Evaluating Alternative Infrastructure Financing for Local Economic Development in South Africa
DOI:
https://doi.org/10.37075/FABA.2026.1.11Keywords:
Municipal Bonds, Public-Private Partnerships, Local Economic Development, Alternative Financing, InfrastructureAbstract
Purpose: The study evaluates alternative financing models, including Public-Private Partnerships (PPPs), municipal bonds, blended finance, and pooled instruments, to address South Africa’s critical municipal infrastructure backlog. It aims to identify feasible and scalable pathways to support Local Economic Development (LED) in a context where traditional national fiscal transfers have become unsustainable. Design/Methodology/Approach: The research employs a qualitative desk-based methodology, synthesizing data from peer-reviewed academic literature, National Treasury reports (2021–2025), and Auditor-General findings The desk study is supported with 8 key informant interviews. The analysis is theoretically grounded in Public Choice Theory, Transaction Cost Economics, and Developmental State Theory to explore how political incentives and governance structures shape municipal financing decisions.
Findings: Results reveal a systemic crisis exacerbated by R467.2 billion in municipal consumer debt and a 22.5% underperformance in capital expenditure. Significant disparities exist; while large metros account for 58% of total expenditure and 90% of long-term borrowing, secondary and rural municipalities are hindered by poor credit ratings and high transaction costs. Furthermore, PPP uptake remains below 10% due to regulatory complexity and institutional capacity deficits.
Practical Implications: The study recommends a tiered strategy rather than a uniform approach, suggesting that complex market instruments be reserved for metros while intermediate cities utilize pooled financing and Development Finance Institution (DFI) support.
Originality/Value: This study contributes to the literature by integrating empirical municipal data with an LED framework, providing a comprehensive evaluation of multiple instruments tailored to the structural inequalities of South African local government.
Paper Type: Research Paper/Article
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