George is the second largest city in the Western Cape (after Cape Town) and is generally considered one of the most beautiful spots in the country.
Accounting Weekly spoke to Leon van Wyk, the mayor of George, as part of Saiba’s national roadshow to connect accountants, SMEs and local government across the country.
Nicolaas van Wyk, the CEO of Saiba, explains the motivation behind the national roadshow: “We decided to organise a national roadshow to show our support to local government. We represent 9,000 members and designation holders and we all have agreed to provide volunteer work to assist SMEs struggling to get back to their feet post-lockdown. We believe that if we work and support municipalities by improving their accounting systems and, at the same time, connect government, business and accountants, we can get our economy back on track. We invite all accountants, business leaders and mayors to join us in making SMEs profitable again so we can reduce unemployment and increase wealth.”
The question we put to Mayor van Wyk is how can accountants assist local government in uplifting their areas.
“A key feature for municipalities is financial and economic sustainability – many people don’t understand how municipalities work. Accountants are definitely needed to assist local government ensure that revenue exceeds expenditure.
“Our revenue comes from core services such as sewage, water, electricity, and refuse removal. Some 62% of our revenue comes from core services and another 11% from licences, agency fees (drivers’ licences), rental of property, sale of land, traffic fines and capital contributions – this is also known as development charges. When you buy property and erect buildings, you need to make contributions to access water, sewage and electricity,” says Mayor Leon van Wyk.
Grants from national and provincial government make up 27% of George’s municipal revenue. This percentage is a function of the number of indigent people living within the municipal borders. Though George is the second biggest city in the Western Cape, the Mother City has a property valuation base 26 times the size of George, and a budget that is 18 times larger than that of George.
George has a more dispersed water network than that of Cape Town, which adds to the costs of services.
“We have an operating budget about R2.5 billion, with R368 million capital expenditure on top of that. Our capital is pretty stretched, given the need to expand our sewage and water works due to population growth in the area. New subsidised housing units are constantly being added to our area, and that is funded out of the national fiscus, but it is up to us to provide services to these houses,” adds van Wyk.
“Over the next three years, we have to fund R1 billion for water and sewage capacity we must provide, and we will have to do this through a combination of loans, grants and our own generated funds.”
In addition to this, local government employee costs have gone up higher than inflation and the private sector, and now account for 26% of all spending. This places pressure on maintenance and refurbishment of municipal assets, making it more difficult to replace pipes, pumps and other equipment.
While these costs mount up, it is not feasible to simply lump this bill on ratepayers. Other means of funding have to be tapped.
George’s revenue collection stood at 95-96% of the invoiced amount pre-Covid, but then got knocked back to 87-88% during Covid. It is now back to 92%, which is slightly shy of where it needs to be (95% is the target set by National Treasury). That shortfall amounts to R60 million on an annual basis.
A good portion of the George economy is tourism-related, and the Christmas shutdown of beaches and businesses in the area had a devastating impact on SMEs along the Garden Route coast. Conditions have since improved, and there is pent-up demand for local travel among many South Africans frustrated with being in isolation for so many months.
“Business needs to act smarter and change their business models,” says van Wyk. “SMEs are struggling along the coast here. During the December holidays, beaches were closed and so many businesses did not get their normal seasonal boost in terms of revenue. Many of them do 25-35% of their annual turnover during this period, so the closure of beaches over Christmas was devastating for them.”
Van Wyk urges businesses (including accounting practices) to register as suppliers for local governments such as George and get to understand how municipalities generate revenue.
“We need accountants who understand how municipalities operate from a financial point of view, and also how businesses operate. There is so much that accountants can do in this area to boost small business activity and help revive the local economy. There are many small businesses in this area that could become suppliers to the municipality, but they lack the professionalism required, and this is where accountants can step in.”
Reporting service faults
Van Wyk adds that the involvement of the community is essential in maintaining quality of service delivery, particularly when it comes to reporting faults such as water leaks and potholes.
All municipalities face several challenges in the years ahead: revenue will be under pressure as costs continue to rise, and one of the biggest sources of municipal revenue – bulk sales of water and electricity – will be curtailed as more people and businesses move from Eskom as a supplier of electricity to renewables.
The biggest source of write-offs for municipalities comes from overdue water accounts, particularly in those areas where there are high concentrations of poor people. Van Wyk says one solution being used by some cities is the use of water meters that can restrict usage to the six-10,5 kilolitres allowed per month by government (currently, the meters cannot restrict water flow, but can meter usage) – this being a tough decision to have to make.
“Data analytics is the new science we are moving into. We need the ability to analyse how much water is being used in a particular suburb, how much customers are using, what is the electricity usage at the customer level, and we need to break this down to a highly granular level of information,” says van Wyk.
Accountants, get yourself registered on the municipal supply chain system
“We always looking for providers who can tender competitively. We want them to register on our database so we can use their services for internal audits, to serve on our audit committees, disciplinary boards, and provide other professional services.”
George also has need for service providers in areas such as plumbing and electrical services – many accountants provide accounting and bookkeeping services to these contractors, and could assist them in registered with the municipality as suppliers.
“One area that constantly concerns me is how to make facilities available within townships or areas that may not have easy access to CBD areas where most business activity happens. For example, entrepreneurs who want to set up a cell phone store or hairdressing salon, or repair centres.”
Like many other parts of the country, illegal dumping has become a big issue in George. George was recently approached by a private company, Kathaka RAW Enterprises, which offered, as part of their social responsibility programme, to build some skips to collect recyclable garbage. The company asked the municipality for permission to place these skips at strategic locations to encourage recycling. They are passing the proceeds of that back to community members who help them collect.
Despite the weak economic conditions, opportunities abound in the area, says van Wyk. “We had some people approach us looking for career opportunities and I suggested they train as tour guides to take people on walks or cycle tours. There’s a business opportunity there. Others took this up and made a business for themselves. Accountants can use their leverage with clients and businesses to point them in the right direction to get skills upliftment, to get registered as suppliers with the municipality – if their clients are doing well, then accountants will also do well.”