), 'External Bott Review', Joint report by the Department of Water Affairs and Forestry, World Bank, British Department for International Development and Unicef, Pretoria, November.

Mayekiso, M. (1996), Township Politics: Civic Struggles for a New South Africa, New York, Monthly Review.

Port Elizabeth Municipality (1998), 'Report to the Management Team on Urban Water Demand Management', Report by the City Engineer, 11 March.

Republic of South Africa (1995), Draft Urban Development Strategy, Ministry of Reconstruction and Development, Pretoria.

Republic of South Africa (1996), The Constitution of the Republic of South Africa, Act 108 of 1996, Cape Town.

Roome, J. (1995), 'Water Pricing and Management.' World Bank Presentation to the SA Water Conservation Conference', unpublished paper, South Africa, 2 October.

South African Institute of Race Relations (1998), Annual Review of the Institute of Race Relations Survey,1998, Braamfontein.

Stiglitz, J. (1998), 'More Instruments and Broader Goals: Moving Toward the Post-Washington Consensus', WIDER Annual Lecture, Helsinki, Finland, 7 January.

Swilling, M. (1999), 'Rival Futures: Struggle Visions, Post-Apartheid Choices', Unpublished paper.

Tomlinson, R. (1993), 'The Three Urban Agendas', Urban Forum, vol. 4, no. 2.

Water and Sanitation South Africa (WSSA) (1995a), 'Standard Contract', Johannesburg.

Water and Sanitation South Africa (WSSA) (1995b), 'The Delegated Management Concept', Johannesburg.

Weekes, A. (1999), 'Letters of protest needed against the unilateral and bad faith privatisation of water in Dolphin Coast, South Africa to French transnational', E mail communication, 6 February.

Williams, G. (1996), 'Setting the Agenda: Post-Apartheid Land Reform Policy',

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Journal of Southern African Studies, vol. 22, no. 1.

World Bank (1994), World Development Report 1994: Infrastructure for Development, Oxford University Press, New York.

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2 Transformation in Infrastructure Policy from Apartheid to Democracy: Mandates for Change, Continuities in Ideology, Frictions in Delivery

PATRICK BOND, GEORGE DOR and GREG RUITERS

Introduction

Policy associated with basic infrastructure investment � water and sanitation systems, new electricity Lines, roads, stormwater drainage, and other services provided at municipal level � has been one of the most troubling aspects of the first five years of African National Congress rule. Enormous challenges were offered by the infrastructural backlog and ecological inheritance. However, notwithstanding rhetoric (and Constitutional provisions) to the contrary, government quickly retreated from its original electoral mandate. Following a section that provides brief historical context, this chapter offers a reminder of infrastructure policy directives in the Reconstruction and Development Programme, continuities in ideology represented in the government's main housing/infrastructure policy documents (especially those finalized during 1996-98), and fractions associated with the delivery process, particularly in the growing reliance upon municipal services privatization, The chapter identifies key moments in the policy-making process, and argues that it is only with a different ideological approach (drawing upon sound technical analysis) on the part of key politicians and officials � as well as a more liberatory perspective and political will in South Africa's civil society movements � that transformation of policy and hence delivery will one day be possible.

Infrastructure Policy Needs Fixing

There are far more continuities than change, between the ungenerous housing and household infrastructure policies of the late-apartheid regime and those of the ANC government. The most telling principles now widely followed across government are that the user must pay the marginal cost of services, that standards be minimal for those who cannot afford marginal cost, and that commercialization and indeed privatization of infrastructure-related services be pursued. The contrast between these central infrastructure principles and what ANC constituents have traditionally demanded (and what was promised in the 1994 Reconstruction and Development Programme) is the core subject of this chapter.

The disjuncture between what is required and what is on offer is not an accident, though neither is it a necessary outcome. It reflects quite similar influences in the form of policy advice that flowed, during the 1980s-90s, from the World Bank and its main South African surrogates (the Urban Foundation and the Development Bank of Southern Africa). The key apartheid-era statements that introduced the site-and-service approach to housing and narrow cost-recovery municipal services practices included the Independent Development Trust housing grant (1991), the De Loor Report (1992), and the National Housing Forum accord (1994).

The main post-apartheid infrastructure policies through which we can trace the influence of neo-liberal advice are the Housing White Paper of November 1994 (Department of Housing), the Water Supply and Sanitation White Paper of November 1994 (Department of Water Affairs and Forestry), the Urban Infrastructure Investment Framework of March 1995 (RDP Ministry), the Urban and Rural Development Strategies of October 1995 (RDP Ministry), the Urban and Rural Development Frameworks of May 1997 (Departments of Housing and Land Affairs), the Municipal Infrastructure Investment Framework of July 1997 (Department of Constitutional Development), the Local Government White Paper

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of February 1998 (Department of Constitutional Development), the April 1998 Policy Paper on Intergovernmental Finance (Department of Finance), and the August 1998 Draft Regulatory Framework for Municipal Service Partnerships. Other papers from the Departments of Water Affairs and Forestry, and Energy and Minerals, are similar in tone and content. A variety of laws and regulations have codified these policies, even if implementation has been uneven. (Notably, many of these can be read as entailing a profound conflict with the South African constitution, which, amongst other socio-economic rights, confers 'the right to have access to ... sufficient ... water') (RSA, 1996, s. 27.1).

Taken together, these core policy statements of infrastructure and municipal services policy represent the main barriers to provision of basic water, sanitation, electricity and other household and community infrastructure investments, and to the cross-subsidization necessary to pay for the recurrent costs associated with minimally decent standards of consumption. This chapter shows the ebb and flow of the policy argument, invoking aspects of the reasoning promoted by the two main opposing camps in the debate: neo-liberals and progressives. To borrow Tomlinson's (1993) typology of the main competing 'urban visions', a third group which had earlier dominated policy-making � apartheid-era statists � had waned decisively by the early 1990s.

Since the neo-liberal camp consistently won the debates and wrote policy accordingly (not necessarily because their arguments were more convincing, but rather reflecting the balance of forces in society as a whole), it is important to show that an alternative, progressive policy framework � providing infrastructure for all, on the basis of 'intermediate' level standards and a free 'lifeline' bloc of water and electricity consumption � was (and is) feasible and affordable. Thus one of the objectives of this chapter into argue that South African government policy-makers � and if not politicians and officials, surely the leading civil society organizers � should return to their roots, drawing on insights gained through decades of social struggles by mass democratic organizations in townships and villages. What this would mean in practice would be providing higher-standard but lower-priced infrastructure and services to South Africans than is presently being practiced and contemplated. The chapter suggests ways to do that rely on domestic (South African) financing, not that of the World Bank or other international lenders, through partnerships between the first democratic state (at central, provincial and municipal levels) and local communities.

The chapter therefore has a dual function of offering constructive criticisms about existing policies and, in its conclusion, posing an alternative. Along the way, we dissect crucial aspects of late-apartheid policy and socio ecological conditions associated with infrastructure, before considering the ANC government's mandate to deliver infrastructure and services to all South Africans, revisiting the debate over municipal services provision, and explaining the failure of existing options under consideration to adequately meet the infrastructure mandate.

Government's Inheritance

When in 1994 the first democratic government was elected on a platform known as the Reconstruction and Development Programme (RDP), there was a high expectation that politicians and officials would immediately deliver improved basic services to the mass constituency of the victorious African National Congress (see Bond, 1999a and 1999b, Chapter 4 for details). Late-apartheid household infrastructure practices were sufficiently egregious that numerous 1980s social struggles arose, achieved defensive successes (such as preventing repossessions of houses and cut-offs of services), and.codified a more humane approach

grounded in a rights-based discourse. No new, overarching policy could be generated given the late-apartheid regime's lack of credibility, and hence the infrastructure 'policy' inherited by the democratic government in 1994 was in fact merely an amalgamation of a variety of project-based, highly fragmented

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approaches to housing and local government.

The context for the policy vacuum is important. After the 1980s rent boycotts became debilitating for Black Local Authorities, causing virtually all to fall into formal bankruptcy, the apartheid government's national housing funds were redirected to covering municipal operating expenses. Attempts to evict non-payers and to cut off vital municipal services were successfully resisted by residents' mass action, and only a very few Conservative Party-ruled white municipalities were able to, even temporarily, punish black residents for non-payment (a few incidents of cholera generated by services cuts during the early 1990s were so widely condemned that the practice of disconnection halted). Meanwhile, virtually no new houses for 'African' people were built by the state during the late 1980s. Instead, deregulation of racial restrictions on property ownership and the failure of banks' white client base to grow adequately led to a dramatic increase in private housing construction in the townships (once the mid-1980s civic association protests had been snuffed by state repression) (Mayekiso, 1996), fuelled by bank credit on (initially easy) terms.

What this left by the end of the 1980s was a series of recent township housing projects � usually poorly-located, however, on cheaper land in distant locations � with relatively good levels of service (full electricity and fully-reticulated water and sewerage) for approximately 200 000 households (still leaving an estimated three million households without adequate shelter); a slow household electrification programme run by Eskom in the main existing urban townships (though unevenly, and bedeviled by delays in implementation caused by local authority turf problems); and, in the interstices, a dramatic increase in shack settlements without even rudimentary services. The first main component of the de facto late-apartheid housing policy � privately-owned, bank-bonded housing - slowed to a virtual standstill from 1990-95 once interest rates an housing bonds had increased from their low of 12,5% in 1986 to 20,75% by 1989, leading to approximately 40% of all borrowers defaulting or falling into deep arrears (the interest rate increase also generated the country's longest-ever depression, which cost many hundreds of thousands of jobs, including many held by township residents with bonds). The second component, electrification, picked up slowly and then peaked at close to 400 000 new connections per year (including rural areas) in the mid-1990s, as Eskom reacted to political pressure by increasing its (high-priced but low-profit) retail supply, The third component, upgrading of shack settlements and the formalization of site-and-service programmes and projects, became the basis for 1990s infrastructure policy.

The first key statement of the late-apartheid government's intent to establish household infrastructure at inadequate levels for slightly-better formalized shack settlements was the 1991 Independent Development Trust (IDT) housing grant. Inspired by World Bank 'site-and-service' projects and policies, the R7 500 IDT capital subsidy for servicing sites was designed and largely implemented by officials associated with the Urban Foundation, the large corporate-funded think-tank and developer founded by Harry Oppenheimer and Anton Rupert in the wake of the 1976 Soweto uprising. The IDT projects were quickly labeled 'I Do Toilets', because they financed the construction of merely a toilet (with no building materials or electricity hook-up provided). This 'beacon of hope' � as IDT director (and former Urban Foundation director) Jan Steyn put it � was soon followed by more government 'toilets in the veld' projects, such as those in very poorly-located settings supported by the Department of Development Aid (whose mandate was to fund 'self governing' homelands).

Recognizing that this new approach could help dampen the fiscal requirements associated with rapid urbanization, in 1992 Department of Housing politicians and bureaucrats drafted the Report of the Task Group on National Housing Policy and Strategy, which endorsed a World Bank critique of the IDT subsidy for being 'unrealistically high' (see Bond, 1992, for a critique). In terms of guiding

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principles, as the De Loor Report put it, 'Deregulation, commercialization and the employment of sound policies which strengthen market forces and provide access to opportunities are all strategies which need strong promotion and high priority.' As Tomlinson (1993) shows, an entirely different approach was adopted by civic associations and their technical colleagues in the 'urban service organizations' (largely research NGOs in each of the main cities).

A degree of criticism of the late-apartheid government's approach emerged in the National Housing Forum. But the Forum's domination by Urban Foundation personnel and big business lobbyists (and ineffective ANC and civic movement participation) assured that the critique would only scratch the surface and that in early 1994, in a controversial deal with Louis Shill following months of severe conflict (Bond, 1993), a modified site-and-service policy (with a R12 500 maximum subsidy) would lay the basis for post-1994 policy. The key actor in the adoption of the Forum compromise as the basis for post-apartheid housing policy was the ANC representative to the Forum, and subsequently Department of Housing Director-General, Billy Cobbett. According to Swilling (1999, p. 10),

[i]t was largely up to Cobbett as to who from the democratic movement participated in the policy process. When questioned as to why he largely kept the urban service organizations out of the national housing policy formulation process, he said that there was an emphasis from his political bosses on direct representation of political and civic leaders rather than involvement of 'experts' from the urban service organisations. This contrasted markedly from the strategy of organised business � in particular the banking institutions � who seconded large numbers of experts into the process and in so doing directly influenced the policy agenda in a way that would be impossible today, or even during the apartheid era. The democratic movement's overcommitted political and civic leaders were not equipped to deal with this army of technical expertise that were trusted with broad negotiating mandates by their principals. The consequences of this strategic (mis)calculation will be felt for many years.

At the same time in mid-late 1994, a new definition of service delivery was proposed in the White Paper on Water and Sanitation, namely that the 'lifeline' price of water to retail consumers should be at least equal to the operating and maintenance expenses; all previous use of the term lifeline was 'free'. This was a fundamental statement that a neo-liberal pricing policy would prevail in the crucial water sector.

The socio-ecological inheritance associated with maldistribution of infrastructure resources must also be considered. Water management offers South African government and society possibly the most serious contemporary challenges. Amongst the main problems for environmental management are water scarcity; the maldistribution of water; pollution of water sources; other forms of structural damage to water ecosystems; and substandard or nonexistent sanitation. South Africans have access each year to, on average only 1,200 kl per person of available water, of which half is already dammed. Ineffective and destructive uses of water are prevalent. Water scarcity is exacerbated by South Africa's erratic rainfall patterns, and the effect of periodic draughts on low-income people is particularly devastating (whereas wealthy white farmers have traditionally gained access to state compensation during droughts). There exists a worrying potential for both domestic and regional geopolitical conflict over access to water, with South Africa already draining Lesotho's water and with controversial plans underway to tap other regional sources, as well as border rivers (such as the Orange River bordering Namibia, via the Lesotho Highlands Water Project).

The distribution of South Africa's water across the population is even more unequal, measured in class, race and gender terms, than the distribution of income. More than half of the country's raw water is used for white dominated

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commercial agriculture, of which half is considered to be wasted due to poor irrigation techniques and inappropriate crop choice. Another quarter is used in mining and industry. Around 12% of South Africa's water is consumed by households, but of that amount, more than half goes into (white people's) gardens and swimming pools, and less than a tenth is consumed by all black South African households. Minimal water access is one reason for black South Africans suffering by far the highest infant mortality and water-related disease rates in all of Africa in relation to per capita GDP. Access by the majority is improving only marginally, notwithstanding massive cross-watershed pumping of water, for example, from Lesotho, done inexplicably (as shown below) in the name of development. In rural areas, the Departments of Agriculture and of Water Affairs and Forestry are making only minimal efforts to improve water access to black farmers, and indeed due to impending water shortages the government will only expand existing water supply systems (which irrigate white farmland) � the Lesotho Highlands, the Tugela, Mkzomazi and Mzimvubu basins, the Orange River and Western Cape sources � with only a tiny fraction of resources spent on new irrigation schemes for emergent farmers.

Likewise, water-borne sanitation is available to only around one third of black South Africans, and excessive amounts of water (typically 13 litres per flush) are used in virtually all middle- and upper-class areas. Although a solid-waste sanitation system is desirable, so too would universal installation of low-flush and dual-flush toilets (as well as low-flow showerheads) save water and cut sewage treatment costs, while sanitation services could be extended to all households (although this would contradict current policy on household affordability grounds, regardless of the social and ecological consequences). Dumping of untreated sewage into the sea remains an issue. Mass pit latrines in urban and peri-urban areas remain factors in the spread of faecal bacteria.

More general pollution of water ultimately destined for human consumption arises from largely unregulated discharges from industry, from waste dump runoff, and from agricultural chemicals and mine tailings/slimes dams. Faecal pollution is a problem in many urban areas due to most low-income households' inadequate sanitation. Acid rain is considered extremely prevalent in coal-burning regions of the country. All these features of pollution increase water treatment costs and raise public health risks to many low-income households dependent upon direct access to unpurified water. Water ecosystems suffer enormous soil loss and siltation through commercial agriculture, erosion caused by overcrowded rural areas, polluted aquifers from mining waste, the exhaustion of aquifers from excessive irrigation, and drainage of wetlands and regions with high levels of forestry (especially invasive-alien eucalyptus and pine plantations). There are also problems in declining natural flow-rates of rivers due to cross-watershed pumping (resulting, too, in increased urbanization pressure), siltation of dam storage capacity (costing up to $30 million per year), and salination and waterlogging of land due to intensive irrigation.

Similar features of South Africa's energy inheritance deserve comment: a reliance on (and oversupply of) coal-generated electricity; lack of equitable access amongst households along class/race lines (with particularly severe gender implications); and related inefficiency in use associated with apartheid geographical segregation and urban sprawl. The strength of the coal mining industry fostered a reliance on electricity, with per capita consumption as high as in England (notwithstanding the fact that until recently only a quarter of South Africans had access to domestic sources) and per capita emissions of greenhouse gasses twice as high per capita as the rest of the world. In turn this reflects the importance of what has been termed the 'Minerals-Energy-Complex' � South Africa's economic core, effectively run by a handful of mining-based conglomerates and friendly parastatal agencies � which has traditionally accounted for ¼ to 1/3 of South Africa's GDP (and which even in the 1980s and 1990s, as the gold price declined, was the most important

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and dynamic sector). As one example of the power still invested in these large firms, the parastatal electricity company justifies ignoring its own anti-pollution policies (for example, refusing to install scrubbers at coal-fired stations, earning the wrath of even its own accountants) by the need to generate cheap electricity for export-led minerals and metals growth. As a result, electricity generation has been associated with high levels of greenhouse gasses, very high levels of acid rain, enormous surface water pollution, badly regulated nuclear supplies (near Cape Town), and ineffectual safety/health standards in coal mines. Poor planning two decades ago led to massive supply overcapacity (at peak in the early 1990s, 50% more than demanded), yet very little of the capacity has been used to provide low-income people with sufficiently cheap energy.

Indeed, the meager electricity consumed by low-income households (about 3% of the total) comes at a high price (in 1996, R0,20/kWh) in relation to the very low-cost supply of power to large corporate consumers, particularly the mines and minerals smelters (in 1996, less than R0,06/kWh). Hence even after more than a million households were added to the electricity grid during the 1990s, many could not afford to maintain consumption at levels sufficiently profitable for the state electricity company, relying instead for lighting, cooking and heating an paraffin (with its burn-related health risks), coal with high levels of domestic and township-wide air pollution) and wood (with consequences for deforestation). Women are far more adversely affected by the unaffordability of electric power sources, as well as in expending time and energy to obtain alternative energy sources. Reacting to these formidable infrastructure-related problems, government turned to neo-liberal principles, particularly lower standards, higher cost-recovery, and creeping privatization � notwithstanding a much more expansive mandate from its supporters.

Government's Mandate

Given that many Democratic Movement leaders saw transitional bargaining fora like the National Housing Forum as merely stepping stones to power and policy making, it was not obvious initially haw much Cobbett's early 1994 acceptance of site-and-service principles would shape future developments, The RDP was meant to change matters radically. As ANC leader Nelson Mandela remarked at the victory party on May 2:

We have emerged as the majority party on the basis of the programme which is contained in the Reconstruction and Development book. That is going to be the cornerstone, the foundation, upon which the Government of National Unity is going to be based. I appeal to all leaders who are going to serve in this government to honour this programme

The RDP's chapter on 'Meeting Basic Needs' began with an ambitious statement (ANC, 1994, section 2.1.3):

With a per capita gross national product (GNP) of more than R8 500 South Africa is classified as an upper middle income country. Given its resources, South Africa can afford to feed, house, educate and provide health care for all its citizens.

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The document proceeded to list a number of specific areas (many related to the International Covenant on Economic, Cultural and Social Rights) in which South Africans can consider themselves entitled to an adequate consumption level of goods and services. The RDP's approach, in short, was to ensure that essential service needs were met through vast increases in government subsidies when the market failed, and by mobilising additional resources through partnerships, more forcefully tapping capital markets, and via off-budget methods. This was government's overarching mandate in the area of infrastructure and services, and concrete suggestions with regard to housing, land reform and services were made to direct policy makers in detail.

Thus, for example, the RDP offered hope for a decent residential existence far beyond what was on offer in existing site-and-service schemes (ANC, 1994, section 2.5.7):

As a minimum, all housing must provide protection from weather, a durable structure, and reasonable living space and privacy. A house must include sanitary facilities, storm-water drainage, a household energy supply (whether linked to grid electricity supply or derived from other sources, such as solar energy), and convenient access to clean water.

The budgetary goal for housing expenditure in the RDP is 5% of the entire national budget; this goal was repeated in the Housing White Paper. The failure of the first democratic government's housing policy to ensure such standards - due to its focus on 'incremental' building techniques, a maximum subsidy only half of that required to build housing (R15 000 instead of R30 000), and bank-centred financing � is not the subject of this chapter (Bond, 1999a and 1999b, Chapter Four). But it is noteworthy that the World Bank (1994) intervened in the housing policy debate shortly after the 1994 election and recommended that proposed subsidy levels be decreased and more use made of commercial banks. Within three months, the outlines of the new policy, which conflicted dramatically with the RDP, were adopted.

Likewise, as specified in the RDP (ANC, 1994, sections 2.4.12, 2.4.14) the rural land reform 'programme must include the provision of services to beneficiaries of land reform so that they can use their land as productively as possible' and 'must aim to redistribute 30 per cent of agricultural land within the first five years of the programme'. But as in the case of housing, a World Bank land reform team made market-oriented policy suggestions (e.g., a willing-seller, willing-buyer 'kulak' model based on small grants and unsubsidized interest rates) in 1993 which were ultimately adopted by the new government (see Williams, 1996, for details and a critique). And as in the case of housing, the maximum Land reform subsidy is R15 000, and provision of rural infrastructure and services were not considered as integral to provision of services to land reform recipients. Instead of redistributing 30% of agricultural land within five years, it is more likely that the Department of Land Affairs will redistribute less than 1%.

How, according to the RDP, were infrastructure and services to be paid for? The RDP(ANC, 1994, sections 2.6.10, 2.7.8) specifies the need for tariff restructuring, cross-subsidies and lifeline services to the poor, with respect to both water (including sanitation) and electricity:

To ensure that every person has an adequate water supply, the national tariff structure must include the following:

• a lifeline tariff to ensure that all South Africans are able to afford water services sufficient for health and hygiene requirements;

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• in urban areas, a progressive block tariff to ensure that the long-term costs of supplying large-volume users are met and that there is a crass-subsidy to promote affordability for the poor, and

• in rural areas, a tariff that covers operating and maintenance costs of services, and recovery of capital costs from users on the basis of a cross-subsidy from urban areas in cases of limited rural affordability.

The electrification programme will cost around R12 billion with annual investments peaking at R2 billion. This must be financed from within the industry as far as possible via crass-subsidies from other electricity consumers. Where necessary the democratic government will provide concessionary finance for the electrification of poor households in remote rural areas. A national Electrification Fund, underwritten by a government guarantee, must be created to raise bulk finance from lenders and investors for electrification. Such a fund could potentially be linked to a Reconstruction Fund to be utilised for other related infrastructural financing needs. A national domestic tariff structure with low connection fees must be established to promote affordability.

With national tariff reform emphasizing cross-subsidies (using national and provincial resources, not just local) and lifeline tariffs for low-income consumers, and with a more appropriate use of housing subsidies to finance deeper levels of capital infrastructure � neither of which should ultimately cost central government anything extra beyond even the existing (planned) urban housing and rural land reform grants � promises of humane standards of infrastructure and services for all South Africans can be kept, and additional public health, environmental and economic benefits to all of society (particularly women and children) can be gained.

To clarify the difference between this mandate and the approach adopted to date, it is worth providing a critical assessment of the existing options government is now considering. We dispense with the conflict-ridden housing policy debate, for although it is crucial to understanding why so little state funding was made available in comparison to what was promised, why developers rather than the state and communities drove post-apartheid housing projects, and why so many other urban RDP promises were so explicitly violated (Bond, 1999a and 1999b), it is more important to communicate the details of declining infrastructure standards, below even that of 'toilets-in-the-veld' .

The Post-apartheid Municipal Services Debate

The Municipal Infrastructure Investment Framework (MIIF) describes the main infrastructure and services options planned by government. This framework, according to the Department of Constitutional Development's (DCD's) (1997, p. 2) 'User-Friendly Guide', used 'an economic modelling exercise to estimate services backlogs; assess the capital costs that are involved in removing these backlogs; and calculate the recurrent costs of operating and maintaining the services'.

In late 1994 and early 1995, based on Urban Infrastructure Investment Framework (UIIF) recommendations by a consultancy team dominated by World Bank staff, key officials in the Ministry for Reconstruction and Development agreed that government would provide only minimal infrastructure and services to low-income urban South Africans. The same ministry's draft Urban Development Strategy (UDS) � released in October 1995 � reflected government thinking on service provision from late 1994 through late 1996. The UDS summary demonstrates the inadequacy of standards then contemplated for urban 'municipal' areas (rural infrastructure plans had not been developed at that stage) (RSA,1995, pp. 24-25):

An average national distribution of 55:25:20 between full, intermediate and basic levels of services in municipal areas is considered a realistic target for the

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infrastructure investment strategy over the next ten years ... 'Basic services' means communal standpipes (water), on site sanitation, graded roads with gravel and open stormwater drains and streetlights (electricity). These services will be targeted at households with an income of less than R800 per month and charged for at between R35 and R50 per month. 'Intermediate services' entail water provision through yard taps on site, simple water-borne sanitation, narrow paved roads with no curbs and open drains and 30 amps electricity with prepaid meters for households. These should be affordable to households which earn between R800 and R1700 per month and will cost them between R100 and R130 per month. 'Full services mean house connected water supplies, full water-borne sanitation, paved roads with curbs and piped drains and 60 amps electricity provision. It is anticipated that households in the R1700-R3500 monthly income class could afford 'low consumption' costing them between R180 and R220 per month. Households with monthly incomes of above R3500 will be assumed able to pay for 'full services at high consumption' at charges between R270 and R350 per month.

Partly because MIIF was already controversial (see, e.g., Mail and Guardian, 22/11/19 and Bond, 1997), extensive technical persuasion and a degree of policy advocacy (mainly through the National Economic Development and Labour Council) had the effect of raising the infrastructure standards slightly higher than was initially proposed in the UIIF, draft UDS and early drafts of the MIIF. Instead of no electricity, there was the potential for urban households to receive an 8 Amp supply; and instead of paying R35-50 per month for these services, a subsidy of approximately R50 per low-income household was planned (whether this was enough to cover basic operating costs was questionable, and indeed whether the grant was sustainable given budget constraints remained to be seen, but as shown below, there were substantial doubts about this method of subsidy).

In short, there were several minor improvements over 'basic' standards of services. But there remained � as 'probably affordable to all in urban settlements' (DCD, 1997, p. 18) � many objectionable components of the basic MIIF package: pit latrines, communal (not house or yard) standpipes, a weak electricity supply, gravel roads, open storm-water drains, communal waste dumps (not kerbside removal), and other reflections of an extremely stingy infrastructure package. Under the 'law' growth scenario (most realistic in view of the failure of the Growth, Employment and Redistribution strategy to meet any but the inflation and budget deficit targets), nearly 30% of urban residents would be subject to these low standards even after the ten-year plan (1997-2006) for service provision was fully implemented.

Though we do not have the space in this chapter to fully explore the rural implications of MIIF, the standards under the low scenario were even lower, with 70% of the rural population anticipated to have the 'basic' ser vices discussed above after a decade, and 20% to have no services at all (DCD, 1997, p. 19). In both urban and rural settings, as noted below, the implementation progress was far slower than even the low target levels specified in MIIF.

Several other criticisms of MIIF must also be recorded. The service levels contemplated in MIIF were not merely emergency services (piped water or portable toilets in slum settlements that are without water or hygienic facilities at present), but represented, more fundamentally, permanent development policy. A crucial problem in the affordability calculations was the overoptimistic projection in MIIF that (in inflation-adjusted terms) only around 20% of urban households

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would still earn less than R800 per month within ten years. In addition, on technical grounds, there are six other important points to be made regarding the low levels in government's infrastructure and service provision policy.

First, a national tariff structure was not developed consistent with the cross-subsidization and lifeline tariff provisions mandated in the RDP. Second, public health benefits associated with increased access to services were not adequately factored in. Third, environmental problems associated with the proposed standards were not adequately addressed or factored in. Fourth, implications of the infrastructure policy for microeconomic linkages and for macroeconomic policy were not adequately addressed or factored in as a means of overcoming affordability constraints. Fifth, the implications of infrastructure standards for women were not adequately considered and factored in. Sixth, the spatial implications of class segregation implicit in the programme � with all the consequent economic inefficiencies � lent themselves to creation of new, past-apartheid racial ghettos where it will be physically impossible or excessively costly to upgrade from 'basic' to full services. While recognizing this problem, MIIF did nothing to counteract it; again the costs associated with neo-apartheid geography were neither calculated nor factored in (see Bond, 1999a for details of these problems).

The main investment implications are important to note at the outset, namely that the 'net economic return' on infrastructure investments should incorporate not only the immediate financial return � the amount of cost recovery as a ratio of the amount invested � but also other social benefits, costs, externalities and multipliers. Having failed to do so in the areas noted above, the MIIF provided far low standards of infrastructure on grounds that these standards were the most that low-income South Africans can afford to pay.

To illustrate the broader approach, even the World Bank's Washington DC headquarters has provided guidelines (and an example from Nepal) for interpreting the economic return and for using this as the basis for justifying projects, in a manner not accomplished nor even attempted by the World Bank staff who advised the South African government:

[In Kathmandu] based on estimates using narrowly defined project appraisal techniques, [net] benefits from the city's new $150 million water distribution system ... [equalled] $5.2 million. Using the more detailed service-level approach to project appraisal, however, it was determined that in some cases health benefits from a reduction in coliform contamination of the water approached $1,000 per unit serviced. An education program that improved water use led to further reductions in health and transport costs. After these indirect benefits were factored in, the project showed a positive net benefit of about $275 million (World Bank, 1994, p. 82).

Specifically, in light of the failure to consider the broader economic returns to infrastructure investment, the main reason that 'basic' levels of service were being imposed upon the vast majority of the poor is the allegedly high recurrent costs of water and electricity. In the absence of subsidies, these costs prohibit low-income households from paying full cost-recovery rates for even a minimal monthly amount of these services. A subsidy should cover sufficient services � according to the RDP, for example, 'an on-site supply of 50-60 litres per capita per day of clean water' (section 2.6.7), and sufficient electricity to cover the energy requirements associated with essential lighting, heating and cooking for a typical family (approximately 100 kilowatt hours per average family per month) � such that all South Africans attain a minimally-decent standard of living regardless of their ability to pay. Instead, an approach emphasizing cost recovery and 'limited' local-level cross-subsidies was adopted. According to the UDS,

[s]ervices and infrastructure will be introduced in line with the affordability

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levels of communities affected. The principle that people should pay for the services to which they have access is central. This means that the level of services in each area should relate to what the consumers there can afford and are willing to pay for. Where government support is needed to ensure basic service delivery, it will be provided transparently. Deliberate steps will be taken to remove any disguised subsidies. Limited cross-subsidies to enhance household affordability and secure 'lifeline' consumption will be necessary (RSA, 1995, p. 22).

Two points should be made immediately. First, the UDS failed to mention that urban services in existing middle- and high-income areas were heavily subsidized for decades, from surpluses generated through business levies (ultimately based on transfers from black workers and consumers whose employers and retail outlets were historically, by law, located in white areas).

Second, South Africa's majority is so poor � especially in relation to the minority of luxury consumers who' have never had to worry about access to full services � that 'limited cross-subsidies' are insufficient and the exercise of recovering costs on collectively consumed services (a communal tap, for example) is often futile or too administratively expensive. Indeed, the reason that the phrase 'limited' is used in this context is because of government's explicit refusal to consider (even as a policy option exercise) restructuring national tariffs so that substantial cross-subsidies could be obtained. If such a proposal � consistent with the RDP� had been considered and adopted, it would have been relatively easy to cross-subsidize from national-scale industrial, service-sector, mining and agricultural bulk users of water and electricity, to low-income residential consumers. The vast difference in use patterns allows a small marginal increase in tariffs for the large users and a lifeline service at no cost to all other consumers as an entitlement. Such a progressive block tariff system would also penalize excessive usage, thereby contributing to conservation goals.

At this stage of the argument, prior to describing some of the related household water policies of the Department of Water Affairs and Forestry, early evidence of infrastructure delivery and the implications of the current policy, an alternative approach should be claimed. Most importantly, how large a subsidy can South Africa afford to provide users of basic-needs infrastructural services? Ironically, the UDS states, 'the government's aim is to increase housing's share of the budget to S per cent and housing delivery to a sustained 350 000 units per annum within five years' (RSA, 1995, p. 28), which repeats not only the RDP commitment (section 2.5.5) but the same goal stated in government's Housing White Paper. With that level of fiscal support � R10 billion in public investment per annum (in present value rands, given a 1998/9 national budget of R200 billion) � devoted to the capital costs of housing, and with the sorts of cross-subsidies and lifeline service provision anticipated in the RDP to offset households' ongoing expenses, there is no question that the supply of services at much higher levels is financially feasible for all South Africans.

In sum, options consistent with the RDP are required (and are feasible) to provide higher standards that better reflect the variety of costs and benefits associated with infrastructure and services. To do so would require not only spending roughly 10% more than is planned on capital investment in infrastructure, but also locating financing sources for recurrent costs within existing service suppliers through national-scale cross-subsidies such that a lifeline entitlement is provided to all South Africans and greater resource conservation is achieved. But the difficulties of winning support even from a minister (Kader Asmal) who in principle agreed with these sentiments is described next.

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Delivery Crisis: The Case of Water

The delivery crisis is virtually universal when it comes to meeting basic needs, and so it is useful to focus in detail upon the infrastructure-related service that has been considered perhaps the most successful example of the new government's commitment and capacity: water. By 1998, according to the Department of Water Affairs and Forestry (DWAF), 18 million South Africans were without basic water supply and 27 million had no basic sanitation (SA Institute of Race Relations, 1998, p. 327). And yet by year-end 1998, Minister of Water Affairs and Forestry Asmal was hailed for having served three million people, mainly in rural areas, with new water connections. (Figures are unreliable, and in a best-case account, according to a Pan African News Agency report on 6/2/99, Nelson Mandela told parliament that 'in 1994, when the ANC was elected, some 30 per cent of South Africans lacked access to safe supply of water near their homes. Today, after three million people have benefitted from the government's water supply programme, the percentage has been reduced to 20.')

Rarely mentioned is the notorious unsustainability of the water projects, which were said by DWAF insiders to have rendered as many as 90% of the new taps inoperative. Rarely mentioned is the extraordinary upsurge in water cut-offs, which included, as an example, 70 000 black township residents of Leandra, Mpumalanga, who suffered 70% water pressure cut-off for several months in late 1998 at the hands of Rand Water, due to a non-payment rate of nearly 70% (Sunday Independent Reconstruct, 20/12/98). But amongst those suffering cuts were households which had paid their bills.

The development of water and sanitation policy reflected and in some important respects preceded the overarching urban, rural and municipal infrastructure policy processes. A mere six months after the 1994 election, Minister Asmal's first white paper announced that 'where poor communities are not able to afford basic services, government may subsidize the cost of construction of basic minimum services but not the operating, maintenance or replacement costs' (DWAF, 1994, p. 19). The insistence on charging the full operating and maintenance costs (and thus the refusal to keep to the mandate in the RDP that all are entitled to access to sufficient lifeline water for their reasonable needs) was based on two assertions.

First, the Water and Sanitation White Paper (DWAF, 1994, p. 23) states that if government covers operating and maintenance costs, there will be a 'reduction in finances available for the development of basic services for those citizens who have nothing. It is therefore not equitable for any community to expect not to have to pay for the recurring costs of their services. It is not the Government who is paying for their free services but the unserved.' The White Paper thus argues for a 'some for all, not all for some' approach. But the false dichotomy between 'width' and 'depth' is presented as fact, without any reference to available sources of finance or to the potential of cross-subsidization, as recommended in the RDP, in generating the finances available to meet everyone's entitlement to water.

Second, the White Paper repeats the widely held but unsubstantiated assertion that payment for services is the single defining feature that determines whether people and communities behave responsibly:

The other reason why operating and maintenance costs should be borne by the communities is the principle of Community-Based Development. If the community expects some outside agency to be responsible for keeping their supplies going, they will have no control over the processes and lose leverage and ownership. Responsibility for keeping the service going is placed with a remote authority and accountability is lost. This will have an impact on the reliability of supplies (DWAF, 1994, p. 24).

The National Sanitation Policy White Paper, released in 1996, reiterated the 'same for all, not all for some' approach and included as a principle that the user pays:

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'Sanitation systems must be sustainable. This means they must be affordable to the service provider, and payment by the user is essential to ensure this' (DWAF, 1996, p. 4). Shortly thereafter, however, Asmal (1996a, p. 1) came out strongly against the misleading supply-side definition of lifeline. At the launch of the 1996 Annual Report of the Working for Water Programme, he said:

We feel that we should not employ workers who refuse to pay for their water � provided (and this is most important) that the local authority has in place a lifeline tariff for the first five kilolitres of water per month. And note that by 'lifeline' I mean a life-giving tariff, and not some engineering solution like the 'operating and maintenance casts'.

In a talk on water conservation in Cape Town the same year, Asmal (1996b, p. 2) put it even more strongly: 'I see that the term 'life-line' has been hijacked: it is being taken to refer to the operational and maintenance costs, as a reflection of engineering elegance rather than social needs.' Asmal thus repeatedly repudiated the central approach of his White Papers, yet still kept to the short-term aim of the RDP to provide between 20-30 litres of water per person per day, short of the medium-term aim of 50-60 litres.

The White Paper on a National Water Policy for South Africa of 1997 reflected an uneasy compromise between the cost recovery and life-line approaches. It concedes the right of all to have access to basic water services and includes the following key proposals for incorporation into the Water Law:

• To promote the efficient use of water, the policy will be to charge users for the full financial costs of providing access to water, including infrastructure development and catchment management activities.

• To promote equitable access to water for basic needs, provision will also be made for some or all of these charges to be waived (DWAF, 1997, p. 4).

The document also defines a 'reserve' for basic human needs: �This will be provided free of charge in support of the current policy of Government which is to encourage the adoption of lifeline tariffs for water services to ensure that all South Africans can achieve access to basic services.' But the 1997 White Paper only deals with the first tier level, that of water in catchments under central government control, and excludes the second and third tier levels, namely water as distributed and delivered by agencies including water boards and local governments. In practice, the approach to basic needs thus amounts to an acceptance of the position that communities fetching water from natural sources do not need to pay for the first 25 litres per person per day. For communities that receive water from built water systems, the document does not go beyond the principle of access to basic water services and does not describe how this entitlement is to be achieved.

Despite the more ambiguous current policy position on entitlement and, in particular, the lifeline tariff, the Department of Water Affairs and Forestry is in practice instructing its staff and all agencies carrying out community water supply and sanitation activities on its behalf to implement the standards and tariffs as defined in the 1994 White Paper to the letter. Community water supply projects include communal standpipes at 200 metres and, despite the array of problems associated with collecting payment for water from communal standpipes, the principle of full payment for the operating, maintenance and replacement costs is insisted on. Once projects have been built, communities don't receive further support.

There are extremely serious problems in the community water supply projects; indeed within the Department it is acknowledged informally that the rate of failure is as high as 90%. Reasons invariably include very real affordability constraints and an unwillingness to pay for communal standpipes. Communal standpipes are

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often not seen as a significant improvement on existing sources of water. Other important reasons for failure include poor quality of construction, areas within communities without service and intermittent supply.

Community water supply systems have led to numerous instances of inequity. Adjacent communities pay different amounts depending on the systems installed. Rural households pay for water from standpipes, whereas households in Durban getting water on site get the first 6 kilolitres per month for free. (According to the Durban Metro, 6 kilolitres is the breakeven point between the cost of collecting payment and the amount collected.) Communities with new water systems must pay for the ongoing functioning of their systems whereas communities supplied by the former Bantustan governments get their water for free. These inequities have led to significant levels of community tension within and between villages. And, despite the claim to provide 'some to all', vast areas have not received water services to date.

The 1994 White Paper (DWAF, 1994, p. 19) considered the inequity between the new systems and those of the former Bantustans:

This will require a substantial revision of present policy since Government grants or 'subsidies' have been given in the water sector for many years. These have generally been targeted at specific sectors of the population to promote policy objectives such as agricultural production in the commercial sector and the stabilisation of 'separate development' structures.

The removal of the subsidies and replacement of inequity with equity at the lowest common denominator ― nonfunctioning water systems where they exist at all ― is now being implemented.

DWAF's response to the high level of project failure has been to move further from the entitlement to water as spelt out in the Constitution and from the mechanism of financing this entitlement as spelt out in the RDP, partly egged on by advisors from international agencies such as the World Bank (Maria et al., 1998). The insistence on communal standpipes is unchanged, but they are now being built with prepayment meters to ensure payment up front. Instead of moving towards the medium-term aim of the RDP and providing taps on site, the Department has proved willing to relax the 200 metre criterion and allow for standpipes further apart so as to limit the number and thereby cost of prepayment metres.

DWAF's response to a self-generated crisis of delivery, clearly based to an important extent on inadequate financing systems, was paralleled by a tendency across government infrastructure delivery agencies � led by DCD � to consider private sector management assistance, contracting out, concessions and outright privatization of infrastructure.

Municipal Services Partnership Policy

Partly as a corollary to government's retreat from its policy mandate and its failure to deliver infrastructure of even low standards, lead bureaucrats with-in DCD and DWAF also began pushing a privatization agenda beginning in 1995. Municipalities were encouraged to contract out infrastructure-related services to the private sector using what were initially called Public-Private Partnerships (PPPs), for which in 1997 the DCD issued guidelines and helped establish a Municipal Infrastructure Investment Unit (MIIU) based at the Development Bank of Southern Africa. This was followed by DCD's draft regulatory framework in August 1998, in which PPPs were rebaptized as Municipal Service Partnerships (MSPs) and characterized as 'a variety of risk-sharing structures within public-public, public-private and public-

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NGO/CBO partnerships' (DCD, August 1998, p. v). By December 1998, the SA Local Government Association and DCD had negotiated a Municipal Framework Agreement with unions.

As an aside, beginning in 1996 DWAF's Community Water Supply and Sanitation programme commissioned several dozen extremely small-scale, rural PPPs, known as Build-Operate-Train-and-Transfer contracts, involving NGOs and some private firms. But such serious problems soon emerged � unsustainability, lack of consumer affordability given cost-recovery pricing policy, poor technical design, poor community control functions, mismatched NGO/private-sector roles and expectations, systematic inconsistencies with neighbouring government-subsidized water schemes, and lack of training and transfer prospects � that by 1999, the concept was in many areas evaluated as a 'failure' with respect to implementation by DWAF and DCD � whereby according to Masia et al. (1998, p. 11), 'The gaps between practice and policy have to be addressed head on lest the policies be invalidated' � and by its favoured NGO implementing agency, the Mvula Trust (Bakker, 1998).

Thus within about four years of the advent of democracy, key political decision makers within the South African state � at national and local levels � had been won over to what effectively amounted to creeping privatization of core local services: rubbish removal, water works and even municipal electricity supply. The primary advocates of privatization were the World Bank and its private sector investment arm, the International Finance Corporation (which in 1997 announced a $25 million investment in Standard Bank's South Africa Infrastructure Fund, an explicit privatization financing vehicle) (African Development Bank, 1997), as well as local and international firms. Banque Paribas, Rand Merchant Bank, Colechurch International, the Development Bank of Southern Africa, Generate des Eaux, Metsi a Sechaba Holdings, Sauer International and Lyonnaise Water had all met with officials of Port Elizabeth, for example, by 1997, in the wake of a week-long 1996 World Bank study of the council's waterworks which suggested just one policy option: full privatization (Port Elizabeth Municipality, 1998; Bond, 1999a, Chapter Four).

But there was also resistance, and not only from usual suspects like the SA Municipal Workers Union (SAMWU) and the Congress of SA Trade Unions (COSATU), some of the more advanced civic groups and in places like Nelspruit, the SA Communist Party and ANC Youth League. So too was privatization contested by some municipal bureaucrats � interestingly, a large fraction of 'Old Guard' (pre-1994) officials � such as one from East London who argued:

PPPs are not always the best way to go. Costs creep up especially by the third year. So we don't accept that we will save money. By the time the contract expires, everything is ruined. We have lots of companies coming to do presentations, but we will not be caught. They take over your staff and you loose control over them. It is not sustainably cheaper (interview, December 1998).

As the 1998 Local Government White Paper was being drafted, these concerns were flagged by Hemson (1997) in an international literature review:

corruption in the tendering and drawing up of contracts, particularly in the US; monopoly in the privatized service; higher user charges; inflated director's fees, share options, and management salaries; widescale retrenchments; and anti-union policies... The effects of privatization bear most radically on the poorest in the community; there is widespread evidence of more cut-offs in service and generally a harsher attitude towards low-income 'customers'. Water in Britain is a case in point. Water and sewerage bills have increased by an average of 67 percent between 1989/90 and 1994/95, and during roughly the same period the rate of disconnections due to non-payment by 177 percent.

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The inflexibility and hostility which often characterized public utilities attitude towards non-payment has, over the same period, been replaced by an emphasis on pre-payment meters and 'self-disconnection' as public goods have been commodified. Pre-payment metering is greatly advantageous to companies as the problem of poorer customers is avoided, there is a continuous revenue stream in advance of consumption, less of a 'political' problem in confronting disconnections, and better form of debt recovery. Self-disconnection is education of consumption below the level consistent with health, safety and participation in normal community life. Surprisingly high number of self-disconnections for various periods of 49 percent by those using pre-payment devices in a trial period. Self-disconnection is associated with the reduction of consumption below the level consistent with health, safety and participation in normal community life. Studies have shown a surprisingly high number of self disconnections of water supply for various periods by as much as 49 percent by those using pre-payment devices over a trial period. The most critical feature of privatisation, however, has been that cross-subsidies are rooted out after privatisation; those who need costly help have to pay for these services directly themselves... Rather than cross-subsidies there has been the introduction of 'cost-reflective' pricing (in which prices reflect the particular costs associated with a particular customer) will end with greater differences in regional charges, the poorer paying more, and better off people with cheque accounts paying less with direct debits.

The critiques were joined from a surprising source in early 1998, namely World Bank chief economist Joseph Stiglitz (1998, pp. 17-18), who conceded that the conditions under which privatisation can achieve the public objectives of efficiency and equity are very limited, and are very similar to the conditions under which competitive markets attain Pareto-efficient outcomes. If, for instance, competition is lacking then creating a private, unregulated monopoly will likely result in even higher prices for consumers. And there is some evidence that, insulated from competition, private monopolies may suffer from several forms of inefficiency and may not be highly innovative� there are song incentives not only for private rent seeking [i.e., corrupt patronage-related activity] on the part of [privatised firm] management, but for taking actions which increase the scope for such rent seeking.

Stiglitz (1998, pp. 18-19) cited the examples of China, which 'managed to sustain double-digit growth by extending the scope of competition, without privatising state-owned enterprises', and Russia, which in contrast 'privatised a large fraction of its economy without doing much so for to promote competition. The consequence of this and other factors has been a major economic collapse.' Stiglitz (1998, p.19) concluded that [p]rivatising monopolies creates huge rents. It has proved difficult to administer privatisation without encouraging corruption and other problems. Entrepreneurs will have the incentive to try to secure privatised enterprises rather than invest in creating their own firms.

Notwithstanding the criticisms, the White Paper endorsed privatization, while acknowledging risks of 'cherry-picking' (refusal to provide services to low-income areas), poor quality services and unfair labour practices. A virtually unstoppable momentum had built up by 1999, reflecting continuity, not change, from late apartheid. Many large municipalities had, after all, closed down their public housing and in some cases civil engineering departments during the 1980s, and by the early 1990s the (white-run) Eastern Cape was the site of several small (but long-term, thoroughly monopolized) water privatization pilot projects, including Queenstown (1992), Stutterheim (1994) and Fort Beaufort (1995). Water privatization in Nelspruit and the Dolphin Coast were temporarily stalled in 1998 by trade union-led resistance, and their 1999 resuscitations were mired in a controversy over whether DCD Minister Valli Moosa had bargained in bad faith with the SA Municipal Workers Union (SAMWU). Meanwhile other major exploratory

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projects were underway, facilitated by a R30 million US AlD grant to DCD for the development of PPP business plans in various towns. These included Cape Town, Port Elizabeth and Stellenbosh (where water and sanitation were reviewed by 1999), Benoni (fire and emergency services) and several towns where refuse removal would be privatized. (In Cape Town's Khayelitsha township, the Billy Hattingh private rubbish removal scheme was so unsuccessful that by 1999, municipal workers had to be redeployed to back up the company.)

These early PPPs suggest a penchant for long-term management con-tracts, entailing 'delegation' of defined municipal functions for a ten, twenty-five or thirty-year period. They include the operation, rehabilitation, maintenance, customer services and expansion of assets, which are, however, still owned by the municipalities. Contracts are flexible, allowing for the company to extend or upgrade facilities but with municipal or non-company finances. Unlike concession contracts, they involve less greenfield investment (such as extension of services to townships) and hence far lower risks for the successful bidder.

Companies like Water and Sanitation South Africa (WSSA, a Lyonnaise des Eaux/Group Five joint venture) promised to 'render an affordable, cost affective and optimised service, implement effective consumer management' and ensure that customers are 'willing and able to pay for services, while maximising revenue collection' (WSSA, 1995a, p. 1). Benefits also allegedly include 'a more dynamic business environment, increased productive investment, workplace democratisation, co-operation with small and micro enterprise, and more open and flexible management styles' (WSSA, 1995b, p. 1). Yet in practice, in the Stutterheim pilot, water services were instead characterized by WSSA's failure to serve any of the 80% of the region's township residents (classic cherry-picking), mass cut-offs of water by the municipalities of township residents who could not afford payments, and the cooption of the main civic leader into WSSA's employ, thus effectively rendering silent any community protest (Bond, 1999a, Chapter Five).

