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By Ciaran Ryan

Moneyweb: Journalist & Host of Moneyweb Crypto Podcast

SA’s top-run municipalities are Midvaal and Saldanha Bay

There’s a huge gulf between the best and the worst performers, according to Ratings Afrika – and the overall trend is in the wrong direction.

The 2022 Municipal Financial Sustainability Index (MFSI) by Ratings Afrika puts Midvaal in Gauteng and Saldanha Bay in the Western Cape as the two best-run municipalities in the country, with Cape Town yet again emerging as the best-run metro.

The survey ranks the 112 largest municipalities and eight metros, out of 257 municipalities in total.

There’s a huge gulf between the best and worst performers, with North West and Free State bringing up the rear.

Most are in dire financial straits and are unsustainable, demonstrating a lack of proper oversight by the Department of Cooperative Governance and Traditional Affairs (Cogta) and the respective provincial administrations.

Top score would be 100 …

The MFSI rates municipalities and metros on a scale of one to 100, based on six financial components: operating performance, liquidity management, debt governance, budget practices, affordability, and infrastructure development.

The worst performer of the lot is Naledi (Vryburg), with a score of just seven.

The best performing municipality in North West is JB Marks (Potchefstroom), with a score of 35.

The average score for the Free State and North West is 21.

“It is very clear that the majority of the municipalities in these provinces are in serious financial trouble and are probably facing collapse,” says senior Ratings Afrika analyst Leon Claassen. “The leaders of these provinces should be held accountable for this dismal performance.”

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Addressing the media at the release of the Ratings Afrika MFSI survey on Wednesday, Midvaal Executive Mayor Peter Teixeira said residents will happily pay rates and taxes where service delivery is kept at a high standard.

“I want to thank our residents who pay for services. They’re driving on roads that are [kept] in good condition and we are upgrading our infrastructure on an ongoing basis.”

Midvaal imposes key performance indicators to hold municipal staff to account, he added.

Saldanha Bay Executive Mayor André Truter pointed to the municipality’s 98% debt collection rate as a mark of excellence: “It’s great that we are recognised for the good we do, but we are never satisfied. We are always looking at ways of doing better.”

Though not mentioned in the Ratings Afrika report, it is noteworthy that the top-scoring municipalities are all DA-run, though Truter said he was more than happy to share best practices with ANC-run municipalities.

Top-ranking municipalities

Top-ranking municipalities
Source: Ratings Afrika

Metro performance

Metro performance
Source: Ratings Afrika

The state Mangaung (Bloemfontein) and Tshwane (Pretoria) are in is of grave concern, say the authors, with operating deficits of R12.9 billion and R4.2 billion respectively.

The two distressed metros suffer serious liquidity shortfalls of R1 billion and R6.9 billion respectively, meaning they are ill-equipped to pay bills as they fall due.

The aggregate operating deficit for all 112 municipalities featured in the index has more than doubled since 2018 to R33.7 billion, a sign of the financial crisis that has gripped the local government sector over the last four years.

ALSO READ: No salaries for Ditsobotla employees as municipality’s downward spiral continues

Provincial ratings decline

The Western Cape was again the top-performing province, with an average score of 52.

“It [Western Cape] is the only province with an average of more than 50 and also the only province whose municipalities are considered to be largely sustainable financially,” notes the survey.

Across all provinces, the average local municipality score for 2022 was an abysmal 36 out of 100, indicating poor financial management practices and discipline.

Perhaps most worrying is that 60 of the top 104 local municipalities evaluated achieved a score of less than 35, rendering them seriously unsustainable and perhaps even dysfunctional in terms of normal service delivery.

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The average score for the metros is showing a steeper decline over the last five years than that of the local municipalities, namely an eight-point decline from 49 in 2018 to 41 in 2022.

This is a very concerning trend since the metros are considered to be the economic engines of the South African economy.

Service delivery failure by the metros will cause immeasurable damage to the economy of the country.

“The financial sustainability of the municipalities and concomitantly their service delivery capacity continues to deteriorate rapidly – which has a disastrous effect on the quality of life for most of the South African population and the economic activity of the businesses located within their jurisdictions,” conclude the authors.

Only the Western Cape has sufficient financial headroom to deliver services and develop infrastructure while building reserves to absorb financial shocks.

National Treasury recently introduced a plan to write off R57 billion of municipal debt owed to Eskom and reverse the culture of non-payment that has reduced collections in some parts of the country to as low as 17%.

Ratings Afrika analyst Charl Kocks notes that the 14 conditions attached to the write-off are onerous and may be beyond the capacity of many of the qualifying municipalities.

“We’ll have to wait and see how this works out,” he says.

To qualify for debt relief, municipalities will have to formally apply to National Treasury and subject themselves to monthly monitoring and adopt funded budgets, among other requirements.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.

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