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The role of local government in strategic planning and stimulating
investments in agriculture sector
Conference Paper · October 2020
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GEA (Geo Eco-Eco Agro) International Conference, 28-31 May 2020, Montenegro - Book of Proceedings
Article
The role of local government in strategic planning and
stimulating investments in agriculture sector
Dragan Dokić 1, Maja Gregić 2, Mirna Gavran 2, Božidarka Marković3 and Vesna Gantner 2
Erdut Municipality, Dalj, CROATIA
Faculty of Agrobiotechnical Sciences Osijek, University of Josip Juraj Strossmayer in Osijek, CROATIA
3 Biotechnical Faculty, University of Montenegro, MONTENEGRO; bozidarkam@ucg.ac.me
* Correspondence: vgantner@fazos.hr; Tel.: +385/99-207-4490
1
2
Abstract: Strategic governance in public administration is a doctrine that emerged at the beginning
of the new millennium on the basis of criticism of the previous very influential doctrine of the socalled. "New Public Management." This concept seeks to link public administration, citizens and
environmental partners into one system. The rules and procedures arising from the strategic
approach should contribute to the efficient management of public funds and assets, all in order to
create favourable market conditions. This concept stems from the process of decentralization of
public authority. The aim of this paper was to analyse techniques and methods of strategic concept
that can be implemented by carriers of the management structure at the local level in order to
improve the entrepreneurial climate and improve the investment environment. The purpose of
introducing the strategic concept into local government was also analysed, and it was shown what
incentive measures local governments could bring to stimulate the development of agricultural
production. This approach focuses on development programs that can improve the quality of life of
the local community.
Keywords: local government, strategic management, agricultural production, investment
environment, social responsibility, incentive measures
1. Introduction
The traditional model of public administration functioned at the minimal presence of the
strategy, but due to this the great attention was paid to the planning system. The public
sector can learn a lot from the private sector regarding the issue of planning, strategy
development, visioning and forecasting. According to Bilas and Franc (2006) the strategic
approach enables:
• introduction of new equipment and modern technologies,
• introduction of new production processes and new products,
• higher employment and employee education,
• business modernization and improvement,
• development of production with a higher degree of processing,
• increase in economic activities,
• developing a new service offering,
• energy savings.
The application of market behaviour in the public sector is oriented towards efficient
management and achieved business results (Reinhard, 2005). Since local government is a
non-profit organization, the results are viewed through social responsibility. The starting
point of a strategic concept in local government units (JLS) is strategic planning. Strategic
planning is a continuous and systematic process of deciding on future intentions and
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GEA (Geo Eco-Eco Agro) International Conference, 28-31 May 2020, Montenegro - Book of Proceedings
consequences (results, outcomes), how to achieve them, how to measure them and finally
how to evaluate the achieved outcomes (Mašić, 2005). Each strategic planning model must
include the following elements: mission, identification of needs, strategic goals, outcome
measures and the flow of forward-looking information. Furthermore, two additional
elements are added to the above elements (Lazarević Bajec, 2009; Kaul, 2000): planning a
strategic plan and elaborating strategic priorities within a local government mission. A key
component of a strategic plan is resource planning. Strategic planning differs from
conventional planning: it is not only a matter of changing programs but of transforming the
organization itself (Blackerby, 1994). Defining the functioning of a local government unit
helps to build a group identity and enables public institutions to transform into a new body.
At the local community level, these changes can be made through "managerial" reforms. A
model that can be applied in reforming local community governance is process
management, which can fundamentally change the functioning of local government. Process
management implies a process organizational structure. The primary purpose of such
orientation is more efficient business processes, and their placement in appropriate, more
flexible and adaptable organizational structures, while removing rigid boundaries between
individual functions in the organization, all with the aim of smooth running of business
processes (Kaul, 2000). This organization strives reorganization of existing business
processes to improve in critical contemporary measures of performance, such as cost,
quality, service and speed (Lane, 2012). Such an organization is characterized by a horizontal
structure, which brings together employees around the main processes and allows them
easy access to each other. Another important feature of this organization is the continuous
communication and coordination of all employees in order to eliminate the hierarchical
service gap. The process orientation of an organization has certain characteristics that set it
apart and differentiate it from other forms of organization. Namely, process-oriented
organizations try to make one major job out of several jobs, involving all employees in the
decision-making process and performing certain stages in the process in a natural, logical
and rational order (Benazić, 2008). Such organizations deal with processes in a way that
looks for more alternatives and then selects the best one for concrete implementation. The
development plan, as a product of the planning process, defines the goals, the means of the
means and the personnel to realize it. Local government units in formulating the
development plans start from the existing situation, a detailed analysis of the existing
development and possibilities for further progress. According to Prokopijević (2009), the
development plan usually consists of the following basic stages:
• Analysis of the development in the previous period - analysis of the development so
far,
• Assessment of the development achieved - assessment of the current situation,
• Defining development goals - possible directions for development,
• Defining a general development strategy - possible directions for development,
• Determination of necessary investments (funds) for realization of intended
development.
The development plan for local government units should consist of several component
plans that are functionally linked. These plans most often include: investment projection,
personnel, scientific research, model of formation of total revenues, as well as other business
indicators. Due to the above, local government units should define their directions of
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GEA (Geo Eco-Eco Agro) International Conference, 28-31 May 2020, Montenegro - Book of Proceedings
development according to the basic resources at their disposal, as well as the goals, which
must be realistic and strategic in orientation.
The aim of this paper was to analyse techniques and methods of strategic concept that
can be implemented by carriers of the management structure at the local level in order to
improve the entrepreneurial climate and improve the investment environment.
Furthermore, the purpose of introducing the strategic concept into local government was
also analysed.
2. Materials and Methods
This research focuses on countries that are similar in size and area, where agricultural
production accounts for a significant portion of GDP. Countries being compared are:
Croatia, Hungary, Serbia, Austria, Bulgaria and Slovakia. The analysed indicators presented
in the Table 1 have an impact on the creation and implementation of business plans. The
values of the analysed indicators refer to year 2019.
Table 1. Indicators of strategic planning (WEF, 2019)
State, values in %
Elements of strategic planning
Croatia
Hungary
Serbia
Austria
Bulgaria
Slovakia
Mission, goals and priorities
Focus on priority issues at local
government unit meetings
79
81
77
88
76
82
Orientation towards sustainable
business direction
81
80
81
92
77
70
Improving employee focus on
organizational goals
80
73
75
89
78
84
Defining clear program priorities
72
85
75
91
74
87
Average
78
80
77
90
76
81
External relations
Maintaining external (regional,
state and interstate) support
76
78
77
86
79
81
Communication with citizens and
other external interest groups
73
71
75
89
76
77
Maintaining continuous
communication with external
partners (investors)
69
72
74
81
72
80
Average
73
74
75
85
76
79
Management and decision-making
Maintaining a functional
organizational structure
65
67
63
77
62
72
Implementation of an effective
management system
67
70
64
87
61
77
Social responsibility decision
making
73
74
72
89
70
81
Average
68
70
66
84
64
77
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GEA (Geo Eco-Eco Agro) International Conference, 28-31 May 2020, Montenegro - Book of Proceedings
Supervision and development of employee
Direction of employee
development
61
63
60
79
67
75
Employee attitudes towards
interest groups
61
69
62
80
55
72
Continuous training and
development of employee
69
71
72
89
69
81
Building a positive organizational
culture in local government unit
75
81
73
84
71
79
Empowering employees in public
decision making
67
75
70
91
69
82
Average
67
72
67
85
66
78
Performance
Maintaining a positive financial
position in the budget
79
71
78
87
72
83
Effective and simplified business
task resolution
71
73
74
89
75
80
Provision of high quality public
services
79
74
76
92
75
77
Average
76
73
76
89
74
80
Social Responsibility
Taking care of the younger
generations
78
79
80
95
83
88
Taking care of the socially
disadvantaged
82
77
86
90
80
79
Taking care of the environment
83
78
80
89
79
72
Average
81
78
82
91
81
80
The data show that Austria has the best average and also the best position, while for
other countries the average values were approximate. For Austria it can be concluded that
the procedures are simplified, well-established, and the entrepreneurial climate suitable.
Other countries need to give more space to the profession in order to improve business
conditions. The analysed indicators are very important because they show the willingness of
local self-government units to adapt to market trends. furthermore, local plans, studies and
strategies must facilitate economic development procedures.
3. Results and Discussion
The agricultural development is accompanied by investment. Investors expect a healthy
entrepreneurial climate, simple regulations and efficient public administration to handle
administrative procedures. In the countries covered by the analysis, agriculture is of
strategic importance, with a total employment of about 6% of the working population in the
primary production and food processing sectors. Given that market trends are favourable, or
global trends in food demand are increasing, local government units in rural areas must take
advantage of such circumstances and stimulate not only raw agricultural production but
also the processing industry. A comparative presentation of indicators that have an impact
on the adoption and implementation of strategic planning is shown in Figure 1.
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GEA (Geo Eco-Eco Agro) International Conference, 28-31 May 2020, Montenegro - Book of Proceedings
Figure 1. The average values of indicators of strategic planning by analysed countries (WEF, 2019)
The data from the Figure 1 shows that the factors that most slow down the construction
of commercial building are Supervision and development of employee and Performance
which for most states has a value below 70. This indicates a situation that the legal system is
slow and inefficient, and potential investors do not want to get into the investment process.
In order to attract as much investment as possible, local self-government units apply
economic policy measures that stimulate the economy to invest in:
• production and processing activities,
• R&D activities
• strategic business support activities.
However, it should be emphasized that local self-government units are dependent on
state legal measures and must harmonize their legal acts with the laws. The interaction of
state and local politics can produce three incentive measures:
• tax benefits,
• incentive measures for job creation,
• incentive measures for the construction of new buildings in the function of
production.
Tax benefits are fiscal incentives that include a reduction in investment income tax;
deferred payment of income tax for a fixed period (tax holiday); adopting a double taxation
agreement; enabling accelerated depreciation; enabling tax deductions for investment and
reinvestment in various investment forms; providing tax deductions related to the number
of employees employed; providing tax deductions for the share of domestic raw materials in
production; allowing exemption from payment of import duties on capital equipment,
machinery and raw materials; facilitating exemptions from export duties, recovering import
duties, and many other measures (Bilas and Franc, 2006). Tax benefits reduce the corporate
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GEA (Geo Eco-Eco Agro) International Conference, 28-31 May 2020, Montenegro - Book of Proceedings
income tax rate depending on the amount of investment costs and the number of job
openings. The interdependence of these variables (the amount of investment and the
number of jobs created) and the degree of reduction of income tax (intensity of tax benefit)
are shown in Table 2.
Table 2. Tax benefits (WB, 2019)
Investment (000
Euro)
Number of new jobs
Maximum duration
of privilege yr.
Reduction of local
tax, %
Reduction of local
contribution, %
0 - 100
10
10
30%
25%
100 - 500
30
10
50%
50%
500 - 999
50
10
70%
75%
> 1 million
75
10
80%
100%
The intensity of the tax benefit increases with the increase in the amount of investment
and the increase in the number of newly created jobs, so it can be seen that this range ranges
from a 50% decrease in the prescribed income tax rate to a 100% decrease in the prescribed
tax rate. The maximum possible duration of the tax benefit is 10 years, but it may be shorter,
depending on the sum of all incentive measures granted, while respecting the maximum
allowable intensity and remaining differences that form the basis for granting the tax
benefit. Specifically, the tax benefit of reducing the corporate income tax rate is, in fact, a
variable incentive measure. The total amount of tax benefit depends on the success of the
investor's business. If an investor generates a profit in the period of using incentive
measures, then the use of the tax benefit will be intensive and will represent a significant
share in the total incentive measures used, and for that reason its time use may be shorter
than 10 years, that is, it will last until that business year in which the investor reaches the
maximum prescribed incentive intensity. On the contrary, if the investor during the period
of use of all incentive years does not generate profit from its business, or its amount is small,
then the use will not represent a significant share in the total use of incentive measures.
Incentive measures to set up R&D centres and strategic business support activities create
new instruments, modelled on developed countries, with the aim of attracting primarily
multinational companies.
Incentive measures for the establishment of technological innovation centres and
strategic business support activities are two types of additional incentives:
• cash incentives for job creation
• capital incentives for the purchase of technological development and innovation
centre equipment. The costs eligible for co-financing by the local government unit are shown
in Table 3.
Table 3. Simulation of eligible costs (WB, 2019)
Local unemployment
rate, %
Stimulation in relation to
job creation costs
Increase for strategic
business support
activities, %
Increase for technology
development and
innovation centres, %
< 10
Till 1000
25
50%
10 - 20
Till 1500
25
50%
> 20
Till 2000
25
50%
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GEA (Geo Eco-Eco Agro) International Conference, 28-31 May 2020, Montenegro - Book of Proceedings
For strategic business support activities, the incentive measure for job creation was
increased by 25% over the same stimulus for industrial-processing investment projects, and
the incentive for job creation for investment in technological development and innovation
centres was increased by 50%.
The basic criteria for the implementation of incentive measures under the incentive
scheme for large investment projects are the following:
• Construction of a new factory or industrial plant, start-up of a new business, and
development of new technologies,
• Realization of investment in long-term assets of the incentive measure holder in the
minimum amount of 150 000 euro,
• Creation of at least 100 new jobs.
By fulfilling the above conditions of a large investment, the right to special incentive
measures, i.e. non-refundable financial incentives in the form of capital subsidies, is realized
according to the intensity shown in the table 4.:
• for the cost of building a new factory or buying new machines up to a maximum of
5% of the cost, but with a maximum cash amount of up to 150 000 euro,
• for the cost of construction of infrastructure facilities or infrastructure connections up
to a maximum amount of 5% of the costs, but in a maximum amount of 120 000 euro.
Table 4. Simulation for capital investments (WB, 2019)
Financial stimulation in % of costs
Financial stimulation in the
amount of money
construction of a new factory
purchase of new machinery
5%
Till 150 000 euro
infrastructure investments
infrastructure connections
5%
Till 120 000 euro
Type of incentives
This incentive measure gives a clear signal that one of the main tasks is to encourage
large investment projects, especially in areas of high unemployment and relatively lower
economic development, which is a characteristic of rural areas of Serbia and Croatia. These
incentive measures seek to motivate the resolution of fundamental economic problems,
especially the lack of industrial processing capacities, resulting in low levels of GDP
generation and a high unemployment rate as a consequence of the previous problem.
The organizational structure of local government units (JLS) is a component of strategic
capability necessary to rationally identify all aspects of the value of space and the structure
of changes that may affect it. The strategic concept in JLS is reflected in the purpose of
maintaining a balance between JLS itself on the one hand and the environment on the other
(Steurer, 2005). Factors that are important in implementing a strategic approach in
municipalities are: budgeting, lifelong education for LGU employees, leadership approaches
to municipal governance, total quality management, and drafting strategic documents: local
investment plans and municipal spatial plans as documents that can simplify and facilitate
investor entry into the JLS area.
4. Conclusions
The strategic concept of development is specific because, in addition to standard economic
analyses, it also includes measures that determine the behaviour in space. The development
of agricultural production and other economic activities is based on a dynamic business
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GEA (Geo Eco-Eco Agro) International Conference, 28-31 May 2020, Montenegro - Book of Proceedings
environment and local government bodies are subject to the laws of external market
influences. The inability to respond to external challenges has stalled the development of the
local community, which can eventually result in peacetime economic migration (currently
happening). The results of the analysis indicate the need to change the mind-set of both the
population and the employees of the local government units inevitably, about its role and its
importance. Therefore, the introduction of strategic concepts in the management of the local
government a key element in its development. It is important for investors to have
information on construction zones and zones intended for business development in one
place. Furthermore, procedures need to be simplified. It is necessary for an active economic
policy to create an investment environment that will be attractive to investors, which will
ultimately contribute to a better competitive position for local farmers.
Conflicts of Interest: The authors declare no conflict of interest.
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