Emfuleni’s financial distress still far from over

The cash-strapped Emfuleni Municipality in the Vaal scored just five out of 100 in Ratings Africa’s 2020 Financial Stability Index, which flagged concerns around declining operating performance and liquidity management.

These issues have contributed to poor levels of service delivery, with residents being subjected to sewage spills, lack of garbage collection, potholes and unreliable water and electricity supply over the years.

Emfuleni’s net deficit grew from R651.8 million in 2018 to over R1 billion in 2020, and its expenditure growth has been consistently surpassing its revenue growth, for at least the past three years according to the ratings agency.

Charl Kocks, principal of Ratings Afrika, says Emfuleni’s biggest problem is the lack of governance and its inability to manage the municipality properly.

“Unless the governance structures are replaced with people willing and capable to govern on sound principles, and the management is replaced with competent and willing managers that take their responsibilities seriously and manage properly, this municipality will probably never come right,” he warns.

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“Mismanagement of funds as well as wasteful and irregular expenditure has been a norm in Emfuleni,” says DA’s Emfuleni north constituency head, Kingsol Chabalala.

“This has resulted in the municipality facing a serious cashflow crisis.”

Chabalala added that the mismanagement of funds has resulted in the municipality failing to pay service providers for work rendered and a virtual total collapse of service delivery.

The Emfuleni municipality has denied that it is in a financial crisis and has criticised the rating it received from Ratings Afrika. It claims that the rating was solely based on perception and not facts.

“Their rating is questionable. They have not spoken to anyone from Emfuleni, and they have not done their research,” says Thabiso Hlongwane, head of communications at Emfuleni.

“A team of administrators has been deployed in Emfuleni to deal with the question of financial discipline and to make sure that our people get the services they deserve,” he adds.

Hlongwane says following a Financial Recovery Plan instated early last year, invoked through Section 139 1(b) of the Constitution, progress is being made with greater financial discipline.

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“All creditors that we owed are paid. Rand Water and Eskom are being paid on 70% capacity for their monthly fees,” he points out.

“Emfuleni is not disputing its previous financial crisis, but we are saying that the municipality is currently in a correct state of finances through dealing with the challenges of providing basics,” he adds.

Just last week Auditor-General (AG) Tsakani Maluleke briefed parliament on the outcomes of her office’s annual investigations into municipalities, which presented a disturbing picture of the financial state of most South African municipalities.

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Maluleke reported a staggering R26 billion in irregular expenditure at 246 municipalities in the 2019/20 financial year.

“We found that a large number of municipalities ended the year with a deficit,” she noted.

“With many municipalities relying on [the] equitable share and conditional grants to pay salaries and councillor remuneration, this comes at the cost of not being able to deliver the services and conduct required maintenance on infrastructure,” she said.

In the year under review across all municipalities, just over R1 billion was spent on consultants to help them compile their own financial statements. This is roughly R150 million more than in the 2018/19 financial year.

* Palesa Mofokeng is a Moneyweb intern