South African metros’ borrowing to rise to fund infrastructure projects

Johannesburg, South Africa (Capital Markets in Africa):-  South African metropolitan municipalities’ borrowing is expected to increase over the next three years to help pay for infrastructure spending needed to provide adequate electricity, water, roads and social housing for growing populations, Moody’s Investors Service said in a report published today.

The report, entitled “South Africa Metropolitan Municipalities: Borrowing to increase as infrastructure investment needs rise”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

Rapid urbanisation, fast-rising populations and an historic backlog of work have combined to leave municipalities facing higher bills to maintain or build new infrastructure.

“Infrastructure has become one of the critical expenditure items for South African municipalities,” says Daniel Mazibuko, Moody’s Associate Analyst and the report’s author. “These municipalities are striving to increase capital investment at a time of subdued growth in central government transfers.”

South Africa’s eight metropolitan municipalities are planning combined capital expenditure of around ZAR103 billion (US$8.5 billion) in 2015-17, up sharply from ZAR69 billion (US$6 billion) in 2012-14. This projected increase will coincide with a slowdown in the average growth rate in metros’ capital transfers from the national government to 4% in nominal terms, compared with 12% in 2012-14.

National Treasury figures published in 2011 estimated that South African municipalities have an infrastructure investment requirement of about ZAR500 billion (US$61.7 billion) over the next 10 years, with metropolitan municipalities accounting for about 60% of the total.

Most of the total is needed to finance new infrastructure, while a smaller share will be spent on upgrading existing assets.

Four large metropolitan municipalities – City of Johannesburg, City of Cape Town, Ekurhuleni and Tshwane – have diversified their funding sources by entering the debt capital market. These municipalities will borrow about ZAR24 billion in 2015-2017, of which about 50% will be raised through bond issuance. The remaining four metros are expected to enter the capital market in the near future.

Subscribers can access this report via this link: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1005243