Madagascar - Second Social Fund Project

Document of The World Bank Report No. 14489-MAG STAFF APPRAISAL REPORT REPUBLIC OF MADAGASCAR SOCIAL FUND II PROJECT AUGUST 15, 1995 Population and Human Resources Division Central Africa and Indian Ocean Department Africa Region  CURRENCY EQUIVALENT Currency Unit = Malagasy Franc (FMG) U.S. $ I = FMG 4300 May 1995 MEASURES Metric System FISCAL YEAR Januaty I to December 31 ABBREVIATIONS AND ACRONYMS AGETIPA Agence d'Execution des Travaux d'Interet Public dc Antanianarivo EMSAP/PASAGE Economic Management and Social Action Project (Projet des . Ilions Sociales et Appui az la Gestion Ecoioinique) EIRR Economic Internal Rate of Return FID Social Fund (Fonds dIntervention pour le Developpeneni) IAPSO/UNDP Interagency Procurement Services Office/ United Nations Development Program ICB International Competitive Bidding IGA Income Generating Activities LCB Local Competitive Bidding M&E Monitoring and Evaluation MiS Management Information System NGO Non Governmental Organization (Organisation .Von Gouvernmenetale) SECALINE Food Security and Nutrition Project (Scurite A limentaire et VAutrition Elargie) UNICEF United Nations International Children's Emergency Fund This report is based on the findings of a World Bank mission composed of Mmes/Messrs. Qaiser Khan (Mission Leader and Human Resource Economist), Paul Geli (Consultant/Implementation Specialist), Michele Lioy (EEC Specialist), and Alf Persson (Consultant/MIS Specialist). Ms. Eileen Murray is the Division Implementation Specialist assigned to the Project. Ms. Hilda Emeruwa-Creppy prepared the Cost-tables. Ms. Helena Ribe is the Lead Advisor while Ms. Lynne Sherburne-Benz is the Peer Reviewer. Mr. Andrew Rogerson is the Department Director, Mr. David Berk is the managing Division Chief and Mr. Padmanabha Hari Prasad is the Department Operations Advisor. This project was processed under accelerated procedures with support from Mr. Mahmood Ayub, Senior Operations Adviser, Africa Region. Ms. Hilda Emeruwa-Creppy and Ms. Anne Anglio also assisted with report production.  MADAGASCAR SOCIAL FUND II PROJECT CONTENTS Executive Summary ......................................................... iii L. BACKGROUND .... 1 A. INTRODUCTION .....1 B. POVERTY AND SOCIAL CONDITIONS .....1 C. GOVERNMENT POLICIES AND ACTIONS .... 2 D. BANK EEXPERIENCE .... 3 E. ROLE OF NGOs .... 4 F. RATIONALE FOR IDA INVOLVEMENT .... 4 2. THE PROPOSED PROJECT .....S A. PROJECT OBJECTIVES AND DESIGN .... 5 B. PROJECT DESCRIPTION .... 5 1. General Approach .... 5 2. Implementation Modalities .... 6 3. Sub-Project Selection Criteria .... 7 C. PROJECT COSTS AND FINANCING .... 7 1. Costs .......7 2. Financing .... 9 3. Sustainability and Consistency with Sectoral Approaches .... 10 3. PROJECT IMPLEMENTATION .... 11 A. STATUS OF PROJECT PREPARATION .....11 B. PROJECT MANAGEMENT .....1.1 1I National Level .1).I 2. Regional Level .. 13 3. Project Implementation Manual FID . s Manual of Procedures..... 14 C. PROJECT MONITORING AND EVALUATION ..... 14 1. Structure .. 14 2. Project Monitoring Indicators ..I S D. PROCUREMENT .. 16 E. DISBURSEMENTS, ACCOUNTS AND AUDITS ............................................................................................ 20 4. BENEFITS, RISKS, BENEFICIARY PARTICIPATIQN, ENVIRONMENTAL ASPECTS AND ECONOMIC ANALYSIS ........... 24 A. BENEFITS ........... 24 B. RISKS ............24 C. PARTICIPATORY APPROACH ........... 25 D. ENVIRONMENTAL ASPECTS ........... 25 E. ECONOMIC ANALYSIS ........... 25 S. AGREEMENTS, ASSURANCES AND RECOMMENDATION .28  TEXT TABLES TABLE 2. 1: MODALITIES OF EXECUTION FOR FID SUB-PROJECTS ................................................................6 TABLE 2.2: PROJECT COSTS SUMMARY .............................................................................8 TABLE 2.3: PROJECT COST SUMMARY ............................................................................8 TABLE 2.4: FINANCING PLAN BY DISBURSEMENT CATEGORY ......................................................................9 TABLE 3.1: PROJECT MONITORING INDICATORS ............................................................................ 16 TABLE 3.2: SUMMARY OF PROPOSED PROCUREMENT ARRANGEMENTS ..................... ................................. 17 TABLE 3.3: IMPLEMENTATION SCHEDULE ........................................................................... 20 TABLE 3.4: DISBURSEMENT CATEGORIES ........................................................................... 21 ANNEXES ANNEX 1: DECLARATION OF POLICY FOR POVERTY ALLEVIATONN ................................ .............................. 30 ANNEX II: DESCRIPTIONOFTHESOCIALFUND(FoNDSDIATERvEAIONPOURL DEELOPPEMEKTOR FID)..33 ANNEX III: PROJECT MANAGEMENT ASPECTS ........................................................................... 38 ANNEX IV: PROJECT MONITORING AND EVALUATION ............................................................................ 40 ANNEX V: ESTIMATED DISBURSEMENT SCHEDULE ........................................................................... 42 ANNEX VI: SUPERVISION PLAN ..............................................................................................3................ 43 ANNEX VII: LIST OF DOCUMENTS ...................... 46 ANNEX VIII: DETAILED TABLES ..................... 47  MADAGASCAR SOCIAL FUND II PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Madagascar Beneficiary: Fonds d'Intervention pour le Developpement (FID) Poverty: Program of Targeted Interventions Credit Amount: SDR 25.5 million (US$40.0 million equivalent) Terms: Standard IDA terms, with 40 year maturity Commitment Fee 0.50% on undisbursed loan balances, beginning 60 days after signing, less any waiver. Project Description: To complement policy efforts aimed at restoring employment gerenerating economic growth, the project objectives are to alleviate poverty and support community development through partnership with NGO and beneficiary communities. This will be done using the successful approach of the ongoing SECALINE project, and no change in emphasis is expected. The proposed project would provide supplemental financing to the Fonds d'Intervention pour le Developpement (FID), a non- profit association that finances construction and rehabilitation of basic infrastructure, income-generating activities and private sector support programs. FID has been active in the provinces of Antananarivo and Toliary since 1993 and has just started operations in the country's remaining four provinces (Antsiranana, Fianarantsoa, Mahajanga and Toamasina). FID has been funded by the SECALINE project but, with the expansion of FID to all of Madagascar and the faster than expected pace of execution, the resources available to FID under the ongoing project are expected to be committed by early 1996. During the project period it is estimated that FID will help to: (a) create about 5 million person-days of temporary employment on infrastructure projects; (b) develop health and education facilities; (c) develop 1,000 kilometers of farm-to-market roads; (c) provide protection for 16,000 hectares threatened by soil erosion; (d) develop 30,000 hectares  ii of arable land; (e) finance 1,200 contracts with micro and small enterprises as well as another 200 with artisans and skilled daily workers; and (f) create approximately 2,700 permanent jobs. These estimates are tentative as FID will be demand-driven and it is difficult to predict in advance the distribution among various types of projects. Financing Plan: IDA USS40.0 million, Beneficiary Communities US$1.8 million and Government US$3.6 million. Economic Rate of Not Applicable. However to assure that FID finances priority Return and environmentally sound sub-projects, economic and environmental analyses will be applied to sub-projects financed by FID whenever necessary. Map: IBRD 20035R]  MADAGASCAR SOCIAL FUND II PROJECT STAFF APPRAISAL REPORT 1. BACKGROUND A. INTRODUCTION 1.1 With a GDP per capita of US$235, unequally distributed, Madagascar is a striking example of unfulfilled economic potential. It has experienced two decades of economic decline during which per capita GDP plummeted by 40%. Yet, the country has abundant resources consisting of cheap and trainable labor as well as a wide variety of soils, climates and natural resources that include unique flora and fauna. The proportion of the population living below the poverty line has increased dramatically since the early 1970's and most indicators point to a sharp heightening of income inequality. 1.2 Madagascar is the world's fourth largest island, with a land area of 587,000 square kilometers and a population of 12 million growing at 3% per year. Agriculture accounts for a third of GDP and 60% of export earnings. It also provides the main source of income for 80% of the population. The industrial sector, which accounts for only 14% of GDP is undergoing a major transformation following policy reforms introduced in the mid-to-late 1980s. Formerly state-dominated and inward-looking, the sector is becoming increasingly private-owned and export-oriented. Despite its economic troubles, Madagascar has made a successful and peaceful transition from an authoritarian state to a pluralistic democracy, largely due to the consensus ethics of the Malagasy society; however, the same search for consensus (this time among members of the ruling coalition) has yielded a political stalemate impeding economic policy-making. Although the Government has taken some courageous steps, lack of prudent fiscal management served to erase much of the potential economic gain associated with floating the currency, by producing rapid inflation. B. POVERTY AND SOCIAL CONDITIONS 1.3 Poverty has been increasing steadily in Madagascar since the early 1960s. Using a fairly ungenerous poverty line based on 90% of the FAO-recommended daily caloric intake (plus an allowance for non-food expenditures), it is estimated that almost 54% of the population was living below the poverty line in 1993. Using the full FAO recommendation as the base for the poverty line, the proportion living in poverty increases dramatically. It is estimated that 92% of the poor live in rural areas. The Government includes poverty reduction as a pillar of its development strategy and has worked in close partnership with the Bank on the draft Madagascar Poverty Assessment. Based on the report's findings, the Government plans to develop a poverty strategy using a  Madagascar: Social Fund 11 Project -StaffAppraisal 2 participatory process. The poverty assessment recommends a rural-based strategy focusing on labor-intensive development. The Government has recently made some moves in that direction primarily through devaluation of the Malagasy Franc, which has improved the rural-urban terms of trade and should encourage agriculture, the sole livelihood of the majority of the poor. 1.4 Even though Madagascar spends proportionately little on non-productive areas such as defense, the allocation of public resources towards pressing social needs such as health and education has been less than impressive. The quality of basic education and health services has declined sharply: Madagascar is one of the few countries in the developing world where the younger generation is likely to have a worse educational attainment than that of its parents. Repeater and dropout rates are exceedingly high at the primary level, with fewer than one in three children completing the five year cycle. The percentage of children passing the terminal examinations for each cycle is less than 50%. The gross enrollment ratio in primary schools fell from 142% to 95% between 1980 and 1992, and in junior secondary schools, from 30% to 20% over the same period. Parents are demonstrating their dissatisfaction with the public education system by withdrawing their children from public schools, either placing them in private schools if able to afford them or altogether eschewing formal schooling, in reaction to the poor quality of the state schools. 