Glass Ceiling: What Impact does Municipal Performance have on SMME Growth?

Municipalities play an integral role in the cohesion of communities, the growth of local economies, and ultimately, the forward trajectory of South Africa. The unfortunate reality, however, is that many serve as an obstacle to growth.
Published 25 April 2024

Municipalities play an integral role in the cohesion of communities, the growth of local economies, and ultimately, the forward trajectory of South Africa. Across South Africa there exist 257 municipalities, each varying in shape and size to reflect the country’s diverse nature. Of these, there are 205 local municipalities which are responsible for providing their communities with basic services—be it water, electricity, roads, and sewerage—, all of which are necessary for citizens and businesses to thrive.

The Consolidated General Report on Local Government Audit Outcomes MFMA 2021/22 which is published by the Auditor-General of South Africa (AG) and measures the quality of auditees’ financial statements, performance reports, and the status of their compliance with key legislation, reveals that of the country’s 166 audited local municipalities, only 18 (11%) received the best possible audit outcome while 12 (7%) were given the worst possible audit outcome. Between these two extremes were the remaining 136 local municipalities: A further 69 received audits which were unqualified with findings, 51 which were qualified with findings, and three which were adverse with findings. A total of 13 local municipalities received outstanding audits, meaning they had failed to submit their audits within an adequate timeframe.

In her latest report, the AG stressed how local governments across South Africa face “greater demands than ever before to regain the trust of South Africans,” principally through the provision of basic services such as clean water, sanitation, electricity, waste management, and key infrastructure including roads. This, she added, needed to be done in a manner which was both “prompt and financially responsible.” Her remarks come at a time when many local municipalities continue to fall short across the key pillars of governance, financial management, and service delivery. This is because they are either unable or unwilling to do so.

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Bad governance, financial mismanagement, and poor service delivery all have a negative and cascading effect on residents and business alike. Indeed, several of South Africa’s largest companies have reported difficulties associated with operating in municipalities where each of the above are left wanting. Many of these companies have had to invest millions of Rands in systems to offset these challenges while in some instances they have relocated their operations to other parts of the country in search of improved municipalities and operating conditions. But what about the millions of small, micro, and medium enterprises (SMME) scattered across South Africa – how are they affected by municipal performance?

According to survey data collected by The Brenthurst Foundation, SMMEs operating in the country’s top performing local municipalities (as audited by the AG) perceive governance, financial management, and service delivery to be better than their counterparts operating in the country’s worst performing municipalities. As such, fewer SMMEs in top performing municipalities are likely to lose money as a direct result of their municipality’s performance, which in turn sees them spending less money on systems and measures to support their operations. In fact, SMMEs operating in the country’s worst performing municipalities can spend up to twice as much as on such systems compared with those operating in top performing municipalities.

If South Africa is to unlock the growth of its SMME community, then it is vital that greater focus is placed on local government performance considering the unnecessary burden poor performance can have on a business.

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