Minister Gordhan calls for actionable urban investment partnerships
“Financing urban infrastructure investnment to catalyse inclusive economic growth and spatial transformation”
Minister of Finance, Mr Nhlanhla Nene,
Executive Mayors,
Directors-General of Cooperative Governance and National Treasury,
Local government leaders and experts,
Representatives from the business sector,
Ladies and Gentlemen,
Good morning and a warm welcome to all delegates present here today. Congratulations to Wayde van Heerden and Anaso Jobodwana on their performances at the World Athletics Championships in Beijing. For those of you that don’t know Wayde won the Gold Medal in the 400 metres. So despite the doom and gloom some may focus on, there are many good things happening in South Africa.
African cities are on the rise. With a population exceeding a billion and an economy that is expected to double from US$2 trillion to US$4 trillion before 2025, Africa is seen as the next golden opportunity of economic growth. Over half the world’s current population are urbanised, contributing in some cases up to 80 percent of a country’s GDP. It is estimated that by 2025 cities will contain over 4 billion consumers, and over 50 percent of these will be in emerging market. By 2030, more than half of Africa’s population will live in cities, with this number expected to increase to over 60 percent by 2050. Africa’s growing middle class, and a young population coupled with increasing technological innovation are accelerating the rise of cities as engines of economic growth.
The United Nations estimates that 71.3% of the South African population will live in urban areas by 2030. That figure will reach nearly 80% by 2050. Urban centres dominate the country’s economy, as cities and large towns produce over 80% of the national gross value added (GVA). Metros are growing twice as fast as other cities and towns and also have much higher (by about 40%) average incomes, compared to the country as a whole.
How to maximise the potential of our cities, focusing on our metros in particular, lies at the heart of our efforts to invigorate urban development. We acknowledge that there currently exists a gap in dialogue between investors, developers and municipalities on urban development strategies, plans, programmes and investment opportunities. It is on this basis that the National Department of Cooperative Governance and National Treasury have joined hands to host this conference. This is one of many forums through which government is reaching out to the private sector, in an effort to strengthen dialogue and together find solutions in line with our Vision for South Africa, as outlined in the National Development Plan.
A continued multi-stakeholder dialogue such as this one, is imperative to successfully mobilize the extensive resources of government and the business community towards the achievement of a profound development impact on the ground.
After 21 years of democracy we are still confronted with the following challenges:
- Our urban areas remain segregated and hampered by apartheid spatial planning
- Our cities continue to face the enormous challenges of service delivery, while keeping pace with an increasing demand placed on them mainly as a result of rising urbanisation, with metro municipalities’ growing twice as fast as other smaller cities and towns.
- In some instances, the cities have tended to focus on the needs of their existing populations and struggled to anticipate and prepare for growth.
- The increase in urban poor means a continuous challenge of balancing the provision of social infrastructure versus economic infrastructure that will support inclusive and sustainable economic growth.
- Insufficient service delivery models that enable our metros to use infrastructure provision more effectively as a means for improving inclusion and access, and ultimately improve the quality of life of ordinary citizens.
- Inadequate partnership for infrastructure planning and delivery that addresses both the public and private sector needs and requirements.
A study recently undertaken by the South African Cities Network to assess South Africa’s largest cities’ economic, investment and business potential as well as the potential well-being and progress of their citizens highlights some important issues that require our immediate attention. Using the criteria used in the MasterCard African Cities Growth Index, and looking at several variables such as urbanisation, governance, ease of doing business (business friendliness), travel, infrastructure, connectivity and variables of economic well-being (such as per capita growth, household consumption expenditure growth and middle-class households as a percentage of total households), the study found out that:
- Six of South Africa’s cities – Tshwane, Ekurhuleni, Cape Town, Johannesburg, eThekwini and Nelson Mandela Bay – fall into the Medium-Low Inclusive Growth Potential band. According to the study, these cities have the ability to maintain their economic size and current levels of labour participation in their economies. However it is unlikely that their economies will grow sufficiently, that labour participation in their economies will increase sufficiently to ultimately include the full span of their expanding populations, or that they will be particularly attractive destinations for investment in the near to medium term.
- The three lowest ranking South African cities – Buffalo City, Msunduzi and Mangaung – fall into the Low Inclusive Growth Potential band. These cities have economies that do not show significant growth, they may be stagnant or shrinking, and they do not have the potential to ultimately incorporate their expanding populations in their economies.
Such findings are a clarion to all of us, both inside and out of government to work together. It is also an indication that several interrelated factors require attention if we are to realise the economic potential that our cities have to offer. We also acknowledge the important role of urban infrastructure in promoting inclusive growth and access.
The recently released World Bank report on the Sub-national Doing Business Report has given us some indication on where we as government can improve. The Report identifies compliance costs, efficiency and opportunity costs, non‐compliance costs and administrative costs, such as slow approval of permissions. We are working closely with the Department of Trade and Industry and the South African Local Government Association (SALGA) to implement a Red Tape Reduction Programme to reduce these compliance costs.
As a South African community we are working with a common vision set out in the National Development Plan (NDP). The National Development Plan provides both the public and private sector, as well as society at large with a unique opportunity to jointly plan, deliver and implement a new South Africa.
The NDP is a plan for the whole country and not just for government. The private sector has a major role to play in achieving the goals of poverty reduction, economic growth, economic transformation and job creation.
The NDP Diagnostic Report identified a failure to implement various policies and an absence of broad partnerships as the main reasons for slow progress. A joint collaborative approach by public, private and non-governmental sectors, together with citizen participation and involvement is therefore essential.