1.5 The public health system is also in disarray: most facilities lack medicines and other medical materials even though they generally have personnel with an acceptable level of training. The infant mortality rate is 107 in rural areas and 75 in urban areas. Vaccination coverage of children 3 to 60 months is 36%. Between 45% and 49% of children are malnourished when measured as two standard deviations below the norm (height for age or weight for age). The total fertility rate was estimated to be 6.1 in 1992 (3.8 in urban areas). 1.6 Housing conditions are poor, with 53% of households living in a single room and poor households crowded in at the rate of 6 persons per room. Over 60% of households obtain their water from easily pollutable sources such as lakes, rivers and ponds while 12.5% percent obtain water from public taps. Sixty percent of households have no sanitary equipment and another 31% use traditional latrines. Even in urban areas 27% of the population have no sanitation equipment (compared to 76% in rural areas). C. GOVERNMENT POLICIES AND ACTIONS 1.7 The Government has long stated that poverty reduction is a cornerstone of its agenda, but action to date has been minor, either to address poverty directly or to address the conditions leading to pervasive poverty. As mentioned earlier, devaluation of the Malagasy Franc (FMG) has improved the rural terms of trade and will help reduce poverty since 92% of the poor live in rural areas. The Government is moving towards more liberal economic policies as a basis for agreements with the IMF and the World Bank. While these changes should foster sustainable, poverty-reducing growth in the long  3 Chapter 1: Background run, the immediate needs of the country's widespread and rising poverty requires attention. The Government has requested donor support for a social safety net including labor-intensive works, targeted nutrition programs and support for workers rendered jobless by public sector restructuring. The proposed project is part of these poverty alleviation efforts which will also be supported by the extension of the existing AGETIPA (Urban Works Development Agency) project into municipalities outside Antananarivo. These activities will need to be accompanied by a major re-allocation of public expenditures in favor of priority sectors such as basic human resource development. . The process of reallocating public expenditure allocations in favor of basic human resource development has already started in the context of dialogue with the Bank and the IMF on macroeconomic policies. D. BANK EXPERIENCE 1.8 The first major poverty program was financed through the Economic Management and Social Action Project (PASAGE) in the late 1980s and supported by IDA and other donors. Other donors such as UNICEF have undertaken anti-poverty activities. This project is based on the successful experience of Food Security and Nutrition Project (Credit 2474-MAG). IDA approved the Food Security and Nutrition (SECALINE) Project in 1993 to address poverty, food insecurity and malnutrition. The SECALINE project is an example of successful partnership with NGOs, communities and government authorities aimed at reducing poverty and malnutrition. The proposed project provides additional funding for a successful on-going project and no significant changes in approach are proposed. Nevertheless, there are some lessons to be drawn from the experience of the on-going project. The main difficulty has been in the area of micro-enterprise development sub-projects in marketing and cash-flow management. Some rural roads financed by FID have not been good enough during the rainy season. New construction techniques and methods are being analyzed in collaboration with the AGETIPA (Urban Works) and PREFTEC (Vocational and Technical Training ) projects to resolve this. Also, a part of the quality problem is attributable to the fact that FID includes in its overall mandate, the development new small and micro-enterprises and these businesses often win FID financed contracts. Revisions to the manual of procedures are under-way to reflect the experience of the past eighteen months. These revisions cover details from how improve income generating projects to how provide better quality roads, etc., while at the same time preserving FID's micro-enterprise development role. A revised manual of procedures will be a dated covenant in the credit agreement. The on-going project demonstrates that focusing on the beneficiary community and being demand-driven helps make this kind of project successful. Other ingredients of success include: (a) involvement of beneficiaries at all stages; (b) widely attended regional launch workshops involving people ranging from Cabinet Ministers and NGOs to poor peasants, which helped increase borrower ownership; (c) a decisive executive head who recruited competent staff, and after giving them responsibilities and targets, left them to work on their own (monitoring to see that they were meeting agreed outcomes); and (d) setting up  Madagascar: Social Fund ! Project -StaffAppraisal 4 FID under private sector rules and staffing it with dynamic and competent managers. These ingredients are expected to be maintained in the future. E. ROLE OF NGOs 1.9 One of the major objectives of the Third Republic is to restore respect for the state, which has largely been eroded over the past two decades, in part due to the economic and social policy failures described earlier. Currently, NGOs (including Church organizations) are the only organizations which appear to have helped the poor and earned their respect. Thus, NGOs have a key role to play in anti-poverty efforts, well demonstrated in the ongoing SECALINE project. The project's strong and productive partnerships with NGOs is expected to continue into the future. 1.10 The proposed project expects to place a heavy reliance on NGOs. Bank missions have organized focus group sessions with NGOs in different parts of Madagascar and found them to have a strong interest in the project. Further, a large pool of NGO projects appears in need of funding F. RATIONALE FOR IDA INVOLVEMENT 1.11 Project coherently set in ESW: The Proposed project has been developed in parallel with the macroeconomic adjustment process and its meant to help the poorest Malagasy during the adjustment process. This type of project has been proposed in several Bank country economic and sector reports including Madagascar - Economic Strategy Note, Madagascar - Poverty Assessment (in preparation) and Madagascar - Towards a Food Security Strategy. 1.12 Project Coherently set in Country Assistance Strategy: Addressing poverty is one of the cornerstones of the Bank Group's County Assistance Strategy (GAS) which was discussed by the Board on July 18. 1994. The strategy includes creating the conditions for growth by creating the appropriate policy environment and by investing in poverty reducing/ growth enhancing areas such as human resources and infrastructure. The proposed project is mentioned in the CAS as a critical supplement to the overall policy thrust (para. 29 of the CAS). IDA involvement in the ongoing successful social fund (FID) has shown that IDA can play a key role in efforts that combine poverty alleviation and development. The proposed project represents an extension of that role and is an important vehicle for the increased involvement of NGOs in IDA financed projects in Madagascar. The proposed project also complements IDA's efforts in education, health, infrastructure and private sector development. In view of the high levels of poverty identified in Madagascar by the on-going poverty assessment, this project is essential. Other donors have expressed interest and the Government has considered using FID as a possible vehicle for its own financed poverty programs without external funding.  2. THE PROPOSED PROJECT A. PROJECT OBJECTIVES AND DESIGN 2.1 Madagascar needs to create the conditions for sustainable growth by removing the constraints to intemationally competitive private sector led development and by investing in growth enhancing/ poverty reducing areas such as physical infrastructure and human resources. Given the high level of poverty, this approach needs to be combined with activities targeted to the poor. The proposed project's objectives are to alleviate poverty and support community development through partnership with NGOs and beneficiary communities. This will be done using the successful approach of the SECALINE project, and no change in emphasis is proposed. 2.2 The proposed project would provide supplemental financing to the Fonds d'Intervention pour le Developpement (FID), which has been active in the provinces of Antananarivo and Toliary since 1993 and has just started operations in the remaining four provinces of Antsiranana, Fianarantsoa, Mahajanga and Toamasina. FID has been funded by the SECALINE project but, with the expansion of FID to all of Madagascar and the faster than expected pace of execution, the resources available to FID under the ongoing project are expected to be committed by early 1996. B. PROJECT DESCRIPTION 1. General Approach 2.3 The proposed project will support the extension of FID's activities from two to all six of the country's provinces and inject additional resources for the original two. FID is a non-profit association for public service (une association a but non lucratif reconnue d'interet public) headquartered in Antananarivo, the capital, with regional offices in the provinces of Antananarivo and Toliary. New regional offices are being set up in Antsiranana, Fianarantsoa, Mahajanga and Toamasina. FID finances sub-projects at the request of communities, sometimes in partnership with NGOs throughout Madagascar. Once the newly created decentralized elected structures of Government are in place, FID would work closely with them and help them with infrastructure development. Demand for FID financing is substantial throughout the country. Annual work-plans will be prepared to allocate more funds to areas with more poverty as shown in the Poverty Assessment. Should demand for financing exceed supply, priority will be given to the poorest communities. The Government will continue to provide IDA funds to FID on a grant basis. 2. Quantitative Analysis of Alternative Designs 2.4 The project provides supplemental funding for the highly successful Madagascar Social Fund (Fonds d'Intervention pour le Developpement or FID). The on-going project  Madagascar: Social Fund 11 Project - StaffAppraisal Report 6 experience has been evaluated by independent external and national experts who have carried out both quantitative and qualitative assessments. The recommendations from these assessments have been integrated into the proposed design. The recommendations include the necessity to train micro-enterprises and small enterprises (which execute sub- projects) so that they can improve the quality of their work and the need to expand the proportion of sustainable income generating activities (IGA). In order to increase IGA sub-projects, some experimental projects are being undertaken to discover the best way to expand IGA sub-projects. The results from all of these are to be integrated into the social fund's procedures manual by June 30, 1996 (this is a dated covenant in the credit agreement). 3. Implementation Modalities 2.5 FID finances construction and rehabilitation of basic infrastructure, income- generating activities and private sector support programs, including the development of grass-roots community groups and local NGOs. The maximum amount of FID financing or grant for a project is US$50,000 equivalent, with the exception of transport infrastructure projects (rural roads, bridges, etc.) for which the maximum is US$100,000. FID does not finance recurrent activities or projects that: are of an emergency nature; already receive funding from other sources; have been eliminated from government or local authorities' investment programs; may have a negative impact on the environment; and are too sophisticated or heavily mechanized. Through FID, the proposed project will create employment; develop health and education facilities; help farmers by building farm- to-market roads, protecting land against soil erosion and developing arable land; and promote private sector activity, particularly for micro and small enterprises. Year-by-year qualitative targets are shown in Table 3. 1. Table 2.1: Modalities of Execution for FID Sub-Projects Size of Sub-Project | Role of Community Role of NGO (if Role of ___ __ ___ __ applicable) Consultino Firm Role of FID under US$7,500 Identifies and maintains Helps Community Appraises, finances after completion prepare proposal. and makes spot ____________ ______________ Executes Works if any. check. From US$7,500 to Identifies and maintains Helps Community Appraises, finances US$30,000 (Income after completion prepare proposal and and makes spot Generating Projects) works as a partner in check. In case of making the IGA revolving credit funds successful. Manages assures that revolving fund for repayment takes credit if applicable. plae. Conducts bidding for equipment if cost Is above US$7,500. From US$7,500 to Identifies and maintains Helps Community Designs and Apprases, fimances US$30,000 (Civil after completion prepare proposal. and supervimses and conducts bidding Works Projects) to assure that tsks works for consultants and are carried out. works. Above $30,000 Identifies and maintains Helps Community Designs and Appraisos, finances after completion prepare proposal. and superises and conducts bidding to assure that tasks works for goods. consulbrt I________ I________ are carried out. and works.  7 Chapter 2: The Proposed Project 2.6 The modalities of implementation vary, depending on the types and costs of projects. The NGOs, local grassroots groups and communities requesting funding for income-generating activities, private sector support programs and small infrastructure projects (costing less than $7,500), are responsible for implementation and can enter into contracts, if required, with consultants, artisans, small enterprises and suppliers. Their rights and responsibilities as operators (pertaining to the schedule of disbursement of the grant, their counterpart contribution, if any, and the required procurement procedures that they have to follow) are clearly defined in their contract with FID (protocole d'accord). For all such projects, FID has only a financing and monitoring role. For all other infrastructure projects, the FID is 'Maitre d'Ouvrage Delegue", and contracts with micro, small and medium scale enterprises for the works. The FID may also contract with "operators", such as NGOs, technical assistance projects and regional and local units of technical ministries to act as "Maitre d'Oeuvre"; however, for infrastructure projects costing more than US$30,000 equivalent for which no operators can be identified, the FID uses local consultants as "Maitre d'Oeuvre". FID provides grants only and is not a lending agency. However, for income-generating activities, the operator has to set up and manage a credit scheme (see below) for all investments benefiting individuals and households, in order to have a revolving fund and ensure the sustainability of the activities and programs. 4. Sub-Project Selection Criteria 2.7 The criteria for sub-project selection vary by type of sub-project. Full details are provided in Part 5 of the Project Implementation Plan. Priority is given to poorer areas (but without sacrificing project quality) community participation will be necessary and all sub-projects need to demonstrate community support by incorporating some contribution which varies according to the sub-project type. Furthermore, for productive sector sub- projects some economic analysis is required. For example, in the case of transport infrastructure, the analysis is based on traffic flows. Projects such as roads also need an environmental assessment as do environmental protection projects such as reforestation and erosion control. While FID would not be a financial intermediary, in the case of income generating activities, beneficiaries would be required to reimburse funds provided to them for equipment and working capital (training would be a grant) at market interest rates. These repayments would flow through FID (to assure that repayment takes place) and back to a community fund for other such activities. The modalities of the credit schemes are being reviewed as part of the overall review of FID operating procedures and, assurances will be sought that this review will be completed by June 30, 1996. C. PROJECT COSTS AND FiNANCING 1. Costs 2.8 The project will be implemented over a four-year period, i.e. commitments to finance FID sub-projects are expected to be exhausted over this period though disbursements on committed funds may continue longer. Total costs for the proposed project are estimated at US$45.4 million. Base costs are estimated at US$40.2 million  Madagascar: Social Fund 11 Project - StaffAppraisal Report 8 equivalent and contingencies amount to US$5.2 million equivalent. In addition, taxes amount to US$ 2.5 million and import duties amount to US$ 1.0 million (not included in project costs above). Foreign exchange costs account for US$2.1 million or 5 percent of total project costs. Project costs by category of expenditure are summarized in Table 2.2 below and detailed cost tables are provided in Annex V. 2.9 Contingency Allowances. Physical contingencies are estimated to amount to US$ 4.0 million or 10 % of total base costs. Price contingencies have been estimated at 3% per annum for intemational costs. Domestic inflation is set at 10% up to effectiveness (expected early in 1996), 15% for 1996, and 10% for the years thereafler. Since Madagascar is on a floating exchange rate regime, the exchange rate of the FMG to the US$ is expected to depreciate at a rate equal to the difference between domestic and international inflation. Table 2.2: Project Costs Summary (in USS millions) % % Total Foreign Base Local Foreign Total Exchange Costs 1. Investment Costs A. Equipment 0.0 0.4 0.4 95 1 B. Vehicles - 0.7 0.7 100 2 C. FID Projects 31.8 - 31.8 - 79 D. FID Sub-projects Consultants 3.1 - 3.1 - 8 E. TA, Training, Studies & Audits 1.3 0.3 1.6 20 4 Total Investrent Costs 362 1.4 37.6 4 94 It. Recurrent Costs A. Incremental Recurrent Costs 2.6 - 2.6 - 6 Total Recurrent Costs 2.6 - 2.6 - 6 38.8 1.4 40.2 4 100 Physical Contingencies 3.9 0.1 4.0 4 10 Price Contingencies 1.0 0.2 1.2 15 3 43.7 1.7 45.4 4 113 Figures may not add up due to rounding Source: Bank Staff Estimates 2.10 Base cost estimates for all items are based on the recent experience of the ongoing project. Local salaries and travel allowances are based on existing rates used by FID. Project costs by province are shown in Table 2.3. Antananarivo accounts for 23% of costs, Toliary for 15%, Toamasina for 15%, Fiananarantsoa for 19%, Mahajanga for 13% and Antsiranana for 12%. The regional allocations are based on the regional variation in population and poverty.  9 Chapter 2: The Proposed Project Table 2.3: Project Cost Summary (in USS millions) % % Total Foreign Base Local Foreign Total Exchange Costs Executive Directorate 1.3 0.3 1.6 19 4 Regional Directorate(Antananarivo) 9.0 0.2 9.2 2 23 Regional Directorate (Toliary) 5.7 0.2 5.9 4 15 Regional Directorate(Toamasina) 5.7 0.2 5.8 3 15 Regional Directorate(Mahajunga) 5.0 0.2 5.2 4 13 Regional Directorate (Fianarantsoa) 7.5 0.2 7.7 2 19 Regional Directorate (Antsiranana) 4.5 0.1 4.7 3 12 38.8 1.4 40.2 4 100 Physical Contingencies 3.9 0.1 4.0 4 10 Price Contingencies 1.0 0.2 1.2 15 3 43.7 1.7 45.4 4 113 Note: Figures may not add up due to rounding Source: Bank Staff Estimates 2.11 Incremental Recurrent Costs: During the project, incremental recurrent costs will average $512,000 per year for a total of US$2.6 million without contingencies. The long-run recurrent cost impact of the project will be minimized because: FID projects will support (a) development of sustainable income-earning opportunities; (b) infrastructure rehabilitation as a priority over new infrastructure; and (c) new infrastructure only when community groups have demonstrated their willingness to organize maintenance. 2. Financing 2.12 Of the total project cost of US$45.4 million, IDA would finance US$40.0 million. The Government expects to contribute about US$3.6 million and beneficiaries US$1.8 million. The IDA share at 88% is lower than many other projects in Madagascar and is lower than all other social sector projects. Other donors have also expressed interest in co-financing and FID is structured to receive financing from various donors. Table 2.4: Financing Plan by Disbursement Category (US S millions) IDA Beneficlaries The Govenmnt Total For. Exch. Local Amount % Amount % Amount % Amount % Costs Cood 1. FID Projects 85.0 1.8 5.0 3.6 10.0 36.0 79.2 0.0 35.9 2. FID Sub-Projects 3.5 100.0 - - - - 3.5 7.7 - 3.5 Consuftants 3. TA. Traings, 1.6 100.0 - - 0.0 - 1.6 3.6 0.3 1.3 Studies, & Audits 4. Equip., Veh., 1.4 100.0 - 0.0 - 1.4 3.0 1.4 0.0 Fumi. & other materials 5. Incremental 2.9 100.0 - - - - 2.9 6.4 - 2.9 Recurrent Costs Total 40.0 88.1 1.8 4.0 3.6 7.9 45.4 100.0 1.7 43.7 Source: Bank Staff Estimates  Madagascar: Social Fund IH Project - StaffAppraisal Report 10 3. Sustainability and Consistency with Sectoral Approaches 2.13 Sustainability. Even though IDA has so far been the main donor, other donors have expressed interest in financing FID. The Government is also committed to a major social safety net program financed out of its own budget resources and is considering using FID for its implementation. FID contributes to sustainable local development by supporting projects of greatest interest to the communities. This community interest is demonstrated by their own contributions which can range up to 30% for some sub- projects. The income-generating activities component includes a loan fund (financed initially by a FID grant) which is regenerated regularly for use within the respective community as previous borrowers reimburse this community based loan fund. While the social fund itself is not sustainable in the long run without extemal support, it does support the sustainable development of communities, in particular by helping build local capacity to prepare and execute development projects, for example, at the NGO and micro-enterprises level. 2.14 In addition, under the project FID would be encouraged to reinforce fiscal discipline and reward initiatives of local community authorities in a decentralized context. A Bank supported study on municipal financing will, among other things, examine the possibility of a partnership between local Governments and FID in the development of local infrastructure. The recommendations of that study conceming the role of FID will be included in the mid-term review. Any recommendations which are immediately applicable would be reflected in FID's manual of procedures. 