October 27, 2021

How many investors actually outperform?

Institute of Directors South Africa (IoDSA)

The upcoming local government elections are unquestionably one of the most important in South Africa’s recent democratic history and the Institute of Directors South Africa (IoDSA) joins a widespread call to urge voters to turn out in their numbers.

The Institute’s CEO Parmi Natesan says, “There is sufficient evidence to suggest that many municipalities in South Africa are either failing or close to a state of complete collapse. Poor service delivery has a direct impact on jobs and sustained growth and its only through the ballot box that people can make their dissatisfaction heard and to effect change where necessary.” From a governance perspective, the voters are, after all, key stakeholders in these entities and thus need to hold the leadership to account.

According to the office of the Auditor General, less than 40 of the country’s 278 municipalities are said to be on a sound financial footing and should this trendline continue the risk to investment will continue unabated as well as putting increasing strain on the national fiscus as well as South Africa’s sovereign risk.

Fay Mukaddam, a governance specialist with the IoDSA notes, “There is no doubt that the country has reached another growth and development crossroads and failure to get local government moving in the right direction will have negative consequences for years to come. And it’s at this level where the crisis is most pronounced. If a municipality is unable to effectively offer the most basic of services, there is an immediate negative sentiment created and this has rapid knock-on effect on the creation of new jobs.”

A case in point says the IoDSA was the recent case of dairy company Clover’s decision to relocate its cheese factory from the town of Lichtenburg in the Ditsobotla Municipality due to poor service delivery for number of years. Over 400 – permanent and temporary - jobs were lost which could have been saved had there been more attention focussed on basic issues like garbage disposal and road maintenance.

The Institute says for business to remain focussed and competitive; it must have a constant symbiotic and trusting relationship with local government and part of the compact is making sure a sustainable operating environment is delivered all year round.

Mukaddam says while the Clover example was a high-profile and well documented issue, there are many other businesses in South Africa that are experiencing similar frustrations and that the November 1 election can be a time for businesses to send a clear and unambiguous message to failing municipalities that they have run out of runway.

The IoDSA says it also acknowledges that poor service delivery and inefficient municipalities cannot be an overnight fix and that current problems are in many cases historical. Part of the dilemma according to the Bureau for Economic Research at Stellenbosch University lies with mangers and staff who often lack technical insight; and in the way that tender specifications are drawn up. An additional problem is that many smaller and poorer municipalities do not have a proper tax base.

Natesan concludes, “We acknowledge these are deep-rooted problems which result daily in poor management of operational budgets; a failure in many cases to spend capital budgets as well as wasteful and irregular expenditure. And while change might occur at the political level, that doesn’t mean that problems like this will disappear immediately. There is also a vital need for functional and effective change at the governance and administrative level but that the November 1 poll is the starting point.”

Insurance technology with a difference.

Say goodbye to complex legacy technology, and hello to a different kind of software solution.

Book a demo