Madagascar - Pilot Regional Development and Municipal Management Project (LIL)

Report No. PID7362 Project name Madagascar-Public-Private Partnership(@) and Information Management for Regional Development Project Region Africa Sector Institutional Development Project ID number MGPE62628 Borrower(s) The Republic of Madagascar Implementing Agencies Ministry of Town and Country Planning, Antananarivo, Madagascar Tel: (261) 20 22 35617 Environment Category C Date Initial PID prepared February 3, 1999 Date Revised PID January 31, 2000 Projected Appraisal Date December 1999 Projected Board Date February 2000 (LIL) Country Background 1. In spite of its many endowments and inherited advantages, Madagascar's GDP has only grown at an annual average of 0.5% on the average over the past three decades, making it one of the poorest countries in the world. During that period of time, low GDP growth combined with a population increase of about three percent annually have led to worsening living standards. As a result, poverty has worsened, from affecting two-fifths to three-quarters of the population. The performance of the two main non-agricultural economic sectors, mining and tourism, remains sluggish and the Government has yet to effectively promote investment in these sectors. Potential exports of mineral resources are estimated at US$ 600 million by the end of next decade as compared to US$ 25 million in 1997 while other mineral exports, such as semi-precious stones, could represent an estimated US$ 100 million. Tourism grew an average of 10% in the 1990s, but Madagascar's annual revenues from tourism are not comparable to those of its much smaller neighbor country, Mauritius. Madagascar's many tourist attractions, including its unique topographic and bio-diversity, should allow it to compete with its neighbors in attracting tourists from East Asia, Europe and the rest of Africa. 2. To tap its main sources of growth and restore economic growth on a sustainable basis, Madagascar would need to tackle two main challenges: (a) foster the supply response of the private sector; and (b) change the role of the State in the context of the decentralization process envisaged in the recently revised Constitution. Sector Background 3. Madagascar's territory (592,000 square km) is as big as France and  Belgium put together, while its total population barely exceeds fourteen million inhabitants. It consists of about 28 homogeneous economic regions that have been identified as a result of a major UNDP-financed study that was carried out in the nineties for the Ministry of Economy and Planning ( Regions and Development, Regional Programmes and Local Projects; Ministry of Economy and Planning/United Development Programme. OPS/UNDP Project MAG/89/018, May 1991). This report also highlights the importance of the involvement of local people and business communities in the decision-making process for investments at the regional and local levels. Regions and their capital cities are seen as engines of growth for Madagascar, especially when investments are private sector-led. 4. Among them, the Menabe region has shown remarkable progress since 1995. It already attracts significant private investment and, as a consequence, has experienced substantial growth in fishery, fish farming and tourism. As for the Anosy and Mangoro regions, they may soon benefit from major private investment in the mining sector -- ilmenite and nickel extraction projects, respectively. For the private sector to be more active and expand further in these regions, major improvements in public investment efficiency and integration at the regional level are highly critical. 5. In the Menabe region, some data collection and analytical work has already been carried out by the Regional Development Committee (RDC) in preparation for the design of the Regional Development Framework (RDF). Continuation of this work is required to provide a basis for developing the regional Public Investment Program (PIP), in close consultation with the RDC and in coordination with donors. There is also a need to set up a sustainable GIS-based (Geographical Information system) information and knowledge management system. In the other two pilot regions, Anosy and Mangoro (especially the latter), this work has already started and should be pursued under the project with methodological assistance brought by the latter to the regions. Main Sector Issues 6. Recent economic and sector work has highlighted some of the key policy and institutional issues affecting Madagascar's economic performance. An important issues is the economy's heavy dependence on public investment, which accounts for more than 60 percent of total investment, and of which a substantial part is devoted to regional and local efforts (social infrastructure, feeder roads), rather than national ones (highways, ports, airports). Also, public investment remains heavily dependent on external financing sources and its management is quite centralized and divided by sectors. 7. The political decentralization that the country underwent in 1992 with the first elections of municipal councils and mayors has not been accompanied by a decentralization of the decision-making process for public investment. It is still managed by sector ministries at the central level, sector by sector, with limited consultation of stakeholders, in particular the business community. 