South Africa

Moody’s flags underinvestment in water and electricity infrastructure in South African towns

Underinvestment in water and electricity infrastructure makes South African towns and cities vulnerable to events such as floods and disruptions in these services can be a credit risk for some municipalities, Moody’s Investors Service said.

Capital expenditure in most of the country’s municipalities that Moody’s rate is below the 10% to 20% of total spending recommended by the National Treasury to ensure that infrastructure needs are addressed, the ratings company said in an emailed report on Tuesday.

“Physical climate events like floods and droughts can also expose infrastructure deficiencies and lead to severe water stress or blackouts,” Moody’s said. “These events can damage already poor infrastructure even further, like the severe flooding and landslides did in the south and southeast of the country in April 2022.”

South African cities and towns have been plagued by financial mismanagement, bad service delivery and crumbling road, water and electricity infrastructure for years. Severe droughts and flooding have added to challenges in delivering basic services.

The government is weighing measures to allow municipalities to fast-track spending on infrastructure to address these shortcomings, finance minister Enoch Godongwana said last week.

eThekwini, which includes the port city of Durban on the east coast, will ration water supply for about a year to allow it to repair and recommission raw water pipelines damaged during heavy rains in April.

The southern Nelson Mandela Bay municipality, which includes the coastal city of Gqeberha, is at risk of water outages after the levels of major dams dropped to being almost too low for extraction and Cape Town came close to “day zero” in 2018.

“Any losses or extended disruption related to the provision of services like water and electricity have severe credit implications,” Moody’s said. “The ineffective provision of electricity and water services also weighs on economic activity more broadly.”

Based on measures that suggest existing infrastructure is of low quality, weak financials and low governance, the City of Tshwane, which includes the capital Pretoria, and the Mangaung Metropolitan municipality, which includes Bloemfontein, are most likely to see financial pressures related to water and electricity services intensify, Moody’s said.

Cape Town is best positioned to address these challenges given its much better financial position and access to debt markets, it said.


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