Secondary cities will drive Africa’s urban growth. Meeting the needs of this growth requires strong municipal finances and projects that are ready to attract investment. A webinar series in South Africa showed how to build both.

Across Africa, local governments rely on national transfers for 58% of their budgets, and subnational debt is only about 4% of total government debt (OECD, 2022). 

South Africa stands out, with an established municipal borrowing framework and an active lending market. To learn from its experience, the Global Covenant of Mayors for Climate and Energy (GCoM) and partners organized the Municipal Creditworthiness Journey and Access to Finance webinar series.

Held between May and July 2026, the series was co-organized by the GCoM-Gap Fund Partnership, C40 Cities, the National Development Banks Urban Climate Action (NUCA) Programme and the South African Local Government Association (SALGA). It brought together 283 representatives from 53 cities, with a focus on intermediate city municipalities. Discussions moved from the foundations of creditworthiness to the Just Energy Transition and climate-smart transport.

The discussion connected two concepts: municipal creditworthiness – a municipality’s capacity and willingness to meet its financial obligations – and project readiness – the technical, financial and institutional preparation needed to deliver an investment. The message was clear: the two must advance hand in hand.

Five lessons emerged for South African secondary cities, with relevance well beyond South Africa.

1. Even where there is a mature subnational lending market, secondary cities lag behind.

South African municipalities work within an established borrowing framework: the Constitution allows them to borrow, the Municipal Finance Management Act sets the rules and with 65.2 billion South African Rand (about 3.4 billion euro) in outstanding long-term municipal debt, borrowing already takes place at significant scale (South African National Treasury, 2026). In 2025, Johannesburg even received the African Development Bank’s first loan to an African city without a national government guarantee.But borrowing is concentrated. The eight largest municipalities in the country hold around 85% of outstanding long-term municipal debt while intermediate city municipalities hold just 9%.About two-thirds of Africa’s urban growth to 2040 is expected in small and intermediary cities (CCFLA, 2023). Yet these cities often have few finance staff, outdated property records and late audits, and often depend heavily on national transfers.

2. Secondary cities can start with the fundamentals.

The good news is that cities can close some of these gaps themselves. Many of the factors that lenders assess are shaped by national governments: the revenues cities can raise, the transfers they receive, the accounting and audit standards they follow and the rules on how much they can borrow. But cities control the quality of their own financial management, their data and the quality of their projects.

That means collecting revenue effectively, producing reliable financial information, managing debt prudently, strengthening governance and showing they can plan and deliver investment. The aim is not necessarily to borrow straight away, but to collect the revenue cities are owed and grow their own income.

Sandra Sekgetle, Director of Local Government Finance Policy at South Africa’s National Treasury, emphasized the importance for secondary cities in particular to collect revenues reliably, keep dependable accounts and have the capacity to plan investments and maintain services. Together, these practices help demonstrate that a city can manage long-term financial commitments.

Building on the World Bank South Africa Local Government Borrowing Profile, World Bank experts John Iwan Probyn and Federica Iorio presented findings from South African municipal loans over 2010–2025. Municipalities in weaker financial health faced higher interest-rate markups – almost three percentage points more on average – and less time to repay. Higher financing costs leave less money for infrastructure and essential services.

To help cities turn this understanding into action, Sohaib Athar, Senior Urban Development Specialist at the World Bank, introduced the CityCred Self-Assessment and Planning Toolkit. It enables municipalities to assess their financial and institutional position, identify gaps and develop a practical improvement plan.

The World Bank currently works with 14 intermediate city municipalities in South Africa, using the toolkit as well as City Creditworthiness Academies to help them identify their strengths and areas for improvement. Secondary cities can also draw on the experience of metropolitan cities, using C40’s guidance on creditworthiness and attend peer-learning activities organized by the C40 CFO Network of African cities, which brings together chief financial officers of African cities to share experience on creditworthiness, financing strategies and access to capital markets.

3. Prepare sound, climate-smart projects.

Financiers invest in projects, not intentions. Alongside stronger finances, cities need a costed, climate-smart capital investment plan and a pipeline of priority projects, each with a clear source of revenue or repayment. Because each sector needs different studies, expertise and funding arrangements, this pipeline is best built sector by sector, as the energy webinar showed.

In South Africa, energy, projects and municipal finances are tightly linked. Electricity sales have historically provided 25–30% of municipal income on average. As households and businesses generate their own power or buy it through new arrangements, municipalities need to rethink their electricity services to protect or diversify this revenue. Khwezikazi Windvoel, Portfolio Lead for Municipalities at the Presidency Just Energy Transition Project Management Unit has put it simply: “We talk about creditworthiness, energy reform, climate finance; these three are increasingly becoming the same conversation.”

The answer is to build step-by-step. Before large or complex investments, municipalities may first need better data on electricity costs and demand, improved metering, energy-efficiency measures or small renewable-energy projects that build experience and show results.

4. Use intermediaries to reach finance.

Most development finance reaches cities indirectly. Many multilateral and bilateral lenders cannot lend directly to cities, or only to the largest and most creditworthy ones. For most secondary cities, finance flows through national programs or financial intermediaries such as national development banks and municipal funds (ODI, 2023). In South Africa, the Development Bank of Southern Africa (DBSA) is one of the intermediaries playing this role.

During the workshop series, DBSA presented its project preparation support for municipalities, which provides expertise and funding for technical and financial studies early in project development. The City Climate Finance Gap Fund offers complementary early-stage support for climate-related projects.

For small and intermediary cities, these partnerships with public development banks or technical assistance providers bring much-needed expertise and help turn local priorities into credible investment proposals.

5. Aggregate to reach scale.

Many secondary city projects are too small to attract lenders on their own. Bundling them changes the equation: through joint procurement, shared studies and pooled borrowing, cities can reach the scale that financiers look for.

National partners make this possible. During the workshop series, the South African Local Governments Association mobilized municipalities, worked with provinces and identified sectoral priorities for each territory, so that climate challenges and solutions could be tackled at a wider scale. DBSA showed what this can look like for project preparation. Through the Just Municipal Embedded Generation project, DBSA and ICLEI Africa are helping six municipalities prepare local solar and battery projects. Each municipality follows the same steps, from grid and site assessments to financial analysis and approvals. Working together lets them share methods and lessons and builds a larger pipeline for financiers.

This last example shows how international city networks can help bring cities together. The GCoM–Gap Fund Partnership, for instance, encourages cities to develop joint sectoral pipelines, bringing together similar projects across several cities so they are easier to prepare and finance.

Connecting the lessons to practical support

Sound finances and investment-ready projects go hand-in-hand, and neither can be built by cities alone. The South African series showed what is possible when cities, national partners and international networks work together.

GCoM and its partners will now take this approach to other countries, working with national partners so that support reflects each country’s rules, municipal responsibilities and financing options. The goal is simple: give small and intermediary cities a clearer route from local priorities to investment.

Read more:

• Municipal Creditworthiness Journey and Access to Finance in South Africa – Webinar 1 Report
• Municipal Just Energy Transition (JET) and Access to Finance in South Africa – Webinar 2 Report
• Municipal Creditworthiness Journey: Mobility and Climate-Smart Transport Financing – Webinar 3 Report
• World Bank City Creditworthiness Initiative’s South Africa Local Government Borrowing Profile
• World Bank’s CityCred Self-Assessment & Planning Toolkit
• CCFLA (2023), Supporting Access to Climate Finance for Small and Intermediary Cities

Learn more about the City Climate Finance Gap Fund