Johannesburg Struggles Intensify as Major French Lender Denies Loan Application

A request from Johannesburg, South Africa’s largest city, for additional funding from the Agence Française de Développement (AFD) has been rejected, according to a source familiar with the matter.

The denial from France’s national development bank stemmed from the city’s failure to comply with the conditions of a R2.5 billion loan it received from AFD in 2024, the source, who requested anonymity due to the sensitive nature of the information, revealed. The funding was intended for the city’s infrastructure budget, which the municipality claims it has adhered to fully.

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This decision exacerbates the financial struggles of a city with a population of 4.8 million, already dealing with corruption scandals and challenges in providing consistent water, electricity, and other essential services.

In March, the city council, led by a coalition involving the African National Congress, failed its initial budget proposal due to concerns over rising salary costs.

The municipality allegedly did not fulfill its reporting obligations to AFD regarding the effects of its loan, along with other governance issues, the source indicated. Future financing may be considered if these matters are resolved.

The exact amount of requested funding was not disclosed, but Johannesburg typically approaches one or two lenders annually for its financial needs. The city has expressed a desire to secure R2.5 billion in long-term debt refinancing during this financial year.

“Our last loan agreement with the City of Johannesburg was in early 2024,” AFD stated in response to inquiries. “We do not currently have additional financing plans for the city within our existing annual programming cycle.”

The municipality asserted that it “adheres to all reporting commitments outlined in the contracts.”

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“International development finance institutions, including AFD, are not obligated to provide funding to the city every financial year,” it noted in response to questions.

“AFD has been a long-term and consistent investor in the city for many years, so if they choose not to fund the city in a particular financial year, it is not a cause for alarm.”

The municipality has previously mentioned plans to seek financing from local commercial banks as well as development finance institutions from France, Germany, South Africa, and the European Union. It has also reached out to multilateral development banks, including the Asian Infrastructure Investment Bank, the International Finance Corporation, and the New Development Bank.

In August, South Africa’s Finance Minister Enoch Godongwana urged Johannesburg’s mayor, Dada Morero, to clarify how the city plans to recover R24.4 billion in misallocated funds.

The previous 15-year loan from AFD carries a variable rate, which could reach 4.96% above the Johannesburg Interbank Agreed Rate (Jibar), currently at 6.767%.

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“It should be noted that other international development finance institutions have also funded the city at Jibar plus 230 basis points, totaling R2.5 billion following the last loan from AFD,” the municipality claimed.

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

Since South Africa’s first democratic elections in 1994, AFD has allocated €4.2 billion in financing to the country.

The bank is also facilitating €1 billion in climate funding through loans to South Africa’s National Treasury and its logistics firm, Transnet SOC Ltd., fulfilling France’s commitment to an international climate agreement among some of the world’s wealthiest nations and South Africa.

South Africa is expected to conduct municipal elections by early next year. In Johannesburg, the Democratic Alliance, featuring former Cape Town Mayor Helen Zille as its mayoral candidate, is engaged in a robust campaign to unseat the ANC as the leading party.

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