EDITORIAL: Astral shines a harsh spotlight on municipalities
SA’s largest poultry producer is probably not alone in falling victim to poor political governance
Chris Schutte, CEO of SA’s largest poultry producer, Astral Foods, launched a scathing attack on the government this week, saying that before dreaming about bullet trains it should first provide basic services.
“I am flabbergasted that government structures are fixated with the concepts of a fourth industrial revolution, and now bullet trains and megacities, while they are unable to provide basic services to existing companies,” Schutte said.
It is easy to sympathise with his sentiment.
Astral Foods expects to take an R85m hit on its bottom line after scaling back output at its flagship factory in Standerton in Lekwa Municipality, Mpumalanga, due to the local government’s failure to revamp water supply infrastructure.
Astral is probably not alone in falling victim to poor political governance, and Schutte’s comments shine a harsh spotlight on the incompetence that many argue is eating away at every layer of the government: national, provincial and local.
News reports such as these also threaten to undermine President Cyril Ramaphosa’s ambitions to attract capital investments and put the economy on a robust growth path.
Worryingly, the Lekwa management mess is emblematic of a wider deterioration in SA municipalities, which are increasingly lacking qualified engineers and financial accountants to build schools, roads and toilets, and manage billions of rands in budgets.
Protests over the poor delivery of government services such as running water, sanitation, paved roads and schools are common in many black townships. There were 140 such protests from January to May, on course to surpass 2018’s record tally of 237, according to the think-tank Municipal IQ.
With just 21% of municipal governments having qualified engineers to build infrastructure projects, it’s no wonder a town such as Standerton struggles to deliver uninterrupted water supply to Astral despite being located close to a substantial water source in the Vaal River.
A cursory glance at the auditor-general’s report on municipalities shows a gloomy picture, underscoring a lack of financial professionals to manage their budgets. In 2018, only 13% of municipalities managed to obtain a clean audit — meaning they have complied with accounting rules and all key legislation.
These units of government are owed nearly R140bn for municipal services, making it difficult for them to pay Eskom and water boards.
Leaders in these municipalities have lost credibility among residents, who are simply refusing to pay rates and taxes because they see no delivery of services. It seems increasingly likely that businesses are starting to lose patience too. That’s a bad sign that comes at an inopportune time for Ramaphosa.
In his state of the nation address last week, Ramaphosa made attracting meaningful investments the cornerstone of his main goal to revitalise the economy. He wants to move SA into the top 50 in the annual World Bank Ease of Doing Business rankings. The country is in 82nd place.
However, it would be a tough sell to investors if local government authorities in towns where factories will be located cannot guarantee water or electricity supplies.
For Astral, the R85m hit from the management mess in Lekwa is about 20% of headline earnings per share, the widely watched measure of profitability in SA.
The disruptions in water supply add extra costs such as finding alternative abattoirs and pushing back predetermined slaughtering schedules, which is another burden for a company already struggling with competition from cheap chicken imports.
Granted, Ramaphosa has not been idle since taking over from Jacob Zuma in February 2018. He has tried to fight entrenched corruption with the appointment of the head of the National Prosecuting Authority, and improve governance at money-losing state-owned companies such as SAA and Eskom.
The scale of Ramaphosa’s challenge is enormous. But the least he can do is show investors and citizens that his administration can run a municipality, the smallest unit of government with direct interaction with investors and the citizens.
Then we can start dreaming about bullet trains.