Development of rural "grass-roots" economy: the key to Aceh's long-term development and poverty reduction

As Aceh plans for and makes investments in macro-economic infrastructure to alleviate poverty in the long term, ongoing investments in rural grass-roots economy are needed to reduce poverty today.

1. With declining oil and gas revenues and limited prospects for quickly establishing an industrial base, agriculture and fisheries will remain critical sectors for Aceh's economic development after the Tsunami reconstruction comes to an end in 2009. Today, more than 70% of the population depend on natural resource based "livelihoods", mainly farming and fishing, while less than 20 % of Aceh's population live in Banda Aceh, Lhokseumawe, Langsa, Meulaboh and other "urban" centers. To prevent the likelihood of a return to localised conflicts, these rural families and their potential
2. Like in other development scenarios, the challenge of economics is to reconcile the two primary branches of the economics tree: macro and micro economics. Macro economists view economic development like a solar system. The heat from urban-based centers of development radiates prosperity for all. However, unlike the sun's rays passing easily through space, macro-economic benefits require costly infrastructure and time to reach the populations living in rural areas, far from the urban centers. Micro-economists focus on smaller economic centres such as local livelihoods units or clusters and micro enterprises. Although deprived of economies of scale and global market opportunities, these smaller economic units have the potential to provide the inputs for developing macro industries and have the distinct advantage that all, not just the urban populations, can participate today, not sometimes "besok", later. The macro economic model may not sit well within the new political landscape in which community driven grass-roots development is seen as the key for a prosperous and peaceful Aceh.
3. Before the tsunami, 1.2 million people (or 28% of the population in Aceh) were living below the poverty line. Since the tsunami, an additional 325,000 people have become vulnerable to fall below the poverty line. The majority of these poor live in the rural areas. It is a well-established fact that the poor often lack land resources, micro enterprise knowledge and access to micro-credit in order to increase income and climb out of poverty. Poor women are even more disadvantaged by present land tenure and predominantly male social cultures. The importance of Aceh's agriculture and fisheries over the short and medium term suggests that the strategy for both poverty reduction and economic development should place the rural populations at the center.
4. The current investments in Aceh in agriculture and fisheries, the sectors supporting more than 70% of the population in terms of livelihoods and also generating 25% of Aceh's GDP, are still low. Under the reconstruction program for Aceh and Nias lead by the Agency for the Rehabilitation and Reconstruction (BRR), only a small percentage (about 2%) of the domestically financed 2006 budget was allocated to agriculture. The Sustainable Economic Development Strategy for Aceh is a macro-economic approach. It is market-driven with significant roles assigned to the local government and the private sector. However this strategy is likely to benefit firstly the urban centers and their populations and lastly the rural poor. There is therefore a definite need for a complementary, community-based and market-driven livelihoods strategy to kick start economic development in the rural areas, so long isolated and eroded through years of conflict. No doubt, this rural focused micro-economic strategy also needs support and facilitation by both the local government and the private sector. Remaining Tsunami reconstruction funds available with BRR and their donor partners should be used to implement this livelihoods strategy. This would assist in improving the balance between the macro and micro development.
5. Progress has been made in restoring livelihoods in 2006 by BRR and reconstruction partners including, among others, ADB, IFC, FAO, UNDP, numerous NGOs and of course the communities themselves. To date, about 50,000 hectares of farming land have been rehabilitated and brought back into production through cash for work, community contracts, material support for seeds and fertilisers, and provision of agricultural equipment. In aquaculture around 6,800ha or 25% of damaged fish ponds and damaged fisheries infrastructure along the north-east and west coasts have been rehabilitated, although many ponds are not yet operating at pre-Tsunami levels. However there is still a long way to go before these local productive assets can be turned into sustainable sources of income for rural families. One of the larger donors, ADB is contributing over $100 million or more than 30% of its $294.5 million grant for the Earthquake and Tsunami Emergency Support Project (ETESP) to rural micro-economic livelihoods programs. These ETESP programs, which put the rural population first, are being implemented in 10 districts of Aceh through the Dinases and BRR. However major investments like these need an ongoing livelihoods strategy developed by local stakeholders that focuses on realising the potentials of Aceh and Nias valuable natural and human resources.
6. A common vision for these livelihoods programs has now been formulated with inputs from the local government, BRR and the concerned agencies. This vision is summarized as: "Profitable livelihoods clusters connected to markets and support services increase family incomes in agriculture, fisheries and non-farm enterprises. Connections centres ensure all families participate in their local community economy development " The basic principle is that livelihoods clusters increase product volumes and the quality required by the markets and will generate cash to pay for support services such as micro-finance and connections centres. Sub-district connections centres encourage rural producers to work together through local product associations and facilitate those families not able to participate in livelihoods clusters to develop alternative livelihoods. This integrated grassroots livelihoods strategy benefits local poor families and empowers communities to reduce poverty today, not tomorrow.

Written by: Richard Beresford