Wednesday, January 26

Now that the elections are over, the brutal reality sinks in the metropolitan areas


A post-election analysis of South Africa’s eight metropolitan areas by Ratings Afrika paints a grim picture of the financial mountain facing the country’s largest cities.

Only Cape Town, run by the Democratic Alliance (DA), is in some form of financial health. The rest face static or declining revenue collection, operating deficits (with the notable exception of Cape Town and Johannesburg), and often massive underutilization in infrastructure, which is a key measure of basic service delivery.

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“The municipal elections of 2021 are behind us and some political parties celebrate their new control of metropolitan areas by electing new mayors,” says Leon Claassen, an analyst at Ratings Afrika.

Read: Local government will never be the same again

“Politicians generally make grandiose promises before elections, but they often fail a bit to keep them afterward. We believe that this time it could be the same if they do not check the reality of their abilities to do so. ”

Ratings Afrika’s latest Municipal Financial Sustainability Index (MFSI) offers that reality check.

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

“Unfortunately, most newly elected mayors, regardless of their political affiliation, will soon have to face the reality that their metropolitan areas do not have the financial capacity to deliver on the promises made,” says Claassen.

Municipal Financial Sustainability Index Scores for Metropolitan Areas of SA
Metro (ruling party) 2020
Cape Town (DA) 71
Nelson Mandela Bay (ANC) 53
Buffalo City (ANC) fifty
Johannesburg (DA) Four. Five
Durban (ANC) 40
Ekurhuleni (DA) 37
Mangaung (ANC) 26
Tshwane (DA) twenty-one
Average of metropolitan municipalities 43

Only Cape Town can confidently deliver on promises, while Tshwane and Mangaung will most likely fail and the rest will find it very difficult to deliver on promises made.

Read: The scope of the municipal problem of SA? R51bn, says Ratings Afrika

Government departments not paying their bills

The mayor of Tshwane’s prosecutor told the Institute of Commercial Accountants of SA conference in September, government departments, many of them based in Pretoria, owed the metro a combined R1.4 billion in overdue bills for electricity and other services.

“Subways like Tshwane have racked up financial disaster for many years, and this is not something that is going to change in a year or two,” says Claassen.

“Even though government departments owe large sums to Tshwane, this still counts as debtors on the financial statements and is an asset on their books. Tshwane has a lot more to do to get his finances in order. ”

Claassen says there are two main reasons these metro areas will struggle: Most are plagued by realized operating deficits, compounded by weak liquidity and worsened by low collection rates.

Subways and municipalities have begun cannibalizing their capital budgets to meet rising personnel bills, and that means less money available to fix potholes, burst water pipes and other infrastructure.

Real Results 2020 (Rm)
Province Operating surplus Operating deficit Surplus liquidity Liquidity deficit Revenue collection (%)
Cape Town 2 336 10 557 94
Nelson Mandela Bay 59 3 756 83
Buffalo city 1 126 1 191 83
Johannesburg 1 219 1 796 83
eThekwini 3 150 2 722 92
Ekurhuleni 2 234 196 86
Mangaung 740 138 77
Tshwane 4 379 2 828 86

Mangaung

Municipal Money, a database of municipal finances managed by the National Treasury, shows that Mangaung in the Free State, faced with a declining cash balance due in part to overspending on its operating budget, spent 38% less on capital infrastructure of the budgeted in 2019. financial year (the last year for which figures are available).

Spent 0% on repairs and maintenance.

Ratings Afrika shows that revenue collection at 77% is the weakest of all metropolitan areas, while wasteful and wasteful spending accounted for 30% of its operating expenses in 2019.

Other weak metropolitan areas …

eThekwini in KwaZulu-Natal has a fairly consistent cash balance and its revenue collection rate of 92% is well above average (although still below the 95% target set by the National Treasury). It was underutilized 28.5% of its capital budget in 2019, and 0% went to repairs and maintenance.

Similarly, Ekurhuleni in Gauteng has seen its cash balance cut by more than half since 2015, contributing to spending less than 8.5% on budgeted capital infrastructure projects in 2019. Municipal money shows spent 0% on repairs and maintenance in fiscal 2019.

The City of Joburg has enough cash on hand to cover about 1.3 months of expenses, according to the Municipal Money database for 2019, although its investment is slightly lower (5.1%) in capital infrastructure items.

Spending on repairs and maintenance as a percentage of property, plant and equipment was 4.6%, somewhat below the target rate of 8%.

Only three of the eight meters (Cape Town, Joburg and Nelson Mandela Bay) have operating surpluses, although Cape Town is by far the most fiscally sound metro in the country.

Operational performance

Claassen says operational performance is the key factor in a municipality’s long-term financial sustainability.

“With only three metropolitan areas running surpluses, most are in a very precarious situation with operational deficits that have accumulated over time.

“As a result of these losses, metropolitan areas do not generate enough cash to invest in new infrastructure, nor do they retain sufficient funds for the replacement of obsolete assets and the adequate maintenance of existing infrastructure, which is required to provide adequate levels of services.

“Improving the operational performance of a municipality is not an easy task, since operating expenses are quite inflexible and cost reduction is a long and difficult process.”

The highest cost item in all metropolitan areas is staff salaries, and this is where cuts will have to be made.

The ideal ratio of personnel costs to total operating expenses (excluding bulk purchase costs for water and electricity) is approximately 35%. Only Buffalo City and Ekurhuleni come close to this ideal, at 38%. The rest is above 40%, with Tshwane being the highest at 47%.

This leaves ample room for most metropolitan areas to reduce their operating costs significantly.

Mpho Phalatse, Joburg’s newly installed prosecutor’s office mayor, recently announced a freeze to fill all vacant positions in the city administration. Meanwhile, Joburg residents continue to complain about improper billing and impaired service delivery, such as erratic water supplies and power outages.

Negligence

“In most metropolitan areas, asset neglect is clearly visible and residents experience discomfort on a daily basis,” says Claassen.

“Those metropolitan areas that still have liquidity surpluses can find themselves in a deficit position very quickly as they continue to experience operating deficits, and revenue collection remains at levels well below the benchmark 95%,” Claassen says.

“It is disturbing, but true, that most metropolitan areas probably would not be able to deliver on electoral promises unless drastic measures are taken to eliminate unnecessary and unauthorized operating expenses.

“This could be very unpopular and difficult to achieve.”


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