Funding Local Economic Funding Local Economic DevelopmentDevelopment

Malijeng Ngqaleni National Treasury

17 March 2009

Kwazulu-Natal

Local Economic Development Conference 08/09

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Overview

• Background – Global Economic Crisis– Government Response

• Concept of LED and strategy

• LED Funding in Government and Challenges

• Funding for LED

• Conclusion

Global Economic Crisis

• Currently world economy is faced with serious financial and economic contraction

• Impact on SA growth prospects:

– Slowing down economic growth

– Rising unemployment

– Declining business profitability & closures

– Declining revenue base for the fiscus, with greatest impact on municipalities

Government Response: 2009 Budget

• Mitigate the impact of the crisis

– Protecting the poor - expanding programmes that alleviate poverty, i.e. grants, EPWP

– Building capacity for long-term economic growth – infrastructure development

– Sustaining employment growth – supporting meaningful LED initiatives

– Addressing sectoral barriers to growth & development - regulatory reforms to increase competitiveness, development of human capital

LED Strategy• LED is based on local initiative, driven by local

stakeholders and involves identifying & using primarily local resources, ideas & skills in an integrated way to stimulate economic growth

• Its strategy is to facilitate access to sustainable economic activity and employment through:– Broadening participation of historically excluded in the

economy– Increasing partnerships between government, private,

public entities, NGOs and communities– Developing credible municipal LED strategies & plans– Encouraging domestic or foreign investments by

providing infrastructure i.e. roads or reducing crime

Broadening Participation: SMME

• Regulation - policy and legislation• Development of business management skills of SME

(capacity building)– Cooperative development– Small Enterprise Development Agency (SEDA)– National Research Foundation Technology

• Improving access to financing to SME– Umsobumvu fund– MAFISA (agriculture) – pilot in KZN– South African Micro Finance Apex Fund– National Empowerment Fund– Khula Enterprise Finance– Public Entities – DBSA, IDC, Land Bank – IDC Isivande Women’s fund (started 2008– IDC support programme for industrial innovation

Funding LED in Government

• LED was previously funded through a specific LED grant • Realized that there are less benefits from this silo focus

thus incorporated into MIG in 2004/05, and provincial poverty fund phased into equitable share

• Municipalities have a Constitutional mandate to promote LED (sec 152), guidelines were instituted in 2000 – provinces and national provides support

• All District and Metro municipalities have LED programs, which are being implemented by a dedicated LED unit or similar entity

• Government needs to optimize opportunities for SME development and employment creation in a manner it utilizes budget & create partnerships

• Greater opportunities and gains if govt mainstream LED within its programmes across the three spheres

SMMEs Challenges

• Empowerment policies have met challenges in implementation by government, including:– Poor quality of service not delivered on time– Requires extensive project management capacity from

government departments– Poor business management skills – failure to access

opportunities, sustain & grow business– Delays in processing payments by govt – capacity and poor

financial management in govt depts– Nature of contracts awarded to SME – targets vs sustainability– Opened bigger door for corruption

• Role of Economic Departments– to support government departments, municipalities to set up

proper framework & systems for contracting & managing SMEs– Make targeted SME development programmes work

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Funding LED

• Funding streams that can impact on LED include:

– national government intergovernmental transfers

– Provincial and Local government budgets

– international donor grants and loans

– Public Entities

– Private sector funding such as corporate donations

Government Grants: ProvincesConditional grants to provinces 2008/09 - 2011/12

2008/09 2009/10 2010/11 2011/12 Totals

R million Current baseline

Medium-term estimates 2009 MTEF

CASP 614 715 862 979 2,556

Land Care 51 51 55 58 164

llima/Letsema Projects - 50 200 400 650

National school nutrition programme 1,927 2,400 3,670 4,586 10,656

Integrated Housing & Human settlement 9,921 12,442 15,027 17,222 44,691

Infrastructure Grant to Provinces 7,384 9,249 11,315 13,091 33,655

EPWP Incentive Grant - 150 400 800 1,350

Totals 19,897 25,057 31,529 37,136 93,722

Conditional grants to KZN, 2008/09 - 2011/12

2008/09 2009/10 2010/11 2011/12 Totals

R million Current baseline

Medium-term estimates 2009 MTEF

CASP 101 118 142 160 420

Land Care 7.3 8.2 8.7 9 26

Letsema Projects 11 7 30 60 97

National Nutritional Programme 458 556 855 1,070 2,481

Integrated Housing & Human Settlemnt 1,622 2,180 2,714 3,150 8,044

Infrastructure Grant to Provinces 1,560 1,971 2,398 2,740 7,109

EPWP Incentive Grant - 84 - - 84

Totals 3,759 4,924 6,148 7,189 18,261

Government Grants to LG: Infrastructure2008/09 2009/10 2010/11 2011/12 Totals

R million Current baseline

Medium-term estimates 2009 MTEF

Direct transfers 12,364 15,193 18,689 22,435 56,316

MIG 8,620 11,085 12,529 15,069 38,682

INEP 494 933 1,020 1,097 3,050

PTIS 3,170 2,418 4,290 5,149 11,857

NDPG 80 582 630 840 2,052

Electricity - demand side - 175 220 280 675

Indirect transfers 1,151 1,542 1,862 2,003 5,407

INEP 1,151 1,467 1,752 1,883 5,102

Electricity - demand side - 75 110 120 305

Totals 13,515 16,735 20,551 24,438 61,724

2008/09 2009/10 2010/11 2011/12 Totals

R million Current baseline

Medium-term estimates 2009 MTEF

Direct transfers 2,676 3,360 3,693 4,504 11,556

MIG 1,891 2,617 2,757 3,316 8,689

INEP 90 123 130 95 348

PTIS 627 385 548 850 1,782

NDPG 69 211 219 191 621

Electricity - demand side - 24 40 52 116

Indirect transfers 296 367 364 486 1,217

INEP 296 367 341 475 1,183

Electricity - demand side - - 23 11 34

Totals 2,973 3,727 4,057 4,989 12,773

Infrastructure transfers to local government, KZN 2008/09 - 2011/12

Infrastructure transfers to local government 2008/09 - 2011/12

Government Grants to LG: Capacity Building & Other

Current TransfersCapacity-building and other current transfers,2008/09 - 2011/12

2008/09 2009/10 2010/11 2011/12 Totals

R million Adjusted baseline

2009 MTEF

Municipal systems improvement 200 200 212 225 637

Financial management 180 300 365 385 1,049

Siyenza Manje 267 269 285 302 856

EPWP - Phase 2 Incentive - 202 554 1,108 1,864 Totals 647 971 1,416 2,019 4,406

Capacity building and other current transfer, KZN 2008/09 - 2011/12 2008/09 2009/10 2010/11 2011/12 Totals

R million Adjusted baseline

2009 MTEF

Municipal systems improvement grant 43 41 45 48 134

Financial management grant 30 62 72 80 214

EPWP - Phase 2 Incentive Grant - 39 - - 39 Totals 73 142 117 128 387

Medium-term estimates

Medium-term estimates

KZN Provincial Budget: LED Potential

2008/09 2009/10 2010/11 2011/12 Totals

Projected outcome 2009 MTEF

Infrastructure maintenance, rehabilitation 5,082 4,890 5,621 6,084 16,594 Economic Development 172 572 605 603 1,779 Community Based Programme 89 60 62 66 188 Agriculture 687 761 921 1,016 2,698 National School Nutrition Programme 376 556 855 1,070 2,481 Total 6,406 6,838 8,064 8,839 23,741

Medium-term estimatesProgrammes

Equity/Empowerment Funds and Enterprise Development

2008/09 2009/10 2010/11 2011/12 Totals

R million Current baseline 2009 MTEF

Micro-Agricultural Finance Initiative of S.A (MAFISA) 22 146 - - 146 Isivande woman fund 19 10 11 11 32 Umsobumvu 5 303 342 356 1,002 SA Micro Finance Apex Fund 38 85 90 91 265 NEF - 116 23 24 163 NEF - capex 313 312 - - 312 NRF - capex 162 164 173 179 516 SEDA - capacity building 408 331 377 385 1,093 SEDA Tech -capex 77 68 76 111 255 Khula Enterprise 70 66 70 74 210 Totals 1,114 1,601 1,161 1,231 3,993

Medium-term estimates

Expanding LED Opportunities on Budget

• Agricultural Development– Post settlement support to farmers (CASP)– Promote entrepreneurs in agri-business industry– Agricultural development finance– Farmer cooperatives

• Maintenance of Assets– Decentralizing maintenance to schools and health

facilities (schools, and health facilities)– Facilitate the development of SME locally to contract

for maintenance in facilities – long term contracts

Expanding LED Opportunities on Budget

• Scaling up EPWP – incentive grant for innovation on job creation within budget– Scaling programmes such as Zibambele in roads– Innovations on implementing municipal maintenance

programmes– Implementing Municipal Infrastructure Grant (MIG)

programmes – increase labor based methods– Opportunities for NGOS, CBOs & public entities to

participate in the EPWP incentive grant• Procurement (i.e. feeding schemes, cleaning)

– Improve internal payment processes to pay on time– Long term contracts – sustainability & growth– SME capacity building (business management)

Expanding LED Opportunities on Budget

• Conserving electricity– Distribution enterprises to participate in Energy

efficient Demand Side Management Programme– Alternative energy sources i.e. solar energy

• Housing & integrated human settlement– People’s housing process– Neighborhood development partnership grant (NDPG)

- seeks to develop community infrastructure and attract private sector

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Conclusion

• No specific government grant funding for LED – and not necessary for maximum impact on LED

• Maximum benefits through ensuring that existing funding instruments incorporate LED objectives

• Economic Development Departments wt DTI can:– Play advocacy role in departments, municipalities & private

sector– business development support for SME involvement across all

sectors– Develop best practices for SME development & oversight to

enhance capacity of depts & municipalities– Assist municipalities and departments to develop credible LED

strategies and plans that can also optimise benefits as they implement their budgets

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THANK YOU

THANK YOU