Johannesburg woes deepen as key French funder rejects loan request

A request made by the municipality of Johannesburg, South Africa’s biggest city, for additional financing from the Agence Française de Développement (AFD) has been turned down, a person familiar with the situation said.

The denial by France’s national development bank was due to the city failing to meet the terms of a R2.5 billion loan it got from the AFD in 2024, the person said, asking not to be identified as the information isn’t public. That funding was for the city’s infrastructure budget. The city said it had met all its obligations.

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The decision adds to the financial woes of a metropolis of 4.8 million people, with the municipality mired in corruption scandals and falling behind on the provision of reliable water, electricity and other basic services.

In March, the city council, run by a coalition led by the African National Congress, failed on its first attempt to pass its budget because of concerns about an increase in salary costs.

The city failed to meet its reporting requirements to AFD on the impact of its loan, and there were additional governance concerns, the person said. Further finance may be considered if those issues are addressed, they said.

The person declined to specify what funding had been requested, but said Johannesburg asks one or two lenders to meet its needs every year. The city has said it’s seeking R2.5 billion in long-term debt refinancing this financial year.

“Our last loan agreement with the City of Johannesburg was in early 2024,” AFD said in a response to queries. “We have no further financing plans with the city within our current annual programming cycle.”

The municipality said it “adheres to all reporting commitments stipulated in the contracts.”

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“International development finance institutions, including AFD don’t have an obligation to fund the city every financial year,” it said in response to questions.

“AFD is the city’s long- term and repeat investor that has been financing the city for numerous years. So, if it happens that they don’t fund the city in a particular financial year it is not a challenge.”

The municipality has previously said it would seek financing from South African commercial banks and the development finance institutions of France, Germany, South Africa and the European Union. It has also approached multilateral development banks, including the Asian Infrastructure Investment Bank, the International Finance Corp. and the New Development Bank.

In August South Africa’s Finance Minister Enoch Godongwana asked Dada Morero, Johannesburg’s mayor, to explain how the city would recoup R24.4 billion in wasted funds.

The previous 15-year loan from AFD has a floating rate of as much as 4.96% above the Johannesburg Interbank Agreed Rate, or Jibar, a benchmark that currently stands at 6.767%.

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“It must be highlighted that other international DFIs funded the city at Jibar plus 230 basis  points” to the tune of R2.5 billion after it got its last loan from AFD, the municipality said.

Germany’s state development bank KFW has provided the city with €200 million to finance electrical infrastructure over a three-year period, it added.

Since South Africa held its first democratic elections in 1994, AFD has provided the country with €4.2 billion of finance.

It’s also facilitating the provision of €1 billion in climate funding through loans to South Africa’s National Treasury and its logistics company, Transnet SOC Ltd., to meet France’s commitment to an international climate pact between some of the world’s richest nations and South Africa.

South Africa is due to hold municipal elections by early next year. In Johannesburg, the Democratic Alliance, which has fielded former Cape Town Mayor Helen Zille as its mayoral candidate, is running a strong campaign to displace the ANC as the dominant party.

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