The Role of the State in 
Rural Poverty Reduction:
Where do Sector-Wide and 
Sustainable Livelihoods Approaches Fit in?

June 15th, 2000

Oxford Policy Management,
6 St Aldates Courtyard,
38 St Aldates,
Oxford,
OX1 1BN

Table of contents

Introduction	3
PART I.  CHANGING APPROACHES TO POVERTY REDUCTION	4
Poverty reduction – the changing context	4
Effective Anti-Poverty Strategy and the Role of the State	5
Evolving consensus on priorities for poverty reduction	5
The role of the state in poverty reduction	6
PART II.  SECTOR-WIDE APPROACHES AND SUSTAINABLE LIVELIHOODS	10
The conceptual basis of SWAPs	10
The contribution of sustainable livelihoods approaches	10
Informing SWAPs through Sustainable Livelihoods Approaches	11
Opportunities to integrate SLAs into components of the SWAPs process	13
Using SWAPs to enhance the sustainability of rural livelihoods	15
A more pragmatic approach to sector-wide approaches?	17
PART III:  PAKISTAN CASE STUDY	20
Including the poor: participation in public policy	20
Rural Poverty In Pakistan	21
Pakistan’s NR Policies and the Rural Poor	21
The Pakistan PPA and rural livelihoods	22
The Pakistan PPA as a process	22
PART IV.  CONCLUSIONS AND GUIDELINES	24
Conclusions	24
Guidelines for DFID	25

Box 1: The links between swaps and sips.	 9
Box 2: How the  mtef might support the mozambique agricultural sector programme 	21
Box 3: The ghana agssip	21
Box 4: Sector-wide approaches in the agricultural sector in uganda	16

References

Abstract

This paper looks at the linkages between sector-wide and sustainable-livelihoods approaches in the context of poverty reduction.  The paper notes that there is a two-way relationship between the two approaches – SLAs provide one means by which SWAPs can focus more effectively on poverty reduction, whilst SWAPs provide an entry point by means of which government and donor initiatives can be made supportive of the livelihoods of the poor.

The paper notes a growing focus on the part of donors on poverty reduction, born of concern about the lack of impact of existing approaches on global poverty.  Critical assessment of the determinants of poverty has led to an emerging consensus about the impact of low levels of empowerment, security and opportunity, and high levels of vulnerability.  This consensus forms the basis for debate about the potential role of governments and donors in fighting poverty, particularly in providing a facilitating environment for private investment and collective organisation for the empowerment of the poor, and in the financing of services and infrastructure. 

SWAPs offer one potential means of improving the poverty impact of government and donor expenditure.  In principle, they do this by institutionalising an effective and sustainable cycle of policy formulation and implementation, and using national systems, thereby reducing transaction costs, and increasing transparency and accountability.  To date, however, SWAPs have had mixed success in the natural resources sector, largely as a result of problems with the dominant means by which sector-wide approaches have been implemented – the sector investment programme.  But increasing awareness of the shortcomings of ASIPs has led to a more coherent view, in which SWAPs are seen as a long-term process, with objectives including stronger management and policy capacity within government, a more coherent, broadly owned sector policy framework, and greater attention to financial sustainability.

The paper presents a framework that indicates the relationships between SLAs and SWAPs.  The two approaches are seen as broadly complementary, with SLAs helping to ensure that SWAPs emphasise the principles of being participatory, cross-sectoral, dynamic and sustainable, and SWAPs providing a means of strengthening the poverty impact of: the vision and strategies for poverty reduction; the quality of public expenditure management and of institutions; and learning and monitoring processes.  A case study, drawing on experiences from the Pakistan PPA, illustrates how participatory approaches are being used to strengthen poverty impact of public policies. 

The paper concludes with a set of guidelines that indicate the core areas upon which DFID and other donors need to focus if they are to exploit potential synergy between these two processes.  In particular, the conclusion is drawn that the modest successes in implementing sector approaches raise questions about how best to address core SWAP issues without returning to the types of project-based approach which have had limited impact on poverty in the past. 
The Role of the State in Rural Poverty Reduction:  Where do Sector Wide and Sustainable Livelihoods Approaches Fit In?
Introduction
1.	This paper discusses the use of sector-wide and sustainable-livelihoods approaches to enhance the pro-poor impact of development assistance. The paper presents a framework that encompasses sector-wide and sustainable livelihoods approaches and focuses on the role of the state in poverty-focused policy formulation and implementation. 

2.	The paper is structured as follows:

•	Part I examines changing approaches to poverty reduction and emerging lessons about the effectiveness of aid and the role of the state in poverty reduction.

•	Part II focuses on the relationship between sector-wide and sustainable livelihood approaches. It sets out a framework for understanding the relationship between these approaches and other elements of an effective aid-supported anti-poverty strategy as implemented in natural resource sectors.  It notes that there is limited formal experience of using SLAs to influence public action.  

•	To establish some of the issues governing whether sustainable-livelihoods type approaches will impact on public policy, Part III presents a case study from Pakistan of the use of participatory poverty analysis (PPA) in natural resource sectors.

•	Finally, Part IV concludes the paper and proposes guidelines for how DFID advisers might approach engagement in sector-wide reform processes, and how SLAs might be used in this context, guided by emerging lessons about best practice for aid effectiveness.

PART I.  CHANGING APPROACHES TO POVERTY REDUCTION
Poverty reduction – the changing context
3.	The late 1990s saw a significant refocusing of donor and government development efforts around the goal of poverty reduction. There were at least two reasons for this:

•	First, after fifty years of international development effort, it was clear that the number of poor was continuing to grow.  By some accounts, the total number living in poverty has grown from 1.2 billion to almost 1.5 billion. An increasing consensus among major donors on the DAC poverty reduction targets as a focus for the co-ordination of development efforts has now been established. 

•	Second, influential research by the World Bank and others has suggested that billions of dollars of development funding was in many cases having little or no impact on poverty reduction. This has prompted a major debate about the conditions under which aid will prove effective and the discussion of radical proposals for reform of aid management and aid relationships.

