Herman Mashaba presides over financial sustainability rating crash
In Herman Mashaba’s first year as mayor, the City of Johannesburg’s rating on financial sustainability has plummeted to just above that of lowly Mangaung in the Free State.
Johannesburg is the industrial and economic powerhouse of SA, while Mangaung is regarded as the worst-run metro. Such a low ranking will have an effect on the metro’s ability to raise finance, according to a study released on Thursday.
The 2016-17 municipal financial sustainability index was conducted by reputable governance ratings agency Ratings Afrika and Compuscan.
The index was based on the results of the 2016-17 financial year to June 2017. It looked at how the 100 biggest municipalities and the eight metros performed in that timeframe. The index is a scoring model that evaluates the operating performance, liabilities, management, budget practices and liquidity position of a municipality and scores these components out of 100.
The City of Joburg, which has the largest budget in SA, fell from a score of 41 out of 100 in 2016 to 24 out of 100 in 2017. The metro’s liquidity management had a huge effect on the drop, as it was scored 42 in 2016, and dropped to eight in 2017.
Johannesburg changed governments after the 2016 local government elections when the ANC lost its majority, and a DA-led coalition took over the reins with Mashaba as mayor in August 2016 — two months into the financial year.
As expected, Mangaung received the lowest score of 22 out of 100, dropping from 25 in 2016. Tshwane, also run by a DA-led coalition, had the third-lowest score at 27 out of 100, up from 21 out of 100 in 2016.
According to the executive summary of the study, the weak financial stability of these metros was likely to have a detrimental effect on service delivery and economic growth in their jurisdictions.
"Although Mangaung and Johannesburg reported liquidity shortfalls for the fiscal year 2017, they are not as severe as that of Tshwane, with a shortfall of R3.7bn. Johannesburg and Tshwane, with their relatively large income bases, might be able to trade themselves out of trouble. However, it is doubtful that Mangaung, with a revenue base of only R5.5bn, can easily turn its operating loss of R1bn into a profit. Mangaung is becoming dysfunctional and may require financial and operational support in order to re-establish itself," the study noted.
Leon Claassen from Ratings Afrika, who did the analyses, said on Thursday that it was the first year in which the average score for the eight metros fell below 50, with the average score being 49.
At 74 out of 100, the Cape Town metro scored the highest.
Claassen said the risk with the lowest-rated metros was that a creditor might not be paid within 30 days. He said the municipalities were in this position because of the management in control. He said only 22 of the 100 municipalities they had analysed recorded operating profits — which was a combined operating profit of R1bn — while the other 78 recorded operating losses amounting to R15.3bn.
Claassen said that the combined liquidity deficit was R22.4bn for the period analysed and that the likely government bail-out for these municipalities amounted to at least R22bn.
The City of Joburg’s finance department did not respond to a request for comment.