Madagascar - Agricultural Extension Program Support Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6568-MAG MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN THE AMOUNT EQUIVALENT TO SDR 16.2 MILLION TO THE REPUBLIC OF MADAGASCAR FOR AN AGRICULTURAL EXTENSION PROGRAM SUPPORT PROJECT MAY 3, 1995 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 Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Malagasy Franc (FMG) US$1.00 = FMG 4,200 (April 1995 - average 1993/94 FMG 2475) SDR1.00 = FMG 6,510 (April 1995 - average 1993/94 FMG 4000) WEIGHTS AND MEASURES Metric System ABBREVIATIONS DA Directorate for Agriculture (Direction de / Agriculture) DNVA National Directorate of Agricultural Extension (Direction Nationale de Vulgarisation Agricole) FMG Malagasy Franc (Franc Malgache) FOFIFA National Applied Research Center for Rural Development (Centre national de recherche appliquee pour le developpement rural) MEADR Ministry of Rural Development and Land Affairs (Ministere au Developpement Rural et a la Reforme Fonciere) GOVERNMENT FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY MADAGASCAR AGRICULTURAL EXTENSION PROGRAM SUPPORT PROJECT CREDIT AND PROJECT SUMMARY Borrower Republic of Madagascar Beneficiary Ministry of Rural Development and Land Reform (MEADR) Poverty Assessment Program of Targeted Interventions Credit Amount SDR 16.2 million (US$25.2 million equivalent) Terms Standard IDA terms, with 40 year maturity Financing Plan Proposed Project Financing US$ million Percent IDA 25.2 69 Government 11.5 31 Total 36.6 100.0 Rate of Return Not applicable Staff Appraisal Report 14054-MAG Maps IBRD Numbers 26873 and 26905 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 Bank authorization.   MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF MADAGASCAR FOR AN AGRICULTURAL EXTENSION PROGRAM SUPPORT PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Republic of Madagascar for SDR 16.2 million, the equivalent of US$25.2 million, on standard IDA terms with a maturity of 40 years and a ten year grace period to finance an Agricultural Extension Program Support project. 2. Country and Sector Background. Madagascar is a country with considerable unfulfilled growth potential. It has low population density, available supply of labor, good soils and climate and an environment and ecosystem attractive to tourism. However, poor economic policies since independence in 1960, coupled with population growth of about 2.8 percent per annum have resulted in the persistence of low per capita income (US$240 in 1993), making Madagascar one of the world's poorest nations. Population is about 13.0 million (1995). The economy is predominantly based on agriculture, which accounts for one third of GDP and is the main source of income for 80 percent of the population. The agricultural sector is dominated by small-scale farms which produce both for export and for domestic consumption. Agricultural products provide about 60 percent of export earnings. Major exports are vanilla, coffee and shellfish. Rice is the country's main staple. The sector supplies the primary inputs to the food and textile industries which together account for 75 percent of the value added of the industrial sector. The industrial sector (about 13 percent of GDP) is showing positive results from efforts to transform away from capital-intensive and import-substituting activities towards labor-intensive and export-oriented production. The country has significant long-term potential given its industrious labor force and abundant and wide variety of natural resources. 3. Madagascar's social conditions are below sub-Saharan Africa standards: life expectancy is about 50, child mortality claims 15 percent of live births before five and diseases are increasing; chronic malnutrition is up to 40 percent in some areas. Food security is a particularly serious problem, especially in urban areas, and has worsened over recent years due to economic decline. 4. The Economy. From independence in 1960 until 1970, Madagascar enjoyed modest growth. The trend faltered during the mid-1970s, as the country underwent a socialist revolution that resulted in authoritarian rule and dirigiste economic policies. It was not until the adoption of economic reforms in the early 1980s that a trend of contracting GDP, high inflation and domestic disequilibrium was reversed. By the late 1980s, economic progress was accompanied by political liberalization, but in July 1991, the country plunged into political crisis, which eventually led to a transitional coalition government, the adoption of a new constitution and parliamentary elections which were held in 1993. 5. While achieving a successful transition to multi-party democracy in the early 1990's, Madagascar's economy encountered difficulties. Budgetary discipline deteriorated, monetary management was lax, external arrears accumulated and GDP grew at less than the population growth rate, underscoring the need for reform. It was only in April 1994 that the Government committed itself to resume the economic reform process and took some initial steps. A floating exchange rate was introduced, import restrictions were lifted and a new value-added tax was introduced to replace a regressive indirect tax introduced in late 1993. Time was lost however in negotiations with the IMF, when some officials pursued  2 A14DAGASCAR: Agricultural Extension Program Support Project ill-advised parallel financing deals, portrayed as an alternative to agreement with the Bretton Woods Institutions. It was not until early 1995 that the government finally reached a new agreement with the IMF on a program to bring down the rate of inflation. Up-front measures under this program have been implemented including sharp price increases for energy products and increases in excise taxes. Government has also revised the 1995 budget and PIP to reflect the priority given to social investments, cofinanced social programs with external donors and begun investments to improve the environment for private sector investment. These moves have helped restore Government's credibility and prepare the ground for further IMF and Bank support and possible debt relief from the Paris Club. 6. The Agricultural Sector. Although most tropical and temperate climate crops can be found in Madagascar, only about 2.3 million ha, or about 6 percent of the country's arable land, are cultivated. Rice production is the most important agricultural activity, (41 percent of agricultural output) followed by fishing (20 percent of agricultural production). The traditional export crops (coffee, vanilla, cloves and pepper) together account for 7 percent of agricultural output. Root crops and maize contribute 11 percent. Vegetables and fruits contribute 10 percent, industrial crops 3 percent and livestock 5 percent. While agriculture and agro-industries still contribute about 60 percent to total exports, there has been a shift in the relative importance of various products. The share of traditional exports has declined to about 40 percent in 1991, while the share of non-traditional products (such as shrimps and lobsters), currently accounting for about 15 percent of total exports, has been rapidly growing by over 20 percent per year since 1986. 7. Madagascar possesses a considerable potential for agricultural growth. It has a comparative advantage in agricultural production based on low labor costs and availability of land in different ecological zones. It can produce a variety of temperate and tropical crops for the domestic and export markets. It possesses an extensive irrigation infrastructure, largely underutilized and representing an important asset to enable intensification and diversification. Moreover, crop yields are uniformly low and the potential to increase yields on the basis of known technologies is high. 8. Sustained growth of the sector has been constrained by macroeconomic policy and poor agricultural services (research and extension) to encourage the transfer of technology, the lack of reliable transport and communication infrastructure linking farmers with a market, poor control and lack of management of water resources and inadequate protection of watershed areas. Public investment in the agricultural sector has concentrated too heavily over recent years on undertaking activities which could be carried out by farmers themselves and too little on providing basic services and creating an environment to enable farmers to fend better for themselves. 9. Government Strategy for Rural Development. The Ministry of Rural Development published a policy statement in February 1994, which targets (i) the creation of an environment (economic, technical, institutional and infrastructural) to favor private economic activity in the rural areas and to optimize the conditions for savings, investment and production within the framework of economic liberalization; (ii) the redefinition of the role of the state in activities of promotion, support, coordination, monitoring and control, leaving production activities and marketing to farmers, farmers' organizations and the private sector; and (iii) the encouragement of producers to associate in order to undertake projects of common interest and to improve their collective bargaining power. The rural development strategy recognizes that effective operation of a professional agricultural extension service is an essential element to help increase incomes for rural farmers, if accompanied by appropriate pricing policies and other needed services in the sector. 10. National Agricultural Extension Strategy. The Ministry of Rural Development carried out a review of its 30 year experience with extension efforts in the country. It concluded that the multiplicity of  Memorandum of the President 3 extension projects supported by different public and non-governmental agencies have achieved only limited sustainable results, and are, as a whole, expensive. In June 1994, the Ministry announced its intention to expand the ongoing pilot effort nationwide, and to put ongoing extension activities under the umbrella of a national program. In so doing, the Ministry intends to reduce the number of costly separate efforts providing advice to a limited number of farmers. In a letter addressed to all donors in February 1995, the Ministry confirmed its national program approach and sought donor support. The Government plans to ensure the necessary coordination to bring about the integration of different individual efforts into the national program. The Agricultural Extension Program Support Project 11. Project Objectives. The objectives of the national agricultural extension program are to increase productivity and farmers' incomes in an environmentally sustainable manner and to rationalize the use of public resources in support of agricultural services. The project will fund actions in support of agricultural extension which is central to the Government's strategy to (a) reduce poverty and improve the conditions of life in the rural areas; (b) improve agricultural productivity; (c) protect the environment by making professional agricultural services available to all levels of the farming community; and (d) improve the use of scarce public resources; 12. Project Description. The project would help fund the first four years of a longer term extension program to improve agricultural advisory services in the country's twenty-eight extension districts and strengthen the training and management systems in the Ministry of Rural Development and Agrarian Reform. The main project components are: (a) Strengthening the delivery of agricultural extension services and providing support for farmers' organizations through the provision of transport, equipment, rehabilitation of facilities and incremental operating costs; (b) Improving the technical and management capacity of agricultural staff through training by the provision of equipment, supplies, facilities and transport for regular in-service training of extension staff and the rehabilitation of at least two agricultural training colleges; (c) Support for financial management, accounting and auditing, monitoring and evaluation of extension impact and regular supervision at all levels of the National Directorate of Agricultural Extension (DNVA). 13. The credit would finance civil works, vehicles, equipment, training, short term consultancy services, independent audit of project accounts, monitoring and evaluation and incremental operating costs. 14. Project Implementation. Expansion of the program from six districts to twenty-eight (national coverage) is programmed over four years. Launch workshops in each district will bring together individuals and institutions in the private or public sector active in agricultural extension, to adapt and organize extension efforts based on the particular circumstances of each district. A local and regional structure for ensuring research/extension links, support for farmer organizations, training and monitoring and evaluation will be established and a corresponding work program adopted. Formal agreements would be drawn up between providers of extension services (NGOs, private sector, parastatals) and DNVA defining the terms and conditions for the provision of extension services, where the former would substitute for direct state-provided services. The process has already begun in three new districts launched during project preparation.  4 MADAGASCAR: Agricultural Extension Program Support Project 15. Coordination with regional entities will be managed by the Deputy Director of Agriculture, specifically three central services (Extension and Research Linkages, Training and Human Resource Management and Support for Farmer Organizations), one division responsible for Administration, Logistic Support and Finance and two operational units (Internal Audit and Monitoring and Evaluation). 16. At the regional level, the head of the extension district (chef de circonscription) will be responsible for the day-to-day implementation of the program, under the auspices of the head of the provincial extension service, who in turn is responsible directly to the Deputy Director of Agriculture. Almost 3,000 field level extension staff will be involved by the fourth year of the project with the objective of making extension services available to the country's 1.5 million farm families. Extension agents will be expected to cover between 400 and 600 farm families each, depending upon local population density and constraints imposed by poor rural infrastructure and communications. Training and redeployment will be required to ensure cost-effective use of existing resources. Approximately 2,400 staff are already employed as field extension workers under the Directorate for Agriculture and in individual projects or other directorates of the MEADR. Because field staff working for parastatal organizations, or for NGOs in the rural areas would provide the complement of staff to provide full national extension coverage, no net increase in the numbers of extension staff is expected, although training should improve the quality of staff performance. 