Your coun­try wants your money

Tokyo wants R50 000 from ev­ery busi­ness­man and woman to help him with the 2,2m hous­ing back­log

Finweek English Edition - - Cover - BY TROYE LUND

THE NUM­BERS GAME that’s de­fined the ANC’s hous­ing pol­icy is im­pres­sive. But it’s back­fir­ing. While it’s de­voured 15 years’ worth of size­able Bud­gets, the hous­ing back­log is the same as it was in 1997 – 2,2m homes. Po­lit­i­cal min­is­ter in charge of Hu­man Set­tle­ment Tokyo Sexwale is locked into a pledge to kill the back­log to pa­rade tan­gi­ble proof of ANC de­liv­ery.

The for­mer premier of Gaut­eng turned min­ing mag­nate has big plans to so­licit guar­an­tees in­clud­ing cash from high net worth in­di­vid­u­als and busi­nesses so that back­logs are crushed and gov­ern­ment’s hous­ing bu­reau­cracy is hauled into the mod­ern world. Fi­nance in­sti­tu­tions need to come up with plans to give SA’s “un­banked” peo­ple ac­cess to loans and he wants a “per­sonal guar­an­tee” from ev­ery “busi­ness­man and woman” to build a house or give at least R50 000 – the equiv­a­lent of one per­son’s hous­ing sub­sidy.

Over­all, the odds are stacked against him. Time is not on his side. While the East­ern Cape and Free State are sim­ply not able to spend their bud­gets, CFOs of other pro­vin­cial hous­ing de­part­ments say they need dou­ble their an­nual bud­gets (at least) to achieve what’s ex­pected of them. For Gov­ern­ment to meet its prom­ise to squash the back­log by 2014, the fund­ing short­fall is around R102bn.

But Sexwale has no plan to be the lone “gla­di­a­tor” who builds homes while South Africans sit back and say “let’s see what he can do”. He’s on a mis­sion to get South Africa’s wealthy busi­ness peo­ple to bring their money and ideas to the ta­ble. While it’s not clear who falls into the “high net worth” bracket, Sexwale is looking for “in­no­va­tion, part­ner­ships and out of the box think­ing”.

“We need a par­a­digm shift about South Africans who are des­ti­tute and not cred­it­wor­thy. If you mul­ti­ply the back­log by five or six (the av­er­age num­ber of one fam­ily) you are deal­ing with 10-12m peo­ple. Whose prob­lem is this? It’s very danger­ous to see it only as Gov­ern­ment’s prob­lem. We need a mind­set change,” says Sexwale. He plans to take busi­ness peo­ple out and ex­plain “how the na­tional purse is not go­ing to do it on its own”.

He’s adamant: “It’s about build­ing de­cent homes for peo­ple like the women who iron your shirts and cook your meals but then have to live far away or in hov­els in back yards.”

While Sexwale has in­structed his “war coun­cil on poverty” (his pro­vin­cial MECs) to pull out all the stops to get the bet­ter of the back­logs, chief fi­nan­cial of­fi­cers in pro­vin­cial hous­ing de­part­ments are warn­ing it’s sim­ply im­pos­si­ble without huge amounts of money.

“Gaut­eng’s hous­ing bud­get is R3bn. There’s no way we are go­ing to ad­dress the back­log – which is made worse by mi­gra­tion to the city – without at least dou­ble the bud­get,” says Gaut­eng hous­ing depart­ment CFO An­thony Green.

How­ever, it’s far more than just a ques­tion of lim­ited bud­gets. In­creas­ingly, politi­cians are dis­cov­er­ing that Gov­ern­ment hous­ing is a lu­cra­tive way to boost per­sonal fi­nan­cial and po­lit­i­cal fief­doms.

Gov­ern­ment’s pi­lot high-den­sity N2 Gate­way Project in Cape Town – which was in­tended to show­case a “sus­tain­able hu­man set­tle­ment” ap­proach to hous­ing – un­der-

scores just what Sexwale is up against as he breathes new life into this con­cept. It’s three years be­hind sched­ule and R700m over bud­get. Au­di­tor Gen­eral Ter­ence Nombe­mbe has pegged fruit­less and ir­reg­u­lar ex­pen­di­ture on the project, which is close to R100m (see side­bar). The orig­i­nal project man­agers – Cy­be­ria – were ap­pointed ir­reg­u­larly and without hav­ing any ex­per­tise to do the job at hand. The R12m paid to Cy­be­ria – be­fore they were fired – was ir­reg­u­lar. Thubel­isha Homes took over the project man­age­ment, but were also ap­pointed without a proper pro­cure­ment process. Thubel­isha is now in­sol­vent and all its em­ploy­ees have trans­ferred to the new Gov­ern­ment Hous­ing De­vel­op­ment Agency, which over­sees the project.

While Sexwale vows to “stem the tide of waste and fraud” in his depart­ment, SA’s Na­tional Trea­sury is assem­bling a spe­cialised, high-level unit to clamp down on ten­der cor­rup­tion in all spheres of gov­ern­ment. Last year a to­tal of 205 (out of 284) mu­nic­i­pal­i­ties sim­ply failed to ac­count for their spending on con­di­tional grants.

Co-op­er­a­tive Gov­er­nance and Tra­di­tional Af­fairs Min­is­ter Sicelo Shiceka ad­mits mu­nic­i­pal in­te­grated de­vel­op­ment plans and lo­cal eco­nomic de­vel­op­ment strate­gies of­ten re­flect politi­cians’ per­sonal fi­nan­cial agen­das rather than those of a uni­fied, co-or­di­nated pub­lic sec­tor.

