This document discusses urban infrastructure financing in Sub-Saharan Africa. It presents a conceptual framework for sources of capital finance including land-based financing instruments. Examples are given of different countries and cities using various land-based financing approaches like 'in-kind' developer contributions, land leasing, and development charges. However, the study finds that land-based financing currently makes a small contribution to infrastructure finance in Sub-Saharan Africa. While some areas have development charges, several countries do not use the revenue for infrastructure. There is potential to increase funding through improved use of development charges and other land value capture mechanisms.

1. Urban infrastructure in Sub-
Saharan Africa
Harnessing land values, housing and transport
Presented by Brendon van Niekerk, PDG
Research by Brendon van Niekerk and Ian Palmer
20 July 2015
Reaching a balance in financing urban
infrastructure

2. Structure of presentation
• Conceptual framework (recap from earlier
presentation).
• Overview of infrastructure finance (Ian new
piece).
• Land-based financing instuments
• Current practice with land-based
financing.

3. Revenue for capital investment transition
Land-based
financing
City’s own finance
(use of reserves and
borrowing)
Service provider
funding (borrowing
and equity)
Progressive evolution of cities
1. Transfers are shown hatched as there is such variation in the level of what can be achieved based on
the state of the national economy and the commitment of national governments to support local
government financially.
2. Weak national economy implies limits to revenue which can be raised by service providers
(parastatals and PPPs) and used for infrastructure investments
3. Cities in earliest stage of development may not have sufficient property value for LBF to be effective
Notes
2
Verticalaxis(blueshaded)representsmaximumpossible
foreachinstrumentateachstageofCityevolution
Transfers and
donations
3
1
Conceptual Framework recap: Sources of capital finance

4. Desired capital expenditure
0
5
10
15
20
25
30
35
40
Profile of desired capital spendng for a typical
city
Profile taken from financial modelling for City of Cape Town for full
provision of all urban infrastructure
100 points allocated to city capital finance profile

5. 0
5
10
15
20
25
30
35
40
Points
Addis Ababa - indicative capital finance profile
Gap
PPPs
State guaranteed loan
Funding from national fiscus
Local parastatal - debt & equity
National or regional parastatal - debt
& equity
Land-based finance - fee or charge
Land-based finance - 'in kind'
contributions
City debt finance
City internal surpluses
Note: Indicative profile derived by allocating 100 points across
sectors and then to capital finance options
High level of use of City internal surpluses.
High level of State guaranteed loans assumed.
Concern over extent to which City is taking financial risk on
loans for its parastatals

6. 0
5
10
15
20
25
30
35
40Points
Nairobi - indicative capital finance profile
Gap
PPPs
State guaranteed loan
Funding from national fiscus
Local parastatal - debt & equity
National or regional parastatal - debt &
equity
Land-based financing - fee or charge
Land-based financing - in kind contributions
City debt finance
City internal surpluses
Note: Indicative profile derived by allocating 100 points across
sectors and then to capital finance options
Heavy reliance on funding from national and regional
parastatals
Little funding by City but some LBF through ‘in kind’ contributions
by developers

7. 0
5
10
15
20
25
30
35
40Points
Harare - indicative capital finance profile
Gap
PPPs
State guaranteed loan
Funding from national fiscus
Local parastatal - debt & equity
National or regional parastatal - debt &
equity
Land-based financing - fee or charge
Land-based financing - 'in kind' contibutions
City debt finance
City internal surpluses
Note: Indicative profile derived by allocating 100 points across
sectors and then to capital finance options
Large gap between desired funding and actual finance available
Recent loan from Chinese for water and sanitation – assumed to be
State guaranteed.
Very little funding from City but some LBF from developers

8. Land-based financing

9. Land-Based Financing Instruments
Progressive evolution of cities
Undeveloped
property
Developed property
with basic services
Increased building
height and floor
area ratios
Developer ‘in
kind’
contribution
Impact fees;
development
charges
Land sale,
land lease,
sale of
development
rights
Betterment
tax/levy
Property
tax, tax
surcharge
etc
Tax
Increment
Finance
(TIF)
City capital
account
City operating
account
Basic
infrastructure
serving individual
property
developments
Improved service
levels; higher
capacity
infrastructure
systems
Infrastructure
focused on
improved quality
of life
Advanced
infrastructure:
mass transit; CBD
upgrades; parks
etc
Focus on building
performance, green
space; recreation
City capital
account
Negotiated
‘once off’
payments for
infrastructure
Dedicated investment
account
Specific
infrastructure for
identified
properties

10. Development based financing: Exactions
excluding development charges
Land-based
finance
instrument
Description
In-kind
contribution
‘In kind’ contributions are a form of exaction where
developer constructs infrastructure external to the
property development in situations where the City is
unable or chooses not to provide this infrastructure
itself.
Negotiations
and voluntary
contributions
A bilateral negotiation, before the investment occurs,
is used to determine a rate that property owners in the
area of influence should pay for the improvement.