17. Project Sustainability. In 1994, the Directorate for Agriculture was responsible for the management of fourteen projects under its investment budget (PIP), either directly concemed with agricultural extension or with agricultural extension components. The total cost of these projects as reflected in the 1994 PIP was US$12.9 million, of which Government's counterpart contribution for project activities was US$2.3 million equivalent, plus salaries costing about US$1.7 million per annum. As these projects close down, counterpart funds will be released to meet the national program's funding needs. At full development, the annual cost of the national extension program would be US$7.5 million per annum, of which US$3.85 million would be recurrent costs (salaries, field allowances, maintenance and operating expenses). This will represent about 8 percent of total public expenditure for the agricultural sector in 1994, as compared to current levels of about 14 percent. The program would not represent an incremental charge to public funding (aggregate national and external funding) but would result in some savings. Over time, improved prosperity of the farming sector would permit cost recovery and increased provision of services from private sources. 18. Lessons Learned from Previous IDA Involvement. The project is based on the experience and lessons of the Pilot Extension Project (Cr. 2150-MAG), which covered 6 of the country's 28 extension districts with a farming population of 260,000. Less than satisfactory results in the first two years of the pilot project were due to: (i) a poor national coordination team; and, (ii) lack of commitment to implementing the detailed stages of an extension management approach, which although relatively new in Madagascar, had produced impressive results elsewhere. Once the new management team, appointed in 1992, had defined and applied the principles of the management system in place today, results and feedback from farmers and field staff improved significantly. 19. The pilot project demonstrated that good results can be obtained at a low cost by a large number of farmers from existing agricultural staff, using systematic work programming, regular training, and diagnosis of results between farmers and field staff. As an example, rice yields on 1,700 demonstration plots in farmers' fields, using 8-day transplanting techniques and good water control, increased by an average of almost 100 percent over control plots using traditional techniques. On more than 1,350 separate demonstration plots where the technical improvement was early transplanting (without improved water management), average yields were 53 per cent higher than on control plots. In both cases, these results were achieved through dissemination of techniques that required no cash investment or chemical inputs.  Memorandum of the President 5 The gross margins generated by application of these techniques represent approximately US$300 and US$125 per hectare respectively. About 15 percent of the farmers in the pilot areas have adopted a new technique within the past three years. The incremental production in rice alone for 1994 was about 15,000 tons or the equivalent of US$1.9 million from about 10 percent of all rice producers. 20. The pilot project has demonstrated that extension could succeed with: (a) regular and programmed visits with contact groups, thereby reducing costs, joint diagnosis of problems encountered, and the use of demonstration plots for farmers to prove to themselves the effectiveness (or ineffectiveness) of recommendations; (b) extension advice which can be readily adopted by farmers, without supplementary cash investments, to ensure rapid impact; (c) design of technical messages based on farmers' needs and (d) regular supervision to observe technical results, to assess work organization, and to evaluate the relationship between farmers and field staff. Poor coordination with ongoing projects and other extension activities in the pilot areas resulted in a misperception of the program's objectives. This has been redressed by holding "launch workshops" as the program expands into new districts. 21. Project Design and the recent OED Paper on Agricultural Extension. A recent OED study on the Bank's agricultural extension experience underlined the need for: (i) careful definition of institutions and farmers in the design of extension strategy; (ii) past support for extension and government commitment; (iii) responsiveness to the specific requirements of farmers; (iv) full involvement of clients in planning and program implementation; (v) a technology "stock" and capacity to generate new relevant technologies; (vi) adequate capacity of agencies and staff to deliver different services and the potential for private agencies to provide services; (vii) attention to gender issues; (viii) the potential of mass media to complement extension; (ix) needs-based staff training programs; (x) accountability and monitoring of service providers to clients. The proposed project is responsive to these points. Malagasy extension strategy is based on evaluation of past experience and has involved consultation between farmers, researchers, extension staff and NGOs. Government commitment has been demonstrated. Research and extension themes are identified from a joint diagnosis of problems between subject matter specialists, farmers and extension agents. Program planning and implementation has been carried out in close participation with clients. 