These include financial mismanagement and corruption, weak revenue collection, rising personnel costs, unfunded mandates, increasing levels of indigence, and growing pressure on municipalities with weak local economies. The Draft White Paper also correctly recognises that national and provincial failures in monitoring, intervening, and supporting municipalities have contributed to the problem, particularly where politicisation has undermined remedial action and accountability processes.

Many of the proposed policy shifts contained in Chapter 8 are sensible and necessary. These include differentiating between municipalities, improving revenue collection, adjusting the grant system, improving spending efficiency, strengthening monitoring and intervention systems, addressing unfunded mandates through a “finance follows function” approach, and improving access to borrowing and private investment. However, discussions on municipal finance should perhaps also be approached through a broader sustainability lens. At its most basic level, financial viability requires two things: increasing sustainable revenue and reducing unnecessary or inefficient expenditure. While this may appear simplistic, these realities are often obscured by highly technical governance and compliance discussions.

One of the most significant long-term threats to municipal financial sustainability is the erosion of local revenue bases. Many municipalities serve communities characterised by high unemployment, poverty, and increasing reliance on indigent support. In these contexts, municipalities may struggle to generate sufficient revenue regardless of how efficient their billing or debt-collection systems become. Evidence from the Northern Cape Provincial Inquiry illustrates this challenge clearly. In some municipalities, revenue collection rates fluctuate at extremely low levels, with collection rates in municipalities such as !Kheis reportedly ranging between approximately 20% and 25%. To respond to such situations the Draft White Paper proposes measures to improve revenue collection such as using prepaid meters and investigating mechanisms that will allow municipalities to use electricity as a credit control measure in Eskom-served areas. Municipal financial sustainability therefore cannot be separated entirely from the broader economic health of local communities.

Municipalities do not control macroeconomic conditions or national employment levels. However, stable governance, reliable infrastructure, and effective service delivery may contribute toward creating conditions that support investment and local economic activity. Investors are unlikely to commit resources to municipalities characterised by collapsing infrastructure, unreliable services, governance instability, or persistent corruption. In this respect, service delivery itself may become an important economic intervention capable of supporting longer-term revenue sustainability.

At present, however, many municipalities face deteriorating infrastructure conditions that discourage investment and economic activity. In some contexts, alternative approaches such as public-private partnerships, City Improvement Districts (CIDs), or collaborative local investment models may therefore warrant greater consideration. CIDs are area-based partnerships in which property owners within a defined geographic area collectively contribute additional funding toward services aimed at improving the local environment and supporting economic activity. These funds are typically used to supplement municipal services through initiatives such as enhanced security, cleaning, infrastructure maintenance, urban management, and place-making efforts intended to attract investment and improve local economic stability. While not without challenges, such approaches may assist municipalities in stabilising local economic environments, particularly where municipalities alone lack sufficient financial or institutional capacity to drive large-scale recovery and renewal efforts.

The relationship between service delivery failure and economic decline can already be seen in practice. In Lekwa Local Municipality, for example, prolonged failures relating to water provision, electricity supply, deteriorating infrastructure, and broader governance instability contributed to severe pressure on local businesses and economic activity. Businesses reportedly incurred substantial additional costs through reliance on generators and alternative service arrangements, while some industries and operations became increasingly difficult to sustain. Similar concerns were raised elsewhere when companies such as Clover announced the closure or relocation of operations linked to persistent municipal service delivery failures. These examples illustrate how governance and infrastructure failures may directly undermine local economic activity, employment, investor confidence, and ultimately the municipal revenue base itself.

At the same time, greater attention should also be given to the structural drivers of municipal expenditure. Discussions on municipal finance often focus on corruption and wasteful expenditure, which are indeed serious concerns. However, municipalities also operate within increasingly expensive compliance and administrative environments. Complex procurement systems, reporting obligations, financial management frameworks, and digital compliance requirements may impose significant financial burdens, particularly on smaller or under-capacitated municipalities.

The implementation of systems such as mSCOA illustrates some of these challenges. While such reforms may improve standardisation and oversight in important respects, municipalities frequently become heavily dependent on expensive consultants, software providers, and technical support services in order to remain compliant. Evidence before the South African Human Rights Commission similarly reflected extensive reliance on external consultants and technical support for financial management and information systems, including expenditure amounting to approximately R33 million in Ga-Segonyana Local Municipality and approximately R8.5 million in Kai !Garib Local Municipality.

This raises an important question regarding whether greater use could be made of shared public digital infrastructure, state-supported software systems, or coordinated skills-transfer programmes to reduce long-term dependency and expenditure. Compliance systems intended to strengthen governance should not inadvertently deepen fiscal distress or institutional dependency, particularly within already under-capacitated municipalities.

Similarly, municipalities frequently rely on expensive stop-gap measures to address urgent service-delivery failures. Water tankering provides an important example. Evidence before the South African Human Rights Commission revealed that average annual expenditure on yellow fleet rentals over a three-year period amounted to approximately R15.6 million in Kai !Garib Local Municipality, R14.4 million in Gamagara Local Municipality, and R7.2 million in Emthanjeni Local Municipality.

While tankering may be necessary during emergencies, prolonged reliance on temporary measures may ultimately prove more expensive and less sustainable than long-term infrastructure investment and maintenance. Municipal financial distress may therefore become self-reinforcing, with crisis spending crowding out sustainable investment. The persistence of such expenditure over multiple years suggests that temporary emergency responses may, in some cases, become normalised features of municipal expenditure rather than transitional measures.

The Draft White Paper correctly recognises the need for greater national and provincial support to municipalities. However, support may not always need to take the form of direct financial transfers into municipal accounts, particularly in severely distressed or high-risk governance environments. In some instances, more targeted forms of support may prove more effective and sustainable. For example, the national government could consider directly funding or administering certain shared systems, obligations, or institutional costs. This could include software infrastructure, audit-related systems, SALGA membership costs, or coordinated technical support. In doing so it relieves financial pressure on municipalities while reducing opportunities for misuse of funds.

Ultimately, municipal financial sustainability cannot be achieved through compliance measures, monitoring systems, or fiscal controls alone. These mechanisms remain important. However, long-term sustainability also depends on the broader economic, institutional, and operational realities within which municipalities function. Sustainable reform therefore requires not only stronger accountability systems, but also practical consideration of how municipalities generate revenue, manage expenditure, and maintain functional governance systems over time.

By Johandri Wright