Rethinking Demand-Driven Development in Rural Peruipolicy/IEDP/2007peru/6) Rethinking...

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Brian McCauley Hannah Arnold Maggie Koziol Rethinking Demand-Driven Development in Rural Peru Executive Summary: This paper will first describe the changing rural landscape in Latin America, and Peru in particular, which has created the need for new approaches to rural development. Next it will analyze how effective the IFAD CORREDOR project and USAID's PRA project have been in responding to the challenges and opportunities in Peru's rural regions. The focus will be on the variations in demand-driven development techniques of the different projects and whether or not one method tends to produce more positive results. The paper concludes with a series of recommendations based on a comparative examination of the IFAD and USAID projects. Both the IFAD and USAID projects claim to be demand-driven, however, each program's strategy is distinctive. The recommendations are based on the assumption that control of the USAID PRA project will be transferred to the Peruvian government and that the IFAD project will continue to operate, targeting the poorest Peruvian populations. The authors' conclusions and recommendations focus on the PRA program, which is deemed the stronger approach to demand-driven development and include: streamlining bureaucratic procedures; increasing private sector participation through outsourcing local operations; assessing the impact of the ESC transition process; establish inter-regional ESC network; implement Chemonics training program for Sierra Exportadora; recognize that the success of PRA hinges on more than the identification of products; maintain a balanced government approach to rural development; continue to support programs that target the poorest Peruvians. April 2007 1

Transcript of Rethinking Demand-Driven Development in Rural Peruipolicy/IEDP/2007peru/6) Rethinking...

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Brian McCauley Hannah Arnold Maggie Koziol

Rethinking Demand-Driven Development in Rural Peru

Executive Summary:

This paper will first describe the changing rural landscape in Latin America, and Peru in particular, which has created the need for new approaches to rural development. Next it will analyze how effective the IFAD CORREDOR project and USAID's PRA project have been in responding to the challenges and opportunities in Peru's rural regions. The focus will be on the variations in demand-driven development techniques of the different projects and whether or not one method tends to produce more positive results.

The paper concludes with a series of recommendations based on a comparative examination of the IFAD and USAID projects. Both the IFAD and USAID projects claim to be demand-driven, however, each program's strategy is distinctive. The recommendations are based on the assumption that control of the USAID PRA project will be transferred to the Peruvian government and that the IFAD project will continue to operate, targeting the poorest Peruvian populations. The authors' conclusions and recommendations focus on the PRA program, which is deemed the stronger approach to demand-driven development and include: streamlining bureaucratic procedures; increasing private sector participation through outsourcing local operations; assessing the impact of the ESC transition process; establish inter-regional ESC network; implement Chemonics training program for Sierra Exportadora; recognize that the success of PRA hinges on more than the identification of products; maintain a balanced government approach to rural development; continue to support programs that target the poorest Peruvians.

April 2007

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I. Introduction

The Latin American rural landscape is changing, which adds new policy questions to the

existing list of rural development issues. Poverty levels remain higher in rural areas than in urban

areas, while agricultural production, the traditional engine of rural development, continues to

decline. Given the high poverty and lack of income, services and opportunities in rural areas,

there are strong rural to urban migratory trends in Latin America. Although Latin America’s

rural regions are lagging behind and “rural” is no longer synonymous with agriculture, it is also

the case that “rural” need not be synonymous with decline. Rural regions could once again

become a key driver of economic development by focusing on the opportunities that exist to

orient the agro-industry, rural tourism and other sectors to high value-added markets.

Rural regions risk falling further behind their urban counterparts unless new regional

approaches to rural development address the pressing socio-economic needs of these regions.

When developing future policies, the following factors should be taken into consideration: 1)

“rural” is larger than reported by national statistics; 2) rural development needs to be more pro-

poor; and 3) rural amenities should be valued.

Elsewhere in the world, countries are taking notice of a new rural paradigm for

development that has emerged in recent OECD literature. The new approach is based on

countries transitioning from a traditional one-sector approach (agriculture) to a more integrated,

multi-sectoral and place-based rural development strategy. The hope is that by re-valorizing all

amenities of rural regions and moving into new productive activities targeted at specific

functional regional areas, the rural regions will be able to improve their competitiveness and

close the existing development gap between them and their urban counterparts.

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Since the Toledo administration, Peru has already begun to reconsider its rural development

approach by taking greater stock in all aspects of the rural landscape, not just agricultural

production. Along with the government’s transition towards the new rural paradigm, two

international development agencies, the International Fund for Agricultural Development (IFAD)

and USAID (together with Chemonics International) have also been active in promoting new

rural development approaches, through a process that they refer to as demand-driven

development. While the approaches are slightly different, both groups’ projects - the USAID

Poverty Reduction and Alleviation (PRA) project and IFAD’s CORREDOR project –

incorporate many new ideas, such as creating economic corridors, strengthening local capacities

and transferring decision-making power to the local level, and exploring new economic

opportunities that profit from the wide variety of Peruvian rural amenities.

This paper will first describe the changing rural landscape in Latin America, and Peru in

particular, which has created the need for new approaches to rural development. Next it will

analyze how effective the IFAD CORREDOR project and USAID’s PRA project have been in

responding to the challenges and opportunities in Peru’s rural regions. The focus will be on the

variations in demand-driven development techniques of the different projects and whether or not

one method tends to produce more positive results. The IFAD approach focuses on meeting the

demands of local communities to assist their transition into new productive activities. Another

approach put forth by USAID/Chemonics first identifies the market demand for locally produced

goods and then ushers the buyers into contractual relationships with the local producers. To

conclude, the paper will highlight why the PRA model stands out as the more promising new

rural development approach and provide policy recommendations that could help ensure the

sustainability of this innovative approach.

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II. Properly addressing the rural landscape in Peru

What is “rural”?

There is no uniform definition of rural regions, areas or economies. As a result, estimates

of the size of a country’s or region’s rural population vary significantly depending on the chosen

definition. Furthermore, how a rural area is viewed will impact the type of rural development

policies advocated, including the allocation of public resources, despite the fact that most

definitions do not include any economic rationale.

Historically, many countries followed sectoral approaches to define rural areas or

economies based on the sector’s contribution to national GDP.1 Thus, an area would be defined

as rural if its primary economic activity was agricultural production (or an area would be defined

as urban if its economic activity was focused in industry and services). However, given the

declining role of agriculture in many countries, this definition is no longer effective.

In contrast, many countries today establish a population threshold to distinguish between

rural and urban areas; for example, Mexico classifies all municipalities with 2 500 inhabitants or

less as rural, while Guatemala sets 2 000 inhabitants as the rural-urban threshold.2 Other

countries use similar population measures but still strongly link rurality with agriculture. Chile,

for example, defines as rural all municipalities with less than 1 000 inhabitants, but a

municipality with between 1 000 and 2 000 inhabitants is also classified as rural if 50% of more

of the labor force is in agriculture.3 Peru, like many other Latin American countries, applies

1 de Ferranti et al. (2004), Beyond the City: The Rural Contribution to Development, Advance Conference Edition, The World Bank, Washington D.C., p. 31. 2 OECD (2003), OECD Territorial Reviews: Mexico, OECD Publications, Paris. 3 de Ferranti et al. (2004), p. 46.

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criteria based on settlement size, but assesses settlement size based on housing agglomeration

rather than population.4

Another definition of rural areas is the OECD’s population density rule which classifies a

community as rural if its population density is below 150 inhabitants per km2.5 Finally, the

World Bank adds a distance dimension to the definition, such that an area occupied with

farmsteads or with a low population density is still considered urban if it falls within an easy

commuting radius of a major urban center (the exact criteria is a travel time greater than one

hour from the nearest city of over 100 000 inhabitants).6

Unfortunately, Latin American countries do not apply a uniform definition of rural

regions. A hybrid definition combining the OECD and World Bank criteria would be beneficial

for the region as it would enable comparative cross-country analysis of rural policies. It would

also help change mindsets in the region about what is “rural” and the appropriateness of the new

approaches to rural development policy. Specifically, an improved definition would give a better

estimation of the total rural population, thereby helping policy makers properly target the right

populations with their rural development policies.

Characteristics and challenges of Peru’s rural regions

Latin America is plagued by high rural poverty levels, large rural-urban disparities and

out-migration to urban regions, and Peru is no exception. Though unlike the majority of Latin

American countries, Peru’s rural regions are not characterized by declining production and

employment in agriculture. The agricultural sector’s contribution to Peru’s GDP and labor force

has remained constant, if not slightly increasing, over the last 10-15 years. However, despite the

4 de Ferranti et al. (2004), Beyond the City: The Rural Contribution to Development, Advance Conference Edition, The World Bank, Washington D.C., pp. 46, 52, 56. 5 OECD (2006a), OECD Rural Policy Reviews: The New Rural Paradigm, OECD Publications, Paris, p. 26. 6 de Ferranti, Davie et. al. (2004), 47.

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slight gains in agriculture’s share in national GDP, there has been little sign of these gains in

production having a positive impact on the rural poverty situation. Thus, the argument can still

be made that new rural development strategies in Peru should continue looking beyond strict

agricultural policies in an effort to create better employment and income opportunities for the

rural poor in either the non-farm sector or in non-traditional agricultural production. Through

these changes the rural poverty situation may begin to improve.

Rural population figures

Peru’s rural population, which was 41.9% in 1970, was down to 27.4% in 2005, and by

2015 it is projected to fall further to 26.2%, while its urban population continues to grow and

will approach 74% by 2015 (see Figure 1).7 A major explanation for this trend is the high rate of

out-migration from rural areas to urban areas, particularly Lima, to escape rural poverty and seek

improved employment opportunities. However, the World Bank’s 2004 Beyond the City report

suggests that “rural” is actually larger than the official national statistics indicate for the Latin

American and Caribbean region as a whole, including for Peru (see Figure 2). The figure

contrasts national rural definitions with the hybrid OECD-World Bank definition, and in Peru’s

case the national rural definition suggests that roughly 27% of the population is rural while the

OECD-World Bank definition pegs it closer to 45%. As such, a substantial portion of Peru’s

population might be living in typically rural areas but not being provided with the appropriate

public services.

7 ECLAC (2007), CEPALSTAT Database, http://websie.eclac.cl/sisgen/ConsultaIntegrada.asp.

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Figure 1. Peru’s rural to urban population trends: 1970 - 2015

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Urban Rural

Source: Author’s calculations based on data from ECLAC’s CEPALSTAT Database. Figure 2. National census rurality measures compared to the definition of < 150 person per

km2 and > 1 hour travel time from a city over 100 000 criteria

Note: Official criteria varies by country, consistent criteria uses the OECD-World Bank definition of rural and applies to all countries. Source: de Ferranti et al. (2004).

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Rural production and sources of income

According to data from the entire Latin American and Caribbean region, there has been a

shift away from agriculture and farm-based employment to rural non-farm employment (RNFE).

The RNFE rate has been increasing in all Latin American countries, except Peru where it

remains steady and in Bolivia, where it is declining.8 Although Peru’s RNFE has not been

increasing, it is not to say that rural Peruvian families do not rely heavily on rural non-farm

income (RNFI), which in fact accounts for 50% of the average rural household income in Peru.9

Despite the importance of RNFI in rural regions, agriculture is still an important component of

Peru’s economy, accounting for 9.4% of the 2005 GDP and employing 37.5% of the total labor

force and 79.7% of the rural labor force in 2004.10

Although agricultural production remains an important component of the rural Peruvian

economy, evidence from other Latin American countries suggests that improving the

diversification of the rural economy could have positive development effects on Peru’s rural

areas. A survey of rural households in El Salvador highlights that as rural households diversify

their income streams and rely more and more on non-farm income (as well as a growing share of

family remittances), their overall household income increases (see Table 1).11 Lanjouw (2000,

2003) conducted studies on Brazil, Ecuador and El Salvador and found significant evidence of

greater non-agricultural activity in regions with better access to rural infrastructure and in

8 de Ferranti et al. (2004), p. 43. 9 Ibid, p. 44. 10 The World Bank (2006), World Development Indicators 2006, Washington D.C.; ECLAC (2006), CEPALSTAT Database. 11 de Ferranti et al. (2004),. 45.

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households with higher education levels, indicating that investments in rural infrastructure and

education can generate better returns and help alleviate rural poverty.12

Table 1. Income sources of rural households in El Salvador

1995 1997 1999 2001 Household income (in 2001 colones)

4,368 4,400 6,842 7,766

Income source as % of total

Farm (production and wage income)

44.0 37.2 28.8 26.4

Nonfarm (excluding remittances)

46.8 53.2 56.6 55.2

Remittances 8.1 8.8 13.5 16.3 Subsidies 1.1 0.8 1.1 2.2 Source: de Ferranti et al. (2004). Rural poverty and disparities

Poverty in Peru is still extremely high, especially in rural zones. According to 2003

figures, 54.7% of Peru’s population lives in poverty and 21.6% live in extreme poverty. But the

high incidence of poverty in rural areas is even more dramatic, with 76% of the rural population

living in poverty and 45.7% living in extreme poverty (compared to 43.1% and 8.6%,

respectively, in Peru’s urban areas).13 Based on 2005 population figures, there are roughly 5.8

million rural poor in Peru, and according to IFAD over 4.2 million of those rural poor reside in

the sierra, the Andean highlands.

Rural poverty has long been a difficult policy issue, since it is typically more challenging

to treat than urban poverty, because of uncontrollable exogenous factors like volatile agricultural

commodity prices. The persistence of rural poverty can be explained by looking at the socio-

economic characteristics of Peru’s rural regions. Peru’s rural regions are plagued by:

• high rates of illiteracy, particularly among women; 12 Ibid., p. 46. 13 ECLAC (2007), CEPALSTAT Database.

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• lack of essential services such as education and health care; • lack of secure property rights to land, forests and water; • inadequate agricultural research as well as other rural training and financial services; • poor transport infrastructure and marketing systems; and • lack of well-defined regional organization and planning.14

The Andean highlands represent a predominantly rural region that accounts for roughly 25% of

Peru’s total output and its labor productivity is roughly half that of Peru’s national average.15

The characteristics of households in the highlands demonstrate that poverty is strongly correlated

with education and type of economic activity (primary sector) as can be seen in Table 2.16 Peru’s

poor and extremely poor rural households are clearly in need of greater human capital

investments which should help them seek employment in the secondary and tertiary sectors,

provided that rural development strategies also invest in the promotion of newer non-farm niche

markets.

Table 2. Characteristics of Sierra households by poverty condition

Extremely Poor Poor Non-Poor Average net income ($s/day) 0.6 0.8 2.2 No education or only primary (%)

87.3 85.0 71.0

Secondary education or higher (%)

12.6 14.1 18.8

Employment primary sector (%) 90.8 87.7 66.2 % Household members economically active

47.8 52.1 67.2

Source: Werbrouck, Pierre (2004), “En breve: Designing a rural development strategy for Peru’s Sierra”, No. 54, October, World Bank.

14 IFAD (2007), “Rural Poverty in Peru”, IFAD Rural Poverty Portal, http://www.ruralpovertyportal.org/english/regions/americas/per/index.htm. 15 Werbrouck, Pierre (2004), “En breve: Designing a rural development strategy for Peru’s Sierra”, No. 54, October, World Bank, p. 2. 16 Werbrouck, Pierre (2004), “En breve: Designing a rural development strategy for Peru’s Sierra”, No. 54, October, World Bank, pp. 2-3.

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Peru’s rural potential

Despite the many socio-economic challenges plaguing Peru’s rural regions, they also

possess a variety of rich but often under-utilized resources, including the natural and cultural

environment. Rural areas could help drive economic development by orienting the agro-industry,

artisanal production, rural tourism and other sectors to high value-added markets.

As for the agro-industry sector, Peru possesses vast resources. Currently though growth

in the sector remains modest due to its heavy concentration in low value-added production and

its focus on producing traditional exports. However, focusing on new agro-industrial production

could help to improve the region’s capacity to compete in the international market, in particular

by increasing export diversification and lowering the sector’s vulnerability to traditional

commodity price shocks. While agro-industry has primarily been a city phenomenon, in the

future it could contribute to the development of both rural farm employment (RFE) and RNFE.

An example of a successful new agricultural venture along these lines is the

USAID/Chemonics PRA project that has introduced a new crop, artichokes, into production in

several Peruvian departments, namely in the economic corridors of the Mantaro Valley,

Huancavelica, Ayacucho and Huanuco. A Peruvian-Spanish company, AgroMantaro, established

a new plant in the Mantaro Valley to process and export locally produced artichokes and the

PRA team helped the area’s farmers learn to cultivate the new crop, helped other inhabitants

secure jobs (close to 200) in the newly built artichoke processing and canning facility, and

generated close to US$2 million in new sales17

Another potential driver for rural development is the important competitive advantage

found in the area’s tourism sector, which is strongly linked to Peru’s rich natural and cultural

17 Proyecto PRA (2005), “Proyecto PRA Informa: Boletin Informativo del Proyecto PRA”, Año 4, Números 10 y 11, Abril.

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heritage. There are four major characteristics, many of which are heavily concentrated in rural

areas, that help make Peru an attractive and unique tourist destination: natural resources,

archaeological sites, colonial cities and cultural heritage. The tourism industry has a significant

potential to employ the abundant un-skilled and semi-skilled workforce. Given the rural location

of most sites, cultural and ecological tourism could contribute to non-agricultural rural

development, create RNFE opportunities and improve the living standards of the poor

communities in rural areas. A great example is the development of turismo vivencial (household

tourism) in the Cusco region as part of IFAD’s CORREDOR project. Towns in the Sacred

Valley of the Incas open up their doors to allow tourists to stay with families in “bed &

breakfast” arrangements, where they are free to participate in the daily activities of the family

and the town, including festivals and other cultural activities, while taking in the natural beauty

of the Andean highlands.

Factors influencing rural policy making Rural policy has been gaining attention as a policy arena in its own right, as opposed to

being a small component of agricultural policy. OECD and non-OECD countries alike are

beginning to address the specific needs and opportunities of rural places and rural people, rather

than simply addressing the demands of the agriculture industry.18 These shifts in rural policy-

making indicate that new approaches to rural development are emerging. A “new rural

paradigm” has in fact been outlined by the OECD and it could potentially assist Peruvian policy

makers in many ways as they consider moving from a one-sector (agriculture) strategy to a more

integrated rural development strategy (see Table 3).19

18 OECD (2006), OECD Rural Policy Reviews: The New Rural Paradigm, OECD Publications, Paris, p. 95. 19 See OECD (2006), OECD Rural Policy Reviews: The New Rural Paradigm, OECD Publications, Paris.

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Table 3. The new rural paradigm

Old approach New approach Objectives Equalisation, farm

income, farm competitiveness

Competitiveness of rural areas, valorization of local assets, exploitation of unused resources

Key target sector Agriculture Various sectors of rural economies (ex. rural tourism, manufacturing, agro-industry, ICT industry, etc.)

Main tools Subsidies Investments Key actors National governments,

farmers All levels of government (supra-national, national, regional and local), various local stakeholders (public, private, NGOs)

Source: OECD (2006), The New Rural Paradigm

Agriculture is not declining in Peru like it is in many OECD countries, but the profits and

gains from agriculture are not reaching everyone in the rural space, particularly the small and

medium-sized producers, as well as most marginalized populations. Therefore, there is merit in

considering new rural approaches that target various sectors of Peru’s rural economy, looking to

generate new economic opportunities and jobs while diversifying the economic base. Investing

in and introducing new and complementary economic drivers into Peru’s rural landscape could

drastically improve the competitiveness of Peru’s rural regions in their entirety and the country’s

economy as a whole.

To begin moving further in this new direction of rural development to improve the

region’s competitiveness, the following factors deserve some consideration in the planning and

implementation phases of new rural development projects and programs.

1. “Rural” is larger than reported by national statistics. This is true both in terms of rural

regions’ economic impact and rural populations. A sectoral definition of rural underestimates the

productive capacity of rural regions; agricultural production is stable or declining, but rural non-

farm production has the potential to expand in rural regions. Rural regions are no longer strictly

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synonymous with agriculture but that does not make them synonymous with decline, so public

policies should still focus on rural development. What is most important for policy makers to

understand is that “rural” encompasses many factors and that there is not a clear dichotomy

between rural and urban, thus blanket policies that target only rural or only urban development

are flawed, especially when they lack a territorial approach.

2. Rural development should incorporate more pro-poor initiatives. Evidence shows that

higher income is associated with RNFE. But labor must be mobile or else rural inhabitants will

have fewer opportunities to diversify their household incomes. Multi-sectoral investments are

now needed in areas such as rural infrastructure and education, which can together provide

access to higher paying jobs. Thus greater attention is being paid to local assets and knowledge

as ways out of poverty.

3. Rural amenities should be valued. Landscapes, mountains, natural resources or historical

sites make rural regions attractive and serve as “inputs” for different types of economic

activities, including tourism, specialty products and foods. Rural artisanal production of textiles

and ceramics present another opportunity that could be further capitalized upon for rural income

gains. Non-traditional agricultural products have the potential to become high value-added

international exports, while helping to diversify the Peru’s agricultural exports away from

traditional commodities. Efforts to link amenities with economic activities, farm or non-farm,

can spur enterprise creation and growth in rural regions.20

With these ideas about new development approaches as the context, the analysis of the

specific IFAD and USAID/Chemonics rural development projects will be presented in the next

sections. An important question to keep in mind when reading on is: how have these programs

responded to the challenges and existing, but perhaps under-utilized, potential of Peru’s rural 20 OECD (2006), OECD Rural Policy Reviews: The New Rural Paradigm, OECD Publications, Paris, p. 69.

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regions that were just presented above? Do they appear to be following certain aspects of the

new rural paradigm? What role is there for new actors to play in Peru’s rural development,

thinking in particular about the private sector?

III. The International Foundation for Agricultural Development (IFAD)

Background

IFAD has a lengthy history of working to address issues of rural poverty in Peru. The

organization began its first project in the country in 1981 and has made five loans to the

government totaling approximately 66 million USD since that time. Over the past twenty-five

years, IFAD programming has concentrated on the Sierra with the majority of loans financing

projects there.21 IFAD’s experience in the region led them to expand both the geographic and

conceptual scope of their projects in recent years. This reorientation of programming was based

on “the concept of a socio-economic development corridor, urban-rural linkages, and micro

enterprises,” topics which were incorporated into the Puno-Cusco Corridor Project

(CORREDOR).22 This program encompasses IFAD’s new vision of demand-driven rural

development, which the foundation defines as programming that “provides funding directly to

rural poor people, who can then contract technical assistance services of their choice.”23

The Puno-Cusco Corridor Project

IFAD proposed the Puno-Cusco Corridor Project (CORREDOR) in 1997 with the

objective of alleviating poverty in the highlands by “increasing the incomes of local farmers and

small entrepreneurs…and strengthening market linkages.”24 In order to reach this goal, the

project mandates engagement with aid recipients and the provision of training in order to enable

21 IFAD. CORREDOR Proposal. 1997: p. 4. 22 Massler, Barbara. “Innovative Strategies for Reducing Poverty in the Southern Highlands of Peru.” The International Bank for Reconstruction and Development/The World Bank. 2004: p.5. 23 IFAD. “Case Study – Peru: Empowering the poor by shifting from a supply to a demanddriven approach.” 24 IFAD. CORREDOR Proposal. 1997: p. 26.

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communities to conduct their own needs assessments and dictate where aid should go. This type

of interaction between lender and program beneficiaries is a critical part of IFAD’s new

methodology.

IFAD’s demand-driven strategy focuses heavily on the provision of technical assistance

(TA), a characteristic that differentiates the foundation’s work from its competitors in the rural

development field. As later sections of this paper will describe, other international actors define

demand-driven approaches as strictly market oriented. In contrast, CORREDOR seeks to

develop a more dynamic market for TA so that communities have access to the kind of services

they need. Despite IFAD’s unique conception of demand-driven development as the devolution

of decision-making to project beneficiaries, the group acknowledges the potential for a wider

application of this principle to markets. For example, in the CORREDOR proposal, IFAD states

that “project objectives should take into account the need to bring project beneficiaries closer to

market dynamics so as to allow them to progressively adapt their production activities to market

demands.”25 This brief reference to market demand highlights the various ways in which

demand-driven strategies can be defined.

The two main components of the CORREDOR project, which claim to create stronger

markets in the Sierra and provide more effective financial services to the communities in the

region, are described below. The specific activities carried out in each are also intended to create

a secondary benefit – the strengthening of the community and specific organizations to ensure

that they can play a larger role in the process in the future. The project is structured in a way that

allows for targeted assistance as outlined below:

1. Incentives for Strengthening Rural Markets: Providing technical assistance to rural

farmers and small-scale entrepreneurs is a central aspect of the project. IFAD’s stated 25 IFAD. CORREDOR Proposal. 1997: p. 4.

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goal is to provide individuals and the communities with the necessary skills to both

identify the kind of assistance they would like to see implemented, and contract the best

providers of those services.26 A second sub-component is the establishment of a business

investment facility, which issues grants to local operators involved in providing key

public services such as postal delivery, trash collection, and markets or fairs for the

selling of goods.27 Lastly, IFAD will ensure that those involved in the market can

receive advice on the legal and economic environment in which they operate as part of

what they call “market opportunities information and promotion.” Activities within this

area include the certification of locally produced goods and building relationships

between buyers and sellers of goods.

2. Rural Financial Services - The rural financial services section of the project is

designed to bolster those financial institutions in the region that serve local producers, as

well as strengthen the non-governmental organizations that work with small farmers.

The hope is that a wider range of financial services will be offered to local producers and

that there will be a greater incentive for private firms to provide financial products and

services. The main actor involved in this phase of the program is the “Executing Agency,

as a second-tier financial institution, [which will]… provide credit lines, reduce lending

risks through the establishment of a guarantee fund and promote new financial

technologies and products.”28

Throughout both the rural markets and financial services components, there is a clear

effort to establish relationships with aid recipients that are based not on imposition, but

collaboration. As a result, IFAD has been able to achieve a number of innovative results such as

26 Ibid., p. 5. 27 Ibid., p. 8. 28 IFAD. CORREDOR Proposal. 1997: p. 8.

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ensuring access to capital for those who would not otherwise receive credit, recognizing the

value of non-governmental organizations in addition to producers in the community, and

increasing the sense of engagement and self-esteem on the part of local residents.

What does this program achieve?

A significant amount of attention has been paid to this new demand-driven approach,

although aside from anecdotes, limited analysis has been done to determine whether or not it has

been more effective in achieving its goals than more traditional methods. IFAD has presented

the project as a model at conferences and highlights the adoption of similar strategies by other

international donors such, as the World Bank. 29 However, most current reporting on the project

is output focused and provides a limited picture of what changes, if any, have been seen in the

prevalence of rural poverty. For example, the statistic that appears most frequently in IFAD

publications is that 650 communities are the recipients of assistance, and an additional 2300

micro-entrepreneurs and 1800 artisans are involved in new economic activities.30 The

interesting and missing piece of information is what the communities that receive assistance are

now able to do to sustain their own growth.

A number of significant policy questions remain unanswered. What variation has there

been between the output numbers presented here and figures collected on earlier IFAD programs

such as the Management of Natural Resources in the Southern Highlands Project (MARENASS)

and the Promotion of Technology Transfer to Peasant Communities in the Highlands Project

(FEAS)? Is there a regional baseline for rural poverty and development from which the results

of CORREDOR can be measured? While IFAD states that the population receiving assistance is

growing, is the quality of service they receive changing? In addition, what role has business

29 Massler, Barbara. “Innovative Strategies for Reducing Poverty in the Southern Highlands of Peru.” The International Bank for Reconstruction and Development/The World Bank. 2004: p.2. 30 Ibid. p.7.

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played in achieving results in the area of financial services? A commitment to exploring these

questions will enable IFAD and the Peruvian government to make informed decisions about the

continuation of the programs or those similar in nature.

While definitive statements cannot be made about the outcomes generated by IFAD’s

rural development programming, it is possible to identify a number of characteristics that

differentiate the organization’s demand-driven approach from others. First, the program outlined

has the ability to target the extreme poor in Peru’s rural communities. Unlike other organizations

practicing demand-driven development, the CORREDOR project provides assistance to a

smaller number of individuals, who are less involved in the economy. This can be partially

attributed to IFAD’s timeframe for achieving results, which is longer than other aid providers.

This reduced pressure to generate results allows IFAD to focus on individuals that would

otherwise be ignored by international donors.

IV. USAID Poverty Reduction and Alleviation Project (PRA)

Both the IFAD and USAID projects claim to be demand-driven. However, each

program’s strategy is distinctive. While IFAD focuses on the provision of TA to rural

populations with the goal promoting new productive activities that could in time be sold in new

markets, PRA concentrates on locating markets first and following up with TA and capacity

building programs in Peru’s rural regions. Furthermore, the two projects target different sectors

of rural populations. IFAD works with the poorest communities, while PRA focuses on the

slightly better off small and medium-sized producers in rural areas. A detailed discussion follows

regarding the highlights of the USAID PRA Project.

Background

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The origins of the USAID-sponsored Chemonics Poverty Reduction and Alleviation

Program (PRA) can be found in a USAID commissioned report on food security in Peru.31 This

report changed the way USAID approached rural development in Peru. The result was a

targeting of small-scale producers in rural society rather than a continued concentration on the

extreme poor. PRA recognized the need to effectively implement projects that were not only

economically feasible, but also provided participating individuals with tangible, sustainable

market access in order to be able to sell their goods.

Beyond PRA Business

The PRA is divided into three projects: Business, Alternative Development and

Infrastructure. This paper will focus on the PRA Business Project, however, a short description

of the two other projects follows:

PRA Alternative Development focuses on helping former coca farmers transition to the

production of legal products; facilitating market access to ensure that the farmers have a stable

income. Following the overall PRA model of demand-driven development, the PRA Alternative

Development Project locates markets for farmers before it begins to build capacity for the

cultivation of alternative agricultural products. Currently, this program is operating in seven

Peruvian departments, and the most popular alternative crops are bananas and cotton.32

As is the case with the PRA Alternative Development, the PRA Infrastructure Project is

also based on the principles of the PRA Business Project in that all three arms of the PRA are

designed to facilitate sustainable growth of business, thereby increasing employment and money-

31 USAID. “Study on Food Security in Peru.” 1994. 32 Proyecto PRA. www.proyectopra.com/contenido.aspx?IdItem=42. Accessed February 9, 2006.

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earning potential, and decreasing overall poverty. PRA Infrastructure’s goals are to support the

Peruvian Government in the development of transportation, energy and water infrastructure.33

The PRA Business Project – How Does it Work?

Figure 3: Demand-Driven Chain

Since 1999, the objectives of the PRA program have included (1) the reduction of

poverty through sustainable income generation and (2) the reinvestment of this income into rural

areas that demonstrate growth potential. PRA is attempting to create linkages between rural

commercial areas and larger markets in nine economic corridors as seen in Figure 3.34 This

program is structured on five principle tenets: demand-driven

development, private-sector involvement, decentralization,

outsourcing and privatization, and strict monitoring and

evaluation. Each of these is elaborated on below.

The first principle behind the PRA approach is demand-

driven development. PRA believes that demand is the motor

of development in poor regions of a country and that “demand

pulls supply,” i.e, that rural entrepreneurs must produce “what

they can sell, rather than [sell] what they produce.”35

Chemonics champions the idea of demand-driven development

because of its ability to alleviate poverty through the creation

of sustainable employment opportunities.36 There is

recognition, however, that this approach does not reach the

extreme poor in the way that other international agencies like IFAD do. As a result, the main

Source: Riordan, Jim. “One Buyer at a Time”

33 Ibid. 34 Chemonics. www.chemonics.com/projects/default.asp?content_id={261BAA38-4D6B-A978-DD5720A3F6B1} 35 Ibid. 36 Riordan, Jim. “One Buyer at a Time”. Stanford Social Innovation Review. Winter 2007.

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criticism of the project comes from those who argue that poverty alleviation should begin at the

very bottom of the pyramid. However, the success of the PRA project is tied to its different

approach to stimulate regional economic development and is a result of targeting populations

who are willing to participate in export-led business and capable of sustaining larger-scale

business projects. CCAIJO (El Centro de Capacitación Agroindustrial Jesús Obrero), one NGO

that works directly with farmer associations affiliated with the PRA Projects, recognizes that

PRA’s main targets are middle-income to slightly above the poverty line portions of the

population, yet believes that PRA’s benefits resulting from new investments in the rural regions

and the growth of small and medium-sized producers are slowly “trickling down” to the poorest

populations in the form of improved employment opportunities (to date, PRA has created 53,729

new jobs).37

The second innovative aspect of the PRA model is the active involvement of the private

sector. Until recently, businesses and private investment were not viewed as relevant actors in

the rural development or poverty alleviation fields. As a result, the decision of Chemonics to

include them as one of the drivers of regional economic development is worth highlighting.

The PRA Business component focuses on the client, which is identified by PRA staff

members based on a set of criteria. One of these criteria is to find a client who is best positioned

to provide the highest return with the lowest cost, using a general US$1 investment to US$5 in

sales ratio as the metric. PRA first looks for businesses already in the economic corridor and asks

them to consider investing in products that are already being produced, albeit at a small scale, in

the region. If that does not work, then they look to firms outside the zone and convince them that

the region has potential for low-cost, high value-added production of new products and the firm

37 Interview with head of CCAIJO NGO, February 27, 2007 at Chemonics PRA Office in Cusco, Peru; Proyecto PRA (2006), “Desarrollo y Pobreza Rural: un enfoque empresarial y de demanda. El caso del Proyecto PRA en el Perú.”Trujillo, 6 October.

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could capitalize on first-mover advantage. After cultivating these relationships between private

sector businesses, PRA is then able to help set up contracts between the clients and the local

producers. Between 2000 and 2006, PRA has established successful partnerships between 47,700

small and medium-sized producers (many of which are part of producer associations, described

below) and 219 business clients.38

PRA facilitates the creation of farmers and other producers associations that in turn work

together to cooperate with private-sector entities. In the case of the farmers, to be included in the

association they must meet several criteria including good credit standing, the ability to secure

credit and the availability of land for cultivation. If a farmer is very interested in participating in

the PRA project, but does not meet the minimum standards, PRA provides technical and capacity

building services to aid in the farmer’s advancement. Since each situation is different, PRA

adjusts its strategy to fit each individual business model, whether it is agricultural or industrial in

nature.39

As mentioned above, the private-sector led style of the PRA Project facilitates the

provision of technical assistance to farmers and entrepreneurs. This process overcomes the

problem of incomplete information in which farmers and entrepreneurs were unaware of the

potential for profitable cooperation. As a result of PRA involvement, buyers are made aware of

the low-cost, high value-added production possibilities in rural Peru. Additionally, small and

medium-sized producers learn that there is a global demand for their products. This process

creates a win-win situation for all actors involved by helping establish a productive business

38 Proyecto PRA (2006), “Desarrollo y Pobreza Rural: un enfoque empresarial y de demanda. El caso del Proyecto PRA en el Perú.”Trujillo, 6 October. 39 Interview with Pedro Camacho, February 27, 2007 at Chemonics PRA Office in Cusco, Peru.

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environment, an environment that has led to financial successes with the project generating

US$33.9 million in sales in 2005 and accumulated sales of US$147 million from 2000-2006.40

There are numerous examples of successful private-sector led projects being implemented

throughout Peru’s rural regions. These success stories emphasize the necessity of identifying a

potential buyer for a product before approaching the local population with capacity building and

technical assistance. In particular, projects involving the cultivation of artichokes and trout have

been especially successful in linking local producers with profitable export markets (see

Appendix A).

PRA’s Decentralized Approach is the third principle behind the program’s success. PRA

operates in a decentralized manner with Economic Service Centers (ESCs) throughout the

country. These ESCs serve as a networking hub and informational resource for individuals,

farmers and entrepreneurs. Additionally, ESCs are instrumental in forming and maintaining

linkages between the producers and buyers.41

There are currently nine ESCs operating throughout Peru. The Cusco ESC has

consistently earned the second highest sales among all the ESCs in the country. ESC Cusco has

successfully graduated 20 businesses from the program, meaning that those 20 businesses are

now operating completely independent of any support from USAID/Chemonics. The Cusco ESC

employs four individuals; each person is in charge of a different aspect of the project in the

region. CARE, who provides the financing for the office space and ESC employees in Cusco,

operates the Cusco office.42

40 USAID. Peru PRA Project Annual Report FY2005. Pg 24; Proyecto PRA (2006), “Desarrollo y Pobreza Rural: un enfoque empresarial y de demanda. El caso del Proyecto PRA en el Perú.”Trujillo, 6 October. 41 Proyecto PRA. www.proyectopra.com/contenido.aspx?IdItem=42. Accessed February 9, 2006. 42 Interview with Pedro Camacho, February 27, 2007 at Chemonics PRA Office in Cusco, Peru.

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The fourth tenet of the PRA program focuses on outsourcing and privatization. In

addition to using a subcontractor to implement the project (Chemonics for USAID), the project

also outsources the management of the ESCs to various NGOs, Universities and other private

enterprises (Figure 4).43

Figure 4: USAID PRA Organizational Structure

Source: USAID, PRA Peru Project Annual Report, FY 2005

In utilizing an outsourcing approach and privatizing a portion of the project, Chemonics

is able to reach a much broader area of need in the Peruvian highlands by tapping into the

knowledge-base of local practitioners. Furthermore, by allowing outside organizations and

private firms to take control of on-the-ground implementation, the Lima office can better

concentrate its efforts on overall project management and ensure the consistency of the PRA

projects throughout Peru’s rural regions. Though it can be argued that each regional ESC

benefits uniquely as a result of privatization, the consistency obtained through contractual

43 USAID. Peru PRA Project Annual Report FY2005. Pg I-4.

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agreements between private-sector contractors and USAID creates a baseline for the overall

project.44

One of the most interesting results to the USAID/Chemonics outsourcing approach is that

of the Minas Buenaventura case. Before the PRA project went into its implementation phase

studies were carried out to determine which regions would be viable for business investment and

cultivation. Because the nature of the project dictates that targeted populations consist of small

and medium-sized producers and that project regions are capable of sustaining and quickly

profiting from business, some of the poorest regions in the highlands were not considered. For

example, Huancavelica necessitated huge amounts of investment to make business a viable

economic development opportunity, thus ruling it out as a potential PRA project site. In this case

however, Minas Buenaventura, a private mine in the Huancavelica department, approached PRA

and promised funding to establish an ESC in the region. Currently, farmers are growing

artichokes with the support of a Minas Buenaventura-funded ESC and this public-private

partnership has resulted in significant returns for the poor populations in Huancavelica. This is

the only case where a PRA ESC is being funded with private capital but it demonstrates one way

in which this model could be applied in the future in other extremely poor rural regions in Peru.

As its final principle, PRA focuses on quantifiable results through monitoring and

evaluation. PRA has created a system of, quantifiable indicators including: new sales, new uses

and new investments that come as a result of work with PRA clients to monitor and evaluate the

project.45

44 USAID. Peru PRA Project Annual Report FY2005. Pg I-5. 45 Proyecto PRA. www.proyectopra.com/contenido.aspx?IdItem=42. Accessed February 9, 2006.

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The PRA project concentrates on three indicators as part of its monitoring and evaluation

structure.46

a. Incremental Sales b. Incremental Employment c. Incremental Fixed Asset Investment

PRA institutes its monitoring and evaluation structure at the onset of any contractual agreement –

whether it is between farmers or private businesses. These contracts delineate that PRA is given

access to accounting books and documents. Additionally, consistent management and business-

practice have developed what PRA calls a “culture of trust”, which in turn creates transparency

in procedure. This structure makes it simple to evaluate how much profit is actually being

generated by the project. Simply put, by measuring sales, employment and investment on an

incremental basis, the project is able to quickly discern what exactly the value-added results of

the project are (Table 4).

The Transition from USAID to Sierra Exportadora

The PRA program was originally meant to be short-term and was forecasted to run for

approximately three years. However, USAID extended its funding to 2008 due to the program’s

success. While all PRA activities will end in 2008, there are a number of mechanisms in place to

promote the continued transmission of knowledge. First, local and regional governments have

embraced the PRA approach.47 USAID has worked to capitalize on this verbal commitment with

a pilot project to assess the feasibility of transitioning PRA’s ESC activities to the regional

government in the Department of San Martin.48 Although the results of this study have not been

published, the project represents an effort on the part of Chemonics and USAID to identify a

viable exit strategy

46 Interview with Pedro Camacho, February 27, 2007 at Chemonics PRA Office in Cusco, Peru. 47 Ibid. 48 USAID. Peru PRA Project Annual Report FY2005. Pg 23.

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Table 4: PRA Cumulative Results through September 2005

Source: USAID, Peru PRA Project Annual Report, FY 2005.

Preparations for the phase-out of PRA have also involved a dialogue between USAID

and the Peruvian government. More specifically, the agency is in negotiation with Sierra

Exportadora, a new government entity established to expand markets for those crops produced in

the highlands. The move to shift to a government-led approach does not dictate that the PRA’s

private-sector emphasis will be lost. However, it is important that the Peruvian government

continue to embrace outsourcing and privatization through Sierra Exportadora. This is

particularly relevant when considering retention of consistency and institutional knowledge on

the ground. In its currently proposed form and once the formal agreement is reached, the regional

governments will be responsible for staffing and operating the ESCs in their respective

departments and Sierra Exportadora would take on the ownership role currently played by

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Chemonics. Although these plans for the transition of services are well underway, there is a

clear need for an assessment of this strategy’s viability.

There has been speculation about the program’s sustainability once the Peruvian

government controls it. The recommendations at the end of this paper outline several strategies

necessary to make the transition viable. Most importantly, the Peruvian government should retain

the program’s current structure, and continue to use a private-sector approach to this demand-

driven development. The program’s success and already existent infrastructure should be

galvanized rather than ignored; the goal of Sierra Exportadora should focus on protecting the

interests of the small and medium-sized producers and entrepreneurs as well as the buyers

abroad. By concentrating on public-private partnerships, the Peruvian government should not

only facilitate a smooth transition, but also be able to maintain the project’s success in the long-

term.

V. Concluding Remarks and Policy Recommendations

Summary of findings

Both IFAD and USAID/Chemonics have established themselves as innovative leaders in

the transition to new rural development practices in Peru. The two organizations are

implementing development policies that clearly recognize the emergence of a new rural

paradigm across Latin America. IFAD’s approach focuses primarily on pro-poor rural

development, strengthening local capacities and human capital from the bottom-up and involving

the local governments and civil society in the creation and implementation of rural development

strategies. The USAID/Chemonics PRA Project approach is pro-poor as well, but in a more

indirect way, since its clients include small and medium-sized producers, who in turn generate

employment opportunities for the poorest of the poor. PRA is driven by the belief that Peru’s

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rural landscape is filled with opportunities for business development but the conduits between

producers and buyers are non-existent. Thus, it works to promote higher value-added, export-

oriented production in regionally focused economic corridors using a unique business model

approach that overcomes information asymmetries in the market.

Perhaps the most important lesson from this comparative analysis is that the concept of

demand-driven development is not universally understood or used. IFAD refers to its rural

policies as being demand-driven when in fact they could more accurately be defined a “supply-

push”. IFAD asks its clients, the local rural communities, what they need to move into newer,

productive activities and then respond by providing the tools or technical capacity to fill these

gaps. But they do not actually find an end-marketplace for the products that will result from

implementation of these new tools or skill sets. Meanwhile, PRA first seeks out the buyers that

are demanding new Peruvian products to include in their export baskets and then match-up these

buyers with the local suppliers of these unique products. In this way, rural development through

the PRA Project really is driven by buyer demand for local goods.

While the PRA Project has more quantifiable outcomes, measured in sales and

employment creation in Peru’s rural regions, it is not to say that IFAD’s CORREDOR is not

successful as well. However, the differences of the IFAD program must be recognized, namely

that they are targeting the poorest of Peru’s poor populations and are utilizing small-scale local

capacity building techniques that are not expected to yield overnight results. PRA’s success on

the other hand hinges upon its ability to attract businesses into rural regions with the promise of

quick but sustainable profits, and it is working with medium-sized producers that have the

capacity to produce high-quality products in relatively large quantities.

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PRA has managed to breathe new economic life into lagging departments in Peru,

demonstrating that rural regions, when provided with properly targeted support, need not be

synonymous with decline. The unique aspect of the program is the importance of private sector

investment, which was attracted to these rural regions and nurtured into profitable activities by

the technical assistance and support of the Chemonics led ESC buyer-supplier relationship-

builders.

CORREDOR has provided poor rural communities with new skills and mechanisms for

shaping the future development of their area. The long-term scope of the project allows IFAD to

invest in both human capital and local markets so that a foundation for greater economic

development can be established. This type of program should be viewed as a way to reach

Peru’s extreme poor who would not receive assistance through programs such as PRA. Given

IFAD’s more traditional approach and its likelihood of receiving continued international funding

irrespective of government action, the bulk of the recommendations in the following section will

focus on PRA program. Those engaged in the PRA program have not been the recipient of

targeted assistance in the past, but through the PRA program have demonstrated strong potential

to drive economic development in rural Peru.

Recommendations for the future of rural development in Peru

Based on these findings, the PRA Project certainly stands out as an effective new rural

development approach. The Peruvian government has taken notice of this unique demand-driven

approach and is in the process of institutionalizing the model into the current administration’s

development program. To ensure that the lessons of the PRA model are not lost and that Peru’s

rural regions can continue to rely on the process to stimulate new revenue streams and jobs, the

following recommendations might be considered.

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1. Streamline the bureaucratic operational procedures of Sierra Exportadora. With Sierra

Exportadora (SE) set to take over the coordination role of PRA from Chemonics, the

administration must assess just how prepared the bureaucratic and decentralized public

organization is to implement a business-oriented development model. Working as the

broker between businesses and local producers, SE must not be fettered by red tape and

bureaucratic procedures.

This recommendation is based on the assumption that a transfer to SE is under way and

irreversible. However, if there is still an opportunity to rethink the future direction of the

PRA program, the government would be well advised to strongly consider outsourcing

the entire implementation of the program to a private firm experienced in promoting

private-sector involvement in rural development, such as Chemonics.

2. Promote private sector participation through outsourcing of local on-the-ground

operations. A key to the success of PRA is finding the link between enterprises and local

producers and fostering trusting relationships between the two parties. Government

agencies are not in the relationship-building business nor are they in the best position to

seek out future enterprises for PRA projects. To ensure that SE has the right agents in

place to carry out these tasks, the 2007 state reform plan should call for the inclusion of

outsourcing as a public management tool.

This would grant SE the authority to contract out the ESC staff positions to competitive

bidders from the private sector, universities or NGOs, much like Chemonics does now.

Recognizing the technical capacity limitations in many of the regional governments, SE

could simply take over the ownership of the contracts Chemonics currently has with the

non-governmental operators of the nine different ESCs and then move those operators

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into the new regional government ESC office. The regional ESC director could either be

a government manager or current operator-provided director, but it would be the

contracted operators that would continue serving as the ESC staffers, creating the

linkages between the buyers and the producers and providing the technical assistance to

the relevant actors. In time these contractual relationships could be phased out, but not

until sufficient knowledge transfer of business practices and technical assistance was

executed between the contracted operators and the local regional government staff that

would eventually take full control of the regional ESC.

3. Assess the impact of the San Martin ESC transition process. As previously stated, the

authors believe that a private or public-private approach to manage PRA in the future

would be the best approach. However, based on conversations with PRA managers it is

clear that the Peruvian administration is firmly set in handing over the PRA program to

the publicly managed SE.

Therefore, steps need to be taken to ensure a smooth transition. First, the process of

transitioning the ESC in the Department of San Martin from the private operators to the

regional government should be studied and the lessons, positive and negative, collected

into a handbook for the other departments to reference as they prepare for a similar

exercise. A handbook should outline, in particular:

• the capacities that need to be built to create effective regional government ESCs

and the resources needed to do so;

• the role the SE office in Lima will play;

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• the rules on taking over the contracts from Chemonics to allow for a transition

period where the regional ESCs will continue to be staffed by contracted

operators;

• tools and techniques to help strengthen the managerial networks between the new

regional ESC staff and the business leaders of the region’s PRA initiatives, to

ensure the critical trust relationships brokered by the original ESC staff are not

lost;

• and a detailed calendar indicating the logical progression of events and estimates

of the necessary time for each step in the process.

4. Establish an inter-regional ESC network. To smooth the transition of the ESCs from the

existing operators to the individual regional governments, clear lines of communication

and coordination should be established between the departmental governments. To

strengthen this inter-regional coordination, San Martin can take the leading role by

beginning to share information and knowledge, as outlined in point 4 above, on the

process of building a regional government ESC. An informal, on-line regional network

and dialogue center should be established to create a simple and inexpensive forum

where the regional ESC directors, the SE managers in Lima, the contracted operators, the

business managers and the international organizations involved can communicate new

ideas, share troubleshooting experiences or seek technical assistance.

5. Implement a Chemonics training program for Sierra Exportadora. Just as knowledge

needs to be transferred between the old and new regional ESC staff, the new coordinator

of the government institutionalized PRA Project, Sierra Exportadora, needs to trained in

the ways of running the PRA model. Chemonics, the current coordinator, should establish

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an extensive training program, funded by SE, to provide technical assistance and train the

new staff of SE.

6. Recognize that the success of PRA Projects hinges on more than identifying products.

For PRA to remain successful there is much more to the process than just selecting the

goods for export.

• First, for the selected productive activities to yield high sales and create jobs,

stable and trusted businesses must be solicited and sold on the value of the region.

• Second, capable relationship-builders will be needed in the regional ESCs to

foster the contracts between these buyers and the producers. Again, until the

capacity is built up in the regional governments, the ESCs should be staffed by

non-governmental agents with expertise in the business-oriented approach of

running PRA Projects.

• Third, SE must understand that the PRA model is not something that will

automatically lead to successful economic development in every rural region in

all 23 departments of Peru. The key is to continue focusing on those regions and

those products that, with the assistance of knowledgeable business leaders, can

quickly turn profits and create jobs.

7. Maintain a balanced government approach to rural development. The focus of SE as it

takes over the control of PRA should continue to be on poverty alleviation through the

targeting of individual producers and buyers that together can stimulate regional

economic activity, bringing new revenue and jobs to the impoverished rural regions of

Peru. However, SE must recognize that although this is just one component in the

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national regional poverty alleviation strategy, it is an important and effective tool that

requires SE’s undivided attention. SE should not begin to try and adapt the PRA model to

address the other rural poverty needs in Peru.

8. Continue to support programs targeting the extreme poor. Central government

programs, in coordination with international organizations, like IFAD, should be

addressing these other gaps and providing assistance to the most marginalized groups of

rural poor that are not intended to be the target audience of the PRA Project model. Since

IFAD’s CORREDOR program has been effective in engaging local communities and

increasing their capacity to be involved in rural development initiatives, the Peruvian

administration should continue supporting this and other programs of its nature.

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Appendix A

PUNO TROUT Through the Puno ESC, PRA connected the Arapa S.A.C. trout processing company with DISCO-Ahold, the second largest food retailed in the world. The production process involves:

Local trout farmers on Arapa Lake

The Jose Olaya Corporation (Supplier)

Arapa S.A.C. (Processing)

DISCO-Ahold (Distribution) In addition to identifying a new buyer for Puno trout, PRA funding has enabled the Arapa Corporation to receive consulting services. As the firm’s general manager, Luis Delgado Medina noted, “a consultant identified an interesting opportunity in the Brazilian market. We’re examining the deal to see if it’s viable.”

Source: PRA Bulletin Special Addition, October 2003

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PRA and CCAIJO

Buyer: Sociedad

Agrícola VirúArtichoke Farmers

COFIDE (2nd Floor Bank)

Processing of Product

PRA Facilitated Contract

1st Floor Bank

IADB or World Bank Funds

Export Market

USA and EU

PRA and the Market for Artichokes

Incremental Sales based on S./ 2.6 /kg

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Appendix B

Relevant Stakeholder Meetings held in Peru from February 26, 2007 thru March 2, 2007 Sr. Jose Iturrios Padilla Proyecto PRA Director Av. Republica de Panama 3055, Piso 12, San Isidro, Lima Email: [email protected]: 511-221-3266 Sr. Mauricio Moscoso Bartra Proyecto PRA Director de los Centros de Servicios Economicos Av. Republica de Panama 3055, Piso 12, San Isidro, Lima Email: [email protected]: 511-221-3266 Sr. Pedro Camacho Daza Proyecto PRA Gestor de Negocios del Centro de Servicios Economicos Cusco (Operador: CARE) Manuel Ascensio Segura A-5, Urb. Santa Monico, Cusco Email: [email protected] Telephone: 084-253-525 Sr. Wilfredo Vega World Bank – Proyecto de Rehabilitacion y Reordenamiento del Valle Vilcanota Facilitador Local del Proyecto en Cusco Cusco, Peru Email address: [email protected] Phone: 084-967-5389 Sra. Veronica Zavala Minister of Transport and Communication Lima, Peru Institute for Liberty and Democracy Las Begonias 441, Of. 901�Lima 27, Peru� Telephone: (51-1) 616-6100 Sr. Lucien Chauvin The Economist Email: [email protected]

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Sr. Francisco Zagasti FORO Nacional/Internacional President Oscar Pastor Paredes Gobierno Regional Cusco Gerente General Regional Email: [email protected]: 084-234-0

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