Of the seven metros analysed, Cape Town came out tops for financial sustainability. Picture: Jose Cendon/Bloomberg
SA’s municipal sector faces collapse as financial governance continues to deteriorate, says Ratings Afrika’s latest Municipal Financial Sustainability Index (MFSI) for 2018.
Déjà Vu - a feeling of having already experienced the present situation.
More than a year expired since Mossel Bay municipal manager Thys Giliomee was given the green light to enter negotiations with George municipality regarding the appointment of a consultant to investigate the pros and cons of forming a metropolitan municipality.
All residents' concerns, enquiries and questions regarding the progress of these talks - and especially the impact and consequences of such a merger on taxpaying residents and property owners - were ever since flatly ignored. Mosselbayontheline was even removed from the municipality's media list for daring to publish pertinent questions and readers' letters that went unanswered in this regard.
Now, when the country's municipal sector is at an all-time low and facing total collapse with only 49 of the 250 municipalities having managed to score a clean audit, the same process is starting all over again - only this time the ball is apparently in George municipality's court to initiate the metro negotiations.
Mossel Bay municipal manager Thys Giliomee
But the public's questions and fears have since escalated dramatically seeing that neither Mossel Bay nor George achieved a clean audit last year, and Mossel Bay taxpayers are already up in arms over the hefty tariff and tax increases in the proposed 2019/2020 budget.
Although Mossel Bay was rated the top performing municipality in the country in the Good Governance Africa (GGA)-index, it lost its top rating for financial stability in the latest Ratings Afrika-index.
End of an era? In February last year after scoring the sixth consecutive clean audit in 2017, are from left deputy mayor Dirk Kotzé, councillor Mark Furness, mayor Harry Levendal, finance chief Kobus Bruwer and municipal manager Thys Giliomee.
Furthermore, a very bleak overall picture for the country's municipalities is portrayed in Ratings Afrika’s latest Municipal Financial Sustainability Index (MFSI) for 2018 in which municipalities are rated out of 100 based on operating performance, liabilities management, budget practises and liquidity.
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. * More at the bottom.
* Mossel Bay residents fear they will have to foot the bill for the bankrupt George municipality's debt - especially after the Hawks' raid at George municipality on 23 April last year and subsequent threats to place George municipality under administration.
http://www.mosselbayontheline.co.za/index.php/geheimhouding-oor-metropool-duur-voort?f
BABY STEPS TO FORMING A METRO
George Herald - Wednesday, 17 April 2019
George and Mossel Bay municipalities are investigating the possibility of becoming a metropolitan municipality. The rapid expansion of both towns is given as one of the main reasons why forming a metro might be a good idea.
A resolution taken in the George council on 3 April gave the municipal manager, Trevor Botha, the go-ahead to enter discussions with Mossel Bay Municipality.
He may also enter an agreement concerning the supply chain management process needed for the appointment of a consultant. "These discussions will then lead to clearly defined roles and responsibilities and clarity regarding the costs of appointing such a consultant," said Botha.
George Municipal Manager Trevor Botha Photo: Michelle Pienaar
Mossel Bay requested that the two municipalities split the cost. Should George and Mossel Bay become a metro, residents will pay less for service delivery.
Botha says the establishment of a metro will undoubtedly derive economic benefits to government as it "exploits economies of scale" which will result in a reduction of costs of service delivery due to, amongst others, centralisation and integration of systems.
Financial and administrative resources will be shared and distributed within the metropolitan area to ensure equity and social justice. Strategic land-use planning will be promoted. A city-wide framework for economic and social development will be developed, thereby enhancing the competitiveness and well-being of the city."
Mossel Bay Municipality tabled an item before their council on 22 February last year to appoint a suitably qualified and experienced consultant to undertake such an investigation.
(https://www.georgeherald.com/News/Article/General/baby-steps-to-forming-a-metro-201904170952?f
Municipal sector faces collapse – Ratings Afrika
Less than a quarter of the 100 top municipalities reported a profit in 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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