Equatorial Guinea - Crop Diversification and Agricultural Services Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15066 IMPLEMENTATION COMPLETION REPORT EQUATORIAL GUINEA CROP DIVERSIFICATION AND AGRICULTURAL SERVICES PROJECT (CREDIT 2181-EG) OCTOBER 23, 1995 Agriculture and Environment Operations Division Central Africa and Indian Ocean Department Africa Region This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents Currency Unit: CFA Franc (CFAF) Year US$1.00 Equivalent 1989 - 319.0 1990 - 272.3 1991 - 282.1 1992 - 264.6 1993 - 286.5 1994 - 555.2 WEIGHTS AND MEASURES Metric System ABBREVIATIONS BADEA Banque Arabe de Developpement Economique en Afrique CRP Cocoa Rehabilitation Project IDA International Development Association IFAD International Fund for Agricultural Development IDEPA Institute for the Development and Promotion of Agriculture MALFF Ministry of Agriculture, Livestock, Fisheries and Forestry OFA Agricultural Development Organization OPEC Organization of Petroleum Exporting Countries PPF Project Preparation Facility SAC Credit and Savings Services SAL Structural Adjustment Loan SDR Special Drawing Rights SIC Input Credit Services T&V Training and Visit System WFP World Food Program GOVERNMENT OF EQUATORIAL GUINEA FISCAL YEAR January 1 - December 31  FOR O:CIAL USE ONLY IMPLEMENTATION COMPLETION REPORT EQUATORIAL GUINEA CROP DIVERSIFICATION AND AGRICULTURAL SERVICES PROJECT (Credit 2181-EG) Table of Contents PREFACE....................................................... . EVAL1UATION SUMMARY ........................1.............................. A. Project Objectives. .................................................... B. Implementation Experience and Results ..................................................... i C Summary of Findings, Future Operations & KeY Lessons Learned ............... ..................................... iii PART 1: PROJECT IMPLEMENTATION ASSESSMENT ........................................ .......e.e.e.e.e.e................ I A. Introduction ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . B. Statement of Objectives ...................................... 2 C. Achievement of Objectives ...................................... 3 D. Implementation Record and Major Factors .4ffecting the Project ...................................................7 E. Project Sustainabilit' ................................................... 10 F. Bank's Performance ........1........................................... 10 G. Borrower 's Performance .................................................... H. Assessment of Outcome ................................................... 12 1. Future Operations ................................................... 12 J Key, Lesso ns Learned .................................................... 12 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ..................................................... 14 PART III: STAIISTICAI. ANNEXES .....................................................1 6 Table l: Summarv ofAAssessments. ................................................... 16 A. Achievement of Objectives ..................................................... 16 13. Project Sustainability ................................................... . 16 C. Bank Performance ...................................................... 17 D. Borrower Performance .....7............. .. ..................................................................................... 17 E. A ssessm ent of O utcom e ............................................................................. .......................................................... 17 T abl e 2: Related Bank Loan s/Credits ................................................................... 18 Table 3: Project Timetable ............. ........... ................................ ......... 19 Table 4. Credit Disbursements. Cumulative Estimated and Actual .................................................................. 20 Table 5: Key Indicatorsfor Project Implementation . .................................................................. 20 Table 6. Key Indicators for Project Operation ........................ ... ....................................... 20 Table 7. Studies Included in Project .................................................................. 21 Table 8A: Project Costs ................................................................... 21 Table 8B: Project Financing ........................................................... .......... 22 Table 9: Economic Costs and Benefits ................................................................... 22 Table 1.0: Status of Legal Covenants ............. ..................................................... 23 Table I1: Compliance with Operational Manual Statements .................................................................. 26 Tahle 12. Bank Resources. Staff Inputs .................................................................. 26 Table 13: Bank Resources: Missions .................................................................. 27 APPENDIX A: PROJECT REVIEW FROM CO-FINANCIER'S PERSPECTIVE ................................................................. 28 APPENDIX B: ORIGINAL DOCUMENT (PROJECT REVIEW FROM BORROWER'S PERSPECTIVE) ...................................... 30 Ms documnent 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.  IMPLEMENTATION COMPLETION REPORT EQUATORIAL GUINEA CROP DIVERSIFICATION AND AGRICULTURAL SERVICES PROJECT (Credit 2181-EG) PREFACE I. This is the Implementation Completion Report (ICR) for the Crop Diversification and Agricultural Services Project in Equatorial Guinea, for which Credit 2181-EG in the amount of SDR 4.7 million (US$6.3 million) was approved on October 30, 1990 and made effective on July 10, 1991. The credit was closed on November 18, 1994, two years ahead of schedule. The final IDA disbursement was on September 30, 1994 and the undisbursed balance in the amount of US$2.3 million was canceled on December 31, 1994. The Project was cofinanced with IFAD (US$5 million equivalent), BADEA (US$3.9 million equivalent) and OPEC (US$1.5 million equivalent). 2. The ICR was prepared by the Agriculture and Environment Operations Division of the Central Africa and Indian Ocean Department of the Africa Regional Office (Preface, Evaluation Summary, Parts I and III). This report is based, inter alia, on the Staff Appraisal Report, the President's Report, the Development Credit Agreement, the mid-term review report, project supervision and progress reports, correspondence between the Bank and the Borrower, and internal Bank memoranda. A request to prepare Part II was sent to the Government on April 3, 1995; no comments were received.  IMPLEMENTATION COMPLETION REPORT EQUATORIAL GUINEA CROP DIVERSIFICATION AND AGRICULTURAL SERVICES PROJECT (Credit 2181-EG) EVALUATION SUMMARY A. Project Objectives I. The objectives of the Crop Diversification and Agricultural Services Project (DICSA) were to alleviate rural poverty, improve family nutrition and food security, increase food production, promote local food marketing and raise foreign exchange earnings. DICSA was conceived as a follow-on project to consolidate the achievements of the Cocoa Rehabilitation Project (CRP) in credit, input supply and market services; to address the production, financial and institutional constraints within the cocoa industry; and to encourage diversification into varied crop production. 2. Direct incremental project benefits were expected to result from increasing the productivity and production of cocoa (70 percent) and from intensifying agricultural production and more remunerative fooderops (30%). These targets would be achieved by substituting imports and increasing the production and exports of traditional and non-traditional crops, including food crops. The project would support both investments and policy reforms. Project investments would be made to: (a) increase the profitability of traditional export crops, expand food crop exports and promote diversified crops for export to new markets; (b) provide extension service to farners sustained by demand-driven applied research; and (c) strengthen institutional development. In order to support the project investments, policy reforms would be instituted in cocoa pricing and taxation, the Public Investment Program and land tenure. 3. The main objectives of the project were formulated in order to implement the recommendations of the October 2, 1989 agricultural sector review. The strategy for agricultural growth included: (a) increased exports of traditional products (cocoa, coffee, timber); (b) increased production and diversification of food crop production and marketing; (c) infrastructure investments, particularly to improve transport; and (d) strengthening public sector resource management and private sector initiatives. The project encompassed all of these strategy recommendations; this design proved to be overly complex and unrealistic given the public sector's limited ability to implement projects. B. Implementation Experience and Results 4. Cocoa production objectives: By incorporating 2,000 ha into new production and by increasing productivity in about 4,000 ha already under cocoa cultivation, cocoa production was to increase by approximately 2,500 tons. These cocoa production targets have not been met. At the November 1993 mid-term review, actual yields were found to be far below projections - an average of 350 kg/ha - substantially lower than in the first year of the project. Due to low  ii international cocoa prices, farmers did not apply needed chemical products, nor did they carry out appropriate cultural practices, causing yields to plummet. In addition, only about 400 ha (of the 2,000 ha estimated) were actually put into new production. Approximately 340-600 smallholders were to receive legal transfer of property titles to the designated land. However, implementation became a politically sensitive issue because the resettlement of small farmers would exacerbate the shortage of labor in the cocoa sector and threaten the viability of the "sharecropping" system that profited medium and large farmers. 5. Foodcrop production objectives: The project achieved little substantial increase in the production of foodcrops. Practically no new crops were introduced because the project focused too much on cocoa production and experienced delays in establishing the profitability and suitability of potential food crops and new cultivation techniques. 