Document of The World Bank Report No: 21516-MAG PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR69.2 MILLION (US$89.05 MILLION EQUIVALENT) TO THE REPUBLIC OF MADAGASCAR FOR A RURAL DEVELOPMENT SUPPORT PROJECT May 16,2001 Rural Development 2 AFC08 Africa Regional Office CURRENCY EQUIVALENTS (Exchange Rate Effective December 18, 2000) Currency Unit = Malagasy Franc (MGF) MGF I = US$0.000151 US$1 = MGF 6,551 FISCAL YEAR January I st -- December 31 st ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CDF Community Development Project CGP Competitive Grant Program CIOV Inter Ministerial Council for Rural Development (Comite Interministeriel d'Orientation et de Validation) DRC Domestic Resources Costs EA Environment Assessment EPP Steering Committee (Equipe Permanente de Pilotage) ERR Economic Rate of Return FID Community Development Fund (Fonds dintervention pour le Developpement) FINMI Financial Management Initiative GTDR Regional Rural Development Working Group (Groupe de Travail de DIveloppement Rural Rigional) ICB International Competitive Bidding IEC Information, Education, Communication IPM Integrated Pest Management LRDP Letter of Rural Development Policy M&E Monitoring and Evaluation MFI Micro Finance Institution MOA Ministry of Agriculture MOL Ministry of Livestock NCB National Competitive Bidding NGO Non-Govemmental Organization NPIU National Project Implementation Unit ONE National Environment Office (Office Nationalpour l'Environnement) PADR RuTal Development Action Plan (Plan d'A ction pour le Developpement Rural) PIM Project Implementation Manual PO Producers Organization PPIU Provincial Project Implementation Unit PRDR Regional Rural Development Program (Programme Regional de Developpement Rural) PRSP Poverty Reduction Strategy Paper PSC Project Steering Committee RDSP Rural Development Support Project RTP Rural Transport Project SOE Statement of Expenditures TSRRP Transport Sector Reform and Rehabilitation Program TU Technical Unit Vice President: Callisto Madavo Country Manager/Director: Hafez Ghanem Sector Manager/Director: Joseph Baah-Dwomoh Task Team Leader/Task Manager: Ivar Serejski MADAGASCAR RURAL DEVELOPMENT SUPPORT PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 2 3. Sector issues to be addressed by the project and strategic choices 4 C. Project Description Summary l. Project components 5 2. Key policy and institutional reforms supported by the project 6 3. Benefits and target population 6 4. Institutional and implementation arrangements 8 D. Project Rationale 1. Project alternatives considered and reasons for rejection 13 2. Major related projects financed by the Bank and other development agencies 13 3. Lessons learned and reflected in proposed project design 16 4. Indications of borrower commitment and ownership 16 5. Value added of Bank support in this project 17 E. Summary Project Analysis 1. Economic 17 2. Financial 18 3. Technical 19 4. Institutional 20 5. Environmental 21 6. Social 22 7. Safeguard Policies 23 F. Sustainability and Risks 1. Sustainability 24 2. Critical risks 24 3. Possible controversial aspects 25 G. Main Loan Conditions 1. Effectiveness Condition 25 2. Other 26 H. Readiness for Implementation 27 1. Compliance with Bank Policies 27 Annexes Annex 1: Project Design Summary 28 Annex 2: Detailed Project Description 36 Annex 3: Estimated Project Costs 55 Annex 4: Cost Benefit Analysis Summary 56 Annex 5: Financial Summary 60 Annex 6: Procurement and Disbursement Arrangements 61 Annex 7: Project Processing Schedule 75 Annex 8: Documents in the Project File 77 Annex 9: Statement of Loans and Credits 78 Annex 10: Country at a Glance 80 Annex 11: Letter of Rural Development Policy 82 MAP(S) IBRD 31272 MADAGASCAR Rural Development Support Project Project Appraisal Document Africa Regional Office AFTR2 Date: May 16, 2001 Team Leader: Ivar Ted Serejski Country Manager/Director: Hafez M. H. Ghanem Sector Manager/Director: Joseph Baah-Dwomoh Project ID: P051922 Sector(s): AE - Agricultural Extension, Al - Irrigation & Drainage, AL - Livestock, AR - Research, AY - Other Agriculture Lending Instrument: Specific Investment Loan (SIL) Theme(s): Rural Development; Poverty Reduction Poverty Targeted Intervention: Y Program Financing Data [ ] Loan [X] Credit [ Grant [ 3 Guarantee [1 Other: For Loans/Credits/Others: Amount (USSm): (US$89.05 million) SDR69.2 million Proposed Terms (IDA): Standard Credit Grace period (years): 10 Years to maturity: 40 Commitment fee: 0.5 Service charge: 0.75% Financing Plan: Source Local Foreign Total BORROWER 8.00 0.00 8.00 IDA 82.55 6.50 89.05 LOCAL COMMUNITIES 9.04 0.00 9.04 Total: 99.59 6.50 106.09 Borrower: GOVERNMENT OF MADAGASCAR Responsible agency: MINISTRY OF AGRICULTURE (MOA) Ministry of Agriculture (MOA) Address: Antananarivo, Madagascar Contact Person: Francois Rasolo and Harison Randriarimanaha Tel: 03311-017-44 or 03207-026-53 Fax: 261-20-2240130 or 261-20-2240270 Email: fofifa-dg@dts.mg or updr.har@dts.mg Other Agency(ies): Ministry of Livestock, Ministry of Fisheries, Ministry of Scientific Research and Ministry of Environment Estimated disbursements ( Bank FYIUS$M): FY 2002 2003 2004 2005 2006 2007 Annual 6.30 1 ~16.80 18.00 18.00 16.80 13.15 Cumulative 6.30 23.10 41.10 59.10 75.90 89.05 Project implementation period: September 2001 - December 2006 Expected effectiveness date: 09/01/2001 Expected closing date: 06/30/2007 XS PAD Fom Rev h, Z A. Project Development Objective 1. Project development objective: (see Annex I) The objective of the Rural Development Support Project (RDSP) is to increase incomes and reduce poverty in rural areas, while preserving the natural resource base. The project is part of the Rural Development Action Plan (Plan d'Action pour le Developpement Rural - PADR), a broad-based program approved by the Government in 1999 to promote sustainable growth in agricultural production, foster food security and enhance access to basic services in the rural areas. The project would support demand-driven activities in agricultural production and technology transfer, and strengthen capacity at national, regional and community levels. 2. Key performance indicators: (see Annex 1) Development objective indicator: The productivity of activities supported under the project increases by an average of 35 percent in the year following completion of sub-projects. Main output indicators: About 180,000 farm families benefit directly from the project; About 5,000 productive sub-projects are financed during the project's life, of which at least 40 percent promoted by women; Proposed technology changes are adopted by at least 75 percent of farmers receiving support services under the project; About 5,000 groups of producers have been strengthened; About 500 saving schemes have been established; An evaluation and monitoring system is in place and operates satisfactorily. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: IDA/R97-7 Date of latest CAS discussion: 02/18/97 The central objective of the 1997 CAS was to reduce poverty by helping alleviate the wide-ranging constraints that stand between Madagascar and its potential. The focus of the CAS was to strengthen investor confidence, ensure the pro-poor orientation of growth and build human and institutional capacity. More specifically, the CAS emphasized four strategic objectives: (i) broad-based growth led by foreign investment; (ii) human capital development, focused on primary education, basic health care, and rural infrastructure; (iii) strengthening the public sector's ability to deliver quality services and create a business-friendly climate; and (iv) natural resource management to reduce environmental degradation and develop eco-tourism potential. In the area of rural development, the CAS proposed that the Bank bring together central and local government units, rural citizens, the private sector and other donors to jointly define a rural development strategy that would rely on empowered local communities. The PADR approved by the Government in 1999 is a major step in the direction proposed by the CAS. 2. Main sector issues and Government strategy: Poverty in Madagascar. Poverty has become widespread in Madagascar, as the result of ill-advised economic policies in the two decades through 1994. Economic management has haltingly improved since 1995, but renewed economic growth has yet not made a dent in the poverty rate, which has remained over 70 percent since 1993. Poverty is pervasive in rural areas. About 85 percent of the poor live in rural areas - 2- and 60 percent of them are considered as extremely poor, being unable to meet their minimum caloric consumption needs. The Government's Interim Poverty Reduction Strategy Paper (I-PRSP) discussed on December 19, 2000 (IDA/SecM2000-688) outlines a poverty reduction strategy built on three pillars: (a) higher and more sustainable levels of economic growth; (b) governance and institutional reform; and (c) improved basic service delivery. The Agricultural Sector. About three quarters of the population depend on agriculture for their livelihood. The sector contributes to about one third of the GDP and 40 percent of total exports. A large part of the cultivated area is under irrigation (about 40 percent). Livestock is widespread, with about 60 percent of rural families depending on it for their income. Performance of the sector has been disappointing in recent years, despite the liberalization of the economy, the sharp devaluation of the exchange rate and the privatization of state enterprises. Major constraints remain, however. Transport costs are high due to the inadequate maintenance of the road network over a prolonged period of time. Agricultural practices are little developed, and, in many cases, detrimental to the environment. Only three percent of farmers have access to credit. Extension services are weak. Traditional land tenure systems do not give farmers sufficient security. Finally, some regulations dating from the 1970s are still in force, such as the guidelines for water user associations, which prevent producer organizations in rice irrigated perimeters from diversifying their activities. Government's strategy to address the sector-specific issues. The agricultural sector has a comparative advantage in a number of products, such as rice, the major crop and coffee, as evidenced by domestic resource cost (DRC) calculations (see Annex IA). The Interim Poverty Reduction Strategy Paper of December 2000 emphasizes the need to achieve a steady growth in agriculture as a means to alleviate widespread poverty in rural areas. It recommends measures to ensure a small and large scale revival in agriculture and preserve the environment. To address sector issues, the Government has adopted a rural development strategy with four major objectives as follows: (a) Rationalize the role of the state in the rural sector by focusing on support services that increase farmers' productivity; (b) Consolidate and further improve the incentive environment for the rural sector; (c) Increase the allocation and more efficient use of fiscal resources in rural areas towards economically-efficient and beneficiary-driven productive investments; and (d) Strengthen the decentralization of agricultural development to ensure genuine ownership by stakeholders of investments and hence, their sustainability. The Rural Development Action Plan (PADR) adopted in 1999 has identified five main policy directions for sustainable rural development, within which programs and projects would be formulated and implemented. These are: * Sustainable growth in agricultural production - more focused application of current available technologies, in particular those that aim at sustainable intensification; more explicit linkage between agriculture and the environment, including reduction of slash and bum agricultural practices (known as tavy); acceleration of the process of land titling; and strengthening the capacity of user associations in the maintenance of publicly-funded rural infrastructure; * Promotion of partnerships in rural development - divestiture of the state from productive activities, - 3 - greater involvement of producer organizations in the provision of services, and special attention to the development of rural credit institutions; * Institutional and regulatory reforms - clarification of the responsibilities of all rural development partners, support for decentralization, and reform of the regulatory framework; * Regional food security - improvement of rural transport and better emergency preparedness; and * Improvement of rural social services - enhanced access to potable water and sanitation, social services and habitat. An Inter Ministerial Council for Rural Development ("Comite Interministeriel d'Orientation et de Validation" - CIOV) has been established to oversee the PADR, along with a secretariat, ("Equipe Permanente de Pilotage" - EPP), which has been designed as the operational branch of the ministerial council. The EPP is chaired by a representative of the Ministry of Agricultural Research and comprises 19 members, including high officials from all other key ministries involved in rural development, but only three representatives from the private sector. During negotiations, it was agreed that two additional members would represent the private sector. 3. Sector issues to be addressed by the project and strategic choices: The project is an integral part of the PADR. It would support the first three components defined in the government national strategy (as summarized above) namely: (i) sustainable growth in agricultural production; (ii) promotion of partnerships in rural development; and (iii) institutional and regulatory reforms. The last two components of the government strategy are being supported by the Bank through the recently approved Transport Sector Reform and Rehabilitation Program (TSRRP) and Comniunity Development project (CDP). In designing the proposed project, particular attention has been paid to the conclusions of the sector review mission undertaken in May 2000, which emphasized the need for demand-driven initiatives implemented through decentralized mechanisms, with increased farmer participation in decision making and financial contribution (see Armexes IB and 8). A letter of Rural Development Policy (LRDP) has been formulated to provide a framework for the proposed project (Annex I1). It was agreed during negotiations that the letter would be reviewed twice a year. Sustainable growth in agricultural production. The project would support the identification and implementation of demand-driven productive sub-projects by rural communities and producer organizations, including for minor productive infrastructure, and, on a pilot basis, for other agricultural production and off-farm activities, through a matching grant system. It would promote a demand-driven approach to technology generation and transfer through a competitive grant program for agricultural research, a sponsored thematic research program, and the provision of extension services and training, required mainly for the implementation of sub-projects. It is anticipated that some of the sub-projects would directly benefit emerging agro-processors using high quality and low cost outputs from small farmers. Partnership in rural development. The project would provide assistance to communities and producer organizations to strengthen their capacity to identify and implement sub-projects as well as in self-assessment, management of revolving funds and community organization. It would support the contracting out of professional private support services required for identifying and implementing demand-driven productive sub-projects. The private sector would be encouraged to provide the support services required for: (a) identifying, preparing and implementing demand-driven productive sub-projects; (b) strengthening producer organizations including, inter alia, the development of better links between farmers and marketing entities; and (c) implementing the project at the provincial level. The private sector would play an active role in the competitive research grant program. The project would support the - 4 - establishment of regional working groups ("Groupe de Travail de Developpement Rural Regional" GTDR) with private sector representatives to manage the PADR process in the regions. Institutional and policy reforms. The project would promote decentralized decision-making with greater involvement of producer organizations, and social capital formation through community organization. It would support changes in government guidelines regulating water user associations to enhance their ability to generate revenues through small scale commodity processing, input and output marketing. These changes would give producer organizations active in the production of irrigated rice an incentive to rehabilitate their perimeters. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The proposed project includes five components: (i) productive investment; (ii) support services; (iii) community development; (iv) capacity building and policy development; and (v) project administration and monitoring. I.1 Productive investment. Under the first component, the project would make a partial contribution to demand-driven income-generating sub-projects proposed by farmer organizations and village groups, through a matching grant system with up-front farmers' contribution of at least 15 percent of sub-project cost. The poorest and most vulnerable groups, including women, would receive special attention. The project would support three types of productive investments along with support services needed for the identification and implementation of these sub-projects: (a) productive infrastructure including, inter alia, small irrigation and drainage work not exceeding 200 ha; small village stores, processing units, etc. (b) agricultural production; and (c) off-farm activities in rural areas. The last two activities would be imnplemented on a pilot basis and would be evaluated within 18 months. 1.2 Support services. This component would provide extension and training services to rural communities and producer organizations, directly required for the implementation of the demand-driven income-generating sub-projects. It would also support demand-driven extension and training services not necessarily linked to income-generating investments, but on the condition that they are small-scale and well targeted. It would finally include agricultural research through a competitive grant program and sponsored research. 1.3 Community development. Under this component, the project would strengthen rural communities and producer organizations. This would include support to: (a) the preparation of participatory community development plans and producers organizations business plans; (b) the development of organizational and managerial capabilities; and (c) workshops to facilitate beneficiary participation in the project (interchanges with other communities, participatory approaches, use of revolving funds, etc.). 1.4 Capacity building and policy development. This component would reinforce the PADR process at national and regional levels, including the establishment of adequate statistical systems in the ministries responsible for agriculture and livestock, and the strengthening of environmental assessment. 1.5 Project administration and monitoring. This component would support project management and administration including the establishment and operation of project implementation units at the central level and in each of the six provinces; and monitoring and evaluation. -5 - 1.6 Indicative Project Costs Indicative Bank- % Of Component g Sector Costs % of financing Bank- ,_________ V_ _0_US$M) Total (US$M) financing 1. Productive investment. Other Agriculture 71.39 67.3 56.16 63.1 2. Support services. Agricultural 11.88 11.2 11.37 12.8 Extension 3. Community development. Community 6.13 5.8 5.83 6.5 Action Program 4. Capacity building and policy Institutional 5.22 4.9 4.94 5.5 development. Development 5. Project administration and Institutional 11.47 10.8 10.75 12.1 monitoring. Development Total Project Costs 106.09 100.0 89.05 100.0 Front-end fee 0.00 0.0 0.00 0.0 Total Financing Required 106.09 100.0 89.05 100.0 2. Key policy and institutional reforms supported by the project: Tlhe proposed project would support the government's focus on poverty reduction, and its accompanying decentralization strategy, within the institutional framework set out under the PADR. The project would facilitate decentralization at the commune and village level. It would focus on rural commutnities, particularly the poorest ones. It would finance investments selected by rural communities and producer organizations through a participatory process. The project would maintain the momentum in the implementation of the PADR, by providing institutional support to GTDRs, particularly those who do not function adequately. It would bring about changes in government guidelines concerning water user associations to open up new opportunities to producer organizations in irrigated perimeters. It would promote private sector development through greater involvement in the decision-making process and market-based approaches for allocating investment resources. It would contribute to establishing adequate evaluation and monitoring systems. Finally, it would provide for continued review and monitoring of policy reforms. 3. Benefits and target population: Benefits Economic benefits - Economic and technical data, based on farm models collected during project preparation, suggest that there is ample untapped productive and economic potential for small rural producers that is expected to be brought to bear under the project. Direct benefits would be generated through: (i) increased agricultural production and diversification activities leading to enhanced farm household income and improved food security; and (ii) off-farm activities such as handicrafts, production of building materials, etc. Institutional benefits - By supporting the PADR process, the project would contribute to the streamlining of the institutional framework for rural development, thereby promoting coherence, synergy, and cost-effectiveness of public expenditures in the sector. It would introduce private sector representation in - 6 - the decision-making process. Social benefits - By supporting the PADR process, the project would: (i) improve participation and access of project beneficiaries to the decision-making process and investment opportunities; and (ii) increase organizational capacity of the communities and producers groups involved, contributing to the formation of social capital and sustainability of economic benefits. Gender impact - Due to the crucial role of women in agriculture, they would be encouraged to fully participate in and benefit from the project activities. Special attention would be paid to ensure the effective representation of women and women groups to enable them to voice their views and demands on the priority investments to be funded under the project. Furthermore, the project would ensure that sub-projects proposed by women groups be given top priority in the selection criteria section for sub-projects of the Project Implementation Manual (PIM) to be completed before credit effectiveness. Terms of reference for the proposed Rapid Rural Appraisals would focus on women concerns. Clear recommendations on specific project proposals benefiting women would be anticipated. The project would also include training in agricultural techniques adapted to women daily task schedules. Finally, proposed actions to prevent the spread of HIV/AIDS (see below) are expected to ease the burden on women who carry a disproportionate share of the negative impact of the epidemic. HIV/AIDS. HIV/AIDS prevalence in Madagascar is low, especially in rural areas. but many of the risk factors that have resulted in high prevalence rates in other countries, such as sexually transmitted diseases, mobility and migrations are increasingly present. HIV prevalence rates among rural sex workers have increased significantly recently, iFdicating that the epidemic might spread rapidly in these areas. Awareness and knowledge of how }IV is transmitted and prevented is generally low in rural afeas, and the impact of the epidemic is virtually\ unknown at the community level. In close cooperation with the upcoming National AIDS Control 13 , the community development component of the project would promote a better understanding of thE impact of the HIV/AIDS epidemic on the personal, household, and community levels. It would help communities assess the potential impact of HIV and develop plans for prevention and coping mechanisms. Environmental benefits. Access to productive investment grants will be subject to commitment by beneficiaries not to engage in practices that harm the environment, and especially to stop the practice of slash and burn cultivation (tavy), which is the primary threat to the remaining natural forests in Madagascar. The support service component of the project would promote (i) technologies that maintain the natural resource base and avoid environmental degradation, including deforestation, loss of soil fertility and soil erosion; and (ii) Integrated Pest Management (IPM) which is expected to reduce pesticides use and have a positive impact on the enviromnent, human health and farmer income. Incidence - The distribution of project funds would ensure that about 63 percent of project resources flows directly to the target population to support productive investments and community development. An additional 12 percent would finance support services to rural communities and producer organizations. Targeting The project would operate in all of the 20 agro-ecological regions of the country, with particular focus on the poorer areas within each region. During its first year of operation, the project would work primarily, but not exclusively, in Social Fund III areas, that are relatively accessible, to favor a quick start in project activities. To enhance coordination with other donor-supported projects (see Annex 8), including other Bank-financed projects such as CDP, TSRRP, the second Environment project (EP-I1) and the forthcoming - 7 - Rural transport project (RTP), detailed targeting mechanisms and criteria have been designed for inclusion in the Project Implementation Manual (PIM) and included in Annexes 2 and 2A. They would include: (i) geographic targeting using a combination of (a) poverty indicators such as access to basic services in education, health and potable water; and (b) physical isolation from roads and markets. RDSP and CDP would intervene in the same geographic areas with RDSP intervening mostly at the village level and CDP at the commune level. The four projects (RDSP, CDP, TRP and EP-II) operating in the rural areas would furthermore agree on compatible annual work programs. (ii) eligibility criteria would stipulate that beneficiaries must be part of a group of no less than 10 producers, who did not get any subsidy for productive investments from the RDSP or from other development programs in the past three years. In addition, access to productive investment grants would be subject to beneficiary commitment not to engage in practices that harm the environment, especially slash and bum cultivation (tavy); and (iii) eligibility criteria for sub-projects would provide for complementarity with other projects. Criteria for minor irrigation schemes would be similar to those developed by the European Union (EU) (see project files in Annex 8). Eligibility criteria would emphasize economic, technical and environmental sustainability, participation requirements, individual limits of support per sub-project; and co-financing requirements. A list of activities would be excluded. More specifically, the investments would have to meet the following basic criteria: 3 Sub-projects must be in line with the priorities defined by fhe PADR and the type of productive investments that can be financed in the region, as indicated by the regional PADR (PRDR); * Sub-projects would not finance working capital, which should be provided either by the beneficiaries, or financed by a loan from a Micro Finance Institution (MFI), unless it is part of a farming system development technology package; * In the case of the rehabilitation of an irrigation perimneter, sub-projects allowing for two crops per season would be given priority; i Investments must stimulate agricultural growth and have an ERR above 10 percent; i Investments must be sustainable without further need for subsidies. The main criteria for physical investments would be replicability and demonstration value. 