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The Citizen
4 days ago
- Business
- The Citizen
Decisive intervention needed for municipal performance — BLSA
The state of financial management in municipalities is mirrored in the level of basic service delivery all over the country. The Auditor General's report on municipalities shows that decisive intervention is needed to improve the performance of local government performance is needed. Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), writes in her weekly newsletter that the financial state of our municipalities is shocking and a serious constraint on economic growth. 'Only one of the eight metros, Cape Town, received a clean audit, with Buffalo City, Tshwane, Mangaung and Nelson Mandela Bay getting qualified audits indicating material failures in their financial management. 'Johannesburg, eThekwini and Ekurhuleni received unqualified audits but with findings, indicating that the accounts are reliable but that some matters need attention. The worst opinion of an auditor, a disclaimer, means the auditor has not been able to form an opinion on the financial statements at all. Sixteen municipalities were seriously censure with a disclaimer.' ALSO READ: 'Same story year after year': MPs unhappy as Auditor-General reveals local government audit outcomes She says our metros are the economic hubs of our country, and it is completely unacceptable that most of them cannot get basic financial management right. 'They have budgets in the billions, such as Johannesburg, that will spend almost R90 billion this year but cannot manage that money adequately. Public must vote to make their voice hear about municipal performance 'If management in private companies is unable to produce reliable accounts that auditors are content to sign off, shareholders would revolt. In the case of our local government, the shareholders are the public who must exercise their votes.' Mavuso says what makes it even more galling is that the state of financial management mirrors the level of basic service delivery. She points out that Johannesburg, which most of our biggest companies call home, has been in a state of gradual decline for many years. 'Traffic lights seem to have been abandoned, local roads left to decay into unpassable tracks. President Cyril Ramaphosa, two months ago, decried the state of the city, which is meant to serve as host of the G20 later this year, promising an intervention from national government. 'Intervention is sorely needed. As the Auditor General makes clear in her report for the 2023/2024 year, the challenges are driven by a lack of financial management skills and vacancies. There simply are not enough qualified people working in local government to ensure the accounts are done properly, despite the billions at stake.' ALSO READ: Hlabisa questions abilities of local government leaders as AG report shows no improvement in municipalities There has been some improvement in municipal performance with less disclaimers Mavuso says there has been evidence of improvement in some areas. The number of municipalities getting a disclaimer has fallen to 14 from 28 in the 2020-21 year, when local government elections saw new councils elected. That improvement, the Auditor General says, can be attributed to good support from provincial treasuries to assist municipalities' financial function. However, she says that cannot be said of the metros, which the Auditor General says continued to regress since 2020-21, with three downgraded in the last year. She singled out Johannesburg and Tshwane for not budgeting adequately for infrastructure maintenance. She also bemoaned the culture of municipalities approving unfunded budgets, expenditures that cannot be covered out of the revenue the municipalities receive. Mavuso says it should concern all South Africans that elected councillors can willingly approve spending plans for which there simply is no money. 'That is not budgeting – it is reckless spending. 'Controls over expenditure are also problematic. Johannesburg tops the list in terms of unauthorised expenditure, with R2.76 billion. Tshwane is not far behind at R2.15 billion. Beyond the numbers, the Auditor General also reviews municipalities' performance reports, which municipalities are legally required to produce to show how they are doing against their own targets. 'She says there has been no improvement since 2020-21, with only 26% meeting the Auditor General's quality standards on submission. Thanks to corrections made after submission, 52% ended up meeting standards, but that means almost half still fail to.' ALSO READ: Questions about municipal manager's qualifications after R927 000 spent on 22 laptops – report Auditor General's report highlights failure in municipal performance The Auditor General's report is a very helpful spotlight on one of the drivers of service delivery failure in local government, Mavuso says. 'This is now a national priority and one of the biggest constraints on economic growth. Service delivery failure often means businesses cannot function. 'It has been given national prominence through Operation Vulindlela 2.0, the new phase of the successful unit led by the presidency that has been decisive in tackling the electricity crisis and the logistics crisis, among other reforms. 'The need for decisive intervention in municipal performance is very clear. We have to get people into municipalities who are capable of delivering on action plans that will improve the financial function.' The Auditor General also pointed out that weak information technology, again driven by a lack of skills and controls, is a key reason for the municipal crisis and helps paint the picture of what Operation Vulindlela must contend with. Mavuso says an army of highly capable finance professionals is going to be needed. 'There is also a much-needed review underway of the 1998 white paper on local government that has the potential to overhaul policy and find new ways of supporting local government, ensuring better coordination between local, provincial and national. 'The white paper should elevate the importance of consequence management, especially where there is a lack of performance and continuous service delivery issues.' ALSO READ: Ineffective governance at centre of municipal dysfunction – IoDSA Investec report shows what South Africa could have been Mavuso says she was also struck by a report from Investec last week showing how different the country would be today if we had stuck to the 4.5% growth rate we regularly achieved until 2008. 'In 2024, the economy would have been 40% bigger than it was. 'Government revenue would have been R800 billion higher than it is. Just think about that number and the huge arguments we just had about increasing VAT to raise R75 billion over the next three years. Had our economy maintained its trajectory, the government would have little debt, and there would be ample room to grow spending on public services. 'Unemployment would also be sharply lower, with a third fewer people out of work. It was a helpful reminder of how much we lost through poor policy and poor performance. Of course, there were other factors that played a role, including weaker commodity prices and Covid. 'But other countries managed to recover their growth rates with global growth averaging around 3%, while we have been stuck at 1% or less.' Mavuso says when we think of the cost of poor municipal performance and other structural constraints on our growth, it helps to imagine how different things could be. 'Our people are condemned to live poorer lives, with many more out of jobs. Reports like the Auditor General's show us what must be done. We must be serious about doing it.'
