Local government has a key role to play in rural development, through the provision of basic services and infrastructure. However, infrastructure backlogs remain high in rural municipalities (because of under-spending of capital budgets), and the allocation of functions between district municipalities (DMs) and local municipalities (LMs) is ambiguous.

The Financial and Fiscal Commission (the Commission) looked at how efficiently rural municipalities use intergovernmental transfers and how effective they are in driving rural development. The study found that LMs use resources less efficiently than DMs and have higher staff vacancy rates. Many of the functions that DMs should be performing are increasingly shifting to LMs, especially in urban areas.

As crossmunicipality authorities, the assumption is that DMs are able to cross-subsidise, which is not the case for many rural DMs that do not have abundant own revenues. The Commission recommends that National Treasury include more stringent expenditure supervision of grants to rural municipalities, and that the Department of Cooperative Governance and Traditional Affairs consider introducing a single-tier local government system in urban areas, while strengthening a two-tier local government system in rural areas.

Report by the Financial and Fiscal Commission