URBAN INVESTMENT PARTNERSHIP CONFERENCE › comm_media › presentations › 2015082701...Metro performance has been consistently improving Metros have large and growing budgets, totaling

Urban Investment Partnership Conference | Johannesburg, South Africa 0

Needs and opportunities

for urban investment Lungisa Fuzile, Director-General National Treasury


• An opportunity to capture an “urbanisation dividend” from an increasingly young, economically active population clustered in cities

SA cities are increasingly important to national economic growth and development

• Urban growth requires substantial investments in Social and community

assets Economic infrastructure Land and housing Transport services


Population +26%, Households +36%

2001 - 11

• Metro economies accounted for 44.8% of GVA in 2012, from 39.9% in 1996 • Metro CAGR of 3.7% between 1996 & 2012 (SA = 3%)

Our metro economies must grow significantly faster than the national average


Metros have not yet recovered to their pre-recession levels of economic

Need to move onto a growth path that is both faster and more inclusive

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Annual Change in Gross Value Added (1997-2012)

8 x Metros

Rest of RSA

Enabling faster, more inclusive growth requires a complementary focus on both universal access to basic services and investment in economic infrastructure

Significant progress by metros in addressing basic service backlogs, even with on-going population growth


• Electricity and water backlogs are decreasing throughout all 8 metros

• Sanitation backlogs have declined in 6 out of 8 metros

• Success achieved despite influx of population in cities

Large investments in urban infrastructure are needed to unlock growth potential of cities

Around R43 billion per annum is required for infrastructure development in metros until 2025 – compared to current metro budgets of around R28 billion on average over the MTREF (adjusted to 2014 Rands).


Infrastructure investment requirement

Budget (MTREF)

Investment is needed for expansion and renewal of infrastructure

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2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

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Rb

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Renewal

Growth

Backlogs

Metros need infrastructure mostly for growth and to renew existing assets, a smaller share is required to eradicate historical backlogs.

Expected infrastructure needs by category for metros:

… and the location of this investment matters as much as its scale

• Low density, segregated cities are a reflection of the infrastructure investment and land use development choices we make

• This spatial form is a structural constraint to economic growth: it transfers costs to poor households, the state and ultimately back to the real economy

• We need to build cities that are inclusive and productive


The “urbanisation dividend” arises from economies of agglomeration (“the triumph of the city”)

Metro municipalities now provide a strong institutional platform to support faster, more inclusive growth

• Single tier authorities, with wide boundaries

• Broad built environment functions (urban infrastructure, planning & land use management, housing and transport)

• A clearly defined, well regulated fiscal framework


South Africa has an established, globally recognised model of “strong” city governments, within a clear policy and regulatory framework

•Free Basic Services (FBS) funded by National Government (NG)

•FBS funded by NG

•Above FBS consumption paid by HH (and cross-subsidisation in tariffs)

•BS consumption paid by HH (and cross-subsidisationin tariffs)

•HH makes small contribution to munirates for general services that benefit community

•BS consumption and cross-subsidisation paid by HH

•HH contributes to muni rates for general services that benefit community

The

LGFF

National

Transfers

25%

Local Government

Own Revenue

75%

HH in informal settlement

Poor HH in RDP house Employed HH in RDP house with improvements

Middle to upper income HH

Rates and chargesCharges

National

Transfers

20%

Local Government

Own Revenue

80%

National Transfers

80%

Own

Revenue

20%

Composition of the local government fiscal framework in cities with substantial economic activity

Composition of the local government fiscal framework in municipalities with little economic activity

• 8.6% average annual growth from 2009/10 to 2015/16 Total capital expenditure of

R34.7 bn in 15/16 (7.7% avg annual growth)

Operational spending pressures from bulk services costs and wage bill leading to faster growth in operating expenditures

Metro performance has been consistently improving

Metros have large and growing budgets, totaling R214.5 bn in 2015/16 Johannesburg has largest budget, R52.6 bn


0

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250

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

Operating

Capital

Total

Total budgeted expenditures for all metro’s: 2009/10 to 2014/15 (R’bn)

Governance is improving


Metro audit outcomes show steady progress from 2011

2011 2012 2013 2014

Johannesburg Qualified Qualified Unqualified Unqualified

Tshwane Unqualified Unqualified Unqualified Unqualified

Ekurhuleni Unqualified Unqualified Unqualified Unqualified

Cape Town Unqualified Unqualified Unqualified Unqualified

eThekwini Unqualified Unqualified Unqualified Unqualified

Mangaung Disclaimer Qualified Qualified Unqualified

Nelson Mandela Bay Unqualified Qualified Qualified Qualified

Buffalo City Adverse Qualified Qualified Qualified

• Room for further progress, where EOMs remain

• Active national government engagement where qualifications persist

Adequate revenue performance


Growing total revenues and improved collection rates, but debtors challenges remain

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2010 2011 2012 2013 2014 2015

Average Collection Rate: All Metros (2010 - 2015)

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5%

10%

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20%

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

Annual growth in own revenues: All metro's (2010 - 2015)

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2010 2011 2012 2013 2014 2015

Collectable debt (2010 – 2015)

