Rural Enterprises Project (2000) - IOE
Rural Enterprises Project (2000)
During the period June-July 2000, the IFAD Office of Evaluation and Studies carried out an Interim Evaluation of the Rural Enterprises Project financed by IFAD in Ghana. The IFAD loan to finance this project was approved by IFAD's Executive Board in December of 1993. The project is due to close in March 2002.
The Interim Evaluation was undertaken upon the request of the Government of Ghana to finance a second phase of the project. IFAD procedures require that an Interim Evaluation must be undertaken before designing a second phase.
In the evaluation, IFAD has applied a new approach to evaluation being implemented by the Office of Evaluation and Studies since January 2000. The new approach to evaluation is one that emphasises learning through partnership. To promote learning, a Core Learning Partnership is established during the planning stages of the evaluation. The members of the Core Learning Partnership, usually key project stakeholders, guide the evaluation.1They draft an Approach Paper to orient the evaluation and agree on key questions that the evaluation should investigate. Upon completion of the evaluation, the members of the Core Learning Partnership prepare an Agreement at Completion Point for consideration by the main partners concerned by the evaluation.
The objective of the Interim Evaluation of the Rural Enterprises Project was to provide an analysis of the performance and impact of the project. To achieve this objective, the evaluation was designed to answer seven key questions. They were:
- How was poverty reduced as a result of project activities?
- How effective were each of the different project approaches to technology and skills transfer, and why?
- Which activities and institutional arrangements led to successful use of financial services by entrepreneurs?
- How have joint gains been achieved by exploiting complementarity between this project and other projects or government programmes?
- How have District Administrations incorporated Rural Enterprise Project activities in their poverty reduction programmes?
- What are the cost implications of sustaining selected Rural Enterprise Project services and institutions after project closure?
- How has the performance of international agencies supporting the project influenced its results?
On the basis of findings with respect to the key questions, the Evaluation Team was to provide recommendations to guide Government of Ghana policies in the rural enterprise sector.2 The Evaluation Team was also to make recommendations relative to the features of an eventual IFAD-financed Phase II investment in the rural enterprise sector. It was agreed the Core Learning Partnership would conclude the evaluation process by sharing the findings and agreed follow-up actions with colleagues in government, the donor community and other interested parties at a roundtable meeting in September 2000.
During the evaluation fieldwork, more than 200 individual clients (previously referred to as beneficiaries) were interviewed in all 13 project districts of Ashanti and Brong Ahafo regions. In addition, the Evaluation team met with groups of trainees and clients, District Chief Executives, District Implementing Committee members and implementing agency staff.. A stakeholder and client workshop was held before the fieldwork began to guide the Evaluation team on the approach and issues related to the key questions. A similar workshop was held upon completion of fieldwork to brief stakeholders on the preliminary findings of the team and obtain their feedback.
The project was identified in October 1992, and approved by the IFAD Executive Board in December 1993. The IFAD loan became effective in February 1995, and will close in March 2002. The Ministry of Environment, Science and Technology, is the responsible ministry in Ghana and the project is implemented by a Project Coordination and Monitoring Unit based in Kumasi. The Ghana Regional Appropriate Technology Industrial Service, the National Board for Small Scale Industries, the Department of Feeder Roads, the Bank of Ghana, the Association of Rural Banks and fifteen participating rural banks work together as implementing agencies in the project. UNOPS supervises the loan as IFAD's Cooperating Institution. The total cost of the project was estimated to be USD 9.3 million of which USD 7.68 million is funded by IFAD, USD 1.18 million by the GOG and USD 0.45 million by the participating banks. As at 31 December 1999, USD 5.5 million had been disbursed.
The objective of the project is to increase rural production, employment and income in order to alleviate poverty through the increased output of small off-farm enterprises. This is being accomplished by: facilitating access to new technology and business advice; promoting easier access to financial services; improving the efficiency of existing small rural enterprises, supporting the creation of new enterprises, and removing communication constraints through feeder road rehabilitation. The project was designed to build on the Government of Ghana's economic reforms and to encourage individuals and other private sector actors in rural areas to take advantage of opportunities created by the opening up of the economy.
The project targets 48 000 families or 300 000 people in the project area who live in poverty. Of these, an estimated 10 000 families live in absolute poverty. At design, it was estimated that direct benefits would accrue to 16 000 families or about 100 000 people in the target group. The design gives special attention to the most vulnerable households, socially disadvantaged women, unemployed youth and those who have been apprenticed to a trade but lack the capital or experience to start a business.
