The application of sound financial management principles for the compilation of the city’s financial plan is essential and critical to ensure that the city remains financially viable and that sustainable municipal services are provided economically and equitably to all communities. In terms of its financial strategy, the municipality continues to display a robust financial profile characterised by strong cash generation and high liquidity levels.
The municipality’s strong financial position is proof of the sustainability and resilience of the municipality.
The vision of the city will be achieved by growing its economy and meeting people’s needs so that all citizens enjoy a high quality of life with equal opportunities in a city that they are truly proud of. The needs of the community and the high levels of poverty and unemployment places excessive demands on the municipality’s existing financial resources and threatens to constrain the organization financially if these resources are not properly managed.
1.3.8.1 FINANCIAL STRATEGY
These challenges require the development and implementation of a financial strategy that will generate adequate cash resources, on a sustainable basis:
· To provide basic infrastructure and services to the community,
· To enable the Municipality to achieve its vision of a high quality of life for all citizens in the city,
· To create an environment for business growth and investments conducive to economic development, and
· To ensure financial sustainability of the municipality into the future.
Financial sustainability and viability remain the key principles in the financial planning process and, to ensure compliance with the Municipal Finance Management Act, a Financial Strategy for the municipality was developed and adopted by Council. The municipality’s response to addressing its priorities from a financial perspective is as follows:
COMPILE A BALANCED AND REALISTIC BUDGET WITH CASH FLOW TO MATCH
The municipality’s budget must set out realistically anticipated revenue from each revenue source. The following steps will be carried out in respect of expenditure and revenue items, viz.
· All Operating Income and Expenditure increases are to be maintained in line with inflation, as far as practicable. Further, annual salary increases are subject to National Bargaining Council negotiations, but every effort shall be made to keep them within the band of inflation proposed by the National Government.
· Overall expenditure has been reduced to around 7%
· An Asset Management Plan be implemented that will result in programmed maintenance of the municipality’s assets, to enable the optimal use of such assets and to ensure their replacement.
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· Depreciation Policy
- The Municipality’s depreciation policy is in accordance with the requirements of the Standards of Generally Recognized Accounting Practice (GRAP).
- Assets are depreciated on a straight line basis over their estimated useful lives.
- The remaining useful lives of assets will be reviewed annually and amended in accordance with the conditional assessment of the asset.
- The annual depreciation charge will be amended accordingly.
· A programme will be implemented to reduce the water losses to 25 % over a period of five years.
· In order to contribute funds for future capital expenditure and to reduce dependence on borrowed funds, a Capital Replacement Reserve has been established, and funded from the following sources:-
- Any betterment achieved from budgeted Water and Electricity operating results, including savings achieved through reductions in losses in distribution
- Any betterment in Rate and General operating results
- Dependent on the impact of tariffs, an additional contribution will be considered
· To maximize additional revenue sources, the following will be pursued:- - Maximize investment rates, especially on call account
- Development charge
- Grant income to be maximized
· Surplus Policy
The surplus generated annually will be reviewed and a cash backed element will be ring-fenced to finance the provision of future infrastructure and other capital projects.
CAPITAL EXPENDITURE
The 10 year financial model is informed by the IDP and the current service delivery backlogs. At this stage, capital expenditure is projected for the MTREF period. The capital budget is split appropriately between economic, social and rehabilitation, environmental and administration expenditure.
FINANCIAL INDICATORS
The key indicators below form the parameters within which the municipality aims to operate in order to achieve the objectives set out in this document.
· Balance Sheet Ratios:
- Gearing Ratio:-
This is calculated as Borrowings over Income. Currently the industry norm is 40% but National Treasury has indicated some years ago that 50% is acceptable for municipalities. We are currently at 33% with curtailed borrowings.
- Current Ratio:-
Calculated as Current Assets over Current Liabilities will be maintained at 1.3:1
· No. of Days Cash and Investment on hand:
The accepted norm is 90 days. The strategy is to build the municipality’s cash reserves to meet this requirement.
· Revenue Ratios:
- Debtors days:-
In respect of key services this will be closely monitored. With the municipality strictly implementing a council approved comprehensive Debt Collection and Credit Control Policy, conservative approach to collection practices, the number of debtor days outstanding is projected to be maintained at around the current average levels of approximately 130 days.
- Bad Debts Provision:
This will be prudent in the consideration of the actual collection rate and impairment. Any debt over 120 days will be provided for in accordance with the accounting policy provided for debt impairment.
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FREE BASIC SERVICES
The municipality is required to make available free basic services to a large component of poor households. The cost of free basic services impacts on the city’s finances and therefore there is a need to ensure adequate growth in the rates base by promoting economic development as this impacts on the city’s ability to cross- subsidize. This also impacts on the extent that higher-end consumers subsidize indigent consumers and hence the level of tariff increases ( Item 2.3.2 refers ).