The relationship between the private sector and government is often characterised by a lack of trust, and misunderstanding. It is on this basis that we feel it is important as government that we work towards a closer and more transparent relationship with the private sector.
As Government we need to understand private sector requirements. The private sector seeks a return on investment and is reluctant to invest in unproductive and risky projects, or where returns may be compromised, or where it has no control over how an asset is managed.
Government in turn should make sure that a proper legal framework is in place, and that all private sector service providers are fairly treated and properly contracted. Appropriate and simple financial instruments should be developed, ensuring that projects are bankable. Policy certainty is a must. The private sector, in turn, should improve its competitiveness and help drive local sourcing and procurement and take more developmental risks.
In recent years there has been much talk of spatial transformation, but there has been little impact in practice – effects of apartheid spatial planning still persist and characterises the relationship between our cities and most of our citizens. The physical and social exclusion of people migrating to the cities has not helped to spread the benefits of concentrated economic growth more widely. It is also difficult for people to generate their own livelihoods through trade or providing local services when they are confined to outlying areas, where average disposable incomes are low. Where public services have been provided, the costs of bulk infrastructure or transport subsidies have been relatively high because of the long distances involved, adding to the burden on municipal taxpayers. Municipalities struggle with the competing demands of different communities to reduce the backlogs, maintain existing services in better-off areas, and accommodate new population growth.
The NDP understood the spatial transformation of cities in terms of three elements of the urban structure, namely, jobs, housing and infrastructure. It suggests five ways in which these elements can be used to promote urban restructuring:
- reducing travel costs and distances,
- preventing further development of housing in marginal places,
- increasing urban densities to reduce sprawl,
- improving public transport and the coordination between transport modes,
- shifting jobs and investment towards dense peripheral townships.
Uncoordinated planning and implementation has resulted in limited achievement of these goals. The draft Integrated Urban Development Framework (IUDF) is a framework that responds to these challenges. The IUDF is about coordinated investments in people and places, in pursuit of a vision of liveable, safe, resource-efficient cities and towns that are socially integrated, economically inclusive and globally competitive, where residents actively participate in urban life. The four pillars underlying the IUDF are spatial transformation, inclusion (access), growth and governance.
Together with National Treasury and other national departments we are working tirelessly with municipalities’ to plan and manage urban growth in a more integrated manner. This is to enable and encourage municipalities to engage more meaningfully across sectors, with communities they serve and with the private sector, to accelerate socio-economic development and urban reconstruction.
We will engage later in the conference with presentations from municipalities’ on some of their key catalytic projects.
A question I would like to raise with the private sector…What transforms a desirable project on a government wish list to an attractive investment opportunity in the eyes of a potential private sector?
The impact of urbanisation, how we respond to it and how we plan for efficient management of urban growth is high on government’s agenda, and should be on our collective agenda.
Urbanisation is not simply about people moving to cities and financing the infrastructure that is needed. Urbanisation also incorporates the ability of people to move around, find jobs and work in cities raising their individual productivity in the process. It is about the concentration and the development of human potential. Sustainable growth is about creating cities that provide a quality of life and longevity for everyone. The main driver of inclusivity is economic growth, which means creating opportunities for entrepreneurship. This is a complex issue and is not simply about including entrepreneurs in the established economy. It is about breaking down the barriers, allowing changes to take place, and thereby growing inclusivity. Focusing private sector engagement on the poorest is necessary to confront the challenge of achieving economic growth with equity.
Cities have different strengths that need to be harnessed in order to unlock national growth and urban development, namely:
- Prioritisation on urban development
- Reaping the urban dividend
- Sustainable growth and long term planning
Because of our historic past, our analysis of urbanisation focuses on the spatial relationship between urban population growth, employment trends and access to housing and basic services.
The Department of Cooperative Governance has also adopted a practical approach to managing the challenge of improving service delivery across all municipalities. The Back-to-Basics (B2B) Approach has been adopted to ensure a well-functioning and efficient local government system in support of the national developmental agenda. The Back to Basics approach adopts the non-negotiable basics of urban management and governance to have an impact on the lives of ordinary South Africans. It is about striking a balance between getting the basics right and keeping on track with the global discourse in order to remain competitive. The five pillars of the B2B approach are:
- Putting People First,
- Service Delivery,
- Good Governance,
- Sound Financial Management and
- Capable Institutions and Administration.
These 5 pillars are aligned to the City Prosperity Index developed by the UN HABITAT, as well as some of the elements of the MasterCard African Cities Growth Index. The B2B approach has had some success in the last year since it was launched.
The notion of prosperous cities, provides an all-encompassing approach that can help us to create inclusive, safe, resilient and sustainable cities, in line with the objectives outlined in the NDP. Managing urban areas is one of the most important development challenges of the 21st century. Our success or failure in building sustainable cities is instrinsically linked to our prospects as a country. From 29 November to the 3 December the City of Johannesburg hosts the Africities Summit, which aims to improve African local government’s response to the challenges of urbanisation and enable them to shape the African cities of the future.
Over the next two days you will gain first-hand knowledge of our plans for our metros, including the challenges we face. This is an opportunity for the private sector to partner with us in mutually beneficial projects.
It’s time to raise the bar for ourselves. Let’s get down to hard work. Build partnerships in practice. We have an obligation to show partnerships can be successful. Cities are hubs of development and innovation. Cities are inclusive institutions.
I thank you.
