Distressed metros threaten economic recovery, says PwC

Johannesburg- Professional services firm PwC has warned that South Africa’s socio-economic recovery is negatively impacted by distressed municipal finances.

This is as the latest data from National Treasury indicates that outstanding debt owed to metropolitan municipalities stands at R114.5-billion as of June 2021. The data shows that the largest amounts are owed to Gauteng’s metros.

The City of Johannesburg is owed R37-billion, City of Ekurhuleni R20-billion and City of Tshwane R16-billion.

Households account for 73% of the outstanding debt, businesses for 22%, and government agencies for another 5%.

PwC in its economic outlook report, said as municipalities continued to raise service charges, this puts further stress on households and businesses, negatively impacting the country’s socio-economic recovery.

“It is important for municipalities 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,” Jon Williams, PwC SA Cities & Urbanisation leader, said.

“Each municipality has a unique mix of economic sectors that will experience different trends within the broader economic recovery. As a result, each municipal area’s overall economic recovery will look potentially different from that of its neighbours.”

Even before the Covid-19 pandemic, many municipalities faced serious revenue collection challenges. The pandemic intensified the problem. Metros and intermediate cities were the hardest hit.

The Financial and Fiscal Commission, a body that makes recommendations and gives advice to organs of state on financial and fiscal matters,  recently made recommendation on what steps the government should take to save financially distressed municipalities.

It recommended that municipalities should undertake a detailed and unbiased analysis of the services they provide to align their responsibilities, services and programmes to their financial capabilities.

The commission further called on national and provincial treasuries, the Department of Cooperative Governance and Traditional Affairs and the South African Local Government Association to ensure that municipal budgets were credible and based on realistic revenue collection rates.

International ratings agency Moody’s Investors Service, in July downgraded the City of Cape Town, Nelson Mandela Metropolitan Municipality, City of Johannesburg, City of Ekurhuleni and City of uMhlathuze. The rating downgrades of municipalities reflect rising liquidity pressure as a result of material shortfalls in revenue collection that Moody’s expects to last.

Various political parties have put local economic development at the heart of their manifestos going into tomorrow’s tightly contested elections.

Malusi Zondi, the president of the Black Business Federation, said more needed to be done in municipalities to help small and medium-sized (SMMEs) businesses thrive amid the pandemic.

“Since they are still battling for survival, many SMMEs are expecting strong leadership that will offer outstanding support to the businesses operating in local municipalities. We should emphasise that SMMEs are major contributors to the economy, contributing to job creation and economic growth, resulting in fewer poverty cases and lower unemployment rates,” he said.