South African Property Review March 2019

PROPERTY SOUTH AFRICAN

March 2019

REVIEW

The voice for the industry

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Mpumalanga roundup Slow growth, but growth nonetheless

New member one-on-one

Attorney: Dr Jade Rietveld

2019 Budget

Networking breakfast

Doing business in SA Enforcing contracts

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from the CEO

Business Unity South Africa re-affirms commitment to partnering with the public sector in spearheading the process of ensuring a transformed and inclusive economy Members of Cabinet, including President Cyril Ramaphosa, Finance Minister Tito Mboweni and Minister of Public Enterprises Pravin Gordhan, addressed business leaders as part of a panel discussion at the inaugural Business Economic Indaba held at the end of January under the theme “Strategic Dialogue for a Transformed and Inclusive Economy”. The indaba discussed sector plans for inclusive public-private growth initiatives in industries such as automotive, tourism, agriculture, construction, renewable energy, ICT, health and manufacturing

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usiness Unity South Africa (BUSA), whose work is largely focused around policy and legislative development, represents the private sector, the largest federation of business organisations in terms of GDP and employment contribution. According to its President Sipho Pityana, the forum follows the Jobs Summit held late last year and serves to clearly define the role and contribution of business in the country’s economic positioning, and re-affirm its commitment to partner with government in transforming the economy and achieving the elusive inclusive growth.

“Given that the private sector accounts for more than 70% of economic activity, investment and employment in the South African economy, these economic challenges can only be resolved when the private sector, a critical stakeholder in any society, is clear about its role and intended contribution,” he said.

The economic framework Pityana highlighted the huge progress made by the private sector over the past year in restoring the spirit of purposeful partnership among the key role-players in the economy. Working alongside partners in government, labour and the community sector, business has rescued the economy from the brink of collapse, staved off further ratings downgrades, pledged tangible investment undertakings and reached an accord to preserve and stimulate job creation across key economic sectors (where possible).

He did, conversely, stress our country’s weak economic growth and poor rating on the ease of doing business scale as the chief factors hampering fiscal revenues and investments, resulting in a ripple effect in government’s ability to render adequate public services in key areas of education, health and social welfare.

Pityana emphasised that growth in the national economy is not enough if the local economy is shrinking. “For me, it is not ambitious enough to have record jobs growth, unless those jobs are secure and delivering real growth in wages,” he said. “We are not fulfilling South Africa’s potential if, despite having world-class

and renowned learning institutions, we cannot turn their ideas into the products and services on which the industries of the future will be built.”

In addition to fiscal growth, the BUSA President highlighted the country’s need for a new framework for growth, and emphasised the level of inequality catapulting into economic risk. “Given the waves of discontent pulsing through our country, exemplified through violent service-delivery protests, a substantial part of our society has, understandably, become embittered not only with the excesses in our political system, but also with those who hold economic power,” he said. “If unchecked, this rumbling resentment and the feeling of despair could trigger populism that may reverse all our democratic gains.”

Public-private partnerships for inclusive growth Pityana also stressed the need for the government to partner with the private sector to ensure inclusive growth, particularly in the areas of people, ideas,

SAPOA President Ipeleng Mkhari, a panellist in the discussion of “Macro-Economic Visions” at the BUSA indaba

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from the CEO

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infrastructure, ease of doing business and community development.

Beyond offering bursaries, he said that business needs to develop pathways for graduates to gain experience in various sectors. He also called on both the public and private sector to invest more in research and development, turning ideas into strong commercial products and services.

Infrastructure, as the critical aspect underpinning out life and work, is crucial to the country’s high-growth ambitions.

“Our infrastructure choices should not only provide the basics for our economy; they must also support long-term productivity, and link people and markets to attract investment, while considering mega global trends,” said Pityana.

“Providing the right infrastructure in the right places boosts the earning power of people, communities and businesses.”

With regards to the ease of doing business, Pityana hopes that the right people, ideas, fit-for-purpose infrastructure and partners will turn our country into the best place to start and grow a business.

He finally called for more connected infrastructure and inclusive cities where residents can live, work and play.

“Our genuine desire for partnership will be tested by our commitment to walk the journey, not only with government but with our social partners, to secure economic justice, particularly for the marginalised and discontented,” he said.

“When government and business sit down to talk, our conversation should be about more than business contracts – it should be about the social contract.

Business must define itself as a reliable partner with government in delivering economic justice. To rebuild trust and restore confidence in our economy among both domestic and foreign investors, the challenge of building a transformed and inclusive economy with a strong ethical foundation must be met” SAPOA President Ipeleng Mkhari represented the commercial property sector as a panellist during the discussion about “Macro-Economic Vision”.

Best regards, Neil Gopal, CEO

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March 2019

PROPERTY SOUTH AFRICAN

The voice for the industry

REVIEW

South African Property Review

PROPERTY SOUTH AFRICAN

March 2019

REVIEW

The voice for the industry

PROPERTY REVIEW - LogoTreatment.pdf

Mpumalanga roundup Slow growth, but growth nonetheless

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2016/08/25

11:31 AM

Property Review editor Mark Pettipher ventured to Mpumalanga’s capital Mbombela to meet with commercial property professionals and gain insight into the area’s property industry.

Property law

New member one-on-one

SOMETIMES AN EXTRA SQUARE METRE GOES THE EXTRA MILE.

Attorney: Dr Jade Rietveld

2019 Budget

Networking breakfast

Doing business in SA Enforcing contracts March 2019

3 From the CEO 6 From the Editor’s desk 8 Legal update Comments by SAPOA on the Draft Expropriation Bill 2019 14 Legal update A new chapter for competition law 16 Education and training SAPOA Bursary Fund continues to promote education for the benefit of the property industry 20 Eskom opportunity As clear as daylight 22 Mpumalanga roundup Slow growth, but growth nonetheless 38 New member one-on-one Taking complex matters in her stride 40 State of city finances The changing state of city finances: Part 1 46 Doing business in South Africa Enforcing contracts 52 Howmuch.net Visualising the state of government debt around the world 54 Social 60 Off the wall Self-driving robots deliver snacks on demand FOR EDITORIAL ENQUIRIES, email mark@mpdps.com Published by SAPOA, Paddock View, Hunt’s End Office Park, 36 Wierda Road West, Wierda Valley, Sandton PO Box 78544, Sandton 2146 t: +27 (0)11 883 0679 f: +27 (0)11 883 0684 Editor in Chief Neil Gopal Editorial Adviser Jane Padayachee Managing Editor Mark Pettipher Copy Editor Ania Rokita Taylor Public Relations Officer Maud Nale Production Manager Dalene van Niekerk Designers Eugene Jonck, Fanie van Niekerk Sales Pieter Schoeman: pieter@mpdps.com Finance Susan du Toit Contributors Anne Schauffer, Johan Coetzee, Maud Nale, Mumtaz Moola, Neil MacKenzie, Raul Amoros/howmuch.net, State of City Finances 2018, Stuart Strachan, Tshepo Tshabalala, www.doingbusiness.org/southafrica Photography Mark Pettipher

Don’t let limited space, limit business.

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DISCLAIMER: The publisher and editor of this magazine give no warranties, guarantees or assurances and make no representations regarding any goods or services advertised within this edition. Copyright South African Property Owners’ Association (SAPOA).

All rights reserved. No portion of this publication may be reproduced in any form without prior written consent from SAPOA. The publishers are not responsible for any unsolicited material.

Printed by Designed, written and produced for SAPOA by MPDPS (PTY) Ltd e: mark@mpdps.com

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from the Editor's desk

Balancing the budget Three things happened in South Africa in February: SONA, the announcement of the general election date of 8 May, and Finance Minister Tito Mboweni’s maiden budget speech

“S

ONA was reasonably well-received,” says John Jack, Chief Executive Officer of Galetti Corporate Real Estate.

"Commercial real estate owners have hoped for some time to see the current levels of vacancy being reversed, and President Ramaphosa’s address was the positive news the industry needed. We should now see businesses take decisions to position themselves for growth.

“Two of the key items mentioned – the focus on expanding agricultural output and Total’s announcement that it made an important gas condensate discovery in the Outeniqua Basin – could see significant investment in South Africa, which will be a major boost for the real estate sector as local and international businesses get ready for expansion.’’

From a commercial property perspective, an increased demand for property will further drive construction.

Vacancies are expected to dwindle as long as the economy is growing as a whole, rather than just certain sectors growing in isolation within the economy. ‘’Overall, the business landscape looks promising as new investment opportunities suggest a strengthening economy and fewer vacancies, which has been an area of great concern for some time,” says Jack.

Tito Mboweni walked up to the lectern carrying an Aloe ferox and addressed the nation. “A few years ago, Madam Speaker, one of my predecessors – Trevor Manuel – handed out succulent plums to the members of this house to demonstrate that we were in a time of plenty,” he said. “I walk into this house with an iconic South African plant, the aloe. It is resilient, sturdy and drought-resistant. It withstands the elements. Today, I bring you a seed to prove that if we plant anew, we can return to those plum times.

“Our recovery will be slow and steady.

In 2019, growth will rise to 1,5%, then 2,1% in 2021. World economic growth is

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expected to slow, constraining South Africa. We have a weaker outlook now.

I’m someone who believes the budget must follow after policy is set, not the other way around.”

“The South African property market can look forward to two major factors in the industry remaining unchanged: transfer duties and capital gains tax,” says Mike Greeff, Chief Executive Officer of Greeff Christie’s International Real Estate. “This means that, whether you’re planning to buy or sell property in 2019, it won’t be more expensive. The announcement to leave these factors unchanged is set to bolster the market ahead of the 2019 national elections.”

Budget roundup ●● There are no changes to corporate income tax and dividend tax rates. ●● A 1,1% increase in the primary, secondary and tertiary rebates for individuals will provide a small amount of relief from inflation.

The change in the rebate will increase the tax-free threshold from R78 150 to R79 000. ●● All individual tax brackets will remain unchanged.

●● An increase in sugar tax to 2,21c/gram in excess of 4g of sugar per 100ml will be effective from 1 April 2019. ●● An increase in the fuel levy by 29c/ litre will consist of 15c/litre increase in the general fuel levy and 5c/litre increase in the Road Accident Fund levy, effective from 3 April 2019. ●● A carbon tax on fuel of 9c/litre will be introduced from 5 June 2019, against which no diesel refund can be claimed. ●● The increase in excise duties on alcohol and tobacco products by between 7,4% and nine percent is well above inflation. There are also proposals to tax electronic cigarettes and tobacco-heating products. ●● New items to be added to the VAT zero-rated list include white bread, cake flour and sanitary pads. ●● An export tax will be introduced on scrap metal. ●● There will be no changes to transfer duty fees. ●● There will be a general increase across all social grants.

Enjoy the read.

Mark Pettipher, Editor and Publisher

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legal update

Comments by SAPOA on the Draft Expropriation Bill – 2019 SAPOA submitted representations to the Joint Constitutional Review Committee on the review of Section 25 of the Constitution in June 2018

By Mumtaz Moola

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he Constitutional Review Submission concluded that the call for blanket expropriation without compensation in the field of land reform is totally unacceptable from an economical and legal point of view, and would be a breach of International Law and of the Constitution. It further concluded that it is unnecessary to amend the Constitution as Section 25(3) of the Constitution is flexible enough to provide, in certain exceptional circumstances, for minimal or no compensation to be awarded where it is just and equitable to do so.

It provides that an amendment of the Expropriation Bill (2015) is possible without infringing on International Law and without successful challenge in terms of Section 31(1) of the Constitution, if the principles set out in the Constitutional Review Submission are followed.

The Constitutional Review Submission, paragraph 10.6(g) concludes that the Expropriation Bill could be amended so as to provide for the application of Section 25(3) of the Constitution in order to eliminate the consequences of apartheid by taking into account all relevant circumstances and to provide for a comprehensive formula that is acceptable in international terms (providing for the payment of less than market value or nil compensation) as an exception to the traditional full compensation measure.

In order to provide for special relevant circumstances where minimal 8

SOUTH AFRICAN PROPERTY REVIEW

or no compensation will be payable, it is necessary to: ●● Closely and very clearly circumscribe the circumstances; and ●● Subject such provisions to the just and equitable qualification of Section 25(3) in order to ensure that the equivalence principle remains applicable.

The circumstances which are set out in sub-paragraphs (a) to (e) of clause 12.3 of the Expropriation Bill 2019 have not been carefully circumscribed.

As more fully set out hereunder, clause 12.3 is not compliant with the Constitution, International Law and norms of expropriation.

1. Introduction SAPOA supports land redistribution and reform so as to redress past historical imbalances. Unless there is significant reform and redistribution within the property sector, the entire sector is placed at risk. Accordingly.

SAPOA welcomed the opportunity to submit comments.

Let us preface by saying that the Bill provides a clear and proper structure within which expropriations have to take place in future, with which we agree. In comparison with the Expropriation Act 63 of 1975, the procedure differs in order to give effect to the provisions of Sections 25 and 33 of the Constitution. In particular, it provides for compensation to holders of unregistered rights

and procedures to ascertain the existence of those rights and the holders thereof.

The impetus for clause 12(3) is the political cry for expropriation without compensation.

Clause 12(3): There may be nil compensation in certain instances (International Law) The basic principle of equivalence whereby the expropriatee should not bear the burden on behalf of the society at large, is a principle of International Law and forms the basis of compensation provisions in various countries such as France, Germany, Australia and England.

It also forms the basis of Section 25(3) of our Constitution in that compensation must be just and equitable, reflecting balance between the public interest and the interests of those affected having regard to all relevant circumstances. The immediate question which comes to mind concerning the cry for expropriation without compensation is as follows: “What manner of justice requires the burden of an expropriation in the public interest or for a public purpose, to be carried by the individual who has been expropriated?”

SAPOA stated that, read against the background of International Law, which provided for a right and duty on all states to eliminate the consequences of apartheid, the measure of compensation in Section 25(3) is flexible enough to accommodate

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legal update the concept of just and equitable compensation, which is less than full compensation and which may in very narrow circumstances lead to minimal compensation.

We submitted previously that Section 25(3) of the Constitution is acceptable in terms of International Law, taking into account the imperatives of the elimination of the economic and social consequences of apartheid as a prerequisite for development, for which a wide margin of appreciation will be allowed by International Tribunals.

However, we submitted that if the Expropriation Bill (2015) was to be amended to unpack Section 25(3) of the Constitution in order to provide for special relevant circumstances when minimal or no compensation will be payable, it will be necessary to: ●● Closely and very clearly circumscribe the circumstances; and ●● Subject such provisions to the just and equitable qualification of Section 25(3) in order to ensure that the equivalence principal remain applicable.

This is seemingly what the new clause 25(3) seeks to attain.

It may be just and equitable for nil compensation to be paid This wording does not create a fiction or even a presumption. The wording seems merely to clarify the application of clause 12(1) which requires that the amount of compensation to be paid must be just and equitable, reflecting an equitable balance between the public interest and the interest of the expropriated owner.

It thus seems to be an explanatory provision, adding nothing to the existing law. The circumstances which are then set out in sub-paragraphs (a) to (e) are circumstances indicative of when it would be just and equitable to pay nil compensation. These circumstances which thus be carefully circumscribed, which is, alas, not so.

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Where the land is occupied or used by a labour tenant as defined in the Land Reform (Labour Tenants) Act, 1996 Special provision has indeed been made in Chapter III of Act 3 of 1996 for claims by labour tenants in respect of the land they occupy.

A claim is adjudicated by the Land Claims Court if contested by the owner, and the Court may award the land in terms of Section 22 and may determine the amount of compensation to be paid by the applicant to the owner.

In terms of Section 23, the owner is entitled to just and equitable compensation as prescribed by the Constitution. The Minister must grant or advance subsidies for the acquisition of the land or the rights in land by labour tenants.

Thus, there is no expropriation as contemplated in the Expropriation Bill, and the provisions of clause 12(3)(a) do not find application in respect of labour tenants as defined in Act 3 of 1996.

Furthermore, if land is expropriated which is occupied or used by labour tenants, and the expropriation is not in favour of those tenants, but for a different public interest purpose, then the labour tenants would be entitled to compensation as the holders of unregistered rights. (See Section 2(2) of Act 3 of 1996, which makes specific provision for just and equitable compensation should that happen.) The wording is so wide that in those circumstances the labour tenants may fall under the nil compensation provision.

The intention seems to be that sub-clause (a) may be applicable in circumstances where the land is expropriated in the public interest in favour of the relevant labour tenants. It is conceivable that in those circumstances, if the whole farm was occupied by labour tenants, that the compensation to the owner of the land may, on a just and equitable basis, be nil particularly if the whole farm has historically been so occupied by labour tenants.

A closer description of the intention in sub-clause (a) must be done.

Where the land is held for purely speculative purposes The following questions and concerns need to be taken cognisance of: ●● When will land be held for purely speculative purposes? ●● Would that, for example, relate to land which is held for township establishment purposes? ●● It must be made very clear that land held for purposes of future township establishment does not fall under the concept of land held purely for speculative purposes.

Unless this qualification is added, we foresee a stultification of future township development in the private sector. ●● Land may seem to be unused and held for resale, but what is not physically evident is that extensive processes are being conducted in order to have townships proclaimed in future. These will include geological surveys, civil and electrical engineering surveys and design of civil and electrical engineering services, market surveys and economic assessments, town planning assessments and designs and the like, all of which precedes the final decision to proceed with township development. ●● Without private township developers who hold land for future township development, the property industry is South Africa would come to a grinding halt. ●● No township developer would acquire land under the sword of a philosophy attributing a nil value to the land because it is seen as land held for speculative purposes only. ●● Careful attention should thus be given to explain the meaning of purely speculative purposes in sub-clause (b). ●● Furthermore, there seems to be no reason why land held

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legal update ●● for speculative purposes would qualify on expropriation for nil compensation. There are land owners whose sole purpose of business may be to speculate in land. They do not get the land for free and have holding costs.

It seems to be irrational to indicate these instances as qualifying for nil compensation. ●● There is no definition of “purely speculative purposes” referred to in clause 12(3)(b) – a definition needs to be included.

Where the land is owned by a state-owned corporation or other state-owned entity Presumably this sub-clause has cases in mind where stand land was transferred by endorsement in terms of the interim Constitution to provincial and municipal authorities.

In those circumstances, the land would have been acquired without paying for it. However, there are instances where provincial and municipal authorities as well as stateowned entities, paid full market value for the acquisition of the land they hold. Surely, in those circumstances, sub-clause (c) cannot be intended to apply. State-owned entities in particular have their own balance sheets and are subject to the PMFA. Again, sub-clause (c) should be suitably qualified to relate only to those instances where the particular land was acquired without having paid for it.

Where the owner of the land has abandoned the land When will land have been abandoned by its owner? Does this relate to land which is not occupied by the owner?

Ownership cannot formally be abandoned, because it is registered in the Deeds Office in the name of the owner. There are instances of so-called bona vacantia, such as where a company owning land has been deregistered, or where a natural person who is an owner of land has died without a will and without anyone qualifying as an heir in terms of the Law of Intestate 12

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Succession. In those instances, the property becomes bona vacantia vesting in the state.

Bona vacantia will then be state property which may, perhaps, be expropriated without compensation from the state represented by the Minister of Public Works for public interests. Other than that, there are no instances where ownership has been “abandoned”.

However, is the intention that the abandonment in this sub-clause relates to physical abandonment by the owner?

Examples may be where multi-storey residential buildings in the centre of cities have been taken over by unlawful tenants and the owner has no hope whatsoever of having them removed, while the building is being vandalised.

The concept of abandoned land must thus be much more closely circumscribed.

The market value of the land surpassed by present value of direct state investment of subsidy in acquisition and beneficial capital improvement This sub-clause hardly needs comment because it is the logical consequence of the application of clause 12(1)(d) and Section 25(3)(d) of the Constitution.

Clause 7(2)(h)(ii): The owner stipulating the amount claimed by him as just and equitable compensation prior to expropriation There can be no compensation prior to an expropriation. The wording should thus be changed to make clear that it would be the amount claimed by him if he or she is expropriated. If agreement could be reached, the expropriation will be in an agreed amount.

In principle, however, it should not be required from the owner to state what the compensation would be that he would claim if he is expropriated.

The state has at the stage when the notice of intended expropriation is delivered, full particulars of what the value of the land is. The position should be the other way around, i.e., the state should mention the amount which

they will be offering if an expropriation takes place.

The practical effect of the procedure as set out in the sub-clause will be that an owner will have to expend thousands of rand to have his property valued by a valuer, only to hear afterwards that the state is not going to expropriate in view of the claim. Then it would be wasted expenditure and there is no mechanism whereby the owner will be compensated for the expense incurred.

The practical effect of the procedure as set out in the sub-clause will be that an owner will have to expend thousands of rand to have his property valued by a valuer, only to hear afterwards that the state is not going to expropriate in view of the claim The notice of intended expropriation is thus used as a negotiating instrument, which it should not be. Negotiations should take place separately from this notice.

Clause 21: Determination of compensation by the Court Clause 21(2) must expressly make provision, as is the position in Section 14 of the Expropriation Act 63 of 1975, for the owner to apply to a competent court to determine just and equitable compensation, in the event of a disagreement between the parties.

The words “the expropriation authority must refer the matter to a competent court” is indeed nonsensical in view of existing court procedures.

That so-called referral can only take place by means of an application either on motion or by civil summons. How else would the expropriating authority or the owner “refer” the matter to a court? A court does not act on “referrals” by the executive authority.

It is difficult to conceive why subclause 21(2) is formulated the way it is.

It should be reformulated as in Act 63 of 1975. There is no reason at all why the wording had to be changed.

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legal update

A new chapter for competition law The Competition Amendment Act (“Amendment Act”) was signed into law by President Cyril Ramaphosa on 13 February 2019

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he Amendment Act, which will come into effect at a later (as yet undetermined) date, introduces some significant changes that fundamentally alter the scope of South Africa’s competition law and the powers of the competition authorities. This is done in the hope of redressing excessive concentration of ownership and control within the national economy, and promoting the participation in markets of small and medium businesses, and firms controlled by historically disadvantaged persons. The Amendment Act’s provisions and purpose represent a new chapter for South African competition policy.

This note sets out a high-level summary of the main need-toknow features of the Amendment Act.

Merger control ●● When analysing a merger, the Commission will usually consider numerous factors, including those listed in Section 12A of the Competition Act. The Amendment Act introduces three additional grounds under section 12A for the Commission and Tribunal to consider: (1) the extent of ownership by a party to the merger in another firm or other firms in related markets; (2) the extent to which a party to the merger is related to another firm or other firms in related markets, including through common members or directors; and (3) any other mergers engaged in by a party to a merger for such period as may be stipulated by the Commission. ●● The Amendment Act amends existing public interest grounds and further introduces a new public interest ground for the Commission and Tribunal to consider.

