Algeria - Second Rural Employment Project

Document of The World Bank Report No: 24715 PROJECT APPRAISAL DOCUMENT ONA PROPOSED LOAN IN THE AMOUNT OF US$ 95 MILLION TO THE PEOPLE'S DEMOCRATIC REPUBLIC OF ALGERIA FOR THE SECOND RURAL EMPLOYMENT PROJECT March 27, 2003 Water, Environment, Rural and Social Development Middle East and North Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective December 6, 2002) Currency Unit = Algerian Dinar (DA) DA 1 = US$0.0125 US$1 = DA 79.915 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AER Agricultural Expenditure Review ANRH : Agence National des Ressources Hydrauliques - National Water Resources Agency AP Autorisation de Programme - Program Authorization (in the Budget) AR Administrative Regulation BAD Banque Algerienne de Developpement - Algerian Development Bank BADR Banque d'Agriculture et du Developpement Rural - Agricultural and Rural Development Bank BHC Bureaux d'Hygiene Municipaux - Municipal Hygiene Bureaus BNEDER: Bureau National d'Etudes pour le Developpement Rural - National Bureau for Rural Development Studies BP Bank Procedures CAS Country Assistance Strategy - Strategie d 'Assistance au Pays CCGP Cellule Centrale de Gestion du Projet - Central Project Management Unit CCGW Cellule de Coordination et de Gestion de Wilaya - Wilaya level Project Coordination and Management Unit CDF Conservations des Forets - Forestry Directorates of the Wilaya CDMW Commission de Marches de Wilaya - Governorate Tender Boards CFAA Country Financial Accountability Assessment CNM Commission National de Marches - National Tender Board CNMA Caisse National de Mutualite Agricole - National Agricultural Credit Union CP Credit de Paiemnent - Payment Credit (advance) CPAR Country Procurement Assessment Report CQ Consultant's Qualifications CREAD Centre de Recherche en Economie Appliquee pour le Developpement - Applied Economics for Development Research Center CQ Consultant's Qualifications CRMA Caisse Regional de Mutualite Agricole - Regional Agricultural Credit Union DA Algerian Dinar DAS Domaines Agricoles Socialistes - State Farns DC Direct Contracting DEP Direction d'Equipement (du BAD) - Investment Directorate (of BAD) DGF Direction Generale des Forets - General Directorate of Forestry DHW Direction Hydraulique de Wilaya - Wilaya Water Directorates DPIEE Direction de la Programmation des investissements et des Etudes Economiques - Directorate of Investment Programming and Economic Studies DSA Directions des Services Agricoles - Wilaya Agricultural Services Directorates EA Enviromnental Assessment  EIA Environmental Impact Assessment EAC Exploitations Agricoles Collectives - Collective Farms EAI Exploitations Agricoles Individuelles - Individual Farms EIE : Etudes dI'mpact Envirennmentaux - Environmental Impact Assessment Studies EMP Environmental Management Plan ERR Economic Rate of Return FARAH Financial, Accounting, Reporting and Auditing Handbook FDRMVTC: Fond de Developpement Rural et de Mise en Valeur des Terres par Concession - Fund for Rural Development and Land Development through Concessions FEF Front end fee FM Financial Management FMR Financial Monitoring Reports FMS Financial Management System FNDA Fond National de Developpement Agricole - National Agricultural Development Fund FNRDA Fond National de la Regulation et de Developpement Agricole - National Agricultural Development and Regulation Fund FRR Financial Rate of Return FSL Fixed spread loan FY Fiscal Year (of the World Bank) GIS Global Information Systems GP Good Practice GPN General Procurement Notice IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDA International Development Association IFC International Finance Corporation IFAC International Federation of Accountants IFAD International Fund for Agricultural Development IGF Inspection Generale des Finances - General Inspectorate of Finance (audit agency) INPV Institut National de la Protection des Vegetaux- National Plant Protection Institute ISA International Standards of Auditing IT Information Technology LS Local Shopping LSI Large Scale Irrigation LSMS Living Standards Measurement Study MADR Ministere de l 'Agriculture et de Developpement Rural - Ministry of Agriculture and Rural Development MDF Minisiere des Finances - Ministry of Finance MENA Middle East and North Africa Region MICL Ministere de l'Interieur et des Collectivites Locales - Ministry of the Intenor and Municipalities M&E Monitonng and Evaluation NCB National Competitive Bidding NPV Net Present Value NS National Shopping NGO Nongovernmental Organization(s) OP Operational Policy O&M Operation and Maintenance PAP Plan d'Amenagement Pastorale - Pastoral Management Plan PCD Project Concept Document  PDAR : Programme de Developpement Agricole et Rural - Agricultural and Rural Development Program PER : Public Expenditure Review PERI Projet Emploi Rural - Rural Employment Project PER2 Deuxieme Projet d'Emploi Rural - Second Rural Employment Project PFS Project Financial Statements PGE Plan de Gestion Environnementale - Environmental Management Plan PHRD : Japan Policy and Human Resources Development Fund PIM Project Implementation Manual PIP Project Implementation Plan PMU Project Management Unit(s) PNAE-DD: Plan National d'Action pour Environnement et Developpement Durable - National Action Plan for the Environment and Sustainable Development PNDA : Plan National de Developpement Agricole - National Agricultural Development Plan PNDAR Plan National de Developpement Agricole et Rural - National Agricultural and Rural Development Plan PSD Private Sector Development PSRE : Programme de Soutien Li la Relance Economique - Program of Support for Economic Rehabilitation QCBS Quality and Cost Based Selection REA : Regional Environmental Assessment (for the Project Zone) SA Special Account SDP : Standard Disbursement Percentages SME : Small and Medium Enterprises SMI Small and Medium Scale Irrigation SOE Statement of Expenditures TTL Task Team Leader TOR Terms of Reference UNDB : United Nations Development Business VAT : Value Added Tax WB World Bank WUA : Water User Association Vice President: Jean-Louis Sarbib Country Manager/Director: Theodore 0. Ahlers Sector Manager: Petros Aklilu Task Team Leader/Task Manager: Kutlu Somel  ALGERIA SECOND RURAL EMPLOYMENT PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 3 2. Key performance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 5 3. Sector issues to be addressed by the project and strategic choices 7 C. Project Description Sumnmary 1. Project components 8 2. Key policy and institutional reforms supported by the project 11 3. Benefits and target population 11 4. Institutional and implementation arrangements 14 D. Project Rationale 1. Project altematives considered and reasons for rejection 16 2. Major related projects financed by the Bank and/or other development agencies 17 3. Lessons leamed and reflected in the project design 18 4. Indications of borrower conmmitment and ownership 21 5. Value added of Bank support in this project: 22 E. Summary Project Analysis 1. Economic 22 2. Financial 23 3. Technical 24 4. Institutional 24 5. Environmental 25 6. Social 27 7. Safeguard Poli,ies 30  F. Sustainability and Risks 1. Sustainability 31 2. Critical risks 32 3. Possible controversial aspects 34 G. Main Conditions 1. Effectiveness Condition 35 2. Other 35 H. Readiness for Implementation 35 I. Compliance with Bank Policies 36 Annexes Annex 1: Project Design Summary 37 Annex 2: Detailed Project Description 42 Annex 3: Estimated Project Costs 50 Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 51 Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 55 Annex 6: (A) Procurement Arrangements 56 (B) Financial Management and Disbursement Arrangements 64 Annex 7: Project Processing Schedule 72 Annex 8: Documents in the Project File 74 Annex 9: Statement of Loans and Credits 76 Annex 10: Country at a Glance 78 Annex 11: Social Assessment 80 Annex 12: Summary of Environmental Assessment 98 MAP(S) IBRD 32215  ALGERIA Second Rural Employment Project Project Appraisal Document Middle East and North Africa Region MNSRE Date: March 27, 2003 Team Leader: Kutlu Somel Sector Director: Letitia A. Obeng Sector(s): Crops (45%), Forestry (35%), Irrigation and Country Director: Theodore 0. Ahlers drainage (10%), General agriculture, fishing and forestry Project ID: P076784 sector (10%) Lending Instrument: Specific Investment Loan (SIL) Theme(s): Rural non-farm income generation (P), Rural services and infrastructure (P), Civic engagement, participation and community driven development (P), Gender (P), Social analysis and monitoring (S) [Project Financing Data, [X] Loan [ I Credit [ Grant [ Guarantee [ Other: For Loans/Credits/Others: Loan Currency: United States Dollar Amount (US$m): 95.0 Borrower Rationale for Choice of Loan Terms Available on File: Yes Proposed Terms (IBRD): Fixed-Spread Loan (FSL) Grace period (years): 3 Front end fee (FEF) on Bank loan: 1.00% Payment for FEF: Capitalize from Loan Proceeds Initial choice of Interest-rate basis: Maintain as Variable, 6-month LIBOR plus fixed spread Type of repayment schedule: [ I Fixed at Commitment, with the following repayment method (choose one): (XI Linked to Disbursement Financing Plan (US$m): Source Local Foreign Total BORROWER 24.22 0.00 24.22 IBRD 89.00 6.00 95.00 LOCAL SOURCES OF BORROWING COUNTRY 23.67 0.00 23.67 Financing Gap -89.00 89.00 Total: 47.89 95.00 142.89  Borrower: GOVERNMENT OF ALGERIA Responsible agency: MINISTRY OF AGRICULTURE AND RURAL DEVELOPMENT General Directorate of Forestry Address: Direction Generale des Forets, Parc Zoologique, Ben Aknoun, Alger, Algerie Contact Person: Monsieur Salah Bourahla, Directeur G6neral Tel 213 21 91 53 16 Fax: 213 21 91 53 17 Email: dgf(wissal.dz; per2@wissal.dz; per2bis(yahoo.fr Other Agency(ies): Directorate of Investment Programming and Economic Studies Address: Direction de la Programmation des Investissements et des Etudes Economiques (DPIEE) Ministere de l'Agriculture et de D6veloppement Rural Contact Person: Monsieur Idir Bais, Directeur Tel: 213 21 74 57 52 Fax: 213 21 74 57 52 Email: Idirbais@yahoo.fr Estimated Disbursement in US$m Equivalent (Bank FY/Semesters): FY 2003 2004 2005 2006 2007 2008 2009 Source Sem. 1 Sem. 1 Sem. 1 Sem. I Sem. 1 Sem. 1 Sem. 1 Sem. 2 Sem. 2 Sem. 2 Sem. 2 Sem. 2 Sem. 2 Sem. 2 IBRD 5.03 10.47 16.59 8.87 6.30 0.45 5.03 10.48 16.60 8.87 6.31 Cumulative $10.06 $31.01 $64.20 $81.94 $94.55 $95.00 _ Project implementation period: Five and a half years Expected effectiveness date: 07/01/2003 Expected closing date: 06/30/2009 -2 -  A. Project Development Objective 1. Project development objective: (see Annex 1) The Project seeks to generate and stimulate rural employment in poor rural mountainous areas of northwest and north-central Algeria. In the first instance, the Project aims to respond in the short-term to the cntical problem of unemployment in the target rural areas through direct employment creation, using labor-intensive civil works for natural resource management emphasizing soil erosion control. The longer-term perspective emphasizes the instrument of asset creation for stimulating employment, mainly through natural resource management, protection of the environment, water resource mobilization, and income-generating rural development activities aiming at the substitution of perennial tree crops in place of annual cereal production, with the purpose of increasing labor productivity in a sustainable manner. Asset creation is defined broadly as the enhanced availability of resources that can be used directly or indirectly in productive activities. Examples are infrastructure with important extemalities; maintenance of the natural resource base by reducing soil erosion; perennial fruit tree orchards and vineyards adapted and appropriate for the agro-ecological environment instead of annual low productivity cereals; enhanced availability of water for irrigation and human consumption; etc. Unemployment is a structural problem in Algeria. Hence, longer term solutions are necessary to address the problem. Short term solutions such as direct transfers can alleviate shortfalls in income and consumption flows but need to be complemented by actions and measures with durable effects. In that context, it is necessary to focus on asset creation which will have longer term effects, particularly on labor productivity. 2. Key performance indicators: (see Annex 1) A baseline survey will be conducted during project implementation by consultants in charge of Monitoring and Evaluation (M&E) to measure progress against. Monitonng and evaluation will comprise regular activities for periodic reports on physical and employment progress and occasional studies on assessing impact, based on surveys and modeling. Key performance indicators are: * creation of 36,000 person-years of direct employment through labor-intensive activities * increase in rural household incomes and assets through increases in production * indirect employment and PSD effects from increased economic activity and incomes * improved capacity in the central and decentralized Ministry of Agriculture and Rural Development (MADR) and General Directorate of Forestry (DGF) administration through training and studies B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: R96-15[Rev.] Date of latest CAS discussion: February 27, 1996 The current CAS dates from 1996. Preparation of a new CAS is underway and Board presentation is expected in the fourth quarter of FY03. The 1996 CAS was intended to be a 12-month strategy. It followed a difficult period of adjustment in the early 90s, when shortfalls in oil revenues led to debt management problems. In 1994-1995, Algeria initiated a series of measures for macroeconomic stabilization and structural adjustment. Measures entailed a significant devaluation of the overvalued Algerian Dinar (DA), regulatory changes and elimination of extensive producer and consumer subsidies, the former particularly in agriculture, when all producer subsidies (input and product) but those for wheat and irrigation water were eliminated. -3-  Hence, the focus of the 1996 CAS was the management of the transition, particularly the social impact of liberalization. In the environment existing in 1995/1996, the main objective of the transitional strategy was to capitalize on the window of opportunity existing then to deepen and ensure the irreversibility of the reforms as the central condition for future growth. Two key priority elements of the strategy were: o stimulating private sector-led employment generating growth through a deepening of the reform program; and o protectmg the poor during the transition through targeted operations. Quick employment generation and protection of the vulnerable groups for employment were seen to be crucial to safeguard the reform progran and resolve the social crisis affecting the country. Among the priorities was accelerating the implementation of well-targeted labor intensive programs in agriculture. This was subsequently supported by a poverty assessment study, based on 1988 and 1995 LSMS data, which showed that 70 percent of the poor in Algeria live in rural areas. The first Rural Employment Project was thus prepared in 1996 and became effective in 1997. Given its satisfactory performance and impact on both rural development and employment, a second Rural Employment project was signaled to be a priority in the context of the dialogue between the Bank and the Government. The 1996 CAS is still valid in areas of concem to the Second Rural Employment Project. The CAS under preparation is an open, inclusive and collaborative exercise. Several fora were utilized to involve stakeholders, such as the representatives of the private sector, trade unions, the academia and the civil society along with the administration. These general level meetings would be followed by thematic and sectoral meetings (e.g., water sector, social aspects, etc.). In that context, an initial meeting was held between Algeria and the Bank, in Ghardaia in April 2002, towards the preparation of a strategy of cooperation in "agricultural, agro-industrial and rural development," with the participation of the representatives of farmers, the private sector in agricultural services and agroindustry, academicians, agricultural financial institutions, researchers and central and decentralized agricultural administration. The focus of the present project, as well as the performance of the ongoing Rural Employment Project (PERI: Loan 4143-AL; Project No. P043724; PAD Report No. 16343-AL dated March 3, 1997); were discussed. The emphasis on sustainable development and natural resource management was a particular aspect of the discussions which gives credibility to the efforts in the proposed and ongoing project. Furthermore, the sectoral strategy and CAS discussions raised the point that the evolving market-oriented policies of the Government for rural development need to develop an improved strategic framework, be based on sound policy analysis, and emphasize the stimulation of investments in rural areas, as well as to reorient the decentralized administration more used to implementing centrally planned interventions. These recommendations led to the component on Institutional Development for the Ministry of Agriculture and Rural Development (MADR). The documents produced in the sectoral CAS meetings are in the project files. The Project is consistent with the Bank's Rural Development Strategy, as well as the MENA Regional Strategy, in emphasizing the social problems of poverty and unemployment, in the focus on gender issues and rural women, in promoting diversification, and private sector development (PSD) by encouraging implementation by small and medium enterprises (SME) in the private sector. Finally, the project is also consistent with Government strategies as expressed in the Econornic Rehabilitation Support Program ( Programme de Soutien a la Relance Economique - PSRE) and National Agricultural and Rural Development Plan (Plan National de Developpement Agricole et Rural - PNDAR) (see next point for definitions and discussion). -4 -  2. Main sector issues and Government strategy: The rural sector in Algeria bears a disproportionate burden in terms of poverty, unemployment and underemployment. The poverty assessment study carried out in 1996 indicates that 70 percent of the poor in Algeria are in rural areas and that there is a close relationship between poverty and unemployment. The rural areas are also affected by underemployment due to the seasonal nature of agricultural activities, hence agricultural labor productivity is considerably lower than that in the other sectors. Agriculture and agro-industry, dominated by private operators, have been a more dynamic element of the economy, exhibiting average growth rates above the economy-wide average. However, agriculture is also highly susceptible to climatic variability, and particularly drought, which has struck the country persistently since the 90s, with some regions being particularly affected. This results in risk-averse technology choices by producers, with low levels of investment and technology and low average yields in critical (strategic) field crops, such as cereals. In order to stimulate the rural and agricultural sectors, the Government developed and implemented a National Agricultural Development Plan (Plan National de Developpement Agricole - PNDA) in 2000. Subsequently, in 2001, the Government initiated the five year PSRE (2001 - 2004) into which the PNDA was incorporated. After 2002, with the incorporation of the rural development perspective, PNDA became PNDAR. The objectives of the PNDAR are: (i) food security; (ii) exploitation of resources based on identified potential; and (iii) protection of the environment. However, the "identified potential" could have been overestimated and thus needs to based on research on both technical aspects as well as economic aspects (competitiveness). The expectation that this potential is readily obtainable could have led to an emphasis on targeted development incentives through subsidies as the common policy instrument. The PNDAR is developed in the context of a market economy, and signals fundamentals such as "food security rather than self-sufficiency", "competitiveness", "comparative advantage", "optimal use of resources" (especially water), etc. These initiatives need to be supported by thorough policy analysis and have adequate impact monitoring. Staff capacity in the MADR needs to be reinforced in developing coherent programs around well assessed priorities, as well as for effective M&E. Participation. One important aspect of the PNDAR is that it is more reliant on decentralized processes and beneficiary participation than was the case historically. This is very important for the sustainability of the interventions and for reducing recurrent costs of O&M. The experience of the Rural Employment Project in this respect has been important. PNDAR is made up of four principal programs: (i) the adaptation of production systems to climatic conditions called reconversion; (ii) the modernization of farms, commonly called thefiliere program; (iii) land development by concessions; and (iv) the national progran of reforestation. The Reconversion Program aims to diversify agricultural production in the arid, semi-arid and sub-humid zones by reducing the fallow and by replacing low productivity cereals with other crops and activities that would: (i) manage the drought conditions better; (ii) arrest and reverse environmental degradation arising from cereal monoculture with fallow, especially soil erosion and the encroachment of the desert; and (iii) improve farner incomes. The Filiere Program targets products with large public consumption such as wheat and milk. These are development programs to encourage production and productivity increases through various incentives - 5-  (financing inputs and wheat and milk producer price, interest rate and investment subsidies). They are also ambitious and entail large fiscal outlays which need to be adequately analyzed. The potential and actual impacts of this component need to be assessed. The Concession Program encourages specific development projects for diverse purposes (e.g., development of a small irrigation perimeter in a given location). The projects need to be economically viable, socially acceptable and environmentally sustainable. There is an element of participation in financing in the costs of each project. If the project is able to remain successful, after five years, all assets, including the land are supposed to be ceded to the beneficiaries. An assessment of the performance of the program is needed. In particular, given the current problematic state of land tenure rights, the cession of land to beneficiaries would have long term repercussions. The National Program of Reforestation targets the watersheds and mountain areas, using the model of the Rural Employment Project (Loan 4143-AL), namely both reforestation on public lands and expansion of fruit trees on private lands through labor-intensive methods. In addition, forestry related activities, such as plant production, are being introduced under concessions on public lands. The most serious environmental problem in rural areas is soil erosion. A major effort aims to focus defensive forestry and fruit tree establishment activities (reforestation, terracing, etc.) against soil erosion. These are efficient uses of public resources utilizing labor-intensive approaches. The Bank-supported ongoing Rural Employment Project is providing satisfactory results in this area. The Bank has already contributed to the National Program of Reforestation in the PNDAR and the PSRE by including a supplementary program for the wilayate (govemorates) of Relizane and Mostaganem under the ongoing Rural Employment Project and by extending the closing date accordingly to allow for the realization of this supplementary program. New Ilnitiatives for the Steppes. The challenging area of the management of the steppes as an ecological (diversity of flora and fauna) and economic asset (for grazing) will be tackled under a new initiative. These fragile areas are subject to severe pressure from grazing and illicit encroachment of cultivation, causing irreversible damage to the vast nappes alfati&res which are critical to soil stabilization. Customary use rights based on tribal structures were at odds with development initiatives trying to establish control over the use of resources on these public lands. The new initiative now would recognize communities as the basic unit of development, in the spirit of decentralized and participatory approaches. Agricultural and Rural Development. The program of new Government appointed after the elections of May 2002 has reaffirmed the priority of agricultural and rural development and the continuation of the initiatives under PNDAR, focusing on employment, sustainable development and preservation of natural resources. One particular development was the establishment of State Minister (Ministre Delegue) post for Rural Development in the Ministry of Agriculture, which was renamed Ministry of Agriculture and Rural Development (Minist&re de l'Agriculture et du Developpement Rural - MADR). The ongoing Rural Employment Project has influenced policy perspectives on matters related to decentralized operations and participatory approaches for rural development. In this context, a new Agricultural and Rural Development Program (PADR) is being developed in the spirit of the Rural Employment Project with a "mise en valeur en proximite" perspective, implicating the decentralized administration of other ministries in the wilayate as well. In this respect, several inter-ministerial decisions have already been signed, in particular, one between the Ministry of the Interior and Municipalities (MICL) and the Ministry of Agriculture and Rural Development (MADR). The former is represented by the wali (govemor), the chief administrator in each province. Hence, coordination for rural development is assured under the wali, implicating diverse ministries involved in rural development - 6 -  such as water resources, housing, health, education, etc. The