South African Property Review April-May 2020

PROPERTY SOUTH AFRICAN

REVIEW

SAPOA CEO Reflects COVID-19 takes hold: Gazetted legislation and legal opinion

April/May 2020

The voice for the industry

Regional Roundup A tale of two cities: Mbombela and Polokwane

Local Economic Development

Case studies: Mangaung, Rustenberg, Sol Plaatje

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from the CEO

The implication of COVID-19 national lockdown on landlords’ rights The novel coronavirus outbreak – or COVID-19 – has affected thousands around the world and is gaining momentum in our country. At the time of writing this message, South Africa had 1 353 confirmed cases. To combat the spread, President Cyril Ramaphosa announced a 21-day national lockdown to be enacted in terms of the Disaster Management Act, and to continue until 16 April 2020

A

SAPOA CEO Neil Gopal

ccording to President Ramaphosa, this decisive measure will have a considerable impact on people’s livelihood, the life of our society and our economy – but the human cost of delaying this action would be far greater. Barring essential and critical continuity services, which will remain open, most industries are uncertain about the future. The announcement rocked the commercial property industry, which is in crisis as the economy suffers on the back of a downgrade to “junk” by Moody’s this week.

Shopping centres and retail shops are closed, save for those selling essential goods.

Shopping-centre owners, their tenants and their customers are in uncharted territory.

More retailers will be forced into a position where they may not be able to pay their property rentals, which is set to add to the pressures being experienced by retail landlords and the struggling listed property sector. In fact, there were several national retailers who stated they will not be paying any rent (and even other lease charges) during the lockdown period. Non-payment of rentals could cause the collapse of shopping centres and severely impact retail property firms. Moreover, it is incorrect and unlawful. A total rent remission will probably not be applicable, as the tenant will still be using the premises during the lockdown and their business assets will still be situated in the premises. It is our view that rentals and other lease charges remain due and payable as opposed to no rental payable at all.

While SAPOA is sensitive to the issues retailers may face, it is important to note that landlords face the same pressures as they are encumbered with debt, still have to pay rates and taxes, and have operational expenses regardless of whether the mall is operating. It is our request that national retailers continue to pay their rental – even on a month-to-month basis – to ensure the sustainability of shopping centres. Most national retail chains have shareholders and bankers that can provide assistance during the crisis, but this is likely not the same for SMMEs, who we believe are the first line of tenants we need to defend and who form the majority of the tenant base. We reiterate that we will support line shops and independent undercapitalised SMMEs to preserve jobs, but we cannot do it alone. It requires the payment of rent by larger tenants.

We want to assure you that we are all doing our level best, during these trying times, not only to comply with the regulations put in place by government, but also to ensure that landlords keep their businesses afloat, while at the same time trying to combat the spread of this disease. Tenants are urged to manage their risk as the landlord is obliged to follow all applicable law and guidelines from the government. This is not the time for narrow business interests; we will all have to share in the pain equally.

The commercial property industry faces a hurricane of challenges. Whether the lockdown will indeed only last 21 days is not certain. SAPOA is monitoring this matter daily, and working with the relevant authorities to ensure that members adhere to the strict regulations as set out by the government.

Best regards, Neil Gopal, CEO SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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1 BCX Head Office. Architects: SVA International 2 Akwa Hotel. Architects: SAOTA 3 Menlyn Learning Hub. Architects: Boogertman + Partners 4 West Hills Mall in Ghana. Architects: ARC Architects

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Editor in Chief Neil Gopal Editorial Adviser Jane Padayachee Editor Mark Pettipher Copy Editor Ania Rokita Taylor Public Relations Officer Maud Nale Production Manager Axsella Barry Designer Eugene Jonck Sales Pieter Schoeman: pieter@mpdps.com Finance Susan du Toit Photography Xavier Saer

From the CEO The Implication of COVID-19 National Lockdown on Landlord Rights

Contributors Juan Carlos, Maud Nale, Tshepo Tshabalala

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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

Opinion Asset management of government properties: Time for a reboot?

Mpumalanga’s capital has huge potential

Johannesburg: +27 (11) 642 8751 Pretoria: +27 (12) 460 3304 WWW.DELQS.CO.ZA 4

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

contents

PROPERTY SOUTH AFRICAN

REVIEW

ON THE COVER Being safe in a crisis.

Social distancing is one of the many requirements to stay safe along with regular hand washing to fight the coronavirus (COVID-19)

FEATURED STORIES 28 Mbombela overview Mpumalanga’s capital has huge potential 34 Polokwane overview Polokwane: No water, no play 55 Finance After the Budget Speech: An outlook for South Africa’s economy

GENERAL STORIES 3

From the CEO

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Notice to SAPOA members

8

From the Editor’s desk

10 Legal update

➀ City of Johannesburg outdoor advertising ➁ Landlords’ rights and obligations under COVID-19 ➂ Novel coronavirus: A practical guide for employers 18 Education

➀ SAPOA Bursary Fund: Beyond the skills development and BBBEE points, real change awaits

➁ Further increasing the property management pool 22 Opinion Asset management of government properties: Time for a reboot?

44 Rethinking LED What the cities say about LED 58 Cyber-networking Reflections on the property industry: A social impact for Cape Town 60 Howmuch.net Visualising bitcoin’s wild ride in the last decade 62 Off the wall A superyacht entirely powered by emissions-free fuel 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.

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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communiquĂŠ

Notice to SAPOA members Dear Members, SAPOA sent out three notices to the industry over the past two weeks with regards to the COVID-19 pandemic.

Given the evolving nature of COVID-19, our information is subject to change as the information emerges on transmissibility and epidemiology. It is expected that the timing and intensity of virus activity will vary across South Africa and within provinces, i.e. some regions may experience sustained community transmission while others will only have isolated cases with limited personto-person transmission.

A containment strategy, given the limited number of cases in South Africa, is more appropriate at this stage.

As an industry in which our citizens interact daily at our offices and shopping centres, interventions that can be used to reduce and delay community transmission of the novel coronavirus that causes COVID-19 need to be implemented and enforced immediately.

By implementing and enforcing measures early, we seek to reduce the speed with which cases are occurring, to delay and to reduce the peak of the virus activity, thus reducing the demand for (and pressure on) healthcare services.

The third notice, which we sent out in the week of 16 March focused on shopping centres, as well as detailed measures such as hand hygiene, respiratory etiquette and environmental cleaning, which are the cornerstone public measures to protect individuals, their families and others against seasonal influenza and other respiratory viruses. The same measures are also effective when COVID-19 is circulating in the community. The application of these principles will help prevent and control transmission of any respiratory infectious disease, including COVID-19.

We urge you to apply these measures!

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SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

Further to this, we have reviewed our operations as follows: 2020 SAPOA Convention After discussions with Sun City, our decision is not to hold any event involving more than 100 people until the end of July 2020. We have therefore moved the dates of the 2020 SAPOA Convention to 9 to 11 December 2020. Refunds will be provided to those who have registered for the suspended event; alternatively, we would advise that you remain registered for the event as it has not been cancelled but simply postponed.

We are currently engaging directly with our speakers and sponsors with regards to rescheduling the Convention and enabling their participation in the future.

SAPOA events & academic courses We are suspending all face-to-face events and academic courses until further notice.

SAPOA Committee meetings The work undertaken by members who serve on our various Committees cannot be underestimated. We need to work together now more than ever. Any ideas, plans and projects regarding COVID-19 are welcome.

All committee meetings will continue as scheduled, but will be held online or via teleconference. Staff will be in touch directly about these arrangements.

Government Liaison Committee Worldwide, governments are battling to deal with both a health crisis and an associated economic one. Our advocacy work is critical at this time. We are engaging with the government on this matter, and our work regarding issues affecting the industry continues as planned, for now.

Avoiding crowding Measures taken to reduce the amount of

communiqué time individuals spend in large crowds or in crowded spaces can be effective in reducing the spread of COVID-19 in a community. It is recognised that, while this intervention may reduce the viral transmission, the feasibility of avoiding crowds is uncertain as crowding occurs in large cities daily (for example on public transportation, in subways, at airports and in shopping centres).

Discretionary gatherings, such as churches and theatres, might be left to individual groups, but we appeal to shopping centre owners to consider measures to reduce the viral transmission.

The workplace To assist you with strategies that you may consider implementing in your workplace, we recommend the following: ● Increase your awareness – and communication to staff – about COVID-19. ● Encourage the use of individual measures such as frequent hand hygiene, respiratory etiquette and self-isolation when ill. ● Evaluate the workplace for areas where people have frequent contact with one another, and share spaces and objects. ● Workplace settings should identify possible COVID-19 exposure risks and mitigation approaches. Although not conclusive, there may be benefit to increasing the spatial separation between desks and workstations as well as individuals (e.g. employees and customers). Ideally, a two-metre separation should be maintained, unless there is a physical barrier (e.g. cubicle or Plexiglas window). ● Workplaces and other similar community settings are encouraged to increase the frequency of cleaning of frequently touched surfaces (e.g. phones, elevator buttons, computers, desks, lunch tables, kitchens, washrooms, cash registers, seating areas, credit-card machines, surface counters and customerservice counters). ● Provide access to hand-washing facilities and place hand-sanitising dispensers in prominent locations throughout the workplace, if possible.

● Consider providing additional tissues should someone develop respiratory symptoms. If symptoms develop, the person should immediately be separated from others, instructed on respiratory etiquette and sent home (not using public transit, if possible). ● Where feasible, adjustments to policies and procedures may be put in place to reduce social contact, such as teleworking arrangements, flexible hours, staggering start times, use of email and teleconferencing. ● For business travel, employers should be aware of the latest information on COVID-19-affected areas and any travel health advisories. The risks and benefits related to upcoming business travel should be assessed, and consideration given to alternative approaches such as virtually attending meetings.

International business travellers returning from affected areas should self-monitor for symptoms and follow advice provided by Public Health officials regarding the recommended actions. ● Employers should prepare for increases in absenteeism, due to illness among employees and their families and extended school closures. Employers should access their business continuity plans, which should include a plan for ways of maintaining key business functions if faced with high absenteeism.

Consideration should also be given to the need for cross-training personnel to function in key positions. ● The selection of measures will depend on the company and the type of work; some measures (e.g. cancellation or closures) may have significant economic consequences, and decisions made based on a risk-benefit analysis.

Membership Zanoxolo Maseko membership@sapoa.org.za

Events Puseletso Dube events@sapoa.org.za

Education Mafonti Morobi eduofficer@sapoa.org.za

Public Relations Maud Nale profficer@sapoa.org.za

Marketing Jane Padayachee marketingmanager@sapoa.org.za

Finance Susan du Toit finance@sapoa.org.za

Legal Tsholofelo Tshwagong legal@sapoa.org.za

We are in an extremely challenging period in the world, our country and our industry.

We remain committed to supporting our members – and we thank you for your continued support.

With kind regards, Neil Gopal SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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from the Editor's desk

A country in lockdown COVID-19 has brought South Africa to standstill – and it seems that our way of working will forever be altered

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Editor and Publisher Mark Pettipher

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us: Coronavird rl o w The at risk economy

OECD Inter

0 2 March 202

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y the time you read this, we will be a third of the way through the threeweek national lockdown. Staying at home will be our routine, and essential provisions will hopefully be holding out.

As the South African Property Review team, we are still very much business as usual – and still looking for novel ways of bringing you the relevant information about the goings-on in the commercial property industry.

Being a bi-monthly publication gives us a little more time to get to the crux of matters. For example, we’ve doubled up on our regional report this edition, covering both Mpumalanga and Polokwane in our “tale of two cities”. The Polokwane interviews were carried out face to face with SAPOA members prior to the travel restrictions; Mpumalanga was done digitally, utilising Zoom as a communication platform. And it went off without a hitch, although with a certain amount of excitement – the excitement of using the latest technology and paving the way for easier inter-personal connections going forward.

Technology was also used to cover the Western Cape’s first cyber-networking event with Dr Crispian Olver. We recorded his Zoom presentation, edited in his slides, and uploaded the entire offering to the South African Property Review YouTube channel. We’ve also embedded it on the report-back page in this issue. As we develop more of these presentations, we will make more of them readily available to SAPOA members.

One of our key topics in this edition is finance, despite the fact that the February Budget Speech by Finance Minister Tito Mboweni has almost been forgotten amid the novel coronavirus outbreak and South

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

Africa’s 21-day lockdown. (There seems to be an almost biblical connection to the dates – as per Isaiah 26:20 – and the end date of the lockdown, 16 April aligning with the end of Passover.)

But we’re here to remind you what the Budget Speech presented to us. The plight that the South African economy is in will not have vanished when the pandemic is over – on the contrary, as our economy is directly linked to the world economy, we will undoubtedly feel the effects of the global slowdown.

CNBC reports that major institutions and banks have cut their forecasts for the global economy, as has the OECD.

One thing is certain: as we emerge from the pandemic, life as we know it will be forever changed – and the way that we communicate and do business will change along with it. Technology will play a greater part in all aspects – and here at Property Review we’re already embracing it.

Stay safe and enjoy the read. We look forward to keeping in touch digitally!

legal update

City of Johannesburg outdoor advertising In June 2017, the City of Johannesburg published its draft Outdoor Advertising By-Law for comment. Comments were due on 7 July 2017

T

he By-Law makes reference to all types of outdoor advertising, whether a sign (for sale/lease) or logo, freestanding or attached to any wall or structure, etc.

As a property owner, the City Council has a duty to exploit its assets for the benefit of the community. The charging of rent for the display of advertisements on road reserve has long been a substantial source of income for the City Council.

Its conflict lies in the dual regulatory role it’s fulfilling.

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● SAPOA submitted comments and concluded by stating that the City Council is, in terms of the current regulatory system, already conflicted in that it is player and referee in the outdoor advertising sign industry, an intolerable situation we object to. ● The city is the owner of vast tracts of road reserve, which is an ideal place for the display of advertisements.

In this regard, the City Council is a direct competitor with private property owners on that same road. In terms of the current regulatory system, the City Council is the decision-maker in the approval of advertising sings. ● As a property owner, the City Council has a duty to exploit its assets for the benefit of the community. The charging of rent for the display of advertisements on road reserve has long been a substantial source of income for the City Council. Its conflict lies in the dual regulatory role it’s fulfilling. ● The introduction of this draft By-Law is the ideal opportunity to consider that the city must divest itself of one of the two regulatory functions. ● The most suitable function to divest itself of is, of course, the approval process. There is nothing contained in any of the constitutional provisions that prohibits the City Council from appointing

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

an independent body that will adjudicate the applications for the approval of advertising signs.

This body should be represented by all role-players in the industry, including private property owners, billboard companies and the City Council. Such a system will be objective and fair, and will avoid the clear conflict of interest the City Council is currently vested with.

On 20 March 2018, the City adopted and approved the Outdoor Advertising ByLaw. It stated that the By-Law would be promulgated on 31 May 2018.

SAPOA brought an urgent application against the City of Johannesburg. The parties reached an agreement to suspend the enforcement of the newly promulgated 2018 Outdoor Advertising By-Law until a court case challenging various aspects of the By-Law had been heard by the Gauteng Local Division. The agreement was made an order of court. The By-Law was also suspended until the judgment was handed down in the application before the court.

In the application before the court, it was contended that: ● The City of Johannesburg failed to implement and follow proper public participation processes, as it ignored important comments and objections raised by various industry members. ● Certain provisions of the By-Law are unconstitutional, as they infringe certain rights contained in the Bill of Rights enshrined in the Constitution. ● The city failed to obtain approval from the Minister of Trade and Industry,

legal update as required by the National Building Regulations, prior to promulgation of the By-Law.

The legal challenge is based on, among others, the following: ● The promulgation of the By-Law will immediately and retrospectively criminalise private property owners with unapproved advertising signs on their property. This will happen without the property owners having the opportunity of arranging their affairs to try to comply with the new By-Law. It should also be considered that the same sanction does not hit the city itself who also, by its own admission, has hundreds of unapproved billboards on its properties. ● The City, as a commercial role-player in the outdoor advertising arena, is conflicted between its regulatory function and its commercial interests.

Therefore the regulatory control should be divested to an impartial decisionmaking body, and not to an official. ● The enforcement measures, which are severe, can be imposed arbitrarily by the officials who are playing the role of investigative, prosecutorial, adjudicative, and sheriff’s functionaries. ● The city can levy additional taxes for outdoor advertising. ● The city can levy a special rate for outdoor advertising signs. ● Furthermore, the inclusion of the National Building Regulations Act of 1977 in the By-Law will require, in terms of Section 28(9) of the said Act, that the Minister of Trade and Industry must approve this By-Law, and the absence of such an approval will render the By-Law void.

On 18 February 2020, SAPOA was successful and obtained the orders as per its request in the main application, resulting in the 2018 Outdoor Advertising By-Law being declared unconstitutional.

Protection of Personal Information Act (POPI Act) Section 32 of the Constitution of the Republic of South Africa Act (Act No. 108 of 1996) stipulates that everyone has the right of access to any information held by the state or any other person, provided the information is required for the exercise or protection of any rights.

The Act further stipulates that the national legislation must be enacted to give effect to this right.

PAIA gives effect to the constitutional right of access to information held by any public or private body that is required for the exercise or protection of any rights. The Act details the procedures to be followed when making a request for information held either by a public or private body.

Personal information as defined in the Protection of Personal Information Act No. 4 of 2013 (POPI Act) is used in day-to-day employment processes such as recruitment, contracts, employment equity, medical aid/provident funds, disciplinary action, performance management, benefits and remuneration, training, SETA records, and other employment-related requirements.

On 14 December 2018, the regulations to the POPI Act were published in the Government Gazette. Until early this year, only Section 1, part A of Chapter 5, Section 112 and Section 113 of the Act were in effect.

The Information Regulator has asked President Cyril Ramaphosa to declare that the remaining provisions of the POPI Act commence on 1 April 2020.

If the president were to act on the Information Regulator’s request, the remaining provisions in the POPI Act regulating the processing of personal information will become effective on 31 March 2021. (We will be given a period of 12 months’ grace – unless extended by the Minister – to comply with the POPI Act.) Non-compliance with the POPI Act may result in significant civil and criminal sanctions; hence it is important that all businesses ensure compliance with the Act prior to its commencement.

If the president were to act on the Information Regulator’s request, the remaining provisions in the POPI Act regulating the processing of personal information will become effective on 31 March 2021. (We will be given a period of 12 months’ grace – unless extended by the Minister – to comply with the POPI Act.) Non-compliance may result in significant civil and criminal sanctions; hence it is important that all businesses ensure compliance with the Act prior to its commencement.

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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legal update

Landlords’ rights and obligations under COVID-19

The remission of rent (if any) will also only be available to the extent that the premises could not be used for the purposes let.

Therefore, if the government were to close down business for three days, a remission will only be granted for those three days.

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1. We refer to the above pertinent issue in light of the recent directives and regulations issued by the South African government due to the outbreak of COVID-19.

2. Prior to dealing with the specifics of lease agreements, let’s first deal with some general principles, which we’ll then apply to lease agreements and the wider context.

3. First, as a general principle of the law of contracts, whenever there is a case of supervening impossibility, a party to a contract who is negatively impacted as a result of that impossibility may be excused from performing in terms of that contract. Generally, when there is a vis major (a superior power or force that cannot be resisted or controlled), a party will be excused from performing in terms of an agreement. Furthermore, casus fortuitus, which is an incidence of vis major, is an exceptional or extraordinary occurrence that was not reasonably foreseeable1. It has been held2 that plague is an incidence of casus fortuitus. In our view, the present COVID-19 outbreak is analogous, and the resultant government bans constitute vis major.

4. Where a tenant wishes to rely on vis major or casus fortuitus to be excused from having to perform in terms of an agreement, that tenant bears the onus to prove that it did not have beneficial occupation of the leased premises for the duration of the non-payment period3, and furthermore has to prove that the occurrence was unforeseen, uncontrollable and the direct cause of the inability to perform. If the circumstances ought to have been foreseeable, in the specific circumstances of the specific tenant, no remission of rent will be granted4.

5. It goes without saying that the tenant’s failure to have beneficial occupation of a leased premises must be the direct and immediate result of the casus fortuitus5. Therefore, a tenant will only be entitled to claim a loss of beneficial occupation of a leased premises due to casus fortuitus if the outbreak of disease itself led to the closure of business. As an example, it has been held that a tenant who conducted a stationery business was not allowed a rent remission where war had caused a drop in trade, but that it would have been so entitled if war had prevented the customers from dealing with the tenant6.

6. The remission of rent (if any) will also only be available to the extent that the premises could not be used for the purposes let. Therefore, if the government were to close down business for three days, a remission will only be granted for those three days.

7. It is of course trite that the parties may agree in their lease that the rent should be paid without any remission whatsoever. Such terms are usually found in modern leases, where it is held that rent is to be paid without deduction or set-off whatsoever. It has been held7 that the prohibition against set-off only applies to deductions that were reasonably foreseeable when the agreement was concluded. Similarly, it has been held in various cases that contractual terms contrary to public policy would not be enforced. As a simple example, it is against public policy to contract with a person to kill another person, and such a contract will not be enforced on this basis.

1.

See Spolander v Ward 1940 CPD 24

2.

Stockham & De Jong v Kaplansky & Co (1901) 18 SC 156; and also Joe v Mahomet (1901) 11 CTR 816

3.

New Heriot GM Co v Union Government (Minister of SAR&H) 1916 AD 415

4.

Frenkel v Ohlsson’s Cape Breweries 1909 TS 957

5.

Johannesburg Consolidated Investment Co v Mendelssohn & Bruce 1903 TH 286

6.

Again Johannesburg Consolidated Investment Co v Mendelssohn & Bruce

7.

United Mines of Bultfontein v De Beers Consolidated Mines (1900) 17 SC 419

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

legal update 8. These general principles relating to vis major and casus fortuitus would generally apply to all the applicable lease provisions in your leases: continuous trading, payment of rent without deduction or set-off, trading hours, and the observance of laws.

9. Government issued the present regulations and directives in terms of the Disaster Management Act, 57 of 2002 (“the Act”). The Act provides, in Section 60, that failure to adhere to a request by the disaster centres renders the person guilty of an offence, and liable to a fine and/or imprisonment. These regulations and bans should therefore not be taken lightly. The act furthermore makes it clear8 that government, whether in the national, provincial or local spheres, may issue directions and make regulations on a wide array of issues once a national state of disaster has been declared, which includes, inter alia, the control and occupancy of premises and the regulation of the movement of persons and goods.

10. To therefore attempt to act against these disaster directions regulations would be tantamount to acting contrary to public policy.

11. In a similar vein, in our view, to attempt to enforce payment of rent on the basis that same is to be paid without deduction or set-off whatsoever, would probably be against public policy, and a strong argument could probably be made out as to why a tenant should be excused from making payment of rent for the period during which it was deprived of beneficial occupation.

12. To summarise therefore, in our view, the position is as follows: 12.1. At this stage, no tenant ought to be excused from trading from leased premises or making payment of rentals and other charges, as normal trading has not yet been prohibited in terms of the disaster regulations; 12.2. Insofar as a tenant suffers from reduction in business due to the present disaster regulations, such reduction does not entitle the tenant to a remission of rent; 12.3. If government were to prohibit trading, tenants so affected will have to be excused from trading, in order to comply with the applicable legislation. Such allowance will of course only apply for the period as decreed by government, and not any longer; 12.4. In the absence of a prohibition against set-off in the lease (which will normally be very rare), a tenant ought to be entitled to a rent remission for the period that it is unable to trade, as set out in paragraph 12.3 above; 12.5. If, during the period of prohibition, a tenant still is able to use the premises in some way, the rent remission as aforesaid will be reduced accordingly; 12.6. If the lease prohibits set-off (as will be the usual case), the landlord will be entitled to insist on full payment of the rent. A strong argument will probably be made out by the tenant as to why enforcement of this clause will be against public policy, and why it should therefore be excused from making payment of rent; 12.7. None of these considerations will apply to utility charges – a tenant will remain liable for utilities which it actually consumed.

13. Finally, we address the issue of bonds that may have to be paid by the landlord on the building. As the loan that was secured by the bond is not dependant on trade being conducted from the premises, and as the monies loaned by the financial institution concerned remain available to the landlord, none of the above contentions will normally apply to bond payments. Inability to pay a bond will not necessarily be a direct result of a government prohibition of trading. Such inability to make payment may be a result of tenants’ failure to pay their rent. Accordingly, a landlord will be hard-pressed to argue that it ought to be excused from making payment in terms of a loan agreement.

We trust that you find the above in order. Should you wish to discuss any aspect hereof, please do not hesitate to contact us.

8.

Marlon Shevelew talks to listeners on John Maytham’s drive time show about tenants’ and retail landlords’ rights.

Government Gazette Staatskoerant R E P U B L I C O F S O U T H A F R I CA R E P U B L I E K VA N S U I D A F R I K A No. 10177

Regulation Gazette

Vol. 657

18

Regulasiekoerant

March 2020 Maart

No. 43107

ISSN 1682-5843 N.B. The Government Printing Works will not be held responsible for the quality of “Hard Copies” or “Electronic Files” submitted for publication purposes

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43107

771682 584003

AIDS HELPLINE: 0800-0123-22 Prevention is the cure

Government legislation issued with regards to COVID - 19

Section 27 of the Act SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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legal opinion

Novel coronavirus: A practical guide for employers Introduction

On 11 March 2020, the World Health Organisation (“the WHO”) officially declared that the spread of the novel coronavirus had reached the level of a pandemic.

The virus is crossing international boundaries and affecting a large number of people worldwide.

Coronavirus is a very serious illness and is potentially lethal.

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1. On 11 March 2020, the World Health Organisation (“the WHO”) officially declared that the spread of the novel coronavirus had reached the level of a pandemic. The virus is crossing international boundaries and affecting a large number of people worldwide. Coronavirus is a very serious illness and is potentially lethal. In respect of the workplace, immediate steps must be taken in order to attempt to diminish its impact.

2. The WHO statement was followed by the declaration of a State of Disaster in South Africa in a widely viewed television address by President Ramaphosa on 15 March 2020.

Drastic measures were announced, including the closure of schools, the banning of public events exceeding one hundred people, the prohibiting of international travellers from certain countries from entering South Africa, and the closing of multiple ports of entry. NEDLAC is also holding emergency meetings to discuss the measures that employers should be taking, and ways to mitigate the damage that could be suffered.

3. It is apparent from the WHO’s declaration and the steps taken both here and abroad that a multifaceted and unified approach is necessary in order to attempt to limit the spread of the virus (total containment now being impossible). This requires cooperation and coordination between the state, the Department of Health, the private sector, the medical fraternity, businesses, schools, individuals and so on.

In relation to employers specifically, we have been inundated with requests

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

from our clients for advice on the legal obligations and implications of the spread of the novel coronavirus.

4. From a solely legal perspective, employers are subject to both a common law and a statutory duty in terms of the Occupational Health and Safety Act to provide a safe, healthy working environment for all their employees. This includes taking appropriate steps to prevent the spread of the novel coronavirus and the involvement of medical practitioners, welfare departments, operational health and safety representatives and committees in that regard.

Symptoms and transmission 5. In order to develop a plan to mitigate the effects of the novel coronavirus, it is necessary to begin by understanding its symptoms and how it spreads.

6. The symptoms of the novel coronavirus (COVID-19) typically include a fever, a cough (in particular a dry cough) and/or shortness of breath, although it is possible that the symptoms can present like a normal cold or flu. These symptoms can escalate to pneumonia and other serious medical conditions, and ultimately death. (It has been reported that up to 3% of persons who are infected may die.) Elderly persons and persons with pre-existing medical conditions, especially respiratory conditions, are particularly at risk.

7. The symptoms appear between two and 14 days after exposure and, in certain cases, asymptomatic transmission is possible (i.e. a person may be contagious before he/she shows any symptoms of the virus).

legal opinion 8. The virus spreads through close contact between persons. This may occur as a result of respiratory droplets produced when sneezing or coughing. It is also spread through the contamination of surface areas. It has been reported that such contamination may last for as long as three days.

9. The best means to limit the spread of the virus is to limit interaction between people. Internationally, this has manifested itself in citywide lockdowns and widespread travel restrictions. Some of these measures have also been adopted as part of the State of Disaster in South Africa.

Employers and employees: Proactive steps to be taken 10. A number of proactive steps can be taken both by employers and employees in order to mitigate the risk of the novel coronavirus.

These include the following: ●Employers

should issue a communiqué to all staff, advising them of the symptoms and encouraging them to selfmonitor for infection. This should include a procedure for employees to confidentially report any suspected infection/risk of infection to the employer (i.e. where a family member has contracted the virus). ●A number of employers are implementing policies that permit so-called self-isolation/quarantine in the event that an employee suspects that he/she may have contracted the virus. This option may of course not be practical for critical employees, and employers may wish to retain the services of those employees until they exhibit signs of illness. ●Where

possible, employees should be permitted to work from home, or alternatively limit the amount of physical interaction they have with other employees and clients.

Email, phone and Skype/video communication should be encouraged, and unnecessary

gatherings/meetings avoided.

International travel should also be avoided, as should unnecessary air travel between different offices (i.e. in larger companies). ●In circumstances where working from home becomes necessary, a policy and procedure should be implemented by employers in order to regulate the workingfrom-home arrangement. To that end, employees should have a clear and detailed understanding of both the hours to be worked and the level of performance required for work performed at home. Critically, employees must understand their responsibility to report regularly to their line managers. The costs involved in working from home, if any, should be limited and comprehensively dealt with in the policy. It is regrettable that this may inevitably lead to abuse by certain employees; accordingly employers would be required to closely monitor such an arrangement. ●Employees

should be advised of appropriate hygiene practices, including regularly washing their hands, avoiding face-touching, and cleaning commonly used surfaces (including eating surfaces).

Employers should facilitate this by providing both soap and alcoholbased hand rubs (containing at least 60% alcohol). Posters containing such advice should also be posted around the workplace, and employers should adopt robust cleaning procedures in relation to commonly used surfaces (including bathrooms and kitchens).

Employees who fail to abide by these workplace rules should be subject to disciplinary action. ●Employees

should also be encouraged to exercise good respiratory etiquette, including practising the “vampire cough” (i.e. coughing into the elbow instead of the hand) and/or using tissues that are discarded appropriately.

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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legal opinion

Employers should also be mindful that the Unemployment Insurance Fund permits employees to claim from the fund in circumstances where they are sick for more than seven days and have exhausted their paid sick leave entitlements.

Employers should, where possible, assist employees with the UIF application, although it is to be anticipated that payment would be delayed. Conversely, in circumstances where employees voluntarily self-isolate, in the absence of any symptoms and solely as a precautionary measure, employers should opt to place those employees on special leave for that purpose, for which a time period could be set.

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●Employees

should avoid sharing phones, desks, computers and other tools of the trade. Where shared equipment is used – for example, in the case of photocopiers – hand-washing should be encouraged immediately thereafter. ●Employers

should revisit the planning of their offices in order to ensure appropriate distance is kept between employees (a distance of two metres is recommended).

This will not always be possible, especially in factory settings. ●Where

an employee is displaying symptoms of the novel coronavirus, employers must require that employee not to attend the workplace and to immediately seek medical advice. Employees should avoid emergency rooms/ hospitals and instead rely on their general practitioner as a first port of call. Employees should also be encouraged to telephonically contact their GPs, as many are conducting Skype/video consultations where symptoms are not severe in order to avoid further spreading the virus. Employees should also obtain and submit sick notes electronically where possible. ●Emergency

occupational health and safety committee meetings should be convened to enable action plans to be put in place.

These plans may vary according to type of employees, and different contingencies may be necessary.

Sick leave and other options to be considered 11. On the issue of sick leave, there has been a great deal of uncertainty and debate concerning its applicability.

This includes uncertainty as to whether employees who voluntarily self-isolate are considered “sick” for the purposes of the BCEA, and consequently whether existing paid sick leave entitlements cover such voluntary self-isolation.

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

12. At the outset, a distinction must be drawn between employees who exhibit symptoms of illness and those who self-isolate as a precautionary measure. In circumstances where employees exhibit any signs of illness, the provisions of the BCEA dealing with sick leave find application, and the employees should be placed on paid sick leave. Where paid sick leave is exhausted, but the employee remains sick, the employee will then be subject to unpaid leave.

13. Employers should also be mindful that the Unemployment Insurance Fund permits employees to claim from the fund in circumstances where they are sick for more than seven days and have exhausted their paid sick leave entitlement. Employers should, where possible, assist employees with the UIF application, although it is to be anticipated that payment would be delayed.

14. Conversely, in circumstances where employees voluntary self-isolate, in the absence of any symptoms and solely as a precautionary measure, employers should opt to place those employees on special leave for that purpose, for which a time period could be set. Employees who choose to self-isolate could also be given the option of taking annual leave.

15. This is so because the placement of employees on sick leave in circumstances where they are, in fact, neither ill nor exhibiting symptoms may create unsustainable precedents susceptible to future abuse. Some employees may be tempted to take advantage of the pandemic and voluntarily self-isolate without cause.

16. Although employers are encouraged to pay employees during special leave to incentivise voluntary self-isolation in an attempt to curb the pandemic and contain the spread of the novel coronavirus, payment in terms of the law is not compulsory.

We strongly recommend that these aspects be addressed in an emergency pandemic policy.

legal opinion 17. We also expect that one of the items that NEDLAC will discuss will be the utilization of UIF funds to ensure payment of employees who self-isolate and who are unable to receive paid sick leave for that period.

18. In respect of employees who refuse to voluntarily self-isolate and are forced to remain at home because they are displaying symptoms, the position is more complicated. Section 7 of the Employment Equity Act states that medical testing may be justified inter alia in light of medical facts and employment conditions. In our view, given the general health and safety obligations referred to above, employers are legally entitled to insist on medical testing before allowing an employee who is displaying symptoms to attend work.

19. Where an employee unreasonably refuses medical testing notwithstanding that he/she is displaying symptoms, but continues to tender his/her service, that employee should be placed on unpaid special leave pending a medical assessment.

20. It is possible that the situation may worsen in the coming weeks, and a State of Emergency may be declared.

This could have drastic implications, including the closing of businesses, shops and other entities. In those circumstances, employers should consider implementing measures such as short-time, lay-offs or the taking of annual or unpaid leave as alternatives to retrenchment.

Where financially possible, employers should try to avoid retrenching employees. Among other considerations, this could lead to loss of medical aid membership.

This is an issue where all should attempt to make sacrifices for our common humanity. In specific circumstances it may be impossible not to implement a restructuring exercise.

21. Where conditions of employment do not deal with issues such as shorttime and lay-offs, the implementation

of those measures must be discussed with the employees and consensus must sought.

22. Such arrangements are regulated by some bargaining council agreements and can be readily implemented in certain circumstances.

For other employers, such arrangements will need to be negotiated with unions or employees, and where no agreement can be reached, may need to be implemented through an appropriate process.

For smaller employers, a plan of action should be put into place and communicated to employees. Employees should be informed of the proactive steps that they can take to avoid infection, what to do if they suspect that they have the virus, and the requirements for paid sick leave. This may include permitting voluntary self-isolation and compulsory isolation for employees displaying symptoms.

Conclusion 23. Employers must develop contingency plans to deal with these and other issues which may be specific to their businesses. Employers should be adopting a flexible and practical approach to dealing with the novel coronavirus.

24. For smaller employers, a plan of action should be put into place and communicated to employees.

Employees should be informed of the proactive steps they can take to avoid infection, what to do if they suspect that they have the virus, and the requirements for paid sick leave.

This may include permitting voluntary self-isolation and compulsory isolation for employees displaying symptoms.

