Malawi - Second Education Project

CIRCULATING COPY TO BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1701-MAI REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF MALAWI FOR A SECOND EDUCATION PROJECT October 30, 1975 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  Currency Unit Malawi Kwacha (MK) US$ 1 MK 0.91 1/ MK 1 US$ 1.10 1/ 1/ The exchange rate of the Malawi Kwacha is determined daily by the Central Bank to equal a weighted average of the value of the Pound Sterling and the US dollar. Above rates reflect the situation as of September 30, 1975. Fiscal Year: April 1 - March 31  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO MALAWI FOR A SECOND EDUCATION PROJECT 1. I submit the following report and recommendation on a proposed credit to the Republic of Malawi, for the equivalent of $11,6 million, on standard IDA terms to help finance a second education project. PART I - THE ECONOMY 2. An updating economic mission visited Malawi in May 1974 and its report was distributed to the Executive Directors on January 14, 1975 (560-MAI). Country data are provided in Annex I. 3. Since Independence, in 1964, Malawi's gross domestic product has grown by an annual average of 8 percent in real terms, However, with a per capita income of only $110, Malawi remains one of the poorest count- ries in the world and is included in the United Nations list of the 25 least developed countries. Natural resources are limited to moderately fer- tile soils, substantial water resources and a climate favorable to crop production. Although bauxite and coal deposits have been discovered, their exploitation has not yet been found to be commercially viable. Forests, which cover about 33 percent of Malawi, constitute the main essentially unused resource which could be exploited on a significant scale in the near future. 4. The sensitivity of GDP to changes in weather conditions has gradually been reduced since 1964, as a result of the modernization of agriculture and the diversification of the economy. At the same time, the increasing output of export crops has directly caused a comparable increase in processing, distributive and commercial activities, while higher farm incomes have stimulated the local production of consumer goods, Government policy is oriented towards rapid growth of agricul- tural production and, indeed, real per capita farm incomes rose faster during 1972 and 1973, and probably also in 1974 than incomes in the non- agricultural sectors. 5. A substantial savings and investment effort and generally effi- cient management of the economy have contributed to economic growth. At Independence, domestic savings were negligible and gross domestic invest- ment was only 8.7 percent of GDP. By 1974, domestic savings had increased to above 10 percent of GDP and gross domestic investment to 20 percent, leaving a resource gap of US$61 million. A significant improvement in the financial position of the Government has contributed to this impressive rise in savings. At Independence, the Government was able to finance only about half of recurrent expenditure from local resources, the  deficit being met by grants and loans from the UK. Between 1964 and 1974, improvements in tax administration and some changes in the tax system enabled domestic revenue to rise annually by 15 percent, in compa- rison with an average increase in recurrent expenditures of only 7 percent. Government has been able to balance its recurrent budget since 1972/73. 6. The Government increased development expenditures at an annual average rate of 17 percent from 1970 to 1974, with heavy emphasis on agri- culture and transport. Agr[culture accounted for 27 percent of expenditure in 1974 and transport for 31 percent. Several large-scale agricultural schemes providing inputs, marketing facilities, some basic infrastructure and credit, form the bulk of agricultural investment. Transport investments have included the construction and improvement of roads, particularly those opening up the central and northern regions, and the extension of the rail network, including a new link to Nacala (opening up of a second outlet to the sea) and a link from Salima to Lilongwe. For the future, agriculture is to receive even greater emphasis, and one-third of the $196 million public investment program over the next three years will be devoted to agricultural development. 7. Total investment was US$127 million in 1974 and is likely to grow by 8 percent (in real terms) until 1980. A substantial role is planned for the private sector in Malawi's future development, and private investments are expected to equal those of the public sector. Government has liberal policies to encourage both domestic and foreign private invest- ment. Domestic private capital is concentrated mainly in agriculture and small trading enterprises. Larger scale business is dominated by foreign- owned companies. 