AMAPA SUSTAINABLE COMMUNITIES

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$4.8 MILLION TO THE STATE OF WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL FOR THE AMAPA SUSTAINABLE COMMUNITIES PROJECT Brazil Country Management Unit Environmentally and Socially Sustainable Development Unit Latin America and Caribbean Region A Report No: BR This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. I

2 CURRENCY EQUIVALENTS (Exchange Rate Effective November, 24) Currency Unit = Real (R$) R$l = US$.35 US$1 = R$2.86 FISCAL YEAR January 1 -- December 31 ADAP AFAP AMASOL APC CAESA CAS CQ EMP IBAMA ICB IDB IEPA LCS NBF NCB Other PC PCU PDA PDSA QBS QCBS RESEX RFPP RPAP SEBRAE SEMA SEPLAN SEW ZEE ABBREVIATIONS AND ACRONYMS Development Agency of Amaph State Amaph State Development Bank Amapa Peoples' Solidarity Credit Progam Agency for the Promotion of Citizenship Amapa State Water and Sewerage Company Country Assistance Strategy Selection Based on Consultants' Qualifications Environmental Management Plan Brazilian Environment and Renewable Natural Resources Institute International Competitive Bidding InterAmerican Development Bank Amapa State Research Institute Least-Cost Selection Non-Bank Financed National Competitive Bidding Selection of Individual Consultants Project Council Project Coordination Unit Demonstration Projects (Type A) Amapa Sustainable Development Program Quality-based Selection Quality- and Cost-Based Selection Extractive Reserves Project Rain Forest Pilot Program Rural Poverty Alleviation Project Small and Medium-size Enterprise Support Service Amaph State Environment Secretariat Amapa State Planning Secretariat Amaph State Urban Infrastructure Secretariat Ecological-economic zonhg Vice President: Brazil Country Director: LCSES Sector Director: Sector Leader: Sector Manager: Task Team Leaders: David de Ferranti Vinod Thomas John Redwood Luiz Gabriel Azevedo Abel Mejia Maria-Valkria PendJosef Leitmann

3 BRAZIL FOR O FFIW USE ONLY AMAPA SUSTAINABLE COMMUNITIES CONTENTS A. Project Development Objective 1. Project development objective 2. Key performance indicators Page 3 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. Main sector issues and Government strategy 3. Sector issues to be addressed by the project and strategic choices C. Project Description Summary 1. Project components 2. Key policy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements D. Project Rationale 1. Project alternatives considered and reasons for rejection 2. Major related projects financed by the Bank andor other development agencies 3. Lessons learned and reflected in the project design 4. Indications of borrower commitment and ownership 5. Value added of Bank support in this project E. Summary Project Analysis 1. Economic 2. Financial 3. Technical 4. Institutional 5. Environmental 6. Social 7. Safeguard Policies F. Sustainability and Risks 1. Sustainability 28 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

4 2. Critical risks 3. Possible controversial aspects 29 3 G. Main Loan Conditions 1. Effectiveness Condition 2. Other H. Readiness for Implementation I. Compliance with Bank Policies Annexes Annex 1: Project Design Summary Annex 2: Detailed Project Description Annex 3: Estimated Project Costs Annex 4: Partial Cost-Benefit Analysis Annex 5: Financial Summary Annex 6: (A) Procurement Arrangements (B) Financial Management and Disbursement Arrangements Annex 7: Project Processing Schedule Annex 8: Documents in the Project File Annex 9: Statement of Loans and Credits Annex 1: Country at a Glance Annex 11: AmapB Poverty Profile Annex 12: Organizational Structure for Project Coordination Unit Annex 13: Special Groups Inclusion Strategy Annex 14: Environment-Related Provisions IBRD Map No

5 Date: October 28, 24 Sector ManagerElirector: John Redwood Country ManagerElirector: Vinod Thomas Project ID: PO76924 Lending Instrument: Specific Investment Loan (SIL) BRAZIL AmapL Sustainable Communities Project Appraisal Document Latin America and Caribbean Region LCSEO Team Leader: Maria-Valeria Pena Sector(s): General agriculture, fishing and forestry sector (3%), General water, sanitation and flood protection sector (3%), Sub-national government administration (3%), Mkro- and SME finance (1%) Theme(s): Other rural development (P), Other urban development (P), Other environment and natural resources management (P), Small and medium enterprise support (P), Other social development (S). [XI Loan [ ] Credit [ ]Grant [ ]Guarantee [ ]Other: For Loan s/cred i ts/o t h e rs : Loan Currency: United States Dollar Amount (US$m): 4.8 Borrower Rationale for Choice of Loan Terms Available on File: Proposed Terms (IBRD): Fixed-Spread Loan (FSL) Grace period (years): 7 Commitment fee:.75% Initial choice of Interest-rate basis: Yes Years to maturity: 15 Front end fee (FEF) on Bank loan:.5% Payment for FEF: Capitalize from Loan Proceeds Type of repayment schedule: [ ] Fixed at Commitment, with the following repayment method (choose one): [XI Linked to Disbursement Financing Plan (US$m): Source Local Foreign Total I BORROWER 2.1 IBRD 4.8 Borrower: AMAPA STATE Responsible agency: AGENCIA DE DESENVOLVIMENTO DO AMAPA (ADAP) AmapL Development Agency (ADAP) Address: Rua CLndido Mendes, 1111, MacapL, AmapL Contact Person: Jose de Ribamar Quintas, President Tel: Fax: adapdpjj@hotmail.com Other Agency(ies): State Development Bank (AFAP) Address: Rua CLndido Mendes, 1111, Macapd, Amapd Contact Person: Ivaldo Dantas Tel: Fax: afap@afap.ap.gov.br

6 I Estimated Disbursement in US$m Eauivalent (Bank FY/Semestersl: FY Source Sem. 1 Sem. 1 Sem. 1 Sem. 1 Sem. 2 Sem.2 Sem.2 Sem. 2 I Expected effectiveness date: 2/2/25 Expected closing date: 6/3/29-2-

7 A. Project Development Objective 1. Project development objective: (see Annex 1) The goal of the project is to learn lessons about Amazon-specific approaches to reduce urban and rural poverty through measures that are environmentally sustainable, economically efficient and socially equitable. Specific objectives include generating. knowledge about how to: Reduce rural poverty through better access to social services, basic infrastructure, environmentally-sound productive activities, and credit; Reduce urban poverty by focusing on economic and social development in low-income neighborhoods; Integrate socioeconomic development and environmental conservation at the local level through Municipal Development Fora; and Create social capital through strengthened community organizations, capacity-building, and stakeholder participation in decision-making and responsibility for managing public resources; Develop citizenship through training, participation of minority groups, local empowerment, and environmentally-sensitive decision-making. The intention of the State is to then scale up these lessons through a second project. 2. Key performance indicators: (see Annex 1) Overall project impact will be gauged by the extent to which usefd lessons, both positive and negative, have been generated for how to improve the livelihood of urban and rural poor in Amaph. Key project performance indicators would include information and experiences concerning: Creation of additional employment through investment in rural and urban economic activities; Improved well-being and income of beneficiaries through economic, environmental and social investments; Improvement of micro-credit to support productive investments in urban areas; Planning, implementation and maintenance of community-level socioeconomic and environmental investments by beneficiaries; Geographic decentralization of economic activities and decision-making; Partnerships between community groups and the private sector, public authorities and NGOs; Increased community awareness about more sustainable and economically efficient practices for using natural resources; Increased representation and attention to ethnic groups, minorities, women, and adolescents. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 2743-BR Date of latest CAS discussion: The "A More Equitable, Sustainable, and Competitive Brazil Country Assistance Strategy 24-27" was discussed by the Board of Executive Directors on December 9, 23. The loan, programmed under the CAS Sustainability pillar, will also directly contribute to a more equitable Brazil. The CAS recognizes that the Amazon is a diverse region that faces an equally complex set of challenges that the project is designed to meet, particularly those derived from a lack of consensus about the road towards development; rapid urbanization and poor quality of life in cities; deforestation; a lack of -3-

8 clarity about the role of indigenous peoples and Afro-descendent communities in promoting development; and finally, poor governance, unclear norms, and low institutional capacity. In addition, the project draws from lessons yielded by the journey that the Bank has travelled in Brazil, emphasized in the CAS, as strengthening institutions but not making them dependent on Bank assistance, maintaining a poverty reduction and participatory focus, and safeguarding cultural and ethnic diversity. 2. Main sector issues and Government strategy: Sector issues: Amaph is a poor, rapidly growing and relatively new state located in the Amazon basin. 42% of the state's population, or 198,341 people, were considered to be poor in 2. (There is no official poverty line in Brazil; this analysis assumed that a household was poor if the head earned less than 1.5 minimum salaries in urban areas or one minimum salary in rural areas.) This poverty is primarily located in urban areas, even after reclassifying a number of urban districts and municipalities as "rural" due to their size, spatial and other characteristics. This resulted in 153,418 urban poor and 44,923 rural poor. In fact, 82% of Amaph's poor are concentrated in the three largest municipalities: the capital of Macaph (55% of all poor in Amapi), the adjacent city of Santana (2%) and the riverine slum of Laranjal do Jari (7%). During project preparation, a poverty profile was prepared that allows for targeting the poorest municipalities, districts and neighborhoods (in the case of Macapi), based on a combination of income, access to water and sanitation, education level, and literacy. The results of this analysis can be found in Annex 11. Thus, addressing poverty, especially urban poverty, is a critical issue for the state. At the same time, it should be kept in mind that a higher percentage of rural dwellers are poor (47%) than those living in cities and towns (41%). Between 1996 and 2, Amaph's population grew at a rate of nearly 6% annually, reaching a total of nearly 475, residents. During the same period, Brazil's Northern region grew at 3.3% per annum and the national population growth rate was 1.9%. Growth has been fostered by poor economic conditions in nearby Northeastern and Northern states, as well as perceived opportunities such as the creation of a free trade zone and new settlements through land distribution. Much of this growth occurred in Amaph's cities and towns: 81% of the population was urban in 1991 and this figure reached 89% in 2. Thus, while Amaph has a relatively low population density of 3.3 inhabitants per km', most people are concentrated in urban areas. Assuming that the state's high growth rate has continued, the population should reach 566, in 23. Therefore, a second issue faced by Amapi is the challenge of rapid growth, including urbanization. While parts of Amaph were first settled by non-indigenous people in the 17th century, Amaph only made the move from federal territory to statehood in The state's first democratically elected governor did not take power until Even after becoming a state, some of the territorial characteristics persist: a significant dependence on budget transfers from the federal government, relatively weak public institutions, an inability to implement a development policy, limited availability of infrastructure and services, concentration of power in a large public sector, and the absence of significant investment by the private sector. On top of this, Amapi is physically located in the extreme north of the country. Its road network is underdeveloped and the state's primary connection with the rest of Brazil is via waterways and air transport. Thus, a third issue is how to promote development in a relatively new and isolated state. Amapi's economy is based on natural resources: mining, timber, extractivism (principally rubber, Brazil nuts and palm hearts), tree plantations, fishing, livestock, subsistence agriculture, and trade. While much of this activity occurs in the Amazon rainforest, the state also possesses savanna, floodplain and coastal -4-

9 ecosystems that are rich in terms of biodiversity and environmental services. Amaph's rainforest is one of the best-preserved in Brazil, with 99% still intact. Logging is no longer a significant economic activity; the primary threats to the forest now come fiom the expansion of cattle ranching, unregulated land development and fires. The final sectoral issue, then, is how to preserve the state's rich environmental heritage while promoting economic development that helps to alleviate poverty. Government stratew: The current state administration, which assumed office in January 23, is focusing on an overall goal of development with social justice. Policies and programs are being shaped by four strategic lines of action: Economic growth that eliminates dependence while stimulating the production of goods and wealth within the state; Integration to reduce social and institutional disparities within the state and between the state and the Northern region; Responsible government that is comprised of transparent decision-making, allocative efficiency, environmental balance, respect for cultural heritage, and fiscal justice; and Solidarity so that state actions increasingly contribute to human development and social justice. These strategic elements have been operationalized in specific sectoral policies. The project would support a specific sub-set of these policies including: helping to overcome economic dependence by boosting local production; contributing to human dignity through increasing employment and income; supporting initiatives that would improve quality of life for the least well-oft protecting cultural minorities; promoting social inclusion through poverty reduction and capacity-building activities; improving governance through transparent decision-making procedures and an administrative reform process; supporting progress with environmental conservation. These policies seek to address some of the limitations faced by the previous two-term administration without discarding the useful elements of the previous government's efforts. They are also linked within the Government's strategy to sources of intemal and external finance. The World Bank is explicitly mentioned in the Government's planning as a key source of external resources. The previous administration pursued a Sustainable Development Program (PDSA) that sought to break with past development models by the state's comparative advantages within the Amazon: its natural wealth, possibilities for international commerce and relations, ecological biodiversity, and cultural identify. The PDSA was based on six lines of action: J J J J Economic strengthening by diversifying and decentralizing economic activities, increasing added value, improving economic infrastructure, broadening access to credit and incentives, economic integration, technological modernization, and promotion of ecotourism; Promotion of social equity through employment generation, improved income distribution, guaranteeing basic consumption, and better access and quality of public services and infrastructure; Environmental management by improving urban conditions, developing actions to control and prevent environmental degradation, sharing responsibility for natural resource management, supporting sustainable production in critical ecosystems, and recovering degraded areas; Capacity building via raised educational standards, professional training, dissemination of knowledge and technology, institutional development of community organizations, and stakeholder -5-

10 J J participation; Scientific and technological development with instruments to support R & D, responsiveness to demand-driven scientific solutions, increased scientific cooperation, and development of technologies at the regional level; and Institutional strengthening through administrative decentralization,. municipal strengthening, federal-state-local coordination, and human resource development in the public service. The PDSA yielded important results in terms of governance, rural development, urban infrastructure, and environmental management. Governance was improved through: a) strengthening of participatory planning; b) creation of an integrated financial management system for the state and its municipalities; and c) implementation of a modernized tax collection system. Environmentally-sensitive rural development was pursued through support for agroforestry systems, extractivist activities, artisanal fishing, agro-industries, appropriate technologies, and rural extension. Urban infrastructure and services were improved through increases in electricity generation and distribution and potable water supply in Macapd as well as interior towns. Environmentally, the capacity of the state environment secretariat (SEMA) was greatly strengthened, ecological-economic zoning was initiated, research and development of natural products was promoted, and public awareness programs (including museums) were supported. No widely-accepted impact assessment of the PDSA is available. However, the urban areas of the state continue to face: rapid growth, inadequate access to infrastructure and services, a low level of economic development, and a high level of poverty. Life in rural Amaph continues to be plagued by: large distances between people, production and potential markets; difficult access; inadequate infrastructure and communications; a low level of agricultural productivity; and a high poverty rate. 3. Sector issues to be addressed by the project and strategic choices: From 1995 to the present, the World Bank has supported a number of rural poverty alleviation projects (RPAPs) in northeastern and southern Brazil that present a promising approach for addressing persistent poverty levels through financing community-managed sub-projects, providing basic services to the poorest rural families and offering access to credit. Concerning the latter, the Bank has recently gained experience in the area of micro-credit through the Crediamigo project. Key lessons learned from these experiences are provided in Section D.3. of the PAD. Amapd represents an opportunity to learn from these lessons and transfer the RPAP experience to confront poverty in Brazil s North. In addition, the World Bank has been involved in sustainable development activities in the Amazon through its role in the Pilot Program to Conserve the Brazilian Rain Forest (RFPP). In Amapd, the Bank has gained eight years of environmental experience through RFPP sub-projects to: strengthen state and municipal institutions involved in environmental management (planning, monitoring and control); create and consolidate the 48 km* Rio Cajari extractive reserve; finance community-level economic initiatives that are financially sustainable; protect indigenous areas; and support scientific research. This experience has given the Bank a realistic sense of opportunities for implementing economic development that is environmentally sustainable within the constraints faced by Amapd. Thus, the project seeks to learn: 1) how approaches to alleviate poverty used in northeastern Brazil can be transferred to the Amazon region; and 2) how past experiences with environmentally sustainable development can benefit the m al and urban poor. The hypothesis to be tested is: The RPAP approach can be effectively transferred to the Amazon if it is linked to a local process of sustainable development planning. -6-

11 Sectoral strategies. The project is designed to address the following sector issues: Rural poverty - Economic development in Amapb's rural areas is based on the exploitation of natural resources. This development has been hampered by a lack of investment capital and technical assistance, inadequate infrastructure and services, isolation from markets, environmentally unsustainable practices, and a low level of productivity. Strategy: The loan will: a) provide grants and technical assistance for community-driven sub-projects to address these problems; b) pilot the availability of micro-credit; and c) strengthen the voice of the rural poor (see community empowerment strategy below). Urban poverty - AmapL's urban poor have little access to infrastructure and services, few opportunities for economic growth, degraded neighborhood conditions, and a low level of political voice. A complementary investment loan by the Inter-American Development Bank (IDB) will support the provision of infrastructure and services in the state's three major urban centers (see details in Annex 2). Strategy: the project will focus on increasing the urban poor's access to micro-credit in order to generate more employment and income, and financing community development to improve living conditions and strengthen neighborhood-level social capital (see community empowerment strategy below). Environmental sustainability - Much of Amapb's economy is and will continue to be based on its natural wealth. Thus, the conservation and management of environmental resources is a critical issue for the state. Strategy: the project will support environmentally-sound rural sub-projects and environmental improvements in urban neighborhoods by building on lessons learned from RFPP activities in the state. The risk of negative environmental impacts will be mitigated through an Environmental Management Plan (Em). Specific pro-environment activities are also contemplated such as the demarcation and participatory ecological-economic zoning of critical wetlands in Macapa and Santana. Community empowerment - Poor communities have not had adequate voice in the political process to express and pursue their interests. Strategy: the project will support community associations in poor urban neighborhoods, the creation and legalization of rural associations for community and economic development, the strengthening of multi-stakeholder Municipal Development Fora, and the provision of technical assistance to poor communities so that they can design, manage and maintain priority activities. In addition, the project has a special focus on special groups whose voice is often less heard indigenous peoples, Afro-Brazilian communities (quilombos), and poor women and adolescents. Capacity building - Amapa is a new state with institutions that are at an early stage of evolution. Strategy: the new Government's intention to proceed with reform of the state administrative apparatus will be supported through diagnostic studies and action planning. Investments are contemplated to strengthen the capacity of specific state agencies for development, planning, micro-credit, and rural extension. Local-level capacity will be built through support to rural associations, urban community organizations and Municipal Development Fora. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The proposed project would be implemented over four years and has four components: 1) Urban community development sub-projects; 2) Institutional strengthening for poverty reduction; 3) Rural community development sub-projects; and 4) Capacity building for participatory management and technical assistance. The project would support the Bank's central CAS objective for Brazil of poverty reduction. Its goal would be to reduce rural and urban poverty while contributing to environmental sustainability and social equity. -7-

12 (i) Urban Community Development Sub-projects (total US$1.79 million) This component will focus on the poorest neighborhoods in the cities of Macap4 Santana and Laranjal do Jari through the preparation and implementation of community development plans. The plans will be prepared by the relevant neighborhood (bairro) association in a participatory manner and will encompass social development and environmental sub-projects. Anticipated sub-projects will address problems related to: low levels of community organization, lack of skills and educational opportunities, the absence of community planning, occupation of environmentally sensitive lands, poor sanitary conditions, and inadequate access to infrastructure and services. Examples of sub-projects include: Infrastructure for community services (e.g., health and "community watch" posts, "one-stop" municipal service centers, day-care centers); Construction of public areas (e.g., public markets, squares, parks, playgrounds); Transportation infrastructure (e.g., road paving, passarelas for flood-prone areas, sidewalks, bus stops and local terminals); Capacity-building activities (e.g., equipping and strengthening neighborhood associations, professional training, Portuguese,English and French courses, activities for youths, community surveys and studies); Environmental infrastructure (e.g., small-scale works for sanitation, water supply, drainage, and solid waste management); and Technical assistance for land regularization. For planning purposes, it has been assumed that the project will finance 3 sub-projects with an average value of R$14, (US$46,667). A second project would include financing for an additional 9 urban sub-projects. Over one-third of the poor residents of Macapb and Santana live in environmentally-sensitive wetlands known as ressacas which contain biodiversity and provide environmental services such as drainage and wind corridors. A diagnostic of a representative sample of these wetlands was conducted in 23. The project will finance the demarcation and participatory zoning of ressacas in these two cities, as well as environmental education in affected communities. Sub-projects will only be supported in wetlands that have been zoned. In these areas, preference will be given to sub-projects that protect and/or improve environmental quality. These include: maintenance of drainage canals; small-scale sewage treatment and water supply systems; investments to facilitate solid waste management; fish farming with native species; beekeeping; tree propagation and planting for food production and/or recovery of gallery forests; and ecotourism (facilities for observing bird and other wildlife). Implementation of the development plans should help improve living conditions in poor urban neighborhoods as well as empower community organizations through their involvement in the planning process, implementation of pilot activities and assistance for capacity building. Sub-projects will be implemented as much as possible with other partners, such as the state and municipal governments, in order to leverage both resources and impact. Specific sub-projects will also seek to link with and complement larger infrastructure investments in these three cities that could be financed by an IDB project under preparation. A more detailed explanation of the process for preparing, approving and implementing urban sub-projects is provided in Annex 2. (ii) Institutional Strengthening for Poverty Reduction (total US$1.2 million) This component will build the capacity of the state to address key issues of poverty and development by -8-

13 supporting a specific reform of the state micro-credit provider and a general reform of the state administrative apparatus related to areas of the project. The former will involve the State Development Bank (AFAP) and its Amapb Peoples' Solidarity Credit Program (AMASOL). AMASOL currently gives support to small urban entrepreneurs with loans of between R$5 and R$5. The latter will involve ADAP, the Governor's Office and a sub-set of priority state agencies. Sub-components related to micro-credit include: Business plan - the sub-component will support preparation of a development strategy and business plan to demonstrate how AFAP and its AMASOL program can achieve its goals, expand the AMASOL program and overcome existing financial and operation constraints and problems. The tasks within the sub-component are to: (a) elaborate a complete business plan and development strategy including a sensitivity analysis; (b) prepare a market study with the overall objective to reach the urban poor; (c) fine-tune the newly implemented financial management system to be able to generate the required financial indicators; (d) improve the internal data-base; (e) prepare a detailed proposal for capacity building and outreach strategies; and (9 adjust AFAP's internal operational manual to the findings of the business plan. Capacity-building - The sub-component will initially strengthen and expand AFAP's capacity by: a) training new credit agents; b) increasing AFAP's capacity to provide technical assistance and manage loans; c) train State agents to train potential microentrepreneurs in the poorest areas in Amapb; d) improving the monitoring and evaluation system to ensure that resources are effectively used to create employment and augment family income; and e) decentralizing the micro-credit lending system. Rural fmance - For rural areas, the component will finance the design and testing of a special credit line. This will be based on the lessons learned during two decades of experience with rural lending through the dehnct hap6 State Bank and the Amazon Bank as well as the Central Bank's guidance on rural credit. Credit line design will need to take into consideration: a history of paternalism between the state and the rural producer; limited ability to provide technical assistance; transportation and communications difficulties; high costs related to the productive cycle; return on investment and challenges regarding monitoring and supervision. The design should include: development of a registration system, an approach for providing technical assistance, a proposal for the loan guarantee mechanism, criteria for establishing the eligibility of rural proposals, and the terms and conditions for loan repayment and default. Once designed, the rural credit line will be tested, monitored and evaluated in a pilot area. The objective of this component is to turn AFAP's microfinance operation into a self-sustainable instrument and prepare the microfinance unit for an increase of capital. A second project could then increase the capitalization of the AMASOL program so that it can better meet the demand of low-income clients for micro-credit. This support would be conditioned on the success of the first project: a) successful adoption and implementation of the development strategy and business plan with the objective of reaching financial self-sustainability through strengthening the capacity for sustainable growth of AMASOL, improved productivity of loan officers, a more cost-effective charging methodology, implementation of a development of a marketing and dissemination strategy on the availability of micro-credit in order to reach potential clients in the poorest urban neighborhoods, decentralization efforts, and the implementation of an adequate financial management system; and b) improvement of AMASOL's portfolio quality indicators to agreed levels. The objective of the final sub-component is to improve public administration in Amapb at the state level so that the government can more effectively and efficiently reduce poverty through its programs to promote economic development with social justice. Support for developing such actions would involve diagnostic studies and action planning. Studies would include a public expenditure and program review and -9-

14 functional reviews in secretariats or other priority government entities related to poverty reduction, including an assessment of service delivery constraints for key governmental agencies. The action planning would involve consensus-building workshops for each key diagnostic study, the development of strategies that build on the diagnostic studies and an action planning workshop to discuss the proposed agenda. (iii) Rural Community Development Sub-projects (total US$2.55 million) This component would build capacity in the rural area and provide grants for sub-projects that will be identified, developed and managed by community and producer associations. Proposals will be prioritized by the appropriate Municipal Development Forum to ensure that they are consistent with the local vision for sustainable development outlined by the Development Forum. The component will reserve 1% of sub-project financial resources for a special set of beneficiaries: indigenous people, Afro-Brazilians ( quilombolas), and poor women and adolescents. Special, culturally-appropriate procedures have been designed for sub-project design and approval for indigenous groups and quilombolas; these are described in greater detail in Annex 13 which summarizes the Special Groups Inclusion Strategy. The PCU will undertake a variety of measures, also identified in the Strategy, to promote greater involvement of poor women and youths as sub-project beneficiaries. Two types of sub-projects will be financed: environmental and social infrastructure, and support for environmentally-sustainable productive investments. Examples of environmental and social infrastructure include: drinking water supply, primary health care posts, maintenance and clearance of rural paths and lanes, clearing of igarapi waterways, community centers, day-care centers, family schools, libraries, sport and recreation centers, rural electricity generation and distribution, rural telecommunications systems, and construction of small bridges. For planning purposes, the project will finance 15 such projects with an average value of R$75, (US$25,). Examples of environmentally-sustainable productive investments include: agroforestry systems, sustainable forest management, agricultural equipment, improvement of soil quality, community-based manioc flour processing units, small-scale grain silos, processing facilities for fruit pulp, seedling nurseries, beekeeping, sustainable fisheries practices, fish meal production, ice-making (for artisanal fisheries), aquaculture, textile production, studies to design community natural resource management systems, training for producers and entrepreneurs, and improved local transportation and marketing systems. For planning purposes, the project would finance 15 such projects with an average value of R$1, (US$33,333). A second project would include financing for an additional 65 soci-environmental and 65 productive sub-projects. The average sub-project would directly benefit 3 poor families or 15 people; overall, this component and activities anticipated in a second project would directly assist 24, rural poor or over half of the rural population living below the poverty line. The sub-project examples are preliminary and based on initial surveys of community demand conducted by ADAP. This component will be driven by community demand and the project is free to finance other activities not listed here that are consistent with project objectives. Grant funds would also cover any necessary technical assistance for sub-project design, training and environmental studies and environmental impact mitigation related to sub-project execution. In addition, this component will provide resources to strengthen key partners (community associations, Municipal Development Fora, RURAP) as well as for a study to assist Afro-Brazilian communities with land regularization. A more detailed description of the process for preparing, approving and implementing sub-projects for standard rural communities, as well as for indigenous and quilombo areas, is provided in Annex 2. (iv) Capacity Building for Participatory Management and Technical Assistance (total US$ 1.5 million) -1-

15 The purposes of this component are to: reinforce the operational capacity of ADAP to coordinate project implementation; develop a project management information system; maintain a monitoring and evaluation system for the project, including close collaboration with the state Environment Secretariat (SEMA) and the national environmental protection agency (IBAMA); and undertake information and promotional campaigns for public awareness, Additional capacity-building resources are included in other components: creation and strengthening of urban neighborhood associations (Component 1); preparation of the AFAP business plan and development strategy, and building up its capacity to meet both urban and rural demand for micro-credit (Component 2); modernization and reform of the state administrative apparatus for poverty reduction (Component 2); creation and strengthening of rural community and producer associations (Component 3) assist the AmapL Institute for Rural Development (RURAP) with the supervision of technical assistance to communities and the sharing of knowledge and experience between Municipal Development Fora (Component 3); and strengthening the capacity of the Municipal Development Fora to undertake local sustainable development planning, monitoring sub-project implementation and contribute to evaluating whether the project is achieving its results (Component 3). Capacity building includes human resource development, acquisition of goods and services, and the creation of operational units for project implementation. ADAP, which will oversee the Project Coordination Unit but has not yet implemented a World Bank project, would contract a firm to assist with project financial management that will also train PCU staff to gradually assume this responsibility. Additionally, ADAP will obtain equipment and support to create a management information system to assist with project monitoring. The PCU will also be responsible for contracting and supervising public awareness campaigns and other activities that will provide information to promote the project's objectives. RURAP will receive training for its extension agents and support to create a technical unit to assist with project implementation. AFAP will benefit from preparation of a business plan to establish key performance parameters and guide its expansion to greater financial sustainability. Component Urban Community Development Sub-projects Strengthening Institutions for Poverty Reduction Rural Community Development Sub-projects Capacity Building Physical Contingencies Price Contingencies Total Proiect Costs Front-end fee Total Financing Reauired I Bank- 1 %of I _-_.- (US$M) I Total I (us$~)- I financing I.3 I.2 I.4 I I 1. I

16 2. Key policy and institutional reforms supported by the project: The project seeks to reinforce past and ongoing state policies that are designed to improve human welfare, protect the environment and decentralize decision-making. Institutional reforms will be pursued at three different levels. At the local level, community, producer associations and Municipal Development Fora will be created and reinforced. Their legal existence, combined with their role in selecting, designing, implementing, andor monitoring sub-projects, should play a role in empowering local communities. At the line agency level, specific state institutions will be strengthened and reformed. Foremost among these would be AFAP, which will receive support for becoming a more professional development bank. Capacity building will also take place at ADAP and RURAP. At the state level, the new government's desire to undertake an administrative reform will be supported through a diagnostic and an action plan to identify short, medium and long-term reform options for implementing the state's program of development with social justice. 3. Benefits and target population: The target population is the 198,+ citizens of AmapL who are living in poverty. The municipalities with the greatest number of poor are: MacapL, Santana, Laranjal do Jari, Mazaggo and Tartarugalzinho. Within MacapL, the neighborhoods with the highest concentration of poverty are: Buritizal, PerpBtuo Socorro, Novo Horizonte, Zerzo, and Sgo Jorge. In rural areas, the groups at greatest risk are river dwellers, extractivists, artisanal fisher-people, female-headed households, indigenous communities, and Afro-Brazilians living in informal quilombos. The tables in Annex 11 provide data on income and living conditions throughout the state that will be used for poverty targeting. The project benefits involve learning lessons about: rural poverty reduction through creation of economically sustainable jobs and higher incomes; improved living conditions of the rural population through better access to social services and basic infrastructure; urban poverty reduction through the jobs and increased income that would be generated by much greater availability of micro-credit to poor entrepreneurs; improved living conditions in the poorest urban neighborhoods through community development projects that would increase the availability of services, reduce health risks, increase educational opportunities, and promote cultural development; environmental conservation through the promotion of economic activities that seek to conserve natural resources in rural areas and improve environmental conditions in urban areas; creation of social capital, including the strengthening of rural and urban community organizations and municipalities, through stakeholder participation in decision-making and responsibility for managing public resources; development of citizenship through training, participation in decision-making and creation of work opportunities; and greater economic growth within the state through support to the dynamic urban informal sector and greater integration of community initiatives into the rural economy. These lessons will be used to improve future poverty and environment projects, including a follow-on Bank loan, and other interventions in AmapL as well as elsewhere in the Amazon

17 4. Institutional and implementation arrangements: Project implementation would be the responsibility of the Amapi Development Agency (ADAP). An institutional diagnosis of alternative implementation arrangements concluded that ADAP was the most appropriate state counterpart for this project because: a) as an autonomous agency, ADAP has greater financial and administrative flexibility than state secretariats; b) its proximity to the Governor's Office gives it greater access to the executive branch of government; c) ADAP also has a history of working directly with the Municipal Development Fora; and d) its staff have a detailed knowledge of the project as they have been responsible for its preparation. In addition, ADAP has regular working interaction with three important partners who can facilitate project implementation: the Planning Secretariat (SEPLAN), the Integrated Municipal Development Secretariat and the Rural Development Agency (RURAP). Finally, its president is currently also heading the State Development Bank (AFAP) and is physically integrating the offices of the two entities. A Project Coordination Unit (PCU) has been created under the ADAP president to implement, through separate structures, both this project and the proposed IDB investment. The two basic functions of the World Bank portion of the PCU are: to provide general coordination between the project and other related activities, especially the IDB loan, and to coordinate implementation with AFAP which would be responsible for Component 2. The PCU for this project will consist of a technical unit (for urban community development, micro-credit, rural sub-projects, and capacity building), an administration and finance unit (for accounting, monitoring and evaluation, and procurement) and a unit for communications and sub-regions. The latter, in addition to implementing the project's communications strategy, would maintain a network of five regional officers based in the municipalities of Oiapoque, Laranjal do Jan, hap$ Port Grande, and MacapgSantana. These officers would be local sources of project information and assistance; to minimize costs, they would be accommodated in existing offices of RURAP. An organizational chart describing the PCU is available in Annex 12 on Project Management Structure. A General Coordinator will head up the PCU and be responsible for the project's monitoring and evaluation system, dissemination activities and capacity building efforts. The General Coordinator will be responsible for: a) supervising the work of the technical unit, including reviewing the quality of technical reports prepared for each component; b) supporting the work of the administration and finance unit to ensure that project funds are properly disbursed and accounted for and that results are carefully monitored and evaluated; c) assisting the work of the communications unit to ensure that effective dissemination takes place and that regional officers are succeeding in their tasks; and d) serving as the key link between the project and the PCC, the ADAP president and the Governor's Office. The PCU will be assisted by a Project Council (PC) consisting of the ADAP president, the PCU's General Coordinator, and representatives fiom SEPLAN, the Governor's Office, the Integrated Municipal Development Secretariat, SEBRAE, AFAP, APC, RURAP, SEMA, IBAMA, civil society, and special groups. The PC would be headed by the ADAP president and would meet on a quarterly basis to approve urban and rural sub-projects, facilitate inter-institutional relations, approve the Annual Operating Plan prepared and submitted by ADAP, and provide strategic guidance for project implementation. This would include review of an annual report on project implementation to be prepared by ADAP. In urban areas, the project will work with existing and newly-formed neighborhood associations to prepare participatory community development plans. Resources to support the planning process will be provided by the PCU. Each plan will contain a preliminary set of sub-projects for financing. Associations in each community will submit pre-proposals to the Council of Municipal Associations (COEMA) in the case of Macaph and Santana and the Municipal Development Forum in the case of Laranjal do Jari for prioritization in accordance with the plan; prioritized pre-proposals will then be forwarded to the PCU to arrange for any necessary technical assistance to help urban associations prepare their sub-projects

18 In rural areas, the project will work with existing and newly-formed community and producers' associations to implement Component 3. The associations will identify their needs for financing and these, as pre-proposals, will be submitted to the relevant Municipal Development Forum for ranking. Fora have been created in all of AmapVs municipalities with the exception of MacapA and Santana. As of the end of 22, all Fora had completed their local sustainable development plan that were prepared in a participatory manner; these plans briefly set out the community's vision of key poverty/environment issues, options and objectives. Each Forum will use its plan as guidance for prioritizing and forwarding pre-proposals received from associations to the PCU in order to mobilize technical assistance. A diagnosis undertaken during project preparation indicates that the Fora exhibit differing degrees of capacity, organization and representativeness of poor stakeholders. The project will provide assistance to ensure that Fora are stronger in all of these areas. The loan will provide funding for communities to seek technical assistance for preparation and management of sub-projects. Communities will be free to determine the most appropriate source of technical assistance, e.g., from an NGO, private consultant or firm, or state agency. The State Rural Extension Agency (RURAP) is expected to play a key role in providing much of this technical assistance. The approach for indigenous and quilombo communities will be slightly different (see Annex 13). Communities will prepare their pre-proposals and submit them to an indigenous or quilombo board made up of representative organizations working throughout the state in these communities. Each board will prioritize proposals and forward them to the PCU in order to mobilize technical assistance for sub-project preparation. More details on sub-project preparation, approval and management for all three situations (urban neighborhoods, rural communities and special groups) can be found in Annex 2. Project implementation will rely on a number of legal and planning instruments: the Termo de Compromisso, the sub-project document, engineering studies and business plans, the Conv&nio, the Termo de CooperapZo Te'cnica, and contracts for goods and services. The Termo de Compromisso is a statement drawn up by a community that delineates its commitments for project implementation, including its counterpart contribution and maintenance with a list of responsible people and a timetable. The sub-project document is a community-approved proposal, prepared with technical assistance as necessary, that provides information on costs, design, beneficiaries, environmental impact, and mitigation measures. Engineering studies and business plans constitute part of technical assistance for sub-projects and would be contracted with registered professionals, government agencies, NGOs, or private firms in consultation with the community or producers association. The Conv&nio is the legal instrument for transferring resources between ADAP and other implementing entities such as MAP, other governmental entities or non-govemmental organizations, for pre-proposal and sub-project preparation, studies, technical assistance, monitoring and evaluation, etc. The Termo de CooperaqZo is an instrument that govems the relation between two project partners without involving the transfer of financial resources. Contracts for goods and services would be used by ADAP and AFAP to pay a private firm or professional for technical assistance services, preparation of studies and sub-projects, execution of civil works, conducting courses, etc. The proposed project would be implemented over six years and has four components. The components are: 1) Urban community development sub-projects; 2) Micro-credit for urban and rural residents; 3) Rural community development sub-projects; and 4) Capacity building for participatory management and technical assistance. The project would support the Bank's central CAS objective for Brazil of poverty reduction. Its goal would be to reduce rural and urban poverty while contributing to environmental sustainability. D. Project Rationale 1. Project alternatives considered and reasons for rejection: Three alternative project approaches were considered but rejected in project design

19 Top-down, state-driven model. The first alternative was a classic, top-down, state-driven project to provide infrastructure and services to poor rural communities. This paternalistic approach was the principal approach used by the state to address poverty when Amapi was still a territory. The model had relatively little impact because of: a lack of community consultation to understand local needs and priorities, centralization of information and decision-making, and limited capacity (human resources, financial resources, information) to address key problems. Thus, this approach was rejected by the state itself which recognizes that it does not have the capacity to effectively reach communities entirely on its own. Experience from the Northeast of Brazil in the 197s and 198s indicates that centralized planned and state delivery of goods and services to dispersed rural communities is less effective because of high costs, difficult coordination, lack of awareness about local demands, and financial unsustainability of investments. This same set of experiences demonstrated the advantages of decentralizing poverty reduction measures to the local level through municipal councils that represent a broad range of stakeholders. The Pilot Program community approach. The Pilot Program for the Conservation of the Brazilian Rain Forest (RFPP) has implemented two projects in Amapi and elsewhere in the Amazon that support poverty reduction through productive investments which seek to conserve natural resources. The Type A Demonstration Projects (PDA) involves local communities in the planning and implementation of income-generating enterprises that actively protect the rain forest. Implementation of PDA sub-projects in Amaph faced a number of technical difficulties: lack of market opportunities for products, insufficient business plans, inadequate engineering studies, unreliable supply of raw materials, and unavailability of key services (transportation, communications, energy). On the other hand, the Extractive Reserves Project (RESEX) was able to overcome some of these problems by providing appropriate technical assistance at different points in the consolidation of the Rio Cajari Reserve. However, the RESEX model was not deemed appropriate for addressing the larger question of poverty in Amaph because it primarily meets the needs of only one rural group (extractivists) and does not help solve the bigger issue of urban poverty. The Rural Poverty Alleviation projects. Another alternative was to replicate the micro-basin management and rural poverty alleviation projects (RPAPs) that have been financed by the Bank in other regions of Brazil. While many features of the RPAP have been integrated in this project, more emphasis on environmental management was thought to be appropriate in a state where the overwhelming majority of the rural poor earn their living by harvesting and transforming natural resources. Also, the RPAP approach is not necessarily the most effective means of stimulating economic development in urban areas. The micro-basin approach was not applied in Amapi because the state's hydrology and demographics are not consistent with this framework

20 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision IPSR) Ratings (Bank-finance, projects only) Ban k-f i nanced Promote sustainable natural resources management conservation by local communities in the Amazon and Atlantic Forests Develop and test approaches to the social, economic and environmental management of extractive reserves in the Amazon Reduce rural poverty and promote community development Capacity building for integrated environmental management Micro-credit " 3ther development agencies Micro-credit in urban areas Integrated local sustainable development programs Credit for rural producers Credit for extractivists Training for small and medium-scale entrepreneurs Brazil - Rain Forest Pilot Program, Demonstration Projects (PD/A) Brazil - Rain Forest Pilot Program, Extractive Reserves Project (RESEX) Brazil - Rural Poverty Alleviation Projects Brazil - Natural Resources Policy Project Brazil - Crediamigo Brazil - AMASOL program of AFAP FDLIS program supported by SEBRAE, APC, municipalities and NGOs FNO Normal and Especial through the Banco de AmazGnia and RURAP PRODEX through IBAMA and the Banco de AmazGnia EMPRETEC program of SEBRAE, SETRACI Implementation Progress (IP) S S 1 (Highly Unsatis Development Objective (DO) 3. Lessons learned and reflected in the project design: The project design has drawn on lessons from World Bank experience in Brazil as well as state-specific experience. From 1995 to the present, the World Bank has supported a number of rural poverty alleviation projects (RPAPs) in northeastem and southern Brazil that present a promising approach for addressing persistent poverty levels through financing community-managed sub-projects and providing basic services to the poorest rural families. Key lessons learned include: HS S J Decentralization - delegation of duties to municipal councils and greater use of regional offices to -16-

21 J J promote more responsive and local-level monitoring, data collection, coordination, and supervision; Participation of beneficiaries in the selection, financing, execution, and O&M of sub-projects has ensured that investments meet genuine community needs, led to cost savings, and has increasing ownership, leading to improved sustainability of investments; and Poverty targeting - communities themselves, i.e., municipal councils, are best-positioned and informed to target effectively, using simple, verifiable and objective criteria. These lessons were drawn from the Evaluation of the Brazilian Experience with Rural Poverty Reduction, Annex 2, Report BR, June 21. They are reflected in project design through the following characteristics: a) decentralized decision-making through Municipal Development Fora; b) the installation of regional officers to promote and facilitate the project; c) beneficiary involvement, through Components 1 and 3, in sub-project selection, counterpart financing, implementation, and maintenance; and d) poverty targeting through a macro focus on priority areas and community-level selection. The RFPP has six years of experience fhding community-level demonstration projects in the Amazon and Atlantic rainforests of Brazil (PDA) as well as the creation and management of extractive reserves in the Amazon (RESEX). These projects demonstrated a) the potential for harmonizing income generation activities in poor communities with sustainable natural resource management; b) the viability of community-driven development in a rainforest environment; and c) the importance of technical assistance at all stages of the sub-project cycle. The project has integrated this experience in its design by making environmental conservation an intrinsic part of especially the rural sub-projects, basing the urban and rural sub-projects on community demand and ensuring that beneficiaries have adequate and flexible access to technical assistance. During project preparation, the state conducted its own assessment of lessons learned for project design and came to the following conclusions: Community organization - a low level of community participation in project design and implementation has been correlated with poor project performance in the past. However, many community and producer associations are not yet well-structured to assume project management responsibilities. They particularly need support for: project maintenance; greater representativeness and turnover of leadership; financial management; project planning using technical design criteria; transparent decision-making; and financial independence from the state. Technical assistance - this is an indispensable part of poverty-oriented interventions at the community level. Technical assistance should include an emphasis on locally-appropriate technologies and its financing should be an intrinsic part of project financing (up to 2% of project costs in some cases). The delivery of technical assistance should consider: a) training for rural producers; b) reducing what has been a high rotation rate of extension agents; and c) the limits of privatizing technical assistance such as the lack of developing an institutional memory within a government agency. Credit - there is a pent-up demand for credit in both the urban and rural areas of Amapa because there are few suppliers and those that exist do not have sufficient capital, human resources and/or sufficient speed to meet the demand. Some lessons of particular interest for rural credit include: as land tenure is complex in the state, most lenders do not require real estate as collateral; a migratory rural population has had a negative effect on the repayment rate of some rural loan programs; technical and legal assistance with loan applications are needed; and the use of a registry of technical assistance providers can help maintain the quality of advice received by clients. Economic viability - Financial analysis and preparation of business plans are practices that have not yet become part of local entrepreneurial habits in AmapL. One key to reducing the costs of doing business in the Amazon is to invest in local transportation networks, bridges, electrification, and - 17-

22 telecommunications. Transportation subsidies provided by the Agricultural Secretariat should be quantified and analyzed in comparison with alternatives. In many cases, community enterprises need to develop partnerships with more experienced actors in the private sector. Capacity building - While capacity building needs to be an integral part of any project, it was concluded that the state training agency (SEFORH) cannot meet these needs by itself. Other partners will be needed such as SEBRAE which has offered community courses on leadership and entrepreneurship. Capacity building is a medium-term investment that cannot function without specialized technical assistance and follow-up investment. Specific attention should be paid to training youths and increasing the adult literacy rate. 4. Indications of borrower commitment and ownership: The project has the highest level of political support within the state as it is considered a priority by the new Governor. The Governor has spent quality time discussing the project during missions and directly with the Country Director. In addition, he is making sure that counterpart funds are included in the multi-year budget plan for the state. Perhaps most telling, within a few days of entering office, the Governor submitted a request to the Ministry of Planning to increase the scope and value of the project so that it could begin to address questions of urban poverty. In addition, he personally signed the aide-memoire of the appraisal mission. It was subsequently decided that this requested increase will constitute the follow-on loan for the current project. At the federal level, the state's influential presence in the Senate (the president of the Senate represents Amaph) is fully behind the loan. Within the state administration, the proposed implementing agency (ADAP) has been committed to the project since its inception. Fortuitously, the agency president has also been named to head the other implementing entity for the project (MAP). The PCU was created by legal decree in March 23, staffing began in May 23 and new offices were nearing completion at the same time. Plans have been made to hire consultants to meet effectiveness conditions such as preparation of the operational manual and establishment of the computerized monitoring and evaluation system. At the local level, the project concept has received strong support from a range of potential beneficiaries and stakeholders, including Municipal Development Fora, neighborhood associations, indigenous groups, quilombo representatives, heads of women's and youth groups, mayors, and state agencies such as RURAP and SEPLAN. 5. Value added of Bank support in this project: The Bank has long been the principal external lender supporting Brazil's programs to address environmental and poverty issues. Both themes are combined in the present project. The Bank will add specific value to this project through: a) transfer of successful approaches to rural poverty alleviation through community-managed initiatives from its rural poverty projects elsewhere in the country; b) lessons learned from financing community associations in h ap9 through the Pilot Program activities; c) global experience with community-driven development and micro-credit support; d) capacity building for project and financial management; and e) lessons learned from supporting micro-credit operations in Brazil and worldwide. It is also important to keep in mind that this will be the first Bank loan to the state, implying that project preparation and implementation is a learning process for all concerned. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): Cost benefit NPV=US$ million; ERR = % (see Annex 4) Cost effectiveness Other (speci@) No global economic analysis was done on the project because of the difficulties in calculating rates of - 18-

23 return, especially for Components 1 (urban community development) and 3 (rural sub-projects), both of which involve grants with community counterpart contributions. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) Limited, indicative financial analysis was done for a sub-set of productive investments that could be financed under Component 3 (rural sub-projects). The IRR for these sub-projects ranges from 11-22%, with an NPV of US$179-76,382 (R$ ,337) per sub-project. These results are summarized below and explained further in Annex 4. Sub-proj ec t Beekeeping Seedling nursery Manioc flour (manual) Grain silo Manioc flour IRR (Yo) NPV (R$) NPV 11 75,117 25, ,37 3, , ,778 1, ,754 25,25 1 kmechanized) I I I I Fruit pulp processing Managed aqai plantation 9 267,337 89, ,959 85,986 A financial analysis was also conducted to evaluate the performance of AFAP. This indicated a monthly return on the loan portfolio of 1.37% and an annual operational return of -.38% (based on the most recently available data -- through June 3, 22). A thorough evaluation of AFAP was undertaken as part of project preparation, identifying a range of operational and financial reforms that will be financed through the project. It is hoped that these measures, along with an expansion of activities, will bring the development bank up to the average Brazilian standard for monthly return on loan portfolio (4.28%) and the average Latin American standard for annual operational return (8.18%). More information on the financial analysis of AFAP is presented in Annex 4. Fiscal Impact: N/A 3. Technical: Three technical issues have been identified: Coordination with IDB - the IDB Urban Environmental Improvement Program could be appraised in FY4 for implementation in FY5. As the project is still being prepared, details have yet to be finalized. Thus, there will be a need to closely coordinate any infrastructure-related community investments in Component 1 with the latest plans for the IDB project. Should the project not materialize, there may be a need to increase the percentage of environmental infrastructure sub-projects financed by Component 1; and Dispersion and disorganization - many of the poorest rural inhabitants, such as river-dwellers and extractivists, live in dispersed and informally-organized rural settlements. This will make it difficult to reach and interact with some of the rural poor. In addition to targeting, the project will invest in the creation and strengthening of legally-recognized associations in order to empower these groups. Land tenure - the Bank needs to guarantee that any physical investments for a community or producer association is on land that is controlled or owned by the beneficiary association to avoid the risk of - 19-

24 losing the investment to an entity with a competing claim to the land. A thorough review of the land tenure situation in Amapb (see project file) concluded that both the federal and state land situation is in order, with virtually all public and private land being properly incorporated without overlapping claims. However, in order to be eligible for project support, any association which proposes a physical investment will need to provide a copy of its title document for the land where the investment will be located. 4. Institutional: 4.1 Executing agencies: The executing agency will be the h ap& Development Agency (ADAP). During project preparation, an institutional analysis was conducted to determine the most appropriate location of the Project Coordination Unit. Four options were considered: a) the State Planning Secretariat (SEPLAN); b) the Rural Development Institute (RURAP); c) ADAP; and d) a contracted project management service. SEPLAN was deemed inappropriate because of its lack of experience with project management and because of the administrative and financial rigidities exhibited by a state secretariat. RURAP, while having some positive characteristics, was not seen as a good fit with project objectives because of its exclusive focus on rural areas, its lack of access to the Governor's Office and bureaucratic constraints linked to its status as an institute. A contracted management unit would have administrative and financial flexibility but would not have access to government agencies to facilitate implementation nor would have contact and knowledge of local communities and neighborhoods. Of the four options, ADAP was evaluated as the most appropriate location for the PCU because it is an agency that has greater administrative and financial flexibility, is directly linked to many key government entities including the Governor's Office, is very familiar with all details of the project, and has operational links with the Municipal Development Fora. 4.2 Project management: The project will be managed by the PCU within ADAP, with initial assistance fi-om a contracted management fm. The PCU has been structured (see organizational chart in Annex 12) to: a) ensure coordination between the IDB loan and the Bank project; b) provide a mechanism for coordination with key government agencies through the Project Council (PC); c) seek results on a component-by-component basis, with a technical unit that has staff responsible for each of the four components; d) provide for adequate administration and financial management, with a unit responsible for accounting, computerized monitoring and evaluation, and procurement; and e) communicate better with beneficiaries through a unit that maintains regional representatives throughout the state. The project will invest in building the managerial capacity of AFAP. This will require some financial restructuring and management training. Financial restructuring should involve: re-evaluating the low interest rates currently charged by the institution; re-evaluating the loan repayment terms to avoid reducing the liquidity of the portfolio; changing the way AFAP calculates its financial performance to better reflect standard practices of microfinance institutions; and improving its productivity and taking other measures to ensure financial sustainability. Management training should include technical capacity building (market analysis, information management, basic accounting for microfinance institutions, financial analysis, risk management, and portfolio management) and operationally-oriented courses (products and operational policies for microfinance institutions, credit operations and internal procedures). Three project management issues have been identified PCU capacity - while the Project Coordination Unit has been legally created within ADAP and largely - 2 -

25 staffed, financial management and procurement assessments suggest that it is not yet capable of managing the project entirely on its own. Therefore, as an effectiveness condition, ADAP will contract a management firm to assist with a number of key areas including: financial management, including development and operation of a financial management system; procurement in compliance with Bank guidelines; and development and operation of the project monitoring and evaluation system. The contracted firm will operate during the first two-three years of the project and will train PCU staff so that the PCU can gradually assume full management of the project. Community capacity - there is concern that many communities do not have the technical capacity to prepare and manage sub-projects. This issue will be addressed through the inclusion of technical assistance for project design and management. While RURAP will likely provide some of this assistance, communities will be free to choose their source of technical assistance and will be guided by summary information on the most frequently requested types of sub-projects; and Monitoring and evaluation - during project preparation, a set of process and impact indicators were developed for the project. In addition, ADAP staff were familiarized with a management information system that is being used by a rural poverty alleviation project in Sergipe. A computerized monitoring and evaluation system is being designed and installed for the project. The state has obtained DfID financial and technical assistance to refine performance and impact indicators. Operationalizing the system would be a condition of loan effectiveness. 4.3 Procurement issues: A capacity assessment on procurement was prepared in December 22 to evaluate ADAP. This will be the first Bank loan to the State of Amapi and, thus, no state agency has any experience whatsoever with Bank procedures. As such, deficiencies were detected in the areas of procurement expertise, capacity and system information. The assessment made the following specific conclusions: Legal aspects and procurement practices - there are no serious concerns about the quality of internal procurement practices of the implementing agency and their conformity with practices acceptable to the Bank, Procurement cycle management - ADAP received training on procurement planning and completed a procurement plan that was cited as an example of good practice by the Bank procurement adviser. However, ADAP will need to reinforce its capacity either through hiring additional staff or a management firm; Organization and functions - existing capacity is very limited in the areas of developing a procurement system, manuals, training, and supervision of implementation; Support and control systems - Components 1-3 would require independent procurement reviews to ensure adequate checks and balances; Record-keeping - the availability, quality, security, and completeness of procurement records and files meet good standards. However, capacity is inadequate to deal with the anticipated work flow in the project; Staffing - the quality of ADAP staff appears reasonable but the quantity will be insufficient to cover all aspects of project administration; and General procurement environment - the general environment is uncertain as there are not many government investments of the size and nature of the proposed project. For these reasons, the assessment rate the procurement risk as Uh, recommending an action plan to build ADAP's capacity as well as a biannual ex-post review of procurement and the annual participation of independent procurement reviewers. The action plan consists of: hiring a management firm; retaining two procurement specialists; updating the procurement plan; hiring independent reviews for Components 1-3; providing more space to the procurement function; installing a monitoring system; and developing

26 procurement manuals for micro-credit, the Operations Manual and the beneficiaries of the sub-projects. 4.4 Financial management issues: A preliminary financial management assessment was conducted in December 22 and an action plan was agreed with the existing PCU, to implement the financial management arrangements in order to enable the Project to effectively manage and monitor the funds to be financed by the Bank. This mission concluded that with training, installation of a financial management system and implementation of all other financial management requirements, ADAP would have the capacity to implement and manage the Project. The action plan included a) hire and train the financial and accounting staff required for the Project, b) select and implement the accounting and reporting system, c) design the models of the FMR which would best suit Project's needs, d) design the most simpler and effective possible flow of finds within the State, starting at the Loan account up to the end beneficiaries, and including counterpart resources, e) prepare a draft of the Financial Manual, 9 adequate and train the AFAP staff who would be in charge to implement the Micro-credit component. The May 23 appraisal mission, found that little progress had been made to implement the action plan agreed in December 22, largely because of changes in the PCU staff related to the new government. The PCU has been staffed and an organizational chart was prepared, but several positions already filled. In the financial management department, an economist, an accountant, and an information technology specialist were hired. During the appraisal mission, a detailed action plan was prepared to implement financial management arrangements, according to Bank standards. This action plan (see Annex 6 for details) will enable the PCU to effectively execute its responsibilities. Some basic requirements of the action plan were, however, preconditions for negotiations: a) approved Terms of Reference for hiring the management firm. The TOR will include all financial management arrangements agreed during the appraisal Mission; b) that the bidding process to hire such a firm has started; c) preparation of a funds flow chart; and d) agreement of FMR formats and the timetable for their submission. The financial management action plan was prepared in accordance with OPBP 1.2 and the Guidelines for Assessment of Financial Management Arrangements in World Bank-Financed Projects issued by the Financial Management Sector Board on June 21. The Community Driven Development Projects Guidelines (CDD Guidelines) were also referred to, where applicable. The objectives of the financial management action plan were to build up the PCU capacity to: i) properly manage and account for all project proceeds, costs and transactions, ii) produce timely, accurate and reliable financial statements and reports for general and Bank special purposes, iii) engage reliable independent auditors acceptable to the Bank, and iv) disburse Bank finds in the most efficient way and following applicable Bank rules and procedures. A preliminary assessment was also conducted for AFAP. The development bank was deemed to have an adequate financial management system but insufficient personnel to respond to the demands of the proposed project. Thus, the assessment recommended a) AFAP issue Financial Situation Reports for Component 2 that would then be consolidated in an overall report on the project from ADAP to the Bank; b) AFAP should be staffed up to handle its financial management responsibilities, both internally and in terms of Bank reporting; c) the existing financial management system should be modified to generate SOEs and Financial Situation Reports, following the format adopted by ADAP but adapted to the Bank's reporting requirements; and d) terms of reference should be prepared for auditing AFAP's implementation of Component 2. For both AD@ and AFAP, their respective financial management systems must be in place not later than loan effectiveness

27 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. The project was designed to ensure compliance with the requirements of the Bank's umbrella policy on Environmental Assessment (OP 4.1). Environmental impacts of the project are expected to be positive or neutral because of: a) the small scale of sub-projects; b) the environmentally-beneficial nature of many anticipated sub-projects such as agroforestry systems, water purification systems, cultivation of medicinal plants, improved soil conservation techniques, seedling nurseries, beekeeping, and actions that will benefit urban wetlands; c) a requirement that sub-projects are consistent with locally-defined visions for sustainable development; d) preparation of a simplified environmental impact report with mitigating measures for each sub-project; e) environmentally-sound templates for especially rural sub-projects will be used wherever possible; and f) use of a negative list of sub-projects that will not be financed, tailored according to ecosystem. Despite these anticipated impacts, submission of an Environmental Management Plan (EMP) was considered prudent to ensure conformity with Bank policy. 5.2 What are the main features of the EMP and are they adequate? The State's Environmental Management Plan requires separate procedures for each of the three components that could potentially have negative impacts. Urban Community Development Sub-projects - impact-scoping for this component identified a long list of positive effects and a short list of risks concerning sewerage and water supply, solid waste management and drainage. The EMP for this component requires: a) preparation of an environmental profile for each low-income neighborhood to identify potential environmental issues and areas of risk; b) formulation of an environmental checklist for each neighborhood that will be completed as part of sub-project preparation in that neighborhood (the EMP includes a model checklist); c) review and approval of the checklist and any mitigation measures by the PAC; and d) monitoring of sub-project implementation to ensure that mitigation measures are followed and are effective. Special precautions will be taken for proposed investments in urban wetlands. Investments will only be permitted in settled wetlands that have been environmentally zoned for development activities. In addition, preference will be given to sub-projects that protect or improve environmentally fragile wetlands; activities in urban wetlands that encourage additional settlement, threaten biodiversity or the provision of environmental services, or rely on unlicensed landfilling will not be financed. Strengthening Institutions for Poverty Reduction - impact-scoping concluded that past investments financed by the AMASOL program of AFAP did not create significant negative environmental impacts. However, there is a risk that even small-scale activities can create environmental risks and that a system monitoring and control system was justified. The EMP for this component requires that: a) each request for financing include relevant environmental information (e.g., distance of activity from nearest watercourse, hygienic conditions for workers, anticipated use of any toxic or hazardous materials, possible emissions of solid, liquid or gaseous wastes, etc.); b) where possible risks are detected, the financing proposal will be re-designed to avoid negative impacts; and c) the at-risk proposal will apply for and receive any necessary environmental license prior to receiving financing. In addition, incentives will be contemplated to encourage proposals that are environmentally sustainable (e.g., recycling) andor that promote environmental rehabilitation (e.g., seedling nurseries). This is especially relevant for a second project where re-capitalization is anticipated. Rural Community Development Sub-projects - impact-scoping involved the identification of environmental risks posed by 28 of the most likely sub-projects as well as mitigation measures and the possible need to obtain environmental licenses. This information has been incorporated in the standard sub-project dossiers to help associations minimize environmental problems at the design stage. The

28 EMP for this component consists of the following requirements: a) identifying possible impacts, the need for additional study and environmental licensing during sub-project preparation; b) screening of sub-project proposals by the PCU, with input from SEMA and IBAMA where necessary; c) PAC review and approval of simplified environmental impact analysis, including mitigation measures and monitoring indicators where appropriate; d) community training on environmental impacts and responsibilities for mitigation prior to sub-project implementation; e) implementation of mitigation measures where needed; and f) monitoring and periodic review. Also, the PCU will employ a negative list of sub-projects not to be financed which is reproduced below. Negative Environmental List. The project will not finance activities in strict environmental protection areas, trade in endangered species of flora and fauna, and mining. The following table summarizes, by ecosystem, the types of sub-projects that will not be financed because of their high risk for environmental damage. Ecosystem Tropical Forest Savannah (cerrado) Coastal and floodplain (vhzea) Urban wetland Prohibited Activity Extraction and processing of wood without a management plan Extraction of other natural resources with irreversible environmental impacts Uncontrolled use of fire Clearing and planting of agricultural land that results in deforestation Expansion of industrial and semi-industrial monocropping Expansion of monocropping that requires clearing of >3 ha of native vegetation Uncontrolled use of fire Unsustainable industrial-scale fishing High-impact, unmanaged extraction of other natural resources Fish farming with exotic species, e.g., tilapia Activities that result in new wetland settlements or densification of existing settled wetlands Activities that harm wetland biodiversity or environmental services Activities that require unlicensed landfilling of wetlands In addition to these component-specific EMPs, the following actions will be undertaken to improve the environmental performance of the project: a) environmental management training for the PC, the PCU, AFAP staff, Municipal Development Fora, and associations; b) involvement of SEMA and IBAMA in the design of information and dissemination campaigns for the project; c) demarcation and participatory ecological-economic zoning of urban wetlands in Macaph and Santana; and d) one or more regional environmental impact analyses to identify the cumulative effect (positive or negative) of potential investments in priority areas. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: February 23; updated May

29 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) drar EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? Project preparation since February 22 has involved the participation of over 5 potential beneficiaries and other stakeholders including state and local government agencies, Municipal Development Fora, NGOs, indigenous groups, Afro-Brazilian communities, the private sector, academia, and the proposed implementing agencies. These consultations have involved discussions of the Bank's safeguard policies. During the final preparation phase, the Government posted the EA/EMP on the state's web site for public comment, maintained copies of the Plan available for public review at the ADAP offices, and organized a public consultation (April 28,23) that involved state and federal agencies involved in environmental management as well as representatives of relevant civil society organizations. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? The mechanisms are those that have been proposed in the EMPs for each of the three relevant components (see 5.2 above), Le., the checklist for urban sub-projects, the information sheet for micro-credit loans and simple impact evaluation system for rural sub-projects. Specific indicators for each of these are included in the EMP report. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. There should be positive impacts on indigenous and traditional peoples through the targeted community sub-projects that seek to benefit indigenous groups, Afro-Brazilian communities (quilombos) and groups of poor women and youth. No resettlement is envisioned under the project. It was decided that an Indigenous Peoples Development Strategy should be prepared during project elaboration in accordance with OD 4.2 as indigenous peoples will be affected by the project. After consultation with the state, preparation of this strategy was expanded to include other special beneficiaries, Le., Afro-Brazilians residing in quilombos (known as quilombolas), and low-income women and adolescents. In the first round of consultations, individualized contacts were made with women's organizations, quilombola leaders, representatives of the different indigenous groups living in Amapa, representatives of non-governmental organizations working for a long period of time with these groups, and academic specialists with renowned understanding of these social groups. The objectives of this first round of consultations were: (a) a survey of information on the current status of these groups, their level of organization and capacity of representation in government agencies; (b) the mapping of institutions working with them and of the characteristics of the programs and projects they have been carrying out; (c) collecting existing materials from secondary sources; (d) preliminary dissemination of project objectives and guidelines; and (e) opening of channels of consultation and debate about the project. In this stage, the state's project preparation team also participated in the General Assembly of the Indigenous Peoples of Oiapoque and in the First Forum of Quilombo Remnant Communities of Amapii, describing and discussing the project and the proposal for the inclusion and participation of these social groups. In February 23, a new round of consultations took place with entities representing and/or working with these different social groups. Consultations were held with representative governmental and non-governmental entities and/or those dealing with indigenous, quilombola, gender and generational

30 issues, and data was collected to: (a) adjust the project proposal to the sociocultural specifics that distinguish these special groups; (b) ensure their access to project benefits; and (c) ensure their adequate participation in the project's decision-making bodies. The proposed strategies for the participation of these special social groups (see Annex 13 for details) respond to concerns regarding: (1) the tensions identified between these special social groups and representatives of society as a whole in the immediate context of communities and municipalities neighboring the areas where these populations are located (especially relevant for the case of indigenous and quilombola populations); (2) the risks that their demands are not heard, considered and represented by grassroots organizations of the communities where they reside (especially relevant for groups of women and youth, traditionally less organized and less active in rural areas); (3) the risk that their demands are not taken into consideration andor handled by Municipal Development Fora; and (4) the differences in their situation of existence and inclusion in local society, their capacity for organization and access to government agencies, and their capacity for effective participation in local decision-making processes. Finally, the project will employ a negative list to avoid investments that might create social problems (similar to the environmental list in Section 5 above). Generally prohibited sub-projects include: purchase of land; investments associated with the production of alcoholic beverages, tobacco and weapons; construction of churches of any denomination; construction of government administrative buildings; and projects that benefit only one individual or family. 6.2 Participatory Approach: How are key stakeholders participating in the project? There are several levels of participation that have been built into project design: Community level - community and producer associations will democratically decide on their priorities for sub-projects in Components 1 and 3, participate in sub-project design and implementation, and assume responsibility for sub-project management and maintenance. Assistance will be available to communities without associations to create legal entities and facilitate their participation in the project. Municipal level - proposals for sub-projects in Component 3 will be screened through the appropriate Municipal Development Forum to ensure that they are consistent with plans for locally sustainable development. These fora exist in all sixteen of Amapi's municipalities, involve a wide range of stakeholders and generally follow transparent procedures. State level - the Project Council (PC) would involve government and non-government stakeholders to advise on questions of project implementation and sub-project selection. Special groups - the strategy for the participation of special groups (indigenous peoples, quilombolas, women and adolescents) is described in Annex 13. Indigenous people and quilombolas will each have a special board to prioritize sub-project proposals coming from their respective communities. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? The process of project preparation was highly participatory, involving over sixty separate consultations. This approach began in the third quarter of 2 when ADAP and RURAP visited ten municipalities to survey potential beneficiaries about their preferences concerning rural sub-projects and continued through the Bank's pre-appraisal mission. Consultations involving NGOs and other civil society organizations were held in all sixteen of the state's municipalities. Three approaches were used to involve this group of stakeholders: a) individual and group meetings with civil society organizations; b) several meetings with all of the state's Municipal Development Fora which benefit from significant NGO participation; and c) targeted meetings with NGOs that are involved in indigenous, Afro-Brazilian, gender and youth issues

31 During project implementation, consultations will take place through the mechanisms that are described in para. 6.2 above. In addition to participation in the Municipal Development Fora and the PAC, NGOs would be involved in sub-project design as potential providers of technical assistance for Components 1 and 3. The creation and strengthening of community and producers' associations would improve the participation of civil society in the project. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? Implementation of a communications strategy would raise awareness among the rural and urban poor as well as special groups about the project's aims, opportunities and procedures. Special assistance would be provided to establish legal associations in communities that are not well-organized to participate in the project. The PCU would use regionally-based staff to disseminate information about the project and provide general support to potential beneficiaries. Associations would receive financial support for obtaining technical assistance to assist with sub-project design and, in some cases, implementation. The technical and organizational capacity of the highly participatory Municipal Development Fora would be strengthened with project resources. The monitoring and evaluation indicators used by project management would include those selected to track social progress. Special strategies have been designed to promote the social development of indigenous people, quilombolas, women and adolescents. 6.5 How will the project monitor performance in terms of social development outcomes? Learning about social development outcomes will take place through the following mechanisms: Before/after study - The project has developed social development and other performance indicators. Baseline data will then be collected in a representative sample of poor rural communities at the outset of the project. At the mid-term and end of the project, new indicator data will be collected and results compared with the baseline; Institutional assessment - the local Municipal Development Fora will be evaluated before and after the project to assess their: a) managerial capacity; b) representativeness of key vulnerable groups; and c) transparency of decision-making procedures; Stakeholder workshops - beneficiaries and project administrators will hold workshops to evaluate sub-projects and draw lessons from their implementation; and Independent comparative review - a consultant will evaluate the project, compare it with similar experiences, including the RPAPs and the PDA and RESEX projects, and draw conclusions about what the project has contributed to learning. In addition, the project would benefit from supervision missions to have the opportunity to adjust the implementation strategy according to lessons learned. Lessons will then be integrated into the design of a follow-on project to scale up successful experiences and impacts. 7. Safeguard Policies: Safety of Dams (OP 4.37, BP 4.37) Yes No -27-

32 Proiects in International Waters (OP 7.5. BP 7.5. GP 7.5) Yes No I Proiects in Disputed Areas (OP 7.6, BP 7.6, GP 7.6)* I Yes No I 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. Preparation of an Environmental Management Plan (see Annex 12) and an Indigenous Peoples Development Strategy (see Annex 13). For the Natural Habitats Policy, the project will employ a negative list that was designed to protect particular ecosystems (see section 5.2 above) and, in the case of urban wetlands, a series of measures for their protection and improvement. F. Sustainability and Risks 1. Sustainability: The sustainability of this project can be evaluated along four different dimensions: financial, environmental, politicalhstitutional, and in terms of replicability. Financially, the project will generate employment and increased family income by increasing access of the poor to credit, financing productive sub-projects and enhancing living conditions. There is a significant pent-up demand for micro-credit in the state, largely because small and medium-scale enterprises have very few affordable sources of finance. By implementing a number of standard reforms and scaling up to respond to this demand, AFAP can become financially sustainable. The financial analysis of rural productive sub-projects indicates acceptable to high rates of return. Improvements in health, educational attainment and professional capacity through urban and rural community sub-projects should also contribute to the financial sustainability of the loan. Environmentally, the project will contribute to sustainable development through various mechanisms. At a minimum, the environmental management plans for Components 1-3 will ensure that any potentially negative environmental impacts are mitigated. More positively, many of the potential urban sub-projects could result in improved environmental conditions and health in poor neighborhoods. Positive environmental outcomes will be especially encouraged for settlements located in urban wetlands. In rural areas, investment proposals must be consistent with the locally-defined vision of sustainable development in order to move forward. Many of the pre-identified rural sub-projects are oriented towards sustainable natural resource management and environmental rehabilitation. Finally, the project will make use of ecological-economic zoning to orient sub-project investment in environmentally appropriate areas. Institutionally, the project seeks to make a significant investment in capacity building at various levels. Key state agencies involved in project implementation (ADAP, AFAP, RURAP) will be institutionally strengthened, especially in the areas of project management and implementation. At the local level, the Municipal Development Fora and urban neighborhood associations will be reinforced in the areas of planning, monitoring and evaluating so that they can continue to be viable partners during and beyond the life of the project. At the community level, existing urban and rural associations will be strengthened in topics such as project design, budgeting, contracting, and maintenance, and new ones will be created in an effort to give more voice to under-represented communities. Political sustainability is more difficult to predict. The current administration has given the project the highest priority in terms of attention, skills and resources. A positive sign is that the project concept was discussed and received the support of the gubernatorial candidates from all four major parties during the 22 elections. Opportunities for replication include applying lessons leamed from the project for: J The follow-on project;

33 J J J J Sector work to help re-orient existing state programs and policies; One or more Amapi-type projects for other poor Brazilian states in the Amazon basin; Design of the recently requested Forest Sector Loan; and Sharing knowledge with other counties in the region through the Bank-supported Amazon Forest Network and the Amazon Treaty Cooperation Organization. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): The social risks of undertaking the project are low, as the political situation is stable, no civil unrest is present in the state, and opposition of key stakeholders to the proposed activities is expected to be limited to partisan politics. In addition to contributing a counterpart equivalent to 1% of the value of each sub-project, each community will be expected to commit to assuming responsibility for operating and maintaining the investment. Positive benefits are expected to accrue to the Bank's reputation as a result of its involvement in the project, especially since this would be the first stand-alone Bank loan to the state of AmapB. The potential positive social outcomes are high, and far outweigh the very low social risks to the Bank of undertaking the operation. Risk From Outputs to Objective Macro-economic policies could eliminate the project's positive results There will be little synergy between the project and other government investments at the local level The communities' technical capacity to implement projects may be insufficient and it will be difficult to effectively mobilize community groups to participate in the project The state's institutional capacity to implement the project may be insufficient Risk Rating M M H H Risk Mitigation Measure - As the sub-projects will be financed by grants (with local counterpart contributions), beneficiaries will be somewhat shielded from interest rate fluctuations - Similarly, the.micro-credit program will be able to offer affordable interest rates for small-scale loans - A prudent exchange rate was chosen to anticipate foreign currency volatility - The Project Coordination Unit will have the capacity to integrate activities of the Bank and IDB loans - the Project Council will be one mechanism for informing, if not coordinating, key government actors that are working in the same physical or thematic area - Technical assistance will be provided to communities to organize legal associations and build capacity to design and manage their sub-projects and to follow appropriate accounting and procurement practices - The participation of traditionally excluded groups in the Municipal Development Fora will be encouraged - A management firm will be contracted to help the PCU with project administration and to build its capacity during the first 2-3 years - Investments will be made in building the capacity of key state partners (ADAP, MAP,

34 Municipal Development Fora may not ictively participate in project execution Crom Components to Outputs The project will not result in a real :eduction of poverty and social inequality Municipal dependence on the state government will continue to be high The project will not respond to real :omunity needs Adequate technical assistance may not be available NGOs and communities may be excluded from effectively participating in the project Overall Risk Rating 3isk Rating - H (High Risk), S (Substantial Ri: The project is given a Substantial Risk ratin! community mobilization and municipal depenc N M S N M N mrap). Implementation of the procurement and financial management capacity plans will be Aosely monitored. A dialogue with the Fora will be maintained ;luring project start-up to sustain their interest ind enthusiasm for the project. Technical assistance, training and other support will be provided to the Fora to assist :hem with their responsibilities. Simple, powerful indicators of development impact will be monitored and evaluated to ietermine whether the project is truly reducing 2overty and promoting social justice - Mid-course corrections in project design will De effected if objectives are not being achieved - Some of the increased local-level economic activity should be captured by municipal governments in the form of fee, tax and other revenues - Assistance with state administrative reform should include the question of municipal finance - The process of sub-project identification by transparent community and producer associations, combined with review by a Municipal Development Forum or neighborhook association, will be part of project implementation - Associations will have access to a broad range of technical assistance providers (government agencies, NGOs, private firms and individual professionals) - Out-of-state expertise may be needed in some cases - NGOs will be a possible source of technical assistance - Community participation is an intrinsic part 1 the project design S. M (Modest Risk). F Negligible or Low Risk) Iecause of the challenges posed in terms of project management, ice on the state government. 3. Possible Controversial Aspects: There are no existing or envisaged controversial features of this project.

35 G. Main Loan Conditions 1. Effectiveness Condition An Operational Manual that is satisfactory to the Bank has been issued by the Borrower, including: a) simplified guidelines for sub-project preparation for community/producer associations; and b) guidelines for environmental protection and sustainability; A Consultant firm to assist and train the PCU in carrying out its functions, especially in the areas of procurement, financial management and operation of the MIS, has been employed by the Borrower; Two procurement specialists and an accountant have been employed by the Borrower to work with the PCU, under terms of reference and having qualifications and experience satisfactory to the Bank; The MIS, including a financial management system, apt to provide records and accounts and prepare financial statements acceptable to the Bank, has become fully operational in ADAP and AFAP, to the satisfaction o f the Bank. 2. Other [classify according to covenant types used in the Legal Agreements.] Negotiation conditions: a) the process of contracting the management firm shall be well-advanced and satisfactory to the Bank; b) the Terms of Reference of the Operational Manual shall be completed and the professional to prepare it has been identified; and c) the consultancy for preparing the AFAP business plan shall be contracted; Execution of the uroiect: a) By September 3 of each year during project implementation, a draft Operating Plan and Budget satisfactory to the Bank shall be prepared and presented. This Plan shall detail the project's activities proposed to be carried out during the next succeeding year and the respective sources of funding thereof; and b) not latter than 3 days after the approval of the Borrower's annual budget by its Legislative Assembly, the final Operating Plan and Budget shall be furnished to the Bank. Disbursement condition: Prior to the implementation of subprojects, a Law shall be approved by the state Assembly and sanctioned by the Government permitting the transfer of public funding to community organizations and civil associations (private sector.) Government, which counts with a majority of representatives in the state Assembly, has assured the Bank that such Law shall be issued before effectiveness, without risk of delaying the project's implementation. ' H. Readiness for Implementation 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. IxI 1. b) Not applicable. 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. 4. The following items are lacking and are discussed under loan conditions (Section G):

36 I. Compliance with Bank Policies 1. This project complies with all applicable Bank policies. 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Team Leade; Sector ManagerlDirector Country ManagerlDirector

37 Annex I: Project Design Summary r BRAZIL: Amapa Sustainable Communities Hierarchy of Objectives Sector-related CAS Goal: LEARN LESSONS ABOUT: Promote knowledge and build consensus about the road to an equitable and sustainable Brazil, that is poverty and participatory focused. Sector Indicators: 1) Fall in rural poverty and )ut-migration; greater lending 'or micro-entrepreneurs; mproved coverage and )overty targeting of rural.oads, water and energy l) Increased coverage of water ind sanitation; modemized iector institutions and.egulations; upgraded poor lrban neighborhoods Data Collection Strategy Sector/ country reports: ;AS 22-27, Progress teport, Rural Development Strategy, Rural Poverty illeviation in Brazil, Poverty 'rofile for Brazil Critical Assumptions from Goal to Bank Mission) Jot specified in CAS Project Development Objective: Learn lessons about how to reduce rural and urban poverty though development that is economically efficient, socially equitable and environmentally sustainable SPECIFIC OBJECTIVES: Learn lessons about how to: 1. Improve rural living conditions by a) increasing access to rural credit, social services, technical assistance, and basic infrastructure, and b) supporting productive and sustainable economic activities 2. Reduce urban poverty through a) support to sustainable economic activities that increase income, and b) improved community living conditions 3. Expand the supply of sustainable formal financial services to microenterprises 4. Build social capital and htcome I Impact ndicators: ;essons learned about how to: I. Reduce rural and urban ioverty in the Amazon l. Improve living standards!. Conserve natural resources 1. Build social and nstitutional capital,essons learned about how to: Benefit families through sub-project investments Achieve a reduction in rural and urban povertj rates Improve the welfare oj sub-project beneficiaries Generate new income Support microenterprises by access to adequate financial tools Increase social capital for community development Improve the participatior of organized and special groups (indigenous quilombola, women anc Youth) 'roject reports: annual economic statistics population census government economic and environmental indicators reports from the project monitoring and evaluation system project impact evaluations semi-annual project reports micro-credit supervision reports Municipal Development Forum reports from Objective to Goal) the impacts of macro-economic policies will not eliminate the project's positive results synergy will exist between project actions and other government investments at the local level Sufficient complementarity betweer project actions and other sources of finance Successful capacity to mobilize community groups Adequate institutional capacity to implement thc project at state and local levels Municipal Development Fora actively participating in project implementation

38 reinforce community organizations, including beneficiary participation in the decision-making process and shared responsibility for managing public resources RESULTS: 1. Productive family and community enterprises supported and implemented ir rural and urban areas 2. Social infrastructure, community development and environmental management implemented in the poorest urban neighborhoods 3. Microcredit operation financially sustainable and expanded operation with focus on the poor. 4. Social and physical infrastructure improved in the poorest rural areas 5. Integrated, participatory and multi-institutional management system implemented that builds local capacity Number of sub-projects implemented Community development plans prepared New credit lines created Number of micro-credit loans made Cost-effectiveness of social investments Number of beneficiary communities involved in project Number of Fora or similar groups participating Number of special groups participating Project management structure functioning At least 1% of rural sub-project resources benefiting special groups Partners trained and capable of implementing project At least half of productive investments financially sustainable Semi-annual reports by ADAP Monthly AFAP credit supervision reports Quarterly supervision reports by RURAP Bank supervision missions Information from the project management system Real reduction in poverty and social inequality Reduced municipal dependence on state Ability to effectively meet community needs Privatization of some technical assistance to overcome limits of existing public system Effective NGO role in sub-project identification, design and management Active community participation in designing sustainable sub-projects Beneficiaries able to internalize the concept of financial sustainability for productive sub-projects Fora and communities able to participate in monitoring and evaluation ACTIVITIES 1. Urban Community Development Sub-projects 2. Institutional Strengthening for Poverty Reduction 3. Rural Community Development Sub-projects 4. Capacity Building for Participatory Management and Technical Assistance I. US$1.79 million!. US$1.2 million i. US$2.55million I. US$l.O2million Semi-annual reports Supervision missions Monitoring and evaluation system Assumptions that can affect esults) Quality of PCU capacity to manage the project Availability of adequate counterpart funds Efficient financial flow Project procedures properly followed by project participants Effective implementation of monitoring & evaluation and financial systems Successful provision of technical assistance

39 Iutput from each :omponent: :omponent 1 : Urban :omunity Development hb-projects. Neighborhood levelopment plans prepared nd approved by communities!. Socio-environmental ub-projects implemented and naintained Neighborhood associations irganized to plan and rrticulate their needs Zomponent 2: Strengthening nstitutions for Poverty ieduction 1. Capacity of AMASOL irogram strengthened and irogram financially relf-sustainable 1.1. Development strategy of 4MASOL implemented :FMS, training, cost-centers, :harging system, productivity :ools implemented and used, 1.2. Loan Officer Productivity rools implemented (staff Output indicators: 1. Number and type of subprojects 2. Number of subprojects operating and well-maintained one and two years after sub-project completion 3. Number of poor urban households participating per sub-project and per year 4. [Number of formal neighborhood associations participating]/[total number of communities in project area] 5. Growth in number of formal neighborhood associations 6. Number of subproject proposals submittedyear 7. Number of women and youth associations with approvedfinanced subprojects 8. Number of women and youth benefiting from subprojects 9. Number of subprojects with environment-oriented activities 1. Number of licenses obtained from state environment agencies 1 1. Number of fines applied to associations for not observing environmental safeguards Expanded supply to formal sustainable financial services 1. - FMS installed and used, variable remuneration system and productivity tools installed and tested, - staff and loan officers trained - Financial sustainability of AMASOL achieved - Portfolio-at-risk reduced to 4% - Loan officer productivity 'roject reports: PCU semi-annual Progress teports MIS WB Supervision Reports Neighborhood association.eports Mission 1.4. PMR Municipal Development Progress Report 1.5. Supervision Mission 1.6.PMR From Outputs to Objective). Subprojects will target the rban poor. Neighborhoods effectively lrioritize needs. Continued political support t local, state and national :vel for community based pproach.. Neighborhood associations re able to implement good luality subprojects. 1. Ressaca zoning respected 1. Environmental safeguards ibserved and any necessary nitigation measures mplemented 4FAP management focus on low arrears and financial sustainability objectives MAP succeeds in implementing all recommended efficiency tools to reach financial $elf-sustainability Subsidized credit lines do not undermine repayment discipline of clients Sufficient political and

