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In the sixth month of trading only 33,28% (December 2014: 49,31%) of the capital budget has been spent. However, as in the case of past years there would be an acceleration of spending in the ensuing months and whilst departments are forecasting a 102,12% spend, more accurate projections will unfold in the months to follow.
Conditional Grants
Approximately R 2.9 billion from all sources have been received to date which represents 47.9% of the amount budgeted for.
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.
· 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
- Dependant on the impact of tariffs, an additional contribution will be considered
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· 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.
1.3.8.3 MUNICIPAL SERVICE FINANCIAL MODELLING FOR ETHEKWINI
In order to determine the overall sustainability of eThekwini finances, a Municipal Services Financial Model (MSFM) has been completed for the municipality. The MSFM calculates the capital expenditure required over ten years to meet service delivery targets and assesses the capital finance sources available. It also calculates the operating expenditure required to operate and maintain infrastructure adequately and determines whether operating revenue available will be sufficient to cover this expenditure. The model has provided valuable insights into the overall functioning of the municipality. Maintaining financial viability is obviously critical to the achievement of all other objectives and hence the results of the MSFM must be used to align the capital and operating budget spend in order to achieve this long term financial sustainability.
1.3.8.4 CITY INFRASTRUCTURE DELIVERY MANAGEMENT SYSTEMS (IDMS)
All metropolitan municipalities face large and growing infrastructure investment needs, the need to maintain and replace ageing infrastructure and the need for new infrastructure to support growth and development. While infrastructure budgets across metros have generally been growing, spending performance has been declining. This position varies across cities. National Treasury has developed a City Infrastructure Delivery Management System (CIDMS). The CIDMS toolkit is at an advanced stage of development and it aims to assist cities to optimise performance right across the urban infrastructure value chain by offering best practice processes, techniques and tools specifically designed to achieve city strategic objectives and desired outcomes related to the built environment. The CIDMS toolkit is being developed with participation of cities with phasing of implementation at the beginning of 2016/17 financial year.
40 1.3.9 MUNICIPAL ENTITIES
INkosi Albert Luthuli International Convention Centre (ICC)
The ICC Durban (PTY) Ltd continues to play a pioneering role in attracting international events to our shores since its inception. The Centre has contributed significantly to the sustainability of the hotel, restaurant, transport, retail and logistics sectors. The Durban ICC continued its winning ways and was once again voted Africa’s leading meeting and conference venue at the World Travel Awards for an unprecedented 14 times in the past 15 years.
Despite uncertainty in the global economy and increased competition both domestically and internationally, the Durban ICC has once again posted an excellent set of financial results. Revenue showed a year-on-year growth with a 19% growth in the number of events hosted this year. These are encouraging signs about the health of the business.
Notably, this year also marks the fifth consecutive year of profitability for the organisation. During the past financial year, the Durban ICC made an outstanding contribution to both the provincial and national economies. The company contributed R 4.6 billion to the national Gross Domestic Product (GDP), showing a 47% growth in this figure from the previous fiscal year. The vast majority of this contribution benefited the KwaZulu-Natal economy directly, by adding R 4.5 billion to the province’s Gross Geographic Product (GGP) whilst creating and sustaining 10 662 jobs in the province alone. This remarkable macro-economic contribution translated into further social benefits for the country by contributing R 986 million to Indirect Household Income and generating R 695 million in net foreign exchange earnings.
The Durban ICC is truly an asset to the city of Durban, one that consistently delivers solid returns on investment, numerous socio-economic impacts and helps to raise the international profile of our destination. The ICC has received a clean audit for the second consecutive year. The Durban ICC is more than simply a venue. It is a platform for meetings , a facilitator of dialogue and a place for people to connect, debate and ultimately find common ground. The Centre strives to deliver its unique brand of world class service and a uniquely warm, African experience.
Durban Marine Theme Park (uShaka Marine World)
uShaka is KwaZulu-Natal’s top, highly ranked, family entertainment park that continues to deliver an unmatched, fun experience for all its visitors. It has contributed significantly to tourism in the Point precinct and the whole of Durban, and has received accolades and awards over the years. It forms an integral part of the overall Durban beachfront offering and continues to be a major tourist attraction for both national and international visitors alike.
Economic impact is valued at R 1.9 billion to eThekwini’s GGP and R 6.4 billion business impact in the form of new business sales.
Revenue growth for UShaka has been steady over the last ten years and has grown cumulatively by 63% over this period and by 8% from 2013 to 2014. UShaka has received clean audits in the last three years which is a strong indicator that it continues to manage its finances exceptionally well. The park is continually recapitalizing the business model and reinvesting in new attractions to maintain the footfalls whilst still focusing on maintenance of existing infrastructure. Improvement action plans include development of an off-peak season strategy, a pricing committee as well as funding strategy and new revenue generators. Marketing has been key in driving growth in footfall and revenue and five focus areas have been identified for long term sustainability, namely: pricing model, surveys and research, events, entertainment and sponsorship.
To ensure the long term sustainability of the park, Ushaka has developed an in depth strategy comprising numerous planned projects for a period of 20 years, totaling about R 300m, all dedicated towards overcoming current challenges faced by the park as well as positioning the park as a world-class tourist attraction. Public private partnerships, private investments, sponsorships and other business options are being pursued to get the best value for money for the theme Park. UShaka Marine World recently scooped the award for the Best Attraction in the city at the 3rd Durban Chamber of Commerce and Industry Tourism Awards. UShaka remains a key destination within KZN and Durban for both tourists and locals. It consistently ranks as one of the major draw cards for people visiting Durban and has been ranked as the coolest for destinations in KZN.
In compliance with the Municipal Finance Management Act, both the municipal entities have submitted their budgets and business plans for consideration by the Municipality.
Moses Mabhida Stadium (MMS)
The management and operations of the MMS was taken over by the municipality in July 2013 while better means of managing it was being investigated. For two years the stadium has been managed through a service agreement with the Durban Marine Theme Park. Various studies have been done to establish the best practices required for managing it, with assessment of international benchmarks and models. After extensive consultation and having considered all possible models, the preference was for the MMS to be integrated with the International Convention Centre. This was selected as the most appropriate governance and management model for the stadium.
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