Moldova: Rural Business Development Programme

Transcription

1 Moldova: Rural Business Development Programme Loan No. 686-MD Project Id Board Date 13 December 200 Effectiveness Date 10 July 2006 Original Closing Date 31 March 2012 Final Closing Date 31 March 2012 Total Project Cost US$(M) US$20.31 million (original); US$32.2 million (actual) IFAD loan US$(M) US$13.02 million (original); US$14.07 million (actual) Cofinanciers (if any) Implementing Agency Ministry of Agriculture and Food Industry (MoAFI) Principal Components Programme investments are organized under four components. (i) Rural enterprise intermediation services (REIS) component will seek to strengthen the growth of farming and rural business activities by providing targeted support services to those activities that create or enhance the flow of private capital to viable and commercially oriented SMEs. (ii) Rural financial services (RFS) component will provide access to appropriate and sustainable financial services for rural businesses. It is divided in 2 sub-components: (i) loan refinancing, providing access to loan funds for on-lending by participating financial institutions; and (ii) collateral development and training, providing training and technical assistance to participating financial institutions in the development and use of collateral instruments and improving risk analysis skills. (iii) Market-derived infrastructure investment. There is an acknowledged need for considerable investment in rehabilitating the country s rural infrastructure. This component will rehabilitate rural infrastructure that is crucial to promoting profitable enterprise development and farm income growth and will help develop sustainable public-private partnerships for the development and maintenance of rural infrastructure. Project Performance Relevance Effectiveness The programme was relevant. Rural Business Development Programme (RBDP) well responded to the country's overall main constraints; it was consistent with the goal of IFAD's COSOP 2002 and it also incorporated the lessons learned from two-previous IFADfunded projects. The decision to assist the development and diversification of existing SMEs and support new SMEs with focus on high value agriculture was certainly relevant and was also in line with Moldova's Economic Growth and Poverty Reduction Strategy Paper (EGPRSP). The programme's proposed package of interventions was also in line with beneficiaries' needs, with regard to the provision of rural enterprise intermediation services, financial services, creation of jobs, infrastructure investments. The programme strategy was designed to stimulate incremental private and public investments leading to rural income growth through existing and new value chains. No attempt was made to predetermine the precise nature of the private investments. With exception of the intermediation of equity, the implementation arrangement has proved to be appropriate for delivering the programme output and achieving the programme purpose. The implementation arrangement for delivering equity intermediation was not appropriate because the proposed type of service providers lacked the necessary knowledge and network for identifying interested parties particularly local and foreign investors. Even under the best scenario, it was not realistic to assume that additional funds of the suggested magnitude could have been sourced. The analysis of RBDP's effectiveness can be undertaken by considering the achievement of its three specific objectives: i) enhanced business services (mainly loan and equity intermediation services) for enterprises; ii) sustainable financial services to rural enterprises; iii) improved small-scale infrastructure for developing rural businesses. The Programme has been effective. With regard to the first objective, the programme provided business plans to 12 rural enterprises either for expansion (67% of volume), diversification of existing enterprises activities (14% of volume) or start-up (19% of volume). The most important aspect of services provided was related to procedures in obtaining permits and registration of collateral, linkage to suppliers of machinery and loan application procedures. The less positive aspect concerns the intermediation of the equity participation, which has been neglected due to the lack of specific skills not readily available among the implementation partners. In terms of the second objective, the seven PFIs (participating financial institutions) contracted by the Programme provided on-lending to 129 enterprises amounting to US$10.64 million from Programme resources and US$2.2 million from PFIs own resources. In addition, as a result of Programme's intervention, the participating banks started accepting collateral in the forms of agricultural land, livestock, future harvest, and equipment and machineries. Finally, with concern to the third objective, the component awarded competitive grants for investments in public infrastructure that enabled and

2 enhanced private sector investments and activities in rural areas. Overall, 30 proposals were approved for building or rehabilitating irrigation, road, drinking water, and natural gas supply. The approach applied proved to be very effective in reaching a large number of beneficiaries (108 enterprises and individuals) and it proved to be a key factor in improving the business environment and stimulating new investments. Efficiency The actual delivery cost related to programme management (CPIU-IFAD, the Consolidated Unit for the Implementation of IFAD Programmes) was only 0.4% of total disbursed funds and 1.03% of disbursed funds under the IFAD loan. This indicates very high management efficiency, without compromising quality of implementation and output and impact. The high management efficiency resulted in programme completion 22 months ahead of schedule, yielding a disbursement factor of 1.3 indicating a very good financial disbursement performance. The cost of delivering REISP (REIS providers) services for refinancing of the 129 loans was only US$16 per refinanced loan. The average interest rate charged by the PFIs over the duration of programme implementation was 4.68% less for refinanced funds compared to the cost charged by the PFIs for own financial resources. The economic net return for the 129 investment refinanced under the programme stood at US$12.41 million with an Economic Internal Rate of Return (EIRR) of 32% and an Economic Net Present Value (ENPV) at 12% of US$ These returns indicate an efficient use of capital exceeding the opportunity cost of capital which has been set at 12% as well as the annual GDP (4.6% average p.a. over ) indicating a strong contribution to the economic growth. These indicators underpin the efficient use of funds. The programme showed also a very efficient use of funds with regard to the investment in market derived infrastructure, which generated an economic net return of US$4.133 million. The EIRR is 60% with a ENPV (expected net present value) at 12% of US$9.87 million. These returns are efficient use of capital exceeding the opportunity cost of capital set at 12% and the annual GDP indicating a strong contribution to the economic growth. The programme s economic net return is US$ million with an EIRR of 3% and a FNPV (financial net present value) of US$ million. Finally, borrower s contributions to the 129 refinanced investments accounted for 3% or 163% higher than anticipated by the Appraisal Report. The contribution of PFIs met the requirement agreed upon during loan negotiations amounting to 1% of the loan portion assigned for working capital. These indicators show a high efficiency of the programme to leverage additional funds. 6 Project Performance.3 Partner Performance IFAD Cooperating Institution Government IFAD has played its role according to the Loan Agreement throughout programme implementation in a timely manner. During the last year of programme implementation IFAD also undertook the fourth supervision of the programme. IFAD also showed flexibility in reallocating resources when the envisaged equity investment services could not be realised on ground, and IFAD promoted an enhanced monitoring & evaluation (M&E) and knowledge management support in the later stage of the project. UNOPS provided good programme supervision and implementation support during the first three years of the programme, thereafter it was taken over by IFAD. The supervision included analysis of physical targets, impact and sustainability of implemented activities. Aspects of client orientation, satisfaction of clients and quality of services were also effectively dealt with. The supervision missions also provided the CPIU-IFAD with useful recommendations in relation to M&E, international standards, training of PFIs, simplification of bidding procedures, making use of investment prospectus developed by Agency for Consulting and Training in Agriculture (ASCA), sharing of information/findings and analysis of VCM (value chain management). The MoAFI and the Ministry of Finance (MoF) performed their statutory requirements as foreseen in the LA. The IPSC conducted its statuary obligation effectively and timely ensuring optimum utilisation of funds according to the LA within the limitation of government overriding policies of limiting loan proceed for hiring TA and additional staff. The IPSC (IFAD Project Steering Committee), which served as the steering committee for all IFAD operations in Moldova, met four times and continued to support and fulfil its statutory functions; decision taken were followed up for necessary action. As far as the Consolidated Project Implementation Unit (CPIU), all the major statuary aspects of implementation were implemented according to the Loan Agreement, including the timely submission of sound AWPBs (annual work plans and budgets) and regular keeping and updating of financial and procurement records. However, the M&E activities under the CPIU-IFAD suffered from inexperienced and high turnover of staff, this at times resulting in late submission of reports. CPIU-IFAD did redress the situation by reforming its Monitoring and Evaluation Office, incorporating all recommendations expressed by IFAD. With regard to procurement and audit issues, the project was in full compliance. A few minor observations were made regarding the accounting system and internal control system, all of which received immediate management response and noted as being corrected by subsequent audits.

3 NGO/Other Through a competitive process, 7 Commercial Banks (CBs) were approved to participate in the programme implementation and signed a subsidiary loan agreement with MoF. All the CBs extended their financial services to the programme client groups according to the respective subsidiary loan agreements. With the guidance of CPIU-IFAD, the REIS providers have performed their activities in full accordance with their contractual obligations and contributing to a satisfactory level of loan intermediation services. The REISP were essential in intermediation of all the refinanced loans and also assisted in many of the value chain linkages developed among SMEs during programme implementation. When shortcoming in the quality of business plans and other services to the programme client was pointed out by the CPIU-IFAD immediate corrective measures were adopted. Though not original planned, the CNFA (Citizen Network for Foreign Affairs) provided important technical assistance for the training to PFIs on risk management and broadening use of collateral. This support was very timely and further increased the efficiency of the delivered programme output. Cofinancier(s) Combined Partner Performance Rural Poverty Impact Household Income and Net Assets Natural Resources and Environment Human, Social Capital and Empowerment The relationship between the Programme's stakeholder has been constructive and crucial for the Programme's successful implementation. The 129 enterprises refinanced by investment loans experienced an annual average growth in fixed assets of 27.2%, an annual average growth in sales of 11% and net profit of 18%. Thirty six enterprises engaged in produce collection/marketing and in processing bought raw material from around 4 47 farmers, for a total annual purchase of US$ million. Of these, an estimated 20% (38) have been stimulated to invest in new/ rehabilitation of orchards, tunnels, and trellis for vegetables e.g. cucumbers and tomatoes, drip irrigation systems and machinery leading to an estimated growth in asset of US$2 80 for each farmer. Another most important programme impact on generation of physical assets has been from matching grants to 13 cooperatives/farmers and associations for developing irrigation infrastructure. The farmers benefiting from the irrigation infrastructure (3 620 ha) on average increased their assets by US$2 780 as a result of increased land value. They also experienced an average increase in annual income of US$136 per farmer. During the programme period, the invested enterprises created 1348 jobs, distributed equally between women and men. The average monthly salary of the newly created job was US$208, which was better compared with national average for all waged employees amounting to US$19/month (2008) and the national average for agriculture sector of US$119/month (2008). The 1 76 persons occupying the new jobs have increased their income. The 34 owners of the 129 refinanced enterprises have also increased their purchasing power. The net income from all the 129 refinanced investment loans is an important resource for further business expansion creating additional jobs and more favourable market conditions for farmers. The rise in land rent paid to pensioners (accounted for about half of the smallholders) is of particular importance. Considering that this population group has limited possibility for cultivating their land and securing a job, this contributed in reducing poverty. The PCR mentions that the programme not only did it move people out of poverty but it also allowed saving. This was invested in household goods like freezers and refrigerators enabling storage of harvest and purchased of produce when prices were favourable contributing to reduced cost of living. It also enabled the respective households to undertake needed repairs to their houses and save for other essential household goods and unforeseen expenditures. It is very likely that if the programme had managed to intermediate equity as foreseen in the AR the impact would have been considerably higher, but as explained elsewhere the approach and timing were not suitable. Programme supported interventions do not seem to have run contrary to major environmental norms and concerns. The European Union rules and regulation regarding type and use of agrochemicals were adopted and have been enforced. Furthermore the programme focus on high value crops requires additional restrictions in the use of agrochemicals. Overall, the project has generally had a neutral environmental impact. The Programme supported capacity-building of clients, contributing to understanding and enhancement of entrepreneurial capability among individuals, SMEs, REISP staff, PFI staff and CPIU staff. The investment in infrastructure improvements had a strong social impact in strengthening farmers' collaboration leading to collective investments and marketing arrangements. Infrastructure investment in roads, which also included contribution from the local communities, represented a considerable improvement in accessibility and communications for local social services (schools, medical offices, postal offices, etc.). Provision of water supply to rural households contributed to improvement of health aspect of household s members, and reduced the manual work in collecting water from the wells. Programme support to business derived infrastructure resulted in non-business citizens coming together and collectively requesting to benefit from gas and water connections. This fostered the establishment of 30 initiative citizen groups collaborating with the mayors and business communities resulting in farmers benefiting from rehabilitated irrigation 4