6. Credit, input supply and marketing objectives: The Agricultural Development Organization (OFA) was to be an independent, self-financing entity to support small and medium-size farmers. It had two main functions: (a) the provision of credit and savings services (SAC) to individual farmers and farmer groups on the island of Bioko; and (b) importing and selling inputs and equipment needed for cocoa and diversified crop production and providing nmarketing services (SIC). The design of OFA as a public sector institution to provide input, credit and marketing services and to eventually become a private sector body was flawed and unsustainable because public sector institutions do not have the incentive to eliminate themselves through privatization. In addition, the assets transferred to OFA from CRP were overvalued at appraisal, and thus OFA suffered from extremely limited resources. The end result was a huge financial loss caused by allocations to cover bad debts, lower than projected financial revenues and extremely high operating costs. 7. Bank's Performance: The Bank designed the DICSA project in order to sustain the achievements of the CRP; however, these achievements later proved to be negligible. All of the lessons learned during implementation of the CRP were not incorporated into the design of the DICSA project, including the consequences of declining cocoa prices, cofinancing obstacles, political interference in project management, and project objectives that were overly complex and ambitious. Considerable time and effort were expended by the World Bank supervision staff in guiding project execution and decisive action was taken when serious implementation problems were detected. However, the complexity of the project made it difficult to adequately supervise all project components. 8. Borrower's Performance: The project faced major implementation problems due to the actions of the Government that included inadequate financial control of project funds, the ineligible use of agricultural inputs and machinery, carelessness in applying established guidelines and procedures, weak project administration, delays in procurement, and the arbitrary appointment of unnecessary and unqualified project staff.  iii 9. Project outcome: As a result of the fundamental problems discussed above, the Bank informally suspended disbursements for three months in August 1992 and recommended a major restructuring of the project in the November 1993 mid-term review. This mission assessed project status and implementation problems, that included: (a) unmet quantitative production targets for cocoa and foodcrops; (b) important losses in OFA; (c) little progress by the agricultural extension and applied research service in arresting the decline in cocoa yield and rehabilitating cocoa production in areas previously abandoned in Bioko; and (d) a dearth of baseline data due to the lack of a suitable monitoring and management information system. Agreements to restructure the project reached between the Bank and the Government were not successfully implemented and disbursements were suspended on July 11, 1994. The conditions required for lifting suspension were not fulfilled and the balance of the credit was canceled on November 18, 1994. The project did not accomplish its major objectives and no sustainable development was achieved; consequently, the project outcome is assessed to be highly unsatisfactory. C. Summary of Findings, Future Operations & Key Lessons Learned 10. At the time of appraisal, it was estimated that the Economic Rate of Return (ERR) for the project would be 21 percent. This ERR will not be achieved as a result of low yields in cocoa production, delays in introducing crops and appropriate technology to diversify production, as well as because administrative costs did not decline to match the reduced level of activity. The project's new ERR is estimated to be close to zero or negative. 11. Future operations in the agricultural and environment sector could include support for a natural resource management project to strengthen management of the country's forest resources and protect their biodiversity. In addition, the diversification and strengthening of agricultural production still offer potential for economic growth. However, before the Bank could finance any follow-up projects, the Government would need to address the serious issues that negatively affected the DICSA project implementation and internalize the key lessons learned from this project. 12. The principal lessons learned from the DICSA project can be summarized as follows: (a) Learning from lessons learned: Follow-on projects must be meticulously designed to encompass all of the lessons learned from previous projects. The project should have drawn more from the obvious lessons of CRP, including the consequences of declining cocoa prices, cofinancing obstacles and political interference in project management. (b) Information management systems: Satisfactory information and monitoring systems to track progress in production and implementation targets, as well as adequate systems for financial reporting must be developed and in place at an  iv early stage of the project. The fact that DICSA had no information management systems meant that the project had no statistical data to quantify the achievements of project execution nor to provide required financial information and accounting reports. (c) Keep it simple: Projects need to be kept simple and in line with the public sector's capacity. DICSA attempted to implement three separate investment projects: (a) agricultural extension and adaptive research; (b) rural infrastructure; and (c) credit, marketing and input supply. The complexity of the project design required extensive supervision and guidance from the Bank, and overwhelmed the limited managerial capacity of the public sector. (d) Government ownership: The lack of government ownership and commitment have a detrimental impact on all aspects of a project. The lack of Government commitment to the successful implementation of this project was evident in that political interference was frequent in the selection of unnecessary and unqualified project staff, SAC loans granted to unqualified borrowers, ineligible purchase of agricultural inputs and machinery from SIC's input supply stores and misuse of special account funds. (e) Secure cofinancing: If the successful completion of project objectives depends on cofinancing, project appraisal must assure that this cofinancing is secure. Implementation of two key components in the DICSA project, extension services and institutional development, depended on financing by OPEC and BADEA. Little progress was made in the execution of these components largely because OPEC and BADEA made no disbursements for vehicles, equipment, civil works and training, due to the accumulation of Government arrears to these institutions. (f) Technical assistance management: Long-term technical assistance should be avoided, due to its unsustainable impact on local capacity and institutions. The frequent changes in expatriate consultants employed by the DICSA project caused serious disruption in project implementation, loss of institutional memory and an uneven knowledge of policies and procedures. The consultants did not always give enough importance to national institution building nor to ensuring the transfer of know-how to their local counterparts.  IMPLEMENTATION COMPLETION REPORT EQUATORIAL GUINEA CROP DIVERSIFICATION AND AGRICULTURAL SERVICES PROJECT (Credit 2181-EG) PART 1: PROJECT IMPLEMENTATION ASSESSMENT A. Introduction 1. Equatorial Guinea is comprised of widely scattered territories with different natural endowments totaling about 28,000 square kilometers; the estimated population is around 400,000. Rio Muni, on mainland Africa, contains about 90 percent of the land area (26,000 square kilometers); the island of Bioko, site of the capital, Malabo, and five other small islands make up the balance. Bioko is more developed and urbanized than the continental region; and the dominant economic activity is cocoa production, whereas in Rio Muni it is food crops and forestry. Agriculture, including fishing and forestry, accounts for over 50 percent of GDP and 60 percent of exports. Following independence in 1968, under the administration of Macias Nguema, Equatorial Guinea went from having the highest GDP per capita in Suh-Saharan Africa to a state of economic ruin, social dislocation and administrative paralysis. 2. In 1979 a change in government resulted in new initiatives to rebuild the economy by revitalizing agricultural production and exports, as well as re-establishing the social infrastructure. A high priority was given to promoting cocoa exports and the Cocoa Rehabilitation Project (Cr.1548-EG) was identified in January 1981. The CRP was the first IDA-assisted project in the agricultural sector of Equatorial Guinea, it became effective in July 1985 and was closed in December 1990. The main objectives of this project were to: (a) alleviate the constraints adversely affecting production of cocoa; (b) establish the necessary infrastructure to maintain the momentum of development in the cocoa sub-sector; and (c) increase cocoa production while improving quality control of cocoa beans. The Project Completion Report of the CRP, dated December 22, 1992, raised serious doubts as to the sustainability of the CRP and gave the project an unsatisfactory rating. The major factors that negatively affected CRP project implementation included declining cocoa prices, low domestic farmgate prices, unrealistic yield expectations and a project design that did not compensate for weak supporting services or extremely difficult country conditions. 