Madagascar - Rural Development Support Project

Report No. PID8404 Project Name Madagascar-Rural Development Support Project (@ Region Africa Regional Office Sector Agricultural Extension; Irrigation & Drainage; Livestock; Research; Other Agriculture Project ID MGPE51922 Borrower(s) GOVERNMENT OF MADAGASCAR Implementing Agency Address MINISTRY OF AGRICULTURE (MOA) Ministry of Agriculture (MOA) Antananarivo, Madagascar Contact Person: FranOois Rasolo and Harison Randriarimanaha Tel: 03311-017-44 or 03207-026-53 Fax: 261-20-2240130 or 261-20-2240130 Email: fofifa-dg@dts.mg or updr.har@dts.mg Environment Category B Date PID Prepared January 4, 2001 Projected Appraisal Date February 26, 2001 Projected Board Date May 8, 2001 1. Country and Sector Background Sector performance and issues:Poverty in Madagascar is widespread and has almost doubled in the last 3 decades largely due to an average annual decline in per capita GDP by two percent. As a result, about 71 percent of the population is poor today. The vast majority of the poor (about 80 percent) live in rural areas. The rural sector provides livelihood for three quarters of the total estimated population of 14 million, contributes to one third of the GDP, and forty percent of exports. The Malagasy agriculture is dominated by irrigation with an estimated one million hectares or forty percent of total cultivated areas. The livestock sector contributes about 15 W of agricultural GDP and provides part or total income for over 60 W of national households. Intensive dairy production is a fast growing activity and there is still scope for growth. Most of the livestock is kept by small-holders, one third have less than five cattle. Livestock production could therefore be a means of poverty reduction. Nevertheless, performance of the sector has been disappointing, owing to low levels of productivity and decreasing incomes. There are two main causes including (i) the legacy of past misguided policies with heavy dominance of the state in productive activities and which, at times, resulted in negative protection rates for rice, the single most important agricultural commodity, of up to 43 percent; and (ii) rural sector-specific constraints, namely weak rural infrastructure such as roads, resource degradation and low soil fertility (total annual costs of environmental degradation, from soil erosion, silting, declining soil fertility and loss of forests has been estimated at 5W-15t of GDP), poorly functioning rural institutions, and inefficient production technologies.Since the mid-1990s, thanks to policy reforms that include a  sharp devaluation of the local currency, reduction of import barriers, liberalization of markets, and the progressive privatization of state enterprises, the incentive structure has been fairly balanced. Today, the agricultural sector is innately competitive owing to almost uniquely favorable natural conditions for producing commodities, and relatively low labor costs. Now, Government's efforts put an increasing attention to removing the sector-specific constraints, in order to generate an expanded supply response to the enhanced incentive environment.Government's strategy to address the sector-specific issues:To address these rural sector issues, the Government of Madagascar has adopted a rural development strategy which is built around the following objectives:(a) Rationalizing the role of the state in the rural sector by focusing on support services that increase farmers' productivity, and consolidating and further improving the incentive environment for the rural sector;(b) Increasing the allocation and more efficient use of fiscal resources in rural areas towards economically-efficient and beneficiary-driven productive investments and activities with the view to deepen the competitiveness of commercial and food crops and to increase exports; and (c) Strengthening decentralization and de-concentration processes of agricultural development in order to ensure genuine ownership by the stakeholders of investments and hence, their sustainability.To operationalize the above rural development strategy, the Government has developed and institutionalized the Rural Development Action Plan (Plan d'Action pour le Developpement Rural - PADR) through a decree (Decret No 022/99 of January 20, 1999) issued by the Prime Minister. An Inter Ministerial Council for Rural Development ("Comite Interministeriel d' Orientation et de Validation" - CIOV) has been established to oversee the PADR, along with a secretariat, the "Equipe Permanente de Pilotage" (EPP), that is designed as the operational branch of the Ministerial council. The EPP is chaired by a representative of the Ministry of Agricultural Research and comprises high officials from all other key Ministries involved in rural development. The PADR has identified five main policy directions for sustainable rural development, within which programs and projects would be formulated and implemented. This includes:Sustainable Growth in Agricultural Production - more focused application of current available technologies, in particular those that aim at sustainable intensification, more explicit linkage between agriculture and the environment including reduction of slash and burn agricultural practices, acceleration of the process of land titling, and strengthening the capacity of user associations in the maintenance of publicly-funded rural infrastructure; Promotion of partnerships in Rural Development - divestiture of the state from productive activities, greater involvement of producer organizations in the provision of services, and special attention to the development of rural credit institutions;Institutional and Regulatory Reforms - clarification of the responsibilities of all rural development partners, support for decentralization, and reform of the regulatory framework; Regional Food Security - improvement of rural transport and better emergency preparedness; and Improvement of Rural Social Services - Enhanced access to potable water and sanitation, social services and habitat. 2. Objectives The Context. The PADR is an institutionalized process that seeks to promote the identification of poverty reducing, income generating rural development programs and projects that (i) explicitly takes into account -2 -  the need to integrate the activities of all rural sector activities; and (ii) gives emphasis to decentralized decision making, including an active role of stakeholders in programs and projects' identification and implementation. The PADR process has a nationwide scope, and would progressively be the framework within which all donors and government-funded projects are selected and funded. It draws upon the operations of twenty regional working groups ("Groupes de Travail de Developpement Rural" - GTDR), one in each of the country's twenty agro-ecological regions. Each GTDR is composed of (i) representatives of local authorities including "Prefets", "Sous-Prefets"and Mayors; (ii) de-concentrated services of line ministries; (iii) farmers' organizations; (iv) programs/projects managers and /or NGOs representatives, and; (v) private sector agents. The GTDR which prepares a regional development program ("Programme Regional de Developpement Rural" - PRDR) is the locus where programs and projects are identified and programmed. At the national level, a PADR steering committee ("Equipe Permanente de Pilotage" -EPP) ensures overall coordination of programs and projects. The PADR would be reflected in the Government's Letter of Development Policy (LDP) that is under preparation and which would be reviewed during appraisal.The Project. The Rural Development Support Project (RDSP) is designed to contribute to the implementation of programs and projects formulated under the PADR, and covers all of the twenty GTDR. Its main objective which reflects that of the PADR would be to increase incomes and reduce poverty while preserving the natural resources base, by: (i) fostering the development of revenue increasing activities; and (ii) supporting decentralized mechanisms, at the regional and communal levels, for the formulation of rural development programs and projects. The instruments for achieving these objectives include: (a) support the identification and implementation of demand-driven productive sub-projects by rural communities and producers organizations, for agricultural production, minor productive infrastructure, and off-farm activities, through a matching grant system; (b) promotion of an effective demand driven approach to technology generation and transfer through a competitive grant program for agricultural research, a sponsored research program, and the provision of extension services and training, mainly required for the implementation of the sub-projects; (c) development of institutional and technical capacities at the regional and communities levels to formulate and implement regional development programs, as well as support to farmers' institutions;(d) support to the operation of the PADR process, to the Ministry of Agriculture (MOA) and Ministry of Livestock (MOL) statistical units and to rural policy development; and (e) project management and monitoring . 3. Rationale for Bank's Involvement IDA's funding in the agricultural sector has been decreasing during the last few years, with no new financing to the sector for several years. However, government has called upon the Bank's expertise to assist in the preparation of the Rural Development strategy and the design of the PADR. In this context, it has utilized its credibility in rural development to crystallize and rally other donors around rural poverty issues. IDA's support to the proposed project, which is one of the first instrument to implement the PADR, is critical to establish the PADR as the unifying mechanism for rural development programs in Madagascar. 4. Description -3-  The proposed project comprises five components: (i) Productive Investments ; (ii) Support Services; (iii) Community Development; (iv) Capacity Building and Policy Development; and (v) Project Administration and Monitoring. (i) Productive investments. Under this component, the project would provide partial contribution to demand-driven productive sub-projects that are privately owned and benefit the private owners, in particular the very poor grassroots rural communities, producers organizations and small entrepreneurs; through a matching grant system with up-front farmers contribution of at least 20 percent of project cost. (ii) Support Services. This component would support: (i) the provision of extension and training services, to rural communities and producers organizations (RC&PO) and to small entrepreneurs, directly required for the implementation of the demand-driven productive sub-projects; (ii) support to small scale demand-driven and well targeted extension and training services not necessarily linked to productive investments; and (iii) support to agricultural research through competitive grant programs and sponsored research (CGP&S). The latter support would be mainly linked to the productive investments (iii) Community Development. Under this component, the project would strengthen the RC&PO. This includes support to (a) the preparation of participatory community development plans and producers organizations business plans; (b) the development of RC&PO's organizational and managerial capabilities; and to (c) workshops to facilitate beneficiaries participation in the project (interchanges with other communities, participatory approaches, use of revolving funds, etc. (iv) Capacity Building and Policy Development. This component would provide support to: (a) the PADR and PRDR processes; (b) MOA and MOL to (i) develop a program for producing agricultural statistics in a sustainable manner; and to (ii) upgrade quality and skills of subject matter specialists for extension services; (c) monitor and review government's adherence to the LDP; and (d) strengthen environmental assessment. (v) Project Administration and Monitoring. This component would support (a) project management and administration including the establishment and operation of a Project Support Unit at the Central level and in each agro-ecological region; and (b) monitoring and evaluation. 5. Financing Total ( US$m) Total Project Cost 87.5 6. Implementation Implementation period. Five years. Project's Execution. Ministry of Agriculture (MOA)Project's Oversight, Coordination, Management and Implementation Arrangements.The implementation of the project addresses two issues, namely the decentralized formulation of project's activities, and their implementation arrangements. At the national level: (a) a Project Steering Committee would hold oversight responsibilities and - 4 -  guidance on project's activities; (b) the EPP would act as the national coordinating body of the project's activity programs; and (c) a Project Implementation Unit (PIU) would be entrusted with overall administration of project execution activities; andAt the regional level: (a) GTDR would be responsible for the programming of project's activities at the local level; and (b) Regional Project Implementation Units (RPIU) would be entrusted with execution responsibilities; Project Steering Committee (PSC) would be chaired by the Minister of Agriculture (MOA). Its membership would be established on a bi-partisan manner between the government's representatives and the rest of the civil society. The PSC would: (i) ensure that project's modus operandi is consistent with the PADR's orientation, namely the participation of key stakeholders at the local level; (ii) review for approval, the project's annual consolidated work program and budgets submitted by the PIU in consultation with the EPP; (iii) review the progress toward achieving the project's objectives; and (iv) take corrective actions relative to project implementation. The PSC would organize at least one annual meeting with the government and the donors participating in the project's financing or complementing project activities.Project Coordination. Coordination of project's activities would be entrusted to the EPP at the national level, and the GTDR at the regional levels. The GTDR play the critical role of identifying development opportunities, assuring regional coherence, promoting inter-institutional coordination, and fostering synergy and complementarity with other programs underway within the region. Within the guidelines established in the project operational manual, they would also have the power to approve or reject proposals for investments submitted by beneficiaries for funding by the Regional Project Implementation Unit (RPIU). Therefore, careful attention would be paid for a balanced membership composition of the GTDR. About one-third of the members would be representatives from private and non governmental entities, one-third from regional administrative and technical services, and one-third from farmers representatives.Project Management. A PIU would be established within MOA to serve as the technical arm of the PSC. The PIU would be responsible for overall management of the project activities. In particular, it would be responsible for: (i) the coordination of the preparation and implementation of the different project components; (ii) the consolidation of the annual work programs and budgets and (iii) the establishment of a decentralized monitoring and evaluation systems of the various project activities. Given the technical characteristics of some of the project activities and the need to ensure future mainstreaming of support into the activities of ministries, PIU would coordinate the implementation of the following project activities as indicated below:(a) Component 2 (Sponsored Research Programs) with the National Center for Applied Research for Rural Development - Centre National de la Recherche Appliquee au Developpement Rural ( FOFIFA); (b) Component 4 (Policy Development) with the MOA's Policy Unit for Rural Development (Unite Politique de Developpement Rural -UPDR]); and . (c) Component 5 (Monitoring) with the MOA's UPDR. The PIU would be staffed selectively, including (i) a national project coordinator; (ii) a rural development/environment specialist to oversee the productive investments component; (iii) an agricultural research specialist for the sponsored and competitive grant programs; (iv) a producer organization and capacity building specialist; (v) a procurement specialist; (vi) an accounting/financial management specialist; and (vii) a monitoring and evaluation specialist. PIU's staff would be recruited in accordance with - 5 -  the Bank's Guidelines for the Recruitment of Consultants. At the regional level, a small Regional Project Implementation Unit (RPIU) would be established for each GTDR, to carry out management and project's implementation responsibilities. This would reduce potentials for delays in funding approval and disbursements. RPIU which would be assisted by a panel of peer reviewers approved by the national project's coordinator, who would carry out necessary technical, economic, social and environmental evaluations of sub-projects, to enable the GTDR to make educated programming of investment projects. The panel of peer reviewers would meet at least bi-monthly to make recommendations on the sub-projects. Upon approval by the GTDR, the sub-projects proposals would be forwarded to RPIU for disbursement to the provider of goods and services associated with the sub-projects or to the communities. The RDSP would use community mobilization (rapid rural appraisal) methods to assist potential beneficiaries in the identification of productive sub-projects at the community/village level. In this context, beneficiaries would be able to contract out through state sector providers or private sector providers the assistance required for the identification, preparation and implementation of the sub-projects. Consultant services required for these activities would be procured in accordance to "Guidelines on the Use of Consultants (January 1997, revised September 1999 and January 1999). To foster sustainability of sub-projects' activities as well as accountability of beneficiaries, a cost recovery mechanism would be promoted at the community or PO level. Funds would be recuperated by the beneficiary groups through their organizations. The incentive system for repayment into this revolving fund scheme would build on the concept of community responsibility and participation, including social peer pressure.The operational manual (OM) which describes implementation arrangements for the project and the operational rules and criteria for the selection of sub-projects, is being prepared. It would be finalized during appraisal and made available for negotiations. Implementation vehiclesThe proposed decentralized format of implementation requires that appropriate instruments be found to channel financial resources to implementing local agencies and beneficiaries. For that purpose, the project would include one Agricultural Investment Fund (AIF) with three funding windows for: (i) Rural Development; (ii) Support Services; and (iii) Community Development. The Fund's procedures and eligibility criteria would be described in the OM and the resources for the Fund would be deposited in a separate special account. Agricultural Investment Fund for Rural Development (AIFRD). The AIFRD would provide matching grants funds to rural communities and producers organizations willing to invest in activities with substantial economic and environmental externalities including but not limited to (i) small irrigation and drainage work not exceeding 200 ha; (ii) seed funding; (iii) diversification of production systems and micro-enterprise development in the area of non-traditional crops (vanilla, litchi, ginger, flowers, etc.) and essential oils used for aromatherapy, (iv) home garden production, (v) rearing of small animals, (vi) development of minor stockbreeding, (vii) aquaculture, (viii) apiculture, (ix) improvement of farming production with commercial objectives; (x) transformation and commercialization of farming products and inputs; and (xi) off-farm activities . Rural roads would not be financed by this project to avoid a fragmentation of intervention in rural transport infrastructure but would be included in the CDF and RTPAgricultural Investment Fund for Support Services (AIFSS). The AIFSS would be the main vehicle to provide funding for support services and - 6 -  sponsored and competitive research programs under the second component of the project.Agricultural Investment Fund for Community Development (AIFCD). The AIFCD would be the main vehicle to provide funding on a demand-driven basis for producer organizations and rural communities under the third component of the project.Accounting, financial reporting and auditing arrangements (details in annex 6). Financial Management. During the pre-appraisal mission, the key areas of the project financial management were reviewed in light of IDA's financial management system assessment guidelines to ensure their adherence with Bank procedures. To strengthen project financial management system the agreed measures to be taken include: i) clear definition of the project's organizational structure and responsibility assignments with appropriate segregation of duties; ii) recruitment of the accounting and financial management staff; iii) recruitment of a consultant acceptable to IDA, in charge of the design and implementation of the project accounting and financial manual of procedures to facilitate adequate record- keeping, to satisfy reporting requirements and ensure consistent application of control procedures. Those measures are expected to be completed before the date of credit effectiveness. The PIU would be responsible for project financial management including the preparation and production of the annual financial statements, in accordance with internationally accepted accounting principles, as well as making arrangements for their certification by a competent and experienced audit firm