103338 POLIC IES F OR SH GROWING TOGETHER AR Reducing rural poverty E D in Myanmar P R O SP ER ITY IN YANM ARM ALL ABOARD Policies for shared prosperity in Myanmar This Policy Note was prepared by: Nikolas Myint (Team Leader and Senior Social Development Specialist); Reena Badiani-Magnusson (Senior Poverty Economist); Andrea Woodhouse (Senior Social Development Specialist) and Sergiy Zorya (Senior Agricultural Economist) under the guidance of Salman Zaidi (Practice Manager, Poverty); Bassam Ramadan (Practice Manager, Social Development); Nathan Belete (Practice Manager, Agriculture) and Steven Jaffee (Lead Agriculture Specialist) ALL ABOARD Policies for shared prosperity in Myanmar Growing Together: Reducing rural poverty in Myanmar GROWING TOGETHER Reducing rural poverty in Myanmar Policies that enable rural communities to participate in expanding economic opportunities can be central to inclusive growth in Myanmar. Rural communities are home to the majority of Myanmar’s population, the majority of its many ethnic groups, and 70 percent of its poor. Development in rural areas is constrained by low returns to agriculture, and significantly lower levels of public service delivery and human development outcomes relative to urban areas. Reforms to enhance agriculture productivity are necessary though not sufficient for improving the welfare and livelihoods of rural communities. These have to be complemented with increased access to social and economic services that can raise human and physical capacity to create the conditions necessary for the growth of a dynamic rural non-farm sector. These reforms could help to not only reduce the drag on rural growth and poverty reduction, but also contribute to structural economic transformation so that the welfare of all people in Myanmar can grow together. Context and opportunities for change Poverty is prevalent throughout Myanmar’s rural Fig 1: Paddy yields, selected countries in Asia, 2014-2015 areas; the majority of the poor earn their incomes from agricultural activities and casual work. More than half of Myanmar’s labor force works in agriculture, but the country has yet to experience the agricultural revolution needed to raise living standards and to sup- port a structural shift towards higher-value manufac- turing and services. Agriculture accounted for around 31 percent of GDP in 2014, but the sector suffers from low productivity. The average yield of the dominant crop, paddy, is amongst the lowest in Asia (Figure 1). In addition, one hectare of monsoon season rice from the Delta region in Myanmar generates on average US$ 140 of profits (defined as revenues less all production costs, including family labor), compared to US$ 340 in Cambodia and US$ 430 in Vietnam. Source: US Department of Agriculture. 1 There is much scope to enhance agriculture pro- There are a lot of opportunities to improve the appli- ductivity through the use of quality seeds. Seed cation of agricultural technology and techniques. multiplication promoted by the public sector however Farmers currently lack the knowledge of modern agri- is currently very limited. The private sector on the other culture practices for a wide variety of crops. They often hand is constrained to invest in seed production due use more fertilizer and chemicals than they need, which to a lack of: clear investment rules and procedures; reduces efficiency (Figure 3) and lowers profitability. protection of intellectual property rights; and public Low yields, poor quality, and a weak agro-processing services such as quick registration and quality tests. As sector constrain Myanmar’s ability to play a large role a result quality seeds for both paddy and other crops in export markets, even though it was able to do so in are in very short supply. Only 1 percent of the demand the past. Weak rural financial services also constrain for paddy seed is estimated to be met by supply in farmers from adopting new technologies and diversi- Myanmar, which is extremely low when compared to fying crops: only 37 percent of farmers and 10 percent other countries in the region (Figure 2). of farm workers report having access to formal credit. Figure 2: Supply to demand ratio of paddy seeds, selected Figure 3: Nitrogen use efficiency, selected countries in Asia, countries in Asia, 2013-2014 2013/14 Source: World Bank estimates. Source: LIFT and World Bank. 2 More secure land tenure could further promote the Overcoming such constraints, if done in a way that use of technology and private investments that can empowers rural communities, could also help reduce have dynamic effects on agriculture productivity. geographic isolation and foster national unity by Most of Myanmar’s farms are small, up to 2 hectares, demonstrating the state’s support for lagging regions. with 2-3 fragmented land plots, which makes it difficult This includes in particular ethnic minority and border for them to exploit economies of scale in mechanization areas, which have been affected by conflict and where and marketing. Insecure land tenure prevents a land the presence of the state remains limited and some- rental market from emerging, which is necessary for the times contested. kind of market-based