Local and international investors have been warned by South African Association of Landowners (Sapoa) CEO Neil Gopal to take a close look at where they are investing in the country following damning report of audit findings Municipal Auditor General (AG) Tsakani Maluleke 2019/2020 in Parliament last week.
The report highlights R5.5 billion of unrecorded spending in the worst-managed municipalities and R26 billion of irregular spending in municipalities across the country.
âInvestors should read the GA report and then think very carefully about any new development or investment they intend to make in South Africa, especially investments in a dysfunctional municipality,â Gopal told Moneyweb.
“If you, as an investor, have no control over your annual property price bill or your water and electricity bill, if you do not have a water and electricity guarantee [supply], or you have intermittent or no service delivery, where exactly is the value proposition? ” he asks.
âThe increasing rate of collapses of local municipalities around South Africa will make the Eskom crisis fairly straightforward,â said Gopal.
âThe recent experiences of Clover and JSE-listed Astral Foods in closing and / or relocating their businesses [in North Westâs Ditsobotla and Mpumalangaâs Lekwa local municipalities] resulting from municipal failures are symptomatic of problems related to unauthorized, irregular, fruitful and unnecessary spending, in addition to fraud and corruption within municipalities, âhe adds.
Gopal notes that the latest report from the GA as well as the National Treasury (on third quarter local government revenue and expenditure for fiscal year 2020/21) highlights concerns about these financial practices in southern municipalities. African.
âPut simply, the so-called ‘financial distress’ in most municipalities is largely the result of large-scale looting and corruption,â he says.
âWe are approaching a situation where there is basically no more value proposition or investment.
âThe landscape is a landscape where your expenses exceed your income, where you pay taxes but cannot have access to water and electricity, where your annual property rates increase inflation by far, where you have to spending millions on generators and reservoirs no supply or intermittent supply of water and electricity, âsays Gopal.
With only 10.5% of the country’s 257 municipalities receiving clean audits, he says it is evident that the municipalities’ financial situation is dire, with a widespread lack of accountability among officials.
“The GA’s revelation that no one can justify R5.5 billion in the country’s worst-run municipality is a clear indication that the roots of corruption run deep, especially as some municipalities do not. not submit financial data for audit, leaving a void flag, âhe notes.
âMost worrying is that chaos in these municipalities is seeping exponentially into the pockets of already strained homeowners. [who] should empty their bank accounts to keep municipalities afloat through unjustifiable rate hikes in property rates, water, garbage removal and electricity, among others.
Gopal highlights the latest tariff increases in the city of Joburg, such as the 14.59% increase in electricity.
âThis is far above the acceptable, especially in the current economic climateâ¦ However, with perplexity, the city’s municipal finance councilor, Jolidee Matonga, expressed [the] The factors taken into account in deciding tariff increases were the country’s economy and the impact of the pandemic, âhe said.
âIt is wrong to expect landowners to bear the burden of fixing municipal budget shortages spurred by corrupt activities and mismanagement.
“The escalating tariffs, which are supposed to be reduced with the new general valuation rolls but are not, are now unsustainable, and businesses are closing as owners’ expenses start to exceed their income.”
Listen to Suren Naidoo’s recent interview with Gopal on The Property Pod: