Financing of local economic development initiatives in South Africa

Post the 2008/09 global economic and financial crises, increased calls have been made for exploration and consideration of alternative sources of funding for economic development at a local level. To limit dependence on restricted and sometimes dwindling public finances from central government, many countries in the world have considered various alternative forms of financing. In South Africa, only four of the eight metropolitan municipalities (in short metros), have introduced municipal bonds primarily to finance their infrastructure development initiatives. Having noted the reluctance of metros and secondary cities in South Africa to explore alternative sources to finance their local economic development (LED) initiatives, this study advocates for the use of municipal bonds in the Mangaung Metropolitan Municipality (henceforth Mangaung Metro), as an alternative source of finance for its LED initiatives, especially its infrastructure development programme. The study further presents evidence for the other metros in South Africa, where municipal bonds have worked as an additional and/or alternative source of finance. Using analysis of socio-economic conditions as well as selected financial ratios, the study compares Mangaung Metro to the other four metros that have issued municipal bonds in order to assess the state of readiness and the viability of a municipality bond for the metro. On the analysis of socio-economic conditions, this study found that on the one hand, the Mangaung Metro lags all the other metros under review on almost all the indicators, whilst the economic and labour market data highlights the development potential of the metro. On the financial analysis, the study found that Mangaung Metro’s financial situation seems to have been improving and could have been described as sound up to 2015/16, and that the deterioration in the metro’s finance coincided with the changes in the political and 6 administrative leadership and management of the metro.Thesis (MPhil) -- Faculty of Business and Economic Sciences, School of Economics Development and Tourism, 202