2. Rural Development Strategy

Transcription

1 2. Rural Development Strategy Introduction and Strategic Framework This chapter summarizes the World Bank assistance strategy for rural development in the ECA Region. The rural sector is not confined to agriculture, but includes the people, economic development activities, institutional, economic, and social infrastructure, and natural resources of rural areas. This chapter focuses on Bank activities that support rural development and policy reforms designed to improve rural well-being and to increase the competitiveness of farms and rural businesses. Natural resources and social and institutional development issues are addressed separately Our strategy lies within the overriding Regional objectives of poverty reduction and economic growth; improved public sector management and an expanded role for civil society; support to the development of a market economy; and environmentally sustainable development. In rural areas, we plan to assist our clients with: Resumption of agricultural growth Rural development outside the agricultural sector A greater focus on reducing rural poverty Community development Following an overview of the sector, and developments since the transition, each of these strategy elements is described in more detail. Agriculture, the Rural Economy, and the Status of Transition Agricultural Production The transition region has a substantial part of the world s agricultural resources (figure 2.1). In the mid- 1990s, the countries of the ECA Region comprised 13 percent of the world s total area suitable for agricultural production 1 and 19 percent of arable (or currently used) farmland. 2 The Region makes a substantial contribution to world output in practically all of the main agricultural products. On average, this contribution is around 10 percent. The share of agriculture in employment and national income in ECA countries is far greater than the average for western developed countries. In , the agrarian sector contributed about 9 percent of GDP for the transition region as a whole. 3 The proportion of the agricultural population was 16 percent. 4 There are substantial deviations from country to country in regard to this sectoral role. The share of agriculture in GDP is only 5 percent in the EU-accession candidate countries, compared to 31 percent in the Caucasus and 24 percent in Central Asia. 5 The contribution of agriculture to GDP is also much lower than the role it plays in employment, indicating the low productivity of agriculture and levels of efficiency that are below the developed country average. The Region has great geographic and climatic diversity, and the pattern of agricultural production is similarly diverse. Agricultural production has declined dramatically since 1990 in all countries of the Region except Turkey. Between 1990 and 1996, it fell by an average of 7.8 percent per year. This decline was due to a number of factors, including (1) initial confusion surrounding the transition, (2) declines in consumer demand, especially for more expensive livestock products, following the reduction of food subsidies and deterioration of economic conditions, (3) the collapse in traditional market systems, export mar- 10

2 Rural Development Strategy FIGURE 2.1. PERCENTAGE OF ARABLE LAND AND WORLD POPULATION Source: The author is the source for all data in figures and tables unless otherwise noted. kets, and the internal Eastern Bloc trading system, (4) declining input use, and (5) deteriorating irrigation infrastructure and machinery stock associated with the collapse of the cash economy in several countries. Output has now stabilized at about 70 percent of pretransition levels in Central Europe but is still declining in some CIS countries (figures 2.2 and 2.3). Rural Poverty There has been a sharp rise in national poverty and inequality in ECA since the beginning of the transition, with the incidence of national poverty reaching high percentages in many countries 6 (figure 2.4). Rural poverty has increased in line with the rise in national poverty, and in some cases in excess of that rate. Within 15 of the 20 ECA countries for which poverty data are available, the incidence of poverty in rural areas is as high or higher than in urban areas; the average for all countries indicates the incidence of poverty to be 60 percent in rural than in urban areas. Because urban populations tend to be larger than rural populations, the contribution of rural areas to the total number of poor is less. Even so, in 10 of 20 countries, the rural poor account for as much as or more of the total poor than the urban poor. Some other subregional patterns in rural poverty are worth mentioning. The Central Asian countries (Kyrgyz, FIGURE 2.2. AGRICULTURAL PRODUCTION INDICES FOR THE CIS, , COMPARED TO THE AVERAGE FOR

3 Rural, Environmental, and Social Development Strategies for the Eastern Europe and Central Asia Region FIGURE 2.3. AGRICULTURAL PRODUCTION INDICES FOR CEE, , COMPARED TO THE AVERAGE FOR Tajikistan, and Kazakhstan), comprise one ECA subregion in which rural poverty appears to dominate the poverty profile. Central and Eastern European countries show a mixed pattern, with some countries exhibiting a very high rural poverty contribution to the total (Poland, FIGURE 2.4. STATUS OF POVERTY IN ECA Romania, Macedonia) and some, very low (Slovenia, Czech Republic). Access to Services and the Broader Rural Economy Since the beginning of the transition, there has been an overall deterioration of the rural nonagricultural situation throughout the CIS. The actual dismantling of large-scale farms and the deteriorating financial conditions of the remaining ones has significantly reduced the resources available for social services and rural infrastructure (Figure 2.5). In some places, responsibility for rural social services and infrastructure has been transferred to the municipalities, but the question of their financing is still mainly unresolved. As a result, rural social services remain seriously underfunded. An economically declining rural environment, together with nonresponsive governments, have additionally significantly retarded the emergence of a private-sector-based rural nonagricultural sector. The situation in Central and Eastern Europe is nonetheless considerably better than in the CIS. The initial state of rural nonagricultural conditions in CEE was significantly more developed than in the CIS, and it has been 12

4 Rural Development Strategy FIGURE 2.5. ACCESS TO IMPROVED WATER (MEASURED ) much less affected during the reform years. In a number of Central European countries, such as Hungary, the Czech Republic, Poland (with the exception of some underdeveloped areas such as southeastern Poland), and the Baltics, a visible recovery of rural nonagricultural activities can be observed. This recovery is being driven by the private sector and local municipalities that are gaining increased fiscal and legal autonomy. The resumption of overall growth in these countries and the decline in unemployment has made a positive impact on the rural sector, an impact that is probably most visible in the emergence of flourishing private rural service sectors and the ability of the rural areas to improve their social services and infrastructure. Agricultural Policy Reform and Recovery of Growth Before the transition, agriculture and food production were largely centrally planned to maximize output, with limited consideration for efficiency. The resultant large-scale livestock and crop cooperatives were unsuited to marketbased private agriculture. Creating viable private farming, based on private ownership of land, and allowing market signals to determine levels and types of production have been among the most difficult tasks of the transition period. In , the Region set out on the path of creating market economies based on private property. In all countries the most important basic elements of the reform process have been: The liberalization of prices and markets and the creation of a market-conforming incentive system in the rural sector; The privatization of land and the transformation of the inherited farming structure to financially viable private farms with transparent ownership; The demonopolization and privatization of food processing and the trade in agricultural produce and capital goods; The creation of a functioning rural financial system and the establishment of the institutional structure and system of state administration required by market economies. Table 2.1 summarizes a Bank assessment of recent progress toward reform made by the individual countries of the Region. In general, the Central European and Baltic countries have made the most progress, while the core CIS countries, Turkmenistan, and Uzbekistan have reformed the least. The prospect of accession to the European Union has facilitated achieving consensus for reforms. A number of lessons can be drawn from the experience to date: In general, the reform process has been slower and more difficult than expected and has resulted in slower recovery of growth than expected. This is partly because economic transformation is so complex, and partly also because the creation of genuinely private farms has been difficult in many of the CIS countries. Price and market liberalization have generally been easier than the creation of private farms, rural finance, the liberalization of agro-processing and input supply, and institutional reform. It has been easier to implement reforms when the broader economic situation has been favorable. Development of the nonagricultural sector of the rural economy has been key to the recovery of agriculture, permitting creation of new employment opportunities in other sectors and reduced employment and greater efficiency in agriculture. The best progress has been in countries that have reformed radically and rapidly rather than gradually, and despite their short-term adjustment difficulties. Reform in Central Europe, while complex, has nonetheless been politically easier than in the CIS, primarily because these countries had a shorter experience with central planning and had relatively sophisticated economies and established middle classes. They did not experience the civil unrest that destroyed economies in the Balkans and the Caucasus, and unlike several Central Asia 13

5 Rural, Environmental, and Social Development Strategies for the Eastern Europe and Central Asia Region TABLE 2.1. STATUS OF AGRICULTURAL REFORMS IN CEE AND CIS COUNTRIES IN MARCH 2000 (1 = centrally planned economy; 10 = completed market reforms) Price and market Land Reform Agroprocessing Rural finance Institutional Total score Country Hungary Czech Rep Estonia , Latvia Slovenia Poland Bulgaria Lithuania Slovak Rep Armenia Albania Croatia Macedonia Romania Kyrgyz Rep Azerbaijan Georgia Moldova Bosnia & Herzegovina Kazakhstan Russia Ukraine Tajikistan Turkmenistan Uzbekistan Belarus Average score Note: An explanation of the numerical ratings is given in Annex Table 1.B. Source: World Bank estimates. and Caucasus countries were not dependent on subsidies from Russia. The transition shock to institutions and the role of the state in society was thus less severe. In some CIS countries, especially Russia, the trend toward decentralization in government, and the associated more complex pattern of relationships in political power, has posed the particular challenge that reforms initiated at a federal level have been difficult to implement at regional or enterprise levels. Existing World Bank Portfolio The existing loan portfolio in ECA countries consists of 55 rural and natural resource projects, with a total of $2.2 billion in IBRD/IDA commitments. Out of the committed amount, $1.8 billion has been disbursed. One of the striking features of the rural development portfolio is the diversity of activities that fall within this rubric. There are probably more distinctly different types of activities carried out under the heading of rural development than under any other heading. These include, for example, agricultural sector adjustment loans; land titling, registration, and cadastre; farm privatization and restructuring; rural finance and micro credit; research and extension and rural advisory services; rural infrastructure, irrigation, drainage, and dam safety; forestry; biodiversity; water resources; flood control; livestock and animal health; agro-industry and marketing; crop protection; and general rural development, including social services and infrastructure. The almost $2 billion that the World Bank has contributed to the rural development of ECA countries since the early 1990s is a relatively marginal amount when compared to the overall inflow of foreign capital into the Region. Since most of the foreign financing has gone to nonrural areas, it can safely be concluded that the Bank has been one of the main outside financiers of the rural sector in the Region. Our role and leverage, however, have been different in the different parts of the Region. Due to the slower pace of rural economic reform, the Bank s financing and impact have been modest in the larger CIS countries, especially Russia, Ukraine, and Belarus. In most of the front-line EU-accession countries, such as the Czech 14

6 Rural Development Strategy Republic, Hungary, and Slovenia, the need for Bank financing has declined significantly, although these countries continue to welcome our policy advice. At the same time, the Bank s projects provided significant financing in the faster-reforming countries of the Caucasus, Central Asia, and the Baltics, as well as Bulgaria and Romania, and Bank impact on policy developments in these countries has consequently been more substantial. Strategy for Assisting Rural Development Broad Objectives The Region s approach to rural development is evolving in line with the current Bank-wide approach. The traditional focus on agriculture has not been adequate to bring about significant reductions in rural poverty. Rural poverty and rural development need to be considered in a cross-sectoral context because of the connectedness of rural residents to many economic sectors, only one of which is agriculture. Viewing rural development more holistically has implications as to how our strategy should be structured and implemented. The Regional rural development agenda of the 1990s emphasized the transition to a market-based food and agricultural system, the need to develop an efficient private sector with appropriate public services, and the need to protect natural resources. In the latter stages of the transition, the importance of rural communities and rural livelihoods has also been recognized. Building on the lessons of the past and insights from recent poverty assessments, the Region s future rural development efforts will focus more on people particularly poor people using bottom-up, nonsectoral community participatory approaches. Rural people are not only farmers or agricultural workers: we intend to widen the scope of rural development and to address poverty wherever it is found in rural areas. We will do this in close collaboration with our colleagues in other sectors, such as infrastructure, social services, and finance, to ensure our consistency with their approaches as we encourage their expansion of work into rural areas. Our evolving approach to rural development must also take into account two Region-specific phenomena. One is the so-called reform fatigue of the core CIS countries, which is likely to require that we adjust our reform agenda and develop new approaches to working with these countries. The other is the increasing diversity in the status of rural development between countries within the Region while our approaches have always been specific to the particular situation of an individual country, we expect to see increasing variation in our portfolio in the future. Our strategy also takes into account many of the lessons we have learned from our past successes and failures. Specific Objectives Our experience indicates that the Bank can play a significant role in reducing rural poverty and in rehabilitating the rural sector throughout the Region. The Bank s role, however, will vary significantly from country to country and from one rural subsector to the next. Since our resources allocable to rural development will decline significantly in the coming years, we will focus selectively on the areas in which we have a comparative advantage, where we have working models, where we are likely to have the greatest impact on the ground, and where we can best support inclusive growth. We are aiming to achieve the following concrete objectives for the next three to five years in the ECA Region: Progress in Rural Policy Reforms in the CIS. The completion of the transition agenda remains the critical condition for effective poverty reduction in most of the CIS countries. We would like achieve, through our policy-related activities, an average total transition score (as measured by achievement of the priority actions listed in table 2.2) of 6.5 by Providing Secure Land Ownership. Secure land ownership is an essential condition for reducing rural poverty and improving the functioning land markets. Land titles are needed to assure ownership and therefore indicate progress in land privatization. In the next few years, our aim is to support through various Regionwide Bank operations the provision of titles for at least 10 million new landowners. Support to Rural Nonagricultural Activities. Progress in rural poverty alleviation will depend to a great extent on how fast jobs are created in rural nonagricultural sectors and on the improvement of rural infrastructure and services. (a) In cooperation with other sectoral departments, in the next four years we will approve at least five projects providing support to rural service and infrastructure development. (b) We will implement at least five projects in the next four years providing financial support to rural nonagricultural private enterprises. Support to Rural Community Development. Another objective for the Region is to assist the improvement of physical and social infrastructure, and of rural 15

7 Rural, Environmental, and Social Development Strategies for the Eastern Europe and Central Asia Region TABLE 2.2. PRIORITY ACTIONS FOR RURAL DEVELOPMENT IN THE REGION ( indicates areas complete; X indicates action is required) Central Caucasus and Southeastern Central Europe Priority actions CIS Core Asia Moldova Europe and the Baltics Complete macro policy reforms X X X Complete land reform and create X X X functioning land market Create private sector-oriented research, X X X extension, and agricultural services Rehabilitate agroprocessing X X Promote foreign direct investment X X X Develop rural finance systems X X X X Accelerate institutional reforms X X Develop rural infrastructure and X X X X X social services Rehabilitate irrigation X X Prepare for EU accession X X Introduce poverty-oriented community X X X X development programs communities in general. We aim to incorporate community consultation in every project that we carry out, and community-led implementation in at least one-quarter of projects. Components of Regional Strategy Resumption of Agricultural Growth. As with our previous strategy, a fundamental means of realizing poverty reduction in the Region is through the reversal of deteriorating agricultural performance and the resumption of agricultural growth, thereby increasing rural farm and nonfarm income. We will continue to stress the need for rapid policy change, increased private land ownership, the complete privatization of processing and marketing, and support of technological change in agriculture. We will also stress the need to stimulate nonfarm employment. Expanding Nonagricultural Rural Development. Our activities have to a large extent been focused on traditional agricultural activities. In the forthcoming period, we intend to give much greater weight to the nonagricultural elements of rural life, such as education, health, infrastructure, rural financial services (including micro credit), nonagricultural economic activities, and administration. Greater Emphasis on Poverty Alleviation. Consistent with the Region s overall strategy, our future operations will be more focused on poverty reduction efforts. This will require adjustment of our traditional work program, to include some of the following measures: Focus operations on the relatively poorer countries and on poor regions within wealthier countries for example, less focus on EU-accession countries and more on Central Asia. Give more attention to the issues of concern to populations in the lower income groups for example, focus on efficiency measures for crops produced by the poorer farms. Invest more time and resources ensuring viability of the social assets that serve the poor (health, education, and community resources). Put more focus on access of the poor to land (we have good models in Azerbaijan, Georgia, and Moldova); credit (Moldova, Albania, Kyrgyz Republic, and Latvia) and markets (Albania). Put greater emphasis on the poverty alleviation aspects of irrigation rehabilitation in Central Asia, the Caucasus, and Southern Europe. Community Development. Community development approaches are described in detail in Chapter Four. Experience with farm support services, rural infrastructure, irrigation, and micro credit and natural resources programs has indicated that projects that are planned and implemented with a high degree of local participation are 16

8 Rural Development Strategy generally more successful than programs that are centrally planned and implemented. There are of course tradeoffs local rural lobbying groups in the ECA, as in OECD countries, may put barriers in the way of economically rational reforms. Nevertheless, transparency at every stage generally improves the chances of success of these reforms. Country Strategies We intend to be active in all countries of the Region where Bank assistance is requested and where the conditions for our involvement, according to our principles and rules, is feasible. Accordingly, it is most likely that the Bank will have its most significant role in the Caucasus, Central Asia, and in Southeastern Europe. We consider the graduation of the EU-accession countries of Central Europe as an indication of progress both for the World Bank and for the countries themselves. The most significant challenge remaining is the core of the CIS (Russia, Ukraine, and Belarus), where our involvement in the future will increase only if there is significant change in political will, as evidenced by serious and comprehensive reforms in the rural sector. A summary by subregion of areas where emphasis is needed and of possible areas for World Bank support is presented in tables 2.2 and 2.3. Notes number WDI, FAO 5. WDI 6. World Bank, Poverty Trends and Voices of the Poor. TABLE 2.3. PRIORITY PROJECTS FOR RURAL DEVELOPMENT IN THE REGION ( indicates areas complete; X indicates action is required) Central Caucasus and Southeastern Central Europe Priority projects CIS Core Asia Moldova Europe and the Baltics Agricultural Adjustment Loans X X X Land Reform and Registration X X X Support Projects Agricultural Service Projects X X X X Agroprocessing Projects X Guarantee Projects X Rural Finance Projects X X X X Rural Infrastructure and Social X X X X Service Projects Irrigation Projects X X Integrated Rural Development X X Projects Rural Community Development X X X X Projects 17