The South African Federation of Trade Unions (SAFTU) condemns the auctioning of the socio-economic well-being of the citizens of the City of Johannesburg by indebting them with R2,5 billion to foreign lenders. The council of the City of Jo’burg has not revealed the details (interest charged, currency denomination, and conditions) of the loans to the citizens of the City, which makes it difficult for residents to make informed opinions on the loan and its implications.
SAFTU is disappointed that instead of rallying the National Treasury to bankroll the Capital Expenditure Framework of the City, the parties in the council have voted to indebt the city to a foreign lender, whose debt has far-reaching implications than domestic borrowing.
We are disappointed that the Economic Freedom Fighters (EFF) have voted in favour of the loan, knowing the future implications of the loan on the City’s residents. Moreso, when we consider that the leadership of the EFF lamented the national debt in their response to the opening of parliament (this is despite the fact that debt implications for a national government and the local government differ qualitatively. A national government is a currency issuer, and therefore, the so-called debt denominated in its currency is not a real debt as it can be paid at any time. On the other hand, local governments like metro municipalities have real debt, whose burden will be carried by residents through revenue collection in service provisions).
Loans in general, and foreign loans in particular, pose a real danger to the future financial stability of municipalities. Precisely because municipalities are currency users, not currency issuers. This means the danger of defaulting on such loans and the subsequent bankruptcy is real. In such instances, two possibilities are consequential:
a) Municipal service tariff hikes
It is reported in the media that the loan is drawn for “capital expenditure and related security, legal and financial costs.” Clearly, these areas of expenditure for which the loan is intended are not areas that can bring returns. Capital expenditures are expenditures mainly on infrastructure such as sports and recreation facilities, parks, community centres, etc. Similarly, legal and financial costs are not return-oriented. Therefore, the municipality will have to find money elsewhere to repay this loan.
They will raise rates on municipal services such as water provision, waste, refuse and hike surcharges on electricity. Their outrageous estimated R200 surcharge on electricity this year illustrates that they offload the burden of their costs onto the city’s residents. To pay this loan over 15 years, they will burden the residents of the city with high tariffs on municipal services.
SAFTU supports Capital Expenditures but requires that the cost of the capital must be carried by the National Treasury.
b) Structural adjustment policies
In instances in which the city may fail to pay, and the National Treasury refuses to inherit that debt, the lender, the French Development Agency, could dictate terms as a condition for their renegotiation of the debt repayment. As we have seen in Barcelona, Birmingham, Glasgow, and other important cities of the world, we could see hyper-commercialisation of the city’s services and further liberalisation of social services which are currently provided by the city solely.
Already, the cost-recovery models that have been adopted by the City and many municipalities across South Africa are a burden to the poor residents of those municipalities. Hence, the illegal bridging of electricity has skyrocketed as many residents across the urban centres cannot keep up with the rising costs of electricity, first as a result of Eskom tariff hikes, but secondly, as a result of the municipal surcharges.
This amounts to the auctioning of the socio-economic well-being of the citizens of the City of Johannesburg by indebting them to foreign lenders. SAFTU demands the details of the loan to be made public. Furthermore, we reject the loan and call for the rescission of the decision by the council.