4 schemes, persons benefiting from water connections, 460 persons benefiting from gas connections and benefiting from km of improved road. At the time of the PCR, the 30 local initiative groups managed the infrastructure investments and the programme support for irrigation also led to development of collective marketing, diversification into high value crops and additional investments for expansion of area under irrigation. Ag. Productivity According to the PCR, the incremental return from rehabilitation of irrigation was from increase in yield and crop diversification resulting in incremental earnings of US$60/ha or US$136 per farmer. It is estimated that the 3 commercial farms who invested in machinery cultivate around ha of which 30 ha were rented from 3 6 smallholders. The productivity on this land has increased by 9.% p.a. contributing to overall food security. This was higher than a proxy indicator, the average national agriculture output growth rate, which increased by 7.% in monetary terms during the period of Likewise the investment in viticulture/pomiculture, investment in irrigation for vegetables and investment in livestock have also increased food production and productivity and revenue. It is estimated that around 4 47 farmers have shifted from low value field crops to cultivation of high value crop to meet the incremental demand from cold stores and processing plants supported under the programme. Moreover, the programme did encourage enterprises investing in food processing, on a voluntarily basis, to organise configuration of building and equipment in preparedness for food standard certification. This resulted in 7 enterprises using the correct configurations of buildings and equipment for international standards certification; and two enterprises obtained HACCP registration (registration from the Hazard Analysis & Critical Control Points system) and three obtained local certification. Despite these very positive impacts it is assessed that provision of technical assistance would have further enhanced the impact. In particular issues related to marketing and choice of high value crops would have been beneficial for the farmers benefiting from irrigation infrastructure. However, this was not happening due to government policy of minimising use of loan proceed for TA/training. Food Security Physically availability of sufficient quantities of food was not an issue. However sufficient money to buy food was an issue for the extremely poor people. The project has contributed to increase in food supply through refinancing of investment loans for 3 commercial farming enterprises, 19 orchards and 13 dairy farming enterprises. The availability of food has increased through rise in family revenue for a total of persons, this implying improvements in level and quality of nutrition and affordability of health and education services. During the period between AR and programme completion, the national population of poor people with a per capita income of less than US$2.1 per day has dropped from 27.6% (200) to less than 10% (2009) and the number of extremely poor reduced to 2.4% during the same period. The programme contributed positively to these changes in respect of generating increased earnings for persons improving their ability to buy sufficient food. Savings generated from investments in roads, gas and water infrastructure benefiting person also contributed to the ability of these people to buy sufficient food. As mentioned, the programme also improved the overall food production in the country through its support to primary agriculture production. Agricultural Productivity and Food Security Inst. & Policies The programme provided technical assistance in risk management for financial institutions and hence created new forms of collateral for rural borrowers. It has also improved the availability of investment loans in rural areas for off- and on-farm enterprises amounting to US$10 64 million representing 22% of total incremental lending to the agriculture sector during the programme implementation period. Results from this approach have shown to be effective in lowering barriers for new and small entrepreneurs as well as in generating additional impact particularly in backwards linkages to small farmers, which has over time developed into several contract farming arrangements between processors and farmers. The programme support to risk management and broadened acceptance of collateral by PFIs, improved the equitability of access to PFIs financial resources particularly important for first time investors, women investors and small investors. The Programme approach to rural financial services enabled the PFIs to apply more flexible lending terms compared to their own funds and at the same time maintain similar spread as for the PFIs own resources. In many instances the value chain approach also assisted the PFIs to expand lending to other stakeholders within the respective value chain. Despite several attempts from the CPIU-IFAD, the participation of MFIs (microfinance institutions) did not materialise because the sector was undergoing a legal reform and the government was not ready to allow MFIs to engage with the programme until the new legal framework was in place and this did not happen during the implementation of the programme. Markets Through the value chain approach the programme contributed directly to the improvements of input and output markets. The output market was improved through expansion of demand from the programme supported enterprises engaged in processing, produce marketing and cold storage for high value agricultural produce benefiting 4 47 farmers.

5 Likewise the input supply also improved as a result of value chain processors organising input for their supplier/contracted farmers. Farmers from the 13 irrigations schemes also organised collective purchase of input resulting in cheaper prices. The development of road infrastructure also facilitated collection of produce and improved access to new markets and developed new business relations between processors and suppliers Project Impact Overarching Factors Innovation Replicability and Scalingup Innovation, Replicability and Scaling-up Sustainability and Ownership Targeting Within the Moldova development context, the programme included a series of highly innovative features, including: i) the value chain based selection criteria for refinancing investment loans; ii) loan risk management and alternative collateral development; iii) intermediation of equity participation and iv) grant financing of business derivedinfrastructure. This type of investment/business support package was new in the Republic of Moldova and significantly aimed at lessening risks associated with enterprise development both for final programme clients as well as for the PFIs. All these innovations have been successfully implemented, with the exception of the intermediation of equity participation. In this case, the REIS providers did not have the necessary knowledge to intermediate equity neither did they have the necessary financial resources to risk canvassing if it was not generating income. It is both desirable and possible to replicate the programme strategy and most of the approaches. With regard to infrastructure, it was noted that collective investment in new equipment for other farming activities had been undertaken by some of the groups and some are planning investments in additional equipment for expansion of the area under irrigation. The PCR highlights that the support to risk management and collateral development should be considered to be up-scaled in forthcoming IFAD programmes through programme investment in existing credit guarantee funds or by establishing a programme credit guarantee fund. The sustainability of programme's achievements is very likely. Access to Debt Financing. Reflow of repaying the refinanced loan to Central Line Directorate will ensure that IFAD s original loan allocation for refinancing (including reallocation) can be revolved for similar loans until full repayment has been made to IFAD in This would contribute to overall economic growth further contributing to rise in PFIs own resources and eventually to long term sustainability of access to CBs resources for debt financing of rural investments. Provision of Business Development Services. The programme support to REISP in preparation of business plans has resulted in improved quality of such plans which increasingly are being used as management tools by the enterprises particularly for medium and large enterprises owned by several persons. The most pro-business oriented Commercial Banks are also using this instrument in monitoring their investment loans and related risks. This has led to demand for this service enabling several business service providers to include it as part of their permanent products ensuring sustainability of this service. The sustainability of the enterprises supported by refinanced investment loans appears to be high. This is reflected by a number of indicators including yearly annual growth in sales, profits, hiring of additional staff, gradual growth of the business and by increase in retained earnings and fixed assets. The biggest threat to these signs of sustainability is competitiveness and access to markets; it is assessed that one of the biggest barrier to export is lack of compliance with international standards like GlobalGap and HACCP/ISO (International Organization for Standardization). As well as infrastructure, maintenance, replacement of equipment and fixed structures is well managed by the various groups. The maintenance of gas and collection of cost of consumption is the responsibility of the joint stock company Moldovagas ensuring long term sustainability. Water connections and collection of fees are done by users associations. The maintenance of roads is the responsibility of the Primarias offices and it is not likely that these offices will be able to finance the cost related to maintenance without the participation of the private sector. If Moldova adopts the reform of decentralisation to the local public administration (presently being debated by parliament), with increased fiscal allocations from the central government it could be possible for the local administration to cover some maintenance cost. In the meantime the CPIU-IFAD has encouraged the 'Primarias' office to work closely with the beneficiaries to share the maintenance cost. As mentioned in the Appraisal Report, the programme was implemented throughout rural areas of Moldova, with no specific geographic focus. The programme's design was conceived to direct resources not to specific categories of clients, as the client group for the Programme would be largely self-determined. Targeting would be achieved through the nature of the supply response to client-determined investment plans, thus activities would be a response to articulated demand from rural people, especially with respect to the provision of financial services and infrastructure investments. The PCR highlights that the targeting approach adopted by the programme was mainly based on the use of a Value Chain Multiplier Index (VCMI) threshold developed by the CPIU prior to programme 4

6 implementation, for the approval of refinancing of loans. The VCMI was rigorously applied. By the own nature of the programme's refinanced activities, it seems that the programme's focus was not much on the poorest people, but on the less poor ones (such as unemployed rural men and women, small and medium-sized farmers, rural entrepreneurs, agroprocessors, input suppliers, traders and community groups). In training the PFIs in risk management, the programme used an approach which was a good attempt to make resources more accessible to women, first time and small borrowers. However, this group would likely have been higher if MFIs had been involved in the programme. On the other hand, the same PCR mentions that if the programme approach would have included a credit guarantee fund, the impact on first time borrowers and women would likely have increased the programme's portion of this client category. Gender The gender strategy adopted by the programme, which was based on the country's policies supporting increase of women's employment and the promotion of gender quality in the labour market, was maintained throughout programme implementation. The programme addressed the needs of women s access to credit resulting in 26% of all refinanced investment loans being directed to women. This is high considering the culture of joint management of business activities between wife and husband. The participating women also improved their managerial and entrepreneurial capabilities by actively participating in the preparation of the business plans with support from the REISP; they also benefitted from the capacity building/training. Moreover, the 30 infrastructure investments have indirectly provided benefit to 1812 women, representing the 49% of total indirect beneficiaries in the component. Notably, 8 of the 30 management groups created for each infrastructure investments are currently headed by a woman. 4 Overall Performance Estimated number of beneficiaries PCR Quality Scope Quality Lessons Candour The PCR is fully in line with the PCR guidelines of Project Completion (2006). All the requested annexes have been inserted and it is an example of a well-made PCR. This PCR is very well done. It relies on a vast amount of reliable data and information, such as an impact assessment for all IFAD-financed projects in Moldova and data extracted from the M&E system of the programme, interviews with Government and partners. It is based on an in-depth reflection and analysis of the project's main successes and achievements, as well as it also points some issues which could have been more successful. It is worth of noting the richness of the project's financial analysis, especially with regard to efficiency. The lessons learned correctly build upon the Programme's analysis and main findings. They present some crucial issues that should be carefully taken into account for future operations in the country. The PCR is line with the findings of the other project's documents (mainly supervision mission reports). The programme's strengths and weaknesses have been objectively pinpointed and critically analyzed.