Durban - Hundreds of municipalities in the country are on the verge of becoming financially dysfunctional.
This is according to a study conducted by independent research company Ratings Afrika. The 2022 Municipal Financial Sustainability Index (MFSI) carried out in the 104 largest local municipalities and eight metros in the country, revealed that 107 municipalities were on the verge of becoming financially dysfunctional.
The research revealed that contributing factors are extremely weak governance by elected councillors, and poor financial policies and management. The rating is specifically linked to financial sustainability and does not take into account any other factors of municipal performance, such as service delivery. The agency said the benchmark for a sound municipality was 95.
Agency analyst Leon Claassen said the analysis was based on the financial year ending in June 2022.
“We analysed six components, which are the operating performance, the liquidity of the municipality, the level of borrowing, the budget position, affordability of the rates and tariffs, and the level of infrastructure development.
“Unfortunately, since we started publishing the index in 2011 there has not been significant improvement in municipal finances. Eight years ago the average for municipalities was 44 out of 100, and the average now is 36.”
Ratings Afrika said four local municipalities in the Western Cape and one in Gauteng were financially sustainable. The Midvaal and Saldanha Bay municipalities scored the highest on the index, with 72.
The provincial Co-operative Governance and Traditional Affairs (Cogta) Department earlier this month announced a Section 154 intervention for KwaZulu-Natal’s only metro, eThekwini Municipality.
The department confirmed that it would send experts, including former director-general in the Presidency Dr Cassius Lubisi and the City’s former municipal manager and now local government consultant, Mike Sutcliffe, to provide help where there are concerns. The City faces general decay and infrastructure challenges, and significantly had failed to spend R322 million it received in grant funding.
The Msunduzi Municipality is also in financial distress, with the Auditor-General’s (AG) office recently making a series of findings about the administration of the City, including that there are poor financial management practices, an inability to implement debt control policy and poor collection mechanisms.
According to the index the Western Cape province has the highest average score with 52, KZN is on 38, Limpopo 37, Gauteng 34, Mpumalanga 33, Northern Cape 33, Eastern Cape 29 and Free State and North West 21.
“It’s a dismal picture when you look at municipalities. A score of 35 means a municipality is becoming financially unsustainable, and if we look at the average of 36 that means the majority of municipalities can be considered to be unsustainable.”
Governance expert Professor Zwelinzima Ndevu, the director of the School of Public Leadership at Stellenbosch University, said the problem of financial instability at municipalities had been around for a long time.
“This issue has to do with lack of capacity and ability to manage public finances, with incompetent chief financial officers and accounting officers. A huge factor is the lack of political will to turn around the situation,” said Ndevu.
Professor Thokozani Nzimakwe from the School of Public Administration at the University of KwaZulu-Natal said corruption, fraud and maladministration were large contributors to the financial dysfunctionality of municipalities.
“The mismanagement is down to people who do not care about running the municipalities.”