The LRED Approach and Toolbox

LRED is a complex process that requires the combination of many interventions and instruments. The RED Program supports stakeholders from the public and private sector in the following areas:
1. LRED Strategizing
2. Inter-District Cooperation
3. Business-Enabling Environment
4. SME Promotion

1. LRED Strategizing
Kick-Starting Interventions through LRED Strategizing

LRED is a complex process that involves many interventions and stakeholders. Therefore, it is important to develop an overall strategy that takes into account strengths and weaknesses of a selected region. A comprehensive LRED strategy delivers a clear picture of what needs to be done in order to increase regional economic growth and competitiveness by tapping on existing local resources.

A best practice for initiating LRED in a certain region is to conduct a systematic sequencing. This comprises the sensitization of relevant actors, strategy-making and activity planning as the main steps. To get all stakeholders on board, the concept and limitations of the LRED approach are introduced in a one-day workshop.

As part of the strategy-making, a so-called “Start-Paper” summarizes the available data and information about the socio-economic conditions in the region. It contains an assessment of the labor market and economic structure of the region, including the main sectors and industries. In a second step, project areas and ideas are identified, with stakeholders assigned possible roles in these scenarios.

A Regional Strategy is an alternative instrument that formulates a common regional vision and serves as a reference for LRED interventions. It combines economic and potential analysis with changing the mindsets of stakeholders towards thinking in regional terms and beyond district boundaries.

With the bottom-up, pragmatic instrument of Participatory Appraisal of Competitive Advantage (PACA) an action plan for 1 to 5 years ahead can be developed within a relatively short period of time. PACA is particularly suited to stimulate business activities at the local level.

The so-called COMPASS of Local Competitiveness is an instrument to assess and monitor the strategic approach to and the progress of LRED initiatives. COMPASS serves to identify critical success factors and define key performance indicators as well as goals derived from the strategy. In an interactive workshop, specific activities to achieve these goals can be agreed upon with relevant stakeholders.

LRED Strategizing is particularly important at the beginning of a LRED process, but it needs to be updated and adapted on a regular basis as activities are implemented. The coordination, facilitation and monitoring of various LRED interventions is ensured by Regional Management, for which a mechanism needs to be established.

Sequencing
Systematic sequencing as part of LRED strategizing is highly recommended to ensure the participation of all relevant parties in a LRED process. Without the commitment and ownership of partners from the public and private sector as well as civil society, the goal of increased regional economic competitiveness can hardly be achieved.

A so-called “Start-Paper” is a useful instrument when initiating LRED. It consists of an analysis of regional economic potentials and relevant actors or institutions. Among others, the “Start-Paper” assesses basic economic data, sectors and human resources in order to derive ideas for future interventions.

Regional Strategy Development
As part of LRED Strategizing, the joint development of a regional economic strategy is a crucial step towards achieving a vision for successful economic development. A comprehensive Regional Strategy sets the framework for concrete actions and decisions in the medium and long term.

PACA
Participatory Appraisal of Competitive Advantage (PACA) is a bottom-up, pragmatic instrument in the field of LRED Strategizing that generates action plans that can be integrated into the short- or medium-term planning and budgeting of local governments.

COMPASS
The COMPASS of Local Competitiveness is a participatory workshop instrument to assess and monitor the strategic approach to and the progress of LRED initiatives. This is done by the identification of critical success factors and key performance indicators.

2. Inter-District Cooperation
Joining Forces for Inter-District Cooperation

The unique selling point of the RED program becomes evident in the integration of all instruments under the umbrella of Inter-District Cooperation. As complex problems can be easier addressed and more effectively solved through common efforts, working across district boundaries strengthens the interplay between public and private stakeholders in a region. Local expertise and costs can be shared, for example regarding the improvement of general public services, urban planning or the harmonization of district regulations.

Based on the jointly developed Regional Economic Strategy, a mechanism for Regional Management needs to be established in order to facilitate, coordinate and monitor LRED projects and interventions in line with this strategy. Through Regional Marketing activities, the unique strengths and potentials of the region are communicated within as well as outside of the region. Local actors are encouraged to think beyond district boundaries and strengthen their own regional identity. The region itself may become a product or brand to be marketed externally to potential investors and visitors.

Regional Management
In the context of Inter-District Cooperation, Regional Management plays a vital role in ensuring that synergies in the cooperation between the various districts in a region are identified, communicated and utilized. The institutionalization of Regional Management is an important prerequisite for LRED, particularly when it comes to monitoring and implementing a joint strategy for regional economic development.

Regional Marketing
In order push and promoting the regional economic development, regional marketing is needed. Regional Marketing communicates specific strengths of a region to internal as well as external target groups, thereby fostering regional identity on the one hand, as well as regional products and investment on the other.

While Indonesia is generally viewed as an attractive investment location, some commentators still describe it as “corrupt and chaotic”. According to the findings of Business Climate Surveys (BCS) developed in the RED program, a “high-cost economy” and “non-conducive business climate” are common complaints from investors.

The performance of enterprises depends to a great extent on environmental factors, such as bureaucratic requirements and access to markets, financial resources, or raw materials. Registering a business, for example, can be a highly complex and cumbersome process. Furthermore, in the wake of the decentralization process, local governments have been granted greater authority in issuing regulations. Ultimately, this has resulted in an explosion of local regulations of which some are contradictory or unclear.

One way to address these challenges and thus create an enabling environment for the private sector is by focusing on efforts to simplify administrative processes and improve the regulatory framework. One-Stop-Services (OSS) at district, regional or provincial level offer public services, among others for business licensing, in a transparent and simplified manner that reduces time and costs. Ideally, the establishment of OSS goes hand in hand with Regulatory Impact Assessments (RIA) that serve to analyze how existing regulations affect economic activities. The aim or RIA is to formulate recommendations for decrees from local parliaments to change or abolish business-hampering regulations.

Complementarily, Public-Private Dialogue Fora (PPD) facilitate the dialogue between relevant stakeholders from the public and private sector as well as members of civil society. These fora provide valuable inputs and impulses for local economic development that can be linked to other fields of intervention fields, such as LRED Strategizing or SME Promotion.

BCS
A Business Climate Survey (BCS) measures key economic performance indicators based on the perceptions of the business community in the region. Among others, the instrument analyzes needs, framework conditions as well as the availability and quality of Business Development Services (BDS). Conducted every two years, the BCS delivers valuable insights into the status of the regional economy and provides substantial suggestions for creating a business-enabling environment.

OSS
One-Stop Services (OSS) play an important role in the context of a business-enabling environment. These institutions offer a variety of public services for entrepreneurs “under one roof”. Transparent, standardized and simplified administrative procedures considerably reduce the time and costs required for services, such as business-licensing and registration.

The existence of an OSS in a region or province may be crucial for favorable perceptions of entrepreneurs about the general business climate. However, as experiences in carrying out Business Climate Surveys (BCS) in Central Java have shown, key constraints for the business climate, notably the regulatory environment in the region, need to be addressed as well. This is where Regulatory Impact Assessment (RIA), as a complementary instrument, can come into play.

RIA
A business-enabling environment heavily depends on a sound regulatory framework. In the wake of the decentralization process in Indonesia, sub-national governments have been granted greater authority and autonomy in issuing regulations. This has resulted in an explosion of local regulations, many of which are mutually contradictory and hampering business activities. Through Regulatory Impact Assessments (RIA), these local regulations can be reviewed, analyzed and recommendations made for their revision or abolishment.

Public-Private Dialogue Fora
The regular exchange and coordination between public and private sector as well as civil society is crucial for the creation of a business-enabling environment. The establishment of Public-Private Dialogue Fora (PPD) at district level is a useful instrument for communication between all stakeholders, and as such, generates inputs and impulses for LRED.

Small and Medium-Sized Enterprises (SMEs) play a vital role as the “backbone” of the Indonesian economy. With this in mind, the RED Program strengthens the performance and productivity of SMEs in selected sub-sectors throughout the country. Facilitating demand-oriented trainings to improve the overall competitiveness of SMEs and establish a sustainable support structure for start-ups is a core element in creating assets for the region.

The internationally accredited CEFE Trainings (Competency-based Economies through Formation of Enterprise) comprise a set of tools, an action-oriented approach and experimental learning methods to develop the personal as well as business management competencies of entrepreneurs. High potential lies in linking up CEFE with commercial banks and microfinance institutions whose customer base are SMEs. This approach brings benefits for both sides: entrepreneurs gain access to finance for their projects, whereas banks profit from more clients and fewer non-performing loans.

The integration of the Value Chain (VC) Approach allows for an in-depth assessment of development potentials and barriers. The approach provides a picture of the entire productive process along the value chain, from production to marketing and distribution, and finally to consumption. Through an analysis of the value chain, recommendations are developed for improving processes, products and business linkages, well beyond the national market.

Fostering innovation is important in this context as well. Within the framework of the RED Program a pilot project for a Seed Incubator in the city of Solo was initiated. The aim of the seed incubator is to transform real industrial challenges into new business opportunities. Young talents from all over Indonesia can submit project proposals and apply for scholarships. The seed incubator facilitates the guidance from mentors from the industry and connects them to potential investors.

SMEs can only strive if there are supporting regulatory framework conditions. Therefore, SME promotion within the RED Program is also always paired with interventions for a business-enabling environment.

Systematic sequencing as part of LRED strategizing is highly recommended to ensure the participation of all relevant parties in a LRED process. Without the commitment and ownership of partners from the public and private sector as well as civil society, the goal of increased regional economic competitiveness can hardly be achieved.

A so-called “Start-Paper” is a useful instrument when initiating LRED. It consists of an analysis of regional economic potentials and relevant actors or institutions. Among others, the “Start-Paper” assesses basic economic data, sectors and human resources in order to derive ideas for future interventions.

As part of LRED Strategizing, the joint development of a regional economic strategy is a crucial step towards achieving a vision for successful economic development. A comprehensive Regional Strategy sets the framework for concrete actions and decisions in the medium and long term.

Participatory Appraisal of Competitive Advantage (PACA) is a bottom-up, pragmatic instrument in the field of LRED Strategizing that generates action plans that can be integrated into the short- or medium-term planning and budgeting of local governments.

The COMPASS of Local Competitiveness is a participatory workshop instrument to assess and monitor the strategic approach to and the progress of LRED initiatives. This is done by the identification of critical success factors and key performance indicators.

Value Chain Approach
The Value Chain (VC) Approach allows for an in-depth assessment of processes from production to marketing and distribution. The instrument analyzes the interplay and linkages between actors along specific value chains and aims at their improvement. The VC approach may serve as a starting point for other interventions, such as CEFE or other entrepreneurship trainings, in the field of SME Promotion.

CEFE
In the context of SME Promotion, Competency-based Economies through Formation of Enterprise (CEFE ) trainings have been a proven international best practice. CEFE trainings are internationally accredited and apply an action-oriented methodology that serves to strengthen business management as well as personal soft skills. In Indonesia, an expert pool of certified CEFE trainers managed by the CEFE Association is currently being built up.

Seed Incubator
A seed incubator is an instrument in the field of SME Promotion that helps transform industrial challenges into innovative business opportunities for young talents from across Indonesia. Within the framework of the RED Program, a pilot project of a seed incubator was initiated in the City of Surakarta.