The efficient functioning of cities is vital to South Africa’s social and economic stability and success. Cities have an essential role to play in transforming and developing the country, especially as several cities have larger budgets and populations than some provinces. They are responsible for managing large amounts of money and delivering services that affect millions of people every day. Therefore, municipal officials, councillors, civil activists and others interested and involved in local government have a duty to understand and debate how cities spend their money. Throughout the developing world, local government is under pressure to provide increased and better services, as more and more people live in cities. South Africa faces the additional challenge of dealing with divided and unequal cities – a legacy of apartheid. Building inclusive cities requires investing in urban developments that will address the widespread poverty, huge inequalities, overstretched (at times inadequate) infrastructure and serious service backlogs, which affect especially the poor.

Only through efficient and sustainable use of financial resources will cities be able to transform into places where all can live and work. And the key to effective local delivery is good financial management. The SACN has been measuring and reporting on the financial position and performance of South African city governments since 2006.

This report continues the series of publications produced by the South African Cities Network (SACN) publications on the financial position and performance of city governments. (See the State of City Finances 2007 and the State of South African Cities 2011, both published by the SACN.) This report reviews and updates many of the major themes examined in previous reports. It also introduces a new focus – the fiscal capacity of city governments to meet their expenditure responsibilities. In addition, the easy-to-understand guide to city finance was developed using information from the latest SACN State of City Finances Report 2011. The guide provides a framework of nine financial indicators that can be used to analyse and explain the state of city finances and highlights the changes and challenges that cities are experiencing.