Interim Evaluation

Introduction. The interim evaluation of the Ghana Rural Enterprises Project, Phase II (REP II) was conducted by the Independent Office of Evaluation of IFAD (IOE) in line with the provisions set out in the IFAD Evaluation Policy and IFAD Evaluation Manual. ¹ The main objectives of the evaluation were to: (i) assess the performance and impact of IFAD operations through the REP II; and, (ii) generate a series of findings and recommendations that will contribute to formulating the forthcoming country strategic opportunities programme. The evaluation was conducted while project implementation was still active so performance was assessed based on current achievements as well as assessment of potential performance by project completion. Following a preparatory mission in May 2010, the main evaluation mission took place in July 2010 and included visits to 16 REP II-supported districts and five non-project districts.

Country and sector background. Ghana was one of the first countries in Africa to pursue economic reforms in the 1980s and, despite periods of economic volatility, has demonstrated positive economic growth. Gross domestic product has raised from 4.5 per cent in 2002 to 6.2 per cent in 2006. In 2007 and 2008, the Ghanaian economy was hit hard by the combination of a widening current account deficit and a contracting capital account. In 2009, the economy started to show signs of stabilization, but challenges on the macroeconomic front remain substantial. ²  The overarching goal of the most recent national Growth and Poverty Reduction Strategy (GPRS II 2005-2010) is to attain middle income status by the year 2015, within a decentralized democratic environment.

Ghana comprises ten regions and 170 districts with an estimated population of 21 million ³ and an annual population growth rate of 2.56 per cent in 2006. Agriculture provides the main source of livelihood for approximately 60 per cent of the population. The main food crops are roots and tubers, cereals and pulses. Importation of food crops such as rice and processed foods is high. Local agriculture suffers from use of low yield crop varieties, lack of irrigation and limited market linkages. Micro and small enterprises (MSEs) are thought to comprise around 80 per cent of the service and manufacturing sectors. There are a range of factors hindering the MSE growth, including: limited extension of infrastructure (electricity, roads, water, telecommunications), weak institutional arrangements, high cost of inputs due to importation and lack of rural finance.

Project background. The second phase of the REP II was designed in 2002, based on the learning from the preceding, successful REP I. The REP II Loan Agreement was signed in 2003. The overall goal of the REP II was to alleviate poverty and improve living conditions in the rural areas and especially increase the incomes of women and vulnerable groups through increased self- and wage employment. The REP II design involved four interrelated components: (i) Business Development Services through establishment and operation of business advisory centres (BAC) in each participating District Assembly; (ii) Technology Promotion and Support to Apprentices Training (TPSAT) through establishment of rural technology facilities (RTFs) in selected districts; (iii) Rural Financial Services (RFS) through continuation of the REP I Rural Enterprises Development Fund (REDF); and, (iv) Support to MSE Organizations and Partnership Building (Institutional Support). There was also a non-technical component for project management. The REP II project area aimed to include 53 districts across the ten regions in Ghana. The project interventions targeted the entrepreneurial poor through a demand-driven approach.

Implementation results. REP II commenced slowly, experiencing several changes within the executing agency, as well as issues and challenges pertaining to recruitment and procurement. However, since the mid-term review in 2007, results have shown an improving trend. The 2008 IFAD supervision mission noted that significant progress was being made in all components. Implementation has accelerated and performance is now commensurate with the project time elapsed (80 per cent at the time of evaluation) for most activities. The project is now active in 53 districts, providing direct support to BACs and RTFs. All of the targeted BACs have been established. In addition, also twelve RTFs have been established. At the time of this evaluation, the remaining six RTFs were in the process of being completed. Delays in establishment of the RTFs resulted from procurement bottlenecks with the African Development Bank (AfDB).

Despite the initial delays, training activities have exceeded targets for clients and apprentices trained at 115 per cent and 131 per cent of target respectively. The number of SMEs established has reached 71 per cent of target and 94 per cent of the targeted number of clients have been linked to larger commercial operations. On the other hand, there are some aspects where more serious issues have been faced in achieving the targeted results. Only 27 per cent of the targeted number of MSEs has accessed the available loan funds. It is likely that the bottlenecks in accessing credit have also contributed to lower than expected number of wage jobs created (57 per cent) and adoption rates from training (48 per cent of those trained). The BACs are already actively working to overcome barriers to credit access and increase conversion of training into business start-up, survival and employment generation. In addition, some positive initiatives have not yet been reflected in the project monitoring database. Therefore, results are likely to further improve by the end of the project.

