Proposed loan to the Dominican Republic for the Rural Families’ Productive Inclusion and Resilience Project

Contents

Abbreviations and acronyms

Map of the project area  iii

Financing summary i

Recommendation for approval

I. Strategic context and rationale

A. Country and rural development and poverty context

B. Rationale and alignment with government priorities and
RB-COSOP

II. Project description

A. Project area and target group

B. Project development objective

C. Components/outcomes

III. Project implementation

A. Approach

B. Organizational framework

C. Planning, monitoring and evaluation, and learning and knowledge management

D. Financial management, procurement and governance

E. Supervision

IV. Project costs, financing, and benefits

A. Project costs

B. Project financing

C. Summary benefit and economic analysis

D. Sustainability 7

E. Risk identification and mitigation

V. Corporate considerations

A. Compliance with IFAD policies

B. Alignment and harmonization

C. Innovations and scaling up

D. Policy engagement

VI. Legal instruments and authority 9

VII. Recommendation0

Appendices

I. Negotiated financing agreement
(to be tabled at the session)

II. Logical framework

The Dominican Republic

Rural Families’ Productive Inclusion and Resilience Project

Financing summary

Proposed loan and grant to the Dominican Republic for the Rural Families’ Productive Inclusion and Resilience Project

I.          Strategic context and rationale

A.          Country and rural development and poverty context

1. The Dominican Republic is a small island developing state with a per capita GDP of US$6,240.[1] Its population is an estimated 9.8 million, with a Human Development Index rating of 0.722 and a GINI coefficient of 0.4707. The country has a small economy with a high degree of openness. These characteristics provide advantages and opportunities within international markets; however they also make the country vulnerable to serious macroeconomic crises, as experienced in 2003 and
   2008-2009.
2. The Dominican Republic is also frequently exposed to extreme climate events. According to the Global Climate Risk Index, the country was ranked as the 11^th country in the world most affected by climate change in the period 1996-2015. Cyclones, floods and droughts are so frequent that in recent years, agriculture has been impacted two years out of every three. Small-scale producers and poor landless families are the most vulnerable to these events.
3. Rural poverty. Government social policies are based on a multidimensional definition of poverty measured by the Unified Beneficiaries System through the Quality of Life Index. Multidimensional poverty decreased from 46.3 per cent in 2000 to 29.1 per cent in 2014 (from 53.2 per cent to 33.7 per cent in rural areas).
4. Conversely, monetary poverty, measured according to the official poverty line, increased from 32 per cent in 2000 to 35.8 per cent in 2014.[2] Monetary poverty continues to be higher among the rural population than the urban population
   (44.1 per cent versus 31.8 per cent); these levels increase during economic crises.
5. While social policies have proven very effective in reducing multidimensional poverty and protecting families from the harshest effects of economic and climatic crises, monetary poverty persists as a result of structural factors that prevent poor rural people from participating in the Dominican economy. The persistence of monetary poverty contributes to poor rural families’ vulnerability since it drives them to adopt short-term coping strategies that compromise their resilience to economic and environmental risks.
6. The Dominican emigration rate is estimated at 13 per cent (nearly 1.3 million Dominicans live abroad); remittances reached US$5.149 million in 2015, equivalent to 7.5 per cent of GDP. At the same time, the First National Survey of Immigrants in the Dominican Republic (2012) estimated that 524,632 immigrants or their children (equivalent to 5.4 per cent of the total population) were living in the Dominican Republic in 2012. Of these, 458,233 were from Haiti.

B.          Rationale and alignment with government priorities and
RB-COSOP

7. The project intends to contribute to overcoming persistent vulnerability and monetary poverty among rural families resulting from their weak productive inclusion and frequent exposure to economic and environmental shocks, whose effects are amplified by climate change.
8. Although the Government is responding to some of the challenges affecting rural poor people through its social and emergency-response policies, it is necessary to improve policies on income generation and vulnerability reduction. This project responds to the Government’s request to complement social policies with local-level interventions that identify and respond to the need for income generation and vulnerability reduction by supporting the development and implementation of investment and resilience plans for productive organizations.
9. IFAD has a comparative advantage in supporting government efforts to reduce monetary poverty and promote inclusion and resilience based on its: (i) successful approach to productive inclusion through innovative public-private alliances, with the involvement of producers’ organizations; and (ii) integrated approach to resilience.
10. To reduce vulnerability, productive inclusion must be accompanied by interventions that increase families’ resilience to economic, social and environmental shocks. This is highly relevant in the Dominican Republic, which is heavily affected by climate change and frequently exposed to extreme environmental events. The resilience model is centred on the family: it is based on the identification of factors that reduce the negative impacts of crises and shocks, and factors that increase the capacities of families to recover from crises and avoid long-term negative effects.
11. Through the promotion of inter-institutional dialogue and coordination, supported by an effective monitoring and evaluation (M&E), and knowledge management system, the project will create the conditions for public policies to integrate and scale up tested models for productive inclusion and resilience.
12. The project is aligned with the focuses, objectives and priorities of the country strategic opportunities programme. It is also aligned with the guidelines established by the Dominican Republic National Development Strategy 2030 and with the Government’s programmes. The Government has supported and led the entire process, and provided guidance through a counterpart group comprised of
    high-level staff of the Ministry of Economy, Planning and Development (MEPyD).

II.          Project description

A.          Project area and target group

13. The project will cover the entire country, but implementation will begin in
    15 provinces identified by the Government as priority areas. Intervention areas within the prioritized provinces will be selected according to the: (i) concentration of the target population (based on monetary poverty and low levels of productive inclusion); (ii) presence of productive inclusion opportunities; (iii) environmental factors (especially water and soil); (iv) risk of extreme climate events and the concentration of the population that is vulnerable to their effects;
    (v) administrative, social and productive organizations; and (vi) government priorities.
14. The target group will be comprised of small-scale producer and landless families with high levels of multidimensional and monetary poverty. Small producer families are particularly affected by the lack of opportunities in areas with high poverty and low opportunities, where small producers represent more than half of poor rural families. Conversely, landless families represent more than 70 per cent of poor rural families in high-opportunity areas.

B.          Project development objective

15. The project goal is that: the project’s investments contribute to promoting income-generating activities and the food and nutritional security of rural families. Its development objective is that: beneficiary families have increased their access to markets and their resilience to economic and climate-related shocks.

C.          Components/outcomes

16. Component 1: Investments in rural families’ productive inclusion and resilience. The focus of this component is on sustainably improving families’ incomes and their resilience to climatic, environmental, economic and social crises and shocks, and facilitating their rapid recovery from these events. It will achieve this through plans for inclusion and resilience (PIRs) based on the Rural Economic Development Project in the Central and Eastern Provinces (PRORURAL Central and East) experience. These PIRs will be differentiated by type of beneficiary: agricultural producer families, youth and landless families.
17. Project implementation will include: (i) targeting to identify prioritized territories; (ii) a baseline survey; (iii) awareness raising of project opportunities among organizations, the public sector and other local-level actors; (iv) defining criteria to identify eligible organizations and PIRs; (v) selection and approval of PIRs by a committee comprised of staff of the project management unit (PMU), representatives from public and private entities, and financial institutions;
    (vi) implementation of PIRs; and (vii) M&E. The evaluation criteria will focus on productive inclusion, changes in families’ incomes and resilience factors (measured with scorecards).
18. To support the design, implementation and management of PIRs, the executing agency will establish an agreement with private implementation entities, which will participate in targeting and dissemination activities, and in supporting and supervising the PIR design process. Rural economic organizations will be the direct implementers of the PIRs and will be responsible for the implementation of activities.
19. Component 2: Inter-institutional policy dialogue. This component will promote inter-institutional dialogue and coordination in support of productive inclusion. Its objective is to create the conditions for public policies that integrate and scale up the models tested by the project. The anticipated result is that: the project’s investments have generated a learning process to define an inclusion and resilience index, and a model to scale up productive inclusion and resilience.

20. This component comprises an inter-institutional dialogue platform, whichwill facilitate information management and learning in support of productive inclusion and increased resilience. Coordinated by MEPyD, it will include representatives of national institutions, development organizations such as the Food and Agriculture Organization of the United Nations (FAO), World Food Programme (WFP),
    Inter-American Development Bank (IDB), World Bank and Spanish Agency for International Development Cooperation, and private businesses that are engaged in rural or territorial development programmes. A high-level national experts group will provide technical inputs and proposals to the policy dialogue platform for resilience and productive inclusion indexes, models and strategies that can complement government social policies. This component also includes efforts to prioritize and complement interventions at the local level.Territorial development requires actions and investments beyond those that can be implemented by the PIRs financed by component 1.
21. Component 3: Planning, monitoring and evaluation, knowledge management and project management. This component aims to ensure the appropriate management of the project’s planning, M&E, knowledge management and other activities. The achievement of project results will depend on continual interaction, from the baseline phase prior to project start-up through the M&E, learning and knowledge management phases. The learning process is geared towards: (i) improving project performance; and (ii) linking components 1 and 2 to promote inter-institutional dialogue so that the productive inclusion and resilience strategy is improved and gradually scaled up to the national level.
22. Gender and youth strategy. The project will apply incentives to target women for inclusion in income-generating activities. The selection process will ensure that at least 30 per cent of PIRs will focus on women’s income generation so that women will constitute 40 per cent of those supported by the project. Groups that involve vulnerable women (including women heads of household, landless women and women with less education and lower access to services) will be prioritized. The project will also support activities that facilitate women’s participation, such as childcare services (which could be provided by partner organizations), knowledge exchange among women’s groups, capacity building on nutrition, microenterprises and self-employment.
23. The participation of youth is a priority, but also presents a challenge for the project. Only 11 per cent of youth participating in the on-going PRORURAL Central and East project are farm owners or managers as a result of structural obstacles youth face in accessing key resources for agricultural production (including land, financing and technical assistance). However, young people are interested in activities related to information, commercial management and support services linked to PIRs.
24. Innovative proposals for youth inclusion will be sought in areas such as information and communications technology, social recognition and visibility, the creation of spaces for new functions and responsibilities within organizations, dynamic
    rural-urban linkages and micro-enterprises in innovative sectors related to the environment and tourism. The project aims to create incubators for ideas and projects, financed by the project in partnership with the private sector. Incubators and youth PIRs will be piloted, adapting and validating models successfully tested in urban areas or rural areas of other regions to local contexts using simple technologies.
25. Nutrition and diets. In collaboration with WFP and FAO, the project will exploit complementarities with ongoing government initiatives on diet and nutrition, and implement direct actions to improve beneficiary families’ food security and nutrition. The instruments utilized for the baseline and the M&E system will include tools and methodologies compatible with those used by national actors and international partners. The PIRs will specifically include food and nutrition security activities when information collected on participant families shows the presence of nutritional risks or deficiencies. Similarly, actions will be undertaken to increase awareness of dietary guidelines and promote linkages between production and consumption among participant families facing nutritional imbalances and dietary risks.

III.          Project implementation

A.          Approach

26. The project will include: (i) a targeting strategy that identifies the needs and vulnerabilities of the target population; (ii) the identification of challenges and opportunities for project investments through the active participation of public and private organizations operating in the selected territories, favoring the planning of investments and local-level complementarities with national programmes and policies; (iii) the use of valid instruments, methods (such as PIRs and partnering with organizations) and alliances (with the private sector and national and local institutions); and (iv) a learning process supported by an effective M&E and knowledge management system that provides clear results-based signals to operators (in the short, medium and long term) and contributes to policy dialogue for scaling up strategy.

B.          Organizational framework

27. The executing agency will be the General Directorate for Multilateral Cooperation (DIGECOOM), an agency of MEPyD. For project coordination and management, a PMU will be established under DIGECOOM and coordinated by a project director, supported by a technical administrative assistant and specialized directors for financial management, procurement, planning, M&E and knowledge management. The implementation of project activities in the territories and supportive actions to rural economic organizations will be undertaken through a public-private agreement. Rural economic organizations will be responsible for implementing PIRs and will ensure that their impacts will be focused on beneficiary families.

C.          Planning, monitoring and evaluation, and learning and knowledge management

28. The achievement of project objectives will be based on constant interaction, starting with the baseline study (completion prior to project inception, it will be a condition for disbursement) and including the M&E system, the learning process and the implementation of PIRs. The M&E system will be: (i) results oriented and based on the logframe; (ii) integrated with the project management system and policy dialogue platform, to which it will constantly provide information and reports; (iii) integrated with the other systems of DIGECOOM and IFAD; and (iv) generate information that enables the classification and documentation of lessons learned.
29. Learning and knowledge management. The learning process, based on the analysis of information collected through the M&E system, will have two main objectives: (i) improve project performance; and (ii) promote inter-institutional policy dialogue and the gradual scaling up of the strategy for resilience and productive inclusion to the national level. Knowledge management will be crucial for the functioning of the inter-institutional platform and for the analysis of processes that lead to productive inclusion and increased resilience.

D.          Financial management, procurement and governance

30. Financial management. DIGECOOM, through the PMU, will be responsible for financial management of all project resources, including responsibility for accounting related to activities delegated to third parties. This agency has prior experience in managing donor projects and is familiar with IFAD’s policies and requirements regarding the withdrawal of funds and financial accountability. Project financial management will be in conformity with the legal framework that regulates public sector financial management in the country.
31. The financial management risk for this project is rated as medium as a result of the need to: maximize efficiencies in the transfer of funds to beneficiary organizations; strengthen controls over fund transfers to beneficiary organizations; and improve financial reporting according to IFAD requirements.
32. Flow of funds. The borrower will open a designated account in United States dollars in the Central Bank of the Dominican Republic exclusively for the loan and grant. Advance funds will be deposited into this account and funds will be transferred from the account to the project operational account in the national currency.
33. Accounting. Project accounting will be carried out through the financial management information system, the automated modular tool used by the state financial administration system. The system will record the project financial information produced by the PMU, which will make improvements to the system in order to generate investment statements, financial statements the consolidated budget execution required for each component, expenditure category and source of funding. The Dominican Republic is in the process of implementing the International Public Sector Accounting Standards.
34. Retroactive financing. As an exception to section 4.08(a)(ii) of the General Conditions for Agricultural Development Financing, it is recommended that specific eligible expenditures incurred during the period from the date of approval by the Executive Board to the date of entry into force of the financing agreement for this project, up to the equivalent of US$300,000, pre-financed by the Government, will be reimbursed from the IFAD loan after the financing agreement has entered into force and the conditions precedent to withdrawal have been met. The specific expenditures to be financed retroactively will be in accordance with and as specified in the financing agreement.
35. Audit. Qualified external auditors, registered with the Comptroller General of the Dominican Republic and acceptable to IFAD, will audit the project’s consolidated financial statements annually following international auditing standards and in accordance with IFAD’s Guidelines on Project Audits. Project audit reports will be submitted to IFAD within six months of the end of each fiscal year. Terms of reference for the audit will be agreed with the borrower and will include project financial transactions from all sources of financing.
36. Procurement. Procurement and contracting for the project shall be carried out in line with national regulations and IFAD’s Procurement Guidelines. Procurement processes will be planned and executed by the PMU under the responsibility of its director. The PMU’s specialized procurement management function will be responsible for ensuring quality of compliance with IFAD guidelines through document review and timely assistance to the implementing entity and rural economic organizations. The operations manual will determine all rules and procedures for procurement management.
37. Governance. The principles of good governance, transparency and participation, as well as the mechanisms for disseminating information complementary to the M&E system, will be agreed upon with all actors, particularly DIGECOOM, project partner organizations and beneficiary communities. The project implementation manual will incorporate procedures in line with IFAD’s anti-corruption policy.

