Transcript CoJ Template

The importance of funding for
Sustainable Cities
Jason Ngobeni
City Treasurer
20 September 2006
Johannesburg, South Africa
South Africa Cities
Tshwane
Ekurhuleni
Johannesburg
Thekwini
Nelson Mandela
Cape Town
Population
POPULATION OF METROS IN SA - 2001
3500000
3000000
POPULATION
2500000
2000000
1500000
1000000
500000
0
1
Joburg
3225810
eThekwini
3090117
Cape Town
2893251
Ekurhuleni
2482090
Tshwane
1985984
Nelson Mandela
1005776
Objectives and mandates of Local
Government in terms of the Constitution

Ensure the provision of services to communities in a sustainable
manner

Promote social and economic development

Promote safety and health environment

Encourage the involvement of communities and organisation in the
matters of local government
Local Government in SA

Metropolitan Municipalities

Local Municipalities

District Municipalities

TOTAL
6
231
47
284
Local Government in SA (Cont)
OPERATING AND CAPITAL BUDGETS 2004/5
Capital
Budget
Operating
Combined
Budget
R 17 billion
R 84 billion
R101 billion
Metro’s reported an avarage spending above 90% in its capital
budget
Challenges for Budgeting

Striking a balance between social and economic expenditure in
local government

Budget preparation and implementation process requires the
involvement of both financial and non-financial managers (both
should take ownership of, and responsibility for, the decisions
made around the budget, and its implementation.

Economic indicators point towards further growth acceleration
Challenges for Budgeting (Cont)

Achieve optimum revenue collection is essential to support
operational expenditure,

Efficient use of resources

How well do funds reach the levels where they are needed
Challenges for Budgeting (Cont)
In order for Local Government to deliver in its mandate the following
should be considered

Financial Resources
Debt Management (working together with consumers)
 Developing long term financial plan that takes into account
financial and service delivery sustainability


Human resources (Capacity building)
The emphasis should be on how the funds are being spend rather than
how much has been spend
Challenges for Budgeting (Cont)

Recognize the relationship between operating and capital
budgets

Taking care of the assets and plan the replacement of
infrastructure

Infrastructure and service backlogs acceleration
Challenges for Funding

Long-term financial planning to support funding plans

Demonstrating Capital expenditure spending (Joburg 95%
2005/6)

Achieving an optimum CAPEX allocation, i.e. maintaining and
increasing the municipal revenue base and providing needed
service delivery

Consistency of CAPEX prioritization models

Cashflow projections, easier to project outflows than inflows

Availability of funding instruments to matching assets and
liabilities profiles
Challenges for Funding (Cont)

Need for a credit rating, i.e. at the least a national scale
local currency

Interest rate environment, fixed rate vs variable rate
borrowing

Demonstrated fiscal discipline, both in budgeting and
spending

Compliance to all legislative and legal requirements
Strong Legal Framework for Investors

Depth of legal system

Independence of judiciary

Enforceability and
ccontinuity of agreements

Strict compliance to
legal framework
required of Municipalities

Comprehensively
regulated financial market
THE CITY AT A GLANCE

Population of Johannesburg grew from 2 639 110 to 3 225 810
(between 1996 and 2001)

Suggests that the population grew by 22% over a 5 year period –
average of 4.4% per annum

City economy has been growing at an average of 6%

Previous studies suggested that the population will only grow by
about 1% per annum

Result of high migration and lower-than-expected mortality
(however, Stats SA did not release mortality figures)

Number of burials (City Parks’ figures): 15 000 (1995); 20 000 (2000);
19 000 (2002); 22 000 (2004)

