Case Study on the Formulation of a National Local Economic Development (LED)

Policy

The Case of Mozambique

I. TIME CONTEXT
After the Independence Day from Portuguese revolution, and the new economic policy of
decentralization was rapidly approved at Mozambique on 1992, which includes economic
liberalization based on privatization of the economic assets and functions, market-based
exchange rates and prices, plus a rationalization of public expenditures and fiscal balance.

The government’s action plan aimed to substantially reduce the level of poverty in the
year 2001 to 2005 which is the main objective of Mozambican’s economic policy.
However, the population below poverty line still remains at not less than 52 percent,
which is unlikely for a country that is committed to maintain financial discipline, to
improve the environment for the expansion of private sector activities, and to foster
development of a strong export base through liberal trade and investment policies.

II. VIEW POINT

Until shortly before 1990, the Central Government’s institutions promoted local
economic development by direct supply of goods such as seeds and fertilizers; and
training services through its decentralized Government agencies throughout the country.
With a plausible management to local economies in distribution of fiscal excises of their
people and provision in decreasing unemployment in the country, there will be no doubt
in improving their economy through decentralization.

With the fact that the National Development Investments were mainly oriented towards
the provision of basic infrastructure and services, there is a high possibility to enhance
agricultural opportunities for the Mozambicans to be employed, thus improving local
economies.

In accordance with the Government Development Plan of 1998, five year Provincial and
District Development Plans have been formulated by the Provincial and District
authorities, involving representatives of the civil society and private sector. These plans
aim to define development strategies trough prioritizing community’s local needs and
seeking to coordinate these objectives with the national approach.

Donor agencies and aid programs in the country have a great responsibility not to stay
focused on the sector and to have a full consideration to the demand of workforce of the
nation. This will be a step forward to reduce poverty that fallouts to an increase of
economic rates.

Participation of poor population groups should be more institutionalized at local levels

since they are the actors of the society and especially that they can provide the
government the problems they are truly experiencing while the decentralization exists.
This will help address the complications of the policies to adhere and review the changes
made for the development of economy.

III. CENTRAL PROBLEM

Decentralization is the political counterpart of Local Economy Development (LED). It
led to the formation of institutions that are committed and qualified to encourage the
participation of local civil society and communities for improvement because sustainable
poverty reduction in Mozambique is closely related to the country’s local economic
growth.

Due to contradiction of high poverty rate with the said improvement of economy because
of decentralization, the effectivity of the LED policy can be questionable. It is widely
acknowledged that flexibility and liberalization of macro-economic policy do not
necessary lead to a significant increase in employment for the rural people in who are
poor because they are isolated, largely cut off from, and have few contacts with, the
formal economy.

However, the effectiveness of these instruments is a pending issue. Significant efforts

should still be focused in the identification of the specific circumstances and modalities
in which decentralization can have a positive impact in LED and play a role in targeting
local development and fight against poverty and social exclusion.

In addition, after reviewing a variety of past studies on fiscal decentralization and

economic growth, Martinez-Vazquez and McNab (2003) concluded that there is no
empirical consensus on this relationship.

IV. OBJECTIVES
To be able to align the decentralization in Local Economic Development (LED) policy,
the government must prioritize their objective between increasing the economic rate of
the country and reducing the poverty within the Mozambique. Through this objective, the
implementation of the policy is possible to become more successful because of the
foreseen clear vision on the true goal of this policy while upholding their responsibilities
to their jurisdiction.

To be able to help the Mozambicans to improve their career livelihoods, as well as to

raise the economic development of the country, the decentralized managements should
begin with giving employment opportunities to the people in order to decline the poverty
rate which is the main objective of their policy. A long-term solution awaits if they have
finalized the projects in producing more jobs to the citizens hoping to work to provide for
their own families.

V. AREAS OF CONSIDERATIONS
To cope up the responsibilities of the government for the Local Economy Development
(LED) Policy to meet the low standard deviation in terms of living, the following are
identified to be of great factors in implementation of the said policy:
Strengths
Key factors in politics and economic history which mean an average of 20 inhabitants per
sq. km. with the majority of the people living in rural areas. Low population density is
therefore a common demographic feature of all the 10 provinces of Mozambique.

The poverty reduction strategy is based on six priorities that should ensure an inclusive
development process: education and health basic infrastructure provision; agricultural
and rural development; transport and communications infrastructure, including roads,
railways and ports, coastal shipping services and postal services and telecommunications;
enabling environment for enterprises through fiscal reforms and investment promotion
policies; good governance; and macroeconomics and financial stability.

A policy and legal environment that lowers the cost of establishing and operating a
business, including simplified registration and licensing procedures, appropriate rules and
regulations, and reasonable and fair taxation, will help new entrepreneurs to start in the
formal economy and existing informal businesses to enter it.

Weaknesses
One of the main difficulties in creating these mechanisms is in fact how to integrate
regional development policies at different levels, i.e. national, provincial and district
levels. Even if the hierarchical system of central planning has been abolished, sectoral
approaches to development still persist and therefore policies related to area-based issues
are taken by different ministries with the resulting problems of coordination and instances
of decision-making that are not clearly defined.

Opportunities
Consequently, agriculture still remains the starting point for any development strategy.
The promotion of agriculture industry is an enabling factor for agriculture and rural
development and the growth of employment.