40 training, charging methodology, productivity increase, variable remunerations system) 1.3. Marketing studies and outreach strategy implemented (training, branches, cost-centers) 1.4. Rural Outreach Strategy and Feasibility Studies defined and implemented (test of a rural micro-credit approach) 1.5. Environmental Management defined and implemented (training of loan officers, mitigation strategies) 1.6. New financial products developed and implemented (savings, diversification of current products, staff insurance) 1.7. Basic components of independent status within AFAP defined and implemented (legal studies, due diligence reviews, dissemination strategy 2. Expanded access to microcredit services in the State of Amapd (urban and rural expansion) 3. State administrative reforms analyzed, prioritized and planned I Component 3: Rural Community Development Sub-proj ects 1. Social, environmental and productive infrastructure implemented and maintained. 2. Poverty reduction and increased well-being achieved with improvements in environmental quality 3. Community associations higher than 25 clients - cost centers created and profitable - Program expands coverage in at least 7 municipalities - New rural model tested in at least 4 test areas and evaluated - Annual environmental training modules and recycling of staff effected - Published Program Results certified by due diligence - dissemination seminars and publications - daily average of portfolio-at-risk - loan loss rate 2. - average loan size of active clients, new clients and renewed clients - number of active clients - number of branches and their profitability - number of rural credit operations - number of loan officers - administrative costsiaverage loan portfolio - loan officer productivity 3. - public expenditure & program review completed - Functional review of priority government agencies prepared - Consensus-building workshops undertaken - Reform strategy prepared and adopted 1. Number and type of subprojects 2. Number of subprojects operating and well-maintained one and two years after subproject completion 3. Cost-effectiveness and quality of basic infrastructure and socio-environmental subprojects 4. Economic efficiency and.7. PMWSupervision dission :. Supervision 1. Bank Supervision Mission PCU semi-annual Progress leports MIS WB Supervision Reports Municipal Development iora reports iureaucratic support nobilized to modemize the tate administrative apparatus I. Subprojects will target the wal poor!. Communities effectively Irioritize needs 1. Continued political suppon it local, state and national eve1 for community based ipproach 4. Community and producer issociations are able to mplement good quality ubprojects

41 ~ protection organized to meet own needs. 4. Municipal Development Fora strengthened in order to set local priorities, rank sub-project proposals and participate in monitoring of sub-project implementation Component 4: Capacity Building for Participatory Management and Technical Assistance 1. Reinforce and Strengthen ADAP and PCU capacity to adequately manage the project, both technically and financially 2. Monitoring and evaluation system 3. Collaboration with SEMA and national environmental agency (IBAMA) inancial viability of iroductive subprojects ;. [Number of formal.ommunity.ssociations]/[total number of iommunities in project area] i. Growth in number of :ommunity and productive.ssociations '. Number of subproject iroposals submittedyear I. Percentage of women in dunicipal Development Fora ad community associations 1. Number of quilombolas, vomen, indigenous and youth ssociations and members vith approvedfinanced ubprojects. Number of subprojects vith environment-oriented.ctivities 1. Number of licenses ibtained from state lnvironment agencies 2. Number of fines applied o associations for not Ibserving environmental afeguards PCU semi-annual Progress teports MIS WB Supervision Reports. Zoning respected I. Environmental safeguards lbserved and any necessary nitigation measures mplemented 1. Management fm :ontracted and services :onsidered timely and of Satisfactory quality 2. Adequate (number and qualification) counterpart stafl 3. Adequate working :nvironment involving :onsultants and state staff in PCU and other concerned igencies 1. Agencies responsive to Zhanges associated with implementation of decentralized projects 5. Adequate provision of stat( counterpart funds Sub-components: 1. Urban Subprojects nputs: (budget for each :omponent). US$1.79 million Project reports: 1. PCU semi-annual Progrest 1. Reports (from Components to Outputs) 1. Timely flow of counterparl 1. Timely flow of counterpart

42 2. Institutional Strengthening 3. Rural Subprojects 4. Capacity Building I. US$1.2 million 3. US$2.55 million 4. US$1.5 million!. WB semi-annual iupervision missions I. Monitoring and Evaluation system unds to PCU. Subprojects will be high uality and sustainable. Municipal Development 'ora in all municipalities except Macapa & Santana).. Fora and neighborhood ssociations are representative If constituents. Fora are given clear ndicative budgets for ffective decision making I. Technical assistance ervices are available and are ised by associations I. Subprojects will be naintained over time ;. Credit provided by AFAP eaches intended beneficiaries

43 Annex 2: Detailed Project Description BRAZIL: Amapa Sustainable Communities The proposed project would be implemented over three years and has four components. The components are: 1) Urban community development sub-projects; 2) Institutional strengthening for poverty reduction; 3) Rural community development sub-projects; and 4) Capacity building for participatory management and technical assistance. The project would support the Bank's central CAS objective for Brazil of poverty reduction. Its goal would be to reduce rural and urban poverty while contributing to environmental sustainability. By Component: Project Component 1 - US$1.79 million Urban Communitv Develoument Sub-projects This component will focus on the poorest neighborhoods in the cities of Macaph, Santana and Laranjal do Jari through the preparation and implementation of community development plans. The plans will be prepared in a participatory manner and will encompass social development and environmental sub-projects. Anticipated sub-projects will address problems related to: low levels of community organization, lack of skills and educational opportunities, the absence of community planning, occupation of environmentally sensitive lands, poor sanitary conditions, and inadequate access to infrastructure and services. Examples of sub-projects include: Infrastructure for community services (e.g., health and "community watch" posts, "one-stop" municipal service centers, day-care centers); Construction of public areas (e.g., public markets, squares, parks, playgrounds); Transportation infrastructure (e.g., road paving, passarelas for flood-prone areas, sidewalks, bus stops and local terminals); Capacity-building activities (e.g., equipping and strengthening neighborhood associations, professional training, English and French courses, activities for youths, community surveys and studies); Environmental infrastructure (e.g., small-scale works for sanitation, water supply, drainage, and solid waste management); and Technical assistance for land regularization. Implementation of the plans should help improve living conditions in poor urban neighborhoods as well as empower community organizations through their involvement in the planning process, implementation of pilot activities and assistance for capacity building. Sub-projects will be implemented as much as possible with other partners, such as the state and municipal governments, in order to leverage both resources and impact. Specific sub-projects will also seek to link with and complement larger infrastructure investments in these three cities that could be financed by an IDB project under preparation. The component is divided into the following sub-components: 1.1 Identification of priority neighborhoods 1.2 Preparation of neighborhood diagnostic studies in priority areas 1.3 Preparation of neighborhood development plans in priority areas 1.4 Analysis and approval of neighborhood sub-projects 1.5 Implementation of sub-projects 1.6 Integrated planning and environmental management

44 The Project Coordination Unit (PCU) will hold meetings in neighborhoods with the highest poverty indicators to determine community interest in the project. A community profile will be prepared with stakeholder participation to identify neighborhood characteristics, problems and options. Stakeholders to be involved in the initial meetings and profile preparation should include, at a minimum, non-governmental organizations (NGOs), the municipal Community Works Secretariat, community associations (e.g., youth groups, women's movements, singles and couples' associations), representative organizations from the private sector, unions, and religious organizations. Community plans and their sub-projects should seek to maximize benefits and minimize costs, rely on appropriate and manageable technologies and anticipate community-based maintenance. Financial resources for the meetings, community profiles and participatory planning will be administered by the PCU. The community will select technical assistance for sub-project design and maintenance which could be provided by an NGO, a private firm or a governmental agency. The associations will be responsible for sub-project management, financial control and accounting. If a firm is selected to implement a sub-project, it will be registered and selected on a competitive basis. A flow chart that describes the steps involved in sub-project preparation and approval, as well as the roles of key actors (community organization, neighborhood association, PCU, technical assistance provider, and PAC), is provided below. Any sub-projects involving civil works should involve the participation of the community to be benefited. Beneficiaries will sign an agreement with the PCU that will include a clear definition of activities to be implemented by the community, as well as outputs and milestones. The agreement will also include a list of people who will be involved in the sub-project and their time commitments. The community's commitment and proposal for maintaining any infrastructure to be built through the sub-project should also be part of the agreement. In the case of civil works, responsible state and local authorities from the water and sanitation utility, urban sanitation, planning, health, infrastructure, and environment should be involved. Finally, this component should emphasize the participation of poor women and youths in all stages (initial meetings, community profile, community plan, sub-project design, and maintenance). For planning purposes, it has been assumed that the project will finance 3 sub-projects with an average value of R$15, (US$42,86). A second project would include financing for an additional 9 urban sub -proj ects. The proposed IDB project, entitled the "Amapi Urban Environmental Improvement Program (BR-376)," would be a loan of up to US$42 million (total project costs of up to US$7 million) for water and sanitation, urban drainage, protection of flood-prone areas, and solid waste management in Macapi, Santana and Laranjal do Jan. The water and sanitation component would include rehabilitation of the Pedrinhas Lake and collection infrastructure in Macapi, expansion of the water supply system in the capital, and construction of reservoirs and distribution networks in all three cities. The drainage component would include priority investments for building the Beirol Canal and micro-drainage throughout Macapi, and preparation of drainage master plans for all three cities. The flood-prone component will focus on preventive and remedial measures in three types of high-risk zones in Macapi. The solid waste component will assist Macaph's solid waste master plan and could undertake activities in the two other cities as well. The Bank's project has been designed in consultation with the IDB to avoid duplication and improve synergy: a) both projects will be implemented by a coordinated project implementation structure; b) the Bank will not finance infrastructure investments in the areas where the IDB will be working; and c) community sub-projects will seek to link with and complement IDB investments. The Bank may, however, finance small-scale water and sanitation, drainage and solid waste activities in communities where the IDB project will not be active

45 I Stage / Actor 1. Dissemination of project and mobilization of target groups 2. Preparation of pre proposal Flow < Community Organization E) Mobilized through field visits and information provided through various media 4) Membership neets to identify cey problems and iolutions, select an ipproach and fill ou he pre-proposal art for Pre~ai np and ADDrovinP Urbar Neighborhood PCU Association D) Meets to receive A) Defines priority areas; prepares information about and implements dissemination plan the project and participates in dissemination at neighborhood level i) Canprovide A) Assists organizations in ssistance with priority areas with meetings and ompleting the pre- preparation of pre-proposals roposal form iub-droiec Service Provider 2) Contracted :o prepare and iistribute iissemination material PC B) Consulted about the component and its dissemination strategy Orm 3. Prioritization 4. Preparation of sub-project proposal, including contracting of technical assistance 5, Approval of sub- projects I) Receives advice?om PCU about ypes and suppliers )f technical issistance Z) Selects supplier vith assistance fron 'CU \) Reviews and ipproves sub-projec xoposal; identifies :ounterpart :ontribution and )lan for operations md maintenance (if tppropriate) 3) Sends approved )roposal to PCU L 6. Adjustments B) Paaicipates in (applicable only improvement of when sub-projects proposal or are approved with provision of conditions or when additional mitigating measures information NB: are The re uired letters in es step indicate the 4) Receives and xioritizes preroposals, in iccordance with ieighborhood kvelopment plan* E) Receives :valuation of subxojects and identifies Ipportunities for integrated action; selects persons Oesponsible for nonitoring subirojects der in which activit B) Receives prioritized list of pre-proposals from neighborhood association A) Prepares registry of qualified suppliers of technical assistance B) Selects priority pre-proposals to receive technical assistance C) Suggests type of technical assistance that would help community organization to prepare its sub-project F) Contracts technical assistance provider on behalf of community organization C) Receives and evaluates subproject proposals (technical, financial, environmental, and legal reviews); sends proposals and reviews to PCU A) Requests additional information from entity that helped to prepare the proposal C) Verifies that the revised proposal responds to the PCU's request and returns to step 5A s occur within that step :) Assists irganization to irepare detailed ub-project iroposal B) Helps community organization to adjust its proposal D) Receives xoposals and -eviews from PCU; final approval of subprojects; notifies zommunity organizations &bout results and can request clarifications or conditions -41 -

46 Environmental management plan: impact-scoping for this component identified a long list of positive effects and a short list of risks concerning sewerage and water supply, solid waste management and drainage. The EMP for this component requires: a) preparation of an environmental profile for each low-income neighborhood to identi@ potential environmental issues and areas of risk; b) formulation of an environmental checklist for each neighborhood that will be completed as part of sub-project preparation in that neighborhood (the EMP includes a model checklist); c) review and approval of the checklist and any mitigation measures by the PAC; and d) monitoring of sub-project implementation to ensure that mitigation measures are followed and are effective. Over one-third of the poor residents of Macapb and Santana live in environmentally-sensitive wetlands known as ressacas which contain biodiversity and provide environmental services such as drainage and wind corridors. A diagnostic of a representative sample of these wetlands was conducted in 23. The project will finance the demarcation and participatory zoning of ressacas in these two cities, as well as environmental education in affected communities. Sub-projects will only be financed in wetlands that have been zoned. In these areas, preference will be given to sub-projects that protect and/or improve environmental quality. These include: maintenance of drainage canals; small-scale sewage treatment and water supply systems; investments to facilitate solid waste management; fish farming with native species; beekeeping; tree propagation and planting for food production andor recovery of gallery forests; and ecotourism (facilities for observing bird and other wildlife). Project Component 2 - US$1.2 million Institutional Strendhening for Povertv Reduction This component will build the capacity of the state to address key issues of poverty and development by supporting a specific reform of the state micro-credit provider and a general reform of the state administrative apparatus. Specific sub-components will assist the state-owned AFAP to improve the supply of sustainable formal financial services to microenterprises in the State of Amapb. These sub-components will address the lack of access of the poor to financial services, an important constraint to productivity and income generation and improved livelihood. This assistance would build on four years of experience in the implementation of a micro-credit operation (AMASOL) financed by the Government of Amapb. A final sub-component will provide overall assistance to reform and modernize the state administration in order to promote economic development with social justice. The micro-credit-related sub-components will build capacity of the state micro-credit program, test specific financing mechanisms for economically productive rural activities and prepare it for a follow-on project that could provide capital to finance micro-credit through the AMASOL program. The sub-components will be implemented by NAP with supervision by the PCU. Planning, capacity building and technical assistance in urban areas will be implemented by AFAP with help fiom external consultants contracted by the PCU. The rural credit line will also be implemented by AFAP with consultant support though technical assistance that could be provided by private contractors. The component will initially involve strengthening and expanding AFAP's capacity by: a) financing a development strategy and business plan with the objective to improve AMASOL's operations and make them financially self- sustainable; b) increasing loan officer productivity by providing adequate training, management information system, technological and product innovations; c) developing and implementing a marketing and outreach program and provide training; d) implementing an appropriate variable remuneration system for staff based on productivity and portfolio quality indicators; e) improving practices -42-

47 regarding client retention and client generation; f, expand capacity building to the poorest areas in MacapB and Santana to qualifl them for accessing microcredit products; and g) improving the monitoring and evaluation system to verify and ensure that resources are effectively used to create employment and increase family income. YMASOL - AFAP Microcredit Program AAer the liquidation of the state bank, Banco do Estado do AmaprE (BANAP), the state government decided to create AFAP in 1998 with an initial capital of R$ 4,,, as a minimum requirement by the Central Bank for all financial institutions, with the objective to manage state programs and specific funds and to set up a microcredit operation ( AMASOL ). AMASOL was designed to support small urban microenterprises with loans of between R$5 and R$5 charging an interest rate of 2.9% per month. Other financial services include a Solidarity Credit Card ( Cartgo Solidhrio ) which provides access to shopping possibilities to clients that pay their credits on time. The portfolio of AFAP in June 22 was R$ 7,917,13 with 2,367 active clients. By June, 23, the number of active clients has increased to 3,6. The average value for loans in 22 was R$ 2,189 which decreased to R$1,458 (June 23). This average includes larger loans as well as those granted by the AMASOL program; thus, the average for micro-credit loans is smaller. The main loan instruments applied by AFAP are (a) Crkdito SolidArio do AmapL (AMASOL), small loans with a limit of R$5, to microenterprises (formal and informal); and (b) special credits to tourism projects (Proatur), cooperatives and handicraft producers, based on governmental provided hnds. The loan limits are between R$ 5, and R$ 15,. Recently, AFAP succeeded in negotiating with the State Government the use of a part of governmental funds (program for handicrafts) for the AMASOL program, which means that AMASOL will be able to increase its budget by an additional R$ 2,2, for its 23/4 operations. Whereas the project will only concentrate on the AMASOL component, it needs to consider the overall financial and operational situation of AFAP and its special credit lines, because the administrative fees for managing the funds guarantees fixed costs coverage of AFAP. AMASOL s microcredit operation has very simple requirements for the client to obtain financial support for its business. AFAP only requires confirmation of state residency from the client and some minimum registration procedures. AFAP requires a 13% coverage of the credit (collateral), which can be provided either by a guarantor with fixed income, physical guarantees or by being part of a solidarity group. In the AFAP portfolio, 9% of all clients come from the AMASOL program; however, AMASOL represents only 43% of the credit volume. This is due to the fact that the special credit lines have higher credit limits than the AMASOL program. AFAP s current policy is to gradually abandon some special funds and credit lines and transfer the available financial capacity to the AMASOL program. Information System AFAP s mission is to promote sustainable development in the State of AmapB by providing access to financial instruments for the poorest in the State. As part of project preparation, an external evaluation of AFAP was prepared by the consulting firm DAI in late 22 that positively evaluated the overall staff qualifications, motivation and capacity for microcredit operations. Loan officers provide a rapid and solid orientation to clients and have appropriate infrastructure at their disposal in MacapB, where more than 6% of Amapa s population is located. Rapid expansion of operations to other urban centers in the State (Oiapoque, Laranjal de Jari and Santana) took place in late 21 to early 22. Due to an inefficient -43-

48 centralized decision-making system, the operational costs of these loans were far too high to be financially feasible. As negative points, the evaluation noted that the administrative council rarely fulfilled its duty and that AFAP operated largely on an informal basis with no operational manual until end of 22. This fact was perceived by the new management and several employment restructures were undertaken in 23. In April 23, an operational manual was prepared. AFAP staff are a mixture of experienced bankers and younger staff that started their careers working on microfinance. Another challenge is the political dependency of the institution. The president as well as the fiscal and administrative councils are directly nominated by the Governor. Another negative impact of the 22 political transition was the reported increase of new loan approvals during election time, which created liquidity problems and, among other reasons, caused a financial loss of R$ 99, in the first semester of 23 (GIT consultores, Oct 23). So far, AFAP has been unable to obtain relevant and up-to-date information on efficiency and profitability on separate credit lines and adequate indicators, such as average portfolio-at-risk, loan loss rate and other quality indicators. Technical reports on loan officer productivity and their portfolio were rarely issued and used. The informality of operations led to negative practices, such as renegotiation of loans at a very early stage and without being based on objective and formal criteria. Finally, AFAP s data base currently offers information only on active clients and does not register declined requests for loans nor on former clients, which prevents preparation of market trends analysis and other market-related information. In early 23, the new Government was concerned with many of these issues and had AFAP s operations audited while providing an additional subsidy to the Agency to cover last year s losses. Consultants suggested by the Central Bank reviewed AFAP s reporting and operational practices. Concerns were issued regarding its financial management system and provisioning policy. As a result of the audit and the consultations with the Central Bank, AFAP has now formalized its operations by elaborating an operational manual and is preparing a more appropriate financial management system which should be implemented and working before the effectiveness of the World Bank loan. The new system will be able to provide all technical, financial and operational indicators needed to effectively monitor AMASOL and the other financial instruments and provide adequate reports to the Brazilian Central Bank. Market: According to a comprehensive model of Brazilian microenterprises, nearly 36,8 microenterprises operate in h apa (Nichter, Goldmark and Fiori. Understanding Microfinance in the Brazilian Context. BNDES / DAI Brasil, July 22). It should be noted that microenterprises include both the formal sector (registered firms with fewer than five employees) and the informal sector (urban informal microenterprises and small rural farms). The overall number of microenterprises in Amapa is growing at a rate of 6.6% per year, which would suggest that the potential market for microfinance is also growing. Over 82% of microenterprises (3,2) are part of the informal sector. Potential demand can be calculated by multiplying the total number of microenterprises in Amaph by the percentage of microenterprises that is assumed would both demand and be eligible for microfinance products. A discount factor of 5% is employed, matching the assumption made in a recent Consultative

49 Group to Assist the Poorest (CGAP) study of microfinance industries in Latin America (Christen, Commercialization and Mission Drift: The Transformation of Microfinance in Latin America, CGAP, 21). Based on this assumption, the size of the market for microfinance in Amapa is estimated at 18,4 microenterprises. In addition, a preliminary market analysis was prepared by DAI in late 22 and GIT in October 23 where the general demand structure, AFAP s products, their acceptance, competition, growth potential and market niches have been investigated. Amaph s financial institutions are focused on the formal market and only for specific groups or sectors. Generally, services are only available at banks and some commercial institutions for local merchants and civil servants for physical investments. Instruments that could provide working capital are very limited. Interest rates for these kinds of investments are between 2.9% and 3.1 per month and around 9% monthly for account overdraws. The Banco do Brasil and Caixa EconGmica offer some financial credit lines for SMEs but only to formal businesses. Most of the poor population are immigrants from other states with little income, few skills and generally without proper documentation or a stable address. The services of the local banking system are very conservative and do not respond to the needs of poor population that currently has little or no access to financial services. MAP has a good reputation among its clients and potential clients. Currently, no outreach program or marketing activities are undertaken but demand is still increasing. There is no competition so far in the state of hapa for micro- finance activities, which makes AFAP a valuable instrument to provide these kind of services to the urban and - eventually - rural poor. The project will further strengthen the focus on the poorest population of the State and design an outreach program concentrating on the identified sectors and regions where poverty is located (see targeting data in Annex 11). The project offer will be closely analyzed to further satisfy the demand of these clients. A definition of the preferred client profile will be undertaken to support outreach and product design strategy. Current Portfolio In November 22 and October 23, a portfolio analysis was undertaken by DAI and GIT, respectively, to identify the portfolio-at-risk rate, renegotiation practices, loan loss rate, its profitability, growth rate and provisioning policy among other indicators and policies. During the appraisal mission, a rough update of the data was prepared by GIT to be able to identify the progress made and major problem areas. It was concluded that MAP S portfolio-at-risk identification and its provisioning policy are inadequate. The portfolio analysis is based on a methodology that only considers the current outstanding payment rate, instead of considering all outstanding rates at risk once one payment rate is outstanding. Furthermore, renegotiated loans are not considered in the portfolio-at-risk rate. Portfolio-at-risk rate

50 During the appraisal mission, it was determined that overall active portfolio had increased from R$5.1 million to B6.1 million with the number of active clients increasing to 3,6. This is because, at the end of last year, AFAP approved an exceptionally high number of new loans. AFAP has already taken first important steps in 23 under its new administration to reduce new loans to a level that will not jeopardize its liquidity and instructed several loan officers to clean up their portfolio. Portfolio-at-risk indicators are high. Evaluations of the portfolio in June 22, show that 32% of all remaining installments are at risk (at least one installment late for more than one day). Also this number was reduced to 27% (as of June 23), the situation remains critical. During the appraisal mission, it was not possible to identify the exact rate of renegotiated loans, but it was estimated that when excluding the renegotiated loans, the portfolio-at-risk of installments that are outstanding for more than 3 days, would drop to 16.4%. The average rate of portfolio-at-risk (3 days) in Latin America is 4.6% and 6.4% in Brazil. The main reasons for the portfolio-at-risk rate are, according to DAI and GIT, an inappropriate charging system, lack of management information, lack of consequences for loan officers when their productivity falls, renegotiation practices, monitoring practices with clients and an inappropriate portfolio-at-risk measurement methodology, that kept the problems hidden. The new administration team recognized these issues and is already taking several steps to mitigate problems. Profitability A profitability analysis demonstrated that AFAP's operational costs are increasing in relation to the revenues. DAI stated that there is a disproportional increase of variable costs (travel, per diems) and a disproportional increase in administration costs for new loans outside the urban center of MacapL. Liquidity was also decreasing rapidly. Thus, the profitability of the portfolio is not sufficient to cover the current administration costs. Subsidies from the State Government were necessary to cover operational costs during the last two years. An adjusted balance has been prepared, which considers values for subsidies, and provisions for clients-at-risk using a methodology which gives a higher value to the portfolio-at-risk for provisioning purposes. The result showed a loss of R$1.2 million in 22 and a loss of almost 1 million in the first semester of 23. The DAI and the preliminary GIT-analysis concluded that the AMSOL interest rate of 2.9% is currently not sufficient to cover operational costs, if administration costs and other issues such as monitoring, centralization of decision taking and other policies stayed untouched. The currently prepared business plan and development plan to be prepared at the beginning of the project will demonstrate if self-sustainability can be achieved by cost reduction, more efficient portfolio management and decentralization activities or if the interest rate will have to be increased to achieve this goal. Possible impacts of an increase in the interest rate on the demand structure will be analyzed

51 Indicators /(Operational expenses - provisions / I I I I medium portfolio) Financial Self sufficiency Adjusted Self sufficiency (provisioning, risk rating altered) 25% 49% 14% 98% 97% 119% 37% NA NA The indicators show that the overall portfolio is growing rapidly, implying the need for further funding to be able to finance the growth in demand. At the same time, the financial indicators for financial applications are declining because capital has been used for portfolio expansion and not for financial reserves and because of high overheads. Although, preliminary date from June 23 indicate that the protfolio-at-risk has dropped from 32 to 27%, it is still very high. The provision practice in 22 (3%) is well below the recommended value (15-2%). GOT has indicated that this amount has increased lately to 7% (June 23). Monthly revenues are low which reflects the low rate of interest rate that is charged to the clients. Efficiency, or the costs for providing loans, is increasing, which shows that economy of scale should be able to improve AFAP's efficiency rate. Productivity of loan agents is below the Latin American average. The average remuneration of loan agents is around the Latin American average. The return on investment is negative with a negative tendency, clearly demonstrating that current revenues are too low to cover operational costs. Financial self-sufficiency shows a positive trend, but if a different provisioning methodology is applied and subsidies are accounted for, the self-sufficiency rate is below 4%. Overall assessment during appraisal mission The current portfolio-at-risk is high with 16.4% of the portfolio was considered at risk (not including renegotiated loans). In the case of CrediAmigo, portfolio-at-risk is defined as daily average of portfolio-at-risk 3 days (write-off policy 36 days) during the last three months. 8% is the highest acceptable rate for continuing disbursement. This definition will apply as well for the microcredit program in Amapb, which means that M S O L will need to reach this level at the end of the project after 2-3 years, before a possible second phase will be able to provide a loan for capitalization purpose. Along with the renegotiation practices and the current high fixed costs, the portfolio-at-risk represents the major risk for the success of the microcredit component. It is estimated that to clean up the portfolio, it will take -47-

52 AFAP at least two years. Adequate assistance, guidance and training will be essential to achieve this goal. The new administration team of AFAP endorsed that improving their portfolio indicators is the highest priority and has already taken essential steps to improve this situation: (i) a new financial management system is being installed to improve the quality of information. The system should be completely installed by December 23 and should provide all required information and performance indicators for AMASOL and all other AFAP operations; (ii) an operational manual, which very clearly defines operational practices and the institutional arrangement, has been concluded; (iii) a group of consultants was hired to work on a development proposal which should be delivered by the business and development plan to be discussed with all stakeholders. It is foreseen that the business plan will supply the necessary information to define and implement an action plan to be financed by this project; and (iv) some concrete measures were undertaken to improve the quality of the portfolio, such as the focus on clients with good track records, reduction of other loans outside the AMASOL program (mainly MAP-empresarial) which will permit a further upgrade of the microcredit program, reduction of periods and loan size of operations to further adjust the products to the real financial needs of the clients, a more effective monitoring system and some capacity building activities for staff and agents. Furthermore, it has been agreed that decentralized lending operations will be implemented and all measures will be undertaken to reduce renegotiation practices to reach indicators below a level of.5% in relation to the overall portfolio. Loan officers with low productivity and low quality indicators are now only concentrating on the recovery of their loan performance and new loan emissions have been reduced to a manageable level. The Governor has declared that he would support all measures to make the institution financially self-sustainable. Risk Analysis and Compliance with OP8.3 OP8.3 says that financial institutions supported by the World Bank must have adequate profitability indicators, acceptable levels of loan collection rates and appropriate capacity in place. Although AFAP s profitability and loan collection indicators do not correspond with the requirements, evaluations demonstrate that the program can improve their indicators to the desired level if some of their old operational practices are changed. As indicated, AFAP is currently addressing this situation. Further corrections in accordance with the results and recommendations of the business and development plan will have to be followed before disbursement for the capital stock increase (sub-component 3.3) will occur. OP8.3 says that WB funds, which could be provided through a follow-on project, should be priced in order to guarantee competitiveness with what the participating financial institution and their sub-borrowers would pay in the market for similar money. That means that the WB funds should be accounted as if they were borrowed from a national bank at the transfer rate (currently 2% per year in Brazil). The financial institution should be profitable even after accounting for the transfer prices and subsidies. Evaluations demonstrate that AFAP is currently not complying with this requirement. Under the current situation, it is not clear if AFAP will reach this objective at all, unless interest rates for subloans are increased. Moreover, AFAP will only be able to reach this goal only if new Bank-provided funds are considered as borrowed in the accounting system and not the formerly provided funds by the State. The business plan will provide further indications as to when the project will be self-sustainable including accounting for subsidies and funds priced at transfer rates. Effectiveness Conditions and Project Implementation The project will finance preparation of a business plan with the objective of clearly identifying the steps to -48-

