A Financial Sustainability Model for the South African Local Government

Local government financial sustainability leverages a local municipality’s capabilities to conceptualize and implement an array of its developmental programmes. This thesis evaluates the state of the initiatives for bolstering financial sustainability in the increasingly complex contemporary South African local government sphere. The motive of the study was to identify major paradoxes and a local government financial sustainability model that could be extracted and suggested for mitigating such constraints. Using a meta-synthesis as a principal technique in content analysis, findings revealed that major determinants of local government financial sustainability are often linked to the application of the four-step’s processes in strategic cyclical financial sustainability framework and three foundational constructs for financial sustainability management. The four-step’s processes in strategic cyclical financial sustainability framework were found to aid environmental analysis, identification of the sources of revenues and revenue generation, managing the utilization of the generated revenues and monitoring and evaluation. As it emerged from the findings, these positive effects of strategic cyclical financial sustainability framework are often illuminated by three foundational constructs for financial sustainability that leverage financial risk management, governance and leadership. However, in lieu of the application of relevant mitigating strategies, it also emerged from the analysis of the findings that initiatives that bolster financial sustainability may still be constrained by poor analysis and identification of the level of financial sustainability maturity. Other paradoxes were found to be linked to lack of suitable government financing models, poor strategic financial planning and budgeting as well as lack of effective models for managing equity. However, even in the midst of such paradoxes, findings still indicated that the concept of financial sustainability is a notion which is increasingly being emphasized by the South African local government sphere. To leverage municipal financial sustainability, most municipalities were found to use financial sustainability models and methods such as central financial grant system, SALGA’s model for financial sustainability, investment in revenue-generating activities and managing municipal operational efficiency as a driver of cost 4 | P a g e minimisation. However, despite such significant strides, findings still revealed that even with various socio-economic initiatives undertaken to leverage financial sustainability of the South African local government, the state of financial sustainability in the South African local government sphere seems to be at risk as viewed from such issues as compliance, systematic and strategic levels. As it emerged from the findings, this is attributable to the fact that most initiatives for improving financial sustainability in the South African local government are often still constrained by inadequate municipal capacity, limited income-generating activities, deficient local government procurement system and poor leadership and governance. Such findings seem consonant with theoretical findings that signified the major paradoxes of financial sustainability in the contemporary public sector organisations are often associated with poor analysis and identification of the level of financial sustainability maturity, lack of suitable government financing models, poor strategic financial planning and budgeting and lack of effective models for managing equity. Drawing from these findings, it is argued it is critical that the Department of Local Government adopts and applies the local government financial sustainability model akin to the conceptual model suggested in Figure 1. The application of such a model would require integration and use of the four main pillars (strategic financial planning, income diversification, sound financial administration and management, and own income generation) for local government financial sustainability, three foundational constructs (financial risk management, financial governance and financial ethical leadership) for local government financial sustainability, and three foundational nonfinancial constructs (political stability, fiscal and economic stability, forecasting and sensing to mitigate the devastating negative effects of natural calamities and disaster) for local government financial sustainability. It was further argued that all these must be accompanied by measurement of the overall maturity of the financial sustainability of the local municipality using four perspectives (liquidity, resilience, service and fiscal responsibility and public confidence) of local government financial sustainability in conjunction with the five spectrums (at risk, compliance-based, incremental, strategic and systematic) of local government financial sustainability