Development Cooperation South Africa UCLG CIB Working Group

Development Cooperation South Africa UCLG CIB Working Group , Durban Presenter: Seema Naran | International Development Cooperation, National Treasury | 27 September 2017

Contents • • Official Development Cooperation – ODA Development Partners in South Africa ODA flows through public sector Concessional Loans to South Africa National Treasury role in ODA Management Considerations for municipalities Discussion 2

Official Development Cooperation (ODA) OECD DAC defines official flows as Official Development Assistance (ODA) if i. it is provided by official agencies or by their executing agencies; ii. the transaction is administered with the promotion of economic development and welfare of developing countries as its main objective; iii. the transaction is concessional in character and conveys a grant element of at least 25%. This definition is currently being undergoing a redefinition process that will culminate in a new definition in 2018. Implications for a UMIC where the grant element might be reduced to 10%. In South Africa, aligned to Policy on development Cooperation: ODA to be used strategically 3

Official Development Assistance (ODA) How is ODA used officially in SA: to support effective implementation of Go. SA policies through: Innovation Piloting • developing new and more effective approaches • pioneering new approaches for replication purposes Risk Mitigation • Creating an enabling environment thereby attracting investment Skills transfer & capacity building • ensuring that South African institutional capacity is enhanced for sustained, long term implementation Catalytic initiatives & Best-Practices • unlocking or leveraging domestic resources. ODA never a ‘gap filler’ in replacing/ supplementing SA funding arrangements 4

Development Partners in South Africa • • • USA EU France Global Fund Germany Switzerland • • • United Kingdom Netherlands Belgium and Flanders Japan Canada China 5

ODA flows through the Public Sector What do we know? 6

RDP Grant flows FY 2012/13 7

Concessional Loans to SA (2000 -2010) 8

Concessional Loans to SA (2000 -2010) concessionality per sector 9

Strengths and weaknesses of IDFIs in SA Strengths • Longer tenure • Longer grace period • Less risk averse • Stricter monitoring • Sector expertise • Comfort to other lenders Weaknesses • Foreign currency & costs of swap • Conflicting procurement rules • Restrictive covenants/ risks of default • Time consuming reporting • Lack of institutional memory 10

ODA Concessionary Financing – role players IDFIs from bilateral institutions • European Investment Bank (EIB), • Kreditanstalt für Wiederaufbau (German Development Bank – Kf. W) • L 'Agence Française de Développement (French Development Bank – AFD) • Japan - Bank for International Cooperation (JBIC) • Japan International Cooperation Agency (JICA) • Local DFIs – DBSA, Land Bank, IDC, SEFA 11

ODA Concessionary Financing – role players Others • Commercial banks • End borrowers – SOEs, municipalities, private sector • Oversight institutions – Sector Departments – National Treasury – Reserve Bank • Rating Agencies 12

National Treasury - role in the ODA Framework • Engagement with Development Partners – Bilateral Agreements, CSPs, Financing/ Project agreements, priority areas, coordination (with DFIs, NT, sector departments, SA DFIs/ SOEs) • Programming • Accountability to the Development Partners – compliance • Governance of ODA programmes • Internal NT coordination – PF – sector coordination, and priority alignment – ALM – SOEs, DFIs – OAG (MFMA) – Municipalities – IGR – Municipalities 13

NT - role in the ODA Framework (cont. ) • Line Department consultation and coordination – SOE capacity and alignment to development priorities, NDP, policy • Compliance with legislation – MFMA, PFMA, issues of local content, procurement, legal recourse • Development effectiveness agenda – engagements on – – • goods/ technology & services (Tied-ness) agreement under SA law, procurement, processes (use of country systems) ODA compliance of concessionality – 25% (10%) grant element and discounted rate – grace period, tenure of loan, technical assistance, transactional advisors, M&E • Budget Reform – long term infrastructure programming, strategic use of fiscus grants/ conditional grants 14

Considerations for Municipalities It is expected that non-grant official flows, and particularly concessionary IDFI loans will play an increasing role in South Africa. Considerations could include Requirements, needs – financing requirements - South Africa’s infrastructure development strategy – long term financing needs of municipalities Governance – capacity constraints in the public sector and how these can be addressed by ODA and the limited fiscus funds – management and governance of development programmes – compliance with legislation and policy – Constitution and MFMA, procurement, supply-chain, localisation 15

Considerations for Municipalities (cont. ) Opportunities concessional lending – finance pro-poor growth – other developmental projects – address market failures – share risk in leveraging private finance private sector – importance of ODA (i. DFI) to facilitate crowding-in of the private sector – Expertise, knowledge, service provision strategic use – grant funding alongside concessionary finance – how and what it is used for along the project cycle – blending mechanism, to leverage project financing – Additionality of ODA/ development partners 16

Questions & Discussion Seema Naran Director: Economic and Infrastructure Sectors International Development Cooperation National Treasury Tel: +27 12 3956728 Email: seema. naran@treasury. gov. za 17