Joburg bailout needs strict financial conditions, CDE says

Joburg will need external financial support to help it arrest its deepening fiscal crisis, but any intervention by national government should be tied to strict conditions aimed at forcing a turnaround in the city’s finances, says the Centre for Development and Enterprise (CDE).

The independent policy research and development think-tank says Joburg is too important to South Africa’s economy to be allowed to deteriorate unchecked. But an unconditional bailout would risk preserving the financial practices that have contributed to the crisis and ultimately leave taxpayers facing a larger bill.

Key parastatals in the country have shown how addictive bailouts from the provincial and national governments can become.

The warning comes as the city prepares for local government elections on November 4 and after a dispute with Eskom over billions of rand in unpaid electricity debt highlighted the extent of its financial strain. The utility had threatened to restrict electricity supplies to parts of Joburg before the dispute was resolved through a payment of R5.25bn of its remaining overdue electricity debt last week.

The CDE says any national or provincial intervention should be conditional on a credible medium-term financial plan, realistic revenue assumptions, enforceable collection targets and independent oversight of major contracts and procurement.

The November election will determine the political leadership responsible for implementing those measures. Whoever takes control of Joburg will inherit a municipality whose spending commitments have increasingly diverged from its ability to collect revenue.

At the centre of the crisis is a widening gap between revenue billed by the municipality and cash actually collected. Gross customer debt reached almost R72bn in the 2024/25 financial year, compared with about R15bn a decade earlier, according to the CDE.

The increase of almost 17% a year has substantially outpaced inflation and the roughly 1% average annual expansion of Joburg’s economy over the same period.

The city’s financial statements provide a less stark assessment because provisions for doubtful and irrecoverable debt reduce the amount recorded on its balance sheet to about R12bn.

The CDE argues that the gross figure is a more meaningful measure of the underlying problem because it reflects the scale of revenue that has been invoiced but not converted into cash.

Ann Bernstein, the CDE’s executive director, said the city has effectively been treating revenue it has billed as though it had already been collected, allowing it to budget and spend on the basis of income that may never materialise.

“Joburg’s financial crisis is much more serious than an annual budget deficit,” said Bernstein. “The city has become dangerously disconnected from financial reality. It bills residents and businesses, records those bills as revenue and spends on the assumption that the money will arrive. Increasingly, it doesn’t.”

That weakness has coincided with a deterioration in the composition of municipal spending. Infrastructure investment has fallen by about half in real terms over the past decade and by almost 70% on a per capita basis, according to the report. At the same time, employee costs have increased by about 9% annually and now consume roughly 40% of cash collected from customers.

Payments to external contractors have also increased sharply, while amounts owed to suppliers, principally Eskom and Rand Water, have more than doubled since 2014/15 to above R28bn.

The deterioration is also constraining access to external finance. France’s development finance agency, Agence Française de Développement, declined a follow-on R2.5bn loan to Joburg, citing concerns about the city’s governance.

The CDE says the decision is an indication that conventional lenders are becoming increasingly cautious about extending further credit to the municipality.

The result is a growing dependence on suppliers to finance municipal operations by carrying unpaid balances, a model that the CDE says is unsustainable.

Business Day