While responsibility for capital spending is shared across all government spheres in South Africa, spending by local government on socio-economic infrastructure is seen as crucial for addressing the apartheid legacy and for boosting economic growth.

Municipalities currently account for about 40% of total public infrastructure spending, a share that is likely to grow. However, municipalities are not managing their infrastructure budgets effectively and are under-spending on asset renewals and maintenance. The Financial and Fiscal Commission examined the effects of municipal capital expenditures on growth. The study found that, despite inefficient use and allocation of resources, municipal spending can enhance economic growth.

In particular, increasing capital spending on water and sanitation and electricity has a positive impact on growth, whereas spending on housing and road infrastructure has a negative impact.

The Commission recommends that the government prioritise investments in infrastructure that will enhance growth and improve municipal management of infrastructure asset management and provision through incentive grants and technical assistance.

Report by the Financial and Fiscal Commission