25. For larger employers, many are electing to put in place emergency COVID-19 policies dealing with these issues, including different contingency plans for different staff. This should of course be done in conjunction with occupational health and safety committees and take into account employee input.

26. Please feel free to contact us should you require any assistance – we are available to assist in the preparation of both COVID-19 and homeworkers policies on an emergency basis. As we are dealing with a pandemic, please distribute these guidelines to friends and colleagues.

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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education

SAPOA Bursary Fund: Beyond the skills development and BBBEE points, real change awaits Over the years, the SAPOA Bursary Fund has shown tremendous growth and success in the work done to support deserving students with bursaries.

These students are from a range of socioeconomic conditions with varied challenges, but through the support and contributions from member companies, their dreams are materialising – and that is real change

Some of the 2020 SAPOA Bursary Fund beneficiaries

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he partnerships with past and present bursary contributors have led to a total of 62 graduates to date, 58% of whom are female. Eighty-three percent of them have been absorbed upon completing their studies – 82% by the property industry, and the variance by other industries.

At the end of 2019, the pass rate increased to 91% as a result of the 18

mentoring programme that’s one of the support measures offered to students.

Through the many bursary contributions made over the years, the industry has gained valuers, quantity surveyors and other professionals in various fields.

True transformation isn’t just the in contribution made to the lives of these individuals, but in the change in the lives of their families: some of these

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

beneficiaries are the first generation with not just a formal education but a university degree. Their participation benefits not only the property sector but also the economy as a whole – which is why continued support from the industry is essential.

Beyond the compliance benefits, the private sector also has an opportunity to influence tertiary education and ensure

education

Last year’s Real Estate Diploma graduates from the Cape Peninsula University of Technology

that new market entrants don’t end up graduating with redundant knowledge.

The challenge for the private sector is to partner with university faculties that are relevant to their core business, and thus influence not only the education system but also produce a workforce and future leaders who will have a positive impact on their companies.

Through the contributions of various member companies, the SAPOA Bursary Fund will be supporting a total of 54 students in 2020, who will be studying across six universities in four provinces.

These are certainly milestones that are worth celebrating.

As an industry, we are a force to be reckoned with – but the work doesn’t stop here. Our ongoing efforts to take the property industry forward will require active participation from all players, to ensure sustainable future growth and transformation.

SAPOA would like to thank every bursary contributor, past and present, who has taken part in making our bursary programme a success To effect industry change (and maximise your BBBEE points), consider using your Skills Development budget to contribute to the SAPOA Bursary Fund. Get in touch on e-mail at bursaryfund@sapoa.org.za for more information.

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SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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education

Further increasing the property management pool SAPOA and the University of the Witwatersrand (Wits) recently honoured the Commercial Property Management class of 2019. The certification ceremony for the one-year SAPOA Commercial Property Management course took place on 5 March in Johannesburg. The course is the result of an ongoing collaborative effort between SAPOA and Wits

By Maud Nale Images by Xavier Saer

Present at the certification ceremony were Professors Ian Jandrell (Dean of Engineering and the Built Environment) and David Root (Head of School at the School of Construction Economics and Management).

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ccording to SAPOA CEO Neil Gopal, one of SAPOA’s main objectives is to provide professionally designed programmes to introduce prospective students to a career in the property industry.

“One of the key value forces of SAPOA is to contribute to the advancement of our member’s interests in commercial property,” he said. “As a professional association established in 1966, our education efforts at SAPOA are aimed at increasing knowledge and skills for the property industry among employees and the industry, ensuring that the content of our programmes, workshops and other educational interventions is aligned with industry needs, and raising the employability and competency of the practitioners and professionals in the industry.”

The Wits-SAPOA partnership goes back more than a decade.

“We feel privileged and honoured to partner with an institution such as Wits,” said Gopal. “We believe they run some of the best courses in the country, and both organisations share the same degree of commitment towards education and training.”

To the 12 graduates, he said, “I trust that you’ve learnt a lot from the programme, and that it will allow you to move forward in your career. I am very proud of you for this achievement, and hope that you will continue to support the SAPOA and Wits programmes in the future.”

Master of Ceremonies Professor Samuel Azasu, an associate professor at Wits and Coordinator: Executive Programmes in

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SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

Real Estate, thanked SAPOA and the training team for all their hard work and collaborative effort.

“We wanted to provide courses that resulted in our graduates being the sources of innovation, new ideas, products and services, as well as reporting standards and formats in the industry,” he said about the revised programme. “We rolled out a new course last year that covered many of these elements and considered property management at an international level, and we wanted to make sure that our professionals had the same quality of training as the global standard.”

To the 12 recipients, Azasu said, “Congratulations to all of you on completing the programme. I invite you to consider furthering your studies in this field, and taking up some of the Institute of Real Estate Management (IREM) courses that Wits offers in order to qualify as a Certified Property Manager.”

Azasu believes that the working relationship between Wits University and SAPOA continues to grow from strength to strength, and he looks forward to all the collaborative work throughout the year.

Also present at the certification ceremony were Professors Ian Jandrell (Dean of Engineering and the Built Environment) and David Root (Head of School at the School of Construction Economics and Management).

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opinion

Asset management of government properties: Time for a reboot?

The purpose of this article is to delve deeper into the nature of asset management of government’s vast fixed property portfolio. The aim is to clarify, predominantly for the private-sector reader, where government asset management finds its genesis, and how effective asset management in government could form a central solution to some of the pertinent issues facing us today, such as the continued need for housing and spatial redress

GIAMA: A big step in the right direction

Shaheen Adams, Managing Director at Wingapo Property Group

The Government Immovable Asset Management Act (GIAMA) was promulgated in 2007 by the national government (Act No. 19 of 2007), and was made applicable to national government and provinces. Local authorities, in anticipation, also followed its guidelines and prescripts to a large degree. The purpose of GIAMA was, in part, to “provide for a uniform framework for the management of an immovable asset that is held or used by a national or provincial department; to ensure the coordination of the use of an immovable asset within the service delivery objectives of a national or provincial government…”.

GIAMA was intended as an act that could lever the vast government-owned property portfolio to the benefit of society, and this was an admirable and powerful intention. It was meant to herald a complete change in how government managed its property assets. GIAMA was an acknowledgement that it owned tremendous quantities of land and property assets throughout all three spheres of government, and that it had a responsibility to the public to implement effective asset management practices. Prior to the promulgation of GIAMA, each province already had its own provincial land administration legislation, but these acts mostly set out the authorisations and administrative procedures within each province for the buying and selling of property, and did not venture into the realm of asset management.

Why is it, then, that nearly 13 years after the promulgation of GIAMA, government still struggles to find meaningful ways to bring vast amounts of unused or underutilised property into service for the benefit of the people? To dive into this, we must evaluate what custodianship and usership looks like within government.

Custodians and users GIAMA defines the relevant National Minister, and the Premier at provincial level, as the custodians of government property within those respective spheres of government.

Practically, this custodial role is delegated to either the Minister/MEC or the Director General/HOD of the Department of Public Works of both the national government and provincial governments. Public Works therefore fulfils the function of Custodian.

A User Department (User) is broadly defined as any department that utilises property for the execution of its duties. Users are required to compile and submit annually a User Asset Management Plan (UAMP) to both the Treasury and the Custodian, and custodians are meant to compile and collate these UAMPs and provide strategic direction through a Custodial Asset Management Plan (CAMP), annually to their respective Treasury.

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opinion In effect, Users request the use of government property from the Custodian, who allocates that property to the use of the User. It is required by GIAMA that both the User and the Custodian ensure that the properties under their use or control are utilised effectively and efficiently.

On a practical level, the quality of the process of UAMP and CAMP compilation and submission has been improving steadily over the past decade. However, to what extent is this exercise in legislative compliance with GIAMA really achieving meaningful and effective government asset management of immovable assets? To provide guidance, we can briefly turn to the mandates of the different spheres of government.

When the government is faced with property decisions falling neatly into an existing, established mandate, things generally work well.

As an example, provincial governments have as part of their mandated responsibility the building and construction of schools and hospitals.

Government mandates The three spheres of government derive their mandates from Schedules 4 and 5 of the Constitution of the Republic of South Africa (1996).

When the government is faced with property decisions falling neatly into an existing, established mandate, things generally work well. As an example, provincial governments have as part of their mandated responsibility the building and construction of schools and hospitals. Therefore, school and hospital sites are routinely acquired, zoned and built without much issue (further than usual prudence, as can be expected from government supply chain management processes) by the provincial government.

The same example could be extended to national government in terms of a defence facility, for instance, or to local government in terms of a recreational community park.

However, it is when properties do not clearly fit a mandated purpose where most problems start to arise. Some of the main scenarios are listed below: ● The property having never been allocated to a User (for example, a vacant piece of government land); ● The property having been allocated but being under-utilised by the User (for example, what was once a thriving clinic in a community is now barely visited, because residents visit a more modern government clinic in the adjacent town, or have switched to private clinics); ● The property having been allocated to a User, but the Custodian (or the public) disagrees with the appropriateness of its use (for example, a bowling club may have a lease on city land that is in a prime position for inclusionary housing. The city department feels it’s fulfilling its User responsibility, and the club has a valid legal lease, yet the public sentiment is that the use is inappropriate in terms of current service-delivery priorities. This is the same argument that can be related to the ongoing debate around Cape Town’s numerous golf clubs leasing city land in prime locations suitable to affordable/inclusionary housing); ● The property having been relinquished from the User back to the Custodian because it is no longer needed (for example, Conradie Hospital, GF Jooste Hospital or Athlone Power Station); or ● The Custodian deeming an unallocated property, or a relinquished property, fit for disposal (for example, in light of an infrastructure budget deficit, the Custodian may decide to dispose of surplus property to realise capital to cross-subsidise capital shortfalls elsewhere).

The scenarios above raise challenging process questions, such as: ● How does the transition of the property from User to Custodian occur in the event that the property is relinquished by the User back to the Custodian?

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opinion ● Once the property is relinquished, what process is followed in order to deem the property surplus? ● Once a property is deemed surplus, who makes the decision around the disposal criteria. Do they have the authority to do so, and do they have the political will to see it through? For example, should the property be sold outright or leased out – and if so, what conditions (if any) should be placed on the property’s disposal to market?

If you’ve ever driven by government land laying fallow, or a derelict or disused government site, it is likely indicative of the government having been unable to answer one or more of these questions. Alternatively, it could be the result of internal disagreement within government about what is in the common good. Sadly, this disagreement about what is of best use often leads to the perverse outcome of government land and buildings laying vacant and exposed for too long, and becoming scourges of social ills in the communities in which they are situated.

GIAMA is an important piece of legislation – one that provides a foundation from which the various spheres of government can answer these questions. However, it is imperative that detailed procedures that are fair and objective, and measured against the most urgent social requirements to determine the allocation and disposal of land, are put into use and consistently applied. In the absence of GIAMA Regulations, however, the spheres of government need to build their own standardised processes to deal with issues of asset allocation, relinquishment, reallocations and disposals of surplus properties. It is in the quality and implementation of these processes that the difference lies.

Concluding thoughts

Spatial redress through social housing therefore has the unique opportunity of becoming a central feature of government asset management, a feature hitherto not adequately connected in legislation as it should be. In this respect, the time for GIAMA 2.0 has come.

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Since the promulgation of GIAMA in 2007, two major housing-related legislative developments have taken place: the Social Housing Act in 2008, and the Spatial Planning and Land Use Management Act (SPLUMA) in 2013.

In my view, the Social Housing Framework is currently government’s best chance of delivering decent housing at scale in well-located areas. I’ve expressed my view of the social housing legislative framework being the most viable secondary market system for rental housing at present (refer to page 14 of the February/March issue of Property Review).

GIAMA (in Section 5(1)(f )(iii)) speaks to the consideration of land reform in any intention to dispose of state land. This interpretation of land reform around the time of GIAMA’s promulgation had a narrow definition centred around land restitution.

I believe that when GIAMA is looked at in conjunction with SPLUMA and the Social Housing Act, the “reformation” of land needs to take a broader definition, inclusive of the provision of affordable inclusionary housing.

Spatial redress through social housing therefore has the unique opportunity of becoming a central feature of government asset management, a feature hitherto not adequately connected in legislation as it should be. In this respect, the time for GIAMA 2.0 has come.

Shaheen Adams is the former Chief Director for Immovable Asset Management at Western Cape government, and the former General Manager for Rental Property Management at Communicare NPC. He now consults privately in the fields of asset management, property management and property development. wingapo.co.za

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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SPARKLE...a little glitter never hurts!

Declutter, body, mind & Soul

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advertorial

Dube TradePort mini factories: A boon for SMMEs Dube TradePort Corporation is poised to introduce to the Durban property market a R90-million mini factory complex, providing the ideal platform for SMMEs that require small manufacturing and office space

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he development of the mini factory complex, comprising 18 units, has sparked keen investor interest, due in no small measure to its prime location just 500 metres from Dube Cargo Terminal, at the heart of Dube TradePort Special Economic Zone and emergent Durban Aerotropolis, itself perfectly positioned between two of Africa’s busiest seaports, Durban and Richards Bay. In addition to their proximity to King Shaka International Airport, these units afford easy access to the provincial road network, inclusive of the N2 north and south, with links to Durban harbour and the vital N3 corridor to the country’s hinterland, as well as the M4 and R102 arterial roads.

Commenting on the mini factory concept ahead of its launch, Dube TradePort Corporation Chief Executive Officer Hamish Erskine said, “While Dube TradePort Special Economic Zone predominantly attracts big business investors, we also identified a need to ensure the inclusion in the precinct of access to small and medium-sized enterprises. Our mini factory units, therefore, present an extremely exciting investment prospect for the burgeoning SMME sector.

“These units offer the best location for the start-up and operation of small to medium-sized businesses, with 26

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

unrivalled opportunities to apply for and employ a wide range of Special Economic Zone incentives,” he said.

“Dube TradePort Special Economic Zone has shown rapid development, attracting outstanding private-sector investor interest and conversion to the value of more than R3.2-billion. It’s emerged as one of South Africa’s top 10 investment destinations, and an important global manufacturing and air logistics platform within southern Africa. All of this augurs well for SMMEs aiming to establish their enterprises here.

“The priority sectors for which we cater in Dube TradeZone 1 – which is located immediately adjacent to the mini factory complex – include medical and pharmaceutical, electronics, clothing and textiles, aerospace and aviation, automotive, and logistics and distribution. Once operational, Dube TradeZone 2 will focus on a range of industry-types, inclusive of the development of a pharmaceuticals cluster – which will revolve around production and distribution – as well as the supply of common utilities and services for key industries, together with enterprises that are active in high-value manufacturing environments.”

advertorial The diversity of business here stands SMMEs establishing in the organisation’s mini factory units in good stead, while simultaneously enabling them to take advantage of the available globally integrated logistics and manufacturing infrastructure to develop keen enterprise efficiencies.

“Both Dube TradeZone 1, inclusive of the mini factory complex development, and Dube TradeZone 2 are positioned to enable business enterprises that are located there to grow their global competitiveness,” says Erskine. “Of special importance to SMMEs is the fact that location within Dube TradePort Special Economic Zone brings to the fore access to a range of available incentives, affording small and medium-sized companies an appreciable competitive edge. Indeed, many of our existing tenants cite the attractive bouquet of incentives available in both a Special Economic Zone and Customs Controlled Area as clinching their location decision-making process.”

Incentive benefits available to prospective SMME investors include: ● Reduced corporate income tax (12R): 15% corporate income tax for qualifying companies; ● Building allowance (12S): Accelerated depreciation allowance on capital structures (buildings, 10% per annum over 10 years). The special rate of capital (depreciation) allowances in lieu of normal allowances will be available for erecting or improving buildings and other fixed structures; ● Employment tax incentives: Available to any business located within a Special Economic Zone, with employees earning less than R60 000 per annum; ● Customs controlled area: VAT and customs relief, import duty rebate and VAT exemption on imports with the aim of exporting the finished products; ● 12I tax allowance: For “greenfield” and “brownfield” industrial projects. This incentive supports capital investment and training; and ● High-end infrastructure: Funded through the provincial government and Special Economic Zone Fund.

The organisation’s 17 mini factory units are all 249.63m2 and include warehouse, reception, storeroom, kitchen and toilet space, as well as mezzanine office and open-plan areas. Five dedicated parking bays and one shared paraplegic bay (per two units) are provided, and included in the rental. The complex also provides for easy truck access, enhanced by dedicated loading/delivery bays and a large shared loading/ delivery bay, also included in rental costs.

Dube TradePort applies services levies for the cleaning of roads and verges, road and infrastructure maintenance, landscaping, security and generator maintenance. Exacting attention is paid to security issues, as legislative requirements

that govern Special Economic Zones necessitate the implementation and maintenance of especially high standards.

This makes Dube TradeZone 1 an extremely secure business environment in which to conduct business.

Measures include the use of access cards to control movement in and out of the area, a full-time security presence and armed patrols, guard-houses, state-of-the-art CCTV inclusive of licence plate recognition technology, and the presence of security officers with specialist training in aviation security, national key points, dangerous goods and health and safety, such as fire-fighting, first aid and OHS. All of this means that small-scale operators will be able to keep their business operations open 24 hours a day in a safe and secure environment.

“We believe the imminent release of our mini factory complex to the market will attract additional new investors and tenants who will be active in our targeted sectors and aligned to our strategic BBBEE goals, are export or import replacement-orientated and committed to localisation, as well as new technology and equipment-focused and dedicated to developing value chains.”

