Metropolitan municipalities are resilient
SOUTH Africa is facing a mammoth challenge with the economy that is performing far below its potential as evidenced by slow economic growth over the past few years and job losses.
Despite the economic environment, cities have continued to intensify collection efforts resulting in levels on average of over 88%.
Given the devastation on the economy by the Covid-19 pandemic, macroeconomic and the global economic outlook, the South African metropolitan municipalities continue to show resilience.
The latest credit ratings by Moody’s on metros should be seen within the context of the increasing pressure that councils are facing in trying to meet debt payments due to falling revenue as a result of cash-strapped consumers who are unable to pay for the services rendered; rates and taxes.
While Moody’s downgrading of metros by one notch both on the global scale and national scale ratings, the recently revised ratings still place the councils within investment grade despite financial challenges.
The assigned rating for the City of Cape Town, the City of Joburg and Nelson Mandela Bay demonstrates the strongest creditworthiness relative to other domestic issuers and is still far within the investment category.
In terms of governance, cities continue to lead by example, as per the auditor-general’s report the metropolitan cities have received unqualified audits with the City of Ekurhuleni receiving a clean audit.
The cities accounted for a cumulative 75% (R4.7 trillion) of GDP in 2019 with the remaining municipalities making up only 25% (R1.6 trillion). Over 50% of the total local government operating budget of R528 billion is in the hands of metros with a capital budget of over R34bn.
According to Statistics SA 2019 non-financial report, there has been an improvement in service delivery in comparison with the 2018 report.
Capital expenditure on basic services increased from R21bn to R26bn year-on-year, this can be attributed to the increased number of households provided with basic services. Overall there was an increase of 5.7% across services with sanitation leading at 7.8%. Nationally, about 12.3 million consumer units received electricity from municipalities.
Metros continue to provide water services (water and sanitation services) to about 40% of the population.
Local government financial affairs are regulated through the Municipal Financial Management Act, which enables municipalities to borrow longterm bonds and loans. This legislation has made it possible for these metros to undertake massive capital expenditure programmes over the years.
According to the Municipal Borrowing Bulletin for the quarter ending March 31 this year, the longterm borrowing amounts to R68.5bn translating to 17% of total revenue. Although on a differentiate approach, debt-to-revenue ratio places the City of Joburg at 34%, being the highest with Nelson Mandela, City of Cape Town at 14% and 10% respectively. All the cities are with the 45% benchmark.
Although metros have proven to be quite resilient despite the challenges, if the current cycle prolongs it will put further pressure on households and businesses on their ability to honour their obligations towards municipalities for services consumed.
Currently, municipalities are owed more than R230bn. The South African Local Government Association (Salga) calls for municipalities to enforce cash management strategies to mitigate against any possible defaults and to avoid a possible financial catastrophe.