2.15 Consistency with Sectoral Approaches. FID's activities will have implication for various sectors such as transport, water supply and agriculture. In so far as FID: (a) remains demand based; (b) works closely with the newly elected local Governments; and (c) focuses on the smallest projects, it can avoid duplication of effort. FID will also need to work closely with sectoral Ministries so that FID's interventions can be placed in the light of overall sectoral strategy. FID's regional advisory boards, which include local Government representatives as well as regional technical directors of national ministries, has an important role to play in this area. 2.16 Fiscal Impact. The project is part of an overall package meant to help the poorer sections of the country's population survive the current difficult period until sustained growth reduces poverty. Government contributions are expected to be US$ 1.1 million per year which is a very small proportion of the budget. The long term fiscal impact is expected to be low as FID should be phased out as poverty is reduced. Also, beneficiary contributions (sometimes as high as 30%) are required for all sub-projects to ensure ownership and sustainability.  3. PROJECT IMPLEMENTATION A. STATUS OF PROJECT PREPARATION 3.1 As an accompanying measure to the currency devaluation, the Government requested that the Fonds d Intervention pour le Developpement (FID) and other components of the SECALINE project be extended from the provinces of Toliary and Antananarivo to all parts of Madagascar. IDA agreed in principle and requested the authorities to draw up work-plans for the extension of FID. These plans were produced in September, 1994. FID staff prepared proposals for a five year period and found that funds allocated to FID under the original credit would be committed by beginning of 1996 and that additional resources would be needed. Consequently, the Bank sent a reconnaissance mission to Madagascar in November, 1994 which led to an IEPS which was reviewed on April 6, 1995. The review meeting recommended that the project be included as part of the new fast-track experiment in project processing in the Africa Region. A Bank mission in April-May, 1995 finalized project cost estimates. 3.2 There is strong support for FID among the key leaders in Government, and both the President and Prime Minister have come out in support. The President has participated in several inaugurations of FID sub-projects. 3.3 Support among beneficiaries and NGOs has been very strong for a long time. . FID is currently finalizing recruitment of Regional Directors and other staff for all the new provinces. Field visits by FID headquarters staff showed a strong desire for the extension. Bank missions have visited the new provinces and organized focus group meetings with beneficiaries, key officials and NGOs. B. PROJECT MANAGEMENT 1. National Level 3.4 The FID has been set up as a non-profit association operating in accordance with the provisions of its Articles of Agreement, By-laws and Manual of Procedures, and of the Framework Agreement between FID and the government. FID operates under a six person Board of Directors appointed by its members. The Board includes one representative each of the Prime Minister, the donor community, NGOs, and civic organizations in addition to two Directors elected by the members. The Prime Minister's representative presides over the Board of Directors which appoints the Executive Director from a short-list prepared by a management consulting firm after an international search among Malagasy with strong management skills living either in Madagascar or outside the country. The Executive Director is responsible for the day-to-day management of FID and appoints Regional Directors for the six regions of Antananarivo, Antsiranana, Fianarantsoa, Mahajanga, Toliary and Toamasina. Agreement was reached during  Madagascar: Social Fund !! Project - StaffAppraisal Report 12 negotiations that at all times during project implementation: (i) the articles of agreement, the manual of procedures and the by-laws of FID, and the Framework Agreement between the government and FID will be acceptable to IDA, and (ii) the positions of Executive Director, Deputy Executive Director and Regional Directors of FID will be filled at all times with personnel whose qualifications and experience are satisfactory to IDA (para. 5. 3). The draft of the Framework Agreement will be discussed and agreed to during negotiations and its signature will be a condition of effectiveness (para.5.4). This is expected to follow the lines of the agreement in use for the on-going project. In 1993, the Government promulgated the decree recognizing FID as a public service association (association reconnue d'utilite publique). Agreement was reached sought during negotiations that the formal revision of the Manual of Procedures by FID to reflect the experience of the ongoing project would be completed by June 30, 1996 (para. 5.3). 3.5 The National Coordinator of the SECALINE project will be the Prime Minister's representative on the Board of Directors of FID and hence its Chairman. The National Coordinator of SECALINE is appointed by a Prime Ministerial decree approved in the Council of Ministers. A separate decree designates the National Coordinator of SECALINE as the Prime Minister's representative on the Board of Directors of FID. The Chairman of FID (Prime Minister's representative on its Board and SECALINE National Coordinator) concentrates on relations with and reporting to the Government (Prime Ministry) and the funding agencies (IDA and any others), and on channeling external funds from the IDA Credit, various grants (Japan PHRD Grant) and domestic funds from the Government budget. The National Coordinator also represents the Govermment in assuring that the Framework Agreement is adhered to and that audits are carried out. The National Coordinator will be responsible for mandated reporting to the Government and IDA, as well as for external M&E of FID on behalf of the Govemment and IDA. 3.6 By its nature, most of the project's activities are to be operationally managed at the provincial level, by the FID regional offices, while planning, budgeting and strategic management as well as M&E are concentrated at the National level (Executive Director). Since FID is an independent, self-contained and autonomous entity, most of the management work will be performed intemally by FID, under the authority of the Executive Director and the Board of Directors. The intemal management framework developed by FID and currently operational will be retained for the most part, subject to some modification and extension as a result of the on-going Manual of Procedures revision (see sub-section 3 below). 3.7 FID has had a good record in implementation. Sub-project proposals prepared by communities with the participation of NGOs and presented to the regional office are appraised by regional staff and presented to a Regional Advisory Committee for comments. The recommendations of this committee are not binding, however, and depending on the amount of financing requested from FID, sub-projects are approved either by the Regional Director, or by the Executive Director or by the Board of Directors. Contracting is done by FID according to its manual of procedures which has been prepared in line with Bank guidelines. Over the project period the bulk of the sub-projects are expected to be development of local small infrastructure, the remaining projects would  13 Chapter 3: Project Implementation be in sustainable income generating activities and support to small enterprises (in cooperation with existing projects). While FID would not be a financial intermediary, in the case of income generating activities, beneficiaries would be required to reimburse funds provided to them for equipment and working capital (training would be a grant). These reimbursements would be at market rates and the funds would flow through FID (to assure that repayment takes place) to a community fund for other such activities. The communities requesting financing have to agree to pay for additional recurrent costs when entailed such as maintenance, teachers' salaries etc. Generally, FID supports rehabilitation of run-down structures rather than new ones and consequently, the additional recurrent cost implications are minimal. The buildings were probably run down as a consequence of the lack of maintenance by the respective ministries - FID intervention conceptually assures that the community undertakes some of the responsibility for maintenance. It is still too early to know if this approach will work in practice. 2. Regional Level 3.8 The Regional Directors have a great deal of autonomy in keeping with FID's decentralizing philosophy and are responsible for promoting, appraising and implementing projects within their region. In accordance with the provisions of the Manual of Procedures, projects submitted for financing would have to be approved by the Board of Directors, though projects requiring less than US$25,000 from FED may be approved by the Executive Director and those requiring less than US$5,000 from FID by the Regional Director. The operators (i.e. the NGOs and other entities requesting funding) would be supervised by FID staff. FID staff would also be on hand to provide technical assistance, training and other support necessary to the operators. Regional Directors are assisted in project selection and ranking by a Regional Advisory Committee including representatives of regional government as well as NGOs and the for profit private sector. The risk of project selection being adversely influenced by political or private commercial interests is reduced by having a large cross-section represented on this regional advisory committee, including churches, NGOs, civil servants, businesses etc.. 3.9 Once the elected decentralized structures are installed, FID could serve as a conduit for donor resources by supporting local authorities which demonstrate fiscal discipline and show initiative. Eventually, FID could evolve into a Social and Development Fund channeling resources to local authorities on a matching grant basis. The eventual approach will depend on the findings of an on-going study on municipal finance. 3.10 Under the current project (SECALINE), FID has defined and put into practical operation a thorough and well-formulated management information system as part of the detailed operating procedures developed as an expansion of the original FID Implementation Manual. This reflects the generally high level of professionalism within FID. The management structures and procedures as currently defined can handle the increased volume of projects, both overall considering the addition of four additional regional offices, and within the existing two regional offices, without major changes.  