Distribution: Restricted EB 2005/86/R.29/Rev.1 13 December 2005 Original: English Agenda Item 9(e)(iv) English

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1 Distribution: Restricted EB 2005/86/R.29/Rev.1 13 December 2005 Originl: English Agend Item 9(e)(iv) English IFAD Executive Bord Eighty-Sixth Session Rome, December 2005 REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE BOARD ON A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA FOR THE INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT IN THE GOVERNORATE OF SILIANA PHASE II Due to resource constrints nd environmentl concerns, IFAD documents re produced in limited quntities. Delegtes re kindly requested to bring their documents to meetings nd to limit requests for dditionl copies.

2 TABLE OF CONTENTS CURRENCY EQUIVALENTS WEIGHTS AND MEASURES ABBREVIATIONS AND ACRONYMS MAP OF THE PROJECT AREA LOAN SUMMARY PROJECT BRIEF iii iii iii iv v vi PART I THE ECONOMY, SECTORAL CONTEXT AND IFAD STRATEGY 1 A. The Economy nd Agriculturl Sector 1 B. Lessons Lerned from Previous IFAD Experience 2 C. IFAD s Strtegy for Collbortion with Tunisi 2 PART II THE PROJECT 4 A. Project Are nd Trget Group 4 B. Objectives nd Scope 6 C. Components 6 D. Costs nd Finncing 7 E. Procurement, Disbursement, Accounts nd Audit 10 F. Orgniztion nd Mngement 10 G. Economic Justifiction 11 H. Risks 11 I. Environmentl Impct 12 J. Innovtive Fetures 12 PART III LEGAL INSTRUMENTS AND AUTHORITY 12 PART IV RECOMMENDATION 12 ANNEX SUMMARY OF IMPORTANT SUPPLEMENTARY ASSURANCES INCLUDED IN THE NEGOTIATED LOAN AGREEMENT 13 i

3 APPENDIXES I. COUNTRY DATA 1 II. PREVIOUS IFAD FINANCING IN TUNISIA 2 III. LOGICAL FRAMEWORK 3 IV. ORGANIGRAMME 9 ii

4 CURRENCY EQUIVALENTS Currency unit = Tunisin dinr (TND) USD 1.00 = 1.3 TND TND 1.00 = USD 0.71 WEIGHTS AND MEASURES 1 kilogrm (kg) = pounds (lb) kg = 1 metric tonne (t) 1 kilometre (km) = 0.62 miles (mi) 1 metre (m) = 1.09 yrds (yd) 1 squre metre (m 2 ) = squre feet (ft 2 ) 1 cre (c) = h 1 hectre = 2.47 cres ABBREVIATIONS AND ACRONYMS BRETI CRDA DDC ODNO Regionl Office of Employment nd Self-Employment (Bureu régionl de l emploi et du trvil indépendnt) Regionl Commission for Agriculturl Development (Commissrit régionl u développement gricole) district development committee Office for the Development of the North-West (Office de développement du nord-ouest) GOVERNMENT OF THE REPUBLIC OF TUNISIA Fiscl Yer 1 Jnury 31 December iii

5 MAP OF THE PROJECT AREA Integrted Agriculturl Development Project in the Governorte of Silin Phse II Source: IFAD. The designtions employed nd the presenttion of the mteril in this mp do not imply the expression of ny opinion whtsoever on the prt of IFAD concerning the delimittion of the frontiers or boundries, or the uthorities thereof. iv

6 REPUBLIC OF TUNISIA INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT IN THE GOVERNORATE OF SILIANA PHASE II LOAN SUMMARY INITIATING INSTITUTION: BORROWER: EXECUTING AGENCY: TOTAL PROJECT COST: AMOUNT OF IFAD LOAN: TERMS OF IFAD LOAN: COFINANCIERS: AMOUNT OF COFINANCING: TERMS OF COFINANCING: CONTRIBUTION OF BORROWER: CONTRIBUTION OF BENEFICIARIES: APPRAISING INSTITUTION: IFAD Republic of Tunisi Ministry of Agriculture nd Wter Resources USD 38.9 million SDR 10.9 million (equivlent to pproximtely USD 15.5 million) Eighteen yers, including grce period of three yers, with n interest rte equl to the reference interest rte per nnum, s determined by the Fund nnully Globl Environment Fcility USD 5.0 million Grnt USD 16.2 million USD 2.2 million IFAD COOPERATING INSTITUTION: United Ntions Office for Project Services v

