Report No. 24484-BR Brazil Piauí State Economic Memorandum Managing a Natural Inheritance July 31, 2003 Brazil Country Management Unit Poverty Reduction and Economic Management Sector Management Unit Latin America and the Caribbean Region Document of the World Bank CURRENCYEQUIVALENTS (R$/US$) Currency Unit -Real (R$) December 2000: R$1.96/US$ December 2001: R$2.65/US$ December 2002: R$3.53/US$ July 2003: R$2.90/US$ WEIGHTSAND MEASURES The Metric Systemis used throughout this report. FISCALYEAR January 1to December31 Vice President LCR: David de Ferranti DirectorLCCSC: Vinod Thomas DirectorLCSPR: Ernest0 May Lead Economist: Joachim von Amsberg SectorManager: MauricioCarrizosa Task Manager: Mark Roland Thomas ABBREVIATIONS AND ACRONYMS BNB Northeast Development Bank -Banco do Nordeste do Brasil BNDES National Development Bank - Banco Nacional de DesenvolvimentoEconSmico e Social CEASA-PI Centrais de Abastecimento do Piaui CENTEC Rural Technical College - Cole'gioProfssionalizante em Te'cnicas Rurais CODEVASFP Corpora@io de Desenvolvimento dos Vales do Rio S6o Francisco e do Parnaiba CPAC EMBRAPA Cerrados CPSFGV Centro de Pesquisas Sociais/Funda@o Getlilio Vargas CVT Technical Vocational College - Cole'gio Vocacional Te'cnico DFID Department for International Development (UK) DNER State Roads Department - Departamento Nacional de Estradas de Rodagem DNOCS Departamento Nacional para Obras Contra a Seca EMATER-PI State Rural Extension Agency - Empresa de Asist2ncia Te'cnica e Extens60 Rural do Piaui EMBRAPA Empresa Brasileira de PesquisaAgropecudria FA0 UNFoodandAgriculture Organization FPE Fundo de Participagio dos Estados FUNDEF Fundfor the Maintenance and Development of Basic Education - Fundo de Manutenpio e Desenvolvimento do Ensino Fundamental HDI HumanDevelopment Index IBGE Brazilian Institute for Geography and Statistics - Funda@io Instituto Brasileiro de Geografa e Estatistica ICMS Impost0 de Circulagio de Mercadorias e SewiCos IDB Inter-AmericanDevelopment Bank IFPRI InternationalFood Policy Research Institute INEP National Institute for Education Research - Instituto Nacional de Estudos e Pesquisas Educacionais PEA Applied Economic Research Institute - Instituto de Pesquisa EconSmicaAplicada ITERPI State Land Reform Agency -Instituto de Terrasdo Piaui LDB Lei de Diretrizes Bdsicas (Basic Education Law) LMA Legislagio sobre Meio Ambiente (Environment Law) LRF Fiscal Responsibility Law -Lei de Responsibilidade Fiscal MEC EducationMinistry NE osc Northeast Region Organized Civil Society PCPR Rural Poverty Reduction Project - Projeto para a Combate B Pobreza Rural PIEMTUR Piaui Tourist Board -Empresa Piauiense de Turismo PLANAP Parnafba Basin Action Plan - Plano de A@o para a Bacia do Parnaiba PLANFOR National Worker Training Program - Programa Nacional de Qualifica@io do Trabalhador PNAD National Household Survey - Pesquisa Nacional por Amostra de Domicilios PRODECER Projeto de Desenvolvimento dos Cerrados PRODETUR Programa de Desenvolvimento do Turismo PROURB Projeto de Desenvolvimento Urbano do Estado do Ceard PZEE 4 Programa de Zoneamento EconSmicoe Ecoldgico SAEB Basic Education Evaluation System - Sistema de Avaliapio da Educa$o Bdsica SE Southeast (of Piaui) SEBRAE Small Business Support Service - SewiGo Brasileiro de Apoio ds Micro e Pequenas Empresas SEMAR-PI State Environment and Water Resources Secretariat - Secretaria do Meio Ambiente e dos Recursos Hidricos do Piaui SENAI Industrial Training Service - SewiCo Nacional de Aprendizagem Industrial SENAC Comercial Training Service - SewiCo Nacional de Aprendizagem Comercial SENAR RuralTraining Service -SewiCoNacional deAprendizagem Rural STN sw National Treasury - Secretaria do TesouroNacional Southwest (of Piaui) SUDENE Northeast Development Agency - Superintend2ncia para o Desenvolvimento do Nordeste UFPI State Federal University - Universidade Federal do Piaui UN UnitedNations UNDP UNDevelopmentProgram UNESCO United Nations Educational, Scientific and Cultural Organization ZAA ZoneamentoAgricola e Ambiental ZEE Zoneamento EconSmico e Ecoldgico c July 31. 2003 Tableof Contents 1. Context andFramework .............................................................................................. 1 Preface ............................................................................................................................. The State of Piaui............................................................................................................. 3 1 Why I s PiauiSo Poor?..................................................................................................... 9 TheFramework for this Report ..................................................................................... 14 2. Roadmap ........................................................................................................................ 17 Definition andMotivation ............................................................................................. Socially andEnvironmentally SustainableDevelopment inthe Cerrados................19 19 Existing Social andEconomic Patterns......................................................................... Physical Characteristics, Climate, andAgricultural Potential....................................... 21 23 The MainIssues............................................................................................................. 24 The Role of the State Some LessonsLearned.................................................................................................. ..................................................................................................... 26 Options........................................................................................................................... 3128 3. AnReducingVulnerability through Rural Productivity inthe Semi-AridSoutheast.....35 Introduction to Semi-Arid SoutheasternPiaui......................................................... 35 Physical Characteristics,Climate, and Agricultural Potential....................................... Existing Social andEconomic Patterns......................................................................... 38 39 TheMainIssues............................................................................................................. 42 A Changeof Emphasis.................................................................................................. 43 45 4.Distinguishing Options........................................................................................................................... Urbanization andResourceUse inthe North and the Littoral................................... 47 47 ManagedUrbanGrowth................................................................................................ The MainIssues............................................................................................................. Features of Northern Piaui.................................................................... 50 ManagedProtection of the CoastalEnvironment.......................................................... 51 55 Tourism.......................................................................................................................... Small-Scale Agriculture................................................................................................. 59 61 ShrimpFarming............................................................................................................. 66 69 5.Options........................................................................................................................... 73 Piaui's Overriding Challenges....................................................................................... Cross-Cutting Institutional Themes for the Whole State........................................... Focusing on Productivity ............................................................................................... 73 73 Education....................................................................................................................... 78 The Participation of the Poor inPublic Decisions......................................................... 74 6.FiscalDevelopment Strategyfor Piaui............................................................................. Managementand Investment by the State .......................................................... 85 A.A Raising the Profile of Natural ResourceManagement.......................................... 91 B. StrengtheningPiauienseGovernmentInstitutions................................................. 91 92 D Recognizing HumanCapital as aKey Constraint ................................................. C. Focusing Infrastructure aroundStrategic Goals .................................................... . 92 93 E. F. BuildingPublic Participation................................................................................. ReengineeringPublic Spending............................................................................. 93 Priorities. Costs. Timing................................................................................................ 94 94 Bibliography .................................................................................................................. Coda............................................................................................................................... 96 97 Acknowledgments This report was managed by Mark Roland Thomas, Economic Policy Unit, Latin America and the Caribbean. It was prepared under the managerial supervision of Vinod Thomas (Country Director), Ernest0 May (Sector Director), Joachim von Amsberg (Lead Economist) and Mauricio Carrizosa (Sector Manager). The report i s the work of a World Bank team consisting of Wendy Cunningham, Enrique Hennings, Nancy Lozano, Emflio Marques, Ivo Marzall, Mark Thomas, JosC Simas, and Elmar Wagner. Civil society consultations in Teresina were organized and executed by a DFID team managed by Sue Fleming and consisting of Sue Fleming, Giraldo Marinho, RubCnPecchio, Jerry Silverman, and Carlos Aparecido Fernandes. We would also like to thank the civil society participants in the Teresina workshop, too numerous to mention. Information on the PCPR was supplied by Tdlio Barbosa and Ed Bresnyan. We would also like to thank additional participants at a workshop in Brasflia: Jacques Cellier and ZezC Weiss. The report also benefited from the constructive suggestions of Eleoterio Codato, Indermit Gill, Aymeric-Albin Meyer, and Joachim von Amsberg. Peer reviewers were Robert Schneider, Deepak Bhattasali, and Gobind Nankani. Support from the Government of Piaui was outstanding and involved too many people to mention by name. We owe special thanks to Secretary CCzar Fortes and Adolfo Modes. We thank the municipalities and prefeiturus of Parnafba, Luis Correia, Urupi, Cristino Castro, Corrente, S2io Raimundo Nonato, and Oeiras for their hospitality. Crucially, the report would not have been possible in its current form without the extraordinary support of Secretary Felipe Mendes. Finally, under the new government that took office in January 2003, the final version of the report benefited from insightful input from Secretary Merlong Solano Nogueira, Washington Bonfim, SCrgio Miranda, and the careful commentary of Professor Francisco de Assis Veloso of the Federal University of Piaui. Piaui 2002 State EconomicMemorandum Contextand Framework 1.1 This report represents a snapshot of a dialogue between the State of Piauiandthe World Bank. This dialogue i s not standing still, and - despite our best efforts - this document cannot capture its evolving nature. It i s a conversation that has involved not only the State Government but also a large number of municipal governments, as well as the citizenry, boththrough informal conversations and formal consultation. 1.2 The audience for the report i s primarily the State Government of Piaui. The report therefore focuses on the strategies and actions the State Government may wish to adopt. Indeed, one o f the main messagesof the report concerns the role of the State Government inleadingPiaui's development. The report urges an increasingly enabling role for the State Government, as opposed to one in which the State Government tries to select the specific economic activities that offer the greatest development potential. This represents a change of philosophy from the past. The report also urges broader modes of consultation andparticipation inpublic decision-making. 1.3 Since October 2002 was a month of gubernatorial elections across Brazil, the immediate aim of the report itself has been to provide the new State Government, which took office inJanuary 2003, with a useful input into its strategic planning for the next four to eight years. But this does not imply that the horizon of the report i s limited to this timeframe, since, in order to set short-run priorities, a longer-term vision i s often a precondition. 1.4 A narrower aimis to further the institutional partnerships of the World Bank in the State of Piaui. Of these the main one i s with the State Government, but Piaui's development also relies on municipal institutions, organized civil society, and other international lenders and donors (of which the UK Department for International Development -DFID-played a key supporting role inthe creation of this report). 1.5 The bases of the Bank's partnership with the State of Piaui are strategic planning and knowledge management. B y providing a strategic framework (either financial or non- financial), within which the State may articulate its program of policies and investments, the Bank attempts to provide consistency and long-term commitment to the development process inthe state. And by communicating international experience through policy options, the Bank aims to increase the success of Piauiense public management. 1.6 The Bank remains committed to supporting Piaui, and i s likely to remain active in the State, through lending and non-lending services. This report represents part of the Bank's undertaking to seek further ways to support poverty reductioninBrazil's poorest states. As such, the diagnostics of the report represent the Bank's understanding of the context within which any further activities are envisaged. However, it i s important to note that no future Bank loans or advisory work are discussed or recommended inthis report. 1 Piaui2002 StateEconomicMemorandum Context and Framework 2 Piaui 2002 State EconomicMemorandum Contextand Framework 1.7 Piaui is a rich state. Particularly incomparisonwith its neighbors inBrazil's Northeast (NE) Region, Piauihas an abundance of natural resources, water, and land. Piauicontains more than 3 millionhectares of fertile, flat land viable for high-value agriculture. Incontrast with the rest of the NE (with the exception of Maranhiio, which has a certain amount incommon with Piauf), most of the state receives adequate rainfall for rain-fed agriculture. And Piaui possessesmore than half the entire underground water resources of NEBrazil. The southeast of the state contains significant mineral resources, notably deposits of lime, gypsum, phosphate, and semi-precious stones. Piauii s also blessed with unique ecological diversity and archeologicalheritage. The Parnaiba Delta, which divides Piaui from Maranhgo at the coast, as the only open-sea delta inthe America, i s a unique ecosystem of great biodiversity and natural beauty. The National Park of the Serra da Capivaraboasts the oldest knownhumanremains inthe Americas, as well as prehistoric rock drawings that have gained it the designation of a UNESCO World Heritage Site. 1.8 The statements inthe previous paragraph may not ring with familiarity to many readers outside Piaui itself. Piauihas among the worst social indices among Brazilian States. On income measures, even admitting some issues of how to measure rural poverty inBrazil (see next section), Piauiappearsto be Brazil's thirdpoorest state by poverty headcount ratio, and when one takes into account more sophisticated measures, Piaui appears to have some of the deepest poverty inBrazil. Fiess and Verner (2001)report that in 1999Piauihadthe highest poverty gap, measured as aproportion of total state income, of any of Brazil's states. Lookingat the squared poverty gap, a measure which weights the welfare of those furthest below the poverty line more highly than those close to the poverty line, Piaui falls even further behind the other states: Piaui's squared poverty gap in 1999was nearly40 percent greater than that of Bahia, for example. 1.9 There are several issues of measurement that hinder comparison of income across diverse entities like states, but Piaui also exhibits Brazil's worst educational indicators, and here it i s easier to have faith in statistics. Male household heads have an average of 3.2 years of education inPiaui, as compared with 3.4 inMaranhiio and 3.8 inthe NE How PiauiCompareson Income, ine uali~y,and Poverty ( ~ 9 9 8 - 2 ~ ~ ~ ~ razil 169.6 5,648 0.60 27.7% 10.8% 7.5% Northeast 47.7 2,603 0.62 52.3% 21.2% 13.8% Piaui 2.8 1,624 0.60 59.8% 26.4% 17.7% MaranhSo 5.6 1,348 0.58 60.1`/o 24.2% 14.9% Ceara 7.4 2.684 0.62 54.5% 22.7% 15.2% Bahia 13.1 3,014 0.61 51.0% 19.8% 12.8% ~ ~ ~ ~ 7.9~ ~ 3,296 u b ~ 0.62o 49.4% 20.0% 13.4% Sources: Population, IBGE 2000; Income, IBGE 1998;Inequality and Poverty, PNAD 1999. 3 Piaui 2002 StateEconomicMemorandum Context and Framework taken as a whole. The picture i s similar if one looks at illiteracy: rates inPiaui are 23 percent higher than the NE average for males and 26 percent higher for females. A male household head inPiaui i s nearly 3 times more likely to be illiterate than his counterpart elsewhere inBrazil. For these reasons, this report will recommendheightened attention to education inPiaui, and will suggest ways inwhich the state may develop specific policies that reflect the uniqueness of its situation. 1.10 Piauihas better health indicators than one might expect, given the discussion of the previous two paragraphs. Nonetheless, health indicators do broadly reflect Piaui's low-income status within Brazil. Life expectancy inmany municipalities inits poorer partsdoes not exceed the range of 55 to 57 years. Runningwater and sanitation are an important input into such health outcomes. Here again Piaui's indicators are broadly in line with its income ranking within Brazil. According to the 1999 PNAD (Brazil's annual household survey fielded by IBGE, the national geographical and statistical institute), 41 percent of piauienses have runningwater in at least one room of their house, a proportion higher than Maranhzo (28 percent) but lower than the other NE states (which vary between 48 and 71percent). Taking these health, education, and income indicators collectively, in 2000 Piauihadthe second lowest UNhuman development index (0.547) among Brazilian states (average 0.723), the lowest being for Maranhzo. How Piaui~ oon Health and E ~ ~ ~ r ~ ~ Brazil 36.1 49.8 13.8 13.8 5.5 5.7 NE 57.9 38.8 29.9 25.3 3.8 4.5 Piaui 51.3 30.7 36.7 31.9 3.2 4.0 Maranhiio 60.3 30.8 32.6 26.8 3.4 4.1 Ceara 55.4 32.9 34.3 25.3 3.8 4.5 Bahia 50.4 40.2 25.3 24.4 3.8 4.3 ~ ~ ~ n a ~ ~ 61.8c o u 42.7 25.7 23.2 4.3 5.0 Source: IBGE Social Indicators, 1999. 4 Piaui 2002 StateEconomicMemorandum Context and Framework Piaui lies on Brazil's northern coast in the country's Northeast (NE) region, at the point of transition between the semiarid sertlio to its east in Cear6, Pernambuco, and Bahia, and the more humid cerrado to its south and west in Tocantins and Maranhilo, a zone that gradually gives way in the west to the Amazon basin. With 2.8 million inhabitants, Piaui exceeds only Ser ipe, Rio Grande do Norte, and Alagoas in population among the nine NE states. At 250 thousand km ,Piaui is slightly larger than the P UKor about the size of Oregon, and its population density is the lowest of Brazil's NEstates (about 11 inhabitants per km'). Piaui i s perhaps best known for being Brazil's poorest state, although by per-capita income measures it no longer deserves this tag, since overtaking its neighbor MaranhBo during the 1980s. Yet Piauiremains extremely poor, with annual per-capita income in2001 of about R$1,750 (about $600). I t i s also very unequal in its income distribution: in 2001 it ranked fifth among Brazilian states for income inequality behind Acre, Pernambuco, Cear6, and Alagoas. These factors conspire to give Piauipossibly the deepest poverty problem of any of the Brazilian states. In 2001 only Maranhilo and Alagoas had higher poverty headcount ratios than Piaui, but the poverty gap and other measures sensitive to the depthof poverty place Piaui at the bottomof the league. Piaui's performance on social indicators is better for health than for education. Education indicators are broadly as its income level would lead one to expect: Piaui has the lowest literacy rate among males and females aged over 15 of any Brazilian state, for instance. On the other hand, some health indicators belie Piaui's low ranking on income and poverty: its infant mortality rates are bettered inthe NEonly by Bahia. Despite its poverty, Piaui i s endowed with greater natural resources than its NE neighbors to the east. The foremost of these resources i s water, and here Piaui has three advantages. First, rainfall in the west of the state exceeds 1000" per year, as compared with rainfall between 400" and 800" in much of the semiarid NE, insufficient for large-scale agriculture. Second, in the south of the state, Piaui's geological structure causes it to accumulate large quantities of underground water, creating a possible source of irrigation. Technological progress during the 1970s and 1980s has rendered the farming of grains such as wheat and soy viable on the acidic cerrado soil, attested to by agro-industrial development elsewhere in Brazil (e.g., Mato Grosso, GoiBs, Tocantins, MaranhBo, and Bahia). Third, on the western edge of the state runs the large Parnaiba River. This river i s not navigable past Guadalupe, and this may remain the case, but as it widens into the Parnaiba Delta towards the coast it provides a tourist attraction, a unique ecosystem, and large amounts of fresh water. Piaui i s classified into four meso-regions (and 14 micro-regions) by the Brazilian Geographical and Statistical Institute IBGE for planning and statistical purposes: the North (Littoral, Lower Parnaiba), the Center-North (Campo Maior, MBdio-Parnaiba, Teresina, Valega), the Southeast (AltomBdio-Canind6, Picos, Pi0 IX), and the Southwest (AltomBdio-GurguBia, Alto-Parnaiba, Bertolinia, Floriano, SBo Raimundo Nonato). The North contains 20 percent of the state's population and includes the Parnaiba Delta, the city of Parnaiba (132,000, second in the state), and the coastal port of Luis Correia, only suitable for small craft. The Center-North contains 49 percent o f the population, more than half of whom live in the state capital Teresina (715,000). The Southeast is mainly sertlio (more commonly known as the semi-drido in Piaui) and is home to 15 percent of the population. Its main urban center i s Picos (69,000). The Southwest contains the remaining 16percent of the population and comprises the cerrado and transitional land between the sert6o and the true cerrado.Its main urban center i s Floriano (55,000) on the Parnaiba River upstream from Teresina. 5 Piaui 2002 State EconomicMemorandum Contextand Framework 1.11 How can one reconcilethese two Piauis, one richthat is rich innaturalresources, the other so poor inphysical and humanresources? The answer woven throughout this report contains four threads. The economy of Piaui i s essentially one based on agriculture, yet Piauiense agricultural productivity remains extremely low. 0 Piaui's management of its natural resources, inparticular land and water, has led to their inefficient use. 0 Infrastructure inPiaui lags other states inBrazil. Decisions over public expenditure, and inparticular investments, have often been made on the grounds of clientelistic relations between governments and voters (clientelismo) rather than dispassionate and transparent considerations of welfare or productivity. Anti-poverty programs have often been viewed by governments and their recipients as solutions inthemselves, rather than means to invest inlonger-term solutions to poverty (assistencialismo). 1.12 None of these four threads will appear unfamiliar to readers who know Brazil's NE,but their constellationinPiauiis unique andtherefore requires auniqueblendof measures to fulfill the state's economic and social potential. That blend i s our topic. 1.13 The State Government does not, of course, orchestrate the conditions for Piauiense development alone, and inparticular its actions should be considered inthe light of bothfederal andmunicipal roles. What should be the mainrole of the State Government inthis context?First, it i s worthy of mention that most social transfer programs inPiaui, as inBrazil, come from federal funds and are implementedby municipal governments. This i s true of transfers such as the bolsa escola and cesta bdsica programs, and it i s true of much spending inhealth and education (with secondary education being State responsibility). The state does run assistance programs, such as free restaurants and support to adolescents. But if one examines State expenditures, as i s done inChapter 5, then onbalance two mainroles of the state underthe present arrangements become apparent: To provide the regulatory and enabling environment for private-sector allocative decisions, 0 To provide productivepublic investments. The main focus of this report will be on these two roles of the State Government (and, where possible by extension, of the municipal governments). With such highpoverty indices, significant poverty reduction i s not imaginable inthe state without productivity growth. 6 Piatri 2002 StateEconomicMemorandtrm Context and Framework 1.14 Economic growth does not guarantee poverty reduction, however, so it i s important to establish the further conditions that are necessary to combat Piaui's poverty. One condition that (almost by definition) guarantees that growth reduces poverty i s that the economic growth itself bepro-poor. The usual definition of pro-poor growth i s that the incomes of the poor grow at least as fast as average income. But what factors leadto pro-poor growth? Evidence from Brazil (and specifically from the NE) suggeststwo main factors: (1) increased enrollment inmiddle school (segundociclo do ensino bdsico) and secondary education (segundograu) and (2) provision of basic infrastructure to poor areas, such as sewerage and electricity. Internationalevidence suggests a thirdfactor that i s relevant for Piaui: (3) increases inagricultural productivity. This hypothesis i s supported by recent work within Brazilby the economist RegisBonelli (2001). 1.15 A second way to turneconomic growth into poverty reductionis through direct income redistribution. Transfer programs do not have a strong record inPiaui and the NE more generally, although the rural pension and the bolsa escola do seem to be having significant impact. Butperhaps a more fundamental obstacle here i s the scarcity of resources of the State Government. Freeing sufficient resources to implement significant new transfer programs (or investment) would require deep administrative reform at the state level. Modernization of the State i s therefore a central element of a comprehensive reform program for poverty reduction inPiaui. On this topic, the present report offers strategic directions, but a detailed assessment of its components, such as State civil service reform, i s beyond our scope. The report does not, therefore, recommend the adoption of large new transfer programs on the part of the State Government, but rather, to the extent possible, the widening of existing programs subject to their positive evaluation, and the reduction of the scope for these programs to be applied in arbitrary clientelistic ways that reduce the poverty reduction impact of the transfers.' 1.16 The elements of the report, therefore, are policies and investments to promote pro- poor, primarily (though not exclusively) rural, economic growth inPiaui. The Piauiense themes that will runthrough our answers to this question are easy to enumerate: Clear ground rules for the sustainable use of Piaui's natural resources. For privately- owned resources, this implies the establishment and enforcement of clear ownership and/or usage rightsto water and land. For commonly owned assets (e.g., biodiversity, inmany cases water resources) this implies the establishment and enforcement of patterns of use through zoning and other public regulations. The establishment of ownership and usage rights needs to be done inways that protect the interests of and give voice to the most vulnerable in society. This requires wide consultation inthe development of these systems, but inturn this provides the State with the opportunity of a policy interventionthat i s highlypro-poor. 0 Heightened efforts to reform state expenditures away from "consumption" (i.e., mainlythe State payroll) to provide increased space for investment spending. 1The report was prepared before the launch in Piauiof the Federal "Fome Zero" initiative, which i s therefore not considered in the text. 7 Piaui 2002 StateEconomicMemorandum Contextand Framework Careful priorities ininvestments. Inthe present environment o f fiscal prudence and debt management embodied for example inthe Fiscal Responsibility Law and the Lei Kandir, Piauihas a very limited investment budget. At the same time, its needs in terms of public infrastructure and social investments are clearly pressing. The only solution i s reform of state finances accompanied by a very clear articulation of investment priorities according to a well-defined strategy for pro-poor growth. 0 Increasedtransparency through public participation indecisions over policies and investments. With investment resources scarce and the role of the state evolving towards the provider of rights and the setter of ground rules, the rationale for decisions that affect the poor needs to be clear, and the poor must be provided with a voice in such decisions wherever this i s technically possible. This entails buildingup consultative processes inthe State (such processes are already present inincreasing numbers) with both organized civil society (OCS) and un-mobilized groups of interested parties. Increasedemphasis on education as the main driver of pro-poor growth, and the linking of educational reforms to the specificities of Piaui. Inparticular, agricultural productivity should be the object of more focused attention ineducational policy. New modes of technical assistance and rural extension are needed where old models have failed to provide sustained results. These, then, are our themes. Inthe next section, we briefly discuss what makes Piaui and its western neighbor Maranhiio poorer than other NE states. The section after that turns to the framework within which the above themes are developed into more specific options for public policies. 8 Piaui 2002 StateEconomicMemorandum Contextand Framework Income Poverty 1.17 Both Piaui andMaranhiio receive more rainfall than the other NE states, and therefore their rural populations do not face as harsh subsistence conditions as inhabitants of the serta'o in, say, Pernambuco or Ceariito their east. So why do Piaui and Maranhiio consistently appear poorer ineconomic and social analyses? 1.18 The poverty rate ina state is, by definition, the weighted sumof its urban and rural poverty rates, with the weighting being determinedby the degree of urbanization in the state. Since urban areas exhibit lower poverty rates inNEBrazil, this means that the poverty rate (P)i s an increasing function of urban and rural poverty (Puand P,), and a decreasing function of the degree of urbanization (u): P = u. P,+ (l-u).Pr We use this relationship to examine the differences between Piaui (PI), Maranhiio (MA), Cearii (CE), Bahia (BA), and Pernambuco (PE). Using PNADdata from 1999 and the poverty line usedinrecent World Bank work (1997R$65; see World Bank, 1999), it turns out that Pernambuco has the lowest poverty rate of these five, at about 49 percent. MA 60.1% 3.9 28% 61.4 PE 49.4% 4.8 71% 61.5 1.19 We ran simple simulations to see what poverty rates would be inthe other four states if they had (a) the same urban-rural composition as Pernambuco (the most urbanized, usingthe narrowest definition of urban inthe PNAD), (b) the same level of urban poverty as Pernambuco, and (c) the same level of rural poverty as Pernambuco. In this way, for each of Piaui, Maranhiio, CeariiandBahia, we may decompose its excess poverty over Pernambuco into these three components. MA 0.44 0.529 0.656 PE 0.76 0.432 0.686 9 Piaui 2002 StateEconomicMemorandum Contextand Framework 1.20 The results are interesting. Inthe case of Piaui, its excess poverty is explained almost entirely b y urban-rural composition and the urban poverty rate. Piaui's rural poverty, though apparently more severe than its urban poverty, i s not significantly different from the rural poverty inits neighbors Cear6 and Pernambuco. Maranhgo i s an even more extreme case than Pernambuco: its rural poverty i s the second lowest inthe group, similar to Bahia's, and its excess poverty i s entirely explained by the composition effect and excess poverty in its urban areas (notably Si30 Luis). Con~ribution~ur an-rural ~ompo~ition, an pov~r~y,and ruraf poverty of ur to the poverty~ ~ f ~ e r e nwith ~ t i a respectto ~ ~ ~ n ~ m b u c o 8.0 7.0 6.0 5.0 CI 4.0 p" 3.0 2 2.0 1.o 0.0 -1.o Composition Urban 0 Rural Public Services 1.21 The same exercise can be performed for any other social indicators. The picture for education, for instance, i s extremely similar to that for poverty. Differences in access to runningwater, on the other hand, are mostly explained by urban variations inaccess. ~ o ~ t r ~ ~of~~~r ~i aonn- r§uc~oa~lt p ~ § ~ turban levels,and rural levels i ~ n , to other d ~ ~ f e ~ ~ nwitharess ect to ~ ~ r ~ ~ ~ b u c o ~ l Education RunningWater Access 0 8 40 0 0 7 35 0 0 6 30 0 0 5 25 0 5 iL, 0 4 0 3 5 200 0 2 150 0 1 100 0 0 5 0 -0 1 BA 0 0 -0 2 5 0 MA CE BA 0Compositionf3Urban0 Rural Composition Urban 0 Rural 10 Piaui 2002 StateEconomicMemorandum ContextandFramework 1.22 Inthe case of Piaui, we conclude that the state's ruralindicators are not the main cause of its poor comparison with other NE states inBrazil. Rather, Piaui's economy i s simply more rural, and this probably also explains a part of the higher urban poverty rate and other social indicators. Life Expectancy as an Indicator of Welfare 1.23 Finally, an issue not treated by the analysis so far, but discussed by other authors (see, for example, Elbers et al, 2002), i s to what extent rural poverty i s overstated by unreported income, such as non-monetary remuneration for farm labor, on farm consumption, etc. By comparing consumptionwith income inrural and urban areas, Elbers et al estimate that these effects may explain a significant part o f the differences between urban and rural poverty rates inBrazil, but the subject i s still one that i s open to much doubt anddiscussion. 1.24 Our approach to this question i s to consider life expectancy as an indicator of underlying welfare. UNDP and IBGEhave calculated life expectancy figures by municipality, andthis allows us to reproduce the above analysis for this index. We expect life expectancy to reflect the quality of health care, but also to reflect underlying individual welfare determinants such as nutrition, consumption level, and so forth. M A 0.20 63.9 60.8 CE 0.28 63.9 60.1 BA 0.21 64.7 60.5 PE 0.30 65.9 59.6 1.25 Itis noticeable that life expectancy varies less between states-from 60.9 inPiaui to 61.5 inPernambuco-than many indicators of income or public services. More significant, life expectancy varies less across the rural areas of the five states than across their urban areas (see chart on next page). The spread of urban life expectancies covers a range of 2.0 years, the equivalent rural spread i s 1.2 years. Here our definition of urban has changed from the standard IBGEPNADdefinition: we defined municipalities above 250 000 inhabitants as urban, the rest as rural (the results are not particularly sensitive to this cut-off value). Moreover, incomparingPiauiwith Pernambuco, which has the highest life expectancy of the five, most of the difference i s owing to composition. If,in very ruralstates with a highproportion of subsistence activities, life expectancy i s a better indicator of underlyingwelfare than reportedmonetary income, then (a) Piaui's rural areas are not significantly different from those inCeariior Pernambuco, (b) differences in average welfare between states owe more to states' differing degrees of urbanization than within-urban or within-rural welfare differences between states, and (c) therefore, it i s no longer clear that Piaui deserves its reputation of a lagging state within NEBrazil. 11 Piaui 2002 StateEconomicMemorandum Context andFramework ~ ~ ~ t r i ~ uof~urbnns- r ~ rcoi~posit~Qn, t o ~ l ur ectancy,and rural ~ i ~ e ~ e x to the ~ife-expecta~cy~ f f e r ~ nwitharespect to ~ ~ r n a ~ b ~ c Q ~ t ~ l 1.26 Ifincome and social differences betweenstates depend more onurbanization and urban differences than on rural differences, does this imply that Piaui should simply try to urbanize, focusing resources on its urban spaces, in order to resemble more closely its somewhat richer neighbors? Our answer i s no. First, we hypothesize that part of the correlation between urbanization and measured income reflects poorly measured rural welfare, and i s inthis sense not a "real" phenomenon. Second, even admitting real differences between urban and rural welfare, the argument we have presented i s that Piaui's social indicators need to be understood in the context of its lower degree of urbanization. However, urbanizationmay be a cause or an effect of development. Inone interpretation, urban growth equates with development, bringingimprovements in welfare through economies of scale (so-called "agglomeration effects") and access to services. But in another interpretation- the one we prefer for Piaui-urbanization i s largely determinedby historical and geographical accident, and should not be considered a "policy lever." 1.27 Urbanizationi s an incipient phenomenon inPiaui. Teresina differs from larger metropolitan areas inNEBrazil inthat its periphery i s still significantly agricultural. Anecdotal evidence suggests that some of the recent construction boom inTeresina has also been financed by agricultural income from elsewhere inthe state, although increased conference- andbusiness-related travel, and the healthcare industry have also contributed. AndTeresina's economy dependsto a greater degree on the public sector than, say, the larger economies of Fortaleza, Recife, or Salvador. Inother words, a strategy focused on private-sector led urban development inPiaui would risk being irrelevant for the vast majority of Piauiense. Inthe next section we therefore turn to a framework that we consider more relevant. 12 Piaui 2002 State EconomicMemorandum ContextandFramework Box 2: The ~ i ~ t ooft r y To understand Piaui's present, it helps to know a little history. The first colonist recorded exploring the territory that is now Piaui was from SBo Paulo (the 17" century bandeirante Domingos Jorge Velho, responsible for naming the Parnaiba River after his home town). But cattle ranchers from what was then the Province of Bahia (to which Piaui belonged until 1715), later drove the colonization of the territory. Perhaps most notable among these was Domingos Afonso Mafrense, normally recognized as Piaui's first permanent settler, who established the settlement of Cabrob6, which would later become Oeiras. Piaui is thus unique among the NE states in that it was settled from the interior towards the coast. This accounts for its shape (with only 66km of coastline) and for the fact that it i s the only NE state with its capital in the interior. The state of Piaui is named after the River Piaui, which lies in the south of the state, and would have been one of the first rivers that the Baiano pioneers came across as they entered the new lands. (The etymological origin of the name comes from the Piau, a local freshwater fish, whose abundance led the indigenous locals to name the river Piagui, whence Piaui.) In 1715, the administration of Piaui passed from Bahia to MaranhBo, and in 1718 the Portuguese granted Piaui the status of Capitania, remaining administratively dependent on MaranhBo until 1811, when the Capitania was given its independence. During this period, the colonization of Piauicontinued to be driven by the cattle industry. In 1761, the capital of the Capitania de Sa'o Jodo do Piaui was designated as the town of Oeiras, in the southeast of the state. To this day, Oeiras boasts impressive colonial architecture and a very well kept town center. In 1822, Brazil declared its independence from Portugal and Piauijoined the movement, first declaring its independence on October 19 of that year (now State Day), later fighting the bloody Battle of Jenipapo against the Portuguese (March 13, 1823), near what is today the town of Campo Maior. In 1852, owing to difficulties of communication with the geographically isolated Oeiras, Piaui moved its capital to Vila do Poty on the Parnaiba River, and renamed the new capital Teresina, after then Empress of Brazil, Dona Maria Teresa Cristina, wife of Dom Pedro 11. In 1889, Piaui became a State of the Federative Republic of Brazil. Piaui's coastal territory dates only from 1880. Reflecting the economic need for sea access, Piauinegotiated an exchange of lands with CearB. Ceding the municipalities of Imperial (today Crateds, CearB) and Independbncia, Piaui received in return the territory o f AmarraGBo, which today comprises several municipalities along the coast, most notably the small port of Luis Correia. This isjust Piaui's recent past. Archeological excavation at the National Park of the Serra da Capivarahas unearthed the oldest human remains in the Americas, dated at about 50,000 years. Apart from their obvious inherent interest, these remains have altered current thinking about the paths taken by the first migrants to the American continent from Asia, questioning whether the first migratory flows were, as previously thought, across the Bering Strait to North America. At the time of the discovery of Brazil, the indigenous populations inhabiting Piaui are thought to have included the Tupi, Tapuia, and Caraiba tribes. Today Piaui is one of Brazil's only states without any indigenous reserve lands. Sources: PiauiHome Page (www.piauihp.com.br), Parque Nacional da Serra da Capivara. 13 Piaui2002 StateEconomicMemorandum Context and Framework 1.28 It i s thus important to start from the observation that Piauiis an essentially agricultural economy. IBGEreports that from 1995 to 1998 only about a tenth of the Piauiense economy was agriculture, but this figure vastly understates the dependency of the economy on agricultural productivity, since much of the rural economy is non- monetary, and many off-farm activities are essentially dependent on agriculture. Piaui shares its agricultural nature with most of the NE, but has the potential to raise its agricultural share to resemble more closely Maranhilo to the west than Cearh to the east (see chart below). While other sectors such as transformation industries andbusiness services appear important inIBGE's statistics, what these numbers fail to show i s the dependence of almost all other sectors on output fluctuations inagriculture. Any casual observer visiting Piaui realizes that the economy i s inthis sense driven by the primary sector. (There i s some hope in the state for tourism to play a greater future role inthe economy, a sector we discuss on its own merits inChapter 4, but which nonetheless remains small at the time of writing.) 1.29 Itshouldbenotedthat this is not to deny the urbanizing trend inthe state, nor that the economies of Teresina and some of the larger secondary cities, such as Parnafba and Picos, are important far beyondtheir links to the countryside. Most important inthis regard, the State Government of course needs to implement urbanpolicies for economic growth as well as rurally-focused strategies. These are touched upon below and dealt with at greater length inthe section on Teresina inchapter 4. But Piaui's growth strategy should build on the state's strengths: these are mainly natural resource-related. 1.30 IfPiauiis first andforemost arural economy, it is also tropical and, almost, landlocked. One strand o f empirical economic literature, most commonly exemplified by the work of the Harvard economist Jeffrey Sachs (1995, 1997,2001), suggests that these three characteristics alone have widely undermined economic development of poor regions the world over. The economic historianDavid Landes went further inhis influential book "The Wealth and Poverty of Nations," and added culture to the list of historically determined obstacles faced by tropical nations and states. How should a government inthe State of Piaui interpret such unconditional pessimism? MA 14 Piaui 2002 StateEconomicMemorandum Context and Framework 1.31 More recent work has questioned whether geography and natural endowments directly determine economic outcomes, as Sachs and Landes have proposed, or whether these factors work through institutions. Easterly and Levine (2002) argue usingWorld Bank data that geography and climate do not matter once institutional quality i s controlledfor (though they do affect institutional quality itself). Furthermore, technological advances may make the future look less deterministic than the past inthis respect. To quote the Berkeley economist Barry Eichengreen (1998) in his review in Foreign Afjrairs of Landes' book: "One wonders whether the tyranny of geography has been weakened by technological change, be it in the form of drought-resistant seeds that make farming possible in arid climates, air conditioners that make it tolerable to work in a factory in Atlanta, or containers that render shipping to far-flung lands economical. One wonders similarly whether cultural inheritance has been rendered increasingly irrelevant by the revolution in communications that has brought VCRs and satellite dishes to the most remote Indian villages and, with them, the homogenizing influence of the mass media. If so, perhaps all that are left to determine the capacity for growth are the government's economic policies, specifically toward money, trade, property rights, and education. " 1.32 It i s strikinghow applicable Eichengreen's commentary is to Piauitoday. This report will argue for such an approach. Piaui's natural disadvantages - its relative isolation, the poverty of the region inwhich it finds itself, its low human and physical capital - may be overcome. Its natural advantages - water, abundant land, and the sunny disposition of its climate and its people -may be mobilized. But both outcomes will depend on the buildingup of its institutions, inparticular government and its relationship with society. Institutions are hard to change, but experience within and outside Brazil allows for such an approach of conditional optimism. 1.33 To foreshadow our conclusions, Piaui's challenge i s thus to build institutions that address its weaknesses and exploit its strengths. Addressing weaknesses implies continuing with efforts to improve education, raising productivity in small-scale agriculture, increasing public participation ingovernment decisions, and enhancing the administration of taxation and spending. Exploiting strengths implies fortifying the management of land, water, and natural resources, carefully selecting strategic infrastructure investments, and recognizing and taking strategic decisions to "get ahead of the environmentalfrontier" in several partsof the state. 1.34 Starting from the primacy of agriculture as a driver of the Piauiense economy, natural endowments divide the state into (at least) three distinct regions: the North, the semi-arid Southeast, and the Southwest cerrados. The north i s more densely populated, mostly flat, and receives sufficient rainfall to sustain rain-fed agriculture with permanent rivers and occasional flooding from the Parnaiia River, although its soils are of inconsistent fertility. The semi-arid region (sometimes called the sertlio, though less frequently inPiaui than elsewhere inthe NE) does not consistently receive sufficient rainfall for rain-fed agriculture, although incontrast to the rest of the NEsertlio, does 15 Piaui2002 StateEconomicMemorandum Context andFramework have large underwater reserves inthe majority of its area (inthose parts characterized b y sedimentary rather than crystalline geology). The cerrudo region consists of large plateaus (chupud6es)that give way via sudden precipices (cuestas) to river valleys (baixGes), where most of the population resides. It receives higher rainfall, enough for rain-fed agriculture, but i s a highly sensitive ecosystem, with highbiodiversity and susceptible to serious erosion at the edge of the highplateaus. These three regions are reflectedbroadly by IBGE's four meso-regions (meso-regilia), with the North region described above approximately comprising the Center-North meso-region plus the Littoral meso-region. More detailed discussion of our regional definitions i s left for the relevant chapters (2-4). 1.35 As should be clear from the preceding description, Piaui's regions therefore present varying potential for economic growth and varying obstacles to be overcome. Although not the most populous, the Southwest region offers the highest growth potential over the next few years, although it combines this potential with the greatest pitfalls in terms of achievingthis growth sustainably, inboth the environmental and the social senses of the word. The southeast presents the most serious social problems, to which the answers lie inthe detailed implementation of a program of agricultural productivity and education reform. The north has the best social indicators and its growth and poverty reduction success will depend on buildingon this human capital, on agricultural productivity growth (as inthe Southeast though with the emphasis less on watershed management), the successful management of the urban growth around Teresina, and to some extent tourism development inconjunction with Maranhito and CearB. 1.36 These differences inturn suggest distinct investment priorities within each region, as well as a rationale for allocations of state investments betweenthe regions. The main investment priorities inthe Southwest (SW) are infrastructure, inorder of priority roads, dams to manage the flow of the GurguCia River, and then energy. But a precursor to sustainable development inthis region will be a full treatment of land ownership rights, and ajudicious zoning of permitted activities to quite a high degree of spatial detail. In the Southeast (SE), establishing and enforcing water rights should take first priority, with the main investment priority being energy. Inthe north, the main priorities will be ecological management of the coast (already underway with the launch of an ecological and economic zoning or "ZEE' for the coastal zone) and urban management investments inthe boththe smaller andlarger urbancenters, particularly sewerage. 1.37 This overview should not give the false impressionthat each region can be treated inisolation. There are important linksbetweenthe regions. For example, Southeast Piaui contains mineral deposits that could reduce agricultural costs inthe Southwest Piauiby significant amounts. Factors such as this should influence the state's choices over infrastructure priorities. Inparticular, linkingthe SW of the state with the SE and with Teresina holds the promise of high economic gains. 1.38 The spatial approach applies equally within each region. For example, anticipating and even encouraging economic agglomeration will be important inthe SW. Social programs have changed the dynamic of migration away from the small towns in Piaui, and this too implies choices over urban investments and the possibility of a rural 16 Piatli2002 State EconomicMemorandum Contextand Framework development strategy based around the upgrading of small towns, such as has been developed inCear6 under the PROURBinitiative (see box 15 in chapter 4). 1.39 The sumof these analyses within and between the regions of Piauiimplies the need for a spatial development strategy for the state, and this report represents a step in the development of such a strategy. Such a strategy takes account of the mobility of some factors (e.g., labor through migration, primary inputsthrough transport). For other factors whose mobility i s less easy, consideration of supply chains becomes necessary. And external effects of activities on others ingeographical proximity are also important. 1.40 At the request of government, andreflecting the discussion so far, this report views the development challenge of Piaui at a regionally disaggregated level. This implies taking an economic approach that explicitly considers the spatial dimension: demand externalities, environmentalexternalities, agglomeration effects, and local public goods such as infrastructure. 1.41 The report's structure mirrors the account so far. First,based on the relevant geographical traits of Piaui, come three chapters devoted to the geographical regions described above: Chapter 2 discusses the cerrados, Chapter 3 discusses the semi-arid southeastern region, Chapter 4 discusses the north of the state. At the end of each regional chapter, policy options are briefly listed as responses to the issues raised inthat chapter. These options are grouped together later inthe report (inChapter 6) with the Bank's suggestions of priorities, timescales, and approximate costs where possible. 1.42 Chapter 5 then turns to the cross-cutting institutional themes that our conditional optimism from the previous section suggests are most important. These themes are (a) the revisedrole of the State inPiaui, (b) fiscal aspects including taxation and spending, (c) options inthe key area of education, and (d) an outline of action planfor building participatory mechanisms for consultationbetween government and civil society. Chapter 6 provides a conclusion inthe form of a general framework of strategic options for poverty reduction inPiaui. 17 Piaui2002 StateEconomicMemorandum Context and Framework omy - Lessonsfrom l ~ dand~ i India and China are countries with much larger and much poorer populations than Brazil, and comparisons may not seem obvious. But both seen substantial declines inpoverty inrecent decades, with significant regional variation ineconomic growth and poverty reduction.. These variations give strong suggestions for policy. Relevant for Piaui, poverty reduction inthese two countries relies primarily on economic growth inrural areas, on and off farm, and therefore provides more useful policy lessons for Piauithan for many other Brazilian states. Recent research by the Institute for Food Policy Research (IFPRI) has analyzed public investments in Indian states and Chinese provinces from the 1960s to the 1990s. The analysis in both countries suggested that the most important public investments were in (1) agricultural research and development (R&D), (2) education, and (3) roads. A further finding was that irrigation investments in low-potential lands can bring equal or greater returns than similar investments inhigh-potential lands. Government investment in agricultural R&D increased agricultural productivity in both India and China by more than any of the other investment categories analyzed: education, electricity, health, irrigation, rural development, soil and water conservation, and telecommunications. Second most important were roads in India and education in china. Third were education in India and roads in China. The ordering changed when poverty reduction was analyzed rather than simply agricultural productivity growth. For India roads seemed to have the strongest poverty reduction effects in rural areas, while in China education was most important. Agricultural R&D was second most influential in both cases (see Table below). Rural Public Investments that Decrease Poverty by the Most India Poverty Reduction China Poverty Reduction Per million rupees Per IO0 000 yuan Roads 124 Education 90 Ag. R&D 85 Ag. R&D 70 Education 41 Roads 30 Investments in programs designed specifically to assist the poor generated either the smallest gain or a relatively low gain in poverty reduction. In China, loan programs intended to improve the conditions of the poor actually had the least impact on poverty of all the interventions analyzed. Similarly, in India, rural development and soil and water conservation schemes, intended primarily to create non-agricultural employment for rural workers, brought only minor reductions in the numbers of poor. These findings are from two countries that have actually been quite successful in bringing down poverty rates (particularly China), as has Piaui, and the results are reminiscent o f discussions of poverty programs in NE Brazil such as public works schemes and large-scale irrigation projects, which have had a poor record overall inreducing poverty. Finally, irrigation i s worthy of mention. Inboth China and India, much of the agricultural land under study was already well-irrigated by the early part of the period under study, and additional investments in the sector generated meager productivity returns. This is in contrast with Piaui, most of which has not been irrigated. The results from China and India suggested that the returns to irrigating mid-potential land were higher than for irrigating higher-quality land. These results should therefore not be read as evidence against efficient small-scale irrigation schemes in Piaui. The findings reported here will prove to bear a resemblance, perhaps a surprising one given the diversity between Piaui, India, and China, to the policy options arrived at by the end of this report. Source: IFPRI. 18 Piaui 2002 State EconomicMemorandam TheCerrados 2.1 Brazil's cerrados cover most of the Center-West region of the country and some of each of the other four regions (see map below). The term refers to the vegetation of the area, and can be translated as savannah. The cerrados consist of hightropical plains, with moderate rainfall, fertile but acidic soil, and vegetation varying from sparse or not-so- sparse scrub (cerrado limp0 and cerrado ralo) to dense forest (cerradlio).The cerrados form the second largest ecos stem inBrazil, after the Amazon. The cerrados piauiense covers an area of 93 500 km (or 9.4 million hectares), 38 percent of the area of Piaui. Y 2.2 The Piauiense cerrados have been cast as Brazil's last great agricultural frontier and as Piaui's potential passport out of poverty, both absolute poverty, and relative poverty within Brazil. This chapter, which draws its material from the research of Marzall and Wagner (Desenvolvimento e Agricultura Sustenta'vel nos Cerrados: Situa$io Atual, Potencial e Papel do Estado, 2002a, commissioned for this report), assesses the degree to which these hopes are realistic, and-to the extent that they are-what mustbe done by government, both to ensure economic success and to avoid damage. 2.3 One thingi s certain: agricultural development i s already well underway inthe region. Although the proportion if the landcleared and cultivated i s still small, there i s no mistakingthe trend. The area used for soy cultivation has been increasingat annual rates exceeding 50 percent over the past three years. Further migration i s plannedfrom state further south, especially Rio Grande do Sul. Although the dry weather of the first half of 2002 has dented some aspirations, these farmers have in general invested significantly andintendto continue. 19 Piaui 2002 StateEconomic Memorandum The Cerrados 2.4 For our purposes here we define the northern limit of the cerrados of Piauito be the eleven municipalities at the northern edge of the CanindC watershed (see map on next page): Floriano, NazarC do Piaui, Oeiras, Siio Joiio da Varjota, D o mExpedito Lopes, Santana do Piaui, Sussuapara, Bocaina, Santo Ant8nio de Lisboa, Francisco Santos, and Pi0 E.Its eastern limit we define to be the 800" isohyet (contour linejoining points of the map with equal annual rainfall), implying the nine municipalities of Floriano, Itaueira, Canavieira, EliseuMartins,Coldnia do GurguCia, Alvorada do GurguCia, Cristino Castro, SantaLuz, and Bom Jesus. This delineation corresponds approximately with the definition of the Urusui-GurguCia Development Pole of the Banco do Nordeste (BNB), and also with IBGE'sconcepts of homogenous micro-regions. 2.5 InIBGEterms, our definition of the cerradospiauienseencompasses the micro- regions of Floriano, Bertolinia, Alto Parnaiba Piauiense, Alto MCdio GurguCia, and Chapada do Extremo Sul. The water basins that correspond with this area are those of the GurguCia River, the Uruqui Preto River, the diffuse basins of Alto Parnal'ba and the Boa EsperansaDam, and parts of the Itaueira River basin. egional Divisiori of'Piauf for this Report 20 Piaui 2002 StateEconomicMemorandam TheCerrados 2.6 The climate inthe cerrudos i s tropical, with a humidsummer and a dry winter, and annual rainfall of between 900 and 1500mm. Eighty percent of rainfall i s concentrated between April and September. This concentration of rainfall i s one of the main factors underlying the physical andvegetal structure of the region, with chemically and physically fragile soils, and vegetation that can sustain lengthy periods without water and i s intermittently subject to bushfires. Temperatures inthe Piauiense cerrudos average between 23.9 degrees (mean of minima) and 35.7 degrees Celsius (mean of maxima) in the valleys, although temperatures on the plateaus are likely to be somewhat lower. Relativehumidity varies between 50 percent inAugust and 79 percent inJanuary. 2.7 The topological characteristics of the cerrudos are striking. Immense plateaus, extremely flat, eventually give way to small river valleys via steep cliffs and ravines (cuestas)of up to 200minheight. The plateaus are on average situated at about 600m above sea level. O f these the largest inthe area under discussion are the Serra do Bom Jesus da GurguCia, Serra da Ipiapaba, and the Serra Grande. 2.8 About 62 percent of the area consists of latosols, soils o f between 25 percent and 80 percent clay, well-drained but acidic, of low fertility, but which after correction with lime have proved well-suited to mechanized agriculture, and inparticular to the production of grains such as wheat and soya. With the exception o f the GurguCia valley, the remainder of the area consists mostly of soils that are not suitable for agriculture and inmanycases susceptible to erosion (litolic soils, sandy quartz, andpodzolic soils). 2.9 Partly owing to the variability inits terrain and climate, the cerrudos biome is knownto be one of Brazil's and the world's richest interms of biodiversity. The region i s estimated to contain ten thousand species of plants and a great diversity of fauna. This biodiversity i s only now being documented, a process that i s far from complete. 2.10 The speed of agricultural expansion in other parts of the Brazilian cerrudos attests to the potential of the region (see table). Upon the move of Brazil's capital to Brasilia in 1960, the occupation of the cerrudos intensified. Today, the region accounts for 30 Soybeans 0.4mtons 4% 2mtons 15% 16mtons 52% 21 Piaui2002 StateEconomicMemorandum The Cerrados percent of Brazilianproduction of all grains combined, and the crop that has accounted for the largest part of this expansioni s the soybean. Soya was introduced inthe cerrudos in 1970: untilthenithadbeenconsideredaplant suitedfor temperate and subtropical climates. B y 1975, soya production was already established inthe region, with production of 4 percent of the Braziliantotal of 10mtons. At this time, over 80 percent of soybeanproduction took place inBrazil's three southern states of Rio Grandedo Sul, Santa Catarina, andParanB. It is from these states that many of Piaui's new arrivals hail, migrants who are bringingwith them their customs and agricultural know-how. 2.11 Soya i s generally grown as part of a crop rotationsystem includingrice andcorn, however, andthese crops, along with beans (feijiio, the productivity of which is however not internationally competitive at present) are also an important part of the agricultural output of the region. Rice, a high yielding though less reliable crop than soya inthe cerrudo environment, i s usedas a means of reducing the acidity of the soil, and after two or three plantings of rice, crops of corn and soya are then alternated. More recently, cerradosproducershave also hadconsiderable success with coffee, and the region may well becomeBrazil's largestcoffee producerbefore long. 2.12 Cerrados productivity inthese crops (with the exception offeijiio) is high, and there i s no reasonfor this not to bethe case inPiaui. In 1999, average cerrudos productivity was 2 450 kgka, higher than the national average (2 370 kgka). Productivity inPRODECER projectsreached 2 660 kgka, andpotential productivity i s higher, given that many producershave exceeded 3 tha. These levels are higher than average productivity of the U S soybean industry, and are largely owing to the cerrudos favorable conditions (inparticular greater luminosity than the more temperateclimates where much soy i s grown), and to research, ledby EMBRAPA, which generatedsoy varieties adaptedto the region. Similarly, cerrudos productivityincoffee has doubled in the past 20 years. 400 3.5 350 3 300 2.5 2m c 250 a 5 u) 2 m 6 200 - 1.5 Source: 150 Campos, cited in 100 1 Marzall and Wagner 50 0.5 0 0 1999 2000 2001 2002 2003 22 Piaui 2002 StateEconomicMemorandum TheCerrados 2.13 The cerrudos region of Piaui, as defined for this report, contains 312000 inhabitants, representing a population density of only 3.35, the lowest inthe NE and closer to the population densities observed inBrazil's Northern region than its NE. 2.14 Extant populations are concentrated inthe valleys or buix6es. Here economic activities are similar to those elsewhere inthe state, that is, small scale family farms, extensive cattle grazing, fishing, and other extractive activities. 2.15 Piaui's cerrudos region i s not on average poorer or richer than its drier southeast neighbor or parts of the north of the state. Indeedit i s strikinghow income measures (from the PNAD) seem to be independent of underlyingclimatic variables, with areas of extreme poverty inall parts of the state. Nonetheless, casual observationbelies these income measures. Parts of southwest Piaui, and inparticular the GurguCia Valley, are of obvious abundance, despite the lack of infrastructure and certain well-identified problems of resource management, such as flooding inthe rainy season. 2.16 The interaction between the "new" economy of grain cultivation on the chupudus and the population intraditional activities inthe valleys is quite low. Inplaces here i s an almost complete segmentation between old and new activities, with little crossover. This i s partly owing to topography: commuting betweenthe top and the bottom of the cuestas i s not always an easy matter, but it i s also partly owing to the lack of economic integration between the different activities. A farm of 20 000 hectares may employ 100 regular employees. Of these, the twenty or so most qualified arrive from outside Piaui, with the rest recruited and trained locally. 2.17 Nonetheless, just as these links are limited, any adverse effects of the new activities are also limited. The valley populations use a small part o f the land inthe chupudus extensively, and neither do new arrivals inthe chupadas disrupt traditional activities inthe valleys. Southeast Coast Sgo Raimundo Nonato Bertolinia Alto Medio Gurgueia 0 20 40 60 80 100 120 Reais per month 23 Piaui 2002 StateEconomicMemorandum TheCerradoi 2.18 Development Strategy.The lack of a development strategy inthe cerrudos will lead to a disorderly occupation of the region, with damaging consequences for the ecology of the region, for its natural resources, and almost certainly for its extant population. At stake are the cerrudo biodiversity, the purity o f its surface and undergroundwater, and the sustainability of its systems of production. To avoid negative consequences, a strategy should encompass (a) ecological zoning, (b) a strategy of land use and occupation, and (c) strengthening government institutions to enforce these. 2.19 Infrastructure. The precariousness of the region's transport and energy networks represent an obstacle to the continued growth of agricultural activities inthe cerrudos region. O f course, inthe absence of a well-defined development strategy, this may be viewed, perhaps paradoxically, as an advantage, since it should decelerate any disorderly process of occupation. The reinforcement of infrastructure inthe region should therefore be contingent on and consistent with the establishment and adoption of the strategy. 2.20 Environmental Degradation. The use of conventional agricultural technologies of landuse, mainly predominant inthe traditional systems of production of the region, combined with the lack of maintenance of the rural road network, are resulting in a process of degradation of natural resources. The main effects are on soil and water, and biodiversity i s diminishing.This process should be distinguished from any future environmental damage from new activities. Indeed, inmany present cases, the newer, larger-scale, higher-technology activities inthe chupudus are more environmentally sustainable than the traditional patterns of land use inthe buix6es. 2.21 Land Rights. The lack of legal land rightsto the majority of lands inthe cerrados i s another limiting factor to the harmonious development of the region. Apart from impeding the establishment of competitive producers inthe region, the situation contributes to a process of adverse selection, whereby land invasion and the forgery of titles by powerful grileiros (illegal landbarons) become more common. 2.22 TheRisk of SocialExclusion. Accelerated development of agro-industry inthe cerrudos will not necessarily bringmany benefits to the extant populations of the area, MT 40% GO 27% 24 Piatli 2002 StateEconomicMemorandam The Cerrados mainly inrural areas, since their current activities are o f limited competitiveness. The cultivation of grains, as has been mentioned already, bringsfew direct jobs, some of the more qualified positions generally being taken by new arrivals from out of state, and there i s also the possibility of some o f the profits leaving the state. 2.23 Broad consultation with stakeholders on the effects of agro-industrial developmentand the appropriate development strategy. Given the uncertainty over the current effects of changes inland use on existing social and cultural patterns inthe area, consultation i s a way of generating this information. Moreover, the development strategy for the cerrudos will stand a much greater chance o f success, and of meeting local needs, ifit is basedon wide consultationwith the affectedpopulation. 2.24 Rural Extension. Natural resource management and the inclusion o f traditional producers will require the presence of a "capillary" system of rural extension, highly trained and highly active. Innormal circumstances, this responsibility would fall under the aegis of the state rural extension service, EMATER-PI.At present, however, this institution does not have the capacity to react to the challenges faced inthe state generally, and inthe cerrudos inparticular. 2.25 Technology Generation. While agricultural entrepreneurs are introducing and adapting new technologies from other parts of the cerrudos, this i s not the case with the traditional agricultural sector. There i s the danger of a complete segmentation of the rural economy along technological as well as social lines. This raises the questionof the role in the region of the research capabilities of EMBRAPA,and how it can be more closely allied to the social development of the region, to monitor problems faced b y the traditional sector, and where possible to offer low cost technological innovations. 2.26 Containment of Flooding. This i s principally an issue inthe GurguCia Valley. The annual flooding of this river makes many otherwise sustainable farming activities in the valley impossible. The harmonious development o f the cerrudos region inPiaui i s not imaginable without a carefully managed development plan for the GurguCia Valley, which today represents the backbone of the region, its economic center of gravity, and its main population centers. 21Yo 18% 25 Piarni2002 StateEconomicMemorandum The Cerrados 2.27 Unconcluded irrigationperimeters,Regardless of the merits of large-scale irrigation when considered as green-field investments, there are unfinished projects inthe cerrudos that today may represent high-return investments owing to their sunk-costs. Examples are the GurguCia Valley, Itaueira, and especially Guadalupe. The reevaluation and likely completion and implementationof these projects, learning from recent experience and good practice from elsewhere inBrazil, i s worth considering. 2.28 Fiscal leakage.Despite recent agricultural growth inthe cerrudos, the state collects relatively little revenue from these activities. This i s for two main reasons. First, much of the produce i s exported, and this makes life complicated for the state revenue collection service. Goods for export are initially exonerated from the main tax (the ICMS), butthe state only recovers the tax from the federal government upon proof, inthe form of a bill of lading at the port of export, that the physical produce left the country destined for export markets. Piaui's agricultural exports leave Brazil through ports in other states (mainly Itaqui inMaranhiio, and also PecCmand Fortalezain CearB), and are exportedby intermediaries who combine purchases from numerous producers inPiaui and elsewhere. Inpractice it proves difficult for Piaui to get its money. Second, where downstream processing i s concerned, Piaui i s forced to compete with fiscal incentives offered by neighboring states to attract transformation industries to locate inthe state. This usually implies at least a few years' total exemption from ICMS liability. OLEOF THE STATE 2.29 The State of Piauihas limitedresources and many challenges, and it i s therefore essential that it define the scope of its interventions clearly. It i s important to emphasize that inthe case of cerrudos agribusiness, the state need not play a role of attracting activity, nor of picking the crops or technologies that are used. 2.30 Public institutions ingeneral, and the State Government inparticular, have two roles inthe context of cerrudos development. First,the state i s an enabler of private- sector activity, by providing a network of infrastructure that makes strategic sense given likely and desired patterns of development. Second, and if anything even more important, the state must act as coordinator (and enforcer) of activities where, inits absence, a lack of coordination would cause undesirable outcomes. Box 4: BRAPA PA The Empresa Brasileira de PesquisaAgropecudria has had an important role in cerrados agriculture and will continue to do so. EMBRAPA consists of a network of research centers, some of which are world leaders intheir areas, and Piaui should continue to seek ways to work with the EMBRAPA, which can be a source of comparative advantagefor the State. EMBRAPA Cerrados (CPAC), i s located in the Federal District, and has led research efforts, supported by EMBRAPA research center on soya (Londrina, PR), wheat and corn (Sete Lagoas, MG), Rice and Beans (Goignia, GO), and Beef Cattle (Campo Grande, MS). EMBRAPA also has a regional researchcenter, EMBRAPA Meio-Norte, located in Teresina, which is developing solutions to raise the productivity of family farming, principally in Piaui and MaranhBo. EMBRAPA has developed successful innovations inmany areas, and represents a resource that can contribute greatly to income generation inPiaui. Based on past experience, the keys to maximizing the impact of EMBRAPA's work lie in (a) tying other state activities more closely to it (e.g., rural extension, training initiatives, and rural credit), and (b) paying great attention to the downstream application of EMBRAPA researchon small and medium- sized farms. 26 Piaui 2002 StateEconomicMemorandum TheCerrados 2.31 Inthe first of these categories-enabling-come the more obvious categories of infrastructure investment, most notably roads and energy, but also bridges across the River Parnaiba incooperation with the state of Maranhgo. Dams to enable better collective use of water resources (particularly inthe strategic GurguCia Valley) are also an important component here. Finally, health and education infrastructure, inparticular increasing penetration of health facilities and middle and secondary education inrural areas, are important for social progress, and to avoid the economic benefits of agricultural benefits simply exiting the region. 2.32 Inthe second category-coordinating-the most important element relates to environmental management. Here (see section below: Options) the state has a decision to make, weighing biodiversity against income generation. Many o f the farming methods being imported from southern Brazil are sustainable inthe "natural resources sense" of the word: that is, the activities preserve the resources that they themselves depend upon. Indeed, interms of fertility, careful farming inmany cases leaves the soil in a better state than before the activities were introduced. However, it i s well documented that the original biodiversity of the area cultivated i s reduced, and for this reason ecological reserves are necessary. Moreover, sustainability inthe narrower natural-resource sense prohibits the farming of certain more fragile areas. Once these decisions are made, the responsibility falls to the public sector (broadly defined, whether municipal, state, or federal), to "get ahead of the agricultural frontier." That is, government should select untouched areas for protection, follow through and enforce this choice legally and politically, while acting to maintain productivity in areas where the frontier has already passed and biodiversity already reduced. 2.33 Social sustainability i s perhaps even harder to define than environmental sustainability. Social patterns and culture evolve, and sclerosis should not be the goal of public policy. Here again, Piauiense society has decisions to make, in selecting those elements of extant culture and social organization that are of inherent value and therefore worth protecting intheir own right. Again it i s the duty of public institutions to follow through, whether through targeted subsidies or more active policies of support. Box 5: C O ~ E and DNOCS V ~ ~ ~ FromJanuary 2000, the managementof the ParnaibaValley water basin passedunder the CorporaGdo do Desenvolvimentodo Valedo Rio S6o Francisco, CODEVASF, and this may provide new momentum to the DevelopmentPlans of the Gurgutia Valley and the Uruqui- GurgutiaPole. The role of CODEVASF i s to designintegrateddevelopmentplans for the basinand each sub-basin, as is the case with PLANAP (Plano de Ag6o para a Bacia do Pamaiba). PLANAP i s an important parameter for the State of Piauito consider as it develops its own strategy for the cerrados.PLANAPis a study launchedby CODEVASF, which aims to determinethe developmentpotencial of the ParnaibaRiver basin, includingthe whole of Piauland apart of MaranhHo.This report, programmedfor completion in 2003, will present developmentproposals with an emphasis on naturalresource management at the level of the Water basinor sub-basin. DNOCS (DepartamentoNacional para Obras Contra a Seca)i s the federal agency iresponsiblefor building dams and other irrigation schemes. Among other projects, DNOCS designedaplan for an integrateddevelopmentpole in the GurguBiaValley, published in 1976. Although this plan was never implemented, many of its recommendationsremain valid today, ~ 27 Piaui 2002 State EconomicMemorandum TheCerrados 2.34 Also inthe social sphere, there i s the broader issue of compensating losers, as far as they exist and can be identified, from the new patterns of resource use that emerge. This i s perhaps even harder again, butparticularly where extant populations use land under "commons" arrangements, increasing commercializationmay eat into these patterns of social organization. 2.35 These are complicated issues to assess, even more so to address with public actions. This report alone cannot advise government on exactly where to draw the lines in its tradeoffs between, for example, income generation and biodiversity, or between new economic activities and existing cultural norms. Moreover, it i s unlikely that even the most beneficent and enlightened central planner could get the balance right. These are areas where consultation with stakeholders, and broad public participation indecision- making will be crucial to identify costs andbenefits, tradeoffs, winners and losers. One of the central messages of this report i s therefore that these decisions should not be viewed as purely technocratic ones, andthe process whereby they are made will be as important as the decisions themselves indetermining their success. OME LESSONS LEA 2.36 Three decades of experience inthe cerrados, allied with other agricultural development experience inBrazil and elsewhere, have brought some important lessons, and these should be weighed when considering actions inPiaui. Some of these lessons are discussed inthis section. 2.37 Investing inthe rural sector, and in agricultural development inparticular, does seem to bringwith it significant social and economic benefits. According to a recent Brazilian study (Bonelli, 2001), each percent of agricultural growth leads to 1.07 percent o f non-agricultural economic growth, both of these positively affect municipal revenues, and agricultural growth precedes (ina statistical sense) the growth of urban incomes. These findings are for Brazil, but similar results have been recorded elsewhere. The same author undertakes case studies of Balsas (MA) and Barreiras (BA), areas that have preceded the cerrados piauiense in the development of large-scale agriculture, with extremely positive evaluations. Box 6: F ~ ~ andQ~~~~E~~~ ~ ~ ~ ~ ~ O POLOCENTRO was the original large scale irrigation and resettlement project in the cerrados. Started in 1975, it tried to promote regional development poles through four components: a) research; b) rural extension; c) infrastructure, and d) rural credit. It covered 13 poles near lime deposits in Goifis, Mato Grosso and Minas Gerais. The program involvedfour ministries, POLOCENTRO was considered a success, and inspired a series of similar state and federal programs. Started in 1979 and continued ever since, PRODECER i s the largest similar program. Founded as a collaboration of the Ministry of Agriculture and the Japanese International Cooperation Association, PRODECER initiated planned cooperatives using modern technological irrigated farming techniques. From 1979-99,21 "colonization" projects were implemented, settling 758 families in an area of 350 000 hectaresin the cerrados, in three phases. PRODECER Iinvested US$60m in Minas Gerais, from 1985 PRODECER 11,invested more than $375m in Bahia, Goifis, Mato Grosso, Mato Grosso do Sul and Minas Gerais. PRODECER 111, startedin 1995 in Tocantins and MaranhFio,has invested US$103m so far. 28 Piaui 2002 StateEconomicMemorandum The Cerrados 2.38 Government programs have been important catalysts inthe development o f cerrados regions. The first of these was POLOCENTRO, which in 1975 started supporting research, rural extension, infrastructure, and rural credit inthe cerrados. However, subsequent programs such as PRODECER, although they have undeniably contributed to increased agricultural productivity on the cerrados, have been too costly to be considered replicable intoday's economic environment. Owing to their elitist structure, involving costs per beneficiary of hundreds of thousands o f dollars, today these programs would probably represent inefficient and elitist use of public finance. More democratic models, accessible to a larger number of producers and based on private- sector led development are more likely to prove sustainable, with the best example at present inPiauibeing the cooperative o f COTRIROSA inUrupi,in which producers are undertaking investments with their own capital inthe first instance. 2.39 Many past development initiatives (nomzativo) dictated priorities and technical solutions and failed through lack of flexibility and dialogue with stakeholders. Government investment programs have since shifted towards more flexible modes (indicativo)including wide consultation and participation of beneficiaries. Here the PCPR inthe NE and the program of microbacia projects inthe South are good examples. 2.40 Government programs, federal and state, have generally been implemented independently and without integration. More integrated approaches (the experience of the Parand Rural project being a good example here) have had greater success. 2.41 The development of soybean agriculture and other new activities inthe cerrados (and other areas of Brazil) has been heavily dependent on research. Creating new varieties suited to the more tropical conditions inwhich they were growing, Brazilian research has contributed enormously to sustainable practices inBrazilian agriculture and resource management. 2.42 However, the value of much research for smaller-scale producers depends on small-scale testing of innovations, tailoring methods to particular circumstances, and more generally buildinga more detailed understanding of technical parameters. The production of this more detailed knowledge, generated by experience, has generally been left to individual farmers without state intervention. The consequences have been (i)a ~ Beneficiary Municipalities 22 Beneficiary Producers 133 545 80 758 Cooperatives 3 12 2 17 Total Area total (`000 ha.) 64,5 205.7 80,O 350,2 Investments (USPm) 60,O 375,O 138.0 573,O Current Production (`000 tons) 120,2 296,6 133,1 550,2 Annual Revenue (US$m) 30,5 99,8 32,9 163,2 Tax Collection per annum (USSm) 5,4 122 5,O 22,6 29 Piaui 2002 State EconomicMemorandum The Cerrados lack of synthesis of the experience with innovations, which have often worked less well on the ground insmaller lots and inuncontrolled experimental settings, (ii)the lack of involvement of producers themselves inthe process o f developing new products. 2.43 Experienceinthe management of water resources has shown that this should be undertaken at the level of the water basin (bacia hidrogrdfica), the relevant level from the point of view of many natural phenomena, including pollution. This involves some reorganization of institutions and methods. EMBRAPA,for instance, is now adopting this approach. Experience of resource management at the level of the microbacia inthe South of Brazilhave shown that with the organized participation of producers, environmental damage can be avoided and even reversed. This approach i s now being widened, with microbacias combining ingroups to form water-basins or sub-basins, an approach that may be relevant for the Gurgutia Valley and other valleys inthe cerrados. 2.44 A largepart of the success of these initiatives has been the increases inrural incomes observed as a consequence, and this inturn has depended on successful programs of rural extension. Rural extension models have been integrated with the private sector as well as with civil society organizations in ParanBand Santa Catarina. 2.45 The experience of CearBinestablishing post-secondary rural technical colleges (CENTECs) has been positive. The colleges have contributedto a quantum leap in technological and management practices. The colleges focus on mechanical farming methods, irrigation, environmental cleanup, food technology, and other areas through essentially operational courses. The CENTEC system i s complementedb y the CVT (CoZ2gio VocacionaZTkcnico) system inmany municipalities, which offers short training courses of 40 to 320 hours in specific areas. Y.-5 160- v) 140- 0 Sao Paul0 120- -s 100- France a g 80 - P 60 - 0 Mexico 40 2oFaranhao Brazil U.S.A. ~ 0 8PiaZQGoias , 30 Piaui 2002 StateEconomicMemorandum The Cerrados 2.46 Regularization of land titling (a@o discriminato'ria)and establishment of public lands (terras devolutas). For cerrados development to be orderly, the activities of grileiros need to be addressedand public lands clearly recognized as such. This inturn would provide a source of investment funds into the region, since public lands could be sold at higher prices than i s currently the case, given more secure property rights. 2.47 Ecological and Economic Zoning (ZEE). There are strong grounds for combining the a ZEE with a detailed mapping usingthe latest technology, as this would allow better monitoring of land use and there would be synergies with the land regularization mentionedabove. 2.48 Public consultationson the regularization of landrights, the ZEE, and the likely effects of new agricultural activities inthe cerrudos on existing local populations. 2.49 Technical support to extantfarming communities. Subject to the above consultations, rural extension and technical assistance may need to be stepped up to protect selected activities inthe traditional agricultural sector. 2.50 Institutional strengthening, inparticular inrelation to the development and enforcement of land use and environmental good practice. The establishment of a ZEE and clearer land rights will necessitate much stronger institutions at the level of the State for enforcement in conjunction with federal bodies. 2.5 1 Investment in transportinfrastructure. There are several roads recognized as strategic for cerrudos development to bringlogistics costs down to competitive levels. Transport infrastructurei s extremely sparse inPiaui compared with other Brazilian states and internationally. 2.52 Investment in electrification. Particularly inthe GurguCia Valley, existing power lines are not of sufficient capacity to allow increased urbanization and development that will come as a consequence of any increase in agricultural activities inthe area. 2.53 Increased integrationof the StateAgricultural Secretariat with Embrapa. Links could be strengthened between the research activities of Embrapa and the Piauiense Universities on the one hand, and the extension activities of the Secretaria da Agricultura Mapping and Zoning 10 Roads 130 Basic Sanitation 60 Hospitals and HealthCare 10 Total 275 Source: Marzall and Wagner (2002a) 31 Piaui 2002 StateEconomicMemorandum The Cerrados a on the other, in order to bolster attempts to understand the constraints faced by small and medium-sizedfarms in applying new techniques developed inresearch centers. 2.54 Constructionof dams to controltheflow of the Gurgubia River,avoiding both flooding inthe dry season and extinction inthe rainy season. This investment program shouldbe accompanied by an intensified campaign of public education and rural extension, inorder to raise consciousness about the consequences o f equalized water flow inthe GurguCiaValley. 2.55 Protection of biodiversity,including the establishment of Environmental ProtectionAreas (APAs) in selected areas, and of Ecological Corridors interconnecting the cerradospiuuienses with the cerrados inother states (consistent with the plans of IBAMA and the proposed ZEE). 2.56 An explicitstrategy of urban agglomerationfor the Parnat3a and Gurgubia Valleys.Linkedto the constructionof the five dams at the head of the GurguCia River and the establishment of ecological corridors and any other units of environmental protection, it may be desirable for the State Government to manage the process of urban growth actively and explicitly, by selecting desired centers o f agglomeration and focusing certain infrastructureinvestments inthese towns. Inthis way widespread urbanization may be avoided, and network externalities created. Experience with irrigation perimeters, for example, suggests that success i s enhanced by the proximity of an urban center, with the associatedprovision of services, know-how, etc. 2.57 Improvementsto water supply and basic sanitation in the towns of the region. The most important single determinant of health outcomes i s likely to be the timely introduction of basic sanitation, modern sewerage, and rubbishcollection services inthe growing towns of the area. 2.58 Increased emphasis on the health and educationnetwork in the region, reinforcing the regional hospitals inBomJesus and Corrente, and creating municipal hospitals inmedium-sizedtowns (population above 10000), and health centers and visitors in smaller populationcenters. 32 Piaui 2002 State EconomicMemorandum TheCerrados iaui's River Basins 33 Piaui 2002 StateEconomicMemorandum TheCerrados 34 Piad 2002 StateEconomicMemorandum The Semi-Arid Southeast 3.1 As one moves east of Piaui's cerrados region, the vegetation changes to the caatinga distinctive of the semi-arid sertco, passing first through a transitional phase (known inPortuguese as cerrado branco). This change invegetation signals a change in economic potential, since the white caatinga (inthe local indigenous language, "caa" meant forest while "tinga" meant white) i s adapted to low rainfall and frequent periods of drought. The low rainfall rules out large-scale commercial agriculture as a driver of the economy. And the regular droughts wreak havoc for the subsistence agriculture (mostly manioc, beans, and rice grown on smallholdings) of the local population. 3.2 Piaui's southeast region i s actually not the poorest part of the state but contains some of the most extreme pockets of poverty. Inthe 1999 PNAD, while average income across the three micro-regions (Alto-Mkdio CanindC, Pi0 IX, and Picos) that make up the meso-region called the sudeste piauiense, i s actually higher than inthe coastal meso- region or the sudoestepiauiense, it i s inflated by the relative prosperity of Picos. Alto- MCdio Canind6 and Pi0 IX are two of the least developed micro-regions inPiaui (see table on next page). (For the purposes of this study, we also count the micro-region of Si30 Raimundo Nonato as part of the semi-arid region, since this reflects physical reality). 3.3 The more important aspect of the region's economy i s its volatility, however, owing to frequent droughts. Ina good year, Piaui's semiarid zone i s poor, though the statistics show that it i s comparable to many other parts of the state. Ina badyear (two of the past three can be thus described), the vulnerable rely on public transfers, such as the cesta bdsica, to survive. 35 Piaui 2002 State EconomicMemorandum TheSemi-And Southeast 3.4 Such programs have had a poor record, however. This i s mainly owing to these programs reliance onprefeiturus to identify beneficiaries, which encourages a clientelistic approach to the provision of benefits, and more generally because of a lack of accurate targeting mechanisms. Recent reforms to the Frente de Trabalho (workfare) system, replacing it with a combination of cash transfers, do seem to have been an improvement, but there i s still a widespread feeling among beneficiary communities that they would prefer productive activities to bailouts. Alto MCdioCanindB .66 .26 .37 .62 .46 .47 Brazil .69 .58 .79 .76 .75 .72 3.5 The population density of the so-called poligona dus secus inBrazil's NEregion, at 22.5 inhabitants per km2,i s lower than the population density of the NE as a whole, which i s 28 inhabitants per km2.But when compared with other semi-arid areas of the world, this statistic i s infact remarkably high.Brazil's serta"o i s therefore characterized by an extreme pressure on natural resources, and is indeed one of the few such parts of the world where significant numbers of people, through historical and cultural forces, continue to eke out a living. Some authors have, for these reasons, proposedthat a part of the solution to economic precariousness faced by inhabitants of the sert6es i s migration to other areas richer ineconomic potential. It i s telling that Southeast Piauinow has the oldest age-structure of any part of the state. 3.6 Migration out of the semi-arid NEhas proven to be false gold inrecent years, however, and migratory flows are now significantly lower than at their peak inthe 1970s (Fiess, 2001). B y way of an example, informal conversation with residents of Si30 SE N CN SW 36 Piaui 2002 StateEconomicMemorandum TheSemi-Arid Southeast Raimundo Nonato suggested to the report team that most migration from that municipality goes to S2o Paul0 and Brasilia, with a smaller flow to Teresina, but many migrants return, often with new habits of criminality obtained on their travels. Despite an unwillingness to discourage out-migration and the lack of success of many of the attempted policy interventions, the search continues for a sustainable approach to supporting Brazil's semi-arid population. Furthermore, inthe case of Piaui, population density i s much lower than inthe sert6es more generally, suggesting the feasibility o f solutions directed at productive activities rather than relying on migratory outflows. 3.7 Finally, southeastern Piaui i s distinctive within the NEBrazilian sertLio, for being the only part of it with significant reserves of underground water. These reserves create greater possibilities for productive activities than in other parts of the semi-arid NE. However, at present little of this water i s used and there i s little control over what is. Management of surface and underground water resources i s a central requirement of policies to reduce rural vulnerability. Piaui sw Center North North Altos Medio Caninde Picos S. Raimundo Nonato 0 50 100 150 200 37 Piaui 2002 StateEconomicMemorandum TheSemi-AridSoutheast 3.8 For the purposes of this report, semi-arid Piaui covers an area o f 76 776 km2,and contains 83 municipalities. This area consists of parts o f the GurguCia and Itaueira River basins, and almost the entirety of the CanindC-Piaui River basin. The municipalities that form the boundary of the semi-arid southeast with the cerrados region discussed inthe previous chapter are NazarCdo Piaui, S5o JosC do Peixe, Itaueira, Pavussu, Canto do Buriti,and Guaribas. Most of the analysis of this chapter is based on MarzallandWagner (OpGo'espara o Desenvolvimentoe Alivio da Pobreza Rural nos Serto'es,2002b, commissioned for this report). Readers interested inmore technical detail should consult that backgroundreport. 3.9 The low agricultural potential of Brazil's semi-arid region i s well known: the region i s Brazil's least hospitable. Temperatures vary little over the year, with lows averaging 20 degrees, highs averaging 31 degrees, and an overall average of 26 degrees Celsius. Annual rainfallbetween 300" and 950" i s concentrated between December and April, and highlevels of evaporation (of the order o f 7mm per day, implyingwater losses varying between 1000and 1700" per year depending on the location) mean that for ten months of the year the region receives negative net amounts o f water. Soils possesslow nitrogen and organic content, low levels o f phosphorous, and highlevels of potassium. The dominant vegetation i s native caatinga, which loses its foliage inthe dry seasonto eliminate water-loss through transpiration. 3.10 Southeast Piauicontains two dominant soil-types with important properties. In the extreme southeast borderingBahia and Pernambuco, the soil i s crystalline and does not retain water but allows it to pass through fissures inits structure. This crystalline area accounts for 15 percent of the surface area of the state. Further into the state the soil i s sedimentary innature, allowing the collection of large underground water deposits. Piaui 38 Piaui2002 State EconomicMemorandum TheSemi-Arid Southeast thus accounts for more than half of the entire undergroundwater of NEBrazil. 3.11 Interms o f rainfall, the boundary between the crystalline and sedimentary sections of southeastern Piaui coincides approximately with the 700" isohyet (rainfall contour). Rainfall on the crystalline section varies between 500" and 700mm, whereas the sedimentary section receives more, between 700mm and 900". All waterways in the region are intermittent. The average volume of the CanindC River varies between 70m3/s inthe rainy season and only 1lm3/sinthe dry season. 3.12 Agricultural potential follows largely from the parameters described above, especially rainfall andaccess to undergroundwater. Choices of crop and livestock are dictated by water availability and the possibility of irrigation, small- or large-scale, and limitedto species that withstand the climate. Traditional agriculture emphasizes manioc, extremely resistant to water deprivation, and rice andbeans, which are less so. New activities are appearing, with goats, honey, and cashew production showing promise. 3.13 The population of the area as defined for this report i sjust over 600 thousand inhabitants or 21 percent of the State. The largest towns are Picos (69 thousand), Oeiras (34 thousand), Siio Raimundo Nonato (27 thousand), Canto do Buriti(18 thousand), Paulistana (17 thousand) and Pi0 M(16 thousand). Despite IBGEclassifications that suggest that nearly half this population lives inurban areas, the size of these population centers speaks to the essentially rural nature of the local economy. 3.14 As alluded to above, the areais extremely poor. Usingthe UNDP's human development index database suggests that the region's least developed municipality i s Caracol (population 8 thousand, HDI= 0.38), its richest being its largest, Picos (HDI= 0.51, versus 0.55 for Piaui as a whole). The lowest educational index i s to be found in Jaic6s (population 16 thousand, education index 0.19) while the lowest income per capita i s to be found in Concei@o do CanindC (population 5 thousand, income index 0.29). 3.15 Typical unitsof production are small, varying from less than a hectare to 200 hectares, and producing mainly for direct household consumption, with excess sold 5% \ CultivatedPasture 39 Piaui 2002 State EconomicMemorandum TheSemi-AndSoutheasi locally. Rice is producedunder three regimes: rain-fed, inwatered rice-fields (vcirzea), and flood-irrigated. O f these the first i s on the increase and the last i s on the decrease. Beans, owing to their ability to withstand dry conditions, are an important crop and dietary component, and are grown with few additional inputs. Corn i s the main crop of small producers, and about 45 percent i s consumed on-farm. Manioc i s produced only by small-scale producers and almost all i s grown for subsistence. Cotton i s grown on bushes (the arboreal variety having all but disappeared). 3.16 New activities are springingup inthe sertio. Fruiti s sparking a great deal of interest, although there i s so far a lack of research on production parameters, commercial viability, etc. Fruits such as cashew, coconut, lime, mango, andbanana all have potential, butgenerally involve some irrigation, chemical treatments, fertilizer, and diseasecontrol measures. The region has an estimated 230 thousand hectares of irrigable land suitable for fruit growing. (The national program PROFRUTA exists to encourage the cultivation of fruit using small-scale irrigation.) 3.17 Beef and dairy cattle are extensively reared but with extremely low productivity (the daily average milk yield per cow inPiaui i s 0.96 liters: an average elsewhere would be more like 3 liters). However, goats and sheep are viable and their occurrence i s increasingly common. There remains the need for better breeding, improved sanitary practices, and improved herd management, nonetheless. Piaui has gained some fame for its apiculture (beekeeping) and this i s perhaps the most dynamic agricultural activity in the semi-arid region. Production techniques have advanced, although this activity i s not immune to drought, as some producers have recently found: when faced with a lack of flowers, bees too migrate. 3.18 With the exceptionof some of the newer activities, notably goats, honey, and small-scale irrigated fruit growing, the main characteristic of sertunejo agriculture i s its extremely low productivity, with no use of fertilizers, outmoded methods, and poor quality land. State rural extension services do not reach many producers. Where new methods are gaining ground, the presence of NGOs i s often observed, and indeed organized civil society i s extremely active inthe piauiense agricultural sector. There are many instances of organizations such as the Floriano-based CEFAS (Centro Educacionul Si0 Francisco de Assis, funded by a German foundation and the German Government), 34% 0Cajli 37% ~ 40 Piaui 2002 StateEconomicMemorandum TheSemi-Arid Southeast an NGO that works with producers on projects such as beekeeping and goat rearing. Moreover, despite the new activities that have sprouted up inthe semiarid region, and their undoubted potential, the pace of these new developments i s still relatively modest. 3.19 The region i s endowed with reasonable infrastructure for transport within SE Piaui and to the east, but links with the cerrados are precarious (see map of roads below). Penetration rates of electricity are, on the other hand, no higher than in the SW o f the state, lower than 20 percent in S2o Raimundo Nonato in 1999. Source: FederalTransport Ministry 41 Piatri 2002 StateEconomicMemorandum TheSemi-AridSoathead 3.20 Lack of access to water.As mentioned already, since all waterways inthe region under discussion are transitory, and since rainfall i s low and variable, management of water resources i s the single most important area for public action in semi-arid Piaui. 3.21 Unclearwater rights.Allied to the above point, there is a lack of definition over water rights inPiaui. Inparticular, underground water i s used indiscriminately through the drilling of wells, a complete census of which i s not available. 3.22 Low productivity agriculturalproduction. Even inthe presence of greater quantities of water inother parts of the state, small-scale agricultural productivity i s low, belying the notion that water i s the single determining constraint. The existing model of technical assistance and ruralextension has failed and needs to be revisited. 3.23 Economic integration with other areas of the state.With the likely expansion of grain production inthe cerrudos, intensive animal rearing will become an option inparts of the serta'o, since at present one of the main constraints is local availability of sufficient quantities of feed. Indeedthe business model of soya producers inthe SW of the state includes vertical integration with livestock. Possible activities inthe semi-arid region include goats, sheep, poultry, and pigs. Moreover, SE Piauipossessesmineral deposits, notably lime, that could serve the fertilizer market inthe SW o f the state. The social and economic returns to increased integration between the two regions are potentially high. 3.24 Lack of Information. Unlike the cerrudos, which owing to their commercial potential have been the object of several agricultural and environmental studies, the Piauiense semi-drido i s not so well-documented. 3.25 Inertia among the localpopulation with respect to agriculturalinnovation.This need not be read as a criticism, since inmany cases local farmers are reacting to the failure o f past public initiatives to take into account their specificities, but a certain lack of willingness or capacity (whether financial or human capital) to adapt implies that large-scale, fast-paced technological change will leave behind most of the people it i s Piaui sw Center North North Altos Medio Caninde Picos S. Raimundo Nonato 10% 20% 30% 40% 50% 42 Piaui2002 StateEconomicMemorandum TheSemi-AridSoutheast intended to help. Solutions must therefore be small-scale, tailored to local conditions, and incremental. Nonetheless, the incidence of use of high-yielding seed varieties, soil correctives and fertilizers, mechanical methods, technological innovations, and small- scale irrigation (irrigqlio ZocaZizadu) are extremely low. 3.26 Lack of articulation of research, rural extension,and technical assistance to ruralproducers. Iti s notable that of new research requests inEmbrapaMeio-Norte in 1998, less than one in 12 come from rural producers, financial or private-sector institutions. Despite the quality of much research, moreover, there i s a lack of validation of the knowledge generated at the level of the rural producer, o f technology transfer, and of market research and management information. 3.27 Necessity of land titling.Definition of land ownership i s not a problem as it i s in some other parts of the state, notably the cerrudos. However, titling i s inadequate owing to the tendency of families to split their holdings between inheritors, but not to renew the title at the time of inheritance, implying that most of the land registries are out of date. 3.28 Infrastructure needs. The most urgent need i s for small scale works for the capture and channeling of water for human and animal use. Small dams, reservoirs, wells, and electricity are the main infrastructurepriorities in semi-arid Piaui. 3.29 Governmenttransparency.Despite the importance of small scale investments like dams and reservoirs, not all such investments inthe past have brought significant benefits to local populations. Stories abound, as inall of NEBrazil, of misplaced and unfinished projects. The simplest way of addressing this i s to increase the transparency of public decisions over investment projects, and increase the diffusion o f information about project costs, progress, and expected completion. 3.30 There has existedinNEBrazil a spectrum of public interventions aimed at raising rural productivity, ranging from those based essentially on public works, through large- scale integrated programs of land settlement such as PRODECER, to programs based not ox 7: New and H i ~P~r ~~d r~ c ~ j ~ ~ t y ~~~~~ Piaui's semi-aridregion gives excellent conditions for the Cashew. Traditional systems of cultivation o f Cashew trees give about 300 kgha, while dwarf varieties currently used give 1500 kg/ha, which rises to 5000 kg/ha with the use of small-scale irrigation. Simple mechanization of the extraction of the nut has been developed. Honey production of extremely high quality i s already a reality inthe sertfio, and has become a significant export. Cotton and castor seed also have potential for growth. Eventhe traditionalfeu60 caupi (black bean), in which productivity currently averages 600 kgtha, can easily reach 1800 kgha with the addition of lime and manure. The emergence of packing houses and diseasecontrol zones for citrus trees underlines the potential of the regionfor irrigated fruit growing, and mango, papaya, pineapple, coconut, banana, grapes and other fruits are all potential cash crops with small-scale irrigation. Various other native products, such as the babap, carnaliba, maniGoba,pequi, umbu, cajd, caji`, jaborandi, and others may have "ecobusiness" niche markets. The State of Piaui stands out for its abundanceof land, water, and sun, ideally suitedfor irrigated agriculture. The CanindC-Piaui river basin contains 220 950 ha. of irrigable terrain, the Itaueira 11200 ha. and the GurguCia about 100 000 ha. 43 Piaui 2002 State EconomicMemorandum TheSemi-AridSoutheast on physical investment but the rather the channeling of public resources to support the development of particular sectors, whether through directed credit or cluster initiatives. All have involved ahighdegree of public planning, either interms of dictating the technical parameters of an irrigation scheme, or through deciding which sectors are likely "winners" for the state economy. 3.31 The proposals and options inthis chapter address the problems listed inthe previous section, but involve two changes of emphasis. Rather than focusing on individual public works or picking sectors to encourage, the report proposes integrated sets of public actions based around geographical foci, with a view to encouragingthe uptake of any one of a range of types of activities, but without attaching normative conditions (e.g., for rural credit) to which particular activities are undertaken. Second, the primarydriver of agricultural productivity inthe semi-arid zone is water scarcity, andfor this reason the geographical unit of focus proposed is the water basin. Thus the focus is neither simply the effective delivery of a given set of public works, nor the selection of a certain set of activities, but the strategic investment, around given areas, in many cases water basins, based on a technical assessmentof the economic and agricultural potential of those areas. 3.32 Marzall and Wagner identify three levels of intervention inpursuit o f this goal: Regional development projects at the level of the water basin, the municipality, or group municipalities (consortium, as i s being tried inTocantins, for instance), possibly including small- or large-scale irrigation components, integrated development poles, etc. (c.f. POLOCENTRO) "Commodities" projects, whereby producers of the same crop satisfying approximate technological uniformity combine to benefit from network externalities, economies of scale, marketing, quality control, etc. Projects at the level of the establishment, oriented towards increasingfamily-farm productivity and sustainability. Piaui sw Center North North energy 0runningwater Altos Medio Caninde Picos S. Raimundo Nonato 0% 20% 40% 60% 80% 100% 44 Piatli 2002 State Economic Memorandum TheSemi-AridSoutheast 3.33 The proposals inthis section are responses to the main issues raised earlier. Some are mutually dependent, some less so. Some are probably easier to implement in a short time, others less so. Marzall and Wagner divide the options open to the state into two categories: (i)strategic options, and (ii) practical options to encourage small-scale irrigated agriculture through better water-resource management (surface and underground). These options are listedinthe following paragraphs. 3.34 Mappingthemain aquifers.This would be of benefit throughout the state, but is of particular importance inthe SE for the CanindC aquifer. Mappingthe geology and geomorphology of the state's aquifers i s a key element of managing water use inPiaui. Mapping aquifers i s more expensive than land mapping, and an initial estimate of the cost should be a priority. 3.35 Census of wells and clear establishmentof water rights. This is a more pressing need inthe southeast than land rights.Many wells are currently in existence unchecked, with possibly damaging consequencesfor the water table. Given the potential importance of undergroundwater reserves for the area, an accurate census of wells, combined with stronger enforcement of regulations governingjoint water rights, i s essential. 3.36 Selection of areasfor small-scaleirrigation initiatives (ACAIs:Areas de ConcentrapTode Agricultura Zrrigada). The following areas have potential for the development of small-scale irrigation initiatives: Rio Riachilo basin: involving the Bocaina, Cajazeiras (Pi0 E),and Barreiras (Fronteiras) dams and well as new wells, with a target population of about 150 thousand. Rio Itaimbasin: involving the Estreito (Padre Marcos), Salgadinho (Curral Novo) and Poco do Marrug (Jacobina) dams, with a target population of about 35 000 inhabitants. Rio CanindC upper basin: comprising the Posos (Simplicio Mendes), Ingazeiras (Paulistana), and Pedra Redonda (Conceiciio do CanindC) dams, and a population of about 30 000. Piaui River: could comprise Petrhio Portela and Aldeias dams in Silo Raimundo Nonato, Jenipapo ( S ~ O Joilo do Piaui), Bomfim, and Nonato (Dom Inchdio), with a target populationof about 75 000. This area would overlap with the ecological reserves of Serra da Capivara and Serra das ConfusBes, and so would have to accord with the principles inherent in these reserves. Rio Itaueira lower basin: at the Salinas dam (Silo Francisco do Piaui) and possibly involving the Vtirzea Grande and Pocos dams, including the possible regularization of river flows. Owing to the proximity of the GurguCia Valley, these two development axes could be linked. 45 Piaui2002 StateEconomicMemorandum TheSemi-AridSoutheast 3.37 Possible developmentof aquatic cultivation (piscicultureand/or hydroponics). The thirteen dams inthe crystalline area inthe southernmost part of southeast Piaui, the most problematic semi-arid area, plus the Bocaina dam and the waters of the lower basins of the CanindC and Itaueirarivers require integrated management to maximize their water capture. This management could allow the possibility o f fish-farming or hydroponic cultivation, high return activities which actually use minimal quantities of water. Although these are expensive (highvalue-added) activities, paradoxically in an area with such scarce water, the creation of small reservoirs (updes) makes them viable. 3.38 Measures to support rain-fed agriculture. Areas not falling under the above ACAIs could be the focus of public programs aimed at improving the productivity of rain-fed agriculture. Here the emphasis would be on diffusingnew techniques to improve soil fertility, animal fertility, and conservation of water and soil humidity (e.g. direct planting -pluntio direto). 3.39 Revampingthe state rural extensionand technicalassistance capacity, including participation of successful NGOs, and integrating with other public agencies, including Embrapa. 3.40 Continued insertion of secondary-levelschoolinginto rural areas. Many of the regions social problems begin when poor rural children are obliged, if their families want them to continue their education, to travel to larger towns, where they often stay the school week away from their immediate families. The incorporation of the middle grades inlocal communities seemsto be an important component of socialpolicy, which merits further investigation. 3.41 Strategicinfrastructure investmentsbased on linkages between mineral deposits in the southeast of the state and agrobusiness needs in the cerradosregion. It i s notable that southeast Piauihas far stronger infrastructure links wit CearB, Pernambuco, Bahia, and with Teresina, than with Southwest Piaui. 3.42 Examination of the applicability of cluster methodologies (c.$ Pronordeste program) to take advantage ofjoint marketing, quality standards, economies of scale in distribution and market research, etc., for given commodities or consortia of producers. 3.43 The updateof state research activitiesrelating to climate, resource use, and agriculture. This would address some of the lacunae ininformation necessary for objective policy formulation, many encountered in the elaboration of this report. 3.44 Formalization of land rights.Unlike insome of Piaui's neighboring states, land rights insoutheast Piauiare generally fairly clearly established: for most land-plots there i s an owner well-recognized by the local community. These ownership rights, however well recognized, are often informal. The priority i s therefore not a registry of land uses and owners for the purpose of assigning rights and uses, as inthe cerrudos, but inthe longer term the formalization of proprietorship will help small-scale producers gain access to credit to finance, for example, fertilizer. 46 Piaui2002 StateEconomicMemorandum TheNortb 4.1 The North and Central North, which we collectively denominate "Northern Piaui," are the most developed of the four meso-regions o f Piaui, with higher concentration of labor, human capital, financial capital, and valuable natural resources. Although these regions have the highest population density, a careful examination of the statistics shows that the North i s very similar to the cerrudos and the sertiio interms of human-capital levels, once removing Teresina from the Central-North sample. This has two implications. First,the advantages of the North and Central North over the other two regions may not be great. Second, Teresina must be analyzed as an entity to itself. 4.2 Nearly 65 percent of the population of Piaui lives inits northern parts.Twenty- nine of the state's 44 urban centers, defined as municipalities with 5000 or more inhabitants, are locatedinnorthern Piaui, while the southern regions have 15. Teresina i s home to one inevery four Piauienses, but the population density inthe North i s actually higher than that inthe Central North, with more than 25 people per km2;this i s 2.5 times more dense than the SE and eight times as dense as the SW (RebClo 1999). 4.3 The combination of urbanization and denser rural areas explains higher government expenditure inthese regions compared to the less populous Southern regions. Public services that are granted to all individuals will be greater inthe Northern regions simplybecause more people live there. It is thus expected that the largest percentage of the state budget i s spent inthese regions. Additionally, highpopulation concentrations deplete natural resources, thus requiring public services. For example, inrural areas outside Cristino Castro, wells can be drilled that provide adequate access water, but this i s simply not possible in urban centers where a large number of people would need to depend on each well. Center-North 4,412,734 40.9 29 15 Total 10,924,006 100 --- --- 44 "Source: Firsttwo columns from author's calculations, PNAD 1999; last three columns from GonGalves Rebelo, EmiliaMaria de C. "A UrbanizaGiio no Piaui" CurtuCEPRO (18: l ) m99-114. Using 1996 data. 47 Piaui 2002 StateEconomic Memorandum TheNorth 4.4 Highpopulationdensity has implications for industrial development. x 8: did the ~~~ Concentration provides an accessible labor ui was settled from force to potential industry. Industrythat was arriving from Bahia, but the most populous builtaround the naturalresources of the north centers are in the North of the state. Two hypotheses are put forward by GonGalves (carnatiba transformation) was one of the (2000). First, jobs in the North drew drivingfactors of the urbanization inthese individuals out o f agriculture and into cities. In regions (see box 8) and, and population particular, carnadba is to blame. Men and concentration has the potential to attract women moved into the cities to work in further industry. carnadba processing at the same time that agriculture was losing government support. The second theory is that the provision of 4.5 Residents of Teresina have the highest public services in the cities enticed individuals levels of education and health inthe state, to leave their own homes in search of while human capital levels inthe rest of educational and health opportunities incities. northern Piaui are similar to the South. Piaui's Source: GonGalves (2000) human capital i s concentrated inTeresina. Functionalilliteracy rates range from 35 percent inthe Central North to 52 percent inthe SE (see figure). But separating out Teresina, we findthat approximately half of northerners are illiterate, similar to the rest of the state, while only one infour residents of Teresina cannot read. A similar story arises from educational attainment data. Average years of education for the cohort aged 16-30 ranges from 3.3 years inthe North to 5.3 years inthe Central North (see figure). However, separating out Teresina, where the average years of education for this cohort i s 6.5, the average education level in the Central North falls to about 2.9 years, similar to the other regions. It i s notable that, in all regions, men have higher illiteracy rates than women by 2-6 percent and they have less formal education than women, by up to two years. Similar results are seen with health indicators - the difference between the Central North and other parts i s explained by Teresina. Removing Teresina from the Central North sample, it has the worst self- reported health indicators among regions inPiaui. North 72.4 5.0 Piaui 7.35 5.3 Source: CPS/FGV from PNADLBGE 4.6 Money wealth i s concentrated inTeresina, with the rest of the Northern regions having wealth levels similar to the Southern regions. It i s not surprisingthat money wealth i s concentrated inthe largest urban centers, since these are more monetized than rural areas both interms of payment for labor (wages rather than in-kindproduction) and of exchange (money rather than barter). Median monthly wages and earnings are highest inthe CentralNorthand lowest inthe Northand Southeast. However, again removingthe 48 Piaui2002 State Economic Memorandum TheNo& CN N SE SW THE CN w/o THE city of Teresina from the Central North sample, this region has monthly median earnings similar to the rest of the state. 4.7 Although urbanization began inthe northern regions of Piaui in 1950, the industrial sector i s very weak. Industry to this day remains concentrated inthe North, comprising 0.37 percent of all industrial firms inBrazil and 0.28 percent of industrial employment inBrazil, proportions that have not changed inthe past 20 years. Industry i s centered around labor intensive, low capital production of clothing, shoes, chemicals, drinks, food, and minerals, with low wages and low profits, despite the industry comprising 28 percent of measured GDP (Melo Macambira, 2000). 4.8 Maps of Piauipaint a clear picture of how northern Piaui has the most infrastructureinthe state. Roads connect most of the urban centers (of 5000 individuals or more), approaching Teresina and Parnaiba from all directions. Roads connectingPiaui to the neighboring states also leave primarily from the north to Maranh2o and CearB. Households inthese regions have most access to water, sewerage, and telephone service. Although Teresina raises the northern infrastructurenumbers, if Teresina i s omitted, the northern regions still have more infrastructure than the two southern regions. 4.9 Teresina acts as a magnet. Teresina possesses two features that make it the intellectual and economic center of the state. It i s home to the state government and also to the largest state universities. Perhaps45 percent of the population of Teresina works directly for government and another two to three times as many indirectly serve public 250 200 150 100 50 CN N SE sw THE CNw/o THE 49 Piad2002 State EconomicMemorandum TheNorth officials ingoods and services. Although public salaries are low (averaging 588 reuis per month), they exceed earnings in any other sector. The universities draw the brightest youth from the state, who often stay after completing their studies, partly explaining the higher levels of education inthe capital city. 4.10 The Delta of the Parnaiba river, the richest eco-system inthe Northeast, i s located inthe north. Perhapsthe greatest naturalrichness inPiauiare its coastal waters andthe delta of the river Parnaiba. Although Piaui has only 66km of coast, it i s still relatively unspoiled. The water i s clean, the delta's fragile eco-system i s intact, and the beauty of the naturalbeacheshas not been irrevocably damaged. These resources lend themselves to a different type of development than inthe southern region, where fertile land i s the main resource. Here, the potentially high-profit industries of tourism and shrimp farming are possible. Although these industries are developing, their unmanaged growth has the potential to destroy the richness of the coastal region. 4.11 Natural conditions inthe Northern regions lend themselves to small scale agriculture. Except for the Coastal region, the northernregions of Piaui are not well suited to large-scale agriculture. The cerrudos region has its rich soil andthe sertco piauiense has water reserves, but northernPiaui shares neither. Small family agriculture i s the predominant model, mainly for subsistence with little for export. The exception i s the extraction of carnadba products, which are the second largest export from Piaui (see box 9). 4.12 The State Government's strategy for the North includes two components: managed growth of urban and environmentally fragile environments and investment in specific industries.Here we address five issues that are primarily, though not exclusively, relevant to northern Piaui: (i)managed urban growth, (ii)managed environmental protection, (iii)small-scale agriculture, (iv)tourism, and (v) shrimp farming. Box 9: ~ ~ $ ~~ ~Piaui`si ~ ~ ga~ - ~ ~ ~~ t ~ ~ a ~ y Carnadba, the palm tree that grows abundantly in the North and North Littoral of Brazil, has played an important role in Piaui's history and economy. Extractive activities from carnadba - harvesting of the wax from the leaves - are credited with the impetus for the growth of many small towns in the North Littoral, primarily the towns around the River Parnaiba and those to the east, including Campo Maior, Piracuruca, Piripiri, JosC de Freitas, Oeiras, and some towns in southeastern Piaui. In the 1940s, 70 percent of public revenues came from sales tax on carnadba and today it represents almost 28 percent of the exports from Piaui, being the main agricultural product destined for export. Carnadba extracts were usedinthe production of records and today it i s an input to computer chips. Carnaliba i s also blamed for limiting industrial development in Piaui. During the import substitution industrialization phase (1950~-1970s),the state was dependent on carnadba sales, but this agricultural product could not generate sufficient wealth to allow the State to invest in production and infrastructure. In recent times, the potential social benefits from carnadba are also limited, since many carnadba plantations are owned by a small elite. Source: Melo Macambira (2000) I 50 Piaui2002 State EconomicMemorandum TheNorth 4.13 UrbanizationinPiaui i s attributedto the attraction of urban services -health, education, or infrastructure- or an absence ofjobs that drives people out o f rural areas to towns where wage-labor jobs are available. Census data shows that Teresina grew 2.03 percent per annum between 1991 and 2001, as compared to a growth rate of 1.09 percent for the whole state of Piaui and 1.64 percent for Brazil (see table below). The higher growth rates of Teresina are owing to immigration. N o other municipalities inPiaui with large towns are growing at or above the national average, suggesting that these towns are losing people to migration. Furthermore, municipalities with large regional towns, such as S2o Raimundo Nonato and Corrente, also have growth rates below the national average. The municipality with the highest growth rate i s tiny Caxingo. Caxingo 4147 4.27 Source: Census 2000 4.14 Jobs are a key reason for migration, especially from the interior of the state. Of the 22 percent of workers inthe interior of the state who want to migrate, 43 percent would do so because they earn little intheir current jobs, compared to 28 percent of those inTeresina who would migratefor this reason. Public services are also more of a motivation for migration of those inthe interior compared to workers inTeresina. ,workers, ercent d- percent who wish to migrate 11.0 22.1 Health 0 3.0 Source: Table B7 inFundup30 Cepro (2000) 4.15 Concentrated urban services seem to be limited to Teresina and Parnafba. Excluding them from the sample, service allocations are similar across Piaui (table below). Teresina offers the most public services, with more than 85 percent o f its 51 Piaui 2002 StateEconomicMemorandum TheNorth populationhaving access to runningwater, garbage collection, and electricity (compare the SW, where 30 percent have access to runningwater, 6 percent to garbage collection and 57 percent to electricity). However, access to services inthe Central North and the North, once excluding Teresina and Parnafba from the sample, are similar to the less densely populated SE and SW regions. I= Table: Pubiic services Running water 87.3 28.7 45.9 32.0 37.4 29.6 I Garbage collection 84.8 15.2 24.0 21.8 20.3 5.9 Electricity 98.7 66.0 75.3 74.3 52.5 56.7 Source: CPSFGV from data from PNADDBGE. 4.16 Human services - namely health and education - are concentrated inTeresina. The table below shows that people living inthe Central North, and inparticular Teresina, are more likely to have useda health service recently or visited the dentist inthe past two years. The other regions have lower statistics, though the gap inhealth care i s not as great as seen with public infrastructure services. Children particularly benefit from living in Teresina since nearly three-quarters attend pre-school, half of the 11-14 year olds are attending grades 5-8, and a quarter of 15-17 years olds are attending secondary school (segundogruu). This compares favorably to the rest of the state, with 25 percent fewer children ineach category enjoying these services elsewhere. This may be due to access, direct costs of education, or the valuable alternative use of children's time. 6 5 Years verage 4 ~ d 3 ~ ~ ~ ~ i ~ ~ (1999, P N A ~ ) CN N SE SW THE CNw/oTHE 52 Piaai 2002 StateEconomicMemorandam TheNorth Usedhealth 13.1 11.1 8.5 7.0 10.8 7.6 service inpast two weeks Dentist inpast 2 65.2 28.2 30.7 29.1 27.6 23.1 years 4-6 year olds in 73.4 57.4 55.4 50.0 54.1 59.0 school 11-14year olds 49.7 16.1 17.4 15.1 18.6 22.6 in school 15-17 year olds 28.1 3.5 3.8 2.3 12.1 5.1 inschool Source: CPSEGV. Fromdata fromPNADABGE 4.17 To conclude, although population density i s greatest innorthern Piaui, and these are the most urbanized areas, outside the main urban centers bothpublic and human services are provided inthe same quantities as the rest of the state. Teresina's clear advantage inpublic services encourages migration to the city. Although urbanization i s not yet a problem, and the city i s able to serve the majority of those who arrive, it does have the potential to become problematic with erratic growth, poor public services, greater poverty, and the behaviors that evolve from these (violence, illegal activity, family breakdown, street children, etc.). Reducing incentives for the rapid growth of Teresina i s therefore a key strategy (see box 15 on PROURBin CearB). 53 Piaui 2002 State EconomicMemorandum TheNorth ox 10: `"PROURPI"in Ceara The PROURBinitiative in Cearti has financed housing, water, sanitation, and other urban infrastructure investments in 44 medium-sized cities spread around the state. CearB has experienced urbanization that has exceeded the average rate in NE Brazil, despite population growth below the national average. In response to this trend, the government chose a strategy of "interiorizing" (interiorizar) urban growth, that is, investing in strategic urban poles with the aim of encouraging migration to those smaller cities instead of the metropolitan area of Fortaleza. Under the program, 44 "Urban Master Plans" were developed, including land-use plans that were passed into legislation, and making use of aerial photography to guide and monitor land use. The programs funds ($150m, although the program also included increased municipal taxation to pay for additional investment, which increased revenues by about 40 percent in 40 municipalities) were used to finance 15,000 water connections, 24,000 drainage systems, 13,000 electricity connections, 1.2m square meters of road paving, 12,000 houses, 99 town squares, and 54 crbches. The program also supported community councils and training courses for adolescents. The Government of Cearti has been pleased with the successes of PROURB, and is now planning a follow-up program of investments, "Cidades do Cearti," which, among other modifications, will contain additional components for the Metropolitan Region of Fortaleza. From the point of view of Piauf, the key feature of PROURBhas been its strategic decision to focus on 44 cities with the greatest capacity to act as local urban centers, offering a higher level of public services than i s possible to give generally across the whole population, and thus serving as regional migration poles, both recognizing and attempting to cater for local migratory flows in a managed way. The program benefited from technical inputs through bilateral cooperation from the EU, Portugal and Israel. As relatedelsewhere inthis report, Teresina is not suffering from peri-urban problems as acute as the Metropolitan Region of Fortaleza. But informal urban settlements are increasing, and slowing and/or formalizing this development should be a priority of the state and the municipality. A strategy of selecting urban poles outside Teresina on which to concentrate scarce resources i s probably the best way of increasing urban living standards in the state in the short term. In the case of Piaui, with a smaller population and fewer medium-sized cities, the likely number of urban poles should probably be considerably less than 44. One challenge would be to ensure that their selection be made through a suitably transparent process based on objective technical criteria. A second key feature of the Cearti program relevant for Piaui has been the use of integrated urban master plans to delineate land use, plan investments, and monitor urban development through the lifetime of the project. It may be an option for the State of Piaui, after identifying the focal municipalities, to support institutional development of this kind at the municipal level. Source: Government of Cearti 54 Piaui 2002 StateEconomicMemorandam TheNo& 4.18 The marine and coastal areas of Piaui are a complex zone where various ecosystems interact. This enormous biodiversity provides the setting for numerous economic activities, including industry and small-scale or subsistence artisan fishing, mariculture, eco-tourism, research, environmental education, and extractive activities. Furthermore, the second largest city inPiaui i s located inthe coastal region. Any one of these activities, if practicedextensively, has the potential to damage the environment b y exceeding the caring capacity of the environment or by over-exploiting natural resources; the coexistence of several activities could be fatal for the ecosystem. 4.19 Existing activities are already harmingthe coastal ecosystems. Land conversion - alteration of land to prepare it for new economic activities - i s degrading coastal habitats, including mangroves, estuaries, and coastal lands. Coastal water quality has declined throughout the region due to increased discharges of untreatedmunicipal waste; this also leads to beach erosion with its negative implications for public health, shorefront properties, and tourism. Coastal resources are being over-harvested, and conflicts are arisingover access to traditional fishing areas, natural resources, and clean fresh water sources. The inland effects are more relatedto soil erosion, chemical contamination b y pesticides and fertilizers, and biodiversity losses, among other factors. The absence o f a longrunland use plan, an incomplete property right registry, low education and poverty have fostered poor use of natural resources. These social and environmental problems have a spatial dimension andsolutions cannot be implemented without consider it. 4.20 The government of Piaui, with the support of the Ministry of Environment, i s devising a sustainable development Box 11;~h~ EEZ rat strategy for land and natural resource use Ecological-environmental zoning (EEZ) is a powerful tool inthe Coastal areas. The strategy hastwo with many uses. While the more common agricultural- main tools: the National Programfor environmental zoning (AEZ) only focuses on the Economic and Ecological Zoning (PZEE) relationship between agricultural practices and the and Brazilian EnvironmentalLaw (BEL). environment, EEZ considers all practices that may affect land use patterns and the environment. The general The PZEE's primary objective i s to map objective of EEZ i s to classify land based on its bio- the ecosystems inthe coastal region (see physical and socio-economic factors, but the specific type box 11this page for a general discussion of zoning depends on project objectives. For example, an of zoning). This map provides the economic development plan would use zoning maps to environmental information necessary for identify areas with similar productive potential and constraints; this would allow the State to better provide the creation of a strategic plan of development programs, services or financial incentives productive investment based on non- such that investors would use the land in the most destructive use of natural resources. sustainable and desirable ways. Or, intermsBf environmental protection, zoning can identify areas with 4.21 The State of Piaui would benefit special needs and problems that may needprotection or from zoning inthe coastal region (and conservation. Thus, an area may be zoned in very different ways, which highlights the complexity of assigning natural throughout the state) since its economic resource user rights since competing objectives of some development has been accompanied by a stakeholders will not be compatible. progressive degradation of natural Source:FA0 resources. Adequate, frequent, and timely 55 Piaui2002 StateEconomicMemorandum TheNorth implementation of the PZEEwould allow the State to: 0 improve the property rights system and registry procedures inresponse to the strong demand for the clarification of land property rights inrural areas. This would also serve to decrease the incidence of social conflicts and stop the irreparable damage to natural resources that are perceived as public (rather than privately owned) goods. 0 track over time changes innatural resources especially water and coastal - area use. The PZEEwould establish baselines over geographic area inorder to manage anddevelop surface and ground water supply resources ina coordinated and efficient manner on a state, local, and regional level, considering long term needs and environmental impacts. 0 maximize the effectiveness of infrastructure and services by better locating access roads, urbanization, small irrigation and sustainable productive projects. 0 better understand the implications of the existing environmental and land tenure laws such that they can be modified as conditions change. 0 create the appropriate enforcement mechanismand guidelines to regulate natural resource use to minimize environmental damage. 0 conduct environmental risk and impactassessmentof natural resource use in order to not permit the development or continuation o f practices that are excessively damaging and proposing alternatives to minimize the impact on the environment. 0 plan residential, commercial and mixed-use areas that are compactly grouped, attractive, and compatible with the ability of land and water resources to support the development as well as with the level of public facilities and services available. 0 increase the competitiveness and income levels of Piauienses by placing productive activities in selected areas with proven potential, by effectively linking rural roads to the main highway network, and by improving access of rural communities to markets, off-farmsjobs, education and social services. 0 establish and strengthenparticipatory, multisector planningof land management, thereby also buildinglocal institution and enhancing the community investment capacity. 4.22 Once the PZEEi s done, it i s used as a basis for the formulation of public policies for land and natural resource use. The objective of the BEL and the corresponding state laws i s to prevent environmental damage by, for example, outlining environmental zoning, designing environmental policies for all sectors, providing licenses for land and natural resource use, reviewing actual or potentially polluting activities, setting aside areas under special protection, assessingenvironmental impacts, imposingfines and penalties on those who abuse their rights, and undertakingenvironmental audits. 4.23 The environmental laws, not the zoning, limit the productive use of land inthe Coastal regions. Analysis of the conclusions of a zoning exercise for Piaui shows that the actual uses of fragile, semi-fragile and stable areas are almost identical to the potential uses identifiedinthe zoning exercise, with a few exceptions (see map on the next page. 56 Piaui 2002 State EconomicMemorandum TheNorth These exceptions are mainly driven by the emphasis that zoning puts on controlled use and conservation of certain resources inthe area. However, environmental law strictly regulates the use of natural resources, especially inthe most fragile areas such as mangrove forests and wetlands. Furthermore, if the fragility of an ecosystem i s not understood, environmental law has been known to deny all access rather than work toward understanding the potential hazards and assigning appropriate legislation. This strict regulation i s usually associated with highenforcement costs, which result inillegal use of the resources. 4.24 Strict environmental regulation has also caused social problems. The PZEE and environmental laws have at times been developed without takinginto sufficient consideration local populations that have lived off the riches of the Coastal zone. Local communities, as well as private investors, who are already living or undertaking productive activities in areas that were recently mandated as "protected," are left without their previous livelihoods. 4.25 A weakness of the current PZEE is that it does not address land and natural resources uses that accompany productive activities. For example, road construction or sewerage treatment capacity of the coastal regions is not included inthe analysis of the zoning exercise. A failure to recognize transportation infrastructure, for instance, could leadto an unsustainable and inefficient outcome, dependent on private automobiles, with increased air pollution, leademission, and traffic congestion. 57 Piaui 2002 State EconomicMemorandum TheNorth Urban expansion; controlled mining; construction of roads; Stable Areas West CoastalTrays shrimp farming and underground water sources. Latosoils Agro-forestry systems; agriculture, and agro-grazing systems 58 Piaui 2002 StateEconomicMemorandum TheNorth 4.26 Small scale agriculture, defined as family production for the purposes o f this section, i s widely practicedinthe northern regions o f Piaui, but its contribution to the state GDPi s small. The northern regions have neither particularly good soil nor high quantities of water for irrigation. Thus, subsistence agriculture i s the main type o f production inthe North andNorth Literal, with some extractive industry as well. 4.27 The fruit industry may be taken as a case study o f small family subsistence agriculture that has export and economic development potential. Fruitproduction only generatesR$24.3m annually, spread across eight main products: cashew, mango, coconuts, oranges, pineapple, banana lemon, and watermelon (see table below) This i s surely an underestimate since a large portion of agriculture i s for auto-consumption, but it also demonstrates the limited income generation of an activity to which a large portion of the rural northernpopulation devotes itself (da Silva Nunes, 2001). 4.28 Fruitproductionis apriority of the Government of Piaui. Boththe national government and the Government of Piaui are involved with nearly all phases of production -price subsidized seed, energy subsidies, lower taxes for agricultural producers, technical assistance, credit support, transport of the goods to market, and sale. Assistance comes inthe form of loans from the Banco do Nordeste; loans, technical assistance, and research via EMBRAPAand EMATER; loans and technical assistance from UFPI; andloans from SEBRAE (Adauto Olimpio 2001, da Silva Nunes 2001). On the one hand, government interest isjustified, since the northernregions have comparative advantage infruit production due to its moderate rainfall and climate, the composition of the soil, and the proximity of the internal market -most of the population of Piauii s inthe north, as i s the infrastructureto other states and countries. However, nearly all production i s small scale, so productive output i s limited. Piaui i s not self- sufficient in any of the fruit listed inthe table above. 59 Piaui2002 State EconomicMemorandum TheIVorh5 Quantity Export Export Quantity Importsource (intons) (intons) destination (in tons) Cashew 33,400 8000 US, Europe 24,600 Cearii Mango- 708 0 Altos, PI 215 Coconut 278 0 4700 CearB, Pernambuco, Bahia, Sergipe Orange 14 0 7954 Cearfi, Pernambuco,Bahia, Sergipe I. Pineapple 0 0 4900 Cearii, Pernambuco,Bahia, Sergipe, Maranhao Banana 2284 0 12265 Cear6, Pernambuco,Bahia, Sergipe Lemon 112 0 360 Watermelon 6050 0 7200 Cear6, Pernambuco,Bahia, Sergipe - _ Passionfruit 283 0 1860 Melon 37 0 1861 Rio Grande do Norte Source: CEASA-PIas cited inda Silva 4.29 Most small-scale fruit productiontakes place with little technology, no irrigation, little treatment of the soil, and little "soft" technology interms o f knowledge o f efficient techniques. Family labor i s employed to cultivate and prepare the outputs for market, which also requires a degree of skill. Low quality inputsresult inproducts that are smaller and of lower quality than international standards, making sale difficult, particularly for export. Piauihas the potential to increase the sophistication of its fruit production, as demonstrated by modern agribusiness that applies the latest techniques to produce fruit both in and out of seasonthat i s of the quality required for export (Adauto Olimpio 2001, da Silva Nunes 2001). 4.30 Fruitagriculturehas the potentialto create manyjobs. Cultivation andpackaging are labor intensive. Unlike grain harvesting and preparation for market, which are capital intensive, most fruit mustbe handpicked so as to not damage the fruit or the trees. Furthermore, even with modern processes, delicate fruit must be carefully sorted and cleaned by hand. Duringharvest (June-December), 30 rural workers are requiredper hectare to harvest and prepare cashews (as compared to one person per 200 hectares in grain production). These jobs are often heldb y women, opening a source of stable employment for low-skilled women (Adauto Olimpio 2001). 4.3 1 Agriculture, even of small scale, i s skill intensive. Agricultural production for export will not expand without increasing the skills of the small farmers both as producers and business people. The fruit that are currently produced may find a local market but higher quality i s neededfor export. This will require not only financial capital to improve production processes, but also continuous technical assistance to small farmers. 60 Piaui 2002 State EconomicMemorandum TheN o r t h 4.32 Piauiexports raw agricultural products to other states inNortheasternBrazil to be processed for export to the rest of Brazil or internationally. Value added to agricultural items through processing for export i s significant; for example, processing of cashew nuts i s 23 percent of the value of the nut. However, few processing industries exist due to two primary factors: (i)small scale raises the transaction costs of processing industries; (ii) financial markets do not permit inter-temporal smoothing. Even after high logistical costs, managers of cashew processing plants in an industrial park inPiauipoint to a lack of trade finance. Without collateral, they cannot even buy the primarymaterials (Adauto Olimpio 2001, da Silva Nunes 2001). 4.33 Most fruit production inthe northern regions i s consumedby its producers. The lack of commercialization has been attributed to the lack o f a "culture" o f growth for export, or a lack of understanding of how to prepare the goods for market. However, as the table above showed, there i s a demand for these products within Piaui, since they are imported from neighboring states. 4.34 Piauiense are rightly proud of their natural and cultural richness. In 1998,688 000 tourists visited Piaui (Ferreira, 2001), spendingUS$70 million, with a multiplier effect of US$142 million- 2.4 percent of state GDP (Teles, 2000). Primary attractions are the capital city, the coastal region near the Parnal'ba Delta, and the archeological sites of Sete Cidadesand ParqueNacional da Serra da Capivara, with their cave drawings and remnants of ancient mankind. Piaui i s home to 58 percent o f the archeological sites inthe Northeast of Brazil and 16 percent o f the sites inBrazil (Teles, 2001). As Teles (2000) states in a recent study of tourism supply, "the State of Piaui enjoys a hightourism potential. It i s blessed with a diverse base of tourist attractions coming from natural, cultural, and paleontology sources." 4.35 Despite the supply of potential tourist sites inPiaui, tourist flows and receipts are very low, so the Government of Piaui i s makinga concerted effort to increase tourism in the state. The State Government has commissioned studies on tourism potential inPiaui and i s involved inPRODETUR - a national program supported b y multilateral organizations to use tourism as an engine of development inNortheastern Brazil (see box 12), capitalizing on the beaches and colonial heritage of the region. As part o f the strategic tourism plan, the government of Piaui has identifiedfive tourist regions, each with distinct types of tourism and specific investments, as a focus for development: 3000 - - - - I Tourists per year (`000) (Embratur) 1000 500 0 61 CE BA PE MA PB RN PI AL Piaui 2002 StateEconomicMemorandum TheiVorth The NorthLittoral - ecotourism inthe delta and coastal region Teresina - events andbusiness tourism (conventions, fairs) Serrana-techno-scientific tourism inthe three national parks (Sete Cidades, Serra de Capivara, and Serra das Confusees) MCdio Parnafba - cultural and religious tourism inthe colonial towns and around religious festivals GurguCia -rural tourism around the agribusiness. 4.36 Despite careful supply studies, demand studies, and work with PRODETUR, the potential for tourism growth inPiauii s limited by several factors: (i)The riches that it offers exist inhigher quality and greater density elsewhere inthe Northeast, (ii)the truly unique offerings - the Serra de Capivara and the Delta region - do not meet the interests of many domestic tourists, and are too inaccessible andunder-developed for international tourists. Overcomingthese limitations by offering better services, improving infrastructure to link tourist sites inthe state and lower the cost of travel time, and constructingtourist infrastructure (hotels, restaurants, man-made tourist attractions) i s costly and risky in an industry prone to suddenchanges inmarket forces and high competition. The nine states of the Northeast, in collaboration with the Federal government and multilateral institutions, have identified tourism as a key source of economic development in the Northeast of Brazil, owing to the region's comparative advantages in terms of abundant, low cost labor and scenic and cultural resources; and owing to the large internal market for tourism. The Tourism Development Program (PRODETUR) was established to provide the conditions for tourism development. PRODETUR-I, which was active from 1994 to 2001, had the objective of removing constraints to tourism growth by providing resources for the construction of infrastructure and public services, protection of historic and natural attractions, and institutional development. In Piaui, investment projects included basic sanitary systems (1999-2000) and studies on land use, environmental impact, an archeological tourism plan, a strategic tourism development plan, road development, and institutional strengthening. During the implementation of PRODETUR-I, economic and social changes were observed inthe target states. Tourism investment increasedby US$4 billionto US$6 billion while tourist visits increased by 12 million per year, with 90 percent of these tourists being Brazilian. An average of 1.2 million jobs were created, generating US$1.4 billion, and government revenues increased US$400 million. Along with these benefits, costs were also incurred: rain forests, mangroves, costal reefs, and natural ecosystems were damaged; immigration increased andfavelas emerged; and private building on protected lands occurred. Although state-specific data were not made available, it is estimated that most of the costs and benefits accrued to the states of Bahia, Pernambuco, and CearB. PRODETUR-I1 was recently established with a new model that builds on the lessons learned from PRODETUR-I. The new PRODETUR has the objective of improving the quality of life of the permanent population in tourism poles - regions that are deemed possible sources of tourism growth. One pole was identified in Piaui: the region of Teresina, Parnaiba, Luis Correia, Cajueira da Praia, and Ilha Grande de Santa Isabel. Development of the pole through investments in infrastructure, training, and marketing i s slated to begin in 2002. Source: IDB 62 Piaui2002 State EconomicMemorandum TheNorth Existing Demand 4.37 Touristflows in Piauiare low compared to the Northeast of Brazil. Only Alagoas attracts fewer tourists than Piaui (see figure below). The main attractions are the states of Cear5 (2.7 million tourists annually) and Bahia (2.6m), responsible for 58 percent of all tourist to the NEand 21percent of all tourism inBrazil. Piauireceives 0.69 million tourists annually. O f these, 99.5 percent are Brazilian, 65 percent are from the NE, and 33 percent arefrom the state of Piaui (Teles 2000). ~~~e state of tou~~st§. Jutv 1 Number Share of total (%) Number Share of total (%) Piaui 199 31.6 156 31.3 Ceari 111 17.6 96 19.3 Maranhiio 103 16.4 54 10.8 D.F. 73 11.6 73 14.7 Sao Paulo 30 4.8 25 5.O Pernambuco 17 2.7 16 3.2 Rio de Janeiro 24 3.8 22 4.4 Para 15 2.4 11 2.2 Bahia 11 1.8 10 2.0 Goias 11 1.8 0 0 Other 54 5.7 35 7.03 Total 630 100.0 498 498 "only the tourist flows by capital city, not total. Source: SUDENEKTWADE cited in Ferreira 2001 4.38 Three of every four tourists are either traveling on business or to visit family or friends, suggesting that tourism development inPiaui i s not primarilybased around the states' natural and cultural attractions. Of those who arrive inPiaui through Teresina, the main airport of entry to the state, 44 percent reported that they were traveling on business while 30 percent were visiting friends or family. Only 8.6 percent traveled to the state for vacation. Only 30 percent of all tourists arrive by airplane, so these statistics may understate leisure travel. The second two columns of the table below list the motivation of travel of those tourists inTeresina and the Delta Region - the two primary tourist destinations inthe state. Two-thirds of the tourists to Parnaiba are leisure travelers. 4.39 Expenditureper tourist is low. A tourist spends an average of US$86 per day in Teresina and US$48 per day inthe Delta. Nearly 60 percent of expenditures are on hotels, though 63 percent of travelers to Piaui do not stay inhotels, but stay with friends or relatives. Other daily expenditures per tourist are much lower, averaging US$20 in Parnaiba and US$30 inTeresina for food and attractions. This i s low compared to the average for the NE, where expenditure per tourist are 10percent higher: 5.8 percent o f tourists to the NEtravel to Piaui but only 4.3 percent o f receipts are spent there. 63 Piaui 2002 State EconomicMemorandum TheNorth Business 31.91 44.02 38.0 16.6 Visit family or friends 25.03 29.9 36.2 18.5 Vacation 34.4 8.7 10.8 63.7 Convention 3.7 2.5 I.9 0.2 Other* 4.9 1.9 13.7 0.9 * this category include health and religious motivations for travel. For Teresina, health is the main response inthis group. Source: GTP/CTI-NE cited inTeles 2000; SUDENEKTWADEcited inFerreira 2001 Average duration of stay (days) 8 7 7 7 Source: GTPKTI-NE cited inTeles 2000; SUDENEKTWADE cited inFerreira 2001 Hotel 20.9 31.9 Other 16.3 20.8 Source: GTP/CTI-NE cited in Teles 2000 4.40 Tourism specialists distinguishbetween two types of potential tourists to Piaui: domestic and international. Brazilian tourists are currently attracted to luxury tourism at beaches, which they supplement with colonial and ecological attractions that are easily accessible from resorts. The eco-tourism and anthropological attractions of Piaui are not highonthe typical Braziliantourist's list. Most visitors to the Serra de Capivara, for example, are students, researchers andjournalists, not general tourists with large amounts of money to spend (Ferreira Lima 2000). International tourists do have higher demand for eco- and learning tourism, but here the competition i s worldwide. Internationaltourists will only be attracted to Piauiif (i)Piaui offers something truly unique for which close substitutes do not exist (such as Iguaqd Falls) or (ii) Piaui's attractions are easily accessible andbundled such that scarce vacation time i s not lost intravel. As pointed out by an international tourist market analysts, U S tourists spend an average of seven days on vacation, which does not permit the travel times required to reach Piauithrough Siio Paulo or Rio de Janeiro, nor day-long trips from Teresina to the coast, Serra da Capivara, or Sete Cidades. If one of these conditions i s met, then tourism infrastructure -hotels, restaurants, guides who are knowledgeable about the attractions, transportation, and so forth - must meet international standards. Finally, business tourism also looks for a bundlingof attractions to accompany conferences. 4.41 Unregulatedtourist activitieshave thepotential to destroy the natural and cultural richness of the state. Large numbers of people who pass through fragile eco- systems or priceless cave drawings have the potential to cause damage. Inthe Parnaiba Delta, large numbers of tourists use the beaches, walk on the dunes, and use hotel facilities requiringappropriate sanitation, water, and garbage removal. Suppliers of 64 Piaui 2002 State EconomicMemorandum TheNorth tourist activities have the incentive to serve as many of the tourists as possible, leading them to set up tourist services that are ecologically damaging, such as the large party- ferries that pass through the mangroves on their way to the dunes. With respect to the cultural patrimony, modern visitors have already damaged cave drawings in Serra de Capivara, for example. Supplyof TouristInfrastructure 4.42 Muchtourism infrastructureinPiaui i s missing or substandard. Tourist demand exists on a small scale, but the quality and supply of hotels and tourist services are low. Piauihas only two 5-star hotels and most are much lower standard (Teles 2001): this limitstourist expenditure as moreelite tourists do not visit. Although Teresina has more hotels than Sgo Luis, the capital of Maranhgo, it has the lowest hotel capacity of any capital city inthe NE(Teles 2000). Infrastructure, sanitation, and public security are also lacking. Hotef caaacitv in Piaui Hotels 78 25 29 27 Source: Teles (2001) 4.43 Tourism i s a human-capitalintensive industry in which Piauihas not invested much human capital. Tourism i s a service, so the attractions of Piauiwill earn a high price from tourists only if they are complemented with human capital. But little human capital i s dedicated to the tourism industryinPiaui. Recent training via PRODETUR-I, executed by PIEMTUR (Tourism Company of Piaui) inParnal'ba and Teresina, reached 363 students inthe year 2000; 86 percent of the students studied administration or management while the remainder (57 students) were trained in services (Ferreira Lima 2001). To attract high-valuetourists, higher quality services must be offered-waiters mustknow how to treat customers, guides mustreceiveinstruction inthe sites they are leading tourists through, shopkeepers must understand how to bargain, and so forth. 4.44 The conclusion i s that Piaui's expectations with respect to its tourism be realistic. First,tourism will not inthe near future be the driver of Piauiense economic growth. In the presence of scarce investment resources (see Chapter 5), large infrastructure investment should not therefore be channeled primarily according to tourism-related criteria. Second, Piaui's tourism strategy (particularly inthe Delta) should not be driven by volume, but shouldfocus on ecological and historical preservationand associated activities. This also suggests that infrastructure may not be the central parameter determining the success or failure of Piauiense tourism. Third, a key parameter of Piaui's tourism development shouldbe coordination with neighboring states ininternational marketing, since the state has a problem of small scale in selling its tourist attractions. 65 Piatri 2002 State EconomicMemorandum TheN o r t h 4.45 Shrimpcultivation is anew industry inPiaui, buthas grown rapidly. Although cultivation dates to the 1980s, it began in earnest in 1990. Approximately 600 hectares in Piaui are now under cultivation (10 percent of the NE total), but it i s estimated that 15 000 more hectares are suitable. In2001,760 tons of shrimp were exportedto the rest of Brazil or internationally, earning US$5.7 million for the state. This was 50 percent more than the previous year. 4.46 Piaui has a comparativeadvantagein shrimpproduction. The land i s flat with deep estuaries and good soil. The weather i s stable with little variance intemperature and rainfall. Water temperature i s likewise stable. These factors allow year-round production with two to three production cycles per year, which only occurs in some regions of Asia and Latin America. 4.47 Shrimpproduction is a profitable industry thatprovides clear benefits to the state. As demand for shrimphas out-stripped supply inBrazil and worldwide, the price of shrimphas continuously risen since 1994. Risingprices haveledto risingprofits of R$30 000-R$40000 per hectare, ten times that from rice production, for example. Furthermore, 3.6 to 4.0 jobs are created per hectare, with 1.3 to 1.7 infarming and 2.3 in other activities inthe production chain. InEcuador, 300 000 people work in shrimp farmingand another 1.5 million support their activities. 4.48 High social and environmentalcosts may accompany the industry if not properly managed. Shrimp farming has the potential to deplete natural resources if it i s not properly managed and monitored. Box 13 below discusses the case of Honduras, where shrimp farming was put completely inthe hands of the private sector, with little government regulation or local oversight, resulting inenvironmental degradation and social conflict. Box 14 discusses the case of Mexico, where shrimp farming was introduced more gradually, control of land use was shared by the producers and the community, and the government had a carefully-planned strategy that addressed the concerns of both producers and local residents. 4.49 The rapid growth of the shrimp industry has erected some barriers that hinder further expansion.At first, the shrimpindustry inPiaui developed without the required infrastructureto produce or export shrimp. Frozen shrimp mustbe moved quickly to market, but roads are scarce and difficult and the goods mustbe moved to ports in MaranhZo or CearB. Additionally, local linkages - seed production laboratories, processing plants, food plants - are absent, so producers must perform all parts of the production process. Third, the State of Piaui lacks a clear plan for management of coastal resources and has frozen the provision of new licenses for shrimp farming, and increased the uncertainty of returns. Rather than restricting or managing shrimp production, laws block the use of estuaries, beaches, dunes, mangroves, and some water bodies completely, thus limiting production more severely. This can leadto greater environmental damage when unskilled and unregulated producers enter the market illegally and undertake production processes that are environmentally hazardous. 66 Piaui 2002 StateEconomicMemorandum TheNo& ~ ~in the Goif of on^^^^, Hon t ~ y The Gulf of Fonseca, with its rich biodiversity, i s the site o f rapid shrimp farming in southern Honduras. Since the 1980s, this area - covered by mangroves, lagoons, estuaries, mud flats, and enclaves of dry tropical forests - has been the site of rapid development of aquaculture, which positioned Honduras as the second largest producer of farm-raised shrimp in the Western Hemisphere. By early 1993, 11500 hectares of semi-intensive shrimp farm ponds were established in this region, with most of them being in the hands of 25 large producers. Shrimp production ranks third among Honduras's exports and created 11900 direct jobs by the beginning of the 199Os, being credited for revitalizing the economy of the southern part of the country. However, a different version of the of the job creation story i s being told today, in which the temporary nature and low payments ofjobs inthe shrimp industry is of major concern. The expansion of shrimp farms in Honduras was socially exclusionary. Under decree 968 of 1980 and agreement 29, coastal land-use rights were transfer to private exporters. B y 1993, more than 31 000 hectares in southern Honduras had passed from communal use to export development, and some 80 farms operated 11500 hectares of ponds. Until 1993, the Honduran Institute of Tourism had the responsibility of allocating coastal resources and granting concessions to companies and individuals for less than one dollar per hectare per year. Although the cost of the concessions was low, the political influence necessary to obtain a permit was high, thereby denying access to cooperatives, communities, or poor individuals that lived in the region. The local communities that depended on fish, shrimp, shellfish, animals, and wood gathered from the lagoons, mangroves and estuaries in the area were in competition with the shrimp producers over resources, imposing additional pressure on the resources and depriving them of their livelihood. Furthermore private, untitled, and un-surveyed lands were being sold to the shrimp farmers by the government despite the informal land ownership of the local population. These practices led to violent encounters between different producers and also between producers, individuals, and environmentalists. Today, the Gulf of Fonseca suffers from severe environmental degradation characterized by the destruction of the mangrove resources, reduction of water quality, and overexploitation of coastal and fisheries resources. This is a concern not only among environmentalists and local communities, but among producers, since the depletion of resources has also driven down production in large proportions. I t is clear that shrimp production brought high short-term economic benefits to southern Honduras, but it i s also true that it had dramatic implications associated with high economic, environmental and social costs. Some lessons are may be taken from the Honduran experience. First, the importance of a clear national and regional policy for the allocation and distribution of resources among all social sectors, with a clear distribution of property rights, and sanctions to help regulate land use. Second, dialogue among all the parties involved i s vital, so that actions take into account all interests and thus maximize common welfare and avoid violent encounters. Finally, environmental impacts are core to the development of the industry, both for sustainability of the industry and for the inherentvalue in environmental diversity. Source: Dewalt (2000) 67 Piaui 2002 StateEconomicMemorandum TheNorth :ShrimpA ~ ~ in ~~~~~a~ ~ c ~ ~ ~ ~ ~ e Shrimp aquaculture developed through the Ejido system in Mexico - Ejidos are communal agrarian organizations established and endowed with land by the Mexican Government, composed of 20 or more persons or organized in cooperatives - and the laws governing water use. Since the Mexican Revolution o f 1930, the property rights of arable land and coastal areas have been inthe Ejidos' hands. Ejidos were given the right to capture, cultivate, and process most of the seafood species in their allotted waters; thus preventing the private sector from aquaculture pursuits. However, the Ejidos did not have full access to the coastal resources, which belonged to the government. In 1992, the Mexican government transferred all property rights to those who had been working the land and modified the fishery laws to allow the private sector to access coastal land, via joint ventures with the Ejidos or through the purchase of user rights from the Ejidos. This arrangement allowed a carefully managed shrimp industry to grow in Mexico, since the Ejidos had an interest in ensuring that the private sector usedthe natural resources in a sustainable way. Mexico's process for the development of the shrimp industry has been socially inclusive, benefiting the local communities, producers, and the environment. The social sector in Mexico actively participated in the development of aquaculture via the property rights structure, and as a result the social and economic benefits of the shrimp industry are better distributed among the private sector and civil society. New forms of association and creative contractual relations have been created to allow both sectors to develop. As a consequence, a formal land market has been developed, increasing the price of land and the value of the coastal resources. Additionally, the slow development of the sector allowed the Government time to design and implement environmental laws. The major environmental problems observed in other countries, such as mangrove destruction and water pollution, are not seen in Mexico. Civil society has an important role in the supervision and monitoring of shrimp farming operations to insure that the environment remains protected. Other productive activities, such as aquaculture parks, hatcheries, and transportation have developed around shrimp production, attracting more investors and workers. As the population increases, the demand for coastal areas and resources increases, forcing the Government to create more Ejidos on marginal coastal areas. The Government must now give incentives for more productive investment and modernization of the production process in order to achieve a socially, economically and ecologically sustainable shrimp industry. Source: Dewalt (2000) 68 Piaui 2002 State EconomicMemorandum TheNorth 4.50 The government of Piaui i s already active in all of the areas discussed inthis chapter - managed urbanization, environmental zoning and legislation inthe Coastal regions, small scale agriculture, tourism, and shrimp farming. As a basis for policy, this section proposes a general strategy for each issue and offers specific actions that could be taken immediately. 4.51 Infrastructure investment in small towns could relieve the urbanization pressures of Teresina. People migrate in search ofjobs and a better standard o f living for themselves andtheir children. However, as stated inRebelo (2000) "small cities allow rural people to live as if they were inlarge cities." Two strategies are recommendedto divert migration away from Teresina: Provide basic services in small towns - sewerage, electricity, trash collection, and secondary schools - along with the employment created through these services. Such a strategy has been successful inthe neighboring state of Cear6 (under the PROURB initiative) where small towns were strategically selected for state investment in infrastructure. Provide quality infrastructure in small towns near production sites to spur industrial growth that would complement the existing productive activities, thus creatingjobs outside Teresina. 4.52 Economically-friendly environmental management is crucial toprotect the riches of the Coastal region. The zoning process, but particularly the attendant environmental laws, are admirable intheir efforts to protect the fragile ecosystems inthe Coastal region. However, the presence of strict laws with weak enforcement has the potential to create more damage than would more flexible laws, since people are illegally usingthe naturalresources without regulation. Additionally, poor legislation, such as outright denial of use of areas where the environmental impact i s minimal or as yet unknown, also breeds illegal and damaging use o f the resources. Thus, an environmentally and economically sustainable strategy would be to impose legislation that i s (a) based on economic analysis of the trade-off between environmental damage and economic benefits, (b) enforceable, and (c) environmentally sound. Options are: Raise environmental awarenessand knowledge amongpolicymakers. Implement legislationbased on the scientific realities of the environment. This will also generate political will, which key inboth designing the laws and enforcing them. Develop economically-friendly environmental legislation. Undertake serious cost- benefit analyses of existing andpotential productive activities to serve as the basis of legislation on productive and support activities inenvironmentally fragile areas. Strengthen law enforcement. As laws are being revised, it i s absolutely necessary to create the mechanisms to control and assure their application. 69 Piaui 2002 State EconomicMemorandum TheNorth 4.53 Government investment in small scalefarmers should emphasize collaboration and marketing of agriculturalproducts, letting the market decide what the farmers shouldproduce. The fruit industry, taken as a case study for small agriculture inPiaui, has very low productive output despite the adequacy o f its soil, weather, and rainfall for higher productivity. This i s of concern, since the state and federal governments are involved inall parts of the production process, from seed subsidization to marketing o f final products. However, low productivity persists, the goods are not appropriate for export markets, and Piauicontinues to import a lot of fruit. Government money may be better spent inpromoting partnerships and inproviding infrastructure for agricultural production rather than prescribing and co-producing the agricultural outputs with the farmers. Options: Develop partnerships with other producers and with the academic and private sectors. Support the development of cooperatives, which can decrease the fixed costs of agricultural production anddecrease the transaction costs of marketing the products. Give incentives for partnerships between agricultural producers and academic or private institutions; this was particularly successful inthe fruit industry inChile, which partneredwith theUniversity of California, Davis, inthe United States (de Ferranti 2002). Basic infrastructure. Create inputs to the production process, including roads, energy, water, and market information, which are public goods, to provide conditions for the farmers to produce the types of crops for which the land and the market i s most suited and lower the cost to transformationindustries. 4.54 High value, low volume tourism is vital if thenatural and cultural riches of the state are to bepreserved. The tourism industryinPiauii s small, but studies for the state have predictedthat the number of tourists could grow into the millions inthe next ten years. The danger of this strategy i s that the attractions that many of the "pure" tourists visit -the Delta region, the archeological sites - are fragile and cannot support large number of tourists. Furthermore, these attractions are perhaps beyond the Brazilian market at the moment, where there i s more of a demand for leisure rather than for eco- or study-tourism. This i s partly reflectedinthe tourist flows to the Serra de Capivara, which comprise students, scientists, andjournalists rather than families on holiday. Increasing Highvolumes has also resulted inthe development of a leisure-type industry inthe Delta that i s not suited to the eco-tourism vocation of the region. A sustainable tourism strategy would aimto decrease the number of tourists and increase the expenditure per tourist by increasing the quality of tourist services provided. Options: Undertake a tourism demand study to identify the tourist capacity of the state and the appropriate State investments and regulations. Hire an international firm, with knowledge of both Brazilian and internationaltourist preferences and constraints, to undertake a demand study and develop a feasible tourism strategy for the state. Provide incentives to improve the quality oftourist services. Regulate the tourism industry to eliminate those practices that are damaging to the natural and cultural landscape through licensing, legislation of tourism services, and enforced sanctions 70 Piad 2002 StateEconomicMemorandam TheNorth for violations. Promote the organization of tourist service providers to increase the quality of the services (and thus the price that tourists will pay), to be a single voice for dialogue with the State Ministries, to be a watch-dog for preservation of the natural and cultural richness, and to be a voice for the various facets of the tourism industryinits dealing s with other sectors of localeconomy. 4.55 Shrimpfarming is a lucrativegrowth industry, but it needs to be managed in an economically-and environmentally-fn'endly way. The shrimp industryhas great economic potential due to the high and stable price o f shrimp innational and international markets and the comparative advantage of the State of Piaui. The industry also has the potential to be destructive of the natural environment, the surrounding communities, and other industries that depend on shared coastal resources. Although current producers in Piaui are conscious of this - they even promote environmental education campaigns for the local population-the state and communities need to ensure that new producers are equally so. This suggests a role for the State inworking with producers to provide the inputsto a successfulbusiness while ensuring that the natural resources are not abused. Thus, the state could develop (i) economically friendly environmental laws that balance the costs and benefits of shrimp production and environmental protection and a licensing system that permits reasonable farming on coastal waters, (iii) inassociation with local communities, develop a transparent and well-publicized monitoring system, and (iii) infrastructureinvestments to facilitate the production and export of shrimp. Launch community consultations on the impact of environmental zoning. Zoning will be unlikely to succeedif it does not take into account accurate assessment of the costs it imposes on locals. Similarly, the impact of any expansioninlarger scale activities like shrimp-farmingon local populations could be better understoodthrough consultations. Develop economicallyfriendly environmental laws. To the extent that they are within the ambit of the State, revise environmental laws to promote the development of coastal lands and waters inenvironmentally friendly and socially inclusive ways. Develop a strong monitoring system to accompany the shrimp industry. Provide state monitoring and generate the conditions to encourage and allow for community monitoring of their coastal lands and waters. The presence of a local tourism industry can b symbiotic with farming activities, since it has private incentives to monitor environmental externalities. Provide thephysical and human infrastructure that will allow the industry toprosper. Provide the public infrastructure -roads, energy, water, sewage - to encourage the development of industries that support shrimp farming. Encourage partnerships between the chemistry and agricultural department of universities inthe Northeast and Piaui's shrimp production industry. 4.56 Insummary, the North andthe NorthLiteralhave great development potential, buturban, modern needs and industries neednow more than ever to be managedto protect the natural and cultural patrimony of the State. 71 Piaui2002 StateEconomicMemorandum TheNorth ~ n w e r with~the ~ r~i wn~Sector in ~ a r n a ~ ~ a ~ ~ t e The team met with representativesof the private sector after the inauguration of the Lower PamaibaZEE.Present were business people from tourism, dairy, shrimp farming, artisan commerce, andirrigatedfruit cultivation. The meeting was instructive o f the kinds of obstacles faced by the private sector in Piaui. All participants' businesses were facing some kindof financial difficulty, for diverse reasons. Inexport industries such as shrimp, low world demand from the global slowdown in2001-2002 had cut intemationalprices. Milkproducers, despite highproductivity per cow, suffered from small scale. Tourism remains nascentand profitability i s not yet assured. Local artisan commerce also remains small scale. Milkproducerscitedfederal bureaucracy astheir greatest day-to-day obstacle. Technicalproductionnormsexist everywhere, but the producers implied that for smaller producers they were onerous. Good pastureinthe Lower Pamaiba valley and technical efficiency suggested that they ought to be able to operateat larger scale. But distance from larger markets inSHo Luis and Fortaleza implies that increasing fresh milk productionfor these markets i s not feasible. NEBrazil still has high demand for powdered milk, owing to many families' lack of access to refrigerationand the historicaluseof powderedmilk in govemment-distributed food baskets, and powdered milk may therefore be a viable strategy. However, existing agricultural credit schemes, particularlythose of BNB, did not allow for this investment (the investment needed would be about $1million). Targeted credit schemes thus emergedas a constraint. Similar stories emerged from the shrimp sector, although the obstacles were more diverse. Directed (BNDES) credit at an annual interest rate of 8 percent i s available, but takes about a year to come on line. This seemedto owe mainly to a lack of expertise inthe banking sector with regardto shrimp farming, and rigid lendingrules. Trade finance i s also subject to restrictions, although larger producers do have access through Bancodo Brasil. More serious were bureaucratic delays of dealing with IBAMA for environmentallicensing. Entrepreneurs were of one voice that shrimp farming was "treated as close to a criminal activity" by federal agencies.Third, water pollution from the leather industry has caused freshwater farms calamitous contamination andproductionto be suspended. Guaranteeing cleanliness of the water usedas an input has addedto costs. Despite a dip inworld prices (the largest local producer ships almost all productionto the USA, Spain, Portugal, andFrance), shrimp farming has carved a nicheinthe Piauienseeconomy, with about 30 producers operating or developing investments. However, it is not clear that all of these will remain inproductiongiven credit andenvironmental licensingdifficulties. There was concem that the existing federal ZEE hasbeen drawn uppurely as a preservationplan, without consultation with the private sector or sufficientconsiderationof productive activities within fragile zones that may nonetheless be sustainable. Entrepreneurs have proposed altematives to the State Government, at presentnot reflected inthe federal ZEE. The two plans appear incompatible. Shrimp farming entrepreneurs were the only group to insist spontaneously on the importance of "supply chains" intheir activity. Development of local producers of feed (ru@o)anddownstream processing (beneficio) were cited as central to increasingcompetitiveness. The tourism sectori s still incipient, although with good ecological managementthose present were confident of its potential. The main obstacle was the level of education (general and specific) inthe local population. Using the local population, andcreating benefits for it, formed part of the concept of sustainabletourism, but inmany instancesthe tourismindustry itself was financing local educationinitiatives inorder to obtainworkers with the appropriate knowledge and behaviors. This considerationi s magnified with high-endecotourism, the market sector that Piaui aims to attract to the PamaibaDelta, andthe only segment it can sustain.A further concem was that tourism providers hadlost credibility inthe eyes ofthe tour operatorsthrough whom they worked (particularly those abroad) throughfrequent changesof airline schedules, andin particular the cutting of twice-weekly flights from Teresina to Pamaiba (though these have since been restored). Local sanitation was also cited as damagingto the image of local tourism, particularlyto higher-value consumers.Finally, in additionto providing humanand infrastructure capital, tourismrepresentatives felt there was a role for govemment insettingandenforcing standards, where it hadproved impossible for local market participants to agree on common rules or standards. Fruit production has not yet taken offinthe coastal areabecausefully constructed damshave not beenmadeoperationalas imgation schemes. This delay owes to the number of govemment agencies involved. No other obstacles were cited, who were confident of the potentialof the activity. Since the capital costs of these schemes are already sunk, there seems a strong argument to unblock this process. The expansion of local commerce, particularly artisan goods, which dependmostly on local purchase, seems subject to more fundamental constraints. Larger local markets inTeresina, Fortaleza, and SHo Luis, are accessible, but Pamaibaproducers have no particular competitive advantage over local artisans inthese places. Localdemand is low. Developmentinthis sectorwill therefore probably betiedto tourism. Overall, many obstaclesthat emergedinPamaibawere relatedto govemment, particularly federal agencies, unnecessarybureaucracy, and a lack of coordination betweenentities. A secondcommonality were the vagaries of obtainingcredit. Credit at viable rates for all these activities i s only available through directed public credit schemes, meaningthat an activity's progress depends on whether it has been chosen under programs of BNDES, BNB, or Banco do Brasil. This leads to the attitude inthe private sector that certain activities should be encouraged by public-sector choices. Third, although lack of infrastructure and human capital are commonthemes, there was a markedtendency among intervieweesto offer solutions within the privateor nonprofit sectors.Common interests were identified (for example, the suggestion was made that tourists would be interested in visiting local fanningactivities) and there was an understanding of the needto manageextemalities such as pollution. Zoning was welcomed providedit was done in consultativefashion. If there i s one mainmessagefor govemment from all this, it seems to be the room for the State to act as facilitator to the private-sector: actingas broker between competing claims, setting standards where necessary, andpossibly on occasion dealing with multiple government agencies. 72 Piaui2002 StateEconomicMemorandum Institutional Themes 5.1 As shouldby now be clear, this report has examined Piaui's developmental challenges, particularly with regard to the state's provision o f public goods crucial for sustainable and fair economic growth, first and foremost through a spatial approach. Yet clearly some issues transcend region and this chapter will treat some o f these. 5.2 We focus here on four issues that seem central to Piaui's particular case: (i) defining the role of the state with respect to private actions; (ii)improving educational outcomes; (iii)the participation of the poor inpublic decisions; and (iv) fiscal management and State investment. 5.3 Readers will of course have their own preferred choices of topics. Our rationale i s that not only are these issues important for Piaui, but also that we have tried to reach conclusions that area Piaui-specific ineach area. To take an example that might appear an omission to some, Piaui's health system could also be identified as a priority, since it has certainly suffered from mismanagement incertain areas and lack of investment inothers, and thus could have formed part of this report. Apart from citing obvious resource constraints, the reason for the choice not to include health i s threefold. First,Piaui's health indicators are, as was seenbriefly earlier inthis report, actually better than average inNEBrazil. Second, much analysis of health systems inPiauiwould resemble the analysis for the region as a whole, and conclusions might not therefore be Piaui specific. Third, inour early discussion with state authorities, health didnot appear as ahigh priority for this study. The reasons for other similar omissions would be similar. 5.4 There i s a strong heritage of government planning inBrazil. This applies equally to NEBrazil, where many federal and regional initiatives adopt the approach of identifying sectors for support. Support usually takes the form of directed credit, as inthe case of Banco do Nordeste, Banco do Brasil, and BNDES, along with accompanying programs of technical assistance, training, and other support. 5.5 These types of program have been found not so much at the state and municipal levels, where investment funds are scarcer, and where the emphasis has been on public service provision, infrastructure, and the execution of transfer programs that ingeneral originate at the federal level (e.g., rural pensions, bolsa escola, cesta bdsica, etc.). State and municipal activities have inthis sense remained at the opposite end of the spectrum. 5.6 At the same time, there is a widespread perception inPiauithat this combination of approaches has not delivered desirable results. At one end of the spectrum, many private-sector agents, while insisting on the necessity o f directed credit programs for their particular sector (borrowing from the private-sector financial institutions being too expensive inBrazil as a whole), bemoan the excessive red tape and delays that are 73 Piaui2002 State EconomicMemorandum Institutional Themes involved inusingthese facilities, and blame them for constraining commercial growth. Indeed, this was the number one complaint among private-sector participants in consultations undertaken for this report. On the other hand, state and municipal investments are seen as too often entered into as part of clientelistic "bargains" with certain groups of voters, rather than as part of a strategic development vision. Thirdly, despite the relative success of newer transfer programs (the rural pension and the bolsa escola) inreaching needy beneficiaries, these transfers are criticized on two grounds. First,ruralpeople almost always emphasize that they would prefer helpwith their productive activities than handouts. (Inthe same way, urban people emphasize job creation.) Second, when such programs are not offered according to completely transparent technical criteria, they vest local politicians with added discretion, exacerbating clientelismo. Even the bolsa escola, by most accounts a successful social innovation, has been criticized for relying onprefeitos (mayors) to identify recipients according to their own criteria. 5.7 The approach favored by this report, and the background paper prepared for it by Marzall and Wagner, advocates a middle way, emphasizing broad sets of activities rather than individual sectors as the unit of focus and as strategic objectives, and focusing state provision of public goods, whether information (through research and rural extension), infrastructure (small dams, roads, electricity), or services (education, health, sanitation) around these activities. 5.8 A key component of this provision of public goods is the focus on natural resource management: inthe case of the semi-drido the salient resource i s o f course water, inthe cerrados it i s landand its attendant biodiversity and nutrients. Inthe case of the north it i s coastal resources, and the fragile structure of the Parnafba Delta. 5.9 The final component inreviewing the role o f the State inPiaui i s eliciting public participation inorder (a) to increase transparency, and (b) to generate information. We now turn to this topic. 5.10 Most of the development options outlined inthis report involve tradeoffs. As such the decisions that will be made by society will not be unanimous. Inthe short runthere may be losers as well as winners. Second, these decisions are on matters sufficiently complex that it i s not realistic to suppose that they are purely technocratic. Third, decisions will be made, which will affect large numbers of Piauiense, on the basis o f imperfect information about technical parameters, people's preferences, and future events. These three ingredients - the necessity to consider losers and winners, the lack of a technocratic consensus, and imperfect information-dictate that wide consultation and buildinga participatory process around decisions holdgreat potential gains. 5.11 Participation i s a hardword to disagree with inprinciple. Inan effort to make the report's proposal more concrete, the team launched a consultative process by inviting organized civil society (OCS) from around Piaui to give their input at a workshop in Teresina inMay, 2002 (see box 16). The aim was to understand the extent to which 74 Piaui 2002 StateEconomicMemorandum Institutional Themes Piauiense civil society i s organized and mobilized to offer input into government decisions, to invite OCS views on the policies on which they wanted an input, and, ideally, to launch the beginnings of a process whereby formal structures might be created for such input to be generated on a continuous basis. 5.12 It should be recognizedthat government consultations with civil society are not new inPiaui, although many of the participants at the workshop emphasized that the opportunity to participate insuch a setting with government was rare. The State Government hasjust completed a process of consultation with Piauiense society to help design policy, under the general rubric of Grande Piaui, and the present discussion shouldbe read as augmenting rather than proposing a substitute for that initiative. 5.13 A second instance of participatory decision-making inPiaui, relevant here, i s the PCPR program of small rural investments to combat rural poverty (Programa de Combate h Pobreza Rural: see box 17). This program has received positive informal evaluations (a formal evaluation i s now underway), and the community councils that have been established inparticipating communities may in some cases form the basis to solicit further input from these communities into public decisions. 5.14 There i s nothing to stop the articulation of these existing initiatives with new fora for consultation and civil-society participation. PCPR committees, for example, may serve as the basis for local-level consultations on land or water rights.Existing government consultations may also be builtupon. But it will be o f central importance to involve beneficiaries inthe elaboration of the details of many of the recommendations outlined inthis report. 75 Piaui 2002 StateEconomicMemorandum Institutional Themes Box 16: The ~ ~ t a ~ l ~of§ ~n ~ @ cn t~~ ~ r~t ~i c~~ ~e~a ~~o r a ~ ~ ~ n g n a y Deliberation of the policy and investment options presented in this report requires consideration of the process whereby the practical decisions over these and other options will be made. Experience, both within Brazil and in other countries, strongly suggeststhat the effectiveness o f government decisions can be substantially enhanced if it i s influenced by an inclusive, participatory process that considers alternative views among interested parties, including government and civil society. The State Government should thus support the establishment of institutionalized mechanisms for systematic consultation among the broadrange of interested parties living and working within the State. Inthis way, effective input into decisions about key policies and investments, and the monitoring of implementing actions taken by Government to give effect to those decisions, may be sought. The State Government of Piauihas already indicatedits support inprinciple for such an approach, both through its own activities (e.g., Grunde Piuui) and through the participation of its staff at an initial DFID- financed workshop conducted, in conjunction with the preparation of this report, in Teresina on May 15-17,2002, and through its administrative support for the workshop. Nonetheless, more can be done. At the workshop, several issues emerged about the current context for the establishment of mechanisms for inclusive participatory processesinPiaui. (i) Considerable misunderstandings exist both among civil society organizations (CSOs) and among State and municipal government about each other's motives and capacities and this has, inturn, resultedinsome mistrust. (ii) A systematic step-by-step processcan contribute to incrementally reducing mistrust. (iii) The role of municipal governments, both as initiators of public decisions and as potential facilitators between State Government and civil society, is not at present well understood by the municipal governments themselves, nor by some other interested parties. (iv) Itis not clear how representative specific CSOsare withrespect to the priorities of the poor themselves, nor how participatory is their own approach to assisting the poor in practice. (v) Securing effective involvement inparticipatory processesof influential advisors and senior decision-makers within both Government and CSOs is perceived as problematic. Nevertheless, an initial step in the right direction has been taken and follow-up steps should be strongly supported. Such steps need not and should not be limited to discussions of this report or Bank programs. Indeed, this collaboration may catalyze a more systematic discussion of policies and implementation infuture, regardless of authors of reports or sources of finance. Itis to beexpected that the elaboration of mutually acceptable institutionalized systemsfor consultation and participation in policy formulation and investment decisions will take time, especially as it i s important to proceed in a manner that i s itself participatory. Nevertheless, a plan of action in support of that objective will likely include several complementary activities, including some combination of additional workshops, focus groups, interviews, and studies. Inthe first instance, State Government may consider endorsing follow-up steps enumerated by the participants in the Teresina workshop, including a commitment to arrange for the attendance and participation of senior State Government officials in the next workshop, suggestedfor JanuaryFebruary 2003. Source: DFID 76 Piaui 2002 StateEconomicMemorandum Institutional Themes -~ a r ~ n ein ~ ~ ~ p r Like the other eight NE states, Piauihas a history since the mid 1970s of attempting to assist small farmers and poor communities to surmount the barriers which keep them inextreme poverty, through a series of programs and projects (some partially financed by the World Bank). Also like other NE states, inview of the modest results achieved inreducingruralpoverty, in 1993 Piauidecided to take a new, decentralized, targeted approach, calling for participation of beneficiaries in identifying, executing, and maintaining investments they deemed key to help them overcome poverty. As a result, new delivery and decision-making mechanisms were devised, centered at the local level. The results achieved through the Rural Poverty Alleviation Project (RPAP) since 1993 have been positive. There has been a noticeable increase in the quality of life of beneficiaries (due to high community demand for rural electrification and water supply) and by the creation of new income and employment for poor rural communities (although these effects remain limited, they are likely to increase once demand for basic investment i s satisfied). From 1993 to 2001, some 110 000 poor families benefiteddirectly from the RPAP through more than 2 700 community-identified and executed subprojects. O f these, 1 170 were inthe period 1997-2001, involving 972 associations in935 communities in 198 municipalities (out of a possible 221 in2001). A follow-up Project i s starting implementation in 2002, which expects to reach 82 000 families (some of them, probably 20 percent, reached by the previous projects). Two distinguishing features are noteworthy in the case of Piaui. First, despite the state's nascentefforts at rural community organization in the early 1990s, and a more traditional top-down approach to assist its rural population, the RPAP not only stimulated such organization (helped by civil and religious movements), but also facilitated decentralization to the local level of various decisions, through the establishment of municipal councils. These councils are special local decision-making bodies, with representation of municipal authorities and beneficiary associations, the latter accounting for 80 percent of voting rights. At the end of 1996 ,there were only 10 such councils established. B y the end of 2001, the number of councils had reached 196, covering almost the entire project area, and far exceeding the original target of 53. Studies have demonstrated the positive impacts of the municipal councils, in terms of local social capital development, ownership, investment sustainability, and the creation of an environment conducive to sustainable, integratedrural development. The secondfeature has to do with fiscal decentralization. Unlike many other NEstates, Piaui, was able to involve municipalities in the co-financing of community subprojects. Inaddition to providing support to the functioning of the municipal councils (a common feature in all NE states), all municipalities inthe state agreedto provide 15 percent of the total cost of each approved subproject, in lieu of the State Government. The remaining 85 percent are sharedby the state (75 percent, through a World Bank loan) and the communities (10 percent). It i s estimated that municipalities have contributed a total of US$4.8 million inthe period 1997-2001 to the financing of community subprojects. Eventhe poorest municipalities participate in the cost-sharing arrangement, recognizing the opportunity to influence the decision-making process in the councils. With a relatively small amount of their own resources, they leverage significant external (state) and local (community) funds. Inthis sense, municipalities recognize that, by co-financing, they improve the allocation of their scarce own resources. 77 Piaui 2002 StateEconomicMemorandum Institutional Themes 5.15 Inthe past decade, Piauihas made notable advancements inthe education sector. Although the state has among the highest illiteracy rates inthe Northeast, the State and municipalities are makingefforts to correct this situation by expanding the education system, increasing the education level of teachers and increasing their salaries, and increasing spending per primary school child. The children o f Piaui are responding, with increasing test scores, but nonetheless challenges remain, particularly intranslating the additional educational inputs to quality outputs and providing a school system that prepares children for the labor market that will face the students when they leave school. This chapter focuses on Piaui's successes and challenges inthe provision of pre-primary, primary, and secondary education. Although Piauii s hometo several universities and private colleges, they are not included inthe discussion. This section i s based on the research of Marques (2002, commissionedfor this report) and draws from World Bank (2000)for more general information. The Current Situation 5.16 Piauihas higher illiteracy rates than any state inthe Northeast o f Brazil (except for Alagoas), but they have been falling over time. Among adults, illiteracy has fallen by ten percentage points, and although illiteracy rates inPiaui still exceed the regional and national average, today's 30.5 percent rate i s a vast improvement on the past. Part of the decrease inilliteracy i s due to demographic shifts (older, less educated people are dying), but among the illiterate, an alarming one-quarter are of the youngest age cohorts. The micro-regions of Pi0 E,Baixo Parnaiba, and Alto MCdio CanindC have functional illiteracy rates above 40 percent, while functional illiteracy i s lowest in Teresina, Chapadas do Extremo Sul Piauiense, andFloriano. Residents o f rural areas have much higher functional illiteracy rates (46.0 percent) than do those inurban areas (22.1 percent). 1991 1999 1991 1999 1991 1999 Illiteracy* 20.1% 13.6% 37.6% 26.2% 41.7% 30.5% Net Enrollment Rates Pre-school _-- 23** --- 21.8** --_ 26.7** Primary 83.8 95.4 72 92.8 82.4 91.8 Secondary 17.6 32.6 8.4 15.7 5.7 10.8 Gross enrollment Rates Secondary (gross) ***forestimated 40.8 74.8 27.8 52 24.4 40 the year 2000. rates. Source: MEC/INEP/SEEC & IBGE 78 Piaui 2002 State EconomicMemorandum Institutional Themes 5.17 Primary and secondary enrollmentrates increased over the1990s but still lag behind national enrollmentrates (see above table). Primary and secondary school net enrollment rates increasedby eight and five percentage points, respectively. Gross enrollment rates increasedby even more: 38 and 16 percentage points for primary and secondary school, respectively. The larger increase in gross relative to net enrollment rates shows that children who are not promoted are less likely to drop out o f the system in the year 1999 than they were in 1991, instead repeating the missed grades in greater proportions than inthe past. 5.18 Although repetition and drop-out rates remain high in Piauc gradepromotion rates are improving. Nearly 60 percent of primaryschool students are promoted to the next grade each year while 35 percent repeat a grade and six percent leave school (see table below), as compared to 74 percent of children inBrazil moving to the next grade. This is an improvement of 12percentage points inpromotion rates over the period 1995- 1999 and a decrease indropout rates. Secondary school students are dropping out less, as shown inthe table above by the increase innet and gross enrollment rates over the decade. In 1991, net enrollment rates were 5.7 percent for children who were at the appropriate age-grade level and another 20 percentage points o f secondary school students older than the age-grade level; by 2000, the proportion o f students o f the appropriate age-grade level haddoubled while the proportion of those who were older than the age for the level grade had increased to 30 percentage points above the net enrollment level, suggesting that grade repetitions decreased (5 percent net enrollment rates to 10percent net enrollment rates) and total secondary educationincreased (gross enrollment rates increased from 24.4 percent to 40 percent). 1995196 199912000 1995f96 199912000 1995196 199912000 1996 2000 Brazil 64.5 73.6 30.2 21.6 5.3 4.8 47.0 41.7 Piaui 46.3 58.8 44.5 34.9 9.3 6.3 66.1 63.5 Source: MECfINEPISEEC e IBGE 5.19 Despite the improvements in promotion rates and decline inrepetition and dropout rates, the highage-grade distortions rates inPiaui are worrisome for educational and financial reasons. Highage-grade distortions put a highfinancial burden on the State and municipalities as more resources are spend on providing the same services to the same children (who repeat) with very low yields to the state investment. Furthermore, children who repeat grades, and are thus much older than their classmates, are more likely to abandon the system, resulting ina less skilled labor force and citizenry inthe future. Children may not be promoted due to quantity issues - there are too few schools at the next level to promote children so they are "trapped" intheir current level - or due to quality issues - the children are not achieving academic standards to advance. The role of the government in moving children through a system that educates them requires 79 Piaui 2002 State EconomicMemorandum Institutional Themes identification of the problem (quality or quantity) and the school level at which the children are trapped. Coverage 5.20 Recent initiatives have expanded early childhood services and increased the demandfor secondary schools. The most important innovation inpre-school education was laid out inBrazil's 1996 National Education Law (LDB). Among other directives, the law specifies resource allocations to municipalities for childcare and pre-school services; inPiaui these were used in 1998-2000 to recover the participation levels that were achieved prior to 1996, but which fell duringthe implementation o f FUNDEF (duringthe 1996-1998 period). Piauihas excelled inproviding services and attracting students, with 26 percent of 0-6 year olds indaycare or pre-school, as compared to 23 percent inthe rest of Brazil and22 percent inthe rest of the Northeast. These services are most numerous inTeresina, MCdio Parnafba Piauiense, Bertolinia and Valenqa do Piaui (above 30 percent of the age appropriate children) and less than 20 percent o f the age appropriate children in Chapadas do Extremo Sul Piauiense, Silo Raimundo Nonato and Alto Mtdia CanindC. 5.21 Since the 1980s, the state and municipal governments of Piauihave invested heavily inthe construction of primary school spaces, but there i s a shortage o f secondary school spaces. Primary school accommodation rates of 143 percent indicate that there are more than enough school spaces for children age 7-14. The opposite may be the case for secondary school children (age 15-17) with accommodationrates of only 40 percent. The shortage of spaces for secondary school i s partly due to an increased demand for secondary school, resulting from a decrease inprimary school dropout rates (see table above), but also due to ruralnature of Piaui, where there are too few students to populate a full secondary schools. Alternative educational delivery services rather than physical school spaces may be a more cost effective means of providing secondary education to remote areas. Additionally, as repetition rates inprimary school decrease, some of the spaces could be allotted to secondary school. However, inthe meantime, scarcity of secondary school spaces i s most acute inthe micro-regions of Alto MCdio Canindt, Alto Parnaiba Piauiense, Pi0 IX, Baixo Parnafba Piauiense, Campo Maior, and Silo Raimundo Nonato. Those with the most space are inurbanizedTeresina, Floriano, and Picos. Quality 5.22 Despite high illiteracy rates in the adultpopulation and high repetitionrates, Piauienseprimary school childrenperform at theregional level on standardized tests. SAEB (National Achievement Test) scores for primary school children (grades 4 and 8) show that students inPiaui perform at the Regional average inPortuguese. On the math portion of the exam, fourth grade Piauiense children also score similarly to 4thgrade children inthe Northeast, but graders inPiaui surpass their neighbors inthe Northeast (see table below). Test scores for Piauiense children increased between 1995 and 1997 for grade students but decreasedfor 4thgrade students; both the math and Portuguese scores of 1lth graders increasedbetween 1995 and 1997. 80 Piaui 2002 State EconomicMemorandum Institutional Themes 5.23 Comparisons of SAEB scores between 1lth inPiauirelative to the graders Northeast or between all students inPiaui with the rest o f Brazil i s not possible due to the difference ineducational environments and enrollment rates between students ineach geographic area. For example, the average SAEB score for 1lth grade math inPiauiwas 306 while the average for the Northeast and Brazil was near 290. However, enrollment rates are much lower inPiaui than inthe rest of the Northeast or compared to Brazil, so students who took the exam inPiaui are likely to be those with a greater educational advantage while a more general population took it elsewhere. Even comparisons of 4th and Sth graders inPiauirelative to the Northeast should interpreted with care, despite similar enrollment rates, as educational environment differs between states, where some states may offer more non-educational benefits that have positive effects on test scores. Comparisons within state across time are the cleanest estimates, but the tests were still being modified inthe years 1995 and 1997, so even these comparisons are not perfect. 1995 1997 1995 1997 1995 1997 4" grade 191 191 179 181 189 178 8" grade 253 250 232 240 232 251 11" grade 282 289 261 290 257 306 Portuguese 4 grade 188 186 178 178 188 181 8 grade 256 250 230 24I 227 243 11" grade 290 284 266 276 259 280 *SAEB (SistemaNacional deAvaliapZo da EducapZo)exams are administered to primary and secondary school children across the country every two years. 5.24 Recent initiatives have focused on improving the quality of primary school inputsinterms of teachers, butthe quality of infrastructure remainspoor. The legislation of the LDB and the FUNDEFhave provided resources for, among other objectives, the improvement inprimary school quality. Three aspects are important for this discussion: increased teacher training, alternative pedagogicalmodels, and minimum per-student educational expenditure. 5.25 First,one of the goals of the LDBis to raise the quality of the teachingprofession by legislating that all teachers have at least some post-secondary education. In 1996, 19.4 percent of primary school teachers in Piauihad not completed primary school and another 8 percent had only completedprimary, while only 12.6 percent had completed post-secondary (see table below). This compared unfavorably to both the Northeast and to Brazil as a whole. By 2000, only 13 percent of teachers had less than completed secondary, due to retirement of older, less-skilled teachers and the provision of training courses for those who wished to remain inthe profession. Salary increases accompanied the increased skill level, with increases of up to 95 percent for some teachers. 81 Piaui 2002 State EconomicMemorandum InstitutionalThemes 5.26 It remains to be seenwhether or not increasingteacher's educational credentials and their salaries have improvedthe quality of educational services inPiaui, particularly since evidence from elsewhere inBrazili s not hopeful. InBrazil, it has been found that higher teacher education increases the educational attainment of primary school students, but not of secondary school students while higher teacher salaries has not been found to have any impact. The nature of the teacher trainingi s very important, as well, since theoretical training i s found to not be not be effective while hands-on practical training (and experience) does increase educational attainment rates o f their students. Brazil 4.6 1.4 4.4 3.1 47.2 47.2 43.8 48.3 Northeast 10.8 3.2 7.7 5.9 58 64.1 23.5 26.8 Source: MEC/INEP/SEEC 5.27 Second, the reduction of school repetition and dropouts has been attributed to the introduction of special classes for students with highage-grade distortions (clases de acelerap3o). One explanation for school dropouts i s that children who are much older than their classroom peers are not comfortable with the environment nor the age level of the teaching materials, causing them to leave school. This program addresses these issues by providing separate courses to students who are above the age-grade level with the objective of catching them up to their age-appropriate grade and tracking them back in the regular system. Approximately 8 percent of primary school children inPiaui participate inthis program, reaching 68 175 students inthe year 2000. 5.28 Third, FUNDEFhas redistributedresources among the states and municipalities and has ensured a minimumlevel of expenditure per primary-school student. Each year, the Federal Government identifies a minimumexpenditure per primary school student (see table below). Twenty-five percent of tax revenues and conditional transfers to Piaui are earmarked as FUNDEF;if these are not sufficient to cover the dictated expenditure per student, the Federal government transfers the difference. The resources are then allocated to the state and municipalities on a per student basis. This has served to redistribute funds to the poorest schools inmunicipalities that do not have the wealth to spend at least the minimumon education, but it i s argued that the mandated value i s still too low to fund a quality education. 82 Piaui2002 StateEconomicMemorandum InstitutionalThemes 5.29 Efforts to improve the quality of teaching (by investing inteacher training and raising salaries) have not been matched by improvements inphysical infrastructure in primary schools. An average of 16.4 percent of schools do not have sewerage, 18.6 percent do not have electricity, and 2 percent do not have a water source (see table below). The situation i s worse inthe micro-regions of S5o Raimundo Nonato, Alto MCdio Gurgukia, Alto Media CanindC, and Alto Parnal'ba Piauiense, with more than 30 percent of the schools without sewerage. These compare unfavorably to both Brazil and the Northeast. l r " m Proportion of Schoofs with lnfrastruc ion, 2000 #!!!REI Brazil 18.8% 98.7% 94.4% 96.4% Northeast 4.8% 91.3% 89.9% 94.6% Piaui 3.4% 98.0% 81.4% 83.6% Source: MEC/INEP/SEEC Administrationand Financing 5.30 At theprimary school level, the state and municipality offer the same educational services, creating inefficiency in administration. Schools are runby the state government, municipal government, or private sector. Municipalities focus on pre- primary and primary education: they are responsible for 60 percent of elementary education inPiaui and nearly all primary education inrural areas (see table below). Approximately one-third of the primary-school population attends state schools (comprising nearly one-half of urbanprimary school-goers), and 71percent of secondary school education i s also under the statejurisdiction. Students inprivate schools make up 11percent of all urban students, 7.4 percent of total primary. The provisionof educational services by multiple actors may be interpreted as a source of inefficiency in the system. However, due to FUNDEF, there has been a sorting of grades 1 4 to municipalities and grades 5-8 to States, thus possibly increasingthe administrative efficiency of primary school. all rural urban All State 32.8% 2.6 48.89 70.8% Federal 0.0 0.1 0.0 2.7 Municipal 59.8 96.8 40.1 3.1 Private 7.4 0.5 11.1 23.4 Total 100 100 100.0 100.0 Source: MEC/INEP/SEEC e IBGE 83 Piaui 2002 StateEconomicMemorandam Institutional Themes 5.31 Bolsa Escola has increased school attendance. Bolsa Escola, the federal program that distributes cash grants to poor families (per capita monthly income less than R$90)with children age 6-15 who are attending primary school, is active inall municipalities inPiaui. Approximately 42 percent o f primary school students are inthe program, amounting to 328 754 children from 189 112families. The R$15 per student (upto three payments per family) not only has the effect of increasing enrollment rates, but funds are distributedto the mother, who is likely to spend more of the income on the children than the father would. Options 5.32 Piaui i s on its way to having a quality primary education system. While continuing to direct investments towards increasing the quality o f primary schools, in terms of teachers (which may require a change infocus) and infrastructure, the next step i s to begin thinking of (i)how to decrease repetition rates and (ii) a strategy for secondary school and for shaping the education system such that it provides skills that are needed and rewardedinthe local economy. Options include: 5.33 Expand secondary school services to meet the increased demand resultingfrom the improvedprimary school system. The increased quality o f primary school has lead to increased demand for secondary school. The provision of secondary school education i s a priority, especially for children who live inrural areas and who do not have access to secondary school services. Creative educational delivery services - such as distance education or mentoring-based programs - are more cost effective than the construction of new schools and could reach larger numbers of students,. 5.34 Modify the school curricula to teach general skills andprovide training in Piaui-specific industries. Many of the industries discussed inthis report - agriculture, tourism, shrimp farming, agro-business -identifiedboth general and firm-specific skills as essential input to increase productivity. Ideally, this training could begin in secondary school, but secondary schools are far from being able to provide this service since they still focus on the basics that were not sufficiently learned inprimary school. Instead, post- secondary school - such as adult education or training courses similar to SENAE or SENAC - are suggested as an alternative. The challenge of this option i s that once an individual leaves the education system, he or she i s unlikely to re-enter, especially those adults who are poor or who live inremote areas where the opportunity cost of accessing these services may be high.Thus, efforts to offer low cost services are the best alternative untilthe primary and secondary education system canbe improved to allow for industry- specific training. 5.35 Diversih education services to address specific needs of thepopulation. Special classes for children with specific learningneeds have been successful. Such targeted classes have also shown themselves to be useful for children who are above the mean age for a given grade. A tailoring of classes to specific needs i s a quality issue that primary schools - with their nearly full coverage - can now begin to consider. 84 Piaui 2002 StateEconomicMemorandum Institutional Themes 5.36 Specializeservice delivery by state and municipal education departments. Multiple providers of school services are costly, since each incurs fixed costs of running schools at each level. B y continuing to re-distribute the responsibility o f each education level to a single provider - municipalities for pre-primary and early primary school (1-4) and the state for late primary (5-8) and secondary education - economies of scale can be achieved. 5.37 Prepare teachers and spacesfor thefuture. As early primary school educational services continue to improve, the gross enrollment rates will decrease to the level of the net enrollment rats, so educational resources will need to be reallocated to later primary school and secondary school services. This will require a re-tooling o f teachers since (i) these are taught as subjects rather than as a single instructor teaching all subjects, and (ii) alternative service delivery methods will be more used for the higher education levels. Additionally, physical schools will need to be transformed to serve the curriculum of higher education levels. A projectedstudent flow estimation today is a useful exercise to allow the State, municipalities, and private sector to start planning for the educational needs of the future. FiscalHeadroomandthe LRF 5.38 The State of Piauihas recently made efforts to strengthen its fiscal position, and it i s in compliance with all of the conditions of its debt agreement with the Union under the Fiscal Responsibility Law (LRF).The main indicator inthis agreement i s the State's ratio of debt to net current revenue, which equaled 1.91 according to the 2001report from the National Treasury (STN). Comparison with other states shows that Piauii s close to the average for this parameter (the precise definition used for the graphs below are slightly different, owing to data limitations, which accounts for discrepancies between the figure reported for the purposes of the LRFand the graphs). The state has generated primary surpluses for the past four years. 5.39 Nonetheless, STN reports that "although these primary surpluses, more than significant, are sufficient to service the state debt, there exists a certain fear as to the ~ a n of~State Debt~to Net ~ w r r e n ~ ~ n 3 5 3.0 2.5 2.0 1 5 1.o 0 % 85 Piatli 2002 StateEconomicMemorandum Instittltional Themes ability of the state to maintain such results inthe long term. This i s because there have not been reforms, strictly speaking, to the apparatus of the state, but rather the containment of expenditures, which could possibly be generating future liabilities." [Translation into Englishby World Bank author.] 5.40 Inother words, Piauineedsto reformits state institutions inorder to make room for investment spending. Inlight of the discussions inthe preceding chapters, there i s also great potential inreorienting the activities of the existing cadre o f public servants, towards the priorities set by the State Government according to the tradeoffs outlined. That is, the state needs not only to reduce its current spending (which will only occur with some reduction inthe number of public employees), but also to refocus its activities towards its new strategic objectives. Investments 5.41 A detailed treatment of such a reformis not within the ambit of this report, which, as was agreed with the State Government in2001, would not enter into a detailed public expenditure review. It is, however, of interest to examine the general patterns of state investment inrecent years. For the five-year period 1997-2001, the largest investment categories were transport (24 percent), followed by administration (20percent, almost all from a large one-off expenditure in 2001), agriculture (15 percent), health and sanitation (10percent) and education (9 percent, including small expenditures on culture and sport). 5.42 It is notable that investment priorities shift from year to year inthese figures. Transport i s the largest investment category inthe years 1997, 1999, and 2000, whereas agriculture dominates in 1998, and last year the largest two categories were administration and education. 5.43 Overall investment i s low, and in 2000 fell below 4 percent o f total expenditures for the first time. This i s obviously because of the state's obligations under the fiscal responsibility law, combined with the rigidity of many current outgoings (particularly personnel and pensions), and underscores the urgency of an administrative reform. As a benchmark, recall that Marzall and Wagner estimate basic investments needed inthe cerrados region to be of the order of $200-300m, or inother words approximately ten years' worth of total investment budget under present conditions. 86 Piaui 2002 State EconomicMemorandum Institutional Themes AgricuIture 3.0 22.8 7.2 8.1 10.2 51.2 15% Transport 21.5 17.2 11.4 15.3 13.0 78.5 24% Source: Secretaria da Fazenda 87 Piaui 2002 StateEconomicMemorandum Institutional Themes Revenues 5.44 A second part of the solution lies inincreasing state revenues. The main revenue item within the State Government's control i s the ICMS sales tax, which represents more than 90 percent of state revenues from own sources (receituprdpriu, excluding federal transfers such as the FPE: Fundo de PurticipugiTodos Estudos), andjust over a third of total revenues (see chart below). The ICMS has made up about the same proportion of revenues for the past six years, according to the most recent STN report, while the share of revenues made up by the FPE has increased slightly, from 50 to 52 percent. 5.45 The ICMS i s raised most easily on large firms, often parastatals, which implies that its true effect on the public purse i s overstated, since state-owned companies' profits would anyway have found their way into the public purse if they were not taxed. The largest single ICMS contributor, for example, i s CEPISA, the state electricity utility. Many large private-sector enterprises, particularly those that invest from outside Piaui, receive ICMS exemptions as a consequence of the unfortunate "prisoner's dilemma" that leads to competing fiscal incentives between Brazilian states. The sooner this state of affairs i s rectified the better, but of course this i s a parameter that lies almost wholly outside the control of the State Government of Piaui. 5.46 A further source of loss of ICMS revenues is covered inthe cerrudos chapter of this report, namely the difficulty of getting reimbursedfor forgone ICMS tax on exported goods. To the extent that some commodities, particularly soybeans, are processed and consumed within the state (for example as animal feed), this situation i s likely to be ameliorated inthe near future, but it remains a priority to find a reliable way of taxing sales that leave through other states' ports. The Finance Secretariat i s analyzing options, and this shouldbe highon the agenda of the new State Government. 5.47 This being the case, under the current system nearly all ICMS revenues are raised inTeresina. According to the Planning Secretariat, Teresina accounts for about 60 percent of Piaui's measured GDP, but more than eighty percent of its ICMS receipts, and this proportionhasbeenrisingrecently (from 80.2 percent in 1999,to 83.5 percent in 2000, to 85.0 percent in2001). Most ICMS receipts come from the tertiary sector, with 1800 0.6 1500 0.5 .-0 u) 1200 0.4 Total dEE w C ICMS 900 0.3 2 Q) 2 FPE 5 L 2 ICMS% 600 0.2 -e-FPE% 300 0.1 0 0 1998 1999 2000 2001 2002 2003 88 Piaui 2002 StateEconomicMemorandum Institzltional Themes Tertiary: Other Tertiary: Energy& Petroleum Tertiary: Retail 0Tertiary: 150 - Wholesale 100 - Secondary 50 0 0Primary 1997 1998 1999 2000 2001 the primary sector contributing a negligible fraction of receipts. This may be something the state can improve upon inthe corning years. 5.48 Dividing Piaui's ten tax collection regions along the geographical lines used for this report gives interestingresults. In 1999the cerrudos region accounted for only 4.2 percent of ICMS collections, the southeast for 8.9 percent, the north excluding Teresina for 6 percent. Not only are these percentages low, bearing no relation to population or to income, for instance, but they are declining, by 2001falling to 3.5 percent (SW), 6.2 percent (SE), and 4.8 percent (N). 5.49 The two breakdowns of state revenues are obviously linked. Teresina i s the center of the tertiary sector, andboth are where ICMS receipts come from. However, the upshot i s that the bulk of activities elsewhere in the state go untaxed. As agribusiness increases, this may change, butit will require atax strategy on the partof the Government. 300 250 200 150 100 50 Teresina North Southeast Southwest ni999 02000 02001 89 Piaui2002 State EconomicMemorandum Institutional Themes 90 Piaui 2002 State EconomicMemorandum Conclusions 6.1 Inthissection weoffer one view ofthepriorities andthetimescale associated with the options recommended so far. We also try to describe how these options combine to form a unified spatial development strategy for the State o f Piaui, a strategy which will allow Piauito invigorate its institutions and live up to the optimism o f its people, as well as the conditional optimism of this report. The strategy has six strands. A, FILE 6.2 Natural resources are Piaui's greatest asset and its comparative advantage with respect to Brazil and the world. Central among these are water and land, which combine with the climate to give the state a vocation for agriculture that i s belied by its current low agricultural productivity. The failure so far to make good use of i t s natural resources partly explains this productivity shortfall, and this inturnis traceable to institutions and infrastructure. 6.3 Inthe SW of the state there is an urgent needfor an ecological zoning to set the parameters for new agricultural development. Moreover, the regularization of land titling that this will entail provides the government with the opportunity of financing some of the needed infrastructureinvestment inthe region. Modern methods create a premium to getting this right technologically at the beginning. A well designed, participatory economic and ecological zoning, preceded by a careful mapping usingappropriate technology, need not be expensive but allows for subsequent monitoring of land and water use, enforcement of property rights, and regular updating -~ of information on both. Done right, a mapping and zoning exercise thus becomes an indispensable and central part of resource planning. 6.4 Itwill also be strategically important to map the aquifers of Piaui, particularly the main one inthe SE, the CanindC. Although this i s a more expensive exercise than land mapping, it i s vital to monitor the geomorphology of the main aquifers in order to ensure their sustainability. Cearii i s makinga start inthis direction. Throughout southern Piaui a registry of water rightsi s needed, and this has special importance inthe semi-arid region. Furthermore, the main resource potential inthe north lies on the coast, a fragile ecosystem that without planning couldbe damaged by any significant increases in tourism volume. InPiaui, perhaps more than any Brazilian state, the key to poverty reduction lies inthe state's management of its own natural inheritance. The state must "get ahead of the development frontier" with respect both to water and to land, and create clear ground rules for the use of these resources. 6.5 All of these decisions by the state will requireextensive consultationwith local stakeholders, both inthe form of organized civil society and inthe form of un-mobilized groups. Decisions will have to be made that involve tradeoffs, partial information, and 91 Piaui 2002 StateEconomic Memorandum Conclusions non-technocratic considerations. Such decisions benefit the most from public participation. Mistrust on the part of many groups within organized civil society will only gradually be broken down, makingthis process an even greater urgency early inthe mandate of the new government. 6.6 The enforcement of zoning, property rights, value-added taxation, and other options recommended in these pages requires buildinginstitutional capacity in the State and municipal governments. Rural productivity, the key to attacking poverty inPiaui and, through innovative activities inthe sertlio, to reducing economic vulnerability to droughts, requires the reinvention of rural extension and technical assistance programs. Similarly, enforcing landtitling will require the strengthening of ITERPI. Scientific and agricultural research could be better articulated to local needs. And government planning functions could be strengthened. 6.7 Most importantly, government can strengthen itself by buildinggreater links with civil society organizations. Many of the latter are highly active and successful in productive and social programs from which the government could learn. The buildingof institutional arrangements for "bridge-building" with civil society around a series of specific questions related to the government's strategy would be a start inthis direction. 6.8 Infrastructureinvestments are and will continue to be a key component of Piaui's development strategy. Its agricultural vocation gives logistical costs heightened importance inthe southwest, while inthe southeast the key to water resource management lies partlyin small-scale construction and irrigation. Strengthening the electricity network will also continue to be of strategic importance. 6.9 Inthe cerrados, as agribusiness investors integrate vertically downstream to animal-feed and livestock activities (with linkages to SEPiaui), more value added will remaininthe state, andthe GurguCia Valley will gain in strategic importance as the economic hub of the region. The success of managing the flow of the GurguCia River, through the constructionof dams near its source, i s therefore pivotal for Piaui's development. And as the economic weight of the GurguCia Valley increases, a strategy to manage agglomeration, through the choice of urban hubs and the regulation of landuse outside them, may also bringorder to the region's development and make it sustainable. Finally, a key to development throughout the state i s the linking together through infrastructure (mainly roads) of regions with productive synergies: mineral deposits inthe SE for cerrados agriculture, and grains in the cerrados for semi-arid livestock, for example. 92 Piaui 2002 StateEconomicMemorandum Conclzlsions 6.10 Piaui's productivity i s at present heldback by its workers' lack of education and skills. Experience from elsewhere (outside and within Brazil) shows that a key factor for the investment climate and thus for economic growth (as well as for makingthat growth fairer) i s raising the quality of the workforce through improved general education and special training inthose industries inwhich Piauihas a comparative advantage. 6.11 Despite low absolute indicators, Piauihas improved its educational performance. Although illiteracy i s high, particularly among the older Piauiense, today's Piauiense schoolchildren perform at the Regional level instandardized educational tests, and FUNDEFhas made efforts to address quality issues in state and municipal schools by guaranteeing minimumfundinglevels per child. The challenge now i s (i)to translate the investments inprimary education to more learning and lower repetition and dropout rates, (ii)to move the expansion of the system firmly into the late- primaryand secondary level, and (iii)to teach skills that are marketable inthe reality of Piaui's predominantly rural economy. 6.12 Many o f these actions require investing money. Yet Piaui's State Government investment budget has hoveredbetween R$50m and R$100m for the past few years, insufficient for the strategy proposed here, as the State has struggled to meet its debt agreement obligations with the Union. Although this report has not entered into the details of a public expenditure review, it i s clear that Piauiwill have to undertake an administrative reform to free resources up from recurrent spending for capital spending. 6.13 As with almost all the other Brazilian States, this will involve addressing difficult issues such as pension liabilities and reducing the public payroll. Again, widespread public dialogue will help: civil society organizations emphasized inconsultations that reform of the machinery of government was something they believedwas vital and wanted an input into. Recurrent spending too i s a target for reengineering. To the extent possible, the cadre of civil servants should be reorganized along the strategic lines o f the State's development plan, giving increased prominence to natural resource management, rural productivity, and human capital. 93 Piaui 2002 StateEconomicMemorandum Conclulions 6.14 Public participation indecision makinghas the potential to buildsocial capital in Piaui and make government decisions more transparent and sensitive to local needs. An initial consultation by the World Bank inconjunction with DFIDfocused on organized civil society (NGOs), and suggestedboth the suspicion of many o f these groups of public and international institutions, but also the depth and capacity to contribute of Piauiense organized civil society. 6.15 Participation must extend beyond the most mobilized and vocal segments o f society, however. This i s a harder task, but can be focused inthe first instance around certain key public decisions that touch large numbers of people and that are not purely technocratic in nature. Zoning inthe cerrudos and the littoral, land and water titling, and the selection of priorities for public investments intransport, electrification, and water and sanitation are all areas where mechanisms for broad public participation indecisions can be built up. 6.16 Many of the recommendations of this report need detailed costing before being undertaken. The State will certainly attach higher priority to some than others. And clearly some may be taken more quickly and with more immediate effect than others. The matrix on the following page takes the main recommendations from the report and gives one view of which ought to receive the most urgent priority. The matrix also categorizes them by their estimated costs, and suggests those that may be taken inthe short runversus only inthe longer run. 6.17 Costs are categorized very roughly according to whether the state has the investment capacity inthe next two to three years to undertake the actions listed usingits own investment resources, based on an extrapolation of the state's finances from the last few years. Very roughly, this implies that investments of an order of magnitude greater than about US$Sm-lOm have been classified as highcost, although without detailed costingthere is roomfor debate about the correct cost classification of certain investments. Short runi s deemed to be a horizon of approximately two years. All actions inthe matrix are envisaged as feasible for initiation within the mandate of the next State Government, taking office in January 2003. 94 Piaui 2002 StateEconomicMemorandum Conclusions trix 0Design and implement a public consultative processon agro- industrialdevelopment and land use in the cerrados. Mapping and Economic and EcologicalZoning of the cerrados. 0Community consultations and Economic andEcological Zoning of the ParnaibaDelta. Establishment and enforcement of APAs inthe cerradosecological corridor. Census of wells and clear establishmentof water rights in semiarid SE. Regulation or incentives to encouragelow-volume, high- quality tourist services. 95 Piaui 2002 State Economic Memorandum Conclusions 6.18 This hasbeen a conditionally optimistic report. Piauihas undoubted potential to distance itself from its traditional casting as one of Brazil's poorest states. But many of the options outlined here require political courage, technical application, and wide public consensusbuilding. These may be greater obstacles than finance. 6.19 Yet Piaui has in some ways done this before. At the beginning of the 1980s, Piaui was by a long margin Brazil's poorest state, and through the past two decades it has posted on average the highest rates of economic growth and of poverty reduction of any Brazilian state outside the Amazon region. By focusing its strategy around sustainable use of natural resources, investments for rural productivity, strengthened public management, education, with public participation at every stage, Piaui can continue to outperform Brazil. 96 Piaui 2002 State EconomicMemorandum Conclufions Bonelli, Regis, 2001, "Impactos EconGmicose Sociais de Longo Prazo da Expansgo Agropecutiria no Brasil: Revoluqgo Invisivel e Inclus2o Social," working paper, EMBRAPA, Brasilia, DF. Easterly, William and RossLevine, 2002, "Tropics, Germs, and Crops: How Endowments Influence Economic Development," working paper, University of Minnesota. Eichengreen, Barry, 1998, "Geography as Destiny: A Brief History of Economic Growth," Foreign Affairs, 77:2. Elbers,Chris, Jean Olson Lanjouw, PeterLanjouw, andPhilippeLeite, 2002, "Poverty andInequality andBrazil: New Estimates from Combined PPV-PNAD Data," working paper, World Bank. Fiess, Norbert andDorte Verner, 2001, "The Dynamics of Poverty and its Determinants: The Case of the Northeast of Brazil andits States," working paper, World Bank, Washington, DC. Landes, David, 1998, The Wealth and Poverty of Nations," New York, NY: Norton. Macambira, DaltonMelo, 2000, "Piaui: UmaVis50 Sum&ia da Economia e da Sociedade," Carta Cepro 18:1,Teresina. Marques, 2002, "Desenvolvimento da Educa@ono Piaui," working paper, World Bank, Washington, DC. Marzall, Ivo andElmar Wagner, 2002a, "Desenvolvimento e Agricultura Sustentaveis nos Cerrados: Situa@o Atual, Potencial, e Papeldo Estado," working paper, World Bank, Washington, DC. Marzall, Ivo and ElmarWagner, 2002b, "OpC6es para o Desenvolvimento e Alivio da PobrezaRuralnos Sertaes," working paper, World Bank, Washington, DC. RebElo, EmliaMaria de Carvalho GonCalves, 2000, "A UrbanizaGgono Piaui," Carta Cepro 18:1,Teresina. Sachs, Jeffrey and Andrew Warner, 1995, "Natural ResourceAbundance and Economic Growth," NationalBureauof Economic ResearchWorking Paper 5398. Sachs, Jeffrey and Andrew Warner, 1997, "Fundamental Sources of Long-RunGrowth," American Economic Review Papers and Proceedings,87:2. Sachs, Jeffrey, 2001, "Tropical Underdevelopment," National Bureau of Economic Development Working Paper 8119. Teles, Jo50 Agostino, 2000, "Dimensgo Turistica do Piaui," Carta Cepro 19:2, Teresina. 97 Piaul2002 StateEconomicMemorandum Conclusions Teles, Jog0 Agostino, 2001, ``MotivaGGes e Produtos Turisticos no Nordeste," Curtu Cepro 20:3, Teresina. World Bank, 2002, "Brazil: The New Growth Agenda,'' Report No. 22950-BR. World Bank, 2001, "Attacking Brazil's Poverty," Report No. 20475-BR. World Bank, 2000, "Secondary Education inBrazil: Time to Move Forward," Report No. 19409-BR. 98