Decisive intervention needed for municipal performance — BLSA

The Auditor General’s report on municipalities shows that decisive intervention is needed to improve the performance of local government performance is needed.

Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), writes in her weekly newsletter that the financial state of our municipalities is shocking and a serious constraint on economic growth.

“Only one of the eight metros, Cape Town, received a clean audit, with Buffalo City, Tshwane, Mangaung and Nelson Mandela Bay getting qualified audits indicating material failures in their financial management.

“Johannesburg, eThekwini and Ekurhuleni received unqualified audits but with findings, indicating that the accounts are reliable but that some matters need attention. The worst opinion of an auditor, a disclaimer, means the auditor has not been able to form an opinion on the financial statements at all. Sixteen municipalities were seriously censure with a disclaimer.”

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She says our metros are the economic hubs of our country, and it is completely unacceptable that most of them cannot get basic financial management right.

“They have budgets in the billions, such as Johannesburg, that will spend almost R90 billion this year but cannot manage that money adequately.

Public must vote to make their voice hear about municipal performance

“If management in private companies 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 who must exercise their votes.”

Mavuso says what makes it even more galling is that the state of financial management mirrors the level of basic service delivery. She points out that Johannesburg, which most of our biggest companies call home, has been in a state of gradual decline for many years.

“Traffic lights seem to have been abandoned, local roads left to decay into unpassable tracks. President Cyril Ramaphosa, two months ago, 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. 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, despite the billions at stake.”

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There has been some improvement in municipal performance with less disclaimers

Mavuso says there has been evidence of improvement in some areas. The number of municipalities getting a disclaimer has fallen to 14 from 28 in the 2020-21 year, when local government elections saw new councils elected. That improvement, the Auditor General says, can be attributed to good support from provincial treasuries to assist municipalities’ financial function.

However, she says that cannot be said of the metros, which the Auditor General says continued to regress since 2020-21, with three downgraded in the last year. She singled out Johannesburg and Tshwane for not budgeting adequately for infrastructure maintenance.

She also bemoaned the culture of municipalities approving unfunded budgets, expenditures that cannot be covered out of the revenue the municipalities receive. Mavuso says it should concern all South Africans that elected councillors can willingly approve spending plans for which there simply is no money. “That is not budgeting – it is reckless spending.

“Controls over expenditure are also problematic. Johannesburg tops the list in terms of unauthorised expenditure, with R2.76 billion. Tshwane is not far behind at R2.15 billion. Beyond the numbers, the Auditor General also reviews municipalities’ performance reports, which municipalities are legally required to produce to show how they are doing against their own targets.

“She says there has been no improvement since 2020-21, with only 26% meeting the Auditor General’s quality standards on submission. Thanks to corrections made after submission, 52% ended up meeting standards, but that means almost half still fail to.”

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Auditor General’s report highlights failure in municipal performance

The Auditor General’s report is a very helpful spotlight on one of the drivers of service delivery failure in local government, Mavuso says.

“This is now a national priority and one of the biggest constraints on economic growth. Service delivery failure often means businesses cannot function.

“It has been given national prominence through Operation Vulindlela 2.0, the new phase of the successful unit led by the presidency that has been decisive in tackling the electricity crisis and the logistics crisis, among other reforms.

“The need for decisive intervention in municipal performance is very clear. We have to get people into municipalities who are capable of delivering on action plans that will improve the financial function.”

The Auditor General also pointed out that weak information technology, again driven by a lack of skills and controls, is a key reason for the municipal crisis and helps paint the picture of what Operation Vulindlela must contend with. Mavuso says an army of highly capable finance professionals is going to be needed.

“There is also a much-needed review underway of the 1998 white paper on local government that has the potential to overhaul policy and find new ways of supporting local government, ensuring better coordination between local, provincial and national.

“The white paper should elevate the importance of consequence management, especially where there is a lack of performance and continuous service delivery issues.”

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Investec report shows what South Africa could have been

Mavuso says she was also struck by a report from Investec last week showing how different the country would be today if we had stuck to the 4.5% growth rate we regularly achieved until 2008. “In 2024, the economy would have been 40% bigger than it was.

“Government revenue would have been R800 billion higher than it is. Just think about that number and the huge arguments we just had about increasing VAT to raise R75 billion over the next three years. Had our economy maintained its trajectory, the government would have little debt, and there would be ample room to grow spending on public services.

“Unemployment would also be sharply lower, with a third fewer people out of work. It was a helpful reminder of how much we lost through poor policy and poor performance. Of course, there were other factors that played a role, including weaker commodity prices and Covid.

“But other countries managed to recover their growth rates with global growth averaging around 3%, while we have been stuck at 1% or less.”

Mavuso says when we think of the cost of poor municipal performance and other structural constraints on our growth, it helps to imagine how different things could be. “Our people are condemned to live poorer lives, with many more out of jobs. Reports like the Auditor General’s show us what must be done. We must be serious about doing it.”