Page 1 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: 52011 Project Name Emergency Social Safety Net Enhancement (EC Food Facility Grant) Region MIDDLE EAST AND NORTH AFRICA Sector Other social services (100%) Project ID P117038 Borrower(s) Government of Yemen Implementing Agency Social Fund for Development Fij Attan, PO Box 15485 Sana'a Yemen, Republic of Tel: (967-1) 449-671 lamis@sfd-yemen.org Social Welfare Fund Nogum Sana'a Yemen, Republic of Tel: (967-1) 544-012 Fax: (967-1) 544-011 info@swf.gov.ye Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared November 6, 2009 Date of Appraisal Authorization August 29, 2009 Estimated Date of Board Approval December 15, 2009 1. Key development issues and rationale for Bank involvement The Republic of Yemen, with a population of about 22 million people, and a GDP per capita of about US$930, is among the poorest countries in the world. Forty percent of the rural population and 20 percent of the urban population live below the poverty line. Despite steady progress at the macro level, Yemen has some of the worst social indicators in the Middle East and North Africa (MENA) region: a 28 percent literacy rate among women, 18 percent malnutrition, gir ls� primary enrollment at 55 percent, and access to safe water at 31 percent. Poverty is pervasive in rural areas, where much of the population resides. The dispersion of the population and the difficult topography pose a serious challenge to delivering social services: Yemen has around 35,000 official villages (with approximately 100,000 human settlements), many with less than 100 households, which makes the provision and maintenance of social services very expensive. On the other hand, the country�s fiscal revenues, which depend heavily on the oil sector for nearly 75 percent of income, are volatile and, following the oil price reduction declined sharply between 2009 and 2008. Moreover, production forecasts indicate that existing reserves will be depleted in 8-10 years. Yemen is an oil-dependent economy with oil revenues projected to decline, with no short to medium-term alternative income sources to deliver social services. Yemen is suffering from multiple challenges, compounded by the global food crisis. Recent drought conditions, combined with energy, fertilizer and food price increases, have already imposed great hardship and rising expenses on the Yemeni population, particularly in rural areas. The sharply rising Page 2 2 prices of imported food and fertilizers, in particular grain, have exacerbated the difficulties for the poor. The country now faces a significant food shortage and high food prices. Domestic cereal production covers only 18% of the country�s cereal consumption. With an average 2.5 million tons of cereals imported every year, a large proportion (73%) of the population lives in rural areas and most of them (90%) are farmers � but remain net buyers of cereals. The increase in wheat prices from US$196 per ton in June 2007 to the current US$440 per ton has resulted in an additional US$600 million burden on Yemen. Because Yemen is a country highly dependent on wheat as a staple, the result is an increased vulnerability to unstable food prices. The rise in international food grain prices in the context of meager per-capita growth in Yemen has the potential to reverse the poverty reduction achievements of the last seven years. If not mitigated with income transfers, the doubling of wheat prices in the last year compounded with the increase in prices of rice and maize is projected to increase the proportion of the population living in poverty over the 1998 level. Estimated per-capita real consumption growth indicates a decline of 1 percent per year in the last two years. This would take place in a context of already severe child malnutrition (32 percent of poor children are stunted and 14 percent are underweight). Yemen also suffers from emergencies brought about by natural disasters as well as societal issues such as child trafficking and armed conflict. The October 2008 Category 3 storm and floods that hit Hadramout and AI-Mahara Governorates had a devastating impact . The disaster caused the death of 73 persons, scores of injured, destruction of 2,826 houses and huts and partial damage to another 3,679 houses, and the displacement of about 25,000 people. The issue of child trafficking is estimated to affect approximately 600/700 children every year and is rooted in poverty. The Government has instigated an extensive awareness campaign, developed a National Plan to fight child trafficking and approved stiff penalties for those involved in this practice. Recent conflict in the northern areas of the country has created an emergency situation with a reported estimate of 100,000 Internally Displaced People (IDPs). The conflict restricts the provision of necessary government services to assist the poor and vulnerable. Sector Context Last year�s severe global food, fuel and financial crisis deeply affected Yemen. However, given the high population growth (1.78%) over the same period, an increase in the numbers of poor would see an additional 1 million people falling below the poverty line. The 2007 Poverty Assessment found that poverty is spread across regions with poverty rates varying between 5.4 percent and 71 percent among governorates. The highest poverty levels are in the rural a reas of the country i.e., Amran, Shabwah