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Municipal sector faces collapse – Ratings Afrika

Less than a quarter of the 100 top municipalities reported a profit in 2018.

SA’s municipal sector faces collapse as financial governance continues to deteriorate, says Ratings Afrika’s latest Municipal Financial Sustainability Index (MFSI) for 2018.

Unless corrective action is taken, a crisis is inevitable. And when service delivery is poor, violence is never far behind. Political leaders need to look at the interests of residents and businesses rather than their own, says the agency. They need to root out corruption, appoint managers with the right skills and experience, and apply sound budgetary practices and strict financial discipline.

Very little of this is in evidence in the latest MFSI. “The current political leadership in control of the majority of municipalities has demonstrated over the last five years and more to not being capable of sound governance,” says Ratings Afrika. “This is the main cause of the deteriorating financial sustainability of the municipal sector in SA.”

Of the seven metros analysed by Ratings Afrika, Cape Town came out tops for financial sustainability. Joburg came last.

Both are DA-run, so gloating rights ahead of the national elections are severely curtailed.

Tshwane, too, looks like it needs a financial reboot with a working capital deficit of R3.2 billion. It’s also DA-run, but is starting to show signs of improvement, reporting a R336 million operating surplus in 2018.

Joburg reported a deficit of R250 million in 2018 and has suffered a deterioration in its MFSI score from 43 to 29 over the last five years.

Ratings Afrika analyst Leon Claassen says it is difficult to draw political inferences from these scores, since many municipalities and metros are grappling with long-standing legacy and debt issues. However, it is well known that the governing party in each jurisdiction stacks management with political appointees.

Drop in electricity sales for Joburg

An analysis of Joburg’s revenue shows electricity sales dropping nearly R900 million to R13.5 billion – a decline of roughly 6%. Part of this would have been the result of electricity outages, but some of this is also certainly due to users switching to alternative energy sources. Non-payment is adversely affecting the working capital position of Johannesburg, which was R3 billion negative (shortfall) as at June 2018. Eskom’s annual report for the last year shows an arrears bill of nearly R17 billion in Soweto alone – this amount is not included in Johannesburg’s financial results.

Presenting the latest MFSI for 2018 on Tuesday, Claassen points out that only 23 of the top 100 municipalities in SA reported operating profits last year. The remaining 77 made combined operating losses of R13.3 billion and recorded a combined working capital shortfall of R23 billion. This means they have run out of cash and have stopped or delayed paying creditors.

Ratings Afrika’s MFSI uses a model that scores municipalities out of 100 based on operating performance, liabilities management, budget practices and liquidity.

Overall, the picture for municipalities is bleak and getting worse. The national average slipped below 40 to 38 for the first time since the index was calculated in 2012. Of the top 100 municipalities, 56 scored less than 35. Worst of the lot was Modimolle, formerly Nylstroom in Limpopo, which scored just 2 out of 100. It has virtually ceased to function and service delivery is almost non-existent – a recipe for protest and violence.

Redemption

Best of the lot is Swartland in the Western Cape with a score of 86. And herein lies a tale of redemption. When the index was first published in 2012, Swartland scored in the low 50s. After huffing and puffing about the low score, municipal managers asked what they should do to improve performance. “It came down to making basic financial corrections, such as reining in expenses, no new hires, improving revenue collection and implementing proper budgeting,” says Claassen.

Another municipality on the mend is Midvaal in Gauteng, whose score has improved from 53 to 72 over the last five years. It has consistently won clean audits from the Auditor General. In 2013 the ANC attempted to merge the DA-run Midvaal with the disastrous ANC-run Emfuleni in what was seen as a cynical attempt to capture the province’s best-run municipality. The attempted merger was defeated in the North Gauteng High Court in 2015.

Moving in the opposite direction is Msunduzi in KwaZulu-Natal, which was once rated among the best-managed municipalities in the country. All that has gone as new management took over, squandered the reserves, and let revenue and arrears collections go to the dogs.

The political question

How much does politics play in the management of municipalities?

Ratings Afrika director Charl Kocks relates the story of one metro that soft-peddled on arrears collections so as not to lose votes ahead of an election. The obvious solution seems to be to get professional managers in to run the municipalities, rather than using them as playthings for dispensing political favours.

The main revenue source for metros and municipalities is electricity sales, followed by water charges, refuse and sewage charges, and property tax.

