


































Advances in Politics and Economics 
ISSN 2576-1382 (Print) ISSN 2576-1390 (Online) 

Vol. 5, No. 4, 2022 

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1 
 

Original Paper 

Local Economic Development in Ethiopia: Policy and Practice 

Defferew Kebebe Tessema
1*

 

1
 Addis Ababa University, Department of Public Administration and Development Management, 

Ethiopia 

 

Received: August 14, 2022    Accepted: September 28, 2022    Online Published: October 3, 2022 

doi:10.22158/ape.v5n4p1        URL: http://dx.doi.org/10.22158/ape.v5n4p1 

 

Abstract 

Even though the current government of Ethiopia has enacted and implemented various pro-LED 

policies and started the actual exercise of LED in selected localities since 2009, little scholarly 

attention has been devoted to the policy and practice of LED in the country. The study fills this gap and 

contributes to the debates and evidence of local economic development in Sub-Saharan Africa (SSA) 

based on data obtained through key informants interviews and systematic review of extant literature 

and documentary sources on the policies and practices of LED in Ethiopia. The result of the study 

reveals that much work is needed to institutionalize LED practice in the country. The study also 

highlights that to institutionalize and sustain LED practice in the country, well-articulated LED 

framework and permanent LED institutions that are well integrated with the overall local government 

structure are needed. 

Keywords 

Ethiopia, Local Economic Development, Policy, Practice 

 

1. Introduction 

In most developing regions including Sub-Saharan Africa (SSA), Local Economic Development (LED) 

is advancing and gradually gaining relative importance as an alternative development approach with 

the objective to decrease poverty, and unemployment & inequality at the local level and address the 

negative consequences of globalization (Meyer-Stamer, 2008; Rodriguez-Pose & Tijmstra, 2007; 

Rodriguez-Pose & Tijmstra, 2009; Rogerson & Rogerson, 2010; Marais, 2010; Rogerson, 2010a; and 

Hampwaye & Rogerson, 2011). The attractiveness of the concept in these countries also attributed to 

the collapse of hyper-inflation, vast debt burden, massive currency devaluation, social services, the 

central government‟s inability to intervene at the local level, structural adjustment packages, transition 

to democracy, disastrous effects of global trade, and other related factors (Binns & Nel, 1999; Nel, 

2001, 2007; Rodríguez-Pose & Tijmstra, 2007; Mensah et al., 2013a). The importance of LED 



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throughout SSA is also signaled by the activities of the United Cities and Local Governments of Africa 

(UCLGA) (Swinburn & Yatta 2006a, b; Swinburn et al., 2007). 

In Ethiopia, despite the country‟s lack of a separate LED framework, the federal and decentralized form 

of government which was embarked following the adoption of the 1995 constitution, attention given by 

the government of the country for urban development and the implementation of different pro-LED 

policies and activities at different times are believed to pave the way for the commencement of LED in 

the country. While late in comparison to other African countries, the actual LED programs have been 

officially commenced in the Ethiopia by the support of United Nation Development Program (UNDP) 

in two phases focusing on cities‟/localities‟ local development though the program overlooks rural 

territorial development. Accordingly, the first LED intervention program was implemented since 2009 

in seven cities including Bahir Dar in Ahmara regional state, Adigrat and Mekele in Tigray regional 

state, Asella and Nekemte in Oromia regional state, and Sodo and Hawassa in the Southern Nation 

Nationalities and People regional state as a pilot study (UNDP, 2012). 

The second phase of the LED program which was started in 2012 and end up in 2015. During this 

phase, the LED intervention program was implemented as an up-scaled project in 27 localities (7 

existing LED localities and 20 new localities) (UNDP, 2012). Then, the second generation/phase of the 

LED program was all of a sudden forced to be shut down without a substantial exit strategy and merged 

with Entrepreneurship Development Program (EDP) (UCLGA, 2016). 

However, despite the country has enacted and implemented different pro-LED policies and later on, the 

actual LED exercise and implementation was launched; there is lack of rigorous and systematic review 

of LED practice in the country. This study tries to fill this gap and contribute to LED in SSA that is 

relatively not represented in the existing LED literature (Rogerson & Rogerson, 2010). The study is 

timely since it will assist policy makers, development organizations and local stakeholders in delivering 

LED to understand what was attempted and uncover existing gaps in implementing LED program in 

terms of composition and strength of established institutional arrangement, capacity building, 

enterprises development to scale-up LED exercise throughout the country. It also serves as a seed and 

stimulates more scholarly studies in the areas of LED in the country. 

 

2. Research Method Employed 

This study employed a qualitative research approach to assess the policy and practice of LED in 

Ethiopia. The study principally relies on data gathered from secondary sources supplemented with data 

collected from primary sources. Secondary sources of data were obtained from existing literature, desk 

review of relevant official documents such as UNDP program document, study papers and examination 

of the LED strategic plan. Key informant Interview held with officials of Ministry of Finance and 

Economic Development (MoFED) currently the name is changed to the Ministry of Finance (MoF) 

who played a coordinating role at the time in the implementation of LED was also important in 

gathering the required primary data. The author critically subjected these secondary documents together 



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with primary data to a proper analysis which made it possible for him to reach on conclusions and the 

way forward about LED as development strategies in Sub-Saharan Africa in general and in Ethiopia in 

particular.  

 

3. Overview of Local Economic Development 

3.1 Meaning and Concepts of Local Economic Development 

Difficulties in the definitions of social science ideas and concepts are neither started today nor going to 

end now. Thus, LED too is not exceptional as there has been an ongoing battle of ideas and struggle by 

many authors and authorities over the meaning of the term (Nel & Rogerson, 2005; Rogerson & 

Rogerson, 2010a). The main reason for the lack of a common definition of the term originates from 

how the concept has been perceived by various authors in the area. Despite these difficulties, however, 

attempts have been made to define LED concepts.  

For Blakely (1989, 1994), who is one of the early authors of the contemporary local economic 

development approach, defines LED as  

“a process by which local governments and/or community-based groups manage their existing 

resources and enter into new partnership arrangements with the private sector or each other to create 

new jobs and stimulate economic activity in a well-defined economic zone”. 

Helmsing and Egziabher (2005) consider LED as a process in which partnerships between local private 

sectors, community-based organizations and local governments are established to create jobs, manage 

existing resources and excite the economy of a well-defined territory. As per this definition, LED 

initiatives mobilize concerned players and the necessary resources; develop new institutions and local 

systems by way of dialogue and strategic actions.  

According to World Bank (2000, 20002, 2006a, 2010) LED is “the process by which public, business 

and non-governmental sector partners work collectively to create better conditions for economic 

growth and employment generation with the aim to improve the quality of life for all.” In this context, 

LED is primarily about developing a favorable climate for local businesses, promoting local 

competitiveness, retaining jobs, improving income and attracting investment.  

For the ILO (2006), LED represents, 

“participatory development process that encourages partnership arrangements between the main 

private and public stakeholders of a defined territory, enabling the joint design and implementation of 

a common development strategy by making use of the local resources and competitive advantage in a 

global context, with the final objective of creating decent jobs and stimulating economic activity”. 

The working definition of LED in this article which is contextualized from the aforementioned 

discussion is that LED is the process by which urban local governmental institutions and urban 

non-state institutions engage themselves, work jointly and enter into a new partnership to reduce the 

urban poverty, create a better environment for economic growth and manage locally available resources 

with the objective to improve the quality of life for urban community. 



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4. Evolution of Local Economic Development 

The practice of LED could have existed for a long. However, the concept of LED as a development 

strategy was relatively a recent phenomenon and not sufficiently acknowledged in the existing 

economic thinking until recently (Birkholzer, 2005). According to the World Bank (2004, 2009a), LED 

has gone through three broad developmental stages or waves. Each of the stages has its own 

instruments and attention. In each stage, practitioners of LED have developed a better understanding of 

both effective and failed LED programs. The policy and practice of the LED is presently found in its 

“third wave”. Each fundamental component of LED such as the contribution of local government, 

private sector and CSOs that are working together to create opportunities to improve the local economy 

are practiced until the present day despite it moved through the three waves. Again, ensuring inclusive 

and sustainable economic growth and promoting competitiveness are also concepts that found within 

all the three waves (Davis & Rylance, 2005; Oduro-Ofori, 2011). 

The focus of the first stage of LED which started since 1960 and ends in the early 1980s was basically 

emphasis on investment in mobile manufacturing and production of agriculture. Investment in 

infrastructure by providing subsidies, grants and tax reduction and the attraction of foreign direct 

investment was the central focus of this wave (Kanyane, 2008). The second stage was experienced 

during the period of the 1980s to 1990s and the focus during the stage shifted towards expansion and 

retention of existing local business and inward investment as well by emphasizing on specifically 

targeted sectors. This was attained through supporting business start- up, direct payment for individual 

businesses, provision of both soft and hard infrastructure (Swinburne & Yatta, 2007; Kanyane, 2008). 

Third- wave from the late 1990s onwards and during this wave, the emphasis was more on the creation 

of a conducive environment for the whole businesses by focusing on the creation of partnership and 

network, supporting the establishment of the business cluster through intensive training and education 

with the assumption that entrepreneurship will be encouraged (World Bank, 2002; Kanyane, 2008; 

Kahika & Karyeija, 2017).  

According to Helmsing (2003), LED is in its third wave and this wave is also described as: multi-level, 

multi-sector, and multi-actor by its nature. For him, multi-actor indicates that the success of LED relies 

on the participation of government, businesses and civil society‟s actors while multi-sector implies to 

the significance of government, business and civil society sectors of the economy in LED. The final 

point- multilevel- denotes that LED success requires not local initiatives but also considers 

opportunities and threats of dynamism in globalization. 

 

5. Local Economic Development Approaches and Strategies 

Helmsing (2001, 2003) identified three strategic approaches of LED including Community Economic 

Development (CED), Enterprise Development (ED), and Locality Development (LD).  

Community Economic Development (CED) also known by the name market critical or pro-poor 

approach which basically emphasis on reduction of poverty. For Helmsing (2001, 2003), CED is the 



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process by which the local community builds institutions and collaboration that brought together 

successful business with other values and interests. The various strategies that are used in CED include 

training local businesses, empowering women, and developing human resources through intensive 

training. For Helmsing (2003, 2005), the overall objective of CED is empowerment and self-help, to 

contribute to employment creation, to excite a sense of belongingness, improve living and working 

conditions in settlements for the local community. He also underscores that most CED activities in 

Africa have related to the improvement of housing and settlement upgrading, creation of safety net for 

the local community, provision of basic service delivery and development of Micro and Small 

Enterprises (MSEs) programs. Pro-poor LED strategy was pursued by the Ethiopian government in 

designing and implementing its first phase of LED in 2009.  

Enterprise development (ED) also known by the name pro-growth or market-driven LED strategy 

which is growth-oriented and it basically emphasis on supportive and creation of competitive business 

conditions, the attraction of high profile businesses and investment, provision of institutional assistant 

for a competitive sector of the economy, the introduction of incentives for the local economy to retain 

existing businesses and expansion of new businesses (Bond, 2002; Rogerson, 2009; Ingle, 2014). This 

strategy was adopted by Ethiopia in implementing its second phase of LED in 2012. The different 

interventions in Enterprise Development (ED) strategy include 1) pro-globalization ( export promotion, 

the attraction of FDI, sister city programme, export promotion) 2) locational (enterprise zone, industrial 

parks, enterprise zone and general tax incentives) 3) entrepreneurial merchant ( participation in equity, 

development of local corporations and business incubators 4) general business (tax incentives of target 

businesses, provision of venture capital 5) human resource (initiatives for human capital and provision 

of employment training) (Clarke and Gaile cited in Rogerson, 2000 & Tegegn, 2011). 

Locality Development (LD) is LED strategy that combines both community economic development 

(ECD) and Enterprise Development (ED). For Meyer-Stamer (2005) LD is of a longer horizon than ED 

and CED. He confirms that LED involves a clash of cultures like the culture of businesses that 

basically in a very short time and culture of planners, who are long-term project thinkers. 

Meyer-Stamer (2005) further underscores that the LD planning aims is to maximize the LED positive 

externalities to minimize disagreement and thus, improve the attractiveness of localities such that LED 

objectives such as poverty reduction would be realized.  

In most SSA including Ethiopia however, pro-poor LED strategies are relatively prevalent and an 

instance where both pro-market/ or pro-growth and market-critical/ or pro-poor dimensions of LED 

approaches properly combine are rare. Pro-poor LED strategies generally emphasis on survival, 

self-reliance, and alleviation of poverty instead of increasing competitiveness, improving the local 

economy and searching for market niches (Binns & Nel, 1999).  

 Why Local Economic Development in Developing Countries? 

Despite the fact that interest in LED strategies to development originated in North America and 

Western Europe (Blakely, 1989; Harvey, 1989; Clarke & Gaile, 1998), it was also subsequently 



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diffused to another worlds for reasons not much dissimilar with that of developed nations. Alongside 

other development initiatives, developing countries also gradually started to realize that the traditional 

top-down strategy is not creating the intended outcomes. As a result, Local economic development as a 

development approach introduced in the early 1990s in certain developing countries including SSA as a 

bottom-up development approach with the assumption that it would ignite the development and growth 

of the local economy. During this time according to Harvey (1989), local economic development has 

become the most influential and attractive policy that was most popularized and promoted in a number 

of developing regions including Africa. Especially, the Republic of South Africa is among the countries 

in Africa that have successfully implemented LED. Pervasive decentralization and advancement of 

globalization during the 1990s would lead to the spread of local economic development ideas from 

developed regions to developing regions (Rogerson, 1997; Rodriguez-pose et al., 2001; Helmsing, 

2002; Nel & Rogerson, 2005; Gomez & Helmsing, 2008 cited in Rogerson et al., 2010).  

In most developing countries including SSA, LED is also advancing and gradually gaining fame as an 

alternative development strategy among organizations with the objective of reducing poverty and 

inequality of local communities and to deal with the negative impact of globalization (Meyer-Stamer, 

2006; Rodriguez-pose & Tijmstra, 2007; Rodriguez-pose & Tijmstra, 2009; Rogerson and Rogerson, 

2010; Marais, 2010; Rogerson, 2010a; Hampwaye & Rogerson, 2011). Factors such as the collapse of 

hyper-inflation, vast debt burdens, massive currency devaluation, social services, the effective inability 

of central government to intervene at the local level, structural adjustment packages, disastrous effects 

of global trade, the transition to democracy aggravate the situation in these countries (Binns and Nel, 

1999; Nel, 2001; Mensah et al., 2013a). 

Rodriguez-pose and Tijmstra (2007) also stated that the emergence of local economic development in 

Africa in general and more specifically in SSA is attributed to acute poverty and the perseverance 

problems of slow economic growth together change in economic situations both nationally and 

internationally and the inability most national governments to intervene local level. According to 

Kahika and Karyeija (2017), different LED strategy initiatives specifically, the 1986 to 1990 

significance program implemented by the Organization of African Unity in 1985 to restore the 

economy of Africa; the new collaboration and partnership for African Development and the 1980s 

Lagos action plan have been attempted in order to reverse local challenges in Africa. According to Nel 

and Binns (1999 cited in Mensah et al., 2013), the significance of local empowerment combined with 

dependency on local initiative and potentials are also some of the vital features of local economic 

development initiatives of Africa.  

