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INTRODUCTION State of Local Government and Public Sector

INTRODUCTION State of Local Government and Public Sector. “BACKGROUND”.

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INTRODUCTION State of Local Government and Public Sector

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  1. INTRODUCTION State of Local Government and Public Sector

  2. “BACKGROUND” SciFin is a niche financial services company specializing in a solitary core area: Structured leasing with a strong public sector background . The reason for this is entrenched in the fact that the company has a very rich understanding of public sector finance cultivated mainly by its Managing Director and staff’s involvement in this area over a period of 10 years. At SciFin we believe that numerous opportunities exist within the public sector finance domain. This is largely due to the fact that commercial banks are unwilling to assist public sector entities due to their perceived poor administration of payments. These public sector entities are then forced to consider alternative sources of finance and hence the opportunity for SciFin to assist with our unique service offering. Current sources of funding: Shareholders Equity R40m Investec R60m DBSA R100m (Pending)

  3. The asset finance market in Municipalities Municipalities generally enter into either finance leases or operating leases (Rentals) when financing moveable assets. Finance leases: - Vehicles & Yellow metal (eg Graders) - Capitalised on the Balance Sheet - Asset register • Operating leases: • Photocopiers & IT Equipment • Operating expense • No asset register

  4. State of Local Government? • SA Metropolitan Municipalities owed R30.6bn by consumers as at 31 March 2010 • Amounts owed to Metros increased by R219m from 2009 • Revenue collection 2009: 70% 2010: 66% • Collection rates for Durban and Cape Town highest with 70.1% and 68.2% respectively. • Economic downturn has impacted negatively on municipal fiscal base in terms of revenue streams and financial resources to fund capital projects. • Demands for social benefits have risen vs shrinking tax revenue • Big impact of increase in tariffs for electricity by NERSA vs affordability levels of consumers

  5. State of Local Government? (Continued) • 57 municipalities receive more than 75% of their revenue from national transfers . • A number of local municipalities have even indicated that they are 100% grant dependent..

  6. Gauteng: • Consumer debt of R24bn. 79% older than 90 days (June 2010) • Johannesburg R8.4bn Ekhurhuleni R7.6bn • Nokeng (Cullinan) – 92% of debt exceeds 90 days • Kungwini (Bronkhorstspuit) – 88% of debt exceeds 90 days • Battle to spend capital budgets: Sedibeng and West Rand spent 18% of total capital budget in 2009 • Capital budgets show a lot of promises, but no will or motivation to deliver. • Good: Only province where all the CFO posts are filled. • Johannesburg has an unqualified audit report

  7. Western Cape: • 8 Municipal Managers have been suspended. Politics. • Only 4 municipalities are on the distress list. • Generally more stable and willing. • Stellenbosch: Tender fraud 2010 and political instability • Generally a lot better managed than other municipalities.

  8. Other: • Sewerage problems and constant water shortages • New trend Phalabora – fed up rate payers are withholding property tax and paying it into a community trust. The trust then does its own services and repairs and maintenance on the roads etc. • Eskom threatens to cut off power supply to 11 Municipalities incl Mangaung (Bloemfontein) • 200/283 Municipalities in arrears with Eskom • 93 in Free State • Very low payment rates because of recession

  9. Other: • Unrest and protests because of lack of service delivery in Mpumalanga in 2009 • Financial viability on the brink of collapse: • Thaba Cheweu (Lydenburg) , Mkhondo, Emalahleni (Witbank), Dipaleseng, Mbombela (Nelspruit), Steve Tshwete (Middelburg) • Mbombela: Former Municipal Manager arrested for murder, R57m Absa overdraft to pay salaries in June, overspent on R1.4bn stadium. • Council under administration

  10. Overview of the rest: • 64/283 municipalities in dire straits and on distress list at Treasury • Overall vacancy rate of 12% for senior managers in local government. Northern Cape has highest vacancy rates. • Regularity and cost of senior manager suspensions (8 in Western Cape; 3 in Mpumalanga; 2 in Limpopo) • Lack of skills: Irregular and inappropriate appointments, low capacity and poor skills development.

  11. Overview of the rest (Continued): 4/283 Municipalities unqualified • Johannesburg, Cape Town, Frances Baard (Northern Cape), Kareeberg (Northern Cape) • GRAP (Generally Recognised Accounting Practice) • Process from GAMAP 1997 • Based on IPSAS (International Public Sector Accounting Standards) • Consultant costs • Qualified 87% of the time on Property, Plant & Equiment • One of the biggest challenges is asset management

  12. Overview of the rest (Continued): • Salary and wage increase impact • Alfred Nzo District Municipality salary bill more than 70% of total budget. Mayor has support staff of 45 people. • CFO is a political appointment with no financial background. • Trip last week from Nelson Mandela Bay Metro (PE) to George: • Water reticulation and desalinisation plants not budgeted for • Recession in the Southern Cape • Political instability

  13. Fraud And Corruption: • Unofficial estimate of 20% of procurement – rip off’s, overpricing. • R30bn empty hole. • Figure doubled from what independent researchers in the late 1990’s thought it would be. • BIG: Arms deal – R30bn; Bosasa tender correctional services of R3bn • SMALL: Eastern Cape R26 for bread worth R7.80; R21 for a R4 pen capitalising on PFMA regulations that don’t require a tender for amounts lower than R200k.

  14. Checks and balances: • 600 strong SIU (Special Investigations Unit) • Public Protector • Auditor General • SAPS Commercial cirmes • Prevention and Combating of Corrupt Activities Act 2004 • SIU investigated 2524 cases of corruption over 5 years = 0 conviction in terms of the PFMA • PFMA holds government accounting officers accountable (MM’s/HOD’s) • PFMA 1999 has modern structures compare with best in • the world.

  15. Are we going the way of other post liberation African states? • No. • Revolt by communities standing up to it. • Fight back by cabinet ministers – Sicelo Shiceka promises conviction under PFMA • Performance measurement by Presidency • Unanimity in the Union Buildings and Parliament, Business, Trade Unions that corruption is biggest obstacle to achieving SA’s social and economic goals. • State of Local Government Report 2009

  16. Conclusion: • Transformation of local government has been largest undertaking within the entire democratic governance transformation process since 1994. • In response to the poor performance amongst municipalities government decided on a comprehensive Turn-Around Strategy (TAS) • TAS began with a municipality-by-municipality assessment process driven by provinces. • Focus: Governance, Service delivery, Financial management and Labour relations • Key problems and root causes have been identified. • Currently in planning and implementation phase.

  17. THANK YOU! (Questions?)

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