Malawi - Fisheries Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9086-MAI STAFF APPRAISAL REPORT MALAWI FISHERIES DEVELOPMENT PROJECT FEBRUARY 25, 1991 Southern Africa Department Agriculture Operations Division 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 and Equivalent Units Currency Unit = Malawi Kwacha (MK) US$1.00 = MK2.8 MK1.00 = US$0.36 Abbreviations ACFO = Assistant Chief Fisheries Officer ADD Agricultural Development Division ADMARC Agricultral Development and Marketing Corporation CBM = Commercial Bank of Malawi CFO Chief Fisheries Officer DEVPOL Statement of Development Policies DFO = District Fisheries Office EEC = European Economic Community FA = Fisheries Assistants FAO = Food & Agricultural Organization FD = Fisheries Department GOM = Government of Malawi GTZ = Deutsche Gesellschaft fur Technische Zusammenarbeit GmbH ICEIDA Icelandic International Development Agency IDA = International Development Association INDEBANK = Investment and Development Bank INDEFUND = Investment and Development Fund MALDECO = Malawi Development Corporation (MDC) MBRS = Monkey Bay Research Station MFNR = Ministry of Forestry and Natural Resources MFTC = Mpwepwe Fisheries Training Center MOA = Ministry of Agriculture MMF = Malawi Mudzi Development Fund MUSCCO Malawi Union of Savings and Credit Cooperatives Ltd. NBM = National Bank of Malawi NDF = Nordic Development Fund NRDP = National Rural Development Program ODA = Overseas Development Administration POSB = Post Office Savings Bank RBM = Reserve Bank of Malawi RDP - Rural Development Projects RFO = Regional Fisheries Officer SACA = Smallholder Agricultural Credit Administration SADCC = Southern African Development Coordination Conference SCF = Smallholder Credit Fund SEDOM = Small Enterprise Development Organization of Malawi UNDP = United Nations Development Program USAID = United States Agency for International Development WWBM = Women's World Banking of Malawi FISCAL YEAR Government: April 1 - March 31 FD: April 1 - March 31  FOR OFFICIAL USE ONLY FISHERIES DEVELOPMENT PROJECT TABLE OF CONTENTS Credit and Project Summary . . . . . . . . . . . . . . . . . . . . i I. BACKGROUND A. Project Genesis . . . . . . . . . . . . . . . . . . 1 B. Main Country Characteristics . . . . . . . . . . . 1 C. Macroeconomic Context . . . . . . . . . . . . . . . 1 D. Agricultural Sector ........ ... ... . . 3 II. THE FISHERIES SUB-SECTOR A. Introduction. ............. 4 B. Resources and Production . . . . . . . . . . . . . 4 C. Fish Processing, Marketing and Pricing . . . . . . 4 D. Sub-Sectoral Constraints . . . . . . . . . . . . . 7 E. Govt. Development Objectives and Strategy . . . . . 7 F. Bank Strategy and Assistance . . . . . . . . . . . 8 G. Lessons Learned from Fisheries Projects . . . . . . 9 H. Other Donors' Assistance . . . . . . . . . . . . . 9 III. INSTITUTIONS AND SERVICES A. Fisheries Department . . . . . . . . . . . . . . . 9 B. MALDECO Fisheries ................ . 13 C. Other Institutions and Services . . . . . . . . . . 14 IV. THE PROJECT A. Project Rationale and Objectives . . . . . . . . . 15 B. Project Description . . . . . . . . . . . . . . . . 16 C. Detailed Features . . . . . . . . . . . . . . . . . 16 D. Project Costs . . . . . . . . . . . . . . . . . . 22 E. Financing Arrangements . . . . . . . . . . . . . . 25 F. Procurement . . . . . . . . . . . . . . . . . . 25 G. Disbursement . . . . . . . . . . . . . . . . . . . 27 H. Accounts & Audits . . . . . . . . . . . . . . . . . 28 This report is based on the findings of an appraisal mission which visited Malawi in June, 1990, comprising Messrs/Mies. N. Okidegbe, Sr. Fin. Analyst (Mission Leader and principal author); S. Thillairajah, Prin. Fin. Analyst (Institution Specialist); B. Bagdjortsson, Fish Biologist; M. E sonu, Economist; K. Fisher, Aquaculturist; B. Jenson, Fish Processing Specialist; P. Molchiori, WID Specialist. Messrs. E. Loayza (AGRPS) and 0. Van Santen (EMTAG) revioeed project design as Lead Advisor and peer reviower respectively. Ms. P. Mehrdadi provided secretarial support in the preparation of the report. Mr. R. All and Mr. S. Denning are the managing Division Chief and the Department Director, respectivoly for tho operation. 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.  V. PROJECT IMPLEMENTATION A. Organization and Management . . . . . . . . . . . . 28 B. Role of MALDECO . . . . . . . . . 30 C. Role of Women .... . . . . . ..... . . . . 30 D. Credit Terms and Conditions . . . . . . . . . . . . 31 E. Annual Work Program . . . . . . . . . . . . . . . . 32 F. Reporting and Monitoring . . . . . . . . . . . . . 32 G. Environmental Impact . . . . . . . . . . . . . . . 32 VI. PRODUCTION, MARKETING AND PRICES A. Production . . . . . . . . . . . . . . . . . . 33 B. Marketing ................................... 35 C. Prices ................................... 37 VII. BENEFITS AND JUSTIFICATION A. Financial Analysis ... . . . . . . . . . . . . . 37 B. Economic Analysis . . . . . . . . . . . . 39 C. Risks and Sensitivi'ty Analysis . . . . . . . . . . 41 VITI. AGREEMENTS REACHED. CONDITIONS AND RECOMMENDATION A. Agreements Reached . . . . . . . . . . . . . . . . 43 B. Condition of Effectiveness . . . . . . . . . . . . 43 C. Condition of Disbursement . . . . . . . . . . . . . 44 D. Recommendation .... . . . . . . . . . . . . . . 44 IX. ANNEXES 1. Detailed Project Costs Table 1 - Project Cost Summary . . . . . . . . 45 Table 2 - Project Components by Year . . . . . 46 Table 3 - Accounts Cost Summary . . . . . . . . 47 2. MALDECO - Projected Financial Statements Table 1 - Projected Balance Sheet (1990-93) . 48 Table 2 - Projected Income Statement (1990-93) 49 Table 3 - Projected Sources & Uses of Funds (1990-93).. ........ 50 3. The Financial Sector and Credit Criteria . . . . . 51 4. Monitorable Action Program for Pilot Women's Program 55 5. Estimated Disbursement Schedule . . . . . . . . . . 60 6. Boat Models: Key Financial Indicators . . . . . . . 62 7. Operational Model for Mpwepwe Boatyard . . . . . . 68  8. Economic Costs and Benefits . . . . . . . . . . . . 74 9. Implementation Schedule . . . . . . . . . . . . . . 78 10. Supervision Plan ... . . . . . . . . . . . . . . 79 Chart Fisheries Department Organizational Structure Hat) IBRD Nos.22693 and 22615 X. DOCUMENTS IN PROJECT FILES A. Working Papers on Aquaculture Development B. Working Papers on Economic Analysis C. Working Papers on Environmental Assessment D. Working Papers on Women in Fish Processing and Marketing E. Working Papers on Fishing Methods, Processing and Marketing F. Cost Tables  - i - MALAWI FISHERIES DEVELOPMENT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government of Malawi Beneficiaries: Fisheries Department (FD); Artisanal Fishermen; Semi-Commercial and Commercial Fishing Enterprises; and Women Fish Traders. Amount: SDR 6.2 Million (US$8.8 million equivalent). Terms: Standard IDA terms, with 40 years maturity. Co-Lenders: Nordic Development Fund (NDF) and Icelandic International Development Agency (ICEIDA). Project Description: The Project, which would be implemented over seven years with total estimated cost of US$15.5 million, comprises: (i) an Institution Building Component for strengthening Fisheries Department to enable it to concentrate on regulatory functions, policy formulation, staff training and technical assistance; (ii) a Research Component for strengthening FD's research capacity and focusing on demersal stock assessment, lake resource conservation, and developing pilot fish farming models that would help integrate aquaculture into crop farming systems in different ecological zones; (iii) a Production Component for rehabilitating and developing existing capture fisheries by supporting artisanal fishermen, semi-commercial and commercial fishing activities, and establishing a pilot program to increase the involvement of women in fisheries (fish processing and marketing); and (iv) an Infrastructure Component for rehabilitating, upgrading and building of access roads, jetties for fish landing, and shore based facilities. Benefits and Risks: Malawi would increase food production from its lakes, reservoirs and river systems. The proposed Project would enhance the contribution of the fisheries sub-sector to food security and improved nutrition, poverty alleviation, employment and income generation, particularly of the rural population, including women. It would promote private sector participation in fisheries  - ii - sub-sector by rehabilitating semi-commercial and commercial fisheries enterprises while reducing government involvement in fisheries operations. In addition, it would strengthen the capacity of FD to establish an effective lake resources management program, carry out regulatory functions to protect and conserve the natural resource base and prevent environmental degradation. The possible risks to the Project would be the weak institutional capacity of the Fisheries Department to implement the Project and efficiently manage and regulate the fisheries sub-sector, particularly the protection of fish resources from over-fishing and prevention of the pollution and degradation of Malawi's water bodies. This risk would be minimized by the planned strengthening of Fisheries Department through reorganization, staff training and technical assistance.  - iii- Project Cost Summarv: Local Foreian Total US$ 000 A. INSTITUTION BUILDING 1. Management 459.1 1,051.2 1,510.3 2. Extension 693.6 589.4 1,283.0 3. Planning, Monitoring & Evaluation 131.6 170.7 302.3 4. Training 619.4 788.9 1,408.4 5. Civil Works (Office & Staff Houses) 1,122.7 573.7 1,696.4 Sub-Total Institution Building 3,026.4 3,173.9 6,200.3 C. INFRASTRUCTURE 1. Jetties 60.4 40.3 100.7 2. Access Roads 448.0 248.4 696.4 Sub-Total Infrastructure 508.4 288.7 797.1 B. RESEARCH 1. Research and Conservation 78.6 802.6 881.2 2. Aquaculture 322.3 120.5 442.8 3. Civil Works 233.5 55.7 289.2 Sub-Total Research 634.4 978.8 1,613.2 D. PRODUCTION 1. Artisanal Fisheries 92.3 439.3 531.6 2. Commercial 1,011.8 1,960.6 2,972.4 3. Semi-Commercial 71.6 382.1 453.7 4. Boat Yard 222.2 257.3 479.5 5. Pilot Women's Program 200.0 - 200.0 Sub-Total Production 1,597.9 3,039.3 4,637.2 Total Baseline Costs 5,767.1 7,480.7 13,247.8 Physical Contingencies 193.8 369.0 562.8 Price Contingencies 1,057.5 627.9 1,685.4 Total Project Costs 7,018.4 8,477.6 15,496.0  - iv - FinancinR Plan: Local Foreign Total ---------(US$ Million-------- IDA 4.4 4.4 8.8 NDF - 3.5 3.5 ICEIDA 0.4 0.6 1.0 GOM 1.1 - 1.1 MALDECO 0.6 - 0.6 Beneficiaries 0.5 0.5 Total 7.0 8.5 15.5 Estimated Disbursement (USS Million) FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 Annual 0.3 1.0 1.4 1.6 1.3 1.7 1.0 0.5 Cumulative 0.3 1.3 2.7 4.3 5.6 7.3 8.3 8.8 Economic Rate of Return Total Project 20% Artisanal and Semi-Commercial 18X MALDECO 40%  MALAWI FISHERIES DEVELOPMENT PROJECT I. BACKGROUND A. Proiect Genesis 1.01 In 1988, the Government of Malawi (GOM), assisted by IDA carried out a Fisheries Sub-Sector Study which identified the main issues facing the country's fisheries operations. Based on the recommendations of this study and the findings of a subsequent IDA Identification Mission, IDA agreed to provide assistance to the fisheries sub-sector. A Task Force was established in June 1989 within the Ministry of Forestry and Natural Resources (MFNR) to carry out preparatory work on the proposed Project. IDA reviewed the Government's proposals and recommended additional analysis. The Project preparation report was finalized by the Fisheries Department (FD) with the active support of FAO/World Bank Cooperative Program (CP) in November/December 1989. This Staff Appraisal Report is based on the findings of IDA appraisal mission which visited Malawi in June 199(). B. Main Country Characteristics 1.02 Malawi is a small, land-locked country with a total area of approximately 118,900 km2, of which 23,900 km2 is lake surface. It is bordered on the north and northeast by Tanzania; to the east, south and southwest by Mozambique; and to the west by Zambia. The land area consists of three topographical regions: the northern mountainous region, the central plateau and the southern lowlands. The current population of Malawi is estimated at about 8.1 million, with an annual growth rate of about 3.2Z. Malawi has one of the highest population densities in Africa with 60 inhabitants per km2, and 170 inhabitants per km2 of arable land. Much of the population suffers from malnutrition, and only two out of three children survive beyond five years of age. The country's food production and supplies have been severely constrained by drought, cassava mealy bug infestation, high cost of agricultural inputs such as fertilizers, low prices for exported agricultural commodities such as tobacco and tea, and increased freight costs due to the civil war in neighboring Mozambique. This civil war has also driven some 800,000 refugees into Malawi. C. Macroeconomic Context 1.03 Malawi has a GNP per capita of US$160 (1987), which is below the average for Sub-Saharan Africa, and makes it one of the world's poorest countries. A substantial proportion of the population lives below the poverty line. However, Malawi is pragmatic in the management of its economy even though the economic base is dependent on a small range of export and domestic markets and susceptible to external shocks. The strategy in the first decade and a half following Independence in 1964 by and large emphasized infrastructure and agriculture as vehicles for increased production. While prices paid to smallholders by the monopsonistic marketing board (the Agricultural Development and Marketing Corporation -- ADMARC) were below world levels, a considerable share of the  - 2 - profits was reinvested in agriculture, albeit in the estate or agro- industry sub-sectors. The estate sub-sector was deemed critical to export Derformance and was the primary source of growth. Explicitly recognizing e.ts constrained resources, the Government limited its expenditures, 4ncluding social services. The initial effect of this strategy was a Leasonably high growth rate of over 5 percent per annum through the late 1970s. 1.04 Malawi's period of strong growth came to a halt in the early 1980s when the country faced a combination of unfavorable terms of trade, high interest rates, and weather-related shocks, and other major domestic policy weaknesses. While the Government was responding to these shocks, the country was hit in the mid-1980s by a worsening of the war and civil strife in neighboring Mozambique which not only led to a debilitating increase in international transportation costs but also to increased security-related expenditures and a large influx of refugees. This caused sharp deterioration in the macroeconomic environment in 1986 from which Malawi is just now recovering. Despite the recent partial reopening of the Nacala rail route to Mozambique in October 1989, and peace overtures, the Mozambique situation has not eased and remains highly uncertain. Should peace be secured, restoration of smooth transport flows still would require rehabilitation work extending over several years. 1.05 Throughout the 1980s the Government undertook a broad-based structural adjustment effort. This was supported by three Structural Adjustment Loans (SALs) and an Industry and Trade Policy Adjustment Credit (ITPAC) from the Bank and other bilateral donors as well as by successive arrangements with the International Monetary Fund. The major elements of the adjustment package comprised: (a) restructuring of the parastatal sector, including ADMARC reorganization and divestiture, and restructuring of the quasi-public conglomerate Press Group, resulting in a return to their profitability; (b) reforming smallholder agricultural pricing and marketing, thereby improving performance among larger smallholders and wide private sector participation; (c) establishing fiscal discipline, including development of a tax reform program and strengthened budgeting procedures, resulting in a sharp decline in the fiscal deficit, initially from 15.5Z of GDP in 1980/81 to 8.5Z in 1984/85 and later, in response to the second series of shocks, from 13.0? in 1986/87 to 6.9? in 1989/90; and (d) restoring a relatively open exchange and trade regime through appropriate exchange rate adjustment and a phased removal of prior foreign exchange approval on imports, resulting in increased efficiency of import use and manufacturing capacity utilization. 1.06 The structural reforms and improvements in short-term macroeconomic management have created a stable macroeconomic environment. After negative growth in 1986 and 1987, GDP (at market prices) grew by 3.3? in 1988 and 4.3Z in 1989, restoring per capita GDP growth to a positive level. Despite drought conditions, GDP is expected to grow 4.8? in 1990. Inflation decelerated sharply from an average of about 30? in 1987-88 to an average of 162 in 1989 and estimated 12% in 1990. Real wages have declined; in fact, labor has borne a significant part of the adjustment burden. The fiscal deficit has been brought under control, with net negative domestic credit financing of government in 1988/89, 1989/90, and  - 3 - 1990/91. This allowed growth in private sector credit of 26X, 59%, and estimated 38%, respectively. 1.07 In spite of the breadth of policy reform and the restoration of macroeconomic stability, significant structural weaknesses that impede development of sustainable supply response remain. The productivity of the economy is low, while increased financial flows to the private sector have not resulted in stimulating non-traditional activities. As a result, foreign savings continue to be of critical importance to the economy, with a current account deficit reaching 10.7Z of GDP in 1989 and an estimated 8.5Z in 1990. In addition, export responsiveness has been impeded by stagnation of agricultural productivity for the majority of smallholders and continued population pressures. D. Agricultural Sector 1.08 Agriculture is the backbone of the Malawi economy. It accounts for about 35% of GDP, 90X of exports and 85Z of employment, and provides inputs for about two-thirds of the manufacturing sector. The country's arable land is about 2.4 million ha, most of which is being cultivated. However, agricultural productivity remains low as a result of limited adoption of improved agricultural technologies, reduction of farm size due to rapid population growth, and deterioration of land fertility. This has resulted in domestic food security concerns and constrained agricultural export growth. A substantial proportion of the population is estimated to be poor and malnourished, predominantly in rural areas, including a disproportionate number of female-headed households. Options to increase availability of low cost sources of protein through expansion of animal or crop production are limited. The challenge facing Government is to find ways to increase agricultural productivity and promote efficient use of natural resources, while generating off-farm employment and increasing private sector participation. 1.09 Government is using a variety of measures to address the challenges facing agriculture. Through the Agricultural Sector Adjustment Credit, Government is implementing a number of key measures to increase the productivity of a broader range of smallholders and estates, including: revising laws to allow smallholders to grow the high-value burley tobacco and increase prices of other tobacco; liberalizing the fertilizer distribution system; restructuring research policy in favor of technology appropriate to smaller smallholders; and increasing and adjusting land lease rents for estates more frequently. Efforts are also being made to expand the access of agricultural support services to a much broader range of smallholders through the proposed Agricultural Services Project. This would involve a variety of new initiatives that would focus efforts more specifically on the needs of the resource-poor households, without diminishing its support to the market- oriented producers. Emphasis is already being placed on ongoing research, with some success, for more widely acceptable improved maize varieties and groundnut; widening the impact of extension through increased attention to specific needs of the smaller farmers; and expanding the availability of fertilizer to smallholders in combination with broader coverage of agricultural credit.  - 4 - In addition, the Government has produced a Food Security Statement with an action plan to increase the availability of low cost sources of protein. II. THE FISHERIES SUB-SECTOR A. Introduction 2.01 Fisheries is a significant sub-sector of agriculture, contributing about 41 to the GDP. It plays an important role in the country's food security and nutrition. Fish is an essential part of the Malawian diet and the main source of low cost animal protein. It represents about 75Z of the total animal protein supply of the rural population. In addition, the fisheries sub-sector is an important source of off-farm employment and income opportunities. Fisheries activities are the direct source of employment for about 32,000 people and provide the livelihood for about 200,000 others who work in a variety of activities such as fish processing, marketing, boat building and repair, engine repair, and gear supply. Given limited options for expanding crop production because of land constraints, the fisheries sub-sector is expected to become even more important in the future. B. Resources and Production 2.02 Resources. Malawi's water bodies cover about 25,970 Km2 or 22Z of the country's total area. These water bodies have potential sustainable fish production of about 150,000 tons/year. Lake Malawi, which is the largest water body in Malawi, is renowned for its diversity of fish species. Although no definite count has been made, it is certainly the most species-rich in the world with as many as 1,000 different species. Remarkably, most of these species are endemic to Lake Malawi and belong to a single family, the Cichlidae. The country's other water bodies are Lakes Malombe, Chilwa, Chiuta and the Shire River with its marshes. 2.03 Production. Total fish production in 1988 was about 80,000 tons. A little more than half of the nation's annual fish production comes from Lake Malawi. Of the remainder, about half are caught from Lake Chilwa and a quarter each from Lake Malombe and the Shire River (Middle and Lower). In recent years, between 10Z and 15Z of the total catch has been produced by the commercial and semi-commercial fisheries, whose operations are mostly within the Southern Region waters of Lake Malawi. The remaining 85Z to 90Z is produced by artisanal fishermen using diverse techniques, and are widely and surprisingly uniformly spread throughout the country's fishable waters, regardless of productivity. C. Fish Processing, Marketing and Pricing 2.04 Fish Processing. An estimated 80 to 90Z of Malawi's landed fish catch is processed for distribution inland, the remainder being consumed fresh in the production areas or in nearby urban markets. Sun-drying is the main method of preservation for the smaller, low-value fish (utaka, usipa, kambuzi and chisawasawa), while larger fish such as chambo, catfish and the larger cyprinids, mormyrids and characins are usually smoked. Sun- drying is usually performed on racks made of reeds or bamboo. Faster  - 5 - drying and reduced losses have been achieved by the FD using an improved drying rack of galvanized wire mesh, but the high cost of mesh has prevented its widespread adoption. The main problem in sun-drying is spoilage due to insect infestation, both during the drying process (attack by Blowfly Larvae) and during storage (Dermestes Beetle infestation). FD research has resulted in an inexpensive and effective insecticidal dip or spray treatment to combat both pests using a commercial insecticide ("Actellic" - Pirimiphos-Nethyl) widely used in Malawi on stored maize. Actellic dipping has been adopted by many processor/traders in the southern part of Lake Malawi, but increased efforts are required to extend this technique to other production areas. 2.05 Traditionally, fish smoking has been carried out over open pits. The requirements for a better product, and a processing technology which cain handle larger quantities of fish and improved fuel economy, have been satisfied in many places by the introduction of kiln smoking. Over the last twenty years, the FD has developed suitable kiln designs based on the "Cote D'Ivoire' kiln (making them smaller and simpler), and these have been widely adopted wherever adequately demonstrated. The shortage of fuelwood in some fishing areas (especially the Lower Shire, Likoma and Chizumulu islands) makes it particularly important to intensify extension effort in this field. A small quantity of high-value fish (kampango, chambo and ncheni) is smoked as brined fillets in electric smoking kilns, to supply the hotel and delicatessen trade. 2.06 The northern market has developed a preference for pan-roasted fish, that is, small fish (usually utaka) roasted on a piece of steel sheet after a short period of sun-drying. The method is useful during the rains when drying is more risky, and also produces a tasty product. The shelf life of pan-roasted fish is, however, much shorter than that of either dried or smoked fish. 2.07 Near Salima, a fish canning company operated rather unsuccessfully for about fifteen years. It faced problems of fish supply, until it established its own fishing capacity. In addition, it had to import cans from overseas, and there were also some technical problems associated with the canning of bony cichlids. The cannery was shut down in the mid-1980s but has recently been purchased by new owners who plan to reinvest in fish canning. 2.08 Fish Marketing. The commercial fisheries sector produces a range of high-value products (fresh iced, frozen and smoked fish) mainly for the urban markets of Zomba, Blantyre and Lilongwe. It also produces about 3,500 tons/year of low-value fish, chiefly chisawasawa, which is sold fresh to processors or trader/processors at the FD landing sites for sun- drying and distribution to inland markets. Catches by the artisanal fishermen are landed at a large number of small fishing beaches rather than at centralized landing points, and a flexible and generally efficient processing/trading system has evolved to distribute fish from the beaches to inland centers. Large scale fish traders use lorries or pick-up trucks to carry iced high-value fish (especially chambo) to the urban markets. A much larger number of smaller scale and largely part-time operators, including a high proportion of women, use public or commercial transport to  - 6 - supply smoked and sun-dried fish to urban centers, the agricultural estate sector and to the many small rural markets. 2.09 The use of ice is presently restricted to areas near the four operational ice plants - two at Namiasi, one owned by FD and the other by MALDECO, and one each at Salima and Nkhotakota owned by FD. It is encouraging to note that private sector operators are interested in establishing ice plants at different points along Lake Malawi. However, the use of ice is still very limited. Most commonly, it is used by traders with small pick-up trucks who purchase fish in bulk from chambo seine fishermen in the Upper Shire or Lake Malombe, or from pair trawl operators at Namiasi or MALDECO fisheries. Their fresh iced chambo is sold in Zomba and Blantyre, and very occasionally in the northern city of Mzuzu. Tropical cichlids respond well to the use of ice, and a small reduction in temperature is sufficient to retard degradation after capture. Research by the FD has shown, however, that the high value chambo can be kept at ambient temperature for up to six hours and still retain adequate eating quality. This helps to explain in part why ice is not viewed as a necessity on fishing vessels. 2.10 Fish Prices. Prices have not been officially controlled since their regulation was abolished in 1985, but some downward pressure on prices is maintained as part of the national drive against inflation. There are four principal price-setting points in the marketing chain: the beach price, the lakeshore wholesale price (processed), the inland wholesale price and the retail price. Frequently the wholesale price points are absent, as smaller traders tend to buy fresh fish from the beach, process it themselves and retail it in the market. The differential between these various price points is variable, depending on locations of source and final retail point, but average at a 45Z increase at each stage, with the retail price about three times the beach price. The beach prices per kg. for most species lie between MK 0.50 and MK 1.50 (July 1989) as shown in Table 2.1. Table 2.1: Wholesale and Retail Prices by Fish Species Retail Local Name Scientific Name Beach Price Market Price --_----- (MK/kg) --------- Chambo Oreochromis spp 1.50 3.16 Kambuzi Haplochromis spp 0.53 1.53 Utaka Haplochromis spp 0.77 1.83 Chisawasawa Lethrinops spp 0.66 2.44 Kampango Bagrus meridionalis 0.94 2.71 Mlamba Clarias geriepinus 0.64 1.84 Usipa Engraulicyprus sardella 0.50 1.15 Nchila Labeo mesops 1.00 2.90  D. Sub-Sectoral Constraints 2.11 Some of the constraints in the development of the fisheries sub- sector were identified in collaborative studies by Government and IDA. The primary constraint is lack of institutional capacity to manage the fisheries sub-sector efficiently. The Fisheries Department (FD), which is responsible for implementing government programs and policies and regulating the fisheries sub-sector, is basically weak. It lacks the capacity, skilled manpower and infrastructure to manage an important sub- sector of the economy which is based on the exploitation of a highly perishable commodity. FD is ineffective in providing research and extension services, undertaking monitoring and evaluation, carrying out surveillance and enforcing fisheries regulations. FD, therefore, needs to be strengthened and its operations streamlined to enable it carry out its mandate. 