The implementation of this strategy will contribute considerably towards ensuring financial viability and sustainability of the organisation into the future. The budget of the municipality is funded in accordance with the requirements set out in the MFMA, thereby ensuring the municipality remains as a going concern and is able to sustain existing services and progressively extend services.
1.3.8.2 BUILT ENVIRONMENT PERFORMANCE PLAN ( BEPPS )
The BEPP promotes integrated planning, budgeting and implementation and integrates the plans of key sectors (economic, transport , human settlements social and engineering infrastructure ). Its aim is to achieve long-term spatial transformation and inclusivity, facilitating economic growth and improved service delivery. The BEPP is the basis from which to confirm and elaborate corporate spatial priorities and to move towards co-ordinated budgeting and implementation of the spatial priorities. The BEPP is also to be the instrument to enable National Treasury to confirm very significant DORA allocations for numerous capital grants. Benefits of a BEPP include savings through higher utilisation levels, increased private sector investment, better public perception and residents receive a better product.
44 1.3.9 MUNICIPAL ENTITIES
INkosi Albert Luthuli International Convention Centre (ICC)
The Durban International Convention Centre continues to perform well financially, growing its profits and producing significant contributions to the local and national economies. The 2016 fiscal year also saw Durban ICC host a number of important events critical to Durban’s on-going development as a modern, global city.
Despite increasingly difficult trading conditions, the Durban ICC produced an outstanding year of financial results. Revenue grew by R 5 million in a year where severe cutbacks were experienced from both the corporate and government sectors. Despite the various costs pressures, the overall financial performance was pleasing with net profit increasing to R 33.0-million. The Durban ICC has remained profitable for the past six consecutive financial years and has generated a cumulative net profit of R 182-million. There has been a significant year-on- year increase (14%) in the number of events which the Centre hosted, including a number of high-profile international conferences which produced important outcomes for the long-term success of the City.
Considerable socio-economic contributions made by the Centre had a massive direct impact on the Province of KwaZulu-Natal. A staggering R 4.1-billion was added to the Province’s Gross Geographic Product and no less than 9,820 jobs were sustained as a result of the Centre’s activities this year.
The Durban ICC continued its winning ways and was once again voted Africa’s leading Meeting and Conference Centre at the world Travel Awards. A number of other accolades were received this year, this included Winner in the Exhibition and Conference Sector of the Top 500 – South Africa’s Best Managed Companies 2015, and Winner of the Tourism Business Category at the KwaZulu-Natal Top Business Awards amongst others. The past year also saw the Durban ICC maintain its international standards in accordance with its ISO certification, AIPC Quality Assurance Programme and Tourism Grading Council of South Africa. The centre also received a clean, unqualified audit from the Auditor-General of South Africa for the third consecutive year affirming the Centre’s sound financial management and compliance with good governance and statutory requirements.
The Durban ICC aims to be more than merely a venue for events. Its strives to be a setting which catalyses progress, an environment for advancement, and a place where significant conversations happen with far-reaching ramifications for thousands of people around the world. The team at the Durban ICC strives to provide this kind of atmosphere for meaningful development in its own uniquely warm, African way.
Durban Marine Theme Park (uShaka Marine World)
This flagship project was developed with the aim of regenerating the Point Precinct and has become a major tourist destination for both the national and international visitors alike. The park is a strategic asset for the city in terms of both tourism and urban renewal in the Point Precinct. It has created a number of jobs, economic opportunities and has opened up new learning enhancement through the operations of the Sea World Education Centre. There has been a considerable “multiplier effect” in terms of factors such as tourism attraction to Durban and a rise in adjacent property values (and related rates income for the city).
Last year was the first year of implementation, with many facelift projects being completed. This trend will continue into the new year with upgrades being considered for the Kids Pool area and Sea World amongst others. This plan gets re-prioritized into a three year Capex plan year on year. Other areas of development are focused on sustainability and will include improvement projects to reduce electricity and water consumption.
The park has entered the next phase in its life cycle, whereby footfall is expected to steadily increase (albeit at a slower pace than over the last three years), whilst aging infrastructure will need to be maintained. In the short term a consolidation approach has been adopted with an emphasis on utilizing scarce funds for priority maintenance projects, as well as quick revenue enhancing opportunities. The medium term will move towards the re-capitalization phase with more significant upgrades required to ensure the longevity of the park and continued footfall growth. uShaka is entering an exciting next phase of its life cycle with an opportunity to introduce an iconic new attraction or two for Durban. This idea will form a key part of the strategy going forward together with the city and various options will be explored in terms of enhancing uShaka as a major draw card for Durban which may include public/private initiatives.
uShaka Marine World continues to play a vital role in elevating Durban to a sought after tourist destination and one that is becoming increasing popular with local tourists. The growth in footfall has continued and uShaka remains a key destination within KZN and Durban for both tourists and locals alike. Furthermore, in the 12 years of its existence, uShaka has contributed approximately R 2 billion towards the local GDP and created just under