DCD considered some of the pilots too conservative, if anything, for failing to promote sufficient concessions to assure increased capital investments. DCD officials identified constraints in the forms of legal obstacles and uncertainties with respect to contractual issues, tendering procedures, contract monitoring requirements and dispute resolution procedures. Management contracts were, by 1997, said to be 'only advisable when more ambitious forms of private participation are considered undesirable' (DCD, 1997). The suspicion was, simply, that 'contractors with international link-ages might engage in management contracts in order to secure a privileged position in subsequent initiatives' rather than for the sake of providing optimum services, with the effect of 'sabotaging open competition' .

Having raised these concerns, DCD's Draft Guidelines for MSPs then proceeded to diminish the role of municipal workers by insisting that 'a municipality must consult, but is not obligated to negotiate and reach agreement regarding the labour aspects of the transfer with employees or unions as a condition for being authorised to proceed with the transfer' (DCD, 1998, p. 48). Yet the reality was that SAMWU has been so effective in generating public opposition to DCD's plan and to participation by the British firm Biwater (the lead company behind Nelspruit's water contract); that, as SAMWU described it:

In December 1998, Cosatu and SAMWU signed a framework agreement with the local government employer body, SA Local Government Association (Salga) around municipal service partnerships. The agreement was the product of months of negotiations, It concurs with national legislation that the public sector is the preferred deliverer of services and specifies that involvement of

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the private sector in service delivery should only be a very last resort � if there is no public sector provider willing or able to provide the service (Weekes, 1999, p. 1).

And here emerges the classical problem associated with 'natural monopoly', namely the ability of a state institution to pass along implementation responsibilities while still holding control over basic services policy (e.g., on coverage, quality, access, cost, labour conditions, etc., all of which the private sector would ordinarily skimp on to the public's detriment). The propensity of a private firm to, for example, provide cross-subsidies and lifeline tariffs, is extremely low, as the World Bank (Roome, 1995, pp. 50-1) explicitly warned Asmal in 1995 � since sliding-scale tariff's favouring low-volume users 'may limit options with respect to tertiary providers... in particular private concessions [would be] much harder to establish' � as part of a lobbying campaign to dissuade him from invoking cross-subsidies.

The extent to which a public monopoly is simply replaced by a private one gives rise to yet more concern. In late 1998, Lyonnaise des Eaux announced plans to establish multi-purpose utility monopolies covering water, sanitation, refuse, roads, cable TV and telephones, to be payable through a single bill, with Casablanca already witnessing the firm's pilot linkage of several privatized municipal services. Aware of this possibility, DCD (1998, p. 56) acknowledged that 'The Competition Bill [of mid-1998] could create opportunities for consumers of municipal services to challenge various aspects of an MSP including tariff structures, tariff setting mechanisms and grants of monopoly rights to a service provider in both administrative and judicial forums' � but reassures firms that 'the power of the Competition Tribunal to award costs to a respondent against whom a finding has been made may act to restrain consumers from initiating complaints.' has been made may act to restrain consumers from initiating complaints.'

In other countries (beginning with Paris in 1985), the privatization of water was at the very least done in a manner that deliberately distinguished retail provision from distribution, and also established geographical divides (the Left Bank going to Lyonnaise des Eaux and the Right Bank to General des Eaux), thus allowing 'for a compromise where there is still outside competition and larger markets beckon' (Lorrain, 1997, p. 117). Indeed, this raises the question of whether water and energy should be managed at a local or regional level (i.e., along politico-administrative boundaries) or indeed based on geological, watershed/basin, or functional divides. Moreover, if water supply is separated from sewerage and roads, there is bound to be con-fusion, dislocation and diminished accountability. By fragmenting responsibility for road works, refuse removal and sanitation, residents will have to visit different company offices to register complaints, increasing the bureaucratic hurdles for consumers.

The thorniest questions are those bound up in politics and corruption, and hence are least transparently considered in DCD and other official work. Many of the transnational services firms have dubious track records, and not just in the notorious kickbacks and bribes associated with privatization in Eastern Europe, Indonesia and the like. Even in France, the mayor of the city of Grenoble was imprisoned for taking bribes from Lyonnaise des Eaux and its local partner (Barsock, 1997, p. 16). Likewise in apartheid-era South Africa, WSSA (then called Aqua-gold) had a previous close association with repressive bantustan regimes beginning as early as 1987. This does not prove corruption in a commercial sense, but does show that unlike many other companies which disinvested, the French chose not only to stay but to accelerate their dealings with the most discredited

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elements of the apartheid regime. In several towns, WSSA signed agreements with unrepresentative white politicians and municipal administrations prior to democratic elections, and without going through a tender process (DCD, 1998).

In sum, if the 'basic rationale' for privatization is that 'MSP projects can save or avoid municipal expenditures' (DCD, 1998, p. 74), it should also be considered that a municipality has enormous burdens once a contract is signed: monitoring the concessionaire or contractor; undertaking expensive litigation in the event of disputes; establishing reliable, independent sources of information; and bearing the political and financial costs of failure. Typically, the municipality is prevented from taking direct action on complaints.

Conclusion: Post-Washington Consensus Infrastructure Policy

The struggle against apartheid was both a struggle against the politico-juridical system of racism and for improved quality of life. Improved residential infrastructure and service delivery are amongst the most crucial objectives of public policy, by all accounts. Many of the aspirations and concrete demands of South Africa's oppressed peoples are reflected in the 1994 RDPand the 1996 Constitution, in particular the entitlement to decent standards of services.

Despite this mandate to govern, there has been a clear continuity of policy between the late-apartheid era and democracy. Some key common features are an often untransformed bureaucracy, white consultants at the nerve centre of policy making, influence by the World Bank or its proxies, and the ascendance of a new breed of conservative bureaucrats (once termed 'econocrats'). Unlike the chaotic and unco-ordinated positions across most of government, there is a disturbing level of consensus in infrastructure-related departments and agencies that a) users pay, b) standards should be relatively Low, and c) privatization should be regularized.

Restating in any detail the numerous concrete problems associated with late-apartheid and post-apartheid infrastructure policies would belabour the obvious. In sum, the unsustainability of an approach to development modeled less on organic South African demands arising from social struggles, and more on the essentially neo-liberal perspective now known as the �Washington Consensus', is now recognized from even within the highest levels at the World Bank (Stiglitz, 1998).

Is an RDP-friendly alternative possible? One proposal advocated by social change activists from community organizations and associated NGOs, compatible with the Constitution and RDP, was a universal free lifeline to all South African consumers for the first block of water (50 litres of water per person each day) and electricity (approximately 1 kilowatt hour per day) with steeply-rising prices for subsequent consumption blacks. There would be no need, in this policy framework, for means-testing or a complex administrative apparatus, nor would complete service-cut-offs feature. Recurrent consumption expenses would be paid for entirely from within each sector, although an additional 10% expenditure would be needed, beyond what the MIIF budgeted, to finance the added capital costs (totalling R120 billion over 10 years, a reasonable investment in relation to late-1990s GDP of R600 billion and an annual state budget of R200 billion).

Where social change advocates have come up short, however, was in turning an extensive series of mid- and late-1990s riots over municipal services � which, tragically, included the assassination of an ANC mayor known for willingness to cut off power and water, as well as the burning of several ANC councillors' houses � into more sustained, constructive political pressure (this partly reflected the demobilization of the national 'civic association' movement during the late 1990s). In contrast to an alliance between DCD and the big business lobby within the National Economic Development and Labour Council (the stakeholder forum at which state policies were often debated), the progressive forces failed, especially in 1996-97, to successfully contest the intensification of services commodification.

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Notwithstanding firm opposition by SAMWU � which also campaigned for 50 free litres of water per day to consumers as a means of resisting DCD divide-and-conquer strategies � central government continued to advocate the privatization of municipal services.

Also at stake in all of this was, as ever, the degree to which a capitalist state in league with big business could construct a 'social wage' policy framework that had, as a central objective, maintaining relatively low upward pressure on the private-sector wage floor; in other words, by keeping monthly operating costs of services low through denying workers access to , flush toilets, hot plates and heating elements, the MIIF also reduced the pressures that workers would otherwise have to impose upon their employers for wages sufficient for the reproduction of labour power.

In very practical ways, the social and labour movements were too weak to successfully contest the broader neo-liberal trajectory, and not even the strongest rhetorical and technical critiques could have made up for lack of political clout. What looms ahead, as more than half of South Africa's 878 municipalities prepared to face formal bankruptcy at the turn of the 21st century � due to declining central-local grants and low levels of service payments by residents � is potentially a stark scenario in which sufficient unpopularity with ANC rule emerges, so as to generate conditions amenable to a more progressive backlash either within the Alliance or, around the time of the 2005 election, the emergence of a leftwing alternative to the ruling party. Until then, it will be up to activists in civil society organizations, probably led by SAMWU in key sites of privatization struggles and potentially joined by a nascent alternative civic movement in Gauteng, to remind society at large that the transition from late-apartheid to post-apartheid infrastructure policy remains unsatisfying, to put it mildly.

References

African Development Bank (1997), 'Investment Proposal: South Africa Infrastructure Investment Fund', ADB Private Sector Unit.

African National Congress (ANC) (1994), Reconstruction and Development Programme, ABC Printers, Cape Town.

Asmal, K. (1996a), Speech to the Launch of the 1995/6 Working for Water Programme Annual Report, Pretoria, 17 July.

Asmal, K. (1996b), Speech to Cape Town Conservation workshop.

Bakker, K. (1998), 'An Evaluation of Some Aspects of Mvula's Participation in Bott', Unpublished paper, Oxford University Department of Geography, Oxford, September.

Barsock, J.L. (1997), 'Elitism in Action', French Management.

Bond, P. (1992), 'De Loor Report is Off the Mark', Reconstruct, Work in Progress, August.

Bond, P. (1993), 'Housing Crisis Reveals Transitional Tension', Financial Gazette, 11 November.

Bond, P. (1997), 'Infrastructure Plan Still a Disappointment', South African Labour Bulletin, vol. 21, no. 2.

Bond, P. (1999a), Cities of Gold, Townships of Coal: South Africa's New Urban Crisis, Africa World Press, Trenton.

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Bond, P. (1999b), Elite Transition: From Apartheid to Neoliberalism in South Africa, Pluto Press, London.

Department of Constitutional Development (DCD) (1997), Municipal Infrastructure Investment Framework, Pretoria.

Department of Constitutional Development (DCD) (1998), Draft Regulatory Frame-work for Municipal Service Partnerships, Pretoria, August.

Department of Water Affairs and Forestry (DWAF) (1994), White Paper on Water and Sanitation, Pretoria.

Department of Water Affairs and Forestry (DWAF) (1996), National Sanitation Policy White Paper, Pretoria.

Department of Water Affairs and Forestry (DWAF) (1997), White Paper on a National Water Policy for South Africa, Pretoria.

Hemson, D. (1997), 'Privatisation, Public-Private Partnerships and Outsourcing; The Challenge to Local Governance', Paper presented to the Local Government White Paper Research Process, Johannesburg, August.

Lorrain, D. (1997), 'France; The silent change', in D. Lorrain and M. Stoker (eds), The Privatization of Urban Services in Europe:

Masia, S., Walker, J., Mkaza, N., Harmond, I., Walters, M., Gray, K. and Doyen, J. ( 1998), 'External Bott Review', Joint report by the Department of Water Affairs and Forestry, World Bank, British Department for International Development and Unicef, Pretoria, November.

Mayekiso, M. (1996), Township Politics: Civic Struggles for a New South Africa, New York, Monthly Review.

Port Elizabeth Municipality (1998), 'Report to the Management Team on Urban Water Demand Management', Report by the City Engineer, 11 March.

Republic of South Africa (1995), Draft Urban Development Strategy, Ministry of Reconstruction and Development, Pretoria.

Republic of South Africa (1996), The Constitution of the Republic of South Africa, Act 108 of 1996, Cape Town.

Roome, J. (1995), 'Water Pricing and Management.' World Bank Presentation to the SA Water Conservation Conference', unpublished paper, South Africa, 2 October.

South African Institute of Race Relations (1998), Annual Review of the Institute of Race Relations Survey,1998, Braamfontein.

Stiglitz, J. (1998), 'More Instruments and Broader Goals: Moving Toward the Post-Washington Consensus', WIDER Annual Lecture, Helsinki, Finland, 7 January.

Swilling, M. (1999), 'Rival Futures: Struggle Visions, Post-Apartheid Choices', Unpublished paper.

Tomlinson, R. (1993), 'The Three Urban Agendas', Urban Forum, vol. 4, no. 2.

Water and Sanitation South Africa (WSSA) (1995a), 'Standard Contract', Johannesburg.

Water and Sanitation South Africa (WSSA) (1995b), 'The Delegated Management Concept', Johannesburg.

Weekes, A. (1999), 'Letters of protest needed against the unilateral and bad faith privatisation of water in Dolphin Coast, South Africa to French transnational', E mail communication, 6 February.

Williams, G. (1996), 'Setting the Agenda: Post-Apartheid Land Reform Policy',

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Journal of Southern African Studies, vol. 22, no. 1.

World Bank (1994), World Development Report 1994: Infrastructure for Development, Oxford University Press, New York.

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3 Gender, Development and Infrastructure

DEBBIE Budlender

Introduction

The terms 'gender' and 'development', although widely used in South African policy debate, are not necessarily understood in the same way by all people. For the most part, gender is understood as being synonymous with women. In this respect, one recalls how a Nationalist MP, in excusing himself from a parliamentary Finance Committee discussion on the impact of the budget on women, explained that his 'gender' was waiting for him outside and would be angry if he kept her waiting. 'Development' is understand by many to be the same as 'growth'. Others see development as an improvement in the situation of the poor and disadvantaged over time, so that growth devoid of redistribution does not qualify as development.

For the purposes of this chapter, 'gender' is taken to refer to the relative positions of, and relationships between, women and men � with an upfront acknowledgement that, for the most part, it is women that come off worst in that relationship. 'Development' is understood to involve redistribution � along race, gender as well as other axes � and the improvement of the living conditions and the degree of control over their lives of those at the bottom of the pecking order. To the extent that women tend to have less access than men to resources and decision making, the link between gender and development is obvious.

One could, of course, also debate the meaning of the term 'infrastructure'. Following those who speak about human capital and social capital, one could easily argue that education, health and a host of other goods and services are part of the infrastructure required for development. This chapter takes the more ordinary understanding of 'infrastructure' as physical assets, and especially those discussed in other chapters of this book, Further, the chapter concentrates for the most part on what the post-apartheid government has achieved in its first years in power given its oft-stated commitment to gender equality and development.

The chapter takes as given that government operates with limited resources but faces large needs. Gender and other redistributive considerations therefore become important in determining who is 'neediest' or 'most deserving' of government support, whereafter government intervention in the lives of the neediest can be targeted and monitored. The issues discussed in this chapter are relevant to both monitoring and targeting of government intervention.

Perspective of the Department of Finance

The Department of Finance's Budget Review of March 1998 captures some of the many different ways in which infrastructure is regarded as important to women. The following extract serves to prove the point:

Transport The 1994 October Household Survey investigated transport use to and from work. It showed a higher percentage of women than men using public transport, and longer travel times for public than private transport. Improvements in transport infrastructure and the accessibility and safety of public transport contribute to the quality of life of women and their access to employment and service facilities.

Water and sanitation Access to adequate potable water and effective sanitation facilities also affect women. Women and children based in non-urban areas

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continue to spend a significant amount of time carting water. Access to water and sanitation influences the prevalence of diseases such as dysentery and also affects women's reproductive health and children's wellbeing.

Energy and telecommunications Adequate and affordable energy and communications services affect women's ability to participate in income-generating activities, in addition to their role in household activities. Survey data show that African and coloured women who work in the personal services sector benefit significantly from improvements in the availability of electricity and telephone services (Department of Finance, 1998a, section 1.6).

The extract suggests that energy and communications are important to women's 'productive', income-earning roles, while access to water and energy eases the burden of their 'reproductive' roles such as performing household tasks and caring for family members.

The tendered Benefits of Water

The provision of clean and safe water to those previously denied it was one of the Presidential Lead Projects of the new government's Reconstruction and Development Programme (RDP). Within 1,000 days of the elections the Department of Water Affairs and Forestry (DWAF) announced that over a million people had gained access to clean, safe water for the first time. The Budget Review of 1998 recorded that by October 1997 the number of beneficiaries had increased to 1.2 million people. The Review explicitly noted the gendered benefits of this achievement. In fact, Minister Manuel got so carried away by this idea (or, alternatively, by the idea that rural areas have a predominately woman population) that he claimed in his budget speech that since 1994, 'a million women and children in rural areas have gained access to a clean water supply' (Minister of Finance, 1998, p. 2).

There can be no denying the benefits of this delivery. Some might argue that the benefit of time saved is of little use when there are virtually no income-earning activities on which the women concerned can now spend the time saved. This argument sounds rather like the argument for keeping children busy to keep them out of mischief. Fetching water is also seen to provide young women with the opportunity to spend time together and away from controlling mothers-in-law. These arguments ignore the many benefits of water � the promotion of the health of the household, the avoidance of physical strain, the decrease in the danger of women and girls being raped on their way to fetch water, and enabling young girls to attend school and do homework. In the SANGOCO Poverty Hearings, one woman also argued that water provision prevented women from being eaten by crocodiles.

Benefits in the Course of Infrastructure Provision

The provision of water � or indeed any infrastructure � is of primary importance for the long-term benefits it brings. However, there are also people who benefit from the actual provision of the infrastructure. The 1998 Budget Review published the following estimates of women's share in the short-term benefits from water schemes during 1997:

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Women as a percentage of short-term beneficiaries of water project

Employees on schemes 14 %

Trainees on schemes 16%

Contractors None

Consultants 25 %

Steering committee members 20%

Source: Department of Finance, 1998a, section 6.58

Although women are probably the primary long-term beneficiaries of water projects because of their gendered roles, the table suggests that they are doing less well in the short term. The group of women who benefit most are the consultants � one-quarter of all consultants were estimated to be women. But these are generally the women one would be least concerned about in a discussion about development, given their relative advantage,

The relatively poor performance of DWAF in providing short-term benefits for women is interesting given DWAF's high-profile commitment to gender issues and its own Working for Water campaign. The latter involves heavy physical work and reports that the majority of workers employed are women. Attention to this aspect has led to the provision of creches at each site.

Evaluations of the public work programmes of the Department of Public Works (DPW) suggest that just over 40% of those employed on DPW short-term projects are women. One can argue that even this is not enough, given that the projects are implemented in women-dominated rural areas and are meant to focus on the poorest, who are generally women. One can also point to the fact that only 32% of those who received training were women. Nevertheless, the comparison with DWAF's water programmes suggests that 40% women employment is an achievement of which DPW can be proud.

DPW's experience also provides insight into the nature of some of the difficulties involved in promoting gender equity. The evaluations and other reports 'from the coalface' suggest that 'the community' (or those who speak on its behalf) as well as the provincial government and private and non-governmental enterprises are less keen to establish gender equity than the national policy makers. Indeed, during the SANGOCO Poverty Hearings, Alfred Selomane of the Communication Workers Union � probably not the archetypal rural dweller � put his opposition to the public work programmes as follows:

The RDP is ridiculing our mothers. Our mothers are made to dig trenches. It is called employment. Whereby you walk right around this South Africa and you never find a white woman digging a trench. The dignity of our mothers is taken because they have to dig trenches, while they have to feed their babies, cook for their loved ones (Budlender, 1998, p. 21).

Equity in Urban Municipal Infrastructure

DWAF's programmes focus on water provision for rural areas. In urban areas water provision falls largely under the Consolidated Municipal Infrastructure Programme (CMIP), with the Department of Constitutional Development (DCD) as the lead department. Although rhetoric often equates 'women', 'the poor' and 'rural dwellers', there are many urban-based women and men who are poor and without adequate services such as water provision. Their needs must not be concealed through facile generalizations in debates around development.

As in the rural areas, inadequate water supply in urban areas affects women more than men, given their concentration in the underserviced or unserviced informal settlements as well as their reproductive roles. Further, in terms of productive

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roles, women are more likely than men to work from home. Hence water is an important productivity and quality enhancer for women-dominated work such as hairdressing, foal preparation and childminding.

The CMIP funds municipalities towards providing bulk and connector services to poorer areas. These funds are in addition to the 'equitable share' funds from the national fiscus. They are aimed at ensuring that municipalities have sufficient funds to cover the operating costs of the poorest households.

Business Day of 9 April 1998 reported on the allocation of CMIP's 1998 total of R583m. According to the newspaper article, funds were allocated on the basis of provincial populations and poverty indices.

The following table shows KwaZulu-Natal receiving the largest allocation � 20% of the total � with Gauteng and the Eastern Cape close behind at 19% each. The Northern Cape, with the smallest population, gets the lowest allocation. The table indicates, for each province, the amount of the CMIP grant, the proportion this constitutes of the total allocation, a poverty ranking, the percentage of the South African population living in the province, and the percentage of its women population.

CMIP 1allocations, poverty ranking and population indicators by province

Province Amount (m)

% Poverty rank

Population Women

KwaZulu-Natal

117 20% 52% 20% 53%

Gauteng 113 19% 17% 19% 49%

Eastern Cape 109 19% 71 % 16% 54%

Northern Province

69 12% 59% 11% 55%

North West 46 8% 62% 8% 51%

Western Cape 44 8% 28% 11% 52%

Mpumalanga 41 7% 57% 7% 51%

Free State 31 5% 63% 7% 51%

Northern Cape

11 2% 55% 2% 51%

Total 581 100%

100% 52%

Sources: Business Day, 9 April 1998; May, 1998, p. 28; Central Statistics, 1997,

pp. 7, 11

The table shows a close match between the distribution of CMIP funds and the overall distribution of the population. The poverty weighting results in, at most, a three percentage point difference between the CMIP and population percentages � with the Eastern Cape accessing three percentage points more than its population share and the Western Cape three paints less. However, if the formula is, as reported, based only on poverty and population, it is unclear why the Northern Province - the poorest of all the provinces and also the province with the highest proportion of women � gains only one percentage point. It is also unclear why Gauteng, the richest province and the only one with more men than women, gets the same percentage of the CMIP as its share of the population.

One explanation is that the CMIP � unlike the Municipal Infrastructure Investment

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Framework which modelled backlogs in services and upon which CMIP is allegedly based � is linked to pausing and is application driven. Gauteng's higher allocation thus reflects its relatively good performance in providing houses, which the CMIP then funds in respect of bulk and connector services.

Thus, while the Department of Finance (1998b, p. 2) reports that the CMIP is 'well designed and appears to be taking off effectively', the programme undoes some of the redistributive features built into the equitable share formula. In doing so, it disadvantages women and poor people in rural and less developed areas, and in areas where delivery has been slow. Even in terms of the equitable share formula, there are many slips between the intention of the broad formula and the effect an individual women and men and households. The equitable share formula divides the money between municipalities, but says nothing about how they should use the money to provide for those most in need. In the words of the Department of Finance (1998, p. iii), the formula's 'primary virtue' is seen as the provision of

the fiscal resources for each municipality to deliver a package of basic services to low income households at affordable costs. In the final instance, however, ensuring that these resources are effectively targeted at the low income households in need of them is a local responsibility (emphasis added).

Just as equity in infrastructure construction requires commitment from provincial implementers, equity here requires commitment from municipal decision makers. Patrick Bond's chapter/s in this book address the issue of affordability once services exist.

Measuring Gender

Above we have noted the danger of equating 'the poor', 'women' and 'rural dwellers'. For instance, the population of the Northern Province constitute 45% men, but many of them are as desperately poor as the women. Similarly, in relatively wealthy urban Gauteng there are many poor women and men.

If we cannot use such simple equations, how does one measure gender benefits? In sectors such as education and health, it is relatively easy to distinguish between benefits accruing to women and men, girls and boys. In education, for example, one can count the number of girl and boy pupils at various levels. In health, one can count the number of women and men users of different types of services. Similar measures are possible � if somewhat more difficult and unusual � for infrastructural services such as roads, streets and paths of different types where individual usage can, theoretically at least, be measured.

When it comes to goods and services consumed by a household, 'measuring' gender is usually more difficult. In the case of water, as above, one can make general observations on the basis of what one knows about the division of labour between women and men. But how do departments such as Land Affairs and Housing, which provide household subsidies, measure the gender impact of their services?

Both of these departments attempted to measure the percentage of woman-headed households benefiting from their services. Based on international research, the measurements suggested that � on the whole � woman-headed households were poorer than man-headed households. The international findings were confirmed by large South African surveys such as the 1993 Project for the Study of Living Standards and Development (PSLSD) conducted by SALDRU and the World

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Bank and the 1995 In-come and Expenditure Survey of the Central Statistical Service. (The international findings were, however, disproved in respect of specific types of woman-headed households (see, for example, Arlington and Lund, 1995).)

In addition to the practical problem of resistance in some provinces to the collection of information in the first place, both Land Affairs and Housing encountered conceptual problems with this approach. The definition of a woman-headed household was the most basic problem. Are households only placed in this category when they contain no adult men? This seems to have been the definition of the Department of Housing, which apparently led to embarrassingly low rates of provision of subsidies to woman-headed households. Furthermore, the definition may be applied differently by the household, the applicant and/or the departmental official.

Recent research by Bridget Kenny and her students points to some of the different meanings ordinary people attach to the term 'household head', even in a single township, Soweta. Kenny first quotes a married woman crèche owner who refers to both income-earning activity and custom in explaining that her husband is the household head 'as per tradition. He is the oldest man in the house, the chief decision maker and breadwinner.' Two other informants regarded custom as the deciding factor. According to a married man brick maker, 'the man, if still alive and whether working or not, should be the head of the family'. A married seamstress who monthly earned about R6,000 from her informal activities and R3,000 from nursing nevertheless deferred to her husband, who earned far less than she, because 'it is traditional that a man is always a head of the family' , Yet other informants introduced factors such as age or ownership of the home in explaining who was household head and why. Thus a divorced spaza owner saw his mother as head 'because we are her children and we are still living in her family. We are not yet independent from her. She is the elder in the family and the same as we were respecting our deceased father, we have to respect her.'

The apparent discretionary approach of the Department of Land Affairs to the definition of household head thus makes it difficult to know what one is measuring and why. Why, for example, if age is taken as the deciding factor, should a household whose oldest member is a woman be favoured over one whose oldest member is a man? A discretionary approach also makes it impossible to determine whether differences between provinces are a result of a difference in definition or a difference in performance.

A further question about the use of the concept of woman-headed household concerns women who are members of households headed by men. Even if around 30% of households are headed by women, and even if these households are � on average � poorer than those headed by men, there will still in absolute terms be more women in poor man-headed households than in poor woman-headed ones. Further, it is probable that the women in the man-headed households � especially where headship is defined by decision making �v will have less control over and access to the available household resources than women in woman-headed households. Much has been written, and a fair amount of qualitative research conducted, on the question of intro-household income distribution. Much of this work suggests that women often do not access their 'fair' share, i.e. a per capita share, of household resources.

The problem is how to use this knowledge in implementing policy. Using individual income is a problem, as it would render a Houghton housewife without paid work eligible for government benefits. It seems that no-one has as yet devised a way of

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measuring intro-household income distribution other than through detailed, and small-scale, anthropological type studies. However, more such studies would slow down deliver further.

Land Affairs and Housing now seem to be moving towards measuring not the form of the household, but rather who within the household gains ultimate control over the asset acquired with the state subsidy. In its crudest form, the name of the man, woman, or woman and man together that appears on the title deed would be the decisive factor. Such a formal title may however be the subject of gendered power plays when two individuals separate. Nevertheless, the formal title could be important. For example, where an abused woman is the title owner, she would not be forced to stay in a dangerous relationship with a man simply to retain a roof over her own and her children's heads.

If one wanted to take this 'control' approach beyond measuring the impact of policies, to altering the patterns, one could make policy that stipulates that a woman should be the primary beneficiary in any beneficiary household which contains a woman. This has been done elsewhere in the world in terms of housing. A problem in South Africa might be the multiple forms of household, with the result that in many households it would be unclear which woman should be prioritized.

One source of the problem in the above instance is the fact that benefits accrue to households and households and other social formations are subject to gender dynamics. However, gender is essentially an individual attribute. It is individual women and men who are constructed, and construct themselves, as women and men and who engage with others on this basis. It is individual women and men who are relatively disadvantaged or advantaged because of these constructions.

The distinction between other contextual disadvantages and the additional disadvantages which often affect women are clear when one looks at targeting within the DPW. From the beginning the DPW took a firm decision to focus on those areas that were most needy. The attributes used to define which areas would be eligible for projects were rural location and the average income of an area. At this level of targeting it is impossible to target in gender terms, without reverting to the woman-headed household concept. To target in gender terms, the DPW need to consider the gender of individuals in allocating available jobs.

A Question of Relative Disadvantage

As noted above, the DWAF estimated that none of the contractors on their water supply programme were women. In other sectors, and housing in particular, it seems that performance has been somewhat better, The Department of Housing itself has encouraged initiatives around women contractors through, for example, the initiation of a Women for Housing Group in 1996. Non-government and semi-government (e.g. DBSA) organizations are also increasingly active in this area. The National Urban Reconstruction and Housing Agency (NURCHA), for example, has a stated preference for assisting women-driven projects (see chapter on housing and gender).

In June 1997 the Pretoria launch of the National Programme of Women as Emerging Contractors attracted approximately 300 women contractors from around the country. The initiative is being co-ordinated by the Development Bank of Southern Africa and the Development Resource Centre of the University of Pretoria. At least some of the women who attended the launch had already obtained contracts for construction of classrooms, clinics and rural roads (Mokate, 1998, p. 126).

The DPW has itself developed a ten-point plan (TPP) to guide departments in terms of procurement. The objective of the TPP is to increase the participation of small, medium and micro enterprises (SMMEs), and particularly the disadvantaged. Under the TPP all tenders for contracts of less than R2 million are allocated up to 88 points on the basis of cost, 10 points if equity is owned by black people, and two

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points if equity is owned by women. Mokate (1998, p. 112) notes that the DPW acknowledges that while it has succeeded to some extent in respect of black people, it has not done so in terms of women. The DPW advances as one of the reasons the paucity of black woman entrepreneurs in relevant sectors. The success of initiatives such as the National Programme of Women as Emerging Con-tractors suggests that either the DPW was not looking hard enough and in the right places, or the situation is changing.

The national programme claims to represent 'women at all levels of the construction industry, be they labourers, trades(wo)men, contractors or quantity surveyors working on site' (Development Bank of Southern Africa and University of Pretoria, 1998, p. 22). Nevertheless, the emphasis appears to be on issues affecting contractors more than others. As a result, the women involved in this and similar initiatives are generally unlikely to be at the same levels of poverty as those served by the infrastructural assets.

From an equity perspective, there are certainly good reasons to fight against a situation where women are still clearly accessing only a small proportion of the benefits of involvement. From a development perspective, too, the interests of women or any other relatively disadvantaged group should be promoted as long as in doing so (a) one is not disadvantaging those who are even less advantaged, and (b) one is not using resources that could otherwise be used in assisting the less disadvantaged. In the context of contractors, situation (a) would arise were woman contractors permitted to treat employees worse than men or large contractors. Situation (b) does not seem relevant in that government is not expending any significant resources on promoting women contractors.

Conclusion

Statistics relating to gender disadvantage in South Africa have been produced often that they should not need repeating here. What is less often pointed out is the diversity among South African women, racial diversity excluded. While women are, on average, less well off socio-economically than men, not all women are equally disadvantaged, and a few are not disadvantaged at all.

Given its limited resources, if the government is serious about 'development' in the redistributive sense, it has to concentrate on those who are most needy. With over 40 million people, it cannot measure individual need and thus requires some broad indicators. Rurality, income and gender clearly qualify as broad indicators of need in South Africa, and are likely to do so in the foreseeable future.

The government can resort to merely monitoring the impact of its policies on different groups of people. However, it can use indicators in a proactive way for targeting intervention.

In terms of infrastructure, this chapter suggests there are several levels at which such monitoring and targeting can occur. Firstly, the type of infrastructure can be targeted. Water is a clear example of a woman-friendly asset. In public works programmes, there might be gender differences depending on whether one targets schools, educare centres, roads, or local paths.

Secondly, the beneficiaries of the construction have to be identified. Here one might ask who gets the waged jobs, and which type of jobs, who gets training, who gets contracts, and who consults.

Thirdly, the utilization of the infrastructure and the extent to which pricing and other policies ensure equity are to be explored.

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What the discussion above suggests is that none of the issues are easy. Society is complicated, and � in addition to outright resistance - there are many practical problems to solve if the government is to fulfil its commitment to gender-equitable development.

References

Arlington, E. and Lund, F. (February 1995), Pensions and Development: How the Social Security System can Complement Programmes of Reconstruction and Development, Development Bank of Southern Africa, Halfway House.

Budlender, D. (1998), The People's Voices: National Speak Out on Poverty Heargins, March to June 1998, Commission on Gender Equality, South African Human Rights Commission and the South African NGO Coalition, Johannesburg.

Central Statistics (1997), Census '96: Preliminary Estimates of the Size of the Population of South Africa, Pretoria.

Department of Finance (1998a), Budget Review 1998, Pretoria.

Department of Finance (1998b), The Introduction of an Equitable Share of Nationally Raised Revenue for Local Government, Pretoria.

Development Bank of Southern Africa and University of Pretoria (1998), Women: A Developing Resource in Construction, First Annual Report June 1997 to June 1998, Pretoria.

Kenny, B. (1998), 'I'm Running it Here at Home': Informalising Work and Reproducing Gender Relations in South Africa' (unpublished).

May, J. (1998), Poverty and Inequality in South Africa, Report prepared for the Office of the Executive Deputy President and the Inter-Ministerial Committee for Poverty and Inequality, Durban.

Minister of Finance (1998), Budget Speech, Pretoria.

Mokate, R. (1998), 'Public Works, Public Enterprises and Communications' in D. Budlender (ed.), The Third Women's Budget, Idasa, Cape Town, pp.117-43.

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4 The Role of the Construction Industry in the Delivery of Infrastructure in South Africa

ANDREW MERRIFIELD

Introduction

Since the advent of South Africa's first democratically elected government, the construction sector has been expecting a sustained revival in the industry. After experiencing the longest economic recession since the 1940s, which left the construction sector at perhaps a third to a half of its 1980 capacity, the industry now faces the prospect of vastly increased demand from both the public and private sector if the policy objectives of the new government are to be realized.

This chapter therefore sets out to review the role of the South African construction industry in the delivery of infrastructure. It analyses the industry over the last 30 years, and then attempts to assess its ability to deliver infrastructure in terms of the new government's stated policy objectives. In seeking to understand the industry's potential to address infrastructure backlogs, this chapter seeks to identify key structural weaknesses. In particular, it identifies recent changes in the production regime on site and indicates how these changes have undermined the institutional framework that previously supported the development of the industry. It briefly describes the industrial strategies adopted by the new government to address these problems and then assesses their feasibility in terms of trans-forming the organizational, institutional and industrial practices of the industry.

A Historical Review of Infrastructure Delivery

Since a more comprehensive analysis of infrastructure investment trends is covered in another chapter, this chapter merely focuses on the effect of those trends on the construction industry itself. In the chapter on infrastructure investment (Chapter 5 "Financing of Public Infrastructure Investment in South Africa"), it is shown that investment in construction goods and services, as measured by Gross Domestic Fixed Investment (GDFI), grew consistently between 1946 and the early 1980s. Since then, GDFI on construction goods and services declined significantly until 1994 when, with new government policies, some sectors began to revive. The historical evidence presented indicated that investment in all sectors declined by at least 50% since the early 1980s. However, since 1994, investment in civil engineering works and non-residential building has increased steadily.

Although the sustained decline in investment on construction goods and services between the early 1980s and the mid-1990s gave rise to the structural changes described below, the volatility of construction demand exerted the most significant effect. Construction demand has fluctuated more than demand in the economy as a whole (see Chapter 5 "Financing of Public Infrastructure Investment in South Africa"). The excessive movements in demand have provided a greater impetus for construction firms than for other firms to adopt more flexible production strategies.

The Structure of the Construction Industry in South Africa

The South African construction economy is highly skewed: a few large firms dominate an industry comprising a very large number of much smaller firms. The latest Census of Construction 1994 (CSS, 1997) enumerates 12,386 firms.1 It also indicates that 14% of the firms were responsible for more than 75% of the total construction output although this varied for each sector. Approximately 19% of the civil engineering firms accounted for 80% of civil engineering output, 18% of home builders accounted for 70% of home-building output, while 17% general

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contractors accounted for 70% of general contracting work (CSS, 1997, pp. 22-3).2 On the basis of the interviews conducted between 1991 and 1997, it is possible to assume that this pattern of concentration still holds.3

The construction industry can be disaggregated into a number of categories. There are the eight largest contracting companies with an annual turnover of between R400 million and R1,600 million from construction activities (1994 figures). These are all publicly listed companies. All these companies can handle projects of greater than R100 million, and their competitive advantage becomes evident in projects of greater than R20 million.

They can be referred to as the national contractors in that they have divisions operating in most regions. The structure of these companies is that of a holding company with operational divisions (with an annual turnover of R50-R100 million each) that act as separate business units. The national firms serve both the building and civil engineering sectors, and have several specialist contracting entities, a centralized plant facility and a common source of funds. Most, but not all, have a property development division as well as industrial or commercial interests 4 A significant proportion of their work comes through negotiation or own development and they generally tender on an invited basis only. These national entities have aggressively pursued an offshore strategy since 1994, and now obtain up to 30% of their turnover from non-South African work.

Below the national contractors are the large regional contractors, with an annual turnover of R30-R80 million, who may be capable of competing with the national companies in their specific region on contracts of R10-R40 million, although, like the national contractors, they seek work at lower values. It is more difficult to estimate the number of such firms, but on the basis of the author's interviews, it is possible to suggest that there are about 35-50 firms in the country that could be classified in this category. Generally they are privately owned, many are family companies or still owned by the original founder(s).

Their competitive advantage seems to be at the level of jobs of R5-R10 million. They are generally slightly smaller than the regional divisions of national companies, whose divisions can draw on the resources of their national holding companies. This enables the regional divisions to compete with greater flexibility than the regional firms. The regional firms tend to specialize as building or civil engineering contractors. Many of these firms get their work through negotiation and, like the national firms, they generally tender on projects above R2 million. Due to their limited resources, self-initiated property development rarely exceeds 20% of their turnover.5

Beneath the two above categories, the industry broadens out dramatically. There is a grouping of firms, referred to as a 'smaller regional contractors', with a turnover of between R6-R15 million. These firms compete for contracts in the R0.5-R5 million category with the contractors mentioned above, and their competitive advantage seems to rest around the R1-R2 million level. It is difficult to estimate the precise number of firms in this category, but it is unlikely that there are more than 250 firms nationally that fit in this market segment. Until 1994, this category and those above it comprized mainly firms which were predominantly white in composition and ownership. About ten new black-owned and black-managed firms have emerged in this category recently.

It would seem that the rest of the construction industry competes for construction work below the R500,000 level. There are perhaps between 7,000 and 10,000 such firms formally registered with employer organizations. Further to the bottom of the pile is the small-scale contracting enterprises in the informal sector. It is estimated that there may be between 2,500 and 40,000 such enterprises.6 Although we may distinguish the informal sector from the formal sector, there is a clear productive relation-ship between the informal sector's labour-only sub-

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contractors and the formal industry that employs them (Merrifield, 1994, pp.16-17). It is at this level that the majority of black-owned firms are concentrated, while many of the formally registered firms would be white-owned and white-managed.

Type Number Annual turnover

(R millions)

Contract limit (R

millions)

Competitive advantage (R

millions)

National 8 400-1,600 >100 20

Large regional

35-50 30-80 <40 5-10

Small regional

250 6-15 0.5-5 1-2

Small formal

7,000-10,000

<0.5 0.1(?) (?)

Small Informal

2,500-40,000

<0.5 0.1(?) (?)

Evidence from interviews and supporting statistics suggest that the vast majority of the firms operating in the R500, 000 and less category are specialist contractors or sub-contractors. There are however no clear statistics indicating the prevalence of sub-contracting in the building industry. The assumption was nevertheless confirmed by the interviews, with many firms indicating that sub-contractors are performing most labour, with the exception of security, clear-up crews and site staff.

The use of sub-contractors was highest in general contracting, averaging 65-95% of all labour employed on site; home building averaged 40-85%, while civil engineering generally averaged about 10%. Labour only sub-contracting (LOSC) is used in most wet-trades and carpentry, with only the traditional plumbers, electricians and specialist sub-contractors supplying their own materials. The LOSC firms are often formed by previously retrenched employees and, because they tend to remain unregistered, are not reflected in the official employment statistics.

The above breakdown is generally confirmed by data of the BIFSA/NHF survey7 conducted in 1994. Ten respondents (1.78% of those answering the question) had a turnover of greater than R50 million in 1993. It is likely that these were mainly regional divisions of national firms. Another 32 (5.69%) had a turnover of R10-R50 million, white yet another 35 (6.23%) had a turnover of R5-R10 million.

This seems consistent with the qualitative assessment presented above (see Graph 1 below).

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Graph 1 Proportion of firms by firm size (in turnover categories)

Below R5 million the industry seems to broaden out significantly, with 153 respondents (27.22%) operating in the R1-R5 million range. Another 89 respondents (15.84%) operated in the R0.5-R1 million range, while 243 (43.24%) operated below the R500, 000 level. In line with the above discussion on concentration, only 13.7% of the respondents had a turnover of more than R5 million, while 86.3% completed contracts for less.

In comparing the census figures with the survey, and the qualitative picture described above, we find general confirmation of the deployment of construction firms in the industry. The overall pattern confirmed by the statistics and interviews is that the South African construction industry is dominated by a relatively small number of large firms who, through sub-contracting relations with much smaller firms, produce the bulk of the construction output. As will be discussed further below, one of the primary aims of the new government is to change the structure of the industry.

Capacity and Performance Constraints

Research by the author and others (Merrifield, 1994; Ngoasheng, 1994) on capacity and performance suggests that there was excess capacity nationally in the contracting and materials sectors in 1994, varying between 20% and 50% in different sectors and in different regions. Subsequent research by the author suggests that with the post-election upturn in construction spending, capacity limits were approached in the Western Cape and Gauteng which experienced greater GDFI increases.8 Until the 1998 downturn in construction activity, capacity averaged around 80% utilization, close to the industry's long-term norm.9

The studies of the materials sector conducted in 1994 suggested that most of the materials sector was operating at below 50% utilization if long-term capacity was taken into account (Ngoasheng, 1994). More recent interviews with contractors suggested that capacity constraints did arise between 1996 and 1997 for specific materials but that the materials supply sector remained below its capacity

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constraints. These interviews also suggested that since 1994, materials imports have increased and are likely to make up any local shortfall in the future (Merrifield, 1997).

The most likely consequence of capacity constraints if construction demand is to increase is that of cost escalation. The historical evidence, reflected in Graph 2 below, shows that construction costs in both civil engineering and building have generally increased at a rate greater than that of other industries (as represented by the Production Price Index (PPI)).10 The graph below also indicates that the periods of greatest cost escalation

Graph 2 Building cost escalation

occur after a recession and at the onset of a boom. Although comparable capacity measures are not available for the earlier period, interviews and the author's own experience in the industry indicate that the periods of cost escalation shown below arose largely due to capacity constraints.

The first significant period of cost escalation shown above was the 1978-1983 boom driven by rising gold prices. After the 1976-77 recession the construction boom saw building casts escalate 89% between 1978 and 1983 as opposed to the 60% PPI increase. This period saw a 27% increase in building costs in 1980 and a 32% increase in 1981 as compared to the PPI increase of 16% and 14% respectively. The cost indices show significant construction cost escalation when the industry is experiencing boom conditions (as in 1987-1988 as well). It is therefore reasonable to assume that significant increases in construction investment as anticipated by government policy are likely to generate further cost escalations until capacity constraints are overcome.

The incidence of cost escalation in the construction sector can of course be related to productivity trends in the industry. Evidence collected by the National Productivity Institute (NPI) as well as through interviews indicates that construction productivity has fallen significantly since the early 1970s and has only seen sustained improvement over the past three years (NPI, 1997, p. 5).

Labour productivity declined 41% from its highest level in 1972 to 1987, recovering only 5% by 1994, before showing an 11% increase in the last three

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years.11 Fixed capital productivity has declined almost 62% since its high point in 1960, and has shown only a 3% increase in the last three years (see Graph 3).

The combination of capacity constraints, cost escalation above that of other industries, and significant productivity declines would support the contention that the construction industry is in a poor shape. It is therefore worth describing same of the reasons for this state of affairs before turning to government policies designed to address the problems.

Supply-side Constraints in the Industry

The trends described above have together transformed production in the construction industry in a manner which has led to a significant decline in capacity and performance. Structurally the industry reacted by adopting more flexible production practices, but these do not suit the institutional relationships that previously defined the dominant farms of production in the industry.

Graph 3 Productivity in construction

The most important shift, especially in the building sector, is the rise of labour-only sub-contracting (LOSC) in the face of declining turnovers and narrower profit margins in traditional markets.12 The growing predominance of LOSC on South African construction sites is not only cause for concern amongst sub-contractors who face the difficulties mentioned below, but it also creates new complications for the general contractor or project manager.

Sub-contracting has transformed the main contractor's control of labour on site, which in turn has profound implications for productivity. Unlike other forms of manufacturing where further investment in technology has brought about greater productivity through a greater degree of labour control (Braverman, 1974), contractors have, through sub-contracting, shifted labour control on site to the sub-contractor. This constrains the general contractor's capacity to directly improve productivity. Further-more, because the formal institutions of the industry exclude LOSC firms, sub-contracting probably also militates against indirect efforts at improving productivity, such as training.

Recent developments in 'post-Fordism' have brought about a similar change in manufacturing in that sub-contracting has enabled firms to adopt flexible specialization despite technological advancement (Carson, 1987; Hirst and Zeitlin, 1991; Harrison, 1994). By contrast, sub-contracting in the construction industry

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has brought about greater flexibility although labour utilization has remained extremely unproductive (Bennett and Ferry, 1990; Werna, 1993; Aniekwu, 1995; Arditi and Mochtar, 1996).13 The low and even declining level of productivity in the contemporary construction industry in South Africa can be partially attributed to the manner in which the increasing use of sub-contractors has disrupted the existing training process.

It would seem that many of the LOSC firms are made up of farmer employees who were encouraged to become independent small-scale contractors, and who were offered some assistance from their former employers in starting up their businesses. Other research, however, indicates that this assistance was primarily in terms of providing the sub-contractors with work, and most small contractors surveyed indicated that they had received very little training or financial assistance from their previous employers (Cattell, 1993, pp.106-7).

Most firms interviewed argued that LOSC was cheaper than employing their own labour. They recognized that this was the result of LOSC labourers not being paid statutory rates and not receiving statutory benefits. Very few firms checked on the employment conditions of their LOSC labour force, and most emphasized the cost savings but overlooked the lack of productivity (Merrifield, 1994, pp. 27-8). Indeed, unlike the expectation elsewhere (Casson, 1987, pp. 165-b), many admitted that both quality and productivity were sacrificed with LOSC, but that economic conditions dictated its use.

A number of firms admitted to an economic and political agenda when promoting LOSC. Economically (and politically to some extent), they promoted LOSC in response to growing unionization and the expectation that labour costs would escalate unmanageably. Politically, they promoted LOSC because they believed that if their former employees were to have a greater stake in the economy, they would be less likely to support political alternatives which would cause them to lose that stake (Casson, 1987; Merrifield, 1992a).

One of the more intransigent problems is the status of LOSC firms in terms of the statutory wage regulation system. They have been able to avoid paying statutory rates and benefits, and as a result they depress labour prices and give contractors (usually the larger firms) who use LOSC an unfair competitive advantage over contractors (usually smaller regional builders) who employ their own labour in terms of statutory employment conditions. This situation thus further undermines the statutory wage regulation system in that firms that are disadvantaged through complying with statutory conditions are encouraged to disregard these conditions.

Research indicates that the most significant constraint facing LOSC and other informal firms is their lack of managerial expertise. The lack of managerial expertise gave rise to problems with cash flow, labour control and turnover. For instance, problems concerning the cost of labour actually had more to do with the inefficient use of labour. Similarly, problems with cash flow and requests for bridging finance arose from poor planning and poor job control (Krafchik, 1990; Merrifield, 1992a, 1994; Cattell, 1993).

These findings should not be interpreted as a suggestion that LOSC firms are to blame for their problems. Rather, contractors operating in this market have limited access to the training programmes offered by the formal industry, which means that they are not in a position to improve their productivity. The primary constraint facing small contractors is access to training both for themselves (to improve their business skills) and for their labour force (to improve trade skills). Without formal training, and given the erratic availability of construction work which diminishes the value of on-the job training, the current generation of semi-skilled labour will

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probably be unable to pass on their skills to their operatives in the future. Hence the standard of skilled work on site will deteriorate progressively (Merrifield, 1992a, pp. 66-72).

Research on programmes designed to support small-scale contractors in the low-income housing sector in the pre-1994 period indicated that many of these programmes did not equip the builders with the skills of 'risk management' that would enable them to survive in a competitive market. While the programmes provided managerial support, they restricted the builders' operations to a level which did not guarantee them self-sufficiency (Merrifield, 1992a, pp. 60-6). Since 1994, support has been emphasized less and providing work opportunities to small-scale black contractors has been emphasized more. To some extent, support programmes have been replaced by joint venture contracts between black (small under-resourced) and white (large well-resourced) contractors. In many cases these joint ventures have developed small contractors' skills and increased their exposure to larger contracts, but they have apparently not provided the 'risk management' experience necessary to become competitive in the market.

The training of small-scale contractors is central to both the transformation of the existing formal sector and the promotion and development of historically disadvantaged contractors who operate primarily in the informal sector. New government policy aims to develop a new generation of contractors by providing them with work experience, training and mentoring. With adequate support, new firms can be developed and grown. However, this advancement of the historically disadvantaged sector should not lead to the undermining of the formal industry since most construction skill and expertise remain there.

The Policies Created to Address Constraints in the Construction Environment14

When the new government came into power, a range of infrastructure delivery departments at national and provincial level developed policies in an attempt to address some, if not all, of the above problems. Notable among them were the departments of Public Works, Housing, Water Affairs and Forestry, and Transport. In some instances, provincial departments associated with these functions also became active in defining policy.

