The Socio-Economic Impact of Local Economic Development Agencies (LEDAs) in Mozambique: A Case Study of LEDAs in Manica and Sofala Provinces

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1 CATHOLIC UNIVERSITY OF MOZAMBIQUE FACULTY OF ECONOMICS AND MANAGEMENT GRADUATE SCHOOL OF BUSINESS The Socio-Economic Impact of Local Economic Development Agencies (LEDAs) in Mozambique: A Case Study of LEDAs in Manica and Sofala Provinces By: Amina Muguira Amade Mamudo UCM/MA/05/009 A Thesis Submitted in Partial Fulfillment of the Requirements of the Degree of Masters of Arts in Economics and Management 15 February 2006

2 Declaration The work contained in this dissertation was carried out by the author at the Catholic University of Mozambique, Faculty of Economics and Management from 2006 to It is the original work except where due references are provided. It has never been nor will it ever be submitted for the award of any other University. No part of this work shall be reproduced without prior permission from the author or the Catholic University of Mozambique. Amina Muguira Amade Mamudo. Date:././2007 Supervisor: Dr Amade Mamudo.. Date:././2007

3 Dedication This study is especially dedicated to my family, for their unconditional support all the way through my years of study. i

4 Table of Contents Dedication i Acknowledgements v Abstract vi Glossary of Terms vii List of Abbreviations and Acronyms ix List of Tables x List of Figures xi List of Appendices xii Chapter 1: Introduction 1.0 Preamble Background of the Study Statement of the Problem Objectives of the Study Research Questions Significance of the Study Justification of the Study Scope of the Study Limitations of the Study Structure of the Study Chapter 2: Literature Review 2.0 Introduction Theoretical Literature Review The International Labour Organisation LED Approach The Participatory Appraisal of Competitive Advantage LED Approach Points of Departure of PACA SNV-Mozambique Approach to LED ii

5 2.1.4 United Nations Human Settlement Programme LED Approach Empirical Literature Review LEDAs Internationally The Role of Local Government in LED in Europe The Role of Local Government in LED in Ukraine The Role of Local Government in LED in Bulgaria The Role of Local Government in LED in Slovakia LED Experience in Asia LEDAs in Cambodia LED in Africa Pro-Poor Local Economic Development in South Africa Focus Literature Review Chapter 3: Research Methodology 3.0 Introduction Research Design Sample Population Population of the Study Sampling Frame Sampling Procedure Sample Size Data Collection Methods Primary Data Collection Interviews Questionnaire Data Entry Secondary data Collection Survey Duration Chapter 4: Data Analysis and Presentation 4.0 Introduction iii

6 4.1. Background of the Organizations Local Economic Development Agency of Sofala Local Economic Development Agency of Manica Beneficiaries of the LEDAs Inclusiveness and Participation People Involved in Training and Information in LEDAs of Sofala and Manica (from 2001 up to 2005) Policy Against Social Exclusion Involvement of Local Communities in LEDAs Activities Jobs and Enterprises Jobs Created Through LEDAs of Sofala and Manica Jobs Created in Districts of Sofala and Manica Number of Enterprises Assisted Trough LEDAs of Sofala and Manica Number Projects Created in Districts of Sofala and Manica Sustainability and Support Strategy of the Agencies to Help the Local Communities Become Self-sustaining Support from the Government Finance Fund Acquisition Credit Difficulties faced by LEDAs Chapter 5: Conclusions and Recommendations Bibliographies and References Appendices iv

7 Acknowledgements I would like to express my profound gratitude to ALLAH (S.T) for following me in all these years, particularly during my academic mission. My special thanks go to my brother and supervisor, Dr. Amade Mamudo for his unconditional support during the thesis writing phase. I am very thankful to Dr Peter Nkala and Dr Richard Mungla for their professional assistance and for their concern in helping us preparing this Dissertation. Thanks to Dr. Amide Taibo, Director of Local Economic Development Agency (LEDA) of Sofala and to Mr. Queiroz, Director of LEDA in Manica, for their time in filling the questionnaire and for material provided to carry on the thesis process. To my all colleagues, Fátima, Celma, Darmesh, Soraia, Brigthon, Quepe, Vanda Malagissa, Riaz, Carina, Tania, Ibraimo, Zonque, Novitos, Evaristo, Natércia, Cardoso,Vanda Dourado, Marcelo, Antonieta, Ramos, Bruce and Dora. There are no words to say thanks for all the moments we passed together. Last but not least, my family, all my friends and all those who believed that this dream would turn into reality, thank you very much. v

