Invest in Cities, calls SAcan ministers of Governance and Finance

South Africa’s National Treasury has been developing new funding instruments to make “spatially targeted” investments into under-developed neighborhoods. In a sense, Treasury has been a leading voice for spatial transformation of South Africa’s highly segregated cities. Treasury and Government partners are now reaching out to private sector more than ever.   

Bringing about changes in South Africa’s highly segregated cities have proved to be remarkably difficult in the past two decades. Our cities rank amongst the most unequal in the world, and this is spatially represented by the islands of wealth in a sea of geographic poverty and unemployment. A clear direction for cities’ development has been lacking, but initiatives by the Departments of Finance and Cooperative Governance are seeking to turn this around. 

Whereas in the past public investment was ad-hoc and issue based, there is now a focus of coordinating investments into the most vulnerable and underdeveloped areas in our cities. For this reason, special financing mechanisms have been developed, and in 2006 National Treasury announced the Neighborhood Partnership Development Grant (NPDG). Since that time, the grants have been issued to more than "65 municipalities across all nine provinces and has resulted in 260 NDPG project plans approved, 179 completed (R2 billion transferred) and 81 projects are currently under way (with R1,2 billion transferred)", according to Treasury [PDF, 1,8mb]. 

Some of the most successful projects launched in 2006 are starting to showcase what is possible. Bara(gwanath) Square in Soweto was a target NPDG project for the Johannesburg Property Company. This site was chosen because of its central location in Soweto, and 80,000 daily commuters frequent the busy transport interchange. The upgrades to Bara Square cost R36 million, and this injection has leveraged R150 million of private commercial and retail investments in the form of shopping malls and office blocks. These investments are guided by the urban design framework, which "sets is the basis of the development of an integrated public space network in the node, including formal hard spaces, prominent pedestrian links, boulevards and a major landscaped park", according to consultants Iyer Consulting

Baragwanath Transport Interchange upgrades were part of the NPDG project (Source: Lugwig66 on Flickr)

Baragwanath Transport Interchange upgrades were part of the NPDG project (Source: Lugwig66 on Flickr)

The Urban Development Framework drafted by Iyer Consulting contains the plan for coordinated investment (Source: Iyer Consulting)

The Urban Development Framework drafted by Iyer Consulting contains the plan for coordinated investment (Source: Iyer Consulting)

Some of the improvements included new markets for informal traders at this busy station. (Source: Daniel Hirschmann on Flickr)

Some of the improvements included new markets for informal traders at this busy station. (Source: Daniel Hirschmann on Flickr)

Based on successes such as Bara Square, calls for investment in cities are now intensifying. In August (27 and 28th) the South African National Treasury and the Department of Co-operative Governance hosted the Urban Investment Partnership Conference (UIPC) in Johannesburg. The Conference brought together senior officials from cities, national departments and investors to explore partnership opportunities and “actionable” investment plans for inclusive urban growth.

In his opening keynote address [PDF, 176kb], Minister of Finance Mr. Nhlanhla Nene said:

A relatively small group of only 27 urban municipalities [...] generate 80 per cent of our national economic activity. Although these municipalities occupy less than 6 per cent of South Africa’s land area, they are home to more than half of our population. Furthermore, these municipalities will account for the overwhelming majority of our economic growth in the decades ahead.
— Nhlanhla Nene, Minister of Finance

Minister of Cooperative Governance Mr. Pravin Gordhan reiterated South Africa's urban future when citing UN predictions: 71.3% of South African population will live in urban areas by 2030. That figure will reach nearly 80% by 2050. According to Minister Gordhan, one of the biggest challenges facing South African cities is delivering essential services to the increasing urban poor, while continuing to invest in infrastructure that spurs on economic growth. 

Members of Banking Association of South Africa, Association of Savings Investment of South Africa, South African Property Owners Association (SAPOA) and other Developers and Development Finance Institutions were also present at the conference. SAPOA was invited to represent the perspectives of commercial finances with regard to planning and investment in urban areas. One of the interesting points made by SAPOA was to "assist government in preparing consistent models of how we pay rates, taxes and contributions and the creation of strategic partnerships with local government."

Fundamental funding gaps exist between what is required and what Cities are able to finance. This point was well made by the Director General of Treasury, Mr. Lungisa Fuzile. In his presentation [PDF, 2.2mb], Mr. Fuzile called on long term investors (e.g pension funds) to bolster their confidence in the metropolitan finance systems and stop the funding gap, which is currently almost half of the R43 billion per annum is required for infrastructure development. Currently, there is only R28 billion per annum budgeted. 

The Conference called on the formulation of new partnerships between South African cities and commercial banks, long term investors (such as equity and pension funds) and property developers. The Conference was also an opportunity to revisit some of the commitments made in 2013 when a Task Team on Private Sector Infrastructure Financing was set up. 

Mr. Fuzile showed how cities are cities are decreasing their dependencies on national government transfers (which currently accounts for 20% of annualised revenue) and that in 2015/16 Municipal Bonds account for 45% of municipal borrowing.  

Mr. Fuzile showed how cities are cities are decreasing their dependencies on national government transfers (which currently accounts for 20% of annualised revenue) and that in 2015/16 Municipal Bonds account for 45% of municipal borrowing.  

Cities were able to make presentations on various initiatives such as Bus Rapid Transport (e.g. MyCiti in Cape Town and Rae Vaya in Johannesburg), station upgrades, bulk water, sewerage and electricity investments, hospitals, police stations and schools. 

Cities' plans are now taking the shape of what is proposed by Treasury's Urban Networks Strategy (UNS). UNS is a systematic approach to coordinate set of "spatially targeted" interventions. This means that cities are identifying growth potential areas and crowd in public investments such as public infrastructure investment, urban management, administering development incentives and allowing tax rebates for developers and investors. This coordination happens in order to leverage private sector investment in these strategic locations, such as Bara Square example. 

The Conference was an important one. Considering the stubborn spatial patterns of South African cities, which are both highly inefficient, wasteful, unsustainable and unfair to the poor, we need more concerted efforts to take these good ideas from planning to implementation. 

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