4.	This increased poverty focus is reflected in a range of new international development processes that, in intention at least, capture the pro-poor nature of contemporary international aid.  The HIPC2 process, for example, required developing country governments to develop a specific strategy for poverty reduction through the preparation of a Poverty Reduction Strategy Paper (PRSP), designed to ensure that policy is consistent with poverty reduction objectives.  Now it is envisaged that all countries wishing to access IMF resources or to receive World Bank assistance will be required to prepare a PRSP whether or not they are eligible for debt relief.  In principle, this should lead to an increased level of co-operation and joint action among a wide range of players – governments as well as multilateral and bilateral agencies.  For example, the IMF has introduced a Poverty Reduction and Growth Facility and it is expected that this will be closely linked to the PRSP and the HIPC2 processes. 

5.	The implications of these new processes are that:

•	In principle, the PRSP should provide an over-arching national policy strategy within which specific sectoral initiatives will fit;

•	The PRSP provides a potential framework for addressing inter-sectoral issues of central importance to effective anti-poverty policy and within which national budgets and donor support should operate;

•	The PRSP process is intended to be based on government commitment and ownership – though it remains to be seen how far in practice this approach (and the changes to donor practice implied by the comprehensive development framework) moves beyond existing Poverty Action Plans that have often not been integrated into government decision making.
Effective Anti-Poverty Strategy and the Role of the State   
Evolving consensus on priorities for poverty reduction
6.	Whilst it is clear that the specific interventions and activities which are identified to combat poverty will be different for different countries, there is emerging consensus that effective poverty reduction requires action on a range of  broad, inter-linked fronts: 

•	To increase income and expenditure of the poor so that households and individuals can increase consumption of those goods and services normally recognised as being required within a society and a given environment.  Inadequate consumption may be identified by an inability to obtain a nutritionally adequate diet (food insecurity); inadequate access to other basic needs (e.g. shelter, safe water, clothing etc.); or insufficient savings or other assets to smooth consumption when income fluctuates.  The types of activity which have been shown to be necessary conditions for raising income and expenditure for the poor include: strengthening the role of the private sector and of markets, especially the role of factor markets in providing appropriate signals for investment; macro-economic stability and sustained growth; investment in infrastructure such as roads, power and schools. 

•	To improve access by the poor to assets, services and facilities required for functioning normally in society, including: social and economic services; factor and product markets; and productive assets, including natural, financial and human capital.  Here, there is a need for increased efficiency and improved effectiveness of public spending and for targeted assistance and safety nets and the recognition that these may well have to be funded by the public sector in many societies.

•	To empower the poor through enabling their participation in political and social processes, in particular ensuring that they have the capacity to affect their immediate environment and to promote change.  Aspects of exclusion include: lack of political influence; abuse of fundamental human rights; discrimination on grounds of gender, ethnicity or language; and lack of dignity, and exclusion from normal social processes.  In practical terms, this emphasis on empowerment, accountability and social inclusion may require an emphasis on decentralisation and local decision making and a need to develop capacity at all levels of government and civil society.  It may also suggest a need to address aspects of intra-household inequities.

•	To reduce vulnerability through addressing chronic insecurity, both at the individual level (where specific individuals and households are harmed) and at the meso level. Concerns exist over the types of coping strategies which households typically adopt to manage risk, since these often result increased vulnerability in the longer term (examples include the consumption of seed).  In practical terms, micro-level risks can be addressed through insurance or risk-pooling schemes, and through a complex range of diversification activities.  Also important in managing such risks is access to social networks for borrowing and other support. 

7.	In consultation drafts of its World Development Report for 2000/1, the World Bank discusses a three-pronged framework for poverty reduction that incorporates the main elements of this analysis.  Specifically, the Bank advocates action in relation to:

•	empowerment – to strengthen the focus of state institutions on poverty reduction;

•	security – so that the poor can manage their risks more effectively; and

•	opportunity – such that economic options are strengthened. 

The role of the state in poverty reduction
8.	Effective and sustainable poverty reduction through sustainable livelihood creation will fundamentally depend on the actions of private individuals and on collective action. The role of government is, however, crucial both in providing a facilitating environment for private investment and collective organisation for the empowerment of the poor, and in the financing of services and infrastructure.

9.	It is widely accepted that the general principles that underlie the role of the state are based on the presence of (i) market failures that hinder broad-based economic growth, and (ii) distributional inequalities that may have detrimental social and economic consequences.  

10.	In terms of market failures, the main arguments for government intervention concern:  

•	the existence of public goods, for which private suppliers cannot appropriate the benefits from their investment.  In terms of activities which may promote poverty reduction, a government could address weak markets by strengthening legislation in support of, for example, the transfer and security of land holdings, or intellectual property rights to encourage investment in goods and services of importance to the poor (e.g. poor people’s crops that are only locally traded); 

•	high levels of risk and the absence of effective insurance markets that encourage private individuals to adopt less risky activities than may be socially preferred.  A pro-poor government policy in this regard might be effective nutritional safety nets; 

•	the presence of indivisibilities and increasing returns, which create barriers to entry leading to monopoly supply.  In terms of a poverty-reducing activity, this may justify a range of state investments in infrastructure such as roads, telecommunications and utility supplies, all of which may promote competition; and  

•	the existence of positive and negative externalities, the costs of which is not internalised in the price of the activity.  This might support government investment in specific health supplements, particularly early feeding. 

11.	Interventions to promote distributional objectives to the benefit of the rural poor are linked by the fact that their aims are not primarily the promotion of growth.  They can take a wide variety of forms, including:

•	measures to enhance livelihoods through improving access of the poorest to a range of assets, markets and services (including land tenure reform, education and health services);

•	support for empowerment measures, such as strengthening the poverty-focus of state institutions and enhancing local community development; and

•	safety nets that minimise the burden of short-term fluctuations in income levels on the very poor.

12.	These opportunities for state intervention in support of poverty reduction will only be an effective basis for effective anti-poverty action by the state, and by those donors who support it, where there is:

•	political will (based on a consensus among politically influential forces) that places poverty reduction at the heart of government and donor objectives;

•	management and implementation capacity within government and donors that enables their machinery to be used effectively to carry through agreed programmes;

•	an understanding of the nature, causes and dynamics of poverty that informs policy formulation and implementation – both at an analytical level and through effective voices for the poor in the policy process and as clients of services provided by government.

13.	These conditions of strong political will, implementation capacity and awareness of the nature and causes of poverty are demanding, and their absence explains a high proportion of failures to achieve impact in terms of poverty reduction. It is clear that in many situations the model of the state as a disinterested player seeking the wider social good does not apply.  Many cases of apparent state failure are in fact due to the entrenched power of certain influential interest groups, which serve narrow rather than wide agendas.  These cases present some of the sharpest dilemmas for aid agencies (which are of course not themselves immune from the same forces).  There is a minority of relatively clear cases where donors are either (i) entirely comfortable with the anti-poverty commitment of government, or (ii) have no confidence at all in the government.  Inevitably, the substantial majority of countries lie between these extremes, and nuanced judgements need to be made, and processes of engagement and confidence building undertaken.  

14.	Where there is an absence of categorical support or rejection of government policy, donors may opt to provide development assistance to influence at least three aspects: 

•	There is now a general recognition that the use of policy conditionality for aid has failed as a means of achieving significant policy or institutional reform in situations where governments are not committed to change. There is an emerging consensus that large-scale financial support is at best ineffective and at worst counter-productive in the absence of effective local ownership of a reform programme. There is less consensus on what this means for donor engagement – but in general it implies a focus on policy dialogue and long-term education and consensus building.  In fact, adopting a sector-wide approach suggests that the scope for using conventional conditionality will be limited to situations where such conditions strengthen the credibility of reforms (for example, by associating external organisations with reform processes).  Indeed, under a sector-wide approach, donors in effect adopt the type of medium-term partnership and commitment that sits uneasily with conventional carrot-and-stick conditionality.  Likewise, such SWAP-based partnerships are incompatible with traditional project-based approaches that aim to avoid shortcomings in national capacities by developing parallel processes.               

•	Public sector capacity building has been a focus of aid efforts for decades. Increasingly donor attention has focused on strengthening key government-wide and sectoral capacities that play a major role in determining the overall effectiveness of government action. Particular attention is now being paid to the national budget and public expenditure management process, and to strengthening the capacity of decentralised government. 

•	Donors may contribute to strengthening understanding of poverty and developing ways by which effective influence of the poor over policy and service provision can be enhanced in several ways, for example by supporting the development and financing of innovative approaches, or providing information about relevant successful international experience.

PART II.  SECTOR-WIDE APPROACHES AND SUSTAINABLE LIVELIHOODS

15.	This section examines, within the broad framework of the role of the state and the possible contributions that aid can make set out above, the applicability and relevance of SWAPs and SLAs.  It notes that the two approaches are potentially synergistic – SLAs provide one means by which SWAPs can focus more effectively on poverty reduction, whilst SWAPs provide an entry point via which government and donor initiatives can be made supportive of the livelihoods of the poor.
The conceptual basis of SWAPs
16.	SWAPs were developed to address a range of specific problems – including poor co-ordination (and hence lack of sustainability) of sector expenditure, lack of effective management of all sectoral activities by government and donors, and lack of integration with broad public sector reform measures – which together compromised the impact of development expenditure.  In effect, SWAPs embodied a diagnosis of the core problems facing governments in increasing the relevance, efficiency and effectiveness of development programmes.  

17.	Sector investment programmes (SIPS) were developed as a means of addressing these weaknesses. In effect, SIPs became the prescribed treatment for these weaknesses, particularly in the agricultural sector.        

18.	The basis of the SWAP, then, is an assessment of the ways in which the effectiveness of public interventions, whether funded through government sources or by donors, can be enhanced.  This, in turn, requires a coherent analysis of the different roles and responsibilities of the public and private sectors.  The role of the public sector in agricultural development remains a controversial subject, but many believe that this should focus on regulatory and policy functions, rather than the direct provision of services.  The private sector, then, plays the principal direct role in agricultural development, and it is the core task of the public sector to support this role. 
The contribution of sustainable livelihoods approaches
19.	Both sector-wide and sustainable-livelihoods approaches can be seen as instruments which can be used to achieve the broader donor agenda of supporting effective state capacity to reduce poverty that is set out in the previous section.  The relationship between SWAPs and SLAs has been a major issue for DFID, especially in Africa where the adoption of one particular model for applying sector-wide approaches (the Agriculture Sector Investment Programme or ASIP) has dominated recent reform efforts in the sector, with generally extremely disappointing results.  Box 1 summarises the relationship between SWAPs and SIPs.

Box 1. The Links Between SWAPs and SIPs

Sector-wide approaches – SWAPs were designed to address specific problems encountered in the management and implementation of conventional, project-based development assistance.  Based on an analysis of these issues, the objective of a SWAP is to establish a situation where all public support (government and donor) to a sector is informed by a common vision and strategy, implemented through a common management framework with increasingly effective and accountable institutions, and based around a coherent public expenditure programme. The SWAP vision is based on a view of what is required for improved performance in a particular sector, and will normally go beyond the mandate of a particular government ministry.  

As they address a complex range of related weaknesses, SWAPs can only be understood as long-term processes of change, rather than as sets of short-term project activities.  SWAP processes need to be flexible to accommodate a range of imperfect policy and institutional conditions.  The processes aim not so much to implement an agreed strategy, but to institutionalise an effective and sustainable cycle of policy formulation and implementation.  Wherever possible, a SWAP aims to use national systems, thereby strengthening these systems, reducing transaction costs, and increasing transparency and accountability.

A Sector Investment Programme (SIP) is best understood as one, but only one, possible means of achieving the objectives of a SWAP.  The characteristic of SIPs is that they have been built around the preparation of World Bank loans (with varying degrees of involvement from other donors), usually conceived as replacing a series of projects or sub-sectoral donor programmes,   and involving an ambitious series of parallel processes. These have included expenditure and institutional reviews at the sectoral level, stakeholder consultation processes aimed at informing policy, expenditure and investment priorities, the development of a sectoral strategy document, and the design and rapid implementation of common pool funding arrangements. 

The application of this model has in practice been beset by problems, resulting from lack of government ownership, the complexity of the process involved (which has been poorly linked to existing government processes) and the over-ambitious and donor-driven timetable.  Fundamentally, SIPs have involved a systematic over-estimation of the capacity of governments.  According to the original conception of SIPs, poor development performance was attributed, in part, to the detrimental impact on local capacity of duplicate donor structures.  The hypothesis, in effect, was that the removal of these donor obstructions would release an inherent capacity within governments. This has proved to be over-optimistic, and substantially under-estimates the capacity difficulties of governments.     

Informing SWAPs through Sustainable Livelihoods Approaches 
20.	For governments to make the most of their potential contribution to poverty reduction calls for a series of complementary and effectively implemented interventions, with direct and indirect impact.  These range from measures to strengthen the enabling framework at its widest (macro-economic policy, the legal system, and measures to enhance the effectiveness and accountability of the civil service), through sectoral or regional measures, to interventions to support local government or civil society organisations at different levels.  Sector-wide approaches need to be seen in this context as offering one approach to strengthening the role of the state in poverty reduction, but not the only one, and in many cases not the most effective one.  To be effective, SWAPs will, for instance, always have to link to a supportive macro-economic framework; and often to decentralised local government (Goldman, 2000).  

21.	The main features of the SWAP (i.e. vision, expenditure framework and institutional reforms) are set out in simplified form in Figure 1 that schematically indicates where SLAs can in principle contribute to development and implementation of the SWAP.

Figure 1: Where SLAs can contribute to the SWAP process

Reform and strengthening of institutions

Vision and strategies for poverty 
reduction

Sustainable Livelihoods Approaches

Public expenditure management

Learning processes including  monitoring

Implementation processes

Impact on livelihoods

22.	At the centre of the diagram is the SLA. The history of SLAs is short, and lessons and experience are only now beginning to emerge.  At this stage of its development, the approaches have been used principally as a way of thinking about objectives, scope and priorities, in particular as a means of focusing more clearly on the priorities of the poor.  During the 1999 NRAC, instances were cited about the use of the approaches as a means of: (i) supporting systematic analysis of poverty; (ii) promoting a wider and better informed view of development opportunities; and (iii) placing people at the centre of analysis and objective setting. (Ashley and Carney, 1999).  The principle that is central to much of the potential impact of the SLA on elements of the SWAP is that of participation and consultation which can inform the definition of pro-poor strategies (top left), priorities for public expenditure, and institutional reforms. (Part III of this paper explores the scope for PPAs in Pakistan to strengthen NR sectoral approaches.)  

23.	The framework shown in Figure 1 illustrates a role for SLAs in relation to the core components of a SWAP.  Insofar as the SWAP is a process which has the objectives of ensuring that public support to a sector is driven by a common vision and strategy, implemented through a common management framework, and is based around a coherent public expenditure programme, SLAs provide a means of ensuring that this process emphasises the principles of being participatory, cross-sectoral, dynamic and sustainable.  In princip, le this might mean for example that: 

•	the formulation of the SWAP is based on extensive consultation, using techniques which assist in identifying the principal aspirations of the poor in relation to sector development, and the linkages between macro activities and micro outcomes; and

•	implementation of SWAP components takes account of the inherent capacities of the poor rural population in whose interests the initiatives are undertaken, including the various community structures that dominate decision-making at grassroots level in many countries.

24.	In practice, questions about the capacity of governments to undertake and effectively use and institutionalise this type of consultation and analysis must be raised.  It is important that, in extending the use of SLAs, account is taken of government capacity, so that appropriate levels of analysis and consultation can be determined.  In interpreting the following outline of opportunities for integrating  SLAs and SWAPs, these issues of capacity need to be borne in mind. 

Opportunities to integrate SLAs into components of the SWAPs process 
25.	In the formulation of the vision and strategies for poverty reduction, to the extent that SLAs assist the process of giving voice to the poor, and focus priorities on interventions that promote the livelihoods of the poor, the poverty impact of the SWAP is likely to be enhanced.  By placing poor communities at the centre of policy development, emphasising the linkages across sectors, identifying their priorities, and focusing on the development of partnerships, SLA provides some promise of strengthening the policy formulation process.  Moreover, SLA provides a framework for focusing attention on strengthening the policy process, by including the perspectives and participation of the poor themselves.  As Thomson (2000) points out; “(G)overnments have to commit themselves to opening up the policy process at all levels to participation by all stakeholders, and in particular, community-based organisations and representative national NGOs.”

26.	Improved public expenditure management – often but not always with a medium-term expenditure framework (MTEF) at its centre – should define the available resources, the broad objectives, and the anticipated costs of achieving outcomes, and defines the criteria (including indicators) by which impact and effectiveness will be judged. The key point is that the PEM framework provides a tight discipline for ministries, obliging them to show how they will use funds from the government and donors to achieve agreed national policy goals. (Box 2 illustrates how strengthening PEM, based on an MTEF, in Mozambique is designed to help the Ministry of Agriculture to strengthen the SWAP process in agriculture – PROAGRI.)

Box 2.  How the MTEF might support the Mozambique Agricultural Sector Programme
The government of Mozambique (GoM) developed the MTEF to strengthen its budgeting processes. Initially, the MTEF was designed simply to provide more reliable projections of macroeconomic and fiscal variables.  Subsequently, the MTEF became more ambitious and comprehensive, providing more accurate overviews of the total resources – both on- and off-budget – which were available to sectors, as well as introducing the concept of efficiency and effectiveness analysis of sector spending (that is, analysis of outputs and outcomes).

The MTEF is thought to be vital to the effective implementation of the agricultural sector programme – PROAGRI.  If PROAGRI is to be a success to which donors are prepared to remain committed, the Ministry of Agriculture (MPF) must be able to secure from the Ministry of Finance adequate and predictable (counterpart) funds.  To do this, it must provide information outlining the ways in which PROAGRI is consistent with government policy, and how government objectives are met through spending on the programme.  By tying itself in to the MTEF, the MPF hopes to be able to develop the types of controlled, outcome-oriented budgeting which the ministry of finance increasingly demands before it will countenance sector expenditure.

In practice, however, recent work on the PROAGRI suggests that these optimistic objectives may have fallen foul of capacity problems.  In particular, the rapid development and implementation of common pool funding arrangements, which has been a feature of PROAGRI, may be inappropriate given the underlying weaknesses of Mozambique’s public expenditure management system.  Core problems include a lack of realistic and credible macroeconomic and fiscal projections, an annual budget that lacks integrity and credibility as a means of operationalising expenditure programmes, and a lack of reliable information relating to expenditure and performance. 