In addition, Meyer (2003) identify the two major causes attracting third world regions including Africa 

to adopt local economic development values includes: 1) the pursuit of decentralization and the 

responsibility of encouraging economic development at lower levels of government and 2) problems of 

poverty and unemployment at the local level have provoked questions about the capacity of national 

government and its centralized industrial policy to solve local needs. He also confirmed that the 



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influence of donor agencies (specifically, WB, ILO, UNDP) and GIZ in penetrating and propagating 

LED in developing countries as an alternative development strategy would not be undermined 

(Meyer-Stamer, 2003, Mensah et al., 2013a).  

For Helmsing (2003), liberalization policy and structural adjustment program, pervasive 

decentralization, impacts of globalization and ideological dissatisfaction with central-state-led 

development were the main reasons for the emergence of local economic development as an alternative 

development in Africa since the 1990s. Similar to other developing countries especially in the past 

three decades, SSA also greatly affected by reduced control of state and decentralization in an age of 

rapid globalization (Nel, 2007; Rodriguez-pose & Tijmstra, 2007) and thus, LED as a development 

strategy has been grown as a response to these challenges.  

The importance of local economic development throughout SSA is also signaled by the functions of the 

United Cities and Local Governments of Africa (UCLGA) (Swinburn and Yatta, 2006a, b) Swinburn et 

al., 2007). Since national economic policies are no more adequate for achieving sustainable growth in 

the continent, the association identifies LED as one of its main priority areas for the period 2006-2015 

to attain its “mission to build African unity from within and promoting development at the grass root 

level” (Swinburn et al., 2007).  

Though developing countries adapt LED for the indicated purposes, the success story of LED as an 

alternative development in all developing regions in including SSA is not the same. Except South 

Africa, the practice of local economic development strategies is limited in Africa, specifically, in SSA. 

Reviews of the status of LED within local government areas in the developing countries indicates that 

formal LED in contrast to community-based variations is still in its infancy and limited local 

governments are engaged in LED in the current time (Nel, 2001). In case they exist, initiatives most of 

the time are limited to project level, aimed at poverty reduction by overlooking the dynamism and 

economic competitiveness aspects of LED approaches (Rodriguez-pose & Tijmstra, 2007). Ethiopia 

where this study is conducted is not exceptional. 

  Pro-Local Economic Development policies in Ethiopia 

Even though there is not yet a separate LED legal framework in Ethiopia, different pro-LED policies 

and activities have been enacted and implemented in the country. The commitment of the current 

Ethiopian government towards LED evidenced in its all-embracing series of five-year plans including 

the Plan for Accelerated for Sustainable Development to End Poverty (PASDEP) from 2005 to 2010 

and Growth and Transformational Plan (GTP) (I & II) from 2011 to 2015, and 2015 to 2020 

respectively. In this case, each subsequent fives plan builds on the achievements and challenges of the 

previous plan. For instance, the PASDEP (2005-2010) builds on achievements pursued and challenges 

faced during the Sustainable Development and Poverty Reduction Program (SDPRP) Sustainable 

(2000-2004). In the same way, the Growth Transformational Plan (2011-2015) builds on the attainment 

and problems of PASDEP (2005-2011) which in turn has succeeded the SDPRP (2000-2004). The 

overall objectives of these successive plans were to attain a comprehensive, rapid, people-centered and 



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equitable economic growth as well as to pave the groundwork for the attainment of the Millennium 

Development Goals and reducing poverty (MoFED, 2010). These are intended to be realized through 

strategic pillars and emphasis mainly on macro and sectoral policies particularly; the industrial sector, 

regional development framework, urban development policy, MSE strategy (UCLGA and LEDNA, 

2016). Some of these macro and sectoral policies that are pro-LED by their nature will be discussed in 

this section. 

Micro and Small Enterprise Strategy  

The formulation of the MSEs Development Strategy in 1997 establishes a legal framework to set an 

enabling business condition/environment for the development of micro and small enterprises (MSEs) 

including identifying goals, the institutional arrangement, the basic elements of MSEs support package 

and framework, program action and budget. In addition, the 1997 MSEs strategy also identifies the 

necessary steps and process of institutional development for MSEs and different support institutions 

including the formation and establishment of different financial institutions and loan provision systems, 

federal and regional MSE Agencies (Ministry of Trade and Industry, 1997). 

The central aim of the 1997 MSEs Strategy framework was to create a conducive and appropriate 

environment for MSE. Creation of decent job; strengthening co-operation between and among MSEs; 

facilitating for the promotion of economic growth and equitable; promoting export and provision of a 

basis for the development of Medium and Large-scale enterprises were some of the specific objectives 

of the strategy (Ministry of Trade and Industry, 1997). 