Relevance. The project is rated as highly relevant to the national poverty reduction agenda, to IFAD's Strategic Framework (2007) and country strategy for Ghana and to the needs of the rural poor. The goal and objectives of REP II, which focus on rural poverty reduction through rural MSE development, are consistent with the Government's development objectives as stated in GPRS I and II. The REP II design supports GPRS II's emphasis on developing a market-driven agricultural sector and a vibrant private sector. At the local level, the project objectives are also consistent with the national decentralization agenda that aims to strengthen the capacity of local governance through encouraging District Assemblies ⁴ to take responsibility for local development and in generating resources through local taxes and fees. The evaluation mission found that the REP II activities were highly relevant to the District Assembly's priorities as outlined in their medium term development plans and to the needs of the clients in the participating districts.

Effectiveness. REP II has been effective in progressing towards attainment of the project objectives and goal. Given the proactive approaches of the Project Coordination and Monitoring Unit (PCMU), it is likely that the project targets will be met by the end of the project period. The BAC network has created a more enabling environment for MSEs and has effectively stimulated the establishment and expansion of MSEs. The activities of the BACs and the RTFs have assisted in developing a competitive rural MSE sector within participating districts. The project has been successful in reaching and exceeding the targeted coverage in terms of number of districts. The BACs within each district and the RTFs are strongly supported by the District Assemblies in terms of both commitment of resources and increasing interest in the activities.

Efficiency. Project efficiency is currently moderately satisfactory given the delays in RTF establishment, difficulties with the AfDB procurement processes and weak financial performance of the RTFs that have been established. On the other hand, the project has complied with the annual work plan, budgeting and financial management requirements. There has been a substantial shift in funds from the Business Development Services allocation to the TPSAT allocation. This was mainly due to the agreement between the Government and the AfDB to realign funds to support a facilities and equipment upgrade of the RTFs. Expenditure to June 30, 2010, including contracts under procurement, has already exceeded base costs. The overall funds available to the project have increased above the initial base costs due to the currency movement and redenomination. 

Rural poverty impact. The project has reached the entrepreneurial poor. Overall, 62 per cent of project clients are women. The project impact assessment carried out in 2008 classified 57 per cent of respondents as entrepreneurial poor while 12 per cent were unemployed or under-employed. The remaining 31 per cent were more likely to be middle income, but with potential to create employment and other income generating potential for MSEs. Project clients interviewed stated benefits that had made a difference to their quality of life. Attribution of impact to project inputs is uneasy as there were other substantial contributions to impact such as improved infrastructure in some areas, but there is little doubt that the project has made a significant contribution to MSE development within each district.

Household income and assets improved as SME establishment and growth occurred. The evaluation noted a considerable upward shift in income levels. Assets purchased included improved buildings, transportation and increase in stock. Human and social capital and empowerment increased through skills development, participation in associations and through increased opportunities for market exposure as a result of higher income. Women particularly benefited through generating their own income. Food security and agricultural productivity was only moderately impacted on by the project, partly due to the nature of the project design. However, some agro-processing MSEs were supported. In food deficient households, food security was improved through increased income sources for the household. Institutions and policies have been influenced by REP II, facilitating the introduction of two policy initiatives in the local government system through the Ministry of Trade and Industry (MOTI) and Ministry of Local Government and Rural Development (MLGRD). First was the establishment of a sub-committee on MSE Promotion within the national District Assembly system and the second was the establishment of a new Department of Trade and Industry to facilitate the development and promotion of small-scale industries in the districts. The BACs have acted as a practical model that has been captured in policy change that will strengthen the MSE sector across the country.

Sustainability, innovation and gender. Sustainability of project impact is likely to be sustained. The commitment to the BACs by the District Assemblies is strong and would continue even without project support. The RTF model is less viable. The current mechanism is not financially viable and requires review to define the future strategy for ensuring that operational costs will be covered and for the RTFs to remain relevant to the needs of the districts. There have been a range of innovations in the project, from business level improvements to improved District Assembly systems. The focus on women has been continuous, with around 62 per cent of resources being invested in women's development, leading to positive achievement in both the livelihood and empowerment of women.

Performance of partners. The performance of partners has largely been satisfactory apart from the difficulties in financial management and procurement with AfDB in the first two years of the project. The United Nations Office for Project Services (UNOPS) performed a satisfactory role while it was supervising the project. The project is now directly supervised by IFAD. The project operated under an active and consultative group of partners that has been instrumental in both guiding operations and in facilitating policy initiatives to strengthen the SME sector at national and district levels.