consolidation that has enabled other countries to overcome similar problems. Myanmar Growth in urban and peri-urban areas can help to has a small number of very large farms, usually for plan- expand markets for rural products and provide job tation tree crops, though land tenure security in these opportunities for rural-urban migrants. One in four instances also is not strong. households in Magway region, and one in five house- holds in Ayeyarwady, currently have a member who Meanwhile, improving access to essential services has migrated elsewhere, primarily for urban jobs in the could deepen human capital,1 improve access to informal sector, including in construction, restaurants, markets and expand non-farm livelihood opportu- and tea shops. Migrants in Myanmar overwhelmingly nities. Around 84 percent of the rural population lack move in search of a better life rather than family or access to electricity,2 37 percent of people lack access educational reasons: 74 percent of households in to clean drinking water, and only 12 percent of roads Ayeyarwady region and 71 percent in Magway region are paved, which can make them impassable in the report that their migrating members are moving to rainy season. This contributes to rural isolation, and look for a job or for work, and an additional 20 percent limits access of rural people to markets, job opportu- move in response to economic shocks faced by their nities, and services. households. 1 For a discussion on rural-urban disparity in access to social services, please refer to the policy note “Closing the gap: Expanding access to social services.” 2 Please see Policy Note on “Energizing Myanmar: Enhancing Access to Sustainable Energy for All.” 3 Recent developments Since 2011, Myanmar has pursued policies to pro- These positive reforms have contributed to higher mote agriculture as one of the driving forces of rural agricultural growth, which rose from 1.7 percent in real growth. The liberalization of foreign exchange markets terms in 2012-2013 to 3.6 percent in 2013-2014 and and trade, including policies to promote exports, have 5.6 percent in 2014-2015. helped to stimulate agricultural growth. There are no large agricultural subsidies or other distortions; agricul- To complement this, there has been a renewed tural and food prices are largely determined by market focus on rural poverty reduction after decades of forces. The 2015 Rice Sector Development Strategy underinvestment in rural areas. The Framework on seeks to increase rice production and productivity, with Economic and Social Reforms (which aims to achieve a focus on quality, export competitiveness, and private sustainable and inclusive growth in Myanmar) and the public partnerships. Rural Development Strategic Framework (which out- lines support for rural communities and remote areas) Banking sector credit to the agriculture sector has also aim to deliver public services in rural areas in a respon- increased in recent years. Lending by the Myanmar sive, transparent and accountable manner. Agricultural Development Bank went from Kyat 94 bil- lion in 2009-2010 to Kyat 1,165 billion in 2014-2015, albeit on subsidized terms and focusing mainly on wet season paddy production, which raises questions about efficiency and financial sustainability3. The pri- vate sector has played a growing and important role in providing inputs to farmers, and in trading commodities Redistribution and processed products. Important land legislation of fiscal was developed (i.e. two land laws) and initiated (i.e. resources land policy framework and law), and many farmers have already received land user right certificates4. Increased credit to the agricultural sector 3 See the Policy Note “Financing the Future: Building an Open, Modern and Inclusive Financial Sector” with the proposal of the MADB’s restructuring as a part of the broader financial sector’s reform. 4 The recent land laws do not, however, address the lack of security over customary lands in the upland areas, the significant reasons for conflicts. The security of event individual plots with land user right certificates is also weak due to the lack of information data bases and infrastructure to properly reflect actual land use situation. 4 To help implement these and promote rural invest- Figure 4: Poverty and expenditures per capita by States and ments, there has been some fiscal decentralization Regions to States and Regions. State and Region spending as a share of overall public sector expenditure is relatively low at around 10 percent, but their expenditure assign- ments cover important economic services (e.g. agri- culture, local transport and communications, cottage industry, small scale energy projects), which are critical to rural development. Some of the States and Regions with higher levels of poverty also spend more on a per capita basis (figure 4), which could be a reflection of efforts to expand services in areas with the biggest gaps in access to services. There have been preliminary efforts to develop a formula- based system of fiscal transfers, which should help to redistribute fiscal resources according to development needs. The level of general purpose transfers has Source: Integrated Household Living Conditions Survey, Ministry increased from 0.6 percent of GDP in 2011-2012 to of Finance and World Bank staff calculations 2.3 percent in the 2014-2015 Union Budget. This level increase has been linked to development conditions Figure 5: Poverty and Own Current Revenues Per Capita across States and Regions. This helps to offset fiscal capacity constraints for some poorer States and Regions, which also have relatively lower tax payments per capita (figure 5). To complement these efforts, Myanmar launched a national community-driven development program (NCDDP) in 2013, which is showing early positive results in reducing poverty in rural areas. The NCDDP supports communities to formulate development plans and transfers grants for community-level infrastructure directly to village tract committees, elected by secret ballot with gender parity. This program is being rolled out in an initial set of 27 rural townships across the country. So far, some 700,000 people have gained Source: Integrated Household Living Conditions Survey, access to improved community infrastructure through Ministry of Finance and World Bank staff calculations the program. Over two thirds of households in project communities participating in planning, decision-making and implementation of subprojects, and 75 percent of community members, have reported high or very high satisfaction levels with project implementation and results. 5 Regional experiences and lessons Vietnam Indonesia Vietnam’s success in reducing rural poverty may Indonesia’s political transition to democracy begin- provide some important lessons for Myanmar. ning in the late 1990s was followed by good progress Vietnam’s pace of poverty reduction has been almost over the past decade in terms of poverty reduction unprecedented, with poverty falling from 58 percent in which could also provide relevant lessons. Poverty 1993 to 17 percent in 2012. In the 1990s, rural economic in Indonesia was halved from 24 percent in 1999 to growth was the main driver of poverty reduction. Part 12 percent by early 2012. Large-scale government of this was thanks to increased agriculture productivity programs for CDD, education, and social assistance and profitability, spurred by long-term investments that have contributed to improved access to services and were incentivized by land reforms. Vietnam’s 1993 land resilience to shocks. For example, Indonesia’s national law introduced official land titles, which recognized community-driven development (CDD) program led to private land-use rights and allowed transfers of land. greater community participation in local governance In response to these reforms, households invested and resulted in poor households experiencing a nearly more in irrigation infrastructure and in multi-year crops. 12 percent increase in consumption. The program also Joint titling between two household members (typically led to decreased malnutrition especially in the more husband and wife) enhanced productivity, as well as remote areas of the country, as well as improvements improved women’s bargaining power in the household. in maternal and child healthcare and basic education. These were complemented by targeted and pro-poor government expenditures, including for quality basic social services, such as education and health, and significant investments in rural infrastructure such as roads, irrigation and electricity. Vietnam also has an impressive record in keeping rural-urban and regional disparities in check through central transfers aimed at poorer areas. Vietnam faced similar challenges to Myanmar in terms of high poverty among specific socio-economic groups (especially ethnic minorities) concentrated in particular geographic locations. The government in Vietnam has used targeted programs, which have significantly improved the welfare of ethnic minorities, who nonetheless still account for over 50 percent of Vietnam’s poor today and around 15 percent of the total population. 6 Cambodia & Thailand The examples of Cambodia and Thailand have important contrasting lessons for liberalizing agri- cultural markets. Between 2009 and 2015, Cambodia was able to increase the FOB rice exports from 12,000 tons to 400,000 tons, with most rice exports being of high-priced aromatic varieties. It also increased exports across the border to Vietnam and Thailand through reforms aimed at liberalizing trade and foreign invest- ment and reducing barriers to private sector growth. Export licenses became available to all traders and rice mills, which expanded the number of rice exporters from 5 to 86. Thailand In contrast, between 2010 and 2014, the Thai govern- ment devoted substantial resources to raising prices In Thailand, investments in the development of the for farmers, including increasing paddy prices to 50 seeds sector and agricultural extension have helped percent above world market prices with limited success to meet farmers’ seed requirements, increased the and at a high and ultimately unsustainable cost. The adoption of better agricultural techniques, and program limited export opportunities, cost $12.7 billion diversified production. In the 1990s public spending (or 3.5 percent of GDP) in its first year, and substantially on agricultural research and extension in Thailand increased the country’s fiscal deficit in 2011. Thailand’s was more than 1 percent of agricultural GDP, which is reputation for exporting high-quality rice was under- high compared to other countries in the region. Public mined by farmers switching to less palatable varieties investments in breeder and foundation seed production with shorter growing seasons and higher yields. The have been complemented by the enabling environment already overbuilt rice milling industry was expanding, for private investments in seed multiplication and which led to the closure of mills not enrolled in the pro- distribution. Research and extension staff have been gram. Farmers’ costs of production and land rents also working together to develop and disseminate new rose. farm technologies, making the agricultural innovation system demand driven and participatory. These experiences of Thailand and Cambodia highlight the important role of open trade and foreign To complement all this, agricultural extension services direct investments. They demonstrate how ability of cover a wide variety of crops to help promote diversi- the private sector can quickly leverage investments, fication. They also include support for marketing, not working capital, trading contacts, and new expertise just for production. The public sector works with the once the enabling environment is in place. At the same private sector and NGO providers to address the spe- time, they also point to the negative impacts of market cific needs of local farmers, making increased use of regulations and interventions. ICT for technology transfer. 7 GROWING TOGETHER Reducing rural poverty in Myanmar Policy options Boosting agricultural productivity: Reforms that are There may also be scope to reallocate public expendi- likely to yield positive results in the near term include tures from rice to programs supporting other crops, measures to promote private sector investments and livestock and fisheries. But the extent of these spending increase the availability and adoption of modern farm shifts would need to be informed by a more detailed technologies. This would involve among other things: assessment of agriculture sector expenditure. eliminating the current practice of having separate approvals for foreigners wanting to invest in rice mills; Land reform, as illustrated by the experience of other improving the legal and regulatory environment to countries, is also likely to be essential for sustained enhance the role of private sector in providing agricul- gains in agriculture productivity and poverty reduction. tural inputs; and investing in critical public services (e.g. This could be facilitated by launching a land reform inspections, quality control, laboratories).5 policy as early as possible. Although the benefits of such reforms will likely accrue over the long-term Larger and better quality investments in key public because land tenure remains highly insecure, including goods, especially seeds and extension services, in conflict-affected areas, and land user right certifi- could also play an important role. In 2013-2014, total cates remain contested. spending on all programs of the departments of agri- cultural research, and agriculture and industrial crops, Increased access to services: Recent developments in the Ministry of Agriculture and Irrigation, which on fiscal decentralization, the NCDDP, and other includes seed and extension programs, was only 0.22 targeted transfers have helped to gradually increase percent of agricultural GDP (or 0.07 percent of total planning, budgeting and spending responsibilities at GDP). The budget for these public programs could at sub-national and community levels. A mix of top down least triple to 0.66 percent of agricultural GDP (or 0.21 coordination and bottom up prioritization could help percent of total GDP). This would still be below globally in translating these shifts into more effective service recommended norms of 1 percent of agricultural GDP delivery for rural populations. for developing countries. There are several elements to top down coordination. More generally on public spending in agriculture, when One element relates to how fiscal decentralization considering investment in irrigation, it will be important reforms could be implemented with an aim of pro- to balance the construction of new systems and the moting efficiency in local service delivery. One option improvement of existing systems. is to develop a fiscal decentralization strategy or White 5 See also the Policy Note “Breaking business as usual: Fostering competitiveness and a dynamic environment for private sector growth.” 8 Paper that is led and coordinated by the Ministry of This could be facilitated by increasing the transparency Finance and that helps to set out in more detail how of sub-national budgets7 and by involving communi- to determine: expenditure assignments for States and ties in the prioritization process. Prioritization will be Regions (e.g. implementation capacity, fiscal capacity); particularly important given large service gaps on the own source revenue and revenue sharing arrange- one hand and limited resources on the other. Whether ments; and fiscal transfers.6 public money will be most effective in upgrading a school building, adding a water supply, or improving A second element involves budgeting and planning a village access road will depend largely on local capacity, particularly for public investments, at State context, and global evidence suggests the utility of and Region level. The latter’s capital spending as a an approach that places communities at the center of ratio of their total budgets is relatively large, with 12 these decisions. Myanmar has the opportunity to build of 14 States and Regions spending at least 40 percent on the 2012 presidential directive on community based of their budgets on capital projects in 2013-2014. planning by introducing a standard approach to village Strengthening capacity for prioritizing and appraising development plans that can be aggregated at the town- local projects could help to better link these to national ship level to inform spending priorities. level investments in transportation, telecommuni- cations and electricity supply for the benefit of local Generate knowledge and systems for targeting communications. resources: Another important element of improved targeting of public resources is data and information, The above does not necessarily imply transferring more which can help to distinguish different groups (e.g. spending responsibilities to sub-national authorities the poor from the non-poor) and their priority needs. (i.e. State and Region and below). The decision to There are several measures that could potentially help transfer spending responsibilities could helpfully be to improve the current knowledge base in these areas informed by a systematic assessment of sub-national for better targeting. Two important example include authorities’ implementation and fiscal capacities, as set the need to invest in: (i) more regular and better quality out in a possible fiscal decentralization strategy. What of data on living conditions; and (ii) a household level is important is that the services are delivered to the targeting system that allows the government and its communities in an accountable manner, not just by the partners to identify and deliver support to those who Union down to State and Region level, but also from are most in need.8 Making use of these to monitor State and Region level down to townships and villages. and track changes in welfare and poverty, could play an important role in informing and prioritizing public spending. 6 See also the Policy Note “Participating in change: Public 7 Please see Policy Note on “Participating in change: Public sector accountability to all.” sector accountability to all.” 8 See the similar points made in the Policy Note “Closing the Gap: Expanding Access to Social Services Opportunities.” 9 This is illustrated in some of the regional examples of language, social norms, discrimination, and other above, where early investment in data, monitoring and constraints. It is important know more about these evaluation, helped to improve rural interventions, which populations and how to support them in a targeted and had a big impact on poverty reduction. This can be focused manner. facilitated by having programs and interventions with specific objectives articulated from the outset, and Urban and rural reforms are complementary: Whilst with data collection and monitoring systems in place beyond the scope of this Policy Note series, it is impor- that allow for real-time monitoring of program imple- tant to highlight the complementarity between urban mentation and success. Allowing the lessons learned and rural reforms. Myanmar’s cities and towns have from these evaluations to flow back into program the potential to act as growth poles and are attracting design could help close the loop in terms of improving migrants in search improved livelihoods. Rural-urban outcomes. migration has been an important driver of poverty reduction in many other countries and is increasingly For example, in Myanmar the poverty incidence is important as an income source for rural households in highest in Chin and Rakhine States, both of which are Myanmar. Ensuring that rural-urban migration benefit geographically isolated and have extremely low infra- poor people would likely require a focus on urban plan- structure bases. In Rakhine State, poverty is high across ning and inclusive services, skills training, and remit- its entire population. This is compounded by conflict tances. International experience suggests that migrants and displacement and by restrictions on movement often move to the poorer areas of cities, including to and trade. These issues, along with a lack of services, informal settlements, and may lack the household infrastructure, and investment, constrain the state’s documents they need to gain access to key services, economic potential. The experience of other countries such as education for their children. Early investment in the region shows that targeted and tailored policy in urban planning, particularly in health, education, and mixes are likely needed in order to reduce poverty housing and spatial development, could help cities among those who live in remote, infrastructure-poor and towns to prepare to accommodate these rapidly environments or who face social marginalization and growing populations. exclusion from markets and services. Certain social groups also face exclusion from markets and services, either because of the policy environment or because 10 The table below proposes short-term (within 1 year) and long-term (within 3-5 years) policy options for the next five years (2016-2020) to help deliver on the above objec- tives, namely: (i) boosting agriculture productivity; (ii) increasing access to essential services; and (iii) generating knowledge and systems for targeting resources. GROWING TOGETHER Reducing rural poverty Objectives in Myanmar Short-term options Long-term options Support the availability and adoption of Implement strategic land reform by iden- modern farm technologies by reviewing tifying actions to improve land tenure the budget for seed and agricultural security and implement the forthcoming extension programs through analysis of land policy law. existing public expenditure in agriculture, and improving irrigation infrastructure’s management, broadening the coverage Boosting to a wide variety of crops to promote agricultural diversification. productivity Promote private sector investments by removing the remaining restrictions for foreign direct investments in rice milling industry, and legal and regulatory obsta- cles to enhance the role of the private sector in providing seed, fertilizer and crop protection products. Place communities at the center of local Review capital spending priorities to development by building on the 2012 promote infrastructure investment that presidential directive to standardize helps to go the last mile to link people village development planning to allow to markets, and to link markets to each aggregation at the township level. other across the country. Increasing access to essential Adopt a fiscal decentralization strategy services that enables townships to implement local development plans either through direct State/Region interventions, or financing (own source revenue and fiscal transfers) that matches their spending assignments.9 Building the Conduct updated living conditions Integrate a practice of regular monitoring evidence base to surveys to identify the poor, and design and evaluation in rural development systems to allow improved targeting of programs to allow for course correc- allocate resources public resources according to needs. tion to program design and to assess according to needs whether development goals are being and improve met. This can be done using existing service delivery data collection systems. 9 Please see Policy Note on “Participating in change: Public sector accountability to all. 11 GROWING TOGETHER Reducing rural poverty in Myanmar References Bordey, F., P. Moya, J. Betran, C. Launio, A. Litonjua, R. Manalili, A. Mataia, J. Besenio, F. Macalinta, R. Malasa, E. Marciano, M. Milanes, S. Paran, G. Redondo, R. Relado, M. San Valentin, I. Tanzo, E. Tulay, S. Valencia, C. Viray, and C. Yusongco (2015): Benchmarking The Cost and Profitability of Paddy Production in Selected Asian Rice Bowls. Philippine Rice Research Institute, International Rice Research Institute, Benguet State University, and Philippine Council for Agriculture and Fisheries Do, Quy-Toan, and Lakshmi Iyer (2008): Land Titling and Rural Transition in Vietnam. Economic Development and Cultural Change 56 (3): 531-579. Newman, C., Tarp, F. and van den Broeck, K., Property Rights and Productivity (2015): The Case of Joint Land Titling in Vietnam. Journal of Land Economics, 91, (1), 2015, p. 91 – 105. Poapongsakorn, N. (2014): The Benefits and Costs of a Paddy Pledging Policy: The Experience of Thailand. In: Dawe, D., S. Jaffe and N. 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Economic and Sector Work Report No. 85804, Washington, DC. 12 ALL ABOARD Policies for shared prosperity in Myanmar GROWING TOGETHER FINANCING THE FUTURE BREAKING BUSINESS AS USUAL ENERGIZING MYANMAR CLOSING THE GAP PARTICIPATING IN CHANGE Reducing rural poverty Building an open, modern and Fostering competitiveness and a dynamic Enhancing access to Expanding access to Promoting public sector in Myanmar inclusive financial system environment for private sector growth sustainable energy for all social services accountability to all “This Policy Note is part of a series entitled All Aboard! Policies for shared prosperity in Myanmar” CLOSING THE GAP GROWING TOGETHER BREAKING BUSINESS AS USUAL Expanding access to Reducing rural poverty Fostering competitiveness and a dynamic social services in Myanmar environment for private sector growth FINANCING THE FUTURE ENERGIZING MYANMAR PARTICIPATING IN CHANGE Building an open, modern and Enhancing access to Promoting public sector inclusive financial system sustainable energy for all accountability to all GROWING TOGETHER Reducing rural poverty in Myanmar ALL ABOARD Policies for shared prosperity in Myanmar The World Bank Myanmar No.57, Pyay Road 61/2 Mile, Hlaing Township, Yangon, Republic of the Union of Myanmar. www.worldbank.org/myanmar www.facebook.com/WorldBankMyanmar myanmar@worldbank.org