Mozambique - Decentralized Planning and Financing Project

Report No. PID10504 Project Name MOZAMBIQUE-Decentralized Planning and (@) Financing Project Region Africa Regional Office Sector Sub-national government administration (30%); Central government administration (30-); Micro- and SME finance (20%); Roads & highways (20%) Project ID P001807 Borrower(s) GOV Implementing Agency Address MIN. OF PLANNING & FINANCE Contact Person: Mr. Custodio dos Mucudos, MADER Tel: 258 1 416614 Fax: 258 1 418142 Email: pdan@tropical.co.mz Environment Category B Date PID Prepared September 13, 2002 Auth Appr/Negs Date January 19, 2003 Bank Approval Date May 8, 2003 1. Country and Sector Background Socio-economic indicators: The latest census figures (1997) paint a stark picture for Mozambique. Almost 70% of the Mozambican population live below the poverty line. Seventy-one percent of the total population lives in rural areas, where the incidence of poverty is 719 (compared to 62% in urban areas). Sixty percent of people aged 15 and above are illiterate and in rural areas this includes 569 of men and 85% of women. Only 3% of the population have attended secondary school, technical schools or higher education. Life expectancy at birth is only 42 years and infant mortality high at 146 out of 1000. Modern brick housing accounts for only 11% of the country's homes. Only 5% of Mozambican homes have electricity and only 8% have any type of piped water. Remaining households must rely on rivers, lakes or other sources for their water, and toilets or latrines can only be found in 34% of the homes. These figures indicate the most urgent need for priority actions and programs to improve public access to basic services and infrastructures, such as water, sanitation, roads, education and health care. Development strategy: The Government's main development objective is thus the reduction of poverty. In April 1999, the Council of Ministers adopted a poverty action plan, which articulates its poverty reduction and growth strategy. This was incorporated into the PRSP (or PARPA) for 2001-2005 which aims to reduce poverty by 30% over thirteen years. The PARPA emphasizes six priority areas, namely (i) education (ii) health (iii) agriculture and rural development (iv) basic infrastructure (v) good governance and (vi) macro-economic and financial management. These are considered "fundamental" as they are essential for reducing poverty and stimulating growth and also because their impact is both deep and broad.  The linkage between economic development and decentralized planning and management is based upon evidence that increased accountability of government structures to their client populations tends to correlate with improved delivery of essential services and enhanced welfare. Thus, having set the above goals of rural poverty reduction, the Mozambican government explicitly recognizes that a poverty-reducing rural development strategy and good governance strategy cannot be pursued without a substantial decentralization of decision-making, affording local institutions the opportunity to participate and influence the allocation of resources. "Deconcentration, and administrative and financial decentralisation to the provinces and districts are vital, since they will contribute to better interaction at local level between public institutions and the population (including the poor) in the fight against poverty through socio-economic development" (PARPA, pg 41). Shifts in economic management: The Ministry of Planning and Finance (MPF) has been overseeing a gradual shift in the instruments of the national development planning system. The development planning process has moved from a bureaucratic and technocratic exercise to one with greater scrutiny by elected officials and the contributions of local communities. The approach to development planning is moving from a highly centralized to an increasingly decentralized approach, recognizing the need to devolve to sub-national levels both responsibilities and resources for development planning and to develop capacity at local administration levels. The basic conditions for horizontal or multi-sector planning exercises were introduced in 1993 through the Triennial Public Investment Plan (PTIP), a three-year rolling plan for non-recurrent capital expenses. This provided a share of the budget for the provincial administrations to finance and manage investment projects identified by the districts. There have been a number of other laws and policy shifts since then, moving slowly towards a more deconcentrated and decentralized approach to governance in Mozambique. These include a constitutional amendment in 1996 and the passage of municipal reform legislation in 1997 which created the dual logic of local administration, differentiating between urban and rural areas. Urban areas are administered by elected local goverments while rural areas remained governed as part of a three-tier deconcentrated system (central government, provincial government and district administration). MPF and the Ministry of State Administration (MAE) have also issued guidelines for District Development Plans (September 1998), a Decree (15/2000) linking local organs of state with community authorties and a draft Law pending approval on Local Organs of State. There is as yet no clearly stated intention to move to elected local government in rural areas or at provincial level. Rather, the reforms would focus on redefining lines of authority and strengthening human resources at the District level and introducing participatory structures. This would build the foundation for establishing the district as a budget entity and increasing local autonomy. 2. Objectives The overall objective of the Decentralized Planning and Finance (DPFP) Project is to strengthen the institutional capacity of local administrations to plan and manage investments in rural districts in a participatory and accountable manner. Strengthening of capacity will be -2 -  done using a learning-by-doing approach of district investment grants, as well as other forms of capacity building, particularly in the areas of participatory planning, financial management and works management. The project will also assist central government ministries and agencies to develop a more conducive policy and institutional framework for good governance, development management and public service delivery in rural districts. 3. Rationale for Bank's Involvement IDA brings considerable experience in the areas of fiscal and administrative decentralization as well as extensive experience and knowledge in working with communities in particpatory planning processes for rural development. Examples in the East and Southern Africa region include projects in Zimbabwe, Kenya, Uganda, South Africa and Mozambique itself. IDA also has relevant experience from a variety of social funds in the region, such as those in Zambia and Malawi. IDA has an advantage in bridging across sector ministries and working in coordination with other donors, as well as the ability to mobilize sufficient funding to expand pilot programs and undertake longer term programs. It is already working with the GOM and other donors in areas of Public Sector Reform, Rural Development and Municipal Development among others, providing opportunities for synergy in support of the GOM's broader public sector reform agenda. 4. Description Overall description: The project is intended as the first stage of a long-term program of institutional strengthening, building upon reforms and pilots already underway. The DPFP would develop and extend the GOM's capacity building program for district administrations to plan and manage investments in rural districts in a participatory and accountable manner. Much of the capacity building would be through learning-by-doing, using Local Investment Grants to finance small-scale public investments in rural areas. The DPFP would also support training of district and provincial officials to fulfil a broad range of local government responsibilities for public administration, including planning, accounting, procurement and monitoring. The project would also assist the GOM to develop a more conducive policy and institutional framework for good governance, development management and public service delivery in rural districts. The DPFP is thus a capacity building project for local administrations in Mozambique, using technical assistance, training and development grants to support learning-by-doing. Geographic scope: The Minister of Planning and Finance requested the Bank to focus on four provinces in the central zone of the country: Zambezia, Sofala, Tete and Manica. These provinces were prioritized based on (i) poverty focus and (ii) relative absence of other programs on local planning and finance. At effectiveness, a pre-programmed number of districts in two provinces (Manica and Zambezia) can quality for funds under the Local Investment Facilities, with districts from all four provinces potentially eligible by year three. Extensive consultations have been held throughout the four provinces and in Maputo during preparation. All four provinces will receive general capacity building support for district staff in core areas of governance from effectiveness. Overall institutional and policy reform support will also be provided under the project to strengthen the national program of the Government of - 3-  Mozambique. Province and District roles: The Provincial level will play the key role in (i) determining district eligibility for financing under the project and subsequent years' eligibility based on performance; (ii) providing mentoring and technical assistance to Districts in the areas of participatory planning and budgeting, financial management, works management and supervision; and (iii) identifying training needs for district and some provincial staff and procuring training from appropriate suppliers. The primary role of the Districts should be to (i) engage rural communities in the setting of priorities through a participatory planning and budgeting process and (ii) develop basic financial and works management skills through learning-by-doing and targeted training courses. To attain its objectives, the DPFP would include five components: 1. Participatory District Planning 2. Local Investment Grants 3. Capacity Building Component 4. Policy Reform Component 5 . Project Coordination Component Component 1. Participatory District Planning The Participatory District Planning Component would develop a District-level participatory planning system based on civil society consultation and participation. It would deepen and expand the experience of a decentralized planning and finance pilot in Nampula province financed by UNCDF, UNDP and the Netherlands. The outputs of the participatory planning process would be District strategic and annual plans that would form part of the GOM's annual planning and budgeting cycle. The component would have two objectives (i) develop public sector capacity for district planning and accountable plan implementation and (ii) Develop capacity among rural communities to effectively participate in district planning. The project will provide Technical Assistance in planning as well as the development of methodological tools for community participation and planning. Component 2. Local Investment Grants Financing for small rural infrastructure included in the annual plans would be made available to eligible districts as local investment grants, up to a certain threshhold and according to a set of qualification criteria. There will be three grant windows or "facilities". Facility 1 will finance investments in district administrative infrastructure and will be managed by the province (the District is beneficiary but has no management role). Facility 2 will finance investments in small-scale public social infrastructure prioritized by communities through a process of participatory planning. The menu of eligible subprojects would include, among others, primary schools, health posts, rural water supply and sanitation, small-scale irrigation, feeder roads and bridges and rural markets. The Provinces will take on co-management responsibility (with Districts) for the financial and works management of Facility 2 as well as oversight and mentoring responsibility for Districts. Works under Facility 2 would typically be carried out by small private contractors and private inspectors would be responsible for physical progress inspections. Facility 3 will provide very small discretionary funds to District Administrations for direct community contracting for micro-projects. It is expected that each District will receive no more than $10 000 per annum - 4 -  thus limiting exposure while increasing responsibility and capacity for financial management and supervision through "learning by doing" . The project will provide technical assistance to government officials as well as a management quality assurance function to strengthen the capacity of provincial and district staff to carry out their responsibilities in financial and works management. The intention is to use and/or improve existing government systems and procedures as far as possible. In addition, support may be provided to small private contractors to enable them to effectively deliver quality infrastructure. The funding of investments at the District level would be on a programmatic basis. Each District would receive an initial annual allocation based on selection or eligibility criteria. The specific sub-projects to be financed each year would be selected locally, confirmed for financing eligibility at the Provincial level, and prepared and implemented with Provincial technical assistance and project coordination unit oversight. Subsequent annual allocations would be made available subject to the proper utilization of the previous year's allocation, including participation and information sharing with local communities. Component 3.Capacity Building: This component aims to strengthen the capacity of local administration officials to undertake key local government functions more effectively. Capacity building activities for key Provincial and District officials would be provided based on the identified roles and responsibilities of civil servants at each level, and are likely to include training in basic public administration, planning and budgeting and selected technical subjects. Specific training needs and content will be identified with the assistance of contracted technical experts. The outputs will include training needs assessments and plans for each province, developed in a manner consistent with the national training system and DPFP program requirements. Training funds will be made available to the provinces to purchase appropriate courses from available suppliers. The type of training purchased will include both supply-driven and demand-driven content. Furthermore, the component will support the placement of better qualified local administrative personnel in key posts in the civil service, through technical assistance in recruitment, pre- and in service training as well as improvements to living and working conditions as necessary. Component 4. Policy Reform. This component would consist of technical assistance to the Ministry of Planning and Finance and to the associated Minsistries (State Administration and Works & Housing) to improve decision-making through policy analysis and for the further development of the institutional and policy framework for decentralization. The support will primarily take the form of a Technical Assistance facility to purchase specific pieces of analysis and conduct consultations and/or pilots needed to develop and test reforms and methodological tools. The use of the facility will be linked to its contribution towards decision-making in respect of progress towards decentralization. Indicators of such progress are set out in a policy reform matrix agreed between the GOM and Bank. Component 5. Project Coordination. This component would consist of a small core team of project coordination staff at central and provincial level who would fulfil some World Bank-specific fiduciary functions and - 5-  provide technical assistance to the government officials responsible for project implementation and GOM fiduciary functions. The component would also include the project monitoring and evaluation system which will be developed in coordination with the national program and other donors. It will include the strengthening of responsibilities by provinces for monitoring and mentoring of district performance over time. Financial audits as well as a management quality assurance function will also be financed out of this component. 