/ 7 April 2022

Manage assets better to fix municipal governance

Manage assets better to fix municipal governance
Photo: Oupa Nkosi

Local municipal governance deficiencies are increasingly apparent. The outward manifestation is dilapidated infrastructure and inadequate service delivery, but these are functions of longstanding internal management malaise. 

Earlier this year, for instance, the water quality crisis in the Nelson Mandela Bay municipality demonstrated the desperate need for effective asset management in local government. Responses to poor governance include high levels of service delivery protests. 

Good Governance Africa, in its third Governance Performance Index in 2021, ranked municipal performance on the basis of audit outcomes, objective service delivery metrics and other source documents, as well as quantitative regressions to show that poor service delivery is correlated with declining voter turnout. This resulted in a number of hung municipalities in the November 2021 local government elections, which creates significant governance problems regarding the allocation of resources. 

Local government is the sphere of government that is closest to the citizens and primarily responsible for service delivery, but the role of provincial and national government in the effectiveness of local municipalities should not be overlooked. 

The emphasis and focus on wards in local government in a way allows the national governing bodies to escape justifiable scrutiny on a broader scope of other issues. 

Although local government is fully accountable for its functions and powers, there is an extent to which provincial and national governments have the ability to prevent the failure of local municipalities. This can be done by implementing a systematic approach to compliance, asset/infrastructure management and consistent monitoring and evaluation. 

An important part of the provincial government mandate is to support and monitor municipalities and to get them to a point where they are able to manage their own affairs.

Local municipalities have a combination of funded and unfunded mandates, and municipalities have to raise their own revenue, which is a tough ask given that they have such extensive service delivery obligations but often their only means of raising money is selling on Eskom electricity at a surcharge. 

Municipalities also have mandates that are often misunderstood. They have a constitutionally directed role in social and economic development, as well as in environmental management, which often goes unnoticed.

Local economic development, for example, often merely becomes documents (such as integrated development plans) that are produced but don’t make a difference. 

The core business of municipalities, of course, remains service delivery. There can be no sustained local economic development without service delivery.

Service delivery failure is fundamentally attributable to most municipalities having neglected effective infrastructure maintenance. As a result, the municipalities become less attractive to investors. Economic growth is built around the basics of infrastructure development and maintenance. Failure at the basic level cannot be fixed by producing local economic development documents. 

Effective infrastructural maintenance is vital in rectifying the dire state of municipalities. Allocating budgets for infrastructural development while ignoring the underlying and unresolved maintenance issues is highly unlikely to improve municipal performance. 

Compounding the problem is that large infrastructure projects typically serve as an avenue for rent seekers to make money in poorly governed municipalities. 

This occurs either through contractors charging inflated prices and delivering poor quality work or local groups blocking projects until they are paid some kind of “settlement fee”, which is essentially bribery. It is therefore critical that corruption-defeating capacity be built into municipalities. 

The majority of municipal shortfalls can be closely traced to failures in asset/ resource management. Asset management helps people to manage municipal infrastructure assets and make better investment decisions. It also helps reduce risks and allows municipalities to provide reliable and affordable services and a better quality of life for residents. 

In local government, asset management of infrastructure is largely regulated through the Municipal Finance Management Act 56 of 2003 and the Standard of Generally Recognised Accounting Practices 17. This accounting standard stipulates the appropriate accounting treatment for property, plant and equipment, which is the asset class covering infrastructure.

Financial resources management is also a key factor in the improvement of municipal performance. According to the local government audit outcomes, 27% of municipalities were unsure of their continuity while 57 councils failed to deliver any financial statement by the audit deadline.

It was noted that 22 councils countrywide had disclaimed audit outcomes (whereby the auditor is unable to obtain sufficient audit evidence, thus making a statement that no opinion is being given regarding the financial statements), with about R5.5-billion that was not accounted for. 

This emphasises the need for a more systematic approach to compliance that does not end with the submission of financial statements but rather incorporates real accountability and transparency as well as credible deterrence for noncompliance. 

Municipalities are seemingly becoming less worried about whether they receive poor audit outcomes, as expressed by the auditor general, Tsakani Maluleke: “Nobody is reporting. Nobody is accounting. Nobody is sure where the money went.” 

Compliance should not be taken for granted. Municipalities often devise and publish plans, which are then shelved after ticking the boxes for compliance. They are rarely followed through with implementation. 

Manage assets better to fix municipal governance
Daily struggle: Reason Baloyi collects water in Homu village in Giyani, Limpopo. Many municipalities around the country have failed to properly maintain or upgrade essential infrastructure. Photo: Oupa Nkosi

It is critical to remember and for civil society (and higher spheres of government) to continue insisting that municipal management is responsible for maintaining municipal infrastructure efficiently — if maintenance is not done timeously, that’s inefficient and as a result more money is spent trying to rectify infrastructure that will fail with greater impact later. Eskom is a key national case in point, but the same logic applies to local water treatment plans, electricity transistors, streetlights, stormwater drains, sewerage pipes, and so forth.

Another problem municipalities encounter is with human resources, evidenced by the volume of vacant skilled level positions and the rate of turnover for skilled and experienced personnel. When technically competent employees leave the municipalities, a huge gap is created between the experienced professionals and the new recruits, particularly regarding the lack of mentorship. 

Over the years, plenty of information has emerged with regards to the problems in municipalities, yet there has been minimal change, let alone improvement. There is a pressing need for the use of lead and lag indicators in implementing a responsive and preventative infrastructure maintenance system that will serve as an early warning mechanism pointing to potentially failing key infrastructure (which if not fixed leads to exacerbated failure in other areas). 

Infrastructure maintenance and capital formation growth typically precedes and then sustains economic development. It is therefore imperative that local governments direct their focus to more effective management of assets (particularly infrastructure) and resources (both financial and human) to attract investment and deliver high quality services. Implementing basic structures of good municipal governance is a key precursor to effective asset management and must become an urgent priority. 

One urgent and quick win, for instance, would be to map King IV principles onto the legislation that governs local municipalities, and integrating that into day-to-day municipal functionality. 

Chrissy Dube is head of governance insights and analytics at Good Governance Africa