53 make the micro-credit operation feasible in accordance with financial self-sustainability objectives and portfolio quality indicators. This business plan is currently being implemented by a group of consultants. AFAP will be assisted in all capacity building efforts, adjustments to current lending practices, overall management and outreach strategies as described below in the sub-component 3.3. Progress will be constantly evaluated. If NAP S performance indicators do not improve by the first mid-term review and the agreed action plan is not being implemented, a decision will be made whether the project should continue with the capacity building activities. At the latest, during the first project mid-term review, AFAP will have to demonstrate progress made in performance and financial indicators; Activities finance under this first phase are focussing on general capacity building of AFAP staff, knowledge management and capacity building activities in the poorest urban and rural regions. Therefore, the project activities are not being considered a distortion of capital markets because it will build capacity and will learn lessons for microfinance operations in the Amazon. The business plan will spell out what kind of measures need to be taken to reach profitability targets (training, interest rate, cost reduction, etc.). If indicators are positive and the AMASOL program reaches self-sustainability after the first phase, it is planned to increase capital stock in the second phase. As indicated, evaluations demonstrate that it will be impossible for AFAP to be able to appropriately account for all subsidies and transfer prices at the beginning of the project and show a profit. Realistically, AFAP will probably not be able to correspond to the profitability requirement within the next two years. Eventual capital stock increases will have to financed from the national capital market. Some financial resources are foreseen to test and learn from specific operations in the very poorest areas and to implement and test an innovative rural approach. The following sub-components will be financed: A. Elaboration of a Development Strategy (Business Plan) Consultants will be hired to undertake a development strategy and a business plan, which will demonstrate how AFAP and its AMASOL program can achieve its goals, how to permit an expansion of the AMASOL program and how to overcome the identified constraints and problems. The expected output of the consultancy are to: (a) elaborate a complete business plan and development strategy including a sensitivity analysis; (b) prepare a market study with the overall objective to reach the urban poor; (c) fine-tune the newly implemented financial management system to be able to generate the required financial indicators; (d) improve the internal data-base; (e) prepare a detailed proposal for capacity building and outreach strategies; and ( adjust the operational manual to the findings of the business plan and the requirements of the project. The consultancy will result in an expansion and investment plan with short and medium-term objectives and activities. This business plan will supply the basis for an effective disbursement plan. The success of the AMASOL program and its envisaged expansion to other urban areas with high poverty indicators and some pilot rural areas will be measured using agreed performance indicators. In general terms, the development strategy and the business plan will have to respect following principles and indicators, as agreed with AFAP: a) the interest rate applicable for any subloans shall be sufficient at least to generate a profit for the micro-credit program AMASOL after considering all implicit subsidies the program received or will receive; b) on the long run, transfer price of funds to the micro-credit program should equal the reference rate of CDI (Certificaqb de Depbsito Interbancaria); c) portfolio quality indicators should be kept below certain levels (otherwise capital stock increase will not -49-

54 be authorized and/or disbursements will be stopped): i) daily average of portfolio-at-risk 3 days (write-off policy 36 days) during the last three months should be kept below 8%; and ii) loan loss rate: net increase relative to the last day of the last 12 month divided by the daily average loan portfolio. This indicator should be below 4%. d) provisioning for loan losses according to Central Bank policies and procedures; e) improved accounting system and financial management system able to generate necessary financial and operational indicators ; f) establishment of independent profit centers of branches; g) variable remuneration systems for staff; h) technical assistance must be independent from micro-credit operations; and i) renegotiated loans must be accounted separately. Specific performance indicators regarding portfolio quality and the expansion plans (rural and urban) will still be fine-tuned by the business plan, but it is expected that the monitoring system will track the following: portfolio quality (mentioned above); average loan size of active clients, new clients and renewed loans to clients (current loan size is between R$ 5 and R$ 5 but could be defined more precisely in accordance to the feasibility and sustainability findings in the business plan); number of active clients. Preliminary estimates indicate a possible increase from 4, clients still in 23 to 5, in 24, 6,5 in 25, 8, in 26 and up to 1, active clients in 27; number of branches (4 new branches installed until 25, another 2 installed by 26); number of clients per loan officers (25 clients, currently 28); administrative costslaverage loan portfolio; and indicators about the dispersion in performance across loan officers and branches. B. Strengthening Capacity for Sustainable Growth of AMASOL This component will be implemented by the AMASOL Technical Unit working with the appropriate units of AFAP and outside agencies (Central Bank, SEMA, PCU) as relevant. Consultants will be hired by the PCU. All activities under this component will be further guided by the business plan and the resulting development plan. a) Constant Capacity building and monitoring of the implementation of the development plan: The effective control of the current portfolio requires the strengthening of the technical capacity of MAP, including the improvement of the charging methodology, reporting system and supervision of ongoing loans. Priority will be given to strengthen the management capacity of the new administration team to be able to deal with the improvement of the overall portfolio management and the expansion plans of the agency. Management practices will be constantly monitored and reviewed during the implementation. The initial capacity building component will support the most urgent actions identified by the business plan. AFAP staff will receive training through study tours and participation in conferences focused on institutional development of commercial micro-finance institutions. A group of consultants will be hired to permanently follow up and monitor the development action plan and the principles agreed in the business plan. The group of consultants will promote ad-hoc capacity building seminars in AmapB, train the administration and loan officers and orient staff on how to improve their efficiency and overall administration - 5 -

55 As a result, AFAP management will have implemented the institutional structure recommended by the business plan, management staff will be trained on best practices, and AFAP should be able to publish annual statements of program results based on external due diligence reviews, portfolio and quality indicators, which assess the program in terms of its viability as an independent financial institution. AFAP will have implemented a variable remuneration system for loan officers, improved internal information flow and improved its external communication strategy emphasizing on portfolio quality and renegotiation practices. b) Loan OfJicer Productivity: Consultants will be hired to assist AFAP in development of mechanisms to enhance loan officer productivity in terms of gaining new clients and management of larger numbers of active clients, including handling an improved charging system, monitoring activities and reporting system. As a result of this subcomponent, AFAP will have implemented a more effective variable remuneration system, loan officers will be trained in more efficient client retention, and a more effective charging system and monitoring system will be implemented. Training of state agents to assist AFAP in building capacity in poor neighborhoods: According to the project objectives, AMASOL will increasingly have to reach out to the poorest areas of the State of Amaph with adequate products. It has been identified that some of the potential clients are not yet prepared to access the products offered by AFAP. Appraisal mission showed that there is potential within state institutions to act as muliplicators and trainers to further build capacity in these poor areas to help them to identify their needs and demand and to train them in how to administer small-scale businesses. Consultants will be hired to train these state agents to further implement these capacity building activities over the years. c) Marketing: Consultants will be hired to assist AFAP to develop promotional and marketing strategies for the AMASOL program and products. Technical unit and branch staff will be trained to implement the strategies which are adopted. As a result of the component, AMASOL will have developed and implemented a new marketing strategy for the overall program, including new financial products (savings, products that address more specifically the urban poor, etc.), specific markets and specific products and branch staff trained accordingly. The new marketing plan will have to focus on the overall strategy of the project to reduce poverty. Part of the marketing consulting and the constant support program to AFAP, it is foreseen that AFAP will be assisted in the identification of mechanisms which will provide a cost-effective outreach to clients in lower-density areas and new unexplored areas within MacapA and Santana and other smaller urban centers in Amaph. Based on the business plan and the geographical outreach plan, equipment will be purchased to pilot the technology and staff will be trained. As a result of the component, AMASOL will have feasibility studies and pilot evaluations of several outreach technologies, including financial projections, legal and regulatory requirement and staff training and support needs. New Financial Products: Consultants will be hired to assist AFAP in the identification and design of new loan and savings products with the objective to amplify their set of products to reach micro-finance operations, instead of only micro-credit operations. This study will include as well a diversification of pilot products for the rural outreach. The consultants will assist AMASOL in the design of product design and testing and development and evaluation of pilots. As a result of this activity, AMASOL will have feasibility studies and pilot evaluations of several loan and new financial products, including financial projections and staff training needs

56 Over time, AMASOL will have the opportunity to expand its service offerings, enabling the organization to meet the evolving needs of local microentrepreneurs. This expansion would also be likely to yield numerous economic advantages, such as higher revenues per client, a reduction in client acquisition costs (as a percentage of total revenues), and improved loan delinquency rates (from clients with proven payment histories and access to risk management products such as insurance). The table below shows the main types of microfinance products offered today in the international context. Brazilian microfinance institutions offer those products marked with an asterisk. Government regulations explicitly prohibit most players in the local microfinance industry from offering many of the products listed below. Product Category Traditional microcredit Examples of Products I Working capital* I Other types of credit Savings Insurance Other services Investment capital* Agricultural loans* Troca de cheaue* Educational loans Consumer credit * * Pawn lending Obligatory savings Voluntary savings Fixed-term deposits Credit Life Health Property Payments Transfers Currency exchange *Currently offered by MFIs in Brazil. **One program in Fortaleza, operated within a community association, offers a community credit card to support purchases from local stores. Source: Nichter, Goldmark and Fiori. Understanding Microfinance in the Brazilian Context. BNDES / DAI Brad (July 22). d) Rural Outreach Strategy and Feasibility Studies: For rural areas, the sub-component will finance the design and testing of a special credit line. This will be based on the lessons learned during two decades of experience with rural lending through the defunct hapi State Bank and the Amazon Bank, the Central Bank s guidance on rural credit and experiences of the RFPP in the State of Amapi. Credit line design will need to take into consideration: a history of paternalism between the state and the rural producer; limited ability to provide technical assistance; transportation and communications difficulties; high costs related to the productive cycle; and challenges regarding monitoring and supervision. The design should include: development of a registration system, an approach for providing technical assistance, a proposal for the loan guarantee mechanism, criteria for establishing the eligibility of rural proposals, and the terms and conditions for loan repayment and default. Once designed, the rural credit line will be tested, monitored and evaluated in some pilot areas. First evaluations show that the pilot should consider a productive sector approach

57 Investments based on extractivism traditionally show a quick return on investment, including the collection of Brazil nuts, seasonal shrimp harvesting, and collectiodprocessing of Agai and wild cacao fruits. Handicraft production might be another potential opportunity to test in areas with seasonal production and organized associations. Seasonal extractivists lack capital to prefinance equipment and transport costs for their products. Another characteristic is the quick return of investment (max. two months), which represent an outstanding opportunity for microcredit operations. The highest probability of success would be loans to individuals in organized groups. An evaluation will show what regions should be prioritized, which mostly will depend on the number of interested producers organized in an association. e) Environmental Management: impact-scoping concluded that past investments financed by the AMASOL program of AFAP did not create significant negative environmental impacts. However, there is a risk that even small-scale activities can create environmental risks and that a monitoring and control system was justified. In the case of Amaph, several microentrepreneurs depend on economic activities based on natural products, where the they will have to demonstrate the source of its raw-materials and in case of potential negative impact, will have to prove mitigation strategies and/or management plans. EMP for this component requires that: a) each request for financing include relevant environmental information (e.g., source of raw-materials, distance of activity from nearest watercourse, hygienic conditions for workers, anticipated use of any toxic or hazardous materials, possible emissions of solid, liquid or gaseous wastes, etc.); In the case of b) where possible risks are detected, the financing proposal will be re-designed to avoid negative impacts; and c) the at-risk proposal will apply for and receive any necessary environmental license prior to receiving financing. In addition, incentives will be contemplated to encourage proposals that are environmentally sustainable (e.g., recycling) and/or that promote environmental rehabilitation (e.g., seedling nurseries). As a result of this component, loan officers will be trained to understand possible environmental impacts, orient their clients on mitigation practices, indicate available technical assistant, orient on legal situation and monitor their clients activities on environmental impacts. C. Institutional Development Consultants will be hired to undertake legal and regulatory studies, develop public reporting mechanisms and carry-out annual due diligence review. AMASOL staff will also receive training through study tours and participation in conferences focused on institutional development of commercial microfinance institutions. As a result of the component, AMASOL will be able to establish institutional structures consistent with increasing the managerial, financial and legal independence of AMASOL, and publish annual statements of program results based on extemal due diligence reviews which assess the program in terms of its viability as an independent financial institutions. Program results and on-going lessons learned will be disseminated through seminars and publications. D. Public Administration Strenghtening The objective of the final sub-component is to improve public administration in project-related sectors to make the goverment more effective in terms of economic development and social fairness. This sub-project will finance studies, diagnostics, action plans, and consensus-building workshops. Project Component 3 - US$2.55 million Rural Communitv Development Sub-Proiects The project will provide grants for sub-projects that are identified and developed by community -53-

58 associations and prioritized by Municipal Development Fora (MDF) that have already been created in all of Amapi s municipalities (except the primarily urban municipalities of Macapi and Santana). For an association to qualify for funding, the municipality where it is located must submit a local sustainable development plan that has been prepared in a participatory manner and which briefly sets out the community s vision of key poverty/environment issues, options and objectives. All fourteen municipalities with MDFs had prepared their plans by the end of 22. Associations will normally receive the finds for implementing their sub-projects and thus will be responsible for sub-project management, financial control and accounting. This component consists of the following sub-components: A. Socio-environmental sub-projects (design, selection, financing, implementation) B. Productive sub-projects (design, selection, financing, implementation) C. Studies for rural areas (includes regularization of quilombos) D. Capacity-building for Municipal Development Fora and rural associations E. Technical assistance for sub-projects F. Integrated planning and environmental management The component will reserve 1% of sub-project financial resources for a special set of beneficiaries: indigenous people, Afro-Brazilians (quilombolas), and poor women and adolescents. Special, culturally-appropriate procedures have been designed for sub-project design and approval for indigenous groups and quilombolas; these are described in greater detail in Annex 13 which summarizes the Special Groups Inclusion Strategy and in the flowchart below. The PCU will undertake a variety of measures, also identified in the Strategy, to promote greater involvement of poor women and youths as sub-project beneficiaries. The component will also support an initiative to promote the regularization of quilombo lands in the state, based on the successful experience of the Curiau community Two types of sub-projects will be financed environmental and social infrastructure, and support for environmentally-sustainable productive investments. Examples of environmental and social infrastructure include: drinking water supply, primary health care posts, maintenance and clearance of rural paths and lanes, clearing of igarapk waterways, community centers, day-care centers, family schools, libraries, sport and recreation centers, rural electricity generation and distribution, rural telecommunications systems, and construction of small bridges. For planning purposes, the project would finance 15 such projects with an average value of R$75, (US$25,). Examples of environmentally-sustainable productive investments include: agroforestry systems, sustainable forest management, agricultural equipment to improve soil quality, community-based manioc flour processing units, small-scale grain silos, processing facilities for fruit pulp, seedling nurseries, beekeeping, sustainable fisheries practices, fish meal production, ice-making (for artisanal fisheries), aquaculture, textile production, studies to design community natural resource management systems, training for producers and entrepreneurs, and improved local transportation and marketing systems. For planning purposes, the project would finance 15 such projects with an average value of R$1, (US$33,333). These are preliminary lists that are based on initial surveys of community demand conducted by ADAP. This component will be driven by community demand and the project is free to finance other activities not listed here that are consistent with project objectives. Grant finds would also cover any necessary technical assistance for sub-project design, training and environmental studies and environmental impact mitigation related to sub-project execution. A more detailed description of the process for preparing and approving sub-projects for standard rural communities, is provided in the flow charts below. The process for indigenous and quilombo areas is described in the flowchart in Annex

59 Some of the anticipated sub-projects are subject to standardization, e.g., unit costs can be estimated for constructing a square meter of a school, day-care center or health post, a linear meter of a bridge or a manioc flour facility with an output of X tons per month. During project preparation, a set of "standardized" sub-project dossiers were designed to assist communities that might propose these types of activities as their priorities. These dossiers include recommended design parameters, estimated unit costs, potential environmental impacts, and 'mitigation measures to be followed. Communities that identify priority sub-projects that do not fit within this category can obtain technical assistance for sub-project design. They will be free to choose the provider of technical assistance, e.g., from a government agency, an academic institution, an NGO or a private firm, and the project will finance this assistance based on an average estimate of 1% of total sub-project costs. Technical assistance financing of up to 2% of sub-project costs could be approved by the PCU if special circumstances merit a higher investment in design. The component will not finance certain activities that have been deemed to be environmentally and socially destructive. On an ecosystem basis, these include: I Ecosvstem I Prohibited Activitv Tropical Forest Savannah (cerrudo) Coastal and floodplain (vhzea) Extraction and processing of wood without a management plan Extraction of other natural resources with irreversible environmental impacts Uncontrolled use of fire Clearing and planting of agricultural land that results in deforestation Expansion of industrial and semi-industrial monocropping Expansion of monocropping that requires clearing of >3 ha of native vegetation Uncontrolled use of fire Unsustainable industrial-scale fishing High-impact, unmanaged extraction of other natural resources Fish farming with exotic species, e.g. tilapia More generally, on environmental grounds the project will not finance activities in strict environmental protection areas, trade in endangered species of flora and fauna, and mining. On social grounds, generally prohibited sub-projects include: purchase of land; investments associated with the production of alcoholic beverages, tobacco and weapons; construction of churches of any denomination; construction of government administrative buildings; and projects that benefit only one individual or family. To guarantee and facilitate the availability of quality technical assistance, the PCU will prepare minimum criteria that should be met by government agencies, non-govenunental organizations, private firms, and individual consultants in order to provide technical assistance. The PCU could also maintain a negative list of entities that should not be contracted to provide assistance because they have not succeeded in satisfying the minimum crtieria. Technical assistance would be available to: i) help communities to prepare pre-proposals; ii) prepare engineering designs for sub-projects; iii) prepare natural resource surveys and

60 management plans; iv) formulate business plans; v) assist communities with the preparation of implementation and maintenance plans; vi) prepare technical reports to assist the PCU to evaluate sub-project proposals; vii) provide technical assistance to community enterprises during implementation; viii) undertake construction and service provision; and ix) prepare courses and course material for training and capacity building. The PCU would be responsible for maintaining the register, including performance evaluation of the registered entities. However, the choice of a technical assistance provider for project design would be made by the community itself. The following should be met to obtain financing for an environmental or social sub-project: prioritization of the sub-project pre-proposal by the appropriate Municipal Development Forum in a manner that is consistent with the municipality's vision of sustainable local development; a completed sub-project proposal (either prepared by the community or its consultants, or based on a standardized dossier) that has been discussed and approved by a legally-constituted community association; presentation of a maintenance plan that commits the community to operate and maintain the sub-project or, in the case of a public service, identifies maintenance costs and the agency that will be responsible for them; and identification of the procedures that the community will use to accompany sub-project implementation, including provision of their 1% counterpart contribution which can be cash or in-kind (e.g., labor and raw materials). The following should be met to obtain financing for environmentally-sustainable productive investments: approval of the financing request by a legally constituted producers' association in a general assembly meeting with the decision registered in written minutes of the meeting; similar approval of the sub-project proposal, following any necessary engineering and economic evaluations; preparation of a maintenance plan, including a list of responsible partners, and a business plan that includes information on the quantity of natural resources required and/or the quantity and frequency of harvesting; for training proposals, there should be a list of producers interested in participating in the course and a proposal for evaluating the utility of the course for the participants and the community; all sub-projects that involve food production or processing for human consumption must be reviewed by the appropriate state public health authority before final approval; and all sub-projects with environmental impacts, as identified by the Project Council (PC), should include appropriate mitigation measures. The first step for implementing this component will be the identification of priority rural areas within the state based on the incidence of poverty and the number of people living in poverty. Then, a dissemination campaign needs to be prepared and implemented by ADAP in order to inform the public, especially in priority areas, about the objectives and procedures for accessing support from the component. This would include a mobile unit that would function as a "one-stop shop" to assist communities and rural producers with the establishment of legal associations. Next, Municipal Development Fora, especially those that include priority areas, need to establish their priorities. Several have already done so through the preparation of local sustainable development plans. Once these steps have been concluded, the following procedure would be followed to solicit and approve sub-projects:

61 1. Provision of financial support and assistance to communities to prepare a pre-proposal. 2. Prioritization of pre-proposal by the appropriate Municipal Development Forum. 3. Sub-project preparation by a registered and prequalified entity including, where appropriate, engineering designs or business plans. 4. Discussion and approval of the sub-project proposal by the beneficiary community, including plans for community involvement in sub-project implementation and maintenance. 5. Final project approval by the PAC, with a copy of the approved sub-project being sent to the MDF for information. 6. Financing of the sub-project, including arranging the convenio to transfer funds to the implementing association and contracting of any additional technical assistance needed

62 Flowchart for PreDarinP and ADDrovinP Rural Sub-Droiects StageIActor Community or Municipal Development PCU Service Provider PC Producers' Forum Association 1. Dissemination of project and E) Mobilized through field visits and D) Meets to receive information about the A) Defines priority areas; prepares and implements C) Contracted to prepare and distribute B) Consulted about the component and mobilization of information provided project and participates in dissemination plan dissemination material its dissemination target groups through various media dissemination at strategy community level 2. Preparation of pre A) Membership meets B) Can provide assistance A) Assists associations in proposal to identify key problems with completing the pre- priority areas with meetings md solutions, select an proposal form and preparation of pre- approach and fill out the proposals pre-proposal form 3. Prioritization A) Receives and B) Receives prioritized list prioritizes pre-proposals, of pre-proposals from in accordance with local Municipal Development sustainable development Forum 4. Preparation of D) Receives advice A) Prepares registry of?) Assists association sub-project proposal, including contracting from PCU about types and suppliers of qualified suppliers of technical assistance o prepare detailed subxoject proposal of technical technical assistance B) Selects priority pre- assistance E) Selects supplier with proposals to receive assistance from PCU technical assistance C) Suggests type of technical assistance that would help the association to prepare its sub-project F) Contracts technical assistance provider on beha of association 5. Approval of sub- A) Reviews and E) Receives evaluation of C) Receives and evaluates D) Receives projects 3pproves sub-project sub-projects and identifies sub-project proposals proposals and oroposal; identifies opportunities for :technical, financial, reviews from PCU; :ounterpart contribution integrated action; selects environmental, and legal final approval of sub and plan for operations and maintenance (if persons responsible for monitoring sub-projects reviews); sends proposals ar reviews to PCU projects; notifies associations about appropriate) results and can B) Sends approved request clarifications xoposal to PCU or conditions 6. Adjustments B) Participates in A) Requests additional B) Helps association (applicable only improvement of information from entity thi to adjust its proposal when sub-projects proposal or provision helped to prepare the are approved with of additional proposal conditions or when information C) Verifies that the revise mitigating measures proposal responds to the are required) PCU's request and returns to step 5A NB: The letters in each step indicate the order in which activities occur within that step - 5% -

63 Environmental Management Plan Impact-scoping involved the identification of environmental risks posed by 28 of the most likely sub-projects as well as mitigation measures and the possible need to obtain environmental licenses. This information has been incorporated in the standard sub-project dossiers to help associations minimize environmental problems at the design stage. The EMP for this component consists of the following requirements: a) identifying possible impacts, the need for additional study and environmental licensing during sub-project preparation; b) screening of sub-project proposals by the PCU, with input from SEMA and IBAMA where necessary; c) PAC review and approval of simplified environmental impact analysis, including mitigation measures and monitoring indicators where appropriate; d) community training on environmental impacts and responsibilities for mitigation prior to sub-project implementation; e) implementation of mitigation measures where needed; and f, monitoring and periodic review. Project Component 4 - US$1.5 million CaDacitv Buildina for Particioatorv ManaPement and Technical Assistance The purposes of this component are to: reinforce the operational capacity of ADAP to coordinate project implementation; prepare and implement the management information system (MIS); maintain a monitoring and evaluation system for the project, including close collaboration with the state Environment Secretariat (SEMA) and the national environmental protection agency (IBAMA); and undertake information and promotional campaigns for public awareness. Additional capacity-building resources are included in other components: creation and strengthening of urban neighborhood associations (Component 1); preparing the AFAP development strategy and business plan, and building its capacity to meet both urban and rural demand for micro-credit (Component 2); support the analysis and action planning for the state's administrative reform (Component 2); creation and strengthening of rural community and producer associations (Component 3); strengthening the capacity of the Municipal Development Fora to undertake local sustainable development planning, monitoring sub-project implementation and contribute to evaluating whether the project is achieving its results (Component 3); and assist the Amapd Institute for Rural Development (RURAP) with the supervision of technical assistance to communities and the sharing of knowledge and experience between Municipal Development Fora (Component 3). Capacity building includes human resource development, acquisition of goods and services, and the creation of operational units for project implementation. ADAP, which will oversee the Project Coordination Unit but has not yet implemented a World Bank project, will contract a firm to assist with project financial and administrative management. The main objective of the firm would be to train PCU staff to gradually assume this responsibility. Additionally, ADAP will obtain equipment and support to create a management information system to assist with project monitoring. The PCU will also be responsible for contracting and supervising public awareness campaigns and other activities that will provide information to promote the project's objectives. Funds will be made available for creation and administrative strengthening of Associations. Several

64 community groups operate on an informal level or do not have the capacity yet to effectively implement subprojects. ADAP will coordinate all activities for the rural and urban community capacity building. Experience shows that it takes more than one year to formally create an Association in rural areas. In several cases, the associations will need close supervision to be able to organize the decision-making process and the implementation process. Experiences from the RESEX project, partially implemented in the Sate of hap& show that associations had difficulties in accounting for their funds. ADAP or a subcontracted organizations will train and assist all associations with procurement procedures and accounting. Especially in remote rural areas, ADAP will need to closely supervise every subproject because of difficulties related to communications, access to banking services, availability of technical assistance, climatic problems, and high illiteracy rates. Environment-focused activities In addition to the component-specific Ems, the following actions will be undertaken to improve the environmental performance of the project: a) environmental awareness training for the PAC, the PCU, AFAP staff, RURAP, Municipal Development Fora, and associations; b) involvement of SEMA and IBAMA in the design of information and dissemination campaigns for the project; c) use of ecological-economic zoning to identify activities that are being proposed in areas of high environmental risks (conservation areas, high biodiversity, natural resources under pressure, fragile or sensitive environments). This information is already available for the three southernmost municipalities, is being developed for the north and the project will finance its creation for the rest of the state; and d) one or more regional environmental impact analyses to identify the cumulative effect (positive or negative) of potential investments in priority areas

65 Annex 3: Estimated Project Costs BRAZIL: Amapa Sustainable Communities Local Foreign Project Cost By Component US $million US $million Component 1 : Urban Community Development Sub-projects Component 2: Institutional Strengthening for Poverty Reduction Component 3: Rural Community Development Sub-projects Component 4: Capacity Building and Technical Assistance Total Baseline Cost Physical Contingencies Price Contingencies Total Project Costs Front-end fee.2.2 Total Financing Required Project Cost By Category Goods Works Services (including training) Sub-projects (Components 1 and 3) Sub-projects (Component 2) Physical Contingencies Price Contingencies Total Project Costs' Front-end fee Total Financing Required Identifiable taxes and duties are (US$m) and the total project cost, net of taxes, is 6.81 (US$m). Therefore, the project cost sharing ratio i s 7.48% of total project cost net of taxes