Dube TradePort Special Economic Zone – a recent winner of both the coveted United Nations Award for Excellence in Promoting Sustainable Investment in Special Economic Zones and the 2019 FEMOZA (World Free & Special Economic Zones Federation) award for Best Practice in Free & Special Economic Zones – signals its growing reputation as a truly world-class industrial and commercial precinct, strategically positioned at the intersection of both local and global intermodal transport routes. This provides the investors and newcomer small-scale manufacturers locating here with great supply chain efficiencies and fantastic access to markets, and the competitive advantages associated with business agility and speed to market.

dubetradeport.co.za

e: invest@dubetradeport.co.za t: +27 (0)32 814 0000 SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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Mbombela overview

Mpumalanga’s capital has huge potential In March last year, we visited Mbombela to get an idea of what is happening in terms of opportunities in the city and the region. A year on, Property Review attended a SAPOA Post-Budget Breakfast sponsored by Halls Properties, Nedbank and WDT Attorneys. The networking breakfast afforded us the opportunity to talk to some of SAPOA’s regional council members to get an overview of what is happening in the city

By Mark Pettipher To read last year’s roundup, go to bit.ly/2w5xlDY

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his year I decided to drive up to Mbombela – not because of the coronavirus but because the prices of flights from OR Tambo to Kruger Mpumalanga International Airport are extortionate. I’ve not driven to Mbombela before, and I’d heard the roads were good.

The resulting drive was pretty straightforward. You can see that getting produce to market from Nelspruit (as it was previously known) is not an issue, and the road further to the Mozambique border is equally good.

I left Johannesburg on the N12, which eventually took me to the N4. The 345km drive took me a little over three-and-a-half hours. On entering the city, I could see by the cleanliness of the streets that the City Improvement Districts (CIDs) are working well. It’s important for a first impression to be positive, and thanks to the three CIDs operating in Mbombela, visitors are encouraged to believe that the city has great potential.

After the Post-Budget Breakfast, members of SAPOA’s Mbombela Regional Council joined me in a conversation. I would like to thank outgoing Chairman and Kellaprince Property Group Managing Director Derek Todd, Kellaprince founder Keith Kellar, Bennie van der Merwe of Umsebe Development Planners, Leon Doyer of WDT Attorneys, incoming Chairperson Craig McFadyen of Oriprops and Sabine Walker, Halls Properties Development Manager, for their valuable insight.

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Mbombela overview Little has changed On the whole, little has changed from a year ago. Leon Doyer started the conversation, saying that commercial banks are actively supporting home loans of between R750 000 and R1.3-million, which is an indicator of demand for affordable housing in Mbombela. He also raised concerns that a number of the bigger construction companies in the area have gone out of business. He mentioned that there are few new developments taking place, adding strain to an already compromised private sector.

Sabine Walker added that the market has slowed down in terms of the commercial property sector – but that the residential market is the one that will be showing growth in the coming years. She supports Doyer’s observation of the R750 000 to R1.3-million price range, and believes that the local economy can support that level of lending.

From a developer’s perspective, there is scope for mixed-use developments, in particular in the Riverside Park area. “It is part of a well-established CID,” said Walker.

“At Halls Properties, we believe that people are looking for the live-work-educateshop-play lifestyle, with the assurance of being in a well-managed precinct such as Riverside. A Curro school has recently been established in the Riverside node, and there has been some interest from hotel and hospital developers.”

From a developer’s perspective, there is scope for mixed-use developments, in particular in the Riverside Park area.

“It is part of a wellestablished CID.”

Fiscal concerns Economically speaking, Mbombela – while en route to the Kruger National Park – doesn’t get much tourist business. It survives on business tourism. Mbombela’s largest employer is the government, and a large part of the city’s economic spend is based on government salaries. Agriculture is another significant contributor to the local economy.

The city could, however, be under threat from Maputo as the Mozambican capital improves its retail offering and business services, potentially reducing business tourism from the Mozambican market.

What came out of our conversation was a common concern about the municipality struggling to pay its bills. This is hardly surprising, given the Auditor-General’s report for the year ending June 2019, in which he states that “the financial statements indicate that the municipality incurred a net loss of R199 583 167 during the year ended 30 June 2019 and, as of that date, the municipality’s current liabilities exceeded its current assets by R1 513 885 585. These events or conditions, along with other matters, indicate that a material uncertainty exists that may cast significant doubt on the financial sustainability of the municipality.”

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Mbombela overview Development being hamstrung Putting a damper on development in Mbombela is the prohibitive cost of bulk service contributions (BSC). SAPOA has engaged with the municipality on this matter, and has had several meetings.

Another concern raised was the impact on town planning processes of a circular issued in 2018 by the Department of Water and Sanitation (DWS), which instructed officials to change the manner in which Section 25(1) and (2) of the National Water Act is interpreted. Township developers in Mbombela are required to transfer water rights equivalent to the demand of the township to the local authority, and the aforementioned circular complicates that process. Walker mentioned that Halls Properties, together with other local developers, has been engaging with DWS (at a national and local level) and with the local authority on this matter, to mitigate the impact on town planning processes – but this remains a concern.

As with all development, one has to ask: is the current infrastructure able to cope with demand? In the short to medium term, it would appear that the City of Mbombela’s water resources are able to sustain the current rate of development.

However, former Halls Properties MD James Aling agrees with Walker’s observation that the issue of transferability of water rights for developers to have the ability to transfer water rights to Mbombela municipality is critical. Other towns in Mbombela – such as White River and Barberton – are in a precarious situation when it comes to the availability and supply of bulk water.

Mbombela’s main sources of water are the Crocodile River and the Kwena Dam, a combined gravity- and arch-type dam on the Crocodile River near Lydenburg.

The dam was developed in 1984 and has a catchment area of 954km2; it serves mainly as a source of drinking water and water for irrigation purposes. At the time of this issue going live, the dam level stood at 46.3%.

Putting a damper on development in Mbombela is the prohibitive cost of bulk service contributions (BSC). SAPOA has engaged with the municipality on this matter, and has had several meetings.

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Mbombela overview Concerns have been voiced that the revival of agriculture in the area –mainly the farming of avocados , macadamia nuts and soft citrus, all of which use large quantities of water – together with the high population growth over the past 20 years and the fact that there hasn’t been a significant upgrade to the bulk water infrastructure, will create problems in the future. Alongside these concerns, there is also the significant number of buildings that fall outside of the municipal boundaries. These buildings tap into services – both electricity and water – illegally, further exacerbating the municipality’s ability to increase its tax and ratepayer base, and to collect its dues.

Property not delivering on yield “It was not that long ago that yields on property were in the region of 16%,” Keith Kellar pointed out. “Today, we’d be happy to get 7% or 8%. For a developer to start to think about breaking ground, they have to consider the BSC carefully. They have to ask whether the potential tenant can afford the cost being passed onto them – and the short answer is no.”

It is clear that rental rates haven’t caught up with land rates. Where the average ask is in the region of R75/m2, industrial rentals are not getting anywhere near that.

So while there is land available, the high rate requirements are keeping investors and developers out of the market.

Another issue holding back growth, according to Craig McFadyen, is a change in thinking. “Tenants are pushing back on rentals and escalations, and many landlords are lowering their commissions,” he said. “Add that to the lower 7% yields, and it’s no wonder that the property industry is slowing. But instead of developing new properties, we are seeing some movement in buildings being refurbished.”

Another issue holding back growth back, according to Craig McFadyen, is a change in thinking. “Tenants are pushing back on rentals and escalations, and many landlords are lowering their commissions. Add that to the lower 7% yields, and it’s no wonder that the property industry is slowing.

Great lifestyle On a positive note, Mbombela has an attractive lifestyle offering, and Walker believes that there is scope for higher-density, gated residential complexes.

However, affordability is key. With the development of the Regional High Court and an expansion of medical facilities, a number of professionals have relocated to the city – which means that the service offering in Mbombela is expanding, and there’s no longer a need to seek those services in neighbouring Gauteng.

CIDs: a way to safeguard tax and rate bases In a Zoom meeting, Aling, who is now the Managing Director of Spaces Places & Partnerships (SP&P), told us that Mbombela’s three CIDs – the Nelspruit Central City Improvement District (a 13-hectare CBD under the leadership of TJ Marais), and the two Riverside Park and Riverside Industrial CIDs managed by SP&P – are trying to work with the municipality to ensure sustainable operation and growth in the city and broader municipal area.

“We need to get the municipality to update the CID bylaw,” he said. “In so doing, we as the Mbombela CID Forum have completed the first review of the by-law, and have set out a number of best-practice guidelines.

“Generally, people who buy into the CIDs appreciate the value of well-managed precincts and public spaces. We are also getting traction and increased awareness of CIDs, since starting discussions with folks in Barberton, Hazyview, Malelane and Komatipoort.

“Each community is different. Even though legislation says you need 50+1% to establish a CID, we aim for two-thirds majority, so that we can build trust and respect. This is extremely important, given the collective and collaborative nature SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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Mbombela overview

“Not to be controversial, but broken municipalities can really benefit from this kind of partnership with the private sector – something that President Ramaphosa alluded to in his recent State of the Nation address.”

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of CIDs and the partnership with the city, which protect and enhance land values and thus protect and enhance the rates base of the city and/or town.

“Not to be controversial, but broken municipalities can really benefit from this kind of partnership with the private sector – something that President Ramaphosa alluded to in his recent State of the Nation address.

“Municipalities need to be asking how they can increase their rates base. CIDs help by protecting that base. By having well-managed city areas, a successfully operating CID will see the value of properties within its precincts appreciate.”

University brings opportunities “The University of Mpumalanga is growing significantly,” said Aling. “Not only has it expanded its curriculum offering, it has also invested significantly in infrastructure and buildings as the campus gets developed. I believe it is a real economic driver, bringing its own energy to the city. Students bring life and capital, and the university provides employment.”

There are studies and research that validate this, the latest being a paper by Dyason, Rossouw and Kleynhans on the “Economic Impact of a University Campus”, published in the South African Journal of Economic and Management Sciences in 2019.

Student accommodation is a potential area for growth. The university has been operational for about six years, and has invested close to R3-billion in developing its infrastructure and facilities. It is aiming to accommodate up to 60% of its students on campus. At the moment, 3 500 students are enrolled; the university wants to grow this number to between 15 000 and 20 000.

Walker mentioned that students who are reliant on NSFAS funding typically do not receive sufficient funds to make the development of large-scale student accommodation facilities feasible. The opportunities for development of student accommodation will most likely unlock as the university grows its numbers, with a mix of private and NSFAS funded students.

To overcome the immediate shortage of student accommodation, the municipality has created a student accommodation policy that allows for houses and flats to be modified to accommodate students. However, there are concerns about health and social problems that may arise from such living conditions if not closely monitored.

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Mbombela overview The City of Mbombela Local Municipality was established by the amalgamation of Mbombela Local Municipality and Umjindi Local Municipality on 3 August 2016. It is part of Ehlanzeni District Municipality.

Mbombela (previously Nelspruit) is the capital of Mpumalanga. Loosely translated, the Siswati word means “a lot of people together in a small space”. The city serves as a gateway to some of the best eco- and adventure activities in southern Africa and, with its moderate climate, is a preferred tourist destination all year round.

Its subtropical fruit – mangoes, avocados, oranges, lemons, litchis and bananas – as well as macadamia nuts are a huge drawcard for visitors.

In springtime, the blossoms of the

Halls Properties: Keeping a finger on Mbombela’s pulse Halls Properties Development Manager Sabine Walker gave us a landowner’s perspective.

In terms of commercial property, Halls Properties – in line with national trends – has seen a slowdown in development. “This is hardly surprising,” said Walker, “and it was

orange trees can be smelt from kilometres away.

For shopping enthusiasts, the

expected in the context of the current economic climate, as well as the maturing of the

city offers world-class shopping

Riverside Precinct.

malls, casinos and entertainment

“While there has been a commercial slowdown, it is affording us an opportunity for residential development. Urbanisation is happening, and will continue at a rapid pace.

“We have seen a significant shift in demand from typical standalone residential homes

venues, with many travellers from Mozambique making Mbombela an essential destination. This creates

to smaller, more affordable residences. The housing typography is changing, with greater

excellent opportunities for prospective

demand for higher-density apartment living in the R750 000 to R1.3-million range. In

investors and businesses to establish

Riverside Precinct, we have seen the Curro Group adapt its criteria to accommodate this,

themselves in the area, and to take

with a Curro Academy opening directly across from a significant residential development

advantage of economic sectors such

opportunity. Halls Properties is in the fortunate position of having prime land opposite

as finance and business services,

the school that has already been zoned for 80 dwelling units per hectare. We believe the

manufacturing, government services,

way forward in Mbombela at this time is largely in the residential space.

community services, trade, transport

“Apart from the residential development opportunities that have been created in the

and communications, agriculture,

precinct, we have land earmarked for health and hospital development and warehouse

construction, mining and tourism.

and value-retail development, as well as ongoing mixed-use development opportunities

Covering an area of 7 141km²,

for specialised retail and hotel development – which, when it comes to market, will bring

the province is home to Barberton,

a significant contribution to the city’s economy.

Emoyeni, Entokozweni, Hazyview,

“Halls Properties has a diverse portfolio and a depth of knowledge when it comes to

Kaapschehoop, Kabokweni,

the property sector. Because we have a long and solid foundation with the municipality,

Kanyamazane, Luphisi, Matsulu,

we are able work in partnership with them to achieve prosperity for the city. At Halls

Mbombela, Mpakeni, Msogwaba,

Properties we don’t undertake top-structure development. Our role is one of land

Ngodwana, Skukuza, Tekwane

manufacturing, whereby we secure the necessary town planning approvals, and service

and White River.

land to facilitate development by developers in the residential and commercial space, ensuring that we ourselves never compete with developers in the precinct.

“We’ve been fortunate that developers who have taken up development opportunities in the precinct have a sound understanding of the advantages of being part of a managed CID. They appreciate the benefits. The success of the Riverside Precinct is testament to the foresight of Halls’ leadership, a quarter of a century ago, who understood the importance of mixed-use developments and precincts that are properly managed.”

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Polokwane overview

Polokwane: No water, no play April 2019 saw me head off to Polokwane to get a better understanding of the malaise being caused by continued issues with water delivery. Recently, Property Review took to cyberspace and the good old telephone to find out what, if anything, has improved in the past year. We zoomed in on SAPOA’s Polokwane Regional Chairman Paul Altenroxel, SAPOA’s “resident” town planner Jaco du Plessis, Franco Marx of Franco Marx Attorneys, DA council member Frank Haas and young entrepreneur Zeus Maboho

By Mark Pettipher To read last year’s roundup, go to bit.ly/2UgcVQx

P

icking up from where we left off last year, my first Zoom landing was Paul Altenroxel. He got straight to the point: Polokwane is in crisis. “Water is the life blood of the city, and we’re on the brink of seriously running short,” he said. “I can say this with certainty, as from where I’m sitting, I overlook the Ebenezer Dam. It looks like it’s at about 26% of capacity, and we’re at the end of our rainy season (typically January through March).

“Polokwane’s water crisis is a man-made disaster – a combination of a number of events, starting with unfinished work on the Tzaneen Dam. Work had been initiated on the dam wall, to heighten it, but the contractors have since abandoned the project, leaving the dam only capable of holding 60% of its capacity. Today, the level is reported to be at 7.2%.”

Altenroxel is deeply concerned that few dams have been built in the past 30 years, and that the rapid increase in human habitation of the urban edge, coupled with lack of financing and maintenance of existing infrastructure, will continue to strain an already stretched municipality.

In a recent Polokwane Review newspaper article dated 4–10 March, Nelie Erasmus reports as follows: “The city now receives less than half of the usual supply of bulk water needed for normal water usage, as further restrictions were imposed upon Lepelle Northern Water’s extraction from the Olifantspoort and Ebenezer Dam by the Department of Water and Sanitation in January.” The article echoes Altenroxel’s concern that, “if heavy rains do not

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Polokwane overview augment the Ebenezer dam’s level considerably, Polokwane will not be able to receive any water from the dam by July.”

In the same article, Erasmus writes that the volume of bulk water received from the two schemes (Ebenezer and Olifantspoort) has been reduced from a combined total of 66ML/ day to 52 ML/day. (They should deliver 71ML/day as contracted, to service the city, Seshego, Mankweng and rural areas.)

A restriction of 20% of water extraction from Ebenezer and Olifantspoort was announced last year by the Minister of Water Affairs. A further restriction of 15% extraction of water from the Ebenezer Dam followed in January this year. To add to the calamity, some of the Ebenezer Dam’s water was released to the Tzaneen Dam to keep the dam above 4%.

In our conversation, Jaco du Plessis alluded to a July 2019 quarterly SAPOA Town Planning Report, where he reported that the Minister of Water and Sanitation visited the city on invitation of Mayor Thembi Nkadimeng. The purpose of the invitation was to inform the Minister of the dire water and sanitation situation. Presentations were made by the Polokwane Municipality and Lepelle Northern Water, covering the following: ● The municipality is fully aware of the severe socioeconomic impacts of the persistent and significant water deficit in Polokwane municipality, due to a number of factors: ● Insufficient bulk supply and flow of water within the city itself; ● Bulk supply and distribution of water in rural areas; ● The old and inadequate infrastructure of the three main sources of water supply to the municipality (Dap Naude, Ebenezer and Olifantspoort Schemes) in terms of capacity; ● More water being extracted from Ebenezer Dam than the water licence permits, and no time for maintenance due to high water demand; ● Groundwater development needing to be improved and fully utilised; ● The present water demand of the city being much higher than the combined bulk water supply from these three schemes. ● The municipality established the water supply challenges for urban and rural areas, determined solutions and planned and prepared short-term as well as medium- and long-term interventions to address the challenges. ● There is a need to invest ±R450-million over the next 18 months to develop groundwater for urban areas to relieve the most pressing urban source water needs, and ±R90-million is needed to explore, determine and start with the development of groundwater sources for rural areas.

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Polokwane overview

The Polokwane municipality needs to invest approximately R540-million in the next 18 months to develop groundwater for urban use, and explore and determine groundwater sources in rural areas.

