Windhoek municipality contemplates bond issuance
The City of Windhoek could potentially join a handful of Sub-Saharan municipalities and list a bond, seeking funding from outside of its traditional revenue framework. The idea has received the backing of the city officials, with the final blessing to be bestowed by Cabinet.
The Economist this week spoke to City of Windhoek Chief Executive Officer Nilo Taapopi. Commenting on the matter, Taapopi said, “Launching a bond is something we have looked at. We are contemplating such a move and will need the blessing of Cabinet to carry out such a move.” He added that officials within the City of Windhoek would have to come up with a strategy that would guide the process.
In 2011, the City of Windhoek announced plans to extend its territory, with available land expected to run out by 2026. A bond issuance may well fund plans to push the boundaries of the city into the surrounding Auas mountains.
Work done by the South Africa Cities Network, a non-profit organisation set up by South Africa’s Ministry of Local and Provincial Government established that when the City of Johannesburg launched its municipal bond, a calculation of its capital expenditure backlog accumulated over a number of years, was required. In addition, city officials had to obtain a long-term investment credit grading, work towards a clean audit, and educate its city councillors and managers about bonds. These conditions the City of Windhoek will have to emulate while asking itself; how it intends to borrow? how much it intends to borrow? And when it intends to borrow.
A local analyst said that local authorities can add between 25 and 30% to the capital market, should local authorities such as Swakopmund, Walvis Bay, Oshakati, and Ondangwa consider issuing debt instruments.
The City of Windhoek will become the third city on the continent to issue a municipal bond, joining Johannesburg and Lagos. The City of Johannesburg issued its first bond, valued at R1 billion, which was the first of four bonds to be issued and was used to re-finance municipal debts and the recaptilisation of ageing infrastructure while proceeds from the Lagos State bond bolstered on-going infrastructure projects.
Similar moves have been mooted by local authorities in Tanzania’s Dar Es Salaam, and Tanga municipalities, as well as Lusaka, Zambia. The proceeds from the Tanga bond issuance of US$6million will be used for the construction of a bus terminal while the funds generated from the Lusaka bond to the tune of US$500 million will fund the construction of 3500 high rise apartments.
In November 2006, the City of Windhoek obtained a credit rating from CA Ratings agency, which at that point, described the outlook as stable and assigned a long-term rating of zaBBB, which indicated a capacity to repay liabilities, and a short-term rating of zaA2, reflecting a strong ability to repay short-term debt.