Senegal - National Rural Infrastructure Project

Document of The World Bank Report No: 19963 - SE PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 20.5 MILLION (US$ 28.5 MILLION EQUIVALENT) TO THE REPUBLIC OF SENEGAL FOR A NATIONAL RURAL INFRASTRUCTURE PROJECT IN SUPPORT OF THE FIRST PHASE OF THE NATIONAL RURAL INFRASTRUCTURE PROGRAM DECEMBER 20, 1999 AFTT2/AFTR3 Country Department 14 Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective October 1999) Currency Unit = FCFA LC = US$0.0016 US$ = CFA Franc 614 FISCAL YEAR January I - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS AFD Agence Francaise de Developpement AGETIP Agence d'Execution des Travaux d'lnteret Public (Autonomous Public Works Agency) AIDS Acquired Immunodeficiency Syndrome AIP Annual Investment Program APCR Association des Preisidents des Communauits Rurales (Association of Chief Executives of Rural Communities) APL Adaptable Program Lending CAP Community Action Program CAS Country Assistance Strategy CERP Centre d'Expansion Rurale Polyvalent (Rural Development Extension Center) CIDA Canadian International Development Agency CNDCL Conseil National de Developpement des Collectivites Locales (National Council for the Development of Local Communities) CR Communaute Rurale (rural community) CRP Community Roads Program DALY Disability-adjusted Life Year DCL Direction des collectivites locales (Department of Local Communities) DDI Direction de la Dette et de l 'Investissement (Department of Debt and Investment) DGR Direction du Genie Rural (Department of Rural Engineering) DO Development Objective EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return ERR Economic Rate of Return EU European Union FECL Fonds dEquipement des Collectivites Locales (Local Cormmunities' Infrastructure and Equipment Fund) FDD Fonds de Dotation de la Decentralisation (Fund for Decentralized Development) GIE Groupement d'Interdt Economique (Economic Interest Group) GOS Government of Senegal GPN General Procurement Notice GTZ Gesellschaftfur Technische Zusammenarbeit (Agency for Technical Cooperation) Vice President: Jean-Louis Sarbib Country Director: Mahmood .A. Ayub Sector Managers: Maryvonne Plessis-Fraissard/Jean-Paul Chausse Team Leaders: Susanne Holste/Suzanne Piriou-Sall  HIV Human Immunodeficiency Virus IAPSO/UNIPAC UN Agencies ICB Intemational Competitive Bidding IF Innovation Fund IFAD International Fund for Agricultural Development IMC Infrastructure Maintenance Comrmittee IP Implementation Progress KfW Kreditanstaltffur Wiederaujbau (Bank for Reconstruction) LACI Loan Administration Change Inititative LCS Least Cost Selection LDP Local Development Plan LIF Local Investment Fund MIP Municipal Investment Plan MOA Ministry of Agriculture MOF Ministry of Finance NCB National Competitive Bidding NDRDP National Decentralized Rural Development Program NGO Non-Governmental Organization NPV Net Present Value NRIP National Rural Infrastructure Program PAC Projet d'Appui aux Governements (Urban Development and Decentralization Program) PIM Project Implementation Manual PLDRD Policy Letter of Decentralized Rural Development PCU Project Coordination Unit PMR Project Management Report PPF Project Preparation Facility PSAOP Programme des Services Agricoles et d'Appui aux Organisations de Producteurs (Agricultural Services and Producer Organizations Project) PSC Project Steering Committee QCBS Quality and Cost Based Selection RC Regional Coordinator RCU Regional Coordinating Unit RIDP Regional Integrated Development Plans RIF Rural Investment Fund RTTP Rural Travel and Transport Program SSS Single Source Selection STD Sexually Transmitted Disease TSP2 Second Transport Sector Project UNCDF United Nations Capital Development Fund USAID United States Agency for International Development VCSP Village Communities Support Program   Senegal National Rural Infrastructure Project Project Appraisal Document CONTENTS A. Program Purpose and Project Development Objective ................................................................1 1. Program purpose and program phasing ................................................................I 2. Project development objective ......... ......................................................2 B: Strategic Context ................................................................3 1. Sector-related Country Assistance Strategy (CAS) goal supported by the Project ..........................................3 2. Main sector issues and Government strategy ................................................................4 3. Sector issues to be addressed by the Project and strategic choices ................................................................5 4. Program description and performance triggers for subsequent loans ..............................................................6 C. Project Description Summary ................................................................9 1. Project components ...............................................................9 2. Key policy and institutional reforms supported by the Project ............................................................... 11 3. Benefits and target population ............................................................... 13 4. Institutional and implementation arrangements ............................................................... 14 D. Project Rationale ............................................................... . 16 1. Project alternatives considered and reasons for rejection .16 2. Major related projects financed by the Bank and/or other development agencies .17 3. Lessons learned and reflected in the Project design .17 4. Indications of borrower commitment and ownership. I 5. Value added of Bank support in this project .19 E. Summary Project Analysis ...................... 19 1. Economic.19 2. Financial.20 3. Technical.21 4. Institutional.21 5. Social.23 6. Environmental assessment .23 7. Participatory approach. 24 F. Sustainability and Risks ........................... 24 1. Sustainability .......................... 24 2. Critical Risks .......................... 25 3. Possible Controversial Aspects .......................... 25 G. Main Credit Conditions ........................... 26 1. Effectiveness Conditions .......................... 26 2. Other .. . . . . . . . . . . . . . . . . . . . . . . . ..26 H. Readiness for Implementation ........................... 27 1. Compliance with the Bank Policies ........................... 27  Annexes Annex 1 Project Design Summary ................................... 28 Annex 2 Detailed Project Description ................................... 32 Annex 3 Estimated Project Costs ................................... 43 Annex 4 Economic and Financial Analysis ................................... 44 Annex 5 Financial Summary ................................... .. 58 Annex 6 Procurement and Disbursement Arrangements ................................... 59 Annex 7 Project Processing Budget and Schedule ................................... 69 Annex 8 Financial Management ................................... 10 Annex 9 Organizational Chart ................................... 73 Annex 10 Documents in Project File ................................... 74 Annex 11 Statement of Loans and Credits ................................... 75 Annex 12 Country at a Glance ................................... 76 Annex 13 Letter of Decentralized Rural Development Policy from the Government of Senegal ......... ........ 78 Map: IBRD 30539  Senegal National Rural Infrastructure Project Project Appraisal Document Africa Regional Office Country Department 14 Date: December 20, 1999 Team Leaders: Susanne Hoiste/Suzanne Piriou-Sall Country Director: Mahmood Ayub Sector Managers: Maryvonne Plessis-Fraissard/Jean-Paul Chausse Project ID: P057996 Sector: Multi Lending Instrument: APL Theme(s): Rural Poverty Reduction Poverty Targeted Intervention: [x Yes [ No _ m ~~~~iDA othersi** Total TCommitment C osing r- US$ m % US$m |US$ m | Date Date |%l APLL o1 / 28.5 |66% 14.4 42.9 01 | 04 |10.0l APLC2 49.8 60% 33.2 83.0 05 09 15.0 Loan! Credit _ _ _ _ _ _ __ _ _ _ _ _ APL 3 73.4 65% 39.6 113.0 09 12 20.0 Loan! Credit _ _ _ __ _ _ _ _ _ _ _ Total 151.7 63% 87.2 238.9 | __ _ _20.0 _ Project Financing Data ( I Loan [xl Credit [3 Grant [3Guarantee [3I Other [Specify] For Loans/Credits/Others: Amount: SDR 20.5 million; USSm28.5 equivalent Proposed terms: j] To be defined n Multicurrency [x] Single currency [ Standard Variable [xl Fixed [ LIBOR-based Grace period (years): 10 Years to maturity: 40 Commitment fee: Standard IDA Service charge: 0.75% Front-end fee on Bank loan: % IFAD 2.6 4.9 7.5 Govemment 4.2 0.07 4.3 Beneficiaries 2.5 0.0 2.6 Total: 18.4 24.4 42.9 Borrower: Guarantor: Responsible agency(ies): Oversight: Prime Minister's Office through a Project Steering Committee. Day-to-day coordination: Project Coordinating Unit under the Ministry of Agriculture. Execution of Components/Activlites: Ministry of Interior and Decentralization (Component 1), Project Coordinating Unit (Component 2 and 3 community roads), Ministry of Agriculture (Component 3-Gtnie Rural) Estimated disbursements (Bank FY/US$M):l r ~~~~~~~~~~~~~~~~B Annual 3.2 6.8 8.0 10.5 Cumulative 3.2 10.0 18.0 28.5 Project implementation period: 2000-2005 Expected effectiveness date: August 2000 Expected closing date: Dec. 30, 2005 Implementing agencies: (1) National Coordinating Unit, Ministry of Agriculture, (2) Direction des Collectivites Locales, Ministry of the Interior Contact person: (I) Moussa Camara L6, Coordonnateur du PNIR, (2) Mamadou Diouf Address: (1) (Temporary) Unite de Politique Agricole (UPA) 3 Rue de Thiong, X Assana Paye, Dakar, Rtpublique du Senegai Tel: (1) 221-823-42-16 (2) +221-821 03 94 Fax: 221-823-75-96 E-mail: upadeux@senet.net ** Harmonization of local development strategies during Phase I will considerably increase other donors financial participation during Phase 11 and III.   A. Program Purpose and Project Development Objective 1. Program purpose and program phasing (see Annex 1) 1.1 The 1996 Government reforms, with their primary focus on poverty reduction, strengthened decentralization as a means to promote socioeconomic development in Senegal and, to that end, transferred a number of sectoral competencies and resources to local governments. The recent Policy Letter on Decentralized Rural Development (PLDRD), endorsed by the Government of Senegal (GOS) and supported by its development partners, confirms and embodies the fundamental options adopted in 1996 and orients them towards the rural areas (see Annex 13). The PLDRD also takes stock of achievements and constraints in that domain, and recognizes the need for a transition phase of about four years during which various modalities of decentralized rural development will be piloted under the leadership of the National Council for the Development of Local Communities (Conseil National de Developpement des Collectivites Locales - CNDCL). The CNDCL will have the responsibility for progressively unifying the different approaches and will develop a National Decentralized Rural Development Program (NDRDP). The National Rural Infrastructure Program (NRIP) is expected to fully integrate into the upcoming NDRDP, alongside with other donor-financed operations. With a time horizon of 15 years, the NDRDP intends to reach all rural communities (Communautes Rurales - CRs) in the country and implement a harmonized, multi-donor funded, rural decentralization framework. 1.2 The NRIP's central objective is to contribute to revitalize the rural economy, reducing rural poverty and improving the living conditions of rural populations in Senegal, through the promotion of decentralized rural development and the strengthening of local governance. The program will reinforce the capacity of rural local governments' to sustainably deliver a number of services selected by and for their rural populations and their rural communities. The long-term vision is one of participatory and representative local governments planning and managing their own development programs and mobilizing the necessary resources through increased local revenues and Government fiscal transfers. To achieve these goals, the program will: (i) support the ongoing administrative and fiscal decentralization reform process; (ii) strengthen the capacity of local governments to prioritize, plan, implement, and maintain community-based infrastructure; and (iii) provide decentralized funding for demand-driven and community-managed rural infrastructure and services. 