NOMPU SIZIBA: Ratings Afrika released its annual Municipal Financial Sustainability Index for the financial results of SA’s metropolitan municipalities for the fiscal year ended June, 2019. It found that many of the Metros’ financials were not on their best form, with operating deficits seemingly the order of the day. This finding is negative because it adversely impacts service delivery levels.
Well, to tell us more, I’m joined on the line by Charles Kocks, a director at Ratings Afrika. Thank you so much for joining us. Charl. Before we get into the nitty-gritties of the index, just first explain why metros are so important in the scheme of things.
CHARL KOCKS: Well, all municipalities of course are very, very important, because that’s the place where service delivery to the population happens – or should happen.
The metros are massive in terms of size and impact. And, when you look at the number of people that are served by the metro, it’s such a vast number that you can’t ignore it. They cover over 60% of the whole country. They are the place where theoretically professional management can do better. They are the place where financing from even external sources to South Africa could take place, and they certainly are, theoretically at least, serving a great number of our people.
NOMPU SIZIBA: In the index, if you look at a number of variables around the metros’ financial health, financial sustainability being one of them, what were your findings in this regard?
CHARL KOCKS: Well, the sad news is that over the years that we’ve been doing this – and our initial model started in 1996 – we’ve been watching this carefully. There is unfortunately in many cases a decline, and in some cases the decline is now into a very, very serious area.
Over the past five years the only real case of a significant improvement is the City of Cape Town. Now I know that some of your listeners might feel that there’s a kind of political angle. I want to say immediately we are looking only at the financial results, we’re not looking at some kind of a political background. And it’s management, management, management that makes a difference here. So, to the extent that any political party is in control of the council, as long as they give their managers – the right kind of managers, of course – the ability to do their job well, things will go well.
The problem is that our whole index concept is that we need to see whether a municipality or a metro has the capacity to absorb financial shocks caused by things like economic, political, and now medical adversity. This is crunch time, 2020. The only one of these metros that we believe has the resources to handle this crisis is Cape Town, meaning that all the others, all seven others, probably will need a sizable infusion of funds by the central government. And the R20 billion that central government has said it has available is going to not be anything like enough, This is because, firstly, it has to look at the whole municipal sector, and secondly, if Salga [South African Local Government Association] says these men in these metros are going to be sticking, looking at the 5% decrease in revenue, that’s R10 billion. We would think that the increased decrease is going to be greater than 5%, but let’s say it is 5% – R10 billion of revenue loss for organisations that largely are already making losses, we are are talking about a very, very serious situation here.
NOMPU SIZIBA: Let’s talk about Mangaung. Basically it scores terribly on every index that you’ve put out. If you look at operational performance, you look at liquidity levels, you look at financial sustainability, and so on, what’s going wrong there? Is it people who are being completely irresponsible with the resources that are put in their hands for the community? What is it? Is it a lack of resources, qualified people? What’s the problem?
CHARL KOCKS: It’s difficult for us to say what the reason is. We are simply calling the result. But it seems to indicate very, very bad management – or a lack of interest in improving things. When you look at where they started off, say in 2007, Salga offered a figure of about 40. We went up to 49 in 2008. And if you look at the latest section that we showed on Friday, we are now talking about something that declines from 42 to 28 as the overall score. And when it comes to operating performance, from 10 to 2. If you know that things are going bad, you should be doing something to correct it. We don’t see that correction process.
NOMPU SIZIBA: It’s very problematic, indeed. And then you touched on Covid-19. Of course, it’s made everybody’s life that much worse. To what extent do you think municipalities generally, as well as the metros, are going to be impacted by this? I do see that Finance Minister Tito Mboweni did provide a further R7 billion in his supplementary budget for municipalities to be able to deal with Covid-19, but presumably this is going to make their lives that much more difficult.
CHARL KOCKS: It is definitely going to make their lives difficult, because the fundamental source of their income is in rates and taxes, as well as the electricity and water sales. If people have lost their jobs – small businesses, large businesses, the average person in the street – they won’t be able to pay. And when it comes to looking after your family and making sure that there’s food on the table, you’re not going to put the municipality account first in line.
So the estimation is that it’s going to have a significant impact on many of these municipalities, specifically the ones with large portions of their income from private individuals. If you have lots of industry in your area, you might do somewhat better. But if you have, say, 80 to 85% private individuals who source you, we are talking about a very significant problem if 30% of people in South Africa are going to be without jobs. If 40% are going to be out of jobs, it’s more of a crisis. And if 60% of them are out of jobs, then we have a massive, massive disaster.
NOMPU SIZIBA: One last question, before I let you go – what’s the solution then, because these are realities? People don’t have jobs. People don’t have funds to pay their important obligations. So what should happen next?
CHARL KOCKS: Well, firstly, I think any municipal manager should really wake up and smell the coffee burning on the stove – they need to take serious action. Unfortunately, certain projects would have to be halted, because you now need to conserve your cash to provide those basic services on the assumption that you will not be paid your normal revenue.
So this now needs crisis management to come in. It’s going to take wise heads to decide where you cut, but you have to cut any expenditure that isn’t absolutely essential, and you have to try to provide those services to the population that will keep them alive and help them still get up in the morning, and be able to make some kind of a living.
NOMPU SIZIBA: Difficult times. Thank you, Charl, for your insights there.