Madagascar. Social Fund II Project - StaffAppraisal Report 14 3. Project Implementation Manual/ FID's Manual of Procedures 3.11 FID operates according to an implementation manual approved by IDA and the Government covering: (a) sub-project selection criteria; (b) procurement procedures; (c) model agreements and contracts; (d) financial management procedures; and (e) administrative procedures. The revision of the Manual of Procedures which has just begun will take a fresh look at all aspects of FID organization and management, based on the year or so of actual operation and the results of the various diagnostic and evaluation studies performed or under way. FID will adopt a revised manual of procedures to reflect the experience of the on-going project using the studies being currently carried out by June 30, 1996. The revisions to the manual will concentrate on the following areas: (a) project production cycle; (b) client or beneficiary relations; (c) technical field supervision; (d) increasing the proportion of its Income Generating Activities (IGA) sub-projects to be financed by FID, and (d) increasing the proportion of private sector support sub-projects financed by FID. 3.12 A market identification and demand study is starting shortly to identify the different types of IGA that could be potentially financed by FID, in the different zones in the country. Based on this identification, operational procedures for promoting, selecting, evaluating and executing IGA sub-projects will be developed and codified in the Manual of Procedures. The system will be tested on a few sub-projects, to be developed by the consultants retained for the study, and followed through operational research during execution. This work will commence shortly and, the demand study and the elaboration of procedures are to be finished by early in 1996. 3.13 Concerning privale sector stupport, a training needs assessment and training plan for contractors and engineering consultants will be developed during the coming months by the same consultant that is looking at technical works quality. C. PROJECT MONITORING AND EVALUATION 1. Structure 3.14 For external Monitoring and Evaluation (M&E) of FID, the general framework designed for the on-going SECALINE project will be retained. The National Coordinator will be responsible for the external monitoring and evaluation of FID, on behalf of the Government and the Funding Agencies. The current monitoring system of quarterly and annual FID reports, and target indicator list will continue essentially unchanged, as will the scope, focus and periodicity of evaluations (See Annex IV for details). Annual financial and technical audits carried out by external auditors are an integral part of monitoring and evaluation. 3.15 The current monitoring system comprehensively and adequately covers the sub- project 'production' (identification and execution) cycle. The final version of the computerized integrated project 'execution' monitoring program will be operational  15 Chapter 3: Project Implementation shortly, and will interface with the proven financial management package 'Tompro' currently being installed (replacing the non-performing custom-designed system originally contracted). A similar integrated system for the project 'identification' (Promotion) cycle will be ready in time for the operational start-up of the new regional offices. 3.16 The production aspect is well-covered by the existing procedures of FID, the "client relation" aspect needs strengthening as some preliminary results from the on- going revision of FID procedures indicates some misunderstanding of what FID can or cannot finance. The recently started ex-post evaluation of FID sub-projects, which includes beneficiary assessment surveys, will, inter alia, result in specific recommendations of how to best manage client relations for the future (the results of this exercise will be available progressively from July, 1995 onwards; the final report is scheduled for mid- September). However, based on the pre-diagnostic work, it is already suggested that the current FID M&E function be transformed and expanded into a 'client relations' service with a staff member in each region reporting to the Executive Directorate. This service would be responsible for listening to complaints, conducting periodic beneficiary assessments, and generally serving as an 'off-line' feedback channel between FID and the ultimate client beneficiaries, as well as managing other evaluation exercises. Responsibility for the 'sub-project production' monitoring and monthly/quarterly reporting will be entirely transferred to the operational services (Regional Directors), as would normally be the case in any private sector production-oriented organization. A more detailed report on the 'new look' of various M&E functions will be available by June, to be prepared by the M&E Consultant. 3.17 Also requiring strengthening is technicalfield supervision by FID, particularly as relates to the technical work quality and 'social' behavior (employee treatment) of contractors and engineering consultants. A diagnostic evaluation of the technical and contractual procedures is currently under way, with the assistance of a consultant, and will result in practical suggestions to remedy these weaknesses (part of the Manual of Procedures revision exercise that has just started). Some of these can be implemented, if necessary, on a priority basis during the next couple of months. 2. Project Monitoring Indicators 3.18 Process Indicators. These indicators are given in Table 3. 1. The social fund is a demand driven project and the actual patterns are likely to vary as determined by demand. The numbers in Table 3.1 are therefore subject to change but are based on the experience of FID in its first two years. 3.19 Impact Assessments. The project monitoring indicators in Table 3.1 are process indicators. In addition, FID proposes to use sub-project impact surveys and beneficiary assessment surveys on an on-going basis to monitor impact regarding improvements in the conditions of poor households. The impact of FID sub-projects will be examined on a more global basis during the mid-term review.  Madagascar: Social Fund II Project - StaffAppraisal Report 16 Table 3.1: Project Monitoring Indicators 1 1996 1997 1998 1999 Total Person-days of Temporary Employment 1,250,000 1,250,000 1,250,000 1,250,000 5,000,000 Artisans & Skilled Worker Contracts 50 50 50 50 200 Micro, Small & Medium Enterprises Contracts 300 300 300 300 1,20(0 Number of Schools Rehabilitated 30 30 30 30 12() Number of Health Centers Rehabilitated 20 20 20 20 8( Permanent Employment Created 700 700 700 700 2,800 Number of NGO Contracts 100 100 100 100 400 Kilometers of Rural Roads 250 250 250 250 1,00(1 Hiectares Inigated 7,500 7,500 7,500 7,500 30,00(0 1 lectares protected 4,000 4,000 4,000 4,000 16,00(0 Source: Staff Estimates 3.20 Planned Reviews. As part of the supervision of the project, joint IDA/government reviews of project implementation would be carried out on an annual basis to examine progress, discuss the results of the previous year's work program and agree on the following year's work program and budget. During negotiations, the Government would be asked to give assurances that the annual review of project implementation will be held not later than November 30 of each year on the basis of appropriate documentation to be prepared by FID (para. 5.3). A more detailed mid-term review will examine progress comparing actual results with anticipated outcomes, in order to decide whether and how to continue or modify the project. Among other things the mid-term review would focus on: (a) coordination with the new elected regional governments and consistency with sectoral policy; (b) the progress made in the preparation, appraisal and implementation of IGAs, (c) the impact of private sector support programs on the quality of projects and the development of consulting firms; (d) the progress made in terms of the social behavior of contractors and consultants; and (e) impact of FID sub-projects on poverty and household incomes. I)uring negotiations, the Govertiment would be asked to give assurances that it will: (i) carry out, jointly with IDA, a mid-term review of the progress of the project not later than November 30, 1998, (ii) submit to IDA a report evaluating the project's progress not later than four weeks prior to such review, and (iii) implement the recommendations of the mid-term review. (para. 5.3). The annual review for 1998 will be combined with the mid-term review. D. PROCUREMENT 3.21 The main objective of this project is to alleviate poverty by putting in place a mechanism whereby NGOs and other grassroots groups can undertake small scale development projects (such as small scale labor intensive public works, training for grass roots groups and development of micro-enterprises). Procurement would be responsive to these objectives. As mentioned earlier, the maximum cost of FID financing per sub-  17 Chapter 3: Project Implementation project is about US $ 100,000 equivalent for transport infrastructure projects and $50,000 for other types of projects. 3.22 Table 3.2 summarizes the project elements and their estimated costs and proposed method of procurement. Table 3.2: Summary of Proposed Procurement Arrangements (in US$ millions) Procurement Methods International National Competitive Competitive Other Methods Total Bidding Bidding A. FED Sub-Projects - 32.2 3.6 35.8 (27.7) (3.1) (30.8) B. FID Sub-Projects Consultants - - 3.5 3.5 (3.5) (3.5) C. Equipment & Furniture 0.2 - 0.1 0.3 (0.2) - (0. 1) (0.3) D. Vehicles 0.8 - 0.3 1.0 (0.7) (0.2) (1.0) E. TA, Training, Studies & Audits - - 1.8 1.8 (1.8) (1.8) F. Recurrent Costs - - 2.9 2.9 (2.6) (2.6) 1.0 32.2 12.1 45.4 (1.0) (27.7) (11.4) (40.0) Note: Figures in parentheses refer to IDA financing. Other methods include use of consultants according to Bank Guidelines, use of UN procuremcnt agencies and national and intemational shopping. 3.23 Country Procurement Assessment (CPAR). The last CPAR on Madagascar was carried out in 1984 and concluded that Madagascar's cumbersome procurement regulations were a major constraint to the implementation of Bank-financed projects. This was due to the fact that the National Tender Board was too involved in the procurement review process. In January 1991, Government issued new regulations on public procurement following a comprehensive review of the country's procurement regulations (Country Implementation Review (CIR), December 1990). A follow-up CIR occurred in March 1992, resulting in the Government's decision to use Bank Sample Bidding Documents (Prime Minister's decree No. 892/92, March 6, 1992). The Bank also organized two procurement seminars in Madagascar in 1993 and 1994 and most project managers have undergone project management training. As a result of all these changes, the pace of procurement has picked up along with disbursements. The next CPAR was carried out in June 1995. Preliminary findings show that although regulations have improved and project staff are fairly conversant with Bank procurement procedures, contract signing procedures still take a long time. Therefore, as is the case with the on- going social fund, steps will be taken to ensure that there is an adequate procurement programming and follow-up. 3.24 The proposed project supports FID which has been set up under private sector rules (as in the case of Public Works Agency or AGETIPA type projects) and most  Madagascar: Social Fund II Project - StaffAppraisal Report 18 procurement is not subject to the review process common in public procurement. The experience of the on-going project has not shown any significant procurement problems. 3.25 Civil Works. The target group of firms expected to participate in procurement of civil works comprises small and micro-enterprises since they are more likely to bid for labor-intensive work projects. Civil works undertaken through the FID will include: rehabilitation of small roads, reforestation, communal water supply systems, and community infrastructures such as markets and health centers. In order to respond to the poverty alleviation objective of this project, the works will be: (a) labor-intensive so as to employ as many workers as possible; and (b) executed by small and micro-enterprises, and artisans. Consequently, ICB is not considered an option for contracting these works because they are small, labor-based, scattered and will be executed by many different entities in remote areas. 3.26 For works procured through NCB, tenders will be advertised locally, bidders would be given 30 days for submission of bids, evaluation criteria will be specified in the bid documents, all bids will be opened in the presence of bidders' representatives, no preference margin will be allowed for national contractors, eligible foreign contractors will be allowed to participate in the bidding process, and standard bidding documents will be used. Contracts for works awarded through NCB for FID projects will range in size from US$10,000 to US$100,000 with a total IDA financing not to exceed US$27.7 million. Approximately 300 of these larger contracts averaging about US$80,000 will be awarded (this figure is indicative as FID is a demand driven organization. The experience of FID so far shows that NCB procedures used by FID generate fairly reasonable unit costs. In the future, for contracts under $20,000, unit costs would be established by region for each type of work using NCB procedures. Contracts up to this size would then be awarded on the basis of bidding which would use these regional unit costs as reference with bidders proposing rates in terms of percentages above or below the reference unit costs. Larger contracts would continue to be awarded through NCB though these unit costs could be used as a guide. The unit costs would be revised periodically by NCB for each region. Smaller FID contracts ranging in size from US$3,000 to US$10,000 will be awarded to local craftsmen on the basis of price quotations with an aggregate IDA amount not to exceed US$ $3.1 million. Again the regional unit costs established by NCB will be used as a guide. The grouping of these contracts will not be possible because it will involve different operators, different beneficiaries in different locations. 3.27 Goods. The procurement of equipment and vehicles for FID itself (as opposed to procurement for FID sub-projects) would be grouped into lots of not less than US$200,000 and done through ICB. Contracts estimated at less than US$200,000 up to an aggregate of US$0.2 million worth of vehicles and US$0.1 million worth of equipment would purchased through UNDP/IAPSO or other UN Procurement agencies (as permitted under para. 3.9 of the Guidelines for l'rocuremenl under IBRD Loans and Dl)A Credits of January, 1995). All amounts in this paragraph refer to IDA financing. 3.28 Expert Services, Studies, and Training. Contracts with consultants and NGOs to design and supervise FID sub-projects up to a total IDA financing of US$3.5 million  19 Chapter 3: Project Implementation will be done in accordance with Guidelines for Use of Consultants by World Bank Borrowers and the World Bank as Executing Agency (Washington, D.C. August 1981). In addition to the expert services under category "2" (see Table 3.4) which applies only to FID sub-projects, services for technical assistance, training and studies for FID itself amounting to IDA financing of US$1.5 million are in category "3" (see Table 3.4). These will be also selected in accordance with World Bank for use of Consultants. Training per diems not exceeding US$0.3 million IDA will be paid in accordance with UNDP training scales. Consultant contracts with firms not exceeding US$50,000 and with individuals not exceeding US$20,000 each will be subjected to a post-review only except for clearing Terms of Reference. The exception to this rule will be amendments to a contract which would bring the that contract above the threshold. 3.29 Incremental Operating Costs. The practice for FID under current project is to finance 100% of incremental operating costs. Under the new project only 90% of incremental recurrent costs will be financed by IDA up to a maximum of US$2.6 million. This increase in the Government share demonstrates its -ncreased commitment. Whenever possible national shopping will be used for the purchase of office supplies with an aggregate amount not exceeding US$ 100,000. Each contract will not exceed US$5,000. National shopping will not be possible for fuel and utilities as their prices are set by government controlled parastatals. 3.30 Bank's Procurement Review. During project supervision, Bank-financed works contracts above a threshold of US$75,000 will be subject to the Bank's prior review procedures. Goods contracts or packages above US$75,000 will also be subject to prior review. Selective post review of awarded contracts below the threshold levels will be carried out on about I in 10 civil works contracts and 1 in 10 goods contracts. During negotiations, FID will be askedcfor assurances that it will contitnue to use the standard bidding documents for goods and services and the standard letter for the recruitmient of consultants as it does for the on-going project. (para. 5.3). 3.31 Procurement Management. FID will be responsible for overseeing all administrative, managerial and financial aspects of the project including all procurement. Local staff have already received formal Bank procurement training abroad and a local procurement specialist has been hired. Bidding documents, technical specifications and quantities will either be prepared by the procurement personnel in the FID or by consultants. 3.32 Procurement information will be collected and recorded as follows: * prompt reporting of contract award information by the borrower; * comprehensive quarterly reports to the Bank by FID indicating: (i) revised cost estimates for individual contracts and the total project costs, (ii) revised timing of procurement actions, including advertising, bidding, contract award, and completion time for individual contracts, (iii) compliance with aggregate limits on specified  Madagascar. Social Fund II Project - StaffAppraisal Report 20 methods of procurement, and (iv) compliance of procurement with the manual of procedures as well as systematic review of procurement procedures; and * a completion report by the government within six months of the credit closing date. 3.33 The implementation schedule is provided in Table 3.3 below, from which the estimated disbursement schedule (Annex Vi) has been derived. Table 3.3: Implementation Schedule (Amounts in USS thousands) Project Period __ Project Element Pre-Project Year 1 Year 2 Year 3 Year 4 Total Payment Remarks Loan Timing Sign Effect. Close FID Infrastructure Sub-Projects 7,604 7,832 8,067 8,323 31,826 90% LCB & 10% Community Contracts Consultants for FID Sub-Projects 845 870 896 925 3,536 Bank Guidelines for I______ ____ _ ____ __ ____ _ _____ _ ______ ______ C onsultants Other FID Projects 939 967 996 1,027 3,929 20% LCB & 80% Community Procurement Goods/EquipmentWVehicles 0 5 602 767 1,374 75% ICB, 20% UN Procurement Agencies, 5% LCB TA, Training & Studies 464 472 486 411 1,833 Bank Guidelines for I______ ________________ Consultants Incremental Recurrent Costs 698 719 741 764 2,922 Local Shopping TOTALS 10,549 10O865 11,788 12,217 45,420 Source: Bank Staff Estimates E. DISBURSEMENTS, ACCOUNTS AND AUDITS 3.34 During its first year FID disbursed over two million dollars in two provinces despite the difficulties involved in starting up. Disbursements are projected to be US$5 million in 1995 with the additional provinces being brought under FID. During 1996 (the first year during which funds under the proposed project would be available) disbursements are expected to rise to over US$10 million. The credit closing date will be December 31, 2000. The estimated quarterly schedule of disbursement is in Anlnzex V. The proposed project is expected to be fully disbursed within four years and the IDA Credit of SDR xx.x million (US$ 40.0 million) is expected to be disbursed in accordance with Table 3.4 below:  21 Chapter 3: Project Implementation Table 3.4: Disbursement Categories (Amounts in USS millions) IDA Amount % 1. FID Projects 30.9 86.0 2. FID Sub-Projects Consultants 3.5 100.0 3. TA, Training, Studies and Audits 1.6 100.0 4. Equipment, Vehicles, Furniture and other materials 1.3 95.0 5. Incremental Recurrent Costs 2.6 90.0 40.0 88.2 Notes: Percentages above refer to amounts without taxes 3.35 Category 5 (incremental operating expenses) includes operating expenditures for FID: office rental, materials, and supplies; rental and maintenance of equipment; administrative costs; fuel, spare parts and vehicle insurance; utility and communication expenses; special account banking charges; salaries for support personnel and field allowances and perdiems. Local professional staff will hired as national consultants. 3.36 Disbursements will be in accordance with procedures outlined in the World Bank Disbursement Handbook. Disbursement for expenditures related to contracts for goods, civil works, services or single purchases of less than US$ 50,000 and all incremental operating costs and training programs will be made on the basis of statements of expenditure. The SOEs and all records such as contracts, orders, invoices, and payroll vouchers will be retained by FID (either central or provincial level) who will be responsible for maintaining this information in a manner that would facilitate inspection by supervision missions and for review by the external audit. Disbursement for expenditures related to all contracts or single purchases greater than US$ 50,000 would be fully documented. FID has a computerized accounting system which is suitable for use with IDA-financed projects and has a Financial Officer and an Accounting Officer familiar with Bank/IDA procedures and requirements. The Financial Officer of FID will be the primary liaison between IDA and the borrower for all issues pertaining to disbursements and accounting under this project. 3.37 Special Accounts and Project Accounts. To ensure that funds for this project are readily available and to facilitate disbursements, a special account will be opened in US dollars in a commercial bank acceptable to IDA. The authorized allocation of the Special Account will be US$ 2,000,000 representing slightly less than IDA's anticipated share of eligible expenditures for three months. IDA would make an initial deposit of $ 1.3 million upon credit effectiveness and once SDR 5.0 million is disbursed, the balance of the authorized allocation ($ 700,000) * would be advanced to the special account. This trigger point may be advanced once execution is underway, if the actual pace of disbursements warrants. Replenishment of the Special Account would be made on the basis of monthly applications, supported by full documentation or SOEs, as required. To simplify the preparation of SOEs, a simplified format will be used in which expenditures are summarized by category, and sorted by province. As noted above, the documentation  Madagascar: Social Fund H Project - StaffAppraisal Report 22 for withdrawals under SOEs would be retained at FID (either central or provincial level) for review by IDA staff during supervision missions and for regular audits. Initially, all expenditures of less than $ 260,000 would be financed directly from the special account and IDA would agree to direct payment or special commitment applications below this limit (an exception would in case of payments to UN Agencies and their affiliated services). Once the full initial allocation is advanced, this threshold would rise to US$ 400,000. The Government will open in a financial institution a project account to cover its counterpart contribution to the project. That account will be replenished quarterly. During negotiatiotns, the Government and FID would be askedfor assurances that the project account will he in a financial institution acceptable to IDA and replenished quarterly based on justification of expenditures (paragraph 5.3) An initial deposit by the Government of the equivalent in Malagasy francs of US$ 225, 000 in the project account will be a condition of credit effectiveness (paragraph 5. 