30 percent of project preparation has been spent in the field. Over 80 simple technical messages were introduced during the past year under the pilot program. NGOs, projects and parastatals providing advisory services will select the best of available staff. Half of the key posts in the central services are filled by women (24), and female members of the staff of regional teams have played an active role in efforts to launch new districts, which bodes well for appropriate attention to gender issues. Prominence is given to on-the-job and long term training. Both internal and external monitoring of the extension delivery system is envisaged. Although use has been made of mass media during the pilot phase, no major investment is envisaged for complementary support to such activities under the proposed project. Other demands on management preclude a major effort on mass media. However, during the course of the project, proposals will be prepared for the next stage of the program. 22. Rationale for IDA Involvement. The project is closely linked with the objectives of the Bank Group's most recent Country Assistance Strategy (CAS) for Madagascar, which was discussed by the Executive Directors on July 12, 1994. The CAS indicated that the Bank Group's overarching objectives in Madagascar are to help Government promote private sector- and export-led growth, attack poverty, improve natural resource management, build local capacity, and improve project implementation. Achievement of the country's accelerated growth objective will require improved performance of the important, but underdeveloped, agricultural sector, and that the Bank's program aims to address the constraints to development of the sector through projects focused on farm support services and infrastructure. The proposed extension project fits well within this strategy. It will stimulate growth by  6 MADAGASCAR: Agricultural Extension Program Support Project increasing agricultural production, and contribute to poverty relief by increasing the revenues of the rural poor. 23. Close coordination with staff involved with ongoing IDA projects supporting manpower training (Cr. 2382-MAG), Agricultural Research (Cr. 2042-MAG), Livestock Sector Development (Cr. 2243- MAG), Irrigation Rehabilitation (Cr. 2644-MAG) and Environment (Cr. 2125-MAG) has been ensured throughout project preparation. Activities of all five projects are closely linked and will contribute to the implementation of the project. Where the Food Security and Nutrition project (Cr. 2474-MAG) provides support for agricultural production activities in the new extension districts, coordination will be ensured with this project too. 24. Actions Agreed. Agreement reached during negotiations include: (a) audit of project accounts by private audit firms recruited in accordance with Bank guidelines; (b) a draft annual work program, budget and financing plan incorporating the annual training program, details of procurement and other agreed project details would be prepared and submitted to IDA by the end of September each year; (c) Government will carry out, no later than October 31 each year, an annual review of the Public Expenditure Program for the agricultural sector. Effectiveness of the credit would be subject to the deposit of an initial amount of US$100,000 as Government's contribution to the project account. 25. Program of Targeted Interventions (PTI). Farmers (especially small farmers) are among the poorest groups in Madagascar. Ninety two percent of Madagascar's poor live in rural areas and are subject to food insecurity. Improved agricultural extension services will increase the supply of crop and livestock products. About half of the country's poor derive their income from agricultural activities, and 62 percent of the extreme poor and 65 percent of the poor obtain their income from farm revenue. The extreme poor and poor depend heavily on rice production. Almost all small farmers and large farmers primarily produce rice or other food crops, compared to 5 percent who primarily produce industrial crops. Rice production is expected to increase cumulatively by 460,000 tons by the end of Year 4, or incrementally by 30,000 tons in 1996, 65,000 tons in 1996, 140,000 tons in 1997 and 225,000 tons in 1998. 26. Environmental Aspects. In the light of the neutral or marginally positive environmental impact, the project has a category C rating. Technical recommendations will continue to include, as under the pilot program, environmental protection measures, such as the adoption of soil protection recommendations on the hill slopes and catchment areas above irrigation schemes and the integration of livestock husbandry and fertility maintenance through composting. Field staff training already emphasizes environmental conservation, which will be intensified as the program expands. An efficient agricultural extension service would be a key element of a national environmental monitoring system. The project will ensure close collaboration with the national agencies responsible for environment control and monitoring. 27. Program Objective Categories (POCs). The project supports three POCs: food security, poverty alleviation and capacity building (training farmers and field staff). Increased foodcrop production (annual increase of 225,000 tons of rice is targeted, as well as increases in root crops, fruit and vegetable and livestock products) resulting from the application of simple techniques will contribute to relieving food and nutrition problems in rural areas, where 63 percent of Madagascar's poor live. The specific investments in in-service and basic training will prepare almost 4,000 staff for the provision of more sophisticated technical services in the years to come.  