Financial reports won’t save local government crisis, warns town and regional planners

It is unclear whether South Africa has the will or guts to confront issues contributing to the deteriorating finances of local government in the country. There are solutions, but they will come at a political price.  

All the major media and even some political parties in the country published the dire findings of Ratings Afrika’s latest Municipal Financial Sustainability Index covering the financial year ended June 2021. Experts decried the sorry state of South Africa’s local government finances.

“No amount of analysis or reports in the press will solve any problems,” says Burgert Gildenhuys, the director of infrastructure investment, municipal finances and spatial planning company BC Gildenhuys & Associates. “Financial statements and audit reports reflect history. It does not explain the underlying issues, systems and processes that lead to a particular financial situation. Politically this easily translates into cadre deployment and all the nuances attached to it by the press and political parties.

“The belief is that if you can rid the system of deployed cadres and practice good clean administration, service delivery and municipal problems will be something of the past. But, clean and effective administration has its limits.”

The eventual driver of sustainability is the local resource base.

Misguided “pro-poor” service delivery has led to decades of over-investment in welfare sustained by heavy cross-subsidisation in the local tax base.

“Although economic growth is impossible without continuous and sustained capital investment, we must stop sugarcoating infrastructure services for non-paying indigent and poor as investments or economic development,” says Gildenhuys. “It is doubtful whether large-scale government capital programmes will filter through and contribute to the financial wellbeing of municipal governments.

“The focus on capital expenditure translates into a long-term operating burden by not explicitly linking capital expenditure and operating expenditure and underlies the current cash flow and financial problems in municipalities.”

Understanding the link and consequences disappeared with the advent of spatial planning legislation and policies. This was primarily due to the lack of understanding of these links by town and regional planners and the inconvenience of considering the impact of financial constraints on visionary utopian planning.

Long-term financial plans that ignore the dynamics of urbanisation, socio-economic change, economic decline, increased poverty, private sector (dis)investment, and the local revenue base have little value. Expertise on these matters is outside the scope of the financial specialist, yet we persist in seeking assistance from financial specialists for challenges rooted in non-financial issues.

Breaking the link with service delivery realities also negated credible data informing municipal planning. No municipality sustains an integrated detailed spatial database. As a result, there is a general lack of understanding of the extent and characteristics of its development problem. In short, reliable data that informs decision-making is not part of the equation. Unlocking basic data is the first step in resolving many a crisis at the local level.

“One should continue to elaborate on the real issues contributing to the current crises in municipalities,” says Gildenhuys. “We need to explore the institutional constraints and the fact that we may not have the skills to address these issues in the same way as a culture of entitlement in urban areas contributes to unbearable demands on the municipal system.”