Madagascar - Agricultural Institutions Technical Assistance Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-3151-MAG REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR FOR AN AGRICULTURAL INSTITUTIONS TECHNICAL ASSISTANCE PROJECT April 27, 1982 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS December 1981 February 1982 Unit = Malagasy Franc FMG = Malagasy Franc (FMG) US$1.00 = FMG 271.73 = FMG 300.87 FMG 1,000 = US$3.701 = US$3.32 FMG 1,000,000 = US$3,701 = US$3,324 (The cost estimates at appraisal are based on US$1 = FMG 275) WEIGHTS AND MEASURES Metric System 1 hectare (ha) - 2.47 acres 1 kilometer (km) = 0.62 miles 1 square kilometer (km2) 0.39 square mile 1 kilogram (kg) - 2.20 pounds 1 metric ton (ton) - 2.204 pounds  FOR OFFICIAL USE ONLY ABBREVIATIONS AND GLOSSARY CCCE = Caisse Centrale de Cooperation Economique DGDR = National Directorate for Rural Development DDR = Directorate for Rural Development DEP = Department for Studies and Programming EDF = European Development Fund FAC Fonds d'Aide et de Cooperation FAO = Food and Agriculture Organization FIFABE Regional Development Authority for the Betsiboka Valley FOFIFA = National Center for Applied Research on Rural Development IFAD = International Fund for Agricultural Development IRRI = International Rice Research Institute KFW = Kreditanstalt fuer Wiederaufbau MPARA Ministry of Agricultural Production and Agrarian Reform SAMANGOKY Regional Development Authority for Lower Mangoky Valley SDR Rural Development Service SINPA = National Marketing Company for Agricultural Products SOMALAC 2 Regional Development Authority for the Lac Alaotra Region UNDP = United Nations Development Program ZDR = Rural Development Zone PPF = Project Preparation Facility ICTAD = Institut de Coordination des Techniques Appliquees au Developpement Fokonolona Institutions Fokontany village level local government Firaissam-pokonolona = second tier local government (former canton) Fivondronana-pokonolona = third tier local government (former sub-prefecture) Faritany = fourth tier local government (former province) GOVERNMENT FISCAL YEAR January 1 - December 31 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   MADAGASCAR AGRICULTURAL INSTITUTIONS TECHNICAL ASSISTANCE PROJECT CREDIT AND PROJECT SUMMARY Borrower: Democratic Republic of Madagascar Beneficiary: Ministry of Agricultural Production and Agrarian Reform (MPARA) Amount: SDR 5.2 million (US$5.7 million equivalent) Terms: Standard Project Description: a) Objectives: (i) To assist the Government through technical assistance in identifying action programs to rehabilitate specific aspects of the agricultural sector, and (ii) to initiate a process of long-term agricultural reform through institution building and a redefinition of sector investment programs and policies. b) Main Project Components: (i) preparation of a 3 year investment plan for the agriculture sector; (ii) project preparation studies; (iii) preparation of a short-term action plan for the rice sub-sector and support for the central rice planning unit; (iv) management audits and management improvement programs for selected parastatals with key responsibilities for rice production; (v) studies of rice marketing in Madagascar including a review of the operations of SINPA; (vi) organizational analysis and management improvement programs for MPARA and the Rural Development Service of Antananarivo and (vii) management and operational support for the agriculture research institute. c) Benefits: The expected improvements in sector management and institution building would contribute to a more efficient use of domestic and external resources by key agricultural institutions, identification of priority projects, and improved Government support services to the farmers. As a result of these improvements, the Government would be better able to manage the short-term effects of the current economic crisis and to initiate a process of a long-term recovery program in the agriculture sector. d) Risks: Major project risks include possible delays in recruiting the technical specialists required under the pro- ject and the Government's commitment to implementing the consultants' recommendations and introducing the necessary reforms in regard to parastatal reorganization and staffing, pricing and cost recovery. However, steps are being taken to expedite the recruitment procedures and the Borrower will be made aware that future lending to the agricultural sector would be predicated on appropriate action on issues identified through the project.  (ii) -US$ 000 --------_____ Local Foreign TOTAL Project Components: A. Strengthening of Sector Planning and Project Preparation Investment Planning 80.0 240.0 320.0 Project Preparation 210.0 610.0 820.0 Coordination of rice planning 110.0 140.0. 250.0 Subtotal A 400.0 990.0 1,390.0 B. Improvement of Parastatal Management Regional Development Authorities 510.0 1,040.0 1,550.0 Rice Marketing Services 180.0 320.0 500.0 Complementary Studies 70.0 80.0 150.0 Subtotal B 760.0 1,440.0 2,200.0 C. Government Support Services to Agriculture Studies of the Organization of MPARA 285.0 615.0 900.0 Agricultural Research 275.0 725.0 1,000.0 Subtotal C 560.0 1,340.0 1,900.0 Total Base Costs 1,720.0 3,770.0 5,490.0 D. Contingencies Physical 140.0 160.0 300.0 Price 240.0 670.0 910.0 Total Project Costs 2,100.0 4,600.0 6,700.0 US$'000 Local Foreign Total Percentage Financing Plan IDA Credit 1,100.0 4,600.0 5,700.0 85% Government 1,000.0 - 1,000.0 15% Total 2,100.0 4,600.0 6,700.0 100% Estimated US$ '000 Disbursements: IDA FY 1982 1983 1984 1985 Annual 1,000 1,000 2,000 1,700 Cumulative 1,000 2,000 4,000 5,700 Rate of Return not applicable Staff Appraisal Report: No Staff Appraisal Report was prepared Map: IBRD 13654R  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR FOR AN AGRICULTURAL INSTITUTIONS TECHNICAL ASSISTANCE PROJECT 1. I submit the following report and recommendation on a proposed develop- ment credit to the Democratic Republic of Madagascar for the equivalent of SDR 5.2 million (US$5.7 million) on standard IDA terms to help finance an Agricultural Institutions Technical Assistance project to be implemented by the Ministry of Agricultural Production and Agrarian Reform. PART I - THE ECONOMY 2. A report entitled "Madagascar - Economic Memorandum" dated November 3, 1981 has been distributed to the Executive Directors. An economic mission visited Madagascar in March/April 1982 and an updating Economic Memorandum is in course of preparation. Country data sheets are provided in Annex I to this report. 3. Madagascar, with a population of 8.7 million and a per capita GNP of about US$290 in 1979, is among the poorest countries in the world. It is a sparsely populated country (about 14 persons per square kilometer) with less than 20 percent of the population living in urban areas. Although generally well endowed with natural resources and a variety of soils, there are consider- able regional variations in ecology and climate. The central plateau, the most economically advanced region, has a subtropical to temperate climate, the south is the poorest region with an arid climate and infertile soils, the eastern region has a tropical climate and although rich agriculturally, crops are frequently devastated by cyclones. Agriculture accounts for about 35 percent of GDP; about 85 percent of the national labor force is engaged in agricultural activity, and agricultural products account for about 80 percent of the country's export earnings. 4. Madagascar's development over the past decade has been disappointing. With a population growth around 2.8 percent per annum, real per capita GDP has decreased by about 1.5 percent per annum; in 1980 per capita real income was probably about 14 percent below its 1970 level. Even with sluggish and erratic development, Madagascar's policies until 1978 had been characterized by cautious and conservative public finance and balance of payments management. In 1979 and 1980 Government undertook a very large program of public investment with a marked shift to dependence on external sources for its financing. Investment outlays (in volume terms) increased by about 13 percent per annum between 1978 and 1980 and the share of investment in GDP which had been around 14 percent since the early 1970s rose to around 21 percent in 1979 and 1980. The increased investment thrust and its attendant import needs coincided with almost stagnant  -2- export earnings and a deterioration in terms of trade, so that Madagascar's balance of payments position deteriorated very sharply in 1979 and 1980. General Government and state enterprises accounted for virtually all of the increased investment expenditures so that the budget expenditures and the overall budget deficits increased dramatically in 1979 and 1980. 5. Overall output growth has continued to be very erratic over recent years. Real GDP increased by about 10 percent in 1979, increased by less than 1 percent in 1980 and decreased by about 9 per cent in 1981. The short-lived spurt of growth in 1979 was due to increased activities associated with the investment boom and to improved weather conditions benefiting agricultural production but already in 1980 agricultural and manufacturing production were adversely affected by inadequate supplies of necessary inputs and raw materials which became much more accute in 1981. 6. Agricultural output grew on average by about 1 percent between 1977 and 1980, thus continuing the very sluggish development which has characterized Madagascar's agriculture since the early 1970s. Output in 1978 was seriously affected by the prolonged drought conditions which had prevailed since 1976 and declined by about 6.5 percent. With improved weather conditions in 1979 output increased by about 7 percent but in 1980 is estimated to have grown by only about 2.5 percent and preliminary indications are that output in 1981 is likely to show virtually no expansion. Production of rice, the principal staple food, has virtually stagnated over recent years; production in 1979 was about 5 per- cent below its 1977 level. Domestic production has failed to keep pace with domestic needs, especially to satisfy the growing urban population, and imports of rice have grown rapidly from about 60,000 tons in 1975 to about 250,000 tons in 1980. Production of coffee, Madagascar's major export commodity, which had risen steadily during the first half of the 1970s, declined sharply in 1976 and 1977, mainly due to unfavorable weather, and then increased moderately in 1978 and 1979. Production in 1979, about 81,000 tons, was still somewhat below its mid-1970s level. Production of cloves, Madagascar's second most important foreign exchange earner, is subject to a four to five year production cycle; the peak production reached in 1979 showed only a modest increase over the previous level in 1974. Vanilla production dropped sharply between 1977 and 1979 due to the combined effects of poor maintenance, prolonged unfavorable weather condi- tions and competition from synthetic substitutes in international markets. 7. Growth of manufacturing output has continued to be slow and erratic; real value added in the sector increased by about 13 percent in 1979, decreased by about 3 percent in 1980 and decreased by about 25 per cent in 1981. Food processing (including beverages) and textile production are the dominant activities, accounting respectively for about 35 percent and 21 percent of the sector's value added. Output of food and beverage industries grew on average by about 2 percent per annum over the 1977-80 period. Textile production, which increased by about 9 percent in 1979, decreased by about 5 percent in 1980, in which year production was affected by reduced raw material supplies and by machinery maintenance problems. The only industries which have shown a regular growth of output over recent years were cement, tobacco, leather goods (mainly shoes) and paper products. The combined share of these industries in total manufacturing value added in 1979 was just over 15 percent. The manufacturing  -3- sector has been generally operating at a low level of capacity utilisation over recent years. With increasing scarcities of imported raw materials and spare parts in 1980 and 1981, the dislocations to production have become increasingly severe. 8. Madagascar's fiscal situation has deteriorated dramatically since 1978, due to sharply rising current expenditures and increased Government spending on capital investment. The current budget surplus, which used to be substantial, turned to a deficit as revenues failed to keep pace with the growth of expendi- tures. Furthermore, as Government intensified its efforts to raise investment levels and stimulate the economy, public investment expenditure rose from 16 billion FMG in 1977 to 105 billion FMG ($497 million) in 1980. Outlays on the consumer subsidy for rice increased from about 4 billion FMG in 1975 to nearly 12 billion FMG ($57 million) in 1980. The overall Treasury deficit increased from about 4.5 percent of GDP in 1978 to about 18.5 percent in 1980. While borrowing from external sources was greatly expanded in both 1979 and 1980, the budget deficits were financed primarily by borrowing from the Central Bank, which provided about two thirds of the financing of the 1980 deficit. Preliminary estimates for 1981 indicate that government expenditures (current and capital) were substantially cut back and that the overall deficit in 1981 was equivalent to about 14.5 per cent of GDP. 9. Monetary and credit developments over recent years largely reflect the Government's deficit financing needs. Domestic credit increased from about 126 billion FMG ($536 million) at end of 1977 to about 329 billion FMG ($1,460 million) at end 1980. Most of this expansion was accounted for by Government borrowing from the Central Bank, whose share of domestic credit rose from about 23 percent in 1977 to about 55 percent in 1980. Despite a significant reduction in net foreign assets, money supply grew by over 20 percent per annum during the 1977-1980 period. Available price information for Madagascar is fragmentary. There is a wide-ranging system of controlled prices which appears to have become inoperative with most goods selling at prices well above control levels. A price index for low income families shows an acceleration of price increases to about 18 percent in 1980 compared to about 14 percent in 1979 and an annual average increase of about 4.5 percent from 1975 to 1978. 10. Madagascar's balance of payments position deteriorated dramatically over the 1977-80 period. The current account deficit, which had averaged around FMG 8 billion ($33 million) from 1975 to 1977, rapidly increased to about FMG 109 billion ($515 million) in 1980, i.e., from less than 2 percent of GDP to around 16 percent of GDP. From 1977 to 1980 the import bill virtually doubled while export earnings increased by only around 3 percent. The overall balance which had been in surplus by about FMG 3 billion in 1977 was in deficit by about FMG 59 billion in 1980. Transactions with the rest of the world have been financed by a total exhaustion of reserves, an unprecedented increase in foreign borrowing and by incurring substantial arrears on external payments obligat- ions. The increased import bill has been the most striking feature of recent balance of payments developments. Average import prices increased substantially (over 40 percent) during the 1977-80 period and import volume showed approxima- tely the same proportionate increase. While nearly all categories of imports  -4- increased, imports of capital goods grew at a particularly rapid rate and accounted for approximately half of the increase in the import bill between 1977 and 1980. The very modest growth in export earnings between 1977 and 1980 reflected continued inertia in export volume and fairly stationary world prices for Madagascar's principal exports. Export growth continued to be sluggish in 1981 but a significant cut back in imports reduced the current account deficit to the equivalent of about 11 per cent of GDP. 11. The development of the Malagasy economy has been constrained over many years by a number of basic weaknesses, e.g. low productivity in agriculture, slow growth in major primary exports and inadequate domestic savings. The sharp deterioration in Madagascar's economic and financial situation in 1979 and 1980 reflects these continuing problems. The significant shifts in government policy through a greater openness to external finance and, also in pushing vigorously for a higher level of investment have been accompanied by continued sluggish export performance and deterioration in the terms of trade. The import bill has been swollen not only by imports of capital goods but also by a growing import of consumer goods, especially rice, for which domestic production and distribu- tion weaknesses are a serious problem. The country is well endowed with natural resources and the administrative cadres are relatively well trained. A more effective use of these resources will depend, however, on a lasting correction of the serious imbalances which exist on both balance of payments and government budget accounts. 