China - Southwest Poverty Reduction Project

 ICRR 11606 Report Number : ICRR11606 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 09/30/2003 PROJ ID : P003639 Appraisal Actual Project Name : Southwest Poverty Project Costs 486.4 463.6 Reduction Project US$M ) (US$M) Country : China Loan/ Loan US$M ) 247.5 /Credit (US$M) 215.0 Sector (s): Board: SP - General Cofinancing agriculture fishing and US$M ) (US$M) forestry sector (40%), Other social services (32%), General education sector (12%), Health (12%), Central government administration (4%) L/C Number : C2744; L3906 Board Approval 95 FY ) (FY) Partners involved : Closing Date 12/31/2001 04/30/2004 Prepared by : Reviewed by : Group Manager : Group : Anthony J. Soniya Carvalho Alain A. Barbu OEDST Blackwood 2. Project Objectives and Components a. Objectives According to the SAR, the principal objectives of the project are to : 1. Demonstrate the effectiveness of a focused multisectoral rural development project approach to poverty reduction. 2. Facilitate a "market friendly" increase in labor mobility from the poor areas to better off rural and rapidly growing urban areas. 3. Upgrade poverty monitoring at the national and local levels . 4. Significantly reduce absolute poverty in 35 of the very poorest counties in southwestern China . The project would also: 1. Stabilize or even reverse upland environmental destruction through land and pasture improvement and soil conservation works. 2. Encourage greater local community participation by enabling households to make key decisions during project design and implementation (the Loan Agreement omits this objective ). b. Components There were six project components in the SAR and DCA, but the ICR lists eight (also used here for convenience ): 1. Basic Education : primary school renovation and construction; tuition assistance and nutritional supplements for poor students; educational supplies and furniture; and teacher and management training (US$29.7 million actual); 2. Basic Health Services : facility construction and renovation, establishment of a village cooperative health fund, training of health personnel, strengthening of public health programs and health administration (US$20.7 million actual); 3. Labor Mobility : orientation, skill training, a computerized demand -driven job placement, monitoring and reporting on worker safety and living conditions, employment generation in three municipalities in Guangxi Province (through a "poverty-reduction enterprise development zone ", low-cost housing schemes, and mariculture, agriculture and tree plantation activities (US$133.3 million actual); 4. Rural Infrastructure : labor-intensive construction of rural roads, safe drinking water supply systems, small scale irrigation, agricultural drainage works, biogas digesters, and rural electrification (US$64.0 million actual); 5. Land and Farmer Development : crop and livestock activities for poor farm households, supported by (i) extension and inputs; (ii) establishment of tree crop nurseries and provision of saplings and tree crop; (iii) intensification of staple crop production; (iv) terracing; and (v) the support for applied agricultural technologies (US$160.3 million actual); 6. Township and Village Enterprise Development (TVE) TVE ): investment credit for labor-intensive commercially viable  agro-processing, mineral, service and handicraft industries (US$42.3 million actual); 7. Institution Building : improve the Leading Group for Poverty Reduction (LGPR) and Project Management Office (PMO) system's capabilities in project design and implementation, procurement, accounting, and in monitoring and evaluation (US$6.1 million actual); and 8. Poverty Monitoring : establishment of an objective poverty monitoring system for the project areas using improved survey instruments, analysis of poverty targeting, and monitoring and evaluation of the project's components (US$7.2 million actual). c. Comments on Project Cost, Financing and Dates The MTR was conducted 20 months after effectiveness; closing was delayed by 28 months. On performance grounds, one component was restructured, parts of two others were cancelled and US$ 8.6 million of loan funds were reallocated to a new activity - upland water supply. TVE development had a slow start, suffering from design and market problems, and was downsized during the MTR and again during the project's last years; funds for the Guangxi municipal employment component in one municipality were eventually reallocated to more promising activities; and the nutrition sub -component of the Basic Education component was dropped at MTR . 3. Achievement of Relevant Objectives: The project achieved most of its major relevant objectives with only minor shortcomings . Geographic poverty targeting under the project was excellent . According to the Region, project funds went to the very poorest counties in Southestern China and within these counties, project funds were directed to the poorest townships. The project also reached poorer groups within the townships but not necessarily the poorest of the poor . There were issues of poor integration of some project components in the overall project which reduced the demonstration value of the multisectoral approach, for example, in some cases the labor mobility component reduced the effectiveness of the agricultural component by reducing the amount of available labor . In its comments on the ICR, DFID noted that "it would be good to see more evidence in the ICR of the value -added of a multisectoral approach" (ICR pg 22). On the labor mobility activities, the ICR noted "It is also unfortunate that the experience is not replicable in other parts of China . The high cost of setting up a reliable monitoring system has discouraged local municipalities from using public funds to replicate the Southwest system " (ICR pg 7). In its comments on the ICR (labor mobility component), DFID noted "Although the cost of setting up a reliable monitoring system is mentioned, it is difficult to imagine that a more cost effective model cannot be found ". Furthermore, poverty monitoring at the project level was weak (ICR pgs 10-11). And the project did not encourage, to any significant extent, local community participation by enabling households to make key decisions during project design and implementation . Several constraints affected the project's largest component, the land and farmer development component, and the resulting adverse impact on the overall success and effectiveness of the entire project was substantial (ICR pgs 8-9). First, the outreach to the very poorest and most remote households was delayed and never reached the levels received by less poor households closer in to the road system . Since ethnic minorities often reside in the most remote villages of the project areas, some ethnic minority families did not benefit adequately . Second, many of the land and farmer development program activities were effectively "hijacked" by the county technical bureaus who were more interested in implementing country plans for agricultural development than providing poor households what they really wanted. Third, the benefits from heavy investments in a number of tree crops in the early years of the project were not realized because the quality of the planting material was unsatisfactory and the markets for most of these tree crops were in a state of severe decline or complete collapse due to heavy saturation of the regional or national markets for these products . According to recent DEC research (Chen and Ravallion July 2003 "Hidden Impact? Ex-Post Evaluation of an Anti-Poverty Program"), on comparing consumption changes in project villages with those in matched non -project villages, the project had negligible impact on consumption poverty, with only small gains in living standards within the disbursement period. Income gains, on the other hand were larger, with an average income gain over five years of around 10 percent of baseline mean income, representing an average return on the project's disbursements of around 9-10 percent on top of the impact of the government's pre -existing assistance to poor areas . Half of the cumulative income gain was saved, so the project's impact on consumption was far less evident . One possible explanation is that participants saved the income gains because they felt that a large share of the gains were likely to be transient. Another possibility is that the project increased returns to saving . Only with further follow-up research well after project completion will we know how sustainable the gains were . 4. Significant Outcomes/Impacts: 1. Geographic targeting under the project was excellent . 2. The project had an impact on national poverty reduction policy and the project approach is being applied elsewhere in China and in northern Vietnam . 3. The labor mobility component reached a large number of poor providing them long -term off-farm jobs. 4. Annual sample surveys point to increases in family income, agricultural production and food security and declines in absolute poverty (subject to reservations about attributing these changes wholly to the project and the ICR's concern about the project ’s failure to spread benefits down to the poorest families ). 5. Poverty monitoring was strengthened at the national level and the approach was extended to other parts of  China. 5. Significant Shortcomings (including non-compliance with safeguard policies): 1. The project objective of encouraging greater local community participation was not achieved to any significant extent. According to the ICR, "the focus on community empowerment and the participatory approach was allowed to subside during implementation " (ICR pg 18). 2. The government’s emphasis on cost recovery and its loan repayment requirements biased the project design and implementation toward activities which generated cash income with inadequate support for activities which were particularly well received by project beneficiaries and had the greatest poverty reduction effect (ICR pg 18). Moreover, according to partner comments, project counties were requested to provide 25 percent of the counterpart funds--all these poor counties had financial deficits and could not fulfill the requirement which affected the implementation progress and project quality to some extent (ICR pg 20). 3. Project implementation was constrained by shortages and delays in disbursing counterpart funds . 4. The project monitoring system (MIS) was weak in a number of project provinces . 5. The ICR expresses concern that some benefits will not be sustained especially in the areas of basic health care, rural infrastructure, and agricultural enterprises . Basic health care : project trained workers may move to better off areas, village health clinics will likely be maintained, but funding for medicines will be curtailed and medicines and health services may become too expensive for the poorest villagers . Rural Infrastructure : some of the rural infrastructure established under the project may not be well maintained especially community drinking water facilities--efforts to establish proper maintenance practices and funds were not always successful . The project's Beneficiary Survey noted "more specific plans and funding mechanisms for maintenance and repair are essential for the large numbers of small works constructed under the project " (ICR pg 37). Markets : "..the markets for some of the tree crops and other niche agricultural products supported under the project have already experienced sustained declines or even collapsed ...and these activities are certainly not sustainable " (ICR pg 15). 6. The cut back in Bank supervision funding in the middle and later years of implementation meant that education, health, participatory processes, environmental monitoring and financial management were not adequately addressed (ICR pg 16). 7. Analysis at the village level has shown that the most disadvantaged and poorest ethnic minorities did not always receive a fair share of project benefits (ICR pg 18). 8. DFID raised a number of issues in its comments on the ICR : (i) Given that the objective of the project was to "demonstrate the effectiveness of a focused multisectoral rural development project approach to poverty reduction", it would be good to see more evidence of the value added of a multisectoral approach; (ii) why has the labor mobility component not been replicated elsewhere --there are likely to be more cost -effective alternative models; (iii) with regard to agricultural activities, there was failure of market analysis, lack of a demand driven approach, lack of reach to remote communities, and problems with loan targeting, risk and repayment (ICR pg 22-23). 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Highly Satisfactory Satisfactory The project achieved most of its major relevant objectives with only minor shortcomings. Section 5 above. Institutional Dev .: High Substantial The project did not promote, to any significant extent, community participation by the beneficiaries (see point 1 in Section 5). Sustainability : Highly Likely Non-evaluable Some factors point to likely sustainability and others to unlikely sustainability (see last para of Section 3, and point 5 in Section 5). In the absence of further data, sustainability is rated non-evaluable. Bank Performance : Satisfactory Satisfactory Borrower Perf .: Highly Satisfactory Satisfactory Counterpart funding problems, failure to promote community participation to any significant extent, and inadequate attention to the loan repayment system which affected poverty impact make Borrower Performance satisfactory . The ICR also notes that a "significant flaw in Borrower's project preparation effort was the failure to bring capable procurement  staff" (ICR pg 16), and the need for more appropriate community-based procurement methods (ICR pg 4). The Beneficiary Survey found that inappropriate procurement methods resulted in high prices, incorrect products, and untimely delivery (ICR pg 36). Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. 7. Lessons of Broad Applicability: 1. Full commitment from government and its agencies and enthusiastic staff support must be assured to implement a complex multisectoral approach to poverty reduction . 2. Project designs should be constrained by realistic estimates (both budgetary and political) of the availability of counterpart funds if implementation inefficiencies and disappointments are to be avoided . 3. Much experience outside China has shown that successful, cost -effective and sustainable poverty reduction strategies must have beneficiary participation in project preparation and implementation at their core . 4. Impact monitoring must include convincing comparisons with non -project or "control" situations for claimed impacts to be convincing, especially in complex poverty reduction projects where attribution can be particularly difficult. 8. Assessment Recommended? Yes No Why? To verify the ratings and assess sustainability . 9. Comments on Quality of ICR: A generally satisfactory ICR. A number of assertions are not backed -up with evidence and the ICR's highly positive ratings do not adequately reflect reservations in the text . The ICR does not explicitly address safeguard issues and it is not clear if land acquisition under the project and the payment of compensation followed principles and procedures satisfactory to the Bank as agreed at appraisal (SAR pgs 34, 59-60). The ICR does not cover the SARS component but notes that "This ICR for SWPRP will be supplemented by an assessment of the implementation of the SARS Program that will be carried out within six months of the revised closing date of the Credit, in April 2004". (ICR pg 24, SWPRP refers to the Southwest Poverty Reduction Project ). OED had informed OPCS that it would be preferable to delay ICR issuance by a few months so as to include the assessment of the SARS activities .