Corporate Policy Papers
Taking Risks
2 - Key midterm review findings
As noted, local development funds and eco-development projects have had strengths and weaknesses. The main concerns raised by the two midterm reviews are highlighted below.
The midterm review endorsed local development funds’ rationale for supporting local government and the strategic pilot role of UNCDF. But it was argued that UNCDF needs to:
• Focus more on the institutional sustainability and national ownership of programmes and their long-term integration with local government structures and practices.
• Devote more attention to capturing pilot lessons and communicating them to policy-makers.
• Focus more on the financial sustainability of local governments, particularly their capacity to increase local revenue.
• Have a sharper, more strategic focus on participation, determining where the project cycle participatory tools and processes are most effective. This includes paying more attention to supporting participation in institutions of representative democracy, to structuring incentives and sanctions for local government performance and to addressing obstacles to local citizen participation.
• Have more modest expectations and better strategies in transferring the technologies of participatory planning, allocation and investment management that are central to the concept of local development funds.
In approaching poverty reduction through better local governance, the local development fund strategy has emerged with much stronger potential for sustainability and replication. The interest shown by national governments, other development partners and respected researchers in a short period is further proof of this.
But many early local development funds focused primarily on local governments and their role in infrastructure provision. There is a clear need to pursue a more pluralist strategy to support local governance, by widening the array of institutional partners involved alongside local authorities and by strengthening collaboration and accountability between them. (return)
The midterm review affirmed that there is considerable scope for UNCDF involvement in programmes linking local state institutions and communities for rural development, particularly for community-based natural resource management. However, evaluators raised concerns that:
• The objective of "restoring environmental equilibrium" is based on an overly static view of the environment and neglects the dynamic nature of local problems and coping strategies.
• A number of eco-development activities and tools were inappropriate—for example, eco-swaps were considered problematic, data collection and mapping requirements excessive and planning tools costly or cumbersome.
• Planning for service delivery at the "petite region"—or intervillage level—was neglected, with disproportionate attention to "terroir" activities.
• Projects lacked an institutional strategy for long-term sustainability and national ownership.
In institutional terms, the eco-development strategy was not a sustainable approach to tackling poverty and strengthening local governance. As noted, institutional arrangements tended to focus exclusively on community institutions and bypass local institutions of the state. This approach may have been appropriate some years back in a number of countries that lacked viable local government partners. But it is no longer justified given recent political developments in most countries where UNCDF works.
In policy terms, however, the eco-development strategy had considerable merits that will be carried forward:
• Putting natural resource management and livelihood issues on the UNCDF agenda. In a number of countries these issues are important elements for poverty reduction, albeit in ways that are often more complex than was thought.
• Underscoring the importance of continued pressure for performance accountability on the state by community organizations.
• Creating viable methods for incorporating grass-roots participation into local planning.
• Demonstrating the range of management responsibilities that can and should be devolved to the community level if decentralization is to be taken seriously. (return)
UNCDF’s task force offered additional lessons on local development funds and eco-development projects. These lessons are elaborated in detail in staff working papers and other UNCDF documents. The amount of learning and reflection generated during this period of review is almost impossible to capture in a summary document. Thus the lessons presented here focus mainly on weaknesses rather than strengths—and most are judgements as of 1998 on older local development fund and eco-development projects.
Institutional relationships
Eco-development projects and local development funds both suffered from underdeveloped institutional analyses and strategies. Both paid insufficient attention to developing adequate collaboration and accountability between different levels of local institutions for infrastructure and service planning and delivery.
Eco-development projects have not focused enough on developing linkages between community groups and local state institutions, relying instead on independent project units or local NGOs. This approach sidelines local governments and administrative departments and misses opportunities offered by democratization and decentralization.
Local development funds also underplayed collaboration between local governments and central and local state agencies, on the one hand, and local civil society organizations, on the other. Projects often did not sufficiently analyse the institutional and political context of decentralization in the countries concerned. Project strategies were often developed without adequate consideration of the national ownership needed to undertake pilot projects.
Capacity building
Projects have taken an overly narrow approach to capacity building. Eco-development projects have tended to develop community planning capacities through costly assistance arrangements—while paying insufficient attention to building long-term local capacities within the local administration to supply the services demanded by these community plans.
Local development funds initially put too much focus on developing technical planning and implementation systems. These were often overly complex and insufficiently geared to existing practices and procedures. Other important capacities required for effective management of local development were neglected, including budgeting, accounting, communication, revenue mobilization, and monitoring and evaluation. It is clear that capacity building should be extended beyond local officials to the multiple actors involved in local development funds (including line agency staff, representative community organizations and private organizations).
The 1998 Arusha workshop on local development funds emphasized the need to develop a more strategic approach to capacity and institutional development and to move away from supply-driven and overly technical approaches. Consistent with policies to decentralize capital budgets and decision-making, UNCDF should promote demand-driven mechanisms for capacity building whereby local bodies play a more prominent role in determining the source and type of technical assistance provided. (return)
Local development funds and eco-development projects offer important lessons on financing.
Scale of financing
In aiming for a major immediate impact, eco-development projects often injected levels of per capita funding that national governments could not sustain or replicate. The volume of resources should, to the extent possible, approximate the future capital flows realistically anticipated from central transfers, donor financing or local taxation and revenue collection efforts.