The amendment sees consideration being afforded to medium-sized businesses, and a further analysis as to whether the merger has an effect on small and medium-sized businesses to “participate” within relevant markets. The newly introduced ground sees consideration being given to the “promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market”. ●● In addition to the competition authorities’ merger review process, the Amendment Act introduces a parallel notification and investigation process to be administered by a Committee, constituted by the President, comprising of cabinet members and other public officials, who will consider whether a merger involving a foreign acquiring 14

SOUTH AFRICAN PROPERTY REVIEW

firm has an adverse effect on “national security interests” which are listed in the Amendment Act.

Abuse of dominance ●● Excessive pricing The test for excessive pricing has been reformulated under the Amendment Act, although it is largely reflective of existing case law. It has been explicitly stipulated that where it can be shown by the Commission that the price charged by the dominant firm is prima facie excessive, the onus shifts to the dominant firm to prove that the price is reasonable. ●● Predatory pricing The scope of possible cost benchmarks have been amended to include average avoidable cost and average variable cost, in order to allow for a more accurate assessment of exclusionary behaviour. ●● Margin squeeze: This practice has been included in the list of specific exclusionary acts. ●● Monopsony pricing/Abuse of buyer power: A customer that enjoys significant buyer power over its suppliers is prevented from abusing its dominance by imposing unfair purchase prices or trading conditions on its suppliers.

Price discrimination ●● The Amendment Act introduces an additional ground under which price discrimination may be tested. That is, whether price discrimination has the effect of “impeding the ability of small and medium businesses or firms controlled by historically disadvantaged persons to participate effectively”. ●● The Amendment Act also prohibits a dominant firm from refusing to supply small and medium businesses or firms controlled by historically disadvantaged persons in order to circumvent this new, additional ground. ●● If there is an allegation that a dominant firm has pricediscriminated against small and medium businesses or firms controlled by historically disadvantaged persons, the burden of proof has been adjusted so that a dominant firm will need to show that price discrimination did not impede those particular firms from participating effectively.

Administrative penalties ●● While the Act previously provided for “yellow card” offences (no penalty for a first-time contravention), the Amendment Act makes all contraventions subject to a penalty of 10% of a firm’s annual turnover.

legal update ●● An administrative penalty of 25% of a firm’s annual turnover has been included for a second offence.

Market inquiries ●● The proceedings during market inquiries will focus on categories of market features: (1) market structure; (2) observed market outcomes; and (3) conduct that has an “adverse effect” on competition. ●● Critically, the Commission will be able to take any remedial actions that it considers to be reasonable and practicable, with the exception of divestiture, which can only be imposed by the Tribunal. The Commission’s findings and actions will be binding, unless challenged in the Tribunal.

Exemptions Some of the existing grounds on which an exemption may be sought have been amended, and an additional ground has been included:

Achieve the world’s most sought-after professional status RICS is the professional home for all built environment professionals demonstrating quality of service and integrity.

“RICS maintain the highest educational and professional standards, protecting clients and consumers via a strict code of ethics. RICS is a benchmark of professional excellence in the built environment.”

TC Chetty, Country Manager, RICS South Africa Benets of RICS: • Professional status • Stand out – work to the highest ethical standards • A genuine competitive advantage • A range of professional development • A network of over 118 000 professionals worldwide • Access to global employment opportunities

●● The amended provisions now allow for exemption to be sought: • To promote the ability of effective entry into, participation in or expansion within a market by small and medium businesses or firms controlled by historically disadvantaged persons, and • For the economic development, growth, transformation or stability of any industry designated by the Minister. ●● Under the newly included ground, an exemption may now also be sought: • For competitiveness and efficiency gains that promote employment or industrial expansion.

The political will behind the passing of the Amendment Act is indicative of its importance, as a tool, to fulfil government’s policy objectives. It is expected that this area of law will receive more focus and resources from government for years to come.

The effect is that a greater range of commercial conduct will fall within the scope of competition law, the consequences of non-compliance have become more severe, and the powers of the competition authorities have been bolstered.

Firms would, therefore, be well advised to adopt a proactive approach to compliance with these new provisions, and tread carefully in those areas where new and untested prohibitions have been created.

Our team is looking forward to advising and guiding clients through this new and challenging landscape.

Contact us: T: +27 (0)11 467 2857

E: handrews@rics.org

M: +27 (0)83 288 6998

W: rics.org

Fasken Competition Law Team Neil MacKenzie (Partner and Head) nmackenzie@fasken.com Johan Coetzee (Partner) jcoetzee@fasken.com Stuart Strachan (Associate) sstrachan@fasken.com

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education and training

SAPOA Bursary Fund continues to promote education for the benefit of the property industry Students who are part of the SAPOA Bursary Fund achieved a record 90% pass rate last year – the highest to date. The academic and professional mentorship offered as part of the bursary programme continues to yield positive results, assuring the Fund and its sponsors of graduates of a high calibre. Nine students have successfully completed their qualifications; four of those have already started their internship programmes. Forty students have now graduated from the SAPOA Bursary Fund since its inception in 2009

By Maud Nale

FROM LEFT  The 2018 Real Estate Diploma graduates (Cape Town University of Technology): Lupumlo Dala (cum laude), Lee-Ann September, Menzi Gumede (cum laude) and Esethu Sitsila

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s a result of the Services SETA (SSETA) partnership, nine students have graduated with a diploma in Real Estate, with two passing cum laude. With the collaboration drawing to a close at the end of the year, members are urged to prepare for the uptake of these graduates,

who will be completing qualifications in Property Studies, Construction Studies and Quantity Surveying.

The graph below depicts the number of students per qualification over the past two years for both SAPOA and SSETA students:

No. of Students per qualification for 2018 vs 2017

We are also pleased to announce that, effective from this year, the Bursary Fund will be launching its Alumni Programme, where past graduates will have an opportunity to mentor current students.

Over the past few years, accommodation for current students has become a critical lacking component for the bursary sponsorship. SAPOA appeals to its member companies for assistance in this regard.

The commercial property industry is changing one graduate at a time, and the SAPOA Bursary Fund would like to express gratitude to each of our member companies, past and present, who have participated in making the Fund a success.

If you would like to play a role, please e-mail bursaryfund@sapoa.org.za.

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The objective of the Award is to honour and celebrate the exceptional contributions made by an individual who has significantly contributed to the property sector in South Africa.

The Esteemed title will be awarded every 3 years to an individual based on their following criteria: >>

>> >> >> >> >>

THE NUMBER OF YEARS ACTIVEL Y INVOL VED WITHIN THE INDUSTRY THEIR IMPACT WITHIN THE INDUSTRY CONTRIBUTION TO LEGISLATION SERVED THEIR PEERS DRIVE TRANSFORMATION ALIGN TO THE PILLARS OF SAPOA

Nominees and winners will be announced at the 2019 SAPOA Annual Convention & Property Exhibition taking place from 18-20 June 2019 at the Cape Town ICC.

CLOSING DATE FOR ENTRIES: 08th APRIL 2019 WEBSITE LINK: http://www.sapoa.org.za/convention/awards/lifetime-achievement-awards 60

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Eskom opportunity

As clear as daylight With the recent Eskom tariff hike top of the agenda, along with the country being subjected to rolling load shedding, Property Review discussed this burning issue with SAPOA’s National Developers Forum Committee Chairman Richard Bennet – and found out that our energy crisis can be seen as an opportunity to instigate change and growth in South Africa

By Mark Pettipher

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veryone can agree that Eskom as a business in its current form is not sustainable – so much so that, in his State of the Nation Address, President Cyril Ramaphosa pointed out that there is a need for a certain amount of restructuring to be done. To this end, Public Enterprises Minister Pravin Gordhan has been tasked with unravelling the conundrum that is national energy provider.

Richard Bennet, Chairman of SAPOA’s National Developers Forum Committee, recently attended an open forum with Johannesburg’s Executive Mayor Herman Mashaba, where certain issues were raised. Bennet suggested various points of action, given that we know Eskom has spent way too much money and that the finances are not being efficiently managed.

“We can also agree that the current head count within the parastatal needs to be reduced because the salary bill is simply not sustainable,” he said. “There are many bright minds looking into the problems faced by Eskom, but, as a city that needs to utilise its services, there are a number of topics that need to be discussed. For example, city mayors can drive growth by enabling cooperation with the private sector. We can already see the private sector taking the lead to be less reliant on the national grid – and this is where both the national and the provincial branches of the government as well as the cities need to develop legislation that will encourage a different way of thinking when it comes to energy use.

“A country the size of South Africa has many options available when it 20

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Richard Bennet, SAPOA’s National Developers Forum Committee Chairman

comes to alternative energy sources, solar and wind being uppermost in our thinking. In the urban and city environment, we are already seeing investor-generated power solutions atop shopping malls, in business parks and on office buildings. The initial outlay is expensive – but alternative energy sources are sustainable and, companies who are early adopters are seeing returns on their investment in as little as five years.

“The immediate effect of encouraging alternative energy sources is that there is less demand on the national grid.

Those companies that have already adopted alternative energy are satisfying their peak energy demand and, in many cases, generating excess energy that is stored in batteries to help them get through the ‘bumps’ when power outages occur.

“South Africa should adopt – as other countries have – a rebate for putting

excess energy back into the grid. This would further encourage businesses to become more self-sufficient and be less of a burden on the grid.

“Adopting ‘Time of Use Tariffs’ also encourages companies to manage their peak power usage, thereby educating companies to use power wisely. As a result, some businesses are changing their operating hours and examining how their staff are working: when, where and how they are utilising their work space; offering solutions such as flexi-time and hot-desking; and, in some cases, encouraging employees to work from home.

“We are seeing that while business dictates a need for an office, the type of office, work space and employee facilities that are required are changing.

There is increased demand for a ‘greener’ environment, and modern offices are being designed and built with that in mind. The Fourth Industrial Revolution is also a contributing factor.

“A greener building is more efficient and therefore has more value – it’s a known fact. The knock-on effect is that the city’s valuation of a building goes up and so the rates increase. If you add this to an Eskom rate hike, you then get a situation where businesses are getting to a point of not being able to afford to occupy those buildings. In extreme cases, some companies can go out of business.

“Eskom needs to reduce its debt as soon as possible, and its answer is to charge more for less. Further exacerbating the rate of inflation on our already struggling economy and rand is not the answer!

Eskom opportunity “We put it to Eskom – and to the government – that the country needs to come up with more efficient power sources. There are ‘greener’ alternatives that we know are cheaper than the current form of electricity generation.

“In line with the government’s thinking, the culture of non-payment for services needs to change – and we believe that a lifestyle change also needs to be encouraged, starting in schools and educating our youth about better, more efficient use of electricity.

“Take those very schools as an example: they operate during daylight hours. Schools could be taken off the grid; walkways, shade areas and classroom buildings could all be equipped with solar panels as part of the fabric of the school structure.

This in turn would demonstrate to the learners the very lifestyle change we are encouraging.

“In the same way, when development of new townships, industrial zones and business parks is being considered, a planning stipulation for each new development should be the inclusion of alternative energy sources.”

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RESTRUCTURE TO CREATE EFFICIENT MANAGEABLE BUSINESS ENTITIES

GENERATE A MORE ENABLING WORKING ENVIRONMENT

ESKOM tariff debate can be seen as an opportunity to re-think policy

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DEVELOP ALTERNATIVE AND SUSTAINABLE ENERGY RESOURCES

“We agree with the South African Cities Network that cities need to be able to increase their tax-paying base to be able to sustain the municipalities.

All citizens should pay for the services they enjoy. We also believe that if a service is paid for, then there is a perceived value to that service. Initiating such an incentive would require a certain amount of investment by parastatals such as Eskom.”

“Installing alternative energy power supply initiatives within affordable urban housing developments and rural areas would be cheaper to sustain in the long term. It would be regulated by fitting within a households means – a basic installation would be sufficient for the household’s primary needs. It would be considered a household’s asset and, since the homeowner would be required to pay for and maintain the battery system, this would educate him and help to adjust people’s lifestyle.

It would also form part of the home allowance and social grant.”

Bennet sees alternative energy as an opportunity, and calls on Eskom to be proactive and progressive in its thinking. “Instead of worrying about staff redundancies, Eskom should be looking to retrain, re-skill and redeploy its human capital. By creating sustainable, manageable business units within the organisation – units for generation, distribution, planning and procurement – sustained investment and development opportunities will surely follow.

“Eskom and the mayoral leadership teams of our STEP cities should use this time of crisis to initiate change, to ENCOURAGE INVESTMENT AND GROWTH be transformative, to create a culture of cooperation, to be innovative and more progressive. This will, in turn, allow for and encourage public-private partnerships and help grow South Africa’s economy, as well as put us on the map as a leader in Africa and an example for others to follow.”

Alluding to the current cost of infrastructure delivery, Bennet says that up to 50% of the cost of installing services goes to electrical installation.

The remainder goes to roads, water and sanitation. As far as he’s concerned, those percentages simply don’t add up.

He believes these costs are governed by municipalities. “City and municipal managers as well as their town planners need to collaborate with bodies such as SAPOA to examine what’s gone wrong with the costings,” he says.

There is a need to better understand the size of the demand on energy for industrial and commercial complexes, starting at development and planning stages. “Here is an opportunity for cities and local government to reassess the cost of getting power to developments and where alternative energy sources could potentially be located,” says Bennet.

“There are many areas within city boundaries where land cannot be used for habitation and/or commercial development. Those areas could be used to provide space for wind and solar ‘farms’, keeping distances and delivery local and immediate.

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PARTNER WITH PRIVATE SECTOR THINKING AND INNOVATION

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Mpumalanga roundup

Slow growth,

but growth nonetheless Based on the analysis of the economic value of the commercial property sector in the City of Mbombela (CoM) it is evident that the contribution made by the sector is growing in the municipality. The relationship between the private and public sector’s in the CoM is relatively good, both entities have an understanding of the dynamics and shortcomings affecting the property development market. The CoM strives to ensure that the development process is working effectively and consciously campaigns to the private sector to work in partnership with the municipality in fostering a dynamic and growing commercial property sector.

(Extract from the Mpumalanga GDP report 2017).

Mpumala

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2017 THE ROLE AND IMPACT COMMERCIAL of the PROPERTY SECTOR

2017 THE ROLE AND IMPACT COMMERCIAL of the PROPERTY SECTOR

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lying into Kruger Mbombela International Airport, you are immediately struck by the abundance of greenery, the vastness of neat rows of citrus and macadamia trees and one certainly doesn’t get the impression of the siSwati meaning of ‘a lot of people in a small space’ – Mbombela.

Mbombela is the Province of Mpumalanga’s Capital city, the region is renowned for its citrus, avocado and more recently macadamia production, in the past the region boasted healthy Gold mining operations and not too long ago the City, arguably, was known for its 22 20

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hosting of four 2010 World Cup Soccer Tournament matches.

My first ‘port of call’ was to SAPOA’s regional Chairman, Derek Todd, Managing Director at Kellaprince Property Group.

“Mbombela has always been a positive city,” begins Todd, “it has always been a service hub for the surrounding farming and business community and is close to the Mozambique border. As such, people take advantage of our close proximity to Maputo. The result is the city enjoys support of many of the ‘white collar’ medical, accounting and legal services on offer and is able to ride the economic

downturn that is being felt in other parts of South Africa.”

Kellaprince enjoys a pedigree and association that goes back some 129 years to 1887, when FT Kellar & Co was formed, establishing the first Estate Agency in the Lowveld. Kellaprince is proud of its achievements, they have, over the past 33 years, been involved on behalf of various investment syndicates, with substantial commercial and residential developments valued at over R500 million.

Today their activities focus on five blocks; Commercial Property

Mpumalanga roundup

Development, Commercial Property and Facilities Management, Commercial Sales and Letting, Residential Sales and Residential Letting.

“The housing market in Mbombela has been relatively flat and house prices have stayed almost constant for the past 6 or 7 years, with the greatest movement of property being valued at between R800,000 to R1,2 million, as a result of urbanisation, a developing middle class and the emergence of first time property purchasers. In addition, with the university coming on stream, there is a greater demand for rental accommodation which is driving development in investment properties such as Fairview, Andrew Porters new development, the new development planned at Safubi and Halls’ mixed use development,” says Todd, “R3 million and above are few and far between.”

“With the development of the new High Court, the new Mpumalanga University – South Africa’s first new university postapartheid – the Hospital, the Mpumalanga International Fresh Produce Market and the Nkomazi SEZ, we will see over the next ten years or so significant growth across all sectors of the property industry here,”Todd says encouragingly.

CIDs key to urban and precinct management Former SAPOA Mpumalanga Regional Chairman, James Aling is also upbeat about Mbombela’s future, “exciting things are happening in the city and Riverside node and we are looking forward to the new private school being established which is an excellent catalyst for the residential properties which are being introduced to the market.

New medical facilities will also be introduced into the precinct.

“T

he third phase of Riverside is coming to the market, and we are seeing great energy with Public sector projects, the High Court building is complete and there is about 13,000sqm of adjacent office space. The opening of the high court is fundamental to and great for the City and the region,” says Aling. “We will see the impact that the University will have on the City, it’s one of the biggest investments the city has seen, some R3,2 Billion has been committed to rolling out facilities to accommodate a planned 15,000 student population.”

“The University will impact the economy in many ways, employment through staffing and related services, not to mention the effect the student body will have on local business,” points out Aling, “we also look forward to the Universities

integration with the city, where we foresee opportunities for research and postgraduate contribution to developing the city’s research and knowledge base.”

“Mbombela will continue to grow and enjoy its ‘fame’ of being alongside the economic Maputo Corridor, which slices through the city’s edge. Its close proximity to Maputo allows us to take advantage of being on this important trade route in terms of tourism to the Kruger National Park, agri-distribution, education and medical services. There has been a revival of agriculture in the region and we are – largely thanks to good international prices and demand for South Africa’s produce – experiencing an upward swing of investment in soft citrus, avocado and macadamia farming as well as related services.”

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Mpumalanga roundup

Mpumalanga High Court Photos by Ron Olivier

Mpumalanga roundup

Mpumalanga roundup

Aling is the former Managing Director of one of the city’s largest landowners, Halls Properties. It is widely acknowledged that, without Halls’ foresight in developing and making available large swathes of land, Mbombela as a city would not be growing at the current pace.

“In 1995, Halls offered to donate land, strategically located in spectacular surroundings, to the provincial government, with a view to securing capital city status for Mbombela,” the Halls Properties website says. “With the development of the landmark government complex, additional anchor developments were quick to follow, notably the Riverside Mall and Tsogo Sun Casino.

“Over the past two decades, Halls Properties has been the visionary behind the landmark Riverside Park, Mpumalanga’s premier regional property node on the R40 between Mbombela and White River.

It views the land as a valuable, nonrenewable resource that must be managed with careful planning and long-range vision for the benefit of future generations.

Over the years, Halls Properties has built an experienced and diversified team, and prides itself on its innovation, professionalism and ability to foster strong, effective relationships with key stakeholders, service providers and business partners.

Phase 1 of the Riverside Park Precinct expanded rapidly to include motor dealerships as well as offices and the Riverside Junction shopping centre. This was quickly followed by the launch of Phase 2 in 2007, with the construction of Mercedes-Benz and Builders Warehouse.

In 2010, Makro entered the precinct, and The Grove shopping centre (anchored by a Super Spar, was opened). Again, takeup in Phase 2 was rapid, and only a few stands remain available in this phase. In June last year, Riverside Ext 35 and 36, the first of the Phase 3 townships, were proclaimed, with extensive residential 26 22

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development rights to bring a muchneeded dimension to the mixed-use node.

“With a keen awareness of good stewardship, Halls Properties has ensured that the development of Riverside Park has been undertaken in a responsible and sustainable manner, guided by precinct development plans and manuals. The establishment of the Riverside City Improvement District (RCID) has ensured that residents, shoppers, investors and visitors have access to a clean, safe precinct with world-class services.

“Halls’ commitment and responsibility to the precinct remains firmly intact, and the well-managed Riverside CID will be expanded in 2019 to include the Phase 3 townships, ensuring that this precinct remains a vibrant mixed-use destination, attractive to investors and visitors.”

Taking on the mantel of the City Improvement Districts (CIDs), Aling has set up Spaces, Places and Partnerships, a company that “focuses on urban and place management, specifically through the establishment and management of CIDs. In

addition, we also undertake partnership establishment and management and provide urban/precinct management and real estate consulting services.”

“Mbombela has three CIDS, two of which we manage, the Riverside Park consisting some 180 hectares and the Riverside Industrial, about 90 hectares, the third CID is the Nelspruit Central City Improvement District,” says Aling. These CIDs have come together as a collective, being the Mbombela CID Forum, which interacts with the City of Mbombela, to ensure the sustainable operation and growth of CIDs in the city and broader municipal area.

Aling aims to lead the way in strengthening existing CIDs as well as to establish new ones, locally and regionally.

“CIDs are essentially responsible for taking care of the public spaces in partnership with the property owners and local authority by providing additional “top up” services in the public space and in so doing enhance the Public Private Partnerships opportunities to encourage investment in our cities.” Aling qualifies, “we need to tidy up the existing enabling legislation and develop a National Policy on Urban and Precinct Management and take lessons from successful partnerships such as those of the Cape Town City Central Improvement District and Johannesburg’s Inner City Partnership”

City manager reappointed Mbombela has recently reappointed Neil Diamond as the Municipal Manager for a further five-year term. According to the City of Mbombela website, he has been mandated to “implement a strategy to establish a financially sound local government with a transparent, clean administration that delivers quality services to residents and citizens of the city”

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iamond is widely regarded as a local government turnaround specialist, and is well educated in local government management strategies. He holds an Executive MBA in Strategic Management from BSN in the Netherlands, and has also completed an advanced certificate in “Leadership in Municipal Governance” at Wits University’s School of Governance. He has authored academic papers on the subject of strategy, and published numerous articles about economic development, local government, municipal finance management and service delivery.

Diamond believes in the Smart City philosophy as well as public-private partnerships through which businesses partner with government to deliver services. His management philosophy is to create an enabling environment with prudent financial management, while motivating staff to work collectively to improve service delivery on a peoplecentred basis by putting the needs of the community, residents and citizens first.

