Metros face financial crisis
DA-RUN: ONLY CAPE TOWN CAN DELIVER ON PROMISES
Most councils are plagued by poor revenue collections.
Apost-election analysis of South Africa’s eight metros by Ratings Afrika paints a grim picture of the financial mountain that confronts the country’s biggest cities.
Only Cape Town – run by the Democratic Alliance (DA) – is in any kind of financial health. The rest are faced with static or declining revenue collections, operating deficits (with the notable exception of Cape Town and Johannesburg) and often massive underspending on infrastructure, which is a key measure of basic service delivery.
“The 2021 municipal elections are now behind us and some political parties celebrate their new-found control of the metros through the election of new mayors,” says Leon Claassen, analyst with Ratings Afrika.
“Politicians generally make grandiose promises before an election but often fail somewhat in delivering on them afterwards.
“We believe it might be the same this time round if they do not take a reality check on their abilities to do so.”
Ratings Afrika’s latest Municipal Financial Sustainability Index (MFSI) provides just that reality check.
The index comprises six financial components: operating performance; liquidity management; debt governance; budget practices; affordability; and infrastructure development.
The metros are scored on a scale of one to 100.
“Unfortunately the majority of the newly elected mayors, regardless of political affiliation, will soon have to face the reality that their metros do not have the financial capacity to deliver on the promises made,” says Claassen.
It is only Cape Town that can deliver on the promises with confidence, while Tshwane and Mangaung are very likely to fail and the rest will find it very difficult to fulfil the promises made.
Tshwane’s DA mayor Randall Williams told the SA Institute of Business Accountants conference in September that government departments, many of them headquartered in Pretoria, owe the metro a combined R1.4 billion in arrears for electricity and other services.
“Metros like Tshwane have accumulated a financial mess over many years and this is not something that is going to be turned around in a year or two,” says Claassen.
“Even though Tshwane is owed large sums by government departments, this still counts as debtors on the financial statements and is an asset on its books. Tshwane has a lot more to do to get its finances in order.”
Claassen says there are two main reasons why these metros will struggle: most are plagued by operating deficits realised, aggravated by weak liquidity – and made worse by poor collection rates.