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Looking at Ratings Afrika’s annual Municipal Financial Sustainability Index (MFSI™), based on the financial results of the 105 largest local municipalities and the eight metros, we see how Newcastle and South Africa’s municipalities are performing.
The analyses are based on the fiscal year ending in June 2020. The MFSI™ is a scoring model that evaluates six financial components: operating performance, liquidity management, debt governance, budget practices, affordability and infrastructure development of a municipality; and scores of these components out of 100.
The MFSI™ is furthermore a numerical representation of Ratings Afrika’s definition of financial sustainability stated as: “The financial ability of a municipality to deliver services, develop and maintain the infrastructure required by its residents without unplanned increases in rates and tariffs or a reduction in the level of services. Additionally, the municipality should have the capacity to absorb financial shocks caused by natural, economic, political and other adversities without external financial assistance.”
A statement issued by the agency declares, “The South African municipal sector is in a financial mess, and it is time for the Government to acknowledge it and start taking the necessary steps to save the country from disaster. Residents and businesses are suffering from poor service delivery, and economic growth is jeopardised by the inability to maintain and develop infrastructure.”
Furthermore, it says Government needs to realise in more practical terms that well-run, efficient municipalities that provide high-quality services to their residents and support local businesses are the underpin to economic growth and prosperity within the country.
According to Ratings Afrika, since it published its first MFSI™ in 2011, the financial sustainability of the South African municipal sector has deteriorated dramatically. The only exception being most of the municipalities in the Western Cape.
The agency claims South Africa faces a significant calamity if this lack of sustainability is not dealt with effectively and as a matter of urgency.
Looking at the operating performance and working capital or cash positions of the indexed municipalities, Ratings Afrika explains that the practical reality of the liquidity shortfalls is that these municipalities do not have the working capital or funds available to deliver services or pay their service providers such as Eskom, the water utilities and other creditors within 30 days as required by the Municipal Finance Management Act (MFMA).
According to the agency, the cash shortfalls are expected to get worse every year since the majority of the municipalities will continue to realise losses. Revenue collection is expected to remain subdued because of the slow economic growth caused by the COVID-19 lockdown and the Government’s inability to implement free-market economic policies that would stimulate economic activity in the private sector.
Ratings Africa stresses that to prevent a total collapse of these municipalities, the only solution is for the Government to bail them out to the amount of R51 billion. “This will only bring the municipalities onto a level footing to pay their creditors as stipulated by the MFMA. Unfortunately, this R51 billion burden will have to be carried by the already overstressed taxpayers.”
Another concerning aspect highlighted is the low level of spending on repairs and maintenance. Given the substantial maintenance backlogs built up over the years, the expenditure should be between 6% and 8% of the carrying value of the fixed assets. Currently, the average maintenance spending by the local municipalities is only 1,5%, which Ratings Afrika explains is hopelessly inadequate to keep the infrastructure in good operating condition. “The deterioration of the infrastructure, such as crumbling roads, sewer spillage, and water or electricity disruptions is visible everywhere as a consequence. Increasing the maintenance spending dramatically is imperative to prevent a total breakdown in services in many municipalities.”
Despite various challenges, some municipalities are performing well, demonstrating that they can maintain a high level of financial sustainability with a commitment to sound financial management and dedication.
Five municipalities achieved a score of 70 or more on the index. Mossel Bay, Saldanha Bay, Swartland (Malmesbury) and Overstrand (Hermanus) in the Western Cape and Midvaal in Gauteng.
The best-performing municipalities by province in 2020 were:
- Eastern Cape – Senqu (Lady Grey) with a score of 59
- Free State – Metsimaholo (Sasolburg) with a score of 31
- Gauteng – Midvaal (Meyerton) sporting a score of 70
- KwaZulu-Natal – KwaDukuza (Stanger/Ballito) with a score of 65
- Limpopo – Lepelle Nkumpi scored 62
- Mpumalanga – Steve Tshwete (Middleburg) with a score of 58
- Northern Cape – SolPlaatjie (Kimberly) with a score 44
- North West – JB Marks (Potchefstroom) scored 42
- Western Cape – Mossel Bay with a score of 74
Unfortunately, some municipalities reflect shallow financial stability and are cause for grave concern, as service delivery is usually affected by financial constraints.
The results of the lowest-scoring municipalities in the Rating Afrika’s index for 2020 by province are as follows:
- Eastern Cape – Enoch Mgijima (Queenstown) scored an atrocious 9
- Free State – Matjihabeng (Welkom) with a score of 12
- Gauteng – Emfuleni (Vereeniging) with a score of 12
- KwaZulu-Natal – Newcastle with a score of 14
- Limpopo – Modimolle (Nylstroom) scored 12
- Mpumalanga – Lekwa (Standerton) with a score of 13
- Northern Cape – Emthanjeni (De Aar) with a score of 20
- North West – Naledi (Vryburg) with a low score of 9
- Western Cape – Beaufort West came in with a score of 18
It must be pointed out, in the previous Municipal Financial Sustainability Index (MFSITM) published on 7 August 2020, Newcastle also scored as one of the lowest scoring municipalities in the country with a score of 17.
In summary, this is the second consecutive year Newcastle has appeared in the lowest-scoring category, and what makes it worse, the municpality’s rating has further declined.
This is despite Newcastle Municipality successfully clinching two awards in February 2021; a Certificate of Recognition for Producing One of the Best IDPs in the Province plus Being Ranked the No 10 IDP in the province for 2020/2021, as well as a Certificate of Recognition for Having One of Most Improved IDPs in the Province for 2020/2021—showcasing the government entity’s improvement.
In December 2020, the Newcastle Municipality was also awarded the title of Best Crisis Communicator and the title of Best Newcomer during the 2020 Local Government Communicators’ Awards.
Responding to Newcastle Municipality’s poor rating, Bebsie Cronje of the Democratic Alliance attributes the score to the poor performance of the Technical Services Department and corporate administration, and no consequence management where certain councillors are involved in corruption with no consequence. “The governing party, the ANC, has proven it is not able to run the municipality.”
Cronje points out, “the ruling party claims it inherited the issues, but yet, it is responsible for the problems, and a change in leadership can help Newcastle move away from its status.”
However, Dr Koos Vorster of the IFP attributes the low ranking to the financial state of affairs and community members not paying their monthly municipal accounts. “For the last five years, Newcastle Municipality has been rated as the worst municipality in the area, and with the recent score of 14, it is clear things are not improving. But, once a municipality is in financial difficulties, it is difficult to get out.”
He explains that while the municipality is making an effort to start collecting monies, the community owes a staggering R1.755 billion. By getting people to step up ad pay their bills, he feels Newcastle Municipality can step away from its poor ranking on Ratings Afrika’s rating list.
The Newcastle Municipality was contacted for comment, but unfortunately, nothing was forthcoming at the time of publication.
What are your thoughts on the latest MFSI™ by Ratings Afrika? Do you feel Newcastle Municipality is on the road to recovery or another year at the bottom of the log?
Share your views in the comment section below.