The project has three components: (i) Support for the Promotion of Rural Small scale Enterprises, which includes the establishment of Business Advisory Centres, the construction of Rural Technology Service Centres, and the development and transfer of appropriate technologies; (ii) Rural Finance Services Support, which includes lines of credit to eligible participating banks, supported by training for groups and individual beneficiaries in managing credit, deposit facilities, and a monitoring unit for participating rural banks under the Association of Rural Banks that also provided training to selected rural bank staff; and (iii) Infrastructure Support, which includes rehabilitation of 100 km of feeder roads and a further 15 km of spot improvements to improve mobility and access to markets.
Project performance and impact
Amongst the activities undertaken for the promotion of rural small-scale enterprises, those connected with services provided by Business Advisory Centres can be credited with much of the success of the project. Thirteen Business Advisory Centres have been created and have implemented successful programmes to train more than 4 000 individual clients in income generating and business management skills. From this training, about 1 900 new businesses have been established as of June 2000. This is over half the target for the whole project, whilst there are still two years remaining in project implementation. These new businesses have employed 6 000 people. It is projected that 90% of these businesses will succeed, with 40% - 50% growing to become medium size ventures. More than 3 500 existing businesses have also received business skills counselling. This has allowed existing businesses to employ a further 5 000 workers. Hence a combined total of 5 400 new and existing businesses (and their owners) plus approximately 11 000 people employed by them have been directly reached by the project. The majority were women.
Rural Technology Service Centres were created, equipped and staffed in three districts. Technology transfer activities were successfully implemented through short and long term training at the Centres for apprentices and for master craftsmen. The training for master craftsmen was one of the most effective of the Technology Centre activities. Technology Centres successfully undertook workshop operations including repair services, manufacturing services and dissemination of information. However, because of the high cost of capital equipment, the relative allocation of Centre resources amongst its various activities, and the relatively limited numbers of clients served, benefits generated do not compare well with total costs. Technology development has been less successful than expected.
The Rural Finance services activities of the project have allowed poor and under-capitalised small-scale business people to access the formal credit sector. More than half were women. Up to 70% of the 1 330 loans made as at December 1999 went to businesses which previously had no access to bank loans. However, this is less than half the number of new businesses started and a quarter of total businesses supported. Loan recovery rates have increased from an average of 43% in the Pilot districts at the end of 1997, to an average of 87% across all districts in June 2000. Savings rates in the formal sector have increased by up to 30%. However, only 25% of the resources for on-lending available in the Rural Enterprise Development Fund had been disbursed as of December 1999. Some conditions beyond the control of the Project Coordination and Management Unit have contributed to low performance levels in this component.
The Infrastructure Support activities through June 2000 resulted in the rehabilitation of 74km of roads. A study commissioned by the project showed that average traffic volumes – especially taxis and minibuses – on rehabilitated roads increased by 230% as a result. This provided social and economic benefits by providing better access to services and markets. Agricultural production, especially horticulture, has diversified and incomes increased as a result. Approximately 1 100 people have benefited from employment as unskilled labour for road works. However, plans for routine and recurrent maintenance of rehabilitated roads were not complete. There has been little direct complementarity between the feeder roads programme and the financial services, technology or business development activities. Due to contractor problems, the amount of Project Coordination and Management Unit time allocated to this component has been disproportionately high.
A major strength of the project has been the flexible approach adopted during project implementation using stakeholder meetings, annual review workshops and targeted consultancies and studies to assess activities and modify implementation to improve effectiveness. These activities have worked well at district level. The project has made efforts to coordinate with other projects and undertake project activities in such a way as to complement the work of others. However, the potential for achieving joint gains was not fully exploited.
How was poverty reduced as a result of project activities?
The Rural Enterprises Project has reduced poverty for self-employed entrepreneurs and employees in new and existing rural enterprises by increasing incomes and by reducing expenditures. The Project has achieved this by several means.