proposed Second Rural Employment Project will thus be the driving element of the PDAR and mise en valeur en proximite efforts in the targeted wilayate as well as the country as a whole. Financing of PNDAR. The PNDAR programs are financed through arrangements supported by different funds. The most important of these are the National Fund for the Regulation and Development of Agriculture (Fond National de la Regulation et de Developpement Agricole - FNRDA), which is now joined by the Fund for Rural Development and Land Development by Concessions (Fonds de Developpement Rural et de Mise en Valeur des Terres par Concessions - FDRMVTC). The FNRDA combines the two old funds for the Minimum Guaranteed Prices and the National Fund for Agricultural Development (Fond National de Developpement Agricole - FNDA). The National Agricultural Credit Union (Caisse National de Mutualite Agricole - CNMA), through its regional agencies of the Regional Agricultural Credit Union (Caisse National de Mutualite Agricole - CRMA), and the Agricultural and Rural Development Bank (Banque de l'Agriculture et du Developpement Rural - BADR) through its agencies, are the specialized financial institutions for the management of the funds mentioned above. The agricultural sector has been allocated a Program Authorization (Autorisation de Programme - AP) of 65 billion DA under the PSRE, which is equivalent to 12 percent of the total AP of 525 billion DA for a five year period (2001-2004). This total will be higher if the imgation sector components, which are currently under the Hydraulique heading, and the rural infrastructure activities are included. The bulk of the AP for agriculture has been allocated to the reinforcement of programs supported by FNRDA (53.9 billion DA). There is a close dialogue and cooperation between the Government and the Bank in agriculture and rural development, which will be strengthened through the Institutional Development Component for MADR, focusing on training and studies on areas such as capacity development, M&E systems, rural poverty reduction, food security and competitiveness, agricultural credit mechanisms, etc. These activities will complement and provide inputs for the Rural Development Sector Strategy Note, planned for FY03. 3. Sector issues to be addressed by the project and strategic choices: Addressing the problem of rural unemployment is the main focus of the proposed Project. The instruments to be used in the Project emphasize natural resource management and protection of the environment. These instruments are conducive to labor-intensive techniques and employment generation. The Project represents continued commitment for what is a turning point for rural projects in Algeria. It embodies the following strategic choices that the Government has made in addressing the problem of rural poverty and unemployment: (i) a shift in emphasis from capital-intensive approaches to labor-intensive ones, in line with the prevailing factor proportions in the country; (ii) the priority accorded to small scale interventions; and (iii) finally, a change from centralized, top-down approaches to a decentralized one where communities would be more involved in projects at various stages. Hence, following upon the seeds of participatory approaches cast in the ongoing Rural Employment Project to build the base for generating community involvement, the second Rural Employment Project will expand the use of such approaches. Preliminary observations in the field and assessment of the on-going project lead to a strategic choice on the fundamental development impact with respect to reducing rural poverty. The poor farmers of the target regions are primarily involved in low yield cereal production for family consumption, with livestock to balance diets, budget and consumption flows. The events of the last decade had actually even - 7 -  forced some to abandon their lands from which they derived their meager subsistence. This low level equilibrium production system is not conducive to any accumulation for investments which could take these farmers out of their poverty. The project would basically provide this possibility by supporting investment in assets whereby farmers can rise out of poverty. That they will participate and have participated in the investment process through their labor input enhances the ownership of the assets created. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Project design focuses on the basic objectives of direct and indirect employment creation. Direct employment creation aims to respond to the immediate problem of high unemployment in the project area, and indirect employment creation aims to enhance the options for medium to long term development for more sustainable employment through increased and more diversified production, both on-farm and off-farm through increased demand for upstream and downstream services. The project also aims to integrate rural women in project activities through direct access to project activities in general and through specific activities targeting rural women, difficult as this may prove to be given the existing socio-cultural conditions. As indicated in Annex 11 on Social Assessment, the project focuses on participatory approaches in order to enhance ownership of interventions and activities that are responsive to beneficiaries' needs. A preliminary survey, using project staff who received basic training in participatory approaches, assisted by trainers who had received training under the ongoing Rural Employment Project (PERI - Loan 4143-AL) and coordinated by a team of consultants, used diverse techniques to assess the needs and constraints of men and women in the project zones (see Sondage Preliminaire in Documents in Project Files). This was a new experience for both the project staff and the beneficiaries in the project zones: the former for being able to work closely with the beneficiaries and respond to their needs, and the latter to find government agencies interested in their perspective on issues and priorities. As a consequence, project components were modified during project preparation to reflect the critical constraints in the project zone. These changes are mainly in the increased emphasis on water resource mobilization and technical aspects of diversification. Ultimately, project implementation will also entail a degree of flexibility as is the case under PERI, to adapt to evolving conditions. The project will comprise the following components to be implemented by the centralized and decentralized administration of the Ministry of Agriculture and Rural Development (MADR) and the General Directorate of Forestry (DGF) through competitive market based procurement procedures, emphasizing small lots as the basis of contracts to encourage SME. Component 1: Soil Erosion Control (Total cost 1US$ 50.2 mllon; 1US$ 40.1 million Bank financing) This is the critical project component that will serve as the instrument for direct short-term employment creation, using labor-intensive techniques. The emphasis is on natural resource management targeting the critical problem of soil erosion. A critical aspect of this component is the employment of forest area riparians in a participatory manner to ensure the sustainability of interventions. Furthermore, where pertinent, forestry and forage species will be combined in planting activities to respond to the agro-pastoral characteristic of the project zone and pastoral management plans will be developed to promote the sustainable exploitation of the natural resource base for grazing. - 8 -  Specific activities comprise the following: reforestation; river bank management; terracing and biological control; flood control infrastructures; forestry rehabilitation; and silvicultural activities. Component 2: Agricultural Development (Total cost US$ 66.7 million; US$ 34.4 million Bank financing) This component aims to address employment within a medium to long term perspective through agncultural development activities in the mountainous project areas. These areas are currently characterized by a cereal-livestock system, mainly barley for feed and some wheat, and livestock, mainly ovines (sheep and goats). This component aims to diversify the production base by expanding the limited fruit tree production in the project area. Participation is a critical element of most agricultural development activities. In fruit tree planting activities beneficiaries will contribute to 50 percent of costs for digging the troughs and planting the trees. This participation will be either in the form of labor or actual financial contribution. No mechanical methods will be allowed except for the deep ploughing necessary for viticulture. In land clearing, beneficiaries will contribute 30 percent of costs through labor or finances. Women will benefit from agricultural development activities in an integral manner as well as through specific activities targeting rural women. Fruit tree, grapevine and small livestock activities will be closely associated with extension efforts through the Wilayate Agricultural Services Directorates (DSA - Directions des Services Agricoles) and the Wilayate Forestry Directorates (CDF - Conservations des Forets), with emphasis on the requirements for reaching female beneficiaries, choice of adapted species, cultural practices, including water-saving irrigation methods. Specific activities under this component are: rustic fruit tree plantations and irrigated fruit tree plantations; viticulture; plant material production; windbreaks; land clearing; rural roads (upgrading and rehabilitation); small livestock production; and artisanal activities. Component 3: Water Resource Mobilization (Total Cost US$ 15.5 million; US$12.4 million Bank financing) Water resource mobilization is critical to project activities. The project zone is characterized by low rainfall with significant intra- and inter-annual variation. While irrigation is practiced in the lower valleys through large irrigation schemes, in the mountainous and hilly areas the water potential is not adequately exploited for irrigation or potable water. In the project zone, capturing and managing existing water resources will be a critical factor in relieving some of the risks arising from variable agro-climatic conditions. This will also make clean potable water available to rural populations. As for irrigation, certain activities will require the prerequisite of water availability (e.g., irrigated fruit trees). Irrigation, in general, will allow more intensive and diversified agricultural production. Close coordination will be maintained with the Directions Hydraulique de Wilaya (DHW - Govemorate Water Directorates) in water resource mobilization activities, particularly for the activities of hill dams and wells. The choice of the sites for the hill dams and deep wells will be authorized by the DHW, complemented by additional studies and exploratory drilling where necessary. In all cases, water has to be of adequate quantity and quality for the subsequent investment activity to be authorized. The specific activities under this component are as follows: hill dams (retenues collinaires) (where the height of the dam does not exceed 15 meters); water points; rehabilitation of springs; and shallow (30 - 50 m) and deep (50 - 100 m) wells. -9-  A hill dam will be subject to several conditions for the associated investments to be authorized by the Bank: a Compliance with safeguards related to safety of dams (OP4.37) where necessary; o Prior environmental impact studies; and o Prior establishment and training of water users associations (WUA). Depending on the scale of the operation, WUA would also be required for deep wells. Complementary water saving irrigation equipment, such as drip irrigation systems, will be financed under the ongoing PNDAR/FNRDA activities. Component 4: Support for the Central Project Management Unit (Cellule Centrale de Gestion du Projet - CCGP) and Wilaya Coordination and Management Units (Cellules de Coordination et de Gestion de Wilaya - CCGW) (Total Cost US$ 4.6 million; US$ 3.2 million Bank financing) This component covers diverse activities such as training for DGF staff, required studies, consultant services for M&E, and equipment and vehicles for the project management and implementation structure. The two important elements of this component are the training in participatory approaches for project staff and the independent M&E. These two activities are recent innovations for the DGF which are also having wider effect in other MADR projects. Specific activities will entail the following: (i) training activities such as participatory approaches, with a special perspective on gender-specific issues pertaining to women, targeting both male and female DGF staff; project management; information technology (IT), technical forestry subjects, etc.; (ii) studies such as the baseline survey, technical and environmental studies for water resource mobilization and rural road activities and marketing and socioeconomic impact; Monitoring and Evaluation (M&E) which will be carried out by independent consultants in a manner complementary to project implementation; and (iii) equipment comprising computers; office equipment, and vehicles. Component 5: Institutional Development for the Ministry of Agriculture and Rural Development (MADR) (Total Cost US$ 4.5 million; US$ 3.5 million Bank financing) During sectoral strategy discussions in the context of the new CAS and during project preparation, complementarities between some of the PNDAR and the two Rural Employment Projects objectives and instruments were noted in areas such as production diversification, protection of natural resources and water resource mobilization. Hence, a broader Institutional Development component for MADR was developed, targeting both the broader areas of policy design and implementation and M&E of development programs, and the specific context of the project area. For the project area, the focus would be on the cornplementarities between wilaya (govemorate) level agencies, namely, the CDF, the DSA, and the Wilaya Water Directorates (Directions Hydrauliques de Wilaya - DHW), providing them with adequate training and/or equipment to ensure effective support to the collaborative project efforts in areas such as extension, facilitation of credit applications, etc. On the general focus of the Institutional Development component, a significant part of the resources would be allocated to training programs targeting the decentralized administration. This training would facilitate capacity development in implementing market-oriented rural development programs, giving authority and responsibility to regional and wilaya staff through diverse tools such as participatory approaches. - 10 -  The Institutional Development activities for MADR comprise the following: training for the central and decentralized administration on rural development strategies; impact assessment of development policies and policy analysis instruments; M&E instruments and methods, and pilot integrated rural development projects for training purposes. The Institutional Development activities will also incorporate gender-specific matters focusing on women and targeting both male and female staff. ,Indicative Bank- % of Component Costs %,of financing Bank- (US$M) Total (US$M) financing Erosion control measures 50.17 35.1 40.14 42.3 Agricultural development 66.72 46.7 34.44 36.3 Water resource mobilization 15.51 10.9 12.40 13.1 Support for the CCGP and CCGW 4.61 3.2 3.16 3.3 Institutional Development for MADR 4.47 3.1 3.45 3.6 Unallocated 0.46 0.3 0.46 0.5 Total Project Costs 141.94 99.3 94.05 99.0 Front-end fee 0.95 0.7 0.95 1.0 Total Financing Required 142.89 100.0 95.00 100.0 2. Key policy and institutional reforms supported by the project: There are no foreseen policy issues that would need to be addressed in the context of the present project. As indicated above, the policy dialogue for the agricultural sector will be carried out in the context of the preparation the CAS, as well as the Agricultural Sector Strategy Note planned for FY03. The Institutional Development component for MADR will be a critical instrument and serve as a basis for the sectoral policy dialogue by providing specific studies on strategic and policy issues. The following actions concerning institutional and implementation matters have been adopted in the case of the ongoing Rural Employment Project (Loan 4143-AL) and have also been agreed upon with the Borrower for the proposed Project. * Investments in hill dams will require prior engineering studies, including social and environmental impact assessments and the creation of Water Users Associations (WUA) to undertake O&M responsibilities. * Investments in rural roads will require prior engineering studies, including social and environmental impact assessments. * Beneficiaries will contribute a certain part towards the costs of on farrn-investments through labor or means of production, at the rate of 50 percent of labor costs for planting fruit trees and grapevines and 30 percent of the labor costs for destoning. * There will be no force account implementation. Procurement of goods, works and services will be based on competitive procedures in which both private and public enterprises can participate. * Monitoring and Evaluation will be undertaken by independent consultants, based on TOR to be agreed upon at negotiations. 