Address by Mr Andries Nel, MP, Deputy Minister for Cooperative Governance & Traditional Affairs during a panel discussion on: “Actuaries giving solutions to the Municipality Crisis” hosted by the Association of South African Black Actuarial Professionals (ASABA) at the Actuarial Society of South Africa (ASSA) 2018 Convention in Cape Town
President of ASSA, Mr Peter Whitey,
President Elect of ASSA, Mr Lusani Mulaudzi,
President of Association of South African Black Actuarial Professionals (ASABA) Ms Fhatuwani Nemakhavhani,
President Elect of ASABA, Ms Memory Zimba,
Secretary General of ASABA Ms Tshegofatso Sekgwele,
Founding President of ASABA, Mr Themba Gamedze,
Panelists and facilitators.
Good morning. Thank you very much for the opportunity for this conversation on how, together with the actuarial profession, we can build democratic developmental local government.
Actuaries are amazing people. According to the website of the Actuarial Society of South Africa: “An actuary is a professional who applies analytical, statistical and mathematical skills to financial and business problems.
This is especially valuable when facing real-world problems that involve uncertain future events or financial risk.
This ability to quantify that which is unclear helps individuals and businesses to safeguard their future, confidently and at a fair price, in an ever-changing world.
They are able to provide realistic solutions to complex problems with a long term forward view.
They are recognised to be pragmatic, innovative and numerate.
Actuaries operate within a strict professional and ethical framework, advancing equity across all stakeholders and promoting the public interest.
Actuaries are highly skilled professionals who place financial value on long term risks.
Because of the diversity of their skills and the focus on problem solving in their training, actuaries are skilled at extracting insights and intelligence out of complex data.
Traditionally they have operated primarily in life insurance and pensions but the role has broadened to cover health care, banking, short term insurance, investments and all fields of enterprise risk management and long term financial planning.”
Given the challenges in local government we definitely want actuaries batting for team GoGTA.
In his thought-provoking book, If Mayors Ruled The World, Benjamin Barber asks the question: whether the problems facing the world such as climate change, terrorism, poverty, and trafficking of drugs, guns, and people are too big, too interdependent, too divisive for the nation-state? He suggests that cities and the mayors who run them can do and are doing a better job.
I do not propose to answer Benjamin Barber’s question.
However, given all the claims made about actuaries on your website, I do want to pose the question: “What if Actuaries Were Mayors?”
Perhaps one of your past presidents has already started to provide the answer.
In his 2012 Presidential Address Themba Gamedze referred to the serious lack of capacity in the area of enterprise risk management evident in the AG’s assessment of municipalities.
He went on to assert that: “There is an undoubted need for us to as a profession to make ourselves available to participate in the inculcation and deepening of a culture of professionalism, strong risk management and accountability that is under increasing threat within a number of our public institutions, including our municipalities.”
This ties in with the consistent call by President Cyril Ramaphosa for the building of the social compact between government, labour, business and civil society called for in the NDP.
Our Constitution envisages a united, non-racial, non-sexist, democratic and prosperous society in which the potential of each person is freed; a country that belongs to all who live in it, united in its diversity in which the divisions of the past are healed.
Uniting South Africa is necessary for the process of reducing poverty and inequality; unity in turn depends on the eradication of poverty and the reduction of inequality.
The National Development Plan argues that long-term growth and investment requires a shared vision, trust and cooperation between business, labour and government. The NDP requires collaboration between all sections of society and effective leadership by government.
In a society with deep social and economic divisions, neither social nor economic transformation is possible without a capable and developmental state.
However, the successful implementation of the NDP also requires strong leadership from business, labour and civil society.
South Africa needs leaders throughout society to work together.
Given our country’s divided past, leaders sometimes advocate positions that serve narrow, short-term interests at the expense of a broader, long-term agenda. It is essential to break out of this cycle.
This requires trust between major social partners and presently trust levels are very low.
A Citizen Survey opinion poll earlier this year found that 32 percent of respondents had no trust in their mayor, 20 percent little, 22 percent some, and only 20 percent a lot.
Mirroring CoGTA’s Back to Basics assessment, 23 percent of respondents felt their municipality was doing very badly, 28 percent badly, 33 percent well, and 7 percent very well.
According to the most recent poll trust in national institutions ranges from a low of 35 percent for traditional leaders, 40 percent for the SAPS, 46 percent for the NPA, 52 percent for the IEC, 56 percent for the Constitutional Court, and 58 percent for religious leaders.
Recently President Ramaphosa said in Parliament that:
“To build the cities and towns that we want, it is critical that government, the private sector and the NGOs work together to create a sustainable growth model of compact, connected and coordinated urban areas by integrating and aligning investments.
This should form part of the broader social compact envisaged in the National Development Plan, and which, in many different ways and on many different fronts, we are working to build.
Through such a compact, through the transformation of our urban spaces, by strengthening property rights for all, we can ensure that the poor and working class live in decent communities located near to economic opportunities – and that parents can return home from work long before their children need to go to sleep.”
