Poverty Reduction Contribution of Local Roads Attached to Projects

A Case Study from the 2007 Sector Assistance Program Evaluation of Asian Development Bank Assistance for Roads and Railways in the Peoples Republic of China

August 2007 Tyrrell Duncan Operations Evaluation Department

Abbreviations
ADB CSP GDP NDRC NTHS PCR PPER PRC RRP Asian Development Bank country strategy and program gross domestic product National Development and Reform Commission National Trunk Highway System project completion report project performance evaluation report Peoples Republic of China Report and Recommendation of the President

Note
In this report, $ refers to US dollars.

Contents
Page I. II. III. Introduction Findings of Evaluation Reports Conclusions 1 1 8

I.

Introduction

1. This study reviews evidence from project implementation, completion, and post-evaluation reports on the performance of the link- and local-roads components attached to Asian Development Bank (ADB) road and railway projects in the Peoples Republic of China (PRC). The main sources used were project performance evaluation reports (PPERs), project completion reports (PCRs), and back-to-office reports.

II. Findings of Evaluation Reports

2. The PPER1 for the Hebei Roads Development Project, approved in 1998, had the following comments on poverty reduction effects: (i) At the onset, the Executing Agency did not really recognize the importance of the proposal to include access roads linking to expressways. The provincial communications department now appreciated the long-term benefits of this approach and indicated that succeeding expressways will be built with connector roads. (ii) Project implementation was complicated because of the mixing of a commercial portion (expressway) and an economically viable, but noncommercial, village access roads, and county roads within the same project. Most village roads were also quite short and could have been or were actually built using government funds. The same applied to county connector roads. It was therefore not easy to attribute improved local access to ADB intervention since the Government would have built them anyway. (iii) Development and poverty reduction effects of the connector and village roads could have been further advanced by means of coordination with complementary poverty reducing infrastructure investments and noninvestment actions by other provincial and local agencies, but this had not been considered by the project. (iv) Expressway benefits extend beyond the immediate project area. Apart from positive resettlement outcomes, direct impacts on the poor appear limited. Majority of expressway users comprise inter-province and/or city traffic. At the same time, local traffic use the upgraded parallel national highway. On the other hand, indirect effects were significant as the expressway provided a catalyst for economic transformation in key growth centers and social development. In addition to supporting increased traffic volumes and reduced travel times and costs in project areas, the expressway contributed to the National Trunk Highway System (NTHS)
1

ADB. 2006. Project Performance Evaluation Report in the Peoples Republic of China on Hebei Roads Development Project. Manila.

Poverty Reduction Contribution of Local Roads Attached to Projects

(v)

and national economic growth. Local project communities benefited from improved connectivity to areas with dynamic growth (in terms of outside employment, trade, and commerce). The connector and village roads generated positive socioeconomic impacts. Before and after household surveys revealed increased incomes generated locally and from migrant remittances, more diverse sector activities (diversification of industry, development of enterprises, increased tourism, and changes in income sources and employment patterns), and improved social services development (access to education and health services) as a result of more reliable year-round road access for local communities.

3. The PPER2 for the Chengdu-Nanchong Expressway Project, approved in 1998, concluded the following regarding ADBs value-added in terms of poverty reduction: (i) A separate ADB special evaluation study on Pathways out of Rural Poverty and the Effectiveness of Poverty Targeting3, based on discussions with local government officers, contends that the county-roads component (the key poverty reduction component of the project, which was completed ahead of schedule) were built without use of ADB funds. It furthermore argued that support for local roads would be more likely to be effective if de-linked from expressways so that a more thorough job can be done. (ii) Because of the dominating role of the provincial rural-roads upgrading and investment in the project areaimplemented independently of the ADBfinanced expressway project during this same period (19982005)it was very difficult to quantify the direct benefits of ADB projects. (iii) The project expressway is strategically important in both the NTHS and the larger Sichuan expressway network. There were few immediate benefits along the expressway because of the effect of access-control restrictions (e.g., farm tractors are prohibited from using the expressway). Indirect benefits were evident in terms of (a) increased bus services to and from towns served by expressway interchanges, providing a faster, safer, and more comfortable journey; (b) development of businesses (particularly in Nanchong) and tourist attractions, which contributes to employment and prosperity; and (c) an increase in fixed investments. (iv) The improvements in county-road infrastructure resulted in a tremendous increase and improvement in transport services supply, which again led many farmers to risk the changeover to higher-profit but more perishable crops such as fruits, vegetables, and nuts. These development changes were observed in the form of significant rural per capita income increases from 1998 to 2005, and in the form of corresponding growth in the travels of these people.

