ABBREVIATIONS USED

A&LM Asset and Liability Management Branch: National Treasury
AC Annual Consultation
BAS Basic Accounting System
BC Budget Council
CFO Chief Financial Officer
DCR Development Co-operation Report
DCS Development Co-operation System (management information system for ODA)
FMS Financial Management System
FOSAD Forum of South African Directors General
GDP Gross Domestic Product
GEAR Growth, Employment and Redistribution Strategy
GRAP Generally recognised accounting principles
HIPCs Highly Indebted Poor Countries
IDC International Development Co-operation Section: National Treasury
IDCC International Donor Co-ordination Committee
IDTs (agreed) International Development Targets
LFA Logical Framework Approach (see PCM)
MinComBud Ministers’ Committee on the Budget
MTBPS Medium Term Budget Policy Statement
MTEF Medium Term Expenditure Framework
MTR Mid-term Review
NCOP National Council of Provinces
NT National Treasury
ODA Official Development Assistance
OECD Organisation for Economic Co-operation and Development
OECD DAC Development Assistance Committee of the OECD
PCM Project Cycle Management (see LFA)
PFMA Public Finance Management Act
PIC Public Investment Commissioner
PMG Paymaster-General
RDP Reconstruction and Development Programme
RDP PSC RDP Programme Steering Committee
SARB South African Reserve Bank
SARS South African Revenue Services
SMMEs Small, medium and micro enterprises
TAT Technical Assistance Team
VAT Value Added Tax

CHAPTER 1

INTRODUCTION

The Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD) defines Official Development Assistance (ODA) as "… (resource) flows to developing countries and multilateral institutions provided by official agencies, including state and local governments, or by their executive agencies, each transaction of which meets the following test: a) it is administered with the promotion of the economic development and welfare of developing countries as its main objective, and b) it is concessional in character and contains a grant element of at least 25 per cent (calculated at a rate of discount of 10%)".

In this document, the concept ODA is used in a more restricted sense, referring to:

Official resource flows from the international donor community to South Africa in the form of grants, technical co-operation and financial co-operation, where the South African Government is held at least partially responsible or accountable for the management of such resources.

Even though other forms of assistance, such as direct support to NGOs or the private sector, are essential to development and form part of ODA flows to this country, Government is not accountable for the utilisation of such resources. Therefore, these forms of assistance are dealt with directly between the donor community and recipients, and fall outside South Africa’s formal government-to-government development co-operation framework.

ODA to South Africa is made available in a variety of forms, broadly classified as grants (actual non-repayable funds), technical co-operation (expertise) and financial co-operation (loans, credit guarantees etc.). These guidelines relate mainly to grants and technical assistance. A specific chapter is devoted to financial co-operation (Chapter 10).

ODA can be provided in the form of multilateral, regional or bilateral support, or even project-based support under global facilities. ODA can also range from strictly project-based support to direct budget support. Finally, numerous instruments have been developed to address particular needs, such as the Swedish Rapid Response Fund or the German Study and Expert Funds under technical and financial co-operation.

Attempts will be made in the document to address exceptional cases where relevant, while striving towards a generic approach to the management of ODA. The differences between donor rules and regulations limit the extent to which a generic approach can be applied.

The South African Government became a recipient of ODA in 1994, after the country’s first democratic elections. In the absence of an established framework for the management of ODA, it was decided that ODA should be utilised primarily for purposes of implementing the Government’s five-year Reconstruction and Development (RDP) Programme. ODA to government was therefore managed mainly in a centralised manner, through the International Donor Co-ordination Committee (IDCC), the RDP Programme Steering Committee (RDP PSC) and the Special Cabinet Committee on the RDP.

With the closure of the RDP Office and the integration of the RDP into departmental budgets, the function of overall ODA management and co-ordination was transferred to the Chief Directorate: International Development Co-operation, in the National Treasury. However, the responsibility and accountability for the implementation of ODA-supported projects and programmes are vested in South African implementing agencies – national departments, provinces and local authorities.

Therefore, these guidelines are aimed primarily at providing sectoral/line function officials (especially accounting officers, financial managers, project managers and sectoral/provincial ODA co-ordinators) with a coherent, comprehensive and user-friendly set of policy and procedural guidelines for accessing and managing ODA effectively and efficiently, in pursuit of government’s reconstruction and development objectives. They are also intended to contribute meaningfully to the ongoing discussions with the international donor community on how best to achieve optimal impact with limited ODA resources.

The first part of the document (Chapters 2, 3 and 4) deals with the overall policy and legislative framework for ODA and outlines the overall ODA management system. Subsequent chapters deal with each of the process steps involved in the management of ODA. These chapters are structured to provide information on the key outcomes of these processes, procedures to be followed, policy and/or legislative considerations, as well as particular issues that need to be addressed as part of these processes.

APPENDIX A outlines financial management issues pertaining to ODA and is of particular relevance to financial managers/chief financial officers in implementing agencies.

Following numerous requests for the inclusion of a section on mandatory compliances for ODA management, the following needs to be stressed:
Adherence to the procedure for the conclusion of technical co-operation agreements (Section 5.5 and 7.2), and to the provisions in lawfully signed agreements (in addition to domestic law requirements) during implementation (Chapter 7 and APPENDIX A) cover the key mandatory issues in the management of ODA.
While key aspects of the management of ODA, particularly its co-ordination and alignment, cannot be centrally enforced due to South Africa’s system of government, adherence to the guidelines outlined in this document is essential for purposes of ensuring the optimal utilisation of ODA.

There is an increasing realisation in government and amongst the international donor community that development co-operation can play an even greater role in the massive task of reconstruction and development delivery.

However, in order to reap maximum benefit from the ODA resources at South Africa’s disposal, all ODA will have to be fully aligned to South Africa’s core development priorities, and managed effectively and efficiently in a manner that supports South Africa’s chosen development path to the fullest extent possible.

South Africa’s ODA policies are outlined in the next chapter, followed by an explanation of the ODA management system and support processes.

CHAPTER 3

THE OVERALL POLICY AND
LEGISLATIVE FRAMEWORK PERTAINING TO ODA


3.1 GENERAL POLICY OBJECTIVES FOR ODA

The global ODA environment

The global development and ODA environment is characterised by certain core issues and trends that require policy responses by ODA role players globally, namely:
increasing global inequality, with the income gap having doubled over the past 40 years and almost half the world’s population living on less than $2 per day, despite unprecedented global economic prosperity;
poor progress in the attainment of the agreed International Development Targets (IDTs), despite the increased emphasis on development outcomes, particularly the IDTs;
declining ODA, on average amounting to around 0.24% of GDP, despite repeated commitments by donor countries to meeting the accepted target of 0.7% of GDP;
increased realisation of the need for the developing world to meet governance, democratisation, rule of law, socio-economic development and trade-related preconditions/requirements;
debilitating debt problems amongst developing countries;
prevailing inequality in the "partnership" between the developing and developed worlds – both in terms of ODA management relationships and institutional arrangements; and
continued use of ODA to further non-developmental policy objectives of donors.

South Africa’s policy positions regarding these issues can be summarised as follows:
Sustainable global development – and therefore the eradication of poverty and inequality – is at the heart of lasting peace and prosperity. As such, this should be the shared overall global development goal. It has to be stressed that, if the majority of the world’s population remains marginalised and economically disenfranchised, globalisation will fail.
The agreed IDTs provide a sound basis for translating the goal of sustainable global development into measurable outcomes, and for unifying the efforts of global development partners.
Developing nations have to accept ownership of their own development and integration into the world economy, and take full responsibility for meeting the preconditions required.
However, developing nations alone cannot ensure that they benefit from global growth. They are dependent on the efforts of their developed counterparts to complement and sustain their own.
ODA is an essential instrument in support of this partnership for sustainable global development, and in providing impetus for more fundamental change in the broader global economic order.
The focus of ODA should be on the eradication of poverty and inequality, and the strengthening of recipients’ development management capacity.
Without adequate development resources, our shared goal and the agreed outcomes (IDTs) can never be achieved. In this regard, the failure of most donor partners to meet the 0.7% of GDP target for ODA is inexcusable. ODA flows, particularly to HIPCs, will have to be increased dramatically.
Future ODA flows must not be tied to current and future debt relief measures. Existing commitments to debt relief have to be honoured. Such efforts will also have to be strengthened considerably, with wealthy countries bearing a larger debt reduction burden.
ODA management reform has to be strengthened, with specific reference to the following:
untying of ODA;
focusing of ODA on recipient-defined development policies and priorities;
decentralised/in-country ODA management, with recipients leading the partnership for sustainable development; and
fundamental institutional reform, particularly of the OECD DAC and the Bretton Woods Institutions, to give a stronger voice to the developing world.

Increasing ODA to South Africa

The OECD DAC uses per capita GDP to determine the forms and extent of ODA that developing countries qualify for. Most donors subscribe to this approach in determining ODA allocations. South Africa qualifies for grant assistance only as a "country in transition", a special provision made by the OECD DAC to assist developing countries undergoing fundamental societal transformation.

South Africa’s position is that per capita GDP is an extremely simplistic mechanism for determining the forms and extent of ODA. It does not recognise or take into account societal realities and development challenges faced by particular nations. It is a mechanism that opts for uniformity and ease of application, rather than dealing with the difficult task of seeking solutions to particular problems. South Africa’s argument is that the existing mechanism should be strengthened by means of, inter alia, measurements of inequality such as the Gini co-efficient.

Therefore, in the context of the massive inequalities that have to be addressed while fostering a stable and democratic society, the government aims to strengthen its efforts in increasing the aid allocation for the benefit of the poor, and to further bolster its own reconstruction and development efforts.

Partnership and ownership

ODA to South Africa should essentially be a South African-driven partnership for sustainable development between the donor community and South Africa.

South Africa accepts full ownership of donor-supported interventions, both at a macro- and sectoral level, and in all spheres of government. This is the only way to ensure that such interventions are aligned to South Africa’s reconstruction and development priorities to the fullest extent possible.

Ownership begets responsibility. South Africa accepts full responsibility for meeting, and even exceeding, the governance, policy and capacity requirements that would enable it (together with its partners) to achieve sustainable development.

With specific reference to ODA, South Africa, in partnership with the international donor community, is responsible for establishing and maintaining an effective and efficient ODA management system.

Maximum alignment to the MTEF and the budget

Foreign borrowing by government is used for deficit financing and, as such, is fully integrated into the budget. Only the Minister of Finance can borrow abroad on behalf of government, and decision-making occurs in consultation with National Treasury and the relevant line department(s). The procedure for concessional loans management is outlined in Chapter 10.

Grants and technical assistance (including training and capacity-building) are regarded as additional to the budget.

However, such assistance has to be integrated into the budget insofar as recurrent expenditure is concerned, and where counterpart contributions from government are required.

Maximum alignment of ODA to the MTEF and the annual budget is essential to ensure that ODA is utilised in support of core government development priorities, that ODA-supported interventions are South African driven, and that ODA-supported interventions are sustainable.

Reprioritisation of the budget

ODA should complement and encourage the process by means of which South African sectors and implementing agencies reprioritise their budgets towards the country’s reconstruction and development goals.

