◄UNIT 11:DEVELOPMENT STRATEGIES:UNIT 13: SECTORS OF THE RWANDAN ECONOMY: ►

UNIT 12: ECONOMIC PLANNING

  • UNIT 12: ECONOMIC PLANNING

    Unit competency:

    Analyze the need for economic planning in an economy.

    Introductory activity. 

     Case study

    Two provinces Kigali and Eastern, carried out their planning following the 
    national plan by the central government. The source of the funds would 
    be from the central government and foreign aid. Kigali planned to develop 
    all sectors i.e. education, agriculture, industry and infrastructure but this 
    was to be achieved in the long run. Eastern province planned to develop 
    agriculture and infrastructure first then others would come later and this 
    was to be achieved in the short run. There were various reasons why these 
    plans were carried out. During the process, there were many problems 
    faced when implementing the plans. Kigali city failed to accomplish some 
    projects within the stated time while eastern province left some sectors 
    completely under developed. This led to the need to revise the plans 

    prepared by the two provinces

    Basing on the case study above, discuss the following questions:

    a) Explain the meaning of the term planning

    b) What are the characteristics of a good plan?

    c) What conditions should be present for the above provinces’ plans 

    to be successful

    d) Discuss the factors that hinder the success of economic plan. 

    12.1. Economic planning

    Activity 12.1

    1.Identify different objectives of economic planning and development 

    planning 

    2. In your own view, why do countries plan?

    12.1.1. Meaning of economic planning 

    Economic planning refers to government attempt to direct, influence and 
    control economic activities and resource allocation to achieve economic 

    objectives such as: 

    - Increasing the level of employment opportunities

    - Increasing production

    - Increasing investments

    Development planning refers to government attempt to influence and direct 
    activities and choices to achieve economic, social and political objectives such 

    as 

    - Reducing poverty levels

    - Reducing income inequalities

    - Maintaining sustainable growth

    - Ensuring good and stable governance

    There is a simple distinction between development planning and economic 
    development planning. The former aims at attainment of desired political, social, 
    and economic targets while the latter aims at attainment of only economic 

    objectives.

    12.1.2. Rationale for planning.

    1. For optimum allocation of resources in the economy so as to eliminate 

    imbalances in resource allocation.

    2. Helps the economy in mobilizing funds from international organizations

    like IMF, World bank etc since they give funds according to the plans made. 

    3. Helps to remove price instabilities and attain a favorable balance of 

    payment equilibrium

    4. To eradicate the defects of price mechanism; the automatic forces of 
    demand and supply sometimes show weaknesses in efficiently allocating 
    resources in an economy; these weaknesses are ironed out by development 

    planning.

    5. Plans are needed to bring up a balance between the private and the 
    public sector    , plans show the relative importance of each sector and so 

    appropriate measures are taken to support the more desired sector.

    6. To attain a higher level of economic growth and development, plans 
    are made to set up the required infrastructure to attain and increase the rate 

    of economic growth and development.

    7. Plans are a pre-requisite for getting foreign assistance. Developing 
    countries persistently draw deficit budgets, the deficit is to be obtained 

    from donors, and these require well-made plans to release resources.

    8. To reduce dependence on other nations, plans are drawn to for 

    developing countries to move away from dependence to self-sustenance.

    9. To fight hyper rated of inflation; developing nations draw plans to devise 

    means to moderate the rate inflation and attain economic stability.

    10. To eradicate the unemployment problem this is so rampant in 
    developing countries.

    Application activity 12.1.

    Explain the importance of economic planning towards a country’s 

    development.

    12.2: Principles of planning and qualities of a good 

    economic plan

    12.2.1. Principles of planning.

    Activity 12.2

    Explain the principles behind any successful economic development plan.
    The planning mechanism must adhere to certain principles in order to be 

    successful among these include the following:

    1. Consistence. A good plan must be consistent and avoid any contradictions 
    in the economy. The techniques and the objectives to be achieved must be 

    followed.

    2. Proportionality. A good plan must be proportional whereby it must be on 

    regional level than concentrating on a small area.

    3. Compatibility. A good plan should be able to use the available raw 

    materials. Planners should base on the available resources.

    4. Sequencing. This principle involves putting in place minor projects to 

    facilitate the major ones.

    5. Relevance. A good plan should be in line to achieve the intended goals and 

    objectives because this makes it socially important.

    6. Feasibility. A good plan should be politically and administratively achievable 

    so as to make its implementation easy.

    7. Optimality. Planners should take into account the resources available and 

    plan to exploit them in the most efficient way.

    8. Comprehensiveness. A good plan should cover the whole economy 
    because of the linkages among the sectors. This is because a partial plan 

    may bring about imbalances in economy that may retard development.

    12.2.2: Qualities of a good development plan

    A good plan is characterized by the following:

    1. It should be as comprehensive as possible. It should cover practically all 

    the sectors of the economy. It should cover both the rural and urban areas.

    2. It should combine top-down and bottom-up planning approaches
    through an intensive dialogue between the national, regional and local 
    development agencies between the various levels of planning — national, 

    regional, district and lower local governments.

    3. A development plan should be socially relevant, and it must involve the 

    people in a development effort.

    4. A development plan must be economically feasible. The resources to 

    implement the plan must be available.

    5. A development plan must be politically and administratively possible. It 

    must be accepted by political leaders otherwise it might never be implemented.

    Application activity 12.2.

    Discuss the qualities of a good economic development plan in your country.

    12.3: Classification of plans

    Activity: 12.3.

    Make research and answer the following 

    1. Explain briefly the following categories of plans.

    (a) Medium term plan

    (b) Decentralised plan

    (c) Comprehensive plan

    (d) Indicative planning.

    2. Match the following with their correspondences 

    (a). Capitalist plan for individual sectors like agriculture, 

    industry 

    (b). Medium term plan integrates all activities within 

    the region.

    (c). Sectoral plan are made in favour of private 

    investors

    (d) Regional plan cover between 3-10 years

    3.……………………….is the type of plan prepared and implemented by 

    the central government after consulting various organs

    4.…………………………… is a plan prepared by the government and 
    it provides information to the private sector without influencing their 

    decisions directly.

    12.3.1 Classification of plans according to time element:

    (a) Short term planning
    This is when plans are made to cover a short period of time between 1-3 

    years.

    (b) Medium term planning

    This is when plans are made to cover a period of about 5-7years.

    (b) Long term planning (perspective planning).
    This is when plans are made to cover a long period of time beyond 10 years 

    and can even be over tens of years.

    12.3.2 Classification of according to coverage.

    (a) Comprehensive planning (macroeconomic planning) 

    This is when plans are made to cover all sectors of the economy like Agricultural 

    sector, Industrial sector, Service sector, Public sector, Private sector etc

    Merits of comprehensive planning 

    1. Allows economic growth to move hand in hand with economic development 

    since plans are for the development of the economy as a whole.

    2. Caters for the problems that may be going on in the economy at a particular 

    period of time such as unemployment, poverty, and inflation among others.

    3. Leads to full utilization of resources because the government plans for all 

    sectors.

    4. Increases government revenue because when all sectors are planned for the 

    government revenue increase through taxes. 

    5. Reduces balance of payment problems because when all sectors are 

    planned for, exports may increase and imports will reduce.

    6. Reduces regional inequality when all sectors are planned for; they all develop 

    at the same level.

    7. Encourages economic growth to move hand in hand with economic 
    development when all sectors are developed. i.e. there is improvement in 

    people’s standards of living.

    8. Encourages inter dependence between different sectors when they are 
    all planned for and developed which later increases the rate of economic 

    growth.

    Demerits of comprehensive planning 

    1. They are expensive to administer and monitor; it requires adequate amount 
    of funds to scatter in all sectors being developed at the same time which 

    funds are not readily available in developing countries.

    2. Developing countries have a limited supply of the skilled personnel that can 
    be everywhere at the same time to monitor the different sectors growing at 

    the same time.

    3. Comprehensive plans give rise to inflation in short run. This is because much 
    money is set into circulation at the same time to see a comprehensive plan 

    succeed.

    4. Comprehensive planning may bring distortions in the major national 
    objectives since a single plan covering the whole country may be hard to 

    implement.

    5. It is hard to give rise to a single plan that answers the needs of different 
    groups and regions of people at different development levels. This makes 

    comprehensive planning hard.

    (b) Partial planning/fragmentary plan/micro plan:

    These are plans drawn to cover only part of the economy. It may be only a region 

    or may be drawn just for a sector. 

    Advantages of partial planning 

    1. Cheap and easy to administer because it economizes the use of skilled 

    man power which is a problem in LDCs. 

    2. Allows planners to concentrate on a few vital sectors which they can 

    develop successfully and achieve economic growth.

    3. Develops skills of planners which they can use to take more comprehensive 

    plans.

    4. Cheap to manage, it doesn’t require a lot of capital. Therefore, it is easy to 

    manage and implement because it is in the financial reach of the country.

    5. Requires less data which can be got easily since it covers a small sector.

    6. Suitable because of wide difference in the level of development between 

    regions.

    7. Helps in development of the leading sectors first and then 
    other sectors follow because it covers only few or one sector and in case 
    of Political instabilities in some countries make it a good idea to develop 

    some areas first and others follow later.

    Disadvantages of partial planning

    1. Leads to wastage of resources because of many un coordinated plan

    2. Leads to unbalanced development in the economy when the government 

    plans only one or few sectors. 

    3. Leads to underutilization of resources when the government plans to 
    develop few or one sector since some area are not planed and catered 

    for. 

    4. Leads to unemployment when only one or few sectors are developed 

    which inurn reduces people’s standards of living.

    5. Leads to balance of payment problems because if only one or few sectors 

    are developed export will be less and more will be imported.

    6. Causes inflation because when the government plans to develop one or 

    few sectors this leads to low production output.

    7. Leads to wastage of resources because the government may use a lot 
    of resources to plan for only few sectors yet the same resources can be 

    used for many other sectors.

    12.3.3 Classification according to hierarchy of planning

    1. Project plan. This is a plan designed to guide the control and execution 

    of a given project in a particular sector.

    2. Sectoral plan. This is when plans are made to cover one sector of the 
    economy e.g if plans are made to cover the agricultural sector alone. An 

    example can be Plan for Modernization of Agriculture - PMA

    3. National economic plan. This is a plan for the whole nation which has 

    to be consistent with the national resources.

    4. Regional plan. This is a plan which integrates all activities, programs 

    and projects within the region aimed at attaining national objectives. 

    12.3.4. Classification according to system of 

    implementation..

    (a) Indicative planning

    This is where the government indirectly influences economic activities and 
    choices through a set of fiscal and monetary policies. Its used in market 

    economies. 

    It can also be defined as a situation where the government prepares a plan and 
    provides information to the private sector (communities) to implement it without 

    influencing their decisions directly.

    (b) Imperative plan. 

    This is a plan prepared and implemented by the central authority in consultation 

    with various organs, offices and agencies.

    12.3.5. Classification according to economic systems.

    (a) Decentralised planning (Bottom-to-Top)

    This is when plans are made from the lower level administrative units ie from 
    grassroots following national objectives e.g each district makes its own 

    development plan depending on its resources and requirements.

    Merits of Decentralized planning

    - It favours local priorities and interests. Each regional has its own 
    resources, requirements and priorities. Thus plans will be made according 

    to each region’s individual requirements.

    - It takes care of and utilizes local resources. This make it consistent 

    with each region’s resources.

    - It encourages people participation. The lower level administrative units 
    are involved in plan formulation. This creates a sense of ownership and 

    makes implementation easier.

    - It gives the local people a chance to manage their destiny using local 

    resources.

    - It is suitable where the country is geographically so large.

    - It is cheap, quick and direct to addressing people’s needs. This 
    is because people are involved in addressing their problems using their 

    resources.

    - It reduces the responsibility of the central government. This gives it 

    ample time and resources to attend to other crucial services.

    Demerits of Decentralized planning

    - Lack of planning skills at local levels. Most regions may not have the 

    necessary skills required to design good economic plans.

    - It may lead to duplication of services and activities in different areas

    - Local objectives may diverge from national objectives

    - Uneven distribution of resources in different areas may lead to 

    imbalances 

    - The central government may relax knowing local areas cater for 

    themselves 

    - It puts more pressure on local governments

    (b) Centralized planning (Top-to-Bottom).

    This is when plans are made at the national level and the lower level administrative 

    units implement.

    Advantages of centralized planning

    1. Leads to balanced regional development because when the government 

    plans all regions are considered. 

    2. Helps to solve the problems of inflation because when the government 
    plans for all sectors; the levels of production increase which reduces inflation 

    levels. 

    3. The plans drawn are for high-level development of the nation. 
    So it collects all the skilled labour in the nation for its formulation and 

    implementation.

    4. They are always consistent with national development objectives. 

    They are consciously drawn and cannot divert from national set targets.

    5. They are flexible; they can be changes according to variations in national 

    goals.

     Disadvantages of centralized planning

    1. The interests of some areas may not be considered when the 

    government plans for the economy at once.

    2. Leads urbanization plus its negative effects because in most 
    government plans more emphasis is put on urban areas and then neglect 

    rural areas.

    3. Expensive in terms of data collection and also implementation
    because for the government to plan for all sectors require a lot of capital 

    which is always lacking in most LDCs

    4. Discourages self-initiatives i.e. people may ignore the plan since they 

    know that all responsibilities are in hands of the government.

    5. A wide distance between the planning body and the source of finances 

    makes centralized planning hard.

    6. Developing countries have a limited supply of skilled personnel needed 

    to implement such plans. 

    Application 12.3

    Explain the reasons as why the government may prefer partial planning to 

    compressive planning in an economy. 

    12.4 Obstacles faced in formulation and implementation of 

    development plans

    Activity 12.4

    Explain the reasons as why many economic development plans in 

    developing countries have not achieved their major objectives.

    1. Over ambitious plans. Most of the plans try to achieve many objectives 

    at once and in the end they fail to accomplish them.

    2. Insufficient and unreliable data. Data in some countries is difficult to 

    get and sometimes unreliable and this makes planning difficult.

    3. Unexpected social and economic disturbances. These may be 
    internal such as agricultural hazards like pests or external instabilities all 

    making the planning and implementation difficult.

    4. Institutional weaknesses. The planning machinery may be separated 
    from day to day decision making, inadequate communication about the 

    goals and objectives may hinder implementation.

    5. Lack of political will. Most people lack commitment and a sense of 

    nationalism which hinders the national planning system of the country.

    6. Inadequate resources. Plans always remain on paper because of 

    failure to mobilize resources both from within and outside.

    7. Inadequate qualified man power. Most developing countries lack 
    qualified man power and most of their plans are made by outsiders who 

    know little about the economic situations in these countries.

    8. Political instabilities and constant change of governments. 
    These affect the already made plans because each new government has 
    got its own plan for development. Still the funds which would be for plan 

    implementation are directed towards buying military hard ware. 

    9. Poor sequencing. In LDCs there is lack of funds to put up micro/ small 
    projects which can lead to bigger plans. This leads to failure of the bigger 

    plans.

    10.Corruption and embezzlement. Most plans have failed because 
    of high levels of corruption in which most of the funds are directed to 

    peoples’ selfish interest.

    Application activity 12. 4

    Discuss the importance of economic development planning in an economy.

    Skills Lab

    Come up with individual development plan for the next three coming years 
    as you are finalizing with this level of education. Come up with principles 
    that are supposed to guide your plan, suggest the possible challenges 
    that you are likely to encounter during the implementation of your plan, and 
    then also suggest the possible measures of how such challenges can be 
    addressed in order to achieve your personal development plan objectives. 

    Then keep it safely for implementations and future reference.

    End unit assessment

    5. Distinguish between economic planning and economic development 

    planning.

    6. Planning can be done on a small scale and large scale. Examine 
    the advantages and disadvantages of planning for the economy 

    comprehensively.

    7. Explain the reasons as why the government may prefer decentralized 

    planning to centralized planning in the economy.

    8. Discuss the principles of effective economic development planning.

    ◄UNIT 11:DEVELOPMENT STRATEGIES:UNIT 13: SECTORS OF THE RWANDAN ECONOMY: ►