South Africans living in small towns headed for serious trouble

The National Treasury’s decision to pause equitable share transfers to 69 municipalities in South Africa could affect service delivery, particularly in smaller, more rural towns.

While the Treasury’s decision is considered a necessary move to instil fiscal discipline, it may impact smaller municipalities’ ability to pay critical service providers.

This is feedback from Ntiyiso Consulting group chief advisor Miyelani Holeni, who discussed the issue in an interview with Newzroom Afrika.

His comments come after the National Treasury announced that it would temporarily withhold the equitable share transfers for July from 69 municipalities.

The Treasury said the transfers would resume once the affected municipalities meet the required conditions and submit proper proof of compliance. 

Equitable share transfers are direct, unconditional grants that the national government distributes to local municipalities three times a year, in March, July, and December.

This mechanism ensures that the revenue collected nationally by the South African Revenue Service is shared fairly among the national, provincial, and local spheres of government.

Since municipalities are expected to generate their own revenue from sources such as rates, taxes, and utility levies, there are severe disparities between cities.

For example, Johannesburg can raise far more revenue than a small town elsewhere in the country.

Therefore, the share transfers from the National Treasury are considered critical for funding initiatives such as free basic services in smaller, more rural areas.

The Treasury’s decision to withhold the transfers for July will affect both large and small municipalities across the country, including the City of Johannesburg, Emfuleni, and Manguang.

The decision was based on these municipalities’ gross financial non-compliance, which the Treasury has attempted to address through various means over the years.

The Auditor-General has routinely emphasised a lack of responsible financial controls and spending in municipalities across the country, often characterised by irregular, wasteful, and fruitless expenditure.

Therefore, the Treasury hopes that, by withholding the share transfers, it will enforce compliance and ensure that the municipalities address their financial management shortfalls.

A double-edged sword

Holeni explained that while the Treasury’s move is necessary, it is a double-edged sword.

“It is a two-edged sword in that Treasury is demonstrating that municipalities by now should be able to run themselves, especially along the issues of compliance,” he said.

“Though the smaller municipalities will struggle a lot more, given the fact that their reliance is even heavier on the equitable share and the other grants that are also allocated to them.”

Holeni said withholding the share transfers could cause these smaller municipalities to delay capital projects, and rural areas are expected to feel the pinch the most.

“The pinch will be felt across the board, and it will affect, in some cases, service delivery, but definitely municipalities will struggle to meet their obligations in full,” he said.

This is because some municipalities may not be able to generate the funds they need to pay service providers.

Inability to pay service providers is an issue affecting both large and small municipalities in South Africa, with the City of Johannesburg being the most high-profile example.

Johannesburg has been in hot water recently for failing to pay providers like Rand Water, Eskom, and Pikitup, which has severely affected service delivery in the city.

While this has been an issue for years, Holeni said it is the first time that the Treasury has taken a blanket approach to dealing with the issue.

Previously, he said, the Treasury would address these problems on an individual basis.

“There could have been pathways that the National Treasury could have followed. It’s quite drastic,” he said. 

“However, I think we must also dive deeper into the fact that municipalities are supposed to receive payments and go after the residents to pay for their services.”

“They ought to do that because the National Treasury’s equitable share is not a replacement for the fact that municipalities must generate revenue.” 

He said the financial mismanagement that led to the Treasury’s decision comes from problems that have built up for years in municipalities, and that they will now be forced to address.

“There ought to be a lot more planning as well as governance from municipalities to be able to get to a point where they are able to meet or at least keep up with their obligations,” he said.