Objects of financing
Early local development funds tended to focus on a fairly restrictive list of expenditures, confined to infrastructure investments in local public goods (roads, health, education, water) and excluding recurrent expenditures. Several lessons are worth noting:
• Many legitimate candidates for local government funding are not traditional public goods: small irrigation schemes, NGO-run health clinics and so on. An overly rigid definition of such goods undercuts the discretion (and accountability) of local authorities in determining what is in the local public interest.
• It is not desirable to restrict spending to capital infrastructure (despite UNCDF’s institutional bias favouring such investments). At an early stage it became necessary to broaden the menu, to allow for funding of "investment preparation" costs (site surveys, technical design and so on).
• Similarly, it became clear that other legitimate development expenditures entailed no capital investment—for example, paying an NGO or government department to offer an AIDS sensitization programme or a women’s skill training course. Such expenditures were allowed as long as they were development activities of limited duration, with clear objectives, and not routine activities (for example, involving teachers’ salaries or hospital power costs), which pose sustainability implications.
Model of financing
Local development funds have relied on a "discretionary block grant" model of funding central-local fiscal transfers. But this approach has two important drawbacks. First, it neglects that in all countries fiscal devolution also entails other, more conditional or tied transfer mechanisms. Second, important types of investment—including strategic investments, large infrastructure investments and local small-scale economic or environmental investments—will not emerge from a funding model based entirely on local discretion. This suggests the need to selectively introduce earmarked financing mechanisms to address these concerns, to complement the unconditional grant mechanism. These additional windows can thus be devised as pilots for conditional grant funding. Conditional grants are important to give governments the flexibility to address priority development problems overlooked or unmet through local choice and block grant financing models.
Local revenue mobilization.
Early local development funds did not direct enough attention to the financial sustainability of local governments and to strategies for mobilizing local revenue.
Incentives and sanctions
Early local development funds did not adequately define conditions for local governments to access financing or the rules of compliance governing their continued access to funds. Thus these funds did not fully exploit the potential incentives for good performance tied to these conditions. (return)
UNCDF has an increasingly recognized niche as a piloting agency, especially for local development funds. But the operational implications of this role were initially underestimated.
In many early projects UNCDF paid insufficient attention to establishing an audience for pilot projects, neglecting to develop strategic relationships with government agencies and multilateral and bilateral donors involved in decentralization policy. Similarly, projects failed to fully exploit their role as pilot projects because they lacked the learning infrastructure needed to capture project lessons and did not make plans for packaging and communicating these lessons to policy-makers. One reason is that many early projects failed to develop adequate monitoring and evaluation. All these shortcomings have undermined the potentially catalytic role of introducing innovations and replicating them widely.
In the past government bodies were not always aware of what local development funds were trying to pilot or of the value of field experiences for shaping decentralization policy. It is clear that pilots can serve as "policy experiments" only if they are recognized and endorsed as such by national government partners.
It is also clear that monitoring and evaluation strategies need to be developed as part of project formulation in consultation with national and local stakeholders. The demands on a monitoring and evaluation system are higher for pilot projects and require additional investments in design and implementation. (return)
Midterm reviewers recommended a sharper focus on participation strategy, including more attention to the participation of national stakeholders, to the practical issues related to participation at the district and commune levels and to village-level ideas about what constitutes participation (including when exercises are valuable or counterproductive). To that end, it was recommended that adequate resources be assigned to developing clearer participation strategies in projects.
Planning for early local development funds may have neglected the interests of poor and marginal members of the community. Further, local planning provides no guarantee that local elites will not benefit disproportionately, blocking the interests of poor and marginal groups.
UNCDF has increased investments in participatory planning—particularly early in the process, where needs are identified and investment options are considered. But until recently UNCDF has not given equal emphasis to improving local government processes through which direct and representative forms of participation can occur as part of the project selection, budget and plan integration process.
Many of the participatory processes used in formulating and implementing projects were endorsed. But in many projects, participation strategies were unclear, underresourced or inconsistently applied. The opportunity costs of participation were noted, emphasizing the need to specify where in the project cycle participatory processes and tools can be used most effectively.
In some early local development funds participation was limited to the first stage of a project, identifying needs. In others the goal was citizen participation in a wide range of activities associated with development planning. This second approach, now accepted at UNCDF, promotes project beneficiaries’ involvement and influence throughout the project cycle—in investment decisions, project design and implementation, monitoring and evaluation and indirect participation through representative politics.
Communication campaigns can help achieve these broader participation goals—if they involve strategic, well-researched efforts to ensure that basic information about development projects is extended to communities in appropriate language and images with an opportunity for feedback. As important as "getting the message out" about a project is "getting the message back" to improve project design, policies and performance. (return)
Accountability was an undeveloped element of both local development funds and eco-development projects. The issue was not addressed during project design, and efforts in local development funds focused on developing administrative procedures to improve the allocative efficiency of public resource use. Less attention was paid to the constraints, sanctions and incentives that encourage good local government performance and accountability.
With many observers pointing to risks involved in entrusting funds to local governments, the initial preoccupation was with designing systems to ensure financial accountability. But a wider range of accountability challenges should be considered, including accountability between central and local governments, between local technical and political bodies and between local governments and citizens.
While higher levels of government were concerned with financial stewardship of the resources devolved to lower levels of government, they were also concerned with the quality of development investments and the transparency of the planning process. Local populations, lacking the information or effective channels for holding local officials accountable, were generally forced to rely on central government to ensure that funds were used in a socially beneficial way.
Devising ways to measure local government performance and link it to the allocation of resources has thus become a key design area requiring further attention. One crucial element in stimulating local accountability is a strong flow of information on public investments between all levels of government and the public. (return)
