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Municipalities can Play a Key Role in South Africa’s Economic Development. Here’s How



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By Johann Kirsten & Helanya Fourie

Local economic development and better municipal service delivery are vital if South Africa wants to broaden economic participation and reverse its unemployment trend.

To achieve these objectives, it is necessary to strengthen municipal finances and investment. Good municipal governance is a prerequisite. Intermediate city municipalities have an important role to play, because urban development is critical for growth and investment. It may also reduce the pressure caused by urbanisation to metros.

Municipalities should:

  • provide democratic and accountable governance for local communities
  • ensure the provision of services in a sustainable way
  • promote social and economic development as well as a safe and healthy environment
  • encourage the involvement of communities in matters of local government.

Current outcomes suggest that South Africa’s municipalities are failing in many of these respects.

The consequences for the country are dire and widespread. Municipal failure not only affects large businesses. It also has an impact on households, small, medium and micro-enterprises and other investors in local economies.

Economic growth, job creation and local economic development initiatives depend on municipal finances. They become constrained when local governments don’t function well. Households directly suffer the consequences when basic service delivery is poor. But the problems extend beyond the household level.

Municipalities need to provide the infrastructure and basic services that support a favourable investment climate. Without this investment, deepening unemployment and poverty may follow. This has the further effect of eroding the local tax base, increasing municipal dependence on fiscal transfers and worsening South Africa’s already constrained fiscal environment.

Ripple effects

Two examples illustrate how municipal failure can have a direct negative impact on local economic development.

The first is Clover, the food and beverage company. It has announced that it’s closing its cheese processing facility in Lichtenburg in the North West province. Production will be moved to an existing plant outside Durban in KwaZulu-Natal.

The company attributed the decision to ongoing problems with service delivery by the Ditsobotla Local Municipality. It specifically mentioned water and electricity outages as well as the poor quality of roads. The move is estimated to lead to 330 job losses in the Lichtenburg economy.

Another example is Astral Foods, one of South Africa’s largest poultry producers. The company owns a processing plant in Standerton in the Lekwa municipality. Astral took legal action against the municipality due to severe supply disruptions caused by disintegrating infrastructure. Power cuts and water shortages reportedly cost the company around R62 million in its latest financial year.

A court ordered the municipality to submit a long-term plan to repair and improve the infrastructure.

But this didn’t improve outcomes. Earlier this year a new court order was issued. This required national government and the treasury to intervene and prepare a financial recovery plan.

The scale of the problem

We set out to better understand the degree of municipal failure across different types of municipalities. In our research note we drew a comparison between metros, intermediate city municipalities, and other local municipalities.

The population density, potential economic activity and resource base of intermediate city municipalities suggest that good local government could unlock substantial economic opportunities in these hubs.

Overview of different spheres of local government. Bureau for Economic Research/The State of South African Cities, 2016

Creating economic opportunities in intermediate city municipalities may also reduce some of the service delivery pressure caused by urbanisation to metros. It may help create a less skewed spatial distribution of economic activity and opportunities.

It is important to remember that municipalities have varying blends of service delivery responsibilities across rural and urban zones. They face different opportunities in terms of access to revenue. Hence, not all face an equal set of challenges.

In addition, municipalities form part of the broader architecture of government. They are therefore interdependent on national, provincial and district government functions. They also need entities such as the power utility Eskom and the water boards to function properly. Municipalities cannot influence local economic development in isolation from these agents.

Our research note identifies several cross-cutting problems within South Africa’s local government sphere.

We look at service delivery and explain how issues in supply chain management and the audit process can cause poor or non-delivery of basic services. We also highlight some financial performance metrics that contribute to poor outcomes. Examples include low expenditure on repairs and maintenance and inadequate debt collection rates.

Finally, personnel vacancy rates are high. And there is a lack of competencies. Political influence and interference in the appointment of managers and other municipal executives contribute to the problem.


It is important to ensure that professionals have the necessary qualifications.

It may help if municipal managers are required to register with professional bodies. What may also assist is ensuring that appointments are merit-based and made without undue political influence. This is particularly important within the administrative arm of local municipalities.

Also, a mechanism that sanctions or removes municipal officials from their positions if they are consistently underperforming might contribute to better outcomes.

Supply chain management and audit processes need to prevent fraud and corruption. But they shouldn’t hamper spending. Nor should they shift the focus away from core municipal functions. The need to find a less cumbersome supply chain management process is critical. This should have a stronger focus on strengthening financial management and responsibility for service delivery. It wouldn’t simply focus on the minutiae of compliance and post-facto audit interrogations.

The regulatory system should enhance rather than paralyse service delivery.

The complex developmental problems that South Africa faces cannot be solved with local municipalities operating in isolation.

There is a need for better management of inter-jurisdictional collaboration between the players. They include municipalities, water boards, provinces, Eskom and national departments.

Public-private partnerships may also provide valuable opportunities. These could, for example, help improve the management, expansion, maintenance and operation of select revenue-generating components of service delivery. Water, sewerage and sanitation and solid waste management come to mind.

