The establishment and operation of LEDAs in South Africa are guided by the legislative framework outlined in the Constitution of South Africa, which mandates local governments to promote social and economic development (Republic of South Africa 1996). This developmental vision is further reinforced by the White Paper on Local Government (1998), which introduces the concept of developmental local government (Republic of South Africa 1998).

To operationalise the mandates, the local government’s key legislation, such as the Municipal Systems Act (2000) and the Municipal Finance Management Act (2003), provides mechanisms for municipalities to plan, implement and manage LED initiatives through Integrated Development Plans (IDPs) and financially sound governance (Republic of South Africa 2000, 2003). These Acts allow for the creation of LEDAs as municipal entities to implement development projects with a degree of autonomy and flexibility.

National LED policy frameworks have further shaped the role of LEDAs. The initial National Framework for LED (2006–2011) emphasised leveraging local assets and partnerships for inclusive growth (DPLG 2006). Subsequent frameworks, including the 2013–2018 and 2018–2028 versions, introduced a dual focus on pro-poor and pro-growth strategies, and more recently, stressed the role of innovation systems and urban-rural linkages in driving local economic development (CoGTA 2013, 2018b). Despite this enabling policy environment, LEDAs still face several challenges.

The Eastern Cape province of South Africa remains one of the country’s most economically disadvantaged regions, marked by high levels of poverty, unemployment and underdeveloped infrastructure (Statistics South Africa 2023). Recent data show that the province has the highest official unemployment rate of 42.4%, compared to the national average of 32.9%. An alarming 66.5% of young people (aged 15–34 years) are unemployed (QLFS Q1:2024). Approximately 72.9% of the province’s population lives below the upper-bound poverty line (R1335 per person per month), the second-highest rate nationally (Stats SA 2023). These socio-economic challenges have persisted despite numerous efforts to stimulate sustainable economic growth and improve livelihoods. In response, eight local LEDAs have been established – one in each municipality – to spearhead LED initiatives. A key objective of these agencies is to address the province’s urgent development challenges, including the enhancement of local value chains by strengthening structures mandated to drive economic development (Eastern Cape Department of Rural Development and Agrarian Reform 2018). The role of LEDAs is particularly critical in resource-constrained contexts such as the Eastern Cape (Khambule 2018b). Consequently, there is a growing need to examine how these agencies can effectively contribute to sustainable economic development (COGTA 2018a).

This study’s conceptual framework is shaped by the need to understand three interrelated issues critical to the functioning of LEDAs as outlined by Annosi et al. (2022).

Firstly, agentic powers refer to the ability of LEDAs to exercise discretion and leadership within the constraints of governance systems. As institutional mechanisms for implementing local economic strategies, LEDAs require strong governance, financial accountability, and alignment with national and municipal policies (World Bank 2020). Their agentic role is crucial in promoting investment, driving economic transformation, and facilitating growth within municipal and provincial structures (United Nations 2019).

Secondly, organisational structure significantly influences LEDA performance. Effective public financial management is vital to ensure fiscal discipline, transparency and performance-based budgeting (OECD 2021). Structural reforms are necessary to address financial inefficiencies, corruption and misallocation of resources (Kusek & Rist 2020). The World Bank (2020) outlines six pillars of effective public financial management: (1) budgeting and resource allocation; (2) public expenditure management; (3) financial accountability and reporting; (4) auditing and oversight; (5) revenue management and (6) performance-based financial systems. For LEDAs, attention to financial governance, expenditure controls and accountability mechanisms is crucial in achieving developmental objectives (AGSA 2023).

Thirdly, the dynamic interplay between micro- and macro-environmental factors affects LEDA operations (Chigori, Chinyamurindi & Rungani 2024). Performance indicators are central to understanding this interplay and to fostering local economic transformation (United Nations 2019). A focus on co-creating value is essential for entities tasked with poverty alleviation (Mathibe, Chinyamurindi & Hove-Sibanda 2023). Moreover, sound strategic planning is necessary to address the unpredictability of local operating environments (Chinyamurindi, Mathibe & Hove-Sibanda 2023).

