According to a new study by the Bureau of Economic Research (BER), the difficulties faced by South African municipalities are due to weak governance and inefficient financial management, rather than a lack of funds. The report asserts that significant reforms at the municipal level are necessary to achieve faster economic growth.
BER found that municipalities continue to receive about 75% of their operating income from their own tax bases, but they are increasingly unable to collect funds owed by residents and businesses. By December 2025, municipalities were owed R234.7 billion in unpaid consumer debt. Furthermore, municipalities had debts to Eskom amounting to R70.1 billion and to water utilities amounting to R25.9 billion, creating serious pressure on cash flow and hindering infrastructure investment.
This report was published two weeks after Finance Minister Enoch Godongwana suspended national government transfers to 69 municipalities due to governance and financial administration failures, signaling a tougher stance from the National Treasury. BER welcomed Godongwana's decision to freeze transfers to underperforming municipalities, noting that it demonstrates the National Treasury's willingness to use its constitutional powers to improve governance, despite political tensions ahead of next year's local government elections.
The report also supported reforms within Operation Vukhelindela 2.0 and the current review of the White Paper on Local Government, but warned of risks associated with attempting to implement too many changes simultaneously, deeming that 'a shorter, clearly prioritized list of high-impact changes is likely better than a long list.'
Key recommendations from BER include strengthening intervention powers under Section 139 of the Constitution, as current interventions have become a 'revolving door rather than a recovery mechanism.' It also suggests granting appointed administrators greater authority, including the ability to assume the functions of municipal managers and financial directors, to revive non-functioning municipalities. BER called for isolating municipal electricity and water services within financially sustainable models, professionalizing the appointment of senior municipal officials, reviewing the local government funding model, and completely overhauling the municipality classification system.
The report noted that nearly 70% of municipalities in the Free State, including Mangaung, faced transfer delays, followed by 57% of municipalities in the North West, while only three municipalities in the Western Cape were affected. BER concluded that South African municipalities are 'too important to fail,' as this is where economic growth occurs and where citizens interact most closely with the state, but warned that without clear reform priorities and stronger governance, implementation could be undermined by its own ambition.
The water crisis in South Africa has become one of the most pressing issues facing municipalities today. Across the country, towns and settlements are grappling with rising demand, climate instability, aging infrastructure, and shrinking financial resources. These factors have placed local authorities at the center of a national emergency. However, despite the enormous scale of the difficulties, the crisis presents significant opportunities for collaboration and shared responsibility.
The crisis is viewed not as a failure of municipalities, but as a symptom of pressure on the entire nation. Experts believe the solution lies in updating the social contract between municipalities, the public, industry, youth, and national partners, which is reflected in the WRC campaign 'A WaterWise Nation.'
South Africa loses 37 percent of treated water due to leaks, pipe bursts, vandalism, and illegal connections. This volume of water was obtained, treated, and pumped at great cost, yet it disappears before reaching consumers. For municipalities, already struggling with budget shortages, such losses are catastrophic.
According to the Department of Water and Sanitation, 105 municipalities face a combined water infrastructure deficit of approximately 400 billion rand. Many treatment plants and pipelines have reached or exceeded their service life, while accelerated urbanization and climate change intensify the strain on fragile systems. Despite investments of nearly 100 billion rand over the past five years, repair and modernization efforts are not keeping pace with growing demand.
Tension is felt across all provinces. In Gauteng, residents of Mogale City, Westber, Ebony Park, Tsakana, and Johannesburg South have experienced prolonged outages due to dwindling reservoirs during periods of intense heat. In the eThekwini region of KwaZulu-Natal, more than fifty districts continue to face instability due to infrastructure failures and power interruptions. In the Eastern Cape, Nelson Mandela Bay is caught in cycles of drought, with reservoir levels frequently dropping below 20 percent.
Free State continues to battle multi-day water supply disruptions in towns such as QwaQwa, Welkom, and parts of Mangaung, often linked to pump failures and aging main pipelines. Limpopo and North West face similar issues, as frequent breakdowns occur in Polokwane, Mahikeng, and Clerksdorp due to the collapse of old networks under pressure.
Given the circumstances, municipalities must take the lead, but they cannot do so alone. South Africa requires an updated municipal social contract where responsibility is shared, not delegated. Civil society organizations, businesses, and government must act as partners in safeguarding the water future.
Municipal leadership remains a key element. Local governments are responsible for water distribution and treatment, planning infrastructure investments, and initial response to system failures. Their ability to communicate transparently, interact constructively with communities, and collaborate across sectors lays the foundation of trust that is critical for joint action.
