Many municipalities are unable to fund the service delivery that they are constitutionally mandated to provide.
These services include:
- The upkeep of public areas such as parks and beaches
- Refuse removal unless contracted to a private company
- Sewage management
- Road maintenance and building
Service Delivery Statistics South Africa
Every year Stats SA asks municipalities to contribute information on the extent of their services, especially on their service delivery attempts. The local government is fundamentally accountable for administering water, electricity, sewerage, sanitation, and refuse removal services to homes, businesses, and industries.
The Non-financial statistics of municipalities report keeps track of all 257 municipalities, presenting data on service delivery, impoverished households, bucket toilets, and the municipal workforce’s size.
These are facts from the latest service delivery report.
Municipalities increase service delivery but provide less for free
The local government has made improvements in rendering services. For example, municipalities provided water to just over 9 million customer units 1 in 2006, growing to 13,8 million in 2019. This represents an average year-long growth rate of 3,2%, exceeding the national population growth frequency of 1,5% estimated over the same time.
What hasn’t increased is the number of customer units receiving services for free from the government. There has been a decline in the coverage of free basic services across the board. In terms of water, 6,9 million customers profited from free water in 2006, dropping to just over 3 million in 2019. In 2006, 76% of customers received free water, dropping to 22% in 2019.
The decline is essentially due to municipalities re-adjusting their mechanisms to determine who qualifies for a free service. In the past, broad-based approaches mainly were used. These methods granted free services or support to all customers in a municipality or customers across an entire area. Yet, over time, these systems have given way to more targeted methods that recognise distinct households.
In other words, municipalities are now selecting the legitimate beneficiaries (i.e. indigent households) rather than providing free essential services to all households, notwithstanding their disadvantaged situation.
Bucket toilet usage is on the decline, but some municipalities continue to struggle.
The number of consumer units using a municipal-supplied bucket toilet decreased somewhat from 42 622 in 2018 to 42 434 in 2019. This shows a common trend of decreasing amounts since 2013 when 100 610 customers used a bucket toilet system.
One might instantly wonder why municipalities supply bucket toilets at all. Municipalities often give bucket toilets as a temporary solution while they acquire improved sanitation facilities. Sometimes, however, challenges delay the process, making it hard to displace bucket toilets once the system has been implemented.
The North West and the Free State province recorded an increase in bucket toilets in 2019 compared with 2018. The Ditsobotla municipality in North West and Nketoana municipality in Free State recorded the highest percentage increases.
Approximately half of all consumer units that utilise a municipal-supplied bucket toilet in South Africa are located in Free State. Around eleven municipalities in the province gave bucket toilets to a total of 20 688 customers. Municipalities in Western Cape, Eastern Cape, Northern Cape and Mpumalanga registered a drop in bucket toilet use. Gauteng, KwaZulu-Natal and Limpopo recorded zero requirements of bucket toilets in 2019.
One other municipality, Mantsopa in Free State, managed to eradicate all the bucket toilets provided to households.
PwC on Service Delivery and Economic Outlook
A report by PwC South Africa implies that municipalities are in genuine financial difficulty as transfers from national to local government are falling rather than increasing. PwC Southern Africa provides industry-focused assurance, advisory and tax services to the public, private and government clients in all markets.
With the municipal elections having taken place on November 1, political parties continue with promises of improving municipal service delivery outcomes. However, the financial health of municipalities is a particular concern for service delivery and the country’s socio-economic recovery over the short to medium term.
‘Municipalities require adequate funds to provide the essential services needed to create an environment conducive for doing business and growing the economy following last year’s recession.
‘To fund those services, they rely on a mix of transfers from the national government and their revenue sources. In response to the COVID-19 pandemic, National Treasury increased the transfers to local governments through a significant (12.6%) increase in local government’s equitable share during the 2020/2021 fiscal year, part of which was to be used for COVID-19 response measures.
‘However, the 2021/2022 financial year budget sees some of this clawed back, with total transfers reduced from R 138.5bn to R138.4bn. In addition, while conditional grants are being increased from R40.0bn to R45.5bn, the equitable share is reduced from R 84.5bn to R78.0bn. With transfers from the national government falling rather than rising, municipalities need to rely more on their revenue, predominantly from property rates and service charges for electricity, water, sanitation, and refuse. Yet as municipalities have raised rates and charges, debt owed to them has been growing,’ said the PwC.
The latest data from National Treasury indicates that outstanding debt owed to metropolitan municipalities stands at R114.5bnas of June 2021. This is a substantial (almost 60%) increase from the R72.4bn owed by mid-2018. The most significant amounts are owed to Gauteng’s metros: the City of Johannesburg (R37bn), the City of Ekurhuleni (R20bn), and the City of Tshwane (R16bn). Households account for 73% of the outstanding debt, businesses for 22%, and government agencies for another 5%.
Two out of every three municipalities have serious financial problems or are in a financial crisis. The latest report from the Auditor-General of South Africa (AGSA) indicates that 163 out of 257 municipalities – nearly two out of every three – are currently in financial distress. This is defined in the Municipal Finance Management Act (56 of 2003) as either:
• ‘serious financial problems’ – listing, among others, that it defaults on financial obligations; that actual expenses exceed actual income for more than two consecutive years; or that the deficit in its operating budget amounts to 5% of total revenue or
•’ financial crisis’ when the above factors are continuous.
There is a recurring failure of the municipality to pay its debts so that this substantially impairs its ability to procure goods, services or credit on usual commercial terms. As reported by the Financial and Fiscal Commission (FFC) in its recent policy brief, 108 municipalities were identified as having unfunded budgets. This means that their budget is not credible, either because revenue projections are unrealistic, the operating expenditures are too high, or the capital budget is too ambitious.
In addition, some 26 municipalities were identified as being under intervention, meaning that the provincial executive has stepped in to intervene in its affairs where it cannot or does not fulfil its functions. In some municipalities, this has meant, for example, replacing officials, making arrangements with Eskom or other creditors, or bringing committees to process matters that should have been processed. A 2020 report by the Public Affairs Research Institute (PARI) argued that the state of South Africa’s municipalities was unsustainable, with the fiscal framework creating structural problems that impede the country’s development. Despite the important role of local government in supporting socio-economic development, PARI demonstrated that municipalities are primarily unable to fund the services they are constitutionally mandated to provide.
Metros’ projections indicate further reliance on revenue increases from service charges to fund growing expenditure requirements over the medium term.
Yet as municipalities continue to raise service charges, this puts additional stress on households and businesses, negatively impacting the country’s socio-economic recovery. As unemployment continues to rise, the percentage of impoverished households who qualify to receive free essential services from the municipalities has also been increased in some metros – potentially meaning further tariff increases on the rates charged to those who pay for municipal services to cover costs. Indeed, over the past 18 months, we have seen many instances of lower municipal revenue collections and higher instances of poverty requiring an increase in tariffs to sustain service delivery.
The increase in taxes puts financial pressure on businesses and households and their ability to pay for these services. This, in turn, translates into increased defaults and a lower collection of revenues. This again requires an increase in tariffs, continuing the cycle. It isn’t easy to get out of this spiral.
Service delivery and data-driven technology
PwC’s said its approach was to help municipalities understand the financial aspects and – and firstly – the economics.
‘Municipalities need to understand what their local economy looks like now, how it has changed, and how it is likely to change in the future. This is the environment in which municipal leaders have to operate and make decisions. Each municipality has a unique mix of economic sectors that will experience different trends within the broader economic recovery.’ said the PwC.
As a result of the intervention, each municipal area’s overall economic recovery will look potentially different from its neighbours. From a different perspective, it is essential to understand the exposure of the local economy to the country’s various sectors and industries to truly understand the current and likely future economic dynamics in the municipality. Solving the municipal finance crunch requires a datacentric approach to financial and economic planning.
Data technology can allow municipalities to interact with financial information on a real-time basis. Ultimately, this economic climate – both local and on a national level – determines a municipality’s potential revenue base. Important questions include ‘How do we support industries with the maximum beneficial impact?’ and ‘How do we stimulate growth in sectors with strong potential?’ Answering these questions feeds into more accurate forecasts for local industry growth, property values, households income and employment levels. This knowledge then provides into the analysis of the financial situation. The PwC suggests that municipalities should:
• understand sources of revenue and collection (who is contributing how much)
• understand customers’ circumstances and their ability to pay
• the impact of the economy on municipal finances
• given economic conditions, identify the likely future revenue and collection
• identify revenue opportunities to ensure everyone contributes fairly
• test the impact of specific decisions or circumstances on customers and municipalities.
‘The PwC’s datacentric approach to understanding municipal finances is based on a four-phase process. For the public sector, both locally and abroad, the ability to leverage data to truly understand the drivers of revenues, model the impact of likely future developments, and test the impact of decisions on industries, and citizens, is unprecedented at present.
‘As with private sector companies worldwide, digital tools and data technology now allows municipalities to interact with this information on a real-time basis. This, in turn, empowers decision-makers to understand the economic and financial dynamics in their municipality for effective, impactful decision making.’
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