PARLIAMENTARY PUBLIC HEARINGS ON DEVELOPMENT FUNDING FOR STATE INSTITUTIONS & NGOs HOSTED BY THE TRADE & INDUSTRY PORTFOLIO COMMITTEE

10 – 12 March 2002

OVERVIEW

This report is based on evidence presented by the following institutions:

 

NAME OF INSTITUTION

 

CATEGORY/ TYPE

FUNDS AVAILABLE

RDP Fund

Treasury

R4, 26 billion Invested

R3, 32 billion disbursed

R923 million remaining

International Development Cooperation Office

Treasury

30% of ODA

Fluctuates

ISIBAYA Fund

Treasury

R10, 25 Billion

National Empowerment Fund

DTI

R200 Million expected but not yet received

Donor Support

Department of Provincial & Local Government

R190 Million

Independent Development Trust

Public Entity

R812 Million

UMSOBOMVU

Public Entity

R1 Billion over 5 years

National Development Agency

Public Entity

R425 Million

NICRO

NGO

R12 Million a year

S.A. Grant Makers Agency

NGO

 

Kagiso Trust

NGO

R1,1 Billion disbursed over 17 years

Community Chest

NGO

R14 Million

TOTAL

   

 

RECOMMENDATIONS

  1. Reporting to Parliament by public entities engaged in development funding should be more systematic and coordinated.
  2. Parliament should be informed about the activities of NGOs engaged in grant making and development projects.
  3. There is a need for a national overarching vision to guide development funding.
  4. There should be greater coordination across the development sector and its agencies. Some rationalization and clarification of mandates are required. A Forum to discuss funding and spending is needed.
  5. Parliament should keep abreast of development fund allocations and their disbursements.
  6. Parliament should be informed where there are ineffective disbursements so that measures may be put in place to speed up disbursements.
  7. State sponsored development institutions should be assisted in the process of establishing infrastructure for the disbursement of funds.
  8. Since the total pool of funds seems to be large, measures should be put in place to ensure that funds are actually allocated and spent for the intended purposes. Conditions on cooperation and networking should be introduced.
  9. Parliament should examine improvements to the regulation of development fund spending.
  10. Parliament should examine inconsistencies in legislation with respect to NGO activities.
  11. Government departments should make greater use of NGO capacity to manage development projects.
  12. NGOs with a good track record should be given priority with funding and should be a core for the whole sector.
  13. A distinction should be made between funds allocated through government departments and those through NGOs, and cases of dual funding need coordination.
  14. All donor agreements with government should be tabled in Parliament.
  15. Enhancing the capacity of communities to utilise development funds must receive priority attention.

INTRODUCTION

Various Committees in Parliament are aware that there is considerable dissatisfaction about the way development funds are allocated and used across the country. There are serious allegations about under spending and of duplication of effort.

The Portfolio Committee on Trade and Industry was asked to work with other committees in the economic cluster to convene public hearings on these matters. The hearings were not of the same character as enquiries by the Committee on Public Accounts or of the Auditor General. Rather, the intention was to examine systemic and policy issues in order to ascertain whether development funds are achieving their objectives and purposes.

To this end, presentations were invited from a selection of government departments, public entities, and major NGOs, as well as the general public.

PRESENTATIONS

The following presentations were made at the hearings:

UMSOBOMVU Youth Fund (UYF).

The Umsobomvu Fund received its initial capitalisation from levy imposed on windfall gains arising from the transformation of mutual assurance companies into public listed companies in 1998. The main function of Umsobomvu is skills development, job creation, resource management and communication of information among youth who are out of school and between the ages of 18 to 35. The Government has identified youth as a target category because studies have highlighted that this group lacks skills, is exposed to few employment opportunities, lacks access to finance and information, has poor access to basic health services and constitutes a vulnerable sector of society. The presentation highlighted that there was a time lag between the announcement of the fund and the actual operation of the various programmes. The current emphasis is on the efficiency and effectiveness of spending. The UYF has estimated that it costs between R35 000 to R100 000 to train a young person.

The key programmes of the UYF include the Employment Programmes Division and the Youth Entrepreneurship Division. The Employment Programmes Division includes Information and Counselling, School to Work and Community Service programmes. The Youth Entrepreneurship Division includes the Micro, SME Finance Section and the Business Development Services Section.

The UYF works in cooperation with other donor organizations when establishing and funding projects. The UYF strives not to duplicate existing programmes or act as a fund for government programmes. Project oversight includes clearly stated measurable outcomes. In delivering services to the youth the intention of the UYF is not to build a huge bureaucracy.

