Formulating and Implementing Sector-wide Approaches in Agriculture and Rural Development:

The Rural Productive Sector Programme (PRORURAL) Nicaragua

Acknowledgements
The team thanks all those interviewed, see the list in the Annex, for their kind co-operation. We also thank the local FAO Office for their generous and complete logistical support that made the work of the team so much easier. Although we have benefited greatly from the information and comments of those interviewed, the opinions and interpretations in this report do not necessarily reflect theirs, nor those of FAO or ODI. Above all, whatever errors and omissions that remain here are solely the responsibility of the team.

*Note: This is an English summary of the Spanish case study. The detailed Spanish version of the study is available on www.donorplatform.org.

Executive Summary
The Study
In the early part of the new century development aid donors decided to modify their operating modes to align more closely action to goals and make their activity more effective. The spirit is to leave developing country governments to set their own strategies to relieve poverty and promote development and, provided the plans are consistent with the Millennium Development Goals (MDG), provide funds and assistance directly to the governments. Ideally this would imply general budget support, but an intermediate step is to support a sectoral strategy in which various donors interested in a sector contribute to a common basket fund the sector-wide approach (SWAp). In recent years, SWAps have been common for health and education sectors. They are less common for productive sectors, and especially for agriculture and the rural economy. Thus there is considerable interest in those countries, Nicaragua included, that have pioneered the idea of a rural SWAp. This study forms part of a wider one looking at the experience of SWAps for agricultural and rural development, commissioned by the Global Donor Platform for Rural Development. The study has two main objectives: 1. To establish if, and how, SWAps for agricultural and rural development are achieving their objectives; and,

2. To identify key lessons on the way that donors support agricultural and rural development in aid-receiving countries, and how they can better contribute to economic growth and poverty reduction. The study comprises a literature review and country case studies in Mozambique, Nicaragua, Tanzania and Vietnam. In the Nicaraguan case, the subject of the study is the Rural Productive Sector Programme (PRORURAL) for 20052009. This study examines its contribution up until the end of 2006 in terms of: Effective policy-making for agricultural and rural development, as seen in: o o o o Support for the PRORURAL programme or criticisms of it by stakeholders, and the reasons for such judgments; Improved co-ordination within government; Improved co-ordination between government and the private sector, NGOs, and donors; Accountability of public agencies to stakeholders, incentives for performance;

Improved functioning of aid donors and lower transactions costs in their dealings with government; and, The effective implementation of policies and programmes, as seen in first instance from the perspective of government staff and key informants.

The study was carried out by a team of four persons who worked in Nicaragua from the 5th to the 16th of February 2007, collecting information from documents and interviewing key informants in government, donors, the private sector and civil society in Managua and the departmental headquarters of Chontales and Len.

Context: Agricultural and Rural Development in Nicaragua

The Nicaraguan economy has seen some marked ups and downs since 1960. It grew rapidly in the 1960sw, but from the middle of the 1970s it suffered a series of shocks that resulted in a severe decline so that growth did not begin in any sustained form until 1994. Growth since then, however, has been rather slow. As a result the GDP per capita is more or less half what it was in the 1970s. Nicaragua has become one of the poorest countries in Latin America. According to the poverty measurement survey of 2005, 46% of the population were living in poverty, and 15% in extreme poverty. Poverty rates are much higher in rural areas compared to the cities. Poverty is associated with a highly unequal distribution of income; and at household level, poor families tend to have little education and work in agriculture, especially as day labourers. Poverty rates tend to be higher in distant lands remote from the cities.

Economic policy since 1990 has had two main objectives: to stimulate economic growth; and to correct the sever
problems of inflation and a very high external debt that arose in the second half of the 1980s. The strategy followed has been a near exemplary case of following the recommendations of the IMF and the World Bank: strong measures to stabilise the macroeconomy; and the liberalisation of markets, relying on private investment for growth. These policies have succeeded in controlling inflation and reducing the weight of the external debt, but have not accelerated the slow economic growth seen since 1990.

Policy to reduce poverty since 1990 consists of general and specific measures. In general, the economic policy described should relieve poverty, assuming that as the economy grows it creates opportunities and jobs that the poor can access. Amongst specific measures is the poverty reduction strategy developed since 2000, in large part since this was a requirement for debt relief. Given the importance of debt relief, Nicaragua prioritised the drafting of the Strengthened Strategy for Economic Growth and Poverty Reduction 200105 (ERCERP Estrategia Reforzada de Crecimiento Econmico y Reduccin de la Pobreza) that was accepted by the IMF and the World Bank in September 2001. This was widely seen as having a bias towards social services with correspondingly less attention to productive sectors. Thus, and given that within a few months of its acceptance a new government took office that wanted its own plan, a National Development Plan was drafted that alter took on a more detailed form as the National Development Plan Operational (Plan Nacional de Desarrollo Operativo (PND-O) 200509) published at the end of 2004. The PND-O proposes a strategy economic growth based on private investment, increased competitiveness, and a focus on exports. In effect the PND-O substituted the ERCERP as the poverty reduction strategy. These steps have been accompanied by a series; of reforms to the public sector, including better systems for budgeting, controls on banking, professionalisation of the civil service, and decentralization of some functions and part of the budget to municipalities. Although a start has been made with some important reforms, the agenda is long and will take time to complete: furthermore there are some more sensitive issues that have yet to be tackled, such as reforms of taxes and the judicial system. Regarding rural development, the PND-O emphasises the importance of developing agricultural value chains with potential and in areas with high potential. It also recognises the importance of access to credit, and of clear property rights. The Plan divides the rural population in four groups according to access to resources, and suggests different measures to help them. In particular, for very poor families it proposes direct transfers and production supports, including the provision of improved seed through the pound-for-pound (libra por libra) programme and health care and schooling for children. Thus far the Plan is on paper: translating the aims and strategies into policies and programmes has seen the drafting of the Productive Development Proposal (Propuesta de Desarrollo Productivo) 200509 from the Ministry of Agriculture and Forestry (MAGFOR) in 2003, and finally the Rural Productive Sector Programme (Programa Sectorial de Desarrollo Rural Productivo, PRORURAL) in 2005. This owes its origins not just to the strategies of the ERCERP and PND-O, but also to the ideas developed in 2002 in joint studies between the Ministry, the Central American University and University of Crdoba in Spain. In early 2007 the new government of President Ortega took office, with an agenda substantially different to that of 4

three previous administrations, being fundamentally critical of neo-liberal policies. It remains to be seen how much the new government will make radical changes. Room for manoeuvre is limited by the weak electoral support of just 38% of the vote and even less in many parts of the countryside; as well as by the various agreements with the IMF and the World Bank in a context of high dependency on donor funds. On the other hand, there are promises from Venezuela of resources and markets for Nicaraguan agricultural produce. Another factor is that the rural unions, above all UNAG that represents small and medium scale producers, have considerable influence in the new government. So far the new administration has announced agriculture, and small and medium-scale farming, as apriority. It is probable that there will be moves to promote co-operation amongst those farmers, and to provide credit through public channels. The Zero Hunger Programme (Programa Hambre Cero), still being planned in detail, stands out. The main aim is to increase the capital of the poorest families in rural areas by transferring livestock so that they can increase production and improve their nutrition.

The Sector-wide Approach: PRORURAL

PRORURAL covers both agriculture and the rest of the rural productive sector, including forestry, aquaculture, and non-farm rural activities. The Programme aims to reduce rural poverty by increasing the production of goods and services, through increased competitiveness and environmental sustainability, greater participation in domestic and external markets, higher incomes and better distribution of them, and creation of rural employment. PRORURAL works in seven areas, thus: Sustainable development of forestry and appropriate management of forests, plantations and agro-forestry systems; Raising the physical and financial capital of households and rural businesses, promoting the use of technologies that are environmentally benign and sustainable; Accelerating technical innovation through research, technical assistance and education, throughout the supply chains and agricultural clusters prioritised in the PND-O; Complying with international standards related to food safety and standards; Expanding and rehabilitating basic infrastructure for rural production, according to the demand expressed by the population of areas with some potential; Modernisation and institutional strengthening of the public agencies concerned with agriculture and rural development (SPAR), and improving their relation with the private sector; and, Formulation and implementation of policy and strategy for the sustainable rural development, and co-ordination of the implementation of the strategies and operating plans of the agencies within the SPAR.

The budget for the first five years of PRORURAL is US$412M. A growing fraction of external funding is expected to be channelled through sector support and its associated common fund. The implementation of PRORURAL will be accompanied by a system for monitoring, evaluation and learning (SISEVA), that will stimulate management by objectives and provide information on the performance of the Programme. PRORURAL essentially consists of three main functions: 1. A strategy for the development of rural production; 2. Mechanisms for agreeing and co-ordinating the actions of the SPAR; and, 3. A way to allocate and account for budget funds both from government and the donors. The strategy set out in the Programme has given rise to several comments. The consensus is that it is good analysis of the sector, a reasonable set of proposals for public action, produced with good co-operation from the various agencies of the SPAR, the donors and rural unions. But there are criticisms that the strategy is too focused on agriculture and does not take into account other rural activities sufficiently. It is also said that it leans too much towards export production and supply chains of high potential, and thus favours medium and large-sale producers and fails to respond adequately to the situation faced by small-scale farmers, poor households, and areas of low potential. Moreover some criticise the very conception of the Programme: seen as too ambitious, lacking clear priorities, and produced with too little participation on the part of the private sector, other than the unions, NGOs and civil society. 5

With the arrival of the new government debates on the strategy have revived, with questions posed about reliance on markets, a more active state role, and the idea of setting up a social economy in parallel to the market economy. The positions taken imply differing degrees of public action, reflecting different interpretations of the size and extent of market failures, and the importance and feasibility of reducing inequality through public policy. Although peoples preferences are in part political, there are also considerations of what is feasible given a context of relatively low state capacity, resulting from cutbacks to the public sector role and budget seen since 1990. There is also a question about how well represented in policy-making are the poor, since the farmer unions have a membership that apparently is little more one tenth of the rural households. PRORURALs strategy looks substantial. That said, it is not so clear how public policy will be co-ordinated with private sector activity; the line between public and private provision of goods and services is somewhat ill-defined, with the risk of public action being discretionary; and it is debatable up to what point one can and should plan detailed actions in advance given the many doubts over what is feasible effective within complex rural systems or, on the other hand, let the details be defined during implementation through learning processes.

Experiences and Results

Regarding the triple agenda of ownership, harmonisation and alignment there are clear advances, including the drafting of action plan for the agenda, the preparation of Code of Conduct signed by the majority of donors to the sector, and a Memorandum of Understanding between the donors contributing to the Common Fund and the government, The existing portfolio of projects for the agricultural and forestry sectors have been reviewed with a view of aligning them more closely to PRORURAL, and to establish criteria to approve new projects in the sector. Joint missions made up of representatives of government and donors have been carried out, a dialogue with the private sector has been established through National Production Council (Consejo Nacional de Produccin), and there have been frequent meetings of the roundtable for rural productive development (Submesa de Desarrollo Rural Productivo). Midway through 2006 an self evaluation of the advances in the agenda was carried out, producing a general judgment of reasonable progress. It was agreed that progress on ownership, harmonisation and alignment was in its early stages, that such progress was more a result of efforts made at the technical levels of the SPAR rather than having a more senior backing, that there is a certain degree of general knowledge about the action plan and the Code amongst those involved in PRORURAL, but that more information is needed; and a that systematic tracking of progress on the Action Plan is needed to keep people up to date. The forums set up for policy dialogue were seen as lacking strategic focus, above all the roundtable and the National Production Council, and that there should be a more active participation of stakeholders, particularly the private sector, in strategic decisions. In sum, there are advances, but there is plenty to do if government and the donors are to live up to their good intentions and agreements, so that there substantial results in improved effectiveness in public action for the sector. Co-ordination between the different agencies of the SPAR has been, prior to PRORURAL, insufficient, even if the functions of the different agencies are clear. According to all those interviewed and other specialists, the SPAR lacked, and still lacks, a focus on results in its organisation and functioning. On the contrary, the agencies perform more according to the ability of their managers to lobby and strike deals, the political needs of elections, and success in obtaining funds from donors for projects. Competing for resources, there has been little communication amongst the agencies, and their varying success in attracting external funding has led to much variation in their activities, salary structures, and procedures. To this can be added the anomalous situation of the Institute for Rural Development (IDR), whose budget makes up about 70% of the resources for the sector, but which reports to the Presidency and not to the lead agency that regulates the sector, the Ministry of Agriculture and Forestry (MAGFOR). Since the arrival of PRORURAL there have been improvements in the exchange of information amongst the staff of the SPAR agencies, and some co-ordinated exercises in preparing the Annual Operating Plans for 2006 and 2007. With respect to the rest of central government, there has been some, although weak, inter-ministerial co-ordination in drawing up PRORURAL and beginning its implementation. It would appear that the effort necessary just to get coordination within the SPAR and with the donors has been so great that there has been little left over for co-ordination with the rest of government. 6

Co-ordination with the regions has been difficult, largely owing to the context. Currently in Nicaragua there is deconcentration to department levels, but decentralisation to the lower level of the municipality. There has been an attempt to take local demands into account and to draw up operating plans at departmental level, with some progress in co-ordinating the SPAR agencies at this level. But the work is limited by the lack of a departmental body that coordinates the activities of the different ministries and agencies, and by limited administrative capacity at this level. There is, moreover, little relation between PRORURAL and municipal activities. With the private sector and civil society, co-ordination has been restricted mainly to interaction with the rural unions. It is striking that they have supported PRORURAL strongly: perhaps not so surprising, since the Programme promises to raise the profile of agriculture in decision-making and attract additional resources, some of which may be channelled through the unions themselves. But with the rest of the private sector and the NGOs co-ordination has been minimal. So far interactions with the National Assembly have been few, in part owing to the disputes between the executive and the Assembly in 2004 and 2005, and in part since 2006 was an election year when campaigning was the priority. Regarding institutional capacity, the key point is that PRORURAL has implied more work for a weakened civil service. Harmonisation and co-ordination raise work loads, but there has been little reduction in the administration of funding since the main channel remains the donor-funded projects. Moreover, changes are needed to monitor and evaluate sectoral results in addition to those for individual projects. A fifth of the Programmes budget is allocated to building capacity. So far progress on this has been slow. Leadership of PRORURAL has been, on the part of government, assumed by the senior technical staff of MAGFOR, but much less before the current government by the ministers. The senior technical staff have made extraordinary efforts that together with the support of some donors has made possible the widely-shared consensus that exists. As a result, PRORURAL has allowed MAGFOR to recuperate a degree of the leadership for the sector, despite the limitations of institutional weakness and the anomalous relation to the IDR. That said, there are weaknesses in lack of ownership by some of the more junior staff, the limited capacity of MAGFOR, and policy changes in government. Some progress has been made to improve financial management, above all in drawing up the Annual Operating Plans for 2006 and 2007 at the level of the SPAR. Since 2005 there has also been a Medium-Term Plan for Public Spending for the sector. The financial systems used are, however, imperfect if relatively functional, in both financial terms as well as in their relation to planning. There thus remains plenty to do mount an effective financial system for the rural productive sector. It is clear that so far the sector wide approach has not simplified financial management, and may well made it more complicated. In practice, however, the existence of a Common Fund has allowed some disbursements to be made more flexibly. A more complicated system is not necessarily one that is less effective: on the contrary, it may be more so. Finally, in service provision the main efforts so far have been directed to the internal processes of the public sector, and it is difficult to see improvements to delivery of services in the field.

Conclusions and Lessons

Thanks to the good will of government and the donors, and the dedicated work of their staff, some valuable progress on the sector-wide approach has been made. A strategic and policy framework for the sector has been established. The allocation of resources has been better ordered to allow the SPAR to work and co-ordinate better with the donors. These advances promise to make planning and implementation of public action for the sector more coherent, as well as to improve the programming of development aid to the sector. This has implied some hard work, but has been recognised as necessary and valuable. Proof of this is that the new government sees PRORURAL as useful and has not discarded it. Putting in place a sector-wide approach for agricultural and rural development has not been easy. Given the number of public agencies involved, being a sector where private initiatives predominate, where solutions vary by area this was always going to be a difficult task. One simply cannot underestimate the difficulty and complexity of such approaches for the rural productive sector. Has it been worth the sector approach, or would it have been better to leave things as they were, or else go directly to general budget support? There is little doubt that matters have improved under PRORURAL. It is more difficult to compare this to budget support, but there is an advantage in starting with sectoral approaches: it has forced the main government agencies and the donors to take the problems and complicated characteristics of the rural sector with sufficient seriousness. This said, there is plenty to do, above all in translating the plans into effective implementation in the field. This implies a new series of challenges. The existing strategy presents a coherent scheme. It is always possible to improve plans, but after a certain point the returns are small. It is probably better to use resources to monitor activity and learn on the job, rather than trying to perfect strategy. There is, however, an aspect of policy formulation that needs more attention: the line between public and private activity. In theory it is simply to argue that the public sector should provide public goods and services, correct other market failures, and provide transfers to when these are justified on grounds on equity. In practice, it is more difficult to define the public realm, above all when it comes to market failures and social equity. In rural areas of developing countries there are many market failures, above in those for factors such as land and credit. Although difficult, it would be useful to establish the principles to apply in specific cases, to reduce discretionality. It is equally useful to raise awareness amongst decision makers on the difference between providing public goods, and subsidising private goods. As far as management of PRORURAL is concerned, the agenda of improving the functioning of the SPAR and improving co-ordination between government and other key actors has been set out in detail by other missions. The agenda is largely agreed. In future, however, the main challenge lies in implementation: improving field activities to wider and greater effect. Amongst the challenges are: Adjusting the means used, above all the incentives and controls on field staff providing service, to make activities more effective and efficient; Tuning activities to local demands and differing contexts of geographical area, product, client characteristics, etc.; and, Monitoring the results of activities, understanding their economic and social impacts, and learning the lessons.

Above all, the important point is learning. Much of what the public sector does in the rural economy cannot be planned in detail in advance with certainty: on the contrary, activities need adjusting to context, and this can only be done through learning. This takes place in the field, inconvenient for decision-makers based in the capital. But the effort needs to be made. It helps that Nicaragua is very rich in experiences of rural development projects in the last three or four decades: the result of the efforts of government, donors, NGO, local organisations, and private enterprises of all scales. A rich fund of experience exists to be tapped to feed such learning. 8

Prepared by Mario Castejn (FAO/RUTA), Alicia Fernndez (FAO), Ren Mendoza (Independent Consultant) and Steve Wiggins (ODI) (FAO: Food and Agriculture Organisation RUTA: Regional Unit of Technical Assistance ODI: Overseas Development Institute) The views presented in this paper are those of the author and do not necessarily represent the views of the Global Donor Platform for Rural Development. Published by Global Donor Platform for Rural Development, c/o Federal Ministry for Economic Cooperation and Development (BMZ) Adenauerallee 139-141, 53113 Bonn, Germany November 2007

www.donorplatform.org

Contact: Secretariat of the Global Donor Platform for Rural Development, c/o Federal Ministry for Economic Cooperation and Development (BMZ) Adenauerallee 139-141, 53113 Bonn, Germany Phone: +49 (0) 228 535 3276 and 3699 Fax: +49 (0) 228 9910 535 3276 Email: secretariat@donorplatform.org Website: www.donorplatform.org Publication date: November 2007