Local Government Organization and Finance: South Africa
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T A B L E 2 . 8 Distribution of National Direct Transfers to Categories of Municipalities, FY 2003/04
Category
Percentage distribution of total transfers
Percentage distribution of equitable share
Percentage distribution of recurrent grants
Percentage distribution by capital grants (including water capital)
A (metro) B (local) C (district)
16.9 43.5 39.7
20.0 63.4 16.6
1 87 12
16.1 15.5 68.4
Total
100.0
100.0
100
100.0
Source: Division of Revenue Act 2003; Whelan 2003b. Note: Totals may not add to 100 because of rounding.
is not hierarchically subject to national and provincial government. More specifically, the constitution allows municipalities to borrow, within a regulatory environment provided by the national government. The MFMA forms the core of this regulatory environment. However, sparked by its intentions with the MFMA, the government amended the constitution in 2003 to allow municipal councils to bind themselves and future councils in pledging security for debt and to enable government to intervene—through provincial executives at first, but if that approach fails, then directly—if a municipality fails to meet its obligation. The MFMA also allows for the establishment of an agency that governs recovery plans for such municipalities. In reality, private sector lending to municipalities has remained subdued and has focused on short-term lending. Very little investment occurs in the long-term debt market—the pivotal area from which funding for infrastructure investment is supposed to be forthcoming. Almost half of the short- and long-term lending since 1997 has been provided by the Infrastructure Finance Corporation (INCA), a specialized municipal lending agency attached to one of the major commercial banks. The other half has come mainly from the Development Bank of Southern Africa (DBSA), a public sector financial intermediary supposedly targeted to the more risky market but in reality doing a substantial portion of its long-term lending in the more overtly commercially viable market. This scenario indicates the lackluster interest on the part of financial institutions at large to become involved in a market affected by considerable fiscal stress. Nonetheless, by 2004 private sector credit stood at R 12 billion, or 60 percent of municipal borrowing.
