PROMOTING ACCESS TO AFRICAN RESEARCH

Southern African Business Review

Log in or Register to get access to full text downloads.

Remember me or Register



Assessment of financial conditions of South African municipalities: a unique model for KwaZulu-Natal

Ewert P.J. Kleynhans, Clive Coetzee

Abstract


Most South African municipalities experience significant financial problems. This study investigates the financial conditions of municipalities in the province of KwaZulu-Natal (KZN). It was found that the most important factors which influence their financial position are unobservable municipally unique factors. The ratio of people of non-working age to the total population is also significant in influencing the financial position of municipalities. This article designed a unique financial conditions measurement framework to evaluate the financial status of local governments. Two independent instruments were developed, first to measure the financial quality of a municipality, and secondly, to identify and examine a number of socio-economic factors possibly affecting the financial condition of these municipalities. The study developed a composite financial condition index (CFCI) and a financial conditions management index (FCMI), and then tested the framework on 51 municipalities in the KZN province from 2009 to 2015. The study used a panel data approach with two financial condition indices as indicators. The findings suggest that, in the absence of individual effects, most of the selected socio-economic variables are relevant in terms of explaining some of the variations in municipal financial conditions. Cross-section fixed-effects do, however, significantly improve the overall performance of the model, suggesting that it is rather the unobservable municipally unique factors affecting municipal financial conditions.

Keywords: municipalities; financial conditions; panel data econometrics; fixed-effects; local government; public finance; South Africa




http://dx.doi.org/10.25159/1998-8125/4396
AJOL African Journals Online