3. Benefits and target population: The project is expected to generate significant economic, social, environmental and institutional benefits. These benefits would accrue at the national, regional and local levels. Economic benefits. Benefits generated would be in the form of: (i) increased rural employment, about - 11 -  36 thousand person-years of direct employment and a significant amount of indirect employment; (ii) diversified and increased agricultural production; (iii) higher incomes and asset values for poor rural households; and (iv) higher levels of private sector activity. Other economic benefits would arise from the improved infrastructure which would increase local community access to basic social services. Although more difficult to quantify, economic benefits will also arise from the protection of agricultural land and other natural resources through the implementation of soil and water conservation activities. Social benefits. The project aims to create an enabling environment conducive to participatory, inclusive and gender-balanced development, an outcome which is primarily social in nature. Social benefits will accrue at the individual and community level. At the individual level, benefits will accrue from beneficiary participation in project investments. Social benefits will accrue to community groups from improved basic infrastructure and social services. In addition, local community participation will improve the communication between the Administration and the population which should result in improved targeting and higher degree of integration of all sectors of the population, including women, into the social and economic life of the communities. Furthermore, local community participation will result in more pertinent interventions and more appropriate methods in the design of development programs, increasing the impact and efficiency of public expenditures. This approach will also increase local community ownership of interventions, leading to sustainability of investments made. Environmental benefits. A large part of the project activities are targeted to reducing soil erosion and improving natural resource management. The use of improved and sustainable techniques in agricultural production, natural resource and forestry management will significantly improve the status of these scarce resources in a zone where degradation is a serious problem. The environmental benefits go beyond the immediate intervention zone as the effects also accrue to adjacent areas as well as downstream of watersheds treated. As such, environmental benefits from the project are expected to be significant. Institutional benefits. DGF. Institutional benefits will accrue at the national, regional and local levels. At the national level, benefits will accrue from the institutional strengthening activities, such as training which should contribute to improved planning, implementation and M&E competence in DGF. With some adaptation, positive lessons learnt from the present and the previous Rural Employment Projects can also be replicated nationally, as the ongoing project has already inspired and served as a model for part of the programs under the PNDAR. The improved efficiency in the implementing agencies resulting from the institutional strengthening activities should translate to cost effectiveness in the project executing agencies, and hence in improved development impact. At the regional and local levels, benefits will accrue to the decentralized implementing offices through their participation in training and capacity building measures. These activities target the three principal wilaya level agencies which will have a role in the project: the CDF, DSA and DHW. Essentially, the process entails a transition from centralized implementation to one where the central administration focuses on strategic development, policy analysis and M&E, while actual implementation is decentralized to wilaya level administration and below. In this context, the regional and local levels will benefit from capacity building activities targeted to increase decentralized implementation efficiency, a key prerequisite to increasing local community participation. Another important benefit at the regional and local level will be the skills gained in the development and use of participatory approaches to improve the potential for sustainability in investments made. Additional benefits at the local level will accrue in the context of private sector development (PSD) as private SME participate in the implementation of project activities. Institutional Development for MADR. There are close linkages between the PNDAR and the proposed - 12 -  and ongoing Rural Employment Projects, and the PNDAR is an integral part of the PSRE. The proposed Rural Employment Project will play a critical role in the implementation modalities of the Govermment programs in agricultural and rural development, namely the PDAR being prepared with a mise en valeur en proximite perspective. As a consequence, in the context of the sectoral strategy and the CAS dialogues, meetings have taken place to identify issues and constraints in rural development. Based on this continuing dialogue, a Institutional Development program was developed for MADR (cf. Project Files). The benefits of the Institutional Development program will arise on the national scale and will entail: (i) improved strategy design and policy analysis based on sound information at the level of the central administration; (ii) improved M&E of the impact of the development programs and policies; and (iii) improved implementation capacity at the regional and local levels through focused training programs. Target Groups The target group is the population in specific communes in the mountainous areas of the wilayate of Tiaret, Tissemsilt, Chlef, Ain Defla, Medea and Bouira. The population in these communes is 1.2 million, in 92,000 households. The project zones extend eastward from the ongoing Rural Employment Project (Loan 4143-AL) in Northwest Algeria towards the north-center of the country and cover 1.4 million ha. Specifically, the project zones are: (i) Zone 1: Monts de Gargar and Monts de Frenda (watershed of the Mina river) in the wilaya of Tiaret and Monts de l'Ouarsenis Sud in the wilaya of Tissemsilt; (ii) Zone 2: Monts de Dahra and Monts de l'Ouarsenis occidental in the wilaya of Chlef and Monts de l'Ouarsenis Nord in the wilaya of Ain Defla; (iii) Zone 3: Monts du Titteri occidental and Monts du Sersou in the wilaya of Medea and Monts du Titteri oriental in the wilaya of Bouira. The project targets rural areas which have a high incidence of poverty. The project zone is charactenzed by mountainous isolated areas with sloped, vulnerable lands, with high degree of erosion due to the severe droughts, under-exploited water resources and the over-exploited natural resources. The degree of vulnerability of the local populations is high as a consequence of their isolation and remoteness, lack of access to sustainable economic opportunities, lack of access to social services, and the current conjuncture. Tie social analysis undertaken during project preparation has identified the following vulnerable groups: * Agro-pastoralistfarmers with a low asset base include owners of small landholdings, owners of land under joint property rights (indivision), tenants on marginal lands, and small landholders without official deeds of their property. These farmers behave in a risk averse manner, which is reflected in the cultivation of traditional crops with low market risks (e.g., subsidized cereals or barley as feed) and livestock production. * Rural landless are unskilled workers who do not have access to land and who depend on seasonal demand for labor in agriculture and in rural informal, small-scale industries and services. The landless rural workers are vulnerable to fluctuations in the demand for labor, wage rates, and food prices. * Agro-pastoralistfamilies who have been displaced due to difficult conditions, which have resulted in an exodus in search of better living conditions in other douars (villages) of the project areas. * Young unemployed with low educational status, who suffer from high income instability due to their reliance on casual labor contracts and often have no choice but to abandon rural areas and move towards urban areas. - 13 -  o Women from low-income households. Within this category, three main groups of women seem to be particularly vulnerable: women-headed households, particularly widows (women-headed households tend to be smaller than male-headed households, and thus, possess less available labor for farm work.); married women, whose ascribed gender role of food and care providers combined with demands for family labor in the farn household economy results in heavy workloads and severe time constraints; and, young girls whose low educational status restrains their access to labor market opportunities. For the institutional development activities, MADR and DGF staff, as well as the beneficiaries are targeted, focusing on participatory approaches and an improved performance of the MADR structure, particularly at the decentralized levels. 