Direct city lending heralds a new era for circular financing

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The African Development Bank (AfDB) has approved a $139 million loan to the City of Johannesburg for critical infrastructure, including solid waste management. As the Bank’s first direct loan to a subnational entity in Africa, the deal signals a shift toward empowering cities directly to lead on infrastructure and circular economy solutions.

• For a continent where funding for cities has typically flowed through national governments, this deal marks a shift, boosting municipal focus on infrastructure and circular economy investments.

• Though still rare, direct subnational lending to cities is an emerging trend in Africa seen as key to unlocking faster, more accountable investment in essential infrastructure including waste management.

More details

• The AfDB loan will finance more than 100 infrastructure projects across multiple sectors, aiming to benefit six million residents in Johannesburg, South Africa’s largest city. In the circular economy space, the funding will support improved landfill compliance, expanded recycling facilities and enhanced waste collection services.

• As the first deal of its kind, the transaction operationalises the African Development Bank’s Guidelines for Subnational Finance, which target revenue-generating infrastructure to ensure sustainable debt repayment while addressing urgent service delivery gaps.

• “By directly financing Johannesburg, we are unlocking a scalable model for subnational lending that enables multi-sectoral infrastructure delivery across Africa,” said Solomon Quaynor, the Bank’s Vice President for Private Sector, Infrastructure and Industrialisation.

• To ensure accountability and effectiveness, the Bank says it has embedded comprehensive safeguards throughout the project, including robust monitoring and oversight mechanisms, transparency requirements and sound financial management protocols.

• According to the bank, an extra $1.5 million grant is being sought through its Urban and Municipal Development Fund to support complementary initiatives in municipal reform, governance strengthening and climate-resilient planning.

• Direct lending to subnational entities like cities or municipalities remains uncommon in Africa, with most development finance institutions, including the AfDB, traditionally requiring national governments to act as intermediaries due to concerns over creditworthiness, governance and repayment risk at the local level. As a result, African cities have largely been excluded from independently financing the infrastructure they are mandated to deliver.

• That model is increasingly seen as outdated. Africa is urbanising rapidly and cities are under growing pressure to expand services such as waste management, energy access and clean water. Yet many national governments are overstretched or slow to act, creating bottlenecks in funding.

• Johannesburg’s direct loan from the AfDB challenges this pattern, showing that cities with functional financial systems can and should be trusted with large-scale infrastructure finance. Reflecting this shift in approach, the Bank’s Director General for Southern Africa, Kennedy Mbekeani, described the deal as a sign of the AfDB’s “commitment to supporting creditworthy cities like Johannesburg as engines of economic growth.”

• Subnational lending is now emerging as a viable alternative, particularly when tied to revenue-generating services. The AfDB’s Guidelines for Subnational Finance prioritise lending for projects such as solid waste management that generate income through service fees, recycling revenues or public-private partnerships. 

• This shift also creates space for circular economy opportunities. Cities generate the most waste and face the most visible infrastructure gaps. When local governments control the purse strings, they can embed recycling, composting and waste to energy solutions into wider infrastructure planning, something that remains challenging at the national level. 

• If successful, the Johannesburg model could be replicated in other African cities with financial maturity. Nairobi, Addis Ababa, Dakar, Accra and Lagos all face similar infrastructure deficits and have made progress in improving revenue collection and urban planning. However, replication depends on key conditions, including robust governance and transparent financial systems.

• Still, subnational lending carries risks. Many municipalities continue to struggle with weak accounting systems, limited technical capacity and political interference. Without strong safeguards and institutional reform, direct city financing could result in debt distress or poorly managed projects. The AfDB’s intention to offer a separate grant for governance support in Johannesburg reflects this reality, cities need technical assistance, not just capital.

• For Africa’s circular economy to scale, cities must evolve from basic service providers into strategic investors. Johannesburg may be the first test, but it is unlikely to be the last.

Our take

• The shift in funding approach is not just a financial milestone but a governance turning point. Cities must be empowered not only to deliver circular infrastructure but also to lead on climate and development outcomes.

• For Africa’s circular economy to scale, cities must evolve from basic service providers into strategic managers of infrastructure and finance. Johannesburg is the first test,  but it is unlikely to be the last.

• Giving cities control over finances is not just practical, it's overdue. As the frontline managers of waste, they need the autonomy to design and deliver circular solutions that match local realities.