4). 3.38 Advances from Special Accounts. Advances from Special Account. The project will take advantage of the new procedures for 90-day advances from the special account to regional offices of decentralized Bank/IDA- financed projects. FID possesses the required safeguards, namely, (a) a strong central project management unit capable of maintaining accounts for the project funds and allocating funds to the provinces based on justified implementation needs, monitoring the use of decentralized funds and preparing and submitting regular replenishment requests with appropriate supporting evidence/SOEs; (b) acceptable budgeting, account and flow of funds procedures to ensure that funds are allocated based on needs at the provincial level and that funds are transferred on a timely basis; (c) linkage between physical accomplishments and subsequent advances will be indicated by regular progress reports submitted by FID; and (d) regular internal audits followed by an annual independent operational audit will monitor the mechanism and render an opinion as to the suitability of continuing to use the mechanism for disbursements. FID will have offices in six regions which would have considerable autonomy. To cover expenses in these offices, FID will advance from the special account resources up to the equivalent to three months of regionally-payable expenditures. Advances to the provinces would be made in accordance with an Annual Work Program and Funding Request (AWP and FR) setting out regional activities to be undertaken and indicating quarterly funding requirements. The regional offices will submit monthly replenishment requests to FID, who will in turn, submit monthly replenishment requests to IDA. Replenishment will be made only on the basis of expenditures actually paid. Moreover, amounts advanced and unaccounted for more than six months would have to repaid to the central special account by the Borrower. Payments above US$ 20,000 will be made directly by the National Office Special Account. 3.39 Financial Reporting, Accounting and Auditing Arrangements. FID staff will establish and maintain project related accounts. They will be responsible for compiling and then consolidating the necessary accounting documents from the various executing agencies. Such accounts shall be maintained in accordance with sound and internationally recognized accounting principles and practices that are satisfactory to IDA. FID will provide annual financial statements to reflect the financial performance and position of the  23 Chapter 3: Project Implementation project. An auditor's opinion with special emphasis on the audit of SOEs and report satisfactory to IDA on such statements will be provided. The auditor's report will include a statement on the adequacy or otherwise of the accounting systems and internal controls, the reliability of statements of expenditures as a basis for credit disbursements, and compliance with financial covenants. There will also be a management audit to ensure compliance with the manual of procedures and a technical audit for quality control. The audits for on-going project have shown that FID maintains its accounts well and has a good financial control mechanism. During negotiations, the Government would be asked for assurances that the frequency of the audit and the periodfor the submission of audit reports will be asfollows: financial audits annually, with audit reports to be submitted within six months of the end of the audit period, and technical and management audits every year with audit reports to be submitted within six months of the close of the fiscal year (para. 5.3). The foregoing accounting, financial reporting and auditing arrangements should provide adequate and timely information to IDA for project supervision. During negotiations, the Government and FID will be asked for assurances that FID will submit the audit reports with the above mentioned frequency. The appointment of auditors for the duration of the project will be a condition of credit effectiveness. (para. 5.4).  4. BENEFITS, RISKS, BENEFICIARY PARTICIPATION, ENVIRONMENTAL ASPECTS AND ECONOMIC ANALYSIS A. BENEFITS 4.1 The project aims at alleviating poverty while building local community and NGO capacity for development. Specifically, the project expects to: (a) create about 5 million person-days of temporary employment on infrastructure projects; (b) develop health and education facilities; (c) develop 1,000 kilometers of farm-to-market roads; (c) provide protection for 16,000 hectares threatened by soil erosion; (d) develop 30,000 hectares of arable land; (e) finance 1,200 contracts with micro and small enterprises as well as another 200 with artisans and skilled daily workers; and (f) create approximately 2,700 permanent jobs. These estimates are tentative and based on FID's experience to date. FID will be demand-driven and it is difficult to predict in advance the distribution among various types of projects. FID sub-projects are also helping to create community infrastructure such as roads, irrigation systems, schools, and health centers. 4.2 In a more subtle way, FID is helping communities to take charge of their destiny and empowering them. By doing so, FID is helping to accelerate the process of effective decentralization, which is major objective of the Third Republic. Furthermore, FID is helping create capacity among NGOs and micro and small enterprises to plan, prepare and execute development projects. B. RISKS 4.3 The main risks are: (a) FID-financed local infrastructure is not maintained; (b) quality of infrastructure may suffer as a result of FID's encouragement of both micro-and small-enterprises development; (c) political interference hampers performance; and (d) FID may become a drain on public resources once it is no longer needed and it is not converted to be used in other roles such as support to the newly decentralized structure. 4.4 With respect to poor maintenance, increasing ownership of projects would help reduce this risk, by financing only projects requested by the community which could also be required to contribute to capital costs. In addition, the community would have to agree to finance maintenance and any incremental recurrent costs. To help ensure the quality of infrastructure works, FID has started to: (a) create lists of qualified enterprises through open competitive bidding; (b) provide training to enterprises and consulting firms that do not qualify; and (c) retain part of the payment to firms and supervising engineers for a period of time as a guarantee of quality. The risk of political interference is more difficult to address, although such a problem recently experienced in the SECALINE project was resolved once the Government visited the beneficiaries and saw the positive impact of the project's success on its image. The new National Coordinator is providing all three heads  25 Chapter 4: Benefits, Risks, Beneficiary Participation & Eco. Analysis of national institutions, i.e. President, Prime Minister and President of the National Assembly, opportunities to identify with and understand the project's success. Finally, the risk of FID's becoming an on going drain on public resources is avoided by setting up the FID as an NGO under private sector law, whose only claim on public resources would be through the Framework Agreement, which could be canceled at any time by the Government or donor concerned. Also, there are plans to convert FID eventually into an organizational conduit to provide financial and technical support to the new decentralized regional authorities once the elected Governments are in place. C. PARTICIPATORY APPROACH 4.5 The SECALINE project pioneered the use of extensive consultation with NGOs and beneficiary assessment surveys in Madagascar. Regional advisory committees advise on sub-projects. These groups include regional Govemment, NGOs and the for-profit private sector. Special workshops with NGOs are being organized. Regular beneficiary assessment surveys are part of FID's approach. 4.6 FID will also be recruiting staff to carry out a beneficiary outreach program which will allow the national directorate to carry on a continuous series of focus group meetings with beneficiaries in different areas. Any complaints against FID can also be examined during these fora. D. ENVIRONMENTAL ASPECTS 4.7 The project is rated "C". There are no significant environmental issues. The project will work closely with local communities and NGOs. Some local infrastructure sub-projects may have an environmental consequence. Many projects are expected to enhance environmental protection such as reforestation, erosion control etc.. Sub-projects will be subject to environmental impact analysis where applicable. Local infrastructure development will not support new road routes or new buildings but will instead focus on rehabilitating existing structures. Furthermore, some sub-projects such as reforestation and erosion control may actually help to improve the environment. In case of reforestation there would be a specific policy to mix in local species in order to assure that native species are preserved in their natural habitat and not totally replaced by rapidly growing imported species such as pine and eucalyptus as is common in reforestation projects. The project works closely with local communities and NGOs. Many of these NGOs are also involved in the major environmental project and are quite aware of the environmental implications of their efforts. E. ECONOMIC ANALYSIS 4.8 Cost Benefit Analysis: The overall economic rate of return is expected to be well above 15% as all FID projects are subject to economic analysis wherever appropriate. For  Chapter 4: Benefits, Risks, Beneficiary Participation & Eco. Analysis 26 example in the case of transport infrastructure projects, the potential traffic volume is used to assess whether it is justified and also to assess the quality of construction. In the case of irrigation projects, attempts are made to avoid depending too much In addition, FID will not rehabilitate or build infrastructure unless financing of recurrent costs can be assured. The actual rate of return will depend on the final distribution among different types of sub-project as FID is demand driven. Sub-projects in transport infrastructure and in productive infrastructure such as micro-irrigation are required to meet a 15% rate of return threshold before. Based on experience of the on-going project 80% of the funding will go to these types of projects. Sub-projects in income generating activities or support to the private sector have to meet a financial rate of return of at least 20% and generally more. Environmental and social infrastructure sub-projects are not required to meet a rate of return test. No new schools or clinics are built - structures are only rehabilitated. The underlying rate of return is expected to be quite high for these sub-projects even though not explicitly calculated. The criteria for them include assuring that any additional recurrent costs would be financed by the beneficiaries and that the approach chosen is the least cost over the useful life. As the sub-projects are small in size (a maximum of US$100,000 for transport infrastructure and US$50,000 for other sub-projects), shadow prices are generally not used in the analysis. However, in view of the fact that these projects are highly labor intensive and in view of the high unemployment / underemployment rate in the country, it is likely that the rates of return would be higher if shadow pricing were to be used. 4.9 Quantitative Sensitivity Analysis: As the sub-projects are very small the costs of sophisticated risk analysis (such as Monte Carlo simulations) cannot be justified. A very simple sensitivity analysis is used for those projects requiring EIRR justification i.e. benefits and costs are allowed to fluctuate by certain percentages and the EIRRs calculated under various combinations. 