Malawi - Second Social Action Fund Project

Document of The World Bank Report No. 17993 MAI PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 49.6 MILLION (US$66.0 MILLION EQUIVALENT) TO THE REPUBLIC OF MALAWI FOR A SECOND SOCIAL ACTION FUND PROJECT September 17, 1998 Human Development 1 Country Department 3 Africa Region  CURRENCY EQUIVALENTS (The Project was prepared using the Exchange Rate Effective July 31, 1998) Currency Unit = Malawi Kwacha (MK) Mkl = US$0.0374 US$1 = Mk26.6973 SDR 1 = US$1.3349 NB: On September 17, 1998 after this Project was negotiated the Exchange Rate moved to Mkl = US$0.0227 US$1 = Mk44.0000 MEASURES Metric System FISCAL YEAR July 1 to June 30 (as of July 1998) Vice President. Callisto E. Madavo Country Director: Barbara Kafka Sector Manager: Ruth Kagia Task Team Leader: Norbert Mugwagwa  GLOSSARY OF ACRONYMS AG = Auditor General BA = Beneficiary Assessment CAS = Country Assistance Strategy CBM = Community Based Management CES = Capacity Enhancement and Studies CONGOMA = Council for Non-Governmental Organizations in Malawi CSP = Community Subprojects DDLGA = Department of District and Local Government Administration DFID Department for International Development DHS = Demographic and Health Survey DRIMP = District Roads Improvement Program EPA = Extension Planning Area FHH = Female-Headed Households GDP = Gross Domestic Product GNP = Gross National Product ICB = International Competitive Bidding IDA = International Development Association IEC = Information, Education and Communication IHSP Integrated Household Survey on Poverty M & E = Monitoring and Evaluation MASAF = Malawi Social Action Fund MASAF II Malawi Second Social Action Fund MB MASAF Board MOHP = Ministry of Health and Population MOW = Ministry of Works MTR = Mid-Term Review MU = Management Unit of MASAF NCB = National Competitive Bidding NEC = National Economic Council NGO = Non-Governmental Organization NSO National Statistical Organization NSSA = National Sample Survey of Agriculture OPC Office of the President and Cabinet PAP Poverty Alleviation Program PCD = Project Concept Document PHN = Population Health and Nutrition PIM = Project Implementation Manual PMSF = Poverty Monitoring Support Facility PMU = Poverty Monitoring Unit PSIP = Public Sector Investment Programme SA = Sponsoring Agency SCC = Systematic Client Consultation SOE = Statement of Expenditure SSP Sponsored Subprojects TWC = Technical Working Committee UNDP = United Nations Development Programme UNICEF = United Nations Children's Fund USAID = United States Agency for International Development VAMS Vulnerability Assessment Monitoring System WFP = World Food Program  Malawi Second Social Action Fund Project (MASAF II) CONTENTS A. PROJECT DEVELOPMENT OBJECTIVE, PERFORMANCE INDICATORS AND JUSTIFICATION ..........................................................2 1. Project Development Objective .......................................................... 2 2. Key Performance Indicators ..........................................................2 B. STRATEGIC CONTEXT ..........................................................2 1. Sector-related Country Assistance Strategy (CAS) Goal Supported -by the Project ..........................................................2 2. Main Sector Issues and Government Strategy .........................................3 3. Sector Issues to be Addressed by the Project and Strategic Choices .......5 C. PROJECT DESCRIPTION SUMMARY ..........................................................7 1. Project Components ..........................................................7 2. Key Policy and Institutional Reforms Supported by the Project .............7 3. Benefits and Target Population .................................................... ..8 4. Institutional and Implementation Arrangements .....................................9 D. PROJECT RATIONALE ....................................................9 1. Project Alternatives Considered and Reasons for Rejection ...................9 2. Major Related Projects Financed by the Bank and/or Other Development Agencies ................................................... 10 3. Lessons Learned and Reflected in the Project Design ........................... 11 4. Indications of Borrower Commitment and Ownership .......................... 12 5. Value Added of Bank Support in this Project ........................................ 13 E. SUMMARY PROJECT ANALYSIS ................................................... 13 1. Economic ................................................... 13 2. Financial ................................................... 14 3. Technical ................................................... 15 4. Institutional ................................................... 15 5. Social ................................................... 17 6. Environmental Assessment ................................................... 18 7. Participatory Approach ................................................... 19 F. SUSTAINABILITY AND RISKS ................................................................. 19 1. Sustainability ................................................... 19 2. Critical Risks ................................................... 20 3. Possible Controversial Aspects ................................................... 21 G. MAIN CREDIT CONDITIONS ................................................... 22 1. Effectiveness Conditions ................................................... 22 2. Other ................................................... 22 H. READINESS FOR IMPLEMENTATION ................................................... 23 I. COMPLIANCE WITH BANK POLICIES ................................................... 23  Annexes Annex 1 - Project Design Summary ............................................ 24 Annex 2 - Detailed Project Description ............................................ 33 Annex 3 - Estimated Project Costs ............................................ 36 Annex 4 - Economic and Financial Analysis ............................................ 37 Annex 5 - Financial Summary ............................................ 41 Annex 6 - Procurement and Disbursement Arrangements ............................................ 42 Annex 7 - Project Processing Budget and Schedule ............................................ 49 Annex 8 - Documents in the Project File ............................................ 50 Annex 9 - IDA Supervision Plan ............................................ 51 Annex 10 - Lessons Learned Under MASAF I and Changes Between MASAF I and II ............................................ 56 Annex 11 - Studies and Findings for Preparation of MASAF II ...................................... 66 Annex 12 - Statement of Loans and Credits ............................................ 74 Annex 13 - Malawi at a Glance ............................................ 75 Map IBRD No. 27747R  Malawi Second Social Action Fund Project (MASAF II) Project Appraisal Document Africa Region AFC03 Date: September 17, 1998 Task Team Leader: Norbert Mugwagwa Country Director: Barbara Kafka Sector Manager: Ruth Kagia Project ID: MW-PE-49599 I Sector: Human Resources Program Objective Category: Poverty Reduction Lending Instrument: Specific Investment Loan Program of Targeted Intervention: [X] Yes [ ] No Project Financing Data [] Loan [X] Credit [] Guarantee [L] Other [Specify] For Loans/Credits/Others: Amount: US$66 million/SDR 49.6 million Proposed terms: [x] Multicurrency [ ] Single currency, specify Grace period (years): [] Standard Variable [ ] Fixed [] LIBOR-based Years to maturity: 40 Commitment fee: % Service charge: % Financing plan (US$m): Source Local Foreign Total Government 3.9 3.9 Cofinanciers IBRD IDA 58.6 7.4 66.0 Other (specify)Community Contribution 6.2 6.2 Total 68.7 7.4 76.1 Borrower: Government of The Republic of Malawi Guarantor: NA Responsible agencies: Malawi Social Action Fund-Management Unit, Office of the President and Cabinet; Contributing Agencies: National Economic Council (NEC) and Ministries of Finance, Justice, Education, Sports and Culture, Health and Population, Water Development, Works and Supplies, Women, Youth and Community Services, Agriculture and Irrigation, and Forestry, Fisheries and Environmental Affairs and Department of District Administration and Local Government in the Office of the President and Cabinet. Estimated disbursements (Bank FY/US$M): 1999 2000 2001 2002 Annual 13.6 22.8 20.7 8.9 Cumulative 13.6 36.4 57.1 66.0 Cumulative % 20.6 55.1 86.5 100 Project implementation period: 4 Years Expected effectiveness date: December 1, 1998 Expected closing date: May 31, 2003  Malawi Second Social Action Fund Project 2 A. PROJECT DEVELOPMENT OBJECTIVE, PERFORMANCE iNDiCATORS AND JUSTIFICATION 1. Project Development Objective The main objective of this project is to enhance and sustain the provision and use of resource endowments by beneficiary communities which will contribute to poverty reduction. The project aims to: (a) address the need for socio-economic infrastructure development in rural and urban areas; (b) support safety net programs through creation of temporary employment for the very poor and financing initiatives to assist the most vulnerable groups such as orphans, street children, persons with disabilities, the aged and those affected by Acquired Immune Deficiency Syndrome (AIDS); and (c) enhance in- country capacity to identify, prioritize and implement projects by training of stakeholders at national, regional, district and community level. 2. Key Performance Indicators The success of this project will be evaluated and monitored based on the key performance indicators as shown in Annex 1. The key performance indicators are: a) improved and strengthened capacity of beneficiary communities to identify, prioritize, supervise, monitor, maintain and operate projects; b) improved access, quality coverage, sustainability and use of social services by beneficiaries, including marginalized groups; c) increased income of targeted beneficiaries through temporary employment; and d) enhanced capacity of implementing agencies to manage and implement projects at community level. B. STRATEGIC CONTEXT 1. Sector-related Country Assistance Strategy (CAS) Goal Supported by the Project (see Annex 1): CAS document number: 1 8349-MAI Date of latest CAS discussion: August 27, 1998 Malawi's Country Assistance Strategy (CAS) objective is to reduce poverty through (a) growth which is widely shared, and (b) targeted interventions for the poorest. This project contributes to the CAS objective by building upon the success of MASAF I and fine tuning its processes as the cornerstone of the new self help and community development paradigm adopted by the Government to deal with the country's pervasive poverty.  Malawi Second Social Action Fund Project 3 2. Main Sector Issues and Government Strategy: (a) Sector Issues (i) Poverty in Malawi. Poverty in Malawi is pervasive and manifests itself in several ways. The country has low average incomes and a very unequal distribution. A Poverty Profile' completed as part of MASAF I preparation established that the Gini coefficient for Malawi is 0.62, the highest for any African country with available data. For the poorest 20 percent of households even the most basic food needs are not fully met. The indicators of social sector development are similarly unfavorable. Infant mortality rate (133 per 1,000 live births), child malnutrition, stunting and wasting (48.7% and 5.4%), maternal mortality (620 per 100,000 births) and prevalence of disease is very high compared even to other Sub-Saharan countries. Ninety-five per cent of the total Malawian poverty gap is found in rural areas. Most of the poor, and nearly all the core poor are among the smallholder households. Even among the poor households, inequality is significant. The bottom half of the smallholder households receive only 15 percent of the income, while the top 10 percent receive 35 percent. Some of the pockets of most severe poverty and highest densities of the poor are found along the Mozambique border. Female-headed households (FHHs) have generally less income and a higher dependency ratio. The low levels of overall development and the unequal distribution of resources is a result of past policies that favored urban elite and failed to provide the adequate incentive framework for civic participation in the development process. In addition the implementation capacity for development programs was low and administration over-centralized. (ii) Household Food Insecurity. A high proportion of the population is vulnerable to food insecurity. By the month of June, most rural people are reduced to eating two meals a day and in some districts 70 to 80 percent of households run out of food by December. As a result over a quarter of the under-five's are stunted, a manifestation of long-term malnutrition. Constraints to poverty reduction include the small size of holdings and restrictive land laws which prevent pooling, poor quality of land exacerbated by continued soil erosion, a conspicuous lack of irrigation making agriculture vulnerable to the low and unreliable rainfall in the country, lack of agricultural equipment and limited credit availability that prevents adoption of improved seeds and fertilizers. (iii) Health Population and Nutrition. The health status of most Malawians is poor and is worsening. Life expectancy is 43 years and 50 percent of children are about two standard deviations below expected height for age. High levels of morbidity and mortality are the result of poor access to safe water, poor nutritional status, food insecurity, high prevalence of preventable diseases, poor hygiene and "Malawi: Human Resources and Poverty: Profile and Priorities for Action" , World Bank, November 1995.  Malawi Second Social Action Fund Project 4 sanitation, low access to health and social services, and high illiteracy and fertility rates. Malawians obtain health services from a variety of public and private sector providers. There were 850 facilities in 1994 including hospitals, health centers, dispensaries and health points. The Governnent is the largest provider of health services. An analysis of the ownership of the facilities providing services shows that, 40% of the facilities belong to the Ministry of Health and Population, missions facilities own 19%, local authorities 8% and the remaining 33% of the facilities, mostly normally small dispensaries and clinics, are owned by the private sector or NGOs. According to service utilization data derived from routine health statistics, three quarters of total outpatient attendance use government facilities, while mission hospitals, which contain 38% of total hospital beds provide less than 25% of inpatient care. The Government is the biggest source of health finance. Total health expenditures in Malawi were a little over US$4.60 per capita in 1995/96. This places Malawi amongst the countries with the lowest level of health expenditures in Africa. The demand for health services will increase because the population is growing at 2.8% per annum and also because of the HIV/AIDS epidemic. HIV prevalence is estimated to be 13% and the National Aids Coordination Program predicts that the number of AIDS cases will double over the next decade. This will put pressure on facilities which are already over-stretched. (iv) Education. In the primary education sub-sector, about 38,000 additional classrooms are required. Currently, IDA, USAID, DFID, African Development Bank, Kreditanstalt fur Wiederaufbau and European Union are funding construction of primary schools in various parts of the country. In spite of these efforts, there is still a gap of over 30,000 classrooms. In addition to these, there is a severe shortage of learning materials, including books, in all the schools. (v) Water and Sanitation. Only 37 percent of the population are within the recommended norm of 0.5 km from the drinking water source. The national gap for potable water supply is estimated at 16,400 new boreholes, and 5,000 that require rehabilitation. Similarly only 5.5 percent of Malawian population have access to adequate sanitary facilities located within a convenient distance of dwellings. At least 30 percent of the population is without any sanitary facilities. Community participation is lacking in most cases resulting in relatively centralized systems of operation and maintenance which are expensive to run. As a result, there is need for considerable investment to rehabilitate existing systems and extend services to new areas. The performance of the sanitation sector also requires strengthening. The low coverage and the rapid urbanization have resulted in the production of waste in quantities far beyond the capacity of the sector agencies causing pollution of the environment and public waste. (vi) Infrastructure. In the infrastructure sector the existing total road network is approximately 15,000 km of which 32 percent constitute the feeder roads system. The main challenge for the Government at present is the inadequate financial  Malawi Second Social Action Fund Project 5 resources to meet all