As South African cities face ever-increasing population growth, the responsibility to provide essential services and encourage economic growth falls on struggling municipalities.
Many municipalities are failing to meet the basic needs of their constituents, including providing adequate access to water, sanitation, housing, and electricity, says Londa Nxumalo, portfolio manager at Allan Gray.
The report noted that by 2050, South Africa’s population is projected to grow by an additional 19-24 million people, most of whom will be living in cities and towns. The report describes a death spiral: Rampant corruption and mismanagement at many municipalities result in a lack of funds and increasingly poor service delivery, the latter of which reinforces a culture of non-payment of municipal rates and service fees which, in turn, exacerbates the financial deterioration of the municipalities and further affects service delivery.
The amount of municipal debt owed to Eskom, and the debtor days outstanding of two of the large water utilities, are shown below. Municipalities make up 42% of Eskom’s revenue, and municipal arrears have ballooned to R35 billion. This inevitably results in municipal collapse. Indeed, a number of municipalities are already deemed to be dysfunctional, Allan Gray said.
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