The presentation outlined the broad evolution of the organization and future plans. Clear measurable targets were presented for the Counselling, Youth Service, School to Work Programmes, Finance, Business Development Support and Job creation programmes. Numerous challenges were presented including: capacity of government and NGO personnel; consensus and coordination on policy and strategy; access to information; youth participation and unrealistic expectations.

The discussions focused on refining the focus of the operations, duplications, geographical spread, youth access, role of intermediaries, cooperation and working relations with other agencies, measuring success and rural activities of the UYF.

RDP Fund

The RDP Fund is a South African Reserve Bank account created as an instrument for transferring donor funding to South African spending agencies. The transfer of funding to agencies is conducted within certain specified guidelines. It was reported that a spending agency, as defined by the RDP fund, is a government or public entity in the national, provincial or local spheres of government. It does not include civil society or private entities. Within the existing framework international donors also interact directly with civil society partners.

The primary source of funding for the RDP Fund is the international donor community. Other sources of funding include domestic grants, Parliamentary appropriations; interest accrued from RDP funds invested and proceeds from the sale of state assets earmarked for RDP projects.

Spending of RDP Funds has to be conducted as per the technical agreements between South Africa and the donor organization. The Auditor General is the accounting officer responsible for the administration of the RDP Fund. The accounting officer within specific spending agencies is responsible for the utilization of the funding. Interest accrued from the fund has to be either utilized as per the technical agreements or returned to the donor.

The discussions centred on the performance of projects sponsored by the RDP Fund, duplication of funding (i.e. agencies receiving monies from the RDP Fund and donor organisations simultaneously), enforceability of agreement regulations and reasons for under spending. It was generally felt that oversight was required and that donor funds should come with technical agreements, and these should be tabled in Parliament.

National Development Agency (NDA)

The establishment of the National Development Agency emerged out of social dialogue culminating in the NDA Act No. 108 of 1998. The NDA Act outlines the mandate of the organization including:

The approach of the organization has been to move away from the funding of individual stand-alone projects to supporting bigger ventures. The bigger projects are required to support smaller initiatives. The objective of this approach is to ensure linkages, sustainability, avoid duplication and isolation and ensure maximum impact of combined projects.

The NDA has an integrated project approach. An element of the approach is reactive where they receive applications for grants. At present the NDA receives 50 to 100 applications per week. There is also a proactive approach where they would scope problems in the various communities. The third approach is special programmes that government and donors have highlighted or were involved in.

As per government financial reporting requirements the NDA ensures reviews, audits, assessments and closure audits of all projects. There has been an improvement in the disbursement of NDA grants. The delays in concluding contracts and finalizing monitoring reports are some reasons for the slow disbursement of funds. An initial assessment of the budget highlights that the NDA has committed approximately R70, 5 million for the 2002/ 2003 period out of a planned budget of approximately R63 million. There are currently 1822 funded projects across the various provinces. As per the annual report, the NDA has approved numerous projects across various sectors. The NDA is in the process of implementing an integrated information technology system across the nine provinces so as to improve the timeframes of applications, processing and disbursement of funds. Currently an application takes 3 months to process and it is not always possible to meet the timeframes as the volume of applications is ever increasing.

The NDA has identified the following challenges:

The presentation stressed the importance of forming linkages amongst various stakeholders in combating poverty. The NDA concluded that there are many agencies operating and that there was little or no co-ordination and sharing. This frequently causes duplication and wastage of resources. In addition it was noted that government had many projects for the poor but that there was little programme or project co-ordination.

NICRO

NICRO is a national organization with an established history of working with offenders, youth, victims of crime, victim empowerment, reintegration and recidivism. NICRO has four different programs. Three of these programmes include the entrepreneurship programme, the diversion programme that is targeted at young offenders and the victim empowerment programme that is aimed at victims of crime.

The presentation outlined the varied experiences with different funding agencies. Nicro’s experience with the National Lottery was that fund disbursement was very slow and did not seem to be informed by a coherent strategy. The transformation from the Transitional National Development Trust (TNDT) to the present NDA also caused delays in disbursements. NICRO does not meet the criteria of the UYF and was not able to access funds. Even though NICRO is an established organisation, it still has problems obtaining funds. NICRO programmes are currently supported by foreign funds but still needs support from government. It took two years for NICRO to obtain funds from Khula.

The presentation discussed the critical issues facing the organisation.
NICRO took cognisance of the fact that agencies are bombarded with applications. This type of approach does not qualitatively differentiate between the many applications for funding. There has been a bilateral agreement between the South African and Dutch governments to provide funds for projects. The strategies of the funding arrangement were still being decided, causing a delay in the flow of funds. The presentation stressed that co-ordination between funding agencies was required. NICRO is also concerned that the level of service from agencies is uneven and not of a high standard. There is a big need for partnerships to develop between agencies and between agencies and projects. It was highlighted that agency-client communication needed to be improved. The hearings reported that there was a perception that government was creating a huge bureaucracy to disburse funds causing lags in the process. The presenter recommended the need for a common vision for developmental funding.

Non Profit Partnership (NPP)

The democratic changes in South Africa during the 1990s had major ramifications for NGO’s and CBO’s. Relationships between government and community organizations were being defined and redefined. Some of the challenges highlighted by the presenter included the relationship between community organizations and the state, and the withdrawal of donor organizations from South Africa. There was a realization in the country that the non-profit sector was fragmented and that some form of funding cohesion was required. To this end the TNDT was established (predecessor to the NDA).

The presenter sketched a profile of the unfolding development funds and institutions established by government. These institutions received large sums of money from government and donor organizations. The objective for establishing these organizations was to ensure efficiency in spending. The development institutions faced numerous challenges including: lack of capacity, inadequate funding, focus on investment rather than development, slow disbursement of funds, considerable administrative spending and a preoccupation with the sustainability of the organizational structures.

The presenter provided an assessment of the various development funds:

The presentation outlined several recommendations including the harmonization of development institutions within a unified framework, introduction of a tracking system linked to an accessible database, the setting of realistic and measurable targets, increasing funds to vulnerable communities, the emphasis of development funds should not be on profit generation, accountability of organizations, civil society representations, improved capacity building of community organizations and accessible information on donor funding.

Treasury: International Development Co-operation (IDC)

The IDC manages and coordinates policies and decision-making of Official Development Assistance (ODA). The IDC’s role has changed from programming to facilitation when the RDP office was closed. Transparency is a key objective when dealing with ODA. The presentation highlighted certain issues around ODA. Project agreements with donors govern the content of ODA. The IDC takes its lead from the budget as far as spending is concerned. Donors make allocation decisions according to the GDP per capita of a specific country. It was stated that this was not a very precise reflection and does not consider inequality within countries. The challenge in South Africa was that there is racially based inequality and this should be an important consideration for the continuation of aid. The continuation of donor funds and the monitoring of donor funds needed further attention.

It was stated that there is a need for pilot development, developing best practice and to strengthen government initiatives. It was reported that the IDC tries to be transparent and accessible. In closing, the presenter noted that the IDC hoped to have an ODA management system functional during the coming year. According to policy, agreements with donors should be tabled in Parliament. Donor funds have to be spent within the prescribed timeframes and under the specific guidelines of the agreements between the government and donor organizations. In clarifying the distinction between the RDP Fund and the IDC it was noted that the RDP Fund was a channel for funds whereas the IDC made policy decisions as well.

Kagiso Trust

Kagiso Trust has operated for seventeen years and managed over R1,1 billion during this period. The organization’s approach is to consult with people before disbursing funds. This approach slowed the pace of disbursement but ensured sustainability and effectiveness. The funds disbursed are used for capacity building, education development and famine relief. Women in rural areas manage most of their projects. Most of these projects are small enterprise projects were women are helped to start their own businesses. The challenge with rural funding is that many skilled people leave the rural areas to work in the cities, leaving unskilled vulnerable women and children behind.

The challenge for agencies is to precisely target the poor linked to the disbursement of resources. Poor people are mobile and experience has shown that some people are able to access assistance from various sites and sources. To avoid abuse and ensure coordination the collaboration between government and NGOs is needed. To ensure accountability it is important to measure the disbursement and spending trends of development institutions. A major concern for development institutions is the capacity of staff to manage and disburse large sums of money. It was reported that funding criteria must be made clear and sustainable NGOs must be targeted for support.

It was reported that very little networking was taking place between NGOs. Kagiso recommended that cooperation should be encouraged and be a prerequisite for receiving funding. It was suggested that government should take the lead and NGOs must support government initiatives and should avoid duplication. Kagiso Trust reported that it did not experience capacity problems in spending money. The need was huge and the role of NGOs was very important. The presentation cautioned that development organizations must spend public resources in an accountable and transparent manner.

Community Chest

It was reported that there are currently 21 Community Chests in South Africa with the Western Cape being the oldest (10 years) and the largest. The central activity of the Community Chest (Western Cape) includes fund-raising and the provision of funds to NGOs and CBOs that provide services to poor communities. In assisting NGOs and CBOs to provide valuable services to local communities the Chest capacitates community organizations. It was reported that the Chest has distributed approximately R14 million annually to 500 welfare and development projects in 10 different sectors, including social services and broader development projects. The Chest is registered as a Non Profit organization with the Department of Social Development and has recently received an 18A tax status with the Receiver of Revenue, giving it certain tax exemptions. The Chest has a staff compliment of 34 full time employees, four part time and 9020 unpaid part time volunteers. The staff complement increases depending on the scale of Chest activities. In addition, the Committees and Board members are volunteers.

It was emphasized that the Community Chest has experienced a dwindling of finances over the past few years. The declining finance was attributed to the reduction in donor financing and inconsistent corporate social investment. This has had major ramifications for the funding of NGOs and CBOs that support vulnerable communities in the Western Cape. Far too many development organizations have been established, placing an ever-increasing expectation on already declining finances. The closure of the Community Chest Scratch Card Division following the establishment of the National Lottery has contributed in large part to the declining finances of the Chest. In the light of declining finances the current objective of the Chest is to sustain existing programmes.

It was recommended that provinces and local communities should be key targets in the disbursement of funds. This would allow for provincial nuances to be taken into consideration. The Chest recommended the establishment of an accrediting grant distribution council that sets standards, monitor sustainability and outcomes and prevents duplication.

Department of Provincial and Local Government

The objective of the Local Government Transformation Programme was to produce a strategic framework for meaningful civil society participation in local government. The presenter sketched the framework of the municipal and ward structures. The challenges faced at the local ward level include the lack of capacity and weak developmental plans. Civil society was faced with numerous constraints including changing funding patterns, redefinition of roles, lack of capacity, complicated administration of funds and processing procedures. The weak level of national and provincial coordination between and among civil society organisations and networks was also noted. The framework aimed at increasing the number of NGOs and CBOs involved in the planning/policy processes and service delivery of municipalities. The presenter reported that the department's role was to facilitate effective NGO and CBO participation at a local level and to develop a coordinating mechanism for donors to capacitate civil society to participate in the ward committee system.

Public Investment Commission (PIC): ISIBAYA Fund

It was reported that the ISIBAYA Fund is not a development agency but acts as an investment manager in terms of the Public Investment Commission Act. The Public Investment Commission (PIC) manages funds such as the Government Employees Pension Fund. Investments have traditionally been made in listed securities and are not developmental in nature. In addition to the above investments the Fund has also been mandated to invest in socially related projects that have an impact and strengthen Black Economic Empowerment. The ISIBAYA Fund was created to house the above investments. The PIC utilizes up to 3,5% of the assets for ISIBAYA Fund Investments. All ISIBAYA investments are subject to a viability test with an expected real return of 10%. It was reported that the main ISIBAYA investments to date included the N3 Toll Road, N4 Bakwena Toll Road and the Phamine Tin Mine. Other investments are under consideration, but these would not bring the total to more than 10% of the potential available.


In defending the slow investment of the fund, the presenter noted that only existing firms could access funds. Start-up ventures are not included in the fund's mandate. A positive step would be the planned collaboration with other agencies (IDC, NEF etc).

Independent Development Trust (IDT)

The IDT was established in 1989 by the previous government to disperse funds for projects in disadvantaged communities. The IDT is not an NGO but a Schedule 2 entity (public enterprise) responsible to the Minister of Public Works. The IDT’s role has now changed from a fund dispenser to a manager of development projects for government departments. The core business of the IDT includes development programme management, leveraging resources and institutional capacity building.

Implementation of programmes is focused in rural areas and 99.9% are government-funded programmes. In 2001, the IDT was mandated to assist the government in managing the integrated rural development strategy so as to empower poor communities. Programme management remains the core function of the IDT.

It was felt by the presenter that there remains a challenge with regard to capacity including absorptive capacity and that some agencies have not yet reached an efficiency level to manage financial portfolios. The lack of co-ordination between agencies causes delivery constraints. Another challenge for IDT is working with organizations that have either restricted mandates or others that were crosscutting. Co-ordination was further hampered by the communication between the end-users and the agencies. It was reported that legislation would not clarify the situation, as a practical effort was needed to integrate the agencies.

The presenter outlined numerous challenges experienced by the IDT in the implementation of government programmes. In accordance with its mandate, the Auditor General oversaw the finances of the IDT and its programmes. There was no legislative control of funds or the manner in which it was spent except where there was a set criterion. Development planning should be based on the long-term output. With regard to late engagement, experience has shown that consultation from government is sometimes poorly planned. It is a further challenge to coordinate various external agencies during a particular project.

Rollover funds were spent in the following year and therefore included in the budgets. This formed part of the contractual needs of project management. There remained a need to include relationship building within the planning stage. There are also significant pre-implementation planning costs. Rollovers were hampered by late commitment on the part of all stakeholders and large programmes involve more technical planning. Capacity was identified as a serious challenge to project implementation.

National Empowerment Fund (NEF)

The NEF Act (Act No 105) provided for the establishment of the Fund in 1998. The vision of the NEF is to be the "Leading provider of innovative finance and investment solutions for an inclusive economy". There are three main components to the NEF structure namely Private Equity, Venture Capital and Investment Services.

The Venture Capital programme was established in 2002 and provides start up and expansion capital. The Private Equity component finances economic empowerment and black business development. The Investment Services section promotes savings and investments by offering mass empowerment schemes backed by targeted programmes of investor education. The NEF has not, however, been substantially capitalised and has largely been working on proposals for activities once a capital injection is received. The presentation outlined possible projections of investments in the various sectors. Some of the challenges highlighted by the presentation include poor delivery, staff turnover, capacity of NEF staff, and quality of applications. The slow capitalization of the Fund was, however identified as the main constraint. The presenter also indicated that value of the shares potentially entrusted the NEF from projected restructuring of state owned had shrunk to an estimated R2.1 billion compared to the R4,1 billion initially expected. These figures were estimations as no proper valuation has been conducted.

CONCLUSIONS

From the hearings it can be concluded that substantial funds are available for development work from government and foreign donors. There is also a universal recognition of the massive need for poverty alleviation and job creation. However the flow of funds is not always smooth and there is a general lack of a common vision and coordination.

More specifically our conclusions are:

  1. The hearings revealed that a great deal of development activity is taking place in South Africa. Government departments, public entities and NGOs carry out this activity.
  2. However development lacks a common overall vision and coordination (a) within government, (b) between government and public entities, (c) between these and the NGOs, and, (d) within the NGO sector. Foreign donors should be encouraged to align with national perspectives on development.
  3. Despite the government’s developmental objectives, the provision of funding, though substantial, appears to be uncoordinated. The creation of new development institutions take a long time, policy is not focused, support is deficient, and outcomes are not monitored sufficiently. The result is unnecessary uncertainty, erratic performance, and some ineffectiveness. Much of the funding designated is not actually spent. The NGO sector is generally starved of funding and this weakens its sustainability.
  4. Public entities such as the IDT, which actually assist departments in their development work, are not used adequately. Umsobomvu seems to be working across a very wide spectrum and may not be adequately focussed.
  5. There appears to be a capacity shortage across the country to do development work and a coordinated effort is required by the state and NGO sector to overcome this urgently. At the same time there are many skilled people in communities whose services are not being used. A training programme for development cadres is needed.
  6. The capacity to actually use funds effectively appears to be uneven. Some institutions with strong capacity, such as NICRO, are desperately seeking additional funding while others have difficulty disbursing.
  7. The NGOs with a proven track record of delivery complain that they are not used sufficiently and that new institutions are created unnecessarily, resulting in a proliferation of grant making institutions.
  8. There appears to be a need for regulation and use of development funding for NGOs without, however, constraining their work.
  9. The flow of funds provided by government and by donors need some coordination so that the total funding environment is known.
  10. Donor funds to government are off–budget which may present tracking, monitoring and accounting difficulties.
  11. The RDP Fund is monitored by the Accountant General whose reports to Parliament are too superficial.
  12. Constant vigilance is required to ensure that development institutions maintain a healthy balance between administration costs and project spending, and that there is value for money.
  13. In some instances, government takes too long to provide funding, which has been allocated.
  14. There is a case for grant-making institutions such as the NDA to be more pro-active in identifying development programmes rather than serve as receptacles for applicants.
  15. It appears that foreign donors often have better relations with NGOs than some domestic funding agencies.
  16. NGOs seek representation on public entities and grant making institutions.
  17. Recipient organizations must have a demonstrable capacity to use funds properly and outcomes must be measurable.
  18. Greater clarity is required on government’s perspectives on Black Economic Empowerment to guide the special agencies set up for this sector.
  19. The condition of 10% real return on investment by Black business is a disincentive and should be reviewed.

Report to be considered.