2017/18 Division of Revenue: Financial and Fiscal Commission Submission

Standing Committee on Appropriations

06 September 2016
Chairperson: Ms Y Phosa (ANC) and Mr S Mohai (ANC, Free State)
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Meeting Summary

The theme of the 2017/18 FFC submission was the intergovernmental fiscal relations system and rural development. The majority of the South African poor were living in rural areas, which lagged behind on economic performance indicators. The rural economy was no longer just a farm economy. The potential of land reform as a mechanism for rural development remained unrealised. State Owned Companies and Development Finance Institutions did not have a specific rural focus. Revenue collection in rural provinces was constrained by weak economic bases. The Department of Planning, Monitoring and Evaluation had to review the extent to which infrastructure backlogs had been reduced. Government job creation schemes did not have a specific rural bias. Most Expanded Public Works Programme jobs were in the metropolitan municipalities. Rural municipalities depended on grants. Amalgamation of municipalities was proposed as a means to make municipalities self-sufficient, but the Financial and Fiscal Commission’s view was that it would not necessarily have that result. Municipalities would remain transfer dependent as revenue bases were weak. Farm evictions placed influx pressures on rural towns. The sanitation backlog was high. The Commission recommended ecological sanitation waterless technologies.

In discussion, there was concern about the inadequacy of job creation schemes like the Expanded Public Works Programme to create permanent employment and entrepreneurial and other skills. There was a related concern about the lack of investment by companies in rural areas, because of lack of infrastructure. The lack of telecommunications infrastructure in rural areas was particularly disturbing. Members found a lack of coordination of intergovernmental fiscal relations, agro processing and local manufacture. Intervention in rural areas was insufficient, and had to be prioritised. There was a need for land reform programmes. Grants were not properly aligned. There had to be incentives for companies to invest in rural areas. Participation in dealing with Commission submissions had to be broadened.  The Commission was asked if departments were implementing policy areas, and what a proper response might be to municipalities not being viable because of no revenue base. There was a call for resources to be mobilised on a massive scale for growth and development. Members asked whether recently demarcated municipalities were successful. Infrastructure backlogs caused concern. Members were critical of a silo approach in government departments, and the one size fits all approach to municipal support.

Meeting report

Opening remarks
Ms Phosa opened the meeting with a moment of silence for prayer and meditation. She welcomed her co-Chair, Financial and Fiscal Commission (FFC) delegates, and the staff, without whom nothing was possible. It was an important meeting. The institution of the fiscal governance system was important to both the Standing and Select Appropriations Committees. Section 214(1), 1996 of the Constitution was relevant to the briefing of the day, as was section 4(4c) of the Money Bills Amendment Procedure and Related Matters Act of 2009. It spoke to the mandate of the Committees as envisioned in section 4 of the Money Bills Act. Intergovernmental fiscal transfers were a dominant issue in SA. The bulk of government revenue was raised at national level and allocated to provinces and amongst municipalities through the equitable share and other grants. In terms of the engagement of the day, she highlighted critical points. The legacy of Apartheid was dense rural settlement and limited economic opportunities, especially in the former homelands. High unemployment rates, land ownership patterns, settlement patterns and home ownership policies made it difficult for the previously disadvantaged, especially Africans, to accumulate assets and amass wealth. The homeland system banished millions of Africans to the poorest rural parts, where there was water scarcity and poor soil, which made small-scale farming unviable. Such areas were deprived of professionals. There were mostly nurses, police and teachers, with a lack of business people and farmers. The diagnostic review released in 2011 by the National Planning Commission observed that the South African challenge was that the poorest people were in the homelands, far from cities and jobs. There was a failure to coordinate human settlement infrastructure between provinces and local government.   The question was whether people had to be moved to jobs, or vice versa. The National Development Plan (NDP) vision of 2013 proposed creating more jobs through agricultural development based on effective land reform and irrigated agriculture and land production. Basic services had to develop capabilities to take advantage of opportunities in the country, and to make a contribution through remittances and skills transfers to communities. There was a need to develop agro processing and small enterprises where the potential existed.

The NDP recognised that there was a large percentage of women among poor people in rural areas. Public employment was expanded to provide work to youth and women. Transformation of the economy had to empower women and allow them to participate. The Medium Term Strategic Framework (MTSF) outlined a number of targets to accelerate economic development and rural development. It was necessary to increase productive land owned by the previously disadvantaged. Land owned by the previously disadvantaged had increased from 11.5 percent in 2013, to 20 percent, reducing the percentage of households vulnerable to hunger from 11.4 percent in 2013 to less than 9.5 percent, also reducing the percentage who lived below the bottom rung of the poverty datum line. Rural unemployment was reduced from 49 percent to less than 40 percent. There had to be robust engagement on the day to find solutions to enable the meeting of NDP targets. Deliberations had to result in concrete proposals to improve the efficiency of intergovernmental fiscal calculations. Rural development could be stimulated through prioritising public funding.

The Chairperson asked Dr Ncube, leader of the delegation, to introduce the FFC team.

Dr M Figg (DA) noted that the presenter had mentioned that the Chairperson could not be there because he had to go to an important meeting. That implied that the current meeting was not that important to the Commissioners.

The Chairperson asked Dr Ncube to name the Commissioners.

Dr Mkhululi Ncube gave the names of the Commissioners.

The Chairperson asked why not a single Commissioner could attend the current meeting.

Mr A Shaik Emam (NFP) remarked that the Committee was not being taken seriously. Members had to apologise timeously in writing if they could not attend a meeting. The same had to apply to the FFC. The FFC had to consider what the Committees might be looking for. It was necessary for the entire team to be there. The excuse was that the Commissioners had to attend a meeting that was more important to them. It would have been better to at least have some Commissioners there, to lend credibility.

Mr C De Beer (ANC, Northern Cape) commented that the proper procedure would have been if the two Chairpersons got together before the meeting to write beforehand that the leadership had to be present. It could have prevented only hearing about it on the day. It was important information that was being dealt with, that affected everyone.

Ms E Louw (EFF) found it odd that the Committee was not taken seriously. There were apologies week in and week out. The meeting had been scheduled a long time ahead. Parliament was not being taken seriously. The last time there was an issue it had been about the late submission of documents. Parliament ought to refuse to let a meeting take place. People had to know the position of the Committee. They could not just attend another meeting. There had to be consequences. Parliament was being taken for granted. It was frustrating.

Mr N Gcwabaza (ANC) commented that the importance of the meeting was based on the fact that the medium term budget process was close at hand. The 2017/18 budget had to be looked at. FFC recommendations could play a key role to advise what had to be focused on. It was worrying that at a critical moment in the Parliamentary budget allocation process, key individuals in senior leadership positions were not present. The Minister knew that the FFC would be meeting with the Committee. The Parliamentary budget process was being undermined. Members were not saying that the delegates present were undermining the process, or that they were incapable. The Committee wanted senior leaders to address issues. He wanted to add his voice, but he also had to acknowledge that in many instances the senior leadership were indeed present. He would like to persuade Members that the meeting could continue, but he had to emphasise that observations had to be carried through to the Minister.

Mr S Mohai (ANC, Free State) commented that views were instructive and had to be conveyed strongly to Commissioners. Commissioners had to be convened as the process unfolded. The technical team had to table recommendations. It was an important part of the budget process. He was comfortable with the meeting proceeding. FFC submissions were tabled on 1 June. There had to be strong recommendations to the FFC Chairperson. Parliament would call whoever was responsible.

The Chairperson thanked Members for their views. She emphasised the importance of the meeting. The absence of Commissioners was a violation of procedure, as the Committee was not formally informed in writing. Leaders had to know what to do for their leadership to be valuable. The Committee needed to raise its concerns with the Minister and the FFC Chairperson. A co-signed letter would be written. The absence was unacceptable and improvement would be appreciated. The Committee had to be taken seriously. It had to be registered that henceforth meetings would not proceed without Commissioners present. Everyone had to do their bit for nation building.

FFC on the submission for the 2017/18 division of revenue
The briefing was presented by FFC Programme Managers Dr Mkhululi Ncube; Prof Hammed Amusa; Mr Ghalieb Dawood, and Ms Sasha Peters. The theme of the 2017/18 FFC submission was the intergovernmental fiscal relations system and rural development in South Africa. Rural areas accounted for 80 percent of the land. Rural areas were home to 38 percent of the population, as compared to 43 percent in 2001. The majority of the South African poor lived in rural areas, which lagged behind the country as a whole on economic performance indicators like labour force participation rates and unemployment. The rural economy was no longer just a farm economy. Rural development currently focused on diversified economic activities. The Department of Rural Development and Land Reform (DRDLR) and the Department of Planning, Monitoring and Evaluation (DPME) had to develop a new rural development research agenda. A one size fits all approach to using the agricultural sector to foster development ignored the contribution other sectors could make. Agricultural based grant allocations had to be weighted in terms of need and intensity. The potential of land reform as a mechanism for rural development had gone unrealised. To assist land reform there had to be coordination between the DRDLR and the Department of Agriculture, Forestry and Fisheries (DAFF). State Owned Companies (SOCs) and Development Finance Institutions (DFIs) had to be aligned with the new ethos of rural development. Especially Telkom did not yet have a specific rural focus. The Department of Telecommunications and Postal Services (DTPS) had to implement measures to improve Telkom’s infrastructure in rural areas. Investment by DFIs in rural areas was very small and declining.