The Citizen
26-05-2025
- Business
- The Citizen
Three budgets later, infrastructure investment amount still the same
Balancing the books in the budget was difficult, but in the end no money was taken away from infrastructure investment. While three budgets in a year are unprecedented, the political mechanisms of the government of national unity have brought South Africa to a positive place, while the amount for infrastructure investment remained the same throughout. Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), says in her weekly letter that a lot happened last week, from the third budget being tabled to the meeting of President Cyril Ramaphosa with his United States counterpart. 'With everything going on, little comment was made on one element of the budget that will be very important to our future: the amount to be spent on infrastructure investment. Despite important efforts to contain expenditure, infrastructure is expected to see R1 trillion of investment over the three-year medium-term expenditure framework. 'That figure was protected throughout the budget revisions, despite National Treasury having to cut some expenditure lines to accommodate lower growth and constrained tax revenue. Maintaining infrastructure spending is critical to the key challenge of getting economic growth going, which will lead to sustainable job creation. 'Without that, we cannot generate the revenue that would enable government to increase spending in other areas.' ALSO READ: Budget 3.0 was not a chainsaw budget, economists say Budget provides for infrastructure spending on transport, electricity and water She points out that the budget includes spending on electricity, rail, water and other transport infrastructure. 'A large part of that is about fixing our logistics system, which is currently constraining economic activity significantly and deterring both local and foreign investment. 'Economists have estimated that Transnet costs the country R1 billion per day in economic activity due to its inefficiencies. Our mines and factories cannot get their output efficiently to ports and from there to markets in the rest of the world. Although there have been improvements recently, South Africa still has among the most expensive ports in the world.' Mavuso says that, as president, Ramaphosa's visit to the US made clear, we need dependable and stable trading relationships with major world markets. 'Through its tariff moves, the Trump administration has severely disrupted a global trading system based on equal treatment and rules of conduct. 'South Africa has to deal with this reality. I hope our negotiators can make headway in forming agreements with the US, but like the rest of the world, we must be prepared for a future that sees significantly reduced trade with America.' ALSO READ: Sensible or underwhelming? Economists react to Godongwana's Budget 3.0 Will trade swing from West to East? Many commentators are arguing that trade will swing from West to East due to US isolationism, which means increased trade with China, India and other emerging markets, including across Africa, although Europe will remain a critical market for our output too, she says. 'In that scenario, the global trading system is going to be more competitive, with a smaller market available for our outputs. It will be more important than ever that we are efficient. Currently, our goods are more expensive just because it costs so much to get them from where they are produced to where we need to sell them. 'Countries like China put a great deal of focus into making sure their ports are very efficient, and it is critical to their economy's performance.' One area where Mavuso hopes to see much more infrastructure investment is in local government by crowding in private sector spending through public/private partnerships (PPPs). 'Finalising revisions to PPP regulations last year should enable that, but it will take concerted effort and political will from municipalities to actually use the space that is created. ALSO READ: Budget 3.0: not austerity budget, but a redistributive budget Municipal performance also targeted in budget 'The Operation Vulindlela 2.0 process will include a special effort for municipal performance. PPPs are a potentially important mechanism to get new infrastructure to happen in a sustainable and cost-effective way.' Mavuso says she was also pleased to see several plans in the budget to rein in expenditure that is not productive. 'With the tax options limited, government has to find ways to contain expenditure. Spending reviews already done by National Treasury identified tens of billions of rands in potential savings from poorly performing or inefficient programmes. 'As it noted in the Budget Review, if government acts on its recommendations of these reviews, it may mitigate the need for additional taxes in the 2026 budget. I hope this year's budget experience has made the trade-offs between tax and spending that much clearer to everyone.' She says we allowed spending to grow for too long and never did the hard work of looking at whether that spending is delivering value for money to our people. 'The budget process must, in future, look at underperforming government programmes and shut them down.' ALSO READ: Godongwana cuts government spending to offset VAT shortfall Also positive progress in budget on SRD grant Mavuso points out that another area where Treasury made positive progress is the social relief from distress (SRD) grant introduced during Covid-19 to support people during lockdowns, when economic activity was sharply curtailed. 'It was a lifeline for people who simply could not find economic opportunities, but it was never meant to be permanent welfare support and has become a large item in the budget, costing R35 billion this year, more than three times the revenue the proposed half percentage point VAT increase would have raised. 'Treasury will now investigate replacing the SRD grant with a job seekers' allowance. This makes a lot of sense. We should be supporting people, specifically our youth, to access the job market. A carefully designed support programme that enables people to access potential jobs would be far more sustainable than the SRD grant.' She says it is also highly positive that this budget appears to have the political support to pass all the parliamentary processes ahead of it. 'While the process of three budgets in a year is unprecedented, the political mechanisms have worked to bring us to a place that is positive for the country. 'That will be good for investor sentiment, which is another important part of the effort to get economic growth going.'