7 PROJECT BRIEF Who re the beneficiries? The project re consolidtes the res of investment under the first phse of the Integrted Agriculturl Development Project in the Governorte of Silin nd extends into res considered to be reltively poorer. The project would cover ll the southern districts of the governorte nd eight subdistricts in the north, bringing the project universe to households (including frms). The trget group will encompss the following ctegories: (i) poor lndless households tht require stte welfre ssistnce to meet their bsic needs; (ii) rurl households tht rely on women s lbour in griculture nd men s sesonl low-skilled employment; nd (iii) households with reltively greter economic security tht hve ccess to lrger lndholdings nd herd sizes nd higher skilled employment. Project ctivities re tilored to service low- nd vergeincome households nd promote economic complementrities; specificlly the increse in vluedded production mong verge-income households should stimulte demnd for services, the estblishment of new businesses nd the genertion of employment mong the low-income ctegories. Why re they poor? The incidence of poverty in the project re is roughly 30%. Geogrphiclly, poverty stems minly from poor ccess to services due to physicl isoltion nd the high investment cost of restoring the productive potentil of lnd suffering from moderte to extreme erosion. Accordingly, the mountinous southern districts of the project re re reltively poorer. Household poverty levels re minly relted to the sources of income of the vrious members who re ctive in the workforce nd their bility to move into higher-vlue or more stble employment. Households with sesonl, low-skilled, poorly remunerted nd reltively vulnerble employment (owing to drought, shifts in public investment, or liberliztion in the textile industry) re considered poor. These households re lso chrcterized by high school drop-out rte mong children fter they hve completed the primry level. Poor smllholder households lso suffer from low griculturl productivity, dependency on government subsidies nd dependency on public investments for wge lbour opportunities. The young women of poor households re isolted from minstrem informtion, sensitiztion nd voctionl trining services. Wht cn beneficiries expect from the project? Focusing on the relince of locl livelihoods on on-frm nd off-frm incomes, the project will seek to boost griculturl productivity, support the development of smll nd medium-sized businesses nd open up ccess for young people, especilly women, to the lbour mrket. Mechnisms will be estblished tht ssist communities nd locl dministrtions like in plnning nd supervising synergistic nd trgeted ctivities to foster self-help nd locl development inititives. Under this pproch, lndless households re likely to benefit from the project s infrstructure services nd technicl support for employment cretion, while smllholders will benefit from the ctions to enhnce griculturl productivity nd environmentl conservtion. How will beneficiries prticipte in the project? The prticiptory pproch dopted under the project will ensure tht locl communities re ctively involved in consulttion nd decision-mking on the lloction of resources to reduce poverty nd expnd locl development options. Prticiption will be relied on to build community ownership of environmentl nd productive investments, trget support ctivities t poor households nd crete incentives for mobilizing community investments nd leverging public investments. Innovtive fetures. The project presents the following novel spects vis-à-vis previous IFADfinnced opertions in Tunisi: (i) ssistnce for the regionl griculturl dministrtion nd locl governments in dopting n operting model tht is responsive to demnd-driven pproch; (ii) better response to the employment concerns of youth; (iii) greter ttention to improving the qulity nd ccessibility of existing business dvisory services in support of employment; nd (iv) the shift from public to privte delivery of extension services to smllholders. vi

8 REPORT AND RECOMMENDATION OF THE PRESIDENT OF IFAD TO THE EXECUTIVE BOARD ON A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA FOR THE INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT IN THE GOVERNORATE OF SILIANA PHASE II I submit the following report nd recommendtion on proposed lon to the Republic of Tunisi for SDR 10.9 million (equivlent to pproximtely USD 15.5 million) on ordinry terms to help finnce the Integrted Agriculturl Development Project in the Governorte of Silin Phse II. The lon will hve term of 18 yers, including grce period of three yers, with n interest rte equl to the reference interest rte per nnum s determined by the Fund nnully. It will be dministered by the United Ntions Office for Project Services s IFAD s cooperting institution. PART I THE ECONOMY, SECTORAL CONTEXT AND IFAD STRATEGY 1 A. The Economy nd Agriculturl Sector 1. The economy. Tunisi is middle-income country with gross ntionl income per cpit of USD The structure of the economy, which ws once dominted by primry production in griculture, oil nd phosphte extrction, hs evolved nd diversified since independence in Services now contribute nerly 60% to gross domestic product, nd industry 28%; griculture hs dropped to 12%. The mcroeconomic sitution is good; there hve been serious efforts to contin budget deficits nd expnd the coverge of the tx system, while lowering tx rtes nd controlling infltion. The rte of economic growth reched 5% between 1993 nd 2003, nd the verge popultion growth rte ws 1.2% during the sme period. Economic development ws ccompnied by mesures to ensure the equitble distribution of benefits, which hs, in turn, led to reduction of poverty. Approximtely 35% of the popultion lives in rurl res. Rurl popultion growth hs been stgnnt, with negtive growth rtes witnessed in disdvntged res. 2. Ntionl griculturl development policy. The economy of the reltively poorer rurl regions (which re most regions flling long the centre-south xis) is bsed on griculture, which is min source of employment nd livelihoods. Government support to the griculturl sector represents pproximtely 7% of the ntionl budget nd mounts to pproximtely USD 3.7 billion over the current five-yer pln period. The five-yer development pln for the griculturl sector ( ) emphsizes the competitiveness of the sector in preprtion for full trde liberliztion. The resources tht hve been ermrked, however, do not mtch this mbition. Public investments re minly gered towrds nturl resource mngement, with n emphsis on erosion control nd the hrnessing of wter resources. Mesures fcilitting the use nd economic vibility of these investments re, moreover, lgging behind: the efforts to restructure the extension system lck cler sense of direction, policies fvouring frmer orgniztions re voltile nd the reorgniztion of commodity chins is not given due priority. The high investment in infrstructure nd hrdwre, coupled with limited investment in building mngement cpcity t the smllholder level, is undermining the longterm vibility of sector competitiveness. 1 See Appendix I for dditionl informtion. 1

