The financial analysis of local government institutions in the North West Province : the case of the Mafikeng local municipality

Abstract

This study was on the financial analysis of local government institutions in the North-West Province with specific reference to the Mafikeng Local Municipality. The literature study on this study revealed that there is presently a dearth of research work on local government financial analysis in South Africa. Most of the literature found on the subject was from the United States of America and the World Bank Institute of Local Governance. The available research work and literature referred to financial analysis as a financial tool with which municipalities can measure their ability to meet their financial and service delivery obligations in the short, medium and long term. . A local government that is in a good financial condition was defined as the one that can sustain existing delivery levels of services to the public, withstand economic slumps and meet the demands of the changing service needs. Revenues of such a local government should be sufficient to meet short-term expenditure commitments as well as finance major capital expenditures and long-term costs. The study used a descriptive case study design, and data collected from Statistics South Africa and Mafikeng Local Municipality were analysed within the framework of the Financial Trend Monitoring System as established by the International County/City Management Association (ICMA) in the United States of America. The analysis of the economic data revealed that the Mafikeng Local Municipality's economic base, which is predominately public-sector- dependent, is steadily shrinking and thereby losing businesses (creating more unemployment) and narrowing the property tax base. The Mafikeng Local Municipality is also realising a huge and increasing volume of service debtors - Mafikeng residents collectively defaulted on over R65 million of their municipal accounts in 2001. Compounded with the shrinking property market (consequently resulting in less property revenues) and the unwillingness of the locals to pay for services rendered, the exodus of businesses from Mafikeng is threatening the economic base from which the municipality should tap its revenues to defray/liquidate its expenditure needs without incurring any further budgetary deficits.

The analysis of the financial data revealed that above all accounts Mafikeng Local Municipality is still liquid and its financial condition is presently not endangered, but its economic base reflects seeds of possible financial crisis in the near future. It is, therefore, recommended that the municipality put into place a thoroughgoing and effective billing and debt collection strategy and revoke legislative provisions available to it to recover delinquent revenues to enhance its liquidity (cash position). Moreover, the Municipal Council should as a matter of urgency protect the local economy by expediting a vigorous Local Economic Development Plan (LEDP) as part of its Integrated Development Plan (IDP) to attract correct businesses to the area and add value to the local economy by way of creating new job and enterprise opportunities.