Malawi - Second Social Action Fund Project (MASAF II)

Report No. PID9402 Project Name Malawi-Second Malawi Social Action Fund... (MASAF II) Region Africa Sector Social Sector Project ID MWPE49599 Borrower Government of the Republic of Malawi. Implementing Agencies Malawi Social Action Fund--Management Unit, National Economic Council, Ministries Education, Health, Water, Works, Women, Youth and Community Services, Local Government, Agriculture and Irrigation, Forestry and Natural Resources. Date of this PID August 4, 2000 Projected Appraisal Date June, 1998 Project Board Date October 15, 1998 Country and Sector Background 1. Ranked on the basis of Gross National Product (GNP) per capita, Malawi (US$140 in 1994) is the ninth poorest country in the world. Ninety percent of its population lives in rural areas and depends mainly on subsistence agriculture for its livelihood. Of total arable land, 40 percent is held in the estate sector which mostly produces export crops, mainly tobacco, sugar, tea and coffee. The remaining area is shared by 1.8 million smallholder households. More than 40 percent of these cultivate less than 0.5 hectares. Land constraint in the smallholder sector is daunting and is a major factor in rural poverty. In addition to having a poor resource base, with agriculture being the mainstay, Malawi's average population density of 106 persons per km is one of the highest in Africa. 2. Since it attained independence in 1964, Malawi emphasized maintaining macroeconomic stability and growth of infrastructure and estate agriculture as the main elements of its development strategy. Poverty was to be dealt with by trickle-down effects. This strategy proved effective initially in promoting growth and macroeconomic stability, but did very little to reduce poverty. During the 1960s and 1970s, the real Gross Domestic Product (GDP) more than doubled and per capita income increased by 3 percent a year. However, since structural weaknesses persisted and the economic base remained narrow--tobacco continued to be the dominating produce, accounting for 70 percent of foreign exchange earnings--the economy remained highly vulnerable to external and internal shocks. Much of the growth momentum was lost in the mid-1980s when a series of destabilizing factors came into play. The problem began with declining tobacco prices in the international market, and civil strife in Mozambique, which increased international transport costs and brought large refugee and security-related expenditures. The drought of 1992 caused the economy to contract by 8 percent, reducing the smallholder output  by 37.4 percent. This was followed by another drought in 1994 when the economy contracted by 12 percent and the production of maize, the main staple food, fell by about 50 percent. Government expenditures continued to rise, adding to the instability. These factors created serious macroeconomic instability and brought to the fore inherent structural weaknesses of the economy, shown by the sharp depreciation of the exchange rate, high inflation (35 percent in 1994), widespread poverty and food insecurity. 3. Against this background, stabilization and poverty reduction have emerged as central objectives of economic management. These are also the objectives of the Country Assistance Strategy (CAS) for Malawi. Strengthening the nexus between growth and poverty reduction is the main emphasis of the strategy. Poverty-targeted investment and development of human resources, together with programs of macroeconomic stabilization, fiscal restructuring and deregulation, private sector-led growth, particularly in agriculture, and capacity building and decentralization, are important elements of the strategy. The new Government (GOM) showed a strong commitment towards these objectives during its first two years in office. It adopted firm remedial measures and the macroeconomic situation, though still fragile, improved. The introduction of cash budgeting and measures to track public expenditure, such as the Medium Term Expenditure Framework as instruments to improve expenditure control, have contributed to lowering public expenditures significantly. New revenue measures and improved monetary management have further contributed towards fiscal balance. While fiscal and monetary restraints have succeeded in reducing the rate of inflation and stabilizing the exchange rate, the sustainability of the adjustment process and economic growth will depend on continued efforts toward restructuring incentives to: spur growth in output and export, limit vulnerability to external shocks, increase private sector investment, control runaway population growth, develop human resources, and adopt effective strategies to translate economic growth into poverty reduction. The establishment of the Malawi Social Action Fund (MASAF), under the oversight of the Ministry of Economic Planning and Development (MEPD), was an important step towards achieving these objectives. 