Malawi - Fisheries Development Project

Document of The World Bank FOR OFFICIAL USE ONLY -_ /C- ' - / fi /' /'X/ Report No. P-5409-MAI MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 6.2 MILLION (US$8.8 MILLION EQUIVALENT) TO THE GOVERNMENT OF MALAWI FOR A FISHERIES DEVELOPMENT PROJECT FEBRUARY 25, 1991 This document has a rtstricted distribution and may be used by recipients only in the performance of their official duties. Its contents mat not otherwise be disclosed without World Bank authorization.  Currency and Equivalent Units Currency Unit = Malawi Kwacha (HK) US$1.00 tMK2.8 HK1.00 = US$0.36 Abbreviations EEC European Economic Conmunity FAO = Food and Agricultural Organization FD = Fisheries Department GDP Gross Domestic Product GOM = Government of Malawi GTZ = Deutsche Gesellschaft fur Technische Zusammenarbeit GmbH ICEIDA Icelandic International Development Agency IDA = International Development Association MALDECO Malawi Development Corporation NDF Nordic Development Fund ODA = Overseas Development Administration TUNDP = United Nations Development Program Fiscal Year Government: April 1 - March 31 FD: April 1 - March 31 This report is based on the findings of an appraisal mission which visited Malawi in June, 1990, comprising Messrs/Mimes. N. Okidegbe, Sr. Fin. Analyst (Mission Leader and principal author); S. Thillairajah, Prin. Fin. Analyst (Institution Specialist); B. Bagdjortsson, Fish Biologist; M. Eseonu, Economist; K. Fisher, Aquaculturist; B. Jensen, Fish Processing Specialist; P. Melchiori, WID Specialist. Messrs. E. Loayza (AGRPS) and G. Van Santen (EUTAG) reviewed project design as Lead Advisor and peer reviewer respectively. Ms. P. Mehrdadi provided secretarial support in the preparation of the report. Mr. R. Ali and Mr. S. Denning are the managing Division Chief and the Department Director, respectively for the operation.  FOR OFFICIAL USE ONLY MALAWI Fisheries Development Project Credit and Proiect Summary Borrower: Goverrment of Malawi Beneficiaries: Fisheries Department (FD), Malawi Development Corporation (MALDECO), Semi-Commercial Fishing Operators, Women's Groups, and Artisanal Fishermen. Amount: SDR 6.2 million (US$8.8 million equivalent) Terms: Standard IDA terms, with 40 years maturity Financing Plan: Local Foreign Total -(US$ Million)- IDA 4.4 4.4 8.8 NDF - 3.5 3'5 ICEiDA 0.4 0.6 1.0 GOM 1.1 - 1.1 MALDECO 0.6 - 0.6 Beneficiaries 0.5 0.5 Total 7.0 8.5 15.5 Economic Rate of Return: Total Project 202 Artisanal and Semi-Commercial 18? MALDECO 40% Staff Appraisal Report No.: 9086-MAI Map: IBRD No.: 22693 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bar.. au-irtrization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO MALAWI FOR A FISHERIES DEVELOPMENT PROJECT 1. The following memorandum and recommendation on a proposed Credit to Malawi for SDR 6.2 million (US$8.8 million) are submitted for your approval. The proposed credit would be repayable over 40 years including a grace period of ten years, at the standard IDA terms. It would help finance a program to improve the efficiency and management of Malawi's fishery resources. The Project would be co-financed by Nordic Development Fund (NDF) for US$3.5 million equivalent and Icelandic International Development Agency (ICEIDA) for US$1.0 million equivalent. 2. Back2round: Malawi is land-locked and resource-poor with a narrow economic base and high vulnerability to external shocks. During the 1960s and 1970s, the economy experienced an annual growth rate of over 5Z. However, such strong growth came to a halt in the late 1970s when the country faced a combination of trade, high interest rates and weather- related shocks. In the mid-1980s, the economy experienced another shock from the civil war in neighboring Mozambique which increased freight costs and resulted in about 800,000 refugees streaming into Malawi. To address the deterioration in the macroeconomic balance caused by this chain of events, the Government undertook broad-based structural adjustment reforms throughout the 1980s. These reforms as well as improvements in short-term economic management helped to