11. Development based financing: sale or lease
not directly related to infrastructure cost
Land-based
finance
instrument
Description
Sale of
development
rights
The sale of the right to convert rural land (agricultural or
un-zoned) to urban use; and the right to build at
greater densities than normally would be allowed by
zoning rules or height restrictions.
Public land
leasing
If the relevant local authority owns the land, it would
lease the land out for a period of time, thus generating
revenue which should ideally fund urban infrastructure
Land acquisition
and resale
The purchase of land around a development, and
subsequent resale of that land by the public sector or
relevant authority is a method to capture some of the
gains that an infrastructure investment may create.
Land Sales This instrument relates to the sale of publicly – preferably
city - owned land and using the money to fund urban
infrastructure

12. Development based financing through
developer charges
Land-based
finance
instrument
Description
Development
charges and
impact fees –
cost based
Impact fees and development charges are a once off
capital contribution designed to cover the costs of the
bulk and connector infrastructure required for a new
property development or property development
improvements and possibly fund social and community
infrastructure. The charge is based on a formula of some
kind in a way that it can be applied consistently to all
property developments
Development
charges – tax
based
This is a variation on the concept of a once off
development charge where the charge is not based on
the cost of infrastructure provided which implies it is a tax.

13. Tax-based financing – recurrent tax
Land-based
finance
instrument
Description
Property taxes
and property tax
surcharges
A property tax is a tax levied on the value of property
(sometimes only land) by the local government. A
surcharge may be applied in some situations, such as if
the property is in a business improvement district.
Betterment
levies/taxes
Any tax or charge to a specific group of properties
based on some measurable feature of the property
which tax is levied based on the projected increase in
value of the property resulting from some public
infrastructural investment or change in property rights
presumed to be of general benefit to property values in
that area.
Tax Increment
Financing (TIF)
Tax increment financing (TIF) is a tool that allows
municipalities to finance infrastructure development by
earmarking property tax revenue from increases in
assessed values within a designated TIF district.

14. Extent of contributions by developers
Building
Internal infrastructure
Connector infrastructure
Bulk infrastructure
Social & community infrastructure
Cross subsidise infrastructure for poor households
Land
No land-
based
financing
Extreme
where all
building is
subsidised
Land and/or
internal
infrastructure
subsidised
Fullcostofpropertydevelopment
Maximum land
based financing
including
infrastructure
for poor
households
Land based
financing for
connector
infrastructure,
possibly other
components
DIAGRAMATIC ILLUSTRATION OF LAND BASED FINANCE SPECTRUM FOR MIDDLE
TO HIGH INCOME RESIDENTAL AND COMMERCIAL PROPERTY DEVELOPMENTS
City contributes to developer costs Developer contributes to City costs
-5 5
Rating
0

15. Country - City Project name Level of
land based
financing
Angola Luanda Luanda Sul / EDURB 4 -4
DRC Lubumbashi Kiswishi 4 -4
Ghana Accra Gold Coast City 4 -3
Nigeria Ibadan Central abattoir 4 -3
Rwanda Kigali Gacuriro Estate Phase I 4 -2
Senegal Dakar Urban Pole of Diamniadio 4 -2
DRC Kinshasa La Cité Du Fleuve 3 -1
Ethiopia Addis Ababa Senga Tera 3 -1
Ethiopia Addis Ababa Casainches 3 0
Kenya Nairobi Tatu City 3 0
Nigeria Lagos Carlton Gate Estate 3 1
Ghana Accra Accra Mall 2 1
Ghana Kumasi Kumasi City Mall 2 1
South Africa Johannesburg Pennyville 2 2
Zambia Kitwe Mukuba Mall 2 2
Kenya Nairobi Two Rivers 1 2
Nigeria Owerri Owerri Mall 1 2
South Africa Durban Cornubia 1 3
Mozambique Maputo Vila Olímpica 0 3
Zimbabwe Harare Budiriro 0 3
Cote d’Ivoire Abidjan Golf Resort -1 3
Cote d’Ivoire L’opération les floraisons -1 3
Rwanda Kigali Gaposho Estate Ph I & II -2 4
Uganda Kampala Akright Satellite City -2 4
Benin Cotonou Arcon Ville -3 4
Cameroon Yaoundé Olembe housing project -3 4
Cameroon Douala Sawa Beach -4 4
Angola Luanda Kilamba -4 4
-5 -4 -3 -2 -1 0 1 2 3 4 5

16. Examples of ‘in kind’ contributions
• For 12 of the 28 property developments included shown on
the previous slides, ‘in kind’ contributions took place through
the Developer constructing connector, and sometimes bulk,
infrastructure.
Examples of land lease
• Ethiopia: Land lease system extensively applied
throughout with the commitment of 90% of the funds
raised to be used for infrastructure.
• Cameroon: Land rent is applied. But there is no specific
commitment for this to be used to fund infrastructure.

17. Examples of development charges
• South Africa: history of development charges –
new policy being completed. Revenue raised is
used for infrastructure.
• Nairobi: infrastructure levy but not used for
infrastructure.
• Harare: Endowment fee but not used for
infrastructure.
• Lagos: Change of use charges, development
levies but not used for infrastructure
• Abidjan: Urban development levy evidently used
for infrastructure

18. Conclusion
• Land-based financing makes a relatively small contribution
to infrastructure finance in SSA.
• Evidence from this study is that most of this is through ‘in-
kind’ contributions by developers.
• There are examples of development charges but in three of
five countries where these are used the revenue does not
do towards infrastructure investments.
• Land leasing occurs in Ethiopia and Cameroon but only
contributes a modest amount to the total required to
finance infrastructure.
• There are opportunities to raise substantial contributions
through improved practice with development charges
having the greatest promise

19. End
Urban infrastructure in Sub-
Saharan Africa – harnessing land
values, housing and transport
Brendon van Niekerk, PDG
20 July 2015