New municipal administrations must make asset management their priority

With the local government elections now done and dusted, the real task of service delivery and improving the quality of life of South Africans must begin. Local government is one of the most important pillars of our public administration model and it is this significance that the writers of our Constitution had this in mind when they decided on our electoral model. 

The local government, a municipality, is a bridge between the national government and the citizens. It is at a local government level that citizens get electricity, water, sanitation, roads and waste removal services. If things do not work well in this sphere of government, residents often resort to protesting.

Given the interconnectedness of the system and contrary to popular belief, economic development also gets driven at a local level. Although the “big” economic policy issues are handled at the national level, municipalities play a critical role in determining whether economic activity ultimately happens at a local level. 

This economic activity is largely influenced by how well the municipality functions regarding key service delivery issues such as water, electricity and roads. One only has to look at the recent situation in Ditsobotla in the North West, where a big dairy company decided to relocate its operations to another province because of service-delivery problems in the municipality.   

But what are the ingredients for a well-functioning local government or municipality? First, you need to have a competent team to manage the affairs of the municipality on a day-to-day basis ensuring that it delivers on key performance service delivery areas. 

Second, every municipality needs well-maintained services and assets such as vehicles and infrastructure to function and deliver services. Without these assets, there’s no way that a municipality will be able to deliver services and meet the needs of the residents. 

What has happened in the past is that a number of municipalities have struggled with their asset management function, leading to loss of assets and, in some instances, irreversible asset impairment. 

For it to be effective, asset management in municipalities should meet the following minimum standards. First, asset management plans must be an integral part of the municipal planning process. What this municipal planning involves, among others, are budgets. There are assets that, for instance, must be serviced on a regular basis to ensure warranties are not compromised. 

Second, asset disposal decisions must be diligent and informed by sound business sense and must be designed to achieve the best possible return for the municipality and must be made according to the relevant municipal finance legislation. 

Last, asset acquisition proposals must take into account available alternatives including demand management and non-asset solutions. Once acquired, assets require on-going maintenance including security, for instance, which may be an added cost for the municipality. 

As new councils come into being it is important that they take a holistic approach in managing their municipalities and place proper asset management at the heart of their administration. From office equipment and tractors to trucks and land, all of these assets are critical enablers of municipal service delivery. 

If one takes the issue of land, there are municipalities that sit with land assets that they do nothing about and the revenue potential of the asset is lost. In other cases, land is leased to private entities at a very low fee, thus robbing the municipality of much-needed revenue. 

What is the immediate task facing new municipal administrations in the context of large-scale concerns? In my view, service delivery is about providing simple basic services that are enablers and essentials in improving the quality of life of residents — ensuring that waste is collected, lights are working (and thus deal with other social problems such as crime), and roads are maintained. 

If roads are full of potholes another social problem is created, for example, emergency vehicles such as ambulances and firetrucks cannot respond timeously and lives are lost. 

To achieve that requires: (1) new infrastructure where it currently does not exist and (2) maintaining the current infrastructure to ensure service delivery is not compromised. Striking a balance with available resources is the key to success. If you use all the money on new infrastructure your existing infrastructure is neglected and vice versa. 

Knowing where all the assets are and the condition they are in and to plan for maintenance is of vital importance. Acquiring new assets when others exist that are not in use is as good as buying bottled water at an exorbitant price when there is fresh drinkable water from a tap. It is about getting priorities right.

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Danie Fourie
Danie Fourie, CA, is director at SDM Asset Management & Consulting, specialising in local government performance. His area of specialisation is public asset management, and he has worked with several municipalities to guide them through adverse audit outcomes and to ensure they meet the auditor general’s guidelines on managing their assets.

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