SA improves in finances, service delivery

A new report into the state of the finances, revealed Wednesday, the municipal finances of Tshwane, Johannesburg, Cape Town, eThekwini, Ekhuruleni, Nelson Mandela, Buffalo City, Mangaung and Msunduzi have improved considerably.

The State of City Finances Report 2007 was published jointly by the South Africa's Cities Network (SACN), the Institute of Municipal Financial Officers and the Development Bank of Southern Africa (DBSA).

The report has shown that well-managed cities created diverse and growing markets, and thus enabling efficient economic production and exchange.

Poorly managed ones, on the other hand, reduce the competitiveness of urban economies and diminish the quality of life, the report states.

“In examining the audited financial statements for the nine cities, the report concludes that while South African local governments still have strides to make in building implementation capabilities, the financial improvements since 2003 offer 'significant comfort' that the challenges will be successfully addressed,” the SACN said in a statement.

It emphasised that city finance had strategic, social, economic and political significance and that it was essential to how city governments' function in terms of how scarce resources are allocated to address poverty, underpinned economic growth and maintained existing infrastructure.

The report recommends that cities should be funded via local revenue sources, raised through taxes and service fees paid by local residents and businesses, to ensure the provision of public services.

“This requires establishing optimal levels of taxes and charges that are neither too low to result in insufficient funding of public services nor too high to stifle local businesses,” the report adds.

It highlights the critical role that the Regional Services Council levies play in stabilising city finances and emphasises the advantages of replacing the levies with a new local business tax rather than continuing with the interim grants provided by national government.

“A local business tax will build local accountability; provide the resources and incentives required to strengthen local economic growth, and thus employment, and should be designed to be administratively simple. It should be collected by SARS,” the report recommends.

While huge strides have been made in improving and tightening financial administration, the report points out that there is a need to review some of the administrative and financial regulations. This is to make them less difficult in order to facilitate delivery without detracting from sound corporate governance principles.

The report also calls for a review of the current approach to the electricity distribution restructuring, saying the current approach was not only questionable from the perspective of the electricity sector, but also threatened to fundamentally undermine city finances.

“The current approach to create six regional electricity distributors has serious shortcomings. It is a high risk endeavour entailing massive organisational change for very uncertain benefits that can threaten city cash flows, balances sheets and surpluses,” the report said.

While recognising that new institutional arrangements were required to support sound operations, prevent cities from extracting unreasonable surpluses and ensure proper investment in electricity undertakings, the report highlights how these goals can be achieved “in a far less damaging way than currently planned”.

It also proposes creating regional distributors in the larger cities based on existing capacity, and a national rather than a regional approach to addressing the needs of the poorer parts of the country.

The report is particularly concerned about the damage that can be caused to municipal revenue collection by the current approach.

“The key to successful city administration lies in skilled city management driven by loyalty to the institution and commitment to improving the quality of life of all local citizens,” said the new Chairperson of the SACN and the Executive Mayor of the Buffalo City Municipality Zintle Peter.

She called on cities to strengthen their voice in national debates since many national decisions impacted on city governments, and yet municipal voices are “weak and fragmented”.

Peter said the proposed financial improvements would allow the cities to address infrastructure development and successfully tackle service delivery, adding that cities were already benefiting from improved corporate governance, driven by the Municipal Finance Management Act (MFMA).

Article published courtesy of BuaNews