South African municipalities trapped in a vicious cycle

Many of South Africa’s municipalities are trapped in a vicious cycle, centred around a lack of basic management principles, that leads to poor service delivery and financial mismanagement.

South Africa’s Auditor-General (AG), Tsakani Maluleke, recently explained how municipalities’ bad management principles feed into a cycle that negatively impacts local governments and citizens.

This cycle starts with basic management principles not being applied, which impacts municipal planning in terms of financial and performance goals.

This lack of planning leads to poor service delivery, as municipalities lack the required resources to efficiently, effectively, and consistently provide services to their citizens.

This, along with South Africa’s struggling economy, sees consumers less willing and able to pay for municipal services.

In addition, fewer companies are willing to stay in municipalities where services are lacking, further depriving these cities of access to cash.

This not only worsens municipalities’ budgets but also affects their ability to deliver better and more consistent services, feeding into and continuing the vicious cycle.

Maluleke, who has held various roles in the AG’s office for over a decade, explained the importance of adequate municipal planning.

“We’re finding that basic management disciplines are not in place. It starts with planning for performance and making sure your budget matches up to the performance objectives you’ve set,” Maluleke explained. 

“Those performance objectives must give expression to the critical things. We’re going to maintain our infrastructure. We’re going to build these new projects. We’re going to deliver water quality at this level. Those sorts of things.” 

“And if you don’t have those things planned properly, you’re not going to meet them. And in fact, you’re not even going to have the money available to actually give expression to them.”

South African municipalities’ financial mismanagement has been a key topic in the AG’s annual reports.

In the 2023/24 AG report, Maluleke explained that the country’s metros are plagued by poor revenue management, debt collection, and budgeting practices, as well as financial losses resulting from poor-quality spending.

Municipalities strapped for cash

The AG explained that, because financial muscle is deteriorating and as the economy suffers, consumers do not pay municipalities as swiftly as they normally would.

In addition, when citizens receive poor service delivery, they are less likely to pay for these services. 

“You also don’t have enough economic activity. You don’t have businesses that are operating in that environment because of long periods of service delivery failures,” she added. 

“So, municipalities are getting less and less access to cash. And so what then happens is their expenses are crowding out the key things that they should do.” 

“They forego what you and I would expect, and then they do other things like employ a lot of people, but don’t do what they’re supposed to do, such as making sure they maintain infrastructure and deliver services.” 

In addition, when municipalities are strapped for cash, they tend to allocate spending to other expenses, like paying the prior year’s creditors.

Maluleke explained that this leads to misspending because the disciplines of properly planning projects – including monitoring projects properly, ensuring that the right contractor is appointed, and monitoring that contractor properly – are absent.

“So money is spent, but the delivery is lacking,” she explained. “The quality of your spending is very poor. Then what happens is that your infrastructure continues to deteriorate.” 

“Your ability to generate money out of service delivery continues to deteriorate. You lose water and electricity because your infrastructure is not well-maintained.” 

“So service delivery suffers, but also the financial health of the municipality continues to deteriorate.”

This has far-reaching implications for municipalities and their citizens, and has an indirect impact on the national government’s financial health.

For example, municipal debt to Eskom is one of the main reasons for the utility’s financial struggles, which have cost the national fiscus billions in government bailouts.