8 Abstract A few decades ago traditional top-down policies and the first challenges generated by globalisation failed to assure socio-economic and territorial equity. Over the last decades it contributed to a serious rethinking of development policies and related strategies that gradually have become more innovative and bottom-up, like Local Economic Development (LED) strategies. In Mozambique, the first efforts made for the promotion of LED approaches were initiated by ILO in 1998 trough establishments of Local Economic Development Agencies (LEDAs) in three provinces, namely Maputo, Sofala and Manica. This thesis covers a study about the socio-economic impact of LEDAs in Manica and Sofala Provinces. The study was based on a questionnaire guided survey involving subsequent interviews with the directors and other staffs of two LEDAs conducted over a period of 3 weeks. The collected data were stored, processed and analysed in Microsoft Excel. From the results the main conclusion drawn was that, although in slow pace, LEDAs have been contributing positively to socio-economic development of the two provinces in terms of improvement in employment generation, business opportunities, inclusiveness and participation, and livelihoods in general. However, there is a strong tendency of these LEDAs, in search of quick return on investments, to be somehow in an identity crisis navigating between not-for-profit business development service (BDS) providers and the provision of services on a commercial basis putting the social and equity objectives at risk. This is evidenced by a tendency of concentration of efforts in provincial capital cities and not in the less favourable smaller towns and rural areas. The main recommendation derived from this study is that LEDAs should exist to fulfil their not-for-profit socio-economic mandate, which requires the provision of adequate financial support from the government or donors in promoting LED initiatives. vi

9 Glossary of Terms Free-Market: the system whereby prices of commodities or services freely rise or fall when the buyer s demand for them rises or falls or the seller s supply of them decreases or increases. Globalisation: the increasing integration of national economies into expanding international markets. International Labour Organization (ILO): one of the functional organizations of the United Nations, based in Geneva, Switzerland, whose central task is to look into problems of the world labour supply, its training, utilization, domestic and international distribution, etc. Local Economic Development (LED): is a participatory process where local people from all sectors work together to stimulate local commercial activity resulting in a resilient and sustainable economy. It is a tool to help create decent jobs and improve the quality of life for everyone, including the poor and the marginalized. Local Economic Development Agencies (LEDAs): are professional institutions that promote and support income-generating projects. They identify development opportunities for the local population, mostly based on local potential and mobilize technical and financial resources required to materialize these opportunities. Local Economic Development Programs: are programs that provide assistance to business that is more or less customized or targeted to the needs of that type of business, with the immediate goal of increasing business activity in the local economy. Strategic Planning: is a systematic decision-making process that focuses attention on important issues, and on how to solve them. It is an approach that provides a general framework for action, a way to determine priorities, make wise choices and allocate vii

10 scarce resources such as time, money, skills to achieve agreed to objectives. Stakeholders: are persons who have an interest in the immediate social and economic impact of activities. They may act alone, but normally represent the interests of a wider constituency composed of individual stakeholders. viii

11 List of Abbreviations and Acronyms ACLEDA ADEL ADEM BARDA CDS CIDA DANIDA EU FAO FDI GTZ ILO INE LED LEDA MDG NGO s PACA PARPA PES PDHL PRODERE SEISP SNV UNDP UN-HABITAT UNOPS USAID USD Association of Cambodian LEDAs Agência de Desenvolvimento Económico Local Agência de Desenvolvimento Económico de Manica Bulgarian Association of Regional Development Agencies Capacity Development Services Canadian International Development Agency Danish International Development Agency European Union Food and Agricultural Organization of the United Nations Foreign Direct Investment The Germany Agency for Technical Co-operation International Labour Organization National Institute of Statistics Local Economic Development Local Economic Development Agency Millennium Development Goals Non-Government Organizations Participatory Appraisal of Competitive Advantage Action Plan to Reduce Absolute Poverty Plano Económico Social Human Development at Local Level Reintegration Programme for Refugees and Displaced People Small Enterprise and Informal Sector Promotion Netherlands Development Organization United Nations Development Program United Nations Human Settlement Programme United Nations Office for Project Services United States Agency for International Development United States Dollar ix

12 List of Tables Table 2.1: The Five Stages of LED Strategic Planning Process Table 2.2: Main differences between the traditional top-down development policies and bottom-up LED approaches Table 2.3: Impact of ACLEDA's Programme Table 2.4: Cost of delivery over project period ( ) Table 2.5: Type of Enterprises created and Partners Involved in the Provinces of Manica, Maputo and Sofala Table 4.1: Stakeholders of LEDA of Sofala Table 4.2: Stakeholders of LEDA of Manica Table 4.3: People Involved in Training and Formation Table 4.4: Number of Jobs Created Through LEDAs Table 4.5: Number of Jobs and Projects Created in Districts of Sofala Table 4.6: Number of Enterprises Assisted by LEDAs Table 4.7: Credit Budgeted and Disbursed in LEDAs of Sofala and Manica 64 x

13 List of Figures Figure 2.1: Ten Steps to Planning Excellence Figure 2.2: Number of Jobs Created in the provinces of Manica, Sofala and Maputo Figure 2.3: Number of Enterprises Created in the provinces of Manica, Sofala and Maputo Figure 4.1: Number Jobs Created Through LEDA of Sofala Figure 4.2: Number of Jobs Created Through LEDA of Manica Figure 4.3: Jobs Created in Districts of Manica Figure 4.4: Projects Created in Districts of Sofala Figure 4.5: Projects Created in Districts of Manica xi

14 List of Appendices Appendix A: Letter of Introduction Appendix B: Questionnaire Appendix C: Millennium Development Goals: Themes and Targets Appendix D: Number of Jobs and Enterprises Created in Manica, Maputo and Sofala Provinces of Mozambique Appendix E: Results of the Research xii

15 Chapter 1: Introduction 1.0 Preamble The increase in level of interaction among national economies under the recent wave of globalisation in the last few decades is incomparable. In developing countries, like Mozambique this phenomenon is a result of the switch from central planning to freemarket system. This liberalization of the national economies has been accompanied by macroeconomic stability packages aimed at, among others, increasing national income while curbing inflation and reducing fiscal deficit and foreign debt. However, despite some positive effects of globalisation, economic liberalization is contributing to an increase in social and territorial inequalities. Most development strategies undertaken by developing countries fail to include large part of the society in the national economy. Schneider and Enste (2000) as cited in Rodríguez-Pose (2001) argue that the increase in productivity and growth as a result of introduction of new production plants or of new agricultural methods of production is contributing to the exclusion of large numbers of unskilled workers and to the expansion of the informal economy. Under the above mentioned scenario, alternative development strategies were necessary to encompass people, firms and regions that are left out in the global economy. The failure of traditional top-down policies, together with the challenges generated by globalisation, has provoked a serious rethinking, over the last two decades, which resulted in a series of innovative bottom-up development policies, which are grouped under the rubric of Local Economic Development (Stöhr, 1990 and Amin, 2000) as cited in Rodríguez-Pose (2001). However, some argue that while local economic strategies are today an effective tool against poverty in industrialized countries, they are even more important in countries where local means neglected, institutionally weak, isolated and, of course poor (ILO, 2003). 1

16 Several definitions of Local Economic Development (LED) are possible to encounter in the literature. For instance, Trousdale (2003) defines LED as a participatory process where local people from all sectors work together to stimulate local commercial activity resulting in a resilient and sustainable economy. It is a tool to help create decent jobs and improve the quality of life for everyone, including the poor and the marginalized. LED objectives are consistent with national policies such as Action Plan to Reduce Absolute Poverty (PARPA II) , Agenda 2025, Millennium Development Goals (MDGs), 5-year Government Plan, all aimed at reducing absolute poverty. Coordination of local economic development initiatives with national tendencies, resources and legislation needs an appropriate framework. One famous and pioneering framework is through establishment of Local Economic Development Agencies (LEDAs). The process of establishing LEDAs has its origins in Europe during the late 1950s (Blaauw and Pretorius 2005) in an attempt to counter economic experienced as a result of business cycles. The essential mission of a LEDA is to create jobs, to promote and support small medium-sized business in the various branches of production, to improve the economic context and opportunities of its territory (ibid). Quite similarly, Boekel and Logtestijn (2002), refer to Local Economic Development Agencies (LEDAs) as professional organizations that are specialized in promoting and supporting income-generating projects. They argue that this enables them to tackle development issues more efficiently. The LEDAs initiative can perfectly be considered as International Labour Organization s LED programme. The importance of LED initiatives seems to be largely uncontested, and the argument finds support in the recent emergency of other types of LED frameworks. Participatory Appraisal of Competitive Advantage (PACA) approach and the Netherlands Development Organization in Mozambique (SNV-Mozambique) LED approach for districts and municipalities are examples of such types of frameworks. In Mozambique, LEDAs initiative begun in 1998 when a team of International Labour Organization (ILO) experts assumed the responsibility for LED component of United Nations Office for 2