● Lepelle Northern Water (LNW) requires a budget of approximately R3-billion for the immediate upgrading of the Olifants-Sand Regional Water Scheme (RWS). ● R700-million is required by LNW for the immediate upgrading of Ebenezer RWS. ● In the long term, LNW will require an estimated R11-billion to upgrade all bulk infrastructure conveying water to Polokwane urban and rural areas. ● Latest studies show that to bring water from De-Hoop Dam (±35km southwest of Steelpoort) to the municipality requires a budget of more than R14-billion. ● With the current available licence for water abstraction from Olifantspoort and Ebenezer, LNW must spend approximately R3-billion to upgrade the infrastructure to convey an additional 30-40ML/day to Polokwane. ● For both rural and urban areas, groundwater development was found to offer the best option for immediate/short-term development.

The following short-term solutions are being addressed: Identification and exploration of all bulk groundwater resources within the boundaries of the city have been completed as part of the first phase of the Water Master Plan. Condition assessment of existing groundwater systems within the city boundaries in terms of their stage of functioning and their adequacy is complete. A thorough yield analysis of all the existing and newly identified bulk groundwater supply resources has been done, and additional boreholes have been drilled. The municipality is ready to request tenders for the following remedial measures (estimated to cost between R400-million and R450-million, with construction duration estimated at 18 months): ● Reconfiguring the infrastructure associated with the existing groundwater systems and the ones to be developed, to cater for an integrated surface and groundwater system. ● Equipping, repairing, upgrading and treating of all existing and new groundwater resources.

The order of magnitude of the additional water that these groundwater resources will bring to the city during peak demand periods is about 30ML/day. This is close to 25% of the current water use in the city.

The following medium-term solutions have been identified, and are being addressed with the relevant stakeholders: The planned reclamation plant for effluent at the Regional Waste Water Treatment Works when constructed has been finalised. Initiatives are undertaken to increase the supply from Dap Naude and Seshego WTW up to 6ML/day.

The following long-term solutions have been identified: Engaging with LNW to secure the budget to upgrade certain sections of the Olifantspoort and Ebenezer systems would bring an additional 25-30ML/day of water to town at an estimated cost of R3.1-billion.

As part of the long-term plans, the municipality will continue its negotiations with the Department of Water and Sanitation to finalise the pipeline from De-Hoop Dam to Polokwane (which was initiated in 2012) as well as the final upgrading of the Ebenezer and Olifantspoort systems.

Summary with respect to surface water augmentation for urban and rural areas The municipality needs to invest approximately R540-million in the next 18 months to develop groundwater for urban use, and explore and determine groundwater sources in rural areas. Lepelle Northern Water requires a budget of approximately R3-billion for the immediate upgrading of the Olifants-Sand RWS to supply an additional 30ML/day to Polokwane. A budget of R700-million is also required by LNW for the immediate upgrading of Ebenezer RWS infrastructure to supply an additional 18ML/day to Polokwane.

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Polokwane overview As part of the long-term interventions, LNW will require an additional estimated R11billion to upgrade the required bulk infrastructure conveying potable water to Polokwane.

Lepelle Northern Water summary ● R3-billion is needed for Ebenezer upgrade to supply Polokwane. If villages along the pipeline are included, R11-billion is required. ● In terms of the Olifantspoort scheme, LNW has a water licence to extract 90ML/day.

Water works can only handle 62ML/day; this needs to be upgraded. ● R11-billion is needed for Olifantspoort upgrades. ● The upgrading of Olifantspoort to increase the plant’s capacity from 62ML/day to 150ML/ day is still in the planning phase.

In short, the presentations did not provide any new information regarding the water crisis.

They did, however, paint a clear picture to the Minister that Polokwane has a serious water crisis, with serious economic and social implications.

In the same report, Du Plessis writes, “The water supply to Polokwane City remains a crisis.” The Polokwane Review (22 January) reports that water supply to especially the higherlying parts of the city was interrupted again due to low reservoir levels. The reason provided by the Polokwane Municipality was “low reservoir levels”. The areas included Ster Park, Flora Park, Eduan Park, Serala View, Moregloed, Lethuli Park, Madiba Park and Seshego. A public notice issued by the Polokwane Municipality stated that water supply would be restored once reservoir levels improve. It was reported on a WhatsApp group that some households were without water for up to seven days after the weekend.

Police had to disperse angry crowds after residents of Flora Park took to the streets on 27 January 2020 to get the attention of the Mayor regarding a lack of service delivery in the area. The Polokwane Review (29 January) reports that residents said they are fed up with intermittent water supply for the past four years. They also complained about the inadequate supply of water from water tankers.

The levels of main supply dams to the city, according to figures released by the Department of Water and Sanitation, are as follows: ● Dap Naude Dam: 80.9% (88.3% previous year) ● Ebenezer Dam: 23.3% (65.3% previous year) ● Flag Boshielo Dam (Olifants Scheme): 109.5%

Statement by the Mayor regarding water supply The Polokwane Review (29 January) reports that the Mayor admitted during an ANC meeting on 23 January 2020 that the municipality had failed to plan properly in terms of the city’s growing population, and that getting water to the city is a major challenge. She said that “the pipeline that gets water to the city was built in 1978. Pipe bursts often disrupt the supply for three days and longer. When it rains heavily, it disrupts operations at the Olifantspoort pump station, which then cannot pump due to turbidity of the water.” She further stated: ● Pipelines from the Flag Boshielo Dam were approved in 2012, but have not been constructed yet; ● “The news is not good. We are all going to get water from tankers”; ● Strategic planning with regard to water and roads in the municipal area is incredibly important, and developers wishing to develop new areas would be required to pay a development levy; ● The city currently has 67 boreholes. More are needed, but boreholes remain an unreliable temporary solution; ● Residents who have boreholes will be restricted from using these, and soon – no-one will be allowed to drill for water in the city;

Mayor Thembi Nkadimeng admitted during an ANC meeting on 23 January 2020 that the municipality had failed to plan properly in terms of the city’s growing population, and that getting water to the city is a major challenge.

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Polokwane overview ● A commitment was made to start collecting revenue for services in Mankweng – this would be done “even if we have to hire Casspirs to collect it”; ● With regards to the many property owners in Mankweng who do not pay their dues, “We will terminate their services.”

The Polokwane Review reported an explanation as to why Mankweng property owners do not pay for their services, including electricity: “The municipality is not legally in a position to take Mankweng residents to court over unpaid municipal services.

“In a council meeting in March, members heard that properties in Mankweng were still – incredibly so – registered under the old Republic of South Africa system, and had not yet been registered in the name of the municipality (or the date of registration was not known to the municipality). The result is that the municipality does not know whether to debit, and from when the debit for services dates. What is more, the city couldn’t say whether the area has ever been ‘donated’ or registered to formally fall under the Polokwane Municipality.”

We asked Du Plessis for a town planner’s perspective on the Mayor’s statement. “I’m not sure where this issue of ‘had not been registered in the name of the municipality yet’ is coming from,” he said. “Ownership of properties in the proclaimed Proclamation 293 townships of Mankweng (Seshego is also a Proclamation 293 township) is held under Deeds of Grant that are registered in property owners’ names in the deeds office. These properties will not and cannot be transferred to the municipality.

“Ownership of sites in the rural villages outside proclaimed townships is held in Permission to Occupy (PTO) certificates issued in terms of the Land Regulations of 1969 (Proclamation No. R188 of 1969). These PTOs will over time be upgraded to full ownership (title deeds).

This process will take years to complete.

“Some traditional authorities are against the upgrading of PTOs, for obvious reasons – i.e. they fear that they will lose control over their subjects. Almost all tribal land in Limpopo is owned by the state and held in trust for specific traditional communities.

“The Department of Rural Development and Land Reform (DRDLR) controls traditional land. The DRDLR is in the process of transferring the urban component of the land to the relevant local authorities for administration of service delivery and land use control purposes. The DRDLR only wants to control the non-urban component of tribal land. The outer figures of land on which rural villages are located will be surveyed, and these farm portions will be transferred to the respective local authorities. The local authorities will technically own the ‘underlying’ land, as the sites in the villages are not surveyed and not registrable in a deeds office.

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Polokwane overview “The Polokwane Municipality will not, however, become the owner of rural residential and business sites, as these properties are owned by people in terms of informal land rights (PTO). Despite this, I’m still not convinced that the Polokwane Municipality cannot do cost recovery for services rendered in such rural, unproclaimed areas.”

To get a legal take on the newspaper article, we contacted local lawyer Franco Marx.

“We all understand that an owner of a property must pay rates and taxes according to the property’s zoning category,” he said. “We are talking specifically about Mankweng, and a farm known as Syferkuil, on which some of the stands are situated. If the argument is that the Republic of South Africa owns the farm, then the Republic must pay rates to the municipality – either residential rates, or rates under properties owned for public service purposes.

“I’ve explained in Council that the resident in possession of the PTO is in a similar position as a tenant in a sectional title complex in town. If the tenant uses water and electricity, he must pay for his consumption. Same with the PTO occupant: he must pay for his consumption. The fact that the occupant is not the owner cannot be the reason for not paying for consumption.

“If the municipality insists that they cannot collect consumption charges from Mankweng PTO occupants, the solution is easy – because obviously there is no obligation to supply those occupants with water and electricity.”

“Non-payment for services as a result of an incorrect account or old debit is also not a valid excuse. Section 102(2) of the Municipal Systems Act, read with our Debt Collection By-Law and policy, allows for a dispute procedure to be followed. Therefore if I’m a resident who alleges that my account is wrong, there is an obligation on me to follow the procedure to dispute it.

“From a councillor’s viewpoint, both Frank Haas and I have petitioned the municipality to take action. Considering that the municipality needs funds to carry out maintenance and further upgrades, it is difficult to fathom why they have recently scrapped surcharges.

“Furthermore, in Polokwane and Seshego – where people actually pay for their services – the municipality enforces penalties, and even cuts residents off illegally, without notice.

Clearly the municipality is using good paying areas to make up for Mankweng, which is not a paying area.”

We also spoke to DA councillor Frank Haas, who told us that there’s a need “to differentiate between the city (formerly Pietersburg) – which includes Seshego – and the outlying areas of Mankweng. The city relies on mains water, whereas the outlying areas are mainly served by borehole. The city needs a minimum of 99ML/day and only receives 69.4ML/day – and that’s if everything runs at 100%, which is often not the case.

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Polokwane overview “While there are plans to upgrade the Olifants line, this will only alleviate the problem in the short term.

The plans need to better take into account the increased population growth; if taken at face value, these initial plans mean that the solution will still remain unsustainable.

“But it’s not all doom and gloom. The new City Manager, Dikgape Makobe, has been making headway within the city, and is doing a good job.

Had we had him in place 10 years ago, we would not be in the crisis we find ourselves in now.”

It is a sentiment with which both Du Plessis and Altenroxel agree.

In last year’s Property Review article, we touched on the issues with the Polokwane Wastewater Treatment Works, and that it was being upgraded.

According to Haas, this is still on track.

Both Haas and Altenroxel are advocates of developing water recycling, but are painfully aware of the time and money needed to set up such a plant. Both also mentioned that whenever long-term projects that go beyond a five-year period are approved and initiated, they tend to get hampered by municipal management changes and a lack of continuity.

This, of course, is not unique to Polokwane.

Last year, I saw first-hand the illegal use of land in the area. According to Haas, there has been an escalation, further exacerbating the city’s predicament of not being able to enlarge its tax and rates-paying base. Haas is of the opinion that “there is no excuse for people not to be paying for the services the city provides”. He also points out that the Polokwane district “has the highest allocation in South Africa towards the indigent population”.

From conversations with Altenroxel, Haas, Marx and Du Plessis, it would appear that city officials and the national government are aware of the looming crisis, but lethargy and stunted financial support, poor policy clarity, and a lack of implementation of sound plans are the main causes of the city’s predicament.

A year down the line, there has been a partial lifting of the building moratorium, but it seems the only difference is that, where before developers and town planners could not even submit applications, now they can. The process stops with the approval of such applications – and developers cannot submit building plans before the moratorium is fully lifted.

Du Plessis believes that Polokwane is probably 18 months away from the lifting of the moratorium. However, whenever it may come, without water the city will still be unable to get developments out of the ground.

Entrepreneur frustration Young entrepreneur Zeus Maboho bought a car cleaning and maintenance franchise about 18 months ago. He needs to get his business off the ground, but is being frustrated by delays in municipal approvals. It seems that he is falling into grey areas within the moratorium – or, at the very least, experiencing a lack of clarity on procedure.

“We identified two sites for the franchise, one near the mall and another in an existing building,” he told us. “The site near the mall needs to have the premises built, and has zoning consent; the second is a car showroom – so all we need to do is modify the building to adhere to the franchise specifications, and renovate it to take into consideration certain environmental requirements, such as increasing the size of grease traps. This site has zoning in place; all we want from the municipality is a change of use from sales to maintenance.”

40

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

Polokwane overview Maboho said that the application for the second site has been in with the municipality for more than eight months. It would appear that the municipality is holding up plans and approvals on technicalities – and not offering any clarity as to what those technicalities are so that issues can be resolved.

“The issue here is that we’ve spent capital to purchase the franchise,” says Maboho.

“We’ve developed a business plan that shows potential employment for 59 people (something that is sorely needed in Polokwane), all with an expected return on investment that should have started by now. Sixty-seven percent of the capital to finance the franchise came from my existing business; the remainder came from an extension of a bond, so from a bank. Now we have to repay the bond without any income to cover it.”

There is an outgoing of knowledge in Polokwane, and it is evident the city is experiencing its own “brain drain”. People with the means to leave are doing just that. Could Maboho soon be following suit?

In an article published on Fin24 on 20 February 2020, Lameez Omarjee writes: Municipalities can’t pay up because they’re not being paid, MPs hear The debt owed to municipalities far outweighs the debt municipalities owe to Eskom and water boards, members of Parliament heard on Tuesday.

Thembi Nkadimeng, president of the South African Local Government Association (SALGA) on Wednesday addressed MPs during a debate on President Cyril Ramaphosa’s State of the Nation address. In his address, Ramaphosa announced that government would allow municipalities in financial good standing to procure power from independent power producers.

SALGA represents 257 local governments. Commenting on the financial position of municipalities, Nkadimeng noted that R25-billion and R14-billion is owed to Eskom and water boards, respectively, and that they are threatened with disconnections from these entities for failure to pay. Municipalities, in turn, are owed close to R170-billion by households, businesses and government for services rendered.

Households account for the majority of the debt – R120-billion – followed by businesses, which owe R25-billion, and government, which owes R10-billion. “It is evident that there’s a clear link between ability of municipalities to pay debt – including that owed to Eskom and water boards – with the inability of municipalities to collect revenue from government, business and households for the services we deliver,” said Nkadimeng. ”The situation is becoming untenable for municipalities, constantly threatened with disconnections by Eskom and water boards.” SALGA has recommended that municipalities “aggressively and on an ongoing basis” use credit control measures – such as targeting government properties and businesses with disconnection if there is sufficient merit to do so, and if it is in line with credit control policies, she said. “It is not right for government and business to owe municipalities and not pay bills,” Nkadimeng emphasised.

Secondly, SALGA has recommended that a “rigorous analysis” on debt be conducted, and smart meters be installed to ensure the payment of electricity. Speaking to members of the standing committee on public accounts on Tuesday, Eskom CEO Andre de Ruyter said that the power utility was disconnecting power from areas where payment is between 0% and 30%. He said Eskom could not afford to supply electricity at no charge. “When a service is supplied, a payment must be made,” De Ruyter said.

m.fin24.com/Economy/South-Africa/municipalities-cant-pay-up-because-theyre-not-being-paid-mps-hear-20200220-2

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Polokwane overview FEBRUARY

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Click on cutting to read full articles SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

The SAPOA Journalism Awards for Excellence recognises and honours South African property journalists who have made a noteworthy contribution to the commercial and industrial property industry through quality media coverage of the property industry.

Nominees and winners will be announced at the 2020 SAPOA Annual Convention & Property Networking taking place from 09-11 December 2020 at SUN CITY.

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rethinking LED

What the cities say about LED Rethinking LED: “Local Policy aspects LED is an ambiguous concept South Africa’s history of colonialism and apartheid necessitates a specific approach Economic Development” to economic development. The national government emphasises the need for inclusive in Intermediate Cities is economic growth, to broaden participation in the mainstream economy, which the latest volume in a series requires strategic responses from local governments. However, research conducted of exploratory studies on the in South Africa’s metros found that “inclusive economic development is often not “differentiated approach to clearly articulated” (SACN and SALGA, 2016: 7), which is also the case in intermediate governance” focusing on Three cities, Mangaung, Sol Plaatje and Rustenburg, participated theeasy workshop.

The“economic fourth cities. Defining inclusive economic growth isinnot because development intermediate cities, by thecity,South Matjhabeng, was unable to participate, but some comparison to this city is included in the is a complex concept” (ibid: 47) and because of the division between pro-growth and Rustenburg profile.

African Cities Network (SACN)

31

Three Municipal LED Case Studies

pro-poor economic development approaches in South Africa. For most municipalities, the LED focus appears to be almost exclusively on the pro-poor, not private-sectororiented, nature of economic development (Hofisi et al., 2013).

We extend our thanks to the South African Cities Network for the following extracts. SACN 2019. Rethinking LED: “Local Economic Development” in Intermediate Cities. Johannesburg: South African Cities Network. Available online at sacities.net.

ISBN: 978-0-6399215-6-3 © 2019 by South African Cities Network.

Rethinking LED: “Local Economic Development” in Intermediate Cities is made available under a Creative Commons AttributionNonCommercial-ShareAlike 4.0 International Licence.

Mangaung, is a Category A or metropolitan municipality, and its main urban centre is Bloemfontein.

It has a population of 800 000 and an average population growth of 1.5% per year (1996–2016).

1848

Bloemfontein is established as a trading post.

1910

Bloemfontein becomes capital of the Orange Free State Province (from 1994, the Free State Province).

1948– 1994

Bloemfontein is the judicial capital of South Africa and seat of the Supreme Court of Appeal.

1968: black people moved to Thaba Nchu.

1978: all Sesotho-speaking people moved to Botshabelo, and all Setswana people moved to Thaba Nchu.