under terms and conditions acceptable to IDA. At the regional level, RPIU would handle accounting, financial reporting, procurement and disbursement functions. The project financial statements would be consolidated by the PIU at the end of each fiscal year. The PIU would also monitor all project's disbursements and ensure that they are in conformity with IDA requirements.Project Management Report (PMR). In accordance with Bank policy and procedures, the project needs to adopt a financial management and reporting system in compliance with Financial Management Initiative (ex- LACI). But since the project financial management system would be newly created and as the accounting staff is not familiar yet with the FMIN procedures, it is more efficient for the project to run with the traditional disbursement methods during the first 18 months of its implementation. During this interim period, the project would produce annually the basic financial statements but would submit on quarterly basis the following reports: a Summary of Sources and Uses of Funds, a Contract Expenditure Report- Goods & Works, a Contract Expenditure Report- Consultants, a Procurement Management Report- Goods & Works and a Procurement Management Report- Consultants. Before the end of this interim period, an assessment would be carried out by an IDA Financial Management Specialist to determine whether the project has in place an adequate financial management system that can provide, with reasonable assurance, accurate and timely information on the status of the project (PMR/LACI) required by the Bank/IDA. Auditing Arrangements. The records and accounts of all the components of the project would be audited annually by an independent auditor acceptable to IDA, in accordance with international auditing standards. Regarding the matching grant, the auditors would review the performance of randomly selected sub-projects as well as that of the associations/co-operative structures, and provide a specific opinion on the effectiveness and efficiency of the lending and distribution procedures. In addition to the audit's opinion on the financial statements, the auditor would provide a separate opinion on the Statements of Expenditures and the management and utilization of the - 7 -  special account. Finally, the auditor would issue a management report with practical recommendations for improving the project internal control system. Procurement. Most of the procurement (goods, works an services) would be carried out as part of the approved sub-projects. The latter include (i) small scale communities sub-projects ranging from US$3,000 to US$ 50,000. These sub-projects would constitute 80t of the Productive Investment component; and (ii) large scale regional sub-projects with commercial objectives costing more than $50,000 but not exceeding $250,000and which would constitute 20t of the Productive Investment component . All sub-projects would be implemented with direct participation and contribution of the beneficiaries. Given the remote and scattered location of many rural communities and in order to encourage community participation in project execution, local shopping and direct contracting procedures would be applicable. Consultants services would be procured according to "Guidelines on the use of Consultants (January 1997, revised September 1997 and January 1999). Procurement would be carried by the RPIU and by the beneficiaries, and payments made by the RPIU. Ceiling amounts would be included in the Operational Manual. Prices would be compared with reference prices established at the regional level where feasible. The rest of the procurement would be carried out as part of the sponsored and competitive grant research program, the community development component and the capacity building component. Monitoring and evaluation arrangements. The decentralized implementation of project activities of the proposed project would require a strong Monitoring and Evaluation (M&E) component. The M&E modalities at the different levels would be detailed in an Output Monitoring Guide and an Impact Evaluation Guide that is being prepared and would be finalized during appraisal. As part of the impact evaluation activities, a baseline rural sector survey (BRSS) would be carried out before project implementation to provide the basis against which the various indicators would be measured. The BRSS would include three separate sets of structured surveys on (i) farm households; (ii) off-farm sectors, and (iii) beneficiary communities and POsMonitoring. Monitoring would focus on both the outputs and outcomes of the project, as agreed upon in the Project Design Summary (Annex 1). The PIU would have primary responsibility for monitoring overall project activities whilst the RPIU would have primary responsibility for monitoring sub-projects implementation. PIU and RPIU would collaborate with the MOA's Policy Unit for Rural Development (Unite Politique de Developpement Rural - UPDR]) to undertake specific studies and monitor project activities. Evaluation. The evaluation system should allow an effective evaluation of: (a) the effectiveness of the project's delivery mechanisms and procedures; and (b) the impact of project activities on the basis of stated objectives, and the inputs, outputs and impact indicators that are identified. Progress towards project outcomes would be evaluated during its execution and at project completion. Evaluation of project activities, including project performance, level of participation, and efficiency of the administrative system, would be carried out twice a year through independent consultants including Universities, and NGOs. Information relative to project impact on productivity and income would be provided annually according to the agricultural cycles. PIU would prepare terms of reference, contract for studies, and surveys assessing the performance and impact of the project and its implications for the design and adjustment of the rest of the project. Reporting. At the central level, the PIU would centralize and consolidate the project's monitoring and evaluation information. It would submit to IDA, twice a year, progress - 8 -  reports on project implementation. 