Revenue collection in the rural provinces was constrained by weak economic bases. The DPME had to ascertain the extent to which infrastructure backlogs had been reduced. Job creation schemes implemented by government did not have a specific rural bias. Most of the jobs created in the Expanded Public Works Programme (EPWP) were located in metropolitan municipalities. Rural municipalities depended significantly on grants to fulfil their mandate. The Cooperative Governance and Traditional Affairs (COGTA) Ministry proposed the amalgamation of many municipalities to make them self-reliant. The FFC analysis suggested that amalgamation would not necessarily result in financially viable municipalities. Rural municipalities would continue to be transfer dependent as their revenue bases were fragile and weak. Rural municipalities were less efficient than district municipalities at providing basic services. Farm evictions forced municipalities to deal with an influx into rural towns with regard to shelter, services and unemployment. The Municipal Disaster Grant was allowed to cater for eviction-related emergencies. The sanitation backlog remained high in rural areas. The FFC recommended that ecological sanitation waterless technologies had to be explored.

Ms Phosa thanked the FFC fort the presentation. Co-Chairperson, Mr Mohai, would chair the meeting to the end.

Mr Mohai noted that the FFC team had elaborated on a submission tabled in Parliament in June. The Committees would continue with the Medium Term Budget Policy Statement (MTBPS) and budget process. Based on Committee recommendations, the South African Local Government Association (SALGA) and the Department of Rural Development and Land Reform might be called to enhance further discussions on policy issues and rural development. The FFC had stated that rural development was not limited to agriculture. Members had to reflect on who had to appear before the Committee for joint discussion.

Mr De Beer said that Mr Mohai’s concluding remark was important and had to be taken further. He proposed that the chairperson for finance in the provincial legislature be part of engagement with the FFC. After the meeting he would send the briefing to his legislature in Kimberley in the Northern Cape, to councillors and to the ANC provincial office. Provincial legislatures had to be brought on board. He referred to the statement on slide 19 about the DPME having to conduct a comprehensive review of expenditure outcomes related to infrastructure conditional grants targeted at rural provinces. It set the oversight programme for the Committee. He suggested that things be done differently, when departments were called together in one meeting. Sometimes it took months before departments talked to each other. When they received an e-mail or a letter, they had to be called to ask if correspondence was received. Stakeholders had to sit together in one meeting, when the issue outlined on slide 19 was engaged with. He asked if all transfers to local government were adequate (slide 22). It was the job of the Appropriations Committees to monitor the spending of allocations twice. The National Treasury (NT) could provide information on that.

Mr de Beer referred to slide 16, which touched on Telkom’s network infrastructure in rural areas. In his constituency at Kamiesberg there were five towers up in the mountain. Kamiesberg mountain was the highest peak in the Northern Cape. It was a serious challenge in his constituency, at Kamasies, Nourivier and Rooifontein.  Telkom had been engaged with for years, but there was no movement.   The Mayor of Kamiesberg met with the chairperson of Communications on the previous Thursday in Cape Town. It was a serious matter. If one had a heart attack in Rooifontein, it was bad luck. They were going to bury you.  There was no communication with the clinic down the mountain in Kamieskroon. The Department of Education battled with communication. It was a serious point and he thanked the FFC for highlighting it. When one travelled through KZN on oversight one went up and down mountains, into the valleys and into the rivers. Lack of communications infrastructure in rural areas seriously affected education and health, and service delivery.

The Chairperson said National Treasury usually responded to FFC recommendations. The FFC had made the important point that the core mandate of SOCs did not include rural development. The issue had to be pursued. The SOCs were oriented to major development areas. Resources had to be mobilised on a massive scale for growth and development. It had to go beyond State intervention, on a massive scale. Public/private partnerships could offer a solution. He asked if conditional grants could address rural development.

