‘It cannot carry on as things have been’ – Gayton McKenzie as he cuts funding for Downtown Music Hub

After years of alleged mismanagement, during which staff went months without receiving their salaries, Minister of Sport, Arts and Culture Gayton McKenzie has cut funding for the Downtown Music Hub to facilitate a full investigation.

“It is simply unsustainable for the department to keep carrying this project due to budget constraints. We will focus on what the future of this important, nostalgic music heritage site will be, but it is clear that it cannot carry on as things have been,” McKenzie said.

Downtown is a recording facility in Johannesburg boasting over 40 years of recording history.

The minister said he was cutting funding to allow for a full investigation to be finalised on funds that have been disbursed since 2008 and to decide what needs to be done with the asset.

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The Downtown Music Hub project

The Downtown Music Hub project was initiated in 2008 by then-minister of arts and culture, Pallo Jordan, to lower barriers to recording facilities, among other objectives, following the purchase of Downtown Studios in Johannesburg.

“Based on an agreement between the Department of Sport, Arts and Culture (DSAC) and the National Arts Council (NAC), the building and its assets were to be donated to a Special Purpose Entity (SPE) following its establishment,” reads the DSAC statement.

The SPE was subsequently established in 2010 as a non-profit company known as Downtown Music Hub.

The Downtown Studios business was purchased as a going concern, which required that the employees be transferred from the seller to the buyer by Section 197 of the Labour Relations Act.

The employees were not transferred to the NAC, but were later absorbed by the SPE.

The NAC-led process of transferring and/or donating the assets to the SPE was never implemented due to a lack of common ground between the DSAC, the NAC, and the National Treasury.

“It was said that there would be no substantive and justifiable reasons for the department to donate the assets to an institution that was not associated with government in terms of any applicable legislation.

“This divergence created delays in the finalisation of the transfer. A counter proposal emerged that the assets be transferred to the department of public works instead, which also did not occur,” the statement said.

The NAC was ultimately compelled to incorporate the assets into its books, which created accounting problems for the state-owned entity, particularly regarding the method of property acquisition.

This resulted in adverse audit findings, which were finally resolved when the then minister of arts and culture, with the minister of finance, condoned the acquisition of the building.

In terms of Section 6(3) of the NAC Act, however, the NAC is prohibited from acquiring and operating an income-generating business, in this case, the recording studios.

 The NAC was therefore forced to allow the SPE to run the business independently.

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Operating at a loss

According to the DSAC, the studio business has been operating at a loss, placing a liability on the department to cover its running and building maintenance costs.

“The SPE’s management made it clear that it was unable to approach private investors due to the matters connected to the ownership of the building and the studios. Health and safety hazards in the building have also had an adverse impact on opportunities for making additional income.”

The DSAC’s statement details how Downtown has received just over R93 million since the 2008/2009 financial year to now.

In 2021, the department’s director general appointed an internal task team to investigate and guide on the future of Downtown.

“Following its work, it was recommended that the project be repositioned and be incorporated into one of the declared cultural institutions of the department, but no final decision was taken.”

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