Mozambique - Market Led Smallholder Development in the Zambezi Valley Project

Documentof The World Bank FOR OFFICAL USEONLY ReportNo: 39806-MZ PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDGRANT FROMTHE GLOBAL ENVIRONMENT FACILITY TRUST FUND INTHEAMOUNT OFUS$6.2MILLION TO THE REPUBLIC OF MOZAMBIQUE FORA MARKET-LED SMALLHOLDER DEVELOPMENTINTHE ZAMBEZIVALLEY PROJECT August 13,2007 Agricultural andRuralDevelopment SustainableDevelopmentDepartment CountryDepartment2, Mozambique Africa Region This documenthas a restricteddistribution andmaybeusedby recipientsonly inthe performanceo f their official duties. Its contentsmaynot otherwisebedisclosedwithout WorldBank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective May 2007) Currency Unit = Meticais Meticais 26.45 = US$1 US$1.52 = SDRl FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank BDS Business Development Services CAEIF Community Agricultural andEnvironmental InvestmentFund CAS Country Assistance Strategy CBD Convention on Biological Diversity CBNRM Community BasedNatural Resource Management CBO Community Based Organization CDD Community DemandDriven CFAA Country Financial Accountability Assessment CLUSA Cooperative League of the USA DA District Administrator DANIDA DanishInternationalDevelopmentAgency DBS Direct Budget Support DDA District Agricultural Directorate DF District Facilitator DPFP DecentralizedPlanningand FinanceProject DNA Department o fWater Affairs DNPDR National Directorate for the Promotion o fRural Development DTT District Technical Team ERR Economic Rate o f Return ESMF Environmental and Social Management Framework FA0 Food andAgriculture Organization FMA FieldManagement Advisor FMR Financial Monitoring Report GDP Gross Domestic Product GEF Global Environment Facility GIS Geographical Information System GOM Government o fMozambique GPZ Zambezi Valley Development Authority GTZ German Foundation for Technical Cooperation I C Individual Consultants ICB International Competitive Bidding IDA International Development Association IFAD International Fundfor Agricultural Development 11 ..  FOROFFICIAL USE ONLY IGF Inspectorate General o f Finance IIDS Integrated Safeguards Data Sheet IISD International Institute for Sustainable Development IPCC IntergovernmentalPanel on Climate Change LCS Least-Cost Selection LIG Local Investment Grant M&E Monitoring andEvaluation MICOA Ministry for the Coordinationo fEnvironmental Affairs MINAG MinistryofAgriculture MPD MinistryofPlanningandDevelopment MPWH Ministry of Public Works andHousing NAP National Action Plan NAPA National Adaptation Plano fAction N B S A P National Biodiversity Strategy and Action Plan N C B National Competitive Bidding NEPAD New Partnership for Africa's Development NEMP National Environmental Management Program NGO Non-Governmental Organization OPiBP Operational Policy/[World] Bank Procedure PAD Project Appraisal Document PAMA Agricultural Markets Support Project PARPA Action Planfor the Reductiono f Absolute Poverty PEFA Public Expenditure and Financial Accountability PTU Project Implementation Unit PFM Public FinancialManagement PPC Provincial Project Coordinator P W H MinistryofPublic Works andHousing PRSP Poverty Reduction Strategy Paper QCBS Quality and Cost Based Selection RPF Resettlement Policy Framework SBD Standard BiddingDocument SIDA Swedish InternationalDevelopment CooperationAgency SIP Sector Investment Program SLG Savings and Loans Group S L M Sustainable LandManagement SPA Strategic Priority o f Adaptation sss Single Source Selection SWAP Sector Wide Approach U M C Community Management Unitwithinthe NationalDirectorate o fForest & Wildlife This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization. iii  UNAC NationalUnionofFarmers Association UNDP UnitedNations DevelopmentProgram UNEP UnitedNations Environment Program UNFCCC UnitedNations Framework Convention on Climate Change UNCCD United Nations Convention on Climate and Desertification VSL Village Savings and Loans WVI World Vision International Vice President: Obiageli K.Ezekwesili Country Director: Michael Baxter Sector Director: Michel Wormser Sector Manager: Karen M.Brooks Task Team Leader: Daniel Liborio da Cruz e Sousa iv  MOZAMBIQUE Market ledSmallholderDevelopmentinthe ZambeziValley CONTENTS Page A.STRATEGIC CONTEXT AND RATIONALE ............................................ 1 1 Countryandsector issues ............................................................................................ 1 2 Rationalefor BankinvolvementandGEF eligibility 2 3 Higher level objectivesto whichthe Projectcontributes ......................................... 4 B PROJECTDESCRIPTION .... ............................................... ................................................................... 5 1 Lendinginstrument 5 2 Projectdevelopmentobjectiveandkey indicators .. ..................................................................................................... ................................................... 5 3 Projectcomponents 6 4 Lessonslearnedandreflectedin Projectdesign 10 5 Alternatives considered and reasons for rejection ... ...................................................................................................... ..................................................... ......................................................................... .................................................. 12 C.IMPLEMENTATION 13 1 Institutionalandimplementationarrangements .................................................... 13 2 Monitoringandevaluationof outcomes/results ...................................................... 15 3 Sustainabilityandreplicability ... .. ................................................................................. 16 4 Criticalrisks andpossiblecontroversialaspects 17 5 19 D APPRAISALSUMMARY ...Loadcreditconditionsandcovenants...................................................................... ..................................................... ....................................................................................... 19 1 Economicandfinancialanalyses .............................................................................. 19 2 ..................................................................................................................... 20 3 Fiduciary 21 4 Social 22 5 Environment ... .. Technical..................................................................................................................... ........................................................................................................................... ............................................................................................................... 24 6 Safeguardpolicies 24 7 Policyexceptions andreadiness .. ...................................................................................................... ................................................................................ 25 Annex 1: CountryandSector or ProgramBackground ............................................ 26 Annex 1 Attachment 1: StatusofDecentralizationinMozambique . ....................... 33   Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies Annex 3: ResultsFrameworkandMonitoring ...............................................................36 43 Annex 4: DetailedProjectDescription ......................................................................... 52 Annex 4 .Attachment 1: Elementsof the ParticipationPlan .................................... 61 Annex 4 .Attachment2: SpecialPriorityon AdaptationActivities .......................... 67 Annex 5: ProjectCosts .................................................................................................. 72 Annex 6: ImplementationArrangements .................................................................... 74 Annex 7: FinancialManagementandDisbursementArrangements ........................ 79 Annex 8: ProcurementArrangements ......................................................................... 91 Annex 9: EconomicandFinancialAnalysis ................................................................ 97 Annex 9 .Attachment 1: FarmModels ...................................................................... 105 Annex 9 .Attachment2: IncrementalCost Analysis ............................................... 108 Annex 10: SafeguardPolicyIssues ............................................................................. 125 Annex 11: ProjectPreparationandSupervision ...................................................... 126 Annex 12: Documentsinthe ProjectFile .................................................................. 128 Annex 13: Statementof LoansandCredits ................................................................ 129 Annex 14: Country at a Glance ................................................................................... 131 Annex 15: LandDegradationandClimateChangeinthe CentralZambeziValley ......................................................................................................................................... 133 Annex 16: STAP RosterReview ................................................................................. 144 Annex 17: MAP IBRD33451 ............................................................... 155 vi   MOZAMBIQUE MARKET-LED SMALLHOLDERDEVELOPMENT INTHE ZAMBEZIVALLEY PROJECT APPRAISAL DOCUMENT AFRICA AFTAR Date: August 13, 2007 Team Leader: Daniel Liborio Da Cruz Sousa Country Director: Michael Baxter Sectors: General agriculture, fishing and Sector Manager/Director: Karen M.Brooks/ forestry sector (61%); Agricultural marketing Michel Wormser andtrade (11%);Agricultural extension and Project ID: PO93165 research (11%); Agro-industry (10%); Central LendingInstrument: Specific Investment Loan government administration (7%) Themes: Rural markets (P);Rural non-farm income generation (P);Rural services and infrastructure (S);Other rural development (S);Rural policies andinstitutions (S) Environmental screening category: Partial Assessment - B Global Supplemental ID: PO98040 Team Leader: Daniel Liborio Da Cruz Sousa LendingInstrument: Specific Investment Loan Sectors: Sub-national government Focal Area: L-Landdegradation administration (46%); General agriculture, Supplement Fully Blended?: N o fishing and forestry sector (31%); Crops (23%) Themes: Landadministration and management (P);Biodiversity (P);Other rural development (S);Climate change (S);Participation and civic engagement (S) Project Financing Data [ 3 Loan [ 3 Credit [XI Grant [ 3 Guarantee [ ]Other: For GEF Financing: US$6.2 million., .. Loans/Credits/Others : Total Bank financing (US$m.): 0.00 Proposed terms: Note: USD 20 million o f IDA Credit Associated IDA Credit -Mozambique: Market-Led - Smallholders Development inthe Zambezi Valley (Cr. 41980-Moz ) Total Project Cost: USD 26.20 million vii  Borrower: Ministry o fFinance Maputo Mozambique Tel: 258-1-082-492284 otiliasantos2000@yahoo.com.br ResponsibleAgency: MinistryofPlanningandDevelopment Bairro da Maxaquene "C" No. 134, Rua 3253, PO Box 4518 Maputo Mozambique Tel: 258 21 414434 Fax: 258 21 419824 dndrl@tvcabo.co.mz Annual 0 1.12 1.05 1.30 1.04 1.05 0.64 Cumulative 0 1.12 2.17 3.47 4.51 5.56 6.20 Project implementationperiod: IDA Start: December 28,2006 (Actual) IDA Completion: September 30,2012 (Expected) GEF Start: December 05,2007 (Expected) GEF Completion: September 30,2012 (Expected) Expectedclosing date: IDA: March31,2013 GEF: March 31,2013 Expected effectiveness date: GEF: December 5, 2007 ... V l l l  Does the project depart from the CAS incontent or other significant respects? Ref: PAD A.3 No Does the project require any exceptions from Bankpolicies? Re$ PAD D.7 [ ]Yes [XINO Have these been approved by Bank management? [[]Yes [ X INo ]Yes [ IN0 I s approval for any policy exception sought from the Board? pls. specify Does the project include any critical risks rated "substantial" or "high"? Ref: PAD C.5 [XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? Ref: PAD D.7 [XIYes [ ] N o Project development objective Re$ PAD 23.2, Technical Annex 3 The development objective o fthe project is to increase the income o f smallholder farmers in selected districts o f the Zambezi Valley region o f Central Mozambique. Increased incomes will be achieved not only by direct support to smallholder groups andother supplychainparticipants, but also through the strengthening o flocal level capacity to undertakeand manage service delivery within the context o fthe Government o fMozambique's decentralization policy. Global Environment objective Ref: PAD 23.2, Technical Annex 3 The Global Environment Objective i s to stop and reverse land degradation and to improve the ecosystem's resilience towards climate change inthe Central Zambezi Valley. Project description[one-sentence summary of each component] Re$ PAD B.3, Technical Annex 4 The project will achieve its objective o fincreasingthe incomes o fsmallholder farmers within the project area through three technical components, with a fourth component dedicated to management, coordination and monitoring. The three technical components comprise: 0 The promotion and support o fgroups formedby smallproducers andother supply chain participants insuch areas as marketing, savings andcredit, andagribusiness development, as well as the strengthening of district level institutions which support them; 0 The provision o f support for broad-based market-ledsustainable agricultural and natural resource development, includingnot only direct outreach to groups and agribusiness participants inproduction, marketingand other supply chain elements, but also encompassing applied research, demonstrations, training and the upgrading o f local extension capacity; 0 A demand-driven CommunityAgricultural and Environmental Investment Fund(CAEIF) which will provide resources for agriculturally related infrastructure, small-scale investmentand improved natural resource management. ix  Which safeguard policies are triggered, if any? Re$ PAD D.6, TechnicalAnnex 10 Environmentalissues outlined inSection D5 indicatethis i s an EA Category "B"project. Actual project investments will be demand-driven and will only be determined duringimplementation o f sub-project proposals under Component 3. Thus, an Environmental and Social Management Framework (ESMF) has beenprepared to address the substantive requirements o f OP 4.01 Environmental Settlement and OP 4.09 (Pest Management), the latter primarilyfor livestock hygiene facilities and weed control around project-fbnded facilities. Procedures and measuresto avoid or minimize adverse environmental effects from project investments, including changes to agricultural practices, are included inthe ESMF prepared for the IDA operation, andwill be adhered to under the GEF supported investments.The ESMF will also contain a screening procedure for determining ifa resettlement plani s required for any particular investment according to the Resettlement Policy Framework that has been prepared accordingto the requirements o f OP 4.12 (Involuntary Resettlement). OP7.50 (Projects on International Waterways) i s triggered as there may be water withdrawals for small irrigation projects implemented inthe Zambezi basin, including the Shire River -a major tributary o fthe Zambezi. Sources ofwater will include: (a) shallow groundwater from alluvial aquifers; (b) small tributary streams which rise entirely inthe territory o fMozambique; (c) small tributary streamswhich rise inneighboring Malawi; and(d) direct extraction from the Zambezi andthe Shirerivers. Ripariannotificationincluding the financing amount o fthe GEF granthas been undertaken inthe course o fpreparation o fthe associated IDAproject, andno unfavourable responses were receivedby the GOM. The GEF financed activities do not entail investments with riparianimplications. Significant, non-standard conditions, if any, for: Re$ PAD C.7 Board presentation: No objection on project interventions from riparian states (especially with regard to water-related interventions (OP7.5). Riparian notification has been undertaken inthe course o fthe preparation o f the associated IDA credit. No unfavourable responseshave beenreceived bythe Government o fMozambique, as stated inanofficial memo to RVP dated May 22,2006. Loadcredit effectiveness: The Recipienthas: (a) The execution and delivery o fthe GEF Grant Agreement on behalf o f G O Mhave been duly authorized or ratified by all necessary governmental action. (b) The financial management system for the Project hasbeen adjusted for thepurpose o fthe Grant ina manner satisfactory to the World Bank. Covenants applicable to project implementation: (a) Ensure that the Project is implemented in accordance with the recommendations o f the ESMF; (b) carry out a screening procedure to determine ifaresettlement planisrequiredunderany X  subproject under Component 3 o f the Project; (c) Ensure the recruitment o f two agricultural extension staffper administrativepost inthe First PhaseProject Districts by January 31,2008; (d) Withdrawal Condition for Component 3: Recipient shall haveensured that the following staffhave been recruited inany Province or District and are inplace: (i) accountantperProvince; one (ii) accountantandoneprocurementofficerperDistrict;and one (iii) Regionalprocurementspecialist. one xi   A. STRATEGICCONTEXTAND RATIONALE 1. Countryandsector issues 1. Mozambique has witnessed rapid growth since achieving peace in 1992. The economy grew by 8 percent annually between 1994 and 2004, albeit from a very low base and the national poverty headcount index fell from 69 percent in 1996 to 54 percent in2002. The conditions for growth were created bythe economic reforms initiatedby the Government, as well as the Government's success inmaintaining national peace and stability. Growth in the agricultural sector has been an important contributor to overall economic growth and has been the key factor in reducing rural and national poverty. Agricultural growth has mainly been driven by the post-conflict re-settlement o f refugees in the rural areas, andthe resulting expansion in labor and land. This expansion caused the sector to grow by an average o f 6.8 percent per year from 1992 to 1997, 4.6 percent between 1997 and 2003,9 percent in2004,7 percent in2005 and 10.4 percent in2006. 2. Agriculture in Mozambique i s almost entirely dominated by smallholders. Smallholders comprise 99 percent o f all rural households and provide 95 percent o f agricultural GDP. Most o f the smallholders are subsistence farmers with an average o f 1.4 ha o f cultivated landper household. Their traditional low input and traditional farmingpractices result in generally low yields relative to neighbouring countries with similar agro-ecological potential. Smallholders, inparticular inthe Zambezi Valley, are also highlyvulnerable to extreme climatic conditions which alternate between frequent droughts and floods. Land degradation, the unsustainable exploitation o f natural resources, and changing climatic patterns are likelyto only aggravate such problems inthe future. 3. An IISD/UNEP study' indicates that returningmigrantsandincreasingclimate variability are additional challenges to people's livelihood and to sustaining ecosystem services in Mozambique with significant negative impacts for Tete and Sofala provinces. Extensive agriculture by returning migrants i s resulting in increased deforestation, the loss o f biodiversity, and a rapid decline in soil fertility o f cleared areas, which leads to further deforestation. The loss o f native forests reduces community access to both timber and non-timber forest products and associated ecosystem services, which in turn, increases the vulnerability o fbothexisting andnew settlements to droughts and floods. 4. Even though the overall macro-economic and policy environment is considered to be relatively conducive to agricultural and smallholder growth, current growth patterns driven by land and labor expansion are unlikely to be sustained, unless a number o f critical and inter-related constraints are addressed. These constraints include the weak organizational capacity o f farmers, the weak institutional support to smallholders, the lack o f access to credit, poor rural infrastructure resulting in inefficient input-output markets, inadequate access to knowledge on improved land management and improved farming systems. These factors result in low local capacity to adapt to both short-term climate variability andmedium-to long-term climate change. 'UNEPandIISD,ConnectingPovertyand EcosystemsServices, 2005. 1  5. The Government o f Mozambique (GOM) i s determined to promote continued economic growth and poverty reduction. Absolute poverty reduction i s the main priority for all Government action, as reflected inits Five-Year Program o f2005-2009 and inits Poverty Reduction Strategy (PARPA-I, followed by PARPA-II). Agriculture and rural development, as well as improvements in natural resources management, are considered key in achieving economic growth and poverty reduction. At the same time, GOM i s pursuing an ambitious decentralization program, which aims at making the district the development pole, from where all development action should be initiated. 6. The GOM acknowledges that further smallholder growth and poverty reduction will depend on gains in agricultural productivity, and so it will pursue a two-pronged strategy o f (i) buildingproducers' capacity to increase their productivity; and (ii) transforming the role o f public institution into facilitators and providers o f essential growth-facilitating services. Critical elements o f the GOM's strategy are the stimulation o f market mechanisms, the promotion o f the creation o f financial institutions for the rural areas, the improvement o f rural and agricultural infrastructure, the stimulation o f agri-business development, andthe improvement o f the performance o f extension, research andmarket information services. All o f these actions should support smallholders in their gradual transformation into more intensive, productive and commercially oriented farming. 7. The type o f approach GOM intends to take in the implementation o f its agricultural strategy will be: (i)driven by the needs and demands o f farmers, which comprise the whole spectrum o fproduction, marketing, finance and rural infrastructure; (ii) focused on direct impact at the district level; and (iii) open to collaborative arrangements with non- state actors, such as farmers associations, NGOs and private sector actors, including through mechanisms, such as outsourcing o f services. 8. The long-term sustainable use o f natural resources (land, forests, wildlife andwater) is a key ingredient o f the Government's strategies. Inthe Poverty Reduction Strategy, G O M has committed itself to promote and enforce the sustainable use o f natural resources for the benefit o f the country as a whole, and to encourage the cultivation o f renewable resources. The National Action Plan (NAP)for drought and desertification, prepared by GOM in the context o f the UnitedNations Convention on Drought and Desertification (UNCCD), establishes the strategic measures for drought mitigation. Finally, the Central Government has inplace a strategy for disaster preparedness inthe major flood plains, in which early warning systems o f floods and seasonal migration between the floodplain andthe uplands are the proposed strategies for the affectedcommunities. 2. Rationale for Bank involvement and GEF eligibility 9. As discussed in the IDA Project PAD (Mozambique: Market-led Smallholders Development inthe Zambezi valley, Cr. 41980-Moz), the overall rationale i s that: (a) the Project supports environmentally sustainable agricultural intensification among smallholder farmers (which i s key for continued economic growth o f Mozambique); (b) i s consistent with GOM's sector strategy; (c) by increasing the incomes o f smallholder farmers, the Project is critical for poverty reduction in Mozambique; (d) the Bank's 2  global experience in community-driven and market-led approaches allows it to assist GOM in its efforts to change its approach in agricultural development; (e) the proposed Project will, in many ways, address aspects that are not likely to be resolved by other actors in the short to medium term; and (f) the project will be able to benefit from complementarity from other World Bank-financed operations. 10. Besides the national economic and social benefits o f increased agricultural growth, the blending o f the Project with a Global Environment Facility (GEF) grant will significantly harness the potential synergies between national goals and global benefits, such as reduced deforestation and the resultant decreased loss o f above- and below- ground biodiversity, and reduced greenhouse gas emissions while maintaining the functional integrity o f both upland forest and lowland riparian ecosystems. For example, the current use o f extensive farming methods i s leading to increased deforestation, land degradation, and further clearing o f native woodlands as farmers abandon degraded land. The loss o f ecosystem services (local hydrology, habitats for native biodiversity) from deforestation and land degradation is resulting in increased vulnerability o f local communities to droughts, floods and unstable markets. Priority areas for improving land management for global environmental benefits include forest margins, gallery forests, and riparian zones, which are not only important for native biodiversitybut also help to stabilize hydrological flows and thus reduce the possibility o f degradation o f existing agricultural lands. These areas are not normally a priority for national development programs so incremental OP15 (Sustainable Land Management) funding will ensure the synergy between the local benefits o f improved management and the global benefits (reduced loss o f high biodiversity habitats, improved protection and conservation o f forest buffer zones and terrestrial-aquatic boundaries). In addition to the activities proposed under the GEF OP15, specific incremental funding is being sought under the GEF's Special Priority on Adaptation (SPA). This additional fundingwill help strengthen Mozambique's capacity to assess and integrate climate change risk into sustainable land management planning via the testing and calibration o f dynamic vegetation, soil, hydrology models for improved predictive capacity o f local climate change impact scenarios and assessment o f priority mitigation interventions to reduce the negative impacts o f extreme events on local populations and ecosystems. 11. GEF eligibility flows from Mozambique's signing and ratification o f the key global treaties on the environment2: The Project would directly contribute to the implementation o f the UNCCD NAP andto some o f its main operational strategies, including community mobilization, training and knowledge sharing, sustainable forest exploitation, sustainable soil management, improved water use and management, improved land rights for local communities and institutional capacity building, and would serve to report on progress made in the implementation o f the NAP. It would also address priorities under the National Biodiversity Strategy and Action Plan (NBSAP), and respond to the recommendations o f the Initial National Communication under UNFCCC. Synergies among conventions will be sought, and adaptation to climate change will offer a unique UnitedNations Conventionto Combat Desertification (UNCCD, 1997),the Convention onBiologicalDiversity (CBD, 1995),the United Nations Framework Convention on Climate Change(UNFCCC, 1995), andthe Stockholm Convention on PersistentOrganic Pollutants (2005). 3  concrete opportunity to test these linkages at the operational level, filling the gap between the regimes created by the Conventions andthe reality on-the-ground. 3. Higher level objectives to which the Project contributes 12. The overall Project's support to smallholder development will directly contribute to GOM's objective for the agricultural sector, and also contribute to the central objective o f Mozambique's Poverty Reduction Strategy. Furthermore, this Project would primarily support the Bank's CAS for Mozambique first and to a lesser degree also to its second pillar, discussed in detail in the PAD for the IDA Credit (Mz-Market-led Samllholders Development in the Zambezi Valley, Cr. 41980-Moz) which was approved on June 20, 2006. 13. The Project is consistent with GEF Operational Policy 15 (OP15) concerning mitigation and prevention o f land degradation. The Project follows OP15 Strategic Priority 1 (Targeted Capacity Building) by enhancing the enabling environment and capacity o f local stakeholders to support sustainable land and natural resource management practices that yield not only local benefits but are also synergistic with global environmental benefits (enhance conservation and use o f native biodiversity, reduced deforestation and carbon emissions). The Project also addresses Strategic Priority 2 (Implementation o f Innovative and Indigenous Sustainable Land Management (SLM) Practices) by first documenting local and traditional best practice NRM approaches and then facilitating demand-driven research and adaptation o f innovative and indigenous S L M practices through on-the-ground investments mainly under Components 2 and 3. Examples o f best bet practices include agroforestry systems with native species, sustainable forest and woodland extractive practices such as the elimination o f fire in honey collection and reduced collection o f wild medicinal plants coupled with increased cultivation o f these species in agroforestry systems. Annex 9 has a more detailed description o f the anticipated GEF and incremental costs associated with achieving these benefits. 14. The Market-Led Smallholders Project will complement other activities o f the Bank and partners (e.g., UNDP, FA0 and UNEP) under the multi-agency GEF-co-financed Strategic Investment Program (SIP) for sustainable land management in Sub-Saharan Africa. The linkage o f the Project with activities supported through the TerrAfrica platform at national and regional levels i s expected to leverage additional advocacy and foster knowledge exchange inseveral ways. 15. The published Intergovernmental Panel on Climate Change (IPCC) scenarios for climate change impacts for southern Africa suggest that Mozambique is highly likely to suffer an increase in the frequency and severity o f extreme events (droughts and floods). Mozambique has developed a Draft National Adaptation Program o f Action (NAPA) - (see Annex 4 Attachment 2). While the Draft NAPA3focuses on 4 major programs for short-to medium-term priorities, this Project includes a specific component on GEF's Strategic Priority o f Adaptation (SPA) to both support Mozambique's proposed NAPA and to contribute to the long-term national institutional capacity to: Basedon communication with Eduardo Baixo, MICOA 4  (a) Identify, characterize andquantifybasidcatchments scale hydrology andland cover and landuse changes as a baseline for watershed level work inthe project catchments; (b) Create andsustain anational capacity to modelthe interactiveimpacts o fclimate change and land cover land use change andto assess the priority adaptation responses inthe project districts; (c) Contribute to strengthening o f a national data base o f landcover and landuse change dynamics, hydrology, andclimate information to support the collaborative activities o fnational agencies (e.g., National Meteorological Agency, CENACARTA, National Directorate o f Water, ARA Zambezi, GPZ) and policy makers. B. PROJECTDESCRIPTION 1. Lendinginstrument The proposed Project would consist o f a US$6.2 million GEF grant, supplementing the already effective IDA credit o f US$20 million equivalent. GEF and IDA supported activities are organized under the four project components in a complementary approach with segregation o f financing o f the two sources o f funding based on the scope o f the activities. The IDA fimds will target mainly development and poverty reduction issues while the GEF funds will support activities aimed at consolidating and harnessing the global environmental benefits that are essential for sustaining the development goal and associated objectives. Because o f the synergies involved some overlap o f activities i s not only inevitable but desirable. 2. Projectdevelopmentobjectiveandkey indicators 16. The overall development objective of the Project is to increase the incomes o f smallholder farmers in selected districts o f the Zambezi Valley Region o f Central Mozambique. The Global Environment Objectives are to limit land degradation and to improve the ecosystem's resilience towards increasing climate variability and eventual climate change. The Global Environment Objectives are linked to the creation o f local environment benefits indicatedunder Section A. 17. Key outcome indicators reflecting achievement of the overall Project development objective will be: the creation o f social, physical and investment capital as well as associated market and support systems, which will facilitate an increase in average incomes o f farmer groups. Increased income would arise from improved yields and reduced losses, increased labor productivity; the diversification o f farming systems and improved market linkages, while the achievement of the global environment objective will be measured by: (i) increase o f at least 20,000 ha under improved SLMor natural an resource management practices inProject area by Project end; (ii) a measurable increase 5  inbiodiversity or carbon sequestration in targetedProject sites vs. control sites through one or more o f the following: (a) reappearance o f native species; (b) increased above- ground carbon stocks; (c) reduced soil erosion; and (d) reduced incidences o f wild fires; (iii)at least 3 predictive and basin specific hydrology land cover climate change scenarios for land use land cover change impacts on hydrology under changing rainfall and evapotranspiration regimes; and (iv) increased use o f drought-tolerant crops, fodder species and varieties, crop rotations to increase soil organic matter, reduction o f weeds, and conservation o f soil moisture by local land users. Progress in achieving environmental targets will be measured by remote sensing and field surveys in Project and control areas. An initial baseline beneficiary survey o f approximately 1000 households, which will include control areas, has been completed in February 2007. A second impact evaluation survey will be carried out prior to the mid-term review and a final impact survey prior to the completion o f the Project. Similarly, remote sensing with appropriate ground truth surveys and a GIS system will be used to establish the baselines for the national agricultural and natural resource and the global environment indicators and outcomes. The Project will maintain both internal and external monitoring systems andconduct mid-term and endo fthe Project evaluations. 3. Projectcomponents 18. The overall Project will be implemented over a seven year period in two phases across five districts within the Zambezi Valley Region o f Central Mozambique, with GEF activities runningparallel to the IDA part over six years. The Project will start operations in the two adjacent districts: Mutarara, Tete Province and Morrumbala, Zambezia Province. Further three districts are proposed for inclusion during the second year o f implementation. Preliminary selection o f the remaining three districts has identified Mopeia in Zambezia Province and Maringue and Chemba in Sofala Province, although these could be modified during the initial stage o f implementation. The selection o f districts, five over three provinces and under two phases, are based on the following: (i) GOM selected the districts in the project area and suggested working over two phases; (ii) acrossprovincialboundariesprovidesawidervarietyofsocio-economicand working natural resource contexts in which to assess the Project approach; (iii) activities Project will be able to benefit from complementarity and potential synergies with other programs, already operating inthe selected districts. 19. Project preparation fbnds obtained via a GEF PDF-B grant were used to develop quantitative baselines for natural resource endowments (e.g., Land cover: e.g. forest, grasslands, crop, bare soil, riparian areas; land cover change dynamics, areas prone to flooding, roads and other infrastructure, settlements). These activities were completed in September 2006 andthe PDF-Breport can be referenced inthe Project Portal. 20. The Project will be integrated and support Government's decentralization policies and initiatives, thus being district focused. It will achieve its objective o f increasing the incomes of smallholder farmers within the Project area through three technical components, with a fourth component dedicated to management, coordination and 6  monitoring (detailed Project description i s provided in Annex 4). The three technical components are: Component 1: Community Group Organization and Local Institutional Strengthening (Total: US$8.6 million; IDA: US$7.6 million; GEF: US$O.9 million; Government: US$O.1 million). The component comprises: (a) community-based organization capacity development; (b) rural financial services; and; (c) district capacity development. Expenditures under this component include consultancy services, training, goods and equipment and a modest amount o f civil works. 21. Activities under this component will lay the basic foundation for the sustainability o f Project interventions. The primary objective is to empower andbuildthe social capital o f farmer groups, women's groups and other supply chain participants in areas such as marketing, agribusiness development, and district agricultural staff. The empowerment o f groups will ensure that district planning process has the participation o f key stake holders inthe rural community. The vision for the farmer and savings and loans groups i s that from small groups o f 15-25 individuals, they will grow into apex organizations o f community based organizations such as rural producer organizations and village savings groups. 22. Other inputs will also include training and support services to providers, district level government agencies and financial institutions. The key output will be functioning smallholder farmer groups and Savings and Loans Grants (SLGs) which are able to define their own needs and priorities and participate effectively in district planning process and capacity among local institutions to support such groups. 23. GEF OP15 funds will be used to: (i) complete the quantitative baseline data set being compiled with PDF-B resources. Some data and maps already exist at various agencies in Mozambique but access to the data i s very poor and it i s difficult to judge the adequacy and quality of these data layers for the proposed activities; (ii)establish the baselines for aboveground biodiversity using a tested rapid appraisal tool (Plant Functional Attributes); (iii)document andgeo-reference indigenousNRMandnativebiodiversityknowledge; (iv) quantify land cover change dynamics in attempt to identify deforestation and land degradation frontiers; and (v) training o f local government staff and smallholders community leaders. A participatory approach that involves community members in the baseline surveys will be used to identify the improved crop, soil and water management "best bet" interventions and to facilitate their contribution to local land use planningand futureuptake o fProject findings. Component2: Agricultural Productionand MarketingDevelopment(Total: US$6.4 million; IDA: US$3.9 million; GEF: US$2.5 million). The component comprises: (i) agribusiness and market development; (ii)strengthening o f extension services; (iii) applied research, training and demonstrations; and (iv) improved agricultural and agroforestry systems. Expenditures under this component include limited civil works, equipment, consultancy services andincremental operatingcosts. 7  24. This component provides technical support and pays for operating costs o f activities to promote market-driven, broad-based sustainable agricultural development. Through a strengthened extension service, technical assistance would be provided to stakeholders involved in production, marketing and processing o f agricultural products. Contracted studies, applied research, specialized training and awareness campaigns would be undertaken in such areas as market opportunities identification and development, crop diversification, sustainable landand water management, market information, etc. 25. The bulk o f GEF OP15 incremental funding will be used to provide technical support to facilitate the adoption o f improved management o f land and water resources through the adaptation o f available "best bet" agroforestry, soil conservation and alternate energy sources and to ensure the priority linkages with global environmental benefits (carbon sequestration, above-and below-ground native biodiversity conservation). The baseline information from the PDF-B report and the additional information from Component 1 activities will be used to identify and target priority locations for improved cropping and natural resource management interventions. Special attention will be given to improving and diversifying cropping systems by coupling indigenous knowledge, species, and varieties with current natural resource management. Communities currently practice a range o f extractive activities (collection o f firewood, honey, and medicinal plants, charcoal burning) in existing forests, which often involve the use o f fire and the occurrence o f unintended forest fires. The proposed forest management activities will target the development and implementation (see Component 3 below) o f more sustainable extraction practices and alternative cultivatiodproduction practices for the currently extracted forest products. Agricultural intensification practices that facilitate nutrient cycling (e.g., the use o flegume cover and intercrops, small amounts o f fertilizer with cash crops), reduced weeds and pests (e.g., via crop rotations), and the use o f high value low volume crops to avoid nutrient exports will be promotedto provide alternatives to the current practice o f slash andbumagriculture. 26. Under the proposed SPA Component, the main goal i s to strengthen the country's emerging NAPA priority activities (see Annex 4 - Attachment 2), which are targeting the development o f early warning systems for climate variability and climate change. The proposed SPA activities will strengthen the capacity o f national partners to: (i) identify the vulnerability o f specific sectors (agriculture, forestry, fisheries, water supply and quality) to drought/flood prediction, erosiodlandslide hot spots, infrastructure, re- forestation schemes by region; and (ii) to evaluate the tradeoffs among sectors as a basis for future policy interventions and financial investments. 27. The specific activities include the calibration and testing o f basin and catchment level land cover dynamics hydrology models (VIC, DHSVM) with participation (observatiodmeasurements) by local communities and stakeholder agencies (National Meteorological Agency, National Directorate for Water, Ministry for Coordination o f Environmental Actions (MICOA), National Institute for Disaster Management (INGC). Both VIC and DHVSM handle dynamic land-use land-cover changes and have already been tested at basin to field scales in other regions (e.g., the Amazon and Mekong basins). In addition, a suite o f crop models will be evaluated for use in the study o f 8  impacts o f climate variability and climate change on local crop productivity. The models will be used to simulate the impact o f improved crop rotations as a mitigation strategy to changing rainfall (see Annex 4 -Part 2 for details ofthe proposed activities andmodels). 28. The key inputsunder this component will be education campaigns for rural stakeholders, demonstrations, farmer training, and applied research on marketing, active participation o f private sector in agribusiness, and agroforestry techniques and natural resources management aspects. The key output will be groups actively engaged in the validation and adoption of improved technologies and entering into close links with other non- agricultural supply chainparticipants. Component 3: Community Agricultural and Environmental Investment Fund (Total: US$8.7 million; IDA: US$5.9 million; GEF: US$1.9 million; Beneficiaries: US$O.9 million). The Component comprises the following windows: (a) agriculturally related infrastructure; (b) small-scale agricultural investment; and (c) sustainable land management. Expenditures under this component include civil works, consultancy services, equipment, and materials for infrastructure, agriculture and agribusiness investments. 29. The Fund will operate under a demand-driven approach linked with the participatory district planning process and would provide resources, including consultant's services, necessary to help finance identified investment priorities in agriculturally related infrastructure, small-scale investment and improved land management. There are no formal financial institutions operating in the Project area, and only a few informal financial intermediaries, creating high demand for additional financial resources to be obtained. 30. GEF OP15 investments will target improved natural resources management that result in verifiable global environmental benefits. These grants will be based on community demands guidedby priority criteria to ensure global environmental benefits. Examples o f "best bet" practices, that are not only attractive to communities but also fblfill priority global benefit criteria, include: (i) in-situ conservation in biodiverse home gardens o f important native fruit, medicinal, forage plant species identified by local communities: (ii)protection andor restoration of degraded community managed areas, such as wetlands, and riparian and buffer zones, and use rights for extractive products; (iii) improved, fireless honey collection methods to reduce wildfires from traditional honey collection practices; and (iv) conservation o f habitats identified as important sources o f medicinal plants. Component 4: Project Management, Coordination and Monitoringand Evaluation (Total: US$3.1 million; IDA: US$2.0 million; GEF: US$O.9 million; Government: US$0.2 million). Expenditures include consultancy and training, goods and equipment as well as operating costs. 31. This component will include technical supervision and coordination, work plan and financial reporting h c t i o n s at district, provincial and national levels. The component 9  will be congruent with the government's decentralization initiatives and will utilize existing public sector arrangements as far as possible. Additionally, the existing inter- ministerial national and provincial steering committees and district consultative councils established under GOM's Decentralization Law will be utilized for the Project. In addition, two key technical staff will be recruited: a District Facilitator for each district and a Field Management Advisor (see Annex 6), who will work across all five districts. Fundswill beprovided for intensive monitoringo fthe Project (see Section C2). 32. The remote sensing and quantitative baselines developed via the GEF PDF-B grant will serve as objective reference points to evaluate progress over the life o f the Project and beyond. The SPA modeling component will provide an interactive predictive and analytical framework to assess current and emerging resource management issues during and beyond the lifetime o f the Project. GEF funds will be used to recruit a Senior Environmental Specialist (ES) who will be based in the project area together with the FieldManagement Adviser andDistrict Technical Facilitators (DTFs) with whom hewill interact closely. GEF funds will also be used to equip the project and government technical specialists who will work across all five districts with vehicles, motor cycles, GPS units, andcomputers, includingthe costs associated with operating them. 33. Additionally, this component will provide resources necessary to: (i) design, host, and implement a Remote Sensing and Geographical Information System (GIS) Database to monitor local and environmental indicators; (ii)design and implement a community- based monitoring system linked to the CIS database; and (iii) design and implement a communication strategy aimed at conveying easy to understand outputs and results to stakeholders andpolicy makers.. 4. Lessonslearnedand reflectedinProjectdesign Key lessons applied inProject design include: 34. Determinants o f Rural Poverty in Mozambiaue: Analysis o f the determinants o f rural poverty in Mozambique (undertaken in the context o f the World Bank's Agricultural Development Strategy - Promoting Smallholder Agricultural Growth) suggests that agricultural growth, and, in particular, smallholder growth i s the main determinant o f poverty reduction in Mozambique. This has been taken into account inProject design by makingsmallholder producers and their supply chains the principal targeted beneficiaries o f the Project. Roads and transportation for agricultural products are also among the most important factors determining a rural household's poverty level. For example, access to transportation for agricultural production increases rural consumption by 30 percent. In addition, extension, the increased access to and use o f appropriate fertilizers, and non- farm employment opportunities strongly improve rural livelihoods. 35. A l i m e n t with Government structures and systems: Recent Experience with the Bank- supported DPFP and in the FAD-supported Agricultural Markets Support Project (PAMA) has shown that relying on government structures and systems might add 10  additional challenges to the efficiency o f Project implementation. A lesson learnt is that strong collaboration with and support and advice to government staff at both provincial and district level is critical for successful project implementation. These lessons have been incorporated in the Project design (see also section C on implementation arrangements). 36. Capacity Building and Technical Assistance to Beneficiaries: Other donor operations in Mozambique (including PAMA, DANIDA's Agricultural Sector Program, and African Development Bank supported small-scale irrigation Project,) point to the need for extensive capacity-building and technical assistance to beneficiaries. Even in those interventions that were intendedto be more or less market-led, such as the Private Sector Development component o f DANIDA's Program (operative in Tete and Manica province), considerable and pro-active project support to beneficiaries in the identification, formulation and supervision of sub-projects was required to get activities off the ground. Consequently, the Project includes a strong emphasis on capacity- buildingand technical assistance. 37. Group Promotion and Mobilization: Experience o f organizations active inMozambique, such as CARE, UNAC, World Vision International (WVI) and CLUSA, points to the need for farmers groups and/or associations to deliver clear economic benefits to their members. Group formation that i s not demand-driven or not linked to demand-led technical assistance in production, marketing, or finance-related activities is, therefore, likely to lead to demoralization and un-sustainability. The proposed Project intends to build on these lessons by building in strong links between the groups formed (under (component 1) and the services and investment support provided under (components 2 and 3. 38. Cost-sharinp o f investment by smallholders: Experience from WVI and GTZ indicates that smallholders are both willing and able to contribute a significant proportion o f the cost required for small productive investments (e.g., small-scale irrigation) and to repay the financed portion o f the investment so as to permit other group members to make similar proposals. 39. Importance o f tanyible benefits in S L M K B N R M Projects: Matakala and Mushove (2001) and U M C (2006) indicate that in CBNRM and SLM Projects in Mozambique communities will become more involved if they perceive the Project as providing them with tangible benefits. Projects which generate only intangiblebenefits such as soil and water conservation tend to draw less interest amongst communities. The Project's blended design (addressing poverty and global environment issues in an integrated manner) and focus on increasing smallholders' income respond to this lesson. Awareness and education campaigns will conveythe Project's approach to Project beneficiaries. 40. Peode/land management focus: Lessons from the GEF LandDegradation Linkage Study (2001)4 indicate that: (i) Projects with a people/land management focus tend to address The study aims to identify the results and initial impact o f the land degradation component o f those linkage Projects which link biodiversity, international waters and climate change with land degradation. Lessons learned 11  land degradation issues more directly. The Project employs a demand-driven approach, including the land use planningprocess under Component 1; and (ii) the most effective linkaged Projects appear to be those where land degradation i s built in as an initial component o f the problem and the solution. The smallholders Project's objective under the GEF increment i s focused on reducing land degradation through SLM, land use planning and related activities. 5. Alternatives considered and reasons for rejection 41. Implementing apency: There were two main reasons for selecting the National Directorate for Promotion o f Rural Development (DNPDR) o f the Ministry o f Planning and Development (MPD) as an alternative to the Ministry o f Agriculture (MINAG). These are: (i) Project emphasis on group promotion and mobilization; and (ii) the the strong links with the district-level decentralization administration. 42. Need for investment in infrastructure: Given the current relatively low absorptive capacity o f districts in the Project area, and the need to avoid unnecessary duplication with DPFP Project, which already finances rural roads, one alternative was to eliminate investment ininfrastructure from the Project. The reason for rejecting this alternative was that the community planningprocess supported by DPFP currently does not specifically address agricultural issues, and lacks the mechanisms to ensure the identification and mainstreaming o f the agricultural infrastructural needs o f smallholders into the local planningprocess. The amount o ffunding available through the DPFP is also very limited, amounting to an average o f only US$302,000 per district over the four and a half-year implementation period and i s not expected to satisfy the demand for infrastructure. Nevertheless, Project resources would only be used for infrastructure where demand was inexcesso fDPFP's capacity to respond. 43. Use o f a Proiect Credit Mechanism: As the Project area currently lacks the presence o f formal credit institutions, one alternative for facilitating the flow o f investment funds was through a line o f credit under the Project. This alternative was eventually rejected, as establishing a credit mechanism or institution purely on the basis o f time-bound Credit funds would not be a sustainable solution and there was adequate liquidity inthe banking system. A community-based fund is proposed for producer groups, with attention to developing improved access to rural financial services to provide longer term sustainability. Savings and loan groups supported by the Project will not receive fbnds, as global experience has shown that the performance o f savings-based groups often deteriorates when external funds are provided. 44. Inclusion o f adaptation activities: There was some concern to including climate change adaptation activities as they may be construed as contributing to the complexity of Project implementation. However, it was recognized, though, that the impacts o f climatic events such as droughts and floods are crosscutting and diverse, with severe from this review lead to a set of recommendations on how land degradation issues should be addressed in subsequent GEF activities. 12  consequences for agriculture and natural vegetation besides the indirect effects on health and economy. Any changes in land use and agricultural practices should, therefore, take into account climate trends in order to reduce the vulnerability towards increased weather variability. While the effect o f climate change in other countries in the region i s still uncertain, a number o f regional climate models predict that the intensity and frequency o f both droughts and floods (from cyclonic events) in Mozambique in general and the central Zambezi Valley, inparticular, will increase inthe mediumto long term. C. IMPLEMENTATION 1. Institutionalandimplementationarrangements 45. Overall responsibility for implementation will rest with the National Directorate for the Promotion o f Rural Development (DNPDR) o f the Ministry o f Planning and Development (MPD). DNPDRhas been responsible for leading and preparing the Project on behalf o f the Government o f Mozambique. The DNPDR was selected because agriculture, environmental aspects, group mobilization and decentralization issues are all central to Project implementation.Additionally, MPDhas the responsibility for integrated socio-economic development. In addition, the Project has been designed to support the decentralization strategy o f the GOM, which i s implemented through the MPD, under the Provisions o fthe Decentralization Law established in2003 (details inAnnex 1). 46. District: The focus o f all activities will be at the district level. To coordinate the activities, two District Facilitators (DFs) have been recruited respectively for the two First Phase districts and three more will be recruited for the Second Phase districts. The DFs will collaborate closely with district government andwith the District Administrator. The DF will play a catalytic role in ensuring technical departments work for the needs o f smallholders andprovided technical assistancewhen required. This includes development o f annual Project work plans, budgets and reports. The DFs will be supported by government recruited, accounting and procurement officers to supplement existing government personnel. The operation o f the Community Agricultural and Environmental InvestmentFund (CAEIF) will be largely a district responsibility, and will be integrated into the decentralization process, including the district consultative councils, to the extent it relates to the provision o fpublic goods. 47. Provincial:At the Province level, coordination is required for the services provided by public and private sector that are not present indistricts. Inaddition, banking facilities are not available in the districts. A key implementation role based in one o f the provincial capitals will be that o f the FieldManagement Advisor (FMA), supported by an associated pool o f short-and medium-term specialist consultants. The FMA will be supervised by the National Director o f DNPDR, and work in close collaboration with the representatives of DNPDR in the Provinces and the District Facilitators. The FMA will have the responsibility for ensuring implementation quality and coordination between districts and provinces. Together with the consultant specialists, he/she will provide training, methodological support, reference materials andguidance to government staff as well as for contracted service providers. 13  48. The Provincial Representative o f DNPDR would act as Provincial Project Coordinator and will supervise the work of the District Facilitators in coordination with the District Administrators. The DNPDR provincial team will be responsible for incorporating provincial level activities into aggregated district plans, reports and budgets and overseeing the timely flow o f funds from nationalto provincial level. 49. National:Giventhe central role o f the district inProject implementation, tasks androles at the national level will be largely contract supervision and oversight. At the national level an existing Inter-Ministerial Steering Committee' will be expanded to include representatives o f other relevant ministries. The key role o f the steering committee is to guide the overall strategic direction o f the Project as well as to approve Project work plans and budgets. The National Director o f DNPDR will coordinate Project activities andwill act as Secretary to the steering committee on matters related to the Project. To assist him in preparing the necessary progress, financial and procurement reports, the following full time staff will be provided: (1) Senior Financial Management Specialist, (2) Procurement Specialist (both will be hired as project consultants for up to 2 years) supported by a Government accountant andprocurement officer. 50. ImplementationStatus: The IDA credit became effective on December 28, 2006. The following i s a list o f administrative andproject thematic steps that havebeen taken so far: (a) Central and district level recruitments which were mandatory prior to effectiveness (District Facilitators, Field Management Adviser, Procurement Specialist, Financial Management Specialist, local procurement and accounting officers); (b) Opening o f two Designated Accounts; (c) Establishment o f DNPDR as an SISTAFE operating unit (including provision o f training and equipment); (d) Preparation and endorsement by the Ministry o f Finance of the revised work plan and cash flow for FY 2007; (e) Materialization o f the first advance from CUT (Treasury Single Account) in early May 2007; (0 Establishment o f the project TA in their respective districts which are already involved in the preparation o f the respective plans for 2008; (g) Finalization o f the biddingdocuments for contracting the CBO service provider, and (h) Discussion of the Project intwo sessions o f the Central Level Supervision Committee that encompasses all ministries relevant to the project range o f activities. The Project launch workshop was held on July 2-3,2007. 51. As planned, the project is being managed from within DNPDR, which has used the first five months to understandthe Project inpractical terms and to get ready to respond to the project implementation requirements. Although project implementation has been delayed due to reasons beyond DNPDR control, they have since dealt with the difficulties encountered. In the last ISR, the overall project implementation was rated Moderately Satisfactory. The Inter-Ministerial Steering Committee currently includes senior officials from MPD, Finance, Agriculture, Public Works andHousing and State Administration. 14  2. Monitoringandevaluationof outcomeshesults 52. Given the strong complementarities between the GEF and IDA-fbnded activities, monitoring and evaluation i s being discussed only at the aggregate level (without distinction o f source o f funds). 53. Overall Project monitoring will occur at three levels. Internalmonitoringwill form part o f Project implementation activities - primarily management information system. At the district, this will be the responsibility o f the District Facilitator (DF), who will ensure the collection and reporting o f data on inputs and outputs. Data will derive from quarterly expenditure and work data supplied by district Project participants - public, private and non governmental as well as from CAEIF (Community Agricultural and Environmental - Investment Fund) disbursement records and verification visits to funded sub-projects. The work o f the DF will be supported on a project-wide basis by the Field Management Advisor (FMA), who will monitor technical performance indicators and completion o f activities and outcomes against work plans, particularly for service providers. 54. Process monitoringwill be undertaken by an independent contractor reporting directly to the Inter-Ministerial Steering Committee. Their work will include not only reviewing and analyzing the internal monitoring data generated within the Project, but also assessing the implementation process itself and the manner in which the overall Project objectives are being met. In this context, the Project's success in both the sustainable mobilization o f a traditionally marginalized population and the creation o f an enhanced district level capacity to support such groups must be a central component. In addition, the external monitoring system should attempt to assess the extent to which sub-projects put forward by participating groups, and eventually funded, actually reflect their priorities. 55. Inorderto generateandutilizethis data, theexternalprocessmonitoringwillbeexpected to maintain a database containing annual sample surveys covering the activities, income levels and perceptions o f beneficiary groups and control populations. Inthis work they will draw heavily on the baseline study which was completed in February 2007 and a second major surveyto be conducted prior to the mid-termevaluation. 56. Impact Evaluation will be carried out by an independent institution for both the IDA and GEF portions combined. There will be two surveys - one at mid-termand the other at the end o f Project. These will be based on the baseline survey completed in February 2007 and are filly budgeted. 57. Remote Sensing (RS) and Geographic Information System (GIS) will be used by the Project for capturing baseline and diagnostic information on natural resource endowments, villages and communities, and infrastructure and establishing baselines for Project indicators by time o f Project effectiveness. RS and GIS information will also be utilized to monitor and evaluate the changes resulting from Project interventions. Finally, 15  information collected will feed into the land use planningprocess as a decision making tool. 58. Partnerships with national institutes, such as CENACARTA and the National Meteorology Institute, will provide the Project with information on agriculture yield forecast, land cover maps, forest cover monitoring and evaluation, annual forest and woodland burning and agriculture frontier expansion, mapping o f soils and hydrology o f an area and providing an indication o f areas that are vulnerable to droughts and flooding that need to be avoided or rehabilitated. Participation by faculty and graduate students from Eduardo Mondlane Universitywill be obtained for documenting indigenous natural resource knowledge and for adapting indigenous knowledge with current research in demonstration and on-farm trials. 59. Monitoring and Evaluation (M&E) will also be enhanced at the local level the Project - will support community-based M&E as a tool for buildingthe capacity of associations to implement their plans and monitor their impact. M&E will build on accepted traditional methods o f surveillance which exist at the community level, and involve associations in surveillance activities and reportingo f abuses o fnatural resources (such as illegal hunting and logging and uncontrolled wild and anthropogenic fires) to the proper local authorities. Ecological monitoring would initially be carried out by extension agents with the view o f transferring such responsibilities to associations as their capacities are developed. 60. Regarding areas o f sustainable land management (SLM), the Project will seek coordination and complementarities with work o f TerrAfrica and the SP/SLM on M&E, which will result in greater utilization o f SLMM&E components o f the Project and SLM M&E portfolio of activities byvarious partners. 3. Sustainabilityand replicability 61. The sustainability o f the Project depends upon several key factors, which were discussed in detail in the project document for the IDA portion. To summarize, they included: (i) the Project design places major emphasis on institutional and process strengthening; (ii) the Project design responds fully to the current and expanding decentralization policies o f GOM; and (iii) Project design does not include aProject implementation unit, relying the instead on existing government structures for management o f the Project, including flow o f funds. 62. Specifically in the case o f GEF funds, they will be used to ensure that increasing productivity o f land resources results in objectively verifiable local ecosystem services and global environmental benefits. This will, in turn, provide a long-term basis for vulnerability reduction among the poor and strengthen their ability to focus beyond immediate subsistence needs. The geo-referenced, project area natural resource baselines and community-based land use planningwill be assembled instandardized and accessible databases located at multiple stakeholder agencies so that they serve all future development programs. Project staff, community leaders and members, students from the 16  local university, which will participate inbaseline surveys andmodel calibration, and will contribute to enhance local capacity to continue to apply and refine Project methods and extend results and lessons learned to other areas. Change detection analysis will allow the quantification o f Project impacts vis a vis rates o f deforestation and incidences o f burning. 63. Furthermore, the sustainability o fProject support to the adoption o f new technologies and investments will be greatly increased by expanded, Project-facilitated access o f smallholders and agribusiness participants to rural financial services. Given the limited G O M capacity to provide public funds for such activities, the presence o f a private sector finance capacity i s seen as critical for investment and innovation beyond the implementationperiod. 64. The combined potential for replication o f the Project is considered to be high. Due to the innovative approach in which smallholder development i s closely linked to current decentralization policies and the integration of management within existing structures, the Project encompasses only a small number o f districts. Successful implementation, bothinterms o fpoverty reduction outcomes as well as the mainstreaming o f smallholder support processes, would provide a strong argument for replication o f the Project into other districts within the Zambezi Valley Region and, eventually, nationally. A replication strategy and action plan will be prepared before end o f Project. The plan would identify the main lessons learned from the first years o f implementation, assess the progress o f the national decentralization process and capacity o f additional districts to carry out Project activities as well as resources (outside National allocation to districts) required to carry out these activities and potential sources. 4. Critical risks and possible controversialaspects 65. As inthe case o f all innovative Project designs, a numberof significant risks are present. These risks are discussed in more detail in the relevant working papers and are summarized below: Risk Risks RiskMitigation Measures Rating With Mitigation To Project development objective 1. Reversal or weakening o f GOM Support to decentralization by Project using decentralizationpolicies reduces existing mechanisms established by Law and capacity o f districts to implement and empowering communities to participate M sustain Project activities. actively indistrict planning process. 2. Institutional capacity at all levels o f Substantial investment o f Project resources in GOM and among service providers institutional strengthening and stafftraining. S insufficient to adequately manage tasks. 3. Inability to identify and contract suitable Promote partnership between larger, more service providers and technical advisors experienced organizations and local to provide highquality support. institutions inbidding on contracts. M 17  4. Severe drought or flooding inthe Project Links to National Institute for Disaster area prevents gains inoudut and Management capacity o f early monitoring income. systems in the region and identify "high risk" S zones and introduce adaptation measures. 5. Inadequate collaboration and Provision o f two key Project positions; coordination between different Project District Facilitator and Field Management stakeholders. Advisor. N 6. Weak provincial MICOA institutions Recruiting through the project o f Senior andnon-existent institutions at district Environmental Specialist and two medium S level. level CBNRM dissemination experts. To componentresults 1. As funds are routed throughthe Reporting structures in place with M Treasury timely availability o f funds to strengthened capacity o f financial districts and communities may be a management staff at national, provincial and constraint. district levels. Government commitment to ensure resourcesprovided on a timely basis to the districts and communities. 2. HIV/AIDS impacting adversely on Awareness campaigns, distribution of S agriculture head o f households and on condoms and links with on-going programs. extension staff. Use o f traditional medicines for treatment (e.g., African potato). 3. Poor response to group promotion efforts, Allocation o f significant resources to this M limiting participationby smallholders. activity anduse o f service provider with appropriate experience. 4. Inability to achieve sustainable increase Contract specialized financial system service M inruralfinancial service access. provider and promote linkages to formal financial sector. 5. Elite capture o f groups and thus majority Focus on full community participation in M o fProject benefits. creation o f groups and transparency in group activities. 6. District extension service too weak to Provision o f resources to DDA for expansion N effectively support groups and o f both subject matter specialists and field entrepreneurs. staff. Strengthening o f DDA. 7. Inability to establish improved Strong focus on market development for N agribusiness and market linkages. beneficiary groups and local entrepreneurs. 8. District staff unable to ensure effective Creation o f new district posts, use o f M and timely response to sub-project simplified procurement procedures, training proposals. o f staff and contracting o f support agents. 9. Lack o f local capacity to procure goods Support to local traders in responding to N for small scale sub-Projects, resulting in requests for supply o f goods. lengthy delays in implementation of sub-Projects. 10. Lack of group and small entrepreneur Awareness and promotion campaign among N 18  11. Poor financial reporting delays funds Strengthening o f financial management transfers to provinces and districts. capacity and introduction o f transparent systems at all levels. 66. The overall `substantial' risk rating arises not because o f individual risk ratings in the high or substantial category, but due to the number o f risks faced by the Project in different areas. Considerable effort has beenmade to keep the Project structure as simple and flexible as possible, but the inclusion o f districts (in response to strong government wishes) inthree different provinces increases management complexity. 5. Grant conditions and covenants Additional conditions of Effectiveness (a) The execution anddelivery o fthe GEF GrantAgreement onbehalfo fGOMhave been duly authorized or ratifiedbyall necessarygovernmental action. (b) The financialmanagement system for the Project hasbeenadjusted for the purpose o fthe Grantinamanner satisfactory to the WorldBank. Special Covenants: GOMwill ensurethat: (a) that the Project i s implemented inaccordance with the recommendations o fthe ESMF; (b) a screening procedure to determine ifa resettlement planis requiredunder any subproject underComponent 3 o fthe Project; (c the recruitment o ftwo agricultural extension staffper administrative post inthe FirstPhase Project Districts by January31,2008; (d) Withdrawal Condition for Component 3: Recipient shall have ensured that the following staff have been recruited in any Province or District andare inplace: (i) accountantperProvince; one (ii) accountantandoneprocurementofficerperDistrict;and one (iii) Regionalprocurementspecialist. one D. APPRAISAL SUMMARY 1. Economicand financial analyses 67. Financial Analysis. Project financial and economic performances were estimated taking into account all Project costs (both IDA and GEF) except costs with long-term benefits which are difficult to evaluate at this stage. Such costs correspond to the following activities: (i) district capacity building; (ii) management, coordination, monitoring Project & evaluation; and (iii) 60 percent o f Component 3: Community Agricultural and 19  Environmental Investment Fund (this, to take into account investments in rural road rehabilitation and environmental public goods). The Project financial rate o f return i s estimated at 13 percent and financial net present value at US$0.5 million. However, this i s probably an underestimate as the analysis is based on several conservative assumptions anddoes not take into account benefits generated within the value chain (increased fann- gate prices, increased income o ftraders and agribusinesses, etc.). 68. Economic Analysis. The Project economic rate o f return i s estimated at 15 percent and net present value US$1.6 million taking into account the proportion o f Project costs justified inthe financial analysis. Ifall Project costs were to be included inthe economic analysis, the economic rate o freturnwould still be 8 percent. 69. Sensitivity Analysis. A sensitivity analysis was conducted using switching values. The Project is not particularly sensitive to small increases incosts or decreases inbenefits (by 10 percent). The Project i s relatively more sensitive to declines inbenefits than increases incosts. A 30 percent increase in costs would yield an ERR of 10 percent, while a 30 percent reduction inbenefits would cause to drop the ERR to 8 percent. The ERR i s not very sensitive to delays in Project investments such as large investments o f public good nature, e.g., feeder roads rehabilitation. A two year delay in accrual o f Project benefits would yield an ERR o f 10percent. 70. Fiscal Impact. The GOM's budget i s not expected to sustain investment made by the beneficiaries. A large part of the Project costs would be within sub-projects implemented and co-financed by private beneficiaries. The main budget impacts are related to the maintenance o f rehabilitated feeder and district roads after the Project completion, which would cost about US$175,300 per year, and the continuation o f the extension services, which would cost approximatelyUS$lOO,OOO per year. 2. Technical 71. Local circumstances and smallholder needs as well as international best practice and lessons learned have been incorporated in the technical design o f the Project. A number o f such best practices and lessons learned are: 72. Linking community investmentfunds with theprovision of production and market-related advice: International practice as well as experiences in Mozambique (e.g., by DANlDA in Tete and Manica) have shown that in relatively under-developed business environments like the proposed Project area, with little or no presence o f formal Business Development, Services (BDS) providers, providing finance through community investment funds, will have to be accompanied by proactive provision o f assistance in production and/or marketing issues. Without such assistance, the fundwill runthe risk o f being either under-utilized (thereby failing to reach its objective o f injecting the much needed financial resources into the region), or being "misused" for purposes that are not viable or sustainable from a business point o f view. The Project has incorporated this lesson in the design by building in strong links between the groups formed under 20  Component 1, the assistance provided under Component 2, and the CAEIF funds o f Component 3. 73. Working with groups to overcomeproduction- and marketing-related constraints: While donors often consider working through groups necessary if only for efficiency reasons, there i s also a certain degree o f consensus that groups can be effective and indeed sustainable incarrying out production- andmarketing-related activities as long the group serves a clear and tangible economic purpose for each o f its individual members. Groups should be based on a clear demand and only engage insuch demand-driven activities that cannot be carried out by its members individually. Without these conditions, groups are unlikely to be sustainable, as both international and Mozambican experiences have shown. These lessons learned have been incorporated in the proposed Project approach and the abidance by these lessons will be monitored during Project implementation, particularly with respect to the interventions under Component 1. 74. Value Chain approach: There i s now a strong international consensus on the need to take into account all actors and activities along the value chain, when designing and implementing smallholder or business development interventions. These lessons have also been learned in the Mozambican context and are now being applied in related Projects such as EMPRENDA or PAMA. They have been incorporated into the Project design, inparticular inthe interventionsproposed under Component 2. 75, Ruralfinance through Village Savings and Loans (VSL) groups: International experience shows that in environments such as the proposed Project area, where no commercial banks or micro-finance institutions are currently operating, the creation o f Village Savings and Loans (VSL) groups i s an effective way to provide basic financial services to people living in remote rural communities. It may be possible to federate such groups to enable linkage to the formal financial institution that the Project expects to attract to the area. Economies o f scale exist on the following three levels: (i) the accumulation o f capital that cannot be achieved by individual members alone; (ii) the specialized technical assistance needed for the group which would be too costly to provide on an individual basis; and (iii) the attractiveness o f groups (compared to individuals) in terms o f lower transaction costs for commercial banks or formal micro-credit institutions. 3. Fiduciary 76. The Project will be implemented at three levels: national, provincial, and district (see Annex 6). At the national level, implementation tasks will largely be concerned with financial management and central oversight o f the whole Project (i.e., both IDA and GEF-financed activities). The Project has also been designed to closely complement the activities o f the ongoing World Bank-financed Decentralized Planning and Finance Project (DPFP), which i s also beingimplemented through the MPD. 77. Fundswill flow from the GEF grant to a Designated Accounts inthe Ministryo f Finance to finance activities under relevant components, and to a Designated Account at DNPDR to finance foreign expenditures. Activities to be financed using Project h d s will be 21  indicated in the annual plans drawn up in accordance with existing financial and accounting regulations. The consolidated work plans will be submitted to the Ministry o f Finance for approval. Based on these approved work plans, the MOF will advance to the Government Treasury Account, from the Special Accounts, an amount equal to the forecasted local currency expenditures for a three month period. All other funds advanced byGEF to the Designated Account A will remain inthe MOFDesignated Account. Once the work plans (and other relevant documentation, e.g., accountability for grants previously disbursed) are reviewed and approved by the DNPDR, a request will be sent to the Treasury Department for funds to be released. The Treasury Department will then arrange a transfer o f funds on the Treasury in favor o f the DNPDRat the center, or to the relevant Provincial Treasury Account. Each provincial DPPF will then request for a transfer to Projectbank accounts for activities at the province and district, respectively. 78. The provinces and districts will receive an initial advance after meeting the disbursement conditions, and subsequent replenishments upon presentation o f adequate documentation o f expenditures incurred. Due to the decentralized nature o f fund flows, an adequate financial management system is required to ensure the reports on expenditures to be incurred at provincial and district levels are prepared and submitted to the DNPDR in timely manner. A specific training will be provided to the accountants o f the two First Phase districts. Until a reliable FM system i s in place, funding o f district level activities will be done through specific expenditure advances closely controlledby DNPDR. 79. Payments in foreign currency will be made by DNPDR using the USD funds in the Designated Account B to be opened and maintained by them. Activities at the community, district and provincial level to be financed using foreign currency will be included in the annual plans referred to above, and submitted to the DNPDR for consolidation. The option o f disbursingthe funds through direct payments from the GEF grant will only be made for expenditures above the threshold specified in the Disbursement Letter. Withdrawal applications for such payments will be accompanied by relevant supporting documents such as copies o f the contract, contractors' invoices and appropriate certifications. 80. The financial transactions relating to this operation would be recorded and monitored using a separate management and accounting system. Actions outlined in the Financial Management Action Plan in Annex 7 will be undertaken by the Project to hrther strengthen the financial management system. 4. Social 81. In the districts along Zambezi Valley poverty is insidious, commercial networks are almost non-existent, agriculture i s primarily rain-fed and smallholder production mostly used for subsistence. The districts targetedby this Project are all economically isolated with almost no formal commercial or financial services. Significant portions o f most o f the resident population's recent history have involved living elsewhere either as refugees or as internally displaced communities. Tendencies o f social fragmentation, mistrust and isolation o f individuals or small groups are in constant tension with development 22  dynamics, requiring inclusion, collaboration, cohesion, sharing and mutual benefit. Although some traditional mutual assistance practices persist, and more recent group activities have been promoted by various non-government organizations in this area, longer term impacts are not evident, and it still remains a significant challenge to establish longer term stable group organizations with individual and common benefits. Rural women and young people are still very much marginalized from the public sphere in these areas. With the high HIV/AIDS prevalence in this region, their full integration into development activities i s essential. 82. The Project is explicitly a demand responsive initiative. The key areas to be closely monitored include: (a) community attitudes at the end o f support period; (b) there i s also a risk that the Project will not be able to adequately stimulate the emergence o f entrepreneurs; (c) people benefitingmost from the Project may be the more influential and better motivated male members o f farmer and other self-help groups if careful facilitation does not promote full group participation in decision-making processes; (d) illiterate andpoor smallholders living inremoter areas may not be able to take advantage o f the processes involved in obtaining access to Project benefits, unless specific mechanisms are used to ensure the Project i s as inclusive as possible. 83. Using the demand responsive approach, clear consistent communication about opportunities and eligibility to participate in the Project will be promoted so that messages do not contradict or undermine those o f other projects in the same area. Communities that are confused take longer to react, trust levels drop and time to redress the situation i s required. Adequate preparation to launch this approach i s essential. Presently communities are mostly reactive and unaware o f their civil rights. It will take some time to establish group confidence to take up their responsibilities. The approach to legalizing farmer groups and securing their user rights to basic assets such as landi s one way to improve group performance. It is possible that during the six years o f implementation many o f the groups will not be legalized as procedures are very slow and complex6. This may limit the impact o f their acquisition o f social and economic capital duringthe Projectperiod. 84. The main social benefits o f the Project are likely to be added knowledge, skills and experience o f smallholders, including women and youth, that strengthen the organizational cohesion, leadership and member motivation o f their groups and associations. Their increased institutional and leverage capacity i s expected to assist them to manage and control their access to rural finance, agribusiness services and government managed resources, significantly improving their development opportunities. These and the potential negative impacts discussed above will be monitored through community level participatory review mechanisms that promote the critical review o f key indicators and progress o f the groups involved inthe Project. Indicators will also be quantitatively measured inpre-midterm and pre-Project completion household surveys. The Mozambican government is presently adapting the Law o n Associations (Law no8/91) to make the legalization process for agricultural associations more simple. 23  85. Potential involuntary displacements o f people, or land acquisitions, as a result o f Project investments will be handledthrough a Resettlement Policy Framework (RPF). 5. Environment 86. Potential environmental concerns resulting from Project activities are those associated with: (i) rehabilitation and maintenance o f roads; (ii) irrigation systems; (iii) agricultural development and commercialization which would lead to increased production volumes both through extensive and intensive farming practices; and (iv) increased value added processing and marketing capacity o f agribusinesses involved in the commodity supply chains. Anticipated sub-projects would include, for example, investments in: farm power, farm equipment and implements, small tributary reservoirs and irrigation schemes and facilities, integrated pest management, post-harvest and handling equipment and means, technology and marketing at agro-enterprise level; and handling, transportation, storage and processing assets improvements. The Project would not finance any major infrastructure, and sub-projects are unlikely to involve the acquisition o f land. 87. The road rehabilitation and maintenance works are expected to have minor, manageable negative environmental impact since the works will follow the existing alignments. Small-scale agriculture and commercial farming projects may involve strengthening existing practices, introducing new and perhaps exotic crops, or crop diversification or intensification with new farming systems. They may also assist people move from shifting to settled agriculture, from subsistence to cash cropping, andor from labor- intensive to mechanized farming. The Project would not directly finance purchases o f fertilizer and chemicals. Agro-businesses and farmers are able, or course, to purchase them from input suppliers.Measures to avoid or minimize adverse environmental effects from Project investments, including changes to agricultural practices, i s included in the Environmental and Social Management Framework (ESMF). 6. Safeguard policies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPBP 4.01) [XI [I Natural Habitats (OPBP 4.04) [I [XI Pest Management (OP 4.09) [XI 11 Physical Cultural Resources (OPBP.4.11) [I [XI InvoluntaryResettlement (OPBP 4.12) [XI [I IndigenousPeoples (OPBP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety o fDams (OPBP 4.37) [I [XI Projects inDisputedAreas (OPBP 7.60)* [I [XI Projects on International Waterways (OPBP 7.50) [XI [I 'BysupportingtheProject,theBankdoesnotintendtoprejudicethefinaldeterminationof theparties'claimsonthedisputed areas 24  88. This i s an EA Category "B" Project. Actual Project investments will be demand-driven andwill only be determined duringimplementation. Thus, an Environmental and Social Management Framework (ESMF) has been prepared to address the substantive requirements o f OP 4.01 and OP 4.09, the latter primarily for livestock hygiene facilities and weed control around Project-funded facilities. The ESMF also contains a screening procedure for determining if a resettlement plan is required for any particular investment according to the Resettlement Policy Framework (RPF) that has been prepared according to the requirements of OP 4.12. Both the ESMF and RPF have been disclosed in the Project districts andprovinces, and sent to the Bank's Info Shop. OP 7.5 (Projects on International Waterways) is triggered by associated IDA Credit (Mz; Market-led Smallholders Development Iithe Zambezi Valley, Cr 41980-Moz) as there may be water withdrawals for small irrigation subprojects implemented in the Zambezi River basin, including the Shire River - a major tributary o f the Zambezi River. The Republic o f Mozambique has sent notifications to all riparians providing May 15, 2006 as deadline to provide approvalho-objection. To date, none o f the riparian countries have expressed any objections. Furthermore, as the project districts are downstream o f the other involved riparian countries, none are expected. Policy exceptions and readiness There are no policy exceptions under the Project. 89. The Bank has appraised the draft Operational Manual, Procurement Plan the Financial Management System and the Staffing Plan. The ESMF and the RPFhave beendisclosed. The disbursement schedule reflects the need for significant capacity buildinginthe initial years o f the Project, and has beenadjusted to take into account the delay in availability o f GEF funds. 25  MOZAMBIQUE :Market-ledSmallholdersDevelopmentintinthe ZambeziValley Annex 1: CountryandSector or ProgramBackground 1. CountryIssues 1. Mozambique has witnessed impressive growth since the 1992 peace agreement that officially ended the sixteen-year civil war which had left the country with the lowest GDP per capita in the world. On average, the economy grew by 8 percent annually between 1994 and 2004. Peace and democracy, post-war resettlement inthe rural areas, the achievement o f macro-economic stability, and the transformation o f a centrally- planned state-owned economy into a market-oriented one, have all contributed to this growth. 2. Economic growth has been accompanied by rapid poverty reduction: between 1996 and 2002, the national poverty index fell from 70 percent to 54 percent. Despite this progress, Mozambique remains one o f the world's poorest countries and out o f its estimated population o f 18.3 million, almost 10 million are still poor. The majority o f the poor (and o f the population at large) live in the rural areas and are working in agriculture. Isolation caused by a lack o f basic infrastructure (including roads and markets), a lack o f institutional support and low agricultural productivity characterize the poor inMozambique andare important obstacles intheir attempts to escapepoverty. Untilrecently, HIV/AIDS infection rates were relatively low compared to neighboring countries, but they are now rising rapidly - the latest estimates put the national average infection rate at 16.2 percent - and are expected to significantly affect economic growth and poverty reduction inthe coming years. 3. The Zambezi Valley forms part o fMozambique's Central Region, one o f the hardest hit areas duringthe civil war. Most o f the infrastructure inthe region was heavily damaged or destroyed and many communities were effectively abandoned during the conflict. Some areas, notably those close to reconstructed primary and secondary roads andwith higher precipitation levels, have grown relatively rapidly over the last decade. The remaining areas, however, have lagged behind, hindered by poor market linkages, limited access to new technologies, lack o f investment capital and variable rainfall. With a prevalence o f 20.4 percent, HIV/AIDS has so far affected Mozambique's Central Region also much more thanthe rest o fthe country. 2. Agriculture, RuralDevelopmentandEnvironmentalIssues 4. Mozambique has significant agricultural potential, with an estimated 36 million hectares of arable land, o f which only 10 percent i s presently in productive use. The wide diversity o f soil types and the diverse climatic conditions inthe country are suitable for a large variety o f crops. Even though the share o f agriculture in its national GDP i s gradually decreasing (from 34 percent in 1996 to 21 percent in 2003), Mozambique i s still a predominantly agricultural society. Some 80 percent o f the economically active population i s currently employed inthe agriculture, forestry, or fishing sector. 26  5. A quarter o f the Mozambican population lives in the Zambezi Valley, which has particularly good potential for agriculture. With 5.5 million hectares o f arable land, the Zambezi Valley accounts for 15 percent o f Mozambique's total arable area. Maize, cassava, and sweet potatoes are the most important food crops, followed by beans, sorghum, millet and rice. Cotton, groundnuts, tobacco and cashew are important cash crops, with sesame and paprika gaining inimportance inrecent years. 6. Agriculture in Mozambique i s almost entirely dominated by smallholders. Taken as a whole, smallholder agricultural producers comprise 99 percent o f all rural households and provide 95 percent of agricultural GDP. Average cultivated area per agricultural household is only 1.4 hectares. Smallholder farmers often have multiple small plots, practice intercropping, use little or no inputs and achieve only low productivity. Most are subsistence farmers and completely dependent on rain-fed production. In2003, for instance, 83 percent o f maize, 78 percent o f rice, 95 percent o f sorghum, 98 percent o f millets, 74 percent o f groundnuts and 75 percent o f beans produced in the country was retained for home consumption. 7. From the early 1990s onwards, the Government o f Mozambique (GOM) embarked on a liberalizationprocess, replacing state intervention in the agricultural sector (inthe form o f state companies, marketingboards, pan-territorial and guarantee prices, food security reserves, and numerous subsidies) with more market-oriented policies. Today, G O M has no control over prices at agricultural input or output markets, with the exception o f cotton prices. Agricultural inputs such as fertilizer and agrochemicals are exempt from trade tariffs. 8. As war refbgees returned to their lands to resume agricultural activities after the end o f the civil war in 1992, and rural infrastructure began to be rehabilitated, Mozambique's agricultural sector grew at an average annual rate o f 6.8 percent from 1992 to 1997. It continued to grow at a somewhat lower average rate o f 4.6 percent between 1997 and 2003. Main contributors to this growth were maize, sugar and tobacco. However, as agricultural growth has been driven primarily by labor and land expansion, without technological improvements or productivity gains, current growth i s not expected to continue for much longer. In fact, after the post-conflict "bounce-back", growth i s now starting to plateau. Growth o f poor land management practices have put increased pressure on the ecosystem, resulting in land degradation, deforestation and loss o f biodiversity. These, inturn, have increased people's vulnerabilityto climatic variability andhave adversely affected their well being. 