Earlier this year, Clover announced its decision to close the country’s biggest cheese factory, located in Lichtenburg in the Ditsobotla local municipality. The factory employed about 380 permanent and 40 temporary workers. The reason for the company’s Lichtenburg exit: poor service delivery.
The Clover factory’s closure is one example of how South Africa’s ailing economy is being squeezed by its municipalities, only 38 of which are confirmed to be in good financial health.
Well-performing municipalities encourage local investment, drive employment and don’t depend on the fiscus to survive. But in South Africa — which will on 1 November see its local government elections unfold — financially sound municipalities, with strong records of service delivery, are few and far between.
The country’s dysfunctional municipalities are a drag on investment, a strain on the fiscus and pose a critical sovereign risk, analysts say.
The country’s municipal woes are among the factors that impede local economic development, according to Helanya Fourie, a senior economist at the Bureau for Economic Research (BER).
“Aside from low levels of fixed investment, and other challenges that we face, I think the municipal problems are definitely a contributor to the fact that we’ve seen very low levels of growth,” she said.
“And it also has a sort of reinforced impact. So if you see municipalities performing poorly, it dis-incentivises further investment in the area, which prevents new jobs from being created.”
