Jo’burg cash flow under a microscope
It was third time lucky for Johannesburg mayor Herman Mashaba, who finally managed to get the City of Johannesburg’s 2018–2019 budget approved. Failure could have led to the provincial government swooping in and taking over.
Mashaba had until the end of the month to pass the budget or the city would have potentially faced being placed under provincial administration. The ANC-led provincial government this week placed Emfuleni local municipality in Vereeniging under administration for a failure to deliver services because of severe financial distress.
The city’s R59-billion budget was passed in a special council meeting on Tuesday, at which 137 council members were in favour of the amended budget. The Economic Freedom Fighters (EFF) voted with the Democratic Alliance (DA). The ANC and other smaller parties walked out without voting. In the 270-member strong council, 136 votes is a majority.
Mashaba’s clincher was a concession by his DA-led council to lower water and electricity tariffs after the EFF refused to vote in favour of the rates that were initially proposed.
The city wanted to increase electricity in accordance with the National Energy Regulator of South Africa’s recommendation of 7.37% and a 14.2% increase for water. It eventually settled on the EFF’s tariff recommendations of 7.17% for electricity and 13.2% for water.
Mashaba said that the council had taken the decision to deprioritise nonessential elements, cut unnecessary expenditure and redirect these savings to battle the service delivery infrastructure backlog.
Media reports at the weekend raised concerns about whether the country’s biggest municipality is in financial trouble. Mashaba has rubbished the reports that the city was heading for a bailout.
“The city’s cash management report, as required by section 71 of the Municipal Finance Management Act, which had been approved by the [mayoral committee] and is on its way to council, clearly stipulates that the city’s cash remained in a healthy state at over R3.2-billion,” said Mashaba in a statement.
On whether the municipality would be able to pay salaries, Mashaba said: “At no point has there been any risk of the city not being able to do so.”
But the metro’s liquidity position was flagged as a concern in rating agency Moody’s latest opinion. The city, which is currently on the lowest rung of investment grade with a stable outlook, saw a cash balance decrease of R1.3-billion to R3.1-billion in 2017 from R4.4-billion in 2016. But Moody’s said this did not “represent a significant weakness on the city’s credit profile” at the time.
Moody’s analyst Daniel Mazibuko said he would not speculate on the reports on the precarity of the city’s liquidity, saying the agency continuously monitors the rating.
Moody’s credit report said a downgrade for the city was unlikely because of the stable rating outlook, but it could consider a downgrade in the event of further weakening in its liquidity profile and a substantial increase in debt levels. “If the picture is worse than the city expected, our concerns will be reinforced even further, but at this point — since we have not seen the actual numbers — I couldn’t say much,” said Mazibuko.
The city’s cash position was already declining, from R5.4-billion in 2013 to R4.4-billion in 2016, mainly pushed by an increase in capital expenditure Mazibuko said. But he added that Moody’s expects the deterioration to be “cushioned” if the city sticks to its plan of reducing capital expenditure.
Political analyst Ralph Mathekga said there was nothing extraordinary about the delays in passing the budget because “this is exactly how the coalition works. Parties always negotiate, particularly when the parties in coalitions are far from each other on issues”.
“The problem with the coalition in Johannesburg is only one party seems to be interested in pursuing a set of goals, that is the DA, which is leading this coalition, but other parties in a coalition with the DA seem to not have any commitment to help the DA succeed,” said Mathekga.
He added political parties used cities as stepping stones to provincial or national office and “unfortunately we don’t have things where one can say they are beyond political squabble” — and pass the budget with urgency to avoid concerning voters.
The auditor general’s report on local government audit results released last month found that audit results for eight metros regressed in 2016/2017. Further, it said although the financial health of half of the metros was stable, the City of Johannesburg was one of the metros in a particularly vulnerable financial position.
On Sunday City Press reported that the country’s largest municipality was teetering on the edge with a cash balance of R1.2-billion in April 2018 and projected revenue shortfalls of R3.5-billion for May and June.
A letter by former member of the mayoral committee (MMC) Rabelani Dagada, with supporting financial documents seen by the Mail & Guardian, makes the same claims about the city’s sustainability. Dagada confirmed to the M&G that he had sent the documents to some of the DA’s national and provincial leadership.
In the letter, Dagada offers to help to remedy the city’s financial woes “for free”. He said, since he was removed as finance MMC this January, revenue dropped from a monthly average of R3-billion to R2-billion, lower than the ANC administration’s monthly average of R2.6-billion.
Dagada was fired from the mayoral committee for finance after a forensic investigation found he had breached the city’s code of conduct by not declaring his interests and by using his influence to benefit those closely associated with him. Dagada has denied these findings and said he would take legal action.
Tebogo Tshwane is an Adamela Trust financial reporter at the M&G