A Question of Capacity and Funding: The Role of Local Economic Development Agencies in South Africa’s Development Landscape

Local economic development (LED) in South Africa is plagued by many institutional and market-related failures that undermine local economies. The institutional failures are attributed to capacity and planning challenges within local government, whereas the market failures are attributed to a lack of market information that causes financial risk aversion at the local government level. These failures have invariably contributed to the LED funding challenge that faces local government-led development. Against this backdrop, Local Economic Development Agencies (LEDAs) were established as subnational economic development institutions with the task of making LED work. An important task for LEDAs is to financially support local development and emerging local enterprises. This article interrogates the capacity of LEDAs to address the LED funding challenge through the case studies of three LEDAs in South Africa. The article finds that LEDAs do not have the necessary financial power to support local development because of their internal funding challenges and lack of financial sustainability model. Further to this, LEDAs remain dependent on parent municipalities as they fail to source development finance outside government structures. The national and provincial government need to develop a new financial sustainability model for LEDAs and a proactive funding strategy for local enterprises.