In the mean­time, de­liv­ery has started to hit walls. For ex­am­ple, cash flow in Gaut­eng’s pro­vin­cial hous­ing depart­ment dried up in Oc­to­ber last year, which means de­vel­op­ers the State re­lies on to build houses have been paid er­rat­i­cally for the last six months. Sev­eral de­vel­op­ers Fin­week spoke to on con­di­tion of re­main­ing anony­mous said they were on the verge of go­ing un­der. Two smaller op­er­a­tors that only had gov­ern­ment as a client have shut their doors. One of the de­vel­op­ers still func­tion­ing, who owes his cred­i­tors R200m, says his pay­ments have started to “trickle” in. He’s one of many who have started to go slow on projects so as not to get caught short if this year’s bud­gets run out early.

An­other de­vel­oper Fin­week spoke to said: “I’ve been told off the record by the Gaut­eng Depart­ment of Hous­ing that I should stop all new construction be­cause I might be faced with them not hav­ing any bud­get avail­able

to cover what I have spent to date in this fi­nan­cial year. I have also been told that they will be pre­pared to al­low us to build on risk – which means what we build this year will only be paid out of the 2010/11 bud­get in April 2010. If you can­not ar­range bridg­ing fi­nance to do this, what do we do with all the staff most of whom are pre­vi­ously dis­ad­van­taged? Of­fi­cially, the hous­ing board just keeps telling us the money is com­ing,” he said.

Aside from not want­ing to cre­ate a fuss and jeop­ar­dize their fu­ture con­tracts, de­vel­op­ers don’t have much of a le­gal leg to stand on. Con­tracts give lit­tle guar­an­tee of gov­ern­ment per­for­mance and are am­bigu­ous about when the 30-day pay­ment pe­riod be­gins and ends.

Yet an­other de­vel­oper Fin­week spoke to com­plained that he’d been wait­ing for over a year to be paid for 1 000 homes he’d com­pleted in Gaut­eng.

Com­pa­nies who sup­ply the de­vel­op­ers with ma­te­ri­als are also up in arms and are threat­en­ing to “go pub­lic” with the prob­lem if it is not sorted out this month. “We are also ex­posed by con­tracts de­vel­op­ers en­ter into, which es­sen­tially al­low de­vel­op­ers to build on risk. I have not been paid for months and if I don’t get pay­ment soon I will fold,” said a sup­plier.

Cedric de Beer, who heads Gov­ern­ment’s bridg­ing fi­nance out­fit, Nur­cha, con­cedes that this sit­u­a­tion (cash flow and pre­car­i­ous con­tracts) opens the sys­tem up to de­part­ments be­ing able to resched­ule projects, de­lay them or (in some cases) in­struct con­trac­tors to start build­ing without a fi­nal con­tract be­ing signed. It goes without say­ing that this opens the sys­tem up to in­ef­fi­ciency, cor­rup-

tion and wasted ex­pen­di­ture.

The key ques­tion is whether throw­ing more pri­vate money at the prob­lem is go­ing to solve what is a com­plex sit­u­a­tion? Pres­i­dent Ja­cob Zuma has put na­tional and pro­vin­cial cab­i­nets on or­ders to clean up the sys­tem and up the de­liv­ery ante. And gov­ern­ment funds for hous­ing are flow­ing thick and fast. Hous­ing in­fra­struc­ture grants to mu­nic­i­pal­i­ties over the next three years amount to R67bn. A fur­ther R45bn will be spent on the Break­ing New Ground (BNG) hous­ing pro­gramme which was adopted in 2004 – and which pro­poses a shift in gov­ern­ment pol­icy which Sexwale is now aim­ing to im­ple­ment.

While hous­ing ac­tivists and aca­demics don’t be­lieve the depart­ment will have the po­lit­i­cal stom­ach to take the shift far enough, the key for now is that Sexwale un­der­stands the need to move away from gov­ern­ment churn­ing out row upon row of houses on cheaper land (read: far out of ur­ban cen­ters and places of work) and then mov­ing peo­ple – of­ten by force – from in­for­mal set­tle­ments to the new hous­ing projects. Gov­ern­ment has been do­ing this in spite of its own pol­icy and in spite of well-doc­u­mented ev­i­dence that this repli­cates apartheid spa­tial plan­ning. It’s also been done in spite of gov­ern­ment’s own re­search con­firm­ing that the lo­ca­tion of RDP homes has been the main rea­son ben­e­fi­cia­ries sell them or rent them out only to move straight back to the in­for­mal set­tle­ment they came from in or­der to be near work, schools, fam­ily and friends.

Rhodes Uni­ver­sity’s Richard Pithouse says gov­ern­ment has been set­ting it­self up for fail­ure by deny­ing the real “ex­tent of the ur­ban cri­sis” and cling­ing to a “fan­tasy of what would be nice”. “The State must ac­cept that it’s im­pos­si­ble to erad­i­cate shacks by 2014 by pro­vid­ing every­one with a house. The prob­lem with the fact that th­ese two claims are rou­tinely linked is that the for­mer (eradication) starts to drive State prac­tice more ur­gently than the lat­ter (build­ing houses). And they’re not al­ways the same thing. It’s im­pos­si­ble to house ev­ery­body within the cur­rent lim­its of state ca­pac­ity and com­mit­ment. It’s im­pos­si­ble, full stop,” says Pithouse.

That’s the nub of why SA can’t beat the back­log. In spite of the spec­tac­u­lar rate of build­ing 2,8m homes in the last 15 years (ex­clud­ing China this is un­prece­dented for a de­vel­op­ing coun­try), the prob­lem is vir­tu­ally in­sur­mount­able. The back­log is also prob­a­bly much higher than 2,2 mil-

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