Municipalities slide towards total collapse

William Saunderson-Meyer writes on AG Kimi Makwetu's sobering assessment of the state of local govt


The Auditor-General, conveniently for the African National Party government, waited until after the State of the Nation address by President Cyril Ramaphosa, to release his annual report into local government finances. 

The president should be appropriately grateful. The distressing picture painted by the AG of the levels of expertise and honesty in South Africa’s municipalities would have dulled somewhat the impact Ramaphosa hoped to make with his dreams of a “new city” rising, phoenix-like, out of the veld. 

The bad news from the AG is that many more municipalities are near collapse and non-compliance has increased. The AG’s staff is also increasingly brazenly being threatened with violence and hampered from doing their work.

The good news? Well not much

AG Kimi Makwetu must be mightily relieved that he is approaching the end of his seven-year tenure, which ends next year unless he is reappointed. For the past half-dozen years every single AG’s report into the financial state of municipalities — as well as into state-owned entities and government departments — has shown an accelerating downward trend in public finances. 

Every year, he has been forthright in his warnings of disaster and the growing likelihood of collapse. Every year, the AG has bemoaned the lack of decisive leadership at the very top of government and the fact that there are no consequences for corruption and incompetence. 

Every single year, government parliamentarians nod their heads sagely and promise intervention at the highest levels. Every single year, nothing substantial is done, setting the scene ever more emphatically for a major disaster.

There are some 257 municipalities and 70 district council entities. More than a third are technically bankrupt, with expenditure exceeding revenue, and 18 were in the past financial year placed under direct administration. 

“There are increasing indicators of a collapse. We assessed 76% of the municipalities to have a financial health status that was either concerning or requiring urgent intervention,” Makwetu told the media.

Only 8% of municipalities received clean audits, down from 14%. Almost two-thirds of them ignored previous AG-identified instances of material irregularities, while fully three-quarters of them made zero effort to investigate AG-identified misconduct and fraud.

While there may be a faint sigh of relief that irregular expenditure dropped from R29.7bn to R25,2bn, the scale of deliberate dishonesty —rather than congenital incompetence —  is staggering. 

Almost a billion (R921m) of tenders were fraudulent awards to state-employed officials. Another R1.2bn of procurement could not be audited because of missing or incomplete documentation — in government bureaucracies, “misfiled” or “lost” are synonyms for “stolen” or “shredded”.

More than 824 of suppliers of goods and services were identified as having made false declarations in order to win business. And in 88% of municipalities, the procurement processes were adjudged by the AG’s staff to be uncompetitive or unfair.

More than 80% of the R2bn illegally “invested” by municipalities — unnoticed by the regulators and auditors — in the plundered VBS Mutual Bank cannot be recovered. Of the 16 municipalities involved in the VBS scandal, 14 are now unable to pay creditors, maintain infrastructure or deliver services.

In the past two years, big auditing firms took a reputational hammering over complicity in state capture at SOEs and criminal incompetence or collusion with private sector shenanigans, like the Steinhoff collapse. They fare no better with their highly lucrative work for local government.

The money spent on consultants to do the work of municipal staff — up by 20% on 2016/17 to R907m — did not buy even minimal competence. Almost two-thirds (65%) of the reports on quality performance were “not credible”. Fully two-thirds of the financial statements had “material misstatements” in the areas where the consultants had done the work.

This week, resident Cyril Ramaphosa “emphatically” ruled out any degree of privatisation to improve financial and performance outcomes of the state. “Every single day,” the president boasted, “Public entities provide water, electricity, waste removal, road maintenance and a myriad of other essential services to South Africans”. 

That’s not according to the AG, nor to our perpetually rioting township dwellers. Four out of 10 municipalities have no road maintenance plan and almost half of them — 48% and 49% respectively — have no water or sanitation maintenance plans. 

Its clear from such AG statistics that the recent prolonged failure of water services in Grahamstown and on the KwaZulu-Natal South Coast are not anomalies. They are harbingers of nationwide collapses that, given existing levels of township violence in response to service delivery failures, will sorely test the government’s ability to maintain public order.

According to the AG’s report, at  the2017/18 year-end payments to Eskom were in arrear to the tune of R9bn with a further R6bn owed to the water boards. In the past year to March, Eskom reports that amount has ballooned to R20bn.

It’s not only SOEs that are being driven to their knees because of municipal inability to manage debt. Nine out of 10 commercial suppliers of goods and services to municipalities have to wait at least six months to be paid, which is unsustainable for small enterprises.

A culture of non-payment for services, tolerated for the past quarter century by the ANC, is a large part of the problem. According to the Democratic Alliance in the Free State, barely 10% of residents pay their bills in many municipalities. In some, that figure is as low as 2%.

SAMWU, however, this week warned that it will embark on strike action if workers at around 30 municipalities nationwide, who did not receive salaries this month, are not paid immediately, by means of an injection of central government funding.

The president, says SAMWU, has been “complicit” in causing the failure of these municipalities. “It can't be correct that municipalities are expected to deliver services to almost 60m people on only 9% of government expenditure,’ says the union’s general-secretary, Koena Ramotlou, with a straight face and enviable chutzpah.

To even begin to deal with the morass of overstaffing, under-performance and criminality identified in the AG’s report, the Ramaphosa administration will have to lock horns with powerful, arrogant unions that are integral to his governing alliance. Whether a former trade-unionist president will dare pick up a trade-union gauntlet, remains to be seen.

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