9. Productivity levels o f smallholders in Mozambique indicate vast scope for improvement, with current levels much below their estimated potential. Compared to neighboring countries with similar agro-climatic conditions, per hectare maize yields are extremely low at 0.9 tonha. Potential productivity gains are, however, held back by a number o f inter-related constraints, which, if not addressed, will hamper fbrther smallholder growth andpoverty reduction. The most critical o f these constraints are: 27  10. Weak organizational capacity of farmers: The degree and capacity o f organization among farmers in Mozambique is weak. Only about 5 percent o f rural households currently belong to a farmers' association. The Zambezi Valley i s no exception to this: the armed conflict broke down many of the social structures in the communities and social capital was significantly reduced. Farmer groups have been established in the region by organizations such as World Vision International (WVI) and the Zambezi Valley Development Authority (GPZ), but many o f these groups will need substantive additional support to ensure long-term sustainability. Recently, positive results have also been achieved by the Dunavant Cotton Company, which has organized farmers into a hierarchical system o f some 700 groups for input delivery, production advice and harvest collection. 11. Weak institutional support to smallholder farmers: Most o f the Government's current limited technical support capacity for the agricultural sector is concentrated at the provincial level, far from most farmers. Decentralization o f funds and responsibilities within the Ministry o f Agriculture (MINAG) under the agricultural sector-wide programme ProAgri has largely involved devolving responsibilities from national to provincial levels, with only limited increases in district authority or capacity. Government services are often top-down and technocratic, and occur in isolation from other rural development stakeholders, including smallholder farmers and the emerging private sector. The outreach capacity o f extension services i s also extremely limited: There are on average 1.3 extension workers per 10,000 rural inhabitants in the country, and only 13 percent o f rural households have effective access to extension. District Directorates o f Agriculture (DDAs) also lack the capacity to facilitate participatory planningand coordinationwith farmers, civil society and the private sector. 12. Lack of access to rural credit: The lack o f rural finance in Mozambique is pervasive even by African standards. With the privatization o f the banking industry, commercial banks have virtually disappeared from the rural areas and currently operate almost exclusively from the larger urban centers, with most o f their activities concentrated around Maputo. Hightransaction costs, poor incomes and low saving rates have made the rural areas generally unattractive for commercial bank operations. Public and donor sector initiatives to stimulate rural finance have so far had only a marginal impact and the success o f micro-finance institutions has been limited mostly to urban areas. There are, however, some emerging success stories o f NGO-promoted community-based savings and credit arrangement inthe country. 13. Use of ineffective farming methods resulting in land degradation and low productivitv: Input markets are liberalized and the Government stresses the role o f the private sector ininput supply. Inpractice, however, smallholders use few inputs due to limited access and largely subsistence production patterns: only about 4 percent o f rural households currently use fertilizers, and 5 percent uses pesticides, most o f them cash crop growers. Animal traction i s used by 10 percent, and about 82 percent o f rural farm households report seed supply as their main problem. The lack o f input traders and extension agents, and the lack o f access to credit are all important barriers to an increased use o f productivity-enhancing inputs by smallholders. In addition, farmers carry out extensive 28  landmanagement and forest extractionpractices, which often involve the use o f fire and inadvertent large scale burning o f native woodlands, resulting in deforestation, land erosion and desertification. Such environmental degradation and the accompanying loss o f ecosystem services will negatively impact both pristine ecosystems and agro- ecosystems inthe fbture. Low level of rural infrastructure (including roads and irrigation) development: Despite recent investment, the density o f the road network i s still the lowest in southern Africa. About 57 percent o f the classified roadnetwork is now ingood or fair condition, but the emphasis has been on classified roads. Rural access roads are still underdeveloped and require enormous investments; most are in poor condition and many are impassable, especially during the rainy season. This severely affects farmers' access to markets. Irrigation infrastructure i s extremely limited, which, given Mozambique's highly variable climatic conditions, significantly increases the vulnerability o f farmers. Government statistics reveal that the total irrigation-equipped land amounts to 118,000 ha, o f which, only 40,000 ha i s presently utilised. This is around lpercent o f the total irrigable land, estimated at 3.3 million hectares. About 60 percent o f the country's irrigable landlies inthe Zambezi Valley. Apart from small-scale NGO ledinterventions, such as the promotion o f treadle pumps in Sofala and Zambezia, initiatives to promote irrigation have so far had limited success. A lack o f infrastructure for storage or processing limits hrther the opportunities for value addition and causes high post- harvest losses. High vulnerability to climate variability and climate change: Mozambique, and, in particular, the Zambezi valley, i s highly vulnerable to changing climatic patterns, including extreme climatic events, such as drought and floods, which are exacerbated by the pressure on ecosystem services. Periodically, severe droughts and floods cause crop failures7, and regional climate models predict that the intensity and frequency o f droughts will increase as global temperatures rise. 3. The Poverty Reduction Strategy 16. The reduction o f absolute poverty has become the main priority in all Government action. Poverty reduction played a central role in the latest presidential and parliamentaryelections. It also serves as a rallying point for government, civil society and donors at the annual "Poverty Observatories", established by the Government as a multi-stakeholder forum to monitor progress o f the PRS. Poverty reduction i s also the unifying common denominator among Government and the international donors in Mozambique. The latter have joined forces to support the Government's poverty reduction efforts through Sector-Wide Approaches (SWAP'S) or Direct Budget Support (DBS)inthe role o f"Programme Aid Partners". 17. Poverty Reduction and the promotion o f sustainable and broad-based growth are also the main objectives o f the Government's latest Five-Year Programme 2005-2009, which 'Maizeyieldfell onaverageby40 percentto 85 percentinthe Zambezivalley during the droughtyears 1982/1983, 1986/1987,and 1991/1992. 29  was adopted by Parliament in April 2005. Inits Five-YearProgramme, GOM commits itself to action in the three main areas o f governance, human capital and economic development. Across all fields o f action, priority will be given to rural areas, where most o f the poor live. 18. At the same time, the Government has stressed it will make the district the principal development pole for combating poverty. The current decentralization o f planning and finance functions, with its emphasis on participatory district-level planning, i s key to this. The ultimate goal o f the decentralization agenda is to close the gap between Government, its institutions and its citizens, to focus Government programmes on the needs o f its citizens, and to increase Government's accountability. Recently approved laws, such as the Local InstitutionsLaw (LOLE, 2003) and Regulations o f 2005, and the law on the Government Financial Administrative System, have made district consultative councils mandatory and have institutionalized an annual allocation o f $300,000 to district budgets as of 2006. Such policy changes are all indicative o f GOM's commitment to decentralization (see Attachment 1). 19. Mozambique's first PRSP, known as its Programa Acelerado da Redup?o da Pobreza Absoluta 2001-2005 (PARPA I),had as its specific objective the reduction of absolute poverty levels from 70 percent in 1997 to less than 60 percent by 2005 and less than 50 percent by 2010. Already in2002, absolute poverty hadbeen reduced to 54 percent. The G O M is determined to continue this trend and at the end o f 2006 had approved and adopted its second PRSP (PARPA-II, 2006-2010). As in PARPA-I, economic development, human development and governance will continue to be the three main pillars o fGOM's poverty reduction strategy. 4.GovernmentSupport to AgricultureandRuralDevelopment 20. Both inits Five-YearProgramme and inits Poverty Reduction Strategy, GOM strongly emphasizes the critical role that agriculture, rural development, and basic infrastructure play inthe country's economic development. Agriculture is explicitly recognized as the main driver o f poverty reduction and economic growth in Mozambique. G O M also acknowledges that future agricultural growth will to a large extent depend on productivity gains. The two main objectives o f G O M for the agricultural sector are, therefore: (i)to build the capacity o f producers to increase their productivity; and (ii) to transform the role o f public institutions to act as both facilitators and providers o f essential services that will ensure growth o f the sector and contribute to poverty reduction. 21. To achieve these objectives, the government plans to actively stimulate the market mechanism, promote the creation o f financial institutions for the rural areas, improve the rural road network and agricultural infrastructure, stimulate the development o f agri- business, and improve the performance o f the extension, research and market information services for the family sector. In recent policy documents, G O M places increasing emphasis on grass root development at district level and on the gradual 30  transformation o f smallholders into commercial farmers by the promotion o f better linkages between the family sector and the commercial agriculture sector. 22. PROAGRI i s MINAG's sector-wide program for the agricultural sector, operational since 1999 and supported by the donor community, including the World Bank, through a SWAP. Inits first phase (1999-2004), PROAGRIattained important achievements in institutional reform at central level and decentralization to districts and provinces. PROAGRI-I1 began in 2006 and it recognizes the importance o f horizontal integration across sectors and thus the importance o f marketing, finance and rural roads for agriculture growth. It also intends to promote the role o f non-state actors, such as farmers associations, NGOs and the private sector. As for extension services, MINAG advocates a combination o f an expansion o f qualified government staff, and a move towards a more pluralistic extension system, inwhich some services will be providedby NGOsandprivate sector actors, through outsourcing mechanisms. 5. Government Strategy toward Land Degradation, Exploitation of Natural Resources and Changing Climatic Patterns 23. Since the end o f the war a number o f legal and institutional tools have been developed to ensure that economic activities are carried out in compliance with acceptable principles and standards o f social and environment impacts. The most important acts and laws inrespect to environmental management are the Water Law (1991), LandLaw (1997), Environment Law (1997), Forestry and Wildlife Law (1999), Mining Law (2002) and the Law on Calamities Management (2003). These laws put in place instruments that allow communities to benefit from natural resources and be protected from natural disasters, and that restrain excessive exploitation o fnatural resources. 24. The long-term sustainable use o f natural resources, and, more specifically, land, forests, wildlife and water is a principle that runs through many o f the Government's strategies. In the Poverty Reduction Strategy, the GOM has committed itself to promote and enforce the sustainable use o f natural resources for the benefit o f the country as a whole, to prevent its irreversible exploitation, and to encourage the cultivation o f renewable resources. G O M acknowledges the strong relationship between poverty and the environment, and aims to ensure that all stakeholders in the development process play their role inthe preservationo fthe environment. 25. Three national reports on the implementation o f the United Nations Convention to Combat Desertification(UNCCD) have been submitted to the Convention in 1999,2002 and 2004. Implementation o f the UNCCD National Action Program (NAP)has started and specific activities have been conducted in the areas o f biodiversity conservation, land degradation, water management and disasters management. Other programs that address land degradation, drought and desertification are the National Environmental Management Program (NEMP), ProAgri, the Water Resources Management Strategy and NEPAD's (New Partnership for African Development) Comprehensive Africa Agriculture Development Program (CAADP). The Government o f Mozambique completed its National Biodiversity Strategy and Action Plan (NBSAP) in2005 with the 31  main priorities o f (i) identification and monitoring o f biodiversity components; and (ii) establishment and implementation o f strategies for sustainable use and management o f biological resources. 26. The Land Law, and the Forestry and Wildlife Law and its Regulation define local communities as the development focus. Benefits from natural resource use must return to local communities. While the legal framework has thus been set, little has happened inthe field to ensurethe sharing ofbenefits with localcommunities. Local communities usually lack the necessary organizational structure, basic knowledge, and the necessary leverage to voice their views and demand such benefits. Government and NGOs have promoted the establishment o f local natural resources committees at community level, including districts o f the Project area, but little benefit exists as yet and more work i s still required. 27. Mozambique's Initial National Communication to the United Nations Framework Convention on Climate Change (UNFCCC) is still in draft form and the National Adaptation Plan o f Action (NAPA) is not yet complete. The draft Initial National Communication identifies an urgent need to consider sustainable land management and more specifically changes in agricultural management practices such as changes in crop types, season and location o f farming or new technologies'. In the forestry sector proposed measures are to prevent further forest destruction, to reassess and adjust the use o f fuels and construction materials, and to engage in reforestation with reconsideration o f the species used. The Communication also envisions significant development o f small dams and an integrated water management plan to make more effective use o f imgation. MINAG has put forward strategies for adaptation to climate change and the draft PRSP I1recognizes that natural disasters resulting from climatic change can aggravate the situation o f absolute poverty. The government's strategy for the reduction o f the impact o f disasters requires that the country i s equipped with the means for prevention through early warning systems and appropriate response mechanisms. Other actions are related to the need to strengthen institutional, regional and international coordination as well as to intensify training and civic education activities on matters concerned with climate change. 28. The participation in international efforts and the establishment o f policies and national programs show clearly the country's commitment to inherently address environmental issues within their policies and programs. Lack o f funding for implementation is the main constraint, and many good policies remain currently still on paper. * Inthe Initial National Communications to the UNFCCC six vulnerable sectors are identified: agriculture, water resources, coastal resource, grass land, forest, meteorologyhydrology, and adaptation measures are proposed for each. These include: (1) adjust land management practices, such as changes in crop types, season and location o f farming, development o f intensified and mechanized farming; (2) promote drought tolerant crop varieties and livestock in drought vulnerable areas; (3) alternate grazing systems; (4) change stocking rates; and (5) change the timing o fthe grazing period. 32  Mozambique:Market-ledSmallholdersDevelopmentinthe ZambeziValley Annex 1 - Attachment 1: StatusofDecentralizationinMozambique 1. This attachment briefly describes the current status o f decentralization in Mozambique, including the legal and policy framework, empowerment and accountability aspects and the planningand budgetingprocess. 1. LegalandPolicyFramework 2. Government policy and objectives:The Government o fMozambique's Action Planfor the Reduction o f Absolute Poverty (PARPA) highlights decentralization as a key element o f its poverty alleviation strategy. The Government has introduced new legislationas part o f its efforts to reform the system o f local administration including: (i) Decree 15/2000, which recognizes community authorities as interlocutors between rural communities and the district administration; and (ii) Law o f Local State Organsg (LOLE), which gives the additional discretion and flexibility to the provincial and district authorities. 3. Structure of the State administration:InMozambique there is a two-track system o f decentralization: (i)de-concentration o f competencies and powers of the Central Government to the provinces and districts; and (ii) devolution o f responsibilities and resources to autonomous municipalities. The state administration consists o f four levels below the central state: provinces (10 + the capital), districts (128), administrative posts (343), and localities (1,048). 4. Districts:A district is a local organ o f the Central Government incharge o f realizing the government program, the social and economic plan and the government budget in the respective district with powers to decide, execute and control the planned activities. It consists o f the District Administrator (DA), the District Permanent Secretary (DPS), and directors of sectoral district services. A typical district has three administrativeposts, nine localities and about 110,000 inhabitants. The annual district revenue is typically about US$25,000, o f which, over 70 percent i s from Central Government allocations, while up to 70 percent is taken up by salaries and allowances. 5. Municipalities: On the basis o f a new statute passed in 1997 (Law 2/1997), municipalities - with democratically elected assemblies and presidents o f municipal councils - were established in33 cities and small towns after the first municipal elections were held in 1998. While the law provides for the creation o f elected assemblies and presidents also in villages, the process has not been extended to that level. However, as part o f the decentralization process, elections will be held in latter half o f 2007 to establish Provincial Assemblies. 6. Delineationof roles and responsibilities:For the provinces and districts, responsibilities are delegated through vertical sectoral hierarchies to the directorates at the provincial and Leidos 6rgZosLocais do Estado (LOLE) 33  district levels. The extent o f delegation varies across sectors. District Services for Agriculture (SDA) are responsible for local service delivery in the areas o f agriculture, livestock, forestry and wildlife, extension and fisheries. They are also responsible for collecting statistical information, distributing government provided inputs, performing regulatory duties and other administrative functions. 2. EmpowermentandAccountability 7. Political structures: Provincial Governors and District Administrators (DA) are representatives o f the Central Government and accountable to the President. There i s only formal upward accountability from the District Administrations to the Provincial Governments, who are inturn accountable upwards to the Central Government. There i s no provision in the existing legislation for any form o f local assembly at the district or provincial level. Law 2/1997 establishes municipalities as territorial units, with their own representative body (Municipal Assembly) andexecutive organ (the Municipal Council). 8. Participation and consultation mechanisms: National guidelines for District Development Plans (adopted in 2003) reinforce the role o f the districts as units for planning and budgeting. The guidelines allow for the creation o f local consultative councils to act as an interface between the civil society and the district authorities inthe planning process. In addition to councils, the new statutes recognize local fora, community committees and community development funds. The District Administrator i s responsible for establishing local consultative councils at district and lower levels in , hisher area o f authority. The councils must include representatives o f community authorities (traditional chiefs and/or secretaries) and economic, social and cultural interest groups selected by lower level councils and/or fora. At least 30 percent o f the members mustbe women. The councils are relatively large, varying from 30-50 members at district level to 10-20 members at locality level, and they are expected to address practically all aspects o frural development, social services and civic education. 3. PlanningandBudPeting 9. Assignment of investment and recurrent expenditures: The Central Government assigns approximately a third o f the state budget to the provinces, which i s earmarked to specific bodies or functions. The lion's share o f the budget at the provincial and district levels comes from sector allocations for delegated responsibilities. The provincial share o f the national budget i s split into priority and non-priority sectors. The priority sectors' budgets (investment and recurrent) are determined by the Line Ministries, with some input from the provinces during the planning stage. The non-priority sector investment budget i s formulated by the provincial government, while the recurrent budget i s largely a function o f staffing decisions at central level. The residual between the provincial investment budget ceiling and sectoral ceilings for priority sectors becomes the allocation to the non-priority sectors. 34  Planningandbudgeting:Three levels are distinguished: 10. At the national level, there are several medium- to long-term planning instruments.The Plan0 Economico e Social (PES) and Orpmento do Estado" (OE) are produced on an annual basis. Line Ministries have parallel annual planning and budget management processes. 11. The provincial governments prepare their own annual plans (provincial PES) which they submit to the Ministryo f Planning and Development. 12. Districts prepare five-year District Development Plans (PDDs) that are used as a tool for negotiating with higher levels o f government and donors. Communities participate inthe formulation o f these plans through consultative councils (CC). The role o f the councils is to transmit to local state organs the demands o f local communities, and to collaborate with district authorities in disseminating information to communities. Councils are expected to participate inthe preparation o f relevant development plans and budgets and comment on the proposals, and to approve the work plan and implementation report o f the organ responsible for administration o f district level development (Decree no. 11/2005). Under the Law o f Local State Organs, the districts will become a budget unit for the first time and will receive transfers directly from the state budget. As part o f the planning process o f the 2007 budget, the Central Government has earmarked the equivalent o fUS$300,000 per district. 13. Local transition to decentralized planning: the organs responsible for administration o f district level development are mandatory (Decree 11/2005). While their status i s consultative (Le., they are essentially organs o f administrative de-concentration), they can become important actors in a process of genuine decentralization. This will, however, require a strengtheningo f their capacity, and a greater autonomy, including the status o f autonomous budget centers under the state system. The consultative councils (CCs) have potentially an important role in the process o f transition from previous centralized verticaVsectora1 approach to a decentralized and participatory horizontaVarea-based mode o fplanning. ~ lo National State Budget 35  Mozambique: Market-led Smallholders Development in the Zambezi Valley Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ProgramlProject Sector IssuesAddressed Impl. Status Performance Ral Igs WorldBank(co) financed IP DO ProAgri-I (Agricultural Sector Public Agriculture, Institutional Strengthening Completed S S Expenditure Program) (MINAG) Decentralized Planning and Finance Sub-national government administration, Active M S M S Project (DPFP) Central government administration, Micro and SME finance, Roads and highways Roads and Bridges Management and Rural Infrastructure Proposed Maintenance Project Beira Railway Project Rural Infrastructure Active S S Transfrontier Conservation Areas and General agriculture, fishing and forestry; Active S Sustainable Tourism Development general industry, Environment, Biodiversity Project (IDMGEF) Coastal and Marine Biodiversity Environment, Biodiversity Active M S M S Management Project (IDMGEF) I I I Energy Reformand Access Project I Power; Renewable energy, Climate Change Active MS M S Second National Water Development Water Supply & Sanitation Adjustment Active S S Project CommunicationSector Reform Telecommunications & Informatics Active S S TerrAfrica Strategic Investment Sustainable Land Management Proposed Program(IDMGEF) Donor@) ProAgri-I1 (Agricultural Sector Institutional Strengthening (MMAG) Active MULTI Expenditure Program) Natural Resources Management, Agricultural Productivity Small-scale Irrigation Project Rural Infrastructure (Irrigation) Active AfDB (Maputo, Sofala, Zambezia) Financial Sector Technical Rural Finance Active AfDB, IDA/DfID/ Assistance Project (FSTAP) SIDA, GTZ/ KfW Agricultural Sector Programme Farmers' Associations, Agri-Business Active DANIDA Support (ASPS) I1- Private Sector Development, Rural Finance, Rural Development (Tete, Manica, Cab0 Infrastructure (Roads) De1gado)Rural Roads (Manica, Tete) Sustainable Credit for Growth o f Rural Finance Active DffD Micro-Entrepreneurs (Manica, ISofala, Zambezia) (CARE) Support to Rural Development in DecentralizatiodLocal Institutional Proposedto Finland Zambezia Province (Zambezia) Strengthening, Natural Resources start by Management, Agricultural Productivity, April 2006 RuralEnterpriseDevelopment PRODEL(Inhambane, Manica, IIDecentralizatiodLocal Institutional Active GTZ Sofala) Strengtheninflarticipatory Planning, Agricultural ProductionMarketing, Rural Infrastructure (Irrigation) 36  Rural Finance Support Programme Rural Finance I Active I IFAD/AfDB Agricultural Services Programme Institutional Strengthening, Extension IProposedto I IFAD (ASP) start by July 2006 Family Livestock Development Extension, Livestock Development Completed IFAD Programme (FLSDP) Agricultural Markets Support Agricultural Marketing, Rural Infrastructure Active IFAD Programme (PAMA) (Cabo Delgado, (Roads), Farmers Associations Niassa, Maputo) DecentralizedDistrict Planning and Decentralization, Local Institutional I Active Norway, Financing Project (DPFP) Strengthening Netherlands, (UNDPAJNCDF, Nampula, Cab0 Switzerland, Delgado) Ireland, World Bank Clearing House MechanismEnabling Biodiversity CEO UNEP Activity approved Enabling Mozambique to Prepared its Climate change CEO UNDP FirstNational Communication in approved Responseto its Commitments to UNFCCC National Adaptation Programme o f Climate change CEO UNDP Action (NAPA) approved National Capacity Self-Assessment Multi-focal CEO UNEP (NCSA) approved EnablingActivities for the Stockholm POPS CEO UNEP Convention on Persistent Organic approved Pollutants (POPS):National Implementation Plan for Mozambique National Biodiversity Strategy and Biodiversity CEO UNEP Action Plan and FirstNational Report approved to the CBD Regional: Sustainable LandUse Landdegradation CEO UNEP Planning for Integrated Landand approved Water Management for Disaster Preparednessand Vulnerability Reduction inthe Lower Limpopo Basin (MSP) Regional: Coping with Drought and Climate change Proposed UNDP Climate Regional: Southern Africa Biodiversity CEO UNDP Biodiversity Support Programme endorsed OVATA (World Vision, Zambezia) Agricultural Productivity, Farmers' Active USAID Associations, Rural Infrastructure (Roads) EMPRENDA Alliance Project Farmers' Associations, Agricultural Active USAID (CLUSA, Technoserve, Marketing ACDWOCA) TernAfrica Strategic Investment Sustainable LandManagement Proposed TenAfrica Program partners (e.g., UNDP, FAO, AfDB, UNEP and IFAD)/GEF 37  1. The World Bank provides support to four central provinces as part o fthe GOM's national Decentralized Planning and Finance Program (DPFP). The Program's components are: (i)Participatory District Planning, which aims to develop a district-level participatory planning system based on civil society consultation and participation; (ii) Local Investment Grants (LIG), which provides financing for small rural infrastructure included in annual plans; (iii) Capacity Building, designed to strengthen the training system to increase the capacity o f local administration officials to undertake key local government fimctions more effectively; (iv) Policy Reform, designed to provide technical assistance to GOM to improve decision-making; and (v) Project Coordination, which finances a P M U inthe Ministry o f Finance. The Smallholder Project, which will operate within the DPFP targetedarea, has beendesigned to closely complement the activities o f the DPFP. While the DPFP has a strong emphasis on capacity building and participatory planningat the district level, the Smallholder Projectwill specifically address agricultural and other landuses issues in district planning. The synergies that could be attained from collaboration between the two Projects could result invaluable experience that could help GOM in its efforts to move to a more multi-sectoral and district-based approach to agriculture and rural development. The Project will also be coordinated by the committees established under the decentralization law. 2. The second phase of the Agriculture Public Sector Programme,ProAgri11, provides budget support to the Ministry o f Agriculture to enhance its extension coverage. The Project i s implemented in close collaboration with District and Provincial Directorate o f Agriculture staff, and, thus, success o f the Project will, to a large degree, depend on ProAgri-11's planned expansion o f the public extension network at the district level. The Project will also complement ProAgri-I1 by mobilizing demand from the community- level for agricultural services andproviding for additional extension resources. 3. The goal o f the seven-year IFAD-initiated Agricultural Markets Support Project (PAMA) i s to increase the participationo f smallholder producers inthe market economy on more favorable terms, with a view to increasing agricultural income and improving food security at both the national and local levels. At the local level, the objectives are to: (i) tospecificconstraints facedbytargetedsmallholderproducersinaccessing respond markets; and (ii)identify opportunities available to alleviate them. The focus on development o f linkages between smallholder producers and markets i s common to both PAMA and the Smallholder Project, although the Projects operate in different areas. As PAMA has been operating in the past 4 years, some lessons learned from its experience as well as Terms o f Reference for service providers will be used and addressed by the smallholder Project, especially under components 1and 2. 4. The Project is also expected to benefit from complementarity with the World Bank- financed infrastructure projects, the Second Roads and Bridges Management and MaintenanceProject, which will finance the Caia Bridge over the Zambezi River, as well as the Beira Railway Project. The latter includes the rehabilitation, maintenance andoperation o fthe Senarail line which passesthrough the provinces o f Sofala and Tete andhas a significant potential for economic influence over the Zambezia province. Once rehabilitated, the Sena Line would become again the main transport system for the central 38  region in Mozambique. Both Projects would have a significant impact on improving the accessibility o f this area, and would, thus, contribute to improved conditions for success o f the proposed Project (e.g., through improved conditions for export o f agricultural produce). The Smallholder Project would need to lobby for the prioritization o fthe works on the Sena Line (currently scheduled for 2010) inorder to draw on the full benefits o f its operation. 5. The USAlD hnded OVATA Program has four main objectives: (i)increase food security through agricultural production and marketing by means o f developing marketing groups; (ii)improve access to markets and infrastructure; (iii)increase utilization o f production through an integrated nutrition program; and (iv) decrease the negative impact o f HIV/AIDS on food security through an extensive awareness campaign. This Project will provide lessons learned to the Smallholder Project with regards to development o f market groups and improved access to markets under components 1and2. 6. The Empowering Private Enterprise in the Development of Agriculture in Mozambique's Beira and Nacala Corridors (EMPRENDA) Project, launched in February 2005, aims to increase per capita rural family income and promote productive asset accumulation in the Project area. EMPRENDA's focus is to create and strengthen sustainable, competitive rural enterprises and farmer associations operating in the three value chains: high value horticulture, confectionary nuts, and field crops/animal feeds. EMPRENDA is working to strengthen management and planning skills within farmer associations, to unite these associations at the zonal and regional level to form stronger businesses and to link these enterprises to other actors in the rural economy. Some discussion took place with the EMPRENDA Project during the Smallholder Project's preparation phase where it was suggested to expand the focus of EMPRENDA to the 5 districts inorder to provide support for the input supply activities under (Component 2. 7. As indicated in Annex 1, the Project would directly contribute to the implementation o f the UNCCD NAP and to some o f its main operational strategies, including community mobilization, training and knowledge sharing, sustainable forest, soil and water use management,improvedlandrights and institutional capacity building, andwould serve to report on progress made in the implementation o f the Action Plan. The Project would also address priorities under the National Biodiversity Strategy and Action Plan (NBSAP), and respond to the recommendations o f the Initial National Communication under UNFCCC as will be articulated in the forthcoming National Adaptation Programme o f Action (NAPA) being prepared with assistance from UNDP. The objectives o f the Draft NAPA are to: (a) strengthen the country's (climate) early warning system for extreme events; (b) strengthen the capacity o f smallholder farmers to manage the adverse effects o f climate change; (c) promote the use o f renewable energy for water pumpingand lighting inrural andperiurbanareas; (d) promote reforestation; (e) Promote measures to collect and conserve rainwater; (0 promote action to stop and prevent soil erosion; and (g) promote the integration o f climate change issues inthe planningcontext o f decentralized institutions andprograms. 39  8. The Mozambique draft NAPAhas proposed 4 major program activities to meet the above objectives in the short to medium term. These include: (i)improved collection o f meteorological data and generation o f weather forecasts (including extreme events) and communication o f information to stakeholders especially in vulnerable areas; (ii) improved capacity o f farmers and livestock herders to collect and store water for enhanced mitigation o f drought effects; (iii) mapping of landcover dynamics and erosion vulnerability in coastal regions; and (iv) improved characterization and use o f hydrological resources for irrigation, water storage, and sustainable use o friver margins. 9. Project activities linked to the testing, calibration, and operationalizing the predictive landscape dynamicdwater resource model will directly support the NAPA priority aimed at developing "early warning" systems for climate change impacts and allow the incorporation and synthesis o f multi-sector, diverse environmental information into a decision analysis and support framework. The Project activities inthe Zambezi valley are synergistic with the UNDP regional Copingwith Drought and ClimateProject (under preparation, estimated effectiveness in 2007), which i s supporting Mozambique's efforts to develop and pilot a range o f coping mechanisms for reducing the vulnerability o f farmers and pastoralists to future climate shocks in the Limpopo basin. The Project is piloting coping strategies, improving early warning systems, implementing DPM policies, and will replicate and disseminate successful approaches o f adaptation while focusing on the delivery o f global environmental benefits in the focal area o f land degradation. The Project will build on Mozambique's V&A assessment and preliminary results from the National Adaptation Programmes o f Action once completed. The proposed WE3 Zambezi Smallholder Project will be nicely placed to test the Limpopo "best bets" coping strategies and contribute novel strategies emerging from the Zambezi basin. Inaddition, the Zambezi Valley Project has a unique but highly complementary aspect to UNDP's Limpopo Project because it will be able to proactively model the impacts o fhuman-inducedflooding due to discharges from the Cahorra Bassa dam. 10. The World BWGEF funded Transfrontier Conservation Areas and Sustainable Tourism Development Project (TFCA) is designed to increase environmentally sustainable tourism investment and development and local participation and incomes from tourism in the five TFCAs. The Project has two main components: (i) Integrated Development Planning (IDP), in which permanent participation structures will be established inVilanculos and Matutuine districts using the DPFPmodel. Tourism will be integrated into district planning, and mechanism to involve the private sector would be set up; and (ii)Tourism Component, designed to develop a tourism "master plan" from which concessions will be defined. The Project's participatory approaches will be assessedfor relevance by the Smallholder Project and adapted as needed. 40  11. The World Bank/GEF fbnded Coastal and Marine Biodiversity ManagementProject is designed to pilot an integrated approach to sustainable development in Mocimboa da Praia and Palma in Cab0 Delgado, and Nacala-Porto and Mossuril, in the province o f Nampula. The Project involves macro zoning at the district level with some participation o f communities when deciding where new conservation areas should be established, and indefiningwhat types ofmicro projects could support naturalresourcemanagement. The Project has been extended for a further two years. The Coastal, Transfrontier and Smallholders projects provide an opportunity for joint promotion o f awareness on issues o f global importance related to sustainable natural resource management amongst government offices at national, province and district levels and amongst communities themselves. 12. The World Bank/GEFEnergy Reform and Access Project is an eight-year, two-phase program with the objective o f increasing access to modern energy inperi-urban and rural areas. It comprises: (i) reforms necessary for improved performance o f the energy sector (in particular, electricity) and accelerated access to electricity in rural and peri-urban communities; and (ii)investments in electricity supply infrastructure, including renewables and the setting up o f a fiber optic network across the country. It i s estimated about 40,000 new connections will be made in the first phase o f the program with the provinces o f Zambezia, Tete and Sofala amongst those which will benefit from this component. Additionally, once available in the five targeted districts, communities will have access to IT centers which they can use for communication, e.g., on market situation andupcoming climatic events. 13. The UNDP regional Coping with Drought and Climate Project (under preparation, estimated effectiveness in 2007) seeks to support Mozambique, Ethiopia, Kenya and Zimbabwe in their efforts to develop and pilot a range o f coping mechanisms for reducing the vulnerability o f farmers and pastoralists to future climate shocks. The Project will focus on addressing the impacts o f climate change on land degradation and food security, specifically aiming at: piloting coping strategies, improving early warning systems, implementing D P M policies, and will envisage replicating and disseminating successful approaches o f adaptation while focusing on the delivery o f global environmental benefits in the focal area o f land degradation. The Project will build on Mozambique's V&A assessment and preliminary results from the National Adaptation Programmes o f Action once completed. As the Smallholder Project will focus on similar approaches under its adaptation activities, the two projects can learn from each other's experience incountry and throughout the sub-region. 14. CommunicationSector ReformProject: A $14.9 millionproject that seeks to improve access to and quality o f communications services by increasing competition and private sector participation intelecommunications, postal services, and air and transport services. Greater competition has resulted in substantially increased access to telecom services, reduced domestic and international prices, and overall improvements in the quality o f service. As a result of these reforms, teledensity reached 5.5 percent inmid-2005, driven largely by an expansion inthe mobile market. The development impact o f this increased teledensity is likely to be significant as it helps reduce the cost o f doing business, and 41  improves access to markets and services, including in rural areas. The Bank plans to provide support through a new analytical activity on rural telecoms funded under the Africa Action Plan, undertaken in collaboration with the proposed Regional Communications Infrastructure Program and a WBI-supported regional connectivity study for academic institutions. 15. The Strategic Investment Program (SIP) is a multi-agency investment program co- financed by GEF for sustainable land management (SLM) in Sub-Saharan African countries and led by the World Bank. It has been supported by the TerrAfrica platform and will benefit from it duringimplementation. GOM has acknowledged the importance of adopting a programmatic approach to SLM. The GEF-SIP financing will be used strategically to support the development of a programmatic framework to promote SLM, including the establishment o f a multi-stakeholder partnership for SLM, in line with the TerrAfrica principles and approach. It will also be used to remove policy, capacity and other systemic barriers to S L M adoption and to pilot innovation at field level. Development partners investing in SLM and related fields will be coordinated to align these investments to the platform. The Bank will connect this project with other TerrAfrica partners' efforts to move toward a more programmatic approach to SLM in Mozambique, inparticular with UNDP. 42  Mozambique:Market-ledSmallholdersDevelopmentinthe ZambeziValley Annex 3: ResultsFramework andMonitoring ResultsFramework ProjectGoanroject DevelopmentObjective ProjectOutcome (Process) Indicators Use of ProjectOutcome (PDO) Information Proiect Goal Accelerate poverty reduction - Change inaverage poverty levels inProject - Assess effectiveness o f overall within the Central Region o f zone compared with non-Project areas Project strategy Mozambiaue GlobalEnvironment Obiective: - Increase inarea under improved S L M or - Y 5-6: Assess whether areas which Limitlanddegradationand natural resource management practices in underwent the most significant improve ecosystem's resilience Project area by at least 20,000 ha by Project change are those that comprise the towards climate change inthe end largest proportion o f communities Central Zambezi Valley. - Measurable practicing S L M (see component 2) increase (or reduced losses) in and disseminate results biodiversity or sequesteredcarbon intargeted Project sites vs. control sites through one or more o f the following: reappearance o f native species, increased carbon stocks, reduced soil erosion, reduced incidences o f wild fires - At least 3 predictive andbasinspecific hydrology-land cover-climate change scenarios for land use-land cover change impacts on hydrology under changing rainfall and evapotranspirationregimes - Increased use by local landusers o f drought- tolerant crops, fodder species and varieties, crop rotations to increase soil organic matter, reduce weeds, and conserve soil moisture ProjectDeveloDment - Y 3&5/6: monitor income levels of Obiective participating households Increase the income o f - 30 percent average increase inagricultural - Mid-term review, determine if smallholder farmers inselected income - including self-consumption - o f modifications to strategy required districts through broad-based participating smallholder households (Le. an - Discuss mainstreaming o fProject and sustainable agricultural estimated 20,000 HH) compared with non approach into national strategies growth participating HH,by the end o f the Project - Y. 5&6: Assess linkage between change invegetative cover and biodiversity reappearance and change inaverage income and disseminate results IntermediateOutcomes IntermediateOutcomeIndicatorsfor Each Use ofIntermediateOutcome (one per component) Component Monitoring Component One: ComponentOne: ComponentOne: 43  CommunityGroup OrganizationandLocal - Number o f CBO engaging inProject supported - Y. 2 and 3: to assess the relevance InstitutionalStrengthening organizational development activities o f the Project strategy and service - Cumulative number o f groups active inat least providers efficiency Intermediate Outcome 1: one sub-project supportedby the CAEIF Smallholders organized in - Proportiono f groups that: production and marketing have adopted operational accounting groups have access to technical systems; and financial resources that have all their members aware o f the account -Y. 2 to 6: To assess group contribute to their sustainable balance; organization, sustainability, trust and economic development use internal M&E through critical reviews the impact o f capacity development that result inbetter servicing their members. - Proportion o fgroups that demonstrate - Y. 2 to 6: T o verify the mitigationo f increased knowledge about relevant potentially negative effects of HIV/AIDS and gender issues increasingmobility and wealth on - Proportiono f women group members in HIV/AIDS incidence decision makingpositions; proportion o f the -Y.2 to 6:To verify that the Project groups supported that are youth groups has a positive effect on gender and - Number o f members o f savings and credit age equity groups; Amount and number o f loans issued -Y. 2 to 4: to assess service provider by Project supportedsavings and credit groups efficiency. Y. 3: To assess the and MFIs relevance o f the Project strategy. Y. 5&6: To evaluate the Project impact on local investment capacities - Number o f landuse plans prepared with clear Intermediate Outcome 2: responsibilities defined, endorsed by the local - Y. 2 to 3: Assess demand for land District LUPs are formally authorities 11 ,taken into account inthe use planning & commitment o f local integrated into districts plans district planand implemented authorities. Y. 3: Assess relevance o f and are inuse as basis for the Project strategy.12 Y. 5: Assess development. Project impact ComponentTwo: Component Two: Component Two: Agricultural Development Facilitation - Proportiono fparticipating smallholders - Y. 3 to 5: Assess implementation Intermediate Outcome 1: reporting improved access to inputsI3,and progress; Determine factors Participating smallholders improved market knowledge affecting take up o f technologies for experience increasedand more Project farmers sustainable agricultural - Percentage o f farmers with a secured market productivity and have greater through contractual arrangements with access to input and output agribusinesses or traders markets. - percent o f increases gained on average by participating households (compared withnon participating HH): percent increase inyields o f key crops; percent increase insales; percent increase return on family labor; Including the traditional local leaders. l2 Ifat least 2 LUPs are not approved by year 3, it could indicate that the process has failed to achieve consensus and ownership by key stakeholders. This could necessitate a revision inthe Project strategy and/or an adjustmenthepetition o f capacity buildingand awareness raising efforts inthe relevant districts. l3 Seed, fertilizer, agricultural chemicals & spare parts. 44  [ntermediate Outcome 2: - percent decrease incrop losses. - [ncreased use o f indigenous Y. 3 & 516:Assess relevance and andinnovative SLM strategies - Proportiono fparticipating households success o f techniques introduced and and techniques; o fadaptation adopting improved agricultural and forestry methodologies used; adjust methods measures integrated into S L M technologies promoted. accordingly techniques; and o f energy - Proportiono fparticipating SH adopting energy efficient technologies by SH in efficient technologies the target 5 districts - Proportiono fparticipating SH adopting S L M techniques as an adaptationactivities Intermediate Outcome 3: - Basin and catchment level land Above land use plans integrate the predictive climate change impact scenarios from the cover dynamics-hydrology dynamic landscape level modeling identified in models (VIC, DHSVM) the global environmental objective above calibrated and tested with participation observation/ measurements) by local communities and stakeholder agencies Component Three: ComponentThree: ComponentThree: CommunityInvestment Fund - Methodologies for proposal identification, - Y. 1& 2: Assess adequateness o f Communities, groups and preparation, evaluation and implementation Project approaches to initiating CIF small entrepreneurs have support filly defined and incorporated in processes access to resources needed to appropriate training and reference materials; improve the effectiveness and appropriate trainings completed - Y. 2 to 3: Assess the appropriateness benefits and environmental o fproposal formulation and sustainability o f their activities - Proportiono f sub-project requests prepared within 6 months o f submission; proposals evaluationprocedures evaluated within one month o f submission - Y. 2 to 4: Assess level o f demandby - window; Y. 3: Review CAEIF Proportiono f each window disbursed allocation by window - Proportiono f approved sub-projects completed - Y. 2 to 6: Assess implementation and as scheduledwith appropriate participant input contributioncapacities (by window) - % of financed sub-projects properly maintained 1& 2 years after completion - Y. 3 to 6: Assess the relevance and - % impact o f the major type o f small o f sub-projects showing positive financial scale activities financed under results and assessedsocially & environmentally CAEIF and feed informationon sustainable (by type o f activity) success stories into the education and - % o fNRMsub-projects showing awareness programs with the aimto environmental benefits14compared to baseline replicate. - Y. 5 & 6 Assess Project impact" l4 Which can potentially include increase inbiomass production (thdyear), reduction in burnt surface, water availability, etc. l5 For those Projects which prove to generate environmental benefits, sustainability o f benefits will be assessed and technical guidance will be provided accordingly. 45  Component Four: ComponentFour: ProjectManagement Coordination, and - Establishment, membership and frequency o f - Determine effectiveness o f multi- Monitoring& Evaluation meeting o f multi-sector Project and provincial sector steering committee Steering Committees mechanism - Timeliness and adequacy o f annual work plans - Determine adequacy o f training Effective oversight, monitoring o f Project activities, policy and reports (including M&E reports, - programmeo Adequacy f external monitoring guidance and lessons learned expenditure and accounting reports) - Timeliness o f budget preparationat district and provincial level, and inclusiono fbudgets into annual government budget - Time required to release finds for approved - Determine effectiveness o f funds budgets at provincial and district levels flow mechanismbeingutilized - Time required for recruitment, training and entry into operation o fkey Project personnel16 and major service providers (including M&E) - Availability o f a replication strategy and action - Identifymainlessonslearned from planbefore end o f Project the first years of implementation, assess progress o f the national decentralizationprocess and capaciq o f additional districts to carry out Project activities, identify resources (outside National allocation to districts) required to carry out these activities and potential sources P l6 Project Coordinator, District Project Facilitators, Technical Assistance Group staff, fmance/procurement officers.. . 46  d g E g E E 8 gA s VI VI N I rn # I I I l a N I I I  r il 4 E s 0 s m Ef I 0 0\o ---+ 0 m 0 W t E 0 2 g m l o 0  .I Q 3 1 I n m I E / s $: m m g I m g I I I t I I  I I g b 0 IA 1 e. x  * +-d L 0 a t n 3I: V rt c) E DE 8 5wE .I 'I? c) L 0 3 3 L 3 '5Q c) U Q **. 3  Mozambique:Market-ledSmallholdersDevelopmentinthe ZambeziValley Annex 4: DetailedProjectDescription 1. The Project will be implemented in two stages across five districts within the Zambezi Valley Region o f Central Mozambique over a six-year period. Closely integrated with ongoing decentralization policies (See Annex 4, Attachment 1) and district focused, the Project will achieve its objective o f increasing the incomes o f smallholder farmers within the Project area through three technical components, with a fourth component dedicated to management, coordination and monitoring. The three technical components comprise: (i) promotionandsupportofgroupsformedbysmallproducersandothersupply the chain participants in such areas as marketing, savings and credit, and agribusiness development as well as the strengthening o f district level institutions which support them; (ii) provisionofsupportforbroad-basedmarket-ledsustainableagriculturaland the natural resource development, including not only direct outreach to groups and agribusiness participants in production, marketing and other supply chain elements, but also encompassing use of indigenous natural resource knowledge with cutting- edge applied research, community level demonstration plots, training and the expansion o f local extension capacity including farmer field school approaches; (iii)demand-drivenCommunityAgriculturalandEnvironmentalInvestmentFund a which will provide resources for agriculturally related infrastructure, small-scale investment and improved natural resource management. (iv) GEF funded incremental activities will be fully integrated into the IDA Project design and adopt the same Project approach and implementation arrangements. GEF has financed the development o f natural resource baselines via a PDF-B grant and will finance complementary activities not addressed under IDA that specifically contribute to the sustainable management o f land and natural resources, and support adaptation activities to climate change. These are both perceived as critical for securing sustainable increase in smallholders' income as well as the maintenance o f the Zambezi Valley ecosystem's functions and resulting global environment benefits. ProjectArea Characteristics: 2. The two Phase 1 districts o f Mutarara (Tete Province) and Monumbala (Zambezi Province) have a total population of almost 500,000'7 spread over 8 administrative posts and 21 localities (the latter being the smallest territorial division utilized by GOM). Population density is approximately 25 persons/km*. This is considerably higherthanintheproposedPhase2 districts o fMopeia(Zambezia) andMeringue and " Estimatedas477,940 asof1/1/2005 52  Chemba (both in Sofala Province). These districts have a total population o f less than 250,000 and a population density o f around 12 persons/ km2. 3. Overall, poverty rates throughout the Project area vary from a high o f 66 percent in Mutarara to a low o f 45 percent in the two Sofala districts. Literacy rates are low, averaging only 13 percent across the Project area, while female-headed households account for an average o f 16 percent o f all households, reaching a higho f 28 percent inthe Sofaladistricts. 4. Nearly three quarters o f the 131,000 agricultural households within the five districts are inMutarara and Morrumbala. Across the Project area there i s an average o f 8,188 agricultural households per administrative post, rising as high as 15,750 in Morrumbala. Individual holdings are typically small, with an average o f 61 percent o f all agricultural households farming less than 1 hectare. Average holding sizes are smaller in Zambezia Province (with 72 percent having less than 1 hectare) than in Sofala and Tete. 5. Only Morrumbala (170,000 ha) and particularly Maringue (412,000 ha) have significant protected areas for forest or wildlife. ProjectComponents: 6. Eachcomponent i s described inmore detail below. Component 1: Community Group Organization and Local Institutional Strengthening (Total: US$8.6 million: IDA: US$7.6 million; GEF: US$O.9 million; Government: US$O.1 million). 7. Component 1 aims to institutionally strengthen smallholders organized in community based production, marketing and savings and loan groups (CBOs) to secure access to technical and financial resources that contribute to the sustainable economic development o f their members. Strengthening the capacity o f CBOs to manage and control their access to support and business services from local institutions and service providers can significantly improve their opportunities for development. The sustainability o f CBO activities will depend on their organizational cohesion, leadership, member motivation, official recognition and a secure, well managedbasis for mediumand longer term income generation. 8. The long-term vision is for some o fthese CBOs to develop as apex organizations, but any confederation would be on a demand-driven basis and not prescribed by any service provider or organization. Organizational systems must evolve on a demand andneedbasis. 9. The component has three main sub-components: (a) CBO capacity development; (b) rural financing services; and (c) district agricultural planningand capacity development. This section, however, will only discuss the GEF-financed activities 53  under sub-component (c) since the other sub-components have already been detailed inthe IDAcredit's PAD. (e) District agricultural planning and capacity development (GEF Jinancing: US$O.9million). 10. Underthis sub-component, the Projectwill buildcapacities o fgovernment staffto identify and respond to agriculture and natural resource management related smallholder demands.Activities will includeneeds assessments, group training sessions, coaching and on-the-job training. The main output o f the sub-component is a district level government staff fblly trained inCDD approaches insustainable agricultural development. District capacity development activities will be plannedat district level and carried out by specialists contracted for specific tasks. 11. GEF OP15 funds will be used to: (i) complete the quantitative baseline data set compiled with PDF-B resources and existing data layers that are o f interest to the Project and district. Some data and maps already exist at various agencies in Mozambique but access to the data i s very poor and it i s difficult to judge the adequacy and quality o f these data layers for the proposed activities; (ii)establish the baselines for above ground biodiversity using a tested rapid appraisal tool (Plant Functional Attributes); (iii) document and geo-reference indigenous NRM and native biodiversity knowledge; and (iv) quantify landcover change dynamics in attempt to identify deforestation and land degradation frontiers. A participatory approach that involves community members in the baseline surveys will be used to identify the improved crop, soil and water management "best bet" interventions and to facilitate their contribution to local landuse planningand uptakeo fProject findings. 12. Geo-referenced data layers (soil productivity, vegetation cover, land use, water courses, areas prone to flooding and drought, roads and other infrastructure, settlements, crop distribution) obtained via remote sensing and field surveys will be compiled at the district levels. These activities will be initiated by the national level environment adviser in collaboration with the district level technical specialists and community groups and sub-contracts to consultants and service providers as required. In addition, the geo-referenced adapt will support the participatory development of communal landuse maps at the community level. The geo-referenced data layers will also serve for the Project baseline and for M&E, especially for monitoring the global environmental objective. Activity plans will be developed at the community and interest group level that outline the sub-projects they would like to undertake and submit for funding, the timeline o f implementation and the technical assistance needed. Component2: AgriculturalProductionand MarketingDevelopment(Total: US$6.4 million: IDA: US$3.9 million; GEF: US$2.5 million) 13. Activities under this component are concerned with the market-led growth o f the agricultural supply chain, with a focus on enabling producers and other supply chain 54  participants to sustainably increase the diversity, quantity and value o f the output generated or handled. Financing o f small-scale investments to support such growth is provided in Component 3. Component 2 focuses instead on providing participants with the knowledge and market access required to achieve these goals. Key activities include: (a) agribusiness and market development; (b) strengthening o f field extension services; (c) applied research, demonstrations and trial plots to identify and disseminate new technologies; and (d) improved cropping, agro pastoral, and agroforestry sustainably managed agricultural and forestry (best bet) systems. 14. This component will rely primarily on a strengthened extension service under the District Directorate o f Agriculture (DDA) as the key mechanism for implementation, although there will be smaller service provision contracts insome specific areas (e.g., input supply development andnatural resources management). The expansion of field extension staff levels and capacity is a key element inthe PROAGRI I1Program, and guarantees will be sought that, through PROAGRI 11, at least two extension staff will be in place per administrative post and one additional subject matter specialist (focusing on agribusiness and marketing) in each district headquarters prior to each districts' entry into the Project. The Project will ensure the effectiveness o f these staff through the provision o f motorcycles for mobility and their operating costs, other resources for the conduct o f field trials, demonstrations and related activities as well as training o f staff. 15. Extension staff will be supported by two Project-financedtechnical advisors working on a Project-wide basis on a part-time basis; one covering agribusiness and production, the other focusing on natural resource management issues. 16. Much o f the first year o f implementation in each district i s being devoted to the training o f extension staff, the initiation o f research, trial and demonstration activities and the commissioning o f market studies and supply chain analyses. As producer groups become more organized and start to define their investment priorities, and as small-scale local entrepreneurs become aware o f opportunities offered by the Project, the extension services will place more emphasis on direct support to sub-project preparation and implementation support (see Component 3) and the facilitation o f market linkages. (d) Sustainably managed agricultural and forestry systems (GEF Jinancing: US$2.5million) 17. Inorder to ensure the long-term sustainability of gains achieved through the Project, and in order to assist smallholder farmers and herders in adapting to anticipated climatic changes within the Zambezi Valley area, the Project will utilize GEF funding to support a range o f activities that will enable participants to increase their awareness of, and response to, these issues. This sub-component will be implemented primarily through the contracting o f a specialized environmental firm or NGOs who will work closely with the extension services and the community-based organizations service 55  provider to raise awareness o f the benefits o f sustainable natural resource management approaches. 18. Such sustainable technologies may include: improved cultivation and conservation agriculture practices; improved water management for small-scale irrigation and rain- fed production; crop diversification and non-traditional crops; improved fertilizer use efficiency and integrated pest control; improved landmanagement; and adaptation o f production systems to climate change. For livestock systems, possible areas would include promotion o f increased livestock production linked to the sustainable management o f grazing areas andagroforestry systems. 19. Major activities will include: (a) contracting a Project-wide environmental specialist, two environmental technicians and a communications specialist, the latter to develop extension-related and media materials for the promotion o f sustainably managed agricultural and forestry systems Provision will also be made for the procurement o f equipment and vehicles to ensure the mobility and operational capacity o f service provider staff as well as resources for operations costs incurred by service provider staff; (b) under the supervision and guidance o f the Field Management Advisor and Environment Specialist, a number o f training courses and workshops will be held for both extension staff and participating producers and herders in sustainable agricultural and forestry management; (c) in close collaboration with the extension services, this sub-component would finance the undertaking o f a range o f field research, trials and demonstrations to increase the use o f environmentally sustainable agricultural technologies (see above) and show their financial profitability for adoptees. Studies would be expected to include the identification o f constraints to the adoption o f improved land and water management technologies such as contour tillage, mulching, water harvesting and intercropping with legumes; (d) an awareness andcommunications program would be created and implementedto ensure wide difhsion o f knowledge concerningthese sustainable technologies. 20. The bulk o f GEF OP15 incremental hndingwill be used to provide technical support to facilitate the uptake o f sustainable management o f land and water resources through the adaptation o f available "best bet" agroforestry, soil conservation and alternate energy sources and to ensure the priority linkages with global environmental benefits (carbon sequestration, above- and below-ground native biodiversity conservation). Special attention will be given to improving and diversifying cropping systems by coupling indigenous knowledge, species, and varieties with current natural resource management. Communities currently practice a range o f extractive activities (collection o f firewood, honey, and medicinal plants, charcoal burning) in existing forests, which often involve the use o f fire and the occurrence o f unintended 56  forest fires. The proposed forest management activities will target the development and implementation (see Component 3 below) o f more sustainable extraction practices and alternative cultivatiodproduction practices for the currently extracted forest products. Agricultural intensification practices that facilitate nutrient cycling (e.g., the use of legume cover and intercrops, small amounts o f fertilizer with cash crops), reduced weeds and pests (e.g., via crop rotations), and the use o f highvalue low volume crops to avoid nutrient exports will be promoted to provide alternatives to the current practice o f slash andbumagriculture. 21. Under the proposed SPA Component, the main goal i s to strengthen the country's emerging NAPA priority activities (see Annex 4 - part 2), which are targeting the development o f early warning systems for climate variability and climate change. The proposed SPA activities will strengthen the capacity o f national partners to: (i) identify the vulnerability o f specific sectors (agriculture, forestry, fisheries, water supply and quality) to drought/flood prediction, erosiodlandslide hot spots, infrastructure, re-forestation schemes by region; and (ii) to evaluate the tradeoffs between sectors as a basis for future policy interventions and financial investments. 22. The specific activities include the calibration and testing o f basin and catchment level landcover dynamics-hydrology models (VIC, DHSVM) with participation (observatiodmeasurements) by local communities and stakeholder agencies (The National Meteorological Agency, The National Directorate for Water, The Ministry for Coordination o f Environmental Actions (MICOA), The National Institute for Disaster Management (INGC). Both VIC and DHVSM handle dynamic landuse landcover changes and have already been tested at basin to field scales in other regions (e.g., the Amazon and Mekong basins). Inaddition, the Erosion Productivity Impact Calculator (EPIC) Crop Model will be evaluated for use in the study o f impacts o f climate variability and climate change on local crop productivity and as a tool to simulate the impact o f improved crop rotations as a mitigation strategy to changing rainfall (see Annex 4 - Part 2 for details o f the proposed activities and models). Component 3: Community Agricultural and Environmental Investment Fund (Total: US$8.7 million: IDA: US$5.9 million; GEF: US$1.9 million; Beneficiaries: US$O.9 million). 23. The objective o f the component i s to provide for an Investment Advisor, preparation and implementation support for sub-projects and a Fundto provide technical support and grants to facilitate accelerated agricultural development and sustainable land and water management in the Project area. These Fund investments will include: (a) improved agriculture related public infrastructure (rural access, markets, and buildings) as well as communal infrastructure facilities (imgation and storage); (b) small-scale productive activities implemented through community-based groups or local entrepreneurs on the basis o f contributory grants, including a range o f agricultural and agribusiness activities; and (c) support for improved natural resource management through contributory grants for investment and technical assistance. A 57  portion o f the fbnd (US$O.9 million or 12percent) will be allocated to cover the costs related to consulting services needed for proposal design, evaluation and implementation support and supervision as required across all windows. 24. The Fundwill benefit from district level structures andcapacities developed under the DPFP as well as supplementary support provided under other project components. However, no disbursement under the fund i s expected in the first year o f implementation. Growing district budgets and capabilities will ensure sustainability o f public investments beyond the Project period, while the strengthening of local credit mechanisms and linkages under Component 1 will provide resources for productive investments. (c) Natural Resource Management (GEFfunding US$l.7million): 25. GEF OP15 investments will target improvednaturalresources management that result inverifiable global environmentalbenefits. These grants will bebased on community demands guided by priority criteria to ensure global environmental benefits. Examples o f "best bet" practices, that are not only attractive to communities but also fulfill priority global benefit criteria, include: (i) conservation in biodiverse in-situ home gardens o f important native h i t , medicinal, forage plant species identified by local communities; (ii) protection and/or restorationo f degraded community managed areas, such as wetlands, and riparian and buffer zones and user rights for extractive products; (iii) improved, fireless honey collection methods to reduce wildfires from traditional honey collection practices; and (iv) conservation of habitats identified as important sources of medicinal plants. 26. The objective o f these investments would be to improve both livelihoods and economic well being o f smallholder farmers, and to preserve or restore ecosystem stability, functions and services. Proposed activities would be in coherence with the community and district land use plans which will be developed under Component 1. They would also respond to specific environmental criteria that will be established and disseminated to communities via the awareness and education campaign under Component 2. 27. Support will be provided through a natural resource management subject-matter specialist within DDA (Component 2), and a Regional Environmental Specialist and two district level technical specialists will assist communities to develop sub-projects proposals and provide support for sub-project implementation as well as monitoring and evaluation o f sub-projects. The funds under this component would finance from 70 percent to 90 percent o f the total sub-project cost dependingon the environmental benefits provided. Grantsup to US$5,000 will be approved at the district level. Above this amount, andup to a proposed limit o fUS$20,000, grants will be approved bythe Provincial Steering Committee. The beneficiaries will provide the remainder either in kind(manpower, etc.) or incash. Ten percent o frevenues from sales will be paid into a group managed reserve to cover maintenance costs or enable extension o f the investment. Proposals for sub-project financing under this window may aim to 58  complement proposals for other windows or could be submitted at a later stage to complement a sub-project already under implementation. Component4: Project Management, Coordinationand Monitoring and Evaluation(Total: US$3.1 million: IDA: US$2.0 million; GEF: US$O.9 million; Government: US$0.2 million). 28. The Project will not utilize a dedicated Project implementation unit. Project coordination, management and monitoring will, therefore, be undertaken by government staff, individual advisors and contracted service providers (see Annex 6). Expenditures include consultancy and training, goods and equipment as well as operating costs. Due to the district focus o f the Project, technical management, coordination and monitoring roles are predominantly at the local level, while financial management will be supervised from national level. 29. This component will support the following activities: (a) Capacity Building. Overall Project strategy will be the responsibility by an Inter-Ministerial Steering Committee, shared with the DPFP and expanded to include additional ministries, such as, Industry and Commerce. The National Director o f DNPDR will be named as the Project Director and will serve as Secretary to the Steering Committee on matters related to the Project. He/she will take primary responsibility for ensuring adequate technical and financial management, and will be supported by a Financial Management Specialist and an Accountant in the financial area and a Project area-based Field Management Advisor (FMA) in technical matters. At provincial level, the DNPDR representative, supported by a Provincial Financial Manager, will provide the key management functions, and act as Secretary for the Provincial Steering Committee, already established by DPFP. Finally, at district level, Project management will be the responsibility o f the District Administrator, supported by the District Facilitator (DF), a Project-fundedposition under Component 1,and a district level Financial Officer. 30. Project coordination will be undertaken principally at two levels. Within the district, the DF will be principally responsible for coordination, linking together government technical agencies, service providers and district consultative planning participants. On a Project-wide level, the FMA, reporting to the Project Director and supported by a small group o f on-call experts, would coordinate between DFs, provincial stakeholders, and the national level. 31. Project monitoring will also be undertaken at two levels; internal (inputs and outcomes) and external (process). Internal monitoring will closely follow the coordination roles, with the DF and the FMA having responsibilities inthis area. The information collected - both directly and from service providers' own monitoring processes - will comprise part o f the annual reporting system o f the Project and will include expenditure, input and performance data as well as monitoring data derived under Component 1. External monitoring will be undertaken by an independent contractor reporting directly to the Inter-Ministerial Steering Committee and will focus on processes and outcomes. This work will be supported by the baseline study 59  completed in February 2007, followed by similar studies prior to the mid-tern and investment completionreviews. 32. The remote sensing quantitative baselines developed via the GEF PDF-B grant will serve as objective reference points to evaluate progress over the life o f the Project and beyond. The SPA modeling component will provide an interactive predictive and analytical framework to assess current and emerging resource management issues duringandbeyondthe lifetime o fthe Project. Therefore, this component will provide resources necessary to: (i) design and implement a Remote Sensing and Geographical Information System (GIS) Database to monitor local and environmental indicators; (ii) andimplementacommunity-basedmonitoringsystemlinkedtotheGIS design database; and (iii)design and implement communication strategies to convey project results and outputs to the community, government, and funding agency stakeholders. 33. GEF funds will be used to recruit a Senior Environmental Specialist (ES)who will be based with the Field Management Unit and two District Technical Facilitators (DTFs). The ES will support the two DTFs and interact closely with the Field Management Advisor and associated staff inthe Field Management Unit. GEF funds will also be used to equip the technical specialists who will work across all five districts with vehicles, motor cycles, GPS units, etc., including the cost associated with operating them. 60  Mozambique:Market-ledSmallholdersDevelopmentinthe ZambeziValley Annex 4 - Attachment 1: Elementsof the ParticipationPlan 1. The participation plan was developed and integrated into the Project Implementation Manual (PIM). The participation planwas designed to engage all district stakeholders in a dialogue and provide them with a platform for interaction, planning, and decision- making in view of a sustainable agricultural development in the Project districts. A preliminary list o f stakeholders andtheir role i s provided inthe following table. Table A. Preliminary list o fparticipating stakeholders and their role inthe Project implementation Stakeholder Relevanceto the Project Keyissuefor the Project AdministrativePost LevelStakeho ers CommunityConsultativeForum Defines priority programs I s informed and consulted within the Leaders o fthe communities existing for the AP. process o f awarding a matching grant inthe Administrative Post (AP). to a CBO or private entrepreneur. AP Office Establishes the linkage Ensures the provision o fbasic AP Administrator and 2-3 between the District services. administrative officers. Administration and the communities. Collects taxes. Basic publicservices Collection o f information Provision o fbasic services. Small numbers of public officers. for the district M I S system. Service provider for group NGO contractedwith Promote the formation and formation and development resources from the institutional organization o f CBO. Project. Issues opinion about the level o f organization and leadership o f a CBO that have submitted and investment proposal. Communities/CBO Main beneficiaries. Identificationof the needs o f Groups o f farmers with varied levels investment. o f internal organization and Design the investment with leadership. support o f TA financed by the Project. 0 Implementation o fthe proposed investment and subsequent Gover District Administration and Key authority at district 0 To coordinate the district District ConsultativeCouncils level, district planning development plan implementation. Community leaders, District and Project 0 To facilitate participatory district Administrators, Administrative Post implementation planning. and Locality Chiefs, Heads o f coordination. T o facilitate integration within the District directorates and services. Formulates guidelines communities and traditional 61  and priorities for district leaders. development. To facilitate establishment o flocal Evaluation and approval community associations andNRh4 o f District Development committees. Plan (DDP). 0 To approve specific proposals o f public nature investments to be carried out with funds made available by the Project. DistrictTechnicalPlanningTeam Project implementation. T o implement the district land use Technical staff nominated by the planning incoordination with the District Administrator District Officers from various Ministries. T o liaise withthe contracted service provider. 0 T o oversight and facilitate the outputs o f the district experts' work. LocaYTraditionalAuthorities Facilitate Project To facilitate Project implementation. implementation. 0 T o persuade and mobilize community members to adhere to the Project. Provide local knowledge on land use strategy and natural resource use. DistrictAdministration (DA) Governs the district Will host the Project District District Administrator, District (scope of decision making Facilitator. Permanent Secretary and district in evolution). Ensures services (Includes Agriculture). provision o f services. Collects taxes. Committeefor Technical Participation inProject Issues technical evaluation and Evaluation of Proposals implementation recommendations about the A group o f district technical staff (Component 3). proposals submitted for financing with recognized competence. from CAEIF. District AgriculturalServices Promotes facilitates or Extension services ,forestry 0 Will have extensive directly delivers responsibilities under Component services, livestock services land agriculture services. 2. administration services. Collects agricultural statistical data. Provides Technical assistance. CommodityE'roduct for a Promotion o f production Discusses and identifies Multi Stakeholder Group & marketing o fa specific intervention o fpublic, private or product or group o f public-private nature to be products. recommended for funding by the CAEIF. 62  Community Based Organizations Project implementation. e To promote exchangeprograms Existing organizations, e.g., with other communities. - ACODEMAZNACODEMADE Provide experience. -FarmersAssociation of To represent community interests. To implementProject activities. ZambCziaDerre. e To benefit from the use of natural resources. e To establish the linkbetween the Project and local community. Smallholder Farmers Beneficiaries. e Expressdemand for Project intervention andparticipate inthe decision making and implementation o f Project activities. Marginalized Population Beneficiaries. e Enhancedparticipation indecision Women, youth, HIVIAIDS infected, making and implementation o f decapitated people. Project activities. Private Sector Establishment o f cost e To provide business opportunities effective methods for for local community members. benefit generation. To facilitate employment to local communities. To establishpartnerships with CBO's and Civil Society for implementation o fProject activities. ProvincialGovernment Stakeholde Provincial Government fPG) Formalprovincial level oversight Chairedby the Provincial Governor, evolution. Coordination o f the performance o f the Dis&ct. and including the Prov. Permanent o f activities of the Administration o fthe Project Secretary, and Heads o f Provincial various provincial districts. Directorates. Directorates and services. Approves Provincial Plan o f Development and monitors its implementation. DPFPSteering Committee Consultative and Would be used for oversight o f the Chaired by the PPS and includes Coordination Forumfor performance o f district Agriculture, Public Works, Finance, activities oriented to administrations o f Project State Administration, Environmental districts but above their districts. Coordination. scope o f decision. Provincial Directorate for Implementation o f land To provide technical expertise in Agriculture (DPA) use plan inline with agricultural landuse activities. PROAGRI. To facilitate integration of the district land use planning into the provincial and national landuse planning. Participate inthe provincial 63  steering committee. ProvincialDirectoratefor Technical assistance and 0 T o provide technical Assistance. Environment(DPCA) Project implementation. 0 Participate inthe provincial steering committee. 0 Facilitate the NAPA information and adaptation strategy for the province. ProvincialDirectorate for Public Infrastructure planning, 0 To facilitate the coordination o f Works buildingand activities related to infrastructure maintenance. development and maintenance. ProvincialDirectorateof Planning Supports the Provincial 0 Manages provincial budget and Finance(DPPF) Government to prepare allocation and execution at Encompasses the Provincial Rural the Provincial provincial level. Development Department, Development Plan. ProvincialDepartments o f Finance Supports and represents and Taxes. PGinits relationship withMinistry o f Finance and M P D . ProvincialDepartmentof Rural Inthe scope offunctions Will host the provincial level Development(PDDR) o f the DPPF formulate accountant and procurement and ensure officer inQuelimane. implementation o f 0 This department will host the TA programs relevant for to be posted at regional level. rural development that do not fall under the mandate o f the provincial directorates and services. Government: nationallevelnine n iistriesandtheir regional takeholders Ministryof Agriculture (MINAG) - create capacity at To facilitate the implementation o f DNFFB-Department of district level; the Project activities at provincial - Forestry support to and district level involving all DINAGECA-Department o f coordination; departments. Lands provide mechanisms - DNER-Department o f Mainstreamthe Project activities o f technology within MINAGcore activities. - Extension transfer and technical DEA-Department o fEconomy 0 Participate and chair the district assistance; - IIAM-Agricultural Research forum for sustainable natural promote resource management. Institute implementation of Facilitate the application o f regulation and laws. PROAGRII1strategic environmental assessment recommendations inthe Project area. 0 Supervise implementation o f regulations and laws. Provide technical assistance and conduct research. Ministryof EnvironmentalAffairs oordinate SEA, EIA, To coordinate the implementation (MICOA) idsupervise the o f the Environment Policies and nplementationo f the ecological sustainability o f the ivironmentalproduction Project activities. :actices, mainstream Establish the link withNAP 64  environment concerns (UNCCD), NAPA (UNFCCC), within agriculture. &SAP (CBD), strive for synkrgy B T o evaluate the EL4 and the strategic environmental assessment. Ministry of Industry and Together with MINAG- B To promote localprocessingo f Commerce DEA identify market agricultural and natural resource opportunities (locally or to createjob opportunities for abroad) for local local communities. products; D T o facilitate the establishment o f Promote local processing small/medium business basedon o f natural resource and natural resources for community agricultural products. associations. Ministry of Planningand Implementingagency, To integrate the Project activities Development(MPD) responsibility for withinthe district development National directorate for Planning integrated socio- process. and Budget, National Statistical economic development at T o provide assistance with the Institute, Centre for Investment all levels. decentralizationprocess. Promotion. Coordinates planning and periodically evaluate progress and policy formulation. identify constraints faced by the Encompasses DNPDR Project based on the reports and oversees its presented bythe director o f activities. DNPDR. NationalDirectorate for Supports M P D inthe Appointed by M P D to implement Promotionof RuralDevelopment formulation o f Rural the Project. Several Departments and PIUs Development policies. New Administration and Finance (structure under review). Responsible for the Section to be developed with implementation o f support for the Project (TA on FM national rural-oriented and Procurement). programs not falling under the mandate of sector ministries. Ministry of Finance Provide the link between To coordinatethe design o f the the Financing Agency district disaster preparedness. and the Project To facilitate the disbursement o f implementation team. Credit funds for Project implementation. To create fiscal incentives for communities to engage inthe formal market. To monitor and audit the Project accounts. Ministry of State Administration Coordinate with INGC, To facilitate the decentralization the district, and local process andprovide linkwith the authorities to identify local authorities. safer areas and in accordance to the district preparedness plan, to settle people displaced by floods. 65  Technical Inter-ministerial IConsultation and 1 Identificationo f issues requiring Committee Central level, technical representatives o f concerned ministries. Created for DPFP. Assist affected To provide technical and legal communities and provide assistance for the set up o f the capacity for the district district disaster preparedness. technical unit to prepare To coordinate the design of the the district disaster district disaster preparedness. preparedness plan UniversityEduardoMondlane - Training and technical at To conduct research inall Faculty of Agronomy and all levels duringplanning agricultural aspects including Forestry and implementation o f social and cultural aspects. the district development Coordinate with all departments oi plan. MINAGto identify research issues. To conduct the biodiversity assessment inthe Project area. LeadingResearchInstitutions Baseline surveys (PDF- Baseline natural resource mps specializedinadvancedremote B) dynamic hydrology Digital elevation maps for each sensing and hydrologymodeling modeling to support district. country NAPA and DistributedHydrology Vegetation landscape level climate Soil model calibrated for Zambezi riskimpact analyses; and valley and Project area. training o fpersonnel at local institutions and university. InternationalResearch Research, training and To conduct research . Organization(ICRAF, CIMMYT implementation o f Provide information on regional ICRISAT) agriculture an experiences. agroforestry, technology Provide training o f technical transfer with IIAMand agents and farmers. the University. 66  Mozambique:Market-ledSmallholdersDevelopmentinthe ZambeziValley Annex 4 - Attachment 2: SpecialPriorityon Adaptation(SPA) Activities 1. The activities proposed below under SPA fbnding are synergistic with the specific objectives and activities proposed under Mozambique's draft NAPA. The objectives o f the NAPA are to: (i) strengthen the country's (climate) early warning system for extreme events; (ii)strengthen the capacity o f smallholder farmers to manage the adverse effects of climate change; (iii) promote the use o f renewable energy for water pumping and lightinginrural and periurbanareas; (iv) promote reforestation; (v) promote measures to collect and conserve rainwater; (vi) promote action to stop and prevent soil erosion; (vii) promote the integration o f climate change issues inthe planning context o f decentralized institutions and programs. 2. The Mozambique NAPA has proposed 4 major program activities to meet the above objectives in the short- to medium-term. These include: (i)improved collection o f meteorological data and generation o f weather forecasts (including extreme events) and communication o f information to stakeholders especially in vulnerable areas; (ii) improved capacity o f farmers and livestock herders to collect and store water for enhanced mitigation o f drought effects; (iii)mapping o f land cover dynamics and erosion vulnerability in coastal regions; (iv) improved characterization and use o f hydrological resources for imgation, water storage, and sustainable use o f river margins; and (v) provide training opportunities to local government staff and community leaders. 3. The activities proposed under the SPA component of this PAD are aimed at reinforcing the national and long-term goals o f the NAPA objectives with respect to the following key issues: (i) training and improve the national capacity to identify, characterize provide and manage hydrology at a basin scale, e.g., the Zambezi; (ii) train and sustain a create, national capacity to model the interactive impacts o f climate change and land cover land use change and assess the priority mitigation responses; and (iii)contribute to strengthening of a national data base o f land cover and land use change dynamics, hydrology, and climate information to support the collaborative activities o f national agencies (e.g., National Meteorological Agency, CENACARTA, National Directorate o f Water, ARA Zambezi, GPZ) and policymakers. Specific SPA activities include: 1.Development of a "Dynamic (Landscape- Water Resource) Analysis Framework" for the Zambezi River basin: Predictions of Consequences of Climate Variability and Landuse/Landcover Change 4. The objective here is to assess the vulnerability o f specific sectors (agriculture, forestry, fisheries, water supply and quality) o f the Zambezi basin to potential drought, flooding, landslides, infrastructure, and re-forestation schemes, under both current and possible fbture conditions. With this information, the next objective is to evaluate the tradeoffs between sectors as a basis for fbture policy interventions and financial investments. 67  5. Contemporary geospatially-explicit, process-based hydrology models (including dams and irrigation schemes) provide a robust basis for analysis of changes in the water flow andlandscape dynamics ofriver basins as a function o fchangesinlanduseand landcover and regional climatology. While they address the detailed movement o f water across the landscape, such models are "more" thanjust hydrology models. The model canbe seen as a multi-layered representation o f characteristics and processes in a drainage basin that allows us to examine intersections o f the data required for describing a basin's topographic and landscape features and its climatology patterns. Overall, the resulting modeling environment can be developed as a "Dynamic (Landscape Water Resources) Analysis Framework." Because o f the fundamental processes and detailed information represented in a functional Dynamic Analysis Framework, a series o f critical problems can be examined that may result from climate variability and landuse/landcover change. For example the following questions could be explored: 0 What would be the impacts o f changes in agriculture (including irrigation) and forestry practices on local and regional water balances? For example, will reforestationlead to an increase or to a decrease instream flow? If some indication of climate over a growing season was provided, could crop selection (and fire management) be improved? 0 How would changes in streamflow affect fisheries (including changes inwater levels o fnursery areas)? 0 Can floods or droughts be predicted, or at least anticipated, one or two months into the future, as an early-warning system? These models compute not only stream discharge, but such intermediate products as soil moisture and evapotranspiration. Ifa model is maintained in an operational mode, the current conditions o f soil moisture (the antecedent for floods or drought) can be monitored. Ifthe hydrology modeled i s then driven by forecasts from regional climate models (see below), then near-future potential conditions can be tracked, andwarnings given. 0 What would future climate bring? While predictions o f specific future climates are uncertain, consequences o f different scenarios can be evaluated. How would developments o f infrastructure affect downstream flow, water quality, andfisheries resources? 0 How would changes in land use practices, with varying climate, affect water supply andwater quality? 2. A Dynamic Analysis Framework based on the VIC/DHSVMHydrology Models 6. The geospatially-explicit, process basedhydrology models referred to above compute the water and energy balance o f a spatial unit of the landscape (a "pixel"), as a h c t i o n of landscape structure (topography, soils) and vegetation properties, and are driven 68  ("forced") by a surface climatology. As such, our Dynamic Analysis Framework can be thought o f as the intersection o f a physical template module (describing static properties o f topography and soils), a landuse/landcover module (describing not only what i s present, but the biophysical attributes thereof), a surface climate module (providing the drivers for the land surface), and, finally, the hydrology models themselves. The following discussion focuses on VIC, with a brief summary o f DHSVM (where the principles are very comparable). This discussion will make clear how water movement, climate, and the landscape all intersect. 2.1 Geospatial/ProcessBasedHydrology Models 7. Here we describe two such models, VIC and, more briefly, DHSVM. The difference between them i s based on the scale o f the river basin represented. While it i s not discussed below, biogeochemistry and sediment mobilization sub-models are being developed, which can address such issues as water quality and erosiodlandslides. 