4.10 Institutional Analysis: The proposed project provides supplemental financing for an ongoing social fund which has been very successful. FID has a very strong management which is to large extent politically insulated (as it represents all sides of the spectrum). Some minor problems such continuous client relations have been identified i.e. sometimes beneficiaries have not clearly understood that they have to play an active role and measures taken to correct them. These include better training in communication for FID staff and NGO partners. 4. 11 Poverty Analysis: The overarching objective of the project is to alleviate poverty. The vast majority of beneficiaries are expected to be from the population below the poverty line. The impact of the project on the incomes of the poor will be assessed through a series of beneficiary surveys as is being done for the ongoing project. The draft Madagascar Poverty Assessment has recommended a rural based strategy for poverty reduction and accordingly the project will target primarily rural areas where 92% of the poor live. 4.12 Economic Performance Criteria: Year by Year performance monitoring criteria have been agreed to during negotiations and were included in the minutes of negotiations.  27 Chapter 4: Benefits, Risks, Beneficiary Participation & Eco. Analysis The process monitoring criteria are given in Table 3. 1. In addition, impact assessments are planned including one just before the proposed mid-term review. 4.13 Overall Assessment: The project as designed is expected to address the major concerns such as poverty reduction, environmental protection and economic efficiency quite well.  5. AGREEMENTS, ASSURANCES AND RECOMMENDATION 5.1 Before negotiations, the Government will provide evidence of the recruitment of Regional Directors for all six regions. 5.2 Prior to Board Presentation, the Government will provide a signed letter of sector policy. 5.3 During negotiations, the following agreements will be sought: (a) The articles of agreement, the by-laws and the manual of procedures of FID, and the Framework Agreement between the government and the FID will, throughout project implementation, be acceptable to IDA (para. 3.4); (b) The positions of Executive Director, Deputy Executive Director and Regional Directors of FID will be filled at all times by personnel having qualifications and experience satisfactory to IDA (para. 3.4); (c) The borrower will carry out, jointly with IDA, an annual review of project implementation not later than November 30 of each year, on the basis of appropriate documentation to be prepared by FID that would also include the proposed work program and budget for the following year (para. 3.20); (d) The borrower will: (i) carry out, jointly with IDA, a mid-term review of the progress of the project not later than November 30, 1998; (ii) submit to IDA a report by consultants evaluating the project's progress not later than four weeks prior to such review; and (iii) implement the recommendations of the mid-term review (para. 3.20); (e) The borrower will use IDA's standard bidding documents for goods and services; and the standard letter for the recruitment of consultants (para. 3.30); (f) The borrower will maintain in a financial institution acceptable to IDA project accounts to cover its counterpart contribution to the project and replenish those accounts quarterly based on justification of expenditures (para. 3.37); (g) The borrower will submit to IDA, audit reports as follows: (i) financial audits annually, with audit reports to be submitted within three months of the end of the period, and (ii) technical and management audits every year with audit reports to be submitted within three months of the close of the fiscal year (para. 3.39); and  29 Chapter 4. Benefits, Risks, Beneficiary Participation & Eco. Analysis (h) FID will adopt a revised manual of procedures acceptable to IDA, to reflect the experience of the on-going project using the studies being currently carried out, by June 30, 1996 (para. 3.4). 5.4 The following would be conditions of effectiveness of the proposed credit: (a) deposit by the government of the equivalent in Malagasy francs of US$225,000 in the project account for the government counterpart contribution (para. 3.37). (b) the appointment of external auditors acceptable to IDA for the duration of the project (para. 3.39); and (c) Signing of the Framework Agreement between the Government and FID (para 3.4). 5.5 Recommendation. Subject to the above terms and conditions, the proposed project would be suitable for an IDA credit of SDR xx.x million (US$40.0 million equivalent) to the Republic of Madagascar on standard IDA terms with 40 years maturity.  30 ANNEx I: DECLARATION OF POLICY FOR POVERTY ALLEVLITION REPUBLIOUE DE MADAGASCAR Tanindrazana - Fahafahana - Fahamarinana Le Premier Ministre Palais de Mahazoarivo, le - ' A Monsieur Andrew Rogerson Directeur, Departernent de l'Afrique Centrale et de l'Ocean Indicn Region Afrique Banque Mondiale Washington DC, USA 0 B J E T Politique poor la lutte Contre la Pauwret. Monsieur le Directeur, La situation actuelle de Madagascar, caracterisee par une degradation gen6ralis6e ayant entraine une pauvrete quasi-insupportable, est devenue un probleme prioritaire de l'Eat Malgache. Le Gouvernement favorise toutes les actions qui visent a elaborer une strategic de croissance economique pour reduire la pauvrete. Un groupe de travail intersectoriel a 6te constitue pour assurer la preparaIion du seminaire regional sur la lutte contre la pauvrete organise par l'Institut de Developpement Economique (IDE) de la Banquc Mondiale ct qui se tiendra pour l'Afriquc de I'Est francophone a Madagascar. Plusicurs actions de lutte contre la pauvrete sont deja menecs par divcrses institutions a Madagascar et cet atelier r6gional sera le bienvenu pour une meilleure coordination ct pou- finaliser, avant la fin de lannec 1996, une strat6gie pour r6duire la pauvrete. Une des composantes du Projet SECALINE " Strategie Nationale de lutte contre Ia Pauvrwe " s'y attile dcpuis Juillet 1994. Dans la lettre d'intention du Premier Ministre dat6e de F6vrier 1995, rubrique Aspects Sociaux ", le Gouvernement se declare conscient de la necessit& d'augmenter les moyens de fonctionnement de l'education de base et des services de soins de sante primaire. Il afirme sa volonte de renforcer les chantiers A haute intensit6 de main d'oeuvre.  Madagascar: Social Fund II Project StaffAppraisal Report 31 (StLite) L' enveloppe budg6taire de l'annee 1995 consacre 25% de l'ensemble du budget a 1'education et 10%/o a la sante. Les diverses aides recues sont affect6es dans une grande proposition aux volets sociaux. Dans l'avenir, nous comptons augmnenter l'allocation des ressources par personne en terrnes reels pour l'education primaire et secondaire et la sante de base. Les efforts pour att6nuer l'impact dcs mesures dc l'ajustcmcnt structurel devenues indispensables sur les couches les plus defavorisees, seront concentr6s dans les secteurs sociaux L'option prise par Madagascar est de decentraliser les pouvoirs de decision au niveau regional. D'autre part, lzs budgets ct lc pcrsonecl de l'education zt de la santc pour les circonscriptions scolaires (CISCO) et les districts sanitaires pourront consolider l'autonomie de chaque region. Les travaux de mise en place de cette d6centralisation sont actuellement en cours. Les elections portant sur la mise en place des communes sont pr6vues avant fin 1995. Le profil de pauvret6 sp6cifique a chaque region procurcra une vision plus large, plus concrete et plus realiste des actions a entreprendre. Ces actions bien cibl6es permcttront un d6collagc socio-6conomique si cllcs sont combin6es aux retomb6ecs positives des richesses (sol, sous-sol, climat...) et a la disponibilite en ressources humaines. Divers plans nationaux ont et e1abor6s pour proceder au redressement social. Cependant, ces plans et recommandations y aflfrentes resteront des voeux pieux si des actions progranmuecs nc sont pas imm6diatcmcnt cntreprises. Compte tenu du fait que 900o% des pauvres se trouvent en milieu rural, lc Gouvernement a progawn,e des activit6s tendant ai la productivite des petits paysans pour pouvoir les inscrer dans la classe des personmes vivant au dessus du seuil de pauvrete. L'isolement des regions, la degradation et l'absence d'infiastuctcre de base en milicu ral, cn pariiculicr les routes, los ecoles ct les ccntres de soins contribuent a accentur la pauprisation de lamajorit6 de la population. Les six composantes du Projet SECALINE ont d6ja declench6 le processus de lutte contre la pauvrret et ont- permis une conscientisation plus realiste et concrete des responsables Malgaches tant officiels que prives sur la dimension et sur l'urgence de cette lutte. Graicc a l'apport combine d'informations et d'actions des autres composmates, la composante Fonds dintervention pour le Developpernent (FID), volet le plus important du Projet SECALINE, a pu mener des .operations bien cibl6ees. C'est ainsi que le FID a pu demontrer que ses actions adherent parfaitement aux objectifs rechcrch6s par PEtat Malgache. L'extension de cette composante FID dans toute IlIle vise a desenclaver les regions, creer des micro-projets. construire ou rehabiliter des infrastructures sociales afin de provoquer un effet d'entrainement socio-economique positif  32 Annex 1: Declaration of Policyfor PovertyAlleviation (Suite) Sauver les regions de l'isolement dans lequel elles se trouvent perrnema de mettre en place un systeme de securite dans le sens plein du terTne, qiie recherche chaque citoyen pour pouvoir travailler dans la qui6tude. Le Gouvcrnemenbt favorise et appr6cie les programmes t.els que les Projets PASAGE et SECALINE qui s'adressent a la population pour resoudre de fagon durable les problemes de lutte contre la pauvret6. Monsieur le Directeur, Je ne doute pas de pouvoir compter sur votre aide appreciable pour la realisation do cc programme et jc vous pric de croire cn I'assurance de ma haute considcration lo S ?~ON  33 ANNEX II: DESCRIPTION OF THE SOCIAL FUND (FONDSD'INTERVENTIONPOUR LE DEVELOPPEMENTOR FID) A. General The "Fonds d'Intervention pour le Developpement (FID)" is an independent agency that promotes and finances small community projects and activities for economic and social development that are proposed, initiated and implemented by community groups, NGOs and local authorities. Its aim is to implement, with rapidity and efficiency and in a flexible way, small projects and programs that are responsive to the needs of the poorest groups, and to support the establishment and development of community organizations. The FID is independent of the government structure, and is managed and operated as a private sector organization and in a decentralized manner. B. Legal set up, Organization and Management The FID is a non-profit Association, officially declared as serving the public interest, but managed and operated as a private sector company. In addition to ordinance N