Ex-post Evaluation
August 1997

Executive Summary

THE OBJECTIVE OF THE EX-POST EVALUATION MISSION

So far the International Fund for Agricultural Development (IFAD) has financed only one project in Mauritius, the Small-Scale Agricultural Development Project (SSADP), IFAD loan 078-MT.  The total cost of this project was USD 8.71 million of which IFAD's loan amounted to USD 6.3 million.  The project became effective in May 1983 and closed in December 1991.

IFAD's Office of Evaluation and Studies (OE) and Africa II Regional Division (PF) together decided that it was timely to mount a focused Ex-Post Evaluation (EPE) mission of the SSADP in Mauritius in the first quarter of 1997.  In view of IFAD's pipeline activities in Mauritius (IFAD is in the process of preparing a Rural Diversification Project (RDP), containing a substantial credit component), it was agreed to focus the EPE of the SSADP on rural financial services and credit issues.  However, the evaluation mission not only assessed the impact and sustainability of IFAD's previous credit operations, but also reviewed the performance and current institutional capability of the Development Bank of Mauritius (DBM) and other financial institutions operating in the market, especially regarding their credit delivery, monitoring and follow-up, and recovery potentials.  The evaluation mission also drew up a set of lessons learned and made recommendations regarding IFAD's future cooperation framework in Mauritius, which the pre-appraisal mission of the RDP, scheduled in the first quarter of 1998, would take into account.

BACKGROUND

Mauritius has made remarkable advances over the past 25 years or so.  For example, over this period, real growth averaged 6% per annum, leading to a near four-fold increase in real per capita income; the labour-based expansion of output eliminated unemployment; and effective distributional policies contributed to poverty eradication. Of course, much still needs to be done.  The Government of Mauritius (GOM) is not at all complacent about its achievements, especially because the economic growth of the past has yet to reach all segments of the population. 

The past success was based on important amounts of foreign investment that was attracted primarily by the country's political and social stability; its abundant and literate labour; and preferential access to the European Union (EU) and United States (US) markets for its sugar and textile exports.  Some of these conditions have shifted as a result of domestic structural change and emerging international market trends, leading to a need to adapt the growth strategy.  On the home front, labour shortage resulting from virtual full employment since 1988 has become a constraint on the expansion of output and has brought about growing wage pressure and gradual erosion of the country's labour-based competitive advantage.  Despite the significant advances and progress made by Mauritius, and despite its high Gross Domestic Product (GDP) per capita, it is clear that poverty still persists.  In fact, in some areas such as Rodrigues poverty is quite wide-spread.  Any future IFAD assistance at the recently agreed upon intermediate lending terms (interest rate at 4%) would greatly contribute to poverty alleviation in Mauritius, and to its economic development in general.

ECONOMIC POLICY

Economic policy of Mauritius is partly influenced by several, inherent, constraints.  The economy is exclusively dependent on foreign trade, due to the limited and often poor resource base.  For example, the import to GDP ratio is about 60% compared to 20% for the average oil importing developing country.  The relatively small size of domestic markets make it difficult for Mauritius to benefit from economies of scale, either in manufacturing or marketing.  Furthermore, limited access to international capital markets and heavy reliance for foreign exchange on sugar and tourism means that the economy is especially susceptible to external financial shocks.

From the macro-economic perspective, the economy is currently suffering from structural adjustment problems with a current account deficit (5.5% of GDP), chronic fiscal deficit, which ranges from 3-5% of GDP, annual inflation is usually higher (6% compared to growth rate of 5.3% of GDP in 1995).  Furthermore, economic development and growth is heavily dependent on labour intensive technology, which needs major upgrading of technical skills and innovation to ensure increased productivity and growth.  But the country neither has the capacity to generate additional financial resources internally nor to borrow from external sources at prevailing market rates.

Although economic policy is designed primarily to further increase economic growth, the GOM is particularly sensitive to the issue of poverty alleviation.  It has, for example, already identified "Exclusion Zones", which are specific areas where it will take concrete measures to address the problem of poverty.

Marshall Plan, Trust Fund and EDF Programme:  The GOM has recently instituted a plan - known as the Marshall plan - which will target poverty alleviation activities across the country.  This plan will have approximately MRs 50 million to disburse in its first year of operation.  Similar level of funding is expected in each of the next four years.  Further, a trust fund, which is headed by the President, aims to target the Exclusion Zones. Moreover, the European Development Fund (EDF) is expected to identify and finance a programme of poverty alleviation within the next 12 months, and plans to spend approximately MRs 100 million implementing such a programme.

Poverty Study:  Under the overall coordination of the Economic Planning Unit (EPU) of the Ministry of Economic Planning, International Trade and Telecommunications (MEPITT), an extensive poverty study is currently being conducted.  This is the first time that such an exercise is being undertaken.  A private consulting firm was contracted to conduct the task of obtaining the required primary data and information.  For this purpose, a survey was implemented (using a questionnaire) and approximately 3000 households were included in the sample.  The questionnaire contained about 300 questions.  The data gathered  has been submitted to the EPU, who are now engaged in its analysis.  When the poverty study is completed, the report will provide a in-depth and up-to-date picture of the profile and extent of poverty.

THE SMALL-SCALE AGRICULTURE DEVELOPMENT PROJECT

Design

The project was originally designed to assist poor farm families to develop their own farm enterprises.  Through an agricultural credit programme (70% of total costs), the project was to support small-scale cultivation and livestock production.  Sub-programmes included: (i) small-scale irrigation; (ii) litchi production; (iii) sericulture; (iv) goat breeding; (v) construction of rural health centres; (vi) a village self-help garden programme; and (vii) the strengthening of monitoring and evaluation, both in the implementing institutions and at the ministerial level.  The project was expected to bring a new source of livelihood to 630 participant farmers and about 1 400 goat keepers.  Including their families, around 12 000 persons were expected to benefit directly.

Reformulation and Results

Implementation was slow during the first three years, mainly as a result of the very rapid (and unexpected) growth and evolution of the overall macro-economic situation in Mauritius, and more specifically, due to the difficulties in the agricultural credit programme, which was constrained by a scarcity of land for development.  The lack of a clear interest rate policy led farmers to seek funds elsewhere, resulting in slack initial demand for credit from IFAD's loan.  The project was reformulated in 1986, to include a general line of credit from both the Mauritius Cooperative Central Bank (MCCB) and the DBM for agricultural and off-farm activities, and to raise the eligibility threshold for smallholder credit. After reformulation and by the end of the project, the total number of small loans extended under the general line of credit from the two implementing banks reached more than 3 500. Overall, substantial progress was made in project implementation after 1986 and by project closure all portion of IFAD's loan was disbursed.

From a developmental perspective, the SSADP achieved good results.  The project to a great extent, achieved its objectives in promoting small-scale enterprises in rural areas and it was successful in creating credit facilities for a section of the population who would not otherwise have benefited from loans at concessional rates.  The SSADP substantially contributed to establishing various health and veterinary centres, which are currently operating well.  The project also provided useful assistance for improving the goat breeding stock of the Ministry of Agriculture (MOA).  Finally, those farmers engaged in SSADP's mixed vegetables and litchi sub-projects registered increased incomes and a general improvement of their economic conditions by the end of the project, as compared to their economic state at project design.

LONG-TERM IMPACT AND SUSTAINABILITY OF THE SSADP

In general, the overall long-term impact of the SSADP has been positive.  IFAD's line of credit has acted as a catalyst for promoting small lending for agricultural and non-agricultural activities in Mauritius, uncovering the demand for small loans.  In particular, the SSADP's general line of credit has helped the creation of various small and medium-size enterprises.  Many of the small undertakings have today grown into medium-size firms.  Moreover, in this area the SSADP has contributed to the generation of a culture of entrepreneurship amongst the poor and now the beneficiaries are more confident to undertake new projects and to borrow.

The SSADP has also had a positive long-term impact on the DBM.  As a result of the Bank's participation in the project, it is today a much stronger institution, and certainly a leader in development banking in Mauritius.  The SSADP instilled a sense of responsibility in the DBM to provide loans to small farmers and entrepreneurs, and to facilitate their operations in this area, the DBM have created a specialised window for operating small loans for agriculture and off-farm activities.

As far as sustainability of SSADP is concerned, some activities were identified that are truly self-sustaining.  Primarily, these are the health centres and veterinary services (funded through SSADP), which represent sustainable activities as their operations have been integrated into the overall national services.  The health centres have significantly contributed to improving health standards in rural areas.  Concerning agricultural activities, two successful SSADP sub-projects are operating well - the litchi and vegetable production schemes.  They have also proved to be very profitable activities for SSADP beneficiaries.  Average yields of vegetables increased from 2 tons/arpent in 1990 to a maximum of 8 tons/arpent in 1996.  Part of this yield increase can be attributed to the use of fertiliser, crop protection chemicals and better irrigation practices.  Litchi production has also increased due to improved extension advice and proper maintenance of trees.

RECOMMENDATIONS

General

Despite the significant advances and progress made by Mauritius it is clear that poverty still exists to a significant extent in the country.  Poverty in Rodrigues is rather severe.  Moreover, Mauritius does not have the capacity to generate much financial resources internally and also is not able to borrow much capital from external sources. Given the aforementioned, and that the GOM's rural development priorities and policies emphasise improving agricultural productivity of smallholders and encouraging economic diversification whilst paying due attention to natural resource conservation and rural employment generation, the EPE mission recommends that IFAD should renew its collaboration with the country, particularly in those areas that are in line both with IFAD's and GOM's overall poverty alleviation goals and strategy.

