The views expressed in this paper/presentation are the views of the author(s) and do not necessarily reflect the

views or policies of the Asian Development Bank (ADB), or its Board of Directors, or the governments they represent. ADB does not guarantee the source, originality, accuracy, completeness or reliability of any statement, information, data, finding, interpretation, advice, opinion, or view presented, nor does it make any representation concerning the same.

Final Report: June 2010

Measuring ADBs Contribution to Inclusive Growth

in Agriculture and SME Projects1

By: Adrianus G. Rijk
(Thematic Sector Consultant for Agriculture & Natural Resources and SME Sectors)

Background Report for the ADB Working Group on Operationalizing Inclusive Growth

This report was produced by Adrianus Rijk (agrijk@gmail.com)) as a consultant to the Asian Development Bank. Mr. Rijk was part of a team of consultants and ADB staff (coordinated by Ar,min Bauer, abauer@adb.org) proposing a methodology for Operationalizing Inclusive Growth in ADBs country and project work. Other reports are on ADBs website (http://www.adb.org/poverty/inclusive-growth.asp)..

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TABLE OF CONTENTS

Summary Purpose Background Methodology, Indicators and Sector Rating Testing the Methodology in the SME and Agriculture Sectors Recommendations

3 5 5 7 10 12 13

Appendix 1: Criteria and Indicators for the SME and Agriculture Sectors 2. Evaluation of ADB Supported Agriculture Projects 3. Evaluation of ADB Supported SME Projects 14 16 31

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EXECUTIVE SUMMARY ADBs Strategy 2020 (S2020) focuses its interventions on three complementary agendas, namely: i) Inclusive Growth, ii) Environmentally Sustainable Growth, and iii) Regional Integration. For the monitoring and evaluation of the implementation of S2020, it is important that the potential and actual contribution to IG of individual projects can be quantified. An ADB project may contribute to any combination of these 3 strategic agendas simultaneously in varying degree, even when its design focus is on only one agenda item. Presently no ADB methodology exists for quantifying and qualifying the contribution to IG from interventions that focus on the two other agendas, namely Environmentally Sustainable Growth, and Regional Integration. It is important to measure these contributions because it would augment the overall contribution of ADBs operation to IG. Furthermore, a quantifying mechanism is important for projects such as Economic Growth interventions because, depending on design and project components, its contribution to IG can vary significantly. For the monitoring and evaluation of the implementation of S2020, it is important that the potential and actual contribution to IG of individual projects can be quantified. Staff has to be aware that a projects contribution to IG does not say anything about a project being good or bad for the country, or about the quality of its design. For example, reform of immigration and custom procedures in the GMS will score low on IG, but will be essential for pursuing economic growth through increase in regional tourism and trade. But the actual inclusiveness will be achieved through direct investments in tourism industry and trade. Without these investments, the reforms contribution is likely insignificant to IG. This fundamental principle seems not yet always understood. The methodology described in this report is based on the ERD concept of the 3 policy pillars of inclusive growth, namely: High and sustainable growth to create productive jobs and economic opportunity, Social Inclusion to ensure equal access to economic opportunity, and Social safety nets to ensure the minimum level of economic well-being. Based on this ERD concept, five Criteria have been established for analyzing projects on their contribution to IG. Each Criterion has a relative weight which indicates the importance of this criterion to IG for the sector. It is proposed that relative weight will be established by a Working Group involving ADB staff and if required, augmented by external sector expertise. A rating mechanism indicates to what extent the criterion is applicable in the specific project. This rating is preferable undertaken by experienced persons with the input and feed-back provided by the Mission Leader. For ease of implementation and to maintain reliability and objectivity, an automated procedure has been developed. The set of Indicators for the sector has to be identified and agreed upon by a proposed Working Group, as well as their importance for contributing to IG for a specific sector. Once these Indicators have been established by the Working Group they cannot be changed by operations/project staff. The Project staff will only be involved in applying the Rating. In order for the methodology to become effective and its application viewed by ADB staff and management as a worthwhile exercise, a number of principles should be considered, namely: i. The proposed methodology is not to be imposed on operational staff as another classification system, but as an improvement of present systems and to facilitate project design, and M&E of the implementation of S2020;

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ii.

iii. iv.

v. vi.