9 3. The chllenge for griculture in the poorer res of Tunisi is to rethink nd pln for the future of smllholdings, which constitute 53% of frms (of less thn 5 h) but only occupy frction of the cultivted re. Lnd regrouping inititives presently trget rinfed smllholders in order to limit frgmenttion nd led to plot sizes tht re menble to mechniztion. This process is both lengthy nd costly, but recent prticiptory experiences suggest tht it could be expedited nd its costs could be mde more mngeble. B. Lessons Lerned from Previous IFAD Experience 4. IFAD hs so fr supported nine projects in Tunisi for totl cost of bout USD 290 million, of which IFAD lons hve contributed totl of USD million, or 40%. Six of the lons hve been closed, nd three projects re ongoing: (i) the Integrted Agriculturl Development Project in the Governorte of Silin 2 (IFAD-initited, USD 11.3 million lon); (ii) the Integrted Agriculturl Development Project in the Governorte of Zghoun (IFAD-initited: USD 16.1 million lon); nd (iii) the Agropstorl Development nd Locl Inititives Promotion Progrmme for the South-Est (IFAD-initited, USD 18.7 million lon). All these IFAD interventions involve integrted rurl development ctivities, nd their principl objectives include the improvement of livestock nd crop production systems, the conservtion nd improvement of nturl resources (soil nd wter conservtion nd the improvement of grzing rnges, forests nd smll-scle irrigtion), frm credit nd socil infrstructure (prticulrly rurl rods nd drinking wter). It is worth mentioning tht, since the introduction of Government-led subsidized scheme of rurl microfinnce, IFAD hs withdrwn from the rurl finnce sector in dherence to the IFAD Rurl Finnce Policy. 5. The country progrmme evlution in 2003 judged the qulity of the physicl works nd the trgeting of project investments s generlly stisfctory. Project investments hve generlly been relevnt nd hve led to greter frmer resilience in the fce of drought. They hve lso delivered relevnt services to rurl women in support of women s empowerment, lbeit in wht is still deemed timid process. The projects hve, however, been rted s weker on issues pertining to socil cpitl. Prticiptory pproches hve been undercut by technicl, supply-driven nd sectorl pproch to investment. The projects hve lso been generlly isolted from their wider institutionl environment nd hve estblished only limited coopertion with other locl development stkeholders. C. IFAD s Strtegy for Collbortion with Tunisi 6. Tunisi s policy for poverty reduction. Poverty hs been stedily declining, from n incidence of 40% of the popultion in the 1960s to less thn 4% in Most of the decrese occurred between the 1960s nd the mid-1980s (poverty incidence ws 11.2% in 1985 nd 7.4% in 1990). This lrge-scle decrese in poverty is the outcome of sustined effort in socil expenditure, effective income redistribution mechnisms (efficient nd trgeted trnsfers) nd, finlly, specific ction in fvour of the rurl popultion. These results lso ber witness to good economic mngement cpcity imed t three brod development objectives, nmely, growth, equity nd stbility. Nevertheless, this overll impressive performnce msks significnt differences between rurl conditions nd urbn conditions nd, within rurl res, between regions well endowed in terms of nturl resources nd ecologiclly frgile regions. Poverty in Tunisi is essentilly rurl phenomenon. Poverty in rurl res cn rech 13% of the rurl popultion, over triple the ntionl verge of 4%. Stndrds of living nd the severity nd incidence of poverty lso vry significntly ccording to region, with strong contrst between the richer northern nd costl regions nd the less dvnced southern nd inlnd res of the country. In 1996, the Government formulted poverty erdiction strtegy to, inter li, increse rurl income levels, generte employment, ensure the sustinble development of nturl resources nd trget public investment t regions where poverty 2 This project ws scheduled for lon closing on 30 June The project mngement unit, however, hs been extended to 31 December

10 ws more cute. Tunisi is mong the countries tht re set to fulfil the Millennium Development Gols by Poverty erdiction ctivities of other mjor donors. The principl donors supporting rurl development in Tunisi re the Africn Development Bnk, the Arb Fund for Economic nd Socil Development, the Europen Union, the Islmic Development Bnk, the World Bnk, Frnce, Germny nd Jpn. IFAD works closely with number of these donors, minly through cofinncing nd collbortion on prticiptory methods with the World Bnk nd the Germn Agency for Technicl Coopertion (GTZ). Externl ssistnce is well integrted into ntionl, long-term sectorl nd subsectorl strtegies in Tunisi. Given the thrust of the pst decde towrds nturl resource mngement nd bridging regionl disprities, externl ssistnce projects hve been gered to infrstructure investment, soil nd wter conservtion, hrnessing wter resources nd, to lesser extent, credit nd technicl dvisory services. Donors hve lso been involved in the development nd implementtion of the ntionl ction pln to combt desertifiction. With incresing trde liberliztion, externl ssistnce is being chnnelled to support the development of n enbling environment for competitive griculture (the privtiztion of extension services, the strengthening of frmer orgniztions nd interprofessionl groups, nd lnd tenure reform). 8. IFAD s strtegy in Tunisi. The strtegic thrusts of IFAD opertions in Tunisi focus on: (i) high levels of beneficiry prticiption; (ii) gender blnce; (iii) the cretion nd strengthening of rurl finncil services; nd (iv) sustinble nturl resource mngement. The country progrmme evlution reconfirmed these strtegic thrusts nd mde qulittive djustments to progrmme implementtion modlities by emphsizing: (i) the expnsion of the focus of investment from griculture to on-frm nd off-frm economic opportunities since it ws recognized tht the livelihoods of the poorest households often derive from both on-frm nd off-frm ctivities; (ii) the use of IFAD resources to experiment with new pproches rther thn to finnce stndrd public investment ctivities; nd (iii) building upon the lessons lerned during project implementtion to engge in policy dilogue with the Government. The current project ddresses number of the qulittive djustments recommended in the country progrmme evlution. An updted country strtegy for Tunisi will be formulted during Project rtionle. The first phse of the Integrted Agriculturl Development Project in the Governorte of Silin ws initited in 1997 s prt of the ntionl strtegy for nturl resource mngement, erosion control nd the reduction of regionl disprities in economic nd socil development. It ws completed in June 2005, hving fully chieved its physicl trgets. The interim evlution undertken by the Office of Evlution in 2004 commended the project for the relevnce of its ctivities, the high level of technicl competency nd the innovtive pproch in the re of pplied reserch nd collbortive forest mngement nd in improving the reltionship between technicl griculturl services nd the frming popultion. It rted the impct of the project s significnt in building up the physicl ssets of the governorte (bsic infrstructure tht improved the ccess of households to potble wter nd the mobility of households thnks to the expnded rod network) nd the lnd ssets of smllholders (by controlling soil erosion nd expnding irrigted griculture). The impct of the project on the economic nd socil cpitl of young women ws lso judged s significnt, considering tht it pioneered ccess for rurl women living in reltively isolted res to voctionl trining nd technicl bckstopping in enterprise mngement nd fcilitted their ccess to credit. However, the interim evlution pointed to the project s indequte implementtion of the prticiptory nd integrted pproch to development, which ws supposed to hve been its min innovtive feture. The evlution found tht, in spite of the impct the project hd on the physicl ssets of the poor, the impct on income would tke five to ten yers to mterilize, ssuming dequte bckstopping mong smllholders. 3

11 10. Accordingly, the interim evlution recommended the extension of the project into second phse to consolidte project results nd deepen its impct. The second phse will dopt two-pronged pproch of mximizing griculturl nd non-griculturl vlue dded nd sfegurding nturl resources. PART II THE PROJECT A. Project Are nd Trget Group 11. Project re. For purposes of consolidtion, the project will cover the res trgeted during the first phse, but will lso extend to other poor res in the governorte. The nlysis of poverty in terms of ccess to services, percentge of smllholders, degree of erosion, nd unemployment led to the identifiction of the 54 districts (imdts) tht the project will trget. The totl popultion of the project re is estimted t households, of which pproximtely 80% re rurl. There re pproximtely frming units. 12. Key fetures of the project re re its significnt vulnerbility to erosion (60% of the project re is subject to high or moderte erosion), the low-input, low-output griculture tht is still subsistence-bsed, the substntil inequity in lnd ccess (with 8% of frmers owning more thn 50% of the lnd re, wheres 62% of lndowners re smllholders with less thn 10 h ech). Households in the project re derive their incomes from multiple sources such s frming nd sesonl work found loclly, in nerby towns, or in the lrge costl cities. Another chrcteristic of the project re is its negtive demogrphic growth rte (-0.5% per yer) due to migrtion to urbn res, evincing trend towrds depopultion of the country s rurl res. The Government is working to improve living conditions in the re by investing in public infrstructure, providing housing nd finncil ssistnce to needy fmilies, nd finncing public works on sesonl bsis to mke wge lbour options vilble to poor households. 13. Despite its physicl nd economic constrints, Silin hs number of ssets tht cn support development of the locl economy nd stem out-migrtion to urbn res. An nlysis of supply nd demnd in number of griculturl nd non-griculturl commodities revels tht development of the locl economy rests primrily in the griculture nd rw mterils sectors. Also importnt re the employment nd income opportunities tht exist in servicing the griculturl sector (seed production, seed tretment, phytosnitry services) nd gro-industry (storge, conditioning, etc.). Given the existence of well-developed finncing system, the project will focus on supporting employment cretion by improving the qulity of business dvisory services nd decentrlizing service delivery to rurl res. 14. Three regionl orgniztions ply n importnt role in economic development. The Regionl Commission for Agriculturl Development (Commissrit régionl u développement gricole - CRDA) is responsible for plnning nd implementing mjor griculturl investments, uthorizing the ccess of frmers to subsidies nd pprising frm credit requests. The Regionl Office of Employment nd Self-Employment (Bureu régionl de l emploi et du trvil independent - BRETI) provides voctionl trining, business development support nd technicl bckstopping to young entrepreneurs. The Office for the Development of the North-West (Office de développement du nordouest - ODNO) is public gency responsible for promoting ntionl nd foreign investment in Silin nd ssisting investors in receiving the incentives provided under the investment code reltive to disdvntged rurl res. These three orgniztions will lso ply n importnt role s implementing gencies for the project. 15. Trget group. Prticiptory poverty mpping exercises hve reveled tht the re popultion is subject to high degree of poverty nd vulnerbility. The incidence of the poorer groups cn be s 4

12 high s 30%. The unemployment rte in the governorte is 18% (nd 30% of the unemployed re women). The perception of households is tht they re highly vulnerble. Three groups of poor hve been identified on the bsis of number of working members in the household, size of lndholding, herd size, sources of income nd enrolment in socil welfre progrmmes: poorer households; less poor but vulnerble households; nd households in stble sitution. Although poverty clssifiction will be crried out within ech community enrolled in the project through the use of prticiptory poverty nd welth rnking, the following prgrphs describe the locl livelihoods strtegy of ech group nd the project response. The bseline study is designed to define the income nd expenditure levels of these groups. 16. Poorer households. These households do not hve the mens to cover bsic food requirements. They lck ssets nd ccess to employment, hve young dependent children, or mjor expenditures (such s schooling for children, helth cre bills, etc.). The hed of household lcks n independent source of income becuse of helth problems or disbility. These households rely for their survivl on the ssistnce of the stte, which provides them with monetry llownce, ssistnce with schooling, housing refurbishment, nd voctionl trining nd specil credit progrmmes for youth. Geogrphiclly, these households live on the boundries of stte forests or on the outskirts of urbn centres. The poorest households in this ctegory re in fct on witing list for screening nd entry into welfre progrmme. These households represent 30% of the popultion in the project re. 17. Less poor but vulnerble households. These households re better endowed thn the previous ctegory in terms of physicl ssets (5-10 h of rinfed lnd or 1-2 h of irrigted plots nd up to 10 hed of sheep) nd humn resources (severl persons ble to work). Given the smll size of their plots nd herds, griculturl work is not time-consuming nd is usully left to women, while men seek sesonl employment loclly or by migrting to urbn centres. Income derived from off-frm ctivities is mostly invested in subsistence nd schooling; ny residul mounts re invested in frming (purchse of inputs, feed for nimls, etc.). Frm production enbles these households to be food self-sufficient to certin degree. Any extr income from this source is spent on schooling, household improvements, mrrige nd the repyment of informl credit. It is worth mentioning tht forestry products provide sizeble dditionl income for women nd youth. In the cse of households with irrigted lnd, their limited finncil cpcity implies limited productivity, nd irrigtion griculture rther thn being source of income improvement constitutes finncil burden. These households represent 50% of the popultion in the project re. 18. Households in stble sitution. These households hve lrger physicl ssets, up to 20 h in rinfed res or 3-4 h in irrigted schemes, in ddition to lrger herds. They lso rely on off-frm income tht is derived from more secure, better-pying jobs, such s the civil service or trde. They prctice more mrket-oriented form of griculture nd, overll, they disply more efficient resource use (nmely, wter for irrigted griculture) nd higher productivity. They re better integrted into mrket chnnels nd hve esier ccess to credit nd subsidized investments. In order to counter the effect of climtic nd mrket price vgries, they mintin creful blnce between crop nd livestock production. Returns from griculture re usully invested in schooling, housing improvements nd herd build-up. The heds of these households lso perform number of politicl nd socil functions (prty representtive in the district, leder of frmer orgniztions, etc.). In ll, these households constitute 20% of the locl popultion in the project re. 19. Trgeting under the project will build on economic complementrities in Silin to stimulte locl inititives nd promote growth in the locl economy. Project ctivities re therefore tilored to locl livelihoods nd to building the cpcity of the poor to prticipte in development. The first group (poorer households) is likely to benefit from the employment support ctivities proposed under the project, n increse in griculturl wge lbour ctivities s result of higher productivity mong smllholder households nd better income opportunities derived from the improved mngement of forestry resources. The second nd third groups (less poor but vulnerble households nd households 5

13 in stble sitution) re likely to benefit from project interventions in the productive sector, notbly lnd development nd griculturl dvisory services. All groups re expected to benefit from improved infrstructure. 20. Prticiption by poor communities nd households will be promoted by focusing on poorer districts nd using community-bsed poverty nlysis nd trgeting to llocte project resources to eligible households. The district selection criteri re: the prevlence of smllholder griculture nd of households enrolled or witing to be enrolled in the socil welfre progrmme, high to moderte rtes of erosion, more substntil forested res, the presence of ntionl development progrmmes nd the secondry enrolment rte for girls. These dt re vilble on district-by-district bsis nd should enble locl stkeholders to develop n pproprite sequence for entry of the 54 districts into the project. Selected districts will lso need to strike blnce between res of project consolidtion nd extension. Within communities, household trgeting will be bsed on poverty nlysis nd on eligibility criteri for vrious project services. In order to promote women s ccess to business dvisory services, 40% quot is proposed for the number of women enrolled in voctionl trining progrmmes or receiving technicl bckstopping in enterprise mngement. B. Objectives nd Scope 21. The project ims to improve, in sustinble mnner, the incomes nd living conditions of the rurl popultion in Silin. Its objectives re to: (i) engge communities in locl development process cpble of ctlysing their inititive nd investments in griculture nd soil nd wter conservtion; (ii) diversify nd increse employment nd investment opportunities in rurl res for both women nd youth nd contribute to the development of sustinble economic linkges; (iii) develop the institutionl cpcities of the Regionl Commission for Agriculturl Development (CRDA) in dopting n integrted, prticiptory, equitble nd gender-sensitive pproch to locl development; nd (iv) ensure tht regionl stkeholders nd ntionl decision-mkers dopt the principles of sustinble lnd mngement. C. Components 22. The project is structured into four components: (i) integrted locl development; (ii) support for enterprises nd investments; (iii) institutionl strengthening; nd (iv) sustinble lnd mngement. 23. Integrted locl development. Under this component, the project will support communities in undertking prticiptory plnning process tht will enble them to identify priority inititives to improve locl livelihoods nd in finncing those investments tht fll within the objective of incresing the dded vlue in griculturl production nd the genertion of employment opportunities in the on-frm nd off-frm sectors. District development committees (DDCs) representing colition of stkeholders will be estblished to orgnize the community consulttion, the prticiptory dignosis nd plnning. The DDCs will include representtives of locl government, existing community-bsed orgniztions nd elected representtives of key socio-economic groups such s frmers in rinfed res, women nd youth. A result of the prticiptory process is to be the formultion of locl development plns tht cn then be trnslted into nnul progrmmes, finnced by the project nd supervised by the DDCs nd the project. In order to ensure synergy mong these inititives nd regulr government progrmmes, the locl development plns nd nnul progrmmes t the district level will be vetted t the higher dministrtive levels in the loclity nd then in the governorte. 24. Locl development inititives eligible for funding under the project include rurl feeder rods, potble wter projects, soil nd wter conservtion, the rehbilittion nd construction of smll-scle irrigtion schemes, griculturl dvisory services, rnge nd forestry mngement, horticulture nd pplied reserch. The list is not exhustive nd cn be expnded to include new ctivities tht fll 6

