From a business perspective, what role should cities play in Africa’s economic future?

TREVOR MANUEL: I don’t presume to speak for “the private sector”. There’s no such thing. These are individual initiatives that sometimes work together, sometimes don’t. But the central question is whether private finance should be used more extensively in local government financing, especially for patient capital needs like infrastructure.

The fundamental issue is whether municipalities have the capacity to plan in detail and demonstrate they can raise revenues consistently. Some have taken interesting approaches—Lagos is very future oriented—but that’s the exception. The big challenge on the African continent is to think more seriously about the use of space and its context.

Most African city elites have simply occupied colonial spaces with existing infrastructure and added to it haphazardly, without detailed structural plans. If you need to source capital, municipalities must make rational presentations that can be financed long-term and prove they can recover finances through taxes and other measures on a continuing basis.

The reality is stark. Think of all those municipalities that can’t even get a financial statement together for auditing. Think of municipalities that employ people to do ongoing work in finance, but still require outside input to prepare financial statements. South Africa is supposedly at the zenith of African capabilities, but very few of its local governments live up to what that means.

How do we balance systematic planning with the reality of where investment wants to go?

TM: Take Johannesburg—a prime example of local government dysfunction. There’s sufficient capital there to construct blended programmes, but the Joburg metropolitan area lacks ability or interest. The class represented in municipal leadership speaks to the same elite needs everywhere—gated communities, malls, airport access.

The challenge is constructing a transformative medium- term budget combining various capital sources. On the one hand, it’s inescapable that the municipality must be able to levy charges on a range of services, and collect. In addition, it could borrow long-term from multilateral institutions and access patient capital through bonds.

By way of example, 25 years ago, Johannesburg had strong municipal bond market scoring. But if you can’t retain that trust, you will never be able to attract that long patient capital that does find itself in bonds. I was surprised the Development Bank of Southern Africa recently gave [the City of] Joburg a massive loan. I hope it’s a fulcrum point for change. Yet, it seems that the trust levels have arguably not improved in light of recent concerns expressed by the Minister of Finance and the appointment of the Presidential Johannesburg Working Group—a collaboration to address challenges and accelerate service delivery in the City of Johannesburg.

What has your G20 Africa Expert Panel discovered about global finance and African cities?

TM: We started unbelievably late—got our remit in February with hundreds of G20 meetings already happening. There’s no clarity whether the US will take up the presidency next year or participate meaningfully in working groups. Without that, they might just rule a line through everything they don’t like.

But we’ve uncovered crucial issues for the G20 to address. Peter Blair Henry from Stanford’s Hoover Institution is one of our panellists, and demonstrates clearly that return on capital for infrastructure lending on the African continent by the IFC are six times the returns achieved by the S&P 500. This highlights the potential for greater infrastructure investment, but African governments must improve the credibility of local institutions.

The position of ratings agencies is fundamentally important. The Vatican’s commissioned Jubilee Report shows that countries exporting unprocessed commodities are always deemed higher risk than those exporting finished goods. Because they are deemed to be higher risk, ratings are always unfavourable. The cost of borrowing increases concomitantly, and that is an obvious problem for every African country.

There’s also the growing chasm between countries’ ability to tax and establish/deepen capital markets. We’re seeing increasingly that corporations are structuring themselves in a manner that makes it difficult for developing countries to go after them for revenue they would otherwise be entitled to.

What about generating stable revenue for African cities?

TM: Generating your own revenue starts with tax systems, but even wealthy African countries have hitched their tax systems to commodity prices. At $90 a barrel, Nigerian revenues look good. At $45 a barrel they really battle to cover the most elementary costs. You need stable revenue sources delinked from commodity price fluctuations.

Take Naspers, for example, one of South Africa’s most successful companies. It’s listed on our stock exchange, but has an international portfolio that stretches from Amsterdam, Beijing, to Shanghai and elsewhere. So, the question of how much of their revenue should be taxed in South Africa becomes crucial. My hope is we can look beyond the Continental Free Trade Agreement slogans to examine what actually flows, what generates resources, and what enables genuinely integrated production different from the past.

These issues require significant modernisation. How we tackle and build successful circular economies, and address infrastructure deficits—stuff like water and solid waste treatment—all require extensive investment in a whole range of modern capabilities. I’m not sure that we are doing enough to address that on the African continent. The people with expertise are not being properly listened to, and that’s a challenge.