Project Name. PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB5165 Second Northern Mountains Poverty Reduction Project

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB5165 Second Northern Mountains Poverty Reduction Project Region EAST ASIA AND PACIFIC Sector General agriculture, fishing and forestry sector (40%); Agricultural extension and research (20%); Vocational training (20%); Micro- and SME finance (10%); Sub-national government administration (10%) Project ID P Borrower(s) SOCIALIST REPUBLIC OF VIET NAM Implementing Agency Ministry of Planning and Investment 2 Hoang Van Thu Hanoi Vietnam Tel: (84-40) Fax: (84-43) Vuktnn@mpi.gov.vn Mnghia2103@mpi.gov.vn Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared December 19, 2009 Date of Appraisal January 6, 2010 Authorization Date of Board Approval March 25, 2010 A. Country and sector issues 1. Vietnam has made remarkable achievements in economic growth over the last two decades and is making steady progress towards middle-income country status. The broad-based growth has been accompanied by an impressive record of poverty reduction. Poverty incidence at the national level declined from 58% in 1993 to 14% in However, progress is uneven. Poverty concentrates in rural areas where one out of every five is still poor. Poverty remains substantially higher among ethnic minorities (49.8%) than among the majority groups (8.5%). Among the ethnic minority population, food insecurity and hunger are widespread with nearly 30% considered food poor 1. Poverty is also deeper among ethnic minorities with a poverty gap index of 14.2% as compared to the national average of 3.2%. Among the poor rural areas of the country, the Northwestern Mountain Region has the highest poverty incidence of 43.8%, as compared to the national average for rural areas of 18.1%. 1 In Vietnam food poverty line is customarily set as the cost of a basket allowing a daily intake of 2,100 calories.

2 2. Recent World Bank studies highlight that poverty among ethnic minorities is multidimensional 2. Ethnic minorities are often found in remote areas where access to roads and transportation is poor. Restricted physical mobility has been identified as a key factor in poverty. Access to education, health care, credit and other service is also constrained although there have been significant improvements recently mostly through targeted interventions. Income increase through alternative livelihoods, however, remains a serious challenge. Although ethnic minorities in uplands have on average larger agricultural landholdings than the majority groups, their farm land is mostly of low quality (typically sloping land with no irrigation) and planted to staple food and low value crops. Limited attention is paid to upland agricultural research and extension, reducing chances for poor minority farmers to switch to more profitable farming systems. Market opportunities are limited due to physical remoteness and underdeveloped market information. In addition, people s livelihoods in the remote and upland region are highly vulnerable to natural disasters and risks. 3. Women tend to be more disadvantaged than men in terms of access to production resources, extension services, healthcare and education. Prevailing misconceptions and stereotypes on ethnic minorities held by the majority group tend to contribute to their continued low self-esteem. Some concerns are raised that minorities are not benefiting from the government programs as much as the majority groups due to cultural factors, such as poor understanding of the policies by minorities, information dissemination methods that do not take into consideration their language barriers and predominance of Kinh among Government cadre. 4. The Government of Vietnam (GoV) is committed to further poverty reduction efforts. In acknowledging that growth alone does not solve poverty in remote regions and among certain socio-economic groups, it has been implementing a number of pro-poor initiatives. These include, most importantly, recently introduced budget allocations norms that favour poorer provinces ( equalization mechanism ), and various national targeted programs (NTPs). Introduction of the pro-poor fiscal transfer was accompanied by increased decision making powers by the provincial governments over investment plans 3. Deepening decentralization is seen as an opportunity for more effective use of public resources to address poverty and underdevelopment. At the same time it also highlights the needs to further develop planning capacity especially at the lower levels of administration (districts and communes). 5. Among various NTPs, the Program for Socio-economic Development in Communes Facing Extreme Hardship in Ethnic Minority and Mountainous Areas (commonly known as Program 135) and the National Target Program for Poverty Reduction (NTPPR) have been most prominent in terms of coverage and budget. While NTPPR under Ministry of Labor, Invalids and Social Affairs (MOLISA) primarily focuses on provision of social and financial services to poor households, including subsidized credit, Program 135, coordinated by the Committee for Ethnic Minorities (CEM), uses geographical targeting and provides additional resources to remote communes and villages. The bulk of Program 135 resources finances commune- and villagelevel infrastructure works. Program 135 is currently in its second phase (P135-2). P135-2 incorporated several design improvements on the basis of lessons learned from the first phase, 2 Vietnam Development Report 2008: Social Protection, December 2007 and Country Social Analysis: Ethnicity and Development in Vietnam, World Bank, Under 2002 Budget Law, which came into effect in 2004.

