Why LED?

Both internationally and in South Africa, there have been vigorous debates as to how best to promote local and regional economies as a way to fight poverty. But why has this debate gained such momentum in recent years, in particular in development co-operation?

The increased focus on LED is to a large extent the result of the growing globalization of our economies. With the liberalization of trade and its accompanying deregulation and mobility of financial, product and labour markets, national boundaries decrease in importance and national markets become more and more accessible to foreign competitors. This development has brought both risks and opportunities to local economies: it increases pressure on local economies to compete internationally and adapt to global economic forces. At the same time, it opens opportunities to attract new markets and investors. The increasingly rapid flow of large quantities of information, with distance no longer acting as a barrier to trade, has shifted the focus of global markets from a national perspective to a more differentiated regional and local focus on potentials and competitive advantages of a territory. However, LED is not only about integration into external markets. While the integration into external markets is an important driving force, there are many areas, particularly in developing countries, that have not yet been touched by the forces of globalization. Nevertheless there are opportunities to strengthen the local economic cycles, make local opportunities visible, close gaps with regard to services or inputs into local economic activities and stimulate interaction between local businesses. LED’s popularity as an approach to economic development coincides also with the global trend of decentralising power from national to local government. Decentralisation is often a function of democratisation processes and the desire to allow a broader participation of citizens in the design and control of political processes that determine their livelihoods. Furthermore, the failure of existing industrial policies in numerous developing countries to create competitive and dynamic industries has contributed to the popularity of innovative LED concepts. The same counts for the Structural Adjustment Programmes and the macroeconomic reforms introduced in the 90s, which in most cases failed to have the majority of the population benefit from economic growth. Market failures are everywhere and particularly prevalent in rural or marginalized areas. Many of them, such as information failures, can be addressed much more efficiently and effectively at a local level than at a national level. These experiences and changing framework conditions have motivated a critical reflection of traditional approaches to private sector development in Development Cooperation, and Local and Regional Economic Development has emerged as an innovative approach to the challenges of overcoming territorial marginalisation.

LED offers a non-traditional, inter-disciplinary mix of interpretations and approaches which can shed new light on how to overcome multiple interrelated obstacles, such as low skills levels, lack of entrepreneurial culture, inappropriate or weak support mechanisms, disabling regulatory environments or a lack of access to financial and business development services. LED combines concepts and tools to improve an area’s locational factors by tapping into the comparative and competitive advantages of regions, the potentials of natural resources as well as the leadership and willingness for change of actors in the private and the public sector in developing countries.