Financial viability of rural municipalities in South Africa

Abstract

Public finance is considered to be the overriding factor in determining the viability of local government. Presumably, without sound financial management systems, municipalities will be forced to discontinue their operations. It is imperative that municipal stakeholders, such as municipal officials, mayors, ward councilors, traditional leaders and interest groups, among others, should have a sound basic knowledge and application of the Municipal Finance Management Act, 2003 (Act 56 of 2003) and other related legislation. The Act has been introduced to secure sound and viable management of the financial affairs of municipalities in the local sphere of government. However, studies in Public Administration confirm that the majority of rural municipalities in South Africa are not self-viable. There are a number of challenges that include governance, finance, planning and human capital. To put this matter in perspective, the revenue base of rural municipalities is confronted with the culture of non-payment of services, corrupt supply chains and weak accountability mechanisms. The culture of non-payment, including other reasons connected therewith, has depleted the revenue base of municipalities. Recurring audit queries appear to be irresolvable. It is for this reason that municipalities are not self-sufficient and many require national government bailout, but this unfortunately creates a dependency syndrome and a vicious circle over a longer time. Therefore, the purpose of this article is to explore why rural municipalities are not financially viable and thereby attempt to propose possible practical solutions.