Document of The World Bank Report No. T7557-MAI TECHNICAL ANNEX FOR A PROPOSED CREDIT OF SDR 22 MILLION (US$29 MILLION EQUIVALENT) AND GRANT OF SDR 15.9 MILLION (US$21 MILLION EQUIVALENT) TO THE REPUBLIC OF MALAWI FOR AN EMERGENCY DROUGHT RECOVERY PROJECT September 30, 2002 Rural Development Operations Africa Region CURRENCY EQUIVALENT (Exchange Rate Effective August 13, 2002) Currency Unit = Malawi Kwacha (MK) US$1 M MK 75.7 WEIGHTS AND MEASURES Metric System GOVERNMENT MCAL YEAR July Ist to June 30th ABBREVIATIO)NS AND ACRONYMS ADMARC = Agricultural Development and Marketing Corporation AG Auditor General CONGOMA = Council for Non-Govemment Organizational in Malawi DDLGA = Departnent of District and Local Governent Administration DFID = Department for International Development DHS = Demographic and Healthy Survey FAO = Food and Agriculture Organization FHH = Female-Headed Households FRDP = Fiscal Restructuring & Deregulation Project IDA = International Development Association IEC = Information, Education and Communication IHSP = Integrated Household Survey on Poverty MASAF = Malawi Social Action Fund MOHP = Ministry of Health and Population MTPW = Ministry of Transport & Public Works NEC = National Economic Council NFRA = National Food Reserve Agency NGO = Non-Government Organization OPC Office of the President and Cabinet PAP = Poverty Alleviation Program UNDP = United Nations Development Programme UNICEF = United Nations Children's Fund USAID = United States Agency for International Development VAMS = Vulnerability Assessment Monitoring System WFP = World Food Programn Vice President: Callisto E. Madavo County Director: Darius Mans Sector Manager: Karen Mcconnell Brooks Task Team Leaders: Ousmane Sissoko Stanley lHiwa REPUBLIC OF MALAWI EMERGENCY DROUGHT RECOVERY CREDIT TECIMCAL ANNEX Table of Contents 1. BACKGROUND AND RECENT DEVELOPMENTS .............. 1 :B ackground 1.................................................... The Current Crisis in National, Regional & Historic Context ......... 2 2. BANK RESPONSE AND STRATEGY ................................. 6 Donors' and Government's Response to the Crisis ....................... 6 Bank Response and Strategy ................................................. 6 Lessons Learned .................................................... 8 3. THE PROPOSED EMERGENCY DROUGHT ...................... 8 RECOVERY PROJECT Objectives .................................................... 8 Components ..................................................... 8 Project Cost and Financing .................................................. 10 Grant Funding in Combination with IDA Credit ........................ 10 Retroactive Financing .................................................... 10 4. INSTITUTIONAL ARRANGEMENTS AND PROJECT IMPLEMENTATION .................................................... 11 Implementation .............................1....................... 1 Financial Management .................................................... 11 Funds Flow ................. ................................... 11 Accounting and Financial Reporting ................... .................... 12 External Audit ....................... ............................. 13 Reporting and Monitoring ................................................... 13 Action Plan to be carried out for Project Financial Management ...... 14 Procurem ent .................................................... 14 Retroactive Financing .................................................... 14 Procurement Capacity .................................................... 15 Procurement Plans .................................................... 16 Manual for Procurement Procedures ................. ..................... 17 Procurement Methods . ............................................. 17 Procurement Monitoring.: ................................................. 19 Environmental and Social Aspects . ......................................... 20 5. JUSTIFICATION FOR THE PROPOSED OPERATION 20 6. ACTION PLAN .................................................... 21 Table of Contents (cont'd) ANNEXES Annex 1: Policy Letter ................................................. 22 Annex 2: Cost Summary ................................................. 29 Annex 3: Allocation of Credit and Grant to Categonres .................. 30 Annex 4: Positive List Items ................................................. 31 Annex 5: Supporting Community Responses to the Food Crisis ....... 32 Annex 6: Addendum on Nutrition Strategy & Distribution of Humanitarian Assistance . ...................................... 43 Annex 7: A Summary of Malawi Emergency Drought Recovery Project -Transport Issues ... 45 REPUBLIC OF MALAWI EMERGENCY DROUGHT RECOVERY CREDIT TECENICAL ANNEX 1. BACKGROUND AND RECENT DEVELOPMENTS Background 1.1 Malawi is currently facing a severe food crisis. Production of the key food staple, maize during the 2001/2002 growing season estimated at 1.6 million metric tons, approximately 600,000 tons short of estimated domestic disposition. The economic cost of the crop failure to the economy in aggregate is between US$150 million and US$180 million when the grain is valued at landed replacement cost. The incidence of the shock falls in most concentrated measure on Malawi's small-holder farmers, who are among the country's poorest citizens. The impact of the shortage on human health and nutrition is expected to increase in severity during the coming eight months prior to the next harvest. 1.2 Early this year it was estimated that 78 percent of farm families (a total of 2.2 million households) were without sufficient food. This year's shortage follows the prior year's reduced harvest. As a result of two successive years of reduced incomes and poor access to food, coping mechanisms, including casual labor and distress sales of household assets have been eroded. Deaths from hunger-related diseases are increasing. Children who are generally vulnerable to malnutrition - Malawi's chronic malnutrition rate is 49 percent - are particularly at risk of long-term consequences. In addition, women, the elderly, and adolescent-headed households are particularly food insecure. Other vulnerable groups include those affected by the HIV/AIDS pandemic, smallholder farmers, tenants, and pregnant and lactating mothers. 1.3 Overall, it is estimated that about 3.9 million people will require humanitarian assistance for varying periods of time until June 2003. Maize prices are expected to rise substantially as shortages increase. To avert famine, the Government and other donors are taking immediate action to ensure adequate supplies of grain to the country and timely delivery of food aid and/or income support to' the most vulnerable Malawians. Approximately 30% of the most vulnerable will receive humanitarian assistance from the 208,000 tons of donations in cash and kind anticipated from the donor community. Approximately 150,000 tons of the shortfall is expected to be met by the private sector and by increased winter production. Hence donations and private sales will cover almost US$100 million of the cost of the shock, and will address the needs of 60% of the population (those at the higher end of the income distribution through private sales, and at the lower end through humanitarian relief). The Government is importing 250,000 tons at an estimated cost of US$75 million to augment available supply and to address the needs primarily of the 40%/o of the population who will require some assistance but will not receive humanitarian aid. Additional support is needed for recovery of crop production, prevention of resort to coping strategies that undermine recovery and longer term growth, and maintenance and rebuilding of productive assets. The Government's costs of addressing the emergency are estimated at approximately US$82 million, including an estimated US$23 million in price subsidy, US$16 million in public works programs, US$15 million in additional programs of targeted assistance, such as school feeding and nutritional intervention through the health system, US$18 million for distribution of agricultural inputs to poor small-holders, US$5 million for transport and logistics, including emergency repairs to the Nacala corridor of the rail line, and US$5 million for technical assistance, expansion of the extension activities, and other preparations for the coming agricultural year. The Government of Malawi has requested assistance of the World Bank to address costs related to management of the emergency and recovery. The Current Crisis in National, Regional, and Historic Context 1.4 The immediate causes of the current crisis in Malawi are several. Contributing factors include: Erratic weather. Malawi experienced drought and floods in 2001 and 2002 which, although not as severe as those of the early 1990s, resulted in significant drops in maize output. In the 2001/2002 growing season, rains started late but when they finally came, they were severe in some places, causing water logging and floods. The Ministry of Agriculture and Irrigation carried out an assessment of the flood damage. A total of 14 districts with about 29,769 farming families were affected by the damage. In some parts of the country the rains were also intermittent, with dry spells that coincided with sensitive growth stages of crops. The dry spells affected a larger number of farm households than did the floods. Maize production was especially sensitive to the deviation in the timing of rains. * Failure of the early warning systems that form an integral part of the Government's food security apparatus. While available data predicted a maize shortfall in 2001, they also indicated that the increase in other crop harvests (particularly roots and pulses) would adequately compensate for the maize shortfall. As late as June 2001 the data still indicated that Malawi would experience a food surplus that year. The inadequacy of the statistical data only became apparent in September 2001, when Malawi began to import food in anticipation of a shortfall. President Muluzi declared a food emergency in late February. This failure in the agricultural data delayed decision making and the implementation of remedial action to contain the emergency. Once the shortfall became apparent, actions to address the problem were not urgently undertaken until the pending crisis was clearly evident. * Transportation bottlenecks that impeded the timely arrival of imported maize in early 2002. To deal with the 2002 maize shortage, the Government raised a $30 million line of credit to import 134,000 tons of maize for delivery by December 2001, mostly from South Africa, but the maize arrived late because of logistical problems. To promote optimal use of existing transport facilities and cost effective means of 2 delivery of emergency goods to beneficiaries, emergency line repairs on the railways of the Nacala corridor will be carried out by Government from its resources for US$2 million, over the next four months. . Poor Marketing System and Poor Management of the SGR. The NFRA has statutory obligation to manage the strategic grain reserve and to hold a minimum of 60,000 mt. The grain is physically held in facilities managed by ADMARC. In late 2000 NFRA sold its stocks in excess of 60,000 mt and therefore depleted all its reserves. Due to improper management and, as found by the report of the Anti-Corruption Bureau, possible criminal negligence, the entire reserve was sold under non-transparent procedures and with insufficient accounting for the proceeds. This action reduced the ability of the NFRA to rebuild sufficient reserves, and undermined confidence of the donor community regarding management of a key instrument for food security. Had reserves been properly managed, they would nonetheless not have been sufficient to cover the full shortfall of the present crisis. * Over-reliance on maize. Most farmers depend on a limited number of food and cash crops for their livelihoods. Maize is considered as the major food crop while tobacco is the major cash crop. In case of crop failure, therefore, farmers have few alternative sources of food and income. Moreover, most common varieties of maize are not drought-resistant, and require careful management to avoid exhaustion of soil nutrients. Reliance on maize thus entails a high risk strategy for food security in Malawi. The country has made some progress in diversification to other food staples, such as cassava and sweet potatoes, but consumers till prefer maize, and small-holders still choose to produce it despite the risks. The longer term strategy thus entails introduction of higher yielding and more resilient varieties that will allow preferences for maize to be accommodated through contraction of area devoted to maize, leaving more land for other products. * Low adoption of Improved Technologies. The country has weak capacity in the development and dissemination of technologies, and adoption has therefore remained low. The gap in crop yields between research fields and farmers is still very wide, indicating that farmers are still using unimproved technologies. On the other hand, some of the technologies developed are not compatible and specific to the ecological zones. * Increased pressure on land without concomitant improvement in productivity. The rising population has increased pressure on limited land resources leading to reduced lEnd to labor ratios without corresponding increase in yields. Lagging growth in productivity has led to a secular decline in food security, and increased vulnerability to periodic climatic and other shocks. 1.5 The crisis that Malawi faces is generalized to the Southern African region. The Regional Early Warning Unit of SADC estimates that supply of maize during the current 2002/2003 marketing year (April-March) will fall short of requirements by 3.2 million metric tons. 3 1.6 The decline in production is due to a number of factors. Drought, flood, and erratic weather patterns have played a role. The severe political and economic disruption in Zimbabwe's agricultural sector has transformed one of the region's traditional strong suppliers of grain into a net recipient of humanitarian assistance. The shortfall hits at a time when stocks throughout the region are depleted. Govemments drew down stocks last year in response to poor harvests, and did not restock adequately for a number of reasons: e.g., budget problems resulting from the drop in global commodity prices, preoccupation with elections, mismanagement of strategic stocks. As a consequence, countries hardest hit by this year's shortfall (Malawi, Zambia, and Zimbabwe) enter the coming year with no opening stocks. Approximately two thirds of the stocks are held in South Africa, the one country with significant projected increase in production. 1.7 Throughout the region, an estimated 12 million people are affected by the shortfall. The number is large relative to the aggregate regional deficit because distribution of available supply is highly skewed. South Africa has larger than average supply, and Malawi and Zambia much less than usual. Without special measures, consumers in Malawi and Zambia (many of whom are small-scale producers) will not have the purchasing power to access supplies available elsewhere in the region or the world. Zimbabwe has been in the past a net exporter, but this year is expected to meet only about one third of domestic needs. Chronic hunger increases the human cost of this year's deficit, since poor households have few assets or reserves with which to cushion the shock. 1.8 The present food crisis in southern Africa has historical precedent, most recently ten years ago. The management of the last severe and regionalized drought offers lessons for present interventions by the Governments, and World Bank, and other donors. During 1991/92 the countries of Southern Africa suffered from their most severe drought of the century, and an estimated 20 million people were believed to be at serious risk. The problem was addressed in part by importing about 12 million tons of grains estimated to cost about US$4 billion. The overall response to the drought was considered reasonably successful in funding imports and sparing human lives. Still, many problems were encountered in customs procedures, procurement, bunching of food aid, congestion in ports, food quality, and timeliness of shipments. Logistical costs including for non-food items exceeded import costs by a ratio of 2:1. 1.9 The Bank provided policy advice and helped alleviate the crisis through specific emergency operations in Malawi and Zimbabwe. In Malawi the Bank provided a credit in 1992 simultaneously to increase imports while also supporting reforms to support private sector development. The Zimbabwe Emergency Drought Recovery and Mitigation Credit, also provided in 1992, supported importation and also the agricultural recovery, drought- related transportation, emergency water supply rehabilitation, expansion of the food-for- work and child feeding programs; and institutional strengthening. In Zambia, almost 1 million tons of food was imported by activating the country's program with the IMF and obtaining unprecedented extemal assistance in the amount of US$1.5 billion. 4 1.10 Both the Malawi and Zimbabwe operations were successful in providing timely support for importation of foodstuffs. They were less successful in institutional and other development to reduce future vulnerability and risks. The analytic work on Zambia produced solid recommendation for both the Government and the Bank. These, however, have only partially been implemented. 