Role of the Poverty Study

The objectives of the poverty study, undertaken by GOM, are to analyse attributes which would assist in the definition of poverty and the poverty line in the Mauritian context, to identify pockets of poverty, and to study the causes of poverty and the socio-economic characteristics of the poor.  Based on a thorough review of the poverty study and taking into account other sectoral studies undertaken recently by GOM, an overall Poverty Alleviation Strategy and Programme is being formulated by the government. The data collection and tabulating exercises have been completed, but an in-depth analysis of the poverty study has yet to be finalised.  As such, the poverty study is not expected to be made public for some time.  However, the EPE mission recommends that during project design of the RDP, IFAD should make use of the poverty study (of what is available), drawing on its findings and recommendations for devising IFAD's poverty alleviation strategy and for identifying more closely the Fund's target group, areas and activities.

Specific sub-projects/sub-components

The EPE identified the need for IFAD support in several areas which appear to have the basic elements of IFAD's mandated objective of poverty alleviation. These include agriculture and rural diversification (including small irrigation and support services, particularly in the drier Northern and Western Regions of Mauritius), micro-scale income generating activities (especially for women) and artisanal fisheries.  In this context, some of the specific activities that could be supported include: small dams and irrigation; existing vegetable projects with the National Development Unit (NDU); pig breeding; livestock; marketing and extension.

Support for the recently started Women's Entrepreneur Unit (WEU) could also be considered.  The unit, which is based in the Ministry of Women, Work and Youth, is focused entirely towards poor women.  It supports many cottage-industry type of activities, including handicrafts and other micro-enterprises.  IFAD could be of much help by providing a line of  credit for these women and such activities.  At the moment credit constraints prevent the women from further enhancement and diversification of these activities.  The benefits from targeting the women through this unit seem large.

Targeting

In Mauritius, the rural poor are not conveniently situated in a clearly identifiable, geographically separated area where their low income and food insecurity can be resolved by traditional agriculture activities alone.  The poor are interspersed throughout the economy, and are only partially involved in a primary activity such as fishing or agriculture, and their economic opportunities appear to lie mostly in off-farm or urban related activities.  Hence, the forthcoming pre-appraisal mission of the RDP should develop a definition of target group that would correspond to the above reality in Mauritius.  In addition to target the women and unskilled/unemployed youth, who form the bulk of the rural poor on the island of Mauritius, targeting the island of Rodrigues (where incomes are generally only about half of those in Mauritius) is crucial in any future IFAD intervention.  In Rodrigues some of the activities to support could include: agro-processing; strengthening of support services and related institutions; agriculture irrigation; and micro-enterprises.  The need to review marketing is also important before support for a particular activity is considered.  Livestock and pig-breeding are other major areas of potentially beneficial activities that IFAD could assist in.

Beneficiary Participation

In the SSADP, beneficiary involvement in project design, implementation and monitoring and evaluation was limited.  This contributed to the reduced performance of some project components.  Hence, any future IFAD project should involve much more consultation with potential beneficiaries (and implementors) right from project preparation in order to understand better their real needs, preferences and constraints.

Credit

Demand for Credit:  Any future IFAD project should emphasise the provision of credit.  From the findings of the EPE mission, it is evident that the demand for loans at concessional rates exceed supply, especially the demand for credit for small-scale activities, including the establishing of micro-enterprises and undertaking small agricultural activities, as well as for artisanal fisheries.  Youth and rural women are among those segments of the rural population who form a large part requesting small loans.

The Development Bank of Mauritius:  Based on its assessment and review of the various financial institutions operating in the country, the EPE mission recommends that the Development Bank of Mauritius be responsible for handling any future IFAD line of credit.  DBM has made significant improvements thanks also to its involvement in the SSADP and it is the institution with the largest experience in managing small credit in Mauritius.  DBM is the only bank in Mauritius lending exclusively for developmental purposes, who have also set up specialised windows for extending credit facilities to small farmers and entrepreneurs.  To complement the work of DBM, any IFAD project development team should also explore the possibility of involving NGOs with appropriate experience and other financial intermediaries in IFAD credit activities in Mauritius.  Such institutions can contribute to reducing the overall transaction costs in delivery of credit, as well as increase the overall impact of the intervention.  However, the involvement of commercial banks in IFAD activities should be examined very carefully, and although they have a wide network of retail outlets, their main mandate remains profit maximising and they have very little experience in the area of small lending, are more strict on collateral requirements and are reluctant to rescheduling repayments.