“Given that the financial sustainability of key local municipalities in SA is weak, our expectation is that the quality of service delivery is likely to deteriorate over the short to medium term,” says Ratings Afrika. “Weak service delivery impacts quality of living as well as the economic growth and development that are desperately needed to reduce unemployment in the country.”

What differentiates the high-scoring municipalities from the weak are skills, experience, financial discipline and quality of management backed by sound governance.

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Yes, thank you Ciaran…South Africans acutely KNOW THAT already 😉

We all deal with municipal ‘excellence’ around us, and continue to witness/experience the slow decline. The People are now enjoying their hard-fought freedom…

When the golden goose runs dry, people will hopefully realised that the last 25 years of voting for corruption has done nothing to benefit themselves.

I don’t know how SA had maintained the investment grade given the poor dismal and pathetic track record.

I feel sorry for the average South Africa, people just minding their own business and getting shafted in the process.

When in 2024 when the new Goverments steps in I hope they blame the anc in the same way the anc blamed everyone else for it’s short comings.

Should your prediction come to pass at the next election the ANC will join with the EFF to retain power. They are after all just another ANC faction.

SA is in crisis mode, municipality service delivery wise. Most people believe that they should have everything free of charge in SA this includes foreigners. Which country has been successful with this way of doing things?
People need to be taught that government does not print money just for the sake of printing money. Tax payers keep the country going.

Municipalities need to be professionalized and forced to be accountable.
We also need to get rid of counselors, money is being wasted here as they always say when being interviewed angazi or I do not have power to influence. Before 1994 SA worked well without them, let take their budget and use it to settle some of the so called indignant unsustainable municipality debt.

Slightly off-topic but … municipalities should be prohibited from blow-your-own-trumpet advertising. These are essentially political adverts which should be paid for by the political party concerned, or self-promotion by the mayor which should be paid for by the mayor concerned.

Cadre deployment, incompetence, unaccountability, poor service delivery, maladministration and corruption are the root causes for the demise of municipalities.

A Mayor is a legalized Robin Hood. He employes the municipal act to steal from property owners. His remuneration depends on how successful he is. An organization that plunders the capitalist class, for the benefit of the socialist class, is called a municipality. There is a whole farcical system called “democracy” that enables and motivates the beneficiaries to loot the minority in a legal way.

Anybody with half a brain will realize that this system is flawed and destined to fail. Every collectivist loser will move to the municipality where he can use the law to steal from others. The municipality with the most taxpayers will inevitably attract the largest gathering of looters. Redistribution is short-lived. The taxpayers have been overrun by the plundering hordes. In typical socialist fashion, the municipality begins to appropriate the property of the owner who cannot afford the rates and taxes. It is clear that it won’t be long before the municipality owns each and every property within its boundary.

Our municipalities are socialist organisations that are slowly appropriating every property without compensation. These redistributive acts are syphoning off a part of the value of our properties already. The municipal act is a catalyst that turns an R8 million house in a security complex into 10 shacks in an informal settlement. Magic!

Correction: A Mayor is a legalized “partial” Robin Hood. He takes from the rich and then keeps it.

It’s what happens when you handover to ‘freedom fighters’ who know nothing

100% Bob, it’s just a pity they cannot be kept fighting for freedom forever, as they clearly cannot do anything else right but breed, the lot of them!

Remember those useless, pointless Budget, MTP speeches, by Gordon, Mboweni, how Gvt will fix up municipalities ?
Haha..
Instead – the auditors get increased death threats.

This is what happens when corrupt and inept ANC cadres meet an electorate that refuses to pay for the services they demand.

The DA are simply heads and shoulders above the ANC when it comes to basic governance and management, the WC is a ahead of the rest of the country in every key stat there is. Jhb will likely get there after 5 or 10 years as well because Mashaba knows what he is doing.

The reality for the ANC is they don’t “appoint managers with the right skills and experience” because the political appointees and patronage means the people doing the hiring don’t have skills or experience, why would they hire someone that was not hired in the way they were and with similar skills? Hence the ANC pyramid scheme starts to unravel itself.

There is a strong correlation, based on figures from the Infrastructure Finance Corporation Limited, trading as INCA, that the quantum of losses within the ANC led municipalities are the biggest contributor to losses, and that is because the ANC has used non-payment of services like a political tool.