3. The Crop Diversification and Agricultural Services Project (DICSA) was identified during the November 1988 CRP mid-term review. It was conceived as a follow-on project to consolidate the perceived achievements of the first project in credit, input supply and market services; to address the production, financial and institutional constraints within the cocoa industry; and to encourage diversification into varied crop production. The DICSA project was prepared by the Bank/FAO-CP in collaboration with the Government and appraised by a joint World BanklFAO-CP mission from November 7-28, 1989. A first PPF of US$450,000 and a second PPF of US$220,000 were approved in December 1989 and September 1990 respectively, to assist Government in carrying out essential project start-up activities. The appraised project  2 Part 1: Project Implementation Assessment cost of US$18 million was to be financed by IDA (US$6.3 million), IFAD (US$5.0 million), OPEC (US$1.5 million), BADEA (US$3.9 million) and the Government (US$1.3 million). The Government's contribution consisted primarily of assets transferred to DICSA from the Agricultural Credit Department and Input Supply Unit of the CRP. The project was presented to the Board on October 30, 1990, was signed on November 21, 1990 and became effective on July 10, 1991. There was a slight delay in establishing credit effectiveness due to difficulties in specifying the assets of CRP and registering their transfer to DICSA. 4. Early Bank supervision missions recognized that project implementation was seriously affected by the lack of strong management, financial control of project funds and discipline in applying established guidelines and procedures. As a result, the Bank informally suspended disbursements in August 1992. Although the informal suspension was lifted on October 26, 1992, the project continued to be plagued by the same fundamental problems and as a result an agreement on project restructuring was reached at the mid-term review in November 1993. However, the agreed measures were not successfully implemented and disbursements were formally suspended on July 11, 1994. The Bank notified the authorities that the Credit would be canceled if progress towards restructuring the project had not been made by September 30, 1994. The Government appointed a new Director with qualifications satisfactory to the Bank, but did not fulfill any other conditions required for lifting suspension, and the project was canceled on November 18, 1994. B. Statement of Objectives 5. The objectives of the project were to alleviate rural poverty, improve family nutrition and food security, increase food production, promote local food marketing and raise foreign exchange earnings. These objectives would be achieved by substituting imports and increasing the production and export of traditional and non-traditional crops, including food crops (SAR para. 3.01). The project would support both investments and policy reforms. The policy reforms primarily consisted in: (a) establishing an economically sound system of taxing and pricing cocoa; (b) conducting annual consultations on the Public Investment Program; and (c) carrying out a study on the land tenure system on the island of Bioko and implementing the recommendations of the study, most importantly in the abandoned plantations located on the Institute for the Development and Promotion of Agriculture (IDEPA) land. In effect, the project was a sector wide investment operation, because the implementation of more than one project could not be justified given the country's limited absorption capacity. The project investments comprised three components: (a) Marketing: supporting the increased profitability of traditional export crops, expanding food crop exports and promoting traditional and non-traditional crops for export to new markets. In order to achieve increased production and export of food crops, specific investments were to include the rehabilitation of the Mbini-Cogo and Evinayong- Acurenam trunk roads, the maintenance of rural feeder roads by rural communities (with  Part I: Project Implementation Assessment 3 assistance from the Food for Work Program of the WFP), as well as financing of a ferry to operate between Akalayong and Cocoabeach in Gabon. The project would provide marketing information and help farmers establish agricultural organizations. (b) Agricultural extension and applied research: furnishing T&V based extension services to farmers supported by demand-driven applied research. The extension and research component would help: (i) improve production techniques; (ii) promote the diffusion of these techniques; (iii) assist farmers in adopting the alley cropping system (para. 13) on a pilot basis; and (iv) support the establishment of small individually-owned agricultural production enterprises. (c) Institutional development: sustaining project accomplishments by: (i) strengthening the national extension service and applied research capabilities in the Ministry of Agriculture; (ii) assisting the Agricultural Development Organization (OFA) to provide unsubsidized credit and savings services, to import and sell inputs needed for cocoa and diversified crop production, as well as to identify new markets and export farmers' crops on a commission basis (para. 19) while setting the basis for its privatization; (iii) providing training and assistance for the organization of small farmers and traders; and (iv) creating a legal and policy environment conducive to the establishment of formal cooperatives and credit unions. C. Achievement of Objectives 6. Direct incremental project benefits (SAR, para. 6.04) were expected to result from increasing the productivity and production of cocoa in Bioko (70 percent) and from intensification of agricultural production and more remunerative foodcrops in the Continental region (30 percent). 7. Cocoa production objectives. The main project objectives on Bioko would be to increase cocoa production in areas appropriate for this crop, and to induce diversification out of cocoa in marginal areas (SAR. para 3.03). To achieve these objectives the project would: (a) establish agriculture credit to purchase inputs to control disease; (b) provide agricultural extension and applied research to help farmers apply appropriate crop cultivation techniques, control pests and diseases, and encourage intercropping to reduce weeding and increase production; and (c) promote land tenure reforms to encourage farmers to cultivate in the most productive areas. 8. Increased cocoa production was expected to come from three target groups (SAR para. 3.20). The first target group consisted of about 420 former clients of the CRP (400 small farmers with about 4 ha each and 20 medium/large farmers with about 20 ha each), who were currently harvesting approximately 2,000 ha and would increase their production by 400 tons through improving yields from about 600 kg/ha to about 800 kg/ha. The second target group included 320 cocoa farmers, who were cultivating about 2,000 ha and supplying their cocoa to the private  4 Part I: Project Implementation Assessment sector exporting farms. Of these new beneficiaries to DICSA, 275 were smallholders (4 ha each) and 45 larger farmers (20 ha each). Productivity would increase from 450 kg/ha to 700 kg/ha, or about 500 tons. The third target group would encompass between 340 to 600 smallholders who would cultivate abandoned cocoa plantations (IDEPA land) with excellent potential (800 kg/ha at full maturity) in about 2,000 ha. They would produce about 1,600 tons of cocoa. In total, by incorporating 2,000 ha into new production and by increasing productivity in about 4,000 ha already under cocoa cultivation, cocoa production was to increase by approximately 2,500 tons. 9. At the November 1993 mid-term review the actual yields were found to be far below these projections - an average of 350 kg/ha - substantially lower than in the first year of the project. Although cocoa cultivation in Bioko requires high levels of imported chemical inputs, the island possesses excellent soils and climatic conditions well suited to cocoa production, and yields had reached 3,000 kg/ha prior to independence in 1968 (and averaged 1,500-2,000 kg/ha). However, due to continued low international cocoa prices, farmers did not apply needed chemical products nor did they carry out appropriate cultural practices, and yields plummeted. 10. In addition, only about 400 ha (of the 2,000 ha estimated) of abandoned plantations located on IDEPA land were cultivated and harvested. It had been planned at appraisal that approximately 340-600 smallholders would receive legal transfer of property titles to this land; indeed, the entire economic justification of the project depended heavily on the rehabilitation of this fertile cocoa growing area. However, implementation became a politically sensitive issue, because the resettlement of small farmers would exacerbate the shortage of labor in the cocoa sector and the viability of the "sharecropping" system that profited medium and large farmers (often high Government officials). 11. The mid-tern review warned that, even more serious than the low yields in cocoa production, was the risk to the entire future of cocoa production in Bioko caused by insufficient replanting. In the almost 30 years since independence there has been little replanting, and both CRP and DICSA focused on rehabilitating old trees rather than replanting. Therefore, the cocoa tree stock is old, the density of trees per ha has declined drastically and production will not be increased rapidly or sizably, even with improved international cocoa prices. Acknowledging this threat, a small replanting program was initiated in mid-1993 with the support of DICSA, European Union and the Spanish Cooperation Agency, but at least five years would be required to reap any benefits from the replanting. 12. Foodcrop production objectives. The entire population of the continental region (about 200,000) was expected to benefit from agricultural extension, applied research, improved rural infrastructure and marketing services. The project would focus on developing production in the Mbini and Cogo districts, where direct project beneficiaries would include some 4,000 smallholders. Better yielding, higher remunerative crops and the alley cropping cultivation system (para. 13) were to be introduced. It was projected that by 1995, the volume of exportable food crops would increase by 3,000 tons and by about 6,000 tons by year 2000. Of this, about  Part I: Project Implementation Assessment 5 half would be produced by the farmers in the Mbini and Cogo districts, and the rest from the other areas of the continental region. Exports would be channeled through Cogo rather than through Bata where there was already periodic oversupply of foodcrops (SAR para. 6.02). 