The utilisation of ODA resources in line with government development priorities to the greatest extent possible is essential in this respect. Consultation and negotiation efforts should be directed towards achieving maximum coherence between the development goals and priorities of South Africa and donors.

Strategically focused ODA

South Africa has a decentralised system of government, with accountability vested strongly in implementing agencies in all three spheres of government.

In such a context, one of the most difficult challenges is the consolidation of a coherent set of development priorities to guide the programming of ODA.

Such a strategic framework for the programming of ODA can only be derived as part of the normal MTEF/budgetary planning and prioritisation process, and based on strategic frameworks developed at sector/implementing agency level in accordance with the requirements of the Public Finance Management Act (PFMA).

Sustainability

Donor-supported programmes and projects should enhance the long-term sustainability of government’s reconstruction and development efforts.

South Africa is primarily responsible for ensuring that all donor-supported interventions are sustainable, inter alia by ensuring that:
all ODA-supported interventions are core SA development priorities;
all such interventions are South African driven;
all such interventions are fully funded and financially sustainable beyond donor involvement (this includes counterpart contributions, other resource requirements such as counterpart staff, and recurrent expenditure implication); and
the management of such interventions is integrated with normal government functioning to the fullest extent possible.

Effective and efficient management

The South African Government is responsible for establishing and maintaining an ODA management system that would ensure the optimal utilisation of the limited ODA resources at its disposal in support of sustainable reconstruction and development.

In addition to alignment to the MTEF and support to the process of budgetary reprioritisation, effective and efficient management of ODA entails the following:
Strong central ODA management in dealing with ODA management policies and procedures, the overall strategic prioritisation, programming, monitoring and evaluation of ODA, macro co-ordination of ODA delivery, and other issues pertaining to ODA macro-management – globally, regionally and locally.
Strong ODA co-ordination at sector and implementing agency level for purposes of operational ODA management that is fully integrated with line function delivery systems.
South Africa should seek co-ordination and coherence of various donor-supported programmes and projects. This includes taking maximum advantage of international development experience and the comparative advantages offered in various sectors by donor countries and institutions.
Policy and technology choices

In the management of ODA, policy and technology choices relating to reconstruction and development initiatives will be determined by the South African Government.

Donor involvement in South African development programmes and projects should contribute to the achievement of the country’s development policies and strategies.

In the same manner, technology utilised should be appropriate to the needs of the country.

Transparency and accountability

Government will give effect to the principles of "Batho pele" (people first) in the management of ODA, in pursuit of transformation towards improved service-delivery.

Particular emphasis will be given to transparency and accountability for the utilisation of ODA resources.

3.2 LEGISLATION

The following legislation has a bearing on the management of ODA:

Constitution of the Republic of South Africa (Act No 108 of 1996) – Art 231(2)
RDP Fund Act (Act No 7 of 1994) and RDP Fund Amendment Act (Act No 79 of 1998)
Public Finance Management Act (PFMA), Act No 1 of 1999, as amended, and accompanying Treasury Instructions
Value-added Tax Act (Act No 89 of 1991) – as amended
Customs and Excise Act (Act No 91 of 1964) – as amended
Income Tax Act (Act No 58 of 1962) – as amended
Preferential Procurement Policy Framework Act (No 5 of 2000)
Aliens Control Act (Act No 96 of 1991)

The relevant legislative provisions will be dealt with in the subsequent chapters. However, in general terms, it is important to note that ODA has to be managed within the context of South African policy and legislation, bearing in mind the restrictions imposed by each of the donor governments.

CHAPTER 4

OVERVIEW OF THE SOUTH AFRICAN ODA MANAGEMENT SYSTEM

INTRODUCTION

The ODA management system refers to structures/institutional arrangements, mechanisms, processes and roles and responsibilities for the management of ODA to South Africa, with specific reference to grants and technical co-operation (see Chapter 10 for ODA loans management).

The design of the system is premised on the following:
Recognition of the importance of ODA in support of sustainable development of South Africa.
South Africa’s ODA policies, with specific reference to ownership, sustainability and accountability.
The need for strong co-ordination, particularly in the context of a decentralised system of government.
The need for effective and efficient delivery of ODA.

ODA MANAGEMENT PROCESS

The ODA management process, when it comes to grants and technical co-operation, generally involves the following components:
Development planning/prioritisation
ODA pledges and commitments
Overall/sectoral/geographic programming of ODA
Negotiation and signing of an overall/framework agreement
Identification of programmes and/or projects
Programme/project preparation (including assessment and planning)
Negotiation and signing of programme/project agreements
Programme/project implementation, including the flow of funds
Programme/project monitoring, control and reporting
Programme/project evaluation
Project closure

This overall process, with the main role players, is illustrated below. The detailed steps in each of the component processes are described in Chapters 5 – 9.

The key function of ODA co-ordination is dealt with separately (see Sections 4.4 and 4.5).

INSTITUTIONS, ROLES AND RESPONSIBILITIES

The roles and responsibilities of the key South African role players in the management of grants and technical assistance are summarised in the table below.

These detailed roles and responsibilities of ODA role players are dealt with in subsequent chapters, together with the detailed process discussion. The roles and responsibilities of key players in ODA co-ordination are discussed under Sections 4.4 and 4.5.

ODA CO-ORDINATION

ODA co-ordination is a core function in the management of ODA to South Africa, and involves the process of ensuring integration of ODA management to the fullest extent possible with South Africa’s development priorities, strategies and delivery systems.

The requirements for effective and efficient ODA co-ordination are the following:
Sufficient capacity at central and sector/implementing agency level for ODA co-ordination.
Strong institutional linkages between the IDC: National Treasury and co-ordination units at sector/implementing agency level.
Integration of ODA co-ordination units at sector/implementing agency level with core government operations, particularly core line functions, financial management sections and senior management structures.
Integration of ODA planning, prioritisation and programming with the development planning and prioritisation processes of government.
Sound ODA information management.
Operational integration of ODA-supported interventions with normal government development delivery operations.

The IDC: National Treasury is responsible for ODA co-ordination at a macro/supra-sectoral level, and assisting in ODA co-ordination at sector/ implementing agency level as required. As such, it is responsible for:
managing the overall development co-operation relationships with South Africa’s donor partners;
developing policies and procedural guidelines for the management of ODA in South Africa, and ensuring alignment of operational ODA management mechanisms, procedures and processes in implementing agencies to these guidelines;
managing the overall processes of interaction between South Africa and the donor community (macro co-ordination workshops, annual consultations, mid-term and programme review meetings);
consolidating and articulating the core development priority framework for the programming of ODA, on the basis of overall government prioritisation and medium term expenditure planning at sector/implementing agency level;
ensuring the overall alignment of ODA to South Africa’s core development priorities;
negotiating/signing overall development co-operation strategies and framework agreements;
overall ODA monitoring and evaluation;
centralised ODA information management; and
institutional capacity-building for ODA management at sector/implementing agency level.
South African sectors/implementing agencies are responsible for ODA co-ordination at that level, which involves:
developing operational ODA management mechanisms, procedures and processes in line with the overall ODA management policies and procedures developed by IDC;
consolidating and articulating development priority frameworks for the programming of ODA in the sectors/implementing agencies, on the basis of their prioritisation and medium term expenditure planning;
ensuring the alignment of ODA in their sectors to South Africa’s development priorities;
negotiating/signing sector-specific development co-operation strategies and technical co-operation agreements;
sector-specific ODA monitoring and evaluation; and
sector-specific ODA information management

Donor co-ordination refers to the process by means of which donors themselves harmonise their efforts in South Africa. This should be distinguished from the concept of ODA co-ordination, which is a South African government responsibility. South Africa supports donor co-ordination efforts and regards them as valuable for purposes of sharing information, discussing best practices, developing consolidated donor positions on South African development policies and strategies and strengthening ODA information management.

However, South Africa is opposed to such efforts substituting ODA co-ordination by South Africa at any level. Weaknesses in ODA co-ordination should be addressed by means of positive support interventions, rather than the establishment of parallel co-ordination mechanisms.

The key process mechanisms used for ODA co-ordination are the following:

Macro co-ordination meetings and workshops

Meetings and workshops, convened by the IDC, are held from time to time with the donor community and ODA co-ordinators in line departments and provinces, on the overall co-ordination and management of ODA to South Africa. This includes overall policy and procedural matters that impact on the optimal utilisation of ODA.

The DCR articulates the need for strong South African leadership in setting overall development priorities and outlining the contribution of the donor community. IDC intends to host annual events with the donor community to address this need. These events will coincide with the release of the Medium Term Budget Policy Statement, and inputs will be prepared as part of the normal MTEF/Budgetary planning process.

Annual consultations on development co-operation (ACs)

ACs involve all relevant South African sectors/implementing agencies (ODA co-ordinators), the Department of Foreign Affairs (desk officers) and representatives of a particular donor, and are convened by the IDC.

Their purpose is to:
- discuss strategic issues pertaining to ODA management from the perspective of South Africa and of the donor;
- review the development co-operation programme between South Africa and the donor strategically, in terms of issues such as alignment to South Africa’s priorities, the programme’s impact, South African ownership, etc;
- agree on new programmes or projects to be supported by the donor;
- commit funds; and
- resolve any outstanding issues pertaining to the development co-operation relationship with the donor.

The output of ACs is a set of agreed minutes, which is used to manage the ODA programme and to review implementation progress during the following year.

Therefore, the agreed minutes should clearly reflect all the relevant information relating to donor assistance programmes, issues to be resolved, actions to be taken and time frames.

Mid-term review meetings (MTRs)

These meetings are dealt with in the same manner as ACs, but generally on a smaller scale, and are focused primarily on resolving matters outstanding.

Minutes of these meetings are attached to the AC minutes.

Programme review meetings with donors

Programme review meetings are held between the IDC and donors, as required. The purpose of these meetings is to assess the implementation of ODA programmes on a regular basis, so as to avoid problems only being identified at ACs or MTRs.

Action lists are prepared to address any issues arising from these meetings.

Sectoral/implementing agency ODA co-ordination meetings

Line departments/sectors/clusters and provinces are responsible for hosting regular ODA co-ordination meetings with the donor community, particularly with regard to multi-donor programmes.

The intention is to:
provide sectoral fora for detailed articulation and discussion of South Africa’s priorities;
discuss and agree on the detailed programming of ODA in support of these priorities;
ensure that such programmes are integrated into government priorities, budgets, and the overall policies and strategies of these sectors and implementing agencies;
ensure that South Africa retains ownership/control of donor-supported programmes in partnership with the donors involved;
align the support provided by various donors, and to avoid areas of overlap/duplication; and
to review progress with the implementation of these programmes and agree on corrective actions where required.

The results of these meetings should feed into programme review meetings, MTRs and ACs.

Programme/project management meetings

These meetings are hosted by line functionaries responsible for ODA supported programme/project management (planning, implementation, control, monitoring, reporting and evaluation), and involve all relevant stakeholders.

The results of these meetings should feed into sectoral ODA co-ordination meetings.

STRENGTHENING ODA CO-ORDINATION

Inadequate ODA co-ordination is one of the core issues that South Africa and its partners will have to address in ensuring effective and efficient ODA management.