the requirements for road maintenance especially for the primary road network, let alone for the feeder road system. This situation, therefore, necessitates that communities or the local level structures should participate in the development of new roads and maintenance of the feeder road network and communal access roads. These improvements in the infrastructure will enable the communities to have better access to socio-economic facilities. (b) Government Strategy The Malawi Social Action Fund has been designed and implemented under the Poverty Alleviation Policy Framework. The policy aims at reversing the unequal and slow development by supporting decentralized community-based development activities. In the past two years, there has been an increased allocation of financial resources in the Public Sector Investment Programme (PSIP) to the social sectors. For instance, in the 1997/98 development programme, the percentage share of development resources to the social sector stands at about 64 percent with 26 percent going to education, 23 percent to health, 8 percent to water, and 7 percent to community development respectively. This represents an increase over the 1993/94 allocation of 43 percent. Within each sector the bulk of the resources have been allocated to those projects that are rural in nature and have a more positive impact on alleviating poverty. These include projects in primary health care, primary education, rural water development and women in development. Under the Poverty Alleviation Programme (PAP) the task of alleviating poverty is seen as a shared responsibility of Government, Non-Governmental Organizations (NGOs), donors, private sector, and the communities themselves. It is in this vein that the Government is promoting a decentralized strategy for development. As a financing facility, MASAF is one of the key instruments that the Government has put in place to promote community participation in national development activities. MASAF It is a repeater project with an added urban focus under the CSP component and two new components, the Sponsored Subprojects and Capacity Enhancement and Studies. 3. Sector Issues to be Addressed by the Project and Strategic Choices Poverty. This project would help support the Government's PAP in reversing the over- centralized, paternalistic state system for service delivery, by empowering communities to express their own demand and implement their own development projects in a partnership with the public sector, through the Community Subprojects (CSP) component. The Public Works Program (PWP) will directly transfer temporary income to the poorer groups in poor communities through labor intensive public works. The Sponsored Subprojects component (SSP) will assist the poorest of the poor among marginalized groups through sponsoring agencies (SAs) by enhancing their capacity to meet basic needs to enable them to participate in community activities. Targeting and regional diversification in all components will ensure that the benefits are skewed towards the poorer areas of the country. Food Insecurity. The labor-based transfers in the PWP will directly assist the poor through temporary employment in the months where there is little alternative  Malawi Second Social Action Fund Project 6 employment in rural areas. The infrastructure created under PWP and CSP will directly assist communities to become more productive, especially access infrastructure such as roads and bridges will be important to break the isolation that is a direct cause of food insecurity. Subprojects in the areas of afforestation and erosion control will help reverse environmental degradation, and improve soil fertility. Small scale irrigation schemes will also help with agricultural productivity. MASAF is not the appropriate vehicle for addressing the land-tenure issues; these are being addressed through the Bank's assistance to the agricultural sector. Health, Population and Nutrition. Improved access to safe water, improved schooling (especially for girls), hygiene training and better access to clinics (through construction or repair of clinics, roads and bridges) will all help improve the health of the population. Policy issues are being addressed through ongoing and planned operations in the Health and Population sector. MASAF has been instrumental in showing the merit of a community-based approach, but is not a policy-setting institution. Education. Through the community-managed and implemented construction and upgrading of primary schools and Distance Education Centers (DECs), the CSP will help improve learning through improved physical environment for the students. The provision of safe water and sanitary facilities with each MASAF-financed school will help improve the health status of children, thus enabling better learning. The community-based approach is proving to be beneficial in improving the social capital of communities, so that they are more forthcoming in their demands on the sector to provide the necessary learning materials and teachers. As in the other sectors, the policy reforms are left to the ongoing dialogue under other Bank and donor interventions. Water and Sanitation. The CSP component will help close the gap in water supply in Malawi by supporting a large number of community-managed water projects. By July 1998, under MASAF I, 1,1 18 boreholes, shallow wells and communal water points (kiosks) were created or upgraded. Roads. The PWP and CSP components will help with deferred maintenance, drainage works and bridges to help meet the demand for all-year access to marginalized communities. Only roads included in the district plans will be rehabilitated or maintained.  Malawi Second Social Action Fund Project 7 C. PROJECT DESCRIPTION SUMMARY 1. Project Components (see Annex 2for a detailed description and Annex 3for a detailed cost breakdown) Component Category Cost Includes % of Bank- % of Contingencies Total financing Bank- (US$M) (US$M) financing 1. Community Subprojects Subprojects, works, goods, 51.1 67.1 42.6 64.6 (CSP): infrastructure, social services, Monitoring and mobilization and capacity Evaluation (M & E), building, beneficiary Information Education & targeting and project Communication (IEC), training monitoring and evaluation. and incremental operating costs. 2. Public Works Program Subprojects, works, goods, 13.1 17.2 12.5 18.9 (PWP): projects for services, M & E, IEC, training construction, rehabilitation and incremental operating costs. and maintenance of social and economic infrastructure. 3. Sponsored Subprojects Subprojects, works, goods, 0.5 0.7 0.5 0.8 (SSP): projects to services, M & E, IEC, training rehabilitate facilities and and incremental operating costs. provide services that will benefit vulnerable groups such as orphans, street children, people with disabilities, the aged and those affected by HIV/AIDS. 4. Capacity Enhancement and Training and technical support, 3.9 5.1 3.9 5.9 Studies (CES): strengthen equipment, fumiture and capacity at Management supplies, field and incremental Unit (MU), support building operating costs, M & E, studies. capacity of stakeholders at national, district and community levels. 5. Incremental Operating Costs: Salaries, benefits, travel and 7.5 9.9 6.5 9.8 Management Unit, Zone subsistence expenses of project Offices and IEC costs in staff, operation and maintenance support of the above four of offices, vehicles, etc. and IEC components. activities. Total 76.1 100 66.0 100 2. Key Policy and Institutional Reforms Supported by the Project (a) Support to GOM Poverty Alleviation policy/plan through community empowerment and employment generation. The project will support GOM's decentralization efforts, improve targeting of resources and build capacity at local authorities to respond to community needs. (b) The project will ensure consistency with specific national, sectoral standards and guidelines (e.g. for the construction of schools and health centers, carrying environmental impact assessments, rural water supply and road rehabilitation and maintenance).  Malawi Second Social Action Fund Project 8 3. Benefits and Target Population Benefits. The direct benefits of the proposed project would be the sustained physical and human capital improvements generated by the subprojects. Specifically, the project is expected to increase the number of people that will have access to and use of socio- economic infrastructure in rural and urban areas, and increase school enrollment in project areas. The capacity enhancement component will enhance the capacity of communities to manage their own development programs, transfer resources to the vulnerable groups and increase their knowledge and income earning opportunities, and increase the number of public sector staff and others trained in new skills. The community subprojects will increase the use of roads and bridges and improve education, water and health facilities in the project areas. The public works program will create temporary employment and enhance the cash income of poor households in urban and rural areas (particularly female headed households (FHHs)) and their access to social and economic development opportunities. MASAF has been an active instrument in human capital formation, empowering Malawians through skills training and on-the-job training in building, carpentry as well as financial reporting and management. In addition, MASAF activities create conditions for realization of long-term benefits which take a long time to mature, e.g. higher earnings from educational attainment, as well as immediate benefits such as access to socio- economic facilities from improved roads and bridges, cash income earned from employment at project sites in the rural areas, food consumption increase from additional cash earned, etc. The Beneficiary Assessment (BA March 1997) revealed that pupils now go to school early and parents and guardians allow even older girls to attend school because the schools are now more accessible. The effects of such decisions include delayed marriage and its positive effects of smaller family sizes, and reduced fertility. Direct financing injects money into the rural economy, taps skills and talent from among the communities making them active members of the society and building local capacity for broader development. By so doing, MASAF has given back the ordinary rural Malawians their dignity and turned them into active participants in their own development. Target Population. Using available data, the project will target relatively poorer communities, with priority given to FHHs. It will aim to reach those communities which have been identified as critically poor but who have not, during the first project, attempted to access funds for eligible activities. Specifically, the CSP component will focus on wider geographical distribution and broader population coverage per district; the PWP component will focus on geographical selection of areas with highest poverty in rural and urban areas; SSP will target vulnerable groups such as orphans, street children, people with disabilities, the aged and those affected by HIV/AIDS by using NGOs and other formal/informal social institutions as sponsoring agencies and partners in capacity strengthening and delivery of services to these groups; the CES Component will focus on in-country capacity building at the national, district and community levels. This will be confirmed by household surveys, beneficiary assessments and routine MIS data collection.  