Incentives:  The EPE mission recommends that future loans be linked to appropriate incentive mechanisms.  This would ensure proper and timely usage of funds, as well as a more meaningful impact on the livelihood of the potential beneficiaries.  For example, "third-party guarantees" may be such an appropriate mechanism, in lieu of collateral.  This mechanism was successfully used by DBM in the SSADP.  Of course, alternative mechanisms should also be considered that provide effective incentives for the uptake, usage and repayment of IFAD credit.

Accessibility to Credit:  Based partly on the experience gained from SSADP and given the evolving nature of the structure of the Mauritian economy, the EPE mission recommends that lending be much more broad-based.  This is not only with respect to the nature of the specific activities supported, but also with respect to the specific characteristics of the borrowers.  The structure of the demand for credit can alter over the course of the project cycle.  It is recommended that IFAD set some broad guidelines and parameters, but then allow project management and the credit implementing agency to operate fairly freely within such a broad framework.  To make sure that the project is addressing, in an effective manner, the issue of poverty alleviation, project management should report to IFAD on a regular basis on this aspect.

Data, Reporting and Monitoring Needs:  These issues are extremely crucial and need to be given very careful and detailed consideration, especially in view of the poor reporting and monitoring performance of SSADP.  IFAD should make it clear at the project design stage in a well-defined and precise manner (i) the information required to be collected by each implementing agency, when to collect and in what format, and (ii) to whom that standardised information needs to be reported, when and how frequently.  This, of course, makes sense after the responsibilities and roles of each institution involved in the project are specified.

The recent computerisation at DBM should make the implementation of the above recommendations relatively easy in the future (in contrast to the SSADP project when all data was manually handled).  However, the issue of monitoring DBM seems problematic. The (Central) Bank of Mauritius (BOM) prefers not to get involved in monitoring DBM activities.  The mission is concerned about the issue of monitoring DBM and if the latter were involved in future IFAD projects, one possibility might be to appoint an independent auditor or to set up a project steering committee to which DBM would report to periodically.

The Monitoring and Evaluation System

The Monitoring and Evaluation system within the SSADP had little impact.  The role of an effective Monitoring and Evaluation system cannot be overemphasised for the success of the project.  Hence, significant attention should be devoted to this aspect at the  project design stage, and to the extent possible, beneficiaries should be involved in the selection of project performance indicators early on in the design of the monitoring system, as well as during data collection and analysis.  To facilitate this activity, a specific budget line, one for monitoring and one for evaluation, could be included in the appraisal document.

Marketing

Middlemen tend to possess significant bargaining power, and hence the returns received by the poor from their investments tend to be reduced.  This has an adverse effect on the degree of success of IFAD projects in particular, and on poverty alleviation in general.  Alternative effective means of marketing should be explored. Moreover, the GOM might wish to consider some form of direct or indirect intervention (regulation and/or taxes) that decreases the bargaining power of the middlemen, and/or increases the bargaining power of the poor.

LESSONS LEARNED

The goal of IFAD projects and programmes are to establish a basic framework for sustainability of activities financed through its intervention, with the ultimate aim of contributing to the increased and continued economic prosperity of the intended target group.  However, the latter can only be achieved if activities financed are truly sustainable after project closure.  To ensure sustainability, first and foremost projects need to be participatory, involving the beneficiaries both at design stage and during implementation, also to instil a sense of ownership in, and responsibility towards, the project and its activities.  Moreover, a sound framework needs to be set up, at government level, which will ensure the degree of support and attention necessary to ensure sustainability.  This also needs to be accompanied by continued commitment of those institutions that are involved in the project, and which have a role to play thereafter (e.g. development banks, extension units, community organisations, etc.).

Drawing on the experiences and evolution of the economic environment under which the SSADP operated, one important lesson learned is regarding flexibility of project design.  Since, at the time of project design a great deal of uncertainty exists about a number of relevant factors, it is plausible for projects to be designed in a flexible manner.  In fact, due to certain constraints in the design of the SSADP, a full-fledged reformulation of the project was required during implementation to streamline project activities and goals for it to remain relevant under the evolving operating environment, which involved an unexpected accelerated growth of the economy causing several macro-economic effects.  Hence, project design needs to provide project management with the appropriate degree of flexibility to enable it to respond continuously, promptly and effectively to changes which are unforeseen and outside their control.

In order to ensure consistent and wide range lending that meet the broad objectives of IFAD projects, it is more beneficial to provide credit on a "needs-basis".  Such an approach to project operations, especially in those projects where credit is the central component, will expedite implementation and increase the likelihood of positive impact on beneficiaries.  As such, credit can be provided to the eligible for activities that need not be explicitly specified ex-ante, but may nevertheless contribute to the overall objectives of the project and its rural poverty alleviation goals.  Such an approach would be consistent with the lesson on flexibility in project design.