Introduction to LED maturity Assessments

1. Introduction to LED maturity Assessments 25 - 26 May 2011 Presented by John Lawson

2. Agenda

3. Agenda

4. Need for the instrument • Getting LED to “work” is critical to address poverty and inequity. • There are a number of challenges to be overcome first. • The assessment of LED capacity of each municipality, provides a direct, tangible and scalable means of • raising the profile of LED within a municipality, • Identifying areas for improvement, and • identifying good LED practice. • Ultimately we want to shift behaviours towards LED that works • The origin of the tool was in Gauteng. Before deciding on support measures, the current situation of LED had to be determined.

5. LED maturity of 28 municipalities in the Eastern Cape - Overall Results Scale: 5 steps in learning 5. Consistently performing = Excellence, Best practice 4. + Now starting to do the right things 3. + Now knows what to do and how 2. + Trying something 1. Aware of need to 0. Don’t know topic Still a lot to learn ……. (Dec 2009)

6. 2008, 2009

7. LED and the municipal role • Strange things happen under the heading of LED - What is the funniest or strangest thing that you have witnessed in LED? • What is your best example of sound LED? • What is the municipal role in LED?

8. Body break 10 minutes Grab a cup of coffee or tea LED café back in here, work continues

9. LED - The Basic Idea Flipchart diagram “The most successful regions turn out to be those in which groups of relevant actors succeed in organizing rapid and effective learning and decision-making processes that actively shape locational and competitive advantages”

10. What is LED? A definition Activities by • local government • local business associations • local companies • other stakeholders • alone or in close collaboration which • tackle market failures • strengthen the competitiveness of local firms • remove bureaucratic obstacles for local firms to create a unique advantage for the locality and its firms

11. What is the municipal role in LED? Besides providing the basic services well ….. • Take ownership of LED and see that it is done well “Governance” • Establish LED that works “Facilitation” • Mobilise an “army” of stakeholders to continuously improve the local economy, and • Respond to rapidly to opportunities and threats

12. Sector competitiveness improvement potential Sector competitiveness improvement actions Sector competitiveness improvement potential Sector competitiveness improvement actions Once the benefit of LED collaboration is understood, stakeholders connect more willingly to pursue shared goals As LED matures, network patterns of ongoing collaboration emerge After demonstrating LED, stakeholders connect and start collaboration Sector competitiveness improvement potential Initial chaos, little stakeholder collaboration ? Sector competitiveness improvement actions LED system John Lawson Year 1  Year 2  Year X The overall objective of LED, in particular in countries with widespread incidence of poverty, is that vibrant and ecologically sustainable local economies are created which ultimatelylead to better living conditions for the majority of the population. LED as an ongoing process where stakeholders work jointly tocreate a unique advantage for the locality and its firms, tackle market failures, remove bureaucratic obstacles for local businesses and strengthen the competitiveness of local firms.

13. LED success rates • Why are the success rates in LED so low? Strategies not executed? What are the root causes?

14. Insight from LED maturity assessments 64 municipalities in 3 provinces have been benchmarked to date. The data provides good insight into: • the specific challenges at each municipality, • the generic challenges experienced in the practice of LED, • the overall state of LED performance and practice at municipalities, • statistical insight into causality of alternative LED approaches, and • where to find examples of good practice, in each region.

15. Opportunities prioritised: LED strategy Capacity to execute opportunities Opportunity realised (impact) - Not leveraging available intellectual capital through effective participatory planning Viable opportunities not identified Unutilised capacities – private sector, other municipal functions, other public sector organisations Opportunity wasted due to not understanding how to utilise available capacity to execute LED - Not identifying and/or not gaining commitment from persons with capacity to execute viable initiatives Documented Opportunities - Failed implementation Committed capacity Impact - Resources wasted on non-viable initiatives Non-viable initiatives identified Our view on current challenges with LED in South Africa Viable improvement opportunities Opportunity wasted due to: Opportunities in a specific context - viable if available capacities utilised + 0 -

16. Hypothesis of root cause (a generalisation!) The generalised hypothesis of cause and effect is as follows: • Poor learning (no impact assessment year after year) • And poor governance, poor LED consciousness and insight • Results in poor LED approach, poor appointments and limited municipal cooperation. • Poor LED approach allows public sector to continue to try and do LED without partnering effectively with the private sector. • Results in private sector know-how and capacity to implement being excluded. • Reinforces lack of understanding of economy and poor strategic decisions. • Contributes to limited capacity to execute. • Results in very poor LED output, outcomes and impact. • This is a generalisation and each case needs to be treated on merit.

17. 1. Whereas many LED units in municipalities have been exposed to good LED practices, the lack of effective LED support and governance from municipal and political leaders overrule and undermine the LED agenda and resource allocation.

18. 2. Participatory approaches (as promoted by GTZ LED programme) to leverage stakeholder know-how, social capital and commitment are critical but limited. Participation not only contributes to increased implementation, but also to improved understanding of the economy and to strategic decision making.

19. Different development approaches also cause conflict • What makes LED harder to do then other municipal functions? • Why and how must the LED planning approach differ from other planning approaches? • What are the consequences of not utilising a sound LED planning approach?

20. Profit vs. welfare Opportunity vs. problem Delivery vs. participation Different development approaches Enterprise Development: Competitiveness driven: specialisation, markets & rapid results, Community Development: Needs driven: education, health, welfare, & direct poverty reduction Locality development: Trend driven: Physical & environment, longer time horizon, vision & strategy, regulation & oversight

21. Towards a more Pragmatic LED Approach • The top down strategic planning driven approach to LED is challenged • Promote much more action-oriented and bottom-up thinking and action. • Rely much more on continuous change /improvement processes and the constant search for economic opportunities. • Mobilising an “army” to do LED rather than rely on projects run by the LED unit or development agencies. RED-X developed a framework to make LED easier for more key stakeholders to understand, and then contribute.

22. Lunch

23. Basic framework Economy as a System LED System

24. Why? What? Economy as a System LED System Who with what? How?

25. Economic Performance Key Sectors & Markets Business Environment Social Impact Economy as a System LED System Improvement Initiatives Know-how & Resources Organisation of Capacity Activities / Functions

26. Economic Performance Key Sectors & Markets Business Environment Social Impact Economy as a System LED System Improvement Initiatives Know-how & Resources Organisation of Capacity Activities / Functions

27. John Lawson • 7. Economic performance • Increased trade, value added and exports • Increased investment (private & public) • Increased in enterprise start-ups, • survival & growth • Increased competition • & rivalry • 6. Key sectors & markets • Key sectors & clusters • Key export markets • Key local markets • Trends in demand • Trends in competition • Rules of engagement • Natural endowments • Regulatory environment • Institutional environment • Spatial development patterns • Built environment / infrastructure • Environment quality & sustainability • Human development • Accessibility of opportunities by the poor • 5. Business environment • Increased employment • Increased earnings / capita • Increased equity participation • Increased tax revenues • 8. Socio- economic impact Economy improves the • 1. Resources, knowledge & learning • Insight, know-how & skills • Learning - from experience & others • Supply of people to govern, • facilitate & champion initiatives • Relationships & networks • Methods, tools • Facilities, equipment • systems & • technology • Money • 4. Initiatives to improve economy • Strengthen competitiveness of local firms • Reduce constraints to investment & • growth • Rectify market failures to make • markets work better LED system • Municipalities • Sector dev.orgs • Lead firms, SMEs • Organised business • Provincial & national govt • Public Investors & parastatals • Business dev. service providers • Skills dev. & education Institutions • Social capital & a climate conducive to • economic collaboration, learning & innovation • 2. Organisation of Capacity • Ensure LED governance • Facilitate LED processes • Stakeholders participate & make • rapid and effective LED decisions • Stakeholders actively shape locational & • competitive advantages (Execute LED initiatives) • 3. Activities, functions and processes

28. 4 Layers of LED activity and organisation 4 layers of activities differ in purpose, method and skills required: Function 4: Stakeholders actively shape locational & competitive advantages (Execute LED initiatives).But if these are poorly chosen initiatives, the impact will be minimal and resources will be wasted, so F3 is required. Function 3: Stakeholders participate and make rapid and effective LED decisions.But stakeholders will not spontaneously get together to do this, nor will they have guidance of sound LED principles, so F2 is required. Function 2: Facilitate LED processes.But poor LED practices or manipulation for self-gain may occur, so F1 is required. Function 1: Ensure LED governance. This should be self regulating, transparent and accountable to citizens.

29. Economic Performance Key Sectors & Markets Business environment Social Impact Economy as a System LED System 1 Govern LED 2 Facilitate LED 3 Stakeholders participate to make rapid and effective LED decisions 4 Stakeholders actively shape locational & competitive advantages (Execute LED initiatives)

30. Economic Performance Key Sectors & Markets Business Environment Social Impact Economy as a System LED System Improvement Initiatives Know-how & Resources Organisation of Capacity Activities / Functions

31. Economic Performance Key Sectors & Markets Business Environment Social Impact Economy as a System LED System Improvement Initiatives Know-how & Resources Organisation of Capacity Activities / Functions

32. Economic Performance Key Sectors & Markets Systemic Competitiveness Social Impact Economy as a System LED System Improvement Initiatives Know-how & Resources Organisation of Capacity Activities / Functions

33. Markets • Circle of discovery • Corner of the evil (stand) • Justify the evil behaviour • Reflection on how markets work • Implications for businesses?

34. Key insight 1: Markets offer endless opportunity • Trillions of dollars of and millions of jobs can be created, provided the businesses can compete sustainably. • But this is not easy at all, because of buyers like us • Sustainable growth driven by businesses that succeed to compete effectively in a global economy. • This is actually extremely difficult. Especially if your environment makes it tougher than competitors. • Soccer analogy • Entrepreneurs and businesses that do succeed, are therefore the most precious assets – attract, retain and support growth • Many public sector stakeholders still see business as the enemy of the poor …….  Whilst it is the exact opposite! • Dealing with exploitative businesses is a separate issue. • Our value systems distort all LED decisions …..

35. Money flows out with external purchases Public sector funds Money flows in from external sales Locational factors: Land constraint,Low crime,infrastructure backlog, low education levels,good leadership The Fetakgomo Local Economyit is tiny, making the principles easier to illustrate Value added • Municipality, • & and few representatives • From other govt. depts • 1 Platinum Mine • Many subsistence Farmers: • mostly vegetable crops and goats • Transport: A few Taxis, 1 Trucking (mine) • Retail: Spaza shops (micro), Street vendors, • a new small shopping centre is being built • A few Construction services (micro) • 1 or 2 Steel manufacturers (micro) • 1 Crushed stone distributor • A few Catering services (micro) • 1 Garment manufacturer (micro) • Many Schools

36. Locational factors: Land constraint,Low crime,infrastructure backlog, low education levels,good local leadership Growth Potential - Fetakgomo Economy Money flows out with external purchases Value added Public sector funds • Municipality, • & and few representatives • From other govt. depts Money flows in from external sales Reduce outflow • 1 large platinum mine Rapid Growth planned • 2nd large platinum mine Rapid Growth planned • Many subsistence Farmers: • mostly vegetable crops and goats • Transport: A few Taxis, 1 Trucking (mine) • Retail: Spaza shops (micro), Street vendors, • a new small shopping centre is being built Link to mining opportunities • A few Construction services (micro) • 1 or 2 Steel manufacturers (micro) • 1 Crushed stone distributor • A few Catering services (micro) • 1 Garment manufacturer (micro) • Many Schools

37. Key insight 2: Grow the size of the pie • What lead firms in which sectors are driving growth? • Which of these firms & sectors are serving external markets ? Bringing money into the local economy • Which of these firms & sectors are increasing our market share in local markets ? Retaining money If we do not support growth of the lead firms, and focus only on SMEs and BEE issues, the overall size of the pie gets smaller. More good can be done for both SME and BBBEE, by attracting, retaining and supporting growth of more lead firms … e.g. Heineken case Leverage the power of these firms also to broaden participation.

38. “Rules of the game” 1. Markets offer endless opportunity to create wealth, but this can only be realised by businesses that are able to compete. 2. Local businesses that sell to external markets, earn revenue for the local economy. Purchases by locals of goods and services from businesses outside, leaks revenue from the economy. Remote Target Markets Local Economy Key local markets Key Local Business sectors

39. “Rules of the game” 1. Markets offer endless opportunity to create wealth, but this can only be realised by businesses that are able to compete. 2. Local businesses that sell to external markets, earn revenue for the local economy. Purchases by locals of goods and services from businesses outside, leaks revenue from the economy. 3. Local economies want to attract and retain businesses that are able to compete, because they earn this wealth for the local economy, which is shared through wages, sub-contracts, taxes and dividends. 4. A variety of key systemic factors determine the ease or difficulty of competing with success. That is why businesses and work seekers move to local economies that do increase prospects of their success. Remote Target Markets Local Economy Key local markets Local Business environment Dev. orientation of Society Key Local Business sectors Policy & regul. env Locational factors Local Suppliers / sub-contractors Local specialist service providers Inter-firm rivalry, competition & cooperation Work seekers / Employees

40. Competitor Work seekers / Employees Competitor Business environment Competitor suppliers / sub-contractors Competitor specialist service providers Dev. orientation of Society Policy & regul. env Locational factors Competitor Business sectors Inter-firm rivalry, competition & cooperation Competitor Economy Competitor Local markets “Rules of the game” 1. Markets offer endless opportunity to create wealth, but this can only be realised by businesses that are able to compete. 2. Local businesses that sell to external markets, earn revenue for the local economy. Purchases by locals of goods and services from businesses outside, leaks revenue from the economy. 3. Local economies want to attract and retain businesses that are able to compete, because they earn this wealth for the local economy, which is shared through wages, sub-contracts, taxes and dividends. 4. A variety of key systemic factors determine the ease or difficulty of competing with success. That is why businesses and work seekers move to local economies that do increase prospects of their success. Remote Target Markets Local Economy Key local markets Local Business environment Dev. orientation of Society Key Local Business sectors Policy & regul. env Locational factors Local Suppliers / sub-contractors Local specialist service providers Inter-firm rivalry, competition & cooperation Work seekers / Employees

41. Key insight 3: Mobility of business and skills • Who still works in the same place as they grew up? • Why did you move? • Do highly skilled persons remain in rural areas? • What are the advantages of cities? • Why do businesses move? Cities vs Rural, countries • What happens if they don’t move?

42. Key Insight 4: Balanced approach Work with what exists. Retaining jobs is easier and cheaper than creating new. Retain & support growth of existing firms + attract new. • Lead / large firms • Small firms • Investors Pitfalls of chasing investment targets e.g. Parmalat

43. Economic Performance Key Sectors & Markets Business environment Social Impact Economy as a System LED System Improvement Initiatives Know-how & Resources Organisation of Capacity Activities / Functions

44. Systemic Competitiveness Framework (Meyer-Stamer, 2003) Good Place for People Good Place for Business Good for Environment Quality & Sustainability In more detail: Development Focus

45. This is the scope of factors that need to improve, but who has the power, influence and capacity to change these factors?

46. Tea

47. 0/5 1/5 2/5 3/5 4/5 5/5 3. Good place for business 3. Good place for business 4. Competitiveness of key sectors 4. Competitiveness of key sectors 2. Shared vision & focus (growth, jobs, equity, investment) 2. Shared vision & focus (growth, jobs, equity, investment) 10. Dev. orientation of Society 10. Dev. orientation of Society 5. Key local markets 5. Key local markets 9. Policy & regul. env 9. Policy & regul. env 6. Business Environment 6. Business Environment 1. Local expectations (economic opportunity) 1. Local expectations (economic opportunity) 12. Good place for poor 12. Good place for poor 8. Locational factors 8. Locational factors 11. Good place to live 11. Good place to live 7. Inter-firm cooperation 7. Inter-firm cooperation 13. Good for Environment 13. Good for Environment LED System 20. LED Results 20. LED Results 33. Learning to do LED better 33. Learning to do LED better 30. Organisation of Governance capacity 30. Organisation of Governance capacity 31. Functions: LED Governance 31. Functions: LED Governance 14. Reliable planning methodology 14. Reliable planning methodology 16. Alignment to leverage support 16. Alignment to leverage support 17. Follow through to implement 17. Follow through to implement 29. LED facilitation resources 29. LED facilitation resources 15. Selection of interventions 15. Selection of interventions 32. Results: LED governance 32. Results: LED governance 19. Municipal performance: Services, CAPEX 19. Municipal performance: Services, CAPEX 28. LED facilitation organisational capacity 28. LED facilitation organisational capacity 27. LED facilitation functions 27. LED facilitation functions 18. CAPEX informed by LED 18. CAPEX informed by LED 26. Organisation of stakeholder decision makers 26. Organisation of stakeholder decision makers 25. Processes of S/H decision- making 25. Processes of S/H decision- making 23. Leverage implement. resources 23. Leverage implement. resources 24. Results: S/H contribute to decisions 24. Results: S/H contribute to decisions 22. Organisation of implementation capacity 22. Organisation of implementation capacity 21. Process of Implementation 21. Process of Implementation

48. Economic Performance Key Sectors & Markets Systemic Competitiveness Social Impact Economy as a System LED System Improvement Initiatives Know-how & Resources Organisation of Capacity Activities / Functions

49. Planning Implementation Evaluation Initial diagnostic Review Review Characteristics of different planning approaches to regional economic development (Source: Mesopartner) No planning Strategic planning  Participatory planning processes An iterative process of continuous improvement

50. Smart initiatives: greater impact, simply and efficiently Include strategic change as well as continuous improvement: • Pro-active catalytic initiatives with high impact (subject to planning cycle) • Quick response to issues and opportunities when they emerge (real-time)