Funding Local Economic Development

1. Funding Local Economic Development Kwazulu-Natal Local Economic Development Conference 08/09 Malijeng Ngqaleni National Treasury 17 March 2009

2. Overview • Background • Global Economic Crisis • Government Response • Concept of LED and strategy • LED Funding in Government and Challenges • Funding for LED • Conclusion

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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 9

10. Government Grants: Provinces

11. Government Grants to LG: Infrastructure

12. Government Grants to LG: Capacity Building & Other Current Transfers

13. KZN Provincial Budget: LED Potential

14. Equity/Empowerment Funds and Enterprise Development

15. 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

16. 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)

17. 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

18. 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 18

19. THANK YOUTHANK YOU