Malawi Second Social Action Fund Project 9 4. Institutional and Implementation Arrangements The MASAF MU has been given delegated authority with respect to decision making on operational matters of the project. It will retain responsibility for the execution of the project as a quasi-autonomous agency under the Office of the President and Cabinet (OPC). The OPC appoints the Executive Director, members of the MASAF Board (MB) and the chairperson of the MB. The members of the MB are: a Traditional Authority, the Director for Centre for Social Research, the Executive Secretary of CONGOMA, Secretary to the Treasury, the Secretary for Poverty Alleviation Programme, the Secretary for the National Economic Council, the Secretary for Justice, the Secretary for DDLGA, and two members with skills in urban planning and management and private sector experience, respectively. The Board provides the policy oversight over the MU and monitors its compliance with the guidelines for the MU's operations as set out in the Project Manuals2. The MB will also monitor the impact of MASAF on the communities served. The existing MASAF MU has five Divisions: Administration, Finance, Community Subprojects (CSP), Public Works (PWP) and Sponsored Subprojects (SSP); and four Support Units: Information Technology (IT), Communication and Training (CT), Internal Audit (IA), and Technical Services (TS) Units at the center. The central level is supported by sixteen Zones (twelve CSP and four PWP) which are headed by Project Officers (POs). Zone Offices (ZOs) have a staff complement that facilitates implementation through support to administration, accounting and technical supervision. Adequate experience in implementing projects has been gained during the implementation of MASAF I, therefore only changes necessary to introduce the new components and elements have been made to the MU. In support of the SSP component, Sponsoring Agencies (SAs) will be engaged to implement project activities with people with disabilities, and HIV/AIDS affected people. The criteria for selection of SAs and implementation procedures for this component are stipulated in the PIM and the supporting SSP Handbook. The MN's role would be to monitor adherence by the SAs to the objectives of the component and to the criteria for selection of projects. The MU will be supported in the new role by an Advisory Committee made up of the active NGOs, a representative from the Ministry of Women, Youth and Community Services (MWYCS) and MASAF staff. D. PROJECT RATIONALE 1. Project Alternatives Considered and Reasons for Rejection Conventional Project Approach. This approach was rejected because Government's 'top-down' style of management and over-centralized administration has in the past created significant hurdles for the implementation of development programs. These institutional constraints are further exacerbated by severe capacity limitations within 2Project Manuals include the Project Implementation Manual, Administration Manual and Accounting Manual.  Malawi Second Social Action Fund Project 10 Government. The project, therefore, promotes community participation in identification, preparation, planning and management of community level projects and adopts 'bottom- up' processes with governrnent agencies, NGOs, private institutions and individuals providing facilitation where needed. Interventions supported by the SSP component will target marginalized groups through support to sponsoring agencies, hence the concept of a Sponsored Subproject. Community participation in identification, preparation and financing of subprojects will improve prioritization and efficiency in the use of resources. Provision of Credit to Targeted Groups. This was rejected because the policy framework in Malawi for sustainable micro-enterprise development credit is only now evolving and experience to date with such (largely concessional) schemes has been poor. The project will support a district level program of labor-intensive construction to be targeted at the poorest Extension Planning Areas (EPA) within districts as a safety net operation that will provide short-term income transfer as it provides off-farm employment and increases incomes. 2. Major Related Projects Financed by the Bank and/or Other Development Agencies (completed, ongoing and planned) Sector Issue Project Latest Supervision (Form 590) Ratings (Bank-financed projects only) Implementation Development Progress (IP) Objective (DO) Bank-Financed Improvement of quality of primary Primary Education S S education Water policy reforn, upgrading & National Water Development U U management of water resources Project Improvement of quality, access, PHN Sector Credit S S efficiency & effectiveness of popula- tion, health and nutrition interventions Infrastructure Improvement Malawi Infrastructure Project S S Roads Maintenance Rehabilitation Rehabilitation of National Under Preparation Project Roads Social Recovery MASAF Project On-going HS Other Development Agencies World Food Program (WFP) For Component of Public N.A N.A Works of MASAF I European Union (EU) Microprojects N.A N.A Girls Attainment in Basic Literacy and School Projects N.A N.A Education (GABLE) Services for Health, Agriculture and NGO Capacity Building N.A N.A Rural Enterprise Development (SHARED) IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory), N.A. (Not applicable).  