Algeria - Second Social Safety Net Project

Report No. PID5290 Project Name Algeria-Second Soc. Safety Net (@+) Region Middle East and North Africa Region Sector Other Social Sector Project DZPE42419 Borrower(s) Government Of Algeria Implementing Agency Agence De Devt. Social Environment Category B Date PID Prepared February 10, 2000 Projected Appraisal Date February 22, 2000 Projected Board Date May 25, 2000 1. Country and Sector Background Deterioration in Living Standards. The impact of the economic crisis on the welfare of households has been extensive. The Poverty Assessment found that between 1988-95 the incidence of poverty in Algeria increased from 8t of the population in 1988 to 14t in 1995 (19t of the rural and 9t of the urban populations lived below the poverty line). Although poverty is mainly a rural phenomenon (69w of the poor), the share of the urban poor increased from 28t to 31- of the total over the period. The poor are also more likely to live in households where the head is unemployed (11 for the poor compared to 59 for the non poor), and data suggest that the increase in unemployment has contributed to the increase in the incidence of poverty, particularly in urban areas. In addition unemployment is higher among the poor of working age than among the non poor, in both rural and urban areas. Unemployment. A shrinking economy in the face of a labor force expanding by about 3t a year has led to slow growth of employment in the formal sector and rising unemployment, especially among new entrants to the labor force. The number of unemployed workers has more than tripled during the last decade, with the official open unemployment rate reaching an estimated 289 in 1996, compared to 17t in 1985. This combined with a deterioration in living standards and the acute housing crisis have led to severe discontent and civil unrest. It is expected that the unemployment will increase further in the near future as public enterprise reform and privatization result in labor shedding. Although unemployment is a structural problem in Algeria, requiring medium- and long-term solutions, short-term solutions such as temporary employment programs are therefore necessary adjuncts. Government Strategy: Since 1994 the Algerian government has been engaged in a comprehensive effort to transition to a market economy. It has been pursuing a reform program with twin objectives - macroeconomic stability and structural adjustment. This program was supported by the IMF and the Bank. Macroeconomic stability was largely achieved by a significant reduction in inflation (to below 5t a year), a foreign exchange reserves cushion  equivalent to 6 months of imports, a stable exchange rate, a manageable level of fiscal deficits, and regular current account surpluses. Except for 1997, oil prices remained fairly favorable and oil revenues were a factor in the achievement of these outcomes. Some progress has been made with major structural reforms. Trade and price liberalization, a revised commercial code and a new investment code have all been completed and the Government has initiated the process for WTO membership and for commercial agreements with the EU. But the agenda of reform remains large. The overall economic, political, and social costs of the program have been sizeable, particularly in terms of weak economic growth, high unemployment, and income declines for the population; and benefits have been below expectations. After more than 5 years there is still much to do to complete the transition, and, above all, to increase the growth rate and to raise living standards. The new Government, elected in May, 1999, is in the process of developing its strategy and programs to tackle these issues. It has made it clear that programs to limit the adverse effects of the transition by providing temporary employment opportunities and strengthening the social safety net are top priority, and that they will be one of the immediate foci for action once the Government program is put in motion. In addition to protecting the poor, these programs will also lower the political cost of the reform program. In turn this should help the Government accelerate the implementation of its reform program. The Government operates various social protection programs. These include traditional cash transfer programs for the very poor, short-term job creation programs managed by the SDA, a family allowance scheme, a variety of wage subsidy and subsidized training and microenterprise programs to support primarily youth employment, and the social insurance schemes (including, pension and health insurance). However most of these programs are not targeted to the core poor. In 1998 they covered about 40- of the population and cost about 10.6t of GDP. The Bank is providing advice on the entirety of the Government's social protection programs through its dialogue under the Social Protection Strategy Note, October, 1999. 2. Objectives The project would: a) help create jobs for and increase the income of the unemployed through short-term employment opportunities in urban and rural areas; and b) improve the quality of life in poor urban and rural communities via community development programs and targeted social services. Through community development which encourages self-help at the local level, the project would also act as a demonstration of alternative social protection programs. 3. Rationale for Bank's Involvement The Bank's experience with Social Fund worldwide and contacts with required external expertise has been and will remain useful as Algeria has been very isolated from international developments in many areas including social development type programs. The Bank acts as a catalyst for other donor financing, which would otherwise not be interested in Algeria. The European Union is a confirmed parallel cofinancier and the African Development Bank has confirmed it will finance a complementary project also through the SDA. The Bank's emphasis on using small scale private contractors, and on the community development program under the first project have had a useful impact on Government's attitudes towards the private sector, and on how to - 2-  serve poor communities. The Bank's encouragement of decentralization is also helpful. The introduction of the new payments system in this respect is a breakthrough which can be replicated in other Bank financed projects. 