8. Whereas Malawi has benefited from a very rapid expansion of agri- culture since Independence, the room for future expansion is smaller. An annual economic growth rate of over 6 percent seems likely in the rest of the 1970's. Much of this will occur in the agricultural sector, as a result of increased production of export crops such as tobacco, tea and cotton. Small but growing surpluses of maize, pulses, groundnuts, cassava and sugar are also expected. Malawi's agricultural exports, which increased, in constant prices, at an average rate of nearly 9 percent from 1964 through 1974, are projected to rise by an average of over 6 percent annually until 1980. With the increasing investment program and growing consumer demand that can only be partly met by domestic manufacturers, it is likely that the country's import requirements will grow more rapidly than in the past. 9. Malawi's terms of trade have moved unfavorably since 1970, declining over 10 percent during 1971-73 and a further 5 percent in 1974. Payments for fuel rose by over 50 percent in 1974, with only a modest increase in volume, and the cost of other imported petroleum by-products rose substantially. Rising food import prices had relatively little im- pact on Malawi, as most food is produced locally. Overall, import prices  in 1974 were 36 percent higher than their levels in 1973. During the same period, export prices grew by only 28 percent, though all major export commo- dities benefited from higher prices. As a result of the decline in Malawi's terms of trade, the deficit on goods and non-factor services rose from $49 million in 1973 to $61 million in 1974. Capital inflow has generally been adequate to finance deficits and build up moderate reserves. 10. The current improvement in the mobilization of domestic resources (see paragraph 5) for economic development can be sustained during the rest of the decade. Public savings, which were negative until recently have begun to make a positive contribution to investment. In 1974, Malawi financed 52 percent of its investment from domestic resources; this proportion should grow to about 60 percent by the end of the decade. The external capital re quirements will, however, continue to be in excess of the foreign exchange component of projects and external aid should, therefore, also cover some local costs. 11. At the end of 1974, Malawi's external public debt totalled $320 million of which $224 million had been disbursed. Debt service in that year amounted to $14.2 million, or about 9 percent of export earn- ings. As Malawi' s need for external capital is expected to grow in the next few years, the Government may encounter greater difficulty in borrow- ing on terms as soft as those it has received in the past. Debt service is likely to increase and the debt service ratio could reach 15 percent by the end of the decade. In view of its low per capita income and the fluctuations of its export earnings, Malawi should continue to receive a substantial part of external assistance on concessionary terms. PART II - BANK GROUP OPERATIONS 12. To date, twelve IDA credits amounting to US$85.1 million have been made to Malawi. Six of these credits, representing US$42.5 million (50 per- cent of total IDA assistance to Malawi) were for projects in the agricul- tural sector, The others consist of two credits totalling US$21.5 million for highways in 1968 and 1974, two credits totalling US$12.75 million for power projects in 1970 and 1973, a US$2.0 million credit in 1974 to help finance the preparation of a proposed wood-pulp development scheme, and a US$6.3 million credit for education in 1967. 13. The proposed project would thus constitute the Bank Group's second operation in the education sector. The first project, consisted of the construction of, and the provision of equipment for, one national primary teacher training college and the provision of technical instruction facil- ities in 12 secondary schools. The project has been successfully implemented and the school premises have been in use since 1972. Savings of about US$420,000 are now being utilized to construct a post and telecommunication school to be used jointly by Malawi, Botswana, Lesotho and Swaziland. Con- struction work is on schedule.  - 4 - 14. There have been no Bank loans or IFC investments in Malawi, Annex II contains a summary statement of IDA credits as of August 31, 1975 and notes on the execution of on--going projects. Project execution is good. At the end of 1974, IDA's share in Malawi's total external debt was 22.5 percent and servicing of IDA credits accounted for 2.4 percent of total debt service. 15. Bank Group operations will continue to emphasize rural develop- ment, A second phase of the Karonga rural development program is scheduled for appraisal in October/November 1975 and we are presently assisting the government in devising a national rural development program for which we expect to recommend Bank Group financial assistance in FY78. A third power project and a water supply project for the city of Blantyre are being prepared and are expected to be presented to you in the next two years. The Bank Group is also assisting the Government in the preparation of a major pulp develop- ment project whose total cost is currently estimated at over $300 million, If it is established that the project is economically viable and satisfactory arrangements can be made for its implementation and for marketing its pulp output, and if satisfactory external guarantee can be arranged for the loan financing, we expect to recommend a Bank contribution. PART III - EDUCATION AND TRAINING IN MALAWI 16. Formal education was practically neglected in Malawi until Inde- pendence. Although the Government immediately accorded educational develop- ment the high priority it deserved, the long period of neglect is manifested in the fact that of all the Malawians who are over 40 years old, only about one percent has had as much as eight years of formal schooling, Despite this effort, only an estimated 25 percent of the population is literate. Only about 10 percent of the intermediate to high level labor foce is female. 