Malawi Second Social Action Fund Project 11 3. Lessons Learned and Reflected in the Project Design The Malawi Infrastructure Project (Credit 2069-MAI) was closed on December 31, 1996. Relevant lessons learned from the Implementation Completion Report (Rpt. No. 16382, March 17,1997) are: (a) the ability of government both to provide counterpart funds, and to match recurrent expenditure should be assessed and confirmed at the appraisal stage, and reassessed annually; (b) different elements of the same component co-financed by a number of aid agencies, posed special challenges especially when agencies withdraw their support for the project; (c) the participation of stakeholders and beneficiaries in the development of projects particularly the participation of the private sector and beneficiary communities in provision and maintenance of infrastructure needs to be reinforced; and (d) frequent supervision missions with an appropriate skills mix should be undertaken throughout the life of a project, especially for complex projects. Relevant lessons from the more than 30 IDA-supported social funds are that to be effective in providing resources for poverty reduction initiatives, these funds should: (a) be managed autonomously, (b) have thorough and simple procedures and flexibility in procurement and disbursement, (c) emphasize supervision, monitoring and community participation, and (d) be potentially sustainable. The design of the on-going Malawi Social Action Fund Project (MASAF I) was based on lessons learned from other Bank funded projects, as well as experiences of other development agencies in Malawi. Funds under MASAF I, which was signed on May 15, 1996, have been fully committed. Whereas this project performed very well from its inception, its experiences have been cyclical. First, it demonstrated the community ability to prepare projects that passed appraisal and approval. Second, the MU showed strong resilience in coping with a flood of demand. Third, in the face of pressure to complete projects under implementation, the MU responded by setting up a management system which has complied with requirements while completing projects at a pace that guarantees timely completion. Independent evaluations commissioned for the Mid-Term review (including a beneficiary assessment) as well as studies carried in preparation for this Project have highlighted the following key lessons (for description of changes in design between this project and MASAF I and their rationale, and for detailed lessons learned, please see Annex 10): (a) Communities are capable of managing the full project cycle in record time and with excellent quality; (b) Strong ownership of programs by Government (at all levels) is critical for the project's success; (c) The complementarities between the PWP and CSP are clearly understood and appreciated by stakeholders; (d) Importance of strong technical supervision and appraisal support; (e) Importance of involvement of district level local government staff in appraisal and supervision of subprojects;  Malawi Second Social Action Fund Project 12 (f) The key role of MASAF MU staff in facilitating community empowerment, providing transparent and non-political leadership and management, and processing large volumes of subproject work efficiently and quickly; (g) The need to speed up completion of subprojects has led to improvements in expenditure justification, changes in standard infrastructure design to improve speed of construction and increased role of MASAF's Zone Offices in the justification process; (h) There is great latent capacity for using local consultants for studies and reviews in Malawi and a minimum number of external consultants will be needed; (i) Whereas a number of NGOs are active in supporting AIDS related activities, there is inadequate support to other disadvantaged groups by GOM, donors and NGOs; and (j) Targeted IEC is a powerful development intervention as it contributes to moving from an asymmetrical information environment to one in which information is freely and equitably shared between all stakeholders through a variety of media. The formulation of the IEC strategy for MASAF II has taken this lesson into account. Relevant lessons from on-going social sector projects in Malawi include: (a) The importance of quick follow-up to community mobilization, i.e. of not leaving large gaps between mobilization and provision of support; (b) The cost and quality advantage of using community-based approaches; (c) New more environment friendly technologies such as using soil/cement blocks instead of burnt bricks are applicable to the Malawi situation; and (d) The importance of efficient project management units that understand and apply IDA and GOM operational procedures and guidelines. 4. Indications of Borrower Commitment and Ownership The Government has provided counterpart funds under MASAF I on time and in adequate amounts in spite of a fiscal crisis. It has prepared the first PCD draft and completed the Project Implementation Manual and a number of more detailed handbooks on administration, technical matters, project cycles, etc. The Minister of Finance has reiterated that MASAF is Government's number one project and is the main instrument for implementing its poverty alleviation strategy. There was also a follow up meeting on July 15, 1997 on policy issues affecting the implementation of the MASAF project. In addition to a letter from the Ministry of Finance (MOF) to the Country Director, the President of Malawi has written the President of the World Bank, requesting that a follow-up project be prepared as expeditiously as possible.  