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Challenges create opportunities

With the Ukraine war showing no signs of easing up, the pressure continues to mount on global financial markets, especially when it comes to energy. Within South Africa, escalating fuel prices add to the local challenges, impacting all areas of society and the economy.

Continued Eskom load-shedding, in turn, places further pressure on South Africa’s Economic Reconstruction and Recovery Plan, as has the aftermath of the KwaZulu-Natal floods. The upside, however, is that South African industry continues to adapt and reposition itself for growth in the medium term.

This is underscored by the latest GDP figures for Q1 2022. According to Stats SA, GDP climbed by some 1.9% during this period – marking the second consecutive quarter of upward growth – as the size of the South African economy returned to preCovid-19 levels. Rising interest rates and escalating costs are expected to put a dent in the Q2 results. Even with this anticipated dip, there’s a sustained upward trend.

The key concern is that the construction sector remains in negative territory – an indication that infrastructure investment is lagging. However, once public and private sector investments begin to gain traction, the long-term outlook is positive. Major opportunities include renewable energy, water, sanitation, roads and social housing.

Why effective local government is so important

Within the mix, high-performing municipalities are crucial. There are some exceptional examples, as highlighted in the 2020-21 consolidated general report on local government audit outcomes released by the Auditor-General of South Africa. These include Senqu Local Municipality, which is among the 27 municipalities that have maintained their clean audit status for the past five consecutive financial years.

Overall, 41 municipalities out of a total of 257 were deemed ‘unqualified with no findings’ (or clean) for the 2020-21 period. A further 100 municipalities came close, with an ‘unqualified with findings’ audit, while 78 received a ‘qualified with findings’ opinion, so these are all a work in progress.

Among the worst performing were four municipalities that received an ‘adverse with findings’ audit, while 25 received a ‘disclaimed with findings’ opinion, which means they were unable to provide supporting evidence for the bulk of the amounts and disclosures in their financial statements.

Across the board, the main takeaway from the 2020-21 report is that a high percentage of municipalities don’t meet the benchmark for effective capital expenditure execution, financial management, and transparency. That includes inadequate revenue collection, which has severely impacted the financial sustainability of many municipalities.

A fresh five-year term

The 2021-22 period marks the start of the next five-year administrative term following the 2021 Local Government Elections. It represents a major opportunity for new municipal leadership teams to implement turnaround strategies in transitioning all municipalities into high-performance organisations. But this can only happen with buy-in from municipal constituents.

As auditor-general Tsakani Maluleke stated in her report, “Active citizenry is crucial to ensure that the needs of communities are heard and acted on, and that municipal leaders are held accountable for their actions.”

Collectively, business and communities must be part of the solution. This is the social compact needed to forge world-class municipalities.

Alastair

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