7. Sustainability Sustainability would be addressed at two levels:a) institutional sustainability would be promoted through a decentralized organizational set up that would promote ownership of the process of appraisal and approval of investment proposals; and b) financial sustainability would be pursued by promoting investments and activities that would generate income streams over time, and which rural communities and producers organizations themselves would be capable of managing and maintaining. Moreover, cost-recovery would be sought for commercial activities to stimulate the constitution of saving funds at the community level. 8. Lessons learned from past operations in the country/sector First, implementation of Social Fund projects in Madagascar has clearly indicated that grass-root demand driven approaches are key in building ownership, defining local priorities, and setting the ground for better implementation and sustainability of activities. Second, Social Fund projects have tended to favor rural infrastructure and social investments, thus leaving little support for direct production-related activities that could generate needed increases in revenues. To the extent that this limits the capacity of communities to adequately maintain and operate the investments, it would weaken the impact of Social Funds on sustainable improvement of health, education, or public welfare; Third, implementation of the EP2 project has revealed much hitherto untapped potential from the private sector, in terms of provision of technical services in rural communities; Fourth, lessons from irrigation projects in Madagascar show that strong farmer-driven organizations are critical to improving the productive capacity of producers through improved access to inputs and market outlets, as well as to maintaining productive infrastructure;Fifth, lessons from the Mexican Rural Development in Marginal Areas Project show that successful rural investment programs need to promote a regional approach as a way to maximize the impact of integrated interventions on the local economy, while fully taking into account market opportunities and economic sustainability; and Sixth, lessons learned from the Micro-finance project show that strong RC&PO are critical to maximize the use credit made available in rural areas.The proposed project would address the above issues by: (i) focusing on productive agricultural investments and other off-farm productive activities through a structured participatory process; (ii) promoting a regional approach and target the same group of communes as other projects such as the CDF and the TSRRP; (iii) providing a broad range of technical support to the farmers, both by public and private bodies, in the form of agricultural extension, adaptive research and training; (iv) promoting farmers' organizations around economic incentives; and (v) fostering decentralized and agile mechanisms for sub-projects approval and disbursement . 9. Program of Targeted Intervention (PTI) Y 10. Environment Aspects (including any public consultation) Issues : A full environment assessment ( EA) for the sector is being carried out by local consultants at the National Center for Research on the Environment. This study would provide a systematic analysis of all potential biophysical and social impacts associated with the implementation of program and projects generated under the PADR, and - 9-  thus of the proposed project. EA would include: (i) a diagnostic of each sub-sector ( forestry, fisheries, research, agriculture, livestock) in term of policy, institutional, regulations, conventions relevant to environment preservation (ii) the analysis of project impacts on the environment, (iii) propositions of mitigation measures to limit these impacts , and (iv) the establishment and evaluation of an action plan for environmental management. The EA methodology is based on a documentation analysis and a consultation of concerned stakeholders in each sub-sector. The main issue which would be addressed in this EA is the sustainability of development activities in relation to soil fertility, design of constructions, watershed protection, use of chemical inputs, health hazards from contamination of water springs and rivers, forest degradation, air and water pollution, erosion. The proposed project would improve the productivity of local farming systems by protecting the natural resources base, and therefore farmer incomes. This should have an effect on reducing the impact of clearing forests or land elsewhere for new production. 11. Contact Point: Task Manager Ivar Ted Serejski The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: (202) 458-1278 Fax: (202) 473-5147 12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. This PID was processed by the Infoshop during the week ending January 5, 2001. - 10 -