1.3 The NRIP will use the Adaptable Program Lending (APL) instrument to support its long-term goals through a three-phase program stretching over a twelve-year period (FYO1-FY12). The use of an APL demonstrates IDA's long-term commitment to support fundamental institutional reforms while allowing flexibility for adjustments in eachphase in light of lessons learned, changing country context, and evolving demand and capacity of local governments. 1.4 During the initial four-year phase, the program will (i) test and establish efficient mechanisms for sustainable decentralized basic infrastructure planning and implementation; (ii) strengthen the capacity of the CRs to operate and maintain the investments undertaken; and (iii) reinforce the national institutions responsible for defining and supporting Government decentralization strategies and policies. Based on this experience, the program will expand during the second phase to cover the majority of CRs and provide funding for a larger variety of collective productive investments and natural resources management. The final phase will consolidate the achievements made under the previous two phases, with emphasis on long-term sustainability and efficiency of decentralized rural development. During the three phases, the program will continuously monitor and adjust approaches and strategies. ' There are 320 Communautes Rurales in Senegal, each including a number of villages.  2 1.5 The first phase will also include a program to improve intra-CR community roads and to test approaches and implement mechanisms which are outlined in the Government's Framework for the National Rural Transport Strategy. This component will be closely coordinated with the Second Transport Sector Project, thus ensuring coherence of network investments and policy development. Once the GOS has fully defined its national policy on rural transport (expected for 2001), its implementation will be supported under a free-standing National Rural Transport Project (TSP2). The second and third phase of the NRIP will, therefore, not include a community roads component. 1.6 The list of triggers to be monitored and which will guide the transition from the first phase to the second phase of the program was agreed with GOS during appraisal. Triggers for transition to the third phase were also tentatively identified at that time. These triggers need to be attained prior to the approval and funding of each phase; they correspond to the main performance indicators of the program and include institutional indicators to measure progress in the reform agenda as well as physical implementation indicators (investments realized and beneficiaries reached). 2. Project development objective (see Annex 1) 2.1 This project, which fits squarely into the government's effort to combat poverty, represents Phase I of the National Rural Infrastructure Program. Its development objectives are to: (i) improve local governance and local capacity; (ii) establish participatory and decentralized mechanisms for selecting, funding and implementing rural community investment programs; (iii) strengthen the The Communautis Rurales (CRs) in Senegal national institutions supporting decentralization; The CRs that were created in 1972 as rural local governments and (iv) implement basic infrastructure itn a had their powers severely restricted by local administration. selected number of rural communities. Phase 1 They evolved through successive reformns in 1990 and 1996 that will focus on 90 CRs out of a total of 320 granted them increased autonomy and additional responsibilities while also supporting key reforms at the in the area of land tenure, local development and the provision of basic socio-economic services. national level. These 90 CRs will receive support for strengthening their planning and Today there are 320 CRs in Senegal that cover the country's territory. A CR averages 15,000 people and comprises a number management capacity and for improving their of villages linked by socioeconomic and cultural ties. An elected responsiveness to rural populations. Support Rural Council of about 30 Rural Councilors, headed by an to key reforms will include (i) reinforcing elected Chief Executive, governs the affairs of the CR. the process of fiscal decentralization; The efficiency of the CR, however, is seriously hampered by the (ii) streamlining the operational approach to lack of resources. An average annual budget amounts to about 6 rural decentralization and local development, million Fcfa (about US$10.000), of which 25% is absorbed by in particular with regards to participatory operational and recurrent costs. Financing sources include a variety of local taxes and fees, of which the Rural Head Tax is procedures and capacity building activities; the most important, and GOS transfers (Fonds d'Equipement and (iii) strengthening the rural population's des Collectivites Locales et Fonds de Dotation de la capacity to organize and present its interests at Decentralisation). In 1996, GOS transfers to CRs averaged 25% all levels. During Phase 1, the menu of of their total revenues. community-based investments eligible for financing will be limited to microprojects of basic public infrastructure (health and maternity posts, schools, water supply and sanitation, culverts, etc.). It is expected that out of the 90CRs benefiting from capacity building activities, 60 CRs will receive funding for infrastructure investments. It is expected that all remaining CRs would be gradually covered during Phase 2 by the NRIP or other donor-funded operations, all part of the NDRDP.  3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the Project (see Annex 1) Document number: IDA/R98 - 2 (17269) Date of latest CAS discussion: January 29, 1998 1.1 The 1994 Poverty Assessment Study highlights the severity of poverty in Senegal, with more than a third of the total population living under the poverty line. Moreover, poverty remains an essentially rural phenomenon with 80% of the poor households living in rural areas. High underemployment is prevalent in rural areas, fueling the rural out-migration of the younger generations. Regional Distribution of Poverty Poverty in Senegal is unequally shared among the regions. Kolda, Kaolack, Fatick, and Ziguinchor are the poorest regions when measured by the number of households living below the poverty threshold. The human poverty indicators that combine indicators of health, education and access to basic services identify Kolda, Tambacounda and Diourbel as the three most deprived regions. Higher revenues in regions such as St Louis and Diourbel are partly explained by remittances from migrant workers. Those remittances, however, do not seem to impact social indicators. Dakar Ziguin- Diour- St Tamba- Kaolack Thies Louga Fatick Kolda Senegal chor bel Louis counda % of 12% 54% 23% 15% 44% 48% 26% 46% 47% 57% regional population (household) below poverty line Indicator of 32.19 50.91 62.65 53.51 65.70 48.58 53.98 59.29 54.98 68.68 50.56 Human Poverty (1995) Source: UNDP Human Development Report - 1998. 1.2 The over-arching objective of IDA's CAS for Senegal is to reduce the incidence of poverty by creating employment and income opportunities and by improving the access of the population to basic services and infrastructure. This goal would be achieved by a two-pronged strategy: (i) supporting policies and programs that aim at more rapid and sustained economic growth; and (ii) supporting the development of basic social and economic infrastructure while improving the social sustainability and efficiency of development programs. IDA's assistance has a strong rural focus due to the prevalence of poverty in rural areas and to the latter's development potential. This assistance is congruent with the national development strategy (Ninth Economic and Social Development Plan) whose fundamental objective is to reduce poverty (and unemployment) through combined measures fostering growth and human development. Rural development is therefore a priority both in the CAS and the government's strategy. 1.3 The NRIP has been designed to be a key instrument for the implementation of the CAS. It would address some of the critical constraints to sustained economic and social development in rural areas by improving the access of the rural population to basic infrastructure and social services. By linking rural  4 areas to markets, it would contribute to creating income and employment opportunities for rural youth, women and other traditionally disadvantaged groups. Finally, by supporting the efficient implementation of government decentralization policies and by strengthening the capacity and representativity of rural local governments, it would be a powerful instrument for improving the economic and social efficiency of development programs in rural areas, and fostering good governance. 2. Main sector issues and government strategy 2.1 Over the past five years, the GOS has successfully implemented far-reaching macroeconomic and sector policy reforms, mostly focused on liberalizing the agricultural/rural economy and disengaging the State from productive activities. The GOS has also been very active in implementing administrative and political decentralization. However, overall rural development performance has been rather poor. In the agricultural sector, with the exception of non-traditional export crops, production of few crops has responded positively to the reforms. Lagging sector response and stagnant productivity in agriculture are the result of the persistence of major structural constraints. Low labor productivity originates in (i) poor access to markets due to a deficient road network and lack of transport services; (ii) limited availability of basic agricultural services and rural credit; (iii) limited access to social services which negatively impacts health and education; and (iv) serious degradation of the natural resource base. 2.2 A countrywide consultative process, undertaken as part of the CAS preparation, revealed that the priority needs of the rural population correspond to these structural constraints and are primarily: improved access roads, drinking water, health services, and education. The population also expressed a strong desire to participate in the decision-making for local development and a commitment to assume an increased share in the funding of local development plans. 2.3 Government's overall development strategy -- articulated in the Ninth Economic and Social Development Plan adopted by the National Assembly in February 1997 following extensive consultations with various segments of the civil society -- has as an over-arching objective to reduce the incidence of poverty and create gainful employment opportunities for youth through atarget growth rate of 9 percent per annum during 1998-2001. The Plan also has a strong focus on promoting social and economic development in rural areas. Government, with the participation of the civil society, has recently drafted the PLDRD, which sets out its long-term strategy for promoting sustainable and equitable economic growth in the rural sector, as a means to effective rural poverty reduction. The key features of this strategy are to: (a) ensure an effective implementation of government's decentralization policies through (i) improving the decentralized fiscal system and ensuring an increased and predictable flow of resources for investments in community-based social and economic infrastructure and services and (ii) support to key institutions; (b) strengthen the capacity of local governments to assume full responsibility for the nine sectors devolved from the central to the local levell, provide them with the means to exercise these responsibilities, and enable them to better represent and respond to the priority needs of the rural population; (c) strengthen partnerships between the different actors involved in local development (i.e., deconcentrated public services, local government institutions, community-based and professional organizations, and non-governmental and private sector institutions), clarify the  5 roles of and promote synergies between the various actors at the local level, and streamline and improve the efficiency of the decentralization process; and (d) coordinate the assistance provided by bilateral and multilateral institutions by assigning a monitoring and evaluation function to the CNDCL with a view towards harmonizing approaches to rural development. 