THE CURRENT ECONOMIC CLIMATE

CFO's need to lead the way in the current economic climate

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At the outset I would like to take this opportunity to thank you for allowing me to address you today as the incoming President of CIGFARO. I sincerely appreciate the trust, confidence and faith that you have placed in me, more especially as this is my second term as President of this institute. I have had the honour and privilege of serving IMFO as president from 2004 to 2006 which seems like yesterday. However, the institute has come a long way and you will undoubtedly agree that a lot of great work has been done since then. More work still needs to be done in order to remain relevant in the public sector and I hope to add value to CIGFARO, its members, as well as the municipalities we serve.

There are key strategic issues, I wish to discuss and challenge all members and friends of CIGFARO as I prepare to get more involved in the institute during my term of office. I hope that together with the Board, we will be able to provide effective leadership and guidance on these issues.

Economic Climate

The current economic climate which is characterised by low growth rates, high inflation, high unemployment, weakening currencies, major volatility in financial markets, falling consumer confidence, and investors deferring investments and the employment of additional staff, is a major threat to the financial sustainability and viability of public entities. In times like these it is clearly not business as usual. Cities are regarded as the engines of growth in any economy. Globally and in South Africa, cities contribute about 80% of the national GDP. Accordingly, cities have a huge role to play in turning around the economy and building confidence in the economy, attracting new investors, and creating the right economic climate for the growth of existing businesses and the opening of new businesses. Whilst there still needs to be increased spending on economic development, job creation, balanced budgets and sustainable growth are also required.

The key question is; how do we support business to unlock value? The key to unlocking growth is a spatial framework, transport plan, and housing plan that promote mixed use and integrated development. Experiences globally show that local delivery is more effective than national government delivery in terms of job creation. We need to make the right choices for ideal growth. Improved productivity is crucial. Providing skills development to local communities to support local employers is also significant. Economic clusters, nodal development and densification are critical in terms of the value chain together with climate change and resilience.

Moreover, in the current economic climate, National Treasury has adopted an approach of fiscal consolidation, and consequently, there is increasing pressure to make the rand work smarter and stretch it further. To do this, finance professionals and service leaders should not only focus on balancing the budget, but also on driving real and meaningful change.

Urbanisation

Rural-urban migration is a global trend and is one of the biggest challenges we face today in terms of its impact on service delivery backlogs. The 2011 Census showed that 63% of the population of South Africa is living in urban areas. It is projected that this will increase to 70% by 2030. This problem is compounded by the fact that the current population growth rate is greater than the economic growth rate. We need to work on a national approach to this problem. It is also critical that we help develop an integrated urban development framework to help municipalities better manage rural-urban migration by developing a strategy for rural development. In other words, we need to focus on a holistic development plan. We cannot only focus on the 80% in urban areas; we also need to intensely focus on the 20% in rural economy.

Financial Sustainability and Viability

In light of all this; we need to ensure that we still get the basics right. From a financial sustainability and viability perspective, we still have to:

  • Achieve a clean audit report
  • Improve our credit ratings
  • Produce a balanced budget
  • Maintain a collection rate of over 95% to ensure liquidity and strong cash flow
  • Maximize existing funding sources and pursue alternate sources of funding, such as a local business tax
  • Achieve a balance with economic, social, rehabilitative and environmental spends
  • Pursue the issue of unfunded mandates
  • Borrow prudently taking into account the impact on tariff increases
  • Scrutinise costs on an ongoing basis and drive cost cutting and austerity measures, as well as productivity, return on investment and value for money
  • Focus on the key cost drivers – Top 10 items of expenditure account for over 90% of the spend.

Spending patterns must be closely monitored and irregular expenditure reduced, as well as the use of s36 and s116(3) must be closely monitored. The above must be the key focus areas of accountants, internal auditors and risk officers in terms of areas where they should add value.

