Calculating a Poor/Non-Poor Capital Expenditure Ratio: Applying a generalised hexagon model zone

29 May 2019

Calculating a Poor/Non-Poor Capital Expenditure Ratio: Applying a generalised hexagon model zone

Spatial targeting refers to the deliberate focus of particular actions on a particular spatial area in order to achieve desired outcomes or objectives. This concept is a recent, but essential, addition to the traditional planning approach followed by municipalities in delivering on their mandate and can easily be identified in legislative and policy documents such as the Spatial Planning and Land Use Management Act of 2013 (SPLUMA), The Integrated Urban Development Framework (IUDF), and the Capital Expenditure Framework (CEF) guidelines.

The CEF guideline requires municipalities to report on capital expenditure towards poor and non-poor households within the municipality – from here on referred to as the Poor/Non-Poor Capital Expenditure Ratio.

Various attempts were made to determine the Poor/Non-Poor Capital Expenditure Ratio. Three of these attempts worth mentioning, which are still useful but in a different context, includes the Deprivation Index, Indigent Index, and the municipally adjusted Gini-Coefficient.

The Deprivation Index is a spatial index which identifies the most deprived areas within the municipality using household income, size, dwelling type, access to water, access to energy, access to refuse removal, and access to sanitation. This however was done using the Small Area Layer (SAL) and was not related to the actual dwelling structure distribution within the analysis area.

The Indigent Index took a similar approach than the Deprivation Index in using the SAL as the spatial representation of the data, however accessing data as defined by the National Framework for Indigent Policies is not an easy task – with some data sets not publicly available.

The Gini-Coefficient shows how much a specific zone within the analysis area varies from the norm within the analysis area making it difficult to differentiate between a high income classes and a low income class as they both vary from the norm to the same degree. Additionally, how the query zones were defined was also dependant on the SAL – thus not reflecting a true spatial distribution of households.

An alternative solution to calculating the Poor/Non-Poor Capital Expenditure Ratio is represented in the figure attached to this article – Calculating a Poor/Non-Poor Capital Expenditure Ratio: Applying a generalised hexagon model zone .

The first step is to generate a 500m hexagon grid within the analysis zone. The second step is to identify the household distribution by disaggregating household data as per SAL to the dwelling frame data – data which is also accessible from Mapable (Pty) Ltd. The thirds step is then to aggregate the number of households per hexagon zone in order to standardise the analysis zones. At this point in the calculation process the analyst identified the number of households per hexagon zone, together with the household attributes linked to that hexagon. The fourth step is then to identify the household income ratio per hexagon, using an income of less than R5000 per month as an identifier for poor households, and more than R5000 per month as an identifier for non-poor households. The next step in the calculation process is to identify the proportion of capital expenditure per hexagon. This is done by splitting the capital per project according to the proportion of which the project intersect with each hexagon using the reporting module of CP3. The result is thus the amount of capital spent per hexagon. The last step in the analysis is to multiply the household income ratio per hexagon of step four with the capital expenditure per hexagon. A future article will deal with the output of this process and how it can be interpreted.

This method of identifying the Poor/Non-Poor Capital Expenditure Ratio is but one approach towards measuring a municipality’s intent towards spatial transformation. It attempts to take into consideration the spatial reality to an above normal level of accuracy, whilst at the same time utilising relatively easily accessible tools and data sets.

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Capital investment prioritisation

Novus3’s innovative and celebrated approach to prioritsation, stems from significant multi-disciplinary experience that was gained in-situ at local government level, firmly rooted in an understanding of the built environment. Through the use of the CP3 system, our clients have the ability to appraise large and complex capital demand requirements within minutes, resulting in defendable, evidence based budgets. The results are often challenged and stress tested by politicians during political debates – the process therefore repeatedly have been proven to be beyond reproach and consistently reliable.

IDP Process Plan and change management

Novus3 provides advisory services to our clients, supporting them in setting up the correct structures and mechanisms internally which becomes the basis for sustainable and collaborative planning and implementation. The IDP process plan has a number of inter-related complexities that plays out on a cyclic basis year-on-year. Pre-empting and reacting to upcoming requirements in the IDP process pro-actively, renders the process into a constructive and demonstratable outcomes-based process.

Public sector budget and fiscal impact simulation

The financial management of public sector funding at local government level, even on a small scale, often rivals the complexity encountered at huge, listed, multi-national companies in the private sector.. Local governments have to operate and make smart financial decisions within a complex and exceedingly stressful environment. Compliance with legislation, policy frameworks and accepted accounting practices have to be maintained. Simulating these complexities allows our financial executives to ask “What if?” questions and reliably peer into the future with a long-term understanding of the implications of decisions that are taken in the present.

Spatial Development Frameworks

Novus3’s specialised knowledge and access to bespoke and purpose-made spatial and other analytic tools, provided the company with the opportunity to develop unparalleled experience in the development of Capital Expenditure Frameworks (CEFs) by bringing a practical angle to the formulation of implementation plans. A realistic roadmap is provided on how to realise the objectives developed in the Spatial Development Frameworks of the municipalities where we were involved. In return for the development and submission of these CEFs, these municipalities were awarded with significant additional funding from central government.

Built Environment Performance Plans

As part of the National Treasury City Support Program, Novus3 was regarded as specialist advisors on the built environment value chain – a process embedded in Built Environment Performance Plans (BEPPs). BEPPs were intended to form the bedrock of municipal capital planning and management for larger cities (metros). Novus3’s specialist knowledge played a big role from an advisory and capacity building perspective during the development of a number of BEPPs that were developed for a number of metros.

Infrastructure Capital Investment Plans

Infrastructure investment has to find a balance between addressing historical backlogs and inequalities, maintaining satisfactory prevailing functionality and level of service and strategically investing in unlocking future opportunities and growth whilst acknowledging a plethora regulatory constraints, policies and rules. In the process, certain strategic outcomes are sought which may manifest spatially strategically or environmentally. Our infrastructure capital investment plans provide the strategic guideline and provide the recommendations to find this balance.

Capital Expenditure Frameworks

Novus3 has developed multiple capital expenditure frameworks (CEFs) for multiple municipal clients and are regarded as the sector leaders in this area. These CEFs are financial roadmaps providing clear direction on financial constraints, the most important capital and investment priorities, an understanding of the unique local fundamentals and a sustainable response to these multiplicity of challenges.

Project preparation processes

The efficient planning and execution of projects from the moment of idea conception until the last brick has been laid has been the subject of study from as early as the reign of the Roman Empire. The governance process within the public sector has to play an important role in the journey of project preparation. The under-expenditure of allocated funding regrettably is often the only element in the built-environment that consistently re-occurs. All too often, funding is allocated to projects that simply are not ready to proceed to the next step. Novus3’s CP3 system is used to aid clients in the progressive steps involved in the project preparation journey.