2001

44

Bloemfontein, Botshabelo and Thaba Nchu amalgamated to form Mangaung Local Municipality.

Participants recognised the danger of focusing only on pro-poor LED: “Our understanding is that LED must make sure that there are some backyard gardens … not realising that we are dealing with the mainstream economy.”

There is also uncertainty around the extent to which the LED unit should “facilitate” or “run multiple projects in different categories at the same time”. However, most participants agreed that LED should focus on redistribution and ensuring that local

MANGAUNG

MANGAUNG

Main economic function

International economic links are limited, Today, Mangaung continues to focus but national economic links include the on trade and government. As the main Supreme Court of Appeal, numerous urbaneconomic centre in thefunction Free State and central sports teams that represent the city, Main SouthMangaung Africa, the city has expanded quality sports infrastructure and a small Today, continues to focus on tradeits and government.

As the main urban centreservices in the Freefunction State and central the city has expanded regional acrossSouth theAfrica, manufacturing industry. its regional services function across the province, into neighbouring province, into neighbouring provinces Between 1993 and 2008, Mangaung’s provinces and even into Lesotho. It is home to higher-order trading spaces, and even into Lesotho. economy grew by an average of 3.4% an airport, two universities and a Further Education and Training college, numerous boarding schools, some private and public hospitals, and the between 2008 and It is home to higher-order trading per year. However, regional offices of financial institutions. International economic links are spaces, an airport, two universities and 2015, the growth rate dropped to an limited, but national economic links include the Supreme Court of Appeal, a Furthersports Education average 1.7% per year. During the same numerous teamsand that Training represent college, the city, quality sportsofinfrastructure and a small manufacturing numerous boarding industry. schools, some period, Bloemfontein (the economic core private and public hospitals, and the of the municipality) saw its economy regional offices of financial institutions. grow by 2.3% per year.

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020 22 RETHINKING LED: “LOCAL ECONOMIC DEVELOPMENT” IN INTERMEDIATE CITIES

rethinking LED procurement takes place. Types of support include access to preferential procurement based on municipal policy guidelines for local procurements, working with Seda offices, direct municipal interventions, and linking small and larger enterprises (e.g.

Rustenburg links waste-pickers with formal enterprises in the recycling industry).

The link between economic development and municipal revenues was made: “An investment into LED is actually an economic spin-off; it will be an indirect investment to the municipality regarding revenues that one will be able to collect.

However, the thinking around how the economic development function integrates with other municipal functions was limited. The best link was the one with spatial planning, while integration with engineering services and budget forecasts was not evident.

Participants provided many practical examples of what LED entails, reinforcing the notion that LED is an ambiguous concept. Examples mentioned included: ● Facilitating community and social projects ● Diversifying and stimulating the economy ● Replacing mining ● Providing an adequate investment environment ● Attracting or promoting investment ● Using land to stimulate economic development ● Creating jobs and skills

The economy FIGURE 4: Annual economic growth per sector (1994–2015) 40 30 20 10 0 -20

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

-20 -30

Between 1 economy year. How the growth 1.7% per ye Bloemfont municipali 2.3% per y

-40

This decline is the result of losing a large The economy portion of the textile industry due to FIGURE 4: Annual economic growth per sector (1994–2015) lower import tariffs on textiles, and 40 the phasing out of the decentralisation 30 20 subsidies of the apartheid government.

10 The manufacturing industry mainly 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 -20 serves local and regional markets.

The primary sector (mainly agriculture) remains relatively small (less than 2%) and extremely volatile, but has expanded during the period under consideration.

The secondary sector’s contribution to the economy has declined, from 18% of the economy in 1997 to 14% in 2015.

-20 -30

The economy

Primary Sector

FIGURE 4: Annual economic growth per sector (1994–2015) 40 30 20 10 0 -20

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

-20 -30

0

Primary Sector

Secondary Sector

Secondary Sector

Tertiary Sector

FIGURE 5: Economic growth (1993–2015) – 1993 = 100% Between 1993 and 2008, Mangaung’s 350 economy grew by an average of 3.4% per 300 year.

However, between 2008 and 2015, 250 the growth rate dropped to an average of 200 1.7% per year. During the same period, 150 Bloemfontein (the economic core of the 100 municipality) saw its economy grow by 50 per year.

2.3%

-40

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

The primary sector (mainly agriculture) Primary Sector Secondary Sector Tertiary Sector Total remains small (less than 2%) and extremely volatile, but has expanded during the period FIGURE 6: Percentage share of primary, secondary and tertiary under consideration. sectors (1993–2015)

Tertiary Sector

FIGURE 5: Economic growth (1993–2015) – 1993 = 100%

municipality) saw its economy grow by 50 2.3%0 per year.

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

-40

The economy

Primary Sector Sector Sector As can be seenSecondary below, theTertiarytertiary sector contributes more than 80% of FIGURE 5: Economic growth (1993–2015) – 1993 = 100% the local economy – reaching nearly 350 Between 1993 and 2008, Mangaung’s 300 85% 2015. consistently economyin grew by anThe average of 3.4% per expanding 250 However, between 2008 and 2015, year. regional services function is largely the200growth rate dropped to an average of responsible for the growth in the 150per year. During the same period, 1.7% Bloemfontein (the economic core of the 100 tertiary sector.

Primary Sector (mainly Secondary Sector Tertiary Sector Total The primary sector agriculture) remains small (less than 2%) and extremely volatile, expanded the secondary period and tertiary FIGUREbut 6: has Percentage shareduring of primary, under consideration. sectors (1993–2015) 90

The80secondary sector’s contribution to the 70 economy has declined, from 18% of the 60 economy in 1997 to 14% in 2015. This decline 50 is the result of losing a large portion of the 40 textile industry due to lower import tariffs 30 on textiles and the phasing out of the 20 decentralisation subsidies of the apartheid 10 government.

The manufacturing industry 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 mainly serves local and regional markets.

Primary Sector

Secondary Sector

The prima remains sm volatile, bu under con

The secon economy economy is the resu textile ind on textiles decentrali governme mainly ser

The tertiar of the loca in 2015. Th function is in the terti

11 12 13 14 15

Tertiary Sector

The tertiary sector contributes over 80% of the local economy – reaching nearly 85% 300 in 2015.

The expanding regional services Economic development planning The90secondary sector’s contribution to the 80 250 function is largely responsible for the growth Theback current Economic Development Directorate economyishas declined, from 18%economic of the The current Economic Development Directorate small, and the strategy dates more than 15 years.

There isis small, veryand the eco 70 in the tertiary sector.

200 15 years ago.

There is very little integration of economic thinking into t economy in 1997 to 14% in 2015. This decline 350

Economic development planning

60 other municipal functions. The city has invested heavily in the creation of industrial little integration of economic thinking into isthe 150 has invested heavily in the creation of industrial stands near the airpo the 50 result of losing a large portion of the the Kimberley road to the west of the city. textile import tariffs stands near the airport, and mixed land-use development on the Kimberley road to the on west of the city.

100 40 industry due to lower

50 0

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Primary Sector

Secondary Sector

Tertiary Sector

Total

on textiles and the phasing out of the 30 20 decentralisation subsidies of the apartheid 10 government.

The manufacturing industry 0 mainly93serves and 94 95 96 local 97 98 99 00 regional 01 02 03 04 markets.

05 06 07 08 09 Primary Sector

Secondary Sector

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

10 11 12 13 14 15

Tertiary Sector

45

rethinking LED ● Increasing municipal income ● Working with the private sector ● Supporting the informal economy and small entrepreneurs ● Creating links between emerging and established entrepreneurs ● Delivering basic services ● Addressing existing inequalities and poverty ● Raising incomes.

“There is silence from national [government] with regards to policy direction for economic development, for addressing challenges like the ones that Rustenburg is facing, making sure that there are things that are put in place, practical solutions to problems.”

National government is not helping The national response is characterised by silence, with “emails on emails, on emails” going unanswered, as one participant said. Even when a response is needed, such as in the case of mine downscaling, none is forthcoming.

“There is silence from national [government] with regards to policy direction for economic development, for addressing challenges like the ones that Rustenburg is facing, making sure that there are things that are put in place, practical solutions to problems.”

Furthermore, decisions taken at national level can result in numerous constraints at local government level. “…because the national government controls the macroeconomy, and if you have a national government that takes certain decisions and Eskom cannot provide energy because there was no appetite to this capacity … and then those are serious constraints that the municipality needs to make the best of the situation.

“Moreover, essentially what is happening at the present moment is obviously [what] the country is going through… It’s not good. There’s a lot of uncertainty; the investors are holding on to huge reserves, and all we can do is to get the basics right from [the] municipal point of view and ensure there’s coordination between what municipalities and national government do.”

RUSTENBURG Originally a regional services town providing services to the surrounding agricultural communities, Rustenburg is the heart of platinum mining.

It has a population of well over 600 000 and an average population growth of 3.6% per year (1996–2016).

There is a perception that national (and provincial) government reacts too late, “once the damage has been done”, and local politicians and officials

RUSTENBURG 1930s

Platinum is discovered.

1960s

Relatively large-scale mining operations begin.

1990s

2012/ 2013

Big mining boom after European countries and the USA commit to reducing CO2 emissions from vehicles, which created a huge market for catalytic convertors made from platinum. Previously, platinum had mostly been used for commercial jewellery and the construction industry. Platinum became the new gold.

Marikana massacre and strike by miners

Originally a regional services town providing services to the surrounding agricultural communities, Rustenburg is the heart of platinum mining.

It has a population of well over 600 000 and an average population growth of 3.6% per year (1996–2016).

1930s

Platinum is discovered.

Relatively large-scale mining Main economic function operations begin.

1960s

Main economic function

Rustenburg is the heart of the platinum industry in South Africa. However, the vehicles that do not require catalytic future of the platinum mines is uncertain: globally, there is an oversupply of platinum, asboom demand is dropping with move to electric vehicles that do not converters. In addition, the new openBig mining afterRustenburg isthe the heart of the platinum European countries and the 1990sneed catalytic converters. In addition, the new open-cast mines that depend on USA commit to reducing CO2 industry in South Africa.

However, the cast mines that depend on technology technology and mechanisation are not being developed in Rustenburg, while emissions from vehicles, which created a huge market ofhave platinum mines uncertain: most of the miningfuture companies not made profits in theispast five years. The and mechanisation are not being for catalytic convertors made Royal Nation has a substantial shareholding in many of the platinum fromBafokeng platinum. Previously, globally, there is an oversupply of developed in Rustenburg, while most of economic functionbought by the Bafokeng platinum mostlymuch been of the Main mines, as ithad owns land, which was originally used for commercial jewellery Rustenburg is the heart of the platinum industry in South Africa. However, the because is dropping fromandthe Republiek, disposed demand of under apartheid and then the the mining companies have not made the Zuid-Afrikaanse construction platinum, future of the platinum mines is uncertain: globally, there is an oversupply of Platinum became title industry. restored post-democracy. platinum, as demand is dropping with the move to electric vehicles that do not the new gold.

46

24

RUSTENBURG

with the global move towards electric

profits in the past five years.

need catalytic converters. In addition, the new open-cast mines that depend on technology and mechanisation are not being developed in Rustenburg, while most of the mining companies have not made profits in the past five years. The Marikana massacre and 2012/ RETHINKING LED: “LOCAL ECONOMIC DEVELOPMENT” IN INTERMEDIATE CITIESRoyal Bafokeng Nation has a substantial shareholding in many of the platinum SOUTH AFRICAN PROPERTY REVIEW 2013 strike by miners – APRIL 2020 mines, as it owns much of the land, which was originally bought by the Bafokeng from the Zuid-Afrikaanse Republiek, disposed of under apartheid and then the title restored post-democracy.

rethinking LED are the ones who have to face disgruntled communities about problems that are often created by policy decisions taken by national government and poor intergovernmental relationships: “No minister speaks to dissatisfied communities on a daily basis.”

The problem of intergovernmental coordination is more serious in mining communities such as Rustenburg. Coordinating local plans – integrated development plans (IDPs) and social and labour plans (SLPs) – through the Department of Mineral Resources is a difficult undertaking that gives rise to uncertainty. Local municipalities have little control over what ends up in SLPs, which are part of a mine’s mining licence and approved by the department, which often signs off without having obtained local consent for the plans.

“That thing is so far locked down. I do not know if we’ll get the Da Vinci Code any time soon.” [In relation to the lack of implementation of the Strategy for the Revitalisation of Distressed Mining Towns.]

Infrastructure investment in intermediate cities is largely linked to funding from national line departments, although this is bound to change with the introduction of the ICSP. “We are dependent on grants. Most of our spending is funded by grants; it is not supposed to be like that.”

This reliance on national grants means that municipalities seldom determine the economic value or contribution of infrastructure, and that most infrastructure goes towards addressing service backlogs. While this is not in itself wrong, the unintended consequence is that municipalities are not compelled to think about infrastructure in economic terms. Dependency on national grants also complicates implementation.

For example, the catalytic projects in the Rustenburg Master Plan all assume national funding. This degree of dependency means that plans are not based in reality but in the hope of accessing finance from elsewhere, which often leads to accountability getting shifted to other spheres of government.

The Royal Bafokeng Nation has a substantial shareholding in many of the platinum mines because it owns much of the land. It was originally bought by the Bafokeng from the ZuidAfrikaanse Republiek, then disposed of under apartheid, before the title

was restored post-democracy.

To some extent, Rustenburg is where Matjhabeng was at the beginning of the 1990s. Although to date layoffs have been limited, job losses are inevitable. The first layoffs have already taken place, and other mines have

made announcements with regards to imminent restructuring.

But Rustenburg has one advantage over Matjhabeng: it is located on the fringes of Gauteng, and the links with Gauteng could well cushion the impacts of mine decline.

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

47

rethinking LED INSTITUTIONAL ASPECTS The municipality is confused about the LED department’s role Economic development is not a high priority within municipalities, and is often either ignored or dominated by other directorates and officials. LED departments are understaffed, and “the LED unit does not seem to have a voice in the municipality”.

LED units “are predominantly located in the lower orders of the municipal organogram” and so “not well located to influence municipal strategy” (SACN and SALGA, 2017: 48).

One participant likened working in the municipal economic development directorate to “sitting in some dark corner”. LED departments have to “fight all the time […] for budget allocations”. In one municipality, an economic development directorate was downscaled from a directorate to a unit.

Outside of the economic development department, “there appears to be a huge misunderstanding of what the role of LED is in the local municipalities”. A common expectation is that the LED unit should focus on social and community projects – “small little pottery projects here and there”. Yet, as participants from Rustenburg have acknowledged, a range of community projects is unlikely to ensure a postmining economy.

Municipalities are “geared towards service delivery, without necessarily giving the same level of attention to local economic development”.

“We have identified projects that can move the economic needle of our municipality and can transform the economic complexion. However, then, because of the basic service delivery, as opposed to economic development, you would not have the resources to fund the projects that we want.”

To some extent, Rustenburg is where Matjhabeng was at the beginning

have been limited, job losses are inevitable. The first layoffs have alread Part of the problem is that economic development is a non-tangible function. made restructuring announcements. However, Rustenburg has one adv on the fringes of Gauteng, and the links with Gauteng Tangible functions such as constructing roads, houses or infrastructure are could well cushio easier to support and finance.

The economy FIGURE 7: Annual economic growth per sector (1994–2015)

3

15

Between 1993 and 2011, Rustenburg more slowly since 2007, declining pre-2008 output levels. Manufacturing’s 5 since 2011. isAlmost 60% of share secondary sector had one of the fast-growing economies sharply To some extent, Rustenburg where Matjhabeng wasthe at the beginning ofof thethe 1990s.

Although to date layoffs declined 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 have been limited, job losses are inevitable. The first layoffs have-5already taken place, and other mines have economy is still dependent from 63% in 1993 to 55% in 2015. in South Africa, growing at 3.3% per year Rustenburg made restructuring announcements. However, Rustenburg has one advantage over Matjhabeng: it is located -10 In contrast, construction grew from the primary sector (mainly between 1993 and 2001, and 3.1% per on on the fringes of Gauteng, and the links withmining).

Gauteng could well-15cushion the impacts of mine decline. to 29% over the same period.

The tertiary and secondary sectors 17% year between 2001 and 2011. However, -20 The economy Sector Secondary Sector Tertiary Sector The Primary tertiary sector remains small continued to grow, although the since 2011 the economy has declined by have FIGURE 7: Annual economic growth per sector (1994–2015) FIGURE 8: Economic growth (1993–2015), 1993 = 100% compared to intermediate cities with sector has not managed to 1.6% per year, lowering the average secondary 15 Between 1993 and 2011, Rustenburg had one 250 3 diverse economies.

However, its its share of the economy. In of more annual economic growth to 2.3% increase the fast-growing economies in South Africa, 10 200 year between 1993 and 5 shareat 3.3% of per the economy is increasing 2008, manufacturing – especially the growing between 1993 and 2015.

2001 150 and 3.1% per year between 2001 and 0 To some extent, Rustenburg was at the beginning to 06date layoffs 94 95 of 96 the 97industry 981990s.

99 00 01Although 02 – 03 04 05 07 08 09 10 11 12by 13 14 the 15 slowly, assince the 2011 share of the primary sector vehicle was hit hard Economic growthisinwhere theMatjhabeng primary sector 2011.

However, the economy has -5 100 have been limited, job losses are inevitable. The first layoffs have already taken place, and other mines have declined by 1.6% per year, lowering the is declining. financial crisis and has not returned to has been volatile, and has increased -10 advantage over Matjhabeng: it is located made restructuring announcements. However, Rustenburg has one 10

average annual economic growth to 2.3% 50 between 1993 and 2015.

on the fringes of Gauteng, and the links with Gauteng could well-15cushion the impacts of mine decline.