News24
19-05-2025
- Business
- News24
Our economy is not delivering; we must fix it
Budget 3.0 is expected this week, and it is critical that this one strikes the right balance of fiscal prudence. The growth outlook has deteriorated from February when the budget was first tabled, meaning there will be less revenue in the form of tax collection, and therefore a bigger headache on how to balance the books. It is time for parliament and the government to show that we are capable of rallying around a coherent budget that maintains fiscal consolidation, says Busisiwe Mavuso. The decision by ratings agency S&P Global over the weekend to reaffirm its positive outlook for our credit rating reinforces what is at stake. S&P sees potential upside that would lead it to increase our credit rating if an improving track record of effective reforms resulted in the strengthening of economic growth and reduced government debt and contingent liabilities. On the other hand, it notes the downside risk is if ongoing economic and governance reforms do not progress, resulting in a deterioration in economic growth or a higher-than-expected fiscal deficit and interest burden. Finance minister Enoch Godongwana is delivering the speech this week, but investors will be watching closely how politicians react to it. National Treasury has stayed the course in ensuring the budget does not worsen our debt position, and I expect the Budget tabled this week will maintain that. But in the absence of increased VAT, which has been abandoned from the first Budget, we must see restraint on spending. I particularly want to see an honest reckoning with how productive distinct parts of government are, particularly outside the main service delivery lines. We have had over the last 30 years a succession of administrations, each of which has set up new public institutions and programmes. They do not all deliver value for money. Like we must in the private sector, when a Budget is constrained, we must reduce spending in those areas that create the least value. The problem facing our politicians is that it is very difficult to assess value for money in an objective way, given that there are different interest groups that will be affected. That is why our constitution protects the independence of several bodies, including the Financial and Fiscal Commission, Reserve Bank and National Treasury. The framers of our constitutional order recognised that the financial system is technical and requires institutions that are somewhat protected from short-term political expediency. For the Budget, there is a technical question that must be answered: what expenditure cuts will have the least damage on growth or service delivery? We must identify those purely on the evidence and follow through to reduce expenditure. This is a task best done by technocrats, and our National Treasury is the institution with the right capabilities to do it. I hope that the finance minister will be able to announce credible steps to reduce expenditure, and I hope that we quickly see the political support to do so. That is what will give comfort to investors that we are a country that can politically manage its finances appropriately. If we do that, we will maintain our trajectory of improving the confidence of lenders. Eventually, we will see a return to an investment-grade credit rating, which will reduce the cost of borrowing not only for the government, but the whole economy. And with lower costs of borrowing, we will get more investment and more economic growth. Shifting goalposts One of the challenges the Budget has to contend with is that the growth outlook has deteriorated from February when it was first tabled. That means there will be less revenue in the form of tax collection, and therefore a bigger headache on how to balance the books. It also makes clear, though, how critical it is that we get our economic growth up. This came across loud and clear at the business/government partnership meeting that we held with the president and several government ministers last week. It was abundantly clear to everyone how serious our growth outlook is. We have now agreed to accelerate reforms by introducing several 'sprint' approaches to getting things done. We have also increased the frequency of future engagements for the partnership from quarterly to every six weeks. This shows the impressive level of determination and engagement from the president and his team. We recognised that several issues ranging from the global trade situation to local politics can distract the reform effort, but we must double down and remain focused. No matter what happens in the international arena, our structural reforms are critical to enabling our economy. Certain reform areas, such as logistics, are lagging the initial timelines, but the meeting was clear that this must be fixed. I appreciated the urgency of fixing our country and ensuring the right policies are in place. We also had data out last week which showed that unemployment figures continue to creep upwards. Whether it is government trying to balance the books, or workers trying to secure a job, our economy is not delivering. We must fix it, and I saw last week just how engaged and serious both government and business are about doing so. It has given me a new sense of optimism that South Africans are grasping the challenges and ready to implement the solutions. A finalised Budget that hits the right balance of fiscal prudence will be a key enabler. Our politicians have the chance to make sure that is what we get over the next few weeks.