create a stable macroeconomic environment. After negative growth in 1986 and 1987, GDP (at market prices) grew at 3.3? in 1988 and 4.3? in 1989, restoring per capita GDP growth to a positive level. Inflation decelerated sharply from an average of about 30? in 1987- 88 to 162 in 1989 and the fiscal deficit has been brought under control, resulting in net negative domestic credit financing since 1988-89. In spite of the breadth of policy reforms and the restoration of macroeconomic stability, significant structural weaknesses that impede development of sustainable supply response remain. The productivity of the economy is low while poverty and malnutrition are pervasive, particularly among the rural population. A substantial proportion of the population lives below the poverty line. The GDP per capita is about US$160 (1989) which makes Malawi one of the world's poorest countries. 3. Agriculture continues to be the backbone of Malawi's economy. It accounts for about 35% of GDP, 90X of export earnings and 852 of employment generation, and provides inputs for about two-thirds of the manufacturing sector. However, agricultural productivity remains low as a result of limited adoption of improved technologies, reduction of farm size because of rapid population growth, and deterioration of land fertility. This has led to domestic food security concerns. Fisheries, which is an important sub-sector of agriculture, makes a significant contribution to the country's food security and supplies about 75? of the total animal protein intake of the population. The fisheries sub-sector provides direct employment to more than 30,000 artisanal fishermen and about 2,000 workers in semi-commercial and commercial fisheries activities. In addition, more than 200,000 people derive their livelihood from related activities such as fish processing, marketing, boat building and repair, engine repair and fishing gear supply. Malawi has a potential for sustainable fish  production of 150,000 ton/year, while the recent production levels have been around 80,000 ton/year. 4. The Government's objectives for the agricultural sector, of which fisheries would continue to be a very important sub-sector, are to promote economic growth, raise rural incomes, ensure food security, and increase export earnings while conserving natural resources. The development of the fisheries sub-sector is an essential part of Government's strategy for achieving these objectives. Specifically, as indicated in the Statement of Development Policies (1987-96), the fisheries sub-sector objectives are to maximize sustainable yield from fish resources that can be economically exploited from national water bodies without environmental degiadation; improve the efficiency of fish exploitation, processing and marketing; create additional off-farm employment; promote investment in viable rural fish farming units to improve nutrition and increase protein intake in rural areas; develop new aquatic resources for fish farming; and protect endemic fish fauna. These objectives are being pursued through government programs undertaken with support from several donor agencies (FAO, UNDP, GTZ, ODA, and EEC) aimed at: a) promoting private sector involvement in fish production (almost all aspects of fish production are being privatized with the exception of boat building and ice making); and b) assisting Government activities in monitoring and regulating the exploitation of fish fauna from all national waters on a continuing basis, promoting aquaculture development as a means of raising rural off-farm incomes and increasing the supply of fish in rural areas; undertaking a program of research to identify and assess underutilized fish resources; disseminating research results to improve fishing, fish handling and processing techniques; and developing the institutional capacity of the Fisheries Department (FD) to focus on its regulatory mandate. 