Memorandum of the President 7 28. Participation in Program Design. Workshops involving representatives of research, extension, farmers' organizations and donors have been held regularly throughout the project preparation process. About one third of Bank staff time has been spent in the field during project processing. No external technical assistance has been used. 29. Project Benefits. The project is expected to result in: (i) sustained increases in the production of, and income from, crop and livestock activities through better access to improved agricultural services for a high proportion of agricultural producers (about 1.5 million rural families, of whom more than half are women) and improved extension-research-farmer linkages, with research and extension being more demand-driven and oriented to the farmers' needs; (ii) better coordination and complementarity in the delivery of agricultural services between the public and private sectors; (iii) human resource development, as a result of continuous training and education programs for farmers, herders and government staff; and (iv) greater environmental sustainability of agricultural practices. If, as expected, a number of independent extension and training projects are brought together over time to support the single national program, the use of scarce resources will be rationalized. There should be a net reduction of public expenditure in extension, resulting from the adoption of a cost-effective management system, which will gradually replace less efficient ongoing projects. Independent evaluation of similar extension systems elsewhere in Africa has demonstrated that the extension management system proposed by the Malagasy has had significant economic benefits for farners. 30. Risks. Pilot project experience suggests the following risks, but elements of the proposed project are expected to reduce their impact: (i) good management is essential to successful project implementation. The present management team has been in place since 1992, and has led the preparation of the national program. Nomination of staff for key regional posts will be closely monitored. (ii) The lack of association of other projects and local development agencies in the extension districts led to mistrust and lack of collaboration between different services. Representatives of ongoing projects, government services, NGOs and private companies involved in extension or extension support are already participating in the launch workshops organized for the new extension districts in 1994 and 1995. (iii) The shortage of counterpart funds and fiscal sustainability could pose an issue for implementation. As independent projects come to a close and integrate the national program, demand on counterpart funding will fall and the Government's capacity to fund the single national program will increase. Provision of an initial contribution of local funds will be made a condition of effectiveness. (iv) Insufficient collaboration between the research and extension services and insufficient attention to training of subject matter specialists and extension workers represent longer term risks. Monitoring of close collaboration between research and extension and programming of training will be major themes for project supervision. (v) The risk that integration of other projects into the national system may not take place, thus reducing the savings envisaged from lower demands on counterpart funds. The Government will be encouraged to continue to coordinate efforts among donors to ensure maximum support for its national policy. 31. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. Lewis T. Preston President by Richard Frank Attachments Washington D. C. May 2, 1995  8 Schedule A PROJECT COSTS AND FINANCING PLAN Estimated Project Costs a\ US$ million Local Foreign Total A. Extension, research linkages and support for farmer 18.3 10.3 28.6 organizations B. Training and Human Resource Management 2.0 1.0 3.0 C. Financial Management, Accounting and Internal Audit 0.1 0.1 0.2 D. Monitoring and Evaluation 0.3 0.2 0.5 E. Directorate of Agriculture and National Extension 1.6 0.5 2.1 Base Cost 22.3 12.1 34.4 Physical Contingencies 0.1 0.1 0.2 Price Contingencies 1.6 0.4 2.0 Total Project Costs 24.0 12.6 36.6 al Includes US$4.9 million of taxes and duties Proposed Project Financing US$ million Percent IDA 25.2 69 Government 11.5 31 Total 36.6 100  Schedule B 9 Summary of Proposed Procurement Arrangements US$ thousand equivalent Procurement Method International Local Competitive Competitive Consulting Bidding Bidding Other Services N.B.F. Total Vehicles and Equipment 15,121 471 157 - - 15,749 (11,769) (366) (122) (12,257) Civil Works 1,011 1,627 - - - 2,638 (842) (1,356) (2,198) Consultants, subcontracts and audits - - - 525 - 525 (496) (496) Training - - 921 - - 92i (921) (921) Operating Costs, excluding Salaries - - 10,401 - 338 10,739 (9,293) (9,293) Salaries - - - - 6,009 6,009 Total 16,133 2,098 11,478 525 6,347 36,581 (12,611) (1,722) (10,336) (496) - (25,165) Note: Figures in parenthesis are the amountsfinanced by IDA Estimated IDA Disbursements US$ thousand FY96 FY97 FY98 FY99 FY00 Annual 775 4,781 7,550 6,540 5,536 Cumulative 775 5,536 13,088 19,629 25,165 Percentage 3 22 52 78 100 Disbursement Profile for 5 Year Projects 6 18 34 46 66  10 Schedule C TIMETABLE OF THE PROJECT'S KEY PROCESSING DATES Time taken to prepare 3 months Prepared by Government Initial EPS November 1994 Revised EPS November 1994 Preappraisal review meeting December 22, 1994 Final EPS December 29, 1994 Appraisal mission departure January 5, 1995 Negotiations April 24, 1995 Board presentation May 23, 1995 Planned date of effectiveness October 1995 Mid Term review June 1998 Relevant PCR Madagascar: Pilot Extension Project (Cr. 2150-MAG) - Under preparation. 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Scli.s. . ....... ..........ow Mo~aidh DsanCo~~xni dep~irtient ~kd dMsio ~e A Rg~t~on.P Thti?rsa K*:: ....t............ ....  Schedule D 11 STATUS OF BANK GROUP OPERATIONS IN MADAGASCAR MADAGASCAR Status Of Bank Group Operations In MADAGASCAR PFDBR25 - Summary Statement Of Loans and IDA Credits (LOA data as of 3/31/95 - MIS data as of 04/25/95) By Country Country: MADAGASCAR Amount in US$ million (less cancellations) Loan or Fiscal Undis- Closing Credit No. Year Borrower Purpose Bank IDA bursed Date Credits 56 Credits(s) closed 801.20 C18780-MG 1988 MADAGASCAR FOREST MGT 5.15 .46 01/31/96 C19050-MG 1988 MADAGASCAR HIGHWAYS VIl 40.00 2.53 06/30/95(R) C19670-MG 1989 MADAGASCAR MACRO EMSAP/TA 22.00 9.26 06/30/95(R) C20420-MG 1989 MADAGASCAR AGRIC RES 11.69 8.63 12/31/96 C20940-MG 1990 MADAGASCAR EDUC SECT REINF 39.00 28.27 06/30/96 C21040-MG 1990 MADAGASCAR FIN SECTOR/APEX 48.00 39.25 06/30/97 C21170-MG 1990 MADAGASCAR TANA PLAIN DEV 30.50 27.57 06/30/97 C21250-MG 1990 MADAGASCAR ENVIRONMENT 26.00 20.07 06/30/96 C21500-MG 1990 MADAGASCAR PILOT EXTENSION 3.68 1.00 06/30/95(R) C22430-MG 1991 MADAGASCAR LIVESTOCK 19.80 14.91 06/30/99 C22510-MG 1991 MADAGASCAR NAT HEALTH SECTOR 31.00 27.25 06/30/97 C23820-MG 1992 MADAGASCAR VOC. EDUCATION 22.80 20.30 06/30/98 C24590-MG 1993 MADAGASCAR RURAL FIN 3.70 2.71 12/31/97 C24740-MG 1993 MADAGASCAR FOOD SECURITY & NUTR 21.30 19.00 07/31/98 C24970-MG 1993 MADAGASCAR FINANCIAL INSTITUTIO 6.30 6.67 09/30/98 C25380-MG 1994 MADAGASCAR PET SEC REFORM 51.90 55.83 12/31/98 C25910-MG 1994 MADAGASCAR URBAN WORKS PILOT 18.30 17.63 12/31/98 C26250-MG 1994 MADAGASCAR CYCLONE REHABILITATI 13.10 13.91 06/30/97 C26440-MG 1995 MADAGASCAR IRRIGATION II 21.20 22.91 06/30/00 TOTAL number Credits = 19 435.42 338.18 Loans 5 Loans(s) closed 32.57 ALL closed for MADAGASCAR TOTAL number Loans = 0  12 Schedule D MADAGASCAR Status Of Bank Group Operations In MADAGASCAR PFDBR25 - Summary Statement Of Loans and IDA Credits (LOA data as of 3/31/95 - MIS data as of 04/25/95) By Country Country: MADAGASCAR Amount in USS milLion (Less canceltations) Loan or Fiscal Undis- Closing Credit No. Year Borrower Purpose Bank IDA bursed Date TOTAL*** 32.57 1,236.63 of which repaid 23.03 38.97 TOTAL held by Bank & IDA 9.54 1,197.66 Amount sold of which repaid TOTAL undisbursed 349.52 Notes: * Not yet effective ** Not yet signed *** Total Approved, Repayments, and Outstanding balance represent both active and inactive Loans and Credits. (R) indicates formaLly revised Closing Date. (S) indicates SAL/SECAL Loans and Credits. The Net Approved and Bank Repayments are historical value, all others are market value. The Signing, Effective, and Closing dates are based upon the Loan Department offical data and are not taken from the Task Budget file.  Schedule D 13 INTERNATIONAL FINANCE CORPORATION INTEGRATED CORPORATE ACCOUNTING SYSTEM STATEMENT OF IFC INVESTMENTS as of March 31, 1995 (In Millions US DoLLars) - original Gross Comnitmenis - HoLd Held undLisb FiscaL Years IFC IFC by by incL. committed ObLigor Typo of Business Loan Equity Partic ToraLs .1FC Partic Partic 1977/87 Societe Textile de Mahaiu Textiles 14.72 .31 - 15.03 2.38 - - 1980 a/ Bata S.A. Malgache GeneraL manaifacturing 1.25 - - 1.25 - - 1984/90 LeS Pecherics de Nossi Be Food and agribusiness 6.96 .25 7.19 6.05 - 1986/90 La Cotonniere d'Antsirabe TextiLes 10.92 .18 11.10 6.04- .43 1990/91 Financiere D'lnvestissewe Capital markets - .47 - .47 .47 - - 1992 B1l-Cr6dit Lyonnais Madag Capital markets - Z.61 - 2.61 2.61 - - 1992/93 AquacuLture do La Mahajam Food and agribusiness 3.80 .61 - 4.41 4.41 - Total gross co,mitments b/ 37.63 64.3 - 42.06 Less candeLLations, terminations, repayment & sales 23.91 .19 . 24.10 TotaL commitments now heLd c/ 13.72 4.24 17.96 17.96 - .3 Pending coamnitments AEF-KARIBOTEL .36 - - .36 XADAGASCAR COF - 1.11 - 1.11 SCOi 1.50 - 1.50 Total pending commitments 1.86 1.11 2. 97 Total connitments held and pending conmitments 15.58 5.35 - 20.93 Total undisbursed commitments .43 - - .3 a/ Investments Which have been fully cancelled, terminated, written-off, sold, redeemed, or repaid. b/ Gross commitmemnts consist of approved and signed projects. c/ Held commitments consist of disbursed and undisbursed invcttuents.  