Concept Paper by Ziad Abbasi August 2012
Content:
- Introduction
- LED Strategic Planning
- Stage One: Organizing the Effort
- Stage Two: Conducting the Local Economy Assessment
- Stage Three: Developing the LED Strategy
- Stage Four: Implementing the LED Strategy
- Stage Five: Reviewing the LED Strategy
- The Planning Process
- The Eight Building Blocks of the LED Development Process
- Philippines LED Overview
- References
Introduction
Communities, cities and governments around the world increasingly turn to Local Economic
Development (LED) strategies in response to the challenges of globalization and the drive for
decentralization. LED means more than just economic growth. It is promoting participation and
local dialogue, connecting people and their resources for better employment and a higher
quality of life for both men and women.
In order for Local Economic Development (LED) to be effective, a community needs to identify
and consider its own economic strengths, weaknesses, opportunities and threats, and agree a
shared strategy. LED strategic planning offers communities the opportunity to work together to
improve the local economy and enhance competitiveness, thereby encouraging sustainable and
inclusive growth.
The purpose of local economic development is to build up the economic capacity of a local area
to improve its economic future and the quality of life for all. It is a process by which public,
business and non-governmental sector partners work collectively to create better conditions for
economic growth and employment generation.
The success of a community today depends upon its ability to adapt to the dynamic local,
national and international market economy. Strategically planned LED is increasingly used by
communities to strengthen the local economic capacity of an area, improve the investment
climate and facilitate an increase in the productivity and competitiveness of local businesses,
entrepreneurs and workers. An understanding of the principles and practices of strategic LED
planning will position communities to be able to improve their quality of life, create new
economic opportunities and fight poverty.
Globalization increases both opportunities and competition for local investment. It offers
opportunities for local businesses to develop new markets but also presents challenges from
international competitors entering local markets. Multi-site, multi-national manufacturing,
banking and service corporations compete globally to find cost efficient sites in which to locate.
Technologically advanced growth industries require highly specialized skills and a supporting
technology infrastructure. Local conditions determine the relative advantage of an area and its
ability to attract and retain investment. Even small towns and their surrounding rural regions can
develop local economic opportunities at a national or international level by building on their local
economic strengths.
At the national level, macro-economic, fiscal and monetary reforms have directly impacted the
economy at the local level. National regulatory and legal frameworks such as tax reform,
telecommunications deregulation and environmental standards directly influence the local
business climate, either enhancing or reducing the potential for local economic development. In
many countries, national government functions continue to be decentralized thereby increasing
the responsibility of municipal governments to retain and attract private industry.
Communities within and between regions often compete to attract external and local investment;
however, opportunities exist for communities to collaborate with each other to help all their
economies grow. They can do this for example, by supporting strategic infrastructure or
environmental improvements that demonstrate a broad regional impact. An association of local
municipalities or regional governments working together can serve to facilitate LED efforts by
acting as an intermediary between national and municipal governments.
Businesses, both large and small, often choose to locate in urban areas because of
agglomeration economies (the benefits derived from sharing markets, infrastructure, labor pools
and information with other firms). The economic advantage of urban areas depends significantly
on the quality of urban governance and management, and on the policies affecting the
availability of, or lack of, electricity, transport, telecommunications, sanitation and developable
urban land. Factors affecting labor productivity in the local economy include the availability and
quality of housing, health and education services, skills, security, training opportunities and
public transport. These ‘hard’ and ‘soft’ infrastructure factors are major determinants of a
community’s relative advantage. The quality and provision of ‘hard’ and ‘soft’ infrastructure
forms the cornerstone of a successful local economy.
Metropolitan areas can offer many opportunities through agglomeration economies, economies
of scale and effort as a result of the size of the physical and human capital available, as well as
the size of its services and internal market. Uncoordinated and disparate institutional
frameworks and planning bodies in metropolitan areas can serve to undermine area-wide
economic growth.
Metropolitan-wide LED agencies, clusters and networks can be created to address these
constraints. These innovative institutional frameworks, which represent the interests of different
municipalities and partner agencies in the same metropolitan area, can bring benefits to the key
actors of each municipality (public departments, business and civil society organizations). These
frameworks can serve to unite the efforts of different localities and increase LED results, and
can strengthen representation in higher levels of decision-making.
There are many ways in which municipalities can contribute to improving their local economies.
The most important and effective local economic development activity that a municipality can
undertake is to improve the regulatory processes and procedures to which businesses are
subjected by the municipality itself. A survey of most municipalities would reveal a number of
complex, poorly managed, expensive and unnecessary business registration systems. By
reducing these, a municipality can quickly improve its local investment climate.
In most countries, economic growth is determined not only by the formal economy (the
economic sectors that are legally registered and pay taxes) but also by the informal economy
(those activities that are not legally registered). In some cases the size of the informal economy
is greater than the formal economy, and it interacts with the formal economy by supplying
certain goods and services. The linkages between the formal and informal sectors of the
economy need to be understood and considered in the devising of a local economic
development strategy, although this is often easier said than done.
Communities and businesses increasingly recognize that a successful local economy requires
social as well as economic, environmental and physical renewal or investment. In many cities,
large numbers of low-income families work within the informal economy, however, these
informal activities are often low-growth activities as a result of a lack of access to proper
infrastructure and services (electricity, water, roads), regular means of financing, information
and skills. The development of an LED strategy should recognize and accommodate the
constraints and opportunities of the informal economy so as to broaden the impact of the
strategy.
LED Strategic Planning
Ideally, the development of an LED strategy will be an integral part of a broader strategic
planning process for a sub-national region, city, town or rural area. Effective strategic planning
ensures that priority issues are addressed and limited resources are well targeted. The five-step
planning process detailed should be tailored to complement, and correspond with, other local
planning processes. The process is not prescriptive and should be adapted to meet the needs
of the individual community.
Organizing the Effort
A community begins the LED strategy planning process by identifying the people, public
institutions, businesses, community organizations and other groups with interests in the local
economy. This is often led by the local government, usually the mayor or chief executive. The
skills and resources that each of these stakeholders bring to the strategy process provide a
critical foundation for success. The identification of these individuals and organizations assumes
some basic knowledge of the workings of the city economy. A resource audit is a necessary
input to the strategy, and should include the identification of financial, human and other capital
resources that can contribute to the LED strategy. Working groups and steering committees can
be established to ensure that both formal and informal structures are in place to support
strategy development and implementation. Other issues that need to be tackled in the early
stages include establishing LED staff teams and appropriate political processes.
Conducting the Local Economy Assessment
Each community has a unique set of local attributes that can advance or hinder local economic
development. These include its economic structure, its human resource capacity to carry out
economic development, and how conducive the local government investment climate is to
economic and business activity. The aim of the local economy assessment is to identify the
community’s strengths and weaknesses including its human resource capacity, local
government’s ‘friendliness’ to all types of business activities from corporate to informal, and the
opportunities and threats facing the local economy. The goal of the assessment is to create an
economic profile of the community that highlights the basis of its comparative and competitive
advantage in relation to neighboring communities and other regional, national or international
competitors.
Developing the LED Strategy
As part of the LED strategy, a shared economic vision for the community and LED goals,
objectives, programs, projects and action plans will be developed. This process ensures that all
major stakeholder groups are given the opportunity to define what is to be achieved, how it is to
be achieved, who will be responsible and the timeframes associated with the implementation of
the LED strategy. Most importantly, the LED strategy and action plans must be finely assessed
against the staff resource capacity to carry them out, as well as the budgetary constraints.
Ultimately, the strategy’s action plans should be incorporated into the work and budgetary
program of the local authority, and appropriate elements taken on by other stakeholders
(business associations, utilities, educational institutions, etc.). The aim is to leverage strengths,
overcome weaknesses, exploit opportunities and deal with threats.
Implementing the LED Strategy
Strategy implementation is driven by the LED action plans. Ongoing monitoring is provided
through the formal structures identified and created in step one, and evaluation of specific
project outcomes ensures that the strategy continues to lead to the achievement of the LED
vision, goals and objectives. In undertaking strategy implementation, it is important to identify
and establish the appropriate institutions to carry out the plans.
Reviewing the LED Strategy
Good monitoring and evaluation techniques help to quantify outcomes, justify expenditures,
determine enhancements and adjustments, and develop good practices. This information also
feeds into the review of the complete LED strategy. The LED strategy should be reviewed at
least annually to ensure that it remains relevant. It may be that conditions have changed or that
the initial assessment was incorrect to the local conditions. The LED strategy should evolve
continuously to respond to the ever changing competitive environment.
- Step 1: Develop Vision, Mission and Goals: Provide Direction for LED Development.
- Step 2: Diagnose Opportunity and Threat
- Step 3: Diagnose Strengths and Weaknesses
- Step 4: Develop Strategies
- Step 5: Prepare Strategic Plan
- Step 6: Prepare Tactical Plans
- Step 7: Control and Diagnose Results
- Step 8: Continue Planning
The eight building blocks of the LED development process
- Initiating the process;
- Establishing the initial parameters and the scope of the LED development;
- Making an initial assessment;
- Formulating a vision;
- Identifying strengths–weaknesses–opportunities–threats (SWOT analysis);
- Setting strategic thrusts;
- Building awareness; and
- The Planning Process
- Starting the implementation.
Philippines LED Overview
The purpose of local economic development is to build up the economic capacity of a local area
to improve its economic future and the quality of life for all. It is a process by which public,
business and non-governmental sector partners work collectively to create better conditions for
economic growth and employment generation.
Poverty and unemployment remain the country’s gravest economic problems. If the government
is to win the war against poverty at the end of the decade, the economy must grow on a
sustained basis and across all sectors, while generating the greatest employment. The industry
and service sectors, which tend to grow faster in the course of development, offer vast
opportunities for creating employment and for absorbing excess rural labor. Small and medium
enterprises (SMEs) and high-growth business sectors that inherently draw on strengths in
human resources such as information and communication technology and tourism, deserve
attention for further development.
Macroeconomic stability is a necessary condition for sustained growth. Efficient investment and
consumption decisions cannot be made in an unstable environment. Long-term stability is,
however, being threatened by a large fiscal deficit and increasing public debt. Thus, the
immediate task is to put the budget deficit of the national government under control. In a world
where capital markets are integrated, fiscal, monetary and exchange rate policies also need to
be coordinated to tap the opportunities from global markets while addressing the perils that
come with internationally mobile capital. Sustained and equitable growth entails nurturing the
entrepreneurial spirit and making industries globally competitive.
Hence, the government remains fundamentally committed to free enterprise and market
reliance, and ensuring market-friendly regulation where indicated. To assist enterprises to
become more globally competitive, the government will work to reduce the cost of doing
business and remove key bottlenecks to investment. In this area, the government has already
implemented various structural reforms such as the liberalization and deregulation of trade and
investments and the restructuring of the power sector. However, reforms need to continue to
enhance the competitiveness of Philippine industry by improving the state of infrastructure and
upgrading the state of technology.
The success of a community today depends upon its ability to adapt to the dynamic local,
national and international market economy.
Strategically planned LED is increasingly used by communities to strengthen the local economic
capacity of an area, improve the investment climate and facilitate an increase in the productivity
and competitiveness of local businesses, entrepreneurs and workers. An understanding of the
principles and practices of strategic LED planning will position communities to be able to
improve their quality of life, create new economic opportunities and fight poverty.
Sector History
In most countries, economic growth is determined not only by the formal economy (the
economic sectors that are legally registered and pay taxes) but also by the informal economy
(those activities that are not legally registered). In some cases the size of the informal economy
is greater than the formal economy, and it interacts with the formal economy by supplying
certain goods and services. The linkages between the formal and informal sectors of the
economy need to be understood and considered in the devising of a local economic
development strategy, although this is often easier said than done.
Communities and businesses increasingly recognize that a successful local economy requires
social as well as economic, environmental and physical renewal or investment. In many cities,
large numbers of low-income families work within the informal economy, however, these
informal activities are often low-growth activities as a result of a lack of access to proper
infrastructure and services (electricity, water, roads etc.), regular means of financing,
information and skills. The development of an LED strategy should recognize and accommodate
the constraints and opportunities of the informal economy so as to broaden the impact of the
strategy.
Generating new jobs is the key to winning the war against poverty. To enhance the capacity of
the domestic economy to create jobs, competitive enterprises will be encouraged to flourish.
Ensuring the stability of the macroeconomic environment is a must. A major challenge is
ensuring that full-employment policies do not trigger inflation. A deficit reduction program will be
pursued. Stable and low rates of inflation will be ensured through the shift of monetary policy to
inflation targeting. A healthy external balance will be underpinned by a flexible exchange rate
system.
In addition, the national government (NG) will implement an expenditure program that preserves
a bias for education, health, agriculture and other services for the poor. Regulatory agencies will
be strengthened to provide the institutional framework for preventing and resolving corporate
failures, and to reduce the vulnerability of the banking and corporate sectors to sudden shifts in
internationally mobile capital. The capital market will be further developed to raise national
savings including those required for the growth of small and medium enterprises (SMEs). This
will be facilitated by regulatory reforms in the banking sector and equities market.
Current Situation
To generate the one million jobs in agriculture and agri-related industries, a more meaningful
pursuit of the agriculture and fisheries modernization program shall take place. Programs shall
focus on increasing employment productivity to raise incomes. These programs shall be
complemented by efforts to generate off-farm employment. Alternative livelihood activities shall
be promoted for subsistence farm workers during non-planting and non-harvest seasons. The
development and integration of farm workers in off-farm livelihood activities, where alternative
sources of incomes can be realized, shall be explored and facilitated.
Agriculture shall be a priority in the allocation of budgetary resources to expand the construction
of irrigation and postharvest facilities, farm-to-market roads and other infrastructure projects,
credit facility, and research and development.
To enhance employment in industry and services, globally competitive industries shall be
developed. The country’s national competitive edge in tourism shall be maximized. The
government will focus its efforts on supporting the development of tourism hubs, such as
Manila, Cebu, Davao and Laoag by upgrading airports, seaports, and roads, and securing
greater involvement of local government units in tourism development. The development of
tourist destinations in the countryside will boost the growth in the retail trade sector and
handicraft industries leading to increased employment and livelihood opportunities for
communities and cooperatives.
ICT capabilities across a broad range of economic activities and income groups shall be
developed. Operational tele-centers in all municipalities and public payphones in a cluster shall
be established. Broadband services in cities, identified growth centers and priority areas shall
be provided. The country’s competitive niches in software development and e-services shall be
secured and enhanced by seizing local and overseas market opportunities in developing
strategic partnerships for major ICT development initiatives.
Labor-intensive activities in infrastructure development, particularly in the construction of mass
housing, shall be further explored to increase employment generation. Self-employment shall be
promoted as an important employment generation strategy. Self-reliant communities shall be
developed by providing adequate and sustainable sources of livelihood for its members and
their families. Likewise, full support for the development of small and medium enterprises
(SMEs) shall be pursued. The government will implement programs for the informal sector to
improve their access to productive resources, protection and social security. Micro-financing will
be made available for 300,000 women entrepreneurs every year. Social safety nets, including
the provision of emergency employment programs, shall be provided.
Municipal governments charged with the responsibility for local economic development since
the decentralization of governance in 1991 are increasingly turning to the NGO sector to form
partnerships that will foster local economic change.
The following case study shows the impact of one entrepreneur on the whole region. Projects
usually do not prosper by default. It is a long-term challengeable process that requires having a
vision and most importantly the desire to achieve the goals regardless the severe obstacles and
complications.
