South African cities to get R54 billion reward for doing their jobs

The government plans to incentivise metros to improve their service delivery and financial management with a new R54 billion performance-linked grant.

This grant will only be given to metros demonstrating measurable improvements in service delivery, financial performance and governance.

This is aimed at crowding in investment and mobilising an additional R108 billion into infrastructure.

Deputy Finance Minister David Masondo outlined this plan in a recent speech at the RMB Morgan Stanley 2025 Investor Conference.

He explained that the plan forms part of Operation Vulindlela’s second phase, the Metro Trading Services Reform.

“Our metros are the engines of the economy, hosting the bulk of our population, business and jobs,” Masondo said.

“Yet years of underinvestment, weak management, and service unreliability in electricity, water, sanitation, and waste services have constrained growth.”

He said the government’s response to this is the Metro Trading Services Reform, which aims to create financially ring-fenced, professionally managed utilities within metros. This is aimed at restoring credibility and sustainability to essential services.

This reform involved a new R54 billion performance-linked incentive grant that is strictly conditional on council-approved turnaround plans and adherence to “clear accountability standards”.

“This is not money for promises – it is money for performance. Only metros that demonstrate measurable improvements in service delivery, financial performance, and governance will qualify,” Masondo explained.

“The intention is to crowd in investment. For every rand of incentive funding, metros are expected to leverage at least another rand, mobilising an additional R108 billion into infrastructure.”

The deputy minister said the impact of this plan will be “significant”, as reliable trading services will strengthen municipal finances, attract investment, and boost urban growth.

“For financial institutions and investors, this reform creates a new opportunity,” he said. 

“Lower risk, greater transparency, and stronger governance will open the door for financing water, sanitation, energy, and waste infrastructure – projects that improve lives and generate sustainable returns.”

Fixing South Africa’s metros

In the Auditor General’s (AG) Integrated Annual Report for the 2023/24 fiscal year, AG Tsakani Maluleke sounded the alarm about financial mismanagement at South Africa’s metros.

She explained that the country’s metros are plagued by poor revenue management, debt collection and budgeting practices, and financial losses due to poor-quality spending.

The AG stated that the metros and their municipal entities were responsible for 57% of the estimated local government expenditure budget for 2023/24.

“Metros typically have better capacity and bigger budgets and can more easily attract suitably skilled and competent professionals,” Maluleke said. 

“Therefore, their audit outcomes are expected to be better, and they should be setting an example to other municipalities.”

However, the AG’s audit outcomes showed that this is not the case, as South Africa’s metros have continued to regress since 2020/21.

“Metros are plagued by poor revenue management, debt collection and budgeting practices, coupled with financial losses due to poor-quality spending,” she said. “Metros have listed debt and significant loans to service, while they are financially strained.”

While the government’s new inventive grant may go a long way in addressing some of these concerns, the Bureau for Economic Research (BER) previously warned against taking a “one-size-fits-all” approach to local government.

In a research note published in December 2024, BER senior economists Helanya Fourie and Roy Havemann explained that not all municipalities face the same problems, and their financial stability depends on local economic conditions.

For example, urban municipalities typically have higher budgets per capita than rural ones.

To illustrate this disparity, they pointed out that the Western Cape budgets around R17,920 per person in a municipality, whereas Limpopo budgets an estimated R5,838 per person. 

The economists explained that a uniform approach to municipal reform would, therefore, not work due to these disparities. 

They said urban municipalities, especially metros and secondary cities, should go beyond service delivery and focus on economic development. In contrast, rural municipalities have different needs and face greater financial constraints.