How municipal grants could be used to draw project capital

Local government infrastructure grants could be the ace municipalities need to draw private capital for developments and help close the country’s estimated R4-trillion infrastructure finance gap.

This is according to Kiresh Raju, head of energy and infrastructure South Africa at Standard Bank. He said this week that grants could be useful in drawing capital for council projects contending with gaps in preparation as well as feasibility studies that lenders can rely on.

“I think that would probably go a long way ... if there’s an improvement in the effectiveness of how grants are spent by municipalities on delivering electricity, water, and the like. Maybe that will enhance the opportunity that the private sector can have. I know there’s a lot of work the government is trying to do on how to leverage effective grants. You’ve got to direct the grants to very specific KPIs [key performance indicator] and very specific projects.”

He was speaking to Business Times on the sidelines of the Sustainable Infrastructure Development Symposium SA 2026 (SIDSSA) in Cape Town this week.

The symposium comes ahead of a local government election where service delivery, which requires extensive infrastructure investment, has become a point of contention for the ANC, posing a threat to most councils where it governs.

According to Johan Marnewick and Marisa Bester of Stanlib Asset Management South Africa, the result of three decades of underinvestment in infrastructure is an estimated R4-trillion funding gap, which cannot be closed without drawing from all available capital sources, including private markets, retirement funds, and offshore investors.

Raju said while projects driven by local government will often have a commercial element to them, along with a social element, a project will not have 100% of its pipeline totally funded by the private sector.

“I think what the grants do is really provide the project with a level of viability and bankability, so they can in fact partner with the private sector to crowd in the capital and to crowd in the EPC [engineering, procurement and construction] capability as well.

“I think grants should be levered in that fashion. There’s a wonderful example of how the Treasury, through its BFI [Budget Facility for Infrastructure] platform, is allocating money to its sponsors, which is the state-owned corporation, the local municipality, to effectively get projects off the ground.

“And what it does is it provides viability funding to those projects that substantially can raise money in the private capital markets, but can’t do so wholeheartedly. What this does is it provides the project with viability.”

Addressing SIDSSA, President Cyril Ramaphosa said, despite the presence of Infrastructure South Africa’s (ISA) R600m project preparation facility, systemic weaknesses at a local government level affects project preparedness.

“This kind of support is particularly important as we shift our focus towards municipal infrastructure delivery. Municipal infrastructure is not only where the effectiveness of the state is most directly tested.