HERMAN MASHABA: Danger of delaying local elections is evident in downgrades

Recently, credit ratings agency Moody’s downgraded several SA metropolitan municipalities to junk status, citing revenue collection challenges and increasing financial pressures.

The downgraded metros include Ekurhuleni, Cape Town, Nelson Mandela Bay and Johannesburg. This move comes shortly after Moody’s downgraded Tshwane in June, citing similar liquidity concerns.

Particularly concerning about this round of downgrades is that metros have more robust economies, with greater potential for revenue generation than most smaller municipalities, have a smaller revenue base, making them more susceptible to economic shocks and liquidity challenges. If metros are struggling, we can assume that smaller municipalities are far worse off.

Having dealt with ratings agencies during my time as executive mayor of Johannesburg, I will be the first to acknowledge that subnational (municipal) ratings are a product of macro- and microeconomic factors, as well as the financial management of the municipality in question.

Macroeconomic factors such as the Covid-19 pandemic have an impact on the overall level of economic activity and the ability of residents to pay for the rates and services they consume. In its report Moody's observed that some municipalities reported declines of up to 10% in revenue collection during 2020. If one considers that a municipality such as the City of Johannesburg generates about 85% of its revenue from rates and service charges, a 10% decline can have a significant impact on liquidity.

However, macroeconomic factors are only one part of the equation. How municipal management responds to economic headwinds is equally as important. Municipalities, like households, need to manage their budgets to compensate for revenue shortfalls. In the same way that millions of South Africans were forced to adjust household expenditure due to a loss of income during the pandemic, so too must municipalities.

While certainly challenging, this can be done. Municipalities across SA squander billions on nonstrategic, luxury and wasteful expenditure. With the political willpower to do so, this expenditure can be dramatically reduced to improve liquidity.

By way of example, during my mayoral tenure in Johannesburg the multiparty government reduced nonstrategic expenditure by R418m over just two years. From 2015/2016 to 2017/2018 we implemented austerity measures aimed at cutting items such as self-promoting advertising, marketing, domestic and international travel, consulting and professional fees, and conferences and seminars.

The net impact of this was that we succeeded in reducing operating expenditure (which only grew 2% in 2017/2018, compared to 9% in 2016/2017), while growing operating revenue by 6%. This resulted in an improved operating surplus of 7% in the 2017/2018 financial year, up from a low of 3% the previous year.

This achievement was recognised by Moody’s in its 2019 rating of Johannesburg, which affirmed the city’s investment-grade rating despite the deteriorating macroeconomic environment. In its report, Moody’s noted that “The City of Johannesburg is characterised by very strong administration which implemented improved management practices that strive to strengthen the city’s financial performance and reporting … Over the past three years the new administration has attracted a number of businesses to assist in regenerating the city’s economy, in particular within the inner city precinct. The city’s status as business capital and very large revenue base enabled it to operate a sound financial management and budget planning.”

The point is that while macroeconomic factors matter, the effects of an economic downturn can be mitigated through the sound financial management of limited municipal resources, as long as the political willpower exists to do so. Unfortunately, that willpower is largely nonexistent. Instead, municipal government in SA is synonymous with financial mismanagement and corruption. Auditor-general Tsakani Maluleke reported earlier in July that the combined irregular expenditure of all municipalities over the past year amounted to an astronomical R26bn.

The mismanagement and looting of municipalities has been brought into sharp focus over the past year as we witnessed some of the most brazen plundering of municipal coffers since 1994, under the guise of Covid-19 preparedness. Even in Johannesburg the government under the late mayor Geoff Makhubo spent at least R234m on PPE and other Covid-19-related expenditure, with allegations of irregularly awarded contracts and grossly inflated prices. Leaked internal documents suggests the figure could be closer to R600m.

If this is possible in a metropolitan municipality that enjoys a high level of scrutiny, it is unfathomable what the scale of looting in smaller municipalities with less sophisticated financial controls might be. 

This underscores why the postponement of the 2021 local government elections is of such great concern. We are currently facing a perfect storm of municipal mismanagement, with declining revenues on the one hand, and rampant corruption on the other. The sorry state of municipal governance can only be expected to get worse, and it will be residents that suffer.

The bottom line is that now, more than ever before, we need accountability for the gross mismanagement of the pandemic, and the looting of public resources. Criminal and corrupt governments need to be removed as a matter of urgency, and replaced with ethical, competent and caring governments that will prioritise improving municipal governance and service delivery. This requires not only an unwavering commitment to the principles of good governance — such as strong financial controls and oversight — but a zero-tolerance approach to corruption that sees perpetrators prosecuted without fear or favour.

Neither of these factors will take hold as long as the ANC is in power. If members of Cyril “New Dawn” Ramaphosa’s cabinet see a pandemic as an opportunity for looting and self-enrichment, there is little hope of ethical government at lower levels. A fish rots from the head. While a temporary delay to the elections is the responsible thing to do under the circumstances (circumstances made worse by the ANC’s mismanagement of the pandemic), we cannot allow Covid-19 to be used as a smokescreen for their indefinite postponement.

To ensure that we can fix SA we must limit the postponement to the shortest possible time and hold elections at the earliest possible date. Democratic accountability is the cornerstone of our constitution. We cannot allow that to be compromised.

• Mashaba is president of ActionSA.