17. A large number of primary and secondary school teachers have not received proper training and about 40 percent of secondary school teachers are expatriates. In the agricultural sector, for which several training programs have already been implemented, about 20 percent of the higher level personnel are expatriates. In order to get a more accurate picture of Malawi's future requirements for high and intermediate level manpower, the Government is conducting several manpower studies including a review of employment qualifications required for various jobs, a study of the per- formance of secondary school graduates in the labor market, and a review of the targets for secondary education growth, The Government will ex- change views with the Association regularly on the progress and results of these studies and reviews (see Section 4.02 of the Development Credit Agreement).  18. Formal schooling now consists of a five plus three-year primary education course followed by four years of secondary education and post- secondary and university courses of various durations. The formal education system is well organized and managed. Teacher training, inspection, super- vision and curriculum development programs are effectively operated. How- ever, while fifty-six percent of the primary-school-age children are enrolled in schools,the primary schools have a high drop-out rate with only forty per- cent of the pupils who start grade one completing the course through grade eight. Only four percent of the 15 to 18 year olds are in secondary schools. 19. There are several non-formal and accelerated training programs including a well-organized apprenticeship program to train farmers, craftsmen and artisans in the rural areas. However, the programs were designed and are operated by different ministries and parastatal agencies and are not well coordinated. Consequently, duplications have occurred in several areas. In order to correct these deficiencies, the Government recently appointed a National Council for Education and Training. The Council, with membership from all the relevant ministries, is now responsible for planning, coordinating and overseeing the execution of non-formal education programs. The influence of the Council is growing and duplicated programs are being consolidated. 20. To improve access to education and expand educational opportunities, the Government in 1973, adopted an eight-year (1973-80) investment program whose strategy gives priority to (a) the growth of primary education, (b) the improvement of secondary schools in the rural areas, and (c) the strengthen- ing of the various non-formal programs. The program includes: (i) Expansion and improvement of primary schools under which the Government will build replicable prototype schools in the rural areas, and provide financial assistance as well as technical guidance to villagers who will build their own schools on self-help basis; (ii) Expansion and rationalization of primary school teachers training through the construction of a second teacher training college which will later replace the existing small and inefficient teacher training institute operated by missionary societies; (iii) Expansion of the University of Malawi, the Polytechnic, the existing agricultural colleges and the apprenticeship program to meet the increasing demands for professional and technical manpower; (iv) Improvement and expansion of existing secondary schools;  (v) The introduction and sustaining of a comprehensive pro- gram of adult education through the coordination of on- going schemes and the provision of support facilities in all the districts. 21. The 1975-1980 portion of the planned investment in education is estimated to cost 20.0 million Malawian Kwacha (US$24.0 million equivalent). Of this total, several bilateral agencies are expected to provide about MK 7.6 million. Total expenditure in the education sector is projected by the Government to require about 24 percent of the recurrent budget in 1985 as compared to 21 percent at present. This level of expenditure compares well with those of other countries in East Africa with comparable GDP per capita. In view of the growth prospects of the economy, the Government should be able to meet the projected expenditures. PART IV - THE PROJECT 22. An Appraisal Report entitled "Malawi - Second Education Project", No. 877 dated September 29, 1975 is being circulated to you separately. A Credit and Project Summary is provided as Annex III, The project was pre- pared and appraised in Malawi in March, 1975. Negotiations for the proposed credit were held in Washington, D.C. from September 8 to 10, 1975. The Gov- ernment delegation was led by Mr. A.H. Madinga, Secretary to the Treasury. Project Description 23. The proposed project is part of the Government's investment program for the education sector for 1975-80. It consists of elements of the program (described in paragraph 20 above), for which the Government does not expect to be able to obtain financial assistance from other sources. The project consists of the following parts: A. The construction, furnishing and equipping of: (i) 22 new prototype primary schools which will serve as models to be replicated by local communities; (ii) 22 new rural education centers; (iii) one new teacher training college including a demonstration school, boarding facilities and staff houses; and (iv) addi- tions to seven secondary schools including boarding facilities and staff houses. B. A program to prepare future educational projects in Malawi. Detailed description of the project components is as follows:  -7- Primary Schools 24. The provision of primary school buildings is the responsibility of local communities while the Government supplies teachers and provides support- ing services such as in-service teacher training and supervision and inspection of schools. Over 2,000 schools have been built on this basis. However, be- cause of poor workmanship and the low quality of materials which the communi- ties use, the buildings are often inappropriate for educational purposes and have an average life of only about five years. In order to improve the struc- tural quality and design standards of the school buildings, the Government has decided to build, in 22 of the country's 24 districts, a model school which the surrounding communities can replicate on a self-help basis. 25. The model schools will be financed under the proposed credit. The criteria which would govern the selection of sites for the schools are satis- factory. The Government would assist the districts in replicating the models by designing and implementing a program under which each district would be supplied with a construction supervisor to provide technical guidance and with loans for the purchase of required materials. The Government would prepare and review with the Association, a plan of operations providing details of the program, including financial arrangement within one year of signing the Development Credit Agreement (Section 4.03). It is expected that over the next ten years, about 1,000 additional schools would be built around the country following the proposed model schools. Rural Education Centers 26. Non-formal rural-oriented training has suffered from a lack of coordination and inadequate attention to the requirements of adults for training in several basic rural skills. The proposed project would provide for the establishment of one rural education center in each of the 22 dis- tricts attached to the primary schools described above. Local Councils in each district would formulate guidelines under the auspices of the National Education and Training Council for the operations of the centers to support rural skill training and the ongoing government programs for literacy, public health, community development and agricultural extension services, Training needs and target groups would be identified on the basis of these guidelines. Instructors are currently being trained in a special program at the Malawi Polytechnic, In addition, local artisans would be recruited to teach at the centers on a part-time basis. Each center would be located adjacent to a primary school; it would be used for teaching practical subjects to primary school students in the mornings and to adults in the afternoons. A total of about 500 adults would be taught at each center annually. Primary Teacher Training College 27. About 20 percent of the primary school teachers are not adequately trained, Over the next ten years, it would be necessary to upgrade training  - 8 - of these unqualified teachers and train an additional 11,000 teachers to adequately staff Malawi's primary schools. To help meet these needs, the proposed project includes the construction, equipping and furnishing of a new teacher training college to produce about 200 teachers annually. A demon- stration primary school would be attached to the college. The staffing of the college would be financed by the Government with bilateral assistance during the initial years. On-going teacher upgrading programs graduate about 300 teachers annually while existing teacher training colleges graduate about 700 teachers annually. These programs would be graduating enough teachers to meet Malawi's requirements. Since the existing teacher training colleges are in the southern half of the country, the new college would be located in the northern region. This would help the Government's conti- nuing efforts to integrate the economic development of all regions of the country and open up the rural areas. Because of the sparse population of the northern region, boarding facilities for 420 students and houses for 41 staff members would be built under the project. The provision of the housing facilities is also consistent with existing Government policy under which all intermediate and high level civil servants, teachers, and other senior Government workers are provided with housing. This policy enhances teachers incentives and gives the Government a greater flexibility in assigning teachers to remote rural schools and has eliminated the need for hardship or housing allowance. Secondary Schools 28. Under the first IDA-financed education project, the Government initiated a program to introduce practical subjects in secondary schools. However, because of a shortage of facilities, the program has reached only 20 percent of the secondary school enrollment. The Government aims at in- creasing the coverage of the program to 40 percent of secondary school enrollment by 1980. The proposed project would support this effort by providing equipment and facilities for practical studies in seven secondary schools, and boarding facilities for the increased student enrollment of 1,800, and housing for the required staff. Three of these schools would be equipped with facilities for commercial training. In order to increase the number of females in the skilled labor force, six of the schools would be for girls (1,600 of the 1,800 additional places to be provided) while the seventh would be co-educational. All the secondary schools are located in rural areas and would draw students from very wide geographical areas. Each school would therefore be provided with boarding facilities for students and houses for the teaching staff. The drop-out rate from secondary schools is currently only 10 percent for girls' schools with boarding facilities and about 90 percent for those without boarding faci:Lities. Project Implementation Unit (PIU) 29. A PIU was established in the Ministry of Works and Supplies under the first IDA-financed education project. However, on completion of the project, the Unit was largely dismantled and only one architect remains.  The PIU would be strengthened and transferred to the Ministry of Education to continue the coordination and execution of investments in the educational sector. The proposed Credit would finance the services of a Project Manager, three architects, a quantity surveyor, a procurement specialist, two drafts- men and a bookkeeper. The latter three would be Malawian counterparts of the expatriate personnel. The Project Manager is expected to be a Malawian national and, along with the main architect and the procurement officer, would be appointed under terms and conditions satisfactory to the Association (see Section 3.06(a) of the Development Credit Agreement). In view of the important role of the PIU in the implementation of the proposed project, the Credit Agreement would not become effective until the PIU has been formally established and the Project Manager, project architect, project accountant and a procurement officer have been appointed to the staff of the PIU (Section 5.01 of the Credit Agreement). The Government also intends to train five Malawians as draftsmen during the next five years for the PIU and to assign to the PIU, two Malawian architects who are currently studying outside Malawi and are expected to return to Malawi in 1976. These staffing arrangements are satisfactory. Preparation of Future Educational Projects 30. As the proposed project is part of Malawi's long-term investment program for the educational sector, it i-ncludes preparation for future projects and support for the manpower studies discussed in paragraph 17 above. Project Implementation 31, The PIU would have overall responsibility for implementing all aspects of the project except the pre-investment studies. The Unit would design and supervise the construction works on all the model primary schools and the rural education centers, Consultants would design and supervise the construction of all the other buildings. The manpower studies would be or- ganized and administered by the Planning Division of the Ministry of Educa- tion. The project would be implemented over a five-year period (1975-80). Most of the model primary schools are expected to be completed within the first three years after the Credit Agreement becomes effective. A total of 12.5 man-years of technical assistance services are expected to be employed for the implementation of the project, Civil works would be undertaken by contractors. Project Costs and Financing 32. The total cost of the proposed project is estimated at US$14.5 million (net of taxes) including an estimated US$7.5 million (or about 52 percent) in foreign exchange. The breakdown of estimated project costs is given in Annex III. The proposed credit of US$11.6 million would finance  - 10 - 80 percent of the total net-of-taxes project cost and would cover the required foreign exchange and about 58 percent of the local costs. Retro- active financing of about $120,000 is recommended for consultants' services and the initial operating expenses of the PIU incurred since July 1, 1975. Procurement 33. Contracts for civil works, furniture and equipment will be awarded on the basis of international competitive bidding in accordance with the Bank's guidelines for procurement except that (a) civil works costing less than US$200,000, (b) furniture and equipment contracts costing less than US$50,000, and (c) locally procured materials will be awarded on the basis of competitive bidding advertised locally. Domestic manufacturers of furniture and equipment would be allowed a preference of 15 percent over the c,i,f. price of imports or the appli- cable customs duty, whichever is lower over the cost of competing foreign suppliers. Domestic contractors would be allowed a preferential margin of 7-1/2 percent over bid prices of competing foreign contractors, Disbursement 34. The proceeds of the proposed credit would be disbursed against (a) furniture and equipment: 100 percent of foreign exchange expenditures or 75 percent of local expenditures (estimated equivalent of the ex-factory costs); (b) technical assistance and professional services: 100 percent of foreign exchange expendittures or 75 percent of local expenditures; and (c) civil works: 75 percent of total expenditures. Benefits and Justification 35. The proposed project would provide facilities to expand and strengthen on-going educational development programs and would help meet the rapidly increasing demand for skills and qualified primary school teachers. It would extend the teaching of practical and commercial sub- jects to more primary and commercial schools, In addition, the project would reduce socio-economic disparities by increasing the enrollment of girls in secondary schools, assisting the promotion of secondary education in rural areas and, through the Rural Education Centers, by teaching rural adults the basic skills they require for productive self-employment, 36. The principal risk involved in the proposed project relates to the rural education centers which would introduce an innovative element into Malawi's educational system. Although the structure and programs out- lined for the centers have been successfully applied in other East African countries, considerable coordination among Ministries and other government agencies would be required at the District level, Some of the centers may place greater emphasis on the use of the facilities for primary school students and neglect the non-formal programs for adults. The PIU and the Association, through regular supervision missions, would work closely with the centers to minimize this risk.  PART V - LEGAL INSTRUMENTS AND AUTHORITY 37, The draft Development Credit Agreement between the Republic of Malawi and the Association, the Recommendation of the Committee provided for in Article V, Section I (d) of the Articles of Agreement and the text of a Resolution approving the proposed Credit are being distributed to the Executive Directors separately. Features of the draft Development Credit Agreement of special interest dealing with the staffing, responsibilities and powers of the Project Implementation Unit are discussed in paragraphs 29 and 30 of this Report. Establishment of the Project Implementation Unit and the appointment of the Project Manager, project architect, project accountant and a procurement officer to the staff of the PIU have been specified as additional conditions to the effectiveness of the Credit Agreement (Section 5.01 of the Credit Agreement). 38. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 39. I recommend that the Executive Directors approve the proposed credit, Robert S, McNamara President Attachments October 28, 1975  I  ANNEX I Page I of 3 Pages OOUNTRY DATA - NAIA WI AREA POPULATION ONRIXTy n6,ial, loot 8.771 mdinn (nid-1972) 102 Per ketof stable land SOCIAL INDICATORS Reference Countries Nele-l Somalia Tanzana S-aiiada ONP' PE CAPITA US$ (ATIAS BASIS) /I 19. 1005 Ia 260 Ia 12 a 60I LDEMORXAPHIIC Crude bith rate (par thousad) ..54 Z~ i6 Id 67 / ~ 52 Crude death rate (per thousad) ..28 /h 21I7W 2/e Si Infant mortality rate (per thousand live births) Ilci~ Ic 11.2 7 .. - 16o-1657 Life expectancy at birth (years) 38 - 1.1 77 hi /r 83 - 61 /f Gross reproduction rate / 3.2 3.2 /t 3.0 /f 3.2/If 3.5 If Population growth rate 2.2 2'6 r- 2. ,7; 3.07 2.9 r POPulation growth rate - urban 7/h.i 7 5 1.a Age eL-.ruour (Percent.) 0-Ih 65 u 4/ 466/h L/ 86 / 15-6L. 507 5 7-6 52 76 5376 697 65 end over 54 1T.7 27)7 37 37) Age dependency ratio/. A3.0 , C .9T.; 0.9 7)7 0:9 ~ 1.07 EConomico dependency rNtio / 1.2 7'6 l..l7' 1.3 71,.n 1 _3__ 1.2 Urban population as percent of total*..7 6/1 Fmily planniog: No. of acceptors cumulative (theus.) ... No. of users (% of married woesen) . EMPLOYMENT Tot-al labor force (thousands) 1,500 /b 2,300 /b 2,000 /q 5,600 Ie.s 180 / Percentage empl.oyed in agriculture 93 Th7 98 7)h 80 86 e. 50 T. Percentage unesplyoyd ...20 /r INCME DISTRIBUTION Percent of national. incose received by highast 5% ..2? /tu .. 36 / Percent of national intone received by highest 20% .. 6 It au . 607 Prcent of naticnal income received by lowest 20% ..10 77t u .5 7; Percoent of national incoma received by lowest 80% ..26 I 7t .t1T. 7 M0TIN