ADB. 2006. Project Performance Evaluation Report in the Peoples Republic of China on Chengdu-Nanchong Expressway Project. Manila. ADB. 2006. Special Evaluation Study on Pathways Out of Rural Poverty and the Effectiveness of Poverty Targeting. Manila.

Poverty Reduction Contribution of Local Roads Attached to Projects

(v)

What appears obvious is that the expressway component financed in part by ADB, and the county roads upgraded and built in parallel, have reinforced each others development benefits.

4. The PPER4 for the Changchun-Harbin Expressway Project (including two separate loans for the Hashuang Expressway and the Changyu Expressway), approved in November 1998, concluded the following regarding ADBs value added in terms of poverty reduction: (i) The project expressway is strategically important to both the NTHS and Northeast Regional Transport Network Development Strategy to (a) connect major areas of economic growth, (b) foster regional and international trade, and (c) provide better access to less-developed and disadvantaged areas. Indirect effects and benefits will continue to grow, especially when the link to Vladivostok in the Russian Federation is completed. (ii) Few immediate benefits were identified, as the use of the expressways is limited by access-control restrictions (e.g., farm tractors are prohibited from using the expressway). Indirect benefits were evident, including (a) increased bus services from towns served by expressway interchanges, providing faster, safer, and more comfortable journeys, and faster and cheaper freight delivery; (b) development of business in project areas, which increased demand for employment and contributed to general prosperity; (c) an increase in agricultural production and rural incomes; and (d) an increase in fixed investments and gross domestic product (GDP). (iii) The project included a modest component for upgrading access roads. It had been proven that such components vastly improve the connectivity of enterprises and the general public to efficient transport services. However, this was not an explicit poverty reduction component. (iv) The relocated households were now all in better condition because the expressway improved access to urban employment and new business opportunities. Journey times had been reduced by 50%, and the frequency of bus services had increased as a result of the project. Since the opening of the expressway in 2001, the project areas in the two provinces had experienced higher growth rates than in their respective provinces as a whole. (v) Farmers found that reduced transport costs had helped raise farm-gate prices, and this had raised rural per capita annual income for the 45,000 residents by CNY200.

ADB. 2006. Project Performance Evaluation Report in the Peoples Republic of China on Changchun-Harbin Expressway Project. Manila.

Poverty Reduction Contribution of Local Roads Attached to Projects

5. The PCR5 for the Southern Yunnan Road Development Project, approved in June 1999, with toll-road operations launched at the end of 2004, concluded the following regarding ADBs value-added in terms of poverty reduction: (i) Per capita income in the project area increased faster than in the province as a whole. During 19992003, the average annual GDP per capita for Yunnan Province grew at 6.2% per annum, compared with 20.1% in Mojiang county and 8.4% in Puer and Yuanjiang counties (three counties through which the expressway passes). A new city is being developed in Mojiang county near the expressway. External trade between Yunnan and its three neighboring counties has grown rapidly. In the absence of the expressway and local feeder roads, such high growth rates might not have been possible. (ii) The expected benefits envisaged at appraisal in relation to poverty reduction and social and economic development were realized as follows: (a) reduced transportation costs have benefited local residents; (b) residents along the road have increased their incomes by supplying the project with labor, materials, and services during construction; (c) some poverty alleviation and social projects located in poor villages along the expressway were facilitated by the expressway, resulting in increased incomes and income diversification among poor and nonpoor households; and (d) access to economic and social facilities and services has been improved, and will have a long-term impact on development. (iii) The project also supported regional cooperation in the Greater Mekong Subregion. The 147 kilometer Yunnan Yuan Mo expressway formed part of a Greater Mekong Subregion initiative to provide a direct link between Chiang Rai in northern Thailand and Kunming in Yunnan Province. (iv) The project played a catalytic role in the Governments ongoing poverty reduction and social development efforts and in the development of the Western region. From 1999 to 2004, the Government implemented a number of activities in the project area aimed at poverty reduction to complement the projects poverty reduction and social impacts.6 In 2000, and independent of the project, the Yunnan Provincial Poverty Alleviation Office identified 148 target village committees in the project area for these activities. The Government supported each target village committee with CNY600,000 in poverty alleviation activities during 20012005. As a result of these concerted efforts, the absolute incidence of poverty was reduced from 61% at appraisal in 1999 to 23% at project completion in 2004. Average annual income per capita for farmers increased by 32% in 12 towns and townships along the expressway from 2000 to 2004.

ADB. 2006. Project Completion Report on the Southern Yunnan Road Development Project in the Peoples Republic of China. Manila. (Loan 1691-PRC). These activities included (i) improving infrastructure, such as water, electricity, roads, and irrigation facilities; and social services, such as medical facilities; (ii) providing financing and training for cash-crop production and livestock development; (iii) encouraging the formation of seasonal job opportunities and providing information about such opportunities; (iv) providing training for employment in urban areas; and (v) development of biogas as energy source.

Poverty Reduction Contribution of Local Roads Attached to Projects

(v)

(vi)

(vii)

(viii)

(ix)

(x)

Positive social impacts under the project included (a) increased employment and income through sales of local materials during project construction and operation, (b) increased labor mobility, (c) enhanced agricultural development induced by lower transport prices for inputs and better access to markets, (d) enhanced tourism, and (e) upgraded local community development. Because of transportation improvements, markets have become more efficient and the trading and shipping of wild mushrooms and fruit grown by the poor has expanded. Furthermore, given the need to transport produce from farms to the expressway interchange areas where large trucks collect and transport such produce, new local businesses involving small truck delivery services between farmers and collection points at interchanges have developed. Given the reduced costs of transport and better access to markets, farmers have increased their production of cash crops such as tea, tobacco, and fruit. The local governments and the Executing Agency put a great deal of effort into the resettlement and rehabilitation of affected households by using other local government programs for rural infrastructure, poverty reduction, and livelihood training. Most of those affected are now better off than they were before because of the support from local governments and the opportunities generated by expressway construction and operation. During project implementation, particular attention was paid to improving the lives of ethnic minorities in the project area. Local governments supported ethnic minorities in increasing the planting of cash fruit trees such as longan fruit trees and coffee through micro-credit schemes and special funds. Training courses were provided to local farmers to enhance their ability to adopt technologically advanced farming methods. During the construction of civil works, priority was given to employing members of affected ethnic households. Those employed were paid CNY500 to CNY600 per person-month, which was much more than they would have earned from farming. Positive social impacts under the project included (a) increased employment and income through sales of local materials during project construction and operation, (b) increased labor mobility, (c) enhanced agricultural development induced by lower transport prices for inputs and better access to markets, (d) enhanced tourism, and (e) upgraded local community development.

6. The PCR7 for the Shanxi Road Development Project, approved in September 1999 and completed in December 2005, concluded the following regarding ADBs value-added in terms of poverty reduction: (i) The construction of the project expressway and the upgrading of rural roads improved road transport in the project area. More efficient and economical transport was evident in a reduced transport-related price
7

ADB. 2006. Project Completion Report on the Shanxi Road Development Project in the Peoples Republic of China. Manila (September, draft)

Poverty Reduction Contribution of Local Roads Attached to Projects

(ii)

(iii)

(iv)

(v)

(vi)

index in the area. This helped raise per capita GDP in the project area to above the provincial average. In Shanxi province, annual per capita GDP increased from CNY5,230 in 1999 (20% lower than the national average in 1999) to CNY10,741 in 2004 (1% higher than the national average in 2004). At least some of the economic growth in Shanxi province can be attributed to the project-influenced area. The project also contributed to development of the industrial structure of the project area. The GDP contribution of primary industry decreased to 9.2% in 2004, from 15.6% in 1999. The GDP contribution of secondary industry increased to 57.9% in 2004, from 49.3% in 1999. The economic growth resulted in positive socioeconomic impacts. Project contributions to socioeconomic development in the project area included providing employment opportunities; improved social services; and faster, safer, and more comfortable access to markets. Since its completion, the project expressway has been a catalyst for economic growth in the project area as it provides improved access to markets, employment opportunities, and social services. Socioeconomic conditions in the project area have improved and the projects poverty reduction objectives have been met. At the same time as the construction took place, local municipalities and county governments invested significantly in complementary poverty reduction measures. The funds were mainly used to construct basic farmland infrastructure: build small irrigation works and country roads, provide drinking water for people and livestock, and provide technical training and popularize practical agricultural techniques. The upgrading of provincial roads connecting interchanges improved access for people and goods particularly for the poor areas in the projectinfluenced areas. The provincial communications department and local governments were committed to funding the relevant prefecture and county communications bureaus for the development and maintenance of rural road networks, irrespective of ADBs engagement in rural roads. The construction of the project provided local people with more job opportunities. Largely because of improved transport in the project area, the economic growth rate is higher than the provincial average. With faster and safer transport, farmers could afford to switch to riskier produce of a perishable naturebut with the possibility of much higher returns on investments in land and equipment. The gap between project area GDP and provincial GDP was reduced after the road was completed. People interviewed by the Operations Evaluation Mission expressed their satisfaction with the land acquisitions and resettlement arrangements related to the expressway.

7. The PCR8 for the Shenmu-Yanan Railway Project, approved in September 1997, concluded the following regarding poverty reduction effects:
8

ADB. 2006. Project Completion Report on the Shenmu-Yanan Railway Project in the Peoples Republic of China. Manila. (Loan 1553-PRC).

Poverty Reduction Contribution of Local Roads Attached to Projects

(i)

(ii)

(iii)

(iv)

Socioeconomic conditions in the project areas have improved and the projects poverty reduction objectives were met. The project contributed to socioeconomic development in the project areas by providing safe, lowcost, more comfortable transportation facilities to larger markets and improved access to better employment opportunities and social services (health care). After the completion of the project, railway transportation stimulated local economies and provided better access to employment opportunities and social services. During implementation (19972003), per capita incomes in the project area increased by nearly 300%. This had a positive effect on poverty reduction in the project area. Before the project, the percentage of the population living below the poverty line (CNY625 per person per year) in the project area was about 20%. In 2004, it was less than 10%. The project has benefited Shenmu county, where the project railway terminal station is located. GDP in Shenmu in 2000 was CNY2.3 billion and ranked 67th among all the counties in Western China. In 2005, Shenmus GDP reached CNY8 billion, placing its economy fifteenth among all counties in Western China, and first among the counties in Shaanxi Province. Within the Shenmu county area, the Shenfu Economic Development Zone has four industrial parks. By 2005, a total of CNY18.5 billion had been invested in 153 projects in this zone, and the value of gross industrial output reached CNY1.8 billion. About 6,500 people have been employed thus far to work in this zone. Most of these projects would not have been possible without the project railway line. Little evidence was found to support the idea that provision of construction roads and other link roads had extended the socioeconomic influence of the project. Most of these roads were adjacent to the railway alignment, having been selected mainly to provide access for construction work and, where possible, giving attention to try to serve identified population centers and traffic flows. After project completion, these roads were transferred to the local government for public use.

8. The draft PPER9 for Guizhou-Shuibai Railway Project, approved in August 1998, concluded the following regarding poverty reduction effects: (i) The project crosses one of the poorest areas in the PRC. It had two main types of direct socioeconomic impacts: improved transport for communities directly served by the railway and the service, access, and link roads; and indirect impacts related to economic growth for a wider impact area. The project also had an impact on two vulnerable groups in the project impact area: (a) households living below the poverty line, and (b) ethnic minorities. (ii) The railway is strategically important in the context of both the Ninth FiveYear Plan and the Guizhou Province transport plan. It was expected that the indirect effects and benefits of cost-effective transport will continue to
9

ADB. 2007. Project Performance Evaluation Report in the Peoples Republic of China on Guizhou Shuibai Railway Project. Manila.

Poverty Reduction Contribution of Local Roads Attached to Projects

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

grow, in particular during 20072010 when several large coal mines are expected to come into production. In the case of the railway component, there have been few immediate benefits along most of the railway alignment, mainly because only six of the planned 13 railway stations are operational. Faster and cheaper travel has reduced the cost of freight delivery; the benefits of this are gradually being passed down to the people in the project area. During railway construction, more than 4.19 million person-days of local labor were employed. Direct benefits to users of the service, access, and link roads constructed as part of the project are difficult to quantify. The service and access roads to various parts of the project were built by the Executing Agency to give civil works contractors access to the project site. These roads were later turned over to local villages for use in transporting agricultural products from villages to markets, and transporting goods from markets to villages. Indirect benefits have arisen through development of businesses (establishment, growth, and expansion of industries), which have increased the level of employment and income-generating opportunities. During 19972004, in the three counties and districts traversed by the railway, GDP increased by an average of 13.2%, while per capita GDP increased by an average of 11.2%. Rural per capita income increased by an average of 5.5%, and poverty incidence in Liupanshui municipality as a whole fell. During implementation (19972000), net per capita income in the project area increased by 28.4% and the proportion of the population living below the poverty line decreased from 46% in 1998 to 21% in 2003. Within the same period, per capita rural net income in the PRC as a whole increased by only 7.8%. The project also provided a large number of employment opportunities to the local population. According to a recent household questionnaire survey, about 40% of the households in the project-influenced area had benefited from project employment as unskilled laborers. As envisaged in the Report and Recommendation of the President (RRP), the project does not appear to have had any negative impacts on the ethnic minority population in the project area. Ethnic minorities, who were among the persons affected by land acquisition and resettlement, appear to have fared relatively well. A household survey undertaken in 2006 indicated that the average incomes of both Hans (the majority group) and ethnic minorities had increased by at least 90% over 19972005. The PCR found that resettlement, although much larger in scope than envisaged, has generally been carried out satisfactorily. Although the Operations Evaluation Mission confirmed these findings, it found that both ADB and the Executing Agency should have devoted more attention to resettlement supervision.

Poverty Reduction Contribution of Local Roads Attached to Projects

III. Conclusions
9. In many cases, the evaluations found that local and overall development effects had been substantial and exceeded the appraisal assessments, irrespective of whether the particular county- and village-road components were financed by ADB funds or by local funds. 10. However, it is difficult to interpret this information. First, it has proven extremely difficult to establish the extent to which the poverty reduction effects of local-roads components (attached to expressway projects) are attributable to ADB projects. Doing so would require demonstrating that these local roads and links would not have been built or upgraded without the ADB project (i.e., that ADB did not crowd out these roads from other rural development plans and programs). 11. It would furthermore be of interest to document the extent of ADBs influence on the choice of supplementary county, village, and connector roads, and whether ADB's influence declined over the 19972005 study period because of the dramatic increase in Government prioritization of rural-roads development in the Tenth Five-Year Plan, 20002005 and the Eleventh Five-Year Plan, 20062010.
Evaluations found that local and overall development effects had been substantial and exceeded the appraisal assessments, irrespective of whether the particular countyand village-road components were financed by ADB funds or by local funds.

12. None of the RRPs or evaluations quantitatively addressed the crowding-out issue. However, some of the PPERs and PCRs did raise the possibility. While this was not emphasized in RRPs, the connector roads, county roads, and village roads are generally included within the ambitious development plans for provincial, county, and connector roads approved by the provincial planning and reformation commission. Those plans, in turn, are coordinated with the NTHS plan approved by the National Development and Reform Commission (NDRC).

13. To the extent that funds are fungible at the provincial leveleven if it were only within the road subsector budgetone could perhaps argue that ADB could contribute more effectively to provincial rural poverty reduction by concentrating its financing on expressway components. In this way, ADB would free up provincial resources to finance other local road expenditures in keeping with provincial and county-level priorities and plans. 14. Usually road projects plan to use ADB funds for one section of the NTHS. In most cases, before the ADB project preparatory technical assistance report was prepared, the domestic feasibility study report had been approved by NDRC. That means that the project scope had been confirmed. When ADB later asked the executing agency to put more local roads into the projectthus changing the project scopethe executing agency had to seek renewed approval from NDRC. However, it was difficult for an executing agency to get approval from NDRC without significantly delaying project startup. In addition, ADBs requirements made it difficult to manage the local

10

Poverty Reduction Contribution of Local Roads Attached to Projects

roads because these roads extended the project scope beyond the executing agency's jurisdiction, requiring the active involvement of provincial and country authorities, which may have already had comprehensive plans in place for improving local roads. These were among the reasons why executing agencies were not satisfied with the local-roads components. 15. This issue was also referred to in the conclusions of the completion report for the 2003 country strategy and program (CSP).10 While the report found that the performance of the road projects implemented during the current CSP period was satisfactory, it also identified several factors that have constrained the effectiveness of ADB assistance to roads. In particular it referred to the problem of mixing commercially viable components (expressways) and developmental or societal components (rural roads, HIV/ADS11 awareness, etc). This problem complicated the financing and implementation of projects. It also noted that, in many cases, rural roads, health, education, and other social development activities could have been financed by local governments, using their own resources, much more cheaply than through borrowing from ADB's ordinary capital resources. 16. Another factor that made it difficult to isolate the poverty reducing impact of road investments on local communities was the fact that other provincial infrastructure upgrading programs (e.g., power, telecommunications, agricultural extension services, education, health services, water, and sanitation) were being implemented simultaneously, either independently of the roads, or as a result of the road improvement being implemented. Thus, it was difficult to establish a reliable counterfactualnone of the PCRs or PPERs were able to do so.

10 11

ADB. 2006. Completion Report: Country Strategy and Program (20042006), Peoples Republic of China. Manila. Human immunodeficiency virus/acquired immunodeficiency syndrome.