The core interventions that IDC has embarked on in order to address the issue are:
the hosting of high-level consultative workshops on the management/optimal utilisation of ODA;
the preparation and widespread distribution of ODA management guidelines;
improving ODA information management by means of an interactive management information system for ODA – the Development Co-operation System (DCS), that will be accessible via the National Treasury website; and
strengthening ODA management capacity at sector/implementing agency level.

CHAPTER 5

DEVELOPMENT PRIORITISATION, ODA PLEDGES
AND COMMITMENTS, OVERALL PROGRAMMING OF ODA
AND CONCLUSION OF OVERALL/FRAMEWORK AGREEMENTS


INTRODUCTION

The processes of development prioritisation, pledging and committing ODA, programming ODA per sector and geographic area, and concluding overall/framework agreements are closely related and therefore, are dealt with together.

Although the process of development prioritisation is not strictly part of the ODA management process, it is included because South Africa’s development priorities have to guide ODA programming to the greatest extent possible.

DEVELOPMENT PRIORITISATION

South Africa’s decentralised system of government means that development priorities cannot be centrally imposed.

It is a strongly iterative process that involves all three spheres of government and both the legislative and executive authorities.

The process is inextricably linked to the medium term expenditure planning process, and at national level involves the following key steps

Political consideration of and guidance on government’s medium term strategic policy and expenditure priorities that provide the parameters for resource allocations in forthcoming budgets (Cabinet, Ministers’ Committee on the Budget and Budget Council – May to August).

Cabinet consideration of the macroeconomic and fiscal framework and the division of revenue amongst the three spheres of government during September (these decisions are integral to the political prioritisation stage).

The preparation and release of the Medium Term Budget Policy Statement (MTBPS) during October.

As the outcome of the above-mentioned processes, the MTBPS represents Government’s overarching spending framework within which national, provincial and local governments prepare their budgets for the following three-year period.

The step that requires strengthening subsequent to the release of the MTBPS is the sharing of these priorities with South Africa’s development co-operation partners in a consolidated manner. The purpose is to provide a coherent priority framework that will set clear parameters for the medium term programming of ODA. The macro co-ordination meetings and workshops referred to in Section 4.4.7.1 will be utilised for this purpose. See also Section 6.3 for a discussion on Sector/implementing agency strategic frameworks that will have to feed into a consolidated national framework.

ODA PLEDGES AND COMMITMENTS

ODA pledges refer to the process through which donors indicatively make available ODA resources. Pledges are generally broad and non-specific, but should provide the following information:
Goal/purpose of support.
Extent of support: Usually, a monetary value is attached to the pledge.
Duration of support.
Nature/form(s) of support: Instruments/types of ODA, and whether support is offered bilaterally, regionally and/or through multilateral institutions.
Areas of support: Sectors.
Conditions: Could include cross-cutting themes such as gender or environment, or donor rules, regulations and procedures, etc.

Commitments differ from pledges in the sense that the former tends to be closely linked to the donor country’s budgetary cycle, in which specific amounts are voted for ODA purposes. In addition, commitments are usually tied in much more closely with specific areas of support, programmes and projects.

Generally, commitments are formalised through the mechanism of annual consultations, which are managed by the IDC and involve the relevant sectors, South African implementing agencies and the donor.

From a South African perspective, the main objectives during this phase are to:
develop a full understanding of the pledges and commitments made;
assess the assistance offered in terms of South Africa’s overall needs and priorities, as well as its policies, rules and regulations pertaining to ODA;

assess the extent to which donor-specific conditions can be met; and
renegotiate assistance offered if it cannot be utilised due to unacceptable terms and conditions.

OVERALL PROGRAMMING OF ODA

Overall programming entails agreeing with donors on sectors and geographic areas of support, and largely coincides with the process of annual commitments. The IDC is primarily responsible for facilitating decision-making in this regard.

The basis for discussion and decision-making are the following:
the preferred or mandatory areas of support of the donor;
South Africa’s reconstruction and development priorities;
intra-sectoral priorities, policies and strategies; and
geographic realities (e.g. HDI-ratings, distribution of wealth, capacity, etc).

The mechanisms used are primarily ACs or separate consultative workshops/ planning sessions.

The key is that the process should give effect to the concept of development co-operation as a true partnership.

The ideal outcome is a joint development co-operation strategy or overall framework agreement that is fully aligned to South Africa’s development priorities (see Chapter 2) and ODA policy principles (Chapter 3); and that will guide all future development co-operation between South Africa and a particular donor.

CONCLUSION AND SIGNING OF AN OVERALL/FRAMEWORK AGREEMENT

In most cases, the process of concluding and signing an overall development co-operation agreement with a donor takes place in conjunction with discussions on pledges, commitments and overall programming.

The IDC (sometimes the Department of Foreign Affairs) is responsible for concluding overall agreements with the international donor community.

Prior to signing, the IDC has to:
ensure that the agreement reflects the outcome of the negotiations on development co-operation between South Africa and the donor;
obtain a legal opinion from the Law Advisor: Department of Justice, and from the Chief State Law Advisor: Department of Foreign Affairs;
have the agreement certified by the Chief State Law Advisor: Department of Foreign Affairs; and
obtain Presidential authorisation for the signing of the agreement (the detailed procedure is discussed in Chapter 7).

After signing, the agreement must be tabled in Parliament for information purposes by the parliamentary officer of the National Treasury or Foreign Affairs, depending on which department processed the agreement for signing. The agreement must also be sent to the Treaty Index Section in the Department of Foreign Affairs for inclusion in the Treaty Register and for safe-keeping.

The signed agreement, together with the jointly developed development co-operation strategy, forms the basis for all further discussions and decision-making on development co-operation between South Africa and a particular donor.

CHAPTER 6:

SOLICITING ODA


INTRODUCTION

In South Africa, ODA is generally provided on a project-basis, but tends to be programme-oriented in the sense that there is general acceptance of the need to align ODA to South Africa’s priorities, and to integrate ODA into the normal functioning of Government.

The processes of identifying programmes or projects for ODA support and seeking agreement on the support for such programmes/projects are closely linked, and are often incorporated under the more general process of soliciting donor assistance.

In the context of a decentralised system of government and the absence of a central decision-making body that determines the allocation of ODA, any department, province or local authority can legally approach the donor community directly to solicit ODA.

However, there are numerous reasons why a strictly "free-for-all" approach is not advisable:
It assumes that the capacity to solicit and manage ODA effectively and efficiently exists, while this is not the case in all implementing agencies.
It undermines a coherent, co-ordinated approach to ODA management.
It undermines South African ownership of ODA.

Therefore, South African implementing agencies and the donor community should adhere to the processes outlined below, in order to ensure that South Africa’s objectives with regard to ODA can be achieved. The IDC is at the disposal of South African implementing agencies if assistance is required.

OUTLINE OF THE ODA SOLICITATION PROCESS

The ODA solicitation process to be followed by South African sectors/implementing agencies can be illustrated as follows:

These processes are discussed in greater detail in the sections that follow.

DEVELOPING A STRATEGIC FRAMEWORK FOR ODA (Also see Section 5.2)

ODA cannot be managed in isolation or used to fund "wish-lists" that would not be viewed as core priorities. Government has to avoid an ad hoc approach to seeking ODA, simply because the budget is inadequate, or because a donor is interested in providing support.

Therefore, implementing agencies/sectors should develop a strategic framework for ODA that addresses the following issues:
The core priorities, policies and strategies of the sector/cluster, and how these contribute to addressing South Africa’s overall development needs.
The implementation/delivery of these priorities, including their funding by means of the MTEF/budgets. There should be particular emphasis on addressing resource gaps and ensuring long-term sustainability.
The contribution of ODA in realising these sectoral priorities, policies and strategies (integrating ODA into core sectoral functioning).
ODA co-ordination/management mechanisms, processes and institutional arrangements, including accountability, decision-making, planning, implementation, reporting and information-management.

Most sectors and implementing agencies already have an ODA framework, even if it has not been formalised. In addition, most sectors have an established relationship with the donor community and may feel that the development of such a framework would be superfluous.

However, an explicit strategic framework is essential for the coherent management of ODA at sector level. The Public Finance Management Act requires all departments to draft a medium term strategic framework, which should also facilitate the preparation of a strategic ODA framework.


PROJECT IDENTIFICATION, DONOR TARGETING AND FORMAL SUBMISSION OF PROJECT PROPOSAL

In the context of South Africa’s overall priorities and ODA policy and legislative framework, as well as sectoral strategic ODA frameworks, sectors need to:
identify projects that could be supported by donors;
prioritise these projects on the basis of criteria (see below);
target donors that are/could become active in the sector for support (match projects with donors); and
formally submit a project proposal to the donor for consideration.

Generally, projects identified for donor support should conform to the following criteria:
ODA policy: The projects should be aligned to the overall policy principles governing ODA (Chapter 3).
Strategic importance/alignment: The sector must prove that the project is a significant priority for government, and specifically for the sector, by means of integration into the relevant implementing agency’s medium term strategic framework.
Counterpart contribution/MTEF/budget: Most donors require a counterpart contribution before considering support, which means that budgetary provision has to be made. Integration of projects into the MTEF is also essential for long-term sustainability purposes.
Recurrent cost implications, VAT and duties: These costs have to be budgeted for before a project agreement can be signed (see Chapter 7).
Optimal impact: Attempts should be made to identify projects that would ensure the optimal utilisation of scarce ODA resources.

A formal project proposal seeking donor support for a project has to include at least the following information:
Project name
Short background (strategic framework)
Project description, scope, aim and objectives, and duration
Main beneficiaries
SA counterpart (accountability and implementation responsibility)
Nature of support required
Cost (preliminary budget)
SA contribution to be provided and donor contribution sought

The project proposal has to be submitted under covering letter of the relevant accounting officer and the political office-bearer responsible, as well as the head of the relevant national line department and national minister in the case of the implementing agency being a province, local authority or a parastatal.

The proposal should be submitted through IDC to the relevant donor, in order that the project can be recorded on the database, and to ensure that IDC is aware of the submission of a formal request for support. In many cases, donors require proposals to be submitted through IDC.

PROJECT ASSESSMENT

Project assessment/appraisal (including pre-feasibility and feasibility studies) is an essential requirement for proper project planning, and can be undertaken jointly by the SA implementing agency and the donor, or by the donor. The outcome of the process is a preliminary indication that the donor would support the project, with or without certain conditions.

Key considerations in terms of which projects are assessed, include the following:
Whether the project is a core priority for South Africa.
Whether the project falls within the scope of the donor’s mandate/area of operation in South Africa.
Whether the donor believes it best positioned to provide the support required (comparative advantage/expertise).
Whether the donor can fulfil the requirements expected (e.g. form and extent of support, procurement conditions etc).
Whether the project is realistic/feasible/sustainable.
The extent to which donor conditions can be met (e.g. gender, environmental considerations, procurement, etc).
Whether the project represents "value for money", i.e. whether it would ensure the optimal utilisation of resources.
Whether there are significant overlaps and/or funding gaps that would impact on the project.

