53818 T I O N A L BA N NA K ER F T O IN R WORLD BANK T REC EN ON PM ST O RU L CT E VE ION AND D October 2004 No. 54 A regular series of notes highlighting recent lessons emerging from the operational and analytical program of the World Bank`s Latin America and Caribbean Region DESIGNING A RURAL DEVELOPMENT STRATEGY FOR PERU'S SIERRA Pierre Werbrouck Background where their main asset (land) is undergoing serious environ- mental degradation. They scratch precarious livings on small Poverty and economic stagnation characterize most rural plots in often-harsh environments. areas in Peru. National growth has been slow and uneven since the mid-1970s, benefiting urban areas rather than rural In preparing a rural development strategy to address poverty ones. Between 1985 and 2000, the number of poor people and economic backwardness in the sierra, the World Bank increased by 71 percent.1 The incidence of poverty (67 brought together recent thinking of Peruvian development percent) and extreme poverty (40 percent) is highest in rural experts and practitioners, on how best to promote long-term areas, reaching 73 percent (poverty) and 41 percent (extreme development. The FAO/World Bank Cooperative Program poverty) in the sierra. This contributed funding. Peruvian means that 4.2 million rural consultants, experts and non- people live with incomes 30 governmental organizations percent below the poverty line (NGOs) were involved. Three and 2.3 million people live in background papers were extreme poverty.2 Regional- drafted,3 three expert meetings specific policies to fight pov- convened, and poor people erty may be warranted, notably across the rural sierra were con- a strategy for rural develop- sulted. ment in the sierra aiming for more equitable economic A three pronged development growth and reduced poverty. and poverty reduction strategy was proposed4: (i) promote sus- The situation in Peru's sierra is tainable rural economic growth similar to other marginal re- to increase rural incomes and gions in Latin America: the reduce rural poverty; (ii) en- highlands of other Andean hance human development countries and mountainous ru- through rural education and ral districts in Mexico and Central America. For historical health services and provide social protection to those by- reasons, these areas have high populations relative to avail- passed by growth; and (iii) build institutions to sustain growth able agro-ecological resources. The environment is fragile. and social protection, and enhance the capacity of people in Limited resources, bad communications and physical access, the rural sierra to manage their own local affairs. poorly educated labor forces and land access impaired by restrictions on property rights all inhibit development of The strategy assumes that sustainable rural growth and modern market conditions and technically advanced produc- poverty reduction are most likely to originate from the pull tion methods, and deter private venture capital. Population effect of national and urban growth, making market links growth puts further pressure on resources. The lack of between urban areas and agriculture/livestock in rural areas opportunities in the wider economy relegates most people to crucial. One way to accomplish this is through productive low productivity employment in a semi-subsistence economy alliances among processors, institutional consumers and 1 producers. Further development of economic corridors, Economic Performance productive infrastructure and private investment are key. Improvements in subsistence agriculture will not lift people The sierra gross domestic product is about 22 percent of from poverty, but can improve food security and nutrition, national GDP. Sierra average annual growth was 1.9 percent significantly improving life among the very poor. (1970-1996), only around 0.6 percent per capita. Without high out-migration, income per capita would have fallen. Rural education, roads, and health services are overarching Labor productivity is approximately half that in Peru as a priorities. The strategy analyzes social protection and safety whole (1993) and long-term trends were zero growth (1972- needs from a risk mitigation perspective, looking at 1981) and 1.3 percent annual decline (1981-1993). economic, survival, social, and natural disaster risks. Migration and off-farm employment are important safety GDP structure has changed little. Agricultural output has nets. Sierra residents must themselves tackle social risks risen slightly; agricultural real prices have declined such as domestic violence, alcoholism, and livestock theft. dramatically to approximately 35 percent of their 1970 level. Rural growth and improved service provision for the poor Agriculture accounted for some 25 percent of the region's will only be sustainable and benefit the poor when solid GDP in 1996, followed by services (18 percent), industry (14 institutions and social capital (at local municipal and percent), commerce (13 percent), mining (11 percent), regional levels) become urgent priorities. construction (8 percent), and public services (7 percent). The 1993 census counted 45 percent of the employed adult Detailed Analysis population working in agriculture. In 2000, more than 80 percent of the rural population worked in agriculture and mining (ENAHO). The Sierra region is heterogeneous requiring diversified strategies that were articulated in the various recommenda- Apart from potatoes and white maize, the main products of tions discussed below. For example, the northern Sierra is the sierra--wool, alpaca, fiber, beef and sheep meat, milk very different from the southern area, and different modes of wheat and barley--are highly tradeable. They have been production are appropriate within each zone. affected by long-term declines in world prices and by trade liberalization. Livestock levels and meat, wool and fiber Human Development yields have stagnated; the only significant improvements since the 1950s are potatoes (5.4 to 9.1 tons per hectare), and The sierra population was about 9 million in 2000 (3.2 yields in the main dairy area of the sierra, Cajamarca. million urban, 5.7 million rural) growing at 1.1 percent annually, 0.8 points below the national average and 0.95 Major economic developments have taken place recently in percent below the natural growth rate, due to migration. mining and tourism. Transport services and the handicraft Before mid-1960, the sierra was the most populous re- industry have also developed. Several department capitals gion, with over half of Peru's total population. Out- and other medium sized towns have experienced increased migration (seeking economic opportunities) reduced this activity in construction, commerce, recreational and personal to around one third. In recent decades, sierra towns have services. Roads and social infrastructure have improved in grown rapidly--averaging 3.7 percent annually, nearly most places. one point faster than non-sierra towns. Rural people have moved to nearby local towns, seeking better education. Larger towns (except for Juliaca and Table 1 - Characte ris tics of Sie rra Hous e holds by Pove rty Condition Puno) are more than 100 kilometers apart and land communications are usually poor. Extre me Characte ris tics Poor Non-Poor Poor Primary education is nearly universal in the Net income (Soles/month) 62.0 83.5 233.9 sierra. Eighty percent of the rural population had no secondary education in 2000. Overall illit- Net income ($s/day) 0.6 0.8 2.2 eracy was 22 percent compared to 12 percent for No education or only primary (%) 87.3 85.0 71.0 all Peru. Illiteracy has decreased in the central and southernmost part, but was still around 30 Secondary education or higher (%) 12.6 14.1 18.8 percent (1993) in the north. Household human capital index 0.118 0.137 0.233 Infant mortality declined from 80 to 58 per Employment primary sector (%) 90.8 87.7 66.2 thousand between 1991 and 2000. The % Household members econ. active 47.8 52.1 67.2 corresponding figures for Peru were 64 and 43 per thousand. The consultations with the rural poor noted considerable improvements in rural health Poverty services, mostly in district capitals where health staff were Inequality has decreased--because of impoverishment permanently available. among the rural middle classes, not income increases among 2 the poor. Daily average income for sierra rural households government, local communities, private sector agencies, is US$1.3 dollars compared to US$4.2 in the urban sierra civil society organizations, and decentralized entities of the and US$3.1 for all Peru. Average daily incomes of the poor central government, would develop local participatory rural are below one dollar per day. investment plans. They would identify local rural growth potential and social needs; promote basic local economic and Poverty is strongly correlated with education, type of social infrastructure; and seek to tap local niche market economic activity (primary sector) and household head opportunities. To encourage clustering and avoid spreading employment situation (independent producers). Poverty is resources too thinly, several LDCs and the regional more likely in households with many children and government could work together to establish economic comparatively few working age members. corridors linking several small to medium-sized towns, establishing rural-urban ties and providing larger markets. Recommendations To attract private investment, government needs to develop infrastructure (telecommunications, roads, markets, energy) Promoting sustainable rural growth. and skilled labor. The proposed strategy also suggests Growth opportunities in the rural sierra are limited. Two measures against soil erosion and mining contamination, types have different strategic implications. protecting biodiversity. Reforestation could provide environmental benefits and income to very poor sierra Small, diversified opportunities in specific areas, mostly dwellers. Commercial forestry development is hampered by "niche" type, require moderate investment and can be land tenure arrangements that long-term rental agreements undertaken by local people with technical assistance and with the state could resolve. FAO and bilateral development financial support. agencies could help. These in turn may be linked to larger area or product-based Enhancing human capacity and opportunities that exist in certain sectors and geographic providing social protection areas: large-scale dairy and alpaca development, tourism, agro-processing, commercial forestry plantations, industry, Education and health increase productivity, stimulate mining and commercial services. These require major migration, and help reduce poverty, making rural education investments, know-how, government involvement, and investments crucial. private sector entrepreneurship which are generally absent from the rural sierra. Mechanisms for developing these Rural growth is likely to bypass many rural poor and extreme opportunities include productive alliances, territorial poor, unless specific investments, transfers and policy development, and large private and public sector investment. measures improve their living conditions and incomes. Three things are needed: minimum standards of satisfaction Productive alliances are agreements among producers, of basic needs for all; minimizing economic and physical processors/wholesalers/exporters, government, and rural risks that have major social economic impacts on the poor; service providers that identify profitable markets for specific and protection for minority groups made weak and products, and organize all production and marketing. vulnerable by age, gender, ill health, abandonment, isolation, Government's role is to facilitate agreements, provide public ethnicity, etc. goods and services, and develop policy frameworks for research, extension, rural finance, land tenure and producer Social protection needs to be organized around four associations. principles: (i) recognition of the role of private informal safety nets in risk management strategies of the poor; (ii) Territorial development programs cover municipalities, efficient targeting of extremely poor groups; (iii) income watersheds, or economic corridors. Local Development support through direct transfers and rural employment Councils (LDCs) made up of representatives of local programs; and (iv) food security programs where necessary. 3 Strengthening rural institutions · Productive projects of any type, with strong links to markets. Strong rural institutions are needed to promote, plan, implement, monitor, and evaluate rural and social protection · A limited geographical scope that respond to local programs. Strong institutions boost democracy, self- needs. reliance, and justice. They empower the poor, improve their quality of life and reinforce their cultural identify. Programs that worked less well were not aligned with ben- eficiary needs, and lacked capacity building and training to Rural institutions include regional and local governments, build communities' capacity for implementation. national institutions related to the rural sector, community level organizations, NGOs, other civil society organizations, and social and cultural norms that regulate social interaction. Notes The most relevant public institutions are local and regional 1 Encuesta Nacional de Niveles de Vida (ENNIV). - This governments, which need capacity building and institutional resulted from a 23 percent increase in the incidence of development. The strategy proposes: poverty, a 39 percent increase in the rural population and a 9 percent effect of the two combined. 1. Establish provincial and district level Local Development Councils (LDCs) in all municipalities 2 INEI's Encuesta Nacional de Hogaresd (ENAHO), 2000. where they have not developed spontaneously. See Annex I. 2. Promote community level territorial organizations 3 An updated study of poverty in the sierra under the where they do not exist. leadership of Javier Herrera, a paper summarizing long-term trends in the sierra's economy and society under Evelyne 3. Establish regional level planning units, responsible Mesculier, and a paper under Enrique Vasquez on lessons for regional strategic planning, identifying learned from the main development programs affecting rural economic opportunities, setting priorities for areas. provision of public goods, and attracting private sector investment. 4 A Rural Development Strategy for the Peruvian Sierra, June 2002 (draft), World Bank. 4. Bring national development agencies together under one umbrella and decentralize, to mesh closely with regional entities and LDCs. Lessons learned Successful programs have one or more of the following features: · Delegate important design and implementation deci- sions to beneficiaries, and provide technical assistance and funding for maintenance. Examples: Rural Roads Project (World Bank/IDB) and Proyecto de Generación de Ingresos (PROGEIN) (Caritas) · Allocate funds directly to beneficiaries for a wide range of activities from which beneficiaries can choose. (FONCODES directly funded nucleos ejecutores; IFAD About the Author funded Proyecto de Manajpo de los Recursos Naturales en la Sierra Sur (MARENASS)). Pierre Webrouck is a Sector Leader attached to the Environ- mentally and Socially Sustainable Development Unit · Transparent competition to provide financial incentives (LCSES) of the Latin America and the Caribbean Region. (MARENASS, INCAGRO, Market Development Place) · Programs managed by women rather than men About "en breve" (comedores populares, credit schemes) tend to be more sustainable. 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