4 February 2008

By Nangamso Mabindla

BUFFALO CITY Municipality has received an A1.za baseline credit assessment rating from the international ratings agency Moody's Investor Service.

The rating means that the municipality's finances are stable.

Explaining its strengths, Moody's says that Buffalo City has shown economic growth in the past three years as a result of the country's economic upturn. Another factor is the emergence of a black middle class, which has resulted in major residential and commercial development.

"Based on the size of its revenue, Buffalo City is one of the larger local municipalities in South Africa and demonstrates prudent financial policies and manageable debt levels [relative] to its size," the agency says.

Sound financial management, the focus on retaining experienced senior executives and an economy that is dominated by the strong automotive industry thanks to the DaimlerChrysler (Mercedes Benz) assembly plant in East London, also contributes to Buffalo's credit strengths.

However, the A1.za rating also reflects a municipality with high levels of unemployment and poverty. About 71 percent of its 880 000 people earn less than the household subsistence level of R1 500 a month, with the housing backlog standing at 75 000 low-income houses.

With initiatives like the East London Industrial Development Zone from the Department of Trade and Industry, Buffalo City's infrastructure, economic growth and job creation are set to improve. Located 2,5 kilometres from the airport and five kilometres from the port, the zone has already secured three investors that are expected to create about 400 permanent jobs.

Chief financial officer Brian Shepherd said that the rating by Moody's would improve investor confidence in Buffalo City.

"This is an international credit rating agency, and what it is saying to investors is that Buffalo City is stable and a good place to do business in."

He said that the rating was also good news for banks, which were interested in lending funds to the City. "This rating tells banks that the municipality is a safe place to lend your money to, because we have the ability to service our loans."

Shepherd said that the Development Bank of Southern Africa had shown this confidence in 2007 when it had loaned the City R250-million to overcome its infrastructural challenges.

The Moody's report also says that the City's debtors' collection rate is higher than the industry average.

"The debtors' collection rate, at 94,4 percent, is higher than the industry average of about 90 percent. A large portion, 65 percent, of outstanding debtors indicates balances of older than 120 days. The municipality has raised provisions against them, but it is considered insufficient by about R100-million, given the municipality's current experience with the collection of old debts," the agency says.

However, it adds that anticipated growth in economic activities and residential and commercial property development are expected to increase the municipality's future revenue base.

Source: Buffalocity.gov.za