Investment rating downgrades of half of South Africa’s metros bad news for ratepayers

Statement by Mark Rountree, National Policy Officer for GOOD
20 July 2021

“GOOD is very concerned about the further ratings downgrades announced by Moody’s” says GOOD’s National Policy Officer, Mark Rountree. “The latest downgrades mean that, of South Africa’s 8 large metro municipalities, half of these – Cape Town, Tshwane, Johannesburg and Nelson Mandela Bay – have been downgraded by Moody’s Rating Agency during the last month.”

The recent downgrades have also affected two smaller municipalities: Ekurhuleni in Gauteng and uMhlathuze in KZN.

“The downgrades will result in higher municipal rates and this is not good news for ratepayers and residents” says Rountree. “Higher rates and higher water and electricity costs are the last thing South Africans need to help recover from the Covid economic downturn.”

The downgrades reflect reduced cash flow arising from weak economic growth during the Covid period, but are also a consequence of the ballooning costs of local government.

“Huge salary increases were approved by Tshwane’s DA-led Council in 2019. Civic watchbodies like OUTA have also questioned the legality of salary agreements being signed by a political office bearer, the DA’s Richard Moheta, instead of the City Manager who is Tshwane’s accounting officer. They also rightly questioned where this extra income to cover the increases was going to come from” said Rountree.

“Less than 2 years later, Tshwane finds itself in deep financial trouble. The metro was downgraded by several notches and Moody’s warned that even this lower rating is “under review for further downgrade.” Moody’s explained that the four-notch downgrade ‘reflects the sharp deterioration in the City’s liquidity, pointing to a significant risk of default on its financial obligations.’ Rountree notes that “staff costs in Tshwane have increased by 55% – from R6,9 billion to more than R10,5 billion – between 2016 and 2020.”

“In Cape Town, the DA are doing the same. Immediately following de Lille’s resignation in 2018, new Mayor Dan Plato approved enormous new salary increases – including a 31% increase for politically appointed senior managers in the city. The additional R1.4 billion added to staff costs enabled some, like the husband of the DA’s Western Cape chief whip, to earn more than President Ramaphosa” says Rountree.

Cape Town now joins the metros of Johannesburg, Tshwane and Nelson Mandela Bay in investment status downgrades. Perhaps not unrelated, the four metros also have something else in common – ballooning irregular expenditure. Of the R32 billion local government irregular expenditure reported by the Auditor-General in 2019, the metros of Cape Town (R950 million); Johannesburg (R816 million); Tshwane (R2.9 billion) and NMB (R4.2 billion) together accounted for more than 27% of South Africa’s total.

In addition to irregular expenditure, an incredulous R950 million, R1.3 billion and R2.2 billion were lost to unauthorised expenditure in the then DA-led metros of Nelson Mandela Bay, Jhb, and Tshwane respectively during the 2017, 2018 and 2019 years. By comparison, the City of Cape Town, under de Lille’s leadership at during time, incurred zero unauthorised expenditure.

“To fix this, reduced government costs and increased service delivery are what we need. Achieving this has been proven possible before. Patricia de Lille reduced the cost of senior managers in Cape Town by 23% in 2016/17 and a further 5% in 2017/18 –whilst simultaneously increasing the delivery of services like housing, which doubled within this period due to the increased efficiencies and reducing bloated top management structures” says Rountree.

“South Africans need more of this good leadership at local level – more delivery achieved using the same or less money – to achieve improved ratings and keep rates and tariffs lower.”