Johannesburg: A world class African city

Given the importance you have placed on the environment and the green economy, could you please elaborate on your environmental programs for development?

Mayor Parks Tau (PT): It might be important to place almost everything that we do in the City of Johannesburg in context. After the elections in 2011, the City of Johannesburg reviewed its long-term Growth and Development Strategy 2040. The strategy went through an extensive public consultation exercise to enable us to do two things. This was, firstly, to present the challenges and opportunities to residents and stakeholders in Johannesburg. Secondly, to get residents and stakeholders to contribute to the strategy vision and implementation plan for the City of Johannesburg. This strategy led to what is now titled ‘Joburg 2040’, which is the city’s Growth and Development Strategy towards 2040. The strategy is underpinned by a vision that seeks to position Johannesburg as a resilient, sustainable and livable city. I think that it’s important for us to create that context. The reason for doing this is that it is crucial for everything that we do in the city to be driven by a strategy, a set of outcomes that we want to achieve, and by creating building blocks that will aid us in achieving these outcomes. We acknowledge and appreciate the important and strategic role of the City of Johannesburg as an economic powerhouse, the gateway to Africa as the ‘head office’ city for most multinational corporations that have opted to invest and be located in Africa. As the economic capital of the country, we have continuously had to drive the organization to maintain that position, and to enhance its own standing on the continent and in the rest of the world. We have just identified a number of programs that seek to implement our Growth and Development Strategy. The first very important initiative for us has been to ensure the long-term financial sustainability of the city, its ability to invest in key capital programs that maintain its competitiveness and structured - a city which responds to the challenges that it confronts. When we came into office in 2011, we had just hosted the World Cup, and in the financial year of 2010/11, our capital budget had dropped to about R3.6 billion. We had identified, in line with our strategy, the need to invest an estimated R100 billion in infrastructure over a period of ten years. And thus, we went through a comprehensive financial restructuring and re-engineering exercise to enable us to generate the necessary resources to enable us to invest in the infrastructural requirements of the city. Of course, the way in which we look at infrastructure is underpinned by sustainability, social, economic and environmental objectives which shape our investment in a manner that ensures resource sustainability and that enables the city to grow and expand. And therefore, we have looked at investments that seek to ensure long-term resource sustainability, but also environmental sustainability. We must accept that we are part of a global community and we have to embrace our responsibilities towards mitigating the impacts of climate change. Thus, the process in which we developed our infrastructure development programs would encompass some of the principles that underpin our investment approach. We have started to generate the capital requirements that we identified would be needed to maintain and grow Johannesburg. We have moved our capital budget in the current financial year to R10.4 billion and intend to move that to slightly less than R12 billion next year. Our investment approach is, as I mentioned earlier, about resource sustainability. What do we mean by this? As a country we have experienced, in the past few years, restraints with regards to electricity. These constraints have impacted upon growth and development but also our ability to expand the electricity grid to communities that need it most. Therefore, we needed to invest in a way that ensures we are able to diversify the energy mix in Johannesburg, and our ability to look at renewable sources of energy. Some of the programs that we implement and are currently implementing include a self-reliance in our waste water treatment works for the generation of electricity. So we generate part of our electricity from a methane utilization in our waste water works. We currently are capturing methane in five of our landfill sites and have been granted an independent power producer’s license by the National Department of Energy. This would enable us to convert this gas into electricity and sell it into the grid. We are now also in discussions with the national energy and utility supplier, Eskom, to supply this electricity into the grid through a power purchasing agreement that we are entering into. We are also looking at renewable energy sources as a means of contributing toward the energy mix in the country. We are also installing solar-water geysers, particularly in poor households where with this system they can heat their water. And the strategy now includes, as we are anticipating a business case that we have mandated our power utility to develop in two respects: first, the expansion of gas reticulation in the city to be able to use more gas for heating, cooling and cooking, and second, to look at photovoltaic energy production that would be able to produce energy into the household and access energy into the grid through a smart metering system we are currently implementing throughout the city. This would complement the supply side electricity requirements because photovoltaics would be generators of electricity, but also on the demand side by reducing the domestic household and commercial demand on the national grid. Therefore, this will sustain the city in terms of energy requirements. This is one of the areas of resource sustainability that we have looked at. Of course, water is another area of resource sustainability that is key for us. We are a water scarce region in this country and considered to be the leading economy internationally that is not along a major water course such as a river system or the ocean. We are pretty much reliant on the supply of water resources from external sources. We import the bulk of our water from the Lesotho Highlands Scheme. Therefore, the need to manage and utilize the water resources in a judicious way becomes critical in an environment such as ours. We have ensured that we have progressively been investing in reducing water that is not accounted for in the City of Johannesburg. We have dropped this by about four percentage points over the last three years and are continuously investing to drop this to internationally acceptable standards of slightly below 20%. We appreciate the fact that going forward we would be reliant on the Lesotho Highlands Scheme for our water supply resources. Therefore, resource sustainability is crucial. The same applies to continuous investigation. In fact, we recently hosted a gas mobility conference in conjunction with the University of Johannesburg where we are looking at alternative energy for the propulsion of vehicles. We are running a pilot project where two of our buses have been running on a hybrid biogas diesel system since the C40 Mayors Summit in February this year so that we are able to reduce the requirements for diesel for our municipal fleet. We are finalizing the adjudication of one hundred and fifty of our bus fleet to procure these buses in line with a biogas hybrid system of propulsion. Furthermore, we are converting sixty of the current fleet into a biofuel system. Hence, sustainability and climate change are important for us. The criteria is fairly simple for us. It is about: first, ensuring that we are able to contribute to measures that mitigate the impact of climate change, and second, that we are able to identify technologies that maximize potential and opportunities for enterprise development and job creation at a local level. Therefore, the decisions that we have made were informed by those objectives in terms of technology choices and the incubation of certain technologies in the municipal fleet and systems so that we can advance our objectives. These are really the overarching objectives of what informs our sustainability and environmental approach.