Nonetheless, despite some positive progress, the strategy did not attain the expected objectives due to 

various factors. For instance, there was limited government support in terms of acknowledging the 

program, access to finance and skills needed for the operation of MSEs efficiently and profitably. As a 

result, there was a consensus that if the sector was to contribute to the country‟s program of 

development and poverty reduction, more institutional and resource intervention were necessary 

(Tegegne & Meheret, 2010). 

To mitigate the implementation gaps of the 1997 MSE strategy and improve the sector performance, a 

new strategy for the development of MSEs was established in 2011 by the task force established and 

coordinated by the Ministry of Urban Development (MUDC) and federal micro and small enterprise 

development agency (FeMSEDA) with the vision to establish MSEs that are very competitive and lays 

the groundwork for industrial development. To realize the identified vision, three main aims have been 

identified by the strategy, which are: 

 To increase the employment and wealth creation capability of MSEs,  

  To enable the MSE sector to become more competitive and link with agricultural development 

and,  

  To ensure MSE development by creating a large entrepreneurial base in cities throughout the 

country. 

Different development support packages and frameworks were developed in order to implement the 



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development directions identified in the revised strategy and to create conducive conditions by 

addressing the challenges of the previous strategy. The strategy has also defined three stages for the 

growth and development of enterprises involved in these areas including Start-up stage; growth stage 

and maturity stage with specific set of interventions and support packages for each stage. The major 

target and focus areas for the new MSEs strategy were construction, manufacturing, services, urban 

agriculture and trade. 

Despite the effort made by the government to support the enterprises, however, research conducted by 

Amare and Raghuvamsa (2027) and government official report on the growth of MSEs reveals that 

transition from Micro to Small and then to Medium Enterprises in the new strategy is still rarely 

happening which makes the onlooker to equivocate the success of the MSEs development strategy. 

Concerning human resource development and technological improvement, the strategy identifies 

Technical and Vocational Education and Training (TVET) institutions to play the key role and serves as 

a center of technology transformation. Identifying and producing import substitution product as a 

sample and transfer of technologies to MSE was the role expected of TVET. This role was also part of 

the 1997 strategy repeated in the 2011 MSEs strategy. All stakeholders engaged in MSE were 

encouraged to accumulate personal savings and contribute to 20% to their start-up capital in order to 

address the challenges related to financial services. The strategy also required regions and city 

administrations to build the market place and organize working areas for MSE to reduce their cost of 

capital investment. 

To address the challenges of technology transfer, capital shortage, working place constraints and 

market problems of MSEs, the strategy suggests the use of a cluster development direction with special 

arrangements of credit, market and land to be made to facilitate and improve graduation of micro to 

small, small to medium level enterprises (MicroNed, 2008) though the strategy did not show progress 

in terms of graduating enterprises from small to medium. The revised 2011 strategy also suggests the 

formation of “sub-contracting market networks” as well as special support to enterprises working in the 

export market. Outsourcing, franchising, strengthening sub-contract and out-grower marketing system 

were also some of the other market development tools identified by the strategy.  

The strategy also proposed the establishment of building the capacity of support giving institutions, 

industry extension services and one-stop services as tools to minimize problems of micro and small 

enterprises. The aims of industry extension services are to provide support on trade, entrepreneurship, 

technology transformation and development and to use to tools like KAIZEN to improve the efficiency 

of the manufacturing sector (MSE strategy manual, 2011). 

 

As clearly indicated in the discussion above, MSEs policy and strategy is pro-LED and provides 

strategic direction and opportunity for LED programs to refocus on its enterprise development based on 

competitiveness and entrepreneurship. 

 



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Urban Development Policy 

Urban development policy enacted in 2005 also another pro-LED policy. The policy acknowledges 

urban development as a multi-sectoral that relies on the development of rural areas, which needs to 

consider global competitiveness in its plan and led by good governance (Tegegne et al., 2011). Making 

cities and towns centers of development is the strategic purpose of the policy which in turn fosters rural 

development and the overall economic growth of the country. The policy also focuses on the need to 

more invest on urban communities and helping them to attain and changing their living condition to 

similar to those middle-income nations (MWUD, 2006). The Urban policy mainly emphasizes on 

housing development, MSEs promotion, social services, land and infrastructure, urban good 

governance and urban conducive 

environment as the key intervention areas to attain the strategic aim of the policy. 

In terms of MSEs, urban development policy identifies various support packages including market 

place, the market linkage, finance, skills training, and infrastructure and working premises. The MSE 

development program under the urban development package (2006) had the objectives to, 

 Reduce urban poverty and unemployment below 20% by supporting micro- and small-scale 

enterprises and accelerated urban based employment in linkages with rural development and delivery 

of housing and basic services;  

 Achieve fast growth through the creation of linkages between micro- and small enterprises with 

medium and large enterprises;  

 Facilitate the growth and expansion of micro- and small enterprises and create a foundation for 

industrial development; and  

 Promote the economic rural-urban and urban-rural linkages (MWUD, 2006).  

Regional Development Framework 

The regional development framework was also devised by the current government of the country in 

2010 to reduce poverty, reduce regional imbalances, achieve regional development and improve and 

strengthen rural-urban and urban-rural linkages. Specifically, regional development oriented towards 

reducing conflicts with regional and inter-regional consultation, strengthening national-territorial 

cohesion, producing spatial organization that promotes long and mid-term development and provision 

of equal opportunities for all (MoFED, 2010). 

Industrial Development Strategy 

Industrial Development Strategy formulated in 2013 also identifies major areas of interventions 

required to speed up the growth and development of the selected industrial sectors and enable them 

contributes their share to Ethiopia‟s vision of becoming one of the middle-income countries by the year 

2025. One of the core areas and emphasis of the strategy to achieve its goal is the development of 

business enterprise and entrepreneurship program. The businesses enterprise and entrepreneurship 

Development program component of the strategy consider SMEs as an engine for development and job 

creation (FDRE Ministry of Industry, 2013). 



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In addition, this program of the strategy also focuses on the development of entrepreneurship and 

enterprise cultivation. Moreover, the strategy also considers the development of private enterprises and 

the flourishing of entrepreneurs as an engine of the envisioned growth and transformation. Ensuring a 

conducive business environment, availing competent human resources and developing and providing 

institutional support are some of the important strategies identified to implement the businesses 

enterprise and Entrepreneurship Development program component of the industrial development 

strategy (FDRE Ministry of Industry, 2013). 

The aforementioned discussion reveals that the current government of Ethiopia enacted different 

pro-LED policies before the actual commencement of the LED exercise in the country. However, 

despite various macro pro-LED policies have been formulated in the country, local economic 

development continues to be lagging behind and sub-national government and other stakeholders did 

not get the opportunity to involve in their local economies. Because all levels of government in the 

country are controlled, directly or indirectly, by one party. i.e., the Ethiopian Peoples‟ Revolutionary 

Democratic Party (EPRDF) in which the party changed to prosperity Party (PP) in 2020 by excluding 

Tigray people Liberation Front (TPLF) which was one of the former members of the front after Prime 

Minister „Abiy Ahmed‟ came to power and did not get adequate opportunity to involve the 

development of their localities. Not only does the party control all levels of government, but it has a 

highly centralized decision-making system founded on the principle of „democratic centralism‟ (Ayele, 

2014). 

 Actual Commencement of LED and Its Practice in Ethiopia 

Even though very late when compared with other countries in Africa, the actual LED programs have 

also been designed and implemented in Ethiopia in two phases focusing on cities/localities‟ local 

development though the program overlooks rural territorial development. Accordingly, the first LED 

intervention program was implemented since 2009 in seven cities including Asella and Nekemte in 

Oromia regional state; Bahir Dar in Ahmara regional state; Sodo and Hawassa in Southern Nation 

Nationality and People regional state and Adigrat and Mekele in Tigray regional state as pilot study 

(UNDP, 2012). The main purpose of this first LED program intervention was to promote market critical 

or pro-poor economic growth and sustainable livelihoods by creating an enabling environment for 

business development, investment, and targeted economic interventions in the cities (UNDP, 2012). 

The second phase of the LED program was started in 2012 and end up in 2015. During this phase, the 

LED intervention program was executed as an up-scaled project in 27 cities/localities (7 existing LED 

localities and 20 new localities). The main objective of the second phase of LED program was to 

promote inclusive economic growth and create decent job/ or employment opportunities for youth 

through creating conducive business environment and developing capacities of relevant local 

stakeholders (public, business and civil society organizations) (UNDP, 2012). 

These LED programs were financially and technically supported by UNDP with the initial allocation of 

around 10.5 million US dollar with the coordination of the Ministry of Finance and Economic 



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Development (MoFED) currently known by the name Ministry of Finance (MoF) at federal level and 

the bureau of Finance and Economic Development (BoFED) at the regional level. However, the second 

generation/phase of LED program was all of a sudden forced to be shut down without a substantial exit 

strategy and merged with Entrepreneurship Development Program (EDP). After LED merged with 

Entrepreneurship Development program (EDP), a coordinating unit established within Ministry of 

Finance was dissolved and Federal micro and small enterprise development agency (FeMSEDA) took 

the coordinating responsibility at the federal level. 

To achieve the LED program objectives of the selected localities, different interventions/projects were 

identified. Some of these major LED interventions including the establishment of institutions that 

implement LED program, capacity building for localities, enterprise development and Entrepreneurship 

development were discussed below.  

Institutional Arrangements to Implement LED 

As part of the creation of an enabling environment, the LED program has created an institutional 

arrangement composed of different multi-stakeholders at all levels. The program is implemented at the 

local level by the coordinating role of the federal government. These arrangements have also a 

responsibility to approve projects and dispersing funds. Mobilization of local resources that 

significantly contribute to the sustainability of the program was also the other responsibility of this 

arrangement. The major actors in the implementation of the LED program had supposed to include all 

concerned stakeholders specifically, public, private sector and civil society organization. The 

assumption is that adequate representation of these actors ensures sustainability in local economic 

development as each actor pools knowledge and skills, own resources and the partnership philosophy 

of LED as well. 

 At the federal level, there is a national LED Program Steering Committee to be set up in Addis Ababa; 

whereas the regional LED Council and Local LED Council were set up or strengthened at the regional 

and local levels respectively. At the Sub-city/Kebele level, the program has Kebele LED Council to 

coordinate and manage all the LED activities implemented in the selected Kebeles. The steering 

committee and each council established at different levels of governments are supposed to include 

representatives from government, private and civil society organizations. 

This organizational structure established to coordinate the implementation of LED in the urban context 

could be depicted by the following Figure: 



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Figure 1. Urban Context 

 

At federal level  

At regional level  

City Level  

Sub-city/Kebele level 

As stated in the LED strategy document, the steering committee at the regional level is expected to 

provide coordination, guidance, monitoring and evaluation to the city level steering committee. The 

same committee is also supposed to undertake operational activities of budget disbursement and project 

approvals. On the other hand, while the city level steering committee serves as a bridge between 

regional level and kebele steering committee, the local level steering council is a tool to eloquent and 

channel local needs to steering committee found at city level for decision making. 

Though the existence of the steering committee found at all levels and their strong interactions are very 

crucial for properly implementing the LED program in the localities, evidence reveals that their vertical 

coordination and relationships are very weak. Especially, according to assessment reports of UNDP 

(20120, there was a very loose relationship between region and city level steering committee. This is 

evidenced by the infrequent interaction in which the regional level steering committee rarely meets 

with the city level committee in addition to lack of capacity to provide technical guidance, coordinate 

and follow up activities of the city level LED structure. 

LED Program steering committee within MoFED later 

on replaced by FeMSEDA 

Regional LED Council established within 

BoFED 

City LED Council established within City 

Administration 

City LED Council established within sub-city 

council 

Larger communities where LED implemented 



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With respect to kebele and city level relationship, the role of a task force established at kebele level was 

mandated only with performing recruitment process on the criteria indented and submit the results to 

the city level steering committee. Here the kebele levels LED structures are not allowed to involve in a 

decision related to different LED functions in their kebeles. This indicates that kebele level structures 

are established to serve as an implementing arm of the city level steering committee. The other 

weakness of the structure is that there was no mechanism put in place to ensure accountability and 

transparency on kebele level functions. 

The domination of government representative steering and technical committee in the LED institutional 

arrangement was the other limitation observed though it is supposed to involve representatives of 

non-state actors. Evidence reveals that in most localities, the private sector is not part of the steering 

and technical committee. In some localities, they have been represented only by heads of the chamber 

initially but withdrew subsequently. There is also blame in all localities that the government is not 

willing and ready to involve the private sector in the technical and steering committee. An assessment 

report by UNDP (2012) also confirms that most of the time, the private sector was not allowed/invited 

to attend on steering committee discussions and meetings as a result of which they were forced to leave 

from their being committee membership. On the other hand, the private sectors were also accused by 

representatives of the government as being not developmental and not willing and ready to solve the 

needs of the poor and vulnerable community (UNDP Assessment report, 2012). 

Similarly, as evidence reveals, almost in all localities, the civil society organizations were not also 

sufficiently represented in the technical and steering committees. Youth and women associations that 

are claimed to be created and financially supported by the government were the only civil societies that 

were allowed to participate in all steering committee found at different levels. 

In addition to the absence of non-state actors in LED implementation, there is no easily identifiable 

LED structure within the system of the local government budget and responsibility. In almost all 

localities where LED was implemented as a pilot study, LED program and city level annual planning 

and budget were not well integrated. This discourages the transfer of the LED projects to the system of 

government. In this case, unless LED is incorporated in the overall city planning and budgeting, it is 

very hard to observe the integration and cooperation between activities of LED and that of the 

city-wide development activities. This lack of cooperation and integration between LED activities and 

the overall development activities of the city can open the door for the LED to remain to continue to be 

implemented as a project.  

Moreover, the other factor that hinders and makes the effective implementation of the LED program to 

be more problematic with the existing institutional arrangement is that it is an add-on to the existing 

functions of executives to which they are responsible and accountable. 

Capacity building as an intervention area for LED  

Capacity building is another intervention area identified for the implementation of LED. The program 

implementation plan identified two level of projects (Project level I and II) as LED capacity building 



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intervention projects. While the level I element of the project is wholly dedicated to capacity building 

of implementing bodies and program beneficiaries at the local level, level II projects were 

micro-projects which were essentially aimed at improving the income and employability of 

unemployed women, youth and other vulnerable sections of the society. Especially, level I elements of 

the LED capacity building project is very critical. Because it creates conducive conditions for the 

implementation of LED by improving the implementing capacity of implementers and skills and 

knowledge of beneficiary‟s as well. 

Our evidence indicates that the two-level projects were financially funded by UNDP. While the level I 

capacity-building intervention was funded with grant provision, level II projects was funded through 

loan able revolving fund. As clearly shown in the LED implementation plan, in addition to fund 

obtained from UNDP, creating investment-friendly environment, mobilizing the community for LED 

and encouraging the private sector and strategic planning were also needed as financial support 

mechanisms to implement the LED program. 

The implementation plan indicates that mobilizing the community for LED, an investment-friendly 

environment, promoting private sector development and strategic planning are also required as support 

mechanisms. 

Capacity building was principally emphasized on the foundational activities in its first phase of the 

program. This was basically to build and create awareness as well as to integrate the program within 

the overall localities development plan. During this phase, different training and workshop were 

conducted including international field visits to other countries like South Africa that are considered to 

have more experience and relatively successful in the implementation of the LED program. Steering 

committee members found at different levels and heads of many sectors took the training and attended 

the workshops. But, the bad thing according our evidence is that most of those individuals who were 

participated in the training and workshop leave offices or some were assigned to new responsibility 

without utilizing the experiences and skills they got that impact greatly the implementation of LED in 

their localities. 

The focus shifted to different direct interventions after micro-enterprise activities started 

implementation in 2010. The focus during this time was to capacitate beneficiaries through giving basic 

training in financial and business management at a larger scale. According to evidence, since 2010, 

around 3000 women, youth and members of vulnerable sections were trained in entrepreneurial and 

vocational skills training in cities/localities where projects were implemented. But these 

capacity-building efforts was argued to be inadequate to strengthen the capacity of micro-enterprises 

and unable to empower and meet their challenges since it is more generic than specific to their needs 

(UNDP, 2012). 

Enterprise Development and Employment 

The development of enterprises and the creation of employment was also the other key emphasis of the 

LED program since it is considered to be the basic entry point of the LED program in the country. The 



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initial emphasis of enterprise development in Ethiopia was on the start-up of the new enterprises. Later 

on, it included business retention and expansion. Its primary aim is to establish MSEs and create 

employment specifically for the vulnerable groups in the localities like youth, women and disabled 

people. 

Evidence indicates that as a result of the enterprise development intervention, the rates of youth 

unemployment at LED localities were reduced to 50 percent. That means all registered unemployed 

youth (over 50% women) in LED cities/localities got a job and the income of their families at least 

increased by 50 percent. In addition, as part of the enterprise development process, more than 5,000 

selected unemployed youth (around 50%women) were given training in vocational and entrepreneurial 

skills through continues training and workshops conducted in the LED localities. Moreover, the 

enterprise development at the time created employment for about 10,110 groups target beneficiaries 

(unemployed youth and vulnerable groups) and around 7,715 micro-enterprises were established. 

Furthermore, the innovative micro-finance strategy had also initiated as the main component of 

enterprise development for LED programs that establish and manage revolving loan funds and 

disburses credit loans to micro and small enterprise beneficiaries that were categorized under level II of 

the LED program. Evidence reveals that most LED cities dispersed the revolving loan funds as a 

non-interest-bearing fund or in the form of grant loans. But interest-free loan was criticized on the 

ground that it has the effect of distorting both the saving and micro-credit environment as well as the 

market environment of the enterprises itself since it gives opportunities for the selected LED 

enterprises over enterprises not covered in the LED framework, according to various sources. 

As part of supporting enterprise development for promoting an enabling environment, the LED 

program also established Business Development Resource Centers (BDRC) that essentially provide 

technical support for entrepreneurial development to small business owners and business associations. 

There are four key functions provided by BDRC: Business development services (BDS) like provision 

of appropriate business planning and counseling; market and business development services; job 

placement and counseling services and skills and knowledge sharing platform-based library. 

Evidence showed that UNDP in 2011 allocated considerable budgets of between 700 000 and 1,3 

million Ethiopian Birr for the “incubation” stage for the physical establishment of each of the centers. 

Our evidence also indicates that around 7 networks of Business Development Resource Centers 

(BDRCs) were set up and functional in each pilot city during the first phase of the LED program and a 

total of eight more BDRC were set up and functional in eight localities during the second phase of the 

program. To ensure the sustainability of the center, it is planned to be supported and financed through 

income generated through the provision of services including office supplies, secretarial, research, 

training and consultancy despite short of practice. 

 Conclusions and The Way Forward 

Despite the current government of Ethiopia has implemented different pro-LED policies since 1991, 

yet, there is no separate LED framework in the country. Thus, though the commencement of LED 



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programs in selected localities of the country is a good step, LED framework is needed to expand and 

scale-up LED exercises to improve the living standards of local communities and contribute to the 

national economy as well. 

The commencement of Local Economic Development (LED) has prompted awareness and interest 

among the government at the local level where it was implemented. But, existing LED exercise in 

selected localities of the country has been run as a project activity and there is no easily identifiable 

LED structure within the system of the local urban government budget and responsibility. Unless LED 

structure is incorporated in the overall city planning and budgeting, it is very hard to observe the 

integration and cooperation between activities of LED and that of the city-wide development activities. 

Therefore, to institutionalize LED program in the country, permanent LED institutions that are well 

integrated with the overall city responsibilities and budget is needed. 

LED program in Ethiopia was financially relied on donor support, specifically UNDP. But, sustainable 

LED needs dependable and diversified sources of finance and collaboration. So, as much as possible, 

localities should search for diversified sources of finance including domestic sources extracted from 

private, civil society and individual citizens to sustain the LED programs in their areas. 

Similarly, the partnership is a critical component for the success of LED. In Ethiopia, however, there is 

inadequate room and space for non-state actors to fully engage in the overall development efforts in 

general and in the LED process at localities. Thus, there is a need to strengthen the partnership 

initiatives between different stakeholders for the sustainability of LED program in different localities of 

the country. 

 

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