Females = 50.2%; and males = 49.8%
Johannesburg – Africa’s only world city
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The GaWC Inventory of World Cities
ALPHA
WORLD CITIES
BETA
WORLD CITIES
Gamma
World Cities
Share of National Economic Product
100%
39%
16%
USD 12bn
USD 30bn
Johannesburg Gauteng
USD 78bn
South Africa
Basic parameters
 25
000 staff employed in 15 service delivery entities
 Provide
services to over 3.2 million people
 Over
1 million households
 Approximately
 Consolidated
100 000 businesses
2006/7 budgets
 Operating
ZAR 17,800 m (approx USD 1,840 m)
 Capital
ZAR 3,200 m (approx USD
 Total
ZAR 21,000 m (approx USD 2,140 m)
 Revenue
300 m)
function has 805 000 active customer accounts
* Conversion rate – 1 USD = 6.5 ZAR
The City of Johannesburg
Background
Timeline of CoJ progress
Pre 1994
Johannesburg is divided into 13 separate local government administrations,
categorised along racial lines
1995
First local government election in November 1995. Creation of the Greater
Johannesburg Municipal Council, with sub-structures or metropolitan local
councils (MLCs)
1996 –1999
Inexperienced management, aggressive spending, wasteful expenditure and
low collections which led to financial crisis
1998
City reports a R300 million budget deficit, a R405 million overdraft and a no
capital budget
1999
Introduction of iGoli2002, a three year financial restructuring and service
delivery reorganisation plan
2000
Amalgamation of the Greater Johannesburg Municipal Council with the four
MLCs. Boundries were extended to include Edenvale, Modderfontein and
Midrand. Formation of CoJ
2001/2002
City reports a R153 million operating surplus
2004/2005
City reports a net surplus of R1.1 billion and cash and short-term investments
of R1.6 billion
Source: Mayoral Review 2006
Credit rating history
1999:
Fitch
2003:
Fitch (Upgraded)
A-
F2+
CA Ratings (New)
A
A2+
Fitch (Reaffirmed)
A-
F2+
A
A2+
A-
F1 (Upgraded from F2+)
A
A1 (Upgraded from A2+)
2004:
CA Ratings (Reaffirmed)
2005:
Fitch (Reaffirmed)
CA Ratings (Reaffirmed)
2006:
BBB+
F2+
Fitch (Upgraded from A-) A
CA Ratings (Upgraded from A)
A+
F1 (Reaffirmed)
A1 (Reaffirmed)
Sources of operating Income
Fines & Licences
Other
2%
4%
Subsidies
3%
Electricity
29%
Refuse
3%
Payroll &
turnover taxes
13%
Water &
Sewerage
23%
Property Rates
23%
City of Joburg projected CAPEX
(ZAR m) to 2010
4000 4000
4000
3750
3600
3,500
3200
3,035
2800
2400
2000
1,978
1600
1,346 1,295
1,280
1,105
800 949
Oct-09
2008/9
2007/8
2006/7
2005/6
2004/5
1999/0
2003/4
295
2002/3
309
1998/9
1997/8
1996/7
1995/6
0
632
592
2000/1
400
2001/2
1200
Sources of CAPEX Funding
Provincial housing
grants
25%
National
infrastructure grant
8%
Developers
contributions
7%
Loan funding
60%
About the Joburg Municipal Bonds ?

The City’s capital investment requirements are too
larger for traditional bank loans (single obligor limits per
institution)

Estimated at over R8 billion, CAPEX backlog require a
substantial funding strategy

Need to reduce the cost of funding

Changing market practice, to fund capital projects
sustainably and reduce carry costs

Expand the alternative sources of funding
About the Joburg Municipal Bonds? (Cont)
 The
proceeds will be invested mainly in revenuegenerating capital projects …
…
resulting in an expanded revenue base for the City
 To
extend the funding maturity profile
 To
more closely match the asset and liability profile
 Great
potential for further credit rating improvement
due to a stable financial profile and investor spotlite
 Employment
enhanced
is generated and poverty alleviation
Pre-conditions for a successful
municipal bond issue
 Sound
legal framework
 Sound
public policies - sound fiscal policies, low interest
rates, strong currency
 Investment
grade long-term credit rating -
 Ability
to manage the bond issue - internal treasury
capacity
 Good
long-term strategy & planning e.g. economic
development strategy and long term capital development
plans
 Sound
and stable leadership & management
 Politicians
& officials
 Know
your problems, have a plan to deal with them,
and show some progress.
 Significant
spending of CAPEX (at least 90%)
Historical bond performance
Performance as at 18 Sep 2006
Bond
code
Nominal
amount
Government
benchmark
Original credit Spread
spread
(bps)
Maturity
COJ01
R1bn
12-Apr-10
11.95
R153
230bps
90
COJ02
R1bn
15-Sept-16
11.90
R157
164bps
120
COJ03
R700m
26-Apr-13
9.70
R157
154bps
105
COJ04
R1.2bn
5 June 2018
9.00
R203
120bps
105
Coupon
Key Prudential Ratios
Benchmark
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Debt / Revenue
50%
38.5%
44.6%
49.2%
48.1%
49.9%
50.0%
Interest / Operating
7%
6%
5%
6%
7%
7%
7%
Salaries / Operating
28%
26.4%
27.2%
27.2%
26.8%
26.6%
26.5%
Key Ratio
For more information please visit the following websites …
 http://www.joburg.org.za
- Joburg Home page
 http://www.joburg.org.za/city_vision/index_plans.stm
- 2030 Vision
 http://www.joburg.org.za/cmu/cmu_uac.stm
- Utilities
 http://www.blueiq.co.za
- Blue IQ Home page