DEVELOPMENT PLANNING

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 TABLE OF CONTENTS

PART ONE: INTRODUCTION TO DEVELOPMENT PLANNING.................................................3

(a) PLANNING: ITS NATURE AND RATIONALE IN GENERAL...........................................3

ii. Categories of Economic planning......................................................................................4

iii. The need for Development Planning.................................................................................6

v. Reasons for Development Planning in Third World Countries...............................................7

PART TWO: RESOURCE REQUIREMENTS FOR PLANNING...................................................8

a) Relevant policy and Institutions.........................................................................................8

b) Resource Requirements....................................................................................................9

i) Human Resource Requirements..................................................................................10

ii) Non-Human Resource Requirements..........................................................................10

PART THREE: PLANNING TECHNIQUES AND STRATEGIES................................................12

i) INTRODUCTION.............................................................................................................12

ii) ASPECTS OF PROJECT ANALYSIS AND SELECTION................................................14

iii) PROJECT CYCLE...........................................................................................................18

iv) THE PLANNING TECHNIQUES......................................................................................20

1: THE INPUT – OUTPUT PLANNING MODEL..................................................................20

2: OTHER PLANNING TECHNIQUES.................................................................................30

PART FOUR: TYPES OF ECONOMIC PLANNING PROCEDURES/MECHANISMS................37

1. PLANNING PROCEDURES............................................................................................37

2. TYPES OF DEVELOPMENT PLANS..............................................................................45

PART FIVE: EXPERIENCES WITH DEVELOPMENT PLANNING.............................................50

1. CENTRALIZED PLANNING IN FORMER USSR................................................................50

2. INTEGRATED AREA PLANNING IN ISRAEL.................................................................52

3. PLANNING IN UGANDA.................................................................................................55

PRINCIPLES UNDERLYING THE CNDPF..........................................................................55

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 MAIN ELEMENTS OF THE CNDPF....................................................................................56

The National Vision (30 years).............................................................................................57

The 10-Year National Development Plan.............................................................................57

The 5-Year National Development Plan...............................................................................57

Sector Policies and Master Plans.........................................................................................58

Annual Plan/Budget..............................................................................................................58

PART SIX: ISSUES IN DEVLOMENT PLANNING......................................................................59

1. CAUSES OF FAILURE OF PLANS IN DEVELOPING COUNTRIES..................................59

References..................................................................................................................................61

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PART ONE: INTRODUCTION TO DEVELOPMENT PLANNING
(a) PLANNING: ITS NATURE AND RATIONALE IN GENERAL
Planning
Planning means preparation for action. Actions can range from expanding a
multinational conglomerate, managing a city department, including affairs of state to
taking a career.

Key features of a plan are that it is forward looking; it involves choice and
strategizing actions for attainment of specified goals.

What is a plan?
It is an action program for the future, specifying the following
 Objectives or desired outcomes to be achieved
 The strategies for implementation, comprising the institutional and resource
- provisions required for successful action.
 A timeline showing the sequence of pertinent activities and the flow of
resources
 A strategy of how progress towards the objectives will be monitored and
evaluated.
Why plan?
 Through planning we minimize uncertainties and maximize chances of
success towards the desired goals.
 Planning is therefore an aid towards success. When you fail to plan, you
are planning to fail. Examples that call for planning:
b) War and post war times
War times possess risks and uncertainties, necessitating tight
management of national efforts (resources & activities in order to
win). War imposes some physical, economic & social costs
necessitating national reconstruction in the immediate post war
period.

c) Scarcity of land and space.

Spontaneous human settlements often lead to uneven population
distribution and mis-development of infrastructure. Out of this arises
the need for ‘Town and County planning’ to inject order and
rationality into the evolution of human settlements over time, with
purposeful zoning of land use, appropriate patterning of human
movement networks and suitable layout of the activities.

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 d) Economic fluctuation.
The free market is prone to cyclical swings in the level of
performance, with possible unfavorable consequences at times.
To inject some measure of stability into the system entails
strategizing and manipulating some key influential variables.

e) Poverty and the desire for comfort.

Poverty is caused by a mix of many adverse factors. Since richness
is preferred to poverty, every poor community or nation wishes to
find a way of escaping from that condition – this needs to be
strategized for and pursued.

ii. Categories of Economic planning

Economic planning is the conscious effort by the government to influence,
direct and control the performance of the national economy. An economic
plan therefore is an action program setting out the nation’s economic goals
and detailing the strategy for pursuing them. It could be short-term (aimed at
stabilizing performance) or long term (charting out desired transformations).

a) Anti-cyclical Planning
The market economy has a built-in tendency for recurrent cycles, the ups and
downs in its performance. Anti-cyclical planning aims at achieving and
maintaining full use of resources (Labour, capital, land and etc) & maintaining
incomes above some set minimum.
In modern day parlance, it is termed as ‘macroeconomic stabilization’ and it
focuses on the economy’s dynamics in the short run.

b) Development Planning
This is a category of economic planning that is concerned with the affairs of the
economy in the medium to long-term. It is divided into 4 levels:

National planning: This planning attempts to cover all sectors and aspects of the
country’s economy. It focuses on broad aggregates such as the level of national savings
& investment, GDP growth, per-capita income, national employment or unemployment,
etc. It is supported by sub-national, sect oral details & projects.

Sub-national/regional planning: This type of planning deals with a given geographical

area within the national economy. Preparations of such regional plans can cover the
entire economy (in parts) as part of the process of preparing a national development
plan. Regional plans fit projects under the national plan to facilitate the best possible
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 location of industry, infrastructural development, and to reduce economic disparities
between regions in the country.

Sectoral planning: This target specific sectors e.g. Uganda’s Plan for Modernization of
Agriculture (PMA), the National Tourism Strategy 2013-2018.

Project planning. Targets specific projects, for example the SGR railway project and
the Kampala’s KIIDP project. The sectoral and the project planning form part of the
national development plan.

c) Multi- National Regional Planning

This covers an economic region that extends beyond the borders of two or more
nations. It also applies to the case where several countries, which are members
of an international organization, attempt to coordinate their national plans or set
integrated targets for their economies, e.g. The harvesting, conservation, and
use of the waters of the Nile Basin to facilitate equity & fairness to all stakeholder
nations of East, Central and North Africa which covers several countries such as
Uganda, Kenya, South Sudan, Sudan and Ethiopia.

iii. The need for Development Planning

Development planning is planning for a country’s socio-economic growth. It is a
complex process whose central factor is the sustained improvement of quality of life
of the people, according to their own world view and aspirations.

It is because of this, that development planning cannot be left to be determined by

the operations of free markets. The market economy has its own inherent weakness
that can make its performance disappoint society.

Development planning is a way of injecting order, direction and urgency into the
nation’s socio-economic change process through state and community intervention
and participation. Development involves fundamental change and needs to be
guided, controlled and directed on a desired goals, it cannot be left to chance.

In the post-World War II era, development planning became a national imperative,

especially in low-income countries. The gap in living standards between those
countries and the developed countries, coupled with the example of the Soviet Union
in the early 1930’s fueled tremendous social pressure for fast economic progress.
The Soviet experience offered not only a strategy (i.e. State-managed economic
planning & implementation) but also evidence of the quick positive results that the
strategy can yield.
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Development planning can help speed up and improve the quality of national economic
progress in the following ways:
a. It can facilitate avoidance of waste and duplication.
b. Through planning, short-run (private) interests can be subordinated to the
society’s long-term interests.
c. Facilitates the balancing of competing interests, as well as focusing on the
most desirable/ productive activities.
d. Serves as a channel for identifying and addressing the important issues of the
days such as unemployment, access to basic services, distributive equity and
gender balance.

v. Reasons for Development Planning in Third World Countries.

Low-income countries undertake development planning due to the following reasons:

i. Institution Development
Development of essential institutions such as the national’s financial
system, the industrial court, and the social service delivery mechanisms,
require state guidance which is achieved best through planning.

ii. Planning is a channel for a state to intervene and correct the performance short
falls of the poorly developed markets in the typical low-income countries.

iii. Strategic Resource Allocation

Resources which are very scarce in a country need to be allocated to the
most productive (priority) uses, and this is best accomplished through the
national process of planning.

iv. Mobilizing the people

Often, a national development plan is used as a rallying tool to mobilize
citizens, for a united effort. The plan raises hopes, and provides a
framework for citizen participation in development activities.

v. Attracting Foreign Aid

Some donors insist on a country having a national plan before it can be
considered for assistance. Consequently, some low-income states draw up
elaborate plans as tools for soliciting external aid. The chances that such
plans would be implemented are minimal, even if the external aid is
actually gotten.

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PART TWO: RESOURCE REQUIREMENTS FOR PLANNING
a) Relevant policy and Institutions
i. Facilitative Policy
National planning needs to be guided by an appropriate policy on
development and its planning. Such policy will specify the visions and
mission of national endeavors and provide the context within which
development planning takes place.

The policy specifies details on the goals of development, the purposes of

planning and the planning strategies. The roles of different institutions
and groups (i.e. various levels of Government, private enterprises, and
civil society groups such as NGO’s, and local communities) would also be
detailed out in such policy guidelines.

ii. Organizations for Planning

Development planning requires the existence of agencies and structures
dealing specifically with planning. There needs to be an agency vested
with the overall responsibility for the oversight and management of
national development planning.

The national planning agency is supported by appropriate institutions at

regional and local levels for its success. The regional and local institutions
interpret national development goals and plan targets in terms of the
regional and local conditions and make the national plan more realistic
and locally relevant.

At the bottom of the hierarchy of planning institutions are local groups and
communities. If effectively organized, local groups and communities have
critical contribution to make to the national planning. It is through them that
identification of the people’s real desires and needs can be done. They
can also serve as a channel for harnessing and mobilizing local support
and resources for the planned development activities. Finally, the civil
society’s assessments are vital in the monitoring and evaluation of the
plan, its implementation, and its outcomes.

b) Resource Requirements
Planning as an activity
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 Planning requires some resource inputs, in order to produce an output, i.e.
the plan: the quantity and quality of the resources available for planning
determine the quality of the product of a planning process (the plan).

Planning requires some human resources as well as some non-human

resources.

i) Human Resource Requirements

1. A literate population.
Effective planning requires a population that is highly literate and aware of its
living conditions, a people who can accurately identify and describe the issues
and problems affecting them, and articulate their development needs.

2. Expertise and Team Spirit.

The nation’s planning group should comprise of people with some knowledge of
the relevant social and technological sciences (i.e. economics, sociology, political
sciences, physical and biological sciences, and management information
technology. They should have (possess) strong competence in two areas:
1. Socio-economic model building
2. Statistical analysis and forecasting
The planners should be willing to work as a team among themselves and with the
rest of the people. As Guy Gran (1983) puts it “Development is of the people, with
the people and by the people”.

ii) Non-Human Resource Requirements

They are of 3 categories:
i) Information on the national condition.
A good development is based on hard facts, on the national condition and on
sound economic reasoning. Required is information on:
 The national’s resource endowment i.e., the type of resources it has, their
qualities and quantities.
 The current and most recent level of performances
 The linkages and interrelationships between various sectors and
industries
 Problems and issues that need attention, i.e., what they are and how
pressing they are
 Existing institutions relevant to the nation’s development efforts, i.e., those
that can help or hinder progress, such as the national ministry for
economic planning
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  Current links to the international economy, i.e., the type and strength of
the links with the rest of the world
 How committed to the development effort the Government is. This can be
judged from its history of allocating resources to development activities
and its reactions to any unforeseen threats to development plans
Economic planning requires a large volume of data and information on the
national system. The problem is how such a large quantity of information can be
made readily available, and received in relevant and usable form.
The best arrangement could be a generation of such information through the
presence and utilization of an integrated National Social Accounting system,
together with the use of planning workshops and seminars that bring together
experts from different fields and backgrounds to generate and share information
targeted on different sections and issues in the national system.

2. Physical facilities and Materials

The planning exercise needs to be located in suitable premises like offices,
meeting facilities and other items of convenience. Needed also are materials
and equipment to facilitate documentation, computations, communication and
publication.

3. Funds
Planning personnel have to be paid. Correspondence has to be undertaken;
information has to be published in written form. All these require funds.
Availability of funds facilitates timely accession of the real resources needed in
the planning process.

PART THREE: PLANNING TECHNIQUES AND STRATEGIES

i) INTRODUCTION
One of the most important problems facing developing countries is the implementation
of development programs. Most of the problems are caused by poor project

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preparation. Other critical issues in the implementation of development programs
include:
a. Identifying National development Objectives
b. Selecting priority areas for investment
c. Assigning effective price policies
d. Mobilizing the resources that are needed

In any development activities, one should bear in mind careful project preparation in
advance of expenditure. There are two reasons for doing this:
i. For efficient and economic use of capital funds
ii. For the increased chance of a project being implemented on schedule or in
time

When a project has not been carefully prepared, then inefficient or even wasteful
expenditure will occur. In this case, the main issue is the comparison of the stream of
investment and production costs. For example, in an agricultural project, one will do the
comparison of costs with the flow of benefits that the project will produce.
The complex range of activities in the undertaking that uses resources in order to gain
benefit constitutes the project. In general, a project is considered as an investment
activity in which financial resources are used up to create capital assets which produce
benefits over an extended period of time.

In some projects however, costs may be incurred for production expenses or

maintenance from which benefits can be expected quite fast.
For example, in an agricultural project the dividing line between an “investment” and
production” expenditure is not at all that clear-for instance,
i. Fertilizers, pesticides and so on are generally considered to be production
expenses which are used within one crop season
ii. A dam, a building or tractor will generally be thought of as investment from
which a return will be realized over several years.
The same kind of activity may be considered a production expense in one project and
investment expenditure in another. E.g.
a. Transplanting rice is a production expense
b. Planting rubber trees is an investment expense

In many cases projects form a very clear and distinct portion of a much larger but less
precisely identified program. The entire program would be analyzed as one big project.
However, it is preferable to keep the project as small as possible. It is generally better in
planning projects to analyze successive increments or distinct phases of activity/
programme. This is due to:-
a. The return to each relatively small increment can be judged separately

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 b. If a project is so large that it approaches a program size, there is danger that
high returns from one part of it will mask (cover) the low returns from another.
E.g. with 100,000 acre land settlement scheme, it is better to analyze it as five
20,000 acre projects if the soil and the slopes in some parts are significantly
different from those in others.

MORE DEFINITIONS

1. Project: is a specific activity with a specific starting point and also with a specific
ending point which is meant to accomplish specific objectives.

A project has a well-defined sequence of investment and production activities with

specific group of benefits which can be identified, quantified and whose value can be
determined. Usually a project has a specific geographical location and probably a
specific group of clients in the region for which the project is intended to serve.

2. Investment: In project analysis it is defined as the use of resources for productive

activity from which an income is expected to flow at a future time of a project.
An investment period is a period when the major investment is undertaken e.g. 3-5
years in an agricultural project.

3. Production expense: It is a cost which is incurred in the production of the project

output. It is recovered as soon as the output is sold or consumed.

4. Programme: It is an ongoing development effort or plan which may include various

projects as constituent units.

ii) ASPECTS OF PROJECT ANALYSIS AND SELECTION

In order to design and analyze effective projects, it is necessary to consider many

aspects which together determine how profitable the project will be. These aspects are
closely interrelated and all of them must be considered and reconsidered at every stage
of project planning and implementation. These aspects include the following:
i. Technical aspects
ii. Institutional/organizational/managerial
iii. Social aspects
iv. Commercial aspects
v. Financial aspects
vi. Economic aspects

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 I. Technical Aspect
Technical analysis concerns project inputs (suppliers) and output (production) of
real goods and services. The other five aspects of project can only proceed in the
line of technical aspect analysis.

Technical analysis will examine possible technical relations e.g. in a proposed

agricultural project this will include things like soils, water availability, crop
varieties, input supplies, pests and their control.

There is need to estimate the potential yields, marketing of the produce and
examine the storage facilities. At this stage, information may be needed about
the farmers involved in the project, e.g. age, current farming methods, social
values, training so as to ensure realistic choices about technology. Field trials
may be necessary in order to verify the yields and other information locally.

II. Institutional – Organizational – Managerial

For a project to be successful, it must accommodate the institutional structure of
the country and region. To achieve this, important questions must be asked.
 Does the project design take into account customs and culture of the people it
tries to serve?
 Will the project involve disruption of the ways in which farmers are accustomed to
working?
 Has enough time been allowed to farmers to accept the new procedures?
 Does the project incorporate local institutions; does it use them to further the
project itself?
 How will the administration of the project relate to the existing agencies?
 If the managerial skills are limited, has provision been made for the staff training?
 Do participating farmers have sufficient managerial skills?

III. Social Aspects

Project analysis must examine carefully the broader social implication of
proposed investment. For example, there is need to consider:
e. Income distribution effects of the project
f. Employment creation possibilities
Consideration on quality of life must be part of project design e.g. a rural
development project may include provisions of improved rural health services,
better domestic water supplies, or increased educational opportunities for rural
children. In designing a project it is necessary to consider the issue of adverse
environmental impact of the project e.g. wastes from industrial plants which might
pollute the water resources.

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IV. Commercial Aspects
It includes arrangements for marketing of the output that is produced by the
project. Also included is the arrangement for the supply of inputs needed for
building and actual operation of the project. Careful analysis of the proposed
market for the project output is necessary in order to ensure there will be
effective demand at competitive prices. There is need to ask important questions
such as:-
g. Is the market large enough to absorb the new production without affecting
prices?
h. If the price is likely to be affected, by how much?
i. Will the project be still financially viable at the new price?
j. What share of the total market will the proposed project supply?
k. Is the output meant for export or domestic market?
l. Will credit be made available in case of agriculture to enable farmers to
purchase the required inputs?

V. Financial Aspect
The financial analysis in each project preparation and analysis considers the
financial aspect of the proposed project on each of the following participants. In
case of agriculture, it includes farmers, private sector firms, public corporations
(AFC), project agencies, and the national treasury if it is a large project.

Separate budgets must be prepared for each of these participants. On the basis
of the above, budget judgment will be made concerning the project financial
efficiency, incentives, credit worthiness and liquidity. The main objective of
financial analysis is to see whether the financial needs of the project are
adequate.

In order to establish whether inputs of capital are sufficient and whether they are
correctly timed, there is need to draw up the financial cash flow projected over
the entire life of the project.

VI. Economic Aspect

This requires that one determines the likelihood that the proposed project will
contribute significantly to the development of the whole economy. We need to
show that the project’s contribution will be big enough to justify the use of scarce
resources that the project will need.

In economic analysis, we consider the entire society, while in financial analysis

we only concentrate on individual participants. Economic analysis is concerned
with use of real resources and not with monetary flows. It is not concerned with
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 how the project is to be financed because it is the project use of resources that is
important, regardless whether resources are paid through equity, capital or loan,
or any other arrangement.

We have three important distinctions between economic analysis and financial

analysis:
m. In economic analysis, taxes and subsidies are treated as transfer payments
which are ignored but in financial analysis, taxes are treated as a cost while
benefits are treated as benefits.
n. In financial analysis, market prices are normally used (prices distorted by
imperfections) while economic analysis uses shadow prices or social values or
accounting prices.
o. In economic analysis interest on capital is never separated and deducted from
the gross returns because it is part of the total return to capital available to the
society as a whole and because of that, total return including interest is what
economic analysis is meant to estimate. In financial analysis, this is a cost.
Why then do we need both economic and financial analysis? If our interest
is economic analysis, we wish to see if a private individual/ participant
would find the project attractive i.e. we ask a question, will a private
participant be interested in this project?

iii) PROJECT CYCLE

A project cycle is the sequence that is followed or a way in which projects are normally
planned and carried out i.e. where to begin and end. The project cycle has 5 main
stages:
- Identification of the project
- Preparation and analysis of the project
- Appraisal of the project
- Implementation of the project
- Evaluation of the project.

Identification of the project stage

This is the first stage where finding a potential project takes place. There are many
sources where suggestions may come from; well informed technical specialists who
include local leaders or from proposals to extend existing programmess. Projects
emerge from problems existing in the society.

Preparation and Analysis

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It entails a more detailed preparation and analysis of project plan. Included here is all
the work necessary to bring the project to the point at which a careful appraisal can be
done. If the project is a good one, implementation can begin.

All the six aspects considered early are considered at this stage. First step is to carry
out a feasibility study which will provide enough information for deciding whether or not
to begin a more advanced planning. Feasibility study must define the objectives of the
project clearly and must explicitly explain whether or not alternative ways of achieving
the objectives exist.

Appraisal of Project
An independent appraisal following project preparation gives opportunity to examine
every aspect whether the proposal is appropriate and sound before large expenditures
are incurred.

Implementation Stage
Most important part of the project cycle. Project implementation must be flexible
because circumstances may change and managers must be able to respond
intelligently to these changes. In case of agriculture changes likely to arise will do with
prices of output and input. Implementation is a process of refinement and learning from
experience. This stage has 3 periods:

Period 1: This is the investment period during which major project investments are
undertaken. It lasts between 3 and 5 years in the case of agriculture. Where it is
applicable, this period coincides with disbursement of the loan.

Period 2: This is the development period. Here actual project production begins to build
up.

Period 3: This is the final period which starts once full development is reached and
continues for the rest of the project life.
Note: Normally the life of the project is closely tied to normal life of a major asset.

Evaluation Stage
It is the final phase in the project cycle and the project analyst/ manager studies
systematically all the elements of success and failures in order to plan better in future. It
is not confined to only complete projects but evaluation is also an important exercise for
an ongoing project.

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iv) THE PLANNING TECHNIQUES

1: THE INPUT – OUTPUT PLANNING MODEL

a) This planning technique was developed by Wassily Leontief in the early 1950’s.
It captures and uses sect oral linkages and inter-industry flows of resources and
products. An input-output (I-O) table shows the economy’s structure of
production as well as the pattern of resource allocation and product utilization,
which are vital data for economic planning.

A firm or industry (sector) incurs expenditure on inputs, and earns revenue from
sale of its products. Hence, costs represent the industry’s or sector’s inputs while
sales represent its output. Often, the intermediate inputs of one industry or
sectors are outputs of other industries or sectors in the economy.

The Input-Output analysis involves two basic processes:

i. Empirical compilation of the input – output table
ii. Transformation and use of the data in the table, so developed to handle
practical issues of economic policy, planning and management

Assuming a stable relationship in the economy, a country’s Input – output table

provides a basis for forecasting and contingency planning. The Input – output
analysis facilitates comprehensiveness and consistency, which helps planners
avoid bottlenecks in advance.

b) Basic assumptions of the Input – output Analysis:

 That the economy has a finite number of distinct sectors and industries
 That each sector and industries produce a unique product. No industry produces
several products jointly, and neither do two or more industries/ sectors produce
identical products.
 That a sector’s/industry’s product can be used as input and/or for final demand in
the economy.
 That the production functions feature fixed technical (input – output) coefficients,
implying two things:
 There are constant returns to scale i.e. if all inputs doubled, the output will
correspondingly be doubled.
 There is zero technical change - no productivity raising innovations, not
even simple substitutions between factors of production.
 That there are no externalities between the production activities, i.e sectoral
production costs and input productivities are totally independent.

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  That all commodity prices, final demands and factor supplies are given i.e. they
are exogenously determined outside the input – output system.

iv. Strategy for Using the Input – Output Analysis

STEP I: Study the Input – Output table, especially the core of it showing the inter-
sectoral flows.

STEP II: Compute the Input – Output (technical) coefficients by dividing each sector’s
input by
its gross output. Form the ‘A’ matrix, comprising the Input – Output coefficients in
the square inter-sectoral flows portion of the Input – Output table.

STEP III: Derive the economy’s Leontief matrix from the corresponding identity matrix.
Leontief Matrix = , where A= the ‘A’ matrix derived above, and
= the identity matrix of same order as ‘A’
matrix

STEP IV: Set up the economy’s macroeconomic equation.

, where = vector of sectoral gross outputs
= vector of second outputs for final demand use.
STEP V: Get the inverse of the Leontief matrix i.e. .
Multiply this through the macroeconomic equation in step IV to solve it, to obtain:

Hence . This gives the equilibrium sectoral gross output level as

functions of the economy’s parameters and the sectoral levels of final demands.

NOTE
1. Consider a two-sector economy.

= , ,

The macroeconomic solution equation is:

, that is

The macroeconomic solution equation shows two features:

a. The gross output levels are simultaneously consistent with the given set of
sectoral final demand.

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 b. A change in any one sector’s final demand output will have repercussions on
the gross output of all sectors in the economy.

STEP VI: Use the optimal results for planning purposes.

Short comings of the Input – Output Analysis

1. Fixed technical coefficients
The assumption of fixed Input-Output coefficients is unrealistic. In practice, the
technical coefficients change due to changes in technique (factor proportions) in
response to changes in relative factor prices. They can also change due to rising
productivity when technology progresses.
The development efforts are to improve production methods, which will definitely
alter the technical coefficients.
Thus, the predictions and plans using this model carry some margin of error
because of the use of constant parameters.
2. High Aggregation.
Construction of a country’s Input – Output table entails a high degree of data
aggregation. Such aggregation hides away some details.

3. Assumption of Fixed Prices

The analysis does not allow for price adjustments. And when these are introduced
into the model it becomes very complicated.

4. Voluminous Data
Input – Output analysis requires collection, analysis, storage, and use of large
quantities of data. Before the advent of computer technology, this was a very
cumbersome exercise. However, computers have reduced the seriousness of this
data measurement problem.

2: OTHER PLANNING TECHNIQUES

a) THE INCREMENTAL CAPITAL – OUTPUT RATIO (ICOR)

The Capital-Output Ratio (COR) is the ratio of the money value of capital in use to the
money value of the resultant output.
i.e.

It is the reciprocal of the average product of capital.

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 The incremental Capital-Output Ratio (ICOR) is an index of the ratio of the value
of net investment in any period to the value of the resultant increase in
production that year.

Where = total net investment in the year

is the reciprocal of the marginal productivity of capital, i.e.

Hence

Sectoral and National

1. Sectoral
The productivity of capital varies from sector to sector. It also varies over time in
each sector. ICOR varies over sectors and over time.
2. National
The for the entire economy is a weighted sum of the sectoral
Let = of sector i
= the national
= the share of sector i in the country’s GDP
= the total number of sectors in the economy
Hence = + +.....+ =
The national ICOR will change over time due to changes in the sectoral shares of
GDP ( ) and due to change in sectoral .

Determinants of the
differs between countries due to inter country differences in the productivity
of capital. The variations in productivity are due to the following factors:
c. Inter-country differences in endowments of other factors of production (besides
capital)
d. Differences in the conditions of the countries’ infrastructure
e. Differences in the level and application of science and technology.

Applications of ICOR in Growth Accounting

Given the economy’s , planned investment and GDP increase can be
computed using the formula;
Hence if and are known, we can calculate the required level of
national investment for that period. In this case, can be the planned increase
in GDP and the computed investment shows the required investment level
which will facilitate that GDP increase.
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 If (i.e. investment) is known, we can project the increase in GDP which will
arise as a result.
EXAMPLE
ICOR PLANNED REQUIRED / PREDICTED
0.5
0.5
0.75
0.75

Limitations of the use of

 Is dynamic, changing with time. And yet in order to use it for planning
purposes, we have to assume that it remains constant over the plan period.

 Since the differs between sectors and industries, chances are high of
making computational mistakes in estimating the National .

 Analysis and planning based on ignores the fact that other resources,
besides capital matter in determining the economy’s growth. The sector
resources include labour, skills, knowledge, natural resources and
managerial & business enterprise.

 analysis pays no attention to the time lag between investment and the
impact on production.

 analysis presumes stable prices. During deflation or inflation, it is

difficult to estimate the because of the constant change in one of the
bases of valuation (i.e. prices)

b) Project - Based Planning: The Cost – Benefit Analysis

i. A project is a set of activities aimed at achieving specific objectives for a
specified target group of people, within a given time span. It may involve the
creation of some assets, which are subsequently put to use, or may entail direct
creation and provision of a service. Either way, fulfillment of some special
objectives is the ultimate goal.

ii) Overall conditions for project selection and packaging. Project selected for
immediate investment must meet the following conditions:
(a) As a package, the selected projects should offer the highest possible
total net social benefits (TNSB) to the country. Any alternative
combination would yield lower TNSB than the combination selected.
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 (b) As a package, the projects should often comparatively faster (coming
sooner) net returns than any alternative package.
(c) Each project included in the chosen package should fulfill the following
criteria:
i) It’s expected TNSB, discounted to the present period, should be
positive i.e. the present value of its TNSB>0.
ii) No other project exists which has higher TNSB but with the
same lower start up investment costs than any of the projects
chosen.

i. Project Appraisal & Selection.

It involves identifying and measuring all the costs and benefits of each prospective
project throughout its productive times pan. In gauging these costs and benefits, use is
made of market prices where markets are reasonably efficient. Otherwise, shadow
prices are computed and used.

For each project, its entire net social benefit (the difference between benefits and costs
for all the years of its productivity are discounted to obtain their present values (i.e.
current period value equivalent). It is the total of these discounted net social benefits
that enter the calculus of selecting which projects to undertake during a given plan
period.

The question is, given that projects differ in their startup capital, and in their magnitude
and their time-spread of costs and benefits to society, how can we reasonably choose
between them?

The net present value criterion

If a development project is viable, it’s expected that total net social benefits (TNSB)
discounted to the present period is positive.
The appraisal entails calculating the present value as follows
Let
 be social benefits anticipated during year ‘t’
 be social costs anticipated during year ‘t’
 be the social discount rate, reflecting society’s trade-off between
current and future consumption
 T be the productive lifespan of the project
 be the discounted net social benefit in year ‘t’
 be the project’s net social benefit in year ‘t’ and
 be the project’s discounted total net social benefits over its entire
anticipated productive lifespan.

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Calculation:
1. = -
2. =
3. =
Equation (3) pertains to the discrete time context.
In the continuous time context, the equivalent of the expression is as follows:
4. =
The project viability condition then is: >0. Once the projects’ s are
calculated, then the projects are rank-ordered from the highest to the lowest.
Investment selection starts from the project with the highest and moves
down the order up to the project where the investable resources are just
exhausted.

Having a positive measure is not a guarantee that the project will be

among those included in the investment package. It has to be additionally true
that no other project exists which has higher but with the same or lower
capital investment costs than the project in question. Moreover, given two
competing projects with the same , the one whose net benefits accrue
mainly in the near future will be preferred to the one whose net benefits come in
the distant future.

The Internal Rate of Return criterion

A project’s IRR is its implicit rate of return or yield. It is that discount rate at which
the project’s is equal to zero. Let us deliberately choose a discount rate ‘
’ so that the project’s resultant =0, i.e. select so that:
=
Or = =0

If this were the only criterion used in selecting a package of projects, then all
projects would be rank-ordered by their IRRs and investment would be
undertaken starting with the highest ranked project down to that one which the
available resources can just accommodate.

Use of the IRR has the following limitations:

i) It hides away vital data on the time pattern of the project’s net social
benefits.

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 ii) For mutual exclusive projects, the IRR rule favours projects with lower
capital cost. A project could have lower capital costs but very high
operation and maintenance costs.
iii) The IRR does not capture project externalities. It thus overvalues projects
which have negative externalities and undervalues those with positive
externalities.

Limitations of Cost-Benefit Analysis

(i) Difficulties in benefit assessment
(ii) Discount rate is assumed arbitrarily
(iii) Ignores the opportunity cost
(iv) There is the problem off externalities
(v) There exists some difficulties in selecting appropriate decision rule
(vi) Faced with the difficulties of cost assessment
(vii) It neglects to consider joint benefits and costs
(viii) Confusion exists while making adjustments for risk and uncertainty

PART FOUR: TYPES OF ECONOMIC PLANNING

PROCEDURES/MECHANISMS

1. PLANNING PROCEDURES
i) Planning by Inducement

Planning by inducement is often referred to as “indicative planning” or ‘market

incentives. In such a type of planning, the market is manipulated through incentives and
inducements. Accordingly, in this system there is persuasion rather than compulsion or
deliberate enforcement of orders. Here, the consumers are free to consume whatever
they like. Producers are free to produce whatsoever they wish. But such freedoms of
consumption and production are subject to certain controls and regulations. The
consumers, producers and other factors of production are induced with the help of
various fiscal and monetary devices. For example, if the planning authority wishes to
boost the production of maize in Uganda it will provide subsidies, tax holidays and loans
to the firms involved in production of maize. To encourage savings and investment and
discourage consumption, a suitable package of fiscal and monetary policies can be
introduced in the market. Therefore, the desirable results can be attained with the help
of incentives and without the imposition of orders and instructions. Moreover, in such
planning there is less sacrifice and less of economic and non-economic liberty.

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Indicative or planning by inducement has three components or approaches:

a) Forecasting Approach

Under forecasting approach, the individuals are provided with the information,
through making certain forecasts. Such forecasting serves as a guide to their
decision making. The forecasting not only indicates about the feasible future, but
they also specify a desirable future in terms of growth rate of the economy.

b) Policy Approach
The second component of the indicative planning is concerned with policy approach.
Through policy approach, the inconsistent policies of Government departments are
coordinated within a coherent model framework keeping in view the set objectives.
Moreover, once the policies are coordinated, they will provide guidelines to the
people, consumers, and producers.
c) Corporate Approach
The third way to demonstrate indicative planning is through corporative approach.
This approach is practiced in France. Here, the coordination function of indicative
planning envisages at two levels. In the first place, it requires coordination of the
behavior of economic groups like business enterprises and trade unions, etc, which
hold power in the market. In the second place, it coordinates the relationship
between private and public activities.

Merits of Planning by Inducements

1) Consumer’s sovereignty remains intact. Planning by inducement is more

democratic as compared to planning by directions.
2) There is freedom of choice of profession.
3) In planning by inducements, there is freedom of enterprise. Producers are free to
produce whatever they like but within the capacity of given rights.
4) Planning by inducements is smooth and flexible. It is more popular because it
incorporates the changes in resources, technology and taste, etc, even after the
finalization and implementation of plan.
5) Under this sort of planning, the inertia attached with standardization can be put to
an end and producers are free to produce in accordance with the desires of
consumers. Therefore, there is a variety of goods and services in the market.
6) There are less administrative costs involved in planning by inducements.
7) The problem of shortages and surpluses is solved as there is existence of
automated market system. The demand and supply is automatically adjusted and
remain in balance under market economy.

Demerits of Planning by Inducements

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 a) It also to achieve 100% targets of economic planning
b) Under planning by inducements, there are profit motives more than welfare of
public. Private entrepreneurs care for those products which yield high profits.
Products or services with less profit or no profit do not attract private entrepreneurs.
Such products or services include education, health, defense, security, etc.
c) The producers may find the government policies regarding economic affairs not
attractive enough to follow. There may be disputes among entrepreneurs and
Government regarding tax rate, investment policies, interest rates, etc.
d) The mechanism of market economy may cause the prices to inflate especially with
reference to under-developed countries or in the case of oligopoly where there is a
shortage of certain products like petroleum and gas
e) There may be disharmony between labour and producers, and there may be
serious industrial disputes.

ii) Planning by directions

It is also referred to as imperative planning. This type of planning is practiced in socialist

countries like China, the former USSR, Cuba, North Korea, etc. Under planning by
direction, there is one central body / authority which plans, directs and orders execution
of the plan in accordance with the pre-determined targets and priorities. It determines
the production figures, delivery schedules, quotas regarding the production of the
goods; price controls and use of foreign exchange and allocation of resources like
labour, etc. amongst different competing uses. Thus, such planning is comprehensive
and encompasses the whole economy. Planning by directions is similar to military or
defense plans which are carried out through orders and instructions. Along with the
disintegration of the former Soviet Union, the methodology of planning by directions has
received certain serious setbacks. Now, most of the developing countries tend to adopt
market economic system.

Demerits of Planning by Directions:

a) Planning by direction is undemocratic since the people are ignored all along.
b) It is bureaucratic and totalitarian. Under bureaucratic system, the individual’s
sovereignty is completely abolished. Corruption, red tape, VIP system, tyranny and
austerity are the by-products of bureaucracy.
c) Rationing and control result in black marketing.
d) There are shortages of some goods as well as other goods. That is, there is an
imbalance in production output.
e) This sort of planning is inflexible. Once the plan is prepared, there is no room for
alterations in later phases of planning. A part of the plan cannot be changed without
simultaneous changes in many interconnected activities. Planning by direction is so

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 complex that it is impossible to change even a part of it as it will involve altering the
whole plan.
f) The fulfillment of plan cannot be guaranteed as the planning by direction is
hampered by black marketing and corruption.
g) Planning by direction also leads to excessive standardization which impinges on
consumer sovereignty. In other words, under planning by direction the goods
produced are standardized lacking the variety. As in the case of USSR, the
produced T.Vs, fridges, and automobiles were identical having no differentiation.
h) It also involves huge administrative costs, as the planning by direction involves in
elaborate census, numerous forms and army of clerks.

iii) Physical and Financial Planning

Physical planning is involved with physical allocation of resources on the one side, with
the products/yields on the other side. Its aim is to bring physical balance between
investment and output. Accordingly, investment coefficients are computed. These
coefficients show how much amount of investment will be required for a given amount of
output. Moreover, in such planning also analyzed is what will be the composition of
investment to obtain an increase in output. For example, how much iron, how mush
coal, oil and electricity will be required to produce some specific amount of steel. While
making physical planning, an overall assessment is made regarding the real resources
of the economy like raw materials and manpower.

In financial planning, equilibrium is established between demand and supply to avoid

inflation and bring economic stability. The difference between physical planning and
financial planning is that physical planning tells us the size of investment in terms of
money. In financial planning, the planner determines how much money will have to be
invested in order to achieve predetermined objectives. Total outlay is fixed in terms of
money on the basis of growth rate to be achieved, the various targets of production,
estimates of the required quantity of consumer goods and the various social services,
expenditure on the necessary infrastructure, etc. as well as revenue from taxations,
borrowings and savings.

iv) Centralized Planning and Decentralized Planning.

Under centralized planning, all the economic decisions are undertaken by the central
authority or the Government. It is the Government which formulates economic plans,
determines objectives, and sets target and priorities. Every member has simply to carry
out the instructions without questioning about its viability. There are more chances of
failure as the individuals are not allowed to carry out the plans in accordance to their
needs and preferences. It is the Government which takes responsibility of the
successes or failure of the plan. It is the Government which takes all the decisions of
consumption, production, wages and prices. What amount of investment is to be made?
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What should the price? What should be the output? How the products are to be
distributed? How much amount of the loans is to be granted? What should be the rate of
interest, etc. Centralized planning is mostly executed in socialist or communist
countries.

Decentralized planning is connected with capitalistic economies. The decentralized

planning is implemented through market mechanism. Decentralized planning empowers
the individuals or small groups to carry out their plans of achievement of a common
goal. Under decentralized planning, the operation is from bottom to top. The planning
authority formulates the plan by having made consultation with different administrative
units of the economy. The plans regarding different industries are designed by the
representatives of these industries. In such a type of planning, the planning authority
issues the instructions to central and local bodies regarding incentives given over to
private sectors.

v) Structural and Functional Planning

The planning which is aimed at bringing changes in socioeconomic set-up of a country

is termed as structural planning. This type of planning is attributed to the planning which
was made in USSR in 1929 when the existing land-lord system was abolished,
collective farming was introduced and trade, industries, and transport system was
nationalized.

Functional planning is a type of planning where hardly any big change is brought about
in the existing socio-economic set-up of the country. It means when planning is made in
the presence of existing institutions. In France, Germany, UK, etc planning is being
made in the existing framework of capitalism.

vi) Democratic and Totalitarian Planning.

Under democratic planning, the philosophy of democracy is followed. From formulation
to the execution of the plan, the people are taken into confidence. Whenever the plan is
prepared, the ruling party takes a dialogue with the public firms and even with
opposition parties. The purpose of such arrangements is to satisfy different segments of
the economy regarding growth and welfare programs. After the formulation of the plan,
an open discussion is made in the parliament. Under democratic planning, whole of the
activities are performed through price mechanisms. The government influences the
private sector through fiscal and monetary policies. Moreover, the Government passes
anti-monopoly laws to protect the consumer’s sovereignty.

In totalitarian planning, there is a central control, and all economic activities are
governed by the Central Authority. In totalitarian planning, all consumption, production,

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distribution, and exchange like activities are controlled by the Central Planning authority.
Totalitarian allows no consumer sovereignty and democratic freedom.

vii) Corrective and Developmental Planning

The planning consisting of fiscal and monetary measures with the aim of removing the
imbalances of the economy is known as ‘corrective’ planning. As to control inflation, if
the government follows a very strict fiscal and monetary package; controls aggregate
demand by checking consumption, investment and government expenditure - this will
be the case of corrective planning. On the other hand, the planning which is aimed at
developing the whole economy is known as development planning. Development
planning involves the application of rational system of choices among feasible courses
of investment and other development actions.

viii) Capitalist and Socialist Planning

A capitalist economy is also known as ‘a free-enterprise economy’. Under capitalism,

there was no authority governing the planning activity. All the economic activities
were controlled by the private sector. The state function was limited to tax collection
and defense. There were no public welfare measures, no developmental planning
and no labour rights. But with the capacity of time, especially after the great
depression of the 1930s and development of economic, social and political
economic thoughts, the capitalist economies adopted the modern functions like:

a) Formulating and implementing monetary, fiscal and trade policies.

b) Promulgating anti-monopoly and anti-cartel laws
c) Working for the sake of communities benefits
d) Formulating and implementing development plans
e) Providing basic facilities of health, education, transportation, communication and
recreation, etc.

In socialism, the central planning board formulates the plan which covers the whole
economy. The Central planning board has unlimited powers regarding allocation of
resources and production of goods and services. The central planning authority
determines the goals and priorities regarding distribution of national income,
employment, economic needs, capital accumulation and economic growth. Under
socialism all factories, resources, financial institutions, shops, stores, ware houses,
foreign and domestic trades, means of communication and transportation are under
government control.

ix) Planning Under Mixed Economy

Most economists suggest the operation of mixed economy because both extreme
capitalistic and socialistic system are not suitable. Capitalistic or free enterprise
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economy are characterized by lots of problems including misallocation of resources,
market imperfections, monopolies, oligopolies, labour exploitation, widening gap
between haves and have not, and consumer exploitation. On the other hand, socialistic
form of economy may create the problems like State’s monopoly and supremacy,
bureaucratic hold, corruption, red tape, VIP system, loss of consumer’s sovereignty,
standardization of products, poor quality of products, less foreign trade, etc. While in the
case of mixed economy, consumer’s sovereignty, private ownership, and operation of
price mechanism are ensured. The public sector also works parallel to private sector.
The public sector in a mixed economy consists of those projects which require heavy
funds like railways, air transportation, roads, bridges, flyovers, underpasses, power
generation, irrigation, telecommunication, research, etc. The Government also
addresses people’s basic needs like employment, health and education. In under-
developed countries, the government also provides housing facilities to poor families.
To avoid labour exploitation, and consumer’s exploitation, the Government promulgates
anti-monopoly and anti-cartel laws. In mixed economies, the Government even adopts
safety measures against pollution and unhealthy working conditions in factories, offices,
etc. In case of agricultural sector, the Government provides short term loans to farmers
and imports farm machines

2. TYPES OF DEVELOPMENT PLANS

Fixed Plans
In a fixed plan, the contents of the plan are fixed in relation to a fixed time period. These
contents consisting of targets, priorities, strategies and resources, etc. will not be
changed during the particular time period for which the plan has been prepared except
for severe unforeseen events.
Merits of fixed plans
a) There is boldness in planning. This is the essence of planning that the
planners and implementing machinery will not bow down before the
obstacles.
b) There is effective implementation of plan.
c) The targets of fixed plan are certain and this certainty in objectives brings
stability to the economy.
d) Fixed plans ensure discipline for the planning process.

Demerits of fixed plans

a) Fixed plans are inflexible plan. They cannot be altered in later phases.
b) There is no revision of economic objectives and targets as there is no alteration
allowed under fixed planning
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 c) If the state is an under-developed country, the fixed plan would give the economy
a hard time to achieve the basic objectives like employment, industrialization,
education, health, etc.
d) Fixed plans, if not properly formulated and implemented, lead to wastage of
resources.

Rolling plan

Rolling plan refers to the rolling of a plan at intervals usually one year, so that it
continues to be a plan of certain number of years. It is usually the medium term plan.

Merits of rolling plan:

a) Rolling plans are flexible and can be altered in later phases.

b) The rolling plan allows for revisions and adjustments. In rolling plan, review of the
plan is a continuous exercise.
c) Rolling plans enable the planners to keep the time horizon moving, along with
making revisions and adjustments so as to prepare a new plan every year in
accordance with the changing circumstances.

Demerits of Rolling Plans

a) Rolling plan is furnished with uncertainty, as there is no fixation of economic

objectives.
b) In rolling plans, the planners are always reluctant in taking difficult decisions or
taking courageous decisions.
c) Under rolling plan, there is lack of commitment. As there is no fixity attached with
the plans, the enthusiasm on the part o planning and administrative machinery
will be hardly found.

Short – term, medium- and long-term plans

Short term plans are also known as ‘controlling’ plans. They encompass the period of
one year, therefore, they are also known as “annual plans”. In annual plans or budgets,
the financial aspects of the plan, i.e. financial sources and applications are shown. In
the annual development plans the items pertaining to capital budgets, i.e. the capital
revenue and expenditure are listed. The main objective of short- term planning is to
raise the revenue, attain the short–term economic targets, and bring price stability, and
remove deficit in BOP.

The medium–term plans last for the period of 3 to 7 years. But normally, the medium-
term plan is made for periods of 5 years. The medium-term planning is not only related
to allocation of financial resources but also physical resources. The main objectives of
medium- term economic planning is to raise per capita income, raise the level of

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employment, create self –sufficiency in the economy, reduce dependence over foreign
aid and raise revenues through domestic sources, and to remove regional and intra-
regional disparities.

Long–term plans last for the period of 10 to 30 years. They are also known as
‘perspective plans’. The origin of long-term planning goes back to USSR where Goelro
plan 1920 – 35 was formulated and implemented in 1920. The basic purpose of that
plan was to electrify the rural areas. The basic philosophy behind long-term planning is
to bring structural changes in the economy. Under long-term planning, there is greater
freedom of choice and there is a wide scope of planning.

Economic plans can also be categorized using three perspectives:

(i) The scope or coverage of the plan
(ii) The plan’s underlying motive
(iii) The timeframe for the plan

a. Plan Categories According to Scope

i. Comprehensive Plan
It is a plan covering the entire economy. It brings into focus all the major
sectors of the economy with the aim of achieving consistency in its
requirements, predictions and actual achievements. Nationwide plans
compiled by the technique of input – output analysis are comprehensive
plans.

ii. Partial plan

It is a plan that targets only some portion of the nation’s economy. It is partial
in that it does not cover the entire national economy. In an economy, at any
time, several types of partial plans can be identified:

(ix) Resource plan: A plan for the development and management of a specific
resource e.g. manpower plan, an energy plan.

(x) Regional plan: Deals with a given area within the country e.g. Plans under
the Lake Basin Development Authority and Kerio Valley Development
Authority.

(xi) Sectoral Plan: Concerns one sector e.g. Agriculture Development plan.

(xii) Project plans: Concerned with a specific issue within a given sector, or it
could be an integrated set of activities addressing some interrelated multi-
sectoral issues within a given geographical area.

b. Plan Categories According to the Underlying Motive

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 i. Control plan
In the Former Soviet Union, planning was used as a tool for assigning commodity
production targets and issuing orders to the various sectoral and industrial
managers.

This kind of planning goes well with a dictatorial administrative regime, which
prevailed in the former USSR under Communism. It is no longer practiced in the
World after the breaking up of the USSR in the early 1990’s.

ii. Indicative plans

Used in the mixed economies of the West and Third World as a channel to guide
and influence economic events in the country. Government affects economic
proceedings by raising and using resources towards the Public cause.

It has Government economic policy aimed at stimulating and directing the

behavior of the private sector in certain ways.

c. Plan Categories by Timeframe

(i) Perspective plans

Are long - term plans covering periods of 15 years or longer. These plans cannot
be specific due to a high likelihood of unforeseen events occurring. They offer a
general direction of the desired or likely economic changes, e.g. The Uganda
Vision 2030.

They highlight likely development of social overheads, such as transport and

communication network, whose benefits diffuse and take a long to be felt.

(ii) Medium –Term plans

Cover periods of 3 – 5 years. Contain more details than perspective plans,
specifying annual targets and relating them to changes in instrumental variables.
Most national development plans fall in this category.

(iii) Annual (Operational) plans

They break a medium – term plan into operational (i.e. actionable)
components, with specific targets and resource allocations. The state’s
annual budget and its sectoral (ministerial) components is such a plan.

Page 33 of 47
PART FIVE: EXPERIENCES WITH DEVELOPMENT PLANNING

1. CENTRALIZED PLANNING IN FORMER USSR

In a centralized economy, the decisions on what to produce, how to produce and for
whom to produce are undertaken by the state. Planning in the Soviet economy was
managed by three bodies:

1. Gosplan – The State planning commission

2. Gosbank - The State bank
3. Gossnab – The State Commission for materials and Equipment supply

The economy was guided by five-year plans. Planning ministries defined the mix of
economic inputs, a schedule for completion, all wholesale prices and almost all retail
prices. There was a balance between inputs and output targets for the planning period.

In the early years, (from 1928) emphasis was on production of capital goods (they were
referred to as group A goods) for they were considered means of production. Capital
goods were perceived as a necessity for fast industrialization. It is after 1953 (after
Stalin’s death) that emphasis was laid on consumer goods.

Most information flowed from the top down. There was in place a mechanism for
producers and consumers to provide input and information that would help in drafting
the economic plans. But due to the political climate then, few people ever provided
Page 34 of 47
negative input or criticism of the plan. This meant that the planners didn’t have reliable
information to assist the planning process making planning to rely on faulty and
outdated information. As a result, some goods were overproduced, whereas others
were under produced.

Because the Soviet Union laid emphasis on Capital goods, it became one of the leading
industrial nations of the World. There was disproportionately low production of
consumer goods, resulting in severe shortages of many of these goods. This led to
consumers lining for the goods, rationing, and development of the black market (For
example in the case of cigarettes).

The Drafting of the Five-Year Plan

The periods covered by the five-year plan coincided with those covered by the
gatherings of the Communist Party of the Soviet Union (CPSU) congress. At each
CPSU congress, the party’s leadership presented targets for the next five-year plan.
Thus, the Central Committee of the CPSU determined the direction of the economy
through plan targets, major investment projects and general economic policies.

The guidelines were submitted as a report to the Central Committee to the CPSU
congress for approval. After the approval, the list of priorities for the five-year plan was
processed by the Council of Ministers (then what constituted the Government of USSR).
The Council of Ministers elaborated on the plan targets and set them to Gosplan.

The Gosplan combined the goals laid out by the Council of Ministers with data supplied
by the lower administrative units and worked out through trial and error, a set of primary
plan targets. The work of Gosplan was to balance the resources and requirements to
ensure that the necessary inputs were provided for the planned output. The Gosplan
were subdivided into departments such as Coal, Iron, and Machine – building. Soviet
planning was done on a sectoral basis rather than a region basis.

The economic ministries drafted individual plans after Gosplan has set the planning
goals and targets and then disseminated this downwards. In this way each enterprise
received its own control figures.

Advantages of Centralized Planning

i. The Government can harness land, labour, and capital to serve the economic
objectives of the State.
ii. Consumer demand can be restrained in favour of greater capital investment
for economic development in a desired pattern.
iii. The State can build a heavy industry at once in an under-developed economy
without waiting for capital accumulation and without reliance on external
financing.
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Disadvantages of Centralized planning

i. As individuals and producing units are given directives / targets, they may
select courses of action that conflict with the overall interests of society for
example, ignoring quality standards, producing an improper mix or using
resources wastefully.
ii. Centralized planning has built-in obstacles to innovation and efficiency in
production. Managers have limited discretionary activity. They see their first
priority as fulfillment of the plan targets rather than the application of insights
gained through research and development or diversification of products.
iii. Centralized planning lacks a system of appropriate incentives to encourage
higher productivity by managers and workers. For example, future targets
were based on past performance.
iv. The system of allocating goods and services is inefficient. Because no one
could predict perfectly the actual need of each production unit, some units
received more goods and other few.
v. It doesn’t reflect the value of available resources, goods, services. In
controlled planning economies, prices are determined administratively and
criteria used at times bears little relation to the cost. Consumers’ influence is
weak.

2. INTEGRATED AREA PLANNING IN ISRAEL

Integrated area planning is also referred to as country, long range, national, regional,
urban, spatial, or town planning. This is planning for effective use of space over time.
Humanity and its environment exist in intricate interdependence, and the interaction
between society and its surroundings generate a dynamic relationship which
cumulatively can precipitate some undesirable outcomes unless the process is guided.

This type of planning has been used in the preparation of “Israel 2020”, a master plan
for Israel in 21st Century. Long range planning in Israel arose due to following
challenges:

i. Israel has become one of the mostly densely populated countries in the World
ii. The rate of population in Israel continues to grow at a rate greater rate than
that of most western countries.
iii. Standards of development are rising as Israel strives to close gaps with the
developed economies of the West.

The above challenges have led to planning issues that need to be resolved. Those
issues are:

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 i. How can Israel’s mammoth development take place without depleting its
natural resources to the point of no return, irrevocably destroying the
environment?
ii. How can Israel prevent the collapse of the natural infrastructure systems and
ensure equitable distribution of the fruits of development between various
socio-economic groups?
iii. How can Israel reconcile between the prevailing “Business as usual” ethos,
subjected to “market forces” and local, sectoral, short range, pressures and
imperatives of comprehensive, consistent and long range planning concepts.

To focus on the range of options for Israel’s master plan, four principle alternatives were
developed:

i. The “business as usual” alternative assumes that the existing trends of

development will continue with no major planning interventions influencing the
expected outcome of market forces and other motivations dominating the Israel
society.
ii. The economic alternative: highlights industry promotions endeavors directed at
achieving growth of knowledge and inter service endeavours directed at
achieving growth by promoting productive services coupled with research and
technological development.
iii. Social alternative: Advocates of value of “quality of life for all” by motivation
strategies between opposition social groups and deviating existing gaps in the
Israel society.
iv. The physical-environment alternative supports sustainable development in the
face of increasing spatial density, and the depletion of land resources. It
concentrates on the need to preserve the scenic and environmental uniqueness
of various regions of the country.

The Spatial Organization plan for Israel

The national spatial plan directs the future organization development according to the
principles of concentrated – Dispersal; on the national level development is dispersed,
whereas on the regional level it is concentrated. The implementation of the principle of
concentrated – dispersal, within the country’s division into seven regions as follows:

a) Three urban regions

b) Two intermediate regions
c) Two open regions

The Urban regions

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They are differentiated by special characteristics and functions in the national arena.
Transportation systems are planned so as to establish a “region of choices” that
promotes diversity and spatial specialization.

Two Intermediate regions

This combines the existing rural areas and sites, chosen as worthy preservation.
Planning efforts in the intermediate regions are geared to prevent sub-urban sprawl and
metropolitan overspill between urban centers.

Two Open regions

These are areas that span over extensive environments. Planning efforts here are
aimed at preservation, limiting urban development to the intersections of the main roads
where centers of the scattered rural communities are located.

3. PLANNING IN UGANDA
Over the years, Uganda has been practicing a decentralized system of planning: an
execution of the planning from the grassroots. Under this, a plan is formulated by the
National Planning Authority in consultation with the different administration units in the
country.

Government approved the Comprehensive National Development Planning Framework

(CNDPF) in 2007 as the country’s strategic planning framework. It was developed by
blending our local experience with lessons learnt from other countries especially the
emerging economies of Asia.
The CNDPF presents a synchronized and holistic approach to development planning
intended to deliver long-term development aspirations of the nation.

PRINCIPLES UNDERLYING THE CNDPF

The major underlying principles of this framework and which shall be followed by all
actors include the following:
 Equity and gender equality›
 Competitiveness
 Public Private Partnership (PPP)
 Sustainable development
 Economic diversification
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  Participation & ownership
 Evidence-based planning
 Accountability for development results

MAIN ELEMENTS OF THE CNDPF

The CNDPF is comprised of five principal elements namely the 30 year national vision,
10 year national development plan, the 5 year national development plans and annual
plans and budgets

The National Vision (30 years)

A 30- year shared national vision shall guide development agenda for the country
by articulating long term aspirations and projections about the desired future.
 A shared National Vision is a creed that helps the country to make informed
decisions so that the desired future can be realized. It provides a long-term
focus for national development efforts. The Vision motivates the people and
defines the direction and strategy towards the attainment of agreed long term
goals of the nation. The Vision also provides a rallying point for everyone in the
country to work towards a common purpose and values.

The 10-Year National Development Plan

 In order to actualize the 30-year National Vision aspirations, the Government
shall develop and implement three successive 10-year National Development
Plans.
 The 10-year National Development Plans will outline the overall development
objectives for the respective decades which will subsequently be elaborated in
the 5-year medium term plans. They will also set the national long-term targets
through which the National Vision will be achieved.

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The 5-Year National Development Plan
 The 5-Year National Development Plan will operationalize the 10-year National
Development Plan. It will set out the macroeconomic growth targets and
priority public sector development programmes. In addition, it will spell out the
envisaged role of the private sector and civil society.
 The plan shall consist of medium-term specific objectives and strategies for the
various operational organs of Government.
 The priorities set out in the 5-Year plan will guide the allocation of public
resources and specify key annualized monitorable indicators and targets. The
5-Year plan will be costed with annualized budgets as well as mid-term

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 projection of the resource envelope under the Medium-Term Expenditure
Framework (MTEF).
 The 5-year plans will be subjected to mid-term reviews for purposes of ensuring
that appropriate development control and direction are maintained. This will
help assess progress and keep it on course.

Sector Policies and Master Plans

 Ministries, Government Departments and Agencies shall be required to prepare
their respective Sector Policies and Master Plans, which have to be consistent
with the long-term national development goals and objectives. The Sector
Policies shall set out, among other things, the strategic direction of the sector
for the next five years. The Sector Policy shall ensure that the capability of the
sector strategic role in national development is sustained and enhanced in light
of new and emerging challenges.
 The Master Plans shall spell out the interventions to achieve each objective
identified in the sector policy. They will further detail inputs and target
indicators of each intervention.
 Sectoral plans and strategies will be harmonized for a 5- year period and their
timing will be consistent with the start and end time for the five-year NDPs.

Annual Plan/Budget
 The annual plan/budget shall spell out the priority activities for the year and their
budgetary allocations consistent with the MTEF projections. The priority
activities shall be selected to realize the objectives and strategies in the 5-Year
National Development Plan.

UGANDA’S DEVELOPMENT PLANNING PROCESS

Overview of the Planning process

Planning in Uganda is coordinated at two levels; National and Local Government

Levels. Under this framework, the process of planning is participatory, comprehensive
and inclusive in terms of representation and content. The process of planning is a mix of
top-down and bottom-up approach.

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The top-down and bottom-up approach ensure that strategic guidance is provided at the
national level and integration of development concerns at sector and local government
levels into the overall national development programmes and consistent with national
policies.

1. Planning at National level

Planning at the national level entails the determination of national priorities,

integration of local government and sector plans, and production of the national
development plans. Determination of national priorities entail consultations at
macro and sector level. The macro-level consultations will be done using an
inter-agency planning group (IAPG) arrangement, which is elaborated in section
7.4 below.

Line Ministries, Departments and Agencies carry out own planning under the
guidance and coordination of the NPA. The various Ministries, Departments and
Agencies collaborate under the Sector Working Group (SWG) arrangement to
produce Sector-wide plans.

The NPA is responsible for the overall coordination of development planning at

the national level as provided for in the NPA Act 15, 2002. NPA further guides
and regulates national and decentralized development planning in the country.

2. Planning at the Local Government Level

The process of Planning at the Local Government Level is provided for by the
Local Government Act, 1997. According to this Act, the production of Higher and
Lower Local Government plans is coordinated by the District Council through the
District Planning Authority (DPA).

The DPAs prepare comprehensive and integrated development plans

incorporating plans for lower level Local Governments (sub-counties and
Municipalities) for submission to the National Planning Authority. Further, the
Lower Level Local Governments are required to prepare plans incorporating
plans of lower councils in their respective areas of jurisdiction (villages, parishes).

The District Technical Planning Committee (DTPC) co-ordinates and integrates

all the sector plans of lower level local governments for presentation to the
district council. The Department of a district council responsible for economic
planning constitutes the Planning Unit and be the secretariat to service the
DTPC.

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3. Consultative Process

Planning in Uganda is participatory and the planning process highly consultative to

ensure that the ultimate products reflect consensus by the key stakeholders. The
consultations are carried out at macro, sectoral and local Government levels. These
consultations involve various stakeholders including private sector, civil society,
development partners and the general public.

Consultations at macro level

A national level Inter-Agency Planning Group (IAPG) builds consensus on the

key development agenda and macro-economic targets. The group comprises of
the following institutions; Ministry of Finance, Planning and Economic
Development (MFPED), Bank of Uganda(BOU), Economic Policy Research
Centre (EPRC), Office of the Prime Minister (OPM), Uganda Bureau of Statistics
(UBOS) and National Planning Authority as the secretariat.

Consultations at the Sector Level

Consultations at sector level is carried out through the existing sector working
groups (SWGs) arrangements. The officers responsible for planning in respective
ministries, departments and agencies (MDAs) are integral part of NPA planning
network are linked to the Authority.

The sectors prepare thematic papers and submit them to NPA for synthesis and
integration into the National Development Plan. The sector -level consultations
also specifically target private sector, civil society, and development partners
(donors).

The Parliament of Uganda is always consulted through the relevant session

committees and parliamentary caucuses.

Consultations at Local Government Level

Local Government level consultations are mainly carried with the district
authorities as stipulated in the Local Government Act. However, NPA works
closely with the districts to ensure that lower local governments are consulted as
well as private sector and civil society.

There are local government planning forum that solicit views of various
stakeholders regarding development planning. The district authorities are
provided with guidelines on the sitting of the forum and other modalities.
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Figure 2: The Development Planning and Consultative Process

PART SIX: ISSUES IN DEVLOMENT PLANNING

1. CAUSES OF FAILURE OF PLANS IN DEVELOPING COUNTRIES

Introduction

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Planning simply involves the process and activities taken to drive the economic
outcomes to expected levels. At the national level, planning is part of Government
activities. Therefore, planning requires adequate framework to effectively deliver its
desired outcomes.

Cause of failure in planning

The causes of failure of development plans are varied ranging from lack of resources to
not heeding warning signals and complacency. The following are causes of failure in
planning in developing countries.

i. Complacency
This involves ignoring threat warnings. There is evidence to show public
complacency even in the presence of repeated emergency warnings. A
complacent public is less prepared for emergencies and is a factor in planning
failure. Both private and public bureaucracies suffer from political inertia and
complacency.
ii. Risk Awareness

Risk is the probability to mishap times the likely event of a mishap, which is
often difficult to communicate in the mid. The biggest challenge is to limit
future thinking based on current reality. That is policy makers let the problems
of the past keep them from realizing the vision of the future. This leads to
misapprehension of risk, failures in communicating risk and using
misapprehension for political purposes.

iii. Analysis Paralysis

It means that the situation remains in static while it is analyzed. This leads to
the “Delay-default syndrome”. In trying to avoid risky decisions, the difficult
choices are continually pushed further and further into the future, ensuring the
status quo while waiting on study after study. All this can prove to be costly
game, one that ensures that problems hinges in the absence of change.
iv. Corruption
It undermines good potential results of public social policy. Corruption is the
abuse of entrusted power for private gain. It hurts everyone who depends on
the integrity of people in a position of authority.
v. Shortage of well-trained staff
Manpower forecasting has been highly inaccurate because of the difficulties
in specifying particular types of fluids and a projected demand curves over a
long period.
vi. Having a plan simply for plans sake.

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 Some developing countries go through the motions of developing a plan
simply because common sense says every developing nation must have a
plan and also for funds from international donors.
vii. Coming up with too heavy plans or ambitious plans.

This is as bad as not writing a plan at all. An effective plan must be easy to
implement and the required resources must be available.

viii. Having people in the leadership positions.

Management must be competent to make tough decisions to ensure the right
individuals are in the leadership positions.
ix. Partial commitment.
The president and other leaders must be committed and fully understand how
a strategic plan can improve their enterprises without which they may not be
committed.
x. No understanding of the environment.
Planning must pay attention to changes in the economic environment, set
meaningful priorities and understand the need to pursue results.
xi. No accountability or follow up through.
There is need to be tough once the plan is developed and resources are
committed and ensure there are consequences for not delivering on the
strategy.
xii. Unrealistic goals or lack of focus and resources
Strategic plans must be focused and include a manageable number of goals,
objectives and programs. There is need to assign adequate resources to
accomplish those goals and objectives.
xiii. Dominance of politics and self-interest and focus of key players on personal
needs and goals often related to playing politics, with symptoms like
infighting, resistance where loss of power is feared.
xiv. Lack of vision and strategy. Lack of long-term view, code of guidance, and
lack of link between ends and means.
xv. The ability to identify potential risks at a stage when they are still considered
harmless by most companies and the ability to respond forcefully to warning
signals even when they are weak are Central to avoiding planning failure.

References

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1. Arthur-Lewis, W. (1996): Development Planning: Essentials of Economics,
Policy, London, George Allen and Unwin Ltd.
2. Todaro, M.P. (1985): Development Planning: Models and methods, Nairobi,
Oxford.
3. Perkins, F.C. (1994): Practical Cost Benefit Analysis: Basic Concepts and
Applications, Melbourne, Macmillan.
4. Nyandemo, S.M. et al. (2003): Economics of development and planning, Dehra
Dun (India), Bishen Singh Mahendra pal Singh Press.
5. Todaro,M.P. (Latest Edition): Introduction to economics for developing World,
Oxford, PART 24.
6. Waterson, A.( 1969): Development Planning: Lessons of Experience, Baltimore,
J.H.U., Press
7. Tinberg, J. (1967) Development Planning, London, World University Library.
8. Turne, R.K. (1977): Economics of planning, London, Macmillan.
9. Bowles, R.A. (1979): Macroeconomic planning, London, George Allen and
Unwin.
10. Bruton, M.J. (1984): The Spirit and Purpose of planning, London, Hutchinson.
11. State of Israel ( ). “Israel 2020”, Master Plan for Israel in the 21 st Century.

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