DECISION REGARDING DONOR SUPPORT

Because of significant costs involved in detailed project planning and preparation, an early indication is sought from donors as to whether they would support proposed projects. While decision-making about support for particular projects can occur on an ad hoc basis, the ideal is that these decisions be taken within the framework of the institutionalised processes developed for that purpose, i.e. ACs, MTRs and sectoral co-ordination meetings.

The reasons for this are that most donors commit funds on an annual basis, which means that there is extremely little scope for considering ad hoc support outside of the established decision-making process. In addition, South Africa insists on joint decision-making about ODA support, which is undermined if projects are submitted in isolation of the broader consultative and decision-making processes between the donor community and government.

In summary, decision-making about donor support involves:
preparation of priority projects in a sectoral/regional development policy/strategy context (SA decision);
the formal submission of a project proposal for consideration by a donor;
assessment of the project (jointly or by donor); and
joint decision-making about support for a project within the process mechanisms developed for that purpose.

CHAPTER 7:

CONCLUDING
A PROJECT AGREEMENT

INTRODUCTION

All ODA must be provided in terms of lawfully concluded agreements, referred to as technical assistance agreements. Such agreements are regarded as international agreements and, in terms of the Constitution [Section 231(3)], are the responsibility of the National Executive (the President and Cabinet). All such agreements have to be signed by the President, or a person delegated to sign on his behalf (by means of Presidential authorisation).

These agreements are the principal instruments governing the implementation of donor supported projects.

THE PROCEDURE FOR CONCLUDING PROJECT AGREEMENTS

The procedure for negotiating and signing project agreements is as follows:
The implementing agency and/or the donor prepares a draft project agreement.
If an overall agreement exists, the project agreement is regarded as a subsidiary agreement. In such cases, the procedure differs slightly (see Section 7.2.3). The project agreement should refer explicitly to the overall agreement and be drawn up in accordance with its provisions.
The designated person(s) (ideally, the ODA co-ordinator in the relevant national implementing agency) seeks line function approval in the form of a letter of support from the accounting officer(s) and political office bearer(s) responsible, as well as the institutional mechanism established for sectoral co-ordination. In cases where the implementing agency is a province, local authority or a parastatal, the relevant Director-General and Minister at national level must also approve the agreement.

The ODA co-ordinator seeks the necessary approvals required in order for South Africa to fulfil its financial and other obligations under the agreement (see Section 7.4 below).
The ODA co-ordinator submits the agreement to the State Law Advisor: Department of Justice for scrutiny in terms of consistency with domestic law and appropriate and correct legal drafting.
The ODA co-ordinator submits the agreement, through the relevant Foreign Affairs Desk Office, to the Chief State Law Advisor (DFA) for scrutiny in regard to its consistency with international law, South Africa’s international relations and other obligations, and for certification of the agreement.
The ODA co-ordinator submits the agreement through the office of the Director-General and Minister of that department to the Presidency to obtain signing authorisation. The authorisation, countersigned by the relevant national minister, has to be accompanied by the President’s minute, explanatory memo and the original agreement or an authenticated copy.
The person duly authorised by the President signs the agreement.
The ODA co-ordinator submits the original or a certified copy of the signed technical co-operation agreement to the Treaty Index Section of the Department of Foreign Affairs, for inclusion in the Treaty Register and for safe-keeping.
The Parliamentary officer in the national line department responsible submits the signed agreement to Parliament for information purposes. It should be noted that this step is also a Constitutional requirement.

The duration of the entire process is generally 3 – 4 months, depending on the extent of substantive agreement on the provisions in the agreement. However, the process can be shortened considerably if the IDC is involved in the process to assist, and if one person is made explicitly responsible for driving the process on the South African side.

In the case of the conclusion of project agreements under a framework agreement, the National Executive may, by means of a Cabinet decision, delegate the authority to negotiate and sign the project agreements to a Minister without the President’s prior approval in respect of each of these project agreements. Therefore, the only step that is not required in such cases is 7.2.1(7) – Presidential authorisation. All the other steps still have to be followed.

THE FORMAT OF PROJECT AGREEMENTS

It has not been possible to develop a generic/standard agreement in respect of donor supported projects, due to different formats used by different donors. Again, the format is much less important than the substance of the agreement.

Generally, project agreements are structured as follows:
Heading (name of agreement and parties)
Preamble (overall goals of co-operation, reference to other agreements, etc)
Scope and objectives of the agreement (project-specific)
Accountability, responsibility for implementation and decision-making
Donor contribution, rights/privileges and obligations
South African Government contribution and obligations (mostly relating to counterpart contributions, exemptions from taxes and duties, ownership of assets, etc)
Procurement
Funding flows (results from financial accountability decision, and also involves accounting and auditing procedures)
Reporting
Communication, monitoring and evaluation
Settlement of disputes, entry into force, termination and amendments

CORE ISSUES PERTAINING TO TECHNICAL CO-OPERATION AGREEMENTS

A number of core issues relating to the management of ODA are addressed, in a more or less explicit and detailed manner, in technical co-operation agreements. It is essential for South African counterparts negotiating and signing these agreements to understand these issues and, in particular, the obligations imposed on the South African Government in terms of these agreements.

Parties to agreements

All technical co-operation agreements governing ODA are entered into between a donor government or a multilateral organisation and the South African Government, or between agencies duly nominated to act on either of their behalf.

As stated, only political office bearers at national level can be authorised to sign international agreements.

Because of the fact that implementing agencies (recipients of ODA) are often provinces, local authorities or parastatals, mechanisms had to be developed to deal with the practical difficulties of agreements being signed by organs of state/institutions other than the implementing agencies actually responsible for project implementation.

These mechanisms are the following:
Specifying all the role players and their respective obligations, roles and responsibilities in the technical co-operation agreement itself.
Ensuring that the implementing agency is fully aware of its obligations under the agreement and formally agrees to meeting these obligations.
Providing for contracts/implementation plans (governing operational issues) to be prepared between the implementing agency and the donor and/or contractor/service provider.

Responsibility and decision-making

Technical co-operation agreements (and/or subsidiary documents) should spell out clearly who is responsible for what when it comes to the implementation of the agreement.

Again, the crucial principle is that donors and implementing agencies should be jointly responsible for donor-supported projects.

Communication, monitoring and evaluation

Technical co-operation agreements should make explicit provision for channels and forms of communication, mechanisms for the monitoring of project implementation, and project evaluation processes.

Because of the variety of mechanisms and processes that exist, implementing agencies should seek optimal alignment between these and established sectoral/departmental processes, in order to minimise duplication of effort.

In addition, implementing agencies should ensure that monitoring and evaluation criteria are decided by mutual agreement, and that the processes are dealt with jointly.

Financial management of ODA funds and related issues

The sound management of donor funds is at the heart of the optimal utilisation of ODA. Due to the specialised nature of issues relating to the management of ODA funds, these are addressed in depth in APPENDIX A. The section in the text provides a brief overview of the relevant issues for the benefit of ODA role players. Individuals responsible for aspects of the financial management of ODA need to familiarise themselves fully with the rules, regulations and procedures outlined in APPENDIX A.

Financial accountability and funding flow mechanisms

In terms of the RDP Fund Amendment Act, the accounting officers of South African implementing agencies are accountable for donor-supported projects in their departments or provinces.

When it comes to financial accountability, financial managers have a crucial role to play and, therefore, need to be fully involved in the planning and execution of donor-supported projects.

Financial accountability determines the funding flow mechanism utilised. There are three forms of financial accountability, namely:
donor accountability, in which case no funds flow through the RDP Fund or any account of the South African Government, and the donor pays directly for the procurement of goods and services;
South African Government accountability, in which case the funding flow mechanism is via the RDP Fund, as prescribed by the RDP Fund Amendment Act (see procedure in APPENDIX A); and
third party accountability, in which case so-called fund managers are used to implement donor-supported projects.

VAT, Customs and Excise Duties and Personal Income Tax

It is a firmly established principle that donor funding not be utilised for the payment of the recipient country’s duties and taxes.

However, this does not mean that donor-supported projects are automatically exempted from local duties and taxes.

The necessary exemptions or rebate approvals have to be obtained prior to the signing of a technical co-operation agreement and, in cases where rebate applications are not approved, South African implementing agencies are responsible for the payment of such taxes and duties.

This has important budgetary implications that necessitate the early involvement of financial managers in the implementing agencies.

Procurement of goods and services

In most cases, the rules and procedures for the procurement of goods and services for projects are clearly described in technical co-operation agreements.

The reason for this is that procurement conditions are an important element of the conditions attached to ODA and/or the donor country’s rules and regulations.

South African implementing agencies should ensure that procurement conditions meet South Africa’s needs with regard to technical specifications, terms of reference for consultants/technical assistants, criteria for evaluating tenders, value for money, local capacity-building, use of local expertise, etc.

The RDP Fund Amendment Act makes it possible to agree on a procurement procedure, or even to specify the contractor/service-provider. For purposes of transparency and equity, a proper tendering procedure providing for joint decision-making and fair competition, should be agreed to.

South African tender procedures have to be followed only in cases where no procedure has been specified in the technical co-operation agreement.

Accounting, auditing and financial reporting

This is only relevant in cases where the RDP Fund is used, i.e. where South African implementing agencies are accountable for financial management.

In order to promote standardisation, normal South African accounting and auditing procedures are followed.

Financial reporting has to occur in accordance with relevant technical co-operation agreements, as well as the provisions of the Public Finance Management Act and the RDP Fund Amendment Act.

Counterpart contributions

In most cases, the South African Government is expected to provide counterpart contributions for ODA projects. This principle is supported for the simple reason that it promotes sustainability through alignment to South African priorities and Government expenditure.

Again, the crucial issue is for the implementing agency to make the necessary budgetary provision for such contributions.

Recurrent cost implications

A critical issue that could impact on the viability/ sustainability of ODA projects, is recurrent expenditure that will be incurred as a result of their implementation.

The implementing agency has to formally confirm that it has provided for recurrent expenditure on the MTEF, or formally undertake to do so if recurrent expenditure will only become a reality after more than three years.

The implementing agency’s ability to absorb recurrent financial implications within existing/projected MTEF ceilings is central to deciding on a particular project.

Rights and privileges of technical assistants

The rules, regulations and procedures governing the rights and privileges of technical assistants are determined by the following:

The Diplomatic Immunities Act, in cases where these individuals have diplomatic status. This involves the least administration (approval by the Department of Foreign Affairs), but requires donor countries to accord such individuals diplomatic status, which is not always feasible.

The Aliens Control Act, in cases where these individuals are foreign nationals with normal citizenship. In terms of the Aliens Control Act, technical assistants have to obtain a work permit at the South African mission closest to their country of origin, before they commence with their work in South Africa.

A technical co-operation agreement that spells out their rights and privileges. This is the best option in the longer term, particularly in relation to standardising rights and privileges. Such an agreement has to be concluded between the donor country and the Department of Foreign Affairs.

Donors and implementing agencies should ensure that all the requirements allowing technical assistants to commence with their work are met before they arrive in the country.

Provisions in technical co-operation agreements relating to the rights and privileges of technical assistants have to be submitted to the Department of Home Affairs and Foreign Affairs for formal approval before signing of the agreement.

Subsidiary implementation documents

In most cases, some form of operational documentation governing the detailed implementation of donor-supported projects is required. The principle, which needs to be reflected in the technical co-operation agreement, is that these documents form an integral part of the agreement.