The Project has reduced poverty by transferring technical skills to rural people making it easier to get a job or to improve the returns to their own businesses. It has reduced poverty by improving the business skills of rural people, allowing them to start their own business or to reduce costs and increase benefits in their existing businesses. It has reduced poverty by providing low-income people with access to banking services and capital. It has reduced poverty by generating new jobs as new businesses were created or existing businesses expanded. It has reduced poverty by providing facilities for technical services that have allowed small rural entrepreneurs to grow and flourish. It has reduced poverty by providing short-term employment in roads. It has reduced poverty by lowering transaction costs linked to transport for rural people. In all, it has built self-confidence and fostered optimism among rural people with whom it worked.
It appears that loan size limitations, training course content and the level of basic technologies supported by the project, functioned as targeting mechanisms, given that more affluent entrepreneurs are unlikely to have sought support at such levels. However, among those who did seek project support, the project has taken a business-like approach. It selected clients for courses, and approved client requests to borrow funds, taking need into account, but using commercial criteria to determine the probability that they would be successful entrepreneurs.
How effective were each of the different project approaches to technology and skills transfer, and why?
The Business Advisory Centres have provided the most cost effective technology and skills transfer services. They have helped to establish more than 1 900 new businesses and assisted another 4 000 existing businesses through counselling. This has been achieved despite substantial under-resourcing at the Business Centres. The Business Centres have focused on easily transferable technologies and provided programmes to improve the ‘living skills' of participants. They have not, however, made significant impact on business management skill development. Business Advisory Centres could have done more had they served as Business Development Centres with a wider role in technology and business management skill training. The successful implementation of the Centres as designed has been achieved through the enthusiastic input of their limited staff, supported by the Project Coordination and Management Unit, as support from the implementing agency was not systematic.
The traditional role of trade associations in Ghanaian society has been a key element of the success of the project, as they have provided a strong link between individual clients and the project technology and skills transfer programmes. The associations, which often in the past have had only a social function, have responded very positively to the challenges and opportunities created by the project. This energy and enthusiasm needs to be harnessed and developed in future projects.
The Rural Technology Service Centre's apprenticeship training programme has trained, supported and motivated a small number of apprentices from poor backgrounds at the Technology Centres. It has not been institutionalised, is not part of the formal Government of Ghana vocational education system. It is also not cost-effective in comparison with provision of technical and train-the-trainer training to master craftsmen. The fee support to traditional apprentices to train with master craftsmen has also helped some poor families finance training of youth but it, too, has not been institutionalised. That is, it will not be continued by a government agency once the project has ended.
As already identified in the Appraisal document and the Mid-Term Review, support to master craftsmen remains a cost-effective way of developing their businesses and improving the traditional apprenticeship training. In the Project this has been handled through the Rural Technology Service Centres. Hence this will need to be revised in future programmes if there are no district-level Technology Centres.
The Rural Technology Service Centres have not yet been able to develop a sustainable model of technology development and transfer. Projections of potential benefits at design were overly optimistic. The Technology Centres provide high quality output and services, but as currently structured, costs exceed benefits. Moreover, they have not been given adequate incentives to respond directly to the needs of local clients for technology development, services and skills transfer. They have not been provided with sufficient guidance or management support needed to re-orient their approaches.
Which activities and institutional arrangements led to successful use of financial services by entrepreneurs?
The project activities in financial services have allowed a group of clients who would not normally gain access to bank finance to secure short-term loans without guarantees. The activities and institutional arrangements that have led to the successful use of financial services have included: (i) technology and business skills training activities by non-bank institutions; (ii) supervision and support to participation of clients in both enterprise and banking activities by District Implementation Committee; (iii) careful communication of information about financial services to potential clients in the form of client briefings; (iv) external oversight by the District Implementation Committee of the client selection process by the bank; and, (v) ongoing monitoring of repayments. These have led to significantly higher loan recovery rates. Clients have gone on to secure further loans to develop their businesses. The degree of success achieved in the various participating using these arrangements has been influenced by the character of the banks themselves and other external factors.
How have joint gains been achieved by exploiting complementarity between this project and other projects or government programmes?
The project has developed some coordination and management systems that can improve implementation and exploit complementarity between projects in the area. Project activities have incorporated groups from the previous IFAD Smallholder Credit Input Supply and Marketing Project. In Wenchi District, the project has been assisting cashew grower groups working with an international NGO. Eleven of the banks involved in the Smallholder Project have become part of Rural Enterprise Project with higher loan recovery rates. The Project has used a District Implementation Committee approach that is highly regarded by clients and implementing agencies. This district level unit could be a good means through which a project can be more integrated with other district level activities, but this has not yet been explicitly developed as such or made part of a district level system for coordination.
How have District Administrations incorporated Rural Enterprise Project activities in their poverty reduction programmes?
Certain District Assemblies, for example Offinso, Kintampo and Tano, and participating banks have adopted the Project credit management and borrower assessment processes (including participation in technology and business management skills training) to implement the Government of Ghana district Poverty Alleviation Loan programme from the District Assembly Common Fund. These processes have led to higher recovery rates for the government Poverty Alleviation Loan programme than when these funds have been allocated by district authorities with other less structured procedures. Some other districts have indicated that they plan to adopt the Project model for funds they have available through the government programme. They are especially interested in the technical and business management skill development they have seen working in the Rural Enterprise Project, but few initiatives have been taken to implement such activities without the Project support.
What are the cost implications of sustaining selected Rural Enterprise Project services and institutions after project closure?
The total annual costs of the existing Rural Technology Service Centres have been estimated to be, on average, GHC 214 million. This includes replacement of existing assets as well as staff and other operating costs. The costs per client trained at the Centres are significantly higher than through other means. The prices charged for manufacturing and repair services were competitive, but these did not reflect the true cost to the Centre. The exact costs and benefits in adaptive research and technology were not estimated as only roughly 4% of staff time has been dedicated to these activities. The current approach of the Centres in providing the various services and the current share of resources allocated to the various services will not permit sustainable provision of the services. However, the services are useful and there is some evidence of alternative means of providing them - in conjunction with the private sector, trade associations or NGOs – that can be tried in the future.
The total annual costs of Business Advisory Centres have been estimated to be, on average, GHC 58 million. Costs per client for training activities (including Business Centre overheads and direct training expenses) range from a low of GHC 15 000 for a one day credit management course to a high of GHC 256 000 for technical training in soap making course. With some improvements in management and resource allocation, the Business Centres could be partly, if not fully, financially self-sufficient, hence sustainable. Moreover, selected benefit/cost ratios calculated on the basis of returns for the supported enterprises are positive, (except for exotic mushrooms). As a result, economic returns to government expenditures to support the Centres are high.
How has the performance of international agencies supporting the project influenced its results?
The performance of UNOPS, IFAD and the Evaluation Team was assessed by staff of the Ministry of Environment, Science and Technology, the Project Coordination and Monitoring Unit, the Rural Technology and Service Centres, the Business Advisory Centres and by project clients. The assessment showed that UNOPS support positively influenced project results by listening to and consulting with government counterparts, and taking action to solve project problems. UNOPS also contributed to success by providing clear instructions on procedures. The regular checking on information provided, the time in the field, and the technical advisors it recruited also helped the project. IFAD's performance was rated as positively influencing project results in similar ways. Aspects of the performance of the Evaluation Mission that stakeholders found to be positive included clear explanations of the work, feedback on information received, and time spent in districts and with clients. Clients and staff of Centres believed that evaluation results would have been better had members of their groups been part of the Evaluation Team.
The Evaluation Team made a number of recommendations and proposed follow-up action related to its recommendations. Those recommendations and follow up actions that are supported and agreed upon by the members Core Learning Partners are detailed in the Agreement at Completion Point.
1/ Members of the Core Learning Partnership for this Interim Evaluation are: Mr. E.P.D. Barnes, Chief Director, Ministry of Environment Science and Technology; Mr. K Attah-Antwi, Project Coordinator Rural Enterprise Project; Mr. K. Okyere, Deputy Director, National Development Planning Commission; Mr. M. Manssouri (replacing Mr P. Saint. Ange), Country Portfolio Manager, IFAD; Mr. F. Sarassoro, Senior Programme Management Officer, UNOPS; and, Ms. D.C. Palmeri, Senior Evaluation Officer, IFAD. All Core Learning Partnership members participated in parts of the Evaluation fieldwork.
2/ The Interim Evaluation Team was comprised of: Mr I. Teese (Mission Leader / Business Skills Training Specialist), Ms A. A. Quainoo (Rural Finance Specialist), Dr K. Prakah Asante (Technology Development and Transfer Specialist), Dr O. Gyekye (Rural Sociologist), Mr C. Reiner (Financial Analyst) and Dr M. Harper (Enterprise Development Specialist) who joined the Mission for the first 5 days.