Arising from strong political lobbying for real transformation in the industry, all the above policies emphasized the creation opportunities for previously marginalized black contractors. Both Housing and Public Works extended this emphasis to address client concerns about the cost and quality of the construction goods and services delivered in their respective sectors (residential and non-residential). However, the emphasis on labour-based construction initiatives seems to have lost a lot of its' momentum in recent years (Public Works, Transport and Water Affairs contributed to this situation). A fourth emphasis, which is only beginning to have an effect, is the promotion of public-private partnerships in the delivery of construction goods.15

Government policy has clearly impacted on two main areas of the industry: affirmative procurement for those previously marginalized, and construction industry development. Affirmative procurement has been designed to address the structure of the industry that saw the bulk of construction work going to large firms which were historically owned and managed by whites. As we have seen, with the possible exception of half a dozen newly emerging black firms in the smaller regional market segment, the majority of black firms are small or micro enterprises, and many continue to operate in the informal sector.

Recent research by Public Works has indicated some success for their affirmative procurement policies. Having applied their ten-point plan and affirmative procurement policy since August 1996, the department has experienced a ten-fold increase in the participation of affirmable business enterprises � from less than 3% prior to the introduction of the policy to almost 30% by March 1998

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(Gounden, 1998). An independent review of the contracts confirmed that the cost premium for such policies is in the order of 0.8% (ibid.). While the department achieved a phenomenal growth at the bottom end of the market, it was not satisfied with the growth of black prime contractors16 and recently announced a programme to promote this sector.

The second area where government policy impacted is the development of a comprehensive industrial strategy for the construction industry (DPW, 1995; DPW, 1996; DPW, 1997).

The strategy to create an 'enabling environment' for the South African construction industry largely rests on the problems identified above. Since the volatility and decline of construction investment is seen to be one of the prime reasons for the shift towards more flexible production practices, the strategy seeks to moderate the construction cycle (the difficulties with this are addressed in Chapter 5 "Financing of Public Infrastructure Investment in South Africa"). The strategy also attempts to address the type of flexibility that has arisen in South Africa, giving support to the legislation being promulgated by the Department of Labour.

It is assumed that by stabilizing labour relations, and by withdrawing incentives for the employment of greater numbers of temporary employees, the industry will be motivated to invest in training, which should help improve productivity and output quality. In order to encourage the industry to change, the strategy adopts procurement incentives which include the affirmative procurement procedures discussed above, but also procurement incentives that cover minimum and best practice standards in areas of training, productivity and quality improvement, safety and environmental management. The industry will largely be encouraged to adopt these measures through positive incentives such as gaining a procurement advantage, but the state may also use penalties if necessary.

The main instrument for promoting and monitoring the transformation will be the Construction Industry Development Board (CIDB) and a register of construction enterprises. The CIDB will provide a means of including stakeholder participation in the definition of industry development programmes, while the register, which will be housed by the CIDB, will provide these stakeholders with a mechanism to monitor progress on these programmes. There are other programmes concerned with restructuring the institutional arrangements around training, promoting small businesses, encouraging regional and international competition and institutionalizing labour-based construction, but the above components capture the essence of the restructuring strategy.17 In the section that follows, the author will raise some questions about this strategy.18

Industrial, Organizational and Individual Learning for Construction delivery

In this section, the government's policies for addressing the problems in the construction industry are assessed. Although the author believes that these policies are appropriate for the long-term transformation of the industry, it is unlikely that they will have a significant effect on the industry in the short term. This may mean that these policies will not help the government achieve its well-publicized delivery targets and may cause the post-1999 government to change these policies even before they have taken effect.

Research on construction industry capacity and performance has questioned whether the industry (both formal and informal) as presently constituted can increase its output much beyond the peak output levels of the early 1980s (Merrifield, 1994). In other words, if the industry were to increase output by 20-30% beyond 1994 levels, its marginal costs will start to rise due to shortages of key input factors. As the problem is understood in terms of the above trends, this

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is not merely an issue of gross individual inputs (labour, materials, plant), but whether the industry has the organizational capacity to execute a significantly greater amount of work in a short period of time.

From the level of the site (which requires the complex co-ordination of labour, sub-contractors, plant, materials and cash flow) to the level of the firm (which co-ordinates a number of such projects, raises finance for investment, determines the mix of business activities to ensure profitability and survival) to the level of relationships with other firms and institutions (developers, professionals, suppliers, finance institutions, local authorities) there is a system which has been producing a certain quantity of construction goods at current levels of activity. Its output defines what can be seen as the organizational capacity of the industry as a whole in its current form.

In the above analysis of supply-side constraints, a number of levels of organizational learning were identified.19 At the most basic level, new contractors and sub-contractors have to learn how to manage their sites efficiently, while established contractors need to employ, train and develop new site supervisors and managers. It should be recognized that it is easier for supervisors/managers to increase their experience and broaden their responsibilities within the formal construction sector, but even here the development of charge hands to section supervisors to foremen could take between three and five years, depending on previous experience, skills and training. Unfortunately, few small-scale contractors are likely to fallow this route20 and will thus lack the broader site exposure that would assist them in managing their own contracts.

Beyond direct site management, small-scale contractors (and their large-scale counterparts) need to Learn to manage their businesses effectively. Business management is different to construction or production management, focusing as it does on the commercial activities of the enterprise. Even good site managers do not necessarily make good business managers, since business management involves a much greater degree of risk management.

From research and discussions with those involved in business training it is clear that a learning cycle is involved. As contractors become more competent, they can learn further skills, but the pace of development depends on the individuals' exposure to business opportunities and their ability to manage risk. Interviews and informal discussions with small-scale contractors suggest that urban small-scale contractors develop more quickly because they get greater exposure to opportunities and risks, but even these contractors acknowledge that it took them more than ten years to learn the rules of the game.

Beyond the formal and informal learning process there is also the need to account for business failure. Overseas research indicates that 30-50% of small firms fail in their first three years, and only 40-45% of firms remain in business after ten years (Burns, 1989; Storey et al., 1987; Johnson, 1986). Since these examples derive from relatively sophisticated samples,21 it is likely that small business (and contractor) development in South Africa will experience a much greater failure rate.

The issue, however, is not whether businesses fail, since business failure is part of the learning process, but to what extent they fail, and how does this affect the overall growth of the industry. To quote from the British experience, the probability that small firms will grow to employ more than 100 employees is 0.5-0.75% (Johnson, 1986). Johnson, in writing on the economics of new firms, concludes that 'the vast majority of new firms however remain small and die small' (Johnson, 1986). Thus while many new firms may enter the market, because of the high degree of business failure it is unlikely that the overall capacity of the industry will grow as quickly.

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In the literature on industrial growth and the growth of firms it would seem that growth adopts an S-shape curve. Young firms grow more quickly than older firms but this growth rate slows down as the growth coefficient (in this case representing organizational learning)22 declines and/or becomes negative (Marris, 1979; Kumar, 1984). The literature suggests that growth brings added complexity, which can slow down or prevent further growth. Thus, although it can be expected that the growth of individual firms will be faster than that of the industry as a whole, this might not lead to the expansion of the industry.

Given the S-shaped curve, firms and the industry will probably go through an initial phase of rapid development, which will then slow down as organizations acquaint themselves with operating at greater scales and with greater degrees of complexity. Even those well-established firms that have survived the recession can expect a period of slow growth as they replace staff lost through downsizing. Hopefully, if not too many firms are lost in this learning phase, there will be a further period of growth as firms and the industry consolidate. But as this consolidation can be expected to take time, and if, as in the past, growth is interrupted by cyclical downturns, the consolidation of the industry at a higher level of production may not occur or could be further delayed.

In addition to the development of firms and the industry, the organizational learning of other role players also needs to be accounted for. Both the state (as a regulatory and financing agency) and the clients have considerable influence over delivery. State regulatory and financial agencies are undergoing considerable restructuring as provinces and metropolitan governments are consolidated and central powers are handed down. Previous research on the construction sector suggests that such restructuring could take three to five years before state agencies consolidate their organizational learning (Merrifield, 1992a, 1992b, 1994). The recent Presidential Review Commission confirms this negative prognosis for the whole of government (PRC, 1998).

Beyond the state, there are the recipient communities and civil society. There is little reason to expect that communities will become less political than before, especially if, as may be expected, the promises of the new government are not met timeously. In considering construction growth therefore, delivery delays due to the volatility of community involvement can be anticipated. Depending on the cohesion and representativeness of local civil society structures, delays of anything between three months and three years (or project abandonment) need to be accounted for in growth estimates (Merrifield, Van Horen and Taylor, 1993).

Finally, in considering individual and organizational learning, it can take considerable time to create the environment to promote innovation and entrepreneurship. Overseas research shows that areas which have promoted innovation such as Route 128 outside Boston, or Silicon Valley in California, took 20-30 years to create the climate in which new innovative companies could flourish (Birley, 1989; Castells, 1989; Bahrami, 1992; Harrison, 1994; ISP, 1995). Since new government policy assumes that the construction industry would grow much faster than before, it is perhaps prudent to suggest that it will require a similar period before the enabling environment promotes similar innovation and growth.

Conclusion

The construction growth phase in South Africa will presumably take longer and cost more (in terms of risk) than current government policy anticipates. This means that without a substantial transformation of the existing formal sector and a vigorous development of new contractors from historically disadvantaged communities, the service delivery objectives of the new government are unlikely to be realized. Having reviewed the above learning processes, it is possible to conclude that although the government's current policies for the construction industry are likely to address many of the historical problems in the industry,

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industry transformation may take many more years than current political expectations may accommodate.

Notes1 It is difficult to enumerate the number of firms active in the construction market because many firms come into or go out of business weekly, depending on changes in construction demand. In 1994, at the bottom of the construction recession, the author estimated that the industry comprised between 7,500 and 10,000 firms, based on industry records (Merrifield, 1994). With the new government, and especially the introduction of affirmative procurement policies, many new firms have entered the market. Often they are formed merely to tender for available work and are only properly constituted if the con-tract is obtained. Tender lists in civil engineering alone indicate the presence of more than 4,000 new tendering entities (Henk Langenhoven, personal communication).

2 The variation in the percentages is due to the manner in which CSS categorizes firms and outputs in each sector. The basic pattern is the same.

3 In 1991-92 the author interviewed 161 construction stakeholders in the low-income housing market (Merrifield, 1992a, 1992b). In 1994, he interviewed 51 of the leading construction firms in the five major metropolitan centres (Merrifield, 1994): In 1996, 54 stakeholders were interviewed nationally (DPW, 1996, 1997), while in 1997, 4 firms were interviewed in the Western Cape, although another 8 firms were interviewed nationally for another project (Merrifield, 1997). In many cases, the same firms were interviewed on different occasions, providing some comparative perspective. The interviews in 1994 primarily focused on issues of capacity and performance, and while these issues were covered in other years, the 1994 data are most comprehensive on these issues.

4 In some cases, their industrial and commercial interests can equal if not completely overshadow their purely construction activities, although the turnover figures given above refer to their direct construction involvement. In the case of one firm, only 8% of its 1994 turnover came directly from construction, yet it remained the largest construction firm in the country.

5 The exception being property development firms which were not examined in much detail in the study, as the 1994 interviews focused on construction performance and capacity.

6 The extremes of the range are due to the difficulty of procuring data from a plethora of emerging contractor associations. The author tends to favour the lower figure, but Cattell's calculations favour the higher estimate (Cattell and Rwelamila, 1993).

7 The author helped process the data, but unfortunately his advice on sampling was ignored. As a result the data are likely to be skewed by a sampling error. Only 612 construction firms out of more than 8,000 polled replied to the questionnaire. His analysis of the data indicates that the survey findings correspond with the more qualitative impressions of the interviews.

8 The 3% growth in 1994-1995 and 1995-96 is calculated from SA Reserve Bank figures which are becoming increasingly suspect. The regional estimates were based on interview data in 1996 and 1997.

9 The Bureau for Economic Research (BER) estimated capacity utilization around 70-75%, while the South African Federation of Civil Engineering Contractors (SAFCEC) supported the 80% figure (Merrifield, 1997). The 80% utilization rate probably represents the industry's long-term full employment rate, which can only be exceeded for short periods.

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10 The graph only shows building cost escalation, but CSS figures suggest that a similar trend is found with civil engineering costs. The present graph was chosen because it represents a longer time series than those available from the CSS data.

11 Multi-factor productivity seems to follow that of labour, possibly an artifice of the manner in which it is measured.

12 The arguments here are mast applicable to the building sector where, as we have seen above, sub-contracting and especially LOSC is prevalent, but similar arguments concerning flexibility can be made for the civil sector.

13 Only Japan's construction industry seems to have taken the manufacturing route (Bennett, 1993).

14 The author was active in the policy environment from 1991 till the present and contributed to policy around housing (Merrifield, 1992a, 1992b, 1994) and construction industry development (Merrifield, 1994; DPW, 1995; DPW, 1996; DPW, 1997), and has recently contributed to finalizing the White Paper based upon DPW documents. The information presented in this section draws largely upon his exposure to that policy environment and he assumes that the policies will be analyzed in depth elsewhere.

15 This aspect will be dealt with more comprehensively in Chapter 5. ("Financing of Public Infrastructure Investment in SA")

16 Prime contractors are the main contracting parties with the client. Traditionally they employed the bulk of the workforce but in recent years prime contractors act as project managers or management contractors and make use of sub-contractors to complete the work.

17 Other factor inputs such as materials and plant are not seen to be as critically constrained (Merrifield, 1994). In other countries, other factors such as procurement reform are seen to be critical (Ofori, 1991; Werna, 1993; Aniekwu, 1995; Arditi and Mochtar, 1996).

18 As one of the primary authors of the strategy, the author believes that he not only has a right, but a responsibility, to raise these questions.

19 The concept of 'organizational learning' is still quite new and has been applied in a variety of contexts similar to those described in this chapter (Hirshman, 1958, Senge, 1990; Morecroft and Sterman, 1994; Senge et al., 1994).

20 Cattell's comprehensive 1993 survey of black contractors indicated that only 2-5% of these people have a background in the formal sector (Cattell, 1993).

21 Almost 80-90% of people starting small businesses were white-collar employees, and 50% were managers, foremen or professionals (Burns, 1989; Storey et al., 1987; Johnson, 1986).

22 Neither Morris nor Kumar provided an explicit definition of the growth coefficient, but their analyses are not dissimilar to those above (Morris, 1979; Kumar, 1984).

References

Aniekwu, A. (1995), 'The Business Environment in the Construction Industry in Nigeria' Construction Management and Economics, 13.

Arditi, D. and Mochtar, K. (1996), 'Productivity Improvement in the Indonesian Construction Industry', Construction Management and Economics, 14.

Bahrami, H. (1992), 'The Emerging Flexible Organisation: Perspectives from Silicon Valley', California Management Review, Summer.

Bennett, J. and Ferry, D, (1990), 'Specialist Contractors: A Review of the Issues Raised by their New Role in Building', Construction Management and Economics, 8.

Bennett, J. (1993), 'Japan's Building Industry: The New Model', Construction Management and Economics, 11.

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Birley, S. (1989), 'The start-up', in P. Burns, and J. Dewhurst, Small Business and Entrepreneurship, Macmillan, London.

Burns, P. (1989), 'Strategies for Success and Routes to Failure', in P. Burns, and J. Dewhurst, Small Business and Entrepreneurship, Macmillan, London.

Burns, P. and Dewhurst, J. (1989), Small Business and Entrepreneurship, Macmillan, London.

Casson, M. (1987), 'The Scope of the Firm in the Construction Industry', in Multinationals and World Trade: Vertical Integration and the Divisions of Labour in World Industries, Allen & Unwin, London.

Castells, M. (1989), The Informational City: Information Technology, Economic Restructuring and the Urban-Regional Process, Basil Blackwell, London.

Cattell, K. (1993), Black-owned Small-scale Building Enterprises in the South African Construction Industry: Attributes, Constraints to Growth and Factors of Success, M. Phil., UCT, Cape Town.

Cattell, K. and Rwelamila, P.D. (1993), 'Breaking the Cycle of Informal Contracting', Proceedings on Rwelamila, P.D. Southern Regional Conference on Construction for Development, Malawi.

CSS (1997), The 1994 Census of Construction, CSS, Pretoria.

DPW (1995), Establishing an Enabling Environment to Ensure that the Objectives of the RDPand Related Initiatives by Government are Realised in the Construction and Allied Industries, Department of Public Works, Pretoria.

DPW (1996), Creating and Enabling Environment for Reconstruction, Growth and Development in the Construction Industry, Discussion Document, Department of Public Works, Pretoria.

DPW (1997), Creating and Enabling Environment for Reconstruction, Growth and Development in the Construction Industry, Draft Green Paper, DPW, Pretoria.

Gounden, S. (1998), 'Implementation of Affirmative Procurement Policy within the Department of Public Works', unpublished memorandum, DPW, Pretoria. Harrison, B, (1994), Lean and Mean: The Changing Landscape of Corporate Power in the Age of Flexibility, Basic Books, New York.

Hirshman, A. (1958), The Strategy for Economic Development, Yale University Press, New Haven.

Hirst, P, and Zeitlin, J. (1991), 'Flexible Specialisation Versus post-Fordism; Theory, Evidence and Policy Implications', Economy and Society, 20(1).

ISP (Joffe, A., Kaplan, D., Kaplinsky, R. and Lewis, D.) (1995), Improving Manufacturing Performance in South Africa, UCT, Cape Town.

Johnson, P. (1986), New Firms � An Economic Perspective, Allen & Unwin, London.

Krafchik, W. (1990), Small-scale Enterprises, Inward Industrialisation, and Housing: A Case Study of Subcontractors in the Cape Peninsula Low-cost Housing Industry, M.A. thesis, UCT, Cape Town.

Kumar, S. (1984), Growth, Acquisition and Investment, Cambridge University Press, Cambridge.

Marris, R. (1979), The Theory and Future of the Corporate Economy and Society, North-Holland, Amsterdam.

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Merrifield, A. (1992a), Private Sector Involvement in South Africa's Low-income Housing Market since the late 1980's, Local Government and Planning Project, UWC, Cape Town.

Merrifield, A. (1992b), The Role of the State in the Provision of Low-income Housing since the late 1980's, Local Government and Planning Project, UWC, Cape Town.

Merrifield, A., Van Horen, B. and Taylor, R. (1993), 'The Politics of Public Participation in Informal Settlement Upgrading: A Case Study of Bester's Camp', Proceedings of the 21st IAHS World Housing Congress, Cape Town, 10-14 May.

Merrifield, A. (1994), The Performance and Capacity of the Construction Industry in the early 1990's, Policy report prepared for the National Housing Forum.

Merrifield, A. (1997), The Impact of the Olympics on the Construction Industry, Olympic Assessment Team.

Morecroft, J. and Sterman, J. (1994), Modeling for Learning organisations, Productivity Press, Oregon.

National Productivity Institute (NPI) (1997), Productivity Statistics 1997, NPI, Pretoria.

Ngoasheng, M. (1994), 'Key Findings of the Construction, Building Materials and Distribution Studies', National Housing Forum, April.

Ofori, G. (1991), 'Programmes for Improving the Performance of Contracting Firms in Developing Countries: A Review of Approaches and Appropriate Options', Construction Management and Economics, 9.

PRC (1998), Developing a Culture of Good Governance, Report of the Presidential Review Commission on the Reform and Transformation of the Public Service in South Africa

Senge, P. (1990), The Fifth Discipline: The Art and Practice of The Learning Organisation, Doubleday, New York.

Senge, P. et al. (1994), The Fifth Discipline Fieldbook: Strategies and Tools for Building a Learning Organisation, Doubleday, New York.

Storey, D. et al. (1987), The Performance of Small Firms, Croom Helm, London.

Werna, E. (1993), 'The Concomitant Evolution and Stagnation of the Brazilian Building Industry', Construction Management and Economics, 11.

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5 Financing of Public Infrastructure Investment in South Africa

ANDREW MERRIFIELD

Introduction

Investment in infrastructure has always been an integral part of the South African development strategy. As other chapters in this collection have shown, the South African government has been prioritizing infrastructure spending as part of its industrial development strategy. Only in the late 1980s, when expenditure on the war in defense of apartheid redirected resources to the security apparatus, did infrastructure spending falter. However, the post-1994 government reasserted the need to invest in infrastructure, albeit mainly to redress past inequalities in service provision and to re-orient the economy towards regional and international trade.

This chapter examines the long-term trends in infrastructure spending and analyse them in terms of basic economic theories of investment cycles and theories of infrastructure's contribution to development. Finally, in light of the fiscal constraints identified in the chapter, it comments on likely investment trends on the basis of the more recent literature on the privatization of public sector infrastructure.

Whilst recognizing the fiscal limitations of current government policy, especially as articulated by the Growth, Employment and Redistribution policy and the Medium-Term Expenditure Framework, this chapter will offer a relatively positive prognosis of the potential for future investment in infrastructure. It will also seek to steer a middle path between proponents of privatization as well as proponents of greater state intervention through direct infrastructure delivery.

Historical Review of Infrastructure Investment1

Historical evidence for the period 1960-1997 as reflected in Graph 1 below indicates that Gross Domestic Fixed Investment (GDFI) peaked in 1981 (R70 billion in 1990 prices) and then declined 35% until 1994 (R46 billion). Thereafter until 1997 it grew 33% (R62 billion). The graph also shows that private sector investment has been significantly greater than public sector investment and that public authorities were the second most significant investors until the 1980s when public corporations began investing an increasing proportion of the public sector share (see Graph 1).

Between 1960 and 1993, the proportion of investment coming from the public sector2 ranged from 30% (1993) to 52% (1979). Interestingly, given the stated policy objectives of the new government, the public sector infrastructure share has declined to between 25% and 27% from 1994 to 1997 (SARB, 1994, B 53-57, 1998, S113). However, the surge in private sector investment has boosted overall GDFI expenditure. As noted below, part of the shift from public to private investment is due to explicit government policy to shift infrastructure spending, but the growing predominance of private sector investment predated this policy shift.

The graph also shows that for the first 15 years under review, public corporations contributed significantly less than public authorities to GDFI, but by the late 1970s this contribution had virtually equalized. It is worth noting that although the public corporation contribution increased from 7% to about 20% in the 1980s, public authority contribution declined from 37% to 23% over this period, which means that the total contribution of the public sector declined relative to that of the private sector.

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If public sector infrastructure spending is examined in more detail (Graph 2 and Graph 3) we see that construction works made up the vast bulk of the investment of both public authorities and public corporations. In the case of public authorities (Graph 2), construction works would largely comprise the roads, water and sanitation reticulation that are required for the development of communities. They would also include the national highway system and bulk water and sanitation infrastructure (dams, treatment plants). The peak of investment was in the early 1970s but investment has been declining ever since. However, the election of the new government in 1994 has turned the trend, and the past three years showed an increase in such infrastructure.

Graph 1 GDFI (1990 prices) between 1960 and 1997 for the private sector, public authorities and public corporations (SARB, 1994, B 53-57, 1998, S113)

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Graph 2 Infrastructure spending by public authorities from 1946 to 1997 (1990 prices, SARB, 1994, B80-85, 1998, S113)

Graph 3 Infrastructure spending by public corporations from 1946 to 1997 (1990 prices, SARB, 1994, B80-85, 1998, S113

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In the ease of public corporations, the two large peaks in construction investment relate to the erection of power stations in the 1970s and the MOSSGAS project in the late 1980s. Graph 2 and Graph 3 show that non-residential buildings (office accommodation, hospitals, schools and security facilities)3 peaked between the 1970s and 1980s, followed by a shift to private accommodation in the 1990s. Both graphs also show that public sector investment in housing has always been smaller than other public sector investment and has become insignificant in the last couple of years.

According to Graph 4, public sector economic infrastructure investment has consistently dominated investment in social infrastructure.

The data indicate that the proportion of public sector investment in economic infrastructure declined from an average of 28-36% of total GDFI between the 1960s and 1980s to 19% in 1995 before rising again to 23% in 1997. In the 1990s, as private sector fixed investment increased relative to that of the public sector, economic infrastructure averaged around 20% of total GDFI, although it has shown an increase in real terms since the new government was installed.

Public sector social infrastructure investment has varied between 4% and 6% of total GDFI from the 1960s to the 1990s. Since 1994, despite political objectives aiming at an increase in social infrastructure spending, there has been a decrease relative to total GDFI (2.7% in 1994, 2.1% in 1995, 1.9% in 1996 and 2.0% in 1997) as a result of the increase in private sector investment and in economic infrastructure investment, although the latter category has not grown as quickly as in the private sector.4

Graph 4 Public sector economic and social infrastructure investment as a proportion of GDFI (SARB, 1994, B53-57, 1998, S113)

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Economic Explanation of the Trends

The trends described in the previous section are confirmed in research on the South African construction industry. Langenhoven has sought to explain the decline in construction, but in particular the dramatic decline in civil engineering, in comparison to trends occurring elsewhere. In trying to explain why the construction sector did not follow the development pattern of the GDP, he argues that the construction trend can be linked to a series of long-term cycles, the mast significant of which is the Kuznets and Kondratief cycles which relate to construction investment. The different durations of the cycles can therefore be related to the relative durability of different construction goods (Van Duijn, 1983; Langenhoven, 1993b, p. 12).

Langenhoven argues that construction could have been expected to decline in the 1980s as 'a result of over expansion in various types of highly durable capital goods in the past' (Langenhoven, 1993b). The decline in construction investment, especially that of civil engineering, should be understood on the basis of the overexpansion in investment in the 1970s, which made new investment unnecessary in the 1980s. Furthermore, given the durability of the infrastructure, replacement will only be required in the future.

Langenhoven suggested that the 'accelerator-multiplier' effect associated with the fixed investment cycle is largely responsible for the volatility and perhaps the current decline in the investment in construction, since many construction goods are supplied in large-scale entities rather than in smaller units (Van Duijn, 1983). For instance, it may be uneconomic to supply many small power stations, so investment in power stations is likely to occur at infrequent intervals when capacity is expanded in large quantums. The erection of new power stations will then result in an oversupply of power, damping further fixed investments in power stations until economic growth has again expanded beyond the limits of the existing investment (Langenhoven, 1994, pp, 3-4).

If these explanations are true, then it is unlikely that future public spending on infrastructure will smooth the construction cycle, particularly for the civil sector whose products are generally of a larger scale than for building. Instead, the greater the scale of provision (as in the 1970s) and/or the greater the quantum (such as the Lesotho Highlands Water Project, the Columbus and Alusaf projects etc.), the longer it will take for construction demand to recover. On the other hand, since much post-1994 spending has gone towards the provision of construction goods on smaller scale (township service reticulation rather than bulk treatment plants), this might imply a steadier demand in the near future.

Similar trends have been observed in the building sector, Snyman shows that since 1946, South Africa has experienced a real growth rate in Gross Domestic Product (GDP) of between 4% and 5% per annum (constant 1980 prices), This trend faltered in the late 1970s (the 1977 growth rate was only 0.3%), and in the mid-1980s, the first absolute economic decline5 in the post-war period occurred (Snyman, 1989a, pp. 13-14). There was a corresponding, although more exaggerated, trend in building investment. While the long-term investment in building exhibited a growth rate of 4% per annum, the building industry experienced absolute decline much more frequently, and with much greater variations than the trend for GDP. An absolute decline in total investment in buildings occurred in the periods 1950-51, 1955-56, 1959-62, 1968, 1971, 1978-79, 1982, 1985-88 (Snyman, 1989a, p. 14).

The periods of absolute decline in private investment in buildings are cyclical and seem to exceed those for the public sector. Snyman suggests that these variations can in part be attributed to a medium-term Kuznets cycle6 (Snyman, 1991b, pp, 9-10). Snyman and Kilian found that there had been two Kuznets cycles in the private sector of the building industry. The first lasted from 1946 to 1962 and the second from 1963 to 1978/79. A third cycle was interrupted by the government's

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Austerity Package of 1984, the effects of the 1985 Rubicon Speech, and the high interest rates of the late 1980s7 (Snyman, 1991b, p. 9).

Unlike the trends for private investment, public investment in buildings does not conform to the Kuznets cycle. Public residential investment experienced a sharp rise in the 1960s and 1970s and then declined dramatically in the early 1980s as a result of the change in government housing policy. Likewise, public non-residential investment rose rapidly until the mid-1970s, and has declined considerably since then, although there was a modest revival in the mid-1980s and late 1980s (Snyman, 1991b, pp. 11-12). Kilian has shown that in the post-1946 period until the early 1970s, government investment in buildings has tended to counteract and thus balance out the peaks and troughs of private investment. Since then, government investment has tended to move parallel with that of the private sector, further accentuating the subsequent peaks and troughs of the building cycle (Kilian, 1980, p. 11).

The above analyses of building and construction trends would seem to suggest that the public sector has some leverage in addressing the decreasing demand and increasing volatility in the construction sector. These trends have induced construction firms to adopt more flexible production strategies (see Chapter 4 'The Role of the Construction Industry'). These strategies, characterized by the shift towards sub-contracting, disrupted existing training processes, which in turn undermined the skills basis of the industry as well as long-term industry capacity and performance. Demand volatility also affected the development of small, medium and micro enterprises (SMMEs), because emerging firms were unable to continue work that would have enabled them to gain experience and grow.

Because fluctuations in demand have led to inefficiency and escalating costs, it has been argued that the government should schedule public sector spending so as to counteract the shifts in private investments and thus reduce the amplitude of the construction cycle (DPW, 1997). This indeed has been one of the primary areas where the government's Green Paper on construction industry development has received almost unequivocal support (Merrifield, 1997). However, such interventions have been viewed with skepticism by orthodox economic thinkers, and the interventions them-selves are fiscally unfeasible.

Constraints to Reducing the Construction Cycle

There are a number of reservations about using fiscal resources to address the volatility of the cycle. Firstly, there has been rather mixed success inter-nationally with government attempts to control demand. From a macro-economic perspective, there are questions whether such demand management is not counter-productive, since people learn to anticipate government actions and react in a manner which ultimately negates their effect. This has led many governments to reduce their reliance on fiscal measures and favour monetary control as their main lever of financial management (Lucas, 1977; Lucas,1987).

A second argument against counter-cyclical public sector spending arises not from the anticipated effects, but rather from the political and institutional difficulties of commissioning construction work when it is needed. It is argued that construction work has long lead times which cause projects that were commissioned to smooth out a cyclical downturn in private sector spending to come on stream during the next upturn, thereby exacerbating the downturn. The problem of scheduling is further complicated by the reluctance of political leaders to relinquish their prerogative to influence public investment. The combination of political influence

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and long lead times means that public sector fixed investment is characterized by a stop-go pattern which amplifies the cycle rather than smoothing it (Van Duijn, 1983; Calitz, 1996).

Thirdly, the overall decline in public sector contributions to GDFI (see above) has decreased the state's ability to affect the business cycle. The decline in public sector fixed investment should be seen in light of government policy over the past 15 years. Because there was considerable large-scale infrastructural investment in the 1960s and 1970s, the decline in infrastructural investment since the early 1980s was not initially considered a problem as the country was reasonably well provided for at an aggregate level.8 However, as will be described below, the current government is facing an increasing service and maintenance backlog. Such a backlog could see the public sector contribution to GDFI, and consequently its influence over the cycle, increase by at least 100% over present investment levels.

In light of these constraints, recent thinking about public sector financial management suggests that instead of deliberately pursuing a counter-cyclical fixed investment programme, the state should rather smooth out fluctuations in its own expenditure. It is argued that if clear medium-term investment guidelines can be provided, private sector investment will take account of these, and the overall investment trend will .be less volatile than if the state tried to directly moderate the fluctuation in the entire business cycle (DPW, 1997).

Reform of the State's Financial Management Practices

Any attempt to moderate the construction investment cycle will be sup-ported by the Medium-Term Expenditure Framework (MTEF) introduced by the Department of Finance and State Expenditure for the 1998199 financial year. From now on, the Minister of Finance will not only provide expenditure estimates for the new financial year, but these estimates will incorporate projections for the following three years. MECs for provincial finance are now also required to provide MTEFs for their proportion of the budget.

The key features of the MTEF process are as follows:

• Publication of three-year forward estimates on budget day, consistent with government's policy priorities and commitments;

• Detailed analysis of the policy implications of budget projections;

• Analysis of key sectors by teams reporting to cabinet and executive councils;

• Quantified, analyzed policy options presented to political office bearers for decision making; and

• Publication of a Medium-Term Budget Policy Statement, to enable parliament and the institutions of civil society to participate meaning-fully in the debate (MTEF Budget Policy Statement, 1997).

Although the three-year projections of the MTEFs will only provide expenditure ceilings, which may be partially revised in subsequent years, this planning tool will provide a much clearer indication of government priorities than the previous budget system.9 The MTEF will also provide bath the public and private sector with opportunities to participate in determining future budget priorities. If the MTEF process becomes fully institutionalized, it will provide an explicit means of measuring budgets against the government's stated policy objectives.

Although the new government will be placing itself in a position where it can be judged more harshly than any previous regime, it will also be making the political trade-offs that must be part of any budgeting process more explicit. If the debate around these trade-offs can be con-ducted responsibly in the public realm, then budget priorities will cease to be set exclusively behind closed doors. Greater transparency will not necessarily generate more resources, but it is likely to ensure

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that the choices about the allocation of those resources will be subject to much greater public participation than any time in the past. The MTEF therefore provides a means for ensuring greater public participation in setting priorities for the budget and, perhaps, for infrastructure investment. If these priorities are to include the moderation of the construction cycle, the publication of three-year investment guidelines is likely to assist in this endeavour.

Current Budget Backlogs in Service Delivery, Maintenance and Rehabilitation

One of the most important debates that is likely to arise from future budgets is the need to find funds beyond the budget funds to finance infrastructure investment in South Africa. Since the publication of the Growth, Employment and Redistribution (GEAR) policy, the new government's fiscal strategy has been made clear. Key elements of this strategy lie in reducing the budget deficit in order to reduce fiscal pressures on the capital markets and to reduce debt-servicing costs, which remains the largest line item in the budget (GEAR, 1996; Budget Review,1998).

The fiscal conservatism of this strategy is however meant to be balanced by an expansion in private sector industrial investment that will generate the revenues and employment to pay for increased service delivery. Fundamental to promoting sustained economic growth and job creation is the intention to accelerate infrastructure development. The Department of Finance has described its intentions regarding infrastructure investment in the following terms:

[One of the objectives of GEAR is] an expansionary public infrastructure investment programme to provide for more adequate and efficient economic infrastructure services in support of industrial and regional development and to address major backlogs in the provision of municipal and rural services. (GEAR, 1996, p. 4)

[I]nvestment in infrastructure builds economic capacity and enhances competitiveness, while contributing to the quality of Life of poor people. Energy, transport, communications and social infrastructure bring significant benefits to women and children, particularly (Budget Review, 1998, section 1.5).

Unfortunately, the 1998-99 budget indicates that there will be virtually no growth in infrastructure investment financed by the fiscus itself. Capital expenditure financed by the budget will only increase approximately R2 billion (in current terms) by the end of the MTEF period. A large contribution to capital expenditure will however came from the parastatals who will ensure that the public sector contribution will increase to about 7% of GDFI, or R56 billion, by 2000/01 (Budget Review, 1998).10

Evidence from the budget review process also confirms that social infrastructure investment continues to lag behind economic infrastructure investment. This indicates that there has been little reprioritization towards social infrastructure investment since 1994. This trend is exacerbated by the 1998-99 budget which sees a significant cut in most of the budgets of the departments serving the household sector (Housing, Constitutional Development, Water Affairs and Forestry) because budget roll-overs are eliminated (Budget Review, 1998).

The Department of Finance's infrastructure investment strategy therefore relies quite strongly on public corporations, largely financed through private sector equity or loans, to contribute to infrastructure investment, especially in transport and telecommunications provision. The department has however noted that, in order to address infrastructure backlogs, and 'recognising the limited capacity of

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the fiscus, Government is committed to the application of public-private sector partnerships based on cost-recovery pricing where this can practically and fairly be effected' (GEAR, 1996, p.16).

It can therefore be expected that public-private partnerships and other forms of service delivery (see below) will be used to address the mounting backlogs. It is quite difficult to estimate the exact extent of the infrastructure backlog because it is based an estimates and educated guesses of potential service delivery and/or maintenance and rehabilitation backlogs. The National Infrastructure Investment Framework estimated a backlog of R171-R232 billion, depending on economic growth and the rate at which backlogs are addressed (NIIF, 1996, pp. 18-82).11

It is also difficult to produce a comprehensive picture of the backlogs, because different departments use different methods to estimate them, indicate different periods over which they will be addressed, and/or include the upgrading and provision of new infrastructure along with their estimates of rehabilitation and maintenance. The general extent of backlogs and potential costs to the fiscus are summarized in the table below.12

Infrastructure backlogs

Total backlog and estimated years of spending required13

Annual cost not currently covered by the fiscus

Public Works R8.8 billion over five years R1.5 billion

Health R13 billion over ten years R1.3 billion (ave.); R2.4 (max.)

Education R14-R20 billion over nine years

R1.6 billion

Municipal and rural infrastructure

R45-R77 billion over five years

R10 billion

Roads R38 billion over ten years R5.1 billion14

Total R119-R157 billion R19.5 billion per annum

To understand the fiscal implications of this underinvestment, it is worth noting that historical evidence and research conducted in the provinces15 confirmed that capital expenditure has traditionally been crowded out by the pressures of current expenditure. In South Africa, as elsewhere, capital budgets are only allocated once personnel and statutory obligations have already been provided for. Hence infrastructure delivery targets have been sacrificed or delayed in an attempt to keep public spending within sustainable fiscal limits. Initial research suggests that about 60% of the capital budgets in the provinces are being spent because of the crowding out by current expenditure.

It should also be noted that most physical assets (buildings, roads, other structures) can operate with minor maintenance expenditure (less than 5% of value) for long periods of time. Most physical assets can even survive for many years (10-20 years) without any maintenance. However, such neglect means that the very fabric of the structure is eventually threatened by this lack of maintenance, and within a short time afterwards the asset will need complete replacement. In the case of roads, maintenance is 1 b times cheaper than reconstruction.

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On the basis of the above evidence it can be concluded that not only are the current fiscal allocations insufficient to meet projected service deli-very targets, but that unless an alternative source of funding is found, the public sector faces a serious risk of losing a significant proportion of existing assets. Some anecdotal evidence suggests that in the case of the education and health sectors, up to a third of the current asset stock could 'fall off the map' if rehabilitation and maintenance are not undertaken urgently.16

Alternative Methods of Delivering Services and Public-private Partnerships

The above backlogs are not currently being provided for in the budget. Therefore, if they were to be addressed, the public authorities component of GDFI would have to more than double, increasing from the current R15 billion per annum (1997) to about R35 billion. Since it is unlikely that such an increase could be funded directly from the budget, it can be expected that alternative financing mechanisms such as public-private partnerships (PPPs) and alternative service delivery (ASD) could be used.

Financial constraints remain only one justification for alternative financing and delivery mechanisms. A more pressing motivation is the capacity constraints experienced in the public sector. The Presidential Re view Commission confirms that one of the primary limits to delivery, and perhaps governance itself, is sufficient and appropriate management cadres. In almost all interactions with public sector agencies, whether at a national or provincial level, departments identified lack of qualified staff as one of their biggest constraints (PRC, 1998).

Although the Presidential Review Commission did not explicitly advocate PPPs, it promoted the concept of ASD, which would include PPPs. Arguably, ASD and PPPs are strategies designed to overcome the limits of the state in an era of resource constraints. If this logic is accepted, then the question around PPPs and ASD is not whether they should be supported, because, as we will see below, they are already a significant part of public sector delivery. Rather, the question is how best to promote these strategies 'without government abdicating its ultimate responsibility for governance' (PRC, 1998, p. 225).

Mechanisms of Alternative Service Delivery17

Government has no responsibility for

outcomes

Government has joint responsibility for

outcomes

Government remains responsible

for outcomes

Devolution Separate service agency Commercialization

Recognition Special-purpose body Cost recovery

Privatization Community corporations Internal delegation

Franchising Mixed enterprise Internal partnership

Licensing Joint venture Special operating agency

Self-regulation Regulated monopoly Single-window service

De-regulation Regulatory agency Co-location

Community board Community offices

Collaborative partnership Common services

External purchase of service Merging systems

Joint financing Electronic delivery

Self-service

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The table indicates that there are many other options beyond direct public sector delivery of infrastructure and services, the outsourcing of services and/or the privatization of public sector assets. All of these should be explored when seeking to address the fiscal constraints arising from infrastructure backlogs.

Unfortunately, although the concepts of alternative financing and service delivery mechanisms have gained credibility in the South African business environment, there has been little effort to make use of these mechanisms. Only one significant road deal has been closed, while negotiations on another two are in progress. Four prison projects are also in the final stages of negotiation, while more than 15 deals concerning municipal infrastructure and services are being investigated, but only one of these has been finalized. Even the much-vaunted Spatial Development Initiatives have only yielded R2 billion worth of investment (including same of the roads mentioned above) while R20 billion worth of projects, out of a potential of R110 billion, are in the construction or implementation phases

(Gounden, Merrifield, Loots and Houze, 1998).

It is important to emphasize that the imperatives to pursue PPPs and ASD should be seen in light of the need to address infrastructural backlogs and public nectar capacity constraints. Unlike the case in some overseas countries, where PPPs were adopted to promote privatization for ideological ends,18 the use of PPPs and/or ASD should be seen as part of the state's overall agenda to promote economic development and extend service delivery to those previously disadvantaged by the political and economic system of apartheid.

Conclusion: Infrastructure Investment in the Future

Starting with a fang-term perspective of infrastructure investment in South Africa, we have seen that the public sector but, in particular, public authorities have reduced their investment in infrastructure significantly if measured against the other sectors. We have also learnt that investment in social infrastructure has fallen significantly in the 1990s despite government objectives to reprioritize basic needs. Economic infrastructure investment has not declined as significantly, although an increasing proportion of all infrastructure is provided by the private sector.

The discussion of historical trends also examined the causes of the construction investment cycle and it was argued that it would be possible, if difficult, to moderate the cycle, if that became a political priority. The MTEF process was examined as a means of moderating the construction cycle and improving public participation in the budget process. It was suggested that the MTEF process would enable the state to make its budget choices more apparent and that the public could become more involved in setting priorities. One area where further public debate is sorely required is the use of PPPs and ASD mechanisms to address the ever-increasing infrastructure backlogs. It is the contention of this chapter that without these alternative financing and delivery mechanisms, government's objective of increasing infrastructure delivery is unlikely to be realized given government's budgetary and capacity constraints.

Notes1 For the purposes of this chapter, infrastructure is defined, in terms of the System of National Accounts (SNA), to include residential, non-residential and construction works. Machinery and equipment, as well as transport equipment, both components of GDFI, are excluded.

2 'Public sector' refers to both public authorities and public corporations. 3 In the case of public corporations, it would be mainly office accommodation. 4 Economic infrastructure is defined by the SARB as 'roads, bridges, dams,

electricity and water supply', while social infrastructure is defined as 'schools, hospitals, etc. and administrative services'. In a discussion with the SARB, it was made clear that the decline in social infrastructure investment was partially due to the fact that public sector housing funded through subsidies was

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classified as private sector investment. This accounts for between R1-R2 billion in 1990 prices and would therefore marginally change the shape of the above graph.

5 Snyman (1989a, p. 15) explains that an absolute decline in GDP is a reduction in the GDP in relation to the GDP of previous years, as opposed to a moderation in the rate of growth.

6 The Kuznets cycle, named after the American economist Simon Kuznets, closely correlates to population and migration variations (Snyman, 1991, p. 8).

7 There was a brief upswing in 1987, boosted by lowered interest rates and widespread use of the 'first-time homebuyers' subsidy, but this fizzled out within 18 months when interest rates doubled (Snyman, 1991).

8 It can be shown that South Africa has until recently been comparable to similar developing economies in the provision of economic and social infrastructure (MTEF, 1998). However, its distribution has always been the problem.

9 It is still not clear whether the three-year projections will be fixed absolutely, and whether the Department of Finance will allow significant deviations from the published figures. The author, who participated in the recent budget review exercise for infrastructure investment found it difficult to get an unequivocal answer from either the Department of Finance or the participating departments. The impression remains that the projections are guidelines rather than final numbers.

10 The recent budget review demonstrated very similar trends, but the author is not at liberty to share unpublished figures.

11 The GEAR document makes use of the lower estimate. 12 With the exception of Public Works, all figures include an estimate for providing

new infrastructure or for upgrading, maintaining and rehabilitating existing public sector assets.

13 The estimated number of years required to remove the backlogs comes from the departments themselves and does not necessarily mean that the removal of back-logs would be affordable if assessed in total. These are current figures.

14 Excluding requirements of toll roads which would not be funded through the fiscus.

15 These statements were based on the author's own research, supplemented by information supplied by Langenhoven (personal communication) and Amod (1998).

16 Comment by Tim Wilson, Department of Health, at the MTEF Conference, 5/8/1998.

17 Langford, 1996, 'Power sharing in the Alternative Service Delivery World', in Ford and Zussman.

18 The obvious example is the PFI initiative in the UK.

References

Brunner, K. and Meltzer, A. (1977), Stabilisation of the Domestic and International Economy, North-Holland, Amsterdam.

Budget Review (1998), Department of Finance, Budget Review 1998, Department of Finance, Pretoria.

Calitz, E. (1996), 'The Budgeting Process', unpublished input to Hall, D.

DPW (1997), Creating and Enabling Environment for Reconstruction, Growth and Development in the Construction Industry, Green Paper, Department of Public Works, Pretoria.

Ford, R. and Zussman, D. (1996), Alternative Service Delivery: Transcending Boundaries, IAPC, Montreal.

GEAR (1996), Growth, Employment and Redistribution: A macro-economic Strategy, Department of Finance, Pretoria.

Gounden, S., Merrifield, A. Loots, P. and Houze, P. (1998), Public Private

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Partnerships in South Africa: Proposals to Address Current Problems in the Public and Private Sector Environment, unpublished discussion document.

Hall, D. (1996), Establishment of Mechanisms for the Planning of Public Sector Capital Expenditure Relative to Trends in the South African Macro-Economy', unpublished report, DPW, Pretoria.

Kilian, W. (1980), 'Escalating Building Costs - A Threat to Home-owners', Inaugural Lecture, UCT, Cape Town.

Langenhoven, H. (1993a), 'Over Capacity in the SA Contracting Industry', The Civil Engineering Contractor, September.

Langenhoven, H, (1993b), 'A Totally Different Civil Engineering Industry; The Last 33 Years', The Civil Engineering Contractor, October.

Langenhoven, H. (1994), 'Of Volatility and Productivity in the Civil Engineering Industry', The Civil Engineering Contractor, March.

Langford, D. (1996), 'Power Sharing in the Alternative Service Delivery World', in R. Ford and B. Zussman, (eds), Alternative Service Delivery: Transcending Boundaries, IAPC, Montreal.

Lucas, R. (1977), 'Understanding Business Cycles', in K. Brunner and A. Meltzer, Stabilisation of the Domestic and International Economy, North-Holland, Amsterdam.

Lucas, R. (1987), Models of Business Cycles, Basil Blackwell, London.

Merrifield, A. (1992a), Private Sector Involvement in South Africa's Low-income Housing Market since the Late 1980's, Local Government and Planning Project, UWC, Cape Town.

Merrifield, A. (1992b), The Role of the State in the Provision of Low-income Housing since the Late 1980's, Local Government and Planning Project, UWC, Cape Town.

Merrifield, A. (1994), The Performance and Capacity of the Construction Industry in the Early 1990's, Policy report prepared for the National Housing Forum.

Merrifield, A. (1997), 'Creating and Enabling Environment for the South African Construction Industry: The Policies behind the Policy', paper submitted for First International Conference on Construction Industry Development, Singapore.

MTEF Budget Policy Statement (1997), Ministry of Finance, Pretoria.

MTEF (1998), 1998 Medium Term Expenditure Review: Infrastructure Investment, Department of Finance, Pretoria.

PRC (1998), Developing a Culture of Good Governance, Report of the Presidential Review Commission on the Reform and Transformation of the Public Service in South Africa.

SARB (1994), South Africa's National Accounts 1946-1993, South African Reserve Bank, Pretoria.

SARB (1998), Quarterly Bulletin, June, South African Reserve Bank, Pretoria.

Snyman, J. (1989a), 'When is a Recession not a Recession?' Juta's South African Journal of Property, vol. 5, no. 1.

Snyman, J. (1989b), 'How the business Cycle Influences Building Costs', Juta's South African Journal of Property, vol. 5, no, 1.

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Snyman, J. (1991), 'The Building Industry Retrospect and Prospect: Forecast 1991 to 1995, S.A. Builder, October.

Van Duijn, J. (1983), The Long-Wave in Economic Life, Allen & Unwin, London.

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6 Municipal Infrastructure Services: A Planning and Pricing Model for Capital Investment

GEOFFREY DU Mhango

Introduction

This chapter proposes a model for planning and pricing capital investment in municipal infrastructure services in South Africa. In essence, the model tries to link the capital investment and the operation/maintenance of a service (the supply side) to the tariffs to be paid by the beneficiaries (demand side). The chapter does not concern itself with the normal conceptual framework for a spatial area's development planning, which. ... With the current fluidity and unpredictability in socio-economic trends in South Africa, this chapter concerns itself with the short- to medium-term capital investment plan. The model is a contribution to the current development debate in South Africa vis-à-vis municipal infrastructure ser-vices and how to price them.

Current reality

South Africa's urban population growth has outpaced the ability of the government and most urban authorities to provide adequate urban services. Most of the urban infrastructure services have become inadequate to the point where quality of life is at stake. The current South African fiscal state and even the current financial standing of most municipalities are in such a poor position that the authorities cannot meet the increasing needs. To compound the problem, many urban areas not only have a massive backlog in infrastructure services, but also need to allocate substantially more resources to maintain, renovate and replace deteriorating equipment or facilities.

The above situation has to be pragmatically addressed. Hence the current approach to municipal capital investment planning and budgeting for and pricing of infrastructure services needs to be revamped. The economic and financial viability municipal infrastructure services receives little attention during planning and budgeting. Consequently the services are normally not integrated and co-ordinated, and this leads to duplication of activities and inefficient application of resources.

Development resources have become scarce in South Africa. This is more so in view of the fact that the meagre resources now have to be extended to include the disadvantaged communities which enjoyed peripheral treatment in the old system of government. The new situation, therefore, calls for a pragmatic approach to capital investment planning and budgeting, and to the pricing of infrastructure services by municipalities in South Africa. The prudent use of scarce resources and realistic pricing of services would assist to ensure that the services not only yield societal benefits, but are also financially viable. The financial viability of any municipal service is important because of the concern with longevity and/or sustainability of delivery systems or facilities and the replicability of the services at a larger scale.