Good financial management is also linked to boosting growth in cities which helps public authorities and business in terms of potential public and private investments. Global city growth is dependent on certain fiscal conditions being in place for private and other forms of investment. Appropriate services to engage the local economy and build resilience are also important in realizing inclusive growth. The holistic approach to such smart growth in global cities is intrinsically linked to good financial management. Public financial management plays a crucial role in attracting and promoting sustained economic investment into a local economy from both domestic and international investors.

It also builds municipal financial resilience and sustainable development, promoting the effective and efficient delivery of basic services. Good public finance management also provides leaders, officials and investors with information for better decision making and it helps provide better targeted services.

Environment

The impact of climate change has a very real long-term impact on the sustainability and viability of cities. For that reason, we all need to commit to the triple bottom line meaning that we need to fund sustainable infrastructure projects. The cost-benefit analysis of projects must include the impact on the environment or an environment impact assessment. Some initiatives that we can consider are:

  • Energy Office, as well as an Environmental Planning & Climate Protection Department must be in place
  • Climate Change Strategy must be in place
  • Green innovation in housing projects – LED lighting, solar panels, rainwater harvesting (jojo tanks), more efficient shower heads, heat pumps, etc
  • Awareness campaigns and reducing water pressure
  • All projects must be subject to EIA process and all procurement must meet environmental standards
  • Promoting green buildings through bylaw and standards enforcement
  • Committed to triple bottom line and developing a green economy
  • Explore alternate sources of energy: wind, solar, aqua, etc
  • Undertake sustainable infrastructure projects
  • Develop a model for funding green projects, such as green bonds

Ultimately it is about reducing our carbon footprint and leaving a legacy that the next generation can be proud of in terms of the sustainability of our planet, our people, and our finances.

Innovation & Technology

Innovation and technology is the next key issue. We need to innovate in order to face up to our huge economic service delivery challenges, and mitigate risk. We must optimize the use of technology, especially customer-focused technologies and innovations. For example there are a number of opportunities in revenue management, such as e-mail and SMS billing. WIFI is also important in terms of connectivity and communicating with our consumers. This will help empower our people in terms of informing them and making them aware of issues that impact on them. This will help strengthen our democracy, public participation and transparency, and may even help reduce the number of service delivery protests we have been experiencing.

Technologies and innovations also improve productivity which can lead to lower staff costs and better value for money. However, when doing the cost-benefit analysis of any project, the impact on the environment must be included.

Skills Development and Capacity Building

Skills development and capacity building is another key issue. The recruitment and retention of the next generation of leaders in the Treasury is not only the job of Human Resources. The entire treasury should focus on developing the full potential of future finance officers, and not rely solely on the human resources department. Succession planning also plays a crucial role in creating a sustainable organization. I would like to challenge you all to consider the future and how you will help new employees become tomorrow's financial leaders. We need to ensure that the finance, auditing, risk and accounting professions remain attractive to younger people. Skills such as data interpretation and analytics for modeling service design are becoming increasingly important. We must make the next few years an absolute priority to encourage the future generation and demonstrate our own sense of energy, resilience and optimism.

Conclusion

Finally, just to recap and conclude, the following key strategic issues, I would like to see CIGFARO get more involved in during my term of office:

  • Help public entities survive the current economic climate through economic growth, improved productivity, better collection rates, value for money and return on investment
  • Assist in reducing the rate of rural-urban migration
  • Enhance financial sustainability and viability
  • Commit to the triple bottom line – assessment of all projects in terms of economic, social and environment issues
  • Ensure a balance in expenditure – social, economic, environmental and rehabilitative
  • Optimise the use of technology and innovation
  • Develop the skills and capacity of finance practitioners in the public sector
  • Ensure maximization of service delivery and provide cost effective services.I remind you all that tough times do not last, but tough people do therefore I am sure that we can unite and work together in adding value to improve the quality of life of all our people, especially the disadvantaged and the marginalized.

Our new CIGFARO board will ensure that we continue with the great work and vision of the institute in ensuring that capacity building is a key area that we will focus on. I look forward to your continued support and working with you. We have a lot of work to do and I eagerly look forward to it. I hope that together we can grow CIGFARO to new heights and add value to all our members.

Ngiyabonga. Thank you.

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