Could you please tell us a bit about how you’re using technology to stimulate enterprise, new waves of investment and increased inclusivity of the city’s people in the economy?  

Trevor Fowler (TF): One of the things that the city has done is to roll out 950km of optic fiber to all of our centers, which includes the various townships, where the city’s poorest people live. This initiative provides broadband connectivity across the city. We will be providing, by 2016, over a thousand WiFi hotspots where people will be able to connect. On the Rea Vaya buses we will also be able to provide WiFi connectivity as there is fiber optic running along their route. Some of that is already happening in the taxi industry as some companies are providing internet to customers. Part of the reason is that people travel long distances in South Africa. This is in fact one of the biggest challenges that we face. There will also be 3,000 digital ambassadors who will be trained to empower communities to utilize the services and WiFi connections. The main reason behind this is to bridge the digital divide. The second reason is lowering the cost of communications in Johannesburg. Part of the reason why the municipal government has invested in this initiative is not just to provide services to ourselves, but to provide services to the public. This is due to the fact that one of the challenges we face as a country is the high expense of communication services. This will drive down the cost of communication services. We are also installing the smart meters in people’s homes and these allow us to: first, understand what the consumption is on the grid in a real-time basis, and second, to allow homeowners to understand their consumption and see how they, as well as the municipal government, can save money. With particularly large power users, we wish to start to discuss how to create the virtual power station and, in times of pressure, explore the possibility of them generating energy into the grid. The smart meters would also allow people to install PV solar panels which will allows them to sell electricity that they do not use back into the grid so as to reduce some of the consumption. Around 70% of greenhouse gases emitted come from electricity - making it the single largest contributor. Electricity is largely generated by coal in South Africa and therefore, our electricity consumption has an important impact nationally. Hence, despite our size, we are one of the largest contributors of greenhouse gases. We are also looking at ensuring that these meters are utilized so that people can use them as connections into the grid in order to access an internet connection for example.    

It seems clear that service provision is at the top of your agenda so as to give people the chance to be more productive. Another important program has been Jozi@Work. Could you please tell us a bit more about the conception of this program and how it is working at this moment?   

PT: Jozi@Work is a community co-production model of service delivery. It has been inspired by a number of international case studies including initiatives by the new commonwealth foundation to develop community co-production systems where as a municipality, or government, you are able to partner with communities as co-producers of municipal services. These are able to, not only play the role of municipal services, but also, to be able to be part of the production of municipal services. Local nuances are responding to, amongst others, the realities of unemployment, poverty and inequality in our communities, as well as the number of employment opportunities created by small enterprises. Therefore, we are trying to do a number of things and achieve multiple objectives through the Jozi@Work initiative. The first is about entering a co-production model where communities are partners in the delivery of services. A basic example would be a community-based enterprise taking responsibility of waste management services in its area of location. This would facilitate the separation of waste in the household as well as the collection and distribution of waste streams to various points for purposes of recycling, reuse and renewal. As opposed to us deploying the resources in order to get the waste re-compacted as unsorted waste, the waste streams become a resource that through recycling and new initiatives we change the way the waste is collected and disposed. So it is changing the model and approach in which we deliver the service by using the community as our partner. Secondly, it enables us to incubate and facilitate the development of small local enterprises. Through Jozi@Work, we are set to enter into multiple contracts with various community-based enterprises which would be provided with the necessary support. In fact, we are currently undertaking, in conjunction with an agency of ours, an initiative that includes the private sector so as to register cooperatives and enterprises and aid them in running their businesses. We are also procuring the service of capability support agencies which are not-for-profit organizations and social entrepreneurs that would provide the necessary technical expertise and support to these small enterprises. This includes quality control because in many instances you require fairly well-established project management and control exercises. We have set aside, in the current financial year, 10% of our repairs and maintenance budget, 10% of our contracted services budget and 5% of our capital investment budget to go towards Jozi@Work. We intend to increase this, in the next financial year, to 30% of our repairs & maintenance budget, 30% of our contracted services budget and 10% of our capital investment budget. This should enable us to create in excess of 5,000 small community-based enterprises that would contract with the municipality to provide local community-based services. One of the other areas in the Jozi@Work initiative has been setting aside resources for an innovation fund where communities would independently think of creative solutions to help solve local community problems, and through their innovations make an application to the fund to partner with the municipality to resolve a different area of problems. This ranges from irregular connections into the electricity grid to local community safety solutions or any other issue that the community deems important to address in their own respective communities. They can thus make a proposal to the municipality. The Jozi@Work model is really an innovation to reduce the extent to which the city’s residents are passive recipients of municipal services to become active partners with the municipality in the delivery of services.    

All of these service provisions, in some ways, make Johannesburg a victim of its own success in that urban migration is huge and population growth continues to present more challenges. How successful have your Corridors of Freedom and the provision of housing been with regards to Urban Planning?

TF: Urbanization is a major challenge for the city. The 2011 census showed that Johannesburg grew by 37% from 2001-2011. The current population stands at about 4.7 million people. And of those, about 46% were not born in Johannesburg and 15% were not born in South Africa. However, the majority are from the Sub Saharan Africa Region. Of course that has put pressure on us. One of the areas that we are passionate about is keeping the cost down of house provision, in particular due to the pace at which it has been required. The unintended consequence of this has been that the houses we provided weren’t necessarily in optimal locations. People tended to live far away from job opportunities and services. The Corridors of Freedom are really about stitching the city together. If you look at a map of the City of Johannesburg, the poor live on each corner of a triangle of the city. Most of the poorest, however, live in the south. One of the key challenges is creating an environment where people can work, live and play. We have done some studies that have found that the very poor spend between 50-70% of their money on transport and food. Therefore, in order to release that money into the market, you must ensure that people are well located. The logistics of transporting food to these areas is expensive and hence the price of food in these areas is higher. Therefore, we have focused on improving those logistics so as to lower the price of food, but also give people the opportunity to live along Corridors of Freedom. It is named that way because it gives the freedom for people to live, work and play in the same location, the freedom to have disposable income which can be spent on other things than food and transport. One of the backbones of that is the Rea Vaya bus rapid transit (BRT) system. We are working on three corridors, two of which are operational with infrastructure in place, and the third which transports around 37,000 people per month and is set to be increased to 40-50,000. The key thing we want to do is to ensure that along the corridor we increase the densities which is currently 7,000 people per km2 up to 15,000 so as to make it viable for a bus transit system to operate at a cost basis. Currently, we subsidize these services. In the longer term we will create a much more efficient city by reducing our infrastructure costs so that we make better use of our bulk infrastructure in order to increase the density to around 40,000 people per km2. This is still less than what is found in big cities such as London and New York. What it will do, is continue to lower the cost of services, resulting in increased productivity.

When do you expect this service to be operating profitably without the need for government subsidy? 

TF: Definitely not within this term. However, we believe that in the next 10-12 years we could be breaking even. The higher targets are expected to be achieved in 25-30 years.    

PT: We always say that Johannesburg is just like any other South African city. It has been designed for exclusion and segregation. In that respect, it is a typical apartheid city. The civic center, is the ideal place to describe the morphology of the apartheid design of Johannesburg. It is, in fact, at the top of the Johannesburg ridge. On the south of the ridge is your historic inner city downtown. Between the ridge and downtown would have been the coal bearing mining reef of Johannesburg. This therefore generated the sort of mine towns that came with mining reefs. On the south of the mining reef would have been the historically poor black townships which are essentially away from where urban opportunities are. And in order to add insult to injury, they built the primary townships in the South West as the wind blows out West as part of the apartheid design. On the North of the ridge, this would be the historically more affluent townships. This is pretty much how most, if not all, South African cities were designed: mono-functional and segregated with poor households living in dormitory townships where people would go to sleep in the evenings and commute long distances to urban opportunities and amenities. When we talk about stitching the city of Johannesburg together, we mean overcoming the historic divide that was created by apartheid spatial planning and by using the Corridors of Freedom as mechanism through which we can stitch a divided city into one. Furthermore, we seek to increase the urban efficiencies that come with that through increased opportunities for mobility because the BRT is almost the spine of our Corridors of Freedom. We have an increased density and intensity of land use so that there is no mono-functionality of how the Johannesburg morphology was during apartheid. These corridors are about reversing that and increasing the densities and intensities so as to bring people closer to opportunities and opportunities closer to the people. For us, it started with integrating people through mobility and using these as spines to increase densities. It means that over the medium term, you should see a city that is a lot more efficient from an urban efficiency point of view, and also to be able to take advantage of economies of scale in these urban centers. We define this as the urban core of Johannesburg. That urban core is brought together and stitched together through the Corridors of Freedom. The three key centers in Johannesburg; Soweto and its surrounding area has the highest concentration of people. The inner city has the highest concentration of institutions and people. It has two major universities, major financial institutions, academic research hospitals, various research agencies and a whole range of other institutions in this precinct. It is also the main area for interchange linking of the Rea Vaya BRT, MetroBus, minibuses, taxis, as well as long distance transport including regional taxi, bus facilities, Metrorail and Gautrain. Thirdly, you have the commercial center of Johannesburg – Sandton, where there is the highest level of commercial activity. The Corridors of Freedom also enable us to stitch these critical elements of our city into a functional urban core around which our city should be able to grow and compete. The reason is that internationally, cities become more competitive by the extent to which they are able to take advantage of the economies of scale and bringing the elements of agglomeration of urban development, capital, people and institutions together. For us, it is also important. And we are using the Corridors of Freedom to enable us to do that.

Patricia de Lille (Mayor of Cape Town) mentioned to us that budget is the main restriction for implementing any objective and therefore the private sector is crucial. What role can the private sector play, and in particular American investors, in Johannesburg?

PT: The private sector is extremely important. It has been the driver of development and growth in the City of Johannesburg. The city remains the financial and economic capital of the country. It is home to the stock exchange and the major financial institutions in our country. It is furthermore, the backbone of an internationally competitive financial services sector. It is very important for us to continue to maintain that role and seek to enhance the opportunities for investors to see Johannesburg as a springboard for growth and development. We have seen our partnership with the city of New York as an important springboard for us to continue advancing that objective. We have worked very closely with former and current mayors of New York Michael Bloomberg and Bill de Blasio. In fact, we are continuing to work with Bloomberg philanthropies to explore partnerships in order to pursue urban development and sustainability objectives. And we are quite excited about the partnerships we have formed with them and Mayor Bill de Blasio in ensuring Johannesburg and Tshwane become the springboard for the revised AGOA initiatives. We have said to the Mayor’s office in New York that we think that AGOA gives us this opportunity to cement our relationship in terms of the commercial relationships and opportunities that would be created. The positioning of our respective cities becomes the commercial centers of our respective countries as the springboards for the growth of the investment opportunities and the cities’ municipalities being at the center of those activities is crucial. These are now the exciting times of our relationship with the City of New York and for us to use New York as a springboard to seek investors that wish to come to South Africa. It always helps to have a direct partner with whom you are working to cement these relationships and create opportunities for enterprise.                 

Which sectors in particular are you keen for American investors to look at?   

PT: Certainly financial services because we have a very well established financial services market and an internationally competitive and recognized stock exchange. It creates an opportunity for institutional and other investors to come to the South African market and find a safe haven for development and investment. There is a need for an established financial services sector in order to be able to invest as an institutional investor. The expansion of real estate and using it as a mechanism for redefining our cities with initiatives like the Corridors of Freedom is an important step in our development. Restructuring our cities implies that there are great opportunities in the real estate sector. Furthermore, we are certainly looking at alternative technologies with regards to renewable energy, alternative building technologies, sustainable technologies and the development of smart technologies as great opportunities for investment. Those would pretty much anchor these sorts of investment opportunities. There are also great opportunities for innovators in Johannesburg. We have amassed partners such as Witwatersrand University and recently established an ICT incubation hub to create opportunities for entrepreneurs. We also see opportunities to build linkages with Silicon Valley, MIT and other institutions to continue advancing with innovations that take into account the nuances of the South African market and more generally speaking, the developing market context. There is a great appetite in our country and continent for the adoption of alternative technologies. And we think there is great opportunities for innovators and investors in software and applications relevant for all respective markets.

TF: One of the areas that we are looking at expanding is the green economy. As we expand our marketing and utilization of products that are in green economy space, we would like to project Johannesburg as the cutting edge of this market. Technology partners would be very important in order to ensure that we are able to make that leap and become a center for that kind of manufacturing in the country. That is one area that we are focusing on seeing how advanced we are for the region. One of the fastest growing markets in our country since 2004 has been the black middle class. The greatest proportion of this group is in Gauteng, and more so in Johannesburg. The buying power of the middle class in South Africa is around R400 billion. The buying power of the black middle class is around R263 billion. Surveys have shown that the end of the market is the fastest in terms of consumer growth. It is, therefore, very important. The other key area is Tourism. That industry grows positively every year with around 38% of it in Gauteng. Hence the hospitality sector is growing throughout the province.

PT: The potential presented by the research being done into the platinum group metals (PGM) and hydro fuel cell technologies is very exciting, seeing as South Africa is a world-leader in PGM production. We think that over the next three to four years that will be a great area of opportunity for potential investors. We are working with local universities and the mining industry to look at the opportunities that are being presented by the PGM. Therefore, hydro fuel cell technology is an area that is extremely promising for growth and development in our city. 

Uniquely, the City of Johannesburg is able to issue bonds and more recently a green bond. Could you please elaborate on these recent bond offerings and in particular this green bond?

PT: The City of Johannesburg was the first municipality post-apartheid to issue and explore alternative finance mechanisms and to incubate the municipal bond market in the country. We have listed bonds on the stock exchange which has now merged with what was historically the bond exchange of South Africa. That has enabled the creation of new opportunities for institutional investors in the bond markets. And we have found that there is great appetite to invest in the papers that are being floated by municipalities. The innovation and expansion into the green bond has been really exciting because it has also expanded the investor profiling into our bonds for people who are now looking at sustainable investment, green and alternative technologies solutions. We can invest in a product that is dedicated towards ensuring that we can meet our sustainability objectives as a country. It gives investors the opportunity to list it amongst their sustainable investments and list the Johannesburg green bond amongst one of the instruments that are contributing towards mitigating the impact of climate change and environmental sustainability. The fact that it was one and a half times oversubscribed indicates that the market had great appetite, especially because we issued at a time when the markets were going through a difficult period. Nevertheless, we were able to achieve competitive pricing. In terms of the issuance in Johannesburg, it encourages us to continue expanding into the green bond market and the opportunities in that regard. We have significantly increased our capital budget, and therefore, the extent to which we are able to raise capital on the financial markets is going to match this expansion. We raise about 70% of our capital budget from our own resources of which 40% comes from surpluses and 30% from the capital markets. As we have expanded to R10.4 billion, we anticipate to raise slightly more than R3 billion in the capital markets in the current financial year - with the green market becoming a new avenue for giving us a diversification of the funding mix and potential investors into the instruments that we float. We have been excited by the fact that this product was designed jointly by ourselves and the stock exchange. Therefore, we have worked with the exchange in ensuring that we are able to prepare products that would be ready for market and would meet market objectives. It is not just designed from a municipal needs point of view, but also to meet the needs of potential investors who are looking at diversification of investment instruments.      

The subscription to the bonds is a representation of the belief in the management and policies you are implementing. What advice would you give to cities that are perhaps less advanced as you in terms of getting the results that Johannesburg has had?

TF: The key question is that Johannesburg has been in the bond market for a reasonable amount of time. The real issue is having the credibility of the investors. We are currently AA-, and on the international, we are just one below the sovereign government of BBB-. We don’t actually trade in the international space because of regulations. The way we maintain that, despite the country having been downgraded, is largely due to putting forward a ten year financial plan when we were squeezed with regards to liquidity. We outlined the targets that we would achieve and how we would get there. Each year we set a target and achieved it. In 2010, we had some R300 million in cash and cash equivalents. Last year (2013), we had R5.4 billion. This year, we have continued to maintain it above R5 billion. It is still an unaudited figure, but we are able to maintain it at this level and tell investors that we achieve these targets and ensure that our debt ratio is below the benchmark of 45%. Last year we were at 36%. Furthermore, our ratios in terms of solvency are well within the standards. Therefore, we are able to set targets and achieve them. That gives the investor the sense that here you have people who can do what they say they can do. We are trying hard to convey the message that we are able to pay back their investment.   

What would be your final message about Johannesburg to American investors and readers of USA Today?

PT: Johannesburg is an area of opportunity. It is a city that is growing and is the leading economy on the African continent. It acts as a springboard to the opportunities that Africa presents. We will continue leading Johannesburg in a manner that ensures that institutionally it is safe in order to pursue the objectives that we have set for ourselves. We will also continue to invest in infrastructure in a manner that ensures that we are able to achieve: first, the urban efficiencies that an internationally competitive city requires, and second, invest in the infrastructure needs of our communities in order to achieve our key recapitalization and expansion objectives. We accept that we are a city that is growing at a phenomenal rate of around 120,000 per annum, and therefore how we invest needs to ensure that we can absorb the people that come to the city. Johannesburg is the leading cosmopolitan city on the continent and it continues to attract people from across the world. We see migration into Johannesburg as an opportunity. We try to create a platform where people find it to be a place where you can invest and live, as well as be able to trade, expand and look for opportunities. We do not invest in ourselves in a manner that is insular, but rather we work in a way that says that we need to be open to be the springboard to entering the South African and the overall African continent markets.