14 Schedule D REPUBLIC OF MADAGASCAR Note on Portfolio and Disbursement Performance 1. In August 1993, Madagascar completed a two-year process of political transition from a single party regime to a pluralistic democracy. Implementation and disbursement of the IDA-financed portfolio, which had been slow during the transition, are now showing improvement. The formation of the new government was a positive factor in this regard, although as noted below, there are still some problem areas. With less uncertainty about ministerial leadership and direction, and in several cases with the selection of improved project management, a number of projects became more operational. While the continued poor economic and financial situation in the country had the potential to hamper portfolio progress, efforts were made during annual public expenditure reviews (PERs) to ensure adequate counterpart resources for the priority investment program. The April 1994 country portfolio performance review (CPPR) addressed key generic problems which were affecting the portfolio, and set action plans to speed parliamentary ratification of projects, to guarantee timely availability of counterpart funds and eliminate roadblocks to requests for disbursement of IDA funds, to limit procurement delays, and to improve accounting and audit procedures. The government decided to systematically monitor portfolio performance, and empowered a department in the Ministry of Economy and Plan to monitor implementation and report regularly, both to the government and the Bank. 2. These efforts are paying off. The percentage of unsatisfactory projects in the portfolio dropped from 27 percent in FY92 to 13 percent in FY94 as regards implementation progress, and from 27 percent to 17 percent as regards development objectives. In addition, more than 20 percent of the portfolio was rated highly satisfactory in terms of meeting development objectives: the Accounting and Management Training (Cr. 1661-MAG [closed end-1994]), Economic Management and Social Action (Cr. 1967- MAG), Agricultural Extension Pilot (Cr. 2150-MAG), Food Security and Nutrition (Cr. 2474-MAG) and Antananarivo Urban Works (Cr. 2591-MAG) Projects. The latter two arc relatively recent projects which have rapidly gotten off to a good start, and provide valuable lessons for our future lending in terms of the importance of beneficiary and private sector involvement, as well as solid up-front preparation. Disbursements for investment projects more than doubled from US$23 million in FY92 to US$48 million in FY94. This represented more than a doubling of the disbursement ratio from 7 percent to 15 percent. Disbursements have picked up even more in FY95, with US$53 million already disbursed as of March 3 1, 1995. 3. Disbursement Lags. It is important to note that even though disbursements have been reasonably robust, the undisbursed balance has diminished more slowly due to the strengthening value of the SDR versus the US$, with the consequent effect of over-reporting disbursement lags. There are also projects which are now performing well, but which because of initial delays, show significant lags when compared to original expectations. Three projects have been affected, however, by the overall environment in the country and continuing uncertainty about policy direction and/or sector strategies, and are suffering disbursement lags: * The Health Sector Improvement Project (Cr. 2251-MAG) has poorly met its development objectives and disbursed slowly due to weak institutional capacity within the Ministry of Health and poor project management, project complexity, and the lack of political commitment within the ministry to address major sectoral issues, especially with regard to the chronic shortage of drugs at public health facilities.  Schedule D 15 The ministry is now taking action on drug procurement, with the establishment of an autonomous drug procurement unit and formulation of a policy on drug cost recovery and community management; project management is being changed; and works on health centers and studies on health policy and a master plan are underway. The mid-term review has been rescheduled for June 1995 in order to allow time for the master plan to be available and for key sector officials to be present for the review. * Due to delayed effectiveness, the Financial Institutions Development Project (Cr. 2497-MAG) is about a year behind schedule. It has also been adversely affected by management uncertaintv in the Central Bank. Technical assistance is being sought to reinforce coordination. Despite these problems, procurement of key items and disbursements are now progressing. * The Petroleum Sector Reform Project (Cr. 2538-MAG) has been held up by slow effectiveness and delays in agreeing on the reform agenda in the sector. If the government pursues its decision to liberalize the sector, the rehabilitation of the refinery and investments at the Tamatave oil terminal included in the project may no longer be justified. Discussions are underway with the government on prospects for restructuring the project. Unlike the above three projects, the Cyclone Emergency Rehabilitation Project (Cr. 2625-MAG) has performed well. Contracts are signed and works are underway. Disbursements are low, however, and an April 1995 mission is reviewing the reasons for and solutions to the delays. 4. Problem Project Action Plans. In addition to the above, the FY94 ARPP proposed action plans for two other problem projects: