South African cities' revenues grew by 5.7%, while their operating surpluses reached 4.2% in 2020.

However, a misalignment of policy, budgets and planning and contradictions between the municipal revenue and funding model need to be addressed, says urban information exchange organisation the South African Cities Network (SACN).

Addressing the misalignment can be achieved by focusing on the systemic problems that limit the ability of cities to meet the two crucial urban policy goals of developmental local government and spatial transformation.

Further, the financial model that underpins the way in which cities and other municipalities deliver on their constitutional mandate needs to change, the SACN states.

“Cities face long-term financial challenges, especially as they remain the key drivers of the economy and home to most people in South Africa.

"However, reduced margins on electricity and water sales, as a result of rising unemployment and stagnating household incomes, and above-inflation increases in the cost of bulk purchases, mean that cities are less able to cross-subsidise the provision of basic services for lower income residents,” says SACN CEO Sithole Mbanga.

Cities need to develop innovative ways of tackling the growing challenges of urban finances posed by the fundamental changes happening within the energy sector and the growing impact of climate change and the need to transition to a climate-resilient economy, he adds.

“It is essential that our major metros transform from the practice where reconstruction and development programme houses are built beyond the city centres and transport systems continue to be primarily car based. This model is not fit-for-purpose.

"While our major metros are performing positively in the short term, we need a bigger vision which transforms the lives of citizens and addresses the injustices of the past,” he highlights.

The vision espoused in South Africa’s urban policy - the Integrated Urban Development Framework - for productive, sustainable, inclusive and well-governed cities can only be achieved with a municipal fiscal framework that works, Mbanga adds.

Cities also need to find ways to bridge the capital funding gap, which prevents cities from meeting the infrastructure requirements of a steadily increasing urban population.

Cities need resources to become urban spaces that are productive, inclusive, sustainable and well-governed, but are limited in their ability to fulfil their developmental local government role because of insufficient budgets for new infrastructure, and which are necessary for spatial transformation, as well as inadequate revenue-raising opportunities and threats to current revenue sources.

"If the financial function is to enable cities to realise spatial transformation, municipal budgets must be aligned with policy, and urban planning should reflect that orientation. The municipal finance model needs to be reformed, so that cities can have more autonomy in raising and allocating the funding required to achieve their objectives of resilience, sustainability and shared growth," avers Mbanga.

"The pandemic has shown the systemic problems affecting the ability of cities to achieve these goals and cities need to seize the initiative to place themselves firmly at the centre of the nation in the way that population demographics suggest they already are.

"It is time to review the way in which our South African cities and other municipalities deliver on their constitutional mandate to provide services to communities, and city residents and businesses, in a more sustainable, profitable manner," he says.