4. Institutional and implementation arrangements: Implementation period: Five and a half years (last six months for ex post assessment). Executing agency: General Directorate of Forestry (DGF) of the Ministry of Agriculture and Rural Development (MADR) for the first four components (Erosion Control; Agricultural Development; Water Resource Mobilization; and Support for the CCGP and CCGW) and the Directorate of Investment Programming and Economic Studies (DPIEE) of the MADR for the fifth component (Institutional Development for the MADR). The project will use the same implementation design as the ongoing Rural Employment Project (Loan 4143-AL), with minor modifications. The staff of the CDF in charge of implementing the ongoing project met with the staff of the CDF in the proposed project and discussed organizational issues, among others, in the context of lessons leamt. In addition, the Conservateurs of the proposed project have had a field visit to observe implementation of the ongoing project in September 2002. This implementation design maintains the basis of the decentralized DGF structure, which devolves responsibility for day-to-day management of project activities to local levels of the wilaya level organization: o Central level. A central project management unit (CCGP) within the DGF would be responsible for overall project coordination and administration, including project accounting and disbursement; management of the project special account; and ensuring timely audits and M&E (see below). It would also be the principal interlocutor of the Bank on procurement matters, periodic progress reporting, etc., in accordance with procedures agreed upon at appraisal and integrated into the PIM, similar to those used in the ongoing Rural Employment Project. CCGP staff will entail a multidisciplinary team comprising a project manager (Chef de Projet), a forester/agronomist (to be nominated), an economist, a sociologist and an accountant responsible for procurement and financial management. There will be close coordination with the Project Management Unit (CGP) of the ongoing Rural Employment Project. o Regional level. The DGF's Directorates (CDF) in each wilaya will be responsible for project implementation, which will be coordinated by a wilaya level project management unit (CCGW) under the responsibility of the Director (Conservateur) and headed by a unit chief (Chef de Cellule). The CCGW will have technical expertise, staff responsible for procurement and financial management, staff in charge of the integration of rural women in project activities and office staff. Specifically, CCGW will execute the annual programs and coordinate project actions in the respective wilayate at the level of the perimeter (see next point); manage the human, financial and material resources at the wilaya level, including procurement for works; and - 14 -  coordinate the M&E of project performance at the wilaya level, through supervising each perimeter. The CCGW will be responsible for liaison with the DGF hierarchy as well as public and private agencies or organizations (Chambers of Agriculture, NGO, cooperatives, Directorates of Agncultural Services - DSA, Directorates of Water Resources-DHW, extension agents, etc.). * Communal level. Groups of 6-12 contiguous communes in the project area will be organized into Penmeters (Perimetres) under a Chef de Primetre. The Perimeter will be the basic unit for project implementation and interface with the communities, with support from the CCGW staff. The Perimeter will be responsible for the physical monitoring of project activities as well as the linkages with the communities. The Perimeter staff will comprise the technical DGF staff at the circonscription (commune) level. * For the Institutional Development component for MADR, the implementing agency will be the Directorate of Investment Programming and Economic Studies (DPIEE) of the MADR. However, to facilitate processes and take advantage of the experience of the DGF, procurement will be managed by the DGF, while DPIEE, through the services of a consultant, will be in charge of developing the TOR for the various institutional development activities under the component and supervise and coordinate the products. At the perimeter level, commune level DGF field staff will work directly with beneficiaries at the grass roots douar level, using participatory approaches in implementing the project. This process will enhance bottom-up flows that will affect project activities. In order to ensure that the project reaches out the intended beneficiaries, specific targeting criteria have been incorporated in the project design (See Annex 11 on Social Assessment). The use of a double approach to beneficiary targeting (self-targeting mechanisms and direct targeting by the DGF staff) will allow vulnerable groups to be the main beneficiaries of project interventions. All DGF field agents who will be involved in project implementation will receive training on participatory and gender-sensitive approaches that will help them build effective partnerships with the project beneficiaries. Within the above decentralized management framework, project activities would be executed mainly by local private and public enterprises through competitive processes. Force account will not be used. Maintenance of investments on private lands will be the responsibility of the beneficiaries themselves. For certain water resource mobilization activities, water users associations (WUA) will be established to manage and maintain the water infrastructures through a cahier de charges. The Project organization descnbed above is in place, with all but a few staff remaining to be nominated. Some of these staff have already benefited from ongoing training in participatory approaches and project management. They have also been actively involved in project preparation activities. One area which needs to be improved upon is the identification, recruitment and maintaining of effective female staff who will be the main counterparts of women beneficiaries. The inherent difficulties reflect partly the social and cultural context and are expected to be resolved gradually during project implementation. Project organization will reinforced with diverse training activities for project management, M&E, gender issues, participatory approaches, technical training, IT training, etc., and be equipped with vehicles and office equipment. The responsibility for the financial management of the project for the first four components of PER2 will be with the DGF, and for the fifth component will be with the DPIEE. The financial management system at the implementing agencies is based on principles and procedures defined by the legal framework applicable to the public sector which follow strict enforcement procedures through formal stages of expenditure (commitment, service delivery, payment order, and payment). The financial management system, which is summarized in Annex 6b and detailed in the PIM, is adequate and meet the minimum - 15 -  accounting and reporting requirements of the Bank for accounting and reporting. Both the DGF and each of the six CDF will incur project expenditures, and approve payments following the budget execution processes that are in line with the prevailing laws and regulations in Algeria. The Banque Alg&rienne de Developpement (BAD) and its regional offices acting both as the financial controller (Contr6leur financier) and the public treasurer (Tresorerie Publique) will be responsible for control of expenditure and making payments. On a centralized basis, at the DGF, the CCGP will be responsible for accounting, record-keeping and reporting functions. The CCGP will undertake all the required administrative functions relating to the budget at the central level at the DGF. In this connection, the CCGP's financial management functions will be integrated with the already existing structures at the DGF. CGP will consolidate financial records from the CDF as part of its coordination function. At the decentralized level, in each of the six CDF, the Coordinators will keep the accounting and financial recording of the transactions on a contract-accounting basis similar to the one that is already in use for the ongoing PERI. With respect to fifth component which will be managed on a centralized basis, the CCGP will perform