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Intergovernmental Fiscal Relations &
Local Financial Management Course
ISS - MDP - UMI - WBI
Local economic development
A.H.J. (Bert) Helmsing
16-11-2000 2
Overview
Topics to be covered
• Local economic development: why important?
• Local economic development approaches• LG policies and instruments• Networking for local economic development
16-11-2000 3
Local economic development
Why local economic development?• Growing unemployment and underemployment
• Rapid urban growth but declining urban productivity:– Congestion, crime, social discontent
– Unavailability of basic infrastructure (interruption in electricity)
– Rising urban transaction costs (cost of doing business)
• Lesson from Structural Adjustment:– market institutions and private sector investment response do
not emerge spontaneously
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Local economic development
• Liberalisation with globalisation:– exposes local producers to global competition
– also new opportunites (e.g. Ethiopean leather manufacturers on e-commerce)
• Growing recognition of importance of business environment
– externalities
– coordinating private and public investment
• Decentralisation to local governments: – need to develop local fiscal base
– public sector as a source of private sector growth
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Local economic development
Sources of local economic growth• Demand
• Supply– externalities
– learning
• Governance: economic institutions
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LED: Sources of growth
Demand• internal demand not enough to get out of low-
level trap• tap external demand both nationally, regionally
and globally• what do buyers want?• how to get entry to export markets?• how to overcome production and transaction
barriers?
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LED: Sources of growth
Externalities:• advantages from agglomeration
– concentration of labour skills
– specialised inputs at lower costs
– information and technological spillovers
• potential for collective efficiency– by joint actions local producers can:
* advance specialisation among them
* organise flexible specialisation and subcontracting networks
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LED: Sources of growth
• potential for collective efficiency (2)– joint action to create private support institutions
* garment manufacturers establishing a fashion information centre
* joint export efforts
* procurement of inputs
– joint action towards government * partner on policies
* lobby for infrastructure
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LED: Sources of growth
Learning• being low cost is no guarantee for success• acquisition of new knowledge is key• competences of firms:
– knowledge of inputs, products and processes
– knowledge of clients, suppliers and markets
How do entrepreneurs find out?• invest in learning• invest in research & development
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LED: Sources of growth
Entrepreneurs draw on other sources of knowledge
– employees, suppliers and clients
– universities and research centers
– business associations
– business support centers
Collective learning– creating an innovative milieu
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LED: Sources of growth
Governance:• bringing actors together: creating a supportive
business environment
• enterprises in a supportive business environment have a competitive edge over firms that do not
Only applicable to formal sector?
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Overview
• Local economic development: why important?
• Local economic development
approaches
• LG policies and instruments
• Networking for local economic development
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LED Approaches & strategies
LED actions
• to mobilise actors, organisations and resources
• to develop new institutions of LED
• to create greater rationality in the economic
system through dialogue and strategic actions
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LED Approaches & strategies
Attract external investment, firms and people
• selective inward investment (brokers of
knowledge)
• linked firms, export intermediaries
• knowledge professionals
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LED Approaches & strategies
Establish a basis for local collective action
• organise producers
• identify basis for collective action
• supply and demand for collective action and
support
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LED Approaches & strategies
Urban based LED strategies
• Locality development
• Enterprise development
• Community economic development
• Human resource development
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LED Approaches & strategies
LED strategies for rural regions
• agro-specialisation: product specific chains
• rural industrialisation: product chains
• natural resource exploitation & (eco-) tourism
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Overview
• Local economic development: why important?
• Local economic development approaches
• Policies and instruments• Networking for local economic development
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Locality development
Policies directed at:
• image building
• amenity improvement
• business improvement
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Locality development
• Improving physical environment of towns
• Infrastructure and site development projects
• differentiated supply of industrial and commercial
stands
• Housing & urban amenities
• Physical security
• Zoning regulations
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Locality: instruments
• Fiscal instruments
• tax holidays on property tax
• subsidies on utility charges
• sale of stands at subsidised prices
• fiscal competition
• reduced effectiveness
• prisoner's dilemma
• Locality marketing
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Locality marketingTarget markets
Investors
Firms
Tourists
New residents
Consumers Marketing factors
Infrastructure
Attractions
People
Trade
Actors
Source: kotler et al 1993
Manufacture
Administration
Education
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Locality marketing
What instruments are used?• Publicity campaigns
– leaflets, promo tours, presence at fairs,website
• Event based strategies– major sports or cultural manifestations
– trade or community fairs
• Urban design and place marking– Townscaping
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LED Strategies & instruments
Enterprise or business development
• client group
– new firm formation (start ups)
– attracting new firms
– expanding existing firms
– business innovation and graduation
• manufacturing and services
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Enterprise development
Fiscal incentives
Business support services
Infrastructure, land and buildings
Special LED programmes
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Fiscal incentives
• investment subsidies– x dollars per 1000 of investment (many countries)
– subsidised land or assets
– designated geographical areas (selective application)
• employment premium– x dollars per job (UK, South Africa)
• tax incentives– company tax
– profit repatriation guarantees
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Fiscal incentives
• in kind incentives– "advance" factories or free land
• effectiveness of fiscal incentives– incentive competition reduces effectiveness
– attracts mobile investors
Real or financial support?• Financial subsidies compensate for locational or
competitive disadvantage• Real support seeks to create new competitive
advantages
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Enterprise development
Real enterprise support services
• Sign posting
• Business skilling
• Business advice
• Business assistance
• Business support
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Enterprise support: signposting
sign posting & re-regulation• reduce institutional disconnect and insecurity
• simplify public regulation
new answers• one-stop enterprise centres
actors and organisations• Chambers of commerce
• Special public agencies (CG, LG)
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Enterprise support: skilling
business skilling• entrepreneurship
• financial management & business plan
• marketing incl. exports
• production techniques (quality management)
actors• enterprise agencies, BIAs non-profit and commercial
agencies
• examples: Partners for Productivity
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Enterprise advice & assistance
industrial extension services• differences with agriculture
• tailor made advice
• emphasis on extra mural or on site support
formal and informal sector demands
actors• enterprise agencies; BAs, non-profit and commercial
agencies
• Carvajal Foundation; Women's World Banking
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Enterprise: support services
finance
marketing
technology and R&D
training
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Enterprise development
Special LED programmes• growth points • industrial estates• special economic zones (incl. export zones)• incubators & science parks• innovative environment (or milieu)• cluster development programmes
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Special LED programmes
Strengthening (potential for) local clusters and industrial districts• attracting suppliers of inputs• attracting end assemblers• common services• importance of local demand or market potential
16-11-2000 35
LED strategies & instruments
Community economic development• targeted at poor communities
aims• to stimulate local sense of community• stimulate self help/empowerment• create (self)employment• improve living & working conditions• create public and community services
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Community economic development
importance of housing improvement
settlement & slum improvement (basic services)
commercial (re-)development • retail trade, services, industry
• high demand: private financing
survival based economic activity• small asset base (backyard or street activities)
• incremental improvements
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Community economic development
Creation of Community Development Corporations: CDC's in Sri Lanka• Multiple roles of CDCs• Community Resource Centres (Costa Rica)
Community construction contracts• (Sri Lanka, Ghana, Costa Rica)
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Community economic development
Savings & thrift societies (India, Kenya, Bolivia)
Community mortgage program (Philipines)Social funds:
• co-finance investment projects– with community groups– stimulates demand driven projects– facilitates community organisation, participation and
management
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CED: social funds
Role of NGO or private sector agency• provide technical assistance
– training in CO, CP and CM skills
• supports management of projects and funds– facilitation for community organisation and
planning– co-signatories for financial transactions
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Overview
• Local economic development: why important?
• Local economic development approaches
• LG policies and instruments
• Networking for local economic
development
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Actors and networks: firms
Firms/entrepreneurs• role in creating employment and restructuring• role in sustaining competitiveness of a cluster• role in developing enterprise common service • target of competitiveness policies• large firm facilitator of small firm change• social corporate responsibility
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Actors and networks: BAs
Business associations• different types• collective interest representation for members• intermediary organisation• intermediary towards support system• concertation at local and national level
(horizontal and vertical nexus)• private interest regulation
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Actors and networks: Banking
Banks and Development (Finance) Corporations• banks play key role in restructuring of firm and
sectors• cannot be ignored....• DFCs provide venture capital and investment
finance – local or regional corporations identify with
territory
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Actors and networks: IOs
Enterprise agencies (non-profit trust/foundation/corporation)• key provider of support services• can play role of lead actor in LED networking
Sources of finance:• donor/NGO contributions• CG subsidies• revenue generating activities• membership fees and donations
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Actors and networks: IOs
Sector specific support agencies• e.g. vocational training• marketing
Institutional modality• public (CG subsidies/enterprise levy)• partnership with private sector (joint finance)• commercial and non-profit (NGO) private
agencies
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Actors and networks: new civic actors
Community based organisations: types
Importance of 2nd tier organisation
Community enterprises (private law but community ownership) • to provide social services• credit and other services• own land• promote cultural heritage• train people in skills
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Actors and networks: LG
Shift in LG role• from service provider to supporting economic
restructuring (selective target groups)
• from hierarchical to entrepreneurial government
• increasing presence of local government agencies
Shift in LG role: use of public budget• co-financing private sector and community initiatives
• stimulating private sector development (contracting and privatization)
16-11-2000 48
Actors and networks: LG• Regulatory policies:
– reduce cost of inward and endogenous investment– reduce entry and exit barriers – reduce regulation compliance costs– land use planning is key instrument
• Tax policy:– taxation affects competitiveness
– business prefers benefit taxation
• Expenditure policy– co-financing private sector and community initiatives– stimulating private sector development (targetted expenditures,
contracting and privatization)
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Networks
Networks: purposes• to integrate vertical (and local) programmes• facilitate flow of information about
opportunities and resources• facilitate better attuning of decision making
among actors– thus preventing negative externalities
– generating positive externalities
• complement market institutions
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Network development
Network development is learning process
Network development stages
LED planning: strategies and actions• Concepts, Strategies and Projects (CSP)• Strategy• Projects: flagship and complementary
– implemented by different (sets of) actors
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LED planning: strategies and actions
Politics: how to create a basis for action• convincing politicians of importance of economics
• local community's own horizons and expectations
• openness of the political system to economic change
• can leaders, BAs, CBOs and NGOs agree on economic priorities?
• management and politics of change
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Local economic Development
a new course offered
by
MDP with ISS & WBI
