cities

An encouraging development is that all of the cities have managed to reduce or stabilise their longterm
liabilities over the last five years (Figure 7.11).
Figure 7.11: Long-term liabilities as a % of operating revenue
60%
45%
30%
15%
JHB CPT ETH TSH EKH NMB MAN BUFF MSU
2010 2011 2012 2013 2014
National Treasury has voiced an opinion that the cities should borrow more for infrastructure
spending, and rely less on capital grants (National Treasury, 2014c), but it is not clear how much
borrowing is appropriate.
When credit rating scores decline, the cost of borrowing increases. For South Africa, the factors that are
currently driving declining credit scores include energy security and perceptions of future political
stability. Most of these factors are beyond the control of municipalities, but cities can (and need to) work
at distinguishing themselves from the sovereign rating by improving financial management, particularly
bad debts, and the productivity of their own revenue sources. They should also explore funding sources
that offer investors alternatives to the riskier sovereign debt-linked instruments.
In 2011, National Treasury claimed that “South African municipalities have an infrastructure
investment requirement of about ZAR500-billion (US$61.7-billion) over 10 years”, of which
metropolitan municipalities account for R300-billion. 14 However, Moody’s, one of the largest credit
rating agencies, estimates that, between 2015 and 2017, these municipalities will only borrow about
R24-billion, of which about 50% will be raised through municipal bonds. 15 Even with this funding, the
gap remains significant.
Four of the cities – Johannesburg, Cape Town, Ekurhuleni and Tshwane – have already entered the
debt capital market:
• In 2014, Johannesburg sold R1.5-billion of debt and plans to raise another R7.5-billion
between 2015 and 2017. Its bonds have dropped 66 basis points to 9.52% since they were
sold in June 2014.
7
14 Moody’s. 2014. Moody’s: South African metros’ borrowing to rise to fund infrastructure projects, 18 May 2014.https://www.moodys.com/
research/Moodys-South-African-metros-borrowing-to-rise-to-fund-infrastructure--PR_325274
15 Ibid
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