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2017/18 Submission for the Division of Revenue

PART 1:  MACRO-MICRO AND FISCAL CONTEXT OF RURAL DEVELOPMENT

Rural areas account for four-fifths of the land and are home to about two-fifths of the population in South Africa. Although poverty and economic deprivation has been reduced substantially since the advent of democracy, greater poverty is found in provinces that contain former homelands (only the Western Cape and Gauteng did not “inherit” former homeland territory). Like many other countries, South Africa does not have a government-wide, officially agreed and accepted definition of “rural”. Understanding what “rural” means is particularly important when assessing programmes aimed at stimulating rural development. This lack of a common definition may explain the plethora of rural development programmes that are found in virtually every corner of the government. Furthermore, measurement issues remain unresolved, and so the relationship between rural development, intergovernmental fiscal relations instruments and related aspects (such as land reform, food security or infrastructure) is not always clearly defined and understood. Thus, the effectiveness of spending on rural development is unclear. This section sets the context for the rest of the Submission, by looking at these issues and offering the lens through which the Commission will approach the contestable areas. It examines the socio-economic profile and characteristics of rural areas, as well as how to define rural areas, and assesses how rural regions are coping with economic change, and the weight of agriculture and agriculture spending in rural economies. It also explores the evolution of rural policy, including who is implementing policy for rural areas and whether integrated rural policies work, and presents the rural development model underlying the Commission’s recommendations.

PART 2:  NATIONAL GOVERNMENT AND RURAL DEVELOPMENT

Over the past decade, South Africa has implemented many rural development strategies focused mostly on land reform and restructuring the country’s agrarian economy, as a catalyst for poverty reduction and wider societal transformation. In recent years, conditional grants have been used to fund the flagship policy programmes. However, agriculture’s declining share (in terms of employment and gross value added) has raised concerns about the efficacy of directed public investments in agriculture for achieving growth, reducing rural poverty and creating a vibrant and inclusive rural economy. Three aspects are examined in this section. The first seeks to show that agriculture and non-agricultural linkages can play an important economic development role and, if well managed, the interactions between the two can be the basis for economically, socially and environmentally balanced regional development. The second argues that land reform is essential because for many poor rural households, land is the main source of livelihood and means for investing, accumulating and transferring wealth. Providing secure rights in land they already possess can significantly increase the net wealth of rural households. Finally the third deals with state entities and their critical developmental role in the economy, looking at what SOCs and DFIs do in rural spaces and what they need to do in order to be drivers of rural growth.

PART 3:  PROVINCIAL GOVERNMENT AND RURAL DEVELOPMENT

Similar to many other developing countries, South Africa is characterised by disparities across provincial jurisdictions. The distribution of poverty is highly skewed, with the rural provinces carrying the highest burden due to historical social engineering policies and weak regional economies. The higher poverty burden imposes additional demands for services and funding on rural provinces, but the funding framework for provinces is not adequately sensitive to the different developmental needs. Poverty is a manifestation of under development emanating from a range of factors including historical legacies, under-investment and structural issues. This section focuses on provinces and rural development. Limited economic activity and a narrow tax base impede the ability of rural areas to mobilise sufficient resources to finance their own development programmes, leaving them dependent on the centre for both transfers and interventions. As a result, their spending discretion (i.e. directing resources towards province-specific needs) is limited – the provincial equitable share, which accounts for 80% of revenue, is normally tied to national priorities and statutory responsibilities. Similarly, spending on the remainder of the funding from conditional transfers is restricted to specific sector and expenditure activities. The inability of the rural provinces to intervene in their spaces through the powers and functions assigned to them by the Constitution is evident from their consistent maladministration practices and fiscal management failures. Whereas such failures reflect poor fiscal choices, the lack of appropriate skills in the rural areas may also exacerbate management inadequacies and thus reinforce rural under-development.

PART 4:  RURAL MUNICIPALITIES AND RURAL DEVELOPMENT

Poor access to adequate levels and standards of basic services compound the challenges of poverty and unemployment in rural areas. Dealing with these challenges requires not only a strong national government but also a capable and capacitated local government – the sphere of government closest to the people. However, despite increased funding and interventions over the years, this has not translated into commensurate service delivery improvements in the majority of rural municipalities. Initiatives underway include the recent review of the local government equitable share formula introduced in 2013, the ongoing “Back to Basics” initiative, as well as the infrastructure grant reviews. In addition, amalgamations of municipalities are being experimented with in order to turnaround the fortunes of this sphere of government. Yet many municipalities continue to under-spend their budgets, and suffer from inefficient procurement and irregular and wasteful spending, bad management and outright corruption. For many rural municipalities, their dilemma is one of expanding expenditure requirements and shrinking fiscal space. They have limited scope for economic diversification, deficient services and infrastructure, and face declining revenue bases because of high unemployment and population losses through migration. This section looks first and foremost at whether the resources transferred to the sector are adequate and used efficiently and effectively. It then considers the extent and costs of farm displacements, and how rural local municipalities can deal with this problem and the associated costs.
Lastly, the focus turns to finding innovative ways of tapping into economic activity of rural areas, and developing new sources of municipal income while arresting the decline in existing sources.

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“For an Equitable Sharing of National Revenue"

 


info@ffc.co.za
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