3. Sector issues to be addressed by the Project and strategic choices 3.1 The first phase of NRIP will directly address the following sector issues: (i) low labor productivity, partly due to limited access to socioeconomic infrastructure and services; (ii) limited access to product and factor markets, due to a deficient rural roads system; and (iii) an excessively centralized rural development process and very low institutional and human capacity at the local level. These concerns correspond to priorities highlighted during the CAS consultation process. NRIP would address those issues by establishing a demand-driven Local Investment Fund (LIF) which would help finance basic community-based public infrastructure. In addition, an Innovation Fund (IF) would pilot productive collective investments that would be streamlined during the second and third phases of NRIP, thus promoting employment and income generation. The Project would have strong linkages and synergies with other Bank-financed operations, for example the recently approved Agricultural Services and Producer Organizations Project (PSAOP, Report No. 18554-SE) and the Second Transport Sector Project (PST2, Report No. 19023-SE) which address related problems. 3.2 Approaches to rural development have focused during the last decades, with rather limited success, on increasing agricultural production and access to basic services in an environment characterized by inadequate macroeconomic and sector policies, limited access to market, and an extremely limited participation of rural populations in the planning and management of their own development. 3.3 The overall macro and sectoral economic policy environment has now been greatly enhanced. Thus, NRIP's proposed strategy focuses on addressing some of the key remaining structural constraints to growth, i.e., low human capital, limited access to product and factor markets, and a declining natural resource base. In addressing these constraints, NRIP's approach departs from the centrally planned and implemented rural development approaches of the past. It is based upon the principles of effective decentralized rural development, which institutionalizes participatory approaches that are the operational core of planning and implementation processes. NRIP's strategy focuses on the CRs as the main local agent for planning and implementing rural development. At present, CRs are inadequately resourced and staffed, and are not always operating in a transparent, responsive and participatory manner. Technical assistance is scarce and inadapted (deconcentrated technical services), or beyond the CRs' means (private sector). Through the funding of the LIF, CRs will be enabled to contract and pay for the needed technical assistance provided by either the public service or the private sector. Furthernore, the Project will deploy capacity-building activities and implement participatory processes in order to make the CR evolve towards a sound local institution capable of managing local affairs. Simultaneously, the NRIP will support key institutional reforms that will create an adequate policy environment for decentralized and participatory rural development to blossom. The NRIP will closely follow the restructuring of the Ministry of Agriculture undertaken under the PSAOP. These reforrns will clarify the roles and functions of the central governmentlsectoral ministries and theirdeconcentrated services, and their relation with the private sector in the planning, provision and monitoring of services.  6 3.3 NRIP's strategy is progressive. During Phase 1, only community-based public infrastructure will be eligible for financing. Upon assessment of their performance, CRs would be able to access a greater variety of investments, including productive community investments through theInnovation Fund, and would enjoy greater autonomy. NRIP's strategic choices during Phase 1 should lead to: (i) increased resources for rural development; (ii) better adequacy of basic rural infrastructure to priority needs of rural populations; (iii) reduced unit cost of providing and maintaining rural infrastructures, thereby increasing economic efficiency of development expenditures; and (iv) enhanced governance through greater transparency and accountability. 4. Program description and performance triggers for subsequent loans Phase 1 (the Project) - Initiation phase: Phase I begins the process of supporting decentralized rural development and reinforcing policy reforns in the fiscal, administrative, and political domains that would create an enabling environment for participatory rural development and good local governance. The Project has four components: a) Support for Decentralized Rural Development, focusing on (i) strengthening local governments' capacity to plan, implement, operate and maintain rural infrastructure, (ii) fiscal decentralization for rural areas, and (iii) strengthening national capacity to support and pilot rural decentralization; b) Establishment of a demand-driven Local Investment Fund (LIF) which channels resources directly to the rural communities on a matching grant basis to finance community-based public infrastructure through a Rural Investment Fund (RIF) and to pilot a larger menu of investments through an Innovation Fund; c) Community roads program focusing on (i) improving the community road network in the 60 CRs supported by the LIF, (ii) piloting community road management and maintenance mechanisms, and (iii) strengthening the Department of Rural Engineering; and d) Project Coordination, Monitoring and Evaluation Mechanism. The Project will provide capacity building to about 30% of the CRs and fund basic rural infrastructure and community roads improvements in about 20% of them. The CRs are chosen based on poverty criteria. During Phase 1, the Project will collaborate with other donor and Governuent financed programs to establish an efficient and harmonized nationwide framework for rural decentralization. The CNDCL will steer this effort through its monitoring and evaluation unit that will be strengthened by the Project. The role and functions of deconcentrated technical services and the private sector in providing technical assistance and services to local govermunents and communities will be examined and rationalized. Greater efficiency and greater accountability to users will be two guiding principles of the review process. It is expected that the institutional reform process will have been completed by the end of this phase, thus paving the way for scaled-up implementation of the following phases.  7 Phase 2 - Expansion phase: As part of the National Decentralized Rural Development Program (NDRDP), Phase 2 of NRIP financing will provide about 70% of the CRs with institutional support and funding for local public investments. All CRs will, however, be reached by the NDRDP. The capacity of each CR to manage and maintain the infrastructure will determine the level of support received from the program. For all CRs, lessons learned during the first phase will guide implementation, particularly with respect to participatory planning by local communities and local program management. During this phase all participating CRs will benefit from rural infrastructure investments. For those CRs that successfully established and maintained rural infrastructure in Phase 1, the program will increase the range of eligible microprojects to include other types of collective infrastructure and services (e.g., productive investments and natural resource management microprojects). The long-term objective is a higher degree of CRs' capacity and financial self-sufficiency (the latter through a combination of increased intergovernmental transfers and local revenue generation). To ensure sustainability, the matching grant level will be gradually reduced, while increasing the share of local government and beneficiary financing. The LIF will progressively give way to an integrated budgetary mechanism to transfer resources to CRs, enabling them to sustainably function outside the Project. Phase 2 will also consolidate horizontal linkages between CRs (inter-communautaire) and vertical linkages with decentralized (Region) and deconcentrated entities. Phase 2 will not include a community roads component. This component will be integrated in the forthcoming National Rural Transport Program (FY02). Phase 3 - Consolidation phase: Phase 3 will consolidate the institutional and capacity-building gains made during the first two phases to make local governments an effective tool for sustainable local development planning and management. It is anticipated that improved local governance, improved accountability of service providers to users, and increased basic public investments will encourage a more positive climate for tax generation and economic activities, thus contributing to an increased flow of income and employment-generating investments by the private sector. By the end of Phase 3, local governments will have developed an organizational framework that will enable them to participate more effectively in regional and national policy planning. The process of integrating local, regional and national development planning will contribute to more coherent national sectoral policies. Substantial effort will be devoted to promote "good practices," information exchange and lessons learned for decentralized rural development, within Senegal and with other countries within and outside Africa. By the end of this phase, it is expected that (i) transfer mechanisms channeling development funds from national to local governments will be fully operational; and (ii) local governments will have acquired broader and more efficient revenue-generation capabilities. As a result, matching grant funding will decrease in line with local capacity and willingness to pay, and donor funding in support of decentralization would be channeled through integrated budgetary mechanisms. Local govermments will have access to adequate and efficient technical assistance provided either by the private sector or by public services. Deconcentrated services will focus their intervention on monitoring, evaluating, and controlling the quality of the services provided. They will ensure proper coordination with other levels of planning and with national policies. On demand, they will assist local governments in an advisory capacity.  8 Performance triggers for subsequent loans Phase 1: Achievement Indicators Support for Decentralized Rural Development + Legislation relative to CRs' decentralized taxation and financial management, and relative to the reform of fiscal transfers to CR have been reviewed and adopted by the Borrower; * Regulatory texts, prepared by the CNDCL, which harmonize implementation modalities of decentralized rural development policies and programs, have been reviewed and adopted by the Borrower; * The end of project beneficiary participatory evaluation has revealed that populations of target rural communes, including the marginalized and vulnerable groups, are satisfied with their participation level in the decentralized rural development processes established under the first phase of NRIP, and find that rural infrastructures funded under NRIP respond to their basic needs; * The monitoring and evaluation system established under NRIP is operational; * At least 80% of participating CRs have received at least 80% of the planned training; * At least 80% of targeted CRs have designed a detailed local development plan in a participatory manner; and + At least 70% of targeted CRs have an unqualified financial audit. Local Investment Fund * At least 60% of approved microprojects (in Year 1, 2, and 3) have been successfully completed; and e At least 70% of targeted CRs have successfully completed at least two infrastructure projects. Community Roads Program * 60% of the total kilometers of the community roads rehabilitated under NRIP receive regular maintenance consistent with the adopted maintenance strategy. Phase 2: Achievement Indicators Support for Decentralized Rural Development * Legislation and regulatory texts adopted at end of Phase I have been adequately implemented; * The end of phase beneficiary participatory evaluation has revealed that populations of target rural communities, including the marginalized and vulnerable groups, are satisfied with their participation level in the decentralized rural development processes established under NRIP, and confirrn that rural infrastructures funded under NRIP respond to their basic needs; and * At least 80% of targeted CRs have received at least 80% of the planned training. Local Investment Fund * Contribution to the financing of rural infrastructure of the CRs benefiting from LIF funding in Phase 1, including beneficiary contributions, has increased by 50 % from its level during the previous phase; * LIF's disbursements are at least at 70% of the planned level; + At least 70% of approved microprojects have been successfully completed and are being maintained; and + Average costs of rural infrastructure have been reduced in real terms by 30 %;  9 Phase 3: Achievement Indicators Support for Decentralized Rural Development * Legislation and regulatory texts adopted at the end of Phase 1, and amendments thereof, have been adequately implemented; * Intergovernmental transfers through regular budgetary processes have been established and are operating in a satisfactory manner regarding the availability and accessibility of funds; * The end of program beneficiary participatory evaluation has revealed that populations of target rural communes, including the marginalized and vulnerable groups, are satisfied with their participation level in the decentralized rural development processes established under NRIP, and confirm that rural infrastructures funded under NRIP respond to their basic needs; and * 90% of participating CRs have received at least 90% of the planned training. Local Investment Fund + LIF's disbursements are at least at 80% of the planned level; * Average contribution to the financing of rural infrastructure of all CRs is at least 50% of the cost of rural infrastructure; and * Average costs of rural infrastructure have been reduced in real terms by 30%. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown) 1.1 The Project will have four components: (i) Support for Decentralized Rural Development; (ii) Local Investment Fund; (iii) Community Roads Program; and (iv) Project Coordination, Monitoring and Evaluation. + Support for Decentralized Rural Development This component will support and strengthen the institutional, financial and human resource capacity of local government in the rural areas. It includes three clusters of activities. The first cluster will support the Government's efforts for fiscal and financial reforms with in view to improve CRs' revenue generation and management. The second cluster will strengthen local governments' ability to manage the local development process and improve their transparency and responsiveness to the demands of the rural population. CRs will be assisted by field operators in this endeavor. The third cluster will focus on national level institutions: (i) strengthening the monitoring and evaluation and analytic capacity of the CNDCL, with a view to guide rural decentralization policy and to harmonize approaches; (ii) supporting the Department of Local Communities to reinforce its capacity as implementation agency of decentralization processes; and, (iii) assisting the Association of Chief Executives of Rural Communities (Association des presidents des communautes rurales - APCR) improve its functioning and the quality of services provided to its members.  10 * Local Investment Fund (LIF) This component will be the mechanism for transferring financial resources to local governments to fund priority public infrastructure microprojects (health and maternity posts, schools, water supply and sanitation, culverts, etc.) identified in their Local Development Plans (LDPs) and Annual Investment Program (AlPs). Selected investments will be funded through cost-sharing by the LIF, local governments' own budget and beneficiary contributions. The yearly allocation of the LIF to the CRs is calculated based on population and UNDP's human development index (see Annex 4a for details). The counterpart funding by local governments and the beneficiaries is calculated based on a cofinancing matrix included in the Project Implementation Manual (PIM). It is expected that the contribution of local governments will gradually increase as their tax base and financial resources expand. The LIF will have two financing windows: the Rural Investment Fund (RIF) and the Innovation Fund (IF). The RIF represents 80% of the LIF and will finance basic public infrastructure while the FAI (20% of the LIF) will serve as an action/research tool and provide access to a slightly larger menu of investment options, including collective productive infrastructure. This component was piloted during the preparation of the Project (see section D.3 for details). + Community Roads Program This component includes three clusters of activities. The first cluster will contribute to improved basic access in the 60 CRs targeted by the LIF. Using the LIF's planning and management principles, each CR will receive a yearly budget for road improvements using a service-level approach. It is expected that communities will opt for basic service in order to cover the largest possible portion of the community road network. The CRs would cost-share local investment costs through contribution in cash or kind and would be responsible for the maintenance of their roads. The second cluster will pilot mechanisms of community road management and maintenance as outlined in the Framework for the National Rural Transport Strategy. The third cluster would assist the Department of Rural Engineering of the Ministry of Agriculture to better define its mission and reinforce its capacity to assume responsibility for environmental aspects of the Project. The component will be implemented in close cooperation with the Second Transport Sector Project which will, inter alia, provide funding to link the 60 CRs to the main road network and withi the PSAOP, which will support the restructuring of the Ministry of Agriculture. * Project Coordination, Monitoring and Evaluation This component will cover (i) project coordination and financial management and (ii) the establishment and operation of the monitoring and evaluation system of the Project to be used as management tool.  11 Component Sector Indicative Costs % of Bank- % of Bank- (US$m) Total financina financing (USsm) 1) Support for Decentralized Rural 10.7 25 7.3 68 Development (a) Support the reforms of the rural fiscal and financial management system -policy (b) Strengthen the capacity of local -institution govemments building (c) Support national-level institutions -capacity (DCL, CNDCL, APCR) building 2) Local Investment Fund (LIF) 13.3 31 8.7 65 (a) Rural Investnent Fund: Financing of basic public infrastructure in about -physical 60 CRs on a matching grant basis -matching (b) Innovation Fund: finance, on a grants limited scale, other types of micro- projects; action/research 3) Community Roads Program 11.6 27 7.3 63 (a) Improvement of community roads in the 60 CRs of the LIF (b) Piloting of community road management and maintenance -physical mechanisms -policy (c) Institutional support of the -institution Department of Rural Engineering building 4) Project Coordination, Monitoring -project 6.0 14 3.9 65 and Evaluation coordination (a) Project Coordination (b) Monitoring and Evaluation 5) PPF Advance -other 1.3 3 1.3 100 Total Project Costs 42.9 100 28.5 66 2. Key policy and institutional reforms supported by the Project 2.1 The proposed project is consistent with the GOS' focus on rural poverty reduction and the main goals of the Ninth National Economic and Social Development Plan. NRIP is seen by the Government as a key instrument for implementing its decentralization framework and as a key instrument for harmonizing different donor approaches. Furthermore, the Project will support a number of strategic reforms that can bring about long-term change and sustainability, in particular, in the area of fiscal decentralization and local governance. 2.2 The current legal/regulatory framnework is generally good and provides a sufficient basis for Phase 1 of the program. This framework, however, has had difficulties in becoming truly operational due to insufficient resources and capacity and participation at the local level. Phase 1 of the NRIP will supplement the local governments' resources through the LIF, while inducing the necessary fiscal decentralization reforms. It will also develop and institutionalize a national strategy for the strengthening  12 of local institutions. The expansion of the program to Phases 2 and 3 will depend on the implementation of the above reforms and strategies. At the end of the program, it is expected that donor financing of local governments will be integrated to regular and efficient budgetaly processes. With regard to decentralization, the Project will specifically: * Improve Local Governance 2.3 Fully representative and accountable local governments are essential to the success of the program. NRIP will seek to broaden the local decision-making and priority-setting process for local development through a community forum (Comite de concertation) at the level of the CR. This forum will include, in addition to the elected rural council members, representatives from the various social, ethnic and economic segments of the community. This committee will promote a better information flow in matters concerning local govemance and development and will encourage full participation in the decision-making process of the NRIP, thus ensuring that no one is disenfranchised. The establishment of the community forum will be an initial step in each targeted CR. NRIP will also generalize participatory planning for local investments to enhance efficiency, equity and transparency. * Improve fiscal decentralization andfinancial management 2.4 One of the key constraints to local development and self-reliance is the lack of financial resources. The existing institutional mechanisms for intergovernmental fiscal transfers, tax collection and revenue generation are dysfunctional and urban biased. In collaboration with the Ministry of Finance (MOF) and the Canadian International Development Agency (CIDA) and other donors, the Project will seek to reform the system of intergovernmental transfers, broaden the local fiscal base and improve the system of local tax collection. This will improve the flow and predictability of resource transfers, increase local revenue levels and attract the flow of complementary private sector resources into the rural areas. Adoption of the reforms by GOS will be a trigger for moving to the second phase. * Strengthen and operationalize the national legalframeworkfor decentralization 2.5 Law 96/07 providing the framework for decentralization was promulgated after parliamentary endorsement in 1996 and provides a sound basis for the program. The Project will support complementary activities undertaken by the Ministry of Modernization and the Delegate Ministry of Decentralization. In addition, NRIP will provide assistance to the CNDCL to build its monitoring and evaluation capacity that will enable GOS to critically review the decentralization process. NRIP will also help the Department of Local Communities to define and organize training, technical assistance, and local staffing for CRs. With regard to rural access, the Project will specifically: * Improve the community road network 2.6 The framework for the National Rural Transport Strategy proposes (i) clear assignments of institutional and financial responsibilities between central government, the regions and the CRs and (ii) investments in road improvements based on a service-level approach that will enhance the level of service in accordance with traffic volume. The Project will improve community roads and provide an opportunity to test the mechanisms put forward in the framework. NRIP will also provide training to local  13 consultants and contractors so that they may provide appropriate assistance to CRs with regard to technical options and implementation. 