Last month I was invited to present the benefits of the green economy to over 50 mayors as part of a themed panel discussion on ‘Municipal finances as a catalyst for the local economy’. One of the major challenges that were raised was that the green economy is still widely viewed as a “competitor” to municipal services. They are yet to see it as a collaborative opportunity for unlocking new investment growth and innovation. As advocacy partners, we are often quick to preach “green is the future” without understanding the full context of the lay of the land, i.e. the upfront challenges facing municipalities and the decision-making constraints at hand.
Rooftop solar installation at Black River Park in Cape Town
Vicious economic cycle
Presently, South African municipalities are owed more than R138bn by other government departments, businesses and households. The direct implication is that these entities are then left with the credit burden, which means they themselves are now unable to pay their creditors on time and are struggling to pay for infrastructure investments such as bulk water and electricity grid infrastructure to service their customers. It’s a vicious economic cycle that has created a financially distressed municipal environment in the country.
One of the major creditors of municipalities is the state electricity utility Eskom, which is also the central and major generator, transmitter and, in some cases, distributor of electricity in South Africa. In most cases, municipalities are the resellers of electricity, whilst in other cases, Eskom sells directly to some big businesses. The current structure often creates a financial conflict (historical context). By understanding these difficult operational challenges, green pundits can now plan their innovative solutions around these challenges.
Renewable energy adoption
For instance, the rapid introduction of renewable energy options has already created new investment opportunities for large businesses. Though this is not ideal for the municipality, it certainly serves as a constant reminder of green alternative electricity supply options that are already being adopted by large paying customers of electricity.
Clearly this also presents a strong business case for municipalities to start shifting their thinking on their current operating funding models. South Africa is not the anomaly here as this is the case in many municipalities globally. What is not being reported is that all these new global green trends by corporates are direct responses to the rapidly changing needs and demands of consumers and customers (important to differentiate between these) particularly at the corporate level. So this customer (paying consumer) is already starting to slip out of the municipal finance control system. However, this does not stop at the electricity level — it’s been reported that large companies are also starting to wean themselves off the municipal water grid systems as it was the case for a major property development company in defiance to the water supply challenges that are being faced by the citizens of Cape Town. With corporates and business owners becoming uncertain future utility customers, what is the municipality to do in order to retain its funding model?
Households hold key to green revolution
The caveat is retaining their next biggest customer, which is households. Other than households being the biggest debt contributor, they hold the key to the green revolution. Households are effectively the complementary key holders of the green economy municipal services in all the key green economy segments, namely energy, transport, waste, water and food sectors, respectively. Globally, it has been proven that once the consumers know the environmental implications of the products they consume, then it takes little to convince them otherwise.
It’s no coincidence that all the major car manufacturers are starting to introduce low to zero emission model options. Examples are found in the introduction of electric vehicle (EV) models. The latter case might seem like a distant option for the SA consumers, but EVs are already being adopted in Europe, China and the US, and are fast becoming the norm with internal combustion models being phased out of the mobility equation. Just last week a premium car brand recently launched a R30m ($2m) EV charging and powerway network in South Africa. The City of Cape Town has also started deploying electric buses to service their eco-conscious customers!
Another good example is how the major retailers are responding to the “zero waste” revolution of ‘eco- conscious’ customers. So it’s quite clear municipalities need to take leadership of the green evolution paradigm by becoming more customer-centric if they are to retain households as loyal paying customers. Granted, households need to be better paying customers if they are to retain the municipal services but the latter will only pay if they receive appropriate services they deserve. Once again it’s a reinforcing vicious economic cycle that can only benefit the financial sustainability of both parties.
Central to this green revolution is the rising consumer awareness of paying customers’ decisions, especially those that result in harm on the environment. So municipalities should embrace their green revolution and there is an opportunity to educate its next biggest customer — at the household level. Failure to do so can lead to several implementation challenges of progressive green policies such as the planned City of Johannesburg’s household recycling plan.
Why should municipalities care about the green economy?
When implemented with the right guidance, these alternative revenue generating models can lead to municipalities diversifying their present income streams; developing service charges which include cross-subsidisation costs that are cost-reflective; and improving credit control systems and managing their rising debt. South African municipalities do not have to look very far for inspiration. Countries such as Kenya are already implementing green innovation in the form of microgrids with major success. Decentralised electricity systems such as microgrids enable municipalities to generate and sell their own power, thereby tracking and maximising their revenue potential.
GreenBDG Green Cafés
All that is needed is a bold approach to take advantage of these integrated green economy opportunities. It is encouraging that some large municipalities such as the Cities of Tshwane, Ethekweni, Johannesburg and Cape Town are starting to open themselves to collaborations with the private sector as we have seen through our Green Cafés — these knowledge sharing platforms are effective collaborative tools to advance South Africa’s net zero carbon ambitions in all the major sectors of the economy, including households.
These platforms also enable municipalities to interact with its biggest customers, namely corporates, government departments and households in order to unlock innovation — by giving them all an open platform to understand the “so called” green economy a little bit better, thus making them green customer centri(cities) and towns of the future!