The ANC do not collect debt in places like Soweto as it is bad for votes, a sort of political patronage.

Municipal staff are highly qualified with their impeccable credentials being 1st, 2nd and 3rd degrees in Bribery, Corruption, Mismanagement and Maladministration.

The majority party have proven beyond a doubt that they are justifiably inept, incompetent and have little interest in improving the lives of the their own people.

The logical conclusion of the ANC’s blind pursuit of an ideology based on identity politics. There must be equality of opportunity but NOT equality of outcome. The latter leads to disaster as seen throughout history.

And there are so many stellar examples to see, Grahamstown, Port Alfred, Primrose, Harrismith. . . . . There are just to many to mention, all classic examples of the ANC mismanagement.

When Zuma steals to his heart’s content and nothing happens to him the sheep will follow.

So now we measure the sustainability of a municipality by whether it makes a profit or not !! That’s what the heading says!!

Sure there is a correlation between financial sustainability and the purpose of a municipality but to presume financial sustainability is a reliable indicator as many of your readers seem to do is ludicrous. After reading the article I now understand better why many informed and knowledgeable people are scathing about Ratings Agencies. In the entire annual report of Ratings Afrika on which this article is based, there is not one single mention of the enabling legislation that governs all activities of municipalities. I wonder if either of the authors of the Ratings Afrika Report are even aware of the Municipal Finance Management Act 56 of 2003 which came into effect on 1/7/2004. (mfma.treasury.gov.za) Seems to me to be a real cushy business.

This Ratings Afrika Report tells us nothing new that any truly interested party already knows about the current state of municipalities. MichaelfromKlerksdorp makes this point abundantly clearly. What the Report does however do is to cause certain municipalities to boast about their ratings to their own advantage. But does anyone really learn anything new about why the majority of municipalities are struggling? I doubt it.

Ronaldus, I assume you have a copy of our press release? If not, send me your e-mail address to Charl.Kocks@RatingsAfrika.com and I shall send you copy. No, we did not include reference to the MFMA this time, but did so when we started this service around 1997. The issue of sustainability is complex and we do not pretend that the final word has been spoken on how to gauge it. But we know that municipalities who have taken our analyses to heart, have been able to turn very weak situations around. And that is what matters most to us; being able to play a role in the correction of a serious problem.

Correction: in 1997 we set out the legal framework including the right of a municipality to seize fixed assets; we updated this framework at the time when the MFMA was enacted (which was 2004, correct), and repeated this with our product relaunch in 2011. Sorry for the misleading response earlier. Unfortunately the existence of the MFMA has not led to better sustainability, at least not on a widespread basis…

Scale of the total losses is actually suprisingly small – so all 77 loss making municipalities are only burning through about what SAA burns through in a year.

You all have it so wrong. Just this week in Bloemfontein at the ENCA debate the ANC explained that municipalities are in a bad way because the people were so poor they could not pay for services…..luckily Michelle Bruce corrected him before he could blame Jan van Riebeeck.

It’s basic economics which is being played out internationally:

Urban growth is surging as a consequence of the shift in global economies to service industries run from high-density, sophisticated cities as opposed to labour intensive agriculture and handcraft labour in outlying areas.

The shift is much faster than in previous eras, assisted by better transport connections. In some countries, this influx is exacerbated by political/social failure and mayhem in their own countries/rural areas. Expectations are misguided based on media/TV concepts of the “good life” elsewhere.

The influx of untrained labour takes over vacant land/buildings and erects squatter townships. These migrants have nothing to contribute to the shift to technological economies other than their physical labour.

The population of the now “informal settlements” becomes disenchanted with the lack of services like housing, schools, clinics, water and electricity which they perceive as their human rights.

The municipalities are funded by an established, educated, employed and upwardly mobile middle-class, who are used to paying rates and taxes for the above services and now find the budget which supported a well-functioning city being diluted into supplying the demands of the migrants who riot and create chaos if their demands are not met.

Whatever is earned by the “displaced” goes to their very basic living conditions but a large proportion goes back to their original family town/village.

Major cities become surrounded by shacktowns and the general standard of living previously enjoyed by those urbanites becomes a mix of wealthy enclaves and dysfunctional surrounds.

Welcome to the New World with labour sourced from Africa and the Middle East.

make the ANC elite live with their voting base, instead of in their tax funded mansions – I doubt they even get load shedding

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