A capital investment programme and budget for municipal infrastructure services could be drafted for any period ranging from one to say ten years, and even beyond. A one-to-five years' capital investment plan could be termed 'short to medium term', while a five-to-ten or more, years' plan could be termed 'long term'.

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The proposed capital investment planning model for municipal infrastructure services consists of the following distinct stages:

� Planning for capital investment planning and budgeting in respect of infrastructure services. This is a preliminary stage where the planning framework is established.

� Environmental scan or situational analysis.

� Envisioning infrastructure service development.

� Capital investment programming and budgeting.

� Devising the pricing policies for various municipal infrastructure services.

� Appraisal of Various individual infrastructure service projects in the tentative capital investment programme.

� Final capital investment programme and budget for a specified time period.

Planning for Capital Investment in Infrastructure Services

Capital investment planning and budgeting, should be preceded by a pre-planning. The municipality has to establish a multi-sectoral and/or multi-disciplinary planning team. Members of the team must be drawn from the municipality's functional departments (with external experts' support � if necessary). Planning team members should at least be senior department personnel, mostly those involved in

departmental planning activities. The planning .team must be fully empowered by the municipal management/ council to conduct the capital investment planning and should report to the council regularly. The planning team should be able to observe and deal with its own group dynamics.

Environmental Scan or Situational Analysis

Municipalities, like nations, are there to stay despite regular changes to their management, council members and policies. The success of municipalities and the socio-economic welfare of their citizens hinge on being aware of what is happening in both their internal and external environments. Scanning, analyzing and continuously monitoring such environments are therefore crucial to sustain municipalities. The major factors to consider in information scanning, analysis and environmental monitoring, inter alia, would include the seven aspects discussed below.

Economic Base of the Municipality

The planning team has to have a thorough knowledge and/or information about the economic base of the municipality and its economic growth potential. The activities of the various economic sectors which make the municipality tick, have to be analyzed, and their current and future trends (whether declining or rising) have to be known. The economic development strengths, weaknesses and opportunities in the municipality have to be identified, so that strategies for marshalling and addressing them can be developed.

Trends in current and future economic development in the municipality would be good indicators for establishing the types, levels and magnitude of municipal infrastructure services (in the short to medium term and even in the long term) that could support economic activities. Economic activities could act as "pull" factors for migrants from other areas and for various support or complementary socio-economic activities.

Demographic Trends and Cultural Background

The planning team ought to have insight into the population profile and trends in the municipality. This would include natural growth, in- and out-migration and depopulation. Employment characteristics, income levels and distribution,

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demographic features (age, sex and education levels) and their role, and property ownership systems have to be assessed by the team. The planning team should analyze the social and cultural background of residents, including ethnic origin, levels of social development, cultural patterns and related life styles.

This information is crucial not only for determining the levels of services needed in the municipality, but also to assist the planning team in the formulation/determination of pricing policies for the services.

Physical Development Trends and Characteristics

The planning team needs to tour the whole municipal area and observe the physical development in the town/city. Physical development would include new informal and formal settlements, new industrial and commercial developments, and even decay in existing settlements.

It is also essential that the physical characteristics (topography, terrain, soils, etc.) of the spatial areas of the municipality be known. This would assist in determining the levels and quality of services to be provided. For example, if the area is rocky with shallow top soil, the planning team could easily see that pit latrines are unfeasible - even for the low-income group.

Existing Infrastructure Services

The planning team has to be clear on the conditions and levels of the existing infrastructure services in the municipality by compiling an inventory of them. The infrastructure services in question would include:

• Water and sewage pipes or lines, and their respective treatment plants or facilities;

• Road networks and storm water drainage systems;

• Sanitary landfills and/or solid waste disposal sites; and

• Public buildings and facilities such as sports fields, markets, community centers/halls, hospitals and clinics, educational facilities, transportation systems etc.

Things to probe into would be the year when each infrastructure ser-vice was constructed/provided or reconstructed, cost of construction) provision, level and quality of the services, current condition, and geographical spread and population coverage.

The level of services provided/delivered by the existing infrastructure network is at the centre of this probe. The following is an illustrative scenario:

• The water supply system in a town/city may have been designed to eater for direct individual house connection to 30% of the population, and standpipes or other communal facilities such as water-selling kiosks to an additional 25% of the population, which leaves 45% of the population without direct access to potable water.

• A municipality might have 100 kilometers of earth/dirt roads, 60 kilometers of gravel roads and only 20 kilometers of tarred roads.

• In a municipality there may be 20,000 buildings with water-borne sanitary facilities, 30,000 with dry pit latrines and 10,000 with bucket systems.

• A municipality may have 20 under-populated schools and colleges with electricity, and 40 over-populated schools and colleges without electricity.

The above scenario illustrates both quantitative and qualitative aspects of the level of services provided by a municipality. The management of the municipality may therefore devise an investment project to provide potable water to standpipes or communal water-selling kiosks to the 45% of the town's population who have no

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direct access to potable water, increasing the service quantitatively but not qualitatively. Such a project will reduce the incidences of water-borne and/or parasitic and gastro-enteric diseases, such as cholera, typhoid and diarrhoea. In addition to the extension of the existing water supply in the town, the project may also include the enlargement of the existing water reservoir, storage tanks and treatment plants, to avoid water shortage.

The project cited above focuses only on the level of potable water provision. Other indicators of the level of service of an infrastructure network include the extent of the town's geographic area served by a road network, a water-borne sewage system and a network of electrified schools.

It is important that the planning team understand the characteristics and levels of infrastructure services as the characteristics and levels help determine whether the infrastructure network should be extended or upgraded. Additionally, they help determine the magnitude of the capital investment that will be required in future.

The planning team could also recommend capital investment to replace or reconstruct current facilities. Large quantities of water may be wasted and the search for the source of wastage may take up much of the time of the regular water system maintenance personnel. This information might guide the planning team in preliminary decisions about capital projects to be undertaken over the next several years. The planning team could also determine what type and level of infrastructure services would be desirable in the long term, and what could be immediately achieved. The latter obviously depends upon the level of socio-economic development in the town, the effective demand for services and facilities of various kinds, the resources available, and the need to provide some minimum of services and facilities for everyone in the town. The achievement of desirable standards of services depends upon economic growth, social change and long-term resources.

Additionally, with this information, the planning team could also identify areas of greatest need with respect to existing and future infrastructure programmes, and make suggestions towards the requisite capital investments.

Financial Base of the Municipality

The financial sustainability of any capital investment programme depends inter alia, on the financial base of the town, and on the financial position of the town/municipal council. The planning team has to have full information about the financial base of the municipality/town. This information would include the current and potential revenue sources of the municipality, and whether such sources are reliable and their performance stable. If there are fiscal transfers from central government or provincial government to local government, the planning team has to familiarize itself with the concomitant financial relationship, and the magnitude of such revenue in the total revenue portfolio of the municipal council. The breadth of the financial base has to be analyzed by the planning team.

In addition to the financial base of the municipality, the planning team also has to have full information about the financial position of the municipal council as an institution. This would include information on the debt position and the capacity of the municipal council to absorb additional loans for the provision and/or reconstruction or upgrading of the municipal infrastructure services. The planning team could also assess the current municipal council's revenue charging and collection policies and procedures respectively, per service unit. Here, the collection efficiency and billing/charging efficiency will be emphasized.

The Social and Political Acceptability of Certain Service Levels/Standards

The planning team ought to understand the social and economic imbalances or inequalities that the previous system of government created among population groups. Such inequalities are prominent in all sectors of the South African

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economy, and even extend to municipal infrastructure services. The normal functioning of the South African economy or society was distorted through separatist macro and micro policy instruments. Experts hardly raised any criticism against the economic and financial rationality of such policies. It was a political decision to achieve and sustain certain political objectives � hence the current co-existence of the �First World' and the 'Third World' in urban areas in particular. This dividedness has not only been at the centre of our political struggle and debate and contributed to social instability and a high crime rate in most urban areas, but it is also the most sensitive issue on the socio-economic development agenda in our country.

The planning team's understanding of the above perspective would therefore be a very crucial factor in their consideration of the level and quality of services to be provided in the municipality. Any attempt by the planning team to recommend low levels of or low-quality infrastructure services to disadvantaged groups because these services are affordable while other groups have access to high levels of or high-quality services, might be socially and politically unacceptable.

Affordability should be viewed more from a macro than a micro perspective. In other words, income inequality should be observed across the city and not within a particular resident community. Basing the level of services on the current income levels of the beneficiaries (as advocated in the '20 Towns' financial modelling study) would be an unfortunate pro-position politically. It will mean that the poor should continue living in a poor environment � a perpetuation of the status quo. The affordability criterion could also create a vicious circle in service development initiatives. As the costs of providing services always go up (especially if conventional methods are used), it would be more costly to provide these services in future. Even if the income levels of disadvantaged communities go up in future, they would be unable to afford high-level services.

Proponents of the affordability criterion also fail to appreciate that communities are not only composed of 'mono-income' households, but also include 'poly-income' households. Hence a multi-criteria approach would be required to determine the level and quality of services to be provided by the municipality. Such an approach would prevent affluent households within the community from being held hostage by poor house-holds in the same community vis-à-vis the provision of low levels of, and low-quality, infrastructure services.

Spatial Integration of Dispersed Communities

South African towns and cities are characterized by scattered or dispersed settlements and built-up areas. This has rendered the provision of urban infrastructure services very expensive. The key feature of this settlement pattern is the spatial segregation of different racial groups within the cities as a result of apartheid policies. However, a symbiotic relationship exists among the fragmented settlements in most cities in South Africa. The goods and services produced in the white-dominated economic nodal points flow into the peripheral settlement areas. In turn, labourers from the peripheral areas daily commute to the economic nodal points as their areas have literally no economic bases to support and sustain the inhabitants. The development of the peripheral areas was not based on sound economic principles, and there has been little co-ordination of development activities and infrastructure service provision between these areas and the economic cores.

As a result of the above, South African cities show two district socio-economic worlds. This model is now facing an economic, financial and political crisis. The negative effects of past political and socio-economic restructuring have to be redressed through socio-economic reconstruction, restructuring and integration. The divided economic, engineering and social services, and the fragmented spatial and institutional landscape of our cities have to be integrated to effect financially and economically sensible development.

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The benefits of correcting the above problem through a rational approach to the provision of municipal infrastructure services spill over into many other socio-economic sectors. The infrastructure services to be provided in the city could help to promote racial integration, which is essential for spatial and economic efficiency, and is likely to have far-reaching, sustained and beneficial structural effects on the performance of cities � as cities are the engines of the South African economy.

The planning team has therefore to consider spatial integration seriously when determining the type, level and quality of municipal infrastructure services to be provided.

A Vision for Infrastructure Service Development

In his famous speech delivered on 28 August 1963 in Washington DC, Dr Martin Luther King Jr shared his vision of the liberation of the Negroes in America. On that day, all God's children � black men, white men, Jews and Gentiles, Catholics and Protestants � would join hands and sing the words of the old Negro spiritual, 'Free at last, free at last; thank God Almighty, we are free at last'. This vision inspired oppressed people throughout the world to actively seek the materialization of this vision.

Just like Dr King Jr, the planning team should have a vision for infrastructure service development for the municipality. The vision has to be sufficiently clear and powerful to arouse and sustain the actions necessary for the vision to became a reality. We have to redress the current infrastructure service imbalances that exist in the municipality, so that one day all residents shall have equal access to high-level and good quality municipal services regardless of their ethnic origin, level of incomes and social development. The vision must direct us to the promised land.

The planning team ought to be aware that such a vision will inspire resistance, especially from fiscal and financial experts and economists who use cost and affordability as the only determinants of infrastructure service development. Many people are not prepared to face or accept change or shifts in paradigms, and will try their best to resist it. The planning team has to insist on transition, but has to be as objective as possible. Objectivity can be greatly increased by the environmental scan and information analysis. As depicted in section entitled 'A Vision for Infrastructure Service Development', the scan and the analysis have revealed that municipal capital investment decisions could be motivated by four major considerations:

• The need to reconstruct or replace existing facilities/services in order to maintain existing levels and quality of services.

• The need to upgrade or add to existing facilities/services in order to improve either the quality of services or coverage.

• The need to undertake new infrastructure projects or new services beyond the range of current services for social and/or economic reasons.

• The need to match the three preceding needs with current and future resources (from various sources) at the disposal of the municipal council.

Based on the above considerations, the planning team has to create a vision of the municipality's infrastructure service development � say for the next five to ten years. The vision could guide the team in the formulation of the infrastructure service capital investment plan and in the prioritization of action plans or projects. The development vision should be devised against the background of the identified problems, opportunities, constraints, threats and weaknesses in and outside the town (the spatial dimension), and within the municipal council (the institutional dimension). According to an old saying a vision without action is merely a dream.

But then the envisioned action must be implementable, achievable and focused. The strategic thrusts (goals and objectives) of each infrastructure service unit have

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to be included in the strategic vision. For example, extend water supply system coverage to 104% of the total municipal population by the year 1999 with 80% direct connections and 20% standpipes, at annualized rates of 20% and 5% respectively. These goals and objectives could reflect all the above considerations i.e. repair/replacement, upgrade/extension and new projects. They could be short-term focused interventions or medium- to long-term broad interventions. However, regardless of their scope or nature, the goals and objectives must be in full alignment with the municipality's vision for infrastructure service development.

Capital Investment Programming and Budgeting for Infrastructure Services

This section discusses the process to be followed by the planning team in formulating the municipal capital investment programme and budget for infrastructure services based on the information in the sections entitled 'A Vision for Infrastructure Service Development' and 'Capital Investment Programming and Budgeting for Infrastructure Services'. In formulating a capital investment programme and budget for services, projects for each service unit will have to be listed in priority order. The list ought to indicate the starting and completion dates of the individual projects in order to achieve specified objectives and ultimate goals. The infrastructure projects identified will then be programmed to meet the objectives within the set time frame.

OUTPUT: The planning team will present the preliminary programme for infrastructure service investment to the municipality's top management or even to the municipal council for consideration and direction. Once approved, this could become the municipal council's preliminary action plan for infrastructure service development.

Technical Feasibility Studies

The individual projects in the preliminary, approved programme, will be subjected to technical feasibility studies and cost estimation. The feasibility studies will attend to various options, e.g.:

• Tarmac roads, gravel roads, or dirt/earth roads.

• Standpipes, communal water-selling kiosks, or individual connections.

• Pit latrines, water-borne septic tank for each property, or full sewerage for every property.

These feasibility studies will define the scope of the investment project, and will produce preliminary designs and cost estimates. Fully detailed engineering designs and cost estimates will not, however, be done at this stage, because some projects in the preliminary programme might exceed the specified time period or be otherwise unfeasible.

Once the feasibility studies and cost estimates have been done, the planning team can re-arrange the initial project priority list in the programme and extend the time frame for the investment programme, for example, to five years. The revised programme will show the time schedule and costs (annualized) for all capital investment projects aimed at infrastructure service development under consideration and/or originally approved by the council or tap municipal management. Any additional costs for the projects that would exceed the five-year

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period should be shown in the last column of the programme table. The ways of funding the various individual projects (e.g. grants, own funds, loans or a mixture of them) together with their interest rates and repayment terms should be stated.

Operation and Maintenance Costs

Having conducted the preliminary feasibility study and cost estimation for each project, the planning team will also have to estimate their operation and maintenance costs. These costs will reveal the capital investment required to sustain outputs after the completion of the projects. The costs should, inter alia, include cost of labour (skilled and unskilled), materials, transport, utilities (water, electricity, etc.), plant and machinery, taxes/VAT, interest repayments (if any) and depreciation of capital assets. Some of the costs may be shared with other operations or services.

The planning team should take note that experts favour the provision of lower levels of and low-quality infrastructure services in order to stretch the limited financial resources to cover a large number of people across the country. However, minimum-cost approaches to infrastructure service provision show their weakness when it comes to operation and maintenance costs. Empirical studies have revealed that minimum-cost approaches to capital investment projects lead to higher operation and maintenance expenditure. They also lead to high capital investment repayment costs � especially if the capital investment has been procured as a loan, which requires short-term repayment. After all, low-quality services have short life spans. For example, dirt/gravel roads with inadequate profiles and ineffective drainage deteriorate rapidly and require constant repairs, but also bring flooding to previously dry areas. A communal water source is another example. It requires women and children to walk long distances to collect water, exposing them to criminals.

The costs of capital investment, operation and maintenance for each infrastructure service make up the total cost for the provision of the individual services by the municipality. This cast reveals the supply side (provision and maintenance) of the infrastructure services throughout their life span of, say, 5 to 30 years.

Pricing of Municipal Infrastructure Services

The municipality is supposed to operate neither as a welfare organization nor as a profit-making organization. Many municipal infrastructure services can directly generate revenue to cover either all or part of both the capital investment and the operation and maintenance costs. For example, tarring gravel roads may enhance the value of properties along those roads. The municipal council could then add a betterment fee to the existing property tariffs. This section, however, concerns itself with how the municipal infrastructure services could be priced.

Sustainability is an important factor in pricing. In determining the pricing policies for various municipal infrastructure services, the planning team has to be aware of consumer resistance to tariff changes and that some changes are more unpopular than others. Adam Smith, the 'father of capitalism', once said that the real price of everything was the toil and trouble of acquiring it.)

Factors to Consider in Pricing Infrastructure Services

The planning team has to consider a number of factors when deciding on service pricing. The most important of these are discussed below.

Aim with infrastructure services The aim with an infrastructure service is a strategic determinant of service pricing. The achievement of the aim is a greater consideration in service pricing than the financial gains to be accrued from the project.

It is therefore essential that the planning team understand clearly the main aims with the services before deciding on their pricing. For example, services that are

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designed to redress and/or alleviate poverty in the municipality may be priced differently from services designed to eater for commercial/industrial activities, even if the cost implications are the same.

Beneficiaries of infrastructure services The pricing of any infrastructure service is also to a large extent influenced by the way in which the benefits and costs of the project are defined and distributed among various groups of beneficiaries in the municipality. If the main beneficiaries are the poor and disadvantaged communities, the planning team may design prices that are lower than the financial or economic (efficiency) prices for such services. If the beneficiaries are the affluent people, the municipality may decide to charge more than the service cost. The social value of the services to the various socio-economic groups and the level of sophistication of the services are therefore very important.

Levels and standards of services It is important to match the level and standard/quality of municipal infrastructure services with the socio-economic characteristics of the end-users/beneficiaries and the economic and/or financial strength of the municipality. Consideration should also be given to the types and quality of infrastructure services available in other community groups or other areas within the municipality, and how they were provided or delivered. The topography and physical features of the municipality, and most specifically of the project area, need also to be considered in determining the Level and standard/quality of infrastructure services. This, in turn, will impact on the planning team's pricing decisions.

Competition and demand for services Competition to deliver municipal infrastructure services and the demand for the services are also major determinants of service pricing. The demand analysis would mostly involve predicting 'demand elasticity' or 'price sensitivity' the relationship between price levels and demand) while considering the effects of other variables on demand. Price sensitivity in the case of municipal services should be considered at two levels � national/provincial price sensitivity; and local price sensitivity.

Currently, almost all municipal councils in South Africa operate in a monopolistic or oligopolistic market situation � being the solo providers of urban services to their citizens. This increases the potential for driving service prices up or down, whether the effective demand for the services is elastic or inelastic. In a competitive market where the private sector is allowed to deliver and operate some of the municipal services and even provide substitute services, pricing is dictated by market forces.

In determining the prices for various municipal services, the planning team should take into consideration the competitiveness of the service market, and the current and future demand for the services to be provided.

Cost of capital investment in infrastructure services The cost of capital investment in the provision of municipal infrastructure services directly impacts on the determination of the pricing policies of such services. The prices for infrastructure services delivered through grant money or own funds would differ from the prices of services delivered through loans from commercial or development banks/institutions.

Example 1: Let us assume that the Development Bank grants a loan of R50 million at 12% interest rate for 20 years to the Tima Town Council for the construction of a high-priority city road. Civil engineers estimate that it will take three years to construct the road. The Development Bank has agrees to 'capitalize' the interest until the road is completed. In other words, the Tima Town Council (borrower) is given a three-year 'grace period' on the loan, and repayment will start in the fourth year.

Let us assume further that the Tima Town Council intends to spend R10 million in the first year, R25 million in the second year and R15 million in the third year. Although the road will be physically located in one area of the town, the town

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council regards this road as a benefit to all residents, public institutions and business enterprises in the town. The households, business enterprises and public institutions total 35,160.

What is the annual amount the Tima Town Council must pay the Development Bank in a combined interest and capital payment?

Answer: The loan redemption period is 17 years. This has been calculated as follows:

Project year

Amount of loan drawn

down

Compound interest factor to end of

3 rd year 12%

Amount due end of

3rd year

[ ]2n)r1( + *

1 R10 million 1,445 R14.05 million

2 R25 million 1,254 R31.35 million

3 R15 million 1,120 R16.80 million

R50 million R62.20 million

* In these formulae, 'r' stands for compound interest rate, and 'n' stands for number of years.

Total principal capitalized interest due at the end of the 3rd year is R62.20 million. A 12% capital recovery factor (compound interest on unpaid balance) may now be

used for the amount owed at the beginning of the 4th year.

Tima Town Council will eventually pay R8,708 million annually to the Development

Bank for the loan of 850 million. At the end of the 20th year, the Town Council will have paid the Development Bank a total of R148,036 million.

Since the service is seen to benefit all businesses and residential units in the town (35,160), each will be paying 8247.67 annually or 820.64 monthly (88,708 million ÷ 35,160) for 17 years to repay the 850 million loan that the Tima Town Council obtained from the Development Bank. The amount of R20.64 could be added to the monthly bill of each household and/or property owner as a town rate or tariff, or cross-subsidization based on the equity criterion could be used.

Total amount including principal and capitalized interest

owned at end of 3rd year (n3)

X

12% capital recovery factor for 17 years

=

Amount of repayment

each year from 4th

through 20th years (n4 - n20)

−++

1)r1()r1(r

)(nyear 4th of beginning

n

n

4

R62.20 million X 0.140 = R8,708 million

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If the R50 million was a grant, then no one would be required to pay for capital cost, but the road's operation and maintenance would have to be paid. A typical example in South Africa is the funds the government allocated to the Independent Development Trust (IDT) for the provision, inter alia, of serviced sites for low-income households at no cost to them. Because of the policy governing the use of these funds, the sites had to have a zero price. The pricing policy for the serviced sites provided by the IDT was not only influenced by the cost of money and the policies governing its end use, but also by the government's allocation of such funds. The beneficiaries of these sites only pay operation and maintenance costs, and not the capital costs.

Another consideration for the cost of capital investment would be the fiscal impact (e.g. budgetary and balance of payments implications) of municipal service projects on the economy, and the capital's opportunity cost to the public sector. When public expenditure is below a socially desirable level, the fiscal impact of the projects becomes a material consideration in project choices, financing decisions and pricing policies. Where the municipal infrastructure services benefit inter-city, regional or national interests (e.g. colleges/universities, hospitals, sewerage and water or bulk infrastructure services, etc.), the pricing of such services should take into consideration inter-governmental, inter-municipal or inter-agency transfers. The planning team therefore needs to take into consideration the cost of the capital investment when determining the prices for the use of the municipal infrastructure services.

National or regional pricing policies for infrastructure Most countries including South Africa have developed national and/or regional policies for the pricing of certain public services such as municipal infrastructure services. Such national or regional policies have a direct bearing on the pricing of infrastructure services. The planning team needs to know the current price levels and structures of various infrastructure services, and the policies that govern them at both national and regional/provincial levels. Any new national or regional policy initiatives aimed at restructuring the current municipal service price levels and structures have to be investigated by the planning team.

Pricing Strategies for Infrastructure Services

Based on the considerations cited under the item entitled 'Factors to Consider in Pricing Infrastructure Services', the planning team could formulate various pricing strategies for each service unit. Such pricing strategies should however depart from the premise that municipalities must meet the costs of constructing and maintaining urban services and facilities. The revenues must cover bath capital investment and operation and maintenance (recurrent expenditure) costs and even the costs to replace obsolete facilities. In other words, pricing policy should focus on cost-recovery. How this could be achieved, bearing in mind the various categories of service users, would depend upon the pricing strategies adopted by individual municipal councils. The pricing strategies should also not lose sight of equity in price structures. Strategies, that the planning team might consider in pricing infrastructure services are detailed below.

Skimming pricing Skimming pricing is a strategy whereby high initial prices are paid for services with a view to 'skimming the cream off the market or possible beneficiaries' at the upper end of the income scale. This strategy is normally accompanied by heavy expenditure on promotion, and the likely municipal services would be things like telephones and private hospitals or schools. The strategy provides immediate financial relief to the service providers. Service prices established by this strategy might go down slowly as the demand for the services expands.

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Penetration/promotional pricing strategy Penetration or promotional pricing provides services at low initial prices to encourage use of the services. Prices gradually increase in the subsequent years as the markets expand. This strategy is resorted to when an elite market for the service does not exist in the municipality but prospects for a growing demand are good,

Let us take the water supply project as an example. If 90% of the population in a municipality do not have a potable water supply system, their only sources of water are rivers and unprotected wells or lagoons. For social and health reasons, the municipal council then decides to extend the existing potable water supply system to the 90% who use unsafe water. If the municipal council charges high prices for the potable water provided to this section of the population in order to recover the full cost, the majority of them will not use the potable water. They will continue getting water from the unsafe sources. Indeed, the pricing strategy will probably counteract the development of future demand for the service.

In unsophisticated markets, therefore, penetration pricing would be ideal. Regularly used in the commercial business sector, penetration pricing has a limitation though � beneficiary expect the initial low price to be sustained indefinitely. This problem could be curtailed by informing beneficiaries of periodic revisions of prices. This pricing strategy would also be appropriate where the municipality's financial base is strong or where the central or provincial government would be willing to transfer some funds to the municipal council to defray some of their current costs in order to ensure the achievement of project objectives such as improving the living and health conditions of the disadvantaged groups.

One-price strategy A one-price strategy means that the same price (whether subsidized or full cost recovery price) is set for all service users or beneficiaries, The municipal council may decide to charge one tariff rate per litre water for all users of its potable water regardless of the income levels or geographical location of its clients. Thus the poor household, the rich household and the industrialist who each uses about 2,000 litres of water a day will have to pay the same price, Obviously, the more water one uses, the higher the price one will pay.

There are some advantages and disadvantages to this pricing strategy. The advantages are that it makes administration and the pricing easier. It also maintaining goodwill among clients or beneficiaries because no one user is receiving favours. A general disadvantage of this pricing strategy is that it is insensitive to the socio-economic statuses of the various beneficiaries. The equity criterion does not come into play under this strategy.

Flexible pricing or cross-subsidization Flexible pricing refers to offering different clients or beneficiaries the same products or services at different prices. It is based on redressing the socio-economic inequalities in the population as they feature in different geographical localities. The prices for each consumer group could be designed in such a way that the total monthly collection from all areas equal the production cost (full cost recovery). The implementation of this strategy is dependent upon information on the various beneficiary groups.

The advantage of this pricing strategy is that the municipal council could charge higher prices to affluent communities or communities close to the city centre and major roads, and lower prices to poor communities or communities in peripheral areas.

This pricing strategy also relates to the equity criterion. The equity criterion is divided into two principles � horizontal equity and vertical equity. The principal of horizontal equity requires that beneficiaries with equal income levels (in the same income bracket) or equal functional activities (e.g. industrial concerns, public institutions, etc.) are required to pay the same tariffs. For example, large variations in property tariffs on houses of similar value regardless of where they

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are located (e.g. Soweto and Houghton) would be considered to be inequitable in terms of the horizontal equity principle. The vertical equity principle is based on the concept of the ability to pay for services. Those with greater ability to pay are to be charged more. This principle would be commendable in most South African urban areas at present because the inequalities between beneficiary groups were deliberately created and are highly pronounced.

An additional aspect of equity is the pricing of certain services (as 'merit goods') which relate to basic human needs. These include primary education, medical care, and even low-income housing. Subsidization or even total financing of these services will facilitate consumption by those who are too poor to meet a full consumer tariff. The extent of its financing will depend on what the economy can afford and on contemporary values regarding minimum service and living standards.

Example 2: Let us assume that the municipal council has designed a potable water project to provide individual connections to all properties in the town. The monthly total revenue to sustain the project facilities financially (assuming that the total projected monthly amount of water is consumed) is R1, 500,000. The beneficiaries of this project have been categorized as follows:

• 50 big and medium-sized industrial and commercial concerns (call them consumers 'A');

• 100 small-scale entrepreneurial concerns (call them consumers 'B');

• 5,000 high- and middle-income households living in low- to medium-density residential areas (call them consumers 'C');

• 30,000 low-income households living in high-density residential areas (call them consumers 'D'); and

• 10 public and/or community institutions and/or facilities (call them consumers 'E').

The number of water consumers in the municipality totals 35,160. The average water tariff that each consumer would pay for water regardless of the number of litres consumed, would be R42.66 per month. If we apply equity pricing to ensure full cost recovery, the water tariffs would differ � consumers A and B would pay more than R42.66 per month consumers C and D would pay less than R42.66 per month. If there is any shortage, it would be covered by provincial or central government transfers, water being a 'merit good'.

Let us assume that the planning team has made the following water-pricing recommendations:

Each of the consumers in Group A should pay a monthly water tariff of ten times the average monthly charge (10 x R42.66).

• Each of the consumers in Group B should pay a monthly water tariff of five times the average monthly tariff (5 x R42.66).

• Each of the consumers in Group C should pay a monthly water tariff of two times the average monthly tariff (2 x R42.66).

• Each of the consumers in Group D should pay a monthly water tariff of half the average monthly tariff (R42.66 ÷ 2).

• Each of the consumers in Group E should pay a monthly water tariff equal to the average monthly tariff (R42.66).

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• The balance (to be termed 'Z') of the total monthly revenue required should be covered by intergovernmental transfers and/or the municipal council's own surplus revenue from profit-making ventures.

Let us assume that 'y' equals the average monthly tariff for water consumption (y = R42.66).

Then the equation for the total revenue (TR) from water consumption would be:

TR = A (10y) + B (5y) + C (2y) + D (y) + 2 E (y) + Z = R1,500,000

TR = 50 (10y) + 100 (5y) + 5,000 (2y) + 30,000 (y) + 10(y) + Z = R1,500,000

TR = 50 (10 x R42.66) + 100 (5 x R42.66) + 5,000 (2 x R42.66) + 30,000 (R42,66 ÷ 2)

10 (R42.66) + Z = R1,500,000

TR = R21,330 + R21,330 + R426,600 + R639,900 + R42.66 + Z = R1,500,000

∴ Z = R390,413.40 (R1,500,000 - R1,109,586.60)

The revenue from intergovernmental transfers and/or the municipal council's own surplus revenue would amount to R390,413.40 per month. If no funds from other sources are needed to cover the balance, the planning team might revise the water tariffs so that the water project generates all its revenue from within itself.

Pricing towards replacement of obsolete facilities The planning team needs to understand that municipal infrastructure services provided by the municipality are to be sustained (although also improved) as long as people reside within the boundaries of the municipality. This means that water pumps, plants, machinery, etc. have to be replaced after the expiry of their life spans. The following options could be considered to replace obsolete facilities or fixed assets:

• The municipality might ask for loan finance from financial institutions.

• The municipality might ask the central or provincial government for grant finance.

• The municipality might get finance from its own general surplus funds.

• The municipality might use its own internal revenue generated within the projects through a 'sinking fund'.

The first two options are mostly applied by municipalities 'dependency syndrome' � relying mostly on external assistance. The third option is common where the municipality invests funds in various services and/or activities � some making profits which provide a financial cushion to the municipality and subsidize other non-profit making services. The last option relates to 'self financing' and �self-sustainment' of services. In this case funds are generated within services, that is the cost of replacing obsolete facilities is covered by a 'sinking fund' and by the recovery of other project cost items.

The 'sinking fund' is accrued by means of money that is put into a fund each year and invested in any portfolio in order to have enough money to replace an obsolete facility when necessary.

Example 3: Let us assume that the municipal council has implemented a potable water supply project which includes the installation of a water reservoir pump. Water engineers have estimated that the water pump will be obsolete after 20 years, and replacement will cost R10 million. The council further decides that the replacement cost will have to be generated by the water project itself, by levying a monthly payment on water consumers in addition to other water tariffs.

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The money will be invested in government bonds bearing 10% interest. How much will the municipal council have to collect from the 35,610 consumers each month in order to have R10 million in 20 years' time?

The municipality will have to collect about R174,600 annually for 20 years from the water consumers in order to replace the obsolete water pump. Since there are 35,160 water consumers (assuming that this figure remains constant for 20 years), each consumer would have to pay approximately R5,00 per annum (42c per month) as an additional levy to the water bill.

This pricing strategy would enable the municipal council to replace the obsolete water pump without financial support from other institutions. If properly worked out in the water pricing system, the R10 million will hardly have an impact on the financial position of the consumers.

Answer:

Replacement cost of water pump in 20 years

X

10% sinking fund factor for 20 years

=

Annual amount to be collected from consumers and invested in government bonds at 10%

−+ 1)r1(

rn

R10 million X 0.01746 = R174,600

OUTPUT: The Appropriate Pricing Strategy

Having assessed the advantages and disadvantages of the various pricing strategies as stipulated above, the planning team could determine the most appropriate pricing strategies for the various infrastructure service units in the town. In most instances, the planning teams will recommend all of the above strategies or a mixture of them for the various services depending upon the chosen criteria and the service development objectives.

If the ultimate aims are full cost recovery as well as all inclusive access to the potable water system, these have to be spelt out clearly and disseminated to the stakeholders including the consumers. The achievement of these aims would require the combination and permutation and of the various pricing strategies.

Establishing the Feasibility of Identified Infrastructure Service Projects

Earlier sections of this chapter have explained in detail the supply and demand sides of the municipal infrastructure service equation by dwelling on how capital and operation/maintenance costs are determined, and how services are priced. Before drawing up a final capital investment programme and budget for municipal infrastructure services, the planning team has to determine the feasibility of each identified project by focusing on its technical, social, economic, financial, environmental and institutional dimensions.

If the planning team lacks the technical know-how to determine the feasibility of the projects, it could engage consultants. Empirical experience has revealed that investment of resources in establishing the feasibility of the projects greatly reduces the likelihood of project failure and implementation problems. The full process of establishing project feasibility is discussed below.

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Project Preparation and Formulation

Each identified project in the preliminary capital investment plan has to be subjected to detailed preparation and formulation. The preliminary feasibility study conducted on the project has to be refined, and this refinement has to take various farms. The aims and objectives of the project need to be spelt out clearly in terms of specific, phased increases in the output of the particular service. Detailed surveys, technical design studies and cost estimates are also conducted. Preliminary feasibility studies normally estimate costs within a margin of error of 15 to 20%, and detailed engineering studies estimate costs within a margin of 5 to 10% accuracy.

Detailed design studies focus on the need for the project in terms of the social behavioural characteristics of the beneficiaries, spatial coverage of the project, consumption units and income levels of the beneficiaries. This would require demand/need forecasts for all the services the project is intended to provide. A range of design options and technology packages will be proposed and analyzed to determine their viability in relation to all relevant dimensions, and to determine their cost-effectiveness and appropriateness.

The levels of services to be provided should be clearly specified. The technical constraints of the suggested design options in respect of soil conditions, physical terrain and hydrological characteristics need to be examined in detail. The institutional changes to be achieved must be translated into action programmes, as must the policy changes that impinge on the implementation of the project. As the project objectives are refined and options for achieving them are narrowed to a manageable number, more detailed preparation can be done.

Project Analysis and Appraisal

During project analysis and appraisal all dimensions of the proposed project or alternative projects are assessed in order to establish project feasibility, rank alternatives and assist decision makers with the selection process. This will include a technical, financial, social, economic, institutional, environmental and implementation analysis, and even an urban systems analysis (integrated approach). As these analyses will determine the impact of these aspects on the project, they ought to be integrated into the capital investment planning. An interdisciplinary team of specialists in these fields would be required to conduct the appraisal. The dominant aim in conducting the appraisal is to examine the overall soundness of the proposed project(s), which may lead to the rejection or redesigning of the proposed projects). Full details on how each dimension is being analyzed and appraised appear below.

Technical analysis The technical analysis of a proposed project is mainly concerned with assessing the efficiency of the chosen technical design and the appropriateness of the overall technology package. The specialists conducting the technical analysis focus on the cost-effectiveness of alternative technology and its suitability for local conditions. They also look at capital-intensiveness and labour-intensiveness of the technology, alternative energy sources, optimal size and location of the project, construction phasing and timing, and alternative operating systems. Because these issues are interwoven with economic, financial, social, environmental and institutional aspects, they need to be analyzed in an iterative manner to ensure an integrated approach to project selection.

Social impact analysis The social impact analysis of the project aims at testing the validity of the assumptions made by various modular planners about the social conditions or characteristics of the beneficiaries and adjusting the assumptions accordingly. It also assesses the suitability of the project options for meeting the needs of the target population. This enables the planners to express the project

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goals and objectives in terms that have meaning for both the beneficiaries and the municipal council, and to design practicable ways of achieving the envisaged social change. The social impact analysis should mostly focus on:

• The main characteristics of the various groups of beneficiaries. These would include the demographic characteristics (household composition,

migratory pattern, population growth trends, population size and age structure) and socio-cultural features (traditional values, norms, beliefs, customs, attitudes, etc.).

• The social organization of the various beneficiary groups in terms of how they carry out productive activities, availability of labour, employment characteristics, income levels, property ownership, role of women and the youth, and availability and role of community-based organizations (CBOs).

• The needs that are the target of the proposed project. This requires a quantitative analysis of the unmet needs, latent demand and future needs. This assessment embraces the socio-political acceptability of the services to the beneficiaries, and the extent to which the services will satisfy their needs and bring about desirable changes in their lives.

• Entrepreneurial skills in the municipality and/or among community groups, and how they are organized and utilized in development activities in the town/city.

• The role and function of community leaders (formal and informal) and their standing in their communities.

• Strategies to elicit community participation in the design and refinement of the project and to gain community support for the project. This might include evaluating the role of the various communities in project implementation and operation/maintenance.

Financial analysis One of the integral parts of project preparation is the drawing up of a financial plan to ensure that there will be adequate funds not only for completing the project, but also for operating it subsequently. The financial analysis assesses the financial soundness of the project from the viewpoint of the municipal council and/or the commercial enterprises involved in the implementation and operation of the project. It focuses on:

• Cash-flow throughout the project's expected life.

• Output pricing and capital investment funding.

• The capacity of the municipality to service the loans required for by the project.

• The working capital requirements associated with the project and whether the municipal council has sufficient working capital to embark on the project.

• Assessment of the municipal council's balance sheets, income statements, and sources and uses of funds statements.

• A financial cost-benefit analysis (FCBA) to determine the financial yield or rate of return on the capital investment in the project. This mostly relates to projects whose services will be charged.

The financial viability of the project is calculated by means of the net present value (NPV), the internal rate of return (IRR) and the benefit-cost ratio (BCR).

The NPV is the present cost value. It is calculated by discounting (using the cost or interest rate of the loan) the time stream of costs and benefits throughout the project's life. A project is viable when the NPV is positive or the costs and benefits are equal (full cost recovery and no profit making). If there are two project options, the one with the higher NPV will probably be favoured.

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The IRR is the rate of discount that results in a zero NPV for the project. The IRR of the project should be at least equal to or higher than the interest rate of the loan for the project to be declared financially viable. The IRR is also useful for comparing the profitability of project options in the same sector, or for determining the interest rate of the loan and identifying the best funding sources.

The BCR is the present value of benefits divided by the present value of costs. If the ratio is one (unity), that the present values of the benefits and the costs are equal (full cost recovery). Any project with a BCR of greater than one or at least equal to unity would be acceptable for funding. If the BCR of a project is three, it means that the project benefits are three times the project costs.

Economic analysis The economic analysis involves undertaking a cost-benefit analysis of the various project options to assess their social desirability or the economic viability. The economic analysis guides the decision makers in the municipal council on the overall societal viability of the project and on whether its value to society or the economy could be increased by altering key design factors such as the technology chosen, the delivery mechanisms, the location, the timing, the pricing strategies for project resources, the method of project implementation and the energy supply.

The economic analysis also looks at the project's linkages with economic and multiplier effects. It considers both the tangible and intangible economic costs and benefits of a project. This analysis follows the pattern of the financial analysis, but translates the financial costs and benefits into economic costs and benefits by adjusting for price distortions of project inputs and outputs through shadow prices and their opportunity costs. Some of the financially identified costs and benefits (e.g. taxes, feasibility study costs, interest, VAT) might be removed completely from the economic costs and benefits, as they would transfer payments, sunk costs, etc.

The basic method for identifying the costs and benefits of a project is to compare the costs and benefits that are likely to arise if the project is implemented, to the situation that would prevail if the project is not implemented. This method estimates the incremental net benefits and net savings on costs that are likely to be generated by the project investments. The indicators used for the measurement of the economic viability of the project are the same as those used for the measurement of the financial viability of the project, namely the economic internal rate of return (EIRR), the net present value (NPV) and the benefit-cost ratio (BCR). The only difference is that with economic analysis, the discount rate used is the 'social discount rate', which is the opportunity cost of capital to the economy, which takes into account the promotion of investment. The social discount rate in South Africa at present is 8% (indications are that this rate might soon be increased).

Environmental impact analysis The environmental impact analysis assesses the likely impact of various project options on the urban environment. Most municipal infrastructure service projects generate a range of complex environmental costs and benefits which need to be fully taken into account in project appraisal. These would include the impact of the project options on air pollution, water pollution, natural vegetation and physical features, ecotourism and soil conservation.

The environmental impact analysis might even lead to the redesigning of the project if the project is found to be harmful to the environment, so that the negative impacts could be reduced, and appropriate control measures, standards and safeguards be incorporated.

Institutional analysis The institutional analysis determines the most appropriate institutional models, organizational structures and management systems for implementing and operating the project. It also assesses the strengths, weaknesses, policies and strategies of the municipal council and other institutions

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(including government institutions) which will indirectly or directly be involved in the implementation of the project. This would include the assessment of the financial, technical and managerial positions of these institutions to ensure the efficient implementation, operation and sustainment of the project, and the assessment of the appropriateness of the policies and strategies for achieving the project objectives. The legitimacy and acceptability of these institutions have to be known. The role of the public sector and private sector, NGOs and CBOs has to be known and analyzed.

Conducting an institutional analysis is an important component of the project design stage, as the outcome of any development project is dependent, inter alia, on the quality of the institution responsible for them.

Urban systems analysis (integrated development) This analysis assesses the probable impact of the project on the overall functioning of the urban (municipal) system. It also identifies the relationships between the proposed project and other existing and proposed municipal infrastructure services in the municipality. The objective is to ensure that the project under analysis is compatible with all other infrastructure services in the municipality.

Municipal infrastructure service projects have to be assessed in relation to urban-sector policies, strategies and programmes as well as in relation to the general land use pattern in the town/city. This will prevent an ad hoc approach to the provision of municipal services and duplication in development activities, and foster spatial, sectoral and inter-sectoral co-ordination and promote co-operation within and between projects and programmes.

Sensitivity analysis The sensitivity analysis is undertaken to determine how the viability of the proposed project will be affected by variations in selected costs and benefits. The financial and economic analysis of projects involves projecting the stream of costs and benefits well into the future. Because of the uncertainty involved in predicting future values and events, it is essential for the planning team to take into consideration a range of possible variations in the values of project variables and test how such variations will affect the project IRR, NPV or BCR.

Apart from the quantitative variables there are also qualitative variables that affect the viability of the project. Some of these are political will, commitment and environment, policy framework, attitude of project beneficiaries towards payment of service charges, etc. The planning team has to ensure that all the above are considered in the sensitivity analysis.

OUTPUT: The planning team will present the results of the various modular analyses on each project option to either the municipal management or the municipal council for consideration and further direction. The latter will prioritize and select project options, including modes of funding, and allocate responsibility. However, not all modular analyses have to show viable results for the project to be accepted for implementation. The municipal decision makers have to select projects by assessing their consistency with the priority needs of the municipality and the long-term cost implications of the selected projects.

Final Capital Investment Programme and Budget for Municipal Infrastructure Services

Based on the decisions of the municipal council or municipal management on the results of the various analyses on each project option, the planning team will prepare a five-year integrated capital investment programme and budget for municipal infrastructure services. The programme and budget will incorporate the time frame and annual cost allocations for each project that has been selected for implementation. The programme and budget will also show individual cost elements per project, such as construction costs, design costs, and any other

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costs attributed to each project regardless of the actual financing mechanisms and the sources of capital investment.

The capital investment programme and budget table could also include columns for institutions responsible for managing the implementation of each project, and the possible sources of capital/finance. If sources of capital for some projects have not been identified, a remark could be inserted in the column, such as 'to be identified'. For those projects that will not be completed within a five-year development programme, the estimated capital costs to complete them beyond the five-year period should also be included as a remark.

Implementation and Evaluation of the Capital Investment Programme and Budget

Once the capital investment programme and budget for municipal infrastructure services have been approved, they become the road map for the Municipal Council travels in the infrastructure services delivery. The pay-off of any capital investment programme is the implementation of that programme.

The planning team has therefore to draw up a clear capital investment programme implementation (business) plan and evaluation procedures. This should indicate how the activities during the implementation of the approved projects will be planned, scheduled, executed, controlled and evaluated. The implementation and evaluation stage covers the period from the initiation of the construction and completion of the projects and the operation of the services. The planning team will have to indicate how the programme is to be implemented and supervised, and how it is to be monitored and evaluated.

Programme implementation and supervision

The following issues are to be considered:

• Whether a broad-based programme steering committee will be formed to oversee the implementation of the capital investment programme and budget for municipal infrastructure services.

• The date when each activity will take place and be completed. The team should relate the various activities to the time, cost or budget plan for each activity, the resource estimate, the objective of each activity, work order and the institution's chart of accounts.

• The person(s) or institution(s) that will take primary responsibility for each activity, will have to be actively involved in the activity. Their role and responsibilities have to be clearly stated.

• The type of resources to be used for the activities and where and how to procure them. The resources could include the contractors, consultants, construction materials, labour force (skilled and unskilled), and other resources. Methods and/or procedures for procuring them � e.g. tendering through local or international competitive bidding, direct purchase or advertising � and the design of the tendering documents have to be explained. Procedures for the selection of the various individual resources including the beneficiary communities have also to be explained.

• The methodology for the measurement of progress in the various activities will have to be explained. The critical performance indicators have to be clearly identified and be known to all stakeholders. These indicators will drive the

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• project's implementation, and monitors and evaluators will measure actual performance against these indicators. Any deviations from these pre-determined standards of performance ought to be questioned and counteracted immediately.

• Clear implementation control mechanisms will have to be put in place, including supervision rules to avoid cost overrun and unnecessary delays. It is worth noting that the success and/or failure of the project or programme to achieve its objectives is dependent upon supervision, as the project or programme analysis considers only estimates and not actual outcome or costs. Project or programme supervision indicates when something is going wrong, and does so in good time. It also gives feedback on actual experience gained during implementation.

• The techniques for scheduling the implementation of the various actions/activities of the proposed projects or programmes (e.g. bar charts, critical path analysis/method (CPA/CPM), or programme evaluation and review technique (PERT).

• The procedure to be used in disseminating the information and data on progress to project or programme actors. Effective communication (both formal and informal) between the project or programme client and the people doing the actual construction is of the utmost importance.

Programme Monitoring and Evaluation

Both programme monitoring and evaluation are essential for systematic learning and should always be incorporated into municipal capital investment planning. Various tools, including those used in feasibility studies, are used to evaluate capital investment projects.

When the investment projects are being implemented, lessons for future actions are often lost because data about progress, problems and outcome of actions are not systematically recorded, analyzed and evaluated. Even the best of memories is unreliable, and a formally structured procedure for monitoring and evaluating is necessary to support memory and provide data, and to keep and preserve this information so that other programme implementers need not start from scratch. Programme or project monitoring and evaluation therefore involve the following:

• The monitoring of the day-to-day progress of the project activities specified in the implementation schedule the data being compiled through regular field reports.

• The monitoring of the budget and the internal and external environments in which the projects are being implemented. The world in which the municipality exists changes continuously, and the council needs to be alert to any changes (e.g. policy changes, needs changes, etc.).

• The periodic evaluation of the outputs or performance of each activity or action plan in relation to set objectives, cost plans and implementation schedules. If things are not going according to plan, signals could be sent to authorities to institute urgent corrective measures.

• Measuring the attainment of set objectives and goals (e.g. target groups served, problems solved, project viability established by indicators such as NPV, IRR and BCR, and crime reduction).

• The calculation of the final costs of the total programme or individual projects, and the impact of the programme or projects on the long-term development goals.

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Conclusion

The debate on how best to provide infrastructure services in South Africa has reached its peak. However, neither politicians, nor technocrats nor experts know what to do. The capital investment planning model for municipal infrastructure services as presented above has great potential for developing urban infrastructure services. The model should not however be seen as a blueprint but rather as an input into the urban development field, especially on how to price urban services without detracting from the criteria of service viability, sustainability, replicability and cost recovery. The model uses a muti-disciplinary and muti-sectoral approach to municipal infrastructure service planning and pricing, and it ensures informed decision making on all facets. Although the modular analyses depicted in the model are important, they may not be essential for all the projects proposed, as essentiality is also dependent upon how the project outputs or services are defined in the society and the priority accorded to them. The acid test of this model is the degree to which it succeeds in instilling the greatest rationality in the way the municipal council delivers the infrastructure services.

References

Austen, A.D. and Neale, R.H. (1982), 'Managing Construction Projects � A Guide to Processes and Procedures', International Labour Organisation.

Bendavid-Val, A. (1993), 'Local Economic Development Planning: From Goals to Projects', American Planning Association, Report Number 353.

Blakely, E.J. (1989), 'Planning Local Economic Development: Theory and Practice', Sage Publications, London.

Bruce, C.F. (1979), 'The Project Cycle � An Introduction to the Stages of Project Planning and Implementation', World Bank, Washington DC, USA.

Du Mhango, G.L. (1993), 'Course Teaching Material', Management of Development Projects, Programme (Postgraduate Diploma in Management), University of the Witwatersrand, Faculty of Management.

Du Mhango, G.L. (1995a), �A Manual on DBSA approach to the Appraisal of Development Projects', Development Bank of Southern Africa, Halfway House, South Africa.

Du Mhango, G.L. (1995b), 'Framework for Decision Making in Selecting Projects for DBSA Support (Revision/a: January 1995)', For use by the Development Bank of Southern Africa staff.

Du Mhango, G.L. (1995c), �How to Write a Funding Proposal for a Development Project or Programme: Contribution to Development Debate', Unpublished document.

Goodsterin, L. et al. (1993), 'Applied Strategic Planning: How to Develop a Plan that Really Works', McGraw-Hill, New York, USA.

King, M.L. (Jr) (1963), Speech delivered on August 28, in Washington DC, USA, to the American People at the 'Civil Rights Movement' Rally.

McMaster, J. ( 1991 ), 'Urban Financial Management: A Training Manual', The World Bank, Washington DC, USA, and The United Nations Centre for Human Settlements (HABITAT), Nairobi, Kenya.

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Menendez, A, (1991), 'Access to Basic Infrastructure by the Urban Poor', Washington DC, USA.

Roux, A, et al. (1995), 'Financing Modeling of Municipal Services in Twenty Towns', Development Bank of Southern Africa, Halfway House, South Africa (draft).

Stallworthy, E.A. and Kharbanda, O.P. (1983), 'Total Project Management: From Concept of Completion', Gower Publishing Company, England.

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7 Restructuring the Health Services of South Africa: The District Health System

DAVID McCOY

Introduction

This chapter focuses on the on-going development of a district health system (DHS) in South Africa as the framework for the reorganization of health services. The DHS is an important strategy for achieving South Africa's primary health care (PHC) goals which include providing good quality and equitable health care for all.

The first section of this chapter will describe the apartheid health system and why a radical restructuring of the health services was needed. The second section will explain the principles and concepts of PHC and the DHS. The third section will describe some of the progress and problems encountered with restructuring to date. This will be followed by a section that highlights the key issues for future policy development and implementation.

The Apartheid Health System

Until the democratic elections of 1994 the health system in South Africa was perverse in respect of health care provision. Largely determined by the political and economic constructs of apartheid (Price, 1986; Van Rensburg and Benatar, 1993) the health system had the following outstanding features:

• it was inequitable;

• it was fragmented, bureaucratic and inefficient;

• it was authoritarian and undemocratic; and

• it was inappropriate for the health needs of the majority of the population.

For a brief but comprehensive history of the evolution of health policy and the health system, the reader is referred to Van Rensburg and Harrison (1996). However, although the apartheid structures and systems were informed by political constructs, they took on a force and momentum of their own, such that even after the establishment of a non-racial democratic government, the health system continues to reflect its apartheid roots.

Inequity

Table 1 illustrates some of the outcomes of the health system inequity.

Table 1 Health inequalities in South Africa by race

Black White Coloured Indian

Per capita expenditure on health (1992)*

R138 (RSA) R55 (homelands)

R591 R340 R356

Infant mortality rate 1994**

54.3

7.3

36.3

9.9

Doctor: population ratio (1992/3)

1:53,500 (RSA) 1:282 1:10,264 1:661

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* McIntyre et al., 1995

** Department of Health Annual Report, 1995

The inequities of the health system can also be described according to non-racial dimensions. For example, the per capita health expenditure in 1993-94 was R583 in the Western Cape and R121 in the Northern Province (McIntyre et al., 1995); and the doctor: population ratio was 1:875 in urban settings and 1:12,700 in rural areas.

Finally, inequity also established a protected and subsidized private health sector mainly for the privileged white minority. As a result, out of the total amount spent on health in 1992-93, 58% was spent on private health care which benefited only 23% of the total population. In 1987 the per capita expenditure on the insured population was ten times that of the non-insured population.

Fragmentation and Inefficiency

The health system reflected the political structure of apartheid. As a result, at one stage, there were 14 separate departments of health � one for each homeland/bantustan, the Department of National Health and Population Development (DNHPD) and three 'own affairs' departments taking care of health services and welfare for whites, coloureds and Indians respectively.

In addition, the national, provincial and local tiers of government had different health responsibilities. Provinces were essentially responsible for managing hospital services, local municipalities for managing primary health care clinics and the Regional Service Councils for managing mobile services to rural populations.

In essence, a multiplicity of different administrations provided different types of services to different population groups within the country. In many instances, different administrations would provide different services to the same population group. It is hard to imagine a more irrational and inefficient health system ultimately resulted in poor quality care, as illustrated in Box 1.

Box 1 Health service fragmentation inherited from the apartheid health system

• Most local authority clinics only provided a limited set of preventive health services. Therefore, a child receiving her/his immunizations would have to go to another facility under a different administration if s/he required antibiotics for a co-existing respiratory tract infection.

• In some areas, primary obstetric care, preventive child health care and basic curative care were all provided by different health workers working in different health facilities which were managed and administered by different authorities. Support services were thus duplicated. For example, health facilities located next to each other might order their drugs and equipment separately from different sources.

• In addition, the different health workers providing health care for the same population in the same area would often be on different salary scales and conditions of service. This led to resentment between different groups of health workers, preventing local co-operation and collaboration.

• Clinics within certain areas would have to refer their patients to a hospital managed by a different authority which might use a different set of treatment protocols. Patients would find themselves stranded between two sets of providers providing health care in different ways, with neither taking primary responsibility for their care.

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Authoritarianism and Autocracy

Generally speaking, the history of health care in South Africa attests to either a minimum or complete absence of public involvement or participation in health policy formulation. Although many of the former homeland areas established community clinic committees and hospital boards, community members had little power.

Community-oriented health programmes were largely spearheaded by non-governmental organizations (NGOs) that aimed to popularize people's participation in health, partly to strengthen the mass democratic movement and partly to improve their health directly (Ngwenya and Friedman, 1996). However, the ability of communities to be involved with health care delivery was often limited by state oppression.

Inappropriate Health Care

The pattern of public health expenditure and resource allocation also reflected the political structure of apartheid. Resources were not used to meet the priority health needs of the majority of the population. On the whole, an inappropriate amount of finance and human resources went to facility-based curative services for a privileged minority. This is illustrated by Cape Town's sophisticated organ transplant services in an environment where tuberculosis, endemic parasitic infections and diarrhoeal disease were rife.

Instead of the biomedical health model of the apartheid era, South Africa, as many other developing countries requires strategies of prevention and a developmental health model. The one exception to the biomedical approach of the apartheid era was the Department of National Health and Population Development (DNHPD) vertical programme of family-planning services which were managed from Pretoria, independent of other local PHC services.

Table 2 The pattern of health expenditure reflected an inappropriate bias towards tertiary/academic, hospi-centric medical care

Breakdown of public sector health expenditure according to level, 1992-93:

Academic and tertiary hospitals 44%

Secondary and community hospitals 33%

Chronic hospitals 5%

Non-hospital primary care 11%

Other 8%

The Principles for Restructuring: The Primary Health Care Approach and the District Health System

Given the features of the apartheid health system described above, the need for a fundamental and profound change to the entire health system was clear. Given the depth and scope of the change required to address the entrenched structural problems, it was obvious that piecemeal reform will be inadequate.

In order to guide restructuring, the new government adopted the principles of the Primary Health Care (PHC) Approach as the central tenet of future health practice and the benchmark against which all health policy and planning should be measured.

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The PHC Approach is a conceptual model for health care planning and health systems development. Defined at an international health conference in Alma Ata in 1978, it provides an integrated and holistic framework for addressing the health needs of populations according to five principles:

• Ensuring that health care provision is equitable and distributed in ways that favour the most needy groups.

• Promoting 'community involvement in health' and a health service that is socially and culturally acceptable.

• Ensuring that health care is comprehensive and focuses more on preventive, promotive and rehabilitative health care (in addition to curative health care).

• Ensuring a health service and health system that is affordable and sustainable, and which employs appropriate technology.

• Promoting multi-sectoral collaboration in recognition of the fact that people's health is largely determined by their socio-economic and environmental circumstances.

The District Health System

Although PHC provides a set of aims and principles for the health system, a clear policy on the structure and organization of the health system was also required. In other words, there had to be a clear idea about how the health services would operationalize PHC.

The Department of Health in South Africa has chosen to adopt the model of the DHS to do this (RDPand ANC Health Plan, 1994). This is not surprising given that the DHS is perceived internationally as the most appropriate system and vehicle for delivering PHC. In other words, the principles of PHC and the DHS go hand in hand (see Figure 1). The World Health Organisation defines the DHS as follows:

A more or less self contained segment of a National Health System which comprises of a well defined population, living within a clearly delineated administrative and geographical area. It includes all institutions and individuals providing health care in the district. A DHS therefore consists of a large variety of inter-related elements that contribute to health, through the health sector and other health-related sectors. It includes all health care workers and facilities, up to and including the district hospital, as well as appropriate laboratory and logistic support services.

The boundaries of the health district should take into account the political, economic transport and cultural dynamics of the area and should be congruent with the boundaries of local government and of other health-related sectors. The size of each district should vary according to local conditions. It should be large enough to have the financial and management capacity to provide essential comprehensive PHC services, but small enough for efficient management and local accountability.

Therefore, the DHS is a national health system based on a division of the country into discrete and well-defined geographical areas. The basic organization, management and delivery of PHC services will take place at the level of these geographical areas, thus allowing for proper population-based planning and management.

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Figure 1 The two columns of health system development, in post-apartheid South Africa: The primary health care approach and the district health system

Post-apartheid health system

PHC DHS

A unified and integrated health system providing good quality and equitable health care for all

The conceptual models of both PHC and the DHS emphasize the importance of comprehensive health care, In practical terms, this means that community-based and facility-based health services will all be planned and implemented as different components of a single health plan for a given population and area.

The DHS is therefore about the creation of health system which promotes the integration of different health programmes, different types of health service as well as different sectors, it is as much an expression of co-operation and co-ordination as it is of administration.

Inherent within this policy is a commitment to decentralize the basic day-to-day governance and management of health services to district-level structures. This is in stark contrast to the centralized apartheid health system.

The size of each health district, both in terms of population and surface area, is important. If size is not an issue there would be no reason for differentiating a DHS from a 'regional health system'. A health district must be 'neither too small nor too large'; in other words, its size must ensure optimal delivery of PHC. It should be large enough to manage comprehensive PHC services, but small enough to allow meaningful community involvement in health and the relative 'closeness' of management to health service delivery on the ground. According to the WHO, the population size of a district should vary between 50,000 and 500,000 depending on factors such as population density and management capacity.

Ideally, the governance and management of health districts should correspond to the management and governance of other sectors such as welfare, education and agriculture, thus allowing not just multi-sectoral policy development but also multi-sectoral planning and implementation of activities at the local level.

Progress and Problems in Establishing the DHS

Reorganizing the Department of Health

A massive and complex rationalization of the 14 apartheid health departments has been taking place since 1994. There is now a single National Department of Health and nine provincial departments of health. In some provinces several former homeland administrations have had to be amalgamated. In the Northern Province, for example, one health department has been created from five previous administrations (DNHPD, Transvaal, Lebowa, Gazankulu and Venda) which each had an administrative centre located hundreds of kilometres away from each other. Administrative fragmentation has therefore been overcome, laying the foundations for the establishment of the DHS.

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Clearly Demarcated Health Districts

At present, South Africa has 168 health districts across the nine provinces. The speed and phase of establishing the health districts have varied from province to province. In some provinces local government boundaries have not been finalised. Hence the legal establishment of health district boundaries has also lagged behind. However, the existing local government boundaries are being reviewed nation-wide.

Because some boundaries have interim status only, communities and health workers have been unable to identify with a particular district and with the concept of the DHS. This in turn has retarded the effective implementation of PHC policies.

Relationship with Local Government

The relationship between the different health structures within a DHS is shown in Figure 2.

Figure 2 The relationship between the different health structures within a DHSS*

Governing structure Management/administrative structure

Parliament and Minister of Health National Department of Health

| |

Provincial Legislature and MEC for Health

Provincial Department of Health Regional Health Offices*

| |

Local Government and/or District Health Authority and/or Provincial

Department of Health

District Health Management Teams

| |

Clinic Committees/Hospital Boards Clinic and District Hospital Managers

* Note that the DHS does not imply an abolition of national and provincial health management, nor does it conflict with the idea of a national health system. In a sense, the national health system is the DHS, and vice versa.

Congruent Boundaries with other Sectors

The degree to which district health boundaries are congruent with the administrative units of other sectors such as welfare, education, agriculture, water affairs and public works varies from province to province. For example, the Northern Cape is divided into six health regions but only four education regions. In Mpumalanga, the health districts and the administrative units of the agriculture department do not coincide. This situation clearly hampers multi-sectoral collaboration.

In South Africa, all the above structures are well established except for the governing structure at the district level. From the very beginning, national health policy (Owen, 1995) has outlined three governing options for the health district:

• using local government;

• establishing a statutory district health authority (DHA); or

• delegating the function to the provincial Department of Health.

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Delay and uncertainty in choosing between these three options have delayed in the establishment of the DHS. This has been largely unavoidable because the Department of Health has been guided by a broader process of local government transformation1 and the finalization of the new Constitution which defines the powers and responsibilities of local government.

The problems in co-ordinating DHS development with local government development have also been compounded by the lack of local government representation during the early days of DHS policy formulation. This contributed to an 'adversarial relationship between local government officials and their counterparts at national and provincial level' (Mjekevu, 1997).

The new Constitution states that the sphere of local government responsibilities includes the delivery of 'municipal health services'. While there is no clear definition of 'municipal health services', health-related matters that have been ascribed to local government include water and sanitation services, preventive child health services, and refuse and solid waste removal.

Given that many municipalities previously provided clinic-based health services (usually with the help of substantial provincial subsidies), local government officials have been keen to include many basic PHC services in the definition of 'municipal health services'.

As a result, 'local government' has come to be favoured as the governing option for the DHS. However, several problems and unresolved issues undermine this process.

Firstly, there are over 800 local government boundaries compared to 168 health districts. In some metropolitan areas, certain local government boundaries actually intersect health boundaries. The national Municipal Demarcation Board has been set up to re-draw municipal boundaries. It is believed that this will result in fewer municipalities although it is not known if it will correspond to the ideal number of health districts.

It would be undesirable for health district boundaries to be redemarcated in order to concord with local government boundaries if this results in too many small health districts. If this were to happen, South Africa would be creating a 'municipality health system' rather than a DHS, as a health district is only a health district if it fulfills certain technical criteria.

The second issue is the unclarity around the distinction between 'governing' and 'management' within the health district. In theory the governing structure of the health district is to provide local political and community representation in the development of local policy as well as help to monitor and oversee the local delivery of health services. The management structure on the other hand is responsible for providing the technical input and health expertise to planning, as well as for the day-to-day management of PHC services, up to and including district hospital services.

Despite these broad distinctions, inadequate attention is being paid to what this actually means in practice. Adding to this confusion is the loose use of the term 'local government' which can include both elected politicians (providing 'governing' functions) as well as salaried officials (providing 'management' functions). In other words, the term 'local government' is often used to mean both the 'governing' and 'management' aspects.

A third issue is that many local governments are small and without the human, infrastructural and financial capacity to adequately and effectively manage PHC services. Because technical capacity tends to be poorest in those areas with the poorest health services and the worst health status, decentralization may aggravate inequitable health care delivery. Mechanisms and processes of

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affirmative action will have to be developed in areas where the capacity to provide effective local governance of the health district is sub-optimal.

Fourthly, the disparity in salaries and conditions of employment between different local government employees and between local government and provincial government employees continues to be a source of division between health workers.

Finally, all these issues may be complicated further by the establishment of different categories of local municipalities, which may each have different management structures and systems. Therefore it is important to speedily determined how these different management structures and systems of local government will relate to district health management teams (DHMTs) in order to minimize the potential for future conflict and confusion.

Overcoming Psychological Fragmentation

A key requirement for establishing a functional health district is to bring together the various health workers who have been previously managed through a fragmented and centralized system. The aim is to help them identify with a common district team rather than as employees of different authorities or different facilities (McCoy, Harrison et al., 1998).

This requires patient and sustained explanation to both health workers and community structures of the underlying purpose and rationale of the DHS. Restructuring the health system is threatening to many health workers, and careful 'change management' is required to ensure that the key role players and stakeholders within a district support the restructuring. Health workers and members of the public need to understand and accept the logic and purpose of the DHS for it to function as it is designed to do. Patient team-building within districts is a pre-requisite to functional and efficient district health management.

District Management Structure and Capacity

Within a DHS, the management of PHC services is to be the responsibility of district health management teams (DHMTs) under the leadership of a district manager. The DHMT manages all PHC services and facilities, including the district hospital, within its boundaries as a single pool of resources. The allocation of resources will be based on a single district health plan aimed at meeting the health needs of the district's population, and in a way that will promote equity and community involvement.

However, for this to happen, there are two requirements. First, health districts need to have established DHMTs with the technical and managerial capacity to manage a wide and complex range of PHC services. Secondly, DHMTs must be given an appropriate degree of authority and freedom to plan, implement and manage their services and facilities. (This is in contrast to the apartheid health system where decision-making powers were centralized through a hierarchical structure that managed health services in a 'top-down' fashion.)

At the time of writing, many health districts still lacked a well-established district health management structure. Some health districts did not even have an appointed district manager, and those with appointed district managers did not have a fully established DHMT. The DHMT is the core management unit of a national health system based on the district model, and without it, implementation and delivery can hardly be expected, and the DHS will remain a powerless 'vehicle' for PHC delivery.

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The reasons for the delay in establishing DHMTs are related to the delay in resolving the local government issues described above, as well as to the rigidity of the Public Services Commission which has made it difficult for provincial departments of health to adopt a more flexible approach and rapid pace in establishing district health management structures.

The national and provincial departments of health have recognized the need for and importance of providing management training to DHMTs. While this has already contributed to increasing local capacity to manage health care in a more effective and efficient manner, the realization of the potential of this training has been hindered by the other constraints to DHS development mentioned above.

Another reason why district management training has not achieved its full potential is that district level managers have not been given the freedom and autonomy to plan and manage their services. Some provincial managers continue to operate within the more familiar top-down and hierarchical style which undermines effective decentralization and frustrates district health workers who feel trapped by being given responsibilities without equal authority to carry out their responsibilities.

The restructuring of the health system in South Africa has progressed in a 'top-down and linear' fashion, the DHS gradually extending outwards 'from the centre to the periphery' (Gilson et al., 1996). This led to the establishment and entrenchment of provincial and regional management structures before those of district management structures, as well as a concentration of the most senior personnel at the higher levels of the health system. This feature of DHS development effectively left the districts to be attended to last, and also helped to reinforce a top-down management culture.

Provincial Management Structures

The DHS applies to all levels of health management. Health management structures at the provincial level should reflect the DHS model. However, some provincial organograms are not oriented towards district support. Separate vertical line management structures have made it difficult to establish co-ordinated processes for the development of health districts.

Developing the DHS in KwaZulu-Natal, for example, was difficult because it was unclear who was responsible for making policy decisions about setting up the DHS. Although the regional director was responsible for over-seeing district development in her area, she fell under the line management of the provincial Directorate for Hospital Services, which only partly dealt with DHS development. The responsibility for clinics, hospitals and human resources fell under three different Chief Directorates, making it difficult for district staff to know who to refer to. The health district as an integrated unit for the delivery of PHC did not appear to be central to the provincial health structure.

According to the Centre for Health Policy it was not 'uncommon for district development directorates to function as a parallel initiative, in isolation from other directorates and largely divorced from existing service provision, PHC programme development, hospital reform and restructuring of support divisions (e.g. pharmacy, human resources, finance, and information systems), all of which are crucial to the functioning of districts' (Schneider et al., 1997).

In other cases, district health teams have been hamstrung by their inability to control certain key personnel or functions. In Mpumalanga, for example, structural problems with the provincial organogram meant that district health managers had little or no authority over their administrative staff, which included stores managers, clerks and administrative officers.

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The Private Sector and Academic Health Services

As mentioned above, the bulk of health resources are tied up either in the private sector, or in the public academic and tertiary health services. If the DHS is to become the vehicle for the delivery of PHC, mechanisms must be found for redistributing financial, human and physical resources from these two parts of the health system. Apart from providing health districts with added capacity, this would also signal the reorientation of the health system towards the philosophy and principles of PHC.

Academic and tertiary institutions need to increasingly orientate and align themselves towards supporting the needs of health districts, rather than for district facilities and services to continue to operate as the 'poorer cousins' of these bigger institutions. The new government is undoubtedly committed towards establishing PHC at the expense of expensive tertiary and academic health care. However, some would argue that the speed with which tertiary and academic institutions are being transformed is too slow.

The private sector which primarily offers curative biomedical care represents another large and inappropriate pool of funds and resources that are not translated into services that adequately meet the priority health needs of most of the population. In addition, the private sector has the potential for undermining the establishment of the DHS and PHC in other ways. For example, the ethic of the private sector (which is largely run as a commercial business) runs contrary to and undermines the ethic of PHC (which sees health care as a social service and part of integrated social development, and which emphasizes the principle of equity).

In addition, the private sector can create another source of fragmentation at the district level. In many districts, private general practitioners (GPs) operate as competitors to the public sector service providers rather than as partners. Their high income levels can also act as a source of dissatisfaction to public sector workers, especially when this is coupled with known evidence that many private sector workers provide poor quality care.

Recent trends in international health have been questioning the capacity of the public sector to provide health care and have pushed for greater 'decentralization' among private providers. In South Africa, this has been reflected in the popularity of establishing public-private partnerships. While such partnerships should not be dismissed out of principle, greater attention needs to be paid to asking why public-private partnerships are being proposed.

For example, is the long-term aim of such partnerships to improve the effectiveness and efficiency of the private sector?; is it to regulate the private sector?; or is to end ways to reduce the overall size of the private sector as one way of strengthening the public sector? In securing partnerships, not just financial and legal arrangements but also how such partnerships might undermine the ethic and concept of PHC and DHS need to be attended to.

The Way Forward

An important feature of the DHS is that it provides a structure for the integration of different health programmes, different health services as well as the different activities of different sectors. However, this can only be achieved if there is a well-established and appropriately sized geographical area whose PHC services are provided by a single management team that is, in turn, governed by a single authority. For the reasons mentioned above, this has not been possible. The previous section of this chapter has briefly sketched some of the key issues relating to the on-going process of health systems development, with a focus on the DHS. This section of the chapter will now put forward some of the key challenges to the Department of Health for the coming few years.

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• It is critical that all provinces develop clearly demarcated health districts that are as congruent as possible with the administrative boundaries of other sectors. This means that the redemarcation of local government boundaries needs to happen as quickly as possible.

• Once health districts have been fully demarcated, a communication strategy should be implemented to inform the public and all relevant stakeholders of how the health system has been geographically sub divided, why the DHS has been adopted and what this means to the community and to health providers. This should include strategies to overcome the psychological fragmentation inherited from the apartheid health system.

• If there are health districts with stable boundaries, these should be 'fast-tracked' for the quick establishment of functional health districts. Health districts which consist of a single health service authority should be targeted first for 'fast-tracking' the full establishment of health districts.

• The establishment of health district boundaries should be determined by the technical criteria of the DHS model. This may mean that local government boundaries should not be equated directly with health district boundaries when they are too small for a health district.

• The relationship between health management, health governance and local government needs to be urgently addressed.

Given that the history, structure, systems and capacity of health services and governance structures in South Africa are so different, a more flexible approach to developing the DHS could be adopted. This would allow development to occur at a pace and in a manner that takes into account the local context and situation. Broadly speaking, health districts can be categorized into three types, each of which may require a different strategy for developing the DHS (see Box 2). This may include having a more flexible definition of 'municipal health services' .

Box 2 Different types of health district

Metropolitan districts

These would consist of health districts in the large cities of South Africa where a variety of PHC services have historically been delivered by local municipalities and where the health management capacity of local government is relatively strong and the human resources experienced. Level 1 hospital services for metropolitan populations are typically provided through secondary and tertiary hospitals which are shared by more than one district. Because of the high population density, these districts may be small in size but large in population. The appropriate district health governance option for metropolitan districts might be local government.

Former homeland districts

The former homeland health systems used to run their health services along the lines of the DHS model. In these areas all the health services and all public sector health workers were managed by a single homeland health authority. The services and workers have all been absorbed into the new provincial health departments. No or few health services are provided by the local municipality and the overall management capacity of local government is weak.

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Box 2 continued

For these reasons, the appropriate district health governance option may be to delegate responsibility to the provincial health department, at least for the short term.

Former RSA non-metropolitan areas

Many of these health districts consist of a mixture of rural/farm areas and small to medium-sized towns. The towns may have clinics administered by local municipalities and Level 1 hospitals administered by the province, whilst the rural population are served by mobile clinics administered by the province or by district councils. The health districts therefore typically consist of a conglomerate of health service authorities. For example, in the Tsepho district of the Free State, health services are provided by a mix of seven different local authorities and the provincial DoH. In such cases, it may be appropriate to go for the statutory district health authority option, consisting of a representative mix of local government and provincial officials.

• More attention needs to be paid to clarifying the distinction between the functions of 'governing' and 'management'.

• Provincial health management needs to shift away from being directive and hierarchical to being supportive and facilitative of districts. The decentralisation of authority and management is a sensitive issue that requires new roles and relationships between the different levels of the Department of Health and between the different spheres of government.

• Policy on how the private sector can be regulated in such a way that it promotes the ethic of PHC and the aims of the DHS is required.

Note 1 Local government transition was only given an enabling framework in 1993

following the Local Government Transition Act.

References

ANC (1994), The Reconstruction and Development Programme, Umanyano Publications, Johannesburg.

ANC (1994), National Health Plan for South Africa, African National Congress, Johannesburg.

Department of Health Annual Report (1995), Department of Health, Pretoria.

Gilson, L., Morar, R, Pillay, Y. et al. (March 1996), National Report on Decentralisation and Health Systems Change in South Africa. WHO report.

McCoy, D., Harrison, D. et al. (1998), The Development of the District Health System in South Africa, Lessons learnt, Health Systems Trust, Durban.

McIntyre, D., Bloom, G., Doherty, J. and Brijlal, P. (1995), Health Expenditure and Finance in South Africa, Health Systems Trust, Durban.

Mjekevu, T. (1997), District Systems Development, South African Health Review, 1996 (Harrison, D. (ed.)), Health Systems Trust, Durban.

Ngwenya, S. and Friedman, I. (1996), Public Participation in Health, South African Health Review 1995 (Harrison, D. (ed.)), Health Systems Trust, Durban.

Owen, P. (1995), A Policy for the Development of a District Health System for South Africa, Health Policy Coordinating Unit.

Price, M. (1986), Health care as an instrument of apartheid policy in South Africa, Health Policy and Planning, vol. 1, no. 2, pp. 158-70.

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Schneider, H., Cabral, J., Gilson, L., Cele, M., Kauber, S. and Magongo, B. (1997). District Health Systems and Transformation in South Africa � Questions for National Provincial and Local Policy Makers and Managers, Centre for Health Policy, University of the Witwatersrand, Johannesburg.

Van Rensburg, H.C. and Harrison, D. (1996), 'The History of Health Policy', South African Health Review, 1995 (Harrison, D. ed.), Health Systems Trust.

Van Rensburg, H.C.J. and Benatar, S.R. (1993), 'The legacy of apartheid in health and health care', South African Journal of Sociology, vol. 24, no. 4, pp. 99-111.

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8 Basic Port Infrastucture in a Changing South Africa

Henriëtte VAN Niekerk

Introduction

The basic infrastructure of a port constitutes single purpose assets of a permanent nature, which are invariably used jointly with other port assets. Recovery of the costs of maintaining the infrastructure must necessarily be based on the value of the service to users in view of the commonality of the costs. To render port pricing efficient that value should be reflected in an element of a composite charge for all port services which require joint use of the basic infrastructure. Value of service pricing requires monopolization of the supply which necessitates state ownership of the basic infrastructure and by implication state responsibility for its development. Whether the State appoints managers or creates a public body to fulfil its function as landlord of the port land and infrastructure is irrelevant to the principle involved. A public landlord with private tenants supplying port services may be the best arrangement for ensuring that the infrastructure of South African ports is developed to meet the requirements for the growth of the economy over the long term.

The basic infrastructure of a port is definable as the permanent assets which have the single purpose of enabling the port to function safely and efficiently and which allow the activities related to port operations to take place. The remaining infrastructure comprises the permanent and semi-permanent assets in the port, which serve multiple purposes.

The main examples of basic port infrastructure are sea walls, breakwaters and navigation channels, which are considered to be permanent or at least non-renewable and to serve the single purpose of enabling ships to use the port safely.

The use of those assets incur no opportunity cost as they can serve no alternative purpose. Furthermore, their use to afford safety for one ship does not exclude their use by another and the exclusion principle, which underlies the concept of private ownership, does not apply. Thus, no specific costs can be attributed to the use of the assets which make safe passage or anchorage possible. It follows that the output of those assets is wasted if they are not used for the single purpose for which they exist and that the costs associated with their use are common to all users.

Another characteristic of the basic infrastructure of a port is that it is used in conjunction with other port infrastructure such as berths, the use of which does incur opportunity costs. For example, the opportunity cost of the use of a berth by a ship is the value of the opportunity which must be foregone because it precludes such use by another ship. Thus, the costs of maintaining sea walls, breakwaters, navigation channels and other permanent single-purpose infrastructure and the costs associated with the multipurpose assets in conjunction with which they are used, must be regarded as joint costs. For example, berths cannot be used without using basic port infrastructure to gain access to those berths and the costs associated with the use of a berth cannot be incurred without incurring the costs associated with the use of the basic infrastructure.

The economic characteristics of the basic port infrastructure as de-scribed have implications which concern investment in its construction, its ownership, and the pricing of its use. Those topics are the main subject of this chapter, although all port infrastructure is discussed.

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Port Access and Ownership of the Basic Infrastructure

It is a tenet of economics that private investment will not be forthcoming for the provision or acquisition of assets if the investor cannot exclude their use by others. Infrastructure of that nature must consequently be brought into being at the expense of the public. Street lights are often quoted as an example of assets to which the exclusion principle does not apply and the costs of which must necessarily be borne by public funds. The basic infrastructure of ports is traditionally included in the same category, because in contrast to land, the sea and natural harbours have always been open to public use. It follows that infrastructure to render anchorage and access to berthing facilities safe should also afford common use and be constructed with public funds. That is a general statement, because investment in specific ports and their ownership, as well as their management, stem historically from the differing legal, social, economic and fiscal systems which have developed in maritime countries over many years.

Most ports in former colonies throughout the world can trace their constitutional origins to one or other of the three main traditions in Europe: the Anglo-Saxon tradition of independent port authorities, the Latin tradition of centralized authority followed in France, Spain and Italy and the Hanseatic tradition of municipal authority, which exists in Germany, Belgium and the Netherlands (Suykens and Van de Voorde, 1998). In the East, there are also other traditions which have their own historical origins. However, all those traditions recognize direct or ultimate public responsibility for the conservancy of the harbours used for commerce.

In many countries, public access to their ports is founded in common law. According to the Roman and Roman-Dutch law from which South African law stems, the sea and the seashore are communal property. The Sea-Shore Act (Act 21 of 1935, as amended) recognizes that precept and vests ownership of the seashore in the State President. But in accordance with the common law concepts, he is the owner only as the public custodian and not free to do with the property as he pleases. In terms of the Sea-Shore Act, the sea and seashore can be let for various purposes, including the erection of structures, wharves, piers, jetties, landing stages, bathing pools, canning factories, and boat houses on the authority of the responsible Minister. As the South African Constitution affords the Provincial and Central Governments concurrent competence to deal with pontoons, ferries, jetties, piers and harbours, a provincial government presumably also has the right to authorize works on the seashore, within that Province, including the construction of the basic infrastructure of a port, although ownership would remain vested in the State President.

Legislation Concerning Port Ownership

The ports most recently constructed on the South African coast are those in Richards Bay and Saldanha Bay. That at Richards Bay was authorized by legislation passed by parliament, namely the Richards Bay Harbour Construction Act, 1972, which enabled the state president to authorize the construction of the port and exercise powers of expropriation in order to acquire the land. It was implicit in that legislation that the state president would remain the owner of the port, because the South African Railways and Harbours which would finance, construct and operate the port was a department of state. The Saldanha Bay Harbour Construction Act, 1973 also passed by parliament, provided for the establishment of the harbour at Saldanha Bay and the assignment of the construction, equipment, control, management, possession and maintenance of any part of such harbour to the South African Iron and Steel Corporation, Ltd (ISCOR). That Act acknowledged the authority of the Railways and Harbours Board 'to administer and

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work the railways, ports and harbours of the Republic' and it is obvious that possession of the harbour by ISCOR was not intended to confer ownership, which would remain with the state.

Until the Legal Succession to the SATS Act, 1989 was adopted, the ownership by the state of the harbours of South Africa and the basic infrastructure which creates the parts was obviously a matter of common law and where appropriate recognition of state ownership was incorporated in statutes. However, the LSA transferred the commercial enterprise of the state comprising the South African Transport Services, including all assets, liabilities, rights and obligations to Transnet Ltd as a going concern. The LSA also stipulates that Transnet shall become the owner of all the moveable and immoveable property registered in the asset register of the South African Transport Services or which fell under its control or jurisdiction.

Although Transnet Ltd is a registered public company in which state is the sole shareholder, Transnet can deal with the property as a public company subject to the intervention by the responsible minister on behalf of the government only if it attempts to act in a manner contrary to the strategic or economic interests of the Republic. The LSA thus incorporates a fundamental departure from the common law principle that the seashore is communal property, which cannot be acquired for exclusive use, and deposes the State President as the custodian of the seashore on which the ports have been constructed. It is unlikely, however, that Transnet would be allowed to dispose of a port to private interests if that would conflict with state policy. Nevertheless, since the LSA came into effect, Transnet has disposed of some assets, including basic port infrastructure, and the question may well be asked whether the LSA confers an Transnet greater freedom in the ownership of the port property which it has acquired, than the freedom which its predecessor and the State President could exercise.

While the existing basic infrastructure of the commercial ports in operation in South Africa still constitutes assets which the state effectively owns through its shareholding in Transnet, it is worthwhile considering whether state ownership is essential in modern times. Although the basic port infrastructure and the land on which it is built continue to be regarded as inalienable state assets in most countries, the question is whether that is still necessary in South Africa. Only in the United Kingdom have formerly publicly-owned commercial ports including the basic infrastructure become the property of private undertakings in the recent past. However, the United Kingdom has no written constitution which enshrines private ownership of property as does the South African constitution.

Physical and Economic Characteristics of Basic Port Infrastructure

The reasons underlying the tradition of state ownership of the basic infrastructure which creates a seaport, are founded in its physical and economic characteristics, which conflict with those typical of private assets. Those characteristics concern the physical and economic longevity of the infrastructure, the indivisibility of its output, its capacity for scale economies and the external benefits or costs which it causes, often in association with other infrastructure. While private ownership is not incompatible with the ownership of durable assets which incur declining marginal costs as output increases (even when accompanied by significant externalities), the consequences may well warrant public intervention.

The physical lifetime of the basic infrastructure of a port is practically endless and its capacity is indivisible. The implications are that the period of investment in such infrastructure may be indefinite and that the return may not become worthwhile within a period that would attract private capital. Furthermore, the indivisibility of capacity and declining marginal costs are typical prerequisites for natural monopolies and the deliberate duplication of basic port infrastructure will seldom make economic sense. In the light of those considerations, it is obvious that the

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creation of port capacity must be based on long-term projections of the need for such capacity, in accordance with the requirements for the economic growth of the country which the port will serve. Private investment in the basic infrastructure can hardly be expected in those circumstances and the case for public funding is indisputable. Thus, sea walls, navigation channels, turning basins, quays and other basic infrastructure in most of the ports of the world are provided from public funds.

Development of Port Infrastructure

Where port authorities have been corporatized and are expected to yield profits or at least break-even, the long investment period in basic infrastructure is often a cause of financial difficulty which may constrain development. Transnet Ltd is an example of a corporatized state undertaking which has fallen behind in part development because of financial difficulty, although that is largely an outcome of the total commitments it acquired when it was established. Transnet's predecessors, namely the South African Railways and Harbours Administration (SAR & H) and the South African Transport Services (SATS), were state departments functioning as monopolistic enterprises with the injunction to earn sufficient revenue to defray the expenses of the services provided. Capital projects were financed from public loans and interest was charged to expenses. Those loans were usually rolled over with the consequence that the interest burden kept increasing, but that was unimportant so long as output expanded and revenue could be increased as needed by raising tariffs. In those circumstances, which existed for some eighty years until 1990, capital funds for the development of the ports were invariably forthcoming.

There can be little doubt that the conversion of the SATS to a public company in terms of the LSA in 1989 was accompanied by a singular lack of foresight on the part of the Government at that time. In the haste to achieve autonomy for Transnet, not only was the ability of the new company to meet its financial commitments misconceived, but the legislation was deficient inter alia by not providing for the state's regulation of the monopoly inherent in the ownership and operation of the ports. Regulation could not then have been imposed, or later, without making provision for the manner in which funds should be raised for the development of the basic port infrastructure. One consequence of not making that provision, is that the development of the basic infrastructure of South African ports has been left entirely to Transnet, which has inadequate resources for the purpose. That inadequacy is attributable to the financial commitments Transnet assumed when the LSA was enacted as well as its need to cross-subsidize loss-making divisions. An irony of Transnet's predicament is that the annual surplus currently generated from operating the ports would be sufficient to ensure their development without recourse to external funds, if appropriation of the surplus to meet other commitments was not necessary.

By virtue of their geography and management by Portnet1 as a complementary system, South Africa's ports constitute a monopoly and for that reason Portnet and its predecessors have traditionally been more service than profit-oriented. There is consequently a fundamental incompatibility between Portnet and those other business divisions of Transnet which are profit-seeking in competitive markets. Furthermore, in view of the dependence of the South African economy on exports by sea, the incorporation in terms of the LSA of both the ownership and the operation of the ports in the new company, i.e. Transnet, with the consequent risk of underfunding their infrastructural development, was doubtless an unmeditated if not a reckless expediency. The incompatibility within Transnet and the jeopardy to the development of the ports still exist.

Another fundamental feature of the use of the basic port infrastructure is that it is not feasible to establish a relationship between a charge for usage and the costs incurred by such usage. Because the exclusion principle which underlies the

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concept of private ownership does not apply, consecutive usage does not result in identifiable marginal costs. Reliance can consequently not be placed on the market-economy to allocate resources to the provision of basic port infrastructure. The investment criteria used by public authorities must thus be sought in the projected net benefits to society or strictly, the net marginal social benefits. When doing so, it is necessary to set-off local or regional benefits against national benefits where those do not correspond. That is hardly a task to be entrusted to a company whose success must be rated by the profits-earned or, at least, by the increase in its net asset value, without regard to social accounting. The pricing of the use of basic port infrastructure is dealt with in the next section, but in this context it is necessary merely to add that the net social benefits to be derived from that use will be increased if the pricing of the use is designed to maximize the user surplus instead of the producer surplus.

As explained in the preceding paragraphs, state ownership of the basic infrastructure of a country's seaports is not merely traditional, but is founded in fundamental economic principles. Contrary arguments may readily be forthcoming in particular circumstances, without invalidating the principles, those arguments cannot not apply to the basic infrastructure of the existing South African port system, which retains all the characteristics typical of assets which the state should own and provide.

Non-Basic Port Infrastructure

The arguments so far concern only the basic port infrastructure which comprises assets used for the single purpose of affording safe passage and anchorage for ships, without incurring opportunity costs. Other infrastructure in a port may comprise wharves, berths, drydocks, slipways, buildings and many other fixed assets. Such infrastructure, by definition, serves multiple purposes and its exclusive use is feasible, so enabling its provision to attract private investment. For example, private investors will in principle be willing to construct or acquire berths and buildings for their own use or for business exploitation when the returns are worthwhile. The supply of such infrastructure can be left to the market if its use is subject to competitive demand, provided that the scale economies of the supply are not so substantial that monopolization will be the inevitable outcome. However, that is unlikely to occur with most of the non-basic infrastructure in busy ports. The scope for monopolization, nevertheless, is one criterion for determining whether port infrastructure can be privately-owned or leased or whether it should remain in public possession. There are, however, many arrangements for private participation in the supply of infrastructure for public use, which, in the public interest, should nevertheless remain the responsibility of public bodies. Such arrangements exist in most of the ports in the world, but not yet in South African ports, although 56% of the sea cargo to or from South Africa is handled at terminals operated for private use. However, Transnet retains ownership of the land and infrastructure at those terminals in terms of lease agreements.

Pricing of Port Infrastructure

The physical and economic characteristics of part infrastructure and their implications for ownership and investment require the application of specific pricing principles if the efficient utilization of the assets is to be realized. In most of the major ports of the world, tariffs for the use of infrastructure and the supply of port services by the port authorities have developed in a haphazard manner over many years with little regard for the costs actually incurred. In recent years, private operators and suppliers of services have increasingly been allowed into the ports, but competitive pricing is not often encountered. Most port pricing throughout the world is still administratively determined or regulated, although competition between ports increasingly influences that determination. All the tariffs for the use of infrastructure and the supply of services in South African ports are still administered with little regard to resource utilization, although the tradition

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followed in some instances does stem from the historical recognition of the economic principles which should be applied. The appropriate principles are dealt with in the following section.

A particular difficulty when applying the correct pricing principles in ports stems from the joint use of the basic port infrastructure and other infrastructure. While the revenue derived from the use of non-basic infrastructure should at least cover the marginal opportunity cost or direct cost of such use, charges for the use of the basic port infrastructure can be assigned to users only on the basis of the value of the service which they obtain or what the tragic can bear. When, for example, the revenue which can be earned from the use of a berth by a ship is equivalent to the avoidable costs of that use (i.e. the saving which would accrue of the ship did not use the berth), then it is worthwhile accommodating the ship. The costs of maintaining the basic port infrastructure nevertheless need to be recovered and that can be achieved only by taking account of the elasticity of demand for the use of the port or the shelterage which it affords, and charging users a tariff that they are willing to bear. In principle, therefore, the joint costs of using the basic infrastructure and the berth must be recovered by a joint price, of which one element is cost-based and the other is a discriminatory value of service) charge.

In practice, that requires an element to provide for the costs associated with the common availability of the basic infrastructure to be added to each charge for the use of an asset for which the costs incurred can specifically be determined. Such an element must be determined according to the value of the service or what the traffic will bear, which is inherently discriminatory. The approximation of a charge according to the value of the service is evident, for example, in the determination by some port authorities of port dues according to the length of the voyage completed by the ship entering the port.

Infrastructure distinct from the basic infrastructure, need not necessarily be provided by the port authority or port operator. There may, for example, be two or more ports or terminal operators competing against each other. Discriminatory charges for the use of the infrastructure would then be unsustainable. Those circumstances require the calculation of user charges which are essentially cost-related and which take into account the relationship between use (over time and according to intensity) and costs. They also requires an analysis of the joint and common costs of the structures/appliances comprising the superstructure, because such costs may also have to include an element for the joint use of the basic infrastructure.

The roads and traffic appurtenances in a port comprise infrastructure and superstructure which may belong to the port authority or to the port operators. Unless tolls are charged at the port entrances, the costs of the roads should be recouped through their inclusion in the charges for the superstructure or rent for the land which they serve, according to the approximated value of the services they provide.

All port assets can be classified according to their degree of permanency and specificity of use. The range will stretch from those assets which are permanent and serve a single purpose to assets which need to be renewed often and have a multiplicity of uses and thus a market value which can readily be determined. The appropriate pricing of those assets will also range from value of service pricing to competitive pricing.

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Costing of Infrastructure Use

Although the economic principles which should apply to the pricing of the use of port infrastructure can be identified and explained, the difficulties of the costing needed render pricing based on accurate cost recovery infeasible. The difficulties stem particularly from the existence of joint and common costs. At best, prices can cover the costs directly attributable to the use of infrastructure plus a share of the common costs as apportioned according to some criterion, which invariably is discriminatory (because common costs, per definition, are inseparable). The implication is that whatever contribution a price makes towards recovery of the common costs of infrastructure use, the method of calculating such contribution cannot be challenged in terms of economic theory. Consequently, there can be no criticism of a price which reflects the value of the service and covers the directly attributable costs involved. Price making then becomes an 'art and not an exact science' according to Garfield and Lovejoy (1964).

Kolsen (1968) states that a relationship between price and cost can be met only if:

(a) factors use can be varied to enable plant size to be adjusted more or less perfectly to any level of demand in the long run;

(b) the product is either homogeneous, or its heterogeneity is such that all costs could be unambiguously assigned to each homogeneous product class;

(c) cost functions are reasonably continuous.

In practice:

(a) cannot be met because ports contain permanent or non-renewable single purpose assets e.g. breakwaters, navigational channels and lighthouses, which have almost unlimited capacity;

(b) cannot be met because of the common and joint costs in the functioning of ports;

(c) cannot be met because of the large initial investment usually required in the basic infrastructure of a port and the extensive capacity which that creates.

The only method of recovering costs which are non-separable over time or because of the common or joint use of assets is then to determine a price according to the value of the service or according to what the tragic wild bear.

Kolsen (1991) comments as follows:

The relationship between prices and costs for jointly produced services, which is to 'imitate' the relationship as determined in a highly competitive market, is thus in two parts. The first is the separable cost component, which serves as the lower limit to price. The second is the non-separable component, for which price is determined by what the traffic will bear.

Value of Service Pricing

In practice, the value of the service is determined according to what the traffic will bear, which obviously constitutes what users are willing to pay. In most ports where an uncompetitive environment with joint and common cost exists, it is important to know what the traffic will bear. The difficulty of determining that in practice is solved by testing what the traffic will not bear. Provided the revenue derived from prices based on the value of service does not exceed the total income needed to cover all direct and common costs, there can be no objection to the application of those prices (which simulate market pricing). The pricing by port

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authorities for the use of port infrastructure should consequently be based on the value of service as constrained by a lower limit (marginal cost) and upper limit (what the traffic will bear).

Value of service pricing in practice usually implies differential pricing with the goal of maximizing traffic throughput and not maximizing profits, because it requires market monopolization and is typically applied by public utilities. Thus, to the extent that ports are able to price according to the value of the service rendered, they constitute natural monopolies, which in accordance with economic theory should be required to function as public utilities.

Value of service pricing or 'charging what the traffic can bear' is often based on the value of the commodity in practice. In ports, the value of the cargo, or more often the ratio of the port charge to the value of the cargo, is regarded as the decisive factor in determining the elasticity of demand for the port service. This is referred to as demand base pricing (Australian Chamber of Shipping, 1991), and reflects what the service or facility is worth to a user. In view of the generally inelastic demand, by both primary and secondary port users, competition is probably unimportant in South African ports when estimating the value of the service or what the traffic will bear.

It needs to be borne in mind that value of service pricing in a port is largely necessitated by the existence of the basic infrastructure. As that infrastructure is used jointly with other assets by all traffic passing through the port, its pricing should permeate many of the other port charges. Value of service pricing is thus an essential topic in a discussion of basic port infrastructure rather than a digression.

Application of Economic Principles to South African Port Infrastructure

In this section, the economic principles underlying the ownership and pricing of the use of port infrastructure are applied to the ports of South Africa. There are seven commercial ports of which the ports of Saldanha, Durban and Richards Bay are located in sheltered harbours. East London is located in the mouth of the Buffalo River and Cape Town, Mossel Bay and Port Elizabeth have been constructed in exposed bays. The basic infrastructure of those ports comprises navigational channels and basins, which require continual or periodic dredging, and sea walls and breakwaters. The total length of the quays in the ports is some 36 kilometres, accommodating 170 or more berths for ships of all sizes. The port of Durban accounts for approximately 40% of that capacity. There are four main graying docks, two at Cape Town and one each at Durban and East London.

The current depreciated value of all the assets in South African ports, including the infrastructure, is some R5 billion, although the estimated replacement cost of the infrastructure alone is R30 billion of which half would be needed for the basic infrastructure. However, the South African port system exists as the historical outcome of the policies towards spatial development pursued by the central government since 1910. In essence, those policies required the construction and use of the railway and port systems to be directed towards the development of the interior of South Africa, while ensuring that a share of the import and export cargo of the area now known as Gauteng was handled in the ports at East London and Port Elizabeth, instead of the port of Durban which is more favourably located for such traffic. For many years, special rail rates were applied to bring that about. Furthermore, capital investment in the ports was often motivated by provincial political considerations. Whether the outcome has resulted in an irremedial distortion in resource utlilization is a matter for speculation as it is impossible at this stage to decide whether economic efficiency and social equity would better be served by a different location of industry. The efficiency of the existing port system is, however, questioned in a study commissioned by the Government in which the conclusion is reached that South Africa's containerized import and export cargo

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could be distributed more efficiently through only two ports � namely Cape Town to handle cargo to and from the west and Durban for cargo to and from the east (South Africa, Moving South Africa). Although there are many practical considerations concerning the existing location of industry, port and railway capacity, shipping routes, and the cost implications of state policy to change the existing logistical arrangements of shippers, which render implementation of the proposal hardly likely, it does call for a re-assessment of the efficiency of the existing system of ports. Perhaps the least that can be said is that the infrastructure needed for a new system of ports that would best serve South Africa's economy in future would differ substantially from that presently in existence. But the existing basic infrastructure incurs no opportunity costs and the use of substantial resources needed to reconstruct the ports is unlikely to be justified by the marginal improvement in productivity that could so be achieved.

This argument probably applies also to new ports on the South African coast, as the stream of social net benefits which they could bring is unlikely to exceed the net benefits which could be achieved through marginal improvements to the existing ports and the transport infrastructure serving their hinterlands. The issue is really one of pragmatic economics � while the basic infrastructure of the existing ports incurs no opportunity cost and the capacity it provides is virtually unlimited, the opportunity cost of the resources needed for the construction of basic infrastructure to create the harbourage for new ports remains difficult to justify against South Africa's other investment priorities. While this argument is unlikely to hold for the construction of new ports within natural harbours, of which there are few on South Africa's coast, it should be evident that the future development of South Africa's port system must encompass the improvement of the existing ports rather than the provision of basic infrastructure to construct new ports.

Restructuring of Port Organization in South Africa

The development of the South African economy to ensure the welfare of its population undoubtedly depends upon its net foreign earnings. In the foreseeable future, most of those earnings will continue to be derived from physical exports by sea, which requires the port system to function efficiently. In keeping with the modern approach to the organization needed to achieve port efficiency, port authorities should function mainly as landlords while the operation of ports and the supply of services should be entrusted to private enterprise in terms of lease agreements, concessions and licences. That concept has been adopted in principle by Transnet and the government, but the implications for port ownership, investment in infrastructure and pricing are still under consideration. However, the implications are quite clear in accordance with the economic principles outlined in the previous section of this chapter.

In the first place, ownership of the land and basic port infrastructure including port basins, navigation channels, sea walls, breakwaters and all the structures which enable safe harbourage should remain state property. Not only is that required because of the physical and economic characteristics of the infrastructure, but the state is the only body competent to ensure that such infrastructure is managed in the public interest, while it has the capability of affording the cost of the investment for the long periods over which the benefits will be realized. The state is in any event the recognized owner, in accordance with international convention, of the inland waters and territorial sea in which the ports are located and according to common law, also the owner on behalf of the public of the sea shore on which much of the basic infrastructure is constructed (South Africa, 1982).

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While private investment for the provision of other infrastructure will be forthcoming if the returns are adequate, that may be contingent on the extent to which the investor can monopolize the market for the use of such infrastructure. Without adequate prospects for the redemption of the capital and profits over a period much shorter than the physical lifetime of the assets, the investment will surely not be forthcoming. In that event, responsibility for the investment will remain with the landlord port authority which will seek private undertakings as tenants and port operators. Whether the state as owner of the infrastructure and basic infrastructure appoints managers to fulfil the landlord function or creates a public authority to do so, is irrelevant to the principle involved. The letting of land and infrastructure in South African ports by the authority in accordance with the economic principles described would in all likelihood, yield sufficient rental to finance infrastructural development and cover expenditure on maintenance and administration.

Conclusion

South Africa's port system fulfils an indispensable function in the growth of the economy and the land on which it is located with the basic part infrastructure comprise strategic assets with physical and economic characteristics that require their ownership and development by the state, The rent which the state or a public body on behalf of the state could obtain for the utilization of the land and basic infrastructure would probably cover all the costs of maintenance of the basic infrastructure, conservancy of channels, and development of the ports. While much of the other infrastructure could be developed by private enterprise on land owned by the state, state regulation to ensure that the pricing of its use conforms to the appropriate economic principles is essential. In that manner, South. Africa's port system could achieve the ongoing economic efficiency needed to meet the requirements for growth in the South African economy.

Note

1 The division of Transnet which is responsible for the management and operation of the seven commercial ports of South Africa.

References

Australian Chamber of Shipping (1991), Report on the Restructured Port Charges, Australia: Port of Melbourne Authority.

Bennathan, E. and Waiters, A. (1979), Port Pricing and Investment Planning, World Bank, Washington.

Floor, B.C. (1997), Competition, Policy and Port Ownership Reform, with reference to the Indian Ocean Rim, Paper presented at the Fifth National Maritime Conference, South Africa, Cape Town.

Garfield, P.J. and Lovejoy, W.F. (1964), Public Utility Economics, Prentice-Hall Inc., Englewood Cliffs, New Jersey.

Georgi, H. (1973), Cost-Benefit Analysis and Public Investment in Transport; A Survey, Butterworths, England.

Goss, R.O. (1986), Seaports should not be Subsidised, Journal of Maritime Policy and Management, vol. 13, no, 2.

Gwilliam, K.M. and Mackie, P.J. (1975), Economics of Transport Policy, George Allen and Unwin, London.

Jansson, J.O. and Sneerson, D. (1991), Charging what the Traffic can Bear � Alternative Rule to the Value of Service Principle, Publishers.

Joy, S. (1991), Options for Port Pricing, Document prepared by Hyland Joy and

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Wardrop for the Port Pricing Steering Committee, Port of Melbourne Authority, Australia.

Kolsen, H.M. (1968), The Economics and Control of Road-Rail Competition, Sydney University Press, Sydney.

Kolsen, H.M. (1991), Options for Port Pricing, Report no. 2, Document prepared for the Melbourne Port Pricing Steering Committee, Australia.

Sea-Shore Act, 1935 (Act 21 of 1935), as amended.

South Africa (1982), Law of the Sea Convention, South Africa (1993), Committee of Inquiry into a National Maritime Policy for the Republic of South Africa, Final Report, Department of Transport, Chairman, B.C. Floor, Pretoria.

South Africa (1989), Legal Succession to the South African Transport Services Act 1989 (Act 9 of 1989), as amended.

Suykens, F. and Van de Voorde, E. (1998), A Quarter of a century of Port Management in Europe: Objectives and Tools, Maritime Policy and Management, vol, 25, no. 3, pp. 251-61.

United Nations Conference on Trade and Development (UNCTAD), Development and Improvement of Ports: The Principles of Modern Port Management and Organisation, (Report by the UNCTAD Secretariat.)

Van Niekerk, H.C. (1996), Efficient Pricing of Public Ports, Paper presented at the International Conference on Shipping, Ports and Logistic Services organized by the International Association of Maritime Economists, Canada, B.C., Vancouver.

Wagner, R.E. (1991), Changing for Government: User Charges and Earmarked Taxes in Principle and Practice, Routledge, London.

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9 SMME Infrastructure and Policy in South Africa

CHRISTIAN ROGERSON

Introduction

In the reconstruction initiatives of post-apartheid South Africa, promotion and support of the small, medium and micro enterprise (SMME) sector has become a significant policy issue. Overall, a dramatic shift has occurred from the apartheid period when the SMME economy was either largely neglected by policy makers or, in the case of black-owned enterprise, was actively discouraged by an arsenal of repressive measures. In the 1990s, by contrast, new policy objectives, including poverty alleviation and the enhancement of national economic growth, actively promote the SMME economy. The objective in this chapter is to sketch and evaluate infrastructure and policy development towards promoting the SMME economy. More specifically, the position of the SMME economy, key policy objectives, support infrastructures, and current reconstruction programmes are analysed. Source materials for this investigation include government reports, project evaluations, existing secondary literature and personal interviews with key individuals involved in South Africa's new infrastructure for SMME support.

Defining the SMME Economy

At the outset, it is important to define the SMME economy in South Africa. In mainstream international writings on small enterprise development, attention is generally focused on either MSEs (micro and small enterprises) or SMEs (either small and micro, or small and medium enterprises) (Mead, 1998). In South Africa, however, the focus is on SMMEs (small, medium and micro enterprises), which include a large survivalist sector.

The confusion arising from the terminology is not of substantive importance. What is crucial is to recognize that it is necessary to distinguish several types of SMMEs in South Africa (Ntsika, 1997a). In the National white Paper on Small Business, which draws upon international patterns, the South African SMME economy is segmented into three sets of enterprises (South Africa, 1995a, p. 9). The first set comprises survivalist enterprises. Operating in the informal economy, they are defined as a set of activities undertaken primarily by unemployed people unable to find regular employment. In this group, incomes usually fall short of minimum standards, little capital is invested, skills training is minimal and scant prospects exist for growth into a viable small business enterprise. The second set comprises micro enterprises which involve the owner, some family members and, at most, one to four employees. Although such businesses frequently escape the trappings of 'formality', such as licences or formal premises and the entrepreneurs sometimes have only rudimentary business skills or training, many micro-enterprises can change into viable formal small businesses. The third set comprises small and medium enterprises which constitute the basis of the formal SME economy, The small enterprises between 5 and 100 workers, and the medium enterprises between 100 and 200. SME enterprises are usually owner-managed, operate from fixed premises and bear all the trappings associated with formality (South Africa, 1995a; Ntsika, 1997a).

Another important distinction is that drawn between the group of established formal SMEs and the group of emerging SMMEs. Largely owned by whites and (sometimes Asians), established SMEs operate in South Africa's urban areas, particularly in larger cities. Emerging SMMEs are largely under black or coloured ownership and operate in urban townships, informal settlements and rural areas. According to the white Paper the Largest component of the South African SMME

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economy is the survivalist sector, which numbers an estimated 2.5 million businesses as compared to the 800,000 businesses in the rest of the SMME economy (micro enterprises and formal SMEs).

Understanding the Position of the SMME Economy

In understanding the role of SMMEs in the post-apartheid economy it is important to understand some of the principles which are guiding government interventions and support infrastructure for SMMEs. In addition, an appreciation of the key constraints on developing the SMME economy sets the context for evaluating the government's new support infrastructure and policy framework for SMME development.

In a rich analysis, Manning (1996, pp. 63-7) argues that South African government intervention for SMME promotion derives from identifying three key roles for SMMEs in the national economy and society, namely employment promotion, economic redistribution and the enhancement of competitiveness.

The role of SMMEs in employment promotion is particularly significant given that the past-apartheid economy has been characterised by 'jobless growth'. In terms of economic redistribution, SMME promotion undoubtedly will contribute to redressing the economic inequalities inherited from the apartheid period (South Africa, 1995a). Lastly, SMMEs are expected to enhance the economic competitiveness of local industry in order to stimulate growth and even export. This issue has attracted considerable attention, particularly in terms of flexible specialization, industrial clusters and the promotion of industrial districts (Rogerson, 1994).

The needs of the SMME economy set the context for an infrastructure of institutional and policy support (Rogerson, 1998a). In interpreting the constraints on the SMME economy, it is essential to appreciate that the growth of the SMME economy is being nurtured by the demise in the labour absorptive capacity of the formal economy on the one hand, and the break-up of formal enterprises and the displacement of formal factory jobs by the growth of unregistered plants and home-based work on the other hand.

The net consequence of these divergent processes is that the SMME economy has become stratified and that entrepreneur status can no longer be given to all SMME participants (Horn, 1995, p. 35). Although some SMMEs have grown into micro enterprises and formal SMEs, the majority are likely to remain poor. Indeed, SMME participants become trapped in casual jobs within the structures of the dominant formal capitalist economy. Forms of casual work include short-term wage work, disguised wage work (e.g. com-mission sellers and home workers) and dependent work (common among street traders, their dependency being based on credit relationships). The majority of the population working in SMMEs are unlikely ever to escape the struggle for a meagre survival, 'constrained by a number of factors which constantly reinforce their position at the bottom of the pile' (Horn, 1995, p. 35). Worst affected are women, because they are constrained by patriarchy and the responsibilities of child care which limit their capacity to pursue training and develop their skills. The inevitable consequence is the feminization of the lowest and worst paid echelons of SMME work, namely survivalist enterprise.

The key constraints facing the different segments of the SMME economy have been extensively investigated across both urban and rural areas of South Africa (see Preston-Whyte and Rogerson, 1991; World Bank, 1993; Kirsten, 1995; Rogerson, 1996a, 1996b, 1998a; Rogerson and Reid, 1997). Initially, emphasis was placed upon the negative impact of narrow regulations on the growth of SMMEs. Hence it was suggested that government's role in promoting SMMEs should be minimized to

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the enactment of measures for deregulating the economy. Nevertheless, legal restrictions are no longer the major impediment to SMME development in South Africa (World Bank, 1993; Rogerson, 1996a, 1998a).

Other analysts locate the constraints on SMMEs in the broader historical, political and economic circumstances of South Africa. According to these analysts, discriminatory apartheid legislation and South Africa's concentrated economic structure were major contributors to the limited development of SMMEs (Manning, 1996). Supporters of this view hold that the demise of apartheid was insufficient to fully develop SMMEs. Therefore, a mix of policies is demanded. The policies should address, inter alia, access to finance and credit; inadequate business infrastructure and service provision; inadequacies in the content and delivery of training; distortions produced by urban land markets, the fragmentation of cities and the strict separation of land use and racial groups; and competition from existing formal enterprise, market inaccessibility and the historical underdevelopment of business procurement and subcontracting linkages between large enterprise and the SMME sector (see Rogerson, 1995, 1996a, 1996b, 1998a).

New research by Manning (1996) stresses that an aggressive SMME policy should additionally address 'competition policy' as an important explanation for the underrepresentation of SMMEs in the mainstream economy. According to Manning (1996, p. 244), the successful upgrading of SMMEs into the mainstream economy

requires the implementation of policy at a range of levels; micro-level policies targeted directly at enhancing small-firm capacity; sector wide policies aimed at improving the performance of all enterprises in a sector; competition-type policies aimed at heightening the level of competition in the South African economy; as well as macroeconomic policies addressing the uncontrolled supply of credit to consumers.

Finally, in dealing with constraints, several observers point to a need for policies and programmes to deal with the specific environmental constraints that relegate women to the poorest niches in the SMME economy (Horn, 1995; Valodia, 1996). What is required, it is argued, is an integrated policy framework which takes into account the factors which force women to participate largely in survivalist enterprises (SEWU, 1995, 1996). Therefore, intervention programmes should aim at organizing and regulating informal workers, redesigning social security systems and extending workplace child care (SEWU, 1995).

New Programmes, Institutions and Policy Initiatives

In this section the focus is upon analysing new government programmes, institutions and policy initiatives for improving the SMME economy. First the objectives of SMME development programmes are defined and then the new institutional structures for support are identified and analysed.

Objectives for SMME Development Programmes

The broad development objectives for the SMME sector in South Africa can be gleaned from a number of official policy statements (South Africa, 1995a, 1995b). The key national objectives are set forth in the White Paper of the Department of Trade and Industry (DTI) on a National Strategy for the Development and Promotion of Small Business in South Africa (South Africa, 1995a). This document provides the context for the more specific objectives for the urban and rural SMME sector which were laid down in the discussion papers on urban and rural development respectively (South Africa, 1995b, 1995c) and their mast recent revisions (South Africa, 1997a, 1997b). Moreover, the DTI White Paper furnishes guidelines and a context for provincial SMME development planning throughout South Africa.

The White Paper on Small Business sets forth the national objectives for the SMME sector in South Africa (South Africa, 1995a, pp. 15-16). The primary objective is

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'to create an enabling environment' for SMME development in terms of national, regional and local policy frameworks. In addition to this basic objective, several more specific policy objectives are identified. The first of these is 'to facilitate the greater equalisation of income, wealth and economic opportunities' which is inseparable from

a strengthening of the labour-absorptive process in the micro-enterprise and survivalist segments, the redressing of discrimination with respect to blacks as well as women's access to economic opportunities, and the facilitation of growth in black and small enterprises in rural areas.

The second objective is to create long-term jobs which demands policy interventions designed to upgrade human resource skills and to strengthen the use of appropriate modern technologies. The third objective is to stimulate economic growth through addressing the obstacles and constraints that prevent SMMEs from contributing to overall growth. The fourth objective is to strengthen the cohesion between SMMEs in order to overcome their isolation. This could be done by promoting SMMEs networking with a view to building collective efficiency, addressing development obstacles and taking up opportunities. The fifth objective is to level the playing fields both between large enterprises and SMMEs and between rural and urban businesses. The sixth objective is to enhance the capacity of small business to comply with the challenges of an internationally competitive economy.

These objectives and the associated programmes as set down in the DTI White Paper relate generally to the SMME sector as a whole. In the Discussion Paper on Rural Development and in provincial SMME planning certain more specific objectives relating to rural SMMEs may be recognized. The Discussion Paper on Rural Development draws particular attention to the need to address the disempowerment of 'the most marginalized groups', in particular of women and rural entrepreneurs (South Africa, 1995b, p. 25). Of particular importance is the need to stimulate the capacity of rural entrepreneurs to move beyond survivalist enterprise. In other words, a core objective in developing the rural SMME economy is to eradicate poverty by correcting the inordinate proportion of survivalist enterprises (Rogerson and Reid, 1997).

An important set of concerns relating to the national SMME policy relates to potential problems that arise from the policy's internal contradictions and diverse objectives towards national SMME promotion (Manning, 1996). It is evident that the national government views SMMEs as key instruments for employment generation, income redistribution and the enhancement of competitiveness, particularly of small-scale manufacturing operations. As Manning (1996, p. 68) observes,

[n)ot only are these very divergent policy objectives, but the policy instruments required to effect them are equally divergent (ranging from technology support, R & D support, to literacy and numeracy training, and access to basic information.

Whilst it must be acknowledged that each of these policy objectives are valid and critical for poverty eradication and inequality reduction, 'policy-makers necessarily have to impose a hierarchy of importance upon them, in order to decide on the distribution of resources' (Manning, 1996, p. 68). Indeed, Manning (op, cit.) states that trade-offs that policy-makers are obliged to make raise the dilemma of which

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policy objectives are privileged over others. Do employment creation programmes take precedence over competitiveness-enhancing programmes? Or are programmes aimed at facilitating black economic empowerment privileged in resource allocation.

Different approaches appear to have been suggested to resolve the internal contradictions in government SMME policy. According to the World Bank (1993, p. 31), 'achieving dynamic growth in employment is not as critical as improving the contribution that these businesses make to household income and welfare'. By contrast, the White Paper on Small Business suggests that 'small business policies will for a considerable time also have to focus on the particular needs of black enterprises and ways to overcome the remaining consequences of that (apartheid) legacy' (South Africa, 1995a, p. 13). As Manning (1996, p. 68) observes, it remains 'unclear haw government will resolve this dilemma' and that, ultimately, it will be 'the pattern of distribution of departmental resources that will reveal the trade-offs that have been made'.

Key personnel involved in policy formulation and implementation con-cede that the national SMME programme does have multiple and conflicting goals and that choices have to be made clear in order to highlight the foci and directions of the national SMME support initiatives (Block, 1997). As yet, however, it is �too early' to discern which of the programme objectives are taking precedence in fund and support allocation (Bloch, 1997).

New Institutional Structures

After the enactment of the national White Paper on Small Business, the DTI began to build new institutional infrastructure to service the needs of the SMME economy (Manning, 1996, p. 236). The vision for SMME development was to integrate small business into the heart of South African economic life. Internationally, it was recognized that the common thread that runs through success stories of SMME development was the critical role played by support agencies and institutions, whether these be driven by government, the private sector or NGOs. A new national framework for SMME development in South Africa was therefore developed and linked to key intervention programmes targeted at supporting the national objectives for SMME development. The intervention programmes involved the introduction of new programmes for SMME promotion and the restructuring of existing programmes to more effectively embrace SMMEs.

As a result, a new institutional infrastructure has been created for urban and rural SMMEs. The key actors are (1) Ntsika Enterprise Promotion Agency, (2) Khula Enterprise Finance and Khula Credit Guarantee, (3) the National Small Business Council, and (4) Provincial SMME Desks (South Africa, 1995a).

Ntsika Enterprise Promotion Agency (Ntsika) was initiated by the DTI specifically to implement the national SMME strategy. As 'the implementation agency for all non-financial entrepreneurial services', Ntsika was to 'facilitate and act as a wholesaler of delivery programmes to support SMMEs in South Africa' (De V Graaff, 1996, p. 7). Ntsika is committed to developing a 'thriving and vibrant SMME sector' and ensuring

that small businesses are no longer conned to the margins of the economy and through its intervention create an environment for important sectors of South African society, for example black people, women, rural, youth and the less able, to be empowered to play an important role in the economic growth of South Africa.

An important unit of Ntsika is Business Development Services (BuDS) which was set up in April 1995 to co-ordinate the evolution and development of the network of local business service centres (LBSCs). The stated mission of BuDS is 'to enable all existing and would-be entrepreneurs in Small, Micro and Medium-sized

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enterprises to have access to high quality business support services'. In addition to its work with LBSCs, BuDS is developing a number of manufacturing advice centres (MACs) and setting up an information and networking programme to link LBSCs and MACs and provide them with access to information.

Whereas Ntsika's activities focus upon furnishing non-financial support to SMMEs through intermediary organizations, the central activity of Khula Enterprise Finance is to facilitate and expand access to finance for SMME development. As the national wholesale funding facility, Khula provides loans, grants and guarantees for retail banking institutions servicing the SMME market. In common with Ntsika, Khula works through intermediary organizations, such as banks and NGOs (Hoffman,1997), and its operations are premised on 'commercially sound business principles' (De V Graaff, 1996, p.10).

The National Small Business Council (NSBC) is an autonomous body led by the private sector. It comprises representatives of small business associations and business chambers. The raison d'être of the NSBC is 'to sanction the national small business support framework and provide a sounding board for small business interests and concerns' (SQW and Ntsika, 1997, p. 8). More specifically, the NSBC's objectives are (1) to promote the interests of the SMME sector at national, provincial and local levels, (2) develop recommendations for national and provincial economic policies affecting SMMEs, (3) play a pro-active role in shaping and responding to strategies developed by national and provincial governments, and (4) submit recommendations to government regarding existing and proposed legislative procedures (De V Graaff, 1996, p. 6).

Finally, in each of the nine provinces an SMME desk has been established with the goal of providing 'a one-stop information unit, which would speed-up and simplify communication channels with government' (SQW and Ntsika, 1997, p. 8). These SMME desks are to ca-ordinate SMME support programmes and activities at the provincial level. It is emphasized that because a strong partnership between provincial SMME desks and local LBSCs is crucial in addressing the needs of the SMME sector in South Africa, the provincial government has a pivotal role to play in SMME development. Provincial planning for SMME development is geared to translating the national policy guidelines and adjusting them to local circumstances. Nevertheless, SMME policy development currently differs markedly between the provinces, with some (such as Mpumalanga) well-advanced in their SMME policy development, while others (such. as North West) are lagging far behind.

A range of other institutional actors also play a role in SMME development in urban and rural areas. Most important is, perhaps, local government (Rogerson, 1998b). As part of the shift towards a more profound develop mental approach to local government, a number of South African municipalities have taken steps to support the SMME economy, notably survivalist enterprises such as hawking enterprises or spazas. The establishment of formal and periodic markets, land use zoning and infrastructure provision, among others, are key areas of local government intervention which impacts positively upon the workings of survivalist enterprises (Market Society, 1997; Rogerson, 1996c, 1998a). Another important sphere of local govern-ment intervention towards poverty alleviation is urban agriculture (May and Rogerson, 1995; Rogerson,1996d, 1998c).

It is evident that a new institutional infrastructure for SMME development programming in post-apartheid South Africa is in place. The road of transition has not been smooth. Indeed, in launching the programmes proposed in the White Paper, national government underestimated several vital institutional issues (Bloch, 1997). First, it underestimated the problems of establishing new support institutions for small business development; in particular, there have been a number of problems in the early development and operations of Ntsika. More dramatic was the collapse during 1998 of the National Small Business Council as a

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result of financial irregularities and mismanagement (Steven, 1998a). Second, national government underestimated the capacity of the new support institutions to establish and implement new and ambitious policy initiatives. Lastly, national government underestimated the capacity of the existing NGO network to become involved in financial and non-financial support programmes for SMMEs (Block, 1997). Such institutional constraints provide an important backcloth to examining SMME initiatives.

New SMME Programmes for Reconstruction

Several observers point out that the total budgetary allocation for upgrading the SMME sector is relatively meagre; recent figures point to an allocation of R80 million for SMME upgrading, representing only a 2.2% share of the total annual DTI budget (Valodia, 1996; Hoffman, 1997). Manning (1996, p. 70) regards this as 'miniscule in comparison with programmes targeted at larger enterprises'. However, DTI funds have increasingly been channelled into SMME support since the phasing out in 1997 of the General Export Incentive Scheme. The call for a change in the budgetary allocation further needs to be seen against the initial 1995-96 allocation which amounted to R30 per SMME participant. If this calculation is correct, it suggests that the budgetary allocation for SMME programmes need to be re-adjusted upwards (Manning, 1996; Valodia, 1996; Hoffman, 1997).

Through the activities of Ntsika and Khula, important SMME initiatives have been launched. The essential thrust in these initiatives is towards establishing an infrastructure of decentralised or localised support service centres that both furnish SMMEs with a range of 'real' and appropriate ser-vices and have credibility in the eyes of relevant stakeholders. Amongst these initiatives the most advanced are those concerning the establishment of networks of LBSCs, manufacturing advice centres (MACS) and programmes to expand access to finance. Other Ntsika initiatives encompass the enhancement of business linkages and entrepreneurial training.

Local Business Service Centres

At the heart of the programmatic interventions by Ntsika is the establishment and accreditation of a network of local business service centres (LBSCs). Broadly stated, an LBSC is an accredited organization which delivers non-financial business support and services to small and micro enterprises. In addition, LBSCs are 'community based partnerships whose target markets are viable and potentially viable micro and small enterprises'. As Bukula (1997, p. 25) remarks, the LBSCs 'constitute the Department of Trade and Industry's most critical intervention for SMME service delivery at local level'. Officially, the national grid of LBSCs is described as 'the most important vehicle for SMME support in the near future'. As the value of a national network of quality service providers to the SMME economy has been considered important since the foundation of Ntsika, the LBSC programme 'has become something of a flagship for the organisation, representing a practical demonstration of the partnerships that can be formed between government, the private sector and local communities' (Ntsika, 1998, p. 4).

Three points must be stressed regarding the emerging network of LBSCs. First, that the accredited LBSCs provide the first tier of generic services to SMMEs, namely business information, general business manage ment advice and counselling, aftercare, and networking with other business support services (Ntsika, 1998). In addition, the accredited LBSCs are expected to develop other projects and services in response to local needs and in this sense are conceptualized as 'local enterprise partnerships' for co-opting local and provincial government and the private sector to support the SMME economy. Second, the LBSC network is seen as a unique generator of mutual assistance and information on best practices. Moreover, as a network of locally based organizations, it is expected to retain a responsiveness to local issues. Lastly, accreditation is aimed at furnishing LBSCs with a mark of quality, which can be withdrawn when an

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LBSC does not comply with set standards (Francis, 1996). Accreditation is furthermore a barrier to the formation of 'ghost' organizations seeking access to government funding through the LBSC programme (Francis, 1996; Ntsika, 1998).

The planned national network of LBSCs is therefore to deliver essential business support and core services including training, information, advice and counselling to SMME entrepreneurs (South Africa; 1995a, p. 45). Special provision is to be made in the programme for assisting rural communities to develop their LBSCs and for supporting existing organizations to work with potential LBSCs in rural areas (BuDS, 1995, p. 8). The LBSCs are to provide key inputs to the development of urban and rural SMMEs, namely information/advice on markets and training. Overall, the goals of the LBSC network are to �ensure that SMMEs in all corners of South Africa are able to access non-financial support' (SQW and Ntsika, 1997, p. 8). In the first (1996) round of accreditation, 27 organizations were accredited as official LBSCs (15 full accreditation, 12 partial accreditation), a status that qualified them for block financial grants (Francis, 1996). During the second (1998) round of accreditation, 19 of the initial LBSCs were re-accredited and 13 new organizations received LBSC status. Thus, by 1998 there were 32 functioning LBSCs, the majority of which were located in the Western Cape, Eastern Cape and KwaZulu-Natal (Ntsika, 1998). Remarkably, as the national economic heartland and major locus or incubator for small enter-prises, Gauteng had only two LBSCs in 1998.

The first assessments of the functioning LBSCs reveal a diverse range of experiences (Ntsika, 1998). Based on several interviews with functioning LBSCs, it can be conceded that the activities of most LBSCs do contribute towards the eradication of poverty as well as the reduction of racial economic inequalities. Admittedly, in line with the overall focus on viable micro enterprise, some LBSCs mainly deal with the more established SMMEs and often focus on manufacturers (Makgatho, 1997; Mashango, 1997). The LBSC in Johannesburg does not deal with hawkers or spaza operators because it focuses on developing business linkages with larger enterprises; its major clients are building contractors, manufacturers, providers of services (security, cleaning), and export-impart operations (Makgatho, 1997). LBSCs do not neglect women clients but they focus on women entrepreneurs who are well established in such activities as clothing manufacture. Even in small town LBSCs with a rural hinterland, the accent can also be on manufacturing as is illustrated by the LBSC in the former KwaNdebele which primarily services industrialists (mainly providing clashing, sheet metal and bricks) partially 'because that's what we want to do' and, more importantly, perhaps because of the perceived high potential for job creation in manufacturing (Mashango, 1997). Although these LBSCs focus primarily on the more established SMMEs, their activities do address the eradication of poverty, For example, the Johannesburg LBSC approaches informal settlement areas to assist fledgeling backyard entrepreneurs, and the Kwaggafontein LBSC seeks to support all types of enterprise, including survivalist hawker or spaza activities.

A focus on poverty eradication in and economic empowerment of historically disadvantaged communities characterizes most of the interviewed LBSCs. In Plettenberg Bay, given the absence of any successful black or coloured-owned businesses, the local LBSC is by definition primarily dealing with the needs of the poor (Clyde-Wiggins, 1997). Indeed, it was emphasized that whilst all types of SMMEs were assisted, the survivalists were 'very much a target group' (Clyde-Wiggins, 1997). At Empangeni the LBSC catered for emerging construction,

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tourism and manufacturing as well as survivalist enterprises. Indeed, the Empangeni LBSC has a distinguished record of providing financial support and lobbying support for the operations of local hawkers (Morrison, 1997).

The LBSC in Soweto largely deals with a clientele which has 75% women, who mostly participate in survivalist enterprises (Matele, 1997). The geographical hinterland of this LBSC is the townships of Soweto, nearby Kagiso and the informal shacklands of Orange Farm; typically, its client base constitutes hawkers, sewers, knitters and coal suppliers. At Port Elizabeth, the local LBSC supports small entrepreneurs and the unemployed, dealing with both more established micro enterprise and survivalist enterprise (Reed, 1997). At this particular LBSC, women were described as the main clients because 'women have the greatest need for training' (Reed, 1997).

Potential problems or policy blockages were identified in terms of the network and operations of the existing LBSCs. First, the training programmes of several of the LBSCs perpetuate women's concentration in sewing, dressmaking and knitting. Second, some of the LBSCs experience problems of financing and, more acutely, of shortages of manpower to deal with the daily volume of clients. Third, in small town LBSCs the outreach into rural areas is sometimes inadequate. For example, in a detailed study of the Lydenburg LBSC, it was concluded that �in the context of the funding mechanism, LBSCs are not reaching out to rural SMMEs' as they have no incentive to do so (SQW and Ntsika, 1997, p. 20). Given the difficulties and costs of reaching out to rural SMME entrepreneurs, it is evident that LBSCs will not achieve the goals of rural SMME development unless funds are specifically dedicated to rural SMME development (Rogerson and Reid, 1997). Fourth, linkages between LBSCs and local government and local economic development initiatives are mostly weak (Rogerson, 1998b); one observer even viewed the operations of local government as the 'missing element' in the unfolding LBSC programme (Francis, 1996). Fifth, there is a need to link LBSCs and their non-financial support services to the extension of financial support for SMMEs; in particular, in many of the LBSCs outside metrapolitan areas the demand for LBSC services is restricted by the absence of NGOs operating in the financial sphere (Clyde-Wiggins, 1997; Mashango, 1997; Morrison, 1997). Finally, the existing network of 32 LBSCs is presently too sparse and must be extended geographically, particularly into those parts of South Africa which are currently not reached by the services of an existing LBSC. Areas that are especially in need of LBSCs are rural areas in general, and the Northern Cape and North West in particular.

Manufacturing Advice Centres

The initiation of manufacturing advice centres (MACS) was inspired by Denmark's highly successful experience of SMME support. The MAC network's complementary to the LBSC network. Initially the planning focused on the development of a network of decentralized manufacturing technology centres (MTCs) (BuDs, 1996). These were aimed 'at improving the growth and competitiveness of small manufacturing enterprises via the provision of technological and business services' (BuDs, 1996, p. 4). Subsequently, the MTCs were transformed into MACs 'to service the needs of small manufacturing enterprises'. The MACs also rendered 'specialist forms of support aimed at providing targeted, sector specific assistance to small manufacturing firms and to enable the development of manufacturing firms from the disadvantaged communities'. It is argued that the MACs will assist South African manufacturing SMMEs to achieve a degree of production flexibility that derives from access to best practice technology, management expertise and the capacity to identify and meet the needs of new markets.

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The MAC programme is to diagnose the problems of manufacturing SMMEs and to provide techno-managerial support to them (Block, 1997). MAC are to be designed and established to focus on a particular industry sector or sectors. Collaboration and co-operation between industry sectors in the formation of a regional MAC will be encouraged and supported by BuDs. The programme essentially rests on two premises. First, that most support services offered to South African SMMEs concentrate on general business development rather than on the specialist needs of manufacturing SMMEs. The second premise of this programme is a recognition that there is substantial technical capacity in South Africa 'but that this capacity has thus far been utilised exclusively for big business' (Manning, 1996, p. 237). Significantly, the MAC programme is to be a 'national partnership initiative' between Ntsika and other state-supported institutions, including the Council for Scientific and Industrial Research (CSIR) and the National Productivity Institute (NPI) (Bloch, 1997).

Overall, MACs will largely serve growth objectives through strengthening the competitiveness of more established SMMEs; the programme's mandate is to help 'small to medium-sized firms become more productive, more competitive and more profitable'. More specifically, the two pilot MACs in Durban and Port Elizabeth are to serve as regional centres to improve the competitive performance of small manufacturers by offering a co-ordinated outreach programme of assistance which includes advisory services, technical support, information support and assistance to SMMEs in coping with quality standards. Through Ntsika, the MAC programme will be linked to other SMME initiatives, such as the LBSCs and the business linkage programmes. The assessments of the pilot MACs show promising results (Steven, 1998b). The MAC programme is to be expanded to other regions after an evaluation of the pilot schemes.

Improving Access to Finance

As noted above, access to finance is one of the core constraints on developing South Africa's SMME economy. Central responsibility for expanding access to finance is carried by Khula Enterprise Finance and Khula Credit Guarantee which were established in 1995 as a result of the DTI White Paper on Small Business.

Khula offers two types of financing schemes to retail financial intermediaries (RFIs) such as 'provincial development corporations, commercial banks or non-governmental organizations, provided that they are financially sound, have the capacity, and are committed to serving the SMME sector' (De V Graaff, 1996, p. 10). In practice, Khula operates primarily through NGOs (Hoffman, 1997). The two types of finance scheme offered to RFIs are loan schemes and grant schemes. The lending capacity and experience of RFIs are decisive factors. Grant schemes are offered to new RFIs, particularly those NGOs serving 'the most difficult segment of the SMME markets' (De V Graaff, 1996, p. 11). Indeed, Khula supplies seed capital to its lending NGOs until they achieve a level of sustainability; if certain conditions are fulfilled and targets attained the seed capital is turned into a grant. In addition to seed capital, Khula also offers an extensive loan capital facility which operates at a subsidized rate of interest (which is below prime). The Khula lending programme has only been in operation since January 1997. At inception it focused upon working through existing clients. In order to extend and deepen its lending operations Khula is exploring the potential for developing a framework and facility for lending to private sector institutions (Hoffman, 1997).

To ensure the long-term financial viability of the programme, RFIs 'are assessed, approved and monitored (De V Graaff, 1996, p. 10). However, Khula officials concede that the number of loans that have been made to NGOs has been insufficient to give the SMME community in South Africa access to finance (Hoffman, 1997). Moreover, coverage of the programme is geographically uneven. In addition, funding is biased in favour of the more established SMMEs. None the less, it must be acknowledged that Khula is acutely sensitive to poverty issues and takes pride in

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its evaluative performance and monitoring of gender and rural outreach issues (Hoffman, 1997). The core problem appears to be that 'there are simply not enough suitable NGOs' or other RFIs operating as intermediary lenders (Hoffman, 1997). Indeed, South Africa lacks a vibrant micro-enterprise finance industry that Khula could work with (Dorfling, 1997). Moreover, the existing distribution of financing NGOs introduces access biases. For instance, KwaZulu-Natal has few financial intermediaries, causing limited access to funding for SMMEs (Vaughan and Xaba, 1996; Morrison, 1997). Furthermore, rural areas and small towns pose special problems for financing SMME development (Baydas and Graham, 1996; Bukula, 1997; Mahabir, 1997; Mashango, 1997; Rogerson, 1998d). The challenge is to expand the availability of financing through encouraging existing NGOs to broaden their activities by creating new branches and to encourage the operations of suitable new RFIs, particularly in rural areas (Hoffman, 1997; Kirsten,1997).

In particular, for expanding finance access to survivalist enterprises, NGOs should be encouraged to function in the manner of the Small Enterprise Foundation (SEF), which uses a group-based lending scheme patterned very closely after the Grameen Bank of Bangladesh (Anwar et al., 1995; De Wet, 1997; Kirsten, 1997). Through its sound group-based credit scheme, SEF reaches rural poor women, a sector which is largely unnerved by other lending organizations (Anwar et al., 1995; Kirsten, 1997). In the Tzaneen area of the Northern Province, the SEF has a client base that is 96% women. Since its inception in 1992 the SEF has never had a bad debt (Anwar et al., 1995; De Wet, 1997).

SEF encourages its clients to form themselves into groups of five which are then combined into centres containing between 6-8 groups; first loans may not be larger than R300 per person, while the subsequent loan may not exceed R1,200 (Anwar et al., 1995). SEF is a classic example of an NGO which contributes to poverty eradication as it 'likes to concentrate its efforts on reaching down amongst the poorest in its operating area' (Anwar et al., 1995, p. 2). Some observers, however, caution against such financing depending on only certain segments of the poor (Kirsten, 1997).

One programme that has been introduced by Khula to deepen the reach of and broaden access to finance throughout South Africa is the establishment of the Khula Credit Guarantee facility. It was aimed at encouraging the network of commercial banks to function in the area of SMME financing by reducing their risks. Clearly such a programme will be of greater use for the more established formal SMMEs or some larger micro enterprises than for survivalist enterprises (Hoffman, 1997). To counter this effect, Khula launched a campaign to change the traditional reticence towards funding in the high-risk area of survivalist enterprises. However, the commercial banks did not respond positively (Dorfling, 1997). First, many banks appear not at all seriously committed to the business of SMME financing (Hoffman, 1997). Second, the head offices of banks do not always transmit the details of the credit guarantee programme to the branches that service rural areas and small towns, where the need to access finance is greatest.

Other Initiatives

Lastly, in cataloguing the operational activities of Ntsika and Khula, brief mention must be made of a range of other programmes for SMME development which are at various stages of implementation. Of potential significance on a long-term basis for upgrading the SMME economy is the enactment of new initiatives to enhance the access of SMMEs to both government and large private sector

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procurement/linkage programmes (Ntsika, 1996; Bloch, 1997). In terms of private sector linkages, Ntsika has launched a marketing and business linkages division to facilitate national and international increase and expansion of markets for SMME goods and services.

The issue of public procurement is particularly crucial in light of inter-national experience (Tendler and Amorim, 1996) which suggests that 'public procurement policy represents a powerful instrument which governments could use to stimulate inter-firm collaboration' (Manning, 1996, p. 240). In many parts of South Africa, especially in urban townships and rural areas, the government's new guidelines for public procurement promise growth opportunities for emerging entrepreneurs (Rogerson, 1997). The Green Paper on Procurement Reform (South Africa, 1997c) offers a 10-point plan towards improving the access of emerging SMMEs to public sector procurement and introduces an affirmative SMME programme. The programme addresses the simplification of tender procedures, the packaging of tenders into suitably sized segments to target SMMEs, the setting of appropriate standards, delivery dates and contractual obligations, and price preference for targeted SMMEs (South Africa, 1997c). Another related policy initiative is the establishment of several tender advice centres that provide information about tenders, tender advice and counselling to emerging SMMEs (Ntsika, 1997b). The early workings of the new procurement programme, however, suggest several blockages to changes in the existing patterns of public procurement. For instance, although national government is committed to changing the rules and operations of public procurement, its executing arm in the area of procurement in the Gauteng and Free State tender boards has not been doing enough to open up opportunities for emerging entrepreneurs (Rogerson and Reid, 1997; Bukula et al., 1998). Indeed, Bukula et al. (1998) argue that many old attitudes and problems in the tender system prevent the flow of procurement contracts to emerging SMMEs.

Another Ntsika programme that is likely to contribute towards redress-ing poverty, albeit an a longer-term horizon, relates to entrepreneur training (Block, 1997). Of special note is the 'technopreneur project' targeted at training the unemployed, retrenched, those employed with low-level skills (operators, shop cleaners), drop-outs from the formal education and training system, school leavers and students (Anon, 1997). The technopreneur initiative, which was launched at Atteridgeville College near Pretoria in 1997, is an important contribution to attaining the objectives of broadening the ownership base of the South African economy.

Concluding Comments

The aim in this chapter was to survey the emerging new policy directions and SMME support infrastructure that have been established by South Africa's first democratic national government. By acknowledging the problems that surfaced in the new policy frameworks and institutional structures, a means has been created to adapt and change these frameworks and structures over the next decade.

The most important shortcoming in support infrastructure is perhaps the bias towards a supply-side approach to SMME support (Rogerson, 1998b). The supply-side approach is based on identifying specific needs of and constraints on SMME development and on initiating programmes to over-come these constraints. International experience (Tendler and Amorim, 1996) points to the need apply a demand-driven approach to SMME support. The latter approach is an explicity problem-driven approach to the delivery of support services which focuses on the specific needs of different clusters or sectors of enterprises rather than on the provision of generic packages of assistance (Tendler and Amorim, 1996). The introduction of the MAC programme represents the first step towards the demand-driven approach in South Africa.

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In the final analysis, however, South Africa's new SMME policy and support infrastructure marks a decisive break with the apartheid past. More-over, the new infrastructure affords an important base for achieving several of the core national objectives of reconstruction and development.

Acknowledgement

Thanks are offered to all the interviewees (especially Robin Bloch) and to Claudia Manning, An earlier version of this chapter was prepared for the National Project on Poverty and Inequality.

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Morake, V., Ramonnye, M. and Mathiba, T. (1994), 'The Needs of Micro-enterprises and the Services Provided by Support organisations in the Northern Transvaal', in R. Hirschowitz, M. Orkin, C. Rogerson and D. Smith (eds), Micro-Enterprise Development in South Africa, European Union, Pretoria, pp. 172-242.

Morrison, P. (1997), Interview, Business Advice Centre, LBSC, Empangeni, 13 May.

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Ntsika Enterprise Promotion Agency (1997a), The State of Small Business in South Africa, Ntsika, Pretoria.

Ntsika Enterprise Promotion Agency (1997b), Markets in the State Sector: Procurement Guidelines for Small, Medium and Micro Enterprises (SMMEs) and Service Providers, Ntsika and Department of Trade and Industry, Pretoria.

Ntsika Enterprise Promotion Agency (1998), Local Business Service Centre Programme, Draft document prepared for the Stakeholders Workshop, Midrand, 21 August.

Preston-Whyte, E. and Rogerson, C.M. (eds) (1991), South Africa's Informal Economy, Oxford University Press, Cape Town.

Reed, A. (1997), Interview, Khanya Centre LBSC, Port Elizabeth, 13 May.

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Rogerson, C.M. (1994), 'Flexible Production in the Developing World: The Case of South Africa', Geoforum, vol. 25. pp. 1-17.

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Journal, vol. 13, no. 3, pp. 65-79.

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Rogerson, C.M. (1996c), 'Women Urban Farmers in the Republic of South Africa's Economic Heartland', African Urban Quarterly, vol, 11, no. 1 & 2, pp. 73-81. Rogerson, C.M. (1996d), Periodic Markets and Rural Development: Issues from International and National Experience, Working Paper No. 52, Land and Agriculture Policy Centre, Johannesburg.

Rogerson, C.M. (1997), Local Government and the SMME Economy in South Africa, Africa Insight, vol. 27, pp. 63-72.

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Sector, PRCS, Johannesburg, pp. 6-14.

Rogerson, C.M. (1998b), 'Local Economic Development and Poverty Alleviation: Lessons for South Africa, in Isandla Institute', Linking Local Economic Development to Poverty Alleviation, Department of Constitutional Development, Pretoria, pp. 5-35.

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9 SMME Infrastructure and Policy in South Africa

CHRISTIAN ROGERSON

Introduction

In the reconstruction initiatives of post-apartheid South Africa, promotion and support of the small, medium and micro enterprise (SMME) sector has become a significant policy issue. Overall, a dramatic shift has occurred from the apartheid period when the SMME economy was either largely neglected by policy makers or, in the case of black-owned enterprise, was actively discouraged by an arsenal of repressive measures. In the 1990s, by contrast, new policy objectives, including poverty alleviation and the enhancement of national economic growth, actively promote the SMME economy. The objective in this chapter is to sketch and evaluate infrastructure and policy development towards promoting the SMME economy. More specifically, the position of the SMME economy, key policy objectives, support infrastructures, and current reconstruction programmes are analysed. Source materials for this investigation include government reports, project evaluations, existing secondary literature and personal interviews with key individuals involved in South Africa's new infrastructure for SMME support.

Defining the SMME Economy

At the outset, it is important to define the SMME economy in South Africa. In mainstream international writings on small enterprise development, attention is generally focused on either MSEs (micro and small enterprises) or SMEs (either small and micro, or small and medium enterprises) (Mead, 1998). In South Africa, however, the focus is on SMMEs (small, medium and micro enterprises), which include a large survivalist sector.

The confusion arising from the terminology is not of substantive importance. What is crucial is to recognize that it is necessary to distinguish several types of SMMEs in South Africa (Ntsika, 1997a). In the National white Paper on Small Business, which draws upon international patterns, the South African SMME economy is segmented into three sets of enterprises (South Africa, 1995a, p. 9). The first set comprises survivalist enterprises. Operating in the informal economy, they are defined as a set of activities undertaken primarily by unemployed people unable to find regular employment. In this group, incomes usually fall short of minimum standards, little capital is invested, skills training is minimal and scant prospects exist for growth into a viable small business enterprise. The second set comprises micro enterprises which involve the owner, some family members and, at most, one to four employees. Although such businesses frequently escape the trappings of 'formality', such as licences or formal premises and the entrepreneurs sometimes have only rudimentary business skills or training, many micro-enterprises can change into viable formal small businesses. The third set comprises small and medium enterprises which constitute the basis of the formal SME economy, The small enterprises between 5 and 100 workers, and the medium enterprises between 100 and 200. SME enterprises are usually owner-managed, operate from fixed premises and bear all the trappings associated with formality (South Africa, 1995a; Ntsika, 1997a).

Another important distinction is that drawn between the group of established formal SMEs and the group of emerging SMMEs. Largely owned by whites and (sometimes Asians), established SMEs operate in South Africa's urban areas, particularly in larger cities. Emerging SMMEs are largely under black or coloured ownership and operate in urban townships, informal settlements and rural areas. According to the white Paper the Largest component of the South African SMME

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economy is the survivalist sector, which numbers an estimated 2.5 million businesses as compared to the 800,000 businesses in the rest of the SMME economy (micro enterprises and formal SMEs).

Understanding the Position of the SMME Economy

In understanding the role of SMMEs in the post-apartheid economy it is important to understand some of the principles which are guiding government interventions and support infrastructure for SMMEs. In addition, an appreciation of the key constraints on developing the SMME economy sets the context for evaluating the government's new support infrastructure and policy framework for SMME development.

In a rich analysis, Manning (1996, pp. 63-7) argues that South African government intervention for SMME promotion derives from identifying three key roles for SMMEs in the national economy and society, namely employment promotion, economic redistribution and the enhancement of competitiveness.

The role of SMMEs in employment promotion is particularly significant given that the past-apartheid economy has been characterised by 'jobless growth'. In terms of economic redistribution, SMME promotion undoubtedly will contribute to redressing the economic inequalities inherited from the apartheid period (South Africa, 1995a). Lastly, SMMEs are expected to enhance the economic competitiveness of local industry in order to stimulate growth and even export. This issue has attracted considerable attention, particularly in terms of flexible specialization, industrial clusters and the promotion of industrial districts (Rogerson, 1994).

The needs of the SMME economy set the context for an infrastructure of institutional and policy support (Rogerson, 1998a). In interpreting the constraints on the SMME economy, it is essential to appreciate that the growth of the SMME economy is being nurtured by the demise in the labour absorptive capacity of the formal economy on the one hand, and the break-up of formal enterprises and the displacement of formal factory jobs by the growth of unregistered plants and home-based work on the other hand.

The net consequence of these divergent processes is that the SMME economy has become stratified and that entrepreneur status can no longer be given to all SMME participants (Horn, 1995, p. 35). Although some SMMEs have grown into micro enterprises and formal SMEs, the majority are likely to remain poor. Indeed, SMME participants become trapped in casual jobs within the structures of the dominant formal capitalist economy. Forms of casual work include short-term wage work, disguised wage work (e.g. com-mission sellers and home workers) and dependent work (common among street traders, their dependency being based on credit relationships). The majority of the population working in SMMEs are unlikely ever to escape the struggle for a meagre survival, 'constrained by a number of factors which constantly reinforce their position at the bottom of the pile' (Horn, 1995, p. 35). Worst affected are women, because they are constrained by patriarchy and the responsibilities of child care which limit their capacity to pursue training and develop their skills. The inevitable consequence is the feminization of the lowest and worst paid echelons of SMME work, namely survivalist enterprise.

The key constraints facing the different segments of the SMME economy have been extensively investigated across both urban and rural areas of South Africa (see Preston-Whyte and Rogerson, 1991; World Bank, 1993; Kirsten, 1995; Rogerson, 1996a, 1996b, 1998a; Rogerson and Reid, 1997). Initially, emphasis was placed upon the negative impact of narrow regulations on the growth of SMMEs. Hence it was suggested that government's role in promoting SMMEs should be minimized to

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the enactment of measures for deregulating the economy. Nevertheless, legal restrictions are no longer the major impediment to SMME development in South Africa (World Bank, 1993; Rogerson, 1996a, 1998a).

Other analysts locate the constraints on SMMEs in the broader historical, political and economic circumstances of South Africa. According to these analysts, discriminatory apartheid legislation and South Africa's concentrated economic structure were major contributors to the limited development of SMMEs (Manning, 1996). Supporters of this view hold that the demise of apartheid was insufficient to fully develop SMMEs. Therefore, a mix of policies is demanded. The policies should address, inter alia, access to finance and credit; inadequate business infrastructure and service provision; inadequacies in the content and delivery of training; distortions produced by urban land markets, the fragmentation of cities and the strict separation of land use and racial groups; and competition from existing formal enterprise, market inaccessibility and the historical underdevelopment of business procurement and subcontracting linkages between large enterprise and the SMME sector (see Rogerson, 1995, 1996a, 1996b, 1998a).

New research by Manning (1996) stresses that an aggressive SMME policy should additionally address 'competition policy' as an important explanation for the underrepresentation of SMMEs in the mainstream economy. According to Manning (1996, p. 244), the successful upgrading of SMMEs into the mainstream economy

requires the implementation of policy at a range of levels; micro-level policies targeted directly at enhancing small-firm capacity; sector wide policies aimed at improving the performance of all enterprises in a sector; competition-type policies aimed at heightening the level of competition in the South African economy; as well as macroeconomic policies addressing the uncontrolled supply of credit to consumers.

Finally, in dealing with constraints, several observers point to a need for policies and programmes to deal with the specific environmental constraints that relegate women to the poorest niches in the SMME economy (Horn, 1995; Valodia, 1996). What is required, it is argued, is an integrated policy framework which takes into account the factors which force women to participate largely in survivalist enterprises (SEWU, 1995, 1996). Therefore, intervention programmes should aim at organizing and regulating informal workers, redesigning social security systems and extending workplace child care (SEWU, 1995).

New Programmes, Institutions and Policy Initiatives

In this section the focus is upon analysing new government programmes, institutions and policy initiatives for improving the SMME economy. First the objectives of SMME development programmes are defined and then the new institutional structures for support are identified and analysed.

Objectives for SMME Development Programmes

The broad development objectives for the SMME sector in South Africa can be gleaned from a number of official policy statements (South Africa, 1995a, 1995b). The key national objectives are set forth in the White Paper of the Department of Trade and Industry (DTI) on a National Strategy for the Development and Promotion of Small Business in South Africa (South Africa, 1995a). This document provides the context for the more specific objectives for the urban and rural SMME sector which were laid down in the discussion papers on urban and rural development respectively (South Africa, 1995b, 1995c) and their mast recent revisions (South Africa, 1997a, 1997b). Moreover, the DTI White Paper furnishes guidelines and a context for provincial SMME development planning throughout South Africa.

The White Paper on Small Business sets forth the national objectives for the SMME sector in South Africa (South Africa, 1995a, pp. 15-16). The primary objective is

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'to create an enabling environment' for SMME development in terms of national, regional and local policy frameworks. In addition to this basic objective, several more specific policy objectives are identified. The first of these is 'to facilitate the greater equalisation of income, wealth and economic opportunities' which is inseparable from

a strengthening of the labour-absorptive process in the micro-enterprise and survivalist segments, the redressing of discrimination with respect to blacks as well as women's access to economic opportunities, and the facilitation of growth in black and small enterprises in rural areas.

The second objective is to create long-term jobs which demands policy interventions designed to upgrade human resource skills and to strengthen the use of appropriate modern technologies. The third objective is to stimulate economic growth through addressing the obstacles and constraints that prevent SMMEs from contributing to overall growth. The fourth objective is to strengthen the cohesion between SMMEs in order to overcome their isolation. This could be done by promoting SMMEs networking with a view to building collective efficiency, addressing development obstacles and taking up opportunities. The fifth objective is to level the playing fields both between large enterprises and SMMEs and between rural and urban businesses. The sixth objective is to enhance the capacity of small business to comply with the challenges of an internationally competitive economy.

These objectives and the associated programmes as set down in the DTI White Paper relate generally to the SMME sector as a whole. In the Discussion Paper on Rural Development and in provincial SMME planning certain more specific objectives relating to rural SMMEs may be recognized. The Discussion Paper on Rural Development draws particular attention to the need to address the disempowerment of 'the most marginalized groups', in particular of women and rural entrepreneurs (South Africa, 1995b, p. 25). Of particular importance is the need to stimulate the capacity of rural entrepreneurs to move beyond survivalist enterprise. In other words, a core objective in developing the rural SMME economy is to eradicate poverty by correcting the inordinate proportion of survivalist enterprises (Rogerson and Reid, 1997).

An important set of concerns relating to the national SMME policy relates to potential problems that arise from the policy's internal contradictions and diverse objectives towards national SMME promotion (Manning, 1996). It is evident that the national government views SMMEs as key instruments for employment generation, income redistribution and the enhancement of competitiveness, particularly of small-scale manufacturing operations. As Manning (1996, p. 68) observes,

[n)ot only are these very divergent policy objectives, but the policy instruments required to effect them are equally divergent (ranging from technology support, R & D support, to literacy and numeracy training, and access to basic information.

Whilst it must be acknowledged that each of these policy objectives are valid and critical for poverty eradication and inequality reduction, 'policy-makers necessarily have to impose a hierarchy of importance upon them, in order to decide on the distribution of resources' (Manning, 1996, p. 68). Indeed, Manning (op, cit.) states that trade-offs that policy-makers are obliged to make raise the dilemma of which

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policy objectives are privileged over others. Do employment creation programmes take precedence over competitiveness-enhancing programmes? Or are programmes aimed at facilitating black economic empowerment privileged in resource allocation.

Different approaches appear to have been suggested to resolve the internal contradictions in government SMME policy. According to the World Bank (1993, p. 31), 'achieving dynamic growth in employment is not as critical as improving the contribution that these businesses make to household income and welfare'. By contrast, the White Paper on Small Business suggests that 'small business policies will for a considerable time also have to focus on the particular needs of black enterprises and ways to overcome the remaining consequences of that (apartheid) legacy' (South Africa, 1995a, p. 13). As Manning (1996, p. 68) observes, it remains 'unclear haw government will resolve this dilemma' and that, ultimately, it will be 'the pattern of distribution of departmental resources that will reveal the trade-offs that have been made'.

Key personnel involved in policy formulation and implementation con-cede that the national SMME programme does have multiple and conflicting goals and that choices have to be made clear in order to highlight the foci and directions of the national SMME support initiatives (Block, 1997). As yet, however, it is �too early' to discern which of the programme objectives are taking precedence in fund and support allocation (Bloch, 1997).

New Institutional Structures

After the enactment of the national White Paper on Small Business, the DTI began to build new institutional infrastructure to service the needs of the SMME economy (Manning, 1996, p. 236). The vision for SMME development was to integrate small business into the heart of South African economic life. Internationally, it was recognized that the common thread that runs through success stories of SMME development was the critical role played by support agencies and institutions, whether these be driven by government, the private sector or NGOs. A new national framework for SMME development in South Africa was therefore developed and linked to key intervention programmes targeted at supporting the national objectives for SMME development. The intervention programmes involved the introduction of new programmes for SMME promotion and the restructuring of existing programmes to more effectively embrace SMMEs.

As a result, a new institutional infrastructure has been created for urban and rural SMMEs. The key actors are (1) Ntsika Enterprise Promotion Agency, (2) Khula Enterprise Finance and Khula Credit Guarantee, (3) the National Small Business Council, and (4) Provincial SMME Desks (South Africa, 1995a).

Ntsika Enterprise Promotion Agency (Ntsika) was initiated by the DTI specifically to implement the national SMME strategy. As 'the implementation agency for all non-financial entrepreneurial services', Ntsika was to 'facilitate and act as a wholesaler of delivery programmes to support SMMEs in South Africa' (De V Graaff, 1996, p. 7). Ntsika is committed to developing a 'thriving and vibrant SMME sector' and ensuring

that small businesses are no longer conned to the margins of the economy and through its intervention create an environment for important sectors of South African society, for example black people, women, rural, youth and the less able, to be empowered to play an important role in the economic growth of South Africa.

An important unit of Ntsika is Business Development Services (BuDS) which was set up in April 1995 to co-ordinate the evolution and development of the network of local business service centres (LBSCs). The stated mission of BuDS is 'to enable all existing and would-be entrepreneurs in Small, Micro and Medium-sized

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enterprises to have access to high quality business support services'. In addition to its work with LBSCs, BuDS is developing a number of manufacturing advice centres (MACs) and setting up an information and networking programme to link LBSCs and MACs and provide them with access to information.

Whereas Ntsika's activities focus upon furnishing non-financial support to SMMEs through intermediary organizations, the central activity of Khula Enterprise Finance is to facilitate and expand access to finance for SMME development. As the national wholesale funding facility, Khula provides loans, grants and guarantees for retail banking institutions servicing the SMME market. In common with Ntsika, Khula works through intermediary organizations, such as banks and NGOs (Hoffman,1997), and its operations are premised on 'commercially sound business principles' (De V Graaff, 1996, p.10).

The National Small Business Council (NSBC) is an autonomous body led by the private sector. It comprises representatives of small business associations and business chambers. The raison d'être of the NSBC is 'to sanction the national small business support framework and provide a sounding board for small business interests and concerns' (SQW and Ntsika, 1997, p. 8). More specifically, the NSBC's objectives are (1) to promote the interests of the SMME sector at national, provincial and local levels, (2) develop recommendations for national and provincial economic policies affecting SMMEs, (3) play a pro-active role in shaping and responding to strategies developed by national and provincial governments, and (4) submit recommendations to government regarding existing and proposed legislative procedures (De V Graaff, 1996, p. 6).

Finally, in each of the nine provinces an SMME desk has been established with the goal of providing 'a one-stop information unit, which would speed-up and simplify communication channels with government' (SQW and Ntsika, 1997, p. 8). These SMME desks are to ca-ordinate SMME support programmes and activities at the provincial level. It is emphasized that because a strong partnership between provincial SMME desks and local LBSCs is crucial in addressing the needs of the SMME sector in South Africa, the provincial government has a pivotal role to play in SMME development. Provincial planning for SMME development is geared to translating the national policy guidelines and adjusting them to local circumstances. Nevertheless, SMME policy development currently differs markedly between the provinces, with some (such as Mpumalanga) well-advanced in their SMME policy development, while others (such. as North West) are lagging far behind.

A range of other institutional actors also play a role in SMME development in urban and rural areas. Most important is, perhaps, local government (Rogerson, 1998b). As part of the shift towards a more profound develop mental approach to local government, a number of South African municipalities have taken steps to support the SMME economy, notably survivalist enterprises such as hawking enterprises or spazas. The establishment of formal and periodic markets, land use zoning and infrastructure provision, among others, are key areas of local government intervention which impacts positively upon the workings of survivalist enterprises (Market Society, 1997; Rogerson, 1996c, 1998a). Another important sphere of local govern-ment intervention towards poverty alleviation is urban agriculture (May and Rogerson, 1995; Rogerson,1996d, 1998c).

It is evident that a new institutional infrastructure for SMME development programming in post-apartheid South Africa is in place. The road of transition has not been smooth. Indeed, in launching the programmes proposed in the White Paper, national government underestimated several vital institutional issues (Bloch, 1997). First, it underestimated the problems of establishing new support institutions for small business development; in particular, there have been a number of problems in the early development and operations of Ntsika. More dramatic was the collapse during 1998 of the National Small Business Council as a

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result of financial irregularities and mismanagement (Steven, 1998a). Second, national government underestimated the capacity of the new support institutions to establish and implement new and ambitious policy initiatives. Lastly, national government underestimated the capacity of the existing NGO network to become involved in financial and non-financial support programmes for SMMEs (Block, 1997). Such institutional constraints provide an important backcloth to examining SMME initiatives.

New SMME Programmes for Reconstruction

Several observers point out that the total budgetary allocation for upgrading the SMME sector is relatively meagre; recent figures point to an allocation of R80 million for SMME upgrading, representing only a 2.2% share of the total annual DTI budget (Valodia, 1996; Hoffman, 1997). Manning (1996, p. 70) regards this as 'miniscule in comparison with programmes targeted at larger enterprises'. However, DTI funds have increasingly been channelled into SMME support since the phasing out in 1997 of the General Export Incentive Scheme. The call for a change in the budgetary allocation further needs to be seen against the initial 1995-96 allocation which amounted to R30 per SMME participant. If this calculation is correct, it suggests that the budgetary allocation for SMME programmes need to be re-adjusted upwards (Manning, 1996; Valodia, 1996; Hoffman, 1997).

Through the activities of Ntsika and Khula, important SMME initiatives have been launched. The essential thrust in these initiatives is towards establishing an infrastructure of decentralised or localised support service centres that both furnish SMMEs with a range of 'real' and appropriate ser-vices and have credibility in the eyes of relevant stakeholders. Amongst these initiatives the most advanced are those concerning the establishment of networks of LBSCs, manufacturing advice centres (MACS) and programmes to expand access to finance. Other Ntsika initiatives encompass the enhancement of business linkages and entrepreneurial training.

Local Business Service Centres

At the heart of the programmatic interventions by Ntsika is the establishment and accreditation of a network of local business service centres (LBSCs). Broadly stated, an LBSC is an accredited organization which delivers non-financial business support and services to small and micro enterprises. In addition, LBSCs are 'community based partnerships whose target markets are viable and potentially viable micro and small enterprises'. As Bukula (1997, p. 25) remarks, the LBSCs 'constitute the Department of Trade and Industry's most critical intervention for SMME service delivery at local level'. Officially, the national grid of LBSCs is described as 'the most important vehicle for SMME support in the near future'. As the value of a national network of quality service providers to the SMME economy has been considered important since the foundation of Ntsika, the LBSC programme 'has become something of a flagship for the organisation, representing a practical demonstration of the partnerships that can be formed between government, the private sector and local communities' (Ntsika, 1998, p. 4).

Three points must be stressed regarding the emerging network of LBSCs. First, that the accredited LBSCs provide the first tier of generic services to SMMEs, namely business information, general business manage ment advice and counselling, aftercare, and networking with other business support services (Ntsika, 1998). In addition, the accredited LBSCs are expected to develop other projects and services in response to local needs and in this sense are conceptualized as 'local enterprise partnerships' for co-opting local and provincial government and the private sector to support the SMME economy. Second, the LBSC network is seen as a unique generator of mutual assistance and information on best practices. Moreover, as a network of locally based organizations, it is expected to retain a responsiveness to local issues. Lastly, accreditation is aimed at furnishing LBSCs with a mark of quality, which can be withdrawn when an

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LBSC does not comply with set standards (Francis, 1996). Accreditation is furthermore a barrier to the formation of 'ghost' organizations seeking access to government funding through the LBSC programme (Francis, 1996; Ntsika, 1998).

The planned national network of LBSCs is therefore to deliver essential business support and core services including training, information, advice and counselling to SMME entrepreneurs (South Africa; 1995a, p. 45). Special provision is to be made in the programme for assisting rural communities to develop their LBSCs and for supporting existing organizations to work with potential LBSCs in rural areas (BuDS, 1995, p. 8). The LBSCs are to provide key inputs to the development of urban and rural SMMEs, namely information/advice on markets and training. Overall, the goals of the LBSC network are to �ensure that SMMEs in all corners of South Africa are able to access non-financial support' (SQW and Ntsika, 1997, p. 8). In the first (1996) round of accreditation, 27 organizations were accredited as official LBSCs (15 full accreditation, 12 partial accreditation), a status that qualified them for block financial grants (Francis, 1996). During the second (1998) round of accreditation, 19 of the initial LBSCs were re-accredited and 13 new organizations received LBSC status. Thus, by 1998 there were 32 functioning LBSCs, the majority of which were located in the Western Cape, Eastern Cape and KwaZulu-Natal (Ntsika, 1998). Remarkably, as the national economic heartland and major locus or incubator for small enter-prises, Gauteng had only two LBSCs in 1998.

The first assessments of the functioning LBSCs reveal a diverse range of experiences (Ntsika, 1998). Based on several interviews with functioning LBSCs, it can be conceded that the activities of most LBSCs do contribute towards the eradication of poverty as well as the reduction of racial economic inequalities. Admittedly, in line with the overall focus on viable micro enterprise, some LBSCs mainly deal with the more established SMMEs and often focus on manufacturers (Makgatho, 1997; Mashango, 1997). The LBSC in Johannesburg does not deal with hawkers or spaza operators because it focuses on developing business linkages with larger enterprises; its major clients are building contractors, manufacturers, providers of services (security, cleaning), and export-impart operations (Makgatho, 1997). LBSCs do not neglect women clients but they focus on women entrepreneurs who are well established in such activities as clothing manufacture. Even in small town LBSCs with a rural hinterland, the accent can also be on manufacturing as is illustrated by the LBSC in the former KwaNdebele which primarily services industrialists (mainly providing clashing, sheet metal and bricks) partially 'because that's what we want to do' and, more importantly, perhaps because of the perceived high potential for job creation in manufacturing (Mashango, 1997). Although these LBSCs focus primarily on the more established SMMEs, their activities do address the eradication of poverty, For example, the Johannesburg LBSC approaches informal settlement areas to assist fledgeling backyard entrepreneurs, and the Kwaggafontein LBSC seeks to support all types of enterprise, including survivalist hawker or spaza activities.

A focus on poverty eradication in and economic empowerment of historically disadvantaged communities characterizes most of the interviewed LBSCs. In Plettenberg Bay, given the absence of any successful black or coloured-owned businesses, the local LBSC is by definition primarily dealing with the needs of the poor (Clyde-Wiggins, 1997). Indeed, it was emphasized that whilst all types of SMMEs were assisted, the survivalists were 'very much a target group' (Clyde-Wiggins, 1997). At Empangeni the LBSC catered for emerging construction,

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tourism and manufacturing as well as survivalist enterprises. Indeed, the Empangeni LBSC has a distinguished record of providing financial support and lobbying support for the operations of local hawkers (Morrison, 1997).

The LBSC in Soweto largely deals with a clientele which has 75% women, who mostly participate in survivalist enterprises (Matele, 1997). The geographical hinterland of this LBSC is the townships of Soweto, nearby Kagiso and the informal shacklands of Orange Farm; typically, its client base constitutes hawkers, sewers, knitters and coal suppliers. At Port Elizabeth, the local LBSC supports small entrepreneurs and the unemployed, dealing with both more established micro enterprise and survivalist enterprise (Reed, 1997). At this particular LBSC, women were described as the main clients because 'women have the greatest need for training' (Reed, 1997).

Potential problems or policy blockages were identified in terms of the network and operations of the existing LBSCs. First, the training programmes of several of the LBSCs perpetuate women's concentration in sewing, dressmaking and knitting. Second, some of the LBSCs experience problems of financing and, more acutely, of shortages of manpower to deal with the daily volume of clients. Third, in small town LBSCs the outreach into rural areas is sometimes inadequate. For example, in a detailed study of the Lydenburg LBSC, it was concluded that �in the context of the funding mechanism, LBSCs are not reaching out to rural SMMEs' as they have no incentive to do so (SQW and Ntsika, 1997, p. 20). Given the difficulties and costs of reaching out to rural SMME entrepreneurs, it is evident that LBSCs will not achieve the goals of rural SMME development unless funds are specifically dedicated to rural SMME development (Rogerson and Reid, 1997). Fourth, linkages between LBSCs and local government and local economic development initiatives are mostly weak (Rogerson, 1998b); one observer even viewed the operations of local government as the 'missing element' in the unfolding LBSC programme (Francis, 1996). Fifth, there is a need to link LBSCs and their non-financial support services to the extension of financial support for SMMEs; in particular, in many of the LBSCs outside metrapolitan areas the demand for LBSC services is restricted by the absence of NGOs operating in the financial sphere (Clyde-Wiggins, 1997; Mashango, 1997; Morrison, 1997). Finally, the existing network of 32 LBSCs is presently too sparse and must be extended geographically, particularly into those parts of South Africa which are currently not reached by the services of an existing LBSC. Areas that are especially in need of LBSCs are rural areas in general, and the Northern Cape and North West in particular.

Manufacturing Advice Centres

The initiation of manufacturing advice centres (MACS) was inspired by Denmark's highly successful experience of SMME support. The MAC network's complementary to the LBSC network. Initially the planning focused on the development of a network of decentralized manufacturing technology centres (MTCs) (BuDs, 1996). These were aimed 'at improving the growth and competitiveness of small manufacturing enterprises via the provision of technological and business services' (BuDs, 1996, p. 4). Subsequently, the MTCs were transformed into MACs 'to service the needs of small manufacturing enterprises'. The MACs also rendered 'specialist forms of support aimed at providing targeted, sector specific assistance to small manufacturing firms and to enable the development of manufacturing firms from the disadvantaged communities'. It is argued that the MACs will assist South African manufacturing SMMEs to achieve a degree of production flexibility that derives from access to best practice technology, management expertise and the capacity to identify and meet the needs of new markets.

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The MAC programme is to diagnose the problems of manufacturing SMMEs and to provide techno-managerial support to them (Block, 1997). MAC are to be designed and established to focus on a particular industry sector or sectors. Collaboration and co-operation between industry sectors in the formation of a regional MAC will be encouraged and supported by BuDs. The programme essentially rests on two premises. First, that most support services offered to South African SMMEs concentrate on general business development rather than on the specialist needs of manufacturing SMMEs. The second premise of this programme is a recognition that there is substantial technical capacity in South Africa 'but that this capacity has thus far been utilised exclusively for big business' (Manning, 1996, p. 237). Significantly, the MAC programme is to be a 'national partnership initiative' between Ntsika and other state-supported institutions, including the Council for Scientific and Industrial Research (CSIR) and the National Productivity Institute (NPI) (Bloch, 1997).

Overall, MACs will largely serve growth objectives through strengthening the competitiveness of more established SMMEs; the programme's mandate is to help 'small to medium-sized firms become more productive, more competitive and more profitable'. More specifically, the two pilot MACs in Durban and Port Elizabeth are to serve as regional centres to improve the competitive performance of small manufacturers by offering a co-ordinated outreach programme of assistance which includes advisory services, technical support, information support and assistance to SMMEs in coping with quality standards. Through Ntsika, the MAC programme will be linked to other SMME initiatives, such as the LBSCs and the business linkage programmes. The assessments of the pilot MACs show promising results (Steven, 1998b). The MAC programme is to be expanded to other regions after an evaluation of the pilot schemes.

Improving Access to Finance

As noted above, access to finance is one of the core constraints on developing South Africa's SMME economy. Central responsibility for expanding access to finance is carried by Khula Enterprise Finance and Khula Credit Guarantee which were established in 1995 as a result of the DTI White Paper on Small Business.

Khula offers two types of financing schemes to retail financial intermediaries (RFIs) such as 'provincial development corporations, commercial banks or non-governmental organizations, provided that they are financially sound, have the capacity, and are committed to serving the SMME sector' (De V Graaff, 1996, p. 10). In practice, Khula operates primarily through NGOs (Hoffman, 1997). The two types of finance scheme offered to RFIs are loan schemes and grant schemes. The lending capacity and experience of RFIs are decisive factors. Grant schemes are offered to new RFIs, particularly those NGOs serving 'the most difficult segment of the SMME markets' (De V Graaff, 1996, p. 11). Indeed, Khula supplies seed capital to its lending NGOs until they achieve a level of sustainability; if certain conditions are fulfilled and targets attained the seed capital is turned into a grant. In addition to seed capital, Khula also offers an extensive loan capital facility which operates at a subsidized rate of interest (which is below prime). The Khula lending programme has only been in operation since January 1997. At inception it focused upon working through existing clients. In order to extend and deepen its lending operations Khula is exploring the potential for developing a framework and facility for lending to private sector institutions (Hoffman, 1997).

To ensure the long-term financial viability of the programme, RFIs 'are assessed, approved and monitored (De V Graaff, 1996, p. 10). However, Khula officials concede that the number of loans that have been made to NGOs has been insufficient to give the SMME community in South Africa access to finance (Hoffman, 1997). Moreover, coverage of the programme is geographically uneven. In addition, funding is biased in favour of the more established SMMEs. None the less, it must be acknowledged that Khula is acutely sensitive to poverty issues and takes pride in

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its evaluative performance and monitoring of gender and rural outreach issues (Hoffman, 1997). The core problem appears to be that 'there are simply not enough suitable NGOs' or other RFIs operating as intermediary lenders (Hoffman, 1997). Indeed, South Africa lacks a vibrant micro-enterprise finance industry that Khula could work with (Dorfling, 1997). Moreover, the existing distribution of financing NGOs introduces access biases. For instance, KwaZulu-Natal has few financial intermediaries, causing limited access to funding for SMMEs (Vaughan and Xaba, 1996; Morrison, 1997). Furthermore, rural areas and small towns pose special problems for financing SMME development (Baydas and Graham, 1996; Bukula, 1997; Mahabir, 1997; Mashango, 1997; Rogerson, 1998d). The challenge is to expand the availability of financing through encouraging existing NGOs to broaden their activities by creating new branches and to encourage the operations of suitable new RFIs, particularly in rural areas (Hoffman, 1997; Kirsten,1997).

In particular, for expanding finance access to survivalist enterprises, NGOs should be encouraged to function in the manner of the Small Enterprise Foundation (SEF), which uses a group-based lending scheme patterned very closely after the Grameen Bank of Bangladesh (Anwar et al., 1995; De Wet, 1997; Kirsten, 1997). Through its sound group-based credit scheme, SEF reaches rural poor women, a sector which is largely unnerved by other lending organizations (Anwar et al., 1995; Kirsten, 1997). In the Tzaneen area of the Northern Province, the SEF has a client base that is 96% women. Since its inception in 1992 the SEF has never had a bad debt (Anwar et al., 1995; De Wet, 1997).

SEF encourages its clients to form themselves into groups of five which are then combined into centres containing between 6-8 groups; first loans may not be larger than R300 per person, while the subsequent loan may not exceed R1,200 (Anwar et al., 1995). SEF is a classic example of an NGO which contributes to poverty eradication as it 'likes to concentrate its efforts on reaching down amongst the poorest in its operating area' (Anwar et al., 1995, p. 2). Some observers, however, caution against such financing depending on only certain segments of the poor (Kirsten, 1997).

One programme that has been introduced by Khula to deepen the reach of and broaden access to finance throughout South Africa is the establishment of the Khula Credit Guarantee facility. It was aimed at encouraging the network of commercial banks to function in the area of SMME financing by reducing their risks. Clearly such a programme will be of greater use for the more established formal SMMEs or some larger micro enterprises than for survivalist enterprises (Hoffman, 1997). To counter this effect, Khula launched a campaign to change the traditional reticence towards funding in the high-risk area of survivalist enterprises. However, the commercial banks did not respond positively (Dorfling, 1997). First, many banks appear not at all seriously committed to the business of SMME financing (Hoffman, 1997). Second, the head offices of banks do not always transmit the details of the credit guarantee programme to the branches that service rural areas and small towns, where the need to access finance is greatest.

Other Initiatives

Lastly, in cataloguing the operational activities of Ntsika and Khula, brief mention must be made of a range of other programmes for SMME development which are at various stages of implementation. Of potential significance on a long-term basis for upgrading the SMME economy is the enactment of new initiatives to enhance the access of SMMEs to both government and large private sector

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procurement/linkage programmes (Ntsika, 1996; Bloch, 1997). In terms of private sector linkages, Ntsika has launched a marketing and business linkages division to facilitate national and international increase and expansion of markets for SMME goods and services.

The issue of public procurement is particularly crucial in light of inter-national experience (Tendler and Amorim, 1996) which suggests that 'public procurement policy represents a powerful instrument which governments could use to stimulate inter-firm collaboration' (Manning, 1996, p. 240). In many parts of South Africa, especially in urban townships and rural areas, the government's new guidelines for public procurement promise growth opportunities for emerging entrepreneurs (Rogerson, 1997). The Green Paper on Procurement Reform (South Africa, 1997c) offers a 10-point plan towards improving the access of emerging SMMEs to public sector procurement and introduces an affirmative SMME programme. The programme addresses the simplification of tender procedures, the packaging of tenders into suitably sized segments to target SMMEs, the setting of appropriate standards, delivery dates and contractual obligations, and price preference for targeted SMMEs (South Africa, 1997c). Another related policy initiative is the establishment of several tender advice centres that provide information about tenders, tender advice and counselling to emerging SMMEs (Ntsika, 1997b). The early workings of the new procurement programme, however, suggest several blockages to changes in the existing patterns of public procurement. For instance, although national government is committed to changing the rules and operations of public procurement, its executing arm in the area of procurement in the Gauteng and Free State tender boards has not been doing enough to open up opportunities for emerging entrepreneurs (Rogerson and Reid, 1997; Bukula et al., 1998). Indeed, Bukula et al. (1998) argue that many old attitudes and problems in the tender system prevent the flow of procurement contracts to emerging SMMEs.

Another Ntsika programme that is likely to contribute towards redress-ing poverty, albeit an a longer-term horizon, relates to entrepreneur training (Block, 1997). Of special note is the 'technopreneur project' targeted at training the unemployed, retrenched, those employed with low-level skills (operators, shop cleaners), drop-outs from the formal education and training system, school leavers and students (Anon, 1997). The technopreneur initiative, which was launched at Atteridgeville College near Pretoria in 1997, is an important contribution to attaining the objectives of broadening the ownership base of the South African economy.

Concluding Comments

The aim in this chapter was to survey the emerging new policy directions and SMME support infrastructure that have been established by South Africa's first democratic national government. By acknowledging the problems that surfaced in the new policy frameworks and institutional structures, a means has been created to adapt and change these frameworks and structures over the next decade.

The most important shortcoming in support infrastructure is perhaps the bias towards a supply-side approach to SMME support (Rogerson, 1998b). The supply-side approach is based on identifying specific needs of and constraints on SMME development and on initiating programmes to over-come these constraints. International experience (Tendler and Amorim, 1996) points to the need apply a demand-driven approach to SMME support. The latter approach is an explicity problem-driven approach to the delivery of support services which focuses on the specific needs of different clusters or sectors of enterprises rather than on the provision of generic packages of assistance (Tendler and Amorim, 1996). The introduction of the MAC programme represents the first step towards the demand-driven approach in South Africa.

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In the final analysis, however, South Africa's new SMME policy and support infrastructure marks a decisive break with the apartheid past. More-over, the new infrastructure affords an important base for achieving several of the core national objectives of reconstruction and development.

Acknowledgement

Thanks are offered to all the interviewees (especially Robin Bloch) and to Claudia Manning, An earlier version of this chapter was prepared for the National Project on Poverty and Inequality.

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10 Economic Restructuring and Local Economic Development in South Africa

ETIENNE NEL

Introduction

South Africa's return to the global economy in the 1990s has exposed our society and space economy to the twin forces of globalism and localism. The simultaneous democratization of our society has sanctioned previously unknown levels of public participation in planning and development. One of the most obvious manifestations of these changes is the rise in prominence of the concept known as 'local economic development' or LED. Although LED is difficult concept to define, LED-type ideas are now enshrined in the national constitution and various important policy documents in South Africa, including the Reconstruction and Development Programme (RDP) and the Local Government White Paper. Hence LED is progressively featuring in the actions of community and non-governmental organizations and in the sanctioning and support of LED by provincial and national government. This chapter commences with an examination of the significance of globalism and, more especially, the parallel process of localism as it manifests in the South African space economy and through the rise of LED. Attention then turns to a tentative definition of LED in the South African context, before proceeding to an examination of its manifestation within local job creation projects through to local infrastructural provision.

Globalism and Localism

Globalism has been relentlessly on the march, particularly after the 'historical divide' of the 1970s (Martin,1988). Together with the associated ever expanding hold of multi-national corporations, Americanization and gradual cultural homogenization, globalism has come to affect all nations on earth to a greater or lesser degree. However, whilst the nation of national borders has become more fluid, in many instances the nation of the 'localness' of social, class and employment issues and conflicts has drawn increased support (Massey, 1991). Massey's 1984/1994 identification of the social and economic uniqueness of places in the 'spatial division of labour' is a useful means to understanding the increase in locally distinct, independent action by towns and cities as they compete for investment and a place in the globalizing economy, This reality has provoked what Urry (1990, p. 187) terms a 'resurgence of interest in the study of developments that appear to have heightened local differences and the symbolization of such differences'. However, Clarke (1993, p. 1), in her terse summary of the situation, also stresses the similarities:

Global economic change processes generally transcend spatial scale, yet in some instances are very sensitive to local contextual factors, including state actions, Recent evidence of intensified economic and political demands on localities and increased local development initiatives hints at a new local terrain with unexpected commonalities.

The identification of new 'industrial space' and the aggressive competition for multi-national investment between localities run parallel with the rise of 'high-tech' corridors and the notion of urban entrepreneurialism in the North (Healey and Ilbery, 1990). In the South, which is suffering under the yoke of debts and related structural adjustment crises, the quest for greater self-reliance and 'bottom-up' development has become obvious (Gooneratne and Mbilinyi, 1992; Taylor and Mackenzie, 1992).

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In response to these tendencies an impressive literature on 'localities' and LED, as it manifests in such localities, is emerging. For instance, Castell has investigated urban social movements (Syrett, 1995) and Cooke (1989), Feiock (1991) and Massey (1994) have explored the importance of local development activity.

Localities, and the social relations within them are unique. So are their responses to crises and opportunities and their human and physical resources. Acknowledging this uniqueness and using it to good effect is a recipe for attracting economic activity. The success of global cities such as Tokyo, London and New York is a case in point. In South Africa, the recent transition to democracy has encouraged local autonomy and independence. Although few local areas have taken advantage of the new approach, the stage appears to be set for South African 'localities' to become more assertive both nationally and locally.

It is within the 'locality' that new forms of economic development and job creation are being experimented with. Such action is naturally mediated by the local skills, resources, vision and opportunities unique to each area. The next section examines what LED is and what some of its key features are.

Local Economic Development

The economic crises of the 1970s and the move to a post-industrial society in many countries in the North overlapped with the rationalization of the state's role and its partial withdrawal from direct economic intervention. As a direct result, local development strategies, including the marketing of the locality and the enhancement of industrial attraction, became vital for coping with de-industrialization and other forms of economic hardship. However, these strategies were also employed to further promote already prosperous localities, such as Silicon Valley. In the countries of the South, economic crises coupled with the effects of structural adjustment obliged communities to look inward at their own unique resources and skills in a quest to ensure 'self-reliance', Collectively, these approaches are known as 'local economic development' or LED (Nel, 1994, 1998).

Although there is no universally accepted definition of LED, international experience and literature provide a range of guidelines as to its key components. According to Bennett (1990, p. 222) LED refers to 'subnational action, usually substate and subregional, taking place within the context of the local labour market'. Nel (1995, p. 2) builds on that definition in his description of LED as 'an applied economic development strategy which seeks to address site-specific needs through locally appropriate solutions'. Such action is not the preserve of a single agency. Rather, successful LED depends on the formation of partnerships between key local stakeholders, preferably comprising local authorities, local business, community leaders and non-governmental organizations. External agencies such as higher tiers of government and external organizations also have a role to play, on condition that they do not suppress local initiative and resourcefulness. In numerous countries and in the case of the European Union's LEDA programme, LED facilitators assist and advise local communities, amongst others to access state funds and obtain tax relief (Ferguson, 1992),

LED reveals significant international variations, ranging from aggressive 'urban entrepreneurialism' which characterizes the cities of North America in their quest for investment, to the local coping strategies of impoverished communities across the world. LED strategies range from job creation and public works programmes to municipal enterprise, small business support, infrastructural provision, and training and support for small-scale farming (Stöhr, 1990; Gooneratne and Mbilinyi, 1992; Clarke, 1993).

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LED is mediated in South Africa and elsewhere by local crises and opportunities. In cities, according to Rogerson (1997), LED can develop along four distinctive lines:

• cities as centres of production, i.e. the promotion of business and manufacturing,

• cities as centres of consumption, i.e. the promotion of leisure, tourism and recreation activities,

• cities as centres of information processing and decision making, i.e. corporate headquarters, high-technology and information industry, and

• cities as centres for government surplus, i.e. centres which seek government investment and functions to drive their local economies.

In order to attract these types of investment and development, cities offer what they perceive to be the unique advantages of their locality, usually backed up by illustrations of their infrastructural and service development. This approach is particularly noteworthy in European cities (Stöhr, 1990).

In smaller towns and rural communities, but also within cities, LED is often undertaken as a broad-based community initiative led by a local NGO or a key local leader such as the local priest or mayor (Stöhr, 1990; Ferguson, 1992). Activities tend to focus on developing local potential with the aid of local resources and skills, and promoting activity such as small-scale farming, micro businesses and tourism.

Local Economic Development in South Africa

LED was already practised to a degree by the larger South African cities in the early 1900s (Nel and Rogerson, 1995, 1996). In this phase LED was largely associated with attempts to attract industrial development, focusing on advertising, the provision of infrastructure and limited incentives. During the apartheid era, after the Second World War, the strategies of Keynesian state economic management and apartheid-based denial of self-expression to the majority in the country combined to suppress local initiatives and independent action such as LED (Nel, 1996). It was only in the era of late apartheid, in the late 1980s and early 1990s, that LED can truly be said to have been raised to prominence in the country. The first key example of this revival was the town of Stutterheim in the Eastern Cape, where community-based local development initiatives, based on local political reconciliation, laid the basis for identifying a new development logic (Nel, 1994). The projects focused on the provision of domestic services and urban infrastructure (roads, electricity, water and housing sites) for the disadvantaged section of the community. Small-scale employment projects in crafts, farming and various businesses were also encouraged.

Since the early 1990s interest in LED has blossomed. For instance, in 1994 the private sector think-tank, the Urban Foundation (now known as the Centre for Development and Enterprise), published a policy document which strongly reflected and advocated western LED experience. In 1995, SANCO (South African National Civic Organization, 1995) published their own strategy document which reflects community-based dimensions of LED. In 1996 the private sector body, the National Business Initiative, in collaboration with the then RDPministry, published a LED manual which argues for both community-orientated strategies and neo-liberal principles of independent entrepreneurial action (NBI, 1996). The government has also been actively engaged in policy development. Its role and position regarding LED is naturally of critical significance, since LED requires de facto legislative changes to operate, given the traditionally restrictive nature of local government

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legislation and a narrow interpretation of the powers of local government. LED principles and the notion of locally driven development parallel the RDPprinciples of community-based development.

In 1995 the government published its urban and rural development strategies (RSA, 1995a, b) and identified LED as the prime mechanism for job creation, empowerment and local development. A range of provincial documents placing emphasis on LED and LED training are starting to emerge. Other key policy or legal provisions which provide a basis for LED are:

the Constitution (RSA, 1996a) which obliges local government to engage in 'social and economic development',

• the Local Government Transition Act of 1993 and 1996 (RSA, 1993, 1996b),

• the Development Facilitation Act (RSA, 1995c),

• the Rural Development Framework (draft) (RSA, 1997), and

• the Local Government White Paper (RSA, 1998).

The principles contained in the White Paper were being translated into parliamentary bills at the time of writing. The White Paper is the mast important national document to date to set out a vision for LED in South Africa. However, this document only refers to LED as a local government strategy. Furthermore, although reference is made to the need to establish partnerships between key local stakeholders, provision has yet to be made to encourage and sanction non-local government versions of LED, which are detailed in the section below.

The White Paper introduces the concept of 'development local government', which departs from the traditional, limited focus of local government activity on service and infrastructure provision. 'development local government' is defined as 'local government committed to wanting with citizens and groups within the community to find ways to meet their social, economic and material needs and improve the quality of their lives' (RSA, 1998, p.17). Within this context local government should:

• maximize social development and economic growth � in order to meet basic needs, deliver services, invest locally, develop land and encourage investment so as to create the conditions for economic development, to provide basic household infrastructure and to pursue affirmative procurement policies,

• integrate and co-ordinate development � in other words provide leadership and vision to local role players and to establish sustainable and liveable settlements,

• democratize development, empower communities and redistribute resources � including service subsidies and support for community organizations,

• lead and learn.

• Specific aims of local government should be:

• to provide good basic services and to provide for cross-subsidization to support the poorest communities and to lever private sector investment,

• to create liveable, integrated cities, towns and rural areas through the promotion of spatial integration and sustainable environments,

• to simplify regulations and support local procurement policies, zoning, the speeding up of delivery, the provision of one-stop shop facilities, marketing and investment, small business, training, research and links with relevant role players in the local area (RSA, 1998).

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Local Economic Development in Practice in South Africa

The radical policy shifts detailed above have allowed greater personal freedom. This has directly aided local self-expression as evidenced in the rise of a range of locality-based initiatives. Globalism has also played a role as the large metropolitan areas are all seeking to market themselves on the global stage as places for international investment and leisure-related activities. Johannesburg and Pretoria's place marketing initiatives, Cape Town's Olympic bid and the building of the International Conference Centre in Durban all illustrate how, in an era of greater local freedom, local centres are confidently seeking investment and a role for themselves in the global community. There has also been a noticeable flourishing of locality-based development as evidenced in the activities of NGOs (non-govern-mental organizations), CBOs (community-based organizations), local governments, tourism promotion agencies and locality-based small business.

It needs to be borne in mind that a local economic crisis, for example de-industrialization (or the rationalization of industries as in South Africa), often acts as catalyst for LED. The establishment of the Free State Gold Fields Development Centre in Welkom to seek alternative employment is probably the best example of this type of reaction in South Africa (Van der Walt, 1998). In other areas the general shortage of jobs has provoked responses ranging from small business support to small-scale farming initiatives.

LED in South Africa occurs at a variety of levels and assumes widely differing characteristics. It is clearly more than the business and large city enterprises which traditionally characterized thinking on this topic. Apart from enterprises such as the business-orientated National Business Initiative, there is a plethora of, for instance, CBO and NGO initiatives in local areas which also promote social and economic upliftment.

Four variants of LED currently feature in South Africa (Nel, 1998):

(a) Formal local government initiatives � which parallel traditional western thinking and, to a large degree, overlap with government thinking on the topic as detailed in its Local Government White Paper.

(b) Community-based/small town initiatives which often develop as a result of NGO facilitation and support. Overlap with the government's Rural Development Framework (RSA, 1997) is evident.

(c) Section 21 development corporations � i.e. companies that promote local development within a selected spatial area, but 'not for gain'.

(d) 'Top-down' LED in which government, usually at the provincial level, and/or various national organizations attempt to catalyze and support local initiatives.

Many of the initiatives cited above are in their incipient phases and in many cases there is little in the way of tangible results. In the following section, key features of the above four categories are outlined and assessed.

Local government initiatives Even though the larger cities pursued a degree of LED throughout the apartheid era, largely in the form of place marketing and limited endeavours to attract investment, it is only in the last few years that such activity has increased dramatically. In tandem with the development endeavours in the larger cities there has been an increase in academic writing on the topic.

Rogerson (1995) has examined how Johannesburg has purposefully sought to 're-image' and promote itself as a 'global city' through various marketing strategies, extensive lead projects, infrastructural investment, property development and the promotion of the city through the use of its sporting facilities. In Durban, property-

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related development of the Point area and business tourism promotion through the International Conference Centre are key examples of LED in that city (Durban Metropolitan Council, 1996; Maharaj and Ramballi, 1998).

In Pretoria, the Metropolitan Economic Development Chief Directorate has been actively engaged in the promotion of business activity since 1996, particularly that of smaller firms, through information provision, networking and advice. There are also policies in place to involve disadvantaged communities, to promote the overall competitiveness of the city and to develop human resources and tourism (Pretoria Metropolitan Economic Development, 1997). Clearly, such strategies reflect the better resources, finances and personnel available in the larger centres.

The response of the city of Cape Town is particularly instructive as to how a local government has responded to the constitutional mandate regarding social and economic development. In 1997, an 'Economic and Social Development Directorate' was established at the metropolitan level to oversee, co-ordinate and assist the six metropolitan local councils in the Cape Town area. These councils focus on informal sector promotion, promotion of small and big business, tourism, business and RDPforums, job centres, local industrial parks, property development and development facilitation (Cape Town Metropolitan Council, 1997).

Although LED has drawn interest at the local government level, only the better-resourced, larger centres have gone beyond the planning phase and committed funds to the establishment of dedicated LED units and the pursuit of LED policies (LED News, 1996-1998). The lack of resources, the tenuous fiscal position and the shortage of skilled staff are all serious impediments to the successful pursuit of LED in smaller centres � an issue which may well require a degree of central or provincial government facilitation along the lines of the UK's partnership or enterprise zones policy (Healey and Ilbery, 1990).

Community-based/small town initiatives Whilst local governments operate within the constraints of various legislative acts which prescribe the activity in which they can engage and how they can utilize their funds, community-based organizations and non-governmental organizations can, operate on a far broader plain. Church or other socially responsible organizations active in destitute communities are usually the key change agents in local areas and the main proponents of LED-type activities. In all cases a measure of local partnership has helped to ensure the success of initiatives and the representation and participation of key stakeholders.

The best documented cases of small town LED include the cases of Kei Road, Seymour, Hertzog and Stutterheim (Nel, 1996). In the case of Kei Road, church intervention in a community scarred by apartheid-based removals, led, in the early 1990s, to a variety of community-based initiatives, including brick-making, bulk-buying and housing construction. one of the most innovative features was the way in which the church acted as a broker between a women's co-operative and large parastatals to secure lucrative sewing contracts (Nel, 1996). In Hertzog, a rural village in the former Ciskei, a CBO revived the area's economy through a community agricultural co-operative, independent of external support. This illustrates that, even the most marginalized communities have the potential to embark on self-reliance initiatives. In the town of Seymour (Nel, 1997), a well-intentioned NGO provided the necessary expertise and contacts with donor organizations to assist with LED. Stutterheim, which has already been discussed in the section 'Local economic development in South Africa', is arguably the best-known case of LED in the country.

Whilst LED at the micro level has yielded impressive results and operates in dozens of areas (NBI, 1996; LED News, 1996-1998), shortage of skills, the limited number of NGOs and resource constraints are all impediments to its wide-spread application.

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Section 21 development corporations In many parts of the country LED-type activities are overseen by Section 21 companies. Such companies usually have a strong business leaning and are active in the promotion of small entrepreneurs in particular. The institution of local business service centres as locality-based centres to promote small, medium and micro enterprise development is a case in point. The activities of the 'Beehive' in Lydenburg, the Stutterheim Development Foundation and COMSEC (the Community Self Employment Centre) in Port Elizabeth are good examples of well-resourced local-level organizations, usually based on a partnership between key local stakeholders, which have positively assisted literally hundreds of prospective entrepreneurs through advice, loan applications, training and the occasional provision of workspace (LED News, 1996-1998).

There is at least one regional development authority in South Africa, namely WESGRO in Cape Town. Like the Irish and Welsh Development Authorities in the British Isles, it is pro-active in local areas. It has become the de facto marketing, research and development arm for a range of local centres across the Western Cape. WESGRO has the potential to actively facilitate LED, and in so doing, could become a model for other parts of the country (Hein, 1998).

'Top-down' LED Although LED should, in principle, be locally driven and led, there are numerous examples around the world of limited 'top-down' support, direction and advice which have unlocked local potential and initiative (Stöhr, 1990). In South Africa, the most apparent equivalents exist in the provincial ministeries of Local Government and Economic Affairs. Strategies ranging from the provision of seed funds to training and consciousness raising regarding the potential of LED have been embarked on by a range of provincial governments. The most prominent areas in this regard are the Western and Eastern Cape, the Northern Province and Mpumulanga. The activities of the National Business Initiative, a development agency that assists in these provincial programmes, is particularly noteworthy (Nel, 1998).

Top-down LED could make a significant difference to local communities. Unfortunately there appears to be no commitment at this stage to long-term funding of projects and the employment of LED facilitators. The apparent success of the European Union (EU) Structural Fund and the positive role played by EU-funded development facilitators under the LEDA programme are noteworthy and could serve as a model for South African institutions committed to achieving long-term LED (Stöhr, 1990).

Critique

Although LED has become an established feature of the development scene South Africa, the number of LED projects is small. This can be attributed to serious resource and skills constraints, which are compounded by the lack of strategic guidance, facilitation and role models.

Despite the fact that the principles of LED accord with the notions of people-centred development embodied in documents such as the RDP, there is no established process to either support or fund community-based projects, and where such projects do exist, they are often forced to rely on external, usually foreign aid grants, as the LED endeavours in Seymour and Stutterheim illustrate. Moreover, in many instances the projects are of a temporary nature and depend on the availability and goodwill of an NGO to provide guidance and advice (Nel, 1996).

In terms of LED at the local government level, a range of other constraints will, for the foreseeable future, prevent the widespread application of the concepts embodied in the Local Government white Paper (RSA, 1998) in all but the larger, better equipped cities. One constraint relates to administrative issues. The current Local Government Transition Act (RSA, 1996b) prevents non-metropolitan areas

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from pursuing a broad range of activities. Simultaneously a plethora of local government ordinances rigidly control and often prohibit the raising of funds and expenditure on training and business. The situation is aggravated by constraints inherent within most local authorities, namely the near bankruptcy of many local governments, the shortage of skilled staff and the absence of any major organization to offer extension support and advice to local governments moving into the development field. In addition, political conflict and the reluctance of newly elected councillors to co-operate with the private sector and the latter to reciprocate hinder the formation of local partnerships. This also leads to a situation in which the responsibility for the economic development of the local area is not fully accepted by either partner. A last problem is the absence of clear guidance from higher authority and the fact that conflicting demands are being made on local government by other levels of authority. In the words of one local government, there are 'contradictions, conflicts and a lack of common purpose (which) occur between and within national and provincial government departments. These unconstructive tensions and the lack of unity resonate within local government' (Anon., 1997, p. 16).

Conclusion � The Way Forward

Despite the rather negative picture which has been painted above, the successes of LED in South Africa suggest that if the constraints can be addressed, LED endeavours can be significantly expanded. The key policy requirements for LED, if it is to succeed, are:

• LED policy must acknowledge and encourage the participation of a wide range of actors in the local economy. Current policy stresses the role of local government. The place and functions of the private sector, NGOs, CBOs, unions and more specifically of partnerships between key local stakeholders must be properly acknowledged and encouraged.

• A LED fund is necessary to 'kick start' development at the local level. In other countries tax rebates and start-up and training funds are available to either local governments or agencies active in the local development field.

• In smaller towns and rural areas a clear need exists for LED facilitators to encourage local initiative and leadership. Such leadership could either come from the provincial government or from institutions such as the National Business Initiative (see above), or it could be based on available pools of skill, such as universities (many USA universities provide extension support to the communities around them).

• The establishment of a formalized LED structure such as a LED Institute might go a long way to broadening the potential and scope of LED activities.

President Mandela announced at the 1998 Presidential Job Summit that ' [t]he government has had no illusions about the massive social problems that our new democracy has to deal with. We know too keenly that government alone cannot address these problems' (Mandela, 1998, p. 1). Given this acknowledgement and the blossoming of LED-type activity in recent decades in the North and the South, the solution to current difficulties with implementing LED in South Africa and a more widespread application of the procedure can be expected.

LED is a response to contemporary forces of globalism and localism. Local areas cannot but investigate their own resources and skills for promoting local

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development and find a unique place for themselves in the global village. In this context, the words of SANCO (1995, p. 1) are appropriate:

As a new era of administration dawns, new forms of development, appropriate to meeting the needs of the majority of the people and their economic and employment requirements, need to be embarked on.

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Bennett, R.J. (1990), Decentralization, Local Governments, and Markets: Towards a Post-Welfare Agenda, Clarendon Press, Oxford.

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Clarke, S.E. (1993), 'The New Localism: Global Politics in a Global Era', in E.G. Goetz and S.E. Clarke (eds), The New Localism: Comparative Urban Politics in a Global Era, Sage, Newbury Park, pp, 1-21.

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11 Social Impact Assessment of Development Projects

MESHACK KHOSA

Introduction

This chapter presents the findings of a social impact assessment (SIA) of sixty-eight projects funded by the Development Bank of Southern Africa (DBSA) in the 1996-97 financial year. The study was primarily based on summary reports of the projects and in-depth interviews with project leaders. The first section below examines the purpose of SIA, the international experience of SIA, the place of SIA within a project cycle and the transformation of the DBSA. The methodology used in this study is outlined in the second section, which highlights social impact indicators, key evaluation questions and the limitations of the methodology. The third section presents an analysis of the impact of the projects in respect of social cohesion, community participation, community acceptance, gender equity, education, health, job creation, migration and standard of living. The conclusions of the study are summarized in the last section.

Social Impact Assessment

SIA involves a study of the social consequences of planned projects, programmes and policies. According to Derman and Whiteford (1985, p.1), SIA 'represents an effort to increase knowledge before, during, and after development projects and to incorporate the target population into the planning and active stages of the project'.

Finsterbusch and Wolf (1977) describe SIA as an attempt to estimate and appraise the conditions of a society organized and changed by large-scale applications of technology. Professionals engaged in SIA are required to examine the potential impacts of a new development on the political, social, cultural and economic lives of individuals, groups and communities.

According to Carley and Bustelo (1984), social impacts include changes in psychological and physiological factors, community processes as well as changes in the production, distribution and consumption of goods and services. They further suggest that the question of who gains and who loses in terms of the project should be considered.

SIA relates the proposed project and its impacts to the priorities and aspirations of local people and provides the project team, financiers and other decision makers with the necessary information to enhance the benefits and lessen the social costs of a project. The purpose of SIA is to identify social factors relevant to the project, so as to:

• inform the structure of projects, as far as possible, so that they respond to people's needs, priorities and aspirations, enhance project benefits and prevent or mitigate the adverse effects of the intervention, particularly for poor and marginalized groups;

• describe the expected short and long-term impact (e.g. resettlement, loss of income) of the proposed project on local people/communities, social structures/dynamics and local institutions;

• generate project alternatives based on local people's needs, priorities and perceptions and on broadening the project to include prospective project 'losers';

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• assist in the enhancement, or the formulation, of a strategy for local participation in the project, including the identification of effective local institutions that should be supported to facilitate the participation of project users in decision making regarding project planning, implementation and monitoring;

• broadly assess the capacity of project staff and government institutions or their agents to provide short and long-term support for the proposed development.

Social impacts can be categorized in terms of the physical, social, aesthetic and economic dimensions of the environment through which they affect people. Impacts transmitted through the physical dimension include those involving land uses and the physical character of the area (for example, type of development, densities, design of the building), as well as the current infrastructure (for example, water supply and quantity, sewage and solid-waste disposal, transportation facilities and sites).

The social environment includes community services and facilities (for example, location and capacity of recreational, cultural and health facilities, employment centres and commercial facilities), as well as the particular character of the community (for example, socio-economic and racial characteristics, population sizes and housing conditions).

By means of SIA, social impact assessors provide information on which policy makers base their decisions. According to Finsterbusch and Wolf (1977, p. 2),

[t]he primary goal of the social impact assessment and assessment generally is to facilitate decision making by determining the full range of costs and benefits of alternative proposed courses of action. The most important secondary goal is to improve the design and administration of policies in order to ameliorate the disbenefits and to increase the benefits.

SIA is based on two simple assumptions: first, that the future can be guessed at with enough certainty to make it worthwhile considering potential changes which might be caused by the introduction of new programmes, projects or new technology; second, that policy makers will accept the assessment and respond by modifying their decisions (Finsterbusch and Wolf, 1977).

These assumptions originate from and reflect the positivist orientation of SIA, an orientation which is based on the assumption that truth is completely represented by observable and scientifically verifiable facts:

In short, SIA assumes, among other things, that social scientists can make predictions, that community is an empirical reality, and that it is a positive context for human activities and experiences � something to be protected, maintained, and enhanced (Swartz and Eckhardt in Derman and Whiteford, 1985, p. 78).

International Experience of Social Impact Assessment

SIA originated in North America and its use coincided with the development of environmental impact studies and environmental impact statements. The environmental as well as the social movement reflected the growing concern over the effects of new resource and technological development and the possible depletion of non-renewable resources. Thus technological criteria came to share their position as measures of 'quality of life' with social and environmental criteria.

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The new environmental awareness caused environmental issues to be politicized. Hence the National Environmental Policy Act (NEPA) came into effect in the United States in 1969. The legal requirements set out in NEPA were to be met by a research process, which in turn would produce reports called 'environmental impact statements'.

However, no socio-economic research was carried out in the early days of NEPA, and the first environmental impact statements made no mention of socio-economic conditions. From 1973 however, socio-economic elements began to feature in those statements as a result of the acknowledgement of factors associated with human concerns, the so-called 'socio-economic parameters' (Canter, 1977, p. 163).

As environmental impact statements developed, they became increasingly adroit at describing biophysical factors. They were however not adroit at describing the social factors associated with development projects. This gave rise to the need for a separate analysis of demographic, social and socio-economic factors associated with development projects such as the building of highways and dams, mining and the introduction of technologies. SIA was thus a United States initiative in response to the demands of a modern industrialized nation.

SIA is something of a hybrid: a policy analysis, a planning tool, and a research approach. It is sometimes defined very broadly as an essential part of understanding the process of social change and giving it direction (Craig, 1990, p. 37), or as a means to 'assessing (as in measuring or summarising) a broad range of impacts (or effects, or consequences) that are likely to be experienced by an equally broad range of social groups as a result of some course of action' (Freudenburg, 1986, p. 452).

SIA can be used to investigate

the social and cultural impact of development plans, programmes and projects. It involves different research methods and techniques to investigate at least four major categories of impacts: demographic, e.g. population changes, displacement and relocation problems; socio-economic, e.g. changes in employment patterns, systems of land tenure, income levels; institutional, e.g. changed demands on local services; and community, e.g. changes in social networks and levels of social cohesion (Bulmer, 1986, p. 147).

SIA can provide better information for decision making. It offers great potential for integrating scientific policy analysis into a democratic political process, and is a means to democratically integrating science and values (Dietz, 1987). SIA can also provide a voice for indigenous communities who are most likely to be affected by a planned development due to their lack of power and resources (Craig, 1990).

The Place of Social Impact Assessment within a Project Cycle

The main aim of SIA is to gauge the (prospective) successes and failures of a project and identify the reasons for them. Table 1 illustrates the project cycle acknowledged by the World Bank in funding projects, or giving loans to countries. In this cycle, SIA may be conducted three times, that is, under 'Preparation, 'Appraisal' and 'Ex post evaluation'.

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Table 1 Project cycle of the World Bank

Project cycle Activities

Identification Joint borrower/bank involvement

• Sources of project ideas:

⇒ Bank economic work

⇒ Prior projects

⇒ Other agencies

• Initial summary of project financed by country department

Preparation Responsibility of borrower

• Technical/financial assistance available from:

⇒ Borrower

⇒ Bank

⇒ Other agencies

• Studies (economic, technical, institutional, financial)

• Study of impact on environment

• Project summary revised by the bank

roject cycle Activities

Appraisal Responsibility of bank

• Evaluation of project viability

⇒ economic

⇒ technical

⇒ institutional

⇒ financial

⇒ environmental

⇒ social

Negotiations Joint borrower/bank involvement

• Borrower reviews final documents

• Terms and conditions of loan agreed

• Board of directors of the bank approves loan

• Signing of loan agreement by both parties

Implementation/supervision

• Loan declared ready for disbursement

• Implementation by borrower

⇒ Supervision by bank

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Ex post evaluation

• Completion � audit and assessment reports

• Analysis used for future project design

International experience suggests that lenders should ensure more co-operation between their programming and operational departments, and with borrowers, in order to plan interventions to sustain projects.

To ensure project sustainability, the following actions need to be taken in the course of the project cycle:

• developing an overall strategy with the borrowers which includes legal and administrative arrangements in the social sector, planning for a healthy relationship between productive assets and the social sector, and defining appropriate roles for the public/private sector in service delivery and maintenance;

• building components into project designs that will help sustain the projects, such as educational and health components to sustain nutrition projects;

• planning for the rational use of technical co-operation and other funds and sustaining efforts to strengthen and broaden private and community support; and

• monitoring and evaluating projects efficiently so that lessons can be learned early enough to change projects, if necessary, and be incorporated into new projects (Inter-American Development Bank, 1995).

The Transformation of the Development Bank of Southern Africa

In order to assess how well the goals of the DBSA match the social impact of DBSA-financed projects, it is essential to examine the transformation of the DBSA. The DBSA was established in 1983. The Interim Constitution Act, No. 200 of 1993, made the South African government the only shareholder of the DBSA, and the Minister of Finance the governor of the bank. The DBSA is to support the development of infrastructure in South Africa, ultimately as a financially self sufficient institution. Although the DBSA largely granted loans to the former homelands under the previous dispensation, it can now grant loans to provinces, municipalities, parastatals and even countries within the Southern African Development Community (SADC).

The objectives of the DBSA according to clause 3 of the 1997 Development Bank of Southern Africa Act are: the promotion of economic development and growth, human resource development, institutional capacity building, and the support of development projects and programmes in the region. These objectives are to be realized by:

• mobilizing financial and other resources from the private and public sector, national or international, on a wholesale basis, as determined in the regulations;

• appraising, planning and monitoring the implementation of development projects and programmes;

• facilitating the participation of the private sector and community organizations in development projects and programmes;

• providing technical assistance, particularly in respect of human resource development and training, with regard to the identification, preparation, evaluation, financing, implementation and management of development projects and programmes; and

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• funding, or mobilizing wholesale funding, as determined in the regulations, for initiatives that aim to minimize the environmental impact of development projects or programmes.

The DBSA is one of five development finance institutions (DFIs) that the South African government has identified to form an interconnected group of development financiers (Table 2).

Table 2 DFIs and focus areas

Development Finance Institution Focus area

Development Bank of Southern Africa (DBSA)

Infrastructure

Landbank Credit finance for land

Khula Enterprises Entrepreneurial SMME support

National Housing Finance Corporation (NHFC)

Housing and mortgage-type of finance

Restructured Industrial Development Corporation

Industrial development

Due to limited resources, the DBSA is partial to projects that comply with the following requirements:

• provincial benefits greater than provincial/national costs;

• risk leverage adoption of the Reconstruction and Development Programme (RDP) principles; affordability; long-term national priorities (such as gender and racial equity, economic empowerment, sustainable job creation, appropriate technology and institutional capacities);

• financial sustainability;

• recurrent cost affordability;

• community participation;

• environmental sustainability; and

• promotion of policy change.

In general, DBSA financial support is primarily focused on supplementing the government's own budget resources in respect of developments which benefit disadvantaged groups, areas and regions, address socio-economic backlogs and enhance socio-economic growth based on the principle of cost recovery.

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Table 3 Categories of infrastructure according to the DBSA

Economic infrastructure

Socially-oriented infrastructure

Institutional infrastructure

Water resources Health Hospitals Clinics Health centres

Infrastructure for borrowers of projects/programmes that aid DBSA target areas

Energy Education Tertiary education Community learning centres

Transport Local governance Community centers Town halls Recreation centres

Communications Regional sanitation systems

There is an apparent tension between the two main objectives of the DBSA, namely to fund mainly infrastructure projects through loans on a sustainable basis (bank orientated), and to play a proactive role in the broader development of South Africa (development orientated). The DBSA therefore has to balance the financial role of the bank with its development role.

The transformed DBSA has identified SIA of financed projects, as one of its new requirements for funding infrastructure development. However, the DBSA has tailored its definition of infrastructure to the societal and economic needs of South Africa. The definition identifies three categories of infrastructure, namely economic, socially-oriented and institutional infrastructure.

During 1996-97, the DBSA emerged significantly better equipped to meet the challenges of the RDP. Its mandate was to assist infrastructure development in the SADC region and act as a catalyst for investments in partnership with the private sector. According to its 1996-97 annual report, the DBSA made commitments to the value of R2.2 billion, for infrastructure projects (Development Bank of Southern Africa, 1997).

Methodology

SIA has been described by Carley and Bustelo (1984, p. 3) as 'the "grab-bag" technique which has to draw into the decision making process all those vitally important but often intangible impacts left untouched by other types of analysis'. The following are the basic steps of an SIA; description of the socio-economic setting, identification of critical socio-economic factors, prediction of changes in socio-economic factors, and discussion of implications of changes.

The methods applied in SIA reflect those developed and used in the social sciences. These methods can be categorized according to the nature of the data utilized, that is, secondary and primary data. Secondary data methods involve the use of existing data for the purposes of anticipating the magnitude and distribution of social impacts. Secondary data are valuable when describing baseline conditions � that is, the existing social, demo-graphic, economic and cultural context within which social changes resulting from the project will occur. However, the use of secondary data poses problems. First, secondary data seldom provide information

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on a social process, informal organizations, social relationships, social structures and institutions, or residents' attitudes and perceptions. Second, secondary data tend to be dated and may not be available at the scale required (for example, the data on an enumeration district may be too general for the purpose of a more specific area) or in the form required,

Primary data methods involve the collection of data directly from individuals in the community. For this purpose the researcher utilizes surveys, participant observation and unobtrusive research. Surveys entail direct solicitation of information from individuals via the personal interview, or the mail or telephone questionnaire. Participant observation is used by a researcher to collect primary social data through direct observation and possible participation in a social setting. Unobtrusive research involves videotaping and tape recording of daily activities as well as analysis of the contents of community newspapers without direct contact with research subjects.

In this study the author

• perused information on DBSA operations to distinguish areas of emphasis;

• reviewed DBSA policies and processes to assess their effect on operations;

• reviewed available evaluation reports prepared by DBSA project leaders;

• interviewed five DBSA project leaders and other staff in programming and other operational divisions; and

• reviewed academic literature and studies on SIA.

Social Impact Indicators

SIA was applied to sixty-eight DBSA-financed projects. First the project's own statement of its social benefits was analyzed. Then each project was evaluated along the following guidelines:

• Building social institutions/committees

• Acceptance within community

• Participation of community

• Gender inclusion/equity

• Education

• Health

• Job creation

• Migration

• Quality of life

The aggregate social impact of financed projects was defined by the number of social impact indicators they complied with according to the DBSA mandate. This enabled the researcher to show which number of projects addressed gender equity, or created social institutions. This method was also useful for assessing how many projects complied with all of the DBSA requirements for social development.

Evaluation Questions

The following questions were developed for the SIA:

• In what way are the projects leading to social cohesion or destruction of communities? Have the projects established community committees/institutions?

• To what extent is there community participation in the projects?

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• Are there provisions for capacity building and skills transfer in the financed projects?

• What is the extent of community acceptance of the financed projects?

• Is gender equity addressed and developed? At what level are women involved in the financed projects? What impacts would such projects have on gender equity?

• How are health issues addressed in the financed projects? What health impact would the financed projects have on the communities?

• What proportion of the budget is allocated for the employment of local labour? What provisions have been set in place to ensure that there is employment generation?

• What impacts do projects have on migration?

• To what extent are the projects leading to the improvement of the standard of living?

Limitations of the Methodology

According to international literature, a major problem in SIA is the difficulty of pinning down and identifying those social phenomena 'whose substance cannot be unambiguously captured in a mathematical formulation and generally have significant behavioural or political context' (cited in Carley and Bustelo, 1984, p. 29). In contrast to impacts which can be predicted with a reasonable amount of confidence (e.g. through population projections), other impacts can only be predicted on the basis of subjective information.

In the course of this study, subjective information was combined with factual information. This combination cautions against a non-critical acceptance of the results of this study. Another reason for caution is the fact that the analysis was not primarily based on original field work, interviews were conducted with five project leaders only. The study was therefore mainly a desk-top analysis of the summaries written by the project leaders. Thus the results are tentative.

As SIA is often conducted by a 'cultural stranger', this person's ability to gauge the range, or complexity, of local concerns or local perceptions of relationships is another contentious issue. Furthermore, the value-laden nature of judgements brings to mind the question of whether or not political and normative issues are being transformed into fictitious technical ones through an institutionalized SIA. The quantitative methods used to rationalize such judgements may, with the use of technical and scientific jargon, mystify the layperson, thereby diverting any potential opposition.

A commonly stated aim of SIA is to facilitate decision making and the identification of the outcomes of government or parastatal action. This aim has drawn the following criticism:

[T]hese affirmations of policy relevance rarely make explicit the linkages between information generated through social impact assessment and political institutions, systems priorities, organisation behaviour, decision-making styles, and other aspects of the policy process. Instead, they become imbedded in assumptions about the context or setting of social impact utilisation and therefore become part of the conventional or taken-for-granted wisdom of the field (Derman and Whiteford, 1985, p. 50).

Derman and Whiteford (1985) further suggest that SIA researchers must be aware of the potential for SIAs to merely serve as window dressing.

Traditional SIA neglects the analysis or evaluation of the objectives and methodologies of a project. This is tantamount to accepting the objectives and methodologies unconditionally or, rather, treating them as neutral entities. It is

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therefore doubtful whether traditional SIA is capable of either predicting or evaluating potential project impacts. This is one of the reasons why most contemporary SIAs resemble checklists. This checklist approach was born out of the universal, ahistorical conceptualization of project impacts, which in turn emanated from the failure to locate the .specific target area in the broader social, economic and political context.

In order to minimize the methodological limitations, this study, as far as practically possible, linked the DBSA projects with national priorities outlined in the RDP. Second, it located the target areas and communities in the broader social, economic and political context. Third, it explicitly analyzed the aims and objectives of the proposed projects.

Analysis of the Impact of the Projects

This section describes the results of an SIA of 68 DBSA-funded projects in the 1996-97 financial year. The following trends emerged; The majority of the projects either had plans to establish or had already established community committees to liaise between the project directors) team and the general community (67.7%); the community was educated about the purpose of the project and how to utilize its benefits (73.5%); and women participated in the projects (73.5%). However, most projects had little opportunity for the employment of local labour (47.1%).

The basis of this SIA was to determine the relationship between the community's needs, the project goals and the DBSA mandate for social development.

Table 4 Percentage of projects that met the named variables

Social impact indicators Number Percent

Committee/Institution building

46 67.7 %

Acceptance of community 60 88.23%

Community participation 37 54.4%

Gender 50 73.5%

Education 50 73.5%

Health 33 48.5%

Job creation 32 47.1 %

Social Cohesion

Institutional development at the national, local and community level is a sine qua non of successful projects. Not only does it ensure better implementation of projects, but also better management and use of projects after final disbursement. A local committee is an institution that can last and expand to meet a variety of needs of a local area. It is also a means for a community to build inter-community relationships, ca-operation and cohesion. A project's relationship with the community starts with the establishment of a liaison body or project committee that includes community representatives. In communities where there are no credible committees to help conceptualize and implement the project there is a potential for violence. In such cases projects may even be a catalyst for community disintegration instead of community cohesion.

The general international experience is that project designs are not particularly sensitive ex ante to the socio-cultural context in which projects are conducted, nor does the institutional analysis of the projects at the design stage consider the potential for non-governmental organization (NGO) participation in the service delivery.

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About two-thirds (67.7%) of the sixty-eight financed projects had a standing committee or liaison body that included community members (Table 4). In one instance the committee was referred to as the 'Area Development Forum' where the 'planning and implementation of the project will be discussed and agreed upon'. The Eskom Electrification Programme is an example of a project with an extensive education programme and plans for fostering community participation.

Community Participation

Experience shows that the more a community makes inputs into and participates in projects, the more sustainable the development. Participation ranging from community decision making to hands on construction) involvement extends the life span of both the project and. the benefits received by the community. Sustainability of projects rests on several pillars. Apart from the fact that projects should be integrated into national socio-economic development programmes which are fully supported by borrowers and local authorities, they should involve also beneficiaries in project development and execution so that they take ownership and thus ensure project sustainability. Lack of effective community participation affects the sustainability of projects negatively.

Of the sixty-eight projects assessed, 54.4% indicated that they had standing committees in place to ensure community participation (Table 4). Just over two-thirds of these were energy or water projects, with sanitation and urban development projects being the only other types of projects to incorporate community participation. A few of these projects planned to set up community participation forums, but had not yet done so.

Successful community participation was evidenced by the remark that 'widespread support for all the projects and active involvement of the community during construction and maintenance has been established'. Joint committees were called 'local development forums', 'ward committee systems' and 'steering committees'. The Durban Metropolitan Council, for example expressed its 'commitment to the concept of communication and consultation with all structures' through education, committee formation and community participation. In one project communities were consulted and 'represented even at policy level'.

However, not all projects evidenced community participation. The Lesotho Highlands Water Project was described as 'lack[ing] an appropriate overall strategy towards community mobilisation and interaction', although various initiatives were being set up to redress this failure, including a 'community involvement team'.

Community co-operation is an important facet of community participation. If the project provides services, for example, and the community takes responsibility for carrying out same of the services, the community will probably be willing to pay for the services. Employment of NGOs as intermediaries has proven to be a good way for governments and parastatals to reach local communities and ensure their co-operation, Research on projects funded by the Inter-American Development Bank indicates that health, education and sanitation projects often refer to community participation, but fail to outline a concrete plan to actually get people to consider their needs and work on the programme to fulfil their needs (Inter-American Development Bank, 1995).

In addition, some project reports fail to outline the process by which the community will become involved, and assume that 'somehow' the general monitoring functions of the borrowers will cover this subject. However, participation without power is an empty notion:

[I]f a population has enough power, it can set the terms for its own participation, and it can influence the direction or even stop a particular project that is generated from the outside. To create participation in the absence of such power is a key dilemma for SIA and for development projects. Many

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development projects are, in fact, undertaken to enhance the circumstances for the powerless. In these circumstances, SIA is ineffective as a means for reform and can only serve to legitimise the status quo (Derman and Whiteford, 1985, p. 11).

A criticism often levelled at participation exercises is that they are elitist in that only a small, interested segment of the population is involved. But public participation involves three aspects: firstly, education or the dispersal of information to the public; secondly, the provision of opportunities for interaction between the informed public and the authorities; and thirdly, the participation of the informed public in decision making. Overall, the issue of participation depends on an understanding of power relations.

Community Acceptance

While it is important to have the participation of the community, community acceptance is equally crucial in order to effect positive social change and sustainable social development. Of the sixty-eight DBSA-financed projects, 88.23% showed general community acceptance and willingness on the part of the project team to co-operate with the community (Table 4).

The Tembisa West Remote Pre-Payment Metering System was an example of a project where the community was 'fully aware of and fully support[ed] the proposed project', a process aided by the 'democratically elected, gender-sensitive Community Development Forum'. However, in other projects, assumptions of community acceptance and 'positive social impacts' were made despite admissions that the 'communication between the TLC and the broader community is limited'.

Gender Equity

The promotion of gender equity is central to DBSA guidelines, and women participated in the majority of the sixty-eight projects. Women in the DBSA's typical target communities are often constrained by poverty, their reproductive role and inequitable access to opportunities, services and decision making. Some 73.5% of the projects met the DBSA guidelines on the promotion of gender equity.

The DBSA has developed a policy and strengthened its capacity to address gender issues in its projects and programmes. A typical example of a gender-related initiative in 1996-97 was the provision of funding to six women entrepreneurs to set up a village bakery to serve the 4,000 residents of Suurbraak, about 350 km to the east of Cape Town. Another example is the North Pondoland Sugar project. Jointly funded by the DBSA and the private sector, it involved the sequential development of 4,000 hectares of smallholder sugar cane, with each farmer being allocated approximately 10 hectares. A total of 137 farmers were established, of which 50 were women.

However, some projects made no mention at all of the promotion of women or the gender composition of their committees despite the recognized importance of women to development projects. For instance, one project summary stated with respect to gender equity that 'support for this project was confirmed with the community representatives (formal and informal) to the satisfaction of the team', but the exact composition of the team was not disclosed. Other projects were more explicit about their gender composition. For instance, the Kimberley Buffer Strip Development included a 'Project Development Committee' which was 'fully representative' 6 out of 24 'community structure representatives' were women. The Nkomazi Rural Development project had an ostensibly successful village-based participatory structure which had 'matured well' and which had an 'overwhelming presence of women representatives in the RDC', a situation which reflected the status of women as land owners in the area. In the case of the West Coast Peninsula Development Programme, in contrast, the presence of two women councillors on the TLC was deemed sufficient to �further strengthen' the 'decision making capacities of women'.

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International experience suggests that gender equity has become de rigueur in development initiatives because women play an important role in income generation, and their attitudes and habits have been found to be crucial to the improvement of family health and education levels. A recent report on the implementation of the Women in Development Action Plan stated that in 1992, some 12% of the loan requests to the Inter-American Development Bank � excluding small projects � included a thorough explication of women's participation in the projects as well as concrete steps to improve their participation. Although 12% seems small, it was double the percentage of 1991 (Inter-American Development Bank, 1995).

Education

Access to education in South Africa has historically not been equally available to all South Africans. In general, African women have the lowest formal educational attainments in the country, followed by African males, while white females and males have the highest educational attainments. With the dawn of the new dispensation in South Africa, education has been placed at the centre of reconstruction and development.

The DBSA divides education into tertiary education and community learning (Table 3). This SIA, however, includes under education also capacity building and the transfer of skills.

Some 73.5% of the sixty-eight projects indicated plans to transfer skills or embark on education programmes during project implementation (Table 4). Some projects indicated that there would be efforts to educate the communities on the type of project, its usage and harms, and the role of project co-ordinators in the community. However, in the case of the Richards Bay Urban Development Programme the education programme was embarked upon only after sufficient resentment to the scheme had built up and the contractor had been forced to 'withdraw from the towns for some time'.

The best example of a project with an educational component is the Eskom electrification project, which outlined programmes to educate provincial communities on the benefits of electricity, safety measures and the use of electrical appliances. It also envisaged education on the repercussions of tampering with electric systems in order to motivate citizens to identify and report tampering.

Health

According to the 1995 October Household Survey (Central Statistical Service, 1996), as much as 67% of South African citizens do not have access to flush toilets and as much as 50% do not have access to electricity. Healthy sanitation and access to electricity, as well as clean water and proper roads are vital for good health. However, health was only mentioned indirectly in terms of benefits and was covered as such by 48.5% of the sixty-eight projects (Table 4), and none of the financed projects provided for the construction of hospitals, clinics or health centres.

The majority of the sixty-eight projects mentioned neither health benefits nor health problems. Besides, the provision of services and infrastructure without employment generation would not substantially improve the health status of communities. Further, implementing projects for the provision of sanitation, water or sewage structures would be of little avail if they did not address health issues in general.

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Job Creation

The rate of unemployment in South Africa differs by race, gender and province. Employment ranged from 29% to as high as 45% according to a Central Statistical Service survey of 1995. About 47% of African women were unemployed. The SIA of the sixty-eight DBSA-financed projects showed that only 47.1 % of the projects made provision for the employment of local labour or services (Table 4).

One project was 'structured to maximise jab opportunities by means of labour intensive construction, local entrepreneurship and training programmes'. In another project the municipality carried out a 'skills survey' with a view to 'maximising the use of local skills'. Only one project (the Wellington Programme) was committed to providing 25% of the budget for the purchasing of local materials and expertise.

People's ability to pay for services can be enhanced if the provision of services and infrastructure is matched with the generation of employment opportunities, The SIA of the sixty-eight DBSA-financed projects showed that the proportion of jobs created was not substantial (Table 4).

The litmus test for the government's Growth, Employment and Redistribution (GEAR) strategy is job creation. The provision of infrastructure is a necessary condition for the creation of jobs in the SMME sector. Access to energy infrastructure, for example, may encourage people to enter the informal economy. However, this in turn requires better access to training, capital and markets.

Migration

From the late 1950s to the 1980s there were massive resettlements and population movements in South Africa. Inspired by the desire to implement apartheid, the previous government forcibly relocated thousands of people from fertile lands to unproductive areas. With the relaxation of influx control in the 1980s, people, especially from rural areas, began to migrate to areas perceived to have employment and other opportunities. Urban areas with their better services and assets attracted more people than rural towns. However, as the demand for living space exceeded the availability thereof, migrants resorted to land invasion and backyard squatting in the hope that authorities would eventually provide living space with services and infrastructure.

Water is a minimal requirement for life. Thus, according to a project leader, where there is water, there will be immigration. As soon as immigrants have electricity, they can establish spaza shops and other local economic activities. If on top of this settlements and townships are linked by road to other areas, communities have access to other livelihoods. Given this scenario, planning for the provision of services and infrastructure should be ca-ordinated.

However, there are sometimes obstacles to using newly established services. A classic example is the Nkomazi Rural Development projects which barred migrants from Swaziland and other areas in South Africa from farming as they did not possess a PTO (permission to occupy) document. They were however able to participate in other economic activities. The creation of infrastructure may also have disadvantages, such as traffic pollution, accidents and community severance as a result of road construction. Such disadvantages may divert migrants to other areas with apparently more benefits.

Standard of Living

The quality of life of the majority of South Africans is severely constrained by poverty and a lack of social and economic services. An improvement in their socio-economic position is therefore the ultimate goal. This goal can best be achieved when communities are empowered to use their labour and resources in meeting their needs in respect of energy, water, roads, small business and sanitation.

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Energy According to the 1995 October Household Survey (Central Statistical Service, 1996), approximately 51% of South African households have access to electricity. In addition, few households use electricity for cooking due to its cost. In urban areas, 71% of households have access to electricity, but in non-urban areas the figure drops to as low as 16%. The largest number of the sixty-eight DBSA projects were energy projects.

Water Access to water is crucial in South Africa, especially for rural communities. According to the 1995 October Household Survey (Central Statistical Service, 1996), as few as 12% of some non-urban South African households have a water tap on site. Water projects constituted the second largest proportion of the DBSA projects, a fact that highlights the importance of water resources and appropriate water management. Some of these projects dealt with storm-water, irrigation and bulk water supply which relate to other important sectors of the economy such as agriculture and natural hazard management.

Roads Roads and reservoir crossings are likely to have benefits as well as disbenefits. Roads facilitate the movement of goods, services and people and increase access to economic activities. However, the increased movement along improved roads may lead to congestion, noise and air pollution, community severance and the destruction of ecosystems.

Small business support Small business support has been identified as a key national priority. Small business persons suffer from lack of capital, access to markets and a limited skills base. Support to emerging entrepreneurs therefore promises positive spin-offs in the affected communities. Khula Enterprises has been set up to give loans to small and emerging entrepreneurs. However, the demand for assistance is greater than the available resources, only one DBSA project was aimed at small business support.

Sanitation Sanitation is fundamental to the health and welfare of all members of a community. Without adequate sewerage and drainage systems, it is impossible for areas to develop in other respects in a long-term, sustain-able manner. Nevertheless, sanitation made up less than one-fifth of the total number of DBSA projects. The health hazards related to poor sanitation in the long run may cause the country more than investment in the necessary infrastructure.

Conclusions

Until 1994 the DBSA funded infrastructure projects largely through the previous homeland governments. Since April 1994, it recast its vision and mission in line with the needs of the new South Africa. However, the new provincial governments have not yet been given executive powers to borrow, although parastatal organizations have been empowered to borrow from the DBSA. The DBSA's commitment to seeking new clients and its new strategic mandate explain to an extent the significant number of local authorities that secured DBSA loans for infrastructure development in 1996-97.

It appears that the majority of the projects were initiated after the DBSA had had contact with potential borrowers. Interviews with project leaders confirmed that projects which subscribed to the RDPprinciples received high priority. The existence of supportive local institutions and capacity was seen as an asset by the DBSA.

There is also evidence that project initiators sought broader consultation and participation. In same cases projects galvanized communities into working together. The case of Bambayi in KwaZulu-Natal is revealing: As a result of a development programme funded by the DBSA and the participation of several civil society actors, warring factions set aside their conflicting ideologies. However,

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some projects were catalysts for violence and conflict. In Cato Manor, for instance, several communities invaded land earmarked for development projects. The changing leadership structures and the fluidity of community organizations were contributing factors to the land invasion which in turn stalled development.

The sixty-eight DBSA projects were generally well accepted by communities. Over 88.23% of the projects were accepted, as illustrated by community participation in the projects and community co-operation in education programmes. Gender equity was shown to be a priority concern in the programmes of the sixty-eight projects. There were no projects that centred on health, that is, the construction of hospitals, health centres, and/or clinics. However, 48.5% of the sixty-eight projects addressed health education in terms of community development.

The DBSA guidelines for job creation were generally not met. Very few of the sixty-eight projects specified a budgetary allocation for utilizing local labour. The provision of services and infrastructure emanating from the projects will however go a long way in meeting basic needs.

Acknowledgement

This chapter was written in 1997 when I was director of the Centre for African Research and Transformation. I would like to thank the following DBSA representatives for their relevant information and insightful comments in the earlier version of this chapter: Dr Benny Mokaba, Dr Du Mhango, Lindeni Sekhokoane and Celi Twala. Further interviews were conducted with the following DBSA representatives: Lukas van der Merwe, Callie Calitz, L.C. Honeyborne, Amy Karim, Chris J. Siebert, Martin Greyling, Con Muller and Germaine Rensburg.

References

African National Congress (1994), The Reconstruction and Development Programme, Umanyano, Johannesburg.

Bulmer, M. (1986), Social Science and Social Policy, Allen aid Unwin, London.

Canter, L.W, (1977), Environmental Impact Assessment, McGraw-Hill, New York.

Carley, M.J. and Bustelo, E.S. (1984), Social Impact Assessment and Monitoring: A Guide to the Literature, Social Impact Assessment Series, Number 7, Westview Press, Boulder.

Central Statistical Service (1996), Living in South Africa; Selected Findings of the 1995 October Household Survey, Central Statistical Service, Pretoria.

Craig, D. (1990), 'Social Impact Assessment; Politically Orientated Approaches and Applications', Environmental Impact Assessment Review, vol 10, pp, 37-54.

Department of Finance (1996), Growth, Employment and Redistribution, A Macro-Economic Framework Strategy, Government Printer, Pretoria.

Development Bank of Southern Africa (1997), Development Bank of Southern Africa, Annual Report, Halfway House.

Derman, W. and Whiteford, S. (eds) (1985), Social Impact Assessment and Developing Planning in the Third World, Social Impact Assessment Series, Number 12, Westview Press, Boulder.

Dietz, T. (1987), 'Theory and Method in Social Impact Assessment', Sociological Inquiry, vol, 57, no. 1, pp. 54-69.

Finsterbusch, K. and Wolf, C.F. (1977), Methodology of Social Impact Assessment, Streudsburg, Dowden, Hutchinson and Ross, Pennsylvania.

Freudenburg, W.R. (1986), Social Impact Assessment, Annual Review of Sociology, vol. 12.

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Hulled, D.J. (1984), 'The Social/Economic Impacts of Resource Development and Engineering Interventions on Land Use in Both Urban and Rural Areas', Town and Regional Planning, vol. 18, pp. 18-26.

Inter-American Development Bank (1995), Evaluation Report: The Operation of Social Projects After Disbursement, RE-196/95, Washington DC.

Jobs, P.C. (1986), 'Assessing Impacts on Reservations; A Failure of Social Impact Research, Environmental Impact Assessment Review Number, vol. 6, pp. 385-394.

Weaver, A. (1992), Integrated Environmental Assessment, paper delivered at World Environmental Day Symposium, Johannesburg.

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12 Re-thinking Infrastructure Policies in the 21st Century

MESHACK KHOSA

Introduction

The historic political settlement in 1994 was a culmination of several decades of the struggle for political emancipation, and freedom from economic exploitation in South Africa. The African National Congress (ANC) achieved a landslide victory during the Uhuru elections, in 1994, on the manifesto called the Reconstruction and Development Programme, which was largely designed by various anti-apartheid organizations, civic associations, women's groups, and labour and community constituencies. In brief the Reconstruction and Development Programme was the mandate given to the ANC-led government to transform society in more fundamental ways. As in other areas of South African society, all types of infrastructure came under policy scrutiny when the new government assumed power in 1994. Apart from White Papers on energy, health, education, transport, telecommunication, water and sanitation, a wide range of other policy documents were produced at national and provincial spheres. The trajectory on infrastructure policies mirrors the nature, direction and process under which South Africa's transformation has unfolded. In general, 'most policy documents have attempted to address either backlogs or misplaced infrastructure' (Development Bank of Southern Africa, 1998, p. 27).

The newly established government ministries responsible for each sector tended to develop policy frameworks for individual infrastructural sectors often in isolation. Although each framework is in line with the broad growth and development objectives of government as a whole, naturally, there are different interpretations of these objectives across ministries, resulting in strategies and priorities, which are not uniform across sectors (Department of Finance, 1998).

There is some consensus, however, that infrastructure is essential for growth and development in an economy. Government documents such as the White Paper on the Reconstruction and Development Programme, Growth, Employment and Redistribution, and Poverty and Inequality Report recognize the positive impact of infrastructure on growth and development. The National Infrastructure Investment Framework and the 1999 Budget Speech further make explicit Government's recognition of the connection, and its commitment to improving the quality and quantity of South Africa's infrastructure.

Unfolding through twelve chapters, this book acknowledges that there has been a tremendous transformation in infrastructure policies from apartheid to democracy. However, this transformation unfolded unevenly, with some sectors incorporating some of the key mandates of the Reconstruction and Development Programme, whilst others departing substantially.

Critical Appraisal

One of the distinguishing features of economic infrastructure cluster in South Africa is that the relevant government departments engage largely with parastatal and private agencies, in the delivery of infrastructure investment, In general, parastatals and other public sector agencies are currently delivering economic infrastructure independently of the budget. The national departments are responsible for sectoral policy and objectives but the implementation and prioritization takes place at a parastatal level. This raises the issue of the level of government influence in terms of ensuring that its policy objectives are fulfilled (Department of Finance, 1998).

On the side of social infrastructure, the broad policy approach within government is to provide minimum or basic service levels for all households. However, the application of this broad policy to different sectors is decentralized amongst the

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relevant national departments, leading to possible lack of coherence across definitions of basic service levels, in physical terms. There appears to be no process of overall co-ordination to set sectoral priorities within this sector (Department of Finance, 1998).

The lack of sectoral prioritization within the overall household infrastructure cluster means that provision of services is often not well co-ordinated ithin a local area or settlement. Even the Department of Finance (1998, p. 27) has acknowledged that:

At present, the social infrastructure cluster lacks not only coherence at the policy levels, but also lacks an institutional mechanism which might promise to introduce coherence.

Competing Interests

The past five years have witnessed massive changes in which policies are formulated. Contrary to the period before 1994, when apartheid technocrats crafted policies without consideration to the needs of the majority, infrastructure policies are now drafted more transparently, more openly and more democratically. The challenge of mediating diverse and contradictory interests in the process of policy formulation is one of the most evident features of the governance in the post-1994 period. At the heart of policy making is an attempt to mediate diverse and contradictory interests. Unfortunately the most organized, and the most powerful voices often tend to shape infrastructure policies, which often disempower the poor and the marginalized. Government has generally turned to neo-liberal principles, particularly lower standards, higher cost recovery, and creeping privatization.

Affordably

In a recent newspaper article, Charlene Smith, argued that poverty and short-sighted planning are hindering effective and permanent service delivery in rural communities. Smith point out that:

In the rush to deliver, government departments are ignoring the fact that many rural communities are unable to pay for the services provided, which is leading to collapse of projects around the country (Mail and Guardian, 25 March to 1 April 1999).

The Reconstruction and Development Programme in 1994 had proposed that the ability to pay � and the socio-economic conditions of beneficiaries � should be taken into consideration in the provision of infrastructure and services. However, some post-apartheid policies appear not to adequately take this into consideration. For example, the White Paper on Water and Sanitation argues that:

Where poor communities are not able to afford basic services, government may subsidies the cost of construction of basic minimum services but not the operating, maintenance or replacement (Department of Water Affairs and Forestry, 1994, p.19).

Edward Breslin, the health manager of Mvula Trust � the largest NGO in the water sector, revealed that there was growing unease about the sustainability of water and sanitation projects. At a water conference in 1998, Breslin said in one village 'beautiful [sample] toilets were built, but they are unused ... because the cost [of each] is in excess of R1, 800', In another community with high unemployment, Breslin said, flush toilets and yard connections were installed at the cost of R90 a month � a third of the income of most households, Not only is the community unable to afford this, but there is not enough water to sustain the project (Mail and Guardian, 25 March to 1 April 1999). Besides, the community is often unable to afford the services given cost-recovery pricing policies.

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Although the delivery of water and electricity are seen as the most successful show cases of the African National Congress-led government, rarely mentioned is the unsustainability of water projects. As high as 90% of the new water taps are said to be inoperative. Seldom mentioned is also the extra-ordinary upsurge in water cut-offs since 1994 in several parts of Mpumalanga and the Northern Province as people cannot afford to pay for the services.

Poor Quality Infrastructure

The quality of infrastructure constructed tends to vary from place to place. Several policy frameworks have sought to regulate minimum standards to ensure that communities do not get poor quality infrastructure. However, the Department of Housing has admitted that there are several instances where private sector contractors have provided poor quality, housing.

Feed back from some communities has confirmed that some of the [housing] units produced do not provide adequate shelter and living space for families...We did not have strict specifications that clearly defined the basic parameters within which pausing development would take place. A document stipulating these specifications has been drafted and is under discussion (Sankie Mthembi-Mahanyele, Minister of Housing, Parliamentary Media Briefing, 6 August 1998).

Although in an attempt to register and monitor private sector contractors, considerable number of poor assets have already been onstructed and the damage may, in some instances, be too severe to repair.

Infrastructure Maintenance

Often no resources are allocated for infrastructure maintenance after construction. Not only is the current fiscal allocation for infrastructure insufficient to meet projected service delivery targets, but unless an alternative source of funding is found, the public sector faces a major risk of losing a significant proportion of existing infrastructure. The urgency of the matter has been acknowledged by the Department of Finance, which admitted that:

� if the maintenance and rehabilitation of public sector assets is not addressed with some urgency, the nation risks not only losing its resources, but continued neglect could seriously impair the nation's ability to meet its racial and economic objectives (Department of Finance,1998, p. 57).

Innovative approaches to generate funding for maintenance are currently being debated. One option is that under-utilized public assets should be sold to finance the acquisition of needed social or economic infra structure. This proposal has generated heated debates within the labour and community constituencies who pointed out that privatization does not necessarily empower the poor, the unemployed and the working people.

Another proposal is to corporatize the public sector estate in order to provide an equity holding that could be traded thereafter. This option appears to gain favour, for example, Telkom and the Airport's company have sold equity stake to foreign and local consortia to generate additional revenue and to ensure that public utilities operate efficiently and effectively.

There is another proposal that existing highways should be converted into toll-roads in order to generate sufficient funds to cover the public sector contribution of further toll-roads. The Gauteng province appears to take this proposal seriously and there is talk of introducing toll-roads, in particular, between Johannesburg and Pretoria.

Another proposal is the use of community participation and labour-construction to supplement budgetary requirements to build much needed rural roads. This

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proposal needs careful consideration as local communities may see this as exploitation, In the words of one rural dweller:

The RDPis ridiculing our mothers. Our mothers are made to dig trenches. It is called employment. Whereby you walk right around this South Africa and you never find a white woman digging a trench. The dignity of our mothers is taken because they have to dig trenches, while they have to feed their babies, cook for their loved ones (cited in Budlender, 1998, p. 21).

Public private partnerships PPPs) and alternative service delivery (ASD) mechanisms should be seen in light of the need to address infrastructural backlogs and public capacity constraints. In most overseas countries, PPPs were adopted to promote privatization for ideological ends. In South Africa, the use of PPPs and or alternative service delivery mechanisms should be seen as part of the state's overall agenda to promote economic development and to extend service delivery to those previously disadvantaged by the political and economic system of apartheid. All these options should be explored carefully when seeking to address the fiscal constraints arising from infrastructure backlogs. Nevertheless, it appears as if these proposals are unlikely to yield benefits within the context of shrinking economic opportunities, rising cost of living and increasing unemployment.

Infrastructure and Gender Equity

This book recognizes that in the provision of infrastructure and services, there are many practical problems to solve if government is to fulfil its commitment to gender equitable development. Although access to water benefits more rural women, for example, government officials from the Department of Water Affairs and Forestry have acknowledged that none of the contractors of water supply programme are women. In other sectors, housing in particular, it seems that performance has been relatively better. For example, the Department of Housing has encouraged the initiatives around women contractors through the establishment of Women for Housing Group in 1996.

At the policy level, there has been remarkable progress in addressing gender equity. The challenge is to translate these policies which purport to support gender equity and empowerment at the level of infrastructure and service delivery.

Infrastructure for Empowerment

The provision of infrastructure and services prior to 1994 was meant to systematically empower the white minority population and the white dominated economy, and to disempower the majority of rural female and he black population. At the heart of new infrastructure and service delivery is the desire to identify potential beneficiaries and to give them improved access to better means of livelihood. The benefits of the new infrastructure policies are, however, unevenly shared and pockets of those who do not have access to better and affordable infrastructure and services are likely to continue to organize, lobby, protest and even struggle for a better deal than what is provided.

Civil Society and Infrastructure Policy

Bond, Dor and Ruiters on Chapter 2 point to the failure of progressive forces to successfully contest the intensification of infrastructure and service commodification. Since 1994, consultation processes in infrastructure and service policy formulation tended to insist on direct stakeholder representation. This is not always empowering as civics and community based formations do not have easy access to technical expertise and relevant resources, which the organized private sector can mobilize during policy formulation processes.

There is emerging consensus on the part of government, policy makers and policy advisors. The consensus, which is based on neo-liberal principles suggest that: users should pay for infrastructure and services, the standards of infrastructure

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and services should be relatively low, and that privatization of infrastructure and service delivery should be regularized. This neo-liberal perspective departs fundamentally from the infrastructure mandates of the Reconstruction and Development Programme.

Nevertheless, in cities, rural villages and towns in some parts of South Africa, current infrastructure policies are being contested and challenged in many different ways. Moreover, there is little reason to expert that communities will become less political than before, especially if the promises of the new government are not met timeously. At any rate, the struggle for political freedom was also a struggle for a better life, and of improved quality of infrastructure and service delivery at affordable rates.

Conclusion

The past five years have seen significant steps to enhance the effectiveness and impact of development of South Africa's policies and programmes. The mosaic of infrastructure policies has been subject to review since 1994.

The energy, enthusiasm and commitment to the transformation of infrastructure policies can be seen through several dozen White Papers and several legislative measures, which have sought to create a new infrastructure landscape.

Nonetheless, progress in the transformation of infrastructure policies has been mixed. On the one hand, there have been notable innovative and radical policies, which promised to speed up infrastructure and service delivery. On the other hand, there are policies, which support unproductive investments, low standards and top-down decision-making processes and violate some of the mandates enshrined in the Reconstruction and Development Programme.

This book is a mirror through which South Africa's transition can be assessed. The chapters were written between 1994 and 1999, focusing on various aspects of South Africa's transition. The emerging theme in this book is that the transformation of infrastructure policies in South Africa has been uneven. Although almost all infrastructure policies claim to be informed by the mandates enshrined in the RDP, some in fact depart fundamentally from the tenets of the RDP. There are several reasons for this. The RDPwas drafted with substantial inputs from labour, community based organizations and experts largely drawn from within the liberation movement. Once in power, the ANC was faced with the challenge to satisfy various constituencies, even those beyond its traditional power base, including that hostile to the implementation of the RDP. The process through which the Growth, Employment and Redistribution macro-economic policy document was drafted is a case in point. In other respects, the influence of private sector and neo-liberal local and international consultants whose thinking was shaped by the World Bank and the International Monetary Fund (IMF), substantially shaped the texture and direction of some infrastructure policies.

This book demonstrates that, despite the mandate to govern, in some respect, there has been continuity of policy between the late apartheid era and democracy. Some of the aspects of this continuity are:

• non-transformed state and parastatal bureaucracies

• white conservative consultants (some from the apartheid period) at the nerve centre of policy making

• significant influence by the World Bank or its proxies

• the ascendancy of a new breed of conservative bureaucrats and state officials.

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The central message in this book is that, in some fundamental ways, the ANC-led government retreated from its electoral mandate in some sectors and has been highly influences by neo-liberal advice. For example in transport, land, water and housing policies, the World Bank responded to several policy positions by releasing their own, which found their way into government policies.

Between 1994 and 1999, social and labour movements were too weak to successfully contest the broader neo-liberal trajectory. However, the next decade is likely to see the emergence of a radical empowerment movement rooted in bread and butter issues, which could challenge the current infrastructure programmes as they selectively benefit some and exclude the majority of poor rural people, the working people, the unemployed and the disabled. Current infrastructure policies are to some respect ill-equipped to deal with the current backlogs, let alone the challenges of the next millennium. The message in this book is that South African policy makers and the broad civil satiety sector should fundamentally re-think infrastructure policies and return to their roots, drawing on insights gained through decades of social struggles by mass democratic organizations. The second ANC-led government, under the leadership of Thabo Mbeki will ignore this to their peril.

References

African National Congress (1994), Reconstruction and Development Programme, Umanyano Publications, Johannesburg.

Budlender, D. (1998), The People's Voices: National Speak Out on Poverty Hearings, March to June 1998. Commission on Gender Equality, South African Human Rights Commission and the South African NGO Coalition, Johannesburg.

Department of Finance (1998), Infrastructure Investment: 1998 Mediurn Term Expenditure Review, Pretoria.

Development Bank of Southern Africa (1998), Infrastructure; Foundation for Development, Development Bank of Southern Africa, Halfway House.

Department of Water Affairs and Forestry (1998), Annual Report of the Department of Water Affairs and Forestry, Pretoria.

KHOSA, M.M. (1999), Empowerment through Service Delivery, Ashgate, London.

Mthembi-Mahanyele, S. (1998), Parliamentary Media Briefing, Minister of Housing, 6 August.

South Africa (1994), White Paper on the Reconstruction and Development Programme, Government Printer, Pretoria.

Smith, C. (1999), Too poor to pay for services, Mail and Guardian, March 26 to April 1.

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