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Policy Brief 7 - Who Finances Rural Local Municipalities?

ProvinciaThe majority of financially unviable municipalities are in rural areas and depend significantly on grants to fulfil their mandate. The government’s aim is to minimise this grant dependency by amalgamating municipalities.
The Financial and Fiscal Commission (the Commission) investigated whether amalgamations result in viable municipalities, as well as the adequacy of intergovernmental transfers and possible alternative own-revenue sources that would lessen the dependency of rural municipalities on transfers. The study found that amalgamations do not necessarily result in financially viable municipalities, and (if all grants are included) the current system of transfers is adequate for some (but not all) services rendered by rural local municipalities.

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Policy Brief 6 - Can Public Employment Programmes Create the Jobs Needed in the Rural Areas?

ProvincialUnemployment rates in South Africa remain stubbornly high, and rural areas are the worst affected. In response to the persistent and structural nature of unemployment, government established two public employment programmes (PEPs): the Expanded Public Works Programme (EPWP) and the Community Works Programme (CWP). The high priority that government attaches to PEPs is shown in their increased funding, which is growing faster than most programme budgets. The Financial and Fiscal Commission (the Commission) carried out a study to ascertain the effectiveness of the PEPs in creating jobs especially in rural areas and in providing value for money. The study found that the nature of the PEP activity being funded has a critical bearing on the impact of expenditure. The infrastructure sector has the highest costs and lowest labour intensity, implying that an infrastructure-led growth approach may not result in the required jobs.

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Policy Brief 5 - How Provinces are Funded to Fulfil Rural Development Mandates

Provincial rural development mandates straddle many concurrent functions, but how each sphere perceives its role is not always clear. Provinces in South Africa have very different levels of tax effort, reflecting the different tax bases. Between 2005 and 2014, tax effort increased across all provinces, with some provinces relatively optimising their collection of own revenue, but the scope to increase revenue collection from current provincial
tax sources is limited. Provinces therefore rely heavily on transfers from national government, especially the
provincial equitable share (PES), which is criticised for perpetuating regional imbalances. The Financial and
Fiscal Commission (the Commission) found that the PES formula is not responsive to rurality, whereas infrastructure conditional grants are responsive to rural needs because the largest share of the main infrastructure grants goes to the three most rural provinces. Many conditional grants are targeted at the agricultural sector, although agriculture is not the dominant economic activity in all rural areas. The Western Cape has the second highest (after KwaZulu-Natal) agriculture output, whereas the Northern Cape contributes the least to national agriculture output and yet receives the largest share of agricultural grants.

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Policy Brief 4 - Enhancing the Role of Public Entities in Rural Development

Public entities – state-owned companies (SOCs) and development finance institutes (DFIs) – play an instrumental role in implementing developmental policies and helping to drive South Africa’s infrastructure-led growth. They have the resources to change the development path of rural areas. A study by the Financial and Fiscal Commission (the Commission) assessed the extent to which public entities contribute to rural development. The study found that SOCs do not have a specific rural focus, unless such a focus is driven by their parent/sector department, and that investments by DFIs in rural areas is minimal and declining. To enhance the rural development role of public entities, in order to align with government’s infrastructure-led growth strategy, the
Commission recommends that a single champion for rural finance and development be designated, to guide and coordinate investments by DFIs in rural areas.

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Policy Brief 3 - National Land Reform Programme and Rural Development

South Africa’s land reform programme has not reached its policy objectives for various reasons; among these
are the failure by government to provide adequate services to make the redistributed land productive, and the lack of access to credit, equipment and technical assistance, which makes it difficult for land reform beneficiaries
to put land to productive use. The Financial and Fiscal Commission (the Commission) undertook a study into the land reform programme. The survey results show the land reform programme’s lack of success is illustrated by the drastic decrease in production since land was transferred. This has resulted in job losses, especially at sites where the crops grown were labour intensive and required expertise, and in land reform beneficiaries being worse off than those who did not benefit from land reform.

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“For an Equitable Sharing of National Revenue"


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