3. Benefits and target population Primary Beneficiaries: The Rural Population 3.1 By Year 8 of the program, the NDRDP will have reached all 320 CRs. The NRIP itself will provide assistance to about 70% of all Senegal's CRs and will therefore reach the majority of the rural population. The Project will have a positive impact on the living conditions, productivity and incomes of about 1.3 million people, most of whom live below the poverty line. Targeted Institutions (a) Rural Communities (CR): During Phase 1, the Project will target 90 CRs, of whom 60 CRs will receive matching grant funds for microprojects (Local Investment Fund) and subprojects (Community Roads Program). All 90 communities will benefit from the Project's broader capacity-building initiatives in support of local government and decentralization. Special attention will be given to assistCRs in the Casamance region to be part of the Project as soon as the sociopolitical situation allows for it. (b) Government Services: The Project will Responsibilities of the CR support capacity-building of government Since 1996, responsibilities have been transferred services at the Ministry of Economy, to CRs in 9 sectors: Finance and Plan, the Ministry of Interior and Decentralization, the 1. Domain Department of Rural Engineering, and 2. Environment and Natural Resource Management Departh int of Feede E road ath 3. Health, Population, and Social Action the Division Of Feeder Roads at the 4. Youth and Sports Ministry of Public Works. Support will 5. Culture target in particular those government 6. Education services involved in the implementation 7. Development Programming of the National Action Plan on 8. Spatial Planning for Infrastructure Decentralization to strengthen their 9. Housing ability to organize and respond to rural The responsibility for community roads was already communities' demands. transferred in 1972. Benefits and Beneficiaries 3.2 The Project will target rural populations from the poorest regions and with the lowest availability of basic infrastructure. The selection of the CRs is based on available poverty data and the UNDP Human Development Index (see Annex 4a for details). It is expected that about 900,000 rural inhabitants will directly benefit from investments under the Project's LIF and Community Roads Program. The Project's participatory process for identification of needs, priority setting, decision making and management will ensure that the infrastructures to be funded correspond to the highest priorities of the community, and would benefit the majority of its population. This process includes a participatory diagnosis and the creation of a Community Forum (Comite de Concertation). The Community Forum, a consultative body to be established by the CR as part of its eligibility criteria for NRIP funding, will review, prior to their adoption by the CR, the local development plans and the annual investment plans. Traditionally marginalized and vulnerable groups, civil society, and professional associations will be represented in the forum. This will provide for the active participation of these groups, thus ensuring that their concerns are  14 taken into account in the prioritization process. One of the triggers for the second phase relates to the effective participation of these groups. 3.3 The resulting community infrastructure, combined with improvements in the community road network and linkages to the main road network, will revitalize the local economy, and provide enhanced opportunities for income and employment generation, especially for local artisans, small-scale entrepreneurs, and laborers who will be contracted for infrastructure construction and rehabilitation. Gender Impact 3.4 Women will be encouraged to fully participate in and benefit from the Project. This should have a positive impact on their income through easier access to markets, to improved health services and to education. The improved infrastructure and good governance will promote the participation of women and youth at village and community level meetings. The representation of women and youth groups in the Community Forum will enable them to voice their views and demands on the priority investments to be funded under LIF and to participate in the management and maintenance of the resulting infrastructures. A study on Gender and Transport was carried out during project preparation. Certain recommendations were incorporated into the Framework for the National Rural Transport Strategy and will be implemented by the Project. 3.5 Proposed actions to prevent the spread of HIV/AIDS (see next paragraph) are expected to ease the burden on women who carry a disproportionate share of the negative impact of the epidemic. HIEVIAIDS 3.6 HIV/AIDS prevalence in Senegal is low, especially in rural areas, but it is rising and many of the risk factors are present that have resulted in high prevalence rates in other countries including sexually transmitted disease, mobility, urban/rural migration, etc. The rates of HIV prevalence have increased significantly in rural sex workers, pointing to the fact that the epidemic will spread in these areas. Awareness and knowledge of how WIV is transmitted and prevented is generally low in rural areas. The impact of the epidemic is virtually unknown at the community level. 3.7 The Project proposes the following actions and will implement them in close cooperation with the National AIDS Control Program and already active NGOs: (i) help local governments understand the impact of the WV/AIDS epidemic on the personal, household, and community levels as well as in the relevant sectors such as agriculture, (ii) through field operators, help communities assess the potential impact and develop plans for prevention and coping mechanisms, (iii) strengthen the local health facilities to diagnose and treat sexually transmitted diseases (STD) and opportunistic infections of HIV and train health care workers and community workers in HIV/AIDS care; and (iv) include small equipment and pedagogical support in the package of health and education microprojects. 4. Institutional and implementation arrangements 4.1 The Project implementation arrangements will be based on the following principles: (i) definition, choice, management, and monitoring of public infrastructure by local communities; (ii) execution of public works by local contractors, local artisans, and communities; (iii) flexibility and simplicity, with gradual empowerment of local communities for managing their development process and gradual enlargement of the range of microproject options; (iv) transparency and accountability at all levels; and (v) sustainability and replicability of the Project.  15 4.2 The implementation of the Project will be mainly carried out by existing institutions at both the central and local levels. Project oversight and orientation will be the responsibility of a Program Steering Committee (PSC) under the presidency of the Prime Minister and composed of equal representation from the concerned ministries and civil society. The role of the PSC will be to (i) facilitate working relations among entities concerned with project implementation (ministries, NGOs, donors, etc.); (ii) review the progress towards achieving the Project's objectives and approve and evaluate the Project's annual work program and budget, and (iii) ensure the participation of the key stakeholders in the general orientation of the Project and arbitrate in case of conflict. The PSC will organize at least one annual joint meeting with the government and the donors participating in the Project's financing. The composition and mandate of the PSC was agreed upon during negotiations. 4.3 The technical secretariat of the PSC will be an autonomous Project Coordination Unit (PCU) located within the Ministry of Agriculture (MOA). The PCU's staff will be recruited in accordance with the Bank's guidelines for recruitment of consultants to ensure a highly qualified team (project coordinator, financial and administrative manager, monitoring and evaluation coordinator,accountant, as well as regional coordinators) for this ambitious project. The PCU will be responsible for overall management and coordination, and in particular: (i) coordination of the preparation and implementation of the different components, (ii) consolidation of annual work programs and budgets, (iii) setting-up and implementation of an independent monitoring and evaluation system, (iv) definition andexecution of a public information campaign, and (v) financial and administrative management of the Project. 4.4 The Ministry of Interior and Decentralization, through its Department of Directorate of Local Communities will implement Component I - Support to Decentralized Rural Development. 4.5 MOA, through the PCU will implement Component 2, LIF, Component 3 (a, b), Community Roads, and Component 4, Coordination, Monitoring and Evaluation. The immediate implementation of Components 2 and 3a will be the responsibility of local governments. 4.6 Component 3 (c) - Institutional support of the Department of Rural Engineering will be implemented by that department which is part of MOA. 4.7 The Project will maintain close links with the ministries responsible for basic education, health, and water to ensure that the facilities comply with the standardized plans of those ministries and that they will be properly staffed with qualified teachers and health workers upon completion. 4.8 NRIP coordination offices will be successively established in the nine regions. The Regional Coordinator (RC) will coordinate project activities at the local level, provide support to participatingCRs, and ensure implementation of the monitoring and evaluation program. The RCs will report directly to the national coordinator. 4.9 CRs will be responsible for identifying and implementing community infrastructure projects for financing under the LIF and the Community Roads components. Given the very limited capacity of local governments, these will be required to procure technical advisory services. Local governments will have the choice with whom to contract for such services, e.g., private companies, entities such asAgences d'Execution des Travaux d'Interet Publics (AGETIP), public rural development enterprises, NGOs, or deconcentrated government agencies. Detailed procedures to ensure transparency are specified in the PIM. Technical advisory services would include facilitating community participation and detailed planning, design, and supervision of basic infrastructure.  16 4.10 No new government agencies will be created. D. Project Rationale 1. Project alternatives considered and reasons for rejection I . I Five other options of alternative project design were considered for the Project: * The traditional integrated area development project based on a top-down, centralized approach using national and international experts. This design has not yielded satisfactory results in the past because the investment priorities were externally generated and not tied to an enabling institutional framework. Thus, the targeted beneficiaries did not relate to the choice of investment and institutions; moreover, mechanisms to ensure sustainability were not in place. In addition, the coordination of multiple small infrastructure works proved to be too complex for central project management units that lacked information, incentives and resources to enable such coordination. + The implementation of separate sector projects would have achieved efficiency in execution but would lack the synergies of an integrated community-based development and would not have favored the emergence of efficient and accountable local governments. * Implementation of projects similar to AGETIP could also have achieved speed and efficiency in executing a large number of standardized types of infrastructure. That project setup focuses on creating employment and fostering emerging civil works enterprises. It relies on contractors who are able to realize certain economies of scale. The approach lends itself less to a large number of small-scale work requests from scattered rural communities. Many of the AGETIP features will be retained under the Project's implementation arrangements. However, AGETIP does not have as a primary objective to foster local empowerment and capacity building and, therefore, limits community ownership and the long-term sustainability of investments. * The Project could have been implemented along the lines of a classic community-based project, of which IDA has now accumulated a series of successful experiences. However, these projects have suffered from two major problems. First, they have proved difficult to scale-up. Second, they have not been sustainable because institutional changes (for example, fiscal decentralization and the emergence of accountable local government structures) that improve the way government operates were not introduced. * Lastly, the traditional Social Fund model has not been retained. This formula was originally conceived as an emergency response to pressing socioeconomic needs, but it fails to integrate and strengthen the country's institutions. It is therefore unlikely to be sustainable in the long term without substantial and continuous donors support. 