Since the collapse of the Soviet Union, the rural economies of Armenia, Georgia and Romania have undergone massive changes. Increased urban unemployment has stimulated migration from towns to rural areas. Meanwhile, rural industries that were subsidised under communism have collapsed, causing rural unemployment.

Subsistence agriculture is important to rural livelihoods in each country. It is a low-risk option for poor people, but it does little to stimulate economic growth in a region. Business development, waged employment and non-barter trade are rare; most cash comes either from social welfare or from money sent home by migrants. There is a growing focus on the rural non-farm economy (RNFE) as a way of stimulating economic growth that will make use of the high labour supply and improve livelihoods.

Previous efforts have focused on improving the conditions for growth of the RNFE; this means less attention for the factors that motivate and allow individual households to work in RNFE activities. Research from the Natural Resources Institute, UK, uses household surveys from Armenia, Georgia and Romania to determine the factors that motivate and constrain people from becoming involved in the RNFE.

There are significant differences between the three countries, but several similarities exist:

• Low access to formal credit systems constrains business development, as does a lack of access to markets, training, education and low prices for goods.
• A policy focus on urban areas has led to under-investment in rural infrastructure.
• A higher level of education is associated with participation in the RNFE, but access to education is becoming increasingly scarce in rural areas.
• Membership of social networks, or ‘social capital’, is important in accessing education, employment and business opportunities. However, established local leaders tend to control these networks, making it difficult for migrants to an area to benefit.
• Migration, which often allows household members to send money home, is easier and more common for those with few dependents and higher education levels. These factors are also important in allowing people to find waged employment locally.
• Owning land and livestock does not necessarily result in higher income levels. Indeed, these assets may force people to work on their land, reducing opportunities for involvement in the RNFE.

For people in many rural areas, the transition from a centralised economy that provided jobs to a market-based economy has led to the collapse of the cash-based systems. Agriculture is not productive enough to provide employment and income for growing rural populations. While increasing agricultural productivity is part of the solution, it is not enough. Developing the RNFE is vital for economic growth. This development must target poor people by providing incentives to participate in non-farm activities, as well as training people to do this.

Several policy changes are required:

• Businesses and factories should be encouraged to relocate to rural areas through tax breaks and subsidies. This will benefit the poor through the creation of waged employment.
• Local governments must be able to retain taxes and spend them locally.
• Encouraging the buying and selling of land will both stimulate investment and allow owners to use land as credit for business development.
• Credit services provided by governments and non-governmental organisations should be better coordinated. Farmers’ associations and cooperatives can assist with providing credit.
• There must be improvements to rural transport infrastructure, such as roads and railways.
• Rural communities need better education services, including more information, technology and access to training and extension services.

Source(s):
‘The Rural Non-Farm Economy and Poverty Alleviation in Armenia, Georgia and Romania: A Synthesis of Findings’, Natural Resources Institute, 2004 Full document.

Funded by: Department for International Development, UK

id21 Research Highlight: 11 April 2005

Further Information:
Enterprise, Trade and Finance Group
Natural Resources Institute
University of Greenwich
Central Avenue
Chatham Maritime
Kent, ME4 4TB
UK

Tel: +44 (0) 1634 883199
Fax: +44 (0) 1634 883706
Contact the contributor: J.Davis@gre.ac.uk

Natural Resources Institute, UK

Other related links:
'Reading the signs - rural non-farm economies and their impact on rural poverty'

'Linking rural and urban livelihoods for poverty reduction in marginal areas'

'Widening non-farm employment opportunities in Madhya Pradesh'

'Winners and losers as Indian villages enter the wider economy'

The Rural Non-Farm Economy project (RNFE)

Rural Non-Farm Economy and Livelihood Enhancement