Johannesburg funding setback raises investor concerns after AFD loan rejection

Johannesburg’s struggle to fund its infrastructure is intensifying after a key international lender declined to extend fresh financing, a setback that underscores rising credit concerns around Africa’s richest city.

• Johannesburg has failed to secure new funding from a major international lender, raising concerns about its financial stability.
• The rejection is tied to compliance and governance issues linked to an earlier loan, according to a source.
• City officials dispute that assessment, insisting they met all obligations.
• The setback highlights growing risks in municipal finance in Africa’s most industrialized economy.

A request by the municipality for additional funding from Agence Française de Développement was rejected, a person familiar with the matter told Bloomberg, citing failures tied to an earlier loan agreement.

The refusal relates to a 2.5 billion rand ($152 million) facility secured in 2024 for infrastructure spending.

According to the person, Johannesburg did not meet some of the loan’s conditions, including reporting requirements on its impact, and there were broader governance concerns.

The person asked not to be identified because the discussions are not public.

AFD signaled a pause in its exposure. “Our last loan agreement with the City of Johannesburg was in early 2024,” the lender said. “We have no further financing plans with the city within our current annual programming cycle.”

City authorities rejected the characterization.

The municipality said it “adheres to all reporting commitments stipulated in the contracts,” and added that development finance institutions are not obligated to lend every year.

It described AFD as a long-term partner that has financed the city for years.

The disagreement comes as Johannesburg, home to about 4.8 million people and a critical node in Africa’s financial system, faces mounting operational and fiscal strain.

Persistent governance issues and corruption allegations have weakened service delivery, leaving residents with unreliable electricity, water shortages and deteriorating infrastructure.

Budget pressures are adding to the strain. In March, the city council, led by the African National Congress in a fragile coalition, failed to pass its budget on a first attempt amid disputes over rising wage costs, a sign of tightening fiscal space ahead of elections due next year.

Johannesburg is seeking roughly 2.5 billion rand in long-term refinancing this financial year and has approached a range of lenders.

These include multilateral institutions such as the International Finance Corporation, the Asian Infrastructure Investment Bank and the New Development Bank, as it looks to diversify funding sources.

While some institutions have stepped in, including German development bank KfW with €200 million for electricity projects, the terms of borrowing are under scrutiny.

The previous AFD loan carried a floating rate of as much as 4.96 percentage points above the Johannesburg Interbank Agreed Rate, a relatively steep margin that reflects perceived risk.

The issue is drawing attention at the national level. Finance Minister Enoch Godongwana has already asked city officials to account for 24.4 billion rand in what he described as wasted expenditure, highlighting concerns about financial oversight.

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For investors, the failed funding request is a warning signal. It points to tightening conditions for sub-sovereign borrowers in emerging markets, where access to concessional finance increasingly depends on governance standards and transparency.

For Johannesburg, the implications are more immediate: without consistent external funding, the city’s ability to stabilize infrastructure and restore basic services may come under even greater pressure.