But this is a R2bn shock ‘it cannot withstand’.
The City of Tshwane on Tuesday afternoon announced that it will implement the bargaining council ruling made the previous day and pay – retrospectively – the 3.5% salary increase its staff was entitled to in 2021/22.
This means the city must find at least R2 billion to foot the bill that is payable in the next six months, according to the ruling. Where that will come from is not clear.
This is a huge setback for the city, which has started making modest progress towards financial recovery, says Leon Claassen, managing executive at Ratings Afrika.
Ratings Afrika annually analyses the audited financial statements of the larger municipalities in the country and publishes the Ratings Afrika Financial Stability Index.
The index measures among other things the ability of a municipality to withstand shocks, including financial shocks.
Tshwane has consistently performed poorly.
Claassen says the city’s financial statements for 2023/24 showed a liquidity deficit of R9.7 billion. It did record a R500 million operating profit, but that is not enough to fund the backdated salary increase now.
“Tshwane is in a deep hole that it must dig themselves out of.
“The outlook is dark, and I cannot see it improving soon,” says Claassen.
“The city has no cash reserves and who will lend them money? Banks consider cash and cash reserves … It will impact the city’s whole financial situation.
“The liquidity shortage will increase, and service delivery will remain poor.”
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Implementation options to be ‘explored’ with unions
Making the announcement, Deputy Mayor Eugene Modise, who is also member of the mayoral committee (MMC) for finance, said the city will engage the unions “to explore practical, convenient, and sustainable modalities for implementing the award”.
“These engagements will seek to ensure that the implementation process is both compliant and considerate of the city’s financial realities, while prioritising fairness and [ensuring] service delivery will not be compromised.”
How Modise will manage to balance all these interests is not clear.
Politically, the response of the ActionSA-led coalition currently governing Tshwane to the ruling is in stark contrast to the position of the previous multiparty government under DA mayor Cilliers Brink.
The other parties in the current coalition are the ANC, EFF, Patriotic Alliance (PA), African Independent Congress (AIC), Democratic Independent Party (DIP or DOP), Good, African Transformation Movement (ATM), and Pan Africanist Congress of Azania (PAC).
It was under Brink’s leadership that the council refused to pay the 3.5% increase in 2021/22 and another 4.6% two years later. The Labour Court earlier this year granted the city exemption from the wage agreement for 2023/24, sparing it the 4.6% increase, but remitted the 2021/22 matter to the bargaining council.
This led to Monday’s ruling.
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Affordability is still an issue – Uys
Following the ruling, the DA called it legally flawed and financially ruinous. “If not taken on review, the decision will be paid for by residents in the form of deteriorating service delivery and infrastructure.”
DA Tshwane caucus leader Jacqui Uys said in a statement:
“Affordability was the basis on which the council approved the exemption application in 2023, with the supporting vote of the ANC and ActionSA.”
The resultant saving of R600 million enabled the city to reach a favourable payment arrangement with Eskom – bulk electricity purchases being the second biggest operational expense of any municipality next to salaries.”
She said the DA believes the city has strong grounds to take the decision about the 2021/22 salary increases on judicial review to the Labour Court. “Failure to do so would derail the city’s entire financial recovery process.”
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Financial fragility
Moneyweb previously reported that the council is also at risk of losing one of its sources of income after the High Court in Pretoria ruled its cleaning levy, a mechanism to raise more than R500 million in the current budget, unconstitutional.
The council was refused leave to appeal but petitioned the Supreme Court of Appeal to overturn the decision.
The matter is still pending.
In addition, the rate of collection of consumer debt has dropped to 81% the end of September, according to a recent report to council. Claassen says chances of a successful financial turnaround are slim with a collection rate of anything below 90%.
This article was republished from Moneyweb. Read the original here.