12. In June 1980 the Government concluded a stand-by agreement with the IMF which aimed to restore balance of payments and budgetary equilibrium. Some of the individual policy measures in this program were implemented, e.g. measures to increase government revenues, but efforts to limit government expenditures were not successful and the program was suspended. A new stand-by agreement was concluded in April 1981. This provided SDR 109 million (US$130 million) to be drawn up to end June 1982. The stand-by agreement placed limits on public expenditure, government borrowing from the Central Bank and new external borrow- ing, and entailed a reduction in external payments arrears. Implementation of the stand-by proceeded successfully up to July 1981, but unanticipated short- falls in export earnings, due in large measure to weak world coffee prices and a smaller than anticipated inflow of new capital from international commercial banks, made it impossible for Madagascar to adhere to the stand-by performance conditions in the following months. Further drawings under the stand-by have been suspended but negotiations with the IMF are continuing to explore ways in which, through supplementary actions on the part of the Madagascar authorities, a new stand-by agreement could be concluded. 13. These stabilization measures need to be complemented by measures to enhance the long-term viability of the economy. A Plan for the period 1981-86 was prepared. The Plan envisages a much more vigorous effort in export expansion and an action program for greater self sufficiency in food production and supply of raw materials. Administrative steps have already been taken to strengthen regional economic planning and the operations of government enterprises. Priority is to be attached to a rehabilitation and greater utilization of the existing capital stock with limited new investment largely concentrated in production sectors. Government has made substantial progress in  -5- preparing a public investment program for the 1982-86 period which would be a key element in implementing policies of economic recovery and reform. Madagascar has formally requested non-project assistance from the World Bank and discussions have been initiated to identify a program of structural adjustment and policy reform which such assistance might appropriately support. 14. With the shift in government policy to a greater reliance on foreign financing, Madagascar's external public debt has increased substantially over recent years. Total external debt (outstanding and disbursed) at end 1980 amounted to about $1,035 million, compared to about $245 million at end 1977. There has been a greater diversification in sources of external financing but average terms have hardened significantly. Consequently, the debt service ratio has risen from around 4 per cent in 1977 to about 12 per cent in 1980 and is likely to be around 30 per cent in 1981. Madagascar now faces a rising debt servicing burden in the next few years. A Paris Club meeting took place between April 29-30, 1981, as a result of which Madagascar obtained debt rescheduling of about $36 million covering the period January 1, 1981 to June 30, 1982. In view of these developments improved debt management by the Government is an essential component of our dialogue with Madagascar. 15. The World Bank group has provided about 45 percent of the concessionary assistance which Madagascar received between 1975 and 1979. Over the same period, however, around 40 percent of external public borrowing has been from non-concessionary sources. Increased external financing on a concessionary basis will be required to support the Government's economic restructuring and development efforts and to ensure a continued capacity to service external debt. Given Madagascar's poverty and current resource constraints, IDA should continue to contribute to local cost financing. PART II - BANK GROUP OPERATIONS IN MADAGASCAR 16. IDA credits to Madagascar amount to US$315.95 million, and Bank loans total US$32.58 million. Since 1975, about 50 percent of Bank Group lending has been for transport, 12 percent for electric power, 21 percent for agriculture, 10 percent for industry, technical assistance, water and petroleum, and 7 percent for education. IFC's first investment was in 1977 for the expansion of a textile mill. In 1980 IFC made a $1.25 million loan for the Bata shoe manufacturing company in Antananarivo, and other projects are under preparation. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of March 31, 1982, as well as notes on the execution of ongoing projects. 17. Bank Group assistance to Madagascar has been concentrated on the key areas of infrastructure (including urban and social infrastructure), agricul- ture and energy. We have begun to lend to the industrial sector with a first US$5 million DFC credit to the Industrial Development Bank of Madagascar (BNI). In infrastructure, four projects have been for the construction of all-weather highway links between the island's different regions and a fifth project for road maintenance. There have been projects for improving Madagascar's main port of Toamasina, and to support the railway's modernization efforts. Urban  6- infrastructure development includes a first water supply and sanitation project for the capital city of Antananarivo for which a $20.5 million credit was signed in May 1980. In the social sector, education has been the major recipient of Bank assistance with two credits totaling $18.8 million. In addition, studies for urban development financed by the UNDP with the Bank as Executing Agency have led to preparation of a project for urban development. A credit of SDR 9.4 million for an accounting and audit project was signed in June 1981. 18. Bank Group lending for agriculture consists of three livestock development projects, three irrigation projects, two forestry projects and an agricultural credit project. A $2.3 million technical assistance credit to prepare projects in the Plain of Antananarivo area was signed in January, 1981. We expect agriculture to continue to absorb a large share of Bank Group\ lending, in line with Government strategy to expand agricultural production. A project to assist the rehabilitation of rice production in the Lake Alaotra area has been appraised. Further rural development and crop production projects are being prepared. 19. Energy projects have also received growing Bank-Group attention: IDA is financing part of the cost of the large Andekaleka hydroelectric project, for which there is also substantial bilateral assistance. A $12.5 million credit for petroleum exploration is supporting the Government's efforts to develop a domestic supply of hydrocarbons and to improve planning of the energy sector. A second petroleum exploration project is under preparation, including financing of a feasibility study for heavy oil exploitation. 20. In the past, problems have arisen in the execution of several projects. The main problems encountered included delays, cost overruns, deficiencies in management and inadequate financial performance of project agencies. The Morondava irrigation project of June 1972 had to be substantially reduced, and the Government and the Association have agreed on a plan of action to deal with the management and financial problems affecting the project. The first Village Livestock project was delayed by institutional problems. The credit was renegotiated in 1977, since when implementation has been satisfactory. On the other hand, the first Mangoro Forestry project was very effectively executed and cost estimates were in line with forecasts. The road construction component of the fourth highway project is nearly completed and the maintenance studies have been completed, although there was a delay in the start of the highway maintenance training program. The Government has now agreed that training consultants be employed, and construction of the training facilities has begun. Construction under the fifth highway project is ready to start. 21. Since the start of our program in Madagascar, four projects, all of which included technical assistance, have been completed and audited by the Operations Evaluation Department. The Audit Report No 1622 of December 1976 on the Lac Alaotra project concluded that the project was generally successful. However, the Impact Evaluation Report No 3600 of August 1981 concluded that earlier assessments of project performance had probably been overoptimistic, and that the actual economic rate of return was probably negative. The Audit Report No 1559 of April 1977 on the Beef Cattle Development Project concluded that the Project had contributed little to Madagascar. Lessons learnt from the experience of these two projects are being applied in the design and imnplementation of new projects for the areas concerned.  -7- 22. The Audit Report No 2143 of July 1978 concluded that the Third Highway project was well justified and had a good rate of return despite substantial cost overruns. Report No 2299 of December 1978 concluded that the physical objectives of the Tamatave Port Project were satisfactorily achieved but pointed out that the institutional objective was not accomplished during project implementation because of inadequacies in the staffing of the port authority. With the exception of the port project, the technical assistance components of all sour projects were executed satisfactorily. PART III - THE AGRICULTURAL SECTOR IN MADAGASCAR General 23. Agriculture is the dominant sector of the Malagasy economy, contribut- ing about 40 percent of GDP and accounting for about 80 percent of export earnings. About 85 percent of the population live in rural areas and support themselves directly or indirectly through agricultural activities. Madagascar's agriculture sector is diverse, and a wide range of crops are produced. Rice is the staple food crop and is grown throughout Madagascar; cattle husbandry is equally basic to the rural economy. Cultivation of the major export crops -- coffee, cloves, vanilla, and pepper -- is concentrated in the north and along the tropical east coast. Sugarcane and cotton, the principal industrial crops, are grown in the west and northwest of the island. Manioc, beans, and potatoes are other important foodcrops. Although some large-scale mechanized schemes have been established for rice and cotton cultivation, small-scale traditional farming is the mainstay of the agricultural economy. 24. The growth of Madagascar's agricultural production between 1970 and 1980 has been slow, with the average rate of increase somewhat less than the population growth rate of 2.8 percent a year. This performance largely reflects the low growth rate of rice production and the stagnation of livestock product- ion. Paddy production has levelled off at about 2 million tons per year, and, once a net exporter of rice, Madagascar can no longer satisfy its domestic requirements. The causes of this important change are complex and include: (1) the breakdown in delivery of services to farmers (particularly distribution of inputs and extension advice); (2) inefficient marketing arrangements; (3) inadequate price incentives; and (4) limited research on new crop varieties. Livestock production is also stagnating for many of the same reasons. The national cattle herd is estimated at about 10 million head. With increasing domestic demand, a larger proportion of meat products are being consumed locally and meat exports to traditional markets have declined over the past decade and are well below their potential. Although production of coffee, cloves, and vanilla increased in 1979, production levels are still below those achieved in the mid-1970s and export performance has been poor. Despite these serious problems, potential for agricultural development in Madagascar is considerable, and sector growth could be achieved through expansion of cultivated area and intensification of production. 25. Production trends in the rice sub-sector have a tremendous impact on overall sectoral performance because rice is grown on about 50 percent of permanently cultivated land in Madagascar (about 1.1 million ha). Of land under  rice, family rice fields represent 70-80 percent of the total area; the remaining 20-30 percent represents organized irrigation schemes developed or supported by the Government. The large irrigation schemes supply a high proportion of Madagascar's marketed rice production, as rice produced on family farms is primarily consumed by farmers themselves. Paddy collection and rice distribution to deficit areas have been a Government monopoly since 1972, although in practice a significant proportion is still marketed through private channels. Paddy collection is the primary responsibility of local Government authorities, who in turn sell the paddy to public sector marketing companies. Shipments of rice to deficit areas or to storage facilities are directed by several ministries at the central level; decisions on rice imports also involve several ministries. The Government currently fixes prices of paddy and rice at the producer and retail levels, as well as the margins for marketing, processing, and wholesale transactions. Current price levels involve a significant-direct subsidy to consumers and result in losses to the marketing companies. It is Government policy that the marketing companies be reimbursed for the direct losses resulting from the consumer subsidy, but payments are typically delayed and cover only a small portion of actual losses incurred. Madagascar now imports significant quantities of rice to meet the growing deficit in domestic production. The volume of rice imports reached a level of 210,000 tons in 1979 and accounted for about 9 percent of the value of total merchandise imports; an estimated 250,000 tons were imported in 1980. 26. Planning of agricultural investments in Madagascar has traditionally been an ad hoc exercise reponding to short-term crises and opportunities. It has not been based on a systematic analysis of on-going investment programs, sectoral priorities, and managerial absorptive capacity. In many respects, planning has been constrained by the relative paucity of well-prepared projects, and in their absence, the Government has tended to rush in with poorly conceived, grandiose investment programs whose costs have greatly exceeded potential benefits. In the past few years, the Government has recognized the importance of addressing investment needs in the agricultural sector in a more systematic way, and to this end, has prepared a policy paper on agriculture which sets out its broad sector objectives. These include: (a) attainment of self-sufficiency in food supply; (b) increased production of cash crops and beef for export; (c) expansion of basic industries to process locally produced agricultural raw materials; and (d) increasing rural employment. Establishment of a rational pricing system and development of infrastructure and marketing are identified as the principal instruments for achieving these goals. The Government is now engaged in translating these broad objectives into a short-term investment strategy which complements on-going programs (para. 35). Institutional Framework 27. The activities of a number of institutions affect the performance of the agricultural sector. These institutions include the fokonolona institutions (local governments), the Ministry of Agricultural Production and Agrarian Reform (MPARA), the Ministry of Industry and Commerce, the Ministry of Supply, Transport and Tourism, and a number of parastatal institutions.  -9- 28. Since 1972, the Malagasy Government has undertaken a major reorganization of local administration and government. This reform involves the establishment of representative institutions at four territorial levels, and its objective is to create a decentralized system of local government which incorporates traditional institutions and practices. The hierarchy of fokonolona institutions comprises the fokontany, which coincides roughly with the traditional village unit (about 11,400 units in all), the firaissam-pokonolona at the former canton level (about 1,250), the fivondronan-pokonolona at the former sub-prefecture level (about 100), and six faritany, at the former province level. The reform has been implemented gradually and many details of the new system are still being considered by the Government. However, these new entities are assuming important responsibilities, notably for agricultural credit, marketing of rice and other agricultural products and for planning ard implementation of small-scale development projects. The Ministries of the Interior and of Information and Ideology have pri.aary responsibility LO supporting the fokonolona instituticns. 