Financial Sustainability in a changing political, social and economic environment

1. www.pwc.com Financial Sustainability in a changing political, social and economic environment IMFO Conference 2011 Presented by Akhtari Henning

2. Change in Political Leadership • Change in Political Leadership often has a direct impact on service delivery and consequently the budget of the Municipalities could come under pressure; • New bosses vs old administration • Elections not aligned to the national elections, • Election after election Councillors need to be inducted on their roles and responsibilities; • The largest gap remains with the understanding of the governance responsibilities and the benefits of effective governance ,from the development of a risk based IDP to implementation of effective risk management processes ,with in the day to day running of the Municipality IMFO 2011

3. Effects on Financial sustainability due to change in Political Leadership • Governance being the of paramount importance in service delivery remains to be desired • New expectations from Councillors vs the current approved IDP • The priorities are shifted and in certain instances there are items on the IDP that cannot be delivered due to the changes in Political leadership; • Decisions may impact on the revenue streams and the financial sustainability of the Municipality • Governance principles such as embedded ethics and effective risk management and understanding that both cost money, has an impact on the spend and/priorities and the budget IMFO 2011

4. Financial Sustainability in a changing Social environment IMFO 2011

5. Social factors • There are many social factors to consider whilst assessing Financial sustainability • The main factors are: • Population growth; • Migration; • Unemployment; • Poverty remains the single most challenging factor and often due to the fact the Municipalities data may be outdated and in some case incomplete they are short changed in allocation of the equitable share. The poverty line will be submitted to Cabinet and the “living conditions” survey is complete and will be released in the next few weeks . IMFO 2011

6. Population estimates Our Population is growing at a rate of 1.1 Source: Statistics South Africa – Mid- year populations estimates 2011 IMFO 2011

7. Effects on Financial Sustainability due to population growth • The use of less than accurate data in planning and preparation of the IDP leads to the service delivery not being achieved to due financial incapability; • Increase in needs such as; transport and housing infrastructure has a large impact on an “ already constrained” budget; • Pressure is placed on the electrification, water and sanitation infrastructure assets as the need increases; IMFO 2011

8. Migration statistics • Migration remains a constant phenomena .. • The major cause being seeking a “Better a life” • Migration patterns between 2001 – 2006 and 2006 and 2011 almost consistent • Gauteng and Western Cape have the highest in migration • Whilst Eastern cape and Limpopo remains to have the largest rate of out- migration • In the period 2006 – 2011 the differentiator is KZN where indicators show a positive migration Source: Statistics South Africa – Mid-year population estimates 2011 IMFO 2011

9. Effects on Financial Sustainability due to migration • Migration is caused by the need to seek a better living….. • Municipal assets are strained by the increase in the demand for basic services and the maintenance and replacement and/or build of such assets are not accurately budgeted for; • Capacity within the Municipalities are not geared for the spurt in growth and as such reliance is placed on external service providers to provide basic services/ deliver on activities normally performed by the Municipalities, at significantly higher costs; IMFO 2011

10. Labour force statistics Source: Statistics South Africa – Quarterly Labour Force Survey Q 2 - 2011 IMFO 2011

11. Effects on Financial Sustainability due to unemployment • Increase in debtors and eventually bad debts; • Income stream is pressured which causes other items on the balance sheet to suffer, the consequences such as a cut in maintenance and upgrades which has a direct impact on backlogs and effective service delivery; IMFO 2011

12. Financial Sustainability in a changing Economic environment IMFO 2011

13. Economic factors • GDP and CPI • Interest rates • Increase in the cost of basic services like electricity…….. • has a direct impact on households being able to service Municipal accounts, which pressurises the Financial sustainability of Municipalities • The impact of such factors are evident in the Consolidated Financial status of Municipalities: IMFO 2011

14. Revenue of Municipalities IMFO 2011

15. Municipal financial factors IMFO 2011

16. In summary Financial sustainability is reliant on • Understanding the Local regional , Provincial and National economic landscape and the ability to leverage economic drivers • A Council that is driven to provide strategic leadership based on sound decisions in the preparation of a sustainable IDP, who leads on a ethical basis to serve the community who elected them; • Data that must used to prepare the IDP and to request the transfers from National Treasury on an informed basis; in terms of the Local Government equitable share; • An administration that adequately skilled to advise the Council and address the issues that arise from the social demographic factors • systems and processes that provide the means to ensure that debt is collected ,revenue streams are maintained, and assets are utilised and maintained to release the burden and provide economic benefit to the Municipality and in turn to the community they serve. IMFO 2011

17. Thanking you IMFO 2011

18. Migration statistics Source: Statistics South Africa – Mid-year population estimates 2011

19. Revenue for Municipalities June 2008 June 2009 June 2009 Source: Statistics South Africa – Financial Census on Municipalities IMFO 2011 June 2010