But not all municipalities have the skills to manage such projects. Many may need technical support. These initiatives should be planned well and should not be the consequence of inadequate capacity or skills within municipalities. These considerations could contribute to better outcomes and improved service delivery.

The important developmental role that intermediate city municipalities can play in creating employment and stimulating economic growth suggest that these areas in particular should be prioritised.

This article is an extract from South Africa’s municipal challenges and their impact on local economic development, a research note published by the Bureau for Economic Research at the University of Stellenbosch.

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Inquiry on General Babangida’s Involvement in Conventional Banking despite Introduction of Islamic Finance in Nigeria




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Dear Editor,

I hope this letter finds you well. I am writing to express my curiosity and seek clarification on a matter that has caught my attention, specifically pertaining to General Babangida’s involvement in the conventional banking industry despite his role in introducing Islamic finance during the financial reforms of his military government in Nigeria. Vide your special article commemorating his 81st Birthday published in your esteemed news website:

It is indeed noteworthy that General Ibrahim Babangida played a pivotal role in shaping the economic landscape of Nigeria by introducing Islamic finance principles. It is fascinating to witness the implementation of Islamic finance in Nigeria, as it promotes principles that align with religious and ethical values. General Babangida’s efforts to introduce this form of finance were undoubtedly commendable, reflecting his commitment to establishing an alternative financial system that adheres to Islamic principles.

However, recent observations suggest his active participation in the conventional banking sector in Nigeria. Certainly, it is intriguing to see General Babangida’s continued involvement in the conventional banking industry, which operates under different principles. While some may argue that his involvement in both sectors is simply a matter of personal choice, it raises questions about the compatibility of his actions with the ideals and principles of Islamic finance. While the former is interest driven, the latter prohibits interest related transactions completely.

I wonder if General Babangida has ever publicly addressed this matter or explained his reasoning behind being active in both sectors. It would be enlightening to hear his perspective on how he reconciles his involvement in conventional banking with his efforts towards promoting Islamic finance. This has raised questions in my mind and perhaps in the minds of others as well.

I am keen to understand the rationale behind General Babangida’s dual engagement in both Islamic finance and conventional banking. Does this reflect a strategic approach to diversify Nigeria’s financial sector, or are there specific reasons behind his involvement in conventional banking despite advocating for Islamic finance principles?

Additionally, it would be interesting to explore the potential impact of his dual involvement on the perception and growth of Islamic finance in Nigeria. Does his presence in the conventional banking industry hinder the progress of Islamic finance, or does it have the potential to bridge the gap between the two sectors?

I believe that delving into these questions could provide valuable insights and generate constructive discussions within the Islamic finance community in Nigeria. By shedding light on General Babangida’s dual involvement and the potential implications, we can further enhance our understanding of the challenges and opportunities faced by the Islamic economy in our country.

Thank you for considering my questions, and I look forward to reading more about this topic in your esteemed Focus on Islamic Economy.



Abba Musa Mamman Lagos


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10 Megatrends Shaping the World in 2024




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The report, “Navigating Megatrends Shaping Our Future in 2024”, was launched during the first day of the World Governments Summit (WGS) 2024, being held under the theme “Shaping Future Governments” from 12th-14th February in Dubai. The report examines the indicators that shape these megatrends, supported by evidence from today as well as future expectations. These trends inform decision-makers and foresight experts about various sectors and the potential opportunities in each.

Khalfan Belhoul, CEO of Dubai Future Foundation, said, “This report has been launched in line with DFF’s efforts to identify and communicate those trends with the most potential to shape opportunities and strengthen local and international partnerships to overcome current and future challenges.”

“The challenges that face us on our journey to the future require that we are agile enough to be able to adapt to rapid change. It is vital we pay attention to the signals we detect – only then can we be prepared to overcome challenges and seize opportunities. The World Governments Summit provides a platform for discussing these challenges and exploring the opportunities.”

Materials revolution

New types of materials will create a shift in the industry, with solutions based on artificial intelligence (AI) such as biopolymers, biorefineries, and chemical recycling paving the way. These solutions will facilitate the development of new biological and novel materials that could rival plastics.

Boundless Multidimensional Data

Enabled by developments such as 5G and 6G in addition to advanced connectivity, the availability of raw data will vastly increase. The Internet of Things (IoT) will continue being deployed in healthcare, agriculture, and smart cities, especially in the Middle East.

Technological Vulnerabilities

The cybersecurity sector will boom amid a sharp rise in smart home devices and wearable tech. According to a report by Allianz, the annual cost of ransomware is projected to reach around $265 billion by 2031. Meanwhile, the debate on the future of decentralised finance will continue.

Energy Boundaries

Advances in tech and the growing demand for energy will drive the pursuit of alternative sources of energy. Novel materials and machine intelligence will enhance current sources of energy, including their distribution around the world – and in space.

Saving Ecosystems

Approaches to conservation will be more interdisciplinary and future-focused, taking into account both societal and environmental factors. Driven by resource scarcity, climate change, and shifts in social values, environmental impact management will become increasingly holistic.

Borderless World – Fluid Economies

The world is witnessing a rise in unmediated transactions in finance, health, education, trade, services, and even space, which are blurring boundaries and creating more cross-border communities. Advances in communications, computing, and advanced machine intelligence will accelerate the creation of a borderless world that will change the way we work, live, and connect.

Digital Realities

The spread of 5G and 6G networks will enhance the applications of autonomous technologies and IoT. As quantum technologies become scalable and reliable, immersive experiences will become even more realistic.

Living with Autonomous Robots and Automation

Robotics and automation will increasingly be deployed across industries beyond automotive, manufacturing and supply chain logistics. This will provide opportunities for efficiency and innovation, although there will also be ethical challenges to address.

Future Humanity

New workplace norms will emerge, with people needing to adapt to non-traditional skill sets in areas such as digital literacy, communications, culture and sustainability.

Advanced Health and Nutrition

Accelerated progress in advanced machine intelligence, nano- and biotechnology, additive manufacturing, and IoT will transform health and nutrition, improving health and wellbeing for people of all ages. Technology will reduce, if not eradicate, some communicable and non-communicable diseases and enhance the sustainable use of and access to water and food.

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Africa’s New Online Foreign Exchange System will Enable Cross-border Payments in Local Currencies – what you need to know




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The high cost of making cross border payments on the African continent has driven governments on the continent to seek options of settling trade and other transactions in local currencies. This has given birth to the Pan-African Payment and Settlement System which was formally launched in Accra, Ghana, in January 2022.  Development economist Christopher Adam, who has studied the exchange rate policies of African countries, answers some key questions.

Why are African countries exposed in the international currency market?

Three main reasons. First, African economies are small and as such are highly dependent on trade with the rest of the world. Their exports are dominated by primary commodities including oil and gas, minerals and cash crop agriculture. On the import side, they purchase a whole range of goods – from essential commodities not produced at home such as fooddrugs and medicines, to capital goods and energy. A large proportion of these are sourced from China and other major economies of the global north. But because African countries are small relative to their trading partners they rarely have the power to determine the prices of imports and exports. They are “price takers” in world markets. And with world prices being set in the major reserve currencies of the world (the US dollar, euro, yen and renminbi), African countries are exposed to movements in these world prices. Second, “intra-African” trade is still a relatively small proportion of the total trade of African countries.

Finally, since African countries’ currencies mostly can’t be directly exchanged in international transactions, the dollar remains the most widely used currency in trade, even between African countries.

What’s required for the system to get off the ground?

The basic idea of the system is to be able to settle trade between African countries without having to use the US dollar.  There are two major challenges with that. First, intra-African trade accounts for less than 15% of Africa’s exports at present (although supporters of the African Continental Free Trade Area expect this to grow significantly over the coming decades). The African payment system therefore does not eliminate the role of the dollar (or other foreign currencies) in trade settlement entirely.

The second issue is that trade is not balanced between African countries. For example, Kenya exports goods of higher total value to Ethiopia than it imports from Ethiopia. If Ethiopia paid in its own currency, Kenya would end up with Ethiopian currency that it didn’t need. Some form of settlement currency that is acceptable to all is required – most likely the US dollar.

What are the challenges and potential risks?

Since trade rarely occurs instantaneously, some institution in the trade financing chain carries the exchange rate risk. Because of the gap between placing an order for imports and receiving them to sell in the local economy, there is a risk that the value of local currency will change relative to the currency in which the import is denominated.

In the “old” system, this risk is borne by the trader because everything is priced in dollars. The local currency value of the income from exports or the local currency cost of imports will change with movements between the local currency and the dollar, but the banks and those counterparts pricing in the dollar are protected.

Under the new system the same allocation of risk will remain in “external trade”. This currency risk is also present for intra-African trade.

An important question for the new African payment system is: who bears the exchange risk if one African currency depreciates relative to another? Should the importer carry the risk, or the exporter? Can and should the African payment system bear this risk of exchange rate movements itself? Where both currencies are volatile, traders might still prefer the relative stability of settlement through the US dollar.

The success of this system also depends on scale. The more trade settlement is routed through it, the easier it will be to settle in local currencies. Large currency imbalances will be less common. But until the system achieves this scale, the African payment system will need a strong balance sheet so that traders and participants can have confidence that settlement will be swift and risk free. It is unclear at the moment how this is to be achieved.

What is the best case scenario?

If the system can address the trade imbalance problem, provide clarity on risk management and reach scale, it could be very successful. But this is all going to be driven by underlying economic performance. Improved settlement will help but what is really driving this is the structure of trade. The more the economies of Africa can develop intra-African trade and the less dependent they are on extra-African trade, the less will be dollar dependence in trade. This growth in trade depends to some degree on trade settlement and trade financing but much more on production, consumption, trade policy and fiscal policy.

Christopher Adam is a Professor of Development Economics, University of Oxford

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