Urban Investment Partnership Conference | Johannesburg, South Africa 0
Needs and opportunities for urban investment Lungisa Fuzile, Director-General National Treasury Urban Investment Partnership Conference | Johannesburg, South Africa 1
SA cities are increasingly important to national economic growth and development • An opportunity to capture an “urbanisation dividend” from an increasingly young, economically active population clustered in cities • Urban growth requires substantial investments in Social and community assets Economic infrastructure Land and housing Transport services Population +26%, Households +36% 2001 - 11 Urban Investment Partnership Conference | Johannesburg, South Africa 2
Our metro economies must grow significantly faster than the national average • 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%) Annual Change in Gross Value Added (1997-2012) Metros have not yet 7% 8 x Metros recovered to their pre- 6% recession levels of Rest of RSA 5% economic 4% Need to move onto a 3% growth path that is 2% both faster and more 1% 0% inclusive 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -1% -2% -3% Urban Investment Partnership Conference | Johannesburg, South Africa 3
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 Urban Investment Partnership Conference | Johannesburg, South Africa 4
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) Urban Investment Partnership Conference | Johannesburg, South Africa 5
Investment is needed for expansion and renewal of infrastructure 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: 50 2014 Rbillion 45 40 35 30 Renewal 25 Growth 20 Backlogs 15 10 5 - 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 6
… and the location of this investment matters as much as its scale The “ urbanisation dividend” arises from economies of agglomeration (“the triumph of the city”) • 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 Urban Investment Partnership Conference | Johannesburg, South Africa 7
Metro municipalities now provide a strong institutional platform to support faster, more inclusive growth South Africa has an established, globally recognised model of “strong” city governments, within a clear policy and regulatory framework • Single tier Composition of the local government fiscal framework in National Local Government authorities, with The cities with substantial economic activity Transfers Own Revenue wide boundaries LGFF 25% 75% National Local Government • Broad built Transfers Own Revenue environment 20% 80% Rates and Charges charges functions (urban infrastructure, planning & land use HH in informal Poor HH in RDP house Employed HH in RDP Middle to upper management, settlement house with income HH Composition of the local government fiscal framework in housing and improvements municipalities with little economic activity transport) • Free Basic Services • BS consumption • FBS funded by NG • BS consumption Own paid by HH (and (FBS) funded by and cross- • Above FBS National Transfers • A clearly Revenue National cross-subsidisation subsidisation paid by consumption paid by 80% Government (NG) in tariffs) defined, well 20% HH HH (and cross- • HH makes small • HH contributes to subsidisation in regulated fiscal contribution to muni tariffs) muni rates for framework rates for general general services that services that benefit benefit community community Urban Investment Partnership Conference | Johannesburg, South Africa 8
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 Total budgeted expenditures for all metro’s: 2009/10 to 2014/15 ( R’bn ) • 8.6% average annual growth from 250 2009/10 to 2015/16 Total capital expenditure of 200 R34.7 bn in 15/16 (7.7% avg 150 Operating annual growth) Capital Operational spending pressures 100 Total from bulk services costs and 50 wage bill leading to faster growth in operating 0 expenditures 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Urban Investment Partnership Conference | Johannesburg, South Africa 9
Governance is improving Metro audit outcomes show steady progress from 2011 2011 2012 2013 2014 • Room for further Johannesburg Qualified Qualified Unqualified Unqualified progress, where Tshwane Unqualified Unqualified Unqualified Unqualified EOMs remain Ekurhuleni Unqualified Unqualified Unqualified Unqualified • Active national Cape Town Unqualified Unqualified Unqualified Unqualified government eThekwini Unqualified Unqualified Unqualified Unqualified engagement where Mangaung Disclaimer Qualified Qualified Unqualified qualifications persist Nelson Mandela Bay Unqualified Qualified Qualified Qualified Buffalo City Adverse Qualified Qualified Qualified Urban Investment Partnership Conference | Johannesburg, South Africa 10
Adequate revenue performance Growing total revenues and improved collection rates, but debtors challenges remain Collectable debt (2010 – 2015) Annual growth in own revenues: All 14,000,000 metro's (2010 - 2015) 12,000,000 Nelson Mandela Bay 20% Mangaung 10,000,000 eThekwini 8,000,000 15% Ekurhuleni Metro 6,000,000 City Of Tshwane 10% 4,000,000 City Of Johannesburg 5% Cape Town 2,000,000 Buffalo City 0 0% 2010 2011 2012 2013 2014 2015 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Average Collection Rate: All Metros (2010 - 2015) 140 120 100 80 60 M01 M03 M05 M07 M09 M11 M01 M03 M05 M07 M09 M11 M01 M03 M05 M07 M09 M11 M01 M03 M05 M07 M09 M11 M01 M03 M05 M07 M09 M11 M01 M03 M05 M07 M09 M11 2010 2011 2012 2013 2014 2015 Urban Investment Partnership Conference | Johannesburg, South Africa 11
Metros’ capital spending capacity is improving • Variations remain across metro’s • Performance weakens when budgets grow more rapidly Composition of Metro Capital Expenditure All metro capital expenditure growth rates and (Budgets: 2014/15) performance (2010 - 2015) Community 100% Assets 8% 90% Roads 80% Pavements 70% Bridges 60% Storm Water Water 19% 50% Reservoirs 40% and Other Assets 30% Reticulation 37% 10% 20% Electricity 10% Reticulation Sewerage 16% 0% Purification 2010 2011 2012 2013 2014 2015 and Annual growth rate Expenditure performance Reticulation Housing 8% 2% Urban Investment Partnership Conference | Johannesburg, South Africa 12
Capital investment is financed from transfers, internal income, external loans and development charges Reliance on grants has been steadily reduced from 2012/13 Metro sources of capital finance: 2009/10 - • Grant reliance declined to under 2015/16 (R'm) 45% of total funding in 15/16 R 40 000 000 • Capital spending from internally R 35 000 000 generated revenues has R 30 000 000 consequences for R 25 000 000 intergenerational equity and R 20 000 000 efficiency R 15 000 000 • Growing borrowing requirement R 10 000 000 • Scope for more effective use of R 5 000 000 development charges R 2009/10 20010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Transfers Development charges Borrowing Internally generated funds Urban Investment Partnership Conference | Johannesburg, South Africa 13
Municipal infrastructure is an opportunity for long- term investment Brings long-term returns and can reasonably be financed over a 20-30 year horizon. 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. Urban Investment Partnership Conference | Johannesburg, South Africa 14
Municipal borrowing has taken off significantly since 2007 • Municipal bonds now account for 45% of metro borrowing • Average interest rates have begun to decline 50 Development of Long Term Borrowing for SA ( R’bn ) 45 40 35 30 25 20 15 Urban Investment Partnership Conference | Johannesburg, South Africa 15
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