Johannesburg, SA’s richest and biggest metro, has laid bare the state of its finances saying while the situation was not dire yet, failure by council to urgently approve a R2bn loan facility from the Development Bank of Southern Africa (DBSA), could plunge the country’s economic hub into an “uneasy state of financial affairs”.
If the short-term loan, repayable in June 2023, was not secured it could result in the city — which has a budget of R77.3bn for the 2022/2023 financial year — struggling to pay staff salaries for its estimated workforce of 32,000, meet its financial obligations to service providers and most importantly, deliver services to its 6-million residents.
This comes after Ngoato Phadime, the back-to-basics co-ordinator in the Gauteng department of co-operative governance and traditional affairs, told an SA Local Government Association (Salga) provincial meeting in Tshwane recently that the Johannesburg metro alone had eroded an opening balance of R409.4m at the beginning of September, to a negative balance of R835.5m.
He said this was as a result of “over-commitments and slow revenue collection”.
“Those are the two major issues,” Phadime said.
In a media briefing Wednesday, ahead of a council meeting where Phalatse is expected to face yet another motion of no confidence, the executive mayor noted the metro did not meet its collection targets in the last three years.
She said the decrease in revenue collection could be attributed to the economic effects of Covid-19, the huge increases in food and fuel prices due to, among others, the war in Ukraine and the sudden increase in interest rates and inflation since June 2022 “creating downward pressure on the revenue collection efforts”.
“In the month of July, we collected R3.6bn in revenue which is only 76% of our revenue collection target. Our immediate response was to set up a revenue collection war room with a dedicated task team to increase collections as quickly as possible, which included an enhanced revenue collection campaign under the banner of Operation Buya Mthetho,” Phalatse said.
“As a direct result of these efforts, the revenue collection for August and September jumped to R4.5bn and R4.2bn respectively — raising our revenue collection to 93% of total targeted collection — and I want to thank all those who diligently continued to pay for their services.”
Phalatse said revenue collection fell to 86% in October, “translating into over R500m of undercollection. November’s collection rate can only be reported on at the end of the month when all revenue collection activities are closed off”.
It was evident the metro and its residents were still recovering from a tough economic time: “It is at this point that the city seeks to secure a loan over the shortest term possible to ease the cash flow mismatch that is currently being experienced. We have secured access to R2bn, all we need is for council to approve the application,” the mayor said, adding: “While the city does not find itself in an immediate crisis, we may find ourselves in an uneasy state of financial affairs should we not approve this loan through council.”
Joburg’s group CFO, Sinovuyo Mpakama, echoed the mayor’s remarks, saying if the R2bn loan were not passed in council, the city would find itself in a difficult financial state, “but I want to clarify that does not translate to the city being in a financial crisis in any way”.
“The consequence of the loan not being passed [in council] is that the city may run the risk of not meeting some of its liquidity reporting requirements. But insofar as the key expenditure that the city has, the Treasury department has come up with a process to ensure these are prioritised. These include bulk purchases for water and electricity, salaries, finance posts ... and third-party payments,” Mpakama said.
He said what would constitute a financial crisis would be a failure by the metro to meet its bulk purchase, finance and VAT obligations, and payment of staff salaries.
Phalatse said after cutting off electricity, the Gauteng department of e-governance settled close to R400m owed to the city, while a mining company paid close to R110m in November in settlement of an old dispute.
She said services to the provincial health department were scheduled to be cut off if close to R240m were not paid by Friday, adding that the National Heath Laboratory Services had agreed to pay R47m in settlement of a dispute with the city.
Finance member of the mayoral committee (MMC) Julie Suddaby said the metro’s debtors’ book sat at R47bn, with bulk write-offs “in the region of R7bn”. The mayor said the metro predominantly funded service delivery and building projects with revenue collected from water and electricity consumed, property rates, fines and other services.
“As it happens when running any business, a shortfall between revenue received and expenses to be paid may occur, and in business terms, we have a cash flow mismatch. As we mentioned at the start, our customers are currently hard pressed. This has resulted in a cash flow mismatch. The money owed is still shown in the debtors’ book as receivable, and once it is collected, the cash flow mismatch eases,” she said.
On November 15, the city wrote to Gauteng premier Panyaza Lesufi “outlining debts owed to the city by provincial departments and entities. That correspondence has not been responded to, hence we commenced with the termination of services”.
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