The study is grounded in two complementary theories: Governance theory and RBME. Governance theory (Rhodes 1996) explores how power, decision-making and resource allocation influence institutional performance. It emphasises decentralisation, transparency and stakeholder participation as pillars of effective governance (ed. Bevir 2011).

In the context of LEDAs, governance theory helps explain how partnerships among municipalities, businesses and communities can be leveraged to address socio-economic challenges (Khambule 2018b). However, weak governance undermines service delivery and restricts the agencies’ ability to achieve developmental outcomes (Lawrence & Rogerson 2019). Applying governance theory thus supports the design of accountable and responsive LEDAs.

The second theoretical consideration is the RBME theory (Kusek & Rist 2004). The RBME theory focuses on measuring results through outputs, outcomes and their impacts rather than merely tracking activities. This effort results in measurement that promotes performance measurement, accountability and evidence-informed decision-making (UNDP 2019). The RBME framework rests on six components: (1) clear goal setting; (2) prioritising performance indicators; (3) robust data collection; (4) effective reporting; (5) continuous evaluation and (6) active stakeholder participation (World Bank 2010).

Applying these two theories potentially allows LEDAs to track their performance in job creation, economic growth and investment promotion, while also identifying the areas of financial and governance inefficiency (Kusek & Rist 2020).

The following empirical studies illuminate the interaction between agentic powers, structural factors and the micro-macro environmental dynamics that shape LEDA performance in the Eastern Cape.

Ngumbela (2023) examined LEDAs’ role in poverty alleviation and found that while LEDAs are mandated to drive development projects, their agentic powers are often restricted by structural limitations, namely inadequate financial and human resources. Historical underdevelopment and weak municipal revenue bases further constrain their capacity to implement and sustain projects. Similarly, Hendricks and Fraser (2003) explored agricultural development challenges and identified structural inefficiencies in local governance. They found that misalignment between national policies and local implementation created fragmentation in service delivery and resource allocation. Their findings underscore the need for integrated planning and structural coherence to strengthen LEDAs.

Marais (2011) investigated the role of partnerships in LED in the Eastern Cape. His findings indicate that political interference and limited community engagement severely hinder project sustainability. Local economic development initiatives often reflect political priorities rather than community needs, resulting in poor alignment and ineffective implementation. This highlights the importance of participatory planning and empowered local governance.

Edoun, Rameetse and Pooe (2023) examined capacity-building as a driver of local governance performance. They argued that improving human capital through training, skills development and resource provision is essential for enhancing structural capacity. Accountability mechanisms such as audits and transparent reporting were also emphasised as enablers of good governance. Merino and De los Ríos Carmenado (2012) further assert that capacity-building enhances not only organisational effectiveness but also community trust. Drawing on Potter and Brough’s (2004) Capacity Pyramid Model, the authors advocate for prioritising competency assessments and skills training to empower LEDA personnel.

Together, the presented literature highlights the multifaceted challenges faced by LEDAs in the Eastern Cape. Ngumbela (2023) and Hendricks and Fraser (2003) demonstrate how structural constraints limit agentic capacity. Marais (2011) reveals the effects of weak community engagement and political interference, while Edoun et al. (2023) stress the importance of capacity-building and structural reform. These findings suggest that improving LEDA effectiveness requires a holistic approach – strengthening agentic powers, restructuring governance frameworks and fostering meaningful community partnerships.

Guided by the literature, the study poses the following research question: Informed by the findings of the 2023 Auditor-General’s Report, how do agentic powers (of LEDA executives and middle managers), internal governance structures, and the interaction between agency operations and municipal/provincial policy environments affect LEDA performance?

By addressing this question, the study aims to contribute to ongoing efforts to strengthen LED, particularly in economically disadvantaged regions such as the Eastern Cape. This seeks to enhance understanding of the systemic challenges and opportunities confronting LEDAs, ultimately supporting the development of more effective, accountable and responsive institutions capable of fulfilling their socio-economic mandates. This study aims to inform policy and practice on how LEDAs can more effectively contribute to LED in resource-constrained contexts.