4. Institutional and implementation arrangements: (see Annex I B for organizational chart of RDSP and Annex 2 for detailed implementation arrangements) Implementation period Five years. Project's Execution. A National Project Implementation Unit (NPIU), supported by a provincial unit in each of the six provinces (PPIU), would be responsible for project implementation under the supervision of the Ministry of Agriculture (MOA) Project's Oversight A Project Steering Committee (PSC) under the chairmanship of the Minister of Agriculture would be responsible for supervising project implementation. Committee members would include representatives of the Govenunent and civil society. The PSC would: (i) ensure that project implementation is consistent with the PADR, particularly as concerns the participation of key stakeholders at the local level; (ii) review for approval, the project's annual work program and budget submitted by the NPIU in consultation with the - 8 - EPP; (iii) review progress toward achieving the project's objectives; and (iv) take corrective actions if needed. The PSC would organize at least one annual meeting with the government and the donors. The establishment of the PSC is a condition of effectiveness. Proiect Management and Implementation Arrangements A draft Project Implementation Manual (PIM) has been reviewed during negotiations and is being finalized in close coordination with other donors active in the sector. It would define procedural arrangements for the implementation, monitoring and supervision of the project. It would include procurement and disbursement arrangements, environmental assessment methodology, performance indicators, monitoring and evaluation guidelines, procedures for identification, appraisal, approval, supervision, and monitoring and evaluation of sub-projects, and criteria for the selection of beneficiaries. Model forms for grant agreements, have been prepared. The adoption of a PIM in a manner satisfactory to IDA is a condition of credit effectiveness. Project Management. The NPIU has been established within Ministry of Agriculture. The NPIU would be responsible for overall coordination of the project, including consolidation of the annual work programs and budgets, preparation and production of the annual progress reports and financial statements, and establishment of a decentralized monitoring and evaluation system for the various activities supported under the project. The Borrower would submit to the Association for its review and approval an annual work program and budget for the forthcoming fiscal year not later than October 31 of each year. The NPIU is headed by a national project director, who would be assisted by a financial management specialist, an accountant, a rural development specialist, a procurement specialist, a monitoring. and evaluation specialist, and other suitably qualified and experienced staff in adequate numbers. The national project director, the financial management specialist, and the procurement specialist have already been recruited. The appointment of the other key staff for the NPIU would be a condition of credit effectiveness. A PPIU would be established in each of the six provinces to prepare and implement annual work programs. Each PPIU would be headed by a provincial director, who would be assisted by an accountant, a rural development specialist, a procurement specialist, a monitoring and evaluation specialist, an agronomist, a producer organization and capacity building specialist, and other suitably qualified and experienced staff in adequate numbers. The establishment of PPIUs in at least two of the provinces, and the recruitment of the provincial director, accountant and procurement specialist in each such PPIU under terms, conditions and terms of reference acceptable to the Association would be a condition of credit effectiveness. The PPIU would be assisted by a small technical unit (TU) selected through a competitive process. The TU would coordinate the work of the field agents required for the implementation of sub-projects. It would also carry out necessary technical, economic, social and environmental evaluations of sub-projects. Finally, it would implement the monitoring system (see below). The composition of the TU would vary according to the number and characteristics of the regions covered by each PPIU and the number of sub-projects in each region. GTDR. The GTDR is composed of representatives of local authorities, including prefects, mayors, and local services of line ministries, farmers' organizations, local initiatives and NGOs and the private sector. The GTDR would play a critical role in identifying development opportunities, ensuring regional coherence, promoting inter-institutional coordination, fostering synergy and complementarity with other programs underway within the region, and managing the PRDR process. Within the guidelines established in the PIM, the GTDR would ensure that the sub-projects submitted by beneficiaries for funding by the PPIU are in line with the PADR/PRDR objectives. The PIM would stipulate that a decision on a sub-project should be made within three months of its submission. The monitoring and evaluation unit of -9- PPIUs would review reasons for sub-project rejection. Upon approval by the GTDR, the sub-project proposals would be forwarded to PPIU for disbursement to the provider of goods and services associated with the sub-projects or to the communities. The GTDRs would be strengthened under the project to ensure that they operate satisfactorily (see Section E 4.2). Their role in sub-project approval would be reviewed after a year of execution. The RDSP would use community mobilization (rapid rural appraisal) methods to assist potential beneficiaries in the identification of productive sub-projects at the community/village level. In this context, beneficiaries would be able to contract out through state sector providers or private sector providers the assistance required for the identification, preparation and implementation of the sub-projects. Consultant services required for these activities would be procured in accordance with "Guidelines for the Use of Consultants (January 1997, revised September 1999 and January 1999)". To foster sustainability of the pilot productive and off-farm activities as well as accountability of beneficiaries, a cost recovery mechanism would be promoted at the community or PO level. Funds would be recovered through beneficiary organizations and paid into a revolving fund. The scheme would build on the concept of community responsibility and participation, including social peer pressure. Accountingz, financial reporting and auditing arrangements (details in Annex 6) Financial Management. The NPIU would be responsible for project financial management, including the preparation of the annual financial statements, in accordance with internationally accepted accounting principles, as well as for making arrangements for their certification by a competent and experienced audit firm under temis and conditions acceptable to IDA. The recruitment of auditors acceptable to IDA would be a condition of credit effectiveness. At the provincial level, PPIUs would handle accounting, financial reporting, procurement and disbursement functions. The project financial statements would be consolidated by the NPIU at the end of each fiscal year. The NPIU would also monitor project disbursements and ensure that they are in conformity with IDA requirements. During the appraisal mission, key areas of the project financial management were reviewed to ensure their adherence with Bank procedures. To strengthen the project financial management system, the agreed measures that have been taken include: (a) the preparation of an Administrative, Accounting and Financial Manual in a form and substance acceptable to IDA; and (b) the recruitment of a financial management specialist, an accountant and a procurement specialist and their training. In addition, the Borrower would carry out a time-bound action plan for the strengthening of the financial management system to ensure preparation of quarterly project management reports acceptable to the IDA within 18 months after credit effectiveness. Flow offunds. Two Special Accounts using the 90-day advance procedure would be opened as follows: Special Account A would cover transactions related to Category 1, grants for sub-projects (components (i), (ii) and (iii)) and Special Account B, those related to all other categories (components (iv) and (v)). Similarly, sub special accounts A and B would be opened in each province to cover PPIU activities in the provinces and the 20 regions. PPIU would submit quarterly expenditure reports indicating the sources and use of funds and accompanied by reconciled bank statements. When submitting replenishment requests, the NPIU would ensure that the reconciled bank statements for the special accounts, in the standard format, show the deposits received from IDA, the amount advanced to each decentralized project location, the date on which each advance was made and the amount awaiting documentation from each of these locations. In addition, the reconciliation statement should identify each PPIU which did not account for the advance within the 90-day account cycle with an explanation for the delay. - 10- Project Management Report (PMR). In accordance with Bank policy and procedures, the project would adopt a financial management and reporting system in compliance with the Financial Management Initiative (FinMI: ex-LACI). As the project financial management system is not yet created and the staff is not familiar with the FinMI procedures, traditional disbursements methods would apply during the first 18 months of implementation. During this interim period, the project would produce the basic financial statements annually, but would submit on a quarterly basis the following reports: a Summary of Sources and Uses of Funds; a Contract Expenditure Report - Goods & Works; a Contract Expenditure Report - Consultants; a Procurement Management Report - Goods & Works; and a Procurement Management Report - Consultants. To strengthen the project's financial management capacity to produce quarterly PMRs, an agreed action plan has been developed. An assessment of the project's financial management for adequacy and readiness for PMR-based disbursements would be carried out before the end of the 18 month interim period. Auditing Arrangements. The records and accounts of all the components of the project would be audited annually by an independent auditor acceptable to IDA, in accordance with international auditing standards. Regarding the matching grants, the auditors would review the performance of randomly selected sub-projects as well as that of the producer organizations/cooperative structures, and provide a specific opinion on the effectiveness and efficiency of the financing and distribution procedures. In addition to the auditor's opinion on the financial statements, the auditor would provide a separate opinion on the statements of expenditures and the management and utilization of the special account. Finally, the auditor would issue a management report with practical recommendations for improving the project internal control system. The audit reports would be submitted to IDA no later than five months after the end of the govenmment fiscal year. The auditors would also review the use of the PPF and PHRD grant fiunds covering the period, prior to effectiveness. Regarding the transfers of funds to beneficiary communities, it is envisaged that semi annu'al audits of the use of funds would be carried out by qualified internal auditors acceptable to IDA. The modalities, including timing and objectives for such audits would be described in detail in the draft tenns of reference to be finalized prior to credit effectiveness. Procurement. Most procurement (goods, works and services) would be carried out as part of the approved sub-projects under component 1. Funding for these activities would be in the form of grants. It is not possible, however, to determine the exact mix of goods, small works, and services to be procured under these activities due to their demand-driven nature. The types of activities to be financed under these activities and their procurement details would depend on the needs identified by communities. The Bank guidelines for simplified procurement and disbursement for community-based investrnents would be used for procurement under this aspect of the project. The NPIU would be responsible for ensuring compliance with these guidelines, and ex-post reviews of random sub-projects would be conducted periodically by the Bank and independent consultants appointed by the Government. Simplified procurement and disbursement procedures for community-based programs, including the list of items qualifying under this component, have been developed for inclusion in the PIM. Ceiling amounts would also be included in the PIM. The PIM would also provide for procedures for IDA prior review and thresholds for community initiatives. Procurement would be carried out by the PPIUs and by the beneficiaries, and payments made by the PPIUs. Prices would be compared with reference prices established at the regional level where feasible. The rest of the procurement would be carried out as part of the sponsored and competitive grant research program under component 2, and the capacity building component under component 4. Consultant services would be procured according to guidelines on the use of consultants (January 1997, revised September 1997 and January 1999). Details on the procurement procedures and arrangements are provided in Annex 6. - 11 - Monitoring and evaluation arrangements. Monitoring and evaluation would focus on both the outputs and outcomes of the project, as agreed upon in the project design summary (Annex 1). The monitoring and evaluation arrangements supported under the project are inspired by the decentralized intervention framework of the RDSP, which calls for a participatory monitoring and evaluation approach (a detailed description of the RDSP M&E system would be provided in the monitoring and evaluation part of the implementation manual). This approach would provide checks and balances in the process by using information directly provided by beneficiaries to check the validity and reliability of performance monitoring data coming mainly from the TUs, the primary partners of project management, as far as implementation is concerned. It would also contribute to capacity development, as well as to ownership and sustainability in the process. This model centers around four levels of responsibility for M&E: (i) the NPIU; (ii) the six PPIUs; (iii) the TUs; and (iv) the beneficiary groups, constituted by local producers organizations (POs). Their respective role is described as follows: NPIU. The M&E specialist at the central level would be in charge of the overall M&E activities of the project. In conjunction with his counterparts at the PPIU level, he (she) would update and aggregate M&E data concerning the project. He (she) would supervise and coordinate M&E activities on the ground, and prepare terms of references for impact evaluations of the project. To efficiently manage the tlow of information coming from the field, it might be useful to consider using a computer specialist to take charge of the database at this level. Agreement was reached during negotiations that bi-annual and annual progress reports on the status of the project wotild be submitted by NPIU not later than two months aftor the end of the reporting period, beginning with a report for the period ending December 31, 2001. PPIUs and TUs. The M&E specialists at the PPIU level would coordinate and oversee M&E activities in the field as they relate to their respective provinces. They would also be responsible for assessing the validity and reliability of M&E information coming from the field. Along with other implementation activities pertaining to selected sub-projects, monitoring would also be commissioned to the TUs. Depending upon their own capacity, the TUs may decide to monitor the implementation of sub-projects themselves or utilize other service providers operating in the region. Monitoring information generated by the TUs on project performance indicators would be reported to the PPIUs for database update and aggregation at the provincial level. Beneficiary Groups. At the commune level, a rural management committee (Comite de Gestion Rural) would be elected by the members of producer organizations (POs). The committee would appoint a small team to monitor project activities and report to their communities and the GTDR. Each committee would collect data on project performance indicators. This information would be fed-back to local constituencies, as well as to the regional committees. The PPIUs would need to assess the readiness of these committees to fully participate in monitoring evaluation and/or design training sessions to build local capacity to that end. Performance and Impact Indicators. Performance (input and outputs) monitoring would review discrepancies between actual and anticipated results (targets). Impact evaluation would assess whether the global development objective of the project has been reached. All impact assessment studies would be carried out by external agencies. Baseline data are available for all indicators. Prior to project implementation, stakeholder analysis workshops would take place to review the proposed indicators, in terms of their simplicity, clarity, specificity, validity, and not least their cost-effectiveness. In addition, these forums would be designed to: (i) foster consensus-building; (ii) facilitate information needs assessments - around project performance and impact indicators - among the various stakeholders - 12 - involved; and (iii) facilitate the design, integration and aggregation of the various M&E databases. It is essential that selected indicators include those identified and measurable at the local community level. Annual and Midterm Review. The Borrower would, not later than December 31 of each year, undertake, in conjunction with IDA and other interested parties, an annual review of the project. A mid-termn review would be carried out no later than December 31, 2003 with special emphasis on all monitoring indicators agreed upon. To prepare for the annual and mid-term reviews, the Government would prepare a report to be sent to IDA not later than one month prior to the review. D. Project Rationale 1. Project alternatives considered and reasons for rejection: As part of the PADR process, it was agreed that a holistic rather than a sub-sector approach to rural developmnent represented the best means for assuring a significant impact on income generation and poverty reduction. It was therefore decided not to fund individual sub-sector activities as had been done before. In the comprehensive PADR program, the following major activities were also looked at: Irrigation. Most rural development actors in Madagascar agree that the exploitation of the country's large irrigation potential, representing 40 percent of cultivated areas, is critical to the sustainable generation of high growth rates in agriculture. Thus, early phases in the preparation of the proposed project contemplated to include large and medium-scale irrigation (above 200 hectares) as a major element of the project. However, lessons learned in irrigation development in Madagascar clearly indicated the r.eed to move away from past approaches that narrowly focused on irrigation infrastructure rehabilitation and development, to a comprehensive watershed management basis, together with due attention to specialized extension services, development of producer organizations, access to input and output markets, and the enviromnent. Therefore, it was agreed, that irrigation development for large and medium-scale irrigation above 200 hectares would be addressed in a separate but comprehensive wvatershed management operation, so as to not overly burden the proposed project with the complexities of irrigation-related policy, institutional, and technical issues. The operation has been identified in November 2000. The identification report is in project files (Annex 8). Land tenure. Issues and problems involving land tenure were some of the most often mentioned issues during the consultations that took place during the preparation of the latest CAS. Accordingly, the team reviewed the possibility of addressing the land tenure issues in agriculture under the proposed operation. Given the complexity of land issues, however, the large number of players and the many sectors involved, it is proposed that land tenure in agriculture be dealt with through either the watershed operation, that is most closely affected by land tenure issues, or as a free standing operation. Identification of a possible freestanding land tenure program was carried out in November 2000 with the assistance of the French Cooperation. The identification report is in project files (Annex 8). Private Sector Investment Facility. To foster private sector contribution to poverty alleviation and rural economic growth, agreement was reached with USAID during negotiations that it would be useful to create a facility which would be the main vehicle to provide appropriate technical and financial support to agribusiness that buy output from, or sell inputs to, small farmers. It was agreed that this facility would be considered under the proposed watershed management operation. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).Details are in Annex 8. -13- [ 0 77 X 0: iS 0 f 7 0 f 7 :: 000 ; Latest Supervision Sector Issue Project (PSR) Ratings :______________ _______________ __________:__:: ____ (Bank-financed projects only) Implenmentation Development Bank-financed Progress (IP) Objective (DO) Improve natural resources management On-going projects: S S Second Environment Program (ITF 009-0) Improve nutrition status of children and Food Security & Nutrition S S pregnant/nursing women (SECALINE)(Cr. No. 24740) Strengthen rural institutions Capacity Building (Cr. No. S S 29110) Improve use of social and economic Social Fund III (FID) (Cr. No. S S services 3011) Improve transport infrastructure Transport Sector Reform and S S Rehabilitation Project Completed projects: Improve livestock sector Livestock Project (Cr. No. S S 22430) Strengthen extension services Ag. Extension Project (Cr. No. S S 27290 Improve use of social and economic Social Fund 11 (FID) (Cr. No. S S services. 2778) Improve flooding conditions Tana Plain Development S S Rehabilitate irrigation infrastructure Irrigation 11 (Cr. No. 26440) S S Planned projects: .Improve use of social and economic Community Development services. Project Strengthen the irrigation sector Watershed Development Project Other development agencies Improve access to services and The Swiss Intercooperation: information and reduce natural "Programme de developpement resources degradation rural (2001-2003)" Strenghthen producer organizations and The International Fund for improve rural infrastructure Agricultural Development (IFAD): "Projet d'appui au developpement agricole du Nord-Est (2001-2005)" Improve agricultural production and US Agency for International promote private sector development Development (USAID): Landscape Development Interventions (LDI) (1998-2003) Improve agricultural production The Gernan Cooperation (BMZ): "Promotion de 1'entraide dans le domaine du developpement agricole integre a Port-Berge (1998-2001)" - 14 - Improve planning and coordination of The French Cooperation rural development (SCAC): "Projet d'appui institutionnel A l'Unite de politique de ddveloppement rural" Strengthen agricultural research "Projet de soutien institutionnel au dispositif de recherche A Madagascar (2001-2003); Soutien a la recherche agronomique "(1997-2003)" Strenghthen agricultural producers "Projet d'appui aux institutions agricoles du sud-ouest; Projet d'appui A la professionnalisation agricole et a la formation professionnelle; Projet de professionnalisatiori de l'agriculture" Promote horticultural export sector "Structuration des filieres horticoles d'exportation de Madagascar" Increase food security FAO: Special Program for Food Security (SPFS) (2001-2003) Strenghten civil service involved in rural The Delegation of the European development Community (DCE): "Ajustement Sectoriel Ddveloppement Rural "(2000-2001)" Promote export crop sector "Appui filiere litchis; Appui filiere vanille" Strenghten producer groups, and "Programme d'appui a la improve linkages between production securitd alimentaire 1999 and markets (2001-2004)" Strenghten extension services and Agence Fran,aise de promote environmental conservation Developpement (AFD): "Projet de diffusion de systemes de gestion agrobiologique des sols cultives; Projet de diffusion des techniques agro-ecologiques (2001-2005); Projet du Plateau Mahafaly; Projet de mise en valeur de la plaine d'Antananarivo (2001-2003)" IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) -15- 3. Lessons learned and reflected in the project design: The proposed project builds on the experience of decentralized, rural development investment programs supported by the Bank and other agencies in many regions of the world as well as from the Bank's experience with projects in research, livestock, extension, and irrigation, two earlier Social Funds, an ongoing Social Fund- FID III, and the Food Security and Nutrition project in Madagascar. Implementation of Social Fund projects, the Extension and Livestock projects, and the Food Security and Nutrition project in Madagascar have clearly indicated that grass-root demand-driven approaches are keyito building ownership, defining local priorities, and setting the ground for better implementation and sustainability of activities. Social Fund projects have tended to favor rural infrastructure and social investments, thus leaving little support for direct production-related activities that could generate needed increases in revenues; Implementation of the EP2 and other donor-funded projects has revealed much hitherto untapped potential from the private sector, in terms of provision of technical services in rural communities; Lessons from irrigation projects in Madagascar show that strong farmer-driven organizations are critical for improving the productive capacity of producers through improved access to inputs and market outlets, as well as to maintaining productive infrastructure. For investments in irrigation to be profitable, however, intensification should be an integrral part of the package, including use of high yielding varieties, double cropping, use of fertilizers and pesticides. Small irrigation projects supported by the FID-I1 showed positive rates of return; Lessons from the Mexican Rural Development in Marginal Areas Project show that successful rural investment programs need to promote a regional approach as a way to maximize the impact of integrated interventions on the local economy, while fiully taking into account market opportunities and economic sustainability. Lessons learned from the micro-finance project show that the poorest sections of the community are often left out of the credit system and may need a push to get out of the poverty trap. The proposed project would address the above issues by: (i) focusing on productive agricultural investments and other off-farm productive activities through a structured participatory process; (ii) promoting a regional approach and target the same group of communes as other projects such as the CDP and the TSRRP; (iii) providing a broad range of technical support to the farmers, both by public and private bodies, in the fortn of agricultural extension, adaptive research and training; (iv) promoting farmers' organizations around economic incentives; and (v) fostering decentralized and agile mechanisms for sub-projects approval and disbursement . 4. Indications of borrower commitment and ownership: Three main features reflect government commitment and awnership: (a) The project has been designed and formulated within the policy and institutional framework of the PADR, which has been prepared through broad consultations with stakeholders; (b) The Borrower has taken a lead role in project preparation. It has set up a project preparation unit that commissioned several studies carried out by local consultants, with funding provided by a PHRD grant and - 16 - a PPF advance; and (c) EPP, the PADR's national coordinating body, has worked jointly with the project preparation team throughout the identification, pre-appraisal and appraisal of the project. 5. Value added of Bank support in this project: IDA's funding in the agricultural sector has been decreasing during the last few years, with no new financing to the sector for several years. The Government has requested Bank support for the preparation of the rural development strategy and the design of the PADR, which has become the framework for donor assistance to the rural sector. IDA's support to the proposed project, which is one of the first instrument to implement the PADR, is critical for establishing the PADR as the unifying mechanism for rural development programs in Madagascar. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): * Cost benefit NPV=US$ million; ERR = % (see Annex 4) O Cost effectiveness O Other (specify) Methodology: A cost-benefit analysis of the project as a whole is methodologically challenging because of the strong emphasis on institutional strengthening and capacity building. Furthermore, the demand-driven nature of the operation makes it impossible to know a priori which micro-project would be actually financed, nor in which proportion. Therefore, the cost-benefit analysis presented here is mostly illustrative. It focuses on the productive investments and is based on a sample of six farm and non-farm activities (clover, coffee, rehabilitation and development of new rice iirigated schemes, rice processing, and improved traditional poultry development). These cover the most relevant mix of production activities likely to drive an increase in farmers' incomes. For instanice, during project preparation, rice processing imits and poultry operations were strongly requested by targeted populations. Information contained in the models are based on data provided by the National Center for Applied Research for Rural Development--Centre National de la Recherche Appliquee au Developpement Rural (FOFIFA), experts from MOA and MOL, as well as extensive discussions with technicians familiar with the agricultural production systems in MIadagascar. Key Assumptions of the Analysis: The farm models are based on conservative estimates of attainable changes in family households, taking into account the subsistence nature and risk minimizing strategy, typical of the targeted groups of population. Such changes include progressive productivity increases and changes in prevailing farming systems. Availability of family labor, and labor requirements for new activities were also considered in the farm budget models. The economic analysis uses opportunity costs for farm labor, and adjusted input and output prices. The long-term opportunity cost of capital in Madagascar is taken to be 12% (details of the calculations are available in the project file). Results: The estimated economic rates of return (ERR) of the six models vary from 29 percent to 46 percent (Table 1). The returns on investment for coffee and clover plantations are high, but the income streams would start only at Year 3 and Year 6, respectively. Coffee plantations, namely on tanety, would supplement income from irrigated schemes and also contribute to environmental conservation. For the small-scale irrigation schemes, cultural intensity is estimated to increase to 1.2. A key contributing factor to the economic returns of the small-scale irrigation schemes is the off-season vegetable production. However, this would require good extension services for which arrangements will be implemented to ensure farmers' access to relevant - 17- services, and high cost inputs. The rice huller operation by village groups is profitable, but requires a steep startup investment cost which targeted beneficiaries would not be able to afford without the project. For the village-based poultry production, improvements in productivity and incomes are made possible by the use of adequate animal health services. Table 1. Economic and financial analysis of illustrative activity models Activity Models Economic IRR Financial IRR Clover plantation, with income streams starting at year 6 29% 20% Coffee plantation, with income streams starting at year 3 46% 16% Rice huller, with processing capacity of 250 tons of rice per year 33% 25% Creation of rice irrigated scheme, with off-season vegetables 30% 51% Rehabilitation of rice irrigated scheme, with off-season vegetables 40% 58% Improved village-based poultry production 29% 19% 2. Financial (see Annex 4 and Annex 5): NPV=USS million; FRR = % (see Annex 4) Results: The results of the financial analysis are generally good, although the financial returns are lower than the economic returns for clover, coffee, and poultry production. This is mainly due to the labor intensive nature of these activities and the distortions in Madagascar's labor market. The opportunity cost of labor has been estimated to be half its market price because of the persisting important unemployment and under-employment in the country. It can be assumed that fann fanmilies and preducer' groups would realize these distortions and use their own labor as much as possible. The financial returns would then be much higher. Sensitivity Analysis: The sensitivity analysis is based on estimated switching values, or changes in the values, of key factors that would reduce the economic returns to 12 percent, the assumed opportunity cost of capital in Madagascar (Table 2). The different models are subject to different risk factors, and so different key factors have been analyzed. For coffee and clover plantations, the key factors analyzed are delays in income generation and yields. In the case of the small-scale irrigation schemes, changes in revenue and cost streams affects rice as well as off-season vegetable production. Risk in rice processing operation could come from small capacity utilization and low paddy-to-rice processing ratios. Risk for village-based poultry operation could come from increased costs of veterinary products. Table 2: Sensitivity analysis Activity Models Switching values for ERR=12% Clover plantation, with income streams starting at Year 6 Revenue delayed to: Year 12 Yield: - 55% Coffee plantation, with income streams starting at Year 3 Revenue delayed to: Year 8 Yield: - 49% Rice huller, with processing capacity of 250 tons of processed rice Capacity: - 55% per year Investment cost: 125% Development of new rice irrigated scheme, with off-season Total revenue: -38% vegetables production (onion and tomato) Total cost: 60% Rehabilitation of rice irrigated scheme, with off-season vegetables Total revenue: -65% production (onion and tomato) Total cost: 62% Improved village-based poultry production Veterinary product cost: 6% - 18- The results of the analysis indicate that incomes for clover plantation would have to be delayed until Year 12 (from the hypothesized Year 6), and that for coffee until Year 8 (from the hypothesized Year 3), for the estimated economic return to fall to 12 percent. It would take inordinate adverse circumstances for such risks to materialize. For rice processing and small irrigation schemes, the risk factors have to adversely change the revenues or costs streams by at least 38 percent for the economic returns to fall to break even point. The likelihood of these events does not appear very strong. Thus, the likelihood that the economic benefits of these activities would be below the long-term opportunity cost of capital in Madagascar is very small. However, the economic benefits for the improved traditional poultry development appear sensitive, in that break-even point would be reached following an increase by 6 percent in the price of veterinary products. It should be noted, however, that the model is very conservative in that the production of broilers has been kept low (400), and even lower during the first two years (300 and 350). Cost Sharing. The proposed cost-sharing arrangements have been designed to give poor communities opportunities to engage in revenue-generating activities. They have no access to credit, and in the absence of the proposed matching grants, they would have no means to improve their well being. Communities would be required to contribute to at least 15 percent of the cost of sub-projects, in cash or in kind, or a combination of both, to ensure that they place a high priority on them. Their capacity to mobilize their own resources would be encouraged by the project. Fiscal Impact: The fiscal impact of the project takes account of the changes in public expenditures and revenues as a result of project implementation. Because of the demand-driven nature of project activities, it is difficult to estimate these changes ex ante. It is estimated, however, that incremental revenues would exceed incremental expenditures due to the project. The proposed transfers to beneficiaries for productive investment would constitute an incremental cost. The project would contribute to an increase in economic activities, productivity and incomes, which would in turn raise taxable incomes of currently tax-payers, as well as expand the tax base by bringing into the formal economy a number of producers and activities. These cumulative changes are expected to yield sufficient additional revenues in the long run to compensate for the investment put into the project. 