8. Furthermore, at present, the PIP preparation process is mostly characterized by a top-down and sector-specific approach, with little, if any, reference to regional economic development frameworks. As a result, -2 -  local investments rarely support each other, are geographically unrelated and poorly maintained, and are inadequate to create a favorable business environment to attract foreign and national private investors that could act as the driving force for economic growth. 9. The problem stems in part from the absence of appropriate tools and from weakness in the existing ones. There is a need for new managerial and operational tools, such as: (a) regional development frameworks to ensure better coordination of public and private investments; (b) participatory mechanisms giving key local stakeholders a voice in local and regional public investment decision-making; (c) regional and local socio-economic and environmental inventories and reliable geographic data; and (d) improved coordination of GOM programs and donor interventions at the regional level. 10. Ensuring greater coherence between local priorities, development programs and national economic objectives is essential to Madagascar's development. To this end, decentralizing the decision-making process for public investment, ensuring a better donors' coordination at the level of economic regions in Madagascar and building strong public-private partnership on local and regional priorities would be an important building block towards an effective decentralization process. In this context, the preparation of Public Investment Programs (PIPs) at the regional level becomes a key priority. This would ensure better prioritization of investments in the face of limited human and financial resources, more ownership of infrastructure, more integration of sub-projects, and ultimately better maintenance programming. Rationale for Bank intervention 11. One of the main strategic objectives of the Country Assistance Strategy (CAS) is to strengthen the public sector's ability to deliver quality services, thereby creating a business environment that enables the private sector to thrive. The project is expected to significantly contribute to achieving this objective by identifying appropriate methods of incorporating the views of key regional and local stakeholders--in particular, those in the private/non-governmental sector--in the decision-making process which defines regional development and local investment priorities. 12. Regional and local economic growth led by private sector investment is critical to development in Madagascar. Decentralizing the decision-making process for public investment which must support private sector efforts in order to achieve economic growth, and building public-private partnerships in support of regional and local priorities, should contribute to the promotion of more sustainable development. 13. Creating a better business environment in each region requires better and more productive public investment. Such investment requires better coordination across sectors, i.e. improved geographic integration, and a systematic search for ways to create synergy between public and private sector investment. Better coordination and synergy, in turn, call for a decentralized decision-making process for preparing sub-national PIPs at the - 3-  level of the economic regions. 14. Such improvements can only be achieved through a major change in regional planning and investment programming processes. This change will require the introduction of appropriate regional information tools to be designed, tested and used on a pilot basis by this project. These tools are expected to improve key local stakeholders' knowledge and understanding of the main regional issues and help them make better decisions regarding regional development planning and investment programming. 15. Conceived as a Learning Innovation Loan (LIL), the project will test new approaches and develop locally based mechanisms, methodologies and information systems to ensure a bottom-up and consultative process for the preparation of regional and local development frameworks and investment programs. Such an experiment would take place in the context of building stronger and closer public-private partnerships. As a key element in supporting decentralization efforts by the Government, the project will also design and test appropriate tools to strengthen capacity to plan, execute and maintain investments at the local level. Based on results during implementation and drawing from lessons learned, the approaches, methodologies and information systems, if adopted, could be extended to other regions in one or several provinces as part of a follow-up operation. Project Objective 16. The objective of this project is to assist the Government of Madagascar (GOM) and the country's economic regions in developing model methodologies and tools that will promote regional development and facilitate investment programming. Project Setting and Key Activities 17. This will be done on a pilot basis in at least three economic regions, Menabe, Anosy and Mangoro (see map 30536), along with other regions that may choose to participate as the project unfolds. It is expected that these methodologies and tools will be adapted for adoption in additional economic regions. 18. The project will develop the following approaches, methodologies and tools: (i) Partnership between the public and private sectors, to better coordinate public and private investments and to create a business environment conducive to private sector growth in the economic regions; (ii) Participatory regional and local investment planning and programming processes, involving key stakeholders in the regions, in particular, the elected mayors, the business community and civil society; and (iii) Regional information and knowledge management systems, using current economic, geographical and social statistical data to guide decision-makers in defining regional and local investment priorities. 19. The proposed LIL will be instrumental in designing, testing in the three selected pilot regions, developing, and disseminating replicable approaches and methodologies for decentralized infrastructure management at the level of Malagasy economic regions. In particular, it will help: - 4 -  (i) assess the feasibility of a bottom-up and participatory preparation of three year rolling Regional Public Investment Programs (PIP) within Regional Development Frameworks (RDF) as reference documents for ensuring better donor coordination and closer public and private partnerships; (ii) design appropriate tools, approaches and methodologies that strengthen local management capacity to program, maintain and operate infrastructure projects included in regional PIPs; and (iii) disseminate relevant documentation and learning material by creating appropriate decentralized information systems (national, regional and local) which facilitate inter alia: the cross-fertilization of success stories and best practices in regional and municipal development; the exchange of information on financing opportunities and regional/municipal projects; the participatory preparation of regional PIPs; and the quick assessment of municipal financial and technical capacity to actually maintain infrastructure projects included in regional PIPs. Project Description 20. The proposed project will support the activities as described below: Component A: Pilot Public-Private Partnership for Regional Development Planning and Investment Programming (US$ 2.96 million) The objective of this component is to test, on a pilot basis, the decentralization of the decision-making process for regional development planning and identification of investment programming priorities, including strengthened public-private partnerships, in the Menabe, Anosy and Mangoro regions (and other economic regions deciding to adopt the process). To achieve this objective, this component will support the following activities by the three RDCs: (a) capacity building for RDCs in strategic planning and investment programming, through thematic workshops and seminars on key regional and local issues; (b) participatory preparation and completion of RDFs, with technical assistance provided by the project to support the RDCs' Technical Commissions in their discussion and selection of economic scenarios for growth and of regional development priorities. Particular attention will be paid to the economic, social and environmental implications of different scenarios and priorities; (c) participation of RDCs in the preparation of regional PIPs that are fully consistent with the RDFs and GOM-Donor coordination for the financing of regional PIPs; (d) creation of Regional Data Units (RDUs) to collect, update and disseminate information and data to RDCs; (e) creation, on a pilot basis, of Public Information Centers (PICs) as an off-shoot of the RDUs in two of the three selected regions (Menabe and Anosy) to distribute materials about regional and local development potential, public and private projects, and business opportunities; and (f) creation of regional economic accounts (REAs), on a pilot basis, (following the ECOLOC model) that can assess the impact of both public and private regional investments on local economic growth and welfare of residents. Provision has been made to finance studies and other support activities as well as the contract manager's fees and the increase in RDC operating expenses required in order to implement component A. - 5 -  Component B: Regional Information and Knowledge Management (US$ 0.78 million) The objective of this component is to put together a package of institutional arrangements, approaches, methodologies and tools to improve regional development knowledge that could be applied throughout the country (the "Public-Private Partnership and Information Management" package). In an initial phase, to make it possible for the RDCs to implement Component A of the project, Component B will involve the following activities: (a) design of methodologies for preparing: (i) RDFs; and (ii) regional PIPs; (b) design of a Regional Information System (RIS) to provide each region with data relevant for: (i) strategic planning; (ii) investment programming; and (iii) regional economic accounting; (c) design and creation of a Regional Economic Accounting (REA) system; Later on, building on the experience gained through the implementation of Component A, activities will include: (d) follow-up and ex-post evaluation of preparatory methodologies of RDFs and regional PIPs, and preparation of reference methodologies; (e) follow-up and ex-post evaluation of use of RDUs and finalizing of the RIS; (f) follow-up and ex-post evaluation of establishment and use of REAs; (g) design and production of information material; and (h) seminars on regional planning methodologies. Provisions have been made to finance additional activities and the increase of operating costs (supported by MATV) for implementation of components B and C of the project and the monitoring of component A. Component C: Dissemination of the model to other regions (US$ 1.35 million) The objective of this component is to begin disseminating the regional model designed under Component B and tested under Component A to other economic regions in Madagascar. The activities to be carried out will include: (a) support to the Regional and Country Planning (RCP) Unit, which is responsible for support to regional planning and dissemination of information about the regional investment planning and the programming model designed under component B; (b) development of communication skills; (c) dissemination of regional pilot experiences; and (d) support to the establishment of RDCs in other economic regions. Provision has been made to finance additional activities as needed to support the objectives of this component, in particular institutional studies in the event of the creation of autonomous provinces. Project Financing 21. The proposed IDA credit is US$ 4.6 million. The Government of Madagascar (GOM) is expected to contribute US$ 0.5 million which represents GOM's in-kind contribution in form of staff, offices and equipment made available for the duration of the project, without any actual disbursement of counterpart funds. -6-  Project Implementation 22. Overall project implementation will be supervised by an interministerial committee headed by the Prime Minister or his representative. All relevant line ministries involved in the PIP preparation will participate in the committee, including, the Ministers (or their representatives) of Finance and Planning, Town and Country Planning, Budget and Decentralization, Agriculture, Environment, Industry and Mining, Public Works, and Tourism. This committee will ensure (on an ex-post basis) that project activities are carried out and that the corresponding IDA funds are used in accordance with the objectives and modalities spelled out in the Development Credit Agreement. It will also facilitate sector and donor coordination for the preparation of the pilot regional PIPs. Component A 23. The RDCs will be responsible for the implementation of the activities included in Component A of the project. IDA funds allocated to this component will be made available to the RDCs through a special account opened by the Ministry of Town and Country Planning (MATV) in the name of the contract manager selected (private/non-governmental sector) and managed by the latter. This manager will be responsible for procurement of consultants and goods upon request of the RDCs and on their behalf. 24. The executing agency (contract manager) for this component will be selected on a competitive basis. A management contract (Convention) acceptable to IDA will be signed between the Borrower (represented by MATV) and the selected contract manager. This will be a condition for Credit effectiveness. This contract will specify the management system (contracts and financial management) to be put in place to monitor project activities, the reporting system, the audit requirements (see paragraphs below on Financial Management System and Audits), and the management fees (up to a maximum of 10t of the value of contracts actually managed). Memorandums of Understanding (Protocoles d'accord) acceptable to IDA will be signed between each RDC, the MATV and the contract manager for Component A. Each memorandum will specify the respective roles and responsibilities of each party. 25. The contract manager to be selected as the executing agency for Component A will (i) assist the RDCs in the preparation of their annual program of activities; (ii) on the basis of these programs, establish the corresponding strategic procurement plans (subject to prior IDA review); (iii) manage consultant services contracts (prepare terms of reference, select consultant, ensure quality control) related to the implementation of the program of activities; (iv) prepare progress and evaluation reports to be transmitted to the Borrower and RDCs; and (v) contract out required financial audits. 26. Consultants to be hired by the contract manager on behalf of RDCs will be selected according to the Guidelines on the Selection and Employment of Consultants by World Bank Borrowers (January 1999). A special account will be opened for small consultant contracts in an amount less than the equivalent of $20,000.00 to give more flexibility and responsiveness to the RDCs. Consultant contracts above $20,000 will be submitted for direct payment by IDA after approval of the applicable invoices by MATV (RCP unit). - 7 -  Components B and C 27. Implementation of Components B and C of the project will be undertaken by the Town and Country Planning Directorate of MATV through a Regional and Country Planning Unit (RCP Unit) to be created within the Ministry and staffed prior to Credit effectiveness. This pilot unit will be appropriately staffed (as part of the government's contribution to the project) through full and part time re-assignments (mostly within the Ministry) of civil servants specializing in: (i) regional planning, (ii) regional economy and investment programming, and (iii) GIS-based information systems. A coordinator, to be judged acceptable by IDA, will be appointed by MATV and financed under the IDA credit to (i) manage the unit for the duration of the project, (ii) execute the activities included in Components B and C of the project, and (iii) liaise with project stakeholders (principally the RDC, the interministerial committee and the contract manager for Component B). An accountant will be recruited for the duration of the project and will mentor a counterpart within the Ministry. 28. The RCP unit will also act as the project's Technical Secretariat for the interministerial committee and will prepare quarterly progress reports and carry out mid-term and ex-post reviews of the project. 29. As the executing agency for activities included in components B and C, the pilot unit will be in charge of managing consultant contracts and procuring goods required by the activities described. The selection of consultants and the procurement of goods will be undertaken in accordance with Bank guidelines. A special account will be opened specifically for the payment of local consultants and goods. 30. Incremental operating costs incurred by MATV in setting up and maintaining the RCP Unit and acting as the technical secretariat for the duration of the project will be covered under the IDA credit. Project Sustainability 31. The extension to other regions of such methodologies and approaches is critical to the overall question of sustainability. Institutions to be strengthened as well as mechanisms and approaches to be carried out on a pilot basis in this project are not only expected to remain after project and contribute to more sustainable infrastructure service provision, but they are also expected to be adapted, replicated and developed progressively in other regions and communes of Madagascar. Adoption of the proposed approach and potential extension in other regions will mainly rely on: (i) successful outcomes of the proposed project; and (ii) Government's commitment, which will have to go beyond its short-term and obvious interest in carrying out that experience in regions that are subject to substantial private investments. It is expected that successful pilot implementation of this LIL will be convincing enough for GOM to continue and expand it with increased use of its own resources. Lessons Learned 32. The recent experience in Menabe/Morondava has shown encouraging signs that such an approach could be feasible for making decisions on priorities for public investments which are locally financed (the so-called "302 millions block grants"). The Regional Development Committee makes decisions - 8 -  on and supervises the implementation of priority investment that are locally financed under a block investment grant allocated to local governments on a regional basis. By building on this first experience, expanding the decision-making process to externally financed investments of local and regional interest, and initiating a similar exercise in another economic region, the Bank would greatly contribute to building the foundation for gradual decentralization of resources and decision-making in Madagascar. Poverty Aspects 33. Creating the conditions for wealth through private sector-led growth and economic development in the regions of Madagascar is likely to be the most efficient and effective strategy for reducing poverty in Madagascar. The three selected regions are among the poorest in Madagascar and in the world. However, prospects for private investments are high in these regions. The proposed project would contribute to building public-private partnerships necessary for these prospects to materialize. It would also help optimize the benefits and positive impacts of the investments on the poor by strengthening local capacity to better plan and program social infrastructure services. Environmental Aspects 34. The proposed project is classified as category C. An environmental assessment of this project was not conducted as part of its preparation, since the project deals with institutional strengthening and knowledge management, with the latter including data on environmental conditions in the pilot regions. However, as necessary, the National Environment Office (ONE) will prepare assessments for priority projects identified at the regional and local level. These assessments will be taken into account in the PIP decision-making processes. Assessment of the environmental impacts of private investments are currently carried out by private investors, then reviewed by ONE. Moreover, the pilot regions are subject to a regional environmental assessment in the context of the Environmental II Project. Project Objectives Category 35. Capacity building at local and regional level through participation of all key stakeholders in making investment decision is the main objective of this project. 36. Contact Points: The InfoShop The World Bank 1818 H Street, N.W. Washington D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Task Manager Patrick P. Canel The World Bank 1818 H Street, N.W. Washington D.C. 20433 -9-  Telephone: (202) 472-4767 Fax: (202) 473-8249 Note: This is information on an involving project. Certain components may not be necessarily included in the final project. Processed by the InfoShop week ending Fabruary 4, 2000. - 10 -