14 within the mndte of the gencies implementing the project, i.e. CRDA, BRETI nd ODNO, nd re ligned with the project objectives. 25. The DDCs will receive support in developing trnsprent nd equitble criteri for screening nd retining locl inititives to ensure fesibility, cost efficiency nd outrech to the poor nd to women. They will lso be responsible for semi-nnul monitoring of plnning. A cpcity-building progrmme is envisged for the DDCs nd will include principles of prticiptory development nd gender nlysis, in the context of locl development nd sustinble lnd mngement. 26. Support for enterprises nd investments. This component ims to improve the ccess of young women nd men to employment opportunities through the promotion of microenterprise nd smll nd medium-sized businesses nd the mobiliztion of privte investment. Activities under this component will include: (i) technicl ssistnce in ccounting, business mngement nd mrket nlysis for estblished businesses to improve their productivity nd economic vibility; (ii) technicl ssistnce in the cretion of new businesses, including fesibility studies, voctionl trining nd better ccess to credit; (iii) mrketing ctivities to promote the governorte mong ntionl nd foreign investors; (iv) mrket studies for selected commodity chins; nd (v) the resumption of hndicrft production nd the estblishment of smll business centres to ensure ccessibility, visibility to potentil clients nd linkges with locl or ntionl mrkets. An nlysis of supply nd demnd in Silin shows tht there re opportunities for the smllholder nd entrepreneuril sector to grow by investing in griculture (phytosnitry services nd input distribution, s well s gro-processing). There re lso opportunities for rnge of other enterprises, prticulrly in rw mterils (mrble, construction mterils, etc.). Activities relting to enterprise development nd employment cretion will be mnged by BRETI, while promotionl ctivities trgeting privte investors will be undertken by ODNO. 27. Institutionl strengthening. This component ims to ssist the led implementing gency (CRDA) in shifting from supply-driven nd sectorl mode of intervention to demnd-driven nd integrted opertionl modlity. In order to chieve this, the project will support cpcity-building t CRDA, with equipment to fcilitte mobility, technicl personnel in the res of civil works nd erosion control to mnge high demnd in these res, trining, nd the cretion of project mngement unit. The trining will be on prticiptory, integrted nd gender-sensitive plnning, progrmming methods nd sustinble lnd mngement prctices. The project mngement unit will be estblished within CRDA ccording to current legisltion nd will support CRDA in developing the pproprite mechnisms to pln nd implement n integrted response to the needs nd potentilities of the griculturl sector. 28. Sustinble lnd mngement. This component ims to strengthen cross-sectorl coordintion mong ll concerned stkeholders t the locl nd regionl levels so s to ensure tht sustinble lnd mngement is minstremed into their development plns. It will provide technicl ssistnce for the minstreming of the concept of sustinble lnd mngement in the development nd implementtion of the Eleventh Regionl Development Pln ( ). It will lso support the development of comprehensive decision-mking nd monitoring system with regrd to sustinble lnd mngement, s well s n effective knowledge-shring mechnism mong communities, governortes nd the Government on best prctices for the estblishment of public-privte prtnership to led investments in soil nd wter conservtion nd the mintennce of these investments. D. Costs nd Finncing 29. The totl durtion of the project is estimted t six yers. The totl cost is estimted t USD 38.9 million, including physicl nd price contingencies. Investment costs represent 94% of the totl costs. The project costs by component re summrized in Tble 1, nd the finncing pln is presented in Tble 2. The project will be finnced by n IFAD lon of USD 15.5 million. The IFAD 7

15 lon will support 42% of the costs of the integrted locl development component, 56% of the costs of the support for enterprises nd investments component nd 24% of the institutionl strengthening component. The Government hs secured first phse of cofinncing from the Globl Environment Fcility (GEF) to finlize the design of the ctivities to be finnced by the GEF s per the GEF s requirements; upon pprovl of the second phse, the totl mount of this cofinncing will be USD 5 million. The totl Government contribution mounts to USD 16.2 million (42% of the totl costs), comprising USD 6.7 million in the form of budgetry resources specificlly llocted to the project nd covering ll operting costs nd prt of the investments, nd dditionl contributions from other existing ntionl progrmmes mounting to USD 9.5 million; the bove-mentioned counterprt contribution includes duties nd txes element of USD 5.5 million. The contribution of beneficiries, in kind nd in csh, is estimted t USD 2.2 million, equivlent to 6% of the totl project costs. TABLE 1: SUMMARY OF PROJECT COSTS (USD million) % of Foreign Exchnge % of Bse Costs Components Locl Foreign Totl A. Integrted locl development B. Support for enterprises nd investments C. Institutionl strengthening D. Sustinble lnd mngement Totl bse costs Physicl contingencies Price contingencies Totl project costs Discrepncies in totls re due to rounding. 8

16 TABLE 2: FINANCING PLAN (USD 000) 9 IFAD Globl Environment Fcility Nturl Resource nd Environmentl Mngement Progrmme Government Other Ntionl Support Funds Budget Beneficiries Totl Components Amt. % Amt. % Amt. % Amt. % Amt. % Amt. % Amt. % Foreign Exchnge A. Integrted locl development B. Support for enterprises nd investments Locl (Excl. Txes) Duties nd Txes C. Institutionl strengthening D. Sustinble lnd mngement Totl Discrepncies in totls re due to rounding.

