The Least Developed Countries Report 2015

to inputs), paving the way for the second phase, in which the emphasis is on demand-creating infrastructure investment, local connections within rural economies and increasing supply capacity. The combined effect should create the capacity for local producers to exploit economies of scale and withstand competition from urban producers in the third phase, where ruralurban connections are improved.

The demand created by agricultural upgrading and rising rural incomes is a critical driver of rural transformation, but requires an effective supply response. This calls for appropriate policies and interventions in finance, human resources and enterprise support.

The limitations of microfinance in the context of rural economic transformation and poverty eradication suggest a need for selectivity (focusing on dynamic “entrepreneurs by choice� and small and medium-sized enterprises, while avoiding its use in non-commercialized areas) as well as for modifications and alternatives. Conditional interest subsidies of microcredit (with ceilings on interest rates to borrowers) may provide a useful mechanism, while annual in-kind microgrants of productive inputs (phased out over an extended period) may be necessary to provide access to finance, productive technologies and associated inputs in remote and isolated areas.

While increasing schooling of children has major long-term benefits, adult education is critical to rural economic transformation in the shorter term. Male biases in education make adult education for women especially important.

Particular priorities are basic literacy and numeracy, vocational skills, financial literacy and business skills. Financial literacy and business skills are critical where productive investment is financed by credit and in areas where production is predominantly subsistence-oriented; but basic numeracy and literacy will be a precondition in many contexts. Progressively higher levels of business skills will be needed as the transformation process advances.

Vocational training should reflect the priority sectors in each local context, and construction-related skills (and electricians and mechanics) will be a particular priority in the initial phase of rural transformation. By employing local workers in skilled positions and providing follow-up training on the application of the skills acquired in longer-term activities, infrastructure investment can provide an additional human-resource legacy. The benefits of vocational training can be enhanced by encouraging or requiring beneficiaries to take on apprentices; and migrants may provide a useful means of urban-rural skills transfer.

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