Nelson Mandela Bay

Mangaung

eThekwini

Ekurhuleni Metro

City Of Tshwane

City Of Johannesburg

Cape Town

Buffalo City

Metros’ capital spending capacity is improving


• Variations remain across metro’s • Performance weakens when budgets grow more rapidly

Roads Pavements

Bridges Storm Water

19% Water

Reservoirs and

Reticulation 10% Electricity

Reticulation 16% Sewerage

Purification and

Reticulation 8%

Housing 2%

Other Assets 37%

Community Assets

8%

Composition of Metro Capital Expenditure (Budgets: 2014/15)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015

All metro capital expenditure growth rates and performance (2010 - 2015)

Annual growth rate Expenditure performance

Capital investment is financed from transfers, internal income, external loans and development charges


Reliance on grants has been steadily reduced from 2012/13

• Grant reliance declined to under 45% of total funding in 15/16

• Capital spending from internally generated revenues has consequences for intergenerational equity and efficiency

• Growing borrowing requirement • Scope for more effective use of

development charges

R

R 5 000 000

R 10 000 000

R 15 000 000

R 20 000 000

R 25 000 000

R 30 000 000

R 35 000 000

R 40 000 000

2009/10 20010/11 2011/12 2012/13 2013/14 2014/15 2015/16

Metro sources of capital finance: 2009/10 - 2015/16 (R'm)

Transfers Development charges Borrowing Internally generated funds

Municipal infrastructure is an opportunity for long-term investment

Key players in the private sector:

• Banks have experience in lending to cities.

• Long-term investors can offer longer term investment.

• Developers invest in large-scale construction and can guide spatial transformation.

Jointly the private sector, cities and national government can explore profitable urban investment options.

Brings long-term returns and can reasonably be financed over a 20-30 year horizon.


Municipal borrowing has taken off significantly since 2007

Urban Investment Partnership Conference | Johannesburg, South Africa

• Municipal bonds now account for 45% of metro borrowing • Average interest rates have begun to decline

15

15

20

25

30

35

40

45

50 Development of Long Term Borrowing for SA (R’bn)

Remaining challenges are opportunities for new partnerships


* JHB - TSH - EKU - ETH - CPT - NMA

16

020406080

100120140160

Debt service and revenue of cities* in million Rand

Actual Debt service Revenue

Opportunities:

• Improving effective demand through robust financial preparation

• Intermediation to extend debt maturities, enhance liquidity and expand participation by institutional investors

• Tools to match infrastructure costs to beneficiaries (land value capture, development charges)

Challenges from municipal financial and capacity pressures, and from market developments (BASEL III)

Metros

National Government

Private Sector

We need a partnership with shared responsibilities

Metros: • Building local infrastructure and delivering

services • Raising funds, planning and implementation • Meeting the needs of people and firms Private sector: • Providing investment • Selling goods and services and earning fair

returns on investments National Government: • Providing a stable and predictable

intergovernmental fiscal regime • Enabling cities to achieve national targets of

productive employment, low rates of inequality and shared prosperity


Government is committed to continue support to metros

• National Development Plan and Integrated Urban Development Framework provides direction on devolution of functions and clarifies leadership role of metros in managing urban growth and development

• A credible and effective municipal framework has been established to provide clarity and certainty:

Municipal Borrowing Policy Framework

Constitutional Amendments

MFMA (2003)

Division of Revenue Acts


An enabling policy and legal framework to support urban development

18

The Cities Support Programme provides:

• Fiscal and financial frameworks for urban development

– Review of the grant system and the equitable share aim to better complement private sector and own-revenue investments of cities

– Financial management reforms through the MFMA, to improve transparency and credibility of information, (including MSCoA)

– Support to revenue value chains, from revenue administration to clarification of regulatory framework for development charges

• Policy and regulatory reforms to improve the efficiency of infrastructure delivery

– Strengthen the role of the DBSA as an intermediary that assists in the growth of the municipal market

• Support to cities to plan and execute investment programmes

– Built Environmental Performance Plans that create a line of sight between plans, investment programmes, budgets and projects

– The Cities Project Preparation Facility supports cities in developing a pipeline of catalytic, spatially integrated infrastructure projects


This fits with our broader discussions

Key issues identified include

• Availability of projects to invest in

• Need for efficient, effective (procurement) processes that allow investors to access investment opportunities

• Need for financial intermediation to allow access of new players, new finance instruments or new approaches for a wider pool of finances

Two sectors adopted to track and assist with specific problem-solving

• IPPs – economic infrastructure case

• Student accommodation – social infrastructure


Task Team on private sector financing of infrastructure formed in 2013 to work through general issues affecting increased private involvement in the financing of infrastructure projects; identify blockages; and better understand investors concerns

Next steps for the partnership

1. Set up a working group on urban financing with members from the private sector, cities and national government to focus on

– Policy and regulatory environment for public-private collaboration on urban investment

– Deepening a suite of municipal infrastructure finding

– Expanding opportunities for private finance in urban development programmes

2. Increase project preparation support through

– Showcasing good practices

– Joint governance of available project preparation facilities

3. City-level engagements


Documents

URBAN INVESTMENT PARTNERSHIP CONFERENCE › comm_media › presentations › 2015082701...Metro performance has been consistently improving Metros have large and growing budgets, totaling