Hidden South African sector set for investment boom
Municipal infrastructure is becoming increasingly attractive for institutional investors, with pockets of opportunities opening up for companies brave enough to invest in government assets.
South Africa’s infrastructure is rapidly deteriorating, with its water systems coming under particular pressure in recent years.
This is most keenly felt in specific municipalities as water shortages become more common in Gauteng and other northern provinces.
As a result, local governments cannot provide essential service delivery, especially in water, energy, and sanitation.
While the situation appears dire, Ninety One’s Alastair Herbertson and Reabetswe Kungwane explained that there are pockets of opportunity for investors willing to navigate the complexity of investing in state infrastructure.
The need to invest in municipal infrastructure development has become increasingly evident, with the national government calling for greater private participation to help remedy the situation, they said.
South Africa’s municipalities form the backbone of essential public services. Yet, many local governments have struggled with fiscal and operational difficulties.
The Auditor General’s latest report on municipal finances shows that only 13% of municipalities obtained clean audits, and several face persistent budget deficits.
This strain on financial resources, coupled with frequent disruptions in basic service delivery, has discouraged both domestic and international investment.
However, there are clear signs that improvement can be made and that government infrastructure is not completely uninvestable.
Herbertson and Kungwane pointed to the City of Cape Town as an example of a municipality with adequate financial management that can attract infrastructure investment.
Cape Town’s disciplined financial management has enabled the city to deliver projects that generate consistent revenue streams and improve service delivery.
For investors, opportunities like Cape Town’s green bond and other debt financing provide commercial returns with the added appeal of contributing to sustainability.
Investment opportunities

The national government has been proactive in working with municipalities to turn things around and provide assurances for investors.
Programmes like the National Treasury’s Infrastructure Fund and the Cities Support Programme aim to bridge the funding and technical gaps that plague many local governments.
The Infrastructure Fund, backed by a R100 billion commitment over 10 years, is designed to encourage private sector investment in public infrastructure projects.
For many municipalities, issues like governance instability and low economic growth, which translates to lower revenue generation, still pose significant challenges.
According to the latest National Treasury report, while municipalities on aggregate assume a collection rate of 83% of their budgeted revenue, they only collect 63%, which is below the Treasury’s expectation of 95% and insufficient to cover operational costs.
Herbertson and Kungwane said the only way these risks could be mitigated to boost private investment is through Public-Private Partnerships (PPPs).
They pointed to the successful implementation of the Renewable Energy Independent Power Producer Procurement Programme as an example to unlock private investment in infrastructure.
Additionally, the National Treasury plans to apply the lessons and framework across different sectors, including water, which will help foster greater private investments.
The private sector can participate through performance-based contracts and PPPs, which are being trialled in several metros, including eThekwini, Tshwane, and Nelson Mandela Bay.
This has enabled Ninety One to participate in infrastructure investing through its Infrastructure Credit Fund, which uses private capital to address gaps in state financing.
The Fund has invested in renewable energy projects, such as the De Aar Wind Projects, which aim to supplement grid capacity and reduce reliance on coal-based power.
Ninety One aims to expand its investments in urban infrastructure, as these provide greater potential for returns and have the largest potential impact on the local economy.
Urban centres drive a significant portion of South Africa’s GDP and are essential for social and economic stability.
For those willing to engage, Herberston and Kungwana said South African municipal infrastructure offers opportunities for long-term sustainable returns.
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