Azerbaijan: North-East Development Project

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Edwin Underwood
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1 Azerbaijan: North-East Development Project Loan No. 637-AZ Project Id Board Date 09 September 200 Effectiveness Date 12 July 2006 Original Closing Date 31 March 2012 Final Closing Date 31 march 2012 Total Project Cost US$(M) US$2.1 million IFAD loan US$(M) US$12.6 million Cofinanciers (if any) Participating commercial bank (PCB): US$ Implementing Agency Agency for Support to the Development of the Agricultural Private Sector (ASDAPS) Principal Components The programme will have four components: (a) Participatory irrigation management; (b) Agriculture, marketing and SME development; (c) Rural financial services; and (d) Project management and coordination. Project Performance Relevance Effectiveness Efficiency The NDP's (North-East Development Project) design took into account the lessons learnt from the first two projects implemented in Azerbaijan Farm Privatization Project, (FPP) and the Rural Development Project for Mountainous and Highlands areas (RDPMHA). Project's strategy, objectives, components and activities have been relevant to national food security priorities and livelihood concerns of the target group. The project has been also pertinent to the Government of Azerbaijan s (GoA) Poverty Reduction Strategy (PRS) and IFAD's Country Strategy, as well as it was in line with the national Water Code and the Law on Amelioration and Irrigation. The findings from the independent Project Completion Survey carried out in the last quarter of 2010 confirmed the relevance of project interventions in meeting the socio-economic priorities of the target group. In addition, rather than creating a new PMU to implement the project, the State Agency for Agricultural Crediting (SAAC) took the wise decision to convert the PMU that was implementing the second IFAD project (RDPMHA) into an IFAD Program Management Unit (PMU) and assigned it responsibility for implementation of the NDP and other subsequent IFAD funded projects. The actual approaches deployed by component had been guided by the principle of beneficiary ownership and participation in project implementation to achieve sustainable results. The project's strategies and approaches by component set out at appraisal were fine-tuned during implementation to address in a participatory manner the target group evolving priority needs. Adjustments brought at the 2009 mid-term review (MTR) have proven instrumental, with a reallocation among categories of IFAD loan proceeds to reflect savings in some categories of goods and services and shortage in others. Overall, NDP demonstrated a notable effectiveness in achieving its stated objectives. The first major project objective of rehabilitating the rundown irrigation system and establishing effective WUAs (water user associations) for its operation and maintenance is largely achieved. The rehabilitation work impacted ha. The supply of irrigation water per ha increased from 11 m3 in 2007 before rehabilitation to 2960 in 2011 resulting in better meeting crop water requirements for yield increases. The irrigation rehabilitation work contributed to water conservation through decreased water losses and improved water use efficiency. The support to Water Users Association (WUAs) improved their capacity to manage the irrigation system. The second project objective of assisting farmers to increase food production and productivity through access to support services has been achieved for the transfer of technology to farmers sub-component, but partially achieved for market and SME development sub-components as their design and the limited resources allocated to them have not been conducive to promote and invest in a real private sector led commodity value chain approach and interventions with adequate financial services to private investors. The third objective of inducing participating financial institutions (PCBs and NBFIs, the participating commercial banks and the non-banking financial institutions) to provide medium, small and micro loans to the target group has also been achieved in terms of the full use of the credit line. Credit products were adjusted to the needs of the entrepreneurs at MTR and as consequence credit provision has shot up. This resulted in an increased flow of investment resources to smallholders and SMEs (small and medium enterprises). The opening of branches and agencies by the participating commercial banks made available to rural inhabitants other forms of financial products and increased their outreach to what have been for a long time areas deprived largely of these services. NDP was approved in September 200 and it became effective in July The assessment of project efficiency in terms of timely implementation showed a 9% disbursement rate over the first four years and a completion implementation expected to

2 reach 100% by 31 December 2001, well ahead closing date of 31 March According to the PCR, this performance is a strong indicator of the PMU management capacity and coordination efficiency in engaging through a competitive process qualified civil work contractors and service providers to carry out project activities. In addition, assigning the implementation management of the project to the well-established IFAD PMU attached to SAAC proved to be an appropriate approach as by using existing structures, facilities and expertise the project achieved efficiency gains in terms of minimized costs and ensured smooth and rapid implementation progress. Another indicator of efficiency is the level of the unit cost per output compared to other projects. The actual average cost of US$727 per irrigated ha achieved per NDP is 7% lower than the MOF budgeting benchmark for irrigation projects and 1% lower than the average cost achieved by other projects in Azerbaijan. The average cost of US$3300 per benefitting household or US$730 per person has been considered efficient. The PCR recalculation of the EIRR at completion is 23.1% compared to the appraisal project of 1.9%, which justifies the investment in the project. On the other hand, NDP actual cost has exceeded by 7% project cost estimates at appraisal. This high cost overrun resulted from a change in the design of irrigation canals during implementation, a rise in government staff salaries, a high inflation rate in the country and the appreciation of the local currency against the dollar after the strong inflow of oil revenues. It needs also to be taken into account that project's efficiency was hampered by the great amount of time taken by the detailed design of irrigation works, whereby actual construction work started nearly 2 years after the start of the other project activities and was finished by the end of Project Performance.6 Partner Performance IFAD Cooperating Institution Government NGO/Other Cofinancier(s) Combined Partner Performance As the initiating institution for the NDP, IFAD had been effective in distilling the lessons learnt from two relevant previous interventions and in taking them into consideration at design and during implementation for ensuring the consistency of the project with the government poverty reduction strategy and IFAD country strategic objectives. However, at design level, IFAD is deemed responsible for the very wide discrepancy between the appraisal estimate and the actual cost of irrigation rehabilitation, which is a shortcoming that could have prevented the project from attaining its stated objectives had it not been for the fortuitous improvement in government finances, the dedication and ability of the project lead agency to lobby government to accept the cost escalation and the strong commitment of the Government to the project objectives. As of 2009, IFAD took over the responsibility of direct supervision of the project and had been effective in close supervision on a yearly basis and timely resolution of disbursement issues and the fielding of an MTR mission in March 2009 and the processing of the resulting loan amendment. During the first two years ( ) of project implementation, the United Nations Office for Project Services (UNOPS) as cooperating institution has adequately discharged its responsibilities in administering the loan. The GoA demonstrated a strong ownership of the Project's goal and objectives and has met all its financial obligations including taking over the share of funding originally proposed for a co-financier and increased its contribution to cover the cost overrun of the irrigation rehabilitation sub-component. Through SAAC, and the project Steering Committee, the Ministry of Agriculture (MOA) provided timely and relevant support and guidance to project's implementation. The PMU has collaborated successfully with all the different governmental institutional partners involved in the NPD implementation. It created effectively the needed environment for cooperation, complementarities and synergies among these institutions. PMU financial management was good; all good audit reports were submitted to IFAD on time. The monitoring and evaluation (M&E) system in the PMU performed well in the collection of large quantities of relevant quantitative and qualitative information on project implementation at output level, however it fell short in respect of participatory monitoring of impact. Several public and private service providers were contracted by the project to implement various activities. All of them delivered quality outputs in a timely manner and to nationally accepted standards. The Guba Regional Agriculture Research Centre (GRASC) demonstrated a strong capacity in farmers training and conducting participatory demonstration plots in farmers' field for effective transfer of technology. The performance of the PFIs was variable, but collectively they were able to reach disadvantaged communities with good results in terms of out-reach and loan repayment. Combined performance has been overall satisfactory.

3 Rural Poverty Impact Household Income and Net Assets With regard to this domain, NDP had positive impact through the rehabilitation of the irrigation system coupled with the establishment and rehabilitation of orchards, the genetically improvement of 191 dairy cows of local breeds, the distribution of 00 beehives to 77 progressive beekeepers. As a result of these interventions, the market value of agriculture lands has increased resulting into further financial asset accumulation. These assets proved to be reliable sources of income for improving the living standards of the target group. Compared to 2007, the household farm income increased by US$690 (AZN ) in 2010 and is expected to improve in the following years with foreseen yield increase of young orchards, high value crops and higher market prices. As far as financial assets, 12% of the total number of beneficiaries received investment loans. By the end of September 2011, the PCBs collectively disbursed 139 medium size individual loans amounting to AZN 3. million, while the NBFI disbursed 2 small size individual loans amounting to AZN 0.32 million and 317 group loans amounting to AZN million. The four PCBs and the NBFI achieved an impressive repayment rate for both the interest and principle close to 100%. Group lending has allowed smallholders, including women, who were not able to meet PFIs stringent conditions for individual loans, to have access to credit using group solidarity as collateral. Group loans were particularly important in increasing women access to credit. The Completion Survey welfare indicators highlighted that the household assets of the target group improved and diversified through investment in the supply of electricity, piped domestic water, improved kitchen and cooking Natural Resources and Environment Human, Social Capital and Empowerment Ag. Productivity Food Security Agricultural Productivity and Food Security Inst. & Policies equipment, vehicles and motorcycles, television and mobile telephones. NDP had been designed, implemented and managed with the objective to achieve sustainable water conservation and use efficiency. In terms of conservation and sustainable management of natural resources (land and water), the impact is positive. The rehabilitation of the irrigation canals contributed to reduce considerably water losses. The renovation of the 63 km drainage systems is well maintained and covered the high risk soil salinity areas thus contributing to mitigate this risk. The irrigation rehabilitation civil work concerned mainly existing canals without negative impact on landscape and biodiversity. In terms of human impact, the project provided access to potable water; in addition, 83% of the target group had access to technology, knowledge and skills through training on improved agriculture practices, food processing, SME development, marketing and participation in demonstration plots and field days. In terms of social impact and empowerment, six WUAs were established and legally registered. They received support to build their capacities and capabilities. As a result, they have improved their capacity to manage the irrigation system as they now manage the on-farm irrigation. In addition, through their WUAs, benefitting farmers have been actively involved in implementing project activities and decision making. The establishment of WUAs, producers cooperatives, marketing groups and lending groups has been effective in the empowerment of the target group, the promotion of local social relations, the building up of consensus and confidence to facilitate and undertake collective actions, such as the sustainable use and conservation of irrigation water, maintenance of common infrastructure (irrigation and drainage canals) and address shared constraints (transfer of technology, access to markets and microfinance). In terms of productivity increases, the project had a positive start and it is likely to reach substantial levels in the years to come. For crop production, yields increased by an average of 33% to 38% respectively for wheat and alfa alfa, 2% to 66% for vegetables and 60% for apple. These yield increases resulted mainly from higher water availability per ha as well as from the adoption of improved crop management technologies. These increases happened in the first year (2010) when the rehabilitation of the irrigation system was just completed and some farmers started to receive increased supplies of water. As a result, compared to 2007, the irrigated area devoted to high value crops increased to % as of 2011 indicating a shift to more diversified and remunerative cropping pattern. For livestock, productivity increased by 38% for milk production per improved local dairy cow, 3% for beef fattening and 80% for sheep fattening. The achievements in agriculture productivity, production and farm incomes contributed to lift the target group above the poverty line and improve food security at household level with further improvement expected over the coming years. Project beneficiaries have become self-producers of their needs in cereal, milk, and a wide range of basic vegetables and fruits to diversify their diets and prevent malnutrition. A positive impact on institutional building to ensure the continuation of quality support services to farmers beyond project completion has been achieved. The institutions which benefitted from capacity building financed by NDP are: i) WUAs; ii) expanded outreach for institutions working on technology transfer through the NDP financed network demonstration trials for technology transfer in the project area; iii) three commercial banks

4 and one NBFI to continue their involvement in the provision of rural finance products after project completion using the available revolving fund replenished by loans' repayment. Furthermore, the project played a pivotal role in the amendment of the Law on WUAs with the objective of creating a policy and regulatory framework under which WUA are able to operate effectively and sustainably. Markets Some of the marketing groups have been successful in achieving better prices for their members through timely access to relevant market information, the collection and bulking of produce. However, all in all NDP's interventions in market and SME development has 3 been limited and did not translate into significant results. Project Impact Overarching Factors Innovation NDP's design and implementation built on the experiences gained from previous projects and added new innovation features. The first is the adoption of a highly participatory irrigation management approach calling from the outset - and prior to any irrigation rehabilitation work - for the establishment, legal registration and capacity building of reasonably sized and potential financially viable WUAs and their involvement as service providers in carrying out of the minor irrigation rehabilitation work and taking over the operation and maintenance responsibility of the irrigation system on a full cost recovery basis levying water charges. The second innovation has been the mobilization, on a competitive basis, of existing public and private institutions, producers' organizations and NGOs for the provision of support services to project beneficiaries particularly in the areas of transfer of technology and market and SME development. The third innovation has been the partnership with commercial banks and NBFIs to expand their outreach into rural areas and engage actively in the provision of medium size agriculture investment loans to individual farmers and SMEs using a combination of project and own funds. Commercial banks concentrated on individual and SME loans. NBFIs provided smaller loans to individuals and micro loans to borrower groups, with a strong focus on women borrowers, Replicability and Scalingup Innovation, Replicability and Scaling-up Sustainability and Ownership Targeting Gender without requiring collateral but relying on group solidarity to manage risk. The NDP experience has induced the GoA to partner with IFAD and IsDB (Islamic Development Bank) in its replication in two subsequent projects, the on-going IFAD funded North West Rural Development Project and the newly approved Integrated Rural Development Project funded by both IFAD and IsDB. The experience, with the incorporation of the lessons learned to date, is suitable for replication in the remaining 900,000 ha of irrigated lands of Azerbaijan still awaiting rehabilitation. The project's sustainability varies. It ranges from moderate to high, if measured in terms of beneficiaries' readiness to take over and assume the responsibility in maintaining individual, shared assets and common resources, as well as in terms of likelihood to continue the delivery of support services. As far as rural financial services, some PFIs have opened branches in the project area as a result of their partnership with the project and this is a good indicator for future sustainability in the provision of credit to the rural poor. On the other hand, while the legal framework for effective WUAs exists, and the government is promoting the full transfer of the maintenance responsibility to users, WUAs still need continuous coaching and assisting. In addition, the majority of the six WUAs achieved good repayment rates of water charges, but the current levels of irrigation fees paid by members while are sufficient to cover immediate O&M (operations and maintenance) costs, do not provide for the replacement costs of O&M capital requirement. Finally, the sustainability in delivery of key support services is fragile (technology transfer to farmers and support to SME development). The overall project's primary target group consisted of households that have received land as a result of the Government privatization program of state and collective farms in addition to existing and potential micro-entrepreneurs in these areas, as well as rural women. All the households that received privatised land were considered poor in terms of their small or non-existent land holdings and subsequently they had been targeted. The project did not have a specific gender strategy. It mainly aimed at mainstreaming gender activities in all project components. Women headed households comprised an estimated 39% of targeted households. According to the PCR, the project implementation process and targeting mechanisms facilitated the participation of women in project activities. NDP empowered women through the creation of 21 women-based income generating micro-enterprises, by providing them with equitable access to project resources and giving them opportunities to participate in training to improve their knowledge, technical skills and access to finance. Women represented 30% of beneficiaries from transfer of technology activities through field demonstration days, 20% among farmers trained in agriculture and 0% among the receivers of micro-loans through group lending. Overall Performance

5 Estimated number of beneficiaries PCR Quality Scope The PCR is fully in line with the 2006 Guidelines for PCR preparation. The effort made in preparing the annex on project's financial and economic analysis is appreciated. Quality This is a fairly good PCR. It hinges on a good analysis and wealth of information. It benefitted from the comments made during the regional consultation seminar as well as the national stakeholder workshop held in Baku on October 2011, as well as on the 2010 Completion Survey on result's achievement. Lessons The lessons learned and recommendations are relevant and provide important inputs for a project's future design. Candour The PCR is objective and fair in presenting its main achievements and shortcomings.

Philippines: Northern Mindanao Community Initiatives and Resource Management Project

Philippines: Northern Mindanao Community Initiatives and Resource Management Project Loan No. 77-PH Project Id. 1137 Board Date Dec 2001 Effectiveness Date 1 Apr 2002 Original Closing Date 31 Dec 2009