Cape Town is the only metro to have strengthened its financial sustainability over the year in review and ‘is the only one that can be considered sustainable with the capacity to absorb financial shocks’ as per a report by Ratings Afrika.
“And we need to make sure our municipality stays sustainable to best serve our people irrespective of the additional pressure brought on by the COVID-19 crisis,” said City’s Executive Deputy Mayor and MayCo Member for Finance, Ian Neilson.
Ratings Afrika’s Municipal Sustainability Index looks at operating performance, liquidity management, debt governance, budget practices, affordability and infrastructure development. It then gives a score out of 100. The closer to 100 the better. The City’s score of 74 is far ahead of the average of 48 given for South Africa’s metros. The report covering the financial year ending June 2019, has the second strongest performer at a score of 56.
According to the report, financial sustainability is defined as: “The financial ability to deliver services, develop and maintain the infrastructure required by its residents, without unplanned increases in rates and taxes, or a reduction in the level of services. Furthermore the municipality should have the capacity to absorb financial shocks caused by natural, economic, political and other adversities without external financial assistance.”
“The report is a confirmation that the management of financial affairs in Cape Town is excellent, which provides the resilience that the City needs to provide services to its residents, while also being able to survive through multiple disasters such as droughts and pandemics. It is a beacon for the good governance practiced in the City of Cape Town,” Neilson said. “While we are currently in an abnormal situation with the COVID-19 crisis, sustainability is an important consideration in our planning and decision making. This includes ensuring that any increases are affordable for our residents, and avoiding huge price shocks in the future. There is no doubt the dire and dysfunctional state of the South African economy is impacting on us all, but we continue to do everything in our power as a metro to navigate these rough waters.”
“With the help of our residents, we successfully managed to get through the drought crisis and build greater resilience into our operations. With the COVID-19 crisis thus far, the City and the Western Cape Government have demonstrated good management by taking advantage of the lockdown periods to make sure we have enough clinical capacity to deal with the pandemic. We are leading the way in South Africa by fulfilling our basic service delivery mandate as well as providing enhanced essential COVID-19 services. This is only possible because we work really hard to ensure that this municipality is sustainable, resilient and accountable to its people,” he added.
The Ratings Afrika report further notes (with the exception of Cape Town) a weakening trend of financial sustainability among the metros, with the average score of 48 being the lowest in five years. The report emphasises that these ratings are based on information collected prior to the ‘devastating effects of the current lockdown caused by COVID-19’.
The report states Cape Town is the only metro whose operating performance is at ‘an adequate level to provide sufficient funds for its operations to cover expenses, to provide the funding capacity for infrastructure development and to build the necessary reserves to absorb financial shocks’.
Cape Town has received a liquidity management score of 94 compared to the South African average of 39 and generally, the report indicates a weakening trend of metros to absorb financial shocks.
The report notes Cape Town’s collection rate is the highest in the country – more than 95% average up to the year ending June 2019, with ‘sound cash management policies and practices’.
“This strong focus on debt collection is one of the key reasons for the high sustainability and shows how important it is to think of the big picture when collecting rates and tariff income to ensure we can carry on delivering services and revitalising our local economy through capital programme and infrastructure injections. It is therefore so important that those who have the means to pay their rates and services continue to do so. For the current financial year, we have made provision for R3.3-billion in rates and service assistance and have also kept our average increases to approximately 4%, which is among the lowest in South Africa. In setting up the rates and tariff income parameters, affordability and sustainability have been key considerations,” Neilson said.
The report concludes by stating: ‘At this moment, it is only Cape Town that has the capacity to weather the coronavirus storm successfully’.
“We thank our residents for their loyalty to the City. With more than 95% of residents paying their accounts even during the current crisis, we see that they remain party to our continued success. With our residents’ help, we will ensure that we keep it this way,” he added.