3 including better targeting, strengthened capacity building and introduction of production and livelihoods support. Implementation of the latter, however, faces several challenges. What is becoming clear is that the livelihoods support under P135-2 mostly focuses on provision of subsidized inputs, such as improved seeds and fertilizer, rather than livelihoods diversification and promotion of market linkages. This experience from P135-2 suggests that there is a significant room for improvement in the service delivery related to livelihoods support for the poor, which would require much flexibility and more intensive support tailored to specific local constraints and opportunities. 6. As the P135-2 closes at the end of 2010, CEM is developing of a new follow-on program. Coverage, program structure and operational modalities remain to be worked out. MOLISA has recently launched the program to support poverty reduction in 61 poorest districts ( D61 Program ). This program will reportedly allocate relatively large resources to the districts over the next decade. Ministry of Agriculture and Rural Development (MARD) is also developing a new national targeted program for rural development. 7. Proliferation of NTPs on the one hand means more resources to poor communes and households. On the other it poses challenges on harmonizing approaches, coordinating specific activities and interventions and avoiding duplication and waste of resources, many of which are earmarked to specific activities and inputs, in support of a coherent and effective poverty reduction strategy. This is a particular concern in poor upland communes of the Northern Mountains region where planning capacity is limited, and communications are constrained by remoteness, language barriers and other factors. This would necessitate further capacity building support at the commune level specifically addressing integrated planning processes. B. Higher level objectives to which the project contributes 8. The proposed project will contribute to poverty alleviation and the eradication of hunger in the Northern Mountains region in a manner fully consistent with the GoV s Socio-Economic Development Plan (SEDP) for As called for in the strategy, this will be accomplished by investing in productive infrastructure and supporting the poor s engagement in agriculture and off-farm activities, with priority emphasis on poor districts and communes. The proposed project also broadly supports the sectoral priorities of the Northern Midland and Mountainous Region that stress agricultural diversification and development of agri-food industries for domestic and export markets. 9. The proposed project is fully aligned with the second pillar of World Bank s CPS for which aims at strengthening social inclusion. More specifically, the project directly addresses the following three CPS outcomes: (i) better access to markets and basic social services for the rural poor; (ii) ethnic minorities in rural areas more fully integrated into development processes; and (iii) vulnerability to natural disasters and other shocks reduced. The project also contributes to the fourth pillar, strengthening governance system, in particular for its outcome related to modernized planning towards development objectives, with more participatory approaches.

4 C. Rationale for Bank involvement 10. Over the past decade, the Bank has provided substantial support to and gained valuable experiences in working with Government on its targeted poverty alleviation efforts at the commune level. In particular, the Bank has effectively supported two CDD type operations the First Northern Mountains Poverty Reduction Project (NMPRP-1) and the Community Based Rural Infrastructure Development Project (CBRIP). These operations not only help finance the provision of critical infrastructure and related services in some of the poorest regions of the country, but also served to enhance local level planning capacity and ownership through innovative approaches based on community driven development (CDD) principles. 11. The Bank would bring to a proposed second Northern Mountains project substantial international experience with community based and local level development and with sustainable livelihoods improvement for the poor. The Bank is a leader in promoting CDD and community driven local development in all regions of the world including East Asia from which the Bank draws significant implementation experience and expertise. Its work in sustainable livelihoods, most successfully applied in South Asia, has demonstrated the value of building on social capital (created through group formation and capacity building) and linking public sector investments with private sector initiatives for household livelihood improvement and community action around planning, social audit and safeguarding public assets. 12. The Bank is also supporting Program 135 through a programmatic series of three development policy loans (DPL) running from 2006 to These DPLs support the strengthening of Government policies and implementation of targeted assistance to poor, remote ethnic minority communities. Specific policy issues relate to: (i) poverty targeting; (ii) decentralization, participation and empowerment; (iii) fiduciary transparency and accountability; and (iv) monitoring and evaluation. To date, two DPLs worth a total of US$ 150 million have been approved and disbursed since A third DPL for an estimated of US$ 100 million is scheduled for approval by end of 2010, to coincide with the close of Program While investments by Government and various development partners in poverty reduction programs in the Northern Mountains regions have been significant over the past several years, poverty data still suggest that more needs to be done. In addition, while on average the northern mountains regions (northeast and northwest) have the highest overall poverty rate in the country, 4 there exist significant variations in the level of poverty by provinces, districts, and communes suggesting that more specific targeting of needs and constraints may be required. 14. The proposed project's value in the Vietnam context is the extent to which it serves as a bridge between the large number of disparate activities supported directly by NGOs and donors, and the more policy based NTPs and P-135 which are working at the national level. Experience under P-135 implementation clearly indicates that there is limited space for 4 Average poverty gap for Northern Mountains overall was 30.2%. Source: Government Statistics Office (2006).

5 significant innovation as all activities are driven by guidelines which have the status of or near policy to GoV. Accordingly, NMPRP-2 has an important role in demonstrating to GoV the effectiveness and scalability of innovations in key areas, while building comfort that these will not undermine broader political concerns. Specific areas where this has become apparent under P-135 are: (i) broader based approaches to livelihood support which look beyond simply handing out subsidized inputs, and even going beyond subsistence agricultural production; (ii) extensive use of ethnic minority languages in official training, etc. as being necessary for improving participation of women and some groups in the short term and not being a constraint to improving opportunities through expanding fluency in Vietnamese; (iii) strengthening and demonstrating administrative capacity for fully empowering communes to manage investments including design, contracting and oversight; (iv) identifying a practical process for distributing operation and maintenance (O&M) funds and accounting for their use consistent with the O&M objective; (v) integrating planning approaches to avoid duplicative and contradictory functions and procedures for participatory budgeting, planning and reporting; and (vi) developing monitoring and reporting systems which go beyond traditional reporting mainly on inputs to also cover outputs and qualitative aspects of service delivery. 15. In light of the above, Bank financing of a specific investment operation that would support poverty reduction in the Northern Mountains region is considered appropriate given: (i) the targeting of the poorest districts and communes within the selected provinces, (ii) the piloting of innovative approaches for livelihoods support, O&M, disaster risk preparedness, etc., and (iii) the need for enhanced capacity building and technical assistance in these areas of innovation, particularly for the weaker provincial and local government authorities targeted under the project. D. Description 16. The project is designed as a community-driven development operation with strong focus on improving livelihoods development opportunities and market linkages. The project area covers the most remote and difficult-to-reach communes in the Northwestern Mountains region where the majority of project beneficiaries are from ethnic minority groups (approximately of 94% - 100%). The proposed project will work in six provinces: Lao Cai, Yen Bai, Son La, Hoa Binh, Dien Bien and Lai Chau. The project will target some 230 communes in 27 of the poorer districts in these provinces. All villages within selected communes will be eligible to benefit from project s support and investments 17. The project is designed along the key principles of : (i) building on strengths and lessons learnt from the NMPRP-1; (ii) promoting transparent, open and full participation of beneficiaries in planning, implementation and supervision to improve impact of local level government (district and commune) investments; (iii) enhanced support for sustainable rural upland livelihoods investments; (iv) adopting simple sub-project designs; (v) enhance linkages between sub-projects to maximize synergies and impact (e.g., access and agriculture production); (vi) further decentralizing project management and execution to commune level; (vii) fully integrated with existing planning system and with other existing programs and projects; and (viii) adopting performance-based re-allocation at mid-term review.

6 18. The project comprises four components. The following sections summarize key elements and main activities of each component. 19. Component 1: District Economic Development (about 45% of total allocated project funds). The objective of this component would be to provide investment support to the District Socio-Economic Development Plans (SEDPs), focusing on productive and economic infrastructure for increased agriculture productivity, direct local employment and income generation, and to facilitate business innovation. 20. Component 2: Commune Development Budget (no less than 35% of total allocated project budget). This component will provide block grants to communes to finance small-scale sub-projects at village level that are selected through participatory planning processes. This component builds on a key innovation and an area of particular success under NMPRP Component 3: Capacity Building (about 10% of the total project allocation budget). The objective of this component would be to improve capacity of local governments and communities to plan, manage, implement, supervise, and maintain livelihood improvement programs in their localities. 22. Component 4: Project Management (10% of total allocated project budget). This component is to ensure effective and efficient project management through facilitation of various implementation, coordination, communication, information sharing and learning, and quality enhancement efforts. E. Financing Source: ($m.) BORROWER/RECIPIENT 15 International Development Association (IDA) 150 Total 165 F. Implementation 23. Project Management. MPI will take charge of overall project coordination at the central level, while provinces will be responsible for project implementation. At the central level, Central Project Coordination Office (CPO) will be established at the Department of Agricultural Economics in the MPI, and facilitate overall coordination with provinces, as well as serve as the focal point vis-a-vis the World Bank and relevant central government agencies. At each project province, a Provincial Project Management Unit (PPMU) will be established at Department of Planning and Investment (DPI). At the district level, District Project Management Unit (DPMU) will be created. Community Facilitators (CFs) who will provide vital support to the communes in particular in the process of CDBC planning and implementation will be competitively selected, and hired under the project as members of DPMU. At the commune level, a Commune Development Board (CDB) will be established under Commune People s Committee (CPC) to oversee the implementation of Component 2. Each unit will be staffed with appropriate experts as required.

7 24. Project Oversight. At commune level, a Commune Supervision Board (CSB) will be established at each commune to monitor project supported activities. CSB members would include representatives of the People s Council, the Fatherland Front and other unions and local people. In each province, a Provincial Project Steering Committee (PPSC) will be established to oversee the project implementation and facilitate coordination with other projects and programs. The PPSC will be chaired by the Chairperson or Vice Chairperson of PPC. Director of DPI will serve as Standing Vice Chair. Other members include Directors of Departments of Finance, Construction, Transportation, Trade and Industry, Agriculture and Rural Development, Natural Resource and Environment, Education, Labor, Health, and State Treasury. Representatives of Women s Union and chairpersons of DPCs will be also included. G. Sustainability 25. The project aims to address sustainability through three distinct elements of the project: (i) the application of a demand-driven approach to much of the investments that would enhance community input and commitment to various investments, (ii) support of economic livelihoods and the explicit effort to link farmers and groups with markets, and (iii) support of specific enabling strategies including integration with broader development planning (through the SEDP process), disaster risk mitigation, and O&M. 26. The sustainability of the public sector investments under the project (sub-components 1.1 and 2.1) will be improved by three specific aspects of the project. First, the application of a demand-drive process for identifying most of these investments should, as has been shown in other CDD programs, increase commitment to and willingness to help sustain them. Second, the intended linkages to the overall SEDP process will enhance synergies and reduce duplication thus increasing available resources for sustaining those investments ultimately supported at commune level. Lastly, the specific support for the O&M fund and O&M teams under the project will help address a key constraint in sustaining these public investments. In addition, recently approved national level projects to improve road connectivity between all communes and districts will also improve the chances that both public services and private enterprise activities will be sustained. 27. Sustainability of livelihoods activities under the project (sub-components 1.2, 2.2 and 2.3) would depend, among others, on economic viability of chosen activities and strength of the groups. The project will explore and incorporate appropriate measures which ensure sustainability, such as financial and economic analysis of the proposals and milestone criteria (e.g., establishing a bank account, a business plan, etc.) to assess group capacity and maturity. As experience from similar projects indicates, the beneficiary groups and households will face a critical test of sustainability after the project closure when direct project support, most importantly from CFs, is withdrawn. Capacity building activities would address this aspect and specific measures will be worked out to ensure continuity of livelihood/business operations of groups (such as linking with micro-finance institutions, support to organize producer groups into federations, etc.). 28. In addition, increased emphasis on capacity building of, in particular, lower level cadre of government staff and of beneficiaries (in participatory planning and monitoring, community execution of investments, and for livelihoods activities) should help to strengthen the long term

8 sustainability of project investments. Government s demonstrated commitment to the project preparation and actions taken toward implementation readiness also suggest greater chance of sustainability. The strong M&E system to monitor outcomes and to undertake specialized surveys to analyze specific project dynamics is also intended to learn lessons quickly to facilitate management action and project adaptation as necessary. Series of thematic forums/platforms will be organized with MPI and other stakeholders (MARD, MOLISA, CEM, etc.) to share results and lessons from supervision missions and M&E. H. Lessons learned and reflected in the project design 29. The proposed project incorporated following lessons learned from NMPRP-1, as well as other relevant operations in Vietnam and elsewhere. 30. Critical importance of capacity building. NMPRP-1 demonstrated that local institutions such as CDBs and Commune Supervision Boards (CSBs) are important catalysts of local intervention. Intensive training and capacity building for them, coupled with efforts to increase support capacity of the district, play a critical role in facilitating effective ownership of development interventions and delivery of pro-poor outcomes. NMPRP-2 will follow the successful model and provide strong capacity building support for all the key project stakeholders. 31. Decentralization of project management. NMPRP-2 will promote more effective operational and financial decisions by decentralizing project management to the provincial level. This would strengthen the sense of project ownership by the provincial governments and is expected to positively impact the project performance. Under this approach, MPI s roles focus on implementation support and quality enhancement aspects, such as coordination, M&E and facilitation of cross-learning and communications, while provinces will be the main implementing agencies. 32. Mainstreaming women s participation. Experience from NMPRP-1 suggests that more proactive approach to women s participation is needed to ensure that their priorities are not sidelined in the commune level planning process. The proposed project will set aside a proportion (20%) of the CDBC to exclusively address women s economic and social needs. 33. O&M fund for sustainability. Implementation completion review of the NMPRP-1 revealed that O&M requirements for the infrastructure were often beyond the capacity of the communes and sometimes resulted in a significant delay in construction. In view of this constraint and its likely negative impacts on sustainability, it has been proposed that NMPRP-2 will provide funding for O&M which will be managed by the communes. 34. Natural disaster risk management. The project area is susceptible to natural disasters, particularly landslides, flash floods and severe cold weather. In order to safeguard assets supported by the project from the threat, NMPRP-2 will ensure measures on natural disaster risk management are incorporated in the standard design of infrastructure investments. A draft guideline was prepared to integrate disaster risk mitigation in the project (see Attachment 4.3, Annex 4). All the key stakeholders will be trained on the concept and practical application of the disaster risk mitigation.

9 35. Piloting of livelihood support before scaling-up. Experience from the World Bank supported projects in the region and elsewhere indicates difficulties in promoting sustainable micro-enterprises and businesses for the poor in remote, underdeveloped localities. In Vietnam, successful interventions are scale-limited and rely on intensive external support. In view of these, the project s support to livelihoods will be initially introduced on a pilot base for possible scaling-up later after critical review of initial experience. I. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [ ] [X] Pest Management (OP 4.09) [ ] [X] Physical Cultural Resources (OP/BP 4.11) [ ] [X] Involuntary Resettlement (OP/BP 4.12) [X] [ ] Indigenous Peoples (OP/BP 4.10) [X] [ ] Forests (OP/BP 4.36) [ ] [X] Safety of Dams (OP/BP 4.37) [ ] [X] Projects in Disputed Areas (OP/BP 7.60) * [ ] [X] Projects on International Waterways (OP/BP 7.50) [ ] [X] J. Contact point Contact: Son Thanh Vo Title: Operations Officer Tel: / Fax: svo@worldbank.org Location: Hanoi, Vietnam (IBRD) K. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) pic@worldbank.org Web: * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas

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