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The financing and rejuvenating of SA cities

- Iraj Abedian and Nthabiseng Tsoanamatsie

South Africa’s urban infrastructure requires sustained attention but what are the costs associated with doing so?

Cities are important contributors towards economic development, and metropolitan centres such
as Johannesburg (in South Africa) already make up a substantial share of national GDP according to
UN-Habitat (2018).

The City of Johannesburg contributes approximately 16% towards South Africa’s economy, while the country’s eight metropolitan municipalities account for 58.4% of national gross value added (National Treasury, 2019). Within the evolving dynamics of the 21st century, cities, and metropoles in particular, have become the locomotive of economic growth, innovation, and global connectivity.

In this context, the quantity and quality of urban infrastructure form the backbone of modern economies.

Notwithstanding the significant role they play in South Africa’s economy, over the past two decades,
the country’s urban centres have experienced massive expansion without a commensurate upgrade
and investment in the urban infrastructure.

To the contrary, there are signs of deterioration of urban planning standards, and a collapse of coordination across various infrastructure divisions. Whilst numerous studies and reports have documented these developments, the growing urban population of the country, the sprawling cities and the spread of peri-urban settlements bear testimony to the lack of an eff ective urban planning and infrastructure design for the medium to long-term.

Meanwhile, the poorly maintained “old infrastructure” is visible in the form of numerous potholes,
mal-functioning traffic lights, inadequate supply of power, frequent disruptions to water supply and
continuous residents’ concerns around municipal billing, garbage collection and many other utilities
and services that define urban living. It is noteworthy that these observations apply to almost all themetropolitan centers, albeit with some variations.

As such, South Africa’s urban infrastructure requires sustained attention. This is echoed by the National Treasury (2011) underscoring the fact that because of high levels of economic growth and urbanization, a number of challenges are faced by these municipalities, including increased demand for infrastructure and ageing assets requiring upgrade, rehabilitation or replacement.

Similar infrastructure challenges are highlighted by a paper that is part of the Department of Cooperative
Governance and Traditional Aff airs (CoGTA)’s Integrated Urban Development Framework (2016).

Meanwhile, the 2018 South African State of City Finances (South African Cities Network) argues that
because of urban infrastructure ongoing requirements, metros have a capital expenditure funding
gap of between 10% and 38%, and failure to close this gap will result in municipalities not being
able to meet their core mandates over the medium to long-term.

To a large extent the deteriorating state of the cities’ infrastructure has also impacted the support
among the residents, causing fractures in their political allegiance to the various political parties
and leading to complications for the stability of governance of the cities.

The political stalemates and administrative shenanigans in the Nelson Mandela Metro, Tshwane, Johannesburg and George are but a few cases in point. In brief, the local government sphere in the country is saddled with an array of interrelated challenges, ranging from the electoral system underpinning the formation of local governments to the number of municipalities, and hence the viability of the underlying local economy and the revenue base to sustain the local governance structures.

The present Think Piece, however, has a very narrow focus, concentrating on infrastructure finance
only, and even then, more narrowly exploring options for the funding of a particular category of
infrastructure that lends itself to capital market participation. In general, local governments the world
over have three sources of funding; namely: own revenue sources, intergovernmental transfers, and
capital market funding.

Capital market participation is best suited to the category of urban infrastructure that has sustainable
revenue generating capacity. This category comprises urban utilities such as water supply and
reticulation, power supply and distribution, garbage collection, and in general, any services that the
municipalities are able to charge the residents for the services rendered.

The financing and rejuvenating of SA cities