1.11 ]Lessons of the prior interventions to facilitate recovery include the following: (i) Food supply must be enhanced along with establishment of distribution channels that reach the vulnerable, through provision of food, free of charge to the poorest, as wage in cash or food-for-work programs, and for sale so as to reduce excessive market prices (short-term actions); (ii) Productive capacity for the next and subsequent production seasons must be enhanced (short- to medium-term actions); and (iii) Investments and institutional structures, etc. to reduce long-term vulnerability should be identified even if they cannot be put in place during the period of immediate crisis (long-term actions). 1.12 In both the Malawi and the Zimbabwe operations, the Bank's intervention largely achieved the first objective, but was less successful in helping governments to achieve the second and third objectives. In Zimbabwe the agricultural recovery component (objective ii) did not achieve its targets and the emergency water program was delayed. In both countries, institutional development (objective iii) was unsatisfactory. 1.13 An assessment of these programs showed that an emergency operation should assist the government to maintain critical non-food imports needed for maintenance of long term growth while the government shoulders the unanticipated budgetary burden of the direct food imports. Without this assistance, the government's appropriate efforts to avert famine will come at the expense of needed investments in schools, clinics, infrastructure, and public services needed for growth and poverty reduction. The assistance in maintaining critical imports should be augmented by additional short term investments to assist production in the next crop year, to build or rebuild infrastructure that reduces immediate vulnerability, and by commitments to address the longer term issues once the crisis is resolved. For those purposes, quick-disbursing loans with a short project period are used and most appropriate. Although it is not surprising that medium and longer-term actions tend to receive less attention once the crisis abates, the present recurrent food emergency is a reminder that longer term actions at the sectoral, national, and regional levels are imperative. 5 2. RESPO'NSE AND STRATEGY Donors' and Government's Response to the Crisis 2.1 In early 2002, the World Bank received a request for assistance in assessing what was feared to be a worsening food situation in the SADC region. In response, resources from the FAO/WB Cooperative Program were made available to send teams of experts from FAO to undertake the assessments, including one for Malawi. FAO and WFP estimated a maize import requirement of 585,000 mt. for August 2002 to March 2003. The Government's current estimate of the shortfall is 600,000 mt. Of this amount, 208,000 mt. is expected in pledges from the WFP and other donors, 250,000 mt will be imported by the Government on its own account, and 142,000 mt is hoped for through activities of private traders and as additional production under a winter production program supported by the Ministry of Agriculture and Irrigation this year. Of the 208,000 mt expected in pledged relief, about 68,000 mt remain to be filled, perhaps with assistance from Japan and/or Italy following consultations currently under way. The IMF has approved emergency support of SDR 17 million (US$22 million), and DFID is likely to provide up to US$10 million of assistance for provision of inputs. Bank Response and Strategy 2.2 The World Bank has contributed toward assessment of the situation, and is contributing to recovery, protection of the vulnerable during the crisis, and to measures to reduce vulnerability to food crises in the future. The contribution to assessment of the situation has been covered above. The design of the proposed support for economic recovery is presented below. The medium and longer term strategy of assistance is reflected in the discussions of the CAS' presently under way. In the medium-term, the Bank will assist Malawi in five areas relevant to the present emergency: (a) improving the statistical basis for crop estimates; (b) addressing issues relating to access to land, agricultural services, and better agricultural technology in order to promote improvement in agricultural productivity; (c) providing technical assistance for review of the Government's food security policy); (d) improving transportation along the Nacala corridor (the Bank has supported railway and port reform along the corridor in both Malawi and Mozambique, and will support additional improvements); and (e) scaling-up of safety net programs through MASAF (including MASAF 3, which is now under preparation), and orienting the public works components toward activities that improve access to rural areas and reduce vulnerability to drought and flood. With the assistance of the Bank, the Government is presently enhancing the public works component of the second Malawi Social Action Fund (MASAF 2), which is by far the largest public works/ social safety net scheme in Malawi. 2.3 On July 26, 2002, Minister Friday Jumbe, Minister of Finance and Economic Planning, requested that the Bank provide a $45 million credit for an emergency drought ' The 1998 CAS was updated and a CAS Progress Report (#21419-MAI of November 28, 2000) was discussed at the meeting of the Executive Directors held on December 21, 2000. The full new CAS which is being prepared is due by December 31, 2002. 6 recovery assistance to finance critical imports to help alleviate the effects of the drought and to mitigate its impact on the country's efforts to reduce poverty and promote growth. A request for an increased assistance was subsequently made on September 6, 2002. At an emergency meeting of the Regional Operations Committee, the Vice President authorized a mission simultaneously to prepare and appraise an Emergency Drought Recovery Credit (EDRC). Donors have been particularly supportive of the work of the mission, and have concurred with the objectives of the proposed operation The Bank staff participate in regular meetings, and activities of the joint task force established to coordinate emergency efforts of the Govemment and the intemational community. 2.4 The Bank's strategy in the sector is in line with the Government's views and expected response to the crisis. The strategy focuses simultaneously on short-term measures to tackle the current disaster and on medium- and long-term measures to prevent the recurrence of the problem and ensure agriculture production and the provision of social protection through scaling up public works and social programs to benefit the poor and vulnerable groups. The Government's approach to the immediate crisis is presented in the Letter of Sectoral Policy. To oversee the overall management and coordination of the response to the crisis, the Govemment has established a Joint Govemment/Donor/UN/NGO Task Force. Donors and NGOs will handle all distribution of humanitarian aid. While the scaling up of the public works programs will make resources available for the communities to buy food, limited targeting policies will be pursued in favor of vulnerable groups including orphans, child-headed households, FHV/AIDS affected, pregnant women, the elderly, etc. The Government intends to sell maize that it imports at a fixed price of 17 MK per kilo, which entails a subsidy of about one third of the landed price. The Govemment will use geographic targeting to increase the likelihood that the subsidized maize will be available in areas most affected by the crop failure, and where poverty is greatest. Enhancement of winter cropping, crop diversification, seed multiplication and soil fertility improvement technologies are being applied to further mitigate the effects of the drought and avert reoccurrence of crop failure. 2.5 The Govemment's approach to the medium term agenda for agricultural growth and improved productivity is expressed in the recently completed the design of a proposed agricultural sector investment program (MASIP). The program is framed within the context of the PRSP and focuses on the critical role that agriculture must play in pro-poor growth. Bank support to the sector will implement medium and long-term measures to increase access to inputs, improve market infrastructure and information, improve access to land and efficiency of its use, enhance technology generation and dissemination, and build capacity for the effective delivery of key services in rural areas.. Initiatives to promote improved management of water by small-holders, the conservation of soil and water, improvement of soil fertility through the expanded use of organic manure, and adoption of improved technologies will be pursued to facilitate the achievement of increased incomes and food security especially among poor smallholder farmers. The most appropriate mechanisms and instruments for delivering support will be determined in the context of the CAS process. Although key elements of the program 7 have been identified in the protracted process of formulating the MASIP program, the modalities for implementation and support by the Bank have not yet been decided. Lessons Learned 2.6 Lessons learned from previous similar operations have been taken into account in the design of the project. The project preparation/appraisal team also drew on advice from staff involved in responding to similar emergencies in other countries. Key lessons noted may be summarized as follows: (a) commitment and ownership of the Borrower are critical for the successful implementation of emergency recovery operations; (b) speed in preparation, appraisal and implementation are also critical elements for success; (c) emergency operations must be simple, rapidly executable and not burdened with conditionality; (d) disaster management and mitigation measures should be included; (e) community involvement and participation are critical to the success of the delivery of social investments and protection; (f) the operation should focus on the sector immediately affected, and not undertake too broad an agenda of cross-cutting issues; and (g) the longer term agenda to reduce the likelihood of recurrence cannot be neglected. 3. TEE PROPOSED EMERGENCY DROUGHT RECOVERY PROJECT Objectives 3.1 The objectives of the proposed Emergency Drought Recovery Project are: (a) to allow the Government to maintain key commitments to economic priorities and investments consistent with the PRSP process while at the same time fulfilling its immediate obligations to avert famine; (b) to help restore the productive capability in the country; and (c) to support longer term disaster management by the Government. Components 3.2 The proposed operation will provide quick-disbursing assistance to support critical imports through a positive list of import requirements linked to the drought and assist the Govemment in drought recovery efforts. The Government has assessed the need for additional imports of grain (i.e., those not likely to be covered by the humanitarian programs) and has already undertaken to order much of the needed quantity. Thus the Govemment has on its own initiative sourced the food needed for the relief effort. The Govemment's program for distributing the food relief (in conjunction with NGO's and civil society) is outlined in the Letter of Development Policy. The Government seeks the emergency credit to help rebuild productive capacity, and to avoid a situation whereby the additional cost of the drought undermines developmental goals, particularly for health and education. The positive list is constructed with these objectives in mind, and each element of the list is linked to recovery and/or to maintaining critical services in health and education. The agreed positive list of imports includes: (a) petroleum and fuel products; (b) agricultural inputs; (c) agricultural equipment; (d) construction equipment; (e) spare 8 parts; (f) livestock, animal products and veterinary supplies; (g) school supplies; and (h) medical supplies and equipment. An amount of US$40 million would be available under this component. The role that each of these elements of the list will play in the recovery is briefly noted below: 3.3 Agricultural equipment and inputs: This will be largely improved seeds and fertilizer for farmers and some equipment and inputs for the public research and extension services. 3.4 Petroleum andfuel products: Additional fuel will be needed for distribution of the relief food and for distribution of the starter packs. 3.5 Construction equipment: Additional investments in infrastructure, especially roads and bridges, to facilitate improved access to remote areas will have to be undertaken. This will require construction equipment and materials, in addition to the labor supplied largely through the public works program. 3.6 Spare parts: The burden of transporting large quantities of food and inputs over rough roads will necessitate additional vehicle spare parts. 3.7 Livestock, animal products, and veterinary supplies: Livestock numbers have been drawn down, and the public sector will assist with restocking improved breeds. Veterinary supplies will be needed to maintain animal health under stressed conditions of reduced forage. 3.8 School supplies: Schools are undertaking some public feeding for vulnerable children, and will need additional supplies to undertake these efforts. More generally, investments in school supplies and equipment must be maintained despite the additional costs of the drought. 3.9 Medical supplies and equipment: Medical services must be maintained despite the costs of the drought. Under-nutrition is likely to lead to additional health complications, necessitating availability of medical supplies and equipment. 3.10 The Government intends to augment the purchasing power of those whose incomes are reduced by expanding the public works component of the MASAF program, among other means. The Government's relief efforts will thus work simultaneously on the supply and demand sides of food markets. 3.11 The operation will also provide support for essential social investments and services to vulnerable groups through MASAF, which has developed substantial expertise in the field. Detailed activities to be carried out by MASAF and implementation modalities are presented in [Annex 5]. An amount of US$8 million would be available for such activities. 9 3.12 In addition to the two components presented above, the project will include support for implementation, technical assistance, and studies. The technical assistance and studies will have the following objectives: (i) to support full public discussion and consideration of the causes of the present crisis and measure to prevent recurrence, including the work of the technical sub-committees of the Inter-Ministerial Task Force; (ii) to support Malawi's participation in the SADC-wide efforts to craft a regional approach to prevention and management of crises; (iii) to diagnose the key problems with agricultural statistics and how to fix them; (iv) to finance regular meetings of a technical steering committee to monitor implementation of the present program; (v) to put in place a mechanism for monitoring and evaluation of the impact of the crisis and mitigation efforts; and (vi) to provide short term support to strengthen the agricultural advisory services available to small farmers as they rebuild following the present catastrophe, and to focus on ways of improving water and soil managemen.., mitigating the impact of future disasters and upgrading disaster preparedness and management will be provided. A total amount of US$2.0 miflion would be available for such services. Project Cost and Financing 3.13 The proposed operation would be funded from IDA resources totaling SDR 37.9 million, or US$50 million equivalent including the equivalent of US$21 million as grant and US$29 million on standard IDA credit. The size of the credit is based on the estimated cost of the response to the crisis, the Government's request for emergency drought assistance, and the assistance and pledges received by the Government from other donors including multilateral organizations and bilateral agencies (UK, DFID, CIDA) and other specialized humanitarian organizations including CARE and Save The Children. 3.14 Under the proposed operation, 100 percent of the cost of eligible imports on the positive list would be financed. The cost of social investments and services, and the execution of the public work programs would be also financed. In addition, all audits required would be funded under the emergency operation. Grant Funding in Combination wit' l IDA Credit 3.15 In view of the emergency situation imposed by the drought in Malawi and because the country is eligible - as a debt-vulnerable IDA only country - a grant funding under the IDA 13 Replenishment Agreement, is being proposed for the equivalent of US$21 million. The grant would be used for securing critical imports required under the emergency and including petroleum and fuel products, agricultural inputs and equipment, construction equipment, spare parts, livestock, animal products and veterinary supplies, school supplies, medical supplies and equipment. The use of the grant would be further discussed in the upcoming full new CAS. Retroactive Financing 3.16 Because of the nature of the operation, it is expected that payments made by the borrower out of its own resources before signing of the Development Credit 10 Agreement (DCA) an-i the Development Grant Agreement (DGA) but no earlier than four months before signing, will be eligible for retroactive financing. Payments made by the Government of Malawi not exceeding 20 percent may be eligible for reimbursement to the Government of Malawi under retroactive financing. 4. INSTITUTIONAL ARRANGEMENTS AND PROJECT IMPLEMENTATION Implementation 4.1 The operation will be implemented by two entities - a small and temporary Project Coordination Unit (PCU) and MASAF. The PCU will be staffed with experienced and qualified professionals, including a national coordinator, a financial professional, a procurement specialist, and support staff. It will be responsible for the overall coordination of all activities of the project and will work very closely with the Reserve Bank of Malawi in managing the quick-disbursing component of the operation. The coordinator will be responsible, inter alia, for the day-to-day management of the operation, dialogue with government agencies, development partners and other stakeholders, securing procurement, collecting information and monitoring activities in the field, and establishing quarterly progress and financial reports. He or she will report to the Principal Secretary of MOAI. MASAF will be responsible for the public works prograrns (PWP) and social investments component, for which it developed extensive ability over the past several years of implementation of IDA-financed projects. 4.2 The operation will be implemented over a period of two years, from November 2002 to' November 2004. Financial Management 4.3 The capacity of the Ministry of Agriculture and Irrigation to manage the main Special Account for the project and to provide accounting and financial management was assessed and found to be inadequate, essentially because of human resource shortage. As a result, an experienced financial specialist will be engaged under the project to design a simple financial management system that is able to produce complete, accurate and timely information from it for all activities of the project. MASAF will manage a separate special account for the Public Works Programs. Though no formal capacity assessments were done on MASAF, an update of the previous assessments of MASAF management unit, which has implemented two phases of a Bank financed project, through review of annual and semi-annual audits, management letters, quality and timely assessments of their quarterly reports, shows that the institution has enough capacity to handle the Public Works Programs to be financed under this operation. Funds Flow 4.4 The Project will use a quick disbursement mechanism where government will have to submit expenditures incurred on imports for procurement review, and be refunded a total sum consisting of disbursements in foreign exchange for purchases based on a positive list. Special Accounts would be opened for the PCU to be used for all payments other than the PWP and another for the MASAF unit to be used for PWP. The Special Accounts will be opened through the Reserve Bank of Malawi with a reputed international bank in New York under terms and conditions satisfactory to IDA. Funds from the credit and grant accounts will be transferred into three special accounts. Payments of imports from the agreed positive list will be made either directly by IDA or from the special accounts. Local currency account will be used to finance payments under the Public Works Program. 4.5 IDA will deposit an initial amount of $8,300,000 representing about four months of disbursements under the project into the Special Accounts to be opened out of which, funds will be transferred into the Reserve Bank of Malawi. On transfer of funds to the Reserve Bank, the Accountant General's Department will issue a separate Credit Ceiling Authority to the local commercial bank of each account with copies to the PCU and MASAF. In absence of any new receipts of funds from the credit accounts into the respective special accounts and finally into the Reserve Bank holding account, the project would have to spend funds up to maximum limit of the credit ceiling given for payments out of the local accounts. IDA replenishments will be made on summary documentation submitted in Statements of Expenditure (SOE) for expenditures for: (i) eligible imports of petroleum and fuel products under contracts costing less than $3,000,000 equivalent; (ii) eligible imports of agricultural inputs and equipment, construction equipment, spare parts, livestock, animal products and veterinary supplies, school supplies, medical supplies and equipment under contracts costing less than $500,000 equivalent; (iii) goods under contracts costing less than $150,000 equivalent; (iv) services from consultant firms under contracts costing less than $100,000 equivalent; (v) services from individual consultants under contracts costing less than $50,000 equivalent; and (vi) subprojects, all training and operating costs. Full documentation submitted will be submitted for contracts above these thresholds. IDA would be informed of the accounts opened by the Reserve Bank of Malawi. 4.6 Disbursement requests will originate from the PCU which reports to the Ministry of Agriculture and Irrigation, and from the MASAF management unit endorsed by Ministry of Finance and Economic Planning - Claims Unit, prior to a withdrawal being made from the Special Account for payments to suppliers and local bank accounts. All documentation will have to be kept by the PCU and MASAF management unit for review by the Bank missions. Semi-annual audits will be carried out by the National audit office or a private audit firm to be engaged. Replenishments of the special accounts would follow Bank procedures. 12 Accounting and financial reporting 4.7 The financial specialist will be responsible for maintaining records and accounts to reflect. in accordance with sound accounting practices the resources and expenditures of the project. He/she will set up a simple project accounting and financial management system adequate to provide complete, accurate and timely information regarding project resources and expenditures. He/she will also submit financial and other related reports relating to the project on a quarterly basis. 4.8 The Financial specialist will be responsible for preparing overall Financial Monitoring Reports (FMRs) on a quarterly basis and their consolidation with FMiRs from MASAF. Such reports will provide information on whether funds disbursed to the project are being used for purposes intended, project implementation is on track and that project budget costs will not be exceeded. Such FMRs will include financial, physical progress and procurement reports. 4.9 Financial reports in the FMRs will include a statement showing for the period and cumulatively (project life cycle or year to date) cash receipts by sources and expenditures by main expenditure classifications, beginning and ending cash balances of the project; and supporting schedules comparing actual and planned expenditures. It will also include uses of funds by project activities. 4.10 In as far as line reporting is concerned in such FMRs, the project will ensure that the FMRs follow the projects chart of accounts as far as possible, provided that is separately records all significant discrete activities. 4.11 He/she will also submit FMRs not later than 45 days after the end of each quarter and other related reports relating to the project to the Bank and the Principal Secretary with copies to the Project's steering Committee. These FMRs will form the basis for the preparation of quarterly, semi-annual or annual financial statements. External Audit 4.12 The entire project will be subjected to external audits. The accounts will be submitted to the Bank no later than six months after year end of each fiscal year for review. There will also be semi-annual audits conducted by an appointed auditor to check on the following issues among other things: internal controls in the project, compliance with financial covenants, compliance with eligibility criteria of expenditures incurred in the project is accordance with the 'DCA, that special accounts is operated accordingly, there is adequate maintenance of documentation of transactions in the project and that budgets are strictly adhered to. Such an audit will be submitted to the Bank and the Government two months after every semi-annual period for which the audits are supposed to be carried out. Where possible government's new internal audit function will be effectively used to conduct internal audit reviews of all documentation and compliance with the legal agreements relating to expenditures pertaining to the project when requested to do so. 13 Reporting and Monitoring 4.13 The financial transactions for the project will be recorded and monitored using a simple project specific computerized financial management and accounting system. The financial specialist will determine chart of accounts for the project as well as format and content of quarterly Financial Monitoring Reports (FMRs) and annual financial statements. He/she will also determine the selection and adoption of accounting policies and accounting standards as well as making a choice on supplementary notes to the project financial statements in order to enhance the presentation of a true and fair view. It is anticipated that these reports will include financial statements such as sources and application of funds, expenditure classified by project components, disbursement categories, expenditure types and comparison with budgets. Action Plan to be carried out for Project IFinnciaD lManagement 1. Recruit a Financial Specialist and a Procurement Specialist for the project for the project coordination unit. 2. Establish a simple financial management and accounting system inclusive of a chart of accounts for the project. 3. Develop formats and content of various periodic reports that will be generated for the project 4. Development of terms of reference for audit of the project. Procurement 4.14 Procurement of the Goods and Commodities in the positive list provided in Section C of this document will be governed by the Guidelines for Procurement under IBRD Loans and IDA Credits published in January 1995 and revised in January and August 1996, September 1997 and January 1999. The Bank's Standard Bidding Documents (SBD) and Standard Bid Evaluation Forms will be used. However, for the quick disbursement component, the currency provisions in the SBDs will be suitably amended to make them more responsive and consistent with standard practice in international trade. 4.15 Consultant services contracts financed by IDA will be procured in accordance with the Bank's Guidelines for the Selection and Employment of Conisultants by World Bank Borrowers published in January 1997 and revised in September 1997 and January 1999 and May 2002. The Bank's Standard Request for Proposals (RFP) will be used for Quality and Cost Based Selection (QCBS) and Standard Forms of Contract as needed (lump-sum, time-based, and/or simplified contracts for short-term assignments and individual consultants) and also the Sample Form of Evaluation Report for the Selection of Consultants. 14 Retroactive Financing 4.16 From documents provided by Petroleum Importers Ltd (PIL) and Smallholder Farmers' Fertilizer Revolving Fund of Malawi (SFFFRFM), IDA is satisfied that these two companies have used acceptable commercial practices to procure petroleum and fertilizers respectively. The two companies have each imported more than US$5.0 million of commodities since June 2002. The commodities imported by these two companies are therefore eligible for retroactive financing. The US$10.0 million allocated for retroactive financing will be split between petroleum products and fertilizers imported by PIL and SFFFRFM, i.e. * Petroleum Products - US$4.2 million * Fertilizers - US$5.8 million 4.17 Two other companies interviewed to verify eligibility for retroactive financing of items imported by them were Farmers World Ltd and Central Medical Stores. Although they appeared to have used acceptable procurement procedures they could not proviae documentary evidence to that effect. Procurement Capacity 4.18 A Country Procurement Assessment Report has not been done for Malawi (it is planned for FY03) but the procurement system was reviewed in 1996 with the assistance of consultants under the aegis of the Fiscal Restructuring and Deregulation T.A. Credit. A number of recommendation were made to reform the procurement system including: (a) revising the existing procurement regulations to make them more transparent, efficient and economic; (b) Developing and implementing a procurement training program for govermnent staff; (c) preparing standard bidding documents and manuals; and (d) promulgating a procurement law based on the UNCITRAL model. 4.19 Except for the last one, all the above recommendations are under implementation although progress has been slow. New Procurement Regulations were prepared and came to effect in 2000. These Regulations are acceptable to the Bank. A draft procurement bill has been drafted and presented to Cabinet. The Cabinet has just rejected two major reform provisions in the bill; that of establishing a regulatory'body to oversee public procurement in Malawi and that of decentralizing the procurement function to procuring entities. Instead, the Cabinet has decided that contracts above a certain threshold will be approved by the Government Contracting Unit in the President's office. This decision raises a number of issues which will be discussed with the GOM. 4.20 There are two main executing agencies for this Credit: the Ministry of Agriculture and Irrigation (MoAI)and Malawi Social Fund (MASAF). A procurement capacity assessment of each executing agency was carried out in accordance with OPCPR Instructions of July 15, 2002. The capacity of the MoAI to plan, implement, monitor and evaluate development programs has gradually been declining for the past ten years due to 15 high staff turnover and limited resources to fill vacant posts. The MoAI has therefore got no capacity to implement the EDRP. The procurement risk is considered High. 4.21 The EDRP will be implemented by a Project Coordination Unit (PCU) to be specifically established for the project. The PCU will be composed of four key personnel: a program coordinator to manage and administer the whole project; a procurement specialist, who will be highly experienced in IDA projects, to organize all the procurement under MoAI; a financial controller to take care of the accounting and disbursement aspects of the project and a logistics expert for ensuring that supplies are delivered to their destinations in a timely manner. Individuals with qualifications acceptable to the Bank will be recruited to fill these positions. Due to the importance of this project, the prograrn coordinator will report directly to the Secretary of the MoAI. The terms of reference for all the positions have been prepared and the MoAI will commence the recruitment process immediately. Normally all the positions would be advertised in a national paper of wide circulation in Malawi but owing to the urgency to establish the PCU, the MoAI, with the agreement of the Bank, may recruit the program coordinator through comparing the qualifications of three known reputable individuals without having to advertise. The program coordinator needs to be in place as soon as possible so as to set up the PCU and recruit the other staff. 4.22 MASAF has been implementing two social funds operations and is at the end of the second operation. A third operation (MASAF III) is at the design stage. MASAF will execute the public works component of the project using procedures contained in its Operational Manual which has been approved by the Bank. MASAF has a proven track record in social funds procurement. MASAF's organization and management appears capable to take up the additional procurement of US$8.0 million demanded by the EDRP. MASAF has been disbursing about this level of funds annually but the funds now available in MASAF II are well below this level and therefore there appears to be adequate available capacity until MASAF IH is effective. The procurement risk of MASAF is considered as Low. However, there are two areas that need strengthening: procurement capacity at MASAF Zonal level; and supervision of works at the District Assembly level. Zonal managers do not have the necessary procurement knowledge to advise on procurement matters. Most of the works will be carried out through Force account where the supervision of laborers is done by foremen employed by districts. Poor quality of works has been identified as one for the weaknesses of social funds sub-projects. To mitigate the risks posed by the two weaknesses, targeted procurement training will be given to MASAF zonal managers and independent supervisors will be recruited and posted to all the districts. The process of screening independent supervisors has already started. 4.23 The private sector appears to have much more procurement capacity than the Government. By and large the private sector is driven by profit and procurement is a very critical element of the business. The private companies interviewed with respect to retroactive financing had the capacity for international competitive bidding except it was only PIL and SFFFRFM that shared their procurement documentation with the mission. While the interviewing process will continue with other private sector companies and parastatals, the mission is fairly confident that the procurement practices for most of the private companies are likely to be acceptable. The mission's confidence is enhanced by the 16 fact that all imports are subject to pre-shipment inspection, by SGS, of quantity, quality and price. Procurement Plans 4.24 The MoAI will procure some of the items contained in the positive list; some goods (computers and vehicles); and consultancy services. The MoAI is in the process of preparing a procurement plans for these items. The procurement plan is at an advanced stage of preparation. As far as the MASAF component is concerned, sub-projects compiled from Districts' 3-year rolling plans are available and a procurement plan is also under preparation. Another component under MASAF is the procurement of 30 computers for strengthening monitoring and auditing. MASAF's procurement plan will also be reviewed and finalized during negotiations. The procurement plans from MoAI and MASAF will be part of the Project Implementation Plan. The procurement plans will show the step-by-step procedures and processing times for procurement including: contract packages for goods, works, consultant services and training; estimated cost; procurement/selection method; bidding, evaluation and contract award; the activities which follow contract signature such as manufacture, shipment, delivery and installation of goods; mobilization, construction and completion of works. Considering the short duration of the project, the procurement plans will be reviewed quarterly. A. Manual of Procurement Procedures 4.25 The Operational Manual (OM), the Project Implementation Plan (PIP) and the Procurement Procedures Manual (MPP) will be systematically drafted by the MoAI and completed by Credit Effectiveness. In preparing these manuals, MoAI should solicit participation of all stakeholders, set out the procurement plans, assess local counterpart fund requirements, specify responsibilities for commitment and implementation, and the risks that need to be controlled. Procurement Metlhods 4.26 The procurement methods to be used are presented in Table A below. Ouick Disbursement Component The quick disbursing component is composed of US$10.0 million for retroactive financing and the remaining US$30.0 million is made of future procurements. Both private and public sectors will benefit from the quick disbursement component but for eligibility the procurement arrangements will be slightly different. For the private sector, except petroleum products, procurements for contracts estimated to cost US$500,000 or more per contract will be procured through modified international competitive bidding with all contracts subject to Bank's prior review. Contracts estimated to cost less than US$500,000 per contract will be procured using commercial practices acceptable to the Bank For petroleum products, the threshold for ICB will be US$3.0 million or more. Any contract below US$3.0 million for petroleum products may be procured using commercial practices acceptable to the Bank. For procurement by the public sector, modified ICB procedures will be used for contracts estimated to cost 17 US$150,000 or more while international shopping will be employed for contracts estimated to cost less than US$150,000. MASAF Component. The procurement arrangements defined in MASAF's Operational Manual will be used for the EDRP. These arrangements have been agreed with the Bank. MOAM Comnponent. For goods (vehicles and computers) all contracts estimated to cost more than US$150,000 per contract will be procured through ICB. Contracts estimated to cost less than US$150,000 will be procured through NCB using bidding documents acceptable to the Bank. Contracts estimated to cost less than US$50,000 may be procured through national shopping. All the ICB contracts will be subject to Bank's prior review. For consultancy services, all contracts for firms estimated to cost US$100,000 or more will be procured through the QCBS selection method. Consultancy contracts for firms estimated to cost less than US$100,000 will be procured through the Consultants Qualifications method. Consultancy services for financial audits and external evaluations will be procured through least-cost selection method. Consultancy services that meet the requirements of paragraphs 3.8 to 3.11 of the Consultant Guidelines may be procured through single-source selection method with the prior approval of IDA. Individual consultants will be selected on the basis of their qualifications in accordance with Section V of the Consultants Guidelines. Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Expenditure Cstegory Procurement Method1 Total Cost IlCB Modirn ned NCB Other2 11CB/Commercial Practice ___ 1. Quick Disbursement 0.00 40.0 0.00 0.00 40.0 (40.0) (40.0) 2. Public Works 0.00 0.00 0.00 6.84 6.84 (6.5) (6.5) 3. Goods 0.00 0.00 0.57 0.57 1.14 (0.53) (0.54) (1.07) 4. Consultancy 0.00 0.00 0.00 2.33 2.33 Services and (1.97) (1.97) Training 5. Operating Costs 0.00 0.00 0.00 0.55 0.55 (0.46) (0.46) Total 40.0 0.57 10.26 50.86 (40.0) (0.53) (9.47) (50.00) 18 1/ Figures in parenthesis are the amounts to be financed by the Credit. All costs include contingencies. 2/ Includes civil works and goods to be procured through 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 Prior ireview thresholds 4.27 Prior review thresholds are presented in Table B below. Contracts for petroleum and fuel products estimated to cost US$ 3,000,000 or more under the quick disbursement component will be subject to prior review by IDA. The threshold for prior review for all the other items under the quick disbursement component will be US$500,000 or more. Contracts for goods estimated to cost US$150,000 or more under the MOAI component will be subject to prior review. 4.28 Contracts for consultant services estimated to cost US$100,000 or more for firms and US$50,000 or more for individual consultants will be subject to prior review by IDA. Terms of Reference and Single Source Selection for all consultant services will require prior review- by IDA regardless of the contract value. 4.29 These prior review thresholds may be updated after the first year of the project based on satisfactory project performance. Procuirement monitoring 4.30 During project implementation, the PCU will provide quarterly reports on progress of procurement highlighting difficulties encountered in the past, and how they would be addressed in the future to ensure timely project completion. There will be procurement supervision every six months which will include special procurement supervision for post- revieNv/audits. During these missions, IDA will review one in five randomly selected contracts which are below the prior review thresholds specified above. 19 Tlable 1B: Thresholds for Procurement Methods and Prior Review EExpenditure Category Contract Value Procurement Contract subject Thresholds Method To Prior Review (US$) (US$) Quick lDlisbursement Component (a) Imports of petroleum and > 3,000,000 Modified ICB 3,000,000 Fuel products (Private < 3,000,000 Commercial None - Post companies) Practice Review (b) Other imports under the > 500,000 Modified ICB 500,000 positive list < 500,000 Commercial None - Post (Private companies) Practice Review (c) Imports by Public > 150,000 ICB 150,000 Sector < 150,000 Intemational None - Post Shopping Review Public Works-MAISAIF All According to According to Component MASAF's MASAF's Operational Operational Manual Manual M(DAO Component (a) Goods 2 150,00 ICB 150,000 < 150,000 NCB None - Post < 50,000 National Shopping Review None - Post (b) Consultant services by Ž100,000 QCBS Review firms < 100,000 Consultants Qualifications 100,000 None - Post Consultant services by 2 50,000 Individual Review Individuals < 50,000 Qualifications Individual 50,000 Qualifications None - Post Review EnvironmentaD and SocisD Aspects 4.31 The operation is not expected to have any major environmental impact as it is largely a quick-disbursing instrument to provide financing on the basis of a positive list of 20 import requirements. A limited portion of about 16 percent will support public work activities through MASAF project which is classified under environmental category B. None of the project activities is expected to lead to or involve involuntary resettlement. However, a Resettlement Policy Framework will be prepared, approved and submitted during project implementation to guide any potential resettlement/compensation issues. Safeguard measures including environmental and social screening, assessment and mitigation will be applied during project implementation through MASAF's environmental and social management mechanism. The operation is classified as Category B. 5. JUSTIFICATION FOR THE PROPOSED OPERATION 5.1 Several important benefits justify the proposed operation. Expected major benefits include the following: (a) increased likelihood that the Government will succeed in preventing excess deaths and morbidity associated with the present food crisis, and will also be able to maintain investments in education and health critical to longer term poverty reduction; (b) poverty reduction and enhanced capacity of the vulnerable to buy food by stimulating production and providing employment and resources through public works to a large number of unemployed Malawian youth and women; (c) complementing the assistance provided by other multilateral organizations and bilateral agencies, as an immediate response to the Government's drought recovery efforts and being a catalyst for additional assistance; and (d) reduced likelihood of recurrence of food crises, due to assessment of policy and institutional failures that contributed to the present one and identification of appropriate remedial measures. 5.2 The operation carries risks. Delays may occur in delivery of the pledged humanitarian assistance by other donors, and the residual gap may not be fully pledged. The relief efforts undertaken by the Malawian Government may not be fully successful, given the magnitude of the effort and logistical challenges. In the previous year, publicly procured grain was released from a limited number of urban depots, and incentives to transport these supplies to rural areas with great need were poor. To prevent recurrence of this eventuality, the Govemment will prepare and make public a schedule of release of publicly procured grain, assuring that geographic areas and critical time periods are covered by the subsidized product. More generally, there is a risk that despite best efforts at relief by all parties engaged in the effort, some Malawians may still experience hunger this year. If the relief effort is less than fully successful, the process of recovery will also be more challenging. To mitigate this, donors have set a joint task force to coordinate, monitor and report on pledges, shipments and disbursements. In the past, lack of transparency and mismanagement has been a problem with regard to flows of grain for the food reserve. If this situation were to recur, it would undermine the efforts of recovery that the Bank seeks to support. Risk of mismanagement of project funds will be minirnized by establishing effective mechanisms for auditing and reporting, consultation and involvement of communities in the operation, and regular public information. In addition, the Government has committed to fully transparent accounting for all grain that it purchases for the present crisis, and to monitoring of the impact of the relief effort. A 21 further risk relates to fragmentation and insufficient coordination of efforts by the various actors at the national level, and limited capacity at the local level. Improved coordination at the national level can be achieved by designating one focal point at the PS level to coordinate technical inputs from the various ministries. A final risk relates to the danger of reversion to "business as usual" after the crisis abates, without putting in place sustained capacity to prevent and/or manage future crises. This risk can be addressed by securing commitment of the Government to contribute to a SADC-wide effort to improve crisis management, fulfilling the commitments, and addressing the domestic agricultural agenda outlined above. 6. AC¶TG'N PLAN 6.1 The Government's Action Plan is presented in the Emergency Drought Recovery Credit Policy Letter presented in [Annex 1]. 22 ANNEX I Telegrams: Finance. Lilongwe Ministry of Finance Telephone: (265) 789 355 P Bx 0 Telex: 4402Ml P.O. Box30049 Fax: (265) 789 173 Lilongwe 3 E-mnail:fiiarnce~nin-f,nance.sd.gmw MALAWI Ref. No. 19/1/9 20th September, 2002 Dr Dunstan Wai Country Manager The World Bank Malawi Office P 0 Box 30557 Lilongwe 3 Dear Sir, MALAWI EMERGENCY RELIEF CREDIT: LETTER OF POLICY We are pleased to submit to you the Letter of Policy on the Emergency Relief Credit and attachments. The Letter of Policy and attachments are being sent to you to complete the documentation required to process the Emergency Credit. Please do not hesitate to contact us in case you should need any additional information. Yours faithfully, Dr Maxwell M Mkwezalamba Principal Secretary (Economics) For SECRETARY TO THE TREASURY Attd. -23- ANNEX 1I Tclesraiw: Finance, Lilongwe MINISTER OF FINANCE Tclkphone: Lilongwe 782 199 P.O. BOX 30049 Telex: 44402 LILONGWE 3 Fax: 781 679 MALAWI Ref. No. 19/1/9 26'h August, 2002 The Vice President, Africa Region, The World Bank, Washington, D.C. 20043, United States of America. Dear Mr. Vice President, POLICY LMTER: MALAWI EMERGENCY RECOVERY CREDIT I would like to express my appreciation for your prompt response to my requests for emergency assistance of $45 million and $20 million and your approval for a credit facility of $50 million to implement a recovery program to deal with the current severe food shortage facing Malawi. 2. As I indicated in my letter referred to above, Malawi has over the last two years experienced food shortages due to severe floods and drought which have resulted in poor harvests. The maize shortage is estimated to be approximately 600,000 metric tonnes (mt). The food shortage has necessitated large-scale importation of maize. The country is expected to experience another food shortage in 2002/03 owing to the continued effects of drought, - flooding in some parts of the country, inadequate uptake of inputs, consumption of green maize or "corn on the cob" prior to the usual period of harvest, and lack of grain reserves. 3. To avoid further humanitarian distress, the Government declared a state of disaster on 27th February, 2002, indicating that Malawi is experiencing a catastrophic food shortage with a large number of the 24 farm families facing starvation. Following this, the Government appealed to the international community for intervention on humanitarian grounds (see Annex I and 11 for details). The donors have responded by so for pledging about 140,000 mt out of the required 208,000 metric tonnes of maize for relief. The relief programme is being co-ordinated by the World Food Programme. Another 75,000 mt is expected from the Winter Input Programme. Private sector sources are expected to provide a similar quantity. Given that the maize to be brought by the cooperating partners and the private sector is likely to fall short of the country's requirements, the import of 250,000 mt of maize for commercial purposes is necessary at a total cost of around US$75 million. However, the private sector's ability to import this additional maize is hampered by the high cost of borrowing. 4. The government intends to use the foreign exchange reserves at its disposal to contract the purchase. This will deplete foreign exchange reserves and expand the domestic debt stock, exposing the economy to the risk of macroeconomic instability. 5. The Government in this regard plans to use the IDA resources of US$45 million from the World Bank to augment its foreign exchange position and to support the recovery programme. The proceeds of the IDA support will be allocated through the budget to support the recovery programmes and to maintain economic and social priorities during this period of crisis. The Government's revised budget will include allocations for the Public Works Program (PWP) and other mechanisms of assistance to the vulnerable now under consideration, repairs to the Nacala railway line, the targeted inputs program, and studies to avert future food supply crises - including the review and updating of the country's Food Security Policy. Pricing Policy 6. A large part of the population is unable to afford the maize at import cost and we will therefore sell the 250,000 metric tonnes of maize at a subsidised price of MK1 7 per kilogram. The ability of our people to cope with the impending shortage has been seriously eroded by the crisis earlier this year, when the poor sold their assets to purchase food. Thus, in addition to the one-third of the population receiving humanitarian aid, we believe that another one-third of the remainder, of those classified as poor, will need assistance as they will not have the purchasing power to afford the maize at import cost. Our preferred option would have been to provide a targeted subsidy. However, we have insufficient time to design and implement a nationwide program through cash transfers or coupons. 25 7. We have elected to combine a price subsidy with additional measures of targeting to direct the maize to those in need but unable to pay the full price. The price subsidy will be reflected in the budget. Due to our shared concerns about possible diversion of subsidized maize to neighbouring countries and/or to income groups not in need of assistance, we intend to ration and monitor distribution through the Joint Government/Donor/United Nations (UN) /Non-Governmental Organisation (NGO) Task Force which will oversee operations at national, district and community levels. 8. I wish to confirm that Malawi remains committed to economic reform programmes including liberalisation. It is therefore our intention to discontinue the subsidy after the food crisis. 9. I have taken this opportunity to provide some details on the actions that the Government is taking to address the immediate food crisis and to reduce the recurrence of future food crisis. The Government's Actions to Address Ohe Immediate Crisis of Food Shorlage Distribution to Reach the Vulnerable 10. Two parallel modes of maize distribution are envisaged to mitigate the prevailing food crisis, one for the commercial maize and the other for the humanitarian food aid. Government is committed to ensuring transparency in the management and control of both commercial maize and the humanitarian food aid. In order to achieve this, Government will ensure that control and management of the two types of stocks will be done separately. Management and distribution of the humanitarian food aid will be handled in collaboration with World Food Program (WFP). Importation of commercial maize will be entrusted to the National Food Reserve Agency (NFRA). The maize imports will be financed through the Reserve bank of Malawi (RBM). NFRA will then sell the maize to the Agricultural Development and Marketing Corporation (ADMARC), or a credible trader who may be contracted after review and approval by the Joint Task Force, and proceeds from the sale of the maize will be deposited by the NFRA in an account at the RBM. ADMARC, or the contracted trader, will retail the maize to recipients. To ensure transparency and accountability, the Joint task Force will oversee the flow of payment of sales proceeds from maize by ADMARC and/or trader to 26 NFRA, and eventually into the RBM account. Reconciliation of the account will be done within 30 days of transactions. 11. The Joint Government/Donor/UN/NGO Task Force will oversee the overall coordination of the national response to the crisis. District and Village Level Civil Protection Committees have been formed to support implementation at the community level. A lead NGO has already been selected for each district to coordinate relief operations. Vulnerable groups to benefit from the humanitarian food aid will include the elderly: female headed households; the orphans; families having adopted orphans, particularly those affected by HIV/AIDS; the chronically ill; small land holders who experienced severe crop failures; and the landless. Logistical Bottlenecks and Distribulion Plan 12. Learning from 2001-2002 maize importation exercise, implementation of the emergency food crisis program may be subject to major constraints. These include poor operational procedures and congestion at the ports and off-loading points, inadequacy of haulage capacity for domestic food distributions, and the poor condition for most rural roads. The Government has taken particular note of the importance of improving operations on the Nacala corridor, including repairing the line between Cuamba and Entra Lagos to facilitate quick and efficient flow of stock from the ports into the country. Trucks' for internal transportation are being imported, for example, through the WFP/NGO consortium. In addition, Government plans to improve internal logistics and networks in order to further improve distribution of stocks, for example, through paying attention to road infrastructure improvement by expansion of public works and provision of equipment. 13. Geographical targeting in the distribution of commercial maize will be based on the district food requirement assessment as provided in Annex Ill, while temporal targeting will be based on national average maize consumption, estimated at 30,000mt/month. ADMARC will prepare distribution plans based on this information. 14. The vulnerability assessment will be used to arrive at monthly allocation per district. The assessment will be updated in Qctober and January. The existing Vulnerability Assessment Committee composed of representatives of the National Economic Council (NEC), Ministry of Agriculture and Irrigation, the Donor Community, Department of Relief and Disaster Preparedness and NGOs, will undertake the monitoring of the maize delivery and distribution. 27 Institutional Arrangement In the MaAze Distribufilon 15. A Program Implementation Unit (PIU) is to be established under the Ministry of Agriculture and Irrigation to manage the maize import and distribution processes. A Logistics Officer will be assigned within the PIU, specifically to oversee and monitor the operations of ADMARC and NFRA in the maize marketing and distribution. The PIU will be reporting to the Joint Task Force on the Management of the Food Crisis. 16. Government will ensure that there is no conflict in the operations of ADMARC and NFRA in so far as local purchoses and distributions and management of the Strategic Grain Reserve (SGR) is concerned. Procedures are being developed by a specific working group under the Joint Task Force. Specific attention will be given to measures to prevent recycling of subsidized maize into the SGR and elite capture of subsidized maize, for example, through restriction in the quantities permitted per sales transaction. These measures will be publicized widely. Informafion Education and Communicafton (IEC) in Maize Distribution 17. A structured IEC effort will be implemented during the whole program to convey information on the geographical distribution of the maize and prices at which it will be sold. This will be coordinated by the Information Systems Working Group under the Joint Task Force. Specific personnel will be allocated on a full time basis to implement the IEC. Channels of mass communication including TV, radio and pri,nt media will be used to inform the public. In addition, the agricultural extension network will include information on distribution plans and prices in its leaflets and posters. NGOs and faith communities will form part of the information network. Government Action to Assist Preparation for the Next Harvest and MAitigate Future Crises. 18. To avoid the resurgence of the problem for the next season and in the foreseeable future, the Government has initiated a number of programs inter-linking short, medium and long term measures as follows: * Providing free inputs through the Targeted Inputs Programme (TIP) to smallholder farmers who have land but lack basic inputs like fertilizer and improved seed. o Promoting public works program (cash, inputs or food for work). 28 * Establishing employees inputs credit schemes. * Promoting irrigation (use of simple technologies such as treadle pumps and canals) and crop diversification (root and tuber and other drought resistant crops). * Facilitating provision of input credit by financial institutions. . Encouraging and promoting the use of manure to complement inorganic fertilizers. * Promoting natural resource management, to contain and reverse environmental degradation (in liaison with other administrative structures and stakeholders); * Medium and long-term improvements to infrastructure, logistics and transport, including international transport links through Mozambique (Nacala, Beira and Quelimane). * Continuing, where appropriate, with policy reforms. * Developing a comprehensive national food security policy. A number of these programs are already being implemented. For instance, the Extended TIP, Public Works Program, and encouragement and promotion of manure to complement inorganic fertilizers are already in place. In addition, Government is currently developing a comprehensive food security policy. 19. 1 am satisfied that the actions and programs outlined above contribute to an adequate and satisfactory set of interventions to manage the current emergency effectively. I further hope that this will maintain the long term policy and development thrust of the Government, and that the actions will avert or reduce the impact of similar crises in the future. Yours sincerely, Frdy A. Jumbe MINISTER OF FINANCE AND ECONOMIC PLANNING 29 Annex 2 COST SUMMARY- MALAWI EMERGENCY DROUGHT RECOVERY PROJECT (US$ MILLUONS) Govt. Counterpart. Component (category) Total Foreign Local Funding A. Quick Disbursing Component 100% Imports 40.00 40.00 financing 0.00 0.00 Consultant Services 100% 80% (including audits) 1.30 1.00 financing 0.30 financing 0.06 B Pub. Works Prog.(w/ subitems) 95% 1. SSPs 0.72 0.00 0.72 financing 0.04 80% 2. Equipment-Task Force 0.13 0.00 0.13 financing 0.03 100% 3. Multi Sectoral Training 0.62 0.00 0.62 financing 0.00 85% 4. Extra Operating Costs 0.16 0.00 0.16 financing 0.02 95% 5. PWP Sub-projects 6.37 0.00 6.37 financing 0.32 100% 80% C. Equipment and Veh. 0.20 0.10 financing 0.10 financing 0.02 D. Project Management 100% 80% Operating 0.30 0.20 financing 0.10 financing 0.02 E. Unallocated 0.20 0.20 0.00 GRAND TOTAL 50.00 41.50 8.50 0.50 30 Annex 3 Allocation of Credit and Grant to Categories _______________ ~in USD Category Total Grant Credit 1 Eligible imports 40,000,000 (a) petroleum 7,000,000 0 (b) other than petroleum 14,000,000 19,000,000 2 Goods _ ( part C 200,000 0 200,000 (b) part B.3 130,000 0 130,000 Cons. services, 3 including audit for Part C 1,300,000 0 1,300,000 4 Training for part B.3 620,000 0 620,000 5 Sub-projects (a) Part B.1 6,370,000 0 6,370,000 (b) Part B.2 720,000 0 720,000 6 Operating Costs (a) part C 300,000 0 300,000 (b) part B.3 of the Project 160,000 0 160,000 7 Unallocated 200,000 0 200,000 50,000,000 21,000,000 29,000,000 31 Annex 4 Positive List Items Items Quick-Disbursing Component of USD 40 miHion Retroactive Financing 20% of USD 50 million Other Under Under Payments Grant Credit Petroleum & Fuel Products 4.2 0 2.8 Agricultural Inputs 0 5.8 1.2 Ag. Equipment 6.0 Construction Equipment 4.0 Spare Parts 5.0 Livestock, Animal Prod. & Vet. 2.0 Supplies School Supplies _ 4.0 Medical Supplies & Equipment 5.0 Total (USD millions) 4.2 5.8 30.0 32 Annex 5 Supporting community responses to the food crisis 1. Bank support Background 1.1 The 2001 Malawi Poverty Reduction Strategy Paper (MPRSP), a successor to the 1995 Poverty Alleviation Policy Framework Document, has four basic pillars within which the Government intends to achieve poverty reduction. There is a recognition in all the pillars that community action is a necessary pre-condition for achieving the goals of the strategy - be it pro-poor economic growth, improving the lives of vulnerable persons, improving governance, or achieving human capacity development. Similarly, the cross- cutting issues of HlV/AlDS, gender, and the environment all require community participation if the goal of self-reliance is to be achieved. The emergency crisis facing Malawi is to a large extent a consequence of past shortfalls in achieving success in the four pillars and three cross-cutting issues outlined in the MPRSP. Strengthening the work of agencies which support community development in Malawi during this crisis should make a useful contribution to the foundation being laid to implement the MPRSP. It is for this reason that the EDRP will support several agencies with responsibilities for promoting community participation for empowerment: District Assemblies, Traditional Authority, MASAF, NGOs, CBOs, Community Support Organizations, Ministry of Community Development, Department of Local Government, Ministry of Agriculture and Irrigation, as well as community elected committees. 1.2 The newly-elected Government of Malawi in 1995 established the Malawi Social Action Fund (MASAF) in the same year as part of its strategy to strengthen community participation in the implementation of the Poverty Alleviation Policy Framework Document. The Project design, structure and procedures have evolved during this time in order to respond effectively to the demands of communities. High demands from communities and early full commitment of available funds led the Bank to finance a second phase (MASAF H) in 1998. MASAF II was fully committed by 2001, but there were unfunded community requests worth over US$300 million. The Government of Malawi set up a Programme Preparation team for a third Phase of MASAF, and the Bank responded positively - with the design of an operation which will be appraised and made effective during this financial year. 1.3 in the context of the current emergency, it is proposed to scale up certain community interventions at the community, NGO/CBO, and District Assembly levels within ithe framework of MASAF working with the Ministries of Agriculture, Local Government, and Community Development. The cash-transfer Public Works Program (PWP), implemented in areas identified by District Administration as suffering from severe food shortages, provides the first opportunity to scale up community response to the crisis created by food shortages. The PWP allows District Assemblies (DAs)to mobilize able-bodied vulnerable community members like widows, female-heads of 33 households, and the landless to construct assets (community roads, bridges, water reservoirs, and environment rehabilitation) though self-targeting wage set just below the minimum market wage. Although Community Development Assistants (CDAs) have been active in community mobilization for Community Sub-Projects (like schools and clinics), they have been less active in the PWP. In the context of developing a comprehensive PWP intervention in response to the crisis, it will be necessary to develop a comprehensive program to equip CDA with improved skills. 1.4 A Sponsored Sub-Projects (SSP) component was piloted under MASAF II in response to the needs of vulnerable persons who could not participate in PWP (orphans, street children, people with disabilities, the aged, and those infected and affected with HIV/AIDS). The SSP provides financial grants and technical support for programs targeted at the marginalized persons by NGOs, CBOs, and CSOs. The main activities supported under SSP are skills training, capacity building, income generating activities, construction of skills centers, day care centers, food security initiatives, and home based care management and advocacy. The Ministry of Health and Population (MPHP) has also been involved in mobilizing communities to feed children (therapeutically at hospital- based Rehabilitation Units and at health center-bases Supplementation Sites), but there is little scope for expanding these because the MOHP is greatly constrained by a staff shortage - estimated at 50% staff vacancy rates. Thus, the main strategy for expanding support for vulnerable groups is through the work of NGOs, CBOs, and CSOs; some supported by MASAF, but many working with little extemal support. The many community members who have come together to look after vulnerable persons at the household level have limited opportunity to access extra resources, and the emergency offers us an opportunity to respond to this need. Lessons learnt 1.5 In promoting Community Demand-Driven development, MASAF has learnt lessons from its interactions with communities, NGOs, CBOs, CSOs, District Assemblies, and central line Ministries. Some of these lessons are relevant to the design of the ERC, the main ones being:- o Communities can develop the capacity to manage sub-projects to increase service access, but there are few suitable mechanisms for direct transfers to individuals. Most success has been in the building of community assets to increase access to services, with a total of 1,392 CSPs completed under MASAF I and a similar number is expected under MASAF II. o A self-targeting wage is an effective mechanism to reach the able-bodied vulnerable persons, but there are major management deficiencies in the District Administrative structures - especially accounting for funds and provision of technical supervision. Under MASAF I, a total of 13.6 million person days of employment were created, transferring a total of MK 165 million and building a total of 5,036 miles of community roads. More is expected under MASAF II due to extra resources provided by the DfID to this component, but there is need to 34 unleash the potential capacity of DAs to respond to community needs and increase public assets in the districts. * In addition to the existence of formal NGOs/CBO, communities have been able to form their own Community Support Organization (CSOs) to facilitate the transfer of resources to those who are vulnerable and unable to take advantage of the PWP wage. There are nevertheless some capacity constraints in these organizations, especially in remote areas where training and learning opportunities are limited. A pilot under MASAF II is so far supporting close to 100 CBO/NGO/CSO projects at a total cost of US$1.5 million, it has been difficult to expand this support due to resource and capacity constraints. * Weak extension systems by Government agencies have impacted negatively on the ability of communities to transform social capital from MASAF to economic capital; especially in agriculture-related investments. The CDAs have found themselves very short of resources although they are a critical resource in community mobilization. Similarly, the reported decline in numbers of agricultural extension workers, as well as inadequacy of resources for effective agricultural extension, has constrained the conversion of social capital into economic capital as a basis for poverty alleviation. * Shortages in recurrent costs, especially that related to human resources, on the part of central ministries has hindered the full use of assets created by communities under both the PWP and CSP. Inadequate Government funding for a number of ministries such as Community Development, Agriculture and Irrigation, and others has negatively impacted on the empowerment of communities so that they can become better partners in the delivery of services. It is for this reason that the MOHP has for instance been unable to expand the Community Drug Revolving Fund, which is necessary for increasing access for communities in remote areas. * The private financial sector has not been fully mobilized in the current MASAF operations, affecting the ability of communities to take advantage of market- created opportunities. The micro-finance sub-sector has limited outreach, there are few outlets for agricultural inputs on account of low cash availability in the rural areas, and rural markets for agricultural produce have been severely constrained. * When communities are under stress from drought and seasonal demand for agricultural labour at the household level, MASAF activities are affected. There is often increased demand for PWP and SSP during drought, while communities tend to pull back from CSP. Increased household labour demands tend to affect all MASAF activities negatively. During this emergency, it is expected that the completion of CSPs supported by MASAF will be slowed down while there will be increased demand for PWPs. * Information, Education, and Communication (IEC) have proved the most potent tool for promoting transparency and accountability; backed by community-based 35 accounting for funds channeled to communities. The lack of an adequate district- level Management Information System (MIS) and Monitoring and Evaluation structures have nevertheless put constraints on the development of a community- based IEC capacity of intensifying accountability at the lower levels. MASAF safety operations under PWP have stopped at the cash transfer stage. For increased socio-economic impact, there is need to gain a deeper understanding of intra-household decision making processes and work with participating households so that they can engage in income generating activities as well as promote savings. 