27.	With respect to public expenditure management, SLAs provide an opportunity to strengthen its poverty focus. In essence, enhancing PEM aims to: (i) instil aggregate fiscal discipline, (ii) ensure that resources are allocated according to policy priorities, and (iii) improve the efficiency and effectiveness of public spending.  SLAs can be expected to contribute to the second and third of these objectives.   PEM has to be anchored in a set of coherent sectoral strategies, and to the extent that SLAs enhance the poverty focus of these, they will increase the likely poverty impact of public spending.  In particular, SLAs provide a means of (i) underlining the cross-sectoral nature of the constraints on rural households, and hence the need for action on a broad range of fronts to ensure that impact is achieved, and (ii) developing appropriate indicators of impact in order to determine effectiveness and efficiency of spending.   

28.	With respect to reforms and strengthening of institutions, SLAs may also provide a means of enhancing impact on the poor.  If institutions are to have credible, pro-poor capacity, they must exhibit three core traits – accountability, transparency and effectiveness.  Recent work in southern Africa (Goldman, 2000) has piloted the use of SLAs as a means of improving these aspects.  This research has demonstrated that SLAs have been useful in generating a range of recommendations for institutions at micro, meso and macro levels, but it is less clear whether and how livelihoods approaches will lead to improved implementation of pro-poor policies.  For sure, the existence of vested interests, and the complexity of new, decentralised processes, will complicate the process.  Likewise, the shift of orientation from top-down, supply-driven approaches to bottom-up, demand-driven sensitivity to the needs of clients, represents a sea change for local, regional and national governments.  Nonetheless, the Goldman work has shown that there are receptive institutions, and progress is far from discouraging.     

29.	With respect to learning processes and monitoring, there are opportunities to use SLAs as a means of developing monitoring and evaluation systems used in managing and assessing SWAPs.  This would include not only the identification of measures of impact and achievement, but also the means by which they would be monitored.  SLAs may play an important part in such monitoring of poverty impact (or, more correctly, livelihood impact), through designing indicators which are more comprehensive and which capture the objectives and realities faced by the poor themselves.
Using SWAPs to enhance the sustainability of rural livelihoods 
30.	Sector-wide approaches are processes designed to strengthen government planning and implementation.  To the extent that this role is well defined, and is supportive of poverty reduction (as might be expected to be the case if it they have been developed using SLAs), SWAPs will facilitate support for the livelihoods of the rural poor.

31.	Donors have now widely adopted sectoral approaches in their support for rural development.  They typically view this involvement as a long-term process, which will require them to develop new approaches, skills and strategies, rather than as an opportunity to revert to past, often ineffective project-based approaches.    

32.	But SWAPs are not a panacea, and in many cases, it will not always be appropriate to undertake a SWAP.  Addressing this issue, Foster has developed a framework to identify which types of aid instrument apply in which cases.  Using this framework, Foster shows that SWAPs are generally most applicable in economies with a strong macro framework and where there are sound sector policies and strong sector management capacity.  Where such conditions do not exist, the most appropriate instruments are generally those which help the recipient government to progress towards a situation where SWAP implementation is possible.  This might include, for example, project support to demonstrate opportunities for effective sector policy change (such as in the area of plurality of agricultural services) or instruments which assist in the strengthening of public expenditure management (such as MTEFs).

33.	Those difficulties which have been encountered in the implementation of SWAPs reflect the lack of discrimination and pragmatism that has been shown in developing the approaches, particularly sector investment programmes (SIPs), which are one type of sector-wide approach which has received considerable attention as a result of the number of World Bank and other-donor supported SIPs which are being undertaken.  Only in Zambia has the ASIP formed a basis for disbursement of donor funds in support of the agricultural sector (and even this has failed).  

Box 3. The Ghana AgSSIP 
The Ghana Agricultural Services Sub-sector Investment Programme (AgSSIP) began life in 1997.  Successful experiences with sector programmes in the health and education sectors encouraged optimism, and the original timetable predicted completion of planning by end-1998.  This was over-optimistic, and completion of programme planning by end-2000 is far from certain.  AgSSIP draws attention to at least five generic problems that can occur with ASIPs:
lack of government ownership – throughout the AgSSIP process, government has allowed itself to be pushed by donors to adopt inappropriate deadlines, consultancy teams and terms of reference.  This has led to a sense of frustration in government, as well as a clear lack of feedback from government into the process.  Donors have attempted to use the planning process as an opportunity to push for policy reform in areas such as the privatisation of extension, further alienating government staff.  Lack of involvement of government staff has also prevented the AgSSIP from learning lessons from past project experiences in Ghana.
lack of integration with government budget processes – AgSSIP has also marginalised staff from the ministry of finance.  At the same time as the AgSSIP was being developed, the government was developing its medium-term expenditure framework.  Yet these two processes were never reconciled.  The result has been that ministry of agriculture staff have in effect developed two separate budgets – for the MTEF and for the AgSSIP, and the relationship between the two is not clear.  In many ways, the AgSSIP has undermined the government’s attempts to take control of its national resource allocation process.       
parallel and complex administrative approaches – the AgSSIP has been characterised by high cost, parallel processes.  A series of task forces, headed by ministry staff, was created to develop proposals for the AgSSIP.  These task forces operated outside the standard planning processes of the ministry, and were funded independently.  In fact (and partly as a result) the output from these task forces was weak, and was often re-written by foreign consultants.  In some cases this has led to the development of an unusual focus, such as in the case of the so-called farmer-based organisations, which number less than 50 in Ghana but which have become one of the key focal points of the AgSSIP.     
lack of poverty focus – the basis of the AgSSIP was the Ghana Accelerated Agricultural Growth and Development Strategy.  This was developed in 1997 to show how Ghana would raise agricultural growth, not as a means of addressing poverty.  Donors drew attention to this in late 1997, and secured a commitment from the drafters of AgSSIP that poverty issues would be taken into account.  But the AAGDS was not revised, and the AgSSIP has never managed to reorient itself to support rural poverty reduction.  The World Bank notes in the latest Programme Appraisal Document (April 2000) that the AgSSIP is not poverty focussed. 
lack of coherent sector strategy – the AAGDS was developed as a means of accelerating agricultural growth.  As a sector development strategy it is a weak document.  In addition to paying inadequate attention to poverty reduction, the document fails to address linkages between agricultural and rural development, and so presents an incomplete picture of opportunities and priorities in the sector.   Similarly, whilst it notes that growth in the sector must be driven by the private sector, it is unclear how government can support this.

34.	The core problems accounting for the halting progress in developing ASIPs reflect:

•	a systematic over-estimation of government capacity by donors, which has led to the over-loading of already weak institutions; 

•	lack of consensus between donors and governments on some key policy and organisational issues relating to the role of the state in the agricultural sector (for instance the role of public extension services);

•	lack of commitment from within agriculture ministries to (or pressure from ministries of finance for) a SWAP agenda that involves incorporating aid within the government planning  and budgeting system. 

•	the multiplicity of players whose actions affect sectoral performance. This includes not just ministries, but a range of public and private organisations.    

37.	This points to three types of implementation errors.  First, the quality of PEM in developing countries has often been poor and donors have pushed for parallel systems of budgeting, which bypassed weak national budget systems and sidelined national ministries of finance, effectively quarantining agricultural sector investment programmes from broader processes of PEM.  Second, there has been  a lack of national participation and ownership, including on the part of civil society and the private sector.  The rhetoric of ASIPs suggests a commitment to participation, but reality appears to be different.  In the case of Ghana (see Box 3), for example, the initial mechanisms to reflect the concerns of civil society (sub-committees), were dropped as it became clear that the output of the these committees was not sufficiently coherent to substantiate a large project.  In Ghana, the responsibility for preparing the AgSSIP has progressively transferred from local stakeholders, including the ministry of food and agriculture, to the Bank and its external consultants. Finally, ASIPs have often failed to demonstrate a coherent approach to poverty reduction in the sector (Foster et. al. 2000).  As is shown in Box 3, in Ghana the development strategy upon which the sector programme is based initially made little reference to poverty issues, and the latest (April 2000) Programme Appraisal Document notes that the AgSSIP is not a poverty-focused programme.

A more pragmatic approach to sector-wide approaches?
38.	While the ASIP model as it is being implemented is clearly failing, the reform agenda that the sector-wide approach highlights remains of central importance.  To reiterate, SWAPs draw attention to three core issues:

•	the existence or absence of a coherent political will that places poverty reduction at the heart of government and donor objectives;

•	the need for high levels of management and implementation capacity within government such that agreed programmes can effectively be implemented; and

•	a sound understanding of the nature, causes and dynamics of poverty which can inform policy formulation and implementation.

Box 4. Sector-wide approaches in the agriculture sector in Uganda    
An example of emerging good practice in sector-wide approaches is that of the agriculture – and broader natural resources – sector in Uganda.  The core characteristics that appear to differentiate the Uganda experience from those of other countries on the continent include:
•	a coherent, broadly owned anti-poverty strategy reflected in the Poverty Eradication Action Plan (PEAP).  The PEAP was developed in a genuine, participatory manner, with strong input from civil society as well as from the government;
•	effective poverty monitoring systems developed with a strong civil society input;
•	sound public expenditure management, consolidated through the medium-term expenditure framework;
•	leadership from the ministry of finance, reflected in a strong contribution to the Programme for the Modernisation of Agriculture (PMA);
•	a coherent vision for the sector, which includes infrastructure ministries as well as the full range of natural resources ministries; 
•	a willingness to undertake institutional reforms, including the transfer of responsibilities for agricultural extension to local governments.
The key achievements to date of the Uganda process include:
•	the development of a coherent framework for the agricultural budget;
•	implementation of decentralisation and far-reaching reform of the ministry of agriculture; and
•	development of a coherent, poverty-based strategy.
Despite these achievements, however, the process has still to succeed in demonstrating an effective means of delivering relevant, efficient and effective services to the rural poor in Uganda.

39.	There is some evidence to suggest that a more sophisticated understanding of these issues is being reflected in the development of new SWAPs processes.  In the agricultural sector, the most tangible example of this is provided by the case of  Uganda (see Box 4).  What is interesting about the approach being adopted in Uganda is that it has not been touted as a SIP, or even a SWAP, but it nevertheless addresses (to varying degrees) the core issues outlined above.  In particular, the process has emphasised: 

•	the importance of ensuring that the process is driven by a strong domestic forces;
 
•	the significance of a coherent, pro-poor vision, initially developed in the form of the poverty eradication action plan but now embedded in the form of an interim poverty reduction strategy paper;
•	the need for a coherent, broadly owned sector policy framework, in particular with a realistic vision of the role of the state in rural poverty reduction;

•	the importance of financial sustainability, particularly with reference to the affordability and effectiveness of public spending in the sector.

40.	The case of Uganda also usefully demonstrates the long-term nature of the SWAP process, and the areas where further attention is still needed.  In particular (referring again to the three core issues addressed by a SWAP), it is clear that the question of organisational capacity needs additional support.  Progress has been made through the decentralisation of some core services, and through the reduction in size of the central ministry of agriculture, but substantial additional work is needed to ensure that sustainable capacity is developed and that effective service delivery – if this is what is deemed achievable by the GoU – can be developed.      

41.	This view of SWAPs as a long-term process is elaborated upon by Jones and Lawson (1999) who suggest there is a continuum, or hierarchy, of approaches which range from project-based planning and implementation (at the lowest level) to sector approaches with common financing mechanisms (indicative of a sophisticated and capable government structure which may be capable of accepting straight-forward budgetary support):

•	level 1: Project-based planning and implementation – the traditional approach to aid management which emphasises strong management of the project cycle; 

•	level 2: Programming of donor-funded projects within an agreed sector framework., emphasising the need for a strong sector, or sub-sector framework of strategy, policy and expenditure priorities; 

•	level 3: A co-ordinated planning framework with harmonised procedures, which is based on sector co-ordination meetings, led by government and supported by the donors active in the sector;

•	level 4: Sector approaches based on parallel financing, involving an agreed strategy, set of policies and expenditure programme; and 

•	level 5: Sector approaches with common financing mechanisms, representing the sector programme ideal.

42.	The analysis of Jones and Lawson points strongly to the need to avoid a reversion to conventional, project-based approaches which have little role to play in the long-term development of effective capacity in the sector.

