By: Noxolo Majavu
Most SMMEs in poor-performing municipal areas bear the brunt of dysfunctional services because it negatively impacts the revenue the small businesses generate. Findings from a discussion paper published by the Brenthurst Foundation suggest that SMMEs in the worst-performing municipalities are more likely to invest in systems and measures to support their business operations.
“This comes as 93% of those SMMEs in municipalities with disclaimed audits reported having to invest in systems to offset municipal shortcomings, compared with 45% of those operating in municipalities with clean audits,” reads the study. “SMMEs in poor performing municipalities [are] more likely to suffer when compared with those in the top performing municipalities. Of the SMEs surveyed, 60% reported losing revenue due to the performance of their local municipality, with 77% being in municipalities with disclaimed audits and 33% located in municipalities with clean audits.”
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The study was conducted using a sample of 85 businesses in eight selected local municipalities from the Consolidated General Report on the Local Government Audit Outcomes (MFMA Audit Outcomes 2021/22). Four of the municipalities’ audits were financially qualified with no findings, and the other four were chosen based on disclaimed audits.
Some of the systems that SMMEs should invest in to supplement municipal shortcomings include solar systems and generators for electricity, boreholes together with water capture and purification systems for potable water; and security measures including CCTV and electric fencing. Meanwhile, others have also invested in their own refuse removal, road repairs, and the maintenance of street verges.
When the study assessed the cost incurred by small businesses, it discovered that an SMME operating in a municipality with a disclaimed audit will spend up to double what their counterpart spends in a top-performing municipality. The discussion paper refers to the municipal audit outcomes of 2021/22, which reveal that out 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.
The study also maintains that large companies are also impacted by bad governance, financial mismanagement, and poor service delivery, which have a negative and cascading effect on residents and businesses alike. It gave an example of Clover, which moved its cheese production facility from the Ditsobotla Local Municipality in the North West to eThekwini following a litany of service delivery failures.
The study also reports that few SMMEs in municipalities with clean audits report losing revenue because of their municipality’s performance, those that do, report sizeable losses. “The recent closure of the Mazeppa Bay Hotel, an iconic Wild Coast resort that falls within the Mnquma Local Municipality, can help explain this phenomenon. Although the municipality was awarded a clean audit for the 2021/22 financial year, Mazeppa Bay Hotel was forced to close its doors in part because of poor road infrastructure, which had a direct impact on tourist numbers,” reads the study.