2.12 Another constraint is dilapidated fishing vessels and infrastructure. About 90Z of all fish landings in Malawi are managed by traditionallartisanal fishermen who use dug-out canoes or small plank boats. These are generally in a state of disrepair and require replacement with improved boats using durable plank wood and/or other materials, thus minimizing environmental damage caused by cutting indigenous wood for dug- out canoes. There are also problems in the handling, collection, distribution and marketing of fish in the country. Most of the existing infrastructure, including landing facilities, fish handling sheds, chill stores, ice plants and workshops, is old and in a state of disrepair. Many of the facilities are unserviceable, while others are poorly located. Impassable roads during the wet season, and the complete absence of lake side facilities in most areas also make fish handling and distribution difficult. The performance of semi-commercial and commercial fisheries is sub-optimal because of these constraints coupled with poor condition of pair-trawler units fishing on Lake Malawi most of which are in urgent need of repair and replacement. The assets of MALDECO (the only commercial fishing enterprise) are run down and require substantial reinvestment in vessels and shore installations. An effort to increase fish production and improve fish handling to reduce loss and wastage must therefore be met by upgrading fishing fleet, developing landing and marketing facilities, and providing good access to domestic urban and rural markets. 2.13 Although there is great potential to increase fish production in some of the lakes, the rational use and protection of these resources is critical. The lake eco-system is delicate and could be destroyed by over fishing and pollution. Consequently, there is an urgent need to monitor fish catch and to carry out continuous stock assessments, which would provide the basis for implementing a sound resource management program. E. Government Development Objectives and Strategy 2.14 The Government's objectives for the agricultural sector, of whic]h fisheries remains a very important sub-sector, are to promote economic growth, raise rural incomes, ensure food security, and increase export earnings while conserving natural resources. The development of the fisheries sub-sector is an essential part of Government's strategy for  achieving these objectives. Specifically, as indicated in the Statement of Development Policies (1987-96), the fisheries sub-sector objectives are to maximize sustainable yield from fish resources that can be economically exploited from national water bodies without environmental degradation; improve the efficiency of fish exploitation, processing and marketing; create additional off-farm employment; promote investment in viable rural fish farming units to increase nutrition and protein intake in rural areas; harness aquatic resources for fish farming; and protect endemic fish fauna. These objectives are being pursued partially through several donor - supported programs (FAO, UNDP, GTZ, ODA, and EEC) aimed at: (a) promoting private sector involvement in fish production (almost all aspects of fish production are being privatized with the exception of boat building and ice making); and (b) assisting Government activities in monitoring and regulating, the exploitation of fish fauna from all national waters, promoting aquaculture development as a means of raising rural farm incomes and increasing the supply of fish in rural areas; undertaking a program of research to identify and assess underutilized fish resources; disseminating research results to improve fishing, fish handling and processing techniques; and developing the institutional capacity of the Fisheries Department to focus on its regulatory mandate. F. Bank Strategy and Assistance 2.15 Support for the fisheries sub-sector, which is an important element of IDA's assistance strategy in Malawi, is aimed at fostering economic growth and reducing poverty by generating off-farm employment opportunities, improving food security, and protecting the natural resource base. IDA is also supporting other Government of Malawi (GOM) programs (ongoing and in the pipeline) which are designed to improve food security and nutrition, while conserving natural resources. These include (i) the research and extension projects which have supported development of appropriate technologies and their dissemination to farmers to increase food production, while maintaining environmentally sound agricultural practices; (ii) a population sector study and a health and population project which would assist Government to develop and implement appropriate population and nutrition programs; and (iii) the economic report on environmental issues in FY91, which would develop a long-term investment and policy reform program for environmental projection. 2.16 Under the proposed Project, IDA would assist GOM in improving the management of the sub-sector and in marshalling international support to address Malawi's broader environmental concerns. The Project would complement Government efforts designed to establish an effective resource management program, including monitoring, control and surveillance systems for fisheries. IDA involvement in the proposed Project is also necessary to strengthen the institutional capacity for fisheries research, and lake resource management, integration of cropping into fish farming systems to ensure multiple resource use, carry out regulatory functions to protect water bodies, and provide support to the private sector for economically viable and sustainable production activities. Furthermore, IDA would assist GOM in the coordination of ongoing programs and those likely to be funded by other donors. The proposed Project complements other ongoing IDA projects in the Agricultural Sector.  G. Lessons Learned from Fisheries Projects 2.17 The lessons learned from many of the previously financed IDA projects in the fisheries sub-sector indicate that inadequate project design, weak institutional capacity, unrealistic project scope and inadequate recurrent cost financing adversely affect Project performance. These factors have been taken into consideration in the design of the proposed Project. The Project has been designed to be simple and flexible, and the Project scope is limited to only a few activities. To strengthen institutional capacity, staff training and technical assistance would be provided, and the FD role would be limited to essential management and regulatory activities within the fisheries sub-sector. In addition, up- front actions necessary for Project success were carried out before Project approval. Furthermore, a mid-term Project review is included to handle issues arising during Project implementation. H. Other Donors' Assistance 2.18 In addition to IDA, several other donors are active in the fisheries sub-sector in Malawi (see para 2.14). FAO/UNDP is supporting fisheries through the Mpwepwe Fisheries Training Center and the assessment of pelagic fisheries in the northern part of Lake Malawi; EEC, which financed Central Lakeshore Fisheries Development Project, is now financing Central and Northern Region Fish Farming Development; GTZ is supporting Malawi/German Fisheries and Aquaculture Project; ODA is providing technical assistance to FD on research; and Nordic Development Fund and ICEIDA have both indicated an interest in participating in co-financing the proposed Project. Thus, IDA's proposed support to the sub-sector would complement the efforts of these other donors from both policy and institutional perspectives. III. INSTITUTIONS AND SERVICES A. Fisheries Department 3.01 Structure. The Fisheries Department (FD) was established in 1965 within the Ministry of Agriculture and Natural Resources. This Ministry was later subdivided into the Ministry of Agriculture (MOA) and the Ministry of Forestry and Natural Resources (MFNR) of which the present Fisheries Department forms a part. The MFNR includes four other departments: Forestry (66Z of the Ministry's recurrent budget), Geological Survey (62), Mines (12Z) and National Parks and Wildlife (6Z). The Fisheries Department accounts for 82 of the Ministry's recurrent budget. 3.02 Management. The Chief Fisheries Officer (CFO) is in charge of the day-to-day operations of FD and reports to the Principal Secretary, MFNR. He is assisted by a management team comprising the Assistant Chief Fisheries Officer (ACFO), four Fisheries Officers (FO) and an Accountant at Headquarters, and three Regional Officers, Principal of Fisheries Training Center, and Head of Research who are located in the field. The CFO is responsible for translating the sub-sector policies into operational guidelines, meeting the objectives of FD, and staff supervision. On behalf of GOM, FD also acts as coordinator for fisheries in the Southern Africa  - 10 - Development Coordinating Conference (SADCC) and that responsibility is delegated to ACFO. 3.03 Overall, the management of FD is weak. There are gaps in the managerial skills and technical proficiency of middle and senior level management. Currently FD has 412 staff, of which only 20 are professionally qualified. Many of the staff lack relevant experience. This problem has been recognized by MFNR and the CFO, and steps are being taken now to address the staff development issues. ODA is assisting FD in this regard through technical assistance. FD is in the process of preparing a staff development plan which would define its staffing and training needs (on-the-job training and overseas training for specialized skills). The preparation of a manpower development plan acceptable to IDA was a condition of Board presentation. Assurances were obtained at negotiations that FD would commence the implementation of the manpower development plan by not later than April 1, 1992 [para 8.01 (i)]. 3.04 Organization. The activities of FD are organized along functional lines and centrally controlled from Headquarters (HQs), even though the physical activities take place at field levels. Only research, training and commercial activities are not directly controlled from HQs. Guidance and supervision from HQs have not, however, been effective because this approach has a number of built-in inefficiencies. The weaknesses of the present structure have been recognized and steps are being taken to remedy the situation. Under the proposed Project, FD would be reorganized with a view to improving efficiency. An action program for reorganizing FD and the timetable for implementing such reorganization was a condition of Board presentation. At negotiations, commitment was obtained from Government that FD would commence the implementation of the action program by not later than April 1, 1992 (para 8.01 (ii)]. The proposed organizational structure is shown in Chart 1. 3.05 Functions. FD is performing two distinct functions: a regulatory function and a commercial function. Its regulatory function is that of a typical fishery administration authority and covers fisheries sub-sector management, conservation of Malawi water bodies and their resources, regulation and control of the exploitation of fisheries resources, provision of services, and development of the country's general fisheries policy, including making recommendations on sub-sector policy issues to the Minister, MFRN. FD's commercial operations consist of ice making, boatbuilding, and retailing of petrol, fishing gear, etc. (see paras 3.12 - 3.14 for the details of FD's commercial operations). 3.06 FD's government-related activities cover extension, research, conservation and management of fisheries resources, surveillance and enforcement, and training. Extension service focus is on advising fishermen on the latest fishing practices, and collecting data on fish catch/landings which provide the basis for assessment of performance and overall management of the fisheries sub-sector. Field extension activities are conducted through a network of Fisheries Assistants (FAs) stationed in fishing communities, each covering about 25 km of shoreline. The extension service is coordinated by three Regional Fisheries Officers (RFO) who are each responsible for the Districts within their respective Regions. The  - 11 - District Fisheries Officers (DFO) are responsible for all fisheries activities within their District and for supervising the FAs. The RFOs or DFOs who supervise the FAs receive little if any training in extension and, because of inadequate transport facilities, are unable to visit their field staff regularly, much less design and promote extension programs. The present system of data collection also has shortcomings in underestimating night fish landing, particularly usipa fishery. There is an urgent need to upgrade the skills of the FAs through specific on-the-job training, coupled with effective and regular supervision from senior staff. 3.07 The Fisheries Act provides a comprehensive framework for the control and management of the commercial and artisanal fisheries. Enforcement of the Act is the direct responsibility of the District Fisheries Offices, supported by the Regional Offices and HQ, which are represented in the field by the Fisheries Inspectors. The assistance of the Police is also frequently sought in enforcement exercises. Financial constraints have steadily weakened the effectiveness of the FD's attempts to enforce fisheries law. In certain situations where the regulations conflict with highly profitable artisanal fisheries (e.g., the closed season for chambo shore seines in Mangochi District), the enforcement effort has not been effective. As the fisheries come under increasing pressure, the requirement for active management will grow. Active management will not, however, be achieved until the FD has the capacity to enforce the Fisheries Act. 3.08 FD carries out research on capture fisheries and on aquaculture development. Research on capture fisheries is based at Monkey Bay and generally focuses on taxonomic and biological studies on important commercial species, assessment of bottom trawl fishery, fishing gear development, multi-disciplinary studies on the pelagic ecosystem of Lake Malawi, etc. The ongoing research efforts include assessment of the artisanal fisheries of Lakes Malawi and Malombe (assisted by ODA), the chambo fishery of southern Lakes Malawi and Malombe (assisted by FAO), and reassessment of the demersal trawl fisheries. Many aspects of the research efforts on capture fisheries have been funded through bilateral agreements, but the FD's capacity to execute its own long-term research programs has suffered from financial limitations and lack of trained manpower. 3.09 The aquaculture development research is ongoing at the experimental fish farming station at Domasi which carries out basic research and development work on fish culture in earthen ponds, including experiments in polyculture, different feeding and fertilization regimes, and :integrated fish farming. Experiments are being replicated in larger ponds constructed in the Kasinthula irrigation scheme in Chikwawa District, and a small extension service has been set up to serve smallholder fish farmers in the Domasi/Zomba area. Other aquaculture programs are funded under bilateral agreements by GTZ (Chilwa/Zomba), ICLARM (Domasi), ODA (PhaLombe/Mulanje), and EEC (North/Center). Since the expansion of capture fishery is finite and is growing more slowly than the population, it is logical that increasing emphasis would be placed on aquaculture. Consequently, aquaculture development is likely to grow substantially in the coming decades.  - 12 - 3.10 The importance of research for effective management of the fisheries sub-sector is well-recognized. However, research efforts for both capture fishery and aquaculture have been determined largely by funding from external sources. Often, these donors have different interests and focuses. As a result, coordination and continuity have been lacking and there is need to develop a better defined research program which would consistently address the issues facing the fisheries sub- sector, including developing workable technical packages for different fishing activities. Thus, developing a research program, which would spell out priorities in FD's short-term and medium-term research efforts was a condition of Board presentation. The commitment from Government that FD would start to implement such a research program by not later than April 1, 1992 was obtained at negotiations [para 8.01 (iii)]. 3.11 FD operates a fisheries school, the Mpwepwe Fisheries Training Center (MFTC), which was established in 1966. It provides a two-year basic training program in theoretical and practical aspects of fisheries to junior staff of FD. The graduates of the Center are thereafter employed as FAs by FD. Since 1982, the first year of training has been conducted at the Natural Resources College at Likuni, near Lilongwe. The MFTC also conducts refresher courses for FAs on fish processing and extension, and technical courses on fishing techniques, and processing and marketing for fishermen. Most of these courses have been discontinued because of lack of funds. The quality of training at MFTC is generally poor and the syllabus has not kept up with developments in the fisheries or with the results of FD's own research and development work. FD's shortcomings in staff training as a result of an acute shortage of qualified manpower, poor organization and lack of finance, were the subject of a recent FAO study recommending the need for upgrading of MFTC. Under the Project, MFTC would be restructured and its curriculum revised to provide mainly on-the-job training for FD staff, and skill-specific workshops for fisheries sub- sector operators and entrepreneurs on new developments in the sub-sector. 3.12 Commercial Operations of the Fisheries Department. The FD currently conducts commercial operations in two ways. Firstly, voted funds on the recurrent budget are used to finance commercial activities, the proceeds of which are repaid to Treasury through an Appropriations-in-Aid Account. The second method is through the use of Treasury Fund Accounts which may be set up to encompass all the finances of a commercial operation: such Treasury Fund operations are required to make a profit or at least to cover costs, and full annual accounts, profit and loss statements and estimates are submitted to Treasury for approval. Commercial services carried out by FD include boatyards, at Mpwepwe in Mangochi District and Senga Bay in Salima District, the sale of fuel and oil at trawler landings (Namiasi and Malembo, in Mangochi), ice supply from plants in Namiasi, Salima and Nkhotakota, and the sale of nets and other fishing gear at FD's boatyards and several field offices. 3.13 Both Mpwepwe and Salima boatyards are operated on Treasury Fund Accounts. The Mpwepwe Boatyard Fund made an apparent small profit over the three-year period 1985/86 to 1987/88 (the last years for which actual figures are available) of MK 62,000/year, but if adjustments for stock changes are made, the results would become an annual loss of MK 24,000. In  - 13 - fact, the sale of boats comprised only 5% of the total income over this period, and the Mpwepwe Boatyard Fund's major commercial activities are trading in fuel (43% of income), engines and spares (24%), and fishing gear (10Z). The Salima Boatyard is a simpler operation, engaging primarily in boat building/repairing and the sale of fishing gear. The latter activity is dominant, comprising 72% of income in the years 1985/86 to 1987/88, while boatbuilding contributed to only 172. The Fund made a small net profit of Mk 5,000/year in this period: an annual profit of MK 23,000 on sales of nets, and a loss of MK 18,000 on boat-building. 3.14 Ice is sold to traders at the Namiasi fish landing site through an Appropriations-in-Aid Account, and at Salima and Nkhotakota through the Central Lakeshore Fishing and Marketing (Treasury) Fund Account. Namiasi and Salima each take in about MK 20,000/year from ice sales, at which level the operation is almost certainly unprofitable. The Namiasi ice plant is now at the end of its service life, but Industrial and Development Fund (INDEFUND) has recently approved a loan of MK 379,000 to finance a private ice plant in Mangochi, and no replacement of FD's ice production facility at Namiasi is therefore indicated. The FD's plant in Salima is seven years old and in need of repair, and there are as yet no plans for private sector ice supply in Salima. The small ice plant in Nkhotakota is relatively new. 3.15 The Fisheries Department's sales of fishing gear can be seen as a service, only so long as they do not unfairly compete with or deter other existing and potential sales outlets. However, by retailing fishing gear at the recommended wholesale price which is below market prices, FD undercuts all private sector competition because FD obtains its gears net of taxes and duties. FD makes profit on sale of fishing gear by purchasing tax-f.ree and applying a large mark-up. 3.16 It would be desirable for FD to privatize all of its commercial activities and concentrate on only regulatory and other government-related functions. The Government has established a timetable acceptable to IDA for requiring FD to relinquish its commercial activities. FD would discontinue its commercial activities in accordance with the following schedule: (a) commercial fishing and gill net fishing by June 30, 1991; (b) sale of fishing gear and spares of outboard engines by September 30, 1991; and (c) sale of ice and Salima boatyard by March 31, 1992. The above schedule was agreed to at negotiations [para 8.01 (iv)]. The operating condition of the boatyard for inboard engine boats at Mpwepwe is poor. The Mpwepwe Boatyard would have to be restructured and operated on a commercial basis before it could be privatized. A restructuring plan for the boatyard, including the appointment of an experienced manager acceptable to IDA, would be a condition of Credit effectiveness [para 8.02 (i)]. B. MALDECO Fisheries 3.17 The commercial fisheries operation was originally a Greek family concern (Yiannakis Fisheries) in the late 1950s. This was taken over by MALDECO Fisheries Ltd. which was incorporated as a limited company in 1967, with the Malawi Development Corporation as the majority shareholder. On January 1, 1985, ownership of the entire company passed on to the Agricultural Development and Marketing Corporation (ADMARC) which  - 14 - subsequently sold the company to Press Foods Ltd., a subsidiary of the Press Corporation Ltd., on November 20, 1989. 3.18 MALDECO Fisheries has had a good record of operating surplus and has for many years been the largest single producer in Malawi of quality fish for domestic consumption and export. The company's products have included fresh, iced, frozen, smoked and sun-dried fish, and are supplied to all sectors of the market, from the hotel and delicatessen trade in smoked fillets of kampango and chambo to the bulk sale of chisawasawa to be sun-dried for the estate agriculture labor force. Lack of reinvestment during the past decade, however, has led to a steady decline in the condition of vessels, plant and equipment, much of which is now between twenty and thirty years old. The marine workshop is very poorly equipped, badly maintained, and lacks proper lighting and ventilation. The workshop is very important for the operation and maintenance of the old vessels, plant and machinery and could contribute significantly towards reducing down time. This deterioration of equipment and workshop have seriously affected both production levels and production quality. 3.19 Under its new ownership, an effective management team is now in place. The company has outlined plans for development in three phases: a period of consolidation, during which both production and quality would be brought back to the previous (higher) levels; a planning phase; and finally an expansion of the company, in fishing (using larger boats in new fishing grounds), fish farming, and fish processing (product diversification: fish paste, canning, meal). Annex II presents the financial statements related to MALDECO operations. The data show that MALDECO's financial outlook is promising. C. Other Institutions and Services 3.20 There are a number of other governmental and non-governmental institutions involved in the fisheries sub-sector. The fisheries sub- sector depends on sound environmental management by other government ministries and departments to protect the fishery resources and fish biodiversity. Developments in other sectors have direct impact on fish resources. Deforestation increases soil erosion and sediment loads of rivers and lakes. Increased deposition of sediments in natural water bodies changes substrata which ultimately affects species diversity. Fish processing and marketing serve as important off-farm income generating activities for women. The Ministry of Community Affairs is active in organizing women's groups to participate in fisheries activities, particularly fish farming. Financial institutions, such as the Small Enterprises Development Organization of Malawi (SEDOM), and Industrial Development Fund (INDEFUND), provide loans to semi-commercial fisheries. These institutions also help small entrepreneurs with financial assistance, technical advisory services, and training. Coordination of and liaison between government entities that impact on fisheries sub-sector is weak. District Development Committees would be encouraged to assume this responsibility at the local government level while FD would coordinate activities at national level.  - 15 - IV. THE PROJECT A. Project Rationale and Objectives 4.01 Project Rationale. Malawi today faces several serious problems: the agricultural production has been essentially stagnant due to periodic drought and the high cost of inputs; the country's food production and supplies also have been severely affected, cassava mealy bug infestation, low prices for exported commodities and increased freight costs; development of livestock is impeded by insufficient pasture land and water supply; and the present population of around 8.1 million is increasing at the rate of about 3.2Z. Government is also burdened with the problem of providing temporary shelter and food to an estimated 800,000 refugees. This situation is unlikely to change in the near future. 4.02 The Government gives high priority to increasing its domestically produced food supply by promoting optimal exploitation of the country's fisheries resources which plays an important role in national economic development. Because fish prices are relatively lower than those of meat, poultry and pulses, fish are in great demand, both in the urban and rural areas. Fish landing points are scattered all along the shores of the country's lakes, rivers, marshes and flood plains, enabling easy transport of fish to the rural people. High population growth in the past decade, however, has led to a decline in per capita consumption, although fish landings until recently have shown consistent increase. This imbalance has contributed to a deterioration in nutritional standards, particularly among the rural children. The development of the fisheries sector is therefore essential, not only to increase food supply but also to improve nutrition and generate off-farm employment opportunities in the country. In addition, the Project would address the constraints identified in paras 2.11 through 2.13. 4.03 Present total fish production is estimated at around 80,000 tons. While some lakes appear to have reached maximum potential levels of production, there are others where production could be substantially increased. For example, fish landings from Lake Malawi have not reached their full potential of an estimated 86,000 tons (demersal and pelagic). Although the sustainable yield for the entire lake and for different fisheries in the lake has not been scientifically ascertained, research efforts have produced sufficient evidence of under-utilized pockets of dernersal trawlable stocks in the southern and central part of the lake. The various hydro-acoustic surveys carried out in the late seventies and early eighties estimate a total pelagic biomass of between 140-150,000 toins. Present production of 11,000 tons suggests the possibility of substantially increasing the production of pelagic fish. 4.04 Pro; ^t Objectives. The Project's main objective is to assist Ma:Lawi to realize more fully the potential contribution of the fisheries sub-sector to the economy, while ensuring that offtake does not exceed sustainable yields, through (a) increasing fish production to improve nutrition and protein bupply for the population; (b) generating additional off-farm employment and income to reduce poverty among the rural population particularly women; (c) conserving the natural resource b!se of Malawi's  - 16 - water bodies and preventing environmental degradation; and (d) improving institutional capacity for fisheries sub-sector policy formulation research, planning, monitoring and control. B. Project Description 4.05 The Project, which would be implemented over seven years with a total estimated cost of US$15.5 million, comprises: (i) an Institution Building Component (US$7.3 million) for strengthening the Fisheries Department to enable it to concentrate on regulatory functions, staff training (particularly in policy formulation, extension, monitoring and evaluation, and enforcement of fishery laws), and technical assistance; (ii) a Research Component (US$1.9 million) for strengthening FD's research capacity and focusing research activities on assessment of fish stocks, pilot lake conservation and management programs and development of pilot fish farming models designed to integrate aquaculture into farming systems in different ecological zones with appropriate agricultural technologies; (iii) a Production Component (US$5.3 million) for rehabilitating and developing existing capture fisheries by supporting the traditional/artisanal fishermen, semi-commercial and commercial fishing activities, and establishing a pilot program to increase the involvement of women in fish processing and marketing; and (iv) an Infrastructure Component (US$1.0 million) for rehabilitating, upgrading and building access roads, jetties for fish landing, and shore-based facilities. C. Detailed Features Institution Building. 