The ten South African municipalities are the autonomous bodies in charge of running the municipalities. There are no unified rules govern the functioning of each municipality. Each has its own power structure, constitution and local government system and each is responsible for the development and maintenance of the rest of the municipalities as well as its section. A municipality comprises a set of governmental and non-governmental organizations that are autonomous from the government and perform certain functions to ensure that the people of the country have an opportunity to lead their lives comfortably.
The South African municipalities are divided into five groups namely the urban communities, the urban poor, the Masai communities, the SAP regional governments and the private organizations. All these entities derive their revenue from taxes and use these revenues for the purposes mentioned under each heading. These revenues are used for housing the people, for schools, for health care and for municipal projects and improvements. In order to avail of the revenues, there are two ways open to the south african municipalities which are the centralized municipal funding model and the decentralized municipal funding model.
Under the centralized financing model, the central government decides how it wishes to spend the funds on each area. For example, they may decide to distribute the income tax revenues to all the municipalities in the country or to provide subsidies to some specific areas. The decentralized financing model, on the other hand, empowers the local governments to control their budgets. There are no constraints whatsoever on how the municipal budget must be formulated. The only constraint that exists is the need for adequate information about the financial condition of the municipalities so that the necessary adjustments can be made to the way the budget is administered and managed.
Municipal financial mismanagement has a negative impact on the overall performance of the South African municipalities. This is because it reduces the possibility of attracting new businesses and residents. When there is financial mismanagement, the people in the municipality suffer from lack of access to basic services like clean water, electricity and good health. Without these basic services, there is a high probability that the demand for goods and services drops considerably. As a result, the revenue earned from the local taxes dries up causing a major problem in the maintenance of social programs and expenditures.
In order to avoid the occurrence of financial mismanagement, South African municipalities must have access to sufficient amounts of capital. This is possible through the inflow of surpluses from the various sources such as the national government, international aid organizations and private foundations. However, there are also instances when the surpluses created by these sources dry up. When this happens, the ability of the municipalities to pay their bills and maintain essential public amenities wanes. In this regard, there is a dire need for South African municipalities to develop the ability to surmount their debt and tackle with the problems of low commodity prices.
In view of the above situation, the federal government has developed a strategic plan known as the Fondo South Africa (South Africa's Electricity Policy). The main objective of the said plan is to enable South Africa's municipalities to surmount their debt and tackle with the problems of low electricity and bad health. The plan sets out to increase the inflow of surpluses by developing inter-ministerial negotiations with the different communities. With this, there is a great possibility that the governments can successfully manage the inflow of surplus electricity.