17 E. Procurement, Disbursement, Accounts nd Audit 30. Procurement. Contrcts for goods nd vehicles estimted to cost TND (USD equivlent) or more, nd for civil works estimted to cost TND (USD equivlent) or more, will be subject to interntionl competitive bidding. Contrcts for less thn TND (USD equivlent) for goods nd vehicles, or less thn TND (USD equivlent) for civil works but more thn TND (USD equivlent), will be wrded through locl competitive bidding ccording to procedures stisfctory to IFAD. Contrcts vlued t TND (USD equivlent) or less will be wrded on the bsis of three quottions, with exception of civil work contrcts with smll locl contrctors, which cn be wrded through locl shopping up to TND (USD equivlent). Contrcts for consulting services nd with NGOs will be subject to locl competitive bidding ccording to procedures cceptble to IFAD. Contrcts with the public gs nd electricity compny will be wrded through direct contrcting in ccordnce with procedures cceptble to IFAD. Nturl resource mngement works with community prticiption my be wrded through simplified procurement procedures cceptble to IFAD. 31. Disbursement. Withdrwls from the lon ccount will be mde upon presenttion of full supporting documenttion cceptble to IFAD or ginst certified sttements of expenditure in respect of such expenditures nd mounts s IFAD my designte from time to time. The documenttion justifying expenditures mde ginst sttements of expenditure will be retined by CRDA nd mde vilble for inspection by supervision missions nd externl uditors. 32. Specil ccount. The Government will open specil ccount in foreign exchnge in the nme of the project with the Centrl Bnk of Tunisi. Upon lon effectiveness, IFAD will mke n initil deposit of up to EUR 1.5 million, corresponding to the first six months of project expenditure. The specil ccount will be used to finnce IFAD s shre of eligible expenditures nd will be replenished in ccordnce with estblished IFAD procedures. 33. Accounts nd udit. CRDA nd other implementing gencies will mintin seprte project ccounts nd finncil records in respect of project ctivities. The project mngement unit will ensure tht such ccounts nd records re mintined in ccordnce with government prctices nd procedures cceptble to IFAD. Consolidted project ccounts, to be prepred by the project mngement unit, will be submitted to the Ministry of Agriculture nd Wter Resources. Project ccounts will be udited yerly by n uditor cceptble to IFAD. The udited ccounts nd relted udit reports, including sttement on the dequcy of the executing gency s ccounting systems nd internl controls nd seprte opinions in respect of the sttements of expenditure nd the opertion of the specil ccount, will be submitted to IFAD not lter thn six months fter the end of ech finncil yer. F. Orgniztion nd Mngement 34. Orgniztionl setting. Project mngement responsibilities will be crried out by locl plnning nd coordintion unit. This unit will be estblished s division within CRDA nd report to the director of CRDA; it will be stffed through redeployment or recruitment ccording to the existing regultion cceptble to the Fund. The unit will include the coordintor, the monitoring nd evlution unit, the progrmming unit responsible for the prticiptory nd community pproch, nd the finncil nd dministrtive unit. Overll supervision will be vested in ntionl coordintion committee led by the Ministry of Agriculture nd Wter Resources. The committee will be composed of representtives of the Ministry of Development nd Interntionl Coopertion, the Ministry of Finnce, the Centrl Bnk of Tunisi, the Women s Development Office in the Ministry of Agriculture nd Wter Resources, CRDA, the Ntionl Agency for Employment nd Independent Work, ODNO nd DDC. The Generl Directorte of Finncing, Investments nd Professionl 10

18 Orgniztions of the Ministry of Agriculture nd Wter Resources will ct s rpporteur of the committee. Supervision t the regionl level will be ensured through the existing Regionl Council for Development, which groups ll government gencies nd the min professionl orgniztions in the governorte. 35. Implementtion mechnisms. The DDCs will be responsible for fcilitting the prticiptory process t the community level, ensuring equitble nd gender-sensitive outrech in the ctivities of locl development plns nd overseeing the implementtion of these ctivities. CRDA will be providing, on request, the technicl expertise needed to screen nd vlidte proposed investments nd oversee their implementtion. To the extent possible, the productive nd infrstructure ctivities in the locl development plns will be contrcted out to locl smll-scle entrepreneurs, NGOs nd privte firms. BRETI will extend its regulr employment nd enterprise support services to the project res. ODNO will be responsible for the vrious themtic studies nd promotionl events. 36. Monitoring nd evlution. The project will dopt result- nd impct-oriented monitoring tht reports regulrly on IFAD s Results nd Impct Mngement System indictors. The min fetures of the monitoring nd evlution system re: (i) its comptibility with the dt collection systems in use in the implementing gencies; (ii) the decentrliztion of dt collection nd nlysis to the DDCs; nd (iii) the fcilittion of lerning. The recurrent delys in crrying out the bseline studies hve prompted the Government to commission such study s prt of the design process. The report is scheduled to be issued in November Gender minstreming. The project ddresses inequitble ccess of women to opportunities in the lbour mrket, s well s the existence of gps in the outrech of development gencies to women. This is specificlly the cse in the insufficient ttention tht griculturl institutions provide to women s economic role in frm mngement. Some services, like BRETI, hve good outrech to urbn women, but re not sufficiently ctive in rurl res. The project ims to remedy these gps by supporting the decentrliztion of dvisory services in griculturl nd enterprise development, the systemtic trgeting of fmily lbour by women in griculturl extension ctivities, nd quot-bsed trgeting to encourge BRETI to mobilize needed mesures to rech women. The implementing gencies will receive gender trining s prt of their overll cpcity-building. At lest three women representtives will be ppointed to ech DDC, nd ll DDC members will receive gender trining. G. Economic Justifiction 38. At full project development nd on the bsis of the doption of improved production nd mngement techniques, it is estimted tht revenues will increse by 60%. Enterprise development is expected to generte totl of dditionl jobs nd the strengthening of t lest 800 enterprises. Benefits hve been quntified, nd n internl rte of return clculted t 15%. The sensitivity nlysis shows tht the internl rte of return is still robust t 37% increse in costs or 27% decrese in benefits reltive to n opportunity cost of 10%. Qulittive benefits will include incresed community cpbilities nd socil cpitl nd better recognition of women s economic nd socil role. H. Risks 39. The prticiptory nd locl development pproch tht underpins the project is exposed to number of risks. The min risk is the difficulty of reconciling the supply-driven plnning of investments tht previls t CRDA nd other public entities with the demnd-driven implementtion of investment ctivities promoted by the project. The pln is to overcome these constrints by supporting widespred trining mong the stff of the principl implementing gencies on prticiptory nd gender-sensitive development, ensuring regulr communiction, monitoring nd 11

19 feedbck between communities nd technicl deprtments nd ensuring good linkges between community plnning nd wider locl plnning nd development t the loclity nd governorte levels. I. Environmentl Impct 40. The project hs been clssified in Ctegory B. Given the incrementl benefits of the Globl Environment Fcility finncing, the project will be ble to ctlyse dditionl investments from locl communities in soil nd erosion control so s to reverse the current trend of relince on the Government for such investments. This would lso enble the emergence of public-privte prtnership to promote nd enforce sustinble lnd mngement nd the conservtion of ecosystem biodiversity. J. Innovtive Fetures 41. This project presents the following novel spects vis-à-vis previous IFAD-finnced opertions in Tunisi: (i) ssistnce for the regionl griculturl dministrtion nd locl government uthorities in dopting n operting model tht is responsive to demnd-driven pproch nd tht is well nchored in prticiptory development pproches; (ii) better response to the employment concerns of youth; (iii) greter ttention to improving the qulity nd ccessibility of existing business dvisory services in support of employment; nd (iv) shift from public to privte delivery of extension services to smllholders. PART III LEGAL INSTRUMENTS AND AUTHORITY 42. A lon greement between the Republic of Tunisi nd IFAD will constitute the legl instrument for extending the proposed lon to the borrower. A summry of the importnt supplementry ssurnces included in the negotited lon greement is ttched s n nnex. 43. The Republic of Tunisi is empowered under its lws to borrow from IFAD. 44. I m stisfied tht the proposed lon will comply with the Agreement Estblishing IFAD. PART IV RECOMMENDATION 45. I recommend tht the Executive Bord pprove the proposed lon in terms of the following resolution: RESOLVED: tht the Fund shll mke lon to the Republic of Tunisi in vrious currencies in n mount equivlent to ten million nine hundred thousnd specil drwing rights (SDR ) to mture on or prior to 15 October 2023, nd to ber n interest rte equl to the reference interest rte per nnum s determined by the Fund nnully, nd to be upon such terms nd conditions s shll be substntilly in ccordnce with the terms nd conditions presented to the Executive Bord in this Report nd Recommendtion of the President. Lennrt Båge President 12

20 ANNEX SUMMARY OF IMPORTANT SUPPLEMENTARY ASSURANCES INCLUDED IN THE NEGOTIATED LOAN AGREEMENT (Negotitions concluded on 7 December 2005) 1. The Government of Tunisi (the Government ) will include ech yer in the ntionl budget the mount of the counterprt contribution for the project in ccordnce with its pplicble procedures nd the provisions of the nnul workplns nd budgets. The counterprt contribution represents the mount for which the Government is responsible in respect of ll duties, levies nd txes on goods nd services nd its contribution to the finncing of the project. The project will be included in the Eleventh Pln nd in the ntionl budget. The Government will mke its counterprt funds vilble to the Ministry of Agriculture nd Wter Resources (the led project gency ) during the project implementtion period. 2. The monitoring nd evlution (M&E) unit within the locl plnning nd coordintion unit (LPCU) will be responsible for designing, implementing, coordinting nd fine-tuning the M&E system. The system will entil: () (b) (c) (d) implementtion of bottom-up M&E rrngement in the prticiptory development plns nd mngement contrcts (contrts progrmme), bsed on the informtion produced by the DDCs with the id of support tems set up under the project ccording to models designed under the responsibility of the LPCU; periodic compiltion of ctivity reports prepred on the bsis of models designed under the responsibility of the LPCU by the vrious implementtion prtners; the monitoring of socio-economic indictors by conducting bseline survey nd conducting ech yer n in-depth survey on smll number of reference frms; the orgniztion of periodic self-evlution nd coordintion sessions under the project, nd mid-term project review in yer 3 nd completion report; (e) the orgniztion of mid-term nd completion evlution in project yers 3 nd 5 respectively. The mid-term evlution will mke it possible to identify the prospects for institutionliztion of the plnning nd progrmming function within the CRDA, institutionliztion of the DDCs, nd community prticiption in the finncing of the griculturl council nd the business council; nd (f) the project s M&E system will mke it possible to monitor nd evlute project impct in ccordnce with the bsic principles of IFAD s Results nd Impct Mngement System (RIMS). 3. No discrimintion of ny kind will be permitted in the recruitment or redeployment of project personnel, in ccordnce with pplicble legisltion in force in Tunisi. This notwithstnding, the Government will undertke to give preference ll other things being equl to women cndidtes, especilly for the technicl posts to be filled under the project. The led project gency nd the project implementing prties gree to tke ll necessry mesures to enhnce the scope of project ctivities tht benefit rurl women by mking use of series of instruments such s qulifiction nd profile of personnel, quots, nd preferred sttus for economic or griculturl commodity chins in which women ply leding role. 13

21 ANNEX 4. The Government will insure project personnel ginst helth nd ccident risks in ccordnce with the pplicble regultions in force in Tunisi. 5. The led project gency will dopt n ccounting system tht clerly identifies the opertions inherent in the project. 6. As prt of mintining sound environmentl prctices, the Government will ensure tht pproprite pest mngement prctices re observed under the project. To tht end, it will ensure tht pesticides procured under the progrmme do not include ny pesticide either proscribed by the Interntionl Code of Conduct on the Distribution nd Use of Pesticides of the Food nd Agriculture Orgniztion of the United Ntions, s mended from time to time, or listed in Tbles 1 (Extremely Hzrdous) nd 2 (Highly Hzrdous) of the World Helth Orgniztion s Recommended Clssifiction of Pesticides by Hzrd nd Guidelines to Clssifiction , s mended from time to time. 7. The following re specified s conditions precedent to effectiveness: () (b) (c) (d) fvourble legl opinion, issued by the competent Tunisin uthority, cceptble in form nd substnce, hs been forwrded by the Government to IFAD; the LPCU hs been creted within the Silin CRDA; the key LPCU personnel i.e. the LPCU coordintor, the M&E officer, the officer responsible for the plnning/progrmming unit nd the officer responsible for the implementtion support unit hve been recruited or redeployed in ccordnce with pplicble procedures in force in the Tunisin civil service deemed cceptble by IFAD; nd the frmework prtnership greement between the led project gency, the Ntionl Agency for Employment nd Self-Employment, nd the ODNO hs been signed. 14