Chapter 5: Learning from Failure

The Inter-American Development Bank (IDB) places innovation and knowledge at the center of its work. Innovation at the IDB means designing and piloting new impactful projects to meet the specific needs of our clients and adapting successful ones across the region as much as possible. It also means improving the rigor and relevance of applied technical knowledge and translating it into the answers our clients are looking for.

As an input for working more innovatively at the IDB, we are making a conscious effort to pause, reflect, and learn from what has worked, and what hasn’t, throughout the years. Learning from what hasn’t worked offers an array of opportunities to improve products, processes, and services, or to simply think outside the box and create new solutions to deal with the region’s challenges.

However, talking about what hasn’t worked means having to navigate uncomfortable conversations about failure; even if there is agreement about its usefulness in generating knowledge and serving as a platform for innovation. Embracing failure is not easy because it often involves pointing out your own mistakes as well as the mistakes of others. It also requires time, especially in an organization like the IDB whose projects involve a great number of actors. The scope of our work involves many stakeholders and partners, ranging from governments to development institutions and civil organizations.

As an input for working more innovatively at the IDB, we are making a conscious effort to pause, reflect, and learn from what has worked, and what hasn’t, throughout the years.

Nonetheless, the IDB is not afraid of a challenge. Learning from failure has been a crucial vehicle to reach greater development effectiveness. With 55 years of experience, the Bank understands there are no recipes for development as every country and situation is unique. Improving lives requires working hand in hand with government authorities and a willingness from stakeholders, partners, and Bank employees to experiment; even if we fail at times. The key to this process is learning from our mistakes and the mistakes of others and sharing our lessons with IDB’s borrowing member countries and the development community.

In 2014, for the first time, the Development Effectiveness Overview documented a series of failures in six areas of the Bank’s operational work and how we are learning from them. This year, we continue on this path and report the insights and recommendations in five other areas of the Bank: access to financial markets; conditional cash transfers; gender and diversity; innovation, science and technology; and tourism. Each area identifies the challenge, the approach followed by IDB projects to deal with the challenge, what did not work as expected, and how we are avoiding making the same mistake in the future. We hope these lessons are useful not just for the operational work of the Bank, but for governments in the region and other development institutions as well.

Access to Finance for the Productive Sector

The Challenge

Financial depth and access to finance in Latin American and the Caribbean are, on average, below the levels of other regions such as Asia and Europe. For example, bank credit to the private sector in the region has grown by a mere one percentage point since the 1980s, and currently amounts to only about 30 percent of GDP. This level is significantly below that in advanced economies (100 percent), Southeast Asia (71 percent), and other emerging economies such as China (117 percent) and India (40 percent). What’s more, the level of access to finance is below what would be expected given the per capita GDP levels of the countries in the region. Access to finance in itself is not the goal. Rather, it is an essential ingredient to increasing firm productivity, promoting growth, enhancing equality and reducing poverty.

In this context, the region faces three challenges: (1) improving the efficacy and depth of financial intermediation, (2) developing capital markets and risk management instruments, and (3) strengthening financial supervision.

Our Focus

The IDB has been a strategic partner in the region for a number of years in the design of policies and programs to improve access to finance for the productive sector. Through its sovereign-guaranteed public sector window, the Bank directed more than US$245 million to finance projects in this area between 2008 and 2013. Most of the interventions designed in this area consist in channeling funds or designing mechanisms to channel funds through second tier development Banks in our borrowing countries. A typical operation would design a way to increase the funding of a development Bank, which in turn would deliver these funds to firms or individuals through a first-tier financial institution in the country. Firms would then use these funds to invest in technology, equipment, production facilities, training, and energy conversion, among other uses. As a result of these investments, firms could improve their productivity or expand their activity, in areas that would generate positive externalities to the rest of the economy.

What Didn’t Work As We Expected?

Failing and Fixing It: Combining Access to Finance and Training. In the past, many of the programs supported by the IDB focused on improving access to finance by increasing the supply of credit available to firms. Some of the programs failed to use the total amount of funds allocated for the provision of private sector credit. By examining closely what had not worked in such cases, the IDB found that the level of credit rejections by first-tier banks had been outstandingly high and that there was some unmet demand from firms that did not even apply for credit. This was due to the fact that a group of targeted beneficiaries—mainly small-sized firms—did not have strong financial skills to develop sound credit proposals, or even to comply with the financial management requirements set by first-tier banks. Hence, either they did not submit credit proposals, or the proposals submitted were not of the quality required by commercial banks.

From these experiences, the lesson learnt by the IDB was that an effective access-to-finance program required focusing on both the supply and the demand sides of credit. Therefore, the solution developed by the IDB was to combine, whenever plausible, access to finance with the provision of technical assistance for potential beneficiaries of the programs. Technical assistance included training meant to enhance firms’ financial skills to, for example, develop strong business plans and credit proposals, and improve financial management to comply with banks’ requirements. The “Lending Program for Productive and Job Development in the Province of San Juan (Argentina)” was one of the first programs to adopt the combined supply-demand approach. It has achieved exceptional results in terms of use of credit funds (100 percent of total allocated amount), as well as business results (15 percent more export growth and 75 percent more sales growth for participants, in comparison to firms that did not take part in the program). Having realized the benefits of combining financial and nonfinancial instruments, the IDB’s portfolio today includes a number of such interventions.

Failing and Fixing It: Measuring Beyond the Numbers. When the IDB channels funding to individuals or individual firms through second-floor lending, the objective is usually to raise the productivity of particular types of firms (small and medium sized enterprises, micro firms, firms in the rural sector, etc.) or foster their productive development. On-lending to firms does not automatically imply gains to their productivity. Some firms are more adept than others at channeling funds toward becoming more efficient. For instance, larger firms might be better equipped toward using funds to improve operational procedures in such way that benefits productivity. On the other hand, it could be the case that smaller firms only use credit to increase the scale of production. Thus, results on productivity should be evaluated. Historically, the primary measure on which the Bank relied to measure project performance was the number of projects approved under the second-tier credit lines and the aggregate amount of credit extended. However, this approach ignored whether that credit successfully increased the productivity of the borrowers and thus failed to truly measure impact.

With the strengthening of the Development Effectiveness Framework the Bank is focused on strengthening the capacity of financial intermediaries to design effective monitoring plans and track indicators that measure impact at the level of the ultimate borrower. Using these improved indicators, the IDB can ensure that its resources are reaching the intended borrowers and capture the impact of these resources. Indicators used to measure increases in productivity at the borrower level include sales per worker in labor intensive sectors; agricultural yield per hectare when on-lending to farmers; or sales per assets when lending to capital intensive sectors1. In addition to productivity measures, other indicators used to track benefits for end-borrowers can include additional funding leveraged; increases in export volumes; and average loan maturities. Beyond this, the Bank has also used information in diverse databases to reconstruct historical results and undertake quasi-experimental impact evaluations on older operations with second tier financial institutions. Evidence from Colombia’s development bank, Bancoldex, has shown that benefitting firms receive lower interest rate loans with longer maturities and enjoy better credit conditions from other financial intermediaries well after the program. Furthermore, there is evidence of increased output, employment, and investment in the manufacturing sector.

The knowledge gap persists in terms of measuring the effectiveness of second-tier lending through development banks, and continued efforts in this area are still needed. But the IDB’s awareness of the problem, and the mechanisms it has put in place to address it, augurs well for more realistic and comprehensive measurement of financial deepening projects going forward.

How to Avoid the Pitfalls of Implementation

Enhance capacity and create networks
Second-tier banks—usually National Development Banks—play a critical role for IDB access-to-finance programs. It is with their key input and guidance that IDB programs are designed. Moreover, in most of the programs second-tier banks act as the executing agency, being responsible for program implementation and the achievement of program expected results. To ensure success in program implementation, IDB has been assisting second-tier banks in two ways. First, IDB has provided technical assistance to these institutions so as to strengthen their technical, supervisory and managerial abilities. Second, IDB has supported the creation of second-tier-bank networks in the region with the purpose of exchanging experiences and best practices in the design and implementation of access-to-finance programs. These networks are an effective mechanism for information-sharing. Additionally, the networks serve as a training platform through which leading banks can provide coaching to other banks in the region, in areas such as guarantee schemes, risk management, corporate governance and impact evaluation.

Conduct institutional analysis of the executing agency
The critical role that second-tier banks have when acting as the executing agency in access-to-finance programs requires an in-depth analysis on the bank’s institutional capacity. In that way, IDB can ensure the necessary capacity is in place for program implementation, and when this is not the case, the Bank can provide technical assistance to strengthen underperforming areas. While the IDB’s system to evaluate the institutional capacity of second-tier banks includes a precise fiduciary analysis, it may not provide a comprehensive analysis on the managerial and financial abilities of these institutions. As a result, several projects have needed to complement this analysis with studies on topics specific to the sector, such as eligibility procedures, evaluation of risk and commercial management, analysis of technical capacity for supervision and execution, and development of additional institutional strengthening programs to improve impact evaluation capacity. These complementary analyses have provided useful information in order to identify whether there were underperforming areas in the executing agency, their magnitude, and the technical support that IDB could provide in order to improve them.

Conditional Cash Transfers

The Challenge

In Latin America and the Caribbean, 55 million people moved out of poverty between 2000 and 20112. However, most of them have still not attained the income levels or financial security of the middle class and, as a result, they remain vulnerable to falling back below the poverty line. Today in the region, an estimated 207 million people find themselves in this vulnerable situation. In addition, 169 million people are still living in poverty, and of those, 92 million live in extreme poverty. These challenges are set in the context of a demographic transition that offers an enormous opportunity and risk for economic growth, as young people of productive ages constitute a relatively large proportion of the population in most countries in the region.

Our Focus

Since the mid-1990s, the IDB has supported the design, implementation, and evaluation of leading social protection programs; including conditional cash transfer (CCT) programs. The Bank has been a pioneer and strategic partner in developing CCT programs in the region that require participating families to meet certain conditions such as health check-ups and school attendance in order to receive benefits. The IDB has shown particular flexibility and creativity in working to adapt CCTs to fit the particular situations of each country. The Bank has also supported reforms to increase the efficiency of social expenditures and avoid duplication of programs, with an emphasis on following up on results and improving the delivery of services.

What Didn’t Work As We Expected?

Failing and Fixing It: Improving Social Services. CCT programs have been very successful throughout the region in reducing a variety of dimensions of poverty, such as increasing consumption, school attendance, the use of health services, and reducing child labor. However, for participants to fully benefit in terms of human capital accumulation, it is important to focus on the quality of the services, such as education and health, that the beneficiaries receive. The great majority of conditional cash transfer programs initially focused on creating incentives to stimulate demand for social services without taking commensurate steps to improve the quality of those services. The intent was to change the behavior of beneficiary households by requiring them to take certain steps (school attendance, vaccinations, pre- and post-natal check-ups, etc.) in order to receive the cash transfers, but not enough focus was placed on improving the quality of the very health and education services we were requiring beneficiaries to use. As a result of these lessons learned, the Bank has supported processes in Ministries of Education and Health to establish priorities, focusing on ensuring that target populations receive quality services, and put in place specific incentives to adjust supply to demand, allowing for adequate and appropriate service delivery.

In addition, the IDB has been helping to strengthen information systems to improve the verification of beneficiaries’ fulfillment of their co-responsibilities.

Failing and Fixing It: Financial Education. Many of the programs financed by the IDB were designed to pay out subsidies through the financial system in order to simplify the transfer process, reduce administrative costs, and facilitate financial inclusion of the poor. While this was aimed at increasing financial inclusion this was not fully achieved since in many cases the households gave no use to the account. Funds were withdrawn immediately and the debit cards associated with the accounts were not even used for transactional purposes. The transfer was provided through the financial system, but financial inclusion was not really increased. This led to the need of accompanying this type of delivery with financial education. This was particularly important in the case of women, for whom the lack of financial education resulted in a loss of control over the CCT’s resources. As a result, some of the objectives of the CCTs (for example, empowerment of women and an increase in household expenditure) have been diminished.3

To confront this challenge, the Bank has supported the development of national financial inclusion strategies that among other aspects aim to serve the same populations that receive the CCTs. This includes assuring the provision of financial products and services that are shaped to the needs of the CCT beneficiary population, accompanied by financial education components. CCT specific programs have also incorporated a dimension of financial education that complements the national financial inclusion strategy. Particular emphasis has been given to providing such products at the lowest possible costs. In some cases, governments are covering the cost of minimum banking fees and encouraging the saving of transfers when possible by helping beneficiaries open bank accounts. In order to fully reap the benefits of financial inclusion through this mechanism, there is still a long road ahead. In some countries many areas still lack systems that allow digital financial transactions and a wide network of cash in/cash out points, among other key elements.

How to Avoid the Pitfalls of Implementation

Coordination between national and municipal authorities
Coordination between institutions at the national and municipal levels is fundamental for implementing redistribution programs that promote demand for services typically offered by health and education ministries or, in decentralized countries, by subnational governments. In some IDB-financed projects, facilitating these synergies has been a challenge to project implementation, generating delays of up to one year for signing the project contract and making it necessary to extend deadlines during implementation. These difficulties arise due to a lack of clarity regarding the responsibilities of the different parties in program design, implementation, and follow-up. To resolve this problem, the Bank has supported such initiatives as inter-institutional agreements and the establishment of “coordination cabinets” that have facilitated dialogue as well as efforts that allow for the development of integrated strategies for poverty reduction. Setting concrete goals for each of the parties, allocating specific budgets to each geographic region, and having in place information systems and accountability mechanisms are vital tools for promoting synergies between institutions.

Fragmentation and problems of linkages between institutions
The IDB’s Institutional Capacity Evaluation System makes it possible to carry out a precise fiduciary analysis, but it must be complemented with other studies to produce a comprehensive overview of organizations. The quality and availability of human resources, as well as the decision-making process of the cooperating Ministry (number of committees, subcommittees, decision-making instances), must be analyzed in order to set realistic goals for social policy.

Monitoring and evaluation
Evaluations of conditional cash transfer programs have been fundamental for corroborating their effectiveness, applying lessons learned, and supporting transparency and responsibility in program design. In addition, evaluations serve to verify the benefits of the intervention and promote program improvements by providing robust information about the results. The IDB has supported comprehensive evaluation agendas that complement impact evaluations with operational and process evaluations. The comprehensive agenda allows for making adjustments and improving programs that are under way. Technical forums can also be used to discuss how to apply alternative methods of impact evaluation over the long term, for example based on national surveys, administrative data, and heterogeneous characteristics of areas where the programs are implemented.

Gender and Diversity

The Challenge

The labor force participation gap between men and women in Latin America and the Caribbean is more than 26 percentage points—one of the largest absolute gaps in the world, exceeded only by the Middle East and North Africa and Southern Asia regions. At the same time, Latin America and the Caribbean has the second-highest rate of adolescent pregnancy in the world, with 69 births per 1,000 teenagers in 2012, and secondary school completion rates, which are lower for indigenous people in almost every country of the region.

Other challenges include high rates of maternal mortality and violence against women; lagging human capital indicators for indigenous peoples and Afro-descendants and threats to their lands and cultures; limited access to key services such as water and electricity for indigenous peoples; and significant gaps in labor market earnings and access to credit and economic assets (such as land and housing) by gender, race, and ethnicity. Amidst these challenges, there is limited advocacy for women, indigenous peoples, and Afro-descendants and they often lack a strong voice to defend their rights. These are just a few of the many pressing challenges to attaining gender equality, empowering women, and providing support for indigenous peoples and Afro-descendants in a context of “development with identity.”

Our Approach

The Bank has focused on three areas: promoting and mainstreaming gender equality and “development with identity” across all Bank operations; generating loans and technical cooperation operations whose principal objective is to implement those principles; and conducting analytical work to gain a better understanding of the challenges related to gender and diversity as well as to identify new areas for intervention.

In the 1990s and 2000s, the Bank’s focus was largely on technical cooperation and analytical products, which broke new ground in social areas in the region. Since 2011, loans in the area of gender have concentrated on providing integrated services for women and supporting private banks to better serve women-owned businesses. In the area of diversity, the focus has been on supporting sustainable agricultural for indigenous smallholders and the mitigation of challenges faced by indigenous peoples in the face of climate change.

What Didn’t Work As we Expected?

Failing and Fixing It: Providing Complete Financial Services for Women. When we talk about access to finance for women entrepreneurs, what immediately comes to mind is microcredit. The IDB, and particularly the MIF, have provided steadfast support for the expansion of microfinance in Latin America and the Caribbean. However, while women represent about 57 percent of the region’s microcredit borrowers, the Bank has failed to help them access enough credit and financial products to grow their businesses. Promising approaches to break through this “glass ceiling” include making the business case for such access to commercial banks; developing gender-neutral risk analysis methods such as psychometric credit scoring; and strengthening the skills of loan officers. Simply gaining access to finance is important, but women also need a more comprehensive suite of services. The MIF first started expanding services for women entrepreneurs by providing business training. Since then, the IDB and MIF have begun to provide a more complete set of financial products and services that businesswomen need, including skills development, mentoring, and the creation of business networks to expand their access to markets.

Failing and Fixing It: Legal Identification Documents for Women. Starting around 2000, a new generation of land titling projects incorporated measures to ensure women’s access to land titles. The projects included training for staff handling the transactions, campaigns targeting women to increase their awareness of the importance of having a property title, and joint operations with rural women’s organizations.

However, a crucial issue for gender equality was neglected. The projects did not consider that many rural women lacked national identity documents (such as a social security card in the United States), particularly in indigenous areas. If they could not establish their legal identity, women could not be registered in legal titles, which amounted to their losing their de facto rights to the property. The same problem came up for women in other projects that involve titling, such as resettlement and housing services projects.

Projects must now include measures to facilitate the ability of women to obtain the documents they need to access those rights, which can be done by engaging the participation of national civil registration institutions, as was the case with the Social Housing National Program in Ecuador. Moreover, to help with the costs involved, the Canadian Fund for Civil Registration in Latin America and the Caribbean, created in 2014, gives priority to supporting legal identification for women in projects identified by the Bank’s safeguard policies as having a risk of excluding women from project-derived benefits because of their lack of such identification.

Failing and Fixing It: Working Locally with Indigenous Communities. “Development with identity” for indigenous peoples in Latin America and the Caribbean envisions the development process as integrated and interconnected. This approach works well for governing indigenous territories, managing ecosystems, and conserving natural resources. However, it often conflicts with how services are provided by governments, which sometimes prefer to execute programs through ministries using top-down design strategies. In the past, we failed to take into account the difference in perspectives between indigenous peoples and governments, and as a result projects were difficult to execute and monitor. In this context, the IDB now promotes “development with identity”.

This motto encompasses the lessons IDB has learned about the importance of working directly with indigenous peoples on community-level planning. Bank projects now finance territory-based, social, cultural, and economic development plans based on participatory methodologies that incorporate the perspectives of indigenous organizations and leaders; sometimes these can be funded by public grants managed by local communities. Depending on the type of projects selected, ministries play a supporting role with technical assistance and cultural adaptations to existing programs. The application of this model through the Chilean Orígenes program yielded promising results. From 2003 to 2011 the average monthly family income of indigenous households in participating rural areas increased by 35 percent in real terms compared to an increase of only 21 percent for non-indigenous rural households. From 2006 to 2011 the test score achievement gap between indigenous students’ scores and the regional average was lowered from 11 points to 1 point.

The current approach recognizes that incentives and measures that prioritize indigenous perspectives in program design and implementation lead to better service delivery and improved trust. In Chile, this participatory approach is being taken a step further and is being replicated in the private sector through joint ventures—designed by indigenous peoples in cooperation with businesses—that preserve indigenous territories while promoting the conservation of biodiversity.

How to Avoid the Pitfalls of Implementation

Embed gender expertise within executing agencies
When it comes to gender issues, project experience has shown the value of embedding specialized knowledge in executing agencies. Such expertise is helpful in translating gender-specific designs into effective project execution and in carefully monitoring gender-related indicators in accordance with a project’s results matrix. Capacity building and technical assistance in areas such as gender-neutral risk analyses—including early identification of constraints to participation by project beneficiaries, financial service offerings, and the development of networks—are critical in fomenting gender know-how and strengthening its impact. Promoting such expertise is also helping to ensure that project indicators and evaluations go beyond data disaggregation and measure gender-related results and impacts. In turn, the lessons learned can serve as an example for mainstreaming work on projects for indigenous peoples and Afro- descendants.

Listen and learn
It is critical that consultations with indigenous and Afro-descendant communities take a “listen and learn” approach. This means direct participation by beneficiaries in the project’s decision-making committees to build and maintain trust between communities and the government. It also means adjusting consultation methods to overcome potential cultural and language barriers. Particularly, consultations with indigenous people should be gender sensitive and include a separate dialogue with women and men when necessary.

Project design must be based on a thorough understanding of conditions on the ground. For instance, while climate change and the conservation of biodiversity are global challenges, working with indigenous and Afro-descendant peoples requires a local approach that addresses community-specific challenges and designs solutions suited to the community’s needs. To cite just one example, sustainable land-use practices that communities have been using for centuries to conserve the forest should be recognized as a rich source of knowledge and experience for land management projects.

Conservation efforts used to consider people and nature as completely separate, which led to the view that all people are a threat to conservation. This influenced the design and implementation of specific IDB climate change and conservation programs. Current studies actually show that well preserved ecosystems and areas with the lowest rates of deforestation are located in indigenous territories. Indigenous peoples contribute to the conservation of biodiversity by providing ecosystem services to mitigate the impact of climate change and limit deforestation.

A study developed in Mexico found that indigenous people’s sustainable attitudes towards nature are linked to the multiple goods and ecosystem services that they obtain from their forests as well as the desire to protect land for future generations. This realization only came about by engaging indigenous peoples and hearing their perspective. Current IDB programs now recognize the role of indigenous peoples and their traditional practices as a vital aspect of conservation. The key to this learning was not to simply translate words. Instead, language needed to be adapted in order to become relevant for local contexts. Practical examples were used to illustrate the implications of climate change on specific communities. Community-level conservation plans were reviewed and local consultative processes and communication channels were respected.

Innovation, Science & Technology

The Challenge

Today’s economies are increasingly in need of knowledge to foster innovation. Beyond the accumulation of labor and physical capital, innovation constitutes the critical ingredient for economic growth in countries that are increasing their return with the same level of productive factors. “Innovation” is understood as the process of transforming new ideas and knowledge into economic and social solutions. It translates at a company level into economic advantages that increase competitiveness, productivity growth, and entry into new markets. Greater business productivity in the aggregate turns into national economic growth and social benefits. The problem in Latin America and the Caribbean is that a series of obstacles have slowed the dissemination of new ideas and their application to productive processes, so it has taken a long time for this innovative dynamic to reach companies in the region. The result has been an increasing productivity gap between the region and emerging economies like China and India and the advanced economies of member countries of the Organization for Economic Cooperation and Development (OECD).

Our Focus

Since 2007, the IDB has increased support to its member countries in the areas of science, technology, and innovation through projects that strengthen national innovation, institutional capacity, and training of human resources. The Bank has encouraged the private sector to become more actively involved in issues of innovation and modernization, while helping governments develop alliances between research institutes, universities, and the private sector for research and development. The IDB has also supported the upgrading and development of technological infrastructure. In support of these programs, the Bank provided more than US$1 billion in financing from 2008–13 to more than 30 projects in the region.

What Didn’t Work As We Expected?

Failing and Fixing It: A Missed Opportunity. IDB’s work in innovation, science, and technology on a project-by-project case basis has had high impact.4 However, when economies in Latin America and the Caribbean are gauged by their competitiveness, there is an overall limited effect that such work has produced. The productivity growth, knowledge intensity, and sophistication of the productive structure of these economies are lagging. The Bank missed the opportunity to champion policies to secure investments in the innovation sector to a level that would have taken the region closer to the technological performance of their peers in Asia and the less developed regions of Europe. Instead, the wide productivity gap between the region and the advanced economies has increased. This critical element has been incorporated into the recently approved Sector Framework Document in Innovation, Science and Technology. In response to this, the Bank will proactively engage borrowing countries to assign priority to policy reforms and investments in innovation, science and technology through an active regional policy dialogue, and the formulation of country strategies.5

Failing and Fixing It: Matching Innovation and Infrastructure. Some projects supporting technological development and business innovation have neglected critical complementary factors. For example, there were project designs that did not foresee the need to match an increase in the quantity of qualified human resources with a proportional increase in scientific infrastructure. Examples of this include laboratories and equipment as well as adequate research facilities. Recognizing this lack of complementarity in previous investment programs, the IDB has focused more recently on financing innovation projects with integrated components that take into account the importance of matching infrastructure and human resources.