The methodology must advance ADBs credibility on the application of the IG development paradigm, and ensure objectivity and consistency, and be unambiguous and easy to apply; It must add value to ADBs operations and performance, in particular quality of reporting and monitoring and evaluation, including implementation of S2020; Although IG is important, it should be seen in the overall context of a countrys level of development and its overall development strategy. Hence, the score of an individual project intervention on IG does not say anything on whether a project is good or bad for a particular country; The methodology should not be viewed by operational staff as another burden to comply with at the time of designing a project, An internal mechanism should be set up which facilitates easy application of the methodology.

Regarding point iv) and v), it is proposed that sector specific Working Groups are established that agrees on the weights for the Criteria, the indicators, and their contribution to IG. It is proposed that the actual rating of an intervention would be undertaken by staff of RSDD familiar with the sector involved, but in close consultation with the Mission Leade responsible for formulating the project. RSDD may consider having some sector expertise on IG standby through an arrangement with home-office consultants that have intimate knowledge of the sector, similar as presently is often the case for PCR validation by the ADBs Evaluation Department. A prototype PC based Excel model using has been developed to facilitate an easy scoring process, and has been tested. It would need to be discussed by the proposed working group and be further refined and agreed upon proposed weights and indicators. The model is user friendly and its application will use very limited time.

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Purpose of the Exercise. 1. The purpose of the exercise is to operationalize Inclusive Growth (IG) as part of the ADBs Strategy 2020 (S2020). The S2020 focuses its interventions on three complementary agendas, namely: i) Inclusive Growth, ii) Environmentally Sustainable Growth, and iii) Regional Integration. 2. For the monitoring and evaluation of ADBs operations (or the implementation of Strategy 2020), it is important that the IG contribution of a project and its achievements can be quantified. This paper proposes an approach and methodology to measure the IG contribution for individual projects in the Agriculture and Natural Resources Sector and the SME sector. 3. An ADB project may pursue a combination of any of these 3 strategic agendas of S2020, but to a varying degree, even when its focus is on one agenda item only. For example, a project that focuses on environmentally sustainable growth may also contribute to the IG agenda. There is presently no methodology for quantifying and qualifying this contribution to IG from interventions that focus on the two other development agendas of S2020. It is important to measure these contributions because it would augment the overall contribution of ADBs operation to IG. Furthermore, a scoring system is important for projects such as Economic Growth interventions because, depending on design and project components, their contribution to IG can vary significantly. 4. The score of a projects contribution to IG does not say anything about a project being good or bad for the country, or about the quality of its design. For example, reform of immigration and custom procedures in the GMS will score very low on IG; nevertheless it will be essential for pursuing economic growth through increase in regional tourism and trade. But the actual inclusiveness will be achieved through direct investments in tourism and trade. In this case, it would be erroneous to consider that the reforms have made an indirect contribution to IG. Background 5. Typical criteria for assessing ADBs interventions on IG are, amongst others and not limited to: impact on income of main beneficiaries (differentiated by income group), relevance of the intervention for the poor and near poor, and its impact on Pro-Poor Growth (S2020 remains dedicated to the overarching goal of reducing poverty), adequacy and sustainability of employment creation and income generation for the poor, contribution to achieving the MDGs, quality of live for the poor (water, housing, environment, etc.), social and human development of the poor and vulnerable groups in a sustainable manner, sustainability of the interventions and their impacts. 6. Economic growth is a driving force in providing productive employment and hence, reducing poverty. Without economic growth, most non-income criteria cannot be pursued in a sustainable matter. In many cases increase of household income are a key necessity to pursue individual ambitions and well-being. Once a country passes a per capita income threshold and the income is reasonable distributed, poverty reduces and non-income criteria of development/deprivation improve (e.g. education; gender; health; opportunities, etc). However, not only the pace of growth matters, but also the pattern of growth and its distribution. Investment in the productive sectors (in this case agriculture; SME) are essential for growth

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and hence for Inclusive Growth (IG). But depending on the objectives and the design of the components of projects, their contribution to IG may vary substantially. 7. There is no consistency about terminology and definitions for IG in the development community2, including within ADB. The definition for IG as proposed at the RSSD workshop3 is assumed for the purpose of development the methodology for assessment of IG. According to this definition, IG focus is on three central ingredients, namely, process (as opposed to outcome), non-discriminatory participation of all, and reduction of disadvantages. 8. A forthcoming ERD publication considers 3 policy pillars of IG, namely: High and sustainable growth to create productive jobs and economic opportunity Social Inclusion to ensure equal access to economic opportunity: i) investing in education, health and other social services to expand human capacity, and ii) promoting good governance and institutions to level playing fields Social safety nets to ensure the minimum level of economic well-being (presumably for people in distress).

9. From the above, IG may be considered to have three dimensions, namely economic, social, and institutional: Economic dimension relates to interventions because of which (the poor and lowincome) a worker or households benefit from the growth process through increase in income, consumption, and increase in assets. Social dimension relate to health, nutrition, education, human resource development and social safety nets to eliminate social inequalities, promote gender equality and womens empowerment, and bring more people into the process of growth. This dimension covers implicitly social status and dignity non-income well being. Institutional dimension relates to improving the ability and opportunity of the (poor and low-income) people (including women and ethnic minorities) to effectively participate in development processes, benefit equally from rule of law, have access to information, etc.. Some of these aspects are political. Criteria may relate to governance, transparency, security, as well as peoples participation/representation in democratic decision making processes that give equal weight to the interests of all/poor people (participatory processes, grass roots democracy, users association, etc.). 10. The scoring system should also take into account ADBs Project Classification System, in particular for targeting poverty reduction through Inclusive Growth and Development. This Classification System applies the following targeting marker (type of poverty intervention) for a loan project or knowledge product: A. General Interventions (GI)

The IED used in a SES(2009) the following working definition for inclusive development: equitable access to and utilization of economic and social opportunities and services aimed at improving quality of life. As such ID deals with improving the lives of all members of society, not only the poor. The definition used for IG in strategy 2020 appears too broad and has rather limited use for our exercise. The 2009 Classification system distinguishes under strategic development outcomes PPG from Inclusive Social Development , Good Governance, Gender Equality, etc. (see for example table A14). The Revised Project Classification Paper suggests IG only relates to two (out of 8) Thematic Markers, namely Economic Growth and Social Development. It also seems to distinguish between poverty reduction and inclusiveness of growth and social development (para 14 staff instruction). Would poverty reduction not always be a part of inclusive growth and development? In the 2009 country diagnostic for Nepal, IG means it opens opportunities for hitherto excluded groups (page1) and which is open-ended and does not tally with other definitions such as by IED. In summary, there a consistent approach to IG/ID is lacking in ADB. Operationalizing Inclusive Growth (24 February 2010). See presentation by Professor Stephan Klasen at ADB internal workshop February 2010.

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B. Directly Targeted Interventions (TI) which distinguish: i. Addressing geographical poverty and living standards (TI-G) ii. Interventions directly targeting the MDGs (TI-M) 4 iii. Interventions covering poverty at household level (TI-H) 11. The Directly Targeted Interventions (TI) are almost all addressing IG (Except for MDG goals 7 and 8 that are irrelevant for Pro Poor Growth (PPG) and IG), but their contribution will vary depending on component design. For General Interventions (GI) it needs to be ascertained to which extend the project contributes to IG. For example, a power plant may contribute little to IG. However if the loan is accompanied by policies that provide electricity to disadvantaged minorities or for lift irrigation to poor farmers, IG may be significant and should be captured under the ADBs goals for IG lending. 12. Analysis at the country programming level will indicate whether the project intervention was a good choice for pursuing Pro Poor Growth (PPG) and/or IG. The analysis should take into account the specific circumstances for that country (e.g. resource base; level of development; incidence of poverty; income distribution policies, etc.). The judgment of analysis at the country programming level should not creep into the assessment on IG contribution at the project level. 13. At the level of the project, it may be assumed that the formulation team used all possible tools and means to ensure that the project is well designed including drawing evidence about causes of poverty, targeting poor people, employment and poverty impacts, gender assessments, reducing adverse impacts, economic and financial analysis, chain analysis, farm management and business analysis, etc.. Hence the proposed methodology merely considers the contribution or impact of the project on IG; not at the relevance of the project in the overall portfolio or the quality of the project design. However, the methodology can assist staff during the design phase to augment IG of the project components. 14. The methodology/system for measuring IG must be manageable and not become burdensome or demanding on staff of operational departments. The fewer Criteria the better, and a very brief summary should suffice explain the overall score on IG of the project.

The Methodology 15. The proposed methodology for assessing IG uses Common Criteria for the different sectors, but with different weights based on the characteristics of the sector. As a result of the RSSD Workshop, five Criteria have been proposed for analyzing projects on their contribution to IG. Each criterion has a relative weight which indicates the importance of this criterion to IG for the sector. The maximum of relative weights of the Criteria are the same for all interventions in the sector. The sum of these relative weights is 100 % if each criterion would be rated 10.

Targeting the MDGs (TI-M) represent a shift from the pure economic growth and income indicators because MDGs focus on distribution aspects and quality of life. (The MDGs are: Goal 1: Eradicate extreme poverty and hunger. Goal 2: Achieve universal primary education. Goal 3: Promote gender equality and empower women. Goal 4: Reduce child mortality. Goal 5: Improve maternal health. Goal 6: Combat HIV/AIDS, malaria and other diseases. Goal 7: Ensure environmental sustainability. Goal 8: Develop a global partnership for development.). To be sustainable, only economic growth and increase in income facilitate achievement of the MDGs (or are even a necessity). For example, in the now high income countries, indicators like universal primary education, gender equality, dignity and many other indicators are the result of, and directly linked to per capita development of the economy and household income. Therefore, achieving the MDG targets cannot be viewed in isolation from economic growth and household income levels.

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The rating indicates the extent the criterion is applicable in the specific project. (for practical purpose, criteria have a rating from 0 to 10; the score must then be divided by 10 to maintain the proper scale). 16. I. The five Criteria proposed by the RSSD consultants are: Addressing income poverty (directly) (Tentative Maximum Sector Weight 60 %). The growth of income per person or household is of overriding importance in advancing Inclusive Growth. For economic growth projects (as agriculture sector and SME sector are to be considered) this criterion has the highest weight because it deals with direct increase in incomes through productive employment or household income increase, or targeted income programs for identified poor (TI; TI-H; TI-G). Hence productive employment creation is considered most important when rating agriculture and SME sector projects. It provides the basis for progress of many other dimensions and has been given substantial relative weight in the overall composite score 5 . Addressing income (poverty) is clearly the case when the intervention is creating productive jobs (wage labor and self-employed), preferably focusing on the poor. But also broad based economic growth or General Interventions provide jobs and increase in household incomes, but not necessarily explicitly targeting at the poor. The Rating mechanism may indicate how much of the employment and income creation is PPG for the specific project. A distinction needs to be made into interventions that directly contribute to increase in income for the poor (for example, creation of productive jobs with has as indicators: household income, poverty ($2/day income), permanent/temporary employment, wage rate, etc..). ; increase in cropping intensity through irrigation which directly increases demand for labor and raise farm household incomes), and interventions that indirectly increase income for the poor. In the case of indirect or potential income growth, the intervention would lay the groundwork for increase in income. Concerning the latter, for example a policy based loan that aims at increase in Direct Foreign Investment (a General Intervention) with the explicit stated purpose to create productive jobs for hitherto unemployed in poor districts, contributes to IG. Similarly, if SME policy reform aims at labor intensive industries, it would be making a greater contribution to IG then in the case of capital intensive industries. This differentiation in outcome of an intervention must then be shown through a different rating for the Criterion dealing with income. II. Creation of Opportunity (Tentative Maximum Sector Weight 10 % ). These are interventions such as increase in more secured assets, micro credit, training, extension, etc.. These interventions may increase productive business and therefore create opportunity for increase in employment, business, and household incomes. The weight of this criterion will be lower than for A because indirectly increase in productive employment and household income is attempted by improving the assets base, for

For agriculture the weight of Criterion A has been set at 60%, but this is subject to further discussion in ADB by sector specialists. For SME projects, even a higher weight may be proposed, because agriculture projects also have other criteria that weigh higher than under SME; for example related to risk, nutrition and hunger. (The sum of criteria is 100%).

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example through credit programs, land titling, training, etc.. Rating of this criterion depends very much on the extent of the intervention (both qualitative as quantitative) in improving capacity (e.g. training; access to jobs) and equity and the physical assets base of the intended beneficiary. However, there is no guarantee that these improvements in income will actually take place. For example, in the case of credit, the money could be used for consumption purpose, or the investment may fail and the household is saddled with debt and worse off than before. Similarly, land title may not result in lower cost of credit and thus does not improve income. Finally, addressing social poverty with the purpose to increase opportunity is very much related to several of the MDGs. Addressing the MDGs is not the direct purpose of agriculture and SME development and hence the weight is kept low. III. Addressing non-income well being (Tentative Maximum Sector Weight 10 %) Criterion III involves non-income interventions that aim at lessening deprivation and improving quality of life (well being) rather than income (possible indicators: access to health, education, social protection, municipal services, peoples participation and empowerment, gender, etc.). For Criterion III, addressing Well-being and Health Related Matters is captured in several MDGs, but unlike in social sector projects, it is not the direct purpose of agriculture and SME investments, and therefore the assigned weight for these two sectors is low. In an education project, this would be totally different, but for investment projects in the productive sectors this criterion weighs low since the purpose of these projects is economic growth and focus on productive employment and household income. This Criterion includes the MDGs that increase opportunity for the poor (education; gender, etc.) (TI-M). Except for MDG #1, most of the MDGs have little impact on directly addressing income. MDG Goal 2 and Goal 3 improve opportunities for reduction of poverty but whether this actually will happen will very much depend on job offerings and household incomes, and this will largely depend on whether investment are being made in productive sectors. Hence this is a consideration for lower weight of this Criterion even though in the long run, most MDGs are relevant for improving income. MDG Goals 4, 5, and 6 are not focusing on income and also not increase opportunity but address other aspects of well-being, in particular health (TI-M). Goal 4: Reduce child mortality. Goal 5: Improve maternal health. Goal 6: Combat HIV/AIDS, malaria and other diseases. Goal 7: Ensure environmental sustainability contribute to well being but not to income. IV. Social Protection and Risk Mitigation (Tentative Maximum Sector Weight 10 %). This is relevant for health care, pension reforms, flood water protection, climate change, and similar interventions. For example, also part of MDG 1 (hunger) is addressed through emergency programs etc.. It is of little weight to agriculture and SME sector interventions. For agriculture projects, weight allocation for Criterion IV may weigh in at 10 % because of reduction in risks associated with crop failure and animal health, minimum wage rates, etc..

V.

Addressing institutional and Sustainability Issues (Tentative Maximum Sector Weight 10 %) This refers to the intervention having structural and/institution reforms that improve opportunity for inclusion (peoples participation; grassroots democracy; rule of law,

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governance, transparency and access to information for the poor etc.). This not the specific purpose for Agriculture and SME projects and therefore the maximum relative weight is low. This criterion also looks at the sustainability of the impact and outcome of the intervention (not at sustainability in the environmental sense). For example, will the impact or momentum for inclusiveness be maintained after the project is completed and donor funding is terminated, etc. etc.. 17. By application of weight and a rating for each criterion, we can indicate to what extent the project is contributing to IG, and therefore contributing to ADBs overall lending targets for IG. The weight establishes how much a specific Criterion contributes to IG on a maximum scale of 100% for all Criteria together. The weight of the criteria is fixed for all projects in the same sector. The rating (between 0 and 10) is project specific and indicates the contribution of a particular project to this criterion. The sum of all the Rated Weights (divided by 10) will give the overall IG contribution of the project. This score (%) may be applied to the ADB funding amount of the project, and as such establish a total contribution of ADB lending portfolio to IG, relative to total OCR lending, SF, and TA operations. This could be an indicator for monitoring and evaluation of progress with implementation of S2020.

Indicators and Sector Rating 18. The Rating is project specific and requires a good understanding of the project design, its location and its beneficiaries by staff undertaking the exercise. In order to achieve unambiguous and objectivity to the extent possible, the following rating guidelines are proposed for each criterion to facilitate the marking in a range of 0 to 10 in an objective and repetitive manner. 19. For Criterion I, the overarching consideration is productive employment creation, either as a wage laborer or self employed (e.g. farmer). The Sector Working Groups should come up with the list of indicators relevant for the sector, but typical considerations (or indicators) may be: i. Is employment permanent (full time), seasonal, or only during construction period. ii. Is the intervention focusing on poverty stricken geographic areas iii. Is construction capital intensive or labor intensive iv. In the case the beneficiaries are largely self employed (e.g. small farmers; cottage industry; handicraft), indicators for increase in household income are increase in output or yields, reduction in risk, decrease in costs of inputs, increase in ex-gate price or value chain addition. v. To what extend will a General Intervention trickle down? Is it assumed that the GI intervention automatically trickles-down to the poor, or are explicit policies implemented to ensure this? vi. Economic growth relates to increase in efficiency or/and increased output 6 and also poor can benefit from this (in) directly, for example lower food prices (increase in agriculture production), lower expenditure on transport (road projects) and lower expenditure on utilities (cheaper electricity), etc. ). vii. For agriculture and SME project interventions, % increase in sector contribution to GDP will have an impact on income, but this indicator does not explain how much Pro-Poor Growth (PPG) will be achieved. viii. The quality of the improved equity or physical asset in terms of its capacity to increase (household) income (for the poor) in a sustainable manner, for example:

Increased output may in agriculture and SME sector take place without increased efficiency (see vent-forsurplus growth model).

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ix.

x.

Credit programs for small irrigation pumps may increase cropping intensity. This will increase demand for (seasonal) labor and increase in farm household income will be high. If the (subsidized) credit is used to buy tractors, the distortion of this will adversely affect employment opportunity and hence the rating will be very low. Does the issuance of landowner certificates or formal land use rights provide direct income benefits (e.g. accepted collateral resulting in lower cost of credit, etc)

20. For Criterion II and Criterion III, indicators applied to several of the MDGS are relevant and they ought to be considered during the rating process. The MDGs are: Goal 1: Eradicate extreme poverty and hunger. Goal 2: Achieve universal primary education. Goal 3: Promote gender equality and empower women. Goal 4: Reduce child mortality. Goal 5: Improve maternal health. Goal 6: Combat HIV/AIDS, malaria and other diseases. Goal 7: Ensure environmental sustainability. Goal 8: Develop a global partnership for development.) In the case of targeting the MDGs (TI-M), MDG goal #1 is already partly covered under Criterion I. MDG goal 8 is not relevant in the discussion on IG or PPG. The 8 MDGs are subdivided in A, B, C, and D and may have targets and indicators that address different Criterion. For details on MDG targets and indicators, see also the detailed rating mechanism and http://unstats.un.org/unsd/mdg/Host.aspx?Content=Indicators/OfficialList.htm 21. For Criterion II MDG Goal 2 and Goal 3 improve opportunities for reduction of poverty and are therefore relevant. The rating should take into account that improving opportunity is of little use if the opportunity cannot be captured, and this should be taken into account when rating. Relevant indicators are enhancing equal access to public goods and basic economic services (for example in agriculture, reliable input supply and marketing of outputs, value addition, and additional employment), as well as social services (e.g. health, education, social safety nets and protection, equal opportunities in particular for the poor and women, peoples participation and empowerment, transparency/access to information, social and cultural interactions, and other factors that contribute to harmonious economic growth and well-being). 22. For Criterion III, MDG Goals 4, 5, 6, and 7 are not focusing on income but other aspects of well-being, in particular health. 23. For Criterion IV risk aversion is relevant for agriculture interventions but generally to a low extend (low weight). For example, irrigation reduces risk of crop failure; veterinary health services will reduce mortality under livestock, etc.. 24. For Criterion V, refers to the intervention having structural and/institution reforms that improve opportunity for inclusion (peoples participation; grassroots democracy; rule of law, governance, transparency and access to information for the poor etc.), Inclusion may also progress because of removal of institutional and political/policy barriers that constrain economic growth or limit access to productive assets and resources. However, access does not necessary means that it will be used, for example because of low level of income. 25. Criterion G captures the sustainability of the intervention. In other words are the impacts of the intervention short-lived (e.g. during foreign funding only), or permanent. Can the program and its momentum be sustained after the ADB project is completed?. etc. etc. 26. A final consideration should be the distribution of the ADB funding over the various components. For example if 80% of a grant is used to supply poor fishermen with better fishing gear, the impact on income will be relatively high as compared to a project where 70% goes to capacity building of the Department of Extension for Fishery, and 10 % to fishing gear. 27. Common sense should be applied when assigning a rating. For example, in case the owner-operator is poor, or the owner-operator is poor but also employs labor that is poor, then there is no need to distinguish between the share that falls to the owner, and the share that falls to poor labor. In such case the income distribution aspect is of little issue. But how is this further on in the chain?; Is the greatest share going to the middlemen, the processor, or