13. Agricultural extension and supporting applied research would be the major vehicles to achieve these goals, assisting farmers to diversify their crop production to other export crops and to import substitutes. The principal subject matters for research included introducing promising new high-yield crop varieties, developing fast propagation techniques and improving current farmer practices (SAR Annex 3 para. 22). To increase farrners' productivity the project would expand the use of the alley cropping system, introduced on a pilot scale under the IDA-financed Technical Assistance Project (SAR para. 6.18). This approach aimed at changing the traditional migratory agricultural practiced in the continent with a permanent farming system. 14. The November 1993 mid-term review team noted that the project had achieved little substantial increase in the production of foodcrops because too much attention had been given to cocoa production. In addition, practically no new crops were introduced in the Mbini and Cogo districts, due to delays in establishing the suitability and profitability of potential foodcrops. Although a few small-scale farm trials of the permanent alley cropping farming system were conducted, there remained some questions as to whether this technology was suitable to conditions in the country. The results of the Technical Assistance Project pilot had proven to be unreliable and inconclusive, because the working data was never adequately compiled and the agricultural advisor never completed a final report. 15. Agricultural extension and applied research. Throughout the project there were coordination problems between the expatriate extension and research specialists and the Ministry of Agriculture in defining responsibilities and in agreeing to project objectives. As a result of these conflicts, there were serious delays in establishing field trials, testing new crops, strengthening the T&V system in Bioko and in improving cocoa quality control and yields. Furthermore, the extension service was hampered by a lack of vehicles. This project element was to be financed by OPEC (40 percent) and BADEA (60 percent), but Government arrears in interest payments to both organizations caused significant delays in credit effectiveness and suspensions of disbursements. In addition, the few vehicles possessed by the extension service were frequently appropriated by authorities in the Ministry of Agriculture for activities unrelated to the project. The extension service was also hindered by the lack of a monitoring and database system to provide baseline data and to evaluate farm production and productivity (para. 28). 16. Despite these obstacles, there were some encouraging results in the continental region. A solid T&V system was organized, extension staff were systematically trained, demonstration plots were established on farmers' land, village farmers ("animadores rurales") were designated by fellow farmers to work with extension agents, a study to identify more efficient cultivation techniques was undertaken, and technical guides were written and disseminated.  6 Part 1: Project Implementation Assessment 17. Policy Reforms. In accordance with Government policies and agreements reached with the IMF and the Bank, the project was to support agricultural policy reforms that would enhance the objectives of the project. These reforms consisted of establishing cocoa pricing and taxing systems that would encourage production. The removal of the cocoa subsidy (unsustainable in any case because of fiscal considerations) would hasten the departure of marginal cocoa farmers, who would be encouraged to diversify into other crops. The Government also agreed to complete an annual review of the Public Investment Program. The Bank worked closely with the Government on these policy issues and all of the legal covenants pertaining to policy reform were satisfactorily completed. The Bank agreed with Government proposals for 1992 and 1993 cocoa producer prices. In the 1993-1995 Policy Framework Paper it was agreed: (a) to reduce the cocoa export subsidy by 50 percent for the 1993/1994 cocoa campaign; (b) to substitute the government guaranteed producer price with a target price that reflected world market conditions; and (c) to eliminate the export subsidy in the 1994/1995 cocoa campaign. 18. Infrastructure. No progress was achieved in the building of infrastructure (roads, ferry), as proposed under the project. Due to arrears in interest payments from the Government to BADEA, the BADEA credit that was to finance this component did not become effective until May 13, 1993 and no funds were actually disbursed. The European Union also expressed interest in financing the roads but, at the time the project was closed, little progress had been made. 19. Credit, input supply and market services. The Agricultural Development Organization (OFA) was to be an independent, self-financing entity to support small and medium-size farmers; managed and operated mainly by national staff who would be trained and assisted by expatriate credit and financial advisers. It was to have two main functions: (a) the provision of credit and savings services (SAC) to individual farmers and farmer groups on the island of Bioko; and (b) importing and selling inputs and equipment needed for cocoa and diversified crop production and providing marketing services (SIC). SAC was expected to be self-financing by 1995, on the basis that OFA would operate without subsidy, with commercially-determined interest rates, and without targeting of credit. Initial equity and operating capital were to be provided by the Government from balances existing at the closure of the CRP. At appraisal, the assets to be transferred to SAC were valued at CFAF 300 million and included both liquid assets and the credit portfolio; an estimated CFAF 1,500 million in stock and goods were to be transferred to SIC. First-time borrowers were to be encouraged to purchase equity, while established clients were to be required to purchase equity in OFA, thus gradually increasing private-sector ownership of OFA. 20. The audited financial results for 1991 and 1992 show that the credit and savings service (SAC) and the input and marketing service (SIC) within OFA have incurred combined losses of CFAF 272 million and CFAF 284 million; this was much higher than the losses of CFAF 33 million and CFAF 16 million projected in the SAR for those years. These losses were caused by a substantial reduction in financial revenues due to lower than projected activity under the  Part 1: Project Implementation Assessment 7 project, extremely high operating expenditures, and allocations to cover bad debts. Credit operations were not properly recorded and no reliable financial statements were prepared. Large loans were granted to unqualified borrowers, including government officials and DICSA staff. Cases were identified where borrowers profited from selling inputs that had been provided as credit in kind. There were also instances reported where borrowers sold part of the cocoa crop to exporters other than DICSA, despite the fact that credit had been granted against the delivery of cocoa to DICSA. 21. In addition, the assets transferred to OFA from CRP proved to have been overvalued at appraisal. The credit portfolio transferred to SAC from the CRP was found to contain a significant portion of uncollectable loans. The worth of the stock and goods transferred to SIC from CRP's Input Supply Unit was also overestimated. The CRP Project Completion Report (para. 1.42) stated that the mismanagement of the input supply purchases during the last two years of the project had been one of the specific causes for this project's poor performance. Mismanagement included the procurement of inappropriate inputs, tools and equipment that local farmers found to be unacceptable. At CRP closing, approximately US$2 million (book value) of stock remained in warehouses and was transferred to SIC. D. Implementation Record and Major Factors Affecting the Project 22. Project implementation started in February 1991, under PPF financing. By August 1991, all five expatriate technical assistant specialists, the three UN volunteers and the five key national staff assumed their duties. During the first 8-10 months of implementation, the project encountered several serious problems, such as: (a) inappropriate use of project's credit funds for the purchase of non-project related inputs on behalf of the Ministry of Agriculture; (b) improper payment of non-project related salaries authorized by the same Ministry; (c) unauthorized restructuring of OFA's Savings and Credit Service (SAC) into a banking institution; and (d) delay in signing BADEA's loan to the project due to Government arrears to BADEA. 23. The CRP Project Completion Report identified several transitional problems between the CRP and DICSA (para 1.47-1.50). First, with no reasonable transition period, the role of the national counterpart team had been changed from subordinate under the CRP, to one of full responsibility for project policy and decision-making in DICSA. The project management organization in DICSA consisted of a national Project Director and Extension Service Directors. Long-term expatriate consultants reported directly to the national directors and included the Project Coordinator, Financial Advisor, Extension Specialist, Marketing Specialist and Credit Specialist. The March 1992 supervision mission recognized that this change in leadership had been premature and had resulted in management ineffectiveness in the implementation of the project. Secondly, the performance of OFA (credit, input supply and marketing services) had been adversely affected by the lack of transition between the departure of the CRP expatriate team of experts and the DICSA team (para. 39). Thirdly, the OFA had labored under serious financial difficulties, due to losses resulting from credit arrears from loans granted under the  8 Part 1: Project Implementation Assessment CRP that were transferred to DICSA as assets. The record of the credit component of the CRP in terrns of arrears, has proven to be much less positive than shown in the Project Completion Report. Lastly, there were serious problems in reconciling the transfer of financial assets between the two projects that resulted in delays in replenishing the Special Account. 24. Although by the second year of project implementation progress had been made in organizing extension services, establishing two applied research centers and defining a strategy for internal marketing and exports, the serious implementation problems identified in the first year had not been resolved. Additional critical problems had developed, mostly related to project management: (a) the national Project Director proved not to be qualified for that position and was dismissed by the Minister of Agriculture; (b) the expatriate Project Coordinator, Credit Specialist and Agricultural Extension Specialist proved to be ineffective; (c) the national Director of SAC disregarded creditworthiness criteria and authorized the use of credit funds inappropriately; (d) the Secretary General of Agriculture appropriated the use of project vehicles for non-project related activities; (e) unneeded staff were nominated to the project by Presidential Decree or Ministerial Order; and (f) the Financial Adviser authorized the use of IDA's Special Account funds for the Government promoted coffee marketing program. To convey IDA's serious concern that the project was not being implemented as envisaged at appraisal, the credit was informally suspended in August 1992. 25. Following compliance with measures agreed to by the Government and IDA, the informal suspension was lifted on October 26, 1992, however serious financial and managerial problems continued to afflict the project. The May 1993 supervision mission confirmed that three pervasive problems jeopardized project implementation: (a) severe political interference in the selection of project staff; (b) the improper concession of credit and the bad record of credit recovery; and (c) delays in procurement of vehicles for the extension services due to suspension of disbursements by OPEC and BADEA. In an effort to address these serious implementation problems, it was agreed to advance the date of the mid-term evaluation mission. 26. The November 1993 mid-term review was highly critical of project implementation and predicted that the project would not achieve its major objectives. The mission assessed project status and implementation problems to include: (a) unmet quantitative production targets for cocoa and foodcrops; (b) important losses in OFA; (c) little progress by the agricultural extension and applied research service in arresting the decline in cocoa yield and rehabilitating cocoa production in areas previously abandoned in Bioko; and (d) the dearth of baseline data due to the lack of a suitable monitoring and management information system. 27. Major project restructuring was proposed that included measures to reduce and eventually abolish the direct public sector involvement through DICSA in the cocoa sector, to emphasize its role in support of the private sector and to drastically diminish and gradually eliminate OFA. The project would concentrate its efforts on extension and applied research, land tenure and titling in the IDEPA pilot area, as well as increasing crop diversification. However, no real  Part I: Project Implementation Assessment 9 progress was made to reorient the project and disbursements were suspended on July 11, 1994. IDA informed the Government of its intention to cancel the credit if the following conditions were not met: (a) recovery of the loans that had been granted without complying to the agreed criteria for agricultural credit lending; (b) appointment of the project manager; (c) payments of all arrears to OPEC; (d) submission of satisfactory project account and audits; and (e) reimbursement of all ineligible expenses. The Government appointed a new Director with qualifications satisfactory to IDA, but did not meet the other conditions, and the project was canceled on November 18, 1994. 28. Throughout implementation the project suffered from scant reliable accounting and financial information and no system to quantify the achievements of project execution. A project monitoring and management system (SAR Annex 7 para. 15) was to be designed to furnish full budgeting, procurement and financial controls, provide the means to monitor and evaluate key project indicators, and prepare the annual work plans. The information systems used in CRP were not transferred to DICSA. The computer programs designed for CRP was prepared for equipment that became obsolete and the programs were judged to be too complex. The frequent changes in the DICSA expatriate technical assistance team, caused serious delays in designing and implementing a new project informnation system. 29. Due to the lack of a reliable accounting system, the project staff were not able to produce the financial statements necessary to complete the required annual financial audits. The 1991, 1992 and 1993 audits were qualified and the financial documents for 1994 are not reliable. Price Waterhouse underlined the weak points of the project accounting system by stating that: "Our responsibility is not to help the accounting units prepare statements; it is to audit them". 30. Due to the complexity of the project design, and the public sector's institutional weaknesses and limited managerial capacity, DICSA continued the same model of dependence on long-term expatriate technical assistance that had been utilized in the CRP - despite the fact that the CRP Project Completion Report had concluded that the final results of the expatriate consultants had been mixed. In fact, 33 percent of the DICSA IDA credit estimate and 50 percent of the actual disbursed credit was for technical assistance. There was a high degree of turnover among the long-term consultants and individual performance was uneven. Following agreements reached with the Government after the informal suspension of August 1992, the Project Coordinator and Credit Specialist were replaced and the Financial Advisor and Extension Specialist were substituted by United Nations Volunteers. The new Project Coordinator voluntarily left the project shortly after his probationary period and the third Coordinator joined the project in May 1993. These frequent changes caused serious disruption in project implementation and continuity, as well as loss of institutional memory and knowledge of policies and procedures. The expatriate consultants did not always give enough importance to institution building and to ensuring the transference of know-how to their national counterparts. It is extremely unlikely that any sustainable transfer of expertise or local capacity building was achieved.  10 Part I: Project Implementation Assessment E. Project Sustainability 31. One of the key objectives of the project was to establish the OFA, which was designed to give sustainability to a series of activities carried out under the previous CRP. The design of OFA as a public sector institution to provide input, credit and marketing services and to eventually become a private sector body was flawed and unsustainable from the beginning. Experience in the Bank has abundantly demonstrated that no public sector institution has the incentive to eliminate itself through privatization. The result was a huge financial loss caused by allocations to cover bad debts, lower than projected financial revenues and extremely high operating costs that make OFA unsustainable. 32. The ambitious cocoa production and export targets set by the project, 26,000 tons to be exported by the year 2,000, will not be met. Indeed, any improvements in cocoa production will not be sustainable, due to the fact that at the closing of this project most of the cocoa trees on Bioko are old (between 30 and 50 years old) and are suffering from neglect and disease. F. Bank's Performance 33. Project concept and design: The main objectives of the project were formulated in order to implement the recommendations of the October 2, 1989 agricultural sector review. The strategy for agricultural growth included: (a) increased exports of traditional products (cocoa, coffee, timber); (b) increased production and diversification of food crop production and marketing; (c) infrastructure investments, particularly to improve transport; and (d) strengthening public sector resource management and private sector initiatives. The project encompassed all of these strategy recommendations; this design proved to be overly complex and unrealistic given the public sector's limited ability to implement projects. 34. The project was designed to sustain the perceived achievements of the CRP in project credit, input supply and market services; however, these achievements later proved to be negligible. There was dissension in the February 1988 DICSA identification mission as to whether additional investment in cocoa rehabilitation and replanting was justified, given the low world prices and the high local costs that had diminished the effectiveness of this investment in the CRP. Some members of the mission also questioned whether sufficient research had been completed to determine the potential market for export food crops. The Bank decided to proceed, but did not incorporate all of the lessons learned during implementation of the CRP to the design of the DICSA project, including the consequences of declining cocoa prices, cofinancing obstacles and political interference in project management 35. At the time of DICSA project design, it was apparent that CRP was suffering serious cash-flow difficulties due to outstanding Government arrears with OPEC and BADEA. In fact, in the financing of CRP only 12 percent of the BADEA credit was actually disbursed and OPEC disbursements were suspended the entire year of 1989. Despite the experience of CRP, vital  Part I. Project Implementation Assessment 11 components of the DICSA project depended on BADEA and OPEC cofinancing, 22 percent and 8 percent of the total credit amount respectively. Vehicles, equipment, civil works and training were to be partially or fully funded by these institutions. Thus, the execution of extension and institutional development was severely encumbered when no funds from the BADEA credit, and only a fraction of the OPEC loan, were actually disbursed. Bank staff should have encouraged Government to find other sources of financing for these crucial elements. 