Metro financials improve, but it’s still largely a fail

While the financial sustainability of South Africa’s eight metropolitan councils has improved slightly, their average score from Ratings Afrika is a mere 43 out of 100, which the agency says is concerning.

If one discounts Cape Town, which is once again the top performer with a score of 70, the average score is only 39.

“At this level of financial sustainability, the majority of metros remain a concern” the agency said at the release of the 2023 results.

“They are considered to be the economic engines of the economy. Service delivery failure by the metros can cause immeasurable damage to the economy.”

Ratings Afrika has been publishing its Municipal Financial Sustainability Index since 2011.

The index analyses municipalities’ annual financial statements and scores six components out of 100 to arrive at the final sustainability score.

The elements are: operating performance, liquidity management, debt governance, budget practices, affordability and infrastructure development.

The agency defines financial sustainability as “the financial ability of a municipality to deliver services, develop and maintain the infrastructure required by its residents without unplanned increases in rates and tariffs or a reduction in the level of services”.

“Additionally, the municipality should have the capacity to absorb financial shocks caused by natural, economic, political and other adversities without external financial assistance.”

Tshwane

While still doing poorly, the City of Tshwane showed the biggest improvement from the previous year.

Leon Claassen, Ratings Afrika’s analyst, says this shows the multiparty coalition is doing the right things, “but they still have a very long way to go”.

The improvement confirms Tshwane’s recent improved audit outcomes. Auditor-General Tsakani Maluleke issued a qualified opinion, which is better than the previous year’s adverse opinion.

Rating agency Moody’s also recently confirmed a stable outlook on Tshwane’s credit rating.

Claassen says the improvement in Tshwane’s operating performance is encouraging.

“The liquidity position is still very weak, but a continued improvement in operating performance will alleviate the liquidity pressures over the medium term.”

Mangaung

Based in Bloemfontein in the Free State, this was the worst performer with a score of 27, despite a small improvement from the previous year’s 24.

According to Claassen, this shows very low financial sustainability and he even doubts about its ability to continue as a going concern.

Cape Town

The Mother City has consistently outperformed its peers despite growing challenges. “The strong liquidity position and low debt burden underpin its sustainability,” Ratings Afrika says.

Johannesburg

The City of Gold has been sliding backwards over the past five years, scoring 36 points, 11 lower than in 2019, indicating low financial sustainability.

Its expenses exceed its income and its liquidity is low, which results in overall poor sustainability, says Ratings Afrika.

“The affordability level is still good, but spending on infrastructure is not optimal, which might impact the service delivery over the medium term, given the fast-growing population.”

Ekurhuleni

Its score of 32 indicates low financial sustainability and “is a marked decline from 45 in 2019”.

Ratings Afrika says the deterioration is primarily the result of weak operating performance and a severe decline in liquidity over the last five years.

“Low liquidity means there is insufficient funds to spend on infrastructure, which is reflected in the declining scores over the past five years, that also contributed to the lower overall score in 2023.”

Levels of financial sustainability a concern

eThekwini

The Durban metro has been improving and is almost back at its pre-Covid level. At 49, it shows a “fair” level of sustainability, according to Ratings Afrika.

“The improvement in the operating performance and liquidity contributed to the better overall sustainability score.

“Unfortunately, the spending on infrastructure shows a declining trend which will adversely affect services over the medium term.”