Urban Sector and Municipal Finance in South Africa

The World Bank has been supporting the urban sector and municipal finance in South Africa for over a decade. In the early 1990s Bank support focused on extensive analysis of infrastructure backlogs in formerly black townships, which gave the ANC government’s Reconstruction and Development Program (RDP) a firm starting point for new investment in 1994. The government’s Municipal Infrastructure Grant (MIG) has evolved into a transparent, predictable poverty-targeting subsidy mechanism that currently funnels over $1 billion annually to poor communities.

In the late 1990s Bank support to SA focused on the transformation of the more than 900 racially based local governments into 284 representative local authorities, as well as the design of the Restructuring Grant. The grant has delivered more than $300m to larger local governments to fund transformation costs and support to Johannesburg’s iGoli development strategies, which have become models for South Africa and NEPAD.

The Municipal Financial Management Technical Assistance Project (MFMTAP), totaling US$15 million is the only active IBRD loan to South Africa. It supports the building of financial management capacity in more than 40 key municipalities around the country. The World Bank country office is also supporting the government in (a) the management of the emerging municipal bond market, (b) the establishment of a Municipal Financial Recovery Service, (c) an analysis of local government pensions funds, and (d) the strengthening of the government’s oversight role in municipal public/private partnerships.

In addition, the World Bank assists the South African Cities Network through significant Cities Alliance grant support for city development strategies and exchanges of knowledge. The nine largest cities in South Africa account for over 60 percent of GDP; and South Africa accounts for about 40 percent of the Sub-Saharan economy. This means these cities produce more than 20 percent of the region’s economy. At the same time, they house over 50 percent of the country’s poor population as South Africans have increasingly migrated into urban areas seeking employment and a better life.