FOR decades, certainly during the 1990s and early 2000s, Durban was held up as an example of rock-solid municipal governance. It was regarded as the country’s only “debt-free” city, a status it boasted as recently as 2006.
Drawing of massive loans for infrastructure projects was infrequent, and the city’s credit rating was sky high.
But things have changed.
The findings of the Manase and Associates forensic investigation into the financial affairs of the eThekwini Municipality – coupled with consecutive damning reports from the auditor-general’s office – make for scary reading.
They paint a picture of growing irregular expenditure, flouting of the city’s tender procedures and a severe lack of financial controls, all while leaving ratepayers with lingering questions over the city’s top officials’ capabilities.
Many are now asking: what went wrong in the city once widely revered as the best-run in Africa?
For former city councillor Peter Mansfield, problems started setting in with increased political involvement by the ANC’s headquarters, Luthuli House in Joburg, and the provincial office in Pietermaritzburg.
“I get the impression that people with political clout have been influencing some decisions of the council. I get the feeling that there has been outside interference in decision-making, which was probably to the benefit of those who were interfering,” he said.
Mansfield – who was with the city from 1978 until 1995, serving on the management committee, the equivalent of the current Executive Committee, from 1991 – said senior officials were put in a tough spot when political pressure was brought to bear.
This is even more the case given that key positions, including that of the mayor and municipal manager, are political appointments.
Tex Collins, current DA caucus leader, agrees.
Collins, who has been a councillor since 1996, said the political interference from upper echelons of the ruling party – from influencing decisions to the appointment of staff – had a dramatic, negative impact on the city.
“It all started going pear-shaped in about 2006 (when) the affairs of the city became too politicised,” he said.
He makes specific reference to former ANC regional chairman John Mchunu, who died in 2010 and was known to have a good relationship with former municipal manager Michael Sutcliffe.
“Those two ran the council, whether the ANC councillors here want to admit it or not. This is when it started to go downhill. And it’s continued to go downhill – and now we have to pull it back,” he said.
Collins said the appointments of Sutcliffe and some of his deputy city managers, specifically procurement and infrastructure boss Derek Naidoo, were examples of the appointment of “political animals” in administrative positions.
“It’s all about political power – nothing more and nothing less. If we can remove that political influence, which is so misguided and partisan, then we have a chance. If we stay on the course we’re on, then we’re going to be in trouble,” Collins said.
But politics clearly isn’t the only influencing factor – at least not according to former mayor Margaret Winter. For her, the fundamental and seismic shift in the size and nature of the municipality has steered the city in its current direction.
“The Durban municipality was dramatically smaller than it is now. You can’t move away from that fact,” said Winter, who left the city in 2000 after 20 years’ service.
“Durban’s a different animal now. Totally different.”
With the rise of the unicity came more people to take services to, including those who previously had no services at all. Money was poured into rural areas for bulk infrastructure, which came at a cost to the eThekwini council. Winter suggested the size of the city could also have led to it being more difficult to manage and tougher to have financial controls in place.
Money was needed to fund these projects; money that Durban used to have readily available in the form of the Capital Development Fund. Winter holds this fund up as one of the reasons the pre-2000 administration was able to function so well, as does Durban-based economist Glen Robbins. Durban’s formerly extensive property portfolio was also a massive factor.
“Durban was quite unique under apartheid in that it put aside revenue into a development fund. And while it did still borrow money, it used the balance of this fund to leverage better-than-normal borrowing rates,” Robbins said, adding that it was able to, essentially, borrow from itself, and give itself a good interest rate.
“At one stage, the fund had about R2 billion in it. So it certainly was a substantial amount. It gave Durban financial security,” he said.
Because of this fund, Durban had more money available than it had borrowed, essentially making it debt-free.
Mansfield said the fund was part of Durban’s long-term planning.
“We were busy saving for a rainy day… but the current administration was spending in the sunshine. I get the impression that the Capital Development Fund is now completely depleted,” he lamented.
Technically, the fund hasn’t been depleted, says municipal treasurer Krish Kumar. Instead, in 2004 a new system of municipal finance, the General Accepted Accounting Principles, was introduced. As a result, fund accounting was phased out and absorbed into the city’s cash reserves. At the end of 2011, Kumar said, the city had R3.9bn in its cash reserves, a total of 89 days’ cash on hand.
Kumar also disputed that the city was debt free, saying that this was a “misnomer”.
“All it means is that the municipality has sufficient investments to liquidate its debt. We currently have debt of about R11bn and cash reserves of R3.9bn. Accordingly, net debt is R7.1bn. The issue of debt must be linked to service delivery and addressing the backlogs we inherited. More than 90 percent of the borrowings were used to fund basic service delivery projects, such as water, electricity, roads, sewerage and refuse,” he said.
Kumar added that the incorporation of other councils into the metro resulted in “huge development backlogs” which created “a major strain on the municipality”.
What is clear from the auditor-general and Manase report findings is that financial controls have slipped in the council.
Irregular expenditure had climbed from R580m to R1.3bn from the 2009/10 to 2010/11 financial years, while the auditor-general has been critical of the ongoing and excessive use of Section 36 of the city’s Supply Chain Management policy, which allows for a breach of regular tender processes under certain circumstances.
One of the biggest gripes of politicians in the city, including Finance and Procurement Committee chairwoman Fawzia Peer, is that Section 36 tenders are brought to politicians’ attention after the fact, when the money has already been spent.
Winter said this would never have happened during her time, and urged the council to go back to the way it used to work.
“Any deviation from the tender process, Section 36 or whatever, would never have happened before it was presented to the Executive Committee. In my time, every deviation was discussed and dissected at Exco and whatever decision was taken was always done in the interest of the project under question. Exco knew, exactly and in detail, every proposed deviation. I’m not sure to what extent that happens now,” she said.
It is clear that there have been some serious flaws in the city’s financial processes but, despite these, many still believe Durban is a well-run city. Kevin Allan, the managing director of municipal rating agency Municipal IQ, is one of those people.
“In spite of some speculation about eThekwini’s performance dropping, we find that this metro scores consistently well on our performance indices – these are objective, quantifiable measures of performance – and, generally speaking, this current crisis aside, we see no drop in performance over the past few years.
“This is no small thing considering the impact of the recession and a drop in revenue in many other municipalities,” he said.
Allan did express concern about the findings of the Manase report, but said the disciplinary processes should be allowed to take their course before any snap judgements were made.
Robbins agrees with him, saying that Durban hasn’t stumbled from one crisis to the next like Tshwane (Pretoria) and had not had a crisis as big as the billing saga that recently hit Joburg.
“The city still performs really well in relation to other cities. Are there things we could be doing better? Yes, there is always more that needs to be done, but the city holds its own in the South African context,” he said.
Kumar believes that, despite the tough economic times, the city has maintained a “strong financial position”.
“We have had the highest collection rate in the country for the past couple of years, with an overall collection rate of 100 percent in the 2010/11 year.
“Compared with the other metros, the eThekwini Municipality is in a sound financial position.
“The two main indicators of the health of a municipality are its audit report and credit rating, which are both assessed externally and independently. In this regard, the municipality has a proud history of always receiving an unqualified audit report and has maintained the highest credit rating in the municipal sector,” he said.
As Winter thinks about where the city is now, she says she is concerned, but not devastated.
“Yes, there is lots that’s gone wrong, but we’re not another Limpopo – nowhere near that. I’m glad these reports are out, and we have opportunities to plug those holes. They need to tighten up the rules, take the reports seriously and get it right. And I think they can get it right,” she said.