The Citizen
12-05-2025
- Business
- The Citizen
Government-business partnership to accelerate delivery
Senior business leaders met with President Cyril Ramaphosa and ministers under the Government Business Partnership recently. The partners in the government-business partnership to accelerate delivery – the BLSA partnership have agreed to fast-track the implementation of key structural reforms and support performance improvements at Transnet and Eskom through an accelerated delivery plan and an intensified phase of its ongoing efforts to expedite delivery on priority interventions vital to economic growth and job creation. Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), says in her latest newsletter that the Government Business Partnership, established in 2023, is focused on accelerating crucial reforms and operational improvements to lift confidence levels and drive economic growth in four priority areas of energy, transport and logistics, crime and corruption and youth employment. Youth employment was added in January 2025. 'The partnership believes that this acceleration is necessary to achieve a step-change in progress in response to difficult economic headwinds. Focus will remain on improving Eskom's Energy Availability Factor (EAF) and unblocking delays in new generation capacity to ensure a continued reprieve from load shedding. 'Work is underway to resolve grid access and allocation bottlenecks that hinder new generation projects. While Transnet's performance is not at the level required, it has stabilised and there is a significant focus on growing volumes, which will increase exports and revenue collected to support economic growth and preserve and grow employment.' ALSO READ: Government must keep momentum in partnership with business Accelerated delivery needed in complex environment She emphasises that expediting reforms and performance improvement is crucial to reduce the possible negative impact of the complex global and domestic environment, which continues to present substantial challenges and uncertainty. Gross Domestic Product (GDP) growth projections for 2025 have been revised down and current forecasts remain far below the minimum of 3% economic growth required to create the level of jobs needed to make an impact on the country's high levels of unemployment, she says. According to Mavuso Ramaphosa said: 'Through the strength of this partnership, we have been able to unlock many constraints that undermine growth and job creation. While there is much to improve, the dedication and commitment from both government and business remains undiminished. The pace of our work must increase to match the scale of the challenge.' She says important progress has been made to lay the groundwork for sustained accelerated action, including the finalisation of the Transnet Network Statement, the launch of a Request for Information (RFI) to attract private investment in port and rail infrastructure and Nersa's approval of electricity wheeling regulations. 'These reforms enable broader private sector participation in energy, transport and logistics. Both the crime and corruption and the youth employment focal areas are largely tracking against their plans which have a longer-term time horizon.' ALSO READ: Housing, local gov and digital transformation at the forefront of Operation Vulindlela phase II Partnership welcomes second phase of Operation Vulindlela In line with the commitment to focused execution, the Partnership welcomed the launch of the second phase of Operation Vulindlela, which has a delivery focus that closely aligns with the Partnership's objective of more rapidly accelerating reforms and operational improvements that will drive growth and job creation, Mavuso says. She says at the meeting Adrian Gore, vice president of Business Unity South Africa (Busa) and business co-convenor of the Partnership, said: 'We are entering this accelerated execution 'sprint' with a real sense of urgency. 'Progress has been made, but it is not enough. This requires a step change in the pace of decision-making and execution. We need to redouble our collective efforts to help shift the country onto a sustained upward trajectory and deliver on our shared ambition of a virtuous cycle of growth, jobs, a more positive narrative and increased investment.'
The Citizen
05-05-2025
- Business
- The Citizen
Budget 3.0 should not increase SA's debt, rather cut expenditure — BLSA
South African politicians must take some difficult decisions over the next two weeks about Budget 3.0. The question is will they? While National Treasury and the minister of finance are putting Budget 2025 3.0 together, they will face a difficult choice but should steer clear of increasing the country's debt levels and rather cut expenditure. When it comes to cutting expenses, we need a mature and honest assessment of what parts of government are delivering value to taxpayers and the political bravery to make the necessary decisions when they are not, Busisiwe Mavuso, CEO of Business Leadership South Africa, (BLSA), says. 'In the next two weeks, we will get our third budget this year. While it is good that our budget is subject to democratic interrogation, the government of national unity, as well as others in parliament, must show they have the political bravery to make decisions that will not please everyone.' She states the obvious: 'It is very important for the country that we get a budget that enables growth. 'The reason this budget process has been so difficult is very mediocre economic growth. If we want to achieve sustainable public spending, we need growth that generates government revenue sustainably.' ALSO READ: Trump tariffs created unprecedented uncertainty — trade expert Trade war makes Budget 3.0 decisions even more difficult Mavuso warns our politicians must make difficult choices, made more difficult due to numerous factors, including the trade wars that struck the world since February, when the outlook was better. 'Now our economic growth expectations have been dampened. This means that there will be less tax revenue available for government as businesses will be less profitable and consumers more subdued in spending. The situation we must budget for is now worse than it was two months ago. 'As I said before, if we do not want to compound the bleak economic outlook, it is vitally important that the budget does not increase debt levels. Treasury has worked hard to turn around the crisis that government finances were in five years ago. 'Ratings agencies noticed and improved the outlook for our credit rating. We must work toward regaining the investment-grade credit rating that we lost in 2020. Doing that will result in a lower cost of debt for government as well as the whole economy, providing a kicker for growth.' ALSO READ: Treasury might have to revisit spending priorities now that VAT is off the table — IMF If Budget 3.0 brings more debt, government debt will cost more However, she says, if we do the opposite and debt levels increase, we can expect investors will demand higher interest rates to buy the government's debt, consuming more of our tax money and damaging economic growth. 'That means we have only two real choices: to increase taxes so that government raises more revenue to pay its bills, or to decrease expenses. Politically, the initial proposal by Treasury to increase VAT to raise more revenue has been roundly rejected. The choices are then to find other taxes to implement or expenses to cut. 'The difficulty for Treasury is that there really is not that much tax that can be raised other than through VAT. Some political parties have called for such tax increases, but personal income taxes and corporate taxes are already high by global standards. If they increase, people and companies will simply shift their economic activity out of the country.' Treasury's research has shown that we may end up collecting even less tax as a result, because businesses move out of the country, shedding jobs. Mavuso says there has also been some suggestion that the South African Revenue Service (Sars) should be pushed to collect more taxes through efficiency and collection improvements. ALSO READ: Sars beats expectations by collecting R1.855 trillion in 2024/25 tax year Not prudent to base Budget 3.0 on improved tax collection She says while Sars should aim to do this, it is not a prudent way to budget. 'Those of us in business know that it is easy to budget to spend money, but much harder to budget to make money. Budgeting must be prudent, and relying on excess tax collections is not.' Mavuso says the only way forward is to reduce expenditure to within our means. 'That is always politically difficult because it means there will be losers. Understandably, no politician wants to be the one to say that government can no longer do something. 'But every year government sets up new projects and creates new spending lines. That is well and good, but it leads to a proliferation of entities, and not all of them deliver value for money. ' She says there is, of course, much else we can do to improve growth, and one of South Africa's greatest strengths is the collaborative relationship between business and government. 'I am looking forward to the next meeting between organised business and the president, due to take place this Friday. ALSO READ: Where will the minister find the money to make up for scrapping the VAT increase? Business meeting with president this week 'We last met in January, in a very positive meeting that aligned us on structural reforms we needed to pursue. Much progress has been made on those, from improving the electricity system to logistics reforms, but the world has changed. That was before the US election and tariffs. 'At that meeting, we set a goal of delivering a 3% growth rate by the end of this year. As a result of global conditions, despite the progress made, that will now be difficult to achieve, but that is no reason to slow down – just the opposite. 'We must redouble our efforts to drive reforms to improve the performance of our economy, and global conditions just made the task more urgent. We must think carefully about how opportunities have shifted and ensure our partnership and plans are geared for the world as it now is.' Mavuso says, as the budget situation shows, growth is critical for the country. 'We must escape the low-growth trap we have been in for a decade and a half. Doing that will take brave and innovative thinking, especially in the new global environment we find ourselves in.'