As the study relied on secondary data collection, ethical clearance was sought and obtained through the participating university of Fort Hare. This was formally declared during the ethics application process. Approval was granted by the Inter-Faculty Human Research Ethics Committee at the University of Fort Hare (CHI001-24), which endorsed the project’s ethical compliance, including Phase 1 of the study – an analysis of the 2023 Auditor-General’s Report on LEDAs operating within the Eastern Cape province of South Africa.

The analysis revealed consistent concerns regarding weak oversight linked to agentic issues within the LEDAs. Across the eight cases, the lack or ineffective exercise of agentic powers – particularly in areas of financial governance and supply chain management (SCM) – was found to undermine the operational and developmental performance of the agencies. A recurring agentic functionary implicated in these findings was the SCM portfolio, which was frequently associated with non-compliance, irregular expenditure and poor financial oversight. In several instances, LEDAs failed to enforce procurement regulations and internal controls, thereby compromising financial accountability.

For example, in the Alfred Nzo Development Agency (ANDA):

The absence of a timely investigation into such irregularities raises concerns about weak financial oversight and the erosion of institutional accountability mechanisms.

Similarly, in the Buffalo City Metropolitan Development Agency (BCMDA):

Likewise, the Ntinga OR Tambo Development Agency (NTINGA) was cited for:

These examples point to a systemic pattern of procurement-related non-compliance across the agencies. Additionally, fruitless and wasteful expenditure further illustrated the extent of oversight failure.

For instance, the Auditor-General reported that NTINGA incurred:

Another development agency in ANDA reported:

Such expenditures suggest not only financial mismanagement but also a failure to implement remedial actions, thus reflecting deeper structural and agentic deficiencies. These findings collectively illustrate how ineffective exercise of agentic authority, particularly within key governance portfolios like SCM, undermines the credibility and functionality of LEDAs. Persistent irregularities and unresolved audit findings point to broader systemic governance failures that challenge the agencies’ ability to fulfil their mandates. Table 2 outlines additional examples across the remaining LEDAs that reflect similar oversight concerns associated with agentic issues.

The next thematic strand as a finding from the study gives focus on the lacklustre structures in LEDAs and their failure to respond to the challenges that are faced within the local economies of the Eastern Cape. These issues receive attention next.

The second emerging theme highlights the structural and operational inefficiencies within LEDAs, which significantly hinder their ability to execute their developmental mandates. The analysis points to widespread issues related to organisational capacity, financial management and internal compliance systems, all of which compromise the agencies’ performance and responsiveness.

A clear example of these structural shortcomings is seen in the Amathole Economic Development Agency (ASPIRE). The Auditor-General issued a qualified audit opinion, noting:

This finding by the Auditor-General reflects a fundamental failure in meeting core financial reporting standards, suggesting deeper structural challenges in financial oversight and compliance. Similar deficiencies were observed in the Chris Hani Development Agency (CHDA). The Auditor-General reported:

This finding by the Auditor-General points to critical gaps in the CHDA’s internal accounting processes and financial capacity, with implications for accurate reporting and fiscal control. In the Mandela Bay Development Agency (MBDA), structural weaknesses were evident in the procurement system. The Auditor-General flagged:

Such violations of procurement procedures (as evident in the CHDA and MBDA) highlight entrenched dysfunctions in internal control mechanisms and a failure to comply with basic legal and regulatory standards. Further, these examples appear to also demonstrate that poorly structured internal systems, lack of compliance enforcement and weak institutional capacity significantly undermine the effectiveness of LEDAs. Without adequate structural responses to governance and operational challenges, these agencies remain constrained in their ability to deliver on their socio-economic mandates.

Table 3 provides further examples of other LEDAs facing similar structural and operational inefficiencies aligned with this theme.

The final thematic strand from the analysis gives cadence to the lack of environmental awareness and impactful responses to the challenges being faced within the Eastern Cape province. An issue here is the interplay between micro- and macro issues within the LEDA as impediments. These issues will be addressed in this section.

Local economic development agencies are designed to strategically address macro-environmental challenges such as poverty, underdevelopment and infrastructure deficits. However, inefficiencies at the micro-level and internal governance issues limit this capacity to respond. Internal deficiencies and inaccuracies may hinder the LEDAs from responding to macro-environmental challenges they intend to address.

For instance, the macro-level goal for BCMDA is to become ‘an attractive home for investment’; however, the Auditor-General highlights that performance was undermined by ‘material misstatements in the annual performance report submitted for auditing’ and the fact that ‘management did not correct all of the misstatements’. This reflects how internal inaccuracies translate into diminished developmental impact.

Similarly, the ASPIRE aimed to contribute to the regional economy but could not account adequately for ‘refunds due to the status of the accounting records’ and ‘tax payable of R2.2 million’. These deficiencies limit the agency’s credibility and responsiveness to broader socio-economic issues.

Informed by these case examples, Table 4 reports further on other LEDAs and the issues related to Theme 3 on the lack of impactful responses to macro-environmental challenges because of micro issues within the LEDA.

These micro- and macro-level issues may undermine institutional integrity, making the LEDAs ineffective in addressing sustainable responses to the macroeconomic and social challenges faced by their regions. The ‘Discussion’ section analyses the findings from the study.

To address the systemic challenges faced by LEDAs in the Eastern Cape, this study proposes the following key recommendations.

Firstly, strengthen agentic powers through capacity-building and accountability mechanisms. There is a critical need to enhance the agentic role of LEDAs by investing in capacity-building initiatives. Training and skills development are essential for improving individual and institutional capabilities (Potter & Brough 2004). These efforts not only reinforce the governance capacity of LEDAs (Giddens 1984) but also ensure the implementation of robust accountability mechanisms that can promote transparency, compliance and improved performance (Edoun et al. 2023).

Secondly, revitalising structural frameworks for adaptive and responsive performance is essential, as LEDAs require revitalised organisational structures that can adapt to evolving socio-economic conditions. Effective structural frameworks should support integrated planning and performance monitoring, enabling LEDAs to align their activities with broader development goals (DPLG 2006). Drawing from Emirbayer and Mische’s (1998) theory of agency, such structures should facilitate responsive and future-oriented action. Moreover, fostering collaboration between LEDAs, municipalities and local communities is vital to ensure that development initiatives are contextually relevant and collectively owned (Khambule 2018b).

Thirdly, enhance governance practices and stakeholder partnerships. There is a need to strengthen governance within LEDAs, as this is essential to responding effectively to uncertain and dynamic environments. This includes cultivating strategic partnerships, particularly public–private collaborations, to enhance resource mobilisation and service delivery (Rogerson 2014). Improved governance also fosters community ownership of local projects, enhances credibility, and supports adherence to timelines and compliance standards. As Van der Waldt (2023) notes, stronger governance frameworks can help mitigate risks related to non-compliance and reinforce the legitimacy of LEDAs.

While this study offers valuable insights into the performance of LEDAs in the Eastern Cape, several limitations should be noted.

Firstly, the research relied exclusively on the 2023 Auditor-General’s Report, which primarily focuses on financial and compliance-related matters. As such, the analysis may not fully capture broader sociopolitical, institutional or contextual factors influencing LEDA performance. Future research could address this limitation by incorporating qualitative methods, such as interviews or focus groups with LEDA staff, stakeholders and community members, to provide deeper insights into operational and contextual dynamics.

Secondly, the findings of this study are specific to the Eastern Cape province and the 2023 reporting period. As such, caution should be exercised in generalising the results to other LEDAs across South Africa. Future studies could adopt a comparative approach, examining the performance of LEDAs across different provinces to identify regional patterns, best practices and context-specific challenges.

Finally, the study’s cross-sectional nature limits its ability to capture performance trends over time. Future research could employ longitudinal designs to monitor LEDA performance across multiple reporting periods. This would enable researchers to assess the long-term impact of institutional reforms, governance improvements and capacity-building initiatives, offering more robust evidence to inform policy and practice.