8 reasons why South Africa’s municipalities are completely broken

The Bureau for Economic Research (BER) has published a new research note on the state of South Africa’s municipalities, focusing on why so many towns and cities fail to deliver basic service delivery.

While no two municipalities are the same, the BER noted that many cross-cutting problems inhibit basic service delivery.

“Local economic development and better municipal service delivery are vital if South Africa wants to broaden economic participation and reverse its unemployment trend,” it said.

“To achieve these objectives, it is necessary to strengthen municipal finances and investment, with merit-based appointments and good municipal governance as a prerequisite.”

Some of the biggest challenges are outlined in more detail below.

1. A lack of skills 

The shortage of skills, both in terms of capacity and competency, in municipalities is often raised as one of the main reasons for the poor performance of local government, the BER said.

“Across all local municipalities and metros, 16.4% of positions were vacant in 2019 – 1.5 percentage points more than was the case in 2018.

The comparatively high vacancy rate in intermediate city municipalities (ICMs) is of particular concern: around a quarter of positions (24%) were vacant in 2019.

At the level of Section 56 managers, one in every four positions was vacant across metros and ICMs, and one in every five positions was vacant in other local municipalities.

2. Migration

Migration patterns can have a significant impact on service delivery, the BER said. While urbanisation gives households greater access to employment and services, it also presents specific challenges to urban development. Rural to urban in-migration means that cities need to acquire new land, build houses, and install services – all of which take time.

“Out-migration creates a different set of problems for rural municipalities since the people who leave are often those who are more entrepreneurial or economically active in search of better wages, job opportunities, education, or the availability and affordability of housing or food.”

The BER said it could also cause rural municipalities to lose an essential part of their tax base.

3. A lack of spending

In addition to population trends, low levels of capital spending could perhaps be seen as one of the greatest causes of municipal failure in South Africa, the BER said.

“Although there was an encouraging increase in capital spending by municipalities between 2005 and 2009, real total capital expenditure by municipalities in 2019 was no higher than it was in 2010.

“Sustained levels of low capital spending affect the ability of municipalities to expand access to water, sanitation, electricity and housing.24 As we discuss later in the note, this trend can in part be attributed to a lack of spending of available funds,” it said.

4. Supply chain management

The BER said that an inadequate, and in many ways paralyzing, supply chain management (SCM) process contributes to the poor state of municipal service delivery.

Inefficiencies in the procurement process were already highlighted as problematic in the NDP in 2012, stating that “procurement systems tend to focus on procedural compliance rather than value for money, and place an excessive burden on weak support functions”.

“The way in which SCM is implemented severely affects water provision, sewerage systems, electricity provision, roads, and waste management in many municipalities,” the BER said.

“This impacts on the ability and appetite of businesses to invest in a municipality and prevents new opportunities for economic development from being created.”

5. Municipal audits

Municipal audit processes do not necessarily help to improve service delivery, the BER said.

“With a total expenditure budget of R719 billion (2019-2020)30, there is no denying the need for annually auditing municipal finances, but the way the process is managed often hinders rather than improves municipal outcomes.

“Like the inefficient SCM process, the focus on audit compliance rather than on municipal performance has unintended consequences.” This means that staff can be held personally liable for material or non-material irregularities and threatened to recover irregular expenditure from their salaries.

As a result, the BER said a large share of management time is spent responding to irregularities and dealing with the recovery of these funds.

“In addition, to avoid the risk of expenditure that might be classified as fruitless and wasteful, managers focus only on clearly defined, narrow mandates as it has become too complex to work with other spheres of government or non-state actors.

“They become wary of working on complicated, cross-cutting issues that are necessary for dealing with developmental challenges – especially important in large local municipalities.”

6. Revenue management

Poor revenue management is one of the biggest causes of financial distress for local governments and affects the economic sustainability of municipalities, the BER said.

As a result of these dynamics, many municipalities can’t fully finance their operations and maintenance.

“Only 199 out of 257 municipalities submitted their audits in time to be included in the AG’s Consolidated Report 2019-20. Of these, only 38 were deemed to be in good financial health.

“The financial health of 98 municipalities – excluding the 58 that did not submit their audits on time – was of concern, and intervention was required at a further 63 (32%) municipalities.”

7. Irregular, fruitless and unauthorised expenditure

Irregular, fruitless and wasteful, and unauthorised expenditure is a severe concern and in 2019-2020 totalled R26 billion across all municipalities. “Irregular, fruitless and unauthorised expenditure seems to be a particularly large problem in ICMs and other local municipalities,” the BER said.

“In comparison, metro municipalities appear to be better at limiting fruitless and unauthorised expenditure, but still struggle with high levels of irregular expenditure.”

8. Repairs and maintenance

Underspending of infrastructure grants is accompanied by a lack of sufficient spending on repairs and maintenance, the BER said. “Repairs and maintenance of municipal assets are crucial to prevent supply interruptions and breakdowns.

“Circular 71 sets an 8% norm for expenditure on repairs and maintenance as a share of the value of property, plant and equipment and investment property. A ratio of less than 8% increases the likelihood of impairment of assets.”

Treasury data suggests severe underspending on repairs and maintenance, especially in ICMs and other local municipalities.

This can lead to even greater technical losses in the delivery of water and electricity services. The deterioration of infrastructure further constrains cash flow and the financial viability of municipalities, the BER said.

Read: Semigration is creating a hidden tax problem in South Africa.

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8 reasons why South Africa’s municipalities are completely broken