17 Projects Services (UNOPS), Human Development at Local Level (PDHL) in three provinces, Manica, Sofala and Maputo. The programme was called Human Development at Local Level in Mozambique (PDHL/MOZ) and had the technical assistance of ILO experts. Currently there are Local Economic Development Agencies in Zambézia and Nampula provinces as well. The present study seeks to appraise the socio-economic impact of LEDAs, expressly LEDA of Manica and LEDA of Sofala. Its principal objective is to examine to what extent the programme has had impact on the living standards of the local population. It also appraises the extent to which LEDAs have impact on the inclusiveness and participation of the local actors in the economic decision-making. 1.1 Background of the Study Mozambique was devastated by the long civil war between 1975 and 1992, which contributed to deterioration in the economic and social fabric of many areas of the country, hitting the rural populations particularly hard, (Boekel and Logtestijn 2002). In fact local populations were unanimous in their agreement that social peace was a critical foundation to long-term economic development. The reestablishment of dialogue among the different social and economic actors in a particular geographic area and the building of consensus around LED goals has been a major long-term goal of the country. To this end, a great deal of time and resources has been spent on organizational and preparatory work around the creation of a Local Forum and institutionalisation through the Local Economic Development Agency (LEDA). LEDAs represent a new factor in the institutional landscape of Mozambique. It provides an effective response to the need to decentralize the Mozambican economy and to introduce democratic methods of territorial management. PDHL began the process of creating Local Economic Development Agencies in March 1999 and agreed to finance all the installation costs. LEDA-Sofala (ADEL) was established in October 2000 and LEDA of Manica (ADEM) in November 2000 but, in the case of LEDA of Sofala, there was 3

18 much more insecurity about how LEDA should be developed as an institution. According to Boekel and Logtestijn (2002), this insecurity was due to an intense debate among its stakeholders regarding its potential responsibilities and even regarding the opportunity of its existence. In spite of these hiccups, internal disagreements have been widely discussed and dealt with in a very professional and constructive way, helping to strength the internal cohesion and acceptance of the institution. Although the LEDAs are still relatively new institutions in Mozambique, they have generally experienced warm reception at all levels, from the national government to the local administration, from private sector to the Non Government Organizations (NGO s) working in the areas. One of their main objectives and achievements has been to foster social dialogue and to increase the participation of wide range of socio-economic actors. At the same time one of the main contributions of the new institutions has been to generate a local ownership of the development effort. The LEDAs in Mozambique were established in the strategic framework of the Local Economic Development component implemented through the Human Development Program at Local Level. The context in which PDHL started the activities in Mozambique is characteristic of a country in a transition's phase of post-conflict. In this sense there is a need of a special effort to rebuild infrastructures in the intervention's territories and to create minimum institutional and community conditions. In addition, to reconstruct the social fabric that is the guarantee of the economic and social development and of a sustainable peace. In Mozambique, the first five years of the MDGs trajectory have been dominated by strategy development, with concrete initiatives and results towards the achievement of the MDGs 1 having stayed bellow expectations (World Bank quoted by Hassam and Wijnhoud, 2005). Poverty alleviation returns towards invested development money have been very low, many development efforts remained restricted to planning and paper exercises without or with limited follow-up and concrete action. 1 See Appendix C 4

19 More to the point, economic growth patterns in Mozambique exhibit major disparities between regions and between urban and rural areas. Rural development has been much slower even with abundance of fertile land and water resources and relative ease access to international markets by sea and land through the existing transport corridors. Mozambique is also failing to capitalize on its natural resources in the rural areas in the sense that large majority of agricultural, as well as the non-agricultural, industries and micro-enterprises are facing usual obstacles found in most developing world. These obstacles include lack of finance for investment, difficult market access, lack of information, lack of managerial and technical capacity. All these results in low productivity and competitiveness that slow down local entrepreneurs from linking up markets within Mozambican society and creating further markets abroad 2. On the other hand the Structural Adjustment program adopted by Mozambican Government in the middle of the 1990s had a greater impact on the macro rather than the micro economy. Likewise, the privatisations of more than 900 State enterprises did not bring about an increase in competitiveness or any substantial benefits at the local level. Similarly, economic output and productivity dropped significantly and unemployment figures rose towards the middle 1990s. Hence, economic reforms and development measures must include mechanisms for translating macro policies into concrete actions at the local level that meet the locally defined needs. Acknowledging this vacuum in the biggest development policies, not only in Mozambique but in most developing countries, LED approaches were seen as credible alternatives for employment creation and income generation trough participation and inclusion of local actors in the development process. LED approaches are also called bottom-up approaches to development. Their strategies try to make the development of certain geographic area more inclusive and participatory. In this approach the local communities have the opportunity to put across their feelings about what they want as priorities for that specific geographic area. 2 Bardhan (2000) States that it is dangerous to assume that economic growth will always lead to poverty reduction. Depending on the type of growth and the country, it might even lead to increased inequalities. 5

20 An attempt to correct this problem is the effort that the government is doing in order to transform the districts into poles of development. The general framework consists in channelling direct funds from the central government to each and every district in order to apply these resources for the district priorities. However, channelling funds to district governments alone might not solve the problem of participation and inclusiveness. Priorities of the local government may now be taken into account, but priorities of local population will still remain unsolved if an appropriate framework for participation and inclusiveness is not designed. 1.2 Statement of the Problem Most development policies undertaken by Mozambican government such as PARPA II , Agenda 2025, Millennium Development Goals (MDGs), 5-year Government Plan, aimed at reducing absolute poverty fail to include large part of the society in the national economy. These policies are generally designed at macro level, top-down approaches, with little or no participation of the decentralized unit such as, local governments, districts, localities, administrative posts and municipalities. Although some components of the directions of these policies try to target the most vulnerable population, mainly those living in rural areas, the accuracy of these policies is limited by the fact that their involvement in decision-making process is low or even inexistent. Creation of new employments and sources of income generation resulting from skills of local actors are still far from being reached. Most priorities chosen at macro level do not take into account what would be the choices of people in the impact areas. The impact of these policies are felt by the local communities, the vulnerable group to which part of the decisions are targeted. Local communities have their own wishes, choices and priorities. These issues make top-down policies appear less effective due to lack of participation and inclusiveness of local population in decision-making process regarding employment creation and income generation. In Mozambique, LED agencies were introduced around the year Six years after the implementation of these agencies, there is a need to evaluate to what 6

21 extent the programme has contributed to improvement of the living standards, employment, inclusiveness and participation of the local population. 1.3 Objectives of the Study The general objective of this study is to assess the socio-economic impact of Local Economic Development Agencies (LEDAs) to the local communities of Manica and Sofala Provinces. The specific objectives include the following: Analyse and explore principles and approaches of the practice of economic development for planning economic well-being for future growth. Explore historical, social, political and structural impediments to change. Identify perceived strengths and weaknesses of the current LEDAs respectively, LEDA-Manica and LEDA-Sofala. Identify competitive local economic advantages as well as its constraints. Propose some solutions for the shortcomings. Propose an organization, a public participation approach, and potential programmes, which could be implemented to give the community a taste of success. 1.4 Research Questions To what extent has the implementation of LEDAs contributed for improvement of the socio-economic conditions of local population of Manica and Sofala Provinces? In addition to the above question, the study was also guide by the following questions: To what extent have LEDAs contributed to inclusiveness and participation of local actors in economic decision-making? What are the benefits and the shortcomings brought by implementation of LEDAs 7

22 in the provinces of study? 1.5 Significance of the Study The study is useful tool for LED institutions in Mozambique, whose activities are still ongoing and whose main focus for the coming years will be the LED component. It also contributes to academic literature for future studies conducted in the same field. Knowing the impact of LEDAs for the local communities can be of a great importance for policymakers designing and planning future policies regarding the formalization of LED process at district and/or municipal level. Furthermore, the research can be helpful to the policymakers, NGO s and others integrated in the same framework of LED in designing economic strategies to promote local governance and sustainable economic development. In addition, the study can play an important role between the geographical areas in which the LED process is operating. The recommendations of the study may be an appropriate tool for the LED agencies, particularly LEDA of Manica and LEDA of Sofala, to help them in future projects of local economic development Justification of the Study The study topic was chosen because many government development policies (PARPA, PES, Agenda 2025, 5-year Government Plan) have an impact on macro rather than micro economy and the impact of these policies do not benefit the local communities. Accordingly, there is a need to transform or to convert the referred policies into concrete actions at local level that meet the locally defined needs. This may be possible through implementation of the LED process. 1.6 Scope of the Study The research study seeks to assess the socio-economic impact of LEDAs in Mozambique 8

23 and it was geographically limited to the case of Manica and Sofala Provinces. It was particularly conducted in Beira and Chimoio cities, both located in the central region of the country. These two cities were chosen because the first LEDAs in Mozambique were implemented there and they are much more integrated in the LED process. Others may have little or nothing to add in terms of the information for the study. The study will cover a period of five years that is from 2001 to 2005, mostly because the first LEDAs 3 in Mozambique were created in the year In this study experiences from LEDAs of Manica and Sofala provinces were analysed 1.7 Limitations of the Study One of the foremost limitations in undertaking this study was scarcity of literature regarding the Local Economic Development Agencies in Mozambique. Difficulties to access some relevant data on the Internet created limitations in terms of research and empirical work. Another limitation is related to financial constraint, as part of the research took place in Manica Province, this implied costs. In addition to this, most relevant empirical literature available on the Internet was very difficult to get because it required money, which the researcher could not support. Responses for the questionnaire was not entirely satisfactory, that is the respondents could not go deeper in terms of details in certain questions which the researcher thought that were relevant for the study. For instance, regarding people involved in training and information activities, the explanation was not reasonable. Moreover, the collaboration expected from the agencies was not totally successfully, since that the researcher expected to obtain more data than that provided. 3 LEDA of Sofala (Local Economic Development Agency of Sofala) was created in October 2000 and LEDA of Manica (Local Economic Development Agency of Manica) in November

24 1.8 Structure of the Study The current study has been organized in a relatively schematic way. Following a general introduction and the description of the LED framework, chapter two presents the literature review, which is divided in theoretical and empirical literature. Chapter three consists of the methodology used to perform the study, covering in detail the research design. It comprises sample population, the sample size, data collection and finally the research duration. Chapter four involves findings, presentation and analysis of data of the research. Finally, the chapter five takes account of conclusions and recommendations. 10

25 Chapter 2: Literature Review 2.0 Introduction The amount of literature available on LEDAs around the world is enormous. Various organizations in different countries around the world are focused on implementing and conducting research in this area because of its huge impact on the economy and society as a whole. However, due to the fact that the phenomenon is new in Mozambique, there is little systematic literature on research done in the country with regards to the issue of LEDAs. LEDAs operating in different parts of the world try to address diverse types of problems, among which one can include the fight against social exclusion and poverty, reconstruction and the development of economies, development of micro and small business and the conversion to the market economy. For instance, in Africa (Mozambique, Angola and South Africa) the emphasis is on the extreme poverty alleviation and inclusion of less favourable communities in the development process. This chapter presents the theoretical and empirical literature in this field of research. 2.1 Theoretical Literature Review Most Local Economic Development (LED) based approaches have been developed for countries with stronger local organizations and institutional frameworks than Mozambique whilst anticipating on the availability of financial and human capabilities that are not in place in Mozambique except for Maputo. According to Swinburn et al. (2004) this holds for the World Bank supported Cities of Change approach developed for municipal transformation in Central and Eastern Europe. This section presents four different LED approaches applied worldwide and also in Mozambique. These approaches include International Labour Organisation (ILO), Participatory Appraisal for Competitive Advantage, Netherlands Development Organization (SNV)-Mozambique, and The United Nations Human Settlement Programme (UN-HABITAT). 11

26 2.1.1 The International Labour Organisation (ILO) LED Approach The search for comprehensive, sustainable development has led the ILO to articulate the Decent Work agenda which encompasses four strategic objectives: 1) to promote and realize standards, fundamental principles and rights at work; 2) to create greater opportunities for women and men to secure decent employment and income; 3) to enhance the coverage and the effectiveness of social protection; 4) to strength tripartism and the social dialogue. Boekel and Logtestijn (2002) argue that the ILO s LED programme aims to promote decent work through the implementation of the development projects in Central America, Southern Africa, Eastern Europe and East Asia. Since the beginning of the 1990s, ILO has used the Local Economic Development Approach as a comprehensive framework within which imbalances in national economies all over the world are addressed. From Guatemala to Cambodia, from Croatia to South Africa, ILO has sought to prepare and empower local stakeholders in dealing with the impact of globalisation on their communities. In Latin America a range of LED initiatives have been implemented within the framework of the Reintegration Programme for Refugees and Displaced People (PRODERE) 4. The commitment of ILO to Local Economic Development finds its particular expression in the importance and recognition of the local employment creation initiatives. According to ILO (2003), these can take various forms, such as small co-operatives and associations, and offer employment opportunities, especially for potentially marginalized groups such as women and young people. At the same time, ILO seeks to promote complementary relationships between governments, employers and workers organizations. Under the ILO programme, the design and the implementation of a LED approach responds to the need to find the most suitable and sustainable solutions to local needs, addressing simultaneously the different dimensions of the development process by 4 ILO was responsible for the LED component for PRODERE, a multidisciplinary, multi-agency UN programme for displaced persons, refugees and returnees in Central America between 1990 and 1995, as part of international efforts to consolidate peace in that region. 12

27 integrating the economic aspects with the social, cultural and institutional dimensions. The ILO approach also finds ways to connect local, regional and national development policies into one comprehensive framework of action. ILO has played a key role in promoting the LED approach in countries emerging from conflict, notably in Central America and Cambodia, but also in Mozambique, Angola, Somalia, Mali, Croatia and Bosnia. The emphasis is on the capacity building at the local level to make possible the local population to articulate their interests, organize themselves, plan, execute and monitor activities that will lead to improvement of their lives. Hakemulder (1997) suggests that capacity building facilitates the cooperation of private and public actors and aims at stimulating business investments and growth of local enterprises The Participatory Appraisal of Competitive Advantage LED Approach These section of literature review in concerned with Mayer Stamer LED approach. Mayer-Stamer (2002) in his study on launching Local Economic Development Initiatives argues that when local actors embark on a local economic development initiative, they want results, and they want them quick. He also states that conventional approaches, often involve huge up-front investment in terms of time and money, it often takes long for proposals to come up, the proposals are not always practical and compatible with the local mindset. The Participatory Appraisal of Competitive Advantage (PACA) approach was created as an action and results-oriented methodology that is based on principles of rapid and participatory appraisal. Its basic elements include the following: The initial diagnostic should take no more than one to two weeks, and the results are presented and discussed immediately after that. Local actors must be involved in the diagnostic not just as participants in workshops and respondents in interviews, but also actively, as interviewers and part of the research team. Their active participation facilitates the transfer of methodological and conceptual know-how, and it motivates and empowers them to continue with the initiative once the external consultants have left. 13

28 External consultants play an important role in the first diagnostic, and they must be prepared to back-up local actors later on, but the main work in implementing concrete activities has to be done by local actors and institutions. According to Mayer-Stamer (2002) successful local economic development initiatives depend, first and foremost, on the motivation, commitment, and insistence of local actors. Identifying their latitude and motivation for action is a crucial task of a PACA diagnostic, and any practical proposal must closely relate to the capabilities and the motivation of local actors. PACA consists of a set of tools to come up with diagnostic of the competitive advantages and disadvantages of a locality, and with concrete, practical proposals to stimulate the local or regional economy (ibid). Under the above mentioned, PACA approach has been applied in cities and regions where between 50,000 and 400,000 people live. This includes rural places as well as regions, which host world-class industrial firms. In addition, Mayer-Stamer (2002) argues that this approach is not suitable for application in cities or regions that are much larger; however, it is perfectly applicable, say, at the level of one part of a large city. He pointed out that PACA approach has been applied in two types of settings: In places where local actors wanted to do something about local economic development but were not sure how and where to start; In places where local actors were already conducting specific activities targeted at local economic development, but where the activities were isolated and where the local stakeholders disagreed about the definition of the problems, and even more about the remedies Points of Departure of PACA Again Mayer-Stamer (2002), considers the following points for departure of PACA 14

29 approach: He suggests that motivation is a crucial issue for departure of PACA. That is, Local Economic Development can only to a limited extent be delegated to salaried professionals. Any LED initiative is in need of visible, tangible results, and preferably quick results. Mayer-Stamer (2002) argues that quick and tangible results motivate local actors to continue dedicating their time. Thus, coming up with viable, practical, and quickly implementable proposal is crucial. Projects will only work if several individuals work together. It does not make sense to suggest projects which local actors do not find plausible, and it does not make sense to suggest projects, which involve the collaboration of actors who cannot imagine working with each other. The aim is to come up with a diagnostic not only of economic potential and challenges but also of a clear idea of the capacity, motivation and cooperative spirit of key actors. PACA is an approach that combines LED bottom-up and traditional top-down approaches. It avoids focusing one of these approaches exclusively. But it has a clear bias, it is based on the conviction that bottom-up is extremely important, and will often have to be prevalent pattern. The ILO approach to LED on the other hand, is an approach which for all intents and purposes focuses exclusively on bottom-up development policies. Similarly, the present study is associated with the ILO approach in which its main focus is the emphasis on the bottom up development policies. The traditional topdown approach has normally consisted in supply-led policies focus either on infrastructure strengthening or at attracting industries and Foreign Direct Investment (FDI). Besides, PACA combines both the supply and demand-driven activities. The author revealed that the supply-driven capacity building was slow, unwieldy process-few people voluntarily do it if there is no clear goal. Conversely, the demand-driven capacity building, can build on a strong motivation, since the capacity is necessary to solve a 15

30 problem at any time at the moment (ibid). Moreover, it is also clearly distinct from other approaches to local economic development, such as Strategic Planning and the creation of LEDAs. Strategic Planning usually is conceived as a comprehensive effort, which demands enormous resources and takes a lot of time. It also does not give much latitude for learning-by-doing in implementation as PACA does. Strategic Planning is good thing for government officials who dislike leaving their office, who like subcontract work, and who are measured by input indications and not by output. Furthermore, PACA approach which is heeding diagnosis and action rather than lengthy planning processes, is quite different to what is pursued by Mozambican stakeholders and The Netherlands Development Organization (SNV) for Mozambican districts and municipalities. Whereas PACA follows a rather heavy workshop trajectory and involves external consultants, SNV opts for a much lighter approach with less workshops and consultants, but putting more emphasis on capacity development requirements and the involvement of a flexible team of advisors SNV-Mozambique Approach to LED Hassam and Wijnhoud (2005) developed a study on Capacity Development for LED in Mozambique. They affirm that the success of LED trajectories and their sustainable impact depend on the organizational capacity of local stakeholders and an appropriate institutional framework for it. According to them, capacity development efforts targeted at local governments, both municipal councils and district administrations, and the private sector as well as the strengthening of local partnerships and overall institutional framework for LED is relevant. In this perspective, the SNV designed a capacity development approach for Local Economic Development (LED) at district and municipal level in Mozambique as aimed at the twin objectives of strengthening local governance and sustainable local economic growth. 16

31 With this understanding, SNV in Mozambique is dedicated to a society where all people enjoy the freedom to pursue their own sustainable development. Its advisors contribute to this by strengthening the capacity of local organizations. According Hassam and Wijnhoud (2005) the strengthened capacity of these organizations will result in their improved performance and their increased impact on good governance and poverty alleviation. Different from the above approaches, SNV uses a much lighter and more flexible approach, which includes two distinct phases and six steps. Phase 1: Identification and formulation of LED activities Step 1: Pre-engagement and contracting This step consists of identify the potential of the municipality for LED and preengagement with the main partner, the Municipal Council or District Administration. If successful, the step is closed of with the signing of a Memorandum of Understanding (MoU) for mutual agreement about the continuation of the process. Step 2: Preparations for identification and formulation of activities The step starts of with awareness creation efforts and the identification of potential key stakeholders for LED beyond the municipal council or district administration it self. This is followed by the establishment of a LED core team involving representatives of a number of public and private sector stakeholders as the main facilitating organization such as SNV and, depending on the local setting and opportunities. Step 3: Identification of economic opportunities and constraints to be eliminated (leverage points) This step starts of with the identification of tools for local economic appraisal to identify opportunities and constraints for LED followed by the appraisal itself. According to Bernet et al (2005) as quoted in Hassam and Wijnhoud (2005), tools may include approaches for participatory sub-sector and market analysis, but also tools derived from some other participatory appraisal methods like triangulation, diagramming and mapping. 17

32 Step 4: Formulation of a set of concrete activities The step starts of with stakeholder consultation to reach consensus about the prioritisation of a limited number of identified leverage points, both economic opportunities and constraints within the economic environment, for which subsequently proposal for concrete activities will be elaborated. Phase 2: Implementation of concrete activities Step 1: Launch of LED plan; start of implementation This step consists of launching of LED plan and the initiation of the activities, either economic activities or actions aimed at the creation of a favourable economic environment. Step 2: Implementation continued (some elements to be repeated a number of times) This step is characterized by full-fledged implementation with appropriate monitoring and evaluation system (M&E) in place United Nations Human Settlement Programme (UN-HABITAT) LED Approach United Nations Human Settlement Programme (UN-HABITAT) and Ecoplan International developed a Strategic Planning approach for LED but, due to its primary objective of strategic planning, is considerable different from the more focused and action-oriented approach like pursued in Mozambique by SNV. Trousdale (2003) defines Strategic Planning as a systematic decision-making process that focuses attention on important issues, and on how to solve them. He continues arguing that it is an approach that provides a general framework for action: a way to determine priorities, make wise choices and allocate scarce resources such as time, money, skills to achieve agreed to objectives. Swinburn et al. (2004) suggested a local economic development strategic planning process typically with five stages as shown in Table 2.1. They state that the LED strategic planning is a flexible process and one stage often continues in parallel with 18

33 another according to local needs. To be precise if problems are encountered during a particular stage, it may not be as a result of work in that stage but the appropriateness of a previous stage. Table 2.1: The Five Stages of LED Strategic Planning Process Local Economic Development The Five Stages Stage1: Organizing the Effort Stage 2: Local Economy Assessment Stage 3: Strategy Making Source: Swinburn et al., 2004 Stage 4: Strategy Implementation Stage 5: Strategy Review In addition, the strategic planning approach moves beyond ad-hoc decision-making and allows a local area to both create and respond to economic challenges and opportunities. It does, however, require a sustained level of commitment, the dedication of resources, and the opening up of the planning process to involve stakeholders in the local area. As well it requires organizational and institutional capacity. According to Trousdale (2003) the process of strategic planning for local economic development is organized into a series of four basic questions: 1. Where are we now? 2. Where do we want to go? 3. How are we going to get there? 4. How do we know when we have arrived? He goes further suggesting that the answer to the above questions involves a number of steps. The figure 2.1 illustrates the process as the Ten Steps to Planning Excellence. As can be seen, the process is relatively long and exist an interaction between one step to another. 19