66 Annex 4: Partial Cost-Benefit Analysis BRAZIL: Amapa Sustainable Communities Component 2: Financial Analysis of AFAP As part of an overall assessment of AFAP, the development bank's financial performance was evaluated. This indicated a monthly return on the loan portfolio of 1.37% and an annual operational return of -.38% (based on the most recently available data -- through June 3,22). A thorough evaluation of AFAP was undertaken as part of project preparation, identifying a range of operational and financial reforms that will be financed through the project. It is hoped that these measures, along with an expansion of activities, will bring the development bank up to the average Brazilian standard for monthly return on loan portfolio (4.28%) and the average Latin American standard for annual operational return (8.18%). Data on the monthly return on the loan portfolio is presented in Tables 4.1 and 4.2, and on the annual operational return in Tables 4.3 and 4.4. More information on the financial analysis of AFAP is available in the report in the project file. Table 4.1 AFAP Monthly Return and Interest Rate Indicator Return on portfolio (monthly ave.) Effective interest rate (monthly) 6/3/ /1 12/3/O 1.37%" 2.11% 2.4% from 1.7% to from 1.7% to from 1.7% to 2.9% 2.9% 2.9% Table 4.2 Brazilian Monthlv Return and Interest Rate (averape for micro-credit) Indicator I Minimum Value Average Value I Maximum Value Return on Dortfolio (monthlv ave.) I 1.3% 4.28% 6.8% *Portfolio-at-risk includes renegotiated loans Return on investment" Adiusted return on investment" Operational self-sufficiency Adjusted operational self-sufficiency Financial self-sufficiencv Adjusted fmaxkial self-sufficiency -.38% -1% 3 yo % NIA NIA 6% 59% 27% 23% N/A NIA 98% 97% 119% 37% NIA NIA

67 I Return on Investment Minimum I Average Maximum Latin America micro-credit institutions.6% 7.3% 28.7% Adjusted Return on Investment Minimum Average Maximum Latin America micro-credit institutions (Jansson and Taborga. Data for I 3.4% December 1998 for the five top institutions that participated in the 8*18% 22.9% Component 3: Financial Analysis of Selected Productive Investments An indicative financial cost-benefit analysis was prepared for seven types of productive rural sub-projects that are likely to be financed by the project: a manual manioc flour mill, a mechanized manioc flour mill, a fruit pulp processing facility, a beekeepinghoney extraction operation, a seedling nursery, a grain silo, and a managed aeai plantation. The analysis was done from the viewpoint of the individual producer as well as the association which would receive a commission from the producer-member. A summary of the results is presented below. The full analysis per sub-project, along with assumptions, can be found in the project file

68 I Annex 5: Financial Summary BRAZIL: Amapa Sustainable Communities Years Ending IMPLEMENTATION PERIOD I Year1 I Year2 I Year3 I Year4 I Year5 I Year6 I Year 7 Total Financing Required Project Costs Investment Costs Recurrent Costs Total Project Costs Front-end fee Total Financing Financing IBRDllDA Government Central Provincial Co-financiers User FeeslBeneficiaries Other Total Project Financing Total Financing Required Project Costs Investment Costs 1.o Recurrent Costs Total Project Costs Front-end fee Total Financing Financing IBRDllDA Government Central Provincial Co-financiers User FeeslBeneficiaries Other Total Project Financing

69 Front-end fee: The fee is too small to appear in this format. For information, in the operational period, it constitutes: US$lO,OOO (Year l), $2, (2), $1, (3), and $1, (4) Main assumptions: The US dollar inflation rates used for calculating the physical contingencies are as follows:.5% (Year l), 1.% (2), 1.51% (3), and 2.2% (4)

70 Annex 6(A): Procurement Arrangements BRAZIL: Amapa Sustainable Communities Procurement A. General Procurement for the proposed project would be carried out in accordance with the World Bank s Guidelines: Procurement Under IBRD Loans and IDA Credits dated May 24; and Guidelines: Selection and Employment of Consultants by World Bank Borrowers dated May 24, and the provisions stipulated in the Legal Agreement. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect actual project implementation needs and improvements in institutional capacity. Procurement of Goods: The proposed project would finance goods consisting of IT equipment, vehicles, and logistics, printing, events, and publicity services. There will be no ICB under the project. The procurement will be done using National SBD agreed with (or satisfactory to) the Bank. The national pregao eletronico may be used as an alternative to shopping for goods contracts estimated to cost less than us$1,. Procurement of Works: Works under this project will be financed through the community sub-projects, subject to special procurement provisions under the operational manual. Procurement of non-consulting services: ADAP will use administrative procedures (where shopping is not appropriate) consistent with the national law (i.e pregzo eletronico) to hire logistics and support services for the multiple training activities. These services will include rental of equipment and facilities, payment of utilities, and photocopying and printing, generally in service orders of very small amounts (less than US$3,). The operational manual will spell out the administrative procedures mentioned above and their applicability. Selection of Consultants: The proposed project will finance consultant services by firms and individuals. These services consist of training activities, technical and performance auditors, independent procurement reviews, and advisory services. Short lists of consultants for services estimated to cost less than $5, equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. There will be no contracts estimated to cost more than US$5,. Operational Costs: Operational costs refer to the management and supervision of the Project, including PCU staff, maintenance and supplies, office furniture, communication services, spare parts for office equipment and vehicles, and office rental. It may include travel and subsistence expenses for PCU staff. These costs are estimated to amount to US$1.16 million equivalent, to be financed in accordance to annual plans subject to Bank s approval. Inquiries in the local market will identify suppliers of sundry items and minor services. A minimum of 3 quotations will have to be received. Once the suppliers are established, who will be generally the suppliers offering the lowest cost of lists of items, a purchase order will be issued following regular administrative procedures. The market inquiries will be updated periodically. The

71 operational manual will detail these procedures and the inquiry process, including the updates and frequency. Pregiio can also be used as a procurement method for these items, or an alternative administrative method acceptable to the Bank. Other: Procurement under Components 1, 2 and 3 (Sub-projects and Institutional Strengthening) The micro-credit recipients (individuals or enterprises) and the beneficiary community associations or NGOs will carry out the procurement under these components. The supervised micro-credit to individual and micro enterprises and the sub-projects benefiting the Municipal Fora, the NGOs, and the organized communities will have procurement actions of small value. These actions will include social infrastructure (e.g. works), warehouses, equipment, and services. The project will provide adequate flexibility and arrangements consistent with par in accordance with the Operational Manual that will spell out the procurement procedures under the micro-fredits and sub-projects. This manual will be subject to approval by the Bank. The approved manual will be a condition of loan effectiveness. There are no aggregate amounts for the less competitive procedures to be used under the micro-credits and sub-projects. B. Assessment of Agency's Capacity to Implement Procurement The assessment found out that ADAP has limited experience in procurement with Bank's financing or to supervise procurement carried out by others. In Amaph, there is no state central procurement unit; each Secretariat has its own procurement unit and carries out all types of procurement in house adhering strictly to the procurement law 8.666'93. There are no serious concerns raised regarding quality of internal procurement practices of the implementing agency and their conformity with procurement practices acceptable to the Bank. The possibility of innovation and creativity in this project appears very limited due to the insufficient capacity of ADAP. In order to cover all the stages of the procurement cycle, ADAP will have to reinforce its capacity either through hiring additional staff or hiring a management firm. The action plan to increase ADAP's capacity include the following actions: (i) to hire a management firm; (ii) to retain two procurement specialist; (iii) to update the procurement plan; (iv) to hire independent reviews for the sub-project component; (v) to provide space to the procurement function; (vi) to install a monitoring system; and (vii) to develop procurement manuals. The overall project risk for procurement is high. C. Procurement Plan The Borrower, at appraisal, developed a Procurement Plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on October 26,24. It will be available in the Project's database, IRIS, and in the Bank's external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. D. Frequency of Procurement Supervision In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended bi-annual supervision missions to visit the field to carry out post review of procurement actions. Procurement methods (Table A) Not required

72 Annex 6(B): Financial Management and Disbursement Arrangements BRAZIL: Amapa Sustainable Communities Financial Manavement 1. Summary of the Financial Management Assessment I - Financial Management Assessment A preliminary financial management assessment was conducted in December 22 and an action plan was agreed with the existing PCIU, to implement the financial management arrangements in order to enable the Project to effectively manage and monitor the funds to be financed by the Bank. This mission concluded that with training, installation of a financial management system and implementation of all other financial management requirements, ADAP would have the capacity to implement and manage the project. The action plan included a) hire and train the financial and accounting staff required for the Project, b) select and implement the accounting and reporting system, c) design the models of the FMR which would best suit project s needs, d) design the most simpler and effective possible flow of funds within the State, starting at the Loan account up to the end beneficiaries, and including counterpart resources, e) prepare a drar of the Financial Manual, f) adequate and train the AFAP staff who would be in charge to implement the micro-credit component. The May 23 appraisal mission, found out that, due to several reasons, among them, the change in the State administration and in PCU staff, not much little progress had been made on the to implementation of the action plan agreed in December 22, largely because of changes in the PCU staff related to the new government. A new PCU organization chart was prepared, but several many positions were not yet fulfilled. In the financial management department, only a financial manager and an information technology person were hired. Therefore, during the appraisal mission a new detailed action plan had to be prepared in order to implement all financial management arrangements required to manage and monitor the Project s financial resources, according to Bank s standards. The topics of this action plan are summarized in the following paragraphs, and once implemented will enable the PIU to effectively execute the financial management of the Project. Some basic requirements are, however, precondition for negotiations. And these are: a) approved Terms of Reference for hiring the management firm. The TOR will include all financial management arrangements agreed during the appraisal mission; b) that the bidding process to hire such a firm has started;. c) preparation of a funds flow chart; and. d) agreement of FMR formats and the time table for their submission. The Financial Management arrangements action plan, was prepared in accordance with OPBP 1.2 and the Guidelines for Assessment of Financial Management Arrangements in World Bank-Financed Projects issued by the Financial Management Sector Board on June 21. The Community Driven Development Projects Guidelines (CDD Guidelines) were also referred to, where applicable. The objectives of the financial management action plan were to build up the PCU capacity to: i) properly manage and account for all project proceeds, costs and transactions, ii) produce timely, accurate and reliable financial statements and reports for general and Bank special purposes, iii) engage reliable independent auditors acceptable to the Bank, and iv) disburse Bank s fimds in the most efficient way and following applicable Bank s rules and procedures. The overall assessment work included: a) discussions with the PCU s Financial staff and other members as deemed necessary, b) assessment of the Financial Management Systems to be implemented for project s accounting, financial administration, controlling, monitoring and reporting, c) analysis of the financial staff required and structure of financial department, d) review of fhds flow mechanisms, e) review of internal

73 controls and administration procedures to control and monitor project execution, f, review disbursement methodology to be used, g) agree on reporting requirements, and h) review internal and external audit arrangements. The financial management risk associated to the project is rated as high due to: a) the very limited financial staff assigned to this project at this time, b) total lack of experience in dealing with International Organizations financing. This is the first project to be financed by the Bank, and c) financial management arrangements yet to be implemented. These financial management risks will be mitigated by the hiring of a management firm which will provide support and training and be responsible for managing the project during the first two to three years of operation. One of the tasks of this firm will be to build the management capacity of the PCU during this initial period. Once the financial management arrangements are in place, which will be a condition of effectiveness, the PCU will satisfy the Bank s minimum requirements and will have in place a financial management system that can provide with reasonable assurance, accurate and timely information on the status of the project. I1 - Project Risk analysis A detailed risk assessment questionnaire has been filled in on basis of the observations made and is filed together with the financial management assessment work papers. The Risk Assessment Matrix below summarizes the degree of risk, at this time, of each of the items related to the Financial Management of the Project. Risk Assessment Matrix 4. Accounting Policies and Procedures 5. Internal Audit 6. External Audit 7. Reporting and Monitoring 8. Information Systems X X x X X place Not yet implemented III - Implementing Unit

74 The Project will be implemented by a PCU existing within ADAP - Agsncia de Desenvolvimento do Estado do AmapL. ADAP, an independent agency, with Secretariat status, reporting directly to the Governor. The PCU was established by a Decree No.336 dated March 26,23 signed by the Governor. ADAP is the agency responsible for undertaking development Projects for the State, including those financed by International Organizations like IDB and IBRD. Its President is supported by an advisory Board for technical and legal issues. The Coordinator of the AP Sustainable Communities Project will report directly to the President of ADAP. ADAP s operational activities are divided between five Departments: 1) civil works supervision, 2) coordination of projects financed by IDB, 3) coordination of projects financed by IBRD, 4) financial and administrative, which includes also procurement and information technology, 5) department in charge of field operations and agencies. The structure seems to be adequate, however the main functions and positions have yet to be fully defined and filled, and it has to be taken into account that the State of AmapL has never executed any project financed by the Bank. The May 23 appraisal mission, emphasized to the Government, that the most urgent action to be taken is to hire the Firm which will manage the PCU. A draft of the terms of reference for hiring such a fm were attached to the aide memoire. The mission also recommended, among other points, that a complete and detailed organization chart for the project administration be prepared. Some main positions have still to be fulfilled and the CVs of all PIU staff must be sent to the Bank. This chart should include the list of responsibilities of each Department and function descriptions for all partners which will participate in Project execution, as RURAP, SEPLAN, PRODAP, SEBRAE, Municipal Development Fora and communities associations. IV - Flow of Funds The final design of flow of hds has yet to be determined, but essentially it will consist of a simplified version of the traditional funds flow used in other states of Brazil. A special account will be opened in Banco do Brad - New York office, in the name of the State of Amapb. An operational account will be opened specifically for the project in MacapP, in R$ currency, in the name of ADAP. Both accounts will be operated by ADAP. From the operational account funds will be transferred from the operational account directly to the beneficiaries according to each component.: for the urban and rural development sub-projects (Components 1 and 3), the funds will be transferred to each community in specific Bank accounts opened for each sub Project. For the institutional strengthening and capacity building components, the finds will be withdrawn directly from ADAP s operational account to the suppliers. Counterpart sourcing will be controlled by ADAP. V - Staffing Currently, there are only three positions occupied in the financial management/ administration sector: manager, information technology person and one staff in charge of procurement. None of them have experience with World Bank- financed Projects. The financial manager has no accounting background and has very little working experience in financial management in general. During the first two to three years of the Project, a management firm will be hired under terms of reference approved by the Bank. A key issue for this firm will be the financial management of the project. The compliance with all FM requirements,. including the hiring of at least one fully qualified accountant, will be a condition of effectiveness. VI - Accounting Policies and Procedures, Internal Controls The management firm to be hired will implement an integrated accounting system which will include the recording of the annual budget, actual transactions and will produce quarterly Financial Statements in FMR format. Financial Statements, both the quarterly and year end FMRs will be prepared on actual cash basis. As part - 7 -

75 of the overall financial management arrangements, a Financial Management Manual will be prepared which will contain all financial management procedures, instructions and policies orienting and defining the financial management team responsibilities. It can be a separate manual or an annex of the Operational Manual. Among other procedures, the Manual will contain detailed instructions and requirements for filling out documents which will have to be available for field supervisions, audits and Bank s supervision missions. VI1 - Internal Audit There are not yet any arrangements to set up an Internal Audit function, VI11 - External audit Project Accounts will be audited by external independent auditors acceptable to the Bank, and hired according to terms of reference issued on the basis of the Guidelines and Terms of Reference for auditing of Projects financed by World Bank in Latin America and Caribbean Countries. The Project will submit a short list of three (3) to six (6) audit firms to the Bank for no objection, prior to starting the bidding process for their hiring. The auditors will prepare one annual report, due up to six months after the closing of each Project s fiscal year, containing the following elements: 1. Auditor s Opinion and Project Accounts prepared by the PCU in the agreed FMR format, 2. Auditor s Opinion and SOE Statement prepared by the PCU 3. Auditor s Opinion and Special Account Statement prepared by the PCU 4. Auditor s Opinion on compliance with legal covenants 5. Management Letter M - Reporting and monitoring Monitoring and reporting will be done through a Financial Management System to be implemented by the management fm which will be hired for the overall administration of the Project. The project will report in the format of FMR Financial Statements to be submitted quarterly. The reports will be generated directly from the system and will contain data comparing planned figures as per POA with actual figures and variances both in US$ and R$. Each report will contain the figures for the quarter, accumulated for year, accumulated for the Project. Physical Progress and Procurement Reports will also be prepared. The year-end Financial Statements will be issued also in the same FMR format and will serve for independent audit purposes. The Project intends to disburse via SOE methodology, and therefore the FMRs will serve only for reporting purposes. X - Information Systems The system to be developed and implemented by the management firm to be hired, will be a fully integrated system encompassing budgeting, accounting reporting, physical progress and procurement. Furthermore the system will have modules to control urban and rural community development sub projects. The micro-credit sub-component within Component 2 to be implemented through AFAP, will have a separate system and will report results to ADAP to be consolidated into the overall project s system. The Bank will assess the system to be implemented and it will have to be fully operational as condition of effectiveness. XI - Disbursement Arrangements The Project will disburse using the SOE methodology. For urban and rural communities development subprojects, the guidelines outlined in the reference guide for Fiduciary Management for Community-Driven Development Projects (CDD Guidelines) will apply. In these cases, the periodic payments made to the communities groups are considered as eligible expenditures, since they are based on the financing -71 -

76 agreements between the communities and the PCU, and against physical progress. The initial allocation to the Special account will be based on a four (4) month estimated expenditure up to a maximum of 1% of the Loan. Possibly there will be a retroactive financing to cover eligible expenditures incurred up to the signature of the Loan Agreement. SOE s limits will be the same as of the ones established for the Bank s prior review limits under the procurement capacity assessment. XI1 - Action Plan Annex 8 of the appraisal mission aide memoire, includes a detailed action plan to be implemented prior to effectiveness. In summary, the action plan encompasses the following key areas: Complete description of Funds Flow; Organization chart including job descriptions for all financial management staff; Implementation of the financial management system, including reporting on FMR format; and Independent audit arrangements: TOR, short list of auditors. XI11 - Conditions All items of the action plan are condition of effectiveness. XIV - Financial covenants The financial covenants are the standard covenants which usually are included in article IV, sections 4.1 and 4.2 of the standard Loan Agreement. XV - Financial Management Supervision Plan Considering the high risk of the Project, at least biannual financial management supervision missions are required. During the missions, some visits to urban and rural community sub- projects are recommended. 2. Audit Arrangements Project Accounts will be audited by external independent auditors acceptable to the Bank, and hired according to terms of reference issued on the basis of the Guidelines and Terms of Reference for auditing of Projects financed by World Bank in Latin America and Caribbean Countries. The Project will submit a short list of three (3) to six (6) audit firms to the Bank for no objection, prior to starting the bidding process for their hiring. The auditors will prepare one annual report, due up to six months after the closing of each Project s fiscal year, containing the following elements: 1. Auditor s Opinion and Project Accounts prepared by the PCU in the agreed FMR format, 2. Auditor s Opinion and SOE Statement prepared by the PCU 3. Auditor s Opinion and Special Account Statement prepared by the PCU 4. Auditor s Opinion on compliance with legal covenants 5. Management Letter 3. Disbursement Arrangements The Project will disburse using the SOE methodology. For urban and rural communities development subprojects, the guidelines outlined in the reference guide for Fiduciary Management for Community-Driven Development Projects (CDD Guidelines) will apply. In these cases, the periodic payments made to the communities groups are considered as eligible expenditures, since they are based on the financing agreements between the communities and the PCU, and against physical progress

77 The initial allocation to the Special account will be based on a four (4) month estimated expenditure up to a maximum of 1% of the Loan. Possibly there will be a retroactive financing to cover eligible expenditures incurred up to the signature of the Loan Agreement. SOE s limits will be the same as of the ones established for the Bank s prior review limits under the procurement capacity assessment. Allocation of loan proceeds (Table C) (b) AFAP sub-projects Goods (other than under subprojects) Consultants services and training (other than under subprojects) Onerational costs Front-end fee Table C: Allocation of Loan Proceeds Expenditure Category I Amount in US$million I Financing Percentage 1 Goods, works and services under: (a) urban and rural community subprojects Premia for Interest Rate Caps and Interest Rate Collars Total Project Costs with Bank Financing Front-end fee Amount due under Section 2.4 of this Agreement Amount due under Section 2.9 (c) of this Agreement o I 4.84 I

78 Annex 7: Project Processing Schedule BRAZIL: Amapa Sustainable Communities Project Schedule Planned Actual Time taken to prepare the project (months) First Bank mission (identification) Appraisal mission departure Negotiations /14/ / /5/ /25/24 /Planned Date of Effectiveness I I 2/2/24 I Prepared by: Amaph Development Agency (ADAP); originally planned to be a Learning Innovation Loan (LIL), hence the short planning horizon Preparation assistance: Bank staff who worked on the project included: Name Josef Leitmann Maria-Valeria Pena Jose August Carvalho Regis Cunningham Susana Amaral Efraim Jimenez Lucian Wuerzius Claudio Mittelstaedt Werner Kornexl Tidio Barbosa Judith Lisanslq Bhrbara Brakarz Lucilene Anderson Amanda Schneider Speciality Task Team Leader Task Team Leader Lead Counsel Senior Finance Officer Finance Analyst Lead Procurement Specialist Procurement Assistant Financial Management Specialist Private Sector Specialist Rural Development Specialist Senior Anthropologist Junior Professional Associate Team Assistant Team Assistant

79 Annex 8: Documents in the Project File" BRAZIL: Amapa Sustainable Communities A. Project Implementation Plan Carta Consulta - Projeto Comunidades Sustentdveis (January 23) Plano GeraI de Aquisiq3e.s (Procurement Plan; January 23) B. Bank Staff Assessments Participation Strategy for Indigenous Populations, Quilombo Remnant Communities, Poor Women and Youth (English and Portuguese); Plano de Gestiio Ambiental (February 23; updated May 23; Portuguese). C. Other Avaliaqiio Institucional da Aggncia de Foment do Amaph (January 23); Cost-Benefit Analysis of Productive Sub-projects (Marcb 23); Participaqiio e Desenvolvimento: AvaliaqZo Institucional dos 16 Foruns de Desenvolvimento Sustentcivel e Tipologia de Representatividade das Comunidades do Estado do AmapQ (August 22); Pobreza, Desenvolvimento e Politica Social: cas do Estado do Amapa (June 22); Principais Atividades do Projeto Comunidades Sustentciveis (February 23); Proposta de Indicadores para Monitoramento e Avaliaqiio do Projeto Comunidades Sustentheis do Amaph (November 22); Relatdrio de Consultoria Sobre a Situaqiio Fundidria do Estado do Amapa (November 22) Unidade Gestora do Projeto (January 23). *Including electronic files

80 Annex 9: Statement of Loans and Credits BRAZIL: Amapa Sustainable Communities 19-Jul-24 Difference between expected and actual Original Amount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO BR-1nteg.Munic.Proj.-Betim Municipality P PO PO883 PO6573 PO8313 PO87713 PO54119 PO7827 PO49265 PO5853 PO84 PO74777 PO76977 PO57653 PO55954 PO51698 PO57665 PO7485 PO73192 P 7552 PO6617 PO8221 PO43869 PO59566 PO73294 PO57649 P 5772 PO588 PO5881 PO5875 PO62619 PO39199 PO35741 PO6449 PO5776 PO4739 PO5763 PO48869 PO58129 PO6474 PO6559 PO35728 PO5791 PO38895 PO43421 PO4342 PO42565 PO43873 P 6532 PO43868 PO6562 PO BR TA-Sustain. 8 Equit Growth 25 BR Espirito Santo Wtr 8 Coastal Pollu 24 BR Maranhao Integrated: Rural Dev 24 BR Tocantins Sustainable Regional Dev 24 BR Disease Surveillance 8 Control APL 2 24 BR-Bolsa Familia 1st APL 23 BR BAHIA DEVT (HEALTH ) 23 BR-2nd APL BAHIA DEV. EDUCATION PROJEC 23 BR-RECIFE URBAN UPGRADING PROJECT 23 GEF BR Amazon Region Prot Areas (ARPA) 23 BR-AIDS & STD Control 3 23 BR-Municipal Pension Reform TAL 23 BR-Energy Sector TA Project 22 BR- FUNDESCOLA lila 22 GOIAS STATE HIGHWAY MANAGEMENT 22 SA PAULO METRO LINE 4 PROJECT 22 BR-FAMILY HEALTH EXTENSiON PROJECT 22 BR Sergipe Rural Poverty Reduction 22 BR TA Financial Sector 22 GEF BR PARANA BIODIVERSIN PROJECT 22 BR-RGN 2ND Rural Poverty Reduction 22 FORTALEZA METROPOLITAN TRANSPORT PRO 22 BRSANTACATARlNANATURALRESOURC8P 21 BR- CEARA BASIC EDUCATION 21 BR Fiscal 8 Fin. Mgmt. TAL 21 BR Bahia Rural Poverty Reduction Project 21 BR LAND-BASED POVRTY ALLEViATlON I (S 21 BR Pernambuco Rural Poverty Reduction 21 BR PlAUl RURAL POVERTY REDUCTION PROJ 21 BR Ceara Rural Poverty Reduction Project 2 BR inss REF LIL 2 BR PROSANEAR 2 2 BR NATL ENV 2 2 BR CEARA WTR MGT PROGERiRH SIM 2 BR NE Microfinance Development 2 BR ENERGY EFFiCiENCY (GEF) 1999 BR- Fundescola BR SALVADOR URBAN TRANS 1999 BR EMER. FIRE PREVENTION (ERL) 1998 BR LAND MGT 3 (SA PAULO) 1998 (BF-R)SP.TSP 1998 BR BAHIA WTR RESOURCES 1998 BR PENSION REFORM LIL 1998 BR FED,WTR MGT 1998 BR RJ M.TRANSiT PRJ BR WATER S.MOD BR PARAIBA R.POVERTY 1997 BRAG TECH DEV FED H M DECENTR 1997 BR RGS LAND MGTIPOVERN 1997 BAHiA MUN.DV 1997 BR RGS Highway MGT

81 Original Amount in US$ Millions Difference between expected and actual disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO GEF BR-NAT'L BIODIVERSITY P BR (PR)R.POVERTY Total:

82 ~~ BRAZIL STATEMENT OF IFC's Held and Disbursed Portfolio Mar - 24 In Millions US Dollars Committed IFC IFC Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 21 AG Concession Algar Telecom Amaggi Andrade G. SA Apolo Arteb AutoBAn BSC BLJNGE CEVAL Bahia Sul Banco Bradesco Bradesco-Petrofl CHAPECO CN Odebrecht CODEMIN CPFL Energia CRP-Caderi Copesul Coteminas DENPASA Distel Holding Dixie Toga Duratex Eliane Empesca Escola Fleury Fosfertil Fras-le GAVEA GP Cptl Rstrctd GPC Guilman- Amorim Icatu Equity Innova SA Ipiranga Itaberaba Itau-BBA JOSAPAR Lojas Americana MBR Macae Macedo Nordeste Microinvest Total Portfolio:

83 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 22 Andrade 1 2 BBA 1 22 BXICO Itau-BBA 1 21 Brazil CGFund Cibrasec Net Servicos Suape ICT TermoFortaleza Unibanco-CL 15 Total Pending Commitment:

84 I POVERTY and SOCIAL America middle- Brazil & Carib. income 21 Population, mid-year (millions) GNI per capita (Atlas method, US$) 3,6 3,56 4,46 GNI (Atlas method, US$ billions) ,248 Average annual growth, Most recent estimate (latest year available, I Poverty (% of population below national povertv line) Urban population (% of totaldodulafio Life expectancy at birth (years) Infant mortality (per 1, live births) Child malnutrition (% of children under Access to an improved water source (% of podulation) Illiteracy (% of population aoe 15+J Gross primary enrollment (% of school-aqe population) Male Female Development diamond* GNI per capita Life expectancy Access to improved water source -Brazil ---I_ Upper-middle-income group Gross primary nrollment STRUCTURE of the ECONOMY (% of GDP) Agriculture Industry Manufacturing Services Private consumption General govemment consumption Imports of goods and services (average annual growth) Agriculture Industry Manufacturing Services Private consumption General government consumption Gross domestic investment Imports of goods and services GDP (US$ billions) Gross domestic investmenffgdp Exports of goods and serviceslgdp Current account balancelgdp Interest payments/gdp debt servicelexports resent value of debffgdp 37.7 Present value of debtlexports (averaqe annual qmwfh) GDP GDP per capita I.6 Exports of goods and services Economic ratios* Trade Domestic Investment savings Indebtedness -'-Brazil Upper-middle-income group Growth of investment and GDP (%) 2o T -11 V G D I -GDP I Growth of exports and Imports (%) I L Note: 21 data are preliminary estimates. *The diamonds show four key indicators in the country (in bold) compared with its income-group average. if data are missing, the diamond will be incomplete