5. In spite of Government's programs, the development of the fisheries sub-sector has been impeded by some major constraints identified by the Government and IDA in collaborative studies of the sub-sector. Firstly, FD, which is responsible for implementing government programs and policies, and regulating the fisheries sub-sector, is under-funded and lacks the capacity, skilled manpower and infrastructure to carry out effective research, provide extension services, undertake resource management and monitoring and evaluation, and enforce fisheries regulations. FD is currently involved in such activities as boat building and ice making for which it lacks adequate managerial or technical capacity. These activities should be streamlined and commercialized or privatized. Secondly, about 90? of all fish landings in Malawi come from the traditional/artisanal sector which uses dug-out canoes or small plank boats. These require replacement with improved boats using plank wood and/or other materials, thereby minimizing environmental damage caused by cutting indigenous wood for dug-out canoes. The performance of semi- commercial and commercial fisheries is also sub-optimal because of poor maintenance of boats, inadequate landing jetties and boat moorings, and the poor condition of pair-trawler units fishing on Lake Malawi which are in need of rehabilitation or replacement. The sole commercial fishing company (MALDECO) is run-down and requires substantial reinvestment in vessels and shore installations. Finally, Malawi's lakes risk degradation from pollution caused by soil erosion and agricultural chemicals such as  fertilizers unless an appropriate lake resource management program is undertaken. 6. Lessons Learned from Fisheries Protects: IDA has financed many fisheries projects. The lessons learned from these projects indicate that inadequate project design, weak institutional capacity and unrealistic project scope adversely affect project performance. These factors were taken into consideration in the design of the proposed Project. The Project design is simple, the institutional capacity would be strengthened and the project scope is focused on a few essential activities. In addition, up-front actions were carried out before project approval and a mid-term project review is included to handle issues arising during project implementation. 7. Rationale for IDA Involvement: Support for the fisheries sub- sector development is an important element of IDA's assistance strategy in Malawi, which is aimed at fostering economic growth, food security, poverty reduction, and protecting the natural resource base. Under the proposed Project, IDA would assist Government in marshalling international support to address Malawi's broader environmental concerns and complement Government efforts designed to establish an effective fisheries resource management program, including monitoring, control and surveillance systems. IDA involvement in the proposed Project is necessary to strengthen the institutional capacity for fisheries research and fish farming management to ensure sustainable resource use, carry out regulatory functions to protect water bodies, and provide support to the private sector for economically viable and sustainable production activities. The IDA initiative would also assist Government in the coordination of ongoing programs and those likely to be funded by other donors. The proposed Project complements ongoing IDA projects in the Agricultural Sector. 8. Proiect Obiectives: The Project's main objectives are: (a) to increase fish production as a means of improving nutrition and protein supply for the population; (b) to generate additional off-farm employment and income to help reduce poverty among women and the rural population; (c) to conserve the natural resource base of Malawi's water bodies and prevent environmental degradation; and (d) to improve the institutional capacity for fisheries sub-sector policy formulation, research, planning, monitoring and control. 