Mpumalanga roundup

Tenant retention is paramount Cara Davis of HD Properties explains that the Mbombela property market is highly competitive and occupancy rates are moderate. “The Riverside Office Park was completed in 2017; just about two years later, we’re sitting at about 65% occupancy,” she says. “We have a small component of government tenants, including the Government Employees Medical Scheme offices”

“W

e were confident to be involved with the Riverside Office Park, the first in Mbombela, but knew it would take time to fill,” says Davis. “We’re happy to say that the quality of the build and its strategic location accessible from the R30, R37 and N4 bypass have attracted two major national companies, which both previously owned (and sold) their buildings in downtown Mbombela. It has taken us two years to sign them up.”

Commenting on office trends, Davis observes that a certain number of HD’s tenants are looking to downscale, which means that in order to retain them as clients, the company needs to either offer them space in the new office park complex or reappoint and renovate existing older buildings. “In some cases, in order to retain clients, we have had to lower our rentals,” she says.

“Commercial office letting is following trend. Tenants are demanding more openplan options with break-out areas and

smaller spaces. Parking is becoming an issue, and tenants balk at having to pay for it – they are not prepared to pay even if it is attached or next to the office building.”

HD Properties is mostly a managing agent, with a portfolio of buildings that range from A+ to B, and a small component of industrial to let. The company has an industrial scheme in the planning stage which will hopefully come to fruition in about five years, and there are plans to develop a residential component.

“Compared to salaries in Mbombela, the cost to rent a property is high,” says Davis. “We acknowledge that our potential customers are ‘rent aware’ and know the local market. Housing is scarce, as are schools; and with the building of the Mpumalanga University, we will continue to see a need for more affordable student accommodation. Some guest houses are converting to offering student accommodation to take advantage of the demand.”

She agrees with Todd’s view: “There is economic growth in Mbombela, but it costs money to remain relevant and competitive, to refurbish existing office space and to retain tenants.”

An architectural viewpoint Raised in White River, architect Jacques Terblanche has been fortunate enough to be involved in a number of high-profile projects in Mbombela, such as the FIFA World Cup stadium and the ongoing High Court and Mpumalanga International Fresh Produce Market. His architectural firm Orbic Architects employs 10 architects

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eing a local, Terblanche has “his ear to the ground” and understands the nuances of the area. He graduated from the Nelson Mandela Metropolitan University with bachelor’s degrees in Building Arts and Architecture (B.Building Arts & B.Arch, Architecture).

“In terms of development, Mbombela has expanded outwards towards Riverside, out along the R40, Barberton Road, and there is planned development in Crocodile Valley, east of the CBD,” says Terblanche. “There is also a certain amount of development moving back to the town centre near the High Court.

“iLanga was upgraded by the development of the iLanga Mall, and benefited from government offices being located in its vicinity. The Orchard Shopping Centre development borders the Mbombela Golf Course and will also include doctors’ rooms as well as more residential properties.”

“When the stadium was built for the 2010 World Cup, there were plans to develop the area around the stadium.

Since then, a large informal settlement has grown instead, evaporating the plans to develop blue-chip opportunities. This doesn’t mean that everything has come SOUTH AFRICAN PROPERTY REVIEW

27 23

Mpumalanga roundup

Mpumalanga High Court Photos by Ron Olivier

Mpumalanga roundup

Mpumalanga roundup

Photo by Ron Olivier

to a halt: there are still community project opportunities such as the building of a community centre, and the continued implementation of the building of the proposed Parliamentary Village.”

Plans for the development of the Parliamentary Village originated in 2013 as a drive to link Mbombela and White River. This integrated human settlement planned to include a vast housing project of about 820 middle-income and 350 low-cost houses, residential apartments and student accommodation.

Plans are also in the pipeline to build a Convention Centre.

The Parliamentary Village, which has been located on the old airport road south of the city, is under construction and is to cater for members of the provincial legislature and senior officials.

The Convention Centre is to comprise the main amphitheatre, meeting rooms, halls and a clinic that could host big international events, while the student accommodation will cater for students that will be enrolling at the University of Mpumalanga.

“I hear about many projects and submit a large number of proposals, but it appears that recently there is – for obvious reasons – a ‘wait and see’ ethos pervading the local property development market,” says Terblanche. “But I’m pleased to say that the High Court development is nearing its completion.

“My involvement there goes back as far as 1997, when I submitted proposals for additional law courts with a tunnel connecting them to the police station.

I once again submitted proposals in 2007, 30 24

SOUTH AFRICAN PROPERTY REVIEW

and was short-listed along with another architectural firm in 2008. We were not the lead architects at the time. Various administrative issues caused delays in development, and during construction the lead architect was dismissed. In 2013, Group Five took on the project and has stayed with it ever since.

“But there has been a litany of stopstart financial administrative issues to be resolved, and further delays have come

about due to access issues. The courts are now, I believe, going to be opening around April this year.

“The Mpumalanga International Fresh Produce Market has completed its earthworks phase and is currently awaiting the financial go-ahead for the first phase of building the covered area to commence. The Mpumalanga Economic Growth Agency is driving the development.”

Entrepreneurial opportunities abound Gugu Mkhatshwa, entrepreneurial owner of Mashinini Trading, holds a number of properties in and around Mbombela. “We own eight commercial properties, and four of them house National and Provincial tenants,” she says

“I

registered Mashinini Trading in 2001,” says Mkhatshwa. “At the time I was very young – only 23. We started out in construction and, through various small enterprises, saved cash to start my first project.

“With the help of a relative who was in engineering cousin, we employed labourers, builders and artisans to build our first project. We made a modest profit, which we ploughed straight back into the next project. Keeping my expenses as low as possible, I handled everything from business development to project management, negotiations and marketing. The company grew, as we always reinvested the profits.”

Around that time, the South African government was on a drive to promote and encourage black women in the construction industry.

Mkhatshwa attended a variety of courses and took her new-found knowledge back into her construction business.

Realising that the construction industry is unpredictable, she started to look for longer-term projects that would last at least three or five years. This is how she got into building maintenance.

In 2008, Mkhatshwa saw an advertisement stating that the local government was looking for a building to rent. She enquired about what was needed and, using the cash profit from her construction projects, set out to buy

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Mpumalanga roundup her first property, which she subsequently rented to them.

Being a quick learner, Mkhatshwa understood early on the value of buying commercial properties that have established tenants in them. Funding most of her purchases with liquid capital, she was able to leverage tenant income against bank loans, and rapidly paid off her bonds. “Buying property with the capital I have from profits gives me better returns than leaving the money in an investment bank account,” she says.

She also started to attend auctions, finding properties that were repossessed or assets that needed to be sold off, and enhancing the company’s rental stock.

Thirsty for knowledge, Mkhatshwa joined SAPOA as a member in 2012, and has attended most of SAPOA’s courses and workshops. “I needed to understand the commercial property industry more thoroughly, and SAPOA gave me that opportunity,” she says. “I am now able to network and get mentorship from other members who have had greater exposure in the industry.

“At the moment, I’m enrolled as part of the 2019 Enterprise Development Property Fund programme, run by Nigel Adriaanse. The three-year course is helping to put in place the missing information I’ve been looking for.”

Mkhatshwa also understands the advantages of joint collaborations. “Joint ventures help spread the risk of property development, so in the long term I’m openly looking for partnerships with larger companies,” she says.

She believes there are many benefits to partnering with her: Mashinini Trading is black woman-owned, which has led to her being awarded a number of facilities management contracts. “Those contracts have brought welcome stability to the maintenance side of my business,” she says. “I am very hands-on when it comes to operations, and have not forgotten the importance of low overheads.”

That’s when her entrepreneurial side kicks in. “With low overheads, little debit and liquid capital in hand, I’m able to act quickly when an opportunity arises,” she says. “I like to keep busy; I’m always looking at the market for potential investments.

32 26

SOUTH AFRICAN PROPERTY REVIEW

“We have prospecting rights, and land on which we’ve planted macadamia trees, and we’re applying to get smallbusiness finance and micro lending licence. My dream is to create one-million job and business opportunities. We already employ a number of people across the different interests I’ve bought into, but I want to make a difference in people’s lives and assist our government in reducing the unemployment rate in South Africa.”

Mkhatshwa dreams of a South Africa where people want to live, invest and grow, and she firmly believes that the government needs to work with the private sector in the local communities to better understand what is needed to achieve this.

“The business people in the various metros need to get back into the communities; to listen and assist them by investing and creating social business development partnerships,” she says.

Mpumalanga Economic Growth Agency Nkomazi SEZ vs Mpumalanga International Fresh Produce Market: Erick Nyathikazi and Herbital Maluleke of MEGA clarify the roles of the two different programmes

H

erbital Maluleke is an expert in special economic zones (SEZs) as well as an agri-processing sector specialist.

“The Nkomazi SEZ is a geographically designated area with special benefits within the SEZ space,” he says. “It will focus on agri-processing with alliance to transport and export markets. It will create job opportunities and will become an ‘industrial city’. On a national level, we are looking to see how we can help develop collaborative cooperation with other regions and utilise existing transport infrastructures to be able to boost trade with our neighbours, Mozambique and Swaziland. We also aim to support bilateral trade within the greater SADC and SACU alliances. Agriprocessing will be the major component supported by logistics in the SEZ.” Erick Nyathikazi is a property development specialist within MEGA. “The Mpumalanga International Fresh Produce Market (MIFPM) is there to link and support previously disadvantaged small farmers, bringing cooperatives together to allow those small-scale farmers exposure to local, regional and international buyers. They will also be able to supply the SEZ.” The MIFPM will offer open trading halls for fruit and vegetables; a meat, fish and flower market; complimentary cold storage; ripening facilities and pallet

handling; processing facilities; an export hall; bulk breaking facilities for retail outlets; links to statutory organisations such as Customs and EuroGap; logistics enterprises; shared collation and packhouse facilities for SMMEs; commercial services including banks and restaurants; and a food bank for NGOs. “It is predicted that it will take another 28 months to complete the MIFPM over planned phased developments that will align with released budgets, community sensitivities and skills development,” says Nyathikazi. “At the same time, contentious labour issues will need to be strategically and sensitively managed.

It is anticipated that the construction phase will begin in the next few months, with the commencement of the development of 10 000m² of the undercover trading hall, which should stimulate a natural momentum to develop the remaining 20 000m².”

The Nkomazi SEZ will be the axis of economic integration between Mpumalanga, Gauteng and Limpopo, and our neighbours Swaziland and Mozambique. Strategically positioned in the border town of Komatipoort, the SEZ offers investors a multi-sector base of operations along the Maputo Corridor.

“The SEZ is still a geographically designated greenfield site. It awaits gazetting, which will kick-start the

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Mpumalanga roundup

Mpumalanga roundup

Mpumalanga roundup development stage,” says Maluleke. “Plans have been prepared and the feasibility study has been conducted. The required infrastructure has also been identified.

“Township planning approvals are still in the pipeline, and it will be a minimum of two years before construction will take place.

“The SEZ will be funded jointly by the private sector and via Department of Trade and Industry (DTI) investment, through the provincial government.

Part of the motivation for governmentsupported funding is that we can demonstrate firm commitments from the private sector.

“The DTI expenditure is expected to be released over the next seven to 10 years. Phases will be dictated by investors’ requirements but certain bulk infrastructure will need to be in place to accommodate initial interest.

“MEGA will be the implementing an agent on behalf of the government. We will apply policy and manage the project in a sustainable way.”

“SEZ governance and operations are well documented through the SEZ Act,” says Nyathikazi. “As such, the SEZ will be run along best practice and sustainable business models.”

South Africa’s 10 industrial and special economic zones OR Tambo SEZ

Dube Tradeport SEZ

Musina-Makhado SEZ

Nkomazi SEZ

OR Tambo SEZ The OR Tambo SEZ aims to develop land around OR Tambo International Airport to stimulate economic development. The SEZ supports the growth of beneficiation of precious metals and minerals sector, with a focus on light, high-margin, exportoriented manufacturing of precious and semiprecious metals.

Dube Tradeport SEZ Dube Tradeport SEZ is near King Shaka International Airport, 30km north of Durban. It brings together an international airport, a cargo terminal, warehousing, offices, a retail sector, hotels and an agricultural area.

Musina-Makhado SEZ The Musina-Makhado SEZ comprises two geographical locations. Musina targets light industrial and agriprocessing clusters, while Makhado is a metallurgical and mineral beneficiation complex. A third site has been identified to target petrochemical industries. The SEZ is located along the N1 route and is close to the border between South Africa and Zimbabwe.

Nkomazi SEZ The Nkomazi SEZ will be in Komatipoort in Mpumalanga. It will focus on primary agriculture, agri-processing, nutraceuticals, fertiliser production, and meat and leather products. It is expected to contribute R97,6-billion to the country’s GDP, and generate R3,5billion in primary agri products.

Maluti-a-Phofung SEZ Maluti-a-Phofung SEZ Maluti-a-Phofung SEZ in Harrismith, Free State, lies at the midpoint of the crucial Durban-Johannesburg logistics route. The zone is licensed for general manufacturing, offering a production base for light and medium manufacturing. It has logistics links by road and rail to South Africa’s industrial heartland, the Port of Durban and the Bloemfontein-Cape Town route.

Special economic zone (SEZ) Industrial development zone (IDZ)

Saldanha Bay IDZ Saldanha Bay IDZ The Saldanha Bay IDZ north of Cape Town serves as the primary oil, gas, marine repair engineering and logistics complex in Africa, servicing the needs of the upstream oil exploration industry and production service companies operating in the oil and gas fields in sub-Saharan Africa.

Richards Bay IDZ

Atlantis SEZ

Coega IDZ

Atlantis SEZ Launched in December 2018

by President Cyril Ramaphosa, the 124,5-hectare Atlantis SEZ in the Western Cape is designated for the manufacturing of green technologies, alternative waste management, energy-efficient technology, alternative building material and many other clean technologies.

Coega IDZ Designated in 2001, Coega is the largest IDZ in Southern Africa and was South Africa’s first. It is located in the Nelson Mandela Bay Metropolitan Municipality in the Eastern Cape. The Coega IDZ has attracted investment in the agri-processing, automotive, aquaculture, energy, metals logistics and business process services sectors.

East London IDZ East London IDZ The East London IDZ was established in 2003 at an industrial park that has customised solutions for various industries, including automotive, agri-processing and aquaculture.

It is located in the Buffalo City municipal area.

Richards Bay IDZ The Richards Bay IDZ is an industrial estate on the KwaZulu-Natal coast.

The N2 business corridor links the province’s two major ports, Durban and Richards Bay, and connects with Maputo in Mozambique and areas in east Africa. It is linked to the port in Richards Bay. The IDZ is tailored for manufacturing and storage of minerals and products to boost beneficiation, investment, economic growth and, most importantly, the development of skills and employment.

Source: Department of Trade and Industry

The Nkomazi SEZ offers: Logistics and transport: FMCG exports from South Africa’s major retailers travel to a growing number of sub-Saharan African destinations every week, providing many logistics opportunities. Further, the SEZ will have bonded warehouses,distribution centres, container yards, truck stops and petrol depots, along with the associated maintenance, fitment and repair facilities.

Minerals and energy: Mpumalanga’s mineral resources are varied, and several of the biggest and most diversified mining companies have multiple operations in the province.

Mpumalanga accounts for 83% of South Africa’s coal production and is the third-largest coal-exporting region in the world. In addition, a natural gas pipeline, connecting the gas fields of southern Mozambique with the industrial south of Mpumalanga, transverses the SEZ – ideal for a gasfired power plant.

Other investment opportunities in this sector include the manufacture of phosphate for fertilisers, the production of 36 28

SOUTH AFRICAN PROPERTY REVIEW

ammonia and urea, and the beneficiation of fluorspar to be used in downstream agri-chemicals and fluorine production.

Agri-processing: The establishment of an agri-processing industrial park in the SEZ will leverage significantly off the region’s large-scale citrus and sugar industries. There are also opportunities for investment in food processing and retail packaging.

Automotive: Exports of commercial vehicles into Africa are expected to increase in the next few years. The SEZ has significant potential in terms of the distribution of locally manufactured and imported vehicles, and the manufacture and distribution of components and accessories.

Employment creation: Projected job opportunities in South Africa as a result of the SEZ are expected to be 1 394 in the first year, 985 over the course of the first three years of construction, and 707 per year from the fourth year onwards.

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Each SAPOA member is a leading player and decision-maker in the commercial property arena, they use the South African Property Review as a way to gain important peer exposure and recognition.

With a South African property market value in excess of R5,7-trillion, SAPOA members control about 90% of South Africa’s private sector

commercial land and buildings stock, and manage the majority of property funds listed on the JSE. Open to all commercial property professionals, advertising in the online South African Property Review is an ideal way to reach these important decision-makers.

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new member - one on one

Taking complex matters in her stride Meet Dr Jade Rietveld: unassuming, thirsty for knowledge, with a drive to give back and dedicated to offering personal and affordable legal services

By Mark Pettipher

G

rowing up in Oppermansgronde – a rural area in the south-western Free State district of Xhariep, an area of approximately 34 000 hectares – Dr Jade Rietveld (née August) dreamed of greater things. Raised by her grandmother (her mother worked in Johannesburg), Rietveld was always asking questions. Her inquiring mind drove her to want a better life.

The area in which she lived offered little in the way of schooling. The local school only went up to Grade 9, which meant further education would have to

38

SOUTH AFRICAN PROPERTY REVIEW

be obtained in either the nearest town of Kimberley or further afield in Bloemfontein.

As the apartheid era drew to a close (and with it the segregation of schooling), Rietveld’s mother moved her to Johannesburg and enrolled her at the Helpmekaar school for girls where, after having to take and pass a barrage of aptitude tests, she became one of the first non-white children to attend the school.

“I enjoyed my schooling at Helpmekaar and still have many friends from there,” says Rietveld. “The school opened up

a whole new world, with access to subjects that would eventually prepare me for university.”

Rietveld wanted to study acting, but her mother insisted she should study “something more useful”. A BCom degree would determine Rietveld’s path. After a year, not finding the course content challenging enough, she switched to law.

From 1999 to 2003, Rietveld applied herself at the Rand Afrikaans University and graduated with an LLB. Realising that a law degree is just that, and that id

new member - one on one did not make her an attorney, Rietveld was driven to become an admitted attorney. She applied herself once again, working at various law firms, writing board exams and working her way up from candidate attorney to associate. In 2005, she achieved her goal and became an Admitted Attorney in the High Court of South Africa.

After consultation with her principal, Tom MacDonald of Du Toit MacDonald Attorneys, she decided to specialise in property law (conveyancing). This lead her to realise that, to give a full service to clients, she needed to combine being a conveyancer with notarial services. She was admitted as both a conveyancer and notary public in the High Court of South Africa in 2010.

International law then drew Rietveld to pursue a master’s degree, which she obtained in just one year from the University of Johannesburg. Her supervisor, Professor Hennie Strydom, encouraged her to go a step further, so she embarked on her doctoral studies.

Realising that she needed to have a more secure income base – and to subsidise her bursary – Rietveld set up Jade August Attorneys in 2010.

Rietveld’s Doctorate in International Law focuses on bilateral investment treaties, with specific drill down to the complexities of international investment law and the role of the Stabilisation Clause in particular.

Holding down a full-time job, working on her thesis, lecturing part time at the Midrand Graduate Institute and being actively involved with her church, Rietveld’s schedule was extremely full – a pace that she realised was not sustainable. She decided to wind down her Johannesburg practice and move to Cape Town. Upon completion of her doctorate, she joined Gunstons Attorneys in Tokai, heading up the Bonds department.

After a short stint at another Cape Town law firm, Rietveld was approached

by Paarl-based Basson Blackburn Inc. “Basson Blackburn, established about 30 years ago, realised that in order to grow, it needed to increase its BEE footprint,” she says. “The part of the practice that was not fully compliant was the Bonds

department – and that is where I come in. We started a new firm called Blackburn Inc, in which I am a 51% shareholder. The partners of Basson Blackburn share the remaining 49%. The bonds department was then transferred as a going concern to the new entity. The new entity will also take over correspondent duties for Basson Blackburn, which was previously outsourced. For that reason we have established an office in Century City.

Holding down a full-time job, working on her thesis, lecturing part time at the Midrand Graduate Institute and being actively involved with her church, Rietveld’s schedule was extremely full – a pace that she realised was not sustainable. She decided to wind down her Johannesburg practice and move to Cape Town.

Upon completion of her doctorate, she joined Gunstons Attorneys in Tokai, heading up the Bonds department “Being relatively new to the area has its challenges as well as advantages.

Even though many of the companies I talk to have fairly well-established ties within Cape Town’s legal community, my aim is to let property developers know that they have options. Our service offering is personal and affordable.

While word of mouth recommendations provide a great promotion of services, we need to demonstrate, through our attention to detail and our thorough grasp of complex property transactions, that we are a highly capable and established firm with the broadest possible range of knowledge and expertise.”

By joining the SAPOA family, Rietveld looks forward to meeting other members at the various networking functions that are held in Cape Town – and being eager to give back, she wants to work with SAPOA on offering an extended

mentorship programme. “Mentorship is a way in which I can impart some of my knowledge to young entrepreneurs who want to grow in the property industry,” she says enthusiastically.

“The only difference I can see between the rich and the poor is the absence of opportunity. I see mentorship as a way of giving back.”

Rietveld has the following advice for young dreamers: “As an entrepreneur, a budding property practitioner or an aspiring property tycoon, you must understand that nothing comes easy in life. Your dreams need to scare you for them to be worthwhile – and you have to believe that there is no such thing as ‘impossible’. Never give up. Even when things get tough, persevere. Hard work pays off!

“I also have a dream of making life better in my home village. I want to be able to help educate the women of the village, to show them that there are opportunities out there. I also want the young children in their care to see from my example that there is a way forward, that there is hope and that there are possibilities.”

As if Rietveld hasn’t studied enough, she tells us that she has once again enrolled to extend her knowledge base: she is about to embark on an MBA. “I realise that knowing a lot about law and bond finance is of benefit to those who want specific help with that minefield,” she says. “It is equally important for me to be able to give better advice to entrepreneurs who are just starting out. Having a recognised understanding of best business practices through qualifications will give me that extra edge.”

Just about to reach her 40th birthday, Rietveld feels that her career is only just beginning. Her time so far has been devoted to quenching her thirst for knowledge; now she’s ready to begin the next chapter of building up the partnership she has joined and making a difference in people’s lives. Who knows: with her experience, passion and drive – and her Doctorate in International Law – we could soon be seeing her in the United Nations…

SOUTH AFRICAN PROPERTY REVIEW

39

state of city finances

The changing state of city finances: Part 1 City revenues appear to be quite resilient, growing at an average annual rate of about eight percent and with collection rates of about 95% – although most cities have increased their provisions for debt impairment. The rapid increase in bulk tariffs is squeezing out the surplus that cities have historically used to cross-subsidise other services, while cities are underspending on both repairs and maintenance and their capital budgets. Only with the 2017/2018 financial statements and audit reports will it be possible to assess the impact of the new administrations elected in the 2016 local government elections We extend our thanks to the South African Cities Network for the preceding extracts. Click on the cover image at the beginning of the article to download the entire report. SACN. 2018. State of City Finances Report 2018. Johannesburg: SACN ISBN: 978-0-6399215-2-5 ©2018 by the South African Cities Network. The State of South African Cities Report is made available under a Creative Commons Attribution – Non-Commercial – Share-Alike 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/4.0/.