5. Financing Total ( US$m) BORROWER $0.00 IBRD IDA $30.00 Total Project Cost $30.00 6. Implementation The Ministry of Planning and Finance (MFP) is the lead implementing agency of the project, through its Planning and Budget Department. It already had anumber of pilot projects under its nascent decentralized planning and financing program. MPF chairs the multi-sectoral steering committee for the program which os made up of senior representatives from the Ministry of Planning and Finance, Ministry of State Administration, Minsitry of Agriculture and Rural Development and Ministry of Public Works. The MPF has overall responsibility for the project. Its Provincial Directorates of Planning and Finance (DPPF) would take primary responsibility for all project financial flows and reporting from provincial level, as well as direct responsibility for the Planning and Investment Grants components. Technical support will be provided by the Provincial Directorates of Public Works and Rural Development The capacity building component will involve the Ministry of State Administration's Provincial Directorates of Support and Supervision in planning and programming. At district level, the Administrator, while formally part of the Ministry of State Administration system, responds to the DPPF for planning, budgeting, disbursement and accounting matters. Public works and rural development play important technical roles but will not be resource managers or have executive responsibility. These responsibilities lie with the MPF/DNPO, the DPPF and the District Admninstrations. A small Project Coordination Unit (PCU) will be established in MPF with some staff decentralized to support the provinces. However, all decentralized planning, financing and works undertaken under component 1 will be the responsibility of civil servants whose primary fiduciary responsibility is to the Government of Mozambique. The PCU will provide mentoring and or/contract technical assistance and undertake some non-sustainable World Bank-specific fiduciary tasks. A Monitoring and Evaluation system will be developed for the project in coordination with the national Program and other donors. 7. Sustainability The institutional sustainability of the project will be based on the - 6 -  involvement of mainstream public sector bodies (Ministries, Provincial administrations, Districts) as implementing agencies. In this respect, the project builds on and deepens the model of the Nampula District Planning and Financing Project (supported by UNDP, UNCDF, and the Netherlands). Government officials are the primary implementing agencies and as far as possible, existing government systems and procedures are utilized and where necessary strengthened to ensure effective planning, budgeting and works management. The district planning process at the heart of the project follows the government's budget system and annual cycle. Grants are programmed and managed by civil servants in a manner consistent with government procedures in order to minimize complexity and reduce the establishment of parallel systems or staff. At the same time, government systems are strengthened in currently weak areas, such as participatory planning and downward accountability to communities. In respect of broader capacity building, the project will support training for provincial and district civil servants in key areas required for effective service delivery in line with GOM mandates and the emerging civil service training system (SIFAP). Operation and maintenance of public investments will be promoted in several ways: (i) the involvement of District administrations and District Consultative Councils in planning and implementation; (ii) the requirement for local contributions to sub-project costs; (iii) requiring an O&M plan as a condition for approval of all investment proposals, including agreement as required from related sector agencies that O&M resources are available for investment projects. Component 4 includes support for policy and institutional reform in support of medium to longer term deconcentration and decentralization. This policy reform agenda is a coordinated effort between the donors in Mozambique involved in decentralization and the Government of Mozambique. 8. Lessons learned from past operations in the country/sector Experience gained in Mozambique and elsewhere in Africa (particularly Uganda) over the last two decades shows that in order to succeed decentralization projects should include: (i) meaningful participation in planning and budgeting by local authorities and communities; (ii) indepth participation in project design by core stakeholders at all levels in the country; (iii) limited parallel and unsustainable project structures; (iv) strengthening and where necessary creation of civic society structures to provide a strong base from which to elicit participation; (v) attention to sustainability of infrastructure through attention to operations and maintenance; (vi) extensive efforts in capacity building and institutional support for local administrations for the effective management and supervision of public works; and (vii) emphasis on improving the policy and institutional environment conducive to decentralization. These are all being addressed as part of the project design process. Project design will incorporate additional lessons from the Mozambique Rural Rehabilitation Project, the ongoing Municipal Development Project as well as a number of other donor-funded pilot decentralization projects such as the Nampula case. 9. Environment Aspects (including any public consultation) -7 -  Issues This project is expected to have a net positive impact on the environment through the provision of rural infrastructure conducive to better social and environmental conditions. It is also expected that the small-scale infrastructures to be built or rehabilitated under this project would not generate significant negative environmental effects. However, an Environmental Assessment is being done and the operational manual will include screening criteria to ensure that environmental considerations and risk mitigating strategies are taken into account in the selection of the sub-projects and the preparation of the District Development Plans. In addition, training on environmental issues will be provided as part of the capacity building activities. 10. Contact Point: Task Manager Lance Morrell The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: Fax: 11. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. This PID was processed by the InfoShop during the week ending November 1, 2002. -8-