Regional Economic Potential Analysis

Regional Economic Potential Analysis is a methodology that helps to identify economic sub-sectors with future competitiveness and growth potential in a subnational region. 

The method Regional Economic Potential Analysis is based on concepts like value chain analysis, learning from global buyers, gap analysis and global comparative trade analysis. It primarily draws on two methodological sources:

  • Analysis of export data in the global market context drawing on national statistics and ITC data
  • ‘Learning from Global Buyers’ approach developed by IDS Sussex

The Regional Economic Potential Analysis can be used to find answers to questions like

  • how can we know today what economic sectors might have future growth and job potential?
  • which regional products to promote nationally and particularly internationally?
  • what sub-sectors to choose for attracting private investment?
  • what sub-sector producers to link up with national and international intermediaries and buyers downstream of value chains?

The Regional Economic Potential Analysis is useful for the following:

  • assisting local government or donor programmes to identify the main economic potentials of a region
  • identifying current or future competitive advantages with regards to private sector development
  • helping local producers to stay or become more competitive

Typically, the analysis is conducted in three phrases:

  1. In-depth desk research conducted at the beginning, in which statistical data on production, trade and investment of a region are collected, examined and aggregated for the region concerned, resulting in a number of most important growth areas;
  2. Field research in the region and in major cities of the country, narrowing down the number of potential sectors based on the buyers’ assessment of firms’ capacity and performance to meet the changing demand, and on the assessment of industry capacity to meet requirements in terms of volume and quantity; and
  3. Comparison of current and potential global demand with current capacities and structures. The identified performances and shortcomings are then presented in a feedback workshop to local/regional stakeholders and put down in a comprehensive report.

The initial design and first application of the Regional Economic Potential Analysis were carried out in 2006. Back then, Mesopartner was commissioned by the European Union–Vietnam Private Sector Support Programme (EU-VPSSP) to develop a methodology for identifying economic potentials at the sub-national level and supervise its first application in the three provinces Hai Phong, Da Nang and Can Tho. The aim was to identify sectors to be addressed by the project for deeper analysis and sectoral focus for intervention. The methodology was developed in cooperation with the Vietnamese consulting company MCG, which was in charge of putting this methodology into practice. The requirement for the newly developed methodology was that it should be rapid and participatory.

In 2007, MCG applied the same approach with some pro-poor modifications in TraVinh province in Vietnam backstopped by Mesopartner. Also in 2007, Mesopartner used the approach as one of three steps to develop a regional development strategy for the region Solo Raya in Southern Central Java, Indonesia.

In 2018, Mesopartner had used the methodology as reference framework and point of departure for assessing future economic potentials in the course of programme building on Sustainable Economic Development in Nepal for the German Development Cooperation. 

Additional resources

In an article from 2008, Christian Schoen introduced the Regional Economic Potential Analysis. To explore the differences between the Mesopartner and other traditional potential analysis approaches, he provides an overview of the existing methodologies to identify potentials of local, regional and national industries and subsectors. He explains the need to introduce a rapid and more participatory approach especially in countries with limited reliability of statistical trade data. The involvement of large buyers or customers in the understanding of market tendencies as well as the comparison of sector potentials at the local and regional level with national and world market shares are particularly important elements in this methodology. Schoen provides a detailed insight into how to develop and implement such a methodology.