PACR [project assistance completion report] : Agricultural Venture Trust

Over the course of the project, the AVT invested in 31 enterprises, including production, processing, and marketing enterprises in aloe vera, meat products, tropical flowers, fruit preserves and drinks, etc., with project selection largely based on local or export market potential. A 6/93 appraisal of 28 of the 31 AVT enterprises found that 13 were fully operational, 9 were in the evaluation or early investment stages, and 6 were defunct. AVT enterprises were frequently plagued by cost overruns in both the construction and implementation phases, resulting in working capital difficulties which made the enterprises overly reliant on bank overdrafts and contributed to strained relations with commercial banks. The objective that the AVT equity fund not decline over the life of the project was not achieved. With the present value of AVT's investments at approximately $2.055 million, it can be inferred that the value of the fund has declined by that amount. On the other hand, AVT has leveraged considerable loans from other investors -- over $8 million. In the institution-building component, about 20 AVT staff members received on-the-job training. However, while staff became adept at analysis and systems, they remain limited in agribusiness management and operations. In the last year of the project, AVT considerably reduced its dependency on A.I.D. financing by reducing the number of staff and operational costs. Since the PACD, AVT administration has been supported completely by investment fees and dividends, and administrative costs are projected at manageable levels. However, with USAID support at an end (and with no other donor forthcoming), overall sustainability will require restructuring the AVT to (1) permit it to offer short-term financial services, such as loans, and diversify the types of financial services it offers its clients; (2) expand the areas of investment beyond agribusiness; and (3) support a productive administrative staff on a cost-effective basis. Lessons learned are as follows. (1) The gestation periods for agricultural projects in the region, and the time required for returns on the investments, are longer than expected. Implementation and financing schedules need to be critically reviewed, as well as assumptions regarding availability of inputs, access to markets, dependability of supporting infrastructure, and the capabilities of enterprise management. (2) The problem of cost overruns indicates a need for close monitoring of investments, and the provision of technical, financial, managerial and marketing advice throughout the life of the investments. (3) Working capital requirements need careful assessment and monitoring. Disbursements must be controlled to ensure that funds are used for the purpose intended. (4) Excessive dependence on single markets and or single products is risky. Different markets and ways to reduce risk through product diversification need to be carefully assessed. (5) Above all, a financial institution encumbered with limitations on where and how to invest for the sake of development goals may be constrained in achieving the commercial orientation required for sustainability. Directed credit projects worldwide have demonstrated this lesson time and time again.