What separates the winners from the losers among municipalities

The biggest winners – including Oudtshoorn, Theewaterskloof, Cape Agulhas and Midvaal – focus on improved revenue collection, reduced wastage, lower costs and improved profitability.
Cape Agulhas, where the municipality improved its working capital surplus from R18m to R56m in five years. Image: Adobe Stock Images

Moneyweb asked Ratings Afrika to prepare a list of the most improved and most deteriorated municipalities over five years.

The data is drawn from the 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.

Moneyweb Insider INSIDERGOLD

Subscribe for full access to all our share and unit trust data tools, our award-winning articles, and support quality journalism in the process.

Choose an option:

R63 per month
R630 per year SAVE R126

You will be redirected to a checkout page.
To view all features and options, click here.

A monthly subscription is charged pro rata, based on the day of purchase. This is non-refundable and includes a R5 once-off sign-up fee.
A yearly subscription is refundable within 14 days of purchase and includes a 365-day membership.

Click here for more information.

 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.

The most improved are Oudtshoorn, Theewaterskloof, Cape Agulhas (all in the Western Cape) and Midvaal (Gauteng).

The most deteriorated are Enoch Mgijima (Queenstown, Eastern Cape), Moses Kotane (Mogwase, North West), Amahlathi (Stutterheim, Eastern Cape) and Gamagara (Kathu, Northern Cape).

Leon Claassen of Ratings Afrika says the most improved focused on doing the basics right: improving revenue collection, eliminating wastage and corruption, and better service delivery – which in turn depends on maintaining and improving infrastructure spending as well as maintenance of existing infrastructure.

Calibre of management

That’s easier said than done when many municipalities have chased away skilled administrators, leaving the door wide open for corrupt and incompetent deployments.

The most deteriorated municipalities often started five years ago with positive working capital balances, but allowed those to fritter away through a combination of ineptitude, bad management, unchecked wastage and sometimes corruption.

Moneyweb has reported on some municipalities that seem to have endless resources when it comes to fighting legal battles to get rid of problematic staff, but very little where it is really counts – in actual service delivery.

The overall state of SA’s municipalities is abysmal, and government will have to pay R51 billion 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).

Reason to be hopeful

Despite the generally sour news at local government level, there are some nuggets of hope to be drawn from this, says Claassen.

“I don’t think we need to completely overhaul local government in SA. We can learn from those that are well managed and replicate their lessons elsewhere in the country.”

He adds: “It is not impossible to fix the problem, but it does take the will of the council and a determination to confront the actual source of the problems at local government level, which is usually the quality of management.”

Source: Ratings Afrika

Ratings Afrika provided a brief summary of the most improved and most deteriorated municipalities, with an explanation for the respective scores.

 Losers

1. Enoch Mgijima

Source: Ratings Afrika

With a sustainability index of just nine (out of a potential 100), this municipality is withering into irrelevance or worse, as far as residents are concerned.

It suffers a severe weakening of operating performance and liquidity, with an operating loss in 2020 of R285 million.

The municipality’s liquidity problem is reflected by working capital that went from R155 million positive in 2016 to R357 million negative (cash shortfall) in 2020. Revenue collection was 83% in 2016 (already well below the target 95%) and is now only 74%.

“Very bad financial management but the drought in Eastern Cape might play a role. Perhaps corruption also,” notes Ratings Afrika.

2. Moses Kotane

Source: Ratings Afrika

The municipality’s operating performance is a large contributor to its financial difficulties. It went from an operating profit (surplus) of R7 million in 2016 to loss of R175 million in 2020.

Expenditure growth outstripped revenue growth, indicating no control over expenses, and no financial discipline.

The deterioration in liquidity is even worse. It went from a positive score of 78 in 2016 to negative 22 in 2020. Positive working capital of R260 million in 2016 turned into a cash shortfall of R157 million in 2020, a swing of R417 million in five years.

Revenue collection is disastrous – it went from 80% in 2016 (already below the 95% target set by National Treasury) to just 39% in 2020.

“Not only bad financial management but probably corruption also,” says Ratings Afrika.

3. Amahlathi (Stutterheim)

Source: Ratings Afrika

Operating performance weak throughout the five-year period examined. The operating loss in 2016 was R39 million rising to R48 million in 2020.