29. The MPARA is the central institution in the agricultural sector. Its jurisdiction covers the basic farmer extension services, plant protection, veterinary services, irrigation systems, fisheries, and forestry. It is also responsible for agricultural planning, control of semi-autonomous regional authorities and most parastatal agencies, and land reform. Up to 1979, the ministry had four major operating departments which functioned autonomously and were organized separately at the regional level. In 1979, a far-reaching reorganization of the MPARA was introduced, with the objective of providing better support to local governments, agricultural parastatals, and cooperatives through decentralization of services. At the central level, the new structure consists of the Minister's office, the Secretary General's office, and two departments: (i) the Department of Rural Development which assures supervision of MPARA's technical services and (ii) the Department of Studies and Planning which is responsible for collection of statistics, project preparation and supervision of agricultural parastatals. At the regional level, MPARA's services were to be organized along the following lines: one Directorate for Rural Development (DDR) was to be established in each faritany with headquarters in the faritany capital city; each DDR was to comprise one Rural Development Service (SDR) per fivondronana (100) and one Rural Development Zone (ZDR) per firaisana (1,250). The extension services were to be reorganized into multi- disciplinary teams. 30. In practice, the reorganization of the ministry has proceeded slowly and the new structure is not yet fully in place. At present, reorganization at the central level is complete and the six DDRs have been established (see Chart 1). However, due to staffing and financial constraints it has not been possible to establish SDRs and ZDRs as initially planned; instead, about 20 SDRs have been created at the former prefecture level, a level which no longer exists under the fokonolona system. Further, many positions are still vacant and are likely to remain so, as the Ministry of Finance has placed tight restrictions on the hiring of new staff. Steps have been taken to establish a multidisciplinary extension service in some SDRs, but training programs to support this reorganiz- ation have not yet been implemented. The decentralization of MPARA services has brought about a number of problems. The functional line of authority between the central technical services of the MPARA and field staff has been blurred as  - 10 - the latter are now organized under the Director of the DDR. Reporting mechanisms have been another source of confusion, since the DDR Director is responsible to both the head of the faritany and to MPARA headquarters. Funding mechanisms at the regional level are also unclear, although a decentralized budget procedure administered by MPARA is in place. 31. Parastatals. The Government uses publicly-owned and mixed capital companies extensively to accomplish its objectives in the agricultural sector. These parastatal institutions have been chosen as instruments of Government policy because it was assumed that they would be more efficient than the regular civil service and that they would assure protection of the public interest in key sectors of the economy. However, the performance of many of these enterprises has been disappointing and has been characterized by low productivity and sizeable financial deficits requiring large Government subsidies. The causes of this weak performance are many and include inadequate management structures, shortage of qualified staff, undercapitalization, Government pricing and cost recovery policies, and the unrealistic targets and responsibilities assigned to these institutions by the Government. About 65 parastatals are currently involved in agriculture-related activities, of which 8 are regional development authorities; 19 are engaged in direct production for the local or export markets; 19 are agro-industries; 10 are marketing companies; and 9 are service organizations. About 10 semi-autonomous institutions also operate in the agriculture sector. The semi-autonomous institutions perform many of the same functions as parastatals and have a separate budget and independent bank accounts, but their staff are considered part of MPARA's staff. 32. Agricultural Research. The central institution responsible for agri- cultural research in Madagascar is the National Center for Applied Research on Rural Development (FOFIFA). FOFIFA was established in 1974 to centralize in a single national organization agricultural research activities previously con- ducted by a number of research institutes. Initially under the jurisdiction of MPARA, FOFIFA was placed under the supervision of the Ministry of Higher Education and Scientific Research between 1977-1981 which complicated effective working relationships between researchers and agricultural staff. To correct the situation, Government transferred the research function back to MPARA in January 1982. FOFIFA is a public sector enterprise and is governed by a management committee composed of representatives from all interested ministries; a general manager assures day-to-day operations (see Chart 2). FOFIFA has a technical staff of about 1,000 but few have a degree or previous research experience. FOFIFA's activities are financed partially through national budget allocations and partially through contractual arrangements with ministries or private agencies for specific services rendered. Funds are also raised from the sales of vaccines, veterinary products, and agricultural produce. Due to severe shortages of qualified staff, equipment and funds, FOFIFA has been forced to limit its research program to the principal food and cash crops. Other constraints affecting the quality of the research effort include the absence of effective working relations between researchers and field staff and the lack of contact with international research organizations.  - II - Causes of Poor Performance in Agriculture 33. As noted in paragraph 24 above, the reasons for the disappointing performance of the agricultural sector are complex and there are many interrelated causes. Some of the most critical relate to policy, institutional and managerial weaknesses and have been central to the stagnation and decline witnessed in recent years. Principal factors include: (a) absence of a national consensus and workable policy measures to achieve sectoral objectives, and the weakness of medium and long-term investment planning; (b) disruption of MPARA's technical services following the reorganization measures of 1979; (c) dilution of responsibilities among numerous institutions, limited coordination, and an absence of financial controls; (d) inflexible management structures and administrative procedures imposed on public sector companies as well as shortages of qualified technical staff; (e) absence of links between research and extension services, leading to disparity between on-going research programs and research needs; and (f) inefficient agricultural marketing system and unreliable input supply. 34. Government policy shortcomings in the areas of pricing, marketing and cost recovery have played a major part in the poor performance of the sector. In an attempt to limit inflation and the cost of living to the urban poor, the Government has endeavoured to control producer and retail prices of key agricultural commodities, often below the cost of producing and marketing them. At the same time, the Government has entrusted marketing of key foodstuffs and essential commodities to public sector and mixed capital companies in an attempt to reduce the costs of marketing. However, the marketing system introduced has not operated efficiently, regional shortages occur frequently, and marketing costs are high. The financial costs of these marketing and pricing arrangements have reached alarming proportions: outlays on consumer rice subsidy are estimated at nearly 10 billion FMG (US$47 million equivalent) in 1979 and about 12 billion FMG (US$56 million equivalent) in 1980. Furthermore, public sector companies involved in the production and marketing of agricultural commodities find themselves in a chronic state of financial crisis, as losses resulting from the controlled price environment are not promptly (and sometimes never) reimbursed. These losses are compounded by the absence of a clear framework and mechanisms for cost recovery from beneficiaries for a number of services. Operation and maintenance costs for irrigation schemes are, in particular, a heavy burden on the Government budget.  - 12 - Government Agricultural Strategy 35. The Government has undertaken a number of planning exercises in the past decade designed to define long-term development programs, and is currently engaged in a renewed effort to develop short-term strategies. As stated in its Agriculture Policy Paper (para. 26), the Government's long-term goals for agri- culture include: (a) attainment of self-sufficiency in food supply; (b) increased production of cash crops and beef for export; (c) expansion of basic industries to process locally produced agricultural raw materials; and (d) increasing rural employment. The Government is currently grappling with a number of critical problems facing the agricultural sector, and decisions taken will determine the future direction of the country's agricultural strategy. In the immediate future, the Government's attention is focussed on developing a short-term strategy to deal with the current agriculture crisis. The financial crisis provoked by the decline in rice production and in agricultural exports has prompted the Government to reexamine some of its basic policy options and institutional choices of recent years, and to consider reforms in these areas. The Government recently raised the retail price of sugar, beef and cooking oil, and is considering scaling down its role in the marketing system. One essential ingredient of the Government's new agricultural strategy is to strengthen and streamline the institutional framework for policy formulation and effective pro- ject implementation. To this end, the Government has requested IDA's assistance in financing a technical assistance project designed principally to focus on institutional and managerial bottlenecks constraining rice production and marke- ting and other sectoral activities. The project is conceived as a first step in a broader program designed to address the critical issues affecting the agricul- ture sector as a whole. Bilateral and Multilateral Support for Agriculture 36. Bilateral and other multilateral donors are active in supporting agri- cultural programs in Madagascar. At present, the activities of other aid agencies consist of a range of development projects and input supply programs, all of which complement the institutional and managerial focus of this technical assistance project. The principal programs are as follows: UNDP/FAO are currently assisting MPARA with the preparation of seed production and fertilizer supply programs. UNDP/FAO also assisted the Government in early 1981 with the importation of 170 tons of improved IRRI rice seeds for rapid dissemination. The International Fund for Agriculture Development (IFAD) has prepared a Rice Highlands Project in Fianarantsoa and Antananarivo regions to be financed by that organization which was appraised in March 1982 by Bank staff. The European Development Fund (EDF) is supporting a rehabilitation program of small-scale irrigation schemes, mainly in the central highlands. The French Fonds d'Assistance et de Cooperation (FAC) is financing technical assistance for the cotton subsector and has expressed interest in financing technical assistance for rice production. The French Caisse Centrale de Cooperation Economique (CCCE) has agreed to finance the rehabilitation of cotton ginneries and is currently appraising projects for assistance to a sugar refinery and a coffee project. The African Development Bank is presently coordinating an effort to prepare a food strategy program for Madagascar. The ADB, USAID, the FED and the FAC will be providing technical assistance in preparing a national food plan  - 13 - over a 12-month period. Activities financed under this effort would be closely coordinated with the IDA-financed Agricultural Institutions Technical Assistance project. In addition to these programs, many small operations are being supported by a number of bilateral aid agencies, including the Federal Republic of Germany, North Korea, Norway, the Soviet Union and Switzerland. Bank Group Support for Agriculture 37. The Bank has supported nine projects in the agriculture sector, six of which are under implementation: the Morondava Irrigation and Rural Development Project (US$15.3 million); the First Village Livestock and Rural Development Project (US$9.6 million); the Mangoky Agricultural Development Project (US$12.0 million); the Agricultural Credit Project (US$11.5 million); the Plain of Antananarivo Technical Assistance Project (US$2.3 million); and the Second Mangoro Forestry Project (US$20.0 million). A Second Village Livestock Project was signed on April 15, 1982, and a Second Lake Alaotra Project has been appraised; several other projects are under preparation in the irrigation and crop production subsectors. Bank staff have also maintained a sector dialogue with Government officials on key issues affecting agricultural performance. These have included agricultural pricing, marketing arrangements, parastatal performance, cost recovery, research operations, and sectoral planning. This dialogue has been an important complement to the Bank Group's lending operations, and will continue to be an effective mechanism for agreeing on sectoral priorities and defining future courses of action. 38. Experience with project implementation has been mixed, and problems encountered in on-going projects have included delays in execution, cost over- runs, and deficiencies in management, institution building and policies. In particular, the choice of institutional structure for project management, its relations with existing Government services, staffing policies, financial management, and management accountability have, at one time or another, either delayed project start-up or greatly complicated project implementation. For example, the Morondava Irrigation Project, signed in 1973, suffered from a combination of technical, managerial, and policy problems. In addition to subs- tantial cost overruns which necessitated a reduction in project scope, project performance was adversely affected by the unclear role assigned to the implementing agency (SODEMO), weak management, overstaffing, and lack of accounts and audits. Controlled prices and lack of a clear cost recovery policy compounded these problems and led to serious financial losses on SODEMO's oper- ations. The Government has prepared an action plan to address SODEMO's manage- ment problems, and implementation of the plan is being closely monitored by the Government and IDA. Under the First Village Livestock Project signed in 1974, institutional problems were responsible for substantial delays in project implementation. These included clarifying relations between the executing agency, (FAFIFAMA), and Government support services, modifying the legal status of FAFIFAMA, and expanding the agency's role in the area of marketing and processing. After initial delays, however, FAFIFAMA has developed into a satisfactory institution with technically competent and dedicated management. Similarly, the project agency for the First Mangoro Forestry project, known as FANALAMANGA, has established a strong record, with execution of components ahead of schedule and in line with appraisal cost estimates. In spite of these  - 14 - success stories, most projects are being adversely affected by the worsening economic conditions in Madagascar and particularly by shortages of foreign exchange. The Government has begun to take steps to improve the situation, but serious problems still remain. 39. Two agriculture projects financed by the Bank Group have been completed and audited by the Operations Evaluation Department. The audit report No 1622 of December 17, 1976 on the Lake Alaotra project concluded that the project was generally quite successful but pointed out that shortcomings in implementation, notably the failure to levy adequate water charges, were masked by a fortuitous rise in the price of project rice production. Subsequent to project completion, the performance of the project implementation agency (SOMALAC) has deteriorated considerably as evidenced by low production yields and poor maintenance of irrigation infrastructure. The Impact Evaluation Report No 3600 of August 20, 1981 concluded that few, if any, of the project objectives had been realized and that the actual rate of return was probably negative. A project for rehabilita- tion and reinforcement of agriculture and extension services in the Lake Alaotra area has recently been appraised; its principal objectives are to (i) rationa- lize the management of extension services in this rice producing area, (ii) rehabilitate existing infrastructure, and (iii) strengthen SOMALAC's manage- ment. The audit report No 1559 of April 11, 1977 on the Beef Cattle Development Project concluded that the project had encountered a host of problems, the most important of which included: (a) project design poorly suited to local condi- tions, (b) neglect of land tenure and socio-economic issues, and (c) differences of approach between the Bank and Government. While these deficiencies substan- tially reduced the project's anticipated impact, the experience made a positive contribution through a rethinking of cattle development projects in Madagascar and a reorientation of Bank Group subsector lending to focus on the traditional extensive system. 40. As these descriptions of experience with both on-going and completed projects have indicated, the most critical difficulties in agriculture project implementation in Madagascar have stemmed from policy, institutional and managerial problems. Consequently, the Technical Assistance project has been designed with these difficulties in mind and is conceived as a first step in a broader program of institutional reform. The removal of key institutional constraints and introduction of policy reforms will lay the basis for improved sectoral performance in the long run. PART IV - THE PROJECT Background 41. A project to support the strengthening of key institutions in the agri- culture sector, with a special emphasis on rice, has been discussed by IDA staff and Government officials over the past two years. An identification mission visited Madagascar in November/December 1980 and a preparation mission pursued their work in March 1981. The Government formally requested IDA's assistance for this project in March 1981, and in May 1981 employed a consulting firm to prepare detailed proposals for a key project component. The project was  - 15 - appraised during June/July 1981; at appraisal it was decided to limit the project to technical assistance for strengthening key agricultural institutions and to pursue pilot rural road improvement and input supply programs through other lending operations. Project start-up activities began in August 1981 with technical assistance from the French consulting firm, Institut de Coordination des Techniques Appliquees au Dgveloppement (ICTAD) (para. 53). A Project Preparation Facility (PPF) advance of up to US$1.0 million was approved in September 1981 to finance start-up of key project activities. Negotiations were held in Washington D.C. from April 5 to April 8, 1982; the Malagasy delegation was led by Mr. Aubert Randriatavy, Director of the Department of Studies and Programming of the Ministry of Agricultural Production and Agrarian Reform and included Mr. Yves Ramelison, Adviser to the Minister of Agricultural Production and Agrarian Reform. No Staff Appraisal Report was prepared for the project. Project Objectives 42. The project would address a number of fundamental issues facing the agricultural sector in Madagascar. The studies to be initiated are instruments for identifying options to resolve these issues, for preparing specific action plans for reform where appropriate, and for developing the consensus necessary for moving forward; in a number of instances, project activities would go beyond the option/consensus stage and would support the implementation of agreed-upon reform programs. These objectives would be achieved by (i) strengthening MPARA's capabilities for investment planning and project preparation; (ii) identifying action programs for achieving specific sector objectives, particularly concerning rice production; (iii) redefining the roles of the key institutions responsible for services to rice farmers and reforming them so that they can execute their functions more effectively; (iv) improving coordination among the key agricultural institutions and sectoral programs; and (v) strengthening the agricultural research effort. The project would lay the basis for increased agricultural production by assisting the Government to take action on key sectoral issues such as pricing, parastatal management, cost recovery, and marketing arrangements. Although initial efforts would focus on the institutions and policies essential for increasing rice production and improving its marketing, the project is conceived as a first step in a longer term program of institutional support to the agricultural sector as a whole. 43. Project assistance to the Government would be divided into three broad categories: (a) strengthening of agricultural investment planning and project preparation capability; (b) parastatal management, and (c) improvement in Government support services to agriculture. The technical assistance would cover a period of two and one half years and would address the following specific areas: (i) preparation of a three-year investment plan for the agriculture sector; (ii) project preparation studies; (iii) preparation of a short-term action plan for the rice sub-sector and support to a central rice coordination unit; (iv) financial and management audits and management improvement programs for selected parastatals with key responsibilities for rice production; (v) studies of rice marketing and input distribution systems in Madagascar, with particular reference to the national marketing company for agricultural products (SINPA); (vi) organizational analysis of the Ministry of Agricultural Production and Agrarian Reform and the rural development service of  - 16 - Antananarivo and implementation of reorganization programs; and (vii) management and operational support for the agricultural research institute, FOFIFA. The project would include approximately 290 staff-months of consultant services to the Ministry and other Government institutions. A central focus would be to assist these institutions in reassessing organizational and management problems and in designing detailed reform programs, including training. A detailed description of project components is given below. Detailed Features (a) Strengthening Planning and Project Preparation 44. Investment Planning. Planning of agricultural investments and preparation of projects within MPARA are the responsibility of the Department of Studies and Programming (DEP); DEP is also responsible for collecting agricultural statistics and supervising the operations of most parastatals under MPARA's jurisdiction. MPARA's planning efforts are currently constrained by the absence of a clearly defined system and procedures for short term investment planning and by the lack of effective coordination between resource allocation efforts at the sectoral level and the national planning exercise. These difficulties have been compounded by the absence of criteria for establishing national priorities among competing investments and inadequate information available to planners on likely budgetary allocations. 45. Under the project, technical assistance, staff training, and logis- tical support would be provided to DEP to reinforce its planning capabilities and to prepare a three-year investment plan covering the period 1984-86. Technical support would consist of a six-month consulting assignment by a specialist in investment planning supplemented by intermittent consulting servi- ces totalling about 12 staff-months to assist the overall planning effort and to address specific operational problems. The consultants would provide assistance to the DEP in preparing a document presenting a three-year public investment program for the agricultural sector, based on a thorough inventory of on-going and planned investments; this would provide the basis for the definition of investment priorities and for strengthening links between planning and budgeting exercises at the sector level. As part of this planning effort the consultants would also review with DEP staff the organization of the department, procedures, and staff training needs with a view to preparing specific proposals for strengthening the department. 46. The short-term planning effort would be closely coordinated with a national investment planning exercise under the General Directorate for Planning of the Office of the President, and the sectoral exercise would specifically support the definition of a structural adjustment program at the national level. The Government would submit an interim agricultural investment plan to IDA for review and comment by February 1, 1983 and a final version of the plan by May 1, 1983 (Section 3.05(a) of the draft Development Credit Agreement). Recommendations for measures to strengthen DEP's planning capability would be submitted to IDA for review and comment no later than February 1, 1983 (Section 3.05 (b) of the draft Development Credit Agreement).  - 17 - 47. Project Preparation. The Gover-nment of Madagascar has recognized that development of the agricultural sector has been constrained by a paucity of well-prepared and carefully evaluated project proposals. This lack of proposals is the result of a marked slow-down in systematic preparation work, beginning in 1972. The reorganization of the ministry, staff turnover, and budgetary and logistical constraints of the last two years have compounded the effects of this earlier neglect. Recognizing that a more effective project preparation mecha- nism was needed, MPARA has since 1979 actively promoted the creation of local consulcing firms capable of assisting DEP with its workload, and has relied on a combination of local and foreign consulting firms to prepare projects. Never- theless, a substantial backlog of project proposals has accumulated and needs to be examined. Therefore, to assist DEP with its project preparation workload, 60 staff-months of consultant services would be provided under the project to carry out studies on project proposals meriting serious consideration. Priority would be given to projects which maximize the return on existing investments and which improve the management of current operations. A tentative list of projects was discussed during negotiations and a final list will be submitted to the Association for review and approval. Terms of reference for the project prepar- ation studies will be agreed upon during project implementation. 48. Coordination of Rice Planning. In response to the critical problems resulting from the stagnation of rice production, coordination of rice develop- ment activities will form an important component of this project. Governmental responsibility for promoting paddy production, processing and marketing is currently shared among a number of ministries, regional authorities, development agencies, and public sector companies. In such a fluid situation, it has proved virtually impossible to coordinate investments for rice development, identify production shortfalls, accurately estimate import requirements, and manage the distribution of rice for consumption. To address the need for a coherent and coordinated approach to the problems currently facing the rice sub-sector, the Government has agreed that a rice coordinating unit with sufficient authority to carry out its mandate should be established not later than August 31, 1982 to provide a clear focus for planning of and follow-up on rice development activities (Section 3.10 of the draft Development Credit Agreement). The Unit would be placed under the Ministry of Agricultural Production and Agrarian Reform and would report directly to the Minister; it would be staffed with a small number of professionals. Liaison with other key ministries concerned (Industry and Commerce, Supply and Transport, and Finance and Planning), would be assured through designated staff of these ministries. This would not be an operating unit. It would have a planning and follow-up function and would focus on the following major areas; (i) general environment, concerning issues of land rights, input supply policies, technical questions; (ii) production, involving issues of extension services and parastatal management; and (iii) marketing and pricing, involving issues of distributing local production, import requirements, consumer and producer prices, and marketing. The unit's terms of reference were discussed during negotiations and are being finalized. The establishment of the unit is expected by July 31, 1982. 49. To support the work of this unit, the project would provide technical assistance to (a) help prepare a short-term action plan designed to stimulate rice production, processing, and marketing, and (b) review procedures for  - 18 - managing rice imports and input distribution, and propose improvements. A rice marketing study would examine rice production, consumption and marketing, and the operations of key marleting companies, in particular SINPA. A total of 15 staff-months of consulting services would be provided for this component to complement the efforts of the Government rice coordinating unit. Both local and foreign experts would be utilized in carrying out these functions. Disbursements for this component would be contingent upon creation of the Rice Coordinating Unit (Schedule 1, para. 4(ii) to the draft Development Credit Agreement). The Government would submit to the Association for comment a short term plan to increase rice production and to improve rice processing and tuarketing by February 1, 1983 and the findings and recommendations of the studies to review the procedures for managing rice imports and input for rice production by May 1, 1983, and the rice marketing system, including SINPA'S operations (Section 3.06 of the draft Development Credit Agreement). The terms of reference for the rice marketing study were reviewed during negotiations. (b) Parastatal Management 50. Madagascar's agricultural sector is characterized by a large number of parastatal companies, many of which are experiencing serious financial and management problems as noted in paragraphs 31 and 38 above. The Government has recognized that there is an urgent need to analyze the underlying causes of poorperformance in these institutions and to formulate policies and programs to correct the situation. The Government is particularly concerned about the performance of the parastatals whose activities are central to the processing and marketing of rice, the main staple foodcrop on the island, as the current stagnation of production combined with marketing bottlenecks is placing a heavy burden on the national budget through increasing imports of rice and consumer subsidies. A key objective of the proposed project is therefore to analyze in-depth the problems of selected parastatals and to design individualized action plans for resolving their problems. These company-specific actions will necessitate a review by Government of the policy framework affecting the operations of parastatal companies, most notably pricing, cost recovery, marketing, financial autonomy and staffing. 51. Regional Development Authorities. The project includes a series of measures designed to support improvement of management of three of Madagascar's most important regional development authorities, SAMANGOKY, SOMALAC, and FIFABE. These three development authorities play a key role in rice production, processing, and marketing, and perform a wide range of functions including (i) management and maintenance of the irrigation schemes, (ii) provision of extension services to farmers, (iii) distribution of inputs, (iv) collection and marketing of crops produced on their schemes, and (v) in some cases, crop processing. SAMANGOKY, SOMALAC and FIFABE were selected for in-depth analysis because these development authorities manage irrigation schemes which produce a major share of marketed rice output in Madagascar, and their performance has a significant impact on consumption patterns and import requirements throughout the country. SAMANGOKY manages about 6,000 ha in the lower Mangoky valley (Toliary faritany), SOMALAC manages about 30,000 ha in the Lake Alaotra region, while FIFABE manages about 38,000 ha in the lower Betsiboka valley south of Mahajanga. Together, these schemes produce about 120,000 tons of rice annually  - 19 - and contribute about 40 percent of total marketed rice in Madagascar. 52. A second reason for selecting these three companies for in-depth analysis is that they were once highly effective institutions whose performance has deteriorated under an accretion of functions and the weight of Government policies. Rehabilitation measures must therefore be designed with a clear understanding of the specific management problems facing each authority and incorporate individualized action plans which address their particular situation. In the cases of SOMALAC and FIFABE, the management programs to be carried out under the project are linked to separate lending operations being considered by IDA and KFW, respectively. IDA and KFW support for these rehabi- litation projects has been made contingent upon a review of SOMALAC's and FIFABE's financial and management problems and an immediate and effective Government action program to address their operational constraints. IDA is currently supporting the Mangoky Agricultural Development Project (Cr. 881-MAG). SAMANGOKY is the implementing project agency and the review of managerial and financial procedures proposed for SAMANGOKY would also increase its effectiveness in carrying out the Mangoky project. 53. The project has provided for financial audits of SAMANGOKY, SOMALAC, and FIFABE and management audits of SOMALAC and FIFABE. With support under the PPF (paras. 41 and 62) the Government signed a contract with a consulting firm, Institut de Coordination des Techniques Appliquees au Developpement (ICTAD) and work has been completed on these audits. Summary financial statements as of July 31, 1981, have been prepared for the three authorities; internal control procedures have been analyzed and improvements proposed, and simplified accounting systems have been put in place. The information systems available to the three development authorities have also been evaluated and a proposal for hardware and software investments has been formulated. Detailed analyses of key factors affecting the performance of SOMALAC and FIFABE have also been conducted, and an action plan has been prepared covering (a) a redefinition of role and functions; (b) appropriate management structure and operating procedures; (c) financial rehabilitation plan; (d) staffing; and (e) training program for staff. Implementation has already begun on some of these recommendations. 54. The project would provide for the implementation of management improvement programs for SOMALAC and SMAANGOKY based on the recommendations prepared by ICTAD (para. 53). Implementation of management reform proposals for FIFABE would be financed under a KFW-supported rehabilitation project (para. 52). Project cost estimates include provisions for training, acquisition of office equipment, and limited logistical support for SOMALAC and SAMANGOKY. Implementation of broader development programs which are expected to emerge (such as irrigation system extensions) would be carried out under other lending operations outlined in paragraph 52 above. A total of 110 staff-months of consulting services would be provided for the preparation of action plans and implementation of the management improvement programs (this includes the activities financed under the PPF). Local and foreign consultants with expertise in management, accounting, agronomy, irrigation systems and research would be used. The Government has agreed that detailed recommendations for strengthening SOMALAC's and SAMANGOKY's management to be financed under the  - 20 - project would be submitted to IDA for approval by July 15, 1982 (Section 3.07 of the draft Development Credit Agreement). 55. Rice Marketing Services. Paddy collection and rice distribution are a state monopoly and are carried out by public sector marketing companies assisted by development authorities, state farms and local government authorities. The marketing system has functioned poorly for a number of reasons including the lack of accountability between local collectors and the national marketing companies, inadequate credit at the local level for paddy purchases, the poor state of the roads and transport fleet and chronic financial losses absorbed by the marketing companies because of controlled prices and direct consumer sub- sidies. The Societe d'Inter8t National des Produits agricoles (SINPA), as the sole collector and distributor of rice between 1973 and 1977 and the largest at the national level since that time, has experienced serious problems since its inception. The problems have resulted not only from weak management, shortage of qualified staff and inadequate financial procedures, but also from the enormity of the task assigned to it, that is, establishing a Government monopoly with little preparation and information in a controlled price environment. As marketing bottlenecks are a contributing factor to the growing rice imports of recent years, a careful review of the organization of marketing services in general and of SINPA's operations in particular, is urgently needed. Funds would be provided under the project for a systematic review of rice production, consumption and marketing flows nationwide, combined with a data collection exercise; this information would provide the basis for an analysis of options for rice marketing policies and development programs. If the rice marketing study concludes that a role for state marketing companies exists, an analysis of key marketing institutions (including SINPA) would be carried out to identify how to reorient and redefine the functions of these companies within the new policy framework. A total of 40 staff-months would be provided for these studies. During negotiations, assurances were obtained that the Government would by June 1, 1983, submit to IDA for comment the findings and recommend- ations resulting from the review of the rice marketing system (Section 3.06 (c) of the draft Development Credit Agreement). The terms of reference for the proposed review were discussed during negotiations. 56. Complementary Studies. Funds would also be provided under the project for management audits of a limited number of parastatals active in the agricul- ture sector. A tentative list of parastatals to be studied was discussed during negotiations and the final list will be proposed by the Director of DEP and approved by IDA by December 31, 1982 (Section 3.12 of the draft Development Credit Agreement). The studies would include inter alia a redefinition of functions, organizational structure, operational procedures, audit and staff training of the institutions selected. The results of the studies would be submitted to the Association for review (Section 3.04(b)(iii) of the draft Development Credit Agreement). A total of 12 staff-months would be provided. Timing of the audits would be determined during project implementation. (c) Government Support Services to Agriculture 57. Organization of MPARA and Rural Development Services. The decentral- ization of MPARA services initiated in 1979 has encountered a number of diffi-  - 21 - culties resulting from the lack of preparation and rapidity with which the changes were introduced (see paras 29 and 30). Other problems have arisen because of the complex institutional issues posed by decentralization and reorganization of extension services (see para. 29 above). In order to provide an opportunity to address key issues arising from the reorganization of MPARA services, the project would support (i) systematic review and evaluation of the current organizational arrangements of the Ministry of Agricultural Production and (ii) in-depth analysis of the organizational structure and operational procedures of the SDR of Antananarivo. These organizational analyses would result in the identification of options for reorganization, management improvement programs, and staff training for central headquarters and field staff. Implementation of reform programs, training and provision of office supplies and equipment would also be financed by the project. A total of 24 staff-months would be required for the organizational review of MPARA and the SDR of Antananarivo and preparation of reorganization and training proposals. Agreement was obtained at negotiations that the Government would submit to IDA for review and comment the findings of the studies, and for review and approval the measures to reorganize the MPARA by April 1, 1983 (Section 3.08 of the draft Development Credit Agreement). 58. Agricultural Research. Madagascar had an effective agricultural research network, developed over many decades, and it still has an impressive infrastructure of research stations and facilities. However, following the reorganization of research services in 1974, links between research activities and agricultural development programs have deteriorated severely, research infrastructure has declined, and contacts with the international research community have virtually ceased. Many of these problems were aggravated by the transfer of responsibilities for agricultural research to the Ministry of Higher Education and Scientific Research. The Government recognizes that there is an urgent need to revitalize agricultural research to provide the basis for long-term development and has transferred the agriculture research institute, FOFIFA, back to MPARA. This transfer should assist in reestablishing links between research and field staff and in ensuring an operational focus to research work. To strengthen the agricultural research effort, the project would provide funds for a program of short-term assistance for research. Principal activities under this program could include: (a) assembling available research materials on rice activities and making them accessible to research and extension workers, (b) improving management procedures and undertaking short-term training programs at FOFIFA, and (c) running small agricultural machinery trials and limited trials for new seed varieties. A total of 12 staff-months of consulting services would be provided for these activities. Assurances were obtained at negotiations that the Government would submit to the Association for its approval a program to strengthen the management of FOFIFA and a detailed research program for FOFIFA by March 31, 1983 (Section 3.09 of the draft Development Credit Agreement). 59. Training. A central objective of the project would be the development of effective institutions for the agricultural sector and a critical element will clearly be training of staff involved, both in management skills and in specific subject areas such as accounting, project analysis, research, extension work. All of the management support programs have an implicit training element  - 22 - attached to them because the consultants would work closely with staff of affected institutions in redefining the objectives and structures of key institutions and in preparing clear and comprehensive management development programs. This work would itself have a training function. Under the review of SOMALAC, SAMANGOKY and FIFABE (para. 53), the consultants have made particular efforts to structure their work to involve local staff both through collaborative work and through seminars and other exchanges. During this diagnostic phase, some additional training would be organized in specialized fields, notably management training for key staff, training at international research institutes, and visits to other countries where similar development activities are underway. Following the diagnostic phase, it is expected that comprehensive training programs would form part of management reform plans for each institution, and costs of short-term training programs are included in the project under each component. Programs would include in-house training courses supplemented by short overseas courses on subjects of direct operational relevance; investments would include direct training costs, including training materials, audio-visual equipment, overseas training costs, and costs of trainers to run in-house courses or seminars. Assurances wereobtained at negotiations that prior to the carrying out of any training under the project, detailed proposals for training courses would be submitted to IDA for comment and approval (Section 3.11, draft Development Credit Agreement). Project Implementation 60. MPARA would have primary responsibility for project implementation; within MPARA, the Director of the Studies and Programming Department (DEP) would coordinate project activities and monitor all work in progress. MPARA would cause SOMALAC, SAMANGOKY and FOFIFA to carry out their respective management improvement programs. The rice coordinating unit (para. 48) would implement the short-term action plan for rice and related studies. With the exception of a limited number of fellowships and study trips (para. 59) which would be administered directly by MPARA, it is expected that project services would be provided by consulting firms or individual consultants under direct contracts with the MPARA. The contract already signed with consultants ICTAD for the parastatal management audits (para. 53) is an example of the type of administrative arrangements that would cover other components. Salient features include cooperation between foreign and local consulting firms, full involvement of staff of the institutions concerned with the review process, a clearly grouped phasing of work to allow periodic reviews and decisions by Government officials on options and continuous training of staff through participation in work and seminars. The project consultants' experience and qualifications, terms and conditions of employment would be submitted to the Association for approval (para. 63). The Director of DEP would prepare a report on the execution of the project by June 30, 1983 which would be discussed with the Association during a mid-term project review (Section 3.04 (b)(v), draft Development Credit Agreement). The project would be implemented over a period of two and one-half years and is expected to be completed by December 31, 1984; a project implementation schedule is summarized in Chart 3. Project Costs  - 23 - 61. Total project costs are estimated at US$6.7 million equivalent inclusive of a negligible amount of taxes, of which US$4.6 million are foreign exchange costs. Project costs are calculated on the basis of December 1981 prices and include physical contingencies of 15 percent on all costs except consultants' fees. Price contingencies were calculated on a cumulative basis, at 15 percent for local costs and for foreign exchange costs 8.5 percent fop, 1982, 7.5 percent for 1983, and 7.5 percent for 1984. The average staff-month services has been estimated at about US$12,000 equivalent including salary, overhead, subsistence and travel. Equipment, supplies and other minor items to be acquired under the project have been estimated at about US$1.3 million; training costs have been estimated at about US$0.9 million. A detailed project costs table is presented in the credit and project summary at the beginning of this report. Financing Plan 62. The proposed IDA credit would finance US$4.6 million in foreign exchange and US$1.1 million equivalent in local costs, representing about 85 percent of total project costs. The Government would contribute the remaining US$1.0 million in local costs or 15 percent of total project costs. On September 10, 1981, an advance of up to US$1.0 million was approved under the Project Preparation Facility to launch project activities. This advance will be repaid to the Association out of the IDA credit upon effectiveness (Section 2.02 (b) of the draft Development Credit Agreement). Procurement 63. Selection of technical experts and consultants required under the project would be in accordance with principles and procedures satisfactory to the Association on the basis of the "Guidelines on the use of Consultants by World Bank Borrowers and the World Bank as Executing Agency" published in August 1981. All terms of reference, qualifications, experience, terms and conditions of employment of consultants; selection procedures and contracts for technical experts would be subject to IDA's prior approval (Section 3.02 of the draft Development Credit Agreement). Furthermore, the terms of reference for each study approved by IDA would specify that interim reports prepared by consultants and drafts of the final reports would be submitted to the Association for review and comment (Section 3.04 (b) (iii) of the draft Development Credit Agreement). The Borrower will decide whether to invite proposals from a short list of firms or to request a proposal from a single firm of its choice. In both instances, however, IDA would approve the firms invited and, subsequently, the contract. A tentative list of the expert services required is provided in Annex IV to this report. Technical assistance is expected to be provided by both local and foreign consulting firms, working together in consortia or independently. During negotiations, government procedures for recruitment of specialists were reviewed. Although previous experience in Madagascar indicates that consultant selection procedures are normally lengthy, provisions exist for exceptions to these procedures and selection can be handled much more quickly. Because of the small size of individual purchases, procurement of equipment, materials and vehicles would follow local competitive bidding procedures which are acceptable to the Association.  - 24 - Disbursement 64. The proceeds of the IDA credit would be disbursed over two and one half years against 100 percent of foreign expenditures and 50 percent of local expenditures. All disbursements would be fully documented. The closing date of the IDA credit would be June 30, 1985. Project Accounts, Audit and Reporting 65. Separate accounts would be maintained for all project activities. Project accounts for all agricultural institutions covered by the project would be audited each year by independent auditors acceptable to the Association in accordance with appropriate auditing principles consistently applied (Sections 4.01 (b) (i) and 4.02 (b) (i) of the draft Development Credit Agreement). It is expected that most expenditure would be made under clearly defined contractual arrangements. A certified copy of all project accounts and financial statements as well as the auditor's report would be submitted to the Association within four months of the close of each fiscal year (Sections 4.01 (b)(ii) and 4.02 (b) (ii) of the draft Development Credit Agreement). The Borrower would prepare and submit to the Association a final report on the execution of the project no later than six months after the completion of the project (Section 3.04 (d) of the draft Development Credit Agreement). Project Justification and Risks 66. The proposed project is designed to address the critical institutional and managerial problems which are a fundamental cause of the poor performance of Madagascar's agriculture sector. The technical assistance provided under the project would enable the Government to focus on (a) strengthening MPARA's investment planning and project preparation capability; (b) assuring coherence of policy and action programs designed to stimulate rice production, processing and marketing; and (c) improving the management and operations of selected para- statals, agricultural research, and a reorganization study of MPARA, including a review of the rural development service of Antananarivo. While the benefits of the technical assistance are not directly quantifiable, the expected improvements in sector management and institution building will strengthen sectoral performance. In particular, project activities will contribute to preparation of priority projects, a more systematic policy review, more efficient utilization of domestic and external resources by key agricultural institutions, and improved Government support services to agriculture, including stronger links between research and extension. These sectoral improvements will assist the Government both in the management of the short-term effects of the current agriculture crisis and in laying the basis for a long-term recovery program. 67. The potential risks to successful project implementation involve delays in recruiting consulting firms and difficulties in following through with consultant recommendations. Past experience indicates that there is a risk that bureaucratic procedures may impede prompt recruitment of technical assistance personnel. However, the Government has moved quickly to recruit a consulting  - 25 - firm to start-up project preparatory activities under PPF, which indicates the high priority Government attaches to the project. During credit negotiations, ways of streamlining procedures for hiring consultants were discussed. A second risk to the project involves the degree of Government commitment to implementing the consultants' recommendations under the project and to introducing the necessary reforms in sensitive areas such as agricultural produce pricing, marketing arrangements, cost recovery and parastatal staffing. The Government has reiterated its interest in acting on these key sectoral issues as a means of removing current production and marketing constraints and relieving budgetary pressures. The Borrower has been made aware that future investments in the agriculture sector will have to take into account the Government's willingness to implement project recommendations and to resolve key sectoral issues. Part V - LEGAL INSTRUMENTS AND AUTHORITY 68. The draft Development Credit Agreement between the Democratic Republic of Madagascar and the Association, and the Recommendations of the Committee provided for in Article V, Section (d) of the Articles of Agreement of the Association are being distributed separately to the Executive Directors. Special conditions of the credit are listed in Section III of Annex III to this Report. 69. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 70. I recommend that the Executive Directors approve the proposed credit. A.W. Clausen President Attachments April 27, 1982  -26- ANNEX I Page 1 TABLE 3A MADAGASCAR - SOCIAL INDICATORS DATA SHEET MADAGASCAR REFERENCE SROUPS (WEIGHTED AVE AGES LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE) TOTAL 581.0 MOST RECENT LOW INCOMCE MIDDLE INCOKE AGRICULTURAL 369.3 1960 Lb 1970 lb ESTIMATE /b AFRICA SOUTH OF SAHARA AFRICA SOUTH OF SAHARA GNP PER CAPITA (US$) 130.0 190.0 290.0 k 238.3 794.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 40.4 72.5 93.8 70.5 707.5 IOPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 5474.0 6785.0 8480.0 URBAN POPULATION (PERCENT OF TOTAL) 10.6 14.1 17.9 17.5 27.7 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 15.5 STATIONARY POPULATION (MILLIONS) 45.0 YEAR STATIONARY POPULATION IS REACHED 2110 POPULATION DENSITY PER SQ. KM. 9.3 11.6 14.4 27.7 55.0 PER SQ. KM. AGRICULTURAL LAND 15.0 18.0 22.3 73.7 130.7 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 41.6 42.8 43.6 44.8 46.0 15-64 YRS. 55.2 53.9 53.1 52.4 51.2 65 YRS. AND ABOVE 3.2 3.3 3.3 2.9 2.8 POPULATION GROWTH RATE (PERCENT) TOTAL 1.8 2.1 2.5/e 2.6 2.8 URBAN 4.9 5.0 5.1 6.5 5.1 CRUDE BIRTH RATE (PER THOUSAND) 46.6 45.2 45.7 46.9 46.9 CRUDE DEATH RATE (PER THOUSAND) 27.0 21.7 18.0 19.3 15.8 GROSS REPRODUCTION RATE 3.0 3.0 3.2 3.1 3.2 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. .. USERS (PERCENT OF MARRIED WOMEN) .. .. FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 89.0 102.0 96.0 89.5 89.9 PER CAPITA SUPPLY OP CALORIES (PERCENT OF REQUIREMENTS) 106.0 108.0 115.0 90.2 92.3 PROTEINS (GRAMS PER DAY) 60.0 60.0 60.0 52.7 52.8 OF WHICH ANIMAL AND PULSE 18.0 17.0 15.0 17.8 16.1 CHILD (AGES 1-4) MORTALITY RATE 41.0 31.3 25.4 27.3 20.2 HEALTH LIFE ERPECTANCY AT BIRTH (YEARS) 37.2 42.5 46.9 45.8 50.8 INFANT MORTALITY BATE (PER THOUSAND) .. 177.0/c .. ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL . . 11.0 26.0 23.9 27.4 URBAN *- 67.0 76.0 55.0 74.3 RURAL .. 1.0 16.0 18.5 12.6 ACCESS TO EXCRETA DISPOSAL (PERCENT OP POPULATION) TOTAL .. .. .. 26.2 URBAN .. 88.0 .. 63.5 RURAL .. .. 9.0 20.3 POPLLATION PER PHYSICIAN 8901.1 10172.4 10242.3 31911.8 13844.1 POPULATION PER NURSING PERSON 3105.0 3353.9 3470.2 3674.9 2898.6 POPULATION PER HOSPITAL BED TOTAL 469.0 354.4 402.3 1238.8 1028.4 URBAN 115.0 214.8 239.4 272.8 423.0 RURAL 761.0 475.3 517.9 1745.2 3543.2 ADMISSIONS PER HOSPITAL BED .. .. HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. 5.8 4.7 URBAN .. 5.3 5.0 RURAL 5.9 4.7 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. .. URBAN .. .. RURAL .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. 5.0 URBAN .. .. RURAL .. ..  - 27- ANNEX I Page 2 TABLE 3A MADAGASCAR - SOCIAL INDICATORS DATA SHEET MADAGASCAR REFERENCE GROUPS (WEIGHTED AVET AGES - MOST RECENT ESTIMATE)_ MOST RECENT LOW INCOME MIDDLE INCOME 1960 lb 1970 /b ESTIMATE /b AFRICA SOUTH OF SAHARA AFRICA SOUTH OF SAHARA EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 52.0 88.0 94.0 56.4 73.7 MALE 58.0 95.0 100.0 70.7 96.8 FEMALE 45.0 81.0 87.0 50.1 79.0 SECONDARY: TOTAL 4.0 11.0 12.0 10.0 16.2 MALE 5.0 13.0 14.0 13.6 25.3 FEMALE 3.0 9.0 10.0 6.6 14.8 VOCATIONAL ENROL. (Z OF SECONDARY) 9.0 9.0 .. 8.0 5.3 PUPIL-TEAChER RATIO PRIMARY 70.0 65.0 55.0 46.5 36.2 SECONDARY 24.0 20.0 .. 25.5 23.6 ADULT LITERACY RATE (PERCENT) .. 39.0 50.0 25.5 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 4.0 6.8 7.1 2.9 32.3 RADIO RECEIVERS PER THOUSAND POPULATION 15.0 79.7 127.0 32.8 69.0 TV RECEIVERS PER THOUSAND POPULATION .. 0.5 1.5 1.9 8.0 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THiOUSAND POPULATION 8.0 7.8 9.0 2.8 20.2 CINEMA ANNUAL ATTENDANCE PER CAPITA U.5 0.7 0.4 1.2 0.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3046.1 3619.9 4321.3 FEMALE (PERCENT) 46.9 46.1 45.4 34.1 36.7 AGRICULTURE (PERCENT) 92.8 90.0 87.4 80.0 56.6 INDUSTRY (PERCENT) 2.0 3.0 3.9 8.6 17.5 PARTICIPATION RATE (PERCENT) TOTAL 55.6 53.4 51.0 41.7 37.2 MALE 60.7 58.8 56.6 54.3 47.1 FEMALE 50.9 48.2 45.5 29.2 27.5 ECONOMIC DEPENDENCY RATIO 0.8 0.9 0.9 1.2 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 41.0/d HIGHEST 20 PERCENT OF HOUSEHOLDS 60.17. . LOWEST 20 PERCENT OF HOUSEHOLDS 5.27 LOWEST 40 PERCENT OF HOUSEHOLDS 13.O7i POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 150.0 136.0 381.2 RURAL .. .. 86.0 84.5 156.2 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 135.0 99.1 334.3 RURAL .. .. 86.0 61.2 137.6 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 50.0 39.7 RURAL .. .. 50.0 68.8 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1976 and 1979. /c 1965-66; /d Population; /e Recent population growth estimate is 2.8X for 1975-79. A The updated 1980 GNP per capita and population estimates to be shown in the 1981 World Bank Atlas are $350 (at 1978-80 prices) and 8714.0 thousands. May, 1981  - 28 - AMbEX I P.as 3 DEFINITIONS OF SOCIAL INDICATORS Note: Although the data are doaco fowsccegneal ugdte otetotsew o cihe,i hudas he toted that they ay cot be inter- nathonlly coparabl becaue o5 te lac of standerdie dectitioae sad oulcep uedby dIffteo oott rie l coll the dat.- The data see tone-... thelees. usful to decorihe ordeog of magoitudd, indica.e oreode, end cha. taoteiee -eoai. aajIo diff ..reocee between cdouties. ofhe aut-ec count1 IeI ynfrCa.e Supu(i2ortes)ru wee'fdl Inciset Soth. tictoe end t"lb" East' is oo-e Ihecus of s-tronger. maoit f h ouoitis) Iogeu thasdt foe1 that inienr Diets.... thepcoverag of onohtries Afotg- th.d udI dped on.the eta.. .fhi icyofdata etd~ ~ ~ ~ ~~~ ~~~~~~~I: tantuioIato ohh onle rraa o vegso n o cttcaohr These, averages are oly sfl incoeporh.-nog thevleo one irdI_c'horletatIeeSaaooghthe_ II oo-y end.refleretreygroups. IntlADOA(tbr.eecep.h.) Fyulalot er htytil Nd - otol, upar, rd rral Pipluiln (ttal d del- on sufc area- -ompIin ladread toIeoid. waer. rbn ed_ntl do dnd y _ier napc_P me toahor of- hoftlhd agodtoutur- stimate t~ of .g..nutiY area owedt temoretyo emn oeuphet uli r rcr aerindoaittd optlao r hewEPOi 00011k (jSII -00 r ayi aimnse correc.Itimake p tn,cl- dilrr oeo Included. tuna0howytie honovi, Ocld h eoLtb' teehot OPNtiOtTDIN 0th 0-011 -l kituch-nonsum dnO of roealit llererg (oral. t.iclipoy rta oo opci acusbt-yloyli5otlheia Totl Prultio. dd-bet thosoIa) Asof'ulyi' Shi 15f.iod 979lyOIt a970cgIllutt7 lea;. ....9,sd199dta.b oueodfo tnisclpupss Pcoasgln i yea 111 -Currnt opuatio prjeniatsarebasd 00INN be of peron patid too lto lld unb,I so1d.ote occupied- cannesloia- ieri l , and female lfe -Icqei-taocy -nh pisget.;'E,9. dI 77.yar.Tepae ovatos dSp II g iheetiiyt ilodg turner aspatsng maesfrfdolt at lohosteelresasmngdolsg Ad.itotal,- uobsti,an Bura Tdesliogsrefspsntiihsly. feenil my eccor ding to cocose level sod- hpest.featilydplanyieg.p-ofoofeors. sod fertility trendsJ,foe1pro96ens1o70purposes. Adfuts foolmotPaio Ottroo rplatm-oa ttinryppuaio heeisf gothsoi etao coo btnl,mlesd eat-ooetoa,-ae-n1fml th telaeetl lvI of not t. tat. .yrdoto at, s setge atttder thuit adusedto -di-d - lengths of prmay eduaion; i flardI ofwma mlae isl dooart,I ll The sttinryppuato.se sea ounrie with uniocslenainealeampeoe f eo est"Imatd o h at ftepoetdcaatnsiea h auaioa n oeppl r beoAs or ebote thefofficial schoo age. ic heyer 111,so th net ofdelin o fe-J-oity-at torpln-..o.n col oa,ml and female - Cbe pan d a sbve ....... mat.. ..to . d I- thII ttlt d level,iteducationIrequ ire t et ot erso appove ptay tstruottan; ejee-has best resfobsd " tt. Pi. - ht 1-usually-of iitO 7yaso g; oesodnsOuee t esal Ptr a t .. Ndye I popuerto I eP eSuag kI oas tl il.. hactyreel of pacnicua snew11~llmoit rno fssodl - ftttt1ona- llto_Itun1on lento f-91, 1971.sd. 195 date_. dt.IAdul.td linarcorets fnesf(-L tasedti(beteoa adIls __plano tt19 i, lqPD and, 1t79 d-afe. militaryh vebiotlas.. tth.p'- Coas lashtos (ar bmssel -Au_hi_ doth perf thlitYd aft. mdid-ee gtil gpginmes feh noaae meuat l - Alltype ofhredivee foe n6d1 hrstmal reroueis sta if 1 abI eaise prasset ega-tiamiftto fee- eatsP c int dtteidat feed oenpss a wehfwaethsic tilts nana; usu lip ire-pst ewr age andle is. iNeb, 97 0. egg 1079. mssoagrleba-t-had lieegsisg Fmir Pthmina- tunsoIllthrs t.Annua dsbausedof f-tlitgua nieba at gonpe.... TOgtissfertasadIedio)-f tota tn bewadoast das at i .b-...o yeis na.tsptso ainl ai lsigpega.gnelpulcpenosg feaait secude a... se 5resrc Femur t!ic.ning-i-es cTh.i fecideYa)- Fhossagt f anidtieasessad speryes rai I tieecha o T t Ieas. is a Pans, EotLAtbttLfhITkDt tai ha-q-I i.-. 10 -.t. da ily i ind appa _ts of leas tauty _a asse ti...1I. edmtoftoad Production0 Il ear 7Cent. iNNtI-Ol-t so a ah nul Cem ionacat:,l Atmss aia e sr-gsda ithe sPmter. atP.d pedoiso Il fod oLIMad-teC Prtaduoti b ata- a f esad -Itad t1udd Itiassi duete fbapea. isaludieg tdistisa oAen-n lse tea1 era woldad.tiAggregate- productmo sach.oatep. Is besdy. as p- t .I Fit% i--.dl.(b I. l i. energ .sqaRaat.e s --tead supplie -Ara..iabla t Is toanee patbaein owosr0-p igppoeisaalaes ltatmslvrssonnsae Clodsisssgth ime- -d by FAD based as thhialgio ...ad fa ofma ant- Iflatg asl psaategs t hta pabm ferns iota h-.sd NT data napd sad.~ beln oaIdac Ig wrmata apcsr, aywihs aga detussy (escaman - ae ac i lig nasatm.maoair Caude sest diteihanio ath. papdlAni.e, sad alth iep ith perosan fa easesWI at a .d satiotap.I ethc ad ga.a Iteenseagae steal ofbs facng ..di. householdlarch I-l-t5I.1-t,tend INS date. NPf ead 050 dana oati pl af f.ad pat da-y..Na spgip .f.fi.d is a tda share, Is97ttinid rates acs iapaa as.. ma. eesIadfmaeis acsa qateasans far ni causnels establebad by NIA peewds twe sain's paosaaegasat steal sale sa Psasla etaletiofat all ges reepsIi_=ly a-lloecew i rm,n oalp_ si e ~ d day sa- P rmso...;.edINl.lPi ad17 data."_ .. .ji . Things acet based1 p am 1 b5,0ds ps tp ti Fate gamlenasa en'veag fee the ted, pep dbyPt.g oa th-Tird Lowemiti.spedInl Nutia - h.t. ad popalatianuedTVac 15 aid g ffsa ts rived feet asimals and pulses 1w gesecblpertday;d.-td-95, 1070 aedI1957.data. ItCOt d...TidN...id ?OAN ITONtdCssiA Ilcalrgn arhwad nulAeb e huadi eogaeo rvt bIncI (bth Is.. foasosa tied) -I aevd yoh ag oapIAper,t oipldts in 1rh 00 ag gall for mass ..elpingtat 5 perlsee richet P aco,paet 10 p-rees..d poarse-bt 00pfat tied dta deived 11frot lf tbls 1960, dodiNSi. sad..1970 data of Ilti t ha .Iboda.i h ..,La 14 .fi atbirth; _iOi 107 a,..ed ,-gh 19591dat5,sad. l 97 .-T. abmalEd be intbs....adain nans-lsi ab1soaati-we. li. laPneaellngg er haId Annual deaths offiosoae under us5 505f satIated Absolune Parapet .bIncg .ludi ol ercct)-arg droa ad dga pert iou ble hoe lionbe . -.i p..i.Abaclase p.v.rty icc .70 lana is1 that ttalvl ee hchasa qbsr atit ....pl (Inal af e. sd eme... all, moth..m.nale di ctab ta- sets- uffardalt.. pt t-Lb,fI .f-isf-ly .t9Il matrsc sthantfoa pyranotb..d boeahole ltlipetag .. sd. fetit.-y e .tliePa-ae f altirhpuatg iofm t ere1 isbo f es-ihir 19 t r7age- pine capta pecnanhfter apateppltie.I:mubnaesatbi esnl ew tterarp.ihnlnli acvdPm h ua foeaam ihapa ..a. ntmr ta i ma.tatne bra a em byh srlthdlam for h igh r c st o lio t.isrhmae. family' seanso needs.~~~~~~~~~~~~~~~~~~~~~~~~~~~f~I l,0 pannetnage of their sepactors Papfaims.tnctsdipat map issladsD, far pl iwn oldlaa V. ..X ifnd iey .b- 1 t~t .. V i 1 INtl -I Paplaima. Ia f!oIfien -ooFapofanitcbdividd by tSDmArp-d at racista p-thysi-1 1..df l-o 1 S.I.. i., -d,aie e tasa Prs t wpwl;ti7 s dl da byo lls of pratiging f-_t_1 .... maleisd , l gadat Iea thsas, d pret .. ue . ad byesOistsnthse.ThdEdt,tDp- d_;tS- i.f t- o.15.d6Il  - 29 - Amnex I Page 4 MADAGASCAR - E0DNCMIC INDICAIORS GRDSS NATIONAL PRODiUCr IN 1979 ANNUAL RATE OF GRDWTH 1/ US$ Mn. % 1975-79 GNP at Market Prices 2,768.0 100.00 1.5 Gross Domestic Investment 619.1 22.4 4.6 Gross Domestic Saving 281.6 10.2 -17.5 Current Account Balance -434.8 -15.7 - Exports of Goods, NFS 482.3 17.4 -7.3 Imports of Goods, NFS 819.9 29.6 5.4 OUMPUr IABOUR FORCE AND PRODUCTITY IN 1979 Value added 2/ Labour Force 3/ VA Per Worker US$ Mln. % US$ Mln % US$ XMn % Agriculture 961.4 34.2 3.79 88.8 253.7 38.5 Industry 551.0 19.6 0.19 4.4 2,900.0 440.2 Services 1,134.8 40.3 0.29 6.8 3,913.1 594.0 Unallocated 165.9 4/ 5.9 Total 2,813.1 100.0 4.27 100.0 658.8 100.0 GOVERNFEN FINANCE Central Goverment FMG Bln %of GDP 1979 1980 1979 1977-79 Current Receipts 114.1 126.3 19.1 20.1 Current Expenditures 131.8 148.8 21.6 20.5 Qarrent Deficit -17.7 -22.5 -2.5 -0.4 Capital Expenditures 55.0 105.7 9.6 6.1 Foreign financing (net) 30.9 42.3 5.2 2.8 MDNEY, CREDIT and PRICES 1976 1977 1978 1979 1980 (Million FMG Outstanding at the End of the Period) Mbney and Quasi Mbney 100.2 122.0 143.0 180.6 207.8 Bank Credit to public sector 19.5 29.0 49.9 100.5 186.0 Bank Credit to state enterprises and private sector 82.2 95.8 100.7 120.6 139.2 (Percentage or Index Numbers) Mbney and Quasi Mbney as % of GDP 23.7 26.5 29.8. 30.1 - GDP Price Deflator (1978 = 100) 88.1 93.7 100.0.8 112.9 - Annual percentage dcanges in GDP Price Deflator 11.4 6.4 6.7 12.9 - Bank Credit to public sectort 58.5 48.7 72.1 100.4 85.1 Bank Credit to State enterprises and private sector 4.8 16.5 5.1 19.8 15.4 Note: All conversions to dollars in this table are at the average exchange rate prevailing durirg the period covered. 1/ Based on 1978 prices seeries 2/ At market prices 3/ Total labour force 4/ Import duties February 4, 1982  - 30 - Annex I Page 5 MADAGASCAR - TRADE PAYMENT AND CAPITAL FLOWS BALANCE OF PAYMENTS MECHANDISE EXFORTS (AVERASE 1976-79) 1978 1979 1980 1/ US$ mln. % (US$ Million Coffee i56.1 44.8 Vanilla 27.1 7.8 Cloves 46.2 13.2 Meat and meat products 9.8 2.8 Exports of Goods, f.o.b. 405.5 411.8 420.7 Fish and shellfish 15.6 4.5 Imports of Goods, f.o.b. 404.2 674.1 723.1 Sugar 7.3 2.1 Resource Balance 1.3 -262.3 302.4 Petroleum products 11.2 3.2 Chromite 10.7 3.1 Services (net) -144.4 -248.2 -286.8 Other comnodities 64.7 18.5 Freight and insurance -81.1 -137.7 -144.3 Total 348.7 100.0 Others -54.4 -87.9 -102.7 Investment income -8.9 -22.6 -39.8 rEXRNAL DEBT, DECEMBER 31, 1979 Transfers (net) 60.7 70.0 72.9 US$ Mln. Private 8.4 7.0 7.1 Public 52.3 63.0 65.8 Public Debt, incl. guaranteed 1.035 Non-Guaranteed Private Debt Current account balance -82.4 -440.5 -516.3 Total Outstanding & Disbursed 1.035 Direct foreign investment -6.2 -6.6 -6.6 DEBT SERVICE RATIO FOR 1980 4/ Net MLT borrowing: 22.6 145.2 199.2 Disbursenents 27.5 154.2 - Amortization -4.9 -9.0 - Public Debt, incl. guaranteed 12.4 Other capital (net)2/ 59.0 95.9 100.3 Non-Guaranteed Private Debt - Change in reserves 7.1 206.0 223.4 Total outstanding & Disbursed 12.4 (increase -) IBRD/IDA LENDING, March 31, 1982) MEMD ITEMS US$ million SDR allocation - 4.7 4.7 IBRD IDA Foreign assets (net)3/ 64.0 - - Outstandinig & Disbursed 30.92 167.01. RATE OF EXCHANSE 1978 1979 1980 Undisbursed 143.39. Outstanding incl. US$1.00 = FMG 225.64 212.72 211.30 Undisbursed 30.92 310.40 FM 1 = US$ 0.0044 0.0047 .0047 _/ Provisional estimates from the Central Bank of Madagascar. 2/ Includes SDR allocations, state and private short-tenn capital, and errors and omissions. 3/ Net foreign assets of the banking system. 4/ Debt service payments as % of exports of goods and services. February 4, 1982  - 31 - ANNEX II Page 1 of 8 STATUS OF BANK GROUP OPERATIONS IN THE DEMOCRATIC REPUBLIC OF MADAGASCAR A. Statement of Bank Loans and IDA Credits (as of March 31, 1982) 1/ Loan or Credit Number Year Borrower Purpose Bank IDA Undisbursed Eight Credits and Five Loans have been fully disbursed 32.58 79.55 -- CR 506-MAG 1974 Madagascar Village Livestock 9.60 2.72 CR 641-MAG 1976 Madagascar Highways IV 22.00 10.32 CR 663-MAG 1976 Madagascar Education II 14.00 2/ 5.98 CR 817-MAG 1978 Madagascar Andekaleka Hydroelectric 43.00 3/ 11.44 CR 881-MAG 1979 Madagascar Mangoky - Agriculture 12.00 4.30 CR 903-MAG 1979 Madagascar Railways II 13.00 1.37 CR 938-MAG 1979 Madagascar Highways V 24.00 22.93 CR 977-MAG 1980 Madagascar Industrial Bank - BNI 5.00 4.73 CR 1002-MAG 1980 Madagascar Water/Sanitation 20.50 20.37 CR 1016-MAG 1980 Madagascar Petroleum Exploration 12.50 10.33 CR 1064-MAG 1981 Madagascar Agriculture Credit 12.00 0.10 CR 1086-MAG 1981 Madagascar Plain of Antananarivo T.A. 2.30 2.30 CR 1155-MAG 1981 Madagascar Accounting and Audit 4/ 11.50 11.50 CR 1161-MAG 1981 Madagascar Forestry II 4/ 20.00 20.00 CR 1211-MAG 1982 Madagascar Village Livestock II 4/ 15.00 15.00 TOTAL 32.58 315.95 143.39 of which has been repaid 1.66 5.55 TOTAL now outstanding 30.92 310.40 Amount sold of which has been repaid TOTAL now held by Bank and IDA 30.92 310.40 TOTAL undisbursed 143.39 143.39 B. Statement of IFC Investments (as of March 31, 1982) Loan Equity Total (US$ Million) 1977 Sotema - Textile Mill at Majunga 11.00 0.29 11.29 1980 Bata - Shoe Manufacturing in Antananarivo 1.25 - 1.25 12.54 1/ Prior to exchange adjustments. 2/ Including a Norwegian grant participation of US$7.0 million. 3/ Including a supplemental credit of US$10.0 million of 1980. 4/ Not yet effective.  - 32 - ANNEX II Page 2 of 8 D. STATUS OF PROJECTS IN EXECUTION AS OF SEPTEMBER 30, 1981 I/ Credit No 506-MAG: Village Livestock and Rural Development Project: US$9.6 million credit of August 21, 1974; Date of Effectiveness: June 17, 1975; Closing date: June 30, 1982. The project encountered serious problems in the initial years and, principally because of legal and organizational difficulties, little progress was made. Following significant changes in institutional and management arran- gements, the credit agreement was extensively amended; the Amended Agreement became effective September 1, 1977. The project's main situation is much improved. FAFIFAMA, the principal project implementing agency, is now well-etablished, fully staffed and opera- tional. Implementation of the project's most important component - the develop- ment of veterinary and livestock services for village producers - is proceeding well. Pasture improvement experiments are being undertaken. Schools and health centers are being constructed, and the Ministry of Health is preparing a utiliz- ation plan for the health centers. The development of water points and road im- provement continue satisfactorily. Cooperation with fokonolona institutions in all aspects of FAFIFAMA's work is good. In the middle west, OMBY continues to provide services to villages surrounding the ranches established under the IBRD- financed Beef Cattle Development Project. The pilot program and cattle share fattening programs have begun, but action is limited to construction of some buildings. Financing and administration arrangements have been worked out. The study of cattle marketing and meat prices has been completed and submitted to government for review. To assist the Government in financing emergency imports of veterinary products, the Association has agreed to reallocate credit funds and to extend the closing date by six months to June 30, 1982. A second phase livestock project was approved by the Board in February 1982. 1/ These notes are designed to inform the Executive Directors about the progress of projects in execution, and in particular to report any problems which are being encountered and the action taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 33 - ANNEX II Page 3 of 8 Credit No 641-MAG: Fourth Highway Project; US$22.0 million credit of June 23, 1976; Date of Effectiveness: August 19, 1976; Closing Date: December 31, 1982 The project assists the Government in the construction of two major roads with a view of reducing transport costs and providing access to areas with a high agricultural potential. It also includes training and strengthening of the country's road maintenance administration. Project implementation is satisfactory. However, start of the training program for personnel in the Ministry of Public Works on highway maintenance has been delayed due to lack of training facilities. Bids for construction of these facilities were received and the contract has been awarded to the lowest bidder, SARD. Construction works have started. Part of consultant's team (Louis Berger) has already arrived and training has already started, although at a reduced scale at the existing training facilities. Credit No 663-MAG: Second Education Project; US$14.0 million of December 10, 1976; Date of Effectiveness: August 15, 1977; Closing Date: December 31, 1982 The project is designed to assist the Government in decentralizing the educational system and to improve the quality of basic education. It includes five Regional Education Centres and vehicles for school inspectorate, one Teaching Materials Production Centre and funds for textbook development, techni- cal assistance and fellowships. Norway took a 50 percent participation in the project under an agreement signed on December 16, 1977. Architectural design work on all project institutions is now complete. Detailed operational planning for the Teaching Materials Production Centre is being carried out. The two key technical advisors for this Centre, provided by the Organization for Rehabilitation through Training have been in Madagascar since September 1977. The second phase of the ORT program is under active preparation. Architectural work has generally been well executed although this has taken much longer than expected. Construction of one of the project's regional education centers is now completed and the remaining four centers are also nearing completion. The teaching aid production center is expected to be completed within six months. Progress has also been made with respect to the software components of the project including the completion of evaluation of the educational system, decentralization of education administration and a sector survey. The credit closing date has been postponed to December 31, 1982 to allow additional time for project completion.  - 34 - ANNEX II Page 4 of 8 Credit No 817-MAG: Andekaleka Hydroelectric Project; US$43.0 million credit of June 19, 1978 (including a Supplementary Credit of US$10 million of May 8, 1980); Date of Effectiveness: May 30, 1979; Closing Date: December 31, 1983. The project would meet the growth in electricity demand until 1992 in the Antananarivo area and provide for strengthening of JIRAMA, concrete divers- ion dam and an intake structure; a 4-km tunnel, underground power house, tail- race and access tunnels; two turbines and two generators; electrical and mechanical equipment; a transmission line to Antananarivo; engineering services; preliminary investigation and design for a storage reservoir; and technical assistance and training for JIRAMA staff. Contracts have been awarded for the civil works and all major equipment and supplies. The civil works were temporarily halted last year by contractor Skanska due to a lack of supplies caused by the unreliability of the railways. A co-lender's meeting held on May 4, 1981 adopted a remedial action plan. The project is expected to be completed in July 1982. Credit No 881-MAG: Mangoky Agricultural Development Project; US$12.0 million credit of May 17, 1979; Date of Effectiveness: March 11, 1980; Closing Date: June 30, 1983 The project supports the development of about 3,700 ha for production of rice and cotton, to be farmed by about 3,200 families. It will complete an irrigation system serving about 10,000 ha in the Lower Mangoky Valley which has been under development since the early 1960s. These investments are based on a long-term master plan for the region which aims ultimately to bring about 100,000 ha of land into production. The project will be implemented over a five-year period amd will comprise: development of irrigation and drainage networks, and road infrastructure for 3,300 ha including production of concrete canal segments; improvement of water supply for about 400 ha of traditional rice fields; consultant services for design and supervision; applied agricultural research; social infrastructure; training and project preparation for agricul- ture and rural development projects. IFAD is financing about 25 percent of the total project cost. Project implementation has been seriously delayed due to problems with (i) supply of equipment and spare parts, (ii) foreign exchange allocations, and (iii) financial management of SAMANGOKY. These factors have had a negative impact on the progress of civil works, in particular, the manufacture of con- crete canal elements. Agricultural production has also been low because of poor management of the irrigation scheme. To address these difficulties, the joint IDA Credit and IFAD loan agreement have been amended to permit disbursement for foreign exchange expenditures of spare parts, inputs, etc., which must be imported. A financial audit has been conducted under the PPF for the Agricul- tural Institutions Technical Assistance Project which has clarified SAMANGOKY's financial situation and resulted in the introduction of improved accounting  - 35 - ANNEX II Page 5 of 8 practices; IDA staff are currently pursuing a dialogue with the Government on implementation of a plan to redress SAMANGOKY's financial situation. Technical assistance is also envisaged to provide technical support for reinforcing agricultural production. Credit No 938-MAG: Fifth Highway Project; US$24.0 million credit of July 30, 1979; Date of Effectiveness: March 17, 1980; Closing Date: June 30, 1983. The project will help prevent further deterioration of the paved high- way network, thus reducing transport cost and avoiding early and costly recons- truction works. It would also increase the maintenance capacity of the Ministry of Public Works and provide for an all-weather road connection between the regional district of Antomboka and the capital, Antananarivo. Co-financing is provided by a European Economic Community Special Action Account credit of US$10 million. Due to inefficiencies of the highway administration progress so far has been slow, implementation is already about 2 years behind schedule. However, the contract for construction of bridges and approaches has been awarded and physical execution of the project is now getting underway. High bids for this contract have resulted in a cost overrun of US$6 million. Credit No 903-MAG: Second Railway Project; US$13.0 million credit of June 25, 1979; Date of Effectiveness: April 30, 1980; Closing Date: June 30, 1984. The objectives of the project are to help the Malagasy railway company renew and modernize its facilities, improve the reliability and efficiency of its operations and improve its financial management-and accounting methods. The French Caisse Centrale de Cooperation Economique provided US$20.5 million in co-financing. The railway has been experiencing major difficulties for some time, due to: i) fuel problems; ii) Government intervention in Railway operations; iii) increased derailments; iv) deteriorating financial situation; and most recently, v) Government dismissal of the Director General and the Technical Director of the railway company. A recovery program including short-term technical assistance for the railway has been adopted, following discussions with Malagasy officials. The government has been informed of the urgent need to improve the finances and financial management of the railway if IDA is to continue providing assistance. The project funds are almost fully disbursed. Credit No 977-MAG: Bankin'ny Indostria (BNI) Project; US$5.0 million credit of May 8, 1980; Date of Effectiveness: February 24, 1981; Closing Date: December 31, 1984. The project supports Madagascar's industrial sector and BNI's crucial  - 36 - ANNEX II Page 6 of 8 development role by providing BNI with part of its foreign exchange requirements to finance projects in the artisanal/small-scale and medium-scale enterprise sectors and by strengthening BNI itself through technical assistance. To date about US$4.0 million of the credit has been committed for medium- and large-scale enterprises. However, the pace of commitment of funds for small scale enterprises is slower, owing to the low ceiling (US$55,000) set for eligibility under this category. Credit No 1002-MAG: Antananarivo Water and Sanitation Project; US$20.5 million Credit of May 8, 1980; Date of Effectiveness: December 17, 1980; Closing Date: December 31, 1985. The project will increase access to treated water for the Antananarivo urban population and improve sanitation conditions. Detailed designs of the water supply works has been completed and tender documents have been issued. Detailed design of the sanitation component is expected to be completed by the May 1982. Construction work on the water supply component will commence as soon as bid eyaluation is completed and the contract awarded. Credit No 1016-MAG: Petroleum Exploration Promotion Project; US$12.5 million Credit of May 8, 1980; Date of Effectiveness: August 20, 1980; Closing Date: December 31, 1983. The project will support the Government's efforts to develop a domestic supply of hydrocarbons and improve planning of the energy sector. Implementa- tion of the project is progressing satisfactorily. Geological and legal consul- tants were employed to assist the Government in preparing data with a view to promoting exploration by interested oil companies. Bids from oil companies to undertake exploration have now been received and two exploration contracts have been signed with Mobil and Occidental Petroleum corporations. Other studies and technical assistance provided in the project are proceeding satisfactorily, including preparation of a second project to study the feasibility of exploiting the Tsimiroro heavy oil deposits. Credit No 1065-MAG: National Bank for Rural Development -(BTM) Project; US$11.5 million Credit of January 7, 1981; Date of Effectiveness: August 17, 1981; Closing Date: June 30, 1984. The project supports the extension of seasonal, medium-term, and long-term credit to smallholders through the National Bank for Rural Development (BTM) for the purchase of improved seeds, pesticides, insecticides, fertilizers, and small farm equipment. Due to poor repayment records on many loans extended under the collective guarantee credit scheme (FMR) BTM has suspended the FMR scheme in many regions. This action has resulted in a significant drop in lending activity. Consequently, BTM has been able to use only a small amount of Project funds as it has only marginally exceeded the base period level necessary  - 37 - ANNEX II Page 7 of 8 to qualify for reimbursement from the IDA Credit. In addition, due to the scarcity of foreign exchange, few inputs are available in Madagascar. To help remedy the current situation, BTM has proposed that part of the Credit be used to finance fertilizer imports destined for smallholders in selected rice growing areas. These fertilizers would provide farmers with inputs and would support lending operations directed to individuals rather than through cooperatives. The details of this proposal are currently being finalized by BTM management and should be presented to the Bank for consideration shortly. Credit No 1086-MAG: Plain of Antananarivo (Technical Assistance) Project; US$2.3 million Credit of January 30, 1981; Date of Effec- tiveness: October 16, 1981; Closing Date: December 31, 1983. The project supports the Government's efforts to institute a multisectoral approach to an integrated flood control and development program for the Plain of Antananarivo area; it would also contribute to strengthening the coordinating role of the Directorate General of Planning of the Ministry of Finance in the development of the Plain of Antananarivo. This would be achieved through pre-investment studies to define options for flood control programs and to provide Government with elements for decision-making. A contract has been awarded and work began in early 1982. Credit No 1155-MAG: Audit and Accounting Project; US$11.5 million Credit of June 11, 1981; Expected Date of Effectiveness: June 15, 1982; Closing Date: March 31, 1988. The project includes measures to develop a suitable legislative frame- work for the accounting and auditing sector and aims to increse the level of expertise in these professions through training. Consultants have been retained to start the design of the training programs. Government legislation providing for the creation of the training center has been enacted. Credit No 1161-MAG: Second Mangoro Forestry Project, US$20.0 million Credit of October 29, 1981; Expected Date of Effectiveness: July 1, 1982; Closing Date: December 31, 1987. The project will continue the reforestation program begun under the first project, and will assist the Government's efforts to establish a forestry industrial complex in the Mangoro Valley. Recent studies have shown that forest yields will be lower than previously estimated, and studies are currently under way to determine the most appropriate industrial development for the wood resources available. The credit is not yet effective, and the deadline for effectiveness has been extended to July 1, 1982. Credit No 1211-MAG: Second Village Livestock Project; US$15.0 million credit of April 15, 1982; Expected Date of Effectiveness: August 15, 1982; Closing Date: December 31, 1987 The Project would support the Government's effort.s to increase beef  - 38 - ANNEX II Page 8 of 8 production and to improve the productivity of the sector through animal health programs, the provision of veterinary inputs, technical assistance and research. In Mahajanga province, basic animal health programs would be continued and extended, and a pilot animal production program, supported by rural road and water supply components, would be implemented. Veterinary supplies and equipment for producing vaccines would be imported; and management 4r assistance and training for key institutions in the livestock sector would be included.  - 39 - ANNEX III Page 1 of 2 MADAGASCAR AGRICULTURE INSTITUTIONS TECHNICAL ASSISTANCE PROJECT Supplementary Project Data Sheet Section I - Timetable of Key Events: (a) Time taken to prepare project one year (b) Project prepared by: Government and Consultants (c) Initial discussions with IDA: November 1980 (d) Departure of appraisal mission: July 1981 (e) Negotiations: April 1982 (f) Planned date of effectiveness: September 1982 Section II - Special Implementation Action: None Section III - Special Conditions of the Project: (i) The Government would submit an interim agricultural invest- ment plan to IDA for review and comment by February 1, 1983 and a final version of the plan by May 1, 1983 (para. 46); (ii) The Government would submit to IDA for comment by February 1, 1983 a short-term action plan to increase rice production and improve rice processing and marketing (para. 49); (iii) The Government would submit to IDA for its comments the find- ings and recommendations of the studies to review Government procedures for managing rice imports and input distribution for rice production by May 1, 1983 (para. 49);  - 40 - ANNEX III Page 2 of 2 (iv) The Government would submit to IDA for comment the findings and recommendations resulting from the review of SINPA's operations and of the rice marketing system by June 1, 1983 (para. 55). Condition of Disbursement A condition of disbursement for expenditures made in connect- ion with (a) the preparation of a short-term plan to increase rice production and improve rice processing and marketing, (b) studies for managing rice imports and input distribution, and (c) analysis of rice marketing operations would be that a rice coordinating unit be created (para. 48).  - 41 - ANNEX IV Page 1 of 3 Tentative List of Expert Services Needed Under Technical Assistance Project A. Strengthening, Planning and Project Preparation A total of 93 staff-months of technical assistance would be provided for this component broken down into three main areas of activity: (a) invest- ment planning: 18 staff-months; (b) project preparation: 60 staff-months; and (c) coordination of rice development activities: 15 staff-months. These would be further broken down as follows: (a) Investment Planning: 6 staff-months of a specialist in invest- ment planning to prepare a 3-year investment plan (1984-86) for the agriculture sector; 6 staff-months of a specialist in investment planning to review planning systems and procedures in DEP, to propose improvements and staff training pro- grams, and to. provide periodic supervision of such improvement programs; and 6 staff-months of investment specialists to assist with the annual budget exercise and to address specific operational problems as needed. All specialists engaged should have formal training in economics with experience in planning work, preferably in sub-Sahara Africa. (b) Project Preparation: 60 staff-months of consulting services. Consultants would have expertise in the following fields: agricultural econo- mics, agronomy, animal husbandry, irrigation systems, operational research. (c) Rice Coordination: 3 staff-months for preparation of an action plan for rice development activities; 12 staff-months of consulting services to examine rice import procedures and systems for distributing rice and production inputs and to propose improvements. Specialists should have background in management fields as well as appropriate specialization (e.g. marketing, food planning) and experience in sub-Saharan Africa. B. Parastatal Management A total of 162 staff-months of technical assistance would be provided for this component broken down into the following key activities: (a) financial and management audits, preparation of management improvement programs for SOMALAC, SAMANGOKY, and FIFABE, and supervision of management improvement programs once in place: 110 staff-months; (b) study of the rice marketing system in Madagascar: 40 staff-months; and (c) management audits of a limited number of agricultural parastatals, to be selected after experience with the first management audits: 12 staff-months. (a) With assistance under the PPF, a contract for about 65 staff- months was signed for the financial and management audits and preparation of improvement programs for SOMALAC, SAMANGOKY, and FIFABE. The consultant team assembled for this work has been an interdisciplinary one, composed of both  - 42 - ANNEX IV Page 2 of 3 expatriate and Malagasy experts. The fields of expertise represented in the team have included: management, accounting, economics, agronomy, irrigation systems, civil engineering, socio-ethnology, law, and organizational psycho- logy. It is expected that experts in these fields would also be responsib.e for monitoring the implemientation of the management improvement programs proposed under the project. Specialists in organizing in-house training programs and seminars would also be needed. (b) Rice Marketing: 40 staff-months of technical assistance would be required to study the rice production, consumption, and marketing arrangements in Madagascar to identify physical constraints and government policies which impede efficient marketing, and to make recommendations which would put the marketing system on a sound operational basis. Should there continue to be a role for state marketing companies, indepth analyses of key institutions (particularly SINPA) would be conducted. An interdisciplinary team of experts would be assembled for these studies composed of both expatriate and Malagasy experts. The fields of expertise represented in the team would include: management, accounting, economics, marketing, and transport. (c) Management Audits of Selected Agriculture Parastatals: 12 staff-months of consulting services. Consultants would have expertise in the following fields: management and accounting. C. Government Services A total of 36 staff-months of technical assistance would be provided for this component, broken down into two main areas: (a) organizational analysis of HPARA and the SDR of Antananarivo and implementation of reorganization and management strengthening programs: 24 staff-months; and (b) strengthening management and operations of FOFIFA: 12 staff-months. (a) Organization Study of MPARA: 14 staff-months of technical assistance would be provided to study the organizational structure and operational procedures of MPARA and to propose alternative organizational arrangements. Ten staff-months of technical assistance would be provided to study the organizational and operational constraints to the effective performance of the SDR of Antananarivo and to propose a redefinition of SDR functions and alternative organizational formulas corresponding to the new definition of responsibilities. An interdisciplinary team of consultants would be assembled composed of both expatriate and Malagasy experts. Expertise in the following fields would be represented: public administration, management and finance, extension, and training. (b) Strengthening FOFIFA: 6 staff-months of technical assistance would be provided to reconstruct a collection of Malagasy rice research  - 43 - ANNEX IV Page 3 of 3 materials; 6 staff-months of technical assistance to prepare a management improvement program for FOFIFA, including training, and to monitor its implementation. Consultants should have qualifications and appropriate experience in agricultural research, preferably in Africa, but would also require a sound background in management and administration.  - 44 - Chart 1 MADAGASCAR AGRICULTURAL INSTITUTIONS TECHNICAL ASSISTANCE PROJECT Ministry of Agricultural Production and Agrarian Reform Minister r Cabinet I Secretar General Administration Legislation External RelationsOPS and Finance and Claims Documentation Services 711~~~~~~~li Director General of Director of Studies Rural Development and Programming and Agrarian Reform a Directors of 1 Agricultural - Agrarian Reform Faritany Rural Statistics Development Departments (6) 1 ~~~Support to Regional Crop Production Management Development Fivondronana of Enterprises Authorities Rural Development and Parastatals Services (18) Irrigation IProgramming I Imgation l g and Finance l ____|[ Local Extension Services for the Water and Forestry Firaisam-pokontany Studies and Water and Forestry[ or the Fokontany Laboratories Education and Animal Production Agricultural Training Agricultural Industrialization Agricultural Equipment World Bank-23897  -45- Chart 2 MADAGASCAR AGRICULTURAL INSTITUTIONS TECHNICAL ASSISTANCE PROJECT FOFIFA (National Center for Applied Research on Rural Development) Management Committee Manager Scientific Committee Research Department Research Department Research Department Research Department Financial and Admin- in Agronomy in Forestry and Fisheries in Zootechny and in Technology, Agri- istration Service Veterinary Science cultural Mechaniza- -Accounting Service tion, Hydraulics and - Documentation Service Conservation Matters (Department Director) 1. Agronomy Division 1. Forestry Division 1. Pathology Division 1 Agricultural 2. Genetic Division 2. Soil Division 2. Parasitology Division Technology Division 3. Pedology Division 3. Fishery Division 3. Livestock Division 2. Agricultural 4 Phytopatho- 4. Technology 4. Animal Nutrition Mechanization logy Division Division Division Division |Standing Committee 5. Entomology Division 3. Agricultural Hydraulics Division 4. Conservation Matters Division 14 Regional A Number of Research 10 Research 2 Research Research Stations Stations Stations Stations I wil be Established and Centers World Bank-23898  -46- Chart 3 MADAGASCAR AGRICULTURE INSTITUTIONS TECHNICAL ASSISTANCE PROJECT Implementation Schedule 1981 1%82 1983 1984 1985 J|J JAS 0; NJ D J|F| MPA M|AMJ0 JNJA s O|N|D JI FIM|A|M|J| J0A| J | F M I ,MI |J I A S I0IN i I F M AIMJIJI Planning and Project Preparation - Recruitment of Consjltants - 3-Yea lnvestm,ent Plan - Stnenghehing Planning Procad|res - PMjemt t Prerparatio Studies Rice Plannig Unit - Short-Term Plan - Studient - Study of Rice Marketing Perastatal Management - Recruitment of Consultants - Financial Audits ISOMALAC. SAMANGOKY, FIFABE) - Management Audics (SOMALAC, FIPABE) - Management Improvement Program lSOMALAC, SAMANGOKY) - Other Mananement Audits Government Services - Recruitmento0fConsultants - Organization Study MPARA - Organization Study StDR - Management Improvement Programs iMPARA and SDR) Reasearch Program - Re-rinment of Consultants - Organization Study FOFIFA - Management Improvement Program FOPFIFA - Implementaftion Research Programn IDA Apptraisal Negotiations Board Approval[ 0 Effectiveness0 Closing L _______ LApril 8, 1982 World Bank-23621  IBRD 13654R 4' A! A' ge~~~~~~~~~~~~~~~~00~ JANUARY 1979 MADAGASCAR b AGRICULTURE AND RURAL DEVELOPMENT NOSSI-BE Major IBRD Proiocts PFovd RoOdts He-yoew MAJOR CROPS AHWooth.r P4adt Von~Ila- Nor*persnrnnt Road$ 4- J Pepper irs.4 v 1 C CLoves + Arot Cotton - 1sohyefs (m per year) A Poa D. Ccp FfitonBons dries ntOi0h0 NOTE; Rice and CUoe are diwribut*4 oe ev; P o 50 %go 120 200 250 0 so 10 MItOS Soolalo - M ~~~~~~~~~~~~~~~~~~~~~~~~ Mopi nova ~~~~~~~~~~~~16.- Mozambique Loc Alootro Projet Ranching Pr'oj.ct Anso Ch en ne ndian ~,jO i~Z;~o~; ~ ~ MonoroF(orstry ~Qffl4r : % ---- M Mangoky Project ~ ~ ~ ~ ~ ~ ~~~~~~~~~~Prec mbe O n Ocon -b.rdy M t A;cry4aky f]anarF 0 n |o : f 45 4 48 0 At/arr - 731 1~~~B