Municipal finances a grave concern

NATIONAL NEWS - The then minister of Co-operative Governance and Traditional Affairs, Dr Zweli Mkhize, told the online publication, Daily Maverick, the following in October 2018: "Municipalities are at the core of promoting economic growth.

"One of the most distinct areas of local government's competence, with a direct and profound impact and influence over economic growth, is the effective and efficient provision of core services.

"These services – reliable water and energy supply, road maintenance, refuse removal, maintenance of street lights to the satisfaction of its customers and cutting of grass at the verges of the road – are what we consider necessary services offered by a functional municipality.

"Municipalities must also create an enabling environment for economic development through their ability to provide regulatory certainty and build public and market confidence in municipalities as places to live, work and invest."

Bleak picture
Against this backdrop, the National Treasury 2017/18 balance sheet information for the 257 South African municipalities, indicating their financial health status based on the audit outcomes for the 2017/18 financial year, paints a particularly bleak picture.

Mossel Bay Municipality has consistently maintained a Short to Medium Term Viability, and in the Western Cape the municipalities of Theewaterskloof, Swellendam, Oudtshoorn and Knysna all improved their financial health in 2017/2018 to Short to Medium Term Viability.

Laingsburg did not file its results on time, and the financial status of Beaufort West deteriorated from Solvent, yet unable to pay creditors, to Insolvent on 30 June 2018.

By end of July, 24 municipalities in total had not yet finalised their audits. In addition, according to the Audit Outcome on 30 June 2018, three more municipalities were declared bankrupt compared to the six municipalities in the Audit Outcome of 30 June 2014.

A Bankrupt status indicates a solvency ratio of less than 1:1 (total liabilities exceed total assets).

In October 2018, 98 of the 257 local authorities in the country were insolvent and another 39 were solvent yet unable to pay creditors.

Merely 96 local authorities, many of them in the Western Cape, have a current ratio above 1:1 and sufficient cash and investments available to pay creditors. The exceptions are the bankrupt Western Cape municipalities of Cederberg, Drakenstein, Kannaland, and Beaufort West.

Matzikamma on the West Coast improved its financial health from being insolvent for three years running since 2014 to a constrained liquidity ratio, a current ratio of less than 1:1 but sufficient cash and investments available to pay creditors on 30 June 2018.

The financial health of the City of Ekurhuleni on the East Rand (solvent, unable to pay creditors), City of Johannesburg (Insolvent), City of Tswane (Insolvent), Emfuleni (Insolvent), Midvaal (short to medium term viability), Etikwini (solvent but unable to pay creditors), City of Mbombela (Insolvent), and Cape Town (Short to Medium Term Viability) likewise are perturbing.

Much is said about municipalities being in debt. There are, however, scores of municipalities that are owed money, often by consumers and institutions. Debt owed to South Africa's 257 municipalities (referred to as net current debtors) totalled R72,4 billion in the 2018 financial year, according to the latest Financial census of municipalities report.

Population growth
According to the Stats SA Mid-year population estimates, 2019, the estimated population of South Africa stands at 58,78 million.

Stats SA said on its website on Monday, 29 July: "Using the demographic window of opportunity‚ the youth bulge in SA could be harnessed to unleash a potential demographic dividend. However‚ the majority of SA's youth often fall within one of three categories: uneducated, unemployed, and unemployable."

Unemployment
The official unemployment rate jumped to 29% in the second quarter of 2019, the highest jobless rate since the start of 2008, Stats SA said on Tuesday morning, 30 July.

The country's unemployment rate was 27.6% in the first quarter of 2019, meaning the rate has since increased by 1.4 percentage points.

With municipal financial health in the country in dire straits, municipal debt nationally escalating at an alarming rate, and unemployment at its highest rate in 11 years, putting the economy on a growth path through an enabling environment for economic development at local level is an unenviable task.

Comparative figures over four years indicate the worrisome local government health situation. Source: National Treasury Graph: Nickey le Roux