South Africa is at a crossroads, business directors warn

The upcoming local government elections are unquestionably one of the most important in South Africa’s recent democratic history, says the Institute of Directors South Africa (IoDSA).

The IoDSA – a non-profit organisation that represents directors, professionals, business owners and leaders in their individual capacities – says that the elections are crucial to holding the country’s leadership to account and getting the country’s municipalities back on track.

“There is sufficient evidence to suggest that many municipalities in South Africa are either failing or close to a state of complete collapse,” said the Institute’s chief executive Parmi Natesan.

“Poor service delivery has a direct impact on jobs and sustained growth, and it is only through the ballot box that people can make their dissatisfaction heard and to effect change where necessary.”

Natesan cited data from the Auditor General, which shows that less than 40 of the country’s 278 municipalities are said to be on a sound financial footing.

Should this trendline continue, the investment risk will continue unabated and put increasing strain on the national fiscus and South Africa’s sovereign risk, he said.

“There is no doubt that the country has reached another growth and development crossroads, and failure to get local government moving in the right direction will have negative consequences for years to come,” says Fay Mukaddam, a governance specialist with the IoDSA.

“And it’s at this level where the crisis is most pronounced. Suppose a municipality is unable to effectively offer the most basic of services. In that case, an immediate negative sentiment is created, which has a rapid knock-on effect on the creation of new jobs.”

Broken municipalities 

The IoDSA pointed to dairy company Clover’s decision to relocate its cheese factory from Lichtenburg in the Ditsobotla Municipality due to poor service delivery for many years.

Over 400 permanent and temporary jobs were lost, which could have been saved had there been more attention focussed on fundamental issues like garbage disposal and road maintenance, it said.

The Institute says for businesses to remain focussed and competitive, there must be a stable symbiotic and trusting relationship with local government. Part of the compact is making sure a sustainable operating environment is delivered all year round.

Mukaddam said while the Clover example was a high-profile and well-documented issue, there are many other businesses in South Africa that are experiencing similar frustrations and that the 1 November election can be a time for companies to send an unambiguous message to failing municipalities that they have run out of runway.

The IoDSA says it also acknowledges that poor service delivery and inefficient municipalities cannot be an overnight fix and that current problems are in many cases historical.

Part of the dilemma, according to the Bureau for Economic Research at Stellenbosch University, lies with managers and staff who often lack technical insight; and in the way, that tender specifications are drawn up.

An additional problem is that many smaller and poorer municipalities do not have a good tax base.

“We acknowledge these are deep-rooted problems which result daily in poor management of operational budgets; a failure in many cases to spend capital budgets as well as wasteful and irregular expenditure,” said Natesan.

“And while change might occur at the political level, that doesn’t mean that problems like this will disappear immediately. There is also a vital need for functional and effective change at the governance and administrative level, but that the 1 November poll is the starting point.”

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