Structural, financial deficiencies in metros actively restricting economic growth – City Risk Monitor

Structural, financial deficiencies in metros actively restricting economic growth – City Risk Monitor
South Africa's major municipalities are facing severe financial pressure, driven by an inability to manage debt, crumbling infrastructure, and a crippling lack of long-term administrative planning.
This is according to Independent Consultancy, the Paternoster Group's City Risk Monitor, which recently assessed nine of South Africa's ten major municipalities – including the eight metropolitan metros alongside Polokwane and Mbombela.
Speaking to Polity.org, Paternoster Group founding partner Lawson Naidoo warned that structural and financial deficiencies are actively restricting economic growth and weakening investor confidence.
The model evaluated four critical risk areas: financial sustainability; infrastructure and services; the development environment; and political/institutional risk.
The findings show that the core infrastructure that residents and businesses depend on is failing.
Naidoo pointed out that the financial health of the country's local government structure has been on a downward trajectory for years, a reality repeatedly mirrored in the Auditor-General's reports.
Naidoo highlighted alarming statistics from the 2024/25 fiscal year, which indicated that only 35% of municipalities were classified as being in good financial health and that more than 50% lacked sufficient current assets to cover short-term liabilities.
Also 72% suffered from inadequate cash flow to pay creditors on time.
He explained that this fiscal collapse is heavily exacerbated by a combination of physical and financial distribution losses.
Naidoo highlighted that municipalities are currently losing massive amounts of water and electricity owing to zero maintenance and illegal connections.
"Only about half the water that a municipality uses is billed," Naidoo explained.
Instead of investing in fundamental infrastructure upgrades to meet National Treasury norms, municipalities are bleeding cash into emergency, short-term stopgaps – such as hiring expensive water tankers – rather than fixing underlying pipe leakages and grid issues.
Naidoo said for the private sector, the municipal decay translates directly into an increased cost of doing business.
Escalating rates and tariffs are paired with extensive bureaucratic delays in approving building plans and issuing necessary regulatory permits.
Furthermore, safety and security deficits continue to erode business confidence. Naidoo emphasised that long-term investment relies heavily on stability.
"Businesses want to invest in places where there is certainty about the future direction of a municipal government and a municipal administration," he noted.
He explained that a foundational flaw in the current local government framework is the uniform distribution of power.
The Constitution allocates the exact same significant powers and responsibilities to all municipalities across the country, entirely disregarding their actual size, local revenue base, or administrative capacity to perform complex duties.
Naidoo said this structural mismatch is further aggravated by localised political instability. The rise of volatile coalition governments across key metros has triggered a dangerous shift toward consumption spending – such as bloating staff costs – to satisfy short-term political promises, he explained.
"When political leadership is not stable, we tend to see short-term spending prioritised over long-term investments," Naidoo stated.
Ultimately, he said it is not a lack of financial resources, but a severe deficit in administrative capacity, planning, and political willpower that keeps South Africa's largest economic hubs anchored in a state of rolling crisis.