5. Supervision

38. IFAD will directly supervise the project, complemented by implementation-support missions. One supervision mission will be planned each year. The first supervision mission, undertaken approximately six months after project startup, will monitor progress against the timeframe defined in the implementation plan, and will assess expenditures, counterpart contributions of funds and compliance with the financing agreement. Implementation-support missions will be planned to address the issues recommended by supervision missions.

IV.          Project costs, financing, and benefits

A.          Project costs

39. The total cost of the project, including physical and price contingencies, duties and taxes, for an implementation period of six years, is estimated at US$21.07 million, of which US$20.47 million comprises the base cost (97 per cent of the total cost) and US$600,000 comprises physical and price contingencies (3 per cent of the total cost).
40. The project includes a proposal for a programmatic approach. The financing gap of US$14.23 million may be sourced by subsequent performance-based allocation system cycles (under financing terms to be determined and subject to availability of funds and internal procedures) or by cofinancing identified during implementation.

Table 1

Project costs by component and financier

(Thousands of United States dollars) ¹

B.          Project financing

41. The project will be financed as follows: (i) the Government of the Dominican Republic will contribute US$4.58 million; (ii) IFAD will provide a loan of US$11.68 million and a grant of US$200,000; (iii) national financial institutions will provide credit totaling US$3 million; and (iv) beneficiary organizations will contribute US$1.6 million.

Table 2

Project costs by expenditure category and financier

(Thousands of United States dollars)

C.          Summary benefit and economic analysis

42. The project will reach approximately 14,970 rural families or 57,780 people, of which 26,940 will directly benefit. The economic internal rate of return is 20.15 per cent and the net present value is US$20.42 million. The project faces low institutional, economic, financial and technical risks, and its sensitivity to change is relatively modest.

D.          Sustainability

43. The project will be executed in the institutional space provided by MEPyD, which has a focus that corresponds to that of the project. Project execution and operation under DIGECOOM will provide continuity of the experiences gained through PRORURAL Central and East, capitalizing on the resources and capacities created, and ensuring the project’s institutional sustainability.
44. This project will deepen and expand on the lessons of PRORURAL Central and East, whose methodologies have been validated. Further improvements through this project will ensure greater efficiency in addressing persistent rural poverty through methods and strategies for productive inclusion and resilience. The successful experience of the public-private alliance model has shown that the participation of a private entity in the selection, approval and implementation of PIRs strengthens the technical, financial and productive sustainability of investments. This participation, together with the focus on families and the fundamental role of producers’ organizations, strengthens the sustainability of results related to productive inclusion and resilience.

E.          Risk identification and mitigation

45. The project faces moderate risks, including: (i) institutional risks related to difficulties in establishing the inter-institutional platform; (ii) initial risks in implementation related to the accurate targeting of families; (iii) risks related to the management and administrative efficiency of coordination with different partners; (iv) risk related to the PMU structure within DIGECOOM and the effective functioning of the public-private partnership; (v) technological risk linked to a potential lack of proposals for productive inclusion and resilience; and (vi) uncertainty in land tenure, which generates risks in medium- and long-term investment planning.
46. Environmental and social category. The project should be considered as category B. The environmental and social impacts that may be caused by the implementation of investment plans on productive issues or road access are reversible and can be minimized through implementation of the social and environmental management plan.
47. Climatic risk. While the project can be classified as high risk, the country has a strong institutional system to deal with this risk. At the local level, the project will support coordination with watershed management initiatives. An initial territorial diagnostic exercise will ensure that an adequate climate vulnerability assessment is included in the PIRs. In addition, within the framework of the water roundtable housed in MEPyD, several initiatives are underway for improving watershed management and supporting the establishment of sub-watershed committees with local stakeholders, with financing from the World Bank and IDB, and technical assistance from FAO and the Inter-American Institute for Cooperation on Agriculture (IICA). A meeting was convened by MEPyD involving the head of the water roundtable and representatives of key institutions to identify how to coordinate investments at the local level.

V.          Corporate considerations

A.          Compliance with IFAD policies

48. The project is aligned with IFAD policies, in particular:
    1. IFAD’s targeting policy: the project will adopt indicators and models for geographic planning, and will include measures for self-targeting to facilitate the participation of women, youth and families facing environmental or nutritional risks.
    2. IFAD Rural Financing Policy: the project will increase the availability of resources and financial products to producers by improving the quality of PIRs (through technical support in all phases), facilitating access to credit.
    3. The focus on women and youth corresponds with IFAD’s priorities: it is based on the experiences of the previous project and IFAD youth policies.
    4. Environmental policies, management of risks and adaptation to climate change: the project approach, vision and actions are aimed at significantly improving the resilience of rural poor people.
    5. The project is aligned with IFAD’s policies on food security and nutrition.

B.          Alignment and harmonization

49. The project is aligned with national policies and priorities within the framework of the National Development Strategy 2030 and the National Multiannual Public Sector Plan 2016-2020, which prioritizes rural development and rural poverty reduction.
50. Significant efforts have already been made to harmonize and coordinate project actions with the initiatives of other donors and development partners. A meeting was convened by MEPyD and attended by the head of the water roundtable and representatives of the World Bank, IDB, FAO and IICA to identify ways to coordinate the different investments at the local level. A joint meeting, convened by MEPyD, was also held with representatives of the other Rome-based agencies as a basis for coordinated actions in response to government requests related to food and nutrition security.

C.          Innovations and scaling up

51. The project proposes a strategy for overcoming rural poverty through productive inclusion, which is shared by the Government – especially MEPyD. It involves linking small producers to the most dynamic sectors, strengthening their market linkages and improving the management of natural resources. This strategy is based on the tools and methods validated in PRORURAL Central and East, with improved instruments such as household-level resilience and productive inclusion scorecards, and tools for assessing risks related to PIRs with regard to environment, exclusion, poverty, food security and nutrition. This will ensure the correct targeting and effective implementation of initiatives fostering the resilience and productive inclusion of poor rural families.
52. The implementation of this strategy, under the leadership of MEPyD in the framework of national policies for strengthening territorial planning and accompanied by an effective M&E system, will facilitate the scaling up of the strategy, complementing public policies and investments.

D.          Policy engagement

53. MEPyD, IFAD’s main partner in the country, is interested in strategies for identifying needs and intervention models related to productive inclusion. It is also undertaking initiatives on decentralization, empowerment of local institutions and territorial planning within the context of its territorial cohesion policies.
54. South-South and Triangular Cooperation. There is interest in cooperating and gaining knowledge related to the efficient management, administration and implementation of rural development projects. The Government is particularly interested in sharing its experiences in: (i) implementing projects with public financing through public-private partnerships; and (ii) knowledge, capacities and technologies related to tropical products, especially cacao and vegetables.

VI.          Legal instruments and authority

55. A financing agreement between the Dominican Republic and IFAD will constitute the legal instrument for extending the proposed financing to the borrower. A copy of the negotiated financing agreement will be delivered to Executive Board representatives at least five business days prior to the end of the 30 days following delivery of the President’s report and project design document.
56. The Dominican Republic is empowered under its laws to receive financing from IFAD.
57. I am satisfied that the proposed financing will comply with the Agreement Establishing IFAD and the Policies and Criteria for IFAD Financing.

VII.          Recommendation

58. I recommend that the Executive Board approve the proposed financing in terms of the following resolution:

RESOLVED: that the Fund shall provide a loan on ordinary terms to the Dominican Republic in the amount of eleven million six hundred and eighty thousand United States dollars (US$11,680,000) and upon such terms and conditions as shall be substantially in accordance with the terms and conditions presented herein.

RESOLVED FURTHER: that the Fund shall provide a grant to the Dominican Republic in the amount of two hundred thousand United States dollars (US$200,000) and upon such terms and conditions as shall be substantially in accordance with the terms and conditions presented herein.

[1] World Bank Atlas Method, 2015.

[2] Social Indicators System of the Dominican Republic, 2014.