Communities also play an increasingly vital role. When residents promptly report leaks, conserve water during peak hours, protect infrastructure from vandalism, and understand municipal limitations, water supply systems become more stable and manageable. Community forums on water issues, volunteer groups, and neighborhood patrols have already demonstrated their effectiveness in supporting municipalities in several regions.
The private sector is also a crucial part of this partnership. Local industries can implement water-efficient processes, invest in on-site reuse systems, and collaborate with municipalities on smart metering and network monitoring. These measures reduce the burden on municipal supply and support economic sustainability.
The WRC campaign 'A WaterWise Nation' provides municipalities, communities, industries, and educators with a unified framework for building a water future. The campaign emphasizes behavioral change as one of the most powerful tools for reducing demand and protecting supply. It offers municipalities informational materials, data, case studies, and tools to mobilize households and businesses. It supports communities with accessible knowledge about responsible water use, encourages industry to adopt efficient and sustainable methods, and provides young people with information and inspiration to become stewards of water resources.
Furthermore, 'A WaterWise Nation' reinforces a fundamental principle: water security is not just a government task. It is a collective responsibility shaped by the daily decisions of millions of South Africans. If every household, business, school, and community adopts even small water-saving habits, the cumulative national effect will be immense.
South African municipalities are navigating some of the most challenging conditions in democratic history, yet they remain the bedrock of local resilience. Their work deserves recognition, and their challenges require partnership, not criticism. This is a moment for collective responsibility, where residents, businesses, and government unite to protect the systems that sustain us.
The path forward will require honesty, innovation, and collective commitment. But it is a path they are fully capable of taking. If they align their goals, support local leadership, and embed water-saving behavior in society, they can change the trajectory of the crisis and create cities that are both sustainable and future-ready. South Africa's water future will be determined not only by built infrastructure but by the choices made today. Urgent action is needed, in partnership and with the understanding that water security belongs to all of us.
The escalating water crisis in South Africa is attributed not so much to a lack of infrastructure, but rather to weak governance, inefficient financial management, and the inability of municipalities to generate revenue.
Shirley Robinson, head of DNA Economics' practice on climate and public economics, emphasized that financing municipal water infrastructure is primarily an issue of municipal finance. She shared these thoughts during the webinar 'Beyond Infrastructure: Financing South Africa's Water Future,' which gathered experts to shift the discussion focus from infrastructure deficit to financial capacity.
The webinar was moderated by Dr. Ochiocheoya Omiunu, a research fellow at the British Academy, and participants included the South African Institute of International Affairs (SAIIA), DNA Economics, GreenCape, and the Infrastructure Finance and Implementation Support Agency (IFISA). Robinson explained that discussions about financing always begin with how the necessary investment will be executed, but they must start with an assessment of the municipality's ability to sustain long-term infrastructure investments.
She clarified that the country's water supply system consists of several interconnected components. The national government is responsible for strategic water infrastructure, including dams and main pumping schemes, which are designed and operated by water boards. Municipalities, on the other hand, are responsible for the infrastructure that directly provides water and sanitation services to end consumers.
According to Robinson, each part of the water sector has its own institutional duties, risk profiles, and financing. She stated that financing municipal water infrastructure is fundamentally a municipal finance problem, but more deeply, it is a systemic problem. In her words, funding failures rarely occur due to a lack of capital; they arise because the institutional conditions necessary to absorb, manage, and maintain these investments have not been created.
The expert noted that the success or failure of projects depends not on isolated factors, but on the functioning of planning, budgeting, revenue collection, procurement, asset management, and governance systems. When these systems operate effectively, finances can flow; otherwise, a market failure occurs, and even well-designed projects face difficulties attracting funding.
Robinson added that the main obstacle to financing municipal water infrastructure is not the availability of capital, but the financial health and institutional capacity of the municipality or sponsor to plan, finance, procure, operate, maintain, and upgrade this infrastructure over the next twenty to thirty years.
She also drew attention to the National Treasury's recent decision to temporarily suspend 'Fair Share' transfers for July for 69 municipalities, which serves as a reminder of the direct link between municipal financial management, institutional trust, service delivery, and willingness to invest. This creates a paradox: despite the acute need for significant investment to restore aging assets, reduce water losses, expand services, and increase climate resilience, many municipalities are simultaneously experiencing decline, revenue collection problems, growing debt obligations, weak liquidity, outdated infrastructure, and limited fiscal capacity. Paradoxically, municipalities with the greatest infrastructure needs are often the least able to attract funding.
Robinson stressed that a project's attractiveness for financing is a characteristic of the environment in which the investment takes place, not an inherent characteristic of the financial instrument itself. She noted that building financially sustainable institutions, reliable management systems, and well-prepared projects begins long before a municipality approaches a lender.
Raldo Kruger, a technical specialist at GreenCape for green finance and the water sector, added that any discussion of municipal creditworthiness must begin with an analysis of the current state of investments and highlighting historical underfunding of infrastructure and the huge need to accelerate investment, especially in the context of increasing climate resilience. He reported that municipalities lose about 35% of the water entering the system due to leaks and losses, which in 2019 was equivalent to a loss of about 10 billion rand in revenue for municipalities across the country.
Kruger defined creditworthiness as the confidence of capital providers that their investments are safe and that they will be able to earn a return. He pointed out that key factors depend on management, revenue management, and expenditure management, all three pillars resting on good governance, leadership, and future planning. Without creditworthiness, municipalities will face serious difficulties in stimulating economic growth through infrastructure investment.
The National Treasury's recent decision to suspend the allocation of 13.5 billion rand to municipalities due to persistent financial mismanagement has sparked serious discussions about the state of local governance in South Africa. The question arises whether the crisis is rooted in technology, funding, or deeper issues. Professor Eldrid Jordaan emphasizes that effective leadership and accountability are necessary to achieve significant change.
The suspension of funds by the National Treasury was caused by chronic financial inefficiency. While adherence to financial discipline is a necessary condition, it does not solve the core problem. In the expert's view, the crisis in South African municipalities is not fundamentally a technological or purely financial issue; it is a problem of leadership and responsibility.
This conclusion was drawn from Professor Jordaan's experience founding GovChat—a national platform for South African citizens to interact with the government. GovChat aimed to strengthen the link between citizens and state structures. In collaboration with the Department of Cooperative Governance and Traditional Affairs (CoGTA), a digital service was developed allowing residents to report municipal problems via WhatsApp. Residents could specify GPS coordinates to report potholes, water leaks, power outages, sewage spills, and garbage collection failures, while also indicating their ward councilor.
The initial hypothesis was that if municipalities received accurate real-time information directly from citizens, the quality of service delivery would improve. However, the platform revealed a much more complex institutional problem. Despite thousands of service requests being submitted through GovChat, many remained unresolved. As reports accumulated without visible action, citizen trust in the complaint process gradually declined, and eventually, the reporting function became one of the least used on the platform, not because service problems disappeared, but because citizens stopped believing in the effectiveness of their reports.
The technology worked as intended, but the institutions did not. The contrast with another GovChat initiative was particularly telling. During the COVID-19 pandemic, GovChat, in partnership with the Department of Social Development and SASSA, digitized access to hardship relief grants. Over 13 million South Africans successfully applied for social grants through this platform. Citizens trusted the system because applications led to tangible results: grants were processed and paid out monthly. The conclusion was clear: technology only delivers value when institutions act upon the information provided by it.
The GovChat citizen engagement report demonstrates achieved results: the platform processed over 700 million citizen interactions, covered approximately five million households in South Africa, received 16,876 reports on municipal services, and collected over 30,000 citizen ratings on public facilities and services. Municipalities gained access to one of the richest sources of real-time citizen feedback in the country.
Thus, the problem was never a lack of data. South African municipalities have had access for years to digital reporting tools, geospatial information, citizen feedback mechanisms, and real-time monitoring dashboards. It is known where water leaks occur, where power outages persist, where road conditions have deteriorated, and where garbage collection is not taking place. However, there has often been a lack of institutional readiness to act.
This distinction is crucial because digital transformation is often mistakenly equated with governance reform. Technology can increase transparency, automate processes, and improve visibility, but it cannot replace competent administration. Monitoring dashboards do not fix plumbing infrastructure, mobile apps do not fill potholes, and artificial intelligence cannot replace political leadership or administrative competence. Technology serves as an enabling tool, not the final outcome.
Citizens judge municipalities not by the complexity of their digital systems, but by whether water comes from the taps, whether electricity is restored on time, and whether service requests receive substantive answers. Trust in government is built not when citizens are invited to participate, but when that participation leads to measurable outcomes. The intervention by the National Treasury sends an important signal about the consequences of financial mismanagement, but simply withholding funding will not restore trust in local government. Accountability must be measured not only by audit results or financial compliance, but also by how municipalities respond to the daily needs of the communities they serve.
South Africa does not need another municipal reporting platform, nor any pilot project or additional digital dashboard. It needs municipalities that treat every citizen report as an obligation to act. The technology exists; the data is available. Citizens continue to show willingness to engage when they believe the government will respond. Only one challenge remains—leadership. Ultimately, digital transformation cannot be successful without institutional transformation. Technology can identify every municipal failure in real time, but only responsible leadership can turn information into improved services. Until that moment, the greatest obstacle to service delivery will not be the lack of digital innovation, but the lack of execution.
