Reforming vertical programmes: the case of South African local government

The chapter characterizes the periods of reform to the intergovernmental fiscal system in South Africa, highlighting the connection between the design of the transfer system and the nature of the development challenges facing municipalities. It reviews efforts to differentiate the approach to intergovernmental transfers and argues that grants have seldom been reformed for their own sake, reforms have not been linear, and the quality of grant design and management has often undermined reform efforts. Moreover, reforms have failed to address the core issues of weak capacity or national developmental priorities effectively. Reform efforts have, however, created scope for some innovation in performance-based transfers that may be strengthened by the current focus of national government on fiscal consolidation. It identifies cross-cutting issues for future reform efforts, including addressing coordination failures, strengthening municipal capacity and accountability, clarifying the role of incentives, and exploring the relationship between project finance and fiscal transfers.