Jonathan Katzenellenbogen: Fight for Joburg is Treasury v ANC patronage machine

Key topics:ANC vs Treasury clash over illegal R10.3bn wage dealJohannesburg faces insolvency, rising debt, weak cash positionElection pressure, unions, and Eskom debt risk governance collapse.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Jonathan Katzenellenbogen*.The fight over the cuts needed to prevent Johannesburg from descending into bankruptcy has begun.ANC interests that use the city as a feeding machine are pitted against those that want to see good governance. Here we have the ANC in Johannesburg and its allies being taken on by the ANC Minister of Finance, Enoch Godongwana.Key will be whether the municipal workers receive a R10.3 billion two-year wage increase that was agreed to last year. Treasury says it is illegal, and the South African Municipal Workers’ Union (SAMWU) say they will strike if it is not awarded.With the local government elections in early November, there just might be pressures on Godongwana not to press the SAMWU too hard. After all, the party might need them in the elections..Read more:.Treasury warns Johannesburg over illegal wage deal and funding cuts.But time is not on the ANC’s side as the City is in dire financial distress. Technically, with current liabilities exceeding its cash and cash equivalents, the City is insolvent. What is owed to creditors rose from R17 billion in 2022/23 to R25.2 billion in 2024/25. Yet its holdings of cash and cash equivalents at the end of its 2024/25 financial year only amounted to R3.9 billion.For years, rises in the number of council employees and their pay have placed big financial pressure on the City. From the financial year ending in 2011 to that ending in 2024, there was an 84 percent increase in staff employed by the City. With any large demand for immediate payment, the City could be taken to court and declared insolvent.The City is unable to even issue its financial statements on time, which raises multiple red flags as to what might be hidden. As last financial year’s statements have not yet been issued, the Johannesburg Stock Exchange suspended the City’s bond issues earlier this year. The City has not received a clean audit in years.After the warning issued last month by the Minister of Finance, Enoch Godongwana, in his leaked letter to the Mayor of Johannesburg, Dodo Morero, the next step could be for the Treasury to place the City under administration. That would mean that the Province rather than the Council would govern the City. The ANC is probably trying to avoid that taking place before the local government elections in November. If that happened, it would be the surest public sign that the party is incapable of governing the country’s largest Metro.If the City is placed under administration, the Council would be dissolved, and external administrators would be brought in to manage the budget. The administrator, usually the Provincial government in the case of a municipality, would have to focus on repaying debt and improving service delivery. The Treasury would almost certainly manage the City’s finances, adding credibility to the process.So, the Treasury’s letter is certainly serious for the ANC and its allies in Johannesburg. The Minister has no choice in the matter as he is required by law to uphold the Municipal Finance Management Act, the legislation that seeks to ensure sound financial management of SA’s cities.If the Treasury loses and the City’s excessively generous pay R10.3 billion two-year pay deal with the municipal workers stands, the sign will be that good governance is being thrown overboard for political expediency, in this case an attempt not to upset the unions ahead of the elections.Higher powers in the ANC with links to the unions might just say to Treasury, don’t fight this one as we have an election coming up and we need the support of the unions, so please wait until after November.The sign that this is not going to be an easy fight is that the R10.3 billion deal is part of a political deal. It is called a “politically facilitated agreement,” which means that it was not negotiated through the normal channels used for collective bargaining. The deal was probably imposed from above and just could be part of a wider arrangement between the ANC and the unions. We just do not know.That means by insisting the deal is scrapped, Treasury might come up against big powers in the party.The DA’s mayoral candidate, Helen Zille, says the R10.3 deal shows that, once again, the ANC is using ratepayers’ money to buy SAMWU’s support for the forthcoming election.In his leaked letter to the Mayor of Johannesburg, Dado Morero, the Finance Minister, Enoch Godongwana, says the two-year R10.3 billion deal with the South African Municipal Workers’ Union is illegal.“You have committed the City into a financial obligation that is not possible to fulfil… it is a direct transgression of the Municipal Financial Management Act (MFMA) and budget and reporting regulations,” the Minister says in his letter.The deal is certainly unaffordable with the City in dire straits. It amounts to nearly 12 percent of the City’s total budget of R89.4 billion, and outstrips the R8.7 billion budget that is meant to be spent on capital projects.This is not the City’s only very generous offer. In the latest budget presented to the Council, pay increases of 62 percent have been proposed for the bosses of the Johannesburg Property Company, and 19 percent for the CEO of Johannesburg Theatres. Executive pay has risen by 25 percent on average since 2022, which is way in excess of inflation. .Read more:.Treasury vs. Presidency: the looming showdown over South Africa’s SOEs - Patrick McLaughlin.The City has agreed to these settlements although it has large debts to Eskom. Last year, a deal was reached under which the City will pay R3.2 billion of a total of R4.9 billion it owes to Eskom. Eskom had threatened to cut power to Johannesburg unless it received payment. After pressure from the Electricity and Energy Minister, Kgosientsho Ramokgopa, Eskom agreed to a rescheduling and a debt write-off of R830 million of the R4.9 billion that the City owed to Eskom.So, some of what should have been used to meet the City’s debt to Eskom was used to pay the city’s bosses and workers.But now the City is in arrears again to Eskom as it should have paid R4.1 billion by May 4th. Eskom now says it will disconnect street lights in a number of suburbs.It might seem bizarre, as here we have an ANC Minister of Finance, albeit captured by the civil servants in the National Treasury, who is laying down the law to an ANC Mayor. It is definite progress..Read more:.David Ansara: Despair (and hope) in downtown Johannesburg.That is progress, but the Treasury will have to show that it can get the R10.3 billion deal scrapped to prove itself.The Treasury is engaging in a fight that Zille, if she is elected Mayor, would have had to take on with the risk of strikes and aggrieved unions bringing municipal services to a halt.If Treasury can’t do the job, Zille, if she is elected. will have to do this as her first task. And if she is not elected and Treasury can’t do the job, the City is stuck..*Jonathan Katzenellenbogen is a Johannesburg-based freelance journalist. His articles have appeared on DefenceWeb, Politicsweb, as well as in a number of overseas publications. Katzenellenbogen has also worked on Business Day and as a TV and radio reporter and newsreader. He has a Master's degree in International Relations from the Fletcher School of Law and Diplomacy at Tufts University and an MBA from the MIT Sloan School of Management..This article was first published by Daily Friend and is republished with permission.

Jonathan Katzenellenbogen: Fight for Joburg is Treasury v ANC patronage machine

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