Unlad Kabayan1
began in 1994 as a project of the Asian Migrant Centre in Hong Kong to
harness migrant savings for alternative investments. The idea was to direct the investments of
migrant savings groups organized all over the world into productive enterprises in the
Philippines.
“The community needs social enterprises; it does not simply need employment.” Over the past
years Elsa2
, the driving force behind the Matin-ao Rice Centre, has struggled with this
statement.
Elsa's story exemplifies the tension felt by entrepreneurs who want to develop an enterprise that
will generate a good return for a community of international investors and who are also pulled by
the local community’s needs and aspirations for a better life.
For Elsa and her group of migrant savers working in Taiwan the Matin-ao Rice Centre is an
avenue of investment, a way to move from being an employee to being an investor and, for
Elsa, a manager. For the Matin-ao community the Rice Centre has extended beyond a source
of employment and trade in rice to become a focus of community life, meeting basic food and
farming needs, with Elsa herself providing community leadership and counseling.
After the first rice harvest in 2003 the mill had losses. Elsa had underestimated the competitive
environment into which she had ventured and the costs of overhauling an old mill to get it
reliably operational. A business plan was developed with Unlad Kabayan. The planning process
revealed that x “milling rice seasonally is not enough” to sustain regular returns. After visiting
other rice mills to see how they operated Elsa began buying unhusked rice from farmers,
stockpiling it and milling it throughout the year to be sold as processed rice wholesale and retail.
However, there wasn’t always more rice to buy as rice farmers already had relationships with
traders and Elsa did not have enough cash to out-price them. So in the second year of
operation Elsa took out a loan, mortgaging and risking the entire enterprise. She also asked
farmers “why aren’t you coming to my rice mill?” Farmers told her about their indebted
relationships with other commercial traders. Elsa responded by providing credit to farmers,
especially for farm inputs. After talking to farmers‟ wives Elsa decided to provide credit in kind,
so that cash wouldn’t be diverted to gambling and drinking.
From the business plan and listening to farmers, Elsa knew that she needed to generate other
enterprises. After accessing further investment, she opened an agri-vet (agricultural and
veterinarian) supplies store and later, in the fourth year, a grocery store.
Elsa was confident in initiating these enterprises because she knew farmers wanted them.
These new enterprises rented space from the rice mill, providing an income stream to the mill
and generating a profit for investors. All of the businesses lacked capital so in 2005 Elsa
returned to Taiwan to promote enterprise investment by migrant workers.
Economies of scale are critical to the viability of the rice milling business and this requires
substantial capital. As a social enterprise, the Matin-ao Rice Centre has been able to draw on
the relatively patient equity investment from Elsa’s fellow migrant workers and soft loans from
government and the NGOs. But Unlad needed to educate migrant investors to be patient as part
1 http://www.communityeconomies.org/site/assets/media/KatherineGibson/Matin-ao%20Rice%20Mill.pdf
2 Elsa is a good example of an entrepreneur who was able to find practical solutions to sustain projects in
the regions and think out of box. Simple and reliable solutions can be considered as the most innovative.
of their savings and investment mobilization work. Many migrants think that investment is
something you put in and take out anytime, like savings in a bank. Others expect a quick return
on investment and demand “instant and substantial” dividends.
While they lack an understanding of mainstream business principles, they know even less about
how an alternative economy might work and how they could be contributors to and beneficiaries
of alternative wealth-creating and distributing businesses.
With additional funds, in 2006 the Rice Centre opened a farm machinery service in response to
farmers‟ requests so that they could plough early before the rains stopped. In 2007 it bought a
hauling truck. Today the Rice Centre includes six affiliate businesses: the rice mill, a farm
machinery hiring service, farm credit, an agricultural and veterinarian supply store, a mini
grocery store and a palay trading business. In 2007 the business had a net worth of P 3.5
million (Aust $ 91,000 or €91,000), annual sales worth P 4.4 million and made a net profit P
207,000 (Aust $ 5,440 or €3,000). In the rural Philippines context these are sizeable amounts.