1.6 These and other lessons have been influential in the design of MASAF 3, and will inform the design of the EDRP component to be implemented through MASAF and its partners (several national line ministries, District Assemblies, NGOs/CBOs/CSOs, and Project Management Committees) supported by national sector ministries. 2. Proposed Actions 2.1 While the crisis affecting Malawi today has many causes which need to be tackled in the medium and longer-term, the EDRP will, in addition to responding to the immediate crisis, begin to lay a foundation for these issues to be addressed once the crisis has stabilized. Thus, the policy and institutional changes needed in a number of areas cannot be tackled now, but some initiatives can be started now to provide a suitable entry point for longer-term interventions. The EDRP will support social investments, public works, and vulnerable groups through MASAF using mechanisms established under the current project (MASAF I). The main activities proposed are:- 2.2 (a) Increase PWP funded through Cash For Relief Work in all District Assemblies. During this drought, the Government of Malawi channeled MK1 13 million through MASAF to start a Cash for Relief Work (CFRW), which allowed District Assemblies to incorporate small Public Works Projects with quick approval processes and with a set maximum of MKO.5 million per project. The District Assemblies have indicated that they can scale this up substantially if clear guidelines and procedures for district-level approval and accounting are available. With DflD financing, MASAF is deploying an Accounts Assistant in every DA (both rural and urban) for this purpose and simplified approval procedures (to be adopted under MASAF 3) are being formulated for use under the ERC. The DflD has also allocated US$1.7 million to MASAF to finance CFRW within the PWP starting September 2002. 2.3 The PWP will be paying each beneficiary MK30 per day and an additional cash adjustment based on the need to bring the wage to the price of 2 kilograms of maize at market prices. MASAF will put the cash adjustments over and above the PWP wage into accounts held by the Malawi Savings Bank, or it will pay lumpsums at the end of the month. 36 2.4 As part of gearing towards MASAF 3, the PWP will be fully decentralized to District Assemblies with a new implementation mechanism characterized by the following: - * DAs will be allocated funds, based on a formulae developed by the Local Govermnent Finance Committee, only as these become available, and not on promises of finds. * Every DA will open a PWP account, get an Accounts Assistant with a computer from MASAF, and ensure that the Accounts Assistant is among the signatories. * Funds allocated to the DA will finance, among other things, sub-projects in: roads rehabilitation, some new road works, water conservation, soil conservation, community compost heaps, community food banks, seedlings nurseries, small earth dams, hyacinth clearance, flood control, and others. * All sub-project worth less than US$10,000 will be approved by the District Executive Committee (DEC) and endorsed by the full DA; and sub-projects above this US$10,000 threshold will be forwarded to MASAF MU for review and approval. * Sub-project costs will aim for a minimum of 60% of the costs going towards unskilled labor; and any sub-project without this minimum will be subject to review by MASAF MU before implementation can commence. * MASAF will disburse funds to DAs in three trances of 40%, 30% and 30%; with requests for the second tranche being made when 70% of the first tranche is utilized and accounted for. * The DAs will utilize a MASAF supplied computer and software to maintain project records, and to produce specified reports for comrnmunity leaders, councilors, Zone Offices, District Assembly, and MASAF MU. On a monthly basis, MASAF MU will prepare a summary performance report by DAs and publish it in the local press for public accountability. * MASAF MU will strengthen its financial management system at three Zone Offices (central, southem, and northern) so that DAs can receive technical support with their accounting for funds. The IEC, MIS, and M&E systems of MASAF will also be strengthened in support of this decentralized implementation of PWP. * Resources will be made available for the training of Community Development Assistants and Officers so that they can strengthen the implementation of PWP in the districts. * MASAF will enter into an MOU with the Local Government Finance Committee spelling out the provisions to be followed by the DAs, and the Finance Committee 37 will be supported with resources to undertake limited monitoring of how the DAs are implementing the MOU. 2.5 (b) Extend Sponsored Sub-Projects (SSP) for the vulnerable Many of the SSPs involved in income-generating projects are facing hardships as their projects have also been affected by drought. The NGOs/CBOs managing these SSPs will be supported so that they can receive food from the humanitarian assistance distributed under the WFP, failing which they will get a limited grant to supplement their incomes and undertake feeding. Furthermore, many of them have expressed a desire to run hammer mills as revenue-generating activities, but these will also contribute to a reduction of labor demands on women by brining grain milling capacity closer to the homes. Tnus, there will be a limited number of hammer mills distributed to these NGOs/CBOs working with Incapacitated Vulnerable Persons (IVPs). 2.6 (c) Support Community Food Banks As a bridge to post-drought recovery methods, the PWP wage will be extended to community groups involved in establishing Community Food Banks (CFBs) which can be used to feed the IVPs in normal times and extend support to other vulnerable persons in times of emergencies. Traditional Authorities, Village Headmen, and communities with agriculture-based Income Generating Projects for IVPs can be supported to establish Compost Heaps, prepare land for Community Food Banks (CFBs, receive agricultural inputs, plant, weed, and harvest the crops for storage in the CFBs. These CFBs would be under the control of a Traditional Leader supported by an Elected PMC - making up a CFB Committee, which would ensure that the grain is distributed to the IVPs in normal times and selected vulnerable persons in emergencies. In times of food crisis, such as the present, communities could also designate the site of CFBs as suitable for supplementary feeding (cooking to feed malnourished children and others in need of supplements). Thus, the CFB Committees could become important permanent mechanisms in communities for purposes of targeting assistance to the very vulnerable in a transparent and accountable manner. These CFGs will be evaluated at the end of the emergency, and the lessons used to improve the delivery of MASAF 3. 3 Studies and tecdhnical assistance 3.1 The expansion and scaling up envisaged here would require some selected strengthening of delivery mechanisms at MASAF Management Unit and District Assembly levels. In particular, the IEC, M&E, MIS, and Financial Management systems would require strengthening with short-term staff and with resources to produce the materials needed to ensure public accountability at community, district, and national levels. For instance, MASAF plans to publish monthly status reports (in the press) showing how every DA is performing, and a summary of the whole ERC component under MASAF management. 3.2 MASAF has been given the responsibility to develop and implement an IEC program for the emergency by the Joint Task Force, and staff for this activity will work under MASAF - but with mandates supplied by the Joint Task Force. Thus, it is proposed 38 to attach a Relief IEC Officer in the Zones with strengthened accounting capacity so that they can work together in preparing information to strengthen accountability. 3.3 At the end of the EDRP, it will be necessary to carry out an evaluation of how communities, DAs and national level agencies worked together, with a view to using the lessons in the improvement of MASAF operations in the areas of vulnerability and social risk matnagement. 4. Institutional arrangements 4.1 MASAF will designate an Officer at Management Unit for the EDRP to ensure that there is integration and improved collaboration. The designate EDRP Officer will be accountable to the Directors for SSP and PWP, and will ensure that EDRP activities do not hinder the successful completion of MASAF II (set to close on May 31, 2003) and the design of MASAF 3 (set to be delivered this financial year). Any strengthening of systems (IEC, MIS, M&E, and finance) within MASAF in response to the EDRP will be co-ordinated by the EDRP Officer, who will be the liaison person between MASAF and all agencies working on the EDRP; but technical officers will work under the relevant MASAF technical unit. 4.2 MASAF will send EDRP progress reports to the Secretariat set up to manage the ERC under the MOAI, co-ordination focal point in MOF, and the Ministry of Poverty and Disaster Management Affairs, for these activities. Information from community, NGO/CBO/CSO and DA level work with MASAF will be made available to these national focal points on a monthly basis, including accounts, beneficiaries being reached, and performance by various implementing agencies. Suitable summaries of the same information will be disseminated through the press for enhanced public accountability under the EDRP. 4.3 MASAF will also work with the Ministry of Community Development, Ministry of Local Government, and Ministry of Agriculture and Irrigation to address capacity constraints in the way extension staff in these ministries work with DAs so that the EDRP can be a success. The main interventions will be training and some limited resources to strengthen supervision and monitoring within the DAs. In the case of the DAs, it is expected that there will be DA staff (at least one) made available to work with the Accounts Assistant to ensure that information is entered into the computer so that information for councillors, DA, communities, zones, and MASAF MU can be produced on time. 5. Justification 5.1 MASAF channels funds directly to communities, CSOs, CBOs, NGOs and District Assemiblies. On the basis of past performance in transferring assistance to vulnerable persons through PWP and IVPs through the SSP, MASAF has been identified as a suitable partner to implement the EDRP. The transfer of cash minimizes the risks of loss between the source and the beneficiaries, and allows communities to take advantage of 39 market channels in the distribution of inputs (food, building materials, agricultural inputs, etc.). The approach adopted by MASAF strengthens both the private sector and Government structures working directly with communities. Over the last seven years, MASAF has established a management and community infrastructure which can respond to the EDRP and deliver flexibly, transparently, and speedily primarily using self- targeting mechanisms. 5.2 It is estimated that close to 2 million beneficiaries will be reached with this emergency PWP if the arrangements with DAs can be finalized and implemented. The topping up of PWP wage with cash based on the need to meet a need for 2 kilograms of maize, combined with a savings element, will not only give the able-bodied vulnerable persons an opportunity to eam money for food purchases, but give them an opportunity to save for some agricultural inputs. 6. Action plan - Agree on resources available to MASAF under the EDRP, and inform MASAF MU so that it can prepare the DA allocation schedule for dissemination. - Give MASAF authority to immediately finance EDRP activities using CSP resources being held for next year's disbursement to communities (retroactive financing). - Agree on format and date for first progress report. - Develop an MOU government the new relationship between MASAF and DAs in the implementation of the EDRP. 7. Budget 3.1 This budget is based on the assessed capacity with respect to what the District Assemblies might be able to absorb during this emergency. It is expected that MASAF will get these resources from the DfID Emergency Relief contribution. IDA EDRP contribution, and government contribution from local funds generated from the fast- disbursing component of the EDRP . 7.2 The US$8 million set aside for use by MASAF under the EDRP would be used as follows:- US$ - SSPs 0.72 - Equipment (task force work) 0.13 - Training 0.62 - Extra operating costs 0.16 - PWP sub-projects 6.37 Total 8.00 Costs for strengthening the IEC within the Joint Task Force framework would be taken from the US$ 2 million set aside for studies and technical assistance. 40 7.3 The eventual size of the emergency PWP will depend on how many more resources can be mobilized during this period. COSTING SUMMARY: MAXIMUM ABSORPTION Sub-component MK US$ SUB-PROJECTS COST - PWP 1,618,814,340.00 21,160,971.76 SUB-PROJECTS COSTS - SSP 41,000,000.00 535,947.71 EQUIPMENT (Joint Task Force work) 6,120,000.00 80,000.00 TRAINING / WORKSHOPS 34,807,500.00 455,000.00 IEC (Joint Task Force work) 4,207,500.00 55,000.00 INCRE.ASED OPERATINGS COSTS 9,206,300.00 120,343.79 TOTAL COSTS 1,714,155,640.00 22,407,263.27 41 LOGFRAME Indicators Means of Risks and Verification Assumptions Goal: To assist with management of Minimal levels of M&E for drought Logistical the drought and recovery. increased death and effort, health bottlenecks, morbidity, adequate indicators, inadequate preparation for agricultural surveys managerial capacitv subsequent crop year Objectives: To contribute to a reduction in Health indicators Ministry of Health Assumed that hardships imposed by floods and School attendance reports. current GOM-Donor drought on Malawians, restoring the Distribution of Ministry of Agric. collaboration will be productive capability in the country agricultural inputs and reports. maintained and even and supporting longer-term advice improved. Goverunent capacity in disaster Adequate focus by management. Government on logistical issues. Outputs: * successful procurement of Performance of Procurement Assumed that items from positive list Disbursement and records.Records kept District Assemblies Quantities of items by Secretariat. will quickly gain the * expanded participation in public Procured against positive MASAF reports experience and works program list. expertise to * identified TA completed document progress * M&E progress reports produced Decline in number of Reports kept by and prepare reports and shared. under-five malnutrition. Secretariat, MOAI on tine. and MOF, joint task * accountability interventions Number of participants force. disseminated. in Public Works Programs increased. Number of drought mitigation studies undertaken. Increase in areas under irrigation. Detailed components: Procurement under A. Fast Disbursing Fund positive list B. Social Investment (MASAF) Participants in public works programs, additional drought related special projects C. Studies and Technical Assistance Reports, public information, dissemination 42 Estimating impact of various emergency interventions Intervention Activities No. of Total Cost $ per beneficiaries cost, US$ beneficiary millions Fast disbursing Import of critical items NA 40.0 component Public Works Scale up public works About 11 8.0 Payments of through District Assemblies million about $.5 person/days, per day distributed (equivalent among 70% to 2 kilos of poorest maize) Studies. public Support work of task forces, 2.0 education, public dissemination, agricultural advice additional resources for agricultural extension 43 Annex 6 Addendum A. Addendum on Nutrition Strategy & Distribution of Hummanitarian Assistance 1.1 The Malawi Poverty Reduction Strategy includes nutrition under two of its four pillars - human capital development and improving the quality of life of the most vulnerable - with the Ministries of Agriculture and Irrigation, the Ministry of Health and Population and the Minister of State for Poverty Alleviation Programmes. The MPRSP recognizes the need to coordinate the various programs that affect nutrition and to this end suggests that a food and nutrition council be set up. 1.2 In the short term, protecting the nutrition of children will mainly be addressed through the humanitarian relief efforts underway. In addition to the provision of free food to vulnerable households under the WFP these include programs for supplementary feeding as well as school feeding in selected sites (though the main objective of the latter is more to achieve educational goals than to prevent malnutrition).2 UNICEF is taking a lead in the provision of supplementary feeding. Children who are deemed malnourished receive 10 kg. of supplementary feeding as take home rations every month. This serves as a second tier of protection for vulnerable children in the sense that it reaches children who have not benefited from relief for one reason or another. However they currently reach only 48,00 children - maybe 10% of the number of young children who are acutely malnourished, the criterion for eligibility (there is currently no surveillance system that tracks acute malnutrition, although UNICEF and other NGOs are establishing one). Despite this need, expansion of this program - which is clinic based - is hindered by the lack of capacity in the Ministry of Health. 1.3 Even in years of excellent harvests levels of malnutrition in Malawi are high. Global experience - as well as experience in Malawi over the last 20 years - indicates that supplementary feeding programs without community based support to care givers leads to little sustainable improvement in nutritional indicators. On the other hand, a number of community based growth promotion projects have achieved measurable success with little or no food transfers. Thus, while the focus on providing food to young children and pregnant women during the emergency is fully justified, a sustainable strategy for reducing the number of underweight children needs to shift the balance of services to include community based activities that impact skills to care givers. B. Distribution oT Humanitarian Assistance 2.1 The following existing procedures put in place by Government of Malawi in partnership with development partners will continue during the ERDP implementation. A National Disaster Preparedness and Relief Committee (NDPRC) has been established as 2 The WFP also supports take-home food distribution conditional on school attendance of girls on a limited scale. 44 the highest institution to manage the emergency response under the Ministry of Agriculture and Irrigation, and the Ministry of Poverty Alleviation and Disaster Management Affairs. International agencies, under the leadership of the UNDP, have been incorporated into a GOM Joint Task Force (under the NDPRC), with a Secretariat, to manage relief activities through five Committees - one of which is the Humanitarian Response Committee (HRC). The other four committees are Management of Strategic Grain Reserve, Inputs and Logistics, Food Policy and Programs, and Information Systems Development. At lower levels, the HRC works through District Assembly Task Forces chaired by District Commissioners and implementing activities in Traditional Authority Areas through Area Relief Committees, and in villages through Group Village and Village Relief Committees. Thus, the HRC has four organizational structures below it to handle the distribution of food to the vulnerable households identified using criteria administered by the Village level Relief Committees. 2.2 Food channeled through these committees is procured externally and delivered to the World Food Program (WFP) depots for storage, while district-level NGOs distribute the food. These NGOs are reimbursed between US$18 and US$35 per metric ton for their logistics. In this distribution system, Government has left its structures with management oversig:ht responsibilities while food distribution has been given to the WFP and NGOs. 2.3 In accord with WFP standard procedures, targeting of the relief is based on a prioritization of need with female or child headed households, households fostering orphans, elderly, and landless deemed most vulnerable. A monthly ration of 50kg of grain is provided to each household targeted regardless of the household size and composition. Whenever possible the grain is delivered to a female household member. The WFP also intends to include pulses, cooking oil, sugar and ground nuts in the distribution depending on availability. At this time the WFP consolidated appeal (launched in late July, 2002) is not filly funded; the WFP reports particular difficulty in obtaining pledges for supplementary foods, such as pulses. The program expects to deliver 6,000 tons in August and scale up to over 25,000 tons a month by the end of the year. 45 Annex 7 A Summary of Malawi Emergency Drought Recovery Project -Transport Issues I. ASSUMPTIONS: o There is a projected need of mainly maize but also other food imports of approximately 600,000 tons within the next 7-9 months (between August / September this year and March / April of next year); o Imports of such needs as emergency have already (August 2002) started and will continue to intensify for the next 4-6 months up until the next first harvests by March 2003. Thereafter, if rains and consequently harvests are good, then food imports may taper down and reduce; o The most probable source for the imports are external to the region and therefore that all shipments are coming into the region by sea; o The options for receiving relief goods are, therefore, limited to the Northern Corridor, the Nacala Corridor, the Beira Corridor and imports through the RSA; o These corridors are the same ones used for all other imports and the exports of the country; o The large quantities of agricultural inputs including fertilizer planned to be imported within the next four months (an average of 3040,000 tons per month) will have a competing impact on limited discharge, loading / off-loading, storage capacities at the ports causing congestion; o There will be a transport constrain created by lack of capacity especially with regard to the limited rail transport capacity. These assumptions are made on the basis of existing data and information. They make a clear case for closer examination into the logistic mechanisms as they currently operate, for anticipation of possible bottleneck situations that may occur and for exploring the potential improvements that can be suggested. ML F1DINGS a) The locations for the need The need for transport services in the immediate future is a factor of the need for emergency items requirements by the population. The distribution of such requirements country-wise can be construed to be directly proportionate to the densities of population. Geographically, therefore, the needs would be largest in the Southern Region, followed by Central Region; and be lowest in the Northem Region. In respect of logistics, for consideration and comparison of different alternatives, a central point of reference for the country as a whole would clearly be Lilongwe. b) The Transport System The options for import routes for Malawi are limited to the four corridors: The Northern Corridor, the Nacala Corridor, the Beira corridor, and the Southern Corridor (through RSA). The cost estimates (as given by WFP and generally confirmed, albeit by slightly lower figures, by other sources) in relation to each one these four corridors, as shown in the table below, are very much in favor of the Nacala option, followed by Beira. 46 Table I: Transport and Handling Costs (in US$/ton) (Southern) DEST[NlATION NORTHERN BEIRA - NACALA RSA VIA MAJOR MALAWI DIRECT (MALAWI CARGO DIRECT DIRECT CENTRES TRUCK CENTRE) MBEYA TRUCK RAIL TRUCK To Lilongw 137 124 (115) 101 (87) 64 (125) To BlarLtyre 144 137 (122) 80 (76) 60 To Liwonde 142 132 (120) 90 (76) 55 To Mziimba 118 100 (96) 111 84* Transport Time 5 days 6 (5 _ys 2 days 3 days Cost to Lilongwe (as % ofNacala) 214 % 194 (180) % 159 (136) % 100 % Source: WFP (figures in brackets are from other sources) * by road ex Lilongwe Malawi being a landlocked country is rather far from ports, is a highly formalized country with cumbersome procedures for commercial operations, and is one where the informal sector is not so well developed, and is a country with a slim and elongated geography (more than 1200 Km. long from north to south); is not surprising that Malawi has a very high cost of transport services (internal and external). While the Nacala corridor provides the cheapest alternative route to the outside world, it does have its restrictions of port capacity, storage capacities, railing capacity related to motive power and wagon constraints, and problems of infrastructure on the 77 Km of un- rehabilitated section of the railway, between Cuamba and Entre-Lagos. A recently concluded CIDA funded study on the required investments to complete the rehabilitation works on the railway has estimated that $ US 5.7 million would be required for improvements of emergency nature (including 2.7 million for emergency repair of the rail, and 3 million for the leasing of 8 locomotives and 40 wagons). The pay back for such investments (believed to be about one million monthly) is about six months. In addition the benefits of such an improvement will be accrued by the whole country through the reduction of the transport time and the cost of transport on this corridor. In the Beira Corridor there is only the trucking option. This inevitably makes it a more expensive (150%) alternative than the Nacala option. The Beira Port is a much larger port and has a higher level of facilities, but it is used by Mozambique itself and the neighboring countries -Zimbabwe and Zambia. The competition means that the Beira corridor has but limited capacity reserved for Malawi. This corridor provides the shortest distance from any port to the major population masses of Malawi. Both the Nacala and the Beira Corridors are said to have the potential for improvement when it comes to efficiency and effectiveness. They operate only limited hours of the 24 hour day, some of their equipment lacks minor repair and is either not operating at all or not at full capacity, the personnel are said to lack motivation to work harder and more efficiently, etc. While there seems to exist room for performance improvements there is 47 has not been any specific investigation made into these operations with the aim of effecting reform and better management practices. This emergency operation may provide the opportunity to do just that. Both the Northern Corridor -by train to Mbeya and trucking the rest of the way, or trucking the whole way- and the RSA (Southern) route -trucking the whole way- cover very long distances (to Lilongwe 1700 km. and 2600 km. respectively). They are consequently very expensive (more than double the rates for the Nacala corridor) but they are said to have the potential capacity and can both probably provide dependable freight service to Malawi. The fact that there is very limited export and that it is not synchronized with the imports is probably a matter that affects the cost of transport. Exports in Malawi, especially tobacco, are very seasonal. In terms of tonnage exports constitute hardly a third (25-30 %) of the imports. It is also said that for some exporters the RSA route seems to be the preferred one. In all cases, for a major part of the imports, the un-utilized return journey has to be covered by the one way transport charges. This partially explains the very high transport cost of imports. This, nevertheless, does not automatically translate into low costs of transport for exports. c) Assessment of alternative routes for food imports Taking into consideration all logistical aspects that need to be factoring in including: -the capacities of the ports, the transport systems and storage; the speed of loading and off- loading, the turn-around time; the dependability of service, the potential for development of bottleneck situations and associated risks; and the costs inherent in each of the above mentioned options - the following picture of the four alternative routes emerges: 48 Table 2: Comparative advantage of using alternatives (to a central location of Lilongwe) Means Dependability Cost Problems/ Bottlenecks /Risk Constraints situations 1. Northern Rail & High/Low Very Trans-shipments Minimal Corridor Truck High Slower 2. Nacala Rail Moderate/ Low Limited cap. Port Congestion Corridor High Sluggish Loc.& wagon shortage Danger of Derailment 3. Beira Truck Moderate/ Medium Limited Cap. Port congestion Corridor Moderate Slow off-take Competing freights 4. Southern (RSA) Truck High/ Very Long distance Unknown Corridor Low High Slow Using criteria of direct costs, time and convenience for imports from (and exports to) the outside world, therefore, the preferred option for Malawi is the Nacala Corridor followed by the E3eira Corridor and followed by the Northem (Dar Es Salaam) and finally Southern (RSA) Corridors. d) The Nacala Corridor's current and potential capacity Nacala Corridor being the most cost-effective means of channeling goods from the outside world, special attention needs to be paid to it and assure optimum use through the highest levels of achievable efficiency. In this regard there are an number of possible improvements that can be suggested: The current unloading of vessels is rated at maximum of 1000 tons per day for Malawi destined goods. This can probably be doubled with better management and limited inputs. The port loading of wagons by port staff is currently limited to one covered wagon per hour which, on the basis of a thirteen hour day, adds up to only one train of 13 wagons per day. This could probably also be increased to double or more by improving the loading facilities, increasing staff improving the performance, offering incentives for overtime, etc. The curTent railing capacity, based on existing stock of motive power and wagons, is not able to cater for the emergency needs. It is reckoned that the optimum quantities of 15,000 tons per month (one train of 13 closed wagons carrying 500 tons per day) can only be achieved by increasing existing operational equipment. It is reckoned that the increase of 49 motive power by leasing 8 locomotives and leasing an additional 40 closed wagons will alleviate the situation in the short run. An alternative to look at would be to rehabilitate existing in-operational locomotives and wagons. It is estimated that the current off loading and storage capacities of emergency goods at different destinations within Malawi can be easily increased to double the current levels (from about current 500 tons per day to about 1000 tons per day or more). The aim of W'FP is to increase the currently planned quantities of 15,000 tons per month to 30,000 or more. Two sets of activities need to be undertaken to achieve this: improvements through inputs into the infrastructure of rails and running stock, and operational improvements aimed at managing and enabling a more optimal use of the whole logistic system. While one set is aimed at the reducing the risks related to the lack of maintenance of the 77 km section between Cuamba and Entre-Lagos and the availability of motive power and wagons in good operative condition; the other is aimed at reducing the long turnaround times of the trains, including the timely unloading at port, loading on wagons, selecting the destinations, cross-border arrangements on clearance and crew, etc., and offloading from wagons at destinations. The latter has to do with management of the operations in terms of planning, organization and monitoring of the whole operations involving the port authorities, the railway operators and the customers. Measures to address these are proposed under interventions below. e) Internal Transport Within the country transport of goods is to a great extent limited to trucking. As trans- shipment facilities are limited and delays are common, railing is used primarily for direct imports and exports. As will be shown below, there is ample capacity for trucking goods within the country (see table 3). The average cost of internal transport (trucking) within Malawi is estimated at US cents 10-13 per ton km. This compares very unfavorably with figures (of US cents 3-4 per ton km) that are quoted by international transporters and is probably higher than fares in neighboring countries with similar or comparable conditions. f) Trucking Capacity According to assessments made by the Technical Sub-Committee, there are over a thousand goods transport vehicles of different capacities in the country that can provide dependable service (for details see the table below). 50 Table 3. The number of "legitimate" trucks available locally Capacity 3T 5T 7T IOT 12T 15T 20T 30T Translp. Orgs. Total NRTA - 20 25 80 - 75 35 52 287 LTA - 20 52 32 - 20 24 96 244 RTOA 12 8 34 265 8 56 16 168 567 TOTAL 12 48 1i1 377 8 151 75 316 1,098 Source: Technical Sub-Committee meeting of August 16, 2002. This is not the total fleet in Malawi, but the trucks of three associations that meet the stringent requirements of reliability and legality of the technical sub-committee. There are, therefore, other additional trucks in the market that have not been considered or do not satisfy such conditions. It is also expected that there will be a fleet of 50-60 Norwegian Red Cross reconditioned 5 ton trucks for use in the emergency relief efforts. These trucks are said. to be off-road 6 X 6 former Norwegian army vehicles and most suitable for use on rural roads. It is hoped that they will be able to operate on many rural roads even during the rainy season. It is also the case that more trucks can be attracted from neighboring countries if the need arises under the so called "third party agreements" where other countries' fleet are allowed to operate within one country for a limited period of time (usually some months, but extendable). In terms of capacity, rough calculations on basis of full utilization have shown that the actual need for transport of relief goods can be satisfied by approximately half of the available numbers of trucks. It is therefore not considered a risk to assume that there is no constraint as far as trucking capacity is concerned within the country or even within the region. g) Road Infrastructure While there seems to be no problem finding the required quality and quantity of trucks the condition of the rural roads especially during the rainy season may be a major bottleneck for movement of emergency goods and services. The major road network in Malawi (primary and secondary roads) has improved remarkably as a result of recent road reforms. The positive effect of such reforms has, nevertheless, not permeated the rural sector yet. An effective maintenance system for. rural roads is not adequately established. It is therefore possible that there will be remote areas in rural Malawi that may be difficult or even impossible to access during the heavy rains in the period from November up to March. As many of the vulnerable groups and populaitions are living in relatively remote and isolated areas, the issue of accessing such areas by road becomes critical to the whole emergency relief efforts and therefore requires special attention. h) Water transport There is a maximum transport capacity of 7,000 tons per month along Lake Malawi between the ports of Chilumba and Chipoka (450 km.). There are a number of smaller 51 boats and vessels that can be used for local transport purposes along the lake and the larger rivers. Taking into account the problems related to trans-shipment, the sailing time and the possible delays, the savings in costs (estimated to $ US 5-10 per ton) may not be attractive enough for time-sensitive emergency relief type of transport. It is therefore considered that there is, on the whole, no significant capacity and possibility of using lake or river transport for relief goods. (It may be possible to use the water transport for other items that are not time-sensitive thereby offsetting other transport capacity for relief transport). i) Storage facilities For stocking and distribution purposes there are adequate warehouses, stores and buildings -be they private, parastatal or public- and they are spread out conveniently over the whole country. The network of ADMARC stores is one such set up. There are a number of other chain of marketing outlets that have stores throughout the countryside. In cases of need it has been the case that public places including community centers, schools, clinics have been used for such purposes. In remote and isolated areas the homes of chiefs or prominent and credible private proprietor's properties could also be used to store essential foodstuff. There seems to be, other than possibly localized ones, no serious problem related to storing and safe-keeping of stocks of food. j) DIellivery mechanisms Humanitarian Free Food distribution The humanitarian side of the implementation of delivery of food and other services seems to have been well worked out by the WFP and consortium of NGOs and the CBOs in the country. In terms of humanitarian food distribution WFP imports and delivers food up to warehouses and stores that should not be further than 10 km. from households. At such warehouses NGO take over and in collaboration with districts, local level organizations and committees distributes to the targeted beneficiaries. For distribution purposes, therefore, the whole country is completely covered by at least one Coordinating NGO and possibly several Implementing Partner NGOs. (For details see Table 4 below) Although there is need for clarity over the national level coordination of the whole humanitarian operations, the roles of all the different partners in the whole process from importation, to transport within the country, to storage and distribution, are well defined in the guidelines for the operations -"Brief on Implementation Modalities". In broad terms, the WFP has been mandated by government to be the overall responsible and as such it is expected to solicit food and funds, import it into the country and deliver it to stores and central distribution centers across the whole country. Such distribution centers are expected to be no further than 10 km (2-3 hours walking distance) from the remotest places up. The NGOs are expected to take over from such storage and distribution centers and, in close collaboration with local government and communities, assure that the food is distributed to the needy. This arrangement seems to have been well organized and commands good confidence to deliver. Commercial food sale distribution The Government of Malawi has decided to entrust the commercial maize distribution to the National Food Reserve Agency (NFRA) which in turn is expected to use Agricultural 52 Development and Marketing Corporation (ADMARC) outlets throughout the country to retail the maize at a prefixed price of 17 Kw/ Kg. In terms of capacity the ADMARC does have the logistical, competence and infrastructure to handle the sale of maize throughout the country. With poor performance. history in the recent past, though, there is some skepticism about the particular arrangement for sale of food through ADMARC. Table 4: List of NGOs (by district) covering the whole country REGION - DISIICT Dtri ImPementI;pleP t Impkieait Impkmeit Implem Coord. - Partner' aner -- Partner; Partner Partner NGO NGO NGO NGO NGO NGO NORTHERN CHIT'IPA MRC WVI NORTHERN KARONGA MRC WVI CADECOM Livingst. Syn NORTHERN RUMIvPHI MRC WVI CADECOM Livingst. Syn Concern U. NORTHERN MZIMBA Africare CCF Action Aid SCUS NORTHERN NKHATAB. Africare CADECOM CENTRAL NKHOTAK. MRC WVI Action Aid CENTRAL KASUNGU CRS WVI Concem U. SCUS CENTRAL NTCHISI MRC WVI CADECOM Livingst. Syn Proj. Hope Maleza CENTRAL DOWA CARE WVI CENTRAL MCI{INJI SCUK WVI Action Aid CENTIRAL SALIMA SCUK CARD CARD SOUTIHERN MANGOCHI SCUS CADECOM Action Aid SCUS CSC CENIRAL LILONGWE CARE Concern U. CENTRAL DEDZA Concem U. CADECOM Plan CPAR CENTRAL NTCHEU Africare CADECOM SOUTHERN ZOMBA CRS WVI SOUTHERN MWANZA WVI Action Aid CADECOM CSC ELDP SOUTHERN BLANTYRE Goal WVI Concern U. SOU1THERN CIfRADZUL Goal Salv.Army Kean Youth SOUTHERN CHIKWAWA WVI CADECOM CARD CSC SHDP SOUTHFERN THYOLO WVI Concem U. CARD ELDP SOUTHERN NSANJE WVI CADECOM Oxfam SOUTHERN MULANJE WVI CSC Oxfam SOUTHERN PHALOMBE Salv. Anny WVI CADECOM SOUTHERN BALAKA SCUS Evang. Bapt. Action Aid CSC ELDP SOUTHERN MACHINGA Emmanuel 1. WVI Concern U. NORTHERN LIKOMA Africare 53 M11. RECOMMNDATIONS a) On the corridors The project, as an emergency response mechanism should, in terms of transport, focus on the current and potential bottleneck situations. As identified above current congestions and future bottleneck situations are likely to develop in the Nacala and Beira corridors. The Northern and Southern Corridors seem to have no capacity constraints, nor are they likely to develop bottlenecks in the future for Malawi imports of food. It is therefore recommended that the government support the improvement of the Nacala and Beira corridors. Intervention 1. Nacala Corridor being the cheapest alternative route for imports (and exports) for the whole country the rail improvement has a very positive impact on the whole corridor operation and should be given priority for improvement / investment. While there are other partners who are keen to assist with the more operational components of the proposed improvement (leasing and management costs), there is no taker for the actual rail improvement works. It is therefore proposed that the government rinance the immediate emergencv remedial repairs estimated to cost US $ 2.7 mnfllion. This would secure continuous operations of the cheapest alternative route for relief imports; would contribute to reduction of the cost of transport through this route for both imports and exports; would be a good prelude to complete rehabilitation of the remaining (un- rehabilitated) 77 Km. of the track at a later stage; and would be a very obvious and visible contribution that caters for the "missing link" in this chain of necessary improvements. Intervention 2. It is not evident that both of the Nacala and Beira corridors are being utilized to their optimum capacities. On the contrary, it seems from the reports, that they lack some equipment and facilities that renders their operations less efficient. It is therefore recommended that a quick comprehensive study (costed at $ UTS 50,000) be conducted on both Nacala and Beira corridors within the month of September and look at the possible improvements that can be suggested and followed by an operational and management regime impnrovement that can be put in place (tentatively costed at $ US 500,000) with the aim of making them more efficient and cost-effective. This, it is believed, will assist Malawi reduce the cost of transport of especially food in the short run. b) On Rural Roads It has been repeatedly pointed out that heavy rains will render access to remote localities in Malawi very difficult if not impossible between December and March. There is therefore great need to address the access and accessibility hinders of rural populations, especially during the rainy season. Such measures have to be planned and implemented before the inset of the rains in November December. Intervention 3. As a preventive transport measure, potential bottleneck locations along rural roads leading to isolated communities including wash-outs and potholes, bad spots, river crossings and other obstacles should be identified for immediate intervention under the Cash-for-work 54 Program. This to be implemented both as a means of employment creation (cash income transfers) as well as addressine on a spot-improvement-basis (costing $ US 2 million) identified bottleneck locations along rural roads that would otherwise make access by even lighter off-road trucks impossible. This component is to be implemented by District Assemblies through the support of MASAF and Department of Local Government. c) On Strategic Planning While the three above mentioned recommendations are specific activities the Credit will nipport in an effort to address current or potential transport bottleneck concerns, there are a number of strategy and planning related recommendations that need to be agreed upon and practiced within the whole transport / logistics system if the crisis is to optimally benefit from it: a) There should be a Coordination Mechanism put in place specifically for the logistics and transport system, important as that is for the whole operations. This means that there must be very close and tight coordination of all components of the transport and logistics system; and that there is a unified information system and effective means of communication between all involved parties. In an emergency situation of this magnitude and severity, this can be done effectively only if there is an identifiable and fully committed Unit with a Head and actual qualified full time Staff, who have been mandated by government to access pertinent information and to deal with all parties in the supply chain including the suppliers, the ports, the customs, the railway and trucking companies, the store operators, the NGOs, etc. b) The emergency relief goods transport operation should not apriority limit itself to any one of the alternative routes for importation of emergency goods. While it should strive to use the Nacala corridor (as a rational decision to pick the cheapest route) as its first and preferred option, it should be open to the use of the Beira corridor as a second alternative and still have the possibility to opt for the Northern Corridor or the even the SRA (southern) route should any of the preferred channels fail to deliver. The tentative planned imports of the 600,000 tons should therefore be imported through the four corridors should be spread out in the a manner that minimizes the risks. In this regard, a rational proposed apportioning could be: through Nacala 40 %, Beira 30 %, Northern 15 % and Southern 15 % of the total imports. c) The delivery mechanisms including the whole planning, importation, receiving, transporting to different locations including the distribution points, up to stocking and distribution (be it free humanitarian food or commercial for sale food) needs to be spelt out in a clear and transparent manner. This would go a long way to restoring confidence and allow better participation, cooperation and collaboration from all stakeholders. 55 d) All emergency related items should be given priority in respect of logistic facilities including offloading at port of importation, loading on trains or trucks, transporting by any means, and storing. e) The shipment of goods, especially the large quantities of expected shipments of maize, should be programmed to arrive at the time and in quantities that can be adequately prioritized, fully handled and discharged by existing port facilities within reasonable time. This means that there should be a scheduling and limits of quantities to arrive, be given first priority by the whole system, but also have flexibility to divert vessels to other ports, should congestion at port or any other bottleneck arise in the whole transport and delivery pipeline within a corridor. f) Measures should be taken to assure that preparatory and planning works are underway and immediate specific actions taken in recognition of the lead time needed for transport and related interventions to be effective. This means that the planning of the emergency repairs must be initiated and placed on a "fast track" basis; that the storage and distribution systems be already put in place; that the bottleneck situations that can potentially develop in the system be identified and measures to address them be proposed. g) In respect of rural areas with access difficulties, it is recommended that measures be taken to assunre that infrastructure repairs are undertaken as much as possible prior to the inset of heavy rains and that appropriate means of transport are identified and booked for the emergency purposes. This means that the district councils and MSAF urgently identify trouble spots, propose solutions and cost remedies to potential bottlenecks that may eventually develop as a result of the rains and block passage. This also means that the special off-road trucks donated by the Norwegian Red Cross specifically for the relief efforts be expressly dedicated to delivery of relief goods, specially foodstuff, to remote and isolated areas with poor roads in the districts and also that mechanisms for monitoring their use be put in place. That public servants and public buildings in local areas be mobilized to make their services available to assist in the emergency efforts. Also that, for very vulnerable locations and situations, a food buffer be pre-positioned and stocked at convenient and suitable locations in quantities that can assure supplies for reasonable time. 56 MAP SECTION IBRD 31130 V 32' toDo~esS>t. T A N Z A N I A T. D., ew S.I. ~5n9^ 0 20 40 e0 80 100 KILOME'TERS -) .. *KRON NGA 0R- MALAWI Liingstonio X ti t t (8khotoC i ang ChknOt t uutn NKH__ PRINCIPAL ROADS Z A M B I A Mzim6a , BAY -12° - - -- I Chisumulu (MALAWII SELECTED UNPAVED ROADS 12°- ;5CtOO 5 / ~L~' /J\. r/iikomo RIVERS 0 TOWNS 0 DISTRICT CAPITALS I/ p,7* -/ - Malawi * NATIONAL CAPITAL 1- (1 ( (~'\ / t | ~~~~ DISTRICT BOUNDARIES / 1 ? <4 KASUNQi0-<>37 khotakoto INTERNATIONAL BOUNDARIES f'i. '--f <, t8 5x1 ,MOZAMBIQUE I t..\ Dowo L.~~~ engot11:~ Mkcjl To L-ka Mchinii "\nko / X ~ ~ ~ ~ ~ ~ ~~~~K ?O LIOGWE '- SA WonlIMA -¢ t~- (I M n Bay I A'- e,_za T. Nocee *, Q~~~. ~ *%,~~~* Lake' \ ~~Loke _-~~ / J2> '0~~ 2--e\ e- C~\| 2 hiuta 0~~~~~~~~~~~~~~~~~~~~~~~~~aa M ENAe!z) HINGA,7~ DEMOCRATIC R AD.r Bol*MOoPoMBIQ MAI / REPUBLIC OF BUR\INDI CONGO 'Aiu' rTANZANIA M o ' . 'PHALOM6E NGOgI-t>/<~~ ~ ~ ~ ~ ~ ~~ ~~ ~~~~~~~~~~~ *' i C=iisds)j QI. Muloj ToTelo '~~t~ '~!Yr RADZULLS'-.~. Mutan ANGOLA I~~~~~. -.--- - * MULAN3E j~~~~~~. W ANGOLA ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~NChikw.'wn' cenza* - ZAMBIABIOE~ . /,JO 4._) i' fHW !~t T boundaries, colors, denominations j \, ZIMBABWR / zY ' 5 \ \, ) \>h,ronMo ond anyother informotion shown on ZIMBABE this map do not imply, on the part of ~~ '~~4' The World Bank Group, any judgment Zr' BOTSWANA ~~~~~~~~~MAAGon the legal status of any territory, or rZ. SOUTH ^ ) MADAG AR X BOTSWANA Nsanje ony endorsement or occeptance of SOUT (such boundaries. [N J AFRICA 34' 361 October 2000 IMAGING Report No.: T 7557 MAI Type: TAN