6. Rural Infrastructure Development and Affordability

6.1 Meeting the Backlog In Infrastructure

The backlog in infrastructure in South Africa is immense. Meeting this backlog requires large capital inputs from government, business and users; institutional development, training and technology development. More cost effective alternatives must be found in rural areas where bulk services are costly. There are strong economic arguments for building infrastructure that supports productive enterprise, and equally strong ethical arguments based on historical omission.

However, the need for fiscal discipline invariably limits the extent to which backlogs can be met in the short term. The RDP and various sector White Papers show a strong commitment to equalising investments in infrastructure across urban and rural areas. However, urban backlogs are also severe.

Rural Councils will therefore need to show that they are maximising the strategic impact of public sector investment, and that the private sector has been geared optimally.

6.2 Affordability

Governments generally try to borrow for capital investment, and to tax and charge user fees to cover recurrent spending. However, few local authorities and no rural towns have been able to borrow on capital markets. Metropolitan areas can more easily show that infrastructure development will lead to increased productivity, and can therefore recover costs through user charges or future taxes. These possibilities are fairly marginal in most rural areas, since they receive little income from their dispersed and generally poorer inhabitants. At the same time, infrastructure development is often more costly in rural areas.

Rural communities therefore have to argue for more provincial and national assistance for infrastructural development, on the grounds of equity, historical disadvantage and needs. However, intergovernmental grants will only be provided if there is assurance that the local authority has considered the affordability of the service to the local population. There is no point, for instance, in providing central governmental funding for a water system when the recipients of the water will not be able to cover the costs of water charges. Affordability must be always be considered in the development of infrastructure and services.

Rural local government is thus faced with difficult choices in a difficult economic environment. There will be tight budget constraints; national and provincial departments will require strong fiscal discipline; and the rural population will not be able to pay high user charges. Yet the needs are great. It is inevitable that in these conditions, poverty will limit the level and type of services that can be developed in most rural areas, at least in the short run. Rural councils must, therefore, seek to provide basic services to as many people as possible rather than high quality services to only a few people. Rural people must put great pressure on their councils to make sure this is happening. It is because infrastructure decisions can so easily be biased to providing better services to some at the cost of some services for all, that it is important that these decisions be made at the level of government closest to the people.

TABLE D

Education, household size and average monthly income in the best and worst serviced households in rural areas.
Variables	Group A (Have best housing and services)	Group B (Relatively good living conditions)	Group C (Relatively poor living conditions)	Group D (Shacks and very poor services)
Average Monthly Income	R3,026.47	R1,045.11	R741.81	R594.01
Average Household Size	1.97	4.15	5.59	6.77
Adult Illiteracy	22%	33%	40%	51%
Children between 1-12 years not in school	38%	46%	51%	56%
HOUSEHOLD SAMPLE SIZE	481 (11.0%)	944 (21.6%)	1,994 (45,6%)	945 (21,6%)

Source: May et al, Composition and Persistence of Poverty in Rural South Africa, LAPC, Johannesburg, 1995

Affordability must thus be evaluated at the macro or national level, at the level of local government, and of the household. At the national level, too much investment will lead to inflation. The national government therefore requires mechanisms to manage the economy, and also to ensure affordable foreign borrowing. Central government must therefore set limits on overall investment. At local government level, affordability will depend on access to loans, on government support through revenue sharing, and on household ability to contribute through levies, taxes and user charges. At the household level, affordability can be affected by the level of poverty, the level of taxes such as VAT, and by subsidies such as the housing subsidy.

The main influences on affordability are the timing of repayments, the level of service and the cost of programmes. The shorter the repayment period of a loan taken to build infrastructure, the higher the annual repayments. The level of service influences capital and running costs. It is essential that the recurrent costs of services, including the costs of loans, be considered by communities when considering the choice of technology.