Such documents are usually referred to as business plans, implementation plans, work plans, annual plans, etc. While implementation plans tend to differ in form and substance from donor to donor, their purpose is usually the same, namely to address all the details pertaining to the implementation of projects in accordance with the relevant technical co-operation agreement(s).

The issue of implementation planning is addressed in detail in the subsequent chapter.

CHAPTER 8:

IMPLEMENTATION PLANNING


INTRODUCTION

The technical co-operation agreement is the key project reference document. The implementation plan and any other documentation relating to the implementation of the project should refer clearly to the relevant provisions in that agreement.

While the preparation of detailed implementation plans is not required by all donors, detailed implementation planning is crucial for the success of any project. Therefore, it is strongly suggested that such implementation plans be prepared, irrespective of whether the donor, the South African implementing agency and/or a third party are accountable for project implementation.

The implementation/project planning process does not begin after the signing of the technical co-operation agreement. These processes run concurrently. The reason why the implementation plan is discussed here is that, as an output of the planning process, it is subsidiary to the technical co-operation agreement.

THE FORMAT OF IMPLEMENTATION PLANS

The most commonly used approach to planning for project-based donor support is the so-called logical framework approach (LFA). The process for developing a logframe is not dealt with in detail in this document. Donors that utilise the logframe are familiar with the process and the IDC is also available to assist implementing agencies that are unfamiliar with the approach.

Alternative formats can be used, either to feed into the LFA process, or in cases where the LFA is not required (see APPENDIX B for an example).

STEPS IN THE PLANNING PROCESS

A planning workshop, involving all the key role players in the project, is commonly used as mechanism for the planning process. The basis for discussion is information on the sector, the project concept, feasibility study outcomes, problems, etc (see Project Assessment, Chapter 6).

The steps followed in the LFA planning process are the following:

Participation analysis: Developing a comprehensive picture of the needs, interests, problems, strengths and weaknesses, expectations and relationships/linkages of all role players involved in/affected by the project, and prioritising these.

Problem analysis: Identifying core existing problems and cause-and-effect relationships, in order to identify the focal/central problem.

Objective analysis: Developing objectives on the basis of the problem analysis, by reformulating problems into positive desirable conditions, focusing on means-end relationships.

Alternatives analysis: Developing alternative project options through various means-ends ladders, and assessing and prioritising the options on the basis of cost, benefits to priority groups, probability of achieving objectives, social risks and other criteria identified by the participants. The outcome should be the selection of one option as the project strategy.

Project elements: Defining the development objective (long-term objective/ project justification), the immediate objective (project purpose), outputs (objectives), activities (processes to achieve objectives) and inputs (resources – funds – including cash flow forecasts, personnel, goods).

External factors/preconditions: Identifying events, conditions or decisions that are necessary for project success, but that are beyond the control of project management, and weighting them according to importance and probability of occurrence. Unimportant and highly probable factors are eliminated. Killing factors, which require redesign or abandoning of the project, refer to crucial factors that are highly unlikely to occur.

Indicators: Identifying the performance standards required achieve the outputs, the immediate objective and the development objective. These could be qualitative, quantitative or behavioural, and should specify target group, quantity, quality, time and location. Indicators provide a basis for monitoring and evaluation. Means of verification should be checked in order to determine viability, reliability, accuracy and cost.

CHECKING PROJECT DESIGN

Once the project has been designed, it is essential that the information be checked on the basis of key criteria. This is set out below:

Target group: Target groups have to be:
precisely defined; and
specified at the right level.
Development objective: The development objective has to:
be consistent with the development policies of the recipient;
be consistent with the donor’s policy guidelines for ODA (and those of South Africa);
represent a sufficient justification for the project;
not be too ambitious;
define the target groups explicitly;
be expressed as a desired end (not a means to an end);
be expressed in verifiable terms; and
not contain two or more objectives that are causally linked.

Principal objective: The principal project objective should:
be a single objective;
specify the target groups of the project;
contribute significantly to fulfilment of the development objective;
be realistic;
be outside the immediate control of the project itself;
be formulated as a desired state; and
be precise and verifiable.

Outputs: Ensure that:
all key outputs needed to achieve the project objective are listed;
only the outputs that can be guaranteed by the project are included;
each output can be regarded as a necessary means of achieving the immediate objective;
all outputs are feasible within the resource limitations; and
the outputs are precisely and verifiably defined.

Activities: Ensure that:
all key activities needed for producing the outputs are listed;
all activities contribute directly to the output level above;
only those activities to be performed by the project are included;
activities are stated in terms of actions;
the time available for each activity is realistic; and
the activities are appropriate to the situation in the partner country.

Inputs: Ensure that:
the inputs can be related directly to the specified activities;
the inputs are necessary and sufficient conditions for undertaking the activities;
the level of detail is adequate but still understandable;
the inputs are precisely and verifiably defined (quantity, quality and cost); and
the resources are appropriate to the situation in the partner country.

External factors: Ensure that:
they are formulated as positive, desirable conditions;
they are linked to the correct project level;
unimporant and highly likely factors are excluded;
no killing factors exist (if so, the project must be redesigned or abandoned); and
the remaining factors are precisely and verifiably defined.

Indicators: Ensure that:
they are specific in terms of quantity, quality, time, location and target group;
the means of verification (statistics, observation, records) are available, or can be generated at a reasonable cost;
the means of verifications are reliable and up-to-date;
the indicators are relevant as a measurement of achievement of objectives; and
the collection, preparation and storage of information are project activities, and that the necessary inputs have been specified.

CHAPTER 9:

PROJECT EXECUTION


INTRODUCTION

Project execution involves implementation, monitoring, evaluation, reporting and closure. These processes should all be agreed as part of concluding and signing a technical co-operation agreement and preparing a detailed implementation plan.

Irrespective of the quality of preparation and planning, the implementation, monitoring and evaluation processes are crucial to the success of individual projects and the proper utilisation of ODA resources from an overall perspective.

THE DESIGN OF AN IMPLEMENTATION, MONITORING AND EVALUATION SYSTEM

Due to the variety of mechanisms that can be utilised for purposes of implementation, monitoring and evaluation, the focus in this section is on the provision of generic guidelines or criteria, rather than specific options.

Because of the fact that most donors utilise the LFA, the substantive progress and financial indicators reflected in the completed logframe should be used as the primary tools for measuring progress and results.

Key questions that need to be answered in project monitoring and evaluation are the following:
Are project activities being executed according to plan?
Are outputs and objectives being achieved in accordance with indicators?
Is the project staying within budget, according to cash flow forecasts?
Are the beneficiaries of the project receiving the assistance foreseen?

Are cross-cutting issues, such as capacity-building, gender and the environment, being addressed according to plan?
Is the sustainability of the project being monitored?
Is updated project information continuously available?

In order to answer these questions adequately, project management should establish a project implementation, monitoring and evaluation system that, in generic terms, conforms to the following guidelines:
Integrate the system with the sectoral/regional/departmental and overall ODA co-ordination/ODA management systems, including institutional linkages and information management systems.
Integrate the system as far as possible with departmental systems, in order to avoid duplication of effort.
Ensure that the system promotes key ODA objectives, particularly South African ownership. Empowerment/capacity-building of implementing agencies should be a crucial component of all ODA projects.
Ensure that individual responsibility is assigned for all tasks.
Ensure that the programme manager is sufficiently empowered to ensure compliance with decisions taken.
Ensure that the system allows early identification of problems or deviations from the implementation plan.
Ensure that the system allows for rapid decision-making on, and implementation of, corrective actions if required.
Ensure that the system will be effective and cost-efficient.
Ensure that the system allows for adequate representation of key stakeholders, without becoming unmanageable.
Ensure that the system gives practical effect to agreements reached, as reflected in the technical co-operation agreement and implementation plan.

OVERALL MONITORING AND EVALUATION

In addition to project-level monitoring and evaluation, it is important to assess the impact of ODA, in a sector or geographic region, from the perspective of a particular donor’s programme in South Africa, and in respect of all ODA to South Africa. Overall programme monitoring and evaluation can take place during the course of implementation or upon completion of a particular phase in development co-operation.

Irrespective of the frequency, form or scope of overall/broad programme monitoring and evaluation processes, the principles that are important from a South African perspective, are the following:
The agreements governing development co-operation between South Africa and the donor(s) should form the basis of assessment.
The process must be undertaken independently, but with the full involvement of the relevant role players.
The outcome must reveal the impact of ODA in addressing South Africa’s development priorities.
The outcome must reveal weaknesses/problems in the management of ODA.
The outcome must inform decision-making regarding future ODA.

REPORTING

Reporting constitutes the process by means of which project managers communicate project progress or a lack thereof (results of monitoring and evaluation) to the relevant accounting officer and the donor, in accordance with the requirements of the technical co-operation agreement and implementation plan.

Generally, reports consist of narrative and financial sections, and involve the following, although formats could differ:
Type of report: Progress report or final report.
Reporting period: From … to … (quarterly, six-monthly or annually).
Recipients: Accounting officer, ODA co-ordinator, donor and IDC.
Project information: Name, codes (FMS/BAS and donor code), project manager details, accounting officer details, etc.
Brief project description, aims and objectives.
Project progress/status report (against plan).
Achievements/highlights/media events etc.
Problems and solutions/corrective actions.
Financial statements reflecting amounts received, itemised expenditure/ time, accumulated expenditure, etc. (audited if required).
Graphic illustration of cash flow to date.
Asset inventory.

PROJECT CLOSURE

Upon completion of the project, a number of key tasks have to be undertaken, again in accordance with the technical co-operation agreement and implementation plan.

Generally, these tasks involve the following:
Finalisation of project inventory and disposal of assets as per agreement.
Settlement of all accounts and identification of accounts outstanding.
Final auditing of accounts, including calculation of interest accrued.
Closure of departmental accounts dedicated to the project.
Dealing with unspent funds in accordance with the technical co-operation agreement.
Final project evaluation as per agreement.

The project closure date should be specified in the technical co-operation agreement and/or implementation plan. Project continuation beyond this date has to be agreed between the donor and implementing agency in accordance with the manner prescribed in the technical co-operation agreement.

CHAPTER 10:

THE MANAGEMENT OF ODA LOANS


INTRODUCTION

Since 1994, the international community has contributed to South Africa’s reconstruction and development efforts through ODA in various forms, including concessional loan financing and other forms of credit offered to the government, parastatals and the private sector.

As with other forms of ODA, Government involvement in the management of ODA loans is determined by the extent to which it is responsible and/or accountable for the management of such resources.

Therefore, the arrangements set out below apply only to concessional project lending facilities made available to Government or parastatals by international financial institutions under the auspices of government-to-government ODA.

PROJECT LOANS AND GOVERNMENT BORROWING

Project loans used to finance departmental expenditure are treated as part of Government’s overall borrowing. As such, project loans have to be dealt with in accordance with its overall borrowing strategy, and its debt and financial risk management policies. In addition, the South African Government is fully responsible for managing and co-ordinating project-based borrowing.

The South African government returned to the international capital markets in 1994 to re-establish its name as a borrower of foreign currency denominated loans. To achieve this, Government has been guided by the strategic objectives of:
establishing liquid benchmarks in major currencies;
maintaining a balanced portfolio of foreign currency denominated debt;
broadening and improving the quality of the government’s investor base; and
extending the maturity profile of the debt portfolio.
Given these objectives, Government strives to borrow at the most cost-effective rates.

In terms of the Public Finance Management Act, only the Minister of Finance may borrow on behalf of the national government. Provincial governments may not borrow from foreign sources.

The terms and conditions of such loans are assessed in relation to Government’s debt management and financial risk management policies, and in terms of their concessionality in comparison with other facilities available to government, taking account of grants, technical support and capacity-building included in the loan package (complementary measures), as well as the broader contribution of the project to South Africa’s social, economic and developmental objectives.

Cabinet has approved that consideration be given to project lending from international financial institutions when:
the expenditure to be financed forms part of a department’s medium term expenditure allocations;
the terms and conditions of the loan are acceptable; and
technical expertise, additional grant funding and/or capacity-building are provided as part of a broader partnership relationship.

LOAN FACILITIES OF INTERNATIONAL FINANCIAL INSTITUTIONS

South Africa has established relationships with several multilateral and bilateral international development finance institutions, including the World Bank, African Development Bank, the European Investment Bank, the French Treasury and French Development Agency (AFD), the German Development Bank (KfW), the Japanese Bank for International Co-operation (JBIC), the OPEC Fund, the Nordic Development Fund and the Nordic Investment Bank.

These institutions offer finance on varying terms and offer various kinds of collateral institutional support or specialist expertise.

PROCEDURE FOR THE UTILISATION OF PROJECT LOAN FACILITIES

The procedure outlined here aims to keep project co-ordination and management fully integrated into normal departmental functioning. Projects have sometimes failed in the past because their management was located in special-purpose agencies and inadequate provision was made for ongoing maintenance and operations. Departments will accordingly have full responsibility for the development, planning, implementation and monitoring of international loan financed projects.

However, because of the fact that only the Minister of Finance can borrow internationally on behalf of Government, and borrowing does not increase the expenditure envelope, the Budget Office and the Asset and Liability Management Branch in the National Treasury also have a central role to play in the utilisation of project loan facilities. A summary of the processes to be followed in the case of the government or parastatals taking up such loan facilities is set out below:

Borrowing by Government

MTEF programme/project planning/design and costing

All government programmes or projects should be properly designed and costed by the respective line departments responsible, prior to their inclusion in the MTEF. The design and costing process should include not only projected expenditure over the life of the project and particularly over the three-year MTEF-period, but also the projected resource mix that would enable departments to implement projects as envisaged.

The resource mix could include normal baseline MTEF allocations, grants and/or technical assistance secured from the international donor community as supplementary resources, and/or possible loan financing within the project expenditure envelope. Discussions between the national lead department, the Budget Office, A&LM, and IDC and IDF are essential at this early stage to ensure that:
project planning/design and costing are done accurately;
the most appropriate and realistic resource mix is identified at an early stage; and
loan financing can be secured for outlying years on the MTEF.

Conditional MTEF approval and identification of loan financing sources

Where a project or development programme is developed for possible inclusion in the MTEF, the Budget Office should consider the possibility of international loan financing as a feasible resourcing option, as part of the process of considering inclusion of the project on the MTEF.

Agreement will have to be reached with the relevant line function on the utilisation of project loan financing as condition for inclusion on the MTEF.

The outcome of the process should be a decision in principle (by Minister of Finance and Cabinet) on:
utilisation of a loan to finance the project;
the loan amount that is likely to be affordable and appropriate; and
the best loan source(s) at Government’s disposal.

In order to ensure appropriate programme co-ordination, a "project oversight committee" should be convened to give effect to the political mandate provided.

The committee should consist of representatives of the national lead department, the National Treasury, A&LM, IDC or IDF (depending on which lending institutions are involved) and provincial lead departments and Treasuries, where provincial expenditure is involved.

The committee would be responsible for the management of the loan-financed project from the stage that the decision is taken in principle to utilise such a loan to finance the project (the roles of the respective committee representatives are discussed in the sections that follow).

The committee would report through its representatives to the relevant accounting officers at national and provincial level.

A&LM should assess the best possible sources of international project loan financing for the project, in the context of its policies and strategies. The outcome of the process should be a decision in principle on the best loan source(s) at Government’s disposal.

Negotiations on additional donor resources (grants and TA) should also be entered into between the national lead department and the relevant donor(s), in conjunction with IDC and IDF.

Early donor commitment on resource allocations is essential to determine whether the projected budgetary expenditure commitments required for ensuring successful project implementation have been determined accurately.

Loan negotiations and signing of loan agreement

The committee should enter into negotiations with the preferred lender(s) as early as possible. In some cases, specific project loan offers are made by lenders, which means that this phase will run concurrently with 10.4.1.2.

The lender has to be made aware that discussions at this stage do not involve any commitment on the part of Government to take up project loans, irrespective of any expenditure incurred by the lender.

The negotiations with the lender will be around:
the terms and conditions of the loan (currency denomination, interest rate, grace and repayment periods, etc.);
complementary measures in the form of grants and/or technical assistance;
lender-specific conditionalities regarding project preparation, implementation, reporting, monitoring and evaluation and loan administration; and
time frames.

Project-specific negotiations should be complemented by continuous negotiations with lending institutions for purposes of obtaining more favourable terms and conditions (even with its extraordinary high Gini-coefficient, South Africa does not qualify for the most concessional ODA project loans available).

Negotiations with lenders should be accorded high priority, for the simple reason that agreements reached during this stage will impact only once implementation has started, at which stage it is difficult to effect changes.

Upon satisfactory completion of project-specific loan negotiations, a loan agreement is prepared for signing by the Minister of Finance.

The signing of the loan agreement constitutes the first commitment made by Government in respect of taking up any loan offer.

As an international agreement, the process for the signing of international agreements should be followed (see Chapter 7).

Project implementation, reporting, monitoring and evaluation

The national lead department will be fully responsible for project implementation, reporting, monitoring and evaluation, in accordance with the loan agreement signed.

The ideal scenario from a Government perspective would be full alignment to Government procedures, rules and regulations pertaining to implementation, reporting and M&E, with little or no lender interference. In most cases, this would be an unrealistic expectation, but still represents the ideal.

Where provincial expenditure is involved, the funding provided by the project loan will be conveyed to provinces via a conditional grant or agency payment from a national lead department.

In terms of the RDP Fund Act, as amended, expenditure of grants received by government departments through the RDP Fund under an international development co-operation agreement is no longer appropriated through a Parliamentary vote.

However, Departments will be required to show projections of project expenditure in their medium term expenditure estimates, and to report such expenditure in their annual accounts.

A summary of project loans and progress with implementation will be included in the annual Budget Review.

Loan administration

A&LM will be responsible for all matters pertaining to loan administration, including draw-downs, interest payments and payment of other finance charges, and loan repayments.

Project finance will be shown in the financial accounts of Government as part of the financing of the budget deficit. For the purposes of the Budget and the appropriation accounts:
Interest payments and other finance charges will be shown as direct charges on the National Revenue Fund, associated with the Finance vote;
Loan redemptions will be recorded as debt repayments and will be the responsibility of the National Treasury;
Project expenditure will be recorded on the budget vote of the responsible department.


Borrowing by parastatals

Borrowing by South African parastatals has to occur in accordance with the Public Finance Management Act, as well as statutes governing particular institutions.

The involvement of government in borrowing by parastatals is therefore restricted to the following:
borrowing approval in accordance with relevant statutes;
conclusion of government-to-government agreement, if required (see 10.4.1.3); and
issuing of a government guarantee (if required).

The critical issues pertaining to borrowing by parastatals, from a government perspective, are the principles of reducing its contingent liabilities, and of limiting risk.

Government has initiated a process of reducing the dependence of parastatals on government transfers, and of increasingly exposing them to borrowing on the strength of their own balance sheets. For this reason, government strictly evaluates any application for a government guarantee and, if granted, charges a guarantee fee that will be increased gradually.

International donors, offering concessional loan financing to parastatals under government guarantees only, are also urged to review these policies, in support of South Africa’s efforts to develop stronger, independently functioning parastatals that do not contribute to government’s financial burden.

FINANCIAL MANAGEMENT OF ODA
AND RELATED ISSUES


INTRODUCTION

The appendix outlines the rules, regulations and procedures relating to the financial management of ODA-funded projects and related issues.

These issues include:
donations to the state;
counterpart contributions;
local taxes and duties;
recurrent cost implications;
funding flow procedures, based on financial accountability (with specific reference to the RDP Fund mechanism);
procurement procedures;
accounting procedures;
auditing; and
financial reporting.


DONATIONS TO THE STATE

ODA in the form of grants or technical assistance is regarded as a donation to the state. As such, approval for its acceptance needs to be dealt with in accordance with Section 76(1)(I) of the PFMA and Treasury Regulation 21.2. The accounting officer of the relevant implementing agency is authorised to approve the donation.

It should be noted that such support is extra-budgetary (not part of National Revenue). In terms of the RDP Fund Amendment Act, all cash donations have to be paid into the RDP Fund Account at the South African Reserve Bank, from where transfers will be made to the relevant implementing agency’s Paymaster-General Account (see Section 6.3 for a discussion on the RDP Fund mechanism).

All such donations received during the course of a financial year must be stipulated as a separate note to the annual financial statements.

All donations must be declared in writing to the relevant Chief Financial Officer and provisioning administration.

The Chief Financial Officer will keep a register of all donations.

All such donations received during the course of a financial year must be stipulated as a note on the annual financial statements of the RDP Fund of the relevant spending agency and be reported on in its annual report.


COUNTERPART CONTRIBUTIONS

In cases where the South African Government is expected to provide counterpart contributions for donor-supported projects, either in cash or in kind, implementing agencies (specifically accounting officers with their chief financial officers) have to ensure that budgetary provision is made for such contributions.

If a cash contribution is sought, the implementing agency (accounting officer/ chief financial officer) has to:
ensure that it can meet the obligation required, and renegotiate its contribution if it cannot meet its obligations;
ensure that the contribution has been budgeted for (if not, funds must be negotiated with National Treasury through the MTEF budget process);
confirm in writing that budgetary provision has been made for the counterpart contribution required; and
include this formal confirmation in the package of documents required before the agreement can be signed (see signing of agreements).

If a contribution in kind is required, e.g. in the form of personnel, office space, equipment, etc, the implementing agency has to:
ensure that it fully understands and accepts the nature and extent of its contribution (if not, it has to renegotiate its contribution with the donor);
ensure that the contribution has been budgeted for, if it has any additional expenditure implications (if the contribution has not been budgeted for, funds must be negotiated with the National Treasury through the MTEF budget process);
confirm in writing that budgetary provision has been made for the counterpart contribution required; and
include this formal confirmation in the package of documents required before the agreement can be signed.

VAT, CUSTOMS AND EXCISE DUTIES AND PERSONAL INCOME TAX

It is a firmly established principle that donor funding not be utilised for the payment of the recipient country’s duties and taxes. The relevant taxes and duties in South Africa are:
Value-added Tax (VAT), administered by the South African Revenue Services (SARS) in terms of the Value-added Tax Act, No.89 of 1991, as amended;
Customs and Excise Duties; and
Personal income tax, also administered by SARS in terms of the Income Tax Act of 1962, as amended.

Value-added tax

Value-added tax is payable on all goods and services procured locally or internationally, subject to certain exemptions, exceptions, deductions and adjustments.

So as to avoid departments having to budget for VAT on grant-funded ODA projects, the Value Added Tax Act was amended through the addition of sub-section 11(2)(q) to the Act. The sub-section reads as follows:

"q the services are in terms of section 8(5) deemed to be supplied to a public authority or local authority to the extent that the payment contemplated in that section is made from donor funds granted under any international agreement to which the Government of the Republic is a party."

Section 8(5) reads as follows: "For the purposes of this Act a vendor shall be deemed to supply services to any public authority or local authority to the extent of any payment made by the authority concerned to or on behalf of the vendor in respect of the taxable supply of goods or services by the vendor to any person."

The implications of this amendment are that ODA grants are subject to VAT at a zero rate, and that any VAT paid in respect of ODA grant-funded projects can be reclaimed from SARS. This would also include VAT on in-country payments in respect of technical assistance provided by the international donor community.

This will require that projects be registered as VAT vendors with SARS, in order that VAT can be refunded.

The chief financial officer of the spending agency concerned will be responsible for the VAT obligations of the project.

Actual expenditure should be allocated against the project objective, while the VAT levied should be allocated to a VAT control account. VAT refunds will in due course be credited against the latter account.

SARS has recommended that departments responsible for the financial management of more than one donor-supported project, should obtain only one VAT registration for all these projects. This will avoid having to register and de-register each individual project. The same procedure should be followed in cases where donors are responsible for the financial management of projects.

The VAT registration process is as follows:
A person who is required to register must complete an ‘Application for Registration’ form – VAT 101, which can be obtained from the Receiver of Revenue. The form must be applied for within 21 days of the person’s becoming liable for registration.
The VAT 101 form requires certain documentation to be attached, e.g. a certified copy of the person’s identity number in the case of an individual or a copy of the grant agreement, article of association, or constitution in the case of other entities.
A copy of the circular distributed to financial managers (available from IDC as well) must accompany the application for VAT registration.

Personal income tax

Personal income tax for the benefit of South Africa’s National Revenue Fund is not payable on "any salary or emoluments payable to any subject of a foreign state, or a person employed by an international organisation, who is temporarily employed in the Republic, provided the exemption of such salary or emoluments is authorised by an agreement entered into by the government of the foreign state, or the international organisation, and the government of the Republic".

Customs and excise duties

Customs and excise duties are payable on all goods procured internationally, subject to certain rebates.

With reference to ODA, the relevant exemptions/rebates are the following:

Customs and Excise Tariff Rebate Items 406.02 and 406.05: Goods for the official use by a diplomatic or consular mission, and goods for the personal or official use by diplomatic or consular representatives, and members of their families (certified by the Department of Foreign Affairs).

Customs and Excise Tariff Rebate Item 406.03: Goods for the personal or official use by members, agents, officers, delegates or permanent representatives of, to or with an organisation or institution, and the members of their families, with which South Africa has concluded a formal agreement providing for such rebate facilities (certified by the Department of Foreign Affairs).

Customs and Excise Tariff Rebate Item 406.07: Goods (excluding food, drink and tobacco in any form) imported by administrative and technical representatives accredited to diplomatic or consular missions, on their first entry on appointment by their governments, for personal or official use, subject to the approval of the Department of Foreign Affairs.

Customs and Excise Tariff Rebate Item 412.11: Goods imported under any technical assistance agreement, subject to the issuing of a certificate issued by the Director-General: Trade and Industry (Board of Tariffs and Trade), and provided that the goods shall not be sold or disposed of to any party who is not entitled to any privileges under the rebate item without the permission of the Director-General: Trade and Industry.


RECURRENT COST IMPLICATIONS

One of the most important issues that could impact on the viability of donor-supported projects, is recurrent expenditure that will be incurred as a result of implementing such projects. It is also an important factor in determining long-term sustainability.

The South African implementing agency has to:
accurately determine the recurrent cost implications for all donor-supported projects;
include these cost calculations in the agreement and/or implementation plan;
ensure that it has provided for recurrent expenditure on the MTEF/ budget;
formally indicate in writing that recurrent expenditure implications have been budgeted for, or formally undertake to do so if recurrent expenditure will only become a reality after more than three years;
include this formal undertaking in the package of documents required before the agreement can be signed.

The implementing agency’s ability to absorb recurrent financial implications within existing/projected budgetary limitations is one of the most important criteria for deciding on a particular project.

It needs to be stressed that a donor-supported project cannot be allowed to continue if the implementing agency cannot absorb recurrent costs.


FUNDING FLOW REGULATIONS AND PROCEDURES

The three ODA funding flow mechanisms are discussed below, together with the issues of investing donor funds, dealing with interest accrued on donor funds, and with unspent funds at the end of a financial year and upon conclusion of a project.


Direct payment by donor

In some cases, donors accept full responsibility for the financial management of donor-supported projects. This means that no funds flow through the RDP Fund or any account of the South African Government. The donor pays directly for the procurement of goods and services.

This occurs mostly when ODA is provided in the form of technical assistance, but also in certain instances where grant assistance is provided.

While the accounting officer of the implementing agency remains accountable for obligations imposed under the relevant technical co-operation agreement, the donor is solely accountable for project expenditure.

In some cases, such payments are only authorised upon receipt of a letter of authority from the South African counterpart. However, such letters of authority relate to the satisfactory provision/delivery of goods or services, and do not imply that the South African Government is accountable for expenditure.

While this mechanism relieves the administrative burden of South African implementing agencies to some extent, it is not the preferred option from the perspective of fostering South African control/ownership, capacity-building, sustainability and integration into normal departmental functioning.

This mechanism should be utilised only in instances where the implementing agency is incapable of proper financial management. Unfortunately, certain donor governments have rules and regulations that preclude the use of any other form of financial accountability.

In cases where this mechanism has to be used, the donor and the South African implementing agency involved should agree on a financial reporting procedure by means of which the donor can inform the implementing agency about the utilisation of project funds.

Financial management by a third party

In some cases, so-called fund managers are used to implement donor-supported projects, mostly to circumvent real or perceived inefficiencies in the RDP Fund mechanism. This mechanism should not be used simply to bypass the RDP Fund.

However, it can be useful in public private partnership cases, where other institutions are better positioned to deliver than government, or where strong civil society involvement is believed to be essential for the success of a project.

The complicating factor under such an arrangement is the fact that a tripartite agreement or an additional implementation contract has to be signed, which can create difficulties for proper management, control and accountability.

RDP Fund mechanism (also see Section 8: Accounting procedures for the RDP Fund)

The RDP Fund is a central account into which donor funds for government projects are paid, and from which transfer payments are made to South African implementing agencies.

The RDP Fund mechanism is used in cases where the South African Government, specifically the implementing agency responsible for the particular project, is responsible for the financial management of a donor-supported project.

The funding flow mechanism is prescribed by the RDP Fund Amendment Act, Act No.79 of 1998 (also Sections 13(1)(e) and 22(1)(c) of the PFMA Act, Act No 1 of 1999, as amended).

While this is the preferred option from a South African Government perspective, a relatively small proportion of ODA flows through the RDP Fund. The reasons for this are that technical assistance forms a large part of ODA, that certain donors do not allow this mechanism to be used, and that both donors and South African implementing agencies often perceive the mechanism to be cumbersome. It needs to be stressed that this perception is inaccurate.

In terms of Section 6 of the RDP Fund Act, as amended, the Accountant-General in the National Treasury is the accounting officer responsible for the administration of the RDP Fund. As such, the Accountant-General’s Office has to control the fund, keep a proper record of all the financial transactions, assets and liabilities of the fund, and annually prepare financial statements in accordance with generally recognised accounting principles (GRAP).

The steps to be followed in respect of funding flows via the RDP Fund, in the case of pre-payment, are as follows:

The donor deposits funds into the RDP Fund account at the South African Reserve Bank, Account No 8030-175-4.

The donor notifies the IDC (Process Manager: Denise Marais) and the programme manager in the relevant implementing agency of the deposit, clearly indicating the information required on the proforma attached as ANNEXURE A. This step is essential and should not be ignored. Very often, amounts are paid into the RDP Fund, without any information apart from an amount. This makes it extremely difficult for the IDC to track payments made. The information provided will also make it easier for transfer payments to be made without delay. If possible, a copy of the deposit slip should be attached.

Upon receipt of the notification of payment into the RDP Fund, the implementing agency’s programme manager informs the chief financial officer.

The implementing agency’s chief financial officer completes the RDP Fund requisition form attached as ANNEXURE B and submits it to the Accountant-General’s Office (for attention Director: Financial Reporting Services, National Treasury). The requisition form is the authorisation instructing the Accountant-General to make a transfer payment to the implementing agency. This step is an essential requirement to ensure proper financial control. The requisition form has to be completed in accordance with the provisions in the technical co-operation agreement governing financial management. The requisition form can be faxed to the Accountant-General, while the original document should be mailed or hand-delivered for official record-keeping purposes.

Simultaneously to steps 3 and 4, the IDC verifies the provisions in the relevant technical agreement in accordance with which the transfer payment is to be made.

The IDC forwards a letter of verification to the Accountant-General, indicating that the transfer payment can be made upon receipt of the requisition form.

The Accountant-General makes the transfer payment to the spending agency’s Paymaster-General’s (PMG) account as specified in the requisition form, with a notification to the implementing agency and the donor of the transfer payment details.

The only difference in the funding flow procedure in the case of reimbursement, is that the implementing agency uses budgeted funds for project expenditure (with the necessary approval), and subsequently claims back these expenditures from the donor in accordance with the manner prescribed in the relevant agreement. However, for cash flow purposes and to prevent unnecessary borrowing to cover these expenses, which need to be repaid with interest, reimbursement arrangements should be avoided if possible.

The entire process, from payment into the account at the Reserve Bank to the transfer payment into the implementing agency’s account should take no longer that one week at most.

However, without proper notification of payment by the donor, the process will be significantly delayed. Donors and implementing agencies are urged to ensure that the Accountant-General’s Office has all the information required to make transfer payments.

Investment of RDP Funds

An important issue relating to the management of the RDP Fund is the issue of investing these funds for purposes of accruing interest. Section 8 (1) of the RDP Amendment Act states that:

"subject to the provisions of any technical assistance agreement any money in the fund which is not required for immediate use may be invested with the Public Investment Commissioners or with a financial institution approved by the Minister"

It should be noted that the Accountant-General is compelled to deal with donor funds paid into the RDP Fund in accordance with the relevant technical co-operation agreement.

The funds will may only be invested if no provisions to the contrary appear in a technical co-operation agreement, or if payments are made into the Fund for discretionary use by the South African Government.

Donors and implementing agencies are urged to specify exactly how funding flows should occur, including the investment of funds for purposes of accruing interest, if this is allowed.

If the technical co-operation agreement does not prohibit the investment of donor funds, a default procedure will be followed, in terms of which the funds will be invested in call accounts opened with the Public Investment Commissioner until they are needed for purposes of project implementation. Interest will be accrued and separately accounted for by project or programme in the books of the RDP Fund.

It needs to be stressed that the intention is to promote sound cash flow management. At no time will funds required for timely project implementation be invested, or in any other way withheld from implementing agencies. For this reason, donors and South African implementing agencies are urged to accept the default procedure outlined below.

The only difference between the default procedure and the normal RDP Fund procedure is that the Office of the Accountant-General will instruct the South African Reserve Bank to transfer any funds not required by the implementing agency for purposes of project implementation to the Public Investment Commissioner (PIC). The funds requisition form is used as authorisation in this regard.

In summary, the procedure works as follows:
The chief financial officer of the implementing agency completes the funds requisition form in accordance with the project’s cash flow requirements.
The Accountant-General authorises the transfer of the amount requisitioned to the implementing agency’s PMG account in the normal manner.
The Accountant-General instructs the Reserve Bank to transfer the balance of the deposit to the PIC for investment purposes.
Subsequent transfer payments to the implementing agency are made as per section 6.3 (1) to (7).

Dealing with interest accrued

Interest accrued on donor funds, by means of the investment of these funds, has to be utilised in accordance with the provisions of the technical co-operation agreement.

Where no provision is made with regard to interest, formal written agreement has to be reached between the donor and the implementing agency.

In the absence of such an agreement (in the form of a letter stipulating how interest accrued should be dealt with), any interest accrued will be returned to the donor upon closure of the project or programme.

Should the interest be required the same process applies as in section 6.3 (1) to (7) above,

Dealing with unspent funds

A final issue relating to the flow of funds is how unspent amounts at the end of a financial year or upon conclusion of the project will be utilised.

Again, the relevant technical co-operation agreement is the primary reference document in this regard. It is strongly suggested that such a procedure be spelt out very clearly in the agreement.

If no such provision is made, unspent funds have to be returned to the RDP Fund at the end of each South African financial year. Such funds will be carried over to the following financial year and can again be requested.

Unless otherwise agreed in writing, unspent funds at the end of a project have to be returned to the donor.


PROCUREMENT OF GOODS AND SERVICES

The provisions in the technical co-operation agreement have to be followed.

South African tender procedures have to be followed if no procurement provisions appear in the agreement.


ACCOUNTING PROCEDURES FOR THE RDP FUND

Introduction

In terms of Section 6 of the Reconstruction and Development Programme Fund Act (Act number 7 of 1994) as amended, the Accountant-General is the accounting officer responsible for the administration of the RDP Fund.

The Office of the Accountant-General has to manage the fund, keep a proper record of all the financial transactions, assets and liabilities of the fund, and annually prepare financial statements.

While donor funds do not form part of the National Revenue Fund, the aim of these procedures is to standardise accounting procedures, code structures and/or the description of donor-supported projects in order to ensure conformity in accounting and reporting processes throughout government.

Separate Vote / Fund structures, (as described below), must be opened for RDP related projects and programmes within the accounting systems of departments.

The practice of recording and analysing donor-funded projects in separate suspense or control accounts, must be discontinued with immediate effect.

Vote/Fund Structure

One "RDP Grant Account", and "General Account of the RDP" per donor must be maintained by every Department for RDP Fund purposes, in addition to the existing accounts for normal voted funds.

Balances on the RDP Expenditure Accounts, as well as balances of the General Account of the RDP must close to the RDP Grant Account at year-end closure.

Any funds remaining at year-end closure should not be paid into the RDP Fund if such funds are subject to a technical assistance agreement that provides for the funds to be retained.

Opening journal procedures will apply in these instances.

The Director: Financial Reporting Services in the National Accounting Office: National Treasury will be responsible for maintaining the Vote / Fund code list and will assist users in obtaining new codes. This is to ensure the standardised extraction of summarised information by donor country, project and programme across national and provincial departments.

The National Treasury will be responsible for the provision and maintenance of new codes / descriptions for projects. The available code structure for Objectives / Responsibilities / Items will be under the control of departments and should be utilised to satisfy donor reporting requirements. Departments using BAS or FMS and sharing the same General ledger with one or more departments (e.g. Free State: Provincial Government) will also be responsible for maintaining the Fund Code Structure.

Accounting transactions

Scenario 1

Where RDP funds are received by the spending agency at the commencement of the project, the accounting transactions will be as follows:

System procedure for Departments using FMS

Identification of Donors (Vote/Fund)

FMS departments not sharing General Ledger

The designated Vote / Fund code list will be maintained by the FMS Project. These code structures were copied to all FMS departmental databases with a status indicator of "Deleted". The user will have the option to activate these codes, using the normal code file maintenance processes. The following functions will be available to users: DELETE, INQUIRIES and RE-INSTATE. No other changes will be allowed on this specific structure.

FMS departments sharing General Ledger

The Vote / Fund structure will be utilised for the identification of Vote / Fund codes, but is under the control of the FMS system controller. The system controller of each department must ensure that the standard descriptions are used when opening a Vote / Fund structure. The user support team will assist users in ensuring standard descriptions.

Identification of Projects

The designated Project List will be maintained by the FMS project. These code structures were copied to all FMS departmental databases with a status indicator of "Deleted". The user will have the option to activate these codes, using the normal code file maintenance processes. The following functions will be available to users: DELETE, INQUIRIES and RE-INSTATE. No other changes will be allowed on this specific structure.

Securing the use of standard codes

The Objective create program has been changed to validate when an Objective collation code is coupled to an Objective structure with a vote reference 96xx, a project code must be included. This validation implies that a project code must be instated before an Objective collation code can be created.

Budget Allocations

The FMS provides for two methods of budget allocations i.e. the Bottom-up, and Top-down methods. For the purpose of allocating budgets for the above-mentioned codes, only the Top-down method can be used.

New donors or projects for which codes do not exist should be brought to the attention of the Director: Financial Reporting Services.

System procedure for Departments using BAS

Identification of Donors

The Vote / Fund structure will be utilised for the identification of Vote / Fund codes, but is under the control of the BAS system controller. The system controller of each department must ensure that the standard descriptions are used when opening a Vote / Fund structure. The user support team will assist users in ensuring standard descriptions.

Project Codes

Objective codes will be utilised to identify projects in the BAS environment, but are under the control of the BAS system controller. The system controller of each department must ensure that the standard descriptions are used when opening an Objective structure. The User Support team (USP) will assist users in ensuring standard descriptions.

Procedures for Departments not using FMS or BAS

Identification of Donors

The designated Vote / Fund code list must be utilised for the identification of related data. The system controller of each department must ensure that the standard descriptions are used to facilitate that the electronic data downloaded to the Vulindlela warehouse is correct.

Project Codes

The designated Project List must be utilised for the identification of related data. The system controller of each department must ensure that the standard descriptions are used and must inform the Office of the Accountant-General: "Vulindlela" Division as to the relevant code structure that should be read when data is electronically submitted to the data warehouse.

Request for RDP funds

The implementing agency’s Chief Financial Officer must sign the RDP Fund requisition form attached as ANNEXURE B and submit it to the Office of the Accountant-General (for attention Director: Financial Reporting Services, National Treasury).

The requisition form is the authorisation instructing the Accountant-General to make a transfer payment to the implementing agency.

This step is an essential requirement to ensure proper financial and internal control.

The requisition form has to be completed in accordance with the provisions of the technical assistance agreement governing financial management.

The requisition form must be delivered to the Office of the Accountant-General before disbursement can be effected and no faxes will be accepted as authorisation for processing.

Financial reporting requirements

Reporting on the individual financial systems will be restricted to reporting per user department.

The data warehouse "Vulindlela" will manage the consolidated reporting by donor country or project across departments.

To enable Vulindlela to set up the mapping tables, the donor and project code lists as maintained for the FMS departments must be used as the standard.

To identify data from BAS and other financial systems mapping tables must be drawn to these specific tables.

The responsibility to ensure that data maps to the designated donor and project lists is vested in the system controllers.

Annual Financial Statements and Auditing

The requirements of the RDP Fund and the format of the financial statements will be distributed to Spending Agencies in a separate practice note.

However, the Technical Assistance Agreements may require additional reporting which must be strictly adhered to by Spending Agencies.
Implementation date

The implementation date for the above procedure is 1 April 2001.

The necessary journals must be passed in the books of the Spending Agency to ensure that the above procedures are complied with for all funds received between 1 April 2001 and 30 September 2001.

For all projects in progress as at 31 March 2001 and which were accounted for by means of suspense accounts the following should be done.

The balance of the suspense account at 1 April 2001 must be cleared by a journal.

ANNEXURE B:
RDP FUND REQUISITION SCHEDULE

TO: NATIONAL TREASURY
ATT: DIRECTOR FINANCIAL REPORTING SERVICES

PROGRAMME/PROJECT:

DEPARTMENT:

Please credit our PMG account with the amount indicated in column six below

PMG account details are as follows:

Bank: South African Reserve
Branch: Paymaster General
Account No:

4.3 Recurrent expenditure
THIS DETAIL IS REQUIRED BY THE NATIONAL TREASURY. WITHOUT THIS DETAIL, TREASURY WILL NOT AUTHORISE THE EXPENDITURE.

Describe, in detail, the plans to meet the recurrent expenditure in the coming years. This is essential for purposes of sustainability.

Give details of how the project is going to proceed in the future, particularly its implementation beyond the phase of donor involvement.

5. DEVELOPMENTAL ASPECTS
This section can be completed by answering the question, "What does this project/service mean to the community?" Provide a summary of community-based activities that will emanate from this project/service.

6. COMMUNICATION
Communication with stakeholders is essential to impart information, services and skills, while gathering and collating information relevant to the project. Detail how the communication channel will be established. These plans should include -
objectives
people responsible
line of authority
time frame
budget
support material needed

7. CROSS CUTTING PROGRAMME
In the case of cross-cutting programmes, involving more that one sector/department, provide details about initiatives to involve all stakeholders in a meaningful manner. Cross-cutting themes such as gender and the environment are also relevant.

8. PROJECT MONITORING, EVALUATION AND REPORTING
As we are using public and grant funds, we have a responsibility to ensure that we can account for the money and that we spend the money in the most efficient way. Describe the project monitoring and evaluation processes and mechanisms that will be used, and specifically how you intend to use the INDICATORS to measure project performance.

AS TIME IS A CONSTANT, WHAT IS THE CURRENT COST AGAINST TIME AND THE MILESTONES AGAINST TIME. THIS IS COMPARED TO THE CASH FLOW AND MILESTONES.

Any deviation from the stated cash flow and milestones at that period of time must be explained.

Also explain the type, format and date/frequency of reports, as well as the reporting line.

SPECIAL CONDITIONS
Where special conditions (as specified in contracts or from donors) are to be met, such conditions should be included in this business plan.


Supply the name of the evaluation officer.


Signed ______________________ Date _________


OFFICE OR DEPARTMENTAL REFERENCE
State the reference number, file number or location of any departmental information that has a bearing on the project. This ensures easy access to information if it is needed.

SUMMARY
A brief summation covering any points of importance.