Malawi - Institutional Development Project

Document of The World Bank FOR OFrFICIAL USE ONLY CItZa O 6 -M 3 Report No. P-5005-MAI MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE TNTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS PROPOSED CREDIT OF SDR 8.8 MILLION THE REPUBLIC OF NALAWI FOR AN INSTITUTIONAL DEVELOPMENT PROJECT i4AY 5, 1989  REPUBLIC OF MALAWI INSTITUTIONAL DEVELOPMENT PROJECT CURRENCY EQUIVALENTS Currency Unit - Malawi Kwacha (MK) US$1 - MK 2.70 MK 1 - USS 0.37 ABBREVIATIONS AND ACRONYMS MIM Malawi Institute of Management MOF Ministry of Finance UNDP United Nations Development Program FISCAL YEAR April 1 - March 31  FOR OFmFCIAL USE ONLY REPUBLIC OF MALAVI INSTITUTIONAL DEVELOPMENT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government of the Republic of Malawi Implementing Malawi Institute of Management, Ministry Agencies: of Finance Credit Amount: SDR 8.8 million (US$ 11.3 million equivalent) Terms: Standard, with 40 years maturity Financing Plan: Government USS 1.6 million UNDP USS 6.0 million IDA USS 11.3 million TOTAL US$ 1b.9 million Staff Appraisal Report: No. 7642-MAI Map: IBRD 21210 This document has a restriced distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be discbsed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE GOVERNMENT OF MALAWI FOR AN INSTITUTIONAL DEVELOPMENT PROJECT 1. The following memorandum and reconmendation on a proposed development credit to Malawi for SDR8.8 million (US$11.3 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity and would help finance an institutional development project. Cofinancing of US$6.0 million equivalent would be provided by UNDP. 2. Background. Malawi has been experiencing significant economic difficulties as a result of adverse internal and external developments, in particular the closure of traditional transport routes through Mozambique, the influx of large numbers of refugees, and a further decline in the terms of trade. The Government has been in a program of structural adjustment since the early 1980s designed to stabil4ze the economy and establish the foundation for renewed economic growth. The Bank has supported Malawi's adjustment efforts through three SALs, two TA projects, and, most recently, an Industrial and Trade Policy Adjustment Credit. The SALs and TA projects supported improvements in public sector management; however, some of these reforms, e.g., in areas of forward budgeting and debt management, have not been sustained, as was noted in the PPAR on SALs I and II and TA I (No. 6833, June 12, 1987). The PPAR also noted that the institutional capacity to sustain reform in Malawi was fragile and required a longer time frame than that provided by the three operations. In retrospect, SALs, with their emphasis on immediate actions and tranche releases, and TA projects, which generally had a short-term perspective, were not the appropriate vehicles in which to introduce and nurture institutional change. 3. The Government has adopted a medium term development strategy for the period 1987-1996, which supports the need for strengthening national economic management. The Government seeks to accomplish its goal by providing an internal capability to train Malawian managers in the skills and techniques needed to run a sophisticated, modern economy. It also realizes that management and systems in the central government should operate more efficiently, and that it requires a long-term program of institutional strengthening to accomplish these objectives. The Government has requested IDA assistance for such a program. 4. Rationale for IDA Involvement. Through adjustment operations and TA projects, IDA has been supporting Malawi's efforts to strengthen its capacity for economic management. However, the experience of the previous operations has demonstrated that a long-term, measured approach is necessary for institutional change to take root and grow. Having learned from its previous experiences, IDA is well-placed to coordinate a long-term program of institutional development, one which focuses on a limited number of high priority areas and provides technical assistance designed to enhance existing capacity rather than replace it. 5. Project Obiective. The project's objective is to strengthen national economic management. The proposed management institute would offer a  - 2 - wide range of truining programs and seminars aimed at improving the capacity of Malawian managers in the public and private sectors. The strengthening program in the Ministry of Finance would improve the Ministry's capability to manage public resources through upgrading processes for budgeting, accounting and auditing, debt management and claims, and would improve revenue flows through modernization of the tax system. 6. Protect Description. The project would establish and operate the Malawi Institute of Management (MIM) to train managers in the public and private sectors in management techniques. In addition to its own campus, KIM would work closely with the University of Malawi, sharing facilities with two of the University's affiliates, Chancellor College and the Polytechnic. An endowment fund would be established to receive all the fees MIM generates during the five year project investment period. Income from its endowment, along with annual fees, would help MIM cover its operating expenses in the post-project period. The project would fund MIM's civil works, furniture, equipment and operating costs. A Canadian consortium has been selected to provide initial technical services under a twinning arrangement. If its performance is satisfactory after a one year period, the consortium will be offered a multi-year contract. 7. The project would also assist the Ministry of Finance (XOF) with the implementation of its Development Plan and its ongoing tax modernization program. MOF would be reorganized to strengthen its forward budgeting capability, to improve government accounting and auditing, and to strengthen claims processing and debt management. The project would also continue support for the ongoing tax modernization begun under SAL III. The tax program is supporting reforms in trade taxes, more efficient collection of corporate taxes and an improved duty-drawback scheme to promote export growth. The project would provide the technical assistance, equipment and training required to help MOP carry out its Development Plan and tax modernization program. A breakdown of costs and the financing plan are shown in Schedule A. UNDP would provide US$6.0 million equivalent in parallel financing. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group Operations in Malawi are given in Schedules C-E. A map is also attached. The Staff Appraisal Report, No. 7642-MAI dated May 5, 1989, is being distributed separately. 8. Actions Agreed. During negotiations it was agreed that MIM woulds (i) be established through an Act of Parliament (condition of effectiveness); (ii) review the initial twinning relationship with the external consortium and advise IDA, prior to the end of the current one-year contract with the consortium, on its decision to either enter into a new contract for a three- year period with the same consortium, or to make alternative arrangements satisfactory to IDA; (iii) consult with IDA on the qualifications and experience of future candidates for Principal; (iv) develop a comprehensive plan for its consulting program, including a schedule of fees to be charged and arrangements for fee sharing with staff, to be reviewed with IDA by December 31, 1989; (v) establish an endowment fund by December 31, 1989, and prepare a strategy for the use of endowment resources for discussion with IDA  - 3 - by December 31, 1992; and (vi) undertake a review of MIM's technical assistance reqairements after 1992, and prepare a report on its findings and recommenuations for discussion with IDA by December 31, 1992. It was also agreed that MOF would, by December 31, 1989, take the following measures to carry out its comprehensive Development Plan: (i) restructure its organization in accordance with the Plan, with the assistance of consultants as necessary; (ii) prepare a plan for introducing a forward budget system, develop terms of reference for a user needs study of computerization requirements and prepare a plan for improving its audit services; and (iii) prepare a human resources development plan, including a timetable for filling vacancies for professional positions in MOF. 9. Benefits. The project would continue the process begun u'.ier previous adjustment operations of strengthening Malawi's capacity for national economic management. Establishing MIM would provide the country with an in- service management training capability for middl- level and senior officials in the civil service, parastatals and private sector. This would remove the economy's dependence on external training sources and would enable a much larger group of managers, from 200 per annum at present to almost 1,000 per annum at the end of the project, to receive management training. The proposed program for strengthening MOF would enable it to provide better economic management. Under MOF's Development Plan, forward budgeting, accounting and auditing, and financial management would be reorganized to operate more efficiently. The tax modernization program would improve the tax structure and modes of collection, resulting in greater incentives for local production and increased public revenues. 10. Risks. The project risks are: (i) that MIM would be slow to develop into a credible training institute and that it would be financially dependent on the Government; and (ii) that the strengthening program in MOF would not be sustained over the time required for reforms to be fully internalized. The programs for both components have been designed to minimize these risks. MIM's twinning arrangement with an external consortium and its close association with the University of Malawi would enable it to operate initially at a high level while local staff gradually assume control. The probability of MIM's financial independence would be increased through its proposed endowment, though ultimately the best assurance would be its recognition as a center of excellence in management training which would ensure demand for its courses and enable it to market its consulting services. For MOF, the programs have been designed against modest targets and would be introduced slowly with the full participation of Malawian staff. 11. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President by Moeen A. Qureshi Attachments May 5, 1989  -4- Schedule A REPUBLIC OF MaLAWI 'NSTITUTIONAL DEVELOPMENT PROJECT Estimated Costst 2 Foreign Local Foreisn Total Exchanse ---- (US$ Million) ---- A. Malawi institute 5.3 7.8 13.1 60 of Management B. Ministry of Finance Budgeting, Financial Mgmt., 0.4 1.2 1.6 74 Auditing Tax Modernization 0.1 1.8 1.9 98 Sub-total 0.5 3.0 3.5 87 Total Baseline Costs 5.8 10.8 16.6 65 Physical Contingencies 0.2 0.3 0.5 60 Price Contingencies 0.5 1.3 1.8 72 Total Project Cost 6.5 12.4 18.9 66 m, a_nmin mm Financing Plant Local Foreign Total ---- (US$ Million) ---- Government 1.6 - 1.6 IDA 3.3 8.0 11.3 UNDP 1.6 4.4 6.0 Total 6.5 12.4 18.9 _m - mm  -5- Schedule B Amounts and Methods of Procurement a/ (US$ Million) ICB LCB OTHER TOTAL Civil Works 4.6 (4.4) 0.4 (0.4) - - 5.0 (4.8) Vehicles 0.2 (0.2) - - 0.1 (0.1) 0.3 (0.3) Furn. & Equipment 0.5 (0.5) 0.5 (0.5) 0.2 (0.2) 1.2 (1.2) Training - - - - 0.7 (0.4) 0.7 (0.4) Technical Assistance - - - - 7.1 (2.4) 7.1 (2.4) MIM Salaries - - - - 1.0 - 1.0 MIM Rentals - - - - 0.8 (0.7) 0.8 (0.7) MIM Op. Costs - - - - 2.8 (1.5) 2.8 (1.5) Total 5.3 (5.1) 0.9 (0.9) 12.7 (5.3) 18.9 (11.3) a_ Contingencies and expenditures financed by the PPF are included in the amounts shown. IDA contribution is indicated in parentheses. Summary of Disbursement Schedule (USS Million) Category Amount of Credit 2 of Expenditure Allocated to be financed 1. Civil Works 4.0 100? of foreign & 90? of local 2. Vehicles 0.5 10O of foreign & 90? of local 3. Furnishing and 1.1 1001 of foreign & Equipment 90? of local 4. Operating Costs 2.4 70? 5. Technical Assistance 0.8 100X and Training (MOF) 6. Refunding of Project 1.5 Preparation Advance 7. Unallocated 1.0 Total 11.3 Estimated Disbursements: IDA FY 1990 1991 1992 1993 1994 1995 ----- (US$ Million) ------------ Annual 1.5 2.5 2.5 2.5 1.5 0.8 Cumulative 1.5 4.0 6.5 9.0 10.5 11.3  -6- Schedule C MALAWI INSTITUTIONAL DEVELOPMENT PROJECT Timetable of Key Project Processing Events 1. Time Taken to Prepares 36 months 1/ 2. Prepared By: Government with IDA Assistance 3. First IDA Mission: October i986 4. Appraisal Mission Departure: November 1988 S. Negotiationss April 1989 6. Planned Date of Effectiveness: July 1989 7. List of Relevant PCas and PPARs: PPARs SAL I and II (Ln. 2026-MAI; Cr. 1427-MAI) & TA I (Ln. 2027-MAI) (PPAR No. 6833) 1/ The Fourth Education Project (Cr. 1123-MAI), which was appraised in 1980 and became effective in 1981, provided funds for preparatory studies and architectural sketches for a proposed civil service training institute. The study was not undertaken until 1986, and it is from this date that project preparation is considered to have officially begun, although the concept was discussed with the Government much earlier.  NRU TINE: 05/03/U9 AT 15.41.19 STATUS OF BANK GROUP OPERTIONS IN NALANI SPNR02S - SUNNAR STATENET OF LOANS AND IDA CREDITS SNDL ILOA DATA AS OF 3/30/99 - NIS DATA AS OF 05/03/99) SCHE_DU_LE D Amount in M8 illion (loss cancullatimns) Loan or Fiscal Undis- Closing Credit No. Y . D lorrower Purpose 8ank IDA buried Date Credits 29 Credits(s) closed 392.57 C11830-HAL 1982 NALAWI NRDP II1 7.30 2.38 09130/8(R) C13300-NAL 1983 NALAWI EDUCATION V 34.00 1O.53 09/30/IIRI C13430-fAL 1983 NALAWI NRDP IV 10.60 6.34 O9/30/89(R C13510-NAL 1983 ALAN! HEALTH-NUTRITION 6.80 .88 12/31/88(R CF0060-NAL 1984 MLANI HI6H/AYS V 13.90 4.60 09/30/90 C14230-NAL 1984 ALAVI HIGHNAYS ' 13.10 1.69 09/30/90 C14280-KAL 1984 NALAWI TECHNICAL AIST. 1.50 .02 06/30/89(R) C15280-NkA 1985 MLAVI URBAN I 15.00 16.19 06/30/91 C15490-AL 1985 KALAHI A6RI RES. 23.80 21.20 10/31/90 C16260-NAL 1986 NALANI EXT. PLANNING 11.60 12.17 09/01/91 C17420-NAL 1987 NALAII LILONGUE WATER (WTR 20.00 13.90 06/30/93 C17670-NAL 19V8 ALRVI EDUCTION VI 27.00 25.20 12/15/93 C17680-llL 1987 NAAAI HEALTH/POP.ll 11.00 8.26 06/30/93 C1I510-NAI. 1988 NALAbI A6RICULtURE CREDIT 5.90 5.64 06/30/95 C18790-IAL 1998 MANI TRANSPORT I 13.40 8.92 06/30194 C19200-NlAL 1988 MALAI IND/TRADE FOL.ADJ.CR 70.00 32.80 12/31/90 C19201-llL IM ALRAWI IND/TRADE POL.ADJ.CR 5.20 5.17 12/31/90 C19660-NlAL 1989 NULAI AGRI.IARKETI16 I EST 18.30 18.34 06/30/96 C19900-IAL 1989 NALANI ENERGY 1 46.70 44.95 12/31/94 TOTAL number Credits 19 355.00 239.17 Loans 6 Loansts) closed 74.95 L23-30-NAL 1984 NAAI HIGHWAYS V 18.00 2.21 09/30/90 L248b0-NAL 1985 NALAWI MOOD IND.RESTR.tAS 6.40 1.77 03/31/91 L26460-NL 1986 "tAlI IND. I ARRIC. CR. 7.80 5.01 06/30/93 L26700-NAL 1986 NA1AI WOOD EGY.II 16.70 15.03 06/30193 TMAL nusber Loans a 48.90 24.02 TOTALtU 123.85 747.57 of which repaid 18.62 11.29 TOTAL held by Bank 6 IDA 105.23 736.27 Amount sold .73 of uhicb repaid TOTAL undisbursed 263.20 NOTES: I Not Yet eftective St Not yet signed ttt Total Approved, Repaysents, and Outstanding balance represent both active and inactive Loans and Credits. (R) indicates formally revised Closing Date. The Net Approved and Bank Repayments are historical value, all others are market value. The Signing, Effective, and Closing dates are based upon the Loan Department offical data and are not taken from the Task Budget t.ale.  Schedule E MALAWI STATEMENT OF IFC INVESTMENTS (as of March 31, 1989) Investment Type of Loan Equity Total Number FY Obligor Business ---- US$ Million --- 326-MAI 1976 D Whitehead Textiles 10.8 - 10.8 618-MAI 1982 & Sons Ltd 362-MAI 77/81185 Dwanga Sugar Sugar 11.3 - 11.3 Corporation Ltd 434-MAI 1979 INDEBANK Development - 0.6 0.6 Finance Co. 502-MAI 1980/84 Malawi Hotels Tourisme 2.1 - 2.1 543-MAI 1981 Ethanol Company Chem/ 2.2 0.3 2.5 614-MAI 1982 Ltd of Malawi Petrochem. 832-MAI 1986 Leasing & Finance Money & 0.7 0.1 0.8 Corp. of Malawi Capital Market 741-MAI 1985 Viphay Plywcod Plywood 872-MAI 1987 4.1 0.5 4.6 Total Gross Commitments 31.2 1.5 4.6 Less Cancellations, Terminations, Repayment 14.4 - 14.4 Total Commitments Now Held by IFC 16.8 1.5 18.3 Total Undisbursed 0.7 _ 0.7 Total Disbursed 16.1 1.5 17.6  32 0 436 To Dar Es Sa-laam -10 Chise Kai'onga -7 M ALAW I _10