LOCAL economic development is failing in nonmetropolitan areas because of lack of co-operation between the private sector and municipalities, according to a study released by the Centre for Development and Enterprise yesterday.

One of the main tasks of the new local government system is for local authorities to develop their economies, create jobs and alleviate poverty. Although acknowledging that the findings were generalised, the centre's executive director, Ann Bernstein, said there "seems" to be a problem with local economic development .

The study was based on a discussion attended by politicians, government officials, experts and private-sector participants.

Bernstein said the private sector was crucial to economic development within SA's 284 municipalities, but its potential contribution was being undermined by "suspicious officials with an ambivalent attitude" towards private enterprise.

"This is potentially disastrous, as (about) 80% of economic development within South African municipalities depends on the private sector," she said.

The chairman of the parliamentary portfolio committee on local government, Yunus Carrim, said the notion that municipal officials were suspicious of the private sector was "just not on".

One of the main objectives of the Local Government: Municipal Finance Management Bill was to improve the ability of municipalities to draw private sector investment . The recent growth and development summit also dealt with aspects of local economic development, he said.

If the centre had looked at the provisions of the Municipal Systems Act and the Municipal Finance Management Bill, it would have noticed that there was a strong effort by government to secure private sector investment in local economic development, he said. Such investment had to benefit communities and advance the common good while also providing space for profit.

"It is true that we need to do more to make sure that the system works. But local government cannot do it alone. Local economic development has to be integrated into provincial and national government programmes."

The problem was that the centre did not see the transformation of local government as a midterm project, he said. There was a need to finalise the new local government finance system in the form of the Property Rates Bill, among other things.

"We need a new system of local government finance to grow with that and it is starting to take shape. Once it is finalised, municipalities will be in a better position as far as their credit worthiness is concerned," said Carrim.