Measuring fiscal sustainability and its determinants in South African municipalities

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Stellenbosch : Stellenbosch University
ENGLISH SUMMARY: African municipalities; the analysis also examines their ability to pay off long-term debts and to meet the current obligation. The composition of spending and how to improve efficiency are also studied. This study adopted a quantitative research approach. A combination of descriptive and correlational research and the data envelopment analysis (DEA) model was used. The documents and data analysed were published by the National Treasury; the Reserve Bank of South Africa; Statistics South Africa; the Auditor-General South Africa; and the municipal annual reports. The findings indicated that several municipalities were administratively intense. Over time, costs for the administrative component of municipal functions surpassed the service delivery spending. In addition, the research study finds that employee costs were the fastest growing item in municipal budgets and became the biggest budgetary pressure facing municipalities. Furthermore, inefficiency has largely nullified the impact of funding to local government, which was intended to improve service delivery. These trends must be reversed to attain economies of scale. Municipalities must change the composition of their expenditure and prioritise their service delivery. Municipal organisational structures should be fit-for-purpose, and functional duplications should be reduced. This dissertation is divided into four distinct but complementary papers. Each paper constitutes a chapter. There are also two general chapters, and the entire dissertation thus consists of six chapters. Paper I (Chapter 2) adopts a modification of the definitions of “sustainability” as formulated by Blanchard, Chouraqui, Hagemann and Sartor (1990) and by Hagist & Vatter (2009). The concepts of Auerbach, Gokhale and Kotlikoff (1991) are also included. The paper proposes a new model for measuring the fiscal sustainability of municipalities. This model accounts for demographic changes, performance of local economies and financial management at the municipal level. This paper assesses the sustainability of the supply of goods and services offered by South African municipalities. It examines their solvency (ability to pay off long-term debts), liquidity (ability to meet current obligations), and the composition of spending. The economic circumstances surrounding each municipality are also examined. The resultant indicators provide valuable data about the state of municipal finances. They can be used to assess the action needed to be followed at present to ensure the long-term fiscal sustainability of municipalities. For practical purposes, the proposed model is then applied to seven South African metropolitan municipalities. The last part of the paper proposes various approaches to close the fiscal gap. Paper II (Chapter 3) examines the scale effects and the determinants of administrative intensity within South African municipalities. Regression analysis, a form of predictive modelling technique, was performed. The results revealed that the spending by functions in municipalities is administratively orientated, with insufficient economies of scale. Regarding the determinants of administrative intensity, capital transfers and growth in the population were shown to be the most influential factors in determining the administrative costs of municipalities. Moreover, the findings indicated that the more own-source revenues a municipality has, the better it manages its finances. The results from the second model indicated that several municipalities were administratively intense. These findings are consistent with the further analysis in the third model, which show that, over time, the administrative component of municipal functions have surpassed service delivery spending. This trend must be reversed to attain economies of scale. Paper III (Chapter 4) examines the influence of personnel management regarding municipal finances. The sources were budget documents published annually by the municipalities, data from Statistics South Africa and annual financial statements audited by the South African Auditor-General. The analysis found that there is fundamental systemic incoherence within the present constellation of the composition of municipal spending. The most substantial budgetary pressure facing South African municipalities is the rising share of personnel expenditure. This expenditure has increased markedly over the last 12 years, without proportional increases in productivity or in the number of people employed at municipalities. The study found that these increases are considerably higher than in other spheres of government. They have a negative bearing on local government's ability to manage and fast-track service delivery. This excessive spending on personnel has impacted smaller municipalities the most. Such expenditure diverts resources away from service delivery requirements, which also causes tension with the policy objectives of local government. This situation has created substantial cost pressure on municipal budgets. In some municipalities, particularly rural ones, this cost pressure eclipsed other service delivery expenditure to the extent that it undermined the coverage and quality of services offered. There is, therefore, a need for local government to limit increases in employee costs. Paper IV (Chapter 5) examines the efficiency with which district municipalities that provide water and sanitation services deliver on those services. It analyses the expenditures and outputs attributable to these functions, using the DEA technique as applied to cross-sectional data for 2015–2016. The sample included 19 high service responsibility municipalities with water and sanitation functions. Among the 19 municipalities, 12 were found to be inefficient and spent a high proportion of their operational expenditure on municipal administration. Furthermore, using an instrumental variable approach, this study examined the determinants of variation in water and sanitation service efficiency. These drivers were identified as fiscal autonomy, value of assets and number of households within each municipal jurisdiction. The challenge is that municipalities already spend significantly more than they should on administration costs maintaining large administrative components, crowding out service delivery and investment expenditures. This scenario makes these municipalities fiscally unsustainable over time, as the asset base is highly dependent on grants and their asset management practices are below the required levels. If high service responsibility municipalities are to be efficient and sustainable, local government should do the following: create cost-savings measure, divert resources to frontline services and promote improved governance for the long-term sustainability of public finances.
AFRIKAANSE OPSOMMING: Hierdie proefskrif beoordeel die volhoubaarheid van die verskaffing van goedere en dienste wat deur Suid-Afrikaanse munisipaliteite aangebied word; die ontleding ondersoek ook hul vermoë om langtermyn skuld te delg en om die huidige verpligting na te kom. Die samestelling van besteding en hoe om doeltreffendheid te verbeter word ook bestudeer. Hierdie studie het ‘n kwantitatiewe navorsingsbenadering gevolg. ‘n Kombinasie van beskrywende en korrelasienavorsing en die data-omhullingsanalise (DEA) model is gebruik. Die dokumente en data wat ontleed is, sluit die munisipale jaarverslae in asook die dokumente wat deur die Nasionale Tesourie, Statistiek Suid-Afrika, en die Ouditeur-Generaal Suid-Afrika gepubliseer is. Die bevindinge het aangedui dat verskeie munisipaliteite administratief intens was. Met verloop van tyd het koste vir die administratiewe komponent van munisipale funksies die diensleweringsbesteding oortref. Die navorsingstudie het ook bevind dat werknemerskoste die vinnigste groeiende item in die munisipale begroting was en die grootste begrotingsdruk geword het wat munisipaliteite in die gesig staar. Verder het ondoeltreffendheid grootliks veroorsaak dat befondsing vir plaaslike regering, wat bedoel was om dienslewering te verbeter, tot niet gemaak het. Hierdie tendense moet omgekeer word om skaalvoordele te bereik. Munisipaliteite moet die samestelling van hul uitgawes verander en hul dienslewering prioritiseer. Munisipale organisatoriese strukture moet geskik wees vir die doel en funksionele duplisering moet verminder word. Hierdie proefskrif is verdeel in vier afsonderlike maar aanvullende referate. Elke referaat vorm ‘n hoofstuk. Daar is ook twee algemene hoofstukke, en die hele proefskrif bestaan dus uit ses hoofstukke. Referaat I (Hoofstuk 2) neem ‘n wysiging aan van die definisies van “volhoubaarheid” soos deur Blanchard, Chouraqui, Hagemann and Sartor (1990) and by Hagist & Vatter (2009) geformuleer. Die konsepte van Auerbach, Gokhale and Kotlikoff (1991) is ook ingesluit. Die referaat stel ‘n nuwe model voor om die fiskale volhoubaarheid van munisipaliteite te meet. Hierdie model is verantwoordelik vir demografiese veranderinge, prestasie van plaaslike ekonomieë en finansiële bestuur op munisipale vlak. Hierdie referaat beoordeel die volhoubaarheid van die verskaffing van goedere en dienste wat deur Suid-Afrikaanse munisipaliteite aangebied word. Dit ondersoek hul solvensie (vermoë om langtermyn skuld af te betaal), likiditeit (vermoë om huidige verpligtinge na te kom), en die samestelling van besteding. Die ekonomiese omstandighede van elke munisipaliteit word ook ondersoek. Die gevolglike aanwysers verskaf waardevolle data oor die stand van munisipale finansies. Dit kan gebruik word om die aksie te bepaal wat tans gevolg moet word om die langtermyn fiskale volhoubaarheid van munisipaliteite te verseker. Vir praktiese doeleindes word die voorgestelde model dan op sewe Suid-Afrikaanse metropolitaanse munisipaliteite toegepas. Die laaste deel van die referaat stel verskeie benaderings voor om die fiskale gaping te sluit. Referaat II (Hoofstuk 3) ondersoek die skaaleffekte en die determinante van administratiewe intensiteit in Suid-Afrikaanse munisipaliteite. Regressie-analise, ‘n vorm van voorspellende modelleringstegniek, is uitgevoer. Die resultate het aangedui dat die besteding deur funksies in munisipaliteite administratief georiënteerd is, met onvoldoende skaalvoordele. Wat die determinante van administratiewe intensiteit betref, blyk dit dat kapitaaloordragte en groei in die bevolking die mees invloedryke faktore is in die bepaling van administratiewe koste van munisipaliteite. Die bevindinge het boonop aangedui dat hoe meer eie inkomste ‘n munisipaliteit het, hoe beter bestuur hulle hul finansies. Die resultate van die tweede model het aangedui dat verkeie munisipaliteite administratief intens is. Hierdie bevindinge stem ooreen met die verdere ontleding in die derde model, wat toon dat die administratiewe komponent van munisipale funksies met verloop van tyd diensleweringbesteding oortref het. Hierdie tendens moet omgekeer word om skaalvoordele te bereik. Referaat III (Hoofstuk 4) ondersoek die invloed van personeelbestuur ten opsigte van munisipale finansies. Die bronne was begrotingsdokumente wat jaarliks deur die munisipaliteite gepubliseer word, data van Statistieke Suid-Afrika en finansiële jaarstate wat deur die Suid-Afrikaanse Ouditeur-Generaal geoudit is. Die ontleding het bevind dat daar fundamentele sistemiese onsamehangendhied binne die huidige konstellasie van die samestelling van munisipale besteding is. Die grootste begrotingsdruk wat Suid-Afrikaanse munisipaliteite in die gesig staar, is die stygende deel van personeelbesteding. Hierdie uitgawes het oor die afgelope 12 jaar merkbaar toegeneem, sonder proporsionele verhogings in produktiwiteit of in die aantal mense wat by munisipaliteite werksaam is. Die studie het bevind dat hierdie verhogings aansienlik hoër is as in ander regeringsafdelings. Dit het ‘n negatiewe invloed op plaaslike regering se vermoë om dienslewering te bestuur en vinniger te laat verloop. Hierdie buitensporige besteding aan personeel het kleiner munisipaliteite die meeste geraak. Sulke uitgawes lei hulpbronne weg van diensleweringsvereistes, wat ook spanning veroorsaak met die beleidsdoelwitte van plaaslike regering. Hierdie situasie het aansienlike kostedruk op munisipale begrotings geplaas. In sekere munisipaliteite, veral landelikes, het hierdie kostedruk ander diensleweringsuitgawes verduister in die mate dat dit die dekking en kwaliteit van dienste wat aangebied word, ondermyn. Daar is dus ‘n behoefte vir plaaslike regering om verhogings in werknemerskoste te beperk. Referaat IV (Hoofstuk 5) ondersoek die doeltreffendheid waarmee distriksmunisipaliteite wat water- en sanitasiedienste verskaf, daardie dienste lewer. Dit ontleed die uitgawes en uitsette wat aan hierdie funksies toeskryfbaar is, deur gebruik te maak van die DEA tegniek soos toegepas op deursneedata vir 2015-2016. Die steekproef het 19 hoëdiensverantwoordelikheidsmunisipaliteite met water- en sanitasiefunksies ingesluit. Daar is bevind dat 12 van die 19 munisipaliteite ondoeltreffend is en ‘n groot deel van hul bedryfsuitgawes aan munisipale administrasie bestee het. Verder, met behulp van ‘n instrumentele veranderlike benadering, het hierdie studie die determinante van variasie in water- en sanitasiediensdoeltreffendheid ondersoek. Hierdie drywers is geïdentifiseer as fiskale outonomie, waarde van bates en aantal huishoudings binne elke munisipale jurisdiksie. Die uitdaging is dat munisipaliteite reeds aansienlik meer bestee as wat hulle moet aan administrasiekoste om groot administratiewe komponente in stand te hou, wat dienslewering en beleggingsuitgawes verdring. Dit veroorsaak dat munisipaliteite mettertyd fiskaal onvolhoubaar word, aangesien die batebasis hoogs afhanklik is van toelaas en hul batebestuurspraktyke onder die vereiste vlakke is. As munisipaliteite met hoë diensverantwoordelikheid doeltreffend en volhoubaar moet wees, moet plaaslike regering die volgende doen: skep kostebesparingsmaatreëls, herlei hulpbronne na voorlyndienste en bevorder verbeterde bestuur vir die langtermyn volhoubaarheid van openbare finansies.
ISISHWANKATHELO NGESIXHOSA: Le thisisi (dissertation) ivavanya uzinzo ekuboneleleni ngeempahla kunye neenkonzo ezinikezelwa ngoomasipala boMzantsi Afrika; Uhlalutyo luvavanya ukukwazi kwabo ukuhlawula amatyala exesha elide kunye nokuhlangabezana noxanduva lwangoku. Ukwakhiwa kwenkcitho kunye nendlela yokuphucula ukusebenza nayo iyafundwa. Olu phononongo lwamkele indlela yophando oluninzi. Indibaniselwano yophando oluchazayo kunye nolungelelwaniso kunye nobuchule bohlaziyo lwe data envelopment analysis (DEA). Amaxwebhu kunye nohlalutyo lophando olupapashwa nguNondyebo weSizwe; iBhanki EnguVimba yoMzantsi Afrika; EzoBalo-Luntu eMzantsi Afrika; uMphicothi-zincwadi Jikelele woMzantsi Afrika; neengxelo zonyaka zikamasipala. Iziphumo zabonisa ukuba oomasipala abaninzi babenobuzaza kwezolawulo. Ixesha elingaphezulu, iindleko zecandelo lolawulo kwimisebenzi kamasipala zigqithile kwinkcitho yokuhanjiswa kweenkonzo. Inkcitho yabasebenzi yayiyeyona nto ikhula ngokukhawuleza kuhlahlo-lwabiwo mali loomasipala kwaye yaba lolona xinzelelo olukhulu kuhlahlo-lwabiwo mali olujamelene noomasipala. Ngaphezu koko, nokungasebenzi iye kakhulu ize impembelelo-mali kurhulumente wengingqi, apho eyenzelwe ukuphucula ukunikezelwa kweenkonzo. Ezi ntsingiselo kufuneka zibuyiselwe umva ukuze kufikelelwe kuqoqosho lwesikali. Oomasipala kufuneka batshintshe ukwenziwa kwenkcitho yabo kwaye babeke phambili ukunikezelwa kweenkonzo. Amaqumrhu kamasipala kufanelekile ukuba alungele injongo, kwaye ukuphindaphindwa kokusebenza kufanele kuncitshiswe. Le dissertation yahlulwe yangamaphepha amane ahlukeneyo kodwa ancedisanayo. Iphepha ngalinye lenza isahluko. Kukho izahluko ezibini ngokubanzi, kwaye iyonke le dissertation ineziqendu ezithandathu. Iphepha lokuqala (Isahluko sesibini) Olu phononongo lwamkela ukuguqulwa kweenkcazo "zokuzinza" njengoko kwenziwe nguBlanchard, uChouraqui, uHagemann noSartor (1990) noHagist noVatter (2009). Iikhonsepthi zeAuerbach, Gokhale kunye neKotlikoff (1991) nazo zibandakanyiwe. Eli phepha liphakamisa indlela entsha yokulinganisa uzinzo kwezemali koomasipala. Le modeli ibangela utshintsho kubemi, ukusebenza koqoqosho lwasekhaya kunye nolawulo lwezemali kwinqanaba likamasipala. Esi sahluko sivavanya uzinzo lonikezelo lweempahla kunye neenkonzo ezinikezelwa ngoomasipala boMzantsi Afrika. Ivavanya ukusombuluka kwabo (ukubanakho ukuhlawula amatyala exesha elide), ukuhlawula amatyala (ukukwazi ukuhlangabezana nezibophelelo zangoku), kunye nokwakhiwa kwenkcitho. Iimeko zoqoqosho ezingqonge umasipala ngamnye ziyavavanywa. Izikhombisi ezibonakala zibonelela ngedatha ebalulekileyo malunga nemeko yezemali kamasipala. Zingasetyenziselwa ukuvavanya amanyathelo afunekayo ekufuneka elandelwe okwangoku ukuqinisekisa uzinzo lwezezimali lwexesha elide koomasipala. Ukulungiselela iinjongo ezibonakalayo, imodeli ecetywayo iyasetyenziswa koomasipala abasixhenxe boMzantsi Afrika. Inxalenye yokugqibela yesahluko iphakamisa iindlela ngeendlela zokuvala umsantsa wezemali. Iphepha lesibini (Isahluko sesithathu) livavanya iziphumo zesikali kunye nokuchongwa kokuqina kolawulo koomasipala boMzantsi Afrika. Uhlalutyo loxinzelelo, uhlobo lwendlela yokwenza imodeli yokuqikelela, lwenziwa. Iziphumo ziveze ukuba inkcitho kwimisebenzi yoomasipala ijolise kulawulo, kungonelanga kuqoqosho. Ngokumalunga nokumiselwa kolawulo olunzulu, ukugqithiselwa kwemali eyinkunzi kunye nokukhula kwabemi kubonisiwe njengezona zinto zinempembelelo ekumiseni iindleko zolawulo zoomasipala. Ngaphaya koko, iziphumo zabonisa ukuba okungakumbi kwimithombo eyengeniso kamasipala, kokukhona eyilawula ngcono imali yakhe. Iziphumo ezivela kwimodeli yesibini zibonise ukuba oomasipala abaninzi babenolawulo olunzulu. Ezi ziphumo ziyahambelana nohlalutyo oluqhubekayo kwimodeli yesithathu, ebonisa ukuba, ekuhambeni kwexesha, icandelo lolawulo lwemisebenzi kamasipala ligqithile kwinkcitho yokuhanjiswa kweenkonzo. Lo mkhwa kufuneka ubuyiselwe umva ufikelele kuqoqosho lwesikali. Iphepha lesithathu (Isahluko sesine) livavanya ifuthe lolawulo lwabasebenzi malunga nemali kamasipala. Oovimba bolwazi yayingamaxwebhu ohlahlo-lwabiwo mali apapashwa minyaka le ngoomasipala, iinkcukacha ezivela kubalo-manani loMzantsi Afrika kunye neengxelo zemali zonyaka eziphicothwe nguMphicothi zincwadi Jikelele woMzantsi Afrika. Uhlalutyo lufumanise ukuba kukho ukungqinelana okungundoqo kwinkqubo ngaphakathi kwenkqubela phambili yangoku yobume benkcitho kamasipala. Olona xinzelelo kuhlahlo-lwabiwo mali lujamelene noomasipala boMzantsi Afrika sisabelo esikhulayo senkcitho yabasebenzi Le nkcitho inyuke ngokuphawulekayo kule minyaka ili-12 idlulileyo, ngaphandle kokunyuka ngokulinganayo kwimveliso okanye kwinani labantu abaqeshwe koomasipala. Uphononongo lufumanise ukuba oku kunyuka kuphezulu kakhulu kunakwamanye amanqanaba karhulumente. Zinefuthe elibi kubuchule boomasipala bokulawula nokukhawulezisa ukuhanjiswa kweenkonzo. Inkcitho egqithileyo kubasebenzi ibachaphazele kakhulu oomasipala abancinci. Inkcitho enjalo ke iphambukisa oovimba kude neemfuno zokuhanjiswa kweenkonzo, ekwabangela ukungavisisani neenjongo zomgaqo-nkqubo zikamasipala. Le meko idale uxinzelelo lweendleko kuhlahlo-lwabiwo mali lukamasipala. Abanye oomasipala, ngakumbi abasemaphandleni, le ndleko igqithe enye inkcitho yokuhanjiswa kweenkonzo kangangokuba iye yasingela phantsi ukufikelelwa kunye nomgangatho weenkonzo ezinikezelwayo. Kukho, ke, kukho imfuneko yokuba urhulumente wengingqi anciphise ukunyuka kwembuyekezo yabasebenzi. Iphepha lesine (Isahluko sesihlanu) livavanya ukusebenza kakuhle koomasipala bezithili ababonelela ngeenkonzo zamanzi nococeko. LiIhlalutya inkcitho kunye neziphumo ezibangelwe yile misebenzi, kusetyenziswa ubuchule bohlaziyo lwe DEA njengoko isetyenzisiwe kwi cross-sectional data ka-2015-2016. Isampulu ibandakanya oomasipala abanoxanduva lokujongana neenkonzo eziphakamileyo ezili-19 ngamanzi nangezococeko. Phakathi koomasipala abali-19, abali-12 bafunyaniswe bengasebenzi kakuhle kwaye bachitha inkcitho ephezulu yenkcitho yabo kulawulo lukamasipala. Ngaphaya koko, kusetyenziswa i instrumental variable approach, olu phononongo luvavanye ukumisela okwahlukileyo kokusebenza kwamanzi kunye nococeko. Aba baqhubi bachongwa njengokuzimela kwezemali, ixabiso leeasethi kunye nenani lamakhaya kulawulo lukamasipala ngamnye. Umceli mngeni kukuba oomasipala sele bechitha imali eninzi kakhulu kunendlela abamele ngayo kwiindleko zolawulo ukugcina izinto ezinkulu zolawulo, zithintela ukunikezelwa kweenkonzo nenkcitho yotyalo-mali. Le meko yenza ukuba aba masipala bangazinzisi ngokwasezimalini ngokuhamba kwexesha, njengoko isiseko seasethi sixhomekeke kakhulu kwizibonelelo kwaye iindlela zabo zolawulo lweeaseti zingaphantsi kwenqanaba elifunekayo. Ukuba oomasipala abanoxanduva oluphezulu lwenkonzo ukuze babe nokuqhuba kakuhle nokuzinzileyo, urhulumente wengingqi kufuneka enze oku kulandelayo: ukudala umlinganiso wokonga iindleko, ukuhambisa izixhobo kwiinkonzo zangaphambili kunye nokukhuthaza ukuphuculwa kolawulo lokuzinza kwexesha elide kwezemali zikarhulumente.
Thesis (PhD)--Stellenbosch University, 2022.
Finance, Public -- South Africa, Economic stabilization -- South Africa, Local government -- South Africa, Government accountability -- South Africa, UCTD