8. The VIC (Variable Infiltration Capacity) model is a semi-distributed macro-scale hydrologic model, which represents explicitly the effects o f vegetation, topography, and soils on the exchange o f moisture and energy between the land and atmosphere. As compared with other so-called soil-vegetation-atmosphere transfer schemes (SVATS), VIC represents in more detail the generation o f streamflow, and its sensitivities to the above factors. The VIC model has been applied to all river basins in the U.S., the entire country o f China, the pan-Arctic region, the Mekong, and the entire Earth(at 1/2" spatial resolution. The VIC model can be operated in either one o f two modes: in the energy balance mode, the surface energy budget i s closed by iterating over an effective surface temperature, and in the water balance mode the effective surface temperature i s simply approximated by the surface air temperature. 9. Some o f the soil parameters in VIC generally cannot be estimated directly, and must be adjusted by calibration, typically the depth o f each soil layer, the maximum velocity o f baseflow, the fraction o f baseflow where nonlinear baseflow begins, and the parameter o f the variable infiltration curve. Calibration and validation are typically done with different periods o f flow observations (and are, o f course, dependent on data available). 10. The DHSVM (Distributed Hydrology Soil Vegetation Model) is intended for small to moderate drainage areas (typically less than about 10,000 km2), over which digital topographic data allows explicit representation o f surface and subsurface flows. DHSVM i s utilized for stream flow forecasting and for addressing hydrologic effects o f land management or o f climate change. The model has been applied on several basins in the USA and in British Columbia, and to the Mae Chaem Basin, o f northwestern Thailand. The model simulates soil moisture, snow cover, runoff, and evapotranspiration on a sub- daily time scale. It accounts for topographic and vegetation effects on a pixel-by-pixel basis, with a typical resolution o f 30 to 150m. Snow accumulation and snow melt, where needed, are calculated by a two-layer energy-balance model. 69  11. To operate, both models require their respective physical template, landuse/landcover, and surface climate modules. These are briefly outlined in the next sections, with an emphasis on VIC (given the overall size o fthe Zambezi). 2.2River basin Template 12. The first step in the construction o f a river basin model is to derive a (digital) river network and so-called flow accumulation grid. Runoff simulated by VIC i s routed from each model grid cell to one o f its eight neighboring cells, according to the local "flow direction." The VIC routing network has typically been derived from high resolution USGS GTOP030; 30 arc second data, aggregated to the model grid resolution o f 1/12 degree latitude and longitude (roughly, 10x 10 km, inthe tropics). The recent availability o f SRTM data (90-m) will generally provide enhanced products (though not automatic solutions, especially in flat, forested regions). The soil parameters can be measured directly (rare), or use assigned attributes, typically based on soil texture, which can be derived inturn from existing global soil maps. 2.3 Vegetation Attributes 13. A critical intersectionbetween landuse planning and the hydrologic cycle is represented by landcover. Landcover itself is typically derived from multiple sources, typically involving local surveys and satellites. At broad scales, landcover products from MODIS can provide a broad overview. Closer examination frequently reveals discrepancies. Data from higher-resolution satellites, such as LANDSAT, are often used, producing composite products (here illustrated from the Mekong). The overall development o f a highly-resolved satellite-based landcover analysis for this Project i s covered elsewhere in this report. 14. The Leaf Area Index (LAI) i s one o f the vegetation parameters to which VIC i s most sensitive. It controls not only precipitation (solid and liquid) interception, but also canopy resistance to transpiration, and the attenuation o f solar radiation through the vegetation cover. For modeling purposes, LA1 can be derived from lookup tables (where each vegetation type i s assigned a seasonal LAI, based on literature values). More recently, it has become possible to use the standard %day, 1km MODIS satellite LA1product (with caveats for cloud covers). A series o f parameters are inferred for each vegetation class, typically from literature values. Vegetation height i s used by VIC as the basis for determiningroughness length (the height above the ground where wind speed is reduced to zero due to surface resistance) and displacement height (height above the ground where wind speed i s not significantly affected by surface roughness), both o f which are important parameters in its evapotranspiration formulation. Maximum rooting depth affects the ability o f the vegetation to extract moisture from the three soil layers, and hence affects evapotranspiration, and the partitioning o f precipitation into runoff and evapotranspiration. 70  2.4 Surface Climatology 15. A critical element in the development o f a river basin model is, o f course, the surface climatology. The meteorological data used to drive VIC are daily precipitation, maximum and minimum temperature, and mean wind speed (other forcing data, e.g., downward solar and long wave radiation, humidity, can be derived). Ideally, local surface observations would be sufficient to drive a model. But these are rarely available in adequate quantity. So-called reanalysis products, such as from the N O A A Climate Prediction Center Summary o f the Day data archived at the National Center for Atmospheric Research (NCAR) can be used. Hence one o f the major gaps in our ability to understand regional-scale land-surface processes is that climatological distributions o f rainfall, temperature, and solar radiation are insufficiently resolved in conventional re- analysis products, particularly, in regions o f intense topography and fragmented landscapes. An emerging area i s the use o f regional scale, or mesoscale, climate models. For example, the regional scale Weather Research and Forecasting (WRF) model i s a state-of-the-art atmospheric model designed for use on regional grids. The model i s routinely applied for real-time forecasts at the National Center for Atmospheric Research (NCAR) on grid sizes down to a few kilometers, especially for central U S spring-time convection and Atlantic hurricanes. WRF does well at simulating the Asian and Australian monsoons, andcould be extended to east Africa. ProcessCror,Models: ErosionProductivitvImDactCalculator (EPIC) 16. EPIC i s a generalized crop model that simulates daily crop growth on a hectare scale. Like most process plant growth models, it predicts plant biomass by simulating carbon fixation by photosynthesis, maintenance respiration, and growth respiration. Several different crops may be grown inrotation within one model execution. It uses the concept o f light-use efficiency as a function o f photosynthetically available radiation (PAR) to predict biomass. EPIC has been modified to simulate the direct effects o f atmospheric carbon dioxide on plant growth and water use. Crop management i s explicitly incorporated into the model. 17. This approach is useful for evaluating a limited number o f agronomic adaptations to climate change, such as, changes in planting dates, modifying rotations (i-e., switching cultivars and crop species), changing irrigation practices, and changing tillage operations. The parameter files are extremely sensitive to local conditions and EPIC can give grossly misleading results when relying on default settings as it i s being tailored to different locations and cropping systems. 18. Applications: Drought assessment, soil loss tolerance tool, global climate change analysis, farm level planning, drought impacts on residue cover, and nutrient and pesticide movement estimates for alternative farming systems for water quality analysis. 71  Mozambique:Market-ledSmallholdersDevelopmentinthe ZambeziValley Annex 5: ProjectCosts Proiect CostsSummarv ~ - - .' Local Foreign Total Ofwhich GEF COMPONENT 1: Community grouporganizationand localinstitutionsstrengthening 5.8 2.6 8.4 0.85 1.1CBO capacity development 2.6 1.1 3.7 1.2 Rural financial services 0.8 0.4 1.2 1.3 District capacity development 1.8 0.8 2.6 1.4 Participatory LandUse Planning 0.6 0.3 0.9 COMPONENT 2: AgriculturalProductionand MarketingDevelopment 4.1 2.1 6.2 2.4 2.1 Agribusiness & market development 0.5 0.3 0.8 2.2 Extension Services Strengthening and Applied Research 1.o 0.5 1.5 2.3 Sustainably managedagricultural & forest systems 1.o 0.5 1.5 2.4 Sustainable Management ofLand andNatural Resources 1.6 0.8 2.4 COMPONENT 3: Community Agriculturaland EnvironmentInvestment Fund 6.1 1.9 8.6 1.8 3.1 Support to CAIEFimplementation 1.2 0.3 1.5 3.2 CAIEFinvestment 4.1 1.2 5.3 3.3 Sub-projects addressing Sustainable NRM 1.4 0.4 1.8 COMPONENT 4: ProjectManagement,Coordination andMonitoring& Evaluation 1.8 0.1 2.5 0.85 4.1 Project coordination 1.o 0.4 1.4 4.2 External M&E 0.4 0.2 0.76 4.3 Communication & training 0.1 0.0 0.1 4.4 GEF activities :management, monitoring and training 0.3 0.1 0.4 PROJECT PREPARATION FACILITY 0.4 0.2 0.6 Total Baseline Cost 18.8 7.5 26.3 5.9 Price Contingencies 0.8 0.3 1.1 0.3 Total Project Costs'* 19.6 1.8 21.4 6.2 l8 Identifiable taxes and duties are US$3.6 millionand the total Project cost, net o f taxes, i s US$24.1million. 72  IDA GEF Benef. Govt a1 Am Am. cent Per Amount YO Am. YO . YO Am. % COMP 1:Community group org. andlocalinstitutions strengthening 7.6 88 0.9 10 0.0 0 0.1 1 8.6 31 COMP 2: Agricultural production &marketing development 3.9 61 2.5 39 0.0 0 0.0 0 6.4 23 COMP 3: Community agricultural 5.9 and environmental inv. Fund 68 1.9 22 0.9 10 0.0 0 8.7 32 COMP 4: Project management, coordination, M&E 2.0 65 0.9 29 0.0 0 0.2 6 3.1 11 Project PreparationFacility 0.6 100 0.0 0 0.0 0 0.0 0 0.6 2 Total PROJECT COSTS 20.0 73 6.2 23 0.9 3 0.3 1 27.4 100 19As costs havebeenrounded, some o fthe numbersmay not add-up. 73  Mozambique:Market-ledSmallholdersDevelopmentin the ZambeziValley Annex 6: ImplementationArrangements Background 1. Overall responsibility for the implementation o f the Project will lie with the National Directorate for the Promotion o f Rural Development (DNPDR) o f the Ministry of Planning and Development (MPD). Below are the detailed implementation arrangements at the district, province and national levels Since the GEF activities represent an integral part of the overall Project, the proposed implementation arrangements apply to both IDA credit as well as GEF grant funds. District Level Implementation 2. The focus o f all Project activities will be at the district (see Diagram 1). Extensive collaboration will take place within the structures andprocesses established as part o f the GOM's decentralization laws andthrough the DPFP (see box) to ensure complementarity and avoid duplication o f institution building activities and ensure adherence to established decentralization channels. Inparticular, the Project will expand the role o f the District Technical Team (DTT) to mainstream agricultural and environmental aspects within the planning process. A key Project funded position is the District Facilitator (DF), whose role is to ensure that activities funded or promoted under the Project are fully integrated in district planning processes and coordinated by appropriate district structures and institutions. DecentralizedPlanningand FinanceProject (DPFP) District levelstructuresand staffing - Under the current DPFP Project, decentralization is being supported through strengthened district government capacity and the creation o f participatory planning processes in each district. Key elements o f this process include administrative post and district consultative councils (now mandated under the regulations o f 2005), supported by a District Technical Team (DTT), with responsibility for supporting district planning processes. The DTT i s chaired by the District Administrator or his nominee, and includes representatives from all district level technical agencies. The planning process results in a number o f documents, including a strategic development plan, a three year rolling plan, and an annual investment plan which provide the basis for public sector expenditure within the district. The DPFP also provides for Local Investment Grants to finance infrastructure and small-scale investments though a series o f grant windows and created two new support positions at district level; a workdprocurement officer; and an accountant. Although DPFP financed during the Project, these posts will eventually be absorbed into the district staffing. 3. The DF will report to the District Administrator and the Project Director and work in close collaboration with the DTT and relevant district technical departments 74  (Agriculture", Public Works and Housing) to prepare annual district Project work plans and reports, manage internal monitoring o f Project activities, formulate annual Project budgets and oversee the preparation o f local contracts and related disbursements". He/she will be supported in these tasks by two full-time positions created in the district administration and fbnded for the first three years of implementationby the Project or by the DPFP. One will be a DistrictAccountant,the other a DistrictProcurementOfficer. They will work in close collaboration with the procurement/works officer and accountant recruited to support the DPFP22. Diagram1 DISTRICT LEVEL STRUCTURE +.- ConlracledStrvlce Providers (10% andshantern) -. Expansionof Identification ofinvestment priorities -_.."I 1. Grouppromotionand support, incl. helpinggroups DistrictParticipatory Planning prepare andimplementCAEIF proposals supportedgroups. 3. RuralFinancialServices Verification ofSAI 4. Agriculturally-related investments. Prioritisation and scheduling ofpublic sector activities andexpenditures infiasmcture designand supervision i, \ 5. EnvironmentandNatural Support Specialists 1, I DistrictTechnicalPlanningTeam I resourcesManagement 6. Input supplydevelopment plannmgprocess.Technicalqualityof mshict / - ,w v , i i Shaded boxcs indicate project FieldManagementMvisor+ On-Ealltechnicalexperts createdifinanced positions Solidarrows indicateoversight, Technical support to district level actors, includingplanning, training, studies and broken lines, support supervision ofcontracted serviceproviders -_I_.... 1-1 -.--I "-_1"." I__--_. 4. Support will be provided to the primary beneficiaries through a number o f service providers over the six year implementation period. Their performance will be monitored by the DF and supervised by specialist advisors linked to the Field Management Advisor, a regionally-based position. These advisors will be responsible for defining 2o Government plans to add responsibilities for Industryand Commerce to the District Agriculture Directorate, this creating a District Directorate for Economic Activities ( DDAE).However, the two Ministries will continue to maintain their separate identities at higher levels. Detailed terms o f reference are provided inthe Implementation working paper and Operational manual. 22Consideration was given to relying on the existing DPFP support staff, but current workloads were considered to render this inadvisable. 75  training requirements, methodological tools, reference materials and other support to both public sector and service provider staff at the district level. 5. The operation o f the CommunityAgricultural and EnvironmentalInvestmentFund (CAEIF)23 will be largely a district responsibility, although approval o f larger subpProjects and technical support - including some contracting - would occur at provincial level. Agriculturally-related infrastructure proposals would be fully integrated into the district participatory planning process, and their inclusion in approved annual investment plans will be supported by the creation of a series o fDDA-led MarketingFora at administrativepost level which would identify infrastructurebottlenecks to agricultural development and submit investment concepts to the planningprocess for preparation and approval. 6. For those proposals under the small-scale agricultural investment and natural resources management windows, which would support private investments, a District Proposal Evaluation Committee, comprising relevant technical personnel, will be created and trained, while procurement would be carried out by the District Procurement Officer underDF supervision. Provincial LevelImplementation 7. The importance o f the Provincial level government and associated agencies for Project implementation arises principally from two factors. Firstly, provincial technical agencies represent all national ministries, including a number (e.g., Public Works and Housing, Women and Social Action, Environment) which currently have no staff at district level. These provincial directorates are reasonably well staffed with trained and experienced technical personnel. If good working relations are established with the directors o f the agencies, and some support for travel and other expenses are provided, these staff can play important roles inimplementation. Secondly, district governments still lack banking facilities and, often, technical skills, to manage budgetary resources. Financial resources will, therefore, pass from central level to provincial level, where both provincial and district level budgetsmust be amalgamated and supervised. All government salaries and budgeted recurrent expenses are paid from provincial level. 8. Adequate management o f financial resources at provincial level inthe case o f this Project i s facilitated by the continuedunion o f the planning and finance directorate (now separate ministries at national level) and by the existence o f a Provincial Inter-Ministerial Steering Committee already established for supervision o f the DPFP Project. Implementation arrangements for this Project will utilize similar arrangements, including the services o f the steering committee. The Provincial Representative of DNPDR would act as Provincial Project Coordinator (PPC). He/she will be responsible for: (i) preparing provincial level plans and reports based on district documentation and provincial activities; (ii)ensuring the timely flow o f funds from national to provincial level; (iii) disbursement o f provincial resources to district level accounts and payment o f contracts. He/she will be supported in these tasks by two full-time support personnel 23See WorkingPaper 5: Community Agricultural and Environmental InvestmentFund(CAEIF) 76  located within the DNPDR: a Provincial Accountant and a Provincial Procurement officer. These two positions could be initially funded by the Project at standard government rates, butwould eventually be absorbed into DNPDRpersonnel, ifnecessary. 9. A key implementation role based inone o f the district capitals will be that o f the Field ManagementAdvisor (FMA), supported by an associated pool o f short- and medium- term contracted specialists. The FMA will be based inMorrumbala, capital o f the district with the same name. The FMA, who will be recruited on a hll-time basis over the six- year implementation period, will work under the general supervision of the Project Director, and inclose collaboration with Provincial Coordinators and, especially, the five District Facilitators. He/she will be supported by a number o f technical advisors with responsibilities for coordination, supervision and support to district level service providers. These positions would be primarily part-time, although several would be full timeduringthe first 2-3 years ofimplementation. They include: Group Promotion Specialist- 42 months over 6 years (IDA financed); District Capacity Development Specialist - 21 months over 6 years (IDA Financed); Agribusiness and Production Specialist -42 months over 6 years ( IDA financed); Environmental Specialist -42 months over 6 years (GEF financed); Community Agricultural and Environmental Fund Specialist - 27 months over 6 years (IDA Financed); InfrastructureSpecialist - 11months over 6 years (IDA financed); Communications Specialist - 72 months over 6 years (GEF financed). 10. The role o f the FMA and associated experts is based upon lessons learnt from other Projects - in particular DPFP and P A M A - as to the importance o f technical support to district level actors. They will ensure that implementation quality and performance i s maintained by providing relevant technical agencies and contracted service providers with training, methodological support, reference materials and guidance. The FMA would also provide oversight o fmulti-district contracts (either provincial or Project-wide) for district level service pr0vide1-s~~. Contracting o f these service providers would, however, be undertaken by the Project Director and his staff, based upon the reports provided by the Technical Coordinator, andthe approval o fthe steering committee. 11. In addition, a regional-level Regional Procurement Advisor will also be recruited and financed by the Project for the first three years o f implementation. Working under the supervision o f the National Procurement Specialist, the regional officer would supervise and support the provincial anddistrict levelprocurement officers. 24Detailed terms o f reference for the FMA are provided in the Implementation working paper and Operational manual, Other key advisors for Components 1 and 2 and for infrastructure are provided in the appropriate working papers. 77  National 12. Given the central role o f the district inProject implementation, implementation tasks and roles at the national level will be largely concerned with overall Project strategy as well as management and oversight o ftechnical, financial andprocurement activities. 13. At the national level an existing Inter-Ministerial Steering Committee, created for the DPFP andwhich includes senior officials from MPD, Finance, Agriculture, Public Works and Housing, and State Administration, willbe expandedto include representatives o fthe ministries o f Women and Social Action, Industryand Commerce, and Environment - the last as focal point for the GEF, United Nations Framework Convention on Climate Change (UNFCCC) United Nations Convention to Combat Desertification (UNCCD). The key role o f the steering committee is to ensure that overall strategic direction o f the Project i s appropriate; approve work plans, budgets, reports and contracts that will be approved at the national level, i.e., technical assistance contracts for NGOs and service providers. 14. The National Director o f DNPDR will be appointed Project Director and will act as Secretary to the steering committee on matters related to the Project. He and his staff will be responsible for providing the steering committee with all requireddocumentation. The Director will be supported by a full-time Assistant,provided by DNPDR. 15. Inorder to comply with World Bank and national financial reporting and procurement requirements as well as to train national staff and supervise district and provincial level activities, two full time staff, comprising a Financial Management Specialist and a National Procurement Management Specialist, has been recruited using Project funds to support this work for a period of from 2-3 years. The FMS i s supported by a nationally fundedAccountant. 78  Mozambique:Market-ledSmallholdersDevelopmentinthe ZambeziValley Annex 7: FinancialManagementandDisbursementArrangements 1 This section summarizes the overall financial management arrangements for the proposed Project. The Project will be implemented at three levels national, provincial, and district (see Annex 6). At the national level, implementation tasks will largely be concerned with financial management and central oversight o f the whole Project. Overall coordination, planning, and financial management will be the responsibility o f the National Directorate for the Promotion o f Rural Development (DNPDR) o f the Ministry o f Planning and Development (MPD). The Project has also been designed to closely complement the activities o f the ongoing World Bank-financed Decentralized Planning and Finance Project (DFFP), which is also being implemented through the MPD. 2. At provincial level, the main tasks will include provision o f technical capacity, especially to manage budgetary resources as well as banking facilities not present in districts. Management o f resources will be facilitated through established structures o f the planning and finance directorate, and through the existence o f Provincial Steering Committees established under the DPFP. 3. The focus o f implementation will be at district level, using existing local structures including those created under the DPFP. One o f the objectives o f the DPFP i s the provision o f training courses and operational support for financial administration personnel at district level. The Project's Operational Manual defines in detail the minimum requirements that a beneficiary community should fulfill in the area of financial management. The use o f guidelines, including simple hand-written records o f receipts andpayments would be encouraged. 4. The Project uses existing budgetary structures and processes established as part o f the government o f Mozambique's decentralization framework. The proposed financial management arrangements will similarlymake extensive use o f the existing government structures at all levels o f Project implementation to manage Project resources. The Project is, therefore, making effective and extensive use o f the improvements in public financial management brought by the SISTAFE system for the management o f state finances. Since May 2007, DNPDRbecame a SISTAFE Operating unit, having had the requiredequipment installed andrelevant stafftrained. FinancialManagementinthe Governmentof Mozambique 5. A Public Financial Management Assessment, conducted in September 2004 (as follow- on to the 2001 CFAA), concluded that the overall public sector financial management risk remained high. Management o f the economy was quite satisfactory, but comprehensiveness andtransparency of the budgetwas poor, the medium-term planning and budgeting was weak, while budget execution and accounting and reporting presentedquite serious weaknesses. 79  6. At the same time, a number of reforms were moving ahead in a very structured and comprehensive manner. This included a new Financial Management law, the key reform o f which was the introduction and implementation o f a computerized integrated financial management information system, e-SISTAFE. The government has completed a number o f key preparatory reforms including: (i) issued regulations for the Financial Management law; (ii) initiated the introduction o f a new and more-detailed functional classifier into the budget; (iii)started to formulate the budget in current prices; (iv) introduced restrictions on bank accounts held by public institutions; (v) started to incorporate off-budget revenues as well as donor-funded expenditures into the budget; (vi) initiated training for budget staff indouble-entry accounting; and (vii) established a consolidated electronic treasury account to improve control o f treasury operations and cash management. 7. One key reform has been the introduction and implementation o f a computerized integrated financial management information system, e-SISTAFE. This has beenrolled out inall ministries at central andprovincial level. The Bank i s part o f a group o f donors which has financed selected components o f the system, and i s also part o f a Quality Assurance Group established to provide an independent view o f the management, progress, and achievements o f the SISTAFE project. A report o f this grouping issued in November 2005, noted the satisfactory production o f budget execution reports for the period January 2005 to August 2005. 8. A report on the Assessment of Financial Management for 2004/05 using the Public Expenditure and Financial Accountability (PEFA) methodology, concluded that there have been improvements in a number o f important areas which were beginningto have an impact. The budget was a credible document with final out-turns reasonably close to initial approvals; there was also a steady improvement in revenue collection and administration. Fundamental weaknesses remained inthe quality o f the public financial management systems (PFM), especially in internal control systems, limited coverage o f the external audit, and the high-level o f off-budget spending mainly from external project finance. The report noted that the quality o f the PFM was expected to continue improving as a natural consequence o f ongoing reforms, such as e-SISTAFE; however, this would take time. RiskAssessment 9. One o f the major risks o f usingthe established government structures is that o f delays in the release o fProject funds from the Single Treasury Account to the Provincial Treasury Account and ultimately to the intendedbeneficiaries. Experience to date has shown that there has been an improvement inthe flow o f funds from treasury since the introduction o f the electronic treasury account brought about by the roll-out o f e-SISTAFE. Requests for payments, including those for transfer o f funds, are usually completed within days as long as they meet the electronically built-in authorization criteria which include approved budgets and availability o f funds under those budget codes. A number o f donor-financed projects are already channeling resources through the single treasury account. The Bank-financed Project, PROAGRI, which closed inDecember 2006, was a 80  sector-wide program where a number o f other donors, including the government, subscribe to a common fund and thus were disbursing through existing government channels. Therefore, experience has already been gained in the use o f the government systems, which will bebrought to bear on the proposed Project. 10. The risk rating for the Project inthe area o f financial management is medium, reflecting the general weak implementation capacity at the district level at which most o f the activities will be taking place. Capacity and experience at central level i s being put in place and being strengthened to address identified weaknesses and provide the necessary expertise during Project implementation. Mitigating factors to address identified risks are detailed below and include the use o f already existing structures established at all levels o f government. RISK RATING PCN Risk Mitigating Measures Risk OVERALLINHERENT RISK X High 2. CONTROL RISKS Budget X Medium Use o f government enhanced system through SISTAFE Accounting X Medium Need for Project -specific system Internal Controls X High Subsequent releases basedon accountability Funds Flow X High Use o f government established system FinancialReporting X Medium Reliance on good accounting system Auditing X High Project-specific audit requirement using private external auditors OVERALLCONTROLRISK x x Medium/ Overall rating modest to substantial High and will reduce further before effectiveness. H-High S - Substantial M-Modest L-Low Country-Specific 11. Pre-2002 assessments have alluded to the weaknesses in the public financial management (PFM). However, a number o f reforms instituted by the government have started to yield gains in the quality of PFM. This is confirmed by recent independent reviews which have confirmed the continuing improvements in important areas o f PFM 81  as well as the expected continued improving as a natural consequence o f ongoing reforms, such as e-SISTAFE. Entity-Specific 12. The Project i s being implemented at different levels o f government with the main activities being carried out in two phases, with two districts in phase one and three in phase two. The DPFP Project covers the four provinces of the Zambezi Region and the districts, will therefore, also receive support from the structures being established under the DPFP Project. The phasing o f the Project, coupled with the use o f existing structures should address the weak financial management and accounting environment at these levels. Inaddition, key staff in accounting andprocurement will be recruited to provide additional capacity to the Project. Project Specific 13. The Project will be implemented by a number o f agencies of varying degrees of capabilities. The Project also involves numerous small transactions. There is, therefore, need for an effective coordination by the DNPDR o f these agencies, especially on the use and accounting o f funds. A number of lessons have been learnt from the implementation o f the DPFP Project which will be brought to bear on the new Project. This includes improving the monitoring and evaluation function, o f which, financial information will be a key input. The DNPDR will support additional supervision and guidance activities, at both central, provincial and district level, including clear guidelines and definition of roles o f the DNPDR, its staff and relationships to other agencies andunits. 14. At national level, the DNPDRhas established a Financial and Administration Unit.The unit financial management capacity is comprised of three accountants and the recruitment process of an economist i s underway to strengthen the unit. The Project i s also financing a Senior Financial Management Specialist, through a two-year T A contract. He is responsible for: (i) training o f the DNPDR Financial and Administration staff; and (ii)the establishment and maintenance o f the Project's financial management system . 15. A regional accountant will be appointed to support andtrain the Accountants at districts and will be located inone o f the participating provinces. For each participating district, an Accountant has been appointed for the Project under government compensation conditions. Planning and Budgeting 16. A Project budget has been drawn up and is included inthe PAD and inthe Operations Manual (full set o f Costab tables). The Project annual budgets will be drawn from the 82  Operations Manual and disbursement schedule. The annual budget will be prepared based on the policy guidelines and regulations issuedbythe Ministryo fFinance. Accounting Systems and Procedures 17. The accounting systems, policies and procedures employed by DNPDR in accounting and managing the Credit funds are documented in a specific section of the Project Operations Manual. The manual describes the accounting system, internal control procedures, basis o f accounting, standards to be followed, and policies and procedures that guide activities o f the current Project and ensure staff accountability. In addition, the manual documents the arrangements that have been made for recording Project impacts, outcomes, outputs, and inputs that are required to assess progress toward the achievement o f Project objectives. It also documents the procedures undertaken for the replenishment o fthe Special Accounts. 18. The government o f Mozambique is undertaking a public sector administration reform, SISTAFE, which among other things, i s aimed at improving public financial management. This would integrate budgeting, treasury management and accounting, through a computerized management information system, and also introduce a new internal control regime to support improved public financial management. The program accounting policies and procedures outlined in the financial procedures section o f the Operations Manual are taking into account this government initiative andthe program is usinge-SISTAFE to account for funds receivedunder IDA credit. Reporting and Monitoring 19. The financial transactions relating to this operation would be recorded and monitored using a separate management and accounting system. The Finance Management Specialist (FMS) would determine: the Project's Chart o fAccounts as well as the format and content o f quarterly reports and annual financial statements. These reports have already been discussed and agreed with DNPDR and include financial statements (e.g. sources and application o f funds; expenditure classified by Project components, disbursement categories, expenditure types, and comparison with budgets). The reports would closely follow sample formats that are given in the World Bank's "Financial MonitoringReportsfor WorldBank-Financed Projects: Guidelinesfor Borrowers". 20. The starting point for information gathering for reporting and monitoring would be at the community level. Simple formats would be created linking financial information with physical progress and to be submitted as part o f the tranched disbursement arrangements. These would be submitted to the District Administration as detailed below in the Funds Flow and Reporting Chart. The reporting arrangements would eventually serve a dual purpose: firstly, to be used for reporting requirements to the government for the use o f funds and secondly, for subsequent release of additional fbnding. The documents would also serve as a basis for the preparation o f Financial Monitoring Reports (FMRs) by DNPDR to be used for subsequent replenishment o f the 83  two special accounts associated with the Project. Details o f the reporting requirements, including the formats, content as well as frequency, are documented in the Operational Manual. Since the first withdrawal o f funds from the IDA credit took place in mid- April, the first FMRwill beprepared and submittedbeforeJuly 30,2007. Auditing Arrangements InternalAuditing 21. There is no internal audit function envisaged for the program. However, internal auditing across the entire government (including projects) is the responsibility o f the Inspectorate General o f Finance (Inspecqiio Geral das Finanqas-IGF). The IGF is understaffed and has limited capacity to oversee program implementation. There will, therefore, be need for thorough supervision as well as quality assurance o fthe program. ExternalAuditing 22. The annual financial statements o f the Project will be audited by independent auditors, acceptable to the Bank, in accordance with acceptable auditing standards. The external audit will be conducted usingterms o freference acceptable to the bank. Auditors will be required to issue a single opinion on the program's financial statements, as per the guidelines `%i`nancial Management Practices in World bank-Financed Investment Operations", o f November 3, 2005. In addition, auditors will be required to issue a management letter, highlighting any identified internal control weaknesses, which will contribute to the strengthening o f the control environment. The auditor's report will be submittedto the Bank no later than six months after the end o f each fiscal year. The proceeds o f the IDA credit may be used to finance audit costs. Impact of Procurement Arrangements 23. The Project would involve numerous payments at district level. The proposed fund flows recognize the requirements for resources to be available at this level where most o fthe Project activities will be takingplace. Retroactive Financing 24. Retroactive financing o f US$lOO,OOO has beenrequested for Project start-up activities. 84  FinancialManagementAction Plan 25. Detailed below i s issue that will needto be addressedto cater for the proposed Project. Action Responsibilitv Completion ga& 1 Adjust the financial management and accounting DNPDR Effectiveness systems, including a Chart of Accounts, to be able condition to identify Project activities, and disbursement categories under GEF grant 85  Funds Flow and Reporting Chart I , Flowoffunds ................b I I I ' Governmentreports Projects reports DisbursementArrangements ''Funds will be advanced from the Special Accounts to the Treasury Account every quarter in amounts not to exceed the forecastedlocal currency expenditures for the forthcomingquarter. The advancewill bemeantto cover Projectexpendituresfor 6 months as indicatedinthe initial six-monthcash flow forecast on the OperationsManual. Subsequentadvances will bebased on quarterlyreports approvedby DNPDPR. Payments inforeign currencywill be madefromDesignatedAccountto bemanagedby DNPDR. 86  26. The table below shows the allocation o f the proceeds o f the GEF grant. The proceeds of the grant will be disbursed over six years from FY08 through FY13. The annual estimated disbursementsare indicatedina table on the first page o f this document. Category Amount of Credit Percentagesof Allocated Expendituresto be Financed GEF USDmillion 1) Goods, consultants' services and training for 0.9 100% Component 1(d) (2) Works, goods, consultants' services and operating 2.5 100% costs for Component 2,(d) (3) For Component 3: 100% (a) Sub Project Grants for FirstPhaseDistricts and 0.7 Provinces for Component 3(c) (b) SubProjectGrants for SecondPhaseDistricts 0.9 and Provinces for Component 3(c) (c) Consultants' services for Component 3 (c) 0.3 (4) Goods, consultant services including audits, 0.9 100% training and operating costs for Component 4, (e), (f) (5) Refund o f Project Preparation Advance BankAccounts 27. The following bank accounts will be maintained for the purposes o f implementing the Project. a. Designated Account-A: To be managed by Ministry o f Finance, and denominated inU S dollars. Disbursements from the GEF grant will be deposited inthisaccount to finance localexpenditures under the relevant components; and b. Designated Account-B: To be managed by DNPDR, and denominated in U S dollars. Disbursements from the GEF grant will be deposited inthis account to finance foreign expenditures. Disbursement o f GEF Funds 28. Disbursement o f the GEF Project fund (like the IDA funds) will be done based on Financial Monitoring Reports (FMRs) that integrate Project accounting, procurement, contract management, disbursement and audit with physical progress o f Project implementation. 29. The FMRs will include information under three main categories: (a) a Project Financial Statement which includes a summary o f sources and uses o f funds, an updated six- 87  month forecast, designated account activity and reconciliation statements, a statement o f eligible expenditures by disbursement category; (b) a Project ProgressRreport explaining variances between actual physical and financial progress versus forecasts; and (c) a Procurement Management Report showing procurement status and contract commitments. 30. An advance will be made to each Designated Account at the inception o f the Project. The advance will be meant to cover Project expenditures for 6 months as indicated in the initial six-month cash flow forecast. After every subsequent quarter, the Project will submitFMRswhich include a cash flow forecast for the following 6 monthperiod. The cash request at the reporting date will be the amount required for the forecast period as shown in the approved FMRs less the balance in the Special Account at the end o f the quarter. Subsequent disbursements of the GEF grant will be made in respect of this request. Disbursement o fFunds to and from the Single Treasury Account 31. Activities to be financed by the Grant will be indicated in the annual plans drawn up in accordance with existing financial and accounting regulations. The consolidated work plans will include those o f each district, province and those at the center. These will be submittedto the Ministry o fFinance for approval. Based on these approved work plans, the MOF will advance to the Government Treasury Account an amount equal to the forecasted local currency expenditures for a three-month period. All other funds advanced by GEF to the Designated Account-A will remain in the MOF Designated Account. Once these work plans (and other relevant documentation, e.g., accountability for grants previously disbursed) are reviewed and approved by the DNPDR, a request will be sent to the Treasury Department for funds to be released. The Treasury Department will then arrange a transfer o f hnds on the Treasury infavor of the DNPDR at the center, or to the relevantProvincial Treasury Account. Eachprovincial DPPF will then request for a transfer to a Project bank account for activities at the provincial and district level, respectively. The provinces and districts will receive an initial advance after meeting the disbursement conditions, and subsequent replenishments upon presentation o f adequate documentation o f expenditures incurred. Due to decentralized nature o f fund flows, an adequate financial management system i s required to ensure that the reports on expenditures to be incurred at provincial and district levels are preparedandsubmittedto the DNPDRina timelymanner. Disbursemento fFunds to the Communities 32. Flow o f funds to the districts and communities pose the greatest risk under the Project due to the large number o f small-value transactions, scattered locations as well as the country's banking network. The general rule is that funds should be channeled to the level where activities are actually carried out. Funds would, therefore, be transferred to the bank accounts o f the entity in charge of implementation (district government or community). The flow o f hnds from Government Treasury Account through the Provincial treasury Account to the district would be against schedules o f approved 88  expenditures at that level, including those for community sub-projects. In addition, funding would be tranched with subsequent payments based on progress reports (physical and financial). As part o f the Operational Manual alluded to above, the DNFDRhave detailed the obligations o fthe districtscovering issuessuch as funds flow, supervision, reporting. 33. The guiding principle between communities and the districts would be the financing agreement which will serve as the basis for disbursement o f funds. This would document a comprehensive list of activities, timing, estimated costs, and a listing o f responsibilities. Disbursement would also be tranched after accounting for previous releases. ForeignExchange Payments 34. Payments in foreign currency will be made by DNPDR using the USD funds in the Designated Account-B to be opened and maintained by them. Activities at the community, district and provincial level to be financed, using foreign currency, will be included in the annual plans referred to above, and submitted to the DNDPDR for consolidation. The option o f disbursingthe funds through direct payments from the GEF grant will only be made for expenditures above the threshold specified in the Disbursement Letter. Withdrawal applications for such payments will be accompanied by relevant supporting documents, such as, copies of the contract, contractors' invoices andappropriate certifications. Costs andDisbursement profile is inAnnex 5, Conclusion 35. The overall conclusion o f the financial management assessment is that in order to establish an acceptable control environment and to mitigate the financial management risk, the measures outlined in the Financial Management Action Plan presently should be implemented. Supervision 36. Financial management supervision will be carried out regularly by the Bank Financial Management Specialist (FMS) at least twice a year, which will consist o fthe following: a. Review financial management arrangements o fthe Project; b. Review the Audit Reports and Management Letters from the external auditors and follow-up on material accountability issues by engaging with the TTL, Client, and/or Auditors; c. Review the financial component o f the quarterly FMR as soon as they are submitted to the World Bank; and 89  d. Conduct the transactions review, including SOEs, on a sample basis to ensure that individual expenditures which comprise the project transaction are fully supported, properly authorized, eligible under the Financing Agreements, and appropriately accounted for. 90  Mozambique:Market-ledSmallholdersDevelopmentinthe ZambeziValley Annex 8: ProcurementArrangements A. General 1. Procurement for the proposed Project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, revised October 2006; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004, revised October 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Grant, the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity. 2. The procurement systeminMozambique has been under reform inthe last year based on the recommendations o f the 2002 Country Procurement Assessment Report (CPAR) that was endorsed by the Government and Development Partners. The Government enacted the Procurement Law (Regulamento) replacing all previous procurement legislations. This law covers procurement for both government agencies under central government and local authorities. It became effective on June 13, 2006, i.e., six months after its publication inthe Gazette on December 13, 2005. 3. The Government also issued by decrees inthe Gazette on September 8, 2006, a number o f Standard Bidding Documents (SBDs) for Works (large and small size), Goods and Non Consulting Services (normal and small size), Drugs and Medical Goods and Consulting Services. These SBDs are generally consistent with Bank Guidelines. However, some clauses related to the use o f national preference should be addressed to ensure that: (i)domestic preference applies only for International Competitive Bidding (ICB) procedure and that under National Competitive Bidding (NCB) domestic preference shall not apply even when foreigners do participate; (ii) domestic preference for locally manufactured goods shall be applied only for ICB without limitation to the nationality o f the goods' manufacturer; and (iii) ICB, the bidding documents as well for as the advertisement shall also be made available inEnglish. 4. Government Procurement Systems may be usedunder NCB, provided that the exceptions above are taken into consideration. 5. Procurementof Works: Works procured under this Project would include: agriculture- related infrastructure, rural access roads, markets, construction and rehabilitation o f buildings, small-scale irrigation systems and storage systems. 6. The procurement will be done using the Bank's SBDs for all ICB. Under NCB, Government bidding documents in Portuguese may be used. Contracts estimated to cost more than $500,000 each and procured under ICB procedures are not expected. For 91  contracts estimated to cost less than US$500,000 equivalent per contract, NCB procedures will apply. 7. The works may also include minor rehabilitation of infrastructure. The value of the individual contracts i s not expected to be higher than US$50,000 equivalent and may be procured using shopping procedures, under lump sum, fixed price contracts awarded on the basis o fquotations received from at least three qualified contractors. 8. Works to be procured under the Community Agricultural and Environmental Investment Fund(CAEIF) will be carried out in accordance to the procedures laid out inthe Project Operations Manual. 9. Procurement of Goods: Goods procured under this Project would include (amongst others): office fumiture/equipment, information technology equipment, vehicles, motorcycles, bicycles, and communications material. The procurement will be done using the Bank`s SBD for all ICB. Under N C B Government bidding documents in Portuguese may be used. 10. Contracts estimated to cost less than US$200,000 equivalent per contract will be procured through NCB procedures, while contracts costing less than US$50,000 equivalent per contract will be procured through shopping method. Goods to be procured under the CAEIF will be carried out in accordance with the procedures laid out in the Project Operations Manual. 11. Procurementof non-consultingservices: Non-consulting services procured under the Project are marginal and are essentially for communication or dissemination activities to local communities through designated media, such as, radio or television broadcasting. Where competitive bids will not be sought, the award o f contracts may be done through direct contracting with Bank's prior review. 12. Selection of Consultants: Consultant Services financed under the Project will include (amongst others): the community-based organization capacity development, rural financial services, district capacity development, production and post-harvest extension, agribusiness and market development, sustainabley managed agricultural and forestry systems, monitoring and evaluation systems, communication strategies, training, audits, land use planning and hydrological modeling, design and implementation o f remote sensing andGIS systems andproject evaluation. 13. NGOsmay, inpartnership with smaller local organizations at the field level, be employed to provide facilitation and community capacity development services across the Project area. 14. All consulting service contracts costing more than US$lOO,OOO equivalent for firms will be awarded through the Quality and Cost Based Selection (QCBS) method. Contracts for highlyspecialized assignments estimated to cost less thanUS$lOO,OOO equivalent may be contracted through the Consultants' Qualification (CQ) method. 92  15. Least-Cost Selection (LCS) will be used for selecting consultants for assignments o f a standard or routine nature (i.e., auditing services), where well-established practices and standards exist, and which are estimated to cost less thanUS$lOO,OOO. 16. Single Source Selection (SSS) maybe employedwith prior approval o f the Bank and will be inaccordance with paragraphs 3.9 to 3.12 o fthe Bank Consultant Guidelines. 17. All services o f individual consultants (IC) will be procured under individual contracts in accordance with the provisions o f paragraphs 5.1 to 5.4 o f the Bank Consultant Guidelines. 18. Short lists o f consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o fparagraph 2.7 o fthe Bank Consultant Guidelines. 19. Consultant's services that may be identifiedunder the CAEIF will also be carried out in accordance with the procedures laidout inthe Project Operations Manual. 20. Training Workshops:This category would cover all costs related to the carrying out o f training and workshops, Le., resources required to organize and deliver the workshops, per diem and travel costs o f participants. etc. Training programs would be part o f the Project's Annual Work Plan and Budget and will be included in the procurement plan. Prior review o f all activities, including proposed budgets, agenda, participants, location o f training and other relevant details will berequiredonly on an annual basis. 21. Operating Costs: Operating costs for the project implementation unit shall consist o f maintenance o f information systems, office supplies, insurance, operation and maintenance costs for vehicles and equipment, travel expenses and salaries o f support staff (excl. salaries o f civil servants) andsubsistence expenditures. 22. The procurement procedures and SBDs to be used for each procurement method as well as model contracts for works and goods procured are presented inthe Project Operations Manual. B. Assessment of the capacityto implementprocurement 23. The overall responsibility o f carrying out procurement activities will rest with the National Directorate for the Promotion o f Rural Development (DNPDR) o f the Ministry o f Planning and Development (MPD). The National Director o f DNPDR will be the Project Director and will be supported by four fbll time staff, namely an accountant, two procurement officers (one for capacity buildingpurposes, the other as a permanent staff), and a financial manager. 24. Procurement activities will be managed by the Procurement Officer who will be responsible for the overall procurement activities. The Procurement Officer has some 93  experience with Bank-financed projects and has been selected competitively. Inaddition to carrying out normal procurement activities, he/she will also be responsible for coaching and training o f staff at the central and regional (provincial) levels. A staff member will be identified within DNPDR or recruited by DNPDR to take over this fbnction after approximately 2 years o fproject implementation. 25. At the Regional level, covering the three beneficiary provinces, there will be two procurement officers: one, identified and integrated in the future Provincial Directorate for the Promotion o f Rural Development; and the other, an experienced short-term procurement consultant, who will, in addition to managing all the procurement activities underthe Project at the regional level, train the counterpart at the regionallevel as well as train, coach and oversee the activities at the district level. 26. At the district level, eacho fthe districts will identify amedium level technician to handle small-scale procurement activities. The technicians will be integrated with the District Administration as civil servants. The District Facilitator will oversee the activities o f the technician. However, coaching and guidance and overall supervision responsibility o f the district procurement personnel will rest with the central level procurement consultant throughout the duration o f his contract and thereafter with the central level procurement officer. In addition, in the beneficiary districts already implementing the Bank-financed Decentralization Planning and Finance Project (DPFP), it i s expected that the fiduciary DPFP staff will provide some support, as both projects are within the same ministry. 27. The size o f anticipated contracts at this level will be small and will not attract international competition. Inthe event o f contracts requiring international competition, the procurement activities will be managed at the central level. 28. While the regional procurement officer i s not identified, the central level procurement consultant will have the full responsibility o f the procurement activities at the regional level. 29. To mitigate the risk associated with the implementation o f procurement activities, the following action planwas developed: ProcurementManagementAction Planto MitigateProcurementRisk: tarting sub-projects. 94  hsk tMiti!zation/Action blueDate komments I keport on Contract Monitoring submitted quarterly 3. Procedures for procurement Training and not properly established. Update the Operations Review Operations onitoring carried Manual, acceptable to the Manual at out by Bank team Bank. Negotiations. within 6 months after effectiveness. perations Manual. I bvoices. I I 30. The overall project risk for procurement i s High. After one year o f project implementation an assessmentofthe agency will be made to re-assess the project risk. C. ProcurementPlan 31. The Borrower, at appraisal, developed a procurement plancovering the initial 18 months of the Project implementation which provides the basis for the procurement methods. This plan has been agreed on between the Borrower and the Project Team and is available at DNPDR.It will also be available inthe Project's database and inthe Bank's external website. The Procurement Plan will be updated annually in agreement with the Project Team annually or as required to reflect the actual Project implementation needs andimprovements ininstitutionalcapacity. D.FrequencyofProcurementSupervision 32. Inadditionto the prior review supervision to be carriedout byBank staff, and giventhe capacity assessment o f the Implementing Agency, it is recommended that semi-annual supervision missions visit the field to carry out a post- review o fprocurement actions. T 95  Table B: Thresholds for ProcurementMethods and Prior Review Contract Value ExpenditureCategory Threshold Procurement Contracts Subjectto PriorReview (US$) Method (US$) 1.Works >500,000 ICB All <500,000 NCB All above $150,000 None <50,000 Shopping 2. Goods and >200,000 ICB All Services 50,000-200,000 NCB All above $150,000 <50,000 Shopping None DirectContracting All 3. ConsultingServices Firms >100,000 QCBS All <100,000 QCBS andCQS None <100,000 LCS None IndividualCons. >50,000 IC All <50,000 IC None sss All ICB-International Competitive Bidding; NCB -National Competitive Bidding; QCBS -Quality and Cost-Based Selection; QCS - SelectionBasedon Consultants Qualifications LCS -Least Cost Selection; IC -IndividualConsultants; SSS - Single Source Selection 96  Mozambique:Market-ledSmallholdersDevelopmentinthe ZambeziValley Annex 9: Economic andFinancialAnalysis BenefitsandBeneficiaries Beneficiaries 1. Smallholder farmers. It i s expected that the Project will directly benefit some 20,000 smallholder households, i.e., about 100,000 personsz6, through group promotion, agricultural extension and local rural finance services. Participating smallholder farmers will also benefit from secure input supply and markets for their produce through Project supported investments in value chain development. In addition, it i s expected that the saving and credit groups and their unions, originally supported under the Project, will not only benefit the agricultural sector but support a broad economical growth and will continue to extend their activities and membership after the Project completion. Finally, several interventions will benefit a large part o f the population inthe target districts, well above the 20,000 direct beneficiaries. This would be the case, in particular, o f investments inrural road rehabilitation, awareness raising and information campaigns via rural radios. It is expected that half o f the agricultural households inthe target districts - i.e., about 65,000 householdsz7 - would at least indirectly benefit from the Project interventions. 2. Local traders and transporters. Local traders already involved in agricultural produce or input marketing, or those who are potentially interested, would receive a direct support from the Project. This would be achieved through targeted training on both business and technical aspects as well as matching grants for technical assistance and investment. It i s estimated that about 200 traders would be supported under the Project. Transporters o f agricultural produce will benefit from an improved road network which will result in an increased outreach. Both traders and transporters would be involved inthe market forums and would participate in the identification o f key bottlenecks for agricultural development. 3. Partner agribusinesses. A large proportion o f the target smallholders are already participating in contract farming arrangements through buying agreements (for sesame) the promotion o f balanced crop rotations - will be implemented in partnership with or outgrower schemes (cotton, tobacco and paprika). Certain Project activities - such as interested agribusinesses. Partner agribusinesses will benefit from; (i) increased and more secure raw material availability; (ii) improved produce quality; nd (iii) transport reduced costs through improved feeder road network inhighagricultural potential areas. 26 Assuminganaverage of 5 persons per household. 27 It is expected that the Project would benefit 5 districts, out of which 2 have been identified (Morrumbala in Zambezia province, and Mutarara in Tete). The economic and financial analyses are based on the assumption that Mopeia, Merigue and 97  Benefits 4. The main benefits expected under the Project are increases inincome for the households that will adopt the new technologies and production methods promoted through the increased outreach o f extension services. Household incomes will also benefit from improvements in the supply chain. The Project would generate direct benefits to smallholders through increased production o f commercial crops, including high-value crops, reduced losses and increased farm-gate prices. In addition, intensification of smallholder production systems would have a positive impact on food security. Finally, diversification o f farm production systems would reduce the reliance on maize and other staple crops for farm incomes and vulnerability against external shocks. This, combined with improved access to markets, would help smallholder farmers make better production decisions that would reduce farmers' income variability. 5. The Project i s expected to contribute to increased foreign exchange earnings by increasing the volume and value o f cash crops marketed through the agro-businesses and traders to regional and global markets. Increased agricultural production volumes as well as agribusinesses and commercial activities would have a positive impact on government's revenues. Finally, the Project would also create new employment in the local commercial and agro-processing sector, by supporting supply chains expansion and directly or indirectly facilitating new investments. Crop, livestock & agro-processing enterprises 6. Crops, livestock productions and income generating activities supported under the Project will be identified though a market-led and demand driven approach. As a consequence, it i s not possible at this stage to identify and quantify precisely the activities which would be supported by the Project. However, the agro-ecological and economic conditions prevailing inthe target districts are suitable to develop a number o f profitable market-led activities. 7. Maize. Maize i s produced by almost all smallholder farmers in the target area. It is both the major staple crop and a significant source o f income. Recent analyses demonstrate that maize will continue to be a major commercial crop in the hture decade in Mozambique due to rapid growth in the urban share o f the population, income growth2*, and increasing demand in the neighboring SADC countries. It is likely that Malawi, Zambia andZimbabwe will face frequent maize shortfalls inthe foreseeable future which i s expected to increase prices as a consequence. Malawi, in particular, has an increasing food g;., as agricultural food crop production cannot keep up with the population growth ,Lesser domestic resource costs inMozambique gives the country a comparative advantage in maize production. Mozambique provides, in particular, 75 percent o f the informal maize traded within SADC and supply Malawi with 95 percent o f its informal ~~ 28 David Tschirley, D a d o Abdula, and Michael T. Weber; Improving Production and Marketing to Enhance Food Security in Mozambique; Research Results of the Policy Analysis Department, Ministry of Agriculture, Directorate of Economics; 17 September 2005. 29 Malawi has one of the highest populationdensity inSub-Saharian Africa and 98  maize import3'. With a more consistent production pattern, Mozambique has a good opportunity o f developing the regional maize export further3'. Given its location, the Project area i s well suited to target the Malawian market. Informal cross-border exchanges are already a common practice. According to the District Directorate o f Agriculture and Rural Development, the production o f maize inMormmbala amounts to 32,000 tons, 50 percent o f which can be commercialized. Of the commercialized maize, 70 percent i s destined for Malawi. It should be noted that maize is subject to wide fluctuations in price which reflects varying demand in the deficit producing districts o f central Mozambique and southern Malawi. During years o f increased supplies the price may fall below 1,500 MZM/kg in the harvest period (from an average 2,800 MZTkg). Support to maize storage and market information may help mitigate such fluctuations. It i s expected that the Project will have a positive impact on maize production and marketing. Improvements in transport, through feeder roads rehabilitation, will have a positive impact on maize farm-gate prices due to maize low value par kg and subsequent hightransportation costs. 8. Cotton. Cotton is the most important cash crop in the target area. It i s estimated that approximately 10,000 smallholders in Mutarara and 13,500 smallholders in Morrumbala grow cotton, which represents, respectively, about 34 percent and 20 percent o f the agricultural households (i.e.,26 percent in average). The cotton value chain is organized through firms that operate contract farming schemes with smallholder farmers. Two cotton companies operate in the potential Project area, one in Tete and Zambezia Provinces (DUNAVANT-Mozambique) and the other in Northern Sofala Province (CNA).32 Each ginnery has a concession which is, at least theoretically, a legal monopoly for the purchase o f seed cotton with a minimum purchase price set by Govemment authorities (5000 MZM/kg for category 1 and 3500 MZMkg for category 2). A recent economic analysis highlighted the fact that ginning capacity is well above actual needs and the average volume o f activity per ginnery is very low, likely resulting in high overheads for the cotton companies and limitedeconomies o f scale. Inaddition, risks o f side-sellingtend to minimize the extension services and inputs supply to farmers. Yields obtained at present (around 0.5 to 0.6 M T h a in average) are well below yields obtained inother sub-Saharan countries such as Burkina Faso (average yields above 1MTha) and compared with the neighboring countries (Zambia). The analysis above mentioned demonstrated that cotton production i s competitive in Mozambique with a domestic resource cost (DRC) o f 0.76.33 Inaddition, there i s a significant scope for improvement incottonyields andquality through improved cropping systems,including improvedcrop rotations, which would be promoted under the Project. Finally, the price Projections appear positive in the medium term: The Cotlook A index expected cotton price to average $1.20/kg during 2005 - down from $1.37/kg during 2004 - and progressively 30Impact ofpolicies of Neighbouring countries on Agriculture growth; Republic o f Mozambique, the World Bank; June 2005 31Idem. 32 The economics of smallholder households in tobacco and cotton growing areas of the Zambezi Valley of Mozambique - draft for review - by Rui Benfica, Julieta Zandamela, Arlindo Miguel, NatBrcia de Sousa, Researchreport no.59e, Ministry o fAgriculture o fMozambique, Directorate o f Economics, August 2005. 33Economic analysis of comparative advantagefor major agriculture cash crops in Mozambique, Nicolas Gergely, May 2005. 99  recover with $1.24 during 2006, $1.29/kg and $1.33/kg in 2007 and 2008, respectively, as increased demandwill remove some o fthe price pressure from the cotton market34. 9. Paprika & sesame. Paprika and sesame production have been promoted as smallholder crops by a number o f NGOs in the last decade. Such high-value crops are subject to buying agreements and/or out grower schemes with private agribusinesses. Both crops are present in the target districts, with agribusinesses interested in purchasing them (V&M and Export Marketing buying sesame, and Pimenta de Mozambique buying paprika). The importance o f paprika and sesame as potential cash crops i s also due to the fact that they have minimal competition with food crops in relation to the available household labor. Recent analyses show that sesame i s a highly profitable crop for smallholders with a relatively large scope for expansion. In addition, sesame can be relay-intercropped with maize, with very limited additional labor requirements. Paprika price Projections on the international market are encouraging for smallholder income growth. In spite o f historic fluctuations between $1.60 and $2.40 per kg over the past decade, further downward price volatility risk is assumed to be low since current prices lie already at the low end o fhistoric The promotion o fpaprikaproduction, under the Project, would be considered with circumspection as past experiences in Northern Mozambique has been troubled by delayed purchase by the promoting companies. 10. Vegetables. Programs supporting vegetable production, through improved farming systems and irrigation methods, demonstrated the profitability of such crops in locations with proper market linkages. Usage of treadle pumps, in particular, was shown to be profitable in a number o f studies. The development o f off-season vegetable production in upland areas appears particularly profitable when technical aspects are well managed, with margins around 550 per ha for the major crops inthe dry season and higher margins off season.36 11. Rice. Rainfedrice production i s practiced inthe lowland area inZambezia province (e.g., inMopeia district). A recent economic analysis3' ofrainfed rice productioninZambezia combined with small-scale processing by dehuller shows that the current production system is not profitable. If family labor is fully costed, the growth margin o f this cropping system i s negative and the return per day o f work well below the average daily wage. The improved model (which implies construction o f water control devices, technical advice for farmers and the existence o f a credit scheme for the payment o f inputs) shows a considerable scope for improvement: rice would become profitable for farmers with a return per day of work o f 1.5 time the daily wage; the global profit accumulated along the value chain would amount to 25 percent o f the retail price, both in economic and financial terms; the DRC would be around 0.5, showing a substantial comparative advantage. The Project will support local demand to improve rice production 34Commodity market briej Cotton,DevelopmentProspectGroup, the WorldBank, 31October2005 35 Opportunities for Smallholder Income Growth in Zambia's Paprika Subsector, Peter Manda and Steven Haggblade,IDEZambia, October 2003. 36 Sources: ACDWOCA & WorldVision. 37 Economic analysis of comparative advantage for major agriculture cash crops in Mozambique, Nicolas Gergely,May2005. 100  and marketing. Specific studies will be conducted to ensure that any new variety introduced would suit the local taste. 12. Dry beans, cowpeas & pigeon peas. Beans and peas production is traditional in the Project area. Inparticular pigeon peas - o fboth annual and perennial varieties - are wide- spread. There i s an important scope for improvement indry bean and pea production and marketing by increasing the range o f varieties and improving cleaning. Export of dry beans and peas to Malawi i s relatively limited at present. However, Mozambique has a comparative advantage in the production o f dry beans and pease3*In addition, the installation o f a processing industry inGurue district creates new opportunities for pigeon peas producedinMormmbala. 13. Maize mills. Recent analyses3' showed that maize meal prices are extremely high in Mozambique. The most common maize meal brand cost close to US$800/MT throughout the country at the beginning o f 2005, while the cheapest cost close to US$440. Maize grain at retail cost close to US$280/MT during the same period in Maputo. These prices compare to levels between US$270 and US$330 for comparable meals in Zambia, and grain prices o f US$190. Thus, the differential between prices o f maize grain and maize meals in Mozambique i s much greater than that in other developing countries o f the region. The maize milling industry in the Center and South i s extremely concentrated, which may contribute to the very high maize meal prices. In such a context, the development o f small local maize mills appears profitable. 14. Animal traction. The use o f animal and mechanical traction i s not very common among smallholder farmers inthe region, with less that 5 percent o f the households using animal traction. However, Mozambique has an excellent potential for animal traction development. Neighboring Zimbabwe, Malawi, Zambia and South-Africa have active networks in the promotion o f animal traction. Mozambique can learn from these experiences o f the neighboring countries. After a long period o f decline, especially due to the civil conflict, the cattle population i s growing. In the target district o f Mutarara, for example, the cattle present before the civil war - estimated to more than 17,000 head in -1973 - was decimated during the war, and had declined to 650 head in 1995. Two NGOs Vetaid and World Vision - implemented a restocking programme, which was considered successful, raising the cattle population to 3000 head in 1999 and 9000 in 2005. Restocking activities were followed by a support to animal traction development, under a 50 percent subsidized scheme.40This program demonstrated that the use o f ox carts and animal transport i s a profitable activity inthe target area.41The development o f 38 Impact of policies of Neighbouring countries on Agriculture growth; Republic of Mozambique, the World Bank; June 2005. 39 David Tschirley, Danilo Abdula, and Michael T. Weber; Improving Production and Marketing to Enhance Food Security in Mozambique; Research Results of the Policy Analysis Department, Ministry o f Agriculture, Directorate o f Economics; 17 September 2005. 40 Animal traction in Mozambique a promising technology for small-scale farmers - Proceedings of the national seminar Chimoio, June 2000. Editedby Andrew Mattick; organized by VETAID and financed by the European Commission. 4' A repayment scheme of the animal and equipment over 24 months was considered successful, with 93 percent repayment after 20 months. However, other experiences inthe country demonstrate that the profitability cannot be expected ina shorter time-frame. 101  animal ploughing requires more intensive training42 but will be equally important in a region where land availability does not appear to be a limiting factor. The Project will support the diffusion o f animal traction on-demand for both transport and ploughing. The existence o f Kanes Engineering Company in Maputo, which produces agricultural and animal traction implements, constitutes an impulse for animal traction. To ensure sustainability at local level, the Project will support small-scale informal workshops which produce and repair carts and ploughs (as well as other equipment such as treadle pumps). 15. Livestock. Livestock has a significant market potential in major provincial cities. Smallholders in the target districts have experience with livestock farming, and recent restocking programs demonstrated the profitability o f goat, cattle, pig andpoultry raising especially in Mutarara. Poultry, particularly, i s a popular production activity for the poorest smallholder farrners. The Project will support the development o f poultry production, on-demand, concentrating its efforts on low-cost technologies well adapted to the Project area and the target farmers. Expensive models have often proved to be excessively risky and hardlyprofitable inremote and poor areas.43 16. Family grain silos. High losses in grains are reported as a major constraint in the target areas. Low-cost improved silos (i.e., silos costing US$40 each including unskilled labor) with a 3-4 years life period have beenpromoted by a number o f Projects inthe country with encouraging results and demonstrated profitability. The reduction in grain losses is considered as an important outcome expected from the second component o f the Project. 17. Natural resources. Exploitation o f natural resources plays an important role in the poorest households' income. In Mutarara, fishing appears to be a significant source o f income for families living along the Zambezi and Shire rivers. In Morrumbala the exploitation o f forest for wood processing and charcoal i s an important source o f income. Such profitable activities would be supported on-demand by the Project, which would promote sustainable methods. Financialand economic results 18. Crop Models. Crop models have been developed for major supply chains that are well adapted to smallholder production in the target area and are likely to benefit directly or indirectly from Project support. These models cover both traditional commercial crops that involve a large number o f smallholders (such as maize, cotton, rice, pigeon peas, beans and cassava), and relatively newly introduced crops that are showing a positive trend and havepotential for growth (such as sesame, paprika and vegetable). Production 42 The training programme mentioned decentralized its activities to the villages to ensure farmers receive more practice inland cultivation. 43 "A clear example is poultry farming by the association o f Cumbabo, which follows a model o f the General Union o f Co-operatives (UGC) in Maputo. In 1997, chicken coops were built with donated funds, and both the chicks as well as the feed were imported. After 2 years, logistics broke down and the chickens died." Development of Cooperatives For Agricultural and Agro-Industrial Commercialization in The Centre Region Of Mozambique, Presentation of Business Plans and Implementation Strategy; ORAM, NOVIBI Verde Azul Consult Lda., February 2005. 102  technologies used in the "with Project" situation are already known in the country, but not followed to date due to constraints which would be addressed by the Project (e.g., lack o f farm input, weak organizational arrangements within supply chains, market uncertainty, lack o f access to extension services). 19. Yields & Prices. Increased crop yields would result through the adoption o f improved production methods and use o f modem inputs as well as irrigation and animal traction equipment. The yield assumptions are in line with what is being achieved currently by some smallholders inthe country. However, these are much lower thanthose obtained by large-scale commercial farmers. Assumptions made on yields and farm gate prices are presented in Table 1. The analysis i s expressed in constant 2005 prices. All economic and financial prices are converted to local currency at the prevailing exchange rate o f 26,000 MZMfor 1US$. 20. Physical Impact. It is assumed that the overall annual incremental output due to the Project expected to reach i s 16,000 MT o fmaize, 600 MT o f rice, 1,250 MT o f cotton, 70 MT o f paprika, 1,000 MT of peas and beans, 18,000 MT of cassava, 2,000 MT o f vegetable, 250 MT o f sesame in the year 6 o f the Project. A more limited increase has been projected from year 7 to 10 due to medium-term benefits expected after Project completion. If compared with the present estimated production in Morrumbala, (major district o f the 5 district to be targeted under the Project), only the incrementalproduction expected in year 6 represents 35, 31, 70, 30 and 17 percent, respectively, o f the present production o f maize, rice, cotton; beandpeas and cassava. Increases foreseen inrice and vegetable production are coherent with the projected investments in irrigation development. 21. Financial Analysis. Project financial and economic performances were estimated taking into account all Project costs except costs with long-term benefits which are difficult to evaluate at this stage. Such costs correspond to the following activities: (i) district capacity building; (ii) Project management, coordination, monitoring & evaluation; and (iii) percentofcomponent 3:Communityagriculturalandenvironmentalinvestment 60 hnd (this to take into account investments inrural road rehabilitation andenvironmental public goods). The Project financial rate o f return is estimated at 13 percent and financial net present value at US$0.5 million. However, this is probably an underestimate as the analysis is based on several conservative assumptions and does not take into account benefits generated within the value chain (increased farm-gate prices44,increased income o ftraders and agribusinesses, etc.). 22. Inaddition, the Projectimpact on 5 major farm modelshasbeenestimated. This analysis, o f both qualitative and quantitative nature is presented inTable 5. This demonstrates that targeted supports can benefit a wide range o f smallholders, with increases in agricultural 44 Such increase can be expected inthe comparison between with and without Project situation. However, due to the highunpredictability o ffarm get prices, this has not beenconsidered inthe financial andeconomic analyses. 103  incomes rangingfrom 30 to 8045percent before labor costs and improvements even more significant iflabor costs are fully valued at the price of hired labor. 23. Finally, costs and benefits were compared for the main supply chains analyzed, taking into consideration all relevant costs which were not included in the crop models (Le. transport, marketing andprocessing costs). 24. Economic Analysis. The Project economic rate o f return i s estimated at 15 percent and net present value US$1.8 million, taking into account the proportion o f Project costs justified inthe financial analysis. Ifall Project costs were to be includedinthe economic analysis, the economic rate o freturnwould still be around 8 percent. 25. Sensitivity Analysis. A sensitivity analysis was conducted using switching values (Table 5). The Project i s not particularly sensitive to small increases in costs or decreases in benefits (by 10 percent). The Project is relatively more sensitive to declines inbenefits than increases incosts. A 30 percent increase incosts would yield an ERRo f 10percent, while a 30 percent reduction inbenefits would cause to drop the ERR to 8 percent. The ERR is not very sensitive to delays inProject investments, such as large investments of public goods nature, e.g., feeder roads rehabilitation. A two-year delay in accrual o f Project benefits would yield an ERR o f 10percent. 26. Fiscal Impact. Most o f the Project activities would be conducted outside GOM's budget as a large part o f the costs would be within sub-projects implemented and co-financed by private beneficiaries. The Project impact on the budget would, therefore, be minimal. The main budget impact is related to the maintenance o f the rehabilitated feeder and district roads after the Project completion, which would cost about US$175,300 per year, and the continuation o f the extension services, which would cost approximately US$lOO,OOO per year. 45 Inthe case ofsmallholdersdiversifying their production (introduction ofrice, paprikaor sesame onthe farm modeled) and adoptingrecommendedimprovementson existing crops. 104  Mozambique:Market-ledSmallholdersDevelopmentinthe ZambeziValley Annex 9 Attachment1: FarmModels - mm mM rn am E Margin Existing Production costs Yield Price Income Margin afier labor# Maize 70 72 1,200 3.0 3,600 3,530 2,090 49 Seedcotton 550 110 550 5.0 2,750 2,200 0 20 Rice 450 165 1,000 5.O 5,000 4,550 1,250 28 Beans 60 60 400 4.5 1,800 1,740 540 29 Pigeonpeas 60 60 500 4.0 2,000 1,940 740 32 Cassava 60 60 4,000 0.8 3,200 3,140 1,940 52 New I Improved Maize 1,650 76 2,000 3.0 6,000 4,350 2,830 57 Seed cotton 550 130 800 5.0 4,000 3,450 850 27 Paprika 1,450 250 700 14.6 10,200 8,770 3,770 35 Rice 3,000 157 3,000 5.0 15,000 12,000 8,860 76 Beans 500 64 600 4.5 2,700 2,200 920 2c Pigeonpeas 100 65 700 4.0 2,800 2,700 1,400 34 Sesame 30 60 500 11.0 5,500 5,470 4,270 42 Cassava 100 65 7,000 0.8 5,600 5,500 4,200 85 Vegetable 18,000 350 8,000 5'0 40,000 22,000 15,000 63 -- Maize 4,000 8,000 12,000 16,000 20,000 Cotton 1,000 2,000 3,000 4,000 5,000 Paprika 20 40 60 80 100 Rice 40 80 120 160 200 Beans 400 800 1,200 1,600 2,000 Pigeonpeas & cowpeas 600 1,200 1,800 2,400 3,000 Sesame 100 200 300 400 500 Cassava 1,600 3,200 4,800 6,400 8,000 Vegetable 50 100 150 200 250 46 Labor costs considered at 20,000 MZMper day for bothfamily and hiredlabor. 105  year 1 year 2 year 3 ye;;6;0 1 year5 ear 6 Maize 3,200 6,400 12,800 16,000 Cotton 250 500 750 1,000 1,250 Paprika 14 28 42 56 Rice 120 240 360 480 Beans 80 160 240 320 Pigeonpeas & cowpeas 120 240 360 480 Sesame 50 100 150 200 Cassava 4,800 9,600 14,400 19,200 24,000 Vegetable 400 800 1,200 1,600 2,000 Goats 2,000 4,000 6,000 8,000 10,000 Cattle 200 400 600 800 1,000 Poultry 6.000 12,000 18,000 24.000 30,000 Major characteristics Representation inthe target area 25% 35% 15% 20% 5% # inthe target beneficiaries 5,000 7,000 3,000 4,000 1,000 Area cultivated annually (ha) 0.75 L 2 2 6.5 Maize (intercropping) 0.5 1 1 1 3.25 Seedcotton 0.8 2 Beans 0.15 0.2 0.75 Pigeonpeas 0.25 0.25 0.5 Sesame Cassava 0.25 0.75 0.5 Vegetable 0.1 EquiptI landpreparation Handtools Handtools Handtools Handtools Hired tractors / hire labor EquiptI transport WalMBicycle BicycleNIralk BicycleIWalk BicycleNIralk Bicycle Wage labor; fishing; charcoal production; Investments Other activities small trade; (Wage labor; (Wage labor; such as maize preparationof small trade) small trade) mills.. . aliments1 beverages Goat, Pigs, Livestock (Goats; Poultry) Goats; Poultry Goats; Poultry Poultry (Cattle) Support to improved and sustainableNFW activities xx X X X X Veterinarian support (goat de- worming, etc.) X xx xx xx New livestock production (goats, poultry.. .) xx X 106  Improved family storage xx X X X Intensificationo f crop production X X X xx Improved marketing xx xx xx Improved access to inputs X xx X xx Legumes in Diversification XX :paprika, X :off season sesame, etc. production the rotation Idem(soy.. .) (soy.. .) Irrigation; Animal Animal On-farm investment (animal traction - Irrigation traction traction group) (groups) (service) Improved crop rotations X X xx X Incrementalag. income under the Project before labor cost 35 93 159 69 206 Increase (percent) 36% 40% 76% 32% 3 1% Incrementalagr. income under the Project afier labor 57% 67% 112% 77% 68% cost Increased employment (daysiyear) 3 9 43 21 59 III Baseline 15 10% increase incosts 13 30% increase incosts III 10 III 10% reduction in benefits l3 I 30%reduction in benefits On year delay in benefits Two year delay in benefits !III 107  Mozambique: Market-led Smallholders Development in the ZambeziValley Annex 9 - Attachment 2: Incremental Cost Analysis 1. This section discusses the incremental costs eligible for GEF funding for the Project "Zambezi Valley Market-Led Smallholder Development Project", defined as the difference between the GEF alternative scenario and the IDA baseline. GEF incremental costs will be developed in two steps. The first incrementality concerns the costs under OP15 finding (Operational Program on Sustainable Land Management), and the second incrementality falls under the SPA window (Strategic Priority "Piloting an Operational Approach to Adaptation"). For each o f the four components o f the Project, the section will: (a) Identify the baseline; (b)Describewhat wouldhappenifthe baseline is implemented; (c) Indicate the costs o fthe baseline; (d)Describethe alternative scenario; (e) Describethe expected benefits under the alternative scenario; (0Reportthe cost ofthe alternative; and (g) The incrementalcost. 2. The relationship between the activities o f each component and the environmentalbenefits generated i s synthesized inthe tables below. The Incremental Cost Matrix i s reported at the end o f the section. As most o f the decisions, practices and technologies that the beneficiaries o f the Project will adopt cannot yet be determined, the analysis favors a qualitative approach. Component 1:Community group organization and local institutionalstrengthening (a) Baseline: This component encompasses the mobilization and support of groups formed o f small producers and other supply chain participants in such areas as marketing, savings and credit, agribusiness development as well as the strengthening o f district level agricultural institutions. The component focuses on `empowerment' through support for the mobilization and strengtheningof common interest groups as well as on buildingcapacity o f local government and non-government organizations to sustain and contribute to the needs o f such groups. In addition, the establishment o f savings and loans groups (SLGs) will be supported. The Project will also promote and facilitate the expansion o f financial institutions into the Project area, through the provision o f technical assistance and start- up costs. (b) Expected results under the baseline scenario: Baseline implementation will be considered successful if community-based interest groups, including saving and credit groups, are able to define their own needs and 108  priorities and act upon them, as well as greater capacity among local institutions to support such groups. (c) Baseline cost: US$7,700,000 (IDA) (d) GEF alternativescenario (OP15): Environmental conditions and agricultural potential vary considerably at the local level within the Project zone, especially inrespect to the natural capital soils, forests, wildlife, water and fisheries. These resources play an important role in local population's wealth generation. The selection o f the appropriate location for productive activities such as different agricultural production systems, becomes critical. Environmental damage through deforestation and habitat fragmentation is not only locally significant, without people benefiting in an optimal way from the resources, but also degrades environmental goods and services o f global importance. With the increased economic and agricultural development supported by the IDA baseline Project, it is important to have a detailed understanding o fwhy certain activities shouldbe carried out ina particular space inorder to optimally benefit and to protect the natural resources and the global environmental goods and services. The PRSP 11, the National Biodiversity Strategy and Action Plan (MICOA, 2003), and the Strategic Plan for Environment (MICOA, 2004) consider land use and territorial planning among the key processes to be undertaken to ensure sustainability o f resource use, thus contributing to the development o f the national economy. GEF OP15 funds will be usedto: (i) complete the quantitative baseline data set (e.g. soil productivity, vegetation cover, land use, water courses, areas prone to flooding and drought, roads and other infrastructure, settlements, crop distribution) compiled with PDF-B resources. Some data layers and maps already exist at various agencies in Mozambique but access to the data is very poor and it i s difficult to judge the adequacy and quality o f these data layers for the proposed activities. Weather data was lost during the civil war but data summaries exist in the library o f the Provincial Directorate for Agriculture in Tete and can be digitized: (ii)establish the baselines for aboveground biodiversity using a tested rapid appraisal tool (Plant Functional Attributes) developed in the GEF-funded Project - Alternatives to Slash and Burn(ASB): (iii) document and geo- reference indigenous NRM and native biodiversity knowledge; and (iv) quantify land cover change dynamics in attempt to identify deforestation and land degradation frontiers. A participatory approach that involves community members in the baseline surveys will be used to identifythe improved crop, soil and water management "best bet" interventions and to facilitate their contribution to local land use planning and uptake o f Project findings. Land use planning, that takes into account existing agroecological zones (e.g., the globally significant wetlandflood plain at the junction o f the Zambezi and Shire rivers, the delta o f the Zambezi river), changing landcover and land use, and changing climate, has so far been missing not only in the Project area but also at a basin scale. Proactive planning and modeling o f scenarios, based on development and growth pole plans, water and river management o f the Zambezi valley, will be essential to evaluate environmental 109  impact tradeoffs and synergies. The land use planning will include the analysis o f the natural resources potential, their spatial distribution and productivity in order to respond to sustainable development needs. It will analyze specific local and global needs for resource protection in order to guarantee the preservation o f important environmental services in the long run. This process will facilitate informed decision-making by the district stakeholders for optimal land use. Activity plans will be developed at the community and possibly at the household level that outline the sub-projects the community would like to undertake, the timeline o f implementation, the need for technical assistance (which can be provided under Component 2) and the sub-projects to be submitted for hndingunder Component 3. 3. Communal land use maps will be created via community participation and ground verification o f land use/land cover categories and the products made available at the community level. The geo-referenced data layers will be compiled as necessary for developing the Project baselines, for tracking global environmental indicators and outcomes, and for M&E activities. Training for provincial and district technical officers will be provided for geographic information management and analysis to ensure the capacity to hrther monitor resource use and landuse change under the Project and other development initiatives. Land use planning will be introduced to the communities by the Regional Environmental Specialist and District Environmental Technicians at the beginning o fthe Project. (e) GEFalternative scenario (OP15+ SPA): 4. The SPA incremental fundingwill be used to derive digital terrain models (DTMs) from the remote sensing products identified in the OP15 outputs to identify and map forest, land, water degradation "hot spots" as well as high risk areas for floods and drought (flood hazard maps, drought hazard maps). In addition, local adaptation and mitigation strategies will be identified and a local flood and drought adaptation plan established, guided by scientific information and by community needs and priorities. These activities will be coordinated with and support the on-going activities o f the National Institute for Disaster Management. The execution and delivery o f remote sensing, digital elevation models for the districts and basins will be done by contracted remote sensing and modeling specialists in collaboration with national agencies such as Land and Water Division o f the Institute o f Agronomic Research, CENACARTA, and faculty and students at the Eduardo Mondlane University. (f) Expected local and global benefits under the GEF alternative (OP15): The GEF funded land use plans will contribute to the establishment o f the baseline for the rational and sustainable use o f the natural resource base and for the protection o f natural resources that are o f local and global significance (e.g, the Zambezi delta, the wetlands at the junction o f the Zambezi and Shire rivers). This process will provide the global environmental benefit criteria that will be used to evaluate and select funding requests under the NRMfund (Component 3) and community requests. 110  (g) Expected local and global benefits under the GEF alternative (OP15 + SPA): GEF funded land use plans will also include a flood and drought adaptation plan that identifies opportunities for improved adaptation to climate variability, which are based on SLM and on improved environmental management, thus contributing to an increased resilience o f the ecosystem toward climate change. This GEF alternative (OP15 + SPA) will contribute to the achievement o f the local and global environmental benefits as summarized in the table below (SPA impacts and benefits are explicitly mentioned and integrated inthe table). Activities Direct impact Local and global environmental benefits Community land use Enhancedcommunity awareness and Baseline and plan for improveduse planning. planning abilities through community and management o f natural resources land use plans: i s provided and locations for protection o fbiodiversity and the Zoning o f a) community land and environment are identified. This will water resources; b) biodiversity lead to: hotspots within community land; c) degraded land and areas vulnerable Improvement inwater to land degradation; and d) land management and use o f fertile vulnerable to droughts and floods land for agricultural production (SPA). and intensification. Identificationo f SLMand NRM Reductioninland degradation, opportunities and potential Projects deforestation, desertification. for communities (NRM fbnd). Protection o f biodiversity in Identificationo f SLM opportunities forests, freshwater, marshes and to adapt to climate variability productionlandscapes. (SPA). Identificationand protection o f Establish a community activity plan critical ecosystem services and that identifies sub-projects for regulation functions (e.g. water technical assistance and for funding sources, marshlands, primary (NRMfind) includingspecific SPA vegetation, forests). sub-Projects. Reductiono f land use conflicts. Reinforce the institutional strengthening at the community level. Increase community awareness o f NR vulnerabilities andpotentials in relation to NR use and management (h) GEFAlternative costs: US$8,600,000 (Beneficiaries +IDA+ GEF) Incremental cost: US$900,000 GEF (US$700,000 OP15 + US$200,000 SPA). The incrementalcost will cover the costs for establishment of land use and adaptation plansat 111  the community and district level, which includes: costs for an analysis o f remote sensing requirements; appropriate remote sensing products; appropriate interpretation o f the remote sensing products; consultant service payments for land use planning service provider; training o f provincials and district staff in geographic data interpretation, mapping, and land use planning; costs associated with acquisition o f information, materials and equipment that enables district authorities to proceed with land use planning process as part o f the district planning inthe subsequent years. 4. Component 2: Agricultural Production and Marketing Development (a) Baseline: Activities under this component are concerned with the provision o f technical services to the agricultural supply chain. Growth in productivity and incomes of smallholders in the Project area would be achieved through improved practices in many areas o f the supply chain. These include use o f improved seeds, fertilizer and pesticides, better soil conservation and planting methods, small-scale irrigation and animal traction, support for private veterinary service provision, improved handling o f post harvest products from harvest to sale, including better storage. The IDA baseline will facilitate the linkage between increased smallholder production, strengthened agribusiness activities and better market access. In addition, resources and technical support will be provided for the definition and implementation o f studies and training. Approaches promoted under this component will include use o f key farmers for community extension, farmer field schools, funding o f additional extension manpower to be integrated into government services, widespread use o f demonstrations and visits, community and market advice points, market forums and media support. (b) Expected results under the baseline scenario: Successfil implementationwill result in strengthened district extension services and active groups engaged in the validation and adoption of improved technologies and entering into close links with other supply chain participants. (c) Baseline cost: US$3,900,000 (IDA) (d) GEFalternative scenario (OP15): GEFincrementalfundingwill be used to address andremovebarriers for sustainable land and water management and technical support to facilitate the sustainable management of land and water resources through the adaptation o f available "best bet" agroforestry, soil conservation and alternate energy sources and to ensure the priority linkages with global environmental benefits (carbon sequestration, above-and below-ground native biodiversity conservation). Special attention will be given to improving and diversifying cropping systems by coupling indigenous knowledge, species, and varieties with current natural resource management. Communities currently practice a range o f extractive activities (collection o f firewood, honey, and medicinal plants, charcoal burning) in existing forests, which often involve the use o f fire and the occurrence o f unintended forest fires. The proposed forest management activities will target the development and 112  implementation (see Component 3 below) o f more sustainable extraction practices and alternative cultivatiodproduction practices for the currently extracted forest products. Activities will complement IDA funded activities and support the community demand- driven process with critical information and technical advise on economically viable opportunities o f improved sustainable land management, o f which the local population i s not yet familiar with. Main topics will be: Building o f sustainable and diversified cropping systems (food crops, cash crops and sustainable soil management, including the integration o f livestock and cropping systems, and agroforestry technologies such as nutrition gardens, improved fallows, fodder banks); This will not only enhance farm incomes, but also add resilience to the farming system against economic (price) and environmental (climate variability, flood, drought, pest) shocks. Promotion o f selected indigenous plants (indigenous h i t trees and medicinal plants) and high value exotic plants as cash crops, which are ecologically adapted to the Zambezi valley and resist climate variability; technical support for cultivation, ago-processing and marketing o fproducts. Efficiency improvement o f energy production (e.g., woodlots) and use (e.g., improved stoves), in addition to the promotion o f alternative energy resources (e.g., solar energy). The potential o f biofuel production and application (e.g. with Jatropha curcas) will be explored. Awareness raising and development o f alternative NRMstrategies to combat environmental degradation. This concerns agricultural land degradation, impacts o f widespread wild fires, biodiversity loss through habitat destruction (slash and bum agriculture, wild fires) and over-extraction o f natural resources (such as, forest products, wildlife and fish), affecting the functional integrity o fthe ecosystem. Main approaches to develop improved S L M will be based on awareness building and communication (with support to rural media), strengthening o f local capacity (communities, government, local NGO's and other stakeholders). (e) GEFalternative scenario (OPlS+SPA): The resources from the SPA component will be used to test, calibrate, and operationalize the proposed landcover dynamics-hydrology models (VIC and DHSVM) with participation (observatiodmeasurements) by local communities and stakeholders. The 113  main goal i s to contribute to the country's emerging NAPA priority activities, which are targeting the development o f early warning systems for climate variability and climate change. The proposed adaptation, testing, calibration and operationalization o f the land cover hydrology models will strengthen the capacity o f nationalpartners to adapt and use the model to: (i)identify the vulnerability o f specific sectors (agriculture, forestry, fisheries, water supply and quality), drought prediction, infrastructure placement and impact evaluation, re-forestation schemes by region; and (ii) to evaluate the tradeoffs between sectors as abasis for future policy interventions and financial investments. Other activities under SPA funding will be focusing on the development and adaptation o f cropping systems based on improved S L M practices and on reinforcing the system's resilience towards climate variability. This i s in line with the proposed adaptation measures (e.g., improved water management and storage capacity, the promotion o f drought tolerant crops and varieties, the promotion o f soil moisture conserving cropping practices, and the change in cultivation calendar, the appropriate selection o f field location) in the Draft Initial National Communications for the agricultural and forestry sectors. Technical assistance will be sought from specialized national or international technical and research institutions, such as ICRAF, ICRISAT, IIAM, University o f Eduardo Mondlane, IUCN, and NGO's (local, national or international NGO's ORAM, Helvetas, Intermediate Technology Development Group (ITDG) among others). In relation to forestry, incremental SPA funding will focus on the conservation o f natural buffers, prevention o f forest destruction, improved management o f natural habitats and appropriate selection o f reforestation species. This will be done through the support o f CBNRM initiatives (see under SLM), by building awareness, and by adapting the incentive system (eligible under Component 3). By supporting these activities, the Project will also contribute to the "National Program o f Wild Fire Prevention through the Agricultural Sector" under the Ministryo f Agriculture. Fundingwill be provided for community, district and provincial capacity strengthening and to raise awareness o f the threats arising from climate change, to interpret climate risk information, and to assess the appropriateness o f proposed risk management options at the local level. Validated options will be eligible for funding under the NRM fund (Component 3) and widely advertised across the Project zone. Research will be funded that responds directly to identified needs. A study on indigenous strategies to adapt to climate variability will contribute to an in-depth understanding of local issues and provide guidance in developing and promoting SLM technologies to adapt to climate change. According to identified needs for the implementation of the district adaptation activities, collaboration will be sought with relevant organizations, which can be, among others, MICOA (Ministry for the Coordination o f Environmental Affairs, the focal point for UNFCCC and UNCCD), INAM (The National Meteorological Institute, focal point for IPCC: Intergovernmental Panel on Climate Change), INGC (the National Institute for Disaster Management, responsible for coordinating all disaster-related activities), FEWS NET (the Famine Early Warning Systems Network). Specific support will be provided to strengthen the scientific methodology o f climate change vulnerability assessment and 114  identification o f adaptation measures with focus on the Project Area, if identified, being essential for Project success. As the NAPA i s still under development, the Project will make sure that Project activities will be complementary to the NAPA and do not duplicate NAPA activities. At the local and district level, partners could be the Mozambican Red Cross and the CBDP program (Community Based Disaster Preparedness funded by Netherlands Red Cross). Targeted support will be provided to existing on-the-ground programs to assure their effectiveness of service delivery in the Project zone (for instance: quality andtimeliness of disaster warnings). Support will also be provided to assure the establishment o f at least one meteorological observation station ineach of the five districts o f the Project area that will support INAM inre-establishing its climate databasethat got destroyed duringthe war. There is amajor knowledge and data gap linked with a lack o f meteorological data for the past 20 years, exactly the period crucial for the trend analysis of climate change. (f) Expectedlocal andglobalbenefitsunderthe GEF alternative(OP15): 4ctivities Direct impact Local and dobal environmental benefits Awareness raising, Improved awareness and strengthened Developedtechnologies and demonstration, farmer capacity o fProject stakeholders. available knowledge will be training, applied research of: ready for implementation o f Improved understanding o fNRM improved cropping systems, Agricultural S L M issues and local strategies through integration o f livestock with technologies; research insights. agriculture, improved economic valuation o f Agroforestry and forestry Increasedavailability o f S L M indigenous plant andor S L M technologies; technologies ready to be implemented animals, improved at local level. management o f forests and Energy efficient natural habitats with global technologies; Agroforestry best bets evaluated and environmental benefits o f available for local implementation. improved carbon stocks, biodiversity conservation and Key extractive forest products improvedprotectiono f identified and characterized and globally significant savannah, alternative, environmentally friendly forest and wetland techniques available for ecosystems. implementation. (g) Expectedlocal andglobalbenefitsunderthe GEF alternative(OP15 + SPA): Activities Direct impact Local and global environmental benefits Awareness raising, Improved awareness and Developedtechnologies and demonstration, farmer training, strengthened capacity o f available knowledge will be adapted research o f S L M Project stakeholders, ready for implementation o f technologies that enhance improved S L M techniques 115  adaptation to climate variability Improved understanding o f that show an increased NRMissuesandlocal resilience towards climate strategies through research variability. This will lead to insights. reduced pressure on natural habitats that are often used as Increasedavailability o f SLM safety net during periods o f technologies for adaptation dry periods or floods and ready to be implementedat thus contribute to locallevel. biodiversity conservation. Establishment o f at least one Increasedknowledge on meteorological observation climate patterns and local land Localbenefits will be the stationby district. cover and landuse change reduced vulnerability o f local patterns allows for improved population, reduced income Calibration, testing, and adaptation to climate variation losses, improved food refinement o f the land cover- and for improved disaster security, human healthand hydrology-climate change preparedness. physical security, whereas dynamic models (VIC, DHSVM) the global benefits will be the andthe crop model (EPIC). increased resilience o f the Collaboration with institutions Vulnerability Hot Spots ecosystem. working on climate monitoring, mapped at district and basin adaptation to climate change and level. disasterrelief. Improved strategiesput in place to react to natural disasters, especially droughts and floods. Improved delivery o f information services to local communities inregards to climate risks and disasters. Integrated approach and collaboration efforts allow for synergies infavor o f environmental protection and the creation of environmental benefits. (h)GEFAlternative costs: US$6,400,000 (IDA + GEF) (i) Incremental cost: US$2,500,000 GEF (US$1,600,000 OP15 + US$900,000 SPA). Incremental costs will cover the costs o f awareness campaigns and information dissemination implemented during the 6 years o f Project life including equipment contribution for local radio stations; expenses in relation to the hiring o f short-term and longer-term consultant services for specific technical inputs, costs for adapted research, training o f extension officers, material and equipments needed to develop technical innovations for the Project. 5. - Component 3: Community apricultural and environmental investment fund (a) Baseline: The objective o f the Fundi s to provide grants to facilitate accelerated agricultural development in the Project area. IDA will create two windows for agriculturally related 116  infrastructure and for small-scale agricultural investment. This first window includes local road spot improvements, bridges at strategic points, markets and small gravity irrigation schemes (irrigation schemes would be operated and maintained by recipient communities), whereas, the second window would provide support for private enterprise development activities o f groups and individuals, such as on-farm irrigation, agricultural production, post- harvest handling and small processing activities. (b) Expected scenario under the baseline scenario: Successful Project implementation will lead to improved smallholder capacity, improved agricultural production, increase in agro- processing activities and in the marketing o f a broader variety o f products. In addition, physical investments will be realized such as irrigation systems, aquaculture ponds, cattle- diptanks, roads, market infrastructure and agro-processing facilities. (c) Baseline cost: US$6,800,000 (IDA) (d) GEFalternative scenario (OP15): GEF will finance a third window that provides grants to support investment and technical assistance in improved natural resource management. The NRM window will provide demand- driven grant funding to stimulate sub-projects that specifically address land degradation and more generally promote the sustainable use o f natural resources. The objective o f these investments would be to improve both livelihoods and economic well being o f smallholder farmers, and to preserve or restore ecosystem stability, functions and services o f global importance. Proposed activities would be in coherence with the community and district land use plans which will be developed under Component 1. They would also respond to specific environmental criteria that will be established and disseminated to communities via the awareness and education campaign under Component 2. Potential sub-projects include promoted technologies and interventions funded by GEF under Component 2, and may respond to new community initiatives in sustainable agriculture, agroforestry or reduced impact extraction o f forest products and cultivation o f species threatened by extraction. Fundingwill be allocated for specialized training, for technical assistance or for equipment and material needed for the sub- Project. Examples are: support of CBNRM initiatives (obtaining land rights, assistance in developing forest management plans, etc.), training in specific agroforestry technologies, technical assistanceincultivation o fnew crops, andprocessing o fproducts. (e) GEF alternative scenario (OP15 + SPA): Eligibility to access the NRM find will be extended to projects that directly invest in adaptation mechanisms, which are identified under Component 2. Examples are: testing and plantingo f drought resistant crops and varieties, provision o f support for expenses and risk management for changing croppingpractices or the location for agricultural production. 117  (f) Expected local and global benefits under the GEF alternative (OP15) and under the GEFalternative(OPlS+SPA): Although demand driven, it i s expected that the impacts and local and global environmental benefits will be significant and substantial under this component as it concerns the implementation o f adaptation and SLMtechnologies for agriculture, forestry and energy at a large scale. They arepresented inthe following table: GEFalternative (OP15) 4ctivities Direct impact Local and plobal environmental benefits [mplementationo f agricultural Increasedannual and perennial Decrease inland 3LMtechnologies crop diversity inagricultural degradation and system, with beneficial impact on desertification. nutrition and range o f marketable Decline insoil erosion products. Improved soil quality and Improved agricultural production soil carbon sequestration based on agro-ecological and Improved above-ground agroforestry techniques, carbon sequestration improved nutrient cycling and through improved organic inputs (improved fallows, biological farming. cover crops, manure). practices (e.g. improved Improved soil protection and soil fallows), agroforestry fertility management through technologies and wood sustainable farm practices;. lots. Reductioninslash-and-bum Reductiono f carbon practices thanks to available emission through avoided improved SLMtechniques. deforestation. Reduced deforestation for Increase inagricultural agricultural purposes. biodiversity through crop Improved valuation o f indigenous diversification and plant and animal resources. cultivation o f native Revegetation o f landscape as a species. result o f agricultural intensification. Implementation o f forestry Forest areas protected through Reduced carbon emission SLMtechnologies CBNRMland rights and through wild f r e activities prevention, reduced Improved valuation o f forest deforestation resources Improvedprotectiono f Reduced wild fires globally important forest, Reducedavoideddeforestation marsh and freshwater Reducedhabitat destruction, ecosystems illegal hunting, over-extraction Improvedbiodiversity conservation Implementation o f energy Increasedavailability o f wood Reduced carbon emission efficient technologies products and charcoal through (through more efficient fast-growing wood lots energy use and substitution Reduced energy need due to of energy source) improved technology such as Biodiversity loss reduced improved cooking stoves (thanks to substitution o f Reducedbiomass need for energy indigenous tree species 118  through introduction o f through fast-growing wood alternative technology such as lots). solar energy. Reducedpressure on natural forests areas for fuelwood and charcoal purposes Reducedharvesting o f native trees. (h) GEFalternative (OP15 + SPA): Activities Direct impact Local and global environmental benefits Implementationo f SLM Improved, diversified Reduced land technologies that enhance and more stable degradation and adaptation to climate agricultural production desertification. variability as exposed to climate Increase incarbon variability. sequestration (thanks to Improvedwater improved land and water availability for management). agriculture and Protection o f forest livelihood needs zones and wetlands yearlong. (delta, flood plains, Protected buffer zones gallery forests) important mitigate impacts o f inglobally significant droughts or floods. biodiversity conservation. (i) GEFAlternative costs: US$8,700,000 (Beneficiaries +IDA+GEF) (j) Incremental cost: US$1,900,000 GEF (US$1,700,000 OP15 + US$200,000 SPA). 75 percent o f the incremental costs will be allocated to the fund, whereas 25 percent will cover the costs o f proposal design, evaluation and implementation support and supervision. 6. Component 4: Proiect Management, Coordination and Monitoring (a) Baseline: This component will include technical supervision and coordination, financial management, work plan and reporting functions at district, provincial and national levels. The component will be congruent with the government's decentralization initiatives and will utilize existing public sector arrangements as far as possible. Additional financial and procurement staff will be recruited and integrated into relevant government structures at all levels. Project coordination will be undertaken at district level, but additionally also at provincial and national level. Project monitoring will be undertaken at internal (inputs and outcomes) and at external (process) levels. 119  (b) Expected scenario under the baseline scenario: Successful implementation of this component will result in efficient implementation arrangements, effective oversight, monitoring and evaluation o f Project activities. (c) Baseline cost: US$2,200,000 (IDA) (d) GEF alternative scenario (OP15) and (OPlS+SPA): GEF funding will contribute to the Project monitoring and evaluation system by financing the establishment o f a GIS database, to monitor the global and environmental indicators in order to assess impact of Project activities on land degradation, carbon sequestration, biodiversity, habitat protection, and area under SLM that responds to adaptation criteria. In addition, a community-based monitoring system will be developed. For the implementation of GEF funded activities a specialist will be responsible and coordinate activities and sub- contracts (short-or long-term consultants) as necessary. Three field agents (MS level) will be implementing activities, supported by one communications officer that works with local radio stations. A part-time national coordinator will support the GEF field team. (e) Expected local and global benefits under the GEF alternative (OP15) and (OP15 + SPA) Activities Direct impact Local and global environmental benefits Designing and implementing a Improved understanding o f Quantification o f environmental M&E systemto monitor local and the underlying causes, benefits global environment indicators. processes and dynamics to be includedineconomic associated with land analysis o f the Project Hiringand supervising the degradati0n.n Informglobal community, implementation team. Environmental information policy makers, research, and system and environmental development communities on indicators. Project outcome. Reinforcing the district planningprocess. Realization o f global State-of-the-Art knowledge environmental benefits will be willbe available at local unprecedented inthe Project zone level. thanks to competent and effective Project implementation team. (f) GEFAlternative costs: US$3,100,000 (Beneficiaries +GEF + IDA) (g) Incremental cost: US$900,000 GEF (US$680,000 OP15 + US$220,000 SPA). Incremental costs will cover the reinforcement o f the M&E system with GIS and the participatory monitoring at the local level. 120  7. Incremental Cost Matrix The incremental costs are calculated as the difference between the GEF alternative scenario and the IDA baseline scenario. The results are reported inthe matrix below. As most o f the decisions, practices and technologies that the beneficiaries o f the Project will adopt cannot yet be determined, the analysis favors a qualitative approach. Zomponent 1 Category Estimated LocalBenefit GlobalBenefit Expenditures (US$) zommunity Baseline 7,700,000 Community organization Possible, minor global Sroup capacity improved, environmental benefits Organization district level institutions thanks to improved capacity andLocal strengthened. ininformed decision- Institutional making inthe agricultural Strengthening sector. With GEF 8,400,000 Significantly improved Improved knowledge on NR alternative understandingo fNR base is the prerequisite for (OP15) potential for economic S L M and environmental development, and targeted protection that will create protection o fNR base. global environmental Quantitative, geo- benefits such as increased referencedbaselines for carbon sequestration, biodiversity, land cover, reduced carbon emissions, soils, water resources habitat protection and developed. biodiversity conservation. With GEF 8,600,000 Digital terrain models Improved knowledge on alternative available and mapping o f climate threats allows to (OP15+ o f zones vulnerable to develop S L M adaptation SPA) floodsldroughts as a basis strategies and technologies to define targeted strategy that will create global o f adaptation , environmental benefits such as increased carbon sequestration, reduced carbon emissions, habitat protectionand biodiversity Component2 Category Estimated Local Benefit Global Benefit Expenditures Agricultural Baseline 3,900,000 Improved capacity and Global environmental Production knowledge on improved benefits non significant. and agricultural production Marketing and marketing. Development With GEF 5,500,000 Improved awareness, Significant advance in Alternative cavacitv and knowledge knowledge and technology. 121  (OP15) inSLM generation for S L M which will create significant global [ncreased availability o f environmental benefits such SLM, andimproved as the protectiono f globally igroforestry and forest important forestry, product extraction savannah, marsh and technologies at local freshwater ecosystems, level. biodiversity conservation, improved carbon sequestration and avoided carbon emissions. With GEF 6,400,000 [ncreased knowledge on Significant advance in Alternative dimate patterns and knowledge and technology (OP15+ dynamic land cover- generation for S L M which SPA). hydrology-climate change will improve adaptationto scenarios that allow to climate variability and design effective create significant global adaptation measures and environmental impacts that disaster preparedness will improve ecosystem's strategies. resilience towards outside shocks and climate variabilitv. Component3 Category Estimated Local Benefit GlobalBenefit Expenditures community Baseline 6,800,000 Improved agricultural Global environmental Agricultural production through benefits are minor, and may and increased inputuse and results from reduced Environmental improved cropping pressure on NR (forests in Investment techniques. particular) thanks to Fund. agricultural intensification. Improved storage, processing and marketing o f agricultural products. With GEF 8,500,000 Improved agricultural Significant global Alternative production based on agro- environmental benefits: (OP 15) ecological and agroforestry techniques, Decrease inland increased agricultural degradation, desertification, diversity, improved soil fertility management, Reduced carbon emissions improved valuation o f through wild fire indigenous plants, prevention, reduced reduced erosion, deforestation and more deforestation, wildfires, efficient energy use, and more efficient use o f substitution o f biomass energy. based energy through solar energy. Increased carbon 122  sequestrationthrough improved soil management [soil carbon), improved agriculturalpractices, agroforestry technologies, reforestation, avoided deforestation and wood harvesting Improvedprotection o f forest, freshwater and marsh habitats Improvedbiodiversity conservation through protected habitats, reduced over-extraction With GEF 8,700,000 mproved, diversified and Reduced land degradation Alternative nore stable agricultural and desertification (OP15+ iroduction as exposed to SPA) limate variability. Increase incarbon sequestration due to Improvedwater improved land and water management and management. improved buffer zone protection. Protectiono f forest zones andbiodiversitv. Component 4 Category Estimated Local Benefit Global Benefit Expenditures (US$) Project Baseline 2,200,000 M&Esystemto monitor Limited knowledge o f land Management, baseline activities. degradation, and ecosystem Coordination dynamics due to limited and monitoring o f ecosystem Monitoring and landdegradation Drocesses. With GEF 2,880,OO Comprehensive Significant contribution in Alternative mechanism established quantifying the impact o f (OP15) for monitoring of NRM SLM on global SLM and land environmental benefits. degradation processes and trends. With GEF 3,100,000 Comprehensive Significant contribution in Alternative mechanismestablished quantifying the impact o f (OP15+ for monitoring o fNRM SLMwith specific attention SPA) SLM and land to adaptation on global degradation processes and environmental benefits. trends as they related to climate variabilitv. 123  TOTAL Baseline 21,200,000 With GEF 25,880,000 Alternative (OP15) With GEF 27,400,000 Alternative I (OP15+ 124  Mozambique: Market-led Smallholders Development in the Zambezi Valley Annex 10: Safeguard Policy Issues 1. Environmental issues outlined inSection D.5indicate this i s an EA Category "B" Project. Actual Project investments will be demand-driven and will only be determined during implementation. Thus, an Environmental and Social Management Framework (ESMF) has been prepared to address the substantive requirements o f OP4.01 and OP4.09, the latter primarily for livestock hygiene facilities and weed control around Project-funded facilities. Procedures and measures to avoid or minimize adverse environmental effects from Project investments, including changes to agricultural practices has been included in the ESMF. The ESMF contains a screening procedure for determining if a resettlement plan i s required for any particular investment according to the Resettlement Policy Framework (RFP), prepared according to the requirements o f OP4.12. 2. Component 3 (Community Agricultural and Environmental Investment Fund) will make small scale investments, including water and land-based investments, including in agribusiness. These investments may require either involuntary land acquisition, or displacement o f people, or both, so OP4.12 on Involuntary Resettlement is triggered. A RPFhas beenprepared as amitigation instrument since the sites andnature ofinvestment sub-projects will only be determined duringProject implementation. 3. OP7.50 (Projects on International waterways) i s triggered as there may be water withdrawals for small irrigation sub-projects implemented in the Zambezi basin, including the Shire River - a major tributary o f the Zambezi. Sources o f water will include: (a) shallow groundwater from alluvial aquifers; (b) small tributary streams which rise entirely in the territory o f Mozambique; (c) small tributary streams which rise in neighboring Malawi; and (d) direct extraction from the Zambezi and the Shire. Notification has been sent by the Government o f Mozambique to all riparians under OP7.50. GOM has a well-established and capable International Waters Division in the Department o f Water Affairs (DNA)that has undertaken the notificationprocess. 125  Mozambique: Market-led Smallholders Development in the Zambezi Valley Annex 11: Project Preparation and Supervision ~ _ _ _ _ _ Planned Actual PCNreview March29,2006 Initial ISDS to PIC March30,2006 Appraisal April 2,2006 April 7,2006 Negotiations April 2 ,2006 May 29 ,2007 Board approval September4,2007 Planneddate of effectiveness December 5 ,2007 Planneddate ofmid-term review December, 2009 Plannedclosing date September 30,2013 1. Key institutions and persons responsible for preparation of the Project: National Directorate for the Promotion of Rural Development (DNPDR), Ministry of Planning and Development (MPD), Salim Vala (Director), Isabel Cossa (Agronomist), Hemes Sneia ( Economist), Salome Noiane (Advisor), Romao Cossa (Agronomist), Tiago Luis (Agronomist), Rosario Guiliche(Agronomist). Bankstaff andconsultantswho worked onthe Project included: Name Title Unit DanielLiborio da Cruz Team Task Leader AFTAR ESousa Erick Fernandes Adviser ARD Eduardo Luis Lea0 de Senior Economist AFTAR Sousa BrightonMusungwa Sr. Financial Management Specialist AFTFM Joao Tinga Financial ManagementAnalyst AFTFM SlaheddineBen-Halima Sr. ProcurementSpecialist AFTPC Antonio Chamuco ProcurementSpecialist AFTPC Suzanne Morris Sr. Finance Officer LOAG2 Luz Meza-Bartrina Sr. Counsel LEGAF Erika Styger Natural ResourceManagementSpecialist AFTS1 (cons) Ayala Peled Natural ResourceManagement Specialist AFTS4 JohnBoyle Sr. Environmental Specialist AFTAR Cedric Boisrobert Consultant AFTS4 ArbiBen-Achour Sr. Social Scientist AFTS 1 Josef Loening Economist AFTAR Anne Ritchie Sr. Financial Sector Specialist OPD Leonard Abrams Sr. Water ResourcesManagement Specialist AFTU1 FrancoRusso Sr. Program Assistant AFTS1 Luisa Matsinhe Program Assistant, Maputo AFcs2 Erwinde Nvs Young.Professional " YPP 126  Caroline Guazzo Program'Assistant, AFTCS Meseret Kebede Program Assistant AFTAR Ashok Kumar Seth Consultant AidanGulliver FAO/CP Team Leader Elen Lemaitre FAO/CP Financial/Economic Analyst ErikPlaisier FAO/CP -JPO- Business Management Gaye Thompson FA0 Social andInstitutional Specialist (cons) Antoinette Van Vugt FA0Community Organization Specialist (cons) Jonathan Cook FA0Agronomist (cons) TimJackson FA0Rural InfrastructureSpec. (cons) Graham Perret FA0RuralFinance Spec. (cons) Bank fimds expended to date on Project preparation: 1. Bankresources: US$220,000 2. Trust fimds: FA0 CP Resources: 20 staff weeks 3. Total: US$330,000 Estimated Approval and Supervisioncosts: 1. Remainingcosts to approval: US$40,000 2. Estimated annual supervision cost: US$180,000 for the first two years and thereafter us$loo,ooo 127  Mozambique: Market-led Smallholders Development in the Zambezi Valley Annex 12: Documents in the Project File Pre-Preparation Studies: 1. Community Organization 2. Fanning Systems Development Study 3. Rural Financial Systems 4. Rural Infrastructure 5. Irrigation and Water Management Study 6. Marketing and Agribusiness Study Preparation Mission-Working Papers: 1. Community Organizations and Local Institutions 2. Rural Financial Services 3. Agricultural production and Marketing Development 4. Rural Infrastructure 5. Community Agricultural and EnvironmentalInvestmentFund 6. Institutional Analysis of SLM and NRM: the case o f land use planning, participatory NRMandACC 7. Recommendations for the operationalization o fthe NRMwindow o fthe CAEIF hnd 8. Natural Resource Management Study; Almeida Albert0 Sitoe. 9. Sustainable LandManagement and CBNRM Report 10. Institutional, legal and sector barriers and opportunities for sustainable landmanagement and adaptation to climate change at the district level inthe Zambezi Valley; Celia M.F. Meneses. 11. GEF STAPreview (Prof. MartinWilliams ScD) 128  MOZAMBIQUE: MarketledSmallholderDevelopmentin the ZambeziValley Annex 13: Statementof LoansandCredits Differencebetween expectedandactual OriginalAmount inUS$Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO83325 2007 MZ-APL2 Roads& Bridges 0.00 100.00 0.00 0.00 0.00 100.59 2.08 0.00 PO96332 2007 Maputo Municipal DevelopmentProgram 0.00 30.00 0.00 0.00 0.00 27.10 -0.43 0.00 PO93165 2006 MZ-Market LedSmallholderDev (FY06) 0.00 20.00 0.00 0.00 0.00 19.39 2.62 0.00 PO87347 2006 M Z Tech & Voc Edu & Training (FY06) 0.00 30.00 0.00 0.00 0.00 29.26 3.84 0.00 PO71465 2006 MZ-TFCA & Tourism Dev (FY06) 0.00 20.00 0.00 0.00 0.00 18.54 0.57 0.00 PO76809 2006 MZ-GEF TFCA & TourismDev (FY06) 0.00 0.00 0.00 10.00 0.00 9.63 1.42 0.00 PO86169 2006 MZ-Financial Sector TA Project 0.00 10.50 0.00 0.00 0.00 9.41 0.15 0.00 PO82618 2005 MZ-BeiraRailway SIL (FY05) 0.00 110.00 0.00 0.00 0.00 62.65 -8.98 0.00 PO69183 2004 M Z - Energy Reform and Access SiL 0.00 40.26 0.00 3.09 0.00 39.88 30.77 15.08 (FY04) PO01807 2004 MZ-Decentr Planning&Fin SIL (FY04) 0.00 0.00 0.00 0.00 0.00 18.42 6.90 0.00 PO72080 2003 MZ: Pub Sec Reform (FY03) 0.00 0.00 0.00 0.00 0.00 15.29 11.53 0.00 PO78053 2003 MZ-HIV/AIDS Response SIL (FY03) 0.00 0.00 0.00 0.00 0.00 29.81 3.85 0.00 PO73479 2002 MZ-Com Sec Reform 0.00 14.90 0.00 0.00 0.00 4.77 2.60 -1.14 PO69824 2002 MZ-Higher EducationSIM (FY02) 0.00 60.00 0.00 0.00 0.00 28.69 4.23 0.00 PO42039 2000 MZ-Railway & Port Restr (FYOO) 0.00 100.00 0.00 0.00 0.00 10.11 4.55 -4.45 PO35919 2000 GEF Coastal& Marine SIL (FYOO) 0.00 0.00 0.00 4.11 0.00 0.57 4.10 4.10 PO52240 1999 MZ-Natl Water 2 (FY99) 0.00 75.00 0.00 0.00 0.00 25.85 3.92 13.12 Total: 0.00 610.66 0.00 17.20 0.00 449.96 73.72 26.71 MOZAMBIQUE STATEMENT OF IFC's HeldandDisbursedPortfolio InMillions ofUS Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2004 ENH 0.00 18.50 0.00 0.00 0.00 13.37 0.00 0.00 GTFP BDC 0.11 0.00 0.00 0.00 0.11 0.00 0.00 0.00 1997 MOZAL 29.70 0.00 58.50 0.00 29.70 0.00 58.50 0.00 2001 MOZAL 10.12 0.00 0.00 0.00 10.12 0.00 0.00 0.00 2000 SEFAusmoz 0.72 0.00 0.00 0.00 0.72 0.00 0.00 0.00 1997 SEFCPZ 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 0.00 2000 SEF Cab0Caju 0.58 0.00 0.00 0.00 0.51 0.00 0.00 0.00 2001 SEF Grand Prix 0.33 0.00 0.00 0.00 0.33 0.00 0.00 0.00 2004 SEFMerec 1.02 0.00 0.00 0.00 1.02 0.00 0.00 0.00 Total portfolio: 43.58 18.50 58.50 0.00 43.51 13.37 58.50 0.00 129  Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic. Total pendingcommitment: 0.00 0.00 0.00 0.00 130  Annex 14: Country at a Glance MOZAMBIQUE: MarketledSmallholderDevelopmentin the ZambeziValley Sub- POVERTY and SOCIAL Saharan Low- Mozambique Africa Income Develo pment diamond' 2005 Population. mid-year(millions) 8 6 741 2,353 GNIpercapita(Atlasmethod, US$) 3 0 745 580 Lifeeqectancy T GNI(Atlas method, US$ Dillions) 6 1 552 1364 Average annual growth, 1999.05 Population(%) 2.0 2.3 19 Laborforce(%) t7 2.3 2.3 GNI Gross per Pnmw M o s t recent estimate (latest year available, ISSS-OS) capita enrollment Poverty(%of population belownationalpovertyline) Urbanpopulation(%oftotalpopulation) 35 37 31 Lifeexpectancyatbirth&ears) 42 46 59 Infantmortality(per lOOOlivebirths) 04 0 0 60 Chrldmalnutntion(%of childrenunder5) 24 29 39 Access to improvedwatersource Access to animprovedwtersource (%ofpoptilalion) 43 56 75 Literacy(%of population age ?Sj 62 Gross primaryenrollment (%ofschool-agepopulation) 95 93 104 -- Mozambique ~ Male 0 4 99 10 --Lowincomegroup Female 66 a7 99 KEY ECONOMIC RATIOS and LONG-TERM TRENDS I985 1995 2004 2005 Economic ratios' GDP (US$ billions) 4 5 22 5 9 6 6 GrosscapitalformationiGDP 3 5 305 226 204 Exportsof goods andservicesiGDP 2 9 156 309 326 Trade - Grossdomestic savingslGDP -51 50 X3 0 7 Gross nationalsavings/GDP -50 4 8 85 4 4 Currentaccount balanceiGDP -99 3 0 1 -141 - 5 9 InterestpaymentsiGDP 0 5 33 0 5 Domestic Capital Total debtiGDP 644 3320 767 savings '4 formation Total debt serviceiexports 345 348 4 4 Present value of debt/GDP 0 6 1 Present value of debtiexports 43 0 Indebtedness 1985-95 1995.05 2004 2005 2005-09 (averageannualgroah) GDP 3 8 6 4 75 7 7 7 3 --Mozambique GDP percapita 19 6 1 54 5 7 58 Lowincomegroup Exportsof goods andservices 9 0 'Bo 8 9 8 3 0 6 STRUCTURE o f the ECONOMY 1985 1995 2004 2005 (.?of GDP) /Growthof capital and GDP (Oh) Agriculture 475 369 23 3 22 3 1100 Industry a2 154 29 2 29 6 Manufacturing 50 6 1 148 142 Services 393 477 47 5 47 9 0 Householdfinalconsumption expenditure 922 652 753 79 1 Generalgov't finalconsumption expenditure a 9 98 0 4 0 3 Imports of goods andservices 115 410 392 42 3 1985-95 1995-05 2004 2005 (averageannualgrovdh) IGrowth of exports and imports (%) Agriculture 2 7 52 8 3 16 Industry -12 157 5 1 9 9 Manufacturing I75 a2 0 7 Services 4 4 69 89 0 0 Household finalconsumption expenditure 17 44 109 0 6 Generalgov't final consumption expenditure 4 7 a 1 5 0 6 0 Gross capitalformation 6 7 0 6 -111 0 7 Imports of goods andservices 2 5 96 4 1 7 3 Note 2005data are preliminatyestimates This tablewas producedfrom the DevelopmentEconomics LDB database 'The diamondsshowfourkeyindicators inthe country(in bold)comparedwth its income-groupaverage Ifdata aremissing.thediamondwll be incomplete 131  Mozambiaue PRICES andGOVERNMENT FINANCE 1985 1995 2004 2005 Domestlc prlces /Infiation(%) I (%change) Consumerprices 544 Loo j P.7 implicit GDP deflator 33 1 503 9.0 6 4 Government flnance (%of GDP,includescurrentgrants) Current revenue x)3 155 8.5 f f 3 0, 02 03 ; Current budgetbalance -6 8 4 9 13 3 5 Overallsurplus/deficit -XI 3 -9 5 -9 1 -5 6 ----GDPdeflator -0-CPi TRADE IS85 1985 2004 2005 (US$ millions) Export and import levels (US$ mill.) Totaiexqorts (fob) 77 I74 1,504 1745 Cashewnuts. rawcashewand cashewoil t? 13 29 23 I Pram 33 73 93 72 Manufactures 5 a 22 2 ow Total imports (cif) 424 727 2,035 2,467 Food 44 164 182 1000 Fuel andenergy 68 290 341 I Capital goods 166 703 872 I O Exqortprice index(2000=flO) t?4 Iff a 9 152 Import price index(2000=flO) 113 P 3 P5 134 Terms of trade (2000-tJ0) 1x) 96 134 I13 I OExports @imports BALANCE of PAYMENTS IS85 1995 2004 2005 (US$ millions) /Current account balance to GDP (YO) Exportsof goods andservices 143 407 1,828 2,64 imports of goods andservices 481 899 2,320 2,805 Resource balance -339 -492 -492 -642 Net income -M2 -185 -340 -477 Net currenttransfers 0 0 Currentaccount balance -440 -677 -832 -1058 Financingitems (net) 420 736 1.044 1003 Changesin net reserves 21 -60 -2t? 55 Memo: Reserves includinggold (US$ millions) 46 a 5 $159 llJ3 Conversion rate(LJEC,iocai/US$) 43 2 9,2034 22,5813 23,0610 EXTERNAL DEBT and RESOURCE FLOWS IS85 1995 2004 2005 (US$ millions) lComposition of 2004 debt (US$ mill.) I Total debt outstandingand disbursed 2,871 7,458 4,651 iBRD 0 0 0 0 IDA 5 890 1,475 1575 G 345 Total debt service 63 162 83 IBRD 0 0 1 1 IDA 0 6 15 27 Composition of net resource fiows Official grants 374 770 8% Official creditors 377 ff2 290 Private creditors 54 24 -23 Foreigndirect investment (netinflows) 0 45 245 Portfolio equity(net inflows) 0 0 0 World Bank program Commitments 46 99 135 E-Biiat6~d Disbursements 5 A . IBRD 160 8 0 227 B ~ i D A D Othw lTultilate-d - F Private - Principalrepayments 0 0 4 ?4 Net fiows 5 160 186 213 Interestpayments 0 6 t? ?4 Net transfers 5 254 774 199 Note:This tabiewas producedfrom the Development Economics LDB database. 9/15/06 132  Mozambique:Market-ledSmallholdersDevelopmentin the ZambeziValley Annex 15: LandDegradationandClimateChangein the CentralZambeziValley 1. ProjectZoneDescriptionandLandUse 1. The Zambezi Valley Region o f Mozambique was one o f the hardest hit areas o f Mozambique during the conflicts of the 1980s and early 1990s, and most infrastructures were heavily damaged or destroyed and many communities effectively abandoned. Since the ending o f the war, rapid resettlement has taken place, most notable along reconstructed primary and secondary roads and in areas with higher precipitation levels. Cropped land in the Central Zambezi expanded from 5 percent in 1992 to 17 percent in 1995 and has further increased since then. Expansion o f agricultural land i s based on the traditional methods of slash and bumagriculture. 2. The climate in the Central Zambezi Valley i s tropical, from semi-arid (with 300 mm to 600 mm rainfall) to humid (with rainfall from 1000 mm to 1400 mm) concentrated between November and March. The topography i s flat to undulating. Altitude ranges from below 100 m (along the Zambezi River) to between 100 m and 500 m for most o f the Project area to 1800 m (Mount Chiperone) inthe hilly area o f northernMorrumbala. Geologically, the region shows much variety inparent materials. A range o f soils can be found with variable agricultural productionpotential. 3. There are three distinct agro-ecological zones within the proposed Project area, which i s composed o f five districts: Maringue, Chemba (Sofala province), Mutarara (Tete province), Morrumbala andMopeia (Zambezia province). 4. Agroecoloaical Zone-R5 : This zone (covering Southem Morrumbala and Mopeia and extending towards coastal region) i s characterized by highrainfall o f 1000 mm-1400 mm with a corresponding evapotranspiration. The two major soil types are sandy, well- drained soils and heavy vertisols. Rice is commonly cultivated in the vertisols, while maize, cowpea, sorghum, millet and cassava are intercropped in the well-drained soils. Cashew nuts and cotton are also grown as cash-crops in the well-drained soils. Sesame and paprika are new important cash crops. Yields are very low (maize yields 600 kg/ha- 800kgha). 5. Agroecolonical Zone-R6: This i s the semi-arid zone o f the Zambezi Valley, especially along the Zambezi River. The three districts Mutarara, Chemba and Maringue are part o f it. Precipitation is between 300 mm-600 mm and evapotranspiration is very high with 1200 mm-1400 mm, which results in high water deficit and high probability of crop failure. Yields are very low (sorghum yields 600 kg/ha). Cassava is not cultivated due to total absence o f rain during the cool season and the elevated evapotranspiration rate. Cotton production i s abundant in the well-drained soils and rice in alluvial soils on the margins o f the Zambezi River. Sesame and paprika are new important cash crops. 6. Anroecolonical Zone-R7: This zone covers the medium altitude region o f the Zambezi Valley, with an altitudinal range between 200 m and 1000 m with an average rainfall not 133  exceeding 1400 mm. Northern Morrumbala i s part o f that zone. Cropping systems are dominated by maize, which yields an average o f 1000 kg/ha, and sorghum (750 kg/ha) intercropped with cassava, groundnuts, and cowpeas. Cotton i s also grown inthis area. 7. Traditional agriculture i s predominant and based on extensive use o fthe natural resources base. With the exception o f cotton and tobacco, the use o f improved seeds, fertilizers and agrochemicals i s very low. The average yields o f most food crops are low: maize 500 koa-1000 k o a ; sorghum 400 kg/ha-600 k o a ; groundnut (small) 300 k o a - 5 0 0 kg/ha; cowpea 200 kg/ha-400 kg//ha; cassava 4000 kg/ha-6000 k o a ; sweet potato 3000 koa-5000 k o a . Cattle were decimated during the war and the build-up in its population remains slow. Farmers express increasing interest in livestock, especially for transport and soil preparation. Animal production is mainly based on goats, pigs, few sheep, guinea fowl, chicken and ducks. People cultivate also fruit trees, such as mangoes, bananas, citrus, pawpaw grown in home gardens or intercropped with grain crops, and vegetables, such as cabbage, tomatoes, and onions which are grown inmarket gardens on micro-irrigation areas less than one hectare. The Zambezi and Shire rivers are the main watercourses in the area, with high spatial variability o f water availability in the region. Although the Zambezi basin represents about 50 percent o f the country's total mean annual water runoff, serious water shortages occur during rainy and dry seasons. Water storage structures, such as small dams as well as small-scale irrigation schemes, are almost absent inthe region, resulting ina minimaluse o fthe total runoff. 8. Compared to other countries inthe region, Mozambique has a rich natural resource base. The natural vegetation cover, which accounts for 78 percent o f the country's area, varies from evergreen to deciduous, from mountainous to lowland, gallery and mangrove forests to edaphic grasslands. The most characteristic forests are the miombo and mopane woodlands. About 25 percent o f the land has commercial forestry potential, and a further 22 percent comprises potential wildlife habitat. Forest production i s based almost entirely on the natural forest, the area o f plantation forestry being negligible. Mozambique's biodiversity i s very rich with 5692 plant species, 222 mammals, 580 birds, 167 reptiles, and 39 amphibians recorded to date. About 177 plants have been reported to be endemic and 300 plants are on the red data list. Some areas have been designated as globally significant with respect to their biodiversity. About 34 nature conservation and protected areas cover 12.5 percent o f the country's total area. The knowledge of the flora o f Mozambique i s mostly restricted to Southern Mozambique. 9. The flora o f the Center and North has been much less well documented and needs urgentlyto beupdated. Apart from the forest inventory o fthe Derre Forest Reserve, there i s limited knowledge on biodiversity in the Project areas. Vegetation categories found in the Project region include the Miombo woodlands (Derre Forest Reserve), the evergreen mountain forests (highlands o f the Mormmbala and Chiperone mountains), the baobab- savannas and mopane woodlands (semi-arid region o f Mutarara), grasslands dominated by Hyparrhenia spp. (flood plains o f the Zambezi River), inundated grasslands on the Lower Shire dominated by Cyperus spp., Phragmitis spp. and Imperata spp. The mountain zones and the wetlands are expected to have a high number o f endemic and protected species, but they are not well documented. While the Malawi part o f the 134  marshes along the Shire river have been modified for agriculture, the Mozambican side is stillpristine andmay represent close to natural habitats for a variety o fplant, bird, reptile, mammals, and fish species. The district o f Mutarara i s estimated to have more than 500,000 ha with potential for forests and wildlife, particularly concentrated in the low populatedAdministration Post o fDoa. 10. The Project region has a highforest potential. Thirteen precious and first class species are present, among them are Pterocarpus angolensis, Burkea africana, Pericopsis angolensis, Combreturn imberb, Guibourtia conjugate, Afielia quanzensis, andDalbergia melanoxylon. Other common species are Acacia spp, Colophospermum mopane, and Adansonia digitata, which are intensively used by local communities for several purposes. Trees used for their edible fmits are among others, Adansonia digitata, Zyzyphus mucronata, Vitex doniana, Strophantus petersianus. Other local uses o f forest plant species include medicinal plants, shade, honey production. According to the Forest Services report, 300 liters o f honey were produced in Mutarara during 2005 using traditional bee hives places in native woodlands. Traditional bee hives are commonly made o f bark o f different tree species, a practice considered prejudicial for forest production. The practice involves debarking trees, such as, Pterocarpus angolensis, which i s a first class timber species. Natural resources or their primary derivatives are generally sold unprocessed inlocal markets. These include wild fruits (e.g., baobab fruit), dry or smoked fish, medicinal plants, logs, among others. Some o f these products are exported illegally to Malawi with very little benefit to local communities. 11. Firewood is the only source o f energy for heating and cooking for almost 90 percent o f the residents o f the Project area. Eventhose with access to electricity still use firewood or charcoal for cooking. Although the access to firewood i s open for local communities, there are areas in Mutarara that have been reported to be short in fuel wood and their residents having to travel between 6 km and 12 km to collect firewood. Some socio- economic data on the districts i s provided inthe following table. 135  12. Table 1: Socio-economic data o f the Project districts Mommbala 304,073 129,000 23.8 1:l.l 4.1 52% 11% MutaEIra 173,867 70,000 27.3 1:l 4.3 66% 17% Mopeia 89,403 41,000 11.7 1:1.2 4.2 52% 15% Marirgue 71,086 29,000 11.6 1:l 4.3 45% 7% ckrrba 62,278 27,000 15.7 1:O.g 45% 12% PhaseIIdistricts 222,767 97,000 Mommbala 13% 63,000 1 72% 170,000 Mutarara 17% 29,000 1 42% Mopeia 11% 17,000 0.5 72% Marirgue 27% 12,000 2.8 45% 240,000 172,000 cherrba 28% 10,000 2.6 45% P k eIdistricts 92,000 PhaseIIdistricts 39,000 Souce:Districtprofiles 2. Land degradation dynamics in the Central Zambezi Valley 13. Although the natural resource base i s still abundant, land degradation has become an important problem in the Project zone. It can be expected that with the extension of economic and agricultural development, the pressure on the natural resources i s likely to increase. Unlike in many other countries, where land degradation i s much advanced, Mozambique has currently the opportunity to steer its economic development in accordance with principles o f environmental sustainability. Protecting its natural resource through improved management, while at the same time economically benefiting from the rich resource base, i s the challenge. Insupport o f this endeavor i s the favorable legal and policy framework that has been put inplace since the ending o fthe war. 14. The main causes o f land degradation are identified for the Project zone in Table 2 and text. The four major consequences that derive from the land degradation dynamics are low productivity agriculture, clearing o f new forest areas to expand agriculture and the consequent loss o f forest cover, the loss o fbiodiversity, and the loss o f carbon stocks. 136  Consequences of land degradation (a)Lowproduction agriculture 15. The agricultural system is based on extensive and traditional practices o f slash andburn amiculture. Without any additional inputs and with the shortening o f cycles o f field rotations due to increasing population pressure, yields are decreasing and are stagnating at a very low level. Institutional capacity at national, regional, provincial, district and local level i s limited and supporting services are understaffed at all levels, which is still a consequence o fthe civil war. 16. There i s a lack o f improved farmingtechniques at the farmer's level, due to absence o f an efficient extension service and lack o f research support. Obvious concerns are nutrient management, adapted varieties and crops, pest management, and post-harvest losses, among others. Crops like tobacco and cotton are highly demanding in soil nutrients and may aggravate the degradation o f soil productivity. Climate variability contributes to unpredictable production outcome. There i s also a lack o f land use planning, which would allow people to make informed decisions on how best to use soils and land resources. In the hilly areas o f Morrumbala, soil erosion i s a significant problem, contributing to loss o f soil fertility and low agricultural productivity. Inaddition, seasonal water fluctuations are very high.Droughts and floods are discussed inmore detailbelow. 17. The Central Zambezi valley i s also vulnerable to extreme weather events, alternating between drought and floods with some years o f normal weather in between. Severe drought i s experienced periodically and is o f major concern for agriculture in large parts o f Central Mozambique. Maize yield fell on average by 40 percent to 85 percent in the Zambezi valley during the drought years 1982/1983, 1986/87, and 1991/1992. These events caused large-scale food deficits, hunger and disease. It also increased food imports and worsened the national debt burden. It is estimated that the loss in agricultural production due to drought in 1992 was 4 percent o f the GDP or about US$86 million in 2004 prices. Droughts occurred in the Zambezi valley in the three years from 2002 to 2004 and yield reductions up to 50 percent were reported, translating in maize yields o f 300kgha. At the national level, 29 districts were identifiedbeingat risk o f drought and/or desertification. Two o f the five Project districts are among them: Maringue and Chemba (MICOA, 2002). As evapotranspiration rates are much higher than precipitation, a water deficit i s created for most o f the year, which often leads to crop failure. Even in normal rainfall years, food shortages are not uncommon in these districts (including Mutarara). People's strategies to cope with drought and food shortage in the Project region are seasonal migration, sale o f alcoholic beverages, sale o f domestic animals, and the extraction o f natural resources through hunting, fishing and harvest o f non-timber forest products. Successive droughts reinforce people's strategies to move towards the floodplains to grow food where soil humidity i s higher. But these river margins are also the habitats for hippopotamus and crocodiles, increasing the human-wildlife conflicts in the Project area. Hippopotamus often destroy crops on the floodplains, and crocodiles 137  attack and kill people growing crops along the river, fishermen, or people who go to the river to collect water, collect edible water plants, bath or wash clothes. 18. The Zambezi river valley is also prone to flooding. Despite the highrisks o f floods, the inhabitants cultivate the fertile land on the floodplains. The 2000 floods were the worst in living memory. Half a million people were made homeless and 700 lost their lives. The floods destroyed crops and overwhelmed water and sanitation infrastructure in many areas among which Zambezi, Limpopo and Soave valley were the most affected. Many communities lost everythingthey owned including cattle. Major flooding also occurred in 2001 and 2007. 19. State o f the art regional climate models (UK Met Office) predict that in the Zambezi basin, boththe intensity and frequency o fboth droughts and floods will increase as global temperatures rise. Such extreme climate variability will also amplify land degradation, affecting mostly the poor who depend on natural resources for their livelihoods. The impacts o f droughts and floods are crosscutting and diverse, with severe consequences for agriculture and natural vegetation besides the indirect effects on health and economy. Any changes in land use and agricultural practices should, therefore, take climate trends into account inorder to reduce the vulnerability towards increased weather variability. (b) Loss of forest coverage 20. Major causes for forest cover loss are deforestation for agricultural land, wild fires, fuel wood collection, charcoal production, and illegal logging. The national deforestation are estimated at 147,100 ha per year. Deforestation figures for the Project area are not available. Satellite images show clearly that large areas have been cleared in recent years for agriculture, mainly around towns and along roads, where most o f the population is located. Areas with difficult accessibility maintain larger areas o f natural vegetation with little perturbations, although with the increased likelihood o f more frequent and more severe droughts, wild fires will pose a major threat to natural forests and savanna vegetation inthe Zambezi basin. 21. Firehasbecome a major threat to naturalresources. Itsuse is widespread for agricultural purposes, clearing around the homesteads and for hunting. According to satellite imagery interpretation, 74 percent o f northwestern and central parts o f the country are burnt annually (compared to the national average o f 40 percent). About 90 percent o f fires were due to human causes, 5 percent due to natural causes and 5 percent to unknown causes (Taquidir 1996). The Project area has a hot and wet season from November to April and cool and dry from May to October. Forest fires are linked to this seasonality, and sporadic fires burning small surfaces are common in the beginning o f the dry season in April. They increase in size and intensity by late August to October when the vegetation i s completely dry. Natural forests are usually not submitted to any management regime. Firebreaks don't exist and the road network is very poor. This results in large blocks of forests being burnt until a river or a road stops the fires. Therefore, the extent o f a fire depends on the month o f burning, the extent o f a single block o f vegetation, the wind speed and direction and on other weather conditions such as rain and temperature. 138  Depending on these conditions, a single fire can either bum a few hectares or extend over many thousands o f hectares. The ultimate effects o f frequent and intense fire events are the reduced regeneration o f fire sensitive species, the proliferation o f fire-tolerant species, with the consequence o f the loss o f plant diversity and associated fauna. Furthermore, high volumes of carbon are lost. But fires have also some direct social costs, when homesteads are accidentally burned and properties destroyed. In addition, charcoal production, logging, and firewood collection also contribute to forest cover loss. The loss o f forest cover i s also increasing the framentation o f ecosystems which impacts negatively ecological and watershed services, and decreases landscape values. (c) Loss of biodiversity 22. The loss o f biodiversity is of significance in the Project area due to slash and burn agriculture, deforestation, wildfire, logging, charcoal making and firewood collection, hunting, drainage of wetlands and altering o f water courses (dam constructions, imgations schemes, etc.) and fishing. In addition to described root causes above, illegal logging and huntingactivities contribute to species loss. Large mammal populations are severely depleted. Due to over-hunting, several large mammals inthe Zambezi valley are at the verge o f extinction (black and white rhino, giraffe, roan antelope, tsessebe, eland, mountain reedbuck and African wild dog). In the Project area, people hunt wild pig (Phacochoerus aethiopicus), monkeys, porcupine, duikers, guinea-fowls, and rats. Huntingand protection from wildlife attacks are among the main causes of wild fires. Woodland burning to confine the animals in pre-established traps i s the most common huntingtechnique inMorrumbala. Illegal logging is reportedto be a common practice in the Project area, even within the protected Derre Forest, where the first class species Umbila (Pterocarpus angolensis) i s harvested. There i s illegal wood trade going on across the Malawi border. Communities are often not able to defend their forest resources from incoming illegal loggers. This is due to lack o f community organization or due to lack o f knowledge o f the legal framework that would actually be in favor o f community rights to natural resources. 23. Fishingis also animportant activity for food and cash. Localpractices that usepoisonous plants to kill fish indiscriminately have been suggested as the cause for reduction o f fish stocks in Morrumbala. More than 130 fish species have been identified in the Zambezi River, o f which, 17 percent are endemic. However, the Lower Zambezi, that includes Mutarara, are said to be relatively species poor, with only 60 species. It i s unclear if the low number o f species are due to limited taxonomic studies carried out or due to high pressure on fish resources resultinginlow populations. (d) Carbon loss 24. Carbon loss i s significant due to slash and burningagricultural practices, where depletion o f aboveground and soil carbon can occur through unsustainable agricultural practices, deforestation, wild fires, export o fbiomass via logging, charcoal, wildlife. 139  3. Outlook 25. Land degradation i s an important problem in the Project area. It i s induced by extensive and common land management practices such as slash-and-bum agriculture, deforestation, wild fires, logging, charcoal production, fuel wood collection, huntingand fishing. Nowadays, these techniques are known to be harmful to the ecosystem health. Soil degradation and loss o f soil fertility, forest cover loss, reduction in animal and plant diversity, and carbon loss are the immediate consequences. In the medium to long term, these techniques are highly destructive and non-sustainable. Shifting from these techniques to sustainable land use methods i s not trivial as it may need education of the community (which may take a generation), large capital investments, and technical supervision, among others. However, a gradual shift i s needed to change attitude o f local people towards the natural resources. People learn from experiences and need lessons to learn from. Providing lessons through demonstrations o f sustainable, high productivity, and cheap technologies for local people may be o f great importance to induce the shift towards sustainable land use techniques. In the following table, land degradation root causes and their consequences are summarized in addition to description o f measures currently undertaken and an analysis of what additional measures are required to shift towards sustainable land management. Project interventions are described in more detail inAnnex 4 (Detailed Project description) and in Annex 9 - Attachment 2 (Incremental Cost Analysis). 140  v1 2 .CI I 4cd v) . ... . .. . .... . .. . .. . . a2 k 92n a 0 .CI Ycd M .CI 5!an Y ncd cl Ccl 0 v1 a2 V 3aff . . 8i . * I. I 33 n .CI Y acd E a . . . . . . . an cd . . * I U Ccl 0 >I.a Id. :I. v) sa cd 0 c) 20 .. N 2w a2  . . . . . 0 . 0 . 0 . 0 . 0 . . . . . . . 0 . 0 . VI 8 3 !s g0 YY) F4 0  o . . . . . 0 . 0 0 .  Mozambique:Market-ledSmallholdersDevelopmentinthe ZambeziValley Annex 16: STAP RosterReview STAP Reviewer: Professor MartinWilliams ScD, University o f Adelaide, Australia Date: March 15,2006 Scientificandtechnicalsoundnessof the Project,includingthe degree of stakeholderinvolvement [Removed: description of Project objectives, focus and statement of issues the Project would address] Inevaluatingthis proposalIwill consider the following questions: Will the approach taken inthe Project proposal achieve the objectives o f addressing land degradation? What are the risks and constraints associated with the approach? I s there any gap inthe Project? Are there any controversial aspects about the Project? What aspects o fthe interventions proposed require further research? How will the model o f sustainable use outlined inthe Project be developed? How effective will the proposed model be? I s there sufficient evidence in the document that the Project offers the best long-term solutions? The Project draft identifies some o f the major causes o f land degradation but does not consider in sufficient detail why this particular region i s so vulnerable to severe flooding as well as what might be done to reduce such floods or at least to alleviate their impact. More attention needs to be given to discussing this issue, including the use o f early warning systems. Since floods and droughts inthis region are primarily due to changes in sea surface temperatures inthe equatorial Pacific modulatedby changes in the latitudinal temperature gradients between the Southern Atlantic Ocean and the Indian Ocean, it i s possible to predict their likely occurrence at least twelve months in advance with a reasonable degree o f skill. However, unless this information i s made available to farmers well ahead o f time, and unless suitable strategies are inplace to cope with the impacts o f these extreme events, the current situation i s unlikely to improve. Some more detailed mention o f the role of extension services inproviding advice to farmers on how to cope with such extreme events seems warranted. Mention is made o f construction of large numbers o f small dams to retain water for use in dry years as well as for local small-scale irrigation Projects, and there i s a briefreference to the need for inexpensive silos for grain storage, all o f which are useful means o f mitigating the impacts o f minor droughts, but in the long term some more effective form o f large scale water storage will be needed. The map showing areas flooded in the Zambezi valley in four o f the proposed Project districts during 2001 suggests that some portions o f the flood plain are less prone to flooding than others, as might be expected from an understanding o f the depositional 144  processes responsible for flood plain accretion. This being so, the Project needs to consider the utility o f preparing and using flood hazard maps to assist in developing a more strategic approach to land use planning. Some form o f land use zoning seems essential to avoid inappropriate use o f those sections o f the flood plain most liable to inundation. Again, effective longer term flood control measures will require some major investment in controlling and releasing flood waters and in preventing further loss o f forest inthe headwaters o f the Zambezi and its major tributaries. 3. The proposal mentions that The National Action Plan for drought and desertification (NAP),prepared by the central government establishes strategic measures for drought mitigationbut no further details are forthcoming. How effective are these measureslikely to be at the district and local level? Equally, the proposal notes that the central government has inplace a strategy for disaster preparedness in the majorfloodplains, in which early warning systems of floods and seasonal migration between the floodplain and the upland is among the strategies indicated for the affected communities. The question then arises as to how the seasonalmigrations are to be implemented and whether the local populations have been consulted about these measures. Ifnot, they are unlikely to be very effective. 4. The causes o f land degradation are identifiedas deforestation, slash and burn agriculture, unsustainable agricultural and forest extractionpractices and wild bush fires. Once again, more detail i s needed. For example, what are the unsustainable forest extraction practices? Ifpreparation o f charcoal i s one (and it obviously is, here as elsewhere inrural Africa), then what alternative sources o f inexpensive fuel are available, if any? How might fuel be used more economically? What incentives could beprovided to encourage families to plant andmaintain trees for fuel and construction? 5. What i s meant by unsustainable agricultural practices? I s this simply synonymous with shifting agriculture and too short a fallow? If more than this i s intended, it would be useful to specify insome detail. 6. What are the major causes o f fire? I s the primary aim to clear more land for agriculture, or to destroy weeds and dead grass, or to provide fertilizer in the form o f ash? Are the local farmers familiar with the repercussions o f fire, such as increased runoff, reduced infiltration, reduced soil moisture and increased loss o f topsoil and soil nutrients? Some form o f rural extension service could assist in altering these long ingrained practices. Perhapsmore details o frural education programs couldbe provided. 7. The impact o f huntingon the wildlife i s mentioned inpassing, as are the adverse impacts o f habitat fragmentation and destruction. A carefully integrated ago-forestry program to complement existing plant cultivation and animal rearing would help to reduce pressure upon existing forests and woodlands. A long-term and systematic forestry program inthe headwaters o f all major rivers i s essential in order to avert accelerated soil loss and the risk o f flash floods. 145  8. On another matter, what is the justification for selecting the five districts and the three provinces? Are they representative o f a much broader region? How were they selected? What are their geographical characteristics? Inthe absence o f such basic information it i s hard to assess the likely scope for replication o f this Project other than in very general terms (see section 5). The proposal notes that the Zambezi valley has considerable agricultural potential, supports a quarter o f the total national population and comprises 15 percent o f the total arable area. However, we are not provided with any coherent reasons for why the remaining 85 percent o f the area was not considered. a. [Removed: Project long term goal and means to achieve it] b. [Removed: Project description by component] Stakeholder involvement 9. The proposal emphasizes the need for strengthening existing institutions and stresses that at the end of the implementation period, all major Project stakeholders - smallholder farmers, local NGOs and extension services, rural financial service providers, district and provincial technical agencies, district administrations and the DNPDR [National Directorate for the Promotion o f Rural Development] itself - have all increased their capacity to support agricultural development. The proposal underlines this by stressing that what it terms the process aspect o f the Project i s almost as important as the immediate Project development objective of poverty reduction. 10. This part o f the draft proposal could be strengthened. The draft indicates that Project activities would be demand driven without indicating how this will be achieved in practice. The draft also indicates that activities will be closely linked to the government's decentralization strategy, agricultural policies and other development programs in the Project area, as appropriate. However, we are not told in any detail how this might be achieved, so we have to take it on trust that this will indeed result in empowering communities, building community organizations, increasing on- and off-farm production andproductivity andfacilitating farm access to markets. Identification of the global environmentalbenefits and/or drawbacks of the Project [Removed: country socio economic and environmental information, Project areas demographicfeatures] 11. The global benefits that should accrue from reducing the degradation o f existing areas o f natural vegetation and reducing the encroachment onto forested uplands areas include the ensuring o f ecosystem and landscape integrity, stability, functions and services, soil conservation, maintenance of vegetation cover, and conservation of internationally important wildlife and habitats. 12. The outcomes will include improved soil structure and water holding capacity, increased crop and livestock yields, better livelihood prospects, and an overall reduction inpressure 146  on local resources and potential conflict between different groups competing for scarce natural resources inthis seasonally-wet tropical environment. 13. The anticipated national benefits will include alleviation o f poverty, enhanced food security, improved health, and greater ability to cope with natural climatic variations, especially floods and droughts. Project consistent with GEF goals, operational strategies, program priorities and relevant international conventions 14. The Project has a numbero f aims that fall within the remit o f GEF OperationalPrograms #15 (Sustainable Land management) and #12 (Integrated Ecosystem Management). These global environmental objectives include the reversal o f land degradation, reduction inbiomassburningand anoverallreduction inbiodiversity loss. 15. The Project i s consistent with the aims o f the International Convention to Combat Desertification in the dry sub-humid regions as well as with several other international conventions, notably those relating to biodiversity conservation and to climate change. Any increase in plant biomass through increased agricultural productivity in this impoverished environment will enhance carbon storage in growing plants and soils and will help to minimise soil loss through erosion by water and mass movement. An additional benefit would be to enhance the ability o f ecosystems to adapt to future variations inclimate. Regional conservation context 16. Poverty levels within Mozambique are high, and life expectancy is low, literacy levels are low and infant mortality levels are high. All o f these attributes are causally linked. Without improved food security, poverty alleviation, better health facilities, and access to better education, the scope for social and economic improvement remains restricted. These national problems are mirrored inthe Project area. 17. A number of fimdamental issues will need to be addressed. First, there will need to be mechanisms inplace for ensuring hlland effective community participation at all levels. Second, improved methods o f water harvesting and water storage need to be devised and implemented to counteract the impact o f recurrent droughts. Third, there i s urgent need for improved forms o f river basin management to reduce the risk o f future flooding. Fourth, removal o f live and dead wood for firewood and building i s leaving the soil surface bare and more vulnerable to accelerated erosion by rainfall, runoff and mass movement. 147  Scope for replication of the Project 18. The Project brief considers a number o f issues that are also characteristic o f other seasonally wet tropical regions in and beyond Africa. These include deforestation and habitat fragmentation, loss o f biodiversity, land degradation and accelerated soil loss, shifting cultivation, biomass burning, low crop yields and vulnerability to recurrent floods anddroughts. 19. The Project aims to enhance the capacity o f the local communities to improve crop production and productivity and marketing o f their produce and hence to develop income-generating activities that are in harmony with the opportunities (and limitations) offered by this seasonally wet tropical environment. If the goals o f land use planning, sustainable agriculture, water management and prevention o f forest destruction outlined in this draft proposal are achieved, then the Project could serve as a model for other impoverished areas inthe seasonally wet tropics o f Africa. However, the authors o f the proposalwisely confine their attention to more local issues o f sustainability. 20. The proposal notes that the emphasis on institutional and process strengthening is a strong guarantee o f the sustainability o f the Project. As noted earlier, the proposal is designed to ensure that at the end o f the implementation period, all major Project stakeholders - smallholder farmers, local NGOs and extension services, rural financial service providers, district and provincial technical agencies, district administrations and the DNPDR itself - have all increased their capacity to support agricultural development. 21. The approach taken in this proposal i s entirely consistent with national decentralization policies and the moves to establish and develop the capacity o f districts to manage local agriculture and land use planning. In addition, the Project will use existing government structures to manage the Project, including the flow o f funds. The activities o f the Project will be integrated within the structure o f the National Directorate for the Promotion o f Rural Development (DNPDR) and the Ministry o f Planning and Development (MPD). 22. Two final criteria for achieving a sustainable outcome concern the use o f GEF funds to ensure environmentally sustainable use o f land and the proposed development and expansion o frural financial services. 23. Ifthe Projectproves successful, the proposalauthors consider that there would be scope for replication in other districts within the Zambezi Valley and ultimately at a national level. Iconcur with this modest assessment. Project effectiveness and sustainability 24. As a general comment, one can note that ecologically sustainable development requires that social and economic needs be met through maintenance o f the life-support functions o f ecosystems, both natural and humanly modified. Any action that systematically removes materials from a natural system at a rate faster than the ability o f that system to 148  produce a surplus will cause the system to become degraded. Likewise, any action that systematically adds substances to a natural system at a rate faster than the capacity o f the system to absorb and recycle such materials will also lead to system impoverishment. Since the only source o f an increase in net global primary productivity i s via photosynthesis, maintenance o f a resilient plant cover i s the prerequisite for achieving sustainable landuse and effective ecosystem management. 25. The only lasting guarantee that this Project can fulfil these fundamental requirements lies inits ability to enhancethe capacity ofsmallholders inthe Zambezivalley to develop and implement appropriate programs o f sustainable land use, together with an effective monitoring program. Decentralised planning arrangements and suitable arrangements for conflict resolution are necessary conditions to achieving these aims. Other factors will be the successful rehabilitation o f presently degraded land and the associated increase in local income as a result o f more efficient use o f water during dry years and better methods o f flood prevention duringwet years. [Removed: Project M&E arrangements] 26. Ifthis occurs, the outcomes have a good chance to beboth socially and environmentally beneficial. Funds need to be designated specifically to train the monitoring staff from the very outset o fthe Project. Consistency with operational strategies of other focal areas 27. The National Directorate for the Promotion o f Rural Development o f the Ministry o f Planning and Development would be responsible for the overall implementation o f the Project since it already deals with issues relevant to this Project, including agriculture, environment, group mobilization and decentralization. The Project would also complement the existing activities o f a DecentralizedPlanning and Finance Project (Loan No. H0670) financed by the World Bank and implemented by the Ministry o f Planning andDevelopment, which cover all the districts ofinterest to the proposedProject. Linkages to other programs and action plans 28. The draft outline sounds promising intheory, but there are formidable practicalproblems that will need to be overcome if this Project i s to succeed. These include the perennial problem o f conflicts o f interest between different institutions, weak institutional and administrative capacity, lack o f access to education and training by the very many poor and underprivileged members of the community, conflicts over competing demands for access to scarce natural resources, and the background vicissitudes o fperiodic floods and droughts, leached infertile soils and difficult access to markets.Having said that, it seems that the authors o f the proposal have taken considerable pains to ensure that this Project dovetails well with existing programs and action plans. 149  Otherbeneficialor damagingenvironmentaleffects 29. The proposal contains a lucid, dispassionate and detailed tabulation o f the potential risks involved in this Project. Against each o f the identified risks i s a list o f possible risk mitigation strategies. Risk i s then assessed on the assumption that the mitigation measures are inplace. The overall assessment o f risk is regarded as substantial owing to the number o frisks faced by the Project under different category headings. 30. However, the authors consider that the Project will have few adverse environmental impacts. Their reasons for this assertion are given below and seemjustified. [Removed: Project description of environmental impact under section D in the PAD] Mechanismsfor participationandinfluencingProjectmanagement [Removed: Project implementation arrangements at district, province and national levels] 31. The advantage o f the administrative structure proposed i s that it uses, augments and strengthens existing structures. The success o f the Project will depend to a large extent on the capacities o fthe FieldManagement Advisor and o fthe District Facilitators. Capacitybuilding 32. Unless the capacity o f the local communities to plan and co-manage sustainable land use inconjunction with national andregionalagencies is enhanced, the Project is unlikely to succeed. The Project authors are very aware o f this and note that Government services are often top-down and technocratic, and occur in isolation from other rural development stakeholders, including smallholder farmers and the emerging private sector. They point out that rural extension services are few, with on average only 1.3 extension workers per 10,000 rural inhabitants. Some 87 percent o f rural households do not have effective access to extension services. 33. The Project is structured to ensure that any provision o f finance through community investment funds is accompanied by assistance with production and/or marketingissues. Although the emphasis i s on working with and through groups to resolve these latter issues, the authors o f the proposal note that a group will only work ifit serves a clear and tangible economic purpose for each of its individual members. They stress that groups should be based on a clear demand and only engage in such demand-driven activities that cannot be carried out by its members individually. 34. Bearing in mind these concerns, the proposal advocates the creation o f Village Savings and Loans groups as an effective way to reach economies of scale that willfacilitate investment in productive activities by individual members o f the group, eventually leading to the formation o fmicro-credit institutions. 150  Innovativeness of the Project 35. The authors o f the proposal note that in the Project areas: poverty is insidious, commercial networks are almost non-existent, agriculture is primarily rain-fed and smallholder production mostly usedfor subsistence in the districts along [the] Zambezi Valley. The districts targeted by this Project are all physically isolated with almost no formal commercial orfinancial services. 36. They argue that a demand responsive approach is necessary to help rebuild the social networks and structures destroyed during the earlier period o f civil war. At present most communities and individuals react more or less passively to external events and few are aware o ftheir civil rights. 37. The Project will establish a set o f processes for reviewing community participation through household surveys conducted before the middle and end o f the Project. The innovative aspect o f this Project i s to empower presently marginalized individuals to work together to improve their overall quality o f life. As the authors o f this proposal indicate: the main social benefits of the Project are likely to be added knowledge, skills and experience of smallholders, including women and youth, that strengthen the organizational cohesion, leadership and member motivation of their groups and associations. Their increased institutional and leverage capacity is expected to assist them to manage and control their access to rural finance, agribusiness services and government managed resources, significantly improving their development opportunities. Potential for greatest impact and lessons learned from other similar Projects 38. In many parts of the seasonally wet tropics, indiscriminate destruction of the natural vegetation has resulted in severe and widespread land degradation. Such degradation has impacts well beyond the immediate area suffering from loss o fplant cover. Inevery case, for prevention and mitigation strategies to succeed, the local communities need to be aware o f the benefits and to have a full role in the design and implementation o f the measures to control land degradation. Appropriate forms o f environmental education must go hand inglove with measures to reduce poverty and ensure food security among the poorest communities in these regions, who are also the most vulnerable to environmental change. 39. The level o f poverty in the proposed Project i s very high and agricultural yields are exceedingly low. About 96 percent o f rural farm households do not use any form o f fertilizer, 90 percent do not use animal traction for cultivation, and 82 percent have problems o f seed supply. Lack o f access to credit reinforces this vicious spiral o f low yields, poor landmanagement practices and persistent poverty. The temptation to engage in illicit removal and burning of forest is strong and the outcome is deforestation, accelerated loss o f topsoil and desertification, leading to still lower levels o fproductivity. [Removed: lessons learned as in section B of the PAD] [Thefull STAP review text is available onfile] 151  World BankTeamresponseto STAPreview comments All comments have been addressed in the Project Document. Below is a summary of main comments and the Team's response: Comment Response N o sufficient detail why this particular There are at least two major drivers o f flooding vulnerability: (a) region is so vulnerable to severe Uncoordinated water control in large upstream dams (Cabora Bassa, Lake flooding as well as what might be done Kariba) have a large influence on floods downstream; and (b) A measured to reduce such floods or at least to increase in the frequency and severity o f cyclonic activity and associated alleviate their impact, including the use heavy rainfall impacting the Zambezi basin. Our quantitative measurement o f early warning systems. approaches using state o f the art remote sensing and basin to district scale hydrological modelling will provide (a) measures to reduce floods and to improve establishment o f effective early warning systems and disaster plans at local level and (b) the development o f adaptive agricultural practices in less vulnerable areas (see Attachment 2 - Baseline Data on Landuse, Biodiversity, and Hydrology for a detailed description) Clarification needed on what the The main unsustainable forest extraction practices are illegal logging, unsustainable forest extraction practices fuelwood extraction and charcoal making. Firewood i s main source o f are; what alternative sources o f fuel; there i s an open access regime for charcoal making and fuelwood inexpensive h e 1 are available, if any; collection, depleting the forest resources. In addition, local land users how fuel might be used more regularly use fire to facilitate hunting and honey gathering and this results economically; what incentives could be inthe burningo f large areas o f local grasslands and woodlands. This GEF provided to encourage families to plant Project will provide education and awareness programs, favor fast growing and maintain trees for h e 1 and fuelwood plantations, and promote energy saving techniques (stoves) and construction. alternative energy sources (see PAD - Component 2). Through NRM fund (Component 3 in the PAD) incentives are available to invest in fuel- efficient and fireless, forest product extraction techniques Clarification needed on the term Slash and burn agricultural practices, inaddition to shortening o f fallow `unsustainable agricultural practices'. periods also causes insufficient nutrient replenishment and the exposed soils are more susceptible to soil erosion and degradation. Other cropping practices that are unsustainable include the use o f nutrient demanding and extractive cash crops, and non-optimal crop rotations as described in Annex 13 o f the PAD. Detail is needed o n the major causes o f Slashing and burning o f woodlands for agricultural purpose, clearing fire. around homesteads for safety reasons (protection against snakes), honey gathering using smoke to drive away bees, and hunting are the maincauses o f forest fires. As firebreaks and natural barriers seldom exist, a single fire can extend over thousands o f hectares destroying forest understorey and contribute to biodiversity loss (see Annex13). Project intervention Consider the utility o f preparing and We have incorporatedthe use o f state o f the art remote sensing and using flood hazard maps to assist in mapping techniques including digital elevation models derived from the developing a more strategic approach to Shuttle radar Topographic Mission (SRTM) data to map the terrain in3 land use planning. Some form o f land dimensions (including elevation and streamflow networks) and existing use zoning seems essential to avoid natural resource endowment changes over time. These data sets are now inappropriate use o f those sections o f coupled with a landscape level hydrologicalmodel that integrates the flood plain most liable to vegetation cover, soil, evapotranspirationto derive impact scenarios. inundation. Integrated into land use planning efforts under SPA activities will be 152  undertaken; Flood hazardmaps and drought prone areas will be mapped and strategies for adaptation established to guide project activities and to facilitate M&E systems. H o w effective are NAP'S strategic A number o f policies, laws and regulations were established by the measures for drought mitigation likely government to reduce impacts o f drought and promote sustainable to be at the district and local level? development providing communities rights and opportunities to play an active role in the planning, programming and implementation o f the activities. Currently, the implementation o f strategic measures i s the main issue. This project will facilitate the decentralized local government agencies to pilot with local communities to proactively predict and map likely areas o f flood and drought risk and to begin mitigation activities at the local level. A carefully integrated agroforestry Agroforestry (AF) will be one o f the main pillars for S L M interventions. program to complement existing plant Many (AF) technologies are available, tested and widely disseminated in cultivation and animal rearing would the eco-zones o f Mozambique, Southern Malawi, Eastern Zambia. help to reduce pressure upon existing Technical assistance will be provided to local communities to integrate forests and woodlands. A long-term and new technologies and adapt them directly intheir fields to local conditions. systematic forestry program in the These include: improved fallows, fast-growing woodlots, exotic and headwaters o f all major rivers i s indigenous h i t trees, multipurpose home gardens, fodder banks, relay essential in order to avert accelerated cropping, mixed cropping (see ICA, component 2). The integrated land soil loss and the risk o f flash floods. cover, biodiversity, hydrology model that we have developed using project preparationj resources will now provide advanced land use planning capacity at the district, provincial, and even basin levels. The integrated geo-spatial modelling approach not only allows the identification of vulnerable springs and headwaters but also makes it possible for local stakeholders to incorporate and simulate the likely impacts of transboundary riversitributaries and the Cabora Bassa hydropower dam when assessing medium to long term land cover changes such as reforestation. (see ICA, component 1). Selection of Projectfocus Provide justification for selecting the The Zarnbezi Valley o f Mozambique has high agricultural, fisheries, five districts and the three provinces and ecotourism and trade potential but was one o f the most heavily damaged consequent potential for replication. during the 20 year long civil war. The area has also largely been neglected What are the geographical by donors. The GoM is now using WB investments to rehabilitate characteristics? infrastructure e.g. the Roads and Bridges project, and the Beira railway project (see section A.2) so the proposed GEF project has high potential to Provide the reason for the selection o f provide environmental synergy to these infrastructure investments. The the Zambezi Valley as the Project focus. Project area covers three distinct agro-ecological zones and three provinces, providing a highpotential for scaling up within these zones and provinces. See page 26 o f Attachment 2 - Baseline Data on Landuse, Biodiversity, and Hydrology for a detailed description of the DOMAIN mapping that we have conducted in the PDF-B phase to facilitate extrapolation to other eco-zones and locations o f the Zambezi). 153  Projectparticipatory approach Indicate how demand driven approach As indicated in our response to the Council Member from Switzerland willbe implementedinpractice. (point iv above), The Bank and other donors are currently supporting the Government o f Mozambique (GoM) programs on decentralization and are Indicate how activities will be closely currently providing the resources and capacity building to to support linked to the government's district development and local institutional strengthening. (2) A key decentralization strategy, agricultural objective o f this GEF project is the strengthening o f the environment policies and other development related knowledge and capacity o f the governmental and community program inthe Project area. institutions. To support this objective, technical assistance teams will be based inand operate from the project districts. They will actively facilitate knowledge dissemination on the environmental synergies and tradeoffs to district managers and the local government staff. These local institutions and their activities will be inplace and operational as the project comes to an end - a logical phasing out. (3) The project, in conjunction with existing agenciesistructures and the on-going G o M initiatives, will invest in improving the public management processes at district level (planning, M& E, financial management, accounting, and procurement) related to global environmental benefits and local ecosystem services by investing in knowledge and capacity building o f the district's mangers and regular staff. In the PAD, Component 1 is dedicated to the demand driven approach through mobilization o f communities and capacity strengthening o f community group organizations. Awarenessand education Detail is needed on whether local Although some awareness exits in regard to environmental problem, the farmers are familiar with the issue for the local communities lies within how to address the problem, in repercussions o f fire, such as increased addition to lack o f opportunities and alternatives available. Also, runoff, reduced infiltration, reduced soil awareness, seriousness o f issues and alternatives may vary significantly at moisture and increased loss o f topsoil the local level and thus will be addressed with a site specific approach in and soil nutrient. the project. Appropriate forms o f environmental Awareness campaigns, education programs on environmental issues are education must go hand in glove with one o f the main activities under Component 2 in the PAD. They will be measures to reduce poverty and ensure complemented by the development o f alternative S L M practices and food security among the poorest technologies on-farm. For example, the collection o f honey by traditional communities inthese regions. methods involves the use o f firelsmoke to control bees and i s a significant cause o f wild fires innative woodlands. Improved apiculture methods will be introduced that not only eliminate the use o f fire but also do not damage hive integrity and bee populations. Environmentally sound practices will be linked and integrated in agricultural production systems according to priority needs o f c,ommunities (see ICA component 2). A potential incentive for communities to eliminate fire and significantly reduce deforestation is for the project to involve communities in schemes that provide payements for carbon sequestration (a) through planting of native species on land that was deforestedprior to 1989 and (b) to explore the possibility o f community forest land being included in 'compensated reduction' programs whereby they are paid for the standing carbon intheir forests. The project will explore both options with direct participation by the communities. 154  Mozambique: Market-ledSmallholdersDevelopmentin the Zambezi Valley Annex 17- MozambiqueMap 155   IBRD 33451R1 30