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Investment and Resource Mobilization

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By

of the

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

Michael Wales, Principal Adviser

Investment Centre, FAO, Rome, Italy

Investment and Resource Mobilization

About EASYPol

The EASYPol home page is available at: www.fao.org/easypol

This presentation belongs to a set of modules which are part of the EASYPol

Training Path Policy Learning Programme – Module 3: Investment and Resource Mobilization, Session 1: Investment in agriculture and rural development EASYPol has been developed and is maintained by the Agricultural Policy Support Service, Policy Assistance and Resource Mobilization Division, FAO.

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Introduction

854 million chronically undernourished people

Almost no progress towards WFS goals or MDG 1

Lack of investment one of principal constraints to increasing agricultural production

50% decline in IFI lending to agriculture 1990-99

International commitments not reaching agriculture

Need greater domestic resource commitment

Need to improve absorptive capacity of the sector

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Objectives

After reading this module, you should know about [the main approaches to]:

Public and private investment in agriculture Aid harmonization FAO’s role through the Investment Centre

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Why invest in agriculture? (I)

Consensus by development partners about MDGs and need to tackle rural poverty

Commitment by governments at World Food Summit 1996

to promote public and private investment in agriculture

70% or more of poor people live in rural areas

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Their livelihoods are predominantly in agriculture

Investing in agriculture will directly impact poverty and help achieve MDG1

it not only raises incomes but also directly impacts food security and nutrition

Why invest in agriculture? (II)

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Public investment in agriculture (I)

Maputo Declaration – 10%

Investment in agriculture is essential…

but not alone – health & education, infrastructure

the purpose is to stimulate private investment

Public investment has been falling…

especially in Africa

developing country governments fail to invest

Renewed commitment in Africa

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Why has public investment declined?

disillusionment with the sector

poor performance

reluctant to commit scarce resources

new reduced role for government:

provide public goods

less interventionist

divestment - privatization

more role for private sector

Public investment in agriculture (II)

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Limited programme formulation capacity

reliance on external assistance

limited training capacity in public administration

decline of higher education in Africa

poor incentives

high staff turnover

Public investment in agriculture (III)

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New training

approaches needed

Public investment in agriculture (IV)

formal, informal, on-the-job

greater role for the private sector

in planning

the current central theme of development implies greater domestic capacity

National ownership

and leadership

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Private investment in agriculture (I)

The biggest investors are small farmers who:

are small, private entrepreneurs

are driven by need for food and for profit

invest in seeds, fertilizer, tools – and their own labour

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Major obstacles to their investment

lack of credit

insecure land tenure

poor roads and transport infrastructure

high trader margins = low prices/high costs

poor links with agribusiness supply chain

Private investment in agriculture (II)

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Major natural hazards

drought

flood

pests & disease

Man-made hazards

commodity price fluctuations

lack of information

conflict

Private investment in agriculture (III)

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grades & standards

legal framework

food safety & standards

workers’ rights

Private investment in agriculture (IV)

essential to increase marketed output

private sector needs predictable environment

but, doing business in Africa difficult

Commercialisation

Public sector must set regulations

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Agribusiness the key

develops supply chains

transmits incentives

uses international standards

But faces huge problems

poor roads, railways, markets = high costs lack of standards to define products lack of contract enforcement complexity of dealing with many small producers

Private investment in agriculture (V)

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Aid harmonization (I)

Paris Declaration 2005 on aid effectiveness

multilateral and bilateral donors agreed on new aid environment

Main elements

predictability of aid flows

national ownership

alignment with national strategies & systems

harmonization

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Outputs of Paris – “new aid architecture”

PBAs

SWAps

basket funding

DBS

Implications for programmes

new programme cycle

complex donor-government-beneficiary coordination

procurement & monitoring

Aid harmonization (II)

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Greater consultation

More partners’ priorities must be reflected

Better understanding of national systems

More capacity building of national systems

Greater flexibility of design

“Results framework”

More costly process

Often longer process

Implications for programme design process

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The core “national system” that must work

Central to governance

Untied financing through national budgets

Demands confidence in the system by donors – financial management, control & accountability

Public financial management (PFM)

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Assess service delivery against norms and across sectors

Strengthening sectoral planning, budgeting and execution

Tracking sectoral expenditures (COFOG)

Impact per $ in budget

PER as an analytical tool for service delivery

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Greater ownership

But more responsibility & accountability

More flexibility

Greater volume of assistance

Simpler, harmonized procedures for reporting

Greater choice in sourcing technical assistance

Broader impact on creating national capacity

What benefits to developing countries?

