Analyzing the economy

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Analysing the Local Economy

Defining the Economic AreaAssessing Local Economy

Economic Value Chain Analysis

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Outline

• Analysing Economies• Defining Economic Area and Jurisdiction• Assessing Local Economies• Assessing Institutional Capacity• Economic Profiling• Economic Value Chain Analysis• Specific Economic Data Analysis Tools

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Analysing Economies

• National Economies– Growth in GDP– Growth in National

Reserves– Inflation– Expenditure levels– Interest Rate and

Exchange Rates– Sectoral Performance– Financing Structure

• Local Economies– Driving forces in the

economy– Employment– Local Productivity– Poverty Reduction and

Wealth Creation– Economic base industry– Development Capacity– External Trends and

Events

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Take off

• Assessment of the local economy leads to the formulation and implementation of economic policies and programs that build on local opportunities and address local needs

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2. Defining Economic Area/Jurisdiction• The first step is to define the region of analysis that

are internally consistent and have cohesive elements.

• The challenge is that economic and political jurisdictions often do not align perfectly.– there is no set definition of what constitutes an economic

region– This may be helped by thinking in terms of region of

dominant economic influence. • To gather full understanding of the economic

environment, we should look at the local and regional economic setting.

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2. Areas of Study.....Region-wide Analysis

The broader economic trends such as areas of business concentration, population, employment and unemployment trends.

City-wide AnalysisFactors specific to the city, such as income, new business starts,

population, employment and unemployment trends.Sub-city Analysis

Major areas within a city, such as the central business district, as well as smaller areas such as neighbourhoods.

Sectoral AnalysisDescribing particular parts of the economy, such as the

manufacturing sector, service sector, or labour force.

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3. Studying Local Economies • Local Economic Conditions:

– Employment and unemployment broken out by activity and– Fiscal well being measured by tax rates and taxing capacity.

• Current Economic Activity:– The number of firms, their industry type, size, age, location, wage levels and

amount of new investments.

• Future Trends and Development: – Legislation, change in economic structure and new business starts, that may

have an impact on the local economy.

• Community Attributes:– Size of labour pool, wage rates, market size, area income, market growth rates,

land and building availability, and community amenities such as quality of life.

• Development Capacity:– Local public and private resources and institutions to administer specific

economic development projects and programs.

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3. Assessing the local economy• The challenges that an economy is experiencing or is likely to

experience.• The community’s existing and potential competitive advantages and

how these advantages compare with other communities• The obstacles to attaining economic development goals and objectives• The regional, national and international environments in which a local

economy exists;– Their impacts on the local economy – And what factors are likely to change over time.

• The local resources for implementation of the economic development plan

• The opinions and perceptions of a community that may help or hinder results

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3. Data collection and analysis:• Identify your area of analysis

– Determine your area of research and limit information gathering to that area• Keep the information gathering simple

– Collect and analyze data that has immediate analytical use. – This will help in understanding the local economy;– And will also lead to economic development decision-making

• Gather and analyze information over time– Identify data that are worthwhile to collect, maintain, and update

periodically.– This will reveal trends in the economy and benchmark programs.

• Make information relevant and understanding to decision makers– Putting information in a format that readily and unequivocally highlights the

key issues and concerns

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4. Institutional Capacity

• It is important to understand the existing resources, such as programs and organisations so as to assess existing institutional capacity

• Generally, this assessment is done after the study or audit of the economy.

• The audit will identify and assess:– Potential implementation resources;– Their competencies;– Ability to take on additional tasks;– And their strengths and weaknesses.

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4. Institutional Audit• An organization ‘’audit’’ should help understand the capacity to

implement and administer different proposed projects• Factors to assess include:

– Labour: Availability, cost and skills– Financial resources: Types, availability and reliability– Real estate and equipment resources: Type, amount, availability, age

and condition, etc.– Existing programs and services: Service techniques and processes,

capacity, and reputation/credibility– Infrastructure.

• A SWOT analysis of the organisation or existing programmes would be necessary as an essential aspect of strategic planning

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5. Economic Profiling • Economic development profile is a snap shot of a

local economy that considers the different factors that affects its economic growth and development

• Communities and their economies are dynamic and changing constantly

• There should be an awareness of past, present and future trends.

• There is need for the building of an inventory of relevant information on the community.

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5. Economic Profile Areas

• Economic Condition• Population Characteristics• Labour Force Characteristics• Physical Condition• Business Climate• Knowledge-based Resources• Quality of Life

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5a. Economic Condition• Economic condition describes the current level of economic activity of a

community.• The following data can be used to determine the profile of an economy

– Employment, Unemployment - an ability to create jobs and use human resources efficiently

– Wages - the quality of jobs in the economy– Area income – money circulating in the economy– Output by industry - productivity– New business starts – the overall health of the economy and its desirability to as a

place to do business– Income, comprising earnings from work, unearned income – wealth circulating in

the economy to purchase local goods and services – Businesses in terms of employee number, size , ownership and output– Firm Ownership – connection to the community– Retail sales– New housing sales and rent– Averages price of homes sold and rent paid for houses

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5b. Population Characteristics• Population should be analyzed in terms of overall changes, and

sectoral changes such as age, race and sex.• Population characteristics provides insight into:

– The potential workforce pool– The nature of the local market– And the need for local goods and services, such as schools

• Age distribution of a population will influence the available workforce pool – and the local market for good and services.

• Overall population changes also can be assessed in terms of;– Natural Changes: the difference between the number of births and deaths in

an area.– Net Migration: the difference between the number of people that move into

and out of the area.

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5c.Labour Force Characteristics• One of the most important resources available to existing and potential

investors in the community.• Information on the local labour force can be derived from:

– Unemployment data– Statistics on the population yet to enter the workforce (graduation rates from local

high school, colleges and universities)– And information on potential commuters from surrounding communities.

• The unemployment rate and trends in workforce (16-65 years of age) provides a broad indication of current and future tightness or slack in the local labour force.

• The occupational mix provides insight on the skill base of the local work force• The following information provides characteristics about the labour force:

– Labour force participation rates, Occupations ,Wage rates, Skill level, Educational attainment

– Location (local or community), Productivity , Availability – Underemployment

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5d. Physical Condition• Physical space and infrastructure are essential for

business development.• The availability of development sites should be

considered with respect to:– Manufacturing development – assessment should

include an inventory of different factors including: real estate, facility flexibility, readiness, condition, prices, etc.

– Retail or downtown development – the assessment should include parking, location, convenience, and characteristics of the downtown, including store front attractiveness.

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5d. Physical Conditions• Any special taxing districts and other location benefits also should

be documented.• It is also useful to prepare maps of existing land, facilities and

buildings, high quality available sites, special districts, etc. to show prospective businesses.

• It is important to have a complete business inventory.– This will provide information on businesses operating at less than full

capacity, – Or in facilities that are in poor physical condition, or obsolete.

• This information will help identify – Businesses that will need to make major investments, – Relocate, or may be ripe for joint ventures to maintain their ability to

compete

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5d. Physical Conditions

• The following information provides an insight into the spatial and physical qualities of a location:– Land use, zoning and location– Land values and cost– Condition of buildings: age, size, access, and availability– Vacancy rates and absorption– Building activity– Parking facilities– Condition and capacity of infrastructure: air, rail, waterways,

roadways, utilities– Environmental conditions, including air and water quality

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5e. Business Climate• Business climate provides insight into how supportive the local

economy environment is to business.– What types and how many businesses are thriving or failing; – Reasons for business success and failures; – What businesses have located in the area and for what reasons; – Whether businesses feel that they have the support of the local

community; – Which organisations support new businesses and business development; – Labour relations; – What programs exist to provide a supportive business environment and

their use; – And what are the local regulations that impact businesses.– Special public and private financing programs.– Assessment of potential mismatches in financing programs and financing

needs.

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5e. Support for Business Development

– Community attitudes– Labour relations– Business taxes– Business regulations– Level and quality of municipal services: utilities, water, sewer– Business services: lawyers, computer, and copy services etc.– Workforce training programs– Manufacturing extension programs– Access and cost of capital– Transportation access: airports, rail, highways

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5g. Knowledge-based Resources• Provides insight into the technical and scientific resources available

to support industry development.– This includes identifying sources and types of programs offered and

networks available.• Access should be evaluated in terms of – requirements to use the services and– geographic proximity

• Partnerships between industries and universities should be documented.

Knowledge-based resources include:– Federal labs– Science and research parks– Industry incubators– Colleges and universities– Technical training schools.

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5h. Quality of Life• General living conditions that involve cultural, historical,

recreational, natural, and other characteristics of a community.• Quality of life factors are important to attracting and retaining

companies and individuals in a community.• Highly subjective• Provides Information on the condition and welfare of the local

population including:– Housing availability: conditions and cost– Public services: type, level, and quality– Quality of public education system– University, colleges, and vocational schools– Crime rate– Cultural and recreational opportunities– Personal taxes.

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6. Economic Value Chain Analysis• A value chain is a connected string of companies, groups and other

players working together to satisfy market demands for a particular product or group of products.

• Taking a value chain approach to economic development and poverty reduction involves – addressing the major constraints and opportunities faced by producers,

processors, traders and other businesses at multiple levels and points along a given value chain

• This include a wide range of activities such as – ensuring access to the full range of necessary inputs,– facilitating access to cheaper or better inputs, – strengthening the delivery of business and financial services,– enabling the flow of information, – facilitating improved market access, or– increasing access to higher-value markets or value-added products.

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6. Optimising Value Chains

Commodities are "pushed" into the marketplace. Producers are isolated from the end-consumer Little control over input costs or of the funds received for their goods.

Traditional selling system Value Chain Marketing system

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6. Value chain marketing system

• Features– Input Producers are linked to consumers' needs,

working closely with suppliers and processors to produce the specific goods consumers demand.

– Through flows of information and products, consumers are linked to the needs of Producers.

– Through continuous innovation, the returns to input producers can be increased and livelihoods enhanced.

– Rather than focusing profits on one or two links, players at all levels of the value chain can benefit.

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6. Value Chain AnalysisBenefits• Facilitates an improved understanding of competitive challenges, • Helps in the identification of relationships and coordination mechanisms, and • Assists in understanding how chain actors deal with powers and who governs

or influences the chain.• Focuses on improving access to markets and ensuring a more efficient

product flow while ensuring that all actors in that chain benefit.

Imperatives• Changing production contexts, • Rural to urban migration, and • Resulting changes for rural employment, • The need for pro-poor development, as well as a• Changing international scene

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An Overview of the Value Chain System from suppliers to consumers

Adapted from World Report Fall 2006: The Value Chain Approach; Strengthening Value Chains to Promote Economic Opportunities

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7. Other Specific Economic Data Analysis Tools

• Other useful tools that often aid economic planning include:– Retail leakages analysis– Target industry analysis– Land use demand forecasting– GIS mapping – Fiscal impact analysis.

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7a. Retail Leakages Analysis• Not only reliance on the retail sector but to understand the details

of the local retail sector.• This analysis provides the retail picture of the city.

– which categories are adequately serving residents from within city limits;– which retail types are serving residents from other locations.

• It also provides information to help characterise the strengths of different areas of the city;– Including sections of the town that are local serving retail, regional retail

and speciality areas such as automobile recycling and lodging/tourism.• The analysis provides information about store types that are– Capturing more than their market share– Those around where they need to be– Those that are falling short of capturing estimated demand

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7b. Target Industry Analysis

• The Economic Base Analysis can be combined with business climate factors.

• This will identify the ‘’best fits’’ for a community– Particularly industrial and office sectors

• Those best fits would become targets for business attraction, and the focus of business retention.

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7c. Land Use Demand Forecasting

• The rate of land development over time can be calculated based on predicated job growth for industrial, office, and retail sectors.

• This information can help plan land uses in the future.

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7d. GIS Mapping

• GIS mapping provide a good geographic picture of a community’s economic sectors.

• Locations of retail, industrial, and office jobs can be plotted so that industry clusters, circulation, and land uses can be compared.

• Mapping is often used to plan new areas of expansion– and to help identify geographic constraints to achieving

economic potential, etc.• Mapping is done in conjunction with a general plan

update

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7e Fiscal Impact Analysis

• Various land uses generate different levels of property, sales, and other taxes.

• Each land use type has different costs associated with utilities, public safety, traffic, and other impacts.

• This analysis projects the relevant net benefit to a community as it expands its industrial, commercial, retail, and housing acreage.

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In closing • Documenting local economic conditions, trends, and resources will facilitate

– the mobilization of political and financial support for the overall strategic plan and individual projects

• The information and analysis generated from studying the local economy can be used to:– Identify the local assets and potential liabilities that will affect local economy

development– Project or forecast local economy trends– Monitor economic performance over time.

• To develop an effective economic development strategic plan, there is need to understand– The driving forces in the local economy– The economic base industries – Their development capacities– External trends and events affecting development

Thank You

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