4.06 FD's institutional capacity to implement its programs is weak; hence one of the Project's main objectives is institution building. While FD is being strengthened, it is essential that its programs are streamlined and focused. It is for this reason that the project design is simple and project activities have concentrated on only a few areas (conservation, research and extension and training). FD's involvement in commercial activities would be eliminated and a long-term technical expert with skills in procurement and financial management would be included. There would be only six incremental staff at the professional level, while some forty-six non-professional staff would be redeployed. Emphasis would be placed on training of both FD staff and fisheries sub-sector operators in proper methods of fish handling and exploitation, while essential facilities are provided to enable FD to carry out its functions. 4.07 Fisheries Administration. The FD headquarters is responsible for the management of the fisheries subsector. Headquarters staff would be provided with vehicles and equipment. The incremental operating costs on a reducing basis, including building maintenance and running expenses of equipment and vehicles, are also included in the total costs. Both Regional and associated District staff would also be provided with vehicles and equipment to enable them to carry out their activities effectively. Detailed list of vehicles and equipment provided under the Project is given in Working Paper F and is available in the Project Files.  - 17 - 4.08 FD would be provided with new headquarters office building of about 700 m2 in Lilongwe, to accommodate the expanded activities proposed under the Project. The new offices would be equipped with basic furniture and equipment, and the computer facilities would be upgraded. Regional and District offices and workshops would be rehabilitated, and some staff houses would be constructed, particularly at field level. A detailed list of offices, staff houses and workshops to be provided under the Project is given in Working Paper F and is available in the Project Files. 4.09 The Project would strengthen the extension service by providing the extension staff with skills and physical resources essential to carry on their functions more effectively. It would increase the ability of FD to interpret and solve technical problems, while effectively evaluating its present and future roles. Under the Project, adequate and appropriate physical and human resources would be placed at field level where extension activities are being carried out. FD would be reorganized, clear lines of responsibilities for various functions would be established, and reporting and supervision effectiveness would be improved. Staff skills would be improved through regular training. FD's training activities would be reoriented towards career development, updating knowledge and enhancing skills through workshops and residential courses. The curriculum of the Fisheries Training Center would be revised to reflect the new orientation. Overseas training would be limited to specialized skills. Training would also be provided to private sector operators in the fisheries sub-sector, particularly women involved in fish processing and marketing. The extension would be provided with vehicles and equipment to enable them to carry out their functions of data collection and analysis. A comprehensive list of items provided under the Project is included in the detailed project costs in Annex I and Working Paper F and is available in the Project Files. 4.10 Planning, Monitoring and Evaluation. A planning, monitoring and evaluation cell would be established at FD's HQs with existing staff. This cell would be responsible for preparing short and medium-term plans for FD, and for planning, monitoring and evaluation of development programs. It would also recommend measures to correct deficiencies observed during program implementation, as well as for compiling information on the proposed Project's physical achievements. To enhance its effectiveness, the cell would be strengthened under the Project with professional staff, on-the-job training, and an expert in planning who would be engaged for about three years under EEC technical assistance program. 4.11 Two studies to improve the planning of fisheries sub-sector operations would be carried out. These would include a baseline survey which would help determine attitudes of fishermen to different lake conservation measures and a socio-economic study of the role of women in fish processing and marketing in Malawi. Research. 4.12 Stock Assessment. The Project would upgrade and strengthen FD's research capacity, enabling it to formulate research plans to address issues facing the sub-sector. Research would focus on the exploratory  - 18 - surveys of the demersal fish stock assessment which would be expanded to cover the northern part of Lake Malawi, formulation of plans to monitor and manage commercial fisheries in Malawi water bodies, assessment of the effect of bottom trawling and beach seining on the lake's ecosystem, development of techniques for managing costal fisheries, and coordination of research activities financed by other donors. To achieve the research goals, the facilities at Monkey Bay Research Station would be rehabilitated and a new jetty of 40 m and two moorings would be constructed. New offices and stores space totalling 70m2 and a new class D house would be provided. The related equipment and vehicles would include a winch, radios, fishing gear, camping equipment, limnological equipment, and a 4-wheel drive vehicle. A new 17 meter research vessel, with a 300 hp engine and equipped with necessary equipment to undertake research on southern and northern parts of Lake Malawi, would be provided. An expatriate captain and a machinist would be recruited to operate the research vessel during the first six months, while a fish biologist would be engaged for 12 months. These experts would be provided with counterpart staff to work with them. 4.13 Lake Resource Conservation. The major thrust of the Project is to improve the management and conservation of the country's lake resources. It would not be possible to precisely determine the constant sustainable yield from a multi-species fishery in a varying environment such as Lake Malawi but, with effective management, FD could conserve the fishery as a perpetual productive resource. This would be done by putting in place an appropriate monitoring system to be able to respond rapidly to signals warning of possible over-exploitation, environmental changes or other hazards to lake resources. To ensure an effective management and conservation of lake resources, the responsibilities of the Fisheries Research Station at Monkey Bay would be broadened to include fishery conservation, aquatic weeds control and environmental monitoring. A senior Fisheries Officer would be appointed and trained as Fisheries Conservation Officer. This officer, who would be supported by four technical staff, would report directly to the Chief Fisheries Officer. The four technical staff would monitor environmental and socio-economic factors which have direct impact on fisheries, basic limnological factors, pollutants and water weeds. Equipment for field measurements and a vehicle for field trips would be provided under the Project. Funds for incremental recurrent costs on a reducing basis would also be provided to facilitate more elaborate chemical analysis such as pesticide residues of lakes resources. In addition, the Fisheries Conservation Officer would also be responsible for: - translating research findings into management policies and procedures to conserve fish resources; - with assistance from external experts, carrying out studies on various environmental issues facing Lake Malawi; - responding to changes in the fishery environment, apparent from timely analysis of fishery statistics or qualitative warning signals transmitted by fishermen through the improved extension network;  - 19 - - liaising with other government departments whose activities may affect fisheries, on new fisheries policies and programs that may affect fisheries and other sectors; - taking an active role in training extension officers, both at the revamped Fisheries Training Center and in the field; - coordinating surveillance activities to minimize violation of regulations; and - liaising (preferably through SADCC) with neighboring countries over their fishing activities in Lakes Malawi, Chilwa and Chiuta. 