Getting the LED out

Getting the LED out

Local Economic Development might just save the country with its innovative initiatives. But only if we get our basic services in order first.

By Karen Heese and Kevin Allan

 

The concept of LED is in poor shape in local government circles. There are champions to be sure – and some great projects – but on the whole, there is disdain for what is commonly seen as an expensive and often futile exercise.

This is unfortunate. LED is more crucial than ever in the current period of economic turmoil. In fact, it is vital that local economies devise ways in which to remain competitive, but what role should municipalities play in this imperative?

It’s interesting that the 2009 Budget focussed on a broad-based strategy for the state to support competitiveness; investing in infrastructure, small business and rural development, rather than the sectoral bailout packages that have been seen abroad. This approach aligns with the conclusions of Nobel laureate, Paul Krugman, who, while recognising that space matters in shaping economic development, is critical of industrial policy interventions. Following this thinking, perhaps municipalities should be less focussed on the direct promotion of competitiveness; dispensing with large marketing conferences, roadshows and incentives and focussing instead on getting the basics right – things like billing properly, ensuring service delivery and upgrading local infrastructure.

The first step to this approach is entirely definitional. It requires addressing what’s plaguing the movement at its core. There are numerous definitions about LED floating around and that only serves to bring up more questions than answers.

Should municipalities see LED as work that encourages economic activity? Or should they intervene more directly to correct market imbalances, creating jobs through favoured projects in more of a social welfare role?

The latter role tends to be associated with LED in South African local government circles, with a social emphasis commonly (although not exclusively) applied to municipal LED strategies. Typically, LED translates into infrastructure investment, sectoral programmes, preferential tender and procurement policies for local businesses and often expensive, but questionable marketing and partnering programmes.

The issue goes far beyond semantics. The failure to articulate LED clearly has undermined the integrity of LED programmes, which can become wish lists in development plans, driven by politicians, with inadequate integration into provincial or national strategies, leading to poor planning, impact assessment and most problematically, poor sustainability.

In effect, there are too many ill-conceived, expensive and ultimately unsustainable projects which are derogatorily referred to by some poverty specialists as “development by piggery” – programmes that pull out as fast as they move in leaving the community worse off than when they started.

Even if the role of LED is one of social welfare, this needs to be costed to assess the outcomes of spending. Too many LED projects demand hundreds of thousands of rands for each job created. Yet, aside from their direct opportunity cost, they risk detracting from equally important processes that ensure co-operation with existing stakeholders, such as engaging with investors, small enterprises nd regional development agencies.

Could more be achieved through improved core service delivery by municipalities that supports an environment that is conducive to economic activity, allowing regional and industrial policy shape investment patterns? Investors often argue that all they require from a local government is accurate billing, the passing of plans within a reasonable timeframe, access to officials and occasional, but often fairly minor initiatives, like the cutting of grass on verges to enhance the safety of workers and drivers using local roads.

In the long run, extended free basic services, access clinics or libraries also promote LED by enhancing the productivity and the well-being or residents. In addition, facilitating measures, like the building of taxi ranks with trading areas can be important boosts to LED but are seen and categorised simply as capital expenditure projects.

There is a certain humility required in recognising firstly the failures of many past LED projects and then recognising that focussing on core operations may be all that is needed to truly shape LED. But then, humility just may be the very tonic that LED needs.

 

Karen Heese and Kevin Allan are the founders of Municipal IQ. Heese is Municipal IQ’s economist, while Allan is Municipal IQ’s Managing Director. Municipal IQ is a web-based data and intelligence service (www.municipaliq.co.za), specialising in the monitoring and assessment of South Africa’s municipalities

 

What’s not working

When LED gets into the business of development by piggery, all bets of success are off

By Karen Heese and Kevin Allan

 

A core problem with LED is that in the face of pressing backlogs and service delivery concerns, it’s not truly considered a core mandate. LED is often relegated to a well meaning official in a side office.

This is made worse when it is viewed as a social welfare function with little outcome expected as far as changing the face of local economies. This depressing assumption is based on a poor track record. LED programmes are frequently expensive and unsustainable but allowed to run their course thanks to the support of donor funding. But as the corporate sector has realised, it is often more useful to understand social responsibility as an investment rather than a once off grant in order to promote sustainability.

To illustrate, dozens of piggeries scatter the country in an attempt to provide employment for destitute communities, but once the funding is removed, these projects almost invariably collapse given that there is no inherent market logic for the programmes without subsidy. The question them arises, would other, simpler measures such as free basic delivery or employment-generating expanded public works programmes such as fencing or road construction, deliver better bang for buck?

It would also be naïve to overlook the political dimension behind unsuccessful LED, which often props up pet projects. These projects often focus on infrastructure ‘legacy’ projects like bridges, or inappropriate stadia construction that are designed to reflect personal legacies rather than community needs, and have little multiplier effect on the local economy, especially where, as in many such ‘legacy’ projects, a large import component prevails. There is also the risk of patronage in these processes. But these problems could be fixed, even if it is by agreeing that LED as an explicit area should take a back seat to basic service delivery.

 

How to fix it

To get LED back to work, honest assessments of what’s broken must be addressed

By Karen Heese and Kevin Allan

 

There are some excellent LED policies out there. The cultural industries that are blooming in Johannesburg’s Newtown precinct, eThekwini’s tourism/conferencing/sporting focus optimising the newly-completed 2010 soccer stadium, and numerous other conference venues around the country that support business tourism are but a few obvious examples.

How then do these work where others fail?

The key question is whether they would be likely to succeed in any event – in other words, is there an inherent logic to their existence – or can local government shape individual economies, and if so, how much effort and expense should they allocate in trying to do so?

The answer to this question probably lies somewhere in a grey area where a certain inherent economic rationale supports LED, but in successful instances, concerted local measures play a role in supporting LED. It is likely that instances of success are all based on a sober and clear assessment of LED (which has clearly defined and accepted by all stakeholders), following a debate, whether explicit or implicit, as to whether LED should even be a priority before basic service delivery is addressed.

Where LED is considered a priority, to succeed and be efficient, it needs to align with inter-governmental, sectoral and private sector strategies to avoid duplication and unnecessary expense. Alignment also needs to take place within municipal activities, with LED objectives a focus of all related projects. Dedicated officials need to ensure this complex series of alignment to ensure a virtuous cycle, requiring ongoing communication with stakeholders. The most complex task following this planning is assessment, underpinned by costing – how much has been spent on LED, and the most compelling question, what has been achieved, especially against measurable and comparable targets? It is only with honesty and perseverance that LED will ever be cracked, and usually with the untiring work of a few dedicated champions.