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exporter? These phenomenon (or project specific indicators) can only be analyzed by the person (e.g. Team Leader) who has a full understanding of the project intervention in a specific geographic location. It may need to be briefly described. 28. In case only the workers are poor (with rich land lords as for example may be the case in Pakistan), we need to review how the project achieves PPG (e.g. through explicitly selective interventions and targeted policies) to establish the rating. 29. In the case of productivity enhancing projects in agriculture and SME, the nature of the interventions for these two sectors need to be elaborated. Agriculture projects usually aim at productivity enhancement of land (credit for inputs; investment in irrigation) and capital (capital is more scarce than labor in many low income countries). However, economic growth according to the vent-for-surplus growth model must not be ignored because it certainly exist(ed) in agriculture 7 and very often for SME. For example in northeast Thailand in the 19701980s, when land was in ample supply at zero opportunity cost to its owner (the same is still the case in Africa and Latin America). For SME this is still much the case in Asia in high density populated areas with little employment opportunity. A garment factory can expand by merely adding more of the same production factors, rather than increasing labor or capital productivity (or pursue a change in technical coefficients). In fact it could well be that in most SMEs, investments are not made to increase higher productivity, but merely expand production. More people may be employed (therefore PPG) and because of increase in labor scarcity, wage rates may increase (therefore additional PPG). Although in this case production and income will increase, this is not caused by an increase in land or labor productivity.

Developing and Testing the Methodology in the SME and Agriculture Sectors 30. As part of testing and refining the methodology, 25 projects have been rated for the Agriculture and SME sector, albeit using an earlier methodology that has undergone drastic changes in the process. A preliminary finding suggests that grant funding appears to score low on IG. This phenomenon may be explained by the fact grant finance may focus on capacity building and institutional activities (e.g. training of staff and setting up training centers), while OCR or ADF funding is used for productive investments in agriculture and SME activities, with capacity building achieved by hands-on, or doing. 31. The methodology underwent improvements and refinements, in particular to have a more mechanical rating carried out, thereby aiming at being repetitive and objective. The final prototype PC based Excel model facilitates an easy scoring process in an objective and consistent manner. The model is user friendly and its application will require very limited time.

Under the Resource Exploitation model type of agriculture development, Hayami and Ruttan (1985) include the staple model, and the vent-for-surplus model. The latter model explained the rapid growth of production and th trade in a number of countries during the 19 century, in particular by peasant producers.Surplus land and labor capacity enabled peasant producers, despite fixed technical coefficients, to rapidly expand production because of increased demand from new markets created by reduction in transport costs. More recently, similar growth model applies more recently to in Brazil (agriculture) and the SME industries in Asia producing consumers good for USA and EU countries.

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Recommendations 32. It is proposed that sector specific Working Groups are established that agrees on the weights for the Criteria, the proposed indicators and their contribution to IG. In order to ensure consistency and objectivity and avoid operational staff being burdened with additional demands, it is proposed that RSDD would undertake the IG assessment. The work could be undertaken by staff familiar with the sector. Alternatively, it could be done by consultant in home office (for a fixed fee or a retainer) as is done by IED for PCR validation. 33. It is proposed that the actual rating of an intervention would be undertaken by staff of RSDD familiar with the sector involved, but in close consultation with the Mission Leader. In fact RSDD may consider having some sector expertise on IG standby through an arrangement with home-office consultants that have intimate knowledge of the sector, similar as presently is often the case for PCR validation by the ADBs Evaluation Department.

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Appendix1 Examples of Possible Criteria and Indicators for Agriculture and SME projects
MAIN GROUP Criteria Examples of Indicators, Depending on type of Project (to be taken into account when reviewing the project)

A. Income

How and to what extend is the project addressing income poverty (explicitly)? a. through broad-based growth and its trickling down to the poor (explicitly or implicitly (General Intervention (GI)) Aiming at: Increase in production and exports Increased demand (and thus income) for (casual) farm/SME labor Lower prices for food or consumer goods

b. Interventions addressing poverty at household level (TI-H)

Increase in income of subsistence farm households and small entrepreneurs, using $2.50/day indicator for PPG indicator

c. Interventions targeting income inequality (Directly Targeted Intervention (TI))

For example through: Fiscal Policies (e.g. taxation and measures that makes it attractive to apply labor intensive rather than capital intensive construction, production and manufacture) Policy measures that aim at reducing income inequality intervention (e.g. aiming at the $ 2.50 poor, or landless, minimum wage rate, etc. ) Job creation through: Expansion of cultivated area Increase in Cropping Intensity Expansion of (labor intensive) SME Other increase in (indirect) employment Indicative for PPG are the $2.50/ day poor.

d. creation of employment/business opportunity for the poor(Directly Targeted Intervention (TI))

e. improving the physical asset base of the poor (Directly Targeted Intervention (TI))

$ extended for agr. credit for investments in livestock, etc. by the poor $ credit extended to small craftsman to increase his production and margins Land titles/securing land use rights

f.

improving access to (existing) distant job opportunities (Addressing geographical poverty (TI-G)) Income

km of improved (rural) road infrastructure bridges, etc.

How sustainable is the intervention and/or impact?

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`Are the income opportunities short- to medium term (e.g. during construction phase only), or permanent?

Creation of person-years employment during construction period Creation of permanent person-years employment

To what extend is the project providing social protection and risk aversion? To what extend is a project addressing Providing for example: the vulnerable people's exposure to irrigation to avert drought related poverty risk, and reducing the risk of falling Crop insurance (back) into poverty. Pension reform Realistic credit programs to overcome disasters B. None-Income How and to what extend is the project addressing social poverty (and how sustainable are these)? i. reducing inequalities in opportunities (e.g. related to gender, ethnic, social inequality); (Interventions targeting relevant MDGs (TI-M))

Increase women participation in work force Legislation on equal payment for equal work Increase in women going to school Focusing on deprived/ethnic minorities Peoples voice/empowerment Organizing poor/ women/ethnic minorities in strong powerful groups Access to services Increase poor/women/minorities participation in leadership positions Reduction in work related accidents and diseases Reduction in common diseases Increase in visits to clinics by the poor Increase in clinics/doctor per 1000 inhabitants Reduction in malnutrition Increase in calorie intake in poor households micro-credit Increase in lower education Increase in higher education extension targeted vocational training courses

ii.

addressing structural issues of exclusion (Interventions targeting some relevant MDGs (TI-M))

iii.

Improvements in health (incl. .nutrition; occupational hazards) (Interventions targeting relevant MDGs (TI-M))

iv.

improving the human asset base of the poor (Directly Targeted Intervention (TI)) including improvements in education (Interventions targeting some of the MDGs (TI-M))

To what extend is the project addressing institutional issues that aim at equity and PPG? i. Promoting transparency and access to information

Access to internet and other media (TV, Radio, Newspaper)

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 ii. Improved governance

E-government and interactive internet indicators that quantify/qualify about rule of law; democratic procedures and accountability, participatory development processes, quality of public services Type and quantity of associations established, and for what? (e.g. irrigation, domestic water supply, electricity cooperatives, etc), Agriculture cooperatives, Credit and savings associations) Establishment of labor unions, agreed minimum wage rates

iii.

Peoples participation; grassroots democracy, establishing users associations, rule of law, etc.

To what extend is the project addressing policy reform that aim at equity and PPG?

Review of propose policy reforms and their impact on IG

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Appendix 2 Evaluation of ADB Projects in the Agriculture Sector

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Appendix 3 Evaluation of ADB Projects in the SME Development Sector

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