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The extent of SA’s municipal problem? R51bn, says Ratings Afrika

Latest survey shows no reversal of the 10-year slide into ruin.
Cape Town is the only metro still considered financially sustainable, with a score of 71. Tshwane has the lowest score, at 21. Image: Moneyweb

It’s almost clichéd to say SA’s municipalities are poorly run. Virtually every Ratings Afrika and Auditor-General survey reminds us of this.

You see it with your eyes as you venture home over potholed roads, passing the street litter that is left to accumulate until it’s washed away by rain or wind, and when you open your monthly rates and taxes bill and wonder what you are paying for.

There’s not much good news from the latest Ratings Afrika Municipal Financial Sustainability Index (MFSI) for the fiscal year to June 2020 which examines the 105 largest local municipalities plus eight metros in SA.

Cost to avoid total collapse

The survey authors conclude that government has a R51 billion municipal problem.

That’s what it will take to prevent a total collapse of municipalities and bring them on a level footing to pay their creditors as stipulated by the Municipal Finance Management Act (MFMA).

“Unfortunately, this R51 billion burden will have to be carried by the already overstressed taxpayers,” notes the survey.

There’s simply no room in the cupboard for that. Last year R20 billion additional revenue was made available to municipalities to tide them over the Covid shock, but that was nowhere near enough.

The Ratings Afrika figures are up to June 2020, so they’re already 10 months out of date, and we know that revenue collection rates at the municipal level have been falling to 82.3%, against the benchmark 95%.

That means nearly R18 out of every R100 owing is going uncollected, and the collection rate will likely have deteriorated since then.

Read: ‘Eskom owes us R4.8bn’ claims beleaguered municipality (Oct 2020)

The MFSI comprises six financial components: operating performance, liquidity management, debt governance, budget practices, affordability, and infrastructure development. Municipalities are scored on a scale of one to 100.

Top performers

The best performing municipality in the country is Mossel Bay in the Western Cape with a score of 74. Four of the top five best run municipalities are in the West Cape (Mossel Bay, Swartland, Overstrand, Saldanha) and the fifth is Midvaal in Gauteng – all DA-run.

The Western Cape is again far and away the best run part of the country, with an average MFSI score of 53. The worst is the Free State with 17, followed by North West (21) and Eastern Cape (25). The DA set out to prove that, given control, it would outshine the ruling party at local government and provincial level.

And what about 34-year-old Midvaal mayor Bongani Baloyi, who has been running the municipality since 2013 from the age of 26 and year after year comes out tops in the Ratings Afrika survey for Gauteng?

“I am really proud of this result,” he said.

Moneyweb asked him what his winning formula is.

“It’s a culmination of our collective hard work that has produced this improved performance year on year. This achievement is proof that local government can be functional, through prudent financial management, competent staff, good governance and ethical leadership.”

Midvaal actually improved on its score over the last year as it seeks to wean itself off the Eskom grid by way of solar energy plants, while introducing a public-private sector partnership to recycle waste water and sell any surpluses back to Rand Water.

Read: Emfuleni and Midvaal enter the record books, but for very different reasons

Right across the fence from Midvaal lies Emfuleni, the worst run province in Gauteng with a score of 12, where residents have complained about just about everything from sewage spillage into the Vaal River system, to garbage going uncollected for months.

Highest scoring by province in 2020
Province Municipality Score
Eastern Cape Senqu (Lady Grey) 59
Free State Metsimaholo (Sasolburg) 31
Gauteng Midvaal (Meyerton) 70
KwaZulu-Natal KwaDukuza (Stanger/Ballito) 65
Limpopo Lepelle Nkumpi 62
Mpumalanga Steve Tshwete (Middelburg) 58
Northern Cape Sol Plaatje (Kimberley) 44
North West JB Marks (Potchefstroom) 42
Western Cape Mossel Bay 74

Source: Ratings Afrika

Say Ratings Afrika analyst Leon Claassen: “These high-scoring municipalities demonstrate consistency over the five years mentioned. They normally have well-entrenched financial policies and their budgets are based on sound long-term financial strategies. They adhere to good budgetary practices, strict financial control and good revenue collection even through tough economic conditions.

“The sound levels of financial sustainability place these municipalities in a very strong position to invest in infrastructure and it gives them the capacity to absorb the financial shock caused by the Covic-19 lockdown.

“Cape Town is the only metro that is still considered to be financially sustainable in 2020 with a score of 71, outperforming the rest of the metros by a large margin.”

Lowest scoring by province in 2020
Province Municipality Score
Eastern Cape Enoch Mgijima (Queenstown) 9
Free State Matjhabeng (Welkom) 12
Gauteng Emfuleni (Vereeniging) 12
KwaZulu-Natal Newcastle 14
Limpopo Modimolle (Nylstroom) 12
Mpumalanga Lekwa (Standerton) 13
Northern Cape Emthanjeni (De Aar) 20
North West Naledi (Vryburg) 9
Western Cape Beaufort West 18

Source: Ratings Afrika

“A common feature of the municipalities with the lowest scores is that their liquidity positions are extremely weak,” says Claassen.

“Their operating revenue and expenditures are not evenly matched, resulting in relatively large operating deficits, and the quality of their infrastructure is deteriorating, caused by low spending on repairs and maintenance which could threaten long-term service delivery an sustainability.

“The going concern status of these municipalities is extremely doubtful. Tshwane is the lowest scoring metric metro with a score of 21.”

Ratings Afrika says another very concerning aspect highlighted by the financial analysis is the very low level of spending on repairs and maintenance.

Given the huge maintenance backlogs built up over the years, the spending should be between 6% and 8% of the carrying value of the fixed assets. Currently the average maintenance spending by local municipalities is only 1.5%, which is hopelessly inadequate to keep the infrastructure in good operating condition.

‘Visible everywhere’

According to the survey report: “The deterioration of the infrastructure, such as crumbling roads, sewer spillage, and water or electricity disruptions is visible everywhere as a consequence.

“Increasing the maintenance spending dramatically is imperative to prevent a total breakdown in services in many municipalities.”

All this has a disastrous effect on the quality of life of most South Africans and the business located in these malfunctioning municipalities.

Covid-19 will have a prolonged effect on the finances of municipalities even after the lockdowns have been lifted. The full effect of the financial sustainability of municipalities will only be visible in a year or two.

At the moment it is only the Western Cape municipalities that have some capacity to absorb the devastating financial effects of the coronavirus pandemic.

Read: AG: How to improve the state of our municipalities (Jul 2020)

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Methinks that the name changes also has a major negative impact !!
No proud heritage to uphold !!

I really dig these name changes, what a good thing to happen – better the raw sewerage flows down Nelson Mandela Avenue than Paul Kruger Street.

Nelson Mandela has nothing to do with thieves in municipalities.

It has to do with the uncontrolled looting, government should investigate the looting and lock these people up.

But the criminals outnumber the Police and NPA.

We need some real plans to solve this. Not ones that start with the taxpayer must pay.

Will twinning (schools are doing it) a top munic with a weaker neighbour help? I guess only if they are run by the same party?

I like the Midvaal strategy for power and water. Keeps the money in the community

The common thread throughout is – the ANC and their supporters.
Enough said.

my prediction is that every financially messed up municipality will try and use covid19 as an excuse for its pathetic physical & financial state, although it was already in that state long before anybody knew a pandemic by the name of coronavirus or covid 19.

problem with these municipalities – their debt can be fully wiped out today – by the end of the year they will be in a financial mess / bankrupt again due to incompetent / cadre employed employees in a municipality with low or no financial and other management control

The general perception about the purpose of a municipality is wrong. An ANC municipality is a redistribution project, sponsored by property owners and businesses, for the benefit of those politically connected cadres who have proven their ability to mobilize enough support for destructive and violent protests, where they destroy municipal property.

The process that determines the selection process for ward-councilors, mayors, municipal managers, and municipal employees closes the gap between the immature, ignorant and self-centered ANC voter and the services delivered to that voter. The voter, not the municipality, determines the quality of the services and infrastructure.

Now it becomes clear that it is mathematically impossible for a municipality that represents morally bankrupt voters, to be solvent and efficient. The environment will resemble the attitude, belief system, and values of communalists who do not own property, but who received the right to tax those who do own property. The law protects their right to plunder property owners. The traditional communal homelands are examples of where the equilibrium lies.

When we look at the state of infrastructure in any municipal area, then it becomes clear the municipality is a “catalytic converter” that turns the attitude and mindset of the average voter into services, roads, libraries, schools, parks, and clinics. The human material that enters into this catalytic converter at ANC municipalities changes into sewage in the streets and rivers, polluted green areas and toxic rivers, run-down clinics and dilapidated infrastructure, and a lack of service delivery. It also consumes property values and turns them into municipal debt. This socialist converter changes assets into liabilities. We cannot blame the converter for the results. We should improve the way we select the raw material before it enters into the conversion process.

Bankrupt municipalities are part of a very logical and fair process. A democracy empowers citizens to turn their environment into a manifestation of their mindset.

Living in one of the dysfunctional municipalities on the platteland, life has become extra difficult and expensive. We have running water for only 2/3 hours a day and this for the last decade now already. To add we only have this 2/3 hours a day luxury because the entire municipality’s water system has been maintained by the local business council and organisations like Afriforum, if it were not for them we would have had no water at all.

Electricity supply is erratic as the entire infrastructure is collapsing, the company I work for had to pay millions to fix municipal infrastructure or else our processing plant would have to close down (which would have lead to major job losses in a small town).

Refuse collection is like playing dice, sometimes they come to collect but mostly they don’t. This means that private enterprise have had to step up and private refuse collection businesses have come to the rescue. Though we still have to pay the municipality for the service, meaning we have to pay double for basic services.

Going to low-lying areas of town the stench of raw sewerage becomes unbearable, yet effluent charges are payable each month for the “stellar” work that the municipality does in this area.

Last year the municipality increased property tax by 40% and the rumours are that this year will see a similar increase. Most local residents do not even know this as the municipality’s administration has also collapsed with all users not receiving statements for over a year now with almost no way of determining actually what your outstanding balance is.

If you are one of the lucky few who are assisted at the municipality when their system is online for the one hour a month they simply calculate your account on estimates as they have no idea anymore regarding meter readings and the mess have basically become unsolvable.

I say all this as this is not happening at one or two municipalities, this is the norm. Meaning in my opinion R51bn is a complete understatement.

If local government is a failure, then the entire government is a failure. What you describe is a failed state, a wilderness where only those who are able to fend for themselves will survive. This is the life that most farmers are used to. They are independent from municipal services, although they are also affected by the plundering through taxation.

I think the civil disobedience will emanate from the wealthier parts of the community this time around, because the poorer parts of the community are very cosy and privileged benefiecieries of plunder right now.

I’d like to see something: Please add a column to both the best and worst performing tables indicating the car the mayor drives. I suspect we’ll see a trend…..

Perhaps a radical reset is what those in power have to do (Using their own terminology).

1. Scrap the federal governmental system now that the infrastructure is teetering, i.e. scrap and retire all the Provincial governments. Those guilty of shady dealings and provinces with bad audit records have enough in theor pockets, so zero state pensions.

2. Go back to the old Provincial Administration. Back to 4 Provinces.

3. Trim the National Government down to a maximum of 19 cabinet ministers. You do not need nebulous ministries that justify their existence through costly ‘lightbulb’ moments such as name changes!

Use the savings in governmental payroll to revitalize the economy by spending it on infrastructure repair and reducing the deficit. It will not take long and fewer politicians who score. They have been on the take long enough already.

Limit the blue light brigades and escorts. Limit the politicians so that there is just enough to cover the 30min News and have the newspapers just enough to make the newspaper thick enough to warrant a purchase.

Share this article with the DA skeptic in your life… day-to-day service delivery is what really counts. The rest is hot air.

End of comments.

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