36. Supervision: From February 1991 to March 1994, there were 8 supervision missions, including a mid-term review evaluation mission in November 1993, that recommended a major restructuring of the project. Considerable time and effort were expended by the World Bank supervision staff in guiding project execution and decisive action was taken when serious implementation problems were detected. However, the complexity of the project made it difficult to adequately supervise all components of the project and a great deal of the supervision time was spent putting out fires. G. Borrower's Performance 37. The project faced major implementation problems due to the actions of the Government that included the arbitrary appointment of unnecessary and unqualified project staff, the ineligible use of agricultural inputs and machinery, misuse of credit and special account funds and loans granted to non-eligible borrowers. It was for these reasons that the Bank ultimately canceled the DICSA project. 38. Bank supervision missions detected several cases of misuse of special accounts. For example, an irregular withdrawal was made on September 7, 1993 of 150 million CFAF from the IDA and IFAD special accounts and was transferred to OPEC to cover Government arrears. The Government replenished the special accounts on October 22, 1993. In another case, 60 million CFAF were withdrawn from the IDA and IFAD special accounts with no justification of use. This sum was reimbursed to the special account more than 3 months later, in February 1994 - after the elections of November 1993 and after the devaluation of the CFAF. In yet a third case, special account funds were withdrawn to fund the Government promoted coffee marketing program. 39. The project designers planned an adequate transition period between the out-going CRP technical assistance team and the newly-appointed DICSA group. However, as a result of delays in Government negotiations with the consulting firm and in meeting the conditions for credit effectiveness, the smooth transition and overlap of expertise was less than had been projected. 40. Due to the accumulation of Government arrears to OPEC and BADEA, crucial project investments were never made. BADEA and OPEC resources were to provide the vehicles needed to promote extension activities, BADEA was to finance the civil works needed to  12 Part : Project Implementation Assessment improve the transport sector and OPEC was to furnish 40 percent of the funding in training and studies. H. Assessment of Outcome 41. The Economic Rate of Return (ERR) for the project was estimated to be 21 percent (SAR, para 6.08). Given the present low yields in cocoa production and the fact that administrative costs have not declined to match the reduced level of activity, the 28 percent ERR projected for the project in Bioko will not be achieved. Likewise, the 13 percent ERR predicted for the continental region will almost certainly not be realized, due to delays in introducing appropriate technology and crops to diversify production. Hence, the 21 percent overall ERR will not be attained and the project's new ERR is estimated to be close to zero or negative. I. Future Operations 42. Equatorial Guinea is well endowed with arable land. Most tropical fruits flourish in the fertile volcanic soils and equatorial climate of the island of Bioko. Timber extraction is the principal economic activity in the continental region of Rio Muni, followed by coffee and some cocoa production. The diversification and strengthening of agricultural production still offer potential for economic growth. Support for a natural resource management project to strengthen management of the country's forest resources and protect their biodiversity could also be considered. However, before any follow-up projects could be financed the Government would need to address the serious issues that negatively affected DICSA's project implementation and internalize the key lessons learned from this project. J. Key Lessons Learned 43. The principal lessons learned from the DICSA project can be summarized as follows: (a) Learning from lessons learned: Follow-on projects must be meticulously designed to encompass all of the lessons learned from previous projects. The project should have drawn more from the obvious lessons of CRP, including the consequences of declining cocoa prices, cofmancing obstacles and political interference in project management. (b) Information management systems: Satisfactory information and monitoring systems to track progress in production and implementation targets, as well as adequate systems for financial reporting must be developed and in place at an early stage of the project. The fact that DICSA had no information management systems meant that the project had no statistical data to quantify the achievements  Part 1: Project Implementation Assessment 13 of project execution nor to provide required financial information and accounting reports. (c) Keep it simple: Projects need to be kept simple and in line with the public sector's capacity. DICSA attempted to implement three separate investment projects: (a) agricultural extension and adaptive research; (b) rural infrastructure; and (c) credit, marketing and input supply. The complexity of the project design required extensive supervision and guidance from the Bank, and overwhelmed the limited managerial capacity of the public sector. (d) Government ownership: The lack of government ownership and commitment will have a detrimental impact on all aspects of a project. The lack of Government commitment to the successful implementation of this project was evident in that political interference was frequent in the selection of unnecessary and unqualified project staff, SAC loans granted to unqualified borrowers, ineligible purchase of agricultural inputs and machinery from SIC's input supply stores and misuse of special account funds. (e) Secure cofinancing: If the successful completion of project objectives depends on cofinancing, project appraisal must assure that this cofinancing is secure. Implementation of two key components in the DICSA project, extension services and institutional development, depended on financing by OPEC and BADEA. Little progress was made in the execution of these components largely because OPEC and BADEA made no disbursements for vehicles, equipment, civil works and training, due to the accumulation of Government arrears to these institutions. (f) Technical assistance management: Long-term technical assistance should be avoided, due to its unsustainable impact on local capacity and institutions. The frequent changes in expatriate consultants employed by the DICSA project caused serious disruption in project implementation, loss of institutional memory and an uneven knowledge of policies and procedures. The consultants did not always give enough importance to national institution building nor to ensuring the transfer of know-how to their local counterparts.  IMPLEMENTATION COMPLETION REPORT EQUATORIAL GUINEA CROP DIVERSIFICATION AND AGRICULTURAL SERVICES PROJECT (Credit 2181-EG) PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 1. Regarding the project's achievements, considerable benefit has been derived from the replanting and land division program in the INASA-MAULE Pilot Module in the Island Region, and from the assistance furnished to small farmers in the cocoa sector on the island of Bioko. Similar progress has been made in the different types of farms in the Mainland Region and in the crop diversification work piloted by the Project Coordination Unit in the Mainland Region. 2. With reference to the cost-benefit data covering the 1991/92, 92/93, 93/94 and 94/95 crop years, only the last two years can be reviewed as the first four years were under the CRP (Cocoa Rehabilitation Project). Other managers were appointed for the subsequent years whose performance, once selected and in post, left much to be desired. There were also many staff changes that caused a loss of both institutional memory and of needed records to prepare team for preparing the cost-benefit statements up to the last crop year. However, the costs of the 1993/94 crop year are reflected in the attached balance sheet showing the position as of December 31, 1994. The figures for 1994/95 have yet to be compiled, since the year has not yet ended. 3. The Government notes with concern that Article II, Section 2.03 of Credit Agreement No. 2181 EQG specifies the closing date as December 31, 1996, a requirement which has unfortunately not been observed. It is also disturbed to note that Section 2.04 of the same article requires the borrower to pay the Association a commitment fee on the undisbursed balance of the credit at a rate to be fixed by the Association on June 30 of each year but not exceeding one half of 1 percent p.a. 4. These requirements are a matter of serious concern for our Government and represent a major burden for our weak economy; however, the Government hopes to benefit from the Bank's usual understanding that the unilateral cancellation of this credit will be reconsidered with a view to redynamizing our cooperation in accordance with the aspirations of our Government and people. 5. As regards the objectives set in the project credit agreement, it can be stated that, in the cocoa sector, notwithstanding the price fluctuations in the international market and the innumerable problems during the execution of the project, the fact that it is how self-financing is a positive achievement. 6. Finally, the Government hopes that, if the project is refinanced, it will be possible to eliminate all the deficiencies revealed by the lessons leamed from the experience with the CRP and the DICSA. In this connection the Government affirms its determination to take steps to improve  Part II: Project Review, From Borrower's Perspective 15 administrative systems, declares its readiness to formulate simple projects and its conviction that it must demonstrate ownership and commitment, while also undertaking to ensure secure cofinancing and appropriate management of technical assistance so that its efforts will be focused in the short term on ensuring sustainability and building the capacity of local institutions. 7. To this end, the Government would like to addresses the Board of IDA to enlist its support in continuing to develop the activities begun in the agriculture sector through the above projects. We would like to request that if we, as we intend to do, work to restore the projects funded by IDA and especially the DICSA project, currently the sole project in the agriculture sector, you will subsequently take the appropriate actions.  