In order to better meet its own mandate to reduce poverty, the United Nations Capital Development Fund (UNCDF) has, since 1995, come through intense and far-reaching changes. Today, it is specialized in two areas: support to decentralized public investments (through local governance) and support to small-scale private investments (through microfinance). The focus on these two areas allows UNCDF to ensure the best possible impact on poverty reduction and on building capacity of national and local stakeholders.

In local governance, UNCDF investments are meant to foster a people-centred approach, promote good governance at the national and local levels, reinforce human and institutional capacities, reduce vulnerability, and protect the environment. UNCDF activities are also geared to mobilize additional financial resources. In supporting decentralized public investments, UNCDF pursues the global objective of poverty reduction. The main concern is to ensure better access of the poor to essential infrastructure and socio-economic services in the sectors of health and education, road transport, markets, water supply and the management of natural resources. In addition, UNCDF recognizes the need to promote participation at the local level, in order to allow local populations to identify solutions that address the local context. It is necessary to ensure the effective participation of women in the decision-making processes, decisions that will affect their daily lives and the future of their children and families. It is also important to ensure the participation of civil society as a whole and to build the capacities of local governments and local officials, so that public investments are managed in the common interest.

UNCDF’s support to decentralized public investments provides for the transfer of financial resources to local governments — resources equivalent to the fiscal resource base that local governments would access if the decentralized tax systems were to produce the expected results. The main objective here is to enable local governments and their members to acquire — through learning by doing rather than through a theoretical process of transfer — the knowledge and experience needed to manage decentralized public investments. On-the-job learning covers several aspects: participation of local populations in defining their development priorities; local planning and budgeting; transparent and accountable bidding, procurement processes and maintenance; as well as quality control of work completed. This also requires the active participation of the various local partners: private enterprises, non-governmental organizations and community associations.

Given the complex aspects of poverty today, UNCDF stresses the importance of different dimensions of complementarity and partnership:

• Complementarity between international, national and localresources to finance decentralized public investments;
• Complementarity between decentralized investments, sector investments and community-based investments from the point of view of optimizing the use of scarce resources to ensure maximum impact on poverty reduction; and
• Complementarity between the interventions of various actors, by taking into account their respective knowledge and their specificity.

UNCDF’s comparative advantage is in its piloting of small-scale decentralized public investments and using them to help pave the way for their replication on a larger scale by other development partners. This is the reason we attach such a high priority to our complementarity with other development partners.

The preparatory committee of the Fifth African Forum (AGF-V) on ‘Local Governance for Poverty Reduction in Africa’ organized by the Africa Bureau at UNDP, approached UNCDF to write a discussion paper, which was subsequently presented to the Forum in Maputo in May 2002. The UNCDF contribution helped facilitate a structured discussion of comparative national experience in promoting local governance as a way of reducing poverty.

The Forum provided a good platform for dialogue with African governments, civil society, Non-Governmental Organizations and donor partners. It also allowed the building of consensus on the state of governance at national and regional levels and its relationships with poverty reduction.

Enriched by the perspectives highlighted during the Forum, the UNCDF Local Governance Unit expanded the paper it had prepared for this conference into the document you now hold in your hands. We hope this comprehensive document will stimulate further actionoriented exchange and debate on the critical linkages between local governance and the reduction of poverty.

Normand Lauzon
Executive Secretary,
United Nations Capital Development Fund

The UNCDF approach to poverty reduction should be viewed against the backdrop of the current international discourse on poverty. Part I of this document sets the stage, by identifying the main elements of the broad debate. The alleviation of poverty has, in recent years, become one of the highest priorities of international development. Concurrently, the definition of poverty has evolved together with a better understanding of the nature of poverty itself and its underlying determinants.

Chapter 1 analyzes some of the most important current conceptual frameworks and initiatives related to poverty reduction and identifies some of the approaches taken by major international and bilateral organizations.By focusing on a new understanding of poverty and its underlying factors, these frameworks and initiatives have achieved a broad consensus on the issues related to poverty and the challenges ahead.

Chapter 2 identifies a number of key cross-cutting issues: the multidimensionality of poverty; the relationships between democratic decentralization and poverty and between poverty and environment; the role of civil society; the importance of political commitment to favour democratic governance; sustainability; the need for empirical evidence concerning the connections between democratic decentralization and poverty reduction; and the role of partnership and coordination.

Chapter 3 analyzes the two basic conceptual dimensions of ‘poverty’ and ‘local governance’ and explores the basic argument of the comparative advantages of decentralized governance in tackling poverty. It argues that, although empirical evidence is mixed, a greater involvement of local populations in decision-making, through democratic decentralization, may significantly contribute to significant poverty reduction.

Part II returns to the overarching goal of helping to reduce poverty through local development programmes. In local governance, the UNCDF intervention is characterized by a model based on building partnerships with programme country governments, local authorities and communities. It also presents the UNCDF understanding of poverty and its determinants as well as its own strategy for poverty alleviation.

Chapter 4, by addressing the conceptual framework, explores the underlying reasons and assumptions of the UNCDF focus on local governance and local governments in poverty reduction. While fully acknowledging the multi-dimensional aspect of poverty, UNCDF programming directly addresses three major dimensions of poverty or distinct forms of deprivation: poverty as a lack of power, poverty as inadequate access to social services and poverty as insecure livelihood and vulnerability to environmental risks and poor access to infrastructure. Carried out in close collaboration with UNDP and national governments, the UNCDF approach aims at reducing poverty by demonstrating that sound institutional arrangements at local level, together with increased opportunities for better economic performance, may lead to sustainable rural livelihoods and strengthen the participation of the poor in local political life and decision-making.

Chapter 5 stresses key perspectives on poverty and local governance, by emphasizing the comparative advantages of local, elected authorities in designing, managing, supervising and monitoring local development measures and initiatives aimed at alleviating poverty. In the context of newly-established democracies, with or without the entire set of formal decentralization reforms, UNCDF initiatives have an experimental character aimed at: defining the role of local governments in local development and poverty reduction, supporting administrative and political decentralization, fostering the impact of local governance on public service, developing institutions, building local capacity and strengthening fiscal decentralization.

Chapter 6 defines the key characteristics of the UNCDF framework for action. A flexible strategic tool, the ‘Local Development Programme’ (LDP) developed by UNCDF, aims at supporting, in a coherent manner, local development, decentralized natural resource management and decentralized planning and financing as well as at providing local governments with adequate block grants for public investment. The whole approach is based on a number of integrated elements, such as: the necessary reforms, which, both as pre-conditions and accompanying measures, are intended to create a clear and enabling environment; different and complementary elements of local governance (i.e., local empowerment,
promotion of local economy, and local social governance) and their set of deliverables; local capacity building; and local institutional development. The adoption of a step-by-step learning approach makes
it possible to target the poor and to address, in a flexible manner, the variety of the conditions of being/becoming poor.

Chapter 7 discusses general issues related to the sustainable outcomes of the UNCDF approach and its contribution to institutional consolidation. A major point raised is that local governance can help tackle
poverty but is influenced by macro-economic dynamics and national policy direction. These cautions therefore include macroissues, methodological problems and the interpretation of the institutional context. The chapter attempts also to give a positive answer to the fundamental assumption that local governance, through the instrument of decentralization, dramatically improves the conditions of the poor.

The Conclusion discusses current and potential contributions of the UNCDF approach to the achievement of the Millennium Development Goals (MDGs) and Poverty Reduction Strategy. The Annex provides detailed information about current local governance programmes supported by UNCDF, often in collaboration with other partners.