Financing Challenges for Water and Sanitation Services: The Case of South Africa's Local Governments and Municipalities

Abstract

The paper is the third and final document which was prepared for the finance syndicate team at the joint gathering (indaba) of local government leaders and water experts. It addresses the financial issues of water and sanitation service provision in South Africa. Access to finance is an essential part of local capacity building to develop and manage water services in a sustainable way. Funding flows should double to meet the MDGs and financing institutions should adjust their instruments to enhance the supply of finance for the sub-sovereign level as recommended in the report of the Panel on Financing Water Infrastructure under the chairmanship of Michel Camdessus in 2003. ODA and government allocations have not been sufficient. Furthermore, the importance of rural and urban local governments is growing because of decentralization and constitutional imperatives. The bulk of the finance originates from contribution of users of the services and taxpayers. However, the main obstacle in increasing the financial flows is the local capacity. In this paper we attempt to document the demand side of the local actors and the development of proper water service action plans to enhance access to finance for local governments. We have posted it in social science research network so that researchers in other developing environments can benefit from South Africa's experience.