Only one metro is the exception to this, it said: the Western Cape, where municipalities are generally financially stable. Free State and North West municipalities are in the worst state.
“The South African municipal sector (except the Western Cape) is about to collapse financially. The government needs to acknowledge this and start taking the necessary steps to save the country,” the group said.
Municipalities do not have money to pay service providers and deliver services to residents. For the year to June 2021, all 108 municipalities tracked by Ratings Afrika had a combined R23 billion, and an accumulated deficit of R54 billion.
RatingsAfrika said that the government would have to intervene and bail these municipalities out – however, it warned this could come at a cost to taxpayers, who would inevitably have to foot the bill.
Municipal failure
The dismal state of South Africa’s municipalities has been well-documented by the auditor-general, and has been a big talking point among investors, analysts, and economists.
The auditor-general previously noted that only 28% of municipalities submitted quality financials for audit purposes, and just 11% received clean audits. The Free State and North West provinces did not have a single clean audit between them.
Only 5% of municipalities are financially stable and roughly 64 are dysfunctional due to poor governance, weak institutional capacity, poor financial management, corruption, and political instability.
The report described a death spiral: Rampant corruption and mismanagement at many municipalities result in a lack of funds and increasingly poor service delivery, the latter of which reinforces a culture of non-payment of municipal rates and service fees which, in turn, exacerbates the financial deterioration of the municipalities and further affects service delivery.
According to financial services firm, Allan Gray, many municipalities are failing to meet the basic needs of their constituents, including providing adequate access to water, sanitation, housing, and electricity.
Consequently, faith in the system has eroded, and the risk of social unrest – like that seen in July 2021 in KwaZulu Natal and parts of Gauteng – is high.
“Although the downward trend in municipal health has been well documented in the press, the sheer extent of the rot is still alarming: uncondoned, irregular, unauthorised, fruitless and wasteful expenditure amounted to a whopping R189 billion,” said Allan Gray.
Speaking at a recent PSG annual conference, former finance minister Tito Mboweni stressed that without fixing dysfunctional municipalities, dangerous roads, and reducing reliance on Eskom, South Africa can forget about meaningful economic growth.
Turning the tide
Current finance minister Enoch Godongwana acknowledged that the government is dealing with a deteriorating situation at local government level, with more municipalities becoming financially distressed.
During his budget vote speech in May 2022, he said the National Treasury, in partnership with Cogta, will look to use local government support mechanisms to implement ‘intense’ interventions to turn things around in the sector.
This will include programmes to improve municipal audit outcomes with a specific target on those with the highest levels of irregular, fruitless and wasteful expenditure to direct intervention in terms of Section 139(7) of the Constitution.
“There are 43 municipalities that meet the criteria to be placed under mandatory intervention. I have already written to the Premiers of all provinces in October last year identifying these municipalities and that the mandatory intervention process must begin in earnest,” he said.
Nursing municipalities back to financial health would boost the quality of life of residents, encourage economic activity and investment, as well as encourage tax and rate payment, he said.
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