IMPLEMENTATION COMPLETION REPORT EQUATORIAL GUINEA CROP DIVERSIFICATION AND AGRICULTURAL SERVICES PROJECT (Credit 2181-EG) PART III: STATISTICAL ANNEXES Table 1: Summary of Assessments A. Achievement of Objectives Objectives Substantial Partial Negligible Not Applicable Macro Policies l Sector Policies i Financial Objectives _ Institutional Development Physical Objectives Poverty Reduction 1 Gender Issues Other Social Objectives 4 Environmental Objectives 4 Public Sector Management Private Sector Development . Other (specify) B. Project Sustainability Project Sustainability Likely Unlikely Uncertain j  Part III: Statistical Annexes 17 C Bank Performance Performance Highly Satisfactory Deflent Satisfactory Identification 4 Preparation Assistance 4 Appraisal 4 Supervision 4 [ I ! D. Borrower Performance Performance Highly Satisfactory Deficient Satisfactory Preparation Implementation 4 Covenant Compliance Operation (if applicable) E. Assessment of Outcome Assessment Highly Satisfactory Unsatisfactory Highly S thhItory Unsatisfactory  18 Part III: Statistical Annexes Table 2: Related Bank Loans/Credits Loan/Credit Title Amount Objectives Approved Status Technical Assistance Project US$6.0million To assist the Government in 05/31/84 Completed (Cr- 1304) its effort to address the major constraints to promoting a development strategy. Cocoa Rehabilitation Project US$9.3million To support the rehabilitation 02/19/85 Completed (Cr- 1548) of large scale cocoa plantations. Rehabilitation of Imports US$6.Omillion To support the 05/08/86 Completed (Cr- 1690) Government's reform program. Primary Education Project US$5.lmillion To improve primary 05/21/87 Active (Cr- 1797) education. Health Improvement Project US$5.5million To improve basic health 03/26/92 Active (Cr-2348) services. Technical Assistance US$2.4million To improve government 07/02/92 Active Petroleum ll capacity to monitor the (Cr-2408) storage, transport and distribution of petroleum _______________________________ ________________ products.  Part III: Statistical Annexes 19 Table 3: Project Timetable Steps in Project Cycle Date Planned Actual Date Identification April 1988 April 1988 Preparation 1989 1989 Appraisal November 7-28, 1989 November 7-28, 1989 Negotiations June 1990 August 27-31, 1990 Presentation to board October 30, 1990 October 30, 1990 Credit signature November 21, 1990 November 21, 1990 Credit effectiveness December 1, 1990 July 10, 1991 Midterm review December 1993 November 1993 Project completion June 30, 1996 November 18, 1994 Credit closing December 31, 1996 November 18, 1994 Final disbursement June 30, 1997 August 1, 1994  20 Part III: Statistical Annexes Table 4: Credi Disbursements: Cumulative Estimated and Actual Year Appraisal Estimate (USS '000) Actual Disbursements (USS '000) Cumulative actual as % of Annual Cumulative Annual Cumulative cumulative estimate Disbursement Disbursements Disbursement Disbursements 1991 737 737 0 0 0 1992 1,106 1,843 2,084 2,084 113% 1993 1,290 3,133 1,284 3,368 108% 1994 1,228 4,361 743 4,111 94% 1995 1,106 5,467 156 4,267 78% 1996 698 6,165 NA NA NA 1997 135 6,300 NA NA NA Date of final disbursement: August 1, 1994 Balance of $2,149,356 canceled on December 31, 1994 Table 5: Key Indicators for Project Implementation Key Indicators for Project Implementation were not available. Table 6: Key Indicators for Project Operation Key Indicators for Project Operation were not available.  Part III. Statistical Annexes 21 Table 7: Studies Included in Project Study Purpose Status Impact of Study Land Tenure To study the implication of Completed The July 1992 supervision Study for Bioko the land tenure system that March 1990 mission concluded that was characterized by implementing this study was absentee plantation owners politically sensitive and and sharecroppers; to extremely difficult to execute. investigate how abandoned All other supervision missions plantations could be agreed with this finding. redistributed to these sharecroppers. Table 8A: Project Costs Item Appraisal Estimates Actual/Latest Estimates (US$ million) (US$ million) Local Costs Foreign Total Local Costs Foreign Total Costs Costs Technical Assistance 0.0 3.7 3.7 0.0 3.3 3.3 Vehicles 0.1 0.7 0.8 0.0 0.0 0.0 Equipment 0.1 1.7 1.8 0.1 0.0 0.1 Civil Works 0.1 1.2 1.3 0.0 0.0 0.0 Credit & Diver. Fund 0.4 1.0 1.4 1.1 0.0 1.1 Training & Studies 0.1 1.4 1.5 0.0 0.3 0.3 Operation & Maint. 0.9 2.3 3.2 3.1 0.0 3.1 Incremental Salaries 1.6 0.0 1.6 1.0 0.0 1.0 Total Base Costs 3.3 12.0 15.3 5.3 3.6 8.9 Physical 0.2 0.8 1.0 0.0 0.0 0.0 Contingencies _ Price Contingencies 0.5 1.2 1.7 0.0 0.0 0.0 Total Project Costs 4.0 14.0 18.0 5.3 3.6 8.9  22 Part III. Statistical Annexes Table 8B: Project Financing Source Appraisal Estimates Actual/Latest Estimates (USS million) (USS million) Local Costs Foreign Total Local Costs Foreign Total Costs Costs IBRDlIDA 1.1 5.2 6.3 1.3 3.0 4.3 IFAD 1.2 3.8 5.0 1.8 0.6 2.4 BADEA 0.0 3.9 3.9 0.0 0.0 0.0 OPEC .4 1.1 1.5 0.9 0.0 0.9 Government 1.3 0.0 1.3 1.3 0.0 1.3 TOTAL 4.0 14.0 18.0 5.3 3.6 8.9 Table 9: Economic Costs and Benefits I 0 Data not available I  Part III: Statistical Annexes 23 Table 10: Status of Legal Covenants Credit Covenant Present Description of Covenant Comments Agreement Type Status Section Borrower to open and maintain in a special Account opened and funds deposited in 2.02 (b) I PCW account in a commercial bank on terms and August 1991. Problems reconciling IDA conditions satisfactory to IDA. disbursement and project accounts. Borrower to open a line of credit in favor of Subsidiary Loan Agreement was signed on 3.03 (a) 3 CW OFA under a Subsidiary Loan Agreement 4/93. between the Borrower and OFA under terms and conditions approved by IDA, as detailed in this article. Borrower not to assign, amend, abrogate or 3.03 (b) 5 CW waive provision of the Subsidiary Loan Agreement, except as the Borrower and IDA shall otherwise agree. The Borrower shall maintain CSMU within No respect of eligibility criteria of Schedule 3.04 (a) 5 NCW SAC, with the responsibility for assessing the 5, concerning agricultural credit. The creditworthiness of beneficiaries through field outstanding portfolio amounts to at least I inspections of their holdings in accordance with million US$. the eligibility criteria and the terms and conditions set forth under Schedule 5. The Project shall employ for employment in All three key personnel employed as of 3.04 (b) 5 CW SAC (i) a General Manager; (ii) a marketing and 07/01/91 It was agreed to abolish the e procurement expert; and (iii) a credit and position of General Manager. SAC savings experts, all with qualifications, positions experienced frequent staff changes. experience and terms and conditions of employment satisfactory to the Association. The Project shall employ a (a) Project Director; All three key personnel employed as of 3.05 5 CW (b) a Project Coordinator and (c) a Financial 07/01/91. However, the March 1992 Advisor with qualifications, experience and mission recommended that the Project terms and conditions of employment satisfactory Director, Financial Chief and SAC General to the Association. Manager be replaced. The Project Director was appointed as Secretary of State in early 1994 and was not replaced until the end of 1994, upon threat of credit cancellation. The Borrower shall cause MALFF to prepare Work Program/Budget and Training 3.06 9 CW and furnish to the Association, not later than Program for 1993 were amended following October 30 in each year, annual work programs comments by IDA/IFAD and given to and budget. mission. Late submission of annual work plans and budgets for 1994. The Borrower to (a) carry out a detailed review Borrower and IDA agreed to advance the 3.07 9 NCW of the execution of the project, not later than midterm review date from December 1993 to December 31, 1993, and furnish the results of September 1993. This mission such review to IDA for its comments and recommended measures to restructure the recommendations, not later than three months project, but these measures were not after such review; and (b) take such measures, implemented by the Government. considered adequate by IDA, to ensure the achievements of the project's purposes.  24 Part III: Statistical Annexes Credit Covenant Present Description of Covenant Comments Agreement Type Status Section The Borrower to select and appoint local MALFF appointed local staff, however 3.08 5 CW counterpart staff with qualifications and considerable Government interference took experience satisfactory to IDA and in adequate place in the selection of staff. number, not later than three months after the following experts have taken up their duties; Marketing and Procurement Expert and Marketing and Procurement Expert, Credit and Credit and Savings Expert in place. Savings Expert, Project Coordinator, Financial Financial Expert was replaced by a United Expert and Extension and Production Expert. Nations Volunteer (January 1993) The Borrower shall furnish to the Association The final report was issued in 12/91. 3.09 (b) 5 NCW for comments, the study on the land tenure However, after more than 2 years, no system in Bioko and implement, not later than settlement has yet been achieved. Only 50 June 30, 1991, those recommendations of said small holders to be settled in 1994, on 300 study agreed upon with the Association. Ha. MALFF to enter into an agreement with OFA OFA responsible for grading cocoa up to 3.10 5 NCW for the provision of cocoa classification and 12/31/91. Draft proposals being prepared by grading support by OFA to MALFF, not later MAF. than March 31, 1991. The Borrower to transfer (a) to OFA (i) all 3.11 3 CW fixed, moveable, and liquid assets, including the By notary act of 07/10/1991 loan portfolio of the Agricultural Credit Department of BCD, under liquidation at the time of signing the Credit Agreement for SAC, and (ii) the stock of goods and agricultural equipment of the input supply unit of CAMARA for the Input Supply (SI) of OFA; and (b) to MALFF, for the implementation of the project, al I the vehicles and equipment used by the technical support team of the Cocoa Rehabilitation Project. The Borrower to enter in contractual Contract signed. 