Malawi Second Social Action Fund Project 13 5. Value Added of Bank Support in this Project The Bank will bring its experiences of social funds in more than fifty projects as well as expertise in strengthening community based activities to assist in the design and implementation of MASAF II. Also, active participation and follow through by the Resident Mission staff will help MASAF pull together the best practices information on community experience in Malawi and elsewhere. E. SUMMARY PROJECT ANALYSIS (Detailed assessments are in the project file, see Annex 8) 1. Economic (supported by Annex 4) [X] Cost-Benefit Analysis: NPV=US$ N.A. million; ERR= 29% [ Cost Effectiveness Analysis: [X] Other (least cost analysis) Economic Rates of Return. MASAF is primarily a demand driven project where communities identify and decide the type of project that is most needed in their area and which will provide the greatest return to their inputs of labor, time and materials. Under the community subproject component of MASAF I, communities identified and undertook projects to construct primary schools, distance education centres, and health clinics and to rehabilitate and create boreholes and rural roads. Recent economic and sector work in Malawi confirm that this selection of projects provides very high economic rates of return. Rates range from 15% in secondary education to 50% in the creation of boreholes. The economic rate of return for rural road rehabilitation, undertaken in the public works component of the project, is similarly high at 26%. Using these rates and assuming that communities in MASAF II will follow the same pattern of project selection as they have in MASAF I, the overall Economic Rate of Return for MASAF II would be 29% (see Annex 4for sectoral ERRs). Project benefits will be measured in a thorough and consistent manner in MASAF II. Steps are already underway under MASAF I to identify and include an expanded list of benefit indicators in the revised Management Information System. For example, PWP has started to count private and commercial traffic on the roads before and after rehabilitation as well as to measure household income and consumption of participants before and after their involvement. The aim of these efforts is to have an MIS that provides timely information for measuring the cost-benefit of individual subprojects and of MASAF as a whole. Least Cost Analysis. MASAF uses simple and appropriate technologies, involves significant community participation, and utilizes local management structures and contractors to plan and undertake civil works. As a result, the unit costs of MASAF projects are generally lower than traditionally managed, top-down projects. Initial cost comparisons between MASAF subprojects and regular social infrastructure contracts indicate that unit rates of MASAF funded works are about half the cost of commercially contracted works. For boreholes, the unit cost difference is around 20% lower than traditional projects. Monitoring and supervision costs were also significantly less in  Malawi Second Social Action Fund Project 14 MASAF subprojects as these activities are largely integrated into existing governing and supervisory structures. Finally, community ownership and agreements to maintain structures ensure that maintenance costs borne by central and local government are very low. Recurrent Cost Implications. During desk and field appraisal of subproject proposals, MASAF liaises closely with sectoral ministries to ensure that the recurrent cost implications of its projects are sustainable and within the sectoral framework. In the education and health sectors, project appraisals involve the District Education Officer or District Health Officer who assesses if sufficient teachers/nurses are in place and ensures that the recurrent costs of the proposed project are within Ministry targets. School construction, in particular, rarely leads to additional teacher requirements, but rather alleviates the severe overcrowding that characterizes the system. Borehole creation also does not add to Government's recurrent costs as communities are trained to maintain the boreholes and communities' ability to establish a contributory fund for financing operation and maintenance costs are assessed at desk and field appraisal and are one of the selection criteria. PWP rural road rehabilitation is itself largely a maintenance activity and does not add to ongoing government costs. Finally, the SSP component will require that NGOs absorb the subsequent recurrent costs of the subprojects and this would be calculated as part of the community's contribution. 2. Financial (see Annex 5): NPV=US$ N.A. million; FRR= N.A. Community participation is an integral feature of MASAF, generating and mobilizing additional resources to meet project costs and creating a more sustainable environment after project completion. Communities are expected to contribute a share of individual subproject costs (see Annex 5). Levels vary by the type of subproject - an education project may require early contributions of materials and labor while a water project may require subsequent contributions towards maintaining the project. Projections indicate that the share of community costs will reach nearly US$ 20 million over the life of the project. Such figures likely underestimate community contributions of labor and future beneficiary assessments will attempt to fully account for this contribution. More importantly than the community's financial contribution, however, is the philosophy of self-help and ownership that is developed throughout project identification and implementation. The skills learnt lby communities during the project to use and account for funds, and to build, rehabilitate and maintain infrastructure lead to more sustainable development. As such, it is expected that i) the productive life of the communal asset will be longer than in the non-participatory planning case; and ii) that the recurrent cost burden on central and local governments will be lower than in the non- participatory case. Financial Accountability. M1lechanis