85 ~ PRICES and GOVERNMENT FINANCE Domestic prices (% change) Consumer prices Implicit GDP deflator Government finance la (% of GDP, includes current grants) Current revenue Current budget balance Overall surpluddeficit Inflation (%) W 1 W G D P deflator.ioicpi TRADE (US$ millions) Total exports (fob) Coffee Soybeans Manufactures Total imports (cif) Food Fuel and energy Capital goods Export price index (1995=1J Import price index (1995=1) Terms of trade (1995=1J I991 31,62 2,87 2,31 2,483 21,41 1,275 3,371 5, ,86 3,48 2,188 41,27 55,783 1,57 6,362 13, ,223 2,932 2,726 41,144 55,581 1,169 6,276 14, Export and import levels (US$ mill.) 6, 4,oOo 2, Exports Imports BALANCE of PAYMENTS (US$ millions) Exports of goods and services Imports of goods and services Resource balance ,522 27,2-1, ,333 26,142 8, ,584 72,443-7, ,545 72,652-5,17 Current account balance to GDP (%) I Net income Net current transfers -1, ,154 1,556-17,886 1,521-19,743 1,638 Current account balance -1 1,94-1,47-24,224-23,212 Financing items (net) Changes in net reserves 12, ,272 4,679 31,94-7,68 19,468 3,744 Memo: Reserves including gold (US$ millions) Conversion rate IDEC, /ocal/us$j 6, E-11 8, E-4 33, , EXTERNAL DEBT and RESOURCE FLOWS (US$ millionsj Total debt outstanding and disbursed IBRD IDA ,454 2, ,2 8, ,157 7, ,67 7,963 Composition of 21 debt (US$ mill.) A c 8,337 G 29,292 Total debt service IBRD IDA 17, ,34 1,917 62,891 1,351 42,977 1,362 Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Porlfolio equity World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers 8 1,23 7,512 2,52 1, ,62 1,71 1, , , , ,78 7,936 32,779 3,76 1,29 1, ,615 22,457 2,481 1,69 1, F 152,416 A - IBRD E - Bilateral B - IDA D - Other multilateral F -Private C. IMF G - Short-term 'ueveiopmenr tconomics a. Data refer to central government.!.j/l z/uz

86 Additional Annex 11 : Amapa Poverty Profile BRAZIL: Amapa Sustainable Communities Areas Populaqiio Amapl Urbano Rural Norte (excl. Amapl) Urbano Rural Norte Urbano Rural Brasil (excl. Amapl) Urbano Rural Brasil Total Urbano Rural Sources: IBGE, Population Count 1996 and Demographic Census 2. Taxa de Crescimento (YO a.a.) 5,82 6,39 1,69 3,29 6,34-2,23 3,38 6,35-2,18 1,93 2,85-1,63 1,94 2,

87 (By urb Amapa e Municipios total e estratos Estado do AmapP Urbano Rural Serra do Navio Urbano Rural Amapi Urbano Table 11.2 State Population and Growth Rate Taxa de Crescimento PopulaqBo Part. (%) PopulapLo Part. (%) (YO a.a.) ,oo ,oo 5, , ,2 6, , ,98 1, , ,69 4,61 Rural Pedra Bca. Amapari Urbano Rural CalGoene Urbano Rural Cutias Urbano Rural Ferreira Gomes Urbano Rural Itaubal Urbano Rural Laranjal Jari* (2) Vit6ria Jari (2) Laranjal Jari (1996) Urb. Laranjal Jari (2) Urb. Vit6ria Jari (2) Urb. Laranjal Jari (1996) Rural Laranjal Jari (2) Rural Vit6ria Jari (2) Rural Laranjal Jari (1996) M acapi Urbano Rural M azag%o Urbano Rural Oiapoque Urbano Rural Porto Grande Urbano Rural Pracuuba Urbano Rural Santana Urbano Rural Tartarugalzinho Urbano ,37 54,63 1,7 84,46 15,54,8 29,6 7,94 1,5 75,18 24,82,53 45,75 54,25,69 73,35 26,65,51 35,78 64,22 7,88 71,61 28,39 58,23 94,89 5,ll 2,99 45,91 54,9 2,59 56,92 43,8 1,9 7,24 29,76,45 37,93 62,7 18,32 94,26 5,74 1,21 46, ,89 63,ll 1,5 83,16 16,84,84 34,3 65,97 1,41 78,23 21,77,69 43,92 56,8,74 71,7 28,93,61 4,6 59,4 5,93 1,8 7,72 93,94 8,55 9,82 6,6 19,45 9,18 59,42 95,52 4,48 2,53 49,52 5,48 2,71 6,92 39,8 2,32 66,74 33,26,48 42,19 57,81 16,85 94,34 5,66 1,49 48,98 -,67 8,45 2,54 2,15 4,62 1,25 11,57 5,32 4,33 5,37,96 13,2 12,5 14,14 7,9 7,5 1,13 1,44 13,99 8,31 5, ,6 1 6,36 6,53 2,9 1,45 3,39 -,29 7,5 8,88 4,48 11,31 9,89 14,44 7,97 1,88 6,7 3,63 3,65 3,29 11,4 12,72 Rural , ,2 Sources: IBGE, Population Count 1' 6 e Demographic Census 3 *Municipality thatwas sub-divided during the period between the 1996 population count and the 2 demographic census

88 Amapb, Municipios e Distritos Estado do Amapfi AmapA Amapb Sucuriju Calqoene Calqoene Cunani Lourengo Cutias Cutias Ferreira Gomes Ferreira Gomes Itaubal Itaubal Laranjal do Jari Laranjal do Jari Macapsi Bailique Carapanantuba Fazendinha Macapb SBo Joaquim do Pacui Mazaggo Carvlo MazagHo Mazaggo Velho Oiapoque ClevelLndia do Norte i ap o que Vila Velha Pedra Bca. Amapari Pedra Bca. Amapari Porto Grande Porto Grande Praculiba Pracuitba Santana Igarapk do Lago Ilha de Santana Portuirio IgarapC Fortalezz Santana Serra do Navio Serra do Navio Tartarugalzinho Tartarugalzinho Vit6ria do Jari Vit6ria do Jari Source: IBGE, Demograp Table 11.3 Number and Percentage of Poor By municipality and url In district, 2) PopulaqBo Pobres Total Rural Urbana : Census, 2. Total N O Prop ("/.I - 46,6 46,6 47,O 45,3 43,O 43,3 63,3 57,9 57, ,5 48,6 48,6 48,7 48,7 38,6 81,6 38,9 5,8 37,3 6,l 57,l 67,5 46,3 67,O 27,5 26,4 25,7 34,8 66,2 66,2 33,l 33,l 49,8 49,8 49,2 6,O 44,9 41,O 49,6 46,3 46,3 5,8 5,8 4,4 4,4 - N O Rural Prop ("/.I 46,6 46,6 47,O 45,3 43,O 43,3 63,3 57,9 57, ,5 48,6 48,6 9,o 69,5 81,6 38,9,o,o 6,l 57,l 67,5 46,3 67,O 27,5 26,4 25,l 34,8 66,2 66,2 33,l 33,l 49,8 49,8 44,7 6,O 44,9 41,O 9 46,3 46,3 5,8 5,8 4,4,4 Urbana Prop. No ("/.I

89 ~~ ~~ Table 11.4 Poverty in Macapri (By urban district*, 2) Macaph e Bairros Total PodacBo Pobre Nhero Prop. (%) Part. (YO) Macadi. Bairros de Macaph Alvorada Araxri Beirol Bonk Am1 Brasil Novo Buritizal Cabralzinho Central Cong6s Do Trem Jardim Equatorial Jardim Felicidade Jesus de Nazark Laguinho Marco Zero Nova Esperanqa Novo Horizonte Pacoval Pedrinhas PerpCtuo Socorro Santa In& Santa Rita SBo Jorge SBo Lhzaro Universidade (ZerBo) Sem especificaqiio SO ,6 57,O 26,3 18,4 58,7 36,9 12,9 15,6 39,l 21,l 13,4 34,8 32, ,9 41,8 49,6 29, ,3 51,9 25,l 44,l 47,O 4, Source: IBGE, Demograpf Census, 2. *The unspecified category is a summation data from various rural areas in the municipality

90 Table 11.5 Composite Quality of Life Indicator* (For municipalities, districts and Macap4 neighborhoods, 2) Municipio Distrito - Municipio 1 P. Bca. Amapd :,68 Bailique Macaph, Mazagb Tartarugalzinho Cutias Vitdria do Jari Laranjal do Jari Calgoene Pracu~ba Ferreira Gomes Itaubal hap6 Santana Porto Grande Oiapoque Macaph Serra do Navio,6,55,52,48,47,46,46,45,44 944,43,39,37,34,32 Mazag5 Velho Sucuriju P. Bca. Amapari Lourengo cmzo Igarapk do Lago CUnani Carapanantuba Vila Velha Tartarugalzinho Cutias Fazendinha Ilha de Santana Vitdria do Jari Laranjal do Jari MazagZo S b Joaquim do Pacui Pracuuba Ferreira Gomes Itaubal Santana h p h Calqoene Porto Grande Portuhrio Igarapk Fortaleza Oiapoque Macaph Serra do Navio Mazagb Amaph P. Bca. Amapari Calqoene Mazagb Santana Calgoene Macaph Oiapoque Tartarugalzinho Cutias MacapL Santana Vitdria do Jari Laranjal do Jari Mazagb Macaph Pracuiiba Ferreira Gomes Itaubal Santana Amaph Calqoene Porto Grande Santana Oiapoque Macaph Serra do Navio,76,74,68,66,63,6 1,6,59,56,55,52,5 1,48,48,47,46,46,46,45,44,43,4,4,39,36,34,32,32 3 Cleveliindia do Norte Oiapoque.25 Bairros de Macapa Sem especificaqb,63 Araxh,53 Brad Novo,5 Novo Horizonte,5 SPo Jorge,47 Univ. (Zergo),45 SBO Lharo,43 Marco Zero,43 Santa In&,4 Perpktuo Socorro,36 Congds,33 Jardim Felicidade,33 Nova Esperanga,32 Pedrinhas,3 1 Buritizal,29 Jesus de Nazark,25 Pacoval,24 Beirol,2 Santa Rita,19 Bonk Azul,19 Laguinho,12 Do Trem,8 Cabralzinho,7 Jardim Equatorial,7 Alvorada,7 Central,5 *Simple average of water and sanitation, literacy and income indicators; 1.OO = worst; = best

91 Table 11.6 Population Weighted Composite Indicator (Contribution to number of poor by municipality, district and Macapii neighborhood, 2) I Municioio 1 Macapl 2 Santana 3 Laranjal do Jari 4 Mazaggo 5 Tartarugalzinho 6 P. Bca. Amapari 7 Vitoria do Jari 8 Amapl 9 PortoGrande 1 Calqoene 11 Oiapoque 12 Cutias 13 Ferreira Gomes 14 Itaubal 15 Pracuhba 16 Serra do Navio,184,85,32,2,1,9,8,7,7,7,6,5,4,3,3,2 Source: IBGE, Demographic Census, 2. Distrito - Municipio Macaph Santana Laranjal do Jari Mazaggo Velho Bailique Tartarugalzinho P. Bca. Amapari Fazendinha Viroria do Jari Porto Grande Mazagb Amapa Cutias Macapl Santana Laranjal do Jari Mazaggo Macapl Tartarugalzinho P. Bca. Amapari Macapl Viroria do Jari Porto Grande Mazagb Amapa Cutias,163,79,32,14,14,1,9,9,8,7,6,6,5 Sib Joaquim do Pacui Calqoene Oiapoque Ferreira Gomes Itaubal Portuhrio Igarapk Fortaleza Pracuhba Serra do Navio Vila Velha Ilha de Santana Lourenqo Igarapk do Lago Carvb Sucuriju Cunani Carapanantuba Macapl Calqoene Oiapoque Ferreira Gomes Itaubal Santana Pracu~ba Serra do Navio Oiapoque Santana Calqoene Santana Mazagb Amapl Calgoene Macapl,4,4,4,4,3,3,3,2,2,2,2 9,2,2,oo 1,1,1 Cleveliindia do Norte Oiapoque, Bairros de Macapl Sem especificaqb Novo Horizonte Perpetuo Socorro Buritizal Univ. (Zergo) SPo Jorge Congos SZo Lfizaro Brad Novo Marco Zero Jardim Felicidade Araxti santa In& Pacoval Nova Esperanga Santa Rita Beirol Jesus de Nazark Pedrinhas Laguinho Central Do Trem Bonk Azul Alvorada Cabralzinho Jardim Equatorial,3916,231,2168,1833,162,152 1,O 1 34,O 143,874,814,8 1 1,778,559,396,3 1 1,288,247,193,135,89,75,61,33,9,9,3-87 -

92 ~ ~ SUB-PROJECTSIFGS.2) Additional Annex 12: Organizational Structure for Project Coordination Unit BRAZIL: Amapa Sustainable Communities ORGANIZATIONAL STRUCTURE OF WBfiADB PROJECT COORDINATION UNIT PRESIDENCY I GENERAL COORDINATION IDWB (FGW PROJECT ADVISORY COUNCIL I IDB TECHNICAL DIVISION ADMINISTRATIVE 8 FINANCIAL DIVISION (FGS3) ACCOUNTING (FGS2) SUB-DIVISION FOR SUB-Division FOR SUBDIVISION FOR OIAPWUE (FGSZ) SOLID WASTE (FGS-2) FINANCE (FGS-2) SUB-Division FOR SUB-DIVISION FOR MONlTORiNG 8 EVALUATION SUBDiwsion FOR LARANJAL JAR1 (FGS2) I- ENVIRONMENT (FGS2) SUBDlVlSiON FOR DRAINAGE (FGS2) I SJB-DBVIS Ok FOR PRCCUREMENT(FGS-2) I SUE-DIVISION FOR SUB-DIVISION FOR I I PROCUREMENT (FGS2) CAPACITY-BUILDING (FGS2) 1 SUBDwion AMAPA (FGS2) FOR SUBDlVlSiON FOR WP-STN (FGS2) MUNICIPAL COORDINATION (SEPLAN) (FGS2) SUBDIVISION FOR PORT GRANDE (FGSZ)

93 1. Introduction Additional Annex 13: Special Groups Inclusion Strategy BRAZIL: Amapa Sustainable Communities 1.1 Project s Overall Strategy The key elements of the project s social strategy are: (a) broadly disseminating the project, its guiding principles, objectives and methodology to facilitate access to the project by all its potential beneficiaries; (b) targeting investments in poorer communities; (c) mobilizing all social segments of local communities in participatory processes of assessment and diagnosis of problems, prioritization and planning for community investments; (d) screening of potential community subprojects by deliberative bodies that include civil society representation; (e) emphasizing integrated economically, socially and environmentally sustainable solutions to problems; (9 mobilizing and acknowledging the value of local resources and knowledge; and (g) using participatory mechanisms for planning, prioritization, selection, implementation and monitoring and evaluation of subprojects. Participation of poor rural and urban populations will take place at two levels. At the local level, communities will be engaged in the identification and prioritization of problems leading to the preparation and implementation of community development plans. At supra-local level, beneficiaries will be broadly represented in deliberative bodies with regard to community priorities and to ensure social control of project implementation. There will be project deliberative bodies at the municipal and state levels. In rural areas, prioritization of sub-project proposals will be carried out by Municipal Development Fora (MDFs) that had begun to be established as part of the process of implementing the Integrated and Sustainable Local Development Program (DLIS) that has been part of the federal Active Community program. Since a preinvestment study indicated that some MDFs remain incipient, the project (under Component 4) will support both the establishment and strengthening of MDFs. In urban areas, prioritization will be done by neighborhood associations; in unorganized neighborhoods, the project will facilitate creation of legally-constituted associations. At the state level, approval of sub-project proposals will be camed out by the PAC (Project Advisory Council), a project oversight entity to be created with the broad participation of organized civil society. 1.2 Strategies for Special Populations Among the poor population of AmapB, the project will further target four special social groups which are: (i) indigenous populations; (ii) quilombola communities; (iii) women; and (iv) youth. It is estimated that 1% of resources allocated to Components 1 and 3 will be earmarked for special populations. In general, the same basic guidelines of the project s overall strategy will be used with regard to special populations. However, the project strategy will be fine-tuned and adjusted to ensure the appropriate inclusion and participation of special populations as well as to ensure the consideration and selection of their planning and subprojects take into consideration unique features of their social, economic and political organization, cultural identities, and especially characteristics of their social relations with other segments of the local and municipal population. This annex describes in detail the proposed adjustments to project strategy to ensure the appropriate and - a9 -

94 adequate inclusion and participation of special populations in the project. It is based on both a secondary data analysis as well as two series of targeted consultations with these groups as well as with relevant governmental agencies and NGOs. In July 22, participatory research and consultations were carried out with women s groups, quilombola leaders, indigenous representatives, NGOs, and relevant academic specialists. Objectives of this phase included: (a) a rapid assessment of the current status of the four groups, their levels of organization(s) and levels of representation in government agencies; (b) a mapping of institutions and organizations working with them and the characteristics of existing programs and projects; (c) collecting secondary data; (d) initial consultations for dissemination and discussion of the project. In addition, the project preparation team also participated in the General Assembly of the Indigenous Peoples of Oiapoque and in the First Forum of Quilombola Communities of hap& describing and debating the project and the proposal for the inclusion and participation of these social groups. In February 23, a second series of consultations took place with entities representing and/or working with these social groups. Consultations were held with representatives of governmental agencies and NGOs or other organizations working with indigenous, quilombola, gender and generational issues, and fkther information gathered on their situations and concerns that contributed to adjusting the project to adequately reflect their sociocultural realities, facilitate their access to project benefits; and ensure their adequate and appropriate participation in the project s deliberative and social control bodies. The proposed strategy for the participation of these special social groups takes into consideration: (i) identified tensions between these populations and the larger society at the local, regional and state level (especially relevant for the case of indigenous and quilombola populations); (2) risks that their priorities might not be sufficiently considered and represented by grassroots organizations of the communities where they reside (especially relevant for women s groups and youth, traditionally less organized in rural areas); (3) risks that their priorities would not be sufficiently considered by the Municipal Development Forums; and (4) differences in their situations with respect to inclusion in local society, their capacity for organization and representation in relation to government agencies, and their capacity for effective participation in local decision-making arenas and processes. Hence, the option selected is to further refine the project strategy to facilitate the inclusion and participation of indigenous and quilombola populations, and to utilize the project s overall strategy to target rural and urban poor women and youth. All four social groups will be appropriately represented in the Project Advisory Council (PAC). The strengthening of the PAC to serve as an arena of discussion on public policies with broad participation by civil society representatives will constitute an additional project benefit. Given the project objectives of poverty reduction and improved management and conservation of natural resources, project principles of inclusion and participation, and the additional measures to ensure adequate and appropriate targeting, access and participation of special populations in the project, it is not expected that the project will have negative impacts, a priory, on the indigenous populations, quilombola communities, women or youth. 2. Special Social Groups This section provides background on the four special populations

95 2.1. Indigenous populations Amaph s indigenous population consists of 6,129 people including the Galibi, Karipuna, Kaxuyana, Palikur, Tiriyb, Wayana-Aparai and WayZpi peoples; that of neighboring northern Parh totals 1,476 people including the Wayana-Aparai, Tiriyb, Kaxuyana and WayZpi. Indigenous people comprise about 1.3% of the Amaph s population and 11.7% of its rural population. Their areas in Amaph include: the Galibi Indigenous Land, the Juminii Indigenous Land, and the Uaqh Indigenous Land (in the municipality of Oiapoque) and the WayZpi Indigenous Land (in the municipalities of Laranjal do Jari and Pedra Branca do Amapari). In addition, Amaph is also the reference point for indigenous populations of the Tumucumaque Complex (Tumucumaque Indigenous Park and Paru D Este Indigenous Land) located in Parh. All the aforementioned indigenous lands, comprising 459,6 1 hectares in Amaph and 4,266,852 hectares in Parh, have been regularized. Despite their diversity, the indigenous peoples share some common features, historical experiences and pressures, including: (i) Traditional adaptative subsistence systems of mixed horticulture, fishing, hunting and gathering -based on forest resources. (ii) Tendency towards scattered, itinerant settlement patterns, related to their environmental adaptation and sociocultural organization. (iii) Partial concentration of some of their population in limited areas due to concentration of services provided by government with a concomitant reduction in quality of life. (iv) Concomitant social problems, deriving from the introduction of activities that involve individual employment, for example, intra-group conflicts (among youth and the elderly, or between men s and women s views), the increase in the consumption of alcoholic beverages and the proliferation of sexually transmitted diseases. (v) Pressures from other interest groups and particularly gold prospectors, as well as expansion of the agricultural frontier along the Northern Perimeter (BR-156) and feeder roads. (vi) Particularly over the past decade, more organizing by indigenous people, toward the establishment of participatory decision-making mechanisms and the formation of instruments for the representation and defense of interests before regional society and government agencies. The objective of this section is to briefly describe the indigenous ethnic groups that occupy the indigenous areas in Amaph and Northern Par6 and have Amaph as a point of reference. It was decided to describe the three areas where they are concentrated and which will serve, under the proposed strategy, as territorial units for the planning of actions to be implemented by the project: the Tumucumaque Complex, the Oiapoque Indigenous Lands and the WayZpi Indigenous Land. Tumucumaque Complex The Tumucumaque Complex consists of two adjoining indigenous lands: the Tumucumaque Indigenous Park (3.1 million hectares) and the Rio Paru d Este Indigenous Land (1.2 million hectares). The only means of access to the area - which is characterized by relative isolation - is by airplane. The principal pressure that threatens social and environmental integrity in the Tumucumaque Complex are the mining and gold prospecting activities carried out on the Jari and Pam d Este rivers. The presence of gold prospectors only occurs south of the Tumucumaque Indigenous Park and there has been not yet been advances by the extractive, grazing or agricultural frontiers in their lands

96 The Complex s current ethnic composition includes four principal ethnic groups: Wayana-Aparai, Tiriyb, Kaxuyana and WayZpi. The groups are distributed among 41 villages totaling about 1,3 inhabitants (1). These groups predominantly speak the Carib language but their origins are different. Traditionally, the indigenous peoples of Tumucumaque practice a seasonal subsistence economy based on hunting, fishing, gathering and agriculture. Traditionally as well, the social structure of the Tumucumaque Complex peoples was characterized by distribution in small villages, formed of domestic/productive groups, led by founders and chiefs, characterized by uxorilocal residence. Villages remained scattered, politically autonomous, but linked by ties of kinship, trade and cooperation networks (matrimonial, goods and rituals). Their scattered location and size constituted mechanisms of adaptation to the environment that ensured a satisfactory subsistence and sustainability of the natural resources. Their social structure, settlement and subsistence patterns were significantly transformed in the 196s due to a more sedentary lifestyle, concentration and growth of the population near assistance posts (primarily at the Tiriyb Mission on the Paru d Oeste River and the Apalai village in Paru d Este) and greater dependency on wage-earning activities. After several decades, population growth, a sedentary lifestyle, and inadequate selection of locations for assistance posts in relation to the traditional living patterns of indigenous groups, also caused problems - such as soil depletion and poor hunting - which has contributed to the more recent gradual return to the traditional pattern of scattered, decentralized settlements. New villages are being formed (an investment supported by the Indigenous Lands Project, in 1999, enabled the formation of 6 new villages) in locations selected to try to reconcile the traditional pattern of village composition and size with access to assistance, communication, consumer goods and paid labor. Oiauoaue Indigenous Lands The Oiapoque area includes three indigenous areas - Uaqh, Galibi and JuminZ - totaling 518, hectares. The population is estimated at 5,249 people distributed among 37 villages, with greater concentration in the villages of KumarumZ (1,821 people), Kumen6 (66 people), Manga (56 people) and Espirito Santo (45 people) (2). These lands are home to the Galibi of Oiapoque, Galibi-Mamorno, Karipuna and Palikur peoples. The Galibi of Oiapoque are estimated at 28 people in one village in the Galibi Lands (6,689 ha.). The Galibi-Marworno inhabit the vast savannas and flooded fields of northern Amaph and come from ethnically diverse populations - AruZ, Maraon, Karipuna, Galibi and even non-indians. They live primarily in the village of Kumarumz in the Uaqh Indigenous Land (47, ha.); population concentration is related to the existence of a school but village growth has also contributed to localized deforestation, distant garden sites, shortages of drinking water and poor sanitation and waste disposal conditions (3). The Karipuna (4), with a population of about 1,78, live to the north and west of the Uaqh basin, coinciding with the reserve s boundary on the left bank of the Curipi River. As they are located closer to the regional centers of Oiapoque, they were the first ones affected by penetrations of outsiders and economic interests in the region and they have regular contacts with the regional population (commercial transactions, temporary labor, etc.) (5). Finally, the Palikur who speak an Arawak language (Pa ikwaki) are estimated at 9 18 people and live in small villages distributed along the Urukauh River, a tributary on the left bank of the Uaqh River

97 Indigenous peoples in the Oiapoque region began to be contacted as early as 1919 by the Brazilian national Indian agency at the time, SPI, which opened the first school in 1934, set up a post in 1943, and carried out activities that altered leadership pattems and social organization and introduced new economic activities. These in turn contributed to concentration of the population, thus contributing to further undermining the traditional way of life and adaptative subsistence system, promoting dependency on outside elements and generating social and environmental problems that reduced their quality of life and today constitute their major concerns. The Oiapoque peoples have similar characteristics with regard to social and political organization. Traditionally, they lived in small, scattered villages formed by an extended household, led by the household head, characterized by uxorilocal residence, with numerous inter-village linkages. Their traditional subsistence system was mainly seasonal horticulture, fishing, and hunting and gathering. Today these are supplemented by some income generated by sale of surplus such as manioc flour, handicrafis and canoes, as well as retirement pensions. Today, they tend more to live in larger villages near assistance posts. Their political organization was altered by a leadership system introduced by SPI in the 193s, however more recently they have been involved in a process of intense organizing and articulation among villages designed to improve their representation to the outside. Since the 197s, the Brazilian Indian Foundation (FUNAI) and the Indigenist Missionary Council (CIMI) have been active, helping to get the lands demarcated, participating in the unsuccessful struggle to keep highway BR-156 from cutting through the indigenous area, and facilitating the indigenous political organizations. In the 199s, the Association of Indigenous Peoples of Oiapoque (APIO) was formed, and in the 1996, a Galibi-Mamomo indigenous person was elected as the mayor of the municipality of Oiapoque.Nowadays, the Oiapoque villages select a chief to represent them, and in larger villages, the population also selects a vice-chief and a council comprised of older men to represent them. Any decisions that affect the village are discussed at meetings with the entire community, in which anyone can speak; the leaders act as village representatives at regional indigenous assemblies or in any event outside the scope of the villages. In contrast, among the Pulikur, since the 197s the leadership exercised by the pastor and the workers on those who frequent the church surpassed that of the chief and the council. Likewise, the participation of the Pulikur in general assemblies of the indigenous peoples of Uaqii may be described as timid and they invariably complain of not being heard and not having their demands met. The Pulikur refuse, purposely and for religious reasons, to participate in the network of sociability engendered by the assembly. Recent results of collective political organizing can be seen in decisions made on issues of common interest to the indigenous groups, including, among others, decisions: prohibiting the sale of timber, prohibiting the sale of fish and wild game outside the indigenous lands, implementing seasonal fishing restrictions on certain species, and banning on alligator hunting. In addition, APIO has established more partnerships with state govenunent agencies and NGOs, and in 2-21 participated in seminars that culminated in the preparation of an Environmental Management Plan for the Oiapoque Indigenous Lands (6). Waibi Indigenous Land (7J Waygpi is the term utilized for the approximately 58 indigenous people who speak this Tupi language, originally from the lower Xingu River, who have lived for the past 25 years in the region bordered by the Oiapoque, Jari and Araguari rivers in h ap& As contrasted with Amapii s other indigenous populations, the Waizpi did not experience demographic, cultural or territorial crises because, despite sporadic contacts with outsiders, they lived in relative isolation until Since the early 197s,