4.14 Aquaculture. This is a pilot program which would develop a scheme for integrating fish farming into the crop farming system in different ecological zones. It would draw on the current research in aquaculture at Domasi station and on the efforts of other donor organizations. An inter-disciplinary team, comprising agriculture and fisheries specialists, would be responsible for implementing the program, and its activities would be coordinated through proper liaison between Fisheries and Agriculture Departments. The scheme would utilize the water resources from dams and reservoirs in a planned management of ponds and fields. The operation would involve a system for emptying the ponds and releasing water for irrigation purposes. Emphasis would be placed on using local inputs for fish feed in the form of compost, manure and other byproducts from agriculture operations. Specifically, the pilot operations would include: (i) establishing a program for integrating aquaculture with crop farming systems, and developing techniques and disseminating results proven to be economical to apply; (ii) experimenting with already developed techniques in different ecological zones; (iii) construction of ponds from reservoirs downstream and using the water from the reservoir to fill the ponds, and from the ponds to irrigate farm plots with crops such as maize or rice; (iv) training smallholder farmers to grow rice together with fish; and (v) construction of a sub-station (demonstration pilot) in the central region which would carry out experiments on this new approach and train extension workers. Fish Production 4.15 Artisanal Fisheries. Funds would be provided for the procurement of 50 fully equipped chirimila units and for the replacement of 200 existing dugout canoes with improved plank boats. The replacement program takes into account the present demand for boats and is linked to the production capacity of the Mpwepwe boatyard to be rehabilitated under  - 20 - the Project. For the chirimila units, 5.6 meter long plank boats of "v" bottom construction would be procured and equipped with 8 HP outboard engines and gear. The plank boats, 6 m long, are lighter vessels propelled by paddles. These would be equipped with appropriate fishing gear including gill nets and long lines. Boats, engines and fishing gear, to be procured under the Project, would be sold to groups of fishermen who would obtain credit through SACA. 4.16 Semi-Commercial Fisheries. Semi-commercial fishermen commonly fish with pair trawl units powered with inboard diesel engines. The Project would finance the construction of 8 fully equipped pair trawl units which would be undertaken at FD's Mpwepwe boatyard. Each unit would comprise 2 vessels of 7.5 meter Length Over All (LOA), powered with an inboard diesel engine of about 25 HP. The Project would also provide through NDF import support fully rigged bottom trawl of 38 mm cod end mesh size and ice plants which would be sold to the fishermen. The semi- commercial fishermen would purchase these items with their own funds or borrow the funds from the banking system at the prevailing interest rates. 4.17 Commercial Fisheries. The Project would support the rehabilitation of MALDECO's existing landing and shore facilities and factory. This would include the construction of a new marine workshop of about 145 n2, together with modern equipment. The factory building of about 1,500 n2 would be rehabilitated and equipped with two blast freezers, each with a capacity of 1 ton/3 hrs., two flake ice-making machines with a capacity of 24 ton/day, a cold store and a chill store, each with a capacity of 7.5 tons of fish. In addition, the existing ice plant would be rehabilitated, and both marine and refrigeration workshops would be provided with machine tools and equipment. A new multi-purpose fishing vessel would also be provided. This vessel of 15 m overall length, would be powered by an engine of 240 hp and would be capable of undertaking mid- water and bottom trawling and purse seining. It would have a refrigerated fish hold of 12 tons capacity and full wheel house electronics. The existing trawler "Crystal Lake" would be refurbished to provide for the renewal of the refrigerated fish hold and the fitting of new fish finding and communication equipment. Additionally, two refrigerated trucks of 7 tons each and 5,000 plastic fish boxes would be procured, to facilitate fish handling and distribution. All items under the proposed rehabilitation program would be made available as import support to the country. MALDECO wants to buy these items and would use its own funds or, if needed, borrow from the banking system at the prevailing interest rate. 4.18 Fish Processing and Marketing Program. Improved fish preservation through processing and marketing is the most cost-effective intervention on the supply side. Such a program would also enhance the productivity of the artisanal fishermen because it minimizes post harvest losses which is a serious problem in Malawi. A significant proportion of fish landing is lost because of poor preservation methods and inadequate facilities for transport to major fish markets. Fish kept at an ambient temperature in general will, not retain its quality long enough to be transported to distant markets. To prevent spoilage, the fish is mainly sun-dried, although smoking, pan frying or freezing are sometimes practiced. The seasonally high catches during the rainy season make sun-  - 21 - drying relatively difficult; this, coupled with the unhygienic conditions uinder which it is done, causes significant losses to occur. Lack of reliable transport to move the fish from the landing sites to major markets also contributes to the losses. Given the importance of fish as a source of animal protein in Malawi and the significant role of women in these activities, a pilot program is included in the Project. This pilot program, an income-generating activity aimed at women, would provide support to those engaged in fish processing and marketing activities in three districts - Mangochi, Salima and Nkhata Bay. The pilot program would aim at minimizing post-harvest losses while increasing the earning power of women participants. This program would include: - training women fish traders in proper fish handling, processing and quality control; - providing women fish traders with small plastic insulated boxes (in which fish can be ice chilled) for both storage and transport to markets; - providing women beneficiaries with smoking kilns to improve fish processing and save fuel wood; - improving beneficiaries' knowledge of technical and business skills by offering workshops on managing micro-enterprises; and - providing credit to women trader to purchase fish storage and processing equipment supplied under the Project, and for working capital. 4.19 This pilot program would pave the way for increasing women's participation in fish processing and marketing throughout Malawi. It would draw from the recommendations of other income-generating activities for women in Malawi. Technical assistance would be provided for socio-economic studies on how best to reach women engaged in the fisheries sub-sector. Women officers would be recruited, trained in fisheries, and provided with special extension training to assist women fish traders. Infrastructure. 4.20 The existing fish landings and/or shore-based facilities at Monkey Bay and Nkhata Bay would be rehabilitated and up graded. The boatyard at Mpwepwe would be rehabilitated. About 46 km of access roads would also be upgraded and/or constructed. Apart from the capital investments envisaged under the Project, provision would also be made for the incremental operating expenses of Mpwepwe boatyard on a reducing basis. Investments would include the following: - Monkey Bay: Construction of a solid jetty of 140 m, a 20 m shipway, and 10 moorings; construction of a 950 2 workshop and a water pump house, including water piping and flood light. - Nkhata Bay: Construction of a hammerhead solid jetty of 140 m, a 20 m slipway, and 10 moorings; construction of a 50 m2 marine  - 22 - workshop; and procurement of equipment, including a shipway cradle, a manual winch, and 8 hp water pump, a water tank of 11,000 liters and workshop and office equipment. - Mpwepwe Boatyard: Construction of a new slipway of 136 m, a new building of 136 m, a workshop of 100 m, and a store of 600 2; construction of a new class C staff house; rehabilitation of the existing 580 m2 building and 3 staff houses; procurement of a shipway cradle, a 10 ton electric winch (with manual options), two wood working machines, office furniture and office and workshop equipment; purchase of one truck and 2 pick-ups; and working capital estimated at MK 106,000 to cover 2 months requirement for the purchase of wood, engines and fishing gear. In addition, the boatyard would be restructured and operated on commercial basis. A restructuring plan for the boatyard including the appointment of an experienced manager acceptable to IDA would be a condition of effectiveness [para 8.02 (i)]. Access Roads: Upgrading and/or construction of 46 km of access roads to fish landing sites 17.2 km would be located in the southern region, 5.1 km in the central region, and 23.7 km. in the northern region. 4.21 Technical Assistance. The technical assistance provision includes: Technical Staff. (i) A Financial and Management Expert (48 man- months), a Fisheries Biologist (12 man-months), a Naval Architect (6 man- months), and a Ship Captain (6 man-months). The Financial and Management Advisor would be responsible for the project accounting, procurement, disbursement and progress reporting; the Fisheries Biologist would assist FD with operationalizing the research vessel; the Ship Captain would help the research vessel while the Naval Architect would help design the new boat prototype at Mpwepwe boatyard; and (ii) 24 man months of short-term consultant services to assist FD in updating the training curriculum, conducting workshops, and providing technical inputs to extension, monitoring, or evaluation activities as the need arises; and (iii) studies to determine environmental issues related to Lake Malawi and recommend an appropriate resource management program for the Lake. A Planning Specialist, a Fisheries Economist, and a Fisheries Research Specialist would also be provided to FD by other donors under special arrangements. The recruitment of a Financial and Management Expert based on Bank Guidelines, was a condition of Board presentation. Prior to engaging such an expert and consultants: (i) detailed terms of reference for their employment would be reviewed by and agreed with IDA; and (ii) the consultants' qualifications and experience would be acceptable to IDA. D. Project Costs 4.22 Total Project cost, including physical and price contingencies is estimated at MK 43.4 million (US$ 15.5 million equivalent), with a foreign exchange component of MK 23.7 million (US$ 8.5 million) or 55x. Project base costs have been estimated using February 1991 prices. Costs  - 23 - include physical contingencies equal to 5Z of base costs except on civil works for which 10? have been assumed. Price contingencies have been calculated on base costs plus physical contingencies. The costs were calculated using the following annual inflation rates: on local costs 9.0Z for PYI and 6.0? for PY2 and 5? thereafter, and on foreign costs 2.7? for PYI to PY5 and 4.2Z thereafter. Details of costs are given in Annex 1. Table 4.1 summarizes the estimated costs.  - 24 - Table 4.1: PROJECT COST SUMMARY IMK '000) (USS '000) % Total ---