Edition May 2026

The recent official launch of the Metro Trading Services Reform (MTSR) programme by National Treasury is a quantum leap towards addressing some of the longstanding governance deficiencies that have impacted local government.

It heralded a turning point in government’s efforts to break the cycle of historical systematic failures in the provision of basic municipal services. Service-delivery shortcomings, including intermittent power outages, unattended water leaks or water shortages and uncollected refuse, have plagued many communities.

The eight metropolitan municipalities – Tshwane, Johannesburg, Ekurhuleni, Cape Town, eThekwini, Buffalo City, Mangaung and Nelson Mandela Bay – are considered the driving force behind South Africa’s future economic growth and prosperity. They collectively account for more than two-thirds of the country’s economic activity.

The MTSR, a national government initiative that has been endorsed by Cabinet, is designed to restore and maintain the provision of electricity, water, sanitation and waste services in metros by incentivising institutional and financial reforms.

Various government departments, including the Department of Cooperative Governance, the Department of Water and Sanitation, the Department of Forestry, Fisheries and Environment, the Department of Electricity and Energy, and the metropolitan municipalities, together with the South African Local Government Association, have collaborated with National Treasury to design the reforms.

The programme serves as one of government’s priorities intended to support economic development and improve social outcomes during the current administration.

The reforms have also been incorporated into the second phase of Operation Vulindlela, which was approved by Cabinet in early 2025 to further accelerate structural reforms and address the constraints on South Africa’s economic growth.

By implementing a performance-based incentive grant for the implementation of the reform programme, National Treasury sought to incentivise the eight metropolitan municipalities to enhance their ability to provide the three municipal trading services – electricity, water and wastewater and solid waste management.

The purpose of the incentive is to encourage the metropolitan municipalities to create the requisite conditions for the efficient operation of the trading services, to support livelihoods, investment and job creation in the metros.

Payment of incentive grant

The incentive grant payments will depend on the municipalities achieving their Council-approved performance targets of effectively managing the provision of each trading service, including sustainable improvement in the financial and technical performance of the service.

The municipalities must demonstrate political support for the turnaround in the performance and service outcomes of their trading services through Council-approved trading service improvement strategies, institutional roadmaps, and business and investment plans for each trading service.

This is a prerequisite to be eligible to participate in the reform.

To access the incentive, metros then have to meet the performance targets in the Performance Improvement Action Plans they have developed for each of the trading services. These plans need to be approved by Council and integrated into the municipal plans and budget.

The trading services must be managed as a business unit or through a corporate structure, with sound governance.

The three key reforms

Municipalities must implement a business-like approach to service management, which includes delegated management authority and accountability for performance as well as financial transparency.

Effective management capability must be established.

A financial turnaround in the business’s performance is essential to increase investment in asset operations, maintenance, and renewal, as well as expansion of infrastructure networks to achieve improved outcomes.

In his State of the Nation Address in February 2026, President Cyril Ramaphosa stated that government was implementing targeted interventions to improve governance in metros to enhance the delivery of basic services, including water, electricity and waste removal.

He announced the introduction of a new R54 billion incentive for metros to upgrade their water, sanitation and electricity services. The President stated that a comprehensive overhaul was underway to address underlying causes of dysfunction in numerous municipalities.

In addition to the review of the revised draft White Paper on Local Government to outline a modern and fit-for-purpose local government system, the President also announced the review of the funding model for municipalities, saying many of them lack a viable and sustainable revenue base.

Delivering his Budget Speech in February 2026, Finance Minister Enoch Godongwana said, “municipalities must return to the foundational principle of fiscal integrity”.

He then announced the allocation of R27.7 billion over the medium term to the performance-linked reform for metro trading services in electricity, water, sanitation and solid waste.

Minister Godongwana explained that this was intended to rectify the practice of municipalities collecting revenue from basic services while diverting the funds to unrelated functions.

He cautioned that the continuation of this trend could lead to the eventual collapse of critical infrastructure systems, deteriorating services and the accumulation of maintenance backlogs.

Building a stable, capable and predictable local governance system

Speaking at the White Paper on Local Government Executive Dialogue with the National Business Initiative in Centurion recently, Cooperative Governance and Traditional Affairs Minister Velenkosini Hlabisa, said: “Local government is the sphere closest to the people and the primary platform for economic growth and social development.”

He also stated that “South Africa requires a stable, capable and predictable local governance system that works consistently.”

The revised draft White Paper, which is currently under review to replace the 1998 version, focuses on four key pillars to deal with water, electricity and solid waste issues: Universal Access, Sustainability, Integrated Planning and Intergovernmental Coordination.

How will communities benefit?

The MTSR will not only improve the financial performance of municipalities, but it will also promote the sustainability of services provided to communities.

The anticipated outcome of the reforms is an increase in investment in infrastructure, and improved operations and maintenance of the three trading services.

The improved reliability and quality of these services will inevitably benefit both households and businesses, as well as create a climate for increased investment that leads to the prevalence of job opportunities.

How can metros get involved?

The programme is currently available only to the eight metropolitan municipalities and their participation must meet entry conditions that involve establishing an accountability framework with the following elements:

• A single point of management accountability with delegated management authority;
• The provision of the service through an organisational structure that has all the required functions in one business for effective service delivery;
• An agreed service compact between the municipality and the trading service;
• Full financial transparency;
• A funded practical business and investment plan showing a path to financial viability and performance improvement; and
• Additional capacity, including both capacity to manage organisational change and to ensure increased execution of capital budget, required under the reform.

Meanwhile, the MTSR is anticipated to elevate the provision of water, electricity and solid waste services to satisfactory and sustainable levels in the eight metros. ❖