4. Poverty in Malawi. Poverty in Malawi is pervasive and manifests itself in several ways. The country has low average incomes which are distributed highly unequally; the poorest of society face acute deprivation. A Poverty Profile completed as part of MASAF I preparation established that the Gini coefficient for Malawi is 0.62, the highest for any African country with available data. For the poorest 20 percent of households even the most basic food needs are not fully met and are generally so pressing that families are at an irreducible minimum of non-food consumption. The indicators of social sector development are similarly unfavorable for the nation as a whole and worse for the poor. Infant mortality rate (134 per 1,000 live births), child malnutrition, stunting and wasting (48.7w and 5.4%), maternal mortality (620 per 100,000 births) and prevalence of disease including the spread of Human Immuno-Deficiency Virus and Acquired Immune Deficiency Syndrome are very high compared even to other Sub- Saharan countries. 5. There is a significant rural-urban, geographical, and gender bias in the incidence of poverty in the country. Ninety-five per cent of the total Malawian poverty gap is found in rural areas. Most of the poor, and nearly all the core poor are among the smallholder households. Even among the poor households, inequality is significant. The bottom half of the smallholder - 2 -  households receive only 15 percent of the income, while the top 10 percent receive 35 percent. Regional variation of poverty is equally significant. The Southern Region which is most populous and accounts for 51 percent of total households in the country, has a higher share of poor households (66 percent). Some of the pockets of most severe poverty and highest densities of the poor are found along the Mozambique border. Poverty differential by gender is similarly significant. Female-headed households (FHHs) have generally less income and a higher dependency ratio. Male-headed households constitute 75 percent of all households in the country. Yet the chance of a male-headed household being among the poorest 40 percent is only one in three while that of a FHH being in this group is one in two. Rural female-headed households also account for a much larger share in the national poverty gap than their representation in the total population. 6. Household Food Insecurity. Looking at the sectoral dimensions of poverty, one finds that food insecurity is a pressing problem for the poor. Most smallholder households run out of food nearly four months before the next harvest. Labor demand in rural areas is minimal, and farm income is the mainstay of the poor. Yet constraints to smallholder productivity continue, perpetuating poverty and hunger. The small size of holdings and restrictive land laws which prevent pooling, poor quality of land exacerbated by continued soil erosion, a conspicuous lack of irrigation making agriculture vulnerable to the low and unreliable rainfall in the country, lack of agricultural equipment and limited credit availability that prevents adoption of improved seeds and fertilizers--all these have kept yields very low and farm outputs insufficient for basic food needs of the poor. For many people in rural areas, coping mechanisms include partial hunger. 7. The level of off-farm rural incomes has been falling due to declining real wages and slow growth in labor demand. The minimum wage, a good proxy for market wage in rural areas, has declined consistently in real terms. The demand for ganyu (casual labor) is growing much slower than the rate of population growth. A long run food security strategy for Malawi would require improving both smallholder productivity and labor demand in rural areas. In the short- and medium-terms, this would call for an effective and well targeted safety net to mitigate seasonal and chronic poverty, while at the same time contributing to long-term development goals. 8. The First Malawi Social Action Fund Project was designed and is being implemented under the Poverty Alleviation Policy Framework. The policy incorporates various strands of development initiatives to provide a coherent basis for poverty alleviation in the country. In the past two years there has been an increased allocation of financial resources in the Public Sector Investment Program (PSIP) to the social sectors. For instance, in the 1997/98 development program, the percentage share of development resources to the social sector stands at about 64 percent with 26 percent going to education, 23 percent health, 8 percent to water, and community development respectively. This represents an increase of 21 percent over the 1993/94 allocation of 43 percent. 9. A further analysis of the PSIP shows that within each sector the bulk of the resources have been allocated to those projects that are rural in nature and have a more positive impact on alleviating poverty. These include projects in primary health care, primary education, rural water development and women in development. Under the Poverty Alleviation Program (PAP) the -3 -  task of alleviating poverty is seen as a shared responsibility of Government, Non-Governmental Organizations (NGOs), donors, private sector, and the communities themselves. In particular, the PAP is designed in such a way that the poor are able to participate in the identification, preparation, and implementation of their own project. It is in this vein that the Government is promoting a decentralized strategy for development. As a financing facility, MASAF is one of the key instruments that Government has put in place to promote community participation in national development activities. 