4. Description Labor Intensive Public Works: i) Road Maintenance: ditch cleaning and recalibrating; weeding and restoration of shoulders; cleaning of culverts and sealing of cracks in the concrete; repairs to concrete walls and rock linings. ii) Agriculture and forestry: caterpillar infestation control; Alfa replanting; construction of windbreaks; maintenance works in watersheds. iii) water and sewage: sewer cleaning and maintenance; water supply maintenance (detection and repair of leaks); cleaning and repairing water reservoirs. Community Development: Pilot program of small scale infrastructure and basic social services improvement in poor communities. The program will improve economic and social infrastructure in partnership with beneficiary communities, and initiate funding of projects proposed by communities themselves. Targeted Social Services. Expansion of Social Service Units (SSU) into 40 more deprived peri-urban areas. The SSUs will provide a variety of services, mainly of a social intermediary type, but also some direct services including psychological, psychiatric and physical rehab. services to victims of terrorism in Algeria. The provision of these services varies from center to center depending on location and demand. Institutional Development: Social Development Agency staff study tours and training; training programs for small scale contractors in business and project management; studies; visioning exercise (small seminars, workshops). 5. Financing Total ( US$m) Government 30 IBRD 70 IDA Total Project Cost 100 6. Implementation Executing agency/Project coordination: Social Development Agency (SDA). The SDA was established in June 1996 as a semi-autonomous agency reporting directly to the Prime Minister and under the administrative supervision of the Ministry of Labor. It has a 10 person Board of Directors (BOD) including representatives from the Ministries of Planning and Finance, from four related agencies and four NGOs. The SDA conducts its operations in accordance with an approved Manual of Procedures. The SDA has a well qualified and experienced management and staff. Its general manager has experience in several Government and public sector enterprises as well as in private engineering firms in the UK and the US. Staff are evaluated on the basis of their performance and bonuses of up to 50t of base salary are available to good performers. -3-  Its organization is evolving steadily as the scale of its operations grows, and it presently has 97 managers and staff. It has opened a first regional office covering the wilaya of Algiers and it plans to establish up to seven more regional branch offices during the next two years. They will take over responsibility from the local offices of the Ministry of Labor for coordination with the local offices of the technical ministries at the wilaya level and will also be responsible for managing the expansions of the community development and social service unit programs. For the labor intensive public works component, the existing Interministry Committee, comprised of members of the Ministries of Labor (Chair), Interior, Public Works, and Agriculture and Fisheries, which was established under SSNI (Ln. 4006-AL), will continue its coordination function. This has worked well under the first project. Project implementation period: The project would be implemented over a period of three and a half years (FY01-04). The Project Completion Date would be December 31, 2003. Implementation arrangements: Under the public works program, subproject proposals will be made by the local ('wilaya') offices of the Ministries of Interior, Equipment and Agriculture and will be executed by private contractors under the technical supervision of private consultants and with technical oversight by the line ministries. The community development program will be implemented by community organizations, NGOs and local governments. The targeted social services program will be implemented by the SDA. All subprojects would have to meet the criteria set out in the Manual of Procedures. There are two sets of criteria - regional allocations on the basis of poverty distribution, and program specific criteria. As under the ongoing project (Ln. 4006), the SDA would finance all projects out of a Special Treasury Fund, which the proposed Bank loan would reimburse. This enables the SDA to operate its own payments system, which is independent of the Government payments system. The system has worked effectively under the first project and is governed by strict accounting, auditing and business standards. Project Oversight: The SDA Board of Directors, its Audit Committee, and the Ministry of Labor will provide policy guidance, facilitate coordination and oversee implementation. Accounting, financial reporting and auditing arrangements: The SDA will be responsible for project financial management, reporting and auditing, including managing the Special Account (SA) for the project. It has an internal audit unit and an Audit Committee of the Board. Under the current IBRD loan, SDA has incorporated the Bank's Guidelines on Financial Accounting, Reporting and Auditing of Projects Financed by the World Bank (FARAH) (January, 1995) into its Manual of Procedures. The SDA will be responsible for the preparation of the project financial statements, which include a Summary of Sources and Uses of funds by components/subcomponents of the project, and by categories of expenditures for the current fiscal year and cumulative to date. Project accounts, including the Special Account (SA) will be audited annually by independent auditors acceptable to the Bank. In addition to the giving their opinion on the project's financial position, the auditor must also form an opinion on the operation of the SA and the accuracy and propriety of expenditures withdrawn under SOE procedures. The SA statement will comprise: (i) deposits and -4 -  replenishments received from the Bank; (ii) payments substantiated by withdrawal applications; (iii) interest earned from the balances (belonging to the Borrower); and (iv) the remaining balances at the end of the fiscal year. The auditor will also prepare a management letter with observations on the internal control systems and operational procedures affecting the implementation of the project. The audit report should be received by the Bank no later than six months after the end of the accounting period to which the audit refers. The project will comply with all Bank financial management requirements under OP. 10.02 and it is proposed that the SDA will convert to Project Management Reports (PMR)-based disbursements within a timeframe. During appraisal, the contents of quarterly progress reports will be discussed and agreed on the following basis: an assessment of progress against project implementation indicators, a summary of sources and uses of funds (as detailed above), a summary of procurement status, and a proposed work program for the next 6 months including the necessary budget allocations. Monitoring and evaluation arrangements: The SDA has a computerized MIS for monitoring and financial management and control purposes. In preparation for the proposed project it is upgrading the MIS. It is expected that the new system will be completed by July, 2000. A national rapid needs and capacity assessment and a poverty map were financed under the first project. They provide a baseline for evaluation purposes as well as a targeting tool for the SDA programs. Given that the methodology used for the poverty map was not adequate and since more recent survey data are available (1998 Census), a new poverty map will be developed with the close collaboration of the National Statistical Office (ONS). This poverty map will be the basis for targeting the sub-projects (public works and community development) to poor 'wilayas' with high unemployment rates. Technical supervision will be conducted at the 'wilaya' level by private consultants. Local technical staff of the technical ministries will assist SDA staff to evaluate the quality of completed works. Pilot ex- ante control impact evaluation under proposed project. To help strengthen monitoring and evaluation, SDA will carry-out a pilot ex-ante control impact evaluation study under the proposed project. This will take a representative sample of sub-projects, conduct baseline surveys ex-ante and identify control groups. 7. Sustainability There are three aspects to sustainability: (i) SDA as an institution, (ii) its programs; and (iii) the individual sub-projects it finances. Sustainability of SDA in the medium-term is assured because of Government commitment, its placement within the Ministry of Labor with a set of key responsibilities and an operating and an administrative budget provided within the Ministry of Labor's budget. Sustainability of programs and sub-projects is more problematic because of the history of virtually zero maintenance to date on most of the assets to be improved under the project, the very limited experience with community development programs prior to this project, and the thicket of legal, policy, institutional and procedural difficulties that are being tackled to make this type of program work in Algeria. The relatively supply driven nature of the public works program works to the advantage of sustainability as the respective technical ministries and their 'wilaya' level offices are more likely to take responsibility for ongoing maintenance of assets upgraded - 5-  under the project after the one year contractors' guarantee ends, because they proposed them. The sustainability of the sub-projects financed under the community development program would be assured by selecting proposals that are carefully screened and have good beneficiary support. Under its Manual of Procedures the SDA may consider funding maintenance costs for a maximum of one year. This program will be preceded by beneficiary assessments, and by promotion and outreach work including technical assistance to develop trust and to provide training to communities. Incremental recurrent costs under the public works program are small because the project is funding deferred maintenance and completed works are guaranteed for one year by the contractor after which the respective technical ministries and their wilaya level offices will be responsible for maintenance. Incremental recurrent costs under the community development program are the responsibility of the benefiting community and for each subproject there will be an agreement between the SDA and the beneficiary on maintenance arrangements. Because sustainability of sub- projects is still not assured under the above arrangements, the SDA will develop an overall strategy for sub-project maintenance drawing on 'best practice' elsewhere in the world. This will be discussed and agreed with the Bank. Long-Term Vision for the SDA The SDA is having a catalytic effect in helping build capacity at the local and regional level. While many SDA activities can be transferred to local authorities, and variants such as regional social funds can be considered, global experience indicates that local capacity building will happen very slowly and the need for the SDA will continue for a fairly long time. In this case the SDA needs to clearly define and rationalize its relationship with the relevant line ministries as well as with local government and the non-governmental sector. Sustainability of the individual programs and sub-projects of the SDA will need continued careful attention to design and implementation and the steady introduction of changes suggested by the SDA's increasingly sophisticated monitoring and evaluation machinery. This includes for example switching from centralized supervision to decentralized supervision of programs. The long-term vision of the SDA needs to be discussed broadly with all key players to arrive at a strategy that will respond to the country's needs. A proposal for the mid-term review of the project would be to hold a special meeting, inviting Government agencies, NGOs, and other interested parties to discuss the future of the SDA in Algeria. Prior to this, a position paper would be prepared outlining SDA's experience to date, the results of key assessment studies, and proposals regarding SDA's future role in the country's social protection agenda. 8. Lessons learned from past operations in the country/sector A. The Bank has financed almost 60 Social Fund operations since 1987. The design of the proposed project incorporates the following lessons to the degree practicable in Algeria: (i) institutional autonomy; (ii) transparency and accountability through the design of a Manual of Procedures with program eligibility criteria, MIS system, standardized reporting, contracting of independent evaluations and beneficiary assessments; (iii) flexible sector coordination with technical ministries without compromising the efficiency and independence of the fund; (iv) - 6 -  involvement of local governments to improve coordination and project sustainability; (v) simplified procurement procedures and financial and payment system; (vi) rapid and timely payment of contractors; and (vii) outreach activities to target the poorest regions and beneficiaries. B. The Bank has 9 projects under implementation and 3 projects, including the proposed project, under preparation in Algeria at present. The portfolio has been reduced in recent years with closings of several projects that were not performing, because of difficult country conditions. While procurement experience is reasonably satisfactory, public sector implementation capacity, disbursements, auditing, the inability to conduct field supervision (other than brief visits to Algiers) are serious problems and the Algerian portfolio is on the Bank's watch list. Several projects have designs that are too complicated for present circumstances and the Government is generally reluctant to use foreign exchange to finance technical assistance. The proposed project has the same design features as the first project (Ln. 4006-AL) to alleviate these problem areas. They include: (i) overall project management conducted by an agency that is exempt from public sector procurement regulations and which has an adequate degree of management autonomy; (ii) decentralization of program execution; (iii) work execution by private contractors; (iv) a payment system outside the State budget and operating through commercial banks; (v) simplified disbursement procedures of the Algerian Bank for Development for the Bank loan; and (vi) field supervision by private consultants to the extent possible. It has not been possible to have private independent auditors, although this is under discussion and the SDA is interested. For the first time in an Algerian project, the proposed project includes a demand driven component - the community development program. C. Experience gained from three years of implementation under the first project (Ln. 4006-AL) validates the general design. Perhaps most important is the catalytic effect the project and the SDA have had in demonstrating that a public social sector agency can be innovative, efficient and effective (the SDA is a unique, goal oriented, and performance-based organization). The project has also demonstrated and validated the use of private contractors as opposed to the standard force account approach in Algeria; has introduced decentralization, initiated community participation and provision of demanded services in hitherto poor underserved communities; and collaboration between the SDA and technical ministries and provincial/local governments has been effective. Second the administrative setting of the SDA, even though it does not conform to the Bank's preferred autonomy model for social funds, has worked well and is clearly well adapted to the Algerian administrative context. The public works program has been quite successful. When completed by June 30, 2000 it is expected to have generated about 20,000 person years of employment or close to 100t of the plan, while meeting or achieving reasonable results against the other target performance indicators with the possible exception of labor intensity, the data on which require closer scrutiny. The impact of competition among small contractors and the depreciation of the Algerian dinar during the period of project implementation have been factors in achieving these results. Contract duration varies from 2-12 months. Reforms of the social assistance programs are on track, the pilot community development projects program (CDP) is virtually complete, all 28 Social Service Units (cellules -7 -  de proximite) in 7 wilayas are now operational, and 9 out of 11 studies are completed. There have been significant problems. Project start-up time was underestimated and a lot of administrative details essential for good management at the local level were also overlooked. There were too many programs and too many studies (11) for a small new agency that was simultaneously launching a major public works program. Under the public works program the labor intensity outcomes need careful review and any lessons learned built into second phase program design. The CDP and targeted social service unit pilot programs have some clear weaknesses. Monitoring of CDP sub-projects to date indicates good targeting to poor communities, but difficulty with responding to real needs of a community, lack of community participation, sustainability and impact. There is also a need to introduce community needs assessments and to establish clear performance indicators. The Social Service Units are still operating without formal legal status. This impedes collaboration with other agencies of Government. In addition inadequate budget, poorly qualified staff, poor planning and implementation of work programs hinder effectiveness. The SDA is undertaking review of both programs to address these issues, which can be considered normal in the Algerian setting. There have been problems with procurement under the project because of the unfamiliarity of the local offices of the Ministry of Labor with Bank procurement guidelines. The SDA has asked for a major training program during project launch to help address this. There were serious difficulties with disbursements for the first two years for three reasons. Bank loan disbursements lag SDA disbursements because under the project the SDA disburses Treasury funds first and then reimburses from the Bank loan. Second, the local offices and small private contractors were not familiar with documentation required to obtain payments subsequent to the 20% initial advance; and third the Algerian Development Bank (BAD) applied complicated procedures. Following toughened management, training, provision of basic equipment and materials to local offices, and a major simplification in the disbursement documentation required by the BAD, disbursements shot ahead from less than US$8.0 million at the end of CY98 to US$36.0 million (72% disbursed) at the end of CY99. The loan will be fully disbursed before December 2000, the revised Closing Date. 9. Program of Targeted Intervention (PTI) Y 10. Environment Aspects (including any public consultation) Issues : The proposed project would have no significant environmental risks. However, as the SDA finances repair and rehabilitation of water and sewage sub-projects that may have adverse environmental impacts, the project is rated 'B'. Within the two main programs, public works and community development to be financed under the project, there are projects that will require environmental assessments to identify adverse environmental impacts and mitigation measures. The SDA will implement an environmental screening process for both programs that will be based on an environmental screening system that uses classifications similar to the classification system in OP 4.01, and will be consistent with the screening categories mandated by the Algerian State Secretariat for the Environment (ASSE). This process will divide projects into two groups: (i) those that will have no significant adverse - 8 -  environmental consequences; and (ii) those that will have significant impacts. This review process will include a desk review and at times a site-specific review to be undertaken in the field by qualified SDA staff, beneficiaries or consultants. Under the proposed project, the SDA will build on its phase one experience to develop a better environmental review process. In general, two concerns need to be addressed with SDA projects - project design and environmentally sustainable operations. All project proposals submitted to the SDA's public works and community development programs will need to have a clear process of environmental screening for potential environmental impact. The checklists that have been used in the past will be reviewed and if necessary revised in accordance with the World Bank's Environmental Assessment Sourcebook. The current guidelines of ASSE should also be consulted to develop the revised SDA environmental review procedures. These environmental reviews would be prepared by the project sponsor/beneficiary with technical assistance from the SDA and include, at a minimum the following: overview of the current environmental conditions at the site: assessment of potential adverse environmental and human health impacts associated with design, construction and operation of the project; mitigation measures to reduce the above impacts; and identification of responsible parties for ensuring implementation of mitigation measures and public consultation with sub-project beneficiaries. This will be applied to the following project schemes: (a) solid waste collection; (b) landfills; (c) waste water treatment; (d) potable water supply and distribution; and (e) rehabilitation and pavement of rural roads. The SDA's Planning Unit will act as a centralized environmental unit to oversee SDA's environmental efforts. The role of the unit is to screen sub-projects, review the environmental assessments prepared by the beneficiaries, consult with ASSE and seek further concurrence from the concerned authorities, make recommendations on sub-project approvals, and supervise the mitigating and monitoring plans as appropriate. The SDA will provide a mission statement and a description of staff roles and responsibilities for the environmental review process. Each unit of SDA will present an annual work plan that identifies its environmental responsibilities and outputs. The work plan will identify all costs for undertaking these functions. The SDA will expand environmental training to improve the understanding of environmental issues associated with SDA projects. Target audiences include personnel from SDA, implementing agencies, contractors, local Government personnel, NGOs, and other local authorities from communities. Environmental reporting is not supported by the SDA's current MIS. The MIS needs to include the capability to support an environmental performance monitoring plan to ensure that mitigation measures are adequately implemented and effective in reducing impacts according to design. The monitoring program will clearly indicate the linkages between impacts, indicators for measurement, methods to be used, frequency of measurements, detection limits (when appropriate), and threshold values. This plan should include a description of how regular field site reviews of selected schemes will be undertaken. The SDA will also develop environmental strategies for its public works and community development programs, and will collaborate with the ASSE to help strengthen awareness campaigns and enforcement at the local level under the proposed project. An Environment Management Plan (EMP) with an Action Plan agreed will be -9-  prepared. The Action Plan costs will be financed either under the Bank loan or by the Government. b) Status of Category A assessment: EA start-up date: NA c) Status of any other environmental studies: NA d) Local groups and NGOs consulted: Algerian State Secretariat for Environment (ASSE), major environmental organizations in Algeria will be consulted during preparation of the Environment Management Plan (EMP). Training seminars on the EMP will be arranged in accordance with the Action Plan. e) Resettlement [XI None f) Borrower permission to release EA: [ I Yes [ I No [XI N/A 11. Contact Point: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Task Manager David J. Steel The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: (202) 473-2522 Fax: (202) 477-8642/0036 Note: This is information on an involving project. Certain components may not be necessarily included in the final project. Processed by the InfoShop week ending February 25, 2000. - 10 -  Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID.