Malawi - Lilongwe Land Development (Phase Three) Project

FILE COPY DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1583-MAI REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO MALAWI FOR THE THIRD PHASE OF THE LILONGWE LAND DEVELOPMENT PROGRAM March 10, 1975 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  Currency Unit Malawi Kwacha (MK) US$ 1 MK 0.84 MK 1 US$ 1.19 I/ The exchange rate of the Malawi Kwacha is determined daily by the Central Bank to equal a weighted average of the value of the Pound Sterling and the US dollar. Above rates reflect the situation as of December 31, 1974. Fiscal Year: April 1 - March 31  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECO>MMENDATION OF THE PRESIDENT TO TIIE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO MALAWI FOR THE THIRD PHASE OF THE LILONCWE LAND DEVELOPMENT PROGRAM 1. I submit the following report and recommendation on a proposed credit to the Republic of Malawi, for the equivalent of $8.5 million, on standard IDA terms to help finance the third phase of the Lilongwe Land Development Program. The United Nations Capital Development Fund will help finance the project with a grant of $1.6 million. PART I --THE ECONOMY 2. An updating economic mission visited Malawi in May 1974. Its report was discussed with the Government at the end of Novem17ber and was distributed to the Executive Directors on January 14, 1975 (560a-MAI); country data are pro- vided in Annex I. 3. Since Independence, in 1964, Malawi's gross domestic product has grown by an annual average of 8 percent in real terms. However, with a per capita income of only $105, Maalawi remaains one of the poorest countries in the world and is included in the Uniced Nations list of the 25 least developed countries. Natural resources are limited to moderately fertile soils, sub- stantial water resources and a climate favorable to crop production. Although bauxite and coal deposits have been discovered, their exploitation has not yet been found commercially viable. Forests, which cover about 23 per cent of 'falawi, constitute the main essentially unused resource whiich could be exploited on a significant scale in the near future. 4. The economy is however still heavily dependent on agriculture and is subject to annual fluctuations in output. For example, real GDP dropped by 6 percent in 1968, but rose by 18 percent in 1971. Agriculture lhas also stimulated much of the high growth in otlher sectors. The increasing output of export crops has directly caused a comparable increase in processing, distributive and commercial activities, while indirectly, higher farm incomes have stimulated the local production of consumer goods. Government policy is oriented towards rapid growth of agricultural production and, indeed, real per capita farm incomes have risen faster during the last two years than incomes in the non-agricultural sectors. 5. A substantial savings and investment effort and generally effi- cient management of the economy have contributed to economic growth. At Independence, domestic savings were negligible and gross domestic invest- ment was only 8.7 percent of GDP. By 1973, domestic savings had increased to 10 percent of GDP and gross domestic investment to 20 percent, leavina a resource gap of US$48 million. A significant improvement in the financial  -2- position of the Government lhas contributed to this impressive rise in savings. At Independence, the Governiment was able to finance only about half of re- current expenditure from local resources, the deficit being met by grants and loans from the U.K. Between 1964 and 1973, however, improvements in tax administration and some changes in the tax system caused domestic reve- nue to rise annually by 15 percent, in comparison with an average increase in recurrent expenditure of only 8 percent. Consequently, the Government was able to balance its recurrent budget in 1972/73 for the first time. 6. The Government has increased development expenditures at an annual average rate of 20 percent over the last five years, and has laid heavy emphasis on infrastructure and agriculture. Infrastructure investments have included the construction and improvement of roads, particularly those opening up the central and northern regions, and the construction of a rail link to Nacala in Mozambique, which has provided a second rail outlet to the sea. Since 1969, the construction of a new capital at Lilongwe has taken up about 10 percent of the agricultural Government's annual development budget. Since 1963, several large-scale agricultural schemes including the supply of inputs, marketing facilities and some basic infrastructure, have also been started (with IDA credits). Approximately one-fourth of total Government investment has been in agriculture. Greater emphasis is now being placed on this sector, and one-third of the US$175 million public investment program over the next three years will be devoted to agricultural development. 7. Total investment was US$100 million in 1973 and it is expected to grow by 8 percent (in real terms) throughout the 1970's. A substantial role is expected to be played by the private sector in Malawi's future development, and private investments are expected to equal those of the public sector. Government has liberal policies to encourage both domestic and foreign private investment. Domestic private capital is concentrated mainly in agriculture and small trading enterprises. Larger scale business is dominated by foreign- owned companies. 8. Whereas Malawi has benefited from a very rapid expansion of agri- culture, since independence, the room for future expansion is smaller. An annual economic orowth rate of over 6 percent seems likely in the 1970s. Much of this will occur in the agricultural sector, as a result of increased production of export crops such as tobacco, tea and cotton. Small but growing surpluses of maize, pulses, groundnuts, cassava and sugar are also expected. Malawi's agricultural exports, which increased, in constant prices, at an average rate of nearlv 10 percent from 1964 through 1973, are projected to rise by an average of over 6 percent annually until 1980. With the in- creasing investment program and growing consumer demand that can only be partly met by domestic manufactures, it is likely that the country's import require- ments will grow more rapidly than in the past, increasing by 6 percent annual- ly in volume until 1980. In 1973, the deficit on goods and non-factor services was US$52 million. Capital inflow has generally been adequate to finance deficits and build up moderate reserves. In 1973, net capital inflow was US$70 million.  - 3 - 9. The sustaitned improvement in the mobilization of domestic resources for economic development is likely to continue during the rest of the decade. Public savings, which have been negative in the past, should in the future make a positive contribut,on to investment. In 1973, Malawi financed 52 percent of its investmert from domestic resources; this proportion should grow to about 60 perceu.it by the end of the decade. The external capital requirements will, h-vever, continue to be in excess of the foreign ex- change component of projects and external aid should, therefore, also cover some local costs. 10. At the end of 1973, Malawi's external public debt totalled $263 million of which $189 million had been disbursed. Debt service in that year amounted to $11.2 million, or about 10 percent of export earnings. As Malawi's need for external capital is expected to increase in the next few years, the Government may encounter increasing difficulty in borrowing on terms as soft as those it has received in the past. Debt service is likely to increase and the debt service ratio could reach 15 percent by the end of the decade. In view of its low per capita income and the fluctua- tions of its export earnings, Malawi should still continue to receive subs- tantial amounts of external assistance on concessionary terms but could also receive a limited amount of assistance on harder terms. 11. The direct impact of the oil price increases on Malawi's balance of payments has been relatively modest. In 1973 payments for fuel rose by only 9 percent, and although in 1974 the increase was probably much greater, this would not have been sufficient to cause a major loss of foreign exchange. The indirect impact of fuel price increases in raising transport costs to and from Malawi has been more significant. The prices of imports have risen more rapidly than general international prices during the last year to reflect the higher cost of fuel, and a 25 percent increase in import paymPnts was expected in 1974, most of this resulting from higher prices. Malawi does not rely substantially on imported food and has therefore also suffered relatively little as a result of recent food price increases. PART II - BANK GROUP OPERATIONS 12. To date, eleven 1/ IDA credits amounting to US$76.6 million have been made to Malawi. Five of these credits, representing US$34 million (44 percent of the total IDA investment in Malawi) were for projects in the agricultural sector. The others consist of two credits totalling US$21.5 million credit for highways in 1968 and 1974, a US$6.3 million credit for education in 1967, two credits totalling US$12.75 million for power projects in 1970 and 1973, a US$2 million credit for the planning and engineering of the infrastructural and technical assistance requirements of a proposed pulp development scheme in Northern Malawi and a US$10.0 million credit for a I/ Excluding Credit No. S-2-MAI of US$0.49 million of 1967 for highway engineering, which was made in 1967, and which has since been refinanced.  - 4 - second highway project both approved in 1974. There have been no bank loans or IFC investments. Annex II contains a summary statement of IDA credits as of January 31, 1975 and notes on the execution of on-going projects. Project execution is generally satisfactory. 13. At the end of 1973, IDA's share in Malawi's total external debt was 22.6 percent buL servicing of IDA credits accounted for only 2.7 per- cent of total debt service. 14. Bank Group operations in MIalawi will continue to emphasize rural development. In accordance with the recommendations of the Agricultural Sector Review Report on Malawi (No. 235a-MAI distributed on January 14, 1974), several projects are currently being prepared. Among these, a second phase of the Kanonga rural development program is scheduled for appraisal in the second half of 1975 and preparation work has been initiated on a project which would support the national rural development program described in paragraph 20 below, which is scheduled for presentation in FY77. A second education project is scheduled to be appraised in March 1975 and should be presented to the Executive Directors in FY76. 15. Finally the Bank Group is assisting the Government (through Credit S-17 MAI) in the preparation of a major pulp development project whose total cost is currently estimated at over $300 million. If it is established that the project is economically viable and satisfactory arrangements can be made for its implementation and for marketing its pulp output, and if financing can be arranged with external guarantees so as not to burden Malawi's debt servicing capacity, we expect to recommend that the Bank contribute to its financing. PARJT III - TIlE AGRICULTURAL SECTOR IN MALAWI General 16. Agriculture is the principal sector in the economy of Mlalawi. It accounts for about half of total output and provides employment for practically all the population of thle country. In addition, agricultural commodities account for over 90% of the country's export earnings and pro- vide raw materials for domestic industries. During 1964-1973, agricultural production grew at a rate of 6 percent annually in constant prices. 17. Whereas maize, cotton, pulses and groundnuts are grown throughout the country, cotton and tea are produced mainly in the south, tobacco, ground- nuts and pulses in the central region, and rice in the north. Mtaize is the principal subsistence crop. Surplus nuantities are marketed, some directly to shopkeepers and the rest to the Agricultural Development and Marketing Corporation (ADMARC), a parastatal body which purchases farm inputs in bulk for smallholders througlhout the country and distributes them to farmers  -5- through its depots. Prices paid by ADMARC have been increased recently and are now considered adequate in providing incentives to farmers. The Govern- ment has agreed that ADMAkRC will review these prices from time to time to ensure their attractiveness to farmers (see Section 4.02 of the Development Credit Agreement). 18. Prior to 1967, the growth of agricultural production was achieved largely through expansion of acreage. Increasing scarcity of suitable land and the large investments required to open up new land led to a shift of emphasis towards achieving rapid increases in productivity on areas already under cultivation, and the rehabilitation of land that had been neglected in previous vears. Increased production was accompanied by a gradual mone- tization of the agricultural sector. The implementation of integrated rural development schemes is expected to accelerate this transition towards a cash economy. Rural Development 19. Rural development is a primary social and economic objective of the Government and is one of the targets in the country's indicative guide- lines of a ten-year statement of policy objectives announced in 1971. Beyond the aim of raising agricultural productivity, rural development in Malawi is also conceived of as an effective vehicle for the Government's objective of redistributing incomes in favor of the rural poor. At the moment, most farmers are smallholders on the fringe of the market economy. Their staple crop is almost exclusively maize and their principal cash crops are tobacco and groundnuts. As an instrument of increasing smallholder productivity, the Government is undertaking several integrated agricultural development schemes in Lilongwe, Karonga, Shire Valley and the Salima Lake Shore area. 20. With the exception of the Salima Lakeshore Development which is being financed with assistance from Germany, all these schemes are being financed with IDA assistance (Credit Numbers 113- and 244-MAI assisted in financing the first two phases of the Lilongwe Agricultural Development Program, Credit Numbers 114- and 363-MAI helped finance two agricultural development projects in the Shire Valley and Credit 282-MAI is helping finance a similar project in Karonga). In addition to extension and farmer services, these schemes have included infrastructure components. 21. All of these four projects are characterized by the provision of infrastructure, extension and farmer services within relatively concentrated areas and, at their completion, it is expected that some 1 million people would have benefitted from them. While the intensive Projects have made significant contributions both to institution-building and improved production and standard of living for large numbers of people, nearly three-quarters of Mlalawi's population still remain unaffected by these developments. It is necessary, therefore, to adopt a strategy which will promote more broad-based development in an expeditious manner. With the objective of providing im- proved production opportunities to the rest of 'Ialawi's farm population over  a 20-year period, a Bank agriculture sector mission identified in 1973 the possibilities of a more extensive type of development which has become known as the National Rural Development Project (NRDP). This is now under active discussion with the Government, and is likely to form an important part of the Bank's future contribucion to this sector. The Lilongwe Land Development Program (LLDP) 22. LLDP evolved in 1967 whlen the Government decided to undertake a thirteen-year integrated rural development scheme to increase agricultural production within the Program area. The Program was to achieve this objective by providing substantial infrastructure facilities such as crop extraction roads, administrative centers, market facilities and boreholes and improved farmer services including extension, credit, input supplies, soil conservation and land survey, demarcation and registration. 23. An area near the new capital of Lilongwe in the central plateau of Malawi was selected for the Program. The area has a high agricultural potential and contains the country's main agricultural research and training facilities. Its soils are satisfactory and permit good responses to ferti- lizers and rainfall is adequate and reasonably reliable. About 100,000 families live in the area and the average single unit family size is five. The farmers live together in extended family units. It is estimated that each family in the area cultivates about five acres of land. Village com- mittees are evolving and begirning to play an important role in assisting authorities to demonstrate better farming practices and to organize the activities which lead to thle improvement of village life. 24. The Program is being implemented in three phases. The Association helped finance the first phase with a $6.0 million Credit (No. 113-TAI) in 1968. It was fully implemented in 1972. In 1971, the Association approved another credit of $7.25 million (Credit No. 244-MAI) to help finance the second phase project. Execution of this project is expected to be completed on schedule later this year. 25. An analysis of some rural development programs and projects in Africa, including the Lilongwe Land Development Program, was completed by the Bank's Development Economics Department late in 1974 and the report has been published. A performance audit of the Program's first phase was recently completed by the Operations Evaluation Department and the report is expected to be distributed shortly. The deficiencies and implementation difficulties which the reports highlight have been recognized by the Govern- ment and various steps are to be undertaken in Phase III to overcome the problems. The LLDP management was reorganized under the Phase II project and a staff development plan will be implemernted under the proposed project as discussed in paragraph 33 below. The tasks of the program evaluation unit are also being more precisely defined to ensure that it collects and analyses data which will provide a better understanding of actual performance under the LLDP.  - 7 - 26. With the anticipated completion of the second project in June 1975, the LLDP is expected to have successfully implemented within estimated cost all the physical infrastructure required to support development under its first two phases. In particular, the construction of unit centers, roads, diversion channels, boreholes and marketing facilities has proceeded either on or ahead of scheeule and the area and number of farmers served by program infrastructure has thus considerably exceeded estimates. Productivity has increased on maize cultivation though it is still below appraisal estimates. Hlowever, productivity on groundnut farms has probably declined. This is due in part to the farmers' preference for maize, which is a staple food for which yields could be increased more easily than for groundnuts and to the price relationship between maize and groundnuts which favored the former. Prices of groundnuts were recently increased. They are now believed to offer adequate incentives to farmers to achieve the Program objective of increasing groundnut yields from 500 to 650 pounds per acre by 1979/80. The prices paid to farmers for all their produce will be reviewed regularly by the Government and the Association (see Section 4.02(b) of the Development Credit Agreement). Another area in which the Program is behind its objective is land registration. Under Phases I and II of the Program, about 400,000 acres of land was to be demarcated and registered. While the demarcation program will be completed on schedule, the registration program is about one-third behind schedule because the planning and legal procedures involved require more time than was previously estimated. The proposed project would continue the land reorganization effort but at the end of the three-year project period, an estimated 50,000 acres would remain undemarcated and 100,000 acres would remain unregistered. The Government would complete the registration of such Program area land (see Section 4.03 of the Development Credit Agreement). 27. Both studies admit that the LLDP is still too recent to provide a thorough and meaningful information; available data is scant and unreliable. As a pioneer effort the LLDP is a learning experience and thie proposed project has been designed to improve on the performances of its predecessors. PART IV - THIE PROJECT 28. An Appraisal Report entitled "Malawi - Lilongwe Land Development Program - Phase III" dated February 28, 1975 is being circulated separate- ly. A Credit and Project Summary is attached as Annex III. The project, prepared by the Government with the assistance of the Regional Mission in Eastern Africa, was appraised in the field in May and June 1974. Negotia- tions for the proposed credit were held in Washington in February 1975. The Government delegation was led by Mr. Austin Madinga, the Acting Secretary to the Treasury and included Messrs. Mtawali, Permanent Secretary, Ministry of Agriculture; Banda, Principal Assistant Secretary, Treasury; Standen, LLDP Manager; and Alexander, Agricultural economist, Ministry of Agriculture.  -8- Project Description 29. The proposed project will be the final phase of the LLDP and will cover an additional estimated 32,000 farmers who have not yet benefited from the Program directly. In addition to providing services similar to those provided under the Program's first two phases, it will introduce some new services like health and poultry and dairy farming. It will be executed over a three-year period (1975-78) and will consist of the following major elements: (a) Unit Centers and Infrastructural Requirements Major development services such as extension, credit and marketing will be provided through 15 Unit Centers to be constructed under the project. A typical center will serve about 2,500 farmers and will contain an input store, offices and housing for the resident LLDP staff and markets. In the area served by each Unit Centers, roads, conservation works and boreholes will be constructed. Each center is located for accessibility to all the farmers in the Unit area. Some of the centers already have permanent markets and only seven new markets will be built under the project. (b) Land Demarcation and Registration About 200,000 acres of land not covered under the preceding two phases would be demarcated and a total of about 270,000 acres of land would be registered. (c) Credit The project will continue to support the LLDP credit program under which farmers receive seasonal, short-term and medium- term credits. Seasonal credit would be made to farmers to cover the purchase of inputs such as fertilizer, insecticides and improved seeds. Short-term credit would be provided for the purchase of stall feeders (from Dzalanyama Ranch), dairy cattle and to support the dairy and egg production scheme. Medium-term credit would be provided for the purchase of farm equipment like ox-carts, maize mills and tobacco barns. The seasonal credit would carry no interest charges. However to cover the cost of administering the credit program and to encourage farmers to pay cash, farmers who receive seasonal credit will be charged mark-ups in the prices of inputs supplied to them. These mark-ups, which stood at 10 percent in 1973/74 will be increased to 15 percent in 1974/75 and to 20 percent thereafter. To reduce the cost of administering the credit program, farmers are being encouraged to joint credit groups under which seasonal credit is provided with only a 7.5 percent mark-up annually. Short- and medium-term credits carry an interest rate of 10 percent annually. Each farmer  -9- would be registered at a market through which he would be obligated to sell his produce. Each farmer will make his credit repayments each time he is paid for his produce. The credit program will be administered through the Unit Centers and will be directed by a Senior Agricultural Credit Officer in Lilongwe with four assistants in each Unit Center. A total of about 55,000 farmers are expected to particpate in the credit program. This represents an increase of about 24,000 farmers over the level of participation expected to be attained at full implementation of the Phase II Project. (d) Extension Services and Training The organizational structure and working methods established for extension services under the first phase of the Program was reorganized under the second phase project. It is now pro- ducing good results and no major changes will be made under the proposed project. A few dairy, poultry and home economics workers would be added to the extension service staff. Exten- sion field staff would continue to assist the farmers in setting up Village Planning Committees and in selecting and advising farmers who would receive credit packages under the project. Wqhen the LLDP is fully implemented, the staff to farmer ratio will be about 1 to 500 in the Program area compared to 1 to 1,000 in other parts of the country. All positions in the extension service program are occupied by Malawi nationals. The project would support the continuing operation of the staff training center at Lilongwe and the demonstration programs at the Nsaru farmer training center. The on-going farmer training program under which farmers and their wives are brought into Unit Centers for training and the operation of vehicles and audio-visual equipment for farmer training would also continue under the project. (e) Livestock Development The project includes four schemes for livestock development. Under the first scheme, it would support the continuing development of the Dzalanyama Ranch which was started under Phase II of the LLDP by financing during the three-year implementation period of the proposed project, the incremental capital cost of the ranch, mainly for the purchase of coWs and steers, and part of its operating costs. This ranch supplies cattle for the stall feeder program which was started under Phase II of the Program. The second scheme will consider- ably expand the stall feeder program to provide over 2,000 farmers with credit for the purchase of stall feeders and to encourage an increased use of crop residues, the production and storage of fodder crops and controlled grazing. The third  - 10 - scheme is for dairy development. This scheme would introduce extension services to encourage farmers to keep dairy cattle by providing credit to farmers to cover up to two-thirds of their initial capital requirements and three months' working capital. The dairy products will be collected at two centers with cooling facilities which have been built in the Program area and will be distributed to local markets for domestic con- sumption from these centers. The fourth scheme will provide credit to cover fixed and working capital requirements and extension services to encourage the production of poultry and eggs to meet increased local demand. About 120 farmers are expected to participate in this scheme over the three-year implementation period of the project. (f) Health Facilities The project includes a provision for the construction, staffing and the operating costs for the three-year project implementation period of five health sub-centers and about 20 health posts and the improvement and operating costs of some existing health facilities. The facilities would provide preventive and curative medical services, health education, maternal and child care, communicable disease control, environmental hygiene and the collection of health statistics. The design and operation of these facilities will be in accordance with the Government's master plan for the entire country which was prepared with the assistance of the World IHealth Organization. (g) Headquarters Unit The project includes a provision to cover the incremental capital and operating costs of the LLDP headquarters estab- lished at Lilongwe. (h) Program Evaluation Unit The Unit, established under Phase I of the Program and continued under Phase II, undertakes land surveys, collects and processes data and analyses project achievements. Experience gained from its operations under Phases I and II of the Program, however, has suggested that for improved effectiveness, the Unit's role should be more precisely defined. Under the proposed project, the Unit will collect and analyse data on crop yields, acreages under cultivation, number of farmers in the LL;DP area, number of farmers adopting Program inputs and farmers' incomes. The project also includes a provision for agro-economic surveys, land resource surveys and cropping trials to help with the preparation of the NRDP.  Project Costs and Financing 30. Total project costs are estimated at US$12.1 million of which US$5.4 million (or 45 percent) is estimated as the foreign exchange component. Except for tax on salaries, which is not significant, estimated project costs do not include any tax. The breakdown of project costs is given in Annex III. 31. The United Nations Capital Development Fund (UNCDF) has agreed to participate in the financing of the project. This would be the second UNCDF participation in a Bank Group financed project. Its first was in the Kigoma Rural Development Project in Tanzania in 1974. The UNCDF will provide $1.6 million on a grant basis to the Government for financing the capital cost of the health facilities and farmers credit program components of the project. The Association will finance the operational costs of both components. The components will form an integral part of the project. Since UNCDF does not have at present the requisite staff, it has been agreed (Sections 1 and 2 of the Administration's letter between the Association and the UNCDF) that the Association would supervise, on behalf of the UNCDF its elements of the project including the review of procurement arrangements and disbursement applications. 32. The proposed credit of US$8.5 million would finance 70 percent of the total project cost and would cover most of the required foreign exchange plus a large portion of the local costs. The UNCDF grant of US$1.6 million would finance 13 percent of the total project cost and would cover the balance of the required foreign exchange plus some local costs. The Government, ADMARC, the Dzalanyama Ranch and farmer downpayments would contribute the balance or US$2.0 million. Project Management and Execution 33. The Ministry of Agriculture and Natural Resources (MANR) would have overall responsibility for implementing all aspects of the project, except the health component which would be the responsibility of the Ministry of Health. The managemenWt organization of the first two phases of the Program will be retained under the proposed project. Most of the senior positions in the management will however continue to be occupied by expatriate personnel. Efforts to recruit and train Malawi nationals for senior management positions have so far not succeeded largely because the country produces very few University graduates. 34. The Government has therefore decided to intensify and systematise the training of Malawians for the agricultural sector and has designed a staff development program to accomplish this aim. The program includes the on-going expansion of the training facilities of the Bunda Agricultural College with financial assistance from the United States Government, partici- pation by about 8 Malawians in each of the three-month management training courses sponsored in Swaziland by the Commonwealth Development Corporation each year, and the continuation of on-going post-graduate training programs  - 12 - for agricultural economists and on-the-job training programs for other senior staff members. The program is realistic in its aspirations and we are satis- fied that it will produce Malawian nationals with the required training and in adequate numbers to substantially meet the projected needs of the agricultural sector from 1979 onwards. The Association will continue to work with the Government to ensure its expeditious implementation. The Government will consult with the Association before making any new appointments to the posts of Program Manager, Financial Controller and Principal Agricultural Officer (see Section 3.05 of the Development Credit Agreement). 35. The health facilities would be staffed and managed by the Ministry of Health under the direct supervision of a Senior Medical Officer with public health experience who would be based in Lilongwe and working directly with the LLDP management. The Government would consult with the Association regarding the appointment of the Senior Medical Officer and will staff the health facilities adequately (see Sections 3.08 (a) and 3.08 (b) of the Development Credit Agreement). 36. The Program Planning and Conservation Unit will undertake the comprehensive planning and construction of most of the required infrastruc- ture including staff housing and offices, roads, and conservation structures. The Agricultural Development and Marketing Corporation (ADMARC) would con- struct and operate the permanent markets and the input stores. Boreholes would be constructed by the Geological Survey Department of MANR. Execution of the project is expected to be completed by 1978. Procurement 37. Vehicles, machinery and equipment in orders over US$30,000 equiva- lent which would be financed with the proposed IDA credit would be procured under international bidding in accordance with Bank Group guidelines. The orders would be grouped whenever possible. Fertilizer, vehicles and equipment which would be financed by the UNCDF would be procured on the basis of local competitive bidding. The health facilities, also being financed with the UNCDF would be constructed on the basis of competitive bidding advertized locally. Staff housing, roads, offices, boreholes and conservation works would be constructed by force account as in Phase I and II of LLDP. Disbursement 38. The proceeds of the proposed credit would be disbursed against (a) 100 percent of foreign exchange expenditures or 85 percent of local expenditures for vehicles, machinery and equipment, project salaries and wages, vehicle and miscellaneous operating costs, farmer credit funds and Dzalanyama Ranch costs and (b) 85 percent of total expenditures for civil works. The proceeds of the UNCDF grant would be disbursed against 100 per- cent of the total cost of the health facilities and the incremental seasonal and medium-term farm inputs.  - 13 - Administration of the LLDP after completion 39. The proposed project to be completed by 1978 is the final phase of the LLDP but the Program area is not expected to achieve full agricul- tural production until. 1985. There is therefore a need to maintain a light administrative struc'-ure with staff, equipment and funds to monitor the con- tinuing development of the Program and ensure the supply of required farm inputs and other services. It is estimated that these services would require about US$1.0 million annually. The Government would design and fund a pro- gram satisfactory to the Association to ensure the supply of these services (see Section 3.07 of the Development Credit Agreement). Economic Justification of the Project 40. The project will enable increased production of maize, groundnuts, tobacco, beef, milk and eggs, which results in a rate of return to the economy estimated at 18 percent. In calculating this rate of return, family labor whose employment may be slightly increased by the project is not allocated any incremental cost. The main risks associated with the proposed project include the possibility that fewer farmers than estimated may adopt the agri- cultural inputs to be supplied and chat the price of fertilizer may be signi- ficantly higher than is currently estimated. A 50 percent reduction in maize yields and fertilizer use would reduce the internal economic rate of return to 12 percent while a 10 percent reduction in all benefits would result in a rate of return of 14 percent. If benefits fall by 10 percent and costs increase simultaneously by 10 percent, the rate of return would be reduced to a still acceptable 11 percent. The economic rate of return of the total Program on completion is now conservatively estimated at 13 percent. Impact and Significance of the Project 41. The project would extend the LLDP extension services and inputs to about 32,000 farm families which have not yet benefited from the Program. The net annual income of a typical farmer cultivating 4.5 acres is estimated to increase by about 40 percent over the project implementation period of three years. The Government cash flow arising out of the project shows a cumulative surplus from 1978/79 while that from the total Program shows a cumulative surplus from 1977/78. The project would complete the LLDP which is providing an important demonstration of rural development and provides a valuable base for planning, launching and administering the proposed National Rural Development Program. The success of the LLDP has attracted wide interest, and has been copied in other parts of Malawi, as well as by other countries.  - 14 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 42. The draft Development Credit Agreement between the Republic of Malawi and the Association, the Recommendation of the Committee provided for in Article V, Section I (d) of the Articles of Agreement and the text of a resolution approving the proposed Credit are being distributed to the Executive Directors separately. Features of the draft Development Credit Agreement of special interest dealing with charges to farmers for agricultural inputs and prices paid to farmers for their produce and the administration of the LLDP after completion of the project are referred to in paragraphs 25 and 38 of this Report. 43. I am satisfied that the proposed credit would comply with the Articles of the Association. PART VI - RECOMMENDATION 44. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments March 10, 1975  ANNEX I PAage I of 3 pages SOUNTRT aIATA - MALWI AREA POPULATION DENSITY MT1 84 knn 2 4711 MliUlo (mid-1972) 102 Pe, k.2.f er.bl. lnd SOCIAL fIKDICATORS Referenc. Countries malavi ~ SnecAim has Deneeark 190 1_ U970 127 GNP PER CAPITA US$ (ATIAS u-all) aI -. 