A Review of Direct and Indirect Conditional Grants in South Africa - Case Study of Selected Conditional Grants

Type Report
Title A Review of Direct and Indirect Conditional Grants in South Africa - Case Study of Selected Conditional Grants
Publication (Day/Month/Year) 2015
Publisher Financial and Fiscal Commission
URL http://2015.essa.org.za/fullpaper/essa_2821.pdf
Whilst there is no denying that provinces and municipalities have displayed less than stellar
performance when it comes to infrastructure development, they are often in a better position to
understand community needs. While national government’s implementation of infrastructure
projects, on behalf of municipalities, specifically those that lack capacity, may potentially
ensure that service delivery occurs, it also comes with risks. These include weakened
accountability since the municipality/province where the infrastructure is developed is not
directly involved in said development resulting in poor budgeting and planning for maintaining
the infrastructure post-delivery. These are some of the key dilemmas regarding the increased
use of indirect conditional grants, which have increased at a phenomenal rate in recent years
(from 3.9% in 2011/12 to 6.4% in 2013/14, and is projected to reach 8.9% in 2016/17). This
paper focusses on indirect grants in the education, health, electricity and sanitation sectors to
assess whether outcomes are improving as a result of changing the location of the implementing
agent from provincial or local, to national. The research found that the use of indirect grants
and by implication, implementation by national departments, do not categorically result in
better spending or infrastructure development relative to the use of direct grants which entails
implementation by provinces or municipalities. Of particular concern is that in reclassifying
grants from direct to indirect and vice versa, policymakers are not subjecting the grants and
their performance to any set of evaluative or performance principles to determine the
appropriateness of the reclassification, but rather reclassifications seem to be based on the
assumption that national government-led implementation is superior to that of provinces and

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