Threats
Financial reforms allowed for the creation of the legal basis for micro-finance operations
(that can now be granted to NGOs as well as to individuals); fiscal policy reforms
concerning VAT introduction (17% value added on all transactions) and taxes on
business profit cut in addition to tax reduction for those investing in the poorest areas of
the country.

Donor agencies and aid programs were mainly sector focused and were often not demand
driven. Regional development policies helped only as general guidelines for the spatial
allocation of public investment but rarely encouraged the employment-intensive
investment at the local level.

At the same time, markets controlled by transnational corporations were mainly oriented
towards the provision of basic infrastructure and services, undermined the most important
source of national self-employment represented by the urban small and medium
enterprises (SMEs).
In February and March 2000, Mozambique was hit by the country’s worst flood in 50
years, leaving 10% of the total population temporarily homeless and facing the loss of
crops, livestock, seeds and infrastructure. As a result, they lacked in communication
systems, as well as social infrastructure such as clean water supplies, health facilities and
schools. In addition, their ability to generate incomes is constrained by their lack of
equipment and finance to purchase it. Thus, they work mainly with non-optimal or
inefficient techniques. In fact, the lack of access to markets means that they are unable to
realize the full value of their production.

VI. ALTERNATIVE COURSE OF ACTIONS (ACAS)

The Local Economy Development (LED) approach is seen as a key component of the
poverty reduction strategy undertaken by the Government since the Constitutional
reforms in 1990 from state-controlled development towards bottom-up development
approaches.

The markets controlled by transnational corporations should be limited by the

government from their provisions of infrastructures and services that undermines the
most important source of employment which is the urban small and medium enterprises
(SMEs).

Disadvantages
Limitation in transnational corporation would cost the Gross Domestic Product (GDP) of
the country.

Advantages
Through this, many establishments and businesses might open job opportunities for the
Mozambicans that will lead to economic growth of the country.

Donor agencies and aid programs that were mainly sector focused should also be demand
driven. Governmental decisions about large-scale industrial investments must not be
mandatory and they should take local consultation to be successful in implementing LED,
after all the policy focuses to the local economies. National development policies must
encourage the employment-intensive investment at the local level. It is widely
acknowledged that flexibility and liberalization of macro-economic policy do not
necessary lead to a significant increase in employment and improved working. That’s
why living standards of the poor can be widely highlighted by several authors. It should
be ensured that the emphasis to achieve sustainable and inclusive development,
mechanisms that translate macro/national policies into concrete actions at a local level.

Disadvantages
Allocation of funds for the improvement of the implementation will be more costly. The
processes of implementing the LED policy will be time consuming that will add up to the
consideration of local government decisions.

Advantages
The implementation of LED policy will be successful for the reason that there will be a
clearer understanding between different agencies that will come up to one decision in
reducing poverty rate through decentralization. Demand of the people will call for the
employment strategies ang the investments of different programs ang agencies will
increase along with this. The voices and insights of poor civilization group will be heard
because the focus on hand will be on theirs given that the government will prioritize in
eliminating most of the poverty.

Awareness of the need for integrated approaches made agricultural, agricultural industrial
and industrial policies to be considered within a broader setting of territorial economic
development strategies given that their economic impacts are so closely related. The
Mozambican economy is mainly rural; agriculture is a main source for employment and
income generation. This is the primary solution because a lot of wishful citizens of this
country will be given a chance to be employed, thus, improving the economy from local
to national of Mozambique.

Disadvantages
Allocation of funds for the improvement of the implementation will be more costly. The
processes of implementing the LED policy through agricultural employment
opportunities in rural areas will post a lot in spending time and budget. Education and
training programs will come up in adhering it to the citizens of the Mozambique. Other
might resist because of the illiteracy in agriculture may not support this solution.

Advantages
By regarding to the most abundant resources of the country, it will be a great step
forward for the improvement of its economy. In reliance to the agriculture of
Mozambique, it will offer employment opportunities for most of the people in the country
that the government should discover because it can be a long-term solution to a longing
problem the Mozambicans is experiencing up until today.

VII. RECOMMENDATION
Consequently, agriculture still remains the starting point for any development strategy.
The promotion of agricultural industry is an enabling factor for agriculture and rural
development and the growth of employment. It is a key element given that it expands the
market for agricultural products, contributing to the expansion of agricultural investment
and employment, in addition agricultural industries, in themselves, can create many rural
and urban jobs.

The poverty reduction strategy is based agricultural and rural development as one of its
priorities. It will support a huge set back to align its Local Economic Development (LED)
Policy to its economic growth with poverty reduction through decentralization which
enables the fiscal reforms and investment promotion policies, good governance,
macroeconomics, and financial stability.
VIII. PLAN OF ACTION
Mozambicans can adopt the educational reforms in nature of work as agriculturists who
are trained in general agricultural studies, but usually specializes either on the job or in a
master's program in one or more areas of agricultural science such as Crop
Specialization, Animal Specialization, Farm Management Specialization and Bio-
technology Specialization.

Also, the government can provide agricultural training programs, that can give them
opportunity to work in rural areas with enough qualifications. Some of the training fields
are the establishment of pilot demonstration Farms on Agroforestry (AF), Farmer
Managed Natural Regeneration (FMNR), Conservation Agriculture (CA) and
Development of Agriculture Risks Profile. Local management can decide through
decentralized decisions by seeking help to the national government for the allocation of
funds for programs in this kind of activities.