9. Proiect Description: The Project, which would be implemented over seven years with a total estimated cost of US$15.5 million, comprises: (i) an Institution Building Component (US$7.3 million) for strengthening the Fisheries Department to enable it concentrate on regulatory functions, staff training (particularly in policy formulation, research, extension, monitoring and evaluation), and technical assistance; (ii) a Research Component (US$1.9 million) for strengthening FD's research capacity and focusing on demersal stock assessment, lake conservation and resource management program, and establishing fish farming models that would help integrate aquaculture and crop farming systems in different ecological zones using appropriate technologies; (iii) a Production Component (US$5.3 million) for rehabilitation and development of existing capture fisheries by supporting the traditional/artisanal fishermen, semi-commercial and  -4- commercial fishing activities, and establishing a pilot program to increase the involvement of women in fish processing and marketing; and (iv) an Infrastructure Component (US$1.0 million) for rehabilitation, upgrading and construction of access roads, jetties for fish landing, and shore-based facilities. Credit arrangements envisaged under the Project are consistent with Malawi's Financial Sector Strategy, and the Financial Sector operations envisaged by IDA. The Project beneficiaries would obtain credit from the financial institutions of their choice. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Malawi are in Schedules C and D respectively. A map and Staff Appraisal Report No. 9086-MAI dated February 25, 1991 are attached. 10. Actions ARreed: During negotiations, agreements were reached on the following issues: (a) a timetable for privatizing FD's commercial activities; (b) an action plan to involve women in the implementation of the fish processing and marketing pilot program; and (c) a mid-term review of the Project would be carried out by FD not later than June 30, 1995. The following up-front actions acceptable to IDA were taken by Government before Board presentation: (i) preparation of FD's manpower development plan; (ii) preparation of an action plan for reorganizing FD; (iii) recruitment of a financial and management expert; and (iv) development of a research program by FD. The condition of effectiveness is that Government would finalize a restructuring plan for the Mpwepwe boatyard and appoint its manager whose qualifications are acceptable to IDA. 11. Justification and Risks: The Project would help Malawi to increase food production from its lakes, reservoirs and river systems. The incremental fish production would enhance the contribution of the fisheries sub-sector to food security and improved nutrition, and to poverty alleviation. It would provide additional employment and income generation, particularly to rural population including women. It would promote private sector participation in the fisheries sub-sector by rehabilitating semi- commercial and commercial fisheries enterprises while reducing government involvement in fisheries operations. Furthermore, it would strengthen the capacity of FD to establish an effective resources management program, carry out regulatory functions to protect and conserve the natural resource base and prevent environmental degradation. The major risk to the Project would be FD's weak institutional capacity which, if not rectified, could slow down the implementation of the Project and the ability of FD to efficiently manage and regulate the fisheries sub-sector. This is particularly important for the protection of fish resources from over- fishing and prevention of the pollution and degradation of Malawi's water bodies. Such risk would be minimized by the planned strengthening of FD through reorganization, staff training and technical assistance. 12. Recommendation: I am satisfied that the proposed Credit complies with. the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed Credit. Barber B. Conable President Attachments Washington D.C. February 25, 1991  -5 Schedule A Paste 1 MALAWI Fisheries DeveloDment Pro ect Project Cost Summary and Financing Plan Project Cost Summanr. Local Foreign Total -US$ o00 A. INSTITUTION BUILDING 1. Management 459.1 1,051.2 1,510.3 2. Extension 693.6 589.4 1,283.0 3. Planning, Monitoring & Evaluation 131.8 170.7 302.3 4. Training 619.4 788.9 1,408.3 5. Civil Works (Office & Staff Houses) 1,122.7 573.7 1,696.4 Sub-Total Institution Building 3,026.4 3,173.9 6,200.3 B. INFRASTRUCTURE 1. Jetties 60.4 40.3 100.7 2. Access Roads 448.0 248.4 696.4 Sub-Total Infrastructure 508.4 288.7 797.1 C. RESEARCH 1. Research and Conservation 78.6 802.6 881.2 2. Aquaculture 322.3 120.5 442.8 3. Civil Works 233.5 55.7 289.2 Sub-Total Research 634.4 978.8 1,613.2 D. PRODUCTION 1. Artisanal Fisheries 92.3 439.3 531.6 2. Commercial 1,011.8 1,960.6 2,972.4 3. Semi-Commercial 71.6 382.1 453.7 4. Boat Yard 222.2 257.3 479.5 5. Pilot Women's Program 200.0 - 200.0 Sub-Total Production 1,597.9 3,039.3 4,637.2 Total Baseline Costs 5,767.1 7,480.7 13,247.8 Physical Contingencies 193.8 369.0 562,8 Price Contingencies 1,057.5 627.9 1,685.4 Total Project Costs 7,018.4 8,477.6 15,496.0  -6- Schedule A Page 2 M(ALAWI Fisheries Development Proiect Proiect Cost Sumuary and Pinancina Plan Financing Plan: Local Foreian Total ---------'US$ Million-------- IDA 4.4 4.4 8.8 NDF - 3.5 3.5 ICEIDA 0.4 0.6 1.0 GOM 1.1 - 1.1 MALDECO 0.6 - 0.6 Beneficiaries 0.5 _ 0.5 Total 7.0 8.5 15.5 t G8w_inmi  -7- Schedule B PaRe 1 MALAWI Fisheries Development Prolect Procurement Method and Disbursement Procurement Method (US$ Million) Other Donor ICY LCB Others NA Method a/ Total b/ Civil Works - 3.8 - - - 3.8 (3.4) (3.4) Goods 1.2 0.3 0.1 - 3.5 5.1 (1.2) (0.3) (0.1) (1.6) Consultancies - - 0.9 0.2 0.6 1.7 & Studies (0.9) (0.9) Training - - - 0.4 - 0.4 (0.4) (0.4) Loan Fund - - - 0.5 - 0.5 (0.5) (0.5) Incremental Recurrent Cost - - - 3.6 0.4 4.0 (2.0) (2.0) 1.2 4.1 1.0 4.7 4.5 15.5 (1.2) (3.7) (1.0) (2.9) (8.8) Note: Figures in round parentheses () represents IDA financing. a/ Financing Agencies procurement procedures will apply. bl Total Costs exclude duties and taxes except for LCB civil works costs which include taxes.  Schedule 8 Pane 2 Fisheries Develooment Proiect Procurement Method and Disbursement IDA Disbursement Amount Catesory USS Million Percentage to be Financed Civil Works 3.4 90Z of total expenditures Goods 1.9 1002 of foreign expenditures, 1002 of local expenditures (ex-factory cost) and 802 of local expenditures for other items procured locally Consultant Services 0.6 100I of total expenditures Loan Fund 0.2 1002 of total expenditures Training and Studies 0.7 1002 of total expenditures Incremental Recurrent Costs 2.0 802 of total incremental expenditures Total 8.8 Estimated Disbursement (USS Million) FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 Annual 0.3 1.0 1.4 1.6 1.3 1.7 1.0 0.5 Cumulative 0.3 1.3 2.7 4.3 5.6 7.3 8.3 8.8  Schedule C MALAVI Fisheries Develovment Proiect Timetable of Key Project Processina Events a) Time Taken to Prepare Projectt 18 months b) Project Prepared bys FD with FAOICP assistance C) First IDA Mission: November 1989 d) Appraisal Mission: June 1990 e) Negotiation: February 1991 f) Planned Date of Effectiveness: July 1, 1991 g) List of Relevant PCRs and PPARss None in Malawi but in Africa: Tanzania-PCR-FDP (Cr.652-TA) Burundi-PPAR-FDP (Cr.626-BU) Tunisa-PCR-SFP (Ln.1746-TUN)  10 - Schedule D Pare 1 MALAWI Fisheries DeveloDment Prolect Slt.s Of1 Bank Gro.p Operat tone In MALAW PF08f25 - Sannstr Stat "nt Of Loans end IDA Credits ILDA data as of 1/30101 MItS date as of 03/02J01) ...... .......... ................... ........................................... ~1~ift li US Mli on LO&n Or F, .ac Undle- Closing Credi l No Year Borrower Purpose sank IDA bura4d Ot, ... ....... .. .... .. ..... . ....... ......... ..... . .... . ....... ....... 38 Cedttals) closed 463 66 C13300-AL 1083 MALAWI EICATION V 34 00 ? 56 091301/0(R) C13430*kAL 1903 MALAWI NRIP IV 10 so s o5 09/30/i0(R) CFOOO bAL t984 MALANI H104AYS V 13 60 3 53 00130:90 C14230tAL 10W4 iALAWI HItGYY6 V 13 10 1 13 09130100 C15280- ML 1988 iALANI L.tM I IS 00 tS 52 00/30191 C154900M1L 19es MALAWI AII[ REr 23 6O 19 40 10131190 C16260WiAL 1986 PAiLAV- EXT PLtANING 1te 60 044 00/01910 C17420't1 19V7 MALAW1 LILN1 WATER (Wri 20 00 II 70 00130193 Cl7e70M1kL 1087 WVLAWI i0TICN Vt 27 00 2352 12116193 C17880-V#L 1967 MALAWI i4ALTHPP ii 11 00 5? 07 013019 C15