3.12 5 CW arrangements with the United Nations Volunteers Program for execution of Parts A and B of the project. The Borrower shall employ an extension and It was agreed that the expert would be 3.13 5 CW production expert for the execution of Part A of replaced by a UNV who arrived in the Project, with qualifications, experience and December 1993. terms and conditions of employment satisfactory to the Association. The Borrower shall maintain records and Project does not maintain records and 4.01 (a) I NCW accounts adequate to reflect in accordance with accounts in accordance with sound sound accounting practices the operations, accounting practices. resources and expenditures in respect of the Project. The Borrower to (I) have project accounts, Audit report for 1991, 1992 and 1993 4.01 (b) I CW including those for the Special Account, audited accounts indicate that the existing project for each fiscal year; and (ii) fumish a certified records, accounts and financial statements copy of the audit report to IDA, not later than are not adequate and no proper remedial six months after the end of the FY. action has been taken.  Part III. Statistical Annexes 25 Credit Covenant Present Description of Covenant Comments Agreement Type Status Section The Borrower shall enable the Association's No access possible to SIC records during the 4.01 (c,iii) I NCW representative to examine such records. mission of February 1994. The Borrower shall ensure that the report of Audit reports qualified on this point. 4.01 (c,iv) I NCW such audits contains a separate opinion by said auditors as to whether the procedures and internal controls involved can be relied upon to ____________ support the projects withdrawals. The Borrower shall prepare and furnish to IDA 4.02 (a) 12 CW for its approval a formula for cocoa producers' prices. 4.02 (b) 12 CW The Borrower shall establish and put into effect, Proposal agreed with MALFF and with IDA promptly thereafter, cocoa producers' prices during mission. Ratification by Consejo de satisfactory to IDA. Ministros given in early May 1993. 4.02 (c) 12 PCW The Borrower shall take and maintain measures On going exercise. to provide a system of adequate production incentives and taxation for cocoa producers, satisfactory to IDA. 4.02 (d) 9 PCW The Borrower shall review the adequacy of such Date was officially changed to March 31 of system with IDA not later than July 31 in each each year. _ _ _ _ _ year. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ The Borrower and IDA to review not later than 4.03 12 CW April 30 in each year (a) the Public Investment Program for agriculture; (b) the adequacy of the interest rates set forth in Schedule 5 to the Credit Agreement. SAC to adjust interest rates to levels satisfactory to IDA. 5.01(d) NCW The right of the Borrower to withdraw the Equatorial Guinea's right to withdraw funds 3 proceeds of any loan or grant for the financing from the OPEC loan was suspended and the of the Project shall not be suspended, canceled Borrower failed to clear its outstanding or terminated in whole or in part. arrears with OPEC. Covenant Types: I = Accounts/audits 6 = Environmental covenants 10 = Project implementation not 2 = Financial perfornance/revenue 7 = Involuntary resettlement covered by 1-9 3 = Flow & utilization of project funds 8 = Indigenous people II = Sectoral resource allocation 4 = Counterpart funding 9 = Project Implementation not 12 = Sectoral policy action 5 = Management aspects covered by 1-9 Status: CW = Complied With NCW = Not Complied With PCW = Partially Complied With  26 Part IH. Statistical Annexes Table 11: Compliance with Operational Manual Statements Statement Number and Title Describe and Comment on Lack of Compliance Basically, there was compliance with the applicable Bank Operational Manual Statements Table 12: Bank Resources: Staff Inputs Stage of Project Cycle Weeks US Dollars Planned Actual Actual Through Appraisal 88.4 194.2 Appraisal - Board 56.9 98.9 Board - Effectiveness 12.3 27.8 Supervision 145 145.8 320.3 Completion 10 9.6 21.1 Total 313.0 662.3  Part III. Statistical Annexes 27 Table 13: Bank Resources: Missions Stage of Project Month/ No. of Days Specialization Staff Implemen- Develop- Types of Cycle Year Persons in Skills Represented tation ment Problems Field Status Objectives Identification 04/88 2 20 FA, A NA NA NA Preparation 5/89 2 22 FA, A NA NA NA Appraisal 11/89 4 21 FA, A NA NA NA Supervision 03/91 2 10 A,ES I 1 NI Supervision 08/91 4 10 A, FA, ES,ES 2 1 NI Supervision 03/92 4 10 FA, A, SFO,ES 3 1 M, F, T Supervision 07/92 3 10 FA, E, ES 3 1 LC, M, F, T Supervision 11/92 2 10 FA, A 3 1 M, F Supervision 04/93 2 12 FA, FA 3 2 F, P Midterm Review 11/93 4 E, A, ES, FA 4 4 LC, M,F,P,T Supervision 03/94 2 43 E,FA 4 4 LC, M,F,P,T Key to specialized staff skills: FA=Financial Analyst; E=Economist; A=Agronomist; ES=Extension Specialist; SFO=Small Farmer Organization Key to types of problems: LC=Legal Covenant Compliance; M=Management; P=Procurement; F=Funding; I=lnstitutional; T=Technical; NI=None Identified  APPENDIX A: PROJECT REVIEW FROM CO-FINANCIER'S PERSPECTIVE 1. I wish to share with you some observations regarding the implementation performance of Equatorial Guinea's Crop Diversification and Agricultural Services Project (DICSA), an investment initiative which has been cofinanced with the International Development Association (IDA), through a highly concessional loan in the arnount of SDR 3.7 million (approximately US$5.0 million), from the International Fund for Agricultural Development (IFAD). These observations are motivated by the draft Implementation Completion Report (ICR), which you made available to us for review and comment. I will also take the opportunity to inform you of the steps which IFAD is taking at the present time to reactivate the financing of some essential activities of the DICSA project in the Mainland. 2. We share the conclusions reached in the ICR's analysis as pertaining to the project's limited achievements (e.g., institutional strengthening, agricultural production, rural poverty alleviation, infrastructure development) and its lack of conditions for sustainability. Moreover, the specific lessons which have been drawn throughout the project's implementation period have been taken into account in the design of the Fund's Peasant Production and Marketing Promotion Project (PPCC), which is currently being implemented in the Mainland. 3. The IFAD loan was approved by the Fund's Executive Board on I October 1990, it was signed on 12 November 1990, and it fulfilled effectiveness conditions on 2 August 1991. Since the World Bank acted as our Cooperating Institution (i.e., supervising the project and administering the loan on the Fund's behalf), IFAD followed the Bank in suspending the loan as of 25 July 1994, until proper remedial action was taken by Government (GOEG) on a number of key implementation problems (e.g., submission of adequate project accounts and audit reports, execution of a credit recovery plan, etc.). At the time of the loan's suspension in July 1994, disbursements had reached approximately US$2.4 million (SDR 1.77 million) or 48 percent of the original loan amount. 4. While the Bank canceled the undisbursed IDA credit in November 1994, the Fund fielded two additional missions in November 1994 and January 1995 with the purpose of assessing directly the project's situation and possibilities. Subsequently, a proposal was prepared to reformulate/simplify the project in order to reactivate some activities in the Continental Region. This proposal was based, inter alia, on the following considerations: a. DICSA's implementation problems were not caused only by GOEG's inadequate performance but also by the complexity inherent to the project's design, e.g. parallel activities in the Island of Bioko (cocoa marketing and exports; land distribution and titling) and in the Mainland (food production, crop diversification), etc.; b. project progress in the Continent was both satisfactory and promising, e.g., agricultural extension, development of farmer organizations for the supply of tools and inputs; formation of a small national project team in this region. This was acknowledged by supervision missions; and,  Appendix A 29 c. the DICSA project was a component of the Fund's assistance strategy for rural poverty eradication in the Mainland. A second IFAD initiative - The Peasant Production and Marketing Promotion Project (PPCC) - had been approved in April 1994, and which is currently being implemented. In addition, a grant from the IFAD/NGO Extended Cooperation Program was approved in December 1994, to support the preparation of market research and export promotion studies and activities. This latter effort is complementary to PPCC's marketing component. 5. IFAD maintains its commitment to assisting its target groups in Equatorial Guinea. To this effect, an agreement was reached between IFAD and GOEG to reactivate DICSA's activities on a limited scale. Consequently, a proposal for lifting the loan's suspension will be presented shortly to IFAD's President for approval. The agreement reached with GOEG is in consonance with the conclusions/recommendations offered by a meeting of IFAD's Periodic Loan Portfolio Review Committee ("Problem Project" Committee) held in April 1995. The agreement contemplates: (i) the reactivation of selected project activities (extension, action-research, support to peasant organizations; food crops and pilot crop diversification support), exclusively in the Mainland; until the original closing date of December 1996, and, because of the expected reduced scope of operations, with IFAD exclusive financing. A substantial amount of the undisbursed loan will be canceled; (ii) to request the Office for Project Services of the United Nations (UNOPS) -- which is the Cooperating Institution for the ongoing project in the country -- to take responsibility for the supervision and implementation support of the reduced project activities which will be reactivated; and (iii) to initiate the identification of a new project in support of smallholder agriculture and natural resource management in the Mainland, which is expected to assimilate the experience which our institutions have obtained in the course of implementation of the DICSA initiative. 6. I would like to thank you for this opportunity to reiterate IFAD's interest to continue collaborating with the World Bank in the formulation and eventually cofinancing of projects, in support of Equatorial Guinea's agriculture and rural development, once the Bank resumes its sectoral operations in the country.  pW CT C',~Appendix B Malabo, 26 de septiembre de 1995 Nt/Ref /1/MEH/Ne G6j /95