The economy

Primary Sector

FIGURE 7: Annual economic growth per sector (1994–2015) 15 10 5 0

0

-20

The economy

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

-5 -10 -15 -20

Secondary Sector

Tertiary Sector

FIGURE 8: Economic growth (1993–2015), 1993 = 100% Between 1993 and 2011, Rustenburg had one 250 of the fast-growing economies in South Africa, 200 growing at 3.3% per year between 1993 and 2001 150 and 3.1% per year between 2001 and 2011. However, since 2011 the economy has 100 declined by 1.6% per year, lowering the average annual economic growth to 2.3% 50 between 1993 and 2015.

0

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Economic growth in the primary sector has Primary Sector Secondary Sector Tertiary Sector Total been volatile and has grown slower since FIGURE 8: Economic growth (1993–2015), 1993 = 100% 2007, declining sharply since 2011.

Almost 60% FIGURE 9: Percentage share of primary, secondary and tertiary 250 sectors (1993–2015) the Rustenburg economy is still dependent SOUTH AFRICAN PROPERTY REVIEW –ofAPRIL 2020 48 80 primary sector (mainly mining). on the 200 Primary Sector

Secondary Sector

Tertiary Sector

70

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

EconomicPrimary growth sector has Sectorin the primary Secondary Sector Tertiary Sector Total been volatile and has grown slower since FIGURE 9: Percentage share of primary, secondary and tertiary 2007, declining sharply since 2011. Almost 60% sectors (1993–2015) of the Rustenburg economy is still dependent 80 on the 70 primary sector (mainly mining).

60

Between 19 of the fastgrowing at 2001 and 3 2011. Howe declined b average an between 19

Economic g been volat 2007, decli of the Rust on the prim

The tertiary continued sector has of the econ especially by the finan the pre-20 Manufactur declined fr In contrast, 29% over t

The tertiary

The50tertiary and secondary sectors have to intermed continued to grow, although the secondary 40 economies sector 30 has not managed to increase its share economy is of the 20 economy. In 2008, manufacturing, of the prim 10 especially the vehicle industry, was hard hit 0 by the93financial crisis and has not returned 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 the pre-2008Primary levels output.

Sectorof economic Secondary Sector Tertiary Sector Manufacturing’s share of the secondary sector declined from 63% in 1993 to 55% in 2015.

In contrast, construction grew from 17% to Economic development planning 29% over the same period.has an understaffed Economic Development D Rustenburg Municipality

rethinking LED “When we are putting money [into something] as a municipality, we want to see a road or a house or a park or whatever. So it is very, very difficult to advocate for economic development budgets – for example, a radio advertisement.”

Research shows that many economic development directorates do not have welldefined roles and responsibilities for their employees (SACN, 2017). Although the research did not investigate existing roles and responsibilities, the institutional uncertainty spills over into job descriptions.

For participants, economic development needs to occupy “centre stage” in the municipality – the municipality as a whole has to take ownership of the process of integrating LED into its practices. However, this would require correcting the perception of LED, especially among politicians, and clarifying the roles and responsibilities of LED directorates and staff.

LED departments lack capacity and resources Many LED units are understaffed, as municipalities side-step these units, and have limited budgets (Nel and Rogerson, 2016). With limited funds and investments, municipalities are highly unlikely to move to “a path of sustainable economic development or to make a significant dent in entrenched levels of poverty and unemployment” (ibid: 117).

“The lack of understanding of the function of LED in local municipalities has led to the neglect of LED regarding human resources.”

Given that municipalities do not provide sufficient funding to the economic development function, it should come as no surprise when the LED department is unable to deliver on its mandate. While the lack of finance for marketing expenditure is “a generic problem”, LED departments are expected to deliver.

“When LED is unable to deliver on its mandate, it comes as a shock, but you are underresourced in terms of warm bodies and finances.”

RUSTENBURG

Originally a regional services town providing services to the surrounding agricultural communities, Rustenburg is the heart of platinum mining.

It has a population of well over 600 000 and an average population growth of 3.6% per year (1996–2016).

Economic development planning

Rustenburg Municipality has an understaffed Economic Development Directorate and a plan – the Rustenburg Master Plan – that was launched in 2006 in conjunction with the Royal Bafokeng Nation.

The plan seeks to Platinum is discovered.

1930s ensure the survival of Rustenburg beyond platinum mining, and comprises catalytic projects aimed at building a post-mining economy. The projects include expanding and structuring commercial centres, setting up small Relatively large-scale mining 1960s developing a medical centre, enterprises and developing local industries, operations begin. developing new tourism clusters and supporting existing attractions, promoting new types of agriculture to meet local demand, creating a new Big rejuvenating mining boom after the CBD. city-scale icon and destination in Rustenburg, and European countries and the 1990s However, the plan is largely inappropriate, as itUSA does not imagine commit to reducing CO2 a decline emissions from vehicles, in economic growth. which created a huge market for catalytic convertors made from platinum. Previously, platinum had mostly been used for commercial jewellery and the construction

MainSOUTH economic function AFRICAN PROPERTY REVIEW – APRIL 2020

49

Rustenburg is the heart of the platinum industry in South Africa. However, the future of the platinum mines is uncertain: globally, there is an oversupply of

rethinking LED If municipalities do not view economic development as a core function, creating institutional capacity will remain difficult. Currently, the employment practices do not place people with the appropriate skills in LED units – the economic development function is “like a dumping unit for politicians who are not performing well”.

“You have to caretake the government official who is a nursing sister who has [sic] to be deployed in the LED unit, and turn him or her into [a] world-class economist.”

As a result, many LED departments lack clear strategies, which means that new managers can potentially reinvent strategy and planning.

“If the Head of Department does not like something, we start things afresh.”

There seems to be nobody who is calling for a strategic approach. LED departments are more likely to be filled with planners than economists; indeed, few municipalities employ economists to help them address some of the problems. As an example, none of the officials who attended the workshops has an economic background.

SOL PLAATJE

STRATEGIC ASPECTS Strategic plans are disconnected from reality Historically closely associated with diamond mining, the city is the provincial capital of the Northern Cape. Its population is approximately 250 000, and population growth has been slow, at about 1.1% per year (1996–2016).

1880s

Municipalities are required to develop a range of plans, of which the IDP is the overarching five-year plan. The IDP should contain an LED strategy (five years) and an SDF (20 years).

Participants acknowledged that you need “to understand the state of [the] economy before you even plan”. However, proper viability studies and economic impact assessments are usually absent from the plans, which seldom consider the possibility of economic decline. For example, the Rustenburg Master Plan envisages a growth rate of 5% despite the city having a negative growth rate over the past five years. Similarly, Matjhabeng keeps on planning for a growing economy after nearly two decades of decline (SACN, 2017).

The start of diamond mining – in 1888, Rhodes, Bernato and others founded the De Beers Mining Company in Kimberley.

Mid1990s

De Beers moves its head office out of Sol Plaatje.

2014

Sol Plaatje University opens, the first university to be established in the Northern Cape Province.

SOL PLAATJE

Main economic function

SOL PLAATJE

Two external factors saved the economy of what would otherwise be a dying mining town: the establishment of Sol Plaatje as the capital of the sparsely populated Northern Cape Province and the opening of a new national university five years ago. The city’s capital status ensured that large numbers of public Historically Main economic function servants closely settled associated in the city, helping to maintain the housing market and creating withdemand diamond the city formining, office space, and served to direct government spending onsaved hospitals Two external factors the economy andprovincial other public services. the regional services function is the capital of theThis in turn expanded of what would otherwise be a dying of the Cape. city. For last 25 years, diamond mining stimulated the economy, but Northern Itsthe population mining town: the establishment of Sol this is no longer the case. A large artisanal mining sector has developed in Sol is approximately 250 000, and Plaatje as the capital of the sparsely Plaatje that remains unregulated and illegal, despite attempts to formalise these populated Northern Cape and the population growth has been activities. Over the last two years, the economy has changed, and economic of a new national university slow, at about 1.1% per year development officials are concerned by the lossopening of large numbers of businesses. five years ago.

The city’s capital status Overall, the city struggles with political instability, bulk water supply and basic (1996–2016). service-delivery problems.

SOL PLAATJE

Historically closely associated De Beers sells all its mining 2015 rights inthe Kimberley. with diamond mining, city is the provincial capital of the Northern Cape. Its population is approximately 250 000, and SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020 50 population growth has been

rethinking LED Many intermediate cities have plans that are overly ambitious and unimplementable without funding from national or provincial government. The plans often consist largely of wish lists born out of grandiose thinking by consultants, LED officials or politicians, with insufficient input from municipal staff.

“Generally, we have dreams and wishes.”

As a result, the plans do not make economic sense, make simplistic assumptions about complex economic value chains (e.g. they consider the supply side but ignore the demand side), and assume that the public sector will be able to drive (and fund) these plans.

“It becomes a waste of time; it just becomes planning and planning. There are many documents in government with wonderful plans, but they never bear fruit.”

The use of consultants (often from the engineering or planning disciplines) frequently leads to a lack of inclusivity in developing the plans. This results in, for example, plans to develop manufacturing industries, become manufacturing hubs for cars or large-scale logistics hubs for fast-moving goods, without considering certain hurdles, in particular competition from larger metropolitan areas.

“How do you put such an important thing [in place] without involving the various stakeholders?”

Intermediate cities are unlikely to win battles for markets or funds from national government against larger metropolitan areas with agglomeration economies and easily available supply chains and markets.

“We spend so much time and so much effort and so many resources trying to come up with documents that will influence especially financial decisions. However, at the end of the day, we remain with these trivial things that are not assisting [us].”

ensured that large numbers of public servants settled in the city – helping to maintain the housing market and creating demand for office space – and served to direct government spending on hospitals and other public services.

This in turn expanded the regional services function of the city.

For the past 25 years, diamond mining stimulated the economy, but this is no longer the case. A large artisanal mining sector has developed in Sol Plaatje that remains unregulated and illegal, despite attempts to formalise these activities. Over the past two years, the economy has changed, and economic development officials are concerned by the loss of large numbers of businesses.

Overall, the city struggles with political instability, bulk water supply and basic service-delivery problems.

Between 1993 and 2008, Sol Plaatje achieved an average economic growth

of 2.9% per year. However, over the past few years growth rates have been lower, closely mirroring the national growth rates. Between 2008 and 2015, the economy grew by just 0.6% per year.

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

51

rethinking LED The strategic plans are not updated consistently and in some cases date back to more than 10 years ago.

“I want to say, when the strategy was developed – meaning this 13-year-old strategy, because nobody says this strategy must be reviewed because somehow it does not really speak to what we see as the realities currently.

“You might find what was feasible and viable back then because it was done in 2011, which is seven years ago. It might not [be] viable today.”

The lack of up-to-date plans suggests poor initial planning, limited capacity to adjust plans and a lack of institutionalisation of the plans within the municipality. The plans also often neglect the relationship between basic service delivery, urban management and economic planning. Participants have found that municipal officials (and more so local populations) do not always understand the relationship between basic service delivery and economic development.

“So you look at the master plan, you look at basic service delivery, you look at the reality, and you ask yourself, “How am I going to sell this master plan to someone if water is leaking everywhere?”

This is frustrating, especially when cities experience problems with service 3 delivery. For example, basic service delivery problems, especially with water, in Sol Plaatje led to the shutdown of the city, and the tourism sector was the first to feel the negative impacts. This neglect also has serious implications The economy Theretaining economyexisting business and creating a living environment that will for FIGURE 10: Annual economic growth per sector (1994–2015) FIGURE 10:skilled Annual economic growth–per sector (1994–2015) attract people having raw sewage20in the streets has a negative 20 Between 1993 and 2008, Sol Plaatje achieved 15 impact on doing business.

15 an average economic growth of 2.9% per 10 year.5end However, overday?” the past few years growth “If10everything is stinking, what do you sell at the of the 5

0 -5

The economy

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

-10 -20

Secondary Sector

Tertiary Sector

FIGURE 10: Annual economic growth per sector (1994–2015) FIGURE 11: Economic growth (1993–2015), 1993 = 100% 20 200 15 180 10 160 1405

0 120 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 100 -5 80 -10 60 -15 40 -20 20 0 93 94 95 Primary 96 97 Sector 98 99 00 01 02 Secondary 03 04 05 Sector 06 07 08 09 10 Tertiary 11 12 Sector 13 14 15

Primary Sector

Secondary Sector

Tertiary Sector

Total

FIGURE 11: Economic growth (1993–2015), 1993 = 100% 200 FIGURE 12: Percentage share of primary, secondary and tertiary 180 sectors (1993–2015) 160 90 140 80 120 70 100 60 80

60 50 40 20 30 200 10 0

3

11 12 13 14 15

The prima shows vol mining co economy,

-15

-15

The economy Primary Sector The primary sector – mainly diamond mining – has shown volatile economic growth rates. In 2015, mining contributed only 12% of the local economy, down from 19% in 2004.

The secondary sector contributed only about 9% of the economy, while the tertiary sector accounted for nearly 80% of the economy. This is to be expected, given that Sol Plaatje is the capital of the Northern Cape.

Between 1993 and 2015, the tertiary sector outgrew the primary and secondary sectors.

rates0 have been lower, closely mirroring the 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 national growth rates. Between 2008 and -5 2015, -10 the economy grew by just 0.6% per year.

The-20primary sector (mainly diamond mining) shows volatile economic growth rates.

Primary Sector Secondary SectorIn 2015, Tertiary Sector mining contributed only 12% of the local economy, down from 19% in 2004.

FIGURE 11: Economic growth (1993–2015), 1993 = 100% Between 1993 and 2008, Sol Plaatje achieved The200secondary sector contributed only about 180 an average economic growth of 2.9%sector per 9% of the economy, while the tertiary 160 year. However, over the past feweconomy, years growth accounted for nearly 80% of the 140 rates lower, closely mirroring the 120 have which is to been be expected given that Sol Plaatje 100 national growth rates.

Between 2008 and is the capital of the Northern Cape.

80 the economy grew by just 0.6% per year.

2015,

The secon 9% of the accounted which is to is the cap

Between outgrew t

60

Between 1993 and 2015, the tertiary sector 40 The20primary diamond sectors. mining) outgrew the sector primary(mainly and secondary shows 0 volatile economic growth rates. In 2015, 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 mining contributed only 12% of the local Primary Sector Secondary Sector Tertiary Sector economy, down from 19% in 2004.

Between an averag year. How rates have national g 2015, the

13 14 15

Total

12: Percentage share of primary, TheFIGURE secondary sector contributed only secondary about and tertiary 9% sectors of the (1993–2015) economy, while the tertiary sector 90 accounted for nearly 80% of the economy, 80 which is to be expected given that Sol Plaatje 70 is the capital of the Northern Cape.

60 50

Between 1993 and 2015, the tertiary sector 40 outgrew the primary and secondary sectors.

30 20

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Primary Sector

Secondary Sector

Tertiary Sector

Total

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

10 0

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Primary Sector

Secondary Sector

Tertiary Sector

Sector share Secondary SectorsecondaryTertiary FIGURE 12:Primary Percentage of primary, andSector tertiary sectors (1993–2015) 90

52

80 Economic development planning 70

Economic development planning

Sol Plaatje has an Economic Development Directorate that focuses on

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020has an Economic Development Directorate that focuses Sol tourism and enterprise 60 Plaatje Theon municipality has started a development. process to develop a new economic d

50 municipality has started a process to develop a new economic development strategy, but the fact that The one does not exist is problematic. Integrated economic thinking is limit 40 does not exist is problematic. Integrated economic thinking is limited, and the overall strategy is unclear. one

rethinking LED Intermediate cities that depend on mining have specific challenges. In theory, municipal IDPs should dovetail with the mines’ SLPs. However, in practice the results are mixed. Although mines often deliver adequate infrastructure to mining communities, communities remain largely dissatisfied with the mines; a concern is that mines play communities off against municipalities and vice versa. More importantly, municipal plans seldom consider the implications of mine closures or mine downscaling. It also seems that municipal economic development directorates are not trusted with this function, which is centralised in the mayor’s office.

The private sector is not aligned with the municipality In some instances, the outcomes envisaged by the municipalities and the outcomes achieved by the private sector are different. For instance, in one municipality, the private sector was developing towards the west, whereas the municipality was providing infrastructure towards the east.

“For the private sector, if you develop towards the east, they still view it as a high-risk development. So market forces are still pulling us to the west of the city.”

The degeneration of CBDs is a common concern, with rising crime and disorganised business practices, and a growing trend of prominent enterprises moving out of city centres.

Municipalities should be creating an enabling environment or facilitating economic development.

“Our municipality has a critical role in promoting those economic development inputs in the country.”

Yet there appears to be little appetite for PPPs – among the three case-study municipalities, only one PPP was identified for developing human settlements

SOL PLAATJE Economic development planning Historically closely associated Sol Plaatje has an Economic Development Directorate mining, the city The that focuses on tourism with and diamond enterprise development. municipality has startedis the a process develop provincialtocapital of thea new economic development Northern strategy,Cape. but Its the fact that one population does not exist is problematic.

Integrated economic thinking is approximately 250 000, and is limited, and the overallpopulation strategy isgrowth unclear. has been However, the city’s economy has benefited slow, at about 1.1% perfrom year external government decisions, (1996–2016). such as in 1994 when the city became the provincial capital, and in 2015 when a national university opened its doors. Another boost came in 2012 when the provincial government established a convention centre, which enables the city to attract niche conferences, The start of diamond mining rather than compete with Cape– inTown or eThekwini 1888, Rhodes, Bernato for 1880s large conferences. and others founded the De Mining in The tourism experience focusesBeers on the BigCompany Hole, extreme Kimberley. adventure sports and desert tourism.

Mid1990s

De Beers moves its head office out of Sol Plaatje.

Main economic function Two external factors saved the economy of what would otherwise be a dying SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020 53 mining town: the establishment of Sol Plaatje as the capital of the sparsely populated Northern Cape Province and the opening of a new national university

rethinking LED

“The Rustenburg Chamber of Commerce is [a] body that many enterprises are affiliated to. Then there are businesspeople organising themselves into forums; they want to access tender opportunities. So that discussion and this discussion become two different meetings.”

and none for economic development. In general, relationships with organised business are absent, ad hoc or haphazardly structured.

“We do not know what business is thinking because we haven’t worked closely enough yet.”

A challenge for municipal officials is dealing with the diversity of business interests, which can range from mining-related issues to complaints about basic service delivery, or requests to access public procurement opportunities.

“The Rustenburg Chamber of Commerce is [a] body that many enterprises are affiliated to. Then there are businesspeople organising themselves into forums; they want to access tender opportunities. So that discussion and this discussion become two different meetings.”

Where municipalities have created forums to support economic development, private sector representatives often do not attend, so the forums are “generally reduced to government talking to government”.

Economic analysis and intelligence are lacking The period directly following the democratisation of South Africa was characterised by a lack of local economic data, making it difficult to develop an adequate understanding of economic trajectories (Rogerson, 1997). When data did become available, it was expensive and unaffordable for smaller local governments. In recent years, data has become more readily available and affordable, and many local plans (IDPs, SDFs and LED plans) now outline economic profiles. Yet problems remain. A respondent from a spatial planning department captured the need that is not being met.

“So the thing is that you need to be a good support and reliable support system to us in spatial planning and the IDP office; you need to be more on top of your game, and engage more with Statistics South Africa and the other sources in order to get [the] most recent data […] for when we develop our IDP.” Municipalities do not have adequate economic intelligence to support decision-making. Both economic and population forecasting are largely absent or simply based on assumptions. “[In response to a question on population forecasting] That is a difficult question to answer.

Despite the long strike that we had, it will keep on coming to us. I do not think we will be able to say whether people are not going to continue coming into our municipality.”

“So the thing is that you need to be a good support and reliable support system to us in spatial planning and the IDP office; you need to be more on top of your game, and engage more with Statistics South Africa and the other sources in order to get [the] most recent data […] for when we develop our IDP.”

54

Often economic profiles do not include an assessment of global trends or a comparison with a decade or two ago, and an explanation of why changes have occurred. While some data is better than no data, substantial parts of the data are based on assumptions, which means the data for the subelements of the economy is less reliable. This is because Statistics South Africa and Global Insight do not provide municipal-level data.

“Then you find that Statistics South Africa cannot provide details at the municipal level.

What they have is what will come from the national level, up to province and, if we are lucky, at the district level. However, we are the ones answerable to the community.”

At the same time, LED departments lack the resources and capacity to deal with the data provided.

“So if they have to choose between an electrician and a statistician, they are going to go for an electrician.

“Choosing between plumbers and your own fieldwork or data collection for your own internal economic intelligence, they will go for the artisan and plumbers.”

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

finance

After the Budget Speech: An outlook for South Africa’s economy Tito Mbowani set out South Africa’s budget proposal on 26 February. At that time, the world was just getting to grips with COVID-19 virus; since then, the world’s economy has been in freefall. Amid all that is happening, as we go live with Property Review, we still need to remember the budget and what it requires us to do as we go through the lockdown and come out on the other side

By Mark Pettipher

F

ollowing the Budget Speech, SAPOA Western Cape hosted a Post-Budget Breakfast sponsored by Growthpoint Properties at the beginning of March, where Brian Kantor took us through parts of the speech and outlined that South Africa’s economy is in dire straits.

Later that month I travelled to Mbombela to attend another Post-Budget Breakfast, this time sponsored by Halls Properties, Nedbank and WDT Attorneys. Here the keynote speaker was Nedbank Chief Economist Nicky Weimar.

The two speakers could have been reading off the same “song sheet” when it comes to the way they described the state

Since 2012, we’ve been sliding downwards.

of South Africa’s economy. They spoke about how things were relatively okay from an economic growth perspective up until 2008. The GDP graph shows us that as Jacob Zuma took over the presidency in May 2009, the economy took a tremendous hit, down to 0.5%. There was a modest period of growth around 2014 at an average of 2.8%, but since then the economy has continued –as Weimar put it – a slow, steady decline to 0.9%.

“What can the future bring us, and where will the growth come from? Can government drive growth and job creation?

The short answer is no – because they are out of money,” said Weimar. “They have been running budget deficits of more than three percent of GDP for more than a decade, and have estimated that they will be running at less than -4% this year.

What this means is that they have been running a shortfall, and have to borrow more to finance a consistent shortfall.

Government debt, which used to be 30%, will rise to just short of 60% in 2022. If you add the debt of state-owned enterprises, the government is actually closer to 80%. The danger is that they have to borrow more money just to pay the debt.

“The government needs to contain and slow this debt accumulation. They can make sure that there is policy certainty to create an environment for the private sector to thrive.”

Weimar predicted that the South African Reserve Bank would cut interest rates. She was proved correct: 100 basis

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55

finance

points was shaved off the base lending rate, taking lending rates to 5.25%. This had a two-fold aim: to try to stimulate the economy, and to help to ease the effects of the current COVID-19 pandemic. Then South Africa went into a 21-day lockdown at midnight on 26 March.

But Weimar and Kantor agree that fixed investment is the key to faster growth and job creation. It’s all about the future.

“President Ramaphosa knows this,” said Weimar, “which is why he has started an investment drive of attracting more than a trillion rand and new expansionary investment over the next five years, through annual investment summits.

“The government isn’t in a position to drive growth, and thus is not in a position to accelerate infrastructure spending in any meaningful way. If you want to attract the one-trillion rand, you have to attract private investors and companies that are willing to expand operations. That is what fixed investment is.

However, to attract investors, we were told by both Kantor and Weimar, we need to see energy stability in South Africa – and this won’t happen while the nation’s energy provider is struggling to keep the lights on.

As reported by Bloomberg, “Eskom has more than R450billion of debt, isn’t generating enough income to cover its operating costs and has instituted regular power outages as insufficient spending on maintenance leads to plant breakdowns.

Eskom’s precarious state stems from years of mismanagement, 56

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

finance a bloated wage bill, massive cost overruns at two new coalfired power stations, and maintenance backlogs at other plants that left it struggling to meet demand. The government has said the utility is too big to fail, and allocated R138-billion over the next three years to enable it to keep operating. Yet that isn’t likely to be enough to ensure its viability.”

We were also told recently, that it will be at least 18 months before we will be clear of rolling blackouts.

Adding to the government’s Eskom problems is the state-run airline SAA, which was to receive a much-needed government bailout to the value of R16.4-billion as announced during Tito Mboweni’s 2020 Budget Speech.

The latest government bailout follows dire financial and operational circumstances that saw the national carrier grounded in late November 2019. To compound the airline’s woes, trade unions embarked on debilitating strike action, which resulted in a serious drop in revenue – at a time when SAA could least afford it.

Shortly before it was placed under business rescue administration, Public Enterprises Minister Pravin Gordhan afforded SAA a brief reprieve in the form of a R2-billion bailout.

Gordhan, however, denied that the financial help was to be classed as a bailout, saying, “It must be clear that this is not a bailout. This is the provision of financial assistance to facilitate a radical restructure of the airline.”

Since 2010, the government has ploughed approximately R16.5-billion into the embattled airline. This latest bailout matches that total amount.

Parastatals such as Eskom and SAA need to be restructured and be forced to be more accountable. “The reality is that the president needs to deal with South Africa’s structural issues, which also applies to the country’s municipalities and their management,”said Weimar.“Dealing with economic delinquency comes with painful decisions. In the short term, there is a cost.

Restructuring that requires retrenchment and displacement of people is unpopular – and that too is a political cost.

“The government is not able to fix the economy on its own.

A solution, therefore, is to open the market to the private sector, which would allow the process to happen indirectly by creating competition, so only the strong and agile survive.

The outcome will be the same – there will be labour unrest, and pressure will be put on politicians to change the route.”

Kantor put forward an idea that perhaps the government should issue equity bonds to encourage the private sector to help with the bailout of failing state-owned enterprises.

This would lead to governance that would be accountable to shareholders.

Lest we forget, when the lockdown is over, our economy – and the entire world’s will be seriously challenged. The country’s issues will still need to be addressed, cleaned up and put back on a growth trajectory. Out of adversity comes diversity and opportunity: South Africans are, if nothing else, a nation that will rise to the challenge and “make a plan”.

Budget Speech 2020 framework ● Low growth led to an R63.3-billion downward revision to estimates of tax revenue in 2019/2020 relative to the 2019 budget. Debt is not projected to stabilise over the medium term, and debt-service costs now absorb 15.2% of main budget revenue. ● The 2020 Budget proposes a total reduction of R261-billion over the next three years, which includes R160.2-billion reduction to the wage bill of national and provincial departments and national public entities. ● Re-allocations and addition total R111.1-billion over the medium term, of which R60-billion is set aside for Eskom and South African Airways (SAA). ● These measures narrow the consolidated deficit from 6.8% of GDP in 2020/2021 to 5.7% in 2022/2023, with debt rising to 71.6% of GDP over the same period. ● Along with faster economic growth, fiscal sustainability will require targeted reduction of specific programmes, and firm decisions to rein in extra-budgetary pressures, including reform of state-owned companies and the Road Accident Fund.

Health, education, social development and security Finance Minister Tito Mboweni also highlighted that education and health would be treated as a priority. To that effect, the government will increase spending on schools and healthcare.

“The largest spending areas will be learning and culture, which receives R396-billion, followed by health with R230billion, and social development with R310-billion,” he said.

About R212-billion was set aside for economic development, which includes industrialisation and exports, agriculture and rural development, job creation and labour affairs, and science and technology.

Furthermore, R217-billion will go towards peace and security: police services will be granted R106-billion, while the remaining funds will be allocated between defence and state security, as well as law courts, prison and Home Affairs.

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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Debt-service costs and community development

cyber-networking

Reflections on the property industry: A social impact for Cape Town As the COVID-19 virus started to send people indoors – and various seminars and networking events got cancelled or postponed – SAPOA Western Cape initiated a keynote presenter seminar using Zoom. We recorded and edited the proceedings, and are pleased to make Dr Crispian Olver’s presentation available to all SAPOA members

By Mark Pettipher

A

s SAPOA’s Western Cape members joined the session on 20 March, Simon Nicks, SAPOA Western Cape Chairman, welcomed the guests to what was possibly SAPOA’s first cybernetworking event.

Dr Crispian Olver, author of A House Divided and How To Steal A City, has been a medical doctor, political leader, environmental activist and public servant. He joined Nelson Mandela’s office in 1994 as the head of planning for the Reconstruction & Development Programme (RDP), and went on to run the Department of Environmental Affairs and Tourism as DirectorGeneral. He’s had a lifelong interest in local government issues and, in 2015, took on the most challenging assignment of his career: heading up an intervention to clean up corruption in the Nelson Mandela Bay metro.

The 15-minute presentation touched on a number of salient points, including that Cape Town is a bifurcated city, and that affordable housing is appreciating out of the lower-value segment. At the same time, that market is not keeping up with demand, with an estimated 360 000 people on the housing waiting list. Due to the lack of affordable housing, lower- and middle-income families are finding it increasingly difficult to buy or rent in well-located areas.

Olver mentioned the concept of property as a key vehicle for accumulating and transferring long-term value, and highlights that there is a certain amount of underhanded dealings in the political arena, with the control of development in the hands of a bureaucratised administrative environment where officials are adverse to taking risk. As part of that bureaucracy, Cape Town’s efficiency rating is beginning to slip. However, the city is still out in front when it comes to issuing building permits.

He went on to explain the value depreciation of projects that experience delays in the planning process, stating that, over a five-year period, the potential loss with regards to return on investment can be as much as six percent. Considering that developers and property owners look to get as much yield as possible, a 9% ROI means that, in some cases, developers won’t break ground.

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SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

Community protests also cause delays in developments.

Olver showed a slide that indicated there were almost no disruptions in 2006, leading up to 237 in 2018 and a reported 218 disruptions in 2019. He further pointed to a movement – Ndifuna Ukwazi – which has been actively demonstrating against the exclusive use of public land in areas such as Rondebosch, Buitengracht, Harrington Square, Green Point and Fish Hoek. They want to see the land being used to develop affordable housing.

Inclusionary housing has been muted by a number of metros.

According to Olver, “Inclusionary housing will not on its own solve segregation and unaffordable housing – but it can work in neighbourhoods that attract market-rate developments.

He spoke about a National Development Plan that incentivises property developers to include a level of affordable housing in their developments, and informed us that the City of Cape Town commenced a feasibility study in January 2020. We look forward to seeing the results when drafting begins in July.

In concluding his presentation, Olver said that cities work through informal arrangements, in which the government and private players work together to make and carry out decisions that shape the way cities function. “This requires partners with a capacity to do something and the will to do it – and a relationship between them that allows them to work together,” he said. “That relationship will depend on common cause, reciprocity, mutual loyalty and trust.”

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howmuch.net

Visualising bitcoin’s wild ride in the last decade In February 2011, Silk Road became the first online store to accept bitcoin as payment. The new digital currency cost about one US dollar per coin.

The next decade would be a roller coaster for bitcoin, not limited to the FBI shutdown of Silk Road

By Juan Carlos / First published at howmuch.net/articles/timeline-bitcoin-major-events

What can we expect at the beginning of the second decade of bitcoin exchange?

Starting at about US$1 000 in January 2017, the price escalated to a record high of US$19 783.21 per bitcoin on 17 December 2017. Just days later, however, the market experienced a 30% drop. Exactly one year later, on 17 December 2018, one bitcoin cost US$3 250.

● The now-defunct Silk Road started accepting bitcoin as payment in February 2011. ● Nearly 850 000 bitcoins were stolen in the 2014 hack of Mt Gox, kicking off a two-year bear market. ● The price of bitcoin in 2017 skyrocketed from approximately US$1 000 to US$20,000 per unit. ● Bitcoin again lost nearly 10% of its value in under 24 hours amid the novel coronavirus uncertainty.

Our data comes from Bitcoinity, and includes the daily market capitalisation of bitcoin since July 2010. Market capitalisation – or market cap – is calculated as the total US dollar value of the bitcoin supply in circulation, times the daily average market price of bitcoin.

Our line chart shows the trend over time of the market cap. We have included some important events in bitcoin’s history to add context to the visualisation.

Bitcoin market cap by year 2010: US$1.4-million 2011: US$33-million 2012: US$143-million 2013: US$9.4-billion 2014: US$4.3-billion 60

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

2015: US$6.4-billion 2016: US$15.3-billion 2017: US$213.9-billion 2018: US$66.9-billion 2019: US$130-billion 2020: $160.7-billion (as at 5 March 2020) While the origins of bitcoin go back to 2008, with its invention by the stillunknown Satoshi Nakamoto, it began to take real commercial value by the middle of 2010, when our data starts. Its price slowly climbed over the next two years, but a large run-up was ended abruptly by the 2014 hack of Mt Gox, the largest bitcoin exchange at the time.

The collapse of Mt Gox set off a twoyear bear market and remains a scandal in the bitcoin world, as many of the nearly 850 000 bitcoins that were stolen have not been returned to their owners.

While it would take until 2016 to recover its previous 2013 high, 2017 would bring an atmospheric rise in the price of bitcoin. Starting at about US$1 000 in January 2017, it escalated to a record high of US$19 783.21 per bitcoin on 17 December 2017. Just days later, however, the market experienced a 30% drop. Exactly one year later, on 17 December 2018, one bitcoin cost US$3 250: an 84% decrease from its peak. While bitcoin has not yet pierced US$20 000, its price increased by 87% in 2019, closing the year at about US$7 100.

So, what does 2020 have in store for the cryptocurrency? Like many assets,

howmuch.net bitcoin has been awash in volatility among novel coronavirus fears. The digital currency recently lost 10% of its value in less than 24 hours, with much of the market also going into freefall.

Some claim that Bitcoin can act as a safe haven in times of geopolitical unrest (such as a pandemic), but it’s unclear that COVID-19 has boosted interest in the currency. From this episode, it seems that as the market falls, so does bitcoin.

However, bitcoin defenders remain confident about the asset tool as a hedge

against market uncertainty and volatility.

Explains entrepreneur Naval Ravikant, “Bitcoin is a hedge against central banks printing money, which is inevitable as a reaction to the novel coronavirus.”

While bitcoin’s 2020 performance to date may be adversely affected by the novel coronavirus, some bitcoin-lovers expect things to end on a high note: entrepreneurs John McAfee and James Altucher have repeatedly claimed the price of bitcoin will hit US$1-million by the end of 2020.

Bitcoin defenders remain confident about the asset tool as a hedge against market uncertainty and volatility.

“Bitcoin is a hedge against central banks printing money, which is inevitable as a reaction to the novel coronavirus.”

SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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off the wall

A superyacht entirely powered by emissions-free fuel The world’s first hydrogen-powered superyacht is a study in sustainable elegance Compiled by Tshepo Tshabalala Photos Sinot Yacht Architecture & Design

M

eet Aqua, the world’s first hydrogen-powered superyacht.

Its design combines sustainability with elegance. The 112-metre-long boat uses one of the cleanest fuels – liquid hydrogen – which is stored in two 28-ton vacuum-isolated tanks at extremely low temperatures (-253°C). The hydrogen is converted into electrical energy by proton exchange membrane (PEM) fuel cells, and produces no greenhouse gases or carbon emissions. The only by-product of the process is water. This fully powers the entire boat’s electrical system and propulsion.

Designed by the Dutch company Sinot Yacht Architecture & Design, the vessel was presented at the 2019 Monaco Yacht Show. It can accommodate up to 14 guests and 31 crew members over a five-deck floor plan that includes a gym, an infinity pool, a lounge, several staterooms, a master pavilion, a helipad and other facilities.

Aqua will reach speeds of up to 17 knots (about 31km/h), and have a range of 3 750 nautical miles. The 56 tons of liquid hydrogen will allow the superyacht to cruise from London to New York in one shot. The proposed launch of the vessel, which will be at the forefront of its superyacht peers, is 2024.

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SOUTH AFRICAN PROPERTY REVIEW – APRIL 2020

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