Other than in the Western Cape, municipalities are failing miserably

And this was before the pandemic. It’s time to rethink local government in its entirety.
The majority of municipalities are ‘seriously unsustainable’. Image: Waldo Swiegers, Bloomberg

Even before the coronavirus struck, SA’s municipalities were withering on the vine.

It comes as no surprise that Ratings Afrika’s latest Municipal Financial Sustainability Index (MFSI) outlines the ongoing deterioration at local government level.

It’s as if we have heard this story before. In fact, we have heard it before.

The 2019 Municipal Report by the Auditor-General (AG) suggests that 60% of revenue reflected on the books of municipalities will never be paid. Only 8% of the 257 municipalities received clean audits in the 2017/8 financial year, and half of them had financial statements deemed “quality”. Irregular expenditure totalled R32 billion and the likely financial loss from material irregularities came to R24 billion.

The Ratings Afrika study takes a broader look at financial sustainability, measured around six components: operating performance, liquidity management, debt governance, budget practices, affordability and infrastructure development. Municipalities are then given a score out of 100.

Two reasons for Western Cape performance

The Western Cape yet again comes out head and shoulders above the rest.

Ratings Afrika analyst Leon Claassen identifies two primary reasons for this outperformance: “Most of the Western Cape municipalities are under DA control, and the party has taken a firm political decision to impose strict financial control and good governance. The second reason, flowing from this, is the Western Cape’s quality of management is overall better than rest of the country.”

The next best province for municipal governance is KwaZulu-Natal, followed by Northern Cape. But if we take the Western Cape (overall score of 59) out of the picture, the rest of the country scores an average of 31, according to Ratings Afrika.

The majority, comprising 63 municipalities out of the top 100, achieved a score of less than 40, “rendering them seriously unsustainable and perhaps even dysfunctional in terms of normal service delivery”.

Average Municipal Financial Sustainability Index scores by province
2015 2016 2017 2018 2019
Eastern Cape 34 32 31 28 29
Free State 24 24 23 21 21
Gauteng 32 33 31 32 31
KwaZulu-Natal 52 47 46 44 41
Limpopo 42 40 39 30 32
Mpumalanga 30 30 30 31 30
Northern Cape 51 46 40 35 35
North West 27 29 24 29 25
Western Cape 56 57 59 58 59
National average 42 40 40 38 37
Source: Ratings Afrika

“The weakest provinces are Free State and North West, with average scores in 2019 of 21 and 25 respectively. It is very clear that the majority of the municipalities in these provinces are in serious financial trouble and probably dysfunctional in key service delivery aspects,” says the Ratings Afrika survey.

Oversight ‘totally ineffective’

Claassen says it’s clear that the councils of these municipalities have failed miserably in their governance responsibilities by allowing them to sink into this desperate, unsustainable financial situation.

Furthermore, it seems that the oversight role by the respective provincial administrations, except the Western Cape, has so far been totally ineffective to improve the financial sustainability at municipal level, as the situation has been continuing over the last five years.

Best performing by province in 2019 

Municipality Score
Eastern Cape Senqu (Lady Grey) 57
Free State Metsimaholo (Sasolburg) 31
Gauteng Midvaal (Meyerton) 66
KwaZulu-Natal KwaDukuza (Stanger/Ballito) 66
Limpopo Lephalale (Ellisras) 46
Mpumalanga Steve Tshwete (Middelburg) 64
Northern Cape Sol Plaatje (Kimberley) 59
North West JB Marks (Potchefstroom) 50
Western Cape Mossel Bay 76
Source: Ratings Afrika

Only the Western Cape and KwaZulu-Natal have anything approaching decent operating surpluses.

Most municipalities are commercially bankrupt (current liabilities exceed current assets), with insufficient liquidity to cover operating expenses.

Just 19 of 100 municipalities measured have operating surpluses. This is due in large part to an average collection rate of 82%, well short of the benchmark of 95%. Only the Western Cape, at 94%, is close to this target. The Western Cape municipalities have demonstrated that they can be sustainable entities.

Governance … and corruption

Narius Moloto, secretary-general of the National Council of Trade Unions (Nactu), says it is time to relook the entire system of local governance, but warns that any reforms will be defeated so long as corruption remains rife.

“It’s clear there are a number of reasons for poor governance at the municipal level. The first reason is lack of capacity of the elected people. The second reason is corruption.

“Most councils collect enough revenues to run their operations and provide decent services, but just don’t do so,” says Moloto.

“Most councillors want to run shady businesses on the side.”

The adverse effects of the lockdown will have further worsened municipal finances.

Covid-19 impact

The South African Local Government Association has warned that municipalities could see a drop in revenue of up to 5%. Aggregate billings in 2019 for property rates and service charges in the 100-municipality sample amounted to about R85 billion. If the 5% decline in revenue is sustained for a year, the combined loss of revenue to them would amount to R4.25 billion.

National government has allocated additional funding of R20 billion to the municipal sector, of which R11 billion comprises an equitable share grant to cover the cost of free basic services and additional Covid-19-related costs to municipalities.

This additional funding is for the municipal sector as a whole. “It is clear that this additional funding for the municipalities will be hopelessly inadequate to cover the loss of revenue by the municipal sector, since the local municipalities needed R30 billion before any adverse effects of the Covid-19 catastrophe. In addition, the metropolitan municipalities might need R10 billion to cover their losses in revenue caused by the lockdown,” says Ratings Afrika.

The hole the municipal sector finds itself in is about R45 billion deep.

The full impact of the lockdown will only become visible in a year or two. As it stands, only the Western Cape has any capacity to absorb the financial shock of the lockdown.

Consolidating municipalities to strengthen finance is one suggestion that has been proposed, but this will be resisted by those that are well-run.

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Ace Magashule and Supra Mahumapelo are the masterminds behind the rot in the Free State and North West respectively. Anc is the chief architect in the demise of South Africa.

Not only are municipalities bankrupt, the individuals working there are morally decadent and lack the necessary education to discharge their duties honestly and efficiently. Money is known to be a very powerful motivator, but so that an entity can fulfil and meets set objectives. In this case it motivates the ethical and moral decay in key levels of governments where essential services need and have to be rendered. This is very sick!

The answer is simple – municipalities should be privatised and rate payers should vote in functionaries from within their own community.

Privatisation is not always the be all and end it all. The dangerous thing with privatisation is the profit element. As long as their profit element is not to our detriment. Charging excessive prices for garbage removal and and. On of their key objectives is profit maximisation. As long as that will be in check. Then i am all for privatisation.

King Khan, your comment about the profit margin is a common misconception. In a free-market system, unlike in a government monopoly, profits attract and incentivise competition and competition drives down prices. The consumer benefits, unlike the current situation where Eskom can charge whatever they like for poor service.

Nextera Energy in the USA is a point in case. They are a listed company that sells reliable electricity at less than half the price at which Eskom sells unreliable energy. The profit incentive is the consumer’s only guarantee of a cost-effective service. The alternative is described by all local SOEs and municipalities. If you still have any doubt, cancel your medical insurance and rely on the public healthcare service.

Sensei, I completely overlooked competition in this regard. Thank you so much for your contribution in this. In economics, Excessive profit seeking is one of the pitfalls for privatisation, your insight has completely debunked that. Learning always, thanks again.

King Khan, thank you for your regular valuable contributions to the debate.

King Khan the thing is that the municipalities have effectively been privatized for the benefit of the politicians who are very profit focused. These politicians are already maximizing profits by charging exorbitant amounts for municipal services whilst either not providing the services concerned or providing substandard services.

Nothing will ever change and just get worse.

USD to the ZAR will probably reach $1 = 30 ZAR next year.

Immigrate is the only answer.

The DA is the only party that can run a complex entity such as a municipality.

The ANC cannot even run a spaza shop and the African sub-region is reliant on the collective functionality of South Africa’s large metros, not just South Africans.

ANC is an unmitigated disaster.

Another way of saying this is: demography is destiny.

DA City of Cape Town have a huge cash reserve but service delivery is going south. Not like it was. a few years ago. When about 500 illegal shacks are erected in one small area over a period of a week and nothing is done we see the true side of service delivery. Other than the city, DA or Steenhuizen won’t even reply to complaints and messages.

It is not really democracy when less than 10% of the voters pay tax.
Democracy can never work where the majority of the voters cannot write a 2 page essay.

I have no idea how bad it is living in a municpaility after 25y of ANC rule but assume it is terrible. That said, you do not want to compare that against what it COSTS to live in a DA council.

Give me enough of other people’s money and I can also give 60% of the population electricity, running water and flushing toilets… …. … … …

Give us a decent comparison Johan. Last time I looked all the city costs in the major municipalities was about the same; arrived at in different ways though. You have to consider the full cost.

This article describes a very efficient mechanism by which the average voter uses his right to vote to shape his immediate environment and his standard of living to reflect his mindset. A municipality is merely a tool in this relentless process that brings equilibrium between the mindset of the voter and the status of infrastructure and service delivery.

It is impossible to change the mindset and mental capacity of the voter, therefore, it is impossible to stop or reverse this process. Depending on the levels of accountability, individualism and intellect of the average voter, depending on the functionality of the voter, in other words, the town or city is functional and delivers services, like MosselBay, or the sewerage run down the streets like in the Free State.

The cleanliness of a town, the state of the roads, libraries, parks and sewage works display the mindset of the voter. For some communities, this implies that there is a certain law of nature that states that the sewage will run down the streets and that the windows, roof and doors of the library and school will disappear to serve as building material elsewhere.

In a democracy, the complete privatisation of all failing municipal provides the only solution. Privatisation brings a circuit breaker between the infrastructure and services on the one hand, and the mindset of the voter on the other hand. The alternative will imply that voters in functional municipalities will be supporting and bailing out voters in failing municipalities until the functional municipalities also fail. This is the process of equalisation, the collectivist race to the bottom.

Shocking and sad as it may be, sewage in the streets is the accurate display of the collectivist mindset.

Not entirely. Municipalities used to be smaller and as such you saw a split between those with money and those without. The amalgamation of municipalities was a problem since you now had majority in poverty who needed infrastructure, minority that had money but the funds getting targeted on the poor, and corruption. There is no way to fix that. Ypu cannot lift enough out of poverty without industrialization on a grand scale, and you cannot give funds to the wealthier residents because as a leader you’d be voted out by the majority poor.

All that happens is that the wealthier move away or become poor. The rest that stay cannot support so many.

Id like to say this is less an education /demographics but rather a mass poverty issue.

Mass poverty is the result of the collectivist mindset, my compatriot. What is the underlying force that creates wealth for some and poverty for others? What phenomenon explains the difference in material position between those who live in the traditional homelands and those on the other side of the fence?

A mere wire fence seperates free-market capitalism and property rights on one side, from the communalist mindset on the Transkei side.

Poverty is a symptom of the disease my brother. Collectivism is the disease. Therefore, we are right back where we started – ultimately, the circumstances the voter finds himself in is merely a manifestation of his mindset.

This is a very just and ethical process because we all become what we think about. This is the ultimate equality and social justice. We are all equal in that regard.

@jblack……. Jblack is of that tired school still incorrectly trying to shift responsibility for outcome onto societal status.

The reality is this has nothing to do with being rich or poor, but as Sensei correctly points out, the collective mind set !

Strange that if one visits minority townships, there is no sewerage running in the streets, the place is still clean and the inhabitants take pride as can be seen while they sweep the streets and try maintain a semblance of cleanliness.

They might have been stripped of all wealth, but the collective mind set dictates a better outcome.

You seeing the common thread there ?

Sensei sums it all up very accurately here.

Aye Sensei; very true. As is often the case the fish rots from the head. In SA’s case the “head” of the country sets a poor example of competence, experience, courage and honesty. This is carried down through the cabinet then the municipal heads. I really believe it could be turned around by well-qualified, competent, diligent and honest people being appointed and setting an example.

The DA is the proof of this pudding and I cannot for the life of me understand why they get so much criticism and seemingly sensible people withholding votes from them for a myriad of (to me) spurious reasons. Peter Bruce is a prime example of this behaviour; enabling the Ramaphosa ANC and rubbishing the DA whenever he can. A true quisling.

Could it be that the performance of a municipality is related to revenue collection among other things? Certain individuals refuse to pay for the utilities they consume for whatever reasons they can come up with.

If they do pay then the next probeer is how those payments are managed. In Noordkaap I know of mines that had to pay a backlogged bill FOR a municipality even though the municipality received rates from the mine’s employees every month.

GREAT JOB ANC AND THE ON THE JOB TRAINEE’S IT SPAWNS. You are doing a fine job.

If these scores are out of a 100 then not even the Western Cape with 59% (or is it 76% ?) is that good.

The 76% is just Mossel Bay, which appears to be the highest score nationwide. There are evidently some failures – I expect Oudtshoorn might be one – bringing the average down. The political makeup of municipal management isn’t necessarily reflective of the makeup at provincial level.

But it’s the trends that attract attention. WC shows only marginal improvement over 5 years. KZN may have second highest average now, but it has collapsed over that period ; as have Northern Cape and Limpopo (the latter no surprise).

I think you are correct regarding Oudtshoorn but my understanding is that few years ago when the DA won Oudtshoorn from the ANC the ANC refused to leave and allow the DA to get on with the job. So that may be the reason Oudtshoorn is not performing as it should.Remember also that the ANC once also had CApe Town for 4 years and were then taken out of CApe Town in the next election. In the 4 years that the ANC was in Cape Town there was major damage done. Private citizens took over maintenance of parks and recreation as an example.I guess my point is that where the ANC is in control there is chaos value destruction looting and fraud and the job does not get done no matter how many TRILLIONS of rands gets thrown at the problem. In my opinion based on the current ANC leadership i believe that Jacob Zuma was never in control just as Cyril is not in control i believe that Miss Dlamini Zuma has actually been in control of the ANC since Jacob Zuma statrted his presidency. That would align us with Bob Mugabe and his 3 decade rule or Dos Santos of Angola and his 3 decade rule except in this case the main role player is hiding behind the scenes but will keep Power no matter what. Am i wrong? Lets see….

There are still plenty of problems in DA run municipalities but they should be the pragmatic choice of vote.

Next is to note that many of the problems of the DA run entities relate to failures of ANC run ones. My example is the flocking of refugees from the EC, stripped to the bone by the corrupt ANC, to DA run areas where they demand housing and services, supported by the aforementioned corrupt national ANC.

Once again the DA has shown itself to be perfectly capable of competent governance. They are clearly the best choice to run this country. People need to wake up, smell the coffee and have a rethink about their politics. There’s nothing ‘transformational’ about a country that is barely functioning. Under the ANC we are getting nothing but the shaft, in every respect.

There is transformation in the way they do it…they are transforming the middle class to poor and the poorer middle class municipal worker to rich middle class…its that easy

There is no need to reinvent the wheel on municipalities – pre 94 the counselor positions were honorary, with no payment. That attracted a better class of counselor, one with more life, business and professional experience and they put the interests of the residents first.

Anyway, the ANC still does not realize that there are many more voters in each town, than counselors, yet the ANC only looks after the counselors.

Absolutely. Pre 1994 the mayor got a cup of tea at the 2 meetings he attended annually. This was an ” honourary” position (a word, with all its connotations that will be unfamiliar to todays genre). As stated the ” councillors were not paid. That is why Municipalities are always crying for more money – to pay salaries (quite apart from the stealing of course). Its got to stop.

It would be interesting if all Western Cape taxpayers – individuals and entities – could pay their taxes and VAT to a Western Cape Revenue Services (WCRS) and not SARS – what might be able to be accomplished with the taxes collected and better spent in the province, whilst the rest of the corrupt-led SA watches to see where their votes have landed them.

A municipality is an instrument of the developmental state, a vehicle for cadre-deployment and the redistribution of property. Therefore, when municipalities implode because of bankruptcy, it proves that the process is nearing completion. The implosion of service delivery proves that ANC policies have been implemented and finished successfully.

Potholes, unemployment, poverty and sewage in the streets are the unavoidable consequence of a developmental state that redistributes property. Property rights are the basis of tax revenue. When the property has been redistributed successfully, then the revenue evaporates and the municipality implodes due to bankruptcy.

A municipality is a running experiment in the effect of socialism. The financial situation of municipalities and the quality of life of the citizens is the small local example of the effect that similar policies have on entire countries. If collectivism does not deliver the intended results on a municipal scale, then it won’t deliver on a national scale either. This exercise in collectivism by the voters with the communalist mindset has proven once again, to be a dismal failure of epic proportions.

We have a bankrupt voter who supports a bankrupt ANC to deploy a bankrupt cadre to a bankrupt municipality that is the local arm of the bankrupt national government. Then, they call this process empowerment?

Spot on Ciaran. Those in authority simply do not realise or understand the extent of the collapse of local Government. The silence is deafening. The ostrich mentality is deep. “If we ignore the problem, it may go away”????

So the DA run WC has the highest collection rate and the best controlled expenditure. Midvaal is the best municipality in Gauteng, also DA run I believe. We do realise that only the people who acknowledge the true state of affairs read these articles. Dont see this appearing in any ANC document or agenda. You get what you vote for and as long as the average SAfrican is too blind to see this, the process will continue. Very Sad.

Work ethics
Discipline
Accountability

The example is kleptocracy i.e. corruption comes with the job and everybody must be dealt in. That’s the job

In the sectional title where I have invested, COJ has increased the charges for waste on average 21% per year for three years. These guys are out of control.

Levy defaulters are not dealt with by the courts in never ending processes.

How does the ratepayer fight back?

Passport. Money. Aeroplane. Toodles – its our Post-Colonial destiny

I have worked for a municipality for 23 years under the new dispensation and the biggest problem is a lack of accountability. The senior management reports to the Municipal Manager, who reports to the Council, who report to the District Council, who report to the Province, who report to the National Government. Then there are still various regulators and the Auditor General. Nobody in this long chain ever loose their jobs and everybody is waiting for the next one to do something. If the councilors and the top management know that they wiil loose their jobs and pay from their own pockets for mistakes (the laws already make provision for that, but is not applied), then they will not appoint unqualified and incompetent friends, they wiil not bloat the workforce, they will not waste money and they will collect the revenue and spend it effectively. If the accountability stops right there in the municipal boardroom and the Council is fired and the officials disciplined the moment the cashflow goes negative, we will start to see good municipalities. There is enough (actually way too much) legislation and regulation, but without accountability there where it is needed, we will not save municipalities.

Oh dear. Perhaps the so called one and only DR NDZ should focus her attention on sorting out the failed Municipalities which she was put in charge of instead on the easy pickings of Tobacco and Alcohol ban in court cases and media comments. Useless individual just like her ex and our toothless President s**t scared of her.

WJS

Omg…. These facts are starting to make me a racist.

Starting? You’re late but welcome anyway

.. I started as a liberal.
The truth kept giving me black eyes thu.

The Iron Age Man just can’t do what the Industrial Age Man can. Period

Considering that a pass these days is about 30% to one-third. I’d say that an average of 31% for the remaining 8 provinces could be regarded as adequate by ANC standards.
How’s that for a ‘spin’ doctrine?

Pietermaritzburg ANC Councillors have no interest/ability to manage the city.
Their moto seems to be ‘take as much as you can’

THe ANC leaders will send a new batch of thieves in 4 years time. They all get their turn.

The ANC voters won’t change their vote no matter how bad services get.

Vote DA in your local elections if you want your municipalities to run efficiently, it is that simple! The masses need this drilled into their heads, not at every election cycle, but everyday!

End of comments.

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