Mr Shaik Emam commented that the movement of people from rural to urban areas had a great impact. There had to be more incentives to promote industry in rural areas. Rural development was only oriented towards agriculture, and not to manufacture. Plans were not converted into action on the ground. A solution could be to make rural towns more urban. People moved from the rural areas and the impact was negative. There was the social impact of parents and children being far away from each other. Families were divided. In Canada there was a two tier system for national and district levels. Provinces were failing in their responsibility to aid local government performance. An easy way out for Telkom could be to borrow services like MTN, to assist with what it could not roll out. The South African Post Office (SAPO) was mostly there for vehicle licences. Every other service had to be available at a one-stop shop. People were moving away towards amalgamated services due to non-performance. He referred to the matter of VIP toilets, rather than provincial sanitation. Everything in the rural areas were substandard: schools, clinics, and sports development. Nothing was done for sports development. There had to be a holistic look at all challenges faced. Rural lives had to be changed. He asked if municipal demarcation was a success. It was not to the benefit of a community if a municipality was not financially viable. He asked for information about positive successes of municipalities recently demarcated. He asked if FFC recommendations were made to government. Things had to be done differently to achieve more.

Dr C Madlopha (ANC) found the presentation to be very informative and useful. Research spoke to rural challenges and job creation. Jobs funds and the DFIs only benefitted cities. There was an infrastructure backlog in the rural areas, and investment could not be attracted. There had to be a look at the equitable share, also with a focus on backlog areas. There could be more funding to lift standards and attract investment. Agriculture was not the only economic activity in the rural areas, but with infrastructure lacking it was hard to live there. The jobs were in the city. The equitable share had to focus on backlogs. Infrastructure development could create rural jobs. The recommendations indicated that COGTA had to fast-track the clarification of district functions and powers. There was the specification that EPWP jobs had to be labour intensive. EPWP had to provide training but no-one was monitoring that. People had to be integrated into formal work.

Ms Louw remarked that she would have been disappointed if the presentation had not gone ahead. The FFC recommendations were spot on. She hoped that it would not gather dust in drawers, but would be implemented. Her Committee had seen during oversight that SOCs did not have a rural development focus. They did not contribute to development, which was wrong. There were 113 municipalities in the category mentioned on slide 3. She asked for the names of those. She referred to the conditional grants. She asked about research on factors that contributed to corruption and irregular expenditure. She asked if the FFC researched how grants were affected. It was said that one could not get work in the EPWP at some municipalities unless one showed a membership card. EPWP jobs had to become permanent jobs. Programmes had to be developed to enable people to get skills that they could take into the market. Temporary jobs could not enable people to open an account to sustain life. She asked if there was research on women involved in agriculture, and about numbers of those participating. The Appropriations Committees had to see that prioritisation of sanitation infrastructure delivery was implemented (slide 31). The Appropriations Committees took oversight seriously, which was why there were complaints about the absence of Commissioners. SALGA likewise had to take oversight seriously.

Ms T Motara (ANC, Gauteng) commented that the FFC presentation was part of a series that set the tone for the division of revenue. What became clear during the FFC interrogation of the division of revenue was the recurring trend towards a lot of duplication. That was true regardless of which aspect of the division of revenue was looked at. It could be systemic or inherited, because of the way the system was designed.  Duplication benefitted the same beneficiaries. There was misalignment of grant funds. There was a Treasury process that looked out for misalignment of grant funding and duplication. The Treasury could inform about how far the examination of conditional and other grants had progressed, and whether the rearrangement of grant funding was concluded. The recommendations stated that SOCs and DFIs had to coordinate their efforts. It could be better to have one DFI for agrarian reform towards which all budget allocations would go. The Treasury and COGTA were responsible for funding mergers and collapsing municipalities. There had to be a response from National Treasury and relevant departments about whether the process was concluded, and about the costing of mergers. The distinction of district versus local municipalities was a problem. Metro municipalities had to be self-sufficient. There had to be concern with using money prudently and effectively. District and local municipalities that could not produce own revenue placed a burden on national government. Some municipalities could never be self-sufficient. In terms of own income those had to rely on funding. But the money they had, had to be spent effectively. Allocations had to be weighted for category B3 and B4 municipalities instead of using a blanket approach. Grants difficult to monitor and evaluate had to be defined, as opposed to a more consolidated approach, to understand rural development.

Ms D Senokoanyane (ANC) said she liked the integrated rural approach. Rural needs were different. There was almost zero development in some areas. A school would be built, but there would be no roads or water. The approach that agriculture was not the main thing, helped. The Apartheid days were the good old days for rural development. Rural people farmed and had livestock. Currently things were not growing on farms. There were no more peach, apple and pear trees to be seen. One of the oldest areas in KZN, one of the reserves related to the Group Areas Act, did not have water. People used communal taps. Even the town council did not have water. There were no shops and schools were far away. If people wanted to go to an ATM they had to take a taxi and pay R100 for a return trip. People had to travel to ATMs to get money sent to them. A targeted approach was necessary. The question was where to place an ATM. There was no infrastructure and no jobs. The EPWP could be useful in that regard. People who lived close to the Woodstock dam did not have water. Municipalities were supposed to provide that, but the question was how. There was a lack of capacity and resources. It was a struggle to build RDP houses.

Mr O Terblanche (DA) applauded the document and recommendations. Things mostly failed at the implementation stage. Needs had to be determined beforehand, for budget allocation. There was the tendency in government to adopt a silo approach. There had to be an integrated government services delivery model. There could be no investment if there were no roads and telephones. There had to be political will and prioritisation to address issues.

Dr Figg remarked that land reform programmes had not attained the goals set. A number of reasons were given, like lack of support from provincial and local government. Beneficiaries did not have access to credit and there was a lack of infrastructure. He supported the EFF that recommendations were not to stay in a drawer. Ms Senokoanyane had commented on the lack of banking services. There had to be a solution. Some ATMs were kept in people’s houses. That was in order, as long as the people were reliable. Mr Shaik Emam had referred to incentives for the private sector. It did not have to be the responsibility of government only. Rural municipalities had challenges related to limited revenue capacity, maladministration, underspending on capital budgets, service delivery, inability to service debt, and a lack of institutional and HR capacity. The FFC provided good information. It was part of the budget process, but not just that. The information could be used to improve the lives of people. It was not enough to hear the FFC just to comply with legislation. The Committee wanted to make a difference. To do so, it had to go beyond simply listening to presentations and then passing the Division of Revenue Bill and the Appropriations Bill. The FFC had done its work and the Committee had to do the same. Dr Figg referred to slide 16, that dealt with rural to urban migration. Rural areas were currently home to 38 percent of the population, compared to 43 percent in 2001. There were challenges in the small municipalities. The question was whether it really helped to simply give more money. Money was being transferred from one sector of government to another. Government could do well to rather look at more efficient spending. If more incentives could be given to networks other than Telkom it could cost less. He did not entirely support the EPWP. Objectives were not being achieved. At R100 per day for two months, skills could not be transferred. For people to become entrepreneurs more time and money was needed. The EPWP helped the very poor but it could not develop entrepreneurs.

Ms S Shope-Sithole (ANC) remarked that her mother had taught her that when one had problems in life it was best to first blame oneself, because then one would find ways to solve the problem. There were problems of poverty and lack of rural growth. The FFC diagnosed and advised, and there were also others who did so. Members of Parliament had to own up. Departments had to be called in and made to do what they had to do. The Appropriations Committees could call all under one roof and advise them and tell them to follow that advice, and then follow that up with oversight. She attended a workshop in 1998 on the Financial Management Bill, which insisted on timely reporting and also quarterly reporting, which allowed time to correct things. Optimal use of fiscal resources permitted growth in the country. She referred to the silo approach. Government had to work together. It was good when the Standing and Select Committees worked together. District municipalities had to be called in. She came from a rural background and would visit with mayors. A Lekgotla had to be assembled with departments called in.

The Chairperson commented that critical introspection was a kind of oversight. Priorities could be determined.

Mr A McLoughlin (DA) remarked that the FFC had done a good job. He asked if the reversal of the urbanisation trend was a policy point for the FFC. If fully developed a rural area could become a city. Rural areas had to be retained. The definition of rural could not be a one size fits all. Some areas had arable land and some not, but both were defined as rural. The downside of municipal division was that all received the same services. There were mountainous areas that could not be reached. Identification had to be linked to specific areas. Slide 7 stated that the role of agriculture as engine of growth in rural areas was declining. The need for food in cities was growing, and the ability to produce it was shrinking. Perceptions in rural areas were different from the urban. Slide 9 stated that the focus on land reform and radical restructuring of the agrarian economy as focus points for rural development was “implicitly silent” on some key points. He asked what that meant. He referred to slide 20. Only 17% of EPWP beneficiaries were able to transition into sustainable jobs. He asked if research was being done on the Community Works Programme (CWP) as an alternative. It was stated on slide 26 that the performance of local municipalities could increase by 60 percent without additional resources. He asked how that could be achieved. The municipalities were not selling services correctly and were not collecting revenue. It was said that district municipalities were better at providing services than rural ones. His experience was that district municipalities did not provide services. District municipalities were a middle layer. The local rural municipalities actually provided services.

Mr Gcwabaza referred to slide 7. It was stated that rural development had evolved over time to focus on space based interventions and diversified economic activities. The rural economy was no longer based on agriculture. Government had not yet taken advantage of that evolution to advance rural economic development. Slide 29 dealt with the Municipal Disaster Grant. There could be unintended consequences, if increased farm evictions received government support. It could undermine land tenure. He asked how that was to be dealt with. He would concur with the Chairperson. SOCs saw intervention in metros and economically active towns as areas for economic activity. But government did not outline their role in rural development. The IDZs and SEZs could respond to economic development issues and make inroads, especially the SEZs. There were different issues pertaining to different types of municipalities. Some were unable to collect revenue and expand their resources. There was a lack of economic activity and employment. Something had to be done. The national fiscus was a limited cake. The question was how to review and reorganise so that rural development issues could be responded to. There was a lack of coordination of intergovernmental fiscal relations. There was a lack of clear policy to guide rural development. There was also a lack of policy implementation. There was a need for particular structural interventions with a focus on implementation. Policy had to be created and coordinated where it did not exist. Municipalities provided water and sanitation, but the question was what elements encouraged local manufacturing. He asked what needed to be done to encourage agro processing and local manufacture. Plantations were cut down and the wood was transported elsewhere to make furniture. He asked what conditions could make the manufacture of furniture local.

Ms Phosa found the presentation very informative. The reality 21 years down the line was that there was no impact on rural lives. The situation was desperate. Rural areas were still awaiting intervention. Farm eviction was an aggravating factor. The Municipal Disaster Fund was being used to address the problem. It was not easy. It was a big problem and people were quiet about it. There had to be adequate funding for interventions. Farm owners were dumping people. There were only temporary measures. People had to at least be given a place where they could stay. Emergency interventions were needed. People were going without water or toilets. Best interventions had to be decided on. People had to be treated with dignity. Farm owners could not provide houses. She was a social worker in the 1980s and had seen people live in chicken runs. Rural intervention had to be prioritised. Money was channelled through the emergency fund but it was not enough, it could only provide a tent. An HOD had said that the NDP did not have a budget. Funding had to be linked to the budget. The Public Finances Management Act (PFMA) required that the budget had to be linked to planning. Rural development was an NDP priority. The situation had to be turned around. A multi-sectoral policy approach was needed. But it had to be clear about which department had to come up with policy, and by when. Rural people had been in a desperate situation for 21 years. Government had to instruct departments to come up with policy development, according to timelines. Government was developing task teams to define rural development, but it was not an easy matter. Teams needed budgets, and some took years to start their work. Institutions of higher learning produced research that could be used. Universities had institutions that could assist with solutions. It was proposed that a framework to monitor grants had to be established to support agricultural productivity. Land reform programmes had to be introduced to turn the situation around. There was a loss of production and employment. There was agreement about a framework, but the question was when it would be introduced. Overfunding and underfunding had been going on for 21 years. Work had to be done on Treasury infrastructure grants. Some had to be consolidated. The position of conditional grants related to rural development needed questioning. There was a large number of grants, not properly aligned, coupled with underspending and inefficiency. Provinces were not optimally raising revenue. Migration from rural areas had increased. In 1911 82 percent of the population was rural. By 2013 it had shrunk to only 30 percent. If rural areas were developed migration would decrease. There were pressures in urban areas due to migration. There had to be incentives to companies to go rural.

Dr Ncube responded that district and urban municipalities no longer filled mandated functions. MECs were granting powers to local municipalities. Rural local municipalities were strengthened to perform functions. The Municipal Infrastructure Support Agency (MISA) came in to build capacity. Municipalities demarcated for the first time were financially sound but some would never be so. Strong and weak economic bases could not be grouped together. Some municipalities were dependent on transfers. Districts that could not perform functions were reclassified. Statistics on the position of women in 113 municipalities could be provided. Some municipalities could increase output by 60 percent, if municipal efficiency was modelled. Many municipalities were not performing optimally. They had to be instructed to use what they had before asking for more. The Municipal Disaster Grant could have perverse effects if it encouraged farmers to evict people. There had to be careful scrutiny of municipalities to qualify for the grant. It could be applied as a revenue measure.

Prof Amusa responded that the question was how the trend to rural development was to be achieved, and through which mechanisms. There were opposing views. China decided to move 250 million people from rural to urban by 2020. By 2030, 900 million were to be shifted. It could be done within the Chinese landscape. Organic development through growth of some areas could be allowed. Some areas could become urban and some would remain rural. The question was how to produce income. People had to be able to earn a living where they lived. Rural areas comprised 80 percent of the South African land mass. The manufacturing industry could take advantage of cheap land. In the South African situation manufacturing input had declined. Services had taken over, but that was constrained by the need for a high level of human capital.

Prof Amusa answered Ms Motara about the one size fits all principle. The FFC recommended that the principle of equitable distribution of resources be upheld. Based on circumstances everyone had to be treated fairly. The Local Government Equitable Share (LGES) took circumstances into account, and used the formula to address issues. Agriculture grants had to provide incentives to stimulate the rural economy. Labour intensity in a region had to be known. It had to be clear which areas were the most needful, according to the number of people participating in agriculture in particular areas. The problem was how to incentivise the move to rural. Incentives for companies did not yet exist. When infrastructure was sub-standard there could be no investment. There had to be an integrated and coordinated approach to ensure the supply of infrastructure. Rural areas did not need the same level of investment as urban ones, but the attractiveness of areas had to be fostered, to bring in investment that could enhance the local economy.

Mr Dawood answered Dr Figg about resources allocated from other sources or within the sector. It was preferable to draw from other sources within the land reform envelope. Backlogs were included in the Provincial Equitable Share (PES) formula. A backlogs component was included in 2000. A poverty component was introduced in 2005. Both were 3 percent in total. The backlogs component was removed from the PES in 2005. Backlogs were later funded through conditional grants. The poverty component was intended to be an indicator of ruralness, but the indicators for poverty did not lend itself to rurality. The PES still had to address special needs. The question was how to make the EPWP sustainable for beneficiaries. The vast majority (70 percent) were assigned to the infrastructure sector. People were left without jobs after three to six months. The EPWP was intended to be labour intensive, but many were not labour intensive.  Resources pumped in did not find its way into households. Contractors were not used to employ labour intensive strategies to build households. Government was trying to rectify the situation. Sectors identified were labour intensive, but a minimum employment guarantee also had to be provided. The CWP did provide a better alternative in the sense that it only could provide two days of work per week, but for a long period, until skills could be developed.

Ms Peters responded that an outcome of the Presidential Review Commission on SOCs was that the SOCs had to collaborate with the private sector, for the SOCs to contribute to rural development. Best practice with regard to sanitation could be to move to eco sand waterless toilets, which was more cost effective.

The Chairperson concluded on the way forward. The co-Chairperson was in favour of a comment by the Treasury, seeing that Ms Fanoe was present. But a platform would in due course be created for National Treasury to discuss FFC recommendations. The FFC was mandated to look at distribution of funding. The Treasury had to say what was available. The FFC had tabled recommendations that were referred to the Houses. Participation in dealing with FFC submissions had to be broadened. A platform for policy discussion and technical propositions had to be created. The Committee secretariat had to liaise with the Parliamentary Budget Office (PBO) to consolidate the programme. The Department of Rural Development; SOCs and SALGA had to be invited to discuss FFC recommendations in depth. With regard to areas of investment, it had to be asked to what extent departments were implementing policy areas. Government was not in the habit of responding in a massive way to growth and development. Industrial policies of departments had to be looked at. It had to be asked what the areas to be addressed by a department were, and where they were located, so that development was not a socially neutral concept. SALGA had commented that some municipalities would never be viable because they lacked a revenue base. The question was how to respond to that. The State of the Nation (SONA) had stated that there were municipalities that required extraordinary support. It was advisable to meet before the MTBPS on a platform with the Minister. The NA and the NCOP had complementary roles. It had to be ensured that relevant stakeholders and government representatives were involved in the subject of the day.

The Chairperson adjourned the meeting.


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