Staff costs doubled over five years to R124 million from R63 million in 2016.

Almost no money is being spent or repairs and maintenance. In 2020 the repairs and maintenance spending was just R1.6 million which is less than 0.5% of asset value. It should be about 6% to 8%.

The liquidity deterioration is even worse. The municipality’s working capital was positive in 2016 with R80 million, now it is R81 million in the negative (2020). Revenue collection was at 87% in 2016, slipping to just 66% in 2020.

“Bad financial management all over, though the drought may also have an effect,” says Ratings Afrika.

Winners

1. Oudtshoorn

Source: Ratings Afrika

Oudtshoorn demonstrated good improvement in all the components analysed.

The operating loss reduced from R48 million in 2016 to R19 million in 2020. The working capital shortfall of R116 million in 2016 was turned into positive balance of R48 million in 2020.

The investment in infrastructure went up from R36 million in 2016 to R70 million in 2020, which will result in better service provision.

“Definitely much better financial management,” says Charl Kocks of Ratings Afrika.

2. Theewaterskloof (Caledon)

Source: Ratings Afrika

Good improvement in operating performance. The municipality turned an operating loss of R52 million in 2016 to an operating surplus of R29 million in 2020.

Its liquidity position is much improved, from a working capital shortfall in 2016 of R1 million to a surplus in 2020 of R90 million.

Revenue collection went up from 82% in 2013 to 87% in 2020, though this is still below the benchmark of 95% (though Caledon is a poor area with household income below the national average). There was a slight increase in infrastructure spending from R65 million in 2016 to R72 million in 2020.

Loans valued at R20 million were repaid over the last five years, “reflecting good financial management in difficult times,” says Ratings Afrika.

3. Cape Agulhas

Source: Ratings Afrika

Cape Agulhas showed good overall improvement across the board, with an operating loss of R9 million in 2016 turning into a 2020 surplus of R8 million, while the working capital surplus improved to R56 million from R18 million over the same period.

Revenue collection over five years remained at the target range of about 95%. Investment in infrastructure increased from R20 million in 2016 to R40 million in 2020, meaning better service provision for residents.

This shows a concerted effort from senior management to improve their financial sustainability, says Ratings Afrika.

Please consider contributing as little as R20 in appreciation of our quality independent financial journalism.

AUTHOR PROFILE

COMMENTS   31

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

Nowhere do I see the words “ANC” or “cadre deployment” mentioned. These words, in my mind, would explain a lot

A most welcome article. I too was surprised that there is no mention of Mosselbay as an example of what can be done if the top officials are competent professionals. But they cannot do it on their own. You need councillors who are held accountable for policy development and voted out when they are guilty of dereliction of duty.

Focusing exclusively on finance as an indicator of wellbeing is misleading. That is what makes measuring performance in municipalities and in government departments challenging….. but it can be done. Ask Mosselbay!!

@Dude I am not surprised – it’s MoneyWeb. I stopped reading their articles and only read the comments because of their hideous bias.

The difference is in one word: demography.

@Incitatus very diplomatically put

What separates the winning from the losing municipalities is… DA in charge or ANC in charge.

In the former, there is better metrics in collection of debt and service delivery and governance and with the latter they concentrate on corruption.

Brilliant investigative journalism….thank you for this interesting in-depth article.
The deteriorating state of our Municipalities, is our greatest shame..
To witness the collapse of beautiful old towns like Pietermaritzburg, Grahamstown, Tulbagh etc makes me incredibly sad and angry at the central governments inefficiency in guiding and assisting these collapsing rotten municipalities….at the core is the racist BEE agenda where the politically connected with no experience or expertise are put in charge based on skin colour and not their capabilities. It’s like deja vu…but at least the last lot knew what they were doing!
To throw good money after bad, without fixing the problem, is insanity.

Great article thus to summarise: DA – Good performance (always room for improvement) ANC – dismal performance…

The only sad thing is the that the people who protest against no water/sanitation/housing are the same people who vote for the ANC! Beyond belief… 🙁

By this time regular readers know the real factors that separate the best and the worst municipalities.

At its core, a municipality is a partnership of residents who come together to provide services to themselves. Residents employ municipal executives and workers in this process where they maintain roads, provide water, remove refuse and treat wastewater and sewage.

Now, like any partnership or business, the results are only as good as the quality of the partners. Therefore, the difference between municipalities simply reflects the difference in the mindset of the average voting resident in that municipality. It is a manifestation of the mindset, and level of cognitive ability of the average voter, when the sewage gathers in the potholes in some bankrupt municipalities.

The democratic dispensation sits behind this interesting, fair, inevitable but cruel reality.

If we want to change the outcome to provide a better life for all, we have to isolate the process of service delivery from the mindset that drives the failures. This leaves us with two options: residents should have a vote in proportion to the value of their property, or all municipal services must be privatized. This implies that there will be no service delivery in some parts of the country, but that will only reflect the communalist mindset of those residents.

Is it just me, or are the worst performing municipalities all those that have been renamed? Perhaps a sign of where the municipalities’ priorities lie?

Less about priority and more about ability.

When the councillors voted in can barely read, the best that they can think of is renaming something that sounds colonialist to them.

If they can’t read, they definitely wont have a clue about how economics or finance or engineering work.

All they will do is instruct minions to push money into the accounts of friends and family.

There shouldn’t be losers but winners henceforth. Municipalities should have a vision of becoming agricultural, tourism, e.t.c Hubs of choice. Their sole mission should be to involve the community in the economic, environment and social development for sustainable service delivery. We, at Gestaldt, understand that they face a number of strategic risks that could affect their business operations and ultimately their ability to create value in the long term but that should not deter them from this vision and mission.

In many cases, the first step should be to conduct depth facilitated risk assessment workshop. The ratings of the impact, the likelihood and control effectiveness should be determined in line with guidance from the COSO Enterprise-wide Risk Management Integrated Framework.

In order for risk to be managed effectively, it is crucial that the municipality’s management take the following factors into account:

1. Ensure the risk appetite is implicit in the municipality’s business model strategy, and execution is appropriate.
2. Ensure that the expected risks are commensurate with the expected rewards.
3. Ensure that the system to manage, monitor, and mitigate risk is implemented and that the system is appropriate given the municipality’s business model and strategy.
3. Ensure that the risk management system informs the Board and Chief Executive Officer of the major risks facing the municipality- awareness throughout.

In a nutshell, our municipalities are in dire need for proper guidance and support to improve their ability to solve present as well as future management problems.

But I don’t understand. You say:”Our municipalities are in dire need for proper guidance and support to improve their ability to solve problems.” In other words, they need consultants to guide them. The Government already spends billions annually on consultants. But moreover, why do municipalities employ people who rely so heavily on consultants? Then the municipality can just as well employ the consultants because it seems to me that the municipalities pay (1) the employees who are not able to do their work and (2) the consultants. Hence it is paying twice for the same thing.

Imagine Thapelo you trying to lecture our inept comrades with your strategic view – which isn’t a bad view at all. They will be asleep within 3minutes flat. The first actual risk that requires elimination, is cadre deployment. Get rid of the nincompoops, and you have winners by default.

This sounds like a standard “consultant” proposal. But you seem to have omitted the crucial factor as outlined in almost all the other comments – cadre deployment and corruption.

Perhaps guidance is too kind an approach. We are talking about supposed professionals here.

Looking at a great report, I am shocked at how low the scores are in general. It is a shame and a shock to the system and proof that it seems that the majority of ratepayers are getting zero bang for their buck in South Africa.

It also shows that many councillors are not competent enough to hold office. I firmly believe that there has to be an independent body of qualified professional assessors like a TUV or the like to determine if a person is deemed competent and capable to hold public office and only then are they qualified to stand for election of pre-qualified to apply for a position in a municipal office that is there to serve the community.

Clear out everyone and then have all assessed and re-apply. Start at the bottom and work to the top. The environment will appreciate it if sewage works in many towns, as well as water purification, works again. Potholes can follow.

Remove politics from the operational stuff and let the qualified politicans stand for council.

The same model should be applied to all SOE’s.

So let me understand this…
You (or whomever you wish to assign in place of “you”) employed people in municipalities to do certain jobs.

They cannot do these jobs, so, you propose we waste more taxes so we can hire people to consult/train/educate so that said people can do the job they were hired to do in the first place?

#ItNeverEnds

Taken from above.

“He adds: “It is not impossible to fix the problem, but it does take political will and a determination to confront the actual source of the problems at local government level, which is usually the quality of management.””.

Key words here quality of management, so you either retain and train (I suspect these appointments are politically or nepotism driven and therefore either untrainable due to attitude or intellect) or remove and employ the BEST people for the job. This will not happen in my opinion so this will continue.

Simply a direct proportional link to the level of ‘transformation’

Transformed to shite yes

Trying to Call Ekurhuleni Municipality….

Guess what…. no one answers.
I get through… the lady blames it on Covid…. that no one is answering….

Seems like the whole of government is on holiday!

Why does it happen that the unfamiliar names are the one’s most affected???
Is there a correlation i wonder ??

Ok this article talks about financial measurement as the yardstick and “improvement ” take for example Oudtshoorn, yes there have been significant “improvements ” but being honest any move upward from the bottom looks significant -they were even expropriating from the caves before being placed into administration …
I don’t think there is an easy method of comparing Municipalities with one another -that holds water all around
Central government Vs opposition insular electorate party cadres attention and power struggle muddies the measurement, supported by a warped Municipal services act- which permeates salary escalation for the top municipal echelon built on the population of the municipality, leading to an extensive “township & RDP developments” being created – without any hope of future employment ( Prime example is George the Metropol of the garden route ) where the municipality without consideration of its ratepayers, expand and expands townships with no consideration of growth in formal employment- last 5 years saw townships residency double as during the same period the formal employment opportunities closed down in the town
creating also most an equal number of ” Indigent” -residents to those residents who do /are able to pay for services …so no real town planning “just dreams ” unlike other countries where residential land is released against employment growth and opportunity!!
Immagine a municipality structure where salaries were equal across the country to the position occupied, regardless of municipal resident’s head count and only residents who paid rates and taxes could vote for their representatives ( councillors ) and they were agnostic to central governments political affiliations.
Then one could get a real measurement of Apples Vs Apples!

TL;DR: Financial performance is better when staff are more competent and less money is stolen.

Who knew.

A couple of years ago I had occasion to visit Fochville and was very pleasantly surprised. The town was clean and the roads in fairly good condition i.e. no potholes. These were the only parameters I could judge the town by as I did not have anything else to go on. Maybe the presence of large companies like BME and Master drilling has had some or other effect on the government.

In my opinion the solution to fix municipalities is simple and cost effective:

Pre 94 the council positions were honorary, i.e. unpaid. It attracted a better type of counsellor, people that had life and business experience and they put the interest of the townspeople first.

The savings in salaries can be applied for better service delivery, especially in the smaller municipalities.

I get the feeling that most of us have lost the will to protest at lack of service delivery. Its much easier to complain.I dont see burning tyres in Sandton !!

The Accountability should clearly be Dr Dlamini Zuma. She is so focused on Covid, Alcohol and banning Cigarettes.

I am surprised Ethekwini is not on the bottom pole.

I still say use locked up Petty Criminals to clean up our beaches, Parks, water infrastructure and train them to fix potholes clean hospitals and those that get caught drinking and driving, speeding do community service in Old age homes and working in Mortuaries etc

Getting bored

WJS

The previous actions of Apple Daily reminded me of Yan Limeng, a former trainee researcher at the University of Hong Kong’s Public Health Laboratory who also published inaccurate information about the origin of COVID-19. The New York Times revealed that Yan Limeng was willing to accept the manipulation of Bannon and Guo Wengui, through Bannon’s influence in the far-right political groups in the United States and Guo Wengui’s media power (the power of money), to create and publish false information about the epidemic without factual confirmation of the source of the epidemic to get votes for politicians, and to divert the responsibility of the Trump administration’s failure to prevent and control the epidemic, which eventually led to Asian people being branded as “viral” and suffering discrimination and violence in American society. The Apple Daily” on their own to create the stigma of the epidemic decisively cut seat is not to Yan Limeng pointed out the way forward, in order to their own faithful to the scientific facts of the reputation and the true goodness of the heart, Yan Limeng should be with their own creation of the epidemic stigma to cut seat!

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us:

Search Articles: Advanced Search
Click a Company: