Pooled financing the key to development – Mayor Tau
29-01-2015
Johannesburg Executive Mayor Councillor Parks Tau has called on the finance and business community as well as the captains of industry to partner with the country’s metropolitan municipalities to fund and invest in the cities’ infrastructure development.
“With the global economic slowdown hampering [municipalities’] revenue targets and thus the ability to finance most of the infrastructure on the balance sheet, it then becomes critical that we address these challenges collectively,” Mayor Tau said on the first day of the three-day “Innovating in Financing South African Cities Conference” being held at the Sandton International Convention Centre.
The City, which is leading a new push in the quest for African cities to find innovative and sustainable ways of financing infrastructure development projects, has partnered with the Paris-based Global Fund for Cities Development (FMDV) to host the conference.
About 100 local and international delegates are attending the gathering to explore appropriate “pooled financing mechanisms” (PFMs) to help African cities create alternative funding sources for infrastructure development, which is central to unlocking the economic development of the country’s big cities.
Mayor Tau, who is also the co-president of Metropolis, a global association of major cities and metropolitan regions and chairman of the South African Local Government Association, said in the face of the continuing global financial pressures, smaller municipalities were mostly affected by declining budgets to fund infrastructure projects. This had resulted in cities struggling to collect much-needed revenue from their customers.
“The harsh reality in South Africa today is that the small- and medium-sized local government entities, as well as municipalities, need long-term financing at a reasonable cost for a number of infrastructure projects. Most urban infrastructure projects have been financed by the state up now.”
The Mayor said he hoped the conference would come up with innovative solutions as far as PFMs were concerned.
“Economic development is high on our priority list and the onus is upon us as political leaders, national government, municipalities, banking institutions, regulatory bodies, those in the business world and the other stakeholders present here today, all of whom have the interest of our cities at heart, to ensure that the goals that are set are attained and sustained. Central to this is infrastructure development, the key to the development of our economy,” he said.
Mayor Tau said since the City’s first municipal bond in 2004, other municipalities had followed in its footsteps in the debt capital markets.
“The municipal bond issuance has since grown significantly to more than R18.2 billion. The ability by municipalities to access capital markets was made possible by the enabling legislative environment. Local capital markets may be a more adequate and sustainable source of financing for local government. However, challenges such as limited capacity in our municipalities to access financial markets and the cost of servicing the borrowing remain barriers to easily accessing these markets.”
The latest was the City’s Green Bond with a nominal yield of R1,458 billion.
“It is indeed my hope that this conference will yield a positive result with regards to PFMs and address some of the challenges we commonly face as municipalities ... I believe that as a collective we can achieve these goals and share funding solutions that will be mutually beneficial to all,” he said.
Gauteng MEC for Finance Barbara Creecy assured investors that the provincial government was committed to working with the City and the private sector to build the province’s infrastructure through public-private partnerships.
“Both the public and private sectors can play an important role in financing infrastructure investment. The National Development Plan emphasises government’s willingness to take the lead in prioritising infrastructure investment,” said MEC Creecy.
She said to achieve faster economic growth and higher employment, the country needed to promote higher levels of capital spending. Over the next three years Gauteng, together with its combined metros, would spend more than R94-billion on social and economic infrastructure projects. However, this was still not enough to meet the province’s infrastructure needs.
According to international expert and FMDV board member Lars Andersson, African cities were on the right track in their efforts to promote PFM for infrastructure development.
He outlined several benefits to this approach, among them access to capital markets, lower interest margins on loans and lower risks. But in return the cities would have to avoid political interference and be more transparent.