Corporate-level Evaluation on IFAD’s Private Sector Development and Partnership Strategy

1. Corporate-level Evaluation on IFAD’s Private Sector Development and Partnership Strategy 6th Special Session of the IFAD Evaluation Committee 9 May 2011 Office of Evaluation

2. Background • Private Sector Strategy approved in 2005 • Implementation between 2005-2008 • Private Sector Strategy objectives: (i) engage the private sector to bring more benefits and resources to IFAD’s target group, the rural poor; and (ii) increase pro-poor private sector operations and investment in rural areas • The “three broad lines of action”, namely: (i) policy dialogue for local private sector development; (ii) investment operations to support local private sector development; and (iii) partnerships with the private sector in order to leverage additional investments and knowledge for rural areas • Private Sector Strategy included 13 implementation requirements

3. Main finding IFAD’s existing instruments have allowed the Fund to promote private sector development, but they could be used more effectively this purpose Strengthening existing instruments is a necessary but not a sufficient condition for ensuring better results on reducing rural poverty through partnership with the private sector The evaluation concludes that IFAD is at a crossroads and needs to seriously consider channelling resources directly to the private sector, with non-sovereign guarantee

4. Main Findings The 2005 strategy • The importance of the private sector for small agriculture and rural development is paramount • Objectives and broad lines of action are largely relevant • Definition of private sector too broad based • Implementation requirements were important but not properly fulfilled • Private sector strategy results framework not adequate • The process for preparing the 2005 strategy was weak

5. Main Findings (contd.) Country strategy and project design • Investments – all those quantitative targets that were monitorable included in the strategy were achieved • Less than half the COSOPs reviewed included a clear agenda for policy dialogue at the country level to promote private sector development. There are some examples of advocacy at the regional and global levels • Recent project design documents pay greater attention to value chains, access to markets and private sector development in general • There are some partnerships at corporate (e.g. OFID) and project levels (Equity Bank, Kenya), but few strategic partnerships at the country level with multilateral and bi-lateral aid agencies

6. Main findings (contd.) Results on the ground • Data from project status reports reveal that recent projects with private sector emphasis are more “likely to achieve their development objectives” • Data from the Results and Impact Management System however shows performance in various indicators such as “sustainability of enterprises,” is still moderately satisfactory

7. Main findings (contd.) Country case studies • Recognised that private sector development is a means to reducing rural poverty and not an end in itself • Private sector development is increasingly becoming a core element in most IFAD-financed country programmes • The private sector is heterogeneous. Different private sector entities have different strengths and requirements

8. Main findings (contd.) Country case studies • The role of governments in providing an enabling policy and institutional environment and the needed infrastructure (e.g. roads) is critical for IFAD to effectively promote private sector development, but not for a direct involvement in private sector development projects • IFAD’s non-lending services – policy dialogue, knowledge-sharing, partnerships and use of its grant programme to support these – emerged as relatively weaker elements of the country programmes

9. Main findings (contd.) IFAD Management • Management inputs between 2000-2008 were not consistent. But since 2009 it has increasingly championed the need for greater private sector partnership in small agriculture Human resources management and organizational structure • IFAD’s work force and organizational structure has limitations which constrain its efforts to promote private sector development

10. Main findings (contd.) Measuring results • The RIMS captures some data related to private sector development, but there is currently no systematic, periodic reporting on performance at the aggregate level Knowledge management • More can be done on knowledge management, as staff generally have limited knowledge of what others, inside and outside IFAD, are doing in the field of private sector development Governing bodies • Governing bodies have generally played an important role in promoting engagement with the private sector, but did not ask for periodic, progress reports in this important area

11. Main Findings (contd.) Instruments • The Fund has not sufficiently leveraged its existing instruments to promote private sector development • However, improving the use of existing instruments would only lead to incremental benefits because there are numerous constraints for effectively engaging the private sector, through traditional IFAD loans with sovereign guarantees

12. Weak government policy and institutional environment • Reluctance of government to pass on IFAD loan funds to the private sector • Unwillingness of some private entities to work closely with governments • Government systems are often ineffective and inefficient in reaching the private sector • IFAD risks of getting caught in differences between government and private sector • IFAD might have limited freedom of choice in selection of private sector partners • Sustainability of PS institutions Main findings (contd.) Instruments • Some of these constraints include: • The evaluation underlines the potential of directly channelling resources to the private sector (e.g., loan guarantees, working capital, equity investments, advisory resources, etc.) for greater results in agriculture and rural development

13. Main conclusions • The ‘for profit’ private sector is a critical ally in promoting small scale agriculture and improving rural incomes • IFAD is increasingly making some adjustments to adapt to this new reality, for example, by articulating a new vision which centres around seeing ‘farming as a business’ and by devoting more attention to the private sector in recent COSOPs and project designs

14. Main conclusions (contd.) • There are a number of factors that constrain IFAD in promoting private sector development for reducing rural poverty. These include: • IFAD’s current broad-based definition of the private sector which causes un-clarity of the main private sector actors to be engaged; • Existing instruments that have not yet been sufficiently leveraged for private sector development • The lack of instruments for direct lending to the private sector; • An organizational architecture and work force that is mostly geared to developing investment projects executed by governments; and • Corporate business processes that have not fully been adjusted to the new development paradigm

15. Recommendations • Strengthen the existing instruments (loans, policy, partnership, knowledge management and grants) to support private sector development • As this would produce only limited incremental benefits, the evaluation recommends to establish a Private Sector Development Financing Facility as a new complementary instrument for small scale agriculture development with limited duration and financial involvement • Realign IFAD’s human resources and organizational architecture to promote private sector development for better results on rural poverty reduction • Clarify the definition of the private sector in the context of IFAD operations in order to differentiate between the range of private entities involved in small scale agriculture and rural development • Ensure a broad-based process for the preparation of the new IFAD private sector strategy to promote ownership in its design and implementation