the same functions for the DPIEE. The CCGP will also be responsible for the preparation of the quarterly Financial Monitoring Reports (FMR) and the annual Project Financial Statements (PFS). The content and format of the FMR have been discussed and agreed upon with the Borrower and this will be documented during negotiations. The PFS will be audited by auditors acceptable to the Bank. Project organization charts and job descriptions for different levels of project management are available in Project Files. D. Project RationaDe 11. Project alternatives considered and reasons for rejection: Unemployment and poverty continue to be a crisis in rural areas. The ongoing Rural Employment Project (Loan 4143-AL) has demonstrated the effectiveness of a flexible decentralized participatory development approach in addressing this crisis and has created 23,500 person years of employment in less than five years of implementation. It has also addressed diverse issues of soil erosion, asset creation and private sector development directly and indirectly. Hence, the same project modalities were chosen to continue to benefit from the experience gained. In developing design alternatives, the option of establishing of a Social Fund could have been considered. This approach has worked well in other countries, and was also effective under the First Social Safety Net Project (Loan 4006-AL), with an extra-budgetary financial system. However, this structure has met with administrative difficulties. The proposed Second Rural Employment Project would thus rely on conventional delivery mechanisms, as is the case under the ongoing first Rural Employment Project. The proposed project also offers an alternative to classical support mechanisms targeting the poor areas in Algeria. This has been guaranteed minimum cereal prices by the Government, without any differentiation by region, agro-ecological zone, or farm size. While this policy would have provided incentives in high potential cereal areas, in the low rainfall and low potential areas, it essentially served as a social transfer mechanism. Furthermore, by encouraging area expansion in good rainfall years, it had the adverse effect of opportunistic cereal cultivation in vulnerable marginal areas of pastures, steppes and sloped mountainous zones. For the mountainous areas, the project supports asset creation, namely planting perennial fruit trees and grapevines for product diversification and to increase income flows as an instrument to address poverty and unemployment issues. - 16 -  Finally, even though unemployment issues are prevalent over the country, it was decided to maintain a regional approach in order not to diffuse effort and resources over wide and discrete areas. Hence, the Project focuses on a relatively contiguous area in north-central Algeria, neighboring the areas of the ongoing project, allolwing this proximity to create synergy and the possibility to share experiences. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project (PSR) Ratings (Bank-financed projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) The Project aimed mainly to promote Research and Extension S S improved natural resource Loan 3216-AL management through research and extension. It was restructured to take into account the problems faced in the research component. The extension component made marginal progress. (Closed: 12/31197) The Project supported, among other Sahara Development U U objectives, natural resource Ln. 3405-AL management and protection of the fragile resources in the south of Algeria. The Project met its development objectives only partially. (Closed: 06/30/98) The Project served the objective of Forestry and Pilot Watershed U S natural resource management and the Management protection of the environment. The Loan 3487-AL watershed component faced problems due to preconditions related to training in participatory approaches. With some restructuring, the project met some of its objectives. (Closed: 12/31/98) The Project aimed to generate Social Safety Net S S employment and improve Loan 4006-AL infrastructure in a disadvantaged areas. Although the loan was not fully disbursed, the number of jobs created under the labor-intensive public works exceeded projections (24,500 person-years of employment created as opposed to a target of 20,000 person-years.). Closed: 03/31/01) - 17 -  The Project aims to assist the Low Income Housing S S Government of Algeria to improve Loan 4361 -AL living and housing conditions. It has environmental and social policy components that are in urban slums and low-income areas with high incidence of poverty. The project objective is to assist the Industrial Pollution Control S S government of Algeria in reducing Loan 4034-AL pollution, which causes ecological degradation. It initiates a program in the industrial sector of Annaba for mitigating the adverse environmental and health effects of pollution. The Project intends to generate rural Rural Employment S S employment in poor areas of northwest Loan 4143-AL Algeria, using the instruments of natural resource management. It emphasizes asset creation with the purpose of increasing labor productivity in a sustainable manner. Other development agencies This is a Project that has taken place in Oued Mellegue (IFAD) the East of Algeria. While there was progress on the ground, there were disbursement delays due to procedural reasons. (Closed.) The project focuses on the watershed River Safsaf Watershed of the Zardesas Dam and has become Management Project in the effective on February 18, 2003. Mountainous Zones of Skikda. (IFAD) The project is being prepared and has Integrated Watershed been identified in September 2002. Management in Msila (IFAD) 1P/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The ongoing Rural Employment Project (Loan 4143-AL) has produced considerable experience, both positive and negative, from which important lessons can be derived. These experiences are being assessed in a systematic manner by the Borrower, through the services of the independent consultants in charge of M&E and have been utilized during project preparation. Conceptually, Bank experience with rural development projects using participatory approaches, such as the North-West Forestry Development projects in Tunisia, have also borne evidence and provided guidance on project design matters with respect to technical and social issues. Some of the lessons derived are summarized below: - 18 -  Institutional * Decentralized and flexible project implementation increases ownership among implementation staff. Participatory approaches improve communication between administration staff and the close and open dialogue between the administration and the communities lead to increased trust, confidence and effective results. The use of these dynamic methods has caused a profound change in mentality at both the central and decentralized levels of the DGF. As a result, PER2 staff in the six wilayate were actively involved in the preliminary survey that was carried out and were able to see the benefits of working closely with communities. Training is planned under PER2 for such methods. * It is important to have a motivated and efficient banking system to facilitate smooth procurement and disbursement. Project implementation experienced delays resulting from slow transfer of funds and payments to the executing umts, which was compounded at the level of the local offices of the Banque Algerienne de Developpement (BAD). As a mitigating measure, the ongoing project shifted to a direct credit de paiement (CP) system which will also be used in the proposed project. Project design * Flexibility must be built into project design, particularly when implementing a project in areas where there are problems due to the current conjuncture. A flexible design allowed the implementing agency and the Bank to adjust the implementation program without causing serious delays. Flexibility also allows the inclusion of changing perspectives of the beneficiary communities. * Impact on poverty reduction and implications for targeting. The project requirement of beneficiary contribution to costs through labor input has proven to be an effective self-targeting mechanism. Poor farmers are willing to offer family labor as part of investments in productive assets financed by the project. Yet, in some cases, owners of medium-size holdings also benefited from the project. In order to ensure that the typical profile of project beneficiaries remains the rural poor, a two-pronged approach to beneficiary targeting will be used, combining self-targeting mechanisms with direct targeting by the DGF field staff based on direct observations on beneficiaries' assets and livelihood strategies.