The Centre employs 11 people full time, 1 part-time and 8 seasonal workers; services the needs
of 129 local farmers; and is a focus of investment by 66 overseas migrant workers.
Elsa has the spirit of an entrepreneur. She has been “driven” to build up the Rice Centre as a
business that attracts ongoing investment and has demonstrated that sacrifice, hard work and
creativity are the key to new enterprise development.
Future Trends
In light of the greater integration of the Philippines with the world economy, the philosophy of
free enterprise shall continue to underpin government policies and programs in stimulating
business activities and promoting competition. Of particular importance is the promotion of
technology that will be the foundation of the country’s future economic development.
The private sector will be the main driving force of the economy, playing a strong and leading
role in generating productive employment opportunities and improving access of Filipino
consumers to less expensive, more varied, and better quality goods and services.
Government’s task will increasingly be to make markets work by simplifying bureaucratic
procedures and promoting market-friendly regulations to reduce the cost of doing business, and
protect the interest of consumers and sectors vulnerable to global integration. Sustainable
development and gender-sensitive practices will be emphasized.
Shift to appropriate technology-based, labor employing, value added-driven agriculture and
fisheries
-
-
Promote production and marketing technologies that will employ the sector’s abundant
labor resources; -
Continue the rationalization of the R&D and extension systems into a ‘one system–one
program’, demand-driven component of agriculture and fisheries modernization; -
Promote and encourage private investments in agriculture and fisheries R&D to
complement public investments; -
Activate an aggressive program to acquire promising and appropriate technologies from
abroad, particularly those appropriate in harnessing abundant rural labor resources; -
Develop, through proper and adequate stakeholder consultations, and implement
transparent guidelines/regulations governing the safe and socially beneficial
development, field testing and commercialization of products of modern biotechnology; -
Modernize and rationalize the technology extension system, under a devolved and
decentralized regime of governance, in order to effectively promote modern technology,
particularly modern genetic materials, knowledge-intensive farm management and cultural
practices, processing and marketing.
-
Potential Interventions (that can be recommended for future)
Majority of the poor are in rural agricultural areas and are engaged in subsistence farming and
fishing. To reduce poverty herein, future interventions have to be committed to a comprehensive
rural development based on productivity improvements, agrarian reform rural industrialization,
and sustainable development.
Agricultural productivity must improve to raise rural household incomes. This calls for a
meaningful implementation of the Agriculture and Fisheries Modernization Act. Farmers and
fisher folks will have access to modern agricultural and fishery inputs developed through
research and development. Rural industrialization with viable off-farm enterprises will
accompany agricultural modernization. The development of infrastructure facilities like irrigation
and farm-to-market roads will be accelerated. A well-functioning rural credit market is
indispensable.
Asset distribution reform is a fundamental strategy to fight poverty. In this regard, land reform
shall continue, along with more effective support services for agrarian reform beneficiaries. The
Administration is committed to complete land distribution within the decade. To ensure the flow
of private investments to agriculture, land-based issues, such as the reluctance of banks to
accept land as collateral will be addressed.
As agriculture is modernized, safeguards will be put in place to ensure that intensified
production activities do not undermine the integrity of the environment. The Plan espouses
policies that promote environment-friendly technologies and sustainable farming practices that
conserve natural resources.
References
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http://www.worldbank.org/urban/local/toolkit/pages/home.htm
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http://www.neda.gov.ph/ads/mtpdp/mtpdp_part2.htm
www.worldbank.org/urban/led/
www.dfid.gov.uk/
www.bertelsmann-stiftung.de/
http://base.d-p-h.info/fr/fiches/dph/fiche-dph-7100.html
http://www.economywatch.com/economic-development/philippines.html
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The Social Economy: International Perspectives on Economic Solidarity. London: Zed Press,
2009
Chapter for Moulaert, F. (ed.). 2009. Social Innovation and Territorial
Development (Ashgate Publishing) Journal of the Society for International Development 45,
1:74-79
http://www.communityeconomies.org/site/assets/media/KatherineGibson/Matinao%20Rice%20Mill.pdf