Summary of overall performance. Overall project performance has reached satisfactory levels and in some cases has exceeded targets. The 53 District Assemblies directly engaged with the project have demonstrated their commitment to the BACs and RTFs. Project management achieved the core targets for the project despite serious challenges. The BACs are operating well and, despite some operational weaknesses, the RTF operations are leading to a range of local economic growth initiatives. The table below provides the ratings on all the evaluation criteria and on the performance of partners.

Evaluation Ratings Summary

Conclusions. Overall, the project is relevant to the Ghana context and has performed well. Despite a slow start, due to reasons beyond the project management control, it has achieved a satisfactory level of effectiveness and has been particularly efficient in terms of business service provision. The project has made a contribution to poverty reduction and MSE sector development within each district of operation. Such impact may not be as widespread in terms of the numbers of businesses and employees originally envisaged, but it has established a sustainable foundation for current and future poverty reduction approaches in the MSE sector. Furthermore, the project has stimulated widespread interest in MSE development and is acting as a major Government approach for national SME sector development.

Recommendations

• There is substantial potential for a follow-on phase for REP II. The BACs should be consolidated within the current districts, maintaining the core programs and continuing to assess and support requirements for business growth. At the same time, gradual expansion nationwide would seem to be a viable approach. The BAC model has now been well-tested and should be replicable across all areas of the country. The future management of the RTFs should be considered with possibility of more private sector participation either directly or through the trade associations. The project may need to focus on the RTF Boards as a means to determine clearer functional arrangements for the RTFs. Alternatively, a more extensive analysis of costs, time and operational effectiveness is required to make clearer guidelines for RTFs' long term viability.

• Poverty analysis. IFAD needs to consider whether the focus of its work should be in specific geographic areas to increase the inclusion of the poorest groups or focus on nationwide pro-poor institutional changes. This is important in consideration of the potential geographic spread if a follow-up phase is approved. The targeting aspect of the project has been realistic in terms of focusing on the entrepreneurial poor and, overall, in providing demand driven services. However, it is important that such services be established in a sustainable manner to ensure that MSE support will gradually penetrate further into the poorer areas of each district.

• Value chain development. The IFAD country programme in Ghana could help to improve linkages between raw material supply and MSE sector growth. This could occur by creating a link between the District Department of Agriculture and the MSE sub-committee. The value chain links could be considered as part of a local economic planning process. The idea of targeting the growth-oriented MSEs to enable them to become growth poles for income and job creation would also bring about economies of scale in the sourcing of raw materials and markets for the MSEs.

• Rural finance. Rural finance has been a key component of IFAD-financed interventions in Ghana in the last decade, yet lack of access to credit remains a major barrier to MSE establishment and growth. The experience of REP II shows that the bottlenecks in the rural finance system have to be effectively addressed to the benefit the entrepreneurial poor. There is a need to intensify rural savings, information and referral services to a range of appropriate rural financial institutions, as well as continue to link with other IFAD interventions in rural finance.

• Sector development. A follow-on project should be embedded within the core institutional framework of the country to ensure sustainability. MSE sector development needs to occur at the district, regional and national levels within the Government institutional system. A possible third phase of REP should provide resources and support to build economic planning capability at the district level, with a view to increasing local revenue and long term commitment to financing the BACs and RTFs. IFAD needs to work with MLGRD and MOTI to identify economic potential for MSEs, possibly through linking economic development planning processes to the District Medium Term Development Plan.
• The regional level of government plays an important coordination function in Ghana. REP II has not worked strongly at this level. There is potential to strengthen both the MSE sector and operations by integrating project monitoring and strategic regional MSE development at the regional level. IFAD and the Government have an opportunity to make a further major contribution to MSE development. The REP II approach can be adopted as a national program and the evolving design can become the main sector development approach. To this end, the capacity of the various national institutions involved in the implementation of project activities would have to be reviewed and assessed thoroughly to determine their ability to sustain these activities. Another opportunity to be pursued is the development of a Ghana MSE policy based on the learning and knowledge derived from REP implementation.
• Trade associations. There is potential for IFAD and the Government to strengthen the local trade associations (LTAs) through investment in national and regional trade associations. The LTAs should be encouraged to strengthen the linkages with the regional association and hence at the national level. Trade associations' umbrella bodies, such as the Association of Small-Scale Industries and the Council for Indigenous Business Associations, could be assessed to determine the role that they can play in promoting MSE development. In the follow-on project, the Association of Ghana Industries, which is a strong umbrella body for medium and large scale enterprises, could work closely with the Association of Small-Scale Industries to build up its capacity.

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