The ability of many municipalities to deliver services to taxpayers and maintain their infrastructure continues to fall.
The latest municipal financial stability index (MFSI), compiled by Ratings Afrika, shows the average index score for the 100 largest local municipalities in terms of revenue dropped from 52 in 2008 to 45 last year.
Ratings Afrika’s index measures the ability of municipalities to deliver services. A drop in the index shows a weakening of this ability.
Leon Claassen of Ratings Afrika said there were several reasons for the fall in municipalities’ financial stability.
“There are low collection rates, due to consumers who are under financial pressure and somewhat higher levels of commitments as municipalities develop infrastructure to expand services. But one of the major reasons remains the level of financial management and expertise, which are lacking or inadequate to apply the necessary financial discipline and principles,” he said.
Skills and financial management at local government level have long been a problem.
Preliminary audit data from the auditor-general shows that less than half the 278 municipalities in South Africa received unqualified audits for their 2012 financial results.
The Ratings Afrika results showed the financial stability of all provinces, except Limpopo and KwaZulu-Natal, declined between 2011 and 2012. The worst-performing province was the Free State, with an index score of 32. KwaZulu-Natal was the best performer with 57.
The results also showed that a province’s wealth is not necessarily a good yardstick of financial stability.
Limpopo, viewed as one of the poorest provinces, is one of the top three scorers over the past five years. Yet Gauteng, the richest province, occupied the second-lowest position on the index.
Mr Claassen said management was the main differentiator in the performance of these two provinces’ municipalities.
Overall, the individual performance of municipalities weakened in recent years.
Although the best-performing local municipality, KwaDukuza in KwaZulu-Natal, steadily increased its index score from 75 in 2008 to 85 in 2012, only three municipalities scored more than 80 in 2012, versus six in 2008. The municipalities of Newcastle in KwaZulu-Natal (83) and Stellenbosch in the Western Cape (81) also scored above 80 in 2012.
The three least financially stable local municipalities were Naledi in North West, which consists of Vryburg, Stella, Dithakwaneng and Devondale, Matjhabeng in Welkom in the Free State and Madibeng, which include Brits, Hartbeespoort, Letlabile, Damonsville, Mothotlung and Okasie, also in North West.
The biggest disappointments over the past five years were the Kouga municipality in Jeffreys Bay, Eastern Cape, where the score fell from 75 in 2008 to only 21 last year, and Lesedi in Heidelberg, Gauteng, which fell from 64 to 26.
Ratings Afrika said these slides could have been caused by changes in management and financial policies.
• This article was first published in Sunday Times: Business Times