01/06/2025 | By Busiswe Mavuso
The financial state of our municipalities is shocking and a serious constraint on economic growth. Only one of the eight metros gets a clean audit – Cape Town – with Buffalo City, Tshwane, Mangaung and Nelson Mandela Bay getting qualified audits indicating material failures in the accounts. 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 of our municipalities get that serious censure.
Our metros are the economic hubs of our country. It is completely unacceptable that most cannot get basic financial management right. They have budgets in the billions – Johannesburg will spend almost R90bn this year – but cannot manage that money adequately. In the case of companies, if management 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.
What makes it even more galling is that the state of financial management tracks with the level of basic service delivery. 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 aren’t enough qualified people working in local government to ensure the accounts are done properly. That is despite the billions at stake.
There has been evidence of improvement in some areas. The number of municipalities getting a disclaimer audit opinion – the worst kind – has fallen to 14 from 28 in the 2020/21 year when local government elections saw new councils elected. That improvement, says the auditor general, is attributable to good support from provincial treasuries to assist municipalities’ financial function.
But that can’t be said of metros, which the AG says have continued to regress since 2020/21, with three downgraded in the last year. The AG singled out Johannesburg and Tshwane for not budgeting adequately for infrastructure maintenance. She also bemoaned the culture of municipalities approving unfunded budgets – expenditure that cannot be covered out of the revenues the municipalities receive. It should concern all South Africans that elected councillors can willingly approve spending plans for which there simply isn’t the 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 R2.76bn. Tshwane is not far behind at R2.15bn. Beyond the numbers, the AG 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 AG’s quality standards on submission. Thanks to corrections made after submission 52% ended up meeting standards, but that means almost half still fail.
The AG’s report is a very helpful spotlight on one of the drivers of service delivery failure in local government. This is now a national priority and one of the biggest constraints on economic growth. Service delivery failure often means businesses can’t 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 AG also points to weak information technology, again driven by a lack of skills and controls. These help paint the picture of what Operation Vulindlela needs to contend with. 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 lack of performance and continuous service delivery issues.
I was struck by a report from Investec last week showing how different our country would be today if we had stuck with the 4.5% growth rate we were regularly achieving until 2008. In 2024 the economy would have been 40% bigger than it was. Government revenue would have been R800bn higher than it was – just think about that number and the huge arguments we just had about increasing VAT rates to raise R75bn over the next three years. Had our economy maintained its trajectory, 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’ve 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.
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 AG’s show us what needs to be done. We must be serious about doing it.
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BLSA is a business organisation that believes in South Africa’s future and shares the values set out in the Constitution. BLSA is committed to playing its part in creating a South Africa of increasing prosperity for all by harnessing the resources and capabilities of business in partnership with government and civil society to deliver economic growth, transformation and inclusion.