and Al- Baida governorates and the lowest levels in the urban areas i.e., Al -Maharah and Sana�a City governorates. The fact that Yemen imports more than three-quarters of its food requirements will have implications for both urban and rural poverty. Moreover, the recent drought, floods and increased fertilizer prices have added further to the rural population�s vulnerability. As a consequence, the already large intra-governorate poverty heterogeneity is expected to increase. In response to these multiple challenges, the Government has developed and is implementing a Poverty Reduction Strategy. One of the four main pillars of the strategy intervention is to protect the poor and vulnerable through a comprehensive social safety net program. Yemen has developed a multi-tier safety net, including highly successful community-driven programs (notably under the Social Fund for Development and the Public Works Program), and the provision of defined benefits to limited cash transfer to the poorest (through the Social Welfare Fund). Altogether, public financing for these safety net programs is still quite modest, representing only 0.6% GDP if compared to similarly low income countries, which spend between 1.5% and 2% of GDP on safety nets programs. Page 3 3 Yet the largest share by far of social expenditure is consumed by an expensive and untargeted subsidy system (essentially for energy products), with benefits accruing mainly to richer strata of the population. Yemen�s Development Program for Poverty Reduction (DPPR) takes a cautious approach to this politically sensitive issue, and focuses on the need to strengthen existing programs. Still, the Government is aware that in an increasingly constrained fiscal environment, it may not be possible to delay for much longer the necessary reform of the subsidy system, an issue which is likely to take some degree of prominence in the coming period. Project Rationale Coupled with the food crisis in 2008, the fiscal impact of the reduction in oil prices in 2009 has resulted in the reduction of Government revenues by 30 percent so far in 2009 compared to 2008, leading to budgetary constraints and significant cuts in the public budget to most sectors, including the social sectors. The project will support the Government�s plan to expand its safety net programs in response to the food crises and increase the coverage of existing cash-based programs targeted at the poorest and most affected by the crises. The Government plans to implement its expansion of cash-based assistance following recovery of the public budget and to implement the energy subsidy reform program when the political timing allows. This reform is expected to channel 50% of the savings achieved to social programs, including cash-based social assistance. Furthermore, the project is linked directly to the Government�s Development and Poverty Reduction Strategy and the Social Protection Strategy that includes in its objectives increasing the coverage and effectiveness of the targeted cash-based safety net to address the impact of food prices and other shocks in the country. Project Complementarity with other Initiatives. The project will coordinate closely with the EC activities and Technical Assistance (TA) supporting both Social Fund for Development (SFD) and the Social Welfare Fund (SWF). The operation will extend the initial US$10 million Emergency Additional Financing Grant, allocated from the Global Food Price Response Program (GFRP) to Yemen. The first GFRP grant, implemented by the SFD, supported a workfare program that provided cash to the able- bodied poor in exchange for work on community activities to help them cope with the food price emergency. A small share of that financing supported the development of an improved targeting system for the SWF, using the proxy means test method. The project will also coordinate with the World Food Program (WFP) intervention that is currently being designed, aiming to provide additional food support to poor households. SWF targeting mechanisms/data will be shared with WFP to ensure appropriate support to households desperately in need. The project builds on the Bank�s technical assistance as well as guidance to ongoing cash-transfer program reform efforts. Ongoing Bank support is focused on improving SWF targeting through application of proxy means testing as well as supporting the development of a comprehensive operations manual for all SWF staff. These activities are initial steps to prepare SWF for a planned cash transfer program expansion from about 1 million current households to 1.5 million households. The project will also complement ongoing EC support to the reform of the Social Welfare Fund. EC support focuses on building the institutional capacity and policy reform towards further effectiveness and efficiency. The World Bank and the EC are supporting the updating of the food security strategy. Other donors, particularly Japan and Germany, are also planning to engage in the agriculture sector and rural water management. The proposed project will coordinate with this initiative as well as coordinating with the established donors� implementation support and coordination group. Both EC and the World Bank are currently extending support to the Government to increase the effectiveness of the SWF Steering Committee by assessing Steering Committee representation, mandate and mechanisms. Page 4 4 2. Proposed objective(s) The project objective is to contribute to the reduction of the negative impact of food prices volatility on the poor and vulnerable in selected areas, and support the protection and building of community assets in poor communities. 3. Preliminary description The project is expected to achieve its objectives through two main components: (1) workfare assistance to approximately 12,000 poor households capable of participating in the program; and (2) direct cash transfer to approximately 41,000 households under the food poverty line in selected areas affected by flood, conflict, and areas prone to child trafficking. Component 1: Workfare assistance and impact evaluation (Euro 10.197 million) Sub-component 1.1. Expand workfare assistance for the needy (Euro 9.8 million ). The Phase I workfare program initiated under the initial GFRP will be expanded to reach an additional 12,000 � 16,000 households within communities most seriously affected by the food crisis. Cash will be provided to help mitigate the impact of increased food prices through temporary work opportunities through a well-tested community targeting mechanism, as well as supporting rehabilitation of basic community assets (e.g., soil protection, agricultural terraces rehabilitation, maintenance and improvement of local feeder roads, pavement, etc.). It is estimated that 60-70% of the sub-component cost would be for wages, and approximately 30% for cost of materials, project mobilization/supervision activities, etc. It is estimated that participating households will earn US$500�600 (average 66 days participation). Sub-component 1.2. Impact evaluation and component management - workfare program (Euro 0.397 million). This sub-component will support the implementation of a baseline study and an impact evaluation of the workfare program. Results from the Phase I Beneficiary Assessment will contribute to the design of the phase II impact evaluation. The impact study will provide lessons and policy recommendations for further SFD workfare expansion, as well as contributing to the social protection dialogue concerning the protection of the able-bodied poor. The sub-component will also finance up to Euro 298,000 (3% of component 1.1) for SFD overhead cost. Component 2. Temporary cash assistance for poor households (Euro 7. 303 million) Sub-component 2.1. Temporary cash transfers (Euro 7.140 million). This sub-component will provide cash transfers to an additional 41,000 poorest households in selected areas who are not yet enrolled in the SWF program but have been identified through the recently completed SWF household survey and the developed PMT scoring. These households, to be located in flood, conflict or child trafficking areas, will receive $20/month to help them cope with price pressures over 12 months. After project closing, these households will be included in regular SWF coverage based on the GoY 2011 budget. Sub-component 2.2: Evaluation and component management - cash assistance program (Euro 0.163). This sub-component will support an evaluation of the cash transfer component. The evaluation will address targeting, operational process and results at the household level. The evaluation findings will provide lessons learned and policy recommendations for the SWF overall program, as well as contributing to the dialogue in regard to policy options for the reform of the wider safety net programs. The subcomponent will also finance the contracted payment agency administrative fee, recruitment of a local Financial Management Specialist to support the SWF Finance Department to meet project fiduciary requirements, external auditor, additional local consultants as required, as well as travel cost for SWF staff for field follow up and supervision. Page 5 5 4. Safeguard policies that might apply Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP / GP 4.01) [X] [] Natural Habitats ( OP /BP 4.04) [] [X] Pest Management ( OP 4.09 ) [] [X] Cultural Property ( OP 4.11 ) [] [X] Involuntary Resettlement ( OP /BP 4.12) [] [X] Indigenous Peoples ( OP 4.10) [] [X] Forests ( OP /BP 4.36) [] [X] Safety of Dams ( OP /BP 4.37) [] [X] Projects in Disputed Areas ( OP /BP /GP 7.60) [] [X] Projects on International Waterways ( OP /BP /GP 7.50) [] [X] The project is rated as environmental category B, and the safeguard policy on Environmental Assessment, OP 4.01 will be triggered. No other safeguard policies are envisaged to be triggered. The Bank team and the SWF team carried out a consultation workshop with civil society organizations (CSOs) on October 18, 2009 to share the information on the Bank's involvement and support to Social Protection in general as well as the project intervention. The workshop (attended by over 65 participants) concluded with recommendations for further engagement and support of CSOs in monitoring and supporting SWF service delivery, especially with regard to targeting and benefits delivery. The Project (ESSN) will build on the conclusions of the consultation workshop and encourage CSOs� role in project monitoring and communication support. 5. Tentative financing Source: ($m.) Borrower .04 Global Food Crisis Response Program 25.89 Total 25.93 6. Contact point Contact: Afrah Alawi Al-Ahmadi Title: Senior Human Development Specialist Tel: + 967 1 421623 - 8 (ext. 236) Fax: + 967 1 413709/418733 Email: aalahmadi@worldbank.org Location: Sana'a, Yemen (IBRD)