T

wo events have had a direct impact on city budgets and expenditure since the 2015 report: the economic downturn and the 2016 local government elections. The economy has performed poorly, going into recession briefly in mid-2017, in large part as a result of the unstable political environment, turmoil at state-owned enterprises (SOEs) and allegations of widespread corruption across government and SOEs. The economic slowdown has had various spill-over effects, including a rapidly deteriorating national fiscal position, declining per-capita income and high unemployment at 26,7% (National Treasury, 2017b; 2018a: Chapter 2). On the back of downgrades in the country’s sovereign debt rating, national government’s debt service costs are projected to increase from R163-billion in 2017/2018 to R213-billion in 2020/2021 (i.e. from 10,5% to 11% of consolidated government expenditure), reducing the funds available for service delivery and transfers to local government (National Treasury, 2018c).

These developments suggest less scope for future transfers from national government to local government, meaning that cities will need to rely more on their own revenue sources.

Cities will also have to deal with the spill-over effects of the rating downgrades, and the possibility that allegations of corruption may have a 40

SOUTH AFRICAN PROPERTY REVIEW

negative impact on tax morality at a local level.

The 2016 local government elections resulted in hung councils in Johannesburg, Tshwane, Ekurhuleni and Nelson Mandela Bay. The ANC succeeded in forming a coalition to retain control of Ekurhuleni.

Control of Johannesburg, Tshwane and Nelson Mandela Bay shifted to opposition parties led by the Democratic Alliance, who formed coalition or minority governments.

These governance changes resulted in a shift in political control over the spending of R77-billion of the R287billion total local government operating budget and R15-billion of the R57-billion total local government capital budget for 2016/2017 (Barberton et al., 2016).

It is too early to say whether these changes in control will mean a change in the direction of spending, as the new administrations elected in August 2016 spent their first year in office implementing previous administrations’ budgets, although the new administrations’ plans will be reflected in the 2017/2018 Medium Term Expenditure Framework (MTEF) numbers.

This chapter looks at what has happened to city revenue and expenditure since the 2015 State of City Finances, taking into account the impact of the continued deterioration of the national fiscal position and what bearing it has on city finances in terms of transfers to cities, as well as whether the changes following

the 2016 local government elections have had an impact on city budgets.

Unlike previous State of City Finance reports, which used a dataset compiled from cities’ annual financial statements by the SACN, this year’s publication uses the National Treasury Local Government Database, which enables the analysis to be expanded to include the budgets and the MTEF of cities. The expenditures are compared with budgets, because holding municipalities accountable for implementing their budgets is key to ensuring public funds are spent for authorised public purposes and not diverted to unauthorised purposes or private accounts. The chapter covers cities’ actual revenue and expenditure for the period 2013/2014 to 2016/2017, and the budget/MTEF for 2017/2018 to 2019/2020.

City revenue Cities need funds to deliver services, so they need to collect the budgeted-for revenue. Table 1 shows the actual and budgeted revenue, and the over-/undercollection of revenue, which is calculated by subtracting actual revenue collected from the original budgeted revenue.

In 2016/17, the nine cities’ total revenue was R193-billion, or 62% of total local government revenue, and is budgeted to grow to R244-billion by 2019/20. Cities need to continue to show fiscal effort so as to realise the potential of their fiscal capacity, especially in the current

STATE O F C ITY FIN AN C ES 2018

4

City revenue

ETH

24 424

26 873

29 043

TSH

21 235

23 134

25 646

EKU the budgeted-for 23 549 25 573 27 501 Cities need funds to deliver services, which means they need to collect revenue.

NMB 7 503 8 138 8 734 Table 1 shows the actual and budgeted revenue, as well as the over-/under-collection of revenue, which is calculated by subtracting actual revenue collected from theMAN original budgeted revenue.

5 121 4 858 4 919 BCM

TABLE 1: City revenue performance and budgets (2013/14–2019/20)

MSU

A – REVENUE COLLECTED AND BUDGETS R MILLIONS

TOTAL

2013/14 2014/15 2015/16 2016/17

2017/18

AUDIT OUTCOMES

BUDGET

2018/19

35 950

38 436

41 373

42 978

48 850

53 043

CPT

26 241

29 485

33 027

36 383

38 293

41 649

ETH

24 424

26 873

29 043

30 571

33 385

36 157

TSH

21 235

23 134

25 646

28 091

30 226

31 964

EKU

23 549

25 573

27 501

29 592

32 295

35 211

NMB

7 503

8 138

8 734

8 919

9 364

10 198

MAN

5 121

4 858

4 919

6 801

6 276

6 784

BCM

4 553

4 980

5 478

5 628

6 200

6 633

MSU

3 492

3 841

4 008

4 342

4 938

5 186

TOTAL

152 067

165 317

179 731

193 304

209 825

B – OVER/UNDER COLLECTION AGAINST ORIGINAL BUDGETS

4 980

5 478

3 492 3 841 4 008 AVERAGE ANNUAL

152 067GROWTH 165 317

179 731

JHB 56 618 CPT 45 033 ETH 39 061 TSH 33 968 EKU 38 485 NMB 11 054 MAN 7 432 BCM 7 024 MSU 5 493

AVERAGE 226 826 244 169

98% 6.1% 101% 11.5% 97% 7.8% 96% 9.8% 95% 7.9% 101% 5.9% 93% 9.9% 102% 7.3% 106% 7.5% 98%

98%

94%

9.6% 104% 104% 7.4% 101% 98% 8.5% 93% 98% 6.5% 97% 93% 9.2% 100% 98% 7.4% 77% 73% 3.0% 105% 96% 7.7% 108% 99% 8.2% 98%

97% 8.1%

24 424 33 23385 549 21 235 30 226 503 237549 32 295 121 75503 9 364 553 54121 6 276 43553 492 6 200 3 492 152 067 4 938

26 873 36 157 573 2325134 31 964 138 25 8573 35 211 858 8 4138 10 198 980 4 4858 6 784 4 3980 841 6 633 3 841 165 317 5 186

29 043 39 061 501 2527 646 33 968 8 734 27 501 38 485 4 919 8 734 11 054 5 478 4 919 7 432 5 478 4 008 7 024 4 008 179 731 5 493

30 571 33 385 3 7.8% 8.5% 29 592 32 295 3 28 091 30 226 9.8% 6.5% 8 919 32 295 9 364 3 29 592 7.9% 9.2% 6 801 9 364 6 276 1 8 919 5.9% 7.4% 5 628 6 276 6 200 6 801 9.9% 3.0% 5 628 4 342 6 200 4 938 7.3% 7.7% 4193 342304 4209 938825 7.5% 8.2%

state of city finances

TOTAL 152 067 165 317 179 731 193 304 209 825 22 B – OVER/UNDER COLLECTION AGAINST 8.3% 8.1% 193 304 209 825 226 826 244 169 ORIGINAL BUDGETS

B – OVER/UNDER COLLECTION AGAINST ORIGINAL BUDGETS 98% 98% 94% 93%

B – OVER/UNDER COLLECTION AGAINSTJHB 2019/20 2013/14 – 2016/17 – ORIGINAL BUDGETS 2016/17 2019/20 JHB

MTEF

JHB

4 553

ETH 30 571 EKU TSH 28 091 NMB EKU 29 592 MAN NMB 8 919 BCM MAN 6 801 BCM MSU 5 628 MSU TOTAL 4 342

CPT

93% CPT ETH 105% ETH TSH 98% TSH EKU 93% EKU NMB 91% NMB 94% MAN MAN 102% BCM BCM 95% MSU MSU 97% AVERAGE

98%

98%

94%

93%

101%

104%

104%

105%

97%

101%

98%

98%

96%

93%

98%

93%

95%

97%

93%

91%

101%

100%

98%

94%

93%

77%

73%

102%

102%

105%

96%

95%

101% 97%

96% 95%

101% 93%

102% 106%

106%

98%

104% 101% 93% 97%

100% 77%

105% 108%

108%

98%

104% 98% 98%

93% 98% 73% 96% 99%

99%

105% 98% 93% 91% 94%

102% 95% 97%

97%

97%

96%

AVERAGE 98% 98% 97% 96% 96%National Treasury Local Government Database (2018) – Table Source:

Source: National Treasury Local Government Database (2018) – Table A4 v 8.3% Source: National Treasury Local Government Database (2018) – Table A4 various years

In 2016/17,the thenine ninecities’ cities’total totalrevenue revenue was R193-billion, In 2016/17, was R193-billion, or 6

In its 2017/2018 budget, the strong, interdependent social economic economic climate where residents and In 2016/17, the nine cities’ totalcity revenue was R193-billion, or 62% of totaland local government revenu and is budgeted budgeted grow R244-billion 2019/20.

Citie is totogrow toto R244-billion byby 2019/20.

Cities n JHB 98% 98% 94% 93% attributed the expected increase in property and is budgeted to grow to R244-billion by 2019/20.

Cities need to continue to show fiscal effort si linkages, and for which integrated businesses are under pressure. as to realise realisethe thepotential potentialofoftheir theirfiscal fiscal capacity, especial capacity, especially CPT 101% 104% as to the potential of their fiscal capacity, especially in the current economic climate wher torealise an expanding property development planning is pressure. desirable.

Since 2013/2014, most104% cities105% have rates revenue residents and businesses are residents and businesses areunder under pressure. residents and businesses are under pressure.

ETH 97% 101% 98% 98% consistently collected within five percent rates base linked to a substantial increase Compared to other categories of TSH original 96% budgeted 93% 98% 93% of their revenue, with in the number of properties, coupled with municipalities, Category A municipalities CapeEKU Town over-collecting every 95% 97% 93% year 91%and a decrease in vacant land (CoJ, 2016:12) (or cities) have greater fiscal capacity, However, in its adjustments budget of and generally show greater fiscal effort in Msunduzi Buffalo City over-collecting NMB and 101% 100% 98% 94% for MAN two of 93% the years. indicates 77% This 73% 102% a February 2018, Johannesburg reduced generating own revenues. (See Figure 1.) expected own revenues (i.e. excluding combination of a conservative approach BCM 102% 105% 96% 95% to budgeting for revenue and good credit transfers) by R725-million.

Property rates MSU 106% 108% 99% 97% In contrast, Tshwane budgeted for an Property rates revenue remains the most control and debt management.

AVERAGE 98% 98% 97% 96% Mangaung’s decline in revenue average annual increase of 6,5% over the important category of city revenue Source: National Treasury Local Government Database (2018) – Table A4 various years collected from 93% in 2013/2014 to 73% 2017/2018 MTEF and, in its adjustments because it is the largest source of in 2015/2016 can be explained by over- budget tabled in February 2018, the city discretionary revenue, i.e., the revenue In 2016/17, the nine cities’ total revenue was R193-billion, or 62% of total local government revenue, budgeting on investment revenue and increased its expected own revenues by is not tied to the provision of specific and is budgeted to grow to R244-billion by 2019/20. Cities need to continue to show fiscal effort so R103-million.

Tshwane said the increase other own revenues andofunder-collecting services. In contrast, revenue from as to realise the potential their fiscal capacity, especially in the current economic climate where (or possibly onpressure. property was driven primarily by property revenues electricity and water service charges is residents andover-budgeting) businesses are under rates and service charges. The slight due to supplementary valuations linked linked to the provision of these services, over-collection in 2016/2017 is a result of to city growth and the introduction of meaning that the municipality has limited Mangaung reducing its budgeted revenue a new general property valuation roll on discretion over this revenue. Thus cities by about R99-million compared to 2015/ 1 July 2017. These adjustments suggest with a higher proportion of property rates 2016 and significantly improving revenue that Johannesburg adopted an overly revenue have greater spending discretion. collections (from R4,9-billion in 2015/ optimistic approach to forecasting revenue In 2016/2017, property rates made up in its 2017/2018 budget, while Tshwane between 14% (Ekurhuleni) and 22% (Cape 2016 to R6,8-billion in 2016/2017).

Between 2013/14 and 2016/17, cities’ was conservative. It is important to Town and eThekwini) of total revenues. total actual revenue grew at an average monitor how cities forecast budgeted The recent SACN urban land dialogues annual rate of 8.3%. This rate of growth is revenues, given the changing economic highlighted the importance of cities being expected to decline to 8.1% over the environment, which plays a pivotal role involved in the current debates on land 2017/18 MTEF, indicating that city revenues in how cities plan for services and capital expropriation without compensation are proving to be quite resilient in the face of – since a city’s expenditure budget must (SACN, 2016). Essentially, political parties worsening economic conditions and be financed by its revenue budget. have put forward two options, both of concerns about a decline in tax morality. which will affect city revenue: (1) The In the 2017/2018 MTEF, Johannesburg Own revenue expropriated land is transferred to budgeted for revenue to grow at an annual The Municipal Structures Act (Act No. 117 the new owner with all the rights and average rate of 9,6%, compared to 6,1% of 1998 as amended, ss2) allows for the responsibilities, which would enhance between 2013/2014 and 2016/2017. This establishment of metropolitan (Category the rates base; or (2) the state owns all is the fastest expected rate of growth in A) municipalities in areas that are (among (commercial, residential and agricultural) revenue across all the cities. others) centres of economic activity with expropriated land and leases it back to SOUTH AFRICAN PROPERTY REVIEW

41

state of city finances 7

Johannesburg 2016/17

Transfers recognised– operational Property rates Electricity Water Sanitation Refuse revenue Other own revenue

Cape Town 2016/17

16% 18% 35% 12% 7% 3% 8%

eThekwini 2016/17

Transfers recognised– 16% operational Property rates 22% Electricity 32% 9% Water 4% Sanitation Refuse revenue 3% 12% Other own revenue

Transfers recognised– operational Property rates Electricity Water Sanitation Refuse revenue Other own revenue

Ekurhuleni 2016/17 Transfers recognised– 17% operational 14% Property rates 44% Electricity 11% Water 4% Sanitation 4% Refuse revenue 6% Other own revenue

Transfers recognised– 11% operational Property rates 18% Electricity 40% Water 9% Sanitation 5% Refuse revenue 1% Other own revenue 16%

9% 22% 40% 10% 2% 2% 15%

PART A – FIN ANCIAL PE RFORM ANCE

FIGURE 1: City revenues by source 2016/17 (audit outcomes)

I

2017 indicates that cities’ aggregate cost of providing the so-called trading services exceeds their aggregate service charge revenues by 1,5%, and for electricity, service costs exceed service charge revenues by six percent. In other words, the rapid increases in bulk tariffs are squeezing out these surpluses, as cities seek to (and in some instances have been forced to) absorb some of the increases.

The higher prices lead to increasing bad debts and lower consumption by customers. This trend is likely to be accentuated by the higher water tariffs that are being introduced to manage the effects of drought, especially in Cape Town and Nelson Mandela Bay. In addition, the higher electricity tariffs provide commercial and upper-end domestic consumers with a powerful incentive to install solar electric systems, thus eroding cities’ electricity revenues more quickly. In addition, as more consumers move off-grid, cities lose a very important debt collection tool because they can no longer cut off these consumers’ electricity to leverage payment of other charges.

14% 21% 39% 11% 3% 5% 8%

Mangaung 2016/17

Transfers recognised– operational Property rates Electricity Water Sanitation Refuse revenue Other own revenue

Buffalo City 2016/17

14% 15% 30% 12% 3% 1% 25%

Transfers recognised– operational Property rates Electricity Water Sanitation Refuse revenue Other own revenue

23% 17% 30% 10% 6% 5% 9%

Nelson Mandela Bay 2016/17

Msunduzi 2016/17

Transfers recognised– 11% operational Property rates 18% Electricity 43% Water 11% Sanitation 3% Refuse revenue 2% Other own revenue 12%

Source: Own analysis of National Treasury Local Government Database (2018) - Table A4 2017/18 Note: “Transfers recognised – operational” are the grants/transfers for operating purposes from national and provincial government, i.e. they exclude the capital grants/transfers which are referred to as “transfers recognised – capital” and are refected in the capital budget.

users, which would remove the legal levels for Msunduzi, Ekurhuleni and Service charges liability of paying property rates from Tshwane are cause for concern.

Citiescurrent generateowners, revenue as from services provided, i.e. electricity, water, and Between 2013/2014 andsanitation 2015/2016, the thecharges state on would refuse removal, as well asresulting various other services.

Although Figure 1 showscharge that revenues from Mangaung’s service revenue become the owner, in minor a large these service charges are the largest sourcefrom of city own revenue, indeteriorated 2016/17 over half of this95% income collections from to source of revenue being removed simply flowed through city coffers to Eskom or the water boards (depending on the city). cities (and the rest of local government) 80%, although actual revenues grew ifTable the2 shows state the does not pick up the across the period (barring a slight dip over-/under-collection of service charge revenues, which is calculated by inoriginal 2014/2015).

This deterioration in responsibility for paying property rates. subtracting actual service charges collected from the budgeted revenue. collection levels can be attributed to the Betweencharges 2013/14 and 2016/17, cities’ service chargeunrealistic revenue increased at anbudgets average annual rate of revenue Mangaung Service 8.5%. Generally, collection service charge averaging between 94% and preparedis good, in these years.

For instance, Cities generatecities’ revenue fromofcharges on revenues 96% across the four years, the recent trends in collection levels for Msunduzi, in 2014/2015, the city budgeted for services provided, i.e., though electricity, water,downward Ekurhuleni and Tshwane are cause for concern. sanitation and refuse removal, as well as an increase of 18% in service charge various other minor services. Although revenue, but actual collections declined Figure 1 shows that revenues from these by three percent – a gap of 21% between service charges are the largest source of the planned budget and reality. In city own revenue, in 2016/2017 more 2016/2017, the city re-evaluated and than half of this income simply flowed cut its budgeted revenue from service through city coffers to Eskom or the charges by 2,5% and increased collected revenues by 10%, which resulted in the water boards (depending on the city).

Between 2013/2014 and 2016/2017, city’s collection level rising to 90%. This cities’ service charge revenue increased at highlights how important it is for cities to an average annual rate of 8,5%. Generally, budget properly for revenues.

Historically, cities have generated a cities’ collection of service charge revenues is good, averaging between 94% and surplus from their services (especially 96% across the four years, though the electricity) and used it to cross-subsidise recent downward trends in collection other services. However, data for 2016/ 42

SOUTH AFRICAN PROPERTY REVIEW

CHAPT E R 1 – T HE CHANGING S TATE OF CITY FINANCES

Tshwane 2016/17

Transfers recognised– operational Property rates Electricity Water Sanitation Refuse revenue Other own revenue

Transfers and grants Over the1 2018/2019 MTEF, an additional R3,4-billion is allocated to the local 2 government equitable share (LGES) to 3 cover increased bulk services costs for 4 municipalities, thus enabling “poor 5 households to continue receiving free basic services such as water and 6 sanitation, refuse removal, and 7 electricity” (National Treasury, 2018d: 41).

8 However, at the same time, direct local government conditional grant allocations have been reduced by R13,9-billion, with the majority of the cuts being made to infrastructure conditional grants, and indirect grants cut by R2,2-billion (National Treasury, 2018a: 76). These cuts are not reflected in Figure 2 because the cuts were announced in February 2018, whereas the data used is from the 2017/2018 MTEF produced in June 2017.

The cuts are a direct consequence of the current economic climate and the national government’s decision to prioritise free higher education (National

15 374

17 552

13 077

14 284

15 597

S TAT E OF C I T Y FI NA NC ES 2 0 1 8

state of city finances

STATE OF CITY F INANCES 2 0 1 8

R–millions

as attributed more reliant onunrealistic the equitable share and Mangaung transfers and own revenues national government projected deterioration in collection levels canprepared be to the revenue budgets JHB 94% 96% is 103% 93% 96% to revenue from in years. in 2014/15 the city budg CPT 97% 101% 103% prepared inthese these years.For Forinstance, instance, 5 000 CPT 97% 101% 103% 103%in 2014/15 the city b 10 grants than for theanlarger cities. it shows Nelson Mandela spend more on interest payments on varies across cities; prepared in these years. For instance,charge inconditional 2014/15 the city budgeted increase of 18% in–service declined by by 3% CPT 97% 101% 103% 103% chargerevenue, revenue,but butactual actualcollections collections declined 3%a –gap a ETH 92% 97% 94% 95% 4 000 ETHdeclined 92%by 3% 97% 95% the planned budge charge revenue, but actual collections – a gapthe of94% 21%re-evaluated between debt (R180,12-billion) than on transfers and reality.

In 2016/17, city and cut its and reality. In 2016/17, the city re-evaluated and cut budg its bu ETH 92% 97% 94% 95% 93% 92% 92% 91% and reality.

In 2016/17, the city re-evaluated and budgeted from service charges by 3 0002: Transfers FIGURE recognised (2013/14–2019/20) TSH 93% cut its 92% 92%revenue 91% 2.5% and by 10%, which resulte to TSH local government (R125,25-billion) 2.5% andincreased increasedcollected collectedrevenues revenues by 10%, which resu TSH 93% 92% 92% 2.5% and increased collected revenues

by This 10%,highlights which resulted in the city’s collection rising pr to EKU Treasury, 92% 97% 89%77). 91% 89% 90%. how important it is for citieslevel to budget 10 000 2 000 EKU 92% 97% 89% 89% (National 2018a: 89, 90%. This highlights how important it is for cities to budge 90%.

This highlights how important it is for cities to budget properly for revenues.

EKU 92% 97% 89% 89% NMB 93% 94% and 96%2016/2017, 98% 91 000 Between 2013/2014 NMB 93% 94% 96% 98% 000 NMB 93% 94% 96% 98% MAN transfers 95% to78% 90% an direct cities 80% grew at 8 0000 MAN 95% 78% 80% 90% JHB CPT ETH TSH EKU NMB MAN BCM MSU MAN 95% rate 78% 80%but this 90% is average of 12%, BCM annual 100% 100% 102% 98% 7 000 BCM 100% 100% 102% 98% 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 expected decline100% to nine102% percent98% over BCM to100% 6 000 MSU 97% 100% 96% 88% MSU 97% 100% 96% 88% Source: National Treasury Local Government Database (2018) – Table A4 various years the 2017/2018 A further decline MSU 97% MTEF. 100% 96% 88% 5 000 AVERAGE 94% 96% 94% 95% AVERAGE 94% 96% 94% 95% isSource: likely on the back of the national AVERAGE 96%Government 94% Database 95% (2018) – Table National94% Treasury Local A4 various years 4 000 Source: National Treasury Local Government Database (2018) – Table A4 various government’s cuts Local to conditional grants.

Source: National Treasury Government Database (2018) –Equitable Table A4 various years 3 000 share Between 2015/2016 and 2016/2017, Between 2013/14 and 2015/16, Mangaung’s service charge revenue collections deteriorated from 2013/14 and 2015/16, Mangaung’sthe service charge 000 The2current LGES formula, used to divide Between among the country’s 257 municipalities portion of reven Cape revenue fromrevenues transfers from 95% toTown’s 80%, although grew across period (barringcollections a slight dipdeteriorated in 2014/15).from This Between 2013/14 and actual 2015/16, Mangaung’s servicethe charge revenue 95% to 80%, although actual revenues grew across the period government revenue allocated to local government, was introduced in 2013/14. The formula (ba 1 000 deterioration in collection levels can be attributed to the unrealistic budgets Mangaung 95% to 80%, actual revenues grew across the period (barringrevenue a slight dip in 2014/15).

This national andalthough provincial government shows deterioration in collection levels can behousehold attributed to is more0 redistributive towards poorer and rural municipalities; “transfers per tothe theunreali prepared in these years.

For instance, in 2014/15 the city budgeted for an increase of 18% in service in collection can beshown attributed to the unrealistic revenue budgets Mangaung prepared in these years.

For instance, in 2014/15 the city budgeted adeterioration rapid increase, but thelevels increase JHB CPT ETH TSH EKU NMB MAN BCM MSU most rural municipalities are more than twice as large as those to metropolitan municipalities” charge revenue, 3% – abudgeted gap of2013/14 21% theof planned budget prepared thesebut years.

Forcollections instance, indeclined 2014/15 the city forbetween an increase 18% in2015/16 service charge revenue, but actual collections declined by 3% – a gap of 2 2014/15 2016/17 2017/18 2018/19 2019/20 does notinequate toactual more revenue for theby (National Treasury, 2018a: 30) Figure 3 illustrates how the proportion of revenue from transfers and and reality.

In 2016/17, the collections city re-evaluated andbycut revenue fromthe service charges by reality. In 2016/17, the city re-evaluated and cut its budgeted charge revenue, but actual declined 3%its– budgeted a gap of 21% between planned budget and city. This is because in 2016/2017, the own revenues varies across cities; itDatabase shows that Nelson Bay, Mangaung, Buffalo City and Source: National Local Government (2018) – Table A4Mandela various years 2.5%reality. and increased collected by 10%, in Treasury the city’s collection level rising2.5% to and In 2016/17, the cityrevenues re-evaluated andwhich cut itsresulted budgeted revenue from service charges by and increased collected revenues by 10%, which resulted in city reclassified its transfer revenue in Msunduzi are more reliant on the equitable share and conditional than the larger cities.

90%. This highlightscollected how important it isby for10%, citieswhich to budget properly revenues.

2.5% and increased revenues resulted in thefor city’s collection level rising90%. to This highlights howgrants important it is for cities to budget prope accordance with the stipulations of the 90%. This highlights how important it is for cities to budget properly for revenues.

Equitable share share relative to other revenue sources (2016/17) 3: Equitable Municipal Standard Chart of Accounts FIGURE current LGES formula, used to divide among the country’s 257 municipalities the portion of without adjusting the historical figures. The 100% government to local 10% government, in 2013/14.

7%revenue8%allocated 10% 8% was introduced 10% 13% 14% The formula 11% For instance, the fuel levy revenue was 7% 6%towards poorer and rural municipalities; is 90% more redistributive “transfers per household to the 8% 7% 7% 9% 10% added to this specific category, having most 8% 11% 80% rural municipalities are more than twice as large as those to metropolitan municipalities” been grouped under a different revenue (National Treasury, 2018a: 30) Figure 3 illustrates how the proportion of revenue from transfers and 70% category for reporting purposes previously. own 60%revenues varies across cities; it shows that Nelson Mandela Bay, Mangaung, Buffalo City and The current LGES formula, used to divide Msunduzi are more reliant on the equitable share and conditional grants than the larger cities.

50% among the country’s 257 municipalities the 86% 86% 83% 83% 84% 81% 79% 40% 75% 79% portion of government revenue allocated FIGURE 30% 3: Equitable share relative to other revenue sources (2016/17) to local government, was introduced 100% 20% 7% 8% 10% 10% 8% 10% 13% 14% 11% in 2013/2014. It is more redistributive 10% 7% 6% 90% 8% 7% 7% 9% 10% 8% 11% towards poorer and rural municipalities: 80% 0% 70% “transfers per household to the most rural JHB CPT ETH TSH EKU NMB MAN BCM MSU 60% municipalities are more than twice as large Own revenues Grants Equitable share 50% as those to metropolitan municipalities” 83% Local 83% 84%Database 81% 40% Own86% 75%of Revenue 79%Act Source: analysis of86% National Treasury Government (2018) and79% 2017 Division (National Treasury, 2018a: 30).

R–millions

S TATSETAT OFE COF I T YCFI I TNA Y FINC NAES NC2ES 0 1 82 0 1 8

8

14 063

18 816 19 310 2113221 2314 147 7.1% TSH 12077 317 14 348 15 590 1610.2% 16 17 5671 ETH 13 284 597 572157 18 265 16 572 18 265 19 878 21 651 8.2% 9.3% EKU 14317 861 1316348 304 1417 130 16 18 19 8081 TSH 12 590 157746 17 567 TSH 12 317 13 348 14 590 16 157 17 567 18 589 19 654 9.5% 6.7% NMB 812 16 4304 059 17 130 4 646 18 746 4 882 19 808 5 1072 EKU 143861 EKU 14 861 16 304 17 130 18 746 19 808 21 720 23 818 8.0% 8.3% NMB 3 812 4 059 4 646 4 882 5 107 MAN 2 793 2 718 2 892 3 188 3 576 8 NMB 3 812 4 059 4 646 4 882 5 107 5 518 5 994 8.6% 7.1% MAN 22793 BCM 199 2 2718 425 2 892 2 750 3 188 2 868 3 576 3 012 MAN 2 793 2 718 2 892 3 188 3 576 3 881 4 195 4.5% 9.6% 2 2425 2 750 3 012 TABLE 2: City service charge revenue performance and budgets over-/under-collection (2013/14– TABLE 2: BCM MSUservice 2charge 2199 074 revenue 229 performance 2 468 2 868 2 539budgets 3 018 City and over 2019/20) BCM 2 199(2013/14– 2 425 2019/20) 2 750 2 868 3 012 3 148 3 291 9.3% 4.7% TABLE 2: City service charge revenue performance and budgets over-/under-collection MSU 2 074 2 229 2 468 2 539 3 018 TOTAL 85 312 92 246 101 103 108 860 118 368 2019/20) MSU 2 074 2 229 2 468 2 539 3 018 3 181 3 361 7.0% 9.8% TOTAL 85 312 COLLECTION 92 246 101 103 108 860 118 368 128 A – REVENUE FROM SERVICES CHARGES AVERAGE ANNUAL B – OVER/UNDER AGAINST A – REVENUE FROM SERVICES CHARGES TOTAL 85 312 92 246 101 103 108COLLECTED 860 118ORIGINAL 368 128 313 138 684 8.5% 8.4% COLLECTED AND BUDGETS GROWTH BUDGETS AND COLLECTION BUDGETS B – OVER/UNDER AGAINST A – REVENUE FROM SERVICES CHARGES AVERAGE ANNUAL ORIGINAL BUDGETS COLLECTED AND BUDGETS GROWTH B – OVER/UNDER COLLECTION AGAINST 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 JHB 2013/14 94% 2014/15 96% 2015/16 93% 2016/17 96% 2017/18 2018/19 R 2013/14 – 2016/17 – R ORIGINAL BUDGETS MILLIONS 2013/14 2014/15 2015/16 2016/17 2016/17 2019/20 MILLIONSJHB 94% 96% 93% 96% 2017/18 2018/19MTEF2019/20 AUDIT OUTCOMES BUDGET R 2013/14 – 2016/17 – MT AUDIT OUTCOMES BUDGET CPT 97% 101% 103% 103% JHB 94% 96% 96% MILLIONS 2016/17 2019/2093% 97% 101% 103% 103% MTEF 33 572 OUTCOMES JHB 20 116 AUDIT 21 505 23 477 25 092 BUDGET 28 704 31 177 7.6% 10.2% JHB CPT 20 116 21 505 23 477 25 092 28 704 31 177 ETH 92% 97% 94% 95% CPT 97% 101% 103% 103% ETH 92% 97% 94% 95% JHB 20 28 7.6% 10.2% CPT 14 116 063 21 15 505 374 23 17 477 552 25 18 092 816 19 704 310 31 21 177 221 33 23 572 147 10.2% 7.1% CPT 14 063 15 374 17 552 18 816 TSH 93% 92% 92% 91%19 310 21 221 ETH 92% 97% 94% 95% TSH 93% 92% 92% 91% CPT 14 19 10.2% 7.1% ETH 13 063 077 15 14 374 284 17 15 552 597 18 16 816 572 18 310 265 21 19 221 878 23 21 147 651 8.2% 9.3% 14 284 97% 15 597 89% 16 572 89%18 265 19 878 EKU 13 077 92% TSH 93% 92% 92%ETH 91% EKU 92% 97% 89% 89% ETH 13 18 8.2% 9.3% TSH 12 077 317 14 13 284 348 15 14 597 590 16 16 572 157 17 265 567 19 18 878 589 21 19 651 654 9.5% 6.7% TSH 12 317 13 348 14 590 16 157 98%17 567 18 589 NMB 93% 94% 96% EKU 92% 97% 89% 89% NMB 93% 94% 96% 98% TSH 12 17 9.5% 6.7% EKU 14 317 861 13 16 348 304 14 17 590 130 16 18 157 746 19 567 808 18 21 589 720 19 23 654 818 8.0% 8.3% 16 304 78% 17 130 80% 18 746 90%19 808 21 720 MAN14 861 95% NMB 93% 94% 96%EKU 98% MAN 95% 78% 80% 90% 10 EKU 143 861 195 808 8.0% 8.3% NMB 812 164 304 059 174 130 646 184 746 882 107 215 720 518 235 818 994 8.6% 7.1% NMB 4 882 98% 5 107 5 518 MAN 95% 78% 80% 90% BCM 3 812100% 100%4 059100% 100%4 646 102% BCM 102% 98% NMB 32 812 42 059 42 646 43 882 53 107 53 518 54 994 8.6% 7.1% MAN 793 718 892 188 576 881 195 4.5% 9.6% MAN 3 881 BCM 100% 100% 102% 98% MSU 2 79397% 97%2 718100% 100%2 89296% 96%3 18888% 88% 3 576 MSU FIGURE 2:33 881 Transfers recognised (2013/14–2019/20) MAN 22 793 22 718 22 892 32 188 33 576 43 195 4.5% 9.6% BCM 199 425 750 868 012 148 291 9.3% 4.7% BCM 3 148 MSU 97% 100% 96% AVERAGE 88% 2 199 94%2 425 96%2 750 94%2 868 95%3 012 AVERAGE 94% 96% 94% 95% 10 000 3 148 BCM 22 199 22 425 22 750 22 868 33 012 33 291 9.3% 4.7% MSU 074 229 468 539 018 3 181 AVERAGE 361 7.0% 9.8% MSU 2 074 2 229 2 468 2 539 3 018 3 181A 94% 96% 94% Source: 95%National Source: NationalTreasury TreasuryLocal LocalGovernment Government Database (2018) – Table Database (2018) – Table A4 va 9 000 3 181 MSU 074 922 246 229 1012 103 468 1082 860 539 1183 368 018 361 7.0% 9.8% TOTAL 852 312 128 313Source: 1383 684 8.5% 8.4% National Treasury Local Government Database85 (2018) A4 various years 108 860 118 368 128 313 TOTAL 312– Table 92 246 101 103 8 000 TOTAL 85 312 COLLECTION 92 246 101AGAINST 103 108 860 118 368 128 313 138 684 8.5% 8.4% B – OVER/UNDER 2013/14 and Mangaung’s service charge r Between 2013/14 and2015/16, 2015/16, Mangaung’s service charg BBetween – OVER/UNDER COLLECTION AGAINST ORIGINAL BUDGETS 7 000 ORIGINAL BUDGETS Between 2013/14 and 2015/16, Mangaung’s service charge revenue collections deteriorated from B – OVER/UNDER COLLECTION AGAINST 95% to 80%, although actual revenues grew across thethe period 95% to 80%, although actual revenues grew across pe Figure 3 illustrates how the proportion of Bay, Mangaung, Buffalo City and Msunduzi Treasury, 2018d: 63).

In 2018/2019, the ORIGINAL BUDGETS JHB 94% 96% 93% 96% 95% to 80%, although actual revenues grew across the period (barring a 96% slight dip in 2014/15). deterioration levels bebe attributed to the un 6 000 JHB 94% in 96% 93% deterioration incollection collection levelscan can attributed to Thi the

S TAT E O F C I T Y F I N A N C E S 2 0 1 8

8

CPT

ETH

30% 20%

10% 0%

SOUTH AFRICAN PROPERTY REVIEW

43

state of city finances Conditional grants

STAT E OF CI T Y F I NANCES 2018

STATE O F C ITY F INANC E S 2018 STAT E OF CI T Y F I NANCES 2018

Unlike the Municipal Infrastructure ●● As part of incentivising cities to Grant, which links the grant to specific transform spatially, in 2017/2018 an Cities receive four types of local projects and years, the IUDG “will additional indicator was introduced government conditional grants from fund municipalities against a longto the Integrated City Development national government, as defined in the term (10-year) capital expenditure Grant’s performance measures that Schedules of the Division of Revenue Act: framework aligned to their Spatial assesses a city’s built environment ●● General grants that supplement Development Framework” (SACN, performance plan (BEPP). It is aimed various programmes partly funded 2018). The grant will also have an at rewarding cities that improve the by municipalities (Schedule 4, part B) incentive component that will use quality of their BEPPs, which provide – for example, the Urban Settlements performance indicators to reward an overview of their plans to transform Development Grant (USDG). good performance across certain spatial development patterns ●● Grants that fund specific areas. Municipalities applying for through infrastructure investments. responsibilities and programmes 12 this new grant will have to comply ●● From 2018/2019, the Public Transport implemented by municipalities with minimum conditions in areas Network Grant formula changes so (Schedule 5, part B). operating expenditure as management stability, that the bulk (75%) will be allocated City such ●● Grants that provide in-kind allocations findings and reporting in of its constitutional based on three demand-driven factors: A city’saudit through which a national department operating expenditure is a function of the Finance the number of people in a city, the implements projects in municipalities raisingterms capacity andMunicipal effort. It is how the city spends its revenues Management Act (MFMA).

These number of public transport users in the households (Schedule 6, part B). and businesses within its boundaries. Just as cit minimum conditions highly favour a city and the size of a city’s4 economy. budgeted ●● Grants that provide for the swift revenue, they are also legally obliged to spend accordin 4 5 city governments.

The intention Twenty percent will be divided among constitutes allocation and transfer of funds to Table 3 shows the overunauthorised expenditure.

City revenue is to combine progressively most actual operating ex which is calculated by subtracting all participating cities, and five percent budget, a municipality to help it deal with City revenue operating localbudgets. government infrastructure need funds to deliver services, which means they need to colle will be earmarked for a performance Cities a disaster or housing emergency Cities need funds to deliver services, Table which1means need to collect budgeted-for revenue. shows they the and budgeted revenue, as well as the overgrants intoactual this grant forthe those incentive which will take effect in (Schedule 7, part B).

Table 1 shows the actual and budgeted revenue, as well as the over-/under-collection of revenue, which is calculated by subtracting actual revenue collected from the TABLEmunicipalities 3: City operatingthat expenditure (20o qualify.performances and budgets 2019/2020, once an approach for which is calculated by subtracting actual revenue collected from the original budgeted revenue.

measuring performance has been Since the last State of City Finances A – 1: OPERATING EXPENDITURE TABLE City revenue performanceAND and BUDGETS budgets (2013/14–2019/20) As noted, in February 2018 the national finalised.

In addition, strictperformance eligibilityand budgets Report, there have been some important TABLE 1: City revenue (2013/14–2019/20) 2013/14 2014/15 2016/17 2017/18 2018/1 government announced a R13,9-billion conditions are being introduced, developments regarding the structure A R– REVENUE COLLECTED AND 2015/16 BUDGETS AVERAGE ANNUAL A – REVENUE COLLECTED AND BUDGETS MILLIONS GROWTH cut to the baselines ofOUTCOMES local government including requirements that cities and management of conditional grants AUDIT BUDGET 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 201 R conditional to fund in 2016/17 demonstrate that2013/14 their plans fully affecting cities (National Treasury, 2018b): 2014/15 2015/16 2016/17 2019/20 MILLIONS JHB 2017/18 34 grants 4372018/19 37OUTCOMES 916 40 priorities 4102013/14 43 837 47 344 51 37 R –BUDGET – MTEF AUDIT MILLIONS 2016/17 higher BUDGET education MTEF (National Treasury, 2019/20 meet the criteria of the grant that ●● Built environment reporting for AUDITand OUTCOMES CPT 680 38 436 27 50641 373 30 85042 978 33 02448 85038 322 JHB 3526 950 53 04340 87 5 2018b).

Over 2018/2019 the planned systems metropolitan municipalities has JHBpublic35transport 950 38 436 41 373 42 978 48 850 the 53 043 56 618 MTEF, 6.1% the 9.6% City operating expenditure ETH 24 478 29 485 26 69933 027 28 11436 383 31 34238 29332 697 35 25 CPT 26 241 41 649 4 baseline 38 allocations were reduced11.5% for the 7.4% will be financially sustainable. been rationalised and streamlined.

CPT 26 241 29 485 33 027 36 383 293 41 649 45 033 A city’s operating expenditure is a function of its constitutional mandates, priorities and revenueTSH 740infrastructure 24 88429 043 27 790 27 361 ETH 2422 424 26 873 30 571 36 15731 70 3 following city grants: the33 38529 995 ●● In an effort to incentivise spatial Therefore, from 2018/2019, reporting 24 424 the26services 873 29to043 30 571 33 385 36 157 39 061 7.8% 8.5% raising capacity and effort. It is how the city spends its revenues in ETH order to deliver TSH 2123 235 646 28 091 31 96435 86 3 EKU (R2,2-billion), 208 23 134 25the 39325Public 27 478 30 12830 22632 773 USDG Transport transformation, in 2019/20 National on urban infrastructure grants, the households and businesses within its boundaries. Just as cities TSH have a responsibility to collect 21 235 23 134 25 646 28 091 30 226 31 964 33 968 9.8% 6.5% Network Grant (R2,1-billion) and the Treasury will introduce a new including the USDG, will be simplified.

EKU 23 549 25 573 27 501 29 592 32 295 35 211 3 NMB 7 436 8 217 8 776 9 154 9 489 10 17 budgeted revenue, they are also legally obliged to spend according to their budget – over-spending EKU 23 549 25 573 27 501 29 592 32 295 35 211 38 485 7.9% 9.2% 5 Neighbourhood Development Partnership infrastructure grant – the Integrated This will help reduce the reporting NMB 7 503 10 198 6 49 1 constitutes unauthorised expenditure. Table 3 shows the over-/underspending of the operating MAN 5 035 8 138 5 479 8 7345 9658 9196 592 9 364 6 148 NMB 7 503 8(IUDG).

138 8 734 Grant 8 919 9 364 10 198 11 054 5.9% 7.4% Urbanexpenditure Development Grant budget, which calculated subtracting actual operating from the cities’ original burden oniscities goingbyforward.

MAN (R347-million).

5 121 4 858 4 919 6 801 6 276 6 784 operating budgets.

MAN

5 121

4 858

4 919

BCM

4 553

4 980

5 478

TABLE 3: City operating expenditure performances and budgets (2013/14–2019/20) MSU

A – OPERATING EXPENDITURE AND BUDGETS R MILLIONS

2013/14

2014/15

2015/16

2016/17

AUDIT OUTCOMES

2017/18 BUDGET

JHB

34 437

37 916

40 410

43 837

47 344

CPT

26 680

27 506

30 850

33 024

38 322

ETH

24 478

26 699

28 114

31 342

32 697

TSH

22 740

24 884

27 790

27 361

29 995

EKU

23 208

25 393

27 478

30 128

32 773

NMB

7 436

8 217

8 776

9 154

9 489

MAN

5 035

5 479

5 965

6 592

6 148

BCM

4 629

5 226

5 464

6 045

6 198

3 619

4 150

4 260

5 021

4 905

152 262 165 470 179 106 192 502

207 871

MSU TOTAL

BCM

6 801 BCM MSU 5 628 MSU TOTAL 4 342

4 629

6 276 4 553 3 619 6 200 3 492 152 262 4 938

5 226

6 784 4 980 4 150 6 633 3 841 5165 186470

5 464

6 045

6 198

6 63

7 432 9.9% 3.0% 5 478 5 628 6 200 6 633 4 260 5 021 4 905 5 04 7 024 7.3% 7.7% 4 008 4 342 4 938 5 186 192 502 207 5179 493106 7.5% 8.2%871 223 41

3 492 3 841 4 008 TOTAL 152 067 165 317 179 731 193 304 209 825 226 826 2 AVERAGE ANNUAL B – OVER/UNDER SPENDING AGAINST BUDGETS TOTAL 8.3% 8.1% 152 067GROWTH 165 317 179 731 193 304 209 825 226 826 244ORIGINAL 169 B – OVER/UNDER COLLECTION AGAINST JHB 101% 103% 95% 97% ORIGINAL BUDGETS B – OVER/UNDER COLLECTION AGAINST 2018/19 2019/20 2013/14 – 2016/17 – ORIGINAL BUDGETS 2016/17 2019/20 JHB 98% CPT 102% 98% 97% 94%97% 93% 95% MTEF JHB 98% 98% 94% 93% CPT 101% ETH 98% 104% 99% 104%96% 105%102% 51 376 55 021 8.4% 7.9% CPT 101% 104% 104% 105% ETH 97% 101% TSH 103% 104% 98%108% 98% 97% 40 879 44 219 7.4% 10.2% ETH 97% 101% 98% 98% TSH 96% 35 251 38 007 8.6% 6.6% EKU 94% 93% 97% 98%94% 93% 93% TSH 96% 93% 98% 93% EKU 95% 97% 93% 91% 31 705 33 688 6.4% 7.2% NMB 98% 99% 100% 96% EKU 95% 97% 93% 91% NMB 101% 100% 98% 94% 35 865 39 190 9.1% 9.2% MAN 94% 92% 96% 100% NMB 101% 100% 98% 94% MAN 93% 77% 73% 102% 10 173 10 785 7.2% 5.6% BUF 103% 110% 96% 102% MAN 93% 77% 73% 102% BCM 102% 105% 96% 95% 6 494 6 933 9.4% 1.7% MSU 112% 119% 106% 113% BCM 102% 105% 96% 95% MSU 106% 108% 99% 97% 6 631 7 021 9.3% 5.1% AVERAGE 100% 101% 97% 97% MSU 106% 108% 99% 97% AVERAGE 98% 98% 97% 96% 5 045 5 327 11.5% 2.0% AVERAGE 98% 98% 97% Source: 96% National Treasury Local Government Database (2018) – Table A4 variou Source: National Treasury Local Government Database (2018) – Table A4 various yea 223 418 240 191 8.1% 7.7% Source: National Treasury Local Government Database (2018) – Table A4 various years

B – OVER/UNDER SPENDING AGAINST ORIGINAL BUDGETS

44

JHB CPT

101%

103%

95%

97%

102%

97%

97%

95%

SOUTH AFRICAN PROPERTY REVIEW

In 2016/17, the nine cities’ total revenue was R193-billion, or 62% of to In 2016/17, the nine cities’ total revenue R193-billion, or 62% total local government revenue, andwas is budgeted to grow to of R244-billion by 2019/20. Cities need to co and is budgeted to grow to R244-billion by 2019/20.

Cities need to continue to show fiscal effort so as to realise the potential of their fiscal capacity, especially in the cur as to realise the potential of their fiscal capacity, especially in the current economic climate where

According to National Treasury, overspending in excess of 15% is a sign of high risk6. Msunduzi consistently spends more than it budgets, which suggests an inherent inability to budget accurately Operating expenditure breakdown or ensure spending remains within budget.

Figure 4 shows cities’ spending on major spending item categories in 2013/14 and 2016/17.

state of city finances

Operating expenditure breakdown FIGURE 4: Breakdown of city operating expenditure (2013/14 and 2016/17)

Figure 4 shows cities’ spending on major spending item categories in 2013/14 and 2016/17.

2013/14 100%

City operating expenditure A city’s operating expenditure is a function of its constitutional mandates, priorities and revenue-raising capacity and effort.

It is how the city spends its revenues to deliver the services to the households and businesses within its boundaries.

Just as cities have a responsibility to collect budgeted revenue, they are also legally obliged to spend according to their budget – over-spending constitutes unauthorised expenditure. Table 3 shows the over-/underspending of the operating budget, calculated by subtracting actual operating expenditure from the cities’ original operating budgets.

Between 2013/2014 and 2016/2017, operating expenditures by the cities grew by an annual average rate of 8,1%. Over 2017/2018, growth in expenditure is set to slow down to an annual average rate of 7,7%. Mangaung, Buffalo City and Msunduzi are expected to see the biggest decline in growth rates between the two periods, whereas Johannesburg, Tshwane and Ekurhuleni have similar growth rates.

In 2016/2017, the nine cities spent between 93% and 113% of their original budgeted expenditure. According to the National Treasury, overspending in excess of 15% is a sign of high risk. Msunduzi consistently spends more than it budgets, which suggests an inherent inability to budget accurately or curb spending.

Operating expenditure breakdown The largest expenditure items on city operating budgets continue to be bulk purchases of electricity from Eskom and water from the different water boards.

Five of the nine cities spent more on bulk purchases in 2016/2017 than they did in 2013/2014. In 2016/2017, Ekurhuleni’s bulk purchases were the highest at 41% of total expenditure, mainly driven by the high level of industrial activity in the city.

The pressure from bulk purchases has subsided since the 2015 State of City Finances Report, which found that bulk purchases increased by up to 14% between 2009/2010 and 2013/2014 across cities.

Since then there has been a big push by government to get consumers to reduce their use of water and electricity. In addition, Eskom’s bulk electricity tariff

9%

5%

7%

6%

6%

3%

25%

7%

26%

5%

27% 2013/14

39%

7%

6%

6%

3%

7%

8% 26%

27%

12%

5%

32% 12%

5% 46%

90% FIGURE 4: Breakdown of city operating expenditure (2013/14 and 2016/17) 80%

100%

70% 90%

60% 80%

26% 9%

6%

50% 70%

26%

40% 60%

6%

50% 30% 40% 20% 30% 10% 20%

23% 34% 23%

90% 100% 80% 90% 70% 80% 70% 60%

23% 13% 33%

25% 33%

3%

28% 32%

28%

24% 4% 24%

31%

40%

30%

31%

40%

30%

22% 4% 22%

30%

34% 46% 0%

25% 0% 25%

24%

JHB

9%

7%

7%

3%

9% 2016/17

5%

10%

5%

9%

7% 25%

7% 28%

3% 22%

9%

5% 22%

10%

5%

29%

25%

28%

22%

22%

30%

43%

29%

13%

5%

30%

43%

13%

5%

5%

29%

40%

22%

29%

30%

34% 34%

10%

26% 26%

10%

20% 2% 20%

40%

32% 30%

24%

Bulk purchases Employee-related costs Contracted services 2016/17 Other operating expenditure Dept impairment

22%

3%

2%

4%

32%

CPT ETH TSH EKU NMB MAN BCM Bulk purchases Employee-related costs Contracted services CPT ETH operating TSHexpenditure EKU NMB impairment MAN BCM Other Dept

50% 40%

20%

28% 8%

4%

JHB

5%

20%

13% 28%

39%

25%

60% 50%

30%

3%

34%

34%

0%

100%

25%

13%

23%

0%

10%

13%

3%

28% 28%

32% 32%

10% 10%

29% 29%

27% 27%

4% 4%

20% 20%

7% 7%

33% 33%

7% 7%

24% 24%

34% 34%

41% 41%

33% 33%

29% 29%

0% 0%

26%

40%

MSU MSU

10% 10%

20% 20%

11% 11%

20% 20%

26%

26% 26%

37% 37%

0% 0%

JHB JHB

CPT ETH TSH EKU NMB MAN BCM CPT ETH TSH EKU NMB MAN BCM Bulk Employee-related Contracted Bulk purchases purchases Employee-related costs costs Contracted services services Other operating expenditure Dept impairment Other operating expenditure Dept impairment

MSU MSU

Source: Own analysis of National Treasury Local Government Database (2018) – Table A4 various years

increases have been lower than in the preceding period, taking the pressure off cities and consumers. Looking forward, Tshwane’s 2017/2018 budget shows that bulk purchases as a percentage of operating expenditure are expected to decline from 34% in 2016/2017 to 25% in 2019/2020, suggesting that consumers are responding to higher tariffs and the unreliability of Eskom supply.

The drought also plays a role in the reduction of water use – there is no expense if no water is available to buy.

But this may be offset by higher bulk tariffs and higher expenditure on water infrastructure. Cape Town has budgeted to spend R5,7-billion over the 2018/2019 MTEF on its new water plan (CoCT, 2017: 10). The combined effects of reduced water consumption, higher water tariffs and increased infrastructure spending on the revenue and spending ratios in cities’ budgets are not yet clear.

As Figure 4 shows, Nelson Mandela Bay and Mangaung not only increased the proportion being spent on employee costs, thus reprioritising funds away from other services, but also expanded their use of contracted services. This means that even

with a growing human resources base, these cities are outsourcing the actual provision of services to an increasing extent. In contrast, for eThekwini the decline in contracted services is associated with an increase in other operating expenditures, indicating either that certain expenditures have been reclassified or the city has brought the delivery of certain services in-house and is now spending more on the materials to enable its own staff to deliver such services.

Debt impairment for Johannesburg and Mangaung is relatively high, and most cities increased the proportion allocated for this category between 2013/2014 and 2016/2017. Over the 2017/2018 MTEF, Cape Town budgeted for rapid growth in items such as debt impairment, finance charges, and other materials. It is widely known that Johannesburg has had issues with debt collection over a number of years; having to provide for the write-off of outstanding debt is a consequence of these problems. Increasing provisions for debt impairment is not a positive development, as it indicates the cities are anticipating a deterioration in their ability to collect billed revenue.

SOUTH AFRICAN PROPERTY REVIEW

45

doing business in South Africa

Enforcing contracts In the fourth of several extracts from the World Bank Group’s Doing Business in South Africa report, Property Review focuses on business regulations and their enforcement across five Doing Business areas. It goes beyond Johannesburg to benchmark eight other South African urban areas across four regulatory areas. It also measures the process of trading across borders through four of South Africa’s maritime ports.

It contains data current as of 1 May 2018 and includes comparisons with other economies based on data from Doing Business 2018: Reforming to Create Jobs Extracts from www.doingbusiness.org/southafrica

A

strong, efficient South African judiciary plays a central role in supporting the private sector investments that create the jobs citizens need to come out of poverty.1 Growing private investment in South Africa is essential to reaching the national goal of building an economy that provides full employment by 2030.

Eleven-million new jobs will be needed to meet that target.2 Employment scenarios projected by the National Planning Commission suggest that new jobs will most likely come from firms investing in domestic markets as well as from growing small and medium-sized companies.3 Studies have shown that sound legal institutions and efficient courts promote entrepreneurship and business growth.4 They provide firms and investors the confidence that legal disputes will be resolved within a reasonable time, with judicial decisions that are transparent and enforceable. Good contract enforcement stimulates companies to invest and establish new business relations. Conversely, poor judicial performance and lengthy trial times impose heavy costs on firms, undermine

Main Findings ● Enforcing a contract continues to be easier in Mangaung and Msunduzi and more difficult in Johannesburg and Buffalo City. The duration of the trial and judgment phase and the cost of attorneys’ legal services are the main sources of variation across locations. ● The average duration of the trial phase (435.1 days) remains unchanged since 2015. Cutting delays at this phase is still South Africa’s biggest challenge to achieve levels of efficiency comparable to other populous, upper-middle-income economies like Malaysia, where it takes 270 days. ● Since 2015 Buffalo City has embarked on a promising reform path. The East London Magistrate Court cut by almost half the time to file a claim through enhanced monitoring and supervision of its staff, clearer division of tasks among clerks and effective collaboration with local attorneys. ● On the quality of judicial processes index, all nine locations score the same— 7 of 18 possible points— mostly because they are subject to the same national regulations. There is still ample room to converge with international good practices, especially those related to better case management and court automation. commercial trust and diminish the public’s confidence in the justice system.5

How does contract enforcement work in South Africa?

Under the South African Constitution, courts and their rules and procedures are governed nationally.6 The head of the

judiciary is the Chief Justice, who establishes the norms and standards applicable to judges and magistrates across the country and monitors their performance against these standards.

The Department of Justice,7 for its part, oversees court administration; it promotes public access to the court system and

1 World Bank calculations indicate that each job created in South Africa lifts about one person out of poverty.

World Bank. 2017. South Africa Economic Update: Private Investment for Jobs. Washington, DC: World Bank.

2 World Bank. 2017. South Africa Economic Update: Private Investment for Jobs.

3 National Planning Commission. National Development Plan 2030: Our future – make it work.

4 Lanau, Sergi, Gianluca Esposito and Sebastiaan Pompe. 2014. Judicial System Reform in Italy – A Key to Growth. IMF Working Paper No. 14/32, February 2014.

5 OECD. 2013. “What makes civil justice effective?” OECD Economics Department Policy Notes, No. 18, June 2013.

6 Section 171, Constitution of South Africa, 1996.

7 In 2014, the Department of Justice and Constitutional Development merged with the Department of Correctional Services to become the Department of Justice and Correctional Services.

38

SOUTH AFRICAN PROPERTY REVIEW

the jurisdiction and procedures of magistrates’ courts are bound by statutory rules. Litigants can file breach of contract claims at either the High Court or a magistrates’ court. However, because it is more affordable to ligate simple cases in the lower courts,9 litigants would still prefer district magistrates’ courts for the assumed Doing Business case.10

allocates resources to ensure courts can deliver their services.8 Courts are organised in two tiers. The top tier includes the Constitutional Court, the Supreme Court of Appeal and the High Court. These courts can establish their own proceedings. Magistrates’ courts make up the second tier. Unlike the higher courts, jurisdiction and procedures of magistrates’ courts are bound by statutory rules. Litigants can file breach of contract claims at either the High Court or a magistrates’ court. However, because it is more affordable to ligate simple cases in the lower courts,9 litigants would still prefer district magistrates’ courts for the assumed Doing Business case.10 Resolving a commercial dispute across the nine locations measured takes on average 546,7 days and costs 33,1% of the claim value. This is slightly faster than the average for OECD high-income economies (577,8 days) but slower than in New Zealand (216 days) or Rwanda (230 days).

The cost is on par with Mexico’s, but double that of China and the Russian Federation.

On the quality of judicial processes index, South Africa’s performance of 7 out of 18 points places it between the average for sub-Saharan Africa (6,5 points) and East Asia and the Pacific (8 points; Figure 6.1).

Enforcing contracts measures the time and cost throughout the three main phases of a court proceeding – filing and service of process, trial and judgment and enforcement of judgment. While filing of claims and enforcement of judgments are relatively efficient processes, overcoming delays during the trial and judgment phase remains the main challenge.

Contract enforcement continues to be easier in Mangaung and Msunduzi and more difficult in Johannesburg and Buffalo City (Table 6.1). The duration of

of attorneys’ legal services are the main sources of variation across locations.

The total time to resolve a commercial dispute and have the judgment enforced ranges from over 15 months in Msunduzi to 22 months in Buffalo City. How quickly courts resolve cases depends on their resources and caseloads and how well

doing business in South Africa

How the process compares

Enforcing contracts measures the time and cost throughout the three main phases of a court proceeding—filing and

FIGURE 6.1 On average,South South Africa enforces contracts faster OECD high-income butthe trails on of FIGURE 6.1 On average, Africa enforces contracts faster than OECDthan high-income economies but economies trails on cost and quality judicial processes cost and the quality of judicial processes QUALITY OF JUDICIAL PROCESSES Time (days) 0 200

Rwanda

250

Mexico

350

East Asia & Pacific OECD high income

Iceland (global best)

BRIC OECD high income Australia

400 Chile

450 500 550 600 650

Msunduzi Mangaung Ekurhuleni eThekwini,Tshwane Cape Town South Africa average Johannesburg Nelson Mandela Bay Buffalo City

South Africa range (9 locations) Mexico Namibia Malaysia

Australia, China (Shangai) (global best) United Kingdom

20

Rwanda

25

United Kingdom East Asia & Pacific

17 16 15 14 13

30

Mangaung Msunduzi, Nelson Mandela Bay South Africa average, Tshwane Johannesburg eThekwini Cape Town, Ekurhuleni Buffalo City

35 40 45

Rwanda

760

10

Kenya

700 BRIC

Index (0–18) 18

Singapore (global best)

Australia Malaysia United Kingdom Namibia Kenya Chile

Cost (% of claim value) 0

Malaysia, BRIC OECD high income Mexico Namibia Chile, Kenya East Asia & Pacific

12 11 10 9 8 7

50

All 9 South African locations

6 1

85

0

Source: Doing Business database.database. Note: the OECD averages are based on economy-level data for the 33 OECD high-income Source: Doing Business Note: The OECD averages are based on economy-level data for the 33 OECD high-income economies. The East Asia & Pacific averages are based on economy-level data for the 25 economies.

The East Asia & Pacific averages are based on economy-level data for the 25 economies of East Asia and the Pacific. economies of East Asia and the Pacific. The BRIC averages are based on economy-level data for Brazil, Russia, India and China.

The BRIC averages are based on economy-level data for Brazil, Russia, India and China.

and how well they manage them. For instance, in 2017 the Pietermaritzburg Magistrate Court received 2 200 more cases than its counterpart in East London – yet contract enforcement in Msunduzi is much faster. At the court in Pietermaritzburg, three magistrates hear trials; at the court in Buffalo City, ENFORCING CONTRACTS only two.11

the trial and judgment phase and the cost of attorneys’ legal services are the main sources of variation across locations.

The total time to resolve a commercial dispute and have the judgment enforced ranges from more than 15 months in Msunduzi to 22 months in Buffalo City.

How quickly the courts resolve cases depends on their resources and caseload, TABLE 6.1

Enforcing contracts in South Africa—where is it easier?

2018 Distance to frontier score (0–100)

2015 Distance to frontier score (0–100)

Time (days)

Cost (% of claim value)

Quality of judicial processes index (0–18)

OECD high income average

66.76

66.55

577.8

21.5%

11

BRIC average

64.29

62.54

752.3

21.4%

12

South Africa average

55.60

55.49

546.7

33.1%

7

East Asia & Pacific average

53.09

52.55

565.7

47.3%

7.9

Location

How the process compares

of 7 out of 18 possible points places it between the average for Sub-Saharan Africa (6.5 points) and East Asia and the Pacific (8 points) (figure 6.1).

Rank (1–9)

Mangaung (Bloemfontein)

1

59.01

59.01

473

29.4%

7

Msunduzi (Pietermaritzburg)

2

58.78

58.78

469

30.3%

7

Tshwane (Pretoria)

3

56.14

56.14

527

33.1%

7

eThekwini (Durban)

4

55.74

55.74

521

34.6%

7

Ekurhuleni (Germiston)

5

55.58

55.58

513

35.6%

7

Nelson Mandela Bay (Port Elizabeth)

6

54.85

54.85

611

30.4%

7

Cape Town (Cape Town)

7

54.71

54.71

545

35.6%

7

Johannesburg (Johannesburg)

8

54.10

54.10

600

33.2%

7

Buffalo City (East London)

9

51.48

50.52

661

35.8%

7

Source: Doing Business database.

Source: Doing Business database. Note: rankings are based on the average distance to frontier score (DTF) for the time and cost Note: Rankings are based on the average distance to frontier score (DTF) for the time and cost associated with enforcing a contract as well as for the quality of judicial associated with enforcing a contract as well as for the quality of judicial processes index. The DTF score is normalised to range processes index. The DTF score is normalized to range from 0 to 100, with 100 representing the frontier of best practices (the higher the score, the better). The DTF score from from 0 toreport 100,includes with 100 representing the frontierchanges of bestimplemented practicessince (thethen. higher the details, score,see the The DTF score from 2015 the 2015 all data revisions and methodological For more thebetter). chapter “About Doing Business andthe Doing Business in report includes methodological changes implemented since then. The ForEast more see theare chapter South Africa 2018.”all Thedata OECDrevisions averages areand based on economy-level data for the 33 OECD high-income economies.

Asiadetails, & Pacific averages based on“About economyDoing Business Doing inthe South 2018. ” TheareOECD averages are based economy-level data India for the OECD level data for the 25and economies of Business East Asia and Pacific.Africa The BRIC averages based on economy-level data for on Brazil, the Russian Federation, and 33 China. high-income economies. The East Asia & Pacific averages are based on economy-level data for the 25 economies of East Asia and the Pacific. The BRIC averages are based on economy-level data for Brazil, the Russian Federation, India and China. claim value, respectively. Attorney fees only after pretrial proceedings. After the they manage them. For instance, in 2017 represent the largest share of the cost pretrial hearing the wait for trial ranges the Pietermaritzburg Magistrate Court of enforcing a contract (on average 68% from three to five months in Mangaung received 2,200 more cases than its 8 Department of Justice of South Africa, Strategic Plan 2017-2020, available at http://www.justice.gov.za/MTSF/mtsf.htm. of the total cost). Court rules provide and Msunduzi to nine months in other counterpart in East London, yet contract tariffs for the attorneys’ legal services.12 jurisdictions. The time for completing enforcement in Msunduzi is much faster.

9 In 2014, the Department of Justice and Constitutional Development merged with the Department of Correctional Services to become the Department of Justice the trial stage varies depending on facAt the court in Pietermaritzburg, three Attorneys and their clients negotiate fees and Correctional Services. tors such as attorneys’ diligence, courts magistrates hear trials; at the court in adhering to these tariffs or agree on an congestion and availability of magistrates Buffalo City, only two.11 hourly rate considering the complexity of to preside According to themonetary claim, thethreshold attorney’sof experience and 10 Lower courts are subdivided into regional and district magistrates’ courts. Since 2014 district and regional courtsover have,trials. respectively, a maximum attorneys, causes delay 200% at the timeper needed to(R150 prepare and litigate Across South Africa the filing stage takes R200 000 and R400 000. Doing Business considers the competent court to be the local court, with jurisdiction over common commercial casesofworth income capita 750). this stage are court backlogs, frequency the case. Courts also use the tariffs to between 30 and 40 days. The duration of adjournments and waiting periods calculate court-awarded attorney fees.13 depends on how long it takes the court 11 The number of civil cases filed in 2017 were 13 499 in Msunduzi and 11 296 in Buffalo City. The information was provided by officers of the Pietermaritzburg and East London between hearings—from one to four to issue the summons and the sheriffs to However, attorneys claim that there can magistrate courts. months. serve process and return notice of service be a substantial shortfall between the to the claimant’s attorney. The sheriff’s courts’ award and the actual legal costs.14 It still takes 79.1 days to enforce a judgservice normally takes between 7 and 14 SOUTH AFRICANThere PROPERTY REVIEW 39 ment, on average. The enforcement stage days, but attorneys can pay an additional are no court fees for filing a suit. ranges from two months in Buffalo City to fee to expedite it.

Sheriffs’ fees are regulated through a nearly three months in most of the other national tariff and applied evenly across

71

doing business in South Africa 72

DOING BUSINESS IN SOUTH AFRICA 2018

FIGURE 6.2 6.2 The Thelength lengthofofthe thetrial trialand andjudgment judgment phase explains thethe variation among locations FIGURE phaseremains remainsunchanged unchangedsince since2015 2015and and explains variation among locations Singapore (global best) 6

118

40

Msunduzi 33

353

Mangaung 30

360

Ekurhuleni 30

83

Filing and service period

83 400

Trial and judgment period

83

eThekwini 33

408

80

Tshwane 30

414

83

Cape Town 31 South Africa average

438

32

East Asia & Pacific

30

Nelson Mandela Bay

35

Buffalo City

40

BRIC

45

79

322

OECD high income 34 Johannesburg

76

435

48

Enforcement period

196 418

126 490

80

496

80

557

64

489

0

100

200

300

219 400 Time (days)

500

600

700

800

Source: Doing Business database.

Source: Doing Business database. Note: the OECD averages are based on economy-level data for the 33 OECD high-income economies. The Note: The OECD averages are based on economy-level data for the 33 OECD high-income economies. The East Asia & Pacific averages are based on economy-level data for the East Asia & ofPacific averages are based economy-level data for thedata 25for economies of East Asia and BRICallaverages are 25 economies East Asia and the Pacific.

The BRICon averages are based on economy-level Brazil, the Russian Federation, Indiathe and Pacific.

China. In The this figure, averages are rounded on to the nearest whole number. based economy-level data for Brazil, the Russian Federation, India and China. Here, averages are rounded to the nearest whole number.

Across Africa, the than filing stage and availability of magistrates toAfrica, preside 21 Going beyondSouth efficiency—the half the points as the top-performing specialized courts in South but quality of judicial processes index economies in the index, South Africa has a dedicated commercial court for civil takes between 30 and 40 days. The over trials. According to attorneys, common Efficiency and quality go hand in hand.

ample room to converge with interna-

matters is not among them (0 points).

duration ongreater how long it takes causes of at this stage areat the court tional good practices—especially thosedelay Commercial litigation happens civil Good judicial depends quality promotes relatedand to better management andfrequency divisions of the with magistrates efficiency.

Datato from economies the court issue the around summons thecase backlogs, ofcourts, adjournments court automation (figure 6.3). adjudicating civil and commercial matters. the world show that efficient dispute ressheriffs to serve process and return notice and waiting periods between hearings Additionally, case assignment is based– olution is usually paired with sound instiThe court structure and proceedings index on objective criteria but not automated in tutions, effective case management and of service to the claimant’s attorney. The from one to four months. (scored from 0 to 5 points) looks at the the competent court (a score of 0.5 out of court automation tools. In 2015 Doing sheriff’s service normally between It orstill takes 79,1pretrial daysattachment to enforce existence of dedicated courts special1). Lastly, is availablea Business introduced the quality of judicialtakes ized court divisions for commercial cases plaintiffs only in extraordinary circumprocesses index to measure whether seven and 14 days, but attorneys can pay judgment, on toaverage.

The enforcement and small claims. While both matter for stances and is not typically granted by the economies have adopted a series of good an additional feesystem to expedite it. allocation and contribute stagetoranges two months inmatters Buffalo case manag- from courts in general commercial practices in their court in four (a ing case backlogs at courts of first instance, areas: court structure and proceedings, score of 0 points).

As in 2015, the trial period still takes on City to nearly three months in most of the they serve different purposes. Commercial case management, court automation and courts about can translate efficiency gains alternative dispute index from TheThis case corresponds management indexto refers to average 435,1resolution. days. ItThe ranges a intoother locations. how because adjudicators have specialized is scored on a scale from 0 to 18. principles that aim to improve case flow year in Msunduzi and Mangaung to more long it takes sheriffs to inventory, attach knowledge of commercial cases and and reduce court backlogs. It includes can of cases faster. provisionsassets, that enhance transparency and All nine 18 locations measured 7 of than months inscore Buffalo Citydispose (Figure andSmall sellclaims the debtor’s then organise courts promote greater access to justice. accountability from judges and parties for 18 possible points on this index. This 6.2).

After the they parties closetotheir conduct public with saletheoflegal the property.

Eachpleadings location measuredand has a small claims acomplying standards.

South is mostly because are subject court where citizens can resolve simple Africa has adopted some recognized case the same national regulations.

Lagging of and respond to the notice discovery, Enforcing a contract is cheaper in disputes at no cost without an attorney management principles (scoring 2 out 4 points behind the average for OECD they can apply for a pre-trial date.

Mangaung and more expensive in Buffalo (a score of 1.5 points). There are various of 6 possible points on this index). For high-income economies and with fewer example, it established legal timevalue limits Generally, a trial date will be allocated City – 29,4% and 35,8% of the claim for at least three key court events, with Efficient dispute resolution is usually paired with sound only after pre-trial proceedings. After the respectively. Attorney represent the the deadlinesfees respected in more than institutions, effective case management and court of cases (a score of 1 point). Ita pre-trial hearing, the wait for trial ranges largest share 50% of the cost of enforcing automation tools. also makes pretrial conferences available from three to five months in Mangaung contract (on average 68% of the total cost). and Msunduzi to nine months in other Court rules provide tariffs for the attorneys’ jurisdictions. The time for completing the legal services.12 Attorneys and their clients trial stage varies depending on factors such negotiate fees adhering to these tariffs or as attorneys’ diligence, courts congestion agree on an hourly rate, considering the 17

18

22

23

19

20

24

complexity of the claim, the attorney’s experience, and the time needed to prep and litigate the case. Courts also use the tariffs to calculate court-awarded attorney fees.13 However, attorneys claim that there can be a substantial shortfall between the courts’ award and the actual legal costs.14 There are no court fees for filing a suit.

Sheriffs’ fees are regulated through a national tariff and applied evenly across locations.15 The average expert witness fee and cost of service of process by sheriffs add up to 7,6% of the claim value.

Across locations, enforcement fees — including attachment, removal, storage, advertisement and organisation of the public sale – are equal to three percent of the claim value, on average.16

Going beyond efficiency: the quality of judicial processes index Efficiency and quality go hand in hand.

Good judicial quality promotes greater efficiency. Data from economies around the world shows that efficient dispute resolution is usually paired with sound institutions, effective case management and court automation tools.17 In 2015 Doing Business introduced the quality of judicial processes index18 to measure whether economies have adopted a series of good practices in their court system in four areas: court structure and proceedings, case management, court automation and alternative dispute resolution. The index is scored on a scale from 0 to 18.19 All nine locations measured score 7 out of 18 possible points on this index.

12 Rules Board for Courts of Law Act (107/1985): Amendment of the Rules of SCA, High Court and Magistrates’ Courts of South Africa, as published in Government Gazette 41142 of 29 September 2017.

13 The attorney of the successful plaintiff prepares and submits a bill of legal costs to the court. The court’s taxation master reviews the bill and awards recoverable costs based on the applicable scale, normally on the “party to party” scale, which is the lowest one.

14 A study from 2010 indicates that the difference between court awards and actual legal costs of litigation can be up to 50%.

Bradstock Sara, Graham Huntley and Peter Taylor. 2010. “At what cost? A Lovells multi jurisdictional guide to litigation costs.” Lovells LLC. 15 A list of sheriffs’ fees is available at www.sheriffs.org.za/wp-content/uploads/2017/07/ NewSheriffsTariffsPart2of2 MagistratesCourt-1.pd 16 For more details on the costs recorded by Doing Business, consult the data notes section of this report.

17 World Bank. 2016. Doing Business 2016: Measuring Regulatory Quality and Efficiency. Washington, DC: World Bank.

18 The indicator of procedural complexity presented in Doing Business in South Africa 2015 was replaced by a qualitative index as a result of the changes in methodology introduced by Doing Business in 2015. Most of the index components refer to the competent courts.

19 For further information, consult the data notes section of this report.

40

SOUTH AFRICAN PROPERTY REVIEW

doing business in South Africa This is mostly because they are subject to the same national regulations. Lagging four points behind the average for OECD high-income economies and with fewer than half the points of the top-performing economies in the index, South Africa has ample room to converge with international good practices – especially those related to better case management and court automation (Figure 6.3).

The court structure and proceedings index (scored from 0 to 5 points) looks at the existence of dedicated courts or specialised divisions for commercial cases and small claims. While both matter for case allocation and contribute to managing case backlogs at courts of first instance,

they serve different purposes. Commercial courts can translate into efficiency gains because adjudicators have specialised knowledge of commercial cases and can dispose of cases faster. Small claims courts promote greater access to justice. Each location measured has a small claims court where citizens can resolve simple disputes at no cost without an attorney (a score of 1,5 points).20 There are various specialised courts in South Africa,21 but a dedicated commercial court for civil matters is not among them (0 points). Commercial litigation happens at the civil divisions of the courts, with magistrates adjudicating civil and commercial matters. Additionally, case assignment is based on objective ENFORCING CONTRACTS

FIGURE 6.3 South Africa has ample room for improving the quality of its judicial processes, especially with regards to case management and automation

FIGURE 6.3 South Africa has ample room for improving the quality of its judicial processes, especially with regard to case management and automation

Australia

15.5

Singapore

15.0

All 9 locations in South Africa

7.0 Full

Partial

Source: Doing Business database.

Source: Business database.

Note: CMS = case management system.

Australia the global best isperformer onperformer the Quality Note: CMSDoing = case management system. Australia is the global best performer on the Quality of judicial processesisindex and Singapore the global best on the Enforcing contracts indicator.index, and Singapore is the global best performer on the Enforcing Contracts indicator. of Judicial Processes

Financial incentives for mediation

Regulation of voluntary mediation

Voluntary mediation

Enforcement of valid arbitration clauses

Limitations on arbitration matters

Alternative dispute resolution (0-3 points) Consolidated law for commercial arbitration

Electronic publication of judgments

Electronic payment of court fees

Electronic service

Electronic filing

Court automation (0-4 points)

Electronic CMS features for attorneys

Electronic CMS features for judges

Pretrial conference

Performance reports

Legal limits on adjournments

Case management (0-6 points)

Legal time standards for key events

Randomized case assignment

Pretrial attachment

Small claims court or fast-track procedure

Quality of judicial processes index (0–18 points)

Specialized commercial court or division

Court structure and proceedings (-1-5 points)

criteria but not automated in the competent court (a score of 0,5 out of 1). Finally, pretrial attachment is available to plaintiffs only in extraordinary circumstances and is not typically granted by the courts in general commercial matters22 (a score of 0 points).23 The case management index refers to principles that aim to improve case flow and reduce court backlogs. It includes provisions that enhance transparency and accountability from judges and parties for complying with the legal standards.

South Africa has adopted some recognised case management principles (scoring 2 out of 6 possible points on this index). For example, it established legal time limits for at least three key court 73 events, with the deadlines respected in more than 50% of cases (a score of 1 point).24 It also makes pre-trial conferences available to narrow down issues and make trials more efficient (a score of 1 point).25 However, there are no rules limiting the number of adjournments per case (a score of 0 points): hearings or trials can be adjourned at parties’ request or by the court.26 The Department of Justice publishes annual performance reports to inform the public on the results of its various programmes, which include providing administrative support to courts and court facilities.27 However, neither these reports nor those published by the Office of the Chief Justice include data on individual court performance (a score of 0 points).

no electronic case filing, and service of proto narrow down issues and make trials 0 points). Since it was established in cess must be done in person by the court more efficient (a score of 1 point).25 2014, the court-annexed mediation sheriff. The rules allow the parties to receive program has continued to expand.

However, there are no rules limiting the 20 Smallofclaims courts in per South Africa established by the but Small Claims CourtsCurrently Act (Act No. 61 are of 1984).

By Government Notice R.185 of April 2014, the monetary jurisdiction notifications by e-mail, only following there mediation services number adjournments case (a were effective service of process.

There R15 are no andwww.justice.gov.za/scc/scc.htm. centers available at the local courts score of 0 points); or trials can to entertain was amended for hearings small claims courts civil cases of less than 000. See According to the Department of Justice of South Africa, 31 fees payable to theofcourt.

Most claims judgments be adjourned at parties’ requestthe or monetary by there are initiatives to increase jurisdiction the small courtsinto four up toof R25the 000.country’s provinces. are not published. Only decisions from the the court.26 The Department of Justice More recently, in October 2017, South High Court provincial divisions and the Africa’s president sanctioned the publishes annual performance reports 21 Competition Appeal Court, Electoral Court, Labour Court, Labour Appeal Court, Land Claims Court and Specialised Crimes Courts.

Supreme Court of Appeal are published International Arbitration Act, adoptto inform the public on the results of its (0.5 points). Automation, however, is making the Model Law on International various programs, which include provid22 administrative Magistrates serve the lower as part lower courts, are the competent courts for the purposes of the Doing Business case study. ingdistrict its waymagistrates’ into the courts.courts, The judiciary hasof the Commercial Arbitration of the United ing support to the courts. courts The plans to roll out an e-filing pilot project for Nations Commission on International and court facilities.27 However, neither 23 According to those Rule 56 of the Rules the Conduct the Magistrates’ Courts, a plaintiff can file an application before the court to obtain an attachment the superior courts.29 of the Proceedings of Trade Law (UNCITRAL). these reports nor published by theRegulating Office of secure the Chief Justiceofinclude data order to payment a claim.

Attorneys comment that in general commercial cases, the mere fear of dissipation of assets from defendants will not move the court to grant such on individual court performance (a agreements score Domestic commercial disputes can beadmit pre-trial attachment to secure payment of pending rent. application.

Disputes over lease are typical cases where the courts of 0 points). Courts do not publish such settled through arbitration or voluntary WHAT HAS CHANGED? kinds of reports either.28 In terms of case (2.5 out of 3 points on this 24 Time limits were established for noticemediation of intention to defend (Rule 13 of the Rules Regulating the Conduct of the Proceedings of the Magistrates’ Courts), notice of trial (Rule 22) index). All relevant disputes can be submanagement systems, in October 2017 Since 2015 only one in nine locations and discovery of documents (Rule 23). ject to arbitration (a score of 0.5), and the Department of Justice introduced improved—Buffalo City, for case filing. arbitration clauses are usually enforced a new integrated case management Registering a claim at the East London 25 See Section 54 of the Magistrates’ Court Act (Act No. 32 of 1944) and Rules 22 and 25 of theCourt Rules Regulating Conduct of the Proceedings of the Magistrates’ Courts by the courts (0.5). Both types of altersystem for civil courts. The rollout is still Magistrate and servingthe process of Southand Africa R740has (23yet August 2010).native dispute resolution mechanisms on the defendant used to be a daunting ongoing, theNo. system to fully are available (0.5 points for each) and replace manual case tracking (a score of process lasting two and a half months. are governed by comprehensive 0 of 231 possible Attorneys that there were 26out Rule of the points).

Rules Regulating the Conduct of the Proceedings of theregulaMagistrates’ Courts complained of South Africa. tion (another 0.5 points).30 There are no frequent delays in the process of issuing summonses and Justice. that documents were reported by the Department of Justice refer to, among The leveljudicial of automation at theofcourts is low financial parties to attend 27 The functions the magistrates’ courtsincentives are underforthe purview of the Office of the Chief Court services misplaced at the court. Local officials (0.5 out of 4 points on this index). There is mediation or conciliation (a score of

others, the quasi-judicial functions performed by the courts, such as default judgments and taxation of legal costs. See the Department of Justice’s Annual Report 2016/2017, available at www.justice.gov.za/reportfiles/report_list.html.

SOUTH AFRICAN PROPERTY REVIEW

41

doing business in South Africa Courts do not publish such reports either.28 In terms of case management systems, in October 2017 the Department of Justice introduced an integrated case management system for civil courts. The roll-out is still ongoing, and the system has yet to fully replace manual case tracking (a score of 0 out of 2 possible points).

The level of automation at the courts is low (0,5 out of 4 points on this index).

There is no electronic case filing, and service of process must be done in person by the court sheriff. The rules allow the parties to receive notifications by e-mail, but only following effective service of process. There are no fees payable to the court. Most judgments are not published – only decisions from the High Court provincial divisions and the Supreme Court of Appeal are published (0,5 points). Automation, however, is making its way into the courts. The judiciary has plans to roll out an e-filing pilot project for the superior courts.29 Domestic commercial disputes can be settled through arbitration or voluntary mediation (2,5 out of 3 points on this index). All relevant disputes can be subject to arbitration (a score of 0,5), and arbitration clauses are usually enforced by the courts (0,5). Both types of alternative dispute resolution mechanisms are available (0,5 points for each), and are governed by comprehensive regulation (another 0,5 points).30 There are no financial incentives for parties to attend mediation or conciliation (a score of 0 points).

Since it was established in 2014, the court-annexed mediation programme

has continued to expand. Currently there are mediation services and centres available at the local courts in four of the country’s provinces.31 More recently, in October 2017, South Africa’s president sanctioned the International Arbitration Act, adopting the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law.

What can be improved?

1 Study magistrates’ court caseloads to identify and eliminate causes of trial delay, and consider limiting the frequency and causes of adjournments The average duration of the trial phase at the district courts (14,5 months) – from service of process until expiration of the appeal period – remains unchanged since 2015. This time frame is somewhat comparable to the average in OECD high-income economies (about 14 months). However, results show that even in other populous, upper-middleincome economies, faster trial time is achievable; in Malaysia the trial stage takes nine months. Delays in the trial phase are South Africa’s biggest challenge.

Across the country, attorneys identify the backlog in the courts and the frequency of adjournments as common causes of delay in this phase. Weak case management and the absence of legal rules limiting the number of adjournments or requiring their justification may lead courts to grant adjournments to manage their caseload or to adjourn cases due to lack of preparation.

Magistrates’ court rules do not establish limits on the number of adjournments per case, nor do they reserve them for extraordinary or exceptional circumstances. Cases may thus be adjourned by the consensus of the parties’ or by the courts, per request or at their own discretion.

If the court is processing a large volume of applications or hearings, there may be significant delay in resuming adjourned cases. Countries that impose specific legal limits on adjournments have mostly focused on reserving them for unforeseen or exceptional circumstances.

Australia, Singapore, the United States and another 50 economies globally have done this; 20% of them have also set a maximum number of adjournments per case.32 Justified adjournments should also encompass the establishment in advance of a reasonably immediate date to reinstate the process.33 In Latvia, for example, the capital’s central court may not postpone a hearing without first setting a new hearing date.34

2 Assess judicial capacity and resources needed to enhance case management and make it effective, especially in lower courts Efficient case management systems reduce delays and case backlogs. They can also make legal services more affordable, as lawyers spend less time in court and judges exercise better control over dilatory practices. The South African judiciary has made case flow management a priority, in line with guiding principles of case management established by the European Commission

28 Doing Business considers four types of reports available for the competent courts. In the case of South Africa, the competent courts are the district magistrates’ courts.

The competent courts should produce at least two of the following to score on this item: time to disposition report, clearance rate report, age of pending cases report and single case progress report. Further details are available at www.doingbusiness.org/Methodology /Enforcing-Contracts.

29 Office of the Chief Justice of the Republic of South Africa. Annual Performance Plan for 2018/19, available at judiciary.org.za/index.php/documents/ annual-performance-plans.

30 The Arbitration Act, 1965 and Chapter 2 of the Rules Regulating the Conduct of the Proceedings of the Magistrates’ Courts of South Africa, as published in Government Gazette No. R183 of 18 March 2014.

31 The four provinces with mediation centres are Gauteng, Limpopo, Mpumalanga and North West.

32 Doing Business database.

33 Laws, Edward. 2016. “Addressing case delays caused by multiple adjournments.” Governance and Social Development Resource Centre. Helpdesk Research Report.

34 World Bank. 2018. Doing Business in the European Union 2018: Croatia, the Czech Republic, Portugal and Slovakia. Washington, DC: World Bank.

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SOUTH AFRICAN PROPERTY REVIEW

doing business in South Africa for the Efficiency of Justice.35 It is putting emphasis on empowering judges to direct more pre-trial processes to ensure that all cases are duly prepared for trial. A Judicial Case Flow Management Committee has even been established, and there have been reported successes of case management pilot programmes implemented at the High Court since 2012.36 In the medium term, the administration and operation of the magistrates’ courts – now under the umbrella of the Department of Justice – will transition to the Office of the Chief Justice.37 This transition entails applying case flow management principles in the magistrates’ courts.

As part of this process, it is important to assess whether lower courts need additional training or resources (guidelines, computerised tools, support staff ) to be able to succeed at implementing the case flow management directives.38 For instance, the new integrated case management system deployed in October 2017 aids the courts with collecting statistics on court performance. But the system is not fully operational to allow tracking the flow of cases and the number of cases backlogged. Court staff also need to be trained in using the system. In addition, because of the heavy caseload and magistrates’ lack of specialisation on civil commercial matters, they may not have the time or preparation to make effective use of pre-trial conferences.39

In 2001, Pakistani authorities saw dramatic improvements in reducing court backlogs and case processing times after the implementation of a case management project in six districts. Pakistani judges visited courts in Singapore and attended training workshops every three months in Islamabad for a period of 16 months. As in South Africa, Pakistani courts established committees – which included local attorneys – to identify the key obstacles legal practitioners face in the judicial system and determine how best to address them. The project succeeded in increasing the courts’ efficiency, improving judicial practices and changing the public’s perception of the judiciary.40

3 Consider introducing specialised commercial courts or commercial sections in locations where needed South African locations with large caseloads and lengthy trials could consider introducing specialised commercial courts, commercial divisions or specialised judges within existing courts to deal exclusively with commercial cases. In the past 10 years, 22 economies have reformed their contract enforcement by setting up commercial courts or specialised commercial divisions within existing courts. To date, more than half of the economies benchmarked by Doing Business have commercial courts or divisions, including Australia, Malaysia,

Singapore, the United Kingdom and the United States. These are all top-ranked economies on the ease of enforcing contracts and are international reference points for good judicial practices.

Courts first analyse their respective caseload to determine the total share of commercial cases in the docket and whether these types of cases are backlogged. The outputs of such an analysis may justify the creation of a specialised commercial court or division.

As a general principle, specialised courts tend to improve efficiency and promote consistency in the application of the law. This is because judges become experts on commercial matters and can dispose of cases faster. Nigeria (Lagos) and Côte d’Ivoire (Abidjan) achieved significant time reductions at their local court of first instance after the creation of specialised commercial courts.41 However, studies conducted in sub-Saharan African economies with specialised courts show that investments in these courts must be sustainable and non-detrimental to the functioning of the regular courts to maintain the quality of the judicial system.42 Locations should thus identify the largest sources of delay, for example criminal cases or commercial cases, and channel their resources toward those.

Such interventions could translate into overall efficiency gains at first-instance courts and promote speedier resolution of all cases, including commercial matters.

35 The CEPEJ guidelines are at rm.coe.int/commission-europeenne-pour-l-efficacite-de-la-justice-cepej-cepej-guid/1680788300.

36 “Progress on judicial case-flow management.” De Rebus, May 2014 :10 [2014] DEREBUS 65, available at www.saflii.org/za/journals /DEREBUS/2014/65.html.

37 The case management project piloted at the High Court consists of two phases; the first corresponds to the courts’ registrars.

38 The case management project piloted at the High Court consists of two phases; the first corresponds to the courts’ registrars. They oversee the monitoring and tracking of cases to ensure compliance with the rules from the filing of an application until the close of pleadings. The second phase deals with case management by the judge president of the court or the judge designated from the close of pleadings onwards. This information was provided by officials of the Bloemfontein Division of the High Court during a visit to the court.

39 Magistrates’ courts are considered “creatures of statute”, meaning that they must follow their procedures strictly according to the written applicable rules. World Bank experts identify lack of adequate judicial training and judges’ narrow view that their work is limited to applying the law as detrimental factors to an effective implementation of pre-trial conferences. Gramckow, Heike, Omniah Ebeid, Erica Bosio and Jorge Luis Silva Mendez. 2016.Good Practice for Courts: Helpful Elements for Good Court Performance and the World Bank’s Quality of Judicial Process Indicators. Washington, DC: World Bank.

40 Chemin, Matthieu. 2009. “The impact of the judiciary on entrepreneurship: Evaluation of Pakistan’s “Access to Justice Programme,” Journal of Public Economics 93 (1-2) 114-125.

41 World Bank. 2016. Doing Business 2016: Measuring Regulatory Quality and Efficiency.

42 Walsh, Barry. 2010. “In Search of Success: Case Studies in Justice Sector Development in Sub-Saharan Africa.” Washington, DC: World Bank.

Available at documents.worldbank.org/curated/en/291991468009961030/In-search-of-success-case-studies-in-justice-sector-developmentin-sub-Saharan-Africa.

SOUTH AFRICAN PROPERTY REVIEW

43

howmuch.net

Visualizing the state of government debt around the world One of the most under-appreciated problems facing the global economy right now is the ever-increasing rise of national debt, and the potential for investors to lose faith in a country’s ability to ever repay its obligation

G

ross domestic product (GDP) measures the total value of the goods and services produced within a country over a period of time. The ratio of debt-to-GDP makes it possible to compare relative debt levels across different countries. The US is able to carry a much larger debt in overall terms than smaller countries like Belgium because the economies are of a vastly different size. Think about it like this: it’s no problem for Bill Gates to have a credit card bill for US$50 000 because he has billions in the bank – but for the average American, that would mean bankruptcy.

We used the latest (October 2018*) set of numbers from the International Monetary Fund to plot debt-to-GDP ratios between countries. Our approach places the countries with the most significant debt problems at the centre, letting you see which are more likely to have substantial issues in the future.

Greece is not far behind at 182%. The US has the 13th worst ratio in the world (105%).

Immediately outside the inner ring of heavy spenders are small or developing countries with huge financial challenges.

Egypt (103%), Cyprus (97%), Mongolia (84%), Brazil (83%) and Yemen (74%) have debt that could spark financial problems for the rest of the world.

The green countries along the outside are worth mentioning – especially China (47%), which has the second-biggest economy in the world but a remarkably healthy national balance sheet. The fact that it has such a low debt-to-GDP ratio suggests that it can spend buckets of additional money solving its challenges.

Also take a look at Russia at only 16%.

The Russian economy is plagued by corruption and slow growth, but at least it won’t have a debt crisis any time soon.

Another way to think about this visual is in terms of spending and revenue – which is to say, should countries with high debt-to-GDP ratios spend less money or collect more tax revenue? We doubt any country can actually “grow” its way out of a crushing debt burden worth more than its entire GDP without making substantial changes to its fiscal behaviour. Policymakers will eventually have to solve this problem, and either option poses serious challenges to economic growth.

Countries with the biggest debt-to-GDP ratio 1. Japan: 238% 2. Greece: 182% 3. Barbados: 157% 4. Lebanon: 147% 5. Italy: 132% 6. Eritrea: 131% 7. Republic of Congo: 131% 8. Cape Verde: 126% 9. Portugal: 126% 10. Sudan: 122% 11. Singapore: 111%

The first and most obvious insight is that developed countries have the biggest debt problems. Japan stands out as the single most prolific spender, with a debtto-GDP ratio of 238%. That means the Japanese economy, the third-largest in the world, doesn’t produce nearly enough value in two years to pay off its entire debt.

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Debt to GDP Ratio 2017 (%) 200% and More 100% -199.9% 50% - 99.9% 20% - 49.9% 10% - 19.9% Less than 10%

General Government Gross Debt

* The HowMuch map was updated with the latest available data provided by International Monetary Fund on 4 January 2019.

By Raul Amoros https://howmuch.net/articles/state-of-the-worlds-government-debt

THE SAPOA ANNUAL CONVENTION & PROPERTY EXHIBITION 2019

Date: Venue:

18 June 2019 Atlantic Beach Golf Course

Format:

Four-ball alliance, better 2 scores to count

Prizes:

Top 3 four-balls Nearest to the Pin Longest Drive Hole-in-One Lucky draws

Prize Giving:

16h00 at the Clubhouse.

Early dinner to be served & full bar facilities for the duration of the prize giving.

>

Sponsorship available for 2 holes Contact Jane Padayachee: marketingmanager@sapoa.org.za for more information.

Booking Enquiries should be directed to Puseletso Dube at events@sapoa.org.za or book online: www.sapoaconvention.co.za/ registration/delegate-registration

Golf day sponsor

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Post-Budget Breakfast SAPOA members as well as non-members came together at a well-attended, Growthpointsponsored Post-Budget Networking Breakfast, hosted at the River Club in Cape Town on 26 February. Professor Emeritus Brian Kantor spoke of the “grim reality” that is the state of South Africa’s economy

By Mark Pettipher

FROM LEFT Lara Schenk, Michelle Louw, Professor Emeritus Brian Kantor and Simon Nicks

P

rofessor Kantor opened his talk with the phrase “a grim reality”. “But it was a necessary budget,” he said. “One cannot accuse the government of ‘fudging’ the issues or of giving a soft option.”

Kantor went on to say that our economy is significantly affected by how emerging markets perform. “Looking back over the past few years, South Africa hasn’t seen any real growth between 2002 and 2018, and there is little prospect of significant growth in the coming years,” he said. “The rand is in line with emerging markets.

Our economy is dependent on them, and even more so on the way the US dollar performs on the world stage. We ‘pray’ for a weak dollar, because when the dollar is weak, foreign direct investment (FDI) in the emerging markets becomes more attractive. And the reverse is true when

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the dollar is strong – FDI moves out to invest in the dollar.

Just before the budget speech, the rand weakened; afterwards, it gained.

Then we had the catastrophic rolling load-shedding, and again the rand lost ground. What this shows us is that our economy and rand strength are linked, whether we like it or not, to the success and efficiencies of Eskom. “With the announcement of the elections on 8 May, the government has grasped the nettle firmly and committed to once again bailing out what is considered a bankrupt entity and a liability,” said Kantor. “We were told this was not at the expense of the taxpayer. Eskom, which supplies almost 95% of the country’s electricity, will receive R69-billion over the next three years to fund it.

“The government wants to strengthen the rand, which means that the country would experience lesser inflation, lower interest rates, higher house prices and better equity. We need a lower interest rate, which should be at least two percentage points lower; then we might see growth.

Minister Tito Mboweni’s budget is austere, and there is no getting away from it.

“For households to spend more, interest rates need to come down. Sixty percent of the country’s spending comes from household spending. The government is faltering financially, not because we save too little, but because we’re spending to little. Look at where inflation is – at four percent – but in reality, business inflation is sitting at 2,5%, which means that there is no growth to speak of.

This can be seen in the property sector:

social rentals are under pressure and there are office parks and buildings lying empty.

There is less demand.

“If the financial institutions continue to lend money at 10,5% interest rates, we will face problems. Company inventories are not keeping up with the interest rate.

Added to this burden is the increase in our fuel costs; an additional six percent on this key ingredient of our production prices is going to hurt those least able to afford it. It will have a direct impact on our food production and end retail cost to consumers. Forty-three percent of our fuel price is made up of tax.

“We were also told of higher excise taxes. However, in my view, higher excise taxes don’t discourage consumption – they merely encourage a lawlessness brought about by people taking various measures to avoid paying the taxes and the levies.”

Looking at the various tables and balance-sheet figures, Kantor told us that the government is basically spending more than it’s earning. According to Mboweni, “In the coming year, we expect revenues of R1,58-trillion and spending of R1,83-trillion. This means that the government will spend R243-billion more than it will earn. Put another way, South Africa is borrowing about R1,2-billion per day. Interest expenditures will be R209,4billion, equivalent to R1-billion per day.

The expenditure and tax adjustments are designed to counteract the additional allocation for Eskom and the revenue shortfall. As a result, gross national debt will still stabilise at about 60% of GDP in 2023/2024, broadly in line with the Treasury’s October forecast.”

“In the short term, the government needs to attract FDI of about R160-billion just to stand still,” said Kantor. “The country’s foreign assets are now equal to its foreign liability at about R6-trillion, and the government’s pay-out is five percent with an income of one percent, which makes the country’s deficit fragile. This

Refqah Yo-Hee

doesn’t bode well for South Africa, as in many cases our debit-to-investment rating is already considered to be ‘junk’.

“The budget outlines measures to narrow the country’s deficit by controlling borrowing to fund the government.

Mboweni says that the public wage bill is unsustainable. We must shift expenditure to investment. National and provincial compensation budgets will be reduced

by R27-billion over the next three years.

It is also encouraging to note that a large portion of expenditure will be on health and social development.”

But Kantor pointed out a green flag for the property industry. “Mboweni’s ambition is to make things better for renewed economic growth caused by strengthening private sector investment and improving the planning and implementation of infrastructure projects as well as rebuilding state enterprises.

“Government is putting more reserves into infrastructure projects. This is a clear and positive signal for business entities who know how to do business with the government. It is looking to increase a blended expenditure of about R100billion over the next 10 years, and the budget makes provision for infrastructure of public-private partnerships.”

To clarify and again quote the Finance Minister, “The infrastructure fund is a

central pillar of the budget and of reprioritisation. It will accelerate R526billion worth of on-budget projects by bringing in the private sector and development finance institutions. In several instances, the private sector will design, build and eventually operate key infrastructure assets. In addition, government will commit R100-billion to this over the next decade.”

“Getting youth into the workplace is also being encouraged through the employment tax incentives, which have been adjusted upwards,” said Kantor.

“From 1 March 2019, employees up to 28 years of age, earning R4 500 per month, will be able to claim R1 000. The incentive will reduce to zero when the employee earns a monthly salary of R6 500.”

In closing, Kantor was upbeat about the oil and gas exploration, and the announcement of a catalytic find in the Brulpadda block of the Outeniqua Basin, which will ultimately deliver on major construction activities as well as infrastructure projects.

Jehan Begg with Lara Schenk

Farewell to Jehan Begg Western Cape Committee member Lara Schenk announced that this networking breakfast was to be Jehan Begg’s last for SAPOA. Begg is taking a position at UCT. Post-Budget Networking Breakfast sponsored

by Growthpoint Properties

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SAPOA and URERU host first in a series of 2019 property seminars The first of four property-related seminars for 2019, run by the University of Cape Town Urban Real Estate Research Unit (URERU) in conjunction with SAPOA, was held on 23 January 2019.

The session was entitled “The long and short views of the 2019 property market”

FROM LEFT SAPOA Western Cape Regional Committee Member David Stoll, Wayne Van der Vent (Quoin Online), SAPOA Western Cape Regional Committee Member Dave Russell, François Viruly (UCT) and Rob McGaffin (URERU)

S

APOA Western Cape Regional Committee Member Dave Russell kicked off the conversation with a shortterm overview of the Cape Town office market. Posing the question “Will the market get worse before it gets better?”, Russell highlighted the factors that could negatively influence the market.

These included the expropriation of land without compensation, slow economy growth, the national election, national debt, the 2018 increase in VAT, the supply and cost of electricity, the water crisis, high unemployment, negative business confidence, traffic congestion, and the overall perception of the market.

In spite of these, the Cape Town office market was not faring badly, according to SAPOA’s Q4 2018 vacancy rates, when compared to other major cities.

While Durban and Johannesburg had reported vacancies of 13,9% and 12,8% respectively, Cape Town’s vacancies stood at only 7,8% overall.

Seminar session sponsored by Quoin Online

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Following a brief overview of rentals, operating costs, escalation rates and industrial rental market, Russell provided insight on residential from leading companies in the field, as well as from the results of SAPOA’s most recent Retail Trends Report, which showed that retail vacancies had risen to 4,4% above the long-term average of about 2,8%. Of concern was that the Edcon Group – currently undergoing attempts at financial rescue – occupied approximately 10% of shopping centre retail space.

Russell’s prediction in terms of 2019 property trends was that there would be no change to the escalation rate, vacancies would increase and rentals would remain flat at best (although residential rentals were already significantly down). The market has become a highly competitive tenants’ market, with retention being key for landlords.

The second presentation, by Associate Professor François Viruly of URERU, delivered a long-term view of the South African property sector, with an emphasis on how the fundamentals of the property market were changing. The biggest influence on this was the way

in which the traditional structure and function of the market was now being questioned and disrupted by the digital industrial revolution via factors such as proptech and fintech.

He also noted that, according to an Urban Land Institute survey, business parks, suburban offices and out-of-town shopping (which had been the preferred investment opportunities globally a few years ago) were now at the bottom of the list, with logistics (particularly with the growth of online retail), self-storage and private residential now leading the pack, followed closely by student and retirement housing.

He predicted that with so many funds entering the residential sector, and with the increasing convergence of co-working and co-living spaces, there could soon be one sector dealing with both commercial and residential.

“Bricks and mortar will no longer be enough,” said Viruly. “It will be about the services offered.”

The seminar was followed by a networking session, during which students from the faculty of Property Studies were given an opportunity to interact with the captains of industry.

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Western Cape Breakfast Seminar On 5 February, SAPOA Western Cape Regional Council invited the City of Cape Town to present changes to the city’s general valuations process and updated Property Rates Policy

FROM LEFT Pieter Venter, Llewellyn Louw and Richard Wootton from City of Cape Town

Kim Karg and Pieter Venter

K FROM LEFT Jade Rietveld, Fayaz Dhorat and Anthea Houston

ey points discussed included property rating categories, the proposed revised residential rates, short-let residential property let for commercial gain, and reviews of definitions between industrial, commercial and business property.

The presentations were facilitated

by Llewellyn Louw (Manager: Valuation operations) and Richard Wootton (Manager: Business Integration & Valuations Regulation), both from City of Cape Town. The session was followed by a question-and-answer opportunity.

Breakfast seminar sponsored by Growthpoint Properties

FROM LEFT Natalie Mcdonald-Govender, Danni Wallace and Courtney Wallace

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KZN Networking Breakfast The venue was Durban’s International Convention Centre, and more than 200 delegates thronged into the breakfast room to hear and share current thoughts on the theme of transformation in the property sector

By Anne Schauffer

FROM LEFT Dumile Cele, Rod Stainton, Hamish Erskine, Bernadette Khumalo and Queen Mjwara

T

he regional committees of SAPOA KZN, the Women’s Property Network and the South African Institute of Black Property Practitioners hosted a breakfast networking event at Durban’s International Convention Centre (ICC) on 13 February. Generously sponsored by the Beier Group and the ICC, the event addressed two issues: transformation in the property sector, and Unite KZN. Essentially, whether the discussion was around transformation or unity, the focus was strongly directed at the urgent need for all delegates – indeed, all South Africans – to recognise that the challenges facing the country should be resolved by everybody. These were not easy issues, nor somebody else’s problem. The room was filled with captains of industry, major role-players in the property sector, and professionals from every aspect of the property world – people with the skills and experience to contribute to finding answers to South Africa’s big questions.

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This networking breakfast marked the first collaborative event of the three associations, and it was designed to have input at both local and national level. As Bernadette Khumalo, Regional Chairperson for SAPOA KZN, said, “Each association faces and deals with the same challenges. Working together on common issues is better than each trying its own approach.”

The date – 13 February – is possibly of blurred significance as you read this, but it was a fraught period locally and nationally, with Eskom the first word on everybody’s down-turned lips. A number of the programme speakers – including Minister Pravin Gordhan – were unable to attend the event, as they were working on urgently restoring power to the people, among other things.

Dumile Cele, the former CEO of the Durban Chamber of Commerce & Industry, was the accomplished Master of Ceremonies, and she welcomed guests to the event. She chose to employ the

phrase “sons and daughters of Africa” as opposed to “ladies and gentlemen”, thereby endorsing the quest for unity among all in the room.

The proceedings opened with an address about transformation and empowerment by Dr Sixtus Sibeta, the Acting Deputy Director General & Chief Director of Transformation, there on behalf of KZN’s Economic Development, Tourism and Environmental Affairs MEC Sihle Zikalala.

Delegates welcomed the first keynote speaker, eThekwini Municipality Deputy City Manager Phillip Sithole, responsible for the Economic Development and Planning cluster. He described many of the city’s existing and future projects, emphasising the city’s willingness to work with the private sector.

He also outlined what the built environment professionals could look forward to in the forthcoming months.

From social housing programmes to public space management services, he

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Dr Sixtus Sibeta

Mike Maziya

Phillip Sithole

Pumzile (PJ) Mnguni

FROM LEFT Sarah Sebetola, Cassandra Stephen, Sharleigh Wilken and Sam Daykin

FROM LEFT Bheki Shongwe, Phillip Sithole, Busi Ndlovu, Nozipho Gumede and Sindi Mchunu

assured everybody that there was work to be had. He also underlined the percentage of work that would go to black-owned businesses, and described the instigation of spot audits to ensure that these businesses were authentically black-owned. He urged delegates to engage with the newly appointed head of catalytic projects.

The challenges around land were tackled head-on by the second keynote speaker, Portfolio Committee Acting Chair and Whip for Rural Development & Land Reform PJ Mnguni. He spoke succinctly about the three land issues to be dealt with: tenure security, restitution and redistribution. He didn’t mince words when describing what was needed – and must happen – in South Africa. But when it came to implementation, he said, “Nobody must go down – everybody must go up.”

Mnguni spoke of the complexities of resolving many of the land issues, but equally, he spoke to delegates about the need for collaboration and finding one another. “Property people, give us advice,” he said.

The Beier Group’s Mike Maziya shared some of the company’s connection to the property industry as one that “keeps people safe at work”, and announced proudly that, “Today, the Beier Group is a wholly South African group. Thuma Mina – the president’s vision.”

A business-card draw, sponsored by Beier, was won by a delighted Karuni Naidoo of CNN Architects, who not only won a magnum of wine for herself, but also a company audit worth R20 000.

The thread of transformation and land redistribution was evident throughout the morning, with a few interruptions – such as the wonderful breakfast provided by the ICC, and the Women’s Property Network’s Queen Mjwara’s presentation to the Student Awards winners, Katelyn Gopaul and runner-up Kreolin Naicker.

Proceedings were closed by Councillor Busi Ndlovu, eThekwini Municipality’s Whip for Economic Development and Tourism (representing Ethekwini Mayor Zandile Gumede) – then it was time for dedicated networking and another round of coffees.

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off the wall

Self-driving robots deliver snacks on demand Hungry students at the University of the Pacific in Stockton, California were recently introduced to Snackbot – an outdoor, self-driving robot delivering snacks and beverages from PepsiCo’s portfolio of better-for-you brands, Hello Goodness Compiled by Tshepo Tshabalala to more than 50 designated areas across the 175-acre campus.

The bots are ready to roll with a range of more than 32 kilometres on a single charge, and are equipped with a camera and headlights that allow them to see and navigate carefully in full darkness or rain, as well as all-wheel-drive capabilities for handling curbs and steep hills.

Curated convenience

A

s part of a collaborative partnership with Robby Technologies, the Hello Goodness fleet of Snackbots are the first robots to be rolled out by a major food and beverage company in the United States, bringing healthier and more convenient snack and beverage options directly to students.

The University of the Pacific community can order food and drinks from 9am to 5pm via the Snackbot app, to be delivered

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PepsiCo says that because today’s college students are seeking on-the-go sustenance and nourishment amid packed schedules, they’re turning to snacks more often.

Another contributing factor is the fact that three fixed meals have become less common on campus. The Hello Goodness Snackbots are therefore designed to be a user-friendly and fun solution to this on-demand snacking mentality.

Building on the initial success of its Hello Goodness vending platform, PepsiCo has expanded the idea of curated convenience into new formats, locations and experiences to deliver 50 0 00 touchpoints by the end of the year. The Snackbot is part of this effort, catering 24/7 healthier solutions to fuel the always-on consumer.

“We’re thrilled to launch our Hello Goodness autonomous delivery snackbots and re-imagine college snacking for the future,” said Scott Finlow, vice president for innovation and insights at PepsiCo Foodservice. “PepsiCo has a unique opportunity to better serve today’s ambitious university students, by joining together the power of the Hello Goodness portfolio with our expertise in design and equipment innovation.” https://www.bizcommunity.com/Article/196/785/186577.html

APRIL 2019

MARCH 2019

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REGISTER

TODAY! THE SAPOA ANNUAL CONVENTION AND PROPERTY EXHIBITION CAPE TOWN ICC, 18-20 JUNE 2019 On behalf of the SAPOA Executive and principal sponsor, GladAfrica, we are honoured and delighted to extend a warm invitation to you to attend the SAPOA Annual Convention and Property Exhibition from 18 to 20 June 2019 at the Cape Town International Convention Centre.

A highlight in the real estate industry calendar and regarded as the premier property conference of the year, the Convention will once again present an exceptional forum for both local and international property professionals and industry leaders to refresh their knowledge base. The three-day event will provide plenty of networking opportunities, with the leading property professionals, industry leaders, friends and colleagues, as well as sponsors and exhibitors.

The theme of the 2019 Convention is Empower. Develop. Transform.

Education is at the forefront of SAPOA’s commitment to provide professionally designed, globally competitive educational programmes to introduce prospective students to the commercial and industrial property sector as well as to empower working professionals with tools to forge ahead in their companies. Our flagship Property Development Programme is turning 50 years in 2019 and later in the year, we will be celebrating this milestone with all our alumni, to recognise their contribution in making this programme such a success.

Some of our Incredible Speakers >>

Iman Rappetti

Nicky Weimar

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Malose Kekana

Tashmia Ismail-Saville

Sizwe Mpofu-Walsh Ongama Mtimka ‚ �  ƒ

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Prof Francois Viruly

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Pali Jobo Lehohla

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Some of our Incredible Events >> Early Bird Registration - Now Open!!

www.sapoa.org.za/convention/registration/delegate-registration/

Golf

www.sapoaconvention.co.za/registration/delegate-registration/

Lifetime Achievement Awards

www.sapoa.org.za/convention/awards/lifetime-achievement-awards

Journalism Awards for Excellence

www.sapoa.org.za/convention/awards/journalism-awards

Property Development Awards for Innovative Excellence www.sapoaawards.co.za/

www.sapoa.org.za/convention/registration/