The rural nonfarm economy (RNFE) accounts for roughly 25 percent of full-time rural employment and 35-40 percent of rural incomes across the developing world. This diverse collection of seasonal trading, household-based and large-scale agroprocessing, manufacturing and service activities plays a crucial role in sustaining rural populations, in servicing a growing and modern agriculture, and in supplying local consumer goods and services. In areas where landlessness prevails, rural nonfarm activity offers important economic alternatives for the rural poor. Widespread economic liberalization during the 1990s has opened up rural nonfarm economies as never before -- to new opportunities and to new threats. In some instances, liberalization has benefited large numbers of small rural nonfarm enterprises. In other cases, rapid exposure to external competition has simply steamrollered the poor. Given the large scale of rural nonfarm activity, given its importance to the rural poor, and given the startlingly rapid new dynamics under way, policy makers can no longer ignore the RNFE as they have so often in the past. Highly diverse and heterogeneous, the RNFE offers opportunities for the rural poor as well as the rich. Poor rural households frequently seek economic refuge through distress diversification into low-skill nonfarm activities such as basket making, weaving, pottery, small-scale retailing and seasonal labor migration. Simultaneously, their more affluent neighbors participate in a dynamic cadre of more sophisticated, high-productivity activities including mechanical milling and skill-intensive private services such as schooling, health care, rural telecommunications and transport. Large agroprocessing firms, exporters, wholesalers and retailers operate in close proximity with legions of much smaller firms that serve as ancillary assemblers, retailers and even as very small-scale direct competitors. Locationally, rural nonfarm activities frequently congregate in rural towns and small regional centers. They cluster regionally as well . in silk regions, leather-working centers, sugar processing areas and basket-making zones . due to concentrations in raw material supply, seasonal labor release from agriculture, proximity to key transport or water resources, or sometimes simply as a result of historical accident. Complex processing and commercial networks link clusters of like rural firms with urban exporters, input suppliers and competitors. Because of this broad sectoral diversity . from farm input supply to agroprocessing, manufacturing, transport, construction, wholesaling, retail commerce and personal services . no line ministry holds clear responsibility for the RNFE. Because supply chains for any given rural nonfarm activity traverse broad geographic space -- from rural areas to market towns and regional or export centers . promotional activities in any given subsector will require intervention across many overlapping and adjacent administrative jurisdictions. As a result, the RNFE has largely remained a stepchild of government, donor and NGO promotional efforts. Administratively, no one agency assumes responsibility for the welfare and growth of the RNFE. Three key groups currently intervene in the rural nonfarm economy . large private enterprises, non-profit promotional agencies and governments. Large modern corporations take investment, procurement and marketing decisions that powerfully shape opportunities in the rural nonfarm economy throughout much of the Third World. More frequently than governments, in many instances, these private firms initiate sweeping changes in the rural nonfarm economy. In the wake of world-wide trends towards economic liberalization, from the 1990s onward, these forces of global integration and change have swept ever more powerfully across the rural nonfarm economies of the developing world. At the same time, on largely equity grounds, a plethora of non-profit and government agencies operate promotional programs aimed at stimulating rural nonfarm activities for the rural poor. As they operate their promotional programs, socially motivated agencies now increasingly converge with profit-oriented corporations in the newly liberalized rural economies of the developing world. The lion and the lamb now meet face to face. After reviewing these sometimes complementary and sometimes conflicting efforts, this paper suggests three guiding principles for policy makers interested in ensuring equitable growth of the RNFE. Given the bewildering diversity of activities, firm sizes, locations and administrative jurisdictions, no standard elixir will prove appropriate in all instances. Even so, three broad principles will permit identification of cost-effective interventions across a broad diversity of specific settings. First, identify key engines of regional growth. The typology suggested in this paper provides one way of identifying key opportunities in resource-poor areas, in rapidly growing zones and in regions with unexploited economic potential. Second, focus on subsector-specific supply chains. This framework enables a systematic search for cost-effective interventions by identifying large numbers of like firms facing similar opportunities or constraints. It provides a tractable means for regional planners of prioritizing infrastructure requirements and for tracing commodity flows across space. It ensures a focus on final markets and enforces the necessary link between evolving consumer requirements and the supply system that must meet them. By situating where the rural poor operate in the alternative vertical supply chains that connect large and small firms together, this approach highlights competitive and complementary relationships as well as specific opportunities and threats confronting the rural poor. Third, build flexible institutional coalitions. Rather than creating expensive new integrated bureaucracies, interveners must find ways to work across the existing patchwork of private and public agencies that currently exist. Depending on the commodity subsectors selected for review, a coalition of key stakeholders may include government regulators, technical institutes, industry associations, key private sector participants, donors or NGOs. In this model, any interested party can initiate action. As they have many times in the past, a broad variety of prime movers can assemble working coalitions from among the vested interest groups operating in any given subsector and location. Using the flexible institutional model proposed here, we envision a world in which an evolving coalition of interest groups can initiate diagnostic reviews and identify key systemic interventions on behalf of targeted segments of the rural nonfarm population. In an increasingly dynamic and competitive rural environment, intervention by government, NGOs and other equity-oriented groups will frequently prove necessary to cushion transitions and facilitate access by the poor to growing nonfarm market niches. Supported where necessary by such beneficent involvement, a prosperous rural nonfarm economy can contribute to both aggregate economic growth and improved welfare of the rural poor.

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EPTD Discussion Paper 92

 Record created 2017-04-01, last modified 2018-01-22

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