INCOME GENERATING PROJECTS

Income Generating Projects

Income Generating Projects

Introduction

A widely accepted tenet of the development literature is that, in the process of structural economic transformation that accompanies economic development, the farm sector as a share of the country's GDP will decline as a country's GDP grows (Chenery & Syrquin, 1975, pp12). In rural areas, it is implied that a shrinking agricultural sector and expanding rural non-farm (RNF) activities, as well as a changing definition of rural itself, should be viewed as likely features of economic development. The available empirical evidence unequivocally points to the existence of a large RNF economy. While few data sources exist that allow for consistent measurement of changes in RNF income and employment over time, available information points to an increasing role for RNF activities.

It would be misleading, however, to see this growth in RNF activities in isolation from agriculture, as both are linked through investment, production, and consumption throughout the rural economy, and both form part of complex livelihood strategies adopted by rural households. Income diversification is the norm among rural households, and different income generating activities offer alternative pathways out of poverty for households as well as a mechanism for managing risk in an uncertain environment. It is therefore useful, when thinking about rural development, to think of the full range of rural income generating activities, both agricultural and non-agricultural, carried out by rural households. This can allow a better understanding of the relationship between the various economic activities that take place in the rural space and of their implications for economic growth and poverty reduction.

Background

FAO (1998) characterizes three broad “stages” of transformation of the rural economy. In the first stage both production and consumption linkages between the farm and non-farm sectors are very strong and rural-urban links still relatively weak. During this stage, non-farm activities tend to be mainly in areas upstream or downstream from agriculture. The second stage is characterized by a lower share of households directly dependent on agriculture, and greater rural-urban links. Services take off more strongly and new activities like tourism are started, while labor-intensive manufacturing in rural areas finds increasing competition from more capital intensive urban enterprises and imported goods. The third stage is characterized by a maturing of these trends: stronger links with the urban sector, with migration, employment and income increasingly generated in sectors with little or no relation to agriculture(Elbers and Lanjouw, 2001, pp. 481).

In this context, the challenge for policy makers is how to assure that the growth of the RNF “sector” can be best harnessed to the advantage of poor rural households and how to identify the mechanisms to best exploit synergies across agricultural and non-agricultural sectors. The growing consensus is that although agriculture continues to play a central role in rural development, the promotion of complementary engines of rural growth is of paramount importance.

Yet, the poverty and inequality implications of promoting RNF activities are not straightforward. They depend on the access of the poor to RNF activities, on the potential returns ...