100 Ia80 - 10A~3,670 LR DEI4CGRAPliIC r-3_ rahIte (Pe, tihousad) ..54./ .71 L.h. Cbade deeth rate (Por thou3and) . 82 2/ . Infec nrtelitY ratn (Per thou-nod lime birth.) 118/ 128 22. 16 2627 9 L. Lfe -Pe-t ...y et birth (ynnr.) 38 39 L0 4.3 73 O..e. reproduction rate / 3.? 3.? 3.0 3.2 1.2 PPepl.ttan groath rate 2.? 2.6 In 2.1 / 2.9A 7 /e 03I PPoplation growth rate - trbno ' I/f 7 . ..57 6.2 Z Age etr-ot1rn (perce-t) 05-61 .5 /k 1..I16 1../ 23.7 65 and -ser 507)k 5 ?T 52 5 . 61 Desendenoy ratio A1 1.0727.C. 11 Ulrbae pope latc a, percent of total . 6 .6 /c.o 80 ~ F=~i1y plum-ing- No. Of aceptore cusOOl.ti- (thou.) ..... No. of user. (% of ...rrJed oe).... T-t=iboe force (tho-onode) .. 2,000 ~p 1,000 /j 5, 7 50 /0. 2,4.00/A Percetage eMPIOYed in agricult-r . 88 2 80 86 /c,h 11 Peretage -ceuploy.d ...20 / ..3 INCOME DISTRIBUTION Pe~rcent of oactional incoce received by bigheat 5%..2 3 .1./ 2?q, Percent cf-ntiocal inoona reoniond by highest 20% .. .1 /WaS .. 0 3/C .Za Percent of ational icocon receeed by l-cet 20% ..10 .. 7 Percet of ationa. ino-no rn...ie-d by 1oact 1.0% ..21..1.7 ..L MISTRINIUTION OF LAND O.RESHIP N cand by top i0% of onr .. - % cone-d by eacllent 10% of -wnr. .. HEALTH AND NUTRITION PPoplation per phynician 35,000 /t 75,250 /ah 21.11.0 21,570 /6 690 PPcplation per ou-ihg perecc .. 16,090M 7 3,220 /o 1.,890 Th 210 PeP,cIati-n Per hePitil bed 91.0) Ic 61.0 570 700 7h 100 / Per caPita o1-iri napply an % of raqotranots /570Ic 98 72/ 69 1191 Per -apita protein _opply, tota (genper day 6 1.9 77. u3 01f DOf ahich, -cic-1 en,d poise 67 9 219 Dahrate I-i. yearn /7 6.9 . 2. 23 0. 62 EDUCATION Ad-justed /0 pri-ay -chool enrollment ratio 39 37 10 3 98 Adj-etedL .secndary echool .-1o1-ret ratio 13 1. 387 There of noho-liug provided, filet and -accud les-l IL 11 11-b. 13 13 Vo-attoca1 -roll-ot ae % of eec. -chool enr.li,sct 21. 3 2 aa 3/qs 32 Adt,lt literacy rateS .. 7.. , . . 99 /nc H0'JOINO Ae-ragt N20.of per--n Per roan (urha) .. 1.9A/ .. 0.9 lad Peoo f occp -d ,to ,rithut piped .ater- 1/. .. a Percani of rural Population contdt cair.toiy 0.0 . PaO,rcine per O 1000pelation Ian 20 18 15 I 325 Pan.neger care per 1CCO pep,latimo. 2/af 2_319 _a E ectric poser ccoe.optloc (koh p.o.) 9 2/ 32971 Nea inrit --eoptito P-c log per year 0.03 /id 0.01. 0.6 /q 0.1 30.3 Notes Figures refer eIther to the latent periode or to ocuo~t of enlroenectal tminperatuare, body ..igbts, Znd the ltent yeo... Lnt.et periods refer 1n principle to dintrikation by age andi maofa noatioeal popalatione. the yearn 1956-60 or 1966-70; tin latent yearn tn pro- /6 Protein etandarde (requla.mnta) fcr all noantrien so eetab- ciple to 1960 -ad 1970. linked by USDA E.ononic Reaearch Service pr-side for a miei,nu Li The P.r Copita GNP entisoto is ot makbut pri-c for alaceof 60 graa cf total protein per day, ana 20 grac of year 0th0_'- tc- 1560, calculated by the neooeno anls,a and pu1ma protein, of witch 10 grace ehold be anima techoiq- nn the 797? Wo-id bead Atios. protei., Thane ntandards -ac e-ehat lowe tkan those of 75 I? A--rgr number of dooghtern per -co of reproductive greas of total protein and 23 green f animal protein an an age - avera.ge for tha wrld, propo.ed by !AO in ti,. Thired World Food Pobpoltion gcuo. rotee .re for the dec-ods ending in Survy. 1960 cod 1970. /7 S-on etdien bane -ggeated that orode decth eaten of children A R.atio of orader 15 ocd 65 and o-er age br-ckot. to agee 1 through . may be aced as a fieet appreal.atls indem of those in10lb-r focue brocket of og-e 15 through 61.. nottin PA0 r"fer"r n- tdorId. represent phyniological -e- /8 Peronotege enrolld of nOrrepending population of -ho-1 age quleeretefor t -nd ntivi ty and h-cIth, taking a dfic-d for each country. Ia i722; /b' 1973; /o 1967; /d 1753; 1960-72; /f estiente; lp All to-nhip, and iten plao..ioc area nod all dlnt,iot entere; /h Tanganylka; ~ e 1 5 gaze.tted twnhilpo, 1957-67; )Agoraon ofI200 or more inhabitants; /k 1962, UN enti-ato for African popelatic ; /1 1966; /. RAtio of pepalatico uander 15 enod 65 and -or age br-cheto to thser in 15-61. age bracket; /n Ratio of population under 15 and 65 and ove to those In lahcr force ef aces 15-61.; /o 16 gaze.tted to-uhip.; L FAO neticate; & 1968; /r Urban only; E... nulc-lly notice PopulatIon; A 1962; /jj Inolude. nidwlv-; /y 1963; /. 196; /. 19b1-63; y16-6; /n Feclding Paeroe Inlauds and Groeeland; /.a Eucluden private vocational schools; /06. 15 yearn and ccr; Inc Definitlon -konsw; /ad 1965; - IAe Inclodee Southerm Rhdodei and Z-beia; /af Inolodin,: sehicle- operated 7y police or sither g-ssereet neourity organi-atione; /ng 1961; /ab Coverage of data In-coplete; /ai Hoo..eholds. *Dennark ian bee -e -etd en an je-tive country, bena...e it is an rumple of a -mall, de..s.ly populated, hot hlghly developed co-ctry. Maloui ons Inh ...... Ing apitnefrn Denmrk in recant yearn. A.M. ii Soptemoer 27, 12(1.  ANNEX I Page 2 of 3 pages ECONOMIC DNDICATORS GROSS NATIONAL PRODUCT IN 1973 ANNUAL RATE OF GROWTH (%. constant prices) US $ Mln. % 1960-65 1965-7 2 GNP at Market Prices 4599.5 1 00.0 7.0 7.8 Gross Domestic Investment 100.3 20.1 17 9 Gross National Saving 51.2 10.3 . . 62.5 Current Account Balance -49.1 9.8 Exports of Goods, NFS 111 , 22.14 .22 8.1 -7.8 Imports of Goods, NFS 160.1 32.1 3.2 4.6 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1973 Value Added Labor Force-/ V. A. Per Worker US$ Mln. (%US $ % Agriculture 266. .14.2 946 9 8.2 14324. 329.5 Industry 6 iL. g 07 Services 203.0 L2. M 91 8.5 2230.8 506.7 Unallocated - - Total/Average 473.8 100.0 , 076 100.0