When ratings agency Moody’s downgraded five of SA’s major metros deeper into junk status last Friday, the timing suggested it was in direct response to the recent looting. It wasn’t.
Rather, the downgrades reflect the agency’s concern over the extent to which the Covid crisis has eroded revenue collection, undermining the precarious financial stability of these cities.
It’s no small concern. Last year, the metros increased wages by 6.2% on average — almost double inflation. As ever, they budgeted for this to be funded by hikes in property rates and service charges, but firms and households, driven to the wall by Covid, could not afford to pay.
Most municipalities budgeted for a drop in revenue collection of only 5% due to the pandemic, but Moody’s says declines of up to 10% were reported during 2020 — shortfalls that it believes are likely to remain "widespread and persistent" given SA’s weak growth outlook.
The upshot is that Moody’s expects a steep deterioration in the metros’ cash flows in the years ahead, and that most will respond by slashing capital expenditure. Not only would this worsen infrastructure backlogs, it would also be credit negative. As it is, the latest downgrades will raise borrowing costs, while the continued financial deterioration in the metros could reduce their access to funding, making it harder for them to recover.
This is the feared doom loop that lies beyond these downgrades.
They are another reminder that years of parlous governance, mismanagement and rank ineptitude on the part of mayors and city officials — all compounded by Covid — have crippled local government. The knock-on effect on service delivery also creates fertile ground for populists to foment unrest — as SA discovered, to its great cost, last week.
In April, local governance ratings agency Ratings Afrika (RA) warned prophetically that "a calamity of major proportions" is brewing in SA’s municipal sector. It had just delivered a damning report revealing that the average financial sustainability score of the eight metros fell from 50 to 43 last year — taking it below the minimum threshold for viability of 45 for the first time. (Cape Town, at 71, is the only metro that RA still considers financially sustainable.)
These metros are supposed to be the engines that drive the economy, since they house 40% of the population and contribute 60% to GDP. But RA warned that if their continued decay is left unchecked, it could fuel political unrest — with catastrophic consequences.
The fact that this has been proved true should serve as a wake-up call to the national government about its continued neglect of local administrations. Financially, what is needed is for the government to bail out the sector to the tune of R50bn — but without installing competent and ethical officials, this would just provide fodder for more waste.
The auditor-general sees a solution in instituting more controls and better governance and accountability measures. But given that 44% of municipalities with negative audit findings against them don’t even bother to investigate the causes, it’s not clear this will help.
What local government really needs is a tough new breed of political and administrative managers capable of making unpopular decisions, such as freezing salaries and firing inept officials.
But above all, the waste due to tender fraud and corruption must be halted. This requires independent leaders whose political survival is not dependent on criminal, factional or vested interests.
Instead of waiting for the ANC to outlaw cadre deployment — a vain hope — the quickest way to improve municipal services would be for citizens to vote the ANC out of power in the upcoming local government elections. Municipalities that have been under DA control for an extended period have bucked the downward trend. Go figure.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.