Poor Municipal Governance Comes at a High Cost for South Africans

The Auditor-General’s latest consolidated audit report on South Africa’s municipalities should not be viewed merely as an administrative report. It is an economic warning that highlights the direct link between poor local governance, sluggish economic growth and the financial pressure facing households and businesses.

The report reveals that only 39 of South Africa’s 257 municipalities received clean audits, while none of the country’s eight metros achieved a clean audit opinion. More than R73 billion in irregular expenditure was incurred over the past four years, with almost half of this attributed to non-compliance with procurement processes.

According to Thys van Zyl, Chief Executive Officer of Everest Advisory Services (Pty) Ltd (FSP 49495, CAT I), the financial impact of poor municipal governance extends far beyond what the figures alone suggest.

“When municipalities fail to function effectively, the consequences extend well beyond service delivery. Poor local governance increases the cost of the economy as a whole, with households and businesses ultimately paying the price through higher costs, deteriorating infrastructure and slower economic growth.”

Van Zyl says many South Africans effectively pay twice for certain essential services.

“Households pay taxes and municipal rates, yet they are often forced to fund essential services out of their own pockets. Solar power systems, boreholes, water storage tanks and private security have become necessary expenses for many families. This so-called double taxation places additional pressure on household budgets and reduces disposable income.”

He believes the impact on businesses is equally significant.

“Businesses operate within municipalities. When roads deteriorate, water and electricity supply become unreliable and infrastructure declines, operating costs increase while productivity suffers. These additional costs are ultimately passed on through higher prices, adding to inflationary pressures and reducing business competitiveness.”

Van Zyl says the Auditor-General’s report demonstrates that poor local governance is not merely a financial or administrative challenge, but one of the greatest obstacles to sustainable economic growth.

“Economic growth requires an environment in which businesses can invest with confidence, expand their operations and create jobs. If municipalities fail to perform their core functions effectively, investor confidence is undermined and economic development is slowed.”

According to Van Zyl, it is also important to understand the true cost of irregular expenditure.

“When billions of rand are spent irregularly, the real loss extends far beyond the money itself. It represents roads that are never repaired, water infrastructure that is never upgraded, electricity networks that are not maintained and investments that never materialise. The greatest loss is the economic opportunities that are forfeited.”

He says the fact that R1.61 billion was spent on consultants while overall audit outcomes remain disappointing underscores the urgent need for greater accountability and stronger governance within local government.

Van Zyl believes the report should also be viewed in the context of South Africa’s recent sovereign credit rating improvements.

“While international ratings agencies have begun recognising improvements in fiscal discipline and progress in certain reforms, sustainable economic growth will ultimately depend on functional local government. Municipalities provide the foundation upon which economic activity takes place.”

He says the solution lies not only in stricter audit processes, but in sustainable reform, stronger financial management and greater accountability.

“Municipalities that manage their finances responsibly, maintain infrastructure and deliver reliable services create an environment in which businesses can thrive, property values can grow and new investment can be attracted. Good local governance is not simply a governance issue — it is one of the most important drivers of economic growth.”

Van Zyl says South Africa cannot realise its full economic potential without capable local government.

“Economic growth does not begin only with national policy or interest rates. It also begins with municipalities that manage their finances responsibly, maintain infrastructure and create a stable environment in which people can live, work and do business. If local government fails to fulfil this role, the cost is likely to be borne by taxpayers, businesses and ultimately the wider economy.”