PART III:  PAKISTAN CASE STUDY

43.	In part II, the importance of strong political will, organisational capacity and poverty analysis were emphasised.  In part III, the case of Pakistan is considered.  This example is used to demonstrate the opportunities and challenges of developing an effective sectoral approach to poverty reduction.  In particular, the study shows where progress has been made in relation to the analysis of poverty, and draws attention to the importance of political will, and the broad economic environment, in addition to public sector capacity, as key factors in the development of effective means of poverty reduction.  

44.	The background to this study is a political and social context that has for many years been (and in many ways continues to be) adverse to the poor.  Nevertheless, there are signs that elements within the GoP, especially after last year’s coup d’–tat, have an enhanced interest in pro-poor patterns of development. The change of government in October 1999 has brought about, inter alia: a crackdown on corruption; a major initiative to devolve government and make public institutions more accountable at local level; a cut in defence expenditure; a national poverty reduction strategy; a drive to document the economy and broaden the tax base so that public services can be better resourced; and, an increase in expenditure on safety net programmes (including public works programme and micro-credit banks). 

45.	With respect to the NR sector under the new government, agricultural development has been highlighted as a key sector in revitalising the economy for poverty reduction. The new policy "seeks to achieve self-reliance through efficient import-substitution, export orientation, enhanced productivity, and poverty reduction."
Including the poor: participation in public policy
46.	From the early 1990s onwards, governments have sought to undertake participatory poverty studies, in combination with poverty line estimates, to promote the inclusion of the poor in both the analysis of poverty and the design of pro-poor policies.   One tool that has been actively used in many countries since 1993 has been the PPA.  A PPA is a process which is concerned with combining different forms of knowledge, the understandings of poor people and those of experts and administrators, and applying these in a new way to the goal of poverty reduction.  Like SLAs, PPAs have been used to examine local concepts of poverty, livelihood strategies of the poor, what the poor see as their most important priorities, the views of the poor on access to, and the quality of, public services (agriculture and livestock services, health, education, transport, markets, justice, water), and opinions of local govern. ment

47.	In addition, PPAs aim to promote an institutional process that will ensure that the views of the poor are incorporated into the formation and implementation of public policies.  In practical terms, this means the involvement of poor communities with public, private and non-governmental organisations in a process that critically examines different interventions, institutional arrangements and social structures, and their contribution to the goal of poverty reduction.  The end result of a PPA is to: influence the allocation of resources (between sectors, social groups, and regions); improve access to services (quantity and quality); and, change the regulatory framework (laws, markets, taxes).  The success of PPAs in influencing public policy may depend on a number of factors including the degree of government support for the process and the ownership and commitment of stakeholders.  
Rural Poverty in Pakistan 
48.	A high proportion of Pakistan’s poor live in rural areas, particularly the agricultural heartland of the Indus valley, but do not derive their incomes directly from agriculture. According to the 1990 Agricultural Census, nearly half of all households in this region did not own any agricultural land at all.  It has been argued that agricultural growth in Pakistan did not reduce poverty as fast as in some East Asian countries because, after the green revolution, growth tended to be unduly labour displacing.  Looking to the future, some have argued that most poverty reduction will have to come from the non-farm sector. 
Pakistan’s NR Policies and the Rural Poor
49.	Overall, Pakistan’s policies towards the NR sectors have had a limited impact on poverty reduction and institutional forces work against the interests of the poor.  The government of Pakistan frequently intervenes in the agriculture sector to appease powerful farm lobbies in the name of enhanced food security or poverty reduction. General Musharraf recently remarked that he will “…offer far better prices for agricultural commodities to the toiling peasants who are the pride of this country” and that the electricity charges for agri-tubewells would be decreased.  Yet, a large proportion of the poor are without land or water rights, or reside in non-irrigated areas, and are net food consumers.  Other policies also work against the poor, including initiatives that have promoted labour-displacing mechanisation, and public subsidies to irrigation in the Indus valley which benefits mainly better off farmers. 
The Pakistan PPA and rural livelihoods 
50.	The aim of the PPA fieldwork will be to prioritise the problems of different sections of the poor and to agree what kind of reform would be needed to address it.  During the design stage of the PPA the following broad list of topics was identified: 

•	what are the local perceptions of poverty, deprivation and vulnerability?

•	why do poor individuals, households and communities remain poor, and what enables them to move ahead?

•	what barriers to moving out of poverty do particular minority groups face?

•	what have been the principal changes affecting poorer and wealthier people in the study areas over different periods of time, and what factors have influenced these processes?

•	what risks do the poor see as being significant for the future?

•	what factors prevent poor people from accessing publicly funded basic services?

•	what institutions, organisations and social arrangements are relevant to life in the study areas, and how are they perceived by poor people?

•	what scope is there for improvement in public policies, institutions and regulatory frameworks, and what other changes would increase the opportunities open to poor     people?

51.	With respect to the natural resources sector, a number of specific issues was raised during the fieldwork conducted for the PPA design stage that will be explored further during implementation. These included, the concentration of landownership in the hands of the few; the widespread existence of debt-bondage and forced labour in rural Sindh and the Seraiki speaking areas of lower Punjab; the continued existence of child labour; the workload of women; the victimisation of the poor at the hands of large landowners (for example, by the use of private prisons to punish workers who challenge the landlord’s authority); the failure of agricultural extension; and, high rates of rural unemployment. 
The Pakistan PPA as a process
52.	The purpose of a PPA is to initiate a broad process that establishes a dialogue between the poor and government.  Its success, therefore, is judged by the degree to which the views of the poor are incorporated in an ongoing fashion in the formation and implementation of public policies.  In order to maximise the impact of the PPA in Pakistan, the process will be characterised by: (i) a lead role for government with senior government figures chairing PPA steering groups at federal and province level; (ii) national ownership; (iii) decentralisation to province and district level; (iv) implementation through an alliance of federal, provincial and district government, and key local NGOs with experience in researching the complex relationship between gender inequalities and poverty; (v) formal links with federal, provincial and district government poverty monitoring cells; (vi) a formal link to the implementation and monitoring of the PRSP; (vii) a communications strategy to support dissemination; and, (viii) a dissemination programme that will include: workshops for government donors and NGOs, presentations to parliamentary standing committees and key government committees, briefings for journalists, local and national screenings of a PPA video.

53.	The PPA will also support a follow-up strategy comprising activities which may include support for: advocacy around the main themes emerging from the PPA analysis; the revision of federal and provincial poverty policies; formal surveys to explore further some of the findings of the PPA; the training of government officials in participatory methods; NGO mobilisation around specific PPA themes; the development of methodologies for poverty monitoring; and, networks working for poverty reduction.

54.	The PPA has been embedded in the government's planning process. It is managed from the Planning Commission and provides one of the most important monitoring and research instruments for the IMF's poverty reduction and growth strategy. 

PART IV.  CONCLUSIONS AND GUIDELINES 
Conclusions
55.	The point of this paper is to emphasise the need for a coherent process of consultation and analysis of the principal constraints to sustained poverty reduction and the potential role of government as a first step towards a sustainable process of poverty reduction.  

56.	Analysis of the effectiveness of developmental projects has drawn attention to three core areas – political will, organisational capacity and coherent analysis of poverty – as vital preconditions to effective implementation of pro-poor policies.  This paper shows how SLA principles can be used as a means of moving towards a situation where these three components are effectively addressed.  In particular, the contribution of participatory approaches to the analysis of poverty is demonstrated (including through the example of the Pakistan PPA).  Similarly, the paper shows that rural livelihoods can effectively be strengthened through the adoption of coherent SWAP-type processes, pointing to the case of Uganda as a process which demonstrates promise for the rural poor.    

57.	The paper also indicates that the extent to which SLAs can play a role in strengthening the poverty outcomes of public actions.  This will depend on  the degree to which they improve the content, process and implementation of policy.  As the international development community sharpens its focus on the objective of poverty reduction, interventions and innovations such as SWAPs and SLAs will be judged by their poverty impact.  

58.	The conceptual framework within which SWAPs and SLAs can have a poverty impact is the conventional role-of-the-state approach, where the state intervenes to correct market failures and address severe inequalities with the aim of (i) increasing income and expenditure, (ii) improving access to assets, (iii) empowering the poor, and (iv) reducing vulnerability.  The role of SWAPs in this framework is to generate pro-poor impacts by directing resources to a particular sector, whilst improving institutional performance and the allocation of resources through the planning and budgeting process.  The approaches aim to use national systems, strengthening these, cutting transaction costs and increasing transparency.  

59.	SWAPs offer the potential for improving the formulation and implementation of pro-poor policy.  But if the approaches are to realise this promise, new developments are needed which will help governments and donors to increase flexibility, and to ensure that the pro-poor strategies upon which SWAPs are based are comprehensive and monitorable.   

60.	A key requirement is to identify which elements of the SWAP process are the most appropriate in any given situation. Where economies can demonstrate a strong macro framework, and where there are sound sector policies with strong sector management capacity, it may be feasible to implement the full range of SWAP options, potentially including common funding arrangements.  Where this is not the case, a more gradual process of implementation will be required, focusing perhaps on demonstrating opportunities for effective sector policy change, or strengthening public expenditure management.

61.	SLAs may provide an effective contribution to the development of more effective SWAP implementation capacity.  The role for SLAs in this process is based around the need to strengthen the whole process of reform, in particular to ensure that local stakeholders play a greater part in determining the content and evaluation of sector policy.  Adopting SLAs may help donors and governments alike to focus more on the process, and may help to enhance the quality of government interventions designed to fight poverty. 

62.	Nonetheless, it is important to emphasise that the contribution of SLAs to poverty reduction is only now being tested.  The promise of the approach lies in its emphasis on more accurate (cross-sectoral, poverty-focussed) identification of interventions, more effective (responsive, sustainable and people-centred) implementation, and more integrated (participatory and dynamic) monitoring and evaluation. 
Guidelines for DFID 
63.	The paper has emphasised the importance of political will, organisational capacity and sound analysis as part of the SWAP approach.  This forms the basis for four core recommendations for DFID and for other donors faced with the challenge of enhancing the poverty relevance of its work through sectoral approaches:

•	first, to the extent that this is politically feasible for a donor, they must work to develop and consolidate political will for poverty reduction.  The example of the 1999 coup in Pakistan shows that the evolution of such will can be unpredictable, so concrete models of how to develop it are of limited use.  Nevertheless, the types of activity that could be expected to support strengthened political commitment include (i) engaging in policy dialogue, and (ii) strengthening institutions which can challenge government and lobby for pro-poor issues, including civil society organisations.  Experience suggests that conditionality has little role to play in encouraging political support, except insofar as external support for a position is seen to add credibility.  Awareness on the part of donors of the fragility of pro-poor political will must be strengthened so that realistic assessments of long-term commitment can be determined.  The example of the broad-based support for poverty reduction in Uganda, based around the PEAP and PRSP is currently a good-practice example in this area. 

•	second, donors need to be realistic about the organisational capacity and resources available to governments, and the likely impact on such capacity of initiatives such as decentralisation.  The failure of ASIPs is in no small part traceable to a systematic overestimation of the capacity of governments, and similar miscalculations would undermine alternative means of implementing SWAPs.  There are seeds of concern about the degree to which SLAs risk making similar misjudgements about the organisational capacity of local and national governments; it must be clear how governments are sustainably to develop and retain the capacity to undertake the types of analysis and consultation which are frequently referred to in SLA literature.   

•	third, a coherent analysis of poverty and its causes is an important component of the effective development of a SWAP.  So far, a good deal of attention has focussed on this element, for example through PPAs and through sustainable livelihoods analysis.  Without a doubt, these approaches are adding important detail to the picture of poverty in the developing world, and possible opportunities for reducing its incidence.  But it is important that this analysis is integrated within a broad organisational framework, such that capacity is not overloaded.  Similarly, it is important that this analysis is integrated with medium term financial frameworks which ensure that the analysis of causes of poverty is translated into implementable strategies, backed by a system of public expenditure management which ensures that such initiatives are financially sustainable.

•	finally, when SWAPs are (correctly) viewed as long-term processes, which involve gradual movement along a continuum where (i) broad public sector expenditure management capacity, and (ii) consensus on key policy issues are gradually built to such a level that budget support can confidently be provided, the option to return to a system of project-based support must be ruled out.  This means that proposed new projects and programmes – including livelihoods programmes – must be considered within a framework which explicitly considers the status of those core factors which influence aid effectiveness. Where it is not clear how proposals will be sustainable in the face of these core issues, donors cannot reasonably support them. 

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