Investment Priorities

The demand-driven or decentralized approach to rural development has widened the range of possible investments in rural areas. However, it can be argued that it should be complemented with a clear sense of priorities for rural investment. A case can be made that a substantial share of government support should be channeled into a few essential kinds of infrastructure, instead of being dispersed over many fields, and that those investments will enable rural families to make other kinds of choices that will raise their standard of living. International experience would appear to confirm that the priorities areas are four; i.e. education, transport, electricity and communications. If agroeconomic conditions are favorable to irrigation, then it should be added to the list as a fifth priority, in view of the large potential that it holds out for increased agricultural productivity.

A rural development strategy developed along these lines could include a phased set of infrastructure investments, in essence taking one area or district at a time and endowing it with adequate schools and roads, electricity supply, telecommunications systems and, where appro priate, irrigation systems. This kind of locality-specific package of investments would be accompanied by programs of special incentives for rural teachers, to attract the most qualified persons and to ensure their attendance at schools in remote locations, and transfers to rural families on the basis of regular school attendance of the children. The package would not exclude other rural development activities, especially those that impart specialized kinds of training to rural families, but it could be argued that focused investment packages deserve priority in government funding.

Infrastructure investments give rise to many kinds of benefits. Dominique van de Walle has argued that 'an important share of the benefits to the poor from rural roads cannot be measured in monetary terms' and proposes a methodology for selection of areas for road investments on the basis of three criteria: degree of existing road access, poverty and development potential.88

Basic infrastructure investments and rural development investments conceived and implemented in a decentralized manner can form the basic building blocks of an agricultural or rural development strategy. In addition, the creation of programs of transfers for low-income rural households can help give greater priority to the poverty alleviation objective. Pursuit of that objective can be made still more effective by strengthening microfinance institutions, clarifying the land tenure status of poor households, providing assistance for small-scale irrigation projects that are managed in a decentralized way, and developing mechanisms for better access to improved technology on the part of poor farmers. It is necessary to give specific emphasis to the rural poor in these and other ways because, as shown for the case of Honduras earlier in this book, many of the traditional, non-targeted agricultural policies and programs in fact favored the upper-income strata in rural areas.

87. Alexander Schejtman, Agroindustria y pequeña agricultura: Alcances conceptuales para una política de estímulo a su articulación, CEPAL, document No. LC/R.1660, July 29, 1996, Santiago, Chile, p. 22.

88. Dominique van de Walle, 'Choosing Rural Road Investments to Help Reduce Poverty', Working Paper No. 2458, The World Bank, Washington, DC, USA, October 2000.

As much as possible, investment planning should be made an integral part of the work on a strategy. Investments that follow from sector-wide priorities and policies are generally the most effective. An identification of investment needs can emerge from the same participatory process that gives rise to recommendations for policy reform. However, investment planning is a specialized process in its own right, and it may be necessary to incorporate the required investment planning expertise into the work on a strategy. The most that normally can be expected, without a special effort in the investment area, is a general listing of priority projects, with an indication of the nature and scope of each one. Quantifying the amount of investment required in each case usually requires a separate companion exercise.

Nonetheless, once the priorities in a strategy are presented, then approximate estimates of the amounts of investment needed can quickly be developed by first identifying the types and coverage of projects that are deemed priorities, e.g. hectares of irrigation rehabilitation, hectares of new irrigation, kilometers of feeder roads, kilometers of electrical power lines, hectares to be terraced for soil conservation, etc., and second applying average unit costs from past experience. In the case of demand-driven investments on a small scale, the amount of funding available determines the size of the portfolio.

Hence, the co-ordinators of a strategy should be encouraged to devote the small amount of additional effort required for the companion exercise in investment planning. If this step is taken, a strategy can provide a coherent overall framework for an investment program. It would represent a substantial improvement over the usual investment planning process, which is to compile a list of desired projects without any unifying logic or linkage to sector policy reforms. Obviously, all of the project ideas that emerge from a strategy would be subject to more careful review during the implementation process, including pre-feasibility and feasibility studies.

Above all, it should be remembered that a propitious and consistent policy environment is the single most important factor in attracting investment from outside the sector and in inducing

The possibilities and hurdles involved in linkages between smallholders and agroindustry are well illustrated by contrasting experiences with tomatoes in Chile and Peru:

The industry of tomato concentrates in Chile ships a large part of its production to the domestic market, for which reason the quality of the raw materials used is a central concern. . . since the quality of the final product depends on it. Since [this is] a product that demands great care, is employment-intensive, and does not have economies of scale... the industries contract for their supplies with small producers whose great advantage is having abundant family labor to assure the harvest. These producers receive technical assistance and training from the processing industry. . . .

. . . in the Valle of Ica [in Peru] it was found that the tomato paste factory had started out depending on small producers for a portion of its supplies but the difficulties and costs of supervision to assure that the farmers adapted to the enterprise's technical instructions caused it to abandon this practice, replacing it with renting in land and producing under its direct control and supervision (A. Schejtman, 1996, pp. 19 and 25).

farmers themselves to invest more in their operations.

0 0

Post a comment