10. Health Population and Nutrition. In general, the health status of most Malawians is poor and is worsening. The Social and health indicators for Malawi continue to be low: life expectancy is 44/45 years; 50 percent of children are about two standard deviations below expected height for age; the leading diseases; malaria, respiratory infections, and abdominal and gastrointestinal tract disorders, have not been contained. Acute infections (pneumonia and measles), cholera, diarrhea, and chronic infections (especially tuberculosis) continue to be serious problems, while sexually- transmitted diseases and Acquired Immune-Deficiency Syndrome are spreading rapidly. 11. High levels of morbidity and mortality among infants, children and mothers are the result of poor nutritional status, food insecurity, high prevalence of preventable diseases, poor hygiene and sanitation, low access to health and social services, and high illiteracy and fertility rates. These are manifestations of the poverty condition of Malawi--more widespread and deeper in rural areas than in urban areas. The mismatch, in the past, between the emphasis on curative, high technology urban-based service provision and the predominant disease pattern characterized by preventable (low cost), infectious, communicable and nutrition-related diseases exacerbated the situation. In the health sector, levels of morbidity and mortality are still high. Infant mortality rate stands at 133/1000 as at 1995 under-five mortality rate is 234/1000 and maternal mortality rate is at 620/100,000. These deaths are mostly caused by preventable diseases. To mitigate the situation, the sector will require interventions in primary health care including construction of rural health facilities among other activities. Ongoing efforts under the IDA-assisted Population, Health and Nutrition (PHN) Sector Credit have focused health policy and resource allocation in favor of low cost, effective, preventive-promotive health measures targeted at the rural and urban poor. The Ministry of Health and Population's (MOHP) Health Policy Framework advocates, among other things, targeting resources to priorities identified by the communities. 12. Constraints faced by Malawi with respect to PHN continue to be related to physical infrastructure, goods and services and human resources. The poor distribution and location and lack of health centers, inadequate staff housing, scarcity of potable water, and unavailability of drugs and other support goods and services are constraints that deter health staff from the periphery. Since the communities endure the burdens of these inadequacies, the communities can well identify them--waiting mothers' shelters, health centers, clinic dispensaries/maternity, staff housing, boreholes--as priorities for funding from MASAF. Some activities which lend themselves to immediate funding include: pit latrines, refuse disposal pits, clean water supply or drug revolving funds. MOHP policy on facilities, staff deployment, drug supplies and commodities, and standard designs will need to be sufficiently flexible to allow facilities to be constructed and drugs to be - 4 -  procured and sold by communities. 13. Education. In the primary education sub-sector, about 38,000 additional classrooms are required. Currently, IDA, USAID, ODA, ADF, KFW and EU are funding construction of primary schools in various parts of the country. In spite of these efforts, there is still a gap of over 30,000 classrooms. In addition to these, there is a severe shortage of learning materials, including books, in all the schools. Most of the teachers are unqualified with no professional support. The quality of the education is low with high dropout rates. It is estimated that with a repetition rate of above 20 percent, and with only 19 percent of a cohort completing the primary school cycle within the allotted time (190-81 intake) it normally takes a primary school pupil 15 years to complete the 8-year primary course. 14. Water. Notwithstanding the abundant water resources in Malawi, only 37 percent of the population are within the recommended norm of 0.5 km from the water source. When the distance is increased to 1 km, 48 percent have access to safe water. The national gap for portable water supply using ground water sources is estimated at 16,400 new boreholes, and 5,000 that require rehabilitation. Presently there are 9,700 boreholes in operation. Similarly only 5.5 percent of Malawian population have access to adequate sanitary facilities located within a convenient distance of dwellings. Nearly 30 percent of the population is without any sanitary facilities. 15. Infrastructure. In the infrastructure sector the existing total road network is approximately 15,000 km of which 32 percent constitute the feeder roads system. The main challenge for the Government at present is the inadequate financial resources to meet all the requirements for road maintenance especially for the primary road network, let alone for the feeder road system. This situation therefore necessitates that communities or the local level structures should participate in the development of new roads and maintenance of the feeder road network. Therefore improvements in the infrastructure will enable the communities to access social-economic facilities Sector Strategy 16. The Malawi government is committed to poverty reduction as its central issue. In August 1994, the government launched the Poverty Alleviation program (PAP) and appointed a new Presidential Council on Poverty Alleviation to oversee development of an implementing strategy. The Policy Framework for Poverty Alleviation Program, the output of this process, was formally issued by the President in 1995. A poverty profile, based on data from surveys in the early 1990s, has been jointly developed by the Government and the Bank (Malawi: Human Resources and Poverty, Profile and Priorities for Action). A summary of this profile has been circulated widely in the country and discussed in a Parliamentary seminar. Poverty was a core discussion topic at the December 1995 Consultative Group meeting, which welcomed the establishment of social and poverty indicators as a basis to measure development effectiveness. Updated information on the poverty situation has been compiled by GOM with the help of UNICEF, based on a 1995 survey of 6000 households. A Poverty Monitoring System is being established in the National Economic Council (NEC) to coordinate collection and analysis of poverty and social data on a national and geographical basis. - 5 -  17. The Government's poverty reduction strategy has two broad facets: (a) growth, which is widely shared, and (b) targeted interventions for the poorest. The strategy recognizes that agriculture and the rural sector must be a cornerstone of the near-term strategy. It also recognizes the fragile balance in the country's ability to maintain fiscal stability, achieve growth and implement programs for the poor. Project Objectives 18. The principal objectives of MASAF II is to continue to support the government's poverty reduction strategy. The project will contribute to poverty reduction by enhancing and sustaining the provision of and use of resource endowments by beneficiary communities. The project aims over the period 1999-2003 to start to address the need of socio-economic infrastructure in rural and urban areas, create temporary employment through a safety net programs for the very poor and/or vulnerable groups (orphans, street children, the incapacitated, AIDS victims, the aged, etc.). The project also intends to enhance in-country capacity to identify, prioritize and implement projects by training of national, regional and district agencies. Project Description 19. The four main components of the proposed MASAF II project are summarized as follows: (i) Community Sub-Project: - This component would finance demand- driven community based socio-economic infrastructure subprojects in rural and urban areas. The choice of sub-projects menu will include, inter alia: rehabilitation, extension, construction and equipment for sustainable basic and secondary education; health facilities; rehabilitation and construction of economic infrastructure such as markets, small scale water supply and irrigation, storm drainage and sanitation, access roads and bridges and natural resource management. Quality of construction is ensured by Technical Supervisors hired by the Project MU to supervise all structures built under MASAF. In addition, completion of health centers will be supervised by the district medical staff assigned to the sub-project. To ensure sustainability of sub-projects, MASAF will submit, on a quarterly basis, to the Ministry of Education its budget plans providing details on number of schools that will be built over this period and what would be the required recurrent expenditures to maintain and operate these schools. In addition and in order to assist the communities in maintaining the structures, MASAF will require each beneficiary community to establish at the onset of each project a Community Maintenance Committee (CMC) who will assume responsibility for the upkeep of the buildings. The communities collect rents from teachers occupying the houses built/rehabilitated by the project. Money collected from rents accrues to the Community Maintenance Fund administered by the CMC. (ii) Public Works Program: - This component finances labor-intensive works as a safety net scheme in targeted poor rural and urban areas. In so doing, the works would create temporary employment which would generate cash income to poor households. These works are selected from already identified Government projects which include, inter alia: road rehabilitation and maintenance, land husbandry and afforestation, water supply sanitation and drainage schemes, and rainwater collection. Beneficiary participation is - 6 -  fostered at all stages of the project. (iii) Sponsored Sub-Projects: - This component would finance initiatives identified by sponsors on behalf of the most deprived groups such as orphans, street children, the incapacitated, AIDS victims, the aged, etc. These sub-projects are identified, prepared, implemented, managed and maintained by the beneficiary groups with the assistance of sponsoring agencies. (iv) Capacity Enhancement and Studies: - The objective of this component is to strengthen the capacity of the Management Unit as well as support capacity building of all other stakeholders to implement subprojects. Specifically, it will finance training of national, regional and district agencies in the use of procedures, systems and criteria jointly developed with MASAF. In addition, the component is financing project relevant studies including, inter alia: annual beneficiary assessments, impact assessments and strategic studies to determine the future role of MASAF, using national agencies including the National Economic Council's (NEC) Poverty Unit. It would also facilitate learning from international experiences by MU and Government policy makers. Project Cost and Financing 20. The proposed project is estimated to cost US$76.1 million of which about 10t are in foreign exchange. The local contribution is in the order of US$10.1 million of which the major part is expected to come from community contributions. Project Implementation 21. The project is to be implemented over a 4.5-year period commencing in December 1, 1998 and ending in May 31, 2003. The MASAF Management Unit constituted to manage MASAF I continues to manage this follow-up project. The existing Operations Manual, as well as all manuals being utilized for implementation of the on-going project, have been reviewed and updated in order to reflect experiences gained during implementation of the first MASAF project and to include the outcome of the functional review. A new manual to cover activities to benefit the marginalized poor (under the SSP component) has been developed. Project Sustainability 22. Key success factors for the sustainability of MASAF II include but are not limited to: (i) enhanced capacity of beneficiary communities to identify, prioritize, supervise, monitor, maintain and operate projects; and (ii) increased women participation in community project committees, especially in the decision making process. The project is expected to enhance sustainability by addressing these factors in a coherent and effective manner. In addition, it is intended that the MASAF Management Unit and its field offices will be coterminous with the Project. The principles of community contribution, procedures to involve communities in projects, and criteria developed to support community initiatives will be retained. The MASAF approach would be adopted in regular sectoral programs of the Government. The skills learned by communities during the project in using and accounting for funds, building, maintaining and rehabilitating -7 -  infrastructure will be sustained by them. The transfer of skills to district staff, especially in the appraisal, implementation and monitoring of projects will help sustain the MASAF II processes and approach. Lessons learned from past operations 23. Experience gained from implementing the MASAF I and other projects in Malawi indicate the persistence of a number of problems that impede effective sector development namely: inadequate information flows and coordination between key project implementers; inadequate training on the part of many key project implementers; late disbursement of funds caused by the inability to provide work justifications; and lack of government counter part budgetary allocation. It is intended that, MASAF II will do an assessment of the above problems; address them during negotiations; and would incorporate a solution to these problems in the design of the Project Implementation Manual. Poverty Reduction and Alleviation. 24. The project will help reduce poverty by enhancing and sustaining the provision of and use of resource endowment by beneficiary communities. The project component dealing with public works program is financing labor- intensive works as a safety net scheme in targeted poor rural and urban areas and in so doing is creating temporary employment. Temporary employment will increase rural and urban income and boost the rural economy. The sponsored sub-projects would ease the burden on the most vulnerable groups such as orphans, street children, the incapacitated, AIDS victims, and the aged etc. SSP sub-projects would be identified, prepared, implemented, managed, and maintained by beneficiary groups with the assistance of sponsoring agencies. Environmental Aspects 25. MASAF II is a Category B project. An environmental screening, review and assessment of potential environmental impacts of investments is an integral part of the CSP throughout design, implementation, supervision and monitoring. In addition, as part of the socio economic infrastructure supported by the project, CSP is facilitating environmental institutional capacity building to ensure awareness, enforcement and monitoring of environmental standards and guidelines, as well as promote sub-projects aimed at improving communities' management of their natural resources. The CSP component is undertaking the following: (i) including environmental aspects in appraisal and monitoring criteria for sub-projects, through use of recently developed checklists; (ii) carrying out environmental assessment of MASAF program; (iii) raising community awareness of environmental issues; and (iv) financing natural resource-related projects such as afforestation, irrigation, fisheries (in both CSP and PWP). Contact point: The InfoShop The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: (202) 458-5454 -8-  Processed by the InfoShop week ending August 11, 2000. -9-  Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. Malawi: Human Resources and Poverty: Profile and Priorities for Action World Bank, November 1995. A simplified design for construction of health facilities under the Project has been agreed to. - 10 -