In her newsletter this week, Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA) reflects on the shocking financial state of the country’s municipalities and the constraints this imposes on economic growth. Her comments follow the release by the Auditor-General, Tsakani Maluleke, of the latest report on local government, which reveals that the City of Cape Town is the only one of the eight metros to achieve a clean audit. Buffalo City, Tshwane, Mangaung and Nelson Mandela Bay received qualified audits, indicating material failures in the accounts. The City of Johannesburg, eThekwini and Ekurhuleni received unqualified audits but with findings, indicating that the accounts are reliable but that some matters need attention. Mavuso notes that the worst opinion an auditor can deliver is a disclaimer, which means the auditor has not been able to form an opinion on the financial statements at all. This applies to sixteen municipalities across the country.
Business Leadership South Africa CEO, Busisiwe Mavuso.
South Africa’s metropolitan municipalities are, supposedly, the economic hubs of the country. Mavuso flags as “completely unacceptable” that most cannot get basic financial management right. “They have budgets in the billions – Johannesburg will spend almost R90 billion this year – but cannot manage that money adequately.” She notes that, “In companies, if management is unable to produce reliable accounts that auditors are content to sign off, shareholders would revolt. In the case of our local government, the shareholders are the public – and we must exercise our votes.”
She highlights too that the state of financial management tracks with the level of basic service delivery. Johannesburg, where most of the country’s biggest companies are based, has been in a state of gradual decline for many years. Mavuso reminds us that two months ago, President Cyril Ramaphosa decried the state of the city which is meant to serve as host of the G20 later this year, promising an intervention from national government.
“Intervention is sorely needed,” she writes. “As the auditor general makes clear in her report for the 2023/2024 year, the challenges are driven by a lack of financial management skills and vacancies. There simply are not enough qualified people working in local government to ensure the accounts are done properly. That is despite the billions at stake.”
There are indications of improvement in some areas – for instance, the number of municipalities receiving a disclaimer – the worst audit opinion – has fallen to 14 from 28 in the 2020/21 year when local government elections saw new councils elected. The auditor general attributes that improvement to good support from provincial treasuries to assist municipalities’ financial function.
However, the metros have continued to regress since 2020/21, three being downgraded in the last year. The AG singled out Johannesburg and Tshwane for not budgeting adequately for infrastructure maintenance. She also reiterated her concern with the culture of municipalities approving unfunded budgets – expenditure that cannot be covered from the revenues the municipalities receive. Mavuso emphasises that it should concern all South Africans that “elected councillors can willingly approve spending plans for which there simply isn’t the money. That is not budgeting – it is reckless spending.”
The AG’s report shows that controls over expenditure are also problematic. Johannesburg tops the list in terms of unauthorised expenditure, at R2.76 billion. Tshwane follows at R2.15 billion. Further, in reviewing municipalities’ performance reports, which they are legally required to produce to show how they are doing against their own targets, the AG states that there has been no improvement since 2020/21 and only 26% of municipalities met the AG’s quality standards on submission. With subsequent corrections made after submission, 52% managed to meet the standards, and that means almost half still fail.
Mavuso credits the AG’s report for spotlighting local government as one of the critical factors in service delivery failure. “This is now a national priority and one of the biggest constraints on economic growth. Service delivery failure often means businesses can’t function,” Mavuso writes.
It has been given national prominence through Operation Vulindlela 2.0, This unit, led by the presidency, has been decisive in tackling the electricity crisis and the logistics crisis, among other reforms. The need for decisive intervention in municipal performance is clear.
“We have to get people into municipalities who are capable of delivering on action plans that will improve the financial function. The AG also points to weak information technology, again driven by a lack of skills and controls. These indicators help paint the picture of what Operation Vulindlela needs to address. An army of highly capable finance professionals will be needed.”
At the same time, a review of the 1998 white paper on local government is under way. This has the potential to overhaul policy, to find new ways of supporting local government and enable better coordination across local, provincial and national levels. Mavuso suggests that the white paper should elevate the importance of consequence management, especially where there is lack of performance and continuous service delivery issues.
“When we think of the cost of poor municipal performance and other structural constraints on the country’s growth, it helps to imagine how different things could be. Under that current status, South Africa’s people are condemned to live poorer lives with many more out of jobs. Reports like the AG’s show us what needs to be done. We must be serious about doing it.” Mavuso concludes.
For more information visit: www.blsa.org.za