6.3 Spatial and Other Issues

The patterns of settlement in rural areas lack agro-ecological and socioeconomic logic. Settlement is often far from job opportunities or services. It is often entirely unrelated to major commercial and public transport routes. In some areas population densities are very high; in others settlement is very scattered. In some areas political patronage leads to further distortion in residential patterns and service provision. Settlement patterns were generally unaffected by the wider economy of Southern Africa because of limited interaction across our borders, though this has changed radically over the past few years, e.g. in areas contiguous to Mozambique.

Spatial integration will have to be created in planning at local and provincial level, and there will have to be coordination of efforts to reduce service and infrastructure costs while improving access. Public investment decisions at district and provincial level will greatly affect local communities. It is therefore critical that local councils maintain close links with provincial planning bodies. There must be a physical mesh between the locational decisions being made by local, district and provincial bodies, and the local level must insist on a say in this.

6.4 The RDP's Rural Infrastructure Investment Framework

The Rural Infrastructure Investment Framework 10 (RIIF) is a component of the integrated infrastructure investment plan being developed by the RDP Office. It is at a preliminary stage in mid-1995, so the estimated data must be viewed in the following context:

• Financing policy, for rural infrastructure investment remains tentative. While recent decisions on the future role of DBSA as a financing source for infrastructure development has brought greater clarity, further work needs to be done.
• A better understanding of urban-rural demographics is crucial to the ability to undertake financial analysis of rural infrastructure investment with confidence.
• The costs of rural infrastructure estimated to date are tentative only.

The current rural infrastructure deficit for water, sanitation, transport (roads), electricity, health (clinics), and education (schools) is described in Table E below. The table suggests that some 65 per cent of the rural population do not have access to adequate water supply, and 95 per cent have inadequate sanitation facilities. Moreover, there is a current backlog of 151 clinics, almost 30,000 classrooms and approximately 100,000 km of rural roads. While it is difficult to develop an accurate provincial perspective of infrastructure deficits, the overriding perception is that the communities with the poorest access to infrastructure are in the Northern Province, Eastern Cape, and KwaZulu Natal.

Capital cost envelope

Based on the estimated backlogs, capital costs of infrastructure provision for rural areas have been calculated. The cost envelope relating to the provision of a basic level of service for all rural households, within a ten year time period, is given in Table F below 11. The figures show that the capital costs for a basic service level, full coverage programme range from R26.8 to R63.2 billion, The capital costs for a partial coverage programme (table not shown), probably more realistic within a 10-year time frame, range from R18.2 to R40.5 billion. The partial coverage programme assumes lower coverage levels for water (85%), roads (43%) and electricity (50% grid, 10% RAPS) than the full coverage programme.

TABLE E

Note: The household estimates are based on a high rural population estimate (ie. 21.3 million), which derives from the National Electrification Forum database.

* The roads under consideration are predominantly Level 4 Roads, ie. roads that link a community to the public road network usually by direct entry onto a tertiary road but sometimes onto a secondary road.

Financial Framework

There are a number of key policy issues that are likely to inform the financial framework for investment in rural infrastructure. First, the state must decide whether to opt for a basic needs or an economic growth approach to service provision. In other words, should resources be directed to communities who am presently least served or to stimulate development in those settlements with the strongest economies? Alternatively, the approach could be neutral such that all households receive equal support, regardless of where they are settled. Second, resource constraints need to be considered. The current need for services in rural areas, defined by the number of people without access, is double that of urban areas. The need for state assistance for bulk and connector services is also likely to be greater than for urban areas.

Third, agreement must be reached on whether to emphasise sector, district, or consumer driven service provision. Sector agencies, including national, provincial and local government departments and utilities, may assume responsibility for the provision of services. Where capacity exists, however, local authorities may fulfil these functions, putting infrastructure development firmly in the hands of local decision makers.

Alternatively, consumers may drive the service delivery process if -they have access to an end-user capital subsidy such as the housing subsidy and the Settlement Subsidy proposed for the land reform programme. These options are not necessarily mutually exclusive, and there is the potential to put forward an option that adopts elements of each.

TABLE F

Source: RDP: Rural Infrastructure Investment Framework, Phase 1 study

Notes: