Lebanon Businessnews News

Local Economic Development (LED)
A key enabler for economic recovery
Kevork Baboyan

UNDP Senior Local Economic Development Officer

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The economic crisis that has hit Lebanon since 2019 coupled with the Covid 19 crisis and the explosion of the Port of Beirut have deeply impacted the country’s economy making this crisis rank among the worst economic crises globally since the mid-nineteenth century. GDP per capita dropped by 36.5 percent between 2019 and 2021, and in July 2022, Lebanon was reclassified by the World Bank as a lower-middle income country down from upper middle-income status. In this context, Local Economic Development (LED) is vital for any serious attempt at economic response and recovery, especially given the timid and delayed responses from the national level.

A growing feature for sustainable economies
Local Economic Development (LED) is an approach towards economic development which enables and encourages local actors to work together to achieve sustainable economic growth and development, bringing economic benefits and improved quality of life for all residents in a municipal area. At the root of this participatory approach is the belief that political jurisdictions at sub-national levels are often the most appropriate place for economic interventions that are effective and inclusive. Over the past decades, countries around the world have moved towards decentralization which shifted responsibilities to local authorities; enhancing their positions, status, and functions and increasing their role in economic growth. In many countries, it is often challenging for local authorities, however, to develop robust and sustainable local economies that will meet the basic needs of local communities and simultaneously improve their living standards by creating local jobs and economic opportunities, thus contributing to the growth of the local and national economy. How can local authorities design and achieve an effective and inclusive local economic development strategy? The first step to achieve economic growth and sustainable development is to have a comprehensive understanding of the different social and economic constraints and opportunities operating within the area. Local authorities need to have a thorough and shared understanding of the local economy to formulate an effective LED strategy.

LED: Economy mapping and analysis
In partnership with United Cities of Lebanon (UCL)/ Bureau Technique des Villes Libanaises, the United Nations Human Settlements Programme (UN-Habitat) and the United Nations Development Programme (UNDP) designed and conducted a participatory, multi-stakeholders process to deliver three local economic development assessments in three different geographic areas: The Urban Community Al-Fayhaa (Tripoli – Al-Beddawi – Al Mina – Al Kalamoun), the Federation of the Northern Coastal and Central Metn Municipalities, and the Union of Tyre Municipalities. The study revolved around four axes considered important in fulfilling local economic potential: human capital can be both an opportunity and a constraint depending on availability, economy and market in terms of private sector, territorial planning and land use practices in Lebanon, and local governance.

Limited Access to Healthcare, Education, and Food
Human capital is a main contributor to economic development, as its accumulation increases the levels of skills of the resident population, which has a direct and positive outcome on economic outputs. The economic crisis in Lebanon has left households with major losses in income and purchasing power, malnutrition, and housing insecurity. Key figures show that 93 percent of Metn households have seen their living standard affected and a significant share of households consider themselves now to be poor. In the Tyre region, 91 percent of households earn in Lebanese lira and most households earn below $120 per month. Another major concern is nutrition and food security: People are resorting to reducing portion sizes, number of meals, requesting more aid, changing the quality of the food. In the Urban Community of Al-Fayhaa, 93 percent of households have adopted negative coping strategies related to nutrition. The figure is 58 percent in the Union of Tyre. The study found that even in areas that were historically considered better off such as Metn, more than half the households have adopted negative coping strategies when it comes to food security. While Lebanon is known to have a relatively high human capital, the onset of the financial crisis is affecting its quality. This decrease in the standards of health and nutrition have immediate adverse effects on the ability of individuals to engage actively in the economic sphere, while lowered access to education plays a major role in weaking the pool of skills and knowledge that can shape local economic development in the long term. Furthermore, as it is coupled with the massive emigration, the long-term outcome for human capital in the regions and across Lebanon could be devastating: In Al Fayhaa 70 percent and in Metn 67 percent of respondents younger than 29 plan to emigrate, while the overall percentage of household heads that plan to emigrate in Metn only stands at 40 percent.

Pool of skills at risk
The study analyzed the effect of the on-going crisis on the performance and growth of the private sector. It particularly examined how firms’ employment growth, considered as a key driver of local development, was affected during the crisis period. Faced with increasing costs, dwindling sales and a compromised production capacity, a third of the 379 firms surveyed had laid off workers: 42 percent of firms in Metn, 34 percent in Al-Fayhaa, and 13 percent in Tyre. Before the crisis, in the Urban Community of Al-Fayhaa, firms comprised on average 6 employees. After the crisis, this number dropped to 4.5. In Tyre, it reduced from four to 3.5. In Metn, where small and medium enterprises are often larger, their number of employees decreased from 12 on average to eight. In addition, the study analyzed the effect of the crisis on the companies’ budget. Results showed that costs structures have completely changed: two thirds of firms’ costs are now allocated to raw materials, electricity, and transportation squeezing the shares of labor, advertising, training among others. Before the crisis, inputs and energy related categories combined did not make up more than 50 percent of total costs at most. Faced with currency depreciation, inflation, and restricted access to credit/microcredit, the private sector is suffering from unhinged losses, weakened sales, and poor productivity. When it comes to firms, their biggest concern is liquidity. Even enterprises that are optimistic about the future fear having to shut down due to illiquidity.

Territorial Planning and governance not suitable for LED
Poor local development is also the result of weak territorial planning and poor governance. Territorial planning in Lebanon suffers from critical flaws that hinder local economic development. Many regions have grown without a guiding direction. Available territorial planning has mostly privileged visible and spectacular projects that often tend to ignore existing economics activities and social practices. In the Urban Community of Al Fayhaa, territorial planning issues include the absence of comprehensive land use planning, and challenges in leveraging state owned lands for vital local development projects, including infrastructure and public services. Governance appears to be the area’s most binding constraint. This includes the failure of local authorities to properly integrate the local private sector in an overall development vision, as well as the lack of clarity over the area’s future economic identity. In addition to those, Tyre also faces issues around firm satisfaction and engagement with local government. There appears to be significant tax avoidance, with nine percent of firms in Tyre reporting not having paid taxes recently. Also, comprehensive planning and clarity over the area’s future economic identity is largely absent. However, development projects with good economic potential have been proposed by international institutions that can uplift the area. In addition to the absence of comprehensive land use and unified development plans, Metn also suffers from poor territorial planning. In the area, many of the above-mentioned constraints around governance also emerged, including the failure of local authorities to properly integrate the local private sector in the overall development vision, and lack of clarity over the area’s future economic identity.

For the Future
It is indispensable to protect human capital, support local firms, strengthen municipal systems (institutional capacity, finance, technology), and achieve appropriate territorial planning and good land use practices. The findings of the assessments are a chance for municipalities and unions of municipalities to better understand the constraints obstructing their local economic development and what can be done to counter those obstacles. As a next step, unions of municipalities and municipalities should address the identified constraints by designing an inclusive LED strategy. Now is a timely opportunity for unions of municipalities, with the participation of the local private sector, and the community, to mobilize support and set the foundations for a response that would form the path for economic recovery.

What is LED
The Local Economic Development (LED) study is the first and to date the only analysis of the impact of the economic and financial crisis at the local level and its implications for unions and municipalities. Funded by the European Union, this study is within the framework of the Municipal Empowerment and Resilience Programme (MERP) and in line with its efforts to support local authorities in addressing current socio-economic. It helps unions and municipalities think their role in terms of local economic development in the context of this crisis. Such role requires a preliminary solid understanding at the local level of constraints preventing the local economy to flourish so UoMs and municipalities are empowered to facilitate local economic development (LED).

LED: A key enabler for economic recovery
Kevork Baboyan
UNDP Senior Local Economic Development Officer
Municipal Empowerment and Resilience Project (MERP)

Date Posted: Jan 11, 2023
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