3. Technical: Under the RDSP, responsibility for sub-project identification, preparation and implementation would be with rural communities and producer organizations. The issue of technical capacity and quality of community-based infrastructure is addressed in the following ways: (i) The guiding premise for RDSP is that there is considerable latent technical and managerial capacity at the local level. To remedy shortcomings regarding technical and management deficiencies at the community level, RDSP would provide focused training for farmer organizations and water user associations under the community development component; (ii) Technical field operators would be recruited to assist the communities in identifying, preparing and implementing sub-projects under the technical support component of RDSP; (iii) Technical units attached to PPIUs would play a key role in reviewing, screening and selecting project proposals to ensure the technical, economic, social and environmental sustainability of productive investments and compliance with the project implementation manual; and (iv) The RDSP would emphasize the promotion of a saving scheme at the community level to foster - 19- sustainability, generation of resources at the local level and better accountability. The grant under the pilot program for agricultural production and off-farm activities would be recovered by the beneficiary groups through their farmer organizations and would be recycled at the community level through the saving scheme in order to benefit other farmer organizations. The incentive system for repayment into this revolving fund scheme would build on the concept of community responsibility and participation, including social peer pressure. 4. Institutional: Assessments conducted by national and international consultants have shown that excessive centralization of decision-making undermine the capacity of communities and local governments to manage their own affairs, and result in lack of accountability. The project would support current decentralization efforts. Autonomous provinces have been created and elections of provincial councils were held in December 2000. Transfer of responsibilities to the six provinces is expected to take place over the next 18 to 24 months. The Government's objective is also to give more independence to communes. The communes are in place, have elected officials and are receiving budgetary transfers. In promoting a decentralized approach, the proposed project faces three main institutional challenges: inertia at the central level, lack of capacity at the local level and the reluctance of authorities to associate more closely the private sector to the decision-making process. 4.1 Executing agencies: PPIUs, assisted by technical units, would be responsible for preparation and implementation of annual work programs in the six provinces. The project would make funds available to village groups thus fostering decentralization. In addition, the project would sub-contract activities to exploit the potential of local NGOs and encourage private operators to participate in extension efforts led by the ministries responsible for the rural sector. Experience under FID-1, 11 and III indicates that local communities, with adequate support, can rapidly develop the capacity to effectively manage projects. 4.2 Project management: To ensure an early implementation of project activities, the national director, the financial management specialist and the procurement specialist of the NPIU have been already hired. All key members of the NPIU and PPIUs would be recruited on a contractual basis in line with Bank guidelines. To facilitate the dialogue with the private sector on PADR implementation issues, the Government has agreed to increase its representation in the EPP by two members. The Government has also agreed to undertake a study for the strengthening of GTDRs. The study would be completed at the latest by end-2001. Its recommendations would be implemented thereafter, taking account of IDA's comments. A GTDR would be maintained in each region with a mandate, terms of reference and composition acceptable to IDA. 4.3 Procurement issues: The 1995 Country Procurement Assessment Review (CPAR) found that national procurement regulations are generally satisfactory to the Bank with the exception of (i) the double envelope system of bid opening and (ii) the use of the merit point system for bid evaluation for works. Bank standard bidding documents (SBDs) are widely used, however, and have helped ensure that these unacceptable features do not affect Bank-financed procurement. Another area of concern is that the Government's approval process for contract signing is cumbersome and involves an excessive number of bureaucratic steps causing unnecessary delays. In addition, insufficient programming and procurement planning contribute to delays in project implementation with a resulting slow disbursement. The Madagascar procurement reform underway with Bank support is expected to address the above shortcomings. To mitigate risks of delays for the proposed project, proper pre-requisites for the use of National Competitive Bidding procedures (NCB) have been discussed with the Government. SBDs and standard evaluation reports would be used for NCB. - 20 - On the basis of a capacity assessment carried out during appraisal, an action plan was agreed to address areas where implementing agencies need to be strengthened to meet good performance criteria for procurement. The action plan includes (i) the setting up of a procurement unit composed of a procurement officer who has already been recruited and an assistant in the NPIU; (ii) technical assistance in procurement and contract management as necessary for PPIUs, (iii) a specific section on procurement in the Project Implementation Manual to be finalized before effectiveness; (iv) the reorganization of the filing of procurement-related documents; (v) procurement training sessions for project staff and (vi) the financing of independent procurement and technical audits to be carried out on a regular basis (see Annex 6 for details). 4.4 Financial management issues: A sound financial management system is being established as described in C4 above. A time-bound action plan was agreed upon for the strengthening of the financial management system to enable the Borrower, not later than 18 months after the effectiveness date to prepare quarterly project management reports, acceptable to IDA, no later than 18 months after credit effectiveness. An assessment of the readiness of the financial management system for PMR-based disbursements would be carried out within 18 months after the beginning of project implementation. 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. A full environment assessment (EA) for the sector has been carried out by local consultants from the National Center for Research on the Environment. This studv provides a systematic analysis of all potential biophysical apd social impacts associated with the implementation of piogram and projects generated under the PADR. and thus of the proposed project. The EA includes: (i) a diagnostic of each sub-sector (forestry, fisheries, research, agriculture, livestock) in terms of policy, institutional, regulations, conventions relevant to environment preservation; (ii) the analysis of project impacts oni the environnenit; (iii) propositions of mitigation measures to limit these impacts, and (iv) the establishmnent and evaluation of an action plan for environmental management. The EA methodology is based on a docunentation analysis and a consultation of concerned stakeholders in each sub-sector. The main issue which has been addressed in this EA is the sustainability of development activities in relation to soil fertility, design of construction, watershed protection, use of chemical inputs, health hazards from contamination of water springs and rivers, forest degradation, air and water pollution, erosion. The proposed project would improve the productivity of local farming systems by protecting the natural resources base, and therefore farmer incomes. This should have an effect on reducing the impact of clearing forests or land elsewhere for new production. 5.2 What are the main features of the EMP and are they adequate? The project would include measures and would finance the development of mechanisms for the review of sub-projects with regard to potential negative impacts, and for their supervision and monitoring. The EA includes a typology of sub-projects categorized as an A or B or C in the rural development sector. In particular sub-projects for categories A and B would require environmental assessment/analysis and should comply with the Bank's safeguards policies, disclosure and consultation included and the national regulations. The development of a capacity and awareness for environmental management, at the beneficiary level, would be emphasized. The EA defines the role of existing environmental units in the concerned ministries to ensure that environmental assessments are incorporated throughout the project - 21 - cycle for every sub-sector projects. These units would therefore be entrusted with legal, technical and communications responsibilities. In particular, they would be expected to evaluate environmental impact statements for sub-projects, monitor and supervise environmental requirements, provide legal surveillance and conduct communication programs. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: January 24, 2001 The report has been cleared by ASPEN for disclosure and the Government has taken actions to have the draft disclosed publicly for consultation and review by the general public. 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? The EA team has traveled extensively in Madagascar to consult with farmers, local administration, and local organizations that are active in the rural areas during the preparation of the environmental assessment. The EA has been carried out in close collaboration with the technical services of the ministries involved in rural development. The Government through the EPP/Office National pour l'Environnement (ONE) has made the draft EA public. EPP would organize a national TV debate session with the participation of civil society and private sector. Comments from the concemed entities would be incorporated in the final version. The executive suminary would be published through daily newspapers. The EA emphasized the need for capacity building of rural sector beneficiaries. In this respect, training and IEC activities would be planned for joint approval of sub-projects and monitoring and evaluation systems to follow-up on the impact of proposed measures. Lastly, the PIM would include an environmental assessmentlmanagement section drawn from the results of the EA report. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? During appraisal, a framework agreement between ONE, EPP and each ministry involved in rural development has been prepared. Based on the results of the EA, the agreement defines the modalities and indicators for the monitoring and evaluation systems needed to assess the impact of proposed measures. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The project is designed to enable local communities to take greater control over their own affairs. The project would target areas with high incidence of poverty. The productive investment component of the project would complement CDP activities in support of basic social and infrastructure services (mainly schools, health centers, water supply, and rural roads). In the absence of productive activities supported by the proposed project, communities would have difficulty operating and maintaining their investments. The project would reinforce the impact of CDP on health, education and public welfare. Productive investment under the project would also expand the Bank-funded Micro-Finance project's outreach in improving the ability of poor rural communities to save and hence have access to rural finance. One of the critical issues in promoting community participation in the formulation of development programs is how to ensure an equitable and representative decision-making process. The project would use - 22 - participatory planning techniques that explicitly ensure that marginal groups such as the poor, women and youth are not excluded from the decision-making process. 6.2 Participatory Approach: How are key stakeholders participating in the project? Preparation of PADR entailed a series of regional workshops with stakeholder participation. For the preparation of the proposed project, thematic group discussions were conducted at the central level, and several meetings were organized at the regional level with the participation of local development actors and potential beneficiaries. RDSP and CDP would be active in the same geographic areas, with RDSP intervening mostly at the village level and CDP at the commune level. RDSP would use community mobilization (rapid rural appraisal) methods at the village level to identify investments in productive sub-projects. The approaches were widely disseminated under the Village Level Participatory Activities (VLPA) supported under the Agricultural Extension Project, and many agricultural staff master them. CDP would also use rapid rural appraisal at the commune level to identify its own sub-projects. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? The RDSP depends on the capacity of local communities, NGOs, and for-profit service providers to identify development priorities, generate demands, elaborate proposals, provide techmical support services, manage account for resources, and monitor outcomes. The requirements are extensive. RDSP would establish a short list of NGOs, civil society organizations, and for-profit service providers with a proven track record in rural development, training in management and marketing, and processing and storage products. It would facilitate the delivery of training rmrodules to develop PO management. decision making, businiess and investment skills. These modules would be delivered iunder CDP. RDSP and CDP complement each other and have developed coordination mechanisms (see Annex 2A). 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? The project vould increase the capacity of EPP and the GTDRs to implemenit the PADR and PPDRs. The community development component would create an enabling environment for increasing the chance of sustainability of the achievements in the area of poverty reduction not only in the communities directly concerned, but also nationwide due to the synergy and slipover effects inherent in such achievements. The Letter of Rural Development policy (LRDP) highlights the commitment of the Government for changing the guidelines of the water user associations, so that they can generate revenue through small scale commodity processing, input or output marketing, etc. 6.5 How will the project monitor performance in terms of social development outcomes? Monitoring and evaluation of project activities, including project performance, level of participation, and efficiency of the administrative system, would be carried out twice a year through independent consultants. Information relative to project impact on productivity and income would be provided annually according to the agricultural cycles. Support for self-evaluation of the sub-projects and their impact would be provided under the technical component. 7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? PoliCy Applicability Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes 0 No Natural habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes 0 No Forestry (OP 4.36, GP 4.36) 0 Yes 0 No Pest Management (OP 4.09) 0 Yes 0 No - 23 - Cultural Property (OPN 11.03) 0 Yes 0 No Indigenous Peoples (OD 4.20) 0 Yes 0 No Involuntary Resettlement (OD 4.30) 0 Yes 0 No Safety of Dams (OP 4.37, BP 4.37) 0 Yes 0 No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes * No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes 0 No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. As indicated earlier, an environmental assessment has been carried out to ensure that project activities are compliant with the safeguard policies on environment. Simplified environment assessments would be carried out as part of sub-project preparation. Under the research sub-component, the project would develop, introduce and implement IPM techniques which are expected to reduce pesticides use and have a positive impact on the environment, human health and farmer income. F. Sustainability and Risks 1. Sustainability: Sustainability would be addressed at two levels: (a) institutional sustainability would be promoted through a decentralized organizational set up that would promote ownership of the process of appraisal and approval of investment proposals by the beneficiaries; and (b) financial sustainability would be pursued by promoting investments and activities that would generate income streams over time, and which rural communities and producers organizations themselves would be capable of managing and maintaining. Cost-recovery would be encouraged for agricultural production and off-fann activities to stimulate the constitution of saving funds at the community level. Cominunities benefiting from funding for productive sub-projects would be invited to invest part of the incremental incomne in saving schemes, that would facilitate further investment and access to credit. Existing micro-finance institutions would provide technical assistance for establishing saving accounts. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Major constraints to agricultural S Close coordination with ongoing and development, such as inadequate transport forthcoming transport projects and land tenure issues are not addressed Swift preparation of proposed land tenure efficiently project Implementation of policy reforms in the S Policy dialogue areas of decentralization and private sector development is slow From Components to Outputs Poor farmers targeted by the project have M Review of criteria for matching grants and difficulties in mobilizing their contribution provision of technical assistance - 24 - Political interference in the S Close supervision, evaluation of performance decision-making process results in poor after one year of project implementation sub-project selection Capacity of local agencies to prepare and M Close supervision and evaluation of GTDR approve sub-projects is limited performance after one year of project implementation and provision of technical assistance and training when required Budgetary resources are insufficient and M Close supervision and public expenditure not provided on time reviews Selection of staff is not made on basis of M Evaluation procedures agreed upon; close competence and incentives system is not supervision and policy dialogue conducive to retaining good staff Overall Risk Rating S Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects: The RDSP preparation process has been highly participatory and has involved a wide range of stakeholders. In addition, coordination mechanisms with other Bank supported projects have been developed to increase benefits to the rural population (Annex 2A). Therefore, the risk for unforeseen controversial aspects has been greatly reduced. Nevertheless, the following potential controversial issue has been identified: The agricultural production and off-farn activities sub-components of component I (Productive Investments) may undermine the development of sound micro-finance in rural commtnities. To address this issue, these sub-components would be undertaken on a pilot basis in a limited number of regions for an initial 18 month period after credit effectiveness. A review of such activities would be carried out and its findings and recommendations analyzed to see whether these activities should be continued, and if so under what conditions. In addition, grant assistance would be targeted only to the poorest communes and communities. RDSP would also team up with MFI so as to provide assistance to rural communities and producer organizations who would like to establish a saving scheme using the revenues generated by productive investments. The establishment of such a saving scheme would help efforts made by the MFIs to increase their outreach to the very poor. Finally, there would be a representative of the MFI at the GTDR level. He/she would play an advisory role in the selection process. G. Main Credit Conditions 1. Effectiveness Condition (a) the Project Steering Committee (PSC) and the National Project Implementation Unit (NPIU) have been established under conditions acceptable to IDA; (b) the project account has been duly opened, and an initial amount equivalent to US$450,000 deposited therein; (c) the Borrower has appointed the auditors under terms, conditions and terms of reference acceptable to IDA; (d) the Implementation Manual has been adopted by the Borrower in a manner satisfactory to IDA; and - 25 - (e) the Provincial Project Implementation Units (PPIUs) have been established in at least two of the Provinces, and the provincial director, accountant and procurement specialist duly recruited in each such PPIU under terms, conditions and terms of reference acceptable to IDA. 2. Other [classify according to covenant types used in the Legal Agreements.] (a) a GTDR would be established and maintained in each region for the management of the PADR process under conditions acceptable to IDA; (b) a Provincial Project Implementation Unit (PPIU) would be established and maintained in each province, under conditions acceptable to IDA; (c) NPIU would be headed by a national project director, who would be assisted by a financial management specialist, an accountant, a rural development specialist, a procurement specialist, a monitoring and evaluation specialist, and other suitably qualified and experienced staff in adequate numbers; (d) each PPIU would be headed by a provincial director, who would be assisted by an accountant, a rural development specialist, a procurement specialist, a monitoring and evaluation specialist, an agronomist, a producer organization and capacity building specialist, and other suitably qualified and experienced staff in adequate numbers; (e) the positions of national project coordiniator, provincial directors, administrative and financial management specialist, accountants, rural development specialists, procurement specialists, monitoring and evaluation specialists, agronomists, and producer organization and capacity building specialists would be kept filled at all times by persons having qualifications and experience acceptable to IDA; (f) the project implementation manual would provide details of all procedural arrangements for the implementation, monitoring and supervision of the project, including procurement and disbursement arrangements; environmental assessment methodology; perfonnance indicators; monitoring and evaluation guidelines; procedures for identification, appraisal, supervision, and monitoring and evaluation, of sub projects and competitive grant programs, as well as procedures for the implementation of the pilot program; criteria for the selection of beneficiaries, review and approval of sub projects, and approval of grants, applicable procurement, disbursement and other implementation guidelines; and model forms of grant agreements; (g) the Borrower would carry out an action plan to strengthen the financial management of the project so as to allow for disbursements under quarterly project management reports within 18 months of credit effectiveness; (h) the Borrower would carry out the Project in accordance with procedures set out in the Administrative, Accounting and Financial Manual, and Implementation Manual; (i) the Borrower would, not later than six months after the effective date, conclude a financial management contract with a suitably qualified and experienced consulting firm for the design of a computerized monitoring and evaluation, and accounting and financial management system; (j) the Borrower would submit to IDA not later than October 31 of each year, beginning October 31, 2001, a proposed annual work program and budget for the forthcoming fiscal year; (k) the Borrower would submit to the Association bi-annual and annual progress reports on the status of the Project not later than two months after the end of the reporting period, beginning a report to be - 26 - submitted for the reporting period ending December 31, 2001; (1) the Borrower would, not later than December 31 of each year, undertake, in conjunction with the Association and other interested parties, an annual review of the project, and a mid-termn review not later than December 31, 2003. For each such review the Borrower would furnish to IDA, for its comments, a report on progress in project implementation and issues to be discussed at such review not later than one month prior to the review; and (m) the Borrower would undertake a study for the institutional strengthening of GTDRs, communicate its conclusions and recommendations to IDA not later than December 31, 2001, and implement recommendations thereafter in a manner satisfactory to IDA. H. Readiness for Implementation 0 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. N 1. b) Not applicable. N 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. O 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. El 4. The following items are lacking and are discussed under loan conditions (Section G): 1. Compliance with Bank Policies N 1. This project complies with all applicable Banl policies. Cl 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Ivar Ted Serejski Joseph Baa Dwomoh Hafez H. Ghanem Team Leader Sector Manager Country Manager - 27 - Annex 1: Project Design Summary MADAGASCAR: Rural Development Support Project Hierarchy of ObJ0ctIves IndI0atos Monitoring & 0Evaluation Critical Assumons Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Reduce poverty by alleviating Average incomes of the poor Government statistics & wide-ranging constraints, people in project areas are 30 impact-survey reports including in agriculture to 40% higher than the baseline by the end of the project Project Development Outcome I Impact Project reports: (from Objective to Goal) Objective: Indicators: Increase incomes and reduce Productivity of major crops, Baseline survey report, project Government remains poverty in rural areas, while livestock, fish and type of supervision reports and committed to removing preserving the environment processed agricultural beneficiary assessment/ constraints to agriculture products increass by 35% one farmer associations' or key year after completion of informants' interview Prices on world markets are sub-projects. stable Agricultural production statistics of MOA Climatic conditions are favorable Annual technical audit Mid-term review (MTR), MOA and MOL budget reports Qualitative evaluation of sub-project results - 28 - Key Perfonnance Hierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: 1. Productive investments 1.1 About 1000 sub-projects Annual evaluation reports Transport infrastructure Poor producers have access to financed annually during improves project resources and support project life, of which at least services to prepare, 40% benefit women Land tenure issues are implement and maintain 1.2 About 180,000 farm addressed productive investments that families benefit from the sustainably increase project Micro-finance institutions production. 1.3 At least 70% of the expand access to credit subprojects financed considered satisfactory by the Government remains producers committed to decentralization 1.4 About 70% of the groups/ and private sector communities benefiting from development productive investments related to agricultural production and off-farm activities have developed a cost recovery mechanism based on capitalization funds and sound savings and loan principles 2. Support Services 2.1 At least 75% of the MOA annual report, project producers that receive component monitoring An efficient system of support support services on improved indicators and supervision services is operating and agricultural technologies/ reports, MTR and ICR meeting farmer's needs. technical packages adopt proposed changes 2.2 About 30% of resources allocated for competitive research and extension grants awarded to private sector and NGOs 3. Support to Rural 3.1 About 5,000 groups of Project supervision reports, Communities and Producers producers have been MTR and ICR Organizations strengthened Rural communities and 3.2 About 600 rapid rural producers organizations in the appraisals have been project is facilitated through completed better organization, preparation of management 3.3 About 400 savings plans and capacity building schemes have been established - 29 - 4. Capacity Building and Policy Development 4.1 Increased capacity of 4.1.1 PADR, PRDR regularly Project supervision reports, EPP, GTDR, MOA and MOL updated in a way that better MTR and ICR. to plan and implement rural reflect producers development in line with organizations views Survey of rural communities PADR priorities. and producers organizations 4.1.2 Reliable statistical Testing the statistical and information system defined environmental system; and operational at the level of statistical bulletins. MOA/MOL 4.1.3 Structure of Policies studies environmental assessment put in place and operational at the level of the rural ministries 4.2 A monitoring system is 4.2.1 Ongoing monitoring operating that (i) ensures that information on LDP provided Government's policy in the against its intended objectives rural sector is consistent with to Bank, other donors and PADR and LRDP and (ii) is Government. capable of assessing progress made 5. Project Administration 5.1 Baseline survey, Component monitoring Decision makers are able and and Monitoring beneficiary assessment, indicators and supervision willing to follow through on mid-term review, and external reports the recommendations National and Provincial beneficiary assessment Implementation Units are in completed according to the Baseline survey report place and functional. schedule beneficiary assessment report, project supervision reports, MTR and ICR Project supervision and annual progress reports, MTR and ICR Beneficiary assessment report - 30 - Key Pedfonnance Hierarchy of Objlctie Indicatom Monitoring & Evaluation Critical Assumptions Project Components / Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) 1. Productive Investments: US$ 71.39 million Producers are interested and demand exist in developing 1. I On-farm and off-farm Project Implementation on-farm and off-farm investments in productive progress reports and investment activities sub-projects demanded disbursement reports. through rapid rural appraisal Government remains committed to agreed criteria for project selection Review and approval of sub-projects is carried out in an efficient and timely fashion GTDRs are committed to economic efficiency and poverty reduction Goods and services are procured in a timely manner 2. Support Services: US$11.88 miilion 2.1 Extension services, Project Implementation Government remains training of farmers, progress reports and committed to new workshops demanded by disbursement reports. demand-driven extension farmers to support strategy sub-projects through Rapid Rural Appraisal Attitudes of extension and research agents evolve in line 2.2 Applied research with new strategy demanded by farmers to support sub-projects Sufficient technical expertise outside the public research and extension service exists to stimulate competitiveness 3. Community Development US$6.13 million Coordination with Community Development 3.1 Support for communal Project Implementation Project is smooth on the development plans/rapid rural progress reports and ground appraisal disbursement reports. 3.2 Support to producers organizations 3.3 Support to saving schemes - 31 - 4. Capacity Building and US$5.22 million Incentives system is Policy Reforms appropriate 4.1 Support to EPP/GTDR to Project Implementation contribute to the PADR progress reports and process disbursement reports. 4.2 Support to MOA/MOL statistical units 4.3 Support to rural ministries environmental units 4.4 Policy studies 5. Project Administration US$11.47 million and Monitoring Govemment does not 5. 1 National and Provincial Project Implementation interfere in day-to-day Execution Units established progress reports and operations of implementation and functional disbursement reports. units Budgetary resources are made available to the central and regional levels in a timely fashion Competent staff are appointed and retained to implement project activities 'Fotal US$106.09 million - 32 - Annex IA: Main conclusions of the Rural Sector Review Mission MADAGASCAR: Rural Development Support Project In June 2000, a sector mission organized by the Sector Unit in collaboration with the Rural Development Department reviewed the challenges and opportunity for poverty alleviation in the rural sector of Madagascar. The report is in Annex 8. The mission's main conclusions and recommendations, which have been reflected in the design of the project, are the following: Main Conclusions * The agricultural sector is competitive due largely to favorable natural conditions for producing commodities, and relatively low labor cost. Domestic Resource Calculations (DRC), which account for transport and marketing costs, demonstrate that Madagascar's agricultural sector has a comparative advantage in a number of agricultural products (see table 1). Calculations indicate that both traditional and improved rice is highly competitive with DRCs ranging from 0.22 to 0.82 compared to import costs. However, only irrigated rice in the West Coast is competitive for export, with DRC of 0.69 and 0.90. In general, the highlands are somewhat less competitive than the coastal regions. The coffee crop is highly competitive for exports. The industrial crops, sugar and cotton, have DRCs less than one at the farm and plantation level, but at the market and export level are not competitive, as processing and transport costs erode prcduction efficiencies. Although the rural sector suffered from discriminatory policies in the past, the reforms of the mid-nineties, with a sharp devaluation of the exchange rate, a reduction of import barriers and liberalization of markets, and privatizatiori of state enterprises (with the exception of sugar and cotton), have contributed to a relatively balanced incentive structure. It is clear that in a non-discriminatory policy environment and if structural impediments continue to be reduced, the agricultural sector should prosper in Madagascar. * In spite of these improved incentives, agricultural productivity has remained almost stagnant over the last decade, because of deep rooted structural constraints, primarily lack of rural infrastructure, resource degradation, poorly functioning rural institutions, including land tenure and rural finance. Negligible use of new and improved production technologies has been the result of these structural constraints. * Overall, Bank-financed investments have had only localized impact, but have not led to the desired widespread growth, environmental sustainability, and improvement in the quality of life of the rural populations. Continuing with past strategies is not likely to yield significant results, either in economic growth or in reducing poverty. More innovative approaches are needed. Recommendations Against this background, the review strongly advocates more innovative approaches to rural development to respond to the favorable current incentives for economic growth and poverty reduction. The Bank's rural strategy for Madagascar should be comprehensive in scope, poverty-focused, with support for demand-driven projects implemented through decentralized and more efficient mechanisms. Its main focus should be on overcoming infrastructure and technological constraints to agricultural growth. The strategy should facilitate increasing farmer participation in decision making and financial contributions towards - 33 - implementation. It would also support the decentralization process and be closely coordinated with other donor activities. In following this program, the Bank's rural strategy would be fully in line with PADR. Table 1: Competitiveness of the main cropping systems DRC NPR Farm Plant Market Export Irrigated Rice Marovoay (West Coast) Large Perimeter Traditional Technology 0.43 0.57 0.60 0.90 0.89 Improved Technology 0.22 0.37 0.40 0.69 0.90 Manakara (East Coast) Small Perimeter Traditional Technology 0.55 0.61 | 0.62 | 1.07 | 0.57 Improved Technology 0.55 0.61 0.62 1.11 0.57 Lac Alaotra (Highlands) Large Perimeter Traditional Technology 0.62 0.72 0.88 1.47 0.90 Improved Technology _ 0.39 | 0.51 | 0.69 1.38 1.38 Antsirabe (Highlands) - Improved Technology 0.51 0.58 0.64 1.13 0.51 Crops for exports Coffee 0.09 0.13 0.13 0.75 0.34 Vanilla 0.43 Industrial crops Sugar 0.24 0.95 1.11 2.80 1.21 Cotton 0.79 1.20 0.90 Irrigated Wheat 0.96 1.10 1.20 1.94 1.56 Source: The World Bank, June 2000. - 34 - Annex IB: Organization Chart Madagascar: Rural Development Support Project Ministry of Agriculture Fl r InterMinisterial Project Steering Council for Rural Committee Development (C.I.O.V.) National Proiect Steering Implementation ' . Committee Unit (NPIU) (PADR) Provincial Project GTDR Implementation Unit * ... (PRDR) (PPIU) Regional Technical Unit . Technical (RTU) Contract / Services \Convention |Service Providers _ - 35 - Annex 2: Detailed Project Description MADAGASCAR: Rural Development Support Project The proposed project comprises five components: (i) Productive Investments; (ii) Support Services; (iii) Community Development; (iv) Capacity Building and Policy Development; and (v) Project Administration and Monitoring. By Component: Project Component 1 - US$71.39 million Productive Investments Under this component, the project would make a partial contribution to demand-driven income-generating sub-projects proposed by farmer organizations and village groups and associations, in particular from poorest grassroots rural communities, through a matching grant system with up-front farmers' contribution of at least 15 percent of sub-project cost. The grant-financing amounts for the different types of activities are subject to ceilings as defined in the Project Implementation Manual (PIM). The PIM includes also explicit contracting procedures. Type of investments. The project would support three types of income-generating productive investments that would remove major constraints to agricuiltural growth, along with support services needed for the identification, preparation, and implementation of these sub-projects: * Productive infrastructure. These sub-projects may include, inter alia, small irrigation and drainage work not exceeding 200 ha; small store systems, processing units, etc. o Agricultural production, including but not limited to establishment of seed and plant nurseries, improvement in existing farming systems and diversification of production systems. Diversification sub-projects would comprise a variety of crops with arboreal or shrub plantations (such as vanilla, litchi, ginger, cinnamon, cashew, etc.); annual crops (i.e. flowers, passionflower, ginger, chili, etc.); the production of essential oils used for aromatherapy, etc.; the development of minor stockbreeding, aquaculture, and apiculture; home garden production; and transformation and commercialization of farming products and inputs; etc.; and * Off-farm activities in rural areas such as handicrafts, production of building materials, various types of wood and iron work, etc. Sub-projects would not include, however, basic social and economic infrastructure of public interest that would be supported by the Community Development Fund and by the Rural Transport Project. For purposes of agricultural production and off-farm sub-projects, however, the Borrower would: (a) for a period not exceeding 18 months after the effective date, implement such activities on a pilot basis and in selected geographical areas, and in accordance with criteria and implementation guidelines specified in the PIM; (b) not later than 18 months after the effective date, carry out a review of the pilot prograni, and communicate the findings to IDA, along with recommendations as appropriate in view of the pursuit or otherwise of such activities after the end of the pilot program; and (c) proceed thereafter to pursue such activities or take other action as appropriate taking into account the - 36 - results of the review and IDA's comments The amount allocated for the pilot activities would not exceed US$6 million equivalent during the 18-month period. Targeting The project would operate in all of the 20 agro-ecological regions of the country. However, it would strive to cover much of the poorer areas within each region. During its first year of operation, the project would work primarily, but not exclusively, in Social Fund III areas, that are relatively accessible to favor a quick start in project activities. To enhance coordination with other donor-supported projects (see Annex 8), including other Bank-financed projects such as CDP, TSRRP, the second Environment project (EP-II) and the forthcoming Rural Transport project (RTP) detailed targeting mechanisms and criteria have been designed for inclusion in the Project Implementation Manual (PIM) and included in Annexes 2 and 2A. They would include: (i) geographic targeting using a combination of (a) poverty indicators such as access to basic services in education, health and potable water; and (b) physical isolation from roads and markets. RDSP and CDP would intervene in the same geographic areas with RDSP intervening mostly at the village level and CDP at the commune level. The four projects (RDSP, CDP, TRP and EP-II) operating in the rural areas would furthermore agree on compatible annual work programs. (ii) eligibility criteria would stipulate that beneficiaries must be part of a group of no less than 10 producers, who did not get any subsidy for productive investments from the RDSP or from other development programs in the past three years. In addition, access to productive investment grants would be subject to beneficiary commitment not to engage in practices that harn the enviro"rment, especially slash and burn cultivation (tavy); and (iii) eligibility criteria fbr sub-projects would provide for complementarity with other projects. Criteria for minor irrigation schemes would be similar to those developed by the European Union (EU) (see project files in Annex 8). Eligibility criteria would emphasize economic, technical and environmental sustainability, participation requirements, individual limits of support per sub-project; and co-financing requirements. A list of activities would be excluded. More specifically, the investments would have to meet the following basic criteria: 3 Sub-projects must be in line with the priorities defined by the PADR and the type of productive investments that can be financed in the region, as indicated by the regional PADR (PRDR); * Sub-projects would not finance working capital, which should be provided either by the beneficiaries, or financed by a loan from a Micro Finance Institution (MFI), unless it is part of a farming system development technology package; * In the case of the rehabilitation of an irrigation perimeter, sub-projects allowing for two crops per season would be given priority; * Investments must stimulate agricultural growth and have an ERR above 10 percent; * Investments must be sustainable without further need for subsidies. The main criteria for physical investments would be replicability and demonstration value. Identification and Selection of Sub-projects. The project would only support investments that (i) are not funded by other programs in the concerned areas or (ii) complement these programs including those supported by micro-finance institutions (MFI). The RDSP would use community mobilization (rapid rural appraisal) methods to identify investments in productive sub-projects at the community/village level (see community development component). Two scenarios are envisaged: (a) when rapid rural appraisal has - 37 - already been completed and priorities identified, but not the detailed sub-projects, the communities would be able to contract out, through state sector providers or private sector providers, the support services required for the preparation of the sub-projects. Up to 10% of sub-project allocation can be used for this; and (b) when rapid rural appraisal has not been completed or need to be updated, the communities would be able to contract out, through state sector providers or private sector providers, the support services and technical assistance required to complete/update the rapid rural appraisal and prepare sub-projects. The priorities identified and prepared by the communities and POs with the assistance of the service provider would be reviewed and consolidated at the PPIU level. PPIUs would be assisted by a small technical unit (TU), which would be selected from a short list through a competitive process. The TU can be an NGO, a consulting firm, an institution, a center, or the public sector. The TIJ would carry out the necessary technical, economic, social and environmental evaluations of sub-projects, to enable the GTDR to play its critical role of identifying development opportunities, ensuring regional coherence, promoting inter-institutional coordination, fostering synergy and complementarity with other programs underway within the region, and managing the PRDR process. The TU would also coordinate the work of the field agents required for the implementation of sub-projects and monitor the implementation of sub-projects. The field agents could be part of the public extension system (paid by the public sector) or included in a self contained proposal submitted by the TU. In the latter case, the field agents would be hired and paid by the TU. Within the guidelines established in the PIM, the GTDR would ensure that the sub-projects submitted by beneficiaries for funding by the PPIU are in line with the PADR/PRDR objectives. Upon approval by the G1TDR, the sub-projects proposals would be forwarded to PPIU for disbursement to the provider of goods and services associated with the sub-projects for sub-projects exceeding US$ 10,000 or to the communities for sub-projects not exceeding that amount. In each GTRD, there would be a representative of the MFI in the region of the GTRD who would play an advisory role. Financial arrangements. Financing of the sub-projects would include the following: tarming equipment and tools; input for cultivation or livestock; animals; construction material, small works and installations, processing machinery, small drainage and irrigation works not exceeding 200 ha; plantations and nurseries, time-bound technical assistance and specialized training; and storage facilities for inputs and products. Investments would be financed through a matching grant system with up-front farmers' contribution of at least 15 percent in kind or/and in cash of the project cost. This level of contribution is consistent with the cost sharing agreement for CDP. While the use of matching grant to finance rural productive investments could be considered as a second best approach in facilitating access to income generating activities, it was chosen due to the slow penetration of rural financial markets in Madagascar, which is particularly deficient or non-existent in rural poverty zones targeted by the project. The matching grant system would coordinate its activities with those supported under the Micro-finance project. Cost recovery mechanism. To foster sustainability of the pilot activities related to agricultural production and off-farm activities as well as accountability of beneficiaries, a cost recovery mechanism would be promoted at the community or PO level. It would be built on internal management practices, peer pressure and local control systems for the establishment of capitalization funds at the community/group level. These funds would recognize the individual beneficiary ownership of the amount recovered and would seek to establish transparent, albeit simple, mechanisms for fund management. A specific technical assistance effort would be implemented to provide the required social intermediation support through NGOs or private consultants. Linkages with established financial intermediaries would be sought early in the process to ensure the safe handling of funds and transparency and accountability in fund management. Funds would be invested or spent at the community and PO level according to internal priorities and mechanisms as defined by the community/group. The recovered amounts would thus remain as financial capital circulating in the community or PO, or would take the form of physical capital depending on the investment - 38 - decision made by the community/group. That would constitute the basis for the development of self-sustained savings and loan schemes and would progressively evolve towards or link with existing financial intermediation systems. Funds would be recovered by beneficiary groups through their organizations. For rural credit, however, POs would use the services of micro-finance institutions. RDSP will also encourage specialized micro-finance institutions in new areas where RDSP will intervene. Project Component 2 - US$11.88 million Support Services This component would cover: (i) the provision of extension services, technical support and training of farmers, producers organizations and small entrepreneurs, the establishment of demonstration plots and technology validation modules, the organization of tours and workshops to exchange experiences among producers' groups and to help farmers access information, and support for self-evaluation of the project and its impact, required for the implementation of the demand-driven private sub-projects under component 1. For irrigation perimeter rehabilitation, where two crops per season would become possible due to improved water management, agricultural extension would pay particular attention to ensure that at least one of these crops would be a short cycle, non-rice crop where appropriate. Furthermore, given that shifting agriculture and the practice of slash and bum (tavy) is the primary threat to the remaining natural forests in Madagascar, agricultural extension would pay particular attention to offer farmers a package of alternatives to shifting cultivation, that would allow them to intensify their production on existing agricultural lands, and diversify their activities. Intensification and diversification would result in decreased pressures on the forest and increased income for rural families. Special attention would also be paid to include training in agricultural techniques adapted to women's daily task schedules. The communities and POs would be able to contract out, through state sector providers, private sector providers or NGOs, the support services required for implementing these activities, and up to 10% of sub-project allocation would be used for this; (ii) small-scale demand-driven and well targeted extension and training services not necessarily linked to productive investments such as partnership between govermment, communes, producers organizations and the project; or provision of discreet services to address specific problems (e.g. soil and water conservation, integrated pest management, product preparation, etc.). Communities would be able to contract out, through state sector providers or private sector providers, the support services required for implementing these activities. The latter would have to meet the following basic criteria: (a) have a major impact to stimulate agricultural growth; (b) mobilize potential synergies, involving multiple institutions, agencies, groups, etc., in addressing issues of mutual interest; (c) are time-bound for a period of up to two years; and (d) are sustainable without further need of subsidies. PPIU would prepare a contractual agreement binding all parties and including: * Rules for oversight and supervision; * Agreed monitorable milestones; * Funds to be made available; * Items to be funded; * Contributions to be made by the implementing agencies; * Rules for reporting, monitoring and supervision; * Rules for publication of results; * A schedule for the release of funds; and * Agreement termination procedures; - 39 - (iii) support to agricultural research through competitive grant programs (CGP) and sponsored research. An Operational Manual (OM) outlining the rules by which the CGP would operate has been prepared in consultation with the research and extension systems, universities, farmers' organizations and NGOs. The OM developed for administration of CGP includes a definition of the administrative structure that would be applied and should be acceptable to IDA. The manual would be available to each scientist/institution wanting to participate in CO3P and sponsored research. Competitive Grant Program. The CGP would be open to all, including the private sector, and awarded based on proposals submitted by qualified institutions in response to advertisements in the national press. The availability of research funds would be aggressively advertised to attract broad interest, including agribusiness. The research to be supported by the CGP would be applied research aimed at finding solutions for constraints to the productive investments under component I, including activities that support effective development of agribusiness-small farmer linkages. The CGP would support proposals ranging from US$5,000 to US$50,000 for a period of up to three years. Submission must include a contribution, either financial or in-kind, from the proposed institutions to be eligible for funding. Participating institutions must contribute a minimum of 15-20 percent of the total cost of the proposed activities. In kind contributions from applicants may take the form of building rental, staff time, equipment use and civil work, airtime for radio or television, fees for services, or farmers' contributions to associations' operating costs, that are seen to be directly applicable to activities within the CGP proposals. Salary costs, targe-scale equipment, or civil works would not be acceptable budgetary items for CGP support. Acceptable budgetary items to undertake project activities would be operating expenses, material, and supplies. Items such as laboratory equipment, field equipment for small plots, computers, technical bibliographic material, extension material, office equipment, and acquisition of external technologies may be covered. The CGP would also fund appropriate travel costs, and short-term training. The contracts would be done on a competitive basis with the most appropriate organizations (public sector, NGO, private company, universities.). Grants would fund proposals submitted by applicants under competitive procedures, open to producers, producers' groups, government research institutes, NGOs, universities, the private sector, and other institutions active in agricultural research and extension. Review process of the CGP. The Autonomous Steering Committee (ASC), to be set up by Ministerial Decree, would be an inter-disciplinary panel with overall responsibility (delegated by the NPIU) for the functioning and activities of all competitive research proposals. ASC would be composed of about 15 members with strong private and non-governmental participation and including distinguished scientists drawn from universities, the scientific community, government institutions, private sector and NGOs, with one senior member of PIU as a member secretary. The chair of ASC would be selected on the basis of his/her preeminence in the field of agriculture science. Members would serve for a period of two to three years, with some staggering of appointment starting at the end of the first two years to allow for continuity. Submitted research proposals would be reviewed and decided upon within a month. ASC would have authority to approve projects up to a certain amount set by the NPIU and would meet quarterly to review and take decisions on the award of the research grants. ASC would be supported by a small Secretariat with appropriate technical and administrative capabilities, to implement the ASC's decisions and be responsible for initial screening, and by a pool of peer reviewers who would be assigned responsibility to examine proposals in detail on the basis of a given set of criteria, and to make a recommendation. The Secretariat would be staffed by three specialists in the field of socio-economic, a research discipline, and extension, and a small administrative and support staff capacity. Peer reviewers with appropriate expertise would be identified, and a database constructed to enable selection as required for the review process. Peer reviewers may include farmer leaders, agribusiness leaders, research scientists, extension specialists, economists, sociologists, and adult education specialists. Individual proposals would be examined by at least two reviewers. Criteria to be used by the peer reviewers would be refined and agreed following - 40 - further review. They are in Annex 2B. To ensure good quality of proposals, significant resources would be invested up front in capacity building in on-farm diagnosis, problem definition, socio-economic evaluation of potential solutions, development of proposals, and to share knowledge gained through research fund utilization. This may include national and regional workshops, field exercises and establishment of local networks with farmer organizations and extension. The research proposals would be selected with criteria and operational procedures agreed with IDA and the selected portfolio for the first competitive grant proposals to be undertaken in each Province would be subject to prior review and approval by IDA. Sponsored Research. The sponsored program would support strategic and upstream research. The sponsored research proposals would be largely from within the public research system with outside institutions joining as appropriate. These programs would be linked to one prominent scientist or a group of scientists within existing institutions. Under the sponsored program, RDSP would fund production system research aimed at finding solutions for thematic and/or long term constraints to intensification, diversification and/or sustainability of production systems. The National Applied Research Center for Rural Development (FOFIFA) - has identified 7 major topics for possible financing under this category which include: (i) germplasm production; (ii) genetic improvement; (iii) soil fertility management; (iv) crop protection management (integrated pest management); (v) animal health; (vi) agro-industrial research; and (vii) social sciences (see annex 2C). The first set of research themes have been selected by discussion as self-evident targets for initial project work, on the basis of accumulated experience and consensus between technical specialists. The project would support the incremental costs of participatory r ural appraisals and other field diagnostic work, new or replacement equipment, limited infrastructure rehabilitation, travel costs, training, visiting fellows and other "twinning" costs with outside institutions. workshops and seminars, consultancies, temporary contractual employees and operating expenses. Project Component 3 - US$ 6.13 million Community Development. This component would finance demand-driven activities to strengthen the rural colmnunities and producer organizations (POs) in project areas. Rural communities and POs would contract out the provision of services related to the following activities: (i) assisting the rural communities to elaborate, or update existing, simple community-based development plans, prioritizing activities. The plans would be developed using participatory rural evaluation methods, and in close collaboration with other Bank-funded projects (see Annex 2A); (ii) assisting POs to identify and develop bankable project proposals that would qualify for financing under component I (productive investments); (iii) capacity building for POs and water user associations (AUEs), whose irrigated perimeters have already been rehabilitated (this includes workshops, training, selected equipment, and assistance to the transfer of responsibility and land tenure securization for the AUEs). This would also include specialized technical assistance and training to the POs who decide to establish voluntary saving schemes. Access to capacity building would be subject to commitment by POs not to engage in practices that harm the environment, and especially to stop the practice of slash and bum (tavy cultivation). Project Component 4 - US$5.22 million Capacity Building and Policy Development This component would provide: (a) support to the PADR and PRDR process. Provision would be made under the project to support EPP and the GTDRs in their functions with the view to regularly update the PADR and PRDR. This would - 41 - include the provision of funds for diagnostic studies, workshops, seminars, travel, short study tours, development of publications and a website. (b) support to MOA and MOL. The project would assist MOA and MOL to develop a program for producing agricultural statistics in a sustainable manner with a gradual implementation scheme. This would include support for (i) strengthening the rural development ministries statistical units; (ii) strengthening the rural sector database and undertaking permanent and specific surveys. About 8000 farm households (400 for each GTDR) would be regularly surveyed; (iii) providing rural market information system. A representative sample of about 100 markets would be selected and followed-up on a yearly basis; and (iv) analyzing and disseminating statistical information. Items (ii) and (iii) above would be done in close collaboration with UPDR, so as to capitalize on the information generated by the rural observatory network managed by UPDR. The Ministry of Agriculture's letter dated March 13, 2001 in project files (Annex 8) provides details of the institutional set-up for this sub-component, ensuring that the sub-component would be managed in a way satisfactory to IDA. (c) support to rural policy development. The LRDP is a living document that would be reviewed regularly. To achieve this objective, provision has been made under the project to undertake studies to monitor the impact of the macro-economic, regulatory and fiscal framework of the rural sector and to formulate new policies; and (d) support to environmental assessment. Provision has been made under the project to strengthen the nascent environmental units of the ministries involved in nmral development. Project Component 5 - US$11.47 million Project Administration and Monitoring Implementation period Five years. Project's Execution. Ministry of Agriculture (NIOA) Proiect's Oversight The oversight of project's activities would be the responsibility of a Project Steering Committee (PSC) under the chairmanship of the Minister of Agriculture. Its membership would be established on a bi-partisan manner between the government's representatives and the rest of the civil society. The PSC would: (i) ensure that project's modus operandi is consistent with the PADR's orientation, namely the participation of key stakeholders at the local level; (ii) review for approval, the project's annual consolidated work program and budgets submitted by the PIU in consultation with the EPP; (iii) review the progress toward achieving the project's objectives; and (iv) take corrective actions relative to project implementation. The PSC would organize at least one annual meeting with the government and the donors participating in the project's financing or complementing project activities. The establishment of the PSC is a condition of effectiveness. Coordination, Management and Implementation Arrangements. The administrative structure of RDSP would consist of only two levels. At the central level, a National Project Implementation Unit (NPIU) would be entrusted with overall administration of project execution activities. At the provincial level, a Provincial Project Implementation Unit (PPIU) would be entrusted with execution responsibilities in each of the six provinces. A Project Implementation Manual, giving details of all procedural arrangements for the implementation, monitoring and supervision of the Project, including - 42 - procurement and disbursement arrangements, environmental assessment methodology, performance indicators, monitoring and evaluation guidelines, and procedures for identification, appraisal, supervision, and monitoring and evaluation, of Sub-projects, criteria for the selection of Beneficiaries, review and approval of Sub-projects, and approval of Grants, applicable procurement, disbursement and other implementation guidelines, and model forms of Grant Agreements, has been prepared. The PIM, duly approved by the Association and adopted by the Borrower, is a condition of effectiveness. Project Management. At the national level, a NPIU would be established as a separate entity under the tutelage of the Ministry of Agriculture. The NPIU would be responsible, subject to the general guidance and oversight functions of the PSC, for overall coordination of the Project, including coordination of the preparation and implementation of the Project, consolidation of the annual work programs and budgets, preparation and production of the annual progress reports and financial statements, and establishment of a decentralized monitoring and evaluation systems of the various activities supported under the Project. The Borrower will submit to the Association for its review or approval a proposed annual work program and budget for the forthcoming fiscal year not later than October 31 of each year, beginning October 31, 2001. The NPIU shall be headed by a national project director, who shall be assisted by an administrative and financial management specialist, an accountant, a rural development specialist, a procurement specialist, a monitoring and evaluation specialist, and other suitably qualified and experienced staff in adequate numbers. The national project director, the administrative and financial management specialist, and the procurement specialist have already been recruited. The appointment of other key staff for the PIU is a condition of effectiveness. At the provincial level, a PPIU would be established in each of the six Provinces, to carry out managemen. and project's implementation responsibilities. This would reduce potentials for delays in funding approval and disbursements. An investment proposal review and response period would be set in the PIM and adhered to by the PPIU. This delay period would be no more than three months. Each PPIU shall be headed by a provincial director, who shall be assisted by an accountant, a rural development specialist, a procurement specialist, a monitoring and evaluation specialist, an agrcnomist, a producer organization and capacity building specialist, and other suitably qualified and experienced staff in adequate numbers. The establishment of PPIUs in at least two of the Provinces, and the recruitment of the provincial director, accountant and procurement specialist in each such PPIU under terrns, conditions and terms of reference acceptable to the Association are conditions of effectiveness. The PPIU would be assisted by a small technical unit (TU) selected through a competitive process. The TU would coordinate the work of the field agents required for the implementation of sub-projects. It would also canry out necessary technical, economic, social and environmental evaluations of sub-projects, to enable the GTDR to make educated programming of investment projects. GTDR. The GTDR would play a critical role of identifying development opportunities, assuring regional coherence, promoting inter-institutional coordination, fostering synergy and complementarity with other programs underway within the region, and managing the PRDR process. Within the guidelines established in the PIM, the GTDR would ensure that the sub-projects submitted by beneficiaries for funding by the PPIU are in line with the PADR/PRDR objectives. Upon approval by the GTDR, the sub-projects proposals would be forwarded to PPIU for disbursement to the provider of goods and services associated with the sub-projects or to the communities. However, people who have their projects rejected and they believe unfairly can appeal to the EPP. The monitoring and evaluation unit will follow up on why projects are being rejected. The GTDRs would be strengthened under the project to ensure that they will satisfactorily fulfill these objectives (see Section E 4.2) and their role in project approval would be reviewed after a year of execution. - 43 - The RDSP would use community mobilization (rapid rural appraisal) methods to assist potential beneficiaries in the identification of productive sub-projects at the community/village level. In this context, beneficiaries would be able to contract out through state sector providers or private sector providers the assistance required for the identification, preparation and implementation of the sub-projects. Consultant services required for these activities would be procured in accordance with "Guidelines on the Use of Consultants (January 1997, revised September 1999 and January 1999)". To foster sustainability of sub-projects related to agricultural production and off-farm activities as well as accountability of beneficiaries, a cost recovery mechanism would be promoted at the community or PO level. Funds would be recuperated by the beneficiary groups through their organizations. The incentive system for repayment into this revolving fund scheme would build on the concept of community responsibility and participation, including social peer pressure. Monitoring and Evaluation First, an important distinction needs to be made between monitoring and evaluation. Monitoring is a continuing function that aims primarily to provide project management and the main stakeholders of an ongoing project with early indications of progress, or lack thereof, in the achievement of project objectives. It provides the basis for corrective actions, both substantive and operational, to improve the project design, implementation approach and quality of results. In addition, it enables the reinforcement of initial positive results. Evaluation is a time-bound exercise that attempts to assess systematically and objectively the relevance, performance and success of the project. Unlike monitoring, which must be undertaken on a continuous basis, evaluations are carried out selectively for practical reasons. Evaluation is an important tool for learning and ensuring accountability. Monitoring and evaluation differ, yet are closely related. They are mutually supportive and equally important. Their relationship is best described as interactive; neither function ought to be taken as a substitute for the other. A Participatory Monitoring and Evaluation Framework of the RDSP The model proposed below is inspired by the global scope of the RDSP, which calls for a participatory monitoring and evaluation approach. It is a multi-dimensional procedure, which centers around four levels of M&E responsibilities: (i) the NPIU; (ii) the six PPIUs; (iii) the TUs; and (iv) the beneficiary groups, constituted by local producer organizations (POs). The role of each of these entities is discussed below. Besides facilitating the identification and prioritization their problems and programming, this model aims at encouraging the full participation of rural communities in monitoring and evaluating their own development action plans. It is based on the principle, according to which sustained economic development would depend first and foremost on capitalizing and improving the participation of rural communities in all phases - from diagnostic to evaluation - of their own development process and in utilizing local capacities to this end. The main objective sought in this model is the empowerment of the local communities to take charge of all aspects of their own development. For transparency sake regarding the use of resources and accountability - both towards their local constituencies and to their upward local governments - and sustainability purposes, during and beyond project life, local communities, through their rural management committees ( Comite Rural de Gestion), can and must be involved in collecting, recording and disseminating performance and outcome data on the implementation of the various sub-projects and other project components they are concerned with. Another reason for selecting a participatory model is prompted by the innovative nature of this development approach, which revolves around and capitalizes mostly on a - 44 - contractual implementation mode of project activities and service provision to beneficiaries via private agencies. Involving beneficiaries in M&E activities fulfills a dual purpose: (i) It provides "check and balances" in the process by using information directly provided by beneficiaries to check the validity and reliability of performance monitoring data coming mainly from the TUs, the primary partners of project management, in so far as implementation is concerned; and (ii) It contributes to capacity development, one of the key success factors of a sound monitoring system. This function relates to the extent to which the project enables target groups to be self-reliant in managing all aspects of their own development. Capacity development of the local communities thus becomes both a means and an end in itself because it empowers the people and assures ownership and sustainability of the process and results of development. Monitoring and evaluation Arrangements The monitoring and evaluation system revolves around three main modalities: * A participatory monitoring of project activities in the field; * An internal monitoring conducted by project M&E staff both at the central and provincial levels; - Periodic supervision and evaluation of project performance and impacts on the lives and socioeconomic conditions of the beneficiaries. It fosters the integration of data generated by the accounting system (general and analytical) and the information system on the various components of the project. Thc M&E system is articulated on four main elements, including: * The collection of data on key indicators of performance and impact: these are organized through a coding system, which promotes a coherent management of inforrnation of various nature and from different sources; * Procedures: fostering sound data collection and dissemination; - Tools. They are of two types: methodological and computerized. They are designed to facilitate data collection, storage, analysis and dissemination of information on each of the five components of the project; and - Actors. As indicated above, they are of four types. The Data. They are technical, temporal, accounting, financial and geographic. Their collection and management is organized on the basis of a number of plans (accounting, budgetary, financial, analytical and geographic) and key indicators duly conceptualized and coded in an harmonized manner. Coding There are four types: * The budgetary coding: designed to identify the kinds of budgetary expenditures; * Thefinancial coding: designed to identify sources of funding; * The analytical coding: It reflects the project intervention framework. It has three coding levels (the components, sub-components, and activities); and * The geographic coding. They identify the intervention zones of the project. -45 - The indicators They are of two types: performance indicators (input and outputs) and impact indicators. The definition and description of indicators is facilitated by a form designed to provide the source of the data, the means of measurement, the frequency of collection of the data and the entities responsible for data collection. Prior to implementation stakeholder analysis workshops would take place to review the proposed indicators, in terms of their simplicity, clarity, specificity, validity, and not least their cost-effectiveness. These forums have a threefold purpose: (i) foster consensus-building; (ii) facilitate information needs assessments - around project performance and impact indicators - among the various stakeholders involved; and (iii) facilitate the design, integration and aggregation of the various M&E databases. It is noteworthy, that selected indicators must include those identified and measurable at the local community level. Performance Monitoring Performance indicators describe the discrepancies between actual and anticipated results (targets). A baseline is available for each of the key indicators to measure implementation progress. Impact Evaluation Impact indicators explain whether the global development of the project have been reached Impact assessments would be carried out by external agencies. The M&E manual provides further details on these issues. The Actors * NPIU level The M&E specialist at the central level would be in charge of the overall M&E activities of the project. In conjunction with his/her counterparts at the PPIU level, he/she would update and aggregate M&E data concerning the project. The PPIU M&E specialist is responsible for supervising M&E activities as their occur on the ground. He/she would coordinate and prepare terms of references for impact evaluations of the project. The M&E specialist would report to the various stakeholder groups. Empirical evidence shows that it is quite difficult to reach expected results when the main M&E specialist has to take care of database management (i.e., inputting data, specific research, updates etc.) in addition to fulfilling his/her duties of animating the entire M&E apparatus, strengthening provincial M&E units, ch-ecking the quality and reliability of the data generated, and analyzing and synthesizing project results. Two options are worth exploring: (i) hiring a consultant on a contract basis to be used for database management purposes at the NPIU level, or (ii) commissioning this function to a computer consultant firm. It might be wise to start with the second alternative given that the flow of information to be inputted might be less substantial during the early period of project implementation, as opposed to later; and then evaluating the possibility of considering the first option, in light of services provided, practical challenges encountered and the flow data generated. * PPIU and TU level At the regional level, the PPIU would be assisted by a TU selected through a competitive process. The TUs would carry out necessary technical, economic, social and environmental assessments of sub-projects, - 46 - to enable the GTDR to validate a particular sub-project, in light of the RRDP, and make informed decisions on whether or not that sub-project should be carried out As at the PIU level, each M&E specialist would coordinate and oversee M&E activities in the field as they relate to their respective provinces. He/she is also responsible for assessing the validity and reliability of M&E information coming from the field. Along with other implementation activities pertaining to selected sub-projects, monitoring would also be commissioned to the TUs. Depending upon their own capacity, the TUs may decide to monitor the implementation of sub-projects themselves or utilize other service providers operating in the region. Monitoring information generated by the TUs on project performance indicators iwould be reported to the PPIU for database update and aggregation at the provincial level. * Beneficiary Groups At this level, there would be a rural management committee (Comite de gestion rural) elected by producer organizations (POs) active in the commune. Within this committee, a small team would be designated, who, on behalf of its constituencies (members of the various POs), would monitor and report on the various project activities taking place in their localities to its communities and the GTDR. Monitoring would consist mainly in supervising and providing information on the implementation of the various sub-projects. This activity is meant to check the veracity of data provided by the TUs or other intermediary structures (i.e., consultants, and other specialized enterprises etc.). Data on project performance indicators would be collected by each committee. This information would be fed-back to local constituencies. as well as to the GTDR. The PPIU would assess the readiness of these committees in terms of their capacities to fully participate in monitoring evaluation and/or design training sessions to build local capacities to this end. -47 - Annex 2A: Coordination of Rural Projects supported by IDA Madagascar: Rural Development Support Project The following describes coordination of the following projects: Rural Development Support Project (RDSP) Community Development Project (CDP) Rural Transport Project (RTP) Second Environment Project in ways that intensify their benefits to the extraordinarily poor rural population. Participatory methods. * The RDSP and CDP would agree on a standard design for rapid rural appraisals that can be used as a basis for financing decisions by both projects (and by other Bank and other donor supported projects). * The RDSP and CDP would conduct rapid rural appraisals for use in all commtnes where either project intervenes -unless other donors have already conducted the appraisals. * The RDSP and the CDP would begin operations by using rapid rural appraisals and the resulting community development plans produced with support from the UNDP, the Swiss Cooperation, and other agencies -so long as the quality of the work is acceptable. * The "Association Nationale pour l'Action pour l'Environnement" (through the Second Environment Project) would consult with the RDSP and CDP execution inits with the aim of reac'hing agreement on a standard format for the rapid rural appraisal. Project targeting * The CDP, RDSP, RTP, and Second Environment Project execution units would prepare annual work programs that are agreed among these projects. In these communes, the CDP would respond to mainly social demands; the RDSP would respond to demands from farmers' organizations for agricultural investments; and the RTP would seek to provide basic access. * In its first year of operation, the RDSP would work principally but not exclusively in FID III areas, which are relatively accessible to favor a quick start in RDSP operations (although the RDSP would intervene mostly at the village level). *- The CDP, RDSP, RTP and the "Association Nationale pour l'Action pour l'Environnement" (through the Second Environment Project) would work together on certain pilot projects on the commune level. Regional Working groups (Groupes de travail regional - GTDR). * For the RDSP, the functions of the GTDRs are (i) to coordinate development activities in their regions and (ii) to vet whether proposals for sub-projects meet the project's criteria. * The GTDRs would participate in the regional consultative committees of the FID that validate CDP supported sub- projects. Irrigation. - 48 - * In the first year of operation of the RDSP, the project would respond first to requests for financing of small-scale irrigation sub-projects not exceeding 200 hectares; then the CDP would attempt to support any qualifying sub-projects not exceeding 100 hectares that the RDSP cannot process. * The CDP would support small-scale irrigation under the same conditions as the RDSP, such as beneficiary cofinancing rate and with the same standards for technical assistance and extension. Rural Transport Infrastructure. * The RTP would seek to increase funding for rural transport infrastructure provided that sufficient resources for maintenance are available through the Road Maintenance Fund and other sources. * The CDP would continue to finance rural transport infrastructure that is requested by the community, consistent with the Government's rural transport strategy once its adopted. * In the long-tern the commune governments would be responsible for the maintenance of their community road networks. - 49 - Annex 2B: Criteria for Competitive Research Program Evaluation Madagascar: Rural Development Support Project The following criteria for competitive research program evaluation have been discussed during the negotiations. It should be noted, however, that these documents won't be static and would evolve and change as experience emerges. Overall How does the proposal fit within that state and/or GTDR priorities and strategy for the given productive investment Scientific Merit * Is the overall presentation and logic of the proposal sound; are the objectives and hypotheses appropriate and clear? * Has a sound justification been given, in particular does the proposal provide evidence that it is addressing high priority problems. * Is the work innovative? * Is there evidence of relevant literature review? * Are the research methods and experimental treatments appropriate to the problem? * Is there an adequate implementation workplan including milestones to track progress? Researchers and Research Infrastructure * Do the researchers have the skills to complete the research satisfactorily? * Is research infrastructure adequate for this proposal? * Are the resources provided or requested adequate and realistic? Evidence of New Directions. * Is there evidence of involvement of potential beneficiaries? Environmental Impact. * Have the expected outputs been explicitly described and/or quantified e.g. depending of the type of research in terms of: impact on sustainability, hectares expected to be impacted; number of farm families, livestock head, etc. at realistic ultimate full adoption levels? * To what extent have the concerns of small and marginal farmers been taken into account? * To what extent have gender issues been taken into account in the proposal? * What is the justification for public expenditures? Is the proposal backed by economic analysis? Is it research that would be highly unlikely to be taken up or be better done by the private sector? Is it research that would be very likely to be taken up or better done by the private sector? * Is there any linkages outlined in the proposal about eventual dissemination of research results? * Are there any other unique features which justify the proposed research? - 50 - Madagascar: Rural Development Support Project Annex 2C: Potential Topics to be Financed Under Sponsored Research Sub-Component Themes Main Locali- Involved Main Observations species or zation institutions activities to production undertake systems involved 1. Germplasm -Cattle *NW & Fofifa Maintenance, Perspectives: production -Hogs MW Fifamanor conservation Setting up of a -Antsirabe Fofifa and characte- national genetic bank Kianjasoa rization of the Utilisation of the germplasm cryoconservation collections technique (-30 degrees) Introduction of other species according to perspectives and programs Maintenance, The theme enrichment Maintenance and and characte- Management of rization of the Genetic Resources is herbarium important not only because of the need to Intemational conserve the genotype exchanges and the biological diversity but also because it is at the source of all genetic improvement programs. Rice ME (5000 Fofifa accessions) Antananari vo (genetic bank) Corn ME (170 Fofifa accessions) Cassava ME & SW Fofifa Antsirabe Fifamanor - 51 - * Potato & Antsirabe Fifamanor Yams * Coffee East & Fofifa (canephora HPS arabica & mascaro) - Cacao North Fofifa 2. Genetic Cattle HPN Fifamanor Selection and Improvement (for meat & Fofifa breeding and dairy) NW Fofifa * Production of seeds for multiplication purposes Irrigated HPN & Fofifa Varietal Piry has appeared in and pluvial NW development all ecological regions. rice that resist Perspectives to create virose and varieties for piry exportation (flavored __________ _ _________ _ _______ .____________ type) Corn MW & Fofifa Varietal HPN development that resist virose and other factors (drought) Cotton *SW & NW Fofifa Creation of Upstream program of University new species adaptation research in well adjusted cooperation with to the SW and HASYMA NW zones -Other: Second priority: To be Coffee, considered depending fruits on the mobilization of human resources. - 52 - 3. Soil fertility All -All regions Fofifa Actualization Basic research work to management production Fifamanor of data on soil be done in a lab or a suvstems University fertility/region controlled environment. inventory and characteri- zation Results of recommnended species Follow-up of fertility Setting up of techniques for mineral and/or organic fertilization 4. Crop *Rice based *HPN, Fofifa -Basic Basic research work to protection systems HPS, NO, University research on be done in a lab or a management -Cotton ME biology, controlled environment. based -SW,NW predators systems East. North ecology and Exporlt diseases. crops Characteri- based zation systems -Setting-up of IPM techniques 5. Animal Cattle MW, NW, Institut -Fight against Health HIogs Antananari Pasteur TB -Others vo Fofifa Eradication Small animals (small IMVAVET of PPA (ongoing) mmnmals) Fifamanor Resistance to University dermato- _____ _1_______ philose - 53 - 6. Evaluation Fofifa No studies Agro-industrial of Fifamanor have been Research nutritional conducted on value promising Processing processing techno- technologies logies such as the Taste osmotic testing dehydration. Taste testing is necessary to evaluate acceptance by the consumer. 7. Social Constraints Study the Sciences to adoption farmer/market of techno- constraints to logies adoption of Rural technologies finance which would help orient research and extension. Study the efficacy of rural credit institutions in view of improving the system and sustain its presence in the rural areas. HPN: High Plateaux North HPS: High Plateaux South ME: Middle east MO: Middle West NO: North West SO: South West University: particulary Sciences, Geography and ESSA (Ecole Superieure des Sciences Agronomiques). - 54 - Annex 3: Estimated Project Costs MADAGASCAR: Rural Development Support Project Local Foreign Total Project Cost By Component US $million US $million US $million Productive Investments 59.15 3.18 62.33 Support Services 11.30 0.30 11.60 Community Development 6.00 0.00 6.00 Capacity Building and Policy Development 3.60 1.43 5.03 Project Administration and Monitoring 9.15 1.56 10.71 PPF 0.45 0.15 0.60 Total Baseline Cost 89.65 6.62 96.27 Physical Contingencies 1.68 0.00 1.68 Price Contingencies 7.86 0.28 8.14 Total Project Costs 99.19 6.90 106.09 Total Financing Required 99.19 6.90 106.09 Local Foreign Total Project Cost By Catego!y US $milfion US $million US $mill.on Grants for Subprojects 67.64 l 3.35 70.99 Civil Works for Offices rehabilitation 0.15 0.00 0.15 Vehicles, Equipment, Furniture and Materials 0.36 1.45 1.81 Consultant Services for sub-projects 8.70 0.00 8.70 Technical Assistance and Training 15.13 1.95 17.03 Operating Costs 6.76 0.00 6.76 PPF 0.45 0.15 0.60 Total Project Costs 99.19 6.90 106.09 Total Financing Required 99.19 6.90 106.09 Identifiable taxes and duties are 9.65 (USSm) and the total project cost, net of taxes, is 96.44 (US$m). Therefore, the project cost sharing ratio is 92.34% of total project cost net of taxes. - 55 - Annex 4: Cost Benefit Analysis Sumn aFy MADAGASCAR: Rural Development Support Project Summary of Benefits and Costs: The RSDP Project would foster sustainable rural growth and poverty aJheviation through increased agricultural and livestock production, improved household incomes and enharnced food security in rural areas. The project would strengthen farmers' organizations and the capacities of rural communities to screen out sustainable productive activities, and would promote a client-responsive agricultural technology system. This system would facilitate the transfer of technological innovation that combines increased productivity and natural resource conservation. Benefits and beneficiaries The Project would, during a 5 year period and covering the country's 20 GTDR regions, provide poverty reduction services and income generating activities to producer organiizations (PO) and rural communities, particularly the less well to do households. Counting the number of the project's beneficiaries is fraught with difficulties because of the demand-driven nature of the project which makes it challenging to know a priori which sub-projects would be financed, nor in which proportion. Still, about 3,660 POs and rural communities representing about 180,000 farm families are expected to benefit from the productive investments sub-projects; and approximately 8,100 rural cornmunities and POs would be strengthened under the Commtnity Development component. The main expected outputs of the project include: (i) improved levels of agTicultural education and training for small farmers' groups in order to foster the adoption of improved technology and to ensure the sustainability of the project's economic benefits; (ii) increased agricultural growth and community development resulting from greater resources generated in the rural areas ; (iii) strengthening the PADR process which would contribute to the streamlining of rural development activities within a unified institutional framework, thereby promoting coherence, synergy, and cost-effectiveness of public expenditures for rural development; (iv) development of technologies that open new market opportunities including exports; and (v) more sustainable and positive effects on natural resources. Cost Benefit Analysis A cost-benefit analysis of the project as a whole is methodologically challengirng because of the strong emphasis on institutional strengthening and capacity building. Furthermore, the demand-driven nature of the operation makes it impossible to know a priori which micro-project would be actually financed, nor in which proportion. Therefore, the cost-benefit analysis presented hiere is mostly illustrative. It focuses on the productive investments and is based on a sample of six farm and non-farm activities (clover, coffee, rehabilitation and development of new rice irrigated schemes, rice processing, and improved traditional poultry development). These cover the most relevant mix of production activities likely to drive an increase in farmers' incomes. For instance, during project preparation, rice processing units and poultry operations were strongly requested by targeted populations. Information contained in the models are based on data provided by the National Center for Applied Research for Rural Development--Centre National de la Recherche Appliqu&e au Developpement Rural (FOFIFA), experts from MOA and MOL, as well as extensive discussions with technicians familiar with the agricultural production systems in Madagascar. - 56 - Economic analysis. Key assumptions. The farm models are based on conservative estimates of attainable changes in family households, taking into account the subsistence nature and risk minimizing strategy, typical of the targeted groups of population. Such changes include progressive productivity increases and changes in prevailing cropping patterns. Labor family availability and required for the new activities were also considered in the farm budget models. The analysis is carried on a per unit basis for farm enterprises (one hectare); a rice huller of a nominal output capacity of 250 tons of processed rice per annum; and a 15 hen-investment for improved village-level poultry production. For clover plantation, income streams are expected to start at Year 6, and for coffee, at Year 3. A key feature of the small-irrigation schemes is the anticipated diversification towards off-season vegetable production (onions and tomatoes). Cultural intensity is estimated at 1.2, including one main season rice production followed by one off-season vegetables production. For the rice huller, paddy to be processed would come from the producers group's own production, complemented by market purchases. Conservatively, the actual capacity is set at 80 percent of the nominal capacity level. For the village-based poultry production, improvements in productivity and incomes are made possible by the use of adequate animal health services. The adjustments made for the economic analysis mainly reflect the removal of taxes and subsidies and other economic distortions. While the Project would increase on and off-farm employment in the rural areas, unemployment and under-employment would not be eliminated. Therefore, a conversion factor of 0.50 to reflect the opportunity cost of unskilled labor was used (economic: 4,000 FMvIG/day: financial: 8,000 FMG/day).The policy reforms and the opening of the economy that have taken place in the last decade, together with the open market determination of the exchange rate reflecting fairly well its real value, lead to the conclusion that domestic prices tend to correspond to border economic values. As it is considered that there are few distortions on agricultural input and output prices, a conversion factor of 1.27 is used to better reflect their economic (slhadow) prices. Prices and exchange rates are in constant (November 2000) terms over the 15-year period of the analysis. The discount rate is 12 percent. Results. Table I shows the extremely promising results for the illustrative farm models and off-farmn enterprises. The estimated economic rates of return (ERR) of the six models vary from 29 percent to 46 percent (Table 1). The returns on investment for coffee and clover plantations are high, but the income streams would start only at Year 3 and Year 6, respectively. Coffee plantations, namely on tanety, would supplement income from irrigated schemes and also contribute to environmental conservation. Cultural intensity of the small-scale irrigation schemes is estimated to increase to 1.2. A key contributing factor to the economic returns of the small-scale irrigation schemes is the off-season vegetable production. This would require good extension services for which arrangements would be implemented to ensure farmers' access to relevant services, and high cost inputs. The rice huller operation by village groups is profitable, but it requires a steep startup investment cost, which targeted beneficiaries would not be able to afford without the project. For the village-based poultry production, improvements in productivity and incomes are made possible by the use of adequate animal health services. Table 1. Economic and financial analysis of illustrative activity models Activity Models Economic Financial IRR IRR Clover plantation, with income streams starting at year 6 29% 20% Coffee plantation, with income streams starting at year 3 46% 16% Rice huller, with processing capacity of 250 tons of rice per year 33% 25% Creation of rice irrigated scheme, with off-season vegetables 30% 51% Rehabilitation of rice irrigated scheme, with off-season vegetables 40% 58% Improved village-based poultry production 29% 19% - 57 - Financial Analysis The resrilts of the financial analysis are generally good, although the financial returns are lower than the economic returns for clover, coffee, and poultry production. This is mainly due to the labor intensive nature of these enterprises and the distortions in Madagascar's labor market. The opportunity cost of labor has been estimated to be half its market price because of the persisting important unemployment and under-employment in the country. It can be assumed that farm families and producer' groups would realize these distortions and use their own labor as much as possible. The financial returns would then be much higher. Main Assumptions: Under the "Support for productive investments" component, the RSDP Project would finance, through a matching grant system, three main types of investments that would resolve major constraints for rural growth : productive infrastructure; agricultural production; non-farm activities. This cost-sharing arrangement has been designed to give poor communities opportunities to engage in revenue-generating activities. However, they would be required to contribute to at least 15 percent of the costs of the sub-projects, in cash or in kind, or in combination of both, to ensure that they place a high priority on them. Thus, their capacity to mobilize their own resources would be encouraged by the project. The financial returns to investments that have been computed in the illustrative models are based only on the share of the investments paid for by beneficiaries. An average contribution of 20 percent was used for the analysis. Sensitivity analysis ! Switching values of critical items: Sensitivity Analysis: 'The sensitivity analysis is based on estimated switching values, or changes in the values, of key factors that would reduce the economic retums to 12 percent, the assumed opportunity cost of capital in Madagascar (Table 2). The different models are subject to different risk factors, and so different key factors have been analyzed. For coffee and clover plantations, the key factors analyzed are delays in income generation and yields. In the case of the small-scale irrigation schemes, changes in revenue and cost streams affect rice as well as off-season vegetable production. Risk in rice processing operation could come from lower capacity utilization and reduced paddy-to-rice processing ratios. Risk for village-based poultry operation could come from increased costs of veterinary products. Table 2: Sensitivity analysis Activity Models Switching values for ERR=12% Clover plantation, with income streams starting at Year 6 Revenue delayed to: Year 12 Yield: - 55% Coffee plantation, with income streams starting at Year 3 Revenue delayed to: Year 8 Yield: - 49% Rice huller, with processing capacity of 250 tons of processed rice Capacity: - 55% per year Investment cost: 125% Development of new rice irrigated scheme, with off-season Total revenue: -38% vegetables production (onion and tomato) Total cost: 60% Rehabilitation of rice irrigated scheme, with off-season vegetables Total revenue: -65% production (onion and tomato) Total cost: 62% Improved village-based poultry production Veterinary product cost: 6% The results of the analysis indicate that incomes for clover plantation would have to be delayed until Year 12 (from the hypothesized Year 6), and that for coffee until Year 8 (from the hypothesized Year 3), for the - 58 - estimated economic return to fall to 12 percent. It would take inordinate adverse circumstances for such risks to materialize. For rice processing and small irrigation schemes, the risk factors have to adversely change the revenues or costs streams by at least 38 percent for the economic retums to fall to break even point. The likelihood of these events does note appear very strong. Thus, the likelihood that the economic benefits of these activities would be below the long-term opportunity cost of capital in Madagascar is very small. However, the economic benefits for the improved traditional poultry development appear sensitive, in that break-even point would be reached following an increase by 6 percent in the price of veterinary products. It should be noted, however, that the model is very conservative in that the production of broilers has been kept low (400), and even lower during the first two years (300 and 350). - 59 - Annex 5: Financial Summary MADAGASCAR: Rural Development Support Project Years Ending June Year 1 Year 2 1 Year3 I Year4 j Year5 I Year6 Year 7 Total Financing Required Project Costs Investment Costs 7.1 18.7 20.0 20.0 18.7 14.7 0.0 RecurrentCosts 0.5 1.3 1.4 1.4 1.3 0.9 0.0 Total Project Costs 7.6 20.0 21.4 21.4 20.0 15.6 0.0 Total Financing 7.6 20.0 21.4 21.4 20.0 15.6 0.0 Financing IBRD/IDA 6.3 16.8 18.0 18.0 16.8 13.1 0.0 Govemment 0.6 1.5 1.6 1.6 1.5 1.2 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User Fees/Beneficiaries 0.7 1.7 1.8 1.8 1.7 1.3 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 7.6 20.0 21.4 21.4 20.0 15.6 0.0 Main assumptions: - 60 - Annex 6: Procurement and Disbursement Arrangements MADAGASCAR: Rural Development Support Project Procurement General 1. The findings of the Country Procurement Assessment Report (CPAR) for Madagascar that was done in August 1995 (para 4.3 of section E) remain valid. No special exceptions, permits, or licenses need to be specified in the Credit Documents for International Competitive Bidding (ICB), since Madagascar's procurement practices allow IDA procedures to take precedence over any contrary provisions in local regulations. 2. National Competitive Bidding (NCB), advertised locally, would be carried out in accordance with Madagascar's procurement laws and regulations acceptable to IDA, provided that they assure economy, efficiency, transparency, and broad consistency with key objectives of the Bank Guidelines. For NCB procedures, the Government gave assurance during negotiations that the following principles would be adhered to: (i) all bids would be in one envelope which would be opened in public; (ii) a point system is not used for bid evaluation for works and methods used in evaluation of bids and the award of contracts are made known to all bidders and not be applied arbitrarily; (iii) any biddei is given adequate response time (four weeks) for preparation and submission of bids; (iv) bid evaluation and bidder qualification criteria are clearly specified in bidding/ pre-qualification documents and not be applied arbitrarily; (v) eligible finns are not precluded from participation; (vi) no preference margin is granted to domestic contractors and suppliers; (vii) award would be made to the lowest eva'uated bidder in accordance with pre-determined and transparent methods; (viii) bid evaluation reports would clearly state the reasons to reject any non-responsive bid and (ix) prior to issuing the first call for bids, draft standard bidding documents prepared as annexes to the Procedures Manual are submitted to IDA and found acceptable. Use of Bank Guidelines 3. Goods and works financed by IDA would be procured in accordance with Bank's Guidelines under IBRD Loans and IDA Credits (January 1995 revised in January and August 1996, September 1997 and January 1999) (The Guidelines). In the absence of national standard bidding documents, the Bank Standard Bidding Documents (SBD) and Standard Evaluation Report would be used with appropriate modifications in relation to provisions relating to "advertising and notification", "currencies of bid and payment", "settlement of disputes", and deletion of the domestic preference provision, etc. 4. Consultant services financed by IDA credit would be procured in accordance with Bank's Guidelines for the Selection and Employment of Consultants by World Bank Borrowers (January 1997 revised in September 1997 and January 1999). The Standard Request for Proposal, as developed by the Bank, would be used for appointment of Consultants. Simplified contracts would be used for short-term assignments, i.e. those not exceeding six months, carried out by firms or individual consultants. The government delegation was briefed during negotiations about the features of the new consultants Guidelines, in particular with respect to advertisement, bid opening and the various steps of IDA reviews. 5. Community Participation in Procurement would be based on AFR Guidelines - Simplified Procurement and Disbursement Procedures for Community-Based Investments. - 61 - Advertising 6. A General Procurement Notice (GPN) would be prepared and published in the United Nations Development Business to advertise for major consulting assignments and any ICB (above US$200,000 equivalent). It would be updated annually for any outstanding procurement. Specific procurement notices for goods and works would be advertised in the national press of wide distribution and internationally for ICB contracts. Request for expression of interest would be published in local newspapers. Answers to these expressions would be used to establish list of NGOs and service providers who would help communities. Sufficient time would be allowed (minimum of 30 days) before preparing the short list. 7. The related bidding documents, as applicable, would not be released - or the short list for consultant services would not be prepared - before eight weeks after the GPN has been published. Specific procurement notices (SPNs) for goods and works would be advertised in the national press of wide circulation and internationally for large contracts (ICB). Sufficient time would be allowed to obtain the bid documents. Procurement Methods 8. Civil Works. With the exception of civil works for office rehabilitation (US$0.15 million of which US$0. 13 million is financed by IDA), all others civil works are included in sub-projects and are dealt under sub-projects. 9. Goods financed by IDA under components 4 and 5 are estimated at US$2.43 million of which US$2.30 would be financed by IDA. They include vehicles, computer equipment, office supplies and equipment including communications materials. To the extent practicable, these contracts shall be grouped into bid packages estimated to cost the equivalent of US$100,000 or more and would be procured through International Competitive Bidding (ICB). Procurement of items available locally which cannot be grouped into bid packages up at least US$100,000 equivalent per contract, up to an aggregate amount of US$780,000 would be procured through NCB procedures acceptable to IDA. Vehicles may be procured through IAPSO. The procurement of relatively small items available locally, such as office supplies, spare parts, gasoline, and other consumable items that cannot be grouped into bulk procurement or bid packages of at least US$30,000 equivalent per contract, up to an aggregate of US$200,000 would be procured trough national shopping on the basis of quotations obtained in writing from at least three qualified local suppliers. 10. The above aggregate values for NCB or other non-ICB procurement methods for goods and works are limitative and cannot be exceeded without the prior no-objection of IDA. The procurement unit responsible for the project would maintain a tracking system to monitor such procurement in order to alert the Bank timely when this may occur. 11. Sub-projects under component I would comprise a broad spectrum of activities to be undertaken with direct participation and financial contribution of the beneficiaries. It is not possible to determine the exact mix of goods, small works, and services to be procured under these activities due to their demand-driven nature. Funding for these activities would be in the form of grants. Therefore, the types of activities to be financed under sub-projects and their procurement details would depend on the needs identified by communities. The Bank Guidelines for Simplified Procurement and Disbursement for Community-Based Investments would be used in the design of procurement under this aspect of the project. The National Project Implementation Unit (NPIU) would be responsible for ensuring compliance with these guidelines, and ex-post reviews of random sub-projects would be conducted periodically by IDA and - 62 - independent consultants appointed by the Government. Simplified procurement and disbursement procedures for community-based programs, including the list of items qualifying under this component, would be developed and included in the Project Implementation Manual (PIM). The PIM would also include procedures for IDA prior review thresholds for community initiatives. However, for procurement of goods, small works, and services which amount to more than US$10,000 per contract, this would be done by the Provincial Project Implementation Units (PPIUs). 12. Prior review. IDA-financed contracts for goods above the threshold value of US$50,000 equivalent would be subject to IDA's prior review procedures in accordance with appendix 1 of the Guidelines. The use of IDA's standard bidding documents would considerably expedite the prior review process, as IDA review would primarily focus on invitations to bid, bid data sheets, contract data, technical specifications, bill of quantities/schedule of requirement, and other contract specific items. Selective post review of contracts awarded below the threshold levels would apply to 70% out of 100% contracts. However IDA's prior review would be required for the first sub-project under each category (productive infrastructure, agricultural production and off-farm activities) of component I in each province. 13. Consulting Services contracts financed by IDA are estimated at US$24.18 million. They would be: (i) for the identification, preparation and implementation of the sub-projects under component 1; (ii) for extension services under component 2; (iii) for studies, supervision, support of project implementation, financial management and procurement support, financial and procurement audits; and (iv) for technical matters and training. Consultants required for technical units attached to the PPUIs would be selected using the Quality-Based Selection (QBS) because of the complex and highly specialized nature of these assignments. Other consultants would be hired based on competition among qualified short-listed finns through Quality-and Cost-Based Selection (QCBS) by evaluating the quality of the proposals before combining quality and cost evaluation by weighting and adding the quality and cost scores. Contracts for audits and other services of a standard nature, costing less than US$50,000 would be procured through the Least-cost selection (LCS) method -- the firm with the lowest price being selected provided its technical proposal received the minimum qualifying mark. Services required for components 1, 2 and 3 support, small studies for component 4 and for staffing for component 5, which can be delivered by individuals, would be selected through comparison of qualifications among Individual consultants (IC) expressing interest in the assignment or approached directly. 14. Short-lists of consultants for contracts estimated under US$50,000 may be comprised entirely of national consultants, if a sufficient number of qualified firms (at least three) are locally available at competitive costs. This would particularly apply to contracts for specialized studies with NGOs. However, if foreign firms have expressed interest for those contracts, they would not be excluded from consideration. 15. Prior review. For consultant services, Bank staff would review the selection process for the hiring of consultants proposed by the Borrower. Prior IDA review for the selection of consultants would include the review of budgets, short-lists, selection procedures, requests for proposals, evaluation reports, contract awards, and negotiated contracts. Prior IDA review would not apply to contracts for the recruitment of consulting firms and individuals estimated to cost less than US$50,000 and US$30,000 equivalent, respectively. However, the exception to prior IDA review would not apply to the terms of reference of such contracts, regardless of their value, to single-source hiring, to assignments of a critical nature as determined by IDA, or to amendments of contracts raising the contract value above the above-mentioned prior review thresholds. For all consultant contracts subject to prior review (estimated above US$50,000), opening the financial envelopes would not take place prior to receiving the Bank's no-objection to the technical evaluation. For contracts estimated to cost less than US$50,000 and more than US$30,000, the borrower would notify IDA of the results of the technical evaluation prior to opening the financial proposals. - 63 - Documents related to procurement below the prior review thresholds would be maintained by the borrowers for ex-post review by auditors and by IDA supervision missions. The Project Unit would submit to IDA periodic procurement schedules detailing each procurement package in progress and completed as part of the normal project reporting exercise. 16. Training services under US$100,000 equivalent per contract would be procured using Consultant Qualifications methods. The NPIU would ensure widely publicized procurement notice to get candidacy from consultants. Based on agreed upon criteria, the NPIU would maintain and update a list of consultants which would be used to establish short-lists. Prior review would include the approved annual training program, including the number of participants and cost estimates, organization of training, terms of reference and short list of firms. 17. Research Services. (a) Sponsored Research (US$2 million) under component 2 would be procured through a sole source contract under the consultant guidelines, the contract being with the lead institute for each approved proposal. There are procurement procedures at these institutes which are mandated by government, in most cases, involving competitive procedures. These would be kept under review by IDA. The lead institute proposal would consist of a work program agreement (WPA) with specified benchmarks/deliverables against which initial, interim and final payments would be made. More specifically, the WPA would cover three main areas: (i) the research proposal itself based on agreed criteria; (ii) the reporting deliverables; and (iii) the financing plan setting out the benchmarks/milestones against which payments would be made and justifying them against the budget. Payment terms would be clearlv spelled out in the agreement between project authorities and the participating institute. However, notwithstanding this arrangement, where individual purchases of equipment and materials under the WPA do exceed US$20,000 but are below US$30,000 equivalent, then the institute would be required to follow national shopping procedures under Bank Procurement Guidelines for such purchases; (b) Competitive Grant Programs (US$2.0 million) under component 2 would be procured through QBS system under the consultant guidelines. This Program would also follow a similar review process, criteria and operational procedures to develop WPAs to those described above under the Sponsored Research (but using a separate set of forms to maintain distinction between the Sponsored and Competitive Research). However, in this case WPAs would be finalized based on a competitive process open to both national research institutions and non-national institutions (private sector, regular universities, NGOs and others with capacity to undertake agricultural research). The process to be used for agreeing WPAs through the Competitive Grant Program would be part of the Project Implementation Manual (PIM). IDA's prior review would be required for the first competitive grant contract in each province. 18. All thresholds stated in this section would be reviewed by the Borrower and IDA on an annual basis. Modifications may be agreed upon, based on performances and actual values of procurement implemented. Amendments to the Credit Agreement may be prepared as necessary. 19. Frequency of procurement supervision missions proposed. One supervision mission every six (6) months would include special procurement supervision for post-review/audits. Procurement Training for Communities 20. Procurement procedures would be conducted as part of capacity building under support services component. No transfers of funds under the sub-projects activities would be made, unless the communities identified as beneficiaries have benefited from formal training in procurement, basic management procedures and communities savings scheme set-up. - 64 - 21. The program elements by disbursement category, their estimated costs, and procurement methods are summarized in Table A below. Consultant selection methods and thresholds for procurement methods and prior review are summarized in Tables AI and B below. Procurement Status and Proposed Arrangements 22. Procurement would be managed by the NPIU, which would include a procurement specialist and would use consultants as necessary to carry out specific tasks. During negotiations, it was agreed that the establishment of the NPIU with terms of reference and composition satisfactory to the Association would be a condition of effectiveness. 23. Project Implementation Manual (PIM). The PIM would include: (i) procedures for calling for bids, selecting consultants, and lecturers, and awarding contracts; (ii) internal organization for supervision and control, including operational guidelines defining the role of the executing agency and reporting requirements and (iii) disbursement procedures. The PIM was reviewed during negotiations and its adoption in a manner satisfactory to IDA would be a condition of credit effectiveness. 24. RDSP's financing for the sub-projects would not exceed US$100,000 equivalent per sub-project. They would be implemented in most cases by the beneficiaries themselves. Small irrigation perimeters. sub-projects would be implemented by RDSP in areas where beneficiaries are lacking basic organization and implementation expertise. The implementation may involve a mixture of force account by the beneficiaries and small civil works contracts with entrepreneurs, or even artisans (tdcherons'). In any event, the value of individual civil works contracts would not exceed US$50,000 equivalent, and the value of consultancy contracts would generally not exceed 10% for the implementation of the sub-projects. For the direct transfers to producers organizations or communities groups activities, the amounts involved would be based on their capacity to manage those funds. 25. According to the PIM, procurement of all sub-projects would be done following competitive bidding by Malagasy firms regardless of the estimated value of the contracts. The procurement of works by communities would also be done in many cases through competitive bidding, which would in any event be mandatory for any contracts estimated to cost the equivalent of $10,000 or more. In the case of works done by the communities under force account with the help of a "tacheron", the direct contracting with a specific "tacheron" would be acceptable (provided that the value of the contract does not exceed $10,000 equivalent); but his selection would have to be approved by a general meeting of all the members of the beneficiary association. The procurement of goods by producer organizations or community groups would be based on a minimum of three price quotations. For the recruitment of consultants or consulting firms, communities would be encouraged to follow procedures in accordance with Bank guidelines (short list, letter of invitation, evaluation of proposals, etc.), but direct contracting would be acceptable, subject again to the approval of a general meeting of all members of the beneficiaries association and to RDSP's non-objection to the choice of the consultant (based on qualifications and experience) and to the terms and conditions of the contract. 26. The AFR Guidelines for Simplified Procurement for Small Projects and standard bidding documents have been used for the preparation of the Project Implementation Manual (Tome V), which would be followed by beneficiaries and RDSP for procurement for those sub-projects. This Manual is an evolving document, subject to change based on recommendations of periodic reviews, technical, financial, and procurement audits, but most importantly on overall project realizations. 27. During negotiations the procurement plan for the first year of the project and the draft PIM were - 65 - reviewed. The Government gave assurance that it would: (a) use the PIM; (b) use the Bank's Standard Bidding Documents for ICB, the Standard Request for Proposals for the selection of consultants, and the Standard Bid Evaluation Reports; (c) apply the procurement procedures and arrangements outlined above; (d) update the procurement plan on a regular basis during annual reviews with IDA and other donors, to compare target times and actual completion, and transmit it to IDA, during implementation, with all procurement-related documents; and (e) carry out, during annual reviews, an assessment of the effectiveness of bidding procedures and performance, as they relate to the program's procurement experience, and propose for IDA and other donors' consideration any modification to the current procedures to the extent that would accelerate procurement, while still maintaining compliance with the Bank's Procurement Guidelines and adequate control over contract awards and payments. Capacity Assessment of NPIU for Procurement, Financial Management and PMR-Based Disbursement 28. A National Project Implementing Unit (NPIU) would be established as a separate entity under the tutelage of the Ministry of Agriculture and would work closely with EPP to implement project's activities. NPIU would be staffed with competent and experienced personnel, including a national project director, a monitoring, and evaluation officer, a financial management specialist, and a procurement officer, plus support staff to be recruited through a competitive and transparent process in accordance with termns of reference acceptable to IDA. Adequate provisions would be made to train the accounting and financial staff. 29. Financial Management and Disbursement. The NPIU would be responsible for project financial management including the preparation and production of the annual financial statements, in accordance with internationally accepted accounting principles, as well as making arrangements for their certification by a competent and experienced audit firm under terms and conditions acceptable to IDA. At the regional level, PPIUs would handle accounting, financial reporting, procurement and disbursement functions. The project financial statements would be consolidated by the NPIU at the end of each fiscal year. The NPIU would also monitor all project's disbursements and ensure that they are in conformity with IDA requirements. 30. Project Management Report (PMR). In accordance with Bank policy and procedures, the project would adopt a financial management and reporting system in compliance with the Financial Management Initiative (FINMI - ex. LACI). But since the project financial management system would be newly created and as the accounting staff is not familiar yet with the FINMI procedures, it is more efficient for the project to run with the traditional disbursement methods during the first 18 months of its implementation. During this interim period, the project would produce annually the basic financial statements but would submit on quarterly basis the following reports: a Summary of Sources and Uses of Funds, a Contract Expenditure Report- Goods & Works, a Contract Expenditure Report- Consultants, a Procurement Management Report- Goods & Works and a Procurement Management Report- Consultants. Before the end of this interim period, an assessment would be carried out by an IDA Financial Management Specialist to determine whether the project has in place an adequate financial management system that can provide, with reasonable assurance, accurate and timely information on the status of the project (PMR/LACI) required by IDA. - 66 - Procurement plan 31. The procurement plan for the first year of project implementation, both for sub-projects and for goods and services procured by RDSP would be finalized by credit effectiveness, based on beneficiary assessment through a rapid rural appraisal to be conducted during the interim period and RDSP's annual work program. An interim procurement plan was reviewed during negotiations. For each subsequent year, the procurement plan would be updated and submitted to the Bank for review and approval at the same time as RDSP's annual work program. These plans would include relevant information on goods, works and consulting services under the project, as well as the timing of each milestone in the procurement process. In collaboration with the beneficiaries, RDSP would monitor the procurement scheduling. These plans would be reviewed by IDA supervision missions. -67 - Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent) | Procu- Method Expenditure Category ICB rement Other N.B.F. Total Cost NCB 1. Grants for minor 0 55.42 0.00 55.42 productive infrastructure (50.80) (0.00) (50.30) productive subprojects 2. Grants for agricultural 6.00 6.00 production and offarm (5.5) (5.5) productive subprojects 3. Beneficiaries 11.05 11.05 contributions 4. Civil works (offices 0.15 0.15 rehabilation) (0.11) (0.11) 5. Goods 1.50 0.78 0.15 0.00 2.43 (vehicles, equipment, (1.47) (0.71) (0.12) (0.00) (2.30) furmiture and materials) 6. Services 0.00 0.00 26.44 0.00 26.44 - Cons. services for (0.00) (0.00) (24.22) (0.00) (24.22) sub-projects - Technical assistance & Trg. 7. Operating Costs 0.00 0.00 6.13 0.00 6.13 (0.00) (0.00) (5.62) (0.00) (5.62) 8. PPF-Refinancing 0.00 0.00 0.60 0.00 0.60 (0.00) (0.00) (0.60) (0.00) (0.60) Total 1.50 0.78 94.77 9.04 106.09 (1.47) (0.71) (86.87) (0.00) (89.05) Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies Includes sub-projects and civil works and goods to be procured through direct contracting, national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to managing the project. - 68 - Table Al: Consultant Selection Arrangements (optional) (US$ million equivalent) Selection Method Consultant Services Expenditure Category QCBS QBS SFB LCS CQ Other N.8.F. Totalcost A. Firms 16.98 3.27 0.00 0.31 2.80 0.00 0.00 23.36 (16.33) (3.14) (0.00) (0.31) (2.67) (0.00) (0.00) (22.45) B. Individuals 0.00 0.00 0.00 0.00 0.00 1.80 0.00 1.80 (0.00) (0.00) (0.00) (0.00) (0.00) (1.73) (0.00) (1.73) Total 16.98 3.27 0.00 0.31 2.80 1.80 0.00 25.16 (16.33) (3.14) (0.00) (0.31) (2.67) (1.73) (0.00) (24.18) 1\ Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the Bank Credit. Prior review thresholds (Table B) Table B: Thresholds for Procurement Methods and Prior Review Contract Value Contracts Subject Expenditure | Threshold Procurement to Prior Review Category (US$ thousands) Method (US$ millions) 1. Works a. sub-projects <$50,000 National Shopping Prior review: First 5 contracts/6 sub-projects awarded b. other works <$50,000 National Shopping Prior review 2. Goods a. sub-projects <$30,000 National Shopping Post Review >$30,000 and <$50,000 NCB Post Review b. other goods >$50,000 and <100,000 NCB Prior Review >$200,000 ICB Prior review - 69 - 3. Services Consulting Firms >$50,000 QCBS Prior Review <$50,000 QCBS Prior Review: TORs QBS Prior Review Financial Audit >$50,000 LCS Prior Review: TORs and SL Individual Consultant >$30,000 at least 3 CVs Prior Review compared <$30,000 at least 3 CVs Post Review compared (except for TORs) Training Services <$ 100,000 CQ Prior Review (programs and costs) Sponsored Research Sole Source Prior Review Competive Research <$50,000 QBS Prior Review Total value of contracts subject to prior review: 80% of total costs Overall Procurement Risk Assessment Average Frequency of procurement supervision missions proposed: One every 12 months (includes special procurement supervision for post-review/audits) During the first year of implementation, one mission every 6 months. Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. - 70 - Disbursement Allocation of credit proceeds (Table C) Expenditure Category Amount Financing Percentage in US$million Grants for minor infrastructure productive 44.17 90% of grants disbursed subprojects Grants for agricultural production and offarm 6.00 90% of grants disbursed productive subprojects Civil works 0.11 100% of foreign and 85% local expenditures Goods (Equipment, vehicles and materials) 2.07 100% of foreign and 85% local expenditures Consultants Services, Technical Assistance, 21.79 100% foreign and 85% local expenditures Training and Audit Operating Costs 5.48 90% of local expenditures in local currency Refinancing PPF 0.60 Unallocated 8.83 Total Project Costs 89.05 Total 89.05 A Use of statements of expenditures (SOEs): 32. Disbursements would be in accordance with the Bank's disbursement Handbook until a transition to PMR-based disbursements is made. The project is expected to be completed over a five-year period, by December 31, 2006 and the credit is expected to be closed by June 30, 2007. Statement of Expenditures: Disbursements for all expenditures would be against full documentation except for items of expenditures under contracts of less than: (a) US$50,000 for goods; (b) US$50,000 for consultant and auditing services contracts for finns; (c) US$30,000 for consultant services contracts for individuals as well as (d) all training, civil works, grants for sub-projects or other eligible activities and operating costs, which would be claimed on the basis of Statement of Expenditures (SOEs). All supporting documentation for SOEs would be retained at the NPIU and be readily accessible for review by supervision missions and extemal auditors. Special account: 33. Two Special Accounts using the 90-day advance procedure would be opened as follows: Special Account A would cover all transactions related to Category I grants for sub-projects {components (i), (ii) and (iii)} - and Special Account B would cover transactions related to all other categories {components (iv) and (v)}. Similarly, sub special accounts A and B would be opened in each province to cover PPIU activities in the provinces and the 20 regions. PPIUs would submit quarterly expenditure reports indicating sources and use of funds upon which basis, justifying the use of funds, and accompanied by reconciled bank statements. When submitting replenishment requests, the NPIU - 71 - responsible for submitting regular replenishment requests, would ensure that the reconciled bank statements for the special accounts, in the standard format, show the deposits received from IDA the amount advanced to each decentralized project location, the date on which each advance was made and the amount awaiting documentation from each of these locations. In addition, the reconciliation statement would identify each PPIU, which did not account for the advance within the 90-day account cycle with an explanation for the delay. The authorized allocation would be US$4.2 million (Special Account A) and US$0.8million (Special Account B) and would cover about 4 months of eligible expenditures. Upon credit effectiveness, IDA would deposit the amount of US$2.1 million representing 50 percent of the authorized allocation into the Special Account A and US$0.4 million into the Special Account B. Whenever possible the Special Accounts would be used for all payments, with a minimum of 20% of the amount deposited. Replenishment applications would be submitted monthly. Further deposits by IDA into the Special Accounts would be made against withdrawal applications supported by appropriate documents. 34. Project / Counterpart Account. A project account for Government counterpart funds would be opened in a commercial bank on terms and conditions acceptable to IDA to receive its annual contribution to the project costs. 35. Flow of funds The "special account 90-day advance procedure" especially designed for decentralized accounts would be used to facilitate the operation of PPIUs and to ensure prompt payment of contractors and suppliers. TPhis procedure is described in "Bank-Financed Projects with Community Participation". Under this procedure, the project would advance funds covering no more that 90 days estimated expenditures (in local curTency) to PPIU accounts based upon submission of satisfactory budgeted work plans. The PPIUs would submit quarterly expenditure reports indicating sources and uses of funds upon which basis, justifying the use of funds, and accompanied by reconciled bank statements. The NPIU would then aggregate this data, prepare reconciliation statement for the main special account, prepare replenishment applications accompanied by the bank statement for the main special account. The project implementation and accounting manuals would fully cover all procedural aspects (budget and reporting formats, forms, controls, periodic field reviews of documentation, accounting) and reference to the procedures outlined in these manuals will be indicated in the DCA. 36. Financial Management Arrangements Accounting and Financial Reporting NPIU would be responsible for overall project financial management, including budgeting, administration of the special account, bookkeeping, preparation and production of the financial statements/PMRs, in accordance with internationally accepted accounting principles, as well as making arrangements for their certification by a competent and experienced audit firm under terms and conditions acceptable to IDA. PPIUs would handle accounting, financial reporting, procurement and disbursement functions. The project financial statements would be consolidated by the NPIU at the end of each fiscal year. The NPIU would also monitor all project's disbursements and ensure that they are in conformity with IDA requirements. - 72 - The financial management system for the project was reviewed during the pre-appraisal mission. Weaknesses identified during this mission would be addressed through: (i) the hiring of a consultant to put in place an adapted accounting system (manual system) and elaborate an accounting manual of procedures for accounts maintaining and assets control; (ii) the recruitment of a financial management specialist with a qualified accountant in charge of the financial management aspects of the project; and (iii) the recruitment of a procurement officer. The recruitment of accountants at the provincial level would be done progressively. After credit effectiveness, additional measures would be also taken and assistance provided to ensure an orderly transition to FinMI (Financial Management Initiative: ex-LACI). The accounting manual of procedures would describe the project organizational structure, the accounting system, the chart of accounts, internal controls, the various transaction cycles, the format, content and periodicity of the various financial statements to be produced, the budgetary procedures and process (preparation, monitoring, variance analysis, etc.). This manual would be agreed to by IDA as part of the PIM. A consultant/firm would be responsible for: i) the initial training of the accounting and financial management staff on the efficient operation of the accounting system; ii) the preparation of a training program in financial management with an implementation timetable. Flow of funds. Two Special Accounts using the 90-day advance procedure will be opened as follows: Special Account A will cover all transactions related to components (i) [productive investments], (ii) [support services] and (iii) [community development] - and Special Account B will cover transactions related to components (iv) [capacity building and policy development] and (v) [project administration and monitoring]. Similarly, sub special accounts A and B will be opened in each province to cover NPIU activities in the provinces and the 20 regions. Provincial RDSP offices will submit qua,rterly expenditure reports indicating sources and use of funds upon which basis, justifying the use of funds, and accompanied by reconciled bank statements. When submitting replenishment requests, the NPIU responsible for submitting regular replenishment requests, should ensure that the reconciled bank statements for the special accounts, in the standard format, will show the deposits received from the Bank, the amount advanced to each decentralized project location, the date on which each advance was made and the amo-unt awaiting documentation from each of these locations. In addition, the reconciliation statement shiould identify each lower level PP[U which did not account for the advance within the 90-day account cycle with an explanation for the delay. The project manual of procedures will describe in details the fiduciary aspects of transfers of funds to provincial/regional level and to the community beneficiaries, especially those procedures that will have to be followed by these entities regarding procurement, accounts and financial reporting on the use of funds. Project Management Report (PMR) In-accordance with Bank policy and procedures, the RDSP needs to adopt a financial management and reporting system in compliance with the FINMI. But since the project financial management system would be newly created and as the accounting staff is not familiar yet with the FinMI procedures, it is more efficient for the project to run with the traditional disbursement methods during the first 18 months of its implementation. During this interim period, the project would produce annually the basic financial statements but would submit on quarterly basis the following reports: a Summary of Sources and Uses of Funds, a Contract Expenditure Report - Goods & Works, a Contract Expenditure Report - Consultants, a Procurement Management Report - Goods & Works and a Procurement Management Report - Consultants. Before the end of this interim period, an assessment would be carried out by an IDA Financial Management Specialist to determine whether the project has in place an adequate financial management system capable of producing quarterly PMRs to meet Bank requirements. - 73 - Risks related to Financial Management/Disbursement and Mitigating Measures Risks inherent to project implementation in the 20 regions of the country are a major issue for accountability in the management of disbursement of funds and accounting procedures. Reimbursement for eligible expenditures or replenishment for expenditures paid are primarily based on reporting rather than detailed expenditure review, which would call for closed scrutiny of all accounting transactions that executed by PPIUs. Qualified internal auditors would be recruited to review that all accounting procedures are in place and adhere to. They would review each SOE application and ensure that supporting documentation is in order. A quarterly SOEs review will be carried out by Bank's staff in the field during supervision missions. Auditing Project records and accounts would be audited in accordance with intemational audit standards by an experienced and internationally recognized audit firmn acceptable to IDA. The audit reports would be submitted to IDA within 5 months after the end of Government fiscal year. In addition to their standard short-form report with opinion on project financial statements, the auditors would be required to: (i) carry out a comprehensive review of all the SOEs/PMRs as well as the internal control procedures governing their preparation for the relevant period under audit, and express a separate opinion thereon; and (ii) review the management and utilization of the special account and express a separate opinion thereon as well; (iii) complete their in-depth review, started at interim, of the internal control system of the project with a view to identifv the major weaknesses and shortcomings and proposing practical recommendations for improvement. The results of this review would be documented in a Management Letter to be submited along with the audit report. The auditors would review also the use of the PPF and PHRD Grant funds covering the period prior to effectiveness and express a separate opinion on PPF/PHRD financial statements (Balance sheet, Summary of sources and uses of funds), on SOEs and Special accounts. The contracting of auditors acceptable to IDA is a condition of credit effectiveness. Regarding the transfers to beneficiary communities, it is envisaged semi annual audits of the use of funds would be carried out by qualified internal auditors acceptable to IDA. The modalities, including timing and objectives for such audits would be described in detail in the PIM to be finalized prior to credit effectiveness. - 74 - Annex 7: Project Processing Schedule MADAGASCAR: Rural Development Support Project Project Schedule Planned Actual Time taken to prepare the project (months) 17 18 First Bank mission (identification) 11/02/99 11/02/99 Appraisal mission departure 02/13/2001 02/13/2001 Negotiations 03/26/2001 03/26/2001 Planned Date of Effectiveness 09/01/2001 Prepared by: Ivar Sereiski Preparation assistance: Japan Grant for project preparation. Activities financed under the grant include the preparation of the (i) environmental assessment, (ii) monitoring and evaluation manual; (iii) operational manual; (iv) administrative and financial manual; (v) competitive grant manual; and (vi) letter of development policy. bank staff who worked on the project included: Name Speciality _ __ Ivar Serejski Task Team Leader Alassane Sow Economist Isinael Ouedraogo Economist Jean Delion Rural Development Specialist Devendra Bajgain Natural Resources Specialist Jumana Farah Natural Resources Specialist Ousmane Seck Ag. Extension Specialist Gervais Rakotoarimanana Financial Specialist Menahem Prywes Economist Jerome Gauthier Livestock Specialist Eileen Murray Community Development Bienvenu Rajaonson Environment Ziva Razafintnsalama Social Development Sylvain Rambeloson Procurement Marie-Louise Ah-Kee Procurement Luc Lapointe Procurement Amadou Tidiane Toure Quality Enhancement David Freese, William Marke, Disbursement Michael Fowler Raj Soopramanien Counsel Susanne Holste Rural Roads Specialist Irene Xenakis Quality Enhancement Willem Zijp Peer Reviewer + Quality Enhancement - 75 - Adolfo Brizzi Peer Reviewer Jacob Kampen Peer Reviewer Michele Rajaobelina Program Assistant Virginie Vaselopulos Program Assistant Rondro Malanto Rajaobelison Program Assistant FAO/CP Staff Hubert Picot d'Aligny Economist Vittorio Silvestri Financial Analyst Other Andre Teyssier (AFD) Land Tenure Specialist - 76 - Annex 8: Documents in the Project File* MADAGASCAR: Rural Development Support Project A. Project Implementation Plan 1. Project Implementation Manual 2. Monitoring and Evaluation Manual 3. Competitive Research Grant Manual 4. Administrative and Financial Manual B. Bank Staff Assessments Detailed Project Cost Estimates C. Other 1. List of Current and Anticipated Donor-Funded Rural Development Projects in Madagascar 2. Watershed Development Project - Identification Report (March 2001) 3. Land Tenure Program - Identification Report (November 2000) 4. Rural Sector Report (May-June 2000) 5. Letter of the Minister of Agriculture regarding agricultural statistics (March 13, 2001) 6. Letter of Rural Development Policy + Annexes (April 12, 200 1) *Including electronic files - 77 - Annex 9: Statement of Loans and Credits MADAGASCAR: Rural Development Support Project Mar-2001 Difference between expected and actual Original Amount in USS Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd P062628 2000 Regional Development 0.00 460 0.00 000 4 45 2.30 0.00 P051741 2000 SecondHeathSectorSupporlProjed 0.00 4000 000 0.00 36.88 -075 0.00 P052208 2000 Transport Sector Reform and Rehabilitat 0.00 65.00 0.00 0.00 60.30 .163 0.00 P064305 19S9 SOCIALFUNDIII 0.00 15.00 000 0.00 14.87 -8.57 0.00 P052186 1999 MICRO FINANCE 0.00 16.40 0.00 0.00 12.46 3.27 0.00 P057378 1999 SACII 0.00 100.00 0.00 0.00 111.33 64.82 0.00 P056487 1998 MINNG PROJECT 0o00 5.00 0.00 0.00 2.49 2,30 0.60 P001568 1998 NUTRITION 8 000 27.60 N00 0.00 20.47 593 000 P001564 1998 RURAL WATER SEC.PILO 0.00 17.30 0.00 0.00 13.61 12.67 0.00 P001559 1998 EDUCATION SECTOR DEV 0.00 6500 0.00 0.00 57.04 34.05 0.00 P040019 1997 CAPACITY BUILDING 0.00 13.80 0.00 0.00 1.79 2.19 000 P040596 1997 ENVIRONMENT II 0.00 0.00 8.10 0.00 8.24 1.47 0.00 P001555 1997 PRIVSECTDEV&C.8. 0.00 23.80 0.00 0.00 6.11 6.99 -1.43 P001537 1997 ENVIRON. II 0.00 30.00 20.80 0.00 7.09 0.71 0o00 P048697 1997 URBAN INFRASTRUCTURE 0.00 35 00 0.00 0.00 23.69 21.24 0 00 P001533 1996 ENERGY SECTOR DEVELOPMENT PROJECT 0 00 46.00 0.00 0o00 17.67 17.82 0.00 Total: 0.00 504.50 28.90 000 398.48 163.40 -084 - 78 - MADAGASCAR STATEMENT OF IFC's Held and Disbursed Portfolio Mar-200 1 In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1990/91 AEF FIARO 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 1997 AEF GHM 0.71 0.00 0.00 0.00 0.71 0.00 0.00 0.00 1995 AEF Karibotel 0.24 0.00 0.00 0.00 0.24 0.00 0.00 0.00 1992/93/95 AQUALMA 1.14 0.00 0.00 0.00 1.14 0.00 0.00 0.00 1991 BNI 0.00 2.61 0.00 0.00 0.00 2.61 0.00 0.00 2000 BOA-M 0.00 0.82 0.48 0.00 0.00 0.82 0.00 0.00 1983/89 Nossi-Be 0.19 0.14 0.00 0.00 0.19 0.14 0.00 0.00 Total Portfolio: 2.28 3.76 0.48 0.00 2.28 3.76 0.00 0.00 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 1999 AEF Bora Hotel 345.03 0.00 0.00 0.00 1999 AEF Manerinerina 149.65 0.00 0.00 0.00 2000 AEF Somaqua 700.00 0.00 0.00 U.00 1998 AEF Tami 978.04 0.00 0.00 0.00 Total Pending Commitment: 2172.72 0.00 0.00 0.00 - 79 - Annex 10: Country at a Glance MADAGASCAR: Rural Development Support Project Sub- POVERTY and SOCIAL Saharan Low- Madaoascar Africa income Development dlamond- 1999 Ponulation mid-vear/millions) 151 642 2 417 Life expectancy GNP oer caoita (Atlas method USSI 250 500 410 r4NP (Atias method USS billionsl 3 7 371 988 Averaoe annual orowth. 1993-99 Pnntilation (%i 3 n 2 fi 1 9 Labor force f%) 3 0 2,6 2 3 GNP Gross per primary Most recent estimate (latest vear available. 1993-991 capita enroont Povertv f% of oooulation below national oovertv line) 70 llrban onoulation f/ of total oonulation) 29 34 31 Life exoectancv at birth (vears) 58 50 60 Infant mnrtalitv foer 1t000 live births) 92 97 77 Chil) malnutrition (% of children under 51 40 32 43 Access to safe water Access to imoroved water source /% of Dooulation) 29 43 64 IllitarAnv (% of oonulahon aoe 15+1 34 39 39 Gross orimarv enrollment (34 of school-aoe ooDulation) 92 78 96 Madagascar Male 9 85 1in Low-income groUp Femala 91 71 Rfi KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1979 1989 1998 1999 Economic ratios' GDP (USS bitt ions) 2 5 3 7 36 Gross domestic investment/G DP 134 12 5 12 3 Trade Exoorts of ooods and services/GDP t84 21 4 24 8 Gross domestic savincs/GDP 98 4 6 4 6 T Gronss natinnal savinns/t.nP 104 IS 9F Current accourt balance/GDP -3,0 -7.5 -5 8 Domestic It Interest oavmentsiGDP 41 1 2 1 1 Domes Total debt/GDP 138 2 118 3 1226 Savigs Total debt servicelexoorts 44 4 18 7 16 3 Present valoo nf dehtrGnP 97 5 Present value of debtlexoorts 364 8 Indebtedness 1979-89 1989-99 1998 1999 1999-03 (averaoe annual arowthl COnP 23 14 39 47 57 Madagascar r.tP ner ranitA -1 ! -r)9 1 S 7 4 2 7 Low-income group Exoorts of ooods and services -4 2 39 2 1 20 9 8 7 STRUCTURE of the ECONOMY 1979 1989 1998 1999 Growth of Investment and GDP (%) 116 of GDP] Anrir.lJera 729 R 37 9 30 S 30 0 Industry 172 148 13.6 13 8 s Manetar.trinn 179 - s ~ v 1 Services 531 52 3 55 8 56 2 e5 se 97 be sa Private nons-motion R1 4 879 R76 -F 15 Ganeral onvArnmftnt ronsurmntion R R 7 5 7 9 GDI tl GDP Imoorts of ooods and services 22 0 29 3 32 7 1979-89 1989-99 1998 1999 Growth of exports and imports (%) faverace annual crowth) Anrii-lt-re 2 2 1 2 7 1 3 4 2 Industrv -0 6 1 6 53 4.3 Mamifarl,ctinn 25 R 02 0o serviae -n s 1 7 5 1 1S S9_ Privatl nonsormntioOn 1 7 1 9 34 39 97 9 99 .eneral nover-ment crnsmrrtinn 05 s 71 47 Gross domestic investment 135 -0 1 9 0 3 5 -1X Imoonns of onods and servires - S 42 I 1F S Esports -*Imports Gross national oroduct 1 6 1 9 4 6 5 5 Note 1999 data are preliminary estimates 'The diamonds show tour kev indicators in the countrv (in bold) comoared with its income-orouo averaae. If data are missino the diamond will hp incmlmnte - 80 - Madasascar PRICES and GOVERNMENT FINANCE 1979 1989 1998 1999 Inflation (%) DomestSc prices 60 (% change) so Consumer prices . 9.0 6.2 9.7 4o _ Implicit GDP deflator .. 12.0 8.4 9.8 25 Govemment finance (% of GOP, includes current grants) o Current revenue .. 12.7 10.9 12.1 94 95 96 97 94 9 Current budget balance .. 2.7 0.4 3.1 GDP deflator -CPt Overall surplus/deficit .. -6.8 -7.8 -4.1 TRADE 1979 1989 1998 1999 Export and import levels (USS mill.) (US$ millions) Total exports (fob) . 358 519 594 1 ooo Coffee 77 40 30 Other food .. 42 16 27 7s* Manufactures .. 109 405 450 _ _ Total imports (cif) .. 372 791 885 Food .. 38 54 45 250 Fuel and energy 35 102 124 Capital goods .. 120 149 154 0 93 94 90 96 97 94 99 ExDort Donce index /1995=100) .. 81 86 83 Imoortonceindex11995=100) .. 81 84 88 *Exports imports Termsoftrade/1995=100) .. 100 102 95 BALANCE of PAYMENTS (USi rrdilions) 1979 '1989 1998 1S99 Current account balance to GOP (%) rUSS msl/ionsl Expons of goods and services 488 461 801 921 ° Imports of goods and services 928 550 1.097 1,216 Resource balance -440 -89 -296 -294 2 Net income .. -189 -85 -54 Net current transfers .. 203 100 142 -dfl | Current account balance .. -75 -281 -206 9 Financing items (net) .. 108 165 260 Changes in net reserves .. -33 116 -54 _z Memo: Reserves indudino oddl (USS milions) .. 20 169 226 Conversion rate (DEC. IocalWSS) 212.7 1.603.4 5.341.0 6.199.0 EXTERNAL DEBT and RESOURCE FLOWS 1979 1989 1998 1999 IUSSr millionsl Composition of 1998 debt CUSS mill.) Total debt outstanding and disbursed 779 3,452 4.421 4,371 IBRD 29 27 1 .. G. 230 A I IDA 97 670 1,317 1,361 F: 41 - Total debt service . 244 167 169 e: 1,317 IBRO 3 5 2 1 IDA 1 7 22 25 Composition of net resource flows Official grants 33 142 354 141 : _- Official creditors 138 164 122 93 E. 2,284 Prvate creditors 166 -17 -2 -2 Foreign direct investment -7 13 16 58 |:490 Portfolio equity 0 World Bank program Commitments 49 25 115 132 A-IBRD E -Bilateral Disbursements 15 73 69 83 BB-IDA D- Other mulblateral F - Private Principal repayments 1 5 13 16 C - IMF Net flows 15 68 56 67 Interest payments 3 7 9 10 Net transfers 12 61 47 57 Development Economics 8/28/00 - 81 - Additional Annex 11 REPUBLIC OF MADAGASIKARA Tanindrazana - Fahafahana - Fandrosoana Letter of Rural Development Policy ( 04/12/01) Unofficial translation The Letter of Rural Development Policy (LRDP) aims at providing a clear vision of the objectives pursued by the Government and of the procedures selectedfor ensuring efficiency in achieving these objectives. The letter is part of the ongoing formulation of a poverty reduction strategy. It comprises four chapters; the introduction provides the economic and political national context; the second chapter specifies the rural development objectives and strategies; chapter 3 introduces the procedures and the last chapter addresses the monitoring system. (Three annexes are available in the Project File - Annex 8). This document will be reviewed twice a year, allowingfor the irnprovement of the content as well as operational guidance for the sector. This review will be backed by an analysis of the sector development and measures taken by sub-sector. INTRODUCTION 1.1. Overall Economic Environment Madagascar has been under structural adjustment for 20 years now. In the past and until 1996 (except for the 1988-90 period), Madagascar experienced an economic growth quite inferior to demographic growth. With a 1.3% annual GDP growth in adjusted prices between 1984 and 1996, the per capita income dropped by 1.4% per year during that period. Subsequently, the reforns implemented within the structural adjustment programs resulted in a 4.3% average annual growth of the GDP between 1996 and 2000 (1.6% GDP growth per capita). For the 1999-2001 period, the Government strategy described in the PPF focused on reforms and initiatives aiming at accelerating growth, while preserving macro-economic balances. Madagascar is part of the poorest countries group. Poverty index was 59% in 1985, peaked at 74% in 1993,and came down to 69% in 1997 and to 67.3% in 1999. Income per capita is now US $230. In 1999, the population distribution was as follows: 74.5% in rural areas and 25.5% in urban areas. In 1997, the low-income group represented 80% of the population and rural poverty remained very severe. The debt burden is high. It has improved recently, however. In 1999, foreign debt service largely represented 12.4% of export earnings, 27.4% of tax earnings and 3% of GDP. Other improvement include: - the annual inflation rate dropped from approximately 50% in 1995 to 5.9% in 1999 - the growth rate was 4.8% in the year 2000, resulting in a 2.2% real income growth per capita - the investment rate increased from 11 % of GDP between 1995 and 1998 to 16.2% in 1999-2000. - 82 - These improved outcomes are the result of significant efforts undertaken by the Government in economic policy and structural refomns, including (i) civil service reform and privatization of state-owned enterprises, (ii) the improvement of the economy competitiveness, (iii) the promotion of a good governance, (iv) the promotion of local investment, (v) the opening to foreign investment, (vi) the development of regional trading, (vii) measures to take account of environmental impact, (viii) measures to improve the poor' s access to social welfare, (ix) the formulation of a risk and disaster management strategy especially in vulnerable zones and (x) the improvement of the security environment. Madagascar has also undertaken the process of decentralization through the setting up of Autonomous Provinces The encouraging results scored so far must be strengthened and improved, however. The Government is now putting increased emphasis on poverty reduction. It has launched a participatory process for developing a poverty reduction strategy as part of the PPTE Initiative. 1.2. Poverty Reduction and Growth Strategy An interim version of the poverty reduction strategy document (PRSP) was issued in November 2000. The government strategy aims at achieving high economic growth and improvement of the quality of life for the population. The growth rate targeted by the PRSP (6.3%) should double the GDP in 2011, resulting a per capita GDP growth of more than 40% (from US$ 230 to US$ 336. The indicators for quality of life would considerably improve: level of monetary poverty, schooling, health indicators (death rate, life expectancy), access to quality care, access to drinking water, etc. The objectives for these social indicators are specified for the short- and the medium-term within the framework of the action plans developed for the 2001-2003 period. The broad directions for achieving these objectives include: - Pro-poor economic growth policies; - T he development of primary essential services (education, health, drinking water,) and the widening of the security net for the benefit of the most vulnerable layers of the popuiation; - The setting up of an institutional framework favorable to economic growth and poverty reduction and capacity building to improve governance and relations between the government and the civil society. As part of this strategy, the rural sector is a matter of special concern for two reasons: first poverty in the rural areas is severe, and second economic growth and of poverty reduction will not be achieved without a steady increase in agricultural production. The rural development sector is far from meeting its potential. The strategy calls for a strong and sustainable growth in the sector at an average rate of 4% per annum during the 2001-2003 period. In 2000, the rural sector contributed to about 43% of GDP and 40% of exports. It employs 75% of the population. In spite of efforts made, growth in the sector remains insufficient to reduce widespread poverty in rural areas. Some sub-sectors such as fishing and fish farming, intensive aviculture, have made strong gains in the recent past. The Government is convinced of the key role of agriculture in the poverty reduction strategy. It is strongly committed to fast growth in the sector and to providing the poor with the means of having jobs, increasing their income, and having access to land and credit. 2. Rural Development Objectives and Strategies 2.1. Overall Objectives - 83 - The objectives assigned rural in the PRSP are to: ensure food security; contribute to the acceleration of economic growth; reduce poverty and improve living conditions in rural areas; promote the sustainable management of natural resources; promote training and information as a means to increase production. The PRSP aims at reducing poverty in Madagascar from 70% to 35% in 2015. The main indicators set for the rural sector include (i) raising the average GDP to about $ 400 per capita by 2015; (ii) maintaining the agricultural sector annual growth at 4%; (iii) reducing the share of agriculture to 25% of GDP in 2015; (iv) increasing labor productivity by 2.4% p.a; (v) increase the delivery of basic services. 2.2. The implementation framework for the rural development policy: the PADR Based on a global and participatory process, the Government formulated an Action Plan for Rural Development (PADR). This action plan provides the framework for the implementation of the rural development policy. A decree defined the institutional set-up for the PADR, which includes an Orientation and Validation Inter-departmental Committee (CIOV), a Permanent Steering Committee (EPP), Central Thematic Groups (GTC), and Regional Development Task Forces (GTDR). Five groups are represented in GTDRs, local ministries concemed by rural development, local authorities (elected representatives, members of. parliament, civil servants from the territorial administration), non governmental organizations, the rural project execution agencies and producer organizations. Implementation of the rural development policy through the PADR allows for improved coordination among sub-sectors, including among government services, the involvemernt of all rural development actors, and taking account of the needs emanating from regions and sub-regions. It also allows for consistency among projects. The first steps at national and regional levels within the framework of this PADR resulted in the formnulation of a baseline and the major directions for rural development, including programs and actions. The rural development strategy includes five major directions (Annex 1): Ensure a good management of the rural world by defining and implementing institutional reforms and the regulatory framework Promote the emergence of partners in rural development Increase and promote agricultural production in an optimal way, including sustainable management of resources and infrastructure Ensure sufficient food availability in each region Develop social infrastructures to improve access to basic services. 2.2.1 Ensure a good management of the rural world by defining and implementing institutional reforms and the regulatory framework a) Improvement of the PADR institutional framework including clearer definition of the roles and responsibilities of rural development actors - 84 - The Government will pursue the ongoing institutional reforns to achieve a better distribution of responsibilities among partners in rural development. The principles of divestiture and of streamlining government activities apply. Government will continue to support production, provide an overall sense of direction and manage human and financial resource in the public sector. Production and trading activities are the responsibility of the private sector, including farmer organizations. Decentralization will allow for improving services to the rural population. Budget management will be rationalized to improve the balance between operating costs and personnel expenses, and increase allocations to local units. The Technical Committee for the Restructuring of Public Services (CTRSP) is in charge of implementing this institutional reform. The setting up of the autonomous provinces and provincial authorities is a major step in the reform. Implementation of the strategy requires improvements in the formulation, implementation and monitoring of development actions and programs at the regional level. Within this framework, the Government has initiated the decentralization of decision making. Indeed, reinforcing the role of regional structures and improving coordination within the rural development sector require decentralized structures endowed with real decision-making autonomy, so as to take account of local conditions and to involve all actors. The involvement of all actors in the formulation of the rural development policy required a new mechanism of decision making in the PADR framework to give all partners a voice, while maintaining a government capacity to coordinate. To ensure the involvement of the civil society, the private sector and particularly the poor, the Government is committed to reinforce their representation and their decision-making capacity. The PADR reflects a policy of giving increased responsibilities to the regions. In view of the multiplicity of partners, the ongoing decentralization requircs enhancing the national capacity for dialogue and coordination (policy, objectives, method, learning from experience, information sharing) that should contribute to improved coordination among rural sub-sectors and related ministries. The GTDRs (twenty of them covering the whole territory) represent regional venues for dialogue and rural development coordination. They will have to work in close relation with the communes and villages. GTDRs constitute the key implementation mechanism of the PADR at the regional level. The GTDRs should facilitate a bottom-up approach. An audit of the GTDR performance (2001) would be carried out with a view to reinforce their operational capacity. Privatization public enterprises in the rural sector will be pursued (Hasyma, Sirama, Siranala, or CPR, CMS, fish farming stations...). b) Establishment of a favorable regulatory environment for rural development A favorable regulatory environment will be established for the rural sector, including adjusting guidelines for water user associations and non-mutualist institutions, standards (marketing, export), tax system, and land tenure, etc... The tax system related to agricultural activities, including production, inputs, and transportation system will be revised to provide incentives for growth in the sector. Measures already taken have eliminated economic distortions in inputs. In 2000, adjustments were made to taxes on imported rice set at 35% - 85 - (import duty 15% and VAT 20%) provide exemptions on inputs for agriculture. Methods of making these measures sustainable will be studied to promote the development of the marketing and distribution sectors, The private sector as well as farmer enterprises and organizations need regular information on markets and prices. A functional network will facilitate the flow of information. The Government will pursue trade and investment liberalization, particularly in the regional initiative framework in which Madagascar is participating. Open bidding procedure have been generalized for the transparent management of grants (agricultural and food produces, inputs, farm equipment). The import management will be transparent (imported volumes, customs duties actually applied). To promote exports, export quality standards will reflect international requirements. 2.2.2 Promote the emergence of partners in rural development a) Modernizing agriculture and developing private initiatives and know-how Consistent with the refocusing of the role of the State, the Government will support and encourage the involvement of producers, the private sector and the civil society in the development actions as partners in rural development. This implies a process of role change and emergence of private actors (peasants, associations, POs, farmer centers, cooperatives, NGO, private operators...). As professional actors, agricultural organizations (associations, groups, cooperatives, unions) will be increasingly involved in providing services, including training, information, and extension. A diagnosis of the current POs (2001) will assess their involvement. Financial resource will be made available to POs and inter professional organizations (tax refunds) allowing them to carry out extension and to contract directly with public or private partners. The marketing of agriculture inputs by private operators (private veterinarians, traders) and farmers organizations will be promoted. Training will improve the capacity of these agents to provide good advice to users. Education and training constitute a full fledged production factor, and a key growth vehicle. Technical and professional training will be reinforced Financial control capacities will have be reinforced in view of the increased availability of funds at the local level. b)- Production and export diversification Production development and diversification in growth sub-sectors (animal fanning, fishing, fruit and vegetables) will permit to diversify and increase income of producers and exporters. On the basis of regional potential, a growth pole strategy will be developed with support from downstream operators to encourage the development of secondary income generating activities (crafts, forest gathering sub-sectors, tourism, fishing, others, ...) c) Financing the rural sector in a sustainable wav - 86 - Less than 3% of producers have access to credit. The strategy requires a significant promotion of bank and micro-finance institutions in rural areas, with particular attention to women needs. APIFM is responsible for the promotion of mutualist institutions. 2.2.3 Increase and promote aericultural production in an optimal way, including and sustainable management of resources and infrastructure a) Application of appropriate technologies To reinforce knowledge transfer and the innovation and modernization capacity in the rural sector, the research, training and extension institutions and partners, will work in close synergy. Closer ties between research programs and farmers' needs will be developed in the context of decentralization. Recourse to a broader range of service suppliers including, public services, private operators and NGOs, will be encouraged for extension, including through contracting services by beneficiaries. Dissemination of technical references in agro-biology must be intensified. As far as cultivation systems are concerned, development research will continue in close coordination with producers. Common fertilization procedures are valid in relation to agricultural, ecological. social and economic conditions (see 3.2.2. Production poles), but private distribution networks must be improved. To enlist support and participation in rural mass, public information on rural development will be reinforced through various media. b) Environment preservation and rational management of rural areas The Government has been working for several years on several issues for integrating the environmental dimension into farm development. Government agencies (forestry, animal breeding, enviromnent, farming, research) are seeking to develop acceptable alternative solutions to the slash-and-burn practice (tavy) and bush fires for grazing. The connection between the watershed management and performance of main irrigated areas demonstrates the need to address environment issues in designing rural development policy (see 3.2.3. Vulnerable zones). The direct link between the degree of vulnerability of the populations and the degree of deterioration of the environment that characterizes some underprivileged regions justifies a differentiated strategy for these vulnerable regions, encouraging a sustainable management of natural resources [forestry, support to downstream sub-sectors and off-farm activities (see 2.2.2). All development actions are henceforth articulated and monitored while taking in account the environmental dimension. Each new project is thus subject to an impact assessment while each government agency has an envirormental unit. Actions in favor of the environment will continue to benefit from an important effort with the support of partners. The involvement of the poorest rural populations and a permanent dialogue giving them responsibilities in protective actions will be the essential actions in this area. Secure land tenure is a prerequisite for the sustainable management of hydro-agricultural and environmental resources. Actions in this area will be intensified, notably by reinforcing decentralized - 87 - departments and the setting up of a private network of surveyors. The formulation of a land tenure policy allowing to give rural actors security remains a high government priority. SFR procedures will apply to irrigated areas. c) Introduction of organization. management and infrastructure development mechanisms. Mechanisms for sustainable management and maintenance of production infrastructures (GCV, terraces, vaccination stands) and irrigated areas must be developed. The transfer of area management to water user associations must be intensified. This will require institutional capacity building of the users or agencies in charge of infrastructure maintenance. As for non-transferred structures, maintenance funds will be set up and provisioned in a sustained way. Criteria for selecting areas to be rehabilitated have been defined to ensure sustainability and durability conditions for future water investments. A global approach for water and soil resource management that integrates watershed dimension will be favored. 2.2.4 Ensure food availability in all regions a) Ensuring food supply stability and sustainabilitvy Ensuring food security is a major objective. Food supply must be ensured everywlhere and at all times. The fact that some service roads, especially country tracks, are impassable is a major constraint. The supply of inputs, equipment and staple goods is hindered. The development of rural transport is part of the Transport Program in Rural Areas (PTMR), now in progress. Particular emphasis is given to the opening up of production zones by rehabilitating and maintaining country tracks. Highways must be graded to facilitate rehabilitation and maintenance at national, provincial or village level as well. b) Getting ready for emergencv To face emergency situations (cyclones, drought, locust invasion or diseases such as African swine plague,....), natural disaster forecasting, surveillance and alert systems will be reinforced, including capacity at the local level. A national risk and disaster management system will be implemented. Funding for repairing damage due to natural disasters is to be set up and provisioned in a sustained way. 2.2.5 Developing social infrastructure to improve access to basic services The Strategy Document for Poverty Reduction (PRSP) specifies the actions to carry out within the sector of education, health, access to water and other welfare services. a) Access to drinking water The Water Code must be supplemented so as to take into account the different uses of water. Under the supervision of the MEM, the National Committee for Water and Sanitation will be given the responsibility of setting up a master plan for village hydraulics. b) Availability of basic social services The National Program for Education and Training Improvement PNAE 11 (1998-2003) and the Master - 88 - Plan for the Health Sector (1998-2000) constitute the main orientations in health and education matters. The implementation of these programs is done through ongoing projects. c) Improvement of housing conditions Pograms concerning rural electrification and improvement of the regulatory framework for sanitation will improve welfare. The Government will adopt a policy for facilitating housing improvement, including appropriate incentives, taking into account rural conditions. The security of households and operators will be reinforced by creating autonomous security units (DAS) and providing logistic support to gendarmerie. 3. Operational procedures 3.1. Spatial dimension and development management 3.1.1 A pole approach There is a wide diversity in agro-ecological potential, land resources, proximity of urban markets, and development of private sector. Some regions enjoy favorable conditions with an important surface of plains, plateaus and well-watered low grounds where the opportunities for economic activities are multiple. Other regions are disadvantaged zones, generally more hilly, with poor access and suffering from other structural and natural constraints. Regions with high potential are able to meet increasing demands for food, supply external markets and absorb the workforce surplus from the underprivileged ones. Facilitating investment and access to land in these areas would stimulate modern farm operations (investment zones), encourage intensification especially in inigated areas (GPI, PPI...), and lead to increased specialization and downstream links with local agro-industrial poles. In disadvantaged and more vulnerable zone, it is important to encourage the development of income generating activities (crafts, forest activities, tourism, fishing, seasonal migration) and to invest in forestry and stabilization of cultivation system under ground cover. Production poles and urban secondary sectors (textile, agro-industry) are expected to generate an increasing attraction on populations from vulnerable zones. Sustained forest resource management in disadvantaged zones would be part of the strategy for watershed management, a condition for the sustainability of the main irrigated areas. It is therefore necessary, at a regional level (GTDR) to reflect on how to articulate supports so as to allow a balanced development that takes advantage of high potential production poles, that reinforces links between the latter and nearby urban agro-industry poles, and that stabilizes the vulnerable zones. Thus, each GTDR must develop a regional development diagnostic (DRA) based on spatial divisions between production poles, vulnerable zones in agro-ecological and agro-industrial terms. 3.1.2 Urban/rural synergies With the present economic growth of the industrial sector and of services (5-6% p.a. between 1998 and 2000), twice faster than the primary sector (2.5-3%), the economy and the urban network are undergoing massive changes. The rapid development of small towns and regional urban centers, evidenced by an urban population growth three times superior and access to services. Food and agricultural processing industries are a key factor in job creation. They stimulate progress in - 89 - agriculture and integrate the rural economy. They accelerate overall economic growth and raise income, absorb rural unemployment and reinforce food security. Vertical integration of agriculture into processing and local industry will only succeed if adequate infrastructure (road, energy, water, communication) is available. De facto, the GTDR work together with the Regional Development Committees and the regional authorities to facilitate urban/rural synergies. Supplying urban markets is a key consideration for giving priority for road rehabilitation. 3.2. Tar2eting actions In each GTDR, the task will be to target actions depending on whether they apply to production poles or vulnerable zones. There is a common core of actions for all zones. 3.2.1 Common-core actions Whatever the zone under consideration, a series of actions is needed for improving the development environment as follows: Improve management skills of professional organizations Support the reorganization of support functions (extension, research, training) Promote the contracting out of the provision of services to the private sector in Improve input supply Develop financing systems for rural areas Introduce maniagement mechanisms for the maintenance of infrastructure Improve the road network, including reinforcing the capacity of local governments Provide basic social services Protect the people and their properties 3.2.2 Production poles The identification of production poles and the determination of growth products by poles are integrated in sub-sector strategies. The criteria to be considered include: An agro-ecological potential associated with additional production capacity Regional production asset A heritage of regional know-how Access to domestic and export markets Existence of enterprises involved in processing and marketing Private investment drive Adequate markets Depending on the cases, these local poles show a surplus or have high productivity potentials (production basis, fishing/fish-farming sites or zones, lumbering sites). The proposal is to concentrate efforts on production modernization and intensification on several poles that combine a certain degree of specialization within an environment of performing producers. To achieve the PRSP objective of a 4% annual economic with a 1.5% annual growth of the rural population, productivity in the primary sector. This would be achieved through modernization, technology - 90 - transfer and increased specialization. In the short-to medium-term, these poles will benefit from actions aimed at: Modernizing production systems with appropriate technologies Promoting the development of regional professional institutions in the rural sector Improving the performance of downstream enterprises Developing the markets Increasing value added 3.2.3 Vulnerable zones Actions targeting food security would increase income generating activities. The zones concerned are those which are the structurally in deficit with ecologically weak or less performing production systems; and those affected by strong climatic constraints and showing signs of food insecurity. In these zones, non-farming activities and high labor intensity works will be promoted. Indeed, when agricultural development does not constitute a viable option in economic terms, then non-agricultural development becomes imperative. In vulnerable zones expected actions would aim at: Diversifying non-agricultural income generating activities Developing agro-ecological production techniques for fragile environment (direct seeding on groumd cover) Improving envircnment preservation and rational management of rural areas Promoting the diversification in food production Preparing for emergencies Building up local capacity for rapid interventions in frequent disaster zones. An efficient and sustainable monitoring and intervention system for emergency cases will be set up in sensitive zones. It will provide a management chait that will facilitate decision-making. 4. MONITORING RURAL DEVELOPMENT POLICY (LPDR. PADR) Improving significantly the efficiency of public and private investment in rural areas and increasing the absorptive capacity at the regional level are two key challenges for rural development.. An adequate monitoring system will be set up at the national and regional levels. It will focus on: results indicators (fulfillment of commitment and implementation of measures at central level; degree of field action realization within the GTDRs); performance indicators (service suppliers, OP, GTDR) impact indicators collected at the level of supporting ministries (monitoring of the sub-sectors) and in each region (situation of rural households) This system will use existing structures (sector observatories, SIM, ROR) and will require the reinforcement of agriculture statistics. The system will permit the development of an efficient database for the monitoring and the updating of the rural development policy. Given the existence of a common reference framework for all projects supporting the PADR, the monitoring of these projects will have to use the same indicators so as to facilitate result consolidation. The monitoring system will be finalized by the end of 2001. - 91 - 4.1. Monitoring of results The monitoring of results to be performed on a bi-annual report basis comprises: The monitoring of the implementation of policy measures will be performed on a bi-annual basis by relevant ministries on a bi-annual basis and will contribute to updating the LPDR. The monitoring of development actions performed in each GTDR by result indicators (degree of field action realization) 4.2. Monitoring of performance The monitoring of performance permits to assess the implementation capacity of partners; it comprises: The monitoring of organizational capacity of GTDRs The monitoring of the performnance of contractual service providers (public services, NGOs, private sector) in extension, rural engineering, research and information-dissemination Monitoring of the performance of POs as facilitators, intermediaries, and request initiators. Depending on the cases, performance monitoring of operators will be performed with an annual or biannual periodicity. 4.3. Monitoring of impact Impact monitoring would assess the impact of investment and support actions as well as sectoral policies on: The macro or global evolution of sub-sectors (level of prices, taxes, export. ...) performed annually by ministerial departments The evolution of the micro-economic situation of rural households, performed through regional surveys conducted by the GTI)R every 2-3 years: Evolution of productivity, output and income, Evolution of the farming strategies (degree of monetization, diversification, technical modernization), degree of integration of the agricultural economy in the market, Situation of the households (level of poverty, consumption, access to services) Efficiency of the marketing sub-sectors, Evolution of the high potential regional poles. Besides, the monitoring-assessment will be a tool and a support for interaction, refining reflections, capitalizing on experiences and enriching the local reference framework. 4.4. Rural development policy update The biannual review of policy measures and the monitoring of the Rural Development Policy are carried out in the perspective of a dynamic and interactive exercise that aims to meaningfully improve the operational piloting of the sector by the different govemrnent agencies. A really operational rural development policy effectively requires an important and continuous work in order: to review the field policies to adjust the policies by sub-sector, to update the PADR. - 92 - MAP SECTION 44° A6 48 50 MADAGASCAR RURAL DEVELOPMENT SUPPORT PROJECT PROJET DE SOUTIEN AU DEVELOPPEMENT RURAL -12 < 12s AGRO-ECOLOGICAL REGIONS COVERED BY THE REGIONAL RURAL DEVELOPMENT WORKING GROUPS ZONES AGRO-ECOLOGIQUES COUVERTES PAR LES GROUPES DE TRAVAIL DE DEVELOPPEMENT RURAL REGIONAL (GTDRj 'ON11 BOUNDARIES OF AGRO-ECOLOGICAL REGIONS AND RURAL DEVELOPMENT WORKING GROUPS i . .im EIMITES DES REGIONS AGRO-ECOCOGIQUES ET GROUPES DE TRAVAIl DE DEVEtOPPEMENT RURAL PAVED ROADS ROUTES RITUJMEES ALL-WEATHER ROADS ROUTES ACCESSIBLES EN rOUTE SAISON 14 ~ - AIlROADS 14~ CHEMIN DE PER RIVIERES . ooab, o SERECTED MAIN CITIES e Ie=nono , PRINCIPAUX VILLES C11OISIES AopIIoov0 i FA1AYCAPITALS ' ' CAFKAUES OES FARITANY S fhhh9S ~ ,( ,t, t1t _ NATtONAL CAPITAL ,. 2o oFA --o CAPITAlfE D'ETATA FARITANY BOUNDARIES oB1on 1 6n 6 Mozambique o .. %1 A no ( n r 28oOrMoroon 22' -1 mp5 0oimfy,thmro I n1 - INDIA N OCEAN 3 on tr le2a1Xtus of ony Smbory or LOMETERS < J~~~~~~~~OMOOS 0000 i22 2m oome!o r2pacfK 5-t25 _ IS)OO; 0 ,ucb 6on2i 5 64'L 00I Ooo 0))0 II :np oo y 5n L2 oonbondonoo 4 d 48orHORo