98 however, this situation has begun to change, due to invasions fiom gold prospectors, pressures related to disorderly colonization near the new Northern Perimeter Highway (8), interest of colonists and sawmill owners in their natural resources, epidemics and partial environmental degradation of their lands. FUNAI established a contact post in the WaiTipi Indigenous Lands in 1973 ostensibly to help protect them fiom impacts of the highway construction. This post contributed to population concentration and increased dependency, as well as facilitating the invasion of goldminers. These invasions were only contained when, during the process of demarcating their area, the WayTipi themselves decided to re-establish their traditional dispersed settlements patterns, and began to carry out activities to expel the invading prospectors and to control the boundaries of their territory. The WayTipi Indigenous Land is 67, hectares characterized by high biodiversity. The WaiTipi s relationship with their environment is extremely complex. They utilize and modify diverse micro-environments to carry out their livelihood activities - primarily swidden horticulture, fishing and hunting and gathering. Their traditional practices of periodically moving the locations of gardens and villages is key to their environmental adaptation, ensures an abundant livelihood, facilitates social and cultural reproduction, and protects the biodiversity. Villages composed of extended families are also not constant in composition with considerable fusion and fissioning of groups and individuals. Dispersion and mobility contribute to a world view marked by respect and appreciation for family and personal autonomy. This respect constitutes the basic strategy for resolving multiple intra-group tensions in matters such as marriage transactions, occupation and use of hunting trails, gardens, and accusations of shamanistic aggression. Today, some WaiTipi are remaining in the old villages alongside the highway where easier access to basic services provided by assistance agencies is counterbalanced by the depletion of hunting and soils, impoverishment and reduced quality of life as well as greater dependency on wage-eaming. Other families, however, want to reverse this scenario of a sedentary existence with greater dependency and are returning to a more scattered and itinerant settlement pattern thus improving their quality of life and contributing to protecting their lands. Since the 197s, the WayTipi began to carry out aluvial gold prospecting (in areas previously worked by invaders and in-between other tasks) and handicraft production (a FUNAI incentive and carried out by families) as productive activities for income generation for their needs for manufactured items such as cloth, pots and guns. However, subsistence production - together with agriculture, hunting, fishing and gathering - continues to supply the community s needs. The WayTipi produce more than they need - ensuring plentiful food and excluding any possibility of shortage - and although they have been engaged for two decades in a process that combines the diversification of their productive activity and the acquisition and daily use of various manufactured goods, their family consumption pattern has remained stable, with few families acquiring manufactured foods. However, if needs for merchandise and market services are still modest, there is always the possibility that these needs will grow induced by various factors such as invasions, greater contact with regional society, introduction of manufactured items, wage labor and the like. In response to these such needs, the WayTipi have, until now, rejected the predatory alternatives of non-sustainable economic activities, resisted FUNAI s various attempts to increase their agricultural production by means of collective farm plots or casus de furinhu, and opted to increase the profitability of the types of extractivism they already practice - which are adequate at family scale and may be carried out during the cycle of movement that all families carry out - and by the production of handicrafts and trying to improve marketing

99 2.2. QuilomboZa Communities Quilombolas or remanescescentes do quilombos are communities that represent the remaining members of the run-away slave communities from the colonial period in Brazil. Quilombolas, as they prefer to be called, refer to the descendants of the run-away slaves as well as to the rural black communities who remained on lands given to them by former slave owners. There is a lack of a precise social science definition of quilombolas other than that of a community of slave descendants who identify themselves as quilombolas based on a shared history of resistance and a common heritage. These people of African decent have maintained sociocultural distinctiveness in the practice of their unique lifestyles and sharing of a common territory. Living primarily from subsistence agriculture, fishing and hunting and gathering, they have remained largely marginalized from the larger Brazilian society, are generally extremely poor, and usually have little access to health, education, land regularization or other services. Specific data on the Amapb quilombola communities is, however, scarce. The 2 Demographic Census classifies Amaph s population as being 28.8% white, 3.4% black and 67.8% brown. There are historical references, for example, noting the existence of quilombos in the territory of Amapi since 18th century after slaves were first brought there to construct the fortress of SHo Jose de Macapi. In hap& despite the Constitutional mandate to title quilombola community lands, only one community, Quilombo Curia& located on the outskirts Macapi, has been fully regularized and received title. The process for identifying other communities is still incipient, however, representatives of 16 (out of an estimated total of 23) quilombola communities of the regions of Macaph and Mazaggo met in 23 in the First Forum of Quilombola Communities of Amapi, including: Carviio, Mazaggo Velho, Port do Cku, CoraqHo, Lagoa dos fndios, Macacoari, Retiro do Santo Anthio, Santo AntGnio da Pedreira, Alegre, Me1 da Pedreira, Ressaca da Pedreira, Mata Fome, Casa Grande, Cavalo, SHo Pedro dos Bois, Ambk, IgarapC do Lago, Maruanum, Areal do Matapi, TorrHo do Matapi, Campina Grande, Ilha Redonda, and Curralinho. Extrapolating from data from Quilombo Curia& it is noted that the group strongly identifies with their territories and practice Amazonian peasant family subsistence systems of swidden horticulture, fishing, hunting and gathering as well as animal husbandry. Income is generated by the sale of surplus production and wage labor. They are also characterized by a folk Catholicism with African elements. Traditionally, they were led by a respected elder responsible for internal and external representation, however, to improve their representation to the outside society, today they have formed Residents Associations that are primarily for interaction in external forums Women and Youth Census data indicate that in 22, 28.9 percent of all households in Amapi were headed be females, an increase of nearly 55. percent in comparison to data from Thus Amapi ranks as the state with the highest proportion of female heads of households among all states in the northern region, and third in Brazil overall. Macapi itself has 33.3 percent female-headed households, and there is a similar correlation between urbanization and increased female-headed households elsewhere. In addition, 37.6 percent of households headed by the elderly are women. And almost a quarter of young children live in female-headed households. It is also expected that there is a positive correlation between poverty and female-headed households. In rural areas, women represent nearly 37 percent of people classified as

100 engaged in agricultural activities (9). Consultations during project preparation indicate that the difficulties faced by rural women are greater than those experienced by urban women living in urban areas. However, all women face major difficulties with regard to: Illiteracy and lack of access to education. Low skills and qualifications and related unemployment levels and wage discrimination. Domestic violence against women and lack of awareness by women about their rights. For rural women in rural areas, there are two other important issues. The first is inadequate access to basic health care, especially with regard to reproductive health. And the second is less participation in public forums which is related to continual domestic duties, lower levels of education, and traditional views of gender roles that are even more accentuated in rural areas. However, due to recent growth in the number of women s associations, the social visibility of gender issues has been highlighted. With regard to youth in Amaph, available data is even more scarce. Contacts made during project preparation suggest both organizing challenges faced by the state s youth as well as the relative inability of their organizations to gain recognition and visibility. Apart from the main entity in the state most widely recognized as being representative of generation issues - AMAJUVE - which maintains a partnership with the state s Special Youth Advisory Office, other NGOs activities in this area are quite limited, with the exceptions of the Pastoral Youth Office (linked to the Catholic Church) and the Network of School and Family Associations of Amaph (RAEFAP). In addition, initiatives by state agencies aimed at youth have been concentrated in then larger urban centers and hence are more focused on relevant problems there such as sexually transmitted diseases (STDs), urban violence and the formation of organized street gangs. Major limitations, both in terms of human and financial resources, hinder state efforts among youth in rural areas. Recent census information reveals, however, the large concentration of Amaph s population in younger age brackets. Nearly 51.4% of Amaph s population is younger than 19 years old. Data from the agricultural census ( ) showed that a high proportion of Amaph s economically active rural population engaged in agricultural activities is comprised of youth under the age of 14 years old. Almost 4, children under the age of 14 were involved in rural activities in Amaph representing 23.3 percent of all people involved in the state s rural activities. Nearly 33 percent of these young people involved in agricultural activities worked on family farms classified as low-income or subsistence level (1). Two thirds of all the rural working children under 14 are found in four municipalities - MacapS, Mazaggo, Oiapoque and Pedra Branca do Amapari. 3. Implementation Arrangements Numerous government agencies, autonomous agencies and non-governmental organizations will be directly or indirectly involved in the implementation of the Amaph Sustainable Communities Project. As noted previously, ADAP, MAP, RURAP, the Municipal Forums for Sustainable Development, the Project Advisory Council and community and neighborhood organizations will be directly involved in the general coordination, administration and provision of technical assistance under the project. The Project Coordination Unit (PCU) will be based in the Amaph Development Agency (ADAP) and its functions will include, among others: coordinating and supervising project implementation; financial

101 management; monitoring and evaluation; dissemination and training of partner institutions; linkages to MDFs and support to the PAC. The Project Advisory Council (PAC) will be formed by the Director-President of the General Coordinator of the Project and representatives of the Secretariat of Government, the Secretariat of Integrated Municipal Development, the State Secretariat of Environment, AGEMP, AFAP, RURAP, IBAMA, SEBRAE and representatives of Amapi s civil society organizations, including entities representative of indigenous populations, of quilombola communities, and of women s and youth movements, selected by their peers. It will meet on a quarterly basis and be responsible for: (a) strengthening linkage and integration at operational level of partner institutions; (b) suggesting strategic actions aiming at proper implementation of components; (c) monitoring local processes for diagnostic of the reality, identification of priorities and planning of activities, overseeing the adjustment of proposed activities to the basic principles of sustainable development and especially (with regard to special social groups) the inclusion of gender and generation issues in the agenda of discussions and priorities of each forum established to deliberate the actions to be implemented by the project; (d) canying out project monitoring and evaluation; and (e) establishing a special arena to exercise social control over project implementation. In addition, with regard to indigenous populations and quilombola communities, the PAC constitutes the major authority for the analysis and approval of the Sustainable Investment Plan (SIPS) for Indigenous peoples and quilombola communities (More details on the PAC to be included the Project Operational Manual). The already existing authorities of liaison, decision-making and representation of AmapL s indigenous populations, whose efforts will be respected and strengthened by the project, include: (1) internal meetings or assemblies that occur in each of the Indigenous Lands, where the chiefs of the various villages meet and deliberate on local issues; and (2) the associations formed by indigenous populations as representatives of their interests before the encompassing society. There are five indigenous associations in the State of Amaph: the Association of Indigenous Peoples of Tumucumaque Park (APITU), the Association of Indigenous Peoples of Oiapoque (APIO), the Galibi-Marworno Association, and the Council of Waygpi Apina Villages and the Association of Wajgpi Indigenous Peoples of the Amapari Triangle (APIWATA). The PCU will coordinate with these entities and authorities on the organization of seminars for preparation of Sustainable Investment Plans in indigenous territories. With regard to nascent forms of collective organization of Amapi s quilombola communities, it should be mentioned that, during the First Forum of Amapi s Quilombo Remnant Communities, held in February 23 in the quilombola community of Curia& representatives of 16 quilombola communities of the Macapi and Mazaggo region decided to form the Council of Quilombola Communities of Amapi as an instrument to defend and represent their mutual interests. In the strategy proposed for the participation of quilombola communities, this Council will constitute the project partner in the organization and coordination of one or more seminars for the preparation of the Sustainable Investment Plans for quilombola communities. With regard to the gender issue, during the pre-investment phase, the existence of a network of around 1 entities representing women, operating in the State of Amapi, was identified. These community entities are mostly concentrated in the city of Macaph. Of these, five should be mentioned due to the extent of the area where they operate. These are: the Institute of Black Women of Amaph (IMENA), the Federation of Women of Amaph (FEMEA), the Liaison of Women of AmapL (AMA), the Federation of Rural Working Women of Amapi and the Association of Traditional Midwives of Oiapoque

102 Among special social groups, youth have the greatest difficulties in organizing entities that are legitimately representative of their interests. Information proved by the state Special Youth Advisory Office suggests the proliferation of small groups of youth practicing highly specific sports and cultural activities. Information from diverse local actors indicates that the principal entity working with Macaph s youth (AMAJUVE) was dismantled at the end of 22, and it was not possible to locate any member of its board of directors. The remaining non-governmental entities with broad scope are: the Network of Family and School Associations of Amapi (RAEFAP) and the Pastoral Youth Office. The implementation of the strategy of inclusion and participation of indigenous populations, quilombolas, women and youth in the project also points to the need for partnerships of support and collaboration with an array of other government agencies and non-governmental organizations. At the government level, the institutions whose support and collaboration are essential in light of their specific responsibilities in relation to Special Social Groups are: the National Indian Foundation (FUNAI), the National Health Foundation (FUNASA), the Palmares Cultural Foundation (FCP), the Nucleus of Indigenous Education (NEI) of the State Secretariat of Education and Sports, the State Secretariat of Health, the State Secretariat of Industry and Commerce, AGEMP and the Special Youth Advisory Office. At civil society level, a broad array of non-governmental agencies in the State of hapa is carrying out work with indigenous populations, the black population, quilombolas, women and youth in mal and urban areas. These non-governmental organizations include institutions that are working with indigenous populations and youth the Indigenist Missionary Council, the Lndigenist Labor Center, the Indigenous History and of Indigenism Bureau of the University of Sgo Paulo, the Institute of Research and Training in Indigenous Education, the Amazon Conservation Team and The Nature Conservancy. Throughout project preparation, contacts and consultations were held with these diverse entities. The strategies proposed for the inclusion and participation of these four specific social groups incorporate their knowledge and suggestions. During project preparation, consultations were also held with various entities representing indigenous populations, the black population and quilombola communities, women and youth. The proposed strategies also incorporate their suggestions and reflect their capacity to operate and represent the interests of these social groups. 5. Strategy for the Participation of Social Minorities in the Project 5.1 The Current Scenario The research and consultations carried out during preparation (see section 1.2 for more details on the consultations) revealed differences among the four targeted special populations with respect to their situations; concerns; organizations; and relations with the larger society, which are outlined below. Indigenous Populations. Due largely to increased sedentarization, wage earning, dependency on external assistance, and external economic pressures on their natural resources (e.g., timbering, mining, etc.), most indigenous people in the state are increasingly experiencing social, economic and environmental problems including, among others: abandonment of their traditional adaptations, reduced quality of life due to depletion and degradation of natural resources, impoverishment; internal conflicts as well as conflicts between generations; alcoholism; and sexually transmitted diseases. At the same time, indigenous people in Amapa have: (i) strengthened their organizations particularly in relation to the larger society; (ii) improved their access and communication with state and federal entities whose policies affect them; (iii) become increasingly critical of the sociocultural, environmental and economic sustainability of interventions and assistance provided to them by governmental and

103 non-governmental organizations; and (iv) camed out various initiatives for planning their own integrated action proposals for indigenous lands, characterized by participation, traditional knowledge (e.g., environmental surveys, ethnographic studies, ethno-ecological maps, etc.). Due to these factors, and in part because their lands are demarcated, Amapb s indigenous population has generally received more external support and benefits than the majority of poor rural non-indigenous population. Ouilombola communities. In general, the tenure security, organizational level and access to public services of quilombola communities in Amapb is considerably less than that of indigenous populations. Their lands have not been regularized except in one case. The process of organizing and raising awareness in the majority of communities is still at an early stage. The lack of land security makes these communities more vulnerable and impedes investments. The recent event of the First Forum of Quilombola Communities of hap6 and their decision to form a council to articulate and represent themselves is an important advance toward strengthening their capacity to represent themselves more effectively. Women and Youth. Although information on women and youth in rural areas is scarce, one may preliminarily conclude that women and youth constitute a significant part of agricultural labor (males under age 14 and women totaled nearly 5% of people working in the agricultural year) with concentrations on poorer farms (males and females under age 14 represented, in the same agricultural year, around 33% of labor on poorer family farms). In urban areas, there are a large number of female-headed households with young children. While they lack specific organizations, their expectations and priorities are reflected to some extent in the agendas of existing grassroots community organizations. 5.2 Challenges to be faced during project implementation and mitigating measures Indigenous Populations. Major challenges with respect to the project strategy for working with indigenous population include avoiding interventions that: (i) are culturally or socially inadequate; (ii) undermine or reduce the self sufficiency of traditional adaptations and hence lead to impoverishment; (iii) insufficiently consider the need to protect and manage the natural resources; (iv) promote internal divisions or conflicts; (v) contribute to increasing pressure from the surrounding regional society; and (vi) use decision-making processes that pit indigenous groups directly against non-indigenous groups for project resources. To address these challenges, the project will use a participatory methodology to ensure that indigenous subprojects reflect community priorities. Specifically, the action strategy includes the following elements: (i) a process of the participatory development of a Sustainable Investment Plan (SIP) for each of the state s three Indigenous Lands, to be facilitated by the PCU in collaboration with pertinent representative organizations; (ii) earmarking of project resources to prioritize the implementation of indigenous SIPs; (iii) the use of a Special Groups Sub-committee of the Project Advisory Council as the screening and decision-making body (rather than Municipal Development Forums) for indigenous SIPs; (iv) the adoption of clear criteria to assess the environmental and cultural suitability of proposals, to block approval of proposals that could increase sedentarization and unsustainable environmental pressures (within and around indigenous lands) and facilitate approval of proposals aimed at mitigating the negative social, economic and environmental impacts caused by these pressures. Ouilombola Communities. The principal challenges for the project with respect to the quilombola communities include, among others: (i) their apparently reduced capacity to represent and defend their interests in competitive processes of resource allocation, if decisions are made at municipal level; (ii)

104 legal problems stemming from the absence of land titling, faced by most of these communities; and (iii) an apparently traditional tendency to exclude women from the collective decision-making process at community level. To address these challenges, the project strategy includes: (i) a process of the participatory development of a Sustainable Investment Plan (SIP) for each of the state s quilombola communities, to be facilitated by the PCU in collaboration with existing pertinent representative organizations; (ii) earmarking of project resources to prioritize the implementation of quilombola SIPs; and (iii) the use of a Special Groups Sub-committee of the Project Advisory Council as the screening and decision-making body (rather than Municipal Development Forums) for quilombola SIPS. Women and Youth. There appear to be two main challenges to be addressed with regard to interventions among women and youth of poor rural and urban communities. One is to ensure that existing governmental and nongovernmental organizations adequately and effectively represent their concerns and priorities. The second is to expand the spheres in which women and youth participate effectively within their communities in the discussions and priority setting exercises which would also help to avoid project-sponsored interventions from contributing towards segmenting the community and segregating these two social groups. To address these challenges, the project strategy includes: (i) the promotion of the inclusion of pertinent representative organizations and women and youth at local participatory planning events; (ii) the promotion of the discussion of gender and generation issues at events for local diagnosis, action planning and prioritizing exercises; (iii) ensuring the representation of entities representing women and youth in both Municipal Development Forums and on the Project Advisory Council; and (iv) giving priority to urban and rural sub-projects that involve and benefit women and adolescents. 5.3 Strategies for the Inclusion of Special Social Groups Participation in the project of indigenous populations, quilombola communities, women and youth and their pertinent organizations will be structured in four ways: (i) as potential beneficiaries of project activities and subprojects for which funds have been earmarked; (ii) as protagonists in the project diagnostic, prioritization and action planning activities; (iii) via representation on project decision-making bodies; and (iv) via representation on the Project Advisory Council for deliberative, oversight and social control functions. As stated above, specific project strategies have been refined with respect to each target special population. Other project principles include the following: Community orientation of subproject prioritization. Broad prior dissemination of the project in languages accessible to local populations. Stimulation of broad, democratic participation of local populations - and especially of poor populations and of each community s most vulnerable segments- in decision-making processes. Respect and appreciation for local knowledge. Community responsibility for the sustainable medium- and long-term operation of subprojects. Attention to and adoption of environmental protection and conservation measures. 1 Adjustment of technical assistance and training processes for the operation of subprojects in accordance with the locally available human resource and cultural capacity Strategy for the Inclusion and Participation of Indigenous Populations - 1-

105 Indigenous populations will participate effectively in the project as protagonists in the participatory process of preparing Sustainable Investment Plans (SIPs) in their territories and as members of the Project Advisory Council. There will be two decision-making spheres for indigenous SIPs and related subprojects. First, the assemblies of indigenous peoples will be held, in their lands, by the Project Coordination Unit to participate in seminars for the preparation of Sustainable Investment Plans for indigenous territories - involving the diagnostic of the local situation; identification of problems, prioritization and selection of subprojects to be submitted to the project and of technical assistance providers to be hired to prepare and monitor subproject execution. Second, a Special Groups Subcommittee of the Project Advisory Council, which will include representatives of Amapit s indigenous peoples will evaluate using previously agreed technical criteria: (i) the submitted subproject proposals in the context of the SIPs; and (ii) the institutional capacity of the technical assistance providers proposed to prepare and monitor subproject execution. The procedures for preparing and approving sub-projects for indigenous groups is detailed in the flowchart below Strategy for the Inclusion and Participation of Quilombola Communities: Quilombola communities will participate effectively in the project as protagonists in the participatory process of preparing Sustainable Investment Plans (SIPs) for their communities and as members of the Project Advisory Council. There will be two decision-making spheres for quilombola SIPs and related subprojects. First, one or more seminars for the preparation of the Sustainable Investment Plans (SIPs) for quilombola communities will to be promoted and coordinated by the PCU with the participation of the largest possible number of quilombola communities (with or without regularized lands) in the State - involving diagnostics of local situations; the identification of their problems, prioritization and selection of subprojects to be submitted to the project and of technical assistance providers to be hired to prepare and monitor subproject execution. Second, a Special Groups Subcommittee of the PAC, which will include representatives of AmapL s quilombola communities will evaluate using previously agreed criteria: (i) the submitted subproject proposals in the context of the SIPs; and (ii) the institutional capacity of technical assistance entities selected to prepare and monitor subproject execution. The procedures for preparing and approving sub-projects for quilombos is detailed in the flowchart below

106 Flowchart for Preparing Indigenous and Ouilombo Rural Sub-proiects StageIActor Indigenous or Quilombo PCU Service Provider Special Groups Association Subcommittee of PAC 1. Dissemination of project D) Mobilized through A) Defines priority 3) Contracted to prepare B) Consulted about the md mobilization of target field visits by PCU staff areas; prepares and md distribute dissemination component and its WUPS and their consultants implements dissemination plan naterial dissemination strategy 2. Preparation of pre-proposal 3. Prioritization 1. Preparation of sub-project proposal, including contracting of technical assistance 5. Approval of sub-projects A) Membership meets to prepare Sustainable Investment Plan and fill out the pre-proposal forms D) Receives advice fiom PCU about types and suppliers of technical assistance E) Selects supplier with assistance from PCU A) Reviews and approves sub-project proposal; identifies counterpart contribution and plan for operations and maintenance (if appropriate) B) Sends approved proposal to PCU A) Assists associations with Sustainable Investment Plan seminar and preparation of preproposals A) Receives prioritized list of pre-proposals from indigenous or quilombo council A) Prepares registry of qualified suppliers of technical assistance B) Selects priority preproposals to receive technical assistance C) Suggests type of technical assistance that would help the associatior to prepare its sub-project F) Contracts technical assistance provider on behalf of association C) Receives and evaluates sub-project proposals (technical, financial, environmental, and legal reviews); sends proposals and reviews to PCU i) Assists association to repare detailed sub-project roposal D) Receives proposals and reviews from PCU; final approval of subprojects; notifies associations about results and can request clarifications or conditions 6. Adjustments B) Participates in A) Requests additional (applicable only when sub- improvement of proposal information from entity projects are approved with or provision of additional that helped to prepare conditions or when mitigating information the proposal measures are required) C) Verifies that the revised proposal responds to the PCU's request and returns to step 5A ~ step - 12-

107 5.3.3 Strategies to Deal with Gender and Generation Issues: The project strategy to address gender and generation issues is somewhat different and takes into consideration the need to support the promotion of a process of including and increasing the participation of groups of women and/or youth in the decision-making processes that take place in their local contexts, trying to avoid the risk of the project contributing to alienate groups of women and youth from local decision-making processes. In this regard, the participation of groups of women and youth, as well as of entities representing their interests will take place in the ordinary processes of project local level planning actions that will occur at community level (either in rural communities or in targeted poor urban neighborhoods). In the process of planning these actions, the PCU will try to ensure that: (i) groups of women and youth are included in local discussion and planning processes; (ii) all entities representative of gender and generation issues working in are for which project actions are planned, participate in planning and deliberation processes; (iii) consideration of gender and generation issues is continually incorporated in the processes of (a) diagnostics of local situations, (b) identification and prioritization of local problems; and (c) actions to be implemented by the project are selected and treated with priority; and (iv) sub:projects that involve and benefit poor women and adolescents are prioritized in the selection process. Entities representing gender and generation issues will be represented in the Project Advisory Council. 5.4 Anticipated Benefits Through its actions, the h api Sustainable Communities Project will contribute to: 1. Strengthening the capacities of entities representing indigenous populations, quilombola communities, rural women and youth, increasing their social visibility, training them as agencies to represent and defend the interests of their constituents before government agencies and in other fora; 2. Building social capital and appreciation of local knowledge by involving local actors in processes of decision-making and of public policy management; 3. For indigenous people, subprojects have the potential to contribute to providing alternatives for meeting their needs for social services, basic infrastructure and productive activities that are compatible with their environmentally adequate, traditional settlement and subsistence and natural resource use patterns; 4. For quilombola communities, the project may support the process of identification, recognition and land regularization of their lands, organization and mobilization of their communities; 5. For women and youth, the project has the potential to promote their integration with arenas of discussion and decision-making on issues of community interest; 6. For all social groups, the project has the potential to promote improvements to the quality of life, reduce their vulnerability to external factors, promote the economic, social and cultural resources existing at local level and enable the construction of sustainable systems of subsistence and social reproduction; 7. For government agencies, the project has the potential to contribute to the democratization of their structures through the effective decentralization of the decision-making process, the intensification of social control mechanisms, the simplification of their procedures and transparency of their actions. 6. Monitoring and Evaluation - 13-

108 The project monitoring and evaluation system will include both performance and impacts indicators. Performance indicators will evaluate the efficiency of the participatory management mechanisms implemented by the project (its capacity to include poor families in the processes of planning and prioritization of actions and decision-making) and the physical, financial and accounting performance of the project. Impact indicators will evaluate the access of populations directly benefited by the project to better social and productive infrastructure services, their participation in the management of these services, the increase in and diversification of production, the level of indebtedness of the individual and collective credit component, and the capacity of project beneficiaries to adopt technical support resulting from the technical assistance process. With regard to Special Social Groups, the monitoring and evaluation process will take additional factors and indicators into account. To measure the project s effectiveness and its strategies for the participation of special groups, the following indicators will also be relevant: (a) the effective inclusion of the specific problems of indigenous populations and quilombolas, and of gender and generation issues in planning and decision-making processes; (b) the sociocultural adjustment of investments made in Indigenous Territories to ensure that the subprojects implemented contribute to ensure both the reproduction of their specific cultural patterns and to improve the quality of life; (c) the environmental impact of these investments; (d) subprojects capacity for self-sustainability; (e) the strengthening of institutions representing these Special Social Groups and the networks of linkage that they have developed; and (f) their effective participation in public policy discussions. Project monitoring instruments will consist of: (a) reports on and lists of participants at workshops for the preparation of Sustainable Investment Plans (SIPS); (b) project physical-financial reports; (c) reports on the monitoring of subproject implementation and accounting. The Project Advisory Council (PAC) is the authority responsible for project monitoring and evaluation and for exercising social control over its implementation. The evaluation process will involve two rounds of studies, at the project s mid-term and at the end of the implementation period. In addition to the general analyses of the project s overall performance and impacts (social, economic, environmental, and on levels of organization and participation), these studies will involve, in the case of special groups, the evaluation of the project from the standpoint of its beneficiaries and their representative entities. This evaluation will use participatory methodologies and be performed by experts or independent institutions, with experience in dealing with indigenous, quilombola, gender and generation issues. (1) These numbers are presented by Dominique T. Gallois and Dafian G. Machrio (coord.), Levantamento Etnoecoldgico do Complex Tumucumaque: Fundamentos Antropoldgicos and Ambientais [Ethno-ecological Survey of the Tumucumaque Complex: Anthropological and Environmental Bases], Nkleo de Indigenous History and Indigenism Bureau, USP, 2. The Special Indigenous Health District of Amapa and Northern Para (National Health Foundation) estimates the current population of the Tumucumaque Complex at 1476 individuals. Direct contacts made during project preparation with representatives of the Wayana-Aparai ethnic group, at the headquarters of the Association of Indigenous Peoples of Tumucumaque (APITU), identified 19 individuals spread among 36 villages. (2) FUNAI s ADR-Oiapoque estimates of Indians in villages at 448 individuals. Including those residing in - 14-