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29 members at present

(bi- and multilateral) Board (fee-paying members) Steering Committee (SC) is the decision-making

body (6 members) Operational Management by Platform Secretariat in Germany managed by

GTZ

GDPRD: Organisation and Governance

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Moving towards a Code of Conduct for donors

GDPRD Focus areas

Applying the Paris Declaration to the agriculture sector:

1. Policy dialogue and outreach

2. Shared learning

3. Aid effectiveness

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Key lessons for public policy (I)

Public policy to create a favourable environment for investment

ensure profitability – returns to investment

good governance

transparency

macroeconomic stability

political stability

support services – rural finance, venture capital, microfinance

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Provide public infrastructure

roads – main & farm-to-market

water supply

rural electricity – agro-industries

irrigation water supply

Public-private partnerships

possible in some instances

Key lessons for public policy (II)

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Regulatory framework

create a safe and predictable environment to reduce risks and costs

grades & standards – national & international

standards on pesticide use, humane treatment of livestock

Public sector role

set the laws & regulations

undertake control, inspection & approval

enforce & operate

Key lessons for public policy (III)

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Research & extension

public role – staple products, standards

private role – commercial products

Key lessons for public policy (IV)

Market information

public systems – mobile phones

privately contracted MIS

Land tenure

secure land tenure is crucial

unlocks rural finance

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Strengthened PFM systems

crucial in new aid environment

install efficient, modern systems

long term capacity building – at all levels

democratic oversight of programmes

accountability

donor confidence

Key lessons for public policy (V)

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Right public and private mix can unlock agricultural production

government rigorously defines public good functions

monitors and trims expenditures

creates attractive environment for private sector – domestic and FDI

partners with private sector in infrastructure

Key lessons for public policy (VI)

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FAO Investment Centre: achievements

Over 1,600 projects/programmes

US$82 billion in investment by IFI partners

Annually about US$3 billion investment

Over 30% of IFI projects in agriculture

Began as the World Bank Cooperative Programme (CP)

Investment Support Programme (ISP) added later

Over 40 years of agriculture investment design

See notes for details

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Facts & figures

In 2004-05 biennium, TCI received US$21.7 million from FAO

This is just 3% of the total FAO budget

TCI delivered services worth US$48.6 million This is almost 2.5 times the amount of resources contributed by FAO FAO overall delivers just 1.1 times the resources it receives

See notes for details

http://www.fao.org/tc/tci/index_en.asp

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How is the extra delivery funded?

TCI earns income from delivering its services to:

international financing institutions (IFIs)

FAO–TCP, other Trust Funds • e.g NMTIPs for Africa under CAADP

bilaterals

TCI’s income is over US$30 million per biennium

US$23 million from World Bank

See notes for details

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How is FAO’s contribution used?

FAO cost-shares each task with the IFIs – from 25% to 33%

Viewed as the member governments’ share

See notes for details

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What are TCI’s strengths?

FAO cost-sharing allows TCI to give independent advice – “honest broker”

Helping donors without project preparation capacity

Drawing upon FAO technical expertise

Ensuring high quality outputs

Strengthening national design capacity

on-the-job

SRO role in capacity building

Costab

SEPSS

RuralInvest

See notes for details

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Conclusions

Agriculture’s share of aid stagnant

Need to:

find innovative financing mechanisms

improve effectiveness in using resources

raise the visibility of agriculture

improve investment planning by ministries of agriculture

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Further readings

FAO, 1980. Investment Centre, Operational Guideline. The Agronomist's Contribution to Investment Centre Missions. FAO, Rome, Italy.

FAO, 1990. Investment Centre. The Design of Agricultural Investment Projects - Lessons from Experience. Technical Paper No. 5, FAO, Rome, Italy

FAO, 1992. Investment Centre. Guidelines for the Design of Agricultural Investment Projects. Technical Paper No. 7. FAO, Rome, Italy.

FAO, 1992. Investment Centre. Sociological Analysis in Agricultural Investment Project design. Technical Paper No. 9. FAO, Rome, Italy.

FAO, 2006. Investment Centre. Rural Invest.

WB, 1994. Costab Reference Manual, World Bank, Washington DC, USA.

WB, 2003.A User’s Guide to Poverty and Social Impact Analysis (PSIA). World Bank, Washington DC, USA.