DEVELOPMENT PLANNING KNEC NOTES

Economic Development Planning – is a deliberate government attempt to influence, direct and in some cases control economic choices and activities towards specific objectives over a period of time. It is therefore a deliberate government effort aimed at influencing, directing/controlling economic decisions and levels of growth of a nation’s economic variables such as income, consumption, employment, savings, and investment e.t.c. to achieve a specific objective of national development within a specific period of time.

Levels of development planning

Development plan can be carried out at three major levels:

  1. Micro planning level
  2. Macro planning level
  3. Tertiary planning

Micro planning

This is planning carried out for the whole economy over a given duration of time. It covers all the sectors and regions of the economy. There are three subsets of macro planning:-

  1. Annual planning

Are plans focused for one year relating to the economy as a whole. They are more flexible and in most cases contained in the national budget of the country.

  1. Five year plan

This is the most common plans especially in the LDC. They are intended for over a period of 4-5 years and duration of regime in power.

  1. Perspective plan

This represents tentative outline/possible development over a long period of time e.g. over 15 years, 25 years or more. They provide  useful guides and backgrounds to the medium term plans.

Micro planning

It is the level of planning which does not cover the whole economy but may cover specific sectors/regions.

Basically it is of two types:- 

  1. Sectorial planning

This is the detailed planning of a specific sector of the economy e.g. planning for agricultural sector or industrial sector.

  1. The regional planning

This type of planning where attention is focused on a particular region/used within economy.

  1. Tertiary planning

It is planning at projected level that involves identification of possible development projects, appraisal of theses projects and their implementation.

Types of plans

There are two types of development plans:

  1. Partial plan
  2. Comprehensive plan

 

Partial plan

It is one that only covers a section/part of the national economy such as the agricultural or industrial sectors.

Comprehensive plan

This is one that looks at the economy as a whole both the private and public sectors of the economy.

N/B: It is usually fitted into the framework of the expected overall development of the economy.

 

Problems facing in planning, formulation and implementation

  1. Limited information

The available data is always unreliable and inadequate thus making the implementation of the plans very difficult. It becomes very difficult to focus what will happen in future. If the plan cannot tell what is happening now.

  1. Unexpected economic disturbance

Most economists especially those of LDCs are vulnerable to external factors which are beyond their control e.g. fluctuation in the international economic prices, domestic economic policies which directly/indirectly affect the economic plans e.g. fluctuation in oil prices.

  1. Unstable political administration

Lack of stable political administration systems lead to lack of sustained commitment to a development plan.

  1. Over ambitious plans

Some plans are too ambitious and try to accomplish too many objectives in a very short time and without considering the competing and conflicting objectives.

  1. Institutional weakness

Most LDCs have weak administrative and technical staff to draw plans thus there is institutional weakness and lack of co operation resulting into a gap between the planning body and the day to day decision making machinery of government.

  1. Limited and unreliable sources of funding

Most LDCs experience BOP deficit and resources shortages and therefore heavily depend on foreign resources which don’t flow steadily.

  1. Lack of public support

The plans lack the public good will and support because the public is not well informed and also the plans are contained in massive document which are hard to follow.

8. Plans rigidities; LDCs plans are rigid and are sometimes formulated by foreigners who never supervise the implementation thus making the plan adjustment difficult.

9. Corruption

Corruptions in the part of plan formulators also affect plan formulation and implementation.

10. External pressure/influence

The donors tend to interfere with the planning process of LDCs by dictating the projects which should be catered for by the planners.

Strategies for Industrialization

The term industrialization refers to creation/expansion of industrial capacity in an economy through development of industries in an economy.

There are two main strategies of achieving industrialization in an economy, they include:-

  1. Import substitution strategy
  2. Export substitution strategy

 

Import substitution strategy (ISS)

This refers to the establishment of industries to produce for the domestic market the manufactured goods which were previously imported. It is thus an industrialization strategy that emphasizes on the production of formerly import goods for the domestic/local market.

It is also referred to as inward looking development strategy.

 

Merits/Arguments for import substitution strategy

  1. It is aimed at conserving foreign exchange: what we could have spent to import is saved.
  2. Employment opportunities: it acts as a source of employment opportunity for the locals.
  3. It creates self reliance: it acts as a means of reducing foreign dependence as a country produces what it used to import.
  4. Development of local skills: it promotes the training of industrial labour force to acquire the required technological know how (skills) thereby facilitating the development of the local skills.
  5. Use of local resources (raw materials): it facilitates the exploitation of local resources in order to reduce excess capacity in the economy.
  6. Expansion of manufacturing sector: the setting up of numerous industries locally promotes development of manufacturing sector in a given country.
  7. Control of imported inflation: it helps a country to avoid inflationary pressure caused by importing price rising goods from other countries.
  8. Facilitate technology transfer: the establishment of industries facilitates technological transfer from most developed countries to least developed countries.
  9. It may also act as a source of foreign exchange: in the long run the industries may serve as a source of forex through exportation after the domestic market has been satisfied and the industries have grown out of infant stage.
  10. Development of infrastructure: establishment of industries to enhance development of infrastructural facilities e.g. roads, power supply, water and drainage system, communication network e.t.c. that increases production and supply of goods.
  11. Increase income: industries generate income to individual firms and government.
  12. Solving of BOP problem.
  13. Facilitates capital inflow (foreign investment)
  14. Promote economic growth (increase in Gross Domestic Product)

 

Challenges/Limitations of Import substitution strategy

  1. Small domestic market
  2. Poor quality goods
  3. High costs of industries; the final product are always more expensive than the imported ones.
  4. Shortage of raw materials.
  5. High costs of subsidies (government provide low cost subsidies)
  6. Limited capital
  7. Unreliable source of funding
  8. Limited skills
  9. Political instability
  10. Poor infrastructure

Demerits/Disadvantages of Import Substitution Strategy

  1. Poor quality goods; it encourages the production of inferior goods.
  2. Resource wastage; underutilization due to low markets.
  3. Unemployment; use of capital intensive method in industries.
  4. Limited variety of goods; ISS limits the variety of goods available in an economy thus low standard of living.
  5. Monopoly tendency; this is promoted through too much protection offered to the import substitution industries in the local market.
  6. Production of consumer goods; ISS is based on the production of consumer goods instead of capital goods.
  7. High domestic prices; ISS industries lead to establishment of high cost of industries which produce expensive goods thus the final products are very expensive for the local consumer.

Export promotion strategy (EPS)

This is an industrialization strategy that emphasizes on the production of goods and services for export or for foreign market.

It is a deliberate policy to expand the volume of manufactured goods for exports in order to earn forex.

 

Requirement for Export promotion strategy

  1. Availability of raw materials; there should be sufficient quantities of raw materials.
  2. Availability of skilled labour; it should be available to facilitate production of goods of goods that can compete in the international market.
  3. Power adequacy; power should be sufficient to enable non stop productions.
  4. Development of infrastructure; it requires good infrastructural development to guide movement of finished goods to the market with ease.
  5. Market research; there should be efforts to establish manufacturing of the goods.
  6. Export promotion institution; these should be put in place e.g. export promotion council which will promote and facilitate exportation of commodities.
  7. Trade promotion; the strategy call for advertisement and promotional activities to expose the availability of the goods.
  8. Provision of incentives; government should provide credit and fiscal incentives like tax relief or subsidies to enable the exporters cut down on cost so as to make their products competitive in the market.
  9. Regional integration; the EPS calls for trade agreement and economic co-operation so as to encourage trade.

 

Merits of Export Promotion Strategy

  1. Employment opportunities; job opportunities are expanded especially when labour intensive methods are used which increase production.
  2. Economic growth; facilitates economic growth through increased output.
  3. Diversification of exports; it promotes diversification of export of goods and market instead of relying on agricultural commodities or one product only.
  4. Improve BOP position; through enhancement of forex earning, BOP deficit in LCDs are solved.
  5. Promotes manufacturing sectors; setting up of industries promote the expansion of the manufacturing sector.
  6. Promotion of international trade; it fosters international trade by reducing geographic concentration of trade.
  7. Improve international trade; it promotes international understanding among trade partners.
  8. Improve TOT; enables a country’s export to sell at higher value.
  9. High quality output; products had to be of high quality as even the agricultural products are to be added.
  10. Developed infrastructure; it encourages the development of infrastructure like roads, airports, storage facilities for export production.

Shortcomings of Export promotion strategy

  1. Massive capital requirement; the strategy is associated with the need of high capital investment which is beyond the ability of LDCs.
  2. High marketing expenditure; it requires heavy expenditure on market research and extensive advertising in the foreign market yet LDC lacks fund for such.
  3. Poor quality products; LDC produces poor quality products which cannot compete in the world market.
  4. Highly priced goods; LCD establishes high cost industries which produce expensive products that cannot compete.
  5. Depletion of resources; it leads to quick depletion of natural resources in the LDCs.
  6. Wastage of resources; industries may run at loss if foreign market are hard to break through and may lead to resource wastage if all output is not brought.
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