Civil Engineering July 2022 | Vol 30 No 6

Civil Engineering July 2022 9 Le t ter from the ed i tor T he MFSI™ evaluated the 100 largest local municipalities as well as the eight metros, using a scoring model (out of 100) that evaluates six financial components: operating perfor- mance, liquidity management, debt governance, budget practices, affordability, and infrastructure development. Looking at the average MFSI™ scores per province, the Free State and North West fared the worst, with average scores of 20 and 24 respectively for 2021. With an average of 52, the Western Cape scored the highest. The remaining provinces achieved the following scores: Q Q Mpumalanga: 27 Q Q Eastern Cape: 30 Q Q Northern Cape: 31 Q Q Gauteng: 33 Q Q Limpopo: 39 Q Q KwaZulu-Natal: 43. There are however still some municipalities that are performing well. Four local municipalities achieved a score of 70 or more on the index, namely Mossel Bay, Saldanha Bay and Swartland (Malmesbury) in the Western Cape, and Midvaal in Gauteng. According to Ratings Afrika, these municipalities have demonstrated consistency over the past five years and have well-entrenched financial policies and budgets based on sound long-term financial strategies. Additionally, with a score of 67, Cape Town is the only metro still considered financially sustainable in 2021, outperforming the other metros by a large margin. POOR FINANCIAL STATE Ratings Afrika noted that, since publishing its first MFSI™ in 2011, the financial sustainability of the South African municipal sector has deteriorated dramatically. The report asserts that, “Through gross financial mismanagement and unsound governance the majority of the South African municipalities are still operating at deficits.” The aggregate cash or liquidity shortfall for all 108 municipali- ties in 2021 was just over R54 billion – up from R51 billion in 2020. “Without working capital it becomes almost impossible for these municipalities to provide an acceptable level of services. This might lead to a material breakdown in service delivery with cata- strophic consequences for residents and businesses; which in turn could continue to encourage political unrest,” states the report. A low average revenue collection rate of 79.3% (compared to the benchmark of 95%) is contributing to the cash shortfall. The metros are also below the benchmark, with an average collection rate of 87.3%. Cape Town is the exception with a collection rate of 98.5%. This is no surprise, given the negative impact that Covid-19 and the associated lockdowns have had on households’ finances, and revenue collection is expected to remain subdued in the face of slow economic growth. Another area of major concern is the low level of spending on repairs and maintenance. According to the MFSI™, repairs and maintenance spend should be between 6% and 8% of the carrying value of municipalities’ fixed assets. However, the current average maintenance spending by local municipalities is only 1.7%. The report goes on to suggest that the only solution is for national government to bail out the country’s municipalities, to the tune of R54 billion, to prevent total collapse. WHERE TO FROM HERE? In 2009 the Department of Cooperative Governance and Traditional Affairs introduced the Local Government Turnaround Strategy (LGTAS), aimed at addressing the problems undermining the local government system. Root causes for some of these problems were identified as: Q Q Systemic factors Q Q Policy and legislative factors Q Q Political factors Q Q Weaknesses in the accountability systems Q Q Capacity and skills constraints Q Q Weak intergovernmental support and oversight Q Q Issues associated with the inter-governmental fiscal system. If these factors were identified as problematic more than a decade ago, what has been done in the intervening years to address them? Was this a failed strategy or another case of non-implementation of good policy? The LGTAS asserts that an “ideal municipality” should be able to provide household infrastructure and services, create liveable, integrated and inclusive cities, towns and rural areas, generate local economic development and create community empower- ment and distribution. There is no doubt that many municipali- ties are falling short of this ideal, to the detriment of residents. Given South Africa’s financial standing, it is unlikely that Treasury could afford to bail out the country’s municipalities. However, national government clearly does need to step in and assist with reforming municipalities and their financial management if the situation is to improve. Whatever the solution, it is evident that South Africa cannot afford to continue on its currently trajectory, especially given the low global eco- nomic growth forecast and the many challenges it brings to an already struggling population. Danielle Petterson Editor Civil Engineering danielle@saice.org.za On the brink of collapse? The latest Municipal Financial Sustainability Index (MFSI™), released by Ratings Afrika in June 2022, paints a very bleak picture of the state of finances in South African municipalities. In fact, with the exception of the Western Cape, the MFSI™ argues that the South African municipal sector is about to collapse financially, and that urgent government intervention and large-scale changes to municipal top management are needed.