41014 No. 109 /June 2007 Economic Results of CDD Programs: Evidence from Burkina Faso, Indonesia and the Philippines In Community-Driven Development (CDD) programs, communities identify, prioritize, design and execute small-scale investments. While relevance and community ownership have been high, it is also crucial that these public investments meet economic feasibility criteria and generate adequate rates of return. This note summarizes the results of three recent ex-post economic analyses of CDD programs in Burkina Faso, Indonesia and the Philippines. In all cases, the overall portfolio had relatively high economic rates of return, with conservative estimates ranging from 21 to 68 percent. Quantifiable benefits of the roads, water supply systems, schools, productive projects and other investments were significant, including documented time savings, increases in local production and revenues, and savings on the cost of inputs and services, among others. In addition, a comparison of CDD-implemented infrastructure projects with comparable government programs found that CDD projects consistently generated greater cost efficiency, with savings on unit costs channeled into additional community infrastructure initiatives. Investment Selection Using the CDD Approach like small-scale irrigation, agricultural production Community-Driven Development (CDD) is an or development of informal sector activities. approach that transfers control over resources and decision-making to local communities. CDD These key features, namely that they are demand- programs provide grants for small-scale driven (i.e. the portfolio is not known in advance), investments that are chosen, designed and that the investments are very small in scale, and implemented by communities. that there is multi-sectoral choice, make it difficult to estimate ex-ante the expected Typically, some type of facilitation, carried out economic rate of return of a future portfolio of either by staff of the program or delegated to CDD program investments. NGOs or local governments, guides a locality through an analysis of its needs and identification In response to this challenge, CDD programs have of potential investments. adopted several screening mechanisms to ensure that CDD programs deliver services in a cost Another basic feature of many of these programs effective manner: is that they provide a broad menu of options to · Facilitated community needs assessments and communities. These menus usually include basic participatory local planning processes are infrastructure like water supply and roads, social carried out to ensure that investments reflect services including health and education consumer preferences, resulting in allocative interventions and productive investments in areas efficiency. · Eligibility criteria usually put forth in an subprojects completed or on-going as of the Operational Manual exclude investments 2006 Mid-Term Review. which generate low economic returns (e.g. All three programs have similar objectives, administrative buildings). Technical and cost namely to strengthen local communities' ability to guidance is provided, often by applying unit plan and manage their development. They seek to cost or cost per beneficiary parameters, to empower local communities and improve local promote adoption of least cost approaches. governance. All three delegate a significant · Technical experts from sectoral ministries, degree of responsibility to local actors to identify, local governments or the private sector may appraise and implement small-scale investments. help design and/or screen the actual intervention chosen. Scope and Methodologies · Communities directly manage the Each program recently commissioned an ex-post procurement process, raising transparency and economic analysis of its portfolio of investments.1 creating an incentive for cost control when The analyses aimed to assess the economic they can use any savings for additional benefits and impacts of these programs and to investments. verify the soundness of the ex-ante sub-project selection and screening procedures. Assessing Economic Costs and Benefits in Three Countries In each case, the most common types of investments were selected and a sample of A great deal has been published about the overall completed sub-projects was visited to measure ex- performance of these programs in terms of post the costs and benefits. The types of impacts on household and community welfare, subprojects studied represented between 65 and but ex-post economic analysis has been applied in 82 percent of their respective portfolios. There only a handful of cases. To assess whether these was a great deal of dispersion in subproject types project identification and screening processes between the programs. The water sector was the have been effective in ensuring that investments only common sector studied across all three are economically justifiable, this note summarizes countries. The sectors covered for each country recent findings on ex-post economic analysis of were: three CDD programs: · Burkina Faso ­ water supply, literacy training · Burkina Faso's Community-Based Rural centers, erosion control fences, compost pits, Development Project (known by its French teacher housing, classrooms, and animal acronym PNGT) initiated under the Ministry vaccination facilities (65 percent of total of Agriculture in 2001. At the time of the ex- portfolio). post economic analysis in early 2007, over · Indonesia ­ water supply, roads, bridges and 12,000 subprojects had been financed at a irrigation (68 percent of total portfolio). value of US$39 million. · Philippines ­ water supply, roads, classrooms, · Indonesia's Kecamatan Development Program health facilities and daycare centers (82 (KDP) started in 1998 under the Ministry of percent of total portfolio) Home Affairs, with over US$750 million invested in over 70,000 villages by the end of The valuation of benefits from these community Phase II in 2004. The study focused on Phase investments included both the monetary benefits II. like increased revenue or reduced outlays for · In the Philippines, the Kapitbisig Laban Sa services and those quantifiable benefits for which a monetary value could be assigned, like the value Kahirapan ­ Comprehensive and Integrated of time savings. In general, benefit levels were Delivery of Services (KALAHI-CIDSS) calculated using conservative assumptions. Project was launched in 2002 under the Department of Social Welfare, with over 1,400 Benefits for which it was difficult to attach a monetary value, like reduced infant mortality from 2 investments in water supply and health facilities, of 113 completed subprojects. For the KALAHI- were not included. Indirect benefits such as stronger CIDSS program, the team visited 85 sites. The community participation and better local governance results for Burkina Faso and Indonesia are were also not included in the quantifiable benefits, indicative given the large number of projects nor were the expected benefits of higher levels of completed. In the Philippines, the sample social capital, closer matching between supply and represented 20 percent of the subprojects demand, more inclusive access to local public goods, completed over the past 16 months. and better access to information. In addition to the economic rate of return analysis, Costs included in the analyses comprised initial each study compared cost efficiency in terms of investment costs (including community the unit costs of infrastructure constructed contributions) as well as future operations and through the CDD approach with other national maintenance. In the Philippines and Burkina Faso infrastructure programs. This is particularly cases, initial investment costs included both the direct important since economic rates of return are only costs of the investment itself and the indirect cost of one approach to economic analysis, and less community facilitation, supervision and program reliable in cases of small-scale projects with high management. For Indonesia only the direct costs of external or non-quantifiable benefits. the infrastructure were considered.2 It is not uncommon, as in the case of PNGT in Burkina Faso, The three countries have national poverty for communities to generate small savings that can reduction policies that call for a minimum service then be applied to other public works, but these level of primary education, health care, safe water savings were not taken into account in the analysis. and road access. The key issue is not whether these types of investments have high returns, but Standard economic analysis methodologies were rather which delivery mechanism provides a least- used, with some variations across the three countries. cost solution in the face of the huge resource For example, in the cases of Indonesia and the requirements necessary to reach these goals. Philippines, financial costs were converted to economic costs to account for price distortions using Overall Findings on national shadow price conversion factors for labor, Economic Rates of Return (ERRs) materials and the exchange rate. These official conversion factors were not available for Burkina Economic rates of return were calculated for the sample of subprojects visited. While they can be Faso. In the Philippines, input from the field visits compared within a given country, they are not were used to develop a model subproject for each comparable across countries for the reasons type rather than estimate the rate of return on each previously indicated. Key findings presented in sub-project reviewed. In Indonesia subprojects with Table 1 include: exceptionally high ERRs (over 100 percent) were excluded while they were retained in the Burkina · In all three studies, the overall economic rate Faso case. As a result, the findings are not directly of return on the CDD program was above the comparable across the three countries. country's hurdle rate for acceptable investments. Weighted ERR levels for the Sensitivity analysis was carried out in the PNGT sample portfolios demonstrated relatively high and KALAHI-CIDSS studies to assess the levels of economic impact. The weighted robustness of the findings to changes in either ERRs for the sample portfolios ranged from 21 costs or benefits. to 86 percent depending on the country and underlying assumptions, per Table 1 below. In terms of sample sizes, in Burkina Faso, 59 projects were surveyed out of the approximately 7,000 subprojects undertaken in 2004-2005. The KDP study carried out economic impact analysis 3 Table 1: Economic Rates of Return Burkina Faso Philippines Indonesia PNGT Kalahi-CIDSS KDP Roads and bridges 19-22% 52% Water: 39% Pumped 11-55% 58% Gravity 65% Literacy Training n.a. Centers Stone fences 116% Compost Pits 250% Teacher housing 1% Classrooms n.a. 16% Livestock 2% Vaccination Parks Health center 20% Day care 16% Irrigation 68% ERR 61-86 % 21% 53% · In Indonesia and the Philippines, returns were of one; and (3) increased fertility due to timely strong for each type of sub-project, with greater watering. The resulting increases in yields per variability in Burkina Faso. Referring to Table 1, hectare were very significant. In Burkina for KALAHI-CIDSS and KDP, the average for Faso, compost pits had an ERR of 250 percent each type of investment was above 15 percent, a and a payback period of one year. These low typical social discount rate (e.g. the threshold used cost investments were found to typically in the Philippines). There was the widest double production or corn and millet per dispersion in Burkina Faso, where animal hectare. Stone erosion control fences and the vaccination facilities and teacher housing were not use of compost combined to increase yields fully justifiable in economic terms. and areas under cultivation. · In general, social infrastructure like classrooms, teacher housing and health Water Supply centers had lower ERRs than economic All three studies reviewed water supply projects, infrastructure, which is typical of investments which were among the most requested where many of the future benefits could not be investments in these CDD programs. The water fully quantified. systems included wells and boreholes and both · There were several cases of very high pumped and gravity systems. The average ERRs economic rates of return.3 For example, in the ranged from 11-55 percent in Burkina Faso's KDP study, 8 subprojects visited had ERRs in PNGT4, 58-65 percent in the KALAHI-CIDSS excess of 100 percent. The most frequently project5 and 39 percent in KDP. Within the water seen examples were roads that provided access portfolio there were wide variations, however. For to previously isolated villages where, before example, in the Indonesia program, the ERR for the road, all produce had to be hand carried or the 41 KDP water projects studied varied between carried in small amounts on motor cycles for 3 percent and 86 percent. The vast majority were kilometers before reaching the nearest market. economically viable, with only 7 out of the 41 Likewise, a number of irrigation projects were showing ERRs of lower than 15 percent. able to more than double the area under cultivation as well as channel water from local Quantifiable benefits included time savings from springs during the dry season. In some cases less distance to fetch water, cost savings on non- this resulted in triple benefits: (1) additional incremental water consumption, and the value of area cultivated; (2) two crops per year instead increased water consumption due to the 4 investments. For example, in the Philippines, irrigation. These projects had the highest average water system investments saved households an ERR of the KDP portfolio at 68 percent, ranging average of 43 minutes per day of fetching water from 8 to 203 percent, with only one project and increased per capita consumption from 10 to having less than 15 percent. 14 liters per day. In Burkina Faso, the value of the time savings was less important than the value of In terms of quantifiable benefits, the area under the incremental water production. cultivation in many cases more than doubled. In addition, the reliable supply of non-rain Health benefits such as reduced incidence of dependent water enabled two harvests per year waterborne diseases were not considered, nor instead of one. In many cases, the availability of were any increases in animal health or time saved reliable water also had a significant impact on from herding livestock to previous water sources crop fertility resulting in even higher yields. for those wells that serviced animals. Human productivity increases from freed up time, such as better school attendance and greater production from gardens and orchards were reported but not empirically measured. Roads and Bridges Roads were studied in the Philippines and roads and bridges in Indonesia. Average ERRs in the Philippines case were 19 percent for road improvement and 21 percent for construction. In Indonesia, road investments were concentrated in relatively isolated villages and produced consistently high ERRs that averaged 52 percent. Quantifiable benefits from road investments include: · Time savings ­ for example KDP roads on average reduced a 2 hour walk into a 30 Villagers at a KDP rural road construction project minute ride. · Increased sales of agricultural products. For Other Productive Projects example, the KALAHI-CIDSS project estimated a reduction in post harvest losses of Other productive subprojects studied include erosion 2.5 percent. control fences made out of stone (cordons pierreux), · Cost savings in transporting agricultural inputs compost pits (fosses fumières) and vaccination facilities in Burkina Faso. The economic results for to the farm site and produce to market. the erosion control and compost subprojects were extremely high, averaging 116 and 250 percent Other benefits not included in the calculations respectively. Vaccination facilities, however, had low include easier access to social infrastructure and economic returns, averaging 2 percent. This was services, less wear and tear on vehicles, increased largely a result of relatively low numbers of users, property values, and changes in the product mix with a more acceptable (above 10 percent) rate of towards higher value crops. return when vaccinations approached 6,000 per year. For the erosion control and compost subprojects, Irrigation quantifiable benefits were the increase in agricultural KDP was the only program of those studied that production. For example, the compost investments had significant investments in small-scale tended to double annual millet production, paying for Villagers at a KDP rural road construction project themselves within two years. For the vaccination facilities, benefits were calculated based on the 5 willingness to pay by livestock owners, with Sensitivity Analysis vaccination park fees historically quite low. Benefits Sensitivity analysis was conducted in the in terms of improved animal health and time savings in making facilities more accessible were not Philippines and Burkina Faso studies to measure the robustness of these outcomes in the face of quantified. changes in costs or benefits: Social Infrastructure · The Philippines study found that costs could escalate by 18 percent or benefits decrease by 15 Social infrastructure like schools, teachers housing, percent and the overall portfolio would remain health centers, literacy training centers and day care above the opportunity cost of capital. The results centers were included in the PNGT and KALAHI- further showed that the economic returns to all CIDSS studies. In the Philippines study, the subprojects react more strongly to decreases in the economic rates of return for schools, health centers annual benefit stream than to increases in and daycare facilities were 16, 20 and 16 percent investments costs. respectively. In Burkina Faso, economic rates of · In the Burkina Faso PNGT study, the high return return were not calculated for classrooms and literacy projects like compost pits and erosion control training due to data limitations. Instead, analysis fences could withstand significant increases in focused on cost efficiency (see section below). For costs or decreases in benefits (30-50 percent) and teachers' housing, benefit-cost ratios were positive, still remain economically viable. The same was but the ERRs were low when comparing the cost of not true for animal vaccination facilities where constructing new teachers housing with local housing neither substantial decreases in cost (30 percent) rental rates mainly because there is very little rental nor large increases in user fees (up to 900 percent) housing in rural areas of sufficient quality. made the projects economically viable given the overall low utilization numbers. Economic benefits of school investments in the Philippines were quantified based on higher Cost Efficiency enrollment and lower dropout rates which increased the number of children with additional All three studies found significant unit cost years of schooling. For example, primary savings from the CDD approach. These cost enrollment rates were estimated to increase from savings help explain the relatively high returns to 85 to 96 percent in participating villages. This the CDD portfolios. In comparing the average additional schooling translates into higher future direct cost per unit (including community incomes as result of the returns to education in the counterpart contributions), for example per Philippine labor market, estimated at 14 percent square-meter constructed of a building or per for each additional year of schooling. Benefits of kilometer of road, with benchmarks from health care facilities were calculated using the comparable non-CDD government projects, the proxy of willingness to pay to visit a health cost savings were substantial in almost all cases center. And for day care, benefits were calculated (see Table 2). For example, classrooms in Burkina based on the effects of longer schooling and Faso built by the PNGT are less than half the cost parents' time savings, the latter accounting for of those procured through competitive bidding to almost 50 times the benefit level of the former. private contractors and adjudicated by the national procurement board on behalf of the Several of the benefits from social infrastructure Ministry of Education. In Indonesia, the report could not be quantified, including the benefit of a found that "numerous factors like isolated literate society, improvements in morbidity and locations, double and triple handling of materials mortality, and better learning from healthier and frequent on-site design modifications all children, for example. Benefits of having teachers conspire to make it virtually impossible for present in rural zones in terms of increased commercial contractors to compete with KDP on attendance and education quality could not be a cost basis." estimated. 6 Table 2: Estimated Unit Cost Savings of CDD Approach Burkina Faso Philippines Indonesia PNGT Kalahi-CIDSS KDP Roads and bridges 8 -59% 32% Water supply (-14%) 71- 76% 36% Literacy Training Centers 9-23% Teacher housing 43-51% Classrooms 60-66% 7% Livestock Vaccination Parks 6% Health center 44% Day care (-20%) Irrigation 24% Recommendations to access to non-potable water is abundant. A further Optimize Economic Impact example, from the Burkina Faso study, entails the · Closely monitor operations and maintenance literacy training centers, which were underutilized performance. The economic viability of many of if used solely for literacy training and would the community investments was sensitive to a benefit from up-front space utilization planning to large decrease in benefits. These could result from optimize the building. inadequate operations and maintenance either via · Appropriate technical design can optimize a shorter lifespan for the investment or a reduced benefits. For example construction standards for stream of benefits, like a water system that roads can include more long-lasting materials and repeatedly breaks down from lack of adequate greater emphasis on correctly designed permanent preventive maintenance. The ex-post reviews in drainage, which is the major cause of premature all three countries have found adequate operations damage. Water investments may also be over- and maintenance, with some outstanding dimensioned where the operational costs of questions about longer-term road maintenance in extracting the water is inferior to the water user Indonesia, but it is an issue that requires continued fees, leading to a lack of financing over the long- vigilance and feedback from the field on actual term to keep the systems running. Guidance on performance. appropriate technologies and adequate levels of · Contain indirect costs. Unit costs savings can be user fees should help prevent over-dimensioning undermined if indirect costs are allowed to investments. balloon. While many of these expenses, like · Simple cost per unit and cost per beneficiary cut- community capacity building and social off points can screen out lower return facilitation, are considered to be important investments. For example, in Burkina Faso it contributors to project success and may be viewed appears that a minimum of 6,000 animal as an investment in their own right, they also vaccinations per year is necessary to economically represent costs that will need to be offset with justify a vaccination facility. There are typically benefits if economic viability is to be achieved. minimum numbers of students or minimum · The number of actual beneficiaries is often a population in a catchment area for schools and crucial determinant of economic viability. These health centers, norms which are usually developed figures should be verified in the ex-ante appraisal by the sectoral ministries to ensure optimal process based on experience from the field. For utilization of space and personnel. example, not all villagers may chose to send their · Involve local government in operations and children to school or use a certain water source. maintenance. As sectoral responsibilities are Facilitation can also be useful in promoting increasingly decentralized and O & M comes greater local utilization of infrastructure built, for under the mandate of local governments, the local example through awareness-raising to use safe government-community linkages on basic water sources even during the rainy season when services becomes more critical. For example, in 7 the KDP program, projects are "handed over to example, time savings collecting water, changes their communities" and as such, have no formal in agricultural production, transit times and status or recognition from the local government. average payment for various services, among As a result they are not entitled to ask for funds others, can all be calculated from household from government sources. A change in status survey results. These surveys usually have more would entitle KDP projects to receive small robust sample sizes than can be feasibly achieved amounts of road maintenance funds. through ex-post field visits. Management of the infrastructure would still · Disseminate findings of economic analyses. remain in the hands of the village utilizing the There is a general misconception that small-scale systems already established by KDP, which projects in low-income rural communities are would provide cost savings to the local basically social in nature and rarely economically government. justifiable. However, the three studies cited here found consistently high economic returns to CDD Recommendations to Improve Economic Analysis programs working in remote rural areas. This confirms that resources in CDD projects are well All three studies faced a challenge in gathering data spent not only from a social and equity on economic benefits. Ex-post field visits by perspective, but also in terms of value for money specialized teams are expensive and resources often and economic impact. Such results can better do not permit a representative sample size when inform the public debates about the best programs are financing thousands of village projects development approaches. each year. To ensure that quality data is available when the project team decides to implement a rigorous economic analysis, it is advisable that: · Ex-ante appraisal should estimate the expected, 1 Konate, S. (2007) « Analyse Economique et Financière des Investissements Communautaires du PNGT2 », quantifiable benefits. The ex-ante appraisal has Ouagadougou. PNGT. rarely provided reliable baseline information upon which to base an ERR calculation. In part, this is Araral, E., C. Holmemo (2007) "Measuring the Costs and Benefits of Community Driven Development: The KALAHI- because the information was not seen as useful, CIDSS Project, Philippines" World Bank ­ Social particularly when no ex-post analysis is done. Development Paper 102. However, program managers can ease the burden Torrens, A (2005), "Economic Impact Analysis of of the ex-ante analysis by providing a typical Kecamatan Development Program benefit series for each type of project and Infrastructure Projects": Jakarta, World Bank. instructions on how to quantify these benefits, as The Indonesia and Philippines reports are available on the well as a checklist to ensure that no potential World Bank intranet at http://eapcddflagship benefits have been overlooked 2 In the KALAHI-CIDSS program, indirect costs were 43 %, · Integrate ex-post data into the program MIS. In including social preparation/facilitation 25%, TA capacity general, all three programs lacked up-to-date building 17% and monitoring and evaluation 2%. For the information on the current utilization of the PNGT program in Burkina Faso indirect costs were infrastructure created by the program. The estimated at 21% total, of which national level coordination 7%, provincial coordination 6% and supervision, monitoring development of simple monitoring tools that can and evaluation 8%. be completed by the local management 3 In the KDP study, the projects with returns over 100 committees would be sufficient for a program, percent were eliminated from the analysis in order not to through its management information system, to distort the sector averages. In the PNGT study, all of the better quantify and track the benefit stream from projects in two categories: compost pits and erosion control stone fences had such high returns and so they were its investments. included. · Review impact evaluation instruments to make 4 The higher figure is from the estimates of water production them applicable to economic analysis. These increases reported by the villagers and the lower figure from days, most CDD programs carry out impact some technical estimates of system capacity. evaluation including extensive household surveys. 5 The higher figure is for gravity-fed systems and the lower If structured as such, the questionnaires can be one for pumped water systems due to the added expenses of running the pumps. used to gather quantitative data on benefits. For This note was prepared by Julie Van Domelen. For more information please send an email to: Social development@worldbank.org Additional 8 informationcan also be obtained from the project TTL: Scott Guggenheim (KDP), Andrew Parker (KALAHI-CIDSS) and Emmanuel Nikiema (CBRDP). Additional copies can also be requested via e-mail: socialdev@worldbank.org