1.2 The NRIP builds mostly upon the lessons from these community-based programs, but offers a more systematic approach for sustainable rural development. This is achieved by broadening the scope of intervention and by providing support to strategic institutional reforms at the national level and a strong focus on capacity-building at the local level, to achieve sustainability and replicability.  17 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned) Latest Supervision (Form ;90) Ratings Sector issue t ProJeet (Bank-financed projects only) Bank-financed: Implementation Development Progress (IP) Objective (DO) Transport Transport Sector SECAL (Cr. 2266) S S Second Transport Sector Project (Cr. 3183: effectiveness 12/99) S S National Rural Transport Project (planned) Agriculture Agricultural Sector Adjustment Credit (Cr. 2738: completed) S S Agricultural Services and Producer Organizations Project (PSAOP) (Cr. 2367: not yet effective) S S Social Social Development Fund/WID project (planned) Urban Development Urban Development and Decentralization S S Program (Cr. 3006) Education Basic Education for All (planned) AFD/French Cooperation Decentralized development KfW/GTZ Support to decentralization CIDA Support to decentralization and fiscal reform USAID Democracy & governance Private sector development UNCDF Health IFAD Five area development projects in Louga, Diourbel, Kaolack, Matam, and Tambacounda EU Decentralized rural development IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the Project design 3.1 Experiences gained from rural development programs financed by the Bank and other donors in different regions show that, in order to succeed, such projects should: (i) be identified, designed, and implemented by communities/local governments, based on their needs and resources; (ii) start on a modest scale and expand progressively; (iii) build on local social structures and invest in social organization for implementation, operation and maintenance; (iv) transfer resources and responsibilities to communities/local governments; and (v) ensure communities/local government ownership, transparency and accountability. 3.2 A recent review by the Community Action Program (CAP) initiative indicates that, in Africa, achievements of community-based programs have been limited for the following reasons: (i) communities and local govemments are not empowered to manage funds directly; (ii) funds are earmarked which limits community decision-making authority; and (iii) community-based programs adopt too often a project approach neglecting institutional sustainability and avoiding necessary institutional and fiscal reforms.  18 3.3 The NRIP has applied these essential lessons to its design. It provides direct financing to local governments to fund priorities identified by communities. Local governments are in charge of budget management and contracting and may devolve these responsibilities to community association. The whole approach is embedded in the country decentralization process and seeks key reforms in order to institutionalize quality community participation/empowerment and implement efficient fiscal decentralization. 3.4 The Project design for Phase I already incorporates these lessons, as well as initial experiences from the five CR pilot projects implemented during the preparation phase. The pilot exercise in theCRs Kounkane, Koussanar, Paos Koto, Dealy, and Mbane was carried out with the assistance of NGOs. All communities completed a participatory diagnostic and identified priority investments. TheCRs opened bank accounts and deposited the counterpart funding, sometim[es with the help of emigrants. It is worth noting that in several instances the Rural Head Tax was fully recovered in contrast to the situation prior to the pilot activities. As of early December, contracting was getting under way. The same communities also identified priority investments in community roads, which will serve as the first-year work program of that component. This exercise has been invaluable in operationalizing the service-level approach to road improvements and also helped identify training needs of NGOs and consultants in this area. It also noticed that the communities do not make the distinction between community, regional, and national roads when expressing their priorities. It will therefore be important to coordinate programming with the Second Transport Sector Project. 3.5 The sustainability of rural road projects frequently suffers from unclear institutional and maintenance responsibilities. Maintenance arrangements need to be structured as an overall system with responsibilities of the different levels clearly defined. Investments for road improvements also need to be calibrated against communities' capacity for maintenance, either through community-based execution of maintenance or contracting out. These lessons have been incorporated into project design. 4. Indications of borrower commitment and ownership 4.1 The GOS has made rural decentralization and empowerment of rural communities the central element of its rural development strategy. The program has strong backing at the highest level of the State. It has also already generated strong interest and commitment at the level of local communities, which have long demanded more control over their development affairs. 4.2 The GOS has fully participated in the preparation missions and in the elaboration of the concept paper. An interministerial committee was established and chaired by the President of the Association of Chief Executives of Rural Communities (APCR), thus ensuring continuous input from civil society. This committee was assisted by national and international consultants to produce thebackground studies upon which the program was designed. At each stage in the process, seminars were held, which further enhanced stakeholder participation. 4.3 The GOS has prepared a coherent long-term vision and strategy for rural development spelled out in the Policy Letter on Decentralized Rural Development (PLDRD), based on a broad consultation process with close association of the civil society and the donor community (see Annex 13). ThePLDRD was adopted by GOS prior to negotiations. It clarifies the roles and responsibilities of rural institutions and of the various partners in rural development. It outlines the specific measures to accelerate the policy reform process, which would create an enabling environment for a more democratic and effective approach to social and economic development in the rural areas. It also indicates the direction of change  19 towards greater coherence, sustainability, and greater devolution of responsibilities and resources to the rural communities and local governments. 4.4 The GOS has also prepared a strategic framework for rural transport which is a precursor of its national rural transport strategy. Following a series of background studies and stakeholder workshops, the GOS is proposing a clear assignment of institutional and financing modalities while also sketching out special interest areas, such as intermediate means of transport and gender. 5. Value added of Bank support in this project 5.1 The Bank is in a unique strategic position to help GOS coordinate donor efforts with respect to strengthening the decentralization process for rural development, integrating the urban and rural sectors, designing national approaches to the funding of community-based infrastructure and securing sustainable financing mechanisms for the maintenance of basic rural infrastructure. 5.2 The Project design includes valuable lessons from a variety of activities already implemented with the support of other donors, notably regarding demand-driven local investment funds and participatory local planning. However, IDA also brings to this project its significant international experience in the areas of decentralization, social funds and demand-driven rural investment funds. The lessons learned from the recently prepared Village Communities Support Program (VCSP) in Guinea and from ongoing projects, for example in Ghana and Benin, have been useful in developing appropriate maintenance mechanisms and designing relevant processes for the Local Investment Fund. Through the multidonor Rural Travel and Transport Program (RTTP), the Bank is able to provide substantial input on rural transport policy. E. Summary Project Analysis (detailed assessments are in the Project file, see Annex 10) 1. Economic (supported by Annex 4) 1.1 The proposed project, as a first phase of a twelve year program will focus on institutional reforms, capacity building of rural community institutions, funding of community-based rural infrastructure which are mostly social in nature, and improvement of community roads. Furthermore, although the major types of community-based rural infrastructures are known (health and maternity posts, schools, water supply and sanitation, culverts, etc.), the scope and mix of such investment types will be determined directly by the beneficiaries. Hence, a classical ex-ante cost-benefit analysis of the Project is extremely difficult to conduct, but Annex 4 provides indications based on simulations and results obtained from similar projects. At the end of Phase 1, the Project will conduct appropriate ex-post cost- benefit analysis of the implemented microprojects. In addition, Phase 1 will implement a baseline survey that will serve as a reference for an impact study to be conducted in Phase 2. 1.2 Experience from similar Bank-supported projects in other regions indicates that demand-driven projects of this nature, involving beneficiary contributions, are highly cost effective. Given that communities are directly responsible for the management of their yearly funding allocations from the Project, they have a vested interest in achieving the best quality-price ratio and will seek to maximize cost savings and ensure accountability. Furthermore, because communities are actively involved in prioritization, implementation, and operation, it can be assumed that the micro- and subprojects that are selected will be economically viable and well maintained. Available cost ratios show that health and drinking water activities are highly effective, i.e., they cost less than $100 per DALY(Disability-adjusted Life Year) saved (Source: Better Health in Africa: Experience and Lessons Learned, World Bank, 1994;  20 and Mauritania: Health Sector Investment Project, 1998.) Ex-post economic analysis in demand-driven investment funds in the Northeast Rural Poverty Alleviation Program in Brazil indicates cost-savings of more than 30% on basic infrastructure selected and implemented by local communities as opposed to public services. Indicative of what might happen during Phases 2 and 3 of the program, the same analysis shows Economic Internal Rate of Return (EIRR) superior to 50% for selected productive subprojects (small-scale irrigation, forage grinder, and cereals processing). Costs are further reduced because the Project relies on contractual arrangements and standardized technical designs. 2. Financial (see Annex 4) Fiscal impact: 2.1 The fiscal impact, that is, the changes in expenditure and revenue that government units are likely to incur as a result of the NRIP, is assessed at both central and local government levels. Since the NRIP functions as a demand-driven infrastructure fund, an exact quantitative assessment of the fiscal impact is difficult at this stage because the exact mix of basic infrastructure investments is notyet known. Annex 4 provides details concerning the methodology and the hypothesis used for this analysis. The analysis gauges the direction of the changes in revenues and expenditures induced by the program. 2.2 Central Government: In the short run, the program will increase the Government's expenditure on infrastructure commensurate with the size of the Project credit. Because the program will essentially finance social infrastructure during Phase 1, very little additional tax revenue will be generated at this stage. Consequently, the GOS will have to incur some cost beyond the amount of revenue transferred to local governments from the IDA credit. In the long run (second and third phase), however, the enabling effects of increased physical and social infrastructure (better access to factors and product markets, improved health and education of the work force) and the higher incomes provided by productive activities will result in higher productivity, a larger economic output, and a larger tax base. Thus, in the long term, the economic benefits of the program are expected to generate the resources necessary not only to maintain the economic infrastructure, but also to help finance national expenditures. 2.3 Local Governments: Through the LIF, CRs will receive on average an annual envelope of US$70,000 (about $4 to $5 per inhabitant) that will come in addition to usual their budgetary resources (local taxes and government transfers from the Local Governnment Infrastructure and Equipment Fund and the Decentralized Development Fund). These additional resources are expected to provide funding for two or three microprojects, each averaging between US$15,000 and $20,000. Beneficiaries (local communities and CRs) will be required to contribute at least 20 percent of the total cost, in materials, labor, and cash. At least 5% will come from the budget of the CR. Through the community roads component, CRs will receive an additional allocation of about US$55,000. Communities are expected to contribute 5% of local investment cost in cash or kind and to aissume full responsibility for community road maintenance. At a later stage, following implementation of the fiscal decentralization reform and increased capacity, CRs will be expected to assume greater financial responsibility. In addition, preliminary information from the pilot activities indicated that local tax collection improves as a result of improved credibility of local government vis-a-vis its constituency. In the medium and long term, the share of expenditure (capital and operating costs) financed by the CRs' resources (i.e., revenue raised at the local level and transfers) will increase. In the long run, however, the economic benefits and the savings expected to be generated by the program are likely to provide the tax revenues necessary to finance recurrent and personnel costs, and expand further the provision of the goods and services supported by the Project. 2.4 The expected contributions from CRs and beneficiaries are in line with current practices for construction of basic rural infrastructure projects. They are high enough to provide incentives for  21 increased ownership and sustainability of microprojects, yet they are sufficiently modest to allow participation by poor communities. Beneficiaries will assume responsibility for operating and maintaining the completed infrastructure. Corresponding recurrent costs to the beneficiaries will usually be modest, in the range of 5-10% of the investment cost annually. Communities will be required to establish a maintenance committee before funding for individual subprojects will be approved. For these reasons, project-funded community infrastructures are expected to be cost-efficient to establish, and sustainable in terms of their operation and maintenance. Cost-savings to the amount of at least 30% on basic infrastructure and service provision due to the leveraging of local human and financial resources and the use of standard technical design are also expected. 3. Technical 3.1 Under NRIP, responsibility for micro- and subproject identification, preparation and implementation will be with communities and local governments. The issue of technical capacity and quality of community-based infrastructure is addressed in the following ways: (i) The guiding premise for NRIP is that there is considerable latent technical and managerial capacity at the local level. The pilot phase activities, conducted during the preparation phase, have shown that this capacity is released by empowering communities through a participatory process. To remedy shortcomings regarding administrative and financial capacity at the local government level, the Project will provide a secretary/accountant for participating CRs. Project funding for this position is temporary and it is expected that government will take over after the first phase. Field operators (NGOs or private sector firms) will be recruited to assist the CRs in elaborating participatory local development plans and annual investment plans. Planned investments are predominantly simple infrastructure, and local artisans and entrepreneurs have sufficient knowledge and experience to execute them. The design and execution of these works will be facilitated by the use of standard design plans. Project staff will undertake random quality checks of works execution. Companies will be invited annually to register withthe Project's regional offices and this registry will be made available to the CRs (see Annex 6, Procurement, for details). (ii) NRIP provides the option for communities to use a fixed amount of the resources transferred to them to finance the recruitment of technical expertise to assistthem in the procurement, design, supervision and final reception of works to ensure the quality of the microproject. Under its capacity-building sub-component, NRIP will also provide a variety of training for community leaders and local elected officials to upgrade their managerial and technical skills. (iii) NRIP will emphasize the promotion of sustainable mechanisms for the rehabilitation and maintenance of rural infrastructures. For each microproject, a maintenance committee will be set up from among the beneficiaries who will, for example, be in charge of mobilizing counterpart labor contributions and collecting user fees. 4. Institutional 4.1 Various assessments conducted by national and international consultants have drawn similar conclusions regarding the state of rural development and decentralization in Senegal. The fundamental tenets of these analyses are that excessive centralization of decision-making and lack of accountability undermine community and local governments' ability to manage their own affairs. Inadequate intergovernmental fiscal transfers, cumbersome procedures, and a weak system for tax collection also  22 seriously hamper local development. All these factors severely constrain opportunities for resource mobilization and local development and could lead to a loss of local governments vis-a-vis their constituents. 4.2 Although central government devolved nine sectoral responsibilities to local govemment in 1996, it has not yet transferred the necessary resources to implement them. This has led to frustration in the communities and among local governments. Moreover, intergovernmental fiscal transfers (FECL and FDD) are very small and often arrive late, so that local governments are not able to fully utilize these meager resources. The rural tax collection system has been highly centralized with insufficient transparency and sharing of information with local governments. Lastly, considerable confusion stems from unfinished public sector reforms. While the broader institutional and legal framework for decentralization is in place, it is necessary to speed up the process of operationalizing decentralization to establish a critical momentum for change and generate interest and support among the population. The driving force for this process should be the rural population, which is the ultimate beneficiary. NRIP will provide the necessary impetus to accelerate the reform process in the rural areas. 4.3 NRIP will assist in addressing the deficiencies in the current implementation of decentralization in the following ways: (i) Lack of institutional capacity: 4.4 NRIP will increase the capacity of central government to monitor local development initiatives and to ensure that the decentralization process effectively reaches the local communities. Phase 1 will provide support to the CNDCL, which will become a focal point for policy debate and development on decentralization, and will monitor and evaluate decentralization projects. Finally, the program will support the transformation of APCR into an association of all elected rural council members. This will give the association broader regional and national representation, through which it will be able to lead the debate and the reform agenda on decentralization in the rural areas. NRIP will support the implementation of the Government's Action Plan on Decentralization, which includes, i.e., information dissemination campaign, placement of staff at the CR level to strengthen local governments, and capacity building. 4.5 The Project will provide an opportunity to implement the government's framework for a rural transport strategy. The strategy is expected to clearly spell out the responsibility of central government, the regions and local government regarding investment and maintenance of the different road networks. NRIP will support developing capacity at the CR level to program and maintain community roads. The Project will also provide selected support to the Feeder Roads Office of the Ministry of Public Works, the Rural Engineering Directorate or the to be created Road Agency to ensure the emergence of a coherent advisory framework for rural transport.  23 (ii) Lack of resources at the local government level: 4.6 NRIP will strengthen the capacity of central government to follow up on the recommendations made in the diagnostic study on the Fiscal System in Senegal undertaken by MOF and CIDA. NRIP will complete the studies on the rural fiscal system necessary to implement the fiscal reforms in the rural areas. These studies will address the deficiencies in the current system and propose mechanisms for intergovernmental fiscal transfers for the rural areas, including broadening the tax base for CRs, and defining of new modalities for resource mobilization by local governments. It is expected that these reforms will be implemented during the first phase of NRIP. (iii) Lack of accountability and transparency: 4.7 The program will implement a number of activities and mechanisms to make local governments more representative and accountable to their constituency. In particular, NRIP will establish participatory planning and a community forum which will include elected council members as well as representatives of the various social, ethnic and economic segments of the community in order to ensure broad-based consultation before decisions on local development are made by local government. 5. Social 5.1 The diagnostic studies undertaken during the preparation and the emerging experiences from the on-going pilot phase point to significant social impact of NRIP as a means to foster participatory, inclusive, and sustainable local development. The Project will be implemented on the basis of a demand- driven approach, with resources transferred being placed at the disposal of the rural community to directly administer. In this way, local communities will be able to exercise greater control and decision making authority over their own affairs. This will foster cohesion and solidify the commitment to achieve NRIP's stated goals among the local population. Through specific assistance from IFAD, the design of the Project has focused on ensuring proper representation of vulnerable groups (young, women, representatives of ethnic groups, and refugees) in the identification, design and implementation of community development plans. A central element for ensuring inclusiveness will be the community forum which will guide and monitor the decisions and management of local governments. Specific mechanisms have been defined in the Project Implementation Manual to ensure that decisions and implementation at local, level are transparent and that local governments are accountable to all. Furthermore, the Project will foster the focus of the government's poverty reduction efforts on areas where those efforts are most urgently needed. Components, such as local capacity building and improvement of local governance, that are built into the Project will create an enabling environment for increasing the chance of sustainability of the achievements in the area of poverty reduction not only in the CRs directly concerned, but also nationwide due to the synergy and spillover effects inherent in such achievements. The LIF component will contribute to providing much needed social infrastructure and will thus improve rural living conditions. The Innovation Fund will contribute to revitalizing the rural economy. 6. Environmental assessment Environmental Category [ ] A [x] B [ ] C 6.1 The justification for the rating in Category B is based on the expectation that the small size community-based infrastructure will not generate significant negative environmental effects. However, to mitigate potentially adverse environmental impacts, theNGOs working on capacity building for the local governments will be trained in environmental management. They will help CRs screen projects for environmental impacts and integrate required mitigation measures into project design. Environmental  24 mitigation capacity exists in various deconcentrated ministries; and the implementation manual, in connection with the Environmental Impact Assessment (EIA), provides guidance as to which service the CR might approach for assistance with mitigation measures. Environmental mitigation capacity will also be created in the Department of Rural Engineering to monitor environmental effects of project activities, and to propose and implement appropriate mitigation plans. DNGR will closely liaise with the Ministry of the Environment on this. The EIA has been cleared by the Bank's relevant environmental technical unit of Africa Region (AFTE1). 7. Participatory approach a. Primary beneficiaries and other affected groups: 7.1 The preparation of the Project has been based on a collaborative process involving local teams comprising consultants, government officials from relevant ministries, and CR representatives who have been working with an international support team. This broad-based team has used a series of surveys and workshops with communities and with other key stakeholders at the local and central level to solicit views, ideas and opinions on the design and implementation arrangements ofthe Project. These findings were incorporated into the Project concept. 7.2 The methodology for participatory diagnosis and planning for the preparation and implementation of local development plans is being tested under the ongoing pilot phase (see section D.3). Participatory monitoring and evaluation of project activities by beneficiaries will provide necessary feedback to adjust project implementation arrangements and procedures. b. Other key stakeholders: 7.3 This spirit of broad consultation was further extended to the national level, involving a wide spectrum of stakeholders and interested groups. The President of the APCR chaired the inter-ministerial committee in charge of the preparation process, reflecting that the rural communities are the driving force guiding the preparation process. Resulting discussions, in particular during the validation workshop in October 1998 and March 1999, helped refine the Project design and incorporate additional flexibility and scope for testing different approaches. The workshops involved government agencies, opinion leaders, NGOs, donors, and locally elected officials. This process ensured that the views of all key stakeholders were taken into consideration during the formulation, thereby encouraging long-term commitment and partnership. F. Sustainability and Risks 1. Sustainability 1.1 This project seeks to ensure sustainability by institutionalizing the process of community-based development. To that end, the NRIP relies on the local government as the local body for promoting rural development. By strengthening local governments' capacity, setting up systems forgovernment transfers, and creating a conducive institutional framework, the NRIP will ensure the sustainability of the institutional structures and fiscal resources after this program comes to completion. Sustainability is further enhanced because: (i) recurrent costs for program administration will be relatively low, as the Project implementation relies on existing institutions, competitive contractual arrangements and simplified and standardized preparation, costing, and evaluation procedures for microprojects; (ii) mechanisms to ensure transparency and accountability have been incorporated in the Project's implementation procedures; and (iii) adequate maintenance arrangements are a prerequisite for the funding of any microproject and future funding will be based on a CR's track record in maintenance.  25 1.2 Empirical studies of collective action demonstrate that sustainable local institutions are those that are organized around common interests and tangible benefits. The strong focus on capacity building will also increase the ability of the key actors to organize themselves to plan, manage and sustain local development efforts. The clarification of the roles and responsibilities of each party involved in local development will enhance the sustainability of the effort and will serve to improve the interface between decentralized services and civil society. 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1) Risk Risk Rating Risk Minimization Measure GOS does not honor its commitment to M Implementation of the policy letter on decentralization and participatory rural decentralized rural development. development. Continued dialogue with key stakeholders and the Bank. Poor interministerial collaboration for policy M Steering committee including various ministries reform on decentralization. and chaired by the Prime Minister. Ministry of Agriculture and/or other government M Autonomous Project Coordination Unit with agencies interfere in project implementation. clear roles and responsibilities. Steering committee which approves annual work program and budget. Local banks are not available and functional to M Assess banking system and non-banking support the receipt, housing, and disbursement of financial support systems, and implement LIF progressive approach: only CRs with access to proper banking/financial system eligible during the first phase while the banking/fnancial network continues to develop. Annex 1, cell "from Components to Outputs" Local governments do not establish successful M Assist CRs to evaluate tax base and develop mechanisms for collecting local taxes and mechanisms. Assist with improving local mobilizing other local resources to provide resource mobilization and making the system of matching funds to implement LDPs. intergovernmental fiscal relations efficient and tailored to the need of decentralization. Local governments do not operate with M Ensure that transparency is promoted as a key transparency and accountability and are subjected element of the Project through detailed project to political interference. implementation manual, specific mechanisms, a grievance and penalty process. Slow decision-making and lengthy processing of M Delegate powers to local govermnents, but with microprojects at central level. regional project coordination units closely monitoring, coordinating, and providing backup. Maintain flexibility with active supervision schedule. Overall Risk Rating Moderate Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), 14 (Negligible or Low Risk) 3. Possible Controversial Aspects 3.1 The NRIP preparation process has been highly participatory and has involved a wide range of stakeholders. As a result, the risk of unforeseen controversial aspects has been greatly reduced.  26 G. Main Credit Conditions 1. Effectiveness Conditions a) the Borrower has adopted the Project Implementation Manual in form and substance satisfactory to the Association; b) the Borrower has opened a Project Account and deposited therein the amount of the Initial Deposit; c) the Borrower has appointed all the key staff, including 5 of the 9 regional coordinators, for a period of two years, with terms of reference and qualifications satisfactory to the Association; d) the Borrower has established the PSC and the PCU with membership, functions and responsibilities satisfactory to the Association; e) the Borrower has promulgated a decree, in form and substance acceptable to the Association, providing for the statute of the community secretary; f) the Borrower has established a financial accounting and management system, satisfactory to the Association, and adopted a Financial Procedures Manual, in form and substance acceptable to the Association; and g) the IFAD Loan Agreement has been executed and delivered and all conditions precedent to its effectiveness or to the right of the Borrower to make withdrawals thereunder, except only the effectiveness of the Development Credit Agreement, have been fulfilled. 2. Other Conditions for Appraisal a) Draft final of the policy letter on decentralized rural development was circulated to donors for comment; b) Draft annual work program for project year 1 is available; c) Draft project implementation manual was prepared; d) Draft decree for the PSC and PCU with membership, functions and responsibilities was prepared; e) Terms of reference for key contractual staff of the PCU, i.e., national coordinator, administrative and financial manager, coordinator for monitoring and evaluation, and regional coordinators were prepared and are acceptable to IDA: f) Recruitment process for the national coordinator was launched by a recruitment agency; g) Draft decree for the community forum with membership, functions and responsibilities was prepared; h) Proposals for banking and financial transfer mechanisms for transfer of funds to the CRs were prepared; i) Framework for the National Rural Transport Strategy was approved by the Comite Directeur - Transport Rural of the Second Transport Sector Project; and j) Priority community roads program for the five pilot CRs was finalized according to terms of reference. Conditions for Negotiations a) The policy letter on decentralized rural development was approved by the Govemment; b) Framework for the National Rural Transport Strategy was approved by Government; c) The Project Coordinator, who is acceptable to IDA, was recruited and participated in the negotiations; d) Decree for the PSC and PCU with membership, functions and responsibilities were adopted by Government; e) Draft regulation and contract for the local government secretary/accountant were prepared jointly by the DCL and the Ministry of Finance; f) The contract for the PPF audit for 1998 was signed and sent to IDA;  27 g) Terms of reference, acceptable to IDA, for the financial management and accounting system and the selection of auditors were adopted; and h) List of the CRs of the first phase was presented to IDA. H. Readiness for Implementation (a) The preparation of a program implementation plan, including the first year annual work plan has been prepared; and (b) The procurement plan for the first year activities would be completed prior to negotiations. I. Compliance with the Bank Policies The Project complies with all applicable Bank policies. g XD u~~~~~~- SALL_ Team Leaders: Susanne Holste S;uzarne Piriou-Sall ,;Q, ''Issi-Faisar hass Sector Managers: Main lessis-Fraissard K.L J aul Chausse Country Director: Mahmood A. Ayub  28 Annex 1 Project Design Summary Rural Infrastructure Program Goal-Purposes-Output relation of the National Rural Infrastructure Program (NRIP) C,01%