Barry Streek The financial position of many municipalities has deteriorated even further, Auditor General Shauket Fakie has warned Parliament – and the Development Bank of Southern Africa (DBSA) says it is unable to serve some areas of South Africa because there is no local government capacity in them.
This is particularly true with smaller local authorities and rural areas, where there is no infrastructure. Fakie, however, says there has been “a slight improvement” in some provinces in the submission of appropriate accounts more timeously.
He said the deterioration of the financial position of many municipalities from the 1997/1998 financial year could be “ascribed mainly to the failure of communities to pay for services, which is compounded by the inadequate steps taken by municipalities to recover outstanding debts. “Furthermore, the recovery of long- outstanding audit fees is a serious concern and is creating cash flow problems for the [auditor general’s] office.” Fakie said that this trend could seriously impair the functioning of local government and the maintenance of adequate service levels.
Qualified audit opinions were given in many instances in the accounts of the provinces. “In the Eastern Cape, the 1997/1998 and the 1998/1999 audit opinions were mostly disclaimed, in addition to the majority of statements not being suitable for publication.
“In the Northern Province, the 1997/1998 report was once again submitted without financial statements due to the poor quality of the statements being submitted for auditing.”
In KwaZulu-Natal and the Eastern Cape during the 1998/1999 financial year, Minister of Finance Trevor Manuel had invoked the clause in the Constitution that allowed the National Executive to intervene in cases where a province cannot or does not fulfil an executive obligation in terms of legislation.
Although the intervention in these provinces was based on macro-economic decisions, further consideration should be given to the micro-economic level where serious financial management problems might equally justify action in terms of the same clause of the Constitution, Section 100(1), Fakie said. DBSA chief executive Ian Goldin said the bank had to look at the capacity of local authorities before it negotiated the granting of loans to them, but it was nevertheless enabling delivery of services to poor people. The DBSA, however, remains hopeful that increased capacity would result from the new local authority structure that was to be introduced later this year. Moreover, everyone at the bank was disturbed by the issue of people and communities that were not able to afford loans, even at the favourable rates offered by the DBSA. The bank is hoping to establish a new fund of R150-million to make available substantial amounts for infrastructure and new institutions in the rural areas of South Africa.
The bank is looking to the government for a temporary postponement in paying its dividends and then to capitalise this amount into a fund, co-funded with other donor agencies.
It had negotiated loans with 480 of the 850 local authorities in South Africa, and this covered 80% of the people, but it encountered problems with the very small local authorities and with some rural areas. Problem areas were those places that never had an economic base and places where the economic base is in decline, such as areas where a gold mine had been closed down. “It is a major concern. The strategic issue is how to create economic activity in those areas,” said Goldin. The DBSA says in its annual report for 2000 that its contribution to the government’s service delivery is “substantial”. “In last year alone, South African projects funded or co-funded by the bank benefited 1,1-million households [5,4-million individuals], many of which obtained access to more than one type of service. Some 502 000 households were connected to water, 51 000 to sanitation and 252 000 to electricity; around 368 000 received multiple services.”
During the 1999/2000 financial year, the bank disbursed R1 701-million on infrastructure projects in South Africa and these disbursements were estimated to amount to 12,5% of total South African investment in electricity, gas, water and sanitation. “The investment multiplier effect generates further demand, estimated at an additional R1,74-billion of gross domestic product in 1999/20000.
“More jobs are created when projects are implemented, for instance in the construction of road works, dams and buildings. Altogether, the bank is estimated to have created 24E500 jobs on the construction sector during the year under review.”
The money spent by the bank on infrastructure also created an investment in, or an addition to, the nation’s capital stock.
“This infrastructure generally serves as the basis for further economic activity. It is estimated that, as a result of the bank’s investments, R683-million will be added to gross domestic product every year the infrastructure remains functioning. In order to operate and maintain these facilities, about 9 200 permanent jobs will be created,” the bank said.