Analysing the Local Economy
Defining the Economic Area
Assessing Local Economy
Economic Value Chain Analysis
Defining Economic Area and Jurisdiction
Assessing Local Economies
Assessing Institutional Capacity
Economic Value Chain Analysis
Specific Economic Data Analysis Tools
• National Economies
– Growth in GDP
– Growth in National
– Expenditure levels
– Interest Rate and
– Sectoral Performance
– Financing Structure
• Local Economies
– Driving forces in the
– Local Productivity
– Poverty Reduction and
– Economic base industry
– Development Capacity
– External Trends and
• 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
2. Defining Economic Area/Jurisdiction
• The first step is to define the region of analysis that
are internally consistent and have cohesive
• The challenge is that economic and political
jurisdictions often do not align perfectly.
– there is no set definition of what constitutes an economic
– 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.
2. Areas of Study.....
The broader economic trends such as areas of business
concentration, population, employment and
Factors specific to the city, such as income, new business
starts, population, employment and unemployment
Major areas within a city, such as the central business
district, as well as smaller areas such as neighbourhoods.
Describing particular parts of the economy, such as the
manufacturing sector, service sector, or labour force.
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.
3. Assessing the local economy
• The challenges that an economy is experiencing or is likely to
• 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
– Their impacts on the local economy
– And what factors are likely to change over time.
• The local resources for implementation of the economic development
• The opinions and perceptions of a community that may help or hinder
3. Data collection and analysis:
• Identify your area of analysis
– Determine your area of research and limit information gathering to
• 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
– 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
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.
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
• A SWOT analysis of the organisation or existing programmes would be
necessary as an essential aspect of strategic planning
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
• 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.
5. Economic Profile Areas
Labour Force Characteristics
Quality of Life
5a. Economic Condition
• Economic condition describes the current level of economic activity of
• The following data can be used to determine the profile of an economy
– Employment, Unemployment - an ability to create jobs and use human
– 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
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
– 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.
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
• 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
– Location (local or community), Productivity , Availability
5d. Physical Condition
• Physical space and infrastructure are essential for
• 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
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
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
Condition and capacity of infrastructure: air, rail,
waterways, roadways, utilities
– Environmental conditions, including air and water quality
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
Which organisations support new businesses and business
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
5e. Support for Business Development
Level and quality of municipal services:
utilities, water, sewer
Business services: lawyers, computer, and copy services
Workforce training programs
Manufacturing extension programs
Access and cost of capital
Transportation access: airports, rail, highways
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
• Access should be evaluated in terms of
– requirements to use the services and
– geographic proximity
• Partnerships between industries and universities should be
Knowledge-based resources include:
Science and research parks
Colleges and universities
Technical training schools.
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
Housing availability: conditions and cost
Public services: type, level, and quality
Quality of public education system
University, colleges, and vocational schools
Cultural and recreational opportunities
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.
6. Optimising Value Chains
Traditional selling system
Value Chain Marketing system
Commodities are "pushed" into the marketplace.
Producers are isolated from the end-consumer
Little control over input costs or of the funds received for
6. Value chain marketing system
– 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.
6. Value Chain Analysis
• Facilitates an improved understanding of competitive challenges,
• Helps in the identification of relationships and coordination
• 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.
• 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
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
7. Other Specific Economic Data
• Other useful tools that often aid economic
– Retail leakages analysis
– Target industry analysis
– Land use demand forecasting
– GIS mapping
– Fiscal impact analysis.
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
– 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
• 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
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
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
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
– and to help identify geographic constraints to achieving
economic potential, etc.
• Mapping is done in conjunction with a general plan
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
• This analysis projects the relevant net benefit to
a community as it expands its
industrial, commercial, retail, and housing
• Documenting local economic conditions, trends, and resources will
– 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
– 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