Failing and Fixing It: Research and Business Cooperation. Joint research projects between research centers (such as those at universities) and companies present special challenges, including the time needed to build trust, the need to design plans to administer resources and establish leadership, and the search for a common agenda that incorporates both academic accomplishment and the application of knowledge toward business goals. These objectives do not always coincide, so collaborative projects between research centers and companies have not always been successful. Given these challenges, the IDB has increased its efforts to create environments more favorable to collaboration by directly contributing to (1) enhancing management capacity for companies to innovate; and, (2) establishing specialized offices of technology transfer to connect companies and universities.

How to Avoid the Pitfalls of Implementation

Prepare companies to access competitive funding
Individually supporting businesses by providing them with innovation instruments can be effective in generating the capacity to innovate and foster technological modernization. However, this support sometimes fails to reach many potentially innovative companies and may favor those with prior experience or those that already belong to certain networks. In many cases, it is necessary to support firms in project preparation and raise technological awareness. This support helps firms develop basic skills to fully take advantage of the opportunities offered by public programs. In order to improve the outreach of business innovation instruments, the most recent IDB programs include specific support for marketing and communication to benefit more firms than before. Furthermore, it is now common practice that IDB programs provide support in early stages of innovation projects. This way, instead of taking for granted that firms know how to design a project to be considered by an innovation fund, these firms receive support for project preparation and also for the development of an innovation and technology agenda within the firm.

Improve the management of information systems of innovation agencies
Investing in the upgrade of information and management systems of innovation agencies is highly complex. This requires exceptional planning and management capabilities when compared with other activities contemplated to benefit the sector. Implementing the same upgrades within public institutions has also proven to be highly complex. This calls for exceptional planning and management capacity that IDB-financed projects must take into account. Areas in which these projects need to focus include (1) information systems of public entities charged with promoting research and investigation in order to improve the efficacy of project management; (2) information systems for evaluation and monitoring of programs; and (3) the creation of updated databases (and platforms for data exchange) that can subsequently facilitate analysis of the efficacy and impact of programs, generating virtuous circles of learning and improvement.


The Challenge

Despite the growth of tourism in Latin America and the Caribbean drawing on the region’s rich and diverse natural and cultural resources, the sector’s potential contribution to sustainable growth and poverty reduction can only be fully realized if economic activities linked to the sector are competitive, socially inclusive, and environmentally sustainable. In that context, the tourism sector needs to address three critical development challenges: (1) an economic impact of tourism that is falling short of its potential; (2) a limited distributive impact of the benefits of tourism at the local level; and, (3) the unsustainability of the benefits of tourism because of the degradation of natural and cultural resources.

Our Focus

Since 2009, IDB financing for the tourism sector has focused on the three challenges described above through operations consistent with the institutional priorities of environmental protection, poverty reduction, and greater social equity. To that end, activities supported by the Bank have aimed to (1) enhance public goods that allow the private sector to innovate and develop tourism products to satisfy demand; (2) eliminate the barriers to entry for new service providers that offer high-quality products that are competitive and socially-inclusive; (3) strengthen the governance of tourism destinations; and (4) ensure comprehensive protection of the environment at tourism destinations, including mitigating their vulnerability to natural disasters and climate change.

What didn’t work as we expected?

Failing and Fixing It: Beyond Infrastructure. Developing the tourism sector exclusively around the provision of infrastructure (highways, ports, airports, etc.), which was the focus of the funding provided by the Bank until the late 2000s, is not enough to develop a sustainable tourism industry. Infrastructure needs to be accompanied by nearby and competitive tourism services and experiences. In the past, various Bank projects failed to take this dimension into account. In that context, projects have been redefined with a focus on developing additional tourism services in destinations that have an inherent touristic attraction. This is now done by more actively involving the private sector and local communities. Tourism companies and the associations that bring them together are the link to both national and international demand. The creation of technical and financial public-private alliances between companies, communities, and local governments to develop demonstration projects, often in remote areas, has also been a novel and useful option in several projects.

Failing and Fixing It: Focus On the User. Some Bank and Multilateral Investment Fund (MIF) supported programs to develop tourism went down what could be called a “romantic” view. Projects were designed in very scenic destinations regardless of the logistical difficulties inherent to their location or its marketing potential. Recently, the focus has shifted to capture a better balance between the picturesque and the marketable; working in locations supported by technical demand assessments. This has had a large and positive effect not only on the number of visitors, but also, on the amount of money visitors spend. By focusing on the user’s interests, the IDB, is for example, promoting the rehabilitation and sustainable use of natural and cultural heritage for tourism purposes, especially in places that have been declared as World Heritage Sites by the United Nations Educational, Scientific and Cultural Organization (UNESCO).

Failing and Fixing It: Target the Right Scale. Several projects were developed as satellites of large touristic hubs with the purpose of allowing neighboring communities to benefit from the inflow of tourists. In some cases the demand generated exceeded the logistical capacity of the community to serve large numbers of tourists. This had long term scarring effects on future demand of such services. In order to avoid this, recent projects have adopted a more structured methodology to develop tourism. Based on an integral analysis of the touristic destination, new projects not only include a market analysis of the location (as pointed out in the preceding discussion) but also have a deeper understanding of the scale and capacity to offer tourism services of the communities around the principal location. As a result, these new developments are expected to be more attractive and sustainable with a broader, more equitable sharing of tourism’s benefits.

How to Avoid the Pitfalls of Implementation

Strengthening tourism administration and incorporating effective coordination mechanisms
Successful tourism development requires the involvement of many sectors (e.g. transport, public works, culture, water and sanitation, and the environment); different levels of public administration (national, subnational, and local); and actors from the private sector and civil society with diverse interests (e.g. nongovernmental organizations and community groups). The complexity of involving all of these stakeholders has sometimes generated delays in project implementation, especially when specific interventions and responsibilities were not defined and coordinated during the design phase. In addition, public tourism institutions in the region are generally new and in many cases still limited in their sectoral planning and management capacity. For all those reasons, IDB-financed programs now include interventions to strengthen both tourism entities as well as strategies and mechanisms that promote coordination within the public sector, and between the public and private sectors and civil society. Programs that have employed such an inclusive approach have proved to be successful. Putting together inclusive committees and advisory councils early in the project cycle have generally resulted in successful multisectoral coordination that draws on the positive synergies between the different actors involved. These measures do not always ensure agility in decision-making, but they do often end up facilitating the achievement of expected results. Community consultation and participation regarding how the investments, public works, and services respond to local circumstances, culture, and interests increase community identification, ownership, and support for a project. This in turn improves project implementation and, more importantly, helps communities reap tourism’s benefits.

  1. Assests refers to machinery and equipment. They are measured through investment via the perpetual inventory system.return

  2. Levy, S. and N. Schady (2013). “Latin America’s Social Policy Challenge: Education, Social Insurance, Redistribution.” Journal of Economic Perspectives 27 (2): 193-218. return

  3. In particular, as women are the recipients of cash transfers, loss of control of a household’s resources can result when they share passwords with their husbands. A full discussion can be found at: Duryea, S. and Schargrodsky, E. 2007 Financial Services for the Poor: Welfare, Savings, and Consumption. Inter-American Development Bank: Washington, D.C.return

  4. Previous editions of the DEO reference impact evaluations of a number of innovation, science and technology projects, which have been found to have measurable positive impacts in several countries. See, in particular, evidence mentioned in DEO 2013 (pages, 22, 11 and 121), and DEO 2012 (page 53). return

  5. For an extensive discussion of issues raised in this section see the recently approved Sector Framework Document on Innovation Science and Technology, particularly section IV. Also, see Investing in Ideas: Policies to Foster Innovation, in: Development in the Americas (2014), Washington, D.C.return