All the major media and even some political parties in the country published the dire findings of Ratings Afrika’s latest Municipal Financial Sustainability Index covering the financial year ended June 2021. Over the past few years, it has become an annual ritual to bemoan the financial position of local government. This process repeats itself with great acclamation every time the Auditor General releases its municipal audit reports.
However, the fact is that financial statements and audit reports reflect history; water under the bridge. Furthermore, financial statements are simply a summation of the outcome of all municipal activities expressed in financial terms. They do not explain the underlying issues, systems and processes that led to a particular financial situation. Audit reports reflect on legal compliance and often reveal non-compliance, maladministration and possible corruption. Politically this easily translates into cadre deployment and all the nuances attached to it by the press and political parties.
The belief is that South Africa’s service delivery and municipal problems will be something of the past if you can rid the system of deployed cadres and practise good clean administration. One often hears, “after all, look at how well the Western Cape is doing.”
The fact is that clean and effective administration has its limits. The eventual driver of sustainability is the local resource base. In this sense, the administrations in the Western Cape have bought themselves time. Still, the long-term outcomes will be the same as for the rest of the country, showing deteriorating service levels and increasing backlogs.
The common denominator in the municipal problems is misguided “pro-poor” service delivery, leading to decades of over-investment in welfare, sustained by heavy cross-subsidisation in the local tax base. Infrastructure services to non-paying indigent and the poor cannot be sugar-coated as investments or economic development. It remains welfare in all dimensions, subsidised by the local tax base.
Notwithstanding the deteriorating financial position of municipalities, there are no signs that this complete irrational approach is tempering. On the contrary, it escalates in many respects as politicians make the trade-off between long-term municipal sustainability and a national election in two years.
The belief that a financial crisis confronts us assumes that the solution lies with financial specialists while SA National Treasury applies stricter regulations with more control. However, long-term financial plans that ignore the dynamics of urbanisation, socio-economic change, economic decline, increased poverty, private sector (dis)investment and the local revenue base have little value. Expertise on these matters is outside the scope of the financial specialist, but we persist in seeking assistance from financial specialists for challenges rooted in non-financial issues.
South Africa has a near-obsessive drive towards capital investment. Although economic growth is not possible without continuous and sustained capital investment, welfare cannot be regarded as an economic investment. It is doubtful whether large-scale government capital programmes will filter through and contribute to the financial wellbeing of municipal governments. Only 3% of South Africa’s capital stock (assets) is in the hands of local government. Provincial and national governments hold 17% of capital stock, and 80% is in the hands of the private sector. Nevertheless, it is a fact that the private sector is excluded from municipal planning and operates under severe regulatory and legislative constraints.
The focus on capital expenditure at the municipal level translates into a long-term operating burden by not explicitly linking capital expenditure (CAPEX) and operating expenditure (OPEX) and underlies the current cash flow and financial problems in municipalities. South Africa developed a good tradition in addressing the link between CAPEX and OPEX through municipal infrastructure investment frameworks until 2007. However, understanding these links and the consequences thereof disappeared with the advent of spatial planning legislation and policies. This was largely due to the ignorance of town and regional planners and the inconvenience of not considering the impact of financial constraints on visionary utopian planning. We are living the consequences thereof.
Breaking the link with service delivery realities also negated credible data informing municipal planning. No municipality sustains an integrated detailed spatial database. As a result, there is a general lack of understanding of the extent and characteristics of its development problem. In short, reliable data that informs decision-making is not part of the equation. Unlocking basic data is the first step in resolving many a crisis at a local level. This was confirmed by Cities Alliance’s recent publication addressing Africa’s land and land tenure issues (https://www.citiesalliance.org/sites/default/files/2022-03/Cities%20Alliance_Informality%20Papers%20Series_Informal%20Land%20Markets.pdf).
One can continue to elaborate on issues contributing to the current crises in municipalities. Institutional constraints and the fact that we may not have the skills to address these issues need to be further explored in the same way a culture of entitlement in urban areas contributes to unbearable demands on the municipal system. However, no amount of analysis or reports in the press will solve any problems. There are solutions, but they will come at a political price, and it is unclear whether South Africa has the will or guts to confront these issues.