Public Disclosure Authorized. Public Disclosure Authorized. Public Disclosure Authorized. Public Disclosure Authorized. Report No.

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name Region Africa Sector Project ID Borrower(s) Implementing Agency Environment Category Madagascar-Regional Social Fund Regional Office Other Social Sector MGPE55166 Government of Madagascar Fonds d'intervention Pour le Developpement Date PID Prepared December 13, 1999 Projected Appraisal Date April 2000 Projected Board Date September Country and Sector Background C Report No. PID8637 Poverty has become entrenched in Madagascar's social fabric. In 1993, seven out of 10 Malagasy were considered to be poor (i.e. they could not purchase a minimum 2100 calorie food basket and essential non-food items); six out of 10 are extremely poor (i.e. they cannot even purchase the food basket). Based on government estimates in 1997, it appears that only 3 out of 10 Malagasy are now considered to be extremely poor. Government data also indicates that the Gini coefficient has increased from 44t in 1993 to 47T in Over 85 percent of the poor live in rural areas, where poverty is also deeper. About 18 percent of poor households are headed by women, engaged mostly in farming. Poor households have around 5 members, compared to 4 for non-poor households, and are more likely to be: illiterate, not send children to school, have malnourished children, use wood as a main source of fuel, and rely on lakes, ponds, rivers for drinking water. It is clear that rural poverty, which has as its main cause the limited productivity and competitiveness of the agricultural sector, has been exacerbated by the lack of productive and social infrastructure, and an over centralized decision-making process for the allocation of resources. The Government's central objective is to steadily reduce the incidence of poverty by half from about 70 percent in 1996 to 35 percent in This target can only be realized by achieving very ambitious economic growth rates, while reversing environmental degradation and improving the assets of the poor. Pro-poor growth will call for inter-alia: improved sector policies promoting rural development, more efficient public investment and restructuring of public expenditures, and encouragement of local initiatives. 2. Objectives The Project Development Objectives are similar to those of the on-going Social Fund III Project (Cr MAG) and will include: (i) improved access of the rural population to social and economic infrastructure; (2) empowerment of poor rural communities and/or communes to identify and organize sub-projects, manage funds, and implement sub-projects responsive to

2 community needs in order to achieve decentralized social and economic development; (3) temporary and permanent employment creation in rural areas; (4) creation and/or improved capacity of private sector: NGOs, small local consulting firms and contractors, artisans and skilled labor. 3. Rationale for Bank's Involvement The Bank has acquired a significant amount of knowledge and experience of Social Funds in more than 30 countries. The Bank has fined tuned most of the social fund documentation such as manuals of procedures, and simplified procurement and disbursement procedures. Finally, the Bank benefited from the various ideas and issues raised by the local team during the implementation of FID II and FID III. In addition, the Bank will provide experiences from other countries in using community based development as a strategy to contribute to poverty alleviation and creation and support to local governments. Even though there are several donors in Madagascar contributing to poverty alleviation, funds are not available to finance increasing needs of rural populations. The Bank's contribution seems to have a very big impact since it is by far the largest donor in the sector. 4. Description 1. Community-based infrastructure sub-projects implemented by the communities and communes themselves (including social mobilization, small scale infrastructure development, and improved service delivery activities). 2. Communal infrastructure sub-projects implemented by FID through delegated contract management but with the active participation of communities and communes. Larger infrastructure projects will be financed using appropriate tendering process and contracts awarded to small enterprises to undertake works. 3. Capacity building activities for communities/associations and communes, and the private sector (NGOs, small contractors, consultants, artisans, and skilled labor). 4. FID Investment and Operating Costs, including technical and financial audits, environmental impact assessments, beneficiary assessments and impact studies, and training and capacity building for FID staff. 5. Financing Total ( US$m) Government 0 IBRD IDA 75 Total Project Cost Implementation Project Coordination. Project coordination will be the primary responsibility of the Director General of FID in collaboration with FID's Regional Directors (1 in each province). FID continues to make big efforts - 2 -

3 to abide by the sectoral policies which are in place by the Ministries (Education, Health, Agriculture, Energy and Mines, and Civil works). In addition, for the Ministries of Health and Education, FID has signed formal agreements (Protocoles d'accord) specifying the rights and responsibilities of each party. For example, as part of the agreement FID asks the Ministry of Health to ensure that health workers have actually been transferred to the health facility to be rehabilitated. Project Oversight. The project will continue to be implemented by FID which is a nonprofit association for public service (une association a but nonlucratif reconnue d'utilite public). FID operates in accordance with the provisions of its Articles of Agreement, by-laws, and Manual of Procedures and the Framework Agreement (Convention) between FID and the Government. The FID association operates under a six person board of Directors. The Board includes one representative each from the Prime Minister's Office, the donor community, NGOs, and socio-professional organizations, in addition to two directors elected by members of the "Association FID." Accounting, financial reporting and auditing arrangements. At the central level, a Financial and Administrative Director oversees FID's accounts, financial reporting and auditing arrangements (which are also defined clearly in FID's Manual of Procedures). Each of FID's 6 regional directorates has an accountant who is responsible for the respective regional accounts which are then transmitted to the center. FID has a computerized accounting/financial management system and all data are now transmitted electronically. Monitoring and Evaluation Arrangements. The SIFID (Systbme d'information FID) which is FID's monitoring and evaluation system has become a powerful tool for good follow-up of performance and impact evaluation of FID. The system includes the following modules: (i) management of beneficiary requests from the time of receipt of the request until the completion of works; (ii) management of follow-up documents related to sub-projects described in the manual of procedures; (iii) management of the annual work program; (iv) management of contracts with local consulting firms, SMEs, and NGOs; (v) preparation of the monthly reports; (vi) quarterly reports required for LACI; and (vii) performance indicators (outcome as well as impact). 7. Sustainability Several actions have already been taken to ensure the sustainability of FID's sub-projects. They include: (i) ensuring a high degree of beneficiary ownership of sub-projects through the involvement of beneficiaries in all stages of the project cycle; (ii) ensuring that beneficiaries are fully involved in the critical selection of the sub-project phase so that they are completely committed to the sub-project to be rehabilitated or built and to its operation and maintenance; (iii) ensuring that beneficiary contributions are actually made--20% for community-based sub-projects and 10% for "delegated contract management" sub-projects (or 5% for feeder roads subprojects); (iv) ensuring that financial provisions have been made to operate and maintain the sub-project--either through the commune, the community, a user association or a combination of those; (v) ensuring that beneficiaries are trained; (vi) ensuring that FID's activities are continuously linked to sectoral development strategies; (vii) using prototype architectural drawings for consistency; and (xiii) ensuring that line ministries are honoring their agreements and provide staffing, equipment, and recurrent expenditures for the sub-project by the time of completion. -3-

4 8. Lessons learned from past operations in the country/sector The project design incorporates lessons learned from experiences with Social Funds throughout the world, as well as from the IDA's experiences with FID I and FID II and the Implementation Completion Report for the Food Security and Nutrition Project (Cr.2474-MAG), of which FID was a component. First and foremost, activities financed through Social Funds should be completely consistent with sectoral development strategies. The project should place due emphasis on the institutional characteristics which are most critical for the success of Social Investment Funds (SIFs) which include: (i) operational efficiency; (ii) transparency and accountability through clearly defined guidelines, independent financial and technical audits, and an effective management information system; (iii) clear and simple procurement and disbursement procedures; (iv) competitive salaries to enable the recruitment/retainment of highly qualified staff; (v) proper targeting mechanisms; (vi) integration of the environmental dimension into sub-projects; and (vii) better attention to monitoring and evaluation mechanisms including beneficiary assessments. Sub-project sustainability requires a participatory approach to ensure full consultation with communes/communities on their needs and priorities, ensure that their contributions are made, and their continuous involvement throughout the project cycle so that they are committed to sub-project maintenance. In addition, concerned line ministries at both the central and provincial levels need to be involved. Local governments will have to begin playing an increasingly important role in prioritizing sub-projects and providing financial resources for sub-projects. The project builds on five years of experience of the two on-going projects (FID II and FID III), and from FID I (which is now closed), experiences from other IDA financed Social funds in Africa and in other parts of the world. Lessons learned from FID (and other on-going projects in Madagascar) show that in order to be successful a social fund needs: (a) political support from high level Government officials who do not interfere with the project's day-to-day management; (b) consensus as to the goals and integrity of the Social Fund: (c) qualified and decently paid staff; (d) the existence of well defined transparent management and accounting procedures; and (e) regular and frequent financial, managerial, and technical audits; (f) ensuring to the largest extent possible community involvement and financial participation; (g) complementarity with sectoral ministry strategies; and (h) working directly with communes. The mid-term review for FID II concluded that FID is now a key rural development project in Madagascar, and is a valuable complement to the health, education, micro-finance, nutrition, transport, agriculture and other operations. FID is clearly perceived as the mechanism which has actually come through and supported rural communes/communities by financing close to 1,800 community development sub-projects nationwide. As a result, the assumption is that this project will maintain the momentum created by FID

5 In view of the on-going decentralization process which has given financial and managerial autonomy to the communes, FID is in its final phase of piloting sub-projects which are supporting rural communities and communes in identifying and organizing sub-projects, managing funds, and implementing sub-projects responsive to their needs. FID is channeling these funds directly to the communes/communities who in turn take on the leadership role and define, plan, initiate and follow-up on the bidding process, supervise construction with a final objective to ensuring proper operation and maintenance of their sub-projects. This approach is giving communities full responsibility as decision makers and operators in the community development process. Beneficiary contributions have been increased to a minimum of 20 percent for community-based sub-projects and 10 percent for "delegated contract management" sub-projects, but remain at 5 percent in the case of feeder roads sub-projects. It is anticipated that by the time of the midterm review for this project in 2003, at least 50 percent of sub-projects will be community-based. The last round of beneficiary assessments and impact evaluations for 60 subprojects were completed in August These evaluations clearly show that FID has played a key role in rural development of Madagascar. Regarding primary schools, the evaluations show indicators which have improved as a result of the new construction, such as the redynamizing of school life, improved working conditions for teachers, increased enrollment rates, decreases in the repetition of grades, and parents becoming much more interested in schooling related matters. For health, the key impacts were the increased attendance of health posts and maternities. In most cases, prior to this rehabilitation, health posts and maternities were basically closed. In general, for social infrastructure type sub-projects, poorer beneficiaries showed an increased willingness to access these services. However, the downfall of these types of sub-projects was especially in the case of health centers, where there was a noticeable absence of health workers. Small irrigation projects in general showed a positive rate of return. Cultivated surfaces increased, which in turn had a positive impact on crop output and commercialized rice production, and as a result farmers have had to hire salaried workers. Markets have not shown the positive results anticipated. In many cases, there have been disagreements between sales persons and the communal staff on where to build the market and, therefore, utilization rates are low and new markets have not been profitable. Finally, communes have not been able to capitalize on the potential incomes which could be generated from markets. The rehabilitation and/or construction of feeder roads has had positive impacts both on the qualitative and quantitative sides, including: (i) increased revenues for transporters, farmers selling agricultural products and collectors; (ii) a substantial increase in the number of persons and the volume of goods transported and the re-establishment or strengthening of the "development center" role of the regions served by the roads; (iii) increased fiscal receipts of communes from agricultural products; and (iv) and increased access to administrative, social and economic services. The downfall in the case of the roads was the limited funds available for feeder road maintenance. This issue is being addressed as part of the Transport Sector Project and the implications of the road maintenance fund on feeder roads. -5-

6 9. Program of Targeted Intervention (PTI) Y 10. Environment Aspects (including any public consultation) Issues 11. Contact Points: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Task Manager Eileen Murray The World Bank 1818 H Street, NW Washington D.C Telephone: (202) Fax: (202) Note: This is information on an involving project. Certain components may not be necessarily included in the final project. Processed by the InfoShop week ending January 28,