The Back to Basic analysis of the state of our 257 municipalities shows that one third are functioning well, one third are getting many of the basics right but require support, and one third are dysfunctional or distressed.
In response to these challenges government adopted the Back to Basics programme based on 5 pillars: Putting people first; Ensuring delivery of quality basic services; Practicing good governance; Ensuring sound financial management, and; Building capable institutions.
CoGTA is currently making the following interventions in municipalities. I am focussing on financial matter but I want to stress that the role of actuaries can be much broader.
(1) Municipal-specific revenue plans are currently being rolled out in 42 selected municipalities.
The objective of these revenue plans is to improve revenue management, reduce municipal consumer debt, and the protection and enhancement of the municipalities’ revenue collection potential by minimizing revenue losses and focusing on making electricity and water business more efficient and self-funding with full cost recovery.
This includes meter installations, meter management and meter readings; data management – property data, meters and consumer data; accurate and timely billing; payment and receipt management; credit control, debt management and collection; cash and liquidity management.
(2) Audit support - The implementation of audit remedial plans is monitored through the attendance of audit steering committee meetings, audit committee meetings, CFO’s forum and submission of progress reports to provinces and provincial departments.
(3) Ensuring effectiveness of governance structures such as Audit committees, Municipal Public Accounts Committees (MPACS) and section 79 committees.
(4) Establishing capacity to assist municipalities with the tariff deficiencies in municipalities, which results in low revenue generated from electricity and water business.
Working with National Treasury we define the minimum skills requirements in this area, assess the municipal capacity and develop a support model to facilitate the prioritization and filling of critical revenue management posts.
Generally, municipalities are in the process of employing people with right qualifications in key posts such as finances and engineering.
During the 2017/18 financial year, 423 appointments were concluded with competent and suitably qualified senior managers.
In 95 cases interventions were made to enforce compliance with the Municipal Systems Act and its Regulations where appoints contravened these provisions.
1 120 candidates were screened to check whether they appear on the record officials who were dismissed or who resigned prior to the finalisation of disciplinary proceedings.
This database that will ensure that no manager who is dishonourably discharged will be employed in any municipality in the country for a period of up to ten years.
Since the amendment of the Municipal Systems Act in 2011, a total of 1651 municipal employees were dismissed for misconduct, and 130 resigned prior to the finalisation of the disciplinary proceedings.
We want to explore the following areas of collaboration:
How can the actuarial profession help us with regard to financial management and other revenue generation and retention mechanisms or models?
Can ASSA and ASABA help with regard to skills and skills training interventions in relation to financial management?
Any possible relations in assets and liability management, as well as evaluating financial consequences and helping in policy costing?
Can you adopt a municipality?
CoGTA is exploring other potential funding mechanisms such as:
(1) Pooled Financing : the pooling of multiple municipalities’ borrowing needs together normally through a local government funding agency (LGFA) which can offer larger debt issues with better credit rating at lowered costs of debt.
How can ASSA and ASABA advise in this regard?
(2) Infrastructure financing through Pension Funds:
Pension funds are increasingly playing a dominant role in investing on public infrastructure. According to An Insight into African Pension Funds and Financial Markets published in December 2013, infrastructure projects offer pension funds unique opportunities to diversify their portfolios. Pension funds can choose whether to be a direct investor or an indirect investor into infrastructure projects.
How can ASSA and ASABA help in this area?
Can you help in risk management related to climate change effects, insurance aspects as well?
How can you help in finding alternative funding sources for local government given the current fiscal constraints that outweigh the work at hand?
We must also discuss how the actuarial profession can be involved in the District Support Teams being deployed to support 57 dysfunctional and distressed municipalities, the management of the risks associated with South Africa’s very rapid urbanisation and how it can assist our National Disaster Management Centre in modeling disaster risk scenario?
In conclusion, I want to challenge the actuarial profession to play an active though leadership role by helping to develop the analytical tools we as a society need to navigate through a global and national conjuncture characterised by increasing polarisation and complexity in which analytical tools developed in past paradigms are simply not up to these challenges.
Alan Mills, argues in Complexity Science: An introduction (and invitation) for actuaries, that: “today’s complex world demands a new breed of actuary, a professional I call a ‘complex systems actuary’, who:
- Understands the complex nature of social systems. The social systems in which actuaries work (the worlds of insurance, pensions, investments, and health care) are not well-behaved like planets and dice. Rather, they are complex and unpredictable.
- Applies new methods. Traditional actuarial methods alone cannot model complex social systems. To grasp and manage the systems in which we work, we must augment our tools with the new methods of Complexity Science.
- Expands the role of actuaries. Actuaries need not be merely administrators within society’s problem-prone systems. Rather, we also can use our unique knowledge and skill, augmented with insights and tools from Complexity Science, to help solve society’s great problems and improve our social systems.”
Lastly, the role of government is crucial, the role of an active citizenry working with a developmental state is equally important.
Therefore, I leave you with the words with which Terry Eagleton ends his book, Literary Theory: “We know that the lion is stronger than the lion-tamer, and so does the lion-tamer. The problem is that the lion does not.”
We must awake the lion in all of us, including actuaries.
Thank you.
