Country Ownership, Special Considerations in Working with Fragile States and Middle-income Countries,

and Strengthening Collaboration with the Private Sector

Kevin CleaverAssistant President, Programme Management Department

21-22 October 2008

8th Replenishment

2

Members asked in regard to the proposed program of US$3.3 billion in loans and grants for 2010-12:

• How will IFAD reflect country ownership in the use of these funds?

• How will IFAD increasingly differentiate its operations in middle-income countries on the one hand, and in fragile states on the other?

• How does IFAD propose to strengthen its work with the private sector?

3

A reminder:IFAD’s activities and approaches in all countries

• Focus on rural poor, women, indigenous people – by building capacity and empowerment

• Agriculture services and infrastructure to boost agricultural productivity

• Adaptation to climate change and management of natural resources

• Agriculture policy and knowledge-sharing

4

How does IFAD reflect country ownership?

• IFAD finances government- and country-executed projects.

• IFAD’s country strategies and projects are joint products with governments and other national stakeholders.

5

Agreement Establishing IFAD requires financing to be provided “within the framework of national priorities and strategies” (article 2); reflected in IFAD’s Operating Model

Country Strateg

y

6

How does IFAD measure on country ownership?

IFAD’s Office of Evaluation: for country relevance of which country ownership is the major part:

- 93% of projects completed in 2006 satisfactory (2007 ARRI)

- In 100% of projects completed in 2007 satisfactory (2008 ARRI)

Country client surveys in 2008 showed 82% of clients give IFAD a satisfactory rating for its country strategies.The OECD 2008 evaluation of the implementation of the Paris Declaration rated IFAD highly (table).

Paris Declaration Indicator

IFAD(% satisfactory)

All donors(% satisfactory)

Technical cooperation coordinated with country

97 57

Use of country procurement systems

88 46

Use of country public financial management systems

76 52

Joint donor missions

42 18

Aid that was program-based

32 46

7

Enhancing country ownership during the Eighth Replenishment period

• Country strategy and project designs to be responsibility of team, which includes government, other stakeholders and IFAD.

• IFAD’s Quality Assurance and country presence to ensure country ownership.

• IFAD will invest more in country-grown initiatives.

• Results measurement to include:- Country ownership through OE’s relevance measures

for each project and COSOP;- Client surveys; and- OECD surveys on adherence to the Paris Declaration.

8

Country differentiation: fragile states, middle-income countries and other low-income countries

• A typology which classifies countries by income and institutional development:

- Fragile states- Other low-income countries - Middle-income countries

• Other typologies of countries include: - Regional: Asian, Latin American, African, European, and

Middle East (which is the way IFAD organizes itself and for which strategic programs were presented in the April 2008 Consultation session)

- Urban, Agricultural and Transitional groupings (the typology of the World Bank’s World Development Report)

9

IFAD’s role in fragile states

• Fragile states characterized by weak: governance, institutions, natural resource management, empowerment of civil society, and frequent conflict.

• Other IFIs have identified a total of 46 states which are fragile, 40 of which are IFAD members.

• 25 of the 40 IFAD members which are fragile states are identified by FAO to be most vulnerable to food price increases.

• Contain 30% of world’s poor.

• IFAD is active in 26 fragile states, with US$848 million of commitments (of IFAD’s US$3.7 billion total).

• IFAD’s 2006 policy on crisis prevention and recovery is pertinent to fragile states:

- Allows IFAD to provide 30-100% more resources to eligible countries.

10

IFAD’s approach to fragile states

• IFAD already addresses problems that cause fragility:- Rural poverty reduction;- Empowerment and capacity-building;- Improved governance; - Better natural resource (forest, land, water) management; and- Food security.

• But IFAD’s success rate is lower in fragile states than in other low-income and middle-income countries:

- Projects and programs have not been sufficiently differentiated to account for the more difficult constraints of fragile states;

- IFAD country knowledge is often not sufficient, data-poor, M&E non-existent; and

- IFAD’s supervision model of contracting to cooperating institutions did not allow adaptation of projects to significant changes during implementation.

11

IFAD’s proposed approach to fragile states

• A differentiated country program and project design reflecting weaker institutions and stronger need for capacity-building in fragile states.

• More focus in country strategy and project design on key fragile states’ issues:

- Vulnerability and economic empowerment;

- Food security;

- Gender;

- Institution-building; and

- Natural resource management and climate change.

• Project design and country strategy to be simpler: fit to local capacity.

• Deepen country knowledge with expanded IFAD country presence, own supervision, partnership with other donors

• Incorporate the above into relevant IFAD COSOP and project design guidelines during 2009.

12

IFAD’s role in middle-income countries (MICs)

• 94 MIC countries according to World Bank; 77 are IFAD members.

• What characterizes a MIC? Higher incomes, more rapid economic growth, greater availability of skills, greater ability to raise financial resources than other low income countries.

• MICs are home to 1/3 of world’s poor, increasingly in isolated areas and among the vulnerable including women: potential beneficiaries of IFAD projects.

• Great heterogeneity: from Swaziland to China

• All IFIs have developed policy or position papers on MICs, all of which take the position that:

- The IFIs should stay engaged due to high poverty rates;- IFI interest rates should be competitive and procedures should be

streamlined; and- IFI knowledge services are valuable to poor populations in MICs, especially

when combined with financing.

13

Current IFAD approach and policy to MICs

• IFAD’s Articles of Agreement, Lending Policy, and Strategic Framework confirm IFAD’s mandate to address rural poverty in all developing countries including MICs.

• 20% of IFAD loans committed are to MICs.

• MICs borrow on non-concessional terms.

• IFAD rural poverty reduction projects have been most effective in MICs, with a greater than 80% success rate (ARRI 2007).

• IFAD is able to capture and transfer successful approaches in MICs to other countries.

• IFAD has no graduation policy:- IFAD lending practice to MICs emulates the World Bank.

14

Possible new IFAD approaches in MICs

• More collaborative IFAD-MIC programs: - IFAD leverages contributions by MIC Members for knowledge-sharing and

innovation in low-income countries.

• A wider variety of IFAD financing packages for MICs is necessary with a choice of combination of lending period, grace period, interest rate.

• A wider variety of IFAD instruments: lending to sub-sovereign entities, private sector, farmers organizations.

• Streamlined procedures for MICs with demonstrated management success in IFAD projects:

- Simpler COSOPs if small program; new project financing without formal evaluation of projects at exit if record of success.

• IFAD graduation policy possibly applying approaches similar to that of the World Bank, and allowing reimbursable technical services.

• The above developed in 2009 for approval by the Executive Board.

15

An expanded IFAD approach to the private sector: the context

• The private agriculture sector now includes nearly all farms, farm input supply, marketing and processing enterprises

• Following the period of independence in developing countries, many governments directly owned and operated agricultural input supply, marketing and agro-processing companies.

• In the past 15 years, most government ownership in the agriculture sector has been privatized or abandoned.

• Government-led agriculture projects have declined in significance, along with the donor money that financed them.

• Most recently, even public agriculture services (agriculture research, extension, veterinary, standard setting) have been partially privatized, in the pursuit of efficiency and to save fiscal resources – with mixed success.

• Private companies have stepped in to replace governments most vigorously in MICs, somewhat in low-income countries, hardly at all in fragile states.

16

IFAD and the private sector: the current situation

• IFAD has a Private-sector Development and Partnership Strategy (April 2005), which guides its work.

• IFAD’s focus is exclusively on the smaller end of the private sector spectrum:- Small and poor farms;- Small-scale farm input supply, financial, marketing and processing

enterprises; and- Not-for-profit private institutions (farmers associations, NGOs).

• IFAD provides its support to these private operators through loans in which central governments take the sovereign risk.

• IFAD also provides grants through private and non-private organizations (micro-credit organizations, farmers groups, etc.),

• But has not allowed direct loan and equity financing of private sector operations.

17

Approaches to private sector in other IFIs and among the bilaterals

• All have developed operational capacity to deal directly with the private sector:

- Creation of separate private sector entities (examples: IFC, PROPARCO of France, Swedfund); or

- Modification of rules to accommodate private sector operations (private sector windows in the African Development Bank, Asian Development Bank, IDB, Agence Française); or

- The core structure can lend to the private or public sector directly (EBRD).

• The above institutions have strong private sector portfolios. The corporate private sector cofinances operations.

• Direct lending and equity positions in corporate private sector projects strengthen the financial capacity of the core agency.

18

An approach for IFAD to deal more effectively with the private sector

• IFAD’s role will be to help mobilize private sector funding and knowledge to help poor rural women and men and to boost agriculture production; not to stimulate corporate private sector enterprises per se.

• IFAD will seek partnerships with the corporate private sector within its existing private sector strategy (lending through central governments, with sovereign guarantees), and grants through various non-governmental institutions (a revised Grants Policy for 2009).

• IFAD will explore the creation of a multi-donor facility to permit expanded engagement with the private sector:

- The facility could allow direct financing and cofinancing with private sector entities without a sovereign guarantee (loans to private enterprises, equity investment among others); and

- Mobilization of funding from the corporate private sector and other sources.

• Based on a more in-depth review of the experience of IFAD and other agencies, IFAD may propose, by 2011, changes to its lending policies and to expand the range of instruments at its disposal to allow direct financing and interaction with the private sector.

19

Summary

1. Country ownership vital for all of IFAD’s clients: fragile states, low-income countries and middle-income countries.

2. IFAD needs more differentiated products between different country types: differentiated projects, country strategies, lending terms, partnerships.

3. The private sector provides new partnership possibilities for IFAD; we must be better at engaging them. This may require new instruments.

20

Thank you for your attention.