IN DECEMBER last year, shortly after President Jacob Zuma’s highly publicised removal of Nhlanhla Nene as finance minister, Moody’s Investors Service downgraded SA’s sovereign credit rating outlook from stable to negative in light of “slow growth and increasing political pressures”.
In addition to credit rating assessments, Moody’s undertakes research and risk analysis. Essentially, it calculates the strengths or weaknesses of economies so that investors can make informed decisions. Its analysis speaks to the level of confidence that current and prospective investors can have in an economy.
In spite of recent forecasts such as that of Moody’s, which have been gloomy for the country as a whole, the City of Cape Town is a light at the end of the tunnel, outperforming the slack economic growth experienced nationally. Two weeks ago Moody’s recognised that it is the city’s “solid financial management” that is making the biggest difference, resulting in lower debt levels, even in the current economic downturn. We are proud of this achievement, especially considering that debt levels are on the increase nationally.
In the report, released by Moody’s on February 12, the City of Cape Town was commended for its “consistent cash flow management and high revenue collection rates in recent years”. According to Moody’s, this has “enabled the City of Cape Town to consolidate its strong fiscal position and further strengthen its already robust liquidity position”.
The city’s effective cash flow management has contributed to its sound credit rating. This was achieved through the use of short-term internal working capital to reduce finance costs by delaying the taking up of loans. Together with strong expenditure control and debt management measures to maintain a high collection rate, these measures have enabled the city to maintain a strong balance sheet, which will lower the potential cost of future loans.
Cape Town has over a period of 10 years delivered a clear message that those who can afford to pay rates must do so, while the city will assist those who are unable to pay. This approach can only be effective in tandem with a fair tariff and rates policy that ensures bills are correct and affordable. The extensive installation of prepaid electricity meters means the city is able to ensure upfront payment for the highest-cost service. This has resulted in collection rates of 97% over the past few years.
The city manages its cash flow on a daily basis and ensures there is sufficient working capital in its bank accounts to cover monthly costs. It is gratifying to see our efforts endorsed. The assessment by Moody’s sends to our residents the message that we can be trusted as custodians of the revenue we generate through their rates payments.
Every year I send a letter to all diligent ratepayers to thank them and to account for how their money is spent. We consider it our moral obligation to ensure them that we spend every cent in an open and transparent manner. It also sends a signal to prospective investors and property buyers that they can have confidence in our ability to govern efficiently and create an environment that will allow their investments to grow.
The rates we are able to collect enable the city to deliver the best package of services to the poor and vulnerable. We take great pride in being able meet the different levels of demand through cross-subsidising those who need help most. In fact, our indigent interventions have been labelled “too generous” by the National Treasury. However, we remain committed to redress and reconciliation through this mechanism to create a society built on freedom, fairness and opportunity.
It is gratifying that our commitment to